WELLS FARGO BUSINESS CREDIT CREDIT AND SECURITY AGREEMENT

Exhibit 4c.

 

▇▇▇▇▇ FARGO BUSINESS CREDIT

CREDIT AND SECURITY AGREEMENT

 

THIS CREDIT AND SECURITY AGREEMENT (this “Agreement”) is dated September 17, 2008, and is entered into between Winnebago Industries, Inc., an Iowa corporation (“Company”), and ▇▇▇▇▇ Fargo Bank, National Association (as more fully defined in Exhibit A, “▇▇▇▇▇ Fargo”), acting through its ▇▇▇▇▇ Fargo Business Credit operating division.

 

RECITALS

 

Company has asked ▇▇▇▇▇ Fargo to provide it with a $25,000,000 revolving line of credit (the “Line of Credit”) for working capital purposes and to facilitate the issuance of documentary and standby letters of credit. ▇▇▇▇▇ Fargo is agreeable to meeting Company’s request, provided that Company agrees to the terms and conditions of this Agreement.

 

For purposes of this Agreement, capitalized terms not otherwise defined in this Agreement shall have the meanings given them in Exhibit A.

 

 

 

(a)        Line of Credit and Limitations on Borrowing. ▇▇▇▇▇ Fargo shall make Advances to Company under the Line of Credit that, together with the L/C Amount, shall not at any time exceed in the aggregate the lesser of (i) $25,000,000 (the “Maximum Line Amount”), or (ii) the Borrowing Base limitations described in Section 1.2. Within these limits, Company may periodically borrow, prepay in whole or in part, and reborrow. ▇▇▇▇▇ Fargo has no obligation to make an Advance during a Default Period or at any time ▇▇▇▇▇ Fargo believes that an Advance would result in an Event of Default.

 

(b)       Maturity and Termination Dates. Company may request Advances from the date that the conditions set forth in Section 3 are satisfied until the earlier of: (i) September 17, 2010 (the “Maturity Date”), (ii) the date Company terminates the Line of Credit, or (iii) the date ▇▇▇▇▇ Fargo terminates the Line of Credit following an Event of Default. (The earliest of these dates is the “Termination Date.”)

 

(c)        Use of Line of Credit Proceeds. Company shall use the proceeds of each Advance and each Letter of Credit for ordinary working capital purposes.

 

(d)       Revolving Note. Company’s obligation to repay Advances, regardless of how initiated under Section 1.3, shall be evidenced by a revolving promissory note (as renewed, amended or replaced from time to time, the “Revolving Note”).

 

 

 

(i)        80% or such lesser percentage of Eligible Accounts consisting of motor home accounts receivable as ▇▇▇▇▇ Fargo in its sole discretion may deem appropriate, plus  

 

(ii)       80% or such lesser percentage of Eligible Accounts consisting of parts and service accounts receivable as ▇▇▇▇▇ Fargo in its sole discretion may deem appropriate, plus  

 

(iii)      25% or such lesser percentage of Eligible Inventory consisting of raw materials as ▇▇▇▇▇ Fargo in its sole discretion may deem appropriate, plus  

 

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(iv)      35% or such lesser percentage of Eligible Inventory consisting of chassis as ▇▇▇▇▇ Fargo in its sole discretion may deem appropriate, plus

 

(v)       60% or such lesser percentage of Eligible Inventory consisting of finished goods as ▇▇▇▇▇ Fargo in its sole discretion may deem appropriate, less

 

(vi)      the Borrowing Base Reserve, less

 

(vii)     Indebtedness that Company owes ▇▇▇▇▇ Fargo that has not been advanced on the Revolving Note, less

 

(viii)    Indebtedness that is not otherwise described in Section 1, including Indebtedness that ▇▇▇▇▇ Fargo in its sole discretion finds on the date of determination to be equal to ▇▇▇▇▇ Fargo’s net credit exposure with respect to any swap, derivative, foreign exchange, hedge, deposit, treasury management or similar transaction or arrangement extended to Company by ▇▇▇▇▇ Fargo and any Indebtedness owed by Company to ▇▇▇▇▇ Fargo Merchant Services, L.L.C.

 

(b)       Mandatory Prepayment; Overadvances. If unreimbursed Advances evidenced by the Revolving Note plus the L/C Amount exceed the Borrowing Base or the Maximum Line Amount at any time, then Company shall immediately prepay the Revolving Note in an amount sufficient to eliminate the excess, and if payment in full of the Revolving Note is insufficient to eliminate this excess and the L/C Amount continues to exceed the Borrowing Base, then Company shall deliver cash to ▇▇▇▇▇ Fargo in an amount equal to the remaining excess for deposit to the Special Account, unless, in each case, ▇▇▇▇▇ Fargo has delivered to Company an Authenticated Record consenting to the Overadvance prior to its occurrence, in which event the Overadvance shall be temporarily permitted on such terms and conditions as ▇▇▇▇▇ Fargo in its sole discretion may deem appropriate, including the payment of additional fees or interest, or both.

 

 

(a)        Advances to Operating Account. Advances shall be credited to Company’s demand deposit account maintained with ▇▇▇▇▇ Fargo (the “Operating Account”), unless the parties agree in a Record Authenticated by both of them to disburse to another account.

 

(i)        Advances upon Company’s Request. Line of Credit Advances may be funded upon Company’s request. No request will be deemed received until ▇▇▇▇▇ Fargo acknowledges receipt, and Company, if requested by ▇▇▇▇▇ Fargo, confirms the request in an Authenticated Record. Company shall repay all Advances, even if the Person requesting the Advance on behalf of Company lacked authorization.

 

(A)       Floating Rate Advances. If Company wants a Floating Rate Advance, it shall make the request no later than 11:59 a.m. Central Time on the Business Day on which it wants the Floating Rate Advance to be funded, which request shall specify the principal Advance amount being requested.

 

(B)       LIBOR Advances. If Company wants a LIBOR Advance, it shall make the request no later than 11:59 a.m. Central Time on the Business Day on which it wants the LIBOR Advance to be funded, which request shall specify both the principal Advance amount and Interest Period being requested. No more than four (4) separate LIBOR Advance Interest Periods may be outstanding at any time. Each LIBOR Advance shall be in multiples of $100,000 and in the minimum amount of at least $1,000,000. LIBOR Advances are not available for Advances made through the Loan Manager Service, and shall not be available during Default Periods.

 

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(b)       Protective Advances; Advances to Pay Indebtedness Due. ▇▇▇▇▇ Fargo may initiate a Floating Rate Advance on the Line of Credit in its sole discretion for any reason at any time, without Company’s compliance with any of the conditions of this Agreement, and (i) disburse the proceeds directly to third Persons in order to protect ▇▇▇▇▇ Fargo’s interest in Collateral or to perform any of Company’s obligations under this Agreement, or (ii) apply the proceeds to the amount of any Indebtedness then due and payable to ▇▇▇▇▇ Fargo.

 

 

(a)        Funding Line of Credit Advances as LIBOR Advances for Fixed Interest Periods. Company may fund a Line of Credit Advance as a LIBOR Advance for one, three, or six month periods (each period an “Interest Period,” as more fully defined in Exhibit A).

 

(b)       Procedure for Converting Floating Rate Advances to LIBOR Advances. Company may request that all or any part of an outstanding Floating Rate Advance be converted to a LIBOR Advance, provided that no Default Period is in effect, and that ▇▇▇▇▇ Fargo receives the request no later than 11:59 a.m. Central Time on the Business Day on which Company wishes the conversion to become effective. Each request shall (i) specify the principal amount of the Floating Rate Advance to be converted, (ii) the Business Day of conversion, and (iii) the Interest Period desired. The request shall be confirmed in an Authenticated Record if requested by ▇▇▇▇▇ Fargo. Each conversion to a LIBOR Advance shall be in multiples of $100,000 and in the minimum amount of at least $1,000,000.

 

(c)        Expiring LIBOR Advance Interest Periods. Unless Company requests a new LIBOR Advance, or prepays an outstanding LIBOR Advance at the expiration of an Interest Period, ▇▇▇▇▇ Fargo shall convert each LIBOR Advance to a Floating Rate Advance on the last day of the expiring Interest Period. If no Default Period is in effect, Company may request that all or part of any expiring LIBOR Advance be renewed as a new LIBOR Advance, provided that ▇▇▇▇▇ Fargo receives the request no later than 11:59 a.m. Central Time on the Business Day that constitutes the first day of the new Interest Period. Each request shall specify the principal amount of the expiring LIBOR Advance to be continued and the Interest Period desired, and shall be confirmed in an Authenticated Record if requested by ▇▇▇▇▇ Fargo. Each renewal of a LIBOR Advance shall be in multiples of $100,000 and in the minimum amount of at least $1,000,000.

 

(d)       Quotation of LIBOR Advance Interest Rates. ▇▇▇▇▇ Fargo shall, with respect to any request for a new or renewal LIBOR Advance, or the conversion of a Floating Rate Advance to a LIBOR Advance, provide Company with a LIBOR quote for each Interest Period identified by Company on the Business Day on which the request was made, if the request is received by ▇▇▇▇▇ Fargo no later than 11:59 a.m. Central Time of the Business Day on which Company has requested that the LIBOR Advance be made effective. If Company does not immediately accept a LIBOR quote, the quoted rate shall expire and any subsequent request for a LIBOR quote shall be subject to redetermination by ▇▇▇▇▇ Fargo.

 

(e)        Taxes and Regulatory Costs. Company shall also pay ▇▇▇▇▇ Fargo with respect to any LIBOR Advance all (i) withholdings, interest equalization taxes, stamp taxes or other taxes (except income and franchise taxes) imposed by any domestic or foreign governmental authority that are related to LIBOR, and (ii) future, supplemental, emergency or other changes in the LIBOR Reserve Percentage, the assessment rates imposed by the Federal Deposit Insurance Corporation, or similar costs imposed by any domestic or foreign governmental authority or resulting from compliance by ▇▇▇▇▇ Fargo with any request or directive (whether or not having the force of law) from any central bank or other governmental authority that are related to LIBOR but not otherwise included in the calculation of LIBOR. In determining which of these amounts are attributable to an existing LIBOR Advance, any reasonable allocation made by ▇▇▇▇▇ Fargo among its operations shall be deemed conclusive and binding.

 

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(a)        The Collection Account. Company has granted a security interest to ▇▇▇▇▇ Fargo in the Collateral, including all Accounts. Except as otherwise agreed by both parties in an Authenticated Record, if any Advance has been made (other than outstanding Letters of Credit), all Proceeds of Accounts and other Collateral, upon receipt or collection, shall be deposited each Business Day into the “Collection Account”. Funds so deposited (“Account Funds”) are the property of ▇▇▇▇▇ Fargo, and may only be withdrawn from the Collection Account by ▇▇▇▇▇ Fargo.

 

(b)       Payment of Accounts by Company’s Account Debtors. Company shall instruct all account debtors to make payments either directly to the Lockbox for deposit by ▇▇▇▇▇ Fargo directly to the Collection Account, or instruct them to deliver such payments to ▇▇▇▇▇ Fargo by wire transfer, ACH, or other means as ▇▇▇▇▇ Fargo may direct for deposit to the Collection Account or for direct application to the Line of Credit. If Company receives a payment or the Proceeds of Collateral directly, Company will promptly deposit the payment or Proceeds into the Collection Account. Until deposited, it will hold all such payments and Proceeds in trust for ▇▇▇▇▇ Fargo without commingling with other funds or property. All deposits held in the Collection Account shall constitute Proceeds of Collateral and shall not constitute the payment of Indebtedness.

 

(c)        Application of Payments to Revolving Note. ▇▇▇▇▇ Fargo will withdraw Account Funds deposited to the Collection Account and pay down borrowings on the Line of Credit by applying them to the Revolving Note on the first Business Day following the Business Day of deposit to the Collection Account, or, if payments are received by ▇▇▇▇▇ Fargo that are not first deposited to the Collection Account pursuant to any treasury management service provided to Company by ▇▇▇▇▇ Fargo, such payments shall be applied to the Revolving Note as provided in the Master Agreement for Treasury Management Services and the relevant service description.

 

 

(a)        Interest Rates Applicable to Line of Credit. Except as otherwise provided in this Agreement, the unpaid principal amount of each Line of Credit Advance evidenced by the Revolving Note shall accrue interest at an annual interest rate calculated as follows:

 

Floating Rate

 

Line of Credit Advances = Prime Rate plus the applicable Margin, which interest rate shall change whenever the Prime Rate changes (the “Floating Rate”); or

 

LIBOR Advance Rate for One, Three, or Six Month Interest Periods

 

Line of Credit Advances = LIBOR plus the applicable Margin (the “LIBOR Advance Rate”).

 

Multiple Advances under the Line of Credit may simultaneously accrue interest at both the Floating Rate and at the LIBOR Advance Rate, subject to the limitations of Section 1.3(a)(i).

 

The Margins through and including the first adjustment occurring as specified below shall be <0.25%> for Floating Rate Advances, and 2.00% for LIBOR Advances.

 

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(Numbers appearing between “< >“ are negative.) The Margins shall be adjusted each fiscal quarter of Company beginning with the quarter ending November 29, 2008, on the basis of the Liquidity of Company as of the end of the previous fiscal quarter, in accordance with the following table:

 

 

Each Margin change shall become effective on the first calendar day of the month following the month of receipt by ▇▇▇▇▇ Fargo of the financial statements. If Company fails to timely deliver financial statements as agreed, no reduction in Margin shall be made and ▇▇▇▇▇ Fargo may notify Company that an Event of Default has occurred and increase any Margin to the highest agreed upon Margin and impose the Default Rate.

 

If amended or restated financial statements would change previously calculated Margins, or if ▇▇▇▇▇ Fargo determines that any financial statements have materially misstated Company’s financial condition, then ▇▇▇▇▇ Fargo may, using the most accurate information available to it, recalculate the financial test or tests governing the Margins and retroactively reduce or increase the Margins from the date of receipt of such amended or restated financial statements and charge Company additional interest, which may be imposed on them from the beginning of the appropriate fiscal quarter to which the restated statements or recalculated financial tests relate or to the beginning of the fiscal quarter in which any Event of Default has occurred, as ▇▇▇▇▇ Fargo in its sole discretion deems appropriate.

 

(b)       Default Interest Rate. Commencing on the day an Event of Default occurs, through and including the date identified by ▇▇▇▇▇ Fargo in a Record as the date that the Event of Default has been cured or waived (each such period, a “Default Period”), or during a time period specified in Section 1.8, or at any time following the Termination Date, in ▇▇▇▇▇ Fargo’s sole discretion and without waiving any of its other rights or remedies, the principal amount of the Revolving Note shall bear interest at a rate that is three percent (3.0%) above the contractual rate set forth in Section 1.5(a) (the “Default Rate”), or any lesser rate that ▇▇▇▇▇ Fargo may deem appropriate, starting on the first day of the month in which the Default Period begins through the last day of that Default Period, or any shorter time period to which ▇▇▇▇▇ Fargo may agree in an Authenticated Record.

 

(c)        Interest Accrual on Payments Applied to Revolving Note. Payments received by ▇▇▇▇▇ Fargo shall be applied to the Revolving Note as provided in Section 1.4(c), but the principal amount paid down shall continue to accrue interest through the end of the first Business Day following the Business Day that the payment was applied to the Revolving Note.

 

(d)       Usury. No interest rate shall be effective which would result in a rate greater than the highest rate permitted by law. Payments in the nature of interest and other charges made under any Loan Documents or any other document or agreement described in or related to this Agreement that are later determined to be in excess of the limits imposed by applicable usury law will be deemed to be a payment of principal, and the Indebtedness shall be reduced by that amount so that such payments will not be deemed usurious.

 

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(a)        Origination Fee. Company shall pay ▇▇▇▇▇ Fargo a one time origination fee of $40,000, which shall be fully earned and payable upon the execution of this Agreement.

 

(b)       Unused Line Fee. Company shall pay ▇▇▇▇▇ Fargo an annual unused line fee of 0.35% of the daily average of the Maximum Line Amount reduced by outstanding Advances and the L/C Amount (the “Unused Amount”), from the date of this Agreement to and including the Termination Date, which unused line fee shall be payable quarterly in arrears on the first day of each month and on the Termination Date; provided, that such annual unused line fee shall be adjusted each fiscal quarter of Company beginning with the quarter ending November 29, 2008, on the basis of the Liquidity of Company as of the end of the previous fiscal quarter, in accordance with the following table:

 

 

(c)        Collateral Exam Fees. Company shall pay ▇▇▇▇▇ Fargo fees in connection with any collateral exams, audits or inspections conducted by or on behalf of ▇▇▇▇▇ Fargo at the current rates established from time to time by ▇▇▇▇▇ Fargo as its collateral exam fees (which fees are currently $125 per hour per collateral examiner), together with all actual out-of-pocket costs and expenses incurred in conducting any collateral examination or inspection.

 

(d)       Line of Credit Termination and/or Reduction Fees. If (i) ▇▇▇▇▇ Fargo terminates the Line of Credit during a Default Period, or if (ii) Company terminates the Line of Credit on a date prior to the Maturity Date, or if (iii) Company and ▇▇▇▇▇ Fargo agree to reduce the Maximum Line Amount, then Company shall pay ▇▇▇▇▇ Fargo as liquidated damages a termination or reduction fee in an amount equal to a percentage of the Maximum Line Amount (or the reduction of the Maximum Line Amount, as the case may be) calculated as follows: (A) two percent (2.0%) if the termination occurs on or before the first anniversary of the first Line of Credit Advance; and (B) one and one-half percent (1.50%) if the termination or reduction occurs after the first anniversary of the first Line of Credit Advance. Such termination or reduction fee shall be waived if the Line of Credit is refinanced by the Iowa Regional Commercial Banking Office of ▇▇▇▇▇ Fargo Bank, National Association.

