Exhibit 10.36
______________________________________________
______________________________________________
CREDIT AND SECURITY AGREEMENT
BY AND BETWEEN
P. G. DESIGN ELECTRONICS, INC.
AND
NORWEST BUSINESS CREDIT, INC.
Dated as of December 31, 1998
[LOGO of NORWEST BUSINESS CREDIT goes here]
______________________________________________
______________________________________________
Table of Contents
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ARTICLE I DEFINITIONS........................................................................................................... 1
Section 1.1 Definitions........................................................................................................ 1
Section 1.2 Cross References................................................................................................... 9
ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY............................................................................. 9
Section 2.1 Advances........................................................................................................... 9
Section 2.2 Term Advance....................................................................................................... 10
Section 2.3 Payment of Term Note............................................................................................... 10
Section 2.4 Interest; Minimum Interest Charge; Default Interest; Participations; Usury......................................... 10
Section 2.5 Fees............................................................................................................... 11
Section 2.6 Computation of Interest and Fees; When Interest Due and Payable.................................................... 12
Section 2.7 Capital Adequacy; Increased Costs and Reduced Return............................................................... 12
Section 2.8 Voluntary Prepayment; Reduction of the Maximum Line; Termination of the Credit Facility by the Borrower............ 13
Section 2.9 Termination and Line Reduction Fees................................................................................ 13
Section 2.10 Mandatory Prepayment.............................................................................................. 13
Section 2.11 Payment........................................................................................................... 13
Section 2.12 Payment on Non-Banking Days....................................................................................... 14
Section 2.13 Use of Proceeds................................................................................................... 14
Section 2.14 Liability Records................................................................................................. 14
ARTICLE III SECURITY INTEREST; OCCUPANCY; SETOFF............................................................................... 14
Section 3.1 Grant of Security Interest......................................................................................... 14
Section 3.2 Notification of Account Debtors and Other Obligors................................................................. 14
Section 3.3 Assignment of Insurance............................................................................................ 15
Section 3.4 Occupancy.......................................................................................................... 15
Section 3.5 License............................................................................................................ 15
Section 3.6 Financing Statement................................................................................................ 16
Section 3.7 Setoff............................................................................................................. 16
ARTICLE IV CONDITIONS OF LENDING............................................................................................... 16
Section 4.1 Conditions Precedent to the Initial Advances....................................................................... 16
Section 4.2 Conditions Precedent to All Advances............................................................................... 19
ARTICLE V REPRESENTATIONS AND WARRANTIES....................................................................................... 19
Section 5.1 Corporate Existence and Power; Name; Chief Executive Office; Inventory and Equipment Locations; Tax Identification
Number...................................................................................................................... 19
Section 5.2 Authorization of Borrowing; No Conflict as to Law or Agreements.................................................... 19
Section 5.3 Legal Agreements................................................................................................... 20
Section 5.4 Subsidiaries....................................................................................................... 20
Section 5.5 Financial Condition; No Adverse Change.............................................................................20
Section 5.6 Litigation.........................................................................................................20
Section 5.7 Regulation U.......................................................................................................20
Section 5.8 Taxes..............................................................................................................21
Section 5.9 Titles and Liens...................................................................................................21
Section 5.10 Plans.............................................................................................................21
Section 5.11 Default...........................................................................................................21
Section 5.12 Environmental Matters.............................................................................................21
Section 5.13 Submissions to Lender.............................................................................................23
Section 5.14 Financing Statements..............................................................................................23
Section 5.15 Rights to Payment.................................................................................................23
ARTICLE VI BORROWER'S AFFIRMATIVE COVENANTS....................................................................................23
Section 6.1 Reporting Requirements.............................................................................................23
Section 6.2 Books and Records; Inspection and Examination......................................................................26
Section 6.3 Account Verification...............................................................................................26
Section 6.4 Compliance with Laws...............................................................................................26
Section 6.5 Payment of Taxes and Other Claims..................................................................................27
Section 6.6 Maintenance of Properties..........................................................................................27
Section 6.7 Insurance..........................................................................................................27
Section 6.8 Preservation of Existence..........................................................................................28
Section 6.9 Delivery of Instruments, etc.......................................................................................28
Section 6.10 Collateral Account................................................................................................28
Section 6.11 Performance by the Lender.........................................................................................29
Section 6.12 Minimum Combined Book Net Worth...................................................................................29
Section 6.13 Minimum Combined Net Income.......................................................................................30
Section 6.14 Sale or Liquidation of Zecal......................................................................................31
ARTICLE VII NEGATIVE COVENANTS.................................................................................................31
Section 7.1 Liens..............................................................................................................31
Section 7.2 Indebtedness.......................................................................................................32
Section 7.3 Guaranties.........................................................................................................32
Section 7.4 Investments and Subsidiaries.......................................................................................32
Section 7.5 Dividends..........................................................................................................33
Section 7.6 Sale or Transfer of Assets; Suspension of Business Operations......................................................33
Section 7.7 Consolidation and Merger; Asset Acquisitions.......................................................................34
Section 7.8 Sale and Leaseback.................................................................................................34
Section 7.9 Restrictions on Nature of Business.................................................................................34
Section 7.10 Capital Expenditures..............................................................................................34
Section 7.11 Accounting........................................................................................................34
Section 7.12 Discounts, etc....................................................................................................34
Section 7.13 Defined Benefit Pension Plans.....................................................................................35
Section 7.14 Other Defaults....................................................................................................35
Section 7.15 Place of Business; Name...........................................................................................35
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Section 7.16 Organizational Documents..........................................................................................35
Section 7.17 Salaries..........................................................................................................35
Section 7.18 Change in Ownership...............................................................................................35
ARTICLE VIII EVENTS OF DEFAULT, RIGHTS AND REMEDIES............................................................................36
Section 8.1 Events of Default..................................................................................................36
Section 8.2 Rights and Remedies................................................................................................38
Section 8.3 Certain Notices....................................................................................................39
Section 8.4 Covenant Default Fees..............................................................................................39
ARTICLE IX MISCELLANEOUS.......................................................................................................39
Section 9.1 No Waiver; Cumulative Remedies.....................................................................................39
Section 9.2 Amendments, Etc....................................................................................................39
Section 9.3 Addresses for Notices, Etc.........................................................................................39
Section 9.4 Further Documents..................................................................................................40
Section 9.5 Collateral.........................................................................................................41
Section 9.6 Costs and Expenses.................................................................................................41
Section 9.7 Indemnity..........................................................................................................41
Section 9.8 Participants.......................................................................................................42
Section 9.9 Execution in Counterparts..........................................................................................42
Section 9.10 Binding Effect; Assignment; Complete Agreement; Exchanging
Information.......................................................................................................42
Section 9.11 Severability of Provisions........................................................................................43
Section 9.12 Headings..........................................................................................................43
Section 9.13 Lender's Actions..................................................................................................43
Section 9.14 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial..........................................................43
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CREDIT AND SECURITY AGREEMENT
Dated as of December 31, 1998
P. G. DESIGN ELECTRONICS, INC., a Delaware corporation (the "Borrower"),
and NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"),
hereby agree as follows:
ARTICLE I
Definitions
Section 1.1. Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Accounts" means all of the Borrower's accounts, as such term is
defined in the UCC, including, without limitation, the aggregate unpaid
obligations of customers and other account debtors to the Borrower arising
out of the sale or lease of goods or rendition of services by the Borrower
on an open account or deferred payment basis.
"Advance" means a Revolving Advance or the Term Advance.
"Affiliate" or "Affiliates" means Heartland, Zecal, and any other
Person controlled by, controlling or under common control with the
Borrower, including (without limitation) any Subsidiary of the Borrower.
For purposes of this definition, "control," when used with respect to any
specified Person, means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise.
"Agreement" means this Credit and Security Agreement, as amended,
supplemented or restated from time to time.
"Banking Day" means a day other than a Saturday, Sunday or other day
on which banks are generally not open for business in Milwaukee, Wisconsin.
"Base Rate" means the rate of interest publicly announced from time to
time by Norwest Bank Minnesota as its "base rate" or, if such bank ceases
to announce a rate so designated, any similar successor rate designated by
the Lender.
"Borrowing Base" means, at any time the lesser of:
(a) the Maximum Line; or
(b) subject to change from time to time in the Lender's discretion,
the sum of:
(i) the lesser of (A) 85% of Eligible Accounts or (B)
$10,500,000, plus
(ii) the lesser of (A) 50% of Eligible Inventory, which
percentage shall be reduced on the first day of each month
by 1% per month for 25 months commencing on April 1, 1999,
or (B) $3,000,000, minus
(iii) the Zecal Reserve.
"Capital Expenditures" for a period means any expenditure of money for
the lease, purchase or other acquisition of any capital asset required by
GAAP to be included in or reflected by the property, plant or equipment or
similar fixed asset accounts on the balance sheet of the Borrower.
"Collateral" means all of the Borrower's Equipment, General
Intangibles, Inventory, Receivables, Investment Property, all sums on
deposit in any Collateral Account, and any items in any Lockbox; together
with (i) all substitutions and replacements for and products of any of the
foregoing; (ii) proceeds of any and all of the foregoing; (iii) in the case
of all tangible goods, all accessions; (iv) all accessories, attachments,
parts, equipment and repairs now or hereafter attached or affixed to or
used in connection with any tangible goods; and (v) all warehouse receipts,
bills of lading and other documents of title now or hereafter covering such
goods.
"Collateral Account" has the meaning given in the Collateral Account
Agreement.
"Collateral Account Agreement" means the Collateral Account Agreement
of even date herewith by and among the Borrower, Norwest Bank Wisconsin and
the Lender.
"Combined Book Net Worth" means the aggregate of the common and
preferred stockholders' equity in the Borrower and Zecal, on a combined
basis, as determined in accordance with GAAP.
"Combined Net Income" means, with respect to the Borrower and Zecal,
the combined fiscal year-to-date after-tax net income of the Borrower and
Zecal,
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decreased by the sum of any extraordinary, non-operating or non-cash income
recorded by the Borrower and Zecal and increased by any extraordinary, non-
cash or non-operating expense or loss recorded by the Borrower and Zecal,
as determined in accordance with GAAP.
"Commitment" means the Lender's commitment to make Advances pursuant
to Article II.
"Credit Facility" means the credit facility being made available to
the Borrower by the Lender pursuant to Article II.
"Default" means an event that, with giving of notice or passage of
time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the first day
of any month during which an Event of Default has occurred and ending on
the date the Lender notifies the Borrower in writing that such Default or
Event of Default has been cured or waived.
"Default Rate" means an annual rate equal to three percent (3%) over
the Floating Rate, which rate shall change when and as the Floating Rate
changes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Eligible Accounts" means all unpaid Accounts, except the following
shall not in any event be deemed Eligible Accounts:
(i) That portion of Accounts unpaid ninety (90) days or more
after the invoice date;
(ii) That portion of Accounts that is disputed or subject to a
claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the final
delivery of goods or rendition of services, as applicable, by the
Borrower to the customer; provided, however, the Lender may in its
discretion permit such an Account to be an Eligible Account upon
receipt by the Lender of written acknowledgment by the customer that
it has requested that the Borrower issue its invoice prior to such
final delivery;
(iv) Accounts owed by any unit of government, whether foreign or
domestic (provided, however, that there shall be included in Eligible
Accounts that portion of Accounts owed by such units of government for
which the Borrower has provided evidence satisfactory to the Lender
that (A) the Lender has a first priority perfected security interest
and (B) such Accounts may be enforced by the Lender directly against
such unit of government under all applicable laws);
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(v) Accounts owed by an account debtor located outside the
United States of America which are not (A) backed by a bank letter of
credit naming the Lender as beneficiary or assigned to the Lender, in
the Lender's possession and acceptable to the Lender in all respects,
in its discretion, or (B) covered by a foreign receivables insurance
policy acceptable to the Lender in its discretion;
(vi) Accounts owed by an account debtor that is insolvent, the
subject of bankruptcy proceedings or has gone out of business;
(vii) Accounts owed by a shareholder, Subsidiary, Affiliate,
officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected security
interest in the Lender's favor or which are subject to any lien,
security interest or claim in favor of any Person other than the
Lender, including, without limitation, any payment or performance
bond;
(ix) That portion of Accounts that has been restructured,
extended, amended or modified;
(x) That portion of Accounts that constitutes advertising,
finance charges, service charges or sales or excise taxes;
(xi) Accounts owed by an account debtor, regardless of whether
otherwise eligible, if twenty five percent (25%) or more of the total
amount due under Accounts from such debtor is ineligible under clauses
(i), (ii) or (ix) above; and
(xii) Accounts, or portions thereof, otherwise deemed ineligible
by the Lender in its discretion.
