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EXHIBIT 4.05
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ERSHIGS, INC.
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LOAN AND SECURITY AGREEMENT
Dated: February 28, 1997
$6,500,000
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FLEET CAPITAL CORPORATION
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TABLE OF CONTENTS
Page
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SECTION 1. CREDIT FACILITY ......................................................... 1
1.1 Revolving Credit Loans................................................... 1
1.2 Term..................................................................... 2
SECTION 2. INTEREST, FEES AND CHARGES............................................... 4
2.1 Interest................................................................. 4
2.2 Computation of Interest and Fees......................................... 6
2.3 Closing Fee.............................................................. 6
2.4 Unused Line Fee.......................................................... 7
2.5 Collection Charges....................................................... 7
2.6 Reimbursement of Expenses................................................ 7
2.7 Bank Charges............................................................. 8
SECTION 3. LOAN ADMINISTRATION...................................................... 9
3.1 Manner of Borrowing Revolving Credit Loans............................... 9
3.2 Payments................................................................. 10
3.3 Mandatory Prepayments.................................................... 12
3.4 Application of Payments and Collections.................................. 13
3.5 All Loans to Constitute One Obligation................................... 14
3.6 Loan Account............................................................. 14
3.7 Statements of Account.................................................... 14
SECTION 4. TERM AND TERMINATION..................................................... 15
4.1 Term of Agreement........................................................ 15
4.2 Termination.............................................................. 15
SECTION 5. SECURITY INTERESTS....................................................... 20
5.1 Security Interest in Collateral.......................................... 20
5.2 Lien Perfection; Further Assurances...................................... 21
SECTION 6. COLLATERAL ADMINISTRATION................................................ 22
6.1 General.................................................................. 22
6.2 Administration of Accounts............................................... 23
6.3 Administration of Inventory.............................................. 26
6.4 Administration of Equipment.............................................. 27
6.5 Payment of Charges....................................................... 28
SECTION 7. REPRESENTATIONS AND WARRANTIES........................................... 28
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7.1 General Representations and Warranties................................... 28
7.2 Continuous Nature of Representations and Warranties...................... 38
7.3 Survival of Representations and Warranties............................... 39
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS...................................... 39
8.1 Affirmation Covenants.................................................... 39
8.2 Negative Covenants....................................................... 43
8.3 Specific Financial Covenants............................................. 48
SECTION 9. CONDITIONS PRECEDENT..................................................... 51
9.1 ......................................................................... 51
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT........................ 56
10.1 Events of Default........................................................ 56
10.2 Acceleration of the Obligations.......................................... 60
10.3 Other Remedies........................................................... 61
10.4 Remedies Cumulative; No Waiver........................................... 63
SECTION 11. MISCELLANEOUS............................................................ 64
11.1 Power of Attorney........................................................ 64
11.2 Indemnity................................................................ 65
11.3 Modification of Agreement; Sale of interest.............................. 66
11.4 Severability............................................................. 67
11.5 Successors and Assigns................................................... 67
11.6 Cumulative Effect; Conflict of Terms..................................... 67
11.7 Execution in Counterparts................................................ 67
11.8 Notice................................................................... 68
11.9 Lender's Consent......................................................... 69
11.10 Credit Inquiries......................................................... 70
11.11 Time of Essence.......................................................... 70
11.12 Entire Agreement......................................................... 70
11.13 Interpretation........................................................... 70
11.14 GOVERNING LAW; CONSENT TO FORUM.......................................... 70
11.15 WAIVERS BY BORROWER...................................................... 72
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made this 28th day of February,
1997, by and between FLEET CAPITAL CORPORATION ("Lender"), a Rhode Island
corporation with an office at 00000 Xxxxxxx Xxxxxxxxx, Xxxxx 0000, Xxxxxxx
Xxxx, Xxxxxxxxxx 00000; and ERSHIGS, INC. ("Borrower"), a Washington
corporation with its chief executive office and principal place of business at
000 Xxxxxx Xxxxx, Xxxxxxxxxx, Xxxxxxxxxx 00000. Capitalized terms used in this
Agreement have the meanings assigned to them in Appendix A, General
Definitions. Accounting terms not otherwise specifically defined herein shall
be construed in accordance with GAAP consistently applied.
SECTION 1. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lender agrees to make a Total Credit Facility of up to $6,500,000
available upon Borrower's request therefor, as follows:
1.1 REVOLVING CREDIT LOANS.
1.1.1 Loans and Reserves. Lender agrees, for so
long as no Default or Event of Default exists, to make Revolving Credit Loans
to Borrower from time to time, as requested by Borrower in the manner set forth
in subsection 3.1.1 hereof, up to a maximum principal amount at any time
outstanding equal to the Borrowing Base at such time
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minus, without duplication, reserves, if any. Lender shall have the right to
establish reserves in such amounts, and with respect to such matters, as Lender
shall deem necessary or appropriate, against the amount of Revolving Credit
Loans which Borrower may otherwise request under this subsection 1.1.1,
including, without limitation, with respect to (i) price adjustments, damages,
unearned discounts, returned products or other matters for which credit
memoranda are issued in the ordinary course of Borrower's business; (ii)
shrinkage, spoilage and obsolescence of Inventory; (iii) slow moving Inventory;
(iv) other sums chargeable against Borrower's Loan Account as Revolving Credit
Loans under any section of this Agreement; (v) amounts owing by Borrower to any
Person to the extent secured by a Lien on, or trust over, any property of
Borrower; and (vi) such other matters, events, conditions or contingencies as
to which Lender, in its sole credit judgment, determines reserves should be
established from time to time hereunder.
1.1.2 Use of Proceeds. The Revolving Credit Loans
shall be used solely for the acquisition by Borrower of the stock of Borrower
by Specialty Solutions, Inc. ("SSI") pursuant to a Stock Purchase and Sale
Agreement dated on February 14, 1997 (the "Stock Purchase Agreement") and for
Borrower's general operating capital needs in a manner consistent with the
provisions of this Agreement and all applicable laws.
1.2 Term Loans.
1.2.1 Term Loan A. Lender agrees to make a term
loan to Borrower on the Closing Date in a principal amount equal to the lesser
of up to (i) $600,000
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and (ii) 100% of the liquidation value of unencumbered machinery and equipment,
as determined by Lender in the exercise of its reasonable credit judgment,
which shall be repayable in accordance with the terms of the Term Note A and
shall be secured by all of the Collateral. The proceeds of the Term Loan A
shall be used solely for purposes for which the proceeds of the Revolving
Credit Loans are authorized to be used and shall be a subline thereof.
1.2.2 Term Loan B. Lender agrees to make a further
term loan to Borrower on the Closing Date in a principal amount equal to the
lesser of up to (i) $ 1,100,000 and (ii) 99% of the fair market value of
unencumbered real estate, as determined by Lender in the exercise of its
reasonable credit judgment, which shall be repayable in accordance with the
terms of the Term Note B and shall be secured by all of the Collateral. The
proceeds of the Term Loan B shall be used solely for purposes for which the
proceeds of the Revolving Credit Loans are authorized to be used and shall be a
subline thereof.
1.2.3 Intentionally Omitted.
1.2.4 Letter Of Credit. Lender shall provide a
standby Letter of Credit Facility of up to $1,000,000. A reserve of 100% shall
be charged against Availability. The Letter of Credit Facility is a subline of
the Revolving Credit Loans.
1.2.5 Capital Expenditure Facility. Lender shall
provide a five year capital expenditure facility (the "Capex Facility") to fund
the acquisition of new or used
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equipment of up to the lesser of (i) $1,500,000 and (ii) 80% of the purchase
price for such new or used equipment, exclusive of taxes, licenses, delivery
and installation expenses. The valuation of the equipment shall be determined
by Lender in the exercise of its reasonable credit judgment. The Capex
Facility is a subline of the Revolving Credit Loans. At the end of each ninety
day period, the then outstanding balance of the Capex Facility shall be
converted to a promissory note (each a "Capex Note" and collectively, "Capex
Notes"), substantially in the form of Exhibit 1.2.5 hereto, payable in equal
monthly installments of principal, amortized over a period of eighty four
months.
SECTION 2. INTEREST, FEES AND CHARGES
2.1 Interest.
2.1.1 Rates of Interest. Interest shall accrue on
each of Term Loan A, Term Loan B and the Capex Facility at a fluctuation rate
per annum equal to (at Borrower's election) either (i) the Base Rate plus 1.25%
or (ii) LIBOR plus 400 basis points and otherwise in accordance with the terms
of the respective Term Notes and Capex Notes. Interest shall accrue on the
principal amount of the Revolving Credit Loans outstanding at the end of each
day at a fluctuating rate per annum equal to (at Borrower's election) either
(i) the Base Rate plus 1% or (ii) LIBOR plus 375 basis points. LIBOR interest
rates shall be based on a thirty-day reserve adjusted LIBOR. The rate of
interest shall increase or decrease by an amount equal to any increase or
decrease in the LIBOR rate, effective as of the opening of
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business on the day that any such change in LIBOR occurs.
The foregoing rates of interest shall be subject to up to two 0.25%
reductions, if a Base Rate interest rate is in effect and of up to two 25 basis
points reduction if a LIBOR interest rate is in effect, effective upon receipt
by Lender of Borrower's audited June 30, 1997 and June 30, 1998 fiscal year end
financial statements which reflect, provided in each case that (i) no Default
or Event of Default has occurred and is continuing as of such date, (ii) that
for fiscal year end June 30, 1997 Borrower has achieved EBIT of $163,000 and/or
for fiscal year end June 30, 1998 Borrower has achieved EBIT of $1,091,000 or
(iii) for any succeeding June 30 fiscal year end has achieved EBIT of
$1,699,000.
The standy Letter of Credit Facility shall be subject to a charge of 2
1/2% per annum of the face amount of such letter of credit as issued or
amended, inclusive of any indemnity fee charged to Lender by the issuer, with a
minimum payment of $500 to Lender, payable upon issuance. In addition,
Borrower shall pay to Lender the following fees, payable as indicated: (i) $150
upon issuance of a letter of credit, (ii) $150 upon any amendment to the letter
of credit, (iii) 1/4 of 1%, with a minimum payment of $150, of the face amount
of the letter of credit upon its negotiation or payment, (iv) $35 for each wire
transfer of funds, and (v) all out of pocket expenses of Lender such as telex
charges, postage, courier service and the like.
2.1.2 Default Rate of Interest. Upon and after the
occurrence of an Event of Default, and during the continuation thereof,
effective upon the serving of notice by Lender to Borrower, (i) the principal
amount of all Revolving Credit Loans shall
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bear interest at a fluctuating rate per annum equal to 4% plus the Base Rate
and the principal amount of Term Loan "A", Term Loan "B", Term Loan "C" and the
Capex Facility shall each bear interest at a fluctuating rate per annum equal
to 4.25% plus the Base Rate, (the "Default Rate"). While the Default Rate is
in effect, the LIBOR option shall not be applicable.
2.1.3 Maximum Interest. In no event whatsoever
shall the aggregate of all amounts deemed interest hereunder or under the Term
Notes and Capex Notes and charged or collected pursuant to the terms of this
Agreement or pursuant to the Term Notes and Capex Notes exceed the highest rate
permissible under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto. If any provisions of this
Agreement, the Term Notes and Capex Notes are in contravention of any such law,
such provisions shall be deemed amended to conform thereto.
2.2 Computation of Interest and Fees. Interest, letter of credit
charges and unused line fees hereunder shall be calculated daily and shall be
computed on the actual number of days elapsed over a year of 360 days. For the
purpose of computing interest hereunder, all items of payment received by
Lender shall be deemed applied by Lender on account of the Obligations (subject
to final payment of such items) on the second Business Day after receipt by
Lender of such items in Lender's account located in Chicago, Illinois.
2.3 Closing Fee. Borrower shall pay to Lender a closing fee of
$65,000, which shall be fully earned and nonrefundable on the Closing Date and
shall be paid concurrently with the initial Loan hereunder. The deposit of
$45,000 heretofore paid to Lender shall be
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credited, net of Lender's Costs, to the Closing Fee.
2.4 Unused Line Fee. Borrower shall pay to Lender a fee equal to
0.5% per annum of the average monthly amount by which the Total Credit Facility
exceeds the sum of the outstanding principal balance of the Revolving Credit
Loans and the Term Loans. The unused line fee shall be payable monthly in
arrears on the first day of each calendar month hereafter.
2.5 Collection Charges. If items of payment are received by
Lender at a time when there are no Revolving Credit Loans outstanding, such
items of payment shall be subject to a collection charge equal to two Business
Days' interest on the amount thereof at the rate then applicable to Revolving
Credit Loans, which collection charges shall be payable on the first Business
Day of each month.
2.6 Reimbursement of Expenses. If, at any time or times
regardless of whether or not an Event of Default then exists, Lender or any
Participating Lender incurs legal or accounting expenses or any other costs or
out-of-pocket expenses in connection with (i) the negotiation and preparation
of this Agreement or any of the other Loan Documents, including all search,
recording, filing real property title searches and policies and the like, any
amendment of or modification of this Agreement or any of the other Loan
Documents, or any sale or attempted sale of any interest herein to a
Participating Lender; (ii) the administration of this Agreement or any of the
other Loan Documents and the transactions contemplated hereby and thereby;
(iii) any litigation, contest, dispute, suit, proceeding or action (whether
instituted by Lender, Borrower or any other Person, and if, as between Lender
and Borrower, only in
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the context of litigation, if Lender is the prevailing party) in any way
relating to the Collateral, this Agreement or any of the other Loan Documents
or Borrower's affairs; (iv) any attempt to enforce any rights of Lender or any
Participating Lender against Borrower or any other Person which may be
obligated to Lender by virtue of this Agreement or any of the other Loan
Documents, including, without limitation, the Account Debtors; or (v) any
attempt to inspect, verify, protect, preserve, restore, collect, sell,
liquidate or otherwise dispose of or realize upon the Collateral, including but
not limited to any expenses and costs incurred by Lender in connection with the
audits and appraisals of Borrower's books, records and the Collateral, wherever
located, and in the administration of this Agreement; then all such legal and
accounting expenses, other costs and out of pocket expenses of Lender
("Lender's Costs") shall be charged to Borrower. All amounts chargeable to
Borrower under this Section 2.8 shall be Obligations secured by all of the
Collateral, shall be payable on demand to Lender or to such Participating
Lender, as the case may be, and shall bear interest from the date such demand
is made until paid in full at the rate applicable to Revolving Credit Loans
from time to time. Borrower shall also reimburse Lender for expenses incurred
by Lender in its administration of the Collateral to the extent and in the
manner provided in Section 6 hereof.
