Exhibit 10.42
CREDIT AND SECURITY AGREEMENT
Table of Contents
ARTICLE I - Definitions..................................................................................... 1
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Section 1.1 Definitions...................................................................... 1
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Section 1.2 Cross References................................................................. 10
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ARTICLE II - Amount and Terms of the Credit Facility........................................................ 10
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Section 2.1 Revolving Advances............................................................... 10
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Section 2.2 Overadvance Amount............................................................... 11
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Section 2.3 Payment of Overadvance Amount.................................................... 11
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Section 2.4 Letters of Credit................................................................ 11
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Section 2.5 Payment of Amounts Drawn Under Letters of Credit; Obligation of
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Reimbursement.................................................................... 12
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Section 2.6 Special Account.................................................................. 13
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Section 2.7 Obligations Absolute............................................................. 13
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Section 2.8 Term Advance..................................................................... 13
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Section 2.9 Payment of Term Note............................................................. 14
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Section 2.10 Interest; Minimum Charge; Default Interest; Participations; Usury................ 14
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Section 2.11 Fees............................................................................. 15
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Section 2.12 Computation of Interest and Fees; When Interest Due and Payable.................. 16
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Section 2.13 Capital Adequacy................................................................. 16
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Section 2.14 Voluntary Prepayment; Reduction of the Maximum Line;
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Termination of the Credit Facility by the Borrower............................... 17
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Section 2.15 Termination, Line Reduction Fees and Prepayment Fees; Waiver of
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Termination and Line Reduction Fees.............................................. 18
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Section 2.16 Mandatory Prepayment............................................................. 18
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Section 2.17 Payment.......................................................................... 19
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Section 2.18 Payment on Non-Banking Days...................................................... 19
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Section 2.19 Use of Proceeds.................................................................. 19
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Section 2.20 Liability Records................................................................ 19
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Section 2.21 Automatic Renewal................................................................ 19
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ARTICLE III - Security Interest; Occupancy; Setoff.......................................................... 20
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Section 3.1 Grant of Security Interest....................................................... 20
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Section 3.2 Notification of Account Debtors and Other Obligors............................... 20
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Section 3.3 Assignment of Insurance.......................................................... 20
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Section 3.4 Occupancy........................................................................ 20
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Section 3.5 License.......................................................................... 21
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Section 3.6 Financing Statement.............................................................. 21
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Section 3.7 Setoff........................................................................... 22
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ARTICLE IV - Conditions of Lending.................................................................... 22
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Section 4.1 Conditions Precedent to the Initial Revolving Overadvance and Term
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Advance.................................................................... 22
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Section 4.2 Conditions Precedent to All Advances....................................... 24
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ARTICLE V - Representations and Warranties............................................................ 24
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Section 5.1 Corporate Existence and Power; Name; Chief Executive Office;
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Inventory and Equipment Locations; Tax Identification Number............... 24
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Section 5.2 Authorization of Borrowing; No Conflict as to Law or Agreements............ 25
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Section 5.3 Legal Agreements........................................................... 25
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Section 5.4 Subsidiaries............................................................... 25
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Section 5.5 Financial Condition; No Adverse Change..................................... 25
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Section 5.6 Litigation................................................................. 26
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Section 5.7 Regulation U............................................................... 26
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Section 5.8 Taxes...................................................................... 26
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Section 5.9 Titles and Liens........................................................... 26
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Section 5.10 Plans...................................................................... 26
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Section 5.11 Default.................................................................... 27
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Section 5.12 Environmental Matters...................................................... 27
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Section 5.13 Submissions to Lender...................................................... 28
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Section 5.14 Financing Statements....................................................... 28
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Section 5.15 Rights to Payment.......................................................... 28
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Section 5.16 Financial Solvency......................................................... 29
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ARTICLE VI - Borrower's Affirmative Covenants......................................................... 29
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Section 6.1 Reporting Requirements..................................................... 29
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Section 6.2 Books and Records; Inspection and Examination.............................. 32
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Section 6.3 Account Verification....................................................... 32
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Section 6.4 Compliance with Laws....................................................... 32
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Section 6.5 Payment of Taxes and Other Claims.......................................... 33
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Section 6.6 Maintenance of Properties.................................................. 33
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Section 6.7 Insurance.................................................................. 33
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Section 6.8 Preservation of Existence.................................................. 34
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Section 6.9 Delivery of Instruments, etc............................................... 34
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Section 6.10 Chattel Paper.............................................................. 34
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Section 6.11 Lockbox; Collateral Account............................................... 34
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Section 6.12 Performance by the Lender.................................................. 35
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Section 6.13 Control Agreements......................................................... 35
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Section 6.14 Application of Pending Tax Refund.......................................... 36
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Section 6.15 Perfection of Intellectual Property Security Interest...................... 36
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Section 6.16 Minimum Book Net Worth..................................................... 36
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Section 6.17 Quarterly Minimum Net Income............................................... 36
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Section 6.18 Monthly Minimum Net Income................................................. 37
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Section 6.19 New Covenants.............................................................. 37
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Section 6.20 Quarterly Inspection and Review................................ 37
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Section 6.21 Machinery and Equipment Appraisal.............................. 37
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Section 6.22 Location of Collateral; Acknowledgment from Bailees............ 37
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Section 6.23 Application to Expedite Payment of Pending Tax Refund.......... 37
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ARTICLE VII - Negative Covenants.......................................................... 38
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Section 7.1 Liens.......................................................... 38
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Section 7.2 Indebtedness................................................... 39
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Section 7.3 Guaranties..................................................... 39
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Section 7.4 Investments and Subsidiaries................................... 39
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Section 7.5 Dividends...................................................... 40
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Section 7.6 Sale or Transfer of Assets; Suspension of Business Operations.. 40
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Section 7.7 Consolidation and Merger; Asset Acquisitions................... 41
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Section 7.8 Sale and Leaseback............................................. 41
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Section 7.9 Restrictions on Nature of Business............................. 41
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Section 7.10 Capital Expenditures........................................... 41
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Section 7.11 Accounting..................................................... 41
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Section 7.12 Discounts, etc................................................. 41
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Section 7.13 Defined Benefit Pension Plans.................................. 41
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Section 7.14 Other Defaults................................................. 41
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Section 7.15 Place of Business; Name........................................ 41
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Section 7.16 Organizational Documents....................................... 42
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Section 7.17 Salaries....................................................... 42
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ARTICLE VIII - Events of Default, Rights and Remedies..................................... 42
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Section 8.1 Events of Default.............................................. 42
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Section 8.2 Rights and Remedies............................................ 44
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Section 8.3 Certain Notices................................................ 45
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ARTICLE IX - Miscellaneous................................................................ 45
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Section 9.1 No Waiver; Cumulative Remedies................................. 45
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Section 9.2 Amendments, Etc................................................ 45
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Section 9.3 Addresses for Notices, Etc..................................... 46
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Section 9.4 Further Documents.............................................. 46
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Section 9.5 Collateral..................................................... 46
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Section 9.6 Costs and Expenses............................................. 47
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Section 9.7 Indemnity...................................................... 47
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Section 9.8 Participants................................................... 48
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Section 9.9 Execution in Counterparts...................................... 49
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Section 9.10 Binding Effect; Assignment; Complete Agreement; Exchanging
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Information.................................................... 49
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Section 9.11 Severability of Provisions..................................... 49
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Section 9.12 Entire Agreement............................................... 49
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Section 9.13 Headings....................................................... 49
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Section 9.14 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial....... 49
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Section 9.15 Confidentiality.................................................... 49
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CREDIT AND SECURITY AGREEMENT
Dated as of December 8, 0000
XX XXXXXXXXXXX, INC., a Delaware corporation (the "Borrower"), and
XXXXX FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"),
hereby agree as follows:
ARTICLE I
Definitions
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Section 1.1 Definitions. For all purposes of this Agreement, except as
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otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Accounts" means all of the Borrower's accounts, as such term may be
defined from time to time in the UCC, whether now owned or hereafter arising,
including without limitation the aggregate unpaid obligations of customers and
other account debtors to the Borrower arising out of the sale or lease of goods
or rendition of services by the Borrower on an open account or deferred payment
basis.
"Advance" means a Revolving Advance including the Overadvance Amount or
a Term Advance.
"Affiliate" or "Affiliates" means any Person controlled by, controlling
or under common control with the Borrower, including (without limitation) any
Subsidiary of the Borrower. For purposes of this definition, "control," when
used with respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise.
"Agreement" means this Credit and Security Agreement, as amended,
supplemented or restated from time to time.
"Availability" means the difference of (i) the Borrowing Base and (ii)
the outstanding principal balance of the Revolving Note.
"Banking Day" means a day other than a Saturday, Sunday or other day on
which banks are generally not open for business in Dallas, Texas.
"Book Net Worth" means the aggregate of the common and preferred
stockholders' equity of the Borrower, determined in accordance with GAAP on a
consolidated basis.
"Borrowing Base" means, at any time the lesser of:
(a) the Maximum Line less the Xxxxx Fargo Bank Minnesota
Revolving Advances; or
(b) subject to change from time to time in the Lender's sole
discretion, up to (x) 80% of Eligible Accounts plus (y) the Overadvance
Amount.
"Capital Expenditures" for a period means any expenditure of money for
the lease, purchase or other acquisition of any capital asset, or the lease of
any other asset whether payable currently or in the future.
"Charges" means all fees, charges, and/or other items of value, if any,
contracted for, charged, taken, received or reserved by Lender in connection
with the transactions contemplated hereunder, which are treated as interest
under applicable law.
"Chattel Paper" means all of the Borrower's Chattel Paper, as such term
may be defined from time to time in the UCC, whether now owned or hereafter
acquired.
"Collateral" means all of the Borrower's assets, including all Chattel
Paper, deposit accounts, Equipment, General Intangibles, Instruments, Inventory,
Receivables, Investment Property, Letter of Credit Rights, Intellectual
Property, all sums on deposit in any Collateral Account, and any items in any
Lockbox; together with (i) all substitutions and replacements for and products
of any of the foregoing; (ii) proceeds of any and all of the foregoing; (iii) in
the case of all tangible goods, all accessions; (iv) all accessories,
attachments, parts, equipment and repairs now or hereafter attached or affixed
to or used in connection with any tangible goods; (v) all warehouse receipts,
bills of lading and other documents of title now or hereafter covering such
goods.
"Collateral Account" means the Lender Account, as such term is defined
in the Lockbox Agreement.
"Commitments" means the Lender's commitments to make Advances to or for
the Borrower's account pursuant to Article II.
"Compliance Certificate" means a certificate substantially in the form
of Exhibit C attached hereto.
"Credit Facility" means the credit facilities being made available to
the Borrower by the Lender pursuant to Article II.
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"Debt" of any Person means all items of indebtedness or liability which
in accordance with GAAP would be included in determining total liabilities as
shown on the liabilities side of a balance sheet of that Person as at the date
as of which Debt is to be determined. For purposes of determining a Person's
aggregate Debt at any time, "Debt" shall also include the aggregate payments
required to be made by such Person at any time under any lease that is
considered a capitalized lease under GAAP.
"Default" means an event that, with giving of notice or passage of time
or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the first day of
any month during which a Default or Event of Default has occurred and ending on
the date the Lender notifies the Borrower in writing that such Default or Event
of Default has been cured or waived.
"Default Rate" means, (i) with respect to the Revolving Advances, an
annual rate equal to three percent (3%) over the Revolving Floating Rate, which
rate shall change when and as the Revolving Floating Rate changes, (ii) with
respect to the Overadvance Amount, an annual rate equal to three percent (3%)
over the Overadvance Floating Rate, which rate shall change when and as the
Overadvance Floating Rate changes, and (iii) with respect to the Term Advances,
an annual rate equal to three percent (3%) over the Term Floating Rate, which
rate shall change when and as the Term Floating Rate changes.
"Domestic Collateral" means Collateral other than Export Collateral.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Eligible Accounts" means all unpaid Accounts, net of any credits,
except the following shall not in any event be deemed Eligible Accounts:
(i) That portion of Accounts unpaid 60 days or more after
the due date but not to exceed 120 days after the invoice date;
(ii) That portion of Accounts that is disputed or subject
to a claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the final
delivery of goods or rendition of services, as applicable, by the
Borrower to the customer;
(iv) Accounts owed by any unit of government, whether
foreign or domestic (provided, however, that there shall be
included in Eligible Accounts that portion of Accounts owed by
such units of government for which the Borrower has provided
evidence satisfactory to the Lender that (A) the Lender has a
first priority
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perfected security interest and (B) such Accounts may be enforced
by the Lender directly against such unit of government under all
applicable laws);
(v) Accounts owed by an account debtor located outside
the United States which are not (A) backed by a bank letter of
credit naming the Lender as beneficiary or assigned to the
Lender, in the Lender's possession and acceptable to the Lender
in all respects, in its sole discretion, or (B) covered by a
foreign receivables insurance policy acceptable to the Lender in
its sole discretion;
(vi) That portion of Accounts not owned by Borrower or
subject to any Lien, right, claim or interest of another Person
other than the Lien in favor of Lender and the junior Lien in
favor of Xxxxx Fargo Bank Minnesota;
(vii) Accounts owed by an account debtor that is insolvent,
the subject of bankruptcy proceedings, is generally not paying
its debts as and when the same become due, or has gone out of
business;
(viii) Accounts owed by a shareholder, Subsidiary,
Affiliate, officer or employee of the Borrower;
(ix) That portion of Accounts that has been restructured,
extended, amended or modified;
(x) That portion of Accounts that constitutes
advertising, finance charges, service charges or sales or excise
taxes;
(xi) Accounts owed by an account debtor, regardless of
whether otherwise eligible, if 25% or more of the total amount
due under Accounts from such debtor is ineligible under clauses
(i), (ii), (vi) or (ix) above; and
(xii) Accounts, or portions thereof, otherwise deemed
ineligible by the Lender in its sole discretion.
