REVOLVING CREDIT, TERM LOAN
AND SECURITY AGREEMENT
BETWEEN
CROWN TOOL & DIE COMPANY, INC.
AS BORROWER,
AND
BNY FINANCIAL CORPORATION,
AS LENDER
DATED: APRIL 30, 1998
TABLE OF CONTENTS
PAGE
----
1. DEFINITIONS.............................................................. 1
1.1 Accounting Terms............................................. 1
1.2 General Terms................................................ 1
1.3 Uniform Commercial Code Terms................................ 16
2. ADVANCES, PAYMENT, INTEREST AND FEES..................................... 16
2.1 Revolving Advances........................................... 16
2.2 Cap/Ex Loans................................................. 17
2.3 Appointment of Industries as Agent for Borrowing............. 19
2.4 Request for Advances......................................... 20
2.5 Disbursement of Advance Proceeds............................. 21
2.6 Repayment of Advances........................................ 22
2.7 Repayment of Overformula Amounts............................. 22
2.8 Statement of Account......................................... 23
2.9 Letters of Credit............................................ 23
2.10 Issuance of Letters of Credit................................ 23
2.11 Requirements For Issuance of Letters of Credit............... 24
2.12 Additional Payments.......................................... 25
3. INTEREST AND FEES........................................................ 25
3.1 Interest..................................................... 25
3.2 Letters of Credit............................................ 25
3.3 [INTENTIONALLY OMITTED]...................................... 26
3.4 [INTENTIONALLY OMITTED]...................................... 26
3.5 [INTENTIONALLY OMITTED]...................................... 26
3.6 Computation of Interest and Fees............................. 26
3.7 Maximum Charges.............................................. 26
3.8 Increased Costs.............................................. 27
3.9 Capital Adequacy............................................. 27
3.10 Survival..................................................... 28
4. COLLATERAL: GENERAL TERMS................................................ 28
4.1 Security Interest in the Collateral.......................... 28
4.2 Perfection of Security Interest.............................. 28
4.3 Disposition of Collateral.................................... 28
4.4 Preservation of Collateral................................... 29
4.5 Ownership of Collateral...................................... 29
4.6 Defense of Lender's Interests................................ 30
4.7 Books and Records............................................ 30
4.8 Financial Disclosure......................................... 31
4.9 Compliance with Laws......................................... 31
4.10 Inspection of Premises....................................... 31
(i)
4.11 Insurance.................................................... 31
4.12 Failure to Pay Insurance..................................... 33
4.13 Payment of Taxes............................................. 33
4.14 Payment of Leasehold Obligations............................. 34
4.15 Receivables.................................................. 34
4.16 Inventory.................................................... 36
4.17 Maintenance of Equipment..................................... 36
4.18 Exculpation of Liability..................................... 36
4.19 Environmental Matters........................................ 37
5. REPRESENTATIONS AND WARRANTIES........................................... 39
5.1 Authority.................................................... 39
5.2 Formation and Qualification.................................. 39
5.3 Survival of Representations and Warranties................... 39
5.4 Tax Returns.................................................. 40
5.5 Financial Statements......................................... 40
5.6 Corporate Name............................................... 41
5.7 O.S.H.A. and Environment Compliance.......................... 41
5.8 Solvency; No Litigation; Violation........................... 42
5.9 Patents, Trademarks, Copyrights and Licenses................. 43
5.10 Licenses and Permits......................................... 43
5.11 Default of Indebtedness...................................... 43
5.12 No Default................................................... 43
5.13 No Burdensome Restrictions................................... 43
5.14 No Labor Disputes............................................ 44
5.15 Margin Regulations........................................... 44
5.16 Investment Company Act....................................... 44
5.17 Disclosure................................................... 44
5.18 Swaps........................................................ 44
6. AFFIRMATIVE COVENANTS.................................................... 44
6.1 Payment of Fees.............................................. 44
6.2 Conduct of Business and Maintenance of Existence and Assets.. 45
6.3 Violations................................................... 45
6.4 Government Receivables....................................... 45
6.6 Pledge of Credit............................................. 45
6.7 Execution of Supplemental Instruments........................ 45
6.8 Payment of Indebtedness...................................... 45
6.9 Standards of Financial Statements............................ 46
7. NEGATIVE COVENANTS....................................................... 46
7.1 Merger, Consolidation, Acquisition and Sale of Assets........ 46
7.2 Creation of Liens............................................ 46
7.3 Guarantees................................................... 46
7.4 Investments.................................................. 46
(ii)
7.5 Loans........................................................ 47
7.6 Capital Expenditures......................................... 47
7.7 Dividends.................................................... 47
7.8 Indebtedness................................................. 47
7.9 Nature of Business........................................... 47
7.10 Transactions with Affiliates................................. 47
7.11 Operating Leases............................................. 48
7.12 Subsidiaries................................................. 48
7.13 Fiscal Year and Accounting Changes........................... 48
7.14 Prepayment of Indebtedness................................... 48
8. CONDITIONS PRECEDENT..................................................... 48
8.1 Conditions to Initial Advances............................... 48
8.2 Conditions to Each Advance................................... 51
9. INFORMATION AS TO THE BORROWER........................................... 51
9.1 Disclosure of Material Matters............................... 51
9.2 Schedules.................................................... 52
9.3 Environmental Reports........................................ 52
9.4 Litigation................................................... 52
9.5 Occurrence of Defaults, etc.................................. 52
9.6 Government Receivables....................................... 53
9.7 Annual Financial Statements.................................. 53
9.8 Quarterly Financial Statements............................... 53
9.9 Monthly Financial Statements................................. 53
9.10 Other Reports................................................ 54
9.11 Additional Information....................................... 54
9.12 Projected Operating Budget................................... 54
9.13 Variances From Operating Budget.............................. 54
9.14 Additional Documents......................................... 55
10. EVENTS OF DEFAULT........................................................ 55
11. LENDER'S RIGHTS AND REMEDIES AFTER DEFAULT............................... 57
11.1 Rights and Remedies.......................................... 57
11.2 Lender's Discretion.......................................... 57
11.3 Setoff....................................................... 58
11.4 Rights and Remedies not Exclusive............................ 58
12. WAIVERS AND JUDICIAL PROCEEDINGS......................................... 58
12.1 Waiver of Notice............................................. 58
12.2 Delay........................................................ 58
12.3 Jury Waiver.................................................. 58
(iii)
13. EFFECTIVE DATE AND TERMINATION........................................... 58
13.1 Term......................................................... 58
13.2 Termination.................................................. 59
14. MISCELLANEOUS............................................................ 59
14.1 Governing Law................................................ 59
14.2 Entire Understanding......................................... 60
14.3 Successors and Assigns; Participations; New Lenders.......... 60
14.4 Application of Payments...................................... 60
14.5 Indemnity.................................................... 61
14.6 Notice....................................................... 61
14.7 Survivability................................................ 62
14.8 Expenses..................................................... 62
14.9 Injunctive Relief............................................ 62
14.10 Captions..................................................... 63
14.11 Counterparts................................................. 63
(iv)
LIST OF EXHIBITS
----------------
Exhibit 1.2
Exhibit 2.2(d)
Exhibit 4.5
Exhibit 5.2
Exhibit 5.6
Exhibit 5.8(b)
Exhibit 5.9
Exhibit 5.10
Exhibit 5.12
Exhibit 5.14
(v)
REVOLVING CREDIT, TERM LOAN
AND
SECURITY AGREEMENT
------------------
Revolving Credit, Term Loan and Security Agreement dated April 30,
1998 between CROWN TOOL & DIE COMPANY, INC., a corporation organized under the
laws of the Commonwealth of Puerto Rico, and BNY FINANCIAL CORPORATION ("BNY"),
a corporation organized under the laws of the State of New York.
IN CONSIDERATION of the mutual covenants and undertakings herein
contained, the Borrower and Lender hereby agree as follows:
1. DEFINITIONS.
1.1 ACCOUNTING TERMS. As used in this Agreement or any
certificate, report or other document made or delivered pursuant to this
Agreement, accounting terms not defined in Section 1.2 or elsewhere in this
Agreement and accounting terms partly defined in Section 1.2 to the extent not
defined, shall have the respective meanings given to them under GAAP.
1.2 GENERAL TERMS. For purposes of this Agreement the following
terms shall have the following meanings:
"ADVANCES" shall mean and include the Revolving Advances,
Letters of Credit and Cap/Ex Loans under Article 2 hereof.
"ADVANCE RATES" shall have the meaning set forth in Section
2.1(a) hereof.
"AFFILIATE" of any Person shall mean (a) any Person (other
than a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with such Person, or (b) any Person
who is a director or officer (i) of such Person, (ii) of any Subsidiary of such
Person or (iii) of any Person described in clause (a) above. For purposes of
this definition, control of a Person shall mean the power, directly or
indirectly, (x) to vote ten percent (10%) or more of the securities having
ordinary voting power for the election of directors of such Person, or (y) to
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise.
"AFFILIATE LOAN AGREEMENTS" shall mean that certain Revolving
Credit, Term Loan and Security Agreement dated the date hereof among Lender,
Industries and Corporation (the "Industries Loan Agreement"), that certain
Revolving Credit, Term Loan and Security Agreement dated the date hereof between
Lender and DITEL, and all notes, instruments, mortgages, agreements, guaranties
and other documents executed and/or
1
delivered in connection therewith, as the same now exist or may hereafter be
amended, restated, renewed, replaced, extended or otherwise modified.
"AFFILIATED BORROWERS" shall mean, individually and
collectively, Industries, Corporation and DITEL.
"ALTERNATE BASE RATE" shall mean, for any day, a rate per
annum equal to the higher of (a) the Prime Rate in effect on such day and (b)
the Federal Funds Rate in effect on such day plus one half of one percent
(0.50%).
"ALTERNATE BASE RATE ADVANCES" shall mean any Advances or
portion thereof on which interest is payable based on the Alternate Base Rate in
accordance with the terms hereof.
"ANNUAL AUDITED FINANCIAL STATEMENTS" shall have the meaning
set forth in Section 9.7 hereof.
"AUTHORITY" shall have the meaning set forth in Section
4.19(d) hereof.
"AVERAGE EURODOLLAR RATE" shall mean, as to any one month
interest period, the daily average of the "one month" London Interbank Offered
Rate as published in THE WALL STREET JOURNAL averaged on a monthly basis for
actual days elapsed over a 360 day year.
"AVERAGE EURODOLLAR RATE ADVANCES" shall mean any Advances or
portion thereof on which interest is payable based on the Average Eurodollar
Rate in accordance with the terms hereof.
"BANK" shall mean The Bank of New York.
"BLOCKED ACCOUNTS" shall have the meaning set forth in Section
4.15(h) hereof.
"BORROWER" shall mean Crown Tool & Die Company, Inc., and its
successors and assigns.
"BUSINESS DAY" shall mean any day other than a day on which
commercial banks in New York are authorized or required by law to close except
that if a determination of a Business Day shall relate to any Eurodollar Rate
Advances, the term Business Day shall also exclude any day on which banks are
closed for dealings in dollar deposits in the London interbank market or other
applicable Eurodollar Rate market.
"CAP/EX LINE LOANS" shall have the meaning set forth in
Section 2.2(a) hereof.
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"CAP/EX LINE SUBLIMIT" shall have the meaning set forth in
Section 2.2(a) hereof.
"CAP/EX LINE TERMINATION DATE" shall have the meaning set
forth in Section 2.2(a) hereof.
"CAP/EX LOAN INTEREST RATE" shall mean the per annum rate of
interest on all Cap/Ex Loans equal to:
(a) with respect to all Cap/Ex Loans which are Alternate
Base Rate Advances, the Alternate Base Rate plus one half of one percent
(0.50%);
(b) with respect to all Cap/Ex Loans which are Eurodollar
Rate Advances, the Eurodollar Rate plus two and three-quarters of one percent
(2.75%); and
(c) with respect to all Cap/Ex Loans which are Average
Eurodollar Rate Advances, the Average Eurodollar Rate plus two and
three-quarters of one percent (2.75%).
"CAP/EX LOANS" shall mean from the date hereof up to the
Cap/Ex Line Termination Date, the aggregate outstanding principal amount of all
Cap/Ex Line Loans, and from and after the Cap/Ex Line Termination Date, the
Cap/Ex Term Loan.
"CAP/EX MANDATORY PREPAYMENT" shall have the meaning set forth
in Section 2.2(e) hereof.
"CAP/EX NOTE" shall have the meaning set forth in Section
2.2(d) hereof.
"CAP/EX RESERVE" shall mean, in addition to all other
Reserves, a reserve established by Lender in an amount determined from time to
time by Lender, in its sole discretion, equal to the amount by which the
aggregate principal amount of Cap/Ex Loans outstanding from time to time exceeds
seventy-five percent (75%) of the value of the Borrower's Eligible Equipment in
Lender's sole judgment.
"CAP/EX TERM LOAN" shall have the meaning set forth in Section
2.2(d) hereof.
"CASH FLOW" for any period, shall mean the sum of (a) Net
Income for such period PLUS (b) interest, income taxes, depreciation and
amortization and all other non-cash charges which were deducted in determining
Net Income for such period, MINUS (c)(i) scheduled and mandatory repayments of
Indebtedness to the extent actually paid during the period, (ii) non cash
credits which were taken into account in determining Net Income for such period,
(iii) interest expense (including all imputed interest on capital lease
obligations) to the extent actually paid during the period, (iv) income taxes to
the extent actually paid during the period, (v) dividends or other distributions
to the extent permitted
3
hereunder made by Borrower to holders of its respective shares of capital stock,
and (vi) any non-financed payments made in respect of any capital or fixed
assets actually paid during the period.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601 ET SEQ.
"CHANGE OF OWNERSHIP" shall mean the failure of Industries to
beneficially own all of the issued and outstanding shares of capital stock of
Borrower.
"CHARGES" shall mean all taxes, charges, fees, imposts, levies
or other assessments, including, without limitation, all net income, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance, stamp, occupation
and property taxes, custom duties, fees, assessments, Liens, Claims and charges
of any kind whatsoever, together with any interest and any penalties, additions
to tax or additional amounts, imposed by any taxing or other authority, domestic
or foreign (including, without limitation, the Pension Benefit Guaranty
Corporation or any environmental agency or superfund), upon the Collateral, the
Borrower or any of its Subsidiaries.
"CLAIMS" shall mean all security interests, Liens, claims or
encumbrances held or asserted by any Person against any or all of the
Collateral, other than (a) Charges and (b) Permitted Encumbrances.
"CLOSING DATE" shall mean April 30, 1998 or such other date as
may be agreed to by the parties hereto.
"COLLATERAL" shall mean and include:
(a) all Receivables;
(b) all Equipment;
(c) all General Intangibles;
(d) all Inventory;
(e) all Real Property;
(f) all Subsidiary Stock;
(g) all Leasehold Interests;
4
(h) all of the Borrower's right, title and interest in and
to (i) investment property, contract rights, instruments, documents and chattel
paper; (ii) its goods and other property including, but not limited to all
merchandise returned or rejected by Customers, relating to or securing any of
the Receivables; (iii) all of the Borrower's rights as a consignor, a consignee,
an unpaid vendor, mechanic, artisan, or other lienor, including stoppage in
transit, set off, detinue, replevin, reclamation and repurchase; (iv) all
additional amounts due to the Borrower from any Customer relating to the
Receivables; (v) other property, including warranty claims relating to any goods
securing this Agreement; (vi) if and when obtained by the Borrower, all real and
personal property of third parties in which the Borrower has been granted a lien
or security interest as security for the payment or enforcement of Receivables;
and (vii) any other goods, personal property or real property now owned or
hereafter acquired in which the Borrower has expressly granted a security
interest or may in the future grant a security interest to the Lender hereunder,
or in any amendment or supplement hereto, or under any other agreement between
the Lender and the Borrower;
(i) all of the Borrower's ledger sheets, ledger cards,
files, correspondence, records, books of account, business papers, computers,
computer software (owned by the Borrower or in which it has an interest),
computer programs, tapes, disks and documents relating to clauses (a), (b), (c),
(d), (e), (f), (g), or (h) above; and
(j) all proceeds and products of clauses (a), (b), (c), (d),
(e), (f), (g) and (h) above in whatever form, including, but not limited to:
cash, deposit accounts (whether or not comprised solely of proceeds),
certificates of deposit, insurance proceeds (including hazard, flood and credit
insurance), negotiable instruments and other instruments for the payment of
money, chattel paper, security agreements or documents.
"CONTRACT RATE" shall have the meaning set forth in Section
3.1 hereof.
"CORPORATION" shall mean TII Corporation, a corporation
organized under the laws of the State of Delaware, and its successors and
assigns.
"CUSTOMER" shall mean and include the account debtor with
respect to any of the Receivables and/or the prospective purchaser of goods,
services or both with respect to any contract or other arrangement with the
Borrower, pursuant to which the Borrower is to deliver any personal property or
perform any services.
"DEFAULT RATE" shall have the meaning set forth in Section 3.1
hereof.
"DEPOSITORY ACCOUNTS" shall have the meaning set forth in
Section 4.15(h) hereof.
"DITEL" shall mean TII-Ditel, Inc., a corporation organized
under the laws of the State of North Carolina, and its successors and assigns.
5
"DOCUMENTS" shall have the meaning set forth in Section 8.1(c)
hereof.
"DOLLAR" and the sign "$" shall mean lawful money of the
United States of America.
"ELIGIBLE EQUIPMENT" shall mean Equipment that meets all of
the following criteria:
(a) the Equipment shall be described (by model, make,
manufacturer, serial no. and/or such other identifying information as may be
appropriate, as determined by Lender) in a schedule to be submitted by the
Borrower to Lender;
(b) Lender shall have a perfected first priority lien on and
security interest in such Equipment;
(c) such Equipment shall be located at a premises owned or
leased by the Borrower in the United States or Puerto Rico; PROVIDED THAT, if
such Equipment is located at a premises leased by the Borrower, the Borrower has
delivered to Lender a landlord waiver in form and substance acceptable to Lender
in its sole discretion;
(d) such Equipment is acceptable as Collateral to Lender in
Lender's discretion, reasonably exercised; and
(e) The Borrower shall have delivered to Lender a copy of a
xxxx of sale, invoice or other instrument evidencing that the vendor of such
Equipment has transferred good and absolute title thereto to the Borrower for
the purchase price set forth therein, and if applicable, any deferred payment
terms given to the Borrower in connection with such sale. Such bills of sale,
invoices or other instruments shall be subject to desk top appraisal, the
results of which shall be acceptable to Lender in its sole discretion, by an
appraisal firm acceptable to Lender in its sole discretion. The criteria for
Eligible Equipment shall be subject to Lender's continuing satisfaction and may
be revised by Lender from time to time in its sole judgment. Notwithstanding
anything to the contrary contained herein, Eligible Equipment shall not include
any of the Borrower's Equipment located in the Dominican Republic, if any. Any
Equipment that is not Eligible Equipment shall nevertheless be and remain at all
times part of the Collateral.
"ELIGIBLE INVENTORY" shall mean and include Inventory,
excluding work in process, valued at the lower of cost or market value (and, in
the case of Eligible L/C Inventory, net of all duty, freight, taxes, costs,
insurance and other charges and expenses which may pertain to such Eligible L/C
Inventory), determined on a first-in-first-out basis, which is not, in Lender's
opinion, obsolete, slow moving or unmerchantable and which Lender, in its sole
discretion, shall not deem ineligible Inventory, based on such considerations as
Lender may from time to time deem appropriate including, without limitation,
whether the Inventory is subject to a perfected, first priority security
interest in
6
favor of Lender and whether the Inventory conforms to all standards imposed by
any governmental agency, division or department thereof which has regulatory
authority over such goods or the use or sale thereof. Eligible Inventory shall
include all Eligible L/C Inventory. Notwithstanding anything to the contrary
contained herein, Eligible Inventory shall not include any of the Borrower's
Inventory located in the Dominican Republic, if any.
"ELIGIBLE L/C INVENTORY" shall mean all raw material and
finished goods Inventory owned by the Borrower and covered by Letters of Credit,
and which raw material and finished goods Inventory are or will be in transit to
one of the Borrower's locations (other than the Dominican Republic), and which
raw material and finished goods Inventory (a) as of the date such Inventory is
owned by the Borrower (i) are fully insured, (ii) are subject to a first
priority security interest in and lien upon such goods in favor of Lender
(except for any possessory lien upon such goods in the possession of a freight
carrier or shipping company securing only the freight charges for the
transportation of such goods to the Borrower) and (iii) all documents, notices,
instruments, statements and bills of lading relating thereto, if any, which
Lender may deem necessary or desirable to evidence ownership by the Borrower
and/or to give effect to and protect the liens, security interests and other
rights of Lender in connection therewith, are delivered to Lender; and (b) are
and remain acceptable to Lender for lending purposes.
