EXHIBIT 10.7
SUBORDINATED LOAN AND SECURITY AGREEMENT
THIS SUBORDINATED LOAN AND SECURITY AGREEMENT is made as of the 9th day of July,
2004, by and between RIVIERA TOOL COMPANY, a Michigan corporation ("Borrower"),
and THE HILLSTREET FUND II, L.P., a Delaware limited partnership, its successors
and assigns ("Lender").
NOW, THEREFORE, in consideration of the respective undertakings stated herein,
the parties agree as follows:
ARTICLE 1
INTERPRETATION
Section 1.1 Definitions. The following capitalized terms are defined as follows:
"Account" or "Accounts" shall have the same meaning as defined in Section
9-102(a)(2) of the UCC.
"Account Debtor" shall have the same meaning as defined in Section 9-102(a)(3)
of the UCC.
"Affiliate" means any Person which directly or indirectly controls, or is
controlled by, or is under common control with, any Person. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise. The term "Affiliate"
does not include Lender.
"Agreement" or "this Agreement" means this Subordinated Loan and Security
Agreement (including all Exhibits and Schedules annexed hereto) as originally
executed, or if supplemented, amended, or restated from time to time, as so
supplemented, amended, or restated.
"Assignment of Life Insurance" means a collateral assignment of the Life
Insurance, on terms acceptable to Lender.
"Borrower Change of Control" means the time at which (i) any Person (including a
Person's Affiliates and associates) or group (as that term is understood under
Section 13(d) of the Exchange Act and the rules and regulations thereunder),
other than the existing shareholders of Borrower or a group controlled by the
existing shareholders of Borrower, has become the beneficial owner of a
percentage (based on voting power, in the event different classes of stock shall
have different voting powers) of the voting stock of Borrower equal to at least
twenty-five percent (25%), (ii) there shall be consummated any consolidation or
merger of Borrower pursuant to which Borrower's Capital Stock would be converted
into cash, securities or other property, other than a merger or consolidation of
Borrower in which the holders of the common stock of Borrower, or any Capital
Stock convertible into common stock, immediately prior to the merger have the
same proportionate ownership, directly or indirectly, of common stock or any
Capital Stock convertible into common stock, of the surviving corporation
immediately after the merger as they had of Borrower's common stock immediately
prior to such merger, (iii) all or substantially all of Borrower's assets shall
be sold, leased, conveyed or otherwise disposed of as an entirety or
substantially as an entirety to any Person (including an Affiliate or associate
of Borrower) in one or a series of transactions, or (iv) Xxxxxxx X. Xxxxx shall
cease to perform his duties as chief executive officer of Borrower and within
ninety (90) days of such cessation a replacement chief executive officer
acceptable to Lender has not been employed by Borrower.
"Business Day" means any day on which commercial banking institutions are open
for business in Cincinnati, Ohio, other than a Saturday, Sunday or a legal
holiday.
"Capital Expenditures" means any amounts paid or incurred in connection with the
purchase of plant, machinery, Equipment or similar expenditures (including any
lease of any of the foregoing) which are required to be capitalized and
depreciated in accordance with GAAP.
"Capital Leases" means capital leases, conditional sales contracts and other
title retention documents relating to the acquisition of capital assets (as
classified in accordance with GAAP).
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"Capital Stock" means any and all equity interests and participations in any
entity including, without limitation, corporate stock, whether common or
preferred, subscription rights, warrants, convertible securities and other forms
of equity interests such as partnership interests and interests in limited
liability companies.
"Chattel Paper" means any "chattel paper" as such term is defined in Section
9-102(a)(11) of the UCC, now owned or hereafter acquired.
"Closing Date" means the Business Day on which all conditions precedent
specified in Article 0 hereof shall have been satisfied in full.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Collateral" means all of Borrower's assets and properties, including all of
Borrower's rights (including Borrower's right to transfer the Collateral to
Lender) whether, in the case of any item, (a) now owned or hereafter acquired or
now existing or hereafter arising and (b) whether it is subject to Article 8 or
9 of the UCC, or is Collateral including, without limitation, the following (i)
all of the Borrower's Equipment, General Intangibles, Inventory, Accounts,
Goods, and all other items of personal and real property, (ii) all of the right,
title and interest of Borrower in and to all goods or other property represented
by or securing any of the Accounts, including all goods that may be reclaimed or
repossessed from or returned by Borrower, (iii) all of the rights of Borrower as
an unpaid seller, including stoppage in transit, detinue and reclamation, (iv)
all additional amounts due to Borrower irrespective of whether such additional
amounts have been specifically assigned to Lender, (v) all guaranties,
supporting obligations, or other agreements or property securing or relating to
any of the items referred to in (i) above, or acquired for the purpose of
securing and enforcing any of such items, (vi) all Instruments, documents and
cash owned by Borrower or in which Borrower has an interest, (vii) all
Investment Property, (viii) all Chattel Paper, (ix) all Letter-of-Credit Rights,
(x) all Commercial Tort Claims, (xi) all Deposit Accounts, (xii) the
"Collateral" as defined in the Assignment of Life Insurance, (xiii) all ledger
sheets, files, records, documents, blueprints and drawings (including, without
limitation, computer programs, tapes and related electronic data processing
software) evidencing an interest in or relating to the foregoing, (xiv) all
"Collateral" as defined in the Intellectual Property Security Agreement, (xv)
all claims (contractual or otherwise) to items referred to in this definition of
Collateral and against third parties that in any way arise under or out of or
are related to the Collateral, and (xvi) all proceeds and products of the
Collateral described above, including without limitation, all cash, negotiable
instruments and other evidences of indebtedness. All capitalized terms used in
this definition and not otherwise defined herein shall have the meaning given
such term under the UCC.
"Commercial Tort Claims" means any "commercial tort claim" as such term is
defined in Section 9-102(a)(13) of the UCC, now owned or hereafter acquired.
"Compensation" means all forms of direct and indirect remuneration and includes,
without limitation, salaries, commissions, bonuses, securities, property,
insurance benefits, personal benefits and contingent forms of remuneration.
"Compliance Certificate" means the report required by 0 hereof, including
schedules furnished by Borrower in the form of ERROR! REFERENCE SOURCE NOT
FOUND. hereto.
"Computation Date" means the last day of each of March, June, September and
December.
"Consolidated" means, with respect to any accounting matter or amount, such
matter or amount computed on a consolidated basis for Borrower and its
Subsidiaries, if any, in accordance with GAAP.
"Contractual Obligation" means, with respect to any Person, any provision or
requirement of any security issued by such Person or of any agreement,
instrument or other undertaking to which such Person is a party or by which it
or any of its property is bound.
"Debt Service Coverage Ratio" shall have the meaning ascribed to that term in
the Senior Loan Agreement.
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"Debt to Worth Ratio" shall have the meaning ascribed to that term in the Senior
Loan Agreement.
"Default" means any of the events set forth in Article 0 which with the giving
of notice, the lapse of time, or both, would constitute an Event of Default.
"Deposit Account" shall have the meaning as defined in the Section 9-102(a)(29)
of the UCC, now owned or hereafter acquired.
"Employee Benefit Plan" means any employee benefit plan within the meaning of
Section 3(3) of ERISA, other than a multiemployer plan.
"Environmental Laws" means all federal, state and local laws, rules,
regulations, ordinances, permits, orders, writs, judgments, injunctions,
decrees, determinations, awards and consent decrees relating to hazardous
substances and environmental matters applicable to Borrower's business and
facilities (whether or not owned by it), including, without limitation: the
Resource Conservation and Recovery Act of 1976 ("RCRA"); the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"); the
Toxic Substance Control Act; the Clean Water Act; and the Clean Air Act, all as
amended from time to time; state and federal superfund and environmental cleanup
programs; and U.S. Department of Transportation hazardous materials
transportation regulations.
"Equipment" shall have the meaning as defined in the Section 9-102(a)(33) of the
UCC, now owned or hereafter acquired.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"ERISA Affiliate" means, in relation to any Person, any trade or business
(whether or not incorporated) which is a member of a group of which that Person
is a member and is under common control within the meaning of the regulations
promulgated under Section 414 of the Code.
"Event of Default" has the meaning set forth in Article 0 hereof.
"Financial Statements" has the meaning set forth in 0 hereof.
"Fifth Third Loan Agreement" means that Subordinated Loan Agreement dated
December 23, 2002 among Borrower and Fifth Third Bank ("Fifth Third"), as the
same may be amended, supplemented, replaced or refinanced from time to time in
compliance with terms of the any subordination agreement that Fifth Third and
lender may enter into.
"Fifth Third Consent and Waiver" means that letter from Fifth Third dated July
6, 2004, pursuant to which Fifth Third consents to the transactions contemplated
by the Loan Documents.
"GAAP" means generally accepted accounting principles in the United States, as
in effect from time to time.
"General Intangibles" shall have the meaning as defined in the Section
9-102(a)(42) of the UCC, now owned or hereafter acquired.
"Goods" mean any item which qualifies as "goods" as such term is defined in
Section 9-102(a)(44) of the UCC, now owned or hereafter acquired.
"Guarantee Obligation" means, with respect to any Person, any direct or indirect
liability, contingent or otherwise, with respect to any Indebtedness, lease or
other obligation of another if the primary purpose or intent thereof in
incurring the Guarantee Obligation is to provide assurance to the obligee of
such obligation of another that such obligation of another will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such obligation will be protected (in whole or in part)
against loss in respect thereof. The amount
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of any Guarantee Obligation shall be deemed to be the maximum amount for which
the guaranteeing Person may be liable pursuant to the terms of the instrument
embodying such Guarantee Obligation, or if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof.
"Head Office" means the head office of Lender located at 000 Xxxx Xxxxxx,
Xxxxxxxxxx, Xxxx 00000.
"HillStreet" means The HillStreet Fund II, L.P., a Delaware limited partnership.
"Indebtedness" means, without duplication (i) all obligations (including
capitalized lease obligations but excluding the deferred revenues related to the
purchase price of products and services), which in accordance with GAAP would be
shown on a balance sheet as a liability other than account payables referred to
in clause (iv), (ii) all obligations for borrowed money, (iii) any obligation
evidenced by a bond, debenture, note or other similar instrument, (iv) any
obligation to pay the deferred purchase price of property or services, except
account payables that arise in the ordinary course of business, (v) any
obligation as lessee under a capital lease, (vi) any capital stock which by its
terms must be redeemed on a particular date or at the option of the holder
thereof or upon the occurrence of any condition not entirely within the control
of Borrower (the amount of such stock to be determined for this purpose as the
higher of the liquidation preference of and the amount payable upon redemption
of such stock), (vii) any obligation to purchase securities or other property
that arises out of or in connection with the sale of the same or substantially
similar securities or property, (viii) any non-contingent obligation to
reimburse any other person or entity in respect of amounts paid under a letter
of credit or other guaranty issued by such other person or entity in respect of
amounts paid under a letter of credit or other guaranty issued by such person or
entity to the extent that such reimbursement obligation remains outstanding
after it becomes non-contingent, (ix) any obligation with respect to an interest
rate or currency swap or similar obligation obligating a Person to make
payments, whether periodically or upon the happening of a contingency, except
that if any agreement relating to such obligation provides for the netting of
amounts payable by and to such Person thereunder, or if any such agreement
provides for the simultaneous payment of amounts by and to such Person, then in
each such case, the amount of such obligation shall be the net amount thereof,
(x) any Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by) a
Lien on any asset of such Person, and (xi) all Guarantee Obligations.