2.7 Bank Charges. Borrower shall pay to Lender, on demand, any
and all fees, costs or expenses which Lender or any Participating Lender pays
to a bank or other similar institution (including, without limitation, any fees
paid by Lender to any Participating Lender) arising out of or in connection
with (i) the forwarding to Borrower or any other Person on behalf of Borrower,
by Lender or any Participating Lender, of proceeds of loans made by Lender to
Borrower pursuant to this Agreement and (ii) the depositing for collection, by
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Lender or any Participating Lender, of any check or item of payment received or
delivered to Lender or any Participating Lender on account of the Obligations.
SECTION 3. LOAN ADMINISTRATION
3.1 Manner of Borrowing Revolving Credit Loans. Borrowings under
the credit facility established pursuant to Section 1 hereof shall be as
follows:
3.1.1 Loan Requests. On the Closing Date Lender
shall make the Term Loans. A request for a Revolving Credit Loan shall be
made, or shall be deemed to be made, in the following manner: (i) Borrower may
give Lender notice of its intention to borrow, in which notice Borrower shall
specify the amount of the proposed borrowing and the proposed borrowing date,
no later than 10:00 a.m. Pacific time on the proposed borrowing date, provided,
however, that Lender, at its option, may refuse such request at a time when
there exists a Default or an Event of Default; and (ii) the becoming due of any
amount required to be paid under this Agreement, the Term Notes or any note
issued pursuant to the Capital Expenditure Facility, whether as interest or for
any other Obligation, shall be deemed irrevocably to be a request for a
Revolving Credit Loan on the due date in the amount required to pay such
interest or other Obligation. As an accommodation to Borrower, Lender may
permit telephonic requests for loans and electronic transmittal of
instructions, authorizations, agreements or reports to Lender by Borrower.
Unless Borrower specifically directs Lender in writing not to accept or act
upon telephonic or electronic communications from Borrower, Lender shall have
no liability to Borrower for any loss or damage suffered by Borrower as a
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result of Lender's honoring of any requests, execution of any instructions,
authorizations or agreements or reliance on any reports communicated to it
telephonically or electronically and purporting to have been sent to Lender by
Borrower and Lender shall have no duty to verify the origin of any such
communication or the authority of the person sending it.
3.1.2 Disbursement. Borrower hereby irrevocably
authorizes Lender to disburse the proceeds of each Revolving Credit Loan
requested, or deemed to be requested, pursuant to this subsection 3.1.2 as
follows: (i) the proceeds of each Revolving Credit Loan requested under
subsection 3.1.1(i) shall be disbursed by Lender in lawful money of the
United States of America in immediately available funds, in the ease of the
initial borrowing, in accordance with the terms of the written disbursement
letter from Borrower, and in the case of each subsequent borrowing, by wire
transfer to such bank account as may be agreed upon by Borrower and Lender from
time to time or elsewhere if pursuant to a written direction from Borrower; and
(ii) the proceeds of each Revolving Credit Loan requested under subsection
3.1.1(ii) shall be disbursed by Lender by way of direct payment of the relevant
interest or other Obligation.
3.1.3 Authorization. Borrower hereby irrevocably
authorizes Lender, in Lender's sole discretion, to advance to Borrower, and to
charge to Borrower's Loan Account hereunder as a Revolving Credit Loan, a sum
sufficient to pay all interest accrued on the Obligations during the
immediately preceding month and to pay all costs, fees and expenses at any time
owed by Borrower to Lender hereunder.
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3.2 Payments. Except where evidenced by notes or other instruments
issued or made by Borrower to Lender specifically containing payment provisions
which are in conflict with this Section 3.2 (in which event the conflicting
provisions of said notes or other instruments shall govern and control), the
Obligation shall be payable as follows:
3.2.1 Principal. Principal payable on account of
Revolving Credit Loans shall be payable by Borrower to Lender immediately upon
the earliest of (i) the receipt by Lender or Borrower of any proceeds of any of
the Collateral other than Equipment or real property, to the extent of said
proceeds, (ii) the occurrence of an Event of Default in consequence of which
Lender elects to accelerate the maturity and payment of the Obligations, or
(iii) termination of this Agreement pursuant to Section 4 hereof; provided,
however, that if an Overadvance shall exist at any time, Borrower shall, on
demand, repay the Overadvance.
3.2.2 Interest. Interest accrued on the Revolving Credit
Loans shall be due on the earliest of (i) the first calendar day of each month
(for the immediately preceding month), computed through the last calendar day
of the preceding month, (ii) the occurrence of an Event of Default in
consequence of which Lender elects to accelerate the maturity and payment of
the Obligations or (iii) termination of this Agreement pursuant to Section 4
hereof.
3.2.3 Costs, Fees and Charges. Costs, fees and charges
payable pursuant to this Agreement shall be payable by Borrower as and when
provided in Section 2 hereof, to Lender or to any other Person designated by
Lender in writing.
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3.2.4 Other Obligations. The balance of the Obligations
requiring the payment of money, if any, shall be payable by Borrower to Lender
as and when provided in this Agreement, the Other Agreements or the Security
Documents, or on demand, whichever is later.
3.3 Mandatory Prepayments.
3.3.1 Proceeds of Sale, Loss, Destruction or Condemnation
of Collateral. Except as provided in subsection 6.4.2 hereof, if Borrower
sells any of the Equipment or real property, or if any of the Collateral is
lost or destroyed or taken by condemnation, Borrower shall pay to Lender,
unless otherwise agreed by Lender, as and when received by Borrower and as a
mandatory prepayment of the Term Loans and Capex Note(s), a sum equal to the
proceeds (including insurance payments) received by Borrower from such sale,
loss, destruction or condemnation, which sum shall be applied among the Term
Loans and the Capex Note(s), at Lender's sole discretion, in the inverse order
of maturity.
Notwithstanding anything to the contrary contained herein, Lender
agrees that Borrower may dispose of the real and personal property listed
below, provided that Borrower is not then in default under the Agreement and
with respect to the machinery and equipment, substantially all thereof is
disposed of in a single sale, by payment to Lender of an amount not less than
as indicated for each such item of property:
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Location Release amount
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Machinery and Equipment
Wilson, North Carolina $110,000
Bellingham, Washington 250,000
Gatesville, Texas 180,000
Real Estate
Wilson, North Carolina $550,000
Bellingham, Washington 500,000
Gatesville, Texas 700,000
Release prices for individual items of machinery and equipment,
including those at outside locations, shall be determined on a case by case
basis as Borrower and Lender shall mutually agree.
3.3.2 Excess Cash Flow Recapture. Borrower shall pay to
Lender an amount equal to 50% of Excess Cash Flow to be applied in inverse
order of maturity to or among Term Note "A", Term Note "B" and the Capex
Note(s) as Lender shall determine in its sole discretion with respect to each
fiscal year of Borrower during the Original Term hereof. Borrower's payments
to Lender of 50% of Excess Cash Flow shall begin eighteen months after the
Closing Date. Payments of Excess Cash Flow to Lender shall be made within two
Business Days following the due date for delivery by Borrower to Lender of the
annual financial statements required by subsection 8.1.3(i) hereof.
3.4 Application of Payments and Collections. All items of payment
received by
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Lender shall be applied for purposes of computing interest (subject to Section
2.2 hereof) on the second Business Day such payment is received. Borrower
irrevocably waives the right to direct the application of any and all payments
and collections at any time or times hereafter received by Lender from or on
behalf of Borrower, and Borrower does hereby irrevocably agree that Lender
shall have the continuing exclusive right to apply and reapply any and all such
payments and collections received at any time or times hereafter by Lender or
its agent against the Obligations, in such manner as Lender may deem advisable,
notwithstanding any entry by Lender upon any of its books and records. If as
the result of collections of Accounts as authorized by subsection 6.2.6 hereof
a credit balance exists in the Loan Account, such credit balance shall not
accrue interest in favor of Borrower, but shall be available to Borrower at any
time or times.
3.5 All Loans to Constitute One Obligation. The Loans shall
constitute one general Obligation of Borrower, and shall be secured by Lender's
Lien upon all of the Collateral.
3.6 Loan Account. Lender shall enter all Loans as debits to the Loan
Account and shall also record in the Loan Account all payments made by Borrower
on any Obligations and all proceeds of Collateral which are finally paid to
Lender, and may record therein, in accordance with customary accounting
practice, other debits and credits, including interest and all charges and
expenses properly chargeable to Borrower.
3.7 Statements of Account. Lender will account to Borrower monthly
with a statement of Loans, charges and payments made pursuant to this
Agreement, and such account
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rendered by Lender shall be deemed final, binding and conclusive upon Borrower
unless Lender is notified by Borrower in writing to the contrary within 30 days
of the date each accounting is mailed to Borrower. Such notice shall only be
deemed an objection to those items specifically objected to therein.
SECTION 4. TERM AND TERMINATION
4.1 Term of Agreement. Subject to Lender's right to cease making
Loans to Borrower upon or after the occurrence of any Default or Event of
Default, this Agreement shall be in effect for a period of five years from the
date hereof, through and including February 27, 2002 (the "Original Term"), and
this Agreement shall automatically renew itself for one-year periods thereafter
(the "Renewal Term"), unless terminated as provided in Section 4.2 hereof.
4.2 Termination.
4.2.1 Termination by Lender. Upon at least 90 days prior
written notice to Borrower, Lender may terminate this Agreement as of the last
day of the Original Term or the then current Renewal Term and Lender may
terminate this Agreement without notice upon or after the occurrence of an
Event of Default.
4.2.2 Termination by Borrower. Upon at least 90 days
prior written notice to Lender, Borrower may, at its option, terminate this
Agreement; provided,
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however, no such termination shall be effective until Borrower has paid all of
the Obligations in immediately available funds. Any notice of termination,
given by Borrower shall be irrevocable unless Lender otherwise agrees in
writing, and Lender shall have no obligation to make any Loans on or after the
termination date stated in such notice. Borrower may elect to terminate this
Agreement in its entirety only. No section of this Agreement or type of Loan
available hereunder may be terminated singly.
4.2.3 Termination Charges. At the effective date of
termination of this Agreement by Lender (after an Event of Default) or by
Borrower for any reason, Borrower shall pay to Lender (in addition to the then
outstanding principal, accrued interest and other charges owing under the terms
of this Agreement and any of the other Loan Documents) as liquidated damages
for the loss of the bargain and not as a penalty, an amount equal to 3% of the
original Total Credit Facility, minus the then balance owing under Term Notes A
and B and the Capex Facility ("Net Credit Facility") if termination occurs
during the first twelve-month period of the Original Term (February 28, 1997
through February 27, 1998); 2% of the Net Credit Facility if termination occurs
during the second 12-month period of the Original Term (February 28, 1998
through February 27, 1999); 1% of the Net Credit Facility if termination
occurs during the third 12-month period of the Original Term (February 28, 1999
through February 27, 2000); and 1/2 of 1% of the Net Credit Facility if
termination occurs during the fourth twelve-month period of the Original Term
February 28, 2000 through February 27, 2001); and 1/2 of 1% of the Net Credit
Facility if termination occurs during the fifth twelve-month period of the
Original Term (February 28, 2001 through February 27, 2002). If termination
occurs on the last day of the Original Term, no
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termination charge shall be payable.
Notwithstanding anything contained in this Subsection 4.2.3, no
prepayment charge shall be payable by Borrower if the Total Credit Facility and
all Obligations owing thereunder have been paid by refinancing provided by
another asset based lender upon terms, structure and conditions first presented
to Lender ("Financing Conditions") where Lender notifies Borrower within five
Business Days ("Lender's Response Time") of its unwillingness to continue to
extend financial accommodations to Borrower on such Financing Conditions. If
Lender elects to extend financial accommodations to Borrower within the
Lender's Response Time in accordance with the Financing Conditions, Lender
shall commence financing Borrower in accordance therewith within forty-five
Business Days of Lender's Response Time. If Lender shall fail to commence
financing within such forty-five Business Days, Borrower may pay all
Obligations owing to Lender without the imposition of any prepayment charge.
Effect of Termination. All of the Obligations shall be immediately due
and payable upon the termination date stated in any notice of termination of
this Agreement. All undertakings, agreements, covenants, warranties and
representations of Borrower contained in the Loan Documents shall survive any
such termination and Lender shall retain its Liens in the Collateral and all of
its rights and remedies under the Loan Documents notwithstanding such
termination until Borrower has paid the Obligations to Lender, in full, in
immediately available funds, together with the applicable termination charge,
if any. Notwithstanding the payment in full of the Obligations, Lender shall
not be required to terminate its security interests in the Collateral unless,
with respect to any loss or damage Lender may incur as a
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result of dishonored checks or other items of payment received by Lender from
Borrower or any Account Debtor and applied to the Obligations, Lender shall, at
its option, (i) have received a written agreement, executed by Borrower and by
any Person whose loans or other advances to Borrower are used in whole or in
part to satisfy the Obligations, indemnifying Lender from any such loss or
damage; or (ii) have retained such monetary reserves and Liens on the
Collateral for such period of time as Lender, in its reasonable discretion, may
deem necessary to protect Lender from any such loss or damage.
SECTION 5. SECURITY INTERESTS
5.1 Security Interest in Collateral. To secure the prompt payment
and performance to Lender of the Obligations, Borrower hereby grants to Lender
a continuing Lien upon all of Borrower's assets, including all of the following
Property and interests in Property of Borrower, whether now owned or existing
or hereafter created, acquired or arising and wheresoever located:
(i) Accounts;
(ii) Inventory;
(iii) Equipment, including without limitation, motor
vehicles;
(iv) Investment Property
22
(v) General Intangibles, including without limitation,
all patents, trademarks and trade names;
(vi) Deposit Accounts;
(vii) All monies and other Property of any kind now or at
any time or times hereafter in the possession or under the control of
Lender or a bailee or Affiliate of Lender;
(vii) All real property and interests in real property;
(iv) All accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (i) through
(v) above, including, without limitation, proceeds of and unearned
premiums with respect to insurance policies insuring any of the
Collateral; and
(v) All books and records (including, without
limitation, customer lists, credit files, computer programs,
print-outs, and other computer materials and records) of Borrower
pertaining to any of (i) through (vii) above.