 

(e)        Overadvance Fees. Company shall pay a $500 Overadvance fee for each day that an Overadvance exists which was not agreed to by ▇▇▇▇▇ Fargo in an Authenticated Record prior to its occurrence; provided that ▇▇▇▇▇ Fargo’s acceptance of the payment of such fees shall not constitute either consent to the Overadvance or waiver of the resulting Event of Default. Company shall pay additional Overadvance fees and interest in such amounts and on such terms as ▇▇▇▇▇ Fargo in its sole discretion may consider appropriate for any Overadvance to which ▇▇▇▇▇ Fargo has specifically consented in an Authenticated Record prior to its occurrence.

 

(f)        Treasury Management Fees. Company shall pay service fees to ▇▇▇▇▇ Fargo for treasury management services provided pursuant to the Master Agreement for Treasury Management Services or any other agreement entered into by the parties, in the amount prescribed in ▇▇▇▇▇ Fargo’s current service fee schedule.

 

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(g)       Letter of Credit Fees. Company shall pay a fee with respect to each Letter of Credit issued by ▇▇▇▇▇ Fargo of two percent (2.0%) of the aggregate undrawn amount of the Letter of Credit (the “Aggregate Face Amount”) accruing daily from and including the date the Letter of Credit is issued until the date that it either expires or is returned, which shall be payable monthly in arrears on the first day of each month and on the date that the Letter of Credit either expires or is returned; provided, that such Letter of Credit fee shall be adjusted each fiscal quarter of Company beginning with the quarter ending November 29, 2008, on the basis of the Liquidity of Company as of the end of the previous fiscal quarter, in accordance with the following table:

 

 

Following an Event of Default, such Letter of Credit fee shall increase by three percent (3.0%), commencing on the first day of the month in which the Default Period begins and continuing through the last day of such Default Period, or any shorter time period that ▇▇▇▇▇ Fargo in its sole discretion may deem appropriate, without waiving any of its other rights and remedies.

 

(h)       Letter of Credit Administrative Fees. Company shall pay all administrative fees charged by ▇▇▇▇▇ Fargo in connection with the honoring of drafts under any Letter of Credit, and any amendments to or transfers of any Letter of Credit, and any other activity with respect to the Letters of Credit at the current rates published by ▇▇▇▇▇ Fargo for such services rendered on behalf of its customers generally.

 

(i)        Other Fees and Charges. ▇▇▇▇▇ Fargo may impose additional fees and charges during a Default Period for (i) waiving an Event of Default, or for (ii) the administration of Collateral by ▇▇▇▇▇ Fargo. All such fees and charges shall be imposed at ▇▇▇▇▇ Fargo’s sole discretion following oral notice to Company on either an hourly, periodic, or flat fee basis, and in lieu of or in addition to imposing interest at the Default Rate, and Company’s request for an Advance following such notice shall constitute Company’s agreement to pay such fees and charges.

 

(j)        Termination and Prepayment Fees Following Transfer Between ▇▇▇▇▇ Fargo Operating Divisions. If the Loan Documents, following Company’s request and the consent of ▇▇▇▇▇ Fargo Business Credit (which consent may be withheld by ▇▇▇▇▇ Fargo Business Credit in its sole discretion), are transferred to an operating division of ▇▇▇▇▇ Fargo other than ▇▇▇▇▇ Fargo Business Credit, the transfer will not be deemed a termination or prepayment resulting in the payment of termination and/or prepayment fees, or LIBOR Advance breakage fees, provided that Company agrees, at the time of transfer, to the payment of comparable fees in an amount not less than that set forth in this Agreement, in the event that any facilities extended under this Agreement are terminated early or prepaid after the transfer.

 

(k)       LIBOR Advance Breakage Fees. Company may prepay any LIBOR Advance at any time in any amount, whether voluntarily or by acceleration, provided, however, that if the LIBOR Advance is prepaid, Company shall pay ▇▇▇▇▇ Fargo upon demand a LIBOR Advance breakage fee equal to the sum of the discounted monthly differences for each month from the month of prepayment through the month in which such Interest Period matures, calculated as follows for each such month:

 

(i)        Determine the amount of interest which would have accrued each month on the amount prepaid at the interest rate applicable to such amount had it remained outstanding until the last day of the applicable Interest Period.

 

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(ii)       Subtract from the amount determined in (i) above the amount of interest which would have accrued for the same month on the amount prepaid for the remaining term of such Interest Period at LIBOR in effect on the date of prepayment for new loans made for such term in a principal amount equal to the amount prepaid.

 

(iii)      If the result obtained in (ii) for any month is greater than zero, discount that difference by LIBOR used in (ii) above.

 

Company acknowledges that prepayment of the Revolving Note may result in ▇▇▇▇▇ Fargo incurring additional costs, expenses or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses or liabilities. Company agrees to pay the above-described LIBOR Advance breakage fees and agrees that this amount represents a reasonable estimate of the LIBOR Advance breakage costs, expenses and/or liabilities of ▇▇▇▇▇ Fargo.

 

 

(a)        Interest Payments and Interest Accrual. Accrued and unpaid interest under the Revolving Note on Floating Rate Advances shall be due and payable on the first day of each month (each an “Interest Payment Date”) and on the Termination Date, in arrears, and shall be paid in the manner provided in Section 1.4(c). Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of Advance to the Interest Payment Date. Interest accruing on any LIBOR Advance shall be due and payable on the last day of the applicable Interest Period and on the Termination Date; provided, however, for Interest Periods in excess of one month, interest shall nevertheless be due and payable monthly on the last day of each month, and on the last day of the Interest Period.

 

(b)       Payment of Revolving Note Principal. The principal amount of the Revolving Note shall be paid from time to time as provided in this Agreement, and shall be fully due and payable on the Termination Date.

 

(c)        Payments Due on Non-Business Days. If an Interest Payment Date or the Termination Date falls on a day which is not a Business Day, payment shall be made on the next Business Day, and interest shall continue to accrue during that time period.

 

(d)       Computation of Interest and Fees. Interest accruing on the unpaid principal amount of the Revolving Note and fees payable under this Agreement shall be computed on the basis of the actual number of days elapsed in a year of 360 days.

 

(e)        Liability Records. ▇▇▇▇▇ Fargo shall maintain accounting and bookkeeping records of all Advances and payments under the Line of Credit and all other Indebtedness due to ▇▇▇▇▇ Fargo in such form and content as ▇▇▇▇▇ Fargo in its sole discretion deems appropriate. ▇▇▇▇▇ Fargo’s calculation of current Indebtedness shall be presumed correct unless proven otherwise by Company. Upon ▇▇▇▇▇ Fargo’s request, Company will admit and certify in a Record the exact principal balance of the Indebtedness that Company then believes to be outstanding. Any billing statement or accounting provided by ▇▇▇▇▇ Fargo shall be conclusive and binding unless Company notifies ▇▇▇▇▇ Fargo in a detailed Record of its intention to dispute the billing statement or accounting within 30 days of receipt.

 

 

(a)        Termination by Company after Advance Notice. Company may terminate or reduce the Line of Credit at any time prior to the Maturity Date, if it (i) delivers an Authenticated Record notifying ▇▇▇▇▇ Fargo of its intentions at least 90 days prior to the proposed Termination Date, (ii) pays ▇▇▇▇▇ Fargo the termination fee set forth in Section 1.6(d), and (iii) pays the Indebtedness in full or down to the reduced Maximum Line Amount.

 

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(b)       Termination by Company without Advance Notice. If Company fails to deliver ▇▇▇▇▇ Fargo timely notice of its intention to terminate the Line of Credit or reduce the Maximum Line Amount as provided in Section 1.8(a), Company may nevertheless terminate the Line of Credit or reduce the Maximum Line Amount and pay the Indebtedness in full or down to the reduced Maximum Line Amount if it (i) pays the termination fee set forth in Section 1.6(d), and (ii) pays the Default Rate on the Revolving Note commencing on the 90th day prior to the proposed Termination Date and continuing through the date that ▇▇▇▇▇ Fargo receives delivery of an Authenticated Record giving it actual notice of Company’s intention to terminate.

 

(c)        Non-Renewal by Company; Notice. If Company does not wish ▇▇▇▇▇ Fargo to consider renewal of the Line of Credit on the next Maturity Date, Company shall deliver an Authenticated Record to ▇▇▇▇▇ Fargo at least 90 days prior to the Maturity Date notifying ▇▇▇▇▇ Fargo of its intention not to renew. If Company fails to deliver to ▇▇▇▇▇ Fargo such timely notice, then the Revolving Note shall accrue interest at the Default Rate commencing on the 90th day prior to the Maturity Date and continuing through the date that ▇▇▇▇▇ Fargo receives delivery of an Authenticated Record giving it actual notice of Company’s intention not to renew.

 

 

(a)        Issuance of Letters of Credit; Amount. ▇▇▇▇▇ Fargo, subject to the terms and conditions of this Agreement, shall issue, on or after the date that ▇▇▇▇▇ Fargo is obligated to make its first Advance under this Agreement and prior to the Termination Date, one or more irrevocable standby or documentary letters of credit (each, a “Letter of Credit”, and collectively, “Letters of Credit”) for Company’s account. ▇▇▇▇▇ Fargo will not issue any Letter of Credit if the face amount of the Letter of Credit would exceed the lesser of: (i) $2,500,000 less the L/C Amount, or (ii) the Borrowing Base, less an amount equal to aggregate unreimbursed Line of Credit Advances plus the L/C Amount.

 

(b)       Additional Letter of Credit Documentation. Prior to requesting issuance of a Letter of Credit, Company shall first execute and deliver to ▇▇▇▇▇ Fargo a Standby Letter of Credit Agreement or a Commercial Letter of Credit Agreement, as applicable, an L/C Application, and any other documents that ▇▇▇▇▇ Fargo may request, which shall govern the issuance of the Letter of Credit and Company’s obligation to reimburse ▇▇▇▇▇ Fargo for any related Letter of Credit draws (the “Obligation of Reimbursement”).

 

(c)        Expiration. No Letter of Credit shall be issued that has an expiry date that is later than one (1) year from the date of issuance, or the Maturity Date in effect on the date of issuance, whichever is earlier.

 

(d)       Obligation of Reimbursement During Default Periods. If Company is unable, due to the existence of a Default Period or for any other reason, to obtain an Advance to pay any Obligation of Reimbursement, Company shall pay ▇▇▇▇▇ Fargo on demand and in immediately available funds the amount of the Obligation of Reimbursement, together with interest accrued from the date of presentment of the underlying draft until reimbursement in full at the Default Rate. ▇▇▇▇▇ Fargo is authorized, alternatively and in its sole discretion, to make an Advance in an amount sufficient to discharge the Obligation of Reimbursement and pay all accrued but unpaid interest and fees with respect to the Obligation of Reimbursement.

 

 

If the Line of Credit is terminated for any reason while a Letter of Credit is outstanding, or if after prepayment of the Revolving Note the L/C Amount continues to exceed the Borrowing Base, then Company shall promptly pay ▇▇▇▇▇ Fargo in immediately available funds for deposit to the Special Account, an amount equal, as the case may be, to either (a) the L/C Amount plus any anticipated fees and costs, or (b) the amount by which the L/C Amount exceeds the Borrowing Base. If Company fails to pay these amounts promptly, then ▇▇▇▇▇ Fargo may in its sole discretion make an Advance to pay these amounts and deposit the proceeds to the Special Account. The Special Account shall be an interest bearing account maintained with ▇▇▇▇▇ Fargo or any other financial institution acceptable to ▇▇▇▇▇ Fargo. ▇▇▇▇▇ Fargo may in its sole discretion apply amounts on deposit in the Special Account to the Indebtedness. Company may not withdraw amounts deposited to the Special Account until the Line of Credit has been terminated and all outstanding Letters of Credit have either been returned to ▇▇▇▇▇ Fargo or have expired and the Indebtedness has been fully paid.

 

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2.1       Grant of Security Interest. Company hereby pledges, assigns and grants to ▇▇▇▇▇ Fargo , for the benefit of ▇▇▇▇▇ Fargo and as agent for ▇▇▇▇▇ Fargo Merchant Services, L.L.C., a Lien and security interest (collectively referred to as the “Security Interest”) in the Collateral, as security for the payment and performance of all Indebtedness. Following request by ▇▇▇▇▇ Fargo, Company shall ▇▇▇▇▇ ▇▇▇▇▇ Fargo, for the benefit of ▇▇▇▇▇ Fargo and as agent for ▇▇▇▇▇ Fargo Merchant Services, L.L.C., a Lien and security interest in all commercial tort claims that it may have against any Person.

 

2.2       Notifying Account Debtors and Other Obligors; Collection of Collateral. ▇▇▇▇▇ Fargo may, after an Event of Default, deliver a Record giving an account debtor or other Person obligated to pay an Account, a General Intangible, or other amount due, notice that the Account, General Intangible, or other amount due has been assigned to ▇▇▇▇▇ Fargo for security and must be paid directly to ▇▇▇▇▇ Fargo. Company shall join in giving such notice and shall Authenticate any Record giving such notice upon ▇▇▇▇▇ Fargo’s request. After Company or ▇▇▇▇▇ Fargo gives such notice, ▇▇▇▇▇ Fargo may, but need not, in ▇▇▇▇▇ Fargo’s or in Company’s name, demand, ▇▇▇ for, collect or receive any money or property at any time payable or receivable on account of, or securing, such Account, General Intangible, or other amount due, or grant any extension to, make any compromise or settlement with or otherwise agree to waive, modify, amend or change the obligations (including collateral obligations) of any account debtor or other obligor. ▇▇▇▇▇ Fargo may, in ▇▇▇▇▇ Fargo’s name or in Company’s name, as Company’s agent and attorney-in-fact, notify the United States Postal Service to change the address for delivery of Company’s mail to any address designated by ▇▇▇▇▇ Fargo, otherwise intercept Company’s mail, and receive, open and dispose of Company’s mail, applying all Collateral as permitted under this Agreement and holding all other mail for Company’s account or forwarding such mail to Company’s last known address.

 

2.3       Assignment of Insurance. As additional security for the Indebtedness, Company hereby assigns to ▇▇▇▇▇ Fargo and to ▇▇▇▇▇ Fargo Merchant Services, L.L.C. all rights of Company under every policy of insurance covering the Collateral and all business records and other documents relating to it, and all monies (including proceeds and refunds) that may be payable under any policy, and Company hereby directs the issuer of each policy to pay all such monies directly to ▇▇▇▇▇ Fargo. At any time, whether or not a Default Period then exists, ▇▇▇▇▇ Fargo may (but need not), in ▇▇▇▇▇ Fargo’s or Company’s name, execute and deliver proofs of claim, receive payment of proceeds and endorse checks and other instruments representing payment of the policy of insurance, and adjust, litigate, compromise or release claims against the issuer of any policy. Any monies received under any insurance policy assigned to ▇▇▇▇▇ Fargo, other than liability insurance policies, or received as payment of any award or compensation for condemnation or taking by eminent domain, shall be paid to ▇▇▇▇▇ Fargo and, as determined by ▇▇▇▇▇ Fargo in its sole discretion, either be applied to prepayment of the Indebtedness or disbursed to Company under staged payment terms reasonably satisfactory to ▇▇▇▇▇ Fargo for application to the cost of repairs, replacements, or restorations which shall be effected with reasonable promptness and shall be of a value at least equal to the value of the items or property destroyed.

 

2.4       Company’s Premises.

 

(a)        ▇▇▇▇▇ Fargo’s Right to Occupy Company’s Premises. Company hereby grants to ▇▇▇▇▇ Fargo the right, after an Event of Default, or during a Default Period and without notice or consent, to take exclusive possession of all locations where Company conducts its business or has any rights of possession, including the locations described on Exhibit B (the “Premises”), until the earlier of (i) payment in full and discharge of all Indebtedness and termination of the Line of Credit, or (ii) final sale or disposition of all items constituting Collateral and delivery of those items to purchasers.

 

(b)       ▇▇▇▇▇ Fargo’s Use of Company’s Premises. ▇▇▇▇▇ Fargo may use the Premises to store, process, manufacture, sell, use, and liquidate or otherwise dispose of items that are Collateral, and for any other incidental purposes deemed appropriate by ▇▇▇▇▇ Fargo in good faith.

 

(c)        Company’s Obligation to Reimburse ▇▇▇▇▇ Fargo. ▇▇▇▇▇ Fargo shall not be obligated to pay rent or other compensation for the possession or use of any Premises, but if ▇▇▇▇▇ Fargo elects to pay rent or other compensation to the owner of any Premises in order to have access to the Premises, then Company shall promptly reimburse ▇▇▇▇▇ Fargo for all such amounts, as well as all taxes, fees, charges and other expenses at any time payable by ▇▇▇▇▇ Fargo with respect to the Premises by reason of the execution, delivery, recordation, performance or enforcement of any terms of this Agreement.

 

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(d)       License. Without limiting the generality of any other Security Document, Company hereby grants to ▇▇▇▇▇ Fargo a non-exclusive, worldwide and royalty-free license to use or otherwise exploit all Intellectual Property Rights of Company for the purpose of: (a) completing the manufacture of any in-process materials during any Default Period so that such materials become saleable Inventory, all in accordance with the same quality standards previously adopted by Company for its own manufacturing and subject to Company’s reasonable exercise of quality control; and (b) selling, leasing or otherwise disposing of any or all Collateral during any Default Period.

