EXHIBIT 10.2
FINANCING AGREEMENT
THIS FINANCING AGREEMENT is made effective as of February 14, 2002 by and
between MANCHESTER COMMERCIAL FINANCE LLC, a Minnesota limited liability company
located at 0000 Xxxxx Xxxxxxxxx, Xxxxx 000, Xxxxxxxxxxx, Xxxxxxxxx 00000-0000
("Lender") and RESEARCH, INCORPORATED, a Minnesota corporation located at 0000
Xxxxxx Xxxxx Xxxxx, Xxxx Xxxxxxx, XX 00000 ("Borrower"). Lender and Borrower
desire to enter into certain financing arrangements according to the terms and
conditions set forth in this Agreement. Therefore, for valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Lender and
Borrower hereby agree as follows:
SECTION I. DEFINITIONS
1.1 The following definitions shall apply throughout this Agreement:
"ACCOUNTS" shall mean all accounts as defined in the Uniform Commercial Code as
in effect in the State of Minnesota; all present and future accounts,
receivables, chattel paper, instruments, contract rights and general
intangibles; all of Borrower's lease receivables, license receivables, contract
rights and other amounts from time to time owing for services rendered, or for
goods sold, leased or licensed, whether or not earned by performance; all
service, lease, rental and other agreements in any way relating to any of the
foregoing; all tax refunds or claims for tax refunds; all other rights to
receive payments of money from any person; and all of Borrower's right, title
and interest under any guaranty or other collateral agreement relating to any of
the foregoing; in all cases whether now owned or hereafter acquired.
"AGREEMENT" means this Financing Agreement, all exhibits and schedules, and any
extensions, amendments or modifications hereof.
"BORROWER" means Research, Incorporated, a Minnesota corporation, whose chief
executive office is located at 0000 Xxxxxx Xxxxx Xxxxx, Xxxx Xxxxxxx, XX 00000.
"BORROWING BASE" means an amount (as of the time any determination is made)
equal to that part of the amount of such of Borrower's Accounts, Inventory, and
Equipment deemed eligible by Lender in its sole and absolute discretion for
advances hereunder. Initially the Borrowing Base will consist of the sum of 80%
of eligible Accounts, 50% of eligible Inventory with inventory advances limited
to the lesser of the accounts receivable borrowing base or $150,000; provided
Lender may change such percentages at any time in its sole discretion. The
Borrowing Base amounts so determined is subject to reduction and requires
periodic payments by Borrower as follows: the sub-limit cap on inventory will be
reduced by $2,500 per month for the first 6 months and $5,000 per month
thereafter.
"COLLATERAL" means collectively all of Borrower's right, title and interest
(whether now owned or hereafter acquired) in the property which is subject to a
lien, security interest, or encumbrance in favor of Lender under the Loan
Documents including: (a) Accounts, Inventory, and Equipment, (b) machinery,
motor vehicles, instruments, chattel paper, contract rights, general
intangibles, documents, deposit accounts, and insurance proceeds, (c) real
estate, and (d) all files, books of account, customer lists, computer programs,
applications, disks, software and other records evidencing or pertaining to any
of the foregoing; and (e) general intangibles, including without limitation
patents and patent applications.
"CREDIT LIMIT" means the amount of $1,000,000.00.
"EQUIPMENT" means all equipment as defined in the Uniform Commercial Code in
effect in the State of Minnesota, together with all replacements, attachments,
substitutions, and proceeds thereof, in all cases whether now owned or hereafter
acquired.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"EVENT OF DEFAULT" shall mean any Event of Default described in Section 8.1 and
8.8.1 hereof.
"INVENTORY" means all inventory as defined in the Uniform Commercial Code in
effect in the State of Minnesota, together with all replacements, attachments,
substitutions, and proceeds thereof, in all cases whether now owned or hereafter
acquired.
"LENDER" means Manchester Commercial Finance LLC, a Minnesota limited liability
company whose chief executive office is located at 0000 Xxxxx Xxxxxxxxx, Xxxxx
000, Xxxxxxxxxxx, Xxxxxxxxx 00000-0000.
"LOAN DOCUMENTS" means this Agreement; any and all notes, security agreements,
financing statements, mortgages, subordinations, guarantees, and certificates;
any other documents or instruments executed and delivered in connection
herewith; and any and all renewals, extensions, modifications, or amendments of
any of the foregoing.
"PRIME RATE" shall mean the rate of interest established and publicly announced
by Bank of America, N.A. from time to time as its prime rate, base rate, or
reference rate.