"Indebtedness for Borrowed Money" means all liabilities for borrowed money, for
the deferred purchase price of property or services, and under leases which are
or should be, under GAAP, recorded as Capital Leases, in each case in respect of
which a Person is directly or indirectly, absolutely or contingently liable as
obligor, guarantor, endorser or otherwise, or in respect of which such Person
otherwise assures a creditor against loss, and all liabilities for borrowed
money which are secured by (or for which the holder has an existing right,
contingent or otherwise, to be secured by) any Lien upon property owned by such
Person, whether or not such Person has assumed or become liable for the payment
thereof.
"Instruments and Documents" means all "instruments," "documents," "deposit
accounts," and "chattel paper," as defined in Section 9-102 of the UCC, all
securities, and includes (without limitation) all warehouse receipts and other
documents of title, policies and certificates of insurance, checking, savings,
and other bank accounts, certificates of deposit, checks, notes, drafts, bills,
and acceptances, now or hereafter acquired, to the extent not included in
Accounts or Investment Property.
"Intellectual Property Security Agreement" means the Intellectual Property
Security Agreement of even date herewith between Borrower and Lender in the form
attached as ERROR! REFERENCE SOURCE NOT FOUND..
"Intercreditor Agreement" means that Subordination and Intercreditor Agreement
dated as of the Closing Date between Lender and Senior Lender, in form and
substance satisfactory to Lender, as amended from time to time.
"Interest Payment Dates" means the last Business Day of each December, March,
June and September.
"Inventory" shall have the meaning as defined in the Section 9-102(a)(48) of the
UCC, now owned or hereafter acquired.
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"Investment Property" shall have the meaning as defined in the Section
9-102(a)(49) of the UCC, now owned or hereafter acquired.
"Lender Nominee" means one (1) person nominated by Lender to serve on Borrower's
Board of Directors or, at Lender's discretion to observe the meetings and
deliberations of such Board other than as a director.
"Letter of Credit Rights" means a right to payment or performance under a letter
of credit, whether or not the beneficiary has demanded or is at the time
entitled to demand payment or performance.
"Lien" means any mortgage, pledge, hypothecation, assignment, security interest,
lien, charge or encumbrance 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 any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction in respect of any of the foregoing).
"Life Insurance" means one or more policies of life insurance and any substitute
or replacement policies thereof, which may be issued to Borrower on the life of
Xxxxxxx X. Xxxxx as contemplated by 0 hereof, in the aggregate face amount of
not less than One Million and 00/100 Dollars ($1,000,000.00), which such
policies, if and when issued, shall be free of any policy loans and encumbrances
whatsoever, except the lien in favor of Lender hereunder.
"Loan" means the term loan to be made to Borrower by Lender pursuant to Article
0 hereof.
"Loan Documents" means this Agreement, the Subordinated Note, the Security
Documents, the Intercreditor Agreement, the Fifth Third Consent and Waiver and
all other documents, instruments, financing statements, certificates and other
agreements executed in connection with the Loan.
"Loan Year" means each period of twelve (12) consecutive months, commencing on
the Closing Date and on each anniversary thereof.
"Material Adverse Effect" means a material adverse effect on the Collateral or
on the business, operations, property, Collateral or condition (financial or
otherwise) of Borrower as reasonably determined by Lender.
"Maturity Date" means the earlier of: (i) June 30, 2010 or (ii) the date upon
which the Lender declares the Obligations immediately due and payable in
accordance with 0 hereof.
"Mortgage" means one or more leasehold mortgages or deeds of trust granted from
time to time by Borrower to Lender, if any, in accordance with 0 hereof,
granting a lien to Lender to secure the Loan, substantially in the form of
ERROR! REFERENCE SOURCE NOT FOUND. hereto, and as they may be amended or
supplemented from time to time.
"Mortgaged Property" means Borrower's interest in the land, buildings, fixtures
and related personal property, now or hereinafter arising, as specifically
described in Schedule 0 hereto.
"Net Income" means the Consolidated net income of Borrower determined in
accordance with GAAP.
"Obligations" means, without limitation, the Loan and all other debts,
obligations, or liabilities of every kind and description of Borrower to Lender,
now due or to become due, direct or indirect, absolute or contingent, presently
existing or hereafter arising, joint or several, secured or unsecured, whether
for payment or performance, regardless of how the same arise or by what
instrument, agreement or book account they may be evidenced, or whether
evidenced by any instrument, agreement or book account including, without
limitation, all loans (including any loan by renewal or extension), all
overdrafts, all guarantees, all bankers acceptances, all agreements, all letters
of credit issued by Lender for Borrower and the applications relating thereto,
all indebtedness of Borrower to Lender, all undertakings to take or refrain from
taking any action and all indebtedness, liabilities and obligations owing from
Borrower to others which Lender may obtain by purchase, negotiation, discount,
assignment or otherwise. Obligations shall also include all interest and other
charges chargeable to Borrower or due from Borrower to Lender from time to time
and all costs and expenses referred to in 0 hereof.
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"Permitted Liens" means the liens and interests in favor of Lender granted in
connection herewith and:
(i) liens under the Senior Loan Documents in an amount not to exceed
$16.8 million in the aggregate;
(ii) liens against Borrower to secure taxes, assessments and other
government charges in respect of obligations not overdue or liens on
properties to secure claims for labor, material or supplies in
respect of obligations not overdue;
(iii) deposits or pledges made by Borrower in connection with, or to
secure payment of workmen's compensation, unemployment insurance,
old age pensions or other social security obligations;
(iv) liens of carriers, warehousemen, mechanics and materialmen, tool
builders and other like liens on properties of Borrower in existence
less than thirty (30) days from the date of creation thereof in
respect of obligations not overdue;
(v) encumbrances on real estate of Borrower consisting of easements,
rights of way, zoning restrictions, restrictions on the use of real
property and minor defects and irregularities in the title thereto,
landlord's or lessor's liens under leases to which Borrower is a
party, and other minor liens or encumbrances none of which
interferes materially with the use of the property in the ordinary
conduct of the business of Borrower, and which defects do not
individually or in the aggregate have a Material Adverse Effect.
"Person" shall include an individual, a company, a corporation, an association,
a partnership, a limited liability company, a joint venture, an unincorporated
trade or business enterprise, a trust, an estate, or other legal entity or a
government (national, regional or local), court, arbitrator or any agency,
instrumentality or official of the foregoing.
"Principal Office" means the principal office of Borrower at 0000 Xxxxxxxxx
Xxxxxxx XX, Xxxxx Xxxxxx, Xxxxxxxx.
"Principal Payment Date" means the last day of each of September 2007, December
2007, March 2008, June 2008, September 2008, December 2008, March 2009, June
2009, September 2009, December 2009, March 2010 and June 2010.
"Requirements of Law" means, with respect to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other governmental authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Reference Period" means, with respect to any particular Computation Date, the
period of four (4) consecutive fiscal quarters of Borrower ending on such
Computation Date. The fiscal quarters of Borrower end on the last day of March,
June, September and December.
"Responsible Officer" means any authorized officer of Borrower.
"Restricted Payment" means: (i) any dividend or other distribution, direct or
indirect, on account of any shares of any Capital Stock of Borrower or any
Subsidiary now or hereafter outstanding; (ii) any redemption, conversion,
exchange, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class of stock
of Borrower or any Subsidiary now or hereafter outstanding; (iii) any payment or
prepayment of principal of, premium, if any, or interest on, redemption,
conversion, exchange, purchase, retirement, defeasance, sinking fund or similar
payment with respect to, any indebtedness other than the Senior Debt; provided,
however, that payments of principal and interest with respect to the Senior Debt
in any twelve month period shall not exceed $600,000.00 except to provide for
the last payment of principal on the Term Loan (as such term is defined in the
Senior Loan Agreement), and (iv) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of Capital Stock of Borrower or any Subsidiary now or
hereafter outstanding.
"Security Documents" means all of the documents and instruments evidencing the
collateral security of Lender, including without limitation, all UCC Financing
Statements with respect to the Collateral, the Mortgage (if any is granted in
accordance with 0 hereof), the Intellectual Property Security Agreement and the
Assignment of Life Insurance.
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"Senior Debt" means that portion of the principal amount owing to the Senior
Lender under the Senior Loan Documents from time to time, together with all
interest, fees and other amounts payable on or with respect thereto, not to
exceed Sixteen Million Eight Hundred Thousand and 00/100 Dollars
($16,800,000.00) in the aggregate, and any refinance, replacement, amendment or
modification thereof in accordance with the Intercreditor Agreement.
"Senior Lender" means Comerica Bank, a Michigan banking corporation.
"Senior Loan Agreement" means that certain Line of Credit and Term Loan
Agreement dated December 23, 2002 among Borrower and Senior Lender, as the same
has been and may be amended, supplemented, replaced or refinanced from time to
time in compliance with terms of the Intercreditor Agreement.
"Senior Loan Documents" means the Senior Loan Agreement, and all other documents
which create, evidence or secure the Senior Debt from time to time as any of the
same may be amended, supplemented, replaced or refinanced from time to time in
compliance with the terms of the Intercreditor Agreement.
"Senior Loans" means the loans made to Borrower pursuant to the terms of the
Senior Loan Agreement.
"Subordinated Note" means the Subordinated Term Promissory Note referred to in 0
hereof to evidence the Loan.
"Subsidiary" means, with respect to any Person, a corporation, partnership,
limited liability company, or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such other
ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other managers of
such corporation, partnership, limited liability company, or other entity are at
the time owned, by such Person. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to any
Subsidiary or all Subsidiaries of Borrower (including Borrower), whether now in
existence or hereafter organized.
"Tangible Effective Net Worth" shall have the meaning ascribed to such term in
the Senior Loan Agreement.
"Tangible Net Worth" shall have the meaning ascribed to such term in the Senior
Loan Agreement.