"Eligible Inventory" means all Inventory of the Borrower, at the lower
of cost or market value as determined in accordance with GAAP; provided,
however, that the following shall not in any event be deemed Eligible
Inventory:
(i) Inventory that is: in-transit; located at any warehouse, job
site or other premises not approved by the Lender in writing; located
outside of the states, or localities, as applicable, in which the
Lender has filed financing statements to perfect a first priority
security interest in such Inventory; covered by any negotiable or non-
negotiable warehouse receipt, xxxx of lading or other document of
title; on consignment from any Person; on consignment to any Person or
subject to any bailment unless such consignee or bailee has executed
an agreement with the Lender;
(ii) Supplies, packaging or sample Inventory;
(iii) Work-in-process Inventory;
(iv) Inventory that is damaged, obsolete, slow moving or not
currently saleable in the normal course of the Borrower's operations;
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(v) Inventory that the Borrower has returned, has attempted to
return, is in the process of returning or intends to return to the
vendor thereof;
(vi) Inventory manufactured by the Borrower pursuant to a
license unless the applicable licensor has agreed in writing to permit
the Lender to exercise its rights and remedies against such Inventory;
(vii) Inventory that is subject to a security interest in favor
of any Person other than the Lender; and
(viii) Inventory otherwise deemed ineligible by the Lender in its
discretion.
"Environmental Laws" has the meaning specified in Section 5.12.
"Equipment" means all of the Borrower's equipment, as such term is
defined in the UCC, whether now owned or hereafter acquired, including but
not limited to all present and future machinery, vehicles, furniture,
fixtures, manufacturing equipment, shop equipment, office and recordkeeping
equipment, parts, tools, supplies, and including specifically (without
limitation) the goods described in any equipment schedule or list herewith
or hereafter furnished to the Lender by the Borrower.
"Event of Default" has the meaning specified in Section 8.1.
"Floating Rate" means an annual rate equal to the sum of the Base Rate
plus one-fourth percent (.25%), which annual rate shall change when and as
the Base Rate changes.
"Funding Date" has the meaning given in Section 2.1.
"GAAP" means generally accepted accounting principles, applied on a
basis consistent with the accounting practices applied in the financial
statements described in Section 5.5.
"General Intangibles" means all of the Borrower's general intangibles,
as such term is defined in the UCC, whether now owned or hereafter
acquired, including (without limitation) all present and future patents,
patent applications, copyrights, trademarks, trade names, trade secrets,
licenses and rights under license agreements customer or supplier lists and
contracts, manuals, operating instructions, permits, franchises, the right
to use the Borrower's name, and the goodwill of the Borrower's business.
"Guarantors" means Heartland and Zecal.
"Hazardous Substance" has the meaning given in Section 5.12.
"Heartland" means Heartland Technology, Inc., a Delaware corporation.
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"Inventory" means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or
materials, whether acquired, held or furnished for sale, for lease or under
service contracts or for manufacture or processing, and wherever located.
"Investment Property" means all of the Borrower's investment property,
as such term is defined in the UCC, whether now owned or hereafter
acquired, including, but not limited to, all securities, securities
entitlements, securities accounts, commodity contracts, commodity accounts,
stock, bonds, mutual fund shares, money market shares and United States of
America Government securities.
"Loan Documents" means this Agreement, the Notes and the Security
Documents.
"Lockbox" has the meaning given in the Lockbox Agreement.
"Lockbox Agreement" means the Lockbox Agreement by and among the
Borrower, Norwest Bank Wisconsin and the Lender, of even date herewith.
"Maturity Date" means December 30, 2001.
"Maximum Line" means Ten Million Five Hundred Thousand Dollars
($10,500,000), unless said amount is reduced pursuant to Section 2.8, in
which event it means the amount to which said amount is reduced.
"Minimum Interest Charge" has the meaning given in Section 2.4(b).
"Norwest Bank Minnesota" means Norwest Bank Minnesota, National
Association.
"Norwest Bank Wisconsin" means Norwest Bank Wisconsin, National
Association.
"Notes" means the Revolving Note and the Term Note, each a "Note."
"Obligations" means the Notes and each and every other debt, liability
and obligation of every type and description which the Borrower may now or
at any time hereafter owe to the Lender, whether such debt, liability or
obligation now exists or is hereafter created or incurred, whether it
arises in a transaction involving the Lender alone or in a transaction
involving other creditors of the Borrower, and whether it is direct or
indirect, due or to become due, absolute or contingent, primary or
secondary, liquidated or unliquidated, or sole, joint, several or joint and
several, and including specifically, but not limited to, all indebtedness
of the Borrower arising under this Agreement, the Note, or any other loan
or credit agreement or guaranty between the Borrower and the Lender,
whether now in effect or hereafter entered into.
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"Permitted Lien" has the meaning given in Section 7.1.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained for the
Borrower's employees and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its business
and has any rights of possession, including , without limitation, the
premises legally described in Exhibit D attached hereto.
"Receivables" means each and every right of the Borrower to the
payment of money, whether such right to payment now exists or hereafter
arises, whether such right to payment arises out of a sale, lease or other
disposition of goods or other property, out of a rendering of services, out
of a loan, out of the overpayment of taxes or other liabilities, or
otherwise arises under any contract or agreement, whether such right to
payment is created, generated or earned by the Borrower or by some other
person who subsequently transfers such person's interest to the Borrower,
whether such right to payment is or is not already earned by performance,
and howsoever such right to payment may be evidenced, together with all
other rights and interests (including all liens and security interests)
which the Borrower may at any time have by law or agreement against any
account debtor or other obligor obligated to make any such payment or
against any property of such account debtor or other obligor; all including
but not limited to all present and future accounts, contract rights, loans
and obligations receivable, chattel papers, bonds, notes and other debt
instruments, tax refunds and rights to payment in the nature of general
intangibles.
"Reportable Event" shall have the meaning assigned to that term in
Title IV of ERISA.
"Revolving Advance" has the meaning given in Section 2.1.
"Revolving Note" means the Borrower's revolving promissory note,
payable to the order of the Lender in substantially the form of Exhibit A
hereto and any note or notes issued in substitution therefor, as the same
may hereafter be amended, supplemented or restated from time to time.
"Security Documents" means this Agreement, the Collateral Account
Agreement, the Lockbox Agreement, and any other document delivered to the
Lender from time to time to secure the Obligations, as the same may
hereafter be amended, supplemented or restated from time to time.
"Security Interest" has the meaning given in Section 3.1.
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"Subsidiary" means any corporation of which more than fifty percent
(50%) of the outstanding shares of capital stock having general voting
power under ordinary circumstances to elect a majority of the board of
directors of such corporation, irrespective of whether or not at the time
stock of any other class or classes shall have or might have voting power
by reason of the happening of any contingency, is at the time directly or
indirectly owned by the Borrower, by the Borrower and one or more other
Subsidiaries, or by one or more other Subsidiaries.
"Term Advance" has the meaning given in Section 2.3.
"Term Note" means the Borrower's term promissory note, payable to the
order of the Lender in substantially the form of Exhibit B hereto and any
note or notes issued in substitution therefor, as the same may hereafter be
amended, supplemented or restated from time to time.
"Termination Date" means the earliest of (i) the Maturity Date, (ii)
the date the Borrower terminates the Credit Facility, or (iii) the date the
Lender demands payment of the Obligations after an Event of Default
pursuant to Section 8.2.
"Total Facility" means for any fiscal quarter, the sum as of the
beginning of such quarter of the Maximum Line plus the principal amount
outstanding under the Term Note.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the state designated in Section 9.13 as the state whose laws shall
govern this Agreement, or in any other state whose laws are held to govern
this Agreement or any portion hereof.
"Zecal" means Zecal Corp., a Delaware corporation.
"Zecal Reserve" means a reserve against availability of Two Hundred
Fifty Thousand Dollars ($250,000) to be in effect until the earlier of (i)
the sale of substantially all of the stock or assets of Zecal, (ii) the
liquidation of the assets of Zecal, or (iii) the receipt of financial
statements from Zecal which show that Zecal or its successor following a
Zecal Reorganization achieved a positive net income for a fiscal quarter.
Section 1.2. Cross References. All references in this Agreement to
Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
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ARTICLE II
Amount and Terms of the Credit Facility
Section 2.1. Advances. The Lender agrees, on the terms and subject to the
conditions herein set forth, to make advances to the Borrower from time to time
from the date all of the conditions set forth in Section 4.1 are satisfied (the
"Funding Date") to the Termination Date, on the terms and subject to the
conditions herein set forth (the "Revolving Advances"). The Lender shall have no
obligation to make an Advance if, after giving effect to such requested Advance,
the sum of the outstanding and unpaid Revolving Advances under this Section 2.1
or otherwise would exceed the Borrowing Base. The Borrower's obligation to pay
the Revolving Advances shall be evidenced by the Revolving Note and shall be
secured by the Collateral as provided in Article III. Within the limits set
forth in this Section 2.1, the Borrower may borrow, prepay pursuant to Section
2.8 and reborrow. The Borrower agrees to comply with the following procedures in
requesting Revolving Advances under this Section 2.1:
(a) The Borrower shall make each request for a Revolving Advance to
the Lender before 11:00 a.m. (Milwaukee time) of the day of the requested
Revolving Advance. Requests may be made in writing or by telephone,
specifying the date of the requested Revolving Advance and the amount
thereof. Each request shall be by (i) any officer of the Borrower; or (ii)
any person designated as the Borrower's agent by any officer of the
Borrower in a writing delivered to the Lender; or (iii) any person whom the
Lender reasonably believes to be an officer of the Borrower or such a
designated agent.
(b) Upon fulfillment of the applicable conditions set forth in Article
IV, the Lender shall disburse the proceeds of the requested Revolving
Advance by crediting the same to the Borrower's demand deposit account
maintained with Norwest Bank Wisconsin unless the Lender and the Borrower
shall agree in writing to another manner of disbursement. Upon the Lender's
request, the Borrower shall promptly confirm each telephonic request for a
Revolving Advance by executing and delivering an appropriate confirmation
certificate to the Lender. The Borrower shall repay all Revolving Advances
even if the Lender does not receive such confirmation and even if the
person requesting an Advance was not in fact authorized to do so. Any
request for a Revolving Advance, whether written or telephonic, shall be
deemed to be a representation by the Borrower that the conditions set forth
in Section 4.2 have been satisfied as of the time of the request.
Section 2.2. Term Advance. The Lender agrees, on the terms and subject to
the conditions herein set forth, to make an advance to the Borrower under this
Section 2.2 on or after the Funding Date in the principal amount of Four Million
Five Hundred Thousand Dollars ($4,500,000) (the "Term Advance"). The Borrower's
obligation to pay the Term Advance shall be evidenced by the Term Note and shall
be secured by the Collateral as provided in Article III. Upon fulfillment of
the applicable conditions set forth in Article IV,
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the Lender shall deposit the proceeds of the Term Advance by crediting the same
to the Borrower's demand deposit account specified in Section 2.1(b) unless the
Lender and the Borrower shall agree in writing to another manner of
disbursement.
Section 2.3. Payment of Term Note. The outstanding principal balance of
the Term Note shall be due and payable as follows:
(a) Beginning on February 1, 1999, and on the 1st day of each month
thereafter, in equal monthly installments of Seventy Five Thousand Dollars
($75,000) each plus a final payment of all unpaid principal due on the
Maturity Date; and
(b) On the Termination Date, the entire unpaid principal balance of
the Term Note, and all unpaid interest accrued thereon, shall in any event
be due and payable.
Section 2.4. Interest; Minimum Interest Charge; Default Interest;
Participations; Usury. Interest accruing on the Notes shall be due and payable
in arrears on the first day of each month.
(a) Notes. Except as set forth in Sections 2.4(c) and 2.4(d), the
outstanding principal balance of the Notes shall bear interest at the
Floating Rate.
(b) Minimum Interest Charge. Notwithstanding the interest payable
pursuant to Section 2.4(a), the Borrower shall pay to the Lender interest
of not less than Twenty Five Thousand Dollars ($25,000) during each month
(the "Minimum Interest Charge") during the term of this Agreement, and the
Borrower shall pay any deficiency between the Minimum Interest Charge and
the amount of interest otherwise calculated under Sections 2.4(a) on the
date and in the manner provided in Section 2.6.
(c) Default Interest Rate. At any time during any Default Period, in
the Lender's sole discretion and without waiving any of its other rights
and remedies, the principal of the Advances outstanding from time to time
shall bear interest at the Default Rate, effective for any periods
designated by the Lender from time to time during that Default Period.