"Environmental Laws" has the meaning specified in Section 5.12.
"Equipment" means all of the Borrower's equipment, as such term may be
defined from time to time in the UCC, whether now owned or hereafter acquired,
including but not limited to all present and future machinery, vehicles,
furniture, fixtures, manufacturing equipment, shop equipment, office and
recordkeeping equipment, parts, tools, supplies, and including specifically
(without limitation) the goods described in any equipment schedule or list
herewith or hereafter furnished to the Lender by the Borrower.
"Event of Default" has the meaning specified in Section 8.1.
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"Export Collateral" means that portion of Collateral consisting of
Export Related Accounts and the Items.
"Export Related Accounts" means all Accounts of the Borrower owed by
account debtors located outside the United States.
"Funding Date" has the meaning given in Section 2.1.
"FYE" means the last day of the Borrower's fiscal year, which is August
31.
"GAAP" means generally accepted accounting principles, applied on a
basis consistent with the accounting practices applied in the audited financial
statements described in Section 6.1(a), except for any change in accounting
practices to the extent that, due to a promulgation of the Financial Accounting
Standards Board changing or implementing any new accounting standard, the
Borrower either (i) is required to implement such change, or (ii) for future
periods will be required to and for the current period may in accordance with
generally accepted accounting principles implement such change, for its
financial statements to be in conformity with generally accepted accounting
principles (any such change is herein referred to as a "Required GAAP Change"),
provided that (x) the Borrower shall fully disclose in such financial statements
any such Required GAAP Change and the effects of the Required GAAP Change on the
Borrower's income, retained earnings or other accounts, as applicable, and (y)
the Borrower's financial covenants set forth in Sections 6.16, 6.17, 6.18, and
7.10 shall be adjusted as necessary to reflect the effects of such Required GAAP
Change.
"General Intangibles" means all of the Borrower's general intangibles,
as such term may be defined from time to time in the UCC, whether now owned or
hereafter acquired, including (without limitation) all present and future
patents, patent applications, copyrights, trademarks, trade names, trade
secrets, customer or supplier lists and contracts, manuals, operating
instructions, permits, franchises, the right to use the Borrower's name, and the
goodwill of the Borrower's business.
"Guarantor" means RFM Export, Inc., a company incorporated under the
laws of Barbados.
"Guaranty" means that certain Guaranty of even date herewith executed
by the Guarantor in favor of the Lender.
"Hazardous Substance" has the meaning given in Section 5.12.
"Instruments" means all of the Borrower's instruments, as such term may
be defined from time to time in the UCC, whether now owned or hereafter
acquired.
"Intellectual Property" means all rights, priorities and privileges
relating to intellectual property, whether arising under United States,
multinational or foreign laws or otherwise, including, without limitation, any
now owned or hereafter arising copyrights, copyright licenses, patents, patent
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licenses, trademarks and trademark licenses and all rights to xxx at law or in
equity for any infringement or other impairment thereof, including the right to
receive all proceeds and damages therefrom.
"Interest Payment Date" has the meaning given in Section 2.10.
"Inventory" means all of the Borrower's inventory, as such term may be
defined from time to time in the UCC, whether now owned or hereafter acquired,
whether consisting of whole goods, spare parts or components, supplies or
materials, whether acquired, held or furnished for sale, for lease or under
service contracts or for manufacture or processing, and wherever located.
"Investment Property" means all of the Borrower's investment property,
as such term may be defined from time to time in the UCC, whether now owned or
hereafter acquired, including but not limited to all securities, security
entitlements, securities accounts, commodity contracts, commodity accounts,
stocks, bonds, mutual fund shares, money market shares and U.S. Government
securities.
"Issuer" means the issuer of any Letter of Credit.
"Items" means all Inventory of the Borrower to be sold by the Borrower
to customers outside the United States.
"L/C Amount" means the sum of (i) the aggregate face amount of any
issued and outstanding Letters of Credit and (ii) the unpaid amount of the
Obligation of Reimbursement.
"L/C Application" means an application and agreement for letters of
credit in a form acceptable to the Issuer and the Lender.
"Letter of Credit" has the meaning specified in Section 2.4.
"Loan Documents" means this Agreement, the Notes and the Security
Documents.
"Lockbox" has the meaning given in the Lockbox Agreement.
"Lockbox Agreement" means the Lockbox and Collection Account Agreement
by and among the Borrower, Regulus West LLC, Xxxxx Fargo Bank Texas, N.A. and,
the Lender, of even date herewith.
"Maturity Date" has the meaning given in Section 2.21.
"Maximum Line" means $13,500,000, unless said amount is reduced
pursuant to Section 2.14, in which event it means the amount to which said
amount is reduced.
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"Maximum Rate" means the maximum lawful rate of interest which may be
contracted for, charged, taken, received or reserved by Lender in accordance
with the applicable laws of the State of Texas (or applicable United States
federal law to the extent that such law permits Lender to contract for, charge,
take, receive or reserve a greater amount of interest than under Texas law),
taking into account all Charges made in connection with the transaction
evidenced by the Loan Documents. To the extent, if any, that Chapter 303 of the
Texas Finance Code, as amended, establishes the Maximum Rate, the Maximum Rate
shall be the "weekly ceiling" as defined therein.
"Minimum Availability" means Availability of not less than $1,200,000.
"Minimum Charge" has the meaning given in Section 2.10(d).
"Net Income" means fiscal year-to-date after-tax consolidated net
income of a Person, decreased by the sum of any extraordinary, non-operating or
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non-cash income recorded by such Person as determined in accordance with GAAP.
"Note" means the Revolving Note or the Term Note, and "Notes" means the
Revolving Note and the Term Note.
"Obligation of Reimbursement" has the meaning given in Section 2.5(a).
"Obligations" means the Notes and each and every other debt, liability
and obligation of every type and description which the Borrower may now or at
any time hereafter owe to the Lender, whether such debt, liability or obligation
now exists or is hereafter created or incurred, whether it arises in a
transaction involving the Lender alone or in a transaction involving other
creditors of the Borrower, and whether it is direct or indirect, due or to
become due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or sole, joint, several or joint and several, and including
specifically, but not limited to, the Obligation of Reimbursement and all
indebtedness of the Borrower arising under this Agreement, the Notes, any L/C
Application completed by the Borrower, or any other loan or credit agreement or
guaranty between the Borrower and the Lender, whether now in effect or hereafter
entered into.
"Original Maturity Date" means December 31, 2003.
"Overadvance Amount" has the meaning given in Section 2.2.
"Overadvance Floating Rate" means an annual rate equal to the sum of
the Prime Rate plus four percent (4.00%), which annual rate shall change when
and as the Prime Rate changes.
"Patent Security Agreement" means the Patent Security Agreement by the
Borrower in favor of the Lender dated the date hereof, as the same may be
amended, supplemented or restated from time to time.
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"Pending Tax Refund" means the Borrower's claim for pending federal
income tax refund, filed for on or about November 15, 2000, in the estimated
amount of $1,342,129.
"Permitted Lien" has the meaning given in Section 7.1.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Plan" means an employee benefit plan or other plan maintained for the
Borrower's employees and covered by Title IV of ERISA.
"Premises" means the Texas premises legally described in Exhibit D
attached hereto.
"Prime Rate" means the rate of interest publicly announced from time to
time by Xxxxx Fargo Bank, N.A.-San Francisco, as its "prime rate" or, if such
bank ceases to announce a rate so designated, any similar successor rate
designated by the Lender.
"Receivables" means each and every right of the Borrower to the payment
of money, whether such right to payment now exists or hereafter arises, whether
such right to payment arises out of a sale, lease or other disposition of goods
or other property, out of a rendering of services, out of a loan, out of the
overpayment of taxes or other liabilities, or otherwise arises under any
contract or agreement, whether such right to payment is created, generated or
earned by the Borrower or by some other person who subsequently transfers such
person's interest to the Borrower, whether such right to payment is or is not
already earned by performance, and howsoever such right to payment may be
evidenced, together with all other rights and interests (including all liens and
security interests) which the Borrower may at any time have by law or agreement
against any account debtor or other obligor obligated to make any such payment
or against any property of such account debtor or other obligor; all including
but not limited to all present and future Accounts, tax refunds and rights to
payment not constituting General Intangibles.
"Registration Rights Agreement" means that certain Registration Rights
Agreement dated the date hereof by and between the Borrower and the Lender.
"Reportable Event" shall have the meaning assigned to that term in
Title IV of ERISA.
"Revolving Advance" has the meaning given in Section 2.1.
"Revolving Floating Rate" means an annual rate equal to the sum of the
Prime Rate plus two percent (2.00%), which annual rate shall change when and as
the Prime Rate changes.
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"Revolving Note" means the Borrower's revolving promissory note,
payable to the order of the Lender in substantially the form of Exhibit A hereto
and any note or notes issued in substitution therefor, as the same may hereafter
be amended, supplemented or restated from time to time.
"Security Documents" means this Agreement, the Lockbox Agreement, the
Patent Security Agreement, and any other document delivered to the Lender from
time to time to secure the Obligations, as the same may hereafter be amended,
supplemented or restated from time to time.
"Security Interest" has the meaning given in Section 3.1.
"Special Account" means a specified cash collateral account maintained
by a financial institution acceptable to the Lender in connection with Letters
of Credit, as contemplated by Section 2.6.
"Subsidiary" means any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under ordinary
circumstances to elect a majority of the board of directors of such corporation,
irrespective of whether or not at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency, is at the time directly or indirectly owned by the Borrower, by the
Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
"Term Advance" has the meaning specified in Section 2.8.
"Term Floating Rate" means an annual rate equal to the sum of the Prime
Rate plus two percent (2.00%), which annual rate shall change when and as the
Prime Rate changes.
"Term Note" means the Borrower's promissory note, payable to the order
of the Lender in substantially the form of Exhibit B hereto and any note or
notes issued in substitution therefor, as the same may hereafter be amended,
supplemented or restated from time to time.
"Termination Date" means the earliest of (i) the Maturity Date, (ii)
the date the Borrower terminates the Credit Facility, or (iii) the date the
Lender demands payment of the Obligations after an Event of Default pursuant to
Section 8.2.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the State of Texas.
"Warrant Agreement" means that certain Warrant Agreement dated the date
hereof by and between the Borrower and the Lender.
"Xxxxx Fargo Bank Minnesota" means Xxxxx Fargo Bank Minnesota, National
Association, a national banking association.
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"Xxxxx Fargo Bank Minnesota Credit Agreement" means that certain Credit
and Security Agreement of even date herewith by and between the Borrower and
Xxxxx Fargo Bank Minnesota as the same may be amended, supplemented or restated
from time to time.
"Xxxxx Fargo Bank Minnesota Revolving Advances" means the Revolving
Advances as defined in the Xxxxx Fargo Bank Minnesota Credit Agreement, or as
the context requires, the outstanding principal balance thereof.
Section 1.2 Cross References. All references in this Agreement to
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Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
ARTICLE II
Amount and Terms of the Credit Facility
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Section 2.1 Revolving Advances. The Lender agrees, on the terms and
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subject to the conditions herein set forth, to make advances to the Borrower
from time to time from the date all of the conditions set forth in Section 4.1
are satisfied (the "Funding Date") to the Termination Date, on the terms and
subject to the conditions herein set forth (the "Revolving Advances"). In no
event shall the provisions of Chapter 346 of the Texas Finance Code (which
regulates certain revolving credit loan accounts) apply to this Agreement or the
Revolving Note or other Loan Documents. Except with respect to the Overadvance
Amount, the Lender shall have no obligation to make a Revolving Advance if,
after giving effect to such requested Revolving Advance, the sum of the
outstanding and unpaid Revolving Advances would exceed the Availability less the
L/C Amount. The Borrower's obligation to pay the Revolving Advances shall be
evidenced by the Revolving Note and shall be secured by the Collateral as
provided in Article III. Within the limits set forth in this Section 2.1, the
Borrower may borrow, prepay pursuant to Section 2.14 and reborrow. On the
Termination Date, the entire unpaid principal balance of the Revolving Note, and
all unpaid interest accrued thereon, shall be due and payable. The Borrower
agrees to comply with the following procedures in requesting Revolving Advances
under this Section 2.1:
(a) The Borrower shall make each request for a Revolving
Advance to the Lender before 11:00 a.m. (Central time) of the day of
the requested Revolving Advance. Requests may be made in writing or by
telephone, specifying the date of the requested Revolving Advance and
the amount thereof. Each request shall be by (i) any officer of the
Borrower; or (ii) any person designated as the Borrower's agent by any
officer of the Borrower in a writing delivered to the Lender; or (iii)
any person whom the Lender reasonably believes to be an officer of the
Borrower or such a designated agent.
(b) Upon fulfillment of the applicable conditions set forth in
Article IV, the Lender shall disburse the proceeds of the requested
Revolving Advance by crediting the same to the Borrower's demand
deposit account maintained with Xxxxx Fargo Bank Texas, N.A
10
unless the Lender and the Borrower shall agree in writing to another
manner of disbursement. Upon the Lender's request, the Borrower shall
promptly confirm each telephonic request for an Advance by executing
and delivering an appropriate confirmation certificate to the Lender.
The Borrower shall repay all Advances even if the Lender does not
receive such confirmation and even if the person requesting an Advance
was not in fact authorized to do so. Any request for an Advance,
whether written or telephonic, shall be deemed to be a representation
by the Borrower that the conditions set forth in Section 4.2 have been
satisfied as of the time of the request.
Section 2.2 Overadvance Amount. The Lender agrees, on the terms and
------------------
subject to the conditions herein set forth, to make an advance in excess of that
permitted under the Borrowing Base to the Borrower on the Funding Date in the
amount of $1,000,000 (the "Overadvance Amount"). The Borrower's obligation to
pay the Overadvance Amount shall be evidenced by the Revolving Note and shall be
secured by the Collateral as provided in Article III. Except as otherwise
provided herein, the Overadvance Amount shall be treated as a Revolving Advance.