5.2 Lien Perfection; Further Assurances. Borrower shall execute such
UCC-1 financing statements as are required by the Code, such mortgages and
deeds of trust and such
23
other instruments, assignments or documents as are necessary to perfect
Lender's Lien upon any of the Collateral and shall take such other action as
may be required to perfect or to continue the perfection of Lender's Lien upon
the Collateral. Unless prohibited by applicable law, Borrower hereby authorizes
Lender to file any such financing statement on Borrower's behalf. The parties
agree that a carbon, photographic or other reproduction of this Agreement shall
be sufficient as a financing statement and may be filed in any appropriate
office in lieu thereof. At Lender's request, Borrower shall also promptly
execute or cause to be executed and shall deliver to Lender any and all
documents, instruments and agreements deemed necessary by Lender to give effect
to or carry out the terms or intent of the Loan Documents.
SECTION 6. COLLATERAL ADMINISTRATION
6.1 General
6.1.1 Location of Collateral. All Collateral, other than
Inventory in transit and motor vehicles (when not in use in the ordinary course
of Borrower's business), will at all times be kept by Borrower at one or more
of the business locations set forth in Exhibit 6.1.1 hereto and shall not,
without the prior written approval of Lender, be moved therefrom except, prior
to an Event of Default and Lender's acceleration of the maturity of the
Obligations in consequence thereof, for (i) sales of Inventory in the ordinary
course of business; and (ii) removals in connection with dispositions of
Equipment that are authorized by subsection 6.4.2 hereof; and (iii) movement of
equipment and inventory from
24
one location of Borrower that has been reported to Lender to another location
of Borrower that has been reported to Lender, and within a jurisdiction in
which Lender has taken all necessary action in order to protect and perfect its
security interest therein.
6.1.2 Insurance of Collateral. Borrower shall maintain
and pay for insurance upon all Collateral wherever located and with respect to
Borrower's business, covering casualty, hazard, public liability and such other
risks in such amounts and with such insurance companies as are reasonably
satisfactory to Lender. Borrower shall deliver the originals of such policies
to Lender with satisfactory lender's loss payable endorsements, naming Lender
as sole loss payee, assignee or additional insured, as appropriate. Each
policy of insurance or endorsement shall contain a clause requiring the insurer
to give not less than 30 days prior written notice to Lender in the event of
cancellation of the policy for any reason whatsoever and a clause specifying
that the interest of Lender shall not be impaired or invalidated by any act or
neglect of Borrower or the owner of the Property or by the occupation of the
premises for purposes more hazardous than are permitted by said policy. If
Borrower fails to provide and pay for such insurance, Lender may, at its
option, but shall not be required to, procure the same and charge Borrower
therefor. Borrower agrees to deliver to Lender, promptly as rendered, true
copies of all reports made in any reporting forms to insurance companies.
6.1.3 Protection of Collateral. All expenses of
protecting, storing, warehousing, insuring, handling, maintaining and shipping
the Collateral, any and all excise, property, sales, and use taxes imposed by
any state, federal, or local authority on any
25
of the Collateral or in respect of the sale thereof shall be borne and paid by
Borrower. If Borrower fails to promptly pay any portion thereof when due,
Lender may, at its option, but shall not be required to, pay the same and
charge Borrower therefor. Lender shall not be liable or responsible in any way
for the safekeeping of any of the Collateral or for any loss or damage thereto
(except for reasonable care in the custody thereof while any Collateral is in
Lender's actual possession) or for any diminution in the value thereof, or for
any act or default of any warehouseman, carrier, forwarding agency, or other
person whomsoever, but the same shall be at Borrower's sole risk.
26
6.2 Administration of Accounts.
6.2.1 Records, Schedules and Assignments of Accounts.
Borrower shall keep accurate and complete records of its Accounts and all
payments and collections thereon and shall submit to Lender on such periodic
basis as indicated herein a daily sales and collections report, in form
satisfactory to Lender. On or before the fifteenth day of each month from and
after the date hereof, Borrower shall deliver to Lender, in form acceptable to
Lender, a detailed aged trial balance of all Accounts existing as of the last
day of the preceding month, specifying the names, addresses, face value, dates
of invoices and due dates for each Account Debtor obligated on an Account so
listed ("Schedule of Accounts"), and, upon Lender's request therefor, copies of
proof of delivery and the original copy of all documents, including, without
limitation, repayment histories and present status reports for invoices in
excess of $50,000 relating to the Accounts so scheduled and such other matters
and information relating to the status of then existing Accounts as Lender
shall reasonably request. In addition, if Accounts in an aggregate face amount
in excess of $50,000 become ineligible because they fall within one of the
specified categories of ineligibility set forth in the definition of Eligible
Accounts or otherwise established by Lender, Borrower shall notify Lender of
such occurrence on the first Business Day following such occurrence and the
Borrowing Base shall thereupon be adjusted to reflect such occurrence.
Borrower shall execute and deliver to Lender formal written assignments of all
of its Accounts daily, which shall include all Accounts that have been created
since the date of the last assignment, together with copies of invoices or
invoice registers related thereto.
27
6.2.2 Discounts, Allowances, Disputes. If Borrower
grants any discounts, allowances or credits that are not shown on the face of
the invoice for the Account involved, Borrower shall report such discounts,
allowances or credits, as the case may be, to Lender as part of the next
required Schedule of Accounts. If any amounts due and owing in excess of
$50,000 are in dispute between Borrower and any Account Debtor, Borrower shall
provide Lender with written notice thereof at the time of submission of the
next Schedule of Accounts, explaining in detail the reason for the dispute, all
claims related thereto and the amount in controversy. Upon and after the
occurrence of an Event of Default, Lender shall have the right to settle or
adjust all disputes and claims directly with the Account Debtor and to
compromise the amount or extend the time for payment of the Accounts upon such
terms and conditions as Lender may deem advisable, and to charge the
deficiencies, costs and expenses thereof, including attorney's fees, to
Borrower.
6.2.3 Taxes. If an Account includes a charge for any tax
payable to any governmental taxing authority, Lender is authorized, in its sole
discretion, to pay the amount thereof to the proper taxing authority for the
account of Borrower and to charge Borrower therefor, provided, however that
Lender shall not be liable for any taxes to any governmental taxing authority
that may be due by Borrower.
6.2.4 Account Verification. Whether or not a Default or
an Event of Default has occurred, any of Lender's officers, employees or agents
shall have the right, at any time or times hereafter, in the name of Lender,
any designee of Lender or
28
Borrower, to verify the validity, amount or any other matter relating to any
Accounts by mail, telephone, telegraph or otherwise. Borrower shall cooperate
fully with Lender in an effort to facilitate and promptly conclude any such
verification process.
6.2.5 Maintenance of Dominion Account. Borrower shall
maintain a Dominion Account pursuant to a lockbox arrangement acceptable to
Lender with such banks as may be selected by Borrower and be acceptable to
Lender. Borrower shall issue to any such banks an irrevocable letter of
instruction directing such banks to deposit all payments or other remittances
received in the lockbox to the Dominion Account for application on account of
the Obligations. All funds deposited in the Dominion Account shall immediately
become the property of Lender and Borrower shall obtain the agreement by such
banks in favor of Lender to waive any offset rights against the funds so
deposited. Lender assumes no responsibility for such lockbox arrangement,
including, without limitation, any claim of accord and satisfaction or release
with respect to deposits accepted by any bank thereunder.
6.2.6 Collection of Accounts, Proceeds of Collateral. To
expedite collection, Borrower shall endeavor in the first instance to make
collection of its Accounts for Lender. All remittances received by Borrower on
account of Accounts, together with the proceeds of any other Collateral, shall
be held as Lender's property by Borrower as trustee of an express trust for
Lender's benefit and Borrower shall immediately deposit same in kind in the
Dominion Account. Lender retains the right at all times after the occurrence
of a Default or an Event of Default and during the continuance thereof, to
notify Account Debtors
29
that Accounts have been assigned to Lender and to collect Accounts directly in
its own name and to charge the collection costs and expenses, including
attorneys' fees to Borrower.
6.3 Administration of Inventory.
6.3.1 Records and Reports of Inventory. Borrower shall
keep accurate and complete records of its inventory. Borrower shall furnish to
Lender Inventory reports in form and detail satisfactory to Lender at such
times as Lender may request, but at least once each month, not later than the
twentieth day of such month. Borrower shall conduct a physical inventory no
less frequently than monthly and shall provide to Lender a report based on each
such physical inventory promptly thereafter, together with such supporting
information as Lender shall request. Lender may adjust the frequency of
required physical inventories upon implementation by Borrower of a perpetual
inventory system acceptable to Lender.
6.3.2 Returns of Inventory. If at any time or times
hereafter any Account Debtor returns any Inventory to Borrower the shipment of
which generated an Account on which such Account Debtor is obligated in excess
of $50,000, Borrower shall immediately notify Lender of the same, specifying
the reason for such return and the location, condition and intended disposition
of the returned Inventory.
6.4 Administration of Equipment.
6.4.1 Records and Schedules of Equipment. Borrower shall
30
keep accurate records itemizing and describing the kind, type, quality,
quantity and value of its Equipment and all dispositions made in accordance
with subsection 6.4.2 hereof, and shall furnish Lender with a current schedule
containing the foregoing information on at least an annual basis and more often
if requested by Lender. Immediately on request therefor by Lender, Borrower
shall deliver to Lender any and all evidence of ownership, if any, of any of
the Equipment.
6.4.2 Dispositions of Equipment. Borrower will not sell,
lease or otherwise dispose of or transfer any of the Equipment or any part
thereof without the prior written consent of Lender; provided, however, that
the foregoing restriction shall not apply, for so long as no Default or Event
of Default exists, to (i) dispositions of Equipment which, in the aggregate
during any consecutive twelve-month period, has a fair market value or book
value, whichever is less, of $50,000 or less, provided that all proceeds
thereof are remitted to Lender for application to the Loans, or (ii)
replacements of Equipment that is substantially worn, damaged or obsolete with
Equipment of like kind, function and value, provided that the replacement
Equipment shall be acquired prior to or concurrently with any disposition of
the Equipment that is to be replaced, the replacement Equipment shall be free
and clear of Liens other than Permitted Liens that are not Purchase Money
Liens, and Borrower shall have given Lender at least 5 days prior written
notice of such disposition.
6.5 Payment of Charges. All amounts chargeable to Borrower under
Section 6 hereof shall be Obligations secured by all of the Collateral, shall
be payable on demand and shall bear interest from the date such advance was
made until paid in full at the rate applicable
31
to Revolving Credit Loans from time to time.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 General Representations and Warranties. To induce Lender to enter
into this Agreement and to make advances hereunder, Borrower warrants,
represents and covenants to
Lender that:
7.1.1 Organization and Qualification. Borrower is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. Borrower is duly qualified and
is authorized to do business and is in good standing as a foreign corporation
in each state or jurisdiction listed on Exhibit 7.1.1 hereto and in all other
states and jurisdictions in which the failure of Borrower to be so qualified
would have a material adverse effect on the financial condition, business or
Properties of Borrower.
7.1.2 Corporate Power and Authority. Borrower is duly
authorized and empowered to enter into, execute, deliver and perform this
Agreement and each of the other Loan Documents to which it is a party. The
execution, delivery and performance of this Agreement and each of the other
Loan Documents have been duly authorized by all necessary corporate action and
do not and will not (i) require any consent or approval of the shareholders of
Borrower; (ii) contravene Borrower's charter, articles or certificate of
incorporation or by-laws; (iii) violate, or cause Borrower to be in default
under,
32
any provision of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award in effect having applicability to Borrower; (iv)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other agreement, lease or instrument to which 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 Lien (other than
Permitted Liens) upon or with respect to any of the Properties now owned or
hereafter acquired by Borrower.
7.1.3 Legally Enforceable Agreement. This Agreement is,
and each of the other Loan Documents when delivered under this Agreement will
be, a legal, valid and binding obligation of Borrower enforceable against it in
accordance with its respective terms.
7.1.4 Capital Structure. Exhibit 7.1.4 hereto states (i)
the name of each of Borrower's corporate or joint venture Affiliates and the
nature of the affiliation, (ii) the number, nature and holder of all
outstanding Securities of Borrower and each Affiliate of Borrower and (iii) the
number of authorized, issued and treasury shares of Borrower and each Affiliate
of Borrower. All such shares have been duly issued and are fully paid and
nonassessable. Except as set forth on Exhibit 7.1.4, there are no outstanding
options to purchase, or any rights or warrants to subscribe for, or any
commitments or agreements to issue or sell, or any Securities or obligations
convertible into, or any powers of attorney relating to, shares of the capital
stock of Borrower. Except as set forth on Exhibit 7.1.4, there are no
outstanding agreements or instruments binding upon any of Borrower's
shareholders relating to
33
the ownership of its shares of capital stock.
7.1.5 Corporate Names. Borrower has not been known as
or used any corporate, fictitious or trade names except those listed on Exhibit
7.1.5 hereto. Except as set forth on,Exhibit 7.1.5, Borrower has not been the
surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any Person.
7.1.6 Business Locations; Agent for Process. Borrower's
chief executive office and other places of business are as listed on Exhibit
6.1.1 hereto. During the preceding one-year period, Borrower has not had an
office, place of business or agent for service of process other than as listed
on Exhibit 6.1.1. Except as shown on Exhibit 6.1.1, no inventory is stored
with a bailee, warehouseman or similar party, nor is any Inventory consigned to
any Person.
7.1.7 Title to Properties; Priority of Liens. Borrower
has good, indefeasible and marketable title to and fee simple ownership of, or
valid and subsisting leasehold interests in, all of its real property, and good
title to all of the Collateral and all of its other Property, in each case,
free and clear of all Liens except Permitted Liens. Borrower has paid or
discharged all lawful claims which, if unpaid, might become a Lien against any
of Borrower's Properties that is not a Permitted Lien. The Liens granted to
Lender under Section 5 hereof are first priority Liens, subject only to
Permitted Liens.