(d) Usury. In any event no rate change shall be put into effect which
would result in a rate greater than the highest rate permitted by law.
Notwithstanding anything to the contrary contained in any Loan Document,
all agreements which either now are or which shall become agreements
between the Borrower and the Lender are hereby limited so that in no
contingency or event whatsoever shall the total liability for payments in
the nature of interest, additional interest and other charges exceed the
applicable limits imposed by any applicable usury laws. If any payments in
the nature of interest, additional interest and other charges made under
any Loan Document are held to be in excess of the limits imposed by any
applicable usury laws, it is agreed that any such amount held to be in
excess shall be considered payment of
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principal hereunder, and the indebtedness evidenced hereby shall be reduced
by such amount so that the total liability for payments in the nature of
interest, additional interest and other charges shall not exceed the
applicable limits imposed by any applicable usury laws, in compliance with
the desires of the Borrower and the Lender. This provision shall never be
superseded or waived and shall control every other provision of the Loan
Documents and all agreements between the Borrower and the Lender, or their
successors and assigns.
Section 2.5. Fees.
(a) Origination Fee. The Borrower hereby agrees to pay the Lender a
fully earned and non-refundable origination fee of One Hundred Twelve
Thousand Five Hundred Dollars ($112,500) which shall be due and payable on
the Funding Date.
(b) Unused Line Fee. For the purposes of this Section 2.5(b), "Unused
Amount" means the Maximum Line reduced by outstanding Revolving Advances.
The Borrower hereby agrees to pay to the Lender an unused line fee at the
rate of one-fourth percent (.25%) per annum on the average daily Unused
Amount from the date of this Agreement to and including the Termination
Date, due and payable monthly in arrears on the first day of each month and
on the Termination Date.
(c) Facility Fee. The Borrower hereby agrees to pay to the Lender a
facility fee at the rate of one-fourth percent (.25%) per annum on the
Total Facility, due and payable in arrears on the first day of each April,
July, October and January, commencing April 1, 1999, and on the Termination
Date.
(d) Audit Fees. The Borrower hereby agrees to pay the Lender, on
demand, audit fees in connection with any audits or inspections conducted
by the Lender of any Collateral or the Borrower's operations or business at
the rate of Five Hundred Dollars ($500) per analyst per day for each audit
conducted by the Lender, plus out-of-pocket costs and expenses; provided
that except during a Default Period, the Lender shall charge the Borrower
for no more than a total of four (4) audits or inspections per fiscal year.
(e) Miscellaneous Fees. The Borrower hereby agrees to (i) pay the
Lender for all wire transfer charges and automated clearing house charges
and to (ii) pay overadvance charges of Two Hundred Dollars ($200) per day;
provided, however, that from the first day of any month during which any
Default Period commences or exists at any time, the daily overadvance
charge (if an overadvance exists) shall be Four Hundred Dollars ($400).
Section 2.6. Computation of Interest and Fees; When Interest Due and
Payable. Interest accruing on the outstanding principal balance of the Advances
and fees hereunder outstanding from time to time shall be computed on the basis
of actual number of days
11
elapsed in a year of three hundred sixty (360) days. Interest shall be payable
in arrears on the first day of each month and on the Termination Date.
Section 2.7. Capital Adequacy; Increased Costs and Reduced Return. If any
Related Lender determines at any time that its Return has been reduced as a
result of any Rule Change, such Related Lender may require the Borrower to pay
it the amount necessary to restore its Return to what it would have been had
there been no Rule Change. For purposes of this Section 2.7:
(a) "Capital Adequacy Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding capital adequacy, or
the interpretation or administration thereof by any governmental or
regulatory authority, central bank or comparable agency, whether or not
having the force of law, that applies to any Related Lender. Such rules
include rules requiring financial institutions to maintain total capital in
amounts based upon percentages of outstanding loans, binding loan
commitments and letters of credit.
(b) "Return," for any period, means the return as determined by such
Related Lender on the Advances based upon its total capital requirements
and a reasonable attribution formula that takes account of the Capital
Adequacy Rules then in effect. Return may be calculated for each calendar
quarter and for the shorter period between the end of a calendar quarter
and the date of termination in whole of this Agreement.
(c) "Rule Change" means any change in any Capital Adequacy Rule
occurring after the date of this Agreement, but the term does not include
any changes in applicable requirements that at the Closing Date are
scheduled to take place under the existing Capital Adequacy Rules or any
increases in the capital that any Related Lender is required to maintain to
the extent that the increases are required due to a regulatory authority's
assessment of the financial condition of such Related Lender.
(d) "Related Lender" includes (but is not limited to) the Lender, any
parent corporation of the Lender and any assignee of any interest of the
Lender hereunder and any participant in the loans made hereunder.
Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.7, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.
Section 2.8. Voluntary Prepayment; Reduction of the Maximum Line;
Termination of the Credit Facility by the Borrower. Except as otherwise provided
herein, the Borrower may prepay the Advances in whole at any time or from time
to time in part. The Borrower may terminate the Credit Facility or reduce the
Maximum Line at any time if it (i) gives the Lender at least thirty (30) days
prior written notice and (ii) pays the Lender the termination
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or line reduction fees in accordance with Section 2.9. Any reduction in the
Maximum Line must be in an amount not less than One Hundred Thousand Dollars
($100,000) or an integral multiple thereof. If the Borrower terminates the
Credit Facility, all Obligations shall be immediately due and payable. Upon
termination of the Credit Facility and payment and performance of all
Obligations, the Lender shall release or terminate the Security Interest and the
Security Documents to which the Borrower is entitled by law.
Section 2.9. Termination and Line Reduction Fees. If the Credit Facility is
terminated for any reason as of a date other than the Maturity Date or if the
Borrower reduces the Maximum Line, except if such termination or reduction is
within one hundred twenty (120) days after the Lender required a payment to
restore its Return pursuant to Section 2.7 hereof, the Borrower shall pay the
Lender a fee in an amount equal to a percentage of (i) the Total Facility if the
Credit Facility is terminated, or (ii) the reduction in the Maximum Line, as
applicable, as follows: (A) two percent (2.0%) if the termination or reduction
occurs on or before the first anniversary of the Funding Date; (B) one percent
(1.0%) if the termination or reduction occurs after the first anniversary of the
Funding Date but on or prior to the second anniversary of the Funding Date; and
(C) one-half percent (.5%) if the termination or reduction occurs after the
second anniversary of the Funding Date.
Section 2.10. Mandatory Prepayment. Without notice or demand, if the sum of
the outstanding principal balance of the Revolving Advances shall at any time
exceed the Borrowing Base, the Borrower shall immediately prepay the Revolving
Advances to the extent necessary to eliminate such excess.
Section 2.11. Payment. All payments to the Lender shall be made in
immediately available funds and shall be applied to the Obligations one (1)
Banking Day after receipt by the Lender; provided, however, that any payments
received by the Lender by wire transfer shall be applied to the Obligation on
the day of receipt by the Lender. The Lender may hold all payments not
constituting immediately available funds for two (2) Banking Days before
applying them to the Obligations. Notwithstanding anything in Section 2.1, the
Borrower hereby authorizes the Lender, in its discretion at any time or from
time to time without the Borrower's request and even if the conditions set forth
in Section 4.2 would not be satisfied, to make a Revolving Advance in an amount
equal to the portion of the Obligations from time to time due and payable.
Section 2.12. Payment on Non-Banking Days. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a Banking Day, such
payment may be made on the next succeeding Banking Day, and such extension of
time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
Section 2.13. Use of Proceeds. The Borrower shall use the proceeds of
Advances for (i) repayment of its existing indebtedness, (ii) for loans to Zecal
for payment of Zecal's existing secured indebtedness and Zecal's ordinary
working capital purposes, and (iii) for ordinary working capital purposes of the
Borrower.
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Section 2.14. Liability Records. The Lender may maintain from time to time,
at its discretion, liability records as to the Obligations. All entries made on
any such record shall be presumed correct until the Borrower establishes the
contrary. Upon the Lender's demand, the Borrower will admit and certify in
writing the exact principal balance of the Obligations that the Borrower then
asserts to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Borrower unless the Borrower
gives the Lender specific written notice of exception within thirty (30) days
after receipt.
ARTICLE III
Security Interest; Occupancy; Setoff
Section 3.1. Grant of Security Interest. The Borrower hereby pledges,
assigns and grants to the Lender a security interest (collectively referred to
as the "Security Interest") in the Collateral, as security for the payment and
performance of the Obligations.
Section 3.2. Notification of Account Debtors and Other Obligors. The
Lender may at any time (whether or not a Default Period then exists) notify any
account debtor or other Person obligated to pay the amount due that such right
to payment has been assigned or transferred to the Lender for security and shall
be paid directly to the Lender. The Borrower will join in giving such notice if
the Lender so requests. At any time after the Borrower or the Lender gives such
notice to an account debtor or other obligor, the Lender may, but need not, in
the Lender's name or in the Borrower's name, (a) demand, xxx for, collect or
receive any money or property at any time payable or receivable on account of,
or securing, any such right to payment, or grant any extension to, make any
compromise or settlement with or otherwise agree to waive, modify, amend or
change the obligations (including collateral obligations) of any such account
debtor or other obligor; and (b) as the Borrower's agent and attorney-in-fact,
notify the United States Postal Service to change the address for delivery of
the Borrower's mail to any address designated by the Lender, otherwise intercept
the Borrower's mail, and receive, open and dispose of the Borrower's mail,
applying all Collateral as permitted under this Agreement and holding all other
mail for the Borrower's account or forwarding such mail to the Borrower's last
known address.
Section 3.3. Assignment of Insurance. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to, any and all policies of insurance now or
at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and the Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. At any time, whether or not a Default Period then exists, the Lender may
(but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such
14
monies, and adjust, litigate, compromise or release any claim against the issuer
of any such policy.
Section 3.4. Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the right to
take possession of the Premises at any time during a Default Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise dispose
of goods that are Collateral and for other purposes that the Lender may in
good xxxxx xxxx to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and terminate
upon the earlier of (i) payment in full and discharge of all Obligations
and termination of the Commitment, and (ii) final sale or disposition of
all goods constituting Collateral and delivery of all such goods to
purchasers.
(d) The Lender shall not be obligated to pay or account for any rent
or other compensation for the possession, occupancy or use of any of the
Premises; provided, however, that if the Lender does pay or account for any
rent or other compensation for the possession, occupancy or use of any of
the Premises, the Borrower shall reimburse the Lender promptly for the full
amount thereof. In addition, the Borrower will pay, or reimburse the
Lender for, all taxes, fees, duties, imposts, charges and expenses at any
time incurred by or imposed upon the Lender by reason of the execution,
delivery, existence, recordation, performance or enforcement of this
Agreement or the provisions of this Section 3.4.
Section 3.5. License. The Borrower hereby grants to the Lender a non-
exclusive, worldwide and royalty-free license to use or otherwise exploit all
trademarks, franchises, trade names, copyrights and patents of the Borrower for
the purpose of selling, leasing or otherwise disposing of any or all Collateral
during any Default Period.
Section 3.6. Financing Statement. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
Name and address of Debtor:
P. G. Design Electronics, Inc.
00000 Xxxxxxxxxx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxx 00000
Federal Tax Identification No. 00-0000000
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Name and address of Secured Party:
Norwest Business Credit, Inc.
000 Xxxx Xxxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxxxx, Xxxxxxxxx 00000
Federal Tax Identification No. 00-0000000
Section 3.7. Setoff. The Borrower agrees that the Lender may at any time or
from time to time, at its sole discretion and without demand but with notice to
Borrower at such time, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any Obligation, whether or not due. In addition,
each other Person holding a participating interest in any Obligations shall have
the right to appropriate or setoff any deposit or other liability then owed by
such Person to the Borrower, whether or not due, and apply the same to the
payment of said participating interest, as fully as if such Person had lent
directly to the Borrower the amount of such participating interest.
ARTICLE IV
Conditions of Lending
Section 4.1. Conditions Precedent to the Initial Advances. The Lender's
obligation to make the initial Advances hereunder shall be subject to the
condition precedent that the Lender shall have received all of the following,
each in form and substance satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Notes, each properly executed by the Borrower.
(c) A true and correct copy of any and all leases pursuant to which
the Borrower is leasing the Premises, together with a landlord's disclaimer
and consent or similar acceptable agreement with respect to each such
lease.
(d) A true and correct copy of any and all leases pursuant to which
the Zecal is leasing its premises, together with a landlord's disclaimer
and consent or similar acceptable agreement with respect to each such
lease.
(e) The Collateral Account Agreement, properly executed by the
Borrower and Norwest Bank Wisconsin.
(f) The Lockbox Agreement, properly executed by the Borrower and
Norwest Bank Wisconsin.