Amounts of the Overadvance Amount re-paid may not be reborrowed. Upon
fulfillment of the applicable conditions set forth in Article IV, the Lender
shall deposit the Overadvance Amount to the Borrower's demand deposit account
specified in Section 2.1(b) unless the Lender and the Borrower shall agree in
writing to another manner of disbursement.
Section 2.3 Payment of Overadvance Amount. The outstanding principal
-----------------------------
balance and all unpaid interest accrued thereon of the Overadvance Amount shall
be due and payable on the earlier of (x) the receipt of the Pending Tax Refund
or (y) January 1, 2001.
Section 2.4 Letters of Credit.
-----------------
(a) The Lender agrees, on the terms and subject to the
conditions herein set forth, to cause an Issuer to issue, from the
Funding Date to the Termination Date, one or more irrevocable standby
or documentary letters of credit (each, a "Letter of Credit") for the
Borrower's account. The Lender shall have no obligation to cause an
Issuer to issue any Letter of Credit if the face amount of the Letter
of Credit to be issued, would exceed the lesser of:
(i) $500,000 less the L/C Amount, or
(ii) the Borrowing Base less the sum of (x) all
outstanding and unpaid Advances and (y) the L/C Amount.
Each Letter of Credit, if any, shall be issued pursuant to a separate
L/C Application entered into by the Borrower and the Lender for the
benefit of the Issuer, completed in a manner satisfactory to the Lender
and the Issuer. The terms and conditions set forth in each such L/C
Application shall supplement the terms and conditions hereof, but if
the terms of any such
11
L/C Application and the terms of this Agreement are inconsistent, the
terms hereof shall control.
(b) No Letter of Credit shall be issued with an expiry date
later than the Termination Date in effect as of the date of issuance.
(c) Any request to cause an Issuer to issue a Letter of Credit
under this Section 2.4 shall be deemed to be a representation by the
Borrower that the conditions set forth in Section 4.2 have been
satisfied as of the date of the request.
Section 2.5 Payment of Amounts Drawn Under Letters of Credit;
-------------------------------------------------
Obligation of Reimbursement. The Borrower acknowledges that the Lender, as
---------------------------
co-applicant, will be liable to the Issuer for reimbursement of any and all
draws under Letters of Credit and for all other amounts required to be paid
under the applicable L/C Application. Accordingly, the Borrower agrees to pay to
the Lender any and all amounts required to be paid under the applicable L/C
Application, when and as required to be paid thereby, and the amounts designated
below, when and as designated:
(a) The Borrower hereby agrees to pay the Lender on the day a
draft is honored under any Letter of Credit a sum equal to all amounts
drawn under such Letter of Credit plus any and all reasonable charges
and expenses that the Issuer or the Lender may pay or incur relative to
such draw and the applicable L/C Application, plus interest on all such
amounts, charges and expenses as set forth below (the Borrower's
obligation to pay all such amounts is herein referred to as the
"Obligation of Reimbursement").
(b) Whenever a draft is submitted under a Letter of Credit,
the Lender shall make a Revolving Advance in the amount of the
Obligation of Reimbursement and shall apply the proceeds of such
Revolving Advance thereto. Such Revolving Advance shall be repayable in
accordance with and be treated in all other respects as a Revolving
Advance hereunder.
(c) If a draft is submitted under a Letter of Credit when the
Borrower is unable, because a Default Period then exists or for any
other reason, to obtain a Revolving Advance to pay the Obligation of
Reimbursement, the Borrower shall pay to the Lender on demand and in
immediately available funds, the amount of the Obligation of
Reimbursement together with interest, accrued from the date of the
draft until payment in full at the Default Rate. Notwithstanding the
Borrower's inability to obtain a Revolving Advance for any reason, the
Lender is irrevocably authorized, in its sole discretion, to make a
Revolving Advance in an amount sufficient to discharge the Obligation
of Reimbursement and all accrued but unpaid interest thereon.
(d) The Borrower's obligation to pay any Revolving Advance
made under this Section 2.5, shall be evidenced by the Revolving Note
and shall bear interest as provided in Section 2.10.
12
Section 2.6 Special Account. If the Credit Facility is terminated for
---------------
any reason whatsoever while any Letter of Credit is outstanding, the Borrower
shall thereupon pay the Lender in immediately available funds for deposit in the
Special Account an amount equal to the L/C Amount. The Special Account shall be
an interest bearing account maintained for the Lender by any financial
institution acceptable to the Lender. Any interest earned on amounts deposited
in the Special Account shall be credited to the Special Account. Amounts on
deposit in the Special Account may be applied by the Lender at any time or from
time to time to the Obligations in the Lender's sole discretion, and shall not
be subject to withdrawal by the Borrower so long as the Lender maintains a
security interest therein. The Lender agrees to transfer any balance in the
Special Account to the Borrower at such time as the Lender is required to
release its security interest in the Special Account under applicable law.
Section 2.7 Obligations Absolute. The Borrower's obligations arising
--------------------
under Section 2.5 shall be absolute, unconditional and irrevocable, and shall be
paid strictly in accordance with the terms of Section 2.5, under all
circumstances whatsoever, including (without limitation) the following
circumstances:
(a) any lack of validity or enforceability of any Letter of
Credit or any other agreement or instrument relating to any Letter of
Credit (collectively the "Related Documents");
(b) any amendment or waiver of or any consent to departure
from all or any of the Related Documents;
(c) the existence of any claim, setoff, defense or other right
which the Borrower may have at any time, against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom
any such beneficiary or any such transferee may be acting), or other
person or entity, whether in connection with this Agreement, the
transactions contemplated herein or in the Related Documents or any
unrelated transactions;
(d) any statement or any other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever;
(e) payment by or on behalf of the Issuer or the Lender under
any Letter of Credit against presentation of a draft or certificate
which does not strictly comply with the terms of such Letter of Credit;
or
(f) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing.
Section 2.8 Term Advance.
------------
13
(a) The Lender agrees, on the terms and subject to the
conditions herein set forth, to make a single term loan advance in the
amount of $3,000,000 to the Borrower on the Funding Date (the "Term
Advance"). The Borrower's obligation to pay the Term Advance shall be
evidenced by the Term Note and shall be secured by the Collateral as
provided in Article III.
(b) Provided the applicable conditions set forth in Article
IV are satisfied on the Funding Date, the Lender shall deposit the
proceeds of the Term Advance if any remaining, after application in
accordance with Schedule 2.19 hereto, by crediting the same to the
Borrower's demand deposit account specified in Section 2.1(b) unless
the Lender and the Borrower shall agree in writing to another manner of
disbursement.
Section 2.9 Payment of Term Note. The outstanding principal balance
--------------------
of the Term Note shall be due and payable as follows:
(a) Beginning on January 1, 2001 and on the first day of each
month thereafter, the Borrower shall pay equal monthly installments of
$50,000.
(b) In the event the appraised value of the Borrower's
machinery and Equipment pursuant to any appraisal conducted pursuant to
the provisions of Section 6.21 is less than the outstanding balance of
the Term Note, the Borrower shall prepay the portion of the outstanding
principal amount of the Term Note necessary to make the remaining
principal amount equal to the lesser of (x) 80% of the orderly
liquidation value of the machinery and Equipment shown in such
appraisal or (y) 100% of the forced liquidation value of the machinery
and Equipment shown in such appraisal.
(c) On the Termination Date, the entire unpaid principal
balance of the Term Note, and all unpaid interest accrued thereon,
shall in any event be due and payable.
Section 2.10 Interest; Minimum Charge; Default Interest;
-------------------------------------------
Participations; Usury. Interest accruing on the Notes shall be due and payable
---------------------
in arrears on the first day of each month (each an "Interest Payment Date")
commencing January 1, 2001.
(a) Revolving Note. Except as set forth in Sections 2.10(e)
and 2.10(g), the outstanding principal balance of the Revolving Note
shall bear interest at the Revolving Floating Rate.
(b) Overadvance Amount. Except as set forth in Sections
2.10(e) and 2.10(g), the outstanding principal balance of the
Overadvance Amount shall bear interest at the Overadvance Floating
Rate.
(c) Term Note. Except as set forth in Sections 2.10(e) and
2.10(g), the outstanding principal balance of the Term Note shall bear
interest at the Term Floating Rate.
14
(d) Minimum Charge. In addition to the provisions of Sections
2.10(a), 2.10(b) and 2.10(c), the Borrower shall pay to the Lender on
each Interest Payment Date an additional commitment fee equal to the
difference, if any, between (i) $20,000.00 per calendar month during
the term of this Agreement, and (ii) the amount of interest calculated
under Sections 2.10(a), 2.10(b), 2.10(c) and 2.10(g).
(e) Default Interest Rate. At any time during any Default
Period, in the Lender's sole discretion and without waiving any of its
other rights and remedies, the principal of the Advances outstanding
from time to time shall bear interest at the Default Rate, effective
for any periods designated by the Lender from time to time during that
Default Period.
(f) Participations. If any Person shall acquire a
participation in the Advances under this Agreement, the Borrower shall
be obligated to the Lender to pay the full amount of all interest
calculated under, along with all other fees, charges and other amounts
due under this Agreement, regardless if such Person elects to accept
interest with respect to its participation at a lower rate than the
Revolving Floating Rate or the Term Floating Rate, or otherwise elects
to accept less than its prorata share of such fees, charges and other
amounts due under this Agreement.
(g) Usury. In any event no rate change shall be put into
effect which would result in a rate greater than the Maximum Rate. It
is not the intention of the parties to this Agreement to make an
agreement in violation of the laws of any applicable jurisdiction
relating to usury. Regardless of any provision in any Loan Documents,
the Lender shall never be entitled to charge, receive, collect or
apply, as interest on the Obligations, any amount in excess of Maximum
Rate. If the Lender receives, collects or applies, as interest, any
such excess, such amount which would be excessive interest shall be
deemed a partial repayment of principal and treated hereunder as such;
and if principal is paid in full, any remaining excess shall be paid to
the Borrower. All sums constituting interest under applicable law shall
be, to the extent permitted by applicable law, amortized or spread,
using the actuarial method, throughout the stated term of the Notes.
Section 2.11 Fees.
----
(a) Origination Fee. The Borrower hereby agrees to pay the
Lender a fully earned and non-refundable origination fee of $50,000 due
and payable upon the execution of this Agreement.
(b) Unused Line Fee. For the purposes of this Section
2.11(b), "Unused Amount" means the Maximum Line reduced by (i)
outstanding Revolving Advances, and (ii) the L/C Amount. The Borrower
agrees to pay to the Lender an unused line fee at the rate of one-half
percent (.5%) per annum on the average daily Unused Amount from the
date of this Agreement to and including the Termination Date, due and
payable monthly in arrears on each Interest Payment Date and on the
Termination Date.
15
(c) Audit Fees. The Borrower hereby agrees to pay the Lender,
on demand, audit fees in connection with any audits or inspections
conducted by the Lender of any Collateral or the Borrower's operations
or business at the rates established from time to time by the Lender as
its audit fees (which fees are currently $750 per day per auditor),
together with all actual out-of-pocket costs and expenses incurred in
conducting any such audit or inspection.
(d) Letter of Credit Fees. The Borrower agrees to pay the
Lender a fee with respect to each Letter of Credit, if any, accruing on
a daily basis and computed at the annual rate of two percent (2%) of
the aggregate amount that may then be drawn on all issued and
outstanding Letters of Credit assuming compliance with all conditions
for drawing thereunder (the "Aggregate Face Amount"), from and
including the date of issuance of such Letter of Credit until such date
as such Letter of Credit shall terminate by its terms or be returned to
the Lender, due and payable monthly in arrears on the first day of each
month and on the Termination Date; provided, however that during
-------- -------
Default Periods, in the Lender's sole discretion and without waiving
any of its other rights and remedies, such fee shall increase to five
percent (5%) of the Aggregate Face Amount. Notwithstanding the above,
the Borrower shall pay a minimum fee of $100 for each Letter of Credit
issued hereunder. The foregoing fee shall be in addition to any and all
fees, commissions and charges of any Issuer of a Letter of Credit with
respect to or in connection with such Letter of Credit.
(e) Letter of Credit Administrative Fees. The Borrower agrees
to pay the Lender, on written demand, the administrative fees charged
by the Issuer in connection with the honoring of drafts under any
Letter of Credit, amendments thereto, transfers thereof and all other
activity with respect to the Letters of Credit at the then-current
rates published by the Issuer for such services rendered on behalf of
customers of the Issuer generally.
Section 2.12 Computation of Interest and Fees; When Interest Due and
-------------------------------------------------------
Payable. Interest accruing on the outstanding principal balance of the Advances
-------
and fees hereunder outstanding from time to time shall be computed on the basis
of actual number of days elapsed in a year of 360 days.
Section 2.13 Capital Adequacy. If any Related Lender determines at any
----------------
time that its Return has been reduced as a result of any Rule Change, such
Related Lender may require the Borrower to pay it the amount necessary to
restore its Return to what it would have been had there been no Rule Change. For
purposes of this Section 2.13:
(a) "Capital Adequacy Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding capital
adequacy, or the interpretation or administration thereof by any
governmental or regulatory authority, central bank or comparable
agency, whether or not having the force of law, that applies to any
Related Lender. Such rules include rules requiring financial
institutions to maintain total capital in amounts based upon
percentages of outstanding loans, binding loan commitments and letters
of credit.
16
(b) "L/C Rule" means any law, rule, regulation, guideline,
directive, requirement or request regarding letters of credit, or the
interpretation or administration thereof by any governmental or
regulatory authority, central bank or comparable agency, whether or not
having the force of law, that applies to any Related Lender. Such rules
include rules imposing taxes, duties or other similar charges, or
mandating reserves, special deposits or similar requirements against
assets of, deposits with or for the account of, or credit extended by
any Related Lender, on letters of credit.
