--------------------------------------------------------------------------------
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
by and between
LASALLE BANK NATIONAL ASSOCIATION, EAST WEST MOTOR EXPRESS,
INC.
and
SMITHWAY MOTOR XPRESS, INC.
Dated As Of Dec 28th, 2001
--------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
1. DEFINITIONS.... ..........................................................2
2. LOANS.....................................................................9
(a) Revolving Loans.......................................................9
(b) Term Loan A..........................................................10
(c) Capital Expenditure Loans............................................11
(d) Repayments...........................................................11
(e) Notes................................................................12
3. LETTERS OF CREDIT........................................................13
(a) General Terms........................................................13
(b) Requests for Letters of Credit.......................................13
(c) Obligations Absolute.................................................13
(d) Expiration Dates of Letters of Credit................................14
4. INTEREST, FEES AND CHARGES...............................................14
(a) Interest Rate........................................................14
(b) Fees And Charges.....................................................14
(c) Maximum Interest.....................................................15
5. COLLATERAL...............................................................16
(a) Grant of Security Interest to Lender.................................16
(b) Other Security.......................................................16
(c) Possessory Collateral................................................17
(d) Electronic Chattel Paper.............................................17
6. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS THEREIN..17
7. POSSESSION OF COLLATERAL AND RELATED MATTERS.............................18
8. COLLECTIONS..............................................................18
9. COLLATERAL, AVAILABILITY AND FINANCIAL REPORTS AND SCHEDULES.............20
(a) Weekly Reports.......................................................20
(b) Monthly Reports......................................................21
(c) Financial Statements.................................................21
(d) Annual Projections...................................................21
(e) Explanation of Budgets and Projections...............................21
(f) Public Reporting.....................................................22
(g) Other Information....................................................22
10.TERMINATION; AUTOMATIC RENEWAL...........................................22
11.REPRESENTATIONS AND WARRANTIES...........................................23
(a) Financial Statements and Other Information...........................23
(b) Locations............................................................23
(c) Loans by Borrower....................................................24
-i-
(d) Accounts.............................................................24
(e) Liens................................................................24
(f) Organization, Authority and No Conflict..............................24
(g) Litigation...........................................................25
(h) Compliance with Laws and Maintenance of Permits......................25
(i) Affiliate Transactions...............................................25
(j) Names and Trade Names................................................25
(k) Equipment............................................................26
(l) Enforceability.......................................................26
(m) Solvency.............................................................26
(n) Indebtedness.........................................................26
(o) Margin Security and Use of Proceeds..................................26
(p) Parent, Subsidiaries and Affiliates..................................27
(q) No Defaults..........................................................27
(r) Employee Matters.....................................................27
(s) Intellectual Property................................................27
(t) Environmental Matters................................................27
(u) ERISA Matters........................................................28
12.AFFIRMATIVE COVENANTS....................................................28
(a) Maintenance of Records...............................................28
(b) Notices..............................................................28
(c) Compliance with Laws and Maintenance of Permits......................30
13.NEGATIVE COVENANTS.......................................................33
▇▇.▇▇▇▇▇▇▇▇▇ COVENANTS......................................................36
15.DEFAULT..................................................................36
16.REMEDIES UPON AN EVENT OF DEFAULT........................................39
17.CONDITIONS PRECEDENT.....................................................40
19.INDEMNIFICATION..........................................................42
20.NOTICE...................................................................43
21.CHOICE OF GOVERNING LAW; CONSTRUCTION; FORUM SELECTION...................43
22.MODIFICATION AND BENEFIT OF AGREEMENT....................................44
23.HEADINGS OF SUBDIVISIONS.................................................45
24.POWER OF ATTORNEY........................................................45
25.CONFIDENTIALITY..........................................................45
26.COUNTERPARTS.............................................................45
27.ELECTRONIC SUBMISSIONS...................................................45
28.WAIVER OF JURY TRIAL; OTHER WAIVERS......................................46
-ii-
EXHIBIT A -- BUSINESS AND COLLATERAL LOCATIONS
EXHIBIT B -- COMPLIANCE CERTIFICATE
EXHIBIT C -- COMMERCIAL TORT CLAIMS
SCHEDULE 1 - PERMITTED LIENS
SCHEDULE 11(g) - LITIGATION
SCHEDULE 11(i) -- AFFILIATE TRANSACTIONS
SCHEDULE 11(j) -- NAMES & TRADE NAMES
SCHEDULE 11 (n) -- INDEBTEDNESS
SCHEDULE 11 (p) -- PARENT, SUBSIDIARIES AND AFFILIATES
SCHEDULE 17(a) - CLOSING DOCUMENT CHECKLIST
-iii-
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (as amended, modified
or supplemented from time to time, this "Agreement") made this 28th day of
December, 2001 by and between LASALLE BANK NATIONAL ASSOCIATION, a national
banking association ("Lender"), ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇-▇▇▇▇, SMITHWAY MOTOR XPRESS, INC., an Iowa corporation, having its
principal place of business at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
("Smithway Inc."), East West Motor Express, Inc. a South Dakota corporation,
having its principal place of business at ▇▇▇▇ ▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇ ("East West") (Smithway Inc. and East West each a "Borrower" and
collectively the "Borrowers").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Smithway Inc., Smithway Motor Xpress Corp. ("Smithway Corp.") and
Lender are parties to a certain Credit Agreement, dated September 3, 1997 as it
may be amended (the "Original Credit Agreement") and various other agreements;
WHEREAS, Smithway Inc. and Lender are parties to that certain Security
Agreement dated as of October 30, 1998 (the "Original Security Agreement", which
together with the Original Credit Agreement is collectively referred to as the
"Original Agreement");
WHEREAS, Smithway Corp. is a guarantor of the Obligations under and as
defined in the Original Credit Agreement pursuant to that certain Guaranty dated
September 3, 1997 (the "Smithway Corp. Original Guaranty");
WHEREAS, East West East West is a guarantor of the Obligations under and as
defined in the Original Credit Agreement pursuant to that certain Guaranty dated
March 15, 1998 (the "East West Original Guaranty");
WHEREAS, the obligations of East West under the East West Original Guaranty
are secured by a lien on substantially all of its assets pursuant to a Security
Agreement dated as of October 30, 1998 (the "East West Original Security
Agreement");
WHEREAS, SMSD Acquisition Corp., a South Dakota corporation ("SMSD") is a
guarantor of the Obligations under and as defined in the Original Credit
Agreement pursuant to that certain Guaranty dated December 17, 1999 (the "SMSD
Original Guaranty");
WHEREAS, the obligations of SMSD under the SMSD Original Guaranty are
secured by a lien on substantially all of its assets pursuant to a Security
Agreement dated as of December 17, 1999 (the "SMSD Original Security
Agreement");
WHEREAS, Lender is making Loans under and as defined in the Original Credit
Agreement to Smithway Inc. in part, against certain assets of East West;
WHEREAS, Smithway Inc, East West and Smithway Corp. have requested that
Lender extend the terms of the Original Agreement and amend certain terms and
conditions set forth therein and Lender is willing to do so subject to the terms
and conditions set forth in this Agreement;
WHEREAS, Borrowers may, from time to time, request Loans from Lender, and
the parties wish to provide for the terms and conditions upon which such Loans
or other financial accommodations, if made by Lender, shall be made;
NOW, THEREFORE, in consideration of any Loan (including any Loan by renewal
or extension) hereafter made to Borrowers by Lender, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by Borrowers, the parties agree as follows:
1. DEFINITIONS.
"Account", "Account Debtor", "Chattel Paper", "Commercial Tort Claims",
"Deposit Accounts", "Documents", "Electronic Chattel Paper", "Equipment",
"Fixtures", "General Intangibles", "Goods", "Instruments", "Inventory",
"Investment Property", "Letter-of-Credit Right", "Proceeds" and "Tangible
Chattel Paper" shall have the respective meanings assigned to such terms in the
Illinois Uniform Commercial Code, as the same may be in effect from time to
time.
"Affiliate" shall mean any Person (i) which directly or indirectly through
one or more intermediaries controls, is controlled by, or is under common
control with, a Borrower, (ii) which beneficially owns or holds five percent
(5%) or more of the voting control or equity interests of a Borrower, or (iii)
five percent (5%) or more of the voting control or equity interests of which is
beneficially owned or held by a Borrower.
"Business Day" shall mean any day other than a Saturday, a Sunday or any
day that banks in Chicago, Illinois are required or permitted to close.
"Capital Expenditure Loans" shall mean the Loans made pursuant to
subsection 2c hereof.
"Capital Expenditures" shall mean with respect to any period, the aggregate
of all expenditures (whether paid in cash or accrued as liabilities and
-2-
including expenditures for capitalized lease obligations) by the Consolidated
Group during such period that are required by generally accepted accounting
principles, consistently applied, to be included in or reflected by the
property, plant and Equipment or similar fixed asset accounts (or intangible
accounts subject to amortization) on the balance sheet of the Consolidated
Group.
"Collateral" shall mean all of the property of each Borrower described in
Section 5 hereof, together with all other real or personal property of any
Obligor or any other Person now or hereafter pledged to Lender to secure, either
directly or indirectly, repayment of any of the Liabilities.
"Consolidated Group" shall mean Smithway Corp. and its subsidiaries.
"EBITDA" shall mean, with respect to any period, the Consolidated Group's
net income after taxes for such period (excluding any after-tax gains or losses
on the sale of assets and excluding other after-tax extraordinary gains or
losses) plus interest expense (including implicit interest expense on
capitalized leases), income tax expense, depreciation and amortization for such
period, plus or minus any other non-cash charges or gains which have been
subtracted or added in calculating net income after taxes for such period.
"Eligible Account" shall mean an Account owing to a Borrower which is
acceptable to Lender in its sole discretion determined in good faith for lending
purposes (provided that Lender shall give such Borrower written notice of any
eligibility criteria established by Lender and not set forth herein). Without
limiting Lender's discretion, Lender shall, in general, consider an Account to
be an Eligible Account if it meets, and so long as it continues to meet, the
following requirements:
(i) it is genuine and in all respects what it purports to be;
(ii) it is owned by such Borrower, such Borrower has the right to
subject it to a security interest in favor of Lender or assign it to
Lender and it is subject to a first priority perfected security
interest in favor of Lender and to no other claim, lien, security
interest or encumbrance whatsoever, other than Permitted Liens;
(iii) it arises from (A) the performance of services by such
Borrower in the ordinary course of such Borrower's business, and such
services have been fully performed and acknowledged and accepted by
the Account Debtor thereunder; or (B) the sale or lease of Goods by
such Borrower in the ordinary course of such Borrower's business, and
(x) such Goods have been completed in accordance with the Account
Debtor's specifications (if any) and delivered to the Account Debtor,
(y) such Account Debtor has not refused to accept, returned or offered
to return, any of the Goods which are the subject of such Account, and
(z) such Borrower has possession of, or such Borrower has delivered to
Lender (at Lender's request) shipping and delivery receipts evidencing
delivery of such Goods;
-3-
(iv) it is evidenced by an invoice rendered to the Account Debtor
thereunder or with respect to advances at subsection 2(a)(ii) hereof,
is no more than three (3) days prior to the invoicing thereof, is due
and payable within ninety (90) days after the date of the invoice and
does not remain unpaid ninety (90) days past the invoice date thereof;
provided, however, that if more than twenty-five percent (25%) of the
aggregate dollar amount of invoices owing by a particular Account
Debtor remain unpaid ninety (90) days after the respective invoice
dates thereof, then all Accounts owing by that Account Debtor shall be
deemed ineligible;
(v) it is a valid, legally enforceable and unconditional
obligation of the Account Debtor thereunder, and it shall not be an
Eligible Account to the extent of any setoff, counterclaim, credit,
allowance or adjustment by such Account Debtor, or if it is subject to
any claim by such Account Debtor denying liability thereunder in whole
or in part;
(vi) it does not arise out of a contract or order which fails in
any material respect to comply with the requirements of applicable
law;
(vii) the Account Debtor thereunder is not a director, officer,
employee or agent of a Borrower, or a Subsidiary, Parent or Affiliate;
(viii) it is not an Account with respect to which the Account
Debtor is the United States of America or any state or local
government, or any department, agency or instrumentality thereof,
unless such Borrower assigns its right to payment of such Account to
Lender pursuant to, and in full compliance with, the Assignment of
Claims Act of 1940, as amended, or any comparable state or local law,
as applicable;
(ix) it is not an Account with respect to which the Account
Debtor is located in a state which requires such Borrower, as a
precondition to commencing or maintaining an action in the courts of
that state, either to (A) receive a certificate of authority to do
business and be in good standing in such state; or (B) file a notice
of business activities report or similar report with such state's
taxing authority, unless (x) such Borrower has taken one of the
actions described in clauses (A) or (B); (y) the failure to take one
of the actions described in either clause (A) or (B) may be cured
retroactively by such Borrower at its election; or (z) such Borrower
has proven, to Lender's satisfaction, that it is exempt from any such
requirements under any such state's laws;
(x) the Account Debtor is located within the United States of
America or Canada;
(xi) it is not an Account with respect to which the Account
Debtor's obligation to pay is subject to any repurchase obligation or
return
-4-
right, as with sales made on a ▇▇▇▇-and-hold, guaranteed sale, sale on
approval, sale or return or consignment basis;
(xii) it is not an Account (A) with respect to which any
representation or warranty contained in this Agreement is untrue; or
(B) which violates any of the covenants of such Borrower contained in
this Agreement;
(xiii) it is not an Account which, when added to a particular
Account Debtor's other indebtedness to such Borrower, exceeds a credit
limit determined by Lender in its sole discretion determined in good
faith for that Account Debtor (except that Accounts excluded from
Eligible Accounts solely by reason of this clause (xiii) shall be
Eligible Accounts to the extent of such credit limit), provided that
Lender shall give such Borrower written notice of any such credit
limit; and
(xiv) it is not an Account with respect to which the prospect of
payment or performance by the Account Debtor is or will be impaired,
as determined by Lender in its sole discretion determined in good
faith.
