Loan and Security Agreement
by and between
CONGRESS FINANCIAL CORPORATION (SOUTHWEST)
as Lender
and
L&S AUTOMOTIVE PRODUCTS CO.
TRIBONETICS CORPORATION
L&S BEARING CO.
LSB EXTRUSION CO.
ROTEX CORPORATION
AND
INTERNATIONAL BEARINGS, INC.
as Borrowers
Dated: May 7, 1999
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS 1
SECTION 2. CREDIT FACILITIES 11
2.1 Revolving Loans 11
2.2 Letter of Credit Accommodations 13
2.3 Term Loan 15
2.4 Availability Reserves 16
2.5 Joint and Several Liability; Rights of Contribution 16
2.6 Structure of Credit Facility 17
2.7 Right of First Refusal 18
SECTION 3. INTEREST AND FEES 19
3.1 Interest 19
3.2 Closing Fee 21
3.3 Servicing Fee 21
3.4 Unused Line Fee 21
3.5 Changes in Laws and Increased Costs of Loans 21
SECTION 4. CONDITIONS PRECEDENT 22
4.1 Conditions Precedent to Initial Loans and Letter
of Credit Accommodations 22
4.2 Conditions Precedent to All Loans and Letter of
Credit Accommodations 24
SECTION 5. GRANT OF SECURITY INTEREST 24
SECTION 6. COLLECTION AND ADMINISTRATION 25
6.1 Borrowers' Loan Account 25
6.2 Statements 26
6.3 Collection of Accounts 26
6.4 Payments 27
6.5 Authorization to Make Loans 28
6.6 Use of Proceeds 28
SECTION 7. COLLATERAL REPORTING AND COVENANTS 28
7.1 Collateral Reporting 28
7.2 Accounts Covenants 29
7.3 Inventory Covenants 31
7.4 Equipment Covenants 31
7.5 Power of Attorney 32
7.6 Right to Cure 33
7.7 Access to Premises 33
SECTION 8. REPRESENTATIONS AND WARRANTIES 33
8.1 Corporate Existence, Power and Authority;
Subsidiaries 34
8.2 Financial Statements; No Material Adverse Change 34
8.3 Chief Executive Office; Collateral Locations 34
8.4 Priority of Liens; Title to Properties 35
8.5 Tax Returns 35
8.6 Litigation 35
8.7 Compliance with Other Agreements and
Applicable Laws 35
8.8 Employee Benefits 36
8.9 Bank Accounts 36
8.10 Environmental Compliance 37
8.11 Accuracy and Completeness of Information 37
8.12 Survival of Warranties; Cumulative 38
8.13 Year 2000 Issues 38
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS 38
9.1 Maintenance of Existence 38
9.2 New Collateral Locations 39
9.3 Compliance with Laws, Regulations, Etc. 39
9.4 Payment of Taxes and Claims 40
9.5 Insurance 40
9.6 Financial Statements and Other Information 41
9.7 Sale of Assets, Consolidation, Merger,
Dissolution, Etc. 42
9.8 Encumbrances 43
9.9 Indebtedness 44
9.10 Loans, Investments, Guarantees, Etc. 45
9.11 Dividends and Redemptions 46
9.12 Transactions with Affiliates 46
9.13 Additional Bank Accounts 47
9.14 Compliance with ERISA 47
9.15 Net Worth 48
9.16 Costs and Expenses 48
9.17 Further Assurances 48
SECTION 10. EVENTS OF DEFAULT AND REMEDIES 49
10.1 Events of Default 49
10.2 Remedies 51
2
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS;
GOVERNING LAW 53
11.1 Governing Law; Choice of Forum; Service of
Process; Jury Trial Waiver 53
11.2 Waiver of Notices 54
11.3 Amendments and Waivers 54
11.4 Indemnification 54
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS 55
12.1 Term 55
12.2 Notices 57
12.3 Partial Invalidity 57
12.4 Successors 57
12.5 Entire Agreement 58
12.6 NONAPPLICABILITY OF ARTICLE 5069-15.01 ET SEQ. 58
12.7 WAIVER OF CONSUMER RIGHTS 58
12.8 ORAL AGREEMENTS INEFFECTIVE 59
3
INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate
Exhibit B Collateral Letter of Credit
Exhibit C Term Note
Schedule 1.9 Distribution Agreement
Schedule 8.3 Mortgages
Schedule 8.4 Existing Liens
Schedule 8.9 Bank Accounts
Schedule 8.10 Environmental Matters
Schedule 9.5 Insurance
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Existing Loans, Advances and
Guarantees
Schedule 9.12 Transactions With Affiliates
Attachment I Excluded Equipment
4
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT dated May 7, 1999,is entered
into by and between Congress Financial Corporation (Southwest), a
Texas corporation ("Lender") and L&S Automotive Products Co.
("LSAP"), a Delaware corporation, International Bearings, Inc.
("IBI"), an Oklahoma corporation, L&S Bearing Co. ("L&SB"), an
Oklahoma corporation, LSB Extrusion Co. ("LSBE"), an Oklahoma
corporation, Rotex Corporation ("Rotex"), an Oklahoma corporation,
and Tribonetics Corporation ("Tribonetics"), an Oklahoma
corporation (LSAP, IBI, L&SB, LSBE, Rotex and Tribonetics are
individually, collectively and jointly and severally herein
referred to as "Borrower" or the "Borrowers").
W I T N E S S E T H:
WHEREAS, Borrowers have requested that Lender enter into
certain financing arrangements with Borrowers pursuant to which
Lender may make loans and provide other financial accommodations to
each Borrower; on the terms and conditions set forth herein; and
WHEREAS, Lender is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or
Article 9 of the Uniform Commercial Code shall have the meanings
given therein unless otherwise defined in this Agreement. All
references to the plural herein shall also mean the singular and to
the singular shall also mean the plural unless the context
otherwise requires. All references to Borrowers and Lender
pursuant to the definitions set forth in the recitals hereto, or to
any other person herein, shall include their respective successors
and assigns. The words "hereof", "herein", "hereunder", "this
Agreement" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not any particular
provision of this Agreement. Any reference to this Agreement or
any other Financing Agreement shall mean such agreement as now
exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced. The word "including" when
used in this Agreement shall mean "including, without limitation".
An Event of Default shall exist or continue or be continuing until
such Event of Default is waived in accordance with Section 11.3, is
cured pursuant to the terms of this Agreement, or is cured in a
manner satisfactory to Lender, if such Event of Default is capable
of being cured as determined by Lender. Any accounting term used
herein unless otherwise defined in this Agreement shall have the
meanings customarily given to such term in accordance with GAAP.
For purposes of this Agreement, the following terms shall have the
respective meanings given to them below:
1
1.1 "Accounts" shall mean all present and hereafter arising
rights of each Borrower to payment for goods sold or leased or for
services rendered, which are not evidenced by instruments or
chattel paper, and whether or not earned by performance.
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to
each Interest Period for any Eurodollar Rate Loan, the rate per
annum (rounded upwards, if necessary, to the next one-sixteenth
(1/16) of one (1%) percent) determined by dividing (a) the
Eurodollar Rate for such Interest Period by (b) a percentage equal
to: (i) one (1) minus (ii) the Reserve Percentage. For purposes
hereof, "Reserve Percentage" shall mean the reserve percentage,
expressed as a decimal, prescribed by any United States or foreign
banking authority for determining the reserve requirement which is
or would be applicable to deposits of United States dollars in a
non-United States or an international banking office of Reference
Bank used to fund a Eurodollar Rate Loan or any Eurodollar Rate
Loan made with the proceeds of such deposit, whether or not the
Reference Bank actually holds or has made any such deposits or
loans. The Adjusted Eurodollar Rate shall be adjusted on and as of
the effective day of any change in the Reserve Percentage.
1.3 "Availability Reserves" shall mean, as of any date of
determination, such amounts as Lender may from time to time
establish and revise in good faith reducing the amount of Revolving
Loans and Letter of Credit Accommodations which would otherwise be
available to Borrowers under the lending formula(s) provided for
herein: (a) to reflect events, conditions, contingencies or risks
which, as determined by Lender in good faith, adversely affect or
may adversely affect either (i) the Collateral or any other
property which is security for the Obligations or its value, (ii)
the assets or business of Borrowers or any Obligor when taken as a
whole, or (iii) the security interests and other rights of Lender
in the Collateral (including the enforceability, perfection and
priority thereof) or (b) to reflect Lender's good faith belief that
any collateral report or financial information furnished by or on
behalf of Borrowers or any Obligor to Lender is or may have been
incomplete, inaccurate or misleading in any material respect or (c)
to reflect outstanding Letter of Credit Accommodations as provided
in Section 2.2 hereof or (d) in respect of any state of facts which
Lender determines in good faith constitutes an Event of Default, or
may, with notice or passage of time or both, constitute an Event of
Default.
1.4 "Blocked Accounts" shall have the meaning set forth in
Section 6.3 hereof.
1.5 "Business Day" shall mean any day other than a Saturday,
Sunday, or other day on which commercial banks are authorized or
required to close under the laws of the State of New York or the
State of North Carolina, and a day on which the Reference Bank and
Lender are open for the transaction of business, except that if a
determination of a Business Day shall relate to any Eurodollar Rate
Loans, the term Business Day shall also exclude any day on which
banks are closed for dealings in dollar deposits in the London
interbank market or other applicable Eurodollar Rate market.
1.6 "Code" shall mean the Internal Revenue Code of 1986, as
the same now exists or may from time to time hereafter be amended,
modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
2
1.7 "Collateral" shall have the meaning set forth in Section
5 hereof.
1.8 "Collateral Letter of Credit" shall mean the standby
letter of credit dated on or about the date hereof issued for the
account of LSB Industries, Inc. ("LSB") by Bank America Los
Angeles (or another issuer acceptable to Lender) in the amount of
$1,000,000 for the benefit of Lender substantially in the form of
Exhibit B.
1.9 "Distribution Agreement" shall mean (a) a fully executed
Distribution Agreement substantially in the form of the draft of
Distribution Agreement attached hereto as Schedule 1.9 between
Guarantor and LSB, and (b) all attachments and exhibits to such
agreement and all other agreements, leases and other documents,
executed in connection therewith in substantially the same form as
the attachments, exhibits, agreements, leases and other documents
attached hereto as Schedule 1.9.
1.10 "Eligible Accounts" shall mean Accounts created by any
Borrower which are and continue to be acceptable to Lender based on
the criteria set forth below. In general, Accounts shall be
Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide
sale and delivery of goods by Borrowers or rendition of services by
Borrowers in the ordinary course of their business which
transactions are completed in accordance with the terms and
provisions contained in any documents related thereto;
(b) such Accounts (i) are Accounts of Advance Stores
Co., Inc. ("Advance"), Western Auto Supply Co., Inc. ("Western"),
or other account debtors approved by Lender (such Accounts being
hereinafter collectively referred to as the "Advance Auto
Accounts") which are not unpaid more than one-hundred eighty (180)
days after the date of the original invoice for them or thirty (30)
days after the due date for them, whichever is earlier, or (ii)
such Accounts are not Advance Accounts and are not unpaid more than
one-hundred twenty (120) days after the date of the original
invoice for them or sixty (60) days after the due date for them,
whichever is earlier;
(c) such Accounts do not arise from sales on
consignment, guaranteed sale, sale and return, sale on approval, or
other terms under which payment by the account debtor may be
conditional or contingent;
(d) the chief executive office of the account debtor
with respect to such Accounts is located in the United States of
America, Puerto Rico or Canada; or, if the chief executive office
of account debtor is located outside the United States of America,
Puerto Rico or Canada either: (i) the account debtor has delivered
to Borrower an irrevocable letter of credit issued or confirmed by
a bank satisfactory to Lender and payable only in the United States
of America and in U.S. dollars, sufficient to cover such Account,
in form and substance satisfactory to Lender and, if required by
Lender, the original of such letter of credit has been delivered to
Lender or Lender's agent and the issuer thereof notified of the
assignment of the proceeds of such letter of credit to Lender, or
3
(ii) such Account is subject to credit insurance payable to Lender
issued by an insurer and on terms and in an amount acceptable to
Lender, or (iii) such Account is otherwise acceptable in all
respects to Lender (subject to such lending formula with respect
thereto as Lender may determine);
(e) such Accounts do not consist of progress xxxxxxxx,
xxxx and hold invoices or retainage invoices, except as to xxxx and
hold invoices, if Lender shall have received an agreement in
writing from the account debtor, in form and substance satisfactory
to Lender, confirming the unconditional obligation of the account
debtor to take the goods related thereto and pay such invoice;
(f) the account debtor with respect to such Accounts has
not asserted a counterclaim, defense or dispute and does not have
any right of setoff against such Accounts (but the portion of the
Accounts of such account debtor in excess of the amount at any time
and from time to time owed by Borrower to such account debtor or
claimed owed by such account debtor may be deemed Eligible
Accounts);
(g) there are no facts, events or occurrences which
would impair the validity, enforceability or collectability of such
Accounts or reduce the amount payable or delay payment thereunder;
(h) such Accounts are subject to the first priority,
valid and perfected security interest of Lender and any goods
giving rise thereto are not, and were not at the time of the sale
thereof, subject to any liens except those permitted in this
Agreement;
(i) the account debtor with respect to such Accounts is
not affiliated with any Borrower directly or indirectly by virtue
of family membership, ownership, control, management or otherwise;
(j) the account debtors with respect to such Accounts
are not any foreign government, the United States of America, any
State, political subdivision, department, agency or instrumentality
thereof, unless, if the account debtor is the United States of
America, any State, political subdivision, department, agency or
instrumentality thereof, upon Lender's request, the Federal
Assignment of Claims Act of 1940, as amended or any similar State
or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
(k) there are no proceedings or actions to the knowledge
of Borrowers or Lender which are threatened or pending against the
account debtors with respect to such Accounts which might result in
any material adverse change in any such account debtor's financial
condition;
(l) (i) for Accounts which are not Advance Auto Accounts
or Accounts described in subsection (iii) hereof, such Accounts of
a single account debtor or its affiliates do not constitute more
than ten percent (10%) percent of all otherwise Eligible Accounts
(but the portion of the Accounts not in excess of such percentage
may be deemed Eligible Accounts, in Lender's discretion); (ii) for
Accounts which are Advance Auto Accounts, such Accounts do not
constitute more than fifty percent (50%) of all otherwise Eligible
4
Accounts (but the portion of the Accounts not in excess of such
percentage may be deemed Eligible Accounts, in Lender's
discretion); and (iii) for Accounts of Dexter Axle, a division of
Xxxxxxx Industries, and FMC Corporation, the Accounts of each such
account debtor do not constitute more than fifteen percent (15%) of
all otherwise Eligible Accounts (but the portion of the Accounts
not in excess of such percentage may be deemed Eligible Accounts,
in Lender's discretion);
(m) (i) for Accounts which are not Advance Auto
Accounts, such Accounts are not owed by an account debtor who has
Accounts unpaid more than one hundred twenty (120) days after the
date of the original invoice for them or sixty (60) days after the
due date for them, whichever is earlier and which such Accounts
constitute more than fifty percent (50%) of the total Accounts of
such account debtor; (ii) for Advance Auto Accounts, such Accounts
are not owed by an account debtor who has Accounts unpaid more than
one-hundred eighty (180) days after the date of the original
invoice for them or thirty (30) days after the due date for them,
whichever is earlier and which such Accounts constitute more than
twenty-five percent (25%) of the total Accounts of such account
debtor;
(n) such Accounts are owed by account debtors whose
total indebtedness to Borrower does not exceed the credit limit
with respect to such account debtors as determined by Lender from
time to time (but the portion of the Accounts not in excess of such
credit limit may be deemed Eligible Accounts);
(o) such Accounts are owed by account debtors deemed
creditworthy at all times by Lender, as determined by Lender; and
(p) the principal office, assets or place of business of
the account debtors with respect to such Accounts are not outside
the United States, Puerto Rico or Canada (or as otherwise provided
in the Section 1.11(d)).