"Uniform Commercial Code" or "UCC" means the Uniform Commercial Code in each
case in effect in the jurisdiction where the Collateral is located.
"UCC Financing Statements" mean the UCC financing statements naming Borrower as
debtor, and Lender as secured party or creditor, which UCC financing statements
describe all or some portion of the Collateral and which together perfect
Lender's security interest in the Collateral.
Section 1.2 Rules of Construction.
(a) Use of Capitalized Terms. For purposes of this Agreement, unless the context
otherwise requires, the capitalized terms used in this Agreement shall have the
meanings herein assigned to them, and such definitions shall be applicable to
both singular and plural forms of such terms. In addition, all terms defined in
the Uniform Commercial Code shall have the meanings given therein unless
otherwise defined herein.
(b) Construction. All references in this Agreement to the single number and
neuter gender shall be deemed to mean and include the plural number and all
genders, and vice versa, unless the context shall otherwise require. Headings.
The underlined headings contained herein are for convenience only and shall not
affect the interpretation of this Agreement.
(c) Entire Agreement. This Agreement and the other Loan Documents shall
constitute the entire agreement of the parties with respect to the subject
matter hereof.
(d) Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
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remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
(e) Governing Law. This Agreement and the Subordinated Note and the rights and
obligations of the parties under this Agreement and the Subordinated Note shall
be governed by, and construed and interpreted in accordance with, the law of the
State of Ohio.
(f) Accounting Terms and Determinations. Unless otherwise defined or specified
herein, all accounting terms used in this Loan Agreement shall be construed in
accordance with GAAP.
ARTICLE 2
LOAN TERMS AND AMOUNTS
Section 2.1 Loan Commitment. Subject to the terms and conditions of this
Agreement, Lender hereby agrees to make a term loan to Borrower in the amount of
Three Million and 00/100 Dollars ($3,000,000.00) (the "Loan").
Section 2.2 Promissory Subordinated Note. The absolute and unconditional
obligation of Borrower to repay to Lender the principal of the Loan and the
interest thereon shall be evidenced by a subordinated term promissory note
executed by Borrower in substantially the form of ERROR! REFERENCE SOURCE NOT
FOUND. hereto (the "Subordinated Note"). The Subordinated Note shall include the
following terms:
(a.) Term. The Subordinated Note shall be dated as of the Closing Date and
shall mature and be due and payable in full on June 30, 2010.
(b.) Interest Rate. The principal balance of the Loan shall bear interest
at a rate per annum equal to twenty percent (20%) compounded quarterly
comprised of two components: (i) a current-pay component which is equal to
fourteen percent (14%) per annum, compounded quarterly, and which shall be
due and payable on the first day of each calendar quarter in arrears, and
(ii) a deferred component which is equal to six percent (6%) per annum,
compounded quarterly, the payment of which shall be deferred until the
Maturity Date or earlier payment of principal, whichever occurs first. The
deferred interest component of the rate shall become due and payable as
and when each principal payment is made or becomes due, whichever occurs
first, and shall continue to accrue after due. If Borrowers elect to
prepay part or all the principal of the Loan, the deferred interest
component allocable to that portion of the principal prepaid shall become
due and payable at the time of such prepayment. Provided that no Default
or Event of Default occurs, all of the deferred interest component (or any
portion thereof which has not been prepaid) shall become due and payable
in full at the Maturity Date. If Lender accelerates the maturity of the
Loan as a result of an Event of Default, such deferred interest component
shall become immediately due and payable. Borrowers and Lender acknowledge
and agree that the intent of this 0 is to specify a rate of interest that
provides to Lender an effective internal rate of return to Lender of
twenty percent (20%) per annum with respect to interest on the principal
outstanding balance of the Loan. Nothing in this 0 nor any provision of
any other Loan Document shall be interpreted or applied which results in a
lower internal rate of return with respect to interest charged to
Subordinate Lender.
(c.) Interest Payment Dates. Interest on the Subordinated Note shall be
payable in arrears quarterly on each Interest Payment Date commencing
September 30, 2004, and ending on the Maturity Date.
(d) Principal Payments. Prior to September 30, 2007, provided that Lender
has not accelerated the Loan pursuant to 0 hereof, Borrower shall not be
obligated to make any payment of principal on the Loan. Beginning
September 30, 2007, quarterly installments of principal on the
Subordinated Note shall be payable on each Principal Payment Date in an
amount equal to Two Hundred Fifty Thousand and 00/100 Dollars
($250,000.00), and on the date the Loan is due (whether by maturity,
acceleration or otherwise), in an amount sufficient to pay in full the
entire unpaid principal and accrued interest.
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Section 2.3. Fees.
(a) Closing Fees. At Closing, Borrower shall pay to Lender a closing fee
in the amount of One Hundred Fifty Thousand and 00/100 Dollars
($150,000.00) less any the $50,000.00 deposit made by Borrower, payable in
immediately available funds or as Lender otherwise directs. Borrower
agrees to pay all fees, expenses and out-of-pocket disbursements of Lender
and its legal counsel, including, without limitation, UCC search fees,
filing and recording fees, photocopying charges, long distances telephone
charges and similar expenses.
(b) Other Fees. Borrower shall, promptly upon request, reimburse Lender
for all loan administration, travel and related out-of-pocket expenses,
including reasonable attorney fees and expenses for the term of the Loan.
Section 2.4 Prepayments.
(a) Permitted Prepayments - Prepayment from Life Insurance. In the event
Borrower receives proceeds from payment of the Life Insurance, the
proceeds shall be applied in the manner set forth in 0 hereof.
(b) Optional Prepayment. Except as provided for in Sections 0 and 0
hereto, Borrower shall have no right to prepay the principal of the Loan
during the first two Loan Years. If Borrower shall prepay the Loan in
whole or in part after the second Loan Year, Borrower shall pay to Lender,
as liquidated damages and compensation for the costs of being prepared to
make funds available to Borrower under this Agreement, and not as a
penalty, an amount determined by multiplying (x) the amount of the
prepayment times (y) six percent (6%) if such prepayment occurs during the
third Loan Year, five percent (5%) if such prepayment occurs during the
fourth Loan Year, and four percent (4%) if such prepayment occurs during
the fifth Loan Year (the "Prepayment Fee"); provided, however, that if
such prepayment occurs as a result of an event described in 0 hereof, no
Prepayment Fee shall be required. Any prepayment after the fifth Loan
Year, which may be made at any time in the sixth Loan Year or thereafter,
may be made without premium or penalty.
(c.) Mandatory Prepayment. Notwithstanding the provisions of 0 above,
Borrower shall prepay the Loan at any time, without a Prepayment Fee, in
connection with (i) any consolidation or merger of Borrower pursuant to
which Borrower's Capital Stock would be converted into cash, securities or
other property, other than a merger or consolidation of Borrower in which
the holders of the common stock of Borrower, or any Capital Stock
convertible into common stock, immediately prior to the merger have the
same proportionate ownership, directly or indirectly, of common stock or
any Capital Stock convertible into common stock, of the surviving
corporation immediately after the merger as they had of Borrower's common
stock immediately prior to such merger, or (ii) the sale, lease,
conveyance or other disposition of all or substantially all of Borrower's
assets as an entirety or substantially as an entirety, to any Person in
one or a series of transactions.
Section 2.5 Time and Place of Payments. Notwithstanding anything in this
Agreement or any of the other Loan Documents to the contrary, each payment
payable by Borrower to Lender under this Agreement or any of the other Loan
Documents, shall be made directly to Lender, at Lender's Head Office, not later
than 12:00 p.m. local time, on the due date of each such payment in immediately
available and freely transferable funds.
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Section 2.6 Application of Funds. Unless otherwise provided in this Article 0,
the funds received by Lender shall be applied toward the Obligations as follows:
(a) First, to the payment of all fees, charges and other sums (with the
exception of principal and interest) due and payable to Lender under the
Subordinated Note, this Agreement or the other Loan Documents at such time
including, without limitation, all reasonable costs, expenses,
disbursements and losses which shall have been incurred or sustained by
Lender in or incidental to the collection of the Obligations hereunder or
the exercise, protection, or enforcement by Lender of all or any of the
rights, remedies, powers and privileges of Lender under this Agreement,
the Subordinated Note, or any of the other Loan Documents and in and
towards the provision of adequate indemnity to Lender against all taxes or
Liens which by law shall have, or may have priority over the rights of
Lender in and to such funds;
(b) Second, to the payment of the interest that is due and payable on the
principal of the Subordinated Note at the time of such payment;
(c.) Third, to the payment of principal then due on the Subordinated Note;
and
(d) Fourth, the surplus remaining (if any) to Borrower or such other
Person or Persons as may be determined by any court of competent
jurisdiction.
Section 2.7 Use of Proceeds. Borrower represents, warrants and covenants to
Lender that all proceeds of the Loan shall be used by Borrower to finance growth
and for working capital needs.
Section 2.8 Payments to be Free of Deductions. Each payment payable by Borrower
to Lender under this Agreement, the Subordinated Note, or any of the other Loan
Documents shall be made in accordance with 0 hereof, without set-off or
counterclaim and free and clear of and without any deduction of any kind for any
taxes, levies, imposts, duties, charges, fees, deductions, withholdings,
restrictions or conditions of any nature now or hereafter imposed or levied by
any political subdivision or any taxing or other authority therein, unless
Borrower is compelled by law to make any such deduction or withholding.
ARTICLE 3
SECURITY INTERESTS
Section 3.1 Grant of Security Interest. To secure the payment and performance of
all of the Obligations, Borrower hereby grants to Lender a continuing security
interest in and assigns to Lender all of the Collateral. The Collateral shall
include the property and rights subject to the Assignment of Life Insurance with
respect to the Life Insurance in a form satisfactory to Lender.
Section 3.2 Additional Collateral. Subject to the prior Liens and rights of
Senior Lender, immediately upon Borrower's receipt of that portion of the
Collateral which is evidenced or secured by an agreement, letter of credit,
instrument and/or documents including, without limitation, promissory notes,
documents of title, warehouse receipts and trade acceptances (the "Additional
Collateral"), Borrower shall deliver the original thereof to Lender, together
with appropriate endorsements, the documents required to draw thereunder (as may
be relevant to letters of credit) and/or other specific evidence (in form and
substance acceptable to Lender) of assignment thereof to Lender.
Section 3.3 Additional Security for the Loan. As additional collateral security
for the Obligations, Borrower shall deliver to Lender the Intellectual Property
Security Agreement and any other instrument or agreement required to perfect a
security interest in the collateral described in the Intellectual Property
Security Agreement, all of which documents shall constitute part of the Security
Documents hereunder.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
In order to induce Lender to enter into this Agreement, Borrower hereby
represents and warrants to Lender on the date hereof that:
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Section 4.1 Organization, Authority and Qualification.