"Environmental Laws" shall mean all federal, state, district, local and
foreign laws, rules, regulations, ordinances, and consent decrees relating to
health, safety, hazardous substances, pollution and environmental matters, as
now or at any time hereafter in effect, applicable to a Borrower's business or
facilities owned or operated by such Borrower, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contamination, chemicals, or hazardous, toxic or dangerous substances, materials
or wastes into the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata) or otherwise
relating to the generation, manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, modified or restated from time to time.
"Event of Default" shall have the meaning specified in Section 15 hereof.
"Fiscal Year" shall mean each twelve (12) month accounting period of
Borrowers, which ends on December 31st of each year.
"Fixed Charges" shall mean for any period, without duplication, scheduled
payments of principal during the applicable period with respect to all
indebtedness of the Consolidated Group for borrowed money, plus scheduled
payments of principal during the applicable period with respect to all
capitalized lease obligations of the Consolidated Group, plus scheduled payments
of interest during the applicable period with respect to all indebtedness of the
Consolidated Group for borrowed money including capital lease obligations, plus
unfinanced
-5-
Capital Expenditures of the Consolidated Group during the applicable period,
plus cash payments during the applicable period in respect of income or
franchise taxes of the Consolidated Group.
"Hazardous Materials" shall mean any hazardous, toxic or dangerous
substance, materials and wastes, including, without limitation, 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, without limitation, 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, without
limitation any that are or become classified as hazardous or toxic under any
Environmental Law).
"Indemnified Party" shall have the meaning specified in Section 18 hereof.
"Letter of Credit" shall mean any Letter of Credit issued on behalf of a
Borrower in accordance with this Agreement.
"Letter of Credit Obligations" shall mean, as of any date of determination,
the sum of (i) the aggregate undrawn face amount of all Letters of Credit, and
(ii) the aggregate unreimbursed amount of all drawn Letters of Credit not
already converted to Loans hereunder.
"Liabilities" shall mean any and all obligations, liabilities and
indebtedness of Borrowers to Lender or to any parent, affiliate or subsidiary of
Lender of any and every kind and nature, howsoever created, arising or evidenced
and howsoever owned, held or acquired, whether now or hereafter existing,
whether now due or to become due, whether primary, secondary, direct, indirect,
absolute, contingent or otherwise (including, without limitation, obligations of
performance), whether several, joint or joint and several, and whether arising
or existing under written or oral agreement or by operation of law.
"Loans" shall mean all loans and advances made by Lender to or on behalf of
Borrowers hereunder.
"Lock Box" and "Lock Box Account" shall have the meanings specified in
subsection 8(a) hereof.
"Material Adverse Effect" shall mean a material adverse effect on the
business, property, assets, prospects, operations or condition, financial or
otherwise, of a Person.
-6-
"Maximum Loan Limit" shall mean Thirty-Two Million Five Hundred Thousand
and No/100 Dollars ($32,500,000.00).
"Maximum Revolving Loan Limit" shall have the meaning specified in
subsection 2(a) hereof.
"Obligor" shall mean Borrowers and each other Person who is or shall become
primarily or secondarily liable for any of the Liabilities.
"Original Term" shall have the meaning specified in Section 10 hereof.
"Other Agreements" shall mean all agreements, instruments and documents,
other than this Agreement, including, without limitation, guaranties, mortgages,
trust deeds, pledges, powers of attorney, consents, assignments, contracts,
notices, security agreements, leases, financing statements and all other
writings heretofore, now or from time to time hereafter executed by or on behalf
of a Borrower or any other Person and delivered to Lender or to any parent,
affiliate or subsidiary of Lender in connection with the Liabilities or the
transactions contemplated hereby, as each of the same may be amended, modified
or supplemented from time to time.
"Parent" shall mean any Person now or at any time or times hereafter owning
or controlling (alone or with any other Person) at least a majority of the
issued and outstanding equity of a Borrower and, if a Borrower is a partnership,
the general partner of such Borrower.
"PBGC" shall have the meaning specified in subsection 12(b)(v) hereof.
"Permitted Liens" shall mean (i) statutory liens of landlords, carriers,
warehousemen, processors, mechanics, materialmen or suppliers incurred in the
ordinary course of business and securing amounts not yet due or declared to be
due by the claimant thereunder or amounts which are being contested in good
faith and by appropriate proceedings and for which a Borrower has maintained
adequate reserves; (ii) liens or security interests in favor of Lender; (iii)
zoning restrictions and easements, licenses, covenants and other restrictions
affecting the use of real property that do not individually or in the aggregate
have a material adverse effect on a Borrower's ability to use such real property
for its intended purpose in connection with such Borrower's business; (iv) liens
in connection with purchase money indebtedness and capitalized leases otherwise
permitted pursuant to this Agreement, provided, that such liens attach only to
the assets the purchase of which was financed by such purchase money
indebtedness or which is the subject of such capitalized leases; (v) liens set
forth on Schedule 1; (vi) liens specifically permitted by Lender in writing; and
(vii) involuntary liens securing amounts less than $100,000.00 and which are
released or for which a bond acceptable to Lender in its sole discretion,
determined in good faith, has been posted within ten (10) days of its creation.
-7-
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation, limited
liability company, institution, entity, party or foreign or United States
government (whether federal, state, county, city, municipal or otherwise),
including, without limitation, any instrumentality, division, agency, body or
department thereof.
"Plan" shall have the meaning specified in subsection 12(b)(v) hereof.
"Prime Rate" shall mean Lender's publicly announced prime rate (which is
not intended to be Lender's lowest or most favorable rate in effect at any time)
in effect from time to time.
"Prime Rate Loans" shall mean the Loans bearing interest with reference to
the Prime Rate.
"Renewal Term" shall have the meaning specified in Section 10 hereof.
"Revolving Loan Limit" shall have the meaning specified in subsection 2(a)
hereof.
"Revolving Loans" shall have the meaning specified in subsection 2(a)
hereof.
"SMSD Transactions" means the dividend to Smithway Corp. by Smithway Inc.
of one or more promissory notes executed by Smithway Inc. in favor of Smithway
Corp., up to the amount permitted under this Agreement the contribution of the
notes to SMSD by Smithway Corp., the payment of interest on the notes to SMSD by
Smithway Inc., the dividend of such interest payments to Smithway Corp. by SMSD,
the lending of money in the amount of such dividends to Smithway Inc. by
Smithway Corp., and the issuance of additional promissory notes to Smithway
Corp. by Smithway Inc.
"Subsidiary" shall mean any corporation of which more than fifty percent
(50%) of the outstanding capital stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of whether
at the time stock of any other class of such corporation shall have or might
have voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned by a Borrower, or any partnership, joint venture
or limited liability company of which more than fifty percent (50%) of the
outstanding equity interests are at the time, directly or indirectly, owned by a
Borrower or any partnership of which a Borrower is a general partner.
"Tangible Net Worth" shall have the meaning specified in subsection 14(a)
hereof.
-8-
"Term Loan A" shall have the meaning specified in subsection 2(b) hereof.
"Term Loans" shall mean, collectively, Term Loan A and the Capital
Expenditure Loans.
2. LOANS.
(a) Revolving Loans.
Subject to the terms and conditions of this Agreement and the Other
Agreements, during the Original Term and any Renewal Term, Lender shall, absent
the occurrence of an Event of Default, make revolving loans and advances to
Borrowers' (the "Revolving Loans") in an amount up to the sum of the following
sublimits (the "Revolving Loan Limit"):
(i) Up to eighty-five percent (85%), or such lesser percentage as
determined by Lender in its sole discretion determined in good faith, of the
face amount (less maximum discounts, credits and allowances which may be taken
by or granted to Account Debtors in connection therewith in the ordinary course
of Borrowers' business) of Borrowers' Eligible Accounts (consisting solely of
Eligible Accounts other than those set forth at subsection (ii) immediately
below); plus
(ii) Up to eighty-five percent (85%), or such lesser percentage as
determined by Lender in its sole discretion determined in good faith, of the
face amount (less maximum discounts, credits and allowances which may be taken
by or granted to Account Debtors in connection therewith in the ordinary course
of Borrowers' business) of Borrowers' Eligible Accounts (consisting solely of
Accounts which are unbilled for three (3) days or less) or Two Million Five
Hundred Thousand and No/100 Dollars ($2,500,000.00), whichever is less; minus
(iii) such reserves as Lender elects, in its sole discretion determined in
good faith to establish from time to time;
provided, that the Revolving Loan Limit shall in no event exceed Thirty-Two
Million Five Hundred Thousand and No/100 Dollars ($32,500,000.00) less the
then-outstanding principal balance of the Term Loans (the "Maximum Revolving
Loan Limit") except as such amount may be increased or, following the occurrence
of an Event of Default, decreased by Lender, in its sole discretion.
The aggregate unpaid principal balance of the Revolving Loans shall not at
any time exceed the lesser of the (i) Revolving Loan Limit minus the Letter of
Credit Obligations and (ii) the Maximum Revolving Loan Limit minus the Letter of
Credit Obligations. If at any time the outstanding Revolving Loans exceeds
either the Revolving Loan Limit or the Maximum Revolving Loan Limit, in each
case minus
-9-
the Letter of Credit Obligations, or any portion of the Revolving Loans and
Letter of Credit Obligations exceeds any applicable sublimit within the
Revolving Loan Limit, Borrowers shall immediately, and without the necessity of
demand by Lender, pay to Lender such amount as may be necessary to eliminate
such excess and Lender shall apply such payment to the Revolving Loans to
eliminate such excess.
Each Borrower hereby authorizes Lender, in its sole discretion, to charge
any of such Borrower's accounts or advance Revolving Loans to make any payments
of principal, interest, fees, costs or expenses required to be made under this
Agreement or the Other Agreements.
A request for a Revolving Loan shall be made or shall be deemed to be made,
each in the following manner: the Borrower requesting such Revolving Loan shall
give Lender same day notice, no later than 10:30 A.M. (Chicago time) for such
day, of its request for a Revolving Loan as a Prime Rate Loan. In the event that
a Borrower maintains a controlled disbursement account at Lender, each check
presented for payment against such controlled disbursement account and any other
charge or request for payment against such controlled disbursement account shall
constitute a request for a Revolving Loan as a Prime Rate Loan. As an
accommodation to Borrowers, Lender may permit telephone requests for Revolving
Loans and electronic transmittal of instructions, authorizations, agreements or
reports to Lender by Borrowers. Unless a Borrower specifically directs Lender in
writing not to accept or act upon telephonic or electronic communications from
such Borrower, Lender shall have no liability to Borrowers for any loss or
damage suffered by a Borrower as a result of Lender's honoring of any requests,
execution of any instructions, authorizations or agreements or reliance on any
reports communicated to it telephonically or electronically and purporting to
have been sent to Lender by a Borrower and Lender shall have no duty to verify
the origin of any such communication or the authority of the Person sending it.
Each Borrower hereby irrevocably authorizes Lender to disburse the proceeds
of each Revolving Loan requested by such Borrower, or deemed to be requested by
such Borrower, as follows: the proceeds of each Revolving Loan requested under
Section 2(a) shall be disbursed by Lender in lawful money of the United States
of America in immediately available funds, by wire transfer or Automated
Clearing House (ACH) transfer to such bank account as may be agreed upon by such
Borrower and Lender from time to time, or elsewhere if pursuant to a written
direction from such Borrower.
(b) Term Loan A.
Lender has made a term loan to Borrowers against certain of Borrowers'
Equipment, of which Eighteen Million Five Hundred Thousand and No/100 Dollars
($18,500,000.00) remains outstanding (the "Term Loan A").
-10-
(c) Capital Expenditure Loans.
Subject to the terms and conditions of this Agreement and the Other
Agreements, from time to time after the initial Loans are advanced hereunder,
Lender shall make advances to Borrowers up to eighty percent (80%) of the
purchase price (exclusive of sales taxes, delivery charges and other "soft"
costs related to such purchase) of Equipment to be purchased with the proceeds
of such advances, which Equipment is acceptable to Lender in its sole
discretion, and upon which Lender shall have a first priority perfected security
interest; provided, that (i) the aggregate amount advanced for such purchases
shall not exceed Two Million and No/100 Dollars ($2,000,000.00) during any
Fiscal Year or Four Million and No/100 Dollars ($4,000,000.00) during the
Original Term and Renewal Term, (ii) at least two (2) Business Days prior to any
such advance hereunder, such Borrower shall have furnished to Lender an invoice
and acceptance letter for the Equipment being purchased and shall have executed
such documents and taken such other actions as Lender shall required to assure
that Lender has a first priority perfected security interest in such Equipment
within twenty (20) days of each advance hereunder, and (iii) each advance
hereunder shall be in an amount not less than Five Hundred Thousand and No/100
Dollars ($500,000.00) (the "Capital Expenditure Loans").
(d) Repayments.
The Liabilities shall be repaid as follows:
(i) Repayment of Revolving Loans. The Revolving Loans and all other
Liabilities (other than the Term Loans) shall be repaid by Borrowers on the last
day of the Original Term or any Renewal Term if this Agreement is renewed
pursuant to Section 10 hereof.
(ii) Repayment of Term Loan A. The Term Loan A shall be repaid in
seventy-two (72) equal monthly installments of Two Hundred Fifty-Six Thousand
Nine Hundred Forty-Four and 44/100 Dollars ($256,944.44) (subject to reduction
upon application of any proceeds pursuant to subsection 2(d)(iv)(A) hereof)
payable on February 1, 2002 and on the corresponding day of each month
thereafter (or if there is no corresponding day, on the last day of the month);
provided that any remaining outstanding principal balance of the Term Loan A
shall be repaid at the end of the Original Term or any Renewal Term if this
Agreement is renewed pursuant to Section 10 hereof. If any such payment due date
is not a Business Day, then such payment may be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
the amount of interest and fees due hereunder.