General criteria for Eligible Accounts may be established and
revised from time to time by Lender in good faith. Any Accounts
which are not Eligible Accounts shall nevertheless be part of the
Collateral.
1.11 "Eligible Inventory" shall mean Inventory consisting of
finished goods held for resale in the ordinary course of the
business of any Borrower and raw materials for such finished goods,
(including raw materials stored or held by any Borrower in the work
in progress area of such Borrower but which are not characterized
as work in progress for accounting purposes) which are acceptable
to Lender based on the criteria set forth below. In general,
Eligible Inventory shall not include (a) work-in-process; (b)
components which are not part of finished goods and which are not
otherwise acceptable to Lender; (c) spare parts for Equipment; (d)
packaging and shipping materials; (e) supplies used or consumed in
Borrower's business; (f) Inventory at premises other than those
owned and controlled by any Borrower, except if Lender shall have
received an agreement in writing from the person in possession of
such Inventory and/or the owner or operator of such premises in
5
form and substance satisfactory to Lender acknowledging Lender's
first priority security interest in the Inventory, waiving security
interests and claims by such person against the Inventory and
permitting Lender access to, and the right to remain on, for a
reasonable period of time, the premises so as to exercise Lender's
rights and remedies and otherwise deal with the Collateral; (g)
Inventory subject to a security interest or lien in favor of any
person other than Lender except those permitted in this Agreement;
(h) xxxx and hold goods; (i) unserviceable, obsolete or slow moving
Inventory; (j) Inventory which is not subject to the first
priority, valid and perfected security interest of Lender; (k)
defective returned, damaged and/or defective Inventory; and (l)
Inventory purchased or sold on consignment. General criteria for
Eligible Inventory may be established and revised from time to time
by Lender in good faith. Any Inventory which is not Eligible
Inventory shall nevertheless be part of the Collateral.
1.12 "Environmental Laws" shall mean all foreign, Federal,
State and local laws (including common law), legislation, rules,
codes, licenses, permits (including any conditions imposed
therein), authorizations, judicial or administrative decisions,
injunctions or agreements between any Borrower and any governmental
authority, (a) relating to pollution and the protection,
preservation or restoration of the environment (including air,
water vapor, surface water, ground water, drinking water, drinking
water supply, surface land, subsurface land, plant and animal life
or any other natural resource), or to human health or safety,
(b) relating to the exposure to, or the use, storage, recycling,
treatment, generation, manufacture, processing, distribution,
transportation, handling, labeling, production, release or
disposal, or threatened release, of Hazardous Materials, or
(c) relating to all laws with regard to recordkeeping,
notification, disclosure and reporting requirements respecting
Hazardous Materials. The term "Environmental Laws" includes
(i) the Federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, the Federal Superfund Amendments and
Reauthorization Act, the Federal Water Pollution Control Act of
1972, the Federal Clean Water Act, the Federal Clean Air Act, the
Federal Resource Conservation and Recovery Act of 1976 (including
the Hazardous and Solid Waste Amendments thereto), the Federal
Solid Waste Disposal and the Federal Toxic Substances Control Act,
the Federal Insecticide, Fungicide and Rodenticide Act, and the
Federal Safe Drinking Water Act of 1974, (ii) applicable state
counterparts to such laws, and (iii) any common law or equitable
doctrine that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Materials.
1.13 "Equipment" shall mean all of each Borrower's now owned
and hereafter acquired equipment, machinery, computers and computer
hardware and software (whether owned or licensed), vehicles, tools,
furniture, fixtures, all attachments, accessions and property now
or hereafter affixed thereto or used in connection therewith, and
substitutions and replacements thereof, wherever located.
1.14 "ERISA" shall mean the United States Employee Retirement
Income Security Act of 1974, as the same now exists or may
hereafter from time to time be amended, modified, recodified or
supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.
6
1.15 "ERISA Affiliate" shall mean any person required to be
aggregated with any Borrower or any of its subsidiaries under
Sections 414(b), 414(c), 414(m) or 414(o) of the Code.
1.16 "Eurodollar Rate Loans" shall mean any Loans or portion
thereof on which interest is payable based on the Adjusted
Eurodollar Rate in accordance with the terms hereof.
1.17 "Eurodollar Rate" shall mean with respect to the Interest
Period for a Eurodollar Rate Loan, the interest rate per annum
equal to the arithmetic average of the rates of interest per annum
(rounded upwards, if necessary, to the next one-sixteenth (1/16) of
one percent (1%)) at which Reference Bank is offered deposits of
United States dollars in the London interbank market (or other
Eurodollar Rate market selected by Borrowers and approved by
Lender) on or about 9:00 a.m. (New York time) two (2) Business Days
prior to the commencement of such Interest Period in amounts
substantially equal to the principal amount of the Eurodollar Rate
Loans requested by and available to Borrowers in accordance with
this Agreement, with a maturity of comparable duration to the
Interest Period selected by Borrowers.
1.18 "Event of Default" shall mean the occurrence or existence
of any event or condition described in Section 10.1 hereof.
1.19 "Excess Availability" shall mean the amount, as
determined by Lender, calculated at any time, equal to: (a) the
lesser of: (i) the amount of the Revolving Loans available to
Borrowers as of such time based on the applicable lending formulas
multiplied by the Net Amount of Eligible Accounts and the Value of
Eligible Inventory, as determined hereunder, and subject to the
sublimits and Availability Reserves from time to time established
by Lender hereunder, and (ii) the Maximum Credit (less the then
outstanding principal amount of the Term Loan), minus (b) the sum
of: (i) the amount of all then outstanding and unpaid Obligations
(but not including for this purpose the then outstanding principal
amount of the Term Loan), plus (ii) the aggregate amount of all
then outstanding and unpaid trade payables of Borrowers which are
more than sixty (60) days past due as of such time, plus (iii) the
amount of checks issued by Borrowers to pay trade payables, but not
yet sent, plus (iv) the book overdraft of Borrowers (in the
aggregate), in excess of $750,000.
1.20 "Financing Agreements" shall mean, collectively, this
Agreement and all notes, guarantees, security agreements and other
agreements, documents and instruments now or at any time hereafter
executed and/or delivered by Borrowers or any Obligor in connection
with this Agreement, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or
replaced.
1.21 "GAAP" shall mean generally accepted accounting
principles in the United States of America as in effect from time
to time as set forth in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified
Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied,
except that, for purposes of Section 9.15 hereof, GAAP shall be
determined on the basis of such principles in effect on the date
7
hereof and consistent with those used in the preparation of the
audited financial statements delivered to Lender prior to the date
hereof.
1.22 "Guarantor" shall mean LSA Technologies Inc., a Delaware
corporation.
1.23 "Guaranty" shall mean that certain Guarantee, of even
date with this Agreement, from the Guarantor guaranteeing the
Obligations of each and every Borrower to the Lender, as amended,
modified, supplemented, extended, renewed, restated or replaced.
1.24 "Hazardous Materials" shall mean any hazardous, toxic or
dangerous substances, materials and wastes, including hydrocarbons
(including naturally occurring or man-made petroleum and
hydrocarbons), flammable explosives, asbestos, urea formaldehyde
insulation, radioactive materials, biological substances,
polychlorinated biphenyls, pesticides, herbicides and any other
kind and/or type of pollutants or contaminants (including materials
which include hazardous constituents), sewage, sludge, industrial
slag, solvents and/or any other similar substances, materials, or
wastes and including any other substances, materials or wastes that
are or become regulated under any Environmental Law (including any
that are or become classified as hazardous or toxic under any
Environmental Law).
1.25 "Information Certificate" shall mean the Information
Certificate of Borrowers constituting Exhibit A hereto containing
material information with respect to Borrowers, their business and
assets provided by or on behalf of Borrowers to Lender in
connection with the preparation of this Agreement and the other
Financing Agreements and the financing arrangements provided for
herein.
1.26 "Interest Period" shall mean for any Eurodollar Rate
Loan, a period of approximately one (1), two (2), or three (3)
months duration as Borrowers may elect, the exact duration to be
determined in accordance with the customary practice in the
applicable Eurodollar Rate market; provided, that, Borrowers may
not elect an Interest Period which will end after the last day of
the then-current term of this Agreement.
1.27 "Interest Rate" shall mean, as to Prime Rate Loans, a
rate of one percent (1%) per annum in excess of the Prime Rate and,
as to Eurodollar Rate Loans, a rate of two and three-quarters
percent (2.75%) per annum in excess of the Adjusted Eurodollar Rate
(based on the Eurodollar Rate applicable for the Interest Period
selected by Borrowers as in effect three (3) Business Days after
the date of receipt by Lender of the request of Borrowers for such
Eurodollar Rate Loans in accordance with the terms hereof, whether
such rate is higher or lower than any rate previously quoted to
Borrowers); provided, that, the Interest Rate shall mean the rate
of three percent (3%) per annum in excess of the Prime Rate as to
Prime Rate Loans and the rate of four and three-quarters percent
(4.75%) per annum in excess of the Adjusted Eurodollar Rate as to
Eurodollar Rate Loans, at Lender's option, without notice, (a) for
the period (i) from and after the date of termination until Lender
has received full and final payment of all Obligations
(notwithstanding entry of a judgment against Borrowers) and (ii)
from and after the date of the occurrence of an Event of Default
8
for so long as such Event of Default is continuing as determined by
Lender, and (b) on the Revolving Loans at any time outstanding in
excess of the amounts available to Borrowers under Section 2
(whether or not such excess(es), arise or are made with or without
Lender's knowledge or consent and whether made before or after an
Event of Default).
1.28 "Inventory" shall mean all of each Borrower's now owned
and hereafter existing or acquired raw materials, work in process,
finished goods and all other inventory of whatsoever kind or
nature, wherever located.
1.29 "LSB" shall mean LSB Industries, Inc., a Delaware
corporation.
1.30 "Letter of Credit Accommodations" shall mean the letters
of credit, merchandise purchase or other guaranties which are from
time to time either (a) issued or opened by Lender for the account
of any Borrower or Borrowers or any Obligor or (b) with respect to
which Lender has agreed to indemnify the issuer or guaranteed to
the issuer the performance by any Borrower or Borrowers of its or
their obligations to such issuer.
1.31 "Loans" shall mean the Revolving Loans and the Term Loan.
1.32 "Maximum Credit" shall mean the amount of $18,550,000.
1.33 "Maximum Legal Rate" shall have the meaning set forth in
Section 3.1 hereof.
1.34 "Net Amount of Eligible Accounts" shall mean the gross
amount of Eligible Accounts less (a) sales, excise or similar taxes
included in the amount thereof and (b) returns, discounts, claims,
credits (including unissued credits) and allowances of any nature
at any time issued, owing, granted, outstanding, available or
claimed with respect thereto.
1.35 "Net Worth" shall mean as to any Person, at any time, in
accordance with GAAP (except as otherwise specifically set forth
below), on a consolidated basis for such Person and its
subsidiaries (if any), the amount equal to: (a) the difference
between: (i) the aggregate net book value of all assets of such
Person and its subsidiaries, calculating the book value of
inventory for this purpose on a first-in-first-out basis, after
deducting from such book values all appropriate reserves in
accordance with GAAP (including all reserves for doubtful
receivables, obsolescence, depreciation and amortization) and (ii)
the aggregate amount of the indebtedness and other liabilities of
such Person and its subsidiaries (including tax and other proper
accruals) less (b) the value of any asset of such Person arising
from the conversion of any indebtedness or other liability of such
Person to equity.
1.36 "Obligations" shall mean any and all Revolving Loans, the
Term Loan, Letter of Credit Accommodations and all other
obligations, liabilities and indebtedness of every kind, nature and
description owing by each and every Borrower to Lender and/or its
affiliates, including principal, interest, charges, fees, costs and
expenses, however evidenced, whether as principal, surety,
9
endorser, guarantor or otherwise, whether arising under the
Financing Agreements, whether now existing or hereafter arising,
whether arising before, during or after the initial or any renewal
term of this Agreement or after the commencement of any case with
respect to any such Borrower under the United States Bankruptcy
Code or any similar statute (including the payment of interest and
other amounts which would accrue and become due but for the
commencement of such case, whether or not such amounts are allowed
or allowable in whole or in part in such case), whether direct or
indirect, absolute or contingent, joint or several, due or not due,
primary or secondary, liquidated or unliquidated, secured or
unsecured.
1.37 "Obligor" shall mean any guarantor, endorser, acceptor,
surety or other person liable on or with respect to the Obligations
or who is the owner of any property which is security for the
Obligations, other than any Borrower.
1.38 "Payment Account" shall have the meaning set forth in
Section 6.3 hereof.
1.39 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including any corporation
which elects subchapter S status under the Internal Revenue Code of
1986, as amended), limited liability company, limited liability
partnership, business trust, unincorporated association, joint
stock corporation, trust, joint venture or other entity or any
government or any agency or instrumentality or political
subdivision thereof.
1.40 "Prime Rate" shall mean the rate from time to time
publicly announced by First Union National Bank or its successors,
at its office in Charlotte, North Carolina, as its prime rate,
whether or not such announced rate is the best rate available at
such bank.
1.41 "Prime Rate Loans" shall mean any Loans or portion
thereof on which interest is payable based on the Prime Rate in
accordance with the terms thereof.
1.42 "Records" shall mean all of each Borrower's present and
future books of account of every kind or nature, purchase and sale
agreements, invoices, ledger cards, bills of lading and other
shipping evidence, statements, correspondence, memoranda, credit
files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data
and software storage media and devices, file cabinets or containers
in or on which the foregoing are stored (including any rights of
such Borrower with respect to the foregoing maintained with or by
any other person).
1.43 "Reference Bank" shall mean First Union National Bank, or
such other bank as Lender may from time to time designate.