(a) Borrower is a corporation duly organized, validly existing and in good
standing under the laws of the State of Michigan, and has all requisite
power and authority to own and operate its properties and to carry on its
business as now conducted. The execution, delivery and performance of this
Agreement and the other Loan Documents have been duly authorized by all
necessary company actions; there is no prohibition, either in law, in its
charter documents, operating agreement, or bylaws, if any, or in any
order, writ, injunction or decree of any court or arbitrator presently in
effect having applicability to Borrower which in any way prohibits or
would be violated by the execution and performance of this Agreement and
the other Loan Documents in any respect; this Agreement and the other Loan
Documents are and will be valid, binding and enforceable obligations of
Borrower; and Borrower has adequate power and authority and has full legal
right to enter into this Agreement and each of the other Loan Documents,
and to perform, observe and comply with all of its agreements and
obligations under each of such documents, including, without limitation
the borrowings contemplated hereby. Borrower is duly qualified or licensed
and in good standing and duly authorized to do business in each
jurisdiction in which the character of the properties owned or leased or
the nature of the activities conducted makes such qualification or
licensing necessary and in which the failure to be so qualified would have
a Material Adverse Effect on the conduct of the business of Borrower.
(b) The authorized Capital Stock of Borrower is as set forth on Schedule 0
hereto. Except as described on Schedule 0 hereto, there are no outstanding
options, rights or warrants issued by Borrower for the acquisition of the
Capital Stock of Borrower, nor any outstanding securities or obligations
convertible into Capital Stock.
(c.) Borrower has no Subsidiaries.
(d). Borrower does not own or hold of record (whether directly or
indirectly) any shares of any class in the capital of any corporation, nor
does Borrower own or hold (whether directly or indirectly) any legal
and/or beneficial equity interest in any partnership, business trust or
joint venture or in any other unincorporated trade or business enterprise.
(e) No Legal Bar. The execution, delivery and performance of this
Agreement, the Subordinated Note and the other Loan Documents and the
consummation of the transactions contemplated thereby, will not in any
material respect violate any Requirements of Law or any Contractual
Obligation of Borrower.
(e) No Litigation. No litigation, investigation or proceeding of or before
any arbitrator or governmental authority is pending or threatened by or
against Borrower or against any of its properties or revenues, existing or
future.
Section 4.4 Financial Condition. Attached to Schedule 0 are complete and correct
copies of (i) the balance sheets of the Borrower as of August 31, 2003 and 2002
and the related statements of operations, retained earnings and cash flows for
the two-year period ended August 31, 2003, together with the related notes and
schedules (the "Year-End Financial Statements and (ii) the balance sheet and
income statement of the Borrower as of May 31, 2004, together with any related
statements and notes (the "Interim Financial Statements"). The Year-End
Financial Statements and the Interim Financial Statements are herein
collectively called the "Financial Statements". The Financial Statements have
been prepared from the books and records of the Borrower in conformity with
generally accepted accounting principles applied on a basis consistent with
preceding years and throughout the periods involved ("GAAP") (except as
disclosed therein or on Schedule 0 hereto), and, subject to normal year-end
adjustments in the case of the Interim Financial Statements, present fairly in
all material respects the financial position and results of operations of the
Borrower as of the dates of such statements and for the periods covered thereby.
The books of account of the Borrower have been kept accurately in all material
respects in the ordinary course of business, the transactions entered therein
represent bona fide transactions, and the revenues, expenses, assets and
liabilities of the Borrower have been properly recorded therein in all material
respects.
Section 4.5 No Change. Since May 31, 2004, there has been no development or
event with respect to Borrower which has had or would reasonably be expected to
have a Material Adverse Effect.
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Section 4.6 No Default. Borrower is not in default under or with respect to any
of its Contractual Obligations, except where the default would not have a
Material Adverse Effect. No Default or Event of Default has occurred and is
continuing.
Section 4.7 Ownership of Property; Liens. Borrower has good and marketable title
to all its property as listed on the Financial Statements and none of such
property is subject to any Lien except Permitted Liens.
Section 4.8 Intellectual Property. Borrower possess all licenses, patents,
permits, trademarks, trade names, copyrights, technology, know-how and processes
necessary for the conduct of its businesses as currently conducted and all such
licenses, patents, permits, trademarks, trade names, and copyrights are listed
on Schedule 0 attached hereto and made a part hereof. Except as set forth on
Schedule 0, no claim has been asserted and is pending by any Person challenging
or questioning the use of any such property or rights or the validity or
effectiveness of any such property or rights, nor is there any known basis for
any such claim. Except as set forth on Schedule 0, the use of such property and
rights by Borrower does not infringe on the rights of any Person.
Section 4.9 Compliance with Laws. Borrower is in compliance with all
Requirements of Law, including all Environmental Laws applicable to it.
Section 4.10 Taxes. With respect to Borrower and any Subsidiary, except as set
forth on Schedule 0, Borrower has filed or caused to be filed all tax returns
which are required to be filed and have paid all taxes shown to be due and
payable on said returns or on any assessments made against it or any of its
properties and all other taxes, fees or other charges imposed on it or any of
its property by any governmental authority (other than any taxes, fees or other
charges the amount or validity of which are currently being contested in good
faith by appropriate proceedings and with respect to which reserves in
conformity with GAAP have been provided on the books of Borrower); no tax Lien
has been filed, and no claim is being asserted, with respect to any such tax,
fee or other charge.
Section 4.11 Environmental Matters. Except as set forth on Schedule 0 hereto
Borrower is in compliance with, and has no liability to any Person in respect
of, all Environmental Laws.
Section 4.12 General Collateral Representation. Subject, in each case, to the
liens of the Senior Lender:
(a) Borrower is the sole owner of and has good and marketable title to the
Collateral, free from all Liens, other than the Permitted Liens, and has
full right and power to grant Lender a security interest therein. All
information which has been furnished to Lender concerning the Collateral
was complete, accurate and correct in all material respects when
furnished, and all information which may be furnished to Lender in the
future concerning the Collateral will be complete, accurate and correct in
all material respects when furnished.
(b) No security agreement, financing statement, equivalent security or
Lien instrument or continuation statement covering all or any part of the
Collateral is on file or of record in any public office, except such as
may have been filed by Borrower in favor of Senior Lender pursuant to the
Senior Loan Documents, by Borrower in favor of Lender pursuant to this
Agreement, or in respect of the items of Collateral subject to the
Permitted Liens.
(c). The provisions of this Agreement are sufficient to create in favor of
Lender, as of the Closing Date, a valid and continuing lien on, and
security interest in, the types of the Collateral hereunder in which a
security interest may be created under Article 9 of the UCC. Financing
Statements on Form UCC-1 have been duly executed on behalf of Borrower and
the description of such Collateral set forth therein is sufficient to
perfect security interests in such Collateral in which a security interest
may be perfected by the filing of Financing Statements under the UCC. When
such Financing Statements are duly filed in the filing offices listed on
Schedule 0 hereto, and the requisite filing fees are paid, such filings
will be sufficient to perfect security interests in such of the Collateral
described in the Financing Statements as can be perfected by filing, which
perfected security interests will be prior to all other Liens in favor of
others and rights of others (except for Permitted Liens), and as against
any owner of real estate where any of the Equipment is located and as
against any purchaser of such real property and any present or future
creditor obtaining a Lien on such real estate. All action necessary to
protect and perfect a security interest in each item of the
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Collateral has been or will be duly taken, or in the case of Equipment
covered by certificates of title will be taken within sixty (60) days of
the Closing Date.
(d) Upon delivery to Lender and the filing with the U.S. Patent and
Trademark Office of the Assignment of Trademarks and the Assignment of
Patents and delivery to Lender and the payment of the requisite filing
fees, Lender shall have a perfected security interest in the intellectual
property listed on Schedule 0 and the other Collateral of a type described
in such assignments, which perfected security interest will be prior to
all other Liens in favor of others.
Section 4.13 Accounts. As to each and every Account of Borrower, Borrower has
full right and power to grant Lender a security interest therein and the
security interest granted in such Account to Lender in Article 0 hereof, when
perfected, will be a valid security interest, subordinate only to Permitted
Liens and the liens granted under the Senior Loan Documents, which will inure to
the benefit of Lender without further action.
Section 4.14 Equipment. No Equipment is now stored with a bailee, warehouseman
or similar party. All Equipment necessary for the conduct of Borrower's business
or reflected on the Financial Statements is currently usable or currently
saleable in the normal course of Borrower's business.
Section 4.15 ERISA. Schedule 0 contains a list of all Employee Benefit Plans
maintained by Borrower. Borrower and its ERISA Affiliates are in compliance with
any applicable provisions of ERISA and the regulations thereunder, and the Code,
with respect to all such Employee Benefit Plans.
Section 4.16 Undisclosed Liabilities. Borrower has no material obligation or
liability (whether accrued, absolute, contingent, unliquidated, or otherwise,
whether due or to become due) arising out of transactions entered into at or
prior to the Closing Date, or any action or inaction at or prior to the Closing
Date, liabilities incurred in the ordinary course of business (none of which are
liabilities for breach of contract, breach of warranty, torts, infringements,
claims or lawsuits); liabilities or obligations disclosed in the Schedules
hereto; and liabilities or obligations incurred pursuant to the Loan Documents
and the agreements, documents and instruments contemplated thereby and the
Senior Loan Agreement and the other Senior Loan Documents.
Section 4.17 Disclosure.
(a) All factual information furnished by or on behalf of Borrower in
writing to Lender on or before the Closing Date (including all information
contained in the Loan Documents) for purposes of or in connection with
this Agreement or any transaction contemplated hereby is true and complete
in all material respects on the date as of which such information is dated
or certified and does not contain any untrue statement of a material fact
or omits to state any material fact, it being understood and agreed that
for purposes of this clause (a), such factual information shall not
include projections and pro forma financial information.
(b) The projections and pro forma financial information furnished with the
factual information referred to in clause (a) above (including the pro
forma consolidated financial statements delivered in connection herewith)
were or are based on good faith estimates and assumptions believed to be
reasonable at the time made, it being recognized by Lender that such
projections as to future events are not to be viewed as facts and that
actual results during the period or periods covered by any such
projections may differ significantly from the projected results.
Section 4.18 Solvency. Borrower is solvent and will continue to be solvent after
creation of the Obligations hereunder and under the Senior Loan Documents, the
security interests of Lender and Senior Lender and the other transactions
contemplated hereby and by the Senior Loan Documents. Borrower is able to pay
its debts as they mature and has sufficient capital to carry on its business.