(g) Current searches of appropriate filing offices showing that (i)
no state or federal tax liens have been filed and remain in effect against
the Borrower or Zecal,
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(ii) no financing statements or assignments of patents, trademarks or
copyrights have been filed and remain in effect against the Borrower or
Zecal except those financing statements and assignments of patents,
trademarks or copyrights relating to Permitted Liens or to liens held by
Persons who have agreed in writing that upon receipt of proceeds of the
Advances, they will deliver UCC releases and/or terminations and releases
of such assignments of patents, trademarks or copyrights satisfactory to
the Lender, and (iii) the Lender has duly filed all financing statements
necessary to perfect the Security Interest, to the extent the Security
Interest is capable of being perfected by filing.
(h) A certificate of the Borrower's Secretary or Assistant Secretary
certifying as to (i) the resolutions of the Borrower's directors and, if
required, shareholders, authorizing the execution, delivery and performance
of the Loan Documents, (ii) the Borrower's articles of incorporation and
bylaws, and (iii) the signatures of the Borrower's officers or agents
authorized to execute and deliver the Loan Documents and other instruments,
agreements and certificates, including Advance requests, on the Borrower's
behalf.
(i) A letter from an officer of the Borrower identifying those
individuals who are authorized to initiate and confirm payment orders and
to sign collateral reports.
(j) A current certificate issued by the Secretary of State of
Delaware, certifying that the Borrower is in compliance with all applicable
organizational requirements of the State of Delaware.
(k) Evidence that the Borrower is duly licensed or qualified to
transact business in Michigan and in all other 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.
(l) A certificate of an officer of the Borrower confirming the
representations and warranties set forth in Article V.
(m) An opinion of counsel to the Borrower and the Guarantors,
addressed to the Lender.
(n) Certificates of the insurance required hereunder, with all hazard
insurance containing a lender's loss payable endorsement in the Lender's
favor and with all liability insurance naming the Lender as an additional
insured.
(o) A separate guaranty, properly executed by each Guarantor, pursuant
to which each Guarantor unconditionally guarantees the full and prompt
payment of all Obligations.
(p) A security agreement, properly executed by Zecal.
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(q) Lockbox and collateral account agreements, properly executed by
Zecal and Fleet National Bank, or such other bank as is mutually acceptable
to the Lender and Zecal.
(r) Certificates of each Guarantor's Secretary or Assistant Secretary
certifying as to (i) the resolutions of the such Guarantor's directors and,
if required, shareholders, authorizing the execution, delivery and
performance of its guaranty and any other documentation requested by the
Lender, (ii) such Guarantor's articles of incorporation and bylaws, and
(iii) the signatures of such Guarantor's officers or agents authorized to
execute and deliver its guaranty and other instruments, agreements and
certificates, on such Guarantor's behalf.
(s) With respect to each Guarantor, a current certificate issued by
its state of incorporation, certifying that such Guarantor is in compliance
with all applicable organizational requirements of that state.
(t) Evidence that each Guarantor is duly licensed or qualified to
transact business in all other 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.
(u) Payment of the fees and commissions due through the date of the
initial Advance under Section 2.5 and expenses incurred by the Lender
through such date and required to be paid by the Borrower under Section
9.6, including all legal expenses incurred through the date of this
Agreement.
(v) Written authorization from the Borrower to pay proceeds of the
Advances to third parties.
(w) A payoff letter from General Electric Capital Corporation and any
other party holding a loan or capitalized lease which will be paid with the
proceeds of the initial Advances.
(x) Such other documents as the Lender in its sole discretion may
require.
Section 4.2. Conditions Precedent to All Advances. The Lender's obligation
to make each Advance shall be subject to the further conditions precedent that
on such date:
(a) the representations and warranties contained in Article V are
correct on and as of the date of such Advance as though made on and as of
such date, except to the extent that such representations and warranties
relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from such
Advance, which constitutes a Default or an Event of Default.
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ARTICLE V
Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
Section 5.1. Corporate Existence and Power; Name; Chief Executive Office;
Inventory and Equipment Locations; Tax Identification Number. The Borrower is a
corporation, duly organized, validly existing and in good standing under the
laws of the State of Delaware and is duly licensed or qualified to transact
business in Michigan and in all other jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it makes
such licensing or qualification necessary. The Borrower has all requisite power
and authority, corporate or otherwise, to conduct its business, to own its
properties and to execute and deliver, and to perform all of its obligations
under, the Loan Documents. During its existence, the Borrower has done business
solely under the names set forth in Schedule 5.1 hereto. The Borrower's chief
executive office and principal place of business is located at the address set
forth in Schedule 5.1 hereto, and all of the Borrower's records relating to its
business or the Collateral are kept at that location. All Inventory and
Equipment is located at that location or at one of the other locations set forth
in Schedule 5.1 hereto. The Borrower's tax identification number is correctly
set forth in Section 3.6 hereto.
Section 5.2. Authorization of Borrowing; No Conflict as to Law or
Agreements. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's stockholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof; (iii) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Borrower's articles of incorporation or bylaws; (iv)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected; or (v) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interest) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
Section 5.3. Legal Agreements. This Agreement constitutes and, upon due
execution by the Borrower, the other Loan Documents will constitute the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms.
19
Section 5.4. Subsidiaries. The Borrower has no Subsidiaries other than
Zecal.
Section 5.5. Financial Condition; No Adverse Change. The Borrower has
heretofore furnished to the Lender its audited financial statements for its
fiscal year ended December 31, 1997, and its unaudited financial statements for
the fiscal year-to-date period ended November 30, 1998 and those statements
fairly present the Borrower's financial condition on the dates thereof and the
results of its operations and cash flows for the periods then ended and were
prepared in accordance with GAAP, except for year-end adjustments and the
absence of footnotes on its interim financial statements. Since the date of the
most recent financial statements, there has been no material adverse change in
the Borrower's business, properties or condition (financial or otherwise).
Section 5.6. Litigation. Except as listed on Schedule 5.6 hereto, there are
no actions, suits or proceedings pending or, to the Borrower's knowledge,
threatened against or affecting the Borrower or any of its Affiliates or the
properties of the Borrower or any of its Affiliates before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which, if determined adversely to the Borrower or any of
its Affiliates, would have a material adverse effect on the financial condition,
properties or operations of the Borrower or any of its Affiliates.
Section 5.7. Regulation U. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Advance will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
Section 5.8. Taxes. The Borrower and its Affiliates have paid or caused to
be paid to the proper authorities when due all federal, state and local taxes
required to be withheld by each of them. The Borrower and its Affiliates have
filed all federal, state and local tax returns which to the knowledge of the
officers of the Borrower or any Affiliate, as the case may be, are required to
be filed, and the Borrower and its Affiliates have paid or caused to be paid to
the respective taxing authorities all taxes as shown on said returns or on any
assessment received by any of them to the extent such taxes have become due.
Section 5.9. Titles and Liens. The Borrower has good and absolute title to
all Collateral described in the collateral reports provided to the Lender and
all other Collateral, properties and assets reflected in the latest financial
statements referred to in Section 5.5 and all proceeds thereof, free and clear
of all mortgages, security interests, liens and encumbrances, except for
Permitted Liens. No financing statement naming the Borrower as debtor is on file
in any office except to perfect only Permitted Liens.
Section 5.10. Plans. Except as disclosed to the Lender in writing prior to
the date hereof, neither the Borrower nor any of its Affiliates maintains or has
maintained any Plan. Neither the Borrower nor any Affiliate has received any
notice or has any knowledge to the effect that it is not in full compliance with
any of the requirements of ERISA. No Reportable Event or other fact or
circumstance which may have an adverse effect on the Plan's tax
20
qualified status exists in connection with any Plan. Neither the Borrower nor
any of its Affiliates has:
(a) Any accumulated funding deficiency within the meaning of ERISA; or
(b) Any liability or knows of any fact or circumstances which could
result in any liability to the Pension Benefit Guaranty Corporation, the
Internal Revenue Service, the Department of Labor or any participant in
connection with any Plan (other than accrued benefits which or which may
become payable to participants or beneficiaries of any such Plan).
Section 5.11. Default. The Borrower is in compliance with all provisions of
all agreements, instruments, decrees and orders to which it is a party or by
which it or its property is bound or affected, the breach or default of which
could have a material adverse effect on the Borrower's financial condition,
properties or operations.
Section 5.12. Environmental Matters.
(a) Definitions. As used in this Agreement, the following terms shall
have the following meanings:
(i) "Environmental Law" means any federal, state, local or other
governmental statute, regulation, law or ordinance dealing with the
protection of human health and the environment.
(ii) "Hazardous Substances" means pollutants, contaminants,
hazardous substances, hazardous wastes, petroleum and fractions
thereof, and all other chemicals, wastes, substances and materials
listed in, regulated by or identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not present in, on or
under the Premises any Hazardous Substances in such form or quantity as to
create any liability or obligation for either the Borrower or the Lender
under common law of any jurisdiction or under any Environmental Law, and no
Hazardous Substances have ever been stored, buried, spilled, leaked,
discharged, emitted or released in, on or under the Premises in such a way
as to create any such liability.
(c) To the Borrower's best knowledge, the Borrower has not disposed of
Hazardous Substances in such a manner as to create any liability under any
Environmental Law.
(d) There are not and, to the Borrower's best knowledge, there never
have been any requests, claims, notices, investigations, demands,
administrative proceedings, hearings or litigation, relating in any way to
the Premises, since its occupancy by the Borrower, or the Borrower,
alleging liability under, violation of, or noncompliance with any
Environmental Law or any license, permit or other
21
authorization issued pursuant thereto. To the Borrower's best knowledge, no
such matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's businesses are
and have in the past always been conducted in accordance with all
Environmental Laws and all licenses, permits and other authorizations
required pursuant to any Environmental Law and necessary for the lawful and
efficient operation of such businesses are in the Borrower's possession and
are in full force and effect. No permit required under any Environmental
Law is scheduled to expire within twelve (12) months and there is no threat
that any such permit will be withdrawn, terminated, limited or materially
changed.
(f) To the Borrower's best knowledge, the Premises are not and never
have been listed on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System or
any similar federal, state or local list, schedule, log, inventory or
database.
(g) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other documents
describing or relating in any way to the Premises or Borrower's businesses.
Section 5.13. Submissions to Lender. All financial and other information
provided to the Lender by or on behalf of the Borrower in connection with the
Borrower's request for the credit facilities contemplated hereby is true and
correct in all material respects and, as to projections, valuations or proforma
financial statements, present a good faith opinion as to such projections,
valuations and proforma condition and results.
Section 5.14. Financing Statements. The Borrower has provided to the Lender
signed financing statements sufficient when filed to perfect the Security
Interest and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral and
all other collateral described in the Security Documents which is capable of
being perfected by filing financing statements. None of the Collateral or other
collateral covered by the Security Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect thereto.
Section 5.15. Rights to Payment. Each right to payment and each instrument,
document, chattel paper and other agreement constituting or evidencing
Collateral or other collateral covered by the Security Documents is (or, in the
case of all future Collateral or such other collateral, will be when arising or
issued) the valid, genuine and legally enforceable obligation, subject to no
defense, setoff or counterclaim, of the account debtor or other obligor named
therein or in the Borrower's records pertaining thereto as being obligated to
pay such obligation.
