EXHIBIT 10.4
AGREEMENT TO PROVIDE GUARANTY
THIS AGREEMENT TO PROVIDE GUARANTY (the "AGREEMENT") is made and
entered into effective as of the 9th day of December, 2003, by and among REDLINE
PERFORMANCE PRODUCTS, INC., a Minnesota corporation (the "COMPANY"), SUN
CAPITAL, LLC, a North Dakota limited liability company ("SUN CAPITAL"), and each
of the individual signatories to this Agreement, each of whom is a member of Sun
Capital (the "INDIVIDUAL GUARANTORS") (Sun Capital and the Individual Guarantors
are collectively referred to herein as the "GUARANTORS").
RECITALS
WHEREAS, the Company is in the business of designing, manufacturing and
selling powersports products such as snowmobiles and ATVs; and
WHEREAS, pursuant to a loan agreement by and between the Company and
Community National Bank (the "BANK") dated November 26, 2003 (the "LOAN
AGREEMENT"), the Bank will lend the Company money from time to time for the
assembly of snowmobiles by Interstate Companies, Inc. at its facility in Fargo,
North Dakota in an amount of up to an aggregate maximum amount of Two Million
Dollars ($2,000,000) (the "LOAN"); and
WHEREAS, the Loan is evidenced by a multiple advance promissory note in
the aggregate maximum amount of Two Million Dollars ($2,000,000) dated November
26, 2003 (the "NOTE"), the payment of which is secured by a security interest in
certain property of the Company pursuant to a security agreement between the
Bank and the Company dated November 26, 2003 (the "SECURITY AGREEMENT"); and
WHEREAS, the Company will notify GE Commercial Distribution Finance
Corporation that all payments made to the Company shall be deposited into a
Company account at the Bank (the "ASSIGNMENT") in connection with obtaining the
Loan; and
WHEREAS, the Bank is requiring that the Company obtain the guaranties
of the seven (7) Guarantors to guarantee the payment of the Note, and the
performance of all of the Company's obligations under the Loan Agreement,
Security Agreement, and Assignment (collectively, the "OBLIGATIONS"); and
WHEREAS, each of the Guarantors is willing to execute a guaranty for
the benefit of the Company to guarantee the full performance and complete
satisfaction of the Company's Obligations in accordance with the terms and
conditions contained in this Agreement; and
WHEREAS, the parties desire to commit to a certain future financing
transaction in addition to the Loan, on terms described herein; and
WHEREAS, each of the Guarantors is a member of Sun Capital, and will
derive an economic benefit as a result of the consideration paid to Sun Capital
hereunder.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises contained herein and the mutual benefits to be gained by the
performance hereof, the parties hereto agree as follows:
1.) Agreement to Provide Guaranties. Each of the Guarantors hereby
agrees to execute a guaranty for the benefit of the Company, which guaranties
shall be in a form satisfactory and acceptable to the Bank and the Company, in
order to guarantee the full performance and complete satisfaction of any and all
of the Company's Obligations under and pursuant to the Note, Loan Agreement,
Security Agreement and Assignment. The Guarantors each further agree to take
such actions in connection with the execution of such guaranties as may be
deemed necessary by the Bank to guarantee the full performance and complete
satisfaction of the Company's Obligations, including, without limitation, the
pledge of collateral or other security interests.
2.) Consideration for Agreement to Provide Guaranties.
(a) Guaranty fee. As consideration for the agreement of each of
the Guarantors under this Agreement, Sun Capital shall be paid a
monthly fee (the "GUARANTY FEE") in an amount equal to the difference
between the monthly amount of interest that would be payable under the
Note at an annual percentage rate of twenty-four percent (24%), and the
monthly amount of interest paid to the Bank for the same monthly
period. the Guaranty Fee shall be due and payable by the Company to Sun
Capital not more than fifteen (15) days after the end of each month.