39
Section 4.19 Survival of Representations and Warranties. The foregoing
representations and warranties are made by Borrower with the knowledge and
intention that Lender will rely thereon, and shall survive the execution and
delivery of this Agreement and the making of the Loan hereunder.
ARTICLE 5
AFFIRMATIVE COVENANTS
So long as the Subordinated Note remains outstanding and unpaid or any other
Obligation is owing to Lender, Borrower agrees as follows:
Section 5.1 Financial Statements.
(a) Year End Reports. As soon as available, but in any event within ninety
(90) days after the end of each fiscal year of Borrower, Borrower shall
deliver to Lender copies of the Consolidated and consolidating audited
financial statements of Borrower and any Subsidiary, including the balance
sheets, as at the end of such year and the related statements of income,
cash flow and retained earnings for such year, in each case containing in
comparative form the figures for the previous year. The Consolidated and
consolidating audited financial statements of Borrower shall be
accompanied by an audit opinion of independent certified public
accountants of nationally or regionally recognized standing, stating that
such financial statements fairly present the respective financial
positions of Borrower and any Subsidiary and the results of operations and
changes in cash flows for the fiscal year then ended in conformity with
GAAP, and (ii) as soon as available, but in any event thirty (30) days
prior to the last day of each fiscal year of Borrower, Borrower shall
deliver Consolidated and consolidating financial projections and a
management-prepared budget for Borrower prepared on a monthly basis for
the next year.
(b) Quarterly Reports. As soon as available, but in any event not later
than thirty (30) days after the end of each quarter, Borrower shall
deliver to Lender copies of the Consolidated and consolidating balance
sheets of Borrower and any Subsidiary as of the end of such quarter and
the related unaudited statements of income, cash flow and retained
earnings for such quarter and the portion of the fiscal year through the
end of such quarter, setting forth in each case in comparative form the
figures for the previous year, certified by a Responsible Officer of
Borrower and prepared in accordance with GAAP applied on a basis
consistent with the preceding years' statements (subject to normal
year-end audit adjustments).
(c). Monthly Reports. As soon as available, but in any event not later
than thirty (30) days after the end of each month, Borrower shall deliver
to Lender copies of the Consolidated and consolidating balance sheets of
Borrower and any Subsidiary as of the end of such month and the related
unaudited statements of income, cash flow and retained earnings for such
month and the portion of the fiscal year through the end of such month,
setting forth in each case in comparative form the figures for the
previous year, certified by a Responsible Officer of Borrower and prepared
in accordance with GAAP applied on a basis consistent with the preceding
years' statements (subject to normal year-end audit adjustments).
(d) Reports to Management. Simultaneously with the delivery of the
financial statements described in Sections 5.1(a), 5.1(b), and 5.1(c),
Borrower shall also deliver to Lender copies of reports to management and
management letters prepared by the accountants to Borrower, each certified
as true and correct by a Responsible Officer.
40
(e) Compliance Certificates. Simultaneously with the delivery of the
financial statements described in Sections 5.1(a)and 5.1(b), Borrower
shall furnish to Lender a Compliance Certificate executed by a Responsible
Officer of Borrower setting forth in reasonable detail the calculations
supporting and used to determine Borrower's compliance with the financial
covenants contained in Article 0 hereof, along with supporting schedules;
and stating that such Responsible Officer has obtained no knowledge of any
Default or Event of Default, except as specified in such Compliance
Certificate.
(f) Senior Loan Documents. Borrower shall promptly furnish to Lender
copies of all material reports and notices delivered to Senior Lender
pursuant to the Senior Loan Documents.
Section 5.2 Conduct of Business and Maintenance of Existence. Borrower shall
continue to engage in business of the same general type in all material respects
as now conducted by it and preserve, renew and keep in full force and effect its
existence and take all reasonable action to maintain all rights, privileges and
franchises necessary for the normal conduct of its business. Borrower shall
comply with all Contractual Obligations and Requirements of Law.
Section 5.3 Maintenance of Property; Insurance. Borrower shall keep all property
useful and necessary in its business in good working order and condition and
maintain all workers' compensation insurance required by law. Borrower shall
maintain with financially sound and reputable insurance companies insurance on
all of its real and personal property in amounts consistent with past practices
of Borrower (in amounts sufficient to insure one hundred percent (100%) of the
actual replacement costs thereof, if available on a commercially reasonable
basis) subject to normal deductibles and/or self-insured retentions in amounts
as are maintained by companies in the same general area engaged in the same or a
similar business and insuring against at least such risks as are usually insured
against in the same general area by companies engaged in the same or a similar
business, or, in case of an Event of Default, as Lender may reasonably specify
from time to time, and furnish to Lender, promptly after request, any
information as to the insurance carried. If Borrower fails to do so, Lender may
obtain such insurance and charge the cost thereof to Borrower's account and add
it to the Obligations. Borrower agrees that, if any loss should occur, the
proceeds of all such insurance policies may be applied to the payment of all or
any part of the Obligations, as Lender may direct. Lender shall be named an
additional named insured, lender loss payee and mortgagee on such insurance
policies, as the case may be, to the extent that such policies insure the
Collateral. In the event of any casualty for which the proceeds of insurance are
less than Twenty Five Thousand and 00/100 Dollars ($25,000.00), however,
Borrower shall be entitled to retain such proceeds for the purpose of repairing
or replacing the insured property, provided that Borrower promptly execute and
deliver to Lender such documents, instruments, financing statements or other
agreements as may be necessary to perfect the security interest of Lender in all
such property. All policies shall provide for at least thirty (30) days' written
notice of cancellation to Lender, except premium nonpayment cancellation which
shall be ten (10) days' written notice.
Section 5.4 Liability Insurance. Borrower shall, at all times, maintain in full
force and effect such liability insurance with respect to its activities and
other insurance as may be reasonably required by Lender, such insurance to be
provided by insurer(s) reasonably acceptable to Lender. Such insurance shall
name Lender as an additional insured.
Section 5.5 Inspection of Property; Books and Records. Borrower shall maintain
in all material respects complete and accurate books of accounts and records in
which full, true and correct entries in conformity with GAAP and all
Requirements of Law in all material respects shall be made of all dealings and
transactions in relation to the Collateral and the operations of Borrower.
Borrower grants to Lender, or its representatives, full and complete access to
the Collateral and all books of account, records, correspondence and other
papers relating to the Collateral during normal business hours and Borrower
grants to Lender the right to inspect, examine, verify and make abstracts from
the copies of such books of account, records, correspondence and other papers,
and to investigate during normal business hours such other records, activities
and business of Borrower as they may deem reasonably necessary or appropriate at
the time.
Section 5.6 Notices. Borrower shall promptly give notice to Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any default or event of default under any Contractual Obligation
relating to Borrower, and any litigation, investigation or proceeding
which may exist at any time between Borrower and any Person, including,
41
without limitation, any governmental authority, which in either case, if
not cured or if adversely determined, as the case may be, would reasonably
be expected to have a Material Adverse Effect;
(c.) the commencement, existence or written threat of any action or
proceeding by or before any governmental or political subdivision or any
agency, authority, bureau, commission, department or instrumentality of
either, or any court, tribunal, grand jury or arbitrator, in each case
whether foreign or domestic, against or affecting Borrower, which action
or proceeding, as the case may be, would reasonably be expected to have a
Material Adverse Effect; and
(d) any change in the business, operations, property, condition (financial
or otherwise) or prospects of Borrower which would reasonably be expected
to have a Material Adverse Effect.
Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer of Borrower setting forth details of the occurrence referred
to therein and stating what action Borrower proposes to take with respect
thereto.
Section 5.7 Environmental Laws. Borrower shall comply in all material respects
with all Environmental Laws and obtain and comply with and maintain in all
material respects any and all licenses, approvals, registrations or permits
required by any Environmental Law.
Section 5.8 Inventory. With respect to the Inventory, Borrower shall:
(a) sell or dispose of the Inventory only to buyers in the ordinary
course of business and consistent with past practices of Borrower
(which may include disposing of obsolete inventory or Inventory of
de minimus value in the ordinary course of business and in
accordance with past practices of Borrower); and
(b) promptly notify Lender of any change in location of any of the
Inventory and, prior to any such change, execute and deliver to
Lender such UCC financing statements satisfactory to Lender as
Lender may request.
Section 5.9 Collateral. Borrower shall maintain the Collateral, as the same is
constituted from time to time, free and clear of all Liens, except Permitted
Liens, and defend the Collateral against all claims and demands of all Persons
at any time claiming the same or any interest therein and pay all costs and
expenses (including reasonable attorney's fees) incurred in connection with such
defense. Borrower shall maintain the Collateral in good condition and repair and
shall not permit any action or omission which might materially impair the value
thereof, normal wear and tear excepted.
Section 5.10 Employee Benefit Plans. Borrower will and will cause each of its
ERISA Affiliates to comply in all material respects with all requirements
imposed by ERISA and the Code applicable from time to time to any Employee
Benefit Plans of Borrower or any ERISA Affiliates; make full payment when due of
all amounts which under the provisions of such Employee Benefit Plans or under
applicable law, are required to be paid as contributions thereto; file on a
timely basis all reports, notices and other filings required by any governmental
agency with respect to any such Employee Benefit Plans; furnish to all
participants, beneficiaries, and employees under any such Employee Benefit Plan,
within the periods prescribed by law, all reports, notices and other information
to which they are entitled under applicable law; and take no action which would
cause any such Employee Benefit Plan to fail to meet any qualification
requirement imposed by the Code.
Section 5.11 Further Documents. Borrower shall, at or prior to the Closing Date:
(a) cause Lender's Lien to be noted on each document of ownership or
title as to which evidence of Lender's Lien is necessary or, in
Lender's or Lender's counsel's opinion, advisable to be shown in
order to perfect Lender's Lien on the Collateral covered by such
document; and
(b) execute and deliver such financing statements, agreements, documents
and instruments, and perform all other acts as Lender deems
necessary or desirable, to carry out and perform the intent and
purpose of this
42
Agreement, and pay, upon demand, all expenses (including reasonable
attorney's fees) incurred by Lender in connection therewith.
Section 5.12 Life Insurance. Within sixty (60) days of the Closing Date,
Borrower shall make all commercially reasonable efforts to obtain the Life
Insurance and assign the same to Lender as collateral security hereunder
pursuant to an Assignment of Life Insurance acceptable to Lender, and keep and
maintain the Life Insurance in accordance with the terms hereof until all of the
Obligations are satisfied and this Agreement is terminated. In the event the
Life Insurance cannot be obtained by Borrower, all denials for requests for it
shall be provided to Lender.