7.1.8 Accounts. Lender may rely, in determining which
34
Accounts are Eligible Accounts, on all statements and representations made by
Borrower with respect to any Account or Accounts. Unless otherwise indicated
in writing to Lender, with respect to each Account:
(i) It is genuine and in all respects what it purports
to be, and it is not evidenced by a judgment;
(ii) It arises Out Of a completed, bona fide sale and
delivery of goods or rendition of services by Borrower in the ordinary
course of its business and in accordance with the terms and conditions
of all purchase orders, contracts or other documents relating thereto
and forming a part of the contract between Borrower and the Account
Debtor;
(iii) It is for a liquidated amount maturing as stated in
the duplicate invoice covering such sale or rendition of services, a
copy of which has been furnished or is available to Lender;
(iv) Such Account, and Lender's security interest
therein, is not, and to the best of Borrower's knowledge will not (by
voluntary act or omission of Borrower) be in the future, subject to any
offset, Lien, deduction, defense, dispute, counterclaim or any other
adverse condition except for disputes whether or not resulting in
returned goods and warranty claims where the amount in controversy is
deemed by Lender to be immaterial and, to the best of Borrower's
knowledge, each
35
such Account is absolutely owing to Borrower and is not contingent in
any respect or for any reason;
(v) Borrower has made no agreement with any Account
Debtor thereunder for any extension, compromise, settlement or
modification of any such Account or any deduction therefrom, except
discounts or allowances which are granted by Borrower in the ordinary
course of its business for prompt payment and which are reflected in the
calculation of the net amount of each respective invoice related thereto
and are reflected in the Schedules of Accounts submitted to Lender
pursuant to subsection 6.2.1 hereof;
(vi) To the best of Borrower's knowledge, there are no
facts, events or occurrences which in any way materially impair the
validity or enforceability of any Accounts to reduce the amount payable
thereunder from the face amount of the invoice and statements delivered
to Lender with respect thereto;
(vii) To the best of Borrower's knowledge, the Account
Debtor thereunder (1) had the capacity to contract at the time any
contract or other document giving rise to the Account was executed and
(2) such Account Debtor is Solvent; and
(viii) To the best of Borrower's knowledge, there are no
proceedings or actions which are threatened or pending against any
Account Debtor thereunder which might result in any material adverse
change in such Account Debtor's
36
financial condition or the collectibility of such Account.
7.1.9 Equipment. The Equipment is in good operating
condition and repair, and all necessary replacements of and repairs thereto
shall be made so that the value and operating efficiency of the Equipment shall
be maintained and preserved, reasonable wear and tear excepted. Borrower will
not permit any of the Equipment to become affixed to any real property leased
to Borrower so that an interest arises therein under the real estate laws of
the applicable jurisdiction unless the landlord of such real property has
executed a landlord waiver or leasehold mortgage in favor of and in form
acceptable to Lender, and Borrower will not permit any of the Equipment to
become an accession to any personal property other than Equipment that is
subject to first priority (except for Permitted Liens) Liens in favor of
Lender.
7.1.10 Financial Statements; Fiscal Year. The opening
balance sheets of Borrower as of March 1, 1997, will be prepared in accordance
with GAAP, and present fairly the financial position of Borrower at such date.
The fiscal year of Borrower ends on June 30th of each year.
7.1.11 Full Disclosure. The financial statements referred
to in subsection 7. 1. 10 hereof do not, nor does this Agreement or any other
written statement of Borrower to Lender, contain any untrue statement of a
material fact or omit a material fact necessary to make the statements
contained therein or herein not misleading. There is no fact which Borrower
has failed to disclose to Lender in writing which materially affects adversely
37
or, so far as Borrower can now foresee, will materially affect adversely the
Properties, business, prospects, profits or condition (financial or otherwise)
of Borrower or the ability of Borrower to perform this Agreement or the other
Loan Documents.
7.1.12 Solvent Financial Condition. Borrower is now and,
after giving effect to the Loans to be made hereunder, at all times will be,
Solvent.
7.1.13 Surety Obligations. Borrower is not obligated as
surety or indemnitor under any surety or similar bond or other contract issued
or entered into any agreement to assure payment, performance or completion of
performance of any undertaking or obligation of any Person.
7.1.14 Taxes. Borrower's federal tax identification
number is 00-0000000. Borrower has filed all federal, state and local tax
returns and other reports it is required by law to file and has paid, or made
provision for the payment of, all taxes, assessments, fees, levies and other
governmental charges upon it, its income and Properties as and when such taxes,
assessments, fees, levies and charges are due and payable, unless and to the
extent any thereof are being actively contested in good faith and by
appropriate proceedings and Borrower maintains reasonable reserves on its books
therefor. The provision for taxes on the books of Borrower is adequate for all
years not closed by applicable statutes, and for its current fiscal year.
7.1.15 Brokers. There are no claims for brokerage
commissions,
38
finder's fees or investment banking fees in connection with the transactions
contemplated by this Agreement.
7.1.16 Patents, Trademarks, Copyrights and Licenses.
Borrower owns or possesses all the patents, trademarks, service marks, trade
names, copyrights and licenses necessary, to the best of Borrower's knowledge,
for the conduct of its business without any known conflict with the rights of
others. All such patents, trademarks, service marks, tradenames, copyrights,
licenses and other similar rights are listed on Exhibit 7.1.16 hereto.
7.1.17 Governmental Consents. As of the date hereof,
Borrower has, and is in good standing with respect to all material governmental
consents, approvals, licenses, authorizations, permits, certificates,
inspections and franchises necessary to continue to conduct its business as
heretofore or proposed to be conducted by it and to own or lease and operate
its Properties as now owned or leased by it. Within 60 days of the date
hereof, Borrower will have, and will be in good standing with respect to all
governmental consents, approvals, licenses, authorizations, permits,
certificates, inspections and franchises necessary to continue to conduct its
business as heretofore or proposed to be conducted by it and to own or lease
and operate its properties as now owned or leased by it.
7.1.18 Compliance with Laws. Borrower has duly complied
with, and its Properties, business operations and leaseholds are in compliance
in all material respects with, the provisions of all federal, state and local
laws, rules and regulations
39
applicable to Borrower, its Properties or the conduct of its business,
including all such Environmental laws, rules and regulations, and there have
been no citations, notices or orders of noncompliance issued to Borrower under
any such law, rule or regulation. Borrower has established and maintains an
adequate monitoring system to insure that it remains in compliance with all
federal, state and local laws, rules and regulations applicable to it. No
Inventory has been produced in violation of the Fair Labor Standards Act (29
U.S.C. Section 201 et seq.), as amended.
7.1.19 Restrictions. Borrower is not a party or subject
to any contract, agreement, or charter or other corporate restriction, which
materially and adversely affects its business or the use or ownership of any of
its Properties. Borrower is not a party or subject to any contract or
agreement which restricts its right or ability to incur Indebtedness, other
than as set forth on Exhibit 7.1.19 hereto, none of which prohibit the
execution of or compliance with this Agreement or the other Loan Documents by
Borrower.
7.1.20 Litigation. Except as set forth on Exhibit 7.1.20
hereto, there are no actions, suits, proceedings or investigations pending, or
to the knowledge of Borrower, threatened, against or affecting Borrower, or the
business, operations, Properties, prospects, profits or condition of Borrower.
Borrower is not in default with respect to any order, writ, injunction,
judgment, decree or rule of any court, governmental authority or arbitration
board or tribunal.
7.1.21 No Defaults. No event has occurred and no
condition
40
exists which would, upon or after the execution and delivery of this Agreement
or Borrower's performance hereunder, constitute a Default or an Event of
Default. Borrower is not in default, and no event has occurred and no
condition exists which constitutes, or which with the passage of time or the
giving of notice or both would constitute, a default in the payment of any
Indebtedness to any Person for Money Borrowed.
7.1.22 Leases. Exhibit 7.1.22(a) hereto is a complete
listing of all capitalized leases of Borrower and Exhibit 7.1.22(b) hereto is a
complete listing of all operating leases of Borrower. Borrower is in full
compliance with all of the material terms of each of its respective capitalized
and operating leases.
7.1.23 Pension Plans. Except as disclosed on Exhibit
7.1.23 hereto, Borrower has no Plan. Borrower is in full compliance with the
requirements of ERISA and the regulations promulgated thereunder with respect
to each Plan. There is no fact or situation in connection with any Plan that
could result in a material adverse change in the financial condition of
Borrower. Borrower has no withdrawal liability in connection with a
Multiemployer Plan.
7.1.24 Trade Relations. There exists no actual or
threatened termination, cancellation or limitation of, or any modification or
change in, the business relationship between Borrower and any customer or any
group of customers whose purchases individually or in the aggregate are
material to the business of Borrower, or with any material supplier, and there
exists no present condition or state of facts or circumstances which would
41
materially affect adversely Borrower or prevent Borrower from conducting such
business after the consummation of the transaction contemplated by this
Agreement in substantially the same manner in which it has heretofore been
conducted.
7.1.25 Labor Relations. Except as described on Exhibit
7.1.25 hereto, Borrower is not a party to any collective bargaining agreement.
There are no material grievances, disputes or controversies with any union or
any other organization of Borrower's employees, or threats of strikes, work
stoppages or any asserted pending demands for collective bargaining by any
union or organization.
7.1.26 Acquisition. No default has occurred under any of
the Purchase Documents.
7.2 Continuous Nature of Representations and Warranties. Each
representation and warranty contained in this Agreement and the other Loan
Documents shall be continuous in nature and shall remain accurate, complete and
not misleading at all times during the term of this Agreement, except for
changes in the nature of Borrower's business or operations that would render
the information in any exhibit attached hereto either inaccurate, incomplete or
misleading, so long as Lender has consented to such changes or such changes are
expressly permitted by this Agreement.
7.3 Survival of Representations and Warranties. All representations
and warranties of Borrower contained in this Agreement or any of the other Loan
Documents shall survive the
42
execution, delivery and acceptance thereof by Lender and the parties thereto
and the closing of the transactions described therein or related thereto.
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS
8.1 Affirmative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:
8.1.1 Visits and Inspections. Permit representatives of
Lender, from time to time, as often as may be reasonably requested, but only
during normal business hours, to visit and inspect the Properties of Borrower,
inspect, audit and make extracts from its books and records, and discuss with
its officers, its employees and its independent accountants, Borrower's
business, assets, liabilities, financial condition, business prospects and
results of operations.
8.1.2 Notices. Promptly notify Lender in writing of the
occurrence of any event or the existence of any fact which renders any
representation or warranty in this Agreement or any of the other Loan Documents
inaccurate, incomplete or misleading.
8.1.3 Financial Statements. Keep adequate records and
books of account with respect to its business activities in which proper
entries are made in accordance
43
with GAAP reflecting all its financial transactions; and cause to be prepared
and furnished to Lender the following (all to be prepared in accordance with
GAAP applied on a consistent basis, unless Borrower's certified public
accountants concur in any change therein and such change is disclosed to Lender
and is consistent with GAAP):
(i) not later than 90 days after the close of each
fiscal year of Borrower, unqualified audited financial statements of
Borrower as of the end of such year, certified by a firm of independent
certified public accountants of recognized standing selected by Borrower
but acceptable to Lender (except for a qualification for a change in
accounting principles with which the accountant concurs);
(ii) not later than 30 days after the end of each month
hereafter, including the last month of Borrower's fiscal year, unaudited
interim financial statements of Borrower as of the end of such month and
of the portion of Borrower's financial year then elapsed, certified by
the principal financial officer of Borrower as prepared in accordance
with GAAP and fairly presenting the financial position and results of
operations of Borrower for such month and period subject only to changes
from audit and year-end adjustments and except that such statements need
not contain notes;
(iii) promptly after the sending or filing thereof, as
the case may be, copies of any proxy statements, financial statements or
reports which Borrower has made available to its shareholders and copies
of any regular, periodic and special
44
reports or registration statements which Borrower files with the
Securities and Exchange Commission or any governmental authority which
may be substituted therefor, or any national securities exchange;
(iv) promptly after the filing thereof, copies of any
annual report to be filed with ERISA in connection with each Plan; and
(v) such other data and information (financial and
otherwise) as Lender, from time to time, may reasonably request, bearing
upon or related to the Collateral or Borrower's financial condition or
results of operations.
Concurrently with the delivery of the financial statements
described in clause (i) of this subsection 8.1.3, Borrower shall forward to
Lender a copy of the accountants' letter to Borrower's management that is
prepared in connection with such financial statements and also shall cause to
be prepared and shall furnish to Lender a certificate of the aforesaid
certified public accountants certifying to Lender that, based upon their
examination of the financial statements of Borrower performed in connection
with their examination of said financial statements, they are not aware of any
Default or Event of Default, or, if they are aware of such Default or Event of
Default, specifying the nature thereof, and acknowledging, in a manner
satisfactory to Lender, that they are aware that Lender is relying on such
financial statements in making its decisions with respect to the Loans.
Concurrently with the delivery of the financial statements described in clauses
(i) and (ii) of this subsection 8.1.3, or more frequently if requested by
Lender, Borrower shall cause to be prepared and furnished to
45
Lender a Compliance Certificate in the form of Exhibit 8.1.3 hereto executed by
the Chief Financial Officer of Borrower.
8.1.4 Landlord and Storage Agreements. Provide Lender
with copies of all agreements between Borrower and any landlord or warehouseman
which owns any premises at which any Inventory may, from time to time, be kept.
8.1.5 Projections. No later than 30 days prior to the
end of each fiscal year of Borrower, deliver to Lender Projections of Borrower
for the forthcoming 3 years, year by year, and for the forthcoming fiscal year,
month by month.
8.1.6 Chief Financial Officer. No later than 120 days
after the Closing Date Borrower shall employ a Chief Financial Officer and/or a
Vice President, Finance reasonably satisfactory to Lender.
8.1.7 Schedule of Equipment. No later that the fifth
Business Day of each month, provide Lender with a schedule of the location and
description of all equipment which is not located at Borrower's premises in
Bellingham, Washington, Wilson, North Carolina and Gatesville, Texas.
8.1.8 Insurance Policies. No later than thirty days
after the Closing Date furnish Lender with copies of all insurance policies
carried by Borrower for which certificates of insurance were provided pursuant
to Subsection 9.19 hereof.