1.44 "Revolving Loans" shall mean the loans now or hereafter
made by Lender to or for the benefit of each Borrower on a
revolving basis (involving advances, repayments and readvances) as
set forth in Section 2.1 hereof.
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1.45 "Subordination Agreements" shall mean the Subordination
Agreement, of even date herewith, between LSB, Guarantor and
Borrowers, as amended, modified, supplemented, extended, renewed,
restated or replaced, subordinating the obligations owed by and
among Borrowers to Guarantor and LSB, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
1.46 "Term Loan" shall mean the term loan made by Lender to
Borrowers as provided for in Section 2.3 hereof.
1.47 "Term Promissory Note" shall have the meaning set
forth in Section 2.3 hereof.
1.48 "Value" shall mean, as determined by Lender in good
faith, with respect to Inventory, the lower of (a) cost computed on
a first-in-first-out basis in accordance with GAAP or (b) market
value.
SECTION 2. CREDIT FACILITIES
2.1 Revolving Loans.
(a) Subject to and upon the terms and conditions
contained herein, Lender agrees to make Revolving Loans to
Borrowers from time to time in amounts requested by such Borrower
or Borrowers up to the amount equal to the sum of:
(i) eighty-five percent (85%) of the Net Amount of
Eligible Accounts of such Borrower or Borrowers; provided,
however, the amount of Revolving Loans outstanding with
respect to Advance Auto Accounts which are not fully insured
by credit insurance payable to Lender issued by an insurer and
on terms and in an amount acceptable to Lender shall not
exceed $3,000,000, and provided further, subject to the
provisions of Section 9.7, with respect to IBI, the amount of
Revolving Loans outstanding at any time with respect to
Eligible Accounts shall not exceed $1,600,000; plus
(ii) the lesser of: (A) the sum of forty percent
(40%) of the Value of Eligible Inventory consisting of
finished goods plus thirty percent and (30%) of the Value of
Eligible Inventory consisting of raw materials for such
finished goods or (B) $7,500,000; provided, however, subject
to the provisions of Section 9.7, with respect to IBI, the
amount of Revolving Loans outstanding at any time with respect
to Eligible Inventory shall not exceed $1,000,000.; less
(iii) any Availability Reserves.
The unused portion of the sublimits available to IBI may be
utilized by the other Borrowers.
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(b) Lender may, in its discretion, from time to time,
upon not less than five (5) days prior notice to Borrowers, (i)
reduce the lending formula for with respect to Eligible Accounts to
the extent that Lender determines in good faith that: (A) the
dilution with respect to the Accounts for any period (based on the
ratio of (1) the aggregate amount of reductions in Accounts other
than as a result of payments in cash to (2) the aggregate amount
of total sales) has increased in any material respect or may
reasonably be anticipated to increase in any material respect,
above historical levels or (B) the general creditworthiness of
account debtors of Borrowers has declined or (ii) adjust the
lending formula(s) for Borrowers with respect to Eligible Inventory
to the extent that Lender determines that: (A) the number of days
of the turnover of the Inventory for any period has changed in any
material respect or (B) the liquidation value of the Eligible
Inventory, or any category thereof, has decreased, or (C) the
nature and quality of the Inventory has deteriorated. In
determining whether to reduce the lending formula(s), Lender may
consider events, conditions, contingencies or risks which are also
considered in determining Eligible Accounts, Eligible Inventory or
in establishing Availability Reserves.
(c) Except in Lender's discretion, the aggregate amount
of the Loans and the Letter of Credit Accommodations outstanding to
all Borrowers at any time shall not exceed the Maximum Credit. In
the event that the outstanding amount of any component of the
Loans, or the aggregate amount of the outstanding Loans and Letter
of Credit Accommodations, exceed the amounts available under the
lending formulas, the sublimits for Letter of Credit Accommodations
set forth in Section 2.2(d) or the Maximum Credit, as applicable,
such event shall not limit, waive or otherwise affect any rights of
Lender in that circumstance or on any future occasions and any
Borrower shall, upon demand by Lender, which may be made at any
time or from time to time, immediately repay to Lender the entire
amount of any such excess(es) for which payment is demanded.
(d) For purposes only of applying the sublimit on
Revolving Loans based on Eligible Inventory pursuant to
Section 2.1(a)(ii)(B), Lender may treat the then undrawn amounts of
outstanding Letter of Credit Accommodations for the purpose of
purchasing Eligible Inventory as Revolving Loans to the extent
Lender is in effect basing the issuance of the Letter of Credit
Accommodations on the Value of the Eligible Inventory being
purchased with such Letter of Credit Accommodations. In
determining the actual amounts of such Letter of Credit
Accommodations to be so treated for purposes of the sublimit, the
outstanding Revolving Loans and Availability Reserves shall be
attributed first to any components of the lending formulas in
Section 2.1(a) that are not subject to such sublimit, before being
attributed to the components of the lending formulas subject to
such sublimit.
2.2 Letter of Credit Accommodations.
(a) Subject to and upon the terms and conditions
contained herein, at the request of any Borrower, Lender agrees to
provide or arrange for Letter of Credit Accommodations for the
account of Borrowers containing terms and conditions acceptable to
Lender and the issuer thereof. Any payments made by Lender to any
issuer thereof and/or related parties in connection with the Letter
of Credit Accommodations shall constitute additional Revolving
Loans to Borrowers pursuant to this Section 2.
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(b) In addition to any charges, fees or expenses charged
by any bank or issuer in connection with the Letter of Credit
Accommodations, Borrowers shall pay to Lender a letter of credit
fee at a rate equal to one and one-half percent (1.5%) per annum on
the daily outstanding balance of the Letter of Credit
Accommodations for the immediately preceding month (or part
thereof), payable in arrears as of the first day of each succeeding
month, except that Borrowers shall pay to Lender such letter of
credit fee, at Lender's option, without notice, at a rate equal to
three and one-half percent (3 1/2%) per annum on such daily
outstanding balance for: (i) the period from and after the date of
termination hereof until Lender has received full and final payment
of all Obligations (notwithstanding entry of a judgment against any
Borrower) and (ii) the period from and after the date of the
occurrence of an Event of Default for so long as such Event of
Default is continuing as determined by Lender. Such letter of
credit fee shall be calculated on the basis of a three hundred
sixty (360) day year and actual days elapsed and the obligation of
Borrowers to pay such fee shall survive the termination or non-
renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be
available unless on the date of the proposed issuance of any Letter
of Credit Accommodations, the Revolving Loans available to any
Borrowers (subject to the Maximum Credit and any Availability
Reserves) are equal to or greater than: (i) if the proposed Letter
of Credit Accommodation is for the purpose of purchasing Eligible
Inventory, the sum of (A) seventy percent (70%) of the cost of such
Eligible Inventory, plus (B) freight, taxes, duty and other amounts
which Lender estimates must be paid in connection with such
Inventory upon arrival and for delivery to one of such Borrower's
locations for Eligible Inventory within the United States of
America and (ii) if the proposed Letter of Credit Accommodation is
for any other purpose, an amount equal to one hundred (100%)
percent of the face amount thereof and all other commitments and
obligations made or incurred by Lender with respect thereto.
Effective on the issuance of each Letter of Credit Accommodation,
an Availability Reserve shall be established in the applicable
amount set forth in Section 2.2(c)(i) or Section 2.2(c)(ii).
(d) Except in Lender's discretion, the amount of all
outstanding Letter of Credit Accommodations and all other
commitments and obligations made or incurred by Lender in
connection therewith shall not at any time exceed $3,000,000 with
respect to all Borrowers; provided, however, that no Letter of
Credit Accommodations shall be made with respect to IBI. At any
time an Event of Default exists or has occurred and is continuing,
upon Lender's request, Borrowers will either furnish cash
collateral to secure the reimbursement obligations to the issuer in
connection with any Letter of Credit Accommodations or furnish cash
collateral to Lender for the Letter of Credit Accommodations, and
in either case, the Revolving Loans otherwise available to
Borrowers shall not be reduced as provided in Section 2.2(c) to the
extent of such cash collateral.
(e) Each Borrower shall jointly and severally indemnify
and hold Lender harmless from and against any and all losses,
claims, damages, liabilities, costs and expenses which Lender may
suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating
13
thereto, including any losses, claims, damages, liabilities, costs
and expenses due to any action taken by any issuer or correspondent
with respect to any Letter of Credit Accommodation. Each Borrower
assumes all risks with respect to the acts or omissions of the
drawer under or beneficiary of any Letter of Credit Accommodation
and for such purposes the drawer or beneficiary shall be deemed
such Borrower's agent. Each Borrower assumes all risks for, and
agrees to pay, all foreign, Federal, State and local taxes, duties
and levies relating to any goods subject to any Letter of Credit
Accommodations or any documents, drafts or acceptances thereunder.
Each Borrower hereby releases and holds Lender harmless from and
against any acts, waivers, errors, delays or omissions, whether
caused by any Borrower, by any issuer or correspondent or otherwise
with respect to or relating to any Letter of Credit Accommodation.
The provisions of this Section 2.2(e) shall survive the payment of
Obligations and the termination of this Agreement.
(f) Nothing contained herein shall be deemed or
construed to grant any Borrower any right or authority to pledge
the credit of Lender in any manner. Lender shall have no liability
of any kind with respect to any Letter of Credit Accommodation
provided by an issuer other than Lender unless Lender has duly
executed and delivered to such issuer the application or a
guarantee or indemnification in writing with respect to such Letter
of Credit Accommodation. Each Borrower shall be bound by any
reasonable interpretation made in good faith by Lender, or any
other issuer or correspondent under or in connection with any
Letter of Credit Accommodation or any documents, drafts or
acceptances thereunder, notwithstanding that such interpretation
may be inconsistent with any instructions of such or any Borrower.
Lender shall have the sole and exclusive right and authority to:
(i) at any time an Event of Default exists or has occurred and is
continuing, (A) approve or resolve any questions of non-compliance
of documents, (B) give any instructions as to acceptance or
rejection of any documents or goods or (C) execute any and all
applications for steamship or airway guaranties, indemnities or
delivery orders, and (ii) at all times, (A) grant any extensions of
the maturity of, time of payment for, or time of presentation of,
any drafts, acceptances, or documents, and (B) agree to any
amendments, renewals, extensions, modifications, changes or
cancellations of any of the terms or conditions of any of the
applications, Letter of Credit Accommodations, or documents, drafts
or acceptances thereunder or any letters of credit included in the
Collateral. Lender may take such actions either in its own name or
in any Borrower's name.
(g) Any rights, remedies, duties or obligations granted
or undertaken by any Borrower to any issuer or correspondent in any
application for any Letter of Credit Accommodation, or any other
agreement in favor of any issuer or correspondent relating to any
Letter of Credit Accommodation, shall be deemed to have been
granted or undertaken by any Borrower to Lender. Any duties or
obligations undertaken by Lender to any issuer or correspondent in
any application for any Letter of Credit Accommodation, or any
other agreement by Lender in favor of any issuer or correspondent
relating to any Letter of Credit Accommodation, shall be deemed to
have been undertaken by any Borrower to Lender and to apply in all
respects to such Borrower.
2.3 Term Loan.
(a) Lender is making a Term Loan to Borrowers in the
original principal amount of $2,550,000. The Term Loan is (i)
evidenced by a Term Promissory Note, substantially in the form of
14
Exhibit C attached hereto, in such original principal amount (the
"Term Promissory Note") duly executed and delivered by Borrowers to
Lender concurrently herewith; (ii) to be repaid, together with
interest and other amounts, in accordance with this Agreement, the
Term Promissory Note, and the other Financing Agreements and (a)
secured by all of the Collateral; provided, however, no amount of
the Term Loan shall be made available to IBI.
(b) Lender shall on at least thirty (30) days prior
written request (the "Release Request") from Borrowers and at
Borrowers' expense, release Lender's security interest in the
Equipment upon the payment in full of the Term Loan and
satisfaction of all of the following terms and conditions:
(i) Borrowers, on a consolidated basis, shall have net
income (exclusive of extraordinary gains and losses) in an
aggregate amount of not less than $2,000,000 for the fiscal
year of Borrowers immediately preceding the date of the
Release Request as shown on the financial statements of
Borrowers furnished to Lender pursuant to Section 9.6(a)(ii)
hereof and there shall not have been any material adverse
change since the date of such statement;
(ii) Excess Availability at the date of the Release
Request and at the time of the final release agreement shall
be in an amount of not less than $5,000,000;
(iii) Borrowers shall have received a bonafide
written offer from a third party financial institution with
respect to such Equipment to provide secured refinancing of
the Equipment;
(iv) No Event of Default or any Event which with notice
or lapse of time, will constitute an Event of Default shall
have occurred and be continuing at the Release Date; and
(v) Borrowers shall provide a certificate from an
officer of each Borrower representing that all the foregoing
conditions are satisfied on the Release Date;
(vi) Notwithstanding that Borrowers have satisfied the
foregoing conditions, Lender shall have the right (but not the
obligation) to exercise a right of first refusal to finance
such Equipment in accordance with the provisions of Section
2.7 hereof as if such Equipment were "Option Equipment"
thereunder. The Release Request shall be treated as the
Option Notice for purposes of applying the provisions of
Section 2.7 hereof.
2.4 Availability Reserves. All Revolving Loans otherwise
available to any Borrower pursuant to the lending formulas and
subject to the Maximum Credit and other applicable limits hereunder
shall be subject to Lender's continuing right to establish and
revise Availability Reserves as provided herein.
15
2.5 Joint and Several Liability; Rights of Contribution.
(a) Each Borrower states and acknowledges that: (i)
pursuant to this Agreement, such Borrower desires to utilize its
borrowing potential on a consolidated basis to the same extent
possible if it was merged into a single corporate entity with all
other Borrowers and that this Agreement reflects the establishment
of credit facilities which would not otherwise be available to such
Borrower if such Borrower were not jointly and severally liable for
payment of all of the Obligations; (ii) it has determined that it
will benefit specifically and materially from the advances of
credit contemplated by this Agreement; (iii) it is both a condition
precedent to the obligations of Lender hereunder and a desire of
the Borrowers that each Borrower execute and deliver to Lender this
Agreement; and (iv) Borrowers have requested and bargained for the
structure and terms of and security for the advances contemplated
by this Agreement.
(b) Each Borrower hereby irrevocably and
unconditionally: (i) agrees that it is jointly and severally liable
to Lender for the full and prompt payment of the Obligations and
the performance by each Borrower of its obligations hereunder in
accordance with the terms hereof; (ii) to the extent provided
herein agrees to fully and promptly perform all of its obligations
hereunder with respect to each advance of credit hereunder as if
such advance had been made directly to it; and (iii) agrees as a
primary obligation to indemnify Lender on demand for and against
any loss incurred by Lender as a result of any of the Obligations
of any one or more of the Borrowers being or becoming void,
voidable, unenforceable or ineffective for any reason whatsoever,
whether or not known to Lender or any Person, the amount of such
loss being the amount which Lender would otherwise have been
entitled to recover, without duplication, from any one or more of
the Borrowers.