"ELIGIBLE RECEIVABLES" shall mean each Receivable arising in
the ordinary course of the Borrower's business and which Lender, in its sole
credit judgment, shall deem to be an Eligible Receivable, based on such
considerations as Lender may from time to time deem appropriate. In general, a
Receivable shall not be deemed eligible unless such Receivable is subject to
Lender's perfected security interest and no other Lien other than Permitted
Encumbrances, and is evidenced by an invoice or other documentary evidence
satisfactory to Lender. In addition, no Receivable shall be an Eligible
Receivable if:
(a) it arises out of a sale made by the Borrower to an
Affiliate of the Borrower, or to a Person controlled by an Affiliate of the
Borrower;
(b) it is due or unpaid more than sixty (60) days after the
original due date or ninety (90) days past the invoice date:
(c) fifty percent (50%) or more of the Receivables from the
account debtor are not deemed Eligible Receivables hereunder. Such percentage
may, in Lender's sole discretion, be increased or decreased from time to time;
(d) any covenant, representation or warranty contained in
this Agreement with respect to such Receivable has been breached;
(e) the account debtor is also the Borrower's creditor or
supplier, or the account debtor has disputed liability, or the account debtor
has made any claim with respect to any other Receivable due from such account
debtor to the Borrower, or the
7
Receivable otherwise is or may become subject to any right of setoff by the
account debtor; EXCEPT THAT, in Lender's discretion, in the event an account
debtor has disputed liability, Lender may, in accordance with and subject to the
other terms hereof, deem any Receivable which is not disputed as an Eligible
Receivable;
(f) 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 if 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 any state or federal bankruptcy
laws, as now constituted or hereafter amended, or if any other petition or other
application for relief under any state or federal bankruptcy law has been filed
against the account debtor, or if the account debtor has failed, suspended
business, ceased to be solvent, called a meeting of its creditors, 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;
(g) the sale is to an account debtor outside the United
States, Canada or Puerto Rico, unless the sale is on letter of credit, guaranty
or acceptance terms, in each case acceptable to Lender in its sole discretion,
or the Receivable arising from such sale is insured by a foreign credit
insurance policy in form, substance and amount acceptable to Lender in its sole
discretion, which policy, together with the proceeds thereof, has been duly
assigned to Lender;
(h) the sale to the account debtor is on a xxxx-and-hold,
guaranteed sale, sale-and-return, sale on approval, consignment or any other
repurchase or return basis or is evidenced by chattel paper;
(i) Lender believes, in its sole judgment, that collection
of such Receivable is insecure or that such Receivable may not be paid by reason
of the account debtor's financial inability to pay;
(j) the account debtor is the United States of America, any
state, the Commonwealth of Puerto Rico, or any department, agency or
instrumentality of any of them, unless the Borrower assigns the Borrower's right
to payment of such Receivable to Lender pursuant to the Assignment of Claims Act
of 1940, as amended (31 U.S.C. Sub-Section 203 et seq.) or has otherwise
complied with other applicable statutes or ordinances;
(k) the goods giving rise to such Receivable have not been
shipped and delivered to and accepted by the account debtor or the services
giving rise to such receivable have not been performed by the Borrower and
accepted by the account debtor or the Receivable otherwise does not represent a
final sale;
(l) the Receivables of the account debtor exceed a credit
limit determined by Lender, in its sole discretion, to the extent such
Receivable exceeds such limit;
8
(m) the Receivable is subject to any offset, deduction,
defense, dispute, or counterclaim or if the Receivable is contingent in any
respect or for any reason;
(n) the Borrower has made any agreement with any account
debtor for any deduction therefrom, except for discounts or allowances made in
the ordinary course of business for prompt payment, all of which discounts or
allowances are reflected in the calculation of the face value of each respective
invoice related thereto;
(o) shipment of the merchandise or the rendition of services
has not been completed;
(p) any return, rejection or repossession of the merchandise
has occurred;
(q) such Receivable is not payable to the Borrower; or
(r) such Receivable is not otherwise satisfactory to the
Lender as determined in good faith by the Lender in the exercise of its
discretion in a reasonable manner.
"ENVIRONMENTAL COMPLAINT" shall have the meaning set forth in
Section 4.19(d) hereof.
"ENVIRONMENTAL LAWS" shall mean all federal, state and local
environmental, land use, zoning, health, chemical use, safety and sanitation
laws, statutes, ordinances and codes relating to the protection of the
environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, guidelines, interpretations,
decisions, orders and directives of federal, state and local governmental
agencies and authorities with respect thereto.
"EQUIPMENT" shall mean and include all of the Borrower's goods
(excluding Inventory) whether now owned or hereafter acquired and wherever
located including, without limitation, all equipment, machinery, apparatus,
motor vehicles, fittings, furniture, furnishings, fixtures, parts, accessories
and all replacements and substitutions therefor or accessions thereto.
"EQUIPMENT PURCHASE PRICE" shall be the purchase price of any
Eligible Equipment as set forth in the xxxx of sale, invoice or other instrument
evidencing the purchase of such Equipment by the Borrower, net of all taxes,
transportation, installation, delivery and other soft costs of such purchase.
"EURODOLLAR RATE" shall mean with respect to the Interest
Period for a Eurodollar Rate Advance, the interest rate per annum equal to the
arithmetic average of the rates of interest per annum (rounded upwards, if
necessary, to the next one-sixteenth (1/16) of one percent (1%)) at which the
Bank is offered deposits of United States Dollars
9
in the London interbank market (or other Eurodollar Rate market selected by the
Borrower and approved by Lender) on or about 9:00 a.m. (New York time) two (2)
Business Days prior to the commencement of such Interest Period in amounts
substantially equal to the principal amount of the Eurodollar Rate Advances
requested by and available to the Borrower in accordance with this Agreement,
with a maturity of comparable duration to the Interest Period selected by the
Borrower.
"EURODOLLAR RATE ADVANCES" shall mean any Advances or portion
thereof on which interest is payable based on the Eurodollar Rate in accordance
with the terms hereof.
"EVENT OF DEFAULT" shall mean the occurrence of any of the
events set forth in Article 10 hereof.
"FACILITY AMOUNT" shall mean $12,500,000.
"FEDERAL FUNDS RATE" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, of if such rate is not so published for
any day which is a Business Day, the average of quotations for such day on such
transactions received by the Bank from three Federal funds brokers of recognized
standing selected by the Bank.
"FORMULA AMOUNT" shall have the meaning set forth in Section
2.1(a) hereof.
"GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time.
"GENERAL INTANGIBLES" shall mean and include all of the
Borrower's general intangibles, whether now owned or hereafter acquired
including, without limitation, all choses in action, causes of action, corporate
or other business records, inventions, designs, patents, patent applications,
equipment formulations, manufacturing procedures, quality control procedures,
trademarks, trade secrets, goodwill, copyrights, registrations, licenses,
franchises, customer lists, tax refunds, tax refund claims, computer programs,
all claims under guaranties, security interests or other security held by or
granted to the Borrower to secure payment of any of the Receivables by an
account debtor, all rights of indemnification and all other intangible property
of every kind and nature (other than Receivables).
"GUARANTOR" shall mean individually and collectively,
Affiliated Borrowers, TII Dominicana, Inc., TII International, Inc. and
Telecommunications Industries, Inc.
"GUARANTY" shall mean the guaranty of the obligations of the
Borrower executed by each Guarantor, respectively, in favor of Lender.
10
"HAZARDOUS DISCHARGE" shall have the meaning set forth in
Section 4.19(d) hereof.
"HAZARDOUS SUBSTANCE" shall mean, without limitation, any
flammable explosives, radon, radioactive materials, asbestos, urea formaldehyde
foam insulation, polychlorinated byphenyls, petroleum and petroleum products,
methane, hazardous materials, hazardous wastes, hazardous or toxic substances or
related materials as defined in CERCLA, the Hazardous Materials Transportation
Act, as amended (49 U.S.C. Sections 1801, ET SEQ.), RCRA, Articles 15 and 27 of
the New York State Environmental Conversation Law or any other applicable
Environmental Law and in the regulations adopted pursuant hereto.
"HAZARDOUS WASTES" includes all waste materials subject to
regulation under CERCLA, RCRA or applicable state law, and any other applicable
Federal and state laws now in force or hereafter enacted relating to hazardous
waste disposal.
"INCIPIENT EVENT OF DEFAULT" shall mean an event which, with
the giving of notice or passage of time or both, would constitute an Event of
Default.
"INDEBTEDNESS" of a Person at a particular date shall mean all
obligations of such Person which in accordance with GAAP would be classified
upon a balance sheet as liabilities (except capital stock and surplus earned or
otherwise) and in any event, without limitation by reason of enumeration, shall
include all indebtedness, debt and other similar monetary obligations of such
Person whether direct or guaranteed, and all premiums, if any, due at the
required prepayment dates of such indebtedness, and all indebtedness secured by
a Lien on assets owned by such Person, whether or not such indebtedness actually
shall have been created, assumed or incurred by such Person. Any indebtedness of
such Person resulting from the acquisition by such Person of any assets subject
to any Lien shall be deemed, for the purposes hereof, to be the equivalent of
the creation, assumption and incurring of the indebtedness secured thereby,
whether or not actually so created, assumed or incurred.
"INDUSTRIES" shall mean TII Industries, Inc., a corporation
organized under the laws of the State of Delaware, and its successors and
assigns.
"INDUSTRIES LOAN AGREEMENT" shall have the meaning as set
forth in the definition of "Affiliate Loan Agreements" above.
"INTEREST PERIOD" shall mean for any Eurodollar Rate Advance,
a period of approximately one (1), two (2), three (3) or six (6) months duration
as the Borrower may elect, the exact duration to be determined in accordance
with the customary practice in the applicable Eurodollar Rate market; PROVIDED,
THAT, the Borrower may not elect an Interest Period which (i) with respect to
Cap/Ex Line Loans, will end after the Cap/Ex Line Termination Date, and (ii)
with respect to all Advances, will end after the last day of the then-current
term of this Agreement.
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"INVENTORY" shall mean all of the Borrower's now owned or
hereafter acquired inventory, goods, merchandise and other personal property,
wherever located, to be furnished under any contract of service or held for sale
or lease, all raw materials, work in process, finished goods and materials and
supplies of any kind, nature or description which are or might be used or
consumed in the Borrower's business or used in selling or furnishing such goods,
merchandise and other personal property, and all documents of title or other
documents representing them.
"INVENTORY ADVANCE RATE" shall have the meaning set forth in
Section 2.1(a) hereof.
"LEASEHOLD INTERESTS" shall mean all of the Borrower's right
title and interest in and to the premises located at Xxxx 000, Xxxxxxxxx 0.00,
Xxx Xxxx, Xxxxxx Xxxx 00000.
"LENDER" shall mean BNY and its successor and assigns.
"LETTERS OF CREDIT" shall have the meaning set forth in
Section 2.9 hereof.
"LETTER OF CREDIT FEES" shall have the meaning set forth in
Section 3.2(a) hereof.
"LIEN" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, security interest, lien, charge, Claim or
encumbrance, or preference, priority or other security agreement or preferential
arrangement in respect of any asset of the Borrower or any Subsidiary of the
Borrower of any kind or nature whatsoever including, without limitation, any
conditional sale or other title retention agreement, any lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction.
"MAXIMUM REVOLVING ADVANCE AMOUNT" shall mean $6,000,000.
"MONTHLY ADVANCES" shall have the meaning set forth in Section
3.1 hereof.
"NET INCOME" shall mean the net income of Crown.
"OBLIGATIONS" shall mean and include any and all of the
Borrower's Indebtedness and/or liabilities to the Lender or any corporation that
directly or indirectly controls or is controlled by or is under common control
with Lender of every kind, nature and description, direct or indirect, secured
or unsecured, joint, several, joint and several, absolute or contingent, due or
to become due, now existing or hereafter arising, contractual or tortious,
liquidated or unliquidated, regardless of how such indebtedness or liabilities
arise or by what agreement or instrument they may be evidenced or whether
evidenced by any agreement or instrument, including, but not limited to, any and
all of the Borrower's Indebtedness and/or liabilities under this Agreement or
under any other
12
agreement between the Lender and the Borrower and all obligations of the
Borrower to the Lender to perform acts or refrain from taking any action.
"ORDERLY LIQUIDATION VALUE" shall mean the orderly liquidation
value of the Borrower's Equipment as determined by an independent appraiser
acceptable to Lender and as reflected in a desk top appraisal prepared by such
appraiser, at the Borrower's cost and expense, and delivered to Lender.
"OTHER DOCUMENTS" shall mean the Questionnaire and any and all
other agreements, instruments and documents, including, without limitation,
guaranties, pledges, powers of attorney, consents, and all other writings
heretofore, now or hereafter executed by the Borrower and/or delivered to Lender
in respect of the transactions contemplated by this Agreement.
"OVERFORMULA AMOUNT" shall have the meaning set forth in
Section 2.1(b) hereof.
"OVERFORMULA RATE" shall mean a per annum rate equal to one
half of one percent (0.5%) in excess of the applicable Contract Rate.
"PARENT" of any Person shall mean a corporation or other
entity owning, directly or indirectly at least fifty percent (50%) of the shares
of stock or other ownership interests having ordinary voting power to elect a
majority of the directors of the Person, or other Persons performing similar
functions for any such Person.
"PAYMENT OFFICE" shall mean initially 0000 Xxxxxx xx xxx
Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000; thereafter, such other office of Lender, if
any, which Lender may designate by notice to the Borrower to be the Payment
Office.
"PERMITTED ENCUMBRANCES" shall mean (a) liens in favor of
Lender; (b) liens for taxes, assessments or other governmental charges not
delinquent, or, being contested in good faith and by appropriate proceedings and
with respect to which proper reserves have been taken by the Borrower; (c) liens
disclosed in the financial statements referred to in Section 5.5, the existence
of which Lender has consented to in writing; (d) deposits or pledges to secure
obligations under workmen's compensation, social security or similar laws, or
under unemployment insurance; (e) deposits or pledges to secure bids, tenders,
contracts (other than contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds and other obligations of like nature
arising in the ordinary course of the Borrower's business; (f) judgment liens
that have been stayed or bonded and mechanics', workmen's, materialmen's,
carriers', or other like liens arising in the ordinary course of the Borrower's
business with respect to obligations which are not due or which are being
contested in good faith by the Borrower; (g) liens placed upon fixed or capital
assets hereafter acquired to secure a portion of the purchase price thereof,
provided that (x) any such lien shall not encumber any other property of the
Borrower and (y) the aggregate amount of Indebtedness secured by such liens
incurred as a result of such
13
purchases during any fiscal year shall not exceed the amount provided for in
Section 7.6; and (i) liens disclosed on EXHIBIT 1.2.
"PERSON" shall mean an individual, a partnership, a
corporation, a business trust, a joint stock company, a trust, an unincorporated
association, a joint venture, a governmental authority or any other entity of
whatever nature.
"POSITIVE CASH FLOW" shall have the meaning set forth in
Section 2.2(e)(i) hereof.
"PRIME RATE" for the purpose of this Agreement means the rate
of interest publicly announced from time to time by the Bank at its principal
office in New York as its prime rate or prime lending rate. This rate of
interest is determined from time to time by the Bank as a means of pricing some
loans to its customers and is neither tied to any external rate of interest or
index nor does it necessarily reflect the lowest rate of interest actually
charged by the Bank to any particular class or category of customers of the
Bank.
"PRO FORMA FINANCIAL STATEMENTS" shall have the meaning set
forth in Section 5.5(b) hereof.
"QUESTIONNAIRE" shall mean the Questionnaire dated March 10,
1998 executed by the Borrower and delivered to Lender under a cover letter dated
April 17, 1998, as supplemented by a letter dated April 24, 1998.
"RCRA" shall mean the Resource Conservation and Recovery Act,
42 U.S.C. Section 6901 ET SEQ., as same may be amended from time to time.
"REAL PROPERTY" shall mean all of the Borrower's right, title
and interest in and to any now owned or hereafter acquired real property and all
buildings and improvements located thereon.
"RECEIVABLES" shall mean and include all of the Borrower's
accounts, contract rights, instruments, documents, chattel paper, general
intangibles relating to accounts, drafts and acceptances, and all other forms of
obligations owing to the Borrower arising out of or in connection with the sale
or lease of Inventory or the rendition of services, all guarantees and other
security therefor, whether secured or unsecured, now existing or hereafter
created, and whether or not specifically sold or assigned to the Lender
hereunder.
"RECEIVABLES ADVANCE RATE" shall have the meaning set forth in
Section 2.1(a) hereof.
"RELEASES" shall have the meaning set forth in Section
5.7(c)(i) hereof.
14
"RESERVES" shall mean all Obligations then chargeable to any
account of the Borrower, as well as Obligations which may, in Lender's sole
discretion, be chargeable to the Borrower's account thereafter, by reason of or
in connection with any of the following: Receivables which are not Eligible
Receivables; Inventory which is not Eligible Inventory; disputed items;
deductions; allowances; credits; xxxx and hold sales; consignment sales; Letters
of Credit; steamship guarantees; airway releases; offsets asserted by or granted
to account debtors; sales calling for payment in currencies other than United
States Dollars; to adjust for audit/examination of the Borrower's accounts(s) or
for any documentation correction; such additional reserves as Lender, in its
sole discretion, reasonably exercised, deems appropriate, including, but not
limited to, to adjust for any condition or prospect of the Borrower or the
Borrower's industry; and Cap/Ex Reserves.
"REVOLVING ADVANCES" shall mean Advances made other than
Letters of Credit and the Cap/Ex Loans.
"REVOLVING ADVANCE INTEREST RATE" shall mean the per annum
rate of interest on all Revolving Advances equal to:
(i) With respect to all Revolving Advances which are
Alternate Base Rate Advances, the Alternate Base Rate plus one quarter of one
percent (0.25%);
(ii) With respect to all Revolving Advances which are
Eurodollar Rate Advances, the Eurodollar Rate plus two and one half of one
percent (2.5%); and
(iii) With respect to all Revolving Advances which are Average
Eurodollar Rate Advances, the Average Eurodollar Rate plus two and one half of
one percent (2.5%).
"SUBSIDIARY" of any Person shall mean a corporation or other
entity of whose shares of stock or other ownership interests having ordinary
voting power (other than stock or other ownership interests having such power
only by reason of the happening of a contingency) to elect a majority of the
directors of such corporation, or other Persons performing similar functions for
such entity, are owned, directly or indirectly, by such Person.
"SUBSIDIARY STOCK" shall mean all of the issued and
outstanding shares of stock owned by Borrower with respect to any of its
Subsidiaries.
"TERM" shall have the meaning set forth in Section 13.1
hereof.
"TOXIC SUBSTANCE" shall mean and include any material present
on the Real Property or the Leasehold Interests which has been shown to have
significant adverse effect on human health or which is subject to regulation
under the Toxic Substances Control Act (TSCA), 15 U.S.C. Section 2601 ET SEQ.,
applicable state law, or any other applicable Federal or state laws now in force
or hereafter enacted, relating to toxic
15
substances. "Toxic Substance" includes but is not limited to asbestos,
polychlorinated biphenyls (PCBs) and lead-based paints.
"TRANSACTIONS" shall have the meaning set forth in Section 5.5
hereof.
1.3 UNIFORM COMMERCIAL CODE TERMS. All terms used herein and defined in
the Uniform Commercial Code as adopted in the State of New York shall have the
meaning given therein unless otherwise defined herein.