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ARTICLE VI
Borrower's Affirmative Covenants
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6.1. Reporting Requirements. The Borrower will deliver, or cause to
be delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:
(a) as soon as available, and in any event within ninety (90) days
after the end of each fiscal year of the Borrower, the Borrower's,
Heartland's and Zecal's audited financial statements with the unqualified
opinion of independent certified public accountants selected by the
Borrower and acceptable to the Lender, which annual financial statements
shall include the Borrower's, Heartland's and of Zecal's balance sheet as
at the end of such fiscal year and the related statements of the
Borrower's, Heartland's and of Zecal's income, retained earnings and cash
flows for the fiscal year then ended, prepared, if the Lender so requests,
on a consolidating and consolidated basis to include any Affiliates, all in
reasonable detail and prepared in accordance with GAAP, together with (i)
copies of all management letters prepared by such accountants; (ii) a
report signed by such accountants stating, together with the computations
as to, whether or not the Borrower is in compliance with the requirements
set forth in Sections 6.12, 6.13 and 7.10; and (iii) a certificate of the
Borrower's chief financial officer, substantially in the form of Exhibit C,
stating (A) that such financial statements have been prepared in accordance
with GAAP, (B) whether or not such officer has knowledge of the occurrence
of any Default or Event of Default hereunder not theretofore reported and
remedied and, if so, stating in reasonable detail the facts with respect
thereto, and (c) all relevant facts in reasonable detail to evidence, and
the computations as to, whether the Borrower is in compliance with the
requirements set forth in Sections 6.12, 6.13 and 7.10;
(b) as soon as available and in any event within twenty (20) days
after the end of each month, unaudited/internal balance sheets of Borrower,
Heartland and of Zecal and statements of income and retained earnings of
the Borrower, Heartland and of Zecal as at the end of and for such month
and for the year to date period then ended, prepared, if the Lender so
requests, on a consolidating and consolidated basis to include any
Affiliates, in reasonable detail and stating in comparative form the
figures for the corresponding date and periods in the previous year, all
prepared in accordance with GAAP, subject to year-end audit adjustments and
the absence of footnotes; and accompanied by a certificate of the
Borrower's chief financial officer, substantially in the form of Exhibit C
hereto stating (i) that such financial statements have been prepared in
accordance with GAAP, subject to year-end audit adjustments and the absence
of footnotes, (ii) whether such officer has knowledge of the
23
occurrence of any Default or Event of Default hereunder not theretofore
reported and remedied and, if so, stating in reasonable detail the facts
with respect thereto, and (iii) all relevant facts in reasonable detail to
evidence, and the computations as to, whether the Borrower is in compliance
with the requirements set forth in Sections 6.12, 6.13 and 7.10;
(c) within fifteen (15) days after the end of each month or more
frequently if the Lender so requires, agings of the Borrower's accounts
receivable and its accounts payable, an inventory certification report, and
a calculation of the Borrower's Accounts, Eligible Accounts, Inventory and
Eligible Inventory as at the end of such month or shorter time period;
(d) at least thirty (30) days before the beginning of each fiscal year
of the Borrower, the projected balance sheets and income statements for
each month of such year, each in reasonable detail, representing the
Borrower's good faith projections and certified by the Borrower's chief
financial officer as being the most accurate projections available and
identical to the projections used by the Borrower for internal planning
purposes, together with such supporting schedules and information as the
Lender may in its discretion require;
(e) as soon as practicable after the commencement thereof, notice in
writing of all litigation and of all proceedings before any governmental or
regulatory agency affecting the Borrower of the type described in Section
5.12 or which seek a monetary recovery against the Borrower in excess of
Fifty Thousand Dollars ($50,000);
(f) as promptly as practicable, and in any event not later than five
(5) business days after an officer of the Borrower obtains knowledge of the
occurrence of any breach, default or event of default under any Security
Document or any event which constitutes a Default or Event of Default
hereunder, notice of such occurrence, together with a detailed statement by
a responsible officer of the Borrower of the steps being taken by the
Borrower to cure the effect of such breach, default or event;
(g) as soon as possible, and in any event within thirty (30) days
after the Borrower knows or has reason to know that any Reportable Event
with respect to any Plan has occurred, the statement of the Borrower's
chief financial officer setting forth details as to such Reportable Event
and the action which the Borrower proposes to take with respect thereto,
together with a copy of the notice of such Reportable Event to the Pension
Benefit Guaranty Corporation;
(h) as soon as possible, and in any event within ten (10) days after
the Borrower fails to make any quarterly contribution required with respect
to any Plan under Section 412(m) of the Internal Revenue Code of 1986, as
amended, the statement of the Borrower's chief financial officer setting
forth details as to such failure and the action which the Borrower proposes
to take with respect thereto,
24
together with a copy of any notice of such failure required to be provided
to the Pension Benefit Guaranty Corporation;
(i) together with each weekly collateral report, notice of (i) any
disputes or claims by the Borrower's customers exceeding Fifty Thousand
Dollars ($50,000) individually; (ii) credit memos; (iii) any goods returned
to or recovered by the Borrower; and (iv) any change in the persons
constituting the Borrower's officers and directors;
(j) promptly upon knowledge thereof, notice of any loss of or material
damage to any Collateral or other collateral covered by the Security
Documents or of any substantial adverse change in any Collateral or such
other collateral or the prospect of payment thereof;
(k) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have sent
to its stockholders;
(l) promptly after the sending or filing thereof, copies of all
regular and periodic reports which the Borrower shall file with the
Securities and Exchange Commission or any national securities exchange;
(m) as soon as possible, and in any event by not later than April 30th
of each year, or if a valid extension of the time to file is received by
any such Guarantor, promptly upon the filing of the return, copies of the
federal tax return and all schedules thereto of each Guarantor;
(n) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which
could materially and adversely affect the Borrower's business or its
financial condition; and
(o) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents and
delivery receipts for goods sold, and such other material, reports, records
or information as the Lender may request.
Section 6.2. Books and Records; Inspection and Examination. The Borrower
will keep accurate books of record and account for itself pertaining to the
Collateral and pertaining to the Borrower's business and financial condition and
such other matters as the Lender may from time to time request in which true and
complete entries will be made in accordance with GAAP and, upon the Lender's
request, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all corporate and
financial books and records of the Borrower at all times during ordinary
business hours, to send and discuss with account debtors and other obligors
requests for verification of amounts owed to the Borrower, and to discuss the
Borrower's affairs with any of its directors, officers, employees or agents. The
Borrower will permit the Lender, or its employees, accountants, attorneys or
agents, to examine and inspect any Collateral, other
25
collateral covered by the Security Documents or any other property of the
Borrower at any time during ordinary business hours.
Section 6.3. Account Verification. The Lender may at any time and from time
to time send or require the Borrower to send requests for verification of
accounts or notices of assignment to account debtors and other obligors. The
Lender may also at any time and from time to time telephone account debtors and
other obligors to verify accounts.
Section 6.4. Compliance with Laws.
(a) The Borrower will (i) comply with the requirements of applicable
laws and regulations, the non-compliance with which would materially and
adversely affect its business or its financial condition and (ii) use and
keep the Collateral, and require that others use and keep the Collateral,
only for lawful purposes, without violation of any federal, state or local
law, statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply with all applicable Environmental
Laws and obtain and comply with all permits, licenses and similar approvals
required by any Environmental Laws, and will not generate, use, transport,
treat, store or dispose of any Hazardous Substances in such a manner as to
create any liability or obligation under the common law of any jurisdiction
or any Environmental Law.
Section 6.5. Payment of Taxes and Other Claims. The Borrower will pay or
discharge, when due, (a) all taxes, assessments and governmental charges levied
or imposed upon it or upon its income or profits, upon any properties belonging
to it (including, without limitation, the Collateral) or upon or against the
creation, perfection or continuance of the Security Interest, prior to the date
on which penalties attach thereto, (b) all federal, state and local taxes
required to be withheld by it, and (c) all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a lien or charge upon any
properties of the Borrower; provided, that the Borrower shall not be required to
pay any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings and for
which proper reserves have been made.
Section 6.6. Maintenance of Properties.
(a) The Borrower will keep and maintain the Collateral, the other
collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition, repair
and working order (normal wear and tear excepted) and will from time to
time replace or repair any worn, defective or broken parts; provided,
however, that nothing in this Section 6.6 shall prevent the Borrower from
discontinuing the operation and maintenance of any of its properties if
such discontinuance is, in the Lender's judgment, desirable in the conduct
of the Borrower's business and not disadvantageous in any material respect
to the Lender.
26
(b) The Borrower will defend the Collateral against all claims or
demands of all persons (other than the Lender) claiming the Collateral or
any interest therein.
(c) The Borrower will keep all Collateral and other collateral covered
by the Security Documents free and clear of all security interests, liens
and encumbrances except Permitted Liens.
Section 6.7. Insurance. The Borrower will obtain and at all times maintain
insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates.
Without limiting the generality of the foregoing, the Borrower will at all times
maintain business interruption insurance including coverage for force majeure
and keep all tangible Collateral insured against risks of fire (including so-
called extended coverage), theft, collision (for Collateral consisting of motor
vehicles) and such other risks and in such amounts as the Lender may reasonably
request, with any loss payable to the Lender to the extent of its interest, and
all policies of such insurance shall contain a lender's loss payable endorsement
for the Lender's benefit acceptable to the Lender. All policies of liability
insurance required hereunder shall name the Lender as an additional insured.
Section 6.8. Preservation of Existence. The Borrower will preserve and
maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall conduct
its business in an orderly, efficient and regular manner.
Section 6.9. Delivery of Instruments, etc. Upon request by the Lender, the
Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or assigned
by the Borrower.
Section 6.10. Collateral Account.
(a) If, notwithstanding the instructions to debtors to make payments
to the Lockbox, the Borrower receives any payments on Receivables or other
proceeds of Collateral, the Borrower shall deposit such payments and
proceeds into the Collateral Account. Until so deposited, the Borrower
shall hold all such payments and proceeds in trust for and as the property
of the Lender and shall not commingle such payments with any of its other
funds or property.
(b) Amounts deposited in the Collateral Account shall not bear
interest and shall not be subject to withdrawal by the Borrower, except
after full payment and discharge of all Obligations.
(c) All deposits in the Collateral Account shall constitute proceeds
of Collateral and shall not constitute payment of the Obligations. The
Lender from time to time at its discretion may, after allowing one (1)
Banking Day, apply deposited
27
funds in the Collateral Account to the payment of the Obligations, in any
order or manner of application satisfactory to the Lender, by transferring
such funds to the Lender's general account.
(d) All items deposited in the Collateral Account shall be subject to
final payment. If any such item is returned uncollected, the Borrower will
immediately pay the Lender, or, for items deposited in the Collateral
Account, the bank maintaining such account, the amount of that item, or
such bank at its discretion may charge any uncollected item to the
Borrower's commercial account or other account. The Borrower shall be
liable as an endorser on all items deposited in the Collateral Account,
whether or not in fact endorsed by the Borrower.
Section 6.11. Performance by the Lender. If the Borrower at any time fails
to perform or observe any of the foregoing covenants contained in this Article
VI or elsewhere herein, and if such failure shall continue for a period of ten
calendar days after the Lender gives the Borrower written notice thereof (or in
the case of the agreements contained in Sections 6.5, 6.7 and 6.10, immediately
upon the occurrence of such failure, without notice or lapse of time), the
Lender may, but need not, perform or observe such covenant on behalf and in the
name, place and stead of the Borrower (or, at the Lender's option, in the
Lender's name) and may, but need not, take any and all other actions which the
Lender may reasonably deem necessary to cure or correct such failure (including,
without limitation, the payment of taxes, the satisfaction of security
interests, liens or encumbrances, the performance of obligations owed to account
debtors or other obligors, the procurement and maintenance of insurance, the
execution of assignments, security agreements and financing statements, and the
endorsement of instruments); and the Borrower shall thereupon pay to the Lender
on demand the amount of all monies expended and all costs and expenses
(including reasonable attorneys' fees and legal expenses) incurred by the Lender
in connection with or as a result of the performance or observance of such
agreements or the taking of such action by the Lender, together with interest
thereon from the date expended or incurred at the Floating Rate. To facilitate
the Lender's performance or observance of such covenants of the Borrower, the
Borrower hereby irrevocably appoints the Lender, or the Lender's delegate,
acting alone, as the Borrower's attorney in fact (which appointment is coupled
with an interest) with the right (but not the duty) from time to time to create,
prepare, complete, execute, deliver, endorse or file in the name and on behalf
of the Borrower any and all instruments, documents, assignments, security
agreements, financing statements, applications for insurance and other
agreements and writings required to be obtained, executed, delivered or endorsed
by the Borrower under this Section 6.11.
Section 6.12. Minimum Combined Book Net Worth. While any part of the
Obligations remains unpaid, the Borrower and Zecal shall, unless waived in
writing by Lender, continuously maintain:
(a) as of December 31, 1998, a minimum Combined Book Net Worth of
Eleven Million Five Hundred Thousand Dollars ($11,500,000);
28
(b) from January 1, 1999 through June 29, 1999, a minimum Combined
Book Net Worth of not less than the Combined Book Net Worth as of December
31, 1998 minus Four Hundred Thousand Dollars ($400,000);
(c) as of June 30, 1999, a minimum Combined Book Net Worth of not less
than the Combined Book Net Worth as of December 31, 1998 plus Five Hundred
Thousand Dollars ($500,000);
(d) from July 1, 1999 through December 30, 1999, a minimum Combined
Book Net Worth of not less than the Combined Book Net Worth as of June 30,
1999;
(e) as of December 31, 1999, a minimum Combined Book Net Worth of not
less than both (i) the Combined Book Net Worth as of December 31, 1998 plus
One Million Dollars ($1,000,000) and (ii) the Combined Book Net Worth as of
June 30, 1999 plus Five Hundred Thousand Dollars ($500,000);
(f) thereafter, a minimum Combined Book Net Worth during each fiscal
period from January 1 through December 30 of not less than the Combined
Book Net Worth as of the end of the preceding fiscal year;
(g) as of each June 30 after June 30, 1999, a minimum Combined Book
Net Worth of not less than the Combined Book Net Worth as of the preceding
fiscal year end plus One Million Dollars ($1,000,000);
(h) thereafter, a minimum Combined Book Net Worth during each fiscal
period from July 1 through December 30 of not less than the Combined Book
Net Worth as of the preceding June 30;
(i) as of the end of each fiscal year after December 31, 1999, a
minimum Combined Book Net Worth of not less than both (i) the Combined Book
Net Worth as of the prior fiscal year end plus Two Million Five Hundred
Thousand Dollars ($2,500,000), and (ii) the Combined Book Net Worth as of
the preceding June 30 plus One Million Five Hundred Thousand Dollars
($1,500,000); and
(j) as of March 31, 2000, a minimum Combined Book Net Worth of not
less than the Combined Book Net Worth as of December 31, 1999 plus Five
Hundred Thousand Dollars ($500,000).