SECTION II. ADVANCES
2.1 Lender agrees to make discretionary advances to Borrower from time to time
from the date hereof to and including the earlier of January 31, 2003, or the
termination of this Agreement pursuant to its terms, in an aggregate principal
amount not to exceed the lesser of the Credit Limit or the Borrowing Base. This
is a discretionary revolving credit, and advances shall be made at the total and
complete discretion of Lender. Lender shall have no obligation to Borrower to
make any advances, and Lender may refuse to make advances whether or not an
Event of Default has occurred. All advances made pursuant to this Agreement
shall be repaid by Borrower to Lender on demand.
2.2 Lender from time to time shall furnish a statement of Borrower's account to
Borrower. Any such statement shall be deemed conclusive unless written
objections to the account calling the Lender's attention to errors are received
by Lender within thirty (30) days after the account is mailed or delivered to
Borrower.
2.3 Additionally, no advances shall be made hereunder except upon the occurrence
of the following conditions: (a) Lender shall have received duly executed copies
of the Loan Documents, including corporate authorization; (b) Lender shall have
received a copy of a signed order from the United States Bankruptcy Court, in
form and substance acceptable to Lender, approving the financing and the Loan
Documents, which order has not been stayed, reversed, vacated, rescinded,
modified or amended in any respect and which order: (i) pursuant to 11 U.S.C.
ss. 364(d) grants to Lender to secure the obligations under the Loan Documents a
first priority, attached and perfected lien and security interest senior to all
other liens in the Borrower's pre-petition and post-petition Collateral; (ii)
grants Lender superpriority status under the provisions of 11 U.S.C. ss.
364(c)(1) over all other administrative expenses incurred in the Borrower's
Chapter 11 case, except for court costs and quarterly fees under 28 U.S.C. ss.
1930 and except for court approved professional fees payable to professionals
retained by the Debtor and the Creditor's Committee not to exceed the aggregate
amount of $100,000.00; and (iii) provides that pursuant to 11 U.S.C. ss. 364(e)
that neither the reversal or modification of such order, nor the entry of an
order confirming a plan of reorganization in Borrower's Chapter 11 case or the
conversion of such case to a case under Chapter 7 of the Bankruptcy Code shall
affect the validity or priority of Lender's administrative expense status or the
liens and security interests with respect to Borrower's obligations to Lender as
approved by the Bankruptcy Court.
SECTION III. CHARGES AND FEES
3.1 Borrower agrees to pay interest calculated on the net balance owed to Lender
at the close of each calendar day at a rate per annum (computed on the basis of
actual number of days elapsed and a year of 360 days) which is three and one
half percent (3.5%) in excess of the Prime Rate, but such rate shall never be
less than 9.5% per annum. Such interest shall be due and payable at the close of
each month. Lender will advance sufficient amounts hereunder to pay such
interest by making appropriate postings to Borrower's account.
3.2 Borrower shall pay Lender a collateral monitoring fee of an amount equal to
the greater of one half of one percent (1/2%) of the month's average loan
balance or $750.00. Such amounts shall be payable monthly in arrears.
3.3 Notwithstanding anything to the contrary contained herein, Borrower agrees
to pay a minimum amount of interest to Lender of $1,200.00 per month (net of
participated amounts).
3.4 Upon the occurrence of an Event of Default under the terms of this Agreement
or of any of the other Loan Documents, Lender shall have the right to charge
Borrower the additional amount of $50.00 per day for so long as such breach
continues.
3.5 Borrower shall pay Lender an amount equal to one percent (1%) per annum of
the Credit Limit. Such amounts shall be payable annually in advance.
3.6 Borrower shall pay Lender an advance fee of $25.00 for every advance
requested before 10:30 a.m. on any business day, and for any advance requested
after such time Lender shall charge an additional $25.00 for any advance it is
able to make on such business day.
3.7 In addition to any other fees and charges, upon termination of this
Financing Agreement for any reason, including, but not limited to, payment as
part of a confirmed plan of reorganization, payment in conjunction with Borrower
obtaining replacement financing, or any other reason, Borrower shall pay to
Lender a fee in an amount equal to two percent (2%) of the Credit Limit as
defined herein.
SECTION IV. LISTING OF ACCOUNTS
4.1 Prior to or concurrently with its initial borrowing hereunder and monthly
thereafter, Borrower shall furnish Lender a listing and aging of all of
Borrower's Accounts in a form and manner acceptable to Lender. Borrower shall
also deliver to Lender weekly, or at other intervals mutually agreed upon, a
list of all Accounts created or acquired by Borrower following the most recent
monthly listing and aging of Accounts delivered to Lender.