(c) It is the intent of each Borrower that the
indebtedness, obligations and liability hereunder of no one of them
be subject to challenge on any basis, including, without
limitation, pursuant to any applicable fraudulent conveyance or
fraudulent transfer laws. Accordingly, as of the date hereof, the
liability of each Borrower under this section, together with all of
its other liabilities to all Persons as of the date hereof and as
of any other date on which a transfer or conveyance is deemed to
occur by virtue of this Agreement, calculated in amount sufficient
to pay its probable net liabilities on its existing indebtedness as
the same become absolute and matured ("Dated Liabilities") is, and
is to be, less than the amount of the aggregate of a fair valuation
of its property as of such corresponding date ("Dated Assets"). To
this end, each Borrower under this section, (i) grants to and
recognizes in each other Borrower, ratably, rights of subrogation
and contribution in the amount, if any, by which the Dated Assets
of such Borrower, but for the aggregate of subrogation and
contribution in its favor recognized herein, would exceed the Dated
Liabilities of such Borrower or, as the case may be, (ii)
acknowledges receipt of and recognizes its right to subrogation and
contribution ratably from each of the other Borrowers in the
amount, if any, by which the Dated Liabilities of such Borrower,
but for the aggregate of subrogation and contribution in its favor
recognized herein, would exceed the Dated Assets of such Borrower
under this section. In recognizing the value of the Dated Assets
and the Dated Liabilities, it is understood that Borrowers will
recognize, to at least the same extent of their aggregate
recognition of liabilities hereunder, their rights to subrogation
and contribution hereunder. It is a material objective of this
section that each Borrower recognizes rights to subrogation and
contribution rather than be deemed to be insolvent (or in
contemplation thereof) by reason of an arbitrary interpretation of
16
its joint and several obligations hereunder. In addition to and
not in limitation of the foregoing provisions of this section, the
Borrowers and Lender hereby agree and acknowledge that it is the
intent of each Borrower and of Lender that the obligations of each
Borrower hereunder be in all respects in compliance with, and not
be voidable pursuant to, applicable fraudulent conveyance and
fraudulent transfer laws.
2.6 Structure of Credit Facility. Each Borrower agrees and
acknowledges that the present structure of the credit facilities
detailed in this Agreement is based in part upon the financial and
other information presently known to Lender regarding each
Borrower, the corporate structure of Borrowers, and the present
financial condition of each Borrower. Each Borrower hereby agrees
that Lender shall have the right, in Lender's good faith credit
judgment, to require that any or all of the following changes be
made to these credit facilities: (i) restrict loans and advances
between Borrowers, (ii) establish separate lockbox and dominion
accounts for each Borrower, and (iii) establish such other
procedures as shall be reasonably deemed by Lender to be useful in
tracking where the Revolving Loans are made under this Agreement
and the source of payments received by Lender on such Revolving
Loans.
2.7 Right of First Refusal. Pursuant to the provisions of
Section 9.9(e), each time any Borrower proposes to refinance all or
any part of its Equipment listed on Attachment I hereto (the
"Option Equipment"), Lender shall have the right (but not the
obligation) to exercise a right of first refusal to finance such
Option Equipment in accordance with the following provisions:
(a) Option Notice. Such Borrower shall deliver a
written notice ("Option Notice") to Lender stating (i) such
Borrower's bona fide intention to obtain financing for the Option
Equipment from a third party (each an "Equipment Lender") (which
may be a party existing and providing financing on the date hereof)
with respect to such Option Equipment (each such financing by any
financing party including the Lender being a "Refinancing"), (ii)
the terms and conditions of the proposed financing in reasonable
detail, including, without limitation, (A) the applicable interest
or other pricing, including financing fees, (B) the term of the
financing, and (C) and any covenants affecting such Borrower, and
(iii) the name and address of the proposed Equipment Lender and
other information reasonably requested by Lender (including an
executed copy of a written proposal or commitment of the proposed
Equipment Lender).
(b) Lender Financing Right. Within twenty (20) days
after receipt of the Option Notice, Lender shall have the right,
but not the obligation, to elect to provide financing for the
Option Equipment upon the price and terms of the applicable
Refinancing designated in the Option Notice, by providing a written
term sheet in a customary form for Lender containing terms
substantially identical to the terms provided to such Borrower by
the Equipment Lender for such Refinancing.
(c) Closing of Transfer. If Lender elects to provide
the Refinancing in place of the Equipment Lender as set forth in
the Option Notice, then the closing of such purchase shall occur as
soon as practicable, but in any event thirty (30) days after
receipt of such notice, and such Borrower, each other Borrower, the
Guarantor and other parties to the Financing Agreements which may
be affected thereby and Lender shall execute such documents and
17
instruments, provide such due diligence, take such actions and make
such deliveries as may be reasonably required by Lender to close
and fund such Refinancing.
(d) Equipment Lender's Refinancing Right. If Lender
elects not to provide the Refinancing designated in the Option
Notice, then such Borrower may complete the such proposed
Refinancing within sixty (60) days after the expiration of Lender's
right described in clause (b) above to provide such Refinancing
with the Equipment Lender on the terms presented to Lender under
this section. If such Refinancing by the Equipment Lender is not
completed within such sixty (60) day period, then the procedures
set forth in this section must be followed again as if any prior
Option Notice had not been given with respect to such Refinancing
or the Option Equipment.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Each Borrower shall pay to Lender interest on the
outstanding principal amount of the non-contingent Obligations at
the Interest Rate. All interest accruing hereunder on and after
the date of any Event of Default or termination hereof shall be
payable on demand.
(b) Borrowers may from time to time request that Prime
Rate Loans be converted to Eurodollar Rate Loans or that any
existing Eurodollar Rate Loans continue for an additional Interest
Period. Such request from Borrowers shall specify the amount of
the Prime Rate Loans which will constitute Eurodollar Rate Loans
(subject to the limits set forth below) and the Interest Period to
be applicable to such Eurodollar Rate Loans. Subject to the terms
and conditions contained herein, three (3) Business Days after
receipt by Lender of such a request from Borrowers, such Prime Rate
Loans shall be converted to Eurodollar Rate Loans or such
Eurodollar Rate Loans shall continue, as the case may be, provided,
that, (i) no Event of Default, or event which with notice or
passage of time or both would constitute an Event of Default exists
or has occurred and is continuing, (ii) no party hereto shall have
sent any notice of termination or non-renewal of this Agreement,
(iii) Borrowers shall have complied with such customary procedures
as are established by Lender and specified by Lender to Borrowers
from time to time for requests by Borrowers for Eurodollar Rate
Loans, (iv) no more than four (4) Interest Periods may be in effect
at any one time, (v) the aggregate amount of the Eurodollar Rate
Loans must be in an amount not less than $5,000,000 or an integral
multiple of $1,000,000 in excess thereof, (vi) the maximum amount
of the Eurodollar Rate Loans at any time requested by Borrowers
shall not exceed the amount equal to (A) the principal amount of
the Term Loan which it is anticipated will be outstanding as of the
last day of the applicable Interest Period plus (B) eighty percent
(80%) of the lowest principal amount of the Revolving Loans which
it is anticipated will be outstanding during the applicable
Interest Period, in each case as determined by Lender (but with no
obligation of Lender to make such Revolving Loans) and (vii) Lender
shall have determined that the Interest Period or Adjusted
Eurodollar Rate is available to Lender through the Reference Bank
and can be readily determined as of the date of the request for
such Eurodollar Rate Loan by Borrowers. Any request by Borrowers
to convert Prime Rate Loans to Eurodollar Rate Loans or to continue
any existing Eurodollar Rate Loans shall be irrevocable.
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Notwithstanding anything to the contrary contained herein, Lender
and Reference Bank shall not be required to purchase United States
Dollar deposits in the London interbank market or other applicable
Eurodollar Rate market to fund any Eurodollar Rate Loans, but the
provisions hereof shall be deemed to apply as if Lender and
Reference Bank had purchased such deposits to fund the Eurodollar
Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically
convert to Prime Rate Loans upon the last day of the applicable
Interest Period, unless Lender has received and approved a request
to continue such Eurodollar Rate Loan at least three (3) Business
Days prior to such last day in accordance with the terms hereof.
Any Eurodollar Rate Loans shall, at Lender's option, upon notice by
Lender to Borrowers, convert to Prime Rate Loans in the event that
(i) an Event of Default or event which, with the notice or passage
of time, or both, would constitute an Event of Default, shall
exist, (ii) this Agreement shall terminate, or (iii) the aggregate
principal amount of the Prime Rate Loans which have previously been
converted to Eurodollar Rate Loans or existing Eurodollar Rate
Loans continued, as the case may be, at the beginning of an
Interest Period shall at any time during such Interest Period
exceed either (A) the aggregate principal amount of the Loans then
outstanding, or (B) the sum of the then outstanding principal
amount of the Term Loan plus the Revolving Loans then available to
Borrowers under Section 2 hereof. Borrowers shall pay to Lender,
upon demand by Lender (or Lender may, at its option, charge any
loan account of Borrowers) any amounts required to compensate
Lender, the Reference Bank or any participant with Lender for any
loss (including loss of anticipated profits), cost or expense
incurred by such person, as a result of the conversion of
Eurodollar Rate Loans to Prime Rate Loans pursuant to any of the
foregoing.
(d) Interest shall be payable by Borrowers to Lender
monthly in arrears not later than the first day of each calendar
month and shall be calculated on the basis of a three hundred sixty
(360) day year and actual days elapsed. The interest rate on non-
contingent Obligations (other than Eurodollar Rate Loans) shall
increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the first day of the month
after any change in such Prime Rate is announced based on the Prime
Rate in effect on the last day of the month in which any such
change occurs.
(e) No agreements, conditions, provisions or
stipulations contained in this Agreement or any other instrument,
document or agreement between one or more Borrowers and Lender or
default of such Borrower(s), or the exercise by Lender of the right
to accelerate the payment of the maturity of principal and
interest, or to exercise any option whatsoever contained in this
Agreement or any other Financing Agreement, or the arising of any
contingency whatsoever, shall entitle Lender to contract for,
charge, or receive, in any event, interest exceeding the maximum
rate of interest permitted by applicable state or federal law in
effect from time to time (hereinafter "Maximum Legal Rate"). In no
event shall any Borrower be obligated to pay interest exceeding
such Maximum Legal Rate and all agreements, conditions or
stipulations, if any, which may in any event or contingency
whatsoever operate to bind, obligate or compel such Borrower to pay
a rate of interest exceeding the Maximum Legal Rate, shall be
without binding force or effect, at law or in equity, to the extent
only of the excess of interest over such Maximum Legal Rate. In
the event any interest is contracted for, charged or received in
excess of the Maximum Legal Rate ('"Excess"), each Borrower
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acknowledges and stipulates that any such contract, charge, or
receipt shall be the result of an accident and bona fide error, and
that any Excess received by Lender shall be applied, first, to
reduce the principal then unpaid hereunder; second, to reduce the
other Obligations; and third, returned to such Borrower, it being
the intention of the parties hereto not to enter at any time into
a usurious or otherwise illegal relationship. Each Borrower
recognizes that, with fluctuations in the Prime Rate, the LIBOR
Rate and the Maximum Legal Rate, such a result could inadvertently
occur. By the execution of this Agreement, each Borrower covenants
that (i) the credit or return of any Excess shall constitute the
acceptance by such Borrower of such Excess, and (ii) such Borrower
shall not seek or pursue any other remedy, legal or equitable,
against Lender, based in whole or in part upon contracting for,
charging or receiving of any interest in excess of the maximum
authorized or receiving of any interest in excess of the maximum
authorized by applicable law (so long as any Excess is returned to
Borrower). For the purpose of determining whether or not any
Excess has been contracted for, charged or received by Lender, all
interest at any time contracted for, charged or received by Lender
in connection with this Agreement shall be amortized, prorated,
allocated and spread in equal parts during the entire term of this
Agreement.
3.2 Closing Fee. Borrowers shall pay to Lender as a closing
fee the amount of $135,000, which shall be fully earned as of and
payable on the date hereof.
3.3 Servicing Fee. Borrowers shall pay to Lender monthly a
servicing fee in an amount equal to $3,000 in respect of Lender's
services for each month (or part thereof) while this Agreement
remains in effect and for so long thereafter as any of the
Obligations are outstanding, which fee shall be fully earned as of
and payable in advance on the date hereof and on the first day of
each month hereafter.
3.4 Unused Line Fee. Borrowers shall pay to Lender monthly
an unused line fee at a rate equal to one-half percent (.5%) per
annum calculated upon the amount by which $16,000,000 exceeds the
average daily principal balance of the outstanding Revolving Loans
and Letter of Credit Accommodations during the immediately
preceding month (or part thereof) while this Agreement is in effect
and for so long thereafter as any of the Obligations are
outstanding, which fee shall be payable on the first day of each
month in arrears.
3.5 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained
herein, all Eurodollar Rate Loans shall, upon notice by Lender to
Borrowers, convert to Prime Rate Loans in the event that (i) any
change in applicable law or regulation (or the interpretation or
administration thereof) shall either (A) make it unlawful for
Lender, Reference Bank or any participant to make or maintain
Eurodollar Rate Loans or to comply with the terms hereof in
connection with the Eurodollar Rate Loans, or (B) shall result in
the increase in the costs to Lender, Reference Bank or any
participant of making or maintaining any Eurodollar Rate Loans by
an amount deemed by Lender to be material, or (C) reduce the
amounts received or receivable by Lender in respect thereof, by an
amount deemed by Lender to be material or (ii) the cost to Lender,
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Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans shall otherwise increase by an amount deemed
by Lender to be material. Each Borrower shall pay to Lender, upon
demand by Lender (or Lender may, at its option, charge any loan
account of such Borrower) any amounts required to compensate
Lender, the Reference Bank or any participant with Lender for any
loss (including loss of anticipated profits), cost or expense
incurred by such person as a result of the foregoing, including,
without limitation, any such loss, cost or expense incurred by
reason of the liquidation or reemployment of deposits or other
funds acquired by such person to make or maintain the Eurodollar
Rate Loans or any portion thereof. A certificate of Lender setting
forth the basis for the determination of such amount necessary to
compensate Lender as aforesaid shall be delivered to Borrowers and
shall be conclusive, absent manifest error.