2. ADVANCES, PAYMENT, INTEREST AND FEES.
2.1 REVOLVING ADVANCES. (a) Subject to the terms and conditions set
forth in this Agreement, Lender will make from time to time, Revolving Advances
to the Borrower not to exceed at any one time an aggregate outstanding amount
equal to the sum of (i) the lesser of (x) the Maximum Revolving Advance Amount
and (y) the Formula Amount; LESS (ii) the aggregate amount of all outstanding
Revolving Advances, PROVIDED THAT, the aggregate amount of all outstanding
Revolving Advances hereunder, PLUS all issued and outstanding Letters of Credit
hereunder, PLUS the aggregate amount of all outstanding Revolving Advances under
the Affiliate Loan Agreements, PLUS all issued and outstanding Letters of Credit
under the Affiliate Loan Agreements shall not exceed the Maximum Revolving
Advance Amount. The "Formula Amount" shall mean the sum of the following amounts
at any time and from time to time:
(i) eighty-five percent (85%) of Eligible Receivables
("Receivables Advance Rate"), PLUS
(ii) fifty percent (50%) of Eligible Inventory ("Inventory
Advance Rate; together with the Receivables Advance Rate", collectively the
"Advance Rates"), PROVIDED, HOWEVER, that the maximum amount of outstanding
Revolving Advances against Eligible Inventory to the Borrower hereunder and to
Affiliated Borrowers under the Affiliate Loan Agreements, shall not exceed
$3,000,000 at any one time, LESS
(iii) Reserves (including, without limitation, Cap/Ex Reserves
and Reserves for Letters of Credit), LESS
(iv) $2,000,000 (less any portion thereof allocated from time
to time by Lender, in its sole discretion, under the Affiliate Loan Agreements).
(b) DISCRETIONARY OVERFORMULA REVOLVING ADVANCES. Notwithstanding
anything to the contrary contained herein, the aggregate amount of all Revolving
Advances and amounts due under Letters of Credit at any time and from time to
time outstanding
16
hereunder and under the Affiliate Loan Agreements shall not exceed the formulas
and limitations as set forth in Section 2.1(a) hereof (any such excess amount,
an "Overformula Amount"). Any Revolving Advances constituting an Overformula
Amount are made available by Lender or otherwise permitted to exist in the sole
and absolute discretion of Lender and are subject to Section 2.7 hereof.
(c) DISCRETIONARY RIGHTS. The Advance Rates may be increased or
decreased by Lender at any time and from time to time in the exercise of its
reasonable discretion. The Borrower consents to any such increases or decreases
and acknowledges that decreasing the Advance Rates may limit or restrict
Advances requested by the Borrower.
2.2 CAP/EX LOANS.
(a) In addition to all Revolving Advances, Letters of Credit and
any other loans and financial accommodations to be made by Lender pursuant to
this Agreement and subject to the terms and conditions set forth herein, Lender
agrees, from the date hereof up to December 31, 1998 (the "Cap/Ex Line
Termination Date"), to make loans to the Borrower, upon the Borrower's written
request, for the purpose of purchasing or acquiring Eligible Equipment, or for
the purpose of refinancing any existing Indebtedness or making new loans, with
respect to any Equipment which Lender, in its sole discretion deems to be
Eligible Equipment (the "Cap/Ex Line Loans"). Each Cap/Ex Line Loan shall be in
an amount not to exceed seventy-five percent (75%) of the Equipment Purchase
Price in respect of Eligible Equipment which is, at the time acquired by the
Borrower, new Equipment, and seventy-five percent (75%) of the Orderly
Liquidation Value in respect of Eligible Equipment which is, as of the date of
such requested Cap/Ex Line Loan, used Equipment, PROVIDED, HOWEVER, that after
giving effect to a Cap/Ex Line Loan requested by the Borrower, the sum of (i)
such requested Cap/Ex Line Loan PLUS (ii) the aggregate original principal
amount of all Cap/Ex Line Loans which have been made to the Borrower, PLUS (iii)
the aggregate original principal amount of all Cap/Ex Line Loans which have been
made to Affiliated Borrowers under the Affiliate Loan Agreements shall in no
event exceed $6,500,000 ("Cap/Ex Line Sublimit"). The Borrower shall provide
Lender with not less than ten (10) days prior written notice of each requested
Cap/Ex Line Loan. Each Cap/Ex Line Loan shall bear interest from the date such
Cap/Ex Line Loan is made at the applicable Contract Rate set forth in Section
3.1 and such interest shall be payable in accordance with Section 3.1. In
addition to the foregoing and subject to the Cap/Ex Line Sublimit, Lender may,
in its sole discretion, make additional Cap/Ex Line Loans to the Borrower in
respect of Eligible Equipment, which is, at the time acquired by the Borrower,
used Equipment, in an amount determined by Lender in its sole discretion.
(b) Each Cap/Ex Line Loan shall be in an amount of not less than
$250,000.
17
(c) The Borrower shall have no right to request, and Lender shall
have no obligation to make whatsoever, any Cap/Ex Line Loan after the Cap/Ex
Line Termination Date.
(d) The aggregate principal amount of all Cap/Ex Line Loans made
from the Closing Date through and including June 30, 1998 (the "June 30
Principal Balance"), shall be repaid in seven (7) consecutive monthly principal
installments (or earlier as herein provided) commencing July 31, 1998, and on
the last day of each month thereafter, of which the first six (6) installments
shall each be in an amount equal to a quotient of the June 30 Principal Balance
divided by eighty-four (84), and the seventh (7th) installment shall be in an
amount equal to the entire then unpaid principal balance of the June 30
Principal Balance ("Unpaid June 30 Principal Balance"). The Unpaid June 30
Principal Balance and the aggregate principal amount of all Cap/Ex Line Loans
made from July 1, 1998 through and including the Cap/Ex Line Termination Date
(the "Cap/Ex Term Loan") shall be consolidated and repaid in fifty-one (51)
consecutive monthly principal installments (or earlier as herein provided)
commencing on the last day of the first calendar month next following the Cap/Ex
Line Termination Date and monthly thereafter on the last day of each successive
month until paid, of which the first fifty (50) principal installments shall
each be in an amount equal to the quotient of the principal amount of the Cap/Ex
Term Loan divided by eighty-four (84), and the last and fifty-first (51st)
principal installment shall be in an amount of the entire unpaid balance of such
Cap/Ex Term Loan. The Cap/Ex Term Loan shall be evidenced by and subject to the
terms and conditions of a promissory note (the "Cap/Ex Note"), which Cap/Ex Note
shall be in form and substance satisfactory to Lender and shall be dated as of
the last day of the first calendar month next following the Cap/Ex Line
Termination Date. Notwithstanding anything to the contrary contained herein, if
the Term of this Agreement is extended beyond the initial Term, the amortization
schedule of principal payments of the Cap/Ex Term Loan may, in Lender's sole
discretion, be extended, and the Borrower shall execute an amended and restated
promissory note in favor of Lender, in form and substance acceptable to Lender,
reflecting such revised schedule of principal installment payments with respect
to the Cap/Ex Term Loan, PROVIDED THAT, the final principal installment of such
Cap/Ex Term Loan shall be due and payable not later than the seventh (7th)
anniversary of the Closing Date. In addition to all other rights and remedies
under this Agreement, the Cap/Ex Term Loan, together with all accrued and unpaid
interest thereon and the early termination fee in respect thereof, shall, at
Lender's option, be immediately due and payable if this Agreement shall be
terminated or not renewed for any reason whatsoever, or upon the occurrence of
any Event of Default hereunder.
(e) (i) In addition to, and not in limitation of, any provision
contained herein or in the Cap/Ex Note, and except as otherwise provided in
Section 4.3 and Section 4.11 hereof, the Borrower shall remit to Lender the
following mandatory prepayments in respect of the Cap/Ex Loans (each, a "Cap/Ex
Mandatory Prepayment"):
(x) Commencing with Borrower's fiscal year ending
June, 1999 and for each of the Borrower's fiscal years thereafter, if the
Borrower's Cash Flow for
18
such applicable fiscal year is greater than $1.00 ("Positive Cash Flow"), the
Borrower shall pay to Lender an amount equal to fifty percent (50%) of such
Positive Cash Flow without duplication of any such Positive Cash Flow payments,
or portion thereof, attributable to Industries and/or Corporation under that
certain Revolving Credit, Term Loan and Security Agreement dated the date hereof
among Lender, Industries and Corporation, and without duplication of any
Positive Cash Flow payments, or portion thereof, attributable to Ditel under
that certain Revolving Credit, Term Loan and Security Agreement dated the date
hereof between Lender and Ditel. The Cap/Ex Mandatory Prepayment payable
pursuant to this Section 2.2(e)(i) shall be due and payable five (5) days after
delivery to Lender of the Annual Audited Financial Statements for such fiscal
year. At Lender's option, in addition to all other Obligations, Lender may
charge any account of the Borrower for any Cap/Ex Mandatory Prepayment due under
this Section 2.2(e)(i);
(y) Subject to the terms of Section 4.3 hereof, the
Borrower shall pay to Lender the net proceeds of sale or other disposition of
Equipment; and
(z) Subject to the terms of Section 4.11 hereof, the
Borrower shall pay to Lender all proceeds of insurance with respect to any
Equipment.
(ii) Each Cap/Ex Mandatory Prepayment shall be applied
against the unpaid principal balance of the Cap/Ex Line Loans in such order and
manner as Lender shall elect and, from and after the Cap/Ex Line Termination
Date, against the unpaid principal balance of the Cap/Ex Term Loan in the
inverse order of maturities thereof.
(f) The Cap/Ex Loans shall (i) constitute a part of the Advances
and a part of the Obligations, (ii) be secured by the Collateral; and (iii) be
subject to the continued compliance with the terms and provisions of this
Agreement.
(g) The making of any Cap/Ex Line Loans is further subject to the
satisfaction of each of the following conditions precedent in a manner
satisfactory to Lender:
(i) Evidence that the Borrower has disbursed, in connection
with the purchase of the Equipment, all the proceeds received by the Borrower to
the vendors of such Equipment; and
(ii) no Event of Default or Incipient Event of Default shall
have occurred and be continuing.
2.3 APPOINTMENT OF INDUSTRIES AS AGENT FOR BORROWING. The Borrower
hereby irrevocably appoints its parent, Industries, the beneficial owner of not
less than sixty-five percent (65%) of the issued and outstanding capital stock
of the Borrower, and each officer thereof, as its agent and attorney-in-fact to
request Advances on its behalf, and, at Lender's option, to receive
disbursements of Advances on its behalf (which may be made
19
to any account which the Borrower may designate in writing), to receive notices
and statements of account from Lender, to take such other actions on its behalf
as is provided hereunder or under any of the Other Documents and generally to
deal with Lender on its behalf, for all matters pertaining to the financing
arrangements under this Agreement and the Other Documents.
2.4 REQUEST FOR ADVANCES.
(a) The Borrower may, from time to time, request Lender to make
Alternate Base Rate Advances, Eurodollar Rate Advances or Average Eurodollar
Rate Advances, convert Alternate Base Rate Advances, Eurodollar Rate Advances or
Average Eurodollar Rate Advances, or request that any existing Eurodollar Rate
Advances continue for an additional Interest Period. In the event that Borrower
desires Lender to make Alternate Base Rate Advances or Average Eurodollar Rate
Advances, Borrower shall notify Lender prior to 11:00 a.m. on a Business Day of
its request to incur such Alternate Base Rate Advance or Average Eurodollar Rate
Advances, as the case may be, on that day and the amount thereof. In the event
that Borrower desires Lender to make Eurodollar Rate Advances, convert Alternate
Base Rate Advances to Eurodollar Rate Advances, convert Average Eurodollar Rate
Advances to Eurodollar Rate Advances or continue Eurodollar Rate Advances for an
additional Interest Period, Borrower shall give Lender at least three (3)
Business Days' prior written notice, no later than 10:00 a.m. (New York City
time) on the day such notice is given, specifying the amount and the date (which
shall be a Business Day) of the proposed making of any such Eurodollar Rate
Advance, conversion of any such Alternate Base Rate Advance into a Eurodollar
Rate Advance, conversion of any such Average Eurodollar Rate Advance into a
Eurodollar Rate Advance, or continuance of existing Eurodollar Rate Advances for
an additional Interest Period. Such request from Borrower shall specify the
amount of the Advances which will constitute Eurodollar Rate Advances (subject
to the limits set forth below) and the Interest Period to be applicable to such
Eurodollar Rate Advances. Subject to the terms and conditions contained herein,
three (3) Business Days after receipt by Lender of such a request from Borrower,
such Eurodollar Rate Advances, shall be made, or such Alternate Base Rate
Advances shall be converted to Eurodollar Rate Advances or such Average
Eurodollar Rate Advances shall be converted to Eurodollar Rate Advances, or such
Eurodollar Rate Advances shall continue, PROVIDED, THAT, as of each such date,
each of the following conditions is satisfied as determined by Lender in its
sole discretion: (i) no Event of Default or Incipient Event of Default exists or
has occurred and is continuing, (ii) no party hereto shall have sent any notice
of termination or non-renewal of this Agreement, (iii) Borrower shall have
complied with such customary procedures as are established by Lender and
specified by Lender to Borrower from time to time for requests by Borrower for
Eurodollar Rate Advances, (iv) no more than five (5) Interest Periods in the
aggregate for Borrower and Affiliated Borrowers may be in effect at any one
time, (v) the amount of each Eurodollar Rate Advance must be, in each case, in
an amount of not less than $1,000,000 or an integral multiple of $100,000 in
excess thereof, (vi) the maximum amount of the Eurodollar Rate Advances at any
time requested by Borrower shall not exceed the amount equal to eighty percent
(80%) of the lowest principal amount of the Advances which it is
20
anticipated will be outstanding during the applicable Interest Period, in each
case as determined by Lender (but with no obligation of Lender to make such
Advances) and (vii) Lender shall have determined that the Interest Period or
Eurodollar Rate is available to Lender through the Bank and can be readily
determined as of the date of the request for such Eurodollar Rate Advances by
Borrower. Any request by Borrower to convert Alternate Base Rate Advances to
Eurodollar Rate Advances, or to convert Average Eurodollar Rate Advances to
Eurodollar Rate Advances, or to continue any existing Eurodollar Rate Advances
shall be irrevocable. Notwithstanding anything to the contrary contained herein,
Lender and Bank shall not be required to purchase United States Dollar deposits
in the London interbank market or other applicable Eurodollar Rate market to
fund any Eurodollar Rate Advances, but the provisions hereof shall be deemed to
apply as if Lender and Bank had purchased such deposits to fund the Eurodollar
Rate Advances.
(b) Any Eurodollar Rate Advances shall automatically convert to
Alternate Base Rate Advances upon the last day of the applicable Interest
Period, unless Lender has received and approved a request to continue such
Eurodollar Rate Advance at least three (3) Business Days prior to such last day
in accordance with the terms hereof. Borrower shall pay to Lender, upon demand
by Lender (or Lender may, at its option, charge any loan account of Borrower)
any amounts required to compensate Lender, the Bank or any participant with
Lender for any loss (including loss of reasonably anticipated profits), cost or
expense incurred by such person, as a result of the conversion of Eurodollar
Rate Advances or Average Eurodollar Rate Advances, as the case may be, to
Alternate Base Rate Advances pursuant to any of the foregoing. Any Eurodollar
Rate Advances shall bear interest at the Default Rate in the event that (i) an
Event of Default shall exist or have occurred, (ii) this Agreement shall
terminate or not be renewed, or (iii) the aggregate principal amount of the
Alternate Base Rate Advances which have previously been converted to Eurodollar
Rate Advances, or which existing Eurodollar Rate Advances have been continued,
as the case may be, at the beginning of an Interest Period shall at any time
during such Interest Period exceed either (x) the aggregate principal amount of
the Advances then outstanding, or (y) the Advances then available to Borrower
under Section 2.1 hereof. Any Average Eurodollar Rate Advances shall
automatically convert to Alternate Base Rate Advances in the event that an Event
of Default or an Incipient Event of Default shall exist or have occurred or this
Agreement shall terminate or not be renewed and such Alternate Base Rate
Advances shall bear interest at the Default Rate.
(c) Should any amount required to be paid as interest hereunder,
or as fees or other charges under this Agreement or any other agreement with
Lender, or with respect to any other Obligation, become due, same shall be
deemed a request for a Revolving Advance as of the date such payment is due, in
the amount required to pay in full such interest, fee, charge or Obligation
under this Agreement or any other agreement with Lender, and such request shall
be irrevocable.
2.5 DISBURSEMENT OF ADVANCE PROCEEDS. All Advances shall be disbursed
from whichever office or other place the Lender may designate from time to time
and, together
21
with any and all other Obligations of the Borrower to Lender, shall be charged
to any account of the Borrower on the Lender's books. During the Term, the
Borrower may use the Revolving Advances by borrowing, repaying and reborrowing,
all in accordance with the terms and conditions hereof. The proceeds of each
Revolving Advance requested by the Borrower or deemed to have been requested by
the Borrower under Section 2.4(c) hereof shall, with respect to requested
Revolving Advances to the extent the Lender makes such Revolving Advances,
subject to Section 2.3 hereof, be made available to the Borrower on the day so
requested by way of credit to Industries' operating account at such bank as
Industries may designate following notification to Lender, in immediately
available federal or other immediately available funds or, with respect to
Revolving Advances deemed to have been requested, be disbursed to the Lender in
payment of outstanding Obligations.
2.6 REPAYMENT OF ADVANCES.
(a) The Revolving Advances shall be due and payable in full on the
last day of the Term subject to earlier prepayment as herein provided. The
Cap/Ex Loans shall be due and payable as provided in Section 2.2 hereof and in
the Cap/Ex Note.
(b) The Borrower recognizes that the amounts evidenced by checks,
notes, drafts or any other items of payment relating to and/or proceeds of
Collateral may not be collectible by the Lender on the date received. In
consideration of the Lender's agreement to conditionally credit any account of
the Borrower as of the Business Day on which the Lender receives from the
Blocked Account bank or the Depository Account bank those items of payment, the
Borrower agrees that, in computing the charges under this Agreement, all items
of payment shall be deemed applied by Lender on account of the Obligations one
(1) Business Day after confirmation to Lender by the Blocked Account bank or the
Depository Account bank as provided for in Section 4.15(h), that such items of
payment have been collected in good funds and finally credited by Lender to any
account of Borrower. The Lender is not, however, required to credit any account
of the Borrower for the amount of any item of payment which is unsatisfactory to
the Lender and the Lender may charge any account of the Borrower for the amount
of any item of payment which is returned to the Lender unpaid.
(c) All payments of principal, interest and other amounts payable
hereunder, or under any of the related agreements shall be made to the Lender at
the Payment Office not later than 1:00 P.M. (New York Time) on the due date
therefor in lawful money of the United States of America in Federal or other
funds immediately available to the Lender. Lender shall have the right to
effectuate payment on any and all Obligations due and owing hereunder by
charging any account of the Borrower or by making Advances as provided in
Section 2.5 hereof.
(d) The Borrower shall pay principal, interest, and all other
amounts payable hereunder, or under any related agreement, without any deduction
whatsoever, including, but not limited to, any deduction for any setoff or
counterclaim.
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2.7 REPAYMENT OF OVERFORMULA AMOUNTS. The aggregate balance of all
Revolving Advances constituting an Overformula Amount shall be immediately due
and payable without the necessity of any demand, at the place designated by
Lender, whether or not an Incipient Event of Default or Event of Default has
occurred, unless otherwise expressly agreed to in writing by Lender.
2.8 STATEMENT OF ACCOUNT. Lender shall maintain, in accordance with its
customary procedures, a loan account in the name of the Borrower in which shall
be recorded the date and amount of each Advance made by Lender and the date and
amount of each payment in respect thereof; PROVIDED, HOWEVER, the failure by
Lender to record the date and amount of any Advance shall not adversely affect
Lender. For each month, Lender shall send to the Borrower a statement showing
the accounting for the Advances made, payments made or credited in respect
thereof, and other transactions between Lender and the Borrower, during such
month. The monthly statements shall be deemed correct and binding upon the
Borrower in the absence of manifest error and shall constitute an account stated
between Lender and the Borrower unless Lender receives a written statement of
the Borrower's specific exceptions thereto within thirty (30) days after such
statement is received by the Borrower. The records of Lender with respect to the
loan account shall be PRIMA FACIE evidence of the amounts of Advances and other
changes thereto and of payments applicable thereto.
2.9 LETTERS OF CREDIT. Subject to the terms and conditions hereof,
Lender shall issue or cause the issuance of Letters of Credit ("Letters of
Credit"); PROVIDED, HOWEVER, that Lender will not be required to issue or cause
to be issued any Letters of Credit to the extent that the face amount of such
Letters of Credit would then cause: (i) the sum of (A) the aggregate amount of
all outstanding Revolving Advances hereunder, PLUS (B) all issued and
outstanding Letters of Credit hereunder to exceed the lesser of (x) the Maximum
Revolving Advance Amount and (y) the Formula Amount (exclusive of, for the
purposes of calculating the Formula Amount, any Reserves established for Letters
of Credit); or (ii) the sum of (A) the aggregate amount of all outstanding
Revolving Advances hereunder, PLUS (B) all issued and outstanding Letters of
Credit hereunder, PLUS (C) the aggregate amount of all Revolving Advances under
the Affiliate Loan Agreements, PLUS (D) all issued and outstanding Letters of
Credit under the Affiliate Loan Agreements to exceed the lesser of (x) the
Maximum Revolving Advance Amount and (y) the aggregate Formula Amount hereunder
and under the Affiliate Loan Agreements (in each case, exclusive of, for the
purposes of calculating the Formula Amount, any Reserves established for Letters
of Credit). The maximum amount of outstanding Letters of Credit hereunder and
under the Affiliate Loan Agreements shall not exceed $1,000,000 in the aggregate
at any time. All disbursements or payments related to Letters of Credit shall be
deemed to be a Revolving Advance which is an Alternate Base Rate Advance and
shall bear interest at the applicable Revolving Advance Interest Rate set forth
in Section 1.2 hereof.