Section 5.13 Trademarks, Patents and Other Intellectual Property. Promptly upon
the filing by Borrower or any Subsidiary of any application for patent or the
registration of any trademarks, trade names or copyrights, Borrower shall notify
Lender in writing and furnish such documentation as Lender may request to
perfect Lender's security interest in such property.
Section 5.14 Other Information. Borrower shall furnish to Lender such other
financial and business information and reports in form and substance
satisfactory to Lender as and when Lender may from time to time reasonably
request.
Section 5.15 Board of Directors. Borrower acknowledges and agrees that for so
long as the Obligations remain outstanding and are owned or held by Lender,
Lender shall be entitled to nominate one (1) Person to be voted upon by
Borrower's shareholders to serve as a member of the Board of Directors of
Borrower and, if elected, to attend the meetings of any committee thereof and,
if elected, Lender shall be entitled to receive such notice of all such meetings
as is provided to any other Director. Borrower shall promptly reimburse such
member of the Board of Directors for all reasonable out-of-pocket expenses
incurred in attending such meetings and legal expenses incurred in fulfilling
the fiduciary or other duties and responsibilities of such member.
Section 5.16 Board of Directors' Meetings. Borrower acknowledges and agrees
that during the first year after the Closing Date, Borrower's Board of
Directors' meetings shall occur at least once per quarter. Thereafter,
Borrower's Board of Directors' meetings shall occur no less often than
semi-annually.
Section 5.17 Fifth Third Subordination. As promptly as practicable following the
Closing Date, Borrower and Lender shall work together to cause Fifth Third to
enter into a subordination agreement with Lender upon substantially the same
terms as Fifth Third's agreement with the Senior Lender.
Section 5.18 Mortgage. Following the Closing, Borrower shall use commercially
reasonable efforts to obtain its landlord's consent to the Borrower's grant of
the Mortgage to the Lender with respect to the Mortgaged Property. To the extent
that such consent is not granted, the parties acknowledge that Borrower will be
unable to grant the Mortgage to Borrower as such grant would constitute a breach
of the Borrower's lease and, in turn, a breach and default under the Senior Loan
Documents.
ARTICLE 6
NEGATIVE COVENANTS
Borrower covenants and agrees with Lender and warrants that, as long as the
Subordinated Note remains outstanding and unpaid:
Section 6.1 Limitations on Restricted Payments. Without the prior written
consent of Lender, Borrower shall not, at any time, enter into, participate in,
or make any Restricted Payment.
Section 6.2 Limitations on Indebtedness. Borrower will not at any time create,
incur or assume, or become or be liable (directly or indirectly) in respect of,
any Indebtedness, other than:
(a) the Obligations incurred pursuant to this Agreement;
(b) the obligations incurred relative to the Senior Loan Documents or
permitted by the Senior Loan Documents;
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(c) Guarantee Obligations permitted under 0 hereof;
(d) current liabilities of Borrower incurred in the ordinary course of
business not incurred through the borrowing of money, or the
obtaining of credit except for credit on an open account basis
customarily extended and in fact extended in connection with normal
purchases of goods and services;
(e) Indebtedness in respect of taxes, assessments, governmental charges
or levies and claims for labor, workers' compensation, materials and
supplies to the extent any of the foregoing shall not otherwise be
payable in accordance herewith;
(f) Indebtedness in respect of judgments or awards that have been in
force for less than the applicable period for taking an appeal so
long as execution is not levied thereunder or in respect of which
Borrower shall at the time in good faith be prosecuting an appeal or
proceedings for review and in respect of which a stay of execution
shall have been obtained pending such appeal or review;
(g) endorsements for collection, deposit or negotiation and warranties
of products or services, in each case incurred in the ordinary
course of business;
(h) Indebtedness in respect of performance, surety, statutory,
insurance, appeal or similar bonds obtained in the ordinary course
of business; and
(i.) except to the extent prohibited by 0, Indebtedness of Borrower
incurred to refinance or replace Indebtedness of such Person permitted
hereunder; provided, that the principal amount (or committed principal
amount) of such refinancing Indebtedness shall not exceed the outstanding
principal amount (or committed principal amount) of the Indebtedness being
refinanced, the terms of such refinancing are not more onerous taken as a
whole to such Person than the terms of the Indebtedness being refinanced,
and Lender shall have consented to the incurrence of such refinancing
Indebtedness.
Section 6.3 Limitation on Guarantee Obligations. Borrower shall not create,
incur, assume or suffer to exist any Guarantee Obligation except in the ordinary
course or for: (i) product warranties; and (ii) return or replacement guaranties
and similar assurances made by Borrower with respect to products sold to
customers in the ordinary course of business and in accordance with the past
practices of such Borrower.
Section 6.4 Limitation on Fundamental Changes. Borrower shall not merge,
consolidate or amalgamate, or liquidate, wind up or dissolve itself (or suffer
any liquidation or dissolution), or make any material change in its business or
its present method of conducting business.
Section 6.5 Limitation on Dispositions of Assets. Without the prior written
consent of Lender, Borrower shall not convey, sell, lease, license, assign,
transfer or otherwise dispose of its property, business or assets (including,
without limitation, receivables and leasehold interests), whether now owned or
hereafter acquired, except for the sale of Inventory and obsolete Equipment or
the disposal of de minimus amounts of Equipment and Inventory in the ordinary
course of business and except for dispositions permitted under the definition of
Restricted Payments.
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Section 6.6 Limitation on Investments, Loans and Advances. Borrower shall not
make or permit to exist any advances or loans to, or guarantee or become
contingently liable, directly or indirectly, in connection with the obligations,
leases, stock or dividends of, or own, purchase or make any commitment to
purchase any stock, bonds, notes, debentures or other securities of, or any
interest in, or make any capital contributions to (all of which are sometimes
collectively referred to herein as "Investments") any Person except for (a)
purchases of direct obligations of the federal government, (b) deposits in
commercial banks, (c) commercial paper of any U.S. corporation having the
highest ratings then given by the Xxxxx'x Investors Services, Inc. or Standard &
Poor's Corporation, (d) endorsement of negotiable instruments for collection in
the ordinary course of business, (e) advances to employees for business travel
and other expenses incurred in the ordinary course of business, (f) any
extension of trade credit in the ordinary course of business and investments in
customer accounts for Inventory sold or services rendered in the ordinary course
of business, (g) any investments in cash equivalents, and (h) investments
received in connection with the bankruptcy of suppliers and customers or
received pursuant to a plan of reorganization, in each case, in settlement of
delinquent obligations or disputes.
Section 6.7 Limitation on Payments and Modifications of Debt Instruments.
Borrower shall not without the prior written consent of Lender:
(a) Other than with respect to the Senior Debt, make any optional
payment or prepayment on any Indebtedness for Borrowed Money (other
than Obligations under this Agreement and prepayments of accounts
payable in the ordinary course of business to obtain discounts by
the terms of payment); or
(b) amend, modify or change or consent or agree to any amendment,
modification or change to any of the terms relating to the payment
or prepayment of principal of or interest on, any such Indebtedness
for Borrowed Money, or any capital or finance lease obligations.
Section 6.8 Limitation on Creation or Acquisition of Subsidiaries. Borrower will
not create or form any new Subsidiary.
Section 6.9 Corporate Documents. Borrower shall not make any material change,
amendment or modification to its Articles of Incorporation or By-Laws without
the prior written consent of Lender.
Section 6.10 Dividends and Similar Transactions. Except as otherwise permitted
under 0, Borrower shall not declare or pay any dividends or make any other
payments on its capital stock; redeem, repurchase or retire any of its capital
stock or make any other distribution to its stockholders other than a
distribution of stock.
Section 6.11 Limitations on Management Fees. With the consent of Lender, neither
Borrower nor any Subsidiary shall pay or obligate itself to pay, directly or
indirectly, any management fee or similar compensation to any Person, or to any
director, officer, shareholder or employee of such Person.
Section 6.12 Management Compensation. Neither Borrower nor any Subsidiary shall
pay or enter into an agreement to pay any management employee of Borrower yearly
Compensation in excess of the amounts as permitted by Senior Lender.
45
Section 6.13 Changes Relating to Indebtedness. Without the consent of Lender,
Borrower will not amend or modify or permit any of its Subsidiaries to amend or
modify the provisions of the Senior Loan Documents in any respect which
adversely affects Lender or violates the terms of the Loan Documents as such
documents are in effect on the date hereof.
Section 6.14 Shipments to Oxford Automotive. Borrower shall not ship any tooling
to Oxford Automotive unless, prior to such shipment, Borrower has perfected a
first priority security interest in such tooling (and had furnished Lender with
satisfactory evidence of such perfected security interest). In addition,
Borrower must provide Mercedes Benz USA, Inc. with notice of Borrower's security
interest in tooling built for Oxford Automotive.
SECTION 7
FINANCIAL COVENANTS
Borrower covenants and agrees with Lender and warrants that, as long as the
Subordinated Note remains outstanding and unpaid:
Section 7.1 Trailing 12-Month Debt Service Coverage Ratio. Borrower shall not
allow its Debt Service Coverage Ratio, calculated as of each Interest Payment
Date (the "Calculation Date"), for the 12-month period preceding the Calculation
Date, to be less than 1.5 to 1.0.
Section 7.2 Limitations on Capital Expenditures. Borrower shall not, without
first obtaining the written consent of Lender, make Capital Expenditures in any
first fiscal year, starting with the fiscal year beginning September 1, 2004, in
an aggregate amount greater than $500,000.
Section 7.3 Tangible Effective Net Worth. Borrower shall not allow its Tangible
Effective Net Worth, to be less than the following described amounts as of the
following described dates:
(a) From the Closing, until August 30, 2004: $15,000,000;
(b) From August 31, 2004, until August 30, 2005: $15,500,000;
(c.) From August 31, 2005, until August 30, 2006: $16,500,000;
(d) From August 31, 2006, and at all times thereafter: $17,000,000.
Section 7.4 Debt to Worth Ratio. Borrower shall not permit its Debt to Worth
Ratio to be greater than 1.375 to 1.0.