(iii) Repayment of Capital Expenditure Loans. Each Capital Expenditure Loan
shall be repaid in seventy-two (72) equal monthly installments in an amount
sufficient to repay such Capital Expenditure Loan in full by the final
-11-
payment. Such payments shall be made on the thirtieth (30th) day following the
date of each such advance, and on the corresponding day of each month thereafter
(or if there is no corresponding day, on the last day of each such month);
provided that any remaining outstanding principal balance of the Capital
Expenditures Loan shall be repaid at the end of the Original Term or any Renewal
Term if this Agreement is renewed pursuant to Section 10 hereof. If any such
payment due date is not a Business Day, then such payment may be made on the
next succeeding Business Day and such extension of time shall be included in the
computation of the amount of interest and fees due hereunder.
(iv) Mandatory Prepayments of the Term Loans.
(A) Sales of Assets. Upon receipt of the proceeds of the sale or other
disposition of any Equipment constituting Collateral hereunder or real property
of a Borrower which is subject to a mortgage in favor of Lender, or if any of
such Equipment or real property subject to such mortgage is damaged, destroyed
or taken by condemnation in whole or in part, the proceeds thereof shall be paid
by such Borrower to Lender as a mandatory prepayment (i) with respect to the
proceeds of any existing Equipment constituting Collateral hereunder, such
proceeds shall be applied as a prepayment of Term Loan A, such payment to be
applied pro rata against the remaining installments of principal until such Term
Loan A is repaid in full, and then against the Capital Expenditure Loans, such
prepayment to be applied pro rata against the remaining installments of
principal until such Capital Expenditure Loans are repaid in full, and then
against the other Liabilities, as determined by Lender, in its sole discretion;
and (ii) with respect to the proceeds of any Equipment purchased under the
Capital Expenditure Loans, such proceeds shall be applied as a prepayment of the
Capital Expenditure Loans, such payment to be applied pro rata against the
remaining installments of principal until repaid in full, and then against Term
Loan A, such payment to be applied pro rata against the remaining installments
of principal until repaid in full, and then against the other Liabilities, as
determined by Lender, in its sole discretion; provided, however, that
notwithstanding the foregoing, with respect to any Equipment constituting
Collateral hereunder that is traded in (the "Traded Equipment") towards the
purchase of Equipment purchased under the Capital Expenditure Loans and having a
value equal to or greater than the value of the Traded Equipment, as determined
by Lender in its sole discretion exercised in good faith, such proceeds may be
applied towards the purchase of such Equipment and not as a mandatory
prepayment.
(e) Notes.
The Loans shall, in Lender's sole discretion, be evidenced by one or more
promissory notes in form and substance satisfactory to Lender. However, if such
Loans are not so evidenced, such Loans may be evidenced solely by entries upon
the books and records maintained by Lender.
-12-
3. LETTERS OF CREDIT.
(a) General Terms.
Subject to the terms and conditions of the Agreement and the Other
Agreements, during the Original Term or any Renewal Term, Lender shall, absent
the existence of an Event of Default, from time to time issue, upon a Borrower's
request, commercial and/or standby Letters of Credit; provided, that the
aggregate undrawn face amount of all such Letters of Credit shall at no time
exceed Ten Million and No/100 Dollars ($10,000,000.00). Payments made by Lender
to any Person on account of any Letter of Credit shall constitute Loans
hereunder and each Borrower agrees that each payment made by Lender in respect
of a Letter of Credit shall constitute a Loan hereunder. Borrowers shall remit
to Lender a Letter of Credit fee equal to one and one-fourth percent (1-1/4th%)
per annum on the aggregate undrawn face amount of all Letters of Credit
outstanding, which fee shall be payable monthly in arrears on the last Business
Day of each month. Borrowers shall also pay on demand the normal and customary
administrative charges of the Lender for issuance, amendment, negotiation,
renewal or extension of any Letter of Credit.
(b) Requests for Letters of Credit.
Each Borrower shall make requests for Letters of Credit in writing at least
two (2) Business Days prior to the date such Letter of Credit is to be issued.
Each such request shall specify the date such Letter of Credit is to be issued,
the amount thereof, the name and address of the beneficiary thereof and a
description of the transaction to be supported thereby. Any such notice shall be
accompanied by the form of Letter of Credit requested and any application or
reimbursement agreement required by the issuer of such Letter of Credit. If any
term of such application or reimbursement agreement is inconsistent with this
Agreement, then the provisions of this Agreement shall control to the extent of
such inconsistency.
(c) Obligations Absolute.
Each Borrower shall be obligated to reimburse Lender, for any payments made
in respect of any Letter of Credit, which obligation shall be unconditional and
irrevocable and shall be paid regardless of: (i) any lack of validity or
enforceability of any Letter of Credit, (ii) any amendment or waiver of or
consent or departure from all or any provisions of any Letter of Credit, this
Agreement or any Other Agreement, (iii) the existence of any claim, set off,
defense or other right which a Borrower or any other Person may have against any
beneficiary of any Letter of Credit or Lender, (iv) any draft or other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid,
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect, (v) any payment under any Letter of Credit against
presentation of a draft or other document that does not comply with the terms of
such Letter of Credit, and (vi) any other act or omission to act or delay of any
kind by Lender or any other Person or any other event or
-13-
circumstance that might otherwise constitute a legal or equitable discharge of a
Borrower's obligations hereunder. It is understood and agreed by each Borrower
that Lender may accept documents that appear on their face to be in order
without further investigation or inquiry, regardless of any notice or
information to the contrary.
(d) Expiration Dates of Letters of Credit.
The expiration date of each Letter of Credit shall be no later than the
earlier of (i) one (1) year from the date of issuance and (ii) the thirtieth
(30th) day prior to the end of the Original Term or any Renewal Term.
Notwithstanding the foregoing, a Letter of Credit may provide for automatic
extensions of its expiration date for one or more one (1) year periods, so long
as the issuer thereof has the right to terminate the Letter of Credit at the end
of each one (1) year period and no extension period extends past the thirtieth
(30th) day prior to the end of the Original Term or any Renewal Term.
4. INTEREST, FEES AND CHARGES.
(a) Interest Rate.
Each Loan shall bear interest at the Prime Rate in effect from time to
time, payable on the last Business Day of each month in arrears. Said rate of
interest shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the effective date of each such change
in the Prime Rate. Upon the occurrence of an Event of Default and during the
continuance thereof, each Loan shall bear interest at the rate of two percent
(2%) per annum in excess of the interest rate otherwise payable thereon, which
interest shall be payable on demand. All interest shall be calculated on the
basis of a 365-day year.
(b) Fees And Charges.
(i) Facilities Fee: Borrowers shall pay to Lender an annual facilities fee
equal to one-fourth of one percent (1/4th of 1%) of the Maximum Loan Limit,
which fee shall be fully earned by Lender on the date hereof and on each
anniversary of the date hereof during the Original Term and any Renewal Term and
which shall be payable on the last day of each month during the Original Term
and any Renewal Term.
(ii) Costs and Expenses: Borrowers shall reimburse Lender for all costs and
expenses, including, without limitation, legal expenses and reasonable
attorneys' fees (other than attorney's fees of Lender's in house counsel),
incurred by Lender in connection with the (i) documentation and consummation of
this transaction and any other transactions between Borrowers and Lender,
including, without limitation, Uniform Commercial Code and other public record
searches and filings, overnight courier or other express or messenger delivery,
appraisal costs, surveys, title insurance and
-14-
environmental audit or review costs; (ii) collection, protection or enforcement
of any rights in or to the Collateral; (iii) collection of any Liabilities; and
(iv) administration and enforcement of any of Lender's rights under this
Agreement or any Other Agreement. Borrowers shall also pay all normal service
charges with respect to all accounts maintained by each Borrower with Lender and
any additional services requested by a Borrower from Lender. All such costs,
expenses and charges shall constitute Liabilities hereunder, shall be payable by
Borrowers to Lender on demand, and, until paid, shall bear interest at the
highest rate then applicable to Loans hereunder.
(iii) Capital Adequacy Charge. If Lender shall have determined that the
adoption of any law, rule or regulation regarding capital adequacy, or any
change therein or in the interpretation or application thereof, or compliance by
Lender with any request or directive regarding capital adequacy (whether or not
having the force of law) from any central bank or governmental authority enacted
after the date hereof, does or shall have the effect of reducing the rate of
return on such party's capital as a consequence of its obligations hereunder to
a level below that which Lender could have achieved but for such adoption,
change or compliance (taking into consideration Lender's policies with respect
to capital adequacy) by a material amount, then from time to time, after
submission by Lender to Borrowers of a written demand therefor ("Capital
Adequacy Demand") together with the certificate described below, Borrowers shall
pay to Lender such additional amount or amounts ("Capital Adequacy Charge") as
will compensate Lender for such reduction, such Capital Adequacy Demand to be
made with reasonable promptness following such determination. A certificate of
Lender claiming entitlement to payment as set forth above shall be conclusive in
the absence of manifest error. Such certificate shall set forth the nature of
the occurrence giving rise to such reduction, the amount of the Capital Adequacy
Charge to be paid to Lender, and the method by which such amount was determined.
In determining such amount, Lender may use any reasonable averaging and
attribution method, applied on a non-discriminatory basis.
(c) Maximum Interest. It is the intent of the parties that the rate of
interest and other charges to each Borrower under this Agreement and the Other
Agreements shall be lawful; therefore, if for any reason the interest or other
charges payable under this Agreement are found by a court of competent
jurisdiction, in a final determination, to exceed the limit which Lender may
lawfully charge such Borrower, then the obligation to pay interest and other
charges shall automatically be reduced to such limit and, if any amount in
excess of such limit shall have been paid, then such amount shall be refunded to
such Borrower.
-15-
5. COLLATERAL.
(a) Grant of Security Interest to Lender.
As security for the payment of all Loans now or in the future made by
Lender to Borrowers hereunder and for the payment or other satisfaction of all
other Liabilities, each Borrower hereby assigns to Lender and grants to Lender a
continuing security interest in the following property of such Borrower, whether
now or hereafter owned, existing, acquired or arising and wherever now or
hereafter located: (a) all Accounts (whether or not Eligible Accounts) and all
Goods whose sale, lease or other disposition by such Borrower has given rise to
Accounts and have been returned to, or repossessed or stopped in transit by,
such Borrower; (b) all Chattel Paper, Instruments, Documents and General
Intangibles (including, without limitation, all patents, patent applications,
trademarks, trademark applications, trade names, trade secrets, goodwill,
copyrights, copyright applications, registrations, licenses, software,
franchises, customer lists, tax refund claims, claims against carriers and
shippers, guarantee claims, contract rights, payment intangibles, security
interests, security deposits and rights to indemnification); (c) all Inventory;
(d) all Goods (other than Inventory), including, without limitation, Equipment,
vehicles (other than Equipment and vehicles subject to a Permitted Lien
hereunder to the extent that the terms of the agreements with the holder of such
Permitted Lien prohibit the granting of a security interest to another Person)
and Fixtures; (e) all Investment Property; (f) all Deposit Accounts, bank
accounts, deposits and cash; (g) all Letter-of-Credit Rights; (h) Commercial
Tort Claims listed on Exhibit C hereto; (i) any other property of such Borrower
now or hereafter in the possession, custody or control of Lender or any agent or
any parent, affiliate or subsidiary of Lender or any participant with Lender in
the Loans, for any purpose (whether for safekeeping, deposit, collection,
custody, pledge, transmission or otherwise); and (j) all additions and
accessions to, substitutions for, and replacements, products and Proceeds of the
foregoing property, including, without limitation, proceeds of all insurance
policies insuring the foregoing property, and all of such Borrower's books and
records relating to any of the foregoing and to such Borrower's business.
(b) Other Security.
Lender, in its sole discretion, without waiving or releasing any
obligation, liability or duty of any Borrower under this Agreement or the Other
Agreements or any Event of Default, may at any time or times hereafter, but
shall not be obligated to, pay, acquire or accept an assignment of any security
interest, lien, encumbrance or claim asserted by any Person in, upon or against
the Collateral, provided, that Lender may take such actions with respect to
Permitted Liens only after the occurrence and during the continuance of an Event
of Default. All sums paid by Lender in respect thereof and all costs, fees and
expenses including, without limitation, reasonable attorney fees, all court
costs and all other charges relating thereto incurred by Lender shall constitute
Liabilities, payable by Borrowers to
-16-
Lender on demand and, until paid, shall bear interest at the highest rate then
applicable to Loans hereunder.
(c) Possessory Collateral.
Immediately upon any Borrower's receipt of any portion of the Collateral
evidenced by an agreement, Instrument or Document, including, without
limitation, any Tangible Chattel Paper and any Investment Property consisting of
certificated securities, such Borrower shall deliver the original thereof to
Lender together with an appropriate endorsement or other specific evidence of
assignment thereof to Lender (in form and substance acceptable to Lender). If an
endorsement or assignment of any such items shall not be made for any reason,
Lender is hereby irrevocably authorized, as such Borrower's attorney and
agent-in-fact, to endorse or assign the same on such Borrower's behalf.
(d) Electronic Chattel Paper.
To the extent that a Borrower obtains or maintains any Electronic Chattel
Paper, such Borrower shall create, store and assign the record or records
comprising the Electronic Chattel Paper in such a manner that (i) a single
authoritative copy of the record or records exists which is unique, identifiable
and except as otherwise provided in clauses (iv), (v) and (vi) below,
unalterable, (ii) the authoritative copy identifies Lender as the assignee of
the record or records, (iii) the authoritative copy is communicated to and
maintained by the Lender or its designated custodian, (iv) copies or revisions
that add or change an identified assignee of the authoritative copy can only be
made with the participation of Lender, (v) each copy of the authoritative copy
and any copy of a copy is readily identifiable as a copy that is not the
authoritative copy and (vi) any revision of the authoritative copy is readily
identifiable as an authorized or unauthorized revision.
6. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS
THEREIN.