23
2.10 ISSUANCE OF LETTERS OF CREDIT.
(a) The Borrower may request Lender to issue or cause the issuance
of a Letter of Credit by delivering to Lender at the Payment Office, Lender's
standard form of Letter of Credit and Security Agreement together with Bank's
standard form of Letter of Credit Application (collectively, the "Letter of
Credit Application") and any draft, if applicable, completed to the satisfaction
of Lender; and, such other certificates, documents and other papers and
information as Lender may reasonably request.
(b) Each Letter of Credit shall, among other things, (i) provide
for the payment of sight drafts when presented for honor thereunder in
accordance with the terms thereof and when accompanied by the documents
described therein and (ii) have an expiry date not later than six months after
such Letter of Credit's date of issuance and in no event later than the last day
of the Term. Each Letter of Credit Application and each Letter of Credit shall
be subject to the Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication No. 500, and any
amendments or revisions thereof and, to the extent not inconsistent therewith,
the laws of the State of New York.
2.11 REQUIREMENTS FOR ISSUANCE OF LETTERS OF CREDIT
(a) In connection with the issuance of any Letter of Credit, the
Borrower shall indemnify, save and hold Lender harmless from any loss, cost,
expense or liability, including, without limitation, payments made by Lender,
and expenses and reasonable attorneys' fees incurred by Lender arising out of,
or in connection with, any Letter of Credit to be issued or created for the
Borrower. The Borrower shall be bound by Lender's or any issuing or accepting
bank's regulations and good faith interpretations of any Letter of Credit issued
or created for the Borrower's account, although this interpretation may be
different from the Borrower's own, and, neither Lender, the bank which opened
the Letter of Credit nor any of its correspondents shall be liable for any
error, negligence, or mistakes, whether by omission or commission, in following
the Borrower's instructions or those contained in any Letter of Credit or of any
modifications, amendments or supplements thereto or in creating or paying any
Letter of Credit, except for Lender's gross negligence or willful misconduct or
such issuing banks' or correspondents' willful misconduct.
(b) The Borrower shall authorize and direct any bank which issues
a Letter of Credit to name the Borrower as the "Account Party" therein and to
deliver to Lender all instruments, documents, and other writings and property
received by the bank pursuant to the Letter of Credit or in connection with any
acceptance and to accept and rely upon Lender's instructions and agreements with
respect to all matters arising in connection with the Letter of Credit, the
application therefor or any acceptance therefor.
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(c) In connection with all Letters of Credit issued or created by
Lender under this Agreement, the Borrower hereby appoints Lender, or its
designee, as its attorney-in-fact, with full power and authority (a) to sign
and/or endorse the Borrower's name upon any warehouse or other receipts, letter
of credit applications and acceptances; (b) to sign the Borrower's name on bills
of lading; (c) to clear Inventory through customs in the name of the Borrower or
Lender or Lender's designee, and to sign and deliver to Customs Officials powers
of attorney in the name of the Borrower for such purpose; and (d) to complete in
the Borrower's name or Lender's, or in the name of Lender's designee, any order,
sale or transaction, obtain the necessary documents in connection therewith, and
collect the proceeds thereof. Neither Lender nor its attorneys will be liable
for any acts or omissions nor for any error of judgment or mistakes of fact or
law, except for Lender's or its attorney's gross negligence or willful
misconduct. This power, being coupled with an interest, is irrevocable as long
as any Letters of Credit remain outstanding.
2.12 ADDITIONAL PAYMENTS. Any sums expended by Lender due to the
Borrower's failure to perform or comply with its obligations under this
Agreement including, without limitation, the Borrower's obligations under
Sections 4.2, 4.4, 4.10, 4.12, 4.13, 4.14 and 6.1 hereof, may be charged to any
account of the Borrower's as a Revolving Advance and added to the Obligations.
Any sums expended by Lender or any amounts charged to any account of the
Borrower as a Revolving Advance shall be an Alternate Base Rate Advance and
shall bear interest at the applicable Revolving Advance Interest Rate as set
forth in Section 1.2 hereof.
3. INTEREST AND FEES.
3.1 INTEREST. Interest on Advances shall be payable in arrears on the
last day of each month, except that, interest with respect to Eurodollar Rate
Advances shall be payable on the last day of the Interest Period with respect
thereto. Interest charges shall be computed on the actual average of such daily
Advances outstanding during the month (the "Monthly Advances") at a rate per
annum equal to (i) with respect to Revolving Advances, the Revolving Advance
Interest Rate, and (ii) with respect to Cap/Ex Loans, the Cap/Ex Loan Interest
Rate (as applicable, the "Contract Rate"). Whenever, subsequent to the date
hereof, the Alternate Base Rate or the Average Eurodollar Rate is increased or
decreased, the applicable Contract Rate shall be similarly changed without
notice or demand of any kind by an amount equal to the amount of such change in
the Alternate Base Rate or Average Eurodollar Rate, as the case may be, during
the time such change or changes remain in effect. If an Overformula Amount
exists for five (5) or more days in any month during the Term, Advances (other
than Cap/Ex Loans) for that month shall bear interest at the Overformula Rate.
Upon and after the occurrence of an Event of Default, and during the
continuation thereof, the Obligations shall bear interest at the applicable
Contract Rate plus two percent (2%) per annum (the "Default Rate").
25
3.2 LETTERS OF CREDIT.
(a) The Borrower shall pay Lender (i) (A) for issuing or causing
the issuance of a standby Letter of Credit, a fee computed at a rate per annum
of three percent (3%) on the outstanding amount thereof from time to time, and
(B) for issuing or causing the issuance of a Letter of Credit that is not a
standby Letter of Credit, a fee equal to one-quarter of one percent (.25%) of
the original and each increase in the face amount thereof for each 30 days or
part thereof of its term (the fees set forth in (A) and (B) are hereinafter
referred to as "Letter of Credit Fees"), and (ii) issuing bank's other customary
charges payable in connection with Letters of Credit as in effect from time to
time (which charges shall be furnished to Borrower by Lender upon request). Such
fees and charges shall be payable (i) in the case of any Letter of Credit,
monthly thereafter in advance, (ii) in the case of a standby Letter of Credit,
(A) monthly thereafter in advance and (B) upon each increase in the outstanding
amount thereof, and (iii) in the case of any Letter of Credit that is not a
standby Letter of Credit, at the time of each increase in face amount thereof.
All Letter of Credit Fees payable hereunder shall be deemed earned in full on
the date when the same are due and payable hereunder and shall not be subject to
rebate or proration upon the termination of this Agreement for any reason.
(b) On demand, Borrower will cause cash to be deposited and
maintained in an account with Lender, as cash collateral, in an amount equal to
outstanding Letters of Credit and Borrower hereby irrevocably authorizes Lender,
in its discretion, on Borrower's behalf and in the Borrower's name, to open such
an account and to make and maintain deposits therein, or in an account opened by
Borrower, in the amounts required to be made by Borrower, out of the proceeds of
Receivables or other Collateral or out of any other funds of Borrower coming
into Lender's possession at any time. Borrower may not withdraw amounts credited
to any such account except upon payment and performance in full of all
Obligations and termination of this Agreement. In the event Borrower shall
deposit with Lender cash collateral as provided herein, Lender agrees to release
any Reserve established in respect of such outstanding Letters of Credit to the
extent of such cash collateral.
3.3 [INTENTIONALLY OMITTED]
3.4 [INTENTIONALLY OMITTED]
3.5 [INTENTIONALLY OMITTED]
3.6 COMPUTATION OF INTEREST AND FEES. Interest and fees hereunder shall
be computed on the basis of a year of 360 days and for the actual number of days
elapsed. If any payment to be made hereunder becomes due and payable on a day
other than a Business Day, the due date thereof shall be extended to the next
succeeding Business Day and interest thereon shall be payable at the applicable
Contract Rate during such extension.
26
3.7 MAXIMUM CHARGES. In no event whatsoever shall interest and other
charges charged hereunder exceed the highest rate permissible under law which a
court of competent jurisdiction shall, in a final determination, deem applicable
hereto. In the event that a court determines that Lender has received interest
and other charges hereunder in excess of the highest rate applicable hereto,
such excess interest shall be first applied to any unpaid principal balance owed
by the Borrower, and if then remaining excess interest is greater than the
previously unpaid principal balance, the Lender shall promptly refund such
excess amount to the Borrower and the provisions hereof shall be deemed amended
to provide for such permissible rate.
3.8 INCREASED COSTS. In the event that any applicable law, treaty or
governmental regulation, or any change therein or in the interpretation or
application thereof, or compliance by the Lender (for purposes of this Section
3.8, the term "Lender" shall include Lender or any corporation or bank
controlling Lender) with any request or directive (whether or not having the
force of law) from any central bank or other financial, monetary or other
authority, shall:
(a) subject the Lender to any tax of any kind whatsoever with
respect to this Agreement or any Advance or change the basis of taxation of
payments to the Lender of principal, fees, interest or any other amount payable
hereunder or under any Other Documents (except for changes in the rate of tax on
the overall net income of the Lender by the jurisdiction in which it maintains
its principal office);
(b) impose, modify or hold applicable any reserve, special
deposit, assessment or similar requirement against assets held by, or deposits
in or for the account of, advances or loans by, or other credit extended by, any
office of the Lender, including (without limitation) pursuant to Regulation D of
the Board of Governors of the Federal Reserve System; or
(c) impose on the Lender any other condition with respect to this
Agreement, any Other Documents or any other Advances; and the result of any of
the foregoing is to increase the cost to the Lender of making, renewing or
maintaining its Advances hereunder by an amount that Lender deems to be material
or to reduce the amount of any payment (whether of principal, interest or
otherwise) in respect of any of the Advances by an amount that the Lender deems
to be material, then, in any case the Borrower shall promptly pay the Lender,
upon its demand, such additional amount as will compensate the Lender for such
additional cost or such reduction, as the case may be. The Lender shall certify
the amount of such additional cost or reduced amount to the Borrower, and such
certification shall be conclusive absent manifest error.
3.9 CAPITAL ADEQUACY.
(a) In the event that the Lender shall have determined that any
applicable law, rule, regulation or guideline regarding capital adequacy, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority,
27
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Lender (for purposes of this
Section 3.9, the term "Lender" shall include Lender and any corporation or bank
controlling Lender) and the office or branch where Lender (as so defined) makes
or maintains any Advances with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on the Lender's capital as a consequence of its obligations hereunder to
a level below that which the Lender could have achieved but for such adoption,
change or compliance (taking into consideration the Lender's policies with
respect to capital adequacy) by an amount deemed by the Lender to be material,
then, from time to time, the Borrower shall pay upon demand to the Lender such
additional amount or amounts as will compensate the Lender for such reduction.
In determining such amount or amounts, the Lender may use any reasonable
averaging attribution methods. The protection of this Section 3.9 shall be
available to the Lender regardless of any possible contention of invalidity or
inapplicability of the law, regulation or condition which shall have been
imposed.
(b) A certificate of the Lender setting forth such amount or
amounts as shall be necessary to compensate the Lender as specified in this
Section 3.9 shall be delivered to the Borrower and shall be conclusive absent
manifest error.
3.10 SURVIVAL. The obligations of the Borrower under this Article 3 shall
survive termination of this Agreement and the Other Documents.
4. COLLATERAL: GENERAL TERMS.
4.1 SECURITY INTEREST IN THE COLLATERAL. To secure the prompt payment
and performance to Lender of the Obligations, the Borrower hereby assigns,
pledges and grants to Lender a continuing security interest in and to all of the
Collateral, whether now owned or existing or hereafter acquired or arising and
wheresoever located. The Borrower shall xxxx its books and records as may be
necessary and appropriate to evidence, protect and perfect Lender's security
interest and shall cause its financial statements to reflect such security
interest.
4.2 PERFECTION OF SECURITY INTEREST. The Borrower shall take all action
that may be necessary or desirable, or that Lender may request, so as at all
time to maintain the validity, perfection, enforceability and priority of
Lender's security interest in the Collateral or to enable Lender to protect,
exercise or enforce its rights hereunder and in the Collateral, including, but
not limited to (i) immediately discharging all Liens other than Permitted
Encumbrances, (ii) obtaining landlords' or mortgagees' lien waivers, (iii)
delivering to Lender, endorsed or accompanied by such instruments of assignment
as Lender may specify, and stamping or marking, in such manner as Lender may
specify, any and all chattel paper, instruments, letters of credit and advices
thereof and documents evidencing or forming a part of the Collateral, (iv)
entering into warehousing, lockbox and
28
other custodial arrangements satisfactory to Lender, and (v) executing and
delivering financing statements, instruments of pledge, mortgages, notices and
assignments, in each case in form and substance satisfactory to Lender, relating
to the creation, validity, perfection, maintenance or continuation of Lender's
security interest under the Uniform Commercial Code or other applicable law. All
charges, expenses and fees the Lender may incur in doing any of the foregoing,
and any local taxes relating thereto, shall be charged to any account of the
Borrower and added to the Obligations, or at the Lender's option, shall be paid
to the Lender immediately upon demand.
4.3 DISPOSITION OF COLLATERAL. The Borrower will safeguard and protect
all Collateral for the Lender's general account and make no disposition thereof
whether by sale, lease or otherwise except (a) the sale of Inventory in the
ordinary course of business and (b) the disposition or transfer of obsolete and
worn-out Equipment in the ordinary course of business during any fiscal year
having an aggregate fair market value of not more than $150,000 (net of taxes
and expenses) and only to the extent that (i) the proceeds for any such
disposition are used to acquire replacement Equipment which is subject to
Lender's first priority security interest or (ii) the proceeds of which are
remitted to Lender as a prepayment on the Cap/Ex Term Loan. The Borrower shall
remit to Lender the net proceeds of any such sale or disposition immediately
upon receipt thereof. The Borrower shall only be permitted to use the proceeds
of any such disposition to acquire replacement Equipment if the Borrower
provides Lender with notice of its intent to acquire replacement Equipment
within thirty (30) days after the receipt of such proceeds by the Borrower. In
the event such notice is not received by Lender within such thirty (30) day
period, or such replacement Equipment is not purchased within ninety (90) days
after such notice is received by Lender, said proceeds shall be immediately
applied by Lender in respect of the Cap/Ex Term Loan.
4.4 PRESERVATION OF COLLATERAL. In addition to the rights and remedies
set forth in Section 11.1 hereof, the Lender: (a) may at any time take such
steps as the Lender deems necessary to protect the Lender's interest in and to
preserve the Collateral, including after the occurrence of an Event of Default
and during its continuance, the hiring of such security guards for the placing
of such security protection measures as the Lender may deem appropriate; (b) may
employ and maintain at any of the Borrower's premises a custodian who shall have
full authority to do all acts necessary in Lender's good faith judgment to
protect the Lender's interests in the Collateral; (c) after the occurrence of an
Event of Default and during its continuance, may lease warehouse facilities to
which the Lender may move all or part of the Collateral; (d) after the
occurrence of an Event of Default and during its continuance, may use any of the
Borrower's owned or leased lifts, hoists, trucks and other facilities or
equipment for handling or removing the Collateral; and (e) shall have, and is
hereby granted, a right of ingress and egress to the places where the Collateral
is located, and may proceed over and through any of the Borrower's owned or
leased property. The Borrower shall cooperate fully with all of the Lender's
efforts to preserve the Collateral and will take such actions to preserve the
Collateral as the Lender may direct. All of the Lender's expenses of preserving
the Collateral, including any
29
expenses relating to the bonding of a custodian, shall be charged to the
Borrower's account and added to the Obligations.
4.5 OWNERSHIP OF COLLATERAL. With respect to the Collateral, at the time
the Collateral becomes subject to the Lender's security interest: (a) the
Borrower shall be the sole owner of and fully authorized and able to sell,
transfer, pledge and/or grant a first security interest in each an every item of
the Collateral to the Lender; and, except for Permitted Encumbrances the
Collateral shall be free and clear of all Liens, Claims, Charges and
encumbrances whatsoever; (b) each document and agreement executed by the
Borrower or delivered to Lender in connection with this Agreement shall be true
and correct in all respects; (c) all signatures and endorsements of the Borrower
that appear on such documents and agreements shall be genuine and the Borrower
shall have full capacity to execute same; and (d) the Borrower's Equipment and
Inventory is located as set forth on EXHIBIT 4.5 and shall not be removed from
such location(s) without the prior written consent of the Lender except (i) with
respect to the sale of Inventory in the ordinary course of business and
Equipment to the extent permitted in Section 4.3 hereof and (ii) the relocation
of Inventory and/or Equipment to any of the locations set forth in EXHIBIT 4.5
(other than the relocation to processors which shall be governed by the
provisions of Section 4.5(d)(iii) below), PROVIDED THAT, with respect to the
relocation of Equipment, Lender receives not less than thirty (30) days prior
written notice of any intended relocation, EXCEPT THAT, the Borrower shall not
be permitted to relocate or move any Equipment to the Dominican Republic from
the United States, the Commonwealth of Puerto Rico or otherwise without Lender's
prior written consent.
4.6 DEFENSE OF LENDER'S INTERESTS. Until (a) payment and performance in
full of all of Obligations and (b) termination of this Agreement, the Lender's
interests in the Collateral hereby granted to the Lender shall continue in full
force and effect. During such period, the Borrower shall not, without the
Lender's prior written consent, pledge, sell or transfer (except Inventory in
the ordinary course of business and Equipment to the extent permitted in Section
4.3 hereof, and except as otherwise expressly permitted by this Agreement and
the Other Documents), pledge, assign, create or suffer to exist a security
interest in, Lien, Claim or Charge upon or encumber or allow or suffer to be
encumbered in any way except for Permitted Encumbrances, any part of the
Collateral. The Borrower shall defend the Lender's interests in the Collateral
against any and all persons whatsoever. In connection with the exercise of its
rights under Section 11 hereof, Lender shall have the right to take possession
of the indicia of the Collateral and the Collateral in whatever physical form
contained, including without limitation: labels, stationery, documents,
instruments and advertising materials. If Lender exercises this right to take
possession of the Collateral, Borrower shall, upon demand, assemble it in the
best manner possible and make it available to Lender at a place reasonably
convenient to Lender. In addition, with respect to all Collateral, Lender shall
be entitled to all of the rights and remedies set forth herein and further
provided by the Uniform Commercial Code or other applicable law. Borrower shall,
and Lender may, at its option, instruct all suppliers, carriers, forwarders,
warehouses or others receiving or holding cash, checks, Inventory, documents or
instruments in which Lender holds a security interest to deliver same to
30
Lender and/or subject to Lender's order and if they shall come into Borrower's
possession, they, and each of them, shall be held by Borrower in trust as
Lender's trustee, and Borrower will immediately deliver them to Lender in their
original form together with any necessary endorsement.
4.7 BOOKS AND RECORDS. The Borrower (a) shall keep proper books of
record and account in which full, true and correct entries will be made of all
dealings or transactions of or in relation to its business and affairs; (b) set
up on its books, accruals with respect to all taxes, assessments, charges,
levies and claims; and (c) on a reasonably current basis set up on its books,
from its earnings, allowances against doubtful Receivables, advances and
investments and all other proper accruals (including without limitation by
reason of enumeration, accruals for premiums, if any, due on required payments
and accruals for depreciation, obsolescence, or amortization of properties),
which should be set aside from such earnings in connection with its business.
All determinations pursuant to this subsection shall be made in accordance with,
or as required by, GAAP consistently applied and, to the extent applicable, in
the opinion of such independent public accountant as shall then be regularly
engaged by the Borrower.