(b) Initial Fee. As additional consideration for the agreement of
each of the Guarantors under this Agreement, the Company shall pay Sun
Capital an initial fee of Twenty Thousand Dollars ($20,000) (the
"INITIAL FEE"), which represents one percent (1%) of Two Million
Dollars ($2,000,000), the aggregate maximum amount of the Loan. The
Initial Fee shall be due and payable by the Company to Sun Capital not
more than five (5) days after the execution of this Agreement.
3.) Agreement to Make Loan Upon Termination of Loan Agreement or
Failure to Fund. If the Bank terminates the Loan Agreement or fails to make
advances thereunder for any reason other than the Company's failure to make
payments required under the Loan Agreement and Note, each of the Guarantors
hereby agrees to execute a loan agreement and security agreement on
substantially the same terms as the Loan Agreement and Security Agreement and to
provide funding on substantially similar terms, through May 26, 2004. The
Guarantors each further agree to take such actions in connection with the
funding of such Loan as may be deemed necessary by the Company and the
Guarantors to fully perform and completely provide such financing on terms
substantially similar to the Loan Agreement, Security Agreement and related
documents, including paying all amounts due to the Bank under the Loan. The
parties expressly
2.
acknowledge and agree that, in the event the Guarantors execute loan agreements,
security agreements and related financing documents to provide financing in
accordance with this Section 3, the Guarantors shall be entitled to a first
position security interest in the Company assets described in the Security
Agreement upon making full payment of the Loan to the Bank.
4.) Subsequent Financing Transaction. It is expressly acknowledged
and agreed that each of the parties hereto intend to enter into a subsequent
debt financing transaction with the Bank or another bank or commercial lending
institution, on the terms and for the period set forth in this Section 4 (the
"SUBSEQUENT FINANCING TRANSACTION"). In the Subsequent Financing Transaction;
the Company intends to borrow up to an aggregate maximum amount of Ten Million
Dollars ($10,000,000) for working capital production purposes and each of the
Guarantors shall execute a guaranty on terms acceptable to the Bank or another
bank or commercial lending institution and an agreement to provide a guaranty to
guarantee the Company's performance and satisfaction of its obligations under
any and all documents memorializing the Subsequent Financing Transaction.
Subject to the buyout provision set forth in Section 4(e) of this Agreement, the
Company may enter into the Subsequent Financing Transaction or agreements
documenting the Subsequent Financing Transaction at its discretion. The
Guarantors shall be obligated to enter into the Subsequent Financing Transaction
or agreements documenting the Subsequent Financing Transaction as may be
requested by the Company, unless the Company is not current in performing its
obligations under this Agreement. With respect to, and in connection with, the
Subsequent Financing Transaction entered into among the Company and the
Guarantors, the parties hereby agree as follows, which terms shall be binding on
the parties:
(a) Sun Capital Commitment to Guaranty. During the term of the
Subsequent Financing Transaction, each of the Guarantors shall execute
a guaranty for the benefit of the Company in order to guarantee the
full performance and complete satisfaction of any and all of the
Company's obligations under and pursuant to any and all agreements and
documents memorializing or otherwise relaxed to the Subsequent
Financing Transaction.
(b) Company Commitment to Utilize Only Guaranteed Loans. Unless
the Guarantors are unable or unwilling to execute individual guaranties
for the benefit of the Company in order to guarantee the full
performance and complete satisfaction of any and all of the Company's
obligations under and pursuant to any and all agreements and documents
memorializing or otherwise related to the subsequent financing
transaction, during the term of the Subsequent Financing Transaction,
the Company will not seek working capital production debt financing
contemplated in the Subsequent Financing Transaction from other sources
and shall continue to borrow working capital for snowmobile production
purposes from the Bank, another bank or a commercial lending
institution, and pay Sun Capital for the Guarantors' guarantee of the
performance of the Company's obligations under any and all agreements
and documents memorializing or otherwise related to the Subsequent
Financing Transaction.