Section 6.13. Minimum Combined Net Income. The Borrower and Zecal will
achieve certain levels of Combined Net Income during the term hereof, as
demonstrated on the audited year-end financial statements of the Borrower and
Zecal, as follows:
29
Minimum Combined Net
--------------------
Period Income
------ ------
Six month periods ending June 30, 1999 and
December 31, 1999 $ 500,000
Fiscal year ending December 31, 1999 $1,000,000
Six month periods ending each June 30 after
June 30, 1999 $1,000,000
Six month periods ending each December 31 after
December 31, 1999 $1,500,000
Fiscal years ending after December 31, 1999 $2,500,000
Fiscal quarter ending March 31, 2000 $ 500,000
Section 6.14. Sale or Liquidation of Zecal. In the event substantially
all of the stock or assets of Zecal are sold or Zecal is liquidated, the
Borrower shall cause not less than One Million Four Hundred Fifty Thousand
Dollars ($1,450,000) of the proceeds of such sale or liquidation to be paid to
the Lender for application to the payment of the Obligations, in any order or
manner of application satisfactory to the Lender.
ARTICLE VII
Negative Covenants
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower agrees that, without the Lender's prior
written consent:
Section 7.1. Liens. The Borrower will not create, incur or suffer to exist
any mortgage, deed of trust, pledge, lien, security interest, assignment or
transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; excluding, however, from the operation of the
foregoing, the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property which is not
Collateral or other collateral described in the Security Documents,
covenants, restrictions, rights, easements and minor irregularities in
title which do not materially interfere with the Borrower's business or
operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security interests and
assignments in existence on the date hereof and listed in Schedule 7.1
hereto, securing indebtedness for borrowed money permitted under Section
7.2;
30
(c) the Security Interest and liens and security interests created by
the Security Documents; and
(d) purchase money security interests and leases relating to the
acquisition of machinery and equipment of the Borrower not exceeding the
lesser of cost or fair market value thereof and so long as no Default
Period is then in existence and none would exist immediately after such
acquisition.
Section 7.2. Indebtedness. The Borrower will not incur, create, assume or
permit to exist any indebtedness or liability on account of deposits or advances
or any indebtedness for borrowed money or letters of credit issued on the
Borrower's behalf, or any other indebtedness or liability evidenced by notes,
bonds, debentures or similar obligations, except:
(a) indebtedness to the Lender arising hereunder or otherwise;
(b) indebtedness of the Borrower in existence on the date hereof and
listed in Schedule 7.2 hereto;
(c) indebtedness relating to Permitted Liens; and
(d) indebtedness to Heartland or to Zecal.
Section 7.3. Guaranties. The Borrower will not assume, guarantee, endorse
or otherwise become directly or contingently liable in connection with any
obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower for
deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons, in
existence on the date hereof and listed in Schedule 7.2 hereto.
Section 7.4. Investments and Subsidiaries.
(a) Subject to Section 7.6 hereof, the Borrower will not purchase or
hold beneficially any stock or other securities or evidences of
indebtedness of, make or permit to exist any loans or advances to, or make
any investment or acquire any interest whatsoever in, any other Person,
including specifically but without limitation any partnership or joint
venture, except:
(i) investments in direct obligations of the United States of
America or any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of
America having a maturity of one year or less, commercial paper issued
by U. S. corporations rated "A-1" or "A-2" by Standard & Poor's
Corporation or "P-1" or "P-2" by Xxxxx'x Investors Service or
certificates of deposit or bankers' acceptances having a
31
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);
(ii) travel advances or loans to the Borrower's officers and
employees not exceeding at any one time an aggregate of $10,000; and
(iii) a loan to Zecal out of the proceeds of the Term Advance in
an amount sufficient to pay Zecal's obligations to General Electric
Capital Corporation and loans to Zecal for Zecal's working capital
purposes.
(b) Subject to Section 7.6 hereof, the Borrower will not create or
permit to exist any Subsidiary other than Zecal.
Section 7.5. Dividends. Except as hereinafter provided, the Borrower will
not declare or pay any dividends (other than dividends payable solely in stock
of the Borrower) on any class of its stock or make any payment on account of the
purchase, redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly. Provided no
Default Period is in effect, the Borrower may pay dividends to Heartland in
amounts sufficient to pay Heartland's indebtedness to Xxxxx Van Heusden.
Section 7.6. Sale or Transfer of Assets; Suspension of Business Operations.
The Borrower will not sell, lease, assign, transfer or otherwise dispose of (i)
the stock of any Subsidiary, (ii) all or a substantial part of its assets, or
(iii) any Collateral or any interest therein (whether in one transaction or in a
series of transactions) to any other Person other than the sale of Inventory in
the ordinary course of business and will not liquidate, dissolve or suspend
business operations. The Borrower will not in any manner transfer any property,
other than dividends paid to Heartland in accordance with Section 7.5 hereof,
without prior or present receipt of full and adequate consideration.
Notwithstanding any other provision of this Agreement, upon the prior
review and prior written consent of the Lender, the Borrower shall be entitled
to take any of the actions set forth in Section 7.6(a), below, with respect to
Zecal, provided the Borrower has satisfied the conditions of Section 7.6(b),
below:
(a) The Borrower may: (i) cause Zecal to be merged or consolidated
with or into another entity which is not an Affiliate, (ii) cause Zecal to
sell or contribute substantially all of its assets to another entity which
is not an Affiliate, (iii) sell or contribute some or all of the stock of
Zecal to another entity which is or is not an Affiliate, (iv) merge,
consolidate or liquidate Zecal into the Borrower or an Affiliate; or (v)
liquidate the assets of Zecal (any one or more of the foregoing actions to
be called in this Agreement a "Zecal Reorganization");
(b) Prior to and as a precondition to the Borrower effecting any Zecal
Reorganization, the following shall occur: (i) the Borrower shall give the
Lender
32
prior notice of a proposed Zecal Reorganization with the pertinent details
thereof; (ii) as part of the Zecal Reorganization, the Lender shall receive
as security, in form reasonably satisfactory to the Lender, and at the
Lender's discretion, either a continuing security interest in the assets of
any successor entity to Zecal or a pledge of the stock or other ownership
interests which represent a value of underlying assets which is reasonably
equivalent in value to the Lender's current security interest in Zecal
assets; (iii) as a part of the Zecal Reorganization, any successor entity
to Zecal shall assume both Zecal's obligations to the Borrower for amounts
lent to Zecal by the Borrower and Zecal's obligations to the Lender
pursuant to its guaranty in favor of the Lender; (iv) the Zecal
Reorganization shall be documented and any necessary documents amending or
supplementing the Security Documents shall be entered into in a manner
reasonably satisfactory to the Lender; and (v) if the Zecal Reorganization
is a sale of substantially all of the stock or assets of Zecal, or a
liquidation of Zecal, the amount required to be paid to the Lender under
Section 6.14 hereof shall be provided to be paid under the Zecal
Reorganization.
Section 7.7. Consolidation and Merger; Asset Acquisitions. Except as
provided in Section 7.6 hereof, the Borrower will not consolidate with or merge
into any Person, or permit any other Person to merge into it, or acquire (in a
transaction analogous in purpose or effect to a consolidation or merger) all or
substantially all the assets of any other Person.
Section 7.8. Sale and Leaseback. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.9. Restrictions on Nature of Business. Subject to Section 7.6
hereof, the Borrower will not engage in any line of business materially
different from that presently engaged in by the Borrower and will not purchase,
lease or otherwise acquire assets not related to its business.
Section 7.10. Capital Expenditures. The Borrower will not incur or contract
to incur Capital Expenditures of more than Ten Million Dollars ($10,000,000) in
the aggregate during the fiscal year ending December 31, 1999 and (ii) Four
Million Dollars ($4,000,000) in the aggregate during any fiscal year thereafter.
Further, the Borrower will not incur or contract to incur Capital Expenditures
of more than Five Hundred Thousand Dollars ($500,000) in any one transaction or
more than One Million Dollars ($1,000,000) from the Borrower's working capital
in any fiscal year.
Section 7.11. Accounting. The Borrower will not adopt any material change
in accounting principles other than as required by GAAP. The Borrower will not
adopt, permit or consent to any change in its fiscal year.
33
Section 7.12. Discounts, etc. The Borrower will not, after notice from the
Lender, grant any discount, credit or allowance to any customer of the Borrower
or accept any return of goods sold, or at any time (whether before or after
notice from the Lender) modify, amend, subordinate, cancel or terminate the
obligation of any account debtor or other obligor of the Borrower.
Section 7.13. Defined Benefit Pension Plans. The Borrower will not adopt,
create, assume or become a party to any defined benefit pension plan, unless
disclosed to the Lender pursuant to Section 5.10.
Section 7.14. Other Defaults. The Borrower will not permit any breach,
default or event of default to occur under any note, loan agreement, indenture,
lease, mortgage, contract for deed, security agreement or other material
contractual obligation binding upon the Borrower, unless the Borrower is
contesting such obligation in good faith and has created adequate reserves
therefor under GAAP.
Section 7.15. Place of Business; Name. The Borrower will not transfer its
chief executive office or principal place of business, or move, relocate, close
or sell any business location. The Borrower will not permit any tangible
Collateral or any records pertaining to the Collateral to be located in any
state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. The Borrower will not change
its name.
Section 7.16. Organizational Documents. The Borrower will not amend its
certificate of incorporation, articles of incorporation or bylaws.
Section 7.17. Salaries. The Borrower will not pay excessive or unreasonable
salaries, bonuses, commissions, consultant fees or other compensation, provided
that to the extent the following payments will not result in a violation of, and
so long as the Borrower remains in compliance with, the provisions of Sections
6.12 and 6.13, the Borrower may make payments to Heartland pursuant to
reasonable allocations for overhead and management services in the ordinary
course of the business of Heartland and the Borrower. Further, without the
Lender's written consent, which consent shall not be unreasonably withheld, the
Borrower will not increase the salary, bonus, commissions, consultant fees or
other compensation of any director, officer or consultant, or any member of
their families, by more than ten percent (10%) plus the increase in the Consumer
Price Index for Urban Wage Earners and Clerical Workers published by the Bureau
of Labor Statistics of the United States Department of Labor from the beginning
of the prior year in any one year, for all such persons in the aggregate, or pay
any such increase from any source other than profits earned in the year of
payment; provided that to the extent the following payments will not result in a
violation of, and so long as the Borrower remains in compliance with, the
provisions of Sections 6.12 and 6.13, the Borrower may pay bonuses and
commissions in excess of the foregoing amounts.
Section 7.18. Change in Ownership. The Borrower will not issue or sell any
stock of the Borrower so as to change the percentage of voting and non-voting
stock owned by each of the Borrower's shareholders, and the Borrower will not
permit or suffer to occur the sale,
34
transfer, assignment, pledge or other disposition of any or all of the issued
and outstanding shares of stock of the Borrower.