Each Borrower shall, at Lender's request, at any time and from time to
time, authenticate, execute and deliver to Lender such financing statements,
documents and other agreements and instruments (and pay the cost of filing or
recording the same in all public offices deemed necessary or desirable by
Lender) and do such other acts and things or cause third parties to do such
other acts and things as Lender may deem necessary or desirable in its sole
discretion in order to establish and maintain a valid, attached and perfected
security interest in the Collateral in favor of Lender (free and clear of all
other liens, claims, encumbrances and rights of third parties whatsoever,
whether voluntarily or involuntarily created, except Permitted Liens) to secure
payment of the Liabilities, and in order to facilitate the collection of the
Collateral. Each Borrower irrevocably hereby makes, constitutes and appoints
Lender (and all Persons designated by Lender for that purpose) as such
Borrower's true and lawful attorney and agent-in-fact to execute
-17-
and file such financing statements, documents and other agreements and
instruments and do such other acts and things as may be necessary to preserve
and perfect Lender's security interest in the Collateral. Each Borrower further
agrees that a carbon, photographic, photostatic or other reproduction of this
Agreement or of a financing statement shall be sufficient as a financing
statement. Each Borrower further ratifies and confirms the prior filing by
Lender of any and all financing statements which identify such Borrower as
debtor, Lender as secured party and any or all Collateral as collateral.
7. POSSESSION OF COLLATERAL AND RELATED MATTERS.
Until otherwise notified by Lender following the occurrence of an Event of
Default, each Borrower shall have the right, except as otherwise provided in
this Agreement, in the ordinary course of such Borrower's business, to (a) sell,
lease or furnish under contracts of service any of such Borrower's Inventory
normally held by such Borrower for any such purpose; (b) use and consume any raw
materials, work in process or other materials normally held by such Borrower for
such purpose; and (c) dispose of obsolete or unuseful Equipment in the ordinary
course of business so long as all of the proceeds of such Equipment constituting
Collateral hereunder are paid to Lender for application to the Liabilities
(except for such proceeds which are required to be delivered to the holder of a
Permitted Lien which is prior in right of payment); provided, however, that a
sale in the ordinary course of business shall not include any transfer or sale
in satisfaction, partial or complete, of a debt owed by such Borrower, provided
that a sale of Inventory to a creditor of such Borrower resulting in a valid
Account owing to such Borrower by such creditor shall not constitute a transfer
or sale in satisfaction, partial, or complete, of a debt owed by such Borrower.
8. COLLECTIONS.
(a) Each Borrower shall direct all of its Account Debtors to make all
payments on the Accounts directly to a post office box (the "Lock Box")
designated by, and under the exclusive control of, Lender, at a financial
institution acceptable to Lender. Each Borrower shall establish an account (the
"Lock Box Account") in Lender's name with a financial institution acceptable to
Lender, into which all payments received in the Lock Box shall be deposited, and
into which such Borrower will immediately deposit all payments received by such
Borrower on Accounts in the identical form in which such payments were received,
whether by cash or check. If a Borrower, any Affiliate or Subsidiary, any
shareholder, officer, director, employee or agent of a Borrower or any Affiliate
or Subsidiary, or any other Person acting for or in concert with a Borrower
shall receive any monies, checks, notes, drafts or other payments relating to or
as Proceeds of Accounts or other Collateral, such Borrower and each such Person
shall receive all such items in trust for, and as the sole and exclusive
property of, Lender and, immediately upon receipt thereof, shall remit the same
(or cause the same to be remitted) in kind to the Lock Box Account. The
financial institution with which the Lock Box Account is established shall
acknowledge and agree, in a manner satisfactory to Lender, that
-18-
the amounts on deposit in such Lock Box Account are the sole and exclusive
property of Lender, that such financial institution will follow the instructions
of Lender with respect to disposition of funds in the Lock Box and Lock Box
Account without further consent from such Borrower, that such financial
institution has no right to setoff against the Lock Box Account or against any
other account maintained by such financial institution into which the contents
of the Lock Box Account are transferred, and that such financial institution
shall wire, or otherwise transfer in immediately available funds to Lender in a
manner satisfactory to Lender, funds deposited in the Lock Box Account on a
daily basis as such funds are collected. Each Borrower agrees that all payments
made to such Lock Box Account or otherwise received by Lender, whether in
respect of the Accounts or as Proceeds of other Collateral or otherwise (except
for proceeds of Collateral which are required to be delivered to the holder of a
Permitted Lien which is prior in right of payment), will be applied on account
of the Liabilities in accordance with the terms of this Agreement. Each Borrower
agrees to pay all customary fees, costs and expenses in connection with opening
and maintaining the Lock Box and Lock Box Account. All of such fees, costs and
expenses if not paid by a Borrower, may be paid by Lender and in such event all
amounts paid by Lender shall constitute Liabilities hereunder, shall be payable
to Lender by Borrowers upon demand, and, until paid, shall bear interest at the
highest rate then applicable to Loans hereunder. All checks, drafts, instruments
and other items of payment or Proceeds of Collateral shall be endorsed by the
applicable Borrower to Lender, and, if that endorsement of any such item shall
not be made for any reason, Lender is hereby irrevocably authorized to endorse
the same on such Borrower's behalf. For the purpose of this section, each
Borrower irrevocably hereby makes, constitutes and appoints Lender (and all
Persons designated by Lender for that purpose) as such Borrower's true and
lawful attorney and agent-in-fact (i) to endorse such Borrower's name upon said
items of payment and/or Proceeds of Collateral and upon any Chattel Paper,
Document, Instrument, invoice or similar document or agreement relating to any
Account of such Borrower or Goods pertaining thereto; (ii) to take control in
any manner of any item of payment or Proceeds thereof and (iii) to have access
to any lock box or postal box into which any of such Borrower's mail is
deposited, and open and process all mail addressed to such Borrower and
deposited therein.
(b) Lender may, at any time and from time to time after the occurrence and
during the continuance of an Event of Default, whether before or after
notification to any Account Debtor and whether before or after the maturity of
any of the Liabilities, (i) enforce collection of any of each Borrower's
Accounts or other amounts owed to a Borrower by suit or otherwise; (ii) exercise
all of such Borrower's rights and remedies with respect to proceedings brought
to collect any Accounts or other amounts owed to such Borrower; (iii) surrender,
release or exchange all or any part of any Accounts or other amounts owed to
such Borrower, or compromise or extend or renew for any period (whether or not
longer than the original period) any indebtedness thereunder; (iv) sell or
assign any Account of such Borrower or other amount owed to such Borrower upon
such terms, for such amount and at such time or times as Lender deems advisable;
(v) prepare, file and sign such
-19-
Borrower's name on any proof of claim in bankruptcy or other similar document
against any Account Debtor or other Person obligated to such Borrower; and (vi)
do all other acts and things which are necessary, in Lender's sole discretion,
to fulfill such Borrower's obligations under this Agreement and the Other
Agreements and to allow Lender to collect the Accounts or other amounts owed to
such Borrower. In addition to any other provision hereof, Lender may at any time
after the occurrence and during the continuance of an Event of Default, at
Borrowers' expense, notify any parties obligated on any of the Accounts to make
payment directly to Lender of any amounts due or to become due thereunder.
(c) For purposes of calculating interest and fees, Lender shall, within two
(2) Business Days after receipt by Lender at its office in Chicago, Illinois of
(i) checks and (ii) cash or other immediately available funds from collections
of items of payment and Proceeds of any Collateral, apply the whole or any part
of such collections or Proceeds against the Liabilities in such order as Lender
shall determine in its sole discretion. For purposes of determining the amount
of Loans available for borrowing purposes, checks and cash or other immediately
available funds from collections of items of payment and Proceeds of any
Collateral shall be applied in whole or in part against the Liabilities, in such
order as Lender shall determine in its sole discretion, on the day of receipt,
subject to actual collection.
(d) On a monthly basis, Lender shall deliver to Borrowers an account
statement showing all Loans, charges and payments, which shall be deemed final,
binding and conclusive upon Borrowers unless a Borrower notifies Lender in
writing, specifying any error therein, within thirty (30) days of the date such
account statement is sent to such Borrower and any such notice shall only
constitute an objection to the items specifically identified.
9. COLLATERAL, AVAILABILITY AND FINANCIAL REPORTS AND SCHEDULES.
(a) Weekly Reports.
Each Borrower shall deliver to Lender an executed loan report and
certificate in Lender's then current form at least once each week (or more
frequently as requested by Lender during the existence of an Event of Default),
which shall be accompanied by copies of such Borrower's sales journal, cash
receipts journal and credit memo journal for the relevant period. Such report
shall reflect the activity of such Borrower with respect to Accounts for the
immediately preceding week, and shall be in a form and with such specificity as
is satisfactory to Lender and shall contain such additional information
concerning Accounts as may be reasonably requested by Lender including, without
limitation, but only if specifically requested by Lender, copies of all invoices
prepared in connection with such Accounts.
-20-
(b) Monthly Reports.
Borrowers shall deliver to Lender, in addition to any other reports, as
soon as practicable and in any event within twenty (20) days after the end of
each month, (A) a detailed trial balance of each Borrower's Accounts aged per
invoice date, in form and substance reasonably satisfactory to Lender including,
without limitation, the names and addresses of all Account Debtors of each
Borrower, and (B) a summary and detail of accounts payable (such Accounts and
accounts payable divided into such time intervals as Lender may require in its
sole discretion), including a listing of any held checks.
(c) Financial Statements.
Borrowers shall deliver or cause to be delivered to Lender, on a
consolidated and consolidating basis, the following financial information, all
of which shall be prepared in accordance with generally accepted accounting
principles consistently applied, and shall be accompanied by a compliance
certificate in the form of Exhibit B hereto, which compliance certificate shall
include a calculation of all financial covenants contained in this Agreement:
(i) no later than twenty (20) days after each calendar month, copies of
internally prepared financial statements, including, without limitation, balance
sheets and statements of income and retained earnings of the Consolidated Group
but excluding cash flow, certified by the Chief Financial Officer of Smithway
Corp.; and (ii) no later than the filing date of Smithway Corp.'s Annual Report
on form 10-K, audited annual financial statements with an unqualified opinion by
independent certified public accountants selected by Borrowers and reasonably
satisfactory to Lender, which financial statements shall be accompanied by (A) a
letter from such accountants acknowledging that they are aware that Lender is
relying upon such financial statements in connection with the exercise of its
rights hereunder, provided, that Borrowers shall only be required to use its
reasonable efforts exercised in good faith to obtain such letter; and (B) copies
of any management letters sent to a Borrower by such accountants;
(d) Annual Projections.
As soon as practicable and in any event prior to the beginning of each
Fiscal Year, Borrowers shall deliver to Lender, on a consolidated and
consolidating basis, projected balance sheets, statements of income and cash
flow for the Consolidated Group, for each of the twelve (12) months during such
Fiscal Year, and projected balance sheet at the end of each quarter in each
Fiscal Year, all of which shall include the assumptions used therein, together
with appropriate supporting details as reasonably requested by Lender.
(e) Explanation of Budgets and Projections.
In conjunction with the delivery of the annual presentation of projections
or budgets referred to in subsection 9(d) above, Borrowers shall deliver a
letter signed by the President or a Vice President of Smithway Corp. and by the
-21-
Treasurer or Chief Financial Officer of Smithway Corp., describing, comparing
and analyzing, in detail, all changes and developments between the anticipated
financial results included in such projections or budgets and the historical
financial statements of Borrowers.
(f) Public Reporting.
Promptly upon the filing thereof, each Borrower shall deliver to Lender
copies of all registration statements and annual, quarterly, monthly or other
regular reports which Smithway Corp. or any of its Subsidiaries files with the
Securities and Exchange Commission, as well as promptly providing to Lender
copies of any reports and proxy statements delivered to its shareholders.
(g) Other Information.
Promptly following request therefor by Lender, such other business or
financial data, reports, appraisals and projections as Lender may reasonably
request.
10. TERMINATION; AUTOMATIC RENEWAL.
THIS AGREEMENT SHALL BE IN EFFECT FROM THE DATE HEREOF UNTIL Dec 31, 2004
(THE "ORIGINAL TERM") AND SHALL AUTOMATICALLY RENEW ITSELF FROM YEAR TO YEAR
THEREAFTER (EACH SUCH ONE-YEAR RENEWAL BEING REFERRED TO HEREIN AS A "RENEWAL
TERM") UNLESS (A) THE DUE DATE OF THE LIABILITIES IS ACCELERATED PURSUANT TO
SECTION 16 HEREOF; OR (B) A BORROWER OR LENDER ELECTS TO TERMINATE THIS
AGREEMENT AT THE END OF THE ORIGINAL TERM OR AT THE END OF ANY RENEWAL TERM BY
GIVING THE OTHER PARTY WRITTEN NOTICE OF SUCH ELECTION AT LEAST NINETY (90) DAYS
PRIOR TO THE END OF THE ORIGINAL TERM OR THE THEN CURRENT RENEWAL TERM IN WHICH
CASE BORROWERS SHALL PAY ALL OF THE LIABILITIES IN FULL ON THE LAST DAY OF SUCH
TERM. If one or more of the events specified in clauses (a) and (b) occurs, then
(i) Lender shall not make any additional Loans on or after the date identified
as the date on which the Liabilities are to be repaid; and (ii) this Agreement
shall terminate on the date thereafter that the Liabilities are paid in full. At
such time as Borrowers have repaid all of the Liabilities and this Agreement has
terminated, Borrowers shall deliver to Lender a release, in form and substance
satisfactory to Lender, of all obligations and liabilities of Lender and its
officers, directors, employees, agents, parents, subsidiaries and affiliates to
such Borrowers, and if Borrowers are obtaining new financing from another
lender, Borrowers shall deliver such lender's indemnification of Lender, in form
and substance satisfactory to Lender, for checks which Lender has credited to
such Borrower's account, but which subsequently are dishonored for any reason or
for automatic clearinghouse or wire transfers not yet posted to such Borrower's
account. If, during the term of this Agreement, Borrowers prepay all of the
Liabilities
-22-
from any source other than income from the ordinary course operations of
Borrowers' business and this Agreement is terminated, Borrowers agree to pay to
Lender as a prepayment fee, in addition to the payment of all other Liabilities,
an amount equal to (i) one percent (1%) of the Maximum Loan Limit if such
prepayment occurs prior to the end of the first anniversary of the date hereof.