 

2.5       Financing Statements. Company authorizes ▇▇▇▇▇ Fargo to file financing statements describing Collateral to perfect ▇▇▇▇▇ Fargo’s Security Interest in the Collateral, and ▇▇▇▇▇ Fargo may describe the Collateral as “all personal property” or “all assets” or describe specific items of Collateral including commercial tort claims as ▇▇▇▇▇ Fargo may consider necessary or useful to perfect the Security Interest. All financing statements filed before the date of this Agreement to perfect the Security Interest were authorized by Company and are hereby re-authorized. Following the termination of the Line of Credit and payment of all Indebtedness, ▇▇▇▇▇ Fargo shall, at Company’s expense and within the time periods required under applicable law, release or terminate any filings or other agreements that perfect the Security Interest.

 

2.6       Setoff. ▇▇▇▇▇ Fargo may at any time, in its sole discretion and without demand or notice to anyone, setoff any liability owed to Company by ▇▇▇▇▇ Fargo against any Indebtedness, whether or not due.

 

2.7       Collateral Related Matters. This Agreement does not contemplate a sale of Accounts or chattel paper, and, as provided by law, Company is entitled to any surplus and shall remain liable for any deficiency. ▇▇▇▇▇ Fargo’s duty of care with respect to Collateral in its possession (as imposed by law) will be deemed fulfilled if it exercises reasonable care in physically keeping such Collateral, or in the case of Collateral in the custody or possession of a bailee or other third Person, exercises reasonable care in the selection of the bailee or third Person, and ▇▇▇▇▇ Fargo need not otherwise preserve, protect, insure or care for such Collateral. ▇▇▇▇▇ Fargo shall not be obligated to preserve rights Company may have against prior parties, to liquidate the Collateral at all or in any particular manner or order or apply the Proceeds of the Collateral in any particular order of application. ▇▇▇▇▇ Fargo has no obligation to clean-up or prepare Collateral for sale. Company waives any right it may have to require ▇▇▇▇▇ Fargo to pursue any third Person for any of the Indebtedness.

 

2.8       Notices Regarding Disposition of Collateral. If notice to Company of any intended disposition of Collateral or any other intended action is required by applicable law in a particular situation, such notice will be deemed commercially reasonable if given in the manner specified in Section 7.4 at least ten calendar days before the date of intended disposition or other action.

 

 

3.1       Conditions Precedent to Initial Advance and Issuance of Initial Letter of Credit. ▇▇▇▇▇ Fargo’s obligation to make the initial Advance or issue the first Letter of Credit shall be subject to the condition that ▇▇▇▇▇ Fargo shall have received this Agreement and each of the Loan Documents, and any document, agreement, or other item described in or related to this Agreement, and all fees and information described in Exhibit C, executed and in form and content satisfactory to ▇▇▇▇▇ Fargo.

 

3.2       Additional Conditions Precedent to All Advances and Letters of Credit. ▇▇▇▇▇ Fargo’s obligation to make any Advance (including the initial Advance) or issue any Letter of Credit shall be subject to the further additional conditions: (a) that the representations and warranties described in Exhibit D are correct on the date of the Advance or the issuance of the Letter of Credit, except to the extent that such representations and warranties relate solely to an earlier date; and (b) that no event has occurred and is continuing, or would result from the requested Advance or issuance of the Letter of Credit that would result in an Event of Default.

 

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To induce ▇▇▇▇▇ Fargo to enter into this Agreement, Company makes the representations and warranties described in Exhibit D. Any request for an Advance will be deemed a representation by Company that all representations and warranties described in Exhibit D are true, correct and complete as of the time of the request, unless they relate exclusively to an earlier date. Company shall promptly deliver a Record notifying ▇▇▇▇▇ Fargo of any change in circumstance that would materially affect the accuracy of any representation or warranty, unless the representation or warranty specifically relates to an earlier date.

 

 

So long as the Indebtedness remains unpaid, or the Line of Credit has not been terminated, Company shall comply with each of the following covenants, unless ▇▇▇▇▇ Fargo shall consent otherwise in an Authenticated Record delivered to Company.

 

5.1       Reporting Requirements. Company shall deliver to ▇▇▇▇▇ Fargo the following information, compiled where applicable using GAAP consistently applied, in form and content acceptable to ▇▇▇▇▇ Fargo:

 

(a)        Annual Financial Statements. As soon as available and in any event within 90 days after Company’s fiscal year end, Company’s audited financial statements prepared by an independent certified public accountant acceptable to ▇▇▇▇▇ Fargo, which shall include Company’s balance sheet, income statement, and statement of retained earnings and cash flows, prepared on a consolidated and consolidating basis to include Company’s Affiliates. The annual financial statements shall be accompanied by a certificate (the “Compliance Certificate”) in the form of Exhibit E that is signed by Company’s chief financial officer.

 

Each Compliance Certificate that accompanies an annual financial statement shall also be accompanied by (i) copies of all management letters prepared by Company’s accountants; and (ii) a report signed by the accountant stating that in making the investigations necessary to render the opinion, the accountant obtained no knowledge, except as specifically stated, of any Event of Default under this Agreement, and a detailed statement, including computations, demonstrating whether or not Company is in compliance with the financial covenants of this Agreement.

 

(b)       Monthly Financial Statements. As soon as available and in any event within 25 days after the end of each month (or 45 days after the end of the third month of each fiscal quarter of Company), a Company prepared balance sheet, income statement, and statement of retained earnings prepared for that month and for the year-to-date period then ended, prepared, if requested by ▇▇▇▇▇ Fargo, on a consolidated and consolidating basis to include Company’s Affiliates, and stating in comparative form the figures for the corresponding date and periods in the prior fiscal year, subject to year-end adjustments. The financial statements shall be accompanied by a Compliance Certificate in the form of Exhibit E that is signed by Company’s chief financial officer.

 

(c)       Collateral Reports. If (i) no Advances have been made (not including outstanding Letters of Credit), then no later than 15 days after each month end, or (ii) any Advance has been made (other than outstanding Letters of Credit), then weekly, detailed agings of Company’s accounts receivable and accounts payable, a detailed inventory report, an inventory certification report, and a calculation of Company’s Accounts, Eligible Accounts, Inventory and Eligible Inventory as of the end of that month, week, or any other shorter time period requested by ▇▇▇▇▇ Fargo.

 

(d)       Projections. No later than 15 days prior to each fiscal year end, Company’s projected balance sheet, income statement and statement of cash flows for each month of the next fiscal year, certified as accurate by Company’s chief financial officer and accompanied by a statement of assumptions and supporting schedules and information.

 

(e)        Supplemental Reports. Weekly, or more frequently if ▇▇▇▇▇ Fargo requests, Company’s standard form of “daily collateral report”, together with receivables schedules, collection reports, and copies of invoices, shipment documents and delivery receipts for goods sold to account debtors.

 

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(f)       Litigation. (a) No later than 45 days after each fiscal quarter end, a Record notifying ▇▇▇▇▇ Fargo of any litigation or other proceeding before any court or governmental agency, and (b) promptly after discovery, a Record notifying ▇▇▇▇▇ Fargo of any litigation or other proceeding before any court or governmental agency which seeks a monetary recovery against Company in excess of $250,000.

 

(g)       Intellectual Property. (i) No later than 30 days before it acquires material Intellectual Property Rights, a Record notifying ▇▇▇▇▇ Fargo of Company’s intention to acquire such rights; (ii) except for transfers permitted under Section 5.18, no later than 30 days before it disposes of material Intellectual Property Rights, a Record notifying ▇▇▇▇▇ Fargo of Company’s intention to dispose of such rights, along with copies of all proposed documents and agreements concerning the disposal of such rights as requested by ▇▇▇▇▇ Fargo; (iii) promptly upon discovery, a Record notifying ▇▇▇▇▇ Fargo of (A) any Infringement of Company’s Intellectual Property Rights by any Person, (B) claims that Company is Infringing another Person’s Intellectual Property Rights and (C) any threatened cancellation, termination or material limitation of Company’s Intellectual Property Rights; and (iv) promptly upon receipt, copies of all registrations and filings with respect to Company’s Intellectual Property Rights.

 

(h)       Defaults. No later than three days after learning of the probable occurrence of any Event of Default, a Record notifying ▇▇▇▇▇ Fargo of the Event of Default and the steps being taken by Company to cure the Event of Default.

 

(i)        Disputes. (a) No later than 45 days after each fiscal quarter end, a Record notifying ▇▇▇▇▇ Fargo of (i) any disputes or claims by Company’s customers, (ii) credit memos not previously reported in Section 5.1(e), and (iii) any goods returned to or recovered by Company outside of the ordinary course of business; and (b) promptly after discovery, a Record notifying ▇▇▇▇▇ Fargo of any disputes or claims by Company’s customers exceeding $250,000 individually.

 

(j)        Changes in Officers and Directors. Promptly following occurrence, a Record notifying ▇▇▇▇▇ Fargo of any change in the persons constituting Company’s Officers and Directors.

 

(k)       Collateral. Promptly upon discovery, a Record notifying ▇▇▇▇▇ Fargo of any loss of or material damage to any Collateral or of any substantial adverse change in any Collateral or the prospect of its payment.

 

(l)        Commercial Tort Claims. Promptly upon discovery, a Record notifying ▇▇▇▇▇ Fargo of any commercial tort claims brought by Company against any Person, including the name and address of each defendant, a summary of the facts, an estimate of Company’s damages, copies of any complaint or demand letter submitted by Company, and such other information as ▇▇▇▇▇ Fargo may request.

 

(m)      Reports to Owners. Promptly upon distribution, copies of all financial statements, reports and proxy statements which Company shall have sent to its Owners.

 

(n)       Tax Returns of Company. No later than five days after they are required to be filed, copies of Company’s signed and dated state and federal income tax returns and all related schedules, and copies of any extension requests.

 

(o)       Violations of Law. Promptly after discovery of any violation, a Record notifying ▇▇▇▇▇ Fargo of Company’s violation of any law, rule or regulation, the non-compliance with which could have a Material Adverse Effect on Company.

 

(p)       Pension Plans. (i) Promptly upon discovery, and in any event within 30 days after Company knows or has reason to know that any Reportable Event with respect to any Pension Plan has occurred, a Record authenticated by Company’s chief financial officer notifying ▇▇▇▇▇ Fargo of the Reportable Event in detail and the actions which Company proposes to take to correct the deficiency, together with a copy of any related notice sent to the Pension Benefit Guaranty Corporation; (ii) promptly upon discovery, and in any event within 10 days after Company fails to make a required quarterly Pension Plan contribution under Section 412(m) of the IRC, a Record authenticated by the Company’s chief financial officer notifying ▇▇▇▇▇ Fargo of the failure in detail and

 

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the actions that Company will take to cure the failure, together with a copy of any related notice sent to the Pension Benefit Guaranty Corporation; and (iii) promptly upon discovery, and in any event within 10 days after Company knows or has reason to know that it may be liable or may be reasonably expected to have liability for any withdrawal, partial withdrawal, reorganization or other event under any Multiemployer Plan under Sections 4201 or 4243 of ERISA, a Record authenticated by Company’s chief financial officer notifying ▇▇▇▇▇ Fargo of the details of the event and the actions that Company proposes to take in response.

 

(q)       Other Reports. From time to time, with reasonable promptness, all receivables schedules, inventory reports, collection reports, deposit records, equipment schedules, invoices to account debtors, shipment documents and delivery receipts for goods sold, and such other materials, reports, records or information as ▇▇▇▇▇ Fargo may request.

 

5.2       Financial Covenants. Company agrees to comply with the financial covenants described below, which shall be calculated using GAAP consistently applied, except as they may be otherwise modified by the following capitalized definitions:

 

(a)        Minimum Tangible Net Worth. Company shall achieve, for each period described below, Tangible Net Worth of not less than the amount set forth for each such period:

 

 

(b)       Minimum Current Ratio. Company shall achieve, for each period described below, a Current Ratio of not less than the ratio set forth for each such period:

 

 

 

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(c)       Capital Expenditures. Company shall not incur or contract to incur Capital Expenditures of more than $7,500,000 in the aggregate during any fiscal year.

 

(d)       New Covenants. Company and ▇▇▇▇▇ Fargo shall agree on new covenant levels for this Section 5.2 prior to September 30, 2009, but if Company and ▇▇▇▇▇ Fargo do not agree, ▇▇▇▇▇ Fargo shall designate the required amounts in its sole discretion based on (i) Company’s reasonable projections for such periods and/or (ii) Company’s historical financial performance, and the failure by Company to maintain the designated amounts shall constitute an Event of Default.

 

5.3       Other Liens and Permitted Liens.

 

(a)        Other Liens; Permitted Liens. Company shall not create, incur or suffer to exist any Lien upon any of its assets, now owned or later acquired, as security for any indebtedness, with the exception of the following (each a “Permitted Lien”; collectively, “Permitted Liens”): (i) in the case of real property, covenants, restrictions, rights, easements and minor irregularities in title which do not materially interfere with Company’s business or operations as presently conducted; (ii) Liens in existence on the date of this Agreement that are described in Exhibit F and secure indebtedness for borrowed money permitted under Section 5.4; (iii) the Security Interest and Liens created by the Security Documents; and (iv) purchase money Liens relating to the acquisition of Equipment not exceeding the lesser of cost or fair market value, not exceeding $250,000 for any one purchase or $500,000 in the aggregate during any fiscal year, and so long as no Default Period is then in existence and none would exist immediately after such acquisition.

 

(b)       Financing Statements. Company shall not authorize the filing of any financing statement by any Person as Secured Party with respect to any of Company’s assets, other than ▇▇▇▇▇ Fargo. Company shall not amend any financing statement filed by ▇▇▇▇▇ Fargo as Secured Party except as permitted by law.

 

5.4       Indebtedness. Company shall not incur, create, assume or permit to exist any indebtedness or liability on account of deposits or letters of credit issued on Company’s behalf, or advances or any indebtedness for borrowed money of any kind, whether or not evidenced by an instrument, except: (a) Indebtedness described in this Agreement; (b) indebtedness of Company described in Exhibit F; and (c) indebtedness secured by Permitted Liens.

 

5.5       Guaranties. Company shall not assume, guarantee, endorse or otherwise become directly or contingently liable for the obligations of any Person, except: (a) the endorsement of negotiable instruments by Company for deposit or collection or similar transactions in the ordinary course of business; and (b) guaranties, endorsements and other direct or contingent liabilities in connection with the obligations of other Persons in existence on the date of this Agreement and described in Exhibit F.

 

5.6       Investments and Subsidiaries. Other than as listed in Exhibit G, Company shall not make or permit to exist any loans or advances to, or make any investment or acquire any interest whatsoever in, any Person or Affiliate, including any partnership or joint venture, nor purchase or hold beneficially any stock or other securities or evidence of indebtedness of any Person or Affiliate, except:

 

(a)        Investments in direct obligations of the United States of America or any of its political subdivisions whose obligations constitute the full faith and credit obligations of the United States of America and have a maturity of one year or less, commercial paper issued by U.S. corporations rated “A 1” or “A 2” by Standard & Poor’s Ratings Services or “P 1” or “P 2” by ▇▇▇▇▇’▇ Investors Service or certificates of deposit or bankers’ acceptances having a maturity of one year or less issued by members of the Federal Reserve System having deposits in excess of $100,000,000 (which certificates of deposit or bankers’ acceptances are fully insured by the Federal Deposit Insurance Corporation);

 

(b)       Travel advances or loans to Company’s Officers and employees not exceeding at any one time an aggregate of $50,000;

 

(c)       Prepaid rent not exceeding one month or security deposits; and

 

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(d)       Current investments in those Subsidiaries in existence on the date of this Agreement which are identified on Exhibit D.

 

5.7       Dividends and Distributions. Company may declare or pay dividends on any class of its stock, or make payment on account of the purchase, redemption or retirement of any shares of its stock, or other securities or evidence of its indebtedness or make distributions regarding its stock, either directly or indirectly; provided, however, in no event shall Company pay any dividends if, on a rolling 90-day average, after the payment of dividends, the sum of (i) the Company’s excess Availability, plus (ii) the Borrowing Base Reserve is less than $10,000,000.

 

5.8       Treasury Stock Purchases. Company shall not make any treasury stock purchases without ▇▇▇▇▇ Fargo’s prior written consent.

 

5.9       Salaries. Company shall not pay excessive or unreasonable salaries, bonuses, commissions, consultant fees or other compensation; or increase the salary, cash bonus, commissions, consultant fees or other compensation (other than compensation in the form of Company’s stock, stock units or stock options) of any Director, Officer or consultant, or any member of their families, by more than 20% in any one fiscal year, either individually or for all such Persons in the aggregate, or pay such an increase from any source other than profits earned in the year of payment.

 

5.10      Books and Records; Collateral Examination; Inspection and Appraisals.

 

(a)        Books and Records; Inspection. Company shall keep complete and accurate books and records with respect to the Collateral and Company’s business and financial condition and any other matters that ▇▇▇▇▇ Fargo may request, in accordance with GAAP. Company shall permit any employee, attorney, accountant or other agent of ▇▇▇▇▇ Fargo to audit, review, make extracts from and copy any of its books and records at any time during ordinary business hours, and to discuss Company’s affairs with any of its Directors, Officers, employees, Owners or agents.

 

(b)       Authorization to Company’s Agents to Make Disclosures to ▇▇▇▇▇ Fargo. Company authorizes all accountants and other Persons acting as its agent to disclose and deliver to ▇▇▇▇▇ Fargo’s employees, accountants, attorneys and other Persons acting as its agent, at Company’s expense, all financial information, books and records, work papers, management reports and other information in their possession regarding Company.