(c) "Return", for any period, means the return as determined
by such Related Lender on the Advances and Letters of Credit based upon
its total capital requirements and a reasonable attribution formula
that takes account of the Capital Adequacy Rules then in effect and
costs of issuing or maintaining any Letter of Credit. Return may be
calculated for each calendar quarter and for the shorter period between
the end of a calendar quarter and the date of termination in whole of
this Agreement.
(d) "Rule Change" means any change in any Capital Adequacy
Rule or L/C Rule occurring after the date of this Agreement, but the
term does not include any changes in applicable requirements that at
the Closing Date are scheduled to take place under the existing Capital
Adequacy Rules or the L/C Rules or any increases in the capital that
any Related Lender is required to maintain to the extent that the
increases are required due to a regulatory authority's assessment of
the financial condition of such Related Lender.
(e) "Related Lender" includes (but is not limited to) the
Lender, the Issuer, any parent corporation of the Lender or the Issuer
and any assignee of any interest of the Lender hereunder and any
participant in the loans made hereunder.
Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.13, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.
Section 2.14 Voluntary Prepayment; Reduction of the Maximum Line;
---------------------------------------------------
Termination of the Credit Facility by the Borrower. Except as otherwise provided
--------------------------------------------------
herein, the Borrower may prepay the Revolving Advances in whole at any time or
from time to time in part. The Borrower may prepay the Overadvance Amount (other
than in accordance with Section 2.3) in whole or in part without notice or
penalty. The Borrower may prepay the Term Advance (other than in accordance with
Section 2.9), terminate the Credit Facility or reduce the Maximum Line at any
time if it (i) gives the Lender at least 30 days' prior written notice and (ii)
pays the Lender the prepayment, termination or line reduction fees in accordance
with Section 2.15. Any prepayment of the Overadvance Amount (other than in
accordance with Section 2.3), the Term Advance (other than in accordance with
Section 2.9) or reduction in the Maximum Line must be in an amount not less than
$100,000 or an integral multiple thereof. If the Borrower reduces the Maximum
Line to zero, all Obligations shall
17
be immediately due and payable. Any partial prepayments of the Term Note
shall be applied to principal payments due and owing in inverse order of
their maturities. Upon termination of the Credit Facility and payment and
performance of all Obligations, the Lender shall release or terminate the
Security Interest and the Security Documents to which the Borrower is
entitled by law.
Section 2.15 Termination, Line Reduction Fees and Prepayment Fees;
-----------------------------------------------------
Waiver of Termination and Line Reduction Fees.
---------------------------------------------
(a) Termination and Line Reduction Fees. If the Credit
Facility is terminated for any reason as of a date other than the
Maturity Date, or the Borrower reduces the Maximum Line, the Borrower
shall pay to the Lender a fee in an amount equal to a percentage of the
Maximum Line (or the reduction, as the case may be) as follows: (i)
three percent (3%) if the termination or reduction occurs on or before
December 31, 2001; (ii) two percent (2%) if the termination or
reduction occurs after December 31, 2001 but on or before December 31,
2002; and (iii) one percent (1%) if the termination or reduction occurs
after December 31, 2002.
(b) Prepayment Fees. If the Term Note is prepaid for any
reason except in accordance with Section 2.9, the Borrower shall pay to
the Lender a fee in an amount equal to a percentage of the amount
prepaid as follows: (i) three percent (3%) if the termination or
reduction occurs on or before December 31, 2001; (ii) two percent (2%)
if the termination or reduction occurs after December 31, 2001 but on
or before December 31, 2002; and (iii) one percent (1%) if the
termination or reduction occurs after December 31, 2002.
(c) Waiver of Termination, Line Reduction and Prepayment
Fees. The Borrower will not be required to pay the termination, line
reduction and prepayment fees otherwise due under this Section 2.15 if
such termination, line reduction or prepayment is made because of
increased cash flow generated from the Borrower's operations or
refinancing by an Affiliate of the Lender occurring after the first
anniversary of the Funding Date.
Section 2.16 Mandatory Prepayment. Without notice or demand, if the
--------------------
outstanding principal balance of the Revolving Advances plus the L/C Amount
shall at any time exceed the Borrowing Base, the Borrower shall (i) first,
immediately prepay the Revolving Advances to the extent necessary to eliminate
such excess, and (ii) if prepayment in full of the Revolving Advances is
insufficient to eliminate such excess, pay to the Lender in immediately
available funds for deposit into the Special Account an amount equal to any
remaining excess. Any payment received by the Lender under this Section 2.16 or
under Section 2.14 may be applied to the Obligations, in such order and in such
amounts as the Lender, in its discretion, may from time to time determine;
provided that any prepayment under Section 2.14 which the Borrower designates as
a partial prepayment of the Term Note shall be applied to principal installments
of the Term Note in inverse order of maturity.
18
Section 2.17 Payment. All payments to the Lender shall be made in
-------
immediately available funds and shall be applied to the Obligations two (2)
Banking Days after receipt by the Lender. The Lender may hold all payments not
constituting immediately available funds for three (3) additional Banking Days
before applying them to the Obligations. Notwithstanding anything in Section
2.1, the Borrower hereby authorizes the Lender, in its discretion at any time or
from time to time without the Borrower's request and even if the conditions set
forth in Section 4.2 would not be satisfied, to make a Revolving Advance in an
amount equal to the portion of the Obligations from time to time due and
payable.
Section 2.18 Payment on Non-Banking Days. Whenever any payment to be
---------------------------
made hereunder shall be stated to be due on a day which is not a Banking Day,
such payment may be made on the next succeeding Banking Day, and such extension
of time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
Section 2.19 Use of Proceeds. The Borrower shall use the proceeds of
---------------
Advances only for ordinary working capital purposes and as set forth on Schedule
2.19 hereto.
Section 2.20 Liability Records. The Lender may maintain from time to
-----------------
time, at its discretion, liability records as to the Obligations. All entries
made on any such record shall be presumed correct absent manifest error or
unless the Borrower establishes the contrary. Upon the Lender's demand, the
Borrower will admit and certify in writing the exact principal balance of the
Obligations that the Borrower then asserts to be outstanding. Any billing
statement or accounting rendered by the Lender shall be conclusive and fully
binding on the Borrower unless the Borrower gives the Lender specific written
notice of exception within 30 days after receipt absent manifest error.
Section 2.21 Automatic Renewal. Unless terminated (a) by the Lender
-----------------
(i) by giving written notice to the Borrower no less than ninety (90) days prior
to the Maturity Date or (ii) in accordance with Section 8.2, or (b) by the
Borrower (i) by giving written notice to the Lender no less than ninety (90)
days prior to the Maturity Date or (ii) in accordance with Section 2.14, the
Credit Facility shall remain in effect until the Original Maturity Date, and,
thereafter, shall automatically renew for successive one-year periods; provided,
however that the Credit Facility shall not renew unless the credit facility
under the Xxxxx Fargo Bank Minnesota Credit Agreement is extended for the same
renewal term. "Maturity Date" shall initially mean the Original Maturity Date;
provided, however, that if at any time the Credit Facility has been
automatically renewed, "Maturity Date" shall mean the one-year anniversary of
the date that was formerly the Maturity Date.
19
ARTICLE III
Security Interest; Occupancy; Setoff
------------------------------------
Section 3.1 Grant of Security Interest. The Borrower hereby pledges,
--------------------------
assigns and grants to the Lender a security interest (collectively referred to
as the "Security Interest") in the Collateral, as security for the payment and
performance of the Obligations.
Section 3.2 Notification of Account Debtors and Other Obligors. The
--------------------------------------------------
Lender may at any time (during a Default Period) notify any account debtor or
other person obligated to pay the amount due that such right to payment has been
assigned or transferred to the Lender for security and shall be paid directly to
the Lender. The Borrower will join in giving such notice if the Lender so
requests. At any time after the Borrower or the Lender gives such notice to an
account debtor or other obligor, the Lender may, but need not, in the Lender's
name or in the Borrower's name, (a) demand, xxx for, collect or receive any
money or property at any time payable or receivable on account of, or securing,
any such right to payment, or grant any extension to, make any compromise or
settlement with or otherwise agree to waive, modify, amend or change the
obligations (including collateral obligations) of any such account debtor or
other obligor; and (b) as the Borrower's agent and attorney-in-fact, notify the
United States Postal Service to change the address for delivery of the
Borrower's mail to any address designated by the Lender, otherwise intercept the
Borrower's mail, and receive, open and dispose of the Borrower's mail, applying
all Collateral as permitted under this Agreement and holding all other mail for
the Borrower's account or forwarding such mail to the Borrower's last known
address.
Section 3.3 Assignment of Insurance. As additional security for the
-----------------------
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to, any and all policies of insurance now or
at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and the Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. At any time, whether or not a Default Period then exists, the Lender may
(but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
Section 3.4 Occupancy.
---------
(a) The Borrower hereby irrevocably grants to the Lender the
right to take possession of the Premises at any time during a Default
Period.
20
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that the
Lender may in good xxxxx xxxx to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and discharge of all
Obligations and termination of the Commitments, and (ii) final sale or
disposition of all goods constituting Collateral and delivery of all
such goods to purchasers.
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession, occupancy or use of
any of the Premises; provided, however, that if the Lender does pay or
account for any rent or other compensation for the possession,
occupancy or use of any of the Premises, the Borrower shall reimburse
the Lender promptly for the full amount thereof. In addition, the
Borrower will pay, or reimburse the Lender for, all taxes, fees,
duties, imposts, charges and expenses at any time incurred by or
imposed upon the Lender by reason of the execution, delivery,
existence, recordation, performance or enforcement of this Agreement or
the provisions of this Section 3.4.
Section 3.5 License. The Borrower hereby grants to the Lender a
-------
non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all trademarks, franchises, trade names, copyrights and patents of the Borrower
for the purpose of selling, leasing or otherwise disposing of any or all
Collateral during any Default Period.
Section 3.6 Financing Statement. A carbon, photographic or other
-------------------
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
Name and address of Debtor:
RF Monolithics, Inc.
0000 Xxxxx Xxxx
Xxxxxxx Xxxxxx, XX 00000
Federal Tax Identification No.: 00-0000000
Name and address of Secured Party:
Xxxxx Fargo Business Credit, Inc.
0000 Xxxxxxx Xxxx Xxxx., Xxxxx 000
Xxxxx, Xxxxx 00000
Federal Tax Identification No.: 00-0000000
The Borrower hereby (i) authorizes the Secured Party to file one or more UCC
financing statements describing the Collateral, which financing statements may
contain broader collateral descriptions
21
than the descriptions set forth herein and (ii) agrees to execute UCC financing
statements covering the Collateral when and as requested by the Lender from time
to time.
Section 3.7 Setoff. The Borrower agrees that the Lender may at any
------
time or from time to time, at its sole discretion and without demand and without
notice to anyone, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any Obligation, whether or not due. In addition,
each other Person holding a participating interest in any Obligations shall have
the right to appropriate or setoff any deposit or other liability then owed by
such Person to the Borrower, whether or not due, and apply the same to the
payment of said participating interest, as fully as if such Person had lent
directly to the Borrower the amount of such participating interest.
ARTICLE IV
Conditions of Lending
---------------------
Section 4.1 Conditions Precedent to the Initial Revolving Overadvance
---------------------------------------------------------
and Term Advances. The Lender's obligation to make the initial Revolving and
-----------------
Term Advances, including the Overadvance Amount, or cause to be issued the
initial Letter of Credit hereunder shall be subject to the condition precedent
that the Borrower shall have satisfied and/or the Lender shall have received all
of the following, each in form and substance satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Notes, properly executed by the Borrower.
(c) A true and correct copy of any and all leases
pursuant to which the Borrower is leasing the Premises, together with a
landlord's disclaimer and consent with respect to each such lease.
(d) The Patent Security Agreement, properly executed by
the Borrower.
(e) The Guaranty, properly executed by the Guarantor.
(f) The Lockbox Agreement, properly executed by the
Borrower, Regulus West LLC, and Xxxxx Fargo Bank Texas, N.A.
(g) The Borrower has simultaneously entered into the
Xxxxx Fargo Bank Minnesota Credit Agreement and all conditions
precedent to the initial Advance set forth therein have been satisfied
or waived by Xxxxx Fargo Bank Minnesota.
(h) The Warrant Agreement, properly executed by the
Borrower.
(i) The Registration Rights Agreement, properly executed
by the Borrower.
22
(j) Current searches of appropriate filing offices showing
that (i) no state or federal tax liens have been filed and remain in
effect against the Borrower, (ii) no financing statements have been
filed and remain in effect against the Borrower except those financing
statements relating to Permitted Liens or to liens held by Persons who
have agreed in writing that upon receipt of proceeds of the Advances,
they will deliver UCC releases and/or terminations satisfactory to the
Lender, and (iii) the Lender has duly filed all financing statements
necessary to perfect the Security Interest as first in priority to all
other perfected security interests, to the extent the Security Interest
is capable of being perfected by filing. Within 90 days after the
Funding Date the Borrower shall provide searches of appropriate filing
offices showing that no assignment of patents, trademarks or copyrights
have been filed and remain in effect against the Borrower.
(k) A certificate of the Borrower's Secretary or Assistant
Secretary certifying as to (i) the resolutions of the Borrower's
directors and, if required, shareholders, authorizing the execution,
delivery and performance of the Loan Documents, (ii) the Borrower's
certificate of incorporation and bylaws, and (iii) the signatures of
the Borrower's officers or agents authorized to execute and deliver the
Loan Documents and other instruments, agreements and certificates,
including Advance requests, on the Borrower's behalf.
(l) A certificate of an officer of the Borrower confirming
the representations and warranties set forth in Article V.
(m) A current certificate issued by the Secretary of State
of Delaware, certifying that the Borrower is in compliance with all
applicable organizational requirements of the State of Delaware and is
in existence in good standing.