46
8.2 Negative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless Lender has first consented thereto in writing, it will
not:
8.2.1 Mergers; Consolidations; Acquisitions. Merge or
consolidate with any Person; nor acquire all or any substantial part of the
Properties of any Person, provided that Borrower may merge into an Affiliate or
another corporation for purposes of effecting a restructuring or
reincorporation into another state and change its name in connection therewith
after Lender has notified Borrower in writing that all steps necessary to
protect the validity and perfection of Lender's first priority security
interest in the Collateral, subject to Permitted Liens, have been taken.
8.2.2 Loans. Make any loans or other advances of money
(other than for salary, travel advances, advances against commissions and other
similar advances in the ordinary course of business) to any Person.
8.2.3 Total Indebtedness. Create, incur, assume, or
suffer to exist any Indebtedness, except:
(i) Obligations owing to Lender;
47
(ii) Subordinated Debt;
(iii) accounts payable to trade creditors and current
operating expenses (other than for Money Borrowed) which are not aged
more than 90 days from billing date or more than 30 days from the due
date, in each case incurred in the ordinary course of business and paid
within such time period, unless the same are being actively contested in
good faith and by appropriate and lawful proceedings; and Borrower shall
have set aside such reserves, if any, with respect thereto as are
required by GAAP and deemed adequate by Borrower and its independent
accountants;
(iv) Obligations to pay Rentals permitted by subsection
8.2.13;
(v) Permitted Purchase Money Indebtedness;
(vi) contingent liabilities arising out of endorsements
of checks and other negotiable instruments for deposit or collection in
the ordinary course of business;
(vii) taxes, assessments and governmental charges or
levies which are not delinquent or which are being contested in good
faith and for which, in accordance with GAAP, adequate reserves have
been set aside on the books of Borrower;
48
(viii) billing in excess of costs; and
(ix) Indebtedness not included in paragraphs (i) through
(vii) above which does not exceed at any time, in the aggregate, the sum
of $200,000.
8.2.4 Affiliate Transactions. Except as set forth in
Exhibit 8.2.4 and except as provided below, enter into, or be a party to, any
transaction with any Affiliate of Borrower or stockholder, except in the
ordinary course of and pursuant to the reasonable requirements of Borrower's
business and upon fair and reasonable terms which are fully disclosed to Lender
and are no less favorable to Borrower than would obtain in a comparable arm's
length transaction with a Person not an Affiliate or stockholder of Borrower.
8.2.5 Limitation on Liens. Create or suffer to exist any
Lien upon any of its Property, income or profits, whether now owned or
hereafter acquired, except:
(i) Liens at any time granted in favor of Lender;
(ii) Liens for taxes (excluding any Lien imposed
pursuant to any of the provisions of ERISA) not yet due, or being
contested in the manner described in subsection 7.1.14 hereto, but only
if in Lender's judgment such Lien does not adversely affect Lender's
rights or the priority of Lender's Lien in the Collateral;
49
(iii) Liens arising in the ordinary course of Borrower's
business by operation of law or regulation, but only if payment in
respect of any such Lien is not at the time required and such Liens do
not, in the aggregate, materially detract from the value of the Property
of Borrower or materially impair the use thereof in the operation of
Borrower's business;
(iv) Purchase Money Liens securing Permitted Purchase
Money Indebtedness;
(v) such other Liens as appear on Exhibit 8.2.5 hereto;
and
(vi) such other Liens as Lender may hereafter approve in
writing.
8.2.6 Subordinated Debt. Make any payment of any part or
all of any Subordinated Debt or take any other action or omit to take any other
action in respect of any Subordinated Debt, except in accordance with the
Subordination Agreement relative thereto.
8.2.7 Distributions. Declare or make any Distributions
except, (i) management fees to SSI not in excess of 1% of Borrower's net
revenue plus 5% of before tax profits (exclusive of revenue from Affiliate
transactions), provided no Event of Default has
50
occurred and is continuing.
8.2.8 Capital Expenditures. Make Capital Expenditures
(including, without limitation, by way of capitalized leases) which, in the
aggregate, as to Borrower, exceed $100,000 for the fiscal year end June 30,
1997 and $300,000 during any fiscal year of Borrower thereafter.
8.2.9 Disposition of Assets. Sell, lease or otherwise
dispose of any of its Properties, including any disposition of Property as part
of a sale and leaseback transaction, to or in favor of any Person, except (i)
sales of Inventory in the ordinary course of business for so long as no Event
of Default exists hereunder which by reason thereof Lender has accelerated the
Obligation or (ii) dispositions expressly authorized by this Agreement.
8.2.10 Xxxx-and-Hold Sales, Etc. Make a sale to any
customer on a xxxx-and-hold, guaranteed sale, sale and return, sale on approval
or consignment basis, or any sale on a repurchase or return basis.
8.2.11 Restricted Investment. Make or have any Restricted
Investment.
8.2.12 Leases. Become a lessee under any operating lease
(other than a lease under which Borrower is lessor) of property if the
aggregate Rentals payable during any current or future period of 12 consecutive
months under the lease in question and
51
all other leases under which Borrower is then lessee would exceed $200,000.
The term "Rentals" means, as of the date of determination, all payments which
the lessee is required to make by the terms of any lease.
8.2.13 Tax Consolidation. File or
consent to the filing of any consolidated income tax return with any Person
other than Denali Holdings, Inc.
8.3 Specific Financial Covenants. During the term of this
Agreement, and thereafter for so long as there are any Obligations to Lender,
Borrower covenants that, unless otherwise consented to by Lender in writing, it
shall:
8.3.1 EBITDA. Achieve EBITDA of not less
than the cumulative amount set forth below as of the end of the corresponding
fiscal period:
Period Amount
------ ---------
Fiscal year end June 30, 1997 $ 108,000
Fiscal quarter ended September 30, 1997 355,000
Fiscal quarter ended December 31, 1997 613,000
Fiscal quarter ended March 31, 1998 737,000
Fiscal year end June 30, 1998 1,180,000
Fiscal quarter ended September 30, 1998 400,000
52
Fiscal quarter ended December 31, 1998 800,000
Fiscal quarter ended March 31, 1999 1,200,000
Fiscal year end June 30, 1999 1,600,000
and for each fiscal quarter and year end thereafter, the same minimum EBITDA as
is set forth above for the respective quarters ended September 30, 1998 and
fiscal year end June 30, 1999.
8.3.2 Minimum Tangible Net Worth. Maintain
Tangible Net Worth of not less than the amount set forth below as of each month
and as of the end of the corresponding fiscal period:
Period Amount
------ ---------
Fiscal year end June 30, 1997 $ 800,000
Fiscal quarter ended September 30, 1997 900,000
Fiscal quarter ended December 31, 1997 1,000,000
Fiscal quarter ended March 31, 1998 1,000,000
Fiscal year end June 30 1998 1,300,000
Fiscal quarter ended September 30, 1998 1,400,000
Fiscal quarter ended December 31, 1998 1,600,000
Fiscal quarter ended March 31, 1999 1,600,000
Fiscal year end June 30, 1999 1,800,000
and each fiscal quarter thereafter 1,900,000
53
8.3.3 Debt Coverage Ratio. Maintain a Debt
Coverage Ratio of not less than that set forth below as of the end of the
corresponding fiscal period:
Period Ratio
------ -------
Fiscal year end June 30, 1997 0.82: 1
Fiscal quarter ended September 30, 1997 1.04: 1
Fiscal quarter December 31, 1997 0.96: 1
Fiscal quarter ended March 31, 1998 0.94: 1
Fiscal year end June 30, 1998 1.08: 1
Fiscal quarter ended September 30, 1998 1.15: 1
Fiscal quarter ended December 31, 1998 1.17: 1
Fiscal quarter ended March 31, 1999 1.18: 1
Fiscal year end June 30, 1999 1.27: 1
and each fiscal quarter thereafter 1.25: 1
8.3.4 Availability. Maintain average
Availability each month, measured at the end of each month of $500,000.
SECTION 9. CONDITIONS PRECEDENT
54
Notwithstanding any other provision of this Agreement or any
of the other Loan Documents, and without affecting in any manner the
rights of Lender under the other sections of this Agreement, Lender
shall not be required to make any Loan under this Agreement unless and
until each of the following conditions has been and continues to be
satisfied:
9.1 Documentation. Borrower and Lender shall have executed and
delivered a satisfactory Agreement and such other documents, instruments and
agreements as Lender shall request, including but not limited to vehicle
titles, mortgages and deeds of trust on the real property collateral.
9.2 Adverse Change. No material adverse change in the condition
or operation, financial or otherwise of Borrower shall have occurred during the
period commencing with January 31, 1997 and ending on the Closing Date
("Interim Period").
9.3 Material Commitment. Borrower shall not have entered into any
material commitment, material transaction, or transaction for borrowings during
the Interim Period which is not in the ordinary course of its business.
9.4 Accounting. Borrower shall not have made any material change
in its accounting method or principles during the Interim Period.
9.5 Consents. All consents necessary to permit the secured
financing transaction contemplated by this Agreement to be consummated pursuant
to the terms and conditions
55
thereof shall have been obtained.
9.6 ERISA. Prior to the Closing Date, Borrower shall have
delivered to Lender true and correct copies of any pension or other employee
benefit plan(s) covering its employees.
9.7 Acquisition. Lender shall have approved the final terms of
the agreement for the acquisition of substantially all of the stock of Ershigs,
Inc., and such acquisition shall have been consummated.
9.8 Litigation. There shall not have been instituted or
threatened, during the Interim Period, any material litigation or proceeding in
any court or administrative forum to which the Borrower is a party.
9.9 Labor Contracts. Lender shall have received copies of all
labor contracts, if any, to which Borrower is a party and all labor contracts,
if any, necessary to the continuation of business operations of Borrower shall
be in effect on the Closing Date.
9.10 Adequate Working Capital. On the Closing Date, all of
Borrower's assets supporting the Loans shall be sufficient in value, as
determined by Lender, to provide Borrower with adequate working capital and to
enable Borrower to operate its business profitably.
56
9.11 Financial Statements. On the Closing Date, Lender shall have
received and approved, in its reasonable credit judgment, Borrower's pro forma
opening balance sheet and the projections of Borrower through the end of fiscal
year 2000.
9.12 Inspection Of Books And Records. During the Interim Period,
Lender or its representatives shall have been given access at all reasonable
times to inspect and evaluate the Collateral and the books and records of
Borrower, and Borrower shall have provided Lender with all financial and other
information which Lender may have reasonably requested.
9.13 Subordinations. Lender shall have received executed
intercreditor and/or subordination agreements, each in form and substance
satisfactory to Lender from such parties as Lender reasonably deems necessary,
including, but not limited to the subordination by Praxair of that certain
promissory note in the principal sum of $1,000,000 ("Praxair Note"), wherein
SSI is the maker and that certain promissory note in the amount of $500,000
("Denali Note"), wherein Denali Holdings, Inc. is the payee and Borrower the
maker (and collectively "Notes"). The Notes shall also be in form and
substance satisfactory to Lender and shall include a provision for (i) in
respect of the Praxair Note, no payments of principal and interest for a period
of twelve months from the Closing Date, (ii) in respect of the Denali Note,
payment that is based upon the achievement of projected performance by the
Borrower for a period of a rolling six consecutive months, as measured by
Borrower achieving EBIT of not less than the amount set forth below for the
corresponding period indicated:
For the six months ended EBIT
------------------------ ----
57
March, 1997 - August, 1997 $321,000
April, 1997 - September, 1997 515,000
May, 1997 - October, 1997 552,000
June, 1997 - November, 1997 535,000
July, 1997 - December, 1997 448,000
August, 1997 - January, 1998 329,000
September, 1997 - February, 1998 273,000
October, 1997 - March, 1998 289,000
November, 1997 - April, 1998 286,000
December, 1997 - May, 1998 320,000
January, 1998 - June, 1998 420,000
February, 1998 - July, 1998
and thereafter 544,000
(iii) $500,000 of Borrower Availability if the Notes have been fully repaid
or $850,000 of Borrower Availability if a balance remains owing under the
Notes, measured both before and after the making of any payment, and (iv) the
making of any payment by Borrower will not create an Event of Default. Upon an
Event of Default, there will be standstills acceptable to Lender on all
payments of subordinated principal and interest.
9.14 Intercompany Transactions. All intercompany transactions shall
be structured on an arms length basis in a manner satisfactory to Lender.
9.15 Reference Checks. Lender shall have conducted satisfactory
customer and vendor reference checks.
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9.16 Corporate Minutes. Lender to have reviewed and approved of
Borrower's corporate minutes.
9.17 Landlord Waivers. Lender shall have received executed
landlord, warehouse and/or mortgagee waivers with respect to such of Borrower's
locations as Lender shall determine. Landlord waivers will include, without
limitation, the right of Lender to remain on the premises for up to ninety (90)
days, and all waivers shall otherwise be in form and substance satisfactory to
Lender and from such parties as Lender deems necessary.
9.18 Opinions Of Counsel. Lender shall have received such opinions
of counsel for Borrower as Lender may reasonably require.
9.19 Insurance. Lender shall have received insurance certificates
and lender's loss payable endorsements confirming insurance by Borrower in
amounts, coverage, form and by insurers satisfactory to Lender in its
discretion.
9.20 No Default. No Event of Default under the Agreement shall
exist as of the Closing Date.
9.21 Priority. Lender shall have received confirmation that it has
obtained a first priority perfected security interest in the Collateral subject
only to such liens and
59
encumbrances, if any, as Lender may approve in its discretion in writing.
9.22 Dominion Account. A dominion account shall have been created
in a form acceptable to Lender, providing for the collection of Borrower's
accounts and other proceeds for Lender's account.
9.23 Availability. Borrower shall have a minimum borrowing
Availability under the Revolver of not less than $500,000 after deducting the
initial advances to be made by Lender to or for the account of Borrower.
9.24 Equity. Lender shall have received evidence satisfactory to it
that not less than $1,000,000 in cash has been contributed as equity to the
capital of Borrower and Lender shall have approved Borrower's capital
structure.
9.25 Audit. Lender shall have completed an updated audit of Ershigs
with results satisfactory to Lender in the exercise of its reasonable credit
judgment.