 

(c)        Collateral Exams and Inspections. Company shall permit ▇▇▇▇▇ Fargo’s employees, accountants, attorneys or other Persons acting as its agent, to examine and inspect any Collateral or any other property of Company at any time during ordinary business hours. Collateral examinations may be conducted annually so long as no Event of Default has occurred and no Advances have been made (not including outstanding Letters of Credit). If an Event of Default has occurred or any Advance has been made (other than outstanding Letters of Credit), collateral examinations may be performed quarterly.

 

(d)       Collateral Appraisals. ▇▇▇▇▇ Fargo may also obtain, from time to time, but no more than one time each calendar year, at ▇▇▇▇▇ Fargo’s sole discretion and at Company’s expense, an appraisal of Company’s Inventory by an appraiser acceptable to ▇▇▇▇▇ Fargo in its sole discretion; provided, however, if any Advance has been made and an Event of Default has occurred and is continuing, ▇▇▇▇▇ Fargo may obtain, more frequently than one time each calendar year, at ▇▇▇▇▇ Fargo’s sole discretion and at Company’s expense, an appraisal of Company’s Inventory by an appraiser acceptable to ▇▇▇▇▇ Fargo in its sole discretion.

 

5.11      Account Verification; Payment of Permitted Liens.

 

(a)        Account Verification. ▇▇▇▇▇ Fargo or its agents may (i) contact account debtors and other obligors at any time to verify Company’s Accounts and (ii) require Company to send requests for verification of Accounts or send notices of assignment of Accounts to account debtors and other obligors.

 

(b)       Covenant to Pay Permitted Liens. Company shall pay when due each account payable due to any Person holding a Permitted Lien (as a result of such payable) on any Collateral.

 

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5.12      Compliance with Laws.

 

(a)        General Compliance with Applicable Law; Use of Collateral. Company shall (i) comply with the requirements of applicable laws and regulations, the non-compliance with which would have a Material Adverse Effect on its business or its financial condition and (ii) use and keep the Collateral, and require that others use and keep the Collateral, only for lawful purposes, without violation of any federal, state or local law, statute or ordinance.

 

(b)       Compliance with Federal Regulatory Laws. Company shall (i) prohibit any Person that is an Owner or Officer from being listed on the Specially Designated Nationals and Blocked Person List or other similar lists maintained by the Office of Foreign Assets Control (“OFAC”), the Department of the Treasury or included in any Executive Orders, (ii) not permit the proceeds of the Line of Credit or any other financial accommodation extended by ▇▇▇▇▇ Fargo to be used in any way that violates any foreign asset control regulations of OFAC or other applicable law, (iii) comply with all applicable Bank Secrecy Act laws and regulations, as amended from time to time, and (iv) otherwise comply with the USA Patriot Act and ▇▇▇▇▇ Fargo’s related policies and procedures.

 

(c)        Compliance with Environmental Laws. Company shall (i) comply with the requirements of applicable Environmental Laws and obtain and comply with all permits, licenses and similar approvals required by them, and (ii) not generate, use, transport, treat, store or dispose of any Hazardous Substances in such a manner as to create any material liability or obligation under the common law of any jurisdiction or any Environmental Law.

 

5.13     Payment of Taxes and Other Claims. Company shall pay or discharge, when due, (a) all taxes, assessments and governmental charges levied or imposed upon it or upon its income or profits, upon any properties belonging to it (including the Collateral) or upon or against the creation, perfection or continuance of the Security Interest, prior to the date on which penalties attach, (b) all federal, state and local taxes required to be withheld by it, and (c) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon any properties of Company, although Company shall not be required to pay any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which proper reserves have been made.

 

5.14      Maintenance of Collateral and Properties.

 

(a)        Company shall keep and maintain the Collateral and all of its other properties necessary or useful in its business in good condition, repair and working order (normal wear and tear excepted) and will from time to time replace or repair any worn, defective or broken parts, although Company may discontinue the operation and maintenance of any properties if Company believes that such discontinuance is desirable to the conduct of its business and not disadvantageous in any material respect to ▇▇▇▇▇ Fargo. Company shall take all commercially reasonable steps necessary to protect and maintain its Intellectual Property Rights.

 

(b)       Company shall defend the Collateral against all Liens, claims and demands of all third Persons claiming any interest in the Collateral. Company shall keep all Collateral free and clear of all Liens except Permitted Liens. Company shall take all commercially reasonable steps necessary to prosecute any Person Infringing its Intellectual Property Rights and to defend itself against any Person accusing it of Infringing any Person’s Intellectual Property Rights.

 

5.15     Insurance. Company shall at all times maintain insurance with insurers acceptable to ▇▇▇▇▇ Fargo, in such amounts, on such terms (including any deductibles) and against such risks as ▇▇▇▇▇ Fargo may require, in such amounts and against such risks as is usually carried by companies engaged in similar business and owning similar properties in the same geographical areas in which Company operates. Company shall also, at all times and without limitation keep all tangible Collateral insured against risks of fire (including so-called extended coverage), theft, collision (for Collateral consisting of motor vehicles) and such other risks and in such amounts as ▇▇▇▇▇ Fargo may reasonably request, with any loss payable to ▇▇▇▇▇ Fargo to the extent of its interest, and all such policies of insurance shall contain a lender’s loss payable endorsement for the benefit of ▇▇▇▇▇ Fargo. All policies of liability insurance shall name ▇▇▇▇▇ Fargo as an additional insured.

 

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5.16     Preservation of Existence. Company shall preserve and maintain its existence and all of its rights, privileges and franchises necessary or desirable in the normal conduct of its business and shall conduct its business in an orderly, efficient and regular manner.

 

5.17     Delivery of Instruments, etc. Upon request by ▇▇▇▇▇ Fargo, Company shall promptly deliver to ▇▇▇▇▇ Fargo in pledge all instruments, documents and chattel paper constituting Collateral, endorsed or assigned by Company.

 

5.18     Sale or Transfer of Assets; Suspension of Business Operations. Company shall not sell, lease, assign, transfer or otherwise dispose of (a) the stock of any Subsidiary, (b) all or a substantial part of its assets, or (c) any Collateral or any interest in Collateral (whether in one transaction or in a series of transactions) to any other Person other than the sale of Inventory in the ordinary course of business and shall not liquidate, dissolve or suspend business operations. Company shall not transfer any part of its ownership interest in any Intellectual Property Rights and shall not permit its rights as licensee of Licensed Intellectual Property to lapse, except that Company may transfer such rights or permit them to lapse if it has reasonably determined that such Intellectual Property Rights are no longer useful in its business. If Company transfers any Intellectual Property Rights for value, Company shall pay the Proceeds to ▇▇▇▇▇ Fargo for application to the Indebtedness. Company shall not license any other Person to use any of Company’s Intellectual Property Rights, except that Company may grant licenses in the ordinary course of its business in connection with sales of Inventory or the provision of services to its customers.

 

5.19     Consolidation and Merger; Asset Acquisitions. Company shall not, without the prior written consent of ▇▇▇▇▇ Fargo, consolidate with or merge into any other entity, or permit any other entity to merge into it, or acquire (in a transaction analogous in purpose or effect to a consolidation or merger) all or substantially all of the assets of any other entity.

 

5.20     Sale and Leaseback. Company shall not, without the prior written consent of ▇▇▇▇▇ Fargo, enter into any arrangement, directly or indirectly, with any other Person pursuant to which Company shall sell or transfer any real or personal property, whether owned now or acquired in the future, and then rent or lease all or part of such property or any other property which Company intends to use for substantially the same purpose or purposes as the property being sold or transferred.

 

5.21     Restrictions on Nature of Business. Company shall not, without the prior written consent of ▇▇▇▇▇ Fargo, engage in any line of business materially different from that presently engaged in by Company, and shall not purchase, lease or otherwise acquire assets not related to its business.

 

5.22     Accounting. Company shall not adopt any material change in accounting principles except as required by GAAP, consistently applied. Company shall not change its fiscal year.

 

5.23     Discounts, Etc. After notice from ▇▇▇▇▇ Fargo, Company shall not grant any discount, credit or allowance to any customer of Company or accept any return of goods sold. Company shall not at any time modify, amend, subordinate, cancel or terminate any Account.

 

5.24     Pension Plans. Except as disclosed to ▇▇▇▇▇ Fargo in a Record prior to the date of this Agreement, neither Company nor any ERISA Affiliate shall (a) adopt, create, assume or become party to any Pension Plan, (b) become obligated to contribute to any Multiemployer Plan, (c) incur any obligation to provide post-retirement medical or insurance benefits with respect to employees or former employees (other than benefits required by law) or (d) amend any Plan in a manner that would materially increase its funding obligations.

 

5.25     Place of Business; Name. Company shall not, without the prior written consent of ▇▇▇▇▇ Fargo, transfer its chief executive office or principal place of business, or move, relocate, close or sell any business Premises. Company shall not permit any tangible Collateral or any records relating to the Collateral to be located in any state or area in which, in the event of such location, a financing statement covering such Collateral would be required to be, but has not in fact been, filed in order to perfect the Security Interest. Company shall not change its name or jurisdiction of organization.

 

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5.26     Constituent Documents; S Corporation Status. Company shall not amend its Constituent Documents without the prior written consent of ▇▇▇▇▇ Fargo.

 

5.27     Performance by ▇▇▇▇▇ Fargo. If Company fails to perform or observe any of its obligations under this Agreement at any time, ▇▇▇▇▇ Fargo may, but need not, perform or observe them on behalf of Company and may, but need not, take any other actions which ▇▇▇▇▇ Fargo may reasonably deem necessary to cure or correct this failure; and Company shall pay ▇▇▇▇▇ Fargo upon demand the amount of all costs and expenses (including reasonable attorneys’ fees and legal expense) incurred by ▇▇▇▇▇ Fargo in performing these obligations, together with interest on these amounts at the Default Rate.

 

5.28     ▇▇▇▇▇ Fargo Appointed as Company’s Attorney in Fact. To facilitate ▇▇▇▇▇ Fargo’s performance or observance of Company’s obligations under this Agreement, Company hereby irrevocably appoints ▇▇▇▇▇ Fargo and ▇▇▇▇▇ Fargo’s agents as Company’s attorney in fact (which appointment is coupled with an interest) with the right (but not the duty) to create, prepare, complete, execute, deliver, endorse or file on behalf of Company any instruments, documents, assignments, security agreements, financing statements, applications for insurance and any other agreements or any Record required to be obtained, executed, delivered or endorsed by Company in accordance with the terms of this Agreement.

 

 

6.1        Events of Default. An “Event of Default” means any of the following:

 

(a)        Company fails to pay the amount of any Indebtedness on the date that it becomes due and payable;

 

(b)       Company fails to observe or perform any covenant or agreement of Company set forth in this Agreement, or in any of the Loan Documents, or in any other document or agreement described in or related to this Agreement or to any Indebtedness, or any covenant in Section 5.2 becomes inapplicable due to the lapse of time, and Company and ▇▇▇▇▇ Fargo fail to come to an agreement acceptable to ▇▇▇▇▇ Fargo in ▇▇▇▇▇ Fargo’s sole discretion to amend the covenant to apply to future periods;

 

(c)        An Overadvance arises as the result of any reduction in the Borrowing Base, or arises in any manner or on terms not otherwise approved of in advance by ▇▇▇▇▇ Fargo in a Record that it has Authenticated;

 

(d)       An event of default or termination event (however defined) occurs under any swap, derivative, foreign exchange, hedge or other similar transaction or arrangement entered into between Company and ▇▇▇▇▇ Fargo;

 

(e)        Company or any Guarantor becomes insolvent or admits in a Record an inability to pay debts as they mature, or Company or any Guarantor makes an assignment for the benefit of creditors; or Company or any Guarantor applies for or consents to the appointment of any receiver, trustee, or similar officer for the benefit of Company or such Guarantor, or for any of their properties; or any receiver, trustee or similar officer is appointed without the application or consent of Company or any Guarantor; or any judgment, writ, warrant of attachment or execution or similar process is issued or levied against a substantial part of the property of Company or any Guarantor;

 

(f)        Company or any Guarantor files a petition under any chapter of the United States Bankruptcy Code or under the laws of any other jurisdiction naming Company or such Guarantor as debtor; or any such petition is instituted against Company or any Guarantor; or Company or any Guarantor institutes (by petition, application, answer, consent or otherwise) any bankruptcy, insolvency, reorganization, debt arrangement, dissolution, liquidation or similar proceeding under the laws of any jurisdiction; or any such proceeding is instituted (by petition, application or otherwise) against Company or any Guarantor;

 

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(g)       Any representation or warranty made by Company in this Agreement or by any Guarantor in any Guaranty, or by Company (or any of its Officers) or any Guarantor in any agreement, certificate, instrument or financial statement or other statement delivered to ▇▇▇▇▇ Fargo in connection with this Agreement or pursuant to such Guaranty is untrue or misleading in any material respect when delivered to ▇▇▇▇▇ Fargo;

 

(h)       A final, non-appealable arbitration award, judgment, or decree or order for the payment of money in an amount in excess of $250,000 which is not insured or subject to indemnity, is entered against Company which is not immediately stayed or appealed or paid within 30 days;

 

(i)        Company is in default with respect to any bond, debenture, note or other evidence of material indebtedness issued by Company that is held by any third Person other than ▇▇▇▇▇ Fargo, or under any instrument under which any such evidence of indebtedness has been issued or by which it is governed, or under any material lease or other contract, and the applicable grace period, if any, has expired, regardless of whether such default has been waived by the holder of such indebtedness;

 

(j)        Company liquidates, dissolves, terminates or suspends its business operations or otherwise fails to operate its business in the ordinary course, or merges with another Person; or sells or attempts to sell all or substantially all of its assets;

 

(k)       Company fails to pay any indebtedness or obligation owed to ▇▇▇▇▇ Fargo which is unrelated to the Line of Credit or this Agreement as it becomes due and payable;

 

(l)        Any Guarantor repudiates or purports to revoke the Guarantor’s Guaranty, or fails to perform any obligation under such Guaranty, or any individual Guarantor dies or becomes incapacitated, or any other Guarantor ceases to exist for any reason;

 

(m)      Company engages in any act prohibited by any Subordination Agreement, or makes any payment on Subordinated Indebtedness (as defined in the Subordination Agreement) that the Subordinated Creditor was not contractually entitled to receive;

 

(n)       Any event or circumstance occurs that ▇▇▇▇▇ Fargo in good faith believes may impair the prospect of payment of all or part of the Indebtedness, or Company’s ability to perform any of its material obligations under any of the Loan Documents, or any other document or agreement described in or related to this Agreement, there occurs any material adverse change in the business or financial condition of Company;

 

(o)       Any Director, Officer, Guarantor, or Owner (who is also an individual) of at least 20% of the issued and outstanding common stock of Company is indicted for a felony offence under state or federal law, or Company hires an Officer or appoints a Director who has been convicted of any such felony offense, or a Person becomes an Owner of at least 20% of the issued and outstanding common stock of Company who has been convicted of any such felony offense;

 

(p)       Any Reportable Event, which ▇▇▇▇▇ Fargo in good faith believes to constitute sufficient grounds for termination of any Pension Plan or for the appointment of a trustee to administer any Pension Plan, has occurred and is continuing 30 days after Company gives ▇▇▇▇▇ Fargo a Record notifying it of the Reportable Event; or a trustee is appointed by an appropriate court to administer any Pension Plan; or the Pension Benefit Guaranty Corporation institutes proceedings to terminate or appoint a trustee to administer any Pension Plan; or Company or any ERISA Affiliate files for a distress termination of any Pension Plan under Title IV of ERISA; or Company or any ERISA Affiliate fails to make any quarterly Pension Plan contribution required under Section 412(m) of the IRC, which ▇▇▇▇▇ Fargo in good faith believes may, either by itself or in combination with other failures, result in the imposition of a Lien on Company’s assets in favor of the Pension Plan; or any withdrawal, partial withdrawal, reorganization or other event occurs with respect to a Multiemployer Plan which could reasonably be expected to result in a material liability by Company to the Multiemployer Plan under Title IV of ERISA.

 

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6.2       Rights and Remedies. During any Default Period, ▇▇▇▇▇ Fargo may in its discretion exercise any or all of the following rights and remedies:

 

(a)        ▇▇▇▇▇ Fargo may terminate the Line of Credit and decline to make Advances and terminate any services extended to Company under the Master Agreement for Treasury Management Services;

 

(b)       ▇▇▇▇▇ Fargo may declare the Indebtedness to be immediately due and payable and accelerate payment of the Revolving Note, and all Indebtedness shall immediately become due and payable, without presentment, notice of dishonor, protest or further notice of any kind, all of which Company hereby expressly waives;

 

(c)        ▇▇▇▇▇ Fargo may, without notice to Company, apply any money owing by ▇▇▇▇▇ Fargo to Company to payment of the Indebtedness;

 

(d)       ▇▇▇▇▇ Fargo may exercise and enforce any rights and remedies available upon default to a secured party under the UCC, including the right to take possession of Collateral, proceeding with or without judicial process (without a prior hearing or notice of hearing, which Company hereby expressly waives) and sell, lease or otherwise dispose of Collateral for cash or on credit (with or without giving warranties as to condition, fitness, merchantability or title to Collateral, and in the event of a credit sale, Indebtedness shall be reduced only to the extent that payments are actually received), and Company will upon ▇▇▇▇▇ Fargo’s demand assemble the Collateral and make it available to ▇▇▇▇▇ Fargo at any place designated by ▇▇▇▇▇ Fargo which is reasonably convenient to both parties;

 

(e)        ▇▇▇▇▇ Fargo may exercise and enforce its rights and remedies under any of the Loan Documents and any other document or agreement described in or related to this Agreement;

 

(f)        Company will pay ▇▇▇▇▇ Fargo upon demand in immediately available funds an amount equal to the Aggregate Face Amount plus any anticipated costs and fees for deposit to the Special Account pursuant to Section 1.10;

 

(g)       ▇▇▇▇▇ Fargo may for any reason apply for the appointment of a receiver of the Collateral, to which appointment Company hereby consents; and

 

(h)       ▇▇▇▇▇ Fargo may exercise any other rights and remedies available to it by law or agreement.