(c) Term of Subsequent Financing Transaction. The term of the
Subsequent Financing Transaction shall commence on the later of April
1, 2004 and the date the Company fully repays the entire principal
amount advanced pursuant to the documents
3.
and agreements executed in connection with the Loan, and shall continue
through March 31, 2005.
(d) Guaranty Fee for Subsequent Financing Transaction. As the sole
consideration for the Guarantors to guarantee the full performance and
complete satisfaction of any and all of the Company's obligations under
and pursuant to any and all agreements and documents executed in
connection with the Subsequent Financing Transaction, the Company shall
pay Sun Capital a monthly guaranty fee, the amount of which will vary
depending on whether sun capital elects, in its sole discretion, to be
paid solely in cash or partially in cash and partially in a warrant to
purchase shares of the Company's common stock. any written election by
Sun Capital regarding the form of payment of the guaranty fee with
respect to the Subsequent Financing Transaction shall be binding upon
all Guarantors for the term of the Subsequent Financing Transaction.
(1) All Cash Guaranty Fee. If Sun Capital elects to
receive the guaranty fee for the Subsequent Financing
Transaction solely in cash, the amount of the monthly
guaranty fee shall be equal to the difference between
the monthly amount of interest that would be payable
at an annual percentage rate of twenty percent (20%)
on the amount advanced under a multiple advance
promissory note in an aggregate principle amount of
Ten Million Dollars ($10,000,000) in the Subsequent
Financing Transaction, and the monthly amount of
interest paid to the Bank, another bank or other
commercial lender for the same monthly period.
(2) Guaranty Fee Consisting of Cash and Warrants. If Sun
Capital elects to receive the guaranty fee for the
Subsequent Financing Transaction in the form of cash
and a warrant to purchase shares of the Company's
common stock, the guaranty fee shall consist of: (i)
a warrant to purchase three hundred thousand
(300,000) shares of the Company's common stock; and
(ii) payment of a monthly fee in an amount equal to
the difference between the monthly amount of interest
that would be payable at an annual percentage rate of
fifteen percent (15%) on the amount advanced under a
multiple advance promissory note in an aggregate
principle amount of Ten Million Dollars ($10,000,000)
in the Subsequent Financing Transaction, and the
monthly amount of interest paid to the Bank, another
bank or other commercial lender for the same monthly
period. The exercise price of the warrants will equal
the average market price of the Company's common
stock for the twenty (20) trading days immediately
preceding the date Company issues the warrants to Sun
Capital. The warrants will be fully exercisable upon
issuance and will have a term of seven (7) years.
(e) Buyout. The Company may elect not to utilize the assistance of
Sun Capital to obtain working capital production financing for the
Subsequent Financing Transaction. Upon such election by the Company,
the Company shall pay to Sun Capital a fee equal to Fifty Thousand
Dollars ($50,000), and issue to Sun Capital a warrant to purchase one
4.
hundred thousand (100,000) shares of the Company's common stock on
substantially the same terms and conditions as set forth above in this
Section 4.
5.) Term: Termination and Effect of Termination. This Agreement
shall commence on the day and year first above written and shall continue until
the Company has fully performed and completely satisfied any and all of the
Company's Obligations under and pursuant to the Note, Loan Agreement, Security
Agreement and Assignment, and any similar documents entered into in connection
with the Guarantors' obligations as set forth in Section 3 hereof, and any
similar documents executed in connection with the Subsequent Financing
Transaction as set forth in Section 4 hereof.
6.) Revocation of Guaranties. A guaranty provided by a Guarantor
to the Bank may not be revoked by the Guarantor, unless the Company materially
breaches any provision of this Agreement and fails to cure such breach within
thirty (30) days after receiving written notice of such breach from any of the
Guarantors, in which case, each of the Guarantors shall have the right to revoke
such Guarantor's guaranty.