11. REPRESENTATIONS AND WARRANTIES.
Each Borrower hereby represents and warrants to Lender, which
representations and warranties (whether appearing in this Section 11 or
elsewhere) shall be true at the time of Borrowers' execution hereof and the
closing of the transactions described herein or related hereto, shall remain
true until the repayment in full and satisfaction of all the Liabilities and
termination of this Agreement, and shall be remade by each Borrower at the time
each Loan is made pursuant to this Agreement, provided, that representations and
warranties made as of a particular date shall be true and correct as of such
date.
(a) Financial Statements and Other Information.
The financial statements and other information delivered or to
be delivered by Borrowers to Lender at or prior to the date of this Agreement
fairly present in all material respects the financial condition of the
Consolidated Group, and there has been no material adverse change in the
financial condition, the operations or any other status of a Borrower since the
date of the financial statements delivered to Lender most recently prior to the
date of this Agreement. All written information now or heretofore furnished by
each Borrower to Lender is true and correct as of the date with respect to which
such information was furnished.
(b) Locations.
The office where each Borrower keeps its books, records and accounts (or
copies thereof) concerning the Collateral, each Borrower's principal place of
business and all of each Borrower's other places of business, locations of
Collateral and post office boxes and locations of bank accounts are as set forth
in Exhibit A and at other locations within the continental United States of
which Lender has been advised by a Borrower in accordance with subsection
12(b)(i). The Collateral, including, without limitation, the Equipment (except
any part thereof which a Borrower shall have advised Lender in writing consists
of Collateral normally used in more than one state) is kept, or, in the case of
vehicles, based, only at the addresses set forth on Exhibit A, and at other
locations within the continental United States of which Lender has been advised
by a Borrower in writing in accordance with subsection 12(b)(i) hereof.
-23-
(c) Loans by Borrower.
No Borrower has made any loans or advances to any Affiliate or other Person
except for advances authorized hereunder to employees, independent contractors,
officers and directors of such Borrower for travel and other expenses arising in
the ordinary course of such Borrower's business and loans permitted pursuant to
subsection 13(f) hereof.
(d) Accounts.
Each Account which a Borrower shall, expressly or by implication, request
Lender to classify as an Eligible Account shall, as of the time when such
request is made, conform in all respects to the requirements of such
classification as set forth in the respective definition of "Eligible Account"
as set forth herein and as otherwise established by Lender from time to time.
(e) Liens.
Each Borrower is the lawful owner of all Collateral now purportedly owned
or hereafter purportedly acquired by such Borrower, free from all liens, claims,
security interests and encumbrances whatsoever, whether voluntarily or
involuntarily created and whether or not perfected, other than the Permitted
Liens.
(f) Organization, Authority and No Conflict.
If Smithway Inc. is a corporation, limited liability company or
partnership, Smithway Inc. is duly organized, validly existing and in good
standing in the State of Iowa, its state organizational identification number is
37891 and such Borrower is duly qualified and in good standing in all states
where the nature and extent of the business transacted by it or the ownership of
its assets makes such qualification necessary or, if Smithway Inc. is not so
qualified, Smithway Inc. may cure any such failure without losing any of its
rights, incurring any liens or material penalties, or otherwise affecting
Lender's rights. If East West is a corporation, limited liability company or
partnership, East West is duly organized, validly existing and in good standing
in the State of South Dakota, its state organizational identification number is
DB039720 and such Borrower is duly qualified and in good standing in all states
where the nature and extent of the business transacted by it or the ownership of
its assets makes such qualification necessary or, if East West is not so
qualified, East West may cure any such failure without losing any of its rights,
incurring any liens or material penalties, or otherwise affecting Lender's
rights. Each Borrower has the right and power and is duly authorized and
empowered to enter into, execute and deliver this Agreement and the Other
Agreements and perform its obligations hereunder and thereunder. Each Borrower's
execution, delivery and performance of this Agreement and the Other Agreements
does not conflict with the provisions of the organizational documents of such
Borrower, any statute, regulation, ordinance or rule of law, or any agreement,
contract or other document which may now or hereafter be binding on such
Borrower, except for conflicts with
-24-
agreements, contracts or other documents which would not have a Material Adverse
Effect on such Borrower, and each Borrower's execution, delivery and performance
of this Agreement and the Other Agreements shall not result in the imposition of
any lien or other encumbrance upon any of such Borrower's property (other than
Permitted Liens) under any existing indenture, mortgage, deed of trust, loan or
credit agreement or other agreement or instrument by which such Borrower or any
of its property may be bound or affected.
(g) Litigation.
Except as disclosed to Lender on Schedule 11(g) hereto, there are no
actions or proceedings which are pending or, to the best of a Borrower's
knowledge, threatened against such Borrower which is, in the determination of
each Borrower, reasonably likely to have a Material Adverse Effect on such
Borrower, and each Borrower shall, promptly upon becoming aware of any such
pending or threatened action or proceeding, give written notice thereof to
Lender. No Borrower has any Commercial Tort Claims pending other than those set
forth on Exhibit C hereto as Exhibit C may be amended from time to time.
(h) Compliance with Laws and Maintenance of Permits.
Each Borrower has obtained all governmental consents, franchises,
certificates, licenses, authorizations, approvals and permits, the lack of which
would have a Material Adverse Effect on such Borrower. Each Borrower is in
compliance in all material respects with all applicable federal, state, local
and foreign statutes, orders, regulations, rules and ordinances (including,
without limitation, Environmental Laws and statutes, orders, regulations, rules
and ordinances relating to taxes, employer and employee contributions and
similar items, securities, ERISA or employee health and safety) the failure to
comply with which would have a Material Adverse Effect on such Borrower.
(i) Affiliate Transactions.
Except as set forth on Schedule 11(i) hereto or as permitted pursuant to
subsection 11(c) hereof, no Borrower is conducting, permitting or suffering to
be conducted, transactions with any Affiliate other than transactions with
Affiliates for the purchase or sale of Inventory or services in the ordinary
course of business pursuant to terms that are no less favorable to such Borrower
than the terms upon which such transactions would have been made had they been
made to or with a Person that is not an Affiliate.
(j) Names and Trade Names.
Each Borrower's name has always been as set forth on the first page of this
Agreement and no Borrower uses any trade names, assumed names, fictitious names
or division names in the operation of its business, except as set forth on
Schedule 11(j) hereto.
-25-
(k) Equipment.
Except for Permitted Liens, each Borrower has good and indefeasible and
merchantable title to and ownership of all Equipment constituting Collateral
hereunder. No such Equipment is a Fixture to real estate unless such real estate
is owned by such Borrower and is subject to a mortgage in favor of Lender, or if
such real estate is leased, is subject to a landlord's agreement in favor of
Lender on terms acceptable to Lender, or an accession to other personal property
unless such personal property is subject to a first priority lien in favor of
Lender.
(l) Enforceability.
This Agreement and the Other Agreements to which a Borrower is a party are
the legal, valid and binding obligations of such Borrower and are enforceable
against such Borrower in accordance with their respective terms.
(m) Solvency.
Each Borrower is, after giving effect to the transactions contemplated
hereby, solvent, able to pay its debts as they become due, has capital
sufficient to carry on its business, now owns property having a value both at
fair valuation and at present fair saleable value greater than the amount
required to pay its debts, and will not be rendered insolvent by the execution
and delivery of this Agreement or any of the Other Agreements or by completion
of the transactions contemplated hereunder or thereunder.
(n) Indebtedness.
Except as set forth on Schedule 11(n) hereto, no Borrower is obligated
(directly or indirectly), for any loans or other indebtedness for borrowed money
other than the Loans.
(o) Margin Security and Use of Proceeds.
No Borrower owns any margin securities, and none of the proceeds of the
Loans hereunder shall be used for the purpose of purchasing or carrying any
margin securities or for the purpose of reducing or retiring any indebtedness
which was originally incurred to purchase any margin securities or for any other
purpose not permitted by Regulation U of the Board of Governors of the Federal
Reserve System as in effect from time to time.
-26-
(p) Parent, Subsidiaries and Affiliates.
Except as set forth on Schedule 11(p) hereto, no Borrower has any Parents,
Subsidiaries or other Affiliates or divisions, nor is any Borrower engaged in
any joint venture or partnership with any other Person.
(q) No Defaults.
No Borrower is in default under any material contract, lease or commitment
to which it is a party or by which it is bound, nor does any Borrower know of
any dispute regarding any contract, lease or commitment which would have a
Material Adverse Effect on such Borrower.
(r) Employee Matters.
There are no controversies pending or threatened between a Borrower and any
of its employees, agents or independent contractors other than employee
grievances arising in the ordinary course of business which would not, in the
aggregate, have a Material Adverse Effect on such Borrower, and each Borrower is
in compliance with all federal and state laws respecting employment and
employment terms, conditions and practices except for such non-compliance which
would not have a Material Adverse Effect on such Borrower.
(s) Intellectual Property.
Each Borrower possesses adequate licenses, patents, patent applications,
copyrights, service marks, trademarks, trademark applications, tradestyles and
trade names to continue to conduct its business as heretofore conducted by it,
except to the extent that the failure to possess such items would not have a
Material Adverse Effect on such Borrower.
(t) Environmental Matters.
No Borrower has not 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 Environmental Law or any license, permit,
certificate, approval or similar authorization thereunder and the operations of
each Borrower comply in all material respects with all Environmental Laws and
all licenses, permits, certificates, approvals and similar authorizations
thereunder. 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 a Borrower or the 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 or any other environmental,
-27-
health or safety matter, which affects a Borrower or its business, operations or
assets or any properties at which a Borrower has transported, stored or disposed
of any Hazardous Materials. No Borrower has 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.
(u) ERISA Matters.
Each Borrower has paid and discharged all obligations and liabilities
arising under ERISA of a character which, if unpaid or unperformed, might result
in the imposition of a lien against any of its properties or assets.
12. AFFIRMATIVE COVENANTS.
Until payment and satisfaction in full of all Liabilities and termination
of this Agreement, unless Borrowers obtain Lender's prior written consent
waiving or modifying any of Borrowers' covenants hereunder in any specific
instance, each Borrower covenants and agrees as follows:
(a) Maintenance of Records.
Each Borrower shall at all times keep accurate and complete books, records
and accounts with respect to all of such Borrower's business activities, in
accordance with sound accounting practices and generally accepted accounting
principles consistently applied, and shall keep such books, records and
accounts, and any copies thereof, only at the addresses indicated for such
purpose on Exhibit A;
(b) Notices.
Each Borrower shall:
(i) Locations. Promptly (but in no event less than ten (10) days prior to
the occurrence thereof) notify Lender of the proposed opening of any new place
of business or new location of Collateral, the closing of any existing place of
business or location of Collateral, any change of in the location of such
Borrower's books, records and accounts (or copies thereof), the opening or
closing of any post office box, the opening or closing of any bank account or,
if any of the Collateral consists of Goods of a type normally used in more than
one state, the use of any such Goods in any state other than a state in which
such Borrower has previously advised Lender that such Goods will be used;
provided, each Borrower has advised Lender that the Equipment is used in many
states in the United States and in many provinces in Canada.
-28-
(ii) Eligible Accounts. Promptly upon becoming aware thereof, notify Lender
if any Account identified by such Borrower to Lender as an Eligible Account
becomes ineligible for any reason.
(iii) Litigation and Proceedings. Promptly upon becoming aware thereof,
notify Lender of any actions or proceedings which are pending or threatened
against such Borrower which might have a Material Adverse Effect on such
Borrower and of any Commercial Tort Claims of such Borrower which may arise,
which notice shall constitute such Borrower's authorization to amend Exhibit C
to add such Commercial Tort Claim.
(iv) Names and Trade names. Notify Lender within ten (10) days of the
change of its name or the use of any trade name, assumed name, fictitious name
or division name not previously disclosed to Lender in writing.
(v) ERISA Matters. Promptly notify Lender of (x) the occurrence of any
"reportable event" (as defined in ERISA) which might result in the termination
by the Pension Benefit Guaranty Corporation (the "PBGC") of any employee benefit
plan ("Plan") covering any officers or employees of such Borrower, any benefits
of which are, or are required to be, guaranteed by the PBGC, (y) receipt of any
notice from the PBGC of its intention to seek termination of any Plan or
appointment of a trustee therefor or (z) its intention to terminate or withdraw
from any Plan.
(vi) Environmental Matters. Immediately notify Lender upon becoming aware
of any investigation, proceeding, complaint, order, directive, claim, citation
or notice with respect to any non-compliance with or violation of the
requirements of any Environmental Law by such Borrower 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 such Borrower or its business operations or assets or any
properties at which such Borrower has transported, stored or disposed of any
Hazardous Materials unless, the foregoing could not reasonably be expected to
have a Material Adverse Effect on such Borrower.
(vii) Default; Material Adverse Change. Promptly advise Lender of any
material adverse change in the business, property, assets, prospects, operations
or condition, financial or otherwise, of such Borrower, the occurrence of any
Event of Default hereunder or the occurrence of any event which, if uncured,
will become an Event of Default after notice or lapse of time (or both).
All of the foregoing notices shall be provided by Borrowers to Lender in
writing.
-29-
(c) Compliance with Laws and Maintenance of Permits.
Each Borrower shall maintain all governmental consents, franchises,
certificates, licenses, authorizations, approvals and permits, the lack of which
would have a Material Adverse Effect on such Borrower and each Borrower shall
remain in compliance with all applicable federal, state, local and foreign
statutes, orders, regulations, rules and ordinances (including, without
limitation, Environmental Laws and statutes, orders, regulations, rules and
ordinances relating to taxes, employer and employee contributions and similar
items, securities, ERISA or employee health and safety) the failure with which
to comply would have a Material Adverse Effect on such Borrower. Following any
determination by Lender that there is non-compliance, or any condition which
requires any action by or on behalf of a Borrower in order to avoid
non-compliance, with any Environmental Law, at such Borrower's expense cause an
independent environmental engineer acceptable to Lender to conduct such tests of
the relevant site(s) as are appropriate and prepare and deliver a report setting
forth the results of such tests, a proposed plan for remediation and an estimate
of the costs thereof.