4.8 FINANCIAL DISCLOSURE. The Borrower hereby irrevocably authorizes and
directs all accountants and auditors employed by the Borrower at any time during
the term of this Agreement to exhibit and deliver to Lender copies of any of the
Borrower's financial statements, trial balances or other accounting records of
any sort in the accountant's or auditor's possession, and to disclose to Lender
any information such accountants may have concerning the Borrower's financial
status and business operations. The Borrower hereby authorizes all federal,
state and municipal authorities to furnish to Lender copies of reports or
examinations relating to the Borrower, whether made by the Borrower or
otherwise; however, Lender will attempt to obtain such information or materials
directly from the Borrower prior to obtaining such information or materials from
such accountants.
4.9 COMPLIANCE WITH LAWS. The Borrower shall comply in all materials
respects with all acts, rules, regulations and orders of any legislative,
administrative or judicial body or official applicable to the Collateral or any
part thereof or to the operation of the Borrower's business the non-compliance
with which would have a material adverse effect on the Collateral, or the
operations, business or condition (financial or otherwise) of the Borrower. The
Borrower may, however, contest or dispute any acts, rules, regulations, orders
and directions of those bodies or officials in any reasonable manner, provided
that any related lien is inchoate or stayed and sufficient reserves are
established to the reasonable satisfaction of the Lender to protect the Lender's
lien on or security interest in the Collateral.
4.10 INSPECTION OF PREMISES. At all reasonable times, Lender shall have
full access to and the right to audit, check, inspect and make abstracts and
copies from the Borrower's books, records, audits, correspondence and all other
papers relating to the Collateral and the operation of the Borrower's business.
Such audits, checks, inspections and the making of abstracts shall be at the
Borrower's expense, EXCEPT THAT, prior to an
31
Event of Default or an unsatisfactory inspection, as determined by Lender in its
sole discretion, the Borrower shall only be required to reimburse Lender for
Lender's costs and expenses incurred in connection with not more than three such
audits, checks, inspections or making of abstracts per annum. Lender and its
agents may enter upon any of the Borrower's premises at any time during business
hours and at any other reasonable time, and from time to time, for the purpose
of inspecting the Collateral and any and all records pertaining thereto and the
operation of the Borrower's business.
4.11 INSURANCE. The Borrower shall bear the full risk of loss from
any loss of any nature whatsoever with respect to the Collateral. At the
Borrower's own cost and expense in amounts and with carriers acceptable to
Lender, the Borrower shall (a) keep all its insurable properties and properties
in which the Borrower has an interest insured against the hazards of fire,
flood, sprinkler leakage, those hazards covered by extended coverage insurance
and such other hazards, and for such amounts, as is customary in the case of
companies engaged in businesses similar to the Borrower's including, without
limitation, business interruption insurance; (b) maintain a bond in such amounts
as is customary in the case of companies engaged in business similar to the
Borrower's insuring against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of the
Borrower either directly or through authority to draw upon such funds or to
direct generally the disposition of such assets; (c) maintain public and product
liability insurance against claims for personal injury, death or property damage
suffered by others; (d) maintain all such workmen's compensation or similar
insurance as may be required under the laws of any state or jurisdiction in
which the Borrower is engaged in business; (e) furnish Lender with (i) copies of
all policies and evidence of the maintenance of such policies by the renewal
thereof at least ten (10) days before any expiration date, and (ii) appropriate
loss payable endorsements in form and substance satisfactory to the Lender,
naming the Lender as loss payee as its interests may appear with respect to all
insurance coverage referred to in clauses (a), and (b) above, and providing (A)
that all proceeds thereunder shall be payable to the Lender, (B) no such
insurance shall be affected by any act or neglect of the insured or owner of the
property described in such policy, and (C) that such policy and loss payable
clauses may not be cancelled, amended or terminated unless at least thirty (30)
days' prior written notice is given to the Lender. In the event of any loss
thereunder, the carriers named therein hereby are directed by the Lender and the
Borrower to make payment for such loss to the Lender and not to the Borrower and
the Lender jointly. If any insurance losses are paid by check, draft or other
instrument payable to the Borrower and the Lender jointly, the Lender may
endorse the Borrower's name thereon and do such other things as the Lender may
deem advisable to reduce the same to cash. The Lender in its discretion,
reasonably exercised, is hereby authorized to adjust and compromise claims under
insurance coverage referred to in clauses (a) and (b) above; EXCEPT THAT, so
long as no Event of Default exists and is continuing, Borrower, with Lender's
consent, which consent shall not be unreasonably withheld, shall adjust and
compromise claims under insurance coverage referred to in clauses (a) and (b)
above. All loss recoveries received by Lender upon any such insurance may be
applied to the Obligations, in such order as Lender in its sole discretion
32
shall determine. Any surplus shall be paid by the Lender to the Borrower or
applied as may be otherwise required by law. Any deficiency thereon shall be
paid by the Borrower to the Lender in respect of any then due Obligations.
Anything hereinabove to the contrary notwithstanding, and subject to the
fulfillment of the conditions set forth below, Lender shall remit to the
Borrower insurance proceeds received by Lender during any calendar year under
insurance policies procured and maintained by the Borrower which insure the
Borrower's insurable properties to the extent such insurance proceeds do not
exceed $100,000 in the aggregate during such calendar year or $25,000 per
occurrence. In the event the amount of insurance proceeds received by the Lender
for any occurrence exceeds $25,000, then the Lender shall not be obligated to
remit the insurance proceeds to the Borrower unless the Borrower shall provide
Lender with evidence reasonably satisfactory to Lender that the insurance
proceeds will be used by the Borrower to repair, replace or restore the insured
property which was the subject of the insurable loss. In the event the Borrower
has previously received (or, after giving effect to any proposed remittance by
Lender to the Borrower would receive) insurance proceeds which equal or exceed
$100,000 in the aggregate during any calendar year, and provided no Event of
Default shall exist, then upon the Borrower's written request, which request
shall be made within thirty (30) days from the receipt of any such proceeds,
Lender shall remit such insurance proceeds to the Borrower upon the Borrower
providing Lender with evidence reasonably satisfactory to Lender that the
insurance proceeds will be used by the Borrower to repair, replace or restore
the insured property which was the subject of the insurable loss. In the event
Lender fails to receive any request within such thirty (30) day period or the
Borrower fails to repair, replace or restore the insured property within ninety
(90) days from the date Lender receives such insurance proceeds, then Lender
shall immediately apply such insurance proceeds in respect of the Cap/Ex Loans
in accordance with Section 2.2 (e) hereof.
4.12 FAILURE TO PAY INSURANCE. If the Borrower fails to obtain insurance
as hereinabove provided, or to keep the same in force, the Lender, if the Lender
so elects, may obtain such insurance and pay the premium therefor for the
Borrower's account, and charge any account of the Borrower therefore and such
expenses so paid shall be part of the Obligations.
4.13 PAYMENT OF TAXES. The Borrower will pay, when due, all taxes,
assessments and other Charges or Claims lawfully levied or assessed upon the
Borrower or any of the Collateral including, without limitation, real and
personal property taxes, assessments and charges and all franchise, income,
employment, old age benefits, withholding, and sales taxes. If any tax by any
governmental authority is or may be imposed on or as a result of any transaction
between the Borrower and Lender with Lender may be required to withhold or pay
or if any taxes, assessments, or other Charges remain unpaid after the date
fixed for their payment, or if any Claim shall be made which, in the Lender's
opinion, may possibly create a valid Lien, Charge or Claim on the Collateral,
the Lender may without notice to the Borrower pay the taxes, assessments, Liens,
Charges or Claims and the Borrower hereby indemnifies and holds Lender harmless
in respect thereof. The Lender will not pay any taxes, assessments, Liens,
Charges or Claims to the extent that the
33
Borrower has contested or disputed those Liens, Charges and Claims in good
faith, by expeditious protest, administrative or judicial appeal or similar
proceeding provided that any related tax lien is stayed and sufficient reserves
are established to the reasonable satisfaction of the Lender to protect the
Lender's security interest in or Lien on the Collateral. The amount of any
payment by Lender under this Section 4.13 shall be deemed to be a Revolving
Advance and shall be charged to any account of the Borrower as an Alternate Base
Rate Advance and added to the Obligations and, until the Borrower shall furnish
Lender with an indemnity therefore (or supply Lender with evidence satisfactory
to Lender that due provision for the payment thereof has been made), Lender may
hold without interest any balance standing to the Borrower's credit and Lender
shall retain its security interest in any and all Collateral held by Lender.
Nothing contained herein shall require or be deemed to require the Borrower to
pay any income tax of Lender or any income tax which may be payable by Lender
for income earned by Lender in respect of the loans made hereunder.
4.14 PAYMENT OF LEASEHOLD OBLIGATIONS. The Borrower shall at all times
pay, when and as due, its rental obligations under all real estate leases under
which they are tenants, and shall otherwise comply, in all material respects,
with all other terms of such leases and keep them in full force and effect and,
at the Lender's request will provide evidence of having done so.
4.15 RECEIVABLES.
(a) NATURE OF RECEIVABLES. Each of the Receivables shall be a bona
fide and valid account representing a bona fide indebtedness incurred by the
Customer therein named, for a fixed sum as set forth in the invoice relating
thereto (provided immaterial or unintentional invoice errors shall not be deemed
to be a breach hereof) with respect to an absolute sale or lease and delivery of
goods upon stated terms of the Borrower, or work, labor or services theretofore
rendered by the Borrower and as of the date each Receivable is created, same
shall be due and owing in accordance with the Borrower's standard terms of sale
without dispute, setoff or counterclaim except as may be stated on the accounts
receivable schedules delivered by the Borrower to the Lender.
(b) SOLVENCY OF CUSTOMERS. Each Customer, to the best of the
Borrower's knowledge, as of the date each Receivable with respect to such
Customer is created, is and will be solvent and able to pay all Receivables on
which the Customer is obligated in full when due. With respect to such Customers
of the Borrower who are not solvent, the Borrower has set up on its books and in
its financial records bad debt reserves adequate to cover such Receivables.
(c) LOCATION OF BORROWER. The Borrower's chief executive office is
located at Road 000, Xxxxxxxxx 0.00, Xxx Xxxx, Xxxxxx Xxxx 00000. Until written
notice is given to the Lender by the Borrower of any other office at which the
Borrower keeps records pertaining to Receivables, all such records shall be kept
at such executive office or at any of the other locations listed on EXHIBIT 4.5.
34
(d) COLLECTION OF RECEIVABLES. Until the Borrower's authority to
do so is terminated by the Lender (which notice the Lender may give at any time
following the occurrence of an Event of Default or when the Lender in its sole
discretion reasonably exercised deems it to be in the Lender's best interest to
do so), the Borrower will, at the Borrower's sole cost and expense, but on the
Lender's behalf and for the Lender's account, collect as proceeds of the
Lender's Collateral and in trust for the Lender all amounts received on
Receivables, and shall not commingle such collections with the Borrower's funds
or use the same except to pay Obligations. The Borrower shall, upon request,
deliver to the Lender in original form and on the date of receipt thereof, all
checks, drafts, notes, money orders, acceptances, cash and other evidences of
Indebtedness.
(e) NOTIFICATION OF ASSIGNMENT OF RECEIVABLES. At any time after
the occurrence of an Event of Default or Incipient Event of Default, Lender
shall have the right to send notice of the assignment of, and the Lender's
security interest in, the Receivables to any and all Customers or any third
party holding or otherwise concerned with any of the Collateral. Thereafter, the
Lender shall have the sole right to collect the Receivables, take possession of
the Collateral, or both. All costs, fees and expenses, including stationery and
postage, telephone and telegraph, secretarial and clerical expenses and the
salaries of any collection personnel used for collection, may be charged to the
Borrower's account and added to the Obligations.
(f) POWER OF LENDER TO ACT ON BORROWER'S BEHALF. The Lender shall
have the right to receive, endorse, assign and/or deliver in the name of the
Lender or the Borrower any and all checks, drafts and other instruments for the
payment of money relating to the Receivables, and the Borrower hereby waives
notice of presentment, protest and non-payment of any instrument so endorsed.
The Borrower hereby constitutes the Lender or the Lender's designee as the
Borrower's attorney-in-fact with power (i) to endorse the Borrower's name upon
any notes, acceptances, checks, drafts, money orders or other evidences of
payment or Collateral; (ii) to sign the Borrower's name on any invoice or xxxx
of lading relating to any of the Receivables; (iii) to send verifications of
Receivables, drafts against Customers, assignments and verifications of
Receivables; (iv) to send verifications of Receivables to any Customer; (v) to
sign the Borrower's name on all financing statements or any other documents or
instruments deemed necessary or appropriate by the Lender to preserve, protect,
or perfect the Lender's interest in the Collateral and to file same; (vi) upon
the occurrence of an Event of Default and during its continuance, to demand
payment of the Receivables; (vii) upon the occurrence of an Event of Default and
during its continuance, to enforce payment of the Receivables by legal
proceedings or otherwise; (viii) upon the occurrence of an Event of Default and
during its continuance, to exercise all of Borrower's rights and remedies with
respect to the collection of the Receivables and any other Collateral; (ix) upon
the occurrence of an Event of Default and during its continuance, to settle,
adjust, compromise, extend or renew the Receivables; (x) upon the occurrence of
an Event of Default and during its continuance, to settle, adjust or compromise
any legal proceedings brought to collect Receivables; (xi) upon the occurrence
of an Event of Default and during its continuance, to prepare, file and sign the
Borrower's name on a proof of claim in bankruptcy or similar document against
35
any account debtor; (xii) to prepare, file and sign the Borrower's name on any
notice of Lien, assignment or satisfaction of Lien or similar document in
connection with the Receivables; and (xiii) to do all other acts and things
necessary to carry out this Agreement. All acts of said attorney or designee are
hereby ratified and approved, and said attorney or designee shall not be liable
for any acts of omission or commission nor for any error of judgment or mistake
of fact or of law, unless done maliciously or with gross negligence; this power
being coupled with an interest is irrevocable while any of the Obligations
remain unpaid. The Lender shall have the right at any time following the
occurrence of an Event of Default to change the address for delivery of mail
addressed to the Borrower to such address as the Lender may designate.
(g) NO LIABILITY. The Lender shall not, under any circumstances or
in any event whatsoever, have any liability for any error or omission or delay
of any kind occurring in the settlement, collection or payment of any of the
Receivables or any instrument received in payment thereof, or for any damage
resulting therefrom other than due to Lender's gross negligence or willful
misconduct, EXCEPT THAT, in no event shall Lender be liable for lost profits or
other special or consequential damages. Upon the occurrence of an Event of
Default and during its continuance, the Lender may, without notice or consent
from the Borrower, xxx upon or otherwise collect, extend the time of payment of,
compromise or settle for cash, credit or upon any terms any of the Receivables
or any other securities, instruments or insurance applicable thereto and/or
release any obligor thereof. The Lender is authorized and empowered to accept
following the occurrence of an Event of Default the return of the goods
represented by any of the Receivables, without notice to or consent by the
Borrower, all without discharging or in any way affecting the Borrower's
liability hereunder.
(h) ESTABLISHMENT OF A LOCKBOX ACCOUNT, DOMINION ACCOUNT. All
proceeds of Receivables shall, at the direction of Lender, be deposited by the
Borrower into a lockbox account, dominion account or such other "blocked
account" ("Blocked Accounts") as Lender may require pursuant to an arrangement
with such bank as may be selected by the Borrower and be acceptable to Lender.
The Borrower shall issue to any such bank, an irrevocable letter of instruction
directing said bank to transfer such funds so deposited to the Lender, either to
any account maintained by the Lender at said bank or by wire transfer to
appropriate account(s) of the Lender. All funds deposited in such "blocked
account" shall immediately become subject to Lender's first priority security
interest and the Borrower shall obtain the agreement by such bank to waive any
offset rights against the funds so deposited. Lender assumes no responsibility
for such "blocked account" arrangement, including without limitation, any claim
of accord and satisfaction or release with respect to deposits accepted by any
bank thereunder. Alternatively, Lender may establish depository accounts
("Depository Accounts") in the name of Lender at a bank or banks for the deposit
for such funds and the Borrower shall deposit all proceeds of Receivables or
cause same to be deposited, in kind, in such Depository Accounts of Lender in
lieu of depositing same to the Blocked Accounts.
36
4.16 INVENTORY. All Inventory has been, and will be produced by the
Borrower in accordance with the Federal Fair Labor Standards Act of 1938, as
amended, and all rules, regulations and orders thereunder.
4.17 MAINTENANCE OF EQUIPMENT. The Equipment shall be maintained in good
operating condition and repair (reasonable wear and tear excepted) 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. The
Borrower shall have the right to sell Equipment to the extent set forth in
Section 4.3 hereof.
4.18 EXCULPATION OF LIABILITY. Nothing herein contained shall be
construed to constitute the Lender as the Borrower's agent for any purpose
whatsoever, nor shall the Lender be responsible or liable for any shortage,
discrepancy, damage, loss or destruction of any part of the Collateral wherever
the same may be located and regardless of the cause thereof other than any
damage, loss or destruction to the Collateral actually arising as a direct and
sole result of Lender's gross negligence or willful misconduct. The Lender does
not, whether by anything herein or in any assignment or otherwise, assume any of
the Borrower's obligations under any contract or agreement assigned to the
Lender, and the Lender shall not be responsible in any way for the performance
by the Borrower of any of the terms and conditions thereof.
4.19 ENVIRONMENTAL MATTERS. (a) The Borrower will ensure that the Real
Property remains in substantial compliance with all Environmental Laws and the
Borrower will not place or permit to be placed any Hazardous Substances on any
Real Property except as not prohibited by applicable law and appropriate
governmental authorities.
(b) The Borrower will establish and maintain a system to assure
and monitor continued compliance with all applicable Environmental Laws which
system shall include periodic review of such compliance.
(c) The Borrower will (i) employ in connection with its use of the
Real Property appropriate technology necessary to maintain compliance with any
applicable Environmental Laws and (ii) dispose of any and all Hazardous Waste
generated at the Real Property only at facilities and with carriers that
maintain valid permits under RCRA and any other applicable Environmental Laws.
The Borrower shall use its best efforts to obtain certificates of disposal, such
as hazardous waste manifest receipts, from all treatment, transport, storage or
disposal facilities or operators employed by the Borrower in connection with the
transport or disposal of any Hazardous Waste generated at the Real Property.
(d) In the event the Borrower obtains, gives or receives notice of
any Release of Release of a reportable quantity of any Hazardous Substances at
the Real Property (any such even being hereinafter referred to as a "Hazardous
Discharge") or receives any notice of violation, request for information or
notification that the Borrower is potentially responsible for investigation or
cleanup of environmental conditions at the Real
37
Property, demand letter or complaint, order, citation, or other written notice
with regard to any Hazardous Discharge or violation of Environmental Laws
affecting the Real Property or the Borrower's interest therein (any of the
foregoing is referred to herein as an "Environmental Complaint") from any Person
or entity, including any state agency responsible in whole or in part for
environmental matters in the state in which the Real Property is located or the
United States Environmental Protection Agency (any such person or entity
hereinafter the "Authority"), then the Borrower shall, within five (5) Business
Days, give written notice of same to the Lender detailing non-privileged and
non-confidential facts and circumstances of which the Borrower is aware giving
rise to the Hazardous Discharge or Environmental Complaint. Such information is
to be provided to allow the Lender to protect its security interest in the Real
Property and is not intended to create nor shall it create any obligation upon
the Lender with respect thereto.
(e) The Borrower shall promptly forward to the Lender copies of
any request for information, notification of potential liability, demand letter
relating to potential responsibility with respect to the investigation or
cleanup of Hazardous Substances at any other site owned, operated or used by the
Borrower to dispose of Hazardous Substances and shall continue to forward copies
of correspondence between the Borrower and the Authority regarding such claims
to the Lender until the claim is settled. The Borrower shall promptly forward to
the Lender copies of all documents and reports concerning a hazardous Discharge
at the Real Property that the Borrower is required to file under any
Environmental Laws. Such information is to be provided solely to allow the
Lender to protect Lender's security interest in the Real Property and the
Collateral.
(f) The Borrower shall respond promptly to any Hazardous Discharge
or Environmental Complaint and take all necessary action in order to safeguard
to health of any Person and to avoid subjecting the Collateral or Real Property
to any Lien. If the Borrower shall fail to respond promptly to any Hazardous
Discharge or Environmental Complaint or the Borrower shall fail to comply with
any of the requirements of any Environmental Laws, the Lender may, but without
the obligation to do so, for the sole purpose of protecting the Lender's
interest in Collateral: (A) give such notices or (B) enter onto the Real
Property (or authorize third parties to enter onto the Real Property) and take
such actions as the Lender (or such third parties as directed by the Lender)
deem reasonably necessary or advisable, to clean up, remove, mitigate or
otherwise deal with any such Hazardous Discharge or Environmental Complaint. All
reasonable costs and expenses incurred by the Lender (or such third parties) in
the exercise of any such rights, including any sums pain in connection with any
judicial or administrative investigation or proceedings, fines and penalties,
together with interest thereon from the date expended at the Default Rate for
Revolving Advances shall be paid upon demand by the Borrower, and until paid
shall be added to and become a part of the Obligations secured by the Liens
created by the terms of this Agreement or any other agreement between Lender and
the Borrower.