ARTICLE VIII
Events of Default, Rights and Remedies
Section 8.1. Events of Default. "Event of Default", wherever used herein,
means any one of the following events:
(a) Default in the payment of the Obligations when they become due and
payable;
(b) Default in the payment of any fees, commissions, costs or expenses
required to be paid by the Borrower under this Agreement;
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement;
(d) The Borrower or any Guarantor shall be or become insolvent, or
admit in writing its or his inability to pay its or his debts as they
mature, or make an assignment for the benefit of creditors; or the Borrower
or any Guarantor shall apply for or consent to the appointment of any
receiver, trustee, or similar officer for it or him or for all or any
substantial part of its or his property; or such receiver, trustee or
similar officer shall be appointed without the application or consent of
the Borrower or such Guarantor, as the case may be; or the Borrower or any
Guarantor shall institute (by petition, application, answer, consent or
otherwise) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, liquidation or similar proceeding
relating to it or him under the laws of any jurisdiction; or any such
proceeding shall be instituted (by petition, application or otherwise)
against the Borrower or any such Guarantor; or any judgment, writ, warrant
of attachment or execution or similar process shall be issued or levied
against a substantial part of the property of the Borrower or any
Guarantor;
(e) A petition shall be filed by or against the Borrower or any
Guarantor under the United States Bankruptcy Code naming the Borrower or
such Guarantor as debtor; provided, however, that if the Borrower or such
Guarantor is contesting, in good faith, any petition filed against it, the
filing of such petition shall not constitute an Event of Default unless
such proceeding is not dismissed within forty five (45) days after the
commencement of such proceeding;
(f) Any representation or warranty made by the Borrower in this
Agreement, by any Guarantor in any guaranty delivered to the Lender, or by
the Borrower (or any of its officers) or any Guarantor in any agreement,
certificate, instrument or financial statement or other statement
contemplated by or made or
35
delivered pursuant to or in connection with this Agreement or any
such guaranty shall prove to have been incorrect in any material respect
when deemed to be effective;
(g) The rendering against the Borrower of a final judgment, decree or
order for the payment of money in excess of Fifty Thousand Dollars
($50,000) and the continuance of such judgment, decree or order unsatisfied
and in effect for any period of thirty (30) consecutive days without a stay
of execution;
(h) A default under any bond, debenture, note or other evidence of
indebtedness of the Borrower owed to any Person other than the Lender, or
under any indenture or other instrument under which any such evidence of
indebtedness has been issued or by which it is governed, or under any lease
of any of the Premises, in any case resulting in a right by such Person to
accelerate the maturity of such evidence of indebtedness, indenture, other
instrument or lease and the expiration of the applicable period of grace,
if any, specified in such evidence of indebtedness, indenture, other
instrument or lease;
(i) Any Reportable Event, which the Lender determines in good faith
might constitute grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of a trustee to
administer any Plan, shall have occurred and be continuing thirty (30) days
after written notice to such effect shall have been given to the Borrower
by the Lender; or a trustee shall have been appointed by an appropriate
United States District Court to administer any Plan; or the Pension Benefit
Guaranty Corporation shall have instituted proceedings to terminate any
Plan or to appoint a trustee to administer any Plan; or the Borrower shall
have filed for a distress termination of any Plan under Title IV of ERISA;
or the Borrower shall have failed to make any quarterly contribution
required with respect to any Plan under Section 412(m) of the Internal
Revenue Code of 1986, as amended, which the Lender determines in good faith
may by itself, or in combination with any such failures that the Lender may
determine are likely to occur in the future, result in the imposition of a
lien on the Borrower's assets in favor of the Plan;
(j) An event of default shall occur under any Security Document or
under any other security agreement, mortgage, deed of trust, assignment or
other instrument or agreement securing any obligations of the Borrower
hereunder or under any note;
(k) The Borrower shall liquidate, dissolve, terminate or suspend its
business operations or otherwise fail to operate its business in the
ordinary course, or sell all or substantially all of its assets, without
the Lender's prior written consent;
(l) The Borrower shall fail to pay, withhold, collect or remit any tax
or tax deficiency when assessed or due (other than any tax deficiency which
is being contested in good faith and by proper proceedings and for which it
shall have set aside on its books adequate reserves therefor) or notice of
any state or federal tax liens shall be filed or issued;
36
(m) Default in the payment of any amount owed by the Borrower to the
Lender other than any indebtedness arising hereunder;
(n) Any Guarantor shall repudiate, purport to revoke or fail to
perform any such Guarantor's obligations under such Guarantor's guaranty in
favor of the Lender, or any Guarantor shall cease to exist except pursuant
to a Zecal Reorganization as to which the Lender has provided its written
consent;
(o) Any event or circumstance with respect to the Borrower shall occur
such that the Lender shall believe in good faith that the prospect of
payment of all or any part of the Obligations or the performance by the
Borrower under the Loan Documents is impaired or any material adverse
change in the business or financial condition of the Borrower shall occur;
or
(p) Any breach, default or event of default by or attributable to any
Affiliate under any agreement between such Affiliate and the Lender.
Section 8.2. Rights and Remedies. During any Default Period, the Lender may
exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrower, declare the Commitment
to be terminated, whereupon the same shall forthwith terminate;
(b) the Lender may, by notice to the Borrower, declare the Obligations
to be forthwith due and payable, whereupon all Obligations shall become and
be forthwith due and payable, without presentment, notice of dishonor,
protest or further notice of any kind, all of which the Borrower hereby
expressly waives;
(c) the Lender may, without notice to the Borrower and without further
action, apply any and all money owing by the Lender to the Borrower to the
payment of the Obligations;
(d) the Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC,
including, without limitation, the right to take possession of Collateral,
or any evidence thereof, proceeding without judicial process or by judicial
process (without a prior hearing or notice thereof, which the Borrower
hereby expressly waives) and the right to sell, lease or otherwise dispose
of any or all of the Collateral, and, in connection therewith, the Borrower
will on demand assemble the Collateral and make it available to the Lender
at a place to be designated by the Lender which is reasonably convenient to
both parties;
(e) the Lender may exercise and enforce its rights and remedies under
the Loan Documents; and
37
(f) the Lender may exercise any other rights and remedies available to
it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (d) or (e) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.
Section 8.3. Certain Notices. If notice to the Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 9.3) at least ten (10) calendar days
before the date of intended disposition or other action.
Section 8.4. Covenant Default Fee. In the event an Event of Default under
Section 8.1(c) occurs on account of the breach of the provisions of either
Section 6.12 or Section 6.13, in the Lender's discretion, without waiving any of
its other rights and remedies, an additional fee in the amount of Two Thousand
Five Hundred Dollars ($2,500) shall be due.
ARTICLE IX
Miscellaneous
Section 9.1. No Waiver; Cumulative Remedies. No failure or delay by the
Lender in exercising any right, power or remedy under the Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy under the Loan Documents. The
remedies provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
Section 9.2. Amendments, Etc. No amendment, modification, termination or
waiver of any provision of any Loan Document or consent to any departure by the
Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
Section 9.3. Addresses for Notices, Etc. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be (a)
personally delivered, (b) sent by first class United States mail, (c) sent by
overnight courier of national reputation, or (d) transmitted by facsimile, in
each case addressed or facsimiled to the party to whom notice is being given at
its address or facsimile number as set forth below:
38
If to the Borrower:
P. G. Design Electronics, Inc.
00000 Xxxxxxxxxx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxx 00000
Facsimile: 810/598-8082
Attention: Xxxx X. Xxxxxxxxxx
With a copy to:
Heartland Technology, Inc.
000 Xxxx Xxxxxxx Xxxxxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxx X. Xxxxxxxxxx
If to the Lender:
Norwest Business Credit, Inc.
000 Xxxx Xxxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxxxx, Xxxxxxxxx 00000
Facsimile: 414/224-7442
Attention: Xxxxxx X. Xxx
or, as to each party, at such other address or facsimile number as may hereafter
be designated by such party in a written notice to the other party complying as
to delivery with the terms of this Section. All such notices, requests, demands
and other communications shall be deemed to have been given on (a) the date
received if personally delivered, (b) when deposited in the mail if delivered by
mail, (c) the date sent if sent by overnight courier, or (d) the date of
transmission if delivered by facsimile, except that notices or requests to the
Lender pursuant to any of the provisions of Article II shall not be effective
until received by the Lender.
Section 9.4. Further Documents. The Borrower will from time to time execute
and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interest or the Lender's rights under the Loan
Documents (but any failure to request or assure that the Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).
Section 9.5. Collateral. This Agreement does not contemplate a sale of
accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to
39
Collateral in its possession (as imposed by law) shall be deemed fulfilled if it
exercises reasonable care in physically keeping such Collateral, or in the case
of Collateral in the custody or possession of a bailee or other third person,
exercises reasonable care in the selection of the bailee or other third person,
and the Lender need not otherwise preserve, protect, insure or care for any
Collateral. The Lender shall not be obligated to preserve any rights the
Borrower may have against prior parties, to realize on the Collateral at all or
in any particular manner or order or to apply any cash proceeds of the
Collateral in any particular order of application.
Section 9.6. Costs and Expenses. The Borrower agrees to pay on demand all
costs and expenses, including, without limitation, reasonable attorney's fees,
periodic UCC, tax and judgment lien searches, incurred by the Lender in
connection with the Obligations, this Agreement, the Loan Documents and any
other agreement related hereto or thereto, and the transactions contemplated
hereby, including, without limitation, all such costs, expenses and fees
incurred in connection with the negotiation, preparation, execution, amendment,
administration, performance, collection and enforcement of the Obligations and
all such documents and agreements and the creation, perfection, protection,
satisfaction, foreclosure or enforcement of the Security Interest.
Section 9.7. Indemnity. In addition to the payment of expenses pursuant to
Section 9.6, the Borrower agrees to indemnify, defend and hold harmless the
Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future officers, directors, employees, attorneys and agents of the foregoing
(the "Indemnitees") from and against any of the following (collectively,
"Indemnified Liabilities"):
(i) any and all transfer taxes, documentary taxes, assessments or
charges made by any governmental authority by reason of the execution
and delivery of the Loan Documents or the making of the Advances;
(ii) any claims, loss or damage to which any Indemnitee may be
subjected if any representation or warranty contained in Section 5.12
proves to be incorrect in any respect or as a result of any violation
of the covenant contained in Section 6.4(b); and
(iii) any and all other liabilities, losses, damages, penalties,
judgments, suits, claims, costs and expenses of any kind or nature
whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel) (collectively, "Losses") in connection with
the foregoing and any other investigative, administrative or judicial
proceedings, whether or not such Indemnitee shall be designated a
party thereto, which may be imposed on, incurred by or asserted
against any such Indemnitee, in any manner related to or arising out
of or in connection with the making of the Advances and the Loan
Documents or the use or intended use of the proceeds of the Advances,
except for any Losses caused by the gross negligence or willful
misconduct of such Indemnitee.
40
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 9.7 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder.
Section 9.8. Participants. The Lender and its participants, if any, are not
partners or joint venturers, and the Lender shall not have any liability or
responsibility for any obligation, act or omission of any of its participants.
All rights and powers specifically conferred upon the Lender may be transferred
or delegated to any of the Lender's participants, successors or assigns.
Section 9.9. Execution in Counterparts. This Agreement and other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
Section 9.10. Binding Effect; Assignment; Complete Agreement; Exchanging
Information. The Loan Documents shall be binding upon and inure to the benefit
of the Borrower and the Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
This Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof. Without
limiting the Lender's right to share information regarding the Borrower and its
Affiliates with the Lender's assignees, participants, accountants, lawyers and
other advisors, and prospective participants and assignees, the Lender, Norwest
Corporation, and all direct and indirect subsidiaries of Norwest Corporation,
may exchange any and all information they may have in their possession regarding
the Borrower and its Affiliates, and the Borrower waives any right of
confidentiality it may have with respect to such exchange of such information
among Norwest Corporation and its subsidiaries.
Section 9.11. Severability of Provisions. Any provision of this Agreement
which is prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof.
41
Section 9.12. Headings. Article and Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
Section 9.13. Lender's Actions. The Lender agrees that at any time which
Lender may, in accordance with this Agreement, act within its "discretion" or
its "sole discretion" or in exercising its right to "consent," Lender shall
exercise good faith and act in a commercially reasonable manner.
Section 9.14. Governing Law; Jurisdiction, Venue; Waiver of Jury Trial. The
Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Wisconsin. This
Agreement shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of Wisconsin. The parties hereto
hereby (i) consents to the personal jurisdiction of the state and federal courts
located in the State of Wisconsin in connection with any controversy related to
this Agreement; (ii) waives any argument that venue in any such forum is not
convenient, (iii) agrees that any litigation initiated by the Lender or the
Borrower in connection with this Agreement or the other Loan Documents shall be
venued in either the Circuit Court of Milwaukee County, Wisconsin, or the United
States District Court, Eastern District of Wisconsin; and (iv) agrees that a
final judgment in any such suit, action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law.
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BASED ON OR PERTAINING TO THIS AGREEMENT.
42
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
NORWEST BUSINESS CREDIT, INC. P. G. DESIGN ELECTRONICS, INC.