(d) Inspection and Audits.
Each Borrower shall permit Lender, or any Persons designated by it, to call
at such Borrower's places of business at any reasonable times, and, without
hindrance or delay, to inspect the Collateral and to inspect, audit, check and
make extracts from such Borrower's books, records, journals, orders, receipts
and any correspondence and other data relating to such Borrower's business, the
Collateral or any transactions between the parties hereto, and shall have the
right to make such verification concerning such Borrower's business as Lender
may consider reasonable under the circumstances. Each Borrower shall furnish to
Lender such information relevant to Lender's rights under this Agreement and the
Other Agreements as Lender shall at any time and from time to time request.
Lender, through its officers, employees or agents shall have the right, at any
time and from time to time, in Lender's name, to verify the validity, amount or
any other matter relating to any of such Borrower's Accounts, by mail,
telephone, telecopy, electronic mail, or otherwise, provided, that prior to the
occurrence of an Event of Default, Lender shall conduct such verification in the
name of a nominee of Lender or in such Borrower's name. Each Borrower authorizes
Lender to discuss the affairs, finances and business of such Borrower with any
officers, employees or directors of such Borrower or with its Parent or any
Affiliate or the officers, employees or directors of its Parent or any
Affiliate, and to discuss the financial condition of such Borrower with such
Borrower's independent public accountants. Any such discussions shall be without
liability to Lender or to Borrowers' independent public accountants. Borrowers
shall pay to Lender all customary fees and all costs and out-of-pocket expenses
incurred by Lender in the exercise of its rights hereunder, and all of such
fees, costs and expenses shall constitute Liabilities hereunder, shall be
payable on demand and, until paid, shall bear interest at the highest rate then
applicable to Loans hereunder;
-30-
(e) Insurance.
Each Borrower shall:
(i) Keep the Collateral properly housed and insured for the full insurable
value thereof against loss or damage by fire, theft, explosion, sprinklers,
collision (in the case of motor vehicles) and such other risks as are
customarily insured against by Persons engaged in businesses similar to that of
such Borrower, with such companies, in such amounts, with such deductibles, and
under policies in such form, as shall be satisfactory to Lender. Original (or
certified) copies of such policies of insurance have been or shall be, within
ninety (90) days of the date hereof, delivered to Lender, together with evidence
of payment of all premiums therefor, and shall contain an endorsement, in form
and substance acceptable to Lender, showing loss under such insurance policies
payable to Lender. Such endorsement, or an independent instrument furnished to
Lender, shall provide that the insurance company shall give Lender at least
thirty (30) days written notice before any such policy of insurance is altered
or canceled and that no act, whether willful or negligent, or default of such
Borrower or any other Person shall affect the right of Lender to recover under
such policy of insurance in case of loss or damage. Each Borrower hereby directs
all insurers under all policies of insurance to pay all proceeds payable
thereunder directly to Lender. Each Borrower irrevocably makes, constitutes and
appoints Lender (and all officers, employees or agents designated by Lender) as
such Borrower's true and lawful attorney (and agent-in-fact) for the purpose of
making, settling and adjusting claims under such policies of insurance,
endorsing the name of such Borrower on any check, draft, instrument or other
item of payment for the proceeds of such policies of insurance and making all
determinations and decisions with respect to such policies of insurance,
provided, however, that if no Event of Default shall have occurred and is
continuing, Borrowers may make, settle and adjust claims involving less than
$100,000.00 in the aggregate per Fiscal Year without Lender's consent. Maintain,
at its expense, such public liability and third party property damage insurance
as is customary for Persons engaged in businesses similar to that of such
Borrower with such companies and in such amounts, with such deductibles and
under policies in such form as shall be satisfactory to Lender and original (or
certified) copies of such policies have been or shall be, within ninety (90)
days after the date hereof, delivered to Lender, together with evidence of
payment of all premiums therefor; each such policy shall contain an endorsement
showing Lender as additional insured thereunder and providing that the insurance
company shall give Lender at least thirty (30) days written notice before any
such policy shall be altered or canceled. If any Borrower at any time or times
hereafter shall fail to obtain or maintain any of the policies of insurance
required above or to pay any premium relating thereto, then Lender, without
waiving or releasing any obligation or default by Borrowers hereunder, may (but
shall be under no obligation to) obtain and maintain such policies of insurance
and pay such premiums and take such other actions with respect thereto as Lender
deems advisable upon notice to such Borrower. Such insurance, if obtained by
Lender, may, but need not, protect such Borrower's interests or pay any claim
made by or against such Borrower with respect to the Collateral. Such insurance
may be more expensive than the cost of insurance such Borrower may be able to
obtain on its own and may be cancelled only upon such Borrower providing
evidence that it has obtained the insurance as required above. All sums
disbursed by Lender in
-31-
connection with any such actions, including, without limitation, court costs,
expenses, other charges relating thereto and reasonable attorneys' fees, shall
constitute Loans hereunder, shall be payable on demand by Borrowers to Lender
and, until paid, shall bear interest at the highest rate then applicable to
Loans hereunder.
(f) Collateral.
Each Borrower shall keep the Collateral in good condition, repair and
order, reasonable wear and tear excepted and shall make all necessary repairs to
the Equipment and replacements thereof so that the operating efficiency and the
value thereof shall at all times be preserved and maintained in all material
respects. Each Borrower shall permit Lender to examine any of the Collateral at
any time and wherever the Collateral may be located and, each Borrower shall,
immediately upon request therefor by Lender, deliver to Lender any and all
evidence of ownership of any of the Equipment constituting Collateral hereunder
including, without limitation, certificates of title and applications of title.
Each Borrower shall, at the request of Lender, indicate on its records
concerning the Collateral a notation, in form satisfactory to Lender, of the
security interest of Lender hereunder.
(g) Use of Proceeds.
All monies and other property obtained by a Borrower from Lender pursuant
to this Agreement shall be used solely for business purposes of such Borrower.
(h) Taxes.
Each Borrower shall file all required tax returns and pay all of its taxes when
due, subject to any extensions granted by the applicable taxing authority,
including, without limitation, taxes imposed by federal, state or municipal
agencies, and shall cause any liens for taxes to be promptly released; provided,
that such Borrower shall have the right to contest the payment of such taxes in
good faith by appropriate proceedings so long as (i) the amount so contested is
shown on such Borrower's financial statements; (ii) the contesting of any such
payment does not give rise to a lien for taxes; (iii) such Borrower keeps on
deposit with Lender (such deposit to be held without interest) or a reserve is
maintained against such Borrower's availability to borrow money under subsection
2(a), in either case, in an amount of money which, in the sole judgment of
Lender, is sufficient to pay such taxes and any interest or penalties that may
accrue thereon; and (iv) if such Borrower fails to prosecute such contest with
reasonable diligence, Lender may apply the money so deposited in payment of such
taxes. If a Borrower fails to pay any such taxes and in the absence of any such
contest by such Borrower, Lender may (but shall be under no obligation to)
advance and pay any sums required to pay any such taxes and/or to secure the
release of any lien therefor, and any sums so advanced by Lender shall
constitute Loans hereunder, shall be payable by such Borrower to Lender on
demand, and, until paid, shall bear interest at the highest rate then applicable
to Loans hereunder.
-32-
(i) Intellectual Property.
Each Borrower shall maintain adequate licenses, patents, patent
applications, copyrights, service marks, trademarks, trademark applications,
tradestyles and trade names to continue its business as heretofore conducted by
it or as hereafter conducted by it unless, the foregoing could not reasonably be
expected to have a Material Adverse Effect on such Borrower.
(j) Checking Account.
Each Borrower shall maintain its controlled disbursement account with
Lender; provided, East West shall have ninety (90) days from the date hereof to
transfer its controlled disbursement account to Lender. Normal charges shall be
assessed thereon.
(k) Federal Highway Administration.
Each Borrower shall provide Lender with its safety rating within two (2)
business days of receipt of any safety rating notification from the Federal
Highway Administration pursuant to 49 C.F.R. ss. 385.
13. NEGATIVE COVENANTS.
Until payment and satisfaction in full of all Liabilities and termination
of this Agreement, unless Borrowers obtain Lender's prior written consent
waiving or modifying any of Borrowers' covenants hereunder in any specific
instance, each Borrower agrees as follows:
(a) Guaranties.
No Borrower shall assume, guarantee or endorse, or otherwise become liable
in connection with, the obligations of any Person, except by endorsement of
instruments for deposit or collection or similar transactions in the ordinary
course of business.
(b) Indebtedness.
No Borrower shall create, incur, assume or become obligated (directly or
indirectly), for any loans or other indebtedness of borrowed money other than
the Loans, except that a Borrower may (i) borrow money from a person other than
Lender on an unsecured and subordinated basis if a subordination agreement in
favor of Lender and in form and substance satisfactory to Lender is executed and
delivered to Lender relative thereto; (ii) maintain its present indebtedness
listed on Schedule 11(n) hereto; (iii) incur unsecured indebtedness to trade
creditors in the ordinary course of business; (iv) incur purchase money
indebtedness or capitalized lease obligations in connection with Capital
Expenditures permitted pursuant to subsection 14(b) hereof; and (v) incur
indebtedness pursuant to the SMSD
-33-
Transactions in an aggregate amount not to exceed Thirty-Nine Million and No/100
Dollars ($39,000,000.00) in any Fiscal Year of Borrowers so long as Lender has a
prior perfected security interest in and lien upon substantially all of the
assets of SMSD.
(c) Liens.
No Borrower shall grant or permit to exist (voluntarily or involuntarily)
any lien, claim, security interest or other encumbrance whatsoever on any of its
assets, other than Permitted Liens.
(d) Mergers, Sales, Acquisitions, Subsidiaries and Other Transactions
Outside the Ordinary Course of Business.
No Borrower shall (i) enter into any merger or consolidation; (ii) change
the state of Borrower's organization or enter into any transaction which has the
effect of changing such Borrower's state of organization (iii) sell, lease or
otherwise dispose of any of its assets other than in the ordinary course of
business; (iv) purchase the stock, other equity interests or all or a material
portion of the assets of any Person or division of such Person; or (v) enter
into any other transaction outside the ordinary course of such Borrower's
business, including, without limitation, any purchase, redemption or retirement
of any shares of any class of its stock or any other equity interest, and any
issuance of any shares of, or warrants or other rights to receive or purchase
any shares of, any class of its stock or any other equity interest, provided
that, each Borrower may continue to enter into transactions under the following
plans and arrangements on a basis consistent with each Borrower's practices
prior to the date hereof: Incentive Stock Plan, New Employee Incentive Stock
Plan, Independent Contractor Driver Bonus Plan, 1997 Profit Incentive Plan,
Outside Director Stock Option Plan, annual rent ($5,000.00 in prior years) on a
building leased by Smithway Inc. from ▇▇▇▇▇▇ ▇▇▇▇▇ (wife of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇) is
paid in stock, and annual bonuses issued in the form of stock, rather than cash.
No Borrower shall form any Subsidiaries or enter into any joint ventures or
partnerships with any other Person.
(e) Dividends and Distributions.
Except in connection with the SMSD Transactions, no Borrower shall declare
or pay any dividend or other distribution (whether in cash or in kind) on any
class of its stock (if such Borrower is a corporation) or on account of any
equity interest in such Borrower (if such Borrower is a partnership, limited
liability company or other type of entity).
(f) Investments; Loans.
No Borrower shall purchase or otherwise acquire, or contract to purchase or
otherwise acquire, the obligations or stock of any Person, other than direct
obligations of the United States, obligations insured by the Federal Deposit
Insurance Corporation and obligations unconditionally guaranteed by the United
States;
-34-
nor shall any Borrower lend or otherwise advance funds to any Person except for
advances made to employees, owner operators, officers and directors for travel
and other expenses arising in the ordinary course of business and loans to
employees and owner operators not exceeding, with respect to Borrowers, Five
Hundred Thousand and No/100 Dollars ($500,000.00) in the aggregate outstanding
for all Persons at any one time.
(g) Fundamental Changes, Line of Business.
No Borrower shall amend its organizational documents or change its Fiscal
Year or enter into a new line of business materially different from such
Borrower's current business, unless (i) such actions would not have a Material
Adverse Effect on such Borrower, (ii) such actions would not affect the
obligations of such Borrower to Lender, (iii) such actions would not affect the
interpretation of any of the terms of this Agreement or the Other Agreements and
(iv) Lender has received ten (10) days prior written notice of such amendment or
change.
(h) Equipment.
No Borrower shall (i) permit any Equipment to become a Fixture to real
property unless such real property is owned by such Borrower and is subject to a
mortgage in favor of Lender, or if such real estate is leased, is subject to a
landlord's agreement in favor of Lender on terms acceptable to Lender, or (ii)
permit any Equipment to become an accession to any other personal property
unless such personal property is subject to a first priority lien in favor of
Lender.
(i) Affiliate Transactions.
Except as set forth on Schedule 11(i) hereto or as permitted pursuant to
subsection 11(c) hereof, no Borrower shall conduct, permit or suffer to be
conducted, transactions with Affiliates other than transactions for the purchase
or sale of Inventory or services in the ordinary course of business pursuant to
terms that are no less favorable to such Borrower than the terms upon which such
transactions would have been made had they been made to or with a Person that is
not an Affiliate.
(j) Settling of Accounts.
No Borrower shall settle or adjust any Account identified by a Borrower as
an Eligible Account or with respect to which the Account Debtor is an Affiliate
without the consent of Lender, provided, that following the occurrence and
during the continuance of an Event of Default, no Borrower shall settle or
adjust any Account without the consent of Lender.