4.2 Borrower warrants to Lender that, except as may be disclosed in such listing
and aging of Accounts, (a) each of Borrower's xxxxxxxx correctly sets forth the
subject matter and terms of sale, (b) the merchandise conforms to the purchase
requirements and is in all respects acceptable to Borrower's customer, (c) the
date of billing is not prior to shipment, (d) the Account is not subject to any
dispute, defense, offset, or counterclaim, (e) the Borrower's customer is not a
subsidiary of Borrower or affiliated in any manner with Borrower, and (f)
Borrower has no reason to believe the Account will not be paid in the ordinary
course of business.
SECTION V. CUSTODY AND INSPECTION OF
RECORDS; HANDLING OF COLLECTIONS
5.1 All ledger sheets or cards, invoices, shipping records, correspondence, and
other writings relating to Accounts shall, until delivered to Lender or removed
by Lender from Borrower's premises, be kept on Borrower's premises without cost
to Lender in an orderly and businesslike fashion easily accessible by Lender.
5.2 Until Borrower's authority to do so is terminated by written notice from
Lender (which notice Lender may give at any time), Borrower will at its expense
and on Lender's behalf collect as Lender's property and in trust for Lender all
amounts payable on Accounts, and shall not commingle such collections with
Borrower's own funds. Subject to Lender's rights under the other Loan Documents
executed and delivered by Borrower, Borrower shall remit all collections to
Lender in kind, duly endorsed, on the same date received as practicable
(otherwise on the following business day), and Lender shall credit the same to
Borrower's account (subject to Lender's cutoff requirements and final collection
thereof) after allowing two business days for collection thereof.
5.3 If Lender exercises its collection rights under the other Loan Documents,
Lender may remove from Borrower's premises all books and records, computer disks
and programs, correspondence, documents and files relating to the Accounts, and
Lender may without cost or expense to Lender use such of Borrower's personnel,
supplies, space and equipment at Borrower's place of business as Lender may
desire in order to effect such collections. Borrower agrees to pay any and all
internal, office, and out-of-pocket expenses and costs of collection (including
reasonable attorneys fees) incurred by Lender in its collection of such
Accounts.
5.4 Lender may conduct audits and inspections of Borrower and its books and
records at Lender's discretion. Borrower shall reimburse Lender for all of
Lender's out-of-pocket expenses in conducting such audits, and in addition
Borrower shall pay Lender a charge of $750.00 per day while Lender is conducting
such audits.
SECTION VI. REPORTS
6.1 Borrower will furnish to Lender: (a) monthly within 10 days of month end, in
such detail as Lender may request, written reports certified as correct by one
of Borrower's officers, showing all sales of merchandise, returns and
allowances, collections, and all miscellaneous charges and credits affecting
Collateral, (b) monthly within 30 days of month end, financial statements
acceptable to Lender prepared in accordance with generally accepted accounting
principles, (c) annually within 90 days of fiscal year end, at Borrower's
expense, a complete certified audit report of Borrower's operations and
condition made by an independent certified public accountant satisfactory to
Lender, (d) upon receipt, copies of all such accountants' reports (including
management or commentary letters) delivered to Borrower during the period of
time this Agreement is in effect, (e) within five (5) days after the due date
thereof, proof of payment or deposit when due of all withholding, FICA, and
other taxes owing by Borrower from time to time, (f) copies of all reports
required to be filed with the Office of the United States Trustee; and (g) such
other reports and information concerning Accounts, Inventory, Equipment, and
other matters as Lender may request.
SECTION VII. WARRANTIES, REPRESENTATIONS AND COVENANTS
7.1 Borrower warrants, represents, and covenants with Lender that it will not:
(a) permit any levy, attachment or restraint to be made affecting any of its
assets; or (b) permit any receiver, trustee, or assignee for the benefit of
creditors to be appointed to take possession of any or all of Borrower's assets.
Borrower further warrants, represents, and covenants with Lender that, except
with the Lender's prior written consent, Borrower will not: (a) other than in
the ordinary course of business, sell, lease or otherwise dispose of or transfer
any of its assets; (b) merge or consolidate with any other person, corporation,
or other entity; (c) acquire any other person, corporation, or other entity; (d)
enter into any transaction not in the ordinary course of business; (e) make any
investment in securities of any person, corporation or other entity except for
securities of the United States of America; (f) guaranty or otherwise become in
any way liable for the obligations of any person, corporation, or other entity
except for obligations arising by endorsement of checks or other instruments in
the ordinary course of business, which checks and instruments are deposited to
Borrower's general account or which are delivered to Lender in payment of
Borrower's obligations hereunder; (g) pay or declare any dividends or make any
other distributions on account of Borrower's capital stock or other securities;
(h) redeem, retire, purchase or otherwise acquire directly or indirectly any of
Borrower's capital stock or other securities; (i) make any change in its capital
structure or in any of its business objectives, purposes and operations which
might in any way adversely affect Borrower's ability to repay its obligations
hereunder; (j) make any distribution of its properties or assets; (k) incur any
debts other than debts arising for accounts payable in the ordinary course of
Borrower's business and other than renewals or extensions of existing debts
which have been disclosed in writing to Lender; (l) make any loan, advance,
contribution or payment of money or goods to any subsidiary or affiliate, or to
any officer, director, stockholder, or other owner of Borrower (except
compensation for personal services); or (m) encumber, pledge, assign or permit a
lien or security interest to be created in any of the Collateral.