(n) A current certificate issued by the Secretary of State
of Texas, certifying that the Borrower is duly licensed and qualified
to transact business in the State of Texas.
(o) An opinion of counsel to the Borrower, addressed to the
Lender, and in form and substance reasonably acceptable to the Lender.
(p) Evidence that (i) Borrower satisfies the Minimum
Availability requirement as of the Funding Date, after giving effect to
the initial Advances and the payment in full of the indebtedness
required to be paid pursuant to subsection (r) of this Section 4.1
below and (ii) there is sufficient Availability for the Borrower to pay
all of its trade payables as of the Funding Date which are over 60 days
past the invoice date.
(q) Evidence that the net proceeds from the Borrower's
issuance of equity securities pursuant to a Unit Subscription Agreement
between the Borrower and certain investors in the amount of at least
$1,550,000 have been deposited into the Borrower's demand deposit
account with Xxxxx Fargo Bank Texas, N.A.
23
(r) Certificates of the insurance required hereunder, with all
hazard insurance containing a lender's loss payable endorsement in the
Lender's favor and with all liability insurance naming the Lender as an
additional insured.
(s) Payment of the fees and commissions due through the date
of the initial Advance under Section 2.11 and expenses incurred by the
Lender through such date and required to be paid by the Borrower under
Section 9.6, including all legal expenses incurred through the date of
this Agreement.
(t) Evidence that all indebtedness and lease obligations of
the Borrower to Bank One, Texas, NA and its affiliates have been paid
in full or will be paid out of the proceeds of the initial Advances.
(u) An executed IRS form 2848 from Borrower granting the
Lender (i) the right to request and receive information regarding the
Pending Tax Refund and (ii) the right to receive or to designate a
representative of Lender to receive the Pending Tax Refund.
(v) Such other documents as the Lender may reasonably require.
Section 4.2 Conditions Precedent to All Advances. The Lender's
------------------------------------
obligation to make each Advance or to cause the Issuer to issue any Letter of
Credit shall be subject to the further conditions precedent that on such date:
(a) the representations and warranties contained in Article V
are correct on and as of the date of such Advance or issuance of Letter
of Credit as though made on and as of such date, except to the extent
that such representations and warranties relate solely to an earlier
date; and
(b) no event has occurred and is continuing, or would result
from such Advance or the issuance of such Letter of Credit, as the case
may be, which constitutes a Default or an Event of Default.
ARTICLE V
Representations and Warranties
------------------------------
The Borrower represents and warrants to the Lender as follows:
Section 5.1 Corporate Existence and Power; Name; Chief Executive
----------------------------------------------------
Office; Inventory and Equipment Locations; Tax Identification Number. The
--------------------------------------------------------------------
Borrower is a corporation, duly organized, validly existing and in good standing
under the laws of the State of Delaware and is duly licensed or qualified to
transact business in all jurisdictions where the character of the property owned
or
24
leased or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents. During its existence, the Borrower has done business solely under the
names set forth in Schedule 5.1 hereto. The Borrower's chief executive office
and principal place of business is located at the address set forth in Schedule
5.1 hereto, and all of the Borrower's records relating to its business or the
Collateral are kept at that location. All Inventory and Equipment is located at
that location or the other locations set forth in Schedule 5.1 hereto.
Section 5.2 Authorization of Borrowing; No Conflict as to Law or
----------------------------------------------------
Agreements. The execution, delivery and performance by the Borrower of the Loan
----------
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's stockholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except
Eximbank; (iii) violate any provision of any law, rule or regulation (including,
without limitation, Regulation T, U or X of the Board of Governors of the
Federal Reserve System) or of any order, writ, injunction or decree presently in
effect having applicability to the Borrower or of the Borrower's certificate of
incorporation or bylaws; (iv) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other material agreement,
lease or instrument to which the Borrower is a party or by which it or its
properties may be bound or affected; or (v) result in, or require, the creation
or imposition of any mortgage, deed of trust, pledge, lien, security interest or
other charge or encumbrance of any nature (other than the Security Interest)
upon or with respect to any of the properties now owned or hereafter acquired by
the Borrower.
Section 5.3 Legal Agreements. This Agreement constitutes and, upon due
----------------
execution by the Borrower, the other Loan Documents will constitute the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms.
Section 5.4 Subsidiaries. The Borrower has no Subsidiaries except
------------
as disclosed on Schedule 5.4 attached hereto. The Guarantor's net assets are
less than $5,000.
Section 5.5 Financial Condition; No Adverse Change. The Borrower has
--------------------------------------
heretofore furnished to the Lender its unaudited financial statements for its
fiscal year ended August 31, 2000 and its unaudited financial statements for the
months ended September 30, 2000 and October 31, 2000 and those statements fairly
present in all material respects the Borrower's financial condition on the dates
thereof and the results of its operations and cash flows for the periods then
ended and were prepared in accordance with generally accepted accounting
principles. Since the date of the most recent financial statements, there has
been no material adverse change in the Borrower's business, properties or
condition (financial or otherwise).
25
Section 5.6 Litigation. There are no actions, suits or proceedings
----------
pending or, to the Borrower's knowledge, threatened against or affecting the
Borrower or any of its Affiliates or the properties of the Borrower or any of
its Affiliates before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely to the Borrower or any of its Affiliates, would have a material
adverse effect on the financial condition, properties or operations of the
Borrower or any of its Affiliates.
Section 5.7 Regulation U. The Borrower is not engaged in the business
------------
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Advance will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock.
Section 5.8 Taxes. The Borrower and its Affiliates have paid or caused
-----
to be paid to the proper authorities when due all federal, state and local taxes
required to be withheld by each of them. The Borrower and its Affiliates have
filed all federal, state and local tax returns which to the knowledge of the
officers of the Borrower or any Affiliate, as the case may be, are required to
be filed, and the Borrower and its Affiliates have paid or caused to be paid to
the respective taxing authorities all taxes as shown on said returns or on any
assessment received by any of them to the extent such taxes have become due
other than any tax the amount of which, applicability, or validity is being
contested in good faith by appropriate proceedings and (x) for which proper
reserves have been made, (y) there is no risk of forfeiture of Collateral during
the pendency of such action, and (z) any lien arising as a result of such tax is
at all times junior in priority to the Lender's security interest in the
Collateral.
Section 5.9 Titles and Liens. The Borrower has good and indefeasible
----------------
title to all Collateral described in the collateral reports provided to the
Lender and all other Collateral, properties and assets reflected in the latest
financial statements referred to in Section 5.5 and all proceeds thereof, free
and clear of all mortgages, security interests, liens and encumbrances, except
for Permitted Liens. No financing statement naming the Borrower as debtor is on
file in any office except to perfect only Permitted Liens. Upon the proper
filing of a UCC financing statement in Texas describing the Collateral, the
Lender's Security Interest in the Collateral will constitute a valid, perfected
security interest in the Collateral capable of being perfected by filing, prior
to all other security interests of any other Person except for the security
interest of Xxxxx Fargo Bank Minnesota in the Export Collateral.
Section 5.10 Plans. Except as disclosed to the Lender in writing prior
-----
to the date hereof, neither the Borrower nor any of its Affiliates maintains or
has maintained any Plan. Neither the Borrower nor any Affiliate has received any
notice or has any knowledge to the effect that it is not in compliance with any
of the material requirements of ERISA. No Reportable Event or other fact or
circumstance which may have an adverse effect on the Plan's tax qualified status
exists in connection with any Plan. Neither the Borrower nor any of its
Affiliates has:
26
(a) Any accumulated funding deficiency within the meaning
of ERISA; or
(b) Any liability or knows of any fact or circumstances
which could result in any liability to the Pension Benefit Guaranty
Corporation, the Internal Revenue Service, the Department of Labor or
any participant in connection with any Plan (other than accrued
benefits which or which may become payable to participants or
beneficiaries of any such Plan).
Section 5.11 Default. The Borrower is in compliance with all
-------
provisions of all agreements, instruments, decrees and orders to which it is a
party or by which it or its property is bound or affected, the breach or default
of which could have a material adverse effect on the Borrower's financial
condition, properties or operations.
Section 5.12 Environmental Matters.
---------------------
(a) Definitions. As used in this Agreement, the
-----------
following terms shall have the following meanings:
(i) "Environmental Law" means any federal, state,
local or other governmental statute, regulation, law or
ordinance dealing with the protection of human health and the
environment.
(ii) "Hazardous Substances" means pollutants,
contaminants, hazardous substances, hazardous wastes,
petroleum and fractions thereof, and all other chemicals,
wastes, substances and materials listed in, regulated by or
identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not
present in, on or under the Premises any Hazardous Substances in such
form or quantity as to create any liability or obligation for either
the Borrower or the Lender under common law of any jurisdiction or
under any Environmental Law, and no Hazardous Substances have ever been
stored, buried, spilled, leaked, discharged, emitted or released in, on
or under the Premises in such a way as to create any such liability.
(c) To the Borrower's best knowledge, the Borrower has
not disposed of Hazardous Substances in such a manner as to create any
liability under any Environmental Law, except for liabilities in the
aggregate amount of less than $25,000 and with respect to which no
liens have attached to any of the Collateral.
(d) There are not and there never have been any requests,
claims, notices, investigations, demands, administrative proceedings,
hearings or litigation, relating in any way to the Premises or the
Borrower, alleging liability under, violation of, or noncompliance
27
with any Environmental Law or any license, permit or other
authorization issued pursuant thereto. To the Borrower's best
knowledge, no such matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's
businesses are and have in the past always been conducted in compliance
in all material respects with all Environmental Laws and all licenses,
permits and other authorizations required pursuant to any Environmental
Law and necessary for the lawful and efficient operation of such
businesses are in the Borrower's possession and are in full force and
effect. No permit required under any Environmental Law is scheduled to
expire within 12 months for which renewal is not expected to be
obtained and there is no threat that any such permit will be withdrawn,
terminated, limited or materially changed.
(f) To the Borrower's best knowledge, the Premises are not and
never have been listed on the National Priorities List, the
Comprehensive Environmental Response, Compensation and Liability
Information System or any similar federal, state or local list,
schedule, log, inventory or database.
(g) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other documents
describing or relating in any way to the Premises or Borrower's
businesses.
Section 5.13 Submissions to Lender. All financial and other information
---------------------
provided to the Lender by or on behalf of the Borrower in connection with the
Borrower's request for the credit facilities contemplated hereby is true and
correct in all material respects and, as to projections, valuations or proforma
financial statements, present a good faith opinion as to such projections,
valuations and proforma condition and results.
Section 5.14 Financing Statements. The Borrower has provided to the
--------------------
Lender signed financing statements sufficient when filed to perfect the Security
Interest and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral and
all other collateral described in the Security Documents which is capable of
being perfected by filing financing statements. None of the Collateral or other
collateral covered by the Security Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect thereto.
Section 5.15 Rights to Payment. Each right to payment and each
-----------------
Instrument, document, Chattel Paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
28
Section 5.16 Financial Solvency. Both before and after giving effect
------------------
to the transactions contemplated in the Loan Documents, none of the Borrower or
its Affiliates:
(a) was or will be insolvent, as that term is used and
defined in Section 101(32) of the United States Bankruptcy Code and
Section 2 of the Uniform Fraudulent Transfer Act;
(b) has unreasonably small capital or is engaged or about to
engage in a business or a transaction for which any remaining assets of
the Borrower or such Affiliate are unreasonably small;
(c) by executing, delivering or performing its obligations
under the Loan Documents or other documents to which it is a party or
by taking any action with respect thereto, intends to, nor believes
that it will, incur debts beyond its ability to pay them as they
mature;
(d) by executing, delivering or performing its obligations
under the Loan Documents or other documents to which it is a party or
by taking any action with respect thereto, intends to hinder, delay or
defraud either its present or future creditors; and
(e) at this time contemplates filing a petition in
bankruptcy or for an arrangement or reorganization or similar
proceeding under any law any jurisdiction, nor, to the best knowledge
of the Borrower, is the subject of any actual, pending or threatened
bankruptcy, insolvency or similar proceedings under any law of any
jurisdiction.