(b) If any payments or prepayments in respect of the
Eurodollar Rate Loans are received by Lender other than on the last
day of the applicable Interest Period (whether pursuant to
acceleration, upon maturity or otherwise), including any payments
pursuant to the application of collections under Section 6.3 or any
other payments made with the proceeds of Collateral, each affected
Borrower shall pay to Lender upon demand by Lender (or Lender may,
at its option, charge any loan account of such Borrower) any
amounts required to compensate Lender, the Reference Bank or any
participant with Lender for any additional loss (including loss of
anticipated profits), cost or expense incurred by such person as a
result of such prepayment or payment, including, without
limitation, any loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by
such person to make or maintain such Eurodollar Rate Loans or any
portion thereof.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of
Credit Accommodations. Each of the following is a condition
precedent to Lender making the initial Loans and providing the
initial Letter of Credit Accommodations hereunder:
(a) Lender shall have received evidence, in form and
substance satisfactory to Lender, that Lender has valid perfected
and first priority security interests in and liens upon the
Collateral, subject only to the security interests and liens
permitted herein or in the other Financing Agreements;
(b) all requisite corporate action and proceedings in
connection with this Agreement and the other Financing Agreements
shall be satisfactory in form and substance to Lender, and Lender
shall have received all information and copies of all documents,
including records of requisite corporate action and proceedings
which Lender may have reasonably requested in connection therewith,
such documents where requested by Lender or its counsel to be
certified by appropriate corporate officers or governmental
authorities;
(c) no material adverse change shall have occurred in
the assets, business or prospects of Borrowers as taken as a whole
since the date of Lender's latest field examination and no change
or event shall have occurred which would materially impair the
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ability of the Borrowers when taken as a whole to perform their
obligations hereunder or under any of the other Financing
Agreements to which they are a party or of Lender to enforce the
Obligations or realize upon the Collateral;
(d) Lender shall have completed a field review of the
Records and such other information with respect to the Collateral
as Lender may require to determine the amount of Revolving Loans
available to Borrowers, the results of which shall be satisfactory
to Lender, not more than three (3) Business Days prior to the date
hereof;
(e) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and
other agreements from third persons which Lender may deem necessary
or desirable in order to permit, protect and perfect its security
interests in and liens upon the Collateral or to effectuate the
provisions or purposes of this Agreement and the other Financing
Agreements, including acknowledgments by lessors, mortgagees and
warehousemen of Lender's security interests in the Collateral,
waivers by such persons of any security interests, liens or other
claims by such persons to the Collateral and agreements permitting
Lender access to, and the right to remain on for a reasonable
period of time, the premises to exercise its rights and remedies
and otherwise deal with the Collateral;
(f) Lender shall have received evidence of insurance
(including credit insurance on Advance Auto Accounts in amounts
satisfactory to Lender) and loss payee endorsements required
hereunder and under the other Financing Agreements, in form and
substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(g) Lender shall have received, in form and substance
satisfactory to Lender, such opinion letters of in-house counsel to
Borrowers with respect to the Financing Agreements and such other
matters as Lender may request;
(h) the other Financing Agreements and all instruments
and documents hereunder and thereunder shall have been duly
executed and delivered to Lender, in form and substance
satisfactory to Lender; and
(i) the Excess Availability as determined by Lender, as
of the date hereof, shall be not less than $3,500,000 after giving
effect to the initial Loans made or to be made and Letter of Credit
Accommodations issued or to be issued in connection with the
initial transactions hereunder.
(j) the Lender shall have received in form and substance
satisfactory to Lender, an appraisal of the Collateral;
(k) Lender shall have received the Collateral Letter of
Credit;
(l) Lender shall have received, in form and substance
satisfactory to Lender, the Subordination Agreement;
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(m) Lender shall have received, in form and substance
satisfactory to Lender, a Guaranty from Guarantor of the
Obligations;
(n) Lender shall have received a payment in cash in the
amount of $550,000.00, in the form of a wire transfer from Borrower
or any affiliate of Borrower for the credit of Borrower; and
(o) Lender shall have received such other agreements and
documents which Lender shall requested.
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition
precedent to Lender making Loans and/or providing Letter of Credit
Accommodations to Borrowers, including the initial Loans and Letter
of Credit Accommodations and any future Loans and Letter of Credit
Accommodations:
(a) all representations and warranties contained herein
and in the other Financing Agreements shall be true and correct in
all material respects with the same effect as though such
representations and warranties had been made on and as of the date
of the making of each such Loan or providing each such Letter of
Credit Accommodation and after giving effect thereto; and
(b) no Event of Default and no event or condition which,
with notice or passage of time or both, would constitute an Event
of Default, shall exist or have occurred and be continuing on and
as of the date of the making of such Loan or providing each such
Letter of Credit Accommodation and after giving effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations, each
Borrower hereby grants to Lender a continuing security interest in,
a lien upon, and a right of set off against, and hereby assigns to
Lender as security, the following property and interests in
property of any Borrower, whether now owned or hereafter acquired
or existing, and wherever located (collectively, the "Collateral"):
5.1 Accounts;
5.2 all present and future contract rights, general
intangibles (including tax and duty refunds), registered and
unregistered patents, patent rights, patent applications,
trademarks, trademark registrations, trademark applications,
service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or
licensee, chooses in action and other claims and existing and
hereinafter arising leasehold interests in equipment, real estate
and fixtures), chattel paper, documents, instruments, securities
and other investment property (other than the equity shares of
stock of any of the Borrowers), letters of credit, bankers'
acceptances and guaranties;
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5.3 all present and future monies, securities, credit
balances, deposits, deposit accounts and other property of such
Borrower now or hereafter held or received by or in transit to
Lender or its affiliates or at any other depository or other
institution from or for the account of such Borrower, whether for
safekeeping, pledge, custody, transmission, collection or
otherwise, and all present and future liens, security interests,
rights, remedies, title and interest in, to and in respect of
Accounts and other Collateral, including (a) rights and remedies
under or relating to guaranties, contracts of suretyship, letters
of credit and credit and other insurance related to the Collateral,
(b) rights of stoppage in transit, replevin, repossession,
reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, (c) goods described in invoices,
documents, contracts or instruments with respect to, or otherwise
representing or evidencing, Accounts or other Collateral, including
returned, repossessed and reclaimed goods, and (d) rights of
Borrowers in deposits by and property of account debtors or other
persons securing the obligations of account debtors to Borrowers or
any Borrower;
5.4 Inventory;
5.5 Equipment, excluding the Equipment identified on
Attachment I attached hereto and incorporated herein by this
reference if and to the extent a lien has been granted by any
Borrower in respect of such Equipment and obligations remain
outstanding with respect to such lien and Equipment).
5.6 Records; and
5.7 all products and proceeds of the foregoing, in any form,
including insurance proceeds and all claims and proceeds of any
claims against third parties for loss or damage to or destruction
of any or all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrowers' Loan Account. With respect to all Borrowers
other than IBI, Lender shall maintain one or more loan account(s)
on its books as it deems appropriate in which shall be recorded (a)
all Loans, Letter of Credit Accommodations and other Obligations
and the Collateral, (b) all payments made by or on behalf of
Borrowers and (c) all other appropriate debits and credits as
provided in this Agreement, including fees, charges, costs,
expenses and interest. With respect to IBI, Lender shall use
reasonable efforts to maintain one or more loan account(s) on its
books in which shall be recorded (d) all Loans, Letter of Credit
Accommodations and other Obligations and the Collateral of IBI
reflecting sublimits imposed herein on Loans or Letter of Credit
Accommodations that may be made to IBI, (e) all payments made by or
on behalf of IBI, and (f) all other appropriate debits and credits
as provided in this Agreement, including fees, charges, costs,
expenses and interest or IBI. All entries in the loan account(s)
shall be made in accordance with Lender's customary practices as in
effect from time to time.
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6.2 Statements. Lender shall render to Borrowers each month
a statement setting forth the balance in the Borrowers' loan
account(s) maintained by Lender for Borrowers pursuant to the
provisions of this Agreement, including principal, interest, fees,
costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors
or omissions, be considered correct and deemed accepted by
Borrowers and conclusively binding upon any Borrower as an account
stated except to the extent that Lender receives a written notice
from any Borrower of any specific exceptions of any Borrower
thereto within one hundred eighty (180) days after the date such
statement has been mailed by Lender. Until such time as Lender
shall have rendered to Borrowers a written statement as provided
above, the balance in Borrowers' loan account(s) shall be
presumptive evidence of the amounts due and owing to Lender by
Borrowers.
6.3 Collection of Accounts.
(a) LSAP shall establish and maintain, at its expense,
blocked accounts or lockboxes and related blocked accounts (in
either case, "Blocked Accounts"), as Lender may specify, with such
banks as are acceptable to Lender into which Borrowers shall
promptly deposit and direct their account debtors to directly remit
all payments on Accounts and all payments constituting proceeds of
Inventory or other Collateral in the identical form in which such
payments are made, whether by cash, check or other manner. The
banks at which the Blocked Accounts are established shall enter
into an agreement, in form and substance satisfactory to Lender,
providing that all items received or deposited in the Blocked
Accounts are the property of Lender, that the depository bank has
no lien upon, or right to setoff against, the Blocked Accounts, the
items received for deposit therein, or the funds from time to time
on deposit therein and that the depository bank will wire, or
otherwise transfer, in immediately available funds, on a daily
basis, all funds received or deposited into the Blocked Accounts to
such bank account of Lender as Lender may from time to time
designate for such purpose ("Payment Account"). Borrowers agree
that all payments made to such Blocked Accounts or other funds
received and collected by Lender, whether on the Accounts or as
proceeds of Inventory or other Collateral shall be the property of
Lender.
(b) For purposes of calculating the amount of the Loans
available to Borrowers, such payments will be applied (conditional
upon final collection) to the Obligations on the Business Day of
receipt by Lender of immediately available funds in the Payment
Account provided such payments and notice thereof are received in
accordance with Lender's usual and customary practices as in effect
from time to time and within sufficient time to credit Borrower's
loan account on such day, and if not, then on the next Business
Day. For the purposes of calculating interest on the Obligations,
such payments or other funds received will be applied (conditional
upon final collection) to the Obligations one (1) Business Day
following the date of receipt of immediately available funds by
Lender in the Payment Account provided such payments or other funds
and notice thereof are received in accordance with Lender's usual
and customary practices as in effect from time to time and within
sufficient time to credit Borrowers' loan account on such day, and
if not, then on the next Business Day.
(c) Each Borrower and all of its affiliates,
subsidiaries, shareholders, directors, employees or agents shall,
25
acting as trustee for Lender, receive, as the property of Lender,
any monies, checks, notes, drafts or any other payment relating to
and/or proceeds of Accounts or other Collateral which come into its
possession or under its control and immediately upon receipt
thereof, shall deposit or cause the same to be deposited in the
Blocked Accounts of such Borrower, or remit the same or cause the
same to be remitted, in kind, to Lender. In no event shall the
same be commingled with such Borrower's own funds. Each Borrower
agrees to reimburse Lender on demand for any amounts owed or paid
to any bank at which a Blocked Account is established or any other
bank or person involved in the transfer of funds to or from the
Blocked Accounts arising out of Lender's payments to or
indemnification of such bank or person. The obligation of each
Borrower to reimburse Lender for such amounts pursuant to this
Section 6.3 shall survive the termination or non-renewal of this
Agreement.
6.4 Payments. All Obligations shall be payable to the
Payment Account as provided in Section 6.3 or such other place as
Lender may designate from time to time. Lender may apply payments
received or collected from any Borrower or for the account of
Borrowers (including the monetary proceeds of collections or of
realization upon any Collateral) to such of the Obligations,
whether or not then due, in such order and manner as Lender
determines. At Lender's option, all principal, interest, fees,
costs, expenses and other charges provided for in this Agreement or
the other Financing Agreements may be charged directly to the loan
account(s) of Borrowers. Each Borrower shall make all payments to
Lender on the Obligations free and clear of, and without deduction
or withholding for or on account of, any setoff, counterclaim,
defense, duties, taxes, levies, imposts, fees, deductions,
withholding, restrictions or conditions of any kind. If after
receipt of any payment of, or proceeds of Collateral applied to the
payment of, any of the Obligations, Lender is required to surrender
or return such payment or proceeds to any Person for any reason,
then the Obligations intended to be satisfied by such payment or
proceeds shall be reinstated and continue and this Agreement shall
continue in full force and effect as if such payment or proceeds
had not been received by Lender. Each Borrower shall be liable to
pay to Lender, and does hereby indemnify and hold Lender harmless
for the amount of any payments or proceeds surrendered or returned.
This Section 6.4 shall remain effective notwithstanding any
contrary action which may be taken by Lender in reliance upon such
payment or proceeds. This Section 6.4 shall survive the payment of
the Obligations and the termination or non-renewal of this
Agreement.
6.5 Authorization to Make Loans. Lender is authorized to
make the Loans and provide the Letter of Credit Accommodations to
any Borrower based upon telephonic or other instructions received
from anyone purporting to be an authorized officer of such Borrower
or other authorized person or, at the discretion of Lender, if such
Loans are necessary to satisfy any Obligations. All requests for
Loans or Letter of Credit Accommodations hereunder shall specify
the date on which the requested advance is to be made or Letter of
Credit Accommodations established (which day shall be a Business
Day) and the amount of the requested Loan. Requests received after
11:30 a.m. Dallas, Texas time on any day shall be deemed to have
been made as of the opening of business on the immediately
following Business Day. All Loans and Letter of Credit
Accommodations under this Agreement shall be conclusively presumed
to have been made to, and at the request of and for the benefit of,
Borrowers when deposited to the credit of Borrowers or otherwise
disbursed or established in accordance with the instructions of any
Borrower or in accordance with the terms and conditions of this
Agreement.
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6.6 Use of Proceeds. Borrowers shall use the initial
proceeds of the Loans provided by Lender to Borrowers hereunder
only for: (a) payments to each of the persons listed in the
disbursement direction letter furnished by LSAP to Lender on or
about the date hereof and (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and
delivery of this Agreement and the other Financing Agreements. All
other Loans made or Letter of Credit Accommodations provided by
Lender to Borrowers pursuant to the provisions hereof shall be used
by any Borrower only for general operating, working capital and
other proper corporate purposes of any Borrower not otherwise
prohibited by the terms hereof. None of the proceeds will be used,
directly or indirectly, for the purpose of purchasing or carrying
any margin security or for the purposes of reducing or retiring any
indebtedness which was originally incurred to purchase or carry any
margin security or for any other purpose which might cause any of
the Loans to be considered a "purpose credit" within the meaning of
Regulation U or X of the Board of Governors of the Federal Reserve
System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. LSAP shall provide Lender with the
following documents in a form satisfactory to Lender: (a) on a
regular basis as required by Lender, a schedule of Accounts, sales
made, credits issued and cash received; (b) on a monthly basis (or
after a Default or Event of Default more frequently as Lender may
request), (i) perpetual inventory reports by mix, category and
locations, (ii) agings of accounts receivable, and (ii) agings of
accounts payable, (c) within sixty (60) days after the end of each
fiscal quarter of Advance quarterly financial statements of Advance
(including in each case balance sheets, statements of income and
loss, statements of cash flow, and statements of shareholders'
equity), all in reasonable detail, fairly presenting the financial
position and the results of the operations of Advance and its
subsidiaries as of the end of and through such period, the Lender
acknowledging that such financial statements of Advance shall be
obtained through industry sources, such as MEMA Financial Services
Group, Inc. or any regular securities filings of Advance, to the
extent such filings are available, (d) upon Lender's request, (i)
copies of customer statements and credit memos, remittance advices
and reports, and copies of deposit slips and bank statements, (ii)
copies of shipping and delivery documents, and (iii) copies of
purchase orders, invoices and delivery documents for Inventory and
Equipment acquired by any Borrower; and (d) such other reports as
to the Collateral as Lender shall reasonably request from time to
time.