 

6.3       Immediate Default and Acceleration. Following the occurrence of an Event of Default described in Section 6.1(e) or (f), the Line of Credit shall immediately terminate and all of Company’s Indebtedness shall immediately become due and payable without presentment, demand, protest or notice of any kind.

 

 

7.1       No Waiver; Cumulative Remedies. No delay or any single or partial exercise by ▇▇▇▇▇ Fargo of any right, power or remedy under the Loan Documents, or under any other document or agreement described in or related to this Agreement, shall constitute a waiver of any other right, power or remedy under the Loan Documents or granted by Company to ▇▇▇▇▇ Fargo under other agreements or documents that are unrelated to the Loan Documents.. No notice to or demand on Company in any circumstance shall entitle Company to any additional notice or demand in any other circumstances. The remedies provided in the Loan Documents or in any other document or agreement described in or related to this Agreement are cumulative and not exclusive of any remedies provided by law. ▇▇▇▇▇ Fargo may comply with applicable law in connection with a disposition of Collateral, and such compliance will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral.

 

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7.2       Amendments; Consents and Waivers; Authentication. No amendment or modification of any Loan Documents, or any other document or agreement described in or related to this Agreement, or consent to or waiver of any Event of Default, or consent to or waiver of the application of any covenant or representation set forth in any of the Loan Documents, or any other document or agreement described in or related to this Agreement; or any release of ▇▇▇▇▇ Fargo’s Security Interest in any Collateral, shall be effective unless it has been agreed to by ▇▇▇▇▇ Fargo and memorialized in a Record that: (a) specifically states that it is intended to amend or modify specific Loan Documents, or any other document or agreement described in or related to this Agreement, or waive any Event of Default or the application of any covenant or representation of any terms of specific Loan Documents, or any other document or agreement described in or related to this Agreement, or is intended to release ▇▇▇▇▇ Fargo’s Security Interest in specific Collateral; and (b) is Authenticated by the signature of an authorized employee of both parties, or by an authorized employee of ▇▇▇▇▇ Fargo with respect to a consent or waiver. The terms of an amendment, consent or waiver memorialized in any Record shall be effective only to the extent, and in the specific instance, and for the limited purpose to which ▇▇▇▇▇ Fargo has agreed.

 

7.3       Execution in Counterparts; Delivery of Counterparts. This Agreement and all other Loan Documents, or any other document or agreement described in or related to this Agreement, and any amendment or modification to them may be Authenticated by the parties in any number of counterparts, each of which, once authenticated and delivered in accordance with the terms of this Section 7.3, will be deemed an original, and all such counterparts, taken together, shall constitute one and the same instrument. Delivery by fax or by encrypted e-mail or e-mail file attachment of any counterpart to any Loan Document Authenticated by an authorized signature will be deemed the equivalent of the delivery of the original Authenticated instrument. Company shall send the original Authenticated counterpart to ▇▇▇▇▇ Fargo by first class U.S. mail or by overnight courier, but Company’s failure to deliver a Record in this form shall not affect the validity, enforceability, and binding effect of this Agreement or the other Loan Documents, or any other document or agreement described in or related to this Agreement.

 

7.4       Notices, Requests, and Communications; Confidentiality. Except as otherwise expressly provided in this Agreement:

 

(a)        Delivery of Notices, Requests and Communications. Any notice, request, demand, or other communication by either party that is required under the Loan Documents, or any other document or agreement described in or related to this Agreement, to be in the form of a Record (but excluding any Record containing information Company must report to ▇▇▇▇▇ Fargo under Section 5.1) may be delivered (i) in person, (ii) by first class U.S. mail, (iii) by overnight courier of national reputation, or (iv) by fax, or the Record may be sent as an Electronic Record and delivered (v) by an encrypted e-mail, or (vi) through ▇▇▇▇▇ Fargo’s Commercial Electronic Office^® (“CEO^®”) portal or other secure electronic channel to which the parties have agreed.

 

(b)       Addresses for Delivery. Delivery of any Record under this Section 7.4 shall be made to the appropriate address set forth on the last page of this Agreement (which either party may modify by a Record sent to the other party), or through ▇▇▇▇▇ Fargo’s CEO portal or other secure electronic channel to which the parties have agreed.

 

(c)        Date of Receipt. Each Record sent pursuant to the terms of this Section 7.4 will be deemed to have been received on (i) the date of delivery if delivered in person, (ii) the date deposited in the mail if sent by mail, (iii) the date delivered to the courier if sent by overnight courier, (iv) the date of transmission if sent by fax, or (v) the date of transmission, if sent as an Electronic Record by electronic mail or through ▇▇▇▇▇ Fargo’s CEO portal or similar secure electronic channel to which the parties have agreed; except that any request for an Advance or any other notice, request, demand or other communication from Company required under Section 1, and any request for an accounting under Section 9-210 of the UCC, will not be deemed to have been received until actual receipt by ▇▇▇▇▇ Fargo on a Business Day by an authorized employee of ▇▇▇▇▇ Fargo.

 

(d)       Confidentiality of Unencrypted E-mail. Company acknowledges that if it sends an Electronic Record to ▇▇▇▇▇ Fargo without encryption by e-mail or as an e-mail file attachment, there is a risk that the Electronic Record may be received by unauthorized Persons, and that by so doing it will be deemed to have accepted this risk and the consequences of any such unauthorized disclosure.

 

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7.5       Company Information Reporting; Confidentiality. Except as otherwise expressly provided in this Agreement:

 

(a)        Delivery of Company Information Records. Any information that Company is required to deliver under Section 5.1 in the form of a Record may be delivered to ▇▇▇▇▇ Fargo (i) in person, or by (ii) first class U.S. mail, (iii) overnight courier of national reputation, or (iv) fax, or the Record may be sent as an Electronic Record (v) by encrypted e-mail, or (vi) through the file upload service of ▇▇▇▇▇ Fargo’s CEO portal or other secure electronic channel to which the parties have agreed.

 

(b)       Addresses for Delivery. Delivery of any Record to ▇▇▇▇▇ Fargo under this Section 7.5 shall be made to the appropriate address set forth on the last page of this Agreement (which ▇▇▇▇▇ Fargo may modify by a Record sent to Company), or through ▇▇▇▇▇ Fargo’s CEO portal or other secure electronic channel to which the parties have agreed.

 

(c)        Date of Receipt. Each Record sent pursuant to this Section will be deemed to have been received on (i) the date of delivery to an authorized employee of ▇▇▇▇▇ Fargo, if delivered in person, or by U.S. mail, overnight courier, fax, or e-mail; or (ii) the date of transmission, if sent as an Electronic Record through ▇▇▇▇▇ Fargo’s CEO portal or similar secure electronic channel to which the parties have agreed.

 

(d)       Authentication of Company Information Records. Company shall Authenticate any Record delivered (i) in person, or by U.S. mail, overnight courier, or fax, by the signature of the Officer or employee of Company who prepared the Record; (ii) as an Electronic Record sent via encrypted e-mail, by the signature of the Officer or employee of Company who prepared the Record by any file format signature that is acceptable to ▇▇▇▇▇ Fargo, or by a separate certification signed and sent by fax; or (iii) as an Electronic Record via the file upload service of ▇▇▇▇▇ Fargo’s CEO portal or similar secure electronic channel to which the parties have agreed, through such credentialing process as ▇▇▇▇▇ Fargo and Company may agree to under the CEO agreement.

 

(e)         Certification of Company Information Records. Any Record (including any Electronic Record) Authenticated and delivered to ▇▇▇▇▇ Fargo under this Section 7.5 will be deemed to have been certified as materially true, correct, and complete by Company and each Officer or employee of Company who prepared and Authenticated the Record on behalf of Company, and may be legally relied upon by ▇▇▇▇▇ Fargo without regard to method of delivery or transmission.

 

(f)        Confidentiality of Company Information Records Sent by Unencrypted E-mail. Company acknowledges that if it sends an Electronic Record to ▇▇▇▇▇ Fargo without encryption by e-mail or as an e-mail file attachment, there is a risk that the Electronic Record may be received by unauthorized Persons, and that by so doing it will be deemed to have accepted this risk and the consequences of any such unauthorized disclosure. Company acknowledges that it may deliver Electronic Records containing Company information to ▇▇▇▇▇ Fargo by e-mail pursuant to any encryption tool acceptable to ▇▇▇▇▇ Fargo and Company, or through ▇▇▇▇▇ Fargo’s CEO portal file upload service without risk of unauthorized disclosure.

 

7.6       Further Documents. Company will from time to time execute, deliver, endorse and authorize the filing of any instruments, documents, conveyances, assignments, security agreements, financing statements, control agreements and other agreements that ▇▇▇▇▇ Fargo may reasonably request in order to secure, protect, perfect or enforce the Security Interest or ▇▇▇▇▇ Fargo’s rights under the Loan Documents, or any other document or agreement described in or related to this Agreement (but any failure to request or assure that Company executes, delivers, endorses or authorizes the filing of any such item shall not affect or impair the validity, sufficiency or enforceability of the Loan Documents, or any other document or agreement described in or related to this Agreement, and the Security Interest, regardless of whether any such item was or was not executed, delivered or endorsed in a similar context or on a prior occasion).

 

7.7       Costs and Expenses. Company shall pay on demand all costs and expenses, including reasonable attorneys’ fees, incurred by ▇▇▇▇▇ Fargo in connection with the Indebtedness, this Agreement, the Loan Documents, or any other document or agreement described in or related to this Agreement, and the transactions contemplated by this Agreement, including all such costs, expenses and fees incurred in connection with the negotiation, preparation, execution, amendment, administration, performance, collection and enforcement of the Indebtedness and all such documents and agreements and the creation, perfection, protection, satisfaction, foreclosure or enforcement of the Security Interest.

 

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7.8       Indemnity. In addition to its obligation to pay ▇▇▇▇▇ Fargo’s expenses under the terms of this Agreement, Company shall indemnify, defend and hold harmless ▇▇▇▇▇ Fargo, its parent ▇▇▇▇▇ Fargo & Company, and any of its affiliates and successors, and all of their present and future Officers, Directors, employees, attorneys and agents (the “Indemnitees”) from and against any of the following (collectively, “Indemnified Liabilities”):

 

(a)        Any and all transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of the Loan Documents or any other document or agreement described in or related to this Agreement, or the making of the Advances;

 

(b)       Any claims, loss or damage to which any Indemnitee may be subjected if any representation or warranty contained in Exhibit D proves to be incorrect in any respect or as a result of any violation of the covenants contained in Section 5.12; and

 

(c)        Any and all other liabilities, losses, damages, penalties, judgments, suits, claims, costs and expenses of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel) in connection with this Agreement and any other investigative, administrative or judicial proceedings, whether or not such Indemnitee shall be designated a party to such proceedings, which may be imposed on, incurred by or asserted against any such Indemnitee, in any manner related to or arising out of or in connection with the making of the Advances and the Loan Documents, or any other document or agreement described in or related to this Agreement, or the use or intended use of the proceeds of the Advances, with the exception of any Indemnified Liability caused by the gross negligence or willful misconduct of an Indemnitee.

 

If any investigative, judicial or administrative proceeding described in this Section is brought against any Indemnitee, upon the Indemnitee’s request, Company, or counsel designated by Company and satisfactory to the Indemnitee, will resist and defend the action, suit or proceeding to the extent and in the manner directed by the Indemnitee, at Company’s sole cost and expense. Each Indemnitee will use its best efforts to cooperate in the defense of any such action, suit or proceeding. If this agreement to indemnify is held to be unenforceable because it violates any law or public policy, Company shall nevertheless make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities to the extent permissible under applicable law. Company’s obligations under this Section shall survive the termination of this Agreement and the discharge of Company’s other obligations under this Agreement.

 

7.9       Retention of Company’s Records. ▇▇▇▇▇ Fargo shall have no obligation to maintain Electronic Records or retain any documents, schedules, invoices, agings, or other Records delivered to ▇▇▇▇▇ Fargo by Company in connection with the Loan Documents or any other document or agreement described in or related to this Agreement for more than 30 days after receipt by ▇▇▇▇▇ Fargo. If there is a special need to retain specific Records, Company must notify ▇▇▇▇▇ Fargo of its need to retain or return such Records with particularity, which notice must be delivered to ▇▇▇▇▇ Fargo in accordance with the terms of this Agreement at the time of the initial delivery of the Record to ▇▇▇▇▇ Fargo.

 

7.10     Binding Effect; Assignment; Complete Agreement. The Loan Documents and any other document or agreement described in or related to this Agreement, shall be binding upon and inure to the benefit of Company and ▇▇▇▇▇ Fargo and their respective successors and assigns, except that Company shall not have the right to assign its rights under this Agreement or any interest in this Agreement without ▇▇▇▇▇ Fargo’s prior consent, which must be confirmed in a Record Authenticated by ▇▇▇▇▇ Fargo. To the extent permitted by law, Company waives and will not assert against any assignee any claims, defenses or set-offs which Company could assert against ▇▇▇▇▇ Fargo. This Agreement shall also bind all Persons who become a party to this Agreement as a borrower. This Agreement, together with the Loan Documents and any other document or agreement described in or related to this Agreement, comprises the complete and integrated agreement of the parties on the subject matter of this Agreement and supersedes all prior agreements, whether oral or evidenced in a Record. To the extent that any provision of this Agreement contradicts other provisions of the Loan Documents other than this Agreement or any other document or agreement described in or related to this Agreement, this Agreement shall control.

 

7.11     Sharing of Information. ▇▇▇▇▇ Fargo may share any information that it may have regarding Company and its Affiliates with its accountants, lawyers, and other advisors, and ▇▇▇▇▇ Fargo and each direct and indirect subsidiary of ▇▇▇▇▇ Fargo & Company may also share any information that they have with each other, and Company waives any right of confidentiality it may have with respect to the sharing of all such information.

 

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7.12     Severability of Provisions. Any provision of this Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining terms of this Agreement.

 

7.13     Headings. Section and subsection headings in this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

 

7.14     Governing Law; Jurisdiction, Venue; Waiver of Jury Trial. The Loan Documents (other than real estate related documents, if any) shall be governed by and construed in accordance with the substantive laws (other than conflict laws) of the State of Minnesota. The parties to this Agreement (a) consent to the personal jurisdiction of the state and federal courts located in the State of Minnesota in connection with any controversy related to this Agreement; (b) waive any argument that venue in any such forum is not convenient; (c) agree that any litigation initiated by ▇▇▇▇▇ Fargo or Company in connection with this Agreement or the other Loan Documents may be venued in either the state or federal courts located in the City of Minneapolis, County of Hennepin, State of Minnesota; and (d) agree that a final judgment in any such suit, action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

 

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COMPANY AND ▇▇▇▇▇ FARGO have executed this Agreement through their authorized officers as of the date set forth above.

 

 

 

 

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REVOLVING NOTE

 

 

 

FOR VALUE RECEIVED, the undersigned, WINNEBAGO INDUSTRIES, INC., an Iowa corporation (the “Company”), hereby promises to pay to the order of ▇▇▇▇▇ FARGO BANK, NATIONAL ASSOCIATION (“▇▇▇▇▇ Fargo”), acting through its ▇▇▇▇▇ FARGO BUSINESS CREDIT operating division, on the Termination Date described in the Credit and Security Agreement dated September ___, 2008 (as amended from time to time, the “Agreement”) and entered into between ▇▇▇▇▇ Fargo and Company, at ▇▇▇▇▇ Fargo’s office at Minneapolis, Minnesota, or at any other place designated at any time by the holder, in lawful money of the United States of America and in immediately available funds, the principal sum of Twenty-Five Million Dollars ($25,000,000) or the aggregate unpaid principal amount of all Advances made by ▇▇▇▇▇ Fargo to Company under the terms of the Agreement, together with interest on the principal amount computed on the basis of actual days elapsed in a 360-day year, from the date of this Revolving Note until this Revolving Note is fully paid at the rate from time to time in effect under the terms of the Agreement. Principal and interest accruing on the unpaid principal amount of this Revolving Note shall be due and payable as provided in the Agreement. This Revolving Note may be prepaid only in accordance with the Agreement.

 

This Revolving Note is the Revolving Note referred to in the Agreement, and is subject to the terms of the Agreement, which provides, among other things, for the acceleration of this Revolving Note. This Revolving Note is secured, among other things, by the Agreement and the Security Documents as defined in the Agreement, and by any other security agreements, mortgages, deeds of trust, assignments or other instruments or agreements that may subsequently be given for good and valuable consideration as security for this Revolving Note.

 

Company shall pay all costs of collection, including reasonable attorneys’ fees and legal expenses if this Revolving Note is not paid when due, whether or not legal proceedings are commenced.

 

Presentment or other demand for payment, notice of dishonor and protest are expressly waived.

 

 

 

 

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Exhibit A to Credit and Security Agreement

 

 

DEFINITIONS

 

“Account Funds” is defined in Section 1.4(a).

 

“Accounts” shall have the meaning given it under the UCC.

 

“Advance” and “Advances” means an advance or advances under the Line of Credit.

 

“Affiliate” or “Affiliates” means any Person controlled by, controlling or under common control with Company, including any Subsidiary of Company. For purposes of this definition, “control,” when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

 

“Aggregate Face Amount” means the aggregate amount that may then be drawn under each outstanding Letter of Credit, assuming compliance with all conditions for drawing.