ARTICLE VI
Borrower's Affirmative Covenants
--------------------------------
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6.1 Reporting Requirements. The Borrower will deliver, or
----------------------
cause to be delivered, to the Lender each of the following, which shall be in
form and detail acceptable to the Lender:
(a) except with respect To the FYE August 31, 2000, which
shall be delivered no later than December 15, 2000, as soon as
available, and in any event on the earlier of (x) the date the Borrower
files its annual report on SEC form 10-K and (y) 90 days after the end
of each fiscal year of the Borrower, the Borrower's audited financial
statements with the unqualified opinion of independent certified public
accountants selected by the Borrower and acceptable to the Lender,
which annual financial statements shall include the Borrower's balance
sheet as at the end of such fiscal year and the related statements of
the Borrower's income, retained earnings and cash flows for the fiscal
year then ended, prepared, on a
29
consolidating and consolidated basis to include the Guarantor and any
Affiliates, all in reasonable detail and prepared in accordance with
GAAP, together with (i) copies of all management letters prepared and
delivered by such accountants; (ii) a report signed by such accountants
stating that in making the investigations necessary for said opinion
they obtained no knowledge, except as specifically stated, of any
Default or Event of Default hereunder and all relevant facts in
reasonable detail to evidence, and the computations as to, whether or
not the Borrower is in compliance with the requirements set forth in
Sections 6.16, 6.17, 6.18 and 7.10; and (iii) a certificate of the
Borrower's chief financial officer stating that such financial
statements have been prepared in accordance with GAAP and whether or
not such officer has knowledge of the occurrence of any Default or
Event of Default hereunder and, if so, stating in reasonable detail the
facts with respect thereto;
(b) as soon as available and in any event within 20 days
after the end of each month, an unaudited/internal balance sheet and
statements of income and retained earnings of the Borrower as at the
end of and for such month and for the year to date period then ended,
prepared, if the Lender so requests, on a consolidating and
consolidated basis to include the Guarantor and any Affiliates, in
reasonable detail and stating in comparative form the figures for the
corresponding date and periods in the previous year, all prepared in
accordance with GAAP, subject to year-end audit adjustments; and
accompanied by a Compliance Certificate signed by the Borrower's chief
financial officer stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to normal year- end audit
adjustments, (ii) whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder not theretofore
reported and remedied and, if so, stating in reasonable detail the
facts with respect thereto, and (iii) all relevant facts in reasonable
detail to evidence, and the computations as to, whether or not the
Borrower is in compliance with the requirements set forth in Sections
6.16, 6.17, 6.18, and 7.10;
(c) within 15 days after the end of each month or more
frequently if the Lender so requires, agings of the Borrower's accounts
receivable and its accounts payable, an inventory certification report,
and a calculation of the Borrower's Accounts, Eligible Accounts,
Inventory and Eligible Inventory as of the end of such month or shorter
time period;
(d) at least 10 days before the beginning of each fiscal year
of the Borrower, the projected balance sheets and income statements for
each month of such year, each in reasonable detail, representing the
Borrower's good faith projections and certified by the Borrower's chief
financial officer as having been prepared in good faith and no more
positive as to the Borrower's operating results or financial condition
than the projections used by the Borrower for internal planning
purposes, together with such supporting schedules and information as
the Lender may in its reasonable discretion require;
(e) within 5 Banking Days after the commencement thereof,
notice in writing of all litigation and of all proceedings before any
governmental or regulatory agency affecting
30
the Borrower of the type described in Section 5.12 or which seek a
monetary recovery against the Borrower in excess of $10,000;
(f) as promptly as practicable (but in any event not later
than five business days) after an officer of the Borrower obtains
knowledge of the occurrence of any breach, default or event of default
under any Security Document or any event which constitutes a Default or
Event of Default hereunder, notice of such occurrence, together with a
detailed statement by a responsible officer of the Borrower of the
steps being taken by the Borrower to cure the effect of such breach,
default or event;
(g) as soon as possible and in any event within 30 days after
the Borrower knows or has reason to know that any Reportable Event with
respect to any Plan has occurred, the statement of the Borrower's chief
financial officer setting forth details as to such Reportable Event and
the action which the Borrower proposes to take with respect thereto,
together with a copy of the notice of such Reportable Event to the
Pension Benefit Guaranty Corporation;
(h) as soon as possible, and in any event within 10 days after
the Borrower fails to make any quarterly contribution required with
respect to any Plan under Section 412(m) of the Internal Revenue Code
of 1986, as amended, the statement of the Borrower's chief financial
officer setting forth details as to such failure and the action which
the Borrower proposes to take with respect thereto, together with a
copy of any notice of such failure required to be provided to the
Pension Benefit Guaranty Corporation;
(i) promptly upon knowledge thereof, notice of (i) any
disputes or claims by the Borrower's customers exceeding $10,000
individually or $25,000 in the aggregate during any fiscal year; (ii)
credit memos; (iii) any goods returned to or recovered by the Borrower;
and (iv) any change in the persons constituting the Borrower's officers
and directors; provided, however, that events described in clauses (ii)
and (iii) may be reported using the daily collateral report provided to
the Lender.
(j) promptly upon knowledge thereof, notice of any loss of or
material damage to any Collateral or other collateral covered by the
Security Documents or of any substantial adverse change in any
Collateral or such other collateral or the prospect of payment thereof;
(k) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have
sent to its stockholders;
(l) promptly after the sending or filing thereof, copies of
all regular and periodic reports which the Borrower shall file with the
Securities and Exchange Commission or any national securities exchange;
(m) as soon as possible, and in any event by not later than
five Banking Days after the earlier of the due date or filing date
thereof each year, copies of the franchise and federal
31
and state income tax returns of the Borrower and all schedules thereto
and any and all other state tax returns of the Borrower no later than
five Banking Days of the Lender's request for the same;
(n) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which
could materially and adversely affect the Borrower's business or its
financial condition;
(o) within 5 days after knowledge thereof, notice of a change
in ownership of the Premises or any parcel thereof; and
(p) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents
and delivery receipts for goods sold, and such other material, reports,
records or information as the Lender may reasonably request.
Section 6.2 Books and Records; Inspection and Examination. The
---------------------------------------------
Borrower will keep accurate books of record and account for itself pertaining to
the Collateral and pertaining to the Borrower's business and financial condition
and such other matters as the Lender may from time to time request in which true
and complete entries will be made in accordance with GAAP and, upon the Lender's
request, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all corporate and
financial books and records of the Borrower at all times during ordinary
business hours, to send and discuss with account debtors and other obligors
requests for verification of amounts owed to the Borrower, and to discuss the
Borrower's affairs with any of its directors, officers, employees or agents. The
Borrower will permit the Lender, or its employees, accountants, attorneys or
agents, to examine and inspect any Collateral, other collateral covered by the
Security Documents or any other property of the Borrower at any time during
ordinary business hours.
Section 6.3 Account Verification. The Lender may at any time and from
--------------------
time to time send or require the Borrower to send requests for verification of
accounts or notices of assignment to account debtors and other obligors. The
Lender may also at any time and from time to time telephone account debtors and
other obligors to verify accounts.
Section 6.4 Compliance with Laws.
--------------------
(a) The Borrower will (i) comply with the requirements of
applicable laws and regulations, the non-compliance with which would
materially and adversely affect its business or its financial condition
and (ii) use and keep the Collateral, and require that others use and
keep the Collateral, only for lawful purposes, without violation of any
federal, state or local law, statute or ordinance.
32
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply in all material respects with
all applicable Environmental Laws and obtain and comply in all material
respects with all permits, licenses and similar approvals required by
any Environmental Laws, and will not generate, use, transport, treat,
store or dispose of any Hazardous Substances in such a manner as to
create any liability or obligation under the common law of any
jurisdiction or any Environmental Law.
Section 6.5 Payment of Taxes and Other Claims. The Borrower will pay
---------------------------------
or discharge, when due, (a) all taxes, assessments and governmental charges
levied or imposed upon it or upon its income or profits, upon any properties
belonging to it (including, without limitation, the Collateral) or upon or
against the creation, perfection or continuance of the Security Interest, prior
to the date on which penalties attach thereto, (b) all federal, state and local
taxes required to be withheld by it, and (c) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien or charge
upon any properties of the Borrower; provided, that the Borrower shall not be
required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which proper reserves have been made.
Section 6.6 Maintenance of Properties. The Borrower will: (a) keep and
-------------------------
maintain the Collateral, the other collateral covered by the Security Documents
and all of its other properties necessary or useful in its business in good
condition, repair and working order (normal wear and tear excepted) and will
from time to time replace or repair any worn, defective or broken parts;
provided, however, that nothing in this Section 6.6 shall prevent the Borrower
from discontinuing the operation and maintenance of any of its properties if
such discontinuance is, in the Lender's judgment, desirable in the conduct of
the Borrower's business and not disadvantageous in any material respect to the
Lender; (b) defend the Collateral against all claims or demands of all persons
(other than the Lender) claiming the Collateral or any interest therein; and (c)
keep all Collateral and other collateral covered by the Security Documents free
and clear of all security interests, liens and encumbrances except Permitted
Liens.
Section 6.7 Insurance. The Borrower will obtain and at all times
---------
maintain insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates.
Without limiting the generality of the foregoing, the Borrower will at all times
maintain business interruption insurance including coverage for force majeure
and keep all tangible Collateral insured against risks of fire (including
so-called extended coverage), theft, collision (for Collateral consisting of
motor vehicles) and such other risks and in such amounts as the Lender may
reasonably request, with any loss payable to the Lender to the extent of its
interest, and all policies of such insurance shall contain a lender's loss
payable endorsement for the Lender's benefit acceptable to the Lender. All
policies of liability insurance required hereunder shall name the Lender as an
additional insured.
33
Section 6.8 Preservation of Existence. The Borrower will preserve and
-------------------------
maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall conduct
its business in an orderly, efficient and regular manner.
Section 6.9 Delivery of Instruments, etc. The Borrower will promptly
----------------------------
deliver to the Lender in pledge all Instruments payable to it or any Subsidiary.
In addition, the Borrower will deliver to the Lender all Chattel Paper
evidencing a right to payment in excess of $5,000.
Section 6.10 Chattel Paper. The Borrower will shall place the following
-------------
legend in conspicuous type on all Chattel Paper (including electronic Chattel
Paper) it creates:
"This Chattel Paper has been assigned to Xxxxx Fargo Business
Credit, Inc. (the "Secured Party") Further assignment of this
Chattel Paper violates the rights of the Secured Party."
Section 6.11 Lockbox; Collateral Account.
---------------------------
(a) For so long as the Credit Facility is in existence or any
Obligations are outstanding, the Borrower shall irrevocably direct all
present and future Account debtors and other Persons obligated to make
payments constituting Domestic Collateral to make such payments
directly to the Lockbox. All of the Borrower's invoices, account
statements and other written or oral communications directing,
instructing, demanding or requesting payment of any Account or any
other amount constituting Domestic Collateral shall conspicuously
direct that all payments be made to the Lockbox and shall include the
Lockbox address. All payments received in the Lockbox shall be
processed to the Collateral Account.
(b) The Borrower agrees to deposit in the Collateral Account
or, at the Lender's option, to deliver to the Lender all collections on
Accounts other than Export Related Accounts, contract rights, chattel
paper and other rights to payment constituting Domestic Collateral, and
all other cash proceeds of Domestic Collateral, which the Borrower may
receive directly notwithstanding its direction to Account debtors and
other obligors to make payments to the Lockbox, immediately upon
receipt thereof, in the form received, except for the Borrower's
endorsement when deemed necessary. Until delivered to the Lender or
deposited in a Collateral Account, all proceeds or collections of such
Domestic Collateral shall be held in trust by the Borrower for and as
the property of the Lender and shall not be commingled with any funds
or property of the Borrower.
(c) Amounts deposited in the Collateral Account shall not bear
interest and shall not be subject to withdrawal by the Borrower, except
after full payment and discharge of all Obligations.
34
(d) All deposits in the Collateral Account shall constitute
proceeds of Collateral and shall not constitute payment of the
Obligations. The Lender from time to time at its discretion may, after
allowing three (3) Banking Days, apply deposited funds in the
Collateral Account to the payment of the Obligations, in any order or
manner of application satisfactory to the Lender, by transferring such
funds to the Lender's general account.
(e) All items deposited in the Collateral Account shall be
subject to final payment. If any such item is returned uncollected, the
Borrower will immediately pay the Lender, or, for items deposited in
the Collateral Account, the bank maintaining such account, the amount
of that item, or such bank at its discretion may charge any uncollected
item to the Borrower's commercial account or other account. The
Borrower shall be liable as an endorser on all items deposited in the
Collateral Account, whether or not in fact endorsed by the Borrower.
Section 6.12 Performance by the Lender. If the Borrower at any time
-------------------------
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a period
of ten calendar days after the Lender gives the Borrower written notice thereof
(or in the case of the agreements contained in Sections 6.5, 6.7 and 6.11,
immediately upon the occurrence of such failure, without notice or lapse of
time), the Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of the Borrower (or, at the Lender's option, in
the Lender's name) and may, but need not, take any and all other actions which
the Lender may reasonably deem necessary to cure or correct such failure
(including, without limitation, the payment of taxes, the satisfaction of
security interests, liens or encumbrances, the performance of obligations owed
to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
Floating Rate. To facilitate the Lender's performance or observance of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the Lender's delegate, acting alone, as the Borrower's attorney in fact
(which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file in the name and on behalf of the Borrower during any Default Period any
and all instruments, documents, assignments, security agreements, financing
statements, applications for insurance and other agreements and writings
required to be obtained, executed, delivered or endorsed by the Borrower under
this Section 6.12.
Section 6.13 Control Agreements. Upon request by the Lender, the
------------------
Borrower hereby agrees to cooperate with the Lender in obtaining a control
agreement in form and substance reasonably satisfactory to the Lender with
respect to Collateral consisting of deposit accounts, letter of credit rights
and Investment Property sufficient to perfect the Lender's Security Interest in
such Collateral.
35
Section 6.14 Application of Pending Tax Refund. The Borrower shall
---------------------------------
deposit the proceeds of its Pending Tax Refund immediately upon receipt thereof
into the Collateral Account, which shall be applied first to the payment in full
of the Overadvance Amount and, second, to the outstanding Revolving Advances.
Section 6.15 Perfection of Intellectual Property Security Interest. No
-----------------------------------------------------
later than 90 days after the Funding Date, the Borrower shall execute and file
in all appropriate filing offices such instruments as may be required to
properly perfect the security interests granted pursuant to the Patent Security
Agreement. The Borrower shall provide the Lender with updates on its progress in
obtaining the perfection of such security interests in all foreign jurisdictions
every thirty days after the Funding Date until all such security interests are
properly perfected as first priority security interests.
Section 6.16 Minimum Book Net Worth. The Borrower will maintain, during
----------------------
each period described below, its Book Net Worth of an amount not less than the
amount set forth below:
(a) From September 1, 2000 through November 30, 2000, a
minimum Book Net Worth of not less than $28,886,000;
(b) From December 1, 2000 through the Funding Date, a minimum
Book Net Worth of not less than $28,386,000;
(c) From the Funding Date through February 28, 2001, a minimum
Book Net Worth of not less than $30,295,995;
(d) From March 1, 2001 through May 31, 2001, a minimum Book
Net Worth of not less than $29,795,995;
(e) From June 1, 2001 through August 31, 2001, a minimum Book
Net Worth of not less than $30,295,995; and
(f) From September 1, 2001 through November 30, 2001, a
minimum Book Net Worth of not less than the Book Net Worth as of FYE
August 31, 2001 minus $1,500,000.