(g) Promptly upon the written request of the Lender from time to
time, the Borrower shall provide Lender, at the Borrower's expense, with an
Environmental site
38
assessment or environmental audit report prepared by an environmental
engineering firm acceptable in the reasonable opinion of the Lender, to assess
with a reasonable degree of certainty the existence of a Hazardous Discharge and
the potential costs in connection with abatement, cleanup and removal of any
Hazardous Substances found on, under, at or within the Real Property. Any report
or investigation of such Hazardous Discharge proposed and acceptable to an
appropriate Authority that is charged to oversee the clean-up of such Hazardous
Discharge shall be acceptable to the Lender. If such estimates, individually or
in the aggregate, exceed $100,000, the Lender shall have the right to require
the Borrower to post a bond, letter of credit or other security reasonably
satisfactory to the Lender to secure payment of these costs and expenses.
(h) The Borrower shall defend and indemnify the Lender and hold
the Lender harmless from and against all loss, liability, damage and expense,
claims, costs, fines and penalties, including attorney's fees, suffered or
incurred by the Lender under or on account of any Environmental Laws, including
without limitation, the assertion of any lien thereunder, with respect to any
Hazardous Discharge, the presence of any Hazardous Substances affecting the Real
Property, whether or not the same originates or engages from the Real Property
or any contiguous real estate, including any loss of value of the Real Property
as a result of the foregoing except to the extent such loss, liability, damage
and expenses is attributable to any Hazardous Discharge resulting from actions
on the part of the Lender. The Borrower's obligations under this Section 4.19
shall arise upon the discovery of the presence of any Hazardous Substances at
the Real Property, whether or not any federal, state, or local environmental
agency has taken or threatened any action in connection with the presence of any
Hazardous Substances. The Borrower's obligation and the indemnifications
hereunder shall survive the termination of this Agreement.
(i) For purposes of this Section 4.19, all references to Real
Property shall be deemed to include all of the Borrower's right, title and
interest in and to leased premises.
5. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants as follows:
5.1 AUTHORITY. The Borrower has full power, authority and legal right to
enter into this Agreement and the Other Documents and perform all obligations
hereunder. The execution, delivery and performance hereof and of the Other
Documents are within the Borrower's corporate powers, have been duly authorized,
are not in contravention of law or the terms of the Borrower's by-laws,
certificate of incorporation or other applicable documents relating to the
Borrower's formation or to the conduct of the Borrower's business or of any
material agreement or undertaking to which the Borrower is a party or by which
the Borrower is bound, and will not conflict with nor result in any breach in
any of the provisions of or constitute a default under or result in the creation
of any Lien except Permitted Encumbrances upon any asset of the Borrower under
the provisions of any
39
agreement, charter, instrument, by-law of other instrument to which the Borrower
is a party or by which it may be bound.
5.2 FORMATION AND QUALIFICATION. The Borrower is duly incorporated and
in good standing under the laws of the Commonwealth of Puerto Rico and is
qualified to do business and is in good standing in the states listed on EXHIBIT
5.2 which constitute all states in which qualification and good standing are
necessary for the Borrower to conduct its business and own its properties and
where the failure to so qualify would have a material adverse effect on the
Borrower or its business. The Borrower has delivered to Lender true and complete
copies of its certificate of incorporation and by-laws and will promptly notify
Lender of any amendment or changes thereto.
5.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties of the Borrower contained in this Agreement and the Other Documents
shall be true at the time of the Borrower's execution of this Agreement and the
Other Documents, and shall survive the execution, delivery and acceptance
thereof by Lender and the parties thereto and the closing of the transactions
described therein or related thereto.
5.4 TAX RETURNS. The Borrower's federal tax identification number is
00-0000000. The Borrower has filed all federal, state and local tax returns and
other reports it is required by law to file and has paid all taxes, assessments,
fees and other governmental charges that are due and payable (unless the same is
being contested as permitted under this Agreement). The provision for taxes on
the books of the Borrower is adequate for all years not closed by applicable
statutes, and for the Borrower's current fiscal year, and the Borrower has no
knowledge of any deficiency or additional assessment in connection therewith not
provided for on its books.
5.5 FINANCIAL STATEMENTS.
(a) The preliminary pro forma consolidated and consolidating
balance sheet of Industries and its Subsidiaries prepared as of March 27, 1998
(the "Pro Forma Balance Sheet") furnished to Lender on the Closing Date reflects
the consummation of the transactions contemplated under this Agreement (the
"Transactions") and is, to the best of Borrower's knowledge, accurate, complete
and correct in all material respects and fairly reflects Industries' and its
Subsidiaries' consolidated and consolidating financial condition in all material
respects as of the last Friday of the month immediately preceding the Closing
Date after giving effect to the Transactions, and has been prepared in
accordance with GAAP, consistently applied (except for the absence of footnote
or as otherwise disclosed therein). The Pro Forma Balance Sheet has been
certified as accurate, complete and correct in all material respects by the
President and Chief Financial Officer of Industries and its Subsidiaries, to the
best of their knowledge. All financial statements referred to in this Section
5.5(a), including the related schedules and notes thereto, have been prepared,
in accordance with GAAP, except as may be disclosed in such financial
statements.
40
(b) The twelve-month consolidated cash flow projections of
Industries and its Subsidiaries, and projected balance sheets, each prepared as
of March 27, 1998, copies of which have been delivered to Lender, were prepared
by the Chief Financial Officer of Industries and its Subsidiaries, are based on
underlying assumptions which provide a reasonable basis for the projections
contained therein and reflect as of such date the judgment of Industries and its
Subsidiaries, based on then present circumstances of the most likely set of
conditions and course of action for the project period. The cash flow
projections and the projected balance sheets referred to in this Section 5.5(b),
together with the Pro Forma Balance Sheet, are referred to as the "Pro Forma
Financial Statements".
(c) (i) The consolidated and consolidating balance sheets of
Industries and its Subsidiaries and such other Persons described therein
(including the accounts of all Subsidiaries for the respective periods during
which a subsidiary relationship existed) as of June 27, 1997, and the related
statements of income, stockholder's equity, and cash flows for the period ended
on such date, all accompanied by reports thereon containing opinions without
qualification by independent certified public accountants, copies of which have
been delivered to Lender, have been prepared in accordance with GAAP, practices
and procedures, consistently applied (except for changes in application in which
such accountants concur, and any absence of footnotes and as otherwise disclosed
therein) and present fairly the consolidated financial position of Industries
and its Subsidiaries at such date and the consolidated results of their
operations for such period. (ii) Since January 30, 1998, and as certified as to
its accuracy by the Chief Financial Officer of Industries and its Subsidiaries,
there has been no material adverse change in the consolidated condition,
financial or otherwise, of Industries and its Subsidiaries as shown on the
consolidated balance sheet as of such date and no change in the aggregate value
of machinery, equipment and Real Property owned by Industries and its
Subsidiaries, except changes in the ordinary course of business.
(d) As of the Closing Date, the Borrower's fiscal quarters and
fiscal months end on the last Friday of each fiscal quarter and fiscal month,
respectively.
5.6 CORPORATE NAME. The Borrower has not been known by any other
corporate name in the past five years and does not sell Inventory under any
other name except as set forth on EXHIBIT 5.6, nor has the Borrower been the
surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any person during the preceding five (5)
years.
5.7 O.S.H.A. AND ENVIRONMENT COMPLIANCE.
(a) The Borrower has duly complied with, and its facilities,
business assets, property, leaseholds and equipment are in compliance in all
material respects with, the provisions, of the Federal Occupational Safety and
Health Act, the Environmental Protection Act, RCRA and all other Environmental
Laws; there have been no outstanding citations, notices or orders of
non-compliance issued to the Borrower or relating to its
41
respective business, assets, property, leaseholds or equipment under any such
laws, rules or regulations.
(b) The Borrower has been issued all required federal, state and
local licenses, certificates or permits relating to, and the Borrower and its
facilities, businesses, assets, property, leaseholds and equipment are in
compliance in all material respects with, all applicable Environmental Laws.
(c) (i) There are no visible signs of releases, spills,
discharges, leaks or disposal (collectively referred to as "Releases") of
Hazardous Substances at, upon, under or within any Real Property or any premises
leased by the Borrower; (ii) there are no underground storage tanks or
polychlorinated biphenyls on the Real Property or any premises leased by the
Borrower; (iii) neither the Real Property nor any premises leased by the
Borrower has ever been used as a treatment, storage or disposal facility of
Hazardous Waste; and (iv) no Hazardous Substances are present on the Real
Property or any premises leased by the Borrower, excepting such quantities as
are handled in accordance with all applicable manufacturer's instructions and
governmental regulations and in proper storage containers and as are necessary
for the operation of the commercial business of the Borrower or of its tenants.
(d) The Borrower hereby indemnifies and holds Lender harmless from
and against any liability, loss, damage, suit, action or proceeding pertaining
to Hazardous Wastes or Toxic Substances at, upon, under or within any Real
Property or any premises leased by Borrower, including, but not limited to,
claims of any federal, state or municipal government or quasi-governmental
agency or any third person, whether arising under CERCLA, RCRA, or any other
federal, state or municipal law or regulation, or tort, contract or common law.
5.8 SOLVENCY; NO LITIGATION; VIOLATION.
(a) The Borrower is solvent, able to pay its debts as they mature,
has capital sufficient to carry on its business and all businesses in which it
is about to engage, and (i) as of the Closing Date, the fair present saleable
value of its assets, calculated on a going concern basis, is in excess of the
amount of its liabilities and (ii) subsequent to the Closing Date, the fair
saleable value of its assets (calculated on a going concern basis) will be in
excess of the amount of its liabilities.
(b) Except as disclosed in EXHIBIT 5.8(B) or otherwise disclosed
to Lender from time to time, the Borrower has (i) no pending or threatened
litigations, actions or proceedings which involve the possibility of materially
and adversely affecting its business, assets, operations, condition or
prospects, financial or otherwise, or the Collateral, or the ability of the
Borrower to perform this Agreement, and (ii) no liabilities nor indebtedness
other than the Obligations or otherwise as permitted hereunder.
42
(c) The Borrower is not in violation of any applicable statute,
regulation or ordinance in any respect materially and adversely affecting the
Collateral or its business, assets, operations or condition or prospects,
financial or otherwise, nor is the Borrower in violation of any order of any
court, governmental authority or arbitration board or tribunal.
(d) The Borrower has received no notice that it is not in full
compliance with any of the requirements of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and its regulations and, (i) it has
not engaged in any Prohibited Transactions as defined in Section 406 of ERISA
and Section 4975 of the Internal Revenue Code as amended, (ii) it has met all
applicable minimum funding requirements under Section 302 of ERISA in respect of
its plans and no funding requirements have been postponed or delayed, (iii) it
has no knowledge of any event or occurrence which would cause the Pension
Benefit Guaranty Corporation to institute proceedings under Title IV of ERISA to
terminate any of the employee benefit plans, (iv) there exists no event
described in Section 4043 of ERISA, excluding subsections 4043(b)(2) and
4043(b)(3) thereof, for which the thirty (30) day notice period contained in 12
CFR Section 2615.3 has not been waived, (v) it does not have any fiduciary
responsibility for investments with respect to any plan existing for the benefit
of persons other than its employees or former employees, and (vi) it has not
withdrawn, completely or partially, from any multi-employer pension plans so as
to incur liability under the Multi-Employer Pension Plan Amendments of 1980.
5.9 PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES. All patents, patent
applications, trademarks, trademark applications, copyrights, copyright
applications, tradenames, trade secrets and licenses owned or utilized by the
Borrower are set forth on EXHIBIT 5.9 (or, if acquired or created after the
Closing Date, are disclosed to Lender in writing), are valid and (to the extent
applicable) have been duly registered or filed with all appropriate governmental
authorities; there is no objection or pending challenge to the validity of any
patent, trademark, copyright, trade name, trade secret or license which is
material to the conduct of the Borrower's business as presently conducted, and
the Borrower is not aware of any grounds for any challenge, except as set forth
in EXHIBIT 5.9 hereto (or, if acquired or created after the Closing Date, as
disclosed to Lender in writing).
5.10 LICENSES AND PERMITS. Except as set forth in EXHIBIT 5.10, the
Borrower (a) is in compliance with and (b) has procured and is now in possession
of, all material licenses or permits required by any applicable federal, state
or local law or regulation for the operation of its business in each
jurisdiction wherein it is now conducting or proposes to conduct business and
where the failure to procure such licenses or permits would have a material
adverse effect on the business, properties, condition (financial or otherwise)
or operations, present or prospective, of Industries and its Subsidiaries on a
consolidated basis.
5.11 DEFAULT OF INDEBTEDNESS. Except as disclosed to the Lender in
writing, the Borrower is not in default in the payment of the principal of or
interest on any Indebtedness or under any instrument or agreement under or
subject to which any Indebtedness has
43
been issued and no event has occurred under the provisions of any such
instrument or agreement which with or without the lapse of time or the giving of
notice, or both, constitutes or would constitute an event of default thereunder.
5.12 NO DEFAULT. Except as set forth in EXHIBIT 5.12 or as disclosed to
the Lender from time to time in writing, the Borrower is not in default in the
payment or performance of any of its contractual obligations and no Incipient
Event of Default has occurred.
5.13 NO BURDENSOME RESTRICTIONS. The Borrower is not party to any
contract or agreement the performance of which would affect the business,
assets, operations, condition or prospects (financial or otherwise) of
Industries and its Subsidiaries on a consolidated basis. The Borrower has not
agreed or consented to cause or permit in the future (upon the happening of a
contingency or otherwise) any of its Property, whether now owned or hereafter
acquired, to be subject to a Lien which is not a Permitted Encumbrance.
5.14 NO LABOR DISPUTES. The Borrower is not involved in any labor
dispute; there are no strikes or walkouts or union organization of any of its
employees threatened or in existence and no labor contract is scheduled to
expire during the Term; in each case, other than as set forth on EXHIBIT 5.14
hereto or as disclosed to the Lender from time to time in writing.
5.15 MARGIN REGULATIONS. The Borrower is not engaged, nor will it engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of "purchasing" or "carrying" any "margin stock" within
the respective meanings of each of the quoted terms under Regulation U or
Regulation G of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect. No part of the proceeds of any Loan will
be used for "purchasing" or "carrying" "margin stock" as defined in Regulation U
of such Board of Governors.
5.16 INVESTMENT COMPANY ACT. The Borrower is not an "investment company"
registered or required to be registered under the Investment Company Act of
1940, as amended, nor is it controlled by such a company.
5.17 DISCLOSURE. No representation or warranty made by the Borrower in
this Agreement, or in any financial statement, report, certificate or any other
document furnished in connection herewith contains any untrue statement of fact
or omits to state any fact necessary to make the statements herein or therein
not misleading. There is no fact known to the Borrower or which reasonably
should be known to the Borrower which the Borrower has not disclosed to Lender
in writing with respect to the transactions contemplated by this Agreement which
adversely affects the assets of Borrower or adversely affects, in any material
respect, the condition (financial or otherwise), results of operations or
business of the Borrower.
44
5.18 SWAPS. The Borrower is not a party to, nor will it be a party to,
any swap agreement whereby the Borrower has agreed or will agree to swap
interest rates or currencies unless same provides that damages upon termination
following an event of default thereunder are payable on an unlimited "two-way
basis" without regard to fault on the part of either party.
6. AFFIRMATIVE COVENANTS.
The Borrower covenants and agrees that it shall, until payment in full of
the Obligations and termination of this Agreement:
6.1 PAYMENT OF FEES. Pay to Lender on demand all usual and customary
fees and expenses which Lender incurs in connection with (a) the forwarding of
Advance proceeds and (b) the establishment and maintenance of any Blocked
Accounts or Depository Accounts as provided for in Section 4.15(h). Lender may,
without making demand, charge the account of the Borrower for all such fees and
expenses.
6.2 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE AND ASSETS. (a)
Conduct continuously and operate actively its business according to good
business practices and maintain all of its properties useful or necessary in
business in good working order and condition (reasonable wear and tear excepted
and except as may be disposed of in accordance with the terms of this
Agreement), including, without limitation, all licenses, patents, copyrights,
tradenames, trade secrets and trademarks; (b) keep in full force and effect its
existence and comply in all material respects with the laws and regulations
governing the conduct of business where the failure to do so would have a
material adverse effect on the Borrower or its business; and (c) make all such
reports and pay all such franchise and other taxes and license fees and do all
such other acts and things as may be lawfully required to maintain its rights,
licenses, leases, powers and franchises under the laws of the United States or
any political subdivision thereof where the failure to do so would have a
material adverse effect on the Borrower or its business.
6.3 VIOLATIONS. Promptly notify the Lender in writing of any violation
of any law, statute, regulation or ordinance of any governmental entity, or of
any agency thereof, applicable to the Borrower which may adversely affect the
Collateral or may adversely affect, in any material respect, the Borrower's
business, assets, operations, condition or prospects (financial or otherwise).
6.4 GOVERNMENT RECEIVABLES. Take all steps necessary to protect Lender's
interest in the Collateral under the Federal Assignment of Claims Act or other
applicable state or local statutes or ordinances and deliver to the Lender
appropriately endorsed, any instrument or chattel paper connected with any
Receivable arising out of contracts between the Borrower and the United States,
any state or any department, agency or instrumentality of any of them.
45
6.5 [INTENTIONALLY OMITTED]
6.6 PLEDGE OF CREDIT. Not now or hereafter pledge the Lender's credit on
any purchases or for any purpose whatsoever or use any portion of any Advance in
or for any business other than the Borrower's business as conducted on the date
of this Agreement or as permitted in Section 7.9 hereof.
6.7 EXECUTION OF SUPPLEMENTAL INSTRUMENTS. Execute and deliver to the
Lender from time to time, upon demand, such supplemental agreements, statements,
assignments and transfers, or instructions or documents relating to the
Collateral, and such other instruments as the Lender may reasonably request, in
order that the full intent of this Agreement may be carried into effect.
6.8 PAYMENT OF INDEBTEDNESS. Pay, discharge or otherwise satisfy at or
before maturity (subject, where applicable, to specified grace periods and, in
the case of the trade payables, to normal payment practices) all of its
obligations and liabilities of whatsoever nature, except when the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and the Borrower shall have provided for such reserves as Lender may
reasonably deem proper and necessary, subject at all times to any applicable
subordination arrangement in favor of Lender.
6.9 STANDARDS OF FINANCIAL STATEMENTS. Cause all financial statements
referred to in Section 9.7, 9.8 and 9.9 to be complete and correct in all
material respects (subject, in the case of interim statements, to the absence of
footnotes and to normal year-end audit adjustments) and to be prepared in
reasonable detail and in accordance with GAAP applied consistently throughout
the periods reflected therein (except as concurred in by such reporting
accountants or officer, as the case may be, and disclosed therein).
7. NEGATIVE COVENANTS.
The Borrower covenants and agrees that the Borrower shall not, until
satisfaction in full of the Obligations and termination of this Agreement:
7.1 MERGER, CONSOLIDATION, ACQUISITION AND SALE OF ASSETS.
(a) Enter into any merger, consolidation or other reorganization
with or into any other Person or acquire all or a substantial portion of the
assets or stock of any Person or permit any other Person to consolidate with or
merge with the Borrower, without the prior written consent of Lender.
(b) Sell, lease, transfer or otherwise dispose of any of the
Borrower's properties or assets, except in the ordinary course of its business
or except as expressly permitted under this Agreement or any Other Document.
46
7.2 CREATION OF LIENS. Create or suffer to exist any Lien, Charge, Claim
or transfer upon or against any of its properties or assets now owned or
hereafter acquired, except Permitted Encumbrances.
7.3 GUARANTEES. Become liable upon the obligations of any person, firm
or corporation by assumption, endorsement or guaranty thereof or otherwise
(other than to Lender) except the endorsement of checks in the ordinary course
of business.