 

“Agreement” means this Credit and Security Agreement.

 

“Authenticated” means (a) to have signed; or (b) to have executed or to have otherwise adopted a symbol, or have encrypted or similarly processed a Record in whole or in part, with the present intent of the authenticating Person to identify the Person and adopt or accept a Record.

 

“Availability” means the amount, if any, by which the Borrowing Base exceeds the sum of (i) the outstanding principal balance of the Revolving Note and (ii) the L/C Amount.

 

“Borrowing Base” is defined in Section 1.2(a).

 

“Borrowing Base Reserve” means, as of any date of determination, an amount or a percent of a specified category or item that ▇▇▇▇▇ Fargo establishes in its sole discretion from time to time to reduce availability under the Borrowing Base (a) to reflect events, conditions, contingencies or risks which affect the assets, business or prospects of Company, or the Collateral or its value, or the enforceability, perfection or priority of ▇▇▇▇▇ Fargo’s Security Interest in the Collateral, as the term “Collateral” is defined in this Agreement, or (b) to reflect ▇▇▇▇▇ Fargo’s judgment that any collateral report or financial information relating to Company and furnished to ▇▇▇▇▇ Fargo may be incomplete, inaccurate or misleading in any material respect.

 

“Business Day” means a day on which the Federal Reserve Bank of New York is open for business and, if such day relates to a LIBOR Advance, a day on which dealings are carried on in the London interbank eurodollar market.

 

“Capital Expenditures” means for a period, any expenditure of money during such period for the purchase or construction of assets, or for improvements or additions to such assets, which are capitalized on Company’s balance sheet.

 

“CEO” is defined in Section 7.4(a).

 

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“Collateral” means all of Company’s Accounts, chattel paper and electronic chattel paper, deposit accounts, documents, Equipment, General Intangibles, goods, instruments, Inventory, Investment Property, letter-of-credit rights, letters of credit, all sums on deposit in any Collection Account, and any items in any Lockbox; together with (a) all substitutions and replacements for and products of such property; (b) in the case of all goods, all accessions; (c) all accessories, attachments, parts, Equipment and repairs now or subsequently attached or affixed to or used in connection with any goods; (d) all warehouse receipts, bills of lading and other documents of title that cover such goods now or in the future; (e) all collateral subject to the Lien of any of the Security Documents; (f) any money, or other assets of Company that come into the possession, custody, or control of ▇▇▇▇▇ Fargo now or in the future; (g) Proceeds of any of the above Collateral; (h) books and records of Company, including all mail or e-mail addressed to Company; and (i) all of the above Collateral, whether now owned or existing or acquired now or in the future or in which Company has rights now or in the future.

 

“Collection Account” means “Collection Account” as defined in the Master Agreement for Treasury Management Services and related Lockbox and Collection Account Service Description or Collection Account Service Description, whichever is applicable.

 

“Compliance Certificate” is defined in Section 5.1(a) and is in the form of Exhibit E.

 

“Commercial Letter of Credit Agreement” means an agreement governing the issuance of documentary letters of credit entered into between Company as applicant and ▇▇▇▇▇ Fargo as issuer.

 

“Constituent Documents” means with respect to any Person, as applicable, that Person’s certificate of incorporation, articles of incorporation, by-laws, certificate of formation, articles of organization, limited liability company agreement, management agreement, operating agreement, shareholder agreement, partnership agreement or similar document or agreement governing such Person’s existence, organization or management or concerning disposition of ownership interests of such Person or voting rights among such Person’s owners.

 

“Copyright Security Agreement” means each Copyright Security Agreement entered into between Company and ▇▇▇▇▇ Fargo.

 

“Current Ratio” means total current assets divided by total current liabilities.

 

“Default Period” is defined in Section 1.5(b).

 

“Default Rate” is defined in Section 1.5(b).

 

“Director” means a director if Company is a corporation, or a governor or manager if Company is a limited liability company.

 

“Electronic Record” means a Record that is created, generated, sent, communicated, received, or stored by electronic means, but does not include any Record that is sent, communicated, or received by fax.

 

“Eligible Accounts” means all unpaid Accounts of Company arising from motor home sales and leases and parts and service, net of any credits, but excluding any Accounts having any of the following characteristics:

 

(a)        That portion of motor home Accounts receivable unpaid 30 days or more after the invoice date, and that portion of parts and service Accounts receivable unpaid 90 days or more after the invoice date;

 

(b)       That portion of Accounts related to goods or services with respect to which Company has received notice of a claim or dispute, which are subject to a claim of offset or a contra account, or which reflect a reasonable reserve for warranty claims or returns;

 

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(c)        That portion of Accounts not yet earned by the final delivery of goods or that portion of Accounts not yet earned by the final rendition of services by Company to the account debtor, including with respect to both goods and services, progress ▇▇▇▇▇▇▇▇, and that portion of Accounts for which an invoice has not been sent to the applicable account debtor;

 

(d)       Accounts constituting (i) Proceeds of copyrightable material unless such copyrightable material shall have been registered with the United States Copyright Office, or (ii) Proceeds of patentable inventions unless such patentable inventions have been registered with the United States Patent and Trademark Office;

 

(e)        Accounts owed by any unit of government, whether foreign or domestic (except that there shall be included in Eligible Accounts that portion of Accounts owed by such units of government for which Company has provided evidence satisfactory to ▇▇▇▇▇ Fargo that (i) ▇▇▇▇▇ Fargo’s Security Interest constitutes a perfected first priority Lien in such Accounts, and (ii) such Accounts may be enforced by ▇▇▇▇▇ Fargo directly against such unit of government under all applicable laws);

 

(f)       Accounts denominated in any currency other than United States Dollars;

 

(g)       Accounts owed by an account debtor located outside the United States or Canada which are not (i) backed by a bank letter of credit naming ▇▇▇▇▇ Fargo as beneficiary or assigned to ▇▇▇▇▇ Fargo, in ▇▇▇▇▇ Fargo’s possession or control, and with respect to which a control agreement concerning the letter-of-credit rights is in effect, and acceptable to ▇▇▇▇▇ Fargo in all respects, in its sole discretion, or (ii) covered by a foreign receivables insurance policy acceptable to ▇▇▇▇▇ Fargo in its sole discretion;

 

(h)       Accounts owed by an account debtor who is insolvent or is the subject of bankruptcy proceedings or who has gone out of business;

 

(i)        Accounts owed by an Owner, Subsidiary, Affiliate, Officer or employee of Company;

 

(j)        Accounts not subject to the Security Interest or which are subject to any Lien in favor of any Person other than ▇▇▇▇▇ Fargo;

 

(k)       That portion of Accounts that has been restructured, extended, amended or modified;

 

(l)        That portion of Accounts that constitutes advertising, finance charges, service charges or sales or excise taxes;

 

(m)      Accounts owed by an account debtor, regardless of whether otherwise eligible, to the extent that the aggregate balance of such Accounts exceeds 15% of the aggregate amount of all Accounts;

 

(n)       Accounts owed by an account debtor, regardless of whether otherwise eligible, if 10% or more of the total amount of Accounts due from such debtor is ineligible under clauses (a), (b), or (k) above; and

 

(o)       Accounts, or portions of Accounts, otherwise deemed ineligible by ▇▇▇▇▇ Fargo in its sole discretion.

 

“Eligible Inventory” means either (i) if ▇▇▇▇▇ Fargo in its sole discretion has accepted an inventory appraisal, then up to 90% of the Net Orderly Liquidation Value of all Inventory of Company consisting of raw materials, chassis, and finished goods, valued at the lower of cost or market in accordance with GAAP or (ii) if ▇▇▇▇▇ Fargo has not accepted an inventory appraisal, then all Inventory of Company consisting of raw materials, chassis, and finished goods, valued at the lower of cost or market in accordance with GAAP; but in either case excluding Inventory having any of the following characteristics:

 

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(a)        Inventory that is: in-transit; located at any warehouse, job site or other premises not approved by ▇▇▇▇▇ Fargo in an Authenticated Record delivered to Company; not subject to a perfected first priority Lien in ▇▇▇▇▇ Fargo’s favor; subject to any Lien or encumbrance that is subordinate to ▇▇▇▇▇ Fargo’s first priority Lien; covered by any negotiable or non-negotiable warehouse receipt, ▇▇▇▇ of lading or other document of title; on consignment from any consignor; or on consignment to any consignee or subject to any bailment unless the consignee or bailee has executed an agreement with ▇▇▇▇▇ Fargo;

 

(b)       Supplies, packaging, parts or sample Inventory, or customer supplied parts or Inventory;

 

(c)       Work-in-process Inventory;

 

(d)       Inventory that is damaged, defective, obsolete, slow moving or not currently saleable in the normal course of Company’s operations, or the amount of such Inventory that has been reduced by shrinkage;

 

(e)        Inventory that Company has returned, has attempted to return, is in the process of returning or intends to return to the vendor of the Inventory;

 

(f)        Inventory that is perishable or live;

 

(g)       Inventory manufactured by Company pursuant to a license unless the applicable licensor has agreed in a Record that has been Authenticated by licensor to permit ▇▇▇▇▇ Fargo to exercise its rights and remedies against such Inventory;

 

(h)       Inventory that is subject to a Lien in favor of any Person other than ▇▇▇▇▇ Fargo;

 

(i)        Inventory stored at locations holding less than 10% of the aggregate value of Company’s Inventory, or not located at Company’s Premises in Forest City, Iowa, ▇▇▇▇▇▇▇ City, Iowa, or Hampton, Iowa, or stored at a location without a landlord’s disclaimer and consent or mortgagee waiver in a form acceptable to ▇▇▇▇▇ Fargo in its sole discretion; and

 

(j)       Inventory otherwise deemed ineligible by ▇▇▇▇▇ Fargo in its sole discretion.

 

“Environmental Law” means any federal, state, local or other governmental statute, regulation, law or ordinance dealing with the protection of human health and the environment.

 

“Equipment” shall have the meaning given it under the Uniform Commercial Code in effect in the state whose laws govern this Agreement.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

 

“ERISA Affiliate” means any trade or business (whether or not incorporated) that is a member of a group which includes Company and which is treated as a single employer under Section 414 of the IRC.

 

“Event of Default” is defined in Section 6.1.

 

“Floating Rate” is defined in Section 1.5(a).

 

“Floating Rate Advance” means an Advance bearing interest at the Floating Rate.

 

“GAAP” means generally accepted accounting principles, applied on a basis consistent with the accounting practices applied in the financial statements described on Exhibit D.

 

“General Intangibles” shall have the meaning given it under the UCC.

 

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“Guarantor(s)” means any Person now or in the future guaranteeing any Indebtedness through the issuance of a Guaranty.

 

“Guaranty” means an unconditional continuing guaranty executed by a Guarantor in favor of ▇▇▇▇▇ Fargo (if more than one, the “Guaranties”).

 

“Hazardous Substances” means pollutants, contaminants, hazardous substances, hazardous wastes, petroleum and fractions thereof, and all other chemicals, wastes, substances and materials listed in, regulated by or identified in any Environmental Law.

 

“Indebtedness” is used in its most comprehensive sense and means any debts, obligations and liabilities of Company to ▇▇▇▇▇ Fargo, whether incurred in the past, present or future, whether voluntary or involuntary, and however arising, and whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and including without limitation all obligations arising under any swap, derivative, foreign exchange, hedge, deposit, treasury management or similar transaction or arrangement however described or defined that Company may enter into at any time with ▇▇▇▇▇ Fargo or with ▇▇▇▇▇ Fargo Merchant Services, L.L.C., whether or not Company may be liable individually or jointly with others, or whether recovery upon such Indebtedness may subsequently become unenforceable.

 

“Indemnified Liabilities” is defined in Section 7.8.

 

“Indemnitees” is defined in Section 7.8.

 

“Infringement” or “Infringing” when used with respect to Intellectual Property Rights means any infringement or other violation of Intellectual Property Rights.

 

“Intellectual Property Rights” means all actual or prospective rights arising in connection with any intellectual property or other proprietary rights, including all rights arising in connection with copyrights, patents, service marks, trade dress, trade secrets, trademarks, trade names or mask works.

 

“Interest Payment Date” is defined in Section 1.7(a).

 

“Interest Period” means the period that commences on (and includes) the Business Day on which either a LIBOR Advance is made or continued or on which a Floating Rate Advance is converted to a LIBOR Advance, and ending on (but excluding) the Business Day numerically corresponding to that date that falls the number of months afterward as selected by Company pursuant to Section 1.3A(b), during which period the outstanding principal amount of the LIBOR Advance shall bear interest at the LIBOR Advance Rate; provided, however, that:

 

(a)        If an Interest Period would otherwise end on a day which is not a Business Day, then it shall end on the next Business Day, unless that day is the first Business Day of a month, in which case the Interest Period shall end on the last Business Day of the preceding month;

 

(b)        No Interest Period applicable to an Advance may end later than the Maturity Date; and

 

(c)        In no event shall Company select Interest Periods with respect to LIBOR Advances which would result in the payment of a LIBOR Advance breakage fee in order to make a required principal payment.

 

“Inventory” shall have the meaning given it under the UCC.

 

“Investment Property” shall have the meaning given it under the UCC.

 

“L/C Amount” means the sum of (a) the Aggregate Face Amount of any outstanding Letters of Credit, plus (b) the amount of each Obligation of Reimbursement that either remains unreimbursed or has not been paid through an Advance on the Line of Credit.

 

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“L/C Application” means an application for the issuance of standby or documentary Letters of Credit pursuant to the terms of a Standby Letter of Credit Agreement or Commercial Letter of Credit Agreement, in form acceptable to ▇▇▇▇▇ Fargo.

 

“Letter of Credit” and “Letters of Credit” are each defined in Section 1.9(a).

 

“Licensed Intellectual Property” is defined in Exhibit D.

 

“LIBOR” means the rate per annum [rounded upward, if necessary, to the nearest whole 1/8^th of one percent (1%)] determined pursuant to the following formula:

 

 

(a)        “Base LIBOR” means the rate per annum for United States dollar deposits quoted by ▇▇▇▇▇ Fargo as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by ▇▇▇▇▇ Fargo for the purpose of calculating effective rates of interest for loans making reference to it, on the first day of an Interest Period for delivery of funds on that date for a period of time approximately equal to the number of days in that Interest Period and in an amount approximately equal to the principal amount to which that Interest Period applies. Company understands and agrees that ▇▇▇▇▇ Fargo may base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market indicators of the Inter-Bank Market as ▇▇▇▇▇ Fargo in its discretion deems appropriate including the rate offered for U.S. dollar deposits on the London Inter-Bank Market.

 

(b)       “LIBOR Reserve Percentage” means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for “Eurocurrency Liabilities” (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by ▇▇▇▇▇ Fargo for expected changes in such reserve percentage during the applicable Interest Period.

 

“LIBOR Advance” means an Advance bearing interest at the LIBOR Advance Rate.

 

“LIBOR Advance Rate” is defined in Section 1.5(a).

 

“Lien” means any security interest, mortgage, deed of trust, pledge, lien, charge, encumbrance, title retention agreement or analogous instrument or device, including the interest of each lessor under any capitalized lease and the interest of any bondsman under any payment or performance bond, in, of or on any assets or properties of a Person, whether now owned or subsequently acquired and whether arising by agreement or operation of law.

 

“Line of Credit” is defined in the Recitals.

 

“Liquidity” means Company’s average excess Availability not limited by the Maximum Line Amount of the Revolving Loan for the prior 90-day period plus average cash balances in accounts individually exceeding $500,000 for the same period.

 

“Loan Documents” means this Agreement, the Revolving Note, the Master Agreement for Treasury Management Services, any Guaranty, each Subordination Agreement, each Standby Letter of Credit Agreement, each Commercial Letter of Credit Agreement, any L/C Applications, and the Security Documents, together with every other agreement, note, document, contract or instrument to which Company now or in the future may be a party and which may be required by ▇▇▇▇▇ Fargo in connection with, or as a condition to, the execution of this Agreement. Any documents or other agreements entered into between Company and ▇▇▇▇▇ Fargo that relate to any swap, derivative, foreign exchange, hedge, or similar product or transaction, or which are entered into with an operating division of ▇▇▇▇▇ Fargo other than ▇▇▇▇▇ Fargo Business Credit, shall not be included in this definition.

 

“Loan Manager” means the treasury management service defined in the Master Agreement for Treasury Management Services and related Loan Manager Service Description.

 

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“Lockbox” means “Lockbox” as defined in the Master Agreement for Treasury Management Services and related Lockbox and Collection Account Service Description.

 

“Margin” means a rate per annum, expressed as a percentage, as more fully described in Section 1.5(a).

 

“Master Agreement for Treasury Management Services” means the Master Agreement for Treasury Management Services, the related Acceptance of Services, and the Service Description governing each treasury management service used by Company.

 

“Material Adverse Effect” means any of the following:

 

(a)        A material adverse effect on the business, operations, results of operations, prospects, assets, liabilities or financial condition of Company;

 

(b)       A material adverse effect on the ability of Company to perform its obligations under the Loan Documents or any other document or agreement related to this Agreement;

 

(c)        A material adverse effect on the ability of ▇▇▇▇▇ Fargo to enforce the Indebtedness or to realize the intended benefits of the Security Documents, including a material adverse effect on the validity or enforceability of any Loan Document or of any rights against any Guarantor, or on the status, existence, perfection, priority (subject to Permitted Liens) or enforceability of any Lien securing payment or performance of the Indebtedness; or

 

(d)       Any claim against Company or threat of litigation which if determined adversely to Company would cause Company to be liable to pay an amount exceeding $250,000 or would result in the occurrence of an event described in clauses (a), (b) and (c) above.