Section 6.17 Quarterly Minimum Net Income. The Borrower will achieve:
----------------------------
(a) during the three month fiscal period ending on November 30, 2000, a minimum
Net Income of greater than ($1,500,000); (b) during the six month fiscal period
ending on February 28, 2001, a minimum Net Income of greater than ($2,000,000);
(c) during the nine month fiscal period ending on May 31, 2001, a minimum Net
Income of greater than ($2,500,000); (d) during the fiscal year ending on August
31, 2001, a minimum Net Income of greater than ($2,000,000); and (e) during the
three month fiscal period from August 31, 2001, to November 30, 2001, a minimum
Net Income of greater than ($1,500,000).
36
Section 6.18 Monthly Minimum Net Income. The Borrower will achieve, as
--------------------------
of the end of each month during the fiscal year ended August 31, 2001, other
than the months of September and October, minimum Net Income of greater than
<$500,000>.
Section 6.19 New Covenants. On or before December 1, 2001, the Borrower
-------------
and the Lender shall agree on new covenant levels for Sections 6.16, 6.17, 6.18
and 7.10 for periods after such date. The new covenant levels will be based on
Borrower's projections for such periods and shall be no less stringent than the
present levels. In addition, the Lender may readjust the covenant levels (x) set
forth in Section 6.16 to new levels determined in its sole discretion in the
event the Borrower issues additional equity securities after the Funding Date or
(y) set forth in Sections 6.16, 6.17 and 6.18 in the event Borrower assumes any
new term indebtedness or capital lease obligations.
Section 6.20 Quarterly Inspection and Review. The Borrower shall
-------------------------------
cooperate with and assist the Lender and its agents in conducting a field
examination, audit and appraisal of the Collateral once every quarter while any
Obligations remain outstanding for the purpose of determining the value of the
Collateral, verification of the Borrowing Base and Borrower's compliance with
the Loan Documents. The field examination shall include an inspection and
valuation of the Inventory, a book audit of Borrower's Accounts and a review of
the accounts receivable aging report. During any Default Period, the Lender may
require more frequent exams. The costs of such field exams shall be paid by the
Borrower.
Section 6.21 Machinery and Equipment Appraisal. At any time after the
---------------------------------
first anniversary of the Funding Date, the Lender may arrange for one or more
appraisals of the Borrower's machinery and Equipment by a qualified appraiser
selected by the Lender at such times as the Lender may determine. The scope of
the appraisals shall be at the Lender's sole discretion. The costs of such
appraisals shall be paid by the Borrower and the Borrower shall cooperate with
and assist the Lender and its agents in conducting such appraisals.
Section 6.22 Location of Collateral; Acknowledgment from Bailees. The
---------------------------------------------------
Debtor will not permit the Collateral to be kept at any location not set forth
on Schedule 5.1 hereto. In the event Collateral is in the possession of a third
party, upon request of the Lender, Debtor will join with Secured Party in
notifying the third party of Secured Party's security interest and obtaining an
acknowledgment from the third party that it is holding the Collateral for the
benefit of the Secured Party.
Section 6.23 Application to Expedite Payment of Pending Tax Refund. No
-----------------------------------------------------
later than December 15, 2000, the Borrower shall file a request to expedite
payment of the Pending Tax Refund on IRS Form 911 with the Taxpayer Advocate
Office located in Austin, Texas on grounds of hardship and shall furnish a copy
of the same to the Lender.
37
ARTICLE VII
Negative Covenants
------------------
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower agrees that, without the Lender's prior
written consent:
Section 7.1 Liens. The Borrower will not create, incur or suffer to
-----
exist any mortgage, deed of trust, pledge, lien, security interest, assignment
or transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; excluding, however, from the operation of the
--------- -------
foregoing, the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property which is not
Collateral or other collateral described in the Security Documents,
covenants, restrictions, rights, easements and minor irregularities in
title which do not materially interfere with the Borrower's business or
operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security
interests and assignments in existence on the date hereof and listed in
Schedule 7.1 hereto, securing indebtedness for borrowed money permitted
under Section 7.2;
(c) the Security Interest and liens and security interests
created by the Security Documents;
(d) liens in favor of Xxxxx Fargo Bank Minnesota provided such
Liens are subordinate to the Security Interest in the Domestic
Collateral;
(e) purchase money security interests (including capital
leases) relating to permitted Capital Expenditures under Section 7.10
not exceeding the lesser of cost or fair market value thereof so long
as no Default Period is then in existence and none would exist
immediately after such acquisition;
(f) liens for taxes not then delinquent or the amount,
applicability or validity of which is being contested in good faith by
appropriate proceedings for which proper reserves have been made and
(x) which do not materially interfere with the Borrower's business or
operations as presently conducted, (y) there is no risk of forfeiture
of Collateral during the pendency of such action, and (z) any lien
arising as a result of such tax is at all times junior in priority to
the Lender's security interest in the Collateral;
(g) any landlord's lien on fixtures or personal property
arising by operation of law to the extent such lien is subordinate to
the security interest of the Lender in the Collateral and the rent
secured thereby is not in default; and
38
(h) any judgment lien which is subordinate to the security
interest of the Lender in the Collateral in an amount not exceeding
$25,000 so long as (x) the finality of such judgment is being contested
in good faith by appropriate proceedings, (y) for which proper reserves
have been made and (z) such proceedings or such lien does not
materially interfere with the Borrower's business or operations as
presently conducted.
Section 7.2 Indebtedness. The Borrower will not incur, create, assume
------------
or permit to exist any indebtedness or liability on account of deposits or
advances or any indebtedness for borrowed money or letters of credit issued on
the Borrower's behalf, or any other indebtedness or liability evidenced by
notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date
hereof and listed in Schedule 7.2 hereto including any renewals or
extensions thereof; and
(c) indebtedness relating to liens permitted in accordance
with Section 7.1.
Section 7.3 Guaranties. The Borrower will not assume, guarantee,
----------
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower
for deposit or collection or similar transactions in the ordinary
course of business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons, in
existence on the date hereof and listed in Schedule 7.2 hereto.
Section 7.4 Investments and Subsidiaries.
----------------------------
(a) The Borrower will not purchase or hold beneficially any
stock or other securities or evidences of indebtedness of, make or
permit to exist any loans or advances to, or make any investment or
acquire any interest whatsoever in, any other Person, including
specifically but without limitation any partnership or joint venture,
except:
(i) investments in direct obligations of the United
States of America or any agency or instrumentality thereof
whose obligations constitute full faith and credit obligations
of the United States of America having a maturity of one year
or less, commercial paper issued by U.S. corporations rated
"A-1" or "A-2" by Standard & Poors Corporation or "P-1" or
"P-2" by Xxxxx'x Investors Service or certificates of deposit
or bankers' acceptances having a maturity of one year or less
issued by members of the Federal Reserve System having
deposits in excess of
39
$100,000,000 (which certificates of deposit or bankers'
acceptances are fully insured by the Federal Deposit Insurance
Corporation);
(ii) travel advances or loans to the Borrower's officers
and employees not exceeding at any one time an aggregate of
$50,000; and
(iii) advances in the form of progress payments for
the purchase of capital assets permitted pursuant to Section
7.10, prepaid rent not exceeding one month and security
deposits maintained in the ordinary course of business.
(b) The Borrower will not create or permit to exist any
Subsidiary except the Guarantor and any successor company that obtains
similar tax benefits provided that such company executes a guaranty on
substantially the same terms as the Guaranty immediately upon its
formation. The Borrower will not permit the Guarantor's net assets and
the net assets of any successor company permitted to be formed under
the preceding sentence at any one time to exceed $5,000 in the
aggregate other than commissions realized in the ordinary course of
business to the extent the same are transferred to the Borrower within
5 Banking Days after payment thereof.
(c) Within 90 days after the Funding Date, the Borrower shall
cause the Guarantor to execute and deliver (x) a security agreement (or
other appropriate document) granting the Lender a blanket lien in all
of its assets as additional security for the Guaranty, and take any
other actions as may be necessary to cause the security interests
granted thereby to be perfected under applicable law as first priority
security interests and (y) a legal opinion in form and substance
reasonably acceptable to the Lender relating to the due authorization,
execution and delivery of the security agreement and the enforceability
thereof under applicable law.
Section 7.5 Dividends. The Borrower will not declare or pay any
---------
dividends (other than dividends payable solely in stock of the Borrower) on any
class of its stock or make any payment on account of the purchase, redemption or
other retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly.
Section 7.6 Sale or Transfer of Assets; Suspension of Business
--------------------------------------------------
Operations. The Borrower will not sell, lease, assign, transfer or otherwise
----------
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not in any manner
transfer any property other than obsolete or worn-out Equipment in the aggregate
value of $25,000 or less during any fiscal year without prior or present receipt
of full and adequate consideration.
40
Section 7.7 Consolidation and Merger; Asset Acquisitions. The Borrower
--------------------------------------------
will not dissolve, consolidate with or merge into any Person, or permit any
other Person to merge into it, or acquire (in a transaction analogous in purpose
or effect to a consolidation or merger) all or substantially all the assets of
any other Person.
Section 7.8 Sale and Leaseback. The Borrower will not enter into any
------------------
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.9 Restrictions on Nature of Business. The Borrower will not
----------------------------------
engage in any line of business materially different from that presently engaged
in by the Borrower and will not purchase, lease or otherwise acquire assets not
related to its business.
Section 7.10 Capital Expenditures. The Borrower will not incur or
--------------------
contract to incur Capital Expenditures of more than $3,500,000 in the aggregate
during fiscal year 2001 of which not more than $1,500,000 shall be unfinanced.
Section 7.11 Accounting. The Borrower will not adopt any material
----------
change in accounting principles other than as required by GAAP. The Borrower
will not adopt, permit or consent to any change in its fiscal year.
Section 7.12 Discounts, etc. The Borrower will not, after notice from
--------------
the Lender, grant any discount, credit or allowance to any customer of the
Borrower or accept any return of goods sold, or at any time (whether before or
after notice from the Lender) modify, amend, subordinate, cancel or terminate
the obligation of any account debtor or other obligor of the Borrower.
Section 7.13 Defined Benefit Pension Plans. The Borrower will not
-----------------------------
adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.
Section 7.14 Other Defaults. The Borrower will not permit any breach,
--------------
default or event of default to occur under any note, loan agreement, indenture,
lease, mortgage, contract for deed, security agreement or other contractual
obligation binding upon the Borrower.
Section 7.15 Place of Business; Name. The Borrower will not transfer
-----------------------
its chief executive office or principal place of business, or move, relocate,
close or sell any business location. The Borrower will not permit any tangible
Collateral or any records pertaining to the Collateral to be located in any
state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. The Borrower will not change
its name or place of incorporation.
41
Section 7.16 Organizational Documents. The Borrower will not amend its
------------------------
certificate of incorporation, certificate of incorporation or bylaws except to
permit the issuance of additional equity securities provided such amendment does
not adversely affect the Lender's rights or remedies.
Section 7.17 Salaries. The Borrower will not pay excessive or
--------
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or, without the prior approval of the independent members of the
Borrower's Board of Directors, increase the salary, bonus, commissions,
consultant fees or other compensation of any director, officer or consultant, or
any member of their families, by more than ten percent (10%) in any one year,
either individually or for all such persons in the aggregate, or pay any such
increase from any source other than profits earned in the year of payment or
improvements in operating results compared to the preceding period or periods.
ARTICLE VIII
Events of Default, Rights and Remedies
--------------------------------------
Section 8.1 Events of Default. "Event of Default", wherever used
-----------------
herein, means any one of the following events:
(a) Default in the payment of the Obligations when they become
due and payable; Failure to pay when due any amount specified in
Section 2.5 relating to the Borrower's Obligation of Reimbursement, or
failure to pay immediately when due or upon termination of the Credit
Facility any amounts required to be paid for deposit in the Special
Account under Section 2.6;
(b) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this Agreement;
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement;
(d) The Borrower shall be or become insolvent (as such term is
defined in Section 5.16(a) hereof), or admit in writing its or his
inability to pay its or his debts as they mature, or make an assignment
for the benefit of creditors; or the Borrower shall apply for or
consent to the appointment of any receiver, trustee, or similar officer
for it or him or for all or any substantial part of its or his
property; or such receiver, trustee or similar officer shall be
appointed without the application or consent of the Borrower, as the
case may be; or the Borrower shall institute (by petition, application,
answer, consent or otherwise) any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution,
liquidation or similar proceeding relating to it or him under the laws
of any jurisdiction; or any such proceeding shall be instituted (by
petition, application or otherwise) against the Borrower; or any
judgment, writ, warrant of attachment or execution or similar process
shall
42
be issued or levied against a substantial part of the property of the
Borrower for an amount in excess of $25,000 at any one time in the
aggregate;
(e) A petition shall be filed by or against the Borrower under
the United States Bankruptcy Code naming the Borrower as debtor;
(f) Any representation or warranty made by the Borrower in
this Agreement, or by the Borrower (or any of its officers) in any
agreement, certificate, instrument or financial statement or other
statement contemplated by or made or delivered pursuant to or in
connection with this Agreement shall prove to have been incorrect in
any material respect when deemed to be effective;
(g) The rendering against the Borrower of a final judgment,
decree or order for the payment of money in excess of $25,000 and the
continuance of such judgment, decree or order unsatisfied and in effect
for any period of 30 consecutive days without a stay of execution;
(h) A default under any bond, debenture, note or other
evidence of indebtedness of the Borrower owed to any Person other than
the Lender, or under any indenture or other instrument under which any
such evidence of indebtedness has been issued or by which it is
governed, or under any lease of any of the Premises, and the expiration
of the applicable period of grace, if any, specified in such evidence
of indebtedness, indenture, other instrument or lease;
(i) Any Reportable Event, which the Lender determines in good
faith constitutes grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of a
trustee to administer any Plan, shall have occurred and be continuing
30 days after written notice to such effect shall have been given to
the Borrower by the Lender; or a trustee shall have been appointed by
an appropriate United States District Court to administer any Plan; or
the Pension Benefit Guaranty Corporation shall have instituted
proceedings to terminate any Plan or to appoint a trustee to administer
any Plan; or the Borrower shall have filed for a distress termination
of any Plan under Title IV of ERISA; or the Borrower shall have failed
to make any quarterly contribution required with respect to any Plan
under Section 412(m) of the Internal Revenue Code of 1986, as amended,
which the Lender determines in good faith may by itself, or in
combination with any such failures that the Lender may determine are
likely to occur in the future, result in the imposition of a lien on
the Borrower's assets in favor of the Plan;
(j) An event of default shall occur under any Security
Document or under any other security agreement, mortgage, deed of
trust, assignment or other instrument or agreement securing any
obligations of the Borrower hereunder or under any note;
43
(k) The Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its
business in the ordinary course, or sell all or substantially all of
its assets, without the Lender's prior written consent;
(l) The Borrower shall fail to pay, withhold, collect or remit
any tax or tax deficiency when assessed or due (other than any tax
deficiency which is being contested in good faith and by proper
proceedings and for which it shall have set aside on its books adequate
reserves therefor) or notice of any state or federal tax liens shall be
filed or issued;
(m) Default in the payment of any amount owed by the Borrower
to the Lender other than any indebtedness arising hereunder;
(n) Any of Xxxxx X. Xxxx, Xxxxx X. Xxxxxx, Xxxxxxx Xxx or Xxx
Xxxxxx cease to be actively involved in the day-to-day management of
the Borrower;
(o) The Borrower fails to deliver a new landlord's waiver
acceptable to the Lender within 30 days following a change in ownership
of the Premises;
(p) An Event of Default shall occur under the Xxxxx Fargo Bank
Minnesota Credit Agreement;
(q) Any breach, default or event of default by or attributable
to any Affiliate under any agreement between such Affiliate and the
Lender.