9.26 Stock Purchase Agreement. Lender and its counsel shall have
approved the form and substance of the Stock Purchase Agreement, which shall
include an environmental indemnity in favor of Borrower with respect to the
Bellingham, Washington premises in an amount not less than $200,000.
60
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON
DEFAULT
10.1 Events of Default. The occurrence of one or more of the following
events shall constitute an "Event of Default":
10.1.1 Payment of Notes. Borrower shall fail to pay any
installment of principal, interest or premium, if any, owing on the Term Notes
or the Capex Facility on or within 10 days after the due date of such
installment.
10.1.2 Payment of Other Obligations. Borrower shall fail to
pay any of the Obligations that are not evidenced by the Term Note on or within
10 days after the due date thereof (whether due at stated maturity, on demand,
upon acceleration or otherwise).
10.1.3 Misrepresentations. Any representation, warranty or
other statement made or furnished to Lender by or on behalf of Borrower in this
Agreement, any of the other Loan Documents or any instrument, certificate or
financial statement furnished in compliance with or in reference thereto proves
to have been false or misleading in any material respect when made or furnished
or when reaffirmed pursuant to Section 7.2 hereof.
10.1.4 Breach of Specific Covenants. Borrower shall fail or
neglect to perform, keep or observe any covenant contained in Sections 5.2,
6.1.1, 6.2, 8.1.1,
61
8.1.3, 8.1 or 8.2 and 8.3 hereof on the date that Borrower is required to
perform, keep or observe such covenant.
10.1.5 Breach of Other Covenants. Borrower shall fail or
neglect to perform, keep or observe any covenant contained in this Agreement
(other than a covenant which is dealt with specifically elsewhere in Section
10.1 hereof) and the breach of such other covenant is not cured to Lender's
satisfaction within 15 days after the sooner to occur of Borrower's receipt of
notice of such breach from Lender or the date on which such failure or neglect
first becomes known to any officer of Borrower.
10.1.6 Default Under Security Documents/Other
Agreements/Purchase Documents. Any Event of Default shall occur under, or
Borrower shall default in the performance or observance of any term, covenant,
condition or agreement contained in, any of the Security Documents, or the
Other Agreements or the Purchase Documents and such Default shall continue
beyond any applicable grace period, or if no grace period is specified therein,
then 15 days.
10.1.7 Other Defaults. There shall occur any default or
event of default on the part of Borrower under any agreement, document or
instrument to which Borrower is a party or by which Borrower or any of its
Property is bound, creating or relating to any Indebtedness (other than the
Obligations) if the payment or maturity of such Indebtedness is accelerated in
consequence of such event of default or demand for payment of such Indebtedness
is made.
62
10.1.8 Uninsured Losses. Any material loss, theft, damage or
destruction of any of the Collateral not fully covered (subject to such
deductibles as Lender shall have permitted) by insurance.
10.1.9 Insolvency and Related Proceedings. Borrower shall
suffer the appointment of a receiver, trustee, custodian or similar fiduciary,
or shall make an assignment for the benefit of creditors, or any petition for
an order for relief shall be filed by or against Borrower under the Bankruptcy
Code (if against Borrower, the continuation of such proceeding for more than 30
days), or Borrower shall make any offer of settlement, extension or composition
to their respective unsecured creditors generally.
10.1.10 Business Disruption; Condemnation. There shall occur
a cessation of a substantial part of the business of Borrower for a period
which significantly affects Borrower's capacity to continue its business, on a
profitable basis; or Borrower shall suffer the loss or revocation of any
material license or permit now held or hereafter acquired by Borrower which is
necessary to the continued or lawful operation of its business; or Borrower
shall be enjoined, restrained or in any way prevented by court, governmental or
administrative order from conducting all or any material part of its business
affairs; or any material lease or agreement pursuant to which Borrower leases,
uses or occupies any property shall be canceled or terminated prior to the
expiration of its stated term; or any material part of the Collateral shall be
taken through condemnation or the value of such property shall be impaired
through condemnation.
63
10.1.11 Change of Ownership. SSI shall cease to own and
control, beneficially and of record, all (or in the event stock is issued in
accordance with subsection 8.2.7(iii), 80%) of the issued and outstanding
capital stock of Borrower.
10.1.12 ERISA. A Reportable Event shall occur which Lender,
in its sole discretion, shall determine in good faith constitutes grounds for
the termination by the Pension Benefit Guaranty Corporation of any Plan or for
the appointment by the appropriate United States district court of a trustee
for any Plan, or if any Plan shall be terminated or any such trustee shall be
requested or appointed, or if Borrower is in "default" (as defined in Section
4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan resulting
from Borrower's complete or partial withdrawal from such Plan.
10.1.13 Challenge to Agreement. Borrower or any Affiliate
shall challenge or contest in any action, suit or proceeding the validity or
enforceability of this Agreement, or any of the other Loan Documents, the
legality or enforceability of any of the Obligations or the perfection or
priority of any Lien granted to Lender.
10.1.14 Change of Management. If during the first 2 years of
this Agreement, except in the case of death or disability, Xxxxxx xx Xxxx as a
consultant, president or chief executive officer shall cease to hold such
respective office and perform the duties attendant thereto and Borrower shall
fail to replace such person with a person or persons
64
reasonably acceptable to Lender within 120 days thereof, which acceptance shall
not be unreasonably withheld.
10.1.15 Criminal Forfeiture. Borrower or any of its senior
managers shall be criminally indicted or convicted under any law that could
lead to a forfeiture of any Property of Borrower.
10.1.16 Judgments. Any money judgment, writ of attachment or
similar process is filed against Borrower, or any of its respective Property in
excess of $50,000.
10.2 Acceleration of the Obligations. Without in any way limiting
the right of Lender to demand payment of any portion of the Obligations payable
on demand in accordance with Section 3.2 hereof, upon or at any time after the
occurrence and continuation of an Event of Default, all or any portion of the
Obligations shall, at the option of Lender and without presentment, demand
protest or further notice by Lender, become at once due and payable and
Borrower shall forthwith pay to Lender, the full amount of such Obligations,
provided, that upon the occurrence of an Event of Default specified in
subsection 10.1.10 hereof, all of the Obligations shall become automatically
due and payable without declaration, notice or demand by Lender.
10.3 Other Remedies. Upon and after the occurrence of an Event of
Default, Lender shall have and may exercise from time to time the following
rights and remedies:
65
10.3.1 All of the rights and remedies of a secured party under
the Code or under other applicable law, and all other legal and equitable
rights to which Lender may be entitled, all of which rights and remedies shall
be cumulative and shall be in addition to any other rights or remedies
contained in this Agreement or any of the other Loan Documents, and none of
which shall be exclusive.
10.3.2 The right to take immediate possession of the
Collateral, and to (i) require Borrower to assemble the Collateral, at
Borrower's expense, and make it available to Lender at a place designated by
Lender which is reasonably convenient to both parties, and (ii) enter any
premises where any of the Collateral shall be located and to keep and store the
Collateral on said premises until sold (and if said premises be the Property of
Borrower, Borrower agrees not to charge Lender for storage thereof).
10.3.3 The right to sell or otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as Lender,
in its sole discretion, may deem advisable. Borrower agrees that 10 days
written notice to Borrower of any public or private sale or other disposition
of Collateral shall be reasonable notice thereof, and such sale shall be at
such locations as Lender may designate in said notice. Lender shall have the
right to conduct such sales on Borrower's premises, without charge therefor,
and such sales may be adjourned from time to time in accordance with applicable
law. Lender shall have the right to sell, lease or otherwise
66
dispose of the Collateral, or any part thereof, for cash, credit or any
combination thereof, and Lender may purchase all or any part of the Collateral
at public or, if permitted by law, private sale and, in lieu of actual payment
of such purchase price, may set off the amount of such price against the
Obligations. The proceeds realized from the sale of any Collateral may be
applied, after allowing 2 Business Days for collection, first to the costs,
expenses and attorneys' fees incurred by Lender in collecting the Obligations,
in enforcing the rights of Lender under the Loan Documents and in collecting,
retaking, completing, protecting, removing, storing, advertising for sale,
selling and delivering any Collateral, second to the interest due upon any of
the Obligations; and third, to the principal of the Obligations. If any
deficiency shall arise, Borrower shall remain liable to Lender therefor.
10.3.4 Lender is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, tradenames, trademarks and advertising matter, or any
Property of a similar nature, as it pertains to the Collateral, in advertising
for sale and selling any Collateral and Borrower's rights under all licenses
and all franchise agreements shall inure to Lender's benefit.
10.4 Remedies Cumulative; No Waiver. All covenants, conditions,
provisions, warranties, guaranties, indemnities, and other undertakings of
Borrower contained in this Agreement and the other Loan Documents, or in any
document referred to herein or contained in any agreement supplementary hereto
or in any schedule or in any Guaranty Agreement given to Lender or contained in
any other agreement between Lender and Borrower, heretofore, concurrently, or
hereafter entered into, shall be deemed cumulative to and not in
67
derogation or substitution of any of the terms, covenants, conditions, or
agreements of Borrower herein contained. The failure or delay of Lender to
require strict performance by Borrower of any provision of this Agreement or to
exercise or enforce any rights, Liens, powers, or remedies hereunder or under
any of the aforesaid agreements or other documents or security or Collateral
shall not operate as a waiver of such performance, Liens, rights, powers and
remedies, but all such requirements, Liens, rights, powers, and remedies shall
continue in full force and effect until all Loans and all other Obligations
owing or to become owing from Borrower to Lender shall have been fully
satisfied. None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement or any of the other
Loan Documents and no Event of Default by Borrower under this Agreement or any
other Loan Documents shall be deemed to have been suspended or waived by
Lender, unless such suspension or waiver is by an instrument in writing
specifying such suspension or waiver and is signed by a duly authorized
representative of Lender and directed to Borrower.
SECTION 11. MISCELLANEOUS
11.1 Power of Attorney. Borrower hereby irrevocably designates,
makes, constitutes and appoints Lender (and all Persons designated by Lender)
as Borrower's true and lawful attorney (and agent-in-fact) and Lender, or
Lender's agent, may, without notice to Borrower and in either Borrower's or
Lender's name, but at the cost and expense of Borrower:
11.1.1 At such time or times as Lender or said agent, in its
sole discretion, may determine, endorse Borrower's name on any checks, notes,
acceptances,
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drafts, money orders or any other evidence of payment or proceeds of the
Collateral which come into the possession of Lender or under Lender's control.
11.1.2 At such time or times upon or after the occurrence and
continuation of an Event of Default as Lender or its agent in its sole
discretion may determine: (i) demand payment of the Accounts from the Account
Debtors, enforce payment of the Accounts by legal proceedings or otherwise, and
generally exercise all of Borrower's rights and remedies with respect to the
collection of the Accounts; (ii) settle, adjust, compromise, discharge or
release any of the Accounts or other Collateral or any legal proceedings
brought to collect any of the Accounts or other Collateral; (iii) sell or
assign any of the Accounts and other Collateral upon such terms, for such
amounts and at such time or times as Lender deems advisable; (iv) take control,
in any manner, of any item of payment or proceeds relating to any Collateral;
(v) prepare, file and sign Borrower's name to a proof of claim in bankruptcy or
similar document against any Account Debtor or to any notice of lien,
assignment or satisfaction of lien or similar document in connection with any
of the Collateral; (vi) receive, open and dispose of all mail addressed to
Borrower and to notify postal authorities to change the address for delivery
thereof to such address as Lender may designate; (vii) endorse the name of
Borrower upon any of the items of payment or proceeds relating to any
Collateral and deposit the same to the account of Lender on account of the
Obligations; (viii) endorse the name of Borrower upon any chattel paper,
document, instrument, invoice, freight xxxx, xxxx of lading or similar document
or agreement relating to the Accounts, Inventory and any other Collateral; (ix)
use Borrower's stationery and sign the name of Borrower to verifications of the
Accounts and notices thereof to Account Debtors; (x) use the information
recorded on or
69
contained in any data processing equipment and computer hardware and software
relating to the Accounts, Inventory, Equipment and any other Collateral; (xi)
make and adjust claims under policies of insurance; and (xii) do all other acts
and. things necessary, in Lender's determination, to fulfill Borrower's
obligations under this Agreement.
11.2 Indemnity. Borrower hereby agrees to indemnify Lender and hold
Lender harmless from and against any liability, loss, damage, suit, action or
proceeding ever suffered or incurred by Lender (including reasonable attorneys
fees and legal expenses) as the result of Borrower's failure to observe,
perform or discharge Borrower's duties hereunder. In addition, Borrower shall
defend Lender against and save it harmless from all claims of any Person with
respect to the Collateral. Without limiting the generality of the foregoing,
these indemnities shall extend to any claims asserted against Lender by any
Person under any Environmental Laws or similar laws by reason of Borrower's or
any other Person's failure to comply with laws applicable to solid or hazardous
waste materials or other toxic substances. Notwithstanding any contrary
provision in this Agreement, the obligation of Borrower under this Section 11.2
shall survive the payment in full of the Obligations and the termination of
this Agreement. The indemnity contained in this Section 11.2 shall not apply in
the case of Lender's gross negligence or wilful misconduct.
11.3 Modification of Agreement; Sale of Interest. This Agreement
may not be modified, altered or amended, except by an agreement in writing
signed by Borrower and Lender. Borrower may not sell, assign or transfer any
interest in this Agreement, any of the other Loan Documents, or any of the
Obligations, or any portion thereof, including, without
70
limitation, Borrower's rights, title, interests, remedies, powers, and duties
hereunder or thereunder. Borrower hereby consents to Lender's participation,
sale, assignment, transfer or other disposition, at any time or times
hereafter, of this Agreement and any of the other Loan Documents, or of any
portion hereof or thereof, including, without limitation, Lender's rights,
title, interests, remedies, powers, and duties hereunder or thereunder. In the
case of an assignment, the assignee shall have, to the extent of such
assignment, the same rights, benefits and obligations as it would if it were
"Lender" hereunder and Lender shall be relieved of all obligations hereunder
upon any such assignments. Borrower agrees that it will use its best efforts to
assist and cooperate with Lender in any manner reasonably requested by Lender
to effect the sale of participations in or assignments of any of the Loan
Documents or any portion thereof or interest therein, including, without
limitation, assisting in the preparation of appropriate disclosure documents.