 

“Maturity Date” is defined in Section 1.1(b).

 

“Maximum Line Amount” is defined in Section 1.1(a).

 

“Multiemployer Plan” means a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) to which Company or any ERISA Affiliate contributes or is obligated to contribute.

 

“Net Cash Proceeds” means the cash proceeds of any asset sale (including cash proceeds received as deferred payments pursuant to a note, installment receivable or otherwise, but only upon actual receipt) net of (a) attorney, accountant, and investment banking fees, (b) brokerage commissions, (c) amounts required to be applied to the repayment of debt secured by a Lien not prohibited by this Agreement on the asset being sold, and (d) taxes paid or reasonably estimated to be payable as a result of such asset sale.

 

“Net Orderly Liquidation Value” means a professional opinion of the probable Net Cash Proceeds that could be realized at a properly advertised and professionally conducted liquidation sale, conducted under orderly sale conditions for an extended period of time (usually six to nine months), under the economic trends existing at the time of the appraisal.

 

“Obligation of Reimbursement” is defined in Section 1.9(b).

 

“OFAC” is defined in Section 5.12(b).

 

“Officer” means with respect to Company, an officer if Company is a corporation, a manager if Company is a limited liability company, or a partner if Company is a partnership.

 

“Operating Account” is defined in Section 1.3(a), and maintained in accordance with the terms of ▇▇▇▇▇ Fargo’s Commercial Account Agreement in effect for demand deposit accounts.

 

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“Overadvance” means the amount, if any, by which the unpaid principal amount of the Revolving Note, plus the L/C Amount, is in excess of the then-existing Borrowing Base.

 

“Owned Intellectual Property” is defined in Exhibit D.

 

“Owner” means with respect to Company, each Person having legal or beneficial title to an ownership interest in Company or a right to acquire such an interest.

 

“Patent and Trademark Security Agreement” means each Patent and Trademark Security Agreement entered into between Company and ▇▇▇▇▇ Fargo.

 

“Pension Plan” means a pension plan (as defined in Section 3(2) of ERISA) maintained for employees of Company or any ERISA Affiliate and covered by Title IV of ERISA.

 

“Permitted Lien” and “Permitted Liens” are defined in Section 5.3(a).

 

“Person” means any individual, corporation, partnership, joint venture, limited liability company, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision of a governmental entity.

 

“Plan” means an employee benefit plan (as defined in Section 3(3) of ERISA) maintained for employees of Company or any ERISA Affiliate.

 

“Premises” is defined in Section 2.4(a).

 

“Prime Rate” means at any time the rate of interest most recently announced by ▇▇▇▇▇ Fargo at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of ▇▇▇▇▇ Fargo’s base rates, and serves as the basis upon which effective rates of interest are calculated for those loans making reference to it, and is evidenced by its recording in such internal publication or publications as ▇▇▇▇▇ Fargo may designate. Each change in the rate of interest shall become effective on the date each Prime Rate change is announced by ▇▇▇▇▇ Fargo.

 

“Proceeds” shall have the meaning given it under the UCC.

 

“Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form, and includes all information that is required to be reported by Company to ▇▇▇▇▇ Fargo pursuant to Section 5.1.

 

“Reportable Event” means a reportable event (as defined in Section 4043 of ERISA), other than an event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the Pension Benefit Guaranty Corporation.

 

“Revolving Note” is defined in Section 1.1(d).

 

“Security Documents” means this Agreement, the Copyright Security Agreement, the Patent and Trademark Security Agreement(s), and any other document delivered to ▇▇▇▇▇ Fargo from time to time to secure the Indebtedness.

 

“Security Interest” is defined in Section 2.1.

 

“Special Account” means a specified cash collateral account maintained with ▇▇▇▇▇ Fargo or another financial institution acceptable to ▇▇▇▇▇ Fargo in connection with each undrawn Letter of Credit issued by ▇▇▇▇▇ Fargo, as more fully described in Section 1.10.

 

“Standby Letter of Credit Agreement” means an agreement governing the issuance of standby letters of credit by ▇▇▇▇▇ Fargo entered into between Company as applicant and ▇▇▇▇▇ Fargo as issuer.

 

A-8

 

---

 

“Subordinated Creditor(s)” means any Person now or in the future subordinating indebtedness of Company held by that Person to the payment of the Indebtedness.

 

“Subordination Agreement” means a subordination agreement executed by a Subordinated Creditor in favor of ▇▇▇▇▇ Fargo (if more than one, the “Subordination Agreements”).

 

“Subsidiary” means any Person of which more than 50% of the outstanding ownership interests having general voting power under ordinary circumstances to elect a majority of the board of directors or the equivalent of such Person, irrespective of whether or not at the time ownership interests of any other class or classes shall have or might have voting power by reason of the happening of any contingency, is at the time directly or indirectly owned by Company, by Company and one or more other Subsidiaries, or by one or more other Subsidiaries.

 

“Tangible Net Worth” means the aggregate of total stockholders’ equity plus subordinated debt less any intangible assets and less any loans or advances to, or investments in, any related entities or individuals.

 

“Termination Date” is defined in Section 1.1(b).

 

“Trademark Security Agreement” means each Trademark Security Agreement entered into between Company and ▇▇▇▇▇ Fargo.

 

“UCC” means the Uniform Commercial Code in effect in the state designated in this Agreement as the state whose laws shall govern this Agreement, or in any other state whose laws are held to govern this Agreement or any portion of this Agreement.

 

“Unused Amount” is defined in Section 1.6(b).

 

“▇▇▇▇▇ Fargo” means ▇▇▇▇▇ Fargo Bank, National Association in its broadest and most comprehensive sense as a legal entity, and is not limited in its meaning to the ▇▇▇▇▇ Fargo Business Credit operating division, or to any other operating division of ▇▇▇▇▇ Fargo.

 

A-9

 

---

Exhibit B to Credit and Security Agreement

 

 

PREMISES

 

The Premises referred to in the Credit and Security Agreement have addresses as follows:

 

 

 

 

B-1

 

---

 

Exhibit C to Credit and Security Agreement

 

 

CONDITIONS PRECEDENT

 

▇▇▇▇▇ Fargo’s obligation to make an initial Advance shall be subject to the condition that ▇▇▇▇▇ Fargo shall have received the following, executed and in form and content satisfactory to ▇▇▇▇▇ Fargo. The following descriptions are limited descriptions for reference purposes only and should not be construed as limiting in any way the subject matter that ▇▇▇▇▇ Fargo requires each document to address.  

 

 

(1)       The Revolving Note.

 

(2)       The Credit and Security Agreement.

 

(3)       The Master Agreement for Treasury Management Services, the Acceptance of Services, and the related Service Description for each deposit or treasury management related product or service that Company will subscribe to, including without limitation the Loan Manager Service Description and the Lockbox and Collection Account Service Description.

 

(4)       The Standby Letter of Credit Agreement and the Commercial Letter of Credit Agreement, and a separate L/C Application for each Letter of Credit that Company has requested that ▇▇▇▇▇ Fargo issue.

 

 

(1)       A Landlord’s Disclaimer and Consent to each lease entered into by Company and that Landlord with respect to the Premises, pursuant to which the Landlord waives its Lien in any goods or other Inventory of Company located on the Premises.

 

(2)       Certificates of Insurance required under this Agreement, with all hazard insurance containing a lender’s loss payable endorsement in ▇▇▇▇▇ Fargo’s favor and with all liability insurance naming ▇▇▇▇▇ Fargo as additional insured.

 

 

(1)       Any leases pursuant to which Company is leasing the Premises from a lessor.

 

 

(1)       Current searches of Company in appropriate filing offices showing that (i) no Liens have been filed and remain in effect against Company and Collateral except Permitted Liens or Liens held by Persons who have agreed in an Authenticated Record that upon receipt of proceeds of the initial Advances, they will satisfy, release or terminate such Liens in a manner satisfactory to ▇▇▇▇▇ Fargo, and (ii) ▇▇▇▇▇ Fargo has filed all UCC financing statements necessary to perfect the Security Interest, to the extent the Security Interest is capable of being perfected by filing.

 

 

(1)       The Certificate of Authority of Company, which shall include as part of the Certificate or as exhibits to the Certificate, (i) the Resolution of Company’s Directors and, if required, Owners, authorizing the execution, delivery and performance of those Loan Documents and other documents or agreements described in or related to this Agreement to which Company is a party, (ii) an Incumbency Certificate containing the signatures of Company’s Officers or agents authorized to execute and deliver those instruments, agreements and certificates, referenced in (i) above, as well as Advance requests, on Company’s behalf, (iii) Company’s Constituent Documents, (iv) a current Certificate of Good

 

C-1

 

---

Standing or Certificate of Status issued by the secretary of state or other appropriate authority for Company’s state of organization, certifying that Company is in good standing and in compliance with all applicable organizational requirements of the state of organization, and (v) a Secretary’s Certificate of Company’s secretary or assistant secretary certifying that the Certificate of Authority of Company is true, correct and complete.

 

(2)       An Officer’s Certificate of an appropriate Officer of Company confirming, in his or her personal capacity, the representations and warranties set forth in this Agreement.

 

(3)       A Customer Identification Information Form and such other forms and verification as ▇▇▇▇▇ Fargo may need to comply with the U.S.A. Patriot Act.

 

 

(1)       Payment of fees and reimbursable costs and expenses due under this Agreement through the date of initial Advance or issuance of a Letter of Credit, including all legal expenses incurred through the date of the closing of this Agreement.

 

(2)       Evidence that after making the initial Advance and satisfying all obligations owed to Company’s prior lender and all trade payables older than 60 days from invoice date, book overdrafts and closing costs, the availability under the Line of Credit is not less than $66,000,000.

 

(3)       Any documents or other agreements entered into by Company and ▇▇▇▇▇ Fargo that relate to any swap, derivative, foreign exchange, hedge, deposit, treasury management or similar product or transaction extended to Company by ▇▇▇▇▇ Fargo not already provided pursuant to the requirements of (A)-(E) above.

 

(4)       Such other documents as ▇▇▇▇▇ Fargo in its sole discretion may require.

 

C-2

 

---

Exhibit D to Credit and Security Agreement

 

REPRESENTATIONS AND WARRANTIES  

 

Company represents and warrants to ▇▇▇▇▇ Fargo as follows:

 

(a)        Existence and Power; Name; Chief Executive Office; Inventory and Equipment Locations; Federal Employer Identification Number and Organizational Identification Number. Company is a corporation organized, validly existing and in good standing under the laws of the State of Iowa and is licensed or qualified to transact business in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes such licensing or qualification necessary. Company has all requisite power and authority to conduct its business, to own its properties and to execute and deliver, and to perform all of its obligations under, those Loan Documents and any other documents or agreements that it has entered into with ▇▇▇▇▇ Fargo related to this Agreement. During its existence, Company has done business solely under the names set forth below in addition to its correct legal name. Company’s chief executive office and principal place of business is located at the address set forth below, and all of Company’s records relating to its business or the Collateral are kept at that location. All Inventory and Equipment is located at that location or at one of the other locations set forth below. Company’s name, Federal Employer Identification Number and Organization Identification Number are correctly set forth at the end of the Agreement next to Company’s signature.

 

 

 

 

 

 

D-1

 

---

(b)       Capitalization. The Capitalization Chart below constitutes a correct and complete list of all ownership interests of Company and all rights to acquire ownership interests including the record holder, number of interests and percentage interests on a fully diluted basis, and the Organizational Chart below shows the ownership structure of all Subsidiaries of Company.

 

 

 

(c)        Authorization of Borrowing; No Conflict as to Law or Agreements. The execution, delivery and performance by Company of the Loan Documents and any other documents or agreements described in or related to this Agreement, and all borrowing under the Line of Credit have been authorized and do not (i) require the consent or approval of Company’s Owners; (ii) require the authorization, consent or approval by, or registration, declaration or filing with, or notice to, any governmental agency or instrumentality, whether domestic or foreign, or any other Person, except to the extent obtained, accomplished or given prior to the date of this Agreement; (iii) violate any provision of any law, rule or regulation (including Regulation X of the Board of Governors of the Federal Reserve System) or of any order, writ, injunction or decree presently in effect having applicability to Company or of Company’s Constituent Documents; (iv) result in a breach of or constitute a default or event of default under any indenture or loan or credit agreement or any other material agreement, lease or instrument to which Company is a party or by which it or its properties may be bound or affected; or (v) result in, or require, the creation or imposition of any Lien (other than the Security Interest) upon or with respect to any of the properties now owned or subsequently acquired by Company.

 

(d)       Legal Agreements. This Agreement, the other Loan Documents, and any other document or agreement described in or related to this Agreement, will constitute the legal, valid and binding obligations of Company, enforceable against Company in accordance with their respective terms.

 

 

 

(f)        Financial Condition; No Adverse Change. Company has furnished to ▇▇▇▇▇ Fargo its audited financial statements for its fiscal year ended August 25, 2007, and unaudited financial statements for the fiscal-year-to-date period ended May 31, 2008, and those statements fairly present Company’s financial condition as of those dates and the results of Company’s operations and cash flows for the periods then ended and were prepared in accordance with GAAP. Since the date of the most recent financial statements, there has been no material adverse change in Company’s business, properties or condition (financial or otherwise).

 

(g)       Litigation. There are no actions, suits or proceedings pending or, to Company’s knowledge, threatened against or affecting Company or any of its Affiliates or the properties of Company or any of its Affiliates before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, if determined adversely to Company or any of its Affiliates, would have a Material Adverse Effect on the financial condition, properties or operations of Company or any of its Affiliates.

 

D-2

 

---

 

 

(i)        Owned Intellectual Property. Set forth below is a complete list of all patents, applications for patents, trademarks, applications to register trademarks, service marks, applications to register service marks, mask works, trade dress and copyrights for which Company is the owner of record (the “Owned Intellectual Property”). Except as set forth below, (A) Company owns the Owned Intellectual Property free and clear of all restrictions (including covenants not to ▇▇▇ any Person), court orders, injunctions, decrees, writs or Liens, whether by agreement memorialized in a Record Authenticated by Company or otherwise, (B) no Person other than Company owns or has been granted any right in the Owned Intellectual Property, (C) all Owned Intellectual Property is valid, subsisting and enforceable, and (D) Company has taken all commercially reasonable action necessary to maintain and protect the Owned Intellectual Property.

 

(ii)       Agreements with Employees and Contractors. Company has entered into a legally enforceable agreement with each Person that is an employee or subcontractor obligating that Person to assign to Company, without additional compensation, any Intellectual Property Rights created, discovered or invented by that Person in the course of that Person’s employment or engagement with Company (except to the extent prohibited by law), and further obligating that Person to cooperate with Company, without additional compensation, to secure and enforce the Intellectual Property Rights on behalf of Company, unless the job description of the Person is such that it is not reasonably foreseeable that the employee or subcontractor will create, discover, or invent Intellectual Property Rights.

 

(iii)      Intellectual Property Rights Licensed from Others. Set forth below is a complete list of all agreements under which Company has licensed Intellectual Property Rights from another Person (“Licensed Intellectual Property”) other than readily available, non-negotiated licenses of computer software and other intellectual property used solely for performing accounting, word processing and similar administrative tasks (“Off-the-shelf Software”) and a summary of any ongoing payments Company is obligated to make with respect thereto. Except as set forth below or in any other Record, copies of which have been given to ▇▇▇▇▇ Fargo, Company’s licenses to use the Licensed Intellectual Property are free and clear of all restrictions, Liens, court orders, injunctions, decrees, or writs, whether by agreed to in a Record Authenticated by Company or otherwise. Except as disclosed below, Company is not contractually obligated to make royalty payments of a material nature, or pay fees to any owner of, licensor of, or other claimant to, any Intellectual Property Rights.

 

(iv)      Other Intellectual Property Needed for Business. Except for Off-the-shelf Software and as disclosed below, the Owned Intellectual Property and the Licensed Intellectual Property constitute all Intellectual Property Rights used or necessary to conduct Company’s business as it is presently conducted or as Company reasonably foresees conducting it.

 

(v)       Infringement. Except as disclosed below, Company has no knowledge of, and has not received notice either orally or in a Record alleging, any Infringement of another Person’s Intellectual Property Rights (including any claim set forth in a Record that Company must license or refrain from using the Intellectual Property Rights of any Person) nor, to Company’s knowledge, is there any threatened claim or any reasonable basis for any such claim.

 

 

 

D-3

 

---

(i)        Taxes. Company and its Affiliates have paid or caused to be paid to the proper authorities when due all federal, state and local taxes required to be withheld by each of them. Company and its Affiliates have filed all federal, state and local tax returns which to the knowledge of the Officers of Company or any Affiliate, as the case may be, are required to be filed, and Company and its Affiliates have paid or caused to be paid to the respective taxing authorities all taxes as shown on these returns or on any assessment received by any of them to the extent such taxes have become due.

 

(j)        Titles and Liens. Company has good and absolute title to all Collateral free and clear of all Liens other than Permitted Liens. No financing statement naming Company as debtor is on file in any office except to perfect only Permitted Liens.

 

(k)       No Defaults. Company is in compliance with all provisions of all agreements, instruments, decrees and orders to which it is a party or by which it or its property is bound or affected, the breach or default of which could have a Material Adverse Effect on Company’s financial condition, properties or operations.

 

(l)        Submissions to ▇▇▇▇▇ Fargo. All financial and other information provided to ▇▇▇▇▇ Fargo by or on behalf of Company in connection with Company’s request for the credit facilities contemplated hereby (i) is true and correct and complete in all material respects, (ii) does not omit any material fact that would cause such information to be misleading, and (iii) as to projections, valuations or proforma financial statements, presents a good faith opinion as to such projections, valuations and proforma condition and results.