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7.2 Accounts Covenants.
(a) Each Borrower shall notify Lender promptly of (i)
any material delay in such Borrower's performance of any of its
obligations to any account debtor or the assertion of any claims,
offsets, defenses or counterclaims by any account debtor for an
amount in excess of $100,000, or any disputes with account debtors
for an amount in excess of $100,000, or any settlement, adjustment
or compromise thereof for an amount in excess of $100,000, (ii) all
material adverse information relating to the financial condition of
any account debtor and (iii) any event or circumstance which, to
such Borrower's knowledge would cause Lender to consider any then
existing Accounts as no longer constituting Eligible Accounts. No
credit, discount, allowance or extension or agreement for any of
the foregoing shall be granted to any account debtor without
Lender's consent, except in the ordinary course of such Borrower's
business in accordance with practices and policies previously
disclosed in writing to Lender (if applicable). So long as no
Event of Default exists or has occurred and is continuing,
Borrowers shall settle, adjust or compromise any claim, offset,
counterclaim or dispute with any account debtor. At any time that
an Event of Default exists or has occurred and is continuing,
Lender shall, at its option, have the exclusive right to settle,
adjust or compromise any claim, offset, counterclaim or dispute
with account debtors or grant any credits, discounts or allowances.
(b) Without limiting the obligation of any Borrower to
deliver any other information to Lender, Borrowers shall promptly
report to Lender any return of Inventory by any one account debtor
if either the Inventory so returned in such case has a value in
excess of $75,000 for all Borrowers in the aggregate or if the
Inventory so returned is not an exchange of substantially similar
and merchantable Inventory for other merchantable Inventory of a
similar value. At any time that Inventory is returned, reclaimed
or repossessed, the portion of the Account which arose from the
sale of such returned, reclaimed or repossessed Inventory shall not
be deemed an Eligible Account. In the event any account debtor
returns Inventory when an Event of Default exists or has occurred
and is continuing, each Borrower shall, upon Lender's request, (i)
hold the returned Inventory in trust for Lender, (ii) segregate all
returned Inventory from all of its other property, (iii) dispose of
the returned Inventory solely according to Lender's instructions,
and (iv) not issue any credits, discounts or allowances with
respect thereto without Lender's prior written consent.
(c) With respect to each Account: (i) the amounts shown
on any invoice delivered to Lender or schedule thereof delivered to
Lender shall be true and complete, (ii) no payments shall be made
thereon except payments immediately delivered to Lender pursuant to
the terms of this Agreement, (iii) no credit, discount, allowance
or extension or agreement for any of the foregoing shall be granted
to any account debtor except as reported to Lender in accordance
with this Agreement and except for credits, discounts, allowances
or extensions made or given in the ordinary course of any
Borrower's business in accordance with practices and policies
previously disclosed to Lender, (iv) there shall be no setoffs,
deductions, contras, defenses, counterclaims or disputes existing
or asserted with respect thereto except as reported to Lender or in
accordance with the terms of this Agreement, (v) none of the
transactions giving rise thereto will violate any applicable State
or Federal laws or regulations, all documentation relating thereto
will be legally sufficient under such laws and regulations and all
such documentation will be legally enforceable in accordance with
its terms.
28
(d) Lender shall have the right at any time or times, in
Lender's name or in the name of a nominee of Lender, to verify the
validity, amount or any other matter relating to any Account or
other Collateral of any Borrower, by mail, telephone, facsimile
transmission or otherwise.
(e) To the extent that any Borrower or Borrowers have
knowledge thereof, each Borrower shall deliver or cause to be
delivered to Lender, within a reasonable time, with appropriate
endorsement and assignment, all chattel paper and instruments which
such Borrower now owns or may at any time acquire, except as Lender
may otherwise agree.
(f) Lender may, at any time or times that an Event of
Default exists or has occurred and is continuing, (i) notify any or
all account debtors that the Accounts have been assigned to Lender
and that Lender has a security interest therein and Lender may
direct any or all accounts debtors to make payment of Accounts
directly to Lender, (ii) extend the time of payment of, compromise,
settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts
or other obligations included in the Collateral and thereby
discharge or release the account debtor or any other party or
parties in any way liable for payment thereof without affecting any
of the Obligations, (iii) demand, collect or enforce payment of any
Accounts or such other obligations, but without any duty to do so,
and Lender shall not be liable for its failure to collect or
enforce the payment thereof nor for the negligence of its agents or
attorneys with respect thereto and (iv) take whatever other action
Lender may deem necessary or desirable for the protection of its
interests. At any time that an Event of Default exists or has
occurred and is continuing, at Lender's request, all invoices and
statements sent to any account debtor shall state that the Accounts
and such other obligations have been assigned to Lender and are
payable directly and only to Lender and Borrower shall deliver to
Lender such originals of documents evidencing the sale and delivery
of goods or the performance of services giving rise to any Accounts
as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a)
Borrowers shall at all times maintain inventory records reasonably
satisfactory to Lender, keeping correct and accurate records
itemizing and describing the kind, type, quality and quantity of
Inventory, Borrowers' cost therefor and daily withdrawals therefrom
and additions thereto; (b) Borrowers shall conduct a physical count
of the Inventory at least once each year, but at any time or times
as Lender may request on or after an Event of Default and promptly
following such physical inventory, Borrowers shall supply Lender
with a report in the form and with such specificity as may be
reasonably satisfactory to Lender concerning such physical count;
(c) Borrowers shall not remove any Inventory from the locations set
forth or permitted herein, without the prior written consent of
Lender, except for sales of Inventory in the ordinary course of
Borrowers' business and except to move Inventory directly from one
location set forth or permitted herein to another such location;
(d) upon Lender's request, Borrowers shall, at their expense, no
more than twice in any twelve (12) month period, but at any time or
times as Lender may request on or after an Event of Default that is
continuing; deliver or cause to be delivered to Lender written
reports or appraisals as to the Inventory in form, scope and
29
methodology acceptable to Lender and by an appraiser acceptable to
Lender, addressed to Lender or upon which Lender is expressly
permitted to rely; (e) Borrowers shall produce, use, store and
maintain the Inventory with all reasonable care and caution and in
accordance with applicable standards of any insurance and in
conformity with applicable laws (including the requirements of the
Federal Fair Labor Standards Act of 1938, as amended and all rules,
regulations and orders related thereto); (f) each Borrower assumes
all responsibility and liability arising from or relating to the
production, use, sale or other disposition of the Inventory; (g)
Borrower shall not sell Inventory to any customer on approval, or
any other basis which entitles the customer to return or may
obligate Borrower to repurchase such Inventory, except in the
ordinary course of business; (h) Borrower shall keep the Inventory
in good and marketable condition; and (i) Borrower shall not,
without prior written notice to Lender, acquire or accept any
Inventory on consignment or approval.
7.4 Equipment Covenants. With respect to the Equipment: (a)
upon Lender's request, Borrowers shall, at their expense, at any
time or times as Lender may request on or after an Event of Default
that is continuing, deliver or cause to be delivered to Lender
written reports or appraisals as to the Equipment in form, scope
and methodology acceptable to Lender and by an appraiser acceptable
to Lender; (b) Borrowers shall keep the Equipment in good order,
repair, running and marketable condition (ordinary wear and tear
excepted and excluding Equipment which is (i) obsolete and can or
will no longer be used in the ordinary course of Borrowers'
business; (ii) not repairable or useful for any purpose, (iii)
damaged beyond repair or constitutes a total loss or constructive
total loss, (iv) other than the Equipment on Attachment I hereto;
(c) Borrowers shall use the Equipment with all reasonable care and
caution and in accordance with applicable standards of any
insurance and in conformity with all applicable laws; (d) the
Equipment is and shall be used in Borrowers' business and not for
personal, family, household or farming use; (e) Subject to the
provisions of Section 9.7 hereof, Borrowers shall not remove any
Equipment from the locations set forth or permitted herein, except
to the extent necessary to have any Equipment repaired or
maintained in the ordinary course of the business of any Borrower
or to move Equipment directly from one location set forth or
permitted herein to another such location and except for the
movement of motor vehicles used by or for the benefit of any
Borrower in the ordinary course of business; (f) the Equipment is
now and shall remain personal property and no Borrowers shall
permit any of the Equipment to be or become a part of or affixed to
real property; (g) Borrowers assume all responsibility and
liability arising from the use of the Equipment.
7.5 Power of Attorney. Each Borrower hereby irrevocably
designates and appoints Lender (and all persons designated by
Lender) as such Borrower's true and lawful attorney-in-fact, and
authorizes Lender, in such Borrower's or Lender's name, to: (a) at
any time an Event of Default or event which with notice or passage
of time or both would constitute an Event of Default exists or has
occurred and is continuing (i) demand payment on Accounts or other
proceeds of Inventory or other Collateral, (ii) enforce payment of
Accounts by legal proceedings or otherwise, (iii) exercise all of
such Borrower's rights and remedies to collect any Account or other
Collateral, (iv) sell or assign any Account upon such terms, for
such amount and at such time or times as the Lender deems
advisable, (v) settle, adjust, compromise, extend or renew an
Account, (vi) discharge and release any Account, (vii) prepare,
file and sign such Borrower's name on any proof of claim in
bankruptcy or other similar document against an account debtor,
30
(viii) notify the post office authorities to change the address for
delivery of such Borrower's mail to an address designated by
Lender, and open and dispose of all mail addressed to Borrower,
(ix) take control in any manner of any item of payment or proceeds
thereof, (x) have access to any lockbox or postal box into which
such Borrower's mail is deposited, (xi) do all acts and things
which are necessary, in Lender's determination, to fulfill such
Borrower's obligations under this Agreement and the other Financing
Agreements, and (b) at any time to (i) endorse such Borrower's name
upon any items of payment or proceeds thereof and deposit the same
in the Lender's account for application to the Obligations, (ii)
endorse such Borrower's name upon any chattel paper, document,
instrument, invoice, or similar document or agreement relating to
any Account or any goods pertaining thereto or any other
Collateral, (iii) sign such Borrower's name on any verification of
Accounts and notices thereof to account debtors, and (iv) execute
in such Borrower's name and file any UCC financing statements or
amendments thereto. Such Borrower hereby releases Lender and its
officers, employees and designees from any liabilities arising from
any act or acts under this power of attorney and in furtherance
thereof, whether of omission or commission, except as a result of
Lender's own gross negligence or willful misconduct as determined
pursuant to a final non-appealable order of a court of competent
jurisdiction.
7.6 Right to Cure. After the occurrence of an Event of
Default, Lender may, at its option, (a) cure any default by any
Borrower under any agreement with a third party or pay or bond on
appeal any judgment entered against such Borrower, (b) discharge
taxes, liens, security interests or other encumbrances at any time
levied on or existing with respect to the Collateral and (c) pay
any amount, incur any expense or perform any act which, in Lender's
judgment, is necessary or appropriate to preserve, protect, insure
or maintain the Collateral and the rights of Lender with respect
thereto. Lender may add any amounts so expended to the Obligations
and charge Borrowers' account therefor, such amounts to be
repayable by Borrowers on demand. Lender shall be under no
obligation to effect such cure, payment or bonding and shall not,
by doing so, be deemed to have assumed any obligation or liability
of such Borrower. Any payment made or other action taken by Lender
under this section shall be without prejudice to any right to
assert an Event of Default hereunder and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by
Lender, at the cost and expense of Borrowers, (a) Lender or its
designee shall have complete access to all of Borrowers' premises
during normal business hours and after notice to Borrowers, or at
any time and without notice to Borrowers if an Event of Default
exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of
Borrowers' books and records, including the Records, and (b)
Borrowers shall promptly furnish to Lender such copies of such
books and records or extracts therefrom as Lender may request, and
(c) use during normal business hours such of any Borrower's
personnel, equipment, supplies and premises as may be reasonably
necessary for the foregoing and if an Event of Default exists or
has occurred and is continuing for the collection of Accounts and
realization of other Collateral.
31
SECTION 8. REPRESENTATIONS AND WARRANTIES
Each Borrower hereby jointly and severally represents and
warrants to Lender the following (which shall survive the execution
and delivery of this Agreement), the truth and accuracy of which
are a continuing condition of the making of Loans and providing
Letter of Credit Accommodations by Lender to any Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries.
Each Borrower is a corporation duly organized and in good standing
under the laws of its state of incorporation and is duly qualified
as a foreign corporation and in good standing in all states or
other jurisdictions where the nature and extent of the business
transacted by it or the ownership of assets makes such
qualification necessary, except for those jurisdictions in which
the failure to so qualify would not have a material adverse effect
on such Borrower's financial condition, results of operation or
business or the rights of Lender in or to any of the Collateral.
The execution, delivery and performance of this Agreement, the
other Financing Agreements and the transactions contemplated
hereunder and thereunder are all within such Borrower's corporate
powers, have been duly authorized and are not in contravention of
law or the terms of such Borrower's certificate of incorporation,
by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which such Borrower is a party or by
which such Borrower or its property is bound. This Agreement and
the other Financing Agreements constitute legal, valid and binding
obligations of such Borrower enforceable in accordance with their
respective terms. Such Borrower does not have any subsidiaries
except as set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All
financial statements relating to Borrowers which have been or may
hereafter be delivered by Borrowers to Lender have been prepared in
accordance with GAAP and fairly present the financial condition and
the results of operation of Borrowers as at the dates and for the
periods set forth therein. Except as disclosed in any interim
financial statements furnished by Borrowers to Lender prior to the
date of this Agreement, there has been no material adverse change
in the assets, liabilities, properties and condition, financial or
otherwise, of Borrowers, taken as a whole since the date of the
most recent audited financial statements furnished by Borrowers to
Lender prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief
executive office of each Borrower and such Borrower's Records
concerning Accounts are located only at the address set forth below
and its only other places of business and the only other locations
of Collateral, if any, are the addresses set forth in the
Information Certificate, subject to the right of such Borrower to
establish new locations in accordance with Section 9.2 below. The
Information Certificate correctly identifies any of such locations
which are not owned by such Borrower and sets forth the owners
and/or operators thereof. The holders of any mortgages on such
locations of which any Borrower is aware are identified on Schedule
8.3.