ARTICLE 8
CONDITIONS PRECEDENT
Section 8.1 Conditions Precedent to Loan. The obligation of Lender to make the
Loan to Borrower under this Agreement on the Closing Date is subject to the
satisfaction of the following conditions precedent (in form, substance and
action as is satisfactory to Lender, in its sole discretion):
(a) Certified Copies of Charter Documents. Lender shall have received
from Borrower a copy, certified by a duly authorized officer of
Borrower to be true and complete on and as of the Closing Date, of
the charter or other organization documents and by-laws of Borrower
as in effect on the Closing Date (together with all, if any,
amendments thereto); and (ii) the charter or other organization
documents of Borrower certified by the applicable Secretary of
State;
(b) Proof of Appropriate Action. Lender shall have received from
Borrower a copy, certified by a duly authorized officer of Borrower
to be true and complete on and as of the Closing Date, of the
records of all action taken by Borrower to authorize execution and
delivery of this Agreement and any other agreements entered into on
the Closing Date and to which it is a party or is to become a party
as contemplated or required by this Agreement, and its performance
of all of its agreements and obligations under each of such
documents;
(c.) Incumbency Certificates. Lender shall have received from Borrower an
incumbency certificate, dated the Closing Date, signed by a duly
authorized officer of Borrower and giving the name and bearing a
specimen
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signature of each individual who shall be authorized to sign, in the
name and on behalf of Borrower this Agreement and each of the other
Loan Documents to which such person is or is to become a party on
the Closing Date, and to give notices and to take other action on
behalf of Borrower under such documents;
(d) Representations and Warranties. Each of the representations and
warranties made by and on behalf of Borrower to Lender in this
Agreement and in the other Loan Documents shall be true and correct
when made, shall, for all purposes of this Agreement, be deemed to
be repeated on and as of the Closing Date, and shall be true and
correct in all material respects on and as of such date;
(e) Loan Documents, Etc. The Subordinated Note and each of the other
Loan Documents, shall have been duly and properly authorized,
executed and delivered to Lender by the respective party or parties
thereto and shall be in full force and effect on and as of the
Closing Date;
(f) Intercreditor Agreement. Lender shall have received a duly executed
Intercreditor Agreement in form and substance satisfactory to
Lender;
(g) Fifth Third Consent and Waiver. Lender shall have received a duly
executed Fifth Third Consent and Waiver in form and substance
satisfactory to Lender;
(h) Insurance. Lender shall have received evidence, satisfactory to
Lender, that (i) Borrower's properties and assets are fully insured
in such amounts, against such risks, and with such insurers as is
required pursuant to this Agreement, with loss payable to Lender,
together with the policies (containing a standard mortgagee clause,
if appropriate) or certificates evidencing such insurance and (ii)
Borrower has obtained the Life Insurance (or if Borrower was unable
to obtain such insurance, a copy of the cause of denial);
(i.) Performance, Etc. Borrower shall have duly and properly performed,
complied with and observed its covenants, agreements and obligations
contained in each of the Loan Documents. No event shall have
occurred on or prior to the Closing Date, and no condition shall
exist on the Closing Date, which constitutes a Default or an Event
of Default;
(j.) Legal Opinion. Lender shall have received a written legal opinion of
counsel to Borrower, addressed to Lender, dated the Closing Date,
which shall be acceptable to Lender;
(k) Consents. Lender shall have received from Borrower copies of all
consents necessary for the completion of the transactions
contemplated by this Agreement, the Subordinated Note, each of the
Loan Documents, and all instruments and documents incidental
thereto;
(l.) Legality of Transactions. It shall not be unlawful for Lender to
perform any of its agreements or obligations under any of the Loan
Documents to which Lender is a party on the date of such Loan, or
for Borrower and any Subsidiary to perform any of its respective
agreements or obligations under any of the Loan Documents to which
they are a party on such date;
(m) Due Diligence. Lender shall have conducted and completed due
diligence with respect to the Borrower to Lender's full
satisfaction;
(n) Post-Closing Availability. After giving effect to the consummation
of the transactions contemplated hereby, the sum of: (x) Borrower's
cash on hand plus (y) the difference, as of the Closing Date,
between (i) the lesser of (A) the Formula Amount (as such term is
defined in the Senior Loan Agreement) and (B) the Line of Credit
Commitment (as such term is defined in the Senior Loan Agreement)
and (ii) the aggregate outstanding principal amount of the Revolving
Loans (as such terms is defined in the Senior Loan Agreement), shall
be at least Four Million and 00/100 Dollars ($4,000,000.00); and
ARTICLE 9
EVENTS OF DEFAULT
An Event of Default shall mean the occurrence of one or more of the following:
Section 9.1 Payments. Failure by Borrower to pay any Obligation within three (3)
business days of when due and payable.
Section 9.2 Representations and Warranties. Any representation or warranty made
by Borrower, or a Subsidiary, or any officer of Borrower, in this Agreement or
in any Loan Document, including any certificate, document or financial or other
statement furnished by Borrower at any time in connection herewith or therewith
shall prove to have been untrue in any material respect.
47
Section 9.3 Covenants. Default by Borrower or any Subsidiary in the observance
or performance of any covenant or agreement contained herein or in any Loan
Document and, if such default is capable of being cured, and if such correction
is being sought diligently, such default is not corrected within thirty (30)
days, including, without limitation, a breach (whether by Borrower or others) of
the rights and agreements specified in Sections 5.15 and 5.16 hereof.
Section 9.4 Effectiveness of Loan Documents. Any Loan Document shall cease to be
legal, valid, binding or enforceable in accordance with the terms thereof in any
material respect, or any Lien intended to be created by any Loan Document ceases
to be or is not a valid and perfected lien having the priority contemplated
thereby.
Section 9.5 Cross-Default to Other Indebtedness. Borrower or any of its
Subsidiaries shall default in any payment of principal of or interest on any of
its Indebtedness (other than any such default in respect of the Subordinated
Note) or in the payment of any Guarantee Obligation relating to Indebtedness
beyond the period of grace, if any, provided in the instrument or agreement
under which such Indebtedness or Guarantee Obligation was created or default in
the observance or performance of any other agreement or condition relating to
any such Indebtedness or Guarantee Obligation or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such Indebtedness
or beneficiary or beneficiaries of such Guarantee Obligation (or a trustee or
agent on behalf of such holder or holders or beneficiary or beneficiaries) to
cause, with the giving of notice or the passage of time or both, if required,
such Indebtedness to become due prior to its stated maturity or such Guarantee
Obligation to become payable.
Section 9.6 Senior Loan Cross-Default. An Event of Default (as that term is
defined in the Senior Loan Documents) occurs under any Senior Loan Document.
Section 9.7 Change of Control. Any Borrower Change of Control shall occur.
Section 9.8 Commencement of Bankruptcy or Reorganization Proceeding.
(a) Borrower or any of its Subsidiaries shall commence any case,
proceeding or other action under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an
order for relief entered with respect to it, or seeking to
adjudicate it as bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, wind-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or
seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its
assets; or
(b) There shall be commenced against Borrower or any of its Subsidiaries
any such case, proceeding or other action which results in the entry
of an order for relief or any such adjudication or appointment or
remains undismissed, undischarged or unbonded for a period of sixty
(60) days; or
(c.) There shall be commenced against Borrower or any of its Subsidiaries
any case, proceeding or other action seeking issuance of a warrant
of attachment, execution, distraint or similar process against all
or any substantial part of its assets which results in the entry of
an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within sixty (60)
days from the entry thereof; or
(d) Borrower or any of its Subsidiaries shall suspend the operation of
its business or take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set
forth above in this 0; or
(e) Borrower or any of its Subsidiaries shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its debts
as they become due.
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Section 9.9 Material Judgments. One or more judgments or decrees shall be
entered against Borrower or any Subsidiary involving in the aggregate a
liability (not covered by insurance) of Twenty-five Thousand and 00/100 Dollars
($25,000.00) or more and all such judgments or decrees shall not have been
vacated, satisfied, discharged or bonded pending appeal within thirty (30) days
from the entry thereof.
Section 9.10 Remedies. Upon the occurrence of an Event of Default described in
this Article 0, Lender, at its option, may:
(a) declare the Obligations of Borrower immediately due and payable,
without presentment, notice, protest or demand of any kind for the
payment of all or any part of the Obligations (all of which are
expressly waived by Borrower) and exercise all of its rights and
remedies against Borrower and any Subsidiary and any Collateral
provided herein or in any other agreement among Borrower and Lender
or any other party (notwithstanding the above, upon an Event of
Default under 0, all Obligations of the Borrower shall become
automatically immediately due and payable without any requirement of
notice or declaration from Lender); and
(b) exercise all rights granted to a secured party under the Uniform
Commercial Code or otherwise.
Upon the occurrence of an Event of Default, Lender may take possession of the
Collateral, or any part thereof, and Borrower hereby grants Lender authority to
enter upon any premises on which the Collateral may be situated, and remove the
Collateral from such premises or use such premises, together with the materials,
supplies, books and records of Borrower and its Subsidiaries, to maintain
possession and/or the condition of the Collateral and to prepare the Collateral
for sale. Borrower shall, upon demand by Lender, assemble the Collateral and
make it available at a place designated by Lender. Unless the Collateral is
perishable or threatens to decline speedily in value or is of a type customarily
sold on a recognized market, Lender will give Borrower reasonable notice of the
time and place of any public sale thereof or of the time after which any private
sales or other intended disposition thereof is to be made. The requirement of
reasonable notice shall be met if such notice is mailed, postage prepaid, to the
address of Borrower set forth in 0 hereof at least ten (10) days prior to the
time of such sale or disposition.
Section 9.11 Set-off. Lender shall have the right, without prior notice to
Borrower, as provided by applicable law, any such notice being expressly waived
to the extent permitted by applicable law, to set-off and apply against any of
the Obligations, whether matured or unmatured, any amount owing from Lender to
Borrower at, or at any time after, the happening of any Event of Default, and
such right of set-off may be exercised by Lender against Borrower or against any
trustee in bankruptcy, debtor in possession, assignee for the benefit of
creditors, receiver, custodian or execution, judgment or attachment creditor of
Borrower, or against anyone else claiming through or against Borrower or such
trustee in bankruptcy, debtor in possession, assignee for the benefit of
creditors, receivers, or execution, judgment or attachment creditor,
notwithstanding the fact that such right of set-off shall not have been
exercised by Lender prior to the making, filing or issuance, or service upon
Lender of, or of notice of, any such petition, assignment for the benefit of
creditors, appointment or application for the appointment of a receiver, or
issuance of execution, subpoena, order or warrant. Lender agrees to notify
Borrower after any such set-off and application made by Lender; provided, that
the failure to give such notice shall not affect the validity of such set-off
and application.
Section 9.12 Rights Cumulative; Waiver. The rights, options and remedies of
Lender shall be cumulative and no failure or delay by Lender in exercising any
right, option or remedy shall be deemed a waiver thereof or of any other right,
option or remedy, or waiver of any Event of Default hereunder, nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy
hereunder. Lender shall not be deemed to have waived any of Lender's rights
hereunder or under any other agreement, instrument or paper signed by Borrower
unless such waiver shall be in writing and signed by Lender.