7.4 INVESTMENTS. Purchase or acquire obligations or stock of, or any
other interest in, any Person, except (a) obligations issued or guaranteed by
the United States of America or any agency thereof, (b) commercial paper with
maturities of not more than 180 days and a published rating of not less than A-1
or P-1 (or the equivalent rating), (c) certificates of time deposit and bankers'
acceptances having maturities of not more than 180 days and repurchase
agreements backed by United States government securities of a commercial bank if
(i) such bank has a combined capital and surplus of at least $500,000,000, or
(ii) its debt obligations, or those of a holding company of which it is a
Subsidiary, are rated not less than A (or the equivalent rating) by a nationally
recognized investment rating agency and (d) U.S. money market funds that invest
solely in obligations issued or guaranteed by the United States of America or an
agency thereof.
7.5 LOANS. Make advances, loans or extensions of credit to any Person,
including without limitation, any Parent, Subsidiary or Affiliate except with
respect to (a) the extension of commercial trade credit in connection with the
sale of Inventory in the ordinary course of its business, (b) advances made to
employees in the ordinary course of business for valid business purposes in an
aggregate amount not to exceed $50,000 outstanding at any given time, and (c)
intercompany loans among Borrower and Affiliated Borrowers, PROVIDED THAT, such
loans are for valid business purposes and the maximum outstanding amount of all
loans made by Borrower to Affiliated Borrowers or any Subsidiary of Industries
shall not, at any time, exceed $50,000.
7.6 CAPITAL EXPENDITURES. Purchase or make any expenditure or
commitments for fixed or capital assets in any fiscal year (including the
purchase price of capital assets that will be subject to capitalized leases but
excluding payments due under capitalized leases during any such fiscal year) in
an aggregate amount (exclusive of any capital expenditures permitted under
Sections 4.3 and 4.11 hereof but inclusive of all capital expenditures
contracted for, purchased or made by Affiliated Borrowers) in excess of (a)
$6,000,000 for the fiscal year ending in June, 1998, (b) $5,000,000 for the
fiscal year ending in June, 1999, (c) $5,800,000 for the fiscal year ending in
June, 2000, and (d) $5,800,000 for the fiscal year ending in June, 2001 and for
each fiscal year thereafter.
7.7 DIVIDENDS. Declare, pay or make any dividend or distribution on any
shares of the common stock or preferred stock of the Borrower (other than
dividends or distributions payable in its stock, or split-ups or
reclassifications of its stock) or apply any of its funds, property or assets to
the purchase, redemption or other retirement of any
47
common or preferred stock, or of any options to purchase or acquire any such
shares of common or preferred stock of the Borrower.
7.8 INDEBTEDNESS. Create, incur, assume or suffer to exist any
Indebtedness (exclusive of trade debt) of Borrower except in respect of (i)
Indebtedness to Lender; (ii) Indebtedness incurred for asset purchases or
capitalized leases permitted under Section 7.6 hereof; (iii) other Indebtedness
in a maximum aggregate amount outstanding at any time of not greater than
$250,000; (iv) capitalized leases existing as of the Closing Date; (v)
guarantees permitted under Section 7.3; and (vi) intercompany indebtedness
permitted under Section 7.5.
7.9 NATURE OF BUSINESS. Substantially change the nature of the business
in which the Borrower is presently engaged, including engaging any Person to
manufacture goods for the Borrower nor except as specifically permitted hereby
purchase or invest, directly or indirectly, in any assets or property other than
in the ordinary course of business for assets or property which are useful in,
necessary for and are to be used in its business.
7.10 TRANSACTIONS WITH AFFILIATES. Directly or indirectly, purchase,
acquire or lease any property from, or sell, transfer or lease any property to,
or otherwise deal with, any Affiliate, except leases and other transactions made
among Borrower, Affiliated Borrowers and any guarantor of the Obligations
hereunder for valid business purposes and made in the ordinary course of
business, all in accordance with the terms hereof and to the extent permitted
under the other provisions of this Agreement, or transactions made with any
other Affiliate in the ordinary course of business, on an arm's-length basis on
terms no less favorable than terms which would have been obtainable from a
Person other than an Affiliate, including, that certain equipment lease with PRC
Leasing, Inc.
7.11 OPERATING LEASES. Except for those leases in effect on the date
hereof and as disclosed to Lender from time to time in writing, enter as lessee
into any lease arrangement for real or personal property (unless capitalized and
permitted under Section 7.6 hereof) if after giving effect thereto, aggregate
annual rental payments for all leased property (other than payments made in
respect of capital leases) would exceed, inclusive of (without duplication) all
annual rental payments of Affiliated Borrowers, $750,000 in any one fiscal year.
7.12 SUBSIDIARIES.
(a) Form any Subsidiary.
(b) Enter into any partnership, joint venture or similar
arrangement.
7.13 FISCAL YEAR AND ACCOUNTING CHANGES. Change the Borrower's fiscal
year from the last Friday in June of each calendar year or make any significant
change (i) in accounting treatment and reporting practices except as required by
GAAP or (ii) in tax reporting treatment except as required by law.
48
7.14 PREPAYMENT OF INDEBTEDNESS. At any time, directly or indirectly,
prepay any Indebtedness (other than to Lender), or repurchase, redeem, retire or
otherwise acquire any Indebtedness of the Borrower other than in the ordinary
course of business or except as expressly permitted hereunder. Nothing contained
in this Section 7.14 shall prohibit or restrict the prepayment of any
Indebtedness due and owing to or from Borrower or any Affiliated Borrowers which
may be outstanding from time to time.
8. CONDITIONS PRECEDENT.
8.1 CONDITIONS TO INITIAL ADVANCES. The agreement of Lender to make the
initial Advances requested to be made on the Closing Date is subject to the
satisfaction, or waiver by Lender, immediately prior to or concurrently with the
making of such Advances, of the following conditions precedent:
(a) OTHER LOAN AGREEMENTS. The Lender shall have received:
(i) The Revolving Credit, Term Loan and Security Agreement
duly executed by DITEL.
(ii) The Revolving Credit, Term Loan and Security Agreement
duly executed by Industries and Corporation;
(iii) Each Guaranty duly executed by Guarantors;
(iv) Such other certificates, documents, notes, instruments,
and agreements as Lender shall require, in form and
content satisfactory to Lender.
(b) FILINGS REGISTRATIONS AND RECORDINGS. Each document
(including, without limitation, any Uniform Commercial Code financing statement)
required by this Agreement, any related agreement or under law or reasonably
requested by the Lender to be filed, registered or recorded in order to create,
in favor of the Lender, a perfected security interest in or lien upon the
Collateral shall have been properly filed, registered or recorded in each
jurisdiction in which the filing, registration or recordation thereof is so
required or requested, and the Lender shall have received an acknowledgment
copy, or other evidence satisfactory to it, or each such filing, registration or
recordation and satisfactory evidence of the payment of any necessary fee, tax
or expense relating thereto;
(c) CORPORATE PROCEEDINGS OF THE BORROWER. The Lender shall have
received a copy of the resolutions in form and substance reasonably satisfactory
to Lender, of the Board of Directors of the Borrower authorizing (i) the
execution, delivery and performance of this Agreement, and any related
agreements, (collectively the "Documents") and (ii) the granting by the Borrower
of the security interests in and liens
49
upon the Collateral certified by the Secretary or an Assistant Secretary of the
Borrower as of the Closing Date; and, such certificate shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded as of the date of such certificate;
(d) INCUMBENCY CERTIFICATES OF THE BORROWER. The Lender shall have
received a certificate of the Secretary or any Assistant Secretary of the
Borrower, dated the Closing Date, as to the incumbency and signature of the
officers of the Borrower executing this Agreement, any certificate or other
documents to be delivered by it pursuant hereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary;
(e) LEGAL OPINION. The Lender shall have received the executed
legal opinions of counsel acceptable to Lender in form and substance
satisfactory to the Lender which shall cover such matters incident to the
transactions contemplated by this Agreement, the Affiliate Loan Agreements, and
related agreements as the Lender may reasonably require;
(f) NO LITIGATION. (i) No litigation, investigation or proceeding
before or by any arbitrator or governmental authority shall be continuing or
threatened against the Borrower or against the officers or directors of the
Borrower (A) in connection with the Documents or any of the transactions
contemplated thereby and which, in the reasonable opinion of the Lender, is
deemed material or (B) which if adversely determined, would, in the reasonable
opinion of the Lender, have a material adverse effect on the business, assets,
operations or condition (financial or otherwise) of the Borrower; and (iii) no
injunction, writ, restraining order or other order of any nature materially
adverse to the Borrower or the conduct of the Borrower's business or
inconsistent with the due consummation of the Transactions shall have been
issued by any governmental authority;
(g) FINANCIAL CONDITION OPINIONS. The Lender shall have received
an executed Officers Certificate of the Borrower satisfactory in form and
substance to it, certifying the solvency of the Borrower after giving effect to
the Indebtedness contemplated hereby and as to the Borrower's financial
resources and its ability to meet its obligations and liabilities as they become
due; to the effect that as of the Closing Date and after giving effect to the
Transactions:
(i) the assets of the Borrower, at a fair valuation, exceed
the total liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities of the Borrower;
(ii) current projections which are based on underlying
assumptions which provide a reasonable basis for the projections and which
reflect the Borrower's judgment based on present circumstances, the most likely
set of conditions and the Borrower's most likely course of action for the period
projected, demonstrate that the Borrower will have sufficient cash flow to
enable the Borrower to pay the Borrower's debts as they mature; and
50
(iii) the Borrower does not have an unreasonably small capital
base with which to engage in its anticipated business.
For purposes of this subsection (i), the "fair valuation" of the assets of the
Borrower shall be determined on the basis of the amount which may be realized
within a reasonable time, whether through collection or sale of such assets at
market value, conceiving the latter as the amount which could be obtained for
the property in question within such period by a capable and diligent
businessman from an interested buyer who is willing to purchase under ordinary
selling conditions.
(h) COLLATERAL EXAMINATION. The Lender shall have completed
Collateral examinations and received appraisals, the results of which shall be
satisfactory in form and substance to the Lender, of the Receivables, Inventory,
General Intangibles, each Property Leasehold Interest and Equipment of the
Borrower and all books and records in connection therewith;
(i) FEES. The Lender shall have received all fees payable to the
Lender on or prior to the Closing Date pursuant to Article 3 of the Affiliate
Loan Agreements;
(j) PRO FORMA FINANCIAL STATEMENTS. Lender shall have received a
copy of the Pro Forma Financial Statements (including, without limitation, a
statement of the Borrower's sources and uses of cash as of the Closing Date) and
an aging of the Borrower's accounts payable) each of which shall be satisfactory
in all respects to Lender;
(k) OTHER. All corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the Transactions shall be
satisfactory in form and substance to the Lender and its counsel.
8.2 CONDITIONS TO EACH ADVANCE. The agreement of Lender to make any
Advance requested to be made on any date (including, without limitation, its
initial Advance), is subject to the satisfaction of the following conditions
precedent as of the date such Advance is made:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties made by the Borrower in or pursuant to this Agreement, and any
related agreements to which the Borrower is a party, and each of the
representations and warranties contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
this Agreement or any related agreement shall be true and correct in all
material respects on and as of such date as if made on and as of such date;
(b) NO DEFAULT. No Event of Default or Incipient Event of Default
shall have occurred and be continuing on such date, or would exist after giving
effect to the Advances requested to be made, on such date; PROVIDED, HOWEVER
that Lender in its sole
51
discretion, may continue to make Advances notwithstanding the existence of an
Event of Default or Incipient Event of Default; and
(c) MAXIMUM ADVANCES. In the case of any Revolving Advances
requested to be made, after giving effect thereto, the aggregate Revolving
Advances shall not exceed the maximum Revolving Advances permitted under Section
2.1 hereof.
Each request for an Advance by the Borrower hereunder shall constitute a
representation and warranty by the Borrower as of the date of such Advance that
the conditions contained in this subsection shall have been satisfied.
9. INFORMATION AS TO THE BORROWER.
The Borrower covenants and agrees that the Borrower shall, until
satisfaction in full of the Obligations and the termination of this Agreement;
9.1 DISCLOSURE OF MATERIAL MATTERS. Immediately upon learning thereof,
report to the Lender all matters materially affecting the value, enforceability
or collectibility of any portion of the Collateral including, without
limitation, the Borrower's reclamation of repossession of, or the return to the
Borrower of a material amount of goods or claims or disputes asserted by any
Customer or other obligor. The Borrower will not, without the Lender's consent,
compromise or adjust any material amount of the Receivables (or extend the time
for payment thereof) or accept any material returns of merchandise or grant any
additional discounts, allowances or credits thereon except for those
compromises, adjustments, returns, discounts, credits and allowances as have
been heretofore customary in the business of the Borrower.
9.2 SCHEDULES. Deliver to the Lender on or before the fifteenth (15th)
day of each month as and for the prior month, or more frequently as Lender may,
in its sole discretion require, (a) accounts receivable aging, (b) accounts
payable aging and (c) Inventory reports. In addition, the Borrower will deliver
to Lender at such intervals as the Lender may require: (i) confirmatory
assignment schedules, (ii) copies of Customer's invoices, (iii) evidence of
shipment or delivery, and (iv) such further schedules, documents and/or
information regarding the Collateral as the Lender may require including,
without limitation, trial balances and test verifications. The Lender shall have
the right to confirm and verify all Receivables by any manner and through any
medium it considers advisable and do whatever it may deem reasonably necessary
to protect its interests hereunder. The items to be provided under this Section
are to be in form satisfactory to the Lender and executed by the Borrower and
delivered to the Lender from time to time solely for the Lender's convenience in
maintaining records of the Collateral, and the failure to deliver any of such
items to the Lender shall not affect, terminate, modify or otherwise limit the
Lender's lien on or security interest in the Collateral.
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9.3 ENVIRONMENTAL REPORTS. Furnish Lender, concurrently with the
delivery of the financial statements referred to in Sections 9.7 and 9.8,
accompanied by a certificate of the Borrower signed by the President of the
Borrower stating, to the best of his knowledge, that the Borrower is in
compliance in all material respects with all federal, state and local laws
relating to environmental protection and control and occupational safety and
health. To the extent the Borrower is not in compliance with the foregoing laws,
the certificate shall set forth with specificity all areas of non-compliance and
the proposed action the Borrower will implement in order to achieve full
compliance.
9.4 LITIGATION. Promptly notify the Lender in writing of any litigation
affecting the Borrower, whether or not the claim is covered by insurance, and of
any suit or administrative proceeding, which may affect the Collateral or may
affect, in a material respect, any of Borrower's business, assets, operations,
condition or prospects (financial or otherwise).
9.5 OCCURRENCE OF DEFAULTS, ETC. Promptly notify the Lender in writing
upon the occurrence of (a) any Event of Default or Incipient Event of Default;
(b) any event, development or circumstance whereby the financial statements most
recently furnished to the Lender fail in any material respect to present fairly,
in accordance with GAAP consistently applied, the financial condition and
operating results of the Borrower as of the date of such financial statements;
(c) any accumulated retirement plan funding deficiency which, if such deficiency
continued for two plan years and was not corrected as provided in Section 4971
of the Internal Revenue Code; (d) each and every default by the Borrower which
might result in the acceleration of the maturity of any Indebtedness with
respect to which there is a default existing or with respect to which the
maturity has been or could be accelerated, and the amount of such Indebtedness;
and (e) any other development in the business or affairs of the Borrower which
would reasonably be expected to be materially adverse; in each case describing
the nature thereof and in the case of notification under clause (a), (b), or (c)
the action the Borrower proposes to take with respect thereto.
9.6 GOVERNMENT RECEIVABLES. Notify the Lender immediately if any of its
Receivables arise out of contracts between the Borrower and the United States,
any state, the Commonwealth of Puerto Rico, or any department, agency or
instrumentally of any of them.
9.7 ANNUAL FINANCIAL STATEMENTS. Furnish the Lender within ninety (90)
days after the end of each fiscal year of the Borrower, financial statements of
Industries and its Subsidiaries, on a consolidating and consolidated basis,
including, but not limited to, statements of income, stockholders' equity and
cash flows from the beginning of the current fiscal year to the end of such
fiscal year and the balance sheet as at the end of such fiscal year
(collectively, the "Annual Audited Financial Statements"), all prepared in
accordance with GAAP applied on a basis consistent with prior practices (except
as noted therein), and in reasonable detail and (as to consolidated statements
only) reported upon without qualification by an independent certified public
accounting firm selected by the Borrower and satisfactory to Lender (the
"Accountants"), it being acknowledged that as of
53
the date hereof, Xxxxxx Xxxxxxxx LLP is acceptable to Lender. The report of such
accounting firm shall be accompanied by a certificate of the Borrower, signed by
the Chief Financial Officer of the Borrower, which shall state whether, to its
knowledge, after due investigation, an Event of Default as specified in Article
10 hereof or an Incipient Event of Default has occurred.
9.8 QUARTERLY FINANCIAL STATEMENTS. Furnish the Lender within forty-five
(45) days after the end of each of the first three (3) fiscal quarters, an
unaudited balance sheet and income statement of Industries and its Subsidiaries,
on a consolidated basis and, if requested, on a consolidating basis, and
unaudited consolidated statements of cash flow and stockholders' equity of
Industries and its Subsidiaries, reflecting results of operations from the
beginning of the fiscal year to the end of such quarter and for such quarter,
prepared on a basis consistent with prior practices and complete and correct in
all material respects, subject to normal year end adjustments.
9.9 MONTHLY FINANCIAL STATEMENTS. Furnish the Lender within thirty (30)
days after the end of each month, an unaudited balance sheet and income
statement of Industries and its Subsidiaries, on a consolidated basis and, if
requested, on a consolidating basis, and an unaudited consolidated cash flow and
stockholders' equity of Industries and its Subsidiaries, reflecting results of
operations from the beginning of the fiscal year to the end of such month and
for such month, prepared on a basis consistent with prior practices and complete
and correct in all material respects, subject to normal year end adjustments.
The reports shall be accompanied by a certificate of Industries, signed by the
Chief Financial Officer of Industries, which shall state whether, to the best of
their knowledge, after due investigation, an Event of Default as specified in
Article 10 hereof or an Incipient Event of Default has occurred.
9.10 OTHER REPORTS. Furnish the Lender as soon as available, but in any
event within ten (10) days after the issuance thereof, with copies of such
financial statements, reports, returns, mailing, press releases or other
information that Industries sends or causes to be sent to its stockholders.
9.11 ADDITIONAL INFORMATION. Furnish the Lender with additional
information as the Lender shall reasonably request in order to enable Lender to
determine whether the terms, covenants, provisions and conditions of this
Agreement and the Cap/Ex Note have been complied with by the Borrower including,
without limitation and without the necessity of any request by Lender, (a)
copies of all environmental audits and reviews, (b) at least thirty (30) days
prior thereto, of the Borrower's opening of any new office or place of business
or the Borrower's closing of any existing office or place of business, and (c)
promptly upon the Borrower's learning thereof, of any labor dispute to which the
Borrower may become a party, any strikes or walkouts relating to any of its
plants or other facilities, and the expiration of any labor contract to which
the Borrower is a party or by which the Borrower is bound.
54
9.12 PROJECTED OPERATING BUDGET. Furnish Lender, no less than thirty (30)
days prior to the beginning of each of the Borrower's fiscal years beginning
with the fiscal year ending the last Friday in June, 1998, a month by month
projected operating budget and cash flow (prepared both on an accrued basis and
cash basis) of Industries and its Subsidiaries, on a consolidated basis and, if
requested, on a consolidating basis, for such fiscal year (including an income
statement for each month and a balance sheet as at the end of the last month in
each fiscal quarter), in form and content acceptable to Lender, such projections
to be accompanied by a certificate signed by the President or Chief Financial
Officer of Industries to the effect that such projections have been approved by
the Borrower's Board of Directors and prepared on the basis of sound financial
planning practice consistent with past budgets and financial statements and that
such officer has no reason to question the reasonableness of any material
assumptions on which such projections were prepared. Lender reserves the right
to require, in its sole discretion, that such projections be reviewed by the
Accountants or such other Person acceptable to Lender.
9.13 VARIANCES FROM OPERATING BUDGET. Furnish Lender, concurrently with
the delivery of the financial statements referred to in Section 9.7 and each
quarterly and monthly report, a written report summarizing all material
variances from budgets submitted by the Borrower pursuant to Section 9.12 and a
discussion and analysis by management with respect to such variances.
9.14 ADDITIONAL DOCUMENTS. Execute and deliver to Lender, upon request,
such documents and agreements as Lender may, from time to time, reasonably
request to carry out the purposes, terms or conditions of this Agreement.
10. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events shall constitute
an "Event of Default" :
(a) failure by the Borrower to pay any principal or interest on
the Obligations when due, whether at maturity or by reason of acceleration
pursuant to the terms of this agreement or by notice of intention to prepay, or
by required prepayment or failure to pay any other liabilities or make any other
payment, fee or charge provided for herein when due;
(b) the occurrence of an "Event of Default" under, and as such
quoted term is defined in, the Affiliate Loan Agreements;
(c) any representation or warranty made or deemed made by the
Borrower in this Agreement or any related agreement or in any certificate,
document of financial or other statement furnished at any time in connection
herewith or therewith shall
55
prove to have been misleading in any material respect on the date when made or
deemed to have been made;
(d) failure by the Borrower to (i) furnish financial information
when due or when requested which is unremedied for a period of five (5) days, or
(ii) permit the inspection of its books or records;
(e) issuance of a notice of Lien, Charge, Claim, levy assessment,
injunction or attachment against a material portion of the Borrower's property
which is not stayed or lifted within thirty (30) days;
(f) (i) failure or neglect of the Borrower to perform, keep or
observe any term, provision, condition, covenant contained in Section 4.7, 4.9,
6.3, 6.4, 9.4 or 9.11, and such failure shall continue for ten (10) days;
(ii) failure or neglect of the Borrower to perform, keep or
observe any term, provision, condition, covenant herein contained (other than
those Sections expressly set forth in Section 10.(f)(i) above) or contained in
any other agreement or arrangement, now or hereafter entered into between the
Borrower and the Lender;
(g) any judgment is rendered or judgment liens filed against the
Borrower for an amount in excess of $100,000 which within thirty (30) days of
such rendering or filing is not either satisfied, stayed or discharged of
record;
(h) the Borrower, Affiliated Borrowers, Subsidiary of Industries
or any Guarantor shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property, (ii) admit in writing its
inability, or be generally unable, to pay its debts as they become due or cease
operations of its present business, (iii) make a general assignment for the
benefit of creditors, (iv) commence a voluntary case under any state or federal
bankruptcy laws (as now or hereafter in effect), (v) be adjudicated a bankrupt
or insolvent, (vi) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vii) acquiesce to, or fail to have
dismissed, within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (viii) take any action for the
purpose of effecting any of the foregoing;
(i) any change in the Borrower's condition or affairs (financial
or otherwise) which in Lender's good faith opinion materially impairs the
Collateral or the ability of the Borrower to perform its Obligations under this
Agreement;
(j) if any Lien created hereunder or provided for hereby or under
any related agreement for any reason ceases to be or is not a valid and
perfected Lien having a first priority interest;
56
(k) a default of the obligations of the Borrower under any other
agreement with any Person other than Lender to which it is a party shall occur
which adversely affects, in any material respect, its condition, affairs or
prospects (financial or otherwise) which default is not cured within any
applicable grace period;
(l) termination or breach, after giving effect to any applicable
grace period, of any Guaranty or similar agreement executed and delivered to
Lender in connection with the Obligations of the Borrower, or if any Guarantor
attempts to terminate, challenges the validity of, or its liability under, any
such Guaranty or similar agreement;
(m) any Change of Ownership;
(n) any material provision of this Agreement shall, for any
reason, cease to be valid and binding on the Borrower, or the Borrower shall so
claim in writing to Lender; or
(o) failure by the Borrower to deliver to Lender on or before
April 30, 1998, a physical count of the Borrower's Inventory, the results of
which physical count of Inventory shall be acceptable to Lender in its sole
discretion, together with adjustments to the Borrower's books and records, if
any, as a result of such physical count of Inventory, which adjustments, if any,
shall be acceptable to Lender in its sole discretion.
11. LENDER'S RIGHTS AND REMEDIES AFTER DEFAULT.
11.1 RIGHTS AND REMEDIES. Upon the occurrence of an Event of Default
pursuant to Section 10(i), all Obligations shall be immediately due and payable
and this Agreement shall be deemed terminated; and, upon the occurrence of any
of the other Events of Default and at any time thereafter (such default not
having previously been cured), at the option of Lender all Obligations shall be
immediately due and payable and the Lender shall have the right to terminate
this Agreement. In any such event, the Lender shall have the right to exercise
any and all other rights and remedies provided for herein, under the Uniform
Commercial Code and at law or equity generally, including, without limitation,
the right to foreclose the security interests granted herein and to realize upon
any Collateral by any available judicial procedure and/or to take possession of
and sell any or all of the Collateral with or without judicial process. The
Lender may enter the Borrower's premises or other premises without legal process
and without incurring liability to the Borrower therefor, and the Lender may
thereupon, or at any time thereafter, in its discretion without notice or
demand, take the Collateral and remove the same to such place as the Lender may
deem advisable and the Lender may require the Borrower to make the Collateral
available to the Lender at a convenient place. With or without having the
Collateral at the time or place of sale, the Lender may sell the Collateral, or
any part thereof, at public or private sale, at any time or place, in one or
more sales, at such price or prices, and upon such terms, either for cash,
credit or future delivery, as the Lender may elect. Except as to that part of
the Collateral which is perishable or threatens to decline speedily in value
57
or is of a type customarily sold on a recognized market, the Lender shall give
the Borrower reasonable notification of such sale or sales, it being agreed that
in all events written notice mailed to the Borrower at least five (5) Business
Days prior to such sale or sales is reasonable notification. At any public sale
the Lender may bid for and become the purchaser, and Lender or any other
purchaser at any such sale thereafter shall hold the Collateral sold absolutely
free from any claim or right of whatsoever kind, including any equity of
redemption and such right and equity are hereby expressly waived and released by
the Borrower. In connection with the exercise of the foregoing remedies, the
Lender is granted permission to use all of the Borrower's trademarks, trade
styles, trade names, patents, patent applications, licenses, franchises and
other proprietary rights which are used in connection with (a) Inventory for the
purpose of disposing of such Inventory and (b) Equipment for the purpose of
completing the manufacture of unfinished goods. The proceeds realized from the
sale of any Collateral shall be applied first to the reasonable costs, expenses
and attorneys' fees and expenses incurred by Lender for collection and for
acquisition, completion, protection, removal, storage, sale and delivery of the
Collateral; secondly to interest due upon any of the Obligations; and thirdly to
the principal of the Obligations. If any deficiency shall arise, the Borrower
shall remain liable to Lender therefor.
11.2 LENDER'S DISCRETION. The Lender shall have the right in its sole
discretion to determine which rights, Liens, security interests or remedies the
Lender may at any time pursue, relinquish, subordinate, or modify or to take any
other action with respect thereto and such determination will not in any way
modify or affect any of the Lender's rights hereunder.
11.3 SETOFF. In addition to any other rights which the Lender may have
under applicable law, upon the occurrence of any Event of Default hereunder, the
Lender shall have a right to apply any of the Borrower's property held by the
Lender or by the Bank to reduce the Obligations.
11.4 RIGHTS AND REMEDIES NOT EXCLUSIVE. The enumeration of the foregoing
rights and remedies is not intended to be exhaustive and the exercise of any
right or remedy shall not preclude the exercise of any other right or remedies,
all of which shall be cumulative and not alternative.
12. WAIVERS AND JUDICIAL PROCEEDINGS.
12.1 WAIVER OF NOTICE. The Borrower hereby waives notice of non-payment
of any of the Receivables, demand, presentment, protest and notice thereof with
respect to any and all instruments, notice of acceptance hereof, notice of loans
or advances made, credit extended, Collateral received or delivered, or any
other action taken in reliance hereon, and all other demands and notices of any
description, except such as are expressly provided for herein.
58
12.2 DELAY. No delay or omission on the Lender's part in exercising any
right, remedy or option shall operate as a waiver of such or any other right,
remedy or option or of any default.
12.3 JURY WAIVER. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES
ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A)
ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO
OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE: AND EACH PARTY HEREBY AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
13. EFFECTIVE DATE AND TERMINATION.
13.1 TERM. This Agreement, which shall inure to the benefit of and shall
be binding upon the respective successors and permitted assigns of the Borrower
and the Lender, shall become effective on the date hereof and shall continue in
full force and effect until April ___, 2003 (the "Term") unless sooner
terminated as herein provided. The Term shall be automatically extended for
successive periods of one (1) year each unless terminated by either party at the
end of such initial Term or any successive Term by giving the other party sixty
(60) days prior written notice. The Borrower may terminate this Agreement at any
time upon thirty (30) days' prior written notice, upon payment in full of the
Obligations ("Termination Date"); and PROVIDED FURTHER THAT, the Affiliated
Borrowers simultaneously terminate the Affiliate Loan Agreements and, PROVIDED
FURTHER THAT, the Affiliated Borrowers pay an early termination fee in
accordance with the terms of Section 13.1 of the Affiliate Loan Agreements.
13.2 TERMINATION. The termination of the Agreement shall not affect any
of the Borrower's or the Lender's rights, or any of the Obligations having their
inception prior to the effective date of such termination, and the provisions
hereof shall continue to be fully operative until all transactions entered into,
rights or interests created or Obligations have been full disposed of, concluded
or liquidated. The security interests, Liens and rights granted to the Lender
hereunder and the financing statements filed hereunder shall continue in full
force and effect, notwithstanding the termination of this Agreement or the fact
that any account of the Borrower may from time to time be temporarily in a zero
or
59
credit position, until all of the Obligations of the Borrower has been paid or
performed in full after the termination of this Agreement or the Borrower has
furnished the Lender with an indemnification satisfactory to the Lender with
respect thereto. Accordingly, the Borrower waives any rights which it may have
under Section 9-404(1) of the Uniform Commercial Code to demand the filing of
termination statement with respect to the Collateral, and Lender shall not be
required to send such termination statements to the Borrower, or to file them
with any filing office, unless and until this Agreement shall have been
terminated in accordance with its terms and all Obligations paid in full in
immediately available funds. All representations, warranties, covenants, waivers
and agreements contained herein shall survive termination hereof until all
Obligations are repaid or performed in full unless otherwise provided.
14. MISCELLANEOUS.
14.1 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York (without giving effect to its
conflict of laws rules). Any judicial proceeding brought by or against the
Borrower with respect to any of the Obligations, this Agreement or any related
agreement may be brought in any court of competent jurisdiction in the State of
New York, United States of America, and, by execution and delivery of this
Agreement, the Borrower accepts for itself and in connection with its
properties, generally and unconditionally the non-exclusive jurisdiction of he
aforesaid courts, and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Agreement. Nothing herein shall affect the right
to serve process in any manner permitted by law or shall limit the right of the
Lender to bring proceedings against the Borrower in the courts of any other
jurisdiction. The Borrower waives any objection to jurisdiction and venue of any
action instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon FORUM NON CONVENIENS. Any judicial
proceedings by the Borrower against the Lender involving, directly or
indirectly, any matter or claim in any way arising out of, related to or
connected with this Agreement or any related agreement, shall be brought only in
a federal or state court located in the City of New York, State of New York.
14.2 ENTIRE UNDERSTANDING. This Agreement and the documents executed
concurrently herewith contain the entire understanding between the Borrower and
the Lender and supersedes all prior agreements and understandings, if any,
relating to the subject matter hereof. Any promises, representations, warranties
or guarantees not herein contained and hereinafter made shall have no force and
effect unless in writing, signed by the Borrower's and Lender's respective
officers. Neither this Agreement nor any portion or provisions hereof may be
changed, modified, amended, waived, supplemented, discharged, cancelled or
terminated orally or by any course of dealing, or in any manner other than by an
agreement in writing, signed by the party to be charged. The Borrower
acknowledges that it has been advised by counsel in connection the execution of
this Agreement and Other Documents and is not relying upon oral representations
or statements inconsistent with the terms and provisions of this Agreement.
60
14.3 SUCCESSORS AND ASSIGNS; PARTICIPATIONS; NEW LENDERS.
(a) This Agreement shall be binding upon and inure to the benefit
of the Borrower, the Lender, all future holders of the Cap/Ex Note and their
respective successors and assigns, except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of Lender.
(b) Lender may sell, assign or transfer all or any part of its
rights under this Agreement, the Cap/Ex Note and all related agreements,
instruments and documents provided the Borrower is given notice of such sale as
soon as practicable and the transferee agrees to perform the obligations of the
transferor, In addition to the foregoing, the Borrower acknowledges that in the
regular course of commercial banking business the Lender may at any time and
from time to time sell participating interests in the Advances to other
financial institutions (each such transferee or purchaser of a participating
interest, a "Transferee"). Each Transferee may exercise all rights of payment
(including without limitation rights of set-off) with respect to the portion of
such Advances held by it or other Obligations payable hereunder as fully as if
such Transferee were the direct holder thereof. The Borrower hereby grants to
any Transferee a continuing security interest in any deposits, moneys or other
property actually or constructively held by such Transferee as security for the
Transferee's interest in the Advances and such security shall be a Permitted
Encumbrance hereunder.
14.4 APPLICATION OF PAYMENTS. Lender shall have the continuing and
exclusive right to apply or reverse and reapply any and all proceeds of
Collateral to any portion of the Obligations then due. To the extent that the
Borrower makes a payment or Lender receives any payment or proceeds of the
Collateral for the Borrower's benefit, which are subsequently invalidated,
declared to the fraudulent or preferential, set aside or required to be repaid
to a trustee, debtor in possession, receiver, custodian or any other party under
any bankruptcy law, common law or equitable cause, then, to such extent, the
Obligations or part thereof intended to be satisfied shall be revived and
continue as if such payment or proceeds had not been received by Lender.
14.5 INDEMNITY. The Borrower shall indemnify Lender from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses and disbursements of any kind or nature
whatsoever (including, without limitation, fees and disbursements of counsel)
which may be imposed on, incurred by, or asserted against Lender in any
litigation, proceeding or investigation instituted or conducted by any
governmental agency or instrumentality or any other Person with respect to any
aspect of, or any transaction contemplated by, or referred to in, or any matter
related to, this Agreement, whether or not the Lender is a party thereto, except
to the extent that any of the foregoing arises out of the gross negligence or
willful misconduct of Lender.
14.6 NOTICE. Any notice or request hereunder may be given to the Borrower
and to Lender at their respective addresses set forth below or at such other
address as may
61
hereafter be specified in a notice designated as a notice of change of address
under this Section. Any notice or request hereunder shall be given by (a) hand
delivery, (b) registered or certified mail, return receipt requested, (c) telex
or telegram, subsequently confirmed by registered or certified mail, or (d)
telefax to the number set out below (or such other number as may hereafter be
specified in a notice designated as a notice of change of address) with
telephone communication to a duly authorized officer of the recipient confirming
its receipt as subsequently confirmed by registered or certified mail. Notices
and requests shall, in the case of those by mail or telegram. be deemed to have
been given three (3) Business Days after mailing, or when delivered to the
telegraph office addresses as provided in this Section.
(A) If to Lender, at: BNY FINANCIAL CORPORATION
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxxxxx
Telephone: (000) 000-0000
FAX: (000) 000-0000
With copy to: BNY FINANCIAL CORPORATION
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxxxx
Telephone: (000) 000-0000
FAX: (000) 000-0000
OTTERBOURG, STEINDLER, HOUSTON
& XXXXX, PC.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxxxxx X. Brand, Esq.
Telephone: (000) 000-0000
FAX: (000) 000-0000
(B) If to the Borrower, at: CROWN TOOL & DIE COMPANY, INC.
c/o TII Industries, Inc.
0000 Xxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Attention: Chief Financial Officer
Telephone: (000) 000-0000
FAX: (000) 000-0000
14.7 SURVIVABILITY. If any or part of this Agreement is contrary to,
prohibited by, or deemed invalid under applicable laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the
62
remainder hereof shall not be invalidated thereby and shall be given effect so
far as possible.
14.8 EXPENSES. All costs and reasonable expenses including, without
limitation reasonable attorneys' fees incurred by the Lender (a) in all efforts
made to enforce payment of any Obligation or effect collection of any
Collateral, or (b) in connection with the entering into, modification,
amendment, administration and enforcement of this Agreement or any consents or
waivers hereunder and all related agreements, documents and instruments, or (c)
in connection with the instituting, maintaining, preserving, enforcing and
foreclosing of or on the Lender's security interest or Lien in any of the
Collateral, whether through judicial proceedings or otherwise, or (d) in
defending or prosecuting any actions or proceedings arising out of or relating
to the Lender's transactions with the Borrower, or (e) in connection with any
advice given to Lender with respect to its rights and obligations under this
Agreement and all related agreements, or (f) subject to Section 4.10 hereof,
during the course of audits, checks or inspections of the Collateral and the
Borrower's operations, plus a per diem charge for Lender's examiners and
auditors at Lender's then current rates, and costs and expenses of examiners and
auditors retained by Lender at the rates charged to auditors may be charged to
any account of the Borrower and shall be part of the Obligations.
14.9 INJUNCTIVE RELIEF. The Borrower recognizes that, in the event the
Borrower fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy at law may prove to be inadequate
relief to Lender; therefore, Lender if Lender so requests, shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages.
14.10 CAPTIONS. The captions at various places in this Agreement are
intended for convenience only and do not constitute and shall not be interpreted
as part of this Agreement.
14.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which taken together shall constitute one and the same
instrument.
Each of the parties has signed this Agreement as of the 30th day of April,
1998.
CROWN TOOL & DIE COMPANY, INC.
By: /S/ XXXX XXXXXXX
---------------------------
[SEAL] Its: VICE PRESIDENT-FINANCE
---------------------------
Xxxx 000, Xxxxxxxxx 1.06
Toa Alta, Puerto Rico 00953
BNY FINANCIAL CORPORATION
By: /S/ XXXXXX X. XXXXXXXX
---------------------------
Its: PRESIDENT
---------------------------
1290 Avenue of the Americas
Xxx Xxxx, Xxx Xxxx 00000
63
ACKNOWLEDGEMENT AND AGREEMENT
The undersigned, being "Affiliated Borrowers" referred to and as defined
in the within and foregoing Revolving Credit, Term Loan and Security Agreement
("Loan Agreement"), hereby acknowledge each of the terms and provisions of the
foregoing Loan Agreement and agrees to be bound by the terms and provisions
thereof expressly applying to the undersigned.
Each of the undersigned acknowledges and agrees that although they may
acknowledge this Loan Agreement, they are not a party thereto and do not and
will not receive any right, benefit, priority or interest under or because of
the existence of the Loan Agreement.
TII INDUSTRIES, INC.
By: /S/ XXXX XXXXXXX
------------------------------
Title: VICE PRESIDENT-FINANCE
------------------------------
TII CORPORATION
By: /S/ XXXX XXXXXXX
------------------------------
Title: VICE PRESIDENT-FINANCE
------------------------------
TII-DITEL, INC.
By:/S/ XXXX XXXXXXX
------------------------------
Title: VICE PRESIDENT-FINANCE
------------------------------
00
XXXXX XX XXX XXXX )
) ss.
COUNTY OF NEW YORK )
On this _____ day of April, 1998, before me personally came
___________________________, to me known, who, being by me duly sworn, did
depose and say that he resides at _______________________________ and that he is
the __________________ of TII-DITEL, INC., the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the board of directors of said corporation.
------------------------------
NOTARY PUBLIC
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this _____ day of April, 1998, before me personally came
_________________________, to me known, who, being by me duly sworn, did depose
and say that he resides at _______________________________________________ and
that he is the _______________ of BNY FINANCIAL CORPORATION, the corporation
described in and which executed the foregoing instrument and that he signed his
name thereto by order of the board of directors of said corporation.
------------------------------
NOTARY PUBLIC
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this _____ day of April, 1998, before me personally came
________________________, to me known, who, being by me duly sworn, did depose
and say that he resides at ______________________________ and that he is the
__________________ of TII INDUSTRIES, INC., the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the board of directors of said corporation.
------------------------------
NOTARY PUBLIC
00
XXXXX XX XXX XXXX )
) ss.
COUNTY OF NEW YORK )
On this _____ day of April, 1998, before me personally came
________________________, to me known, who, being by me duly sworn, did depose
and say that he resides at _______________________________ and that he is the
__________________ of TII CORPORATION, the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by order
of the board of directors of said corporation.
------------------------------
NOTARY PUBLIC
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this _____ day of April, 1998, before me personally came
________________________, to me known, who, being by me duly sworn, did depose
and say that he resides at _______________________________ and that he is the
__________________ of CROWN TOOL & DIE COMPANY, INC., the corporation described
in and which executed the foregoing instrument; and that he signed his name
thereto by order of the board of directors of said corporation.
------------------------------
NOTARY PUBLIC
66