8.4 Priority of Liens; Title to Properties. The security
interests and liens granted to Lender under this Agreement and the
other Financing Agreements constitute valid and perfected first
priority liens and security interests in and upon the Collateral
when all proper filing, recordings and other actions necessary to
perfect such liens have been taken subject only to the liens
32
indicated on Schedule 8.4 hereto and the other liens permitted
under Section 9.8 hereof. To the best of its knowledge, each
Borrower has good and marketable title to all of its material
properties and assets subject to no liens, mortgages, pledges,
security interests, encumbrances or charges of any kind, except
those granted to Lender and such others as are specifically listed
on Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Borrowers have filed, or caused to be
filed, in a timely manner all tax returns, reports and declarations
which are required to be filed by it (without requests for
extension except as previously disclosed in writing to Lender).
All information in such tax returns, reports and declarations is
complete and accurate in all material respects. Borrowers have
paid or caused to be paid all taxes due and payable or claimed due
and payable in any assessment received by it, except taxes the
validity of which are being contested in good faith by appropriate
proceedings diligently pursued and available to Borrowers and with
respect to which adequate reserves have been set aside on their
books. Adequate provision has been made for the payment of all
accrued and unpaid Federal, State, county, local, foreign and other
taxes whether or not yet due and payable and whether or not
disputed.
8.6 Litigation. Except as set forth on the Information
Certificate, there is no present investigation by any governmental
agency pending, or to the best of any Borrower's knowledge
threatened, against or affecting such Borrower, its assets or
business and there is no action, suit, proceeding or claim by any
Person pending, or to the best of such Borrower's knowledge
threatened, against any Borrower or its assets or goodwill, or
against or affecting any transactions contemplated by this
Agreement, which if adversely determined against such Borrower
would result in a material adverse change in the assets, business
or prospects of Borrowers as taken as a whole or would impair the
ability of Borrowers to perform their obligations hereunder or
under any of the other Financing Agreements to which it is a party
or of Lender to enforce any Obligations or realize upon any
Collateral.
8.7 Compliance with Other Agreements and Applicable Laws. No
Borrower is in default in any material respect under, or in
violation in any material respect of any of the terms of, any
agreement, contract, instrument, lease or other commitment to which
it is a party or by which they or any of its assets are bound and
each Borrower is in compliance in all material respects with all
applicable provisions of laws, rules, regulations, licenses,
permits, approvals and orders of any foreign, Federal, State or
local governmental authority the failure to comply with which would
have a material adverse effect on the Borrowers or any Borrower.
33
8.8 Employee Benefits.
(a) No Borrower has engaged in any transaction in
connection with which such Borrower or any of its ERISA Affiliates
could be subject to either a civil penalty assessed pursuant to
Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Code, including any accumulated funding deficiency described in
Section 8.8(c) hereof and any deficiency with respect to vested
accrued benefits described in Section 8.8(d) hereof.
(b) No liability to the Pension Benefit Guaranty
Corporation has been or is expected by any Borrower to be incurred
with respect to any employee benefit plan of such Borrower or any
of its ERISA Affiliates. There has been no reportable event
(within the meaning of Section 4043(b) of ERISA) or any other event
or condition with respect to any employee pension benefit plan of
any Borrower or any of its ERISA Affiliates which presents a risk
of termination of any such plan by the Pension Benefit Guaranty
Corporation.
(c) Full payment has been made of all amounts which such
Borrower or any of its ERISA Affiliates is required under Section
302 of ERISA and Section 412 of the Code to have paid under the
terms of each employee benefit plan as contributions to such plan
as of the last day of the most recent fiscal year of such plan
ended prior to the date hereof, and no accumulated funding
deficiency (as defined in Section 302 of ERISA and Section 412 of
the Code), whether or not waived, exists with respect to any
employee benefit plan, including any penalty or tax described in
Section 8.8(a) hereof and any deficiency with respect to vested
accrued benefits described in Section 8.8(d) hereof.
(d) The current value of all vested accrued benefits
under all employee benefit plans maintained by any Borrower that
are subject to Title IV of ERISA does not exceed the current value
of the assets of such plans allocable to such vested accrued
benefits, including any penalty or tax described in Section 8.8(a)
hereof and any accumulated funding deficiency described in Section
8.8(c) hereof. The terms "current value" and "accrued benefit"
have the meanings specified in ERISA.
(e) Neither any Borrower nor any of its ERISA Affiliates
is or has ever been obligated to contribute to any "multiemployer
plan" (as such term is defined in Section 4001(a)(3) of ERISA) that
is subject to Title IV of ERISA.
8.9 Bank Accounts. All of the deposit accounts, investment
accounts or other accounts in the name of or used by each Borrower
maintained at any bank or other financial institution are set forth
on Schedule 8.9 hereto, subject to the right of such Borrower to
establish new accounts in accordance with Section 9.13 below.
34
8.10 Environmental Compliance.
(a) Except as set forth on Schedule 8.10 hereto and the
Information Certificate, no Borrower has not generated, used,
stored, treated, transported, manufactured, handled, produced or
disposed of any Hazardous Materials, on or off its premises
(whether or not owned by it) in any manner which at any time
violates any applicable Environmental Law or any license, permit,
certificate, approval or similar authorization thereunder and the
operations of Borrowers comply in all material respects with all
Environmental Laws and all licenses, permits, certificates,
approvals and similar authorizations thereunder.
(b) Except as set forth on Schedule 8.10 hereto and the
Information Certificate, there has been no investigation,
proceeding, complaint, order, directive, claim, citation or notice
by any governmental authority or any other person nor is any
pending or to the best of any Borrower's knowledge threatened, with
respect to any non-compliance with or violation of the requirements
of any Environmental Law by Borrower or the release, spill or
discharge, threatened or actual, of any Hazardous Material or the
generation, use, storage, treatment, transportation, manufacture,
handling, production or disposal of any Hazardous Materials or any
other environmental, health or safety matter, which affects any
Borrower or its business, operations or assets or any properties at
which any Borrower has transported, stored or disposed of any
Hazardous Materials which would have a material adverse effect on
any Borrower.
(c) Except as set forth on Schedule 8.10 hereto and the
Information Certificate, no Borrower has any material liability
(contingent or otherwise) in connection with a release, spill or
discharge, threatened or actual, of any Hazardous Materials or the
generation, use, storage, treatment, transportation, manufacture,
handling, production or disposal of any Hazardous Materials.
(d) Each Borrower has all licenses, permits,
certificates, approvals or similar authorizations ("Permits")
required to be obtained or filed in connection with the operations
of Borrower under any Environmental Law and all of which such
Permits are valid and in full force and effect unless the failure
to obtain such Permits would not have a material adverse effect on
any Borrower.
8.11 Accuracy and Completeness of Information. All
information furnished by or on behalf of each Borrower in writing
to Lender in connection with this Agreement or any of the other
Financing Agreements or any transaction contemplated hereby or
thereby, including all information on the Information Certificate
is true and correct in all material respects on the date as of
which such information is dated or certified and does not omit any
material fact necessary in order to make such information not
misleading. Since the date of the last financial statements
delivered to Lender, no event or circumstance has occurred which
has had or could reasonably be expected to have a material adverse
effect on the business, assets or prospects of Borrowers, taken as
a whole, which has not been fully and accurately disclosed to
Lender in writing.
8.12 Survival of Warranties; Cumulative. All representations
and warranties contained in this Agreement or any of the other
Financing Agreements shall survive the execution and delivery of
this Agreement and shall be deemed to have been made again to
Lender on the date of each additional borrowing or other credit
accommodation hereunder and shall be conclusively presumed to have
35
been relied on by Lender regardless of any investigation made or
information possessed by Lender. The representations and
warranties set forth herein shall be cumulative and in addition to
any other representations or warranties which any Borrower shall
now or hereafter give, or cause to be given, to Lender.
8.13 Year 2000 Issues. Each Borrower shall, and shall cause
any subsidiary to, take all actions which may be required so that
its computer-based information systems, including, without
limitation, all of its proprietary computer hardware and software
and all computer hardware and software leased or licensed from
third parties (and whether supplied by others) are able to operate
effectively and correctly process data using dates on or after
January 1, 2000. Compliance with the foregoing shall mean that the
Borrower's systems will operate and correctly process data without
human intervention such that (a) there is correct century
recognition, (b) calculations properly accommodate same century and
multi-century formulas and date values, (c) all leap years shall be
calculated correctly and (d) the information systems shall
otherwise comply with applicable industry standards and regulatory
guidelines regarding the change of the century and year 2000
compliance. Such Borrower shall, by no later than September 30,
1999, certify to Lender in writing that its information systems
have been modified, updated and reprogrammed as required by this
section. On and after September 30, 1999, the computer-based
information systems of such Borrower shall be, and with ordinary
course upgrading and maintenance, will continue to be sufficient to
permit such Borrower to conduct its business without any material
adverse effect as a result of the year 2000.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTSS
9.1 Maintenance of Existence. Except as otherwise permitted
pursuant to the Distribution Agreement and the provisions of this
section, each Borrower shall at all times preserve, renew and keep
in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and
effect all permits, licenses, trademarks, tradenames, approvals,
authorizations, leases and contracts necessary to carry on the
business as presently or proposed to be conducted. Each Borrower
shall give Lender thirty (30) days prior written notice of any
proposed change in its corporate name, which notice shall set forth
the new name and such Borrower shall deliver to Lender a copy of
the amendment to the Certificate of Incorporation of such Borrower
providing for the name change certified by the Secretary of State
of the jurisdiction of incorporation of such Borrower as soon as it
is available.
9.2 New Collateral Locations. Any Borrower may open any new
location within the continental United States provided such
Borrower (a) gives Lender thirty (30) days prior written notice of
the intended opening of any such new location and (b) executes and
delivers, or causes to be executed and delivered, to Lender such
agreements, documents, and instruments as Lender may deem
reasonably necessary or desirable to protect its interests in the
Collateral at such location, including, without limitation, UCC
financing statements.
36
9.3 Compliance with Laws, Regulations, Etc.
(a) Each Borrower shall, at all times, comply in all
material respects with all laws, rules, regulations, licenses,
permits, approvals and orders applicable to it, and duly observe
all requirements of any Federal, State or local governmental
authority, including the Employee Retirement Security Act of 1974,
as amended, the Occupational Safety and Health Act of 1970, as
amended, the Fair Labor Standards Act of 1938, as amended, and all
statutes, rules, regulations, orders, permits and stipulations
relating to environmental pollution and employee health and safety,
including all of the Environmental Laws, (except to the extent the
failure to so comply would not have a material adverse effect on
any Borrower).
(b) Each Borrower shall establish and maintain, at its
expense, a system to assure and monitor its continued compliance
with all Environmental Laws in all of its operations, which system
shall include annual reviews of such compliance by employees or
agents of Borrower who are familiar with the requirements of the
Environmental Laws. Copies of all environmental surveys, audits,
assessments, feasibility studies and results of remedial
investigations which are performed or received after the date
hereof shall be promptly furnished, or caused to be furnished, by
Borrower to Lender. Borrower shall take prompt and appropriate
action to respond to any non-compliance with any of the
Environmental Laws and shall regularly report to Lender on such
response.
(c) Borrowers shall give both oral and written notice to
Lender immediately upon any Borrower's receipt of any notice of, or
any Borrower's otherwise obtaining knowledge of, (i) the occurrence
of any event involving the release, spill or discharge, threatened
or actual, of any Hazardous Material or (ii) any investigation,
proceeding, complaint, order, directive, claims, citation or notice
with respect to: (A) any non-compliance with or violation of any
Environmental Law by Borrower or (B) the release, spill or
discharge, threatened or actual, of any Hazardous Material or (C)
the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous
Materials or (D) any other environmental, health or safety matter,
all which has or may be expected to have a material adverse effect
on any Borrower or its businesses, operations or assets or any
properties at which such Borrower transported, stored or disposed
of any Hazardous Materials.
(d) Without limiting the generality of the foregoing,
whenever Lender reasonably determines that there is non-compliance,
or any condition which requires any action by or on behalf of
Borrower in order to avoid any material non-compliance, with any
Environmental Law, Borrowers shall, at Lender's request and
Borrowers' expense: (i) cause an independent environmental engineer
acceptable to Lender to conduct such tests of the site where any
Borrower's non-compliance or alleged non-compliance with such
Environmental Laws has occurred as to such non-compliance and
prepare and deliver to Lender a report as to such non-compliance
setting forth the results of such tests, a proposed plan for
responding to any environmental problems described therein, and an
estimate of the costs thereof and (ii) provide to Lender a
supplemental report of such engineer whenever the scope of such
non-compliance, or Borrower's response thereto or the estimated
costs thereof, shall change in any material respect.
37
(e) Each Borrower shall indemnify and hold harmless
Lender, its directors, officers, employees, agents, invitees,
representatives, successors and assigns, from and against any and
all losses, claims, damages, liabilities, costs, and expenses
(including attorneys' fees and legal expenses) directly or
indirectly arising out of or attributable to the use, generation,
manufacture, reproduction, storage, release, threatened release,
spill, discharge, disposal or presence of a Hazardous Material,
including the costs of any required or necessary repair, cleanup or
other remedial work with respect to any property of Borrower and
the preparation and implementation of any closure, remedial or
other required plans. All representations, warranties, covenants
and indemnifications in this Section 9.3 shall survive the payment
of the Obligations and the termination or non-renewal of this
Agreement.
9.4 Payment of Taxes and Claims. Borrowers shall duly pay
and discharge all taxes, assessments, contributions and
governmental charges upon or against them or their properties or
assets, except for taxes the validity of which are being contested
in good faith by appropriate proceedings diligently pursued and
available to such Borrower and with respect to which adequate
reserves have been set aside on its books. Borrowers shall be
liable for any tax or penalties imposed on Lender as a result of
the financing arrangements provided for herein and Borrowers agree
to jointly and severally indemnify and hold Lender harmless with
respect to the foregoing, and to repay to Lender on demand the
amount thereof, and until paid by Borrowers such amount shall be
added and deemed part of the Loans, provided, that, nothing
contained herein shall be construed to require Borrowers to pay any
income or franchise taxes attributable to the income of Lender from
any amounts charged or paid hereunder to Lender. The foregoing
indemnity shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
9.5 Insurance. Borrowers shall, at all times, maintain with
financially sound and reputable insurers insurance with respect to
the Collateral against loss or damage and all other insurance of
the kinds and in the amounts customarily insured against or carried
by corporations of established reputation engaged in the same or
similar businesses and similarly situated. Said policies of
insurance shall be satisfactory to Lender as to form, amount and
insurer. Lender acknowledges that the insurance amounts, carriers
and policies set forth in Schedule 9.5 are satisfactory to Lender
as of the time of Closing hereof. Borrowers shall furnish
certificates, policies or endorsements to Lender as Lender shall
require as proof of such insurance, and, if Borrowers fail to do
so, Lender is authorized, but not required, to obtain such
insurance at the expense of Borrowers. All policies shall provide
for at least thirty (30) days prior written notice to Lender of any
cancellation or reduction of coverage and that Lender may act as
attorney for any and every Borrower in obtaining, and at any time
an Event of Default exists or has occurred and is continuing,
adjusting, settling, amending and canceling such insurance.