 

(m)      Financing Statements. Company has previously authorized the filing of financing statements sufficient when filed to perfect the Security Interest and other Liens created by the Security Documents. When such financing statements are filed, ▇▇▇▇▇ Fargo will have a valid and perfected security interest in all Collateral capable of being perfected by the filing of financing statements. None of the Collateral is or will become a fixture on real estate, unless a sufficient fixture filing has been filed with respect to such Collateral.

 

(n)       Rights to Payment. Each right to payment and each instrument, document, chattel paper and other agreement constituting or evidencing Collateral is (or, in the case of all future Collateral, will be when arising or issued) the valid, genuine and legally enforceable obligation, subject to no defense, setoff or counterclaim of the account debtor or other obligor named in that instrument.

 

(o)       Employee Benefit Plans.

 

(i)        Maintenance and Contributions to Plans. Except as disclosed below, neither Company nor any ERISA Affiliate (A) maintains or has maintained any Pension Plan, (B) contributes or has contributed to any Multiemployer Plan, or (C) provides or has provided post-retirement medical or insurance benefits to employees or former employees (other than benefits required under Section 601 of ERISA, Section 4980B of the IRC, or applicable state law).

 

(ii)       Knowledge of Plan Noncompliance with Applicable Law. Except as disclosed below, neither Company nor any ERISA Affiliate has (A) knowledge that Company or the ERISA Affiliate is not in full compliance with the requirements of ERISA, the IRC, or applicable state law with respect to any Plan, (B) knowledge that a Reportable Event occurred or continues to exist in connection with any Pension Plan, or (C) sponsored a Plan that it intends to maintain as qualified under the IRC that is not so qualified, and no fact or circumstance exists which may have an adverse effect on such Plan’s tax-qualified status.

 

(iii)      Funding Deficiencies and Other Liabilities. Neither Company nor any ERISA Affiliate has liability for any (A) accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the IRC) under any Plan, whether or not waived, (B) withdrawal, partial withdrawal, reorganization or other event under any Multiemployer Plan under Section 4201 or 4243 of ERISA, or (C) event or circumstance which could result in financial obligation to the Pension Benefit Guaranty Corporation, the Internal Revenue Service, the Department of Labor or any participant in connection with any Plan (other than routine claims for benefits under the Plan).

 

D-4

 

---

 

(p)       Environmental Matters.

 

(i)        Hazardous Substances on Premises. Except as disclosed below, there are not present in, on or under the Premises any Hazardous Substances in such form or quantity as to create any material liability or obligation for either Company or ▇▇▇▇▇ Fargo under the common law of any jurisdiction or under any Environmental Law, and no Hazardous Substances have ever been stored, buried, spilled, leaked, discharged, emitted or released in, on or under the Premises in such a way as to create a material liability.

 

(ii)       Disposal of Hazardous Substances. Except as disclosed below, Company has not disposed of Hazardous Substances in such a manner as to create any material liability under any Environmental Law.

 

(iii)      Claims and Proceedings with Respect to Environmental Law Compliance. Except as disclosed below, there have not existed in the past, nor are there any threatened or impending requests, claims, notices, investigations, demands, administrative proceedings, hearings or litigation relating in any way to the Premises or Company, alleging material liability under, violation of, or noncompliance with any Environmental Law or any license, permit or other authorization issued pursuant thereto.

 

(iv)      Compliance with Environmental Law; Permits and Authorizations. Except as disclosed below, Company (A) conducts its business at all times in compliance with applicable Environmental Law, (B) possesses valid licenses, permits and other authorizations required under applicable Environmental Law for the lawful and efficient operation of its business, none of which are scheduled to expire, or be withdrawn, or be materially limited within the next 12 months, except as otherwise previously disclosed to ▇▇▇▇▇ Fargo, provided that any licenses, permits or other authorizations that are scheduled to expire within the next 12 months shall be renewed immediately upon expiration; and (C) has not been denied insurance on grounds related to potential environmental liability.

 

(v)       Status of Premises. Except as disclosed below, the Premises are not and never have been listed on the National Priorities List, the Comprehensive Environmental Response, Compensation and Liability Information System or any similar federal, state or local list, schedule, log, inventory or database.

 

(vi)      Environmental Audits, Reports, Permits and Licenses. Company has delivered to ▇▇▇▇▇ Fargo all environmental assessments, audits, summary reports, permits, licenses and other documents describing or relating in any way to the Premises or Company’s businesses that have been requested by ▇▇▇▇▇ Fargo.

 

D-5

 

---

 

 

D-6

 

---

Exhibit E to Credit and Security Agreement

 

 

COMPLIANCE CERTIFICATE

 

To: ▇▇▇▇▇ Fargo Bank, National Association

Date: ___________________, 200_

Subject: Financial Statements

 

In accordance with our Credit and Security Agreement dated September ___, 2008 (as amended from time to time, the “Credit Agreement”), attached are the financial statements of Winnebago Industries, Inc. (the “Company”) dated _______________, 200_ (the “Reporting Date”) and the year-to-date period then ended (the “Current Financials”). All terms used in this certificate have the meanings given in the Credit Agreement.

 

(A)       Preparation and Accuracy of Financial Statements. I certify that the Current Financials have been prepared in accordance with GAAP, subject to year-end audit adjustments, and fairly present Company’s financial condition as of the Reporting Date.

 

(B)       Name of Company; Merger and Consolidation. I certify that:

 

(Check one)

 

 

 

 

(Check one)

 

 

 

 

(Check one)

 

 

 

E-1

 

---

 

(Check and complete each of the following)

 

1.         Minimum Tangible Net Worth. Pursuant to Section 5.2(a) of the Credit Agreement, as of the Reporting Date, Company’s Tangible Net Worth was $__________, which o satisfies o does not satisfy the requirement that Tangible Net Worth be not less than the amount set forth in the table below on the Reporting Date:

 

 

2.         Minimum Current Ratio. Pursuant to Section 5.2(b) of the Credit Agreement, as of the Reporting Date, Company’s Current Ratio was _____ to 1.00, which o satisfies o does not satisfy the requirement that Current Ratio be not less than the ratio set forth in the table below on the Reporting Date:

 

 

3.         Capital Expenditures. Pursuant to Section 5.2(c) of the Credit Agreement, for the year-to-date period ending on the Reporting Date, Company has expended or contracted to expend during the fiscal year ended August ___, 200__ for Capital Expenditures, $________________ in the aggregate, which o satisfies o does not satisfy the requirement that such expenditures not exceed $7,500,000 in the aggregate during such year.

 

E-2

 

---

4.         Salaries. Company o has o has not paid excessive or unreasonable salaries, bonuses, commissions, consultant fees or other compensation, or increased the salary, cash bonus, commissions, consultant fees or other compensation (other than compensation in the form of Company’s stock or stock options) of any Director, Officer or consultant, or any member of their families, by more than twenty percent (20%) as of the Reporting Date over the amount paid in Company’s previous fiscal year, either individually or for all such persons in the aggregate, and o has o has not paid any increase from any sour ce other than profits earned in the year of payment, and as a consequence Company o is o is not in compliance with Section 5.9 of the Credit Agreement.

 

Attached are statements of all relevant facts and computations in reasonable detail sufficient to evidence Company’s compliance with the financial covenants referred to above, which computations were made in accordance with GAAP.

 

 

 

 

 

E-3

 

---

Exhibit F to Credit and Security Agreement

 

PERMITTED LIENS

 

 

INDEBTEDNESS

 

None.

 

F-1

 

---

GUARANTIES

 

 

Repurchase Commitments

 

Company’s repurchase agreements provide that, in the event of default by a dealer under its agreement to pay the lending institution, Company will repurchase the financed merchandise. The agreements provide that Company’s liability will not exceed 100 percent of the dealer invoice and provide for periodic liability reductions based on the time since the date of the original invoice. Company’s contingent liability on these repurchase agreements was approximately $283.7 million and $308.2 million at May 31, 2008 and August 25, 2007, respectively. Losses under these repurchase agreements for the forty weeks ended May 31, 2008 were $12,000 compared to losses of $4,000 for the thirty-nine weeks ended May 26, 2007. Repurchase reserves under our repurchase agreements at May 31, 2008 and August 25, 2007 were not significant. Upon resale of the repurchased units, Company does not record the transaction as revenue. The difference between the repurchase price and the net proceeds received from reselling the units is charged against Company’s reserve for losses on repurchases.

 

F-2

 

---

Exhibit G to Credit and Security Agreement

 

PERMITTED INVESTMENTS

 

[Attached.]

 

G-2

G-1

 

---

Winnebago Industries, Inc.
DCF Valuation Analysis
August 30, 2008

Auction Maturity Date

Stated Maturity

Years

Broker

Current Tax Equiv. Yield

Rating

Insurance

Auction

Issuer

Par

09/10/08

12/1/2039

31.5

RBC

Aaa/AAA

NONE

▇▇-▇▇

▇▇▇ ▇▇▇▇ ▇▇-▇▇▇▇

3,000,000

09/19/09

5/1/2041

32.9

RBC

Aaa/AAA

NONE

DA-35

AZ HIGHER ED-6325

3,000,000

09/17/08

7/1/2026

18.1

LB-NY

recd $ 090808

A/A+

NONE

▇▇-▇▇

▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇-

3,100,000

09/24/08

6/1/2034

26.0

UBS-C

NR/AAA/NR

NONE

DA-35

KY HIGHER ED-6327

5,000,000

09/12/08

5/1/2040

31.9

UBS-C

AAA/Aaa/AAA

MBIA

DA-35

NJ HIGHER ED-6319

4,500,000

09/17/08

12/1/2034

26.5

UBS-C

Aaa/AAA/AA

AMBAC

DA-35

RI STUD LOAN-6323

4,000,000

09/24/08

9/1/2027

19.3

RBC

Aaa/NR/NR

NONE

DA-35

SC ED ASST-6326

5,000,000

09/26/08

12/1/2027

19.5

RBC

Aaa/NR/AAA

NONE

DA-35

SO TX HIGHER ED-6329

5,000,000

09/17/08

12/1/2038

30.5

RBC

Aaa/AAA/AAA

NONE

DA-35

WA STUD LN-6321

5,000,000

09/24/08

4/1/2039

30.9

RBC

NR/AAA/AAA

NONE

DA-35

WY STUD LN-6331

5,000,000

Total

42,600,000

Issuer		Par		Projected Tax Equiv. Yield		Implied Price - NPV				Tranche		Call Dt		Subtotal				Days per Yr
ARK STUD LN-6315		3,000,000				2,895,594		0.97				022908		3,000,000		TE		360		1st-Jun, Dec
AZ HIGHER ED-6325		3,000,000				2,856,443		0.95		42M				3,000,000		TE		360		1st-May, Nov
BRKLYN UNION-6320-		3,100,000		moved to ST		3,100,000		1.00						3,100,000		TE		360		MAT
KY HIGHER ED-6327		5,000,000				4,949,972		0.99		57.6M		022908				TE		366		1st-Jun, Dec
NJ HIGHER ED-6319		4,500,000				4,461,422		0.99		67.5M		022908		5,000,000		TE		365		1st-Jun, Dec
RI STUD LOAN-6323		4,000,000				3,959,978		0.99		32M		022908		4,000,000		TE		366		1st-Jun, Dec
SC ED ASST-6326		5,000,000				4,769,483		0.95				031508				TE		360		1st-Mar, Spt
SO TX HIGHER ED-6329		5,000,000				4,760,739		0.95				021408				TE		360		1st-Jun, Dec
WA STUD LN-6321		5,000,000				4,625,865		0.93				022908		5,000,000		▇▇		▇▇▇		▇▇▇-▇▇▇, ▇▇▇
▇▇ ▇▇▇▇ ▇▇-▇▇▇▇		5,000,000				4,625,865		0.93				▇▇▇▇▇▇				▇▇		▇▇▇		▇▇▇-▇▇▇, Dec
Total		42,600,000				41,005,360		0.96
Temporary Impairment						1,594,640

G-2

---

Exhibit H to Credit and Security Agreement

 

 

CAPITALIZATION CHART

 

[Attached.]

 

H-2 and H-3

H-1

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Company Overview: Ownership Summary [16-Sep-08]

Winnebago Industries Inc (WGO-US)

Investment Style: Firms	Turnover: Firms	Concentration

Top 10 Investors
Investor Name		% O/S		Position		Position Chg		Value($MM)		Filing Date		Source
Royce & Associates, LLC		17.65		5,129,435		-22,200		52.3		30-Jun-08		13F
Fidelity Management & Research		14.88		4,325,968		-21,700		44.1		30-Jun-08		13F
▇. ▇▇▇▇ Price Associates, Inc.		11.62		3,378,920		388,350		34.4		30-Jun-08		▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, Inc.		7.13		2,071,600		756,200		21.1		30-Jun-08		13F
Franklin Advisory Services, LLC		6.98		2,028,300		169,500		20.7		30-Jun-08		13F
Capital World Investors		5.76		1,673,000		50,000		17.0		30-Jun-08		13F
▇▇▇▇▇▇ Capital Partners, L.L.C		5.17		1,503,332				52.3		▇▇-▇▇▇-▇▇		▇▇▇
▇▇▇▇▇▇▇▇▇ Capital Management Inc.		5.13		1,490,425		-1,125		15.2		30-Jun-08		13F
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ & North Investment Management Ltd.		4.94		1,434,557		526,307		14.6		30-Jun-08		13F
Barclays Global Investors, N.A.		4.75		1,379,644		50,604		14.1		30-Jun-08		13F
Top 10 Mutual Funds
Mutual Fund Name		% O/S		Position		Position Chg		Value($MM	)	Filing Date		Source
Fidelity Value Fund		8.15		2,370,291		0		30.2		31-Jul-08		▇▇
▇. ▇▇▇▇ Price Small Cap Value Fund		5.91		1,717,900		87,100		29.0		31-Mar-08		MF
American Funds SMALLCAP World Fund		5.76		1,673,000		1,673,000		17.0		30-Jun-08		▇▇
▇▇▇▇▇ Low-Priced Stock Fund		5.39		1,567,200		1,567,200		26.5		31-Mar-08		▇▇
▇▇▇▇▇ Pennsylvania Mutual Fund		4.34		1,260,300		312,000		21.3		31-Mar-08		MF
Buffalo Small Cap Fund		4.29		1,245,600		0		12.7		30-Jun-08		▇▇
▇▇▇▇▇ Total Return Fund		3.23		937,700		44,900		15.8		31-Mar-08		MF
Fidelity Equity-Income Fund		3.03		881,737		0		11.3		31-Jul-08		▇▇
▇▇▇▇▇ Small Cap Value Fund		2.41		700,000		700,000		7.1		30-Jun-08		▇▇
▇▇▇▇▇ Value Fund		2.25		655,035		0		11.1		31-Mar-08		MF

H-2

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Winnebago Industries, Inc.	VALUATION DISCLOSURE RECAP - SUMMARY
	FROM 8/26/2007 TO 8/30/2008
	FAIR MARKET VALUE: $11.35
	FORFEITURE RATE: Defined Rate
	DEFINED RATE: 0.000
	SINGLE: USE WGT AVG RATE: No
	REPORT TYPE:Options
	EQUITY PLAN: All
	PURCHASE PLAN:
S T O C K  O P T I O N S

		Shares			Weighted Average Exercise Price			Weighted Remaining Contractual Term			Aggregate Intrinsic Value as of 08/30/08
BEGINNING OUTSTANDING			1,137,975		$	26.31822
GRANTED
Price < Market Value			0		$	0.00000
Price = Market Value			0		$	0.00000
Price > Market Value			0		$	0.00000
Total			0		$	0.00000
EXERCISED			(59,201	)	$	10.85798
CANCELLED
Forfeited			(667	)	$	26.93000
Expired			(33,208	)	$	29.29463
Total			(33,875	)	$	29.24807
ENDING OUTSTANDING			1,044,899		$	27.09917			5.44		$	142,275.44
ENDING VESTED + EXPECTED TO VEST			1,044,899		$	27.09917			5.44		$	142,275.44
ENDING EXERCISABLE			971,540		$	27.08872			5.31		$	142,275.44
WGT. AVG. REMAINING RECOGNITION PERIOD:			0.13

OUTSTANDING AND EXERCISABLE BY PRICE RANGE
AS OF 08/30/08

						OPTIONS OUTSTANDING									OPTIONS EXERCISABLE
Range of Exercise Prices						Number Outstanding As of 08/30/08			Weighted Average Remaining Contractual Term			Weighted Average Exercise Price			Number Exercisable As of 08/30/08			Weighted Average Exercise Price
$	7.68750		$	18.25000			147,308			2.63		$	14.45031			147,308		$	14.45031
$	18.84250		$	18.84250			16,000			4.38		$	18.84250			16,000		$	18.84250
$	19.73750		$	19.73750			16,000			3.38		$	19.73750			16,000		$	19.73750
$	26.49500		$	26.49500			191,368			4.37		$	26.49500			191,368		$	26.49500
$	26.93000		$	26.93000			239,457			7.02		$	26.93000			170,265		$	26.93000
$	31.47500		$	31.47500			310,266			6.02		$	31.47500			310,266		$	31.47500
$	32.34500		$	32.34500			12,500			7.21		$	32.34500			8,333		$	32.34500
$	33.63000		$	33.63000			28,000			7.36		$	33.63000			28,000		$	33.63000
$	34.85500		$	34.85500			44,000			5.38		$	34.85500			44,000		$	34.85500
$	35.14750		$	35.14750			40,000			6.37		$	35.14750			40,000		$	35.14750
$	7.68750		$	35.14750			1,044,899			5.44		$	27.09917			971,540		$	27.08872

H-3

 

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