-35-
(k) Operating Lease Obligations.
Borrowers shall not incur operating lease obligations requiring payments
which would exceed One Million and No/100 Dollars $1,000,000.00 in the aggregate
during any Fiscal Year of Borrowers.
14. FINANCIAL COVENANTS.
Each Borrower shall maintain and keep in full force and effect each of the
financial covenants set forth below:
(a) Tangible Net Worth.
The Consolidated Group's Tangible Net Worth shall not at any time be less
than the Minimum Tangible Net Worth; "Minimum Tangible Net Worth" being defined
for purposes of this subsection as $18,500,000.00 at all times from the date
hereof; and "Tangible Net Worth" being defined for purposes of this subsection
as the Consolidated Group's shareholders' equity (including retained earnings)
less the book value of all intangible assets as determined solely by Lender on a
consistent basis plus the amount of any LIFO reserve plus the amount of any debt
subordinated to Lender, all as determined under generally accepted accounting
principles applied on a basis consistent with the financial statement dated
December 31, 2000 except as set forth herein;
(b) Capital Expenditure Limitations.
Borrowers shall not make any Capital Expenditures if, after giving effect
to such Capital Expenditure, the aggregate cost of all such fixed assets
purchased or otherwise acquired would exceed (i) $15,000,000.00 during the 2002
Fiscal Year; and (ii) $20,000,000.00 during each of Fiscal Year 2003 and 2004.
(c) Fixed Charge Coverage.
As of the last day of each month from March 31, 2002 through December 31,
2002 for the period beginning January 1, 2002 and ending on each such date,
Borrowers shall not permit the ratio of the Consolidated Group's EBITDA to Fixed
Charges to be less than 1.0 to 1.0. Thereafter, as of the last day of each
fiscal quarter, for the twelve (12) month period ending on such date, Borrowers
shall not permit the ratio of the Consolidated Group's EBITDA to Fixed Charges
to be less than 1.0 to 1.0.
15. DEFAULT.
The occurrence of any one or more of the following events shall constitute
an "Event of Default" by Borrowers hereunder:
(a) Payment.
The failure of any Obligor to pay when due, declared due, or demanded by
Lender, any of the Liabilities.
-36-
(b) Breach of this Agreement and the Other Agreements.
The failure of any Obligor to perform, keep or observe any of the
covenants, conditions, promises, agreements or obligations of such Obligor under
this Agreement or any of the Other Agreements; provided that any such failure by
a Borrower under subsections 12(b)(i), (iv), (v), (vi), 12(c) and 12(i) of this
Agreement shall not constitute an Event of Default hereunder until the fifteenth
(15th) day following the occurrence thereof.
(c) Breaches of Other Obligations.
The failure of any Obligor to perform, keep or observe (after any
applicable notice and cure period) any of the covenants, conditions, promises,
agreements or obligations of such Obligor under any other agreement with any
Person if such failure might have a Material Adverse Effect on such Obligor.
(d) Breach of Representations and Warranties.
The making or furnishing by any Obligor to Lender of any representation,
warranty, certificate, schedule, report or other communication within or in
connection with this Agreement or the Other Agreements or in connection with any
other agreement between such Obligor and Lender, which is untrue or misleading
in any material respect as of the date made.
(e) Loss of Collateral.
The loss, theft, damage or destruction of any of the Collateral in an
amount in excess of $500,000.00 in the aggregate for all such events during any
year of the Original Term or any Renewal Term as determined by Lender in its
sole discretion determined in good faith, or (except as permitted hereby) sale,
lease or furnishing under a contract of service of, any of the Collateral.
(f) Levy, Seizure or Attachment.
The making or any attempt by any Person to make any levy, seizure or
attachment upon any of the Collateral.
(g) Bankruptcy or Similar Proceedings.
The commencement of any proceedings in bankruptcy by or against any Obligor
or for the liquidation or reorganization of any Obligor, or alleging that such
Obligor is insolvent or unable to pay its debts as they mature, or for the
readjustment or arrangement of any Obligor's debts, whether under the United
States Bankruptcy Code or under any other law, whether state or federal, now or
hereafter existing, for the relief of debtors, or the commencement of any
analogous statutory or non-statutory proceedings involving any Obligor;
provided, however, that if such commencement of proceedings against such Obligor
is involuntary, such
-37-
action shall not constitute an Event of Default unless such proceedings are not
dismissed within forty-five (45) days after the commencement of such
proceedings.
(h) Appointment of Receiver.
The appointment of a receiver or trustee for any Obligor, for any of the
Collateral or for any substantial part of any Obligor's assets or the
institution of any proceedings for the dissolution, or the full or partial
liquidation, or the merger or consolidation, of any Obligor which is a
corporation, limited liability company or a partnership; provided, however, that
if such appointment or commencement of proceedings against such Obligor is
involuntary, such action shall not constitute an Event of Default unless such
appointment is not revoked or such proceedings are not dismissed within
forty-five (45) days after the commencement of such proceedings.
(i) Judgment.
The entry of any judgments or orders aggregating in excess of $1,000,000.00
in any Fiscal Year against any Obligor which remains unsatisfied or undischarged
and in effect for thirty (30) days after such entry without a stay of
enforcement or execution.
(j) Death or Dissolution of Obligor.
The death of any Obligor who is a natural Person, or of any general partner
who is a natural Person of any Obligor which is a partnership, or any member who
is a natural Person of any Obligor which is a limited liability company or the
dissolution of any Obligor which is a partnership, limited liability company,
corporation or other entity.
(k) Default or Revocation of Guaranty.
The occurrence of an event of default under, or the revocation or
termination of, any agreement, instrument or document executed and delivered by
any Person to Lender pursuant to which such Person has guaranteed to Lender the
payment of all or any of the Liabilities or has granted Lender a security
interest in or lien upon some or all of such Person's real and/or personal
property to secure the payment of all or any of the Liabilities.
(l) Criminal Proceedings.
The institution in any court of a criminal proceeding against any Obligor
which would have a Material Adverse Effect on such Obligor, or the indictment of
any Obligor for any crime other than traffic and boating tickets and
misdemeanors not punishable by jail terms.
-38-
(m) Change of Control.
The failure of Smithway Corp. to own and have voting control of at least
one hundred percent (100%) of the issued and outstanding capital stock of each
Borrower and the failure of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ to own and have voting control of
at least twenty (20) percent of the issued and outstanding voting Class A and
Class B common shares of Smithway Corp.
(n) Change of Management.
If ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ shall cease to be the Chairman of Smithway Corp. and
President of each Borrower at any time.
(o) Material Adverse Change.
Any material adverse change in the Collateral, business, property, assets,
prospects, operations or condition, financial or otherwise of any Obligor, as
determined by Lender in its sole judgment or the occurrence of any event which,
in Lender's sole judgment, could have a Material Adverse Effect.
(p) Federal Highway Administration Matters.
If a Borrower has received notification by the Federal Highway
Administration that such Borrower's motor carrier operations have been rated
"Unsatisfactory" as provided under 49 C.F.R. ss.385, and such rating is not
changed to "Satisfactory " within thirty (30) days.
16. REMEDIES UPON AN EVENT OF DEFAULT.
Upon the occurrence and during the continuance of an Event of Default
described in subsection 15(g) hereof, all of the Liabilities shall immediately
and automatically become due and payable, without notice of any kind. Upon the
occurrence of any other Event of Default, all Liabilities may, at the option of
Lender, and without demand, notice or legal process of any kind, be declared,
and immediately shall become, due and payable. Upon the occurrence and during
the continuance of an Event of Default, Lender may exercise from time to time
any rights and remedies available to it under the Uniform Commercial Code and
any other applicable law in addition to, and not in lieu of, any rights and
remedies expressly granted in this Agreement or in any of the Other Agreements
and all of Lender's rights and remedies shall be cumulative and non-exclusive to
the extent permitted by law. In particular, but not by way of limitation of the
foregoing, Lender may, without notice, demand or legal process of any kind, take
possession of any or all of the Collateral (in addition to Collateral of which
it already has possession), wherever it may be found, and for that purpose may
pursue the same wherever it may be found, and may enter onto any of Borrowers'
premises where any of the Collateral may be, and search for, take possession of,
remove, keep and store any of the Collateral until the same shall be sold or
otherwise disposed of, and Lender shall
-39-
have the right to store the same at any of Borrowers' premises without cost to
Lender. At Lender's request, each Borrower shall, at such Borrower's expense,
assemble the Collateral and make it available to Lender at one or more places to
be designated by Lender and reasonably convenient to Lender and such Borrower.
Each Borrower recognizes that if a Borrower fails to perform, observe or
discharge any of its Liabilities under this Agreement or the Other Agreements,
no remedy at law will provide adequate relief to Lender, and agrees that Lender
shall be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages. Any notification of intended
disposition of any of the Collateral required by law will be deemed to be a
reasonable authenticated notification of disposition if given at least ten (10)
days prior to such disposition and such notice shall (i) describe Lender and
Borrowers, (ii) describe the Collateral that is the subject of the intended
disposition, (iii) state the method of the intended disposition, (iv) state that
Borrowers are entitled to an accounting of the Liabilities and state the charge,
if any, for an accounting and (v) state the time and place of any public
disposition or the time after which any private sale is to be made. Lender may
disclaim any warranties that might arise in connection with the sale, lease or
other disposition of the Collateral and has no obligation to provide any
warranties at such time. Any Proceeds of any disposition by Lender of any of the
Collateral may be applied by Lender to the payment of expenses in connection
with the Collateral, including, without limitation, legal expenses and
reasonable attorneys' fees, and any balance of such Proceeds may be applied by
Lender toward the payment of such of the Liabilities, and in such order of
application, as Lender may from time to time elect.
17. CONDITIONS PRECEDENT.
The obligation of Lender to fund the Term Loans hereunder, to fund the
initial Revolving Loan hereunder, and to issue or cause to be issued the initial
Letter of Credit, is subject to the satisfaction or waiver on or before the date
hereof of the following conditions precedent:
(a) Lender shall have received each of the agreements, opinions, reports,
approvals, consents, certificates and other documents set forth on the closing
document list attached hereto as Schedule 17(a) (the "Closing Document List");
(b) Since October 22, 2001, no event shall have occurred which has had or
could reasonably be expected to have a Material Adverse Effect on any Obligor,
as determined by Lender in its sole discretion;
(c) Lender shall have received payment in full of all fees and expenses
payable to it by Borrowers or any other Person in connection herewith, on or
before disbursement of the initial Loans hereunder; and
(d) The Obligors shall have executed and delivered to Lender all such other
documents, instruments and agreements which Lender determines are reasonably
necessary to consummate the transactions contemplated hereby.
-40-
18. JOINT AND SEVERAL LIABILITY.
(a) Notwithstanding anything to the contrary contained herein, all
Liabilities of each Borrower hereunder shall be joint and several obligations of
Borrowers.
(b) Notwithstanding any provisions of this Agreement to the contrary, it is
intended that the joint and several nature of the Liabilities of Borrowers and
the liens and security interests granted by Borrowers to secure the Liabilities,
not constitute a "Fraudulent Conveyance" (as defined below). Consequently,
Lender and Borrowers agree that if the Liabilities of a Borrower, or any liens
or security interests granted by such Borrower securing the Liabilities would,
but for the application of this sentence, constitute a Fraudulent Conveyance,
the Liabilities of such Borrower and the liens and security interests securing
such Liabilities shall be valid and enforceable only to the maximum extent that
would not cause such Liabilities or such lien or security interest to constitute
a Fraudulent Conveyance, and the Liabilities of such Borrower and this Agreement
shall automatically be deemed to have been amended accordingly. For purposes
hereof, "Fraudulent Conveyance" means a fraudulent conveyance under Section 548
of Chapter 11 of Title II of the United States Code (11 U.S.C. ss. 101, et
seq.), as amended (the "Bankruptcy Code") or a fraudulent conveyance or
fraudulent transfer under the applicable provisions of any fraudulent conveyance
or fraudulent transfer law or similar law of any state, nation or other
governmental unit, as in effect from time to time.
(c) Each Borrower assumes responsibility for keeping itself informed of the
financial condition of each other Borrower, and any and all endorsers and/or
guarantors of any instrument or document evidencing all or any part of such
other Borrower's Liabilities and of all other circumstances bearing upon the
risk of nonpayment by such other Borrowers of their Liabilities and each
Borrower agrees that Lender shall not have any duty to advise such Borrower of
information known to Lender regarding such condition or any such circumstances
or to undertake any investigation not a part of its regular business routine. If
Lender, in its sole discretion, undertakes at any time or from time to time to
provide any such information to a Borrower, Lender shall not be under any
obligation to update any such information or to provide any such information to
such Borrower on any subsequent occasion.
(d) Lender is hereby authorized, without notice or demand and without
affecting the liability of a Borrower hereunder, to, at any time and from time
to time, (i) renew, extend, accelerate or otherwise change the time for payment
of, or other terms relating to a Borrower's Liabilities or otherwise modify,
amend or change the terms of any promissory note or other agreement, document or
instrument now or hereafter executed by a Borrower and delivered to Lender; (ii)
accept partial payments on a Borrower's Liabilities; (iii) take and hold
security or collateral for the payment of a Borrower's Liabilities hereunder or
for the payment of any guaranties of a Borrower's Liabilities or other
liabilities of a Borrower and exchange, enforce, waive and release any such
security or collateral; (iv) apply such security or collateral and direct the
order or manner of sale thereof as Lender, in its sole discretion, may
determine; and (v) settle, release, compromise, collect or otherwise liquidate a
Borrower's Liabilities and any
-41-
security or collateral therefor in any manner, without affecting or impairing
the obligations of the other Borrowers. Lender shall have the exclusive right to
determine the time and manner of application of any payments or credits, whether
received from a Borrower or any other source, and such determination shall be
binding on such Borrower. All such payments and credits may be applied, reversed
and reapplied, in whole or in part, to any of a Borrower's Liabilities as Lender
shall determine in its sole discretion without affecting the validity or
enforceability of the Liabilities of the other Borrowers.