Borrower further agrees that Lender may disclose credit information regarding
Borrower to any potential participant or assignee.
11.4 Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
11.5 Successors and Assigns. This Agreement, the Other Agreements
and the Security Documents shall be binding upon and inure to the benefit of
the successors and assigns of Borrower and Lender permitted under Section 11.3
hereof.
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11.6 Cumulative Effect; Conflict of Terms. The provisions of the
Other Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in Section 3.2
hereof and except as otherwise provided in any of the other Loan Documents by
specific reference to the applicable provision of this Agreement, if any
provision contained in this Agreement is in direct conflict with, or
inconsistent with, any provision in any of the other Loan Documents, the
provision contained in this Agreement shall govern and control.
11.7 Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which counterparts taken together shall constitute
but one and the same instrument.
11.8 Notice. Except as otherwise provided herein, all notices,
requests and demands to or upon a party hereto, to be effective, shall be in
writing and shall be sent by certified or registered mail, return receipt
requested, by personal delivery against receipt, by overnight courier or by
facsimile and, unless otherwise expressly provided herein, shall be deemed to
have been validly served, given or delivered immediately when delivered against
receipt, one Business Day after deposit in the mail, postage prepaid, or with
an overnight courier or, in the case of facsimile notice, when sent, addressed
as follows:
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If to Lender: Fleet Capital Corporation
00000 Xxxxxxx Xxxxxxxxx
Xxxxx 0000
Xxxxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Loan Administration Manager
Facsimile No.: (000) 000-0000
With a copy to: Xxxxxx, Xxxxxxxxxx & Xxxxxxxxx
000 Xxxxx Xxxxxxxx Xxxxxx - 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxx, Esq.
Facsimile No.: (000) 000-0000
If to Borrower: Ershigs, Inc.
c/o Containment Solutions, Inc.
0000 Xxxx Xxx Xxxxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx
Facsimile No.: (000) 000-0000
73
With a copy to: Xxxxx X. Xxxxx, Esq.
3DM
0000 Xxxxxxxxxx Xxxxxx
Xxxx Xxxx, Xxxx 84
Facsimile No.: (000) 000-0000
or to such other address as each party may designate for itself by notice given
in accordance with this Section 11.8; provided, however, that any notice,
request or demand to or upon Lender pursuant to subsection 3.1.1 or 4.2.2
hereof shall not be effective until received by Lender.
11.9 Lender's Consent. Whenever Lender's consent is required to be
obtained under this Agreement, any of the Other Agreements or any of the
Security Documents as a condition to any action, inaction, condition or event,
Lender shall be authorized to give or withhold such consent in its sole and
absolute discretion and to condition its consent upon the giving of additional
collateral security for the Obligations, the payment of money or any other
matter.
11.10 Credit Inquiries. Borrower hereby authorizes and permits
Lender to respond to usual and customary credit inquiries from third parties
concerning Borrower, provided that, under such circumstances, Lender shall
preserve in confidence the specific terms of this transaction and financial
information given by Borrower to Lender in confidence.
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11.11 Time of Essence. Time is of the essence of this Agreement, the
Other Agreements and the Security Documents.
11.12 Entire Agreement. This Agreement and the other Loan Documents,
together with all other instruments, agreements and certificates executed by
the parties in connection therewith or with reference thereto, embody the
entire understanding and agreement between the parties hereto and thereto with
respect to the subject matter hereof and thereof and supersede all prior
agreements, understandings and inducements, whether express or implied, oral or
written.
11.13 Interpretation. No provision of this Agreement or any of the
other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured or
dictated such provision.
11.14 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN
LOS ANGELES, CALIFORNIA. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA: PROVIDED, HOWEVER, THAT IF
ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN
CALIFORNIA, THE LAWS
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OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR
FORECLOSURE OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF
LENDER'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE
LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF
CALIFORNIA. AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS
OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWER OR
LENDER, BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPERIOR COURT OF LOS
ANGELES COUNTY, OR, AT LENDER'S OPTION, THE UNITED STATES DISTRICT COURT FOR
THE CENTRAL DISTRICT OF CALIFORNIA, SHALL HAVE EXCLUSIVE JURISDICTION TO BEAR
AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO
THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT.
BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY
OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF
SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
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COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED
OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN THIS
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER
OF BORROWER'S ACTUAL RECEIPT THEREOF OR 3 DAYS AFTER DEPOSIT IN THE U.S. MAILS,
PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER
OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
11.15 WAIVERS BY BORROWER. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY
JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN
DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL: (ii) PRESENTMENT, DEMAND AND
PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY,
RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL
PAPER,
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ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS CHATTEL PAPER AND GUARANTIES
AT ANY TIME HELD BY LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND
HEREBY RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN THIS REGARD; (iii)
NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR
SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO
EXERCISE ANY OF LENDER'S REMEDIES; (iv) THE BENEFIT OF ALL VALUATION,
APPRAISEMENT AND EXEMPTION LAWS; AND (v) NOTICE OF ACCEPTANCE HEREOF. BORROWER
ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S
ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING UPON THE FOREGOING
WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER WARRANTS AND REPRESENTS
THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS
KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS
A WRITTEN CONSENT TO A TRIAL BY THE COURT.
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IN WITNESS WHEREOF, this Agreement has been duly executed in Los
Angeles, California, on the day and year specified at the beginnings of this
Agreement.
ERSHIGS, INC.
("Borrower")
By /s/ XXXXXXX X. XXXXXXX
----------------------------
Title Chairman CEO
----------------------
Accepted in Los Angeles, California:
FLEET CAPITAL CORPORATION
("Lender")
By /s/ XXXX XXXXX
---------------------------
Title Vice President
----------------------
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APPENDIX A
GENERAL DEFINITIONS
When used in the Loan and Security Agreement dated as of March ___,
1997 by and between Fleet Capital Corporation and Ershigs, Inc., the following
terms shall have the following meanings (terms defined in the singular to have
the same meaning when used in the plural and vice versa):
Account Debtor - any Person who is or may become obligated
under or on account of an Account.
Accounts - all accounts, contract rights, chattel paper,
instruments and documents, whether now owned or hereafter created or
acquired by Borrower or in which Borrower now has or hereafter
acquired any interest.
Affiliate - a Person (other than a Subsidiary): (i) which
directly or indirectly through one or more intermediaries controls, or
is controlled by, or is under common control with, a Person; (ii)
which beneficially owns or holds 5% or more of any class of the Voting
Stock of a Person; or (iii) 5% or more of the Voting Stock (or in the
case of a Person which is not a corporation, 5% or more of the equity
interest) of which is beneficially owned or held by a Person or a
Subsidiary of a Person.
Agreement - the Loan and Security Agreement referred to in the
first sentence of this Appendix A, all Exhibits thereto and this
Appendix A.
Acquisition - the purchase by Borrower of substantially all of
the assets of Ershigs, Inc. pursuant to the Purchase Documents.
Availability - the amount of money which Borrower is entitled
to borrow from time to time as Revolving Credit Loans, such amount
being the difference derived when the sum of the principal amount of
Revolving Credit Loans then outstanding (including any amounts which
Lender may have paid for the account of Borrower pursuant to any of
the Loan Documents and which have not been reimbursed by Borrower) and
the Term Notes are subtracted from the Borrowing Base. If the amount
outstanding is equal to or greater than the Borrowing Base,
Availability is 0.
Bank - Fleet National Bank, N.A. or its successors and
assigns.
Base Rate - the rate of interest generally announced or quoted
by Bank from time to time as its base rate for commercial loans,
whether or not such rate is the lowest rate charged by Bank to its
most preferred borrowers; and if such base rate for commercial loans
is discontinued by Bank as a standard, a comparable reference rate
designated by Bank as a substitute therefor shall be the Base Rate.
Borrowing Base - as at any date of determination thereof, an
amount equal to the lesser of up to:
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(i) $6,500,000 minus the unpaid principal balance
of the Term Loans (which includes the Capex Facility) and standby
letters of credit issued under the Letter of Credit Facility at such
date; and
(ii) an amount equal to:
(a) 85% of the net amount of Eligible
Accounts outstanding at such date;
PLUS
(b) the lesser of $1,000,000 and 40% of
accounts receivable attributable to progress xxxxxxxx, and
unbilled accounts receivable, and accounts calculated on a
percentage of completion method and Eligible work in process
Inventory,
PLUS
(c) an amount equal to the lesser of up
to:
(A) $2,250,000, and
(B) 55% of Eligible resin, fiberglass
and sheet metal raw material Inventory and 30% of Eligible other raw
material Inventory. For purposes hereof, inventory shall be valued on
the basis of the lower of cost or market on a first-in, first-out
basis.
PLUS
(d) Term Loan "A". A term loan equal to
the lesser of up to:
(A) $600,000, and
(B) 99% of the liquidation value of
unencumbered machinery and equipment, as determined by Lender in the
exercise of its reasonable credit judgment.
Term Loan "A" is a subline of the Revolving Credit Loans.
PLUS
(e) Term Loan "B". A term loan equal to
the lesser of up to:
(A) $1,100,000, and
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(B) 99% of the fair market value of
unencumbered real estate, as determined by Lender in the exercise of
its reasonable credit judgment.
Term Loan "B" is a subline of the Revolving Credit Loans.
PLUS
(f) Letter of Credit Facility. A standby
letter of credit facility of up to $1,000,000. A reserve of 100% of
the face amount of all letters of credit outstanding shall be charged
against Availability.
The Letter of Credit Facility is a subline of the Revolving
Credit Loans.
PLUS
(g) Capital Expenditure Facility. A five
year Capex Facility to fund the acquisition of new or used equipment
of up to the lesser of:
(A) $1,500,000, and
(B) 80% of the purchase price for such
new or used equipment, exclusive of license, delivery and installation
expenses. The valuation of equipment shall be determined by Lender
in the exercise of its reasonable credit judgment.
The Capex Facility is a subline of the Revolving Credit Loans.
For purposes hereof, the net amount of Eligible Accounts at any time
shall be the face amount of such Eligible Accounts less any and all returns,
rebates, discounts (which may, at Lender's option, be calculated on shortest
terms), credits, allowances or excise taxes of any nature at any time issued,
owing, claimed by Account Debtors, granted, outstanding or payable in
connection with such Accounts at such time.
Business Day - any day excluding Saturday, Sunday and any day which is
a legal holiday under the laws of the State of California or the State of
Illinois or is a day on which banking institutions located in either of such
states are closed.
Capital Expenditures - expenditures made or liabilities incurred for
the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more than one
year, including the total principal portion of Capitalized Lease Obligations.
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Capitalized Lease Obligation - any Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
Closing Date - the date on which all of the.conditions precedent in
Section 9 of the Agreement are satisfied and the initial Loan is made under the
Agreement.
Code - the Uniform Commercial Code as adopted and in force in the State
of California as from time to time in effect.
Collateral - all of the Property and interests in Property described
in Section 5 of the Agreement, and all other Property and interests in Property
that now or hereafter secure the payment and performance of any of the
Obligations.
Consolidated - the consolidation in accordance with GAAP of the
accounts or other items as to which such term applies.
Current Assets - at any date means the amount at which all of the
current assets of a Person would be properly classified as current assets shown
on a balance sheet at such date in accordance with GAAP except that amounts due
from Affiliates and investments in Affiliates shall be excluded therefrom.
Current Liabilities - at any date means the amount at which all of the
current liabilities of a Person would be properly classified as current
liabilities shown on a balance sheet at such date in accordance with GAAP.
Debt Coverage Ratio - (a) EBITDA minus Capital Expenditures, divided
by (b) interest expense plus regularly scheduled principal payments and taxes.
Default - an event or condition the occurrence of which would, with the
lapse of time or the giving of notice, or both, become an Event of Default.
Default Rate - as defined in subsection 2.1.2 of the Agreement.
Distribution - in respect of any corporation means and includes: (i)
the payment of any dividends or other distributions on capital stock of the
corporation (except distributions in such stock) and (ii) the redemption or
acquisition of Securities unless made contemporaneously from the net proceeds
of the sale of Securities.
Dominion Account - a special account of Lender established by Borrower
pursuant to the Agreement at a bank selected by Borrower, but acceptable to
Lender in its reasonable discretion, and over which Lender shall have sole and
exclusive access and control for withdrawal purposes.
EBIT - with respect to any fiscal period, the sum of Borrower's
Consolidated net earnings (or loss) before interest expense and taxes for said
period as determined in accordance with GAAP.