7.2 All covenants, representations and warranties set forth in this Agreement
and in any of the other Loan Documents, and all terms, conditions, provisions
and agreements to be performed by Borrower pursuant to this Agreement and the
other Loan Documents, shall be true, correct, and complete, and all covenants
shall be fully satisfied, at all times during which this Agreement is in effect.
SECTION VIII. EVENTS OF DEFAULT
8.1 "Event of Default" means any of the following events: (a) failure of
Borrower to pay any principal outstanding under this Agreement or any of the
Loan Documents when due; (b) failure of Borrower to pay any interest, fees, or
charges required to be paid under this Agreement or any of the Loan Documents
when due; (c) any representation or warranty made by, or on behalf of, Borrower
shall prove to have been incorrect in any material respect when made; (d)
default in the performance of any other covenant or agreement of Borrower or any
other party pursuant to this Agreement or any of the other Loan Documents; (e)
[intentionally omitted]; (f) Borrower shall fail to pay any of its indebtedness
incurred after the commencement of Borrower's Chapter 11 proceeding in the
ordinary course when due; (g) the entry against Borrower or any guarantor after
the commencement of Borrower's Chapter 11 proceeding of a judgment, decree or
order for the payment of money and the continuance of such judgment, decree or
order unsatisfied for a period of 15 days without a stay of execution; or (h)
any Reportable Event (as defined in ERISA) shall have occurred and continue for
30 days; or any Plan (as defined in ERISA) shall have been terminated by
Borrower not in compliance with ERISA, or a trustee shall have been appointed by
a court to administer any such Plan, or the Pension Benefit Guaranty Corporation
shall have instituted proceedings to terminate any such Plan or to appoint a
trustee to administer any such Plan.
8.1.1. Additional Events of Default.
Additionally, the occurrence of any one or more of the following events
shall constitute an Event of Default:
a. Entry of an order of the United States Bankruptcy Court
modifying, amending, reversing, vacating, or staying the order
approving this Financing Agreement, or if Borrower shall violate the
terms of such order;
b. (i) The Bankruptcy Court shall enter an order dismissing
Borrower's Chapter 11 case; (ii) the Borrower's Chapter 11 case shall
be converted to a case under Chapter 7 of the Bankruptcy Code; (iii)
without the consent of Lender, a trustee or examiner with expanded
powers shall be appointed in Borrower's Chapter 11 case; (iv) a motion
shall be filed for or there shall arise any claim (other than those of
Lender hereunder) in Borrower's Chapter 11 case having a priority under
ss. 364(c)(1) of the Bankruptcy Code unless such motion provides for
the payment in full in cash of Borrower's obligations to Lender upon
the closing of such financing; (v) a motion shall be filed for, or
there shall arise, a claim (other than those of Lender hereunder) in
the Borrower's Chapter 11 case secured by a lien having a priority
under ss. 364(d) of the Bankruptcy Code unless such motion provides for
payment in full in cash of Borrower's obligations to Lender upon the
closing of such financing; (vi) there shall arise any lien in the
Collateral or any part thereof; (vii) the Bankruptcy Court shall enter
an order granting relief from the automatic stay applicable under ss.
362 of the Bankruptcy Code to the holder of any security interest other
than Lender with respect to any material property of the estate of the
Borrower or in the Collateral; or (viii) the Bankruptcy Court shall
enter an order approving a disclosure statement in connection with the
plan of reorganization proposed by Borrower or any other person which
plan of reorganization is inconsistent with Borrower's agreements and
obligations hereunder.