7.) Further Assurances. Each of the Guarantors hereby agrees for
himself, herself or itself and their heirs, executors, administrators,
successors and assigns to execute and deliver any further documents and
instruments, and to perform any further acts, as may be necessary or appropriate
to carry out the purposes and intent of this Agreement and any agreements
contemplated hereunder.
8.) Confidentiality. Each of the Guarantors agree that all
information disclosed by the Company to the Guarantors shall be considered
"Confidential Information." Each Guarantor agrees to maintain the confidence of
the Confidential Information and to prevent its unauthorized dissemination, and
not to use the Confidential Information for any purpose other than the business
relationship with the Company. Confidential Information shall not, however,
include information which: (i) is now or subsequently becomes generally known or
available by publication, commercial use or otherwise, through no fault of any
Guarantor; or (ii) is lawfully obtained by a Guarantor from a third party
without violation of a confidentiality obligation. All Confidential Information
remains the property of the Company and no license or other rights in the
Confidential Information is granted hereby. Each Guarantor agrees to return to
the Company immediately upon the Company's request all Confidential Information,
including but not limited to all documentation, notes, plans and copies thereof.
This Agreement and the provisions hereof shall be Confidential Information,
provided that the Company may disclose this Agreement and the terms of this
Agreement to the extent reasonably required to comply with the Company's
disclosure obligations under the Securities Exchange Act of 1934, as amended,
and regulations promulgated thereunder.
9.) Remedies. Each of the parties to this Agreement acknowledges
that irreparable injury will result to the Company if any Guarantor violates and
fails to promptly remedy any of the Guarantors' covenants or agreements in this
Agreement, and that it would be impossible to adequately ascertain or quantify
the Company's damages or be compensated therefor by money damages. The parties
further acknowledge that each such covenant or agreement is material. Each
Guarantor agrees and consents to the entry by a court of an injunction or other
equitable remedy enjoining the Guarantor's breach or threatened breach, or
requiring the specific
5.
performance of the Guarantor's obligations under this Agreement, without the
necessity of proof of actual damages respecting any such breach or threatened
breach by a Guarantor and without bond or other security, and hereby waives the
defense of the availability of relief in damages. Each of the Guarantors
expressly agrees that the Company shall be entitled, in addition to damages and
any other remedies provided by law, to reimbursement from each Guarantor of the
Company's reasonable attorneys' fees and costs incurred in successfully
enforcing its rights under this paragraph.
10.) Miscellaneous.
(a) Binding Effect. This Agreement shall be binding upon the
Guarantors and each of their heirs, executors, administrators,
successors and assigns.
(b) Entire Agreement; Modification. This Agreement constitutes the
full and complete understanding and agreement of the parties with
respect to the subject matter hereof, and supersedes and nullifies any
prior or contemporaneous understanding or agreement, whether written,
oral or communicated in any other type of medium, between the parties
relating thereto. No amendment or modification of any provision of this
Agreement shall be binding unless made in writing and signed by the
parties hereto.
(c) Assignment. Neither the Company nor the Guarantors may assign
this Agreement without the prior written consent of the other party,
which consent shall not be unreasonably withheld or delayed.
(d) Notices. To be effective, all notices, consents or other
communications required or permitted hereunder shall be in writing. A
written notice or other communication shall be deemed to have been
given hereunder: (i) if delivered by hand, when the notifying party
delivers such notice or other communication to the other party; (ii) if
delivered by facsimile or overnight delivery service, on the first
business day following the date of such notice or other communication
is transmitted by facsimile or timely delivered to the overnight
courier; or (iii) if delivered by mail, on the third business day
following the date such notice or other communication is deposited in
the U.S. mail by certified or registered mail addressed to the other
party. Mailed or faxed communications shall be directed as follows
unless written notice of a change of address or facsimile number has
been given in writing in accordance with this section:
If to the Company: Redline Performance Products, Inc.