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Eligible Account - an Account arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services, including
but not limited to, (i) unbilled Accounts, progress xxxxxxxx and/or Accounts
calculated on a percentage of completion method, which (H) together with
Eligible work-in-process Inventory, are limited to an aggregate subline of
$1,000,000, and (iii) which Lender, in its reasonable credit judgment, deems to
be an Eligible Account. Without limiting the generality of the foregoing, no
Account shall be an Eligible Account if:
(i) it arises out of a sale made by Borrower to an
Affiliate of Borrower or to a Person controlled by an Affiliate of
Borrower; or
(ii) it is due or unpaid for more than 60 days from due
date or 90 days after the original invoice date; or
(iii) 50% or more of the Accounts from the Account Debtor
are not deemed Eligible Accounts hereunder; or
(iv) the total unpaid Accounts of the Account Debtor
exceed 10% of the net amount of all Eligible Accounts, to the extent
of such excess, provided however, that Lender, in its sole discretion,
may allow up to 20% of the net amount of all Eligible Accounts, based
upon Lender's credit review of the particular account debtor including
such account debtor's most recent financial statements; or
(v) any covenant, representation or warranty contained in
the Agreement with respect to such Account has been breached; or
(vi) the Account Debtor is also Borrower's creditor or
supplier, or the Account Debtor has disputed liability with respect to
such Account, or the Account Debtor has made any claim with respect to
any other Account due from such Account Debtor to Borrower, or the
Account otherwise is or may become subject to any right of setoff by
the Account Debtor; or
(vii) the Account Debtor has commenced a voluntary case
under the federal bankruptcy laws, as now constituted or hereafter
amended, or made an assignment for the benefit of creditors, or a
decree or order for relief has been entered by a court having
jurisdiction in the premises in respect of the Account Debtor in an
involuntary case under the federal bankruptcy laws, as now constituted
or hereafter amended, or any other petition or other application for
relief under the federal bankruptcy laws has been filed against the
Account Debtor, or if the Account Debtor has failed, suspended
business, ceased to be Solvent, or consented to or suffered a
receiver, trustee, liquidator or custodian to be appointed for it or
for all or a significant portion of its assets or affairs; or
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(viii) it arises from a sale to an Account Debtor outside
the United States, unless the sale is on a letter of credit, and if
issued by a foreign bank is domestically confirmed by Bank, or is on
guaranty or acceptance terms, in each case acceptable to Lender in its
sole discretion and is in any event, limited to a subline of
$1,000,000; or
(ix) it arises from a sale to the Account Debtor on a
xxxx-and-hold, guaranteed sale, sale-or-return, sale-on-approval,
consignment or any other repurchase or return basis; or
(x) the Account Debtor is the United States of America or
any department, agency or instrumentality thereof, unless Borrower
assigns its right to payment of such Account to Lender, in a manner
satisfactory to Lender, so as to comply with the Assignment of Claims
Act of 1940 (31 U.S.C. Section 203 et seq., as amended); or
(xi) the Account is subject to a Lien other than a
Permitted Lien; or
(xii) the goods giving rise to such Account have not been
delivered to and accepted by the Account Debtor or the services giving
rise to such Account have not been performed by Borrower and accepted
by the Account Debtor or the Account otherwise does not represent a
final sale; or
(xiii) the Account is evidenced by chattel paper or an
instrument of any kind, or has been reduced to judgment; or
(xiv) Borrower has made any agreement with the Account
Debtor for any deduction therefrom, including for finance charges and
reserves for rebates and advertising, except for discounts or
allowances which are made in the ordinary course of business for
prompt payment and which discounts or allowances are reflected in the
calculation of the face value of each invoice related to such Account;
or
(xv) Borrower has made an agreement with the Account
Debtor to extend the time of payment thereof.
Eligible Inventory - such Inventory of Borrower consisting of raw
materials and certain work in process (other than packaging materials and
supplies) which are located at Borrower's premises in the United States of
America and which Lender, in its reasonable credit judgment, deems to be
Eligible Inventory. Without limiting the generality of the foregoing, no
Inventory shall be Eligible Inventory if:
(i) it is work-in-process or raw materials unless such
raw materials are in Lender's opinion readily marketable in its
current form; or
85
(ii) it is not in good, new and saleable condition; or
(iii) it is slow-moving, obsolete or unmerchantable; or
(iv) it is physical inventory count variances; or
(v) it is reflected in progress xxxxxxxx; or
(vi) it is a result of applied fixed overhead; or
(vii) it does not meet all standards imposed by any
governmental agency or authority; or
(viii) it does not conform in all respects to the warranties
and representations set forth in the Agreement,
(ix) it is not at all times subject to Lender's duly
perfected, first priority security interest and no other Lien except a
Permitted Lien; or
(x) it is not situated at a location in compliance with
the Agreement.
Environmental Laws - all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety and environmental matters.
Equipment - all machinery, apparatus, equipment, fittings, furniture,
fixtures, motor vehicles and other tangible personal Property (other than
Inventory) of every kind and description used in Borrower's operations or owned
by Borrower or in which Borrower has an interest, whether now owned or
hereafter acquired by Borrower and wherever located, and all parts, accessories
and special tools and all increases and accessions thereto and substitutions
and replacements therefor.
ERISA - the Employee Retirement Income Security Act of 1974, as
amended, and all rules and regulations from time to time promulgated
thereunder.
Eurodollar Business Day - means any Business Day on which commercial
lending institutions are open for international business (including dealings in
United States Dollar deposits) in London.
Event of Default - as defined in Section 10.1 of the Agreement.
Excess Cash Flow - with respect to any fiscal period of Borrower, 50%
of the amount derived by adding to EBIT for such fiscal period depreciation,
amortization and deferred taxes for such fiscal period and subtracting from
such sum regularly scheduled
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payments of (to the extent actually paid) of principal and interest on
Indebtedness for Money Borrowed and Capital Expenditures, which are not
evidenced by a note, for such fiscal period.
GAAP - generally accepted account principles in the United States of
America in effect from time to time.
General Intangibles - all personal property of Borrower (including
things in action) other than goods, Accounts, chattel paper, documents,
instruments and money, whether now owned or hereafter created or acquired by
Borrower.
Indebtedness - as applied to a Person means, without duplication
(i) all items which in accordance with GAAP would be
included in determining total liabilities as shown on the liability
side of a balance sheet of such Person as at the date as of which
Indebtedness is to be determined, including, without limitation,
Capitalized Lease Obligations,
(ii) all obligations of other Persons which such Person
has guaranteed,
(iii) all reimbursement obligations in connection with
letters of credit or letter of credit guaranties issued for the
account of such Person, and
(iv) in the case of Borrower (without duplication), the
Obligations.
Inventory - all of Borrower's inventory, whether now owned or hereafter
acquired including, but not limited to, all goods intended for sale or lease by
Borrower, or for display or demonstration; all work in process; all raw
materials and other materials and supplies of every nature and description used
or which might be used in connection with the manufacture, printing, packing,
shipping, advertising, selling, leasing or furnishing of such goods or
otherwise used or consumed in Borrower's business; and all documents evidencing
and General Intangibles relating to any of the foregoing, whether now owned or
hereafter acquired by Borrower.
LIBOR - means the rate per annum offered by Bank at 11:00 a.m.
(London time) in the London interbank market, for Eurodollar deposits for a
period of one (1) month, as quoted on the Reuters Screen LIBO Page on the
second full Eurodollar Business Day (as defined below) preceding the date with
respect to which such calculation is being made (or if such rate is no longer
being quoted on the Reuters Screen LIBO Page, as quoted in such other
publications as may be designated by Lender), rounded upwards, if necessary to
the nearest one-sixteenth of one percent (0.0625%).
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Lien - any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property, whether such interest
is based on common law, statute or contract. The term "Lien" shall also include
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting Property. For the purpose of the Agreement, Borrower shall be deemed
to be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person for security
purposes.
Loan Account - the loan account established on the books of Lender
pursuant to Section 3.6 of the Agreement.
Loan Documents - the Agreement, the Other Agreements and the Security
Documents.
Loans - all loans and advances of any kind made by Lender pursuant to
the Agreement.
Money Borrowed - means (i) Indebtedness arising from the lending of
money by any Person to Borrower; (ii) Indebtedness, whether or not in any such
case arising from the lending by any Person of money to Borrower, (A) which is
represented by notes payable or drafts accepted that evidence extensions of
credit, (B) which constitutes obligations evidenced by bonds, debentures,
notes or similar instruments, or (C) upon which interest charges are
customarily paid (other than accounts payable) or that was issued or assumed as
full or partial payment for Property; (iii) Indebtedness that constitutes a
Capitalized Lease Obligation; (iv) reimbursement obligations with respect to
letters of credit or guaranties of letters of credit and (v) Indebtedness of
Borrower under any guaranty of obligations that would constitute Indebtedness
for Money Borrowed under clauses (i) through (iii) hereof, if owed directly by
Borrower.
Multiemployer Plan - has the meaning set forth in Section 4001(a)(3)
of ERISA.
Obligations - all Loans and all other advances, debts, liabilities,
obligations, covenants and duties, together with all interest, fees and other
charges thereon, owing, arising, due or payable from Borrower to Lender of any
kind or nature, present or future, whether or not evidenced by any note,
guaranty or other instrument, whether arising under the Agreement or any of the
other Loan Documents or otherwise whether direct or indirect (including those
acquired by assignment), absolute or contingent, primary or secondary, due or
to become due, now existing or hereafter arising and however acquired.
Original Term - as defined in Section 4.1 of the Agreement.
Other Agreements - any and all agreements, instruments and documents
(other than the Agreement and the Security Documents), now or hereafter
executed by
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Borrower, or any other third party and delivered to Lender in respect of the
transactions contemplated by the Agreement.
Overadvance - the amount, if any, by which the outstanding principal
amount of Revolving Credit Loans exceeds the Borrowing Base.
Participating Lender - each Person who shall be granted the right by
Lender to participate in any of the Loans described in the Agreement and who
shall have entered into a participation agreement in form and substance
satisfactory to Lender.
Permitted Liens - any Lien of a kind specified in subsection 8.2.5 of
the Agreement.
Permitted Purchase Money Indebtedness - Purchase Money Indebtedness of
Borrower incurred after the date hereof which is secured by a Purchase Money
Lien and which, when aggregated with the principal amount of all other such
Indebtedness and Capitalized Lease Obligations of Borrower at the time
outstanding, does not exceed $100,000. For the purposes of this definition, the
principal amount of any Purchase Money Indebtedness consisting of capitalized
leases shall be computed as a Capitalized Lease Obligation.
Person - an individual, partnership, corporation, limited liability
company, joint stock company, land trust, business trust, or unincorporated
organization, or a government or agency or political subdivision thereof.
Plan - an employee benefit plan now or hereafter maintained for
employees of Borrower that is covered by Title IV of ERISA.
Projections - Borrower's forecasted (a) balance sheets, (b) profit and
loss statements, (c) cash flow statements, and (d) capitalization statements,
all prepared on a consistent basis with Borrower's historical financial
statements, together with appropriate supporting details and a statement of
underlying assumptions, all to be furnished to Lender on a monthly basis.
Property - any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
Purchase Documents - the Stock Purchase and Sale Agreement dated
February 14, 1997, by and between SSI as "Buyer" and Praxair "Seller", and all
documents and instruments to be executed or delivered in connection therewith.
Purchase Money Indebtedness - means and includes (i) Indebtedness
(other than the Obligations) for the payment of all or any part of the purchase
price of any fixed assets, (ii) any Indebtedness (other than the Obligations)
incurred at the time of or within 10 days prior to or after the acquisition of
any fixed assets for the purpose of financing all or any part of the purchase
price thereof, and (iii) any renewals,
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extensions or refinancings thereof, but not any increases in the principal
amounts thereof outstanding at the time.
Purchase Money Lien - a Lien upon fixed assets which secures Purchase
Money Indebtedness, but only if such Lien shall at all times be confined solely
to the fixed assets the purchase price of which was financed through the
incurrence of the Purchase Money Indebtedness secured by such Lien.
Rentals - as defined in subsection 8.2.12 of the Agreement.
Renewal Terms - as defined in Section 4.1 of the Agreement.
Reportable Event - any of the events set forth in Section 4043(b) of
ERISA.
Restricted Investment - any investment made in cash or by delivery of
Property to any Person, whether by acquisition of stock, Indebtedness or other
obligation or Security, or by loan, advance or capital contribution, or
otherwise, or in any Property except the following:
(i) Property to be used in the ordinary course of
business;
(ii) Current Assets arising from the sale of goods and
services in the ordinary course of business of Borrower;
(iii) investments in direct obligations of the United
States of America, or any agency thereof or obligations guaranteed by
the United States of America, provided that such obligations mature
within one year from the date of acquisition thereof;
(iv) investments in certificates of deposit maturing
within one year from the date of acquisition issued by a bank or trust
company organized under the laws of the United States or any state
thereof having capital surplus and undivided profits aggregating at
least $100,000,000; and
(v) investments in commercial paper given the highest
rating by a national credit rating agency and maturing not more than
270 days from the date of creation thereof.
Revolving Credit Loan - a Loan made by Lender as provided in Section
3.1 of the Agreement.
Schedule of Accounts - as defined in subsection 6.2.1 of the
Agreement.
Security - shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
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Security Documents - the Guaranty Agreement and all other instruments
and agreements now or at any time hereafter securing the whole or any part of
the Obligations.
Solvent - as to any Person, such Person (i) owns Property whose fair
saleable value is greater than the amount required to pay all of such Person's
Indebtedness (including contingent debts), (ii) is able to pay all of its
Indebtedness as such Indebtedness matures and (iii) has capital sufficient to
carry on its business and transactions and all business and transactions in
which it is about to engage.
Subordinated Debt - Indebtedness of Borrower that is subordinated to
the Obligations in a manner satisfactory to Lender.
Subsidiary - any corporation of which a Person owns, directly or
indirectly through one or more intermediaries, more than 50% of the Voting
Stock at the time of determination.
Tangible NetWorth - equity minus other current assets minus other
noncurrent assets, prepayments, intangibles (excluding patents) and notes
receivable.
TermLoans - the Loans described in subsections 1.2.1, 1.2.2, and 1.2.5
of the Agreement.
TermNotes - the Secured Promissory Notes to be executed by Borrower on
or about the Closing Date in favor of Lender to evidence the Term Loans, which
shall be in the form of Exhibit 1.2.1 to the Agreement.
Total Credit Facility - $6,500,000.
Voting Stock - Securities of any class or classes of a corporation the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
Working Capital - Current Assets minus Current Liabilities.
Other Terms. All other terms contained in the Agreement shall have,
when the context so indicates, the meanings provided for by the Code to the
extent the same are used or defined therein.
Certain Matters of Construction. The terms "herein", "hereof" and
"hereunder" and other words of similar import refer to the Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. The section titles, table of contents and
list of exhibits appear as a matter of convenience only and shall not affect
the interpretation of the Agreement. All references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations. All references to any of the Loan Documents shall include any and
all modifications thereto and any and all extensions or renewals thereof.
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LIST OF EXHIBITS
Exhibit A Term Note-A
Exhibit B Term Note-B
Exhibit 6.1.1 Borrower's Business Locations
Exhibit 7.1.1 Jurisdictions in which Borrower is Authorized to do
Business
Exhibit 7.1.4 Capital Structure of Borrower
Exhibit 7.1.5 Corporate Names
Exhibit 7.1.16 Patents, Trademarks, Copyrights and Licenses
Exhibit 7.1.19 Contracts Restricting Borrower's Right to Incur
Debts
Exhibit 7.1.20 Litigation
Exhibit 7.1.22(a) Capitalized Leases
Exhibit 7.1.22(b) Operating Leases
Exhibit 7.1.23 Pension Plans
Exhibit 7.1.25 Labor Contracts
Exhibit 8.1.3 Compliance Certificate
Exhibit 8.2.5 Permitted Liens