(e) Each Borrower hereby agrees that, except as hereinafter provided, its
obligations hereunder shall be unconditional, irrespective of (i) the absence of
any attempt to collect a Borrower's Liabilities from any Borrower or any
guarantor or other action to enforce the same; (ii) the waiver or consent by
Lender with respect to any provision of any instrument evidencing Borrowers'
Liabilities, or any part thereof, or any other agreement heretofore, now or
hereafter executed by a Borrower and delivered to Lender; (iii) failure by
Lender to take any steps to perfect and maintain its security interest in, or to
preserve its rights to, any security or collateral for Borrowers' Liabilities;
(iv) the institution of any proceeding under the Bankruptcy Code, or any similar
proceeding, by or against a Borrower or Lender 's election in any such
proceeding of the application of Section 1111(b)(2) of the Bankruptcy Code; (v)
any borrowing or grant of a security interest by any Borrower as
debtor-in-possession, under Section 364 of the Bankruptcy Code; (vi) the
disallowance, under Section 502 of the Bankruptcy Code, of all or any portion of
Lender 's claim(s) for repayment of any of Borrowers' Liabilities; or (vii) any
other circumstance which might otherwise constitute a legal or equitable
discharge or defense of a guarantor.
(f) No payment made by or for the account of a Borrower including, without
limitations, (i) a payment made by such Borrower on behalf of another Borrower's
Liabilities or (ii) a payment made by any other person under any guaranty, shall
entitle such Borrower, by subrogation or otherwise, to any payment from such
other Borrower or from or out of such other Borrower's property and such
Borrower shall not exercise any right or remedy against such other Borrower or
any property of such other Borrower by reason of any performance of such
Borrower of its joint and several obligations hereunder.
19. INDEMNIFICATION.
Each Borrower agrees to defend (with counsel satisfactory to Lender),
protect, indemnify and hold harmless Lender, each affiliate or subsidiary of
Lender, and each of their respective officers, directors, employees, attorneys
and agents (each an "Indemnified Party") from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature (including,
without limitation, the disbursements and the reasonable fees of counsel for
each Indemnified Party in connection with any investigative, administrative or
judicial proceeding, whether or not the Indemnified Party shall be designated a
party thereto), which may be imposed on, incurred by, or asserted against, any
Indemnified Party (whether direct, indirect or
-42-
consequential and whether based on any federal, state or local laws or
regulations, including, without limitation, securities laws and regulations,
Environmental Laws and commercial laws and regulations, under common law or in
equity, or based on contract or otherwise) in any manner relating to or arising
out of this Agreement or any Other Agreement, or any act, event or transaction
related or attendant thereto, the making or issuance and the management of the
Loans or any Letters of Credit or the use or intended use of the proceeds of the
Loans or any Letters of Credit; provided, however, that no Borrower shall have
any obligation hereunder to any Indemnified Party with respect to matters caused
by or resulting from the willful misconduct or gross negligence of such
Indemnified Party. To the extent that the undertaking to indemnify set forth in
the preceding sentence may be unenforceable because it is violative of any law
or public policy, each Borrower shall satisfy such undertaking to the maximum
extent permitted by applicable law. Any liability, obligation, loss, damage,
penalty, cost or expense covered by this indemnity shall be paid to each
Indemnified Party on demand, and, failing prompt payment, shall, together with
interest thereon at the highest rate then applicable to Loans hereunder from the
date incurred by each Indemnified Party until paid by Borrowers, be added to the
Liabilities of Borrowers and be secured by the Collateral. The provisions of
this Section 18 shall survive the satisfaction and payment of the other
Liabilities and the termination of this Agreement.
20. NOTICE.
All written notices and other written communications with respect to this
Agreement shall be sent by ordinary, certified or overnight mail, by telecopy or
delivered in person, and in the case of Lender shall be sent to it at ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, attention: ▇▇▇▇ ▇▇▇▇▇▇▇, facsimile
number: (▇▇▇) ▇▇▇-▇▇▇▇, and in the case of Borrowers shall be sent to them at
their respective principal places of business set forth on Exhibit A hereto or
as otherwise directed by Borrowers in writing. All notices shall be deemed
received upon actual receipt thereof or refusal of delivery.
21. CHOICE OF GOVERNING LAW; CONSTRUCTION; FORUM SELECTION.
This Agreement and the Other Agreements are submitted by Borrowers to
Lender for Lender's acceptance or rejection at Lender's principal place of
business as an offer by Borrowers to borrow monies from Lender now and from time
to time hereafter, and shall not be binding upon Lender or become effective
until accepted by Lender, in writing, at said place of business. If so accepted
by Lender, this Agreement and the Other Agreements shall be deemed to have been
made at said place of business. THIS AGREEMENT AND THE OTHER AGREEMENTS SHALL BE
GOVERNED AND CONTROLLED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS AS TO
INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT, AND IN ALL OTHER
RESPECTS, INCLUDING, WITHOUT LIMITATION, THE LEGALITY OF THE INTEREST RATE AND
OTHER
-43-
CHARGES, BUT EXCLUDING PERFECTION OF THE SECURITY INTERESTS IN COLLATERAL
LOCATED OUTSIDE OF THE STATE OF ILLINOIS, WHICH SHALL BE GOVERNED AND CONTROLLED
BY THE LAWS OF THE RELEVANT JURISDICTION IN WHICH SUCH COLLATERAL IS LOCATED. If
any provision of this Agreement shall be held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or remaining provisions of this Agreement.
To induce Lender to accept this Agreement, each Borrower irrevocably agrees
that, subject to Lender's sole and absolute election, ALL ACTIONS OR PROCEEDINGS
IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS
AGREEMENT, THE OTHER AGREEMENTS OR THE COLLATERAL SHALL BE LITIGATED IN COURTS
HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. Each BORROWER HEREBY
CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURTS
LOCATED WITHIN SAID CITY AND STATE. Each Borrower hereby irrevocably appoints
and designates the CT Corporation, with an address of ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (or any other person having and maintaining a place of
business in such state whom such Borrower may from time to time hereafter
designate upon ten (10) days written notice to Lender and whom Lender has agreed
in its sole discretion in writing is satisfactory and who has executed an
agreement in form and substance satisfactory to Lender agreeing to act as such
attorney and agent), as such Borrower's true and lawful attorney and duly
authorized agent for acceptance of service of legal process. Each Borrower
agrees that service of such process upon such person shall constitute personal
service of such process upon such Borrower Lender agrees to endeavor to provide
a copy of such process to the law firm of ▇▇▇▇▇▇▇ Law Firm, P.C. by mail at the
address of ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ or by
facsimile transmission at facsimile number (▇▇▇) ▇▇▇-▇▇▇▇. Failure of Lender to
provide a copy of such process shall not impair Lender's rights hereunder. Each
BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF
ANY LITIGATION BROUGHT AGAINST SUCH BORROWER BY LENDER IN ACCORDANCE WITH THIS
SECTION.
22. MODIFICATION AND BENEFIT OF AGREEMENT.
This Agreement and the Other Agreements may not be modified, altered or
amended except by an agreement in writing signed by each Borrower or such other
Person who is a party to such Other Agreement and Lender. No Borrower may sell,
assign or transfer this Agreement, or the Other Agreements or any portion
thereof, including, without limitation, such Borrower's rights, titles,
interest, remedies, powers or duties hereunder and thereunder. Each Borrower
hereby consents to Lender's sale, assignment, transfer or other disposition, at
any time and from time to time hereafter, of this Agreement, or the Other
Agreements, or of any portion thereof, or participations therein, including,
without limitation, Lender's
-44-
rights, titles, interest, remedies, powers and/or duties and agrees that it
shall execute and deliver such documents as Lender may request in connection
with any such sale, assignment, transfer or other disposition.
23. HEADINGS OF SUBDIVISIONS.
The headings of subdivisions in this Agreement are for convenience of
reference only, and shall not govern the interpretation of any of the provisions
of this Agreement.
24. POWER OF ATTORNEY.
Each Borrower acknowledges and agrees that its appointment of Lender as its
attorney and agent-in-fact for the purposes specified in this Agreement is an
appointment coupled with an interest and shall be irrevocable until all of the
Liabilities are satisfied and paid in full and this Agreement is terminated.
25. CONFIDENTIALITY.
Each Borrower and Lender hereby agree and acknowledge that any and all
information relating to such Borrower which is (i) furnished by such Borrower to
Lender (or to any affiliate of Lender); and (ii) non-public, confidential or
proprietary in nature, shall be kept confidential by Lender or such affiliate in
accordance with applicable law; provided, however, that such information and
other credit information relating to such Borrower may be distributed by Lender
or such affiliate to Lender's or such affiliate's directors, officers,
employees, attorneys, affiliates, assignees, participants, auditors, agents and
regulators, and upon the order of a court or other governmental agency having
jurisdiction over Lender or such affiliate, to any other party. Each Borrower
and Lender further agree that this provision shall survive the termination of
this Agreement. Notwithstanding the foregoing, each Borrower hereby consents to
Lender publishing a tombstone or similar advertising material relating to the
financing transaction contemplated by this Agreement.
26. COUNTERPARTS.
This Agreement, any of the Other Agreements, and any amendments, waivers,
consents or supplements may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which, when so
executed and delivered, shall be deemed an original, but all of which
counterparts together shall constitute but one agreement.
27. ELECTRONIC SUBMISSIONS.
Upon not less than thirty (30) days' prior written notice (the "Approved
Electronic Form Notice"), Lender may permit or require that any of the
documents, certificates, forms, deliveries or other communications, authorized,
required or contemplated by this Agreement or the Other Agreements, be submitted
to Lender
-45-
in "Approved Electronic Form" (as hereafter defined), subject to any reasonable
terms, conditions and requirements in the applicable Approved Electronic Forms
Notice. For purposes hereof "Electronic Form" means e-mail, e-mail attachments,
data submitted on web-based forms or any other communication method that
delivers machine readable data or information to Lender, and "Approved
Electronic Form" means an Electronic Form that has been approved in writing by
Lender (which approval has not been revoked or modified by Lender) and sent to
Borrowers in an Approved Electronic Form Notice. Except as otherwise
specifically provided in the applicable Approved Electronic Form Notice, any
submissions made in an applicable Approved Electronic Form shall have the same
force and effect that the same submissions would have had if they had been
submitted in any other applicable form authorized, required or contemplated by
this Agreement or the Other Agreements.
28. WAIVER OF JURY TRIAL; OTHER WAIVERS.
(a) EACH BORROWER AND LENDER EACH HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY
IN ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS
AGREEMENT, ANY OF THE OTHER AGREEMENTS, THE LIABILITIES, THE COLLATERAL, ANY
ALLEGED TORTIOUS CONDUCT BY A BORROWER OR LENDER OR WHICH, IN ANY WAY, DIRECTLY
OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN A BORROWER
AND LENDER. IN NO EVENT SHALL LENDER BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL
OR CONSEQUENTIAL DAMAGES.
(b) Each Borrower hereby waives demand, presentment, protest and notice of
nonpayment, and further waives the benefit of all valuation, appraisal and
exemption laws.
(c) Each Borrower hereby waives the benefit of any law that would otherwise
restrict or limit Lender or any affiliate of Lender in the exercise of its
right, which is hereby acknowledged and agreed to, to set-off against the
Liabilities, without notice at any time hereafter, any indebtedness, matured or
unmatured, owing by Lender or such affiliate of Lender to such Borrower,
including, without limitation any deposit account at Lender or such affiliate.
(d) EACH BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY
KIND PRIOR TO THE EXERCISE BY LENDER OF ITS RIGHTS TO REPOSSESS THE COLLATERAL
OF SUCH BORROWER WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON
SUCH COLLATERAL, PROVIDED THAT IN THE EVENT THAT LENDER SEEKS TO ENFORCE ITS
RIGHTS HEREUNDER BY JUDICIAL PROCESS OR SELF HELP, LENDER SHALL PROVIDE SUCH
BORROWER WITH SUCH NOTICES AS ARE REQUIRED BY LAW.
-46-
(e) Lender's failure, at any time or times hereafter, to require strict
performance by a Borrower of any provision of this Agreement or any of the Other
Agreements shall not waive, affect or diminish any right of Lender thereafter to
demand strict compliance and performance therewith. Any suspension or waiver by
Lender of an Event of Default under this Agreement or any default under any of
the Other Agreements shall not suspend, waive or affect any other Event of
Default under this Agreement or any other default under any of the Other
Agreements, whether the same is prior or subsequent thereto and whether of the
same or of a different kind or character. No delay on the part of Lender in the
exercise of any right or remedy under this Agreement or any Other Agreement
shall preclude other or further exercise thereof or the exercise of any right or
remedy. None of the undertakings, agreements, warranties, covenants and
representations of Borrowers contained in this Agreement or any of the Other
Agreements and no Event of Default under this Agreement or default under any of
the Other Agreements shall be deemed to have been suspended or waived by Lender
unless such suspension or waiver is in writing, signed by a duly authorized
officer of Lender and directed to Borrowers specifying such suspension or
waiver.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first written above.
SMITHWAY MOTOR XPRESS, INC. LASALLE BANK NATIONAL
ASSOCIATION
By /s/ G. ▇▇▇▇▇ ▇▇▇▇▇
---------------------
Title Exec. V.P.
--------------------- By /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------
And Title Sr V.P.
-----------------------
EAST WEST MOTOR EXPRESS, INC.
By /s/ G. ▇▇▇▇▇ ▇▇▇▇▇
----------------------------
Title Vice-Pres
----------------------------
Consented and agreed to this 28th day of December by:
SMITHWAY MOTOR XPRESS CORP. SMSD ACQUISITION CORP.
By /s/ G. ▇▇▇▇▇ ▇▇▇▇▇ By /s/ G. ▇▇▇▇▇ ▇▇▇▇▇
---------------------- ------------------------
Title Exec. V.P. Title Vice-Pres
---------------------------- ------------------------
-47-
Exhibits and Schedules available upon request.