By:_____________________________ By:____________________________
Xxxxxx X. Xxx, Vice President Its:___________________________
MW2-163768-6
43
Table of Exhibits and Schedules
Exhibit A Form of Revolving Note
Exhibit B Form of Term Note
Exhibit C Compliance Certificate
Exhibit D Premises
___________________
Schedule 5.1 Trade Names, Chief Executive Office,
Principal Place of Business, and Locations
of Collateral
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
MW2-163768-6
Exhibit A to Credit and Security Agreement
REVOLVING NOTE
$10,500,000.00 Milwaukee, Wisconsin
December 31, 1998
For value received, the undersigned, P. G. DESIGN ELECTRONICS, INC., a
Delaware corporation (the "Borrower"), hereby promises to pay on the Termination
Date under the Credit Agreement (defined below), to the order of NORWEST
BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), at its office in
Milwaukee, Wisconsin, or at any other place designated at any time by the holder
hereof, in lawful money of the United States of America and in immediately
available funds, the principal sum of Ten Million Five Hundred Thousand Dollars
($10,500,000.00) or, if less, the aggregate unpaid principal amount of all
Advances made by the Lender to the Borrower under the Credit Agreement (defined
below) together with interest on the principal amount hereunder remaining unpaid
from time to time, computed on the basis of the actual number of days elapsed
and a 360-day year, from the date hereof until this Note is fully paid at the
rate from time to time in effect under the Credit and Security Agreement of even
date herewith (as the same may hereafter be amended, supplemented or restated
from time to time, the "Credit Agreement") by and between the Lender and the
Borrower. The principal hereof and interest accruing thereon shall be due and
payable as provided in the Credit Agreement. This Note may be prepaid only in
accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Revolving Note referred to in the Credit Agreement. This Note is secured, among
other things, pursuant to the Credit Agreement and the Security Documents as
therein defined, and may now or hereafter be secured by one or more other
security agreements, mortgages, deeds of trust, assignments or other instruments
or agreements.
The Borrower hereby agrees to pay all costs of collection, including
reasonable attorneys' fees and legal expenses in the event this Note is not paid
when due, whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest are
expressly waived.
P. G. DESIGN ELECTRONICS, INC.
By:____________________________
MW2-163768-6 Its:___________________________
TERM NOTE
Exhibit B to Credit and Security Agreement
$4,500,000.00 Milwaukee, Wisconsin
December 31, 1998
For value received, the undersigned, P. G. DESIGN ELECTRONICS, INC., a
Nevada corporation (the "Borrower"), hereby promises to pay on the Termination
Date under the Credit Agreement (defined below), to the order of NORWEST
BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), at its office in
Milwaukee, Wisconsin, or at any other place designated at any time by the holder
hereof, in lawful money of the United States of America and in immediately
available funds, the principal sum of Four Million Five Hundred Thousand Dollars
($4,500,000.00), together with interest on the principal amount hereunder
remaining unpaid from time to time, computed on the basis of the actual number
of days elapsed and a three hundred sixty (360) day year, from the date hereof
until this Note is fully paid at the rate from time to time in effect under the
Credit and Security Agreement of even date herewith (as the same may hereafter
be amended, supplemented or restated from time to time, the "Credit Agreement")
by and between the Lender and the Borrower. The principal hereof and interest
accruing thereon shall be due and payable as provided in the Credit Agreement.
This Note may be prepaid only in accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Term Note referred to in the Credit Agreement. This Note is secured, among other
things, pursuant to the Credit Agreement and the Security Documents as therein
defined, and may now or hereafter be secured by one or more other security
agreements, mortgages, deeds of trust, assignments or other instruments or
agreements.
The Borrower hereby agrees to pay all costs of collection, including
reasonable attorneys' fees and legal expenses in the event this Note is not paid
when due, whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest are
expressly waived.
P. G. DESIGN ELECTRONICS, INC.
By:___________________________________
Its:__________________________________
Exhibit C
to Credit and Security Agreement
Compliance Certificate
To: Xxxxxx X. Xxx
NORWEST BUSINESS CREDIT, INC.
Date: __________________, 199___
Subject: P. G. Design Electronics, Inc.
Financial Statements
In accordance with our Credit and Security Agreement dated as of December
31, 1998, (the "Credit Agreement"), attached are the financial statements of P.
G. Design Electronics, Inc. (the "Borrower") as of and for ________________,
19___ (the "Reporting Date") and the year-to-date period then ended (the
"Current Financials"). All terms used in this certificate have the meanings
given in the Credit Agreement.
I certify that the Current Financials have been prepared in accordance with
GAAP, subject to year-end audit adjustments and the absence of footnotes, and
fairly present the Borrower's financial condition and the results of its
operations as of the date thereof.
Events of Default. (Check one):
[_] The undersigned does not have knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement.
[_] The undersigned has knowledge of the occurrence of a Default or
Event of Default under the Credit Agreement and attached hereto
is a statement of the facts with respect to thereto.
I hereby certify to the Lender as follows:
[_] The Reporting Date marks the end of one of the Borrower's fiscal
months, hence I am completing all paragraphs below except
paragraphs 2 and 4.
[_] The Reporting Date marks the end of the Borrower's fiscal year,
hence I am completing all paragraphs below.
Financial Covenants. I further hereby certify as follows:
1. Minimum Combined Book Net Worth. Pursuant to Section 6.12 of
the Credit Agreement, as of the Reporting Date, the Borrower's
Combined Book Net Worth was $____________ which [_] satisfies [_] does
not satisfy the requirement that
such amount be not less than the following amounts on the Reporting Date as set
forth below:
(a) as of December 31, 1998, a minimum Combined Book Net Worth of
Eleven Million Five Hundred Thousand Dollars ($11,500,000);
(b) from January 1, 1999 through June 29, 1999, a minimum Combined
Book Net Worth of not less than the Combined Book Net Worth as of December
31, 1998 minus Four Hundred Thousand Dollars ($400,000);
(c) as of June 30, 1999, a minimum Combined Book Net Worth of not less
than the Combined Book Net Worth as of December 31, 1998 plus Five Hundred
Thousand Dollars ($500,000);
(d) from July 1, 1999 through December 30, 1999, a minimum Combined
Book Net Worth of not less than the Combined Book Net Worth as of June 30,
1999;
(e) as of December 31, 1999, a minimum Combined Book Net Worth of not
less than both (i) the Combined Book Net Worth as of December 31, 1998 plus
One Million Dollars ($1,000,000) and (ii) the Combined Book Net Worth as of
June 30, 1999 plus Five Hundred Thousand Dollars ($500,000);
(f) thereafter, a minimum Combined Book Net Worth during each fiscal
period from January 1 through December 30 of not less than the Combined
Book Net Worth as of the end of the preceding fiscal year;
(g) as of each June 30 after June 30, 1999, a minimum Combined Book
Net Worth of not less than the Combined Book Net Worth as of the preceding
fiscal year end plus One Million Dollars ($1,000,000);
(h) thereafter, a minimum Combined Book Net Worth during each fiscal
period from July 1 through December 30 of not less than the Combined Book
Net Worth as of the preceding June 30;
(i) as of the end of each fiscal year after December 31, 1999, a
minimum Combined Book Net Worth of not less than both (i) the Combined Book
Net Worth as of the prior fiscal year end plus Two Million Five Hundred
Thousand Dollars ($2,500,000), and (ii) the Combined Book Net Worth as of
the preceding June 30 plus One Million Five Hundred Thousand Dollars
($1,500,000); and
(j) as of March 31, 2000, a minimum Combined Book Net Worth of not
less than the Combined Book Net Worth as of December 31, 1999 plus Five
Hundred Thousand Dollars ($500,000).
2. Minimum Combined Net Income. Pursuant to Section 6.13 of the
Credit Agreement, as of the Reporting Date, the Borrower's and Zecal's
Combined Net Income for the fiscal year ending on the Reporting Date was
$_______________, which [_] satisfies [_] does not satisfy the requirement
that such amount be not less than the amount on the Reporting Date as set
forth below:
Period Minimum Combined Net Income
------ ---------------------------
Six month periods ending June 30, 1999 and December
31, 1999 $ 500,000
Fiscal year ending December 31, 1999 $1,000,000
Six month periods ending each June 30
after June 30, 1999 $1,000,000
Six month periods ending each
December 31 after December 31, 1999 $1,500,000
Fiscal years ending after December 31, 1999 $2,500,000
Fiscal quarter ending March 31, 2000 $ 500,000
3. Capital Expenditures. Pursuant to Section 7.10 of the Credit
Agreement, for the year-to-date period ending on the Reporting Date, the
Borrower has expended or contracted to expend during the fiscal year ended
______________, 199___, for Capital Expenditures, $__________________ in
the aggregate, which [_] satisfies [_] does not satisfy the requirement
that such expenditures not exceed ______________________________________
Dollars ($_______________) in the aggregate. Further, the Borrower has not
expended or contracted to expend more than Two Hundred Thousand Dollars
($200,000) in any one transaction or expended or contracted to expend more
than One Million Dollars ($1,000,000) from Borrower's working capital for
the year-to-date period ending on the Reporting Date.
4. Salaries. As of the Reporting Date, the Borrower [_] is [_] is not
in compliance with Section 7.17 of the Credit Agreement concerning
salaries.
Attached hereto are all relevant facts in reasonable detail to evidence,
and the computations of the financial covenants referred to above. These
computations were made in accordance with GAAP.
P. G. DESIGN ELECTRONICS, INC.
By: __________________________________
Its: Chief Financial Officer
Exhibit D
to Credit and Security Agreement
Premises
The Premises referred to in the Credit and Security Agreement are legally
described as follows:
Location: 00000 Xxxxxxxxxx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxx 00000
Legal Description: Situated in the Township of Chesterfield, County of Macomb
and State of Michigan, to wit:
Lot 5 and North 100 feet of Lot 6 according to the Plat
thereof as recorded in Liber 90, Pages 33 through 38, both
inclusive of Plats, Macomb County Records.
Commonly known as 00000 Xxxxxxxxxx Xxxxx.
Location: (offices of Zecal)
000 Xxxxx Xxxxxxx Xxxx
Xxxxxxxxxxx, Xxx Xxxx 00000
Legal Description: ALL THAT TRACT OF PARCEL OF LAND, situate in the Town of
Riga, Monroe County, New York, being part of Lot 51 in the
West Pultney Tract so called, described as follows:
Beginning at a point N 0.36' and W 0.57' from existing
concrete R.O.W. monument remains set in the East line of
North Xxxxxxx Road (formerly Sanford Road) at the point of
intersection with the northerly line of the North Xxxxxxx
Drive; thence (1) N 00 degrees 54' 50" W along the East line
of Xxxxxxx Road, a distance of 974.55' to an iron pipe;
thence (2) N 89 degrees 04' 19" E, a distance of 554.42' to
a point in the north line of property heretofore conveyed by
deed recorded in the Monroe County Clerk's Office in Liber
7262 of Deeds at page 155, which point is also 717.35' West
of the Northeast corner of the aforesaid property so
conveyed; thence (3) S 00 degrees 54' 50" E, a distance of
984.76' to a point in the North line of the North Xxxxxxx
Drive; thence (4) S 68 degrees 50' 00" W along the north
line of said new road a distance of 351.52' to an existing
R.O.W. monument; thence (5) N 85 degrees 23' 50" W along the
north line of the monument; thence North Xxxxxxx Drive, a
distance of 128.36 feet to an existing R.O.W. monument;
thence (6) N 39 degrees 55' 46" W, along the north
line of said new road a distance of 153.71' to the point and
place of beginning; containing in all 13.442 acres of land.
Schedule 5.1
to Credit and Security Agreement
Trade Names, Chief Executive Office, Principal Place of Business, and Locations
of Collateral
Trade Names
Xceed
Chief Executive Office/Principal Place of Business
00000 Xxxxxxxxxx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxx 00000
Other Inventory and Equipment Locations
Zecal Corp.
000 Xxxxx Xxxxxxx Xxxx
Xxxxxxxxxxx, Xxx Xxxx 00000
Schedule 5.6
to Credit and Security Agreement
Litigation
As more fully described in the Annual Report on Form 10-K filed with the
Securities and Exchange Commission (the "Commission") by Heartland on April 2,
1998, as amended on April 27, 1998, April 30, 1998 and on June 23, 1998, the
Borrower has been informed by one of its major customers that the customer has a
patent relating to the demonstration devices for computer printers ("Printer
PODs") and that the customer believes that some or all of the Printer PODs
manufactured by the Borrower infringe the patent. The Borrower is investigating
the claim and, at the same time, exploring resolution of the matter with the
claimed patent holder.
Schedule 7.1
to Credit and Security Agreement
Permitted Liens
None.
Schedule 7.2
to Credit and Security Agreement
Permitted Indebtedness and Guaranties
Indebtedness
None.
Guaranties
None.