Section 8.2 Rights and Remedies. During any Default Period, the Lender
-------------------
may exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrower, declare the
Commitments to be terminated, whereupon the same shall forthwith
terminate;
(b) the Lender may, by notice to the Borrower, declare the
Obligations to be forthwith due and payable, whereupon all Obligations
shall become and be forthwith due and payable, without presentment,
notice of dishonor, protest or further notice of any kind, all of which
the Borrower hereby expressly waives;
(c) the Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender or any
affiliate of the Lender to the Borrower to the payment of the
Obligations;
(d) the Lender may make demand upon the Borrower and,
forthwith upon such demand, the Borrower will pay to the Lender in
immediately available funds for deposit in the Special Account pursuant
to Section 2.6 an amount equal to the aggregate maximum
44
amount available to be drawn under all Letters of Credit then
outstanding, assuming compliance with all conditions for drawing
thereunder;
(e) the Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC,
including, without limitation, the right to take possession of
Collateral, or any evidence thereof, proceeding without judicial
process or by judicial process (without a prior hearing or notice
thereof, which the Borrower hereby expressly waives) and the right to
sell, lease or otherwise dispose of any or all of the Collateral, and,
in connection therewith, the Borrower will on demand assemble the
Collateral and make it available to the Lender at a place to be
designated by the Lender which is reasonably convenient to both
parties;
(f) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(g) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (d) or (e) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.
Section 8.3 Certain Notices. If notice to the Borrower of any intended
---------------
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 9.3) at least ten calendar days before
the date of intended disposition or other action.
ARTICLE IX
Miscellaneous
Section 9.1 No Waiver; Cumulative Remedies. No failure or delay by the
------------------------------
Lender in exercising any right, power or remedy under the Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy under the Loan Documents. The
remedies provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
Section 9.2 Amendments, Etc. No amendment, modification, termination
---------------
or waiver of any provision of any Loan Document or consent to any departure by
the Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
45
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
Section 9.3 Addresses for Notices, Etc. Except as otherwise expressly
--------------------------
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be (a)
personally delivered, (b) sent by first class United States mail, (c) sent by
overnight courier of national reputation, or (d) transmitted by telecopy, in
each case addressed or telecopied to the party to whom notice is being given at
its address or telecopier number as set forth below:
If to the Borrower:
RF MONOLITHICS, INC.
0000 Xxxxx Xxxx
Xxxxxxx Xxxxxx, Xxxxx 00000
Telecopier: (000) 000-0000
Attention: Xx. Xxxxx X. Xxxxxx
If to the Lender:
Xxxxx Fargo Business Credit, Inc.
0000 Xxxxxxx Xxxx Xxxx., Xxxxx 000
Xxxxx, Xxxxx 00000
Telecopier: (000) 000-0000
Attention: Xxxxxxxx X. XxXxxxxx
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II shall not be
effective until received by the Lender.
Section 9.4 Further Documents. The Borrower will from time to time
-----------------
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interest or the Lender's rights under the Loan
Documents (but any failure to request or assure that the Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).
Section 9.5 Collateral. This Agreement does not contemplate a sale of
----------
accounts, contract rights or Chattel Paper, and, as provided by law, the
Borrower is entitled to any surplus and shall
46
remain liable for any deficiency. The Lender's duty of care with respect to
Collateral in its possession (as imposed by law) shall be deemed fulfilled if it
exercises reasonable care in physically keeping such Collateral, or in the case
of Collateral in the custody or possession of a bailee or other third person,
exercises reasonable care in the selection of the bailee or other third person,
and the Lender need not otherwise preserve, protect, insure or care for any
Collateral. The Lender shall not be obligated to preserve any rights the
Borrower may have against prior parties, to realize on the Collateral at all or
in any particular manner or order or to apply any cash proceeds of the
Collateral in any particular order of application.
Section 9.6 Costs and Expenses. The Borrower agrees to pay on demand
------------------
all costs and expenses, including (without limitation) reasonable attorneys'
fees, incurred by the Lender in connection with the Obligations, this Agreement,
the Loan Documents, and any other document or agreement related hereto or
thereto, and the transactions contemplated hereby, including without limitation
all such costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, amendment, administration, performance, collection and
enforcement of the Obligations and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement of
the Security Interest.
Section 9.7 Indemnity. IN ADDITION TO THE PAYMENT OF EXPENSES PURSUANT
---------
TO SECTION 9.6, THE BORROWER AGREES TO INDEMNIFY, DEFEND AND HOLD HARMLESS THE
LENDER, AND ANY OF ITS PARTICIPANTS, PARENT CORPORATIONS, SUBSIDIARY
CORPORATIONS, AFFILIATED CORPORATIONS, SUCCESSOR CORPORATIONS, AND ALL PRESENT
AND FUTURE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND AGENTS OF THE FOREGOING
(THE "INDEMNITEES") FROM AND AGAINST ANY OF THE FOLLOWING (COLLECTIVELY,
"INDEMNIFIED LIABILITIES"):
(i) ANY AND ALL TRANSFER TAXES, DOCUMENTARY TAXES,
ASSESSMENTS OR CHARGES MADE BY ANY GOVERNMENTAL
AUTHORITY BY REASON OF THE EXECUTION AND DELIVERY OF THE
LOAN DOCUMENTS OR THE MAKING OF THE ADVANCES;
(ii) ANY CLAIMS, LOSS OR DAMAGE TO WHICH ANY
INDEMNITEE MAY BE SUBJECTED IF ANY REPRESENTATION OR WARRANTY
CONTAINED IN SECTION 5.12 PROVES TO BE INCORRECT IN ANY
RESPECT OR AS A RESULT OF ANY VIOLATION OF THE COVENANT
CONTAINED IN SECTION 6.4(B); AND
(iii) ANY AND ALL OTHER LIABILITIES, LOSSES, DAMAGES,
PENALTIES, JUDGMENTS, SUITS, CLAIMS, COSTS AND EXPENSES OF ANY
KIND OR NATURE WHATSOEVER (INCLUDING, WITHOUT LIMITATION, THE
REASONABLE FEES AND DISBURSEMENTS OF COUNSEL) IN CONNECTION
WITH THE FOREGOING AND ANY OTHER
47
INVESTIGATIVE, ADMINISTRATIVE OR JUDICIAL PROCEEDINGS, WHETHER
OR NOT SUCH INDEMNITEE SHALL BE DESIGNATED A PARTY THERETO,
WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST ANY
SUCH INDEMNITEE, IN ANY MANNER RELATED TO OR ARISING OUT OF OR
IN CONNECTION WITH THE MAKING OF THE ADVANCES AND THE LOAN
DOCUMENTS OR THE USE OR INTENDED USE OF THE PROCEEDS OF THE
ADVANCES (INCLUDING ANY OF THE FOREGOING ARISING FROM THE
NEGLIGENCE OF THE INDEMNITEE), EXCEPT TO THE EXTENT SUCH
LIABILITY, LOSS, DAMAGE, PENALTY, JUDGMENT, SUIT, CLAIM, COST
OR EXPENSE IS FOUND IN A FINAL, NON-APPEALABLE JUDGMENT BY A
COURT OF COMPETENT JURISDICTION TO HAVE RESULTED FROM THE
INDEMNITEE'S GROSS NEGLIGENCE OR WILFUL MISCONDUCT.
IF ANY INVESTIGATIVE, JUDICIAL OR ADMINISTRATIVE PROCEEDING ARISING FROM ANY OF
THE FOREGOING IS BROUGHT AGAINST ANY INDEMNITEE, UPON SUCH INDEMNITEE'S REQUEST,
THE BORROWER, OR COUNSEL DESIGNATED BY THE BORROWER AND SATISFACTORY TO THE
INDEMNITEE, WILL RESIST AND DEFEND SUCH ACTION, SUIT OR PROCEEDING TO THE EXTENT
AND IN THE MANNER DIRECTED BY THE INDEMNITEE, AT THE BORROWER'S SOLE COSTS AND
EXPENSE. EACH INDEMNITEE WILL USE ITS BEST EFFORTS TO COOPERATE IN THE DEFENSE
OF ANY SUCH ACTION, SUIT OR PROCEEDING. IF THE FOREGOING UNDERTAKING TO
INDEMNIFY, DEFEND AND HOLD HARMLESS MAY BE HELD TO BE UNENFORCEABLE BECAUSE IT
VIOLATES ANY LAW OR PUBLIC POLICY, THE BORROWER SHALL NEVERTHELESS MAKE THE
MAXIMUM CONTRIBUTION TO THE PAYMENT AND SATISFACTION OF EACH OF THE INDEMNIFIED
LIABILITIES WHICH IS PERMISSIBLE UNDER APPLICABLE LAW. THE BORROWER'S OBLIGATION
UNDER THIS SECTION 9.7 SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT AND THE
DISCHARGE OF THE BORROWER'S OTHER OBLIGATIONS HEREUNDER. THE BORROWER AGREES NOT
TO ASSERT ANY CLAIM AGAINST THE LENDER OR ANY OF ITS AFFILIATES OR ITS OR THEIR
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS AND ADVISORS, ON ANY THEORY OF
LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING OUT
OF OR OTHERWISE RELATING TO THE LOAN DOCUMENTS.
Section 9.8 Participants. The Lender and its participants, if any,
------------
are not partners or joint venturers, and the Lender shall not have any liability
or responsibility for any obligation, act or omission of any of its
participants. All rights and powers specifically conferred upon the Lender may
be transferred or delegated to any of the Lender's participants, successors or
assigns.
48
Section 9.9 Execution in Counterparts. This Agreement and other Loan
-------------------------
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
Section 9.10 Binding Effect; Assignment; Complete Agreement;
-----------------------------------------------
Exchanging Information. The Loan Documents shall be binding upon and inure to
----------------------
the benefit of the Borrower and the Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
Section 9.11 Severability of Provisions. Any provision of this
--------------------------
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.12 Entire Agreement. THIS AGREEMENT, TOGETHER WITH THE OTHER
----------------
LOAN DOCUMENTS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES REGARDING THE
SUBJECT MATTER HEREIN AND THEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 9.13 Headings. Article and Section headings in this Agreement
--------
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
Section 9.14 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.
--------------------------------------------------------
This Agreement and the Loan Documents shall be governed by and construed in
accordance with the substantive laws (other than conflict laws) of the State of
Texas. The parties hereto hereby (i) consents to the personal jurisdiction of
the state and federal courts located in the State of Texas in connection with
any controversy related to this Agreement; (ii) waives any argument that venue
in any such forum is not convenient, (iii) agrees that any litigation initiated
by the Lender or the Borrower in connection with this Agreement or the other
Loan Documents shall be venued in either the District Court of Collin County,
Texas, or the United States District Court for the Northern District of Texas;
and (iv) agrees that a final judgment in any such suit, action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. THE PARTIES WAIVE ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS
AGREEMENT.
Section 9.15 Confidentiality. Lender shall use its best efforts to
---------------
hold in confidence all information, memoranda, or extracts furnished to Lender
by Borrower hereunder or in connection with the negotiation hereof, including
without limitation, the information provided to Lender by Borrower pursuant to
Section 6.1 hereof; provided that the Lender may disclose such information (i)
to its Affiliates, accountants or counsel, (ii) to any regulatory agency having
the authority to
49
examine the Lender, (iii) as required by any legal or governmental process or
otherwise by law (iv) to any Person to which the Lender sells or proposes to
sell an assignment or participation hereunder in accordance herewith, and (v) to
the extent that such information shall be publicly available or shall have been
known to the Lender independently of any disclosure by the Borrower hereunder or
in connection herewith.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
[Remainder of page intentionally left blank.]
50
XXXXX FARGO BUSINESS CREDIT, INC.
By: /s/ Xxxxxxxx X. XxXxxxxx
---------------------------
Name: Xxxxxxxx X. XxXxxxxx
Title: Assistant Vice President
51
RF MONOLITHICS, INC.
By:/s/ Xxxxx X. Xxxx
-----------------------------
Name: Xxxxx X. Xxxx
Title: President