8.2 If any Event of Default shall occur, Lender may refuse to make any further
advances, declare any or all notes, all interest thereon, and all obligations
under or pursuant to any of the Loan Documents to be immediately due and
payable, exercise any right or remedy under any of the Loan Documents or any
other right or remedy of a secured party under the Uniform Commercial Code as in
effect in the State of Minnesota, and exercise any other right or remedy
available to the Lender at law or in equity. Further, Lender may exercise the
rights and remedies set forth above at any time at its sole discretion. Further,
Borrower hereby agrees that in the event of a default hereunder, which default
is not cured within five (5) business days after written notice of such default
is served by Lender to Borrower and its counsel, Lender shall be entitled to an
order granting it relief from the automatic stay, upon submission to the
Bankruptcy Court of an affidavit indicating such default and Borrower's failure
to cure. Borrower's only defense to such relief shall be that no such default
exists under the Loan Documents or the Court's order. Nothing herein or in the
Court's order shall limit Lender's right to otherwise seek relief from the
automatic stay or take such other and further action in connection with
Borrower's bankruptcy case on any other grounds.
SECTION IX. MISCELLANEOUS
9.1 Borrower agrees that from time to time, for Lender's convenience, Lender may
segregate or apportion the Collateral for purposes of determining the amounts of
loans and rates of advances which may be made under this Agreement.
Notwithstanding the foregoing, the security interests and liens conveyed by
Borrower to Lender in the Collateral, and any and all other collateral rights,
interest and properties which may now or hereafter be available to Lender, shall
secure and may be applied to the payment of any and all loans, advances and
other indebtedness arising hereunder or under the other Loan Documents in any
order or manner of application and without regard to the method by which Lender
determines to make loans or advances hereunder.
9.2 After and during the continuance of an Event of Default, Borrower hereby
irrevocably makes, constitutes and appoints Lender, or any person Lender may
designate, Borrower's true and lawful attorney with the power to receive, open
and dispose of all mail addressed to Borrower; to endorse the name of Borrower
upon any notes, acceptances, checks, drafts, money orders, instruments, or other
means of payment that may come in to Lender's possession as payment of or upon
Accounts or any other Collateral; to endorse the name of Borrower on any
invoice, freight or express xxxx or xxxx of lading relating to any Collateral;
to sign Borrower's name on drafts from Borrower's customers; and to do all and
other things necessary or proper to carry out the purpose and intent of this
Agreement; provided, however, regardless of whether an Event of Default has
occurred , Lender shall have the right at all times to exercise all powers and
rights as provided in the lock box agreement dated February 20, 2002 of the
parties.
9.2A Borrower hereby irrevocably makes, constitutes and appoints Lender, or any
person Lender may designate, Borrower's true and lawful attorney with the power
to sign Borrower's name on all assignments and verifications of Accounts and
notices thereof to Borrower's customers.
9.3 At Lender's request, Borrower will deliver to Lender Borrower's monthly
statements and invoices directed to its customers for Lender's examination and
for mailing in stamped, addressed envelopes. From time to time, Lender may
verify directly with Borrower's customers the amounts owing by sending out
verifications in the name of an officer or officers of Borrower.
9.4 Borrower agrees that any bank or other lender participating with Lender in
any loans or advances made to Borrower hereunder may exercise any and all
rights, including without limitation all banker's liens and rights of setoff,
with respect to such participation as fully as if such participant had lent the
amount of such participation directly to Borrower.
9.5 Borrower agrees to reimburse Lender (and any and all participants) for all
attorneys fees, filing fees and other out-of-pocket expenses (including but not
limited to travel and audit expenses) which Lender or any participant may incur
in connection with the negotiation and administration of this Agreement or any
of the other Loan Documents, the preparation of documents relating thereto,
perfecting any security interest, mortgage, or lien granted thereby, or
enforcing any of Borrower's obligations to Lender arising under this or any
other Loan Document. If Lender so elects, Lender may treat the amount of any
such expense described in this paragraph as a loan to Borrower hereunder and
under the Loan Documents.
9.6 This Agreement shall bind and inure to the benefit of the parties and to
their respective successors and assigns; provided, however, the Borrower shall
not have the right to assign any of its rights or obligations under this
Agreement or under any of the Loan Documents without the express prior written
consent of Lender. This Agreement and all of the other Loan Documents shall be
construed and interpreted in accordance with the laws of the State of Minnesota.
Borrower hereby irrevocably submits to the jurisdiction of the Minnesota
District Court, Fourth Judicial District, and the Federal District Court,
District of Minnesota, Fourth Division, in any action or proceeding arising out
of or relating to this Agreement or any of the other Loan Documents. The parties
waive the right to trial by jury in any action or proceeding relating to or
arising under this Agreement or any of the other Loan Documents.
MANCHESTER COMMERCIAL FINANCE LLC RESEARCH, INCORPORATED
Lender Borrower
By: /s/ Xxxx Xxxxxxxx By: /s/ Xxxx Xxxx
--------------------------------- ---------------------------------
Title: Executive Vice President Title: President