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ARTICLE 10
COLLECTION OF COLLATERAL AND NOTICE OF ASSIGNMENT
Section 10.1 Notification of Debtors; Grant of Powers. Lender shall have the
right at any time after the occurrence of an Event of Default to notify Account
Debtors of its security interest in the Accounts and to require payments to be
made directly to Lender at such address or in such manner as Lender may deem
appropriate. Upon request of Lender at any time after the occurrence of an Event
of Default, Borrower will so notify the Account Debtors and will indicate on all
xxxxxxxx to the Account Debtors that the Accounts are payable to Lender. To
facilitate direct collection, Borrower hereby appoints Lender and any officer or
employee of Lender as Lender may from time to time designate, as
attorney-in-fact for Borrower if after the occurrence of an Event of Default to
(a) receive, open and dispose of all mail addressed to Borrower and take
therefrom any payments on or proceeds of Accounts, (b) take over Borrower's post
office boxes or make other arrangements, in which Borrower shall cooperate, to
receive Borrower's mail, including notifying the post office authorities to
change the address for delivery of mail addressed to Borrower to such address as
Lender shall designate, (c) endorse the name of Borrower in favor of Lender upon
any and all checks, drafts, money orders, notes, acceptances or other evidences
or payment or Collateral that may come into Lender's possession, (d) sign and
endorse the name of Borrower on any invoice or xxxx of lading relating to any of
the Accounts, on verifications of Accounts sent to any Account Debtor, to drafts
against Account Debtors, to assignments of Accounts and to notices to Debtors,
and (e) do all acts and things necessary to carry out this Agreement, including
signing the name of Borrower on any instruments required by law in connection
with the transactions contemplated hereby and on Financing Statements as
permitted by the Uniform Commercial Code. Borrower hereby ratifies and approves
all acts of such attorneys-in-fact, and neither Lender nor any other such
attorney-in-fact shall be liable for any acts of commission or omission, or for
any error of judgment or mistake of fact or law, excluding acts of Lender or
such attorney-in-fact that are willful, intentionally malicious or grossly
negligent. This power, being coupled with an interest, is irrevocable if after
the occurrence of an Event of Default so long as any of the Obligations remain
unsatisfied.
Section 10.2 Disclaimer of Liability. Lender shall not, under any circumstances,
be liable for any error or omission or delay of any kind occurring in the
settlement, collection or payment of any Accounts or any instruments received in
payment thereof or for any damage resulting therefrom, unless caused by Lender's
willful, malicious or grossly negligent acts. Lender may, without notice to or
consent from Borrower, xxx upon or otherwise collect, extend the time of payment
of, or compromise or settle for cash, credit or otherwise upon any terms, any of
the Accounts or any securities, instruments or insurance applicable thereto
and/or release the obligor thereon. Lender is authorized to accept the return of
the goods represented by any of the Accounts, without notice to or consent by
Borrower, or without discharging or in any way affecting the Obligations
hereunder. Lender shall not be liable for or prejudiced by any loss,
depreciation or other damage to Accounts or other Collateral unless caused by
Lender's willful, malicious or grossly negligent act, and Lender shall have no
duty to take any action to preserve or collect any Account or other Collateral.
ARTICLE 11
MISCELLANEOUS
Section 11.1 Amendments and Waivers. Borrower and Lender may amend this
Agreement, the Subordinated Note, or the other Loan Documents to which they are
parties, and Lender may waive, in its sole discretion, future compliance by
Borrower with any provision of this Agreement, the Subordinated Note, or such
other Loan Documents, but no such amendment or waiver shall be effective unless
in a written instrument executed by an authorized officer of Lender and Borrower
and, provided, any such amendment does not violate the terms of the
Intercreditor Agreement.
Section 11.2 No Waiver; Cumulative Remedies. No failure to exercise and no delay
in exercising, on the part of Lender, any right, remedy, power or privilege
hereunder, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
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Section 11.3 Notices. All notices, consents, requests and demands to or upon the
respective parties hereto shall be in writing and, unless otherwise expressly
provided herein, shall be deemed to have been duly given or made when delivered
by hand, or when deposited in the mail, postage prepaid, or, in the case of
facsimile, telex or telegraphic notice, when sent, addressed as follows:
If to Lender: The HillStreet Fund II, L.P.
000 Xxxx Xxxxxx
Xxxxxxxxxx, Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxxxx X. Xxxxxxxxx
With a copy to: Xxxxxxx, Muething & Xxxxxxx PLL
0000 Xxxxxxxxx Xxxxx
Xxxxxxxxxx, Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
If to Borrower: Riviera Tool Company
0000 Xxxxxxxxx Xxxxxxx, XX
Xxxxx Xxxxxx, Xxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx
With a copy to: Law Xxxxxxxx & Xxxxxxxxxx P.C.
000 Xxxxxxxxxxx Xxxxx
000 Xxxxxx Xxxxxx X.X.
Xxxxx Xxxxxx, XX 00000-0000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxxx, Esq.
Notices of changes of address shall be given in the same
manner.
Section 11.4 Power of Attorney. Borrower acknowledges and agrees that its
appointment of Lender as its attorney and agent-in-fact after the occurrence of
an Event of Default for the purposes specified in this Agreement is an
appointment coupled with an interest and shall be irrevocable until all of the
Obligations are satisfied and this Agreement is terminated.
Section 11.5 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of Borrower, Lender and its respective successors and
assigns, except that Borrower may not assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of Lender.
Section 11.6 Assignment; Participation. Lender may assign, or sell a
participation interest in, its rights and obligations under this Agreement, the
Subordinated Note and the other Loan Documents. In the case of an assignment,
upon receipt of notice of such assignment, Borrower shall deliver such documents
necessary to evidence or perfect such assignment. Any such assignee shall be
deemed a party hereto, and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such agreement, such assignee shall have
the rights and obligations of Lender hereunder.
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Section 11.7 Expenses; Indemnification. Whether or not the Loan is made
hereunder, Borrower shall:
(a) Pay or reimburse Lender for all transfer, documentary, stamp and
similar taxes, and all recording and filing fees and taxes, payable
in connection with, arising out of, or in any way related to, the
execution, delivery and performance of the Loan Documents or the
making of the Loan;
(b) Pay or reimburse Lender for all costs and expenses (including
reasonable fees and disbursements of legal counsel, appraisers,
accountants and other experts employed or retained by Lender)
incurred by Lender in connection with, arising out of, or in any way
related to (i) the negotiation, preparation, execution and delivery
of (A) the Loan Documents and (B) whether or not executed, any
waiver, amendment or consent thereunder or thereto, (ii) the
administration of and any operations under the Loan Documents, (iii)
consulting with respect to any matter in any way arising out of,
related to, or connected with, the Loan Documents, including (A) the
protection or preservation of the Collateral, (B) the protection,
preservation, exercise or enforcement of any of the rights of Lender
in, under or related to the Collateral or the Loan Documents or (C)
the performance of any of the obligations of Lender under or related
to the Loan Documents, (iv) protecting or preserving the Collateral
or (v) protecting, preserving, exercising or enforcing any of the
rights of Lender in, under or related to the Collateral or the Loan
Documents, including defending the security interest granted
hereunder as a valid, perfected, first priority security interest in
the Collateral subject only to Liens permitted hereunder;
(c.) Indemnify and hold Lender harmless from and against all losses
(including judgments, penalties and fines) suffered, and pay or
reimburse Lender for all costs and expenses (including fees and
disbursements of legal counsel and other experts employed or
retained by Lender) incurred, by such Lender in connection with,
arising out of, or in any way related to (i) any Loan Document
related claim (whether asserted by Lender or Borrower or any other
Person), including the prosecution or defense thereof and any
litigation or proceeding with respect thereto (whether or not, in
the case of any such litigation or proceeding, Lender is a party
thereto), or (ii) any investigation, governmental or otherwise,
arising out of, related to, or in any way connected with, the Loan
Documents or the relationships established thereunder, except that
the foregoing indemnity shall not be applicable to any loss suffered
by Lender to the extent such loss is determined by a judgment of a
court that is binding on Borrower and Lender, final and not subject
to review on appeal, to be the result of acts or omissions on the
part of Lender constituting (x) willful misconduct or gross
negligence, (y) knowing violations of law or (z) in the case of
claims by Borrower against Lender, Lender's failure to observe any
other standard applicable to it under any of the other provisions of
the Loan Documents or, but only to the extent not waived thereunder,
Applicable Law.
Section 11.8 Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
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Section 11.9 Governing Law; Jurisdiction and Venue. LENDER ACCEPTS THIS
AGREEMENT AT CINCINNATI, OHIO BY ACKNOWLEDGING AND AGREEING TO IT THERE. ANY
DISPUTE BETWEEN BORROWER, LENDER, OR ANY OTHER HOLDER OF SECURED OBLIGATIONS
ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE,
SHALL BE RESOLVED IN ACCORDANCE WITH THE SUBSTANTIVE INTERNAL LAWS AND STATUTES
OF LIMITATION (WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE
OF OHIO. Lender and Borrower hereby designate all courts of record sitting in
Cincinnati, Ohio, both state and federal, as forums where any action, suit or
proceeding in respect of or arising out of this Agreement, the Subordinated
Note, and the other Loan Documents, or the transactions contemplated by this
Agreement shall be prosecuted as to all parties, its successors and assigns, and
by the foregoing designations Lender and Borrower consent to the jurisdiction
and venue of such courts. BORROWER WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE
LAWS OF ANY OTHER STATE TO OBJECT TO JURISDICTION WITHIN THE STATE OF OHIO FOR
THE PURPOSES OF LITIGATION TO ENFORCE SUCH OBLIGATIONS OF SUCH BORROWER.
Section 11.10 Waiver of Jury Trial. AS A SPECIFICALLY BARGAINED INDUCEMENT FOR
LENDER TO EXTEND CREDIT TO BORROWER, AND AFTER HAVING THE OPPORTUNITY TO CONSULT
COUNSEL, BORROWER HEREBY EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY
LAWSUIT OR PROCEEDING RELATING TO THIS AGREEMENT OR ARISING IN ANY WAY FROM THE
OBLIGATIONS.
Section 11.11 Other Waivers. Borrower waives notice of nonpayment, demand,
notice of demand, presentment, protest and notice of protest with respect to the
Obligations, or notice of acceptance hereof, notice of Loan 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.
[SIGNATURE PAGE FOLLOWS. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties have duly executed this Subordinated Loan and
Security Agreement by their duly authorized officers as of the date first above
written.
BORROWER:
RIVIERA TOOL COMPANY
By: /s/ Xxxxx X. Xxxxxx
-------------------
Title: Chief Financial Officer
LENDER:
THE HILLSTREET FUND II, L.P.
BY: HILLSTREET CAPITAL II, INC.
ITS: INVESTMENT MANAGER
By: /S/ Xxxxxxxxx X. Xxxxxxxxx
--------------------------
Title: President
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