0000 Xxxxxxx Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxx 00000
Attn: President
Facsimile No.: (000) 000-0000
If to any Guarantor: Sun Capital, LLC
X.X. Xxx 00
Xxxxxxx, Xxxxxxxxx 00000
Attn: Xx. Xxxxxxx Xxxxxxx
Facsimile No.: (000) 000-0000
6.
(e) Waiver. No waiver of any term, condition or covenant of this
Agreement by a party shall be deemed to be a waiver of any subsequent
breach of the same or other terms, covenants or conditions hereof by
such party.
(f) Construction; Severability. Whenever possible, each provision
of this Agreement shall be interpreted in such manner as to be
effective or 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.
(g) Titles. Titles to sections and subsections of this Agreement
are solely for convenience of reference and do not modify or interpret
any provisions contained therein.
(h) Representation by Counsel; Interpretation. The Company and the
Guarantors each acknowledge that they have been, or have had the
opportunity to be, represented by legal counsel in connection with this
Agreement and the matters contemplated by this Agreement. Accordingly,
any rule of law or any legal decision that would require interpretation
of any claimed ambiguities in this Agreement against the party that
drafted it has no application and is expressly waived. The provisions
of this Agreement shall be interpreted in a reasonable manner to affect
the intent of the parties.
(i) Arbitration. All disputes or claims arising out of, or in any
way relating to, this Agreement shall be submitted to and determined by
final and binding arbitration under the rules of the American
Arbitration Association. Arbitration proceedings may be initiated by
the Company or the Guarantors upon notice to the other and to the
American Arbitration Association, and shall be conducted by a panel
consisting of three (3) arbitrators under the rules of the American
Arbitration Association in Minneapolis, Minnesota or such other
location mutually agreed upon by the parties; provided, however, that
the Company and the Guarantors may agree, following the giving of such
notice, to have the arbitration proceedings conducted by a single
arbitrator. The notice must describe, in general terms, the issues to
be resolved in any such arbitration proceeding. Each party to the
arbitration proceedings shall bear its own costs and its pro-rata share
of the fees and expenses charged by the arbitrators and the American
Arbitration Association in connection with any arbitration proceedings.
Any final decision of the arbitrators may be enforced in any court of
competent jurisdiction. Notwithstanding the foregoing, nothing shall
prevent any party from obtaining equitable relief from a court of
competent jurisdiction.
(j) Governing Law; Venue. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of
Minnesota, without regard to such state's choice of law provisions.
Actions or proceedings litigated in connection with this Agreement, if
any, shall be venued exclusively in the state and federal courts
located in the County of Hennepin, State of Minnesota.
7.
(k) Counterparts This Agreement may be executed in separate and
several counterparts, each of which shall be deemed to be an original,
and all such counterparts shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
Provide Guaranty effective as of the day and year first above written.
COMPANY: SUN CAPITAL:
REDLINE PERFORMANCE SUN CAPITAL, LLC
PRODUCTS, INC.
By: /s/ Xxxx X. Xxxxx By: /s/ Xxxxxxx X. Xxxxxxx
------------------ ----------------------
Its: President Its: Member
INDIVIDUAL GUARANTORS:
/s/ Xxxxxxx X. Xxxxxxx /s/ Xxxxxx X. Xxxxxxx
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Xxxxxxx X. Xxxxxxx, an individual Xxxxxx X. Xxxxxxx, an individual
and member of Sun Capital and member of Sun Capital
/s/ Xxxxxx X. Xxxxxxxx /s/ Xxxxxxx X. Xxxxx
---------------------------------------- ----------------------------------
Xxxxxx X. Xxxxxxxx, an individual Xxxxxxx X. Xxxxx, an individual
and member of Sun Capital and member of Sun Capital
/s/ Xxxxxxx X. Xxxxxxxxxxx /s/ Xxxxx X. Xxxxx
---------------------------------------- ----------------------------------
Xxxxxxx X. Xxxxxxxxxxx, an individual Xxxxx X. Xxxxx, an individual
and member of Sun Capital and member of Sun Capital
8.