Borrowers shall cause Lender to be named as a loss payee and an
additional insured as its interest may appear (but without any
liability for any premiums) under such insurance policies and
Borrowers shall obtain non-contributory lender's loss payable
endorsements to all insurance policies in form and substance
satisfactory to Lender. Such lender's loss payable endorsements
shall specify that the proceeds of such insurance shall be payable
to Lender as its interests may appear and further specify that
Lender shall be paid regardless of any act or omission by any or
every Borrowers or any of its or their affiliates. At its option,
Lender may apply any insurance proceeds received by Lender at any
time to the cost of repairs or replacement of Collateral and/or to
38
payment of the Obligations, whether or not then due, in any order
and in such manner as Lender may determine or hold such proceeds as
cash collateral for the Obligations.
9.6 Financial Statements and Other Information.
(a) Borrowers shall keep proper books and records in
which true and complete entries shall be made of all dealings or
transactions of or in relation to the Collateral and the business
of Borrowers and their subsidiaries (if any) in accordance with
GAAP and LSAP and its subsidiaries shall furnish or cause to be
furnished to Lender: (i) within forty-five (45) days after the end
of each fiscal month, monthly unaudited consolidated financial
statements (including balance sheets, statements of income and
loss, statements of cash flow, and statements of shareholders'
equity), all in reasonable detail, fairly presenting the financial
position and the results of the operations of LSAP and its
subsidiaries as of the end of and through such fiscal month; (ii)
within one hundred (100) days after the end of each fiscal year,
audited consolidated financial statements of LSAP and its
subsidiaries (including in each case balance sheets, statements of
income and loss, and statements of shareholders' equity), and the
accompanying notes thereto, all in reasonable detail, fairly
presenting the financial position and the results of the operations
of LSAP and its subsidiaries as of the end of and for such fiscal
year, together with either the unqualified opinion of independent
certified public accountants or if the opinion is qualified, such
qualifications are acceptable to Lender in its sole discretion, in
either case, which accountants shall be an independent accounting
firm selected by LSAP and reasonably acceptable to Lender, that
such financial statements have been prepared in accordance with
GAAP, and present fairly the results of operations and financial
condition of LSAP and its subsidiaries as of the end of and for the
fiscal year then ended; and (iii) as soon as available, a copy of
each regular, periodic or special report, registration statement,
or prospectus filed by LSA Technologies, Inc. with any securities
exchange or the Securities and Exchange Commission or any successor
agency.
(b) Each Borrower shall promptly notify Lender in
writing of the details of (i) any loss, damage, investigation,
action, suit, proceeding or claim relating to the Collateral or
which would result in any material adverse change in Borrowers'
business, properties, assets, goodwill or condition, financial or
otherwise and (ii) the occurrence of any Event of Default or event
which, with the passage of time or giving of notice or both, would
constitute an Event of Default.
(c) Borrowers shall promptly after the sending or filing
thereof furnish or cause to be furnished to Lender copies of all
reports which Guarantor or such Borrower sends to its stockholders
generally and copies of all reports and registration statements
which Guarantor or any Borrower files with the Securities and
Exchange Commission, any national securities exchange or the
National Association of Securities Dealers, Inc.
(d) Borrowers shall furnish or cause to be furnished to
Lender such budgets, forecasts, projections and other information
respecting the Collateral and the business of Borrowers, as Lender
may, from time to time, reasonably request. Lender is hereby
authorized to deliver a copy of any financial statement or any
other information relating to the business of Borrowers to any
39
court or other government agency or to any participant or assignee
or prospective participant or assignee. If at any time, (i) an
Event of Default occurs and is continuing, or (ii) for any reason,
Ernst & Young LLP no longer prepares the financial statements of
Borrower, Borrower hereby authorizes and directs all accountants or
auditors to deliver to Lender, at Borrower's expense, copies of the
financial statements of Borrower and any reports or management
letters prepared by such accountants or auditors on behalf of
Borrower and to disclose to Lender such information as they may
have regarding the business of Borrower. Any documents, schedules,
invoices or other papers delivered to Lender may be destroyed or
otherwise disposed of by Lender one (1) year after the same are
delivered to Lender, except as otherwise designated by any Borrower
to Lender in writing.
(e) Borrowers shall furnish no later than sixty (60)
days prior to the expiry date of the Collateral Letter of Credit,
written confirmation of the extension, or notice of expiration, of
the Collateral Letter of Credit at such expiry date. Borrowers
shall cause the issuer of such Collateral Letter of Credit not
later than sixty (60) days prior to such expiry date, to furnish,
if applicable, a notice that such Collateral Letter of Credit will
not be renewed or extended.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc.
Except as provided in the Distribution Agreement, no Borrower will,
directly or indirectly, (a) merge into or with or consolidate with
any other Person or permit any other Person to merge into or with
or consolidate with it except for the merger of any Borrower with
any other Borrower upon the prior consent of Lender, or (b) sell,
assign, lease, transfer, abandon or otherwise dispose of any stock
or indebtedness to any other Person or any of its assets to any
other Person except (i) as between Borrowers, in the ordinary
course of and pursuant to the reasonable requirements of
such Borrowers' businesses; (ii) for sales of Inventory in the
ordinary course of business, or other sale, assignment, lease,
transfer or other disposal in an amount not to exceed $100,000 per
calendar year; (iii) for the disposition of worn-out or obsolete
Equipment or Equipment no longer used in the business of any
Borrower so long as (A) if an Event of Default exists or has
occurred and is continuing, any proceeds are paid to Lender and (B)
for all Borrowers, in the aggregate, such sales do not involve
Equipment having an aggregate fair market value in excess of
$100,000 for all such Equipment disposed of in any fiscal year;
(iv) for sales of Accounts of any Borrower, the principal office,
assets or place of business of the account debtors with respect to
such Accounts are outside either the United States Canada or Puerto
Rico provided (A) such Accounts are not Eligible Accounts; (B) the
Excess Availability at the time of the sale of such Accounts is
less than $1,000,000 and (C) the sales price for such Accounts is
not less than 100% of the original invoice for such Accounts); (v)
sale of capital stock with respect to a Borrower to the extent such
transactions do not cause a Change of Control (as hereinafter
defined) of such Borrower; or (vi) sale of Inventory of IBI
pursuant to an Operating Agreement, an Inventory Purchase Agreement
and other related agreements substantially in the form of the
drafts of the Operating Agreement and Inventory Purchase Agreement,
dated as of April 16, 1999 previously provided to Lender, provided;
(A) Lender shall have received a payment equal to the amount of
Revolving Loans outstanding at any time with respect to Eligible
Inventory of IBI pursuant to Section 2.1(a)(ii) hereof plus undrawn
amounts available to IBI pursuant to section 2.1(a)(ii) hereof and
an additional amount of $500,000, and (B) after the sale of
Inventory pursuant to this subsection, no further amounts will be
made available with respect to IBI pursuant to this Agreement; or
40
(c) form or acquire any subsidiaries, or (d) wind up, liquidate or
dissolve or (e) agree to do any of the foregoing. For any sale of
assets of any Borrowers pursuant to subsections 9.7(b)(iii) or (iv)
hereof, Lender shall upon such sale and at the expense of
Borrowers, release its security interest in such assets. As used
in this section, "Change of control" shall mean the acquisition by
any Person or group of Persons acting together, of a direct
interest in more than fifty-one percent (51%) of the voting power
of the voting stock of or membership interests in, any Borrower,
including by way of merger or consolidation, or otherwise.
9.8 Encumbrances. No Borrower shall create, incur, assume or
suffer to exist any security interest, mortgage, pledge, lien,
charge or other encumbrance of any nature whatsoever on any of its
assets or properties, including the Collateral, except: (a) liens
and security interests of Lender; (b) liens in favor of
warehouseman, landlords, carriers, mechanics, materialmen, laborers
or suppliers; (c) liens arising from deposits made in connection
with obtaining workers' compensation or other unemployment
insurance; (d) liens arising by reason of security for surety,
appeal bonds or performance bonds; (e) liens resulting from any
judgment or award that would not have a material adverse effect on
the Borrowers taken as a whole; (f) liens securing the payment of
taxes, either not yet overdue or the validity of which are being
contested in good faith by appropriate proceedings diligently
pursued and available to such Borrower and with respect to which
adequate reserves have been set aside on its books; (g) non-
consensual statutory liens (other than liens securing the payment
of taxes) arising in the ordinary course of such Borrower's
business to the extent: (i) such liens secure indebtedness which is
not overdue or (ii) such liens secure indebtedness relating to
claims or liabilities which are fully insured and being defended at
the sole cost and expense and at the sole risk of the insurer or
being contested in good faith by appropriate proceedings diligently
pursued and available to such Borrower, in each case prior to the
commencement of foreclosure or other similar proceedings and with
respect to which adequate reserves have been set aside on its
books; (h) zoning restrictions, easements, licenses, covenants and
other restrictions affecting the use of real property which do not
interfere in any material respect with the use of such real
property or ordinary conduct of the business of such Borrower as
presently conducted thereon or materially impair the value of the
real property which may be subject thereto; (i) purchase money
security interests in Equipment (including capital leases) arising
after the date hereof and purchase money mortgages on real estate
not to exceed $1,500,000 in the aggregate at any time outstanding
so long as such security interests and mortgages do not apply to
any property of such Borrower other than the Equipment or real
estate so acquired, and the indebtedness secured thereby does not
exceed the cost of the Equipment or real estate so acquired, as the
case may be; (i) the security interests and liens set forth on
Schedule 8.4 hereto; (k) security interests and liens created
pursuant to the refinancing of obligations and indebtedness
pursuant to Section 9.9(e) hereof; (l) liens arising from operating
leases and (m) liens against any life insurance policy or the cash
surrender value thereof which relate to borrowings incurred to
finance the premiums made under such policy. Lender shall upon the
acquisition of Equipment as provided pursuant to subsection (i)
above, release its security interest in such Equipment so acquired
if so required under the terms of the financing arrangements
governing such acquisition.
41
9.9 Indebtedness. No Borrower shall incur, create, assume,
become or be liable in any manner with respect to, or permit to
exist, any obligations or indebtedness, except:
(a) the Obligations;
(b) trade obligations and normal accruals in the
ordinary course of business not yet due and payable, or with
respect to which such Borrower is contesting in good faith the
amount or validity thereof by appropriate proceedings diligently
pursued and available to such Borrower, and with respect to which
adequate reserves have been set aside on its books;
(c) purchase money indebtedness (including capital
leases) to the extent not incurred or secured by liens (including
capital leases) in violation of any other provision of this
Agreement;
(d) the indebtedness set forth on Schedule 9.9; or as
set forth in the latest financial statements of any Borrower
submitted to Lender on or prior to the date hereof, to the extent
that there has been no change in or modification of terms of the
indebtedness described on such financial statements provided, that,
(i) such Borrower may only make regularly scheduled payments of
principal and interest in respect of such indebtedness in
accordance with the terms of the agreement or instrument evidencing
or giving rise to such indebtedness as in effect on the date
hereof, (ii) such Borrower shall not, directly or indirectly (A)
amend, modify, alter or change the terms of such indebtedness or
any agreement, document or instrument related thereto as in effect
on the date hereof as such may (1) increase the amounts payable
thereunder, (2) increase the amount or rate of interest payable
thereon (3) cause any payment thereon to be due on any earlier
date, or (4) provide additional collateral therefor (B) redeem,
retire, defease, purchase or otherwise acquire such indebtedness,
or set aside or otherwise deposit or invest any sums for such
purpose, and (iii) such Borrower shall furnish to Lender all
notices of default or demands in connection with such indebtedness
either received by any Borrower or on its behalf, promptly after
the receipt thereof, or sent by such Borrower or on its behalf,
concurrently with the sending thereof, as the case may be. No
Borrower is, or will be rendered, insolvent as a result of any
Revolving Loan or any other advance of credit by Lender to such
Borrower;
(e) indebtedness incurred as a result of the refinancing
of Option Equipment pursuant to the terms of Section 2.7, provided
that, (i) the terms, conditions and amount of any such refinancing
shall be on terms no less favorable to any Borrower than the
indebtedness being refinanced up to the original principal amount
of such indebtedness, or otherwise satisfactory to Lender in its
sole discretion; (ii) Excess Availability at the time of such
refinancing, and after giving effect to such refinancing, is
greater than $2,000,000
(f) other indebtedness not to exceed $1,500,000;
(g) indebtedness described in the Subordination
Agreement;
42
(h) indebtedness resulting from a judgment having been
rendered against any Borrower that is being appealed in good faith
and in a timely manner for which adequate reserves acceptable to
Lender have been recorded and which is not covered by insurance;
(i) Borrowings based on the cash value of life insurance
policies, the proceeds of which are used to pay life insurance
premiums;
(j) other indebtedness approved by Lender in its sole
discretion; and
(k) indebtedness described in Section 9.10(e) and as
otherwise permitted hereunder.
9.10 Loans, Investments, Guarantees, Etc. Except as set out
in the Distribution Agreement and as otherwise provided herein, no
Borrower shall directly or indirectly, make any loans or advance
money or property to any person, or invest in (by capital
contribution, dividend or otherwise) or purchase or repurchase the
stock or indebtedness or all or a substantial part of the assets or
property of any person, or assume, endorse, or otherwise become
responsible for (directly or indirectly) the indebtedness,
performance, obligations or dividends of any Person or agree to do
any of the foregoing, except: (a) loans to employees of Borrowers
not to exceed at any one time $75,000, in the aggregate; (b) the
endorsement of instruments for collection or deposit in the
ordinary course of business; (c) investments in: (i) short-term
direct obligations of the United States Government, (ii) negotiable
certificates of deposit issued by any bank satisfactory to Lender,
payable to the order of such Borrower or to bearer and delivered to
Lender, and (iii) commercial paper rated A1 or P1; provided, that,
as to any of the foregoing, unless waived in writing by Lender,
such Borrower shall take such actions as are deemed necessary by
Lender to perfect the security interest of Lender in such
investments; (d) the loans, advances and guarantees set forth on
Schedule 9.10 hereto; provided, that, as to such loans, advances
and guarantees, (i) such Borrowers shall not, directly or
indirectly, (A) amend, modify, alter or change the terms of such
loans, advances or guarantees or any agreement, document or
instrument related thereto, or (B) as to such guarantees, redeem,
retire, defease, purchase or otherwise acquire the obligations
arising pursuant to such guarantees, or set aside or otherwise
deposit or invest any sums for such purpose, and (ii) such Borrower
shall furnish to Lender all notices of default or demands in
connection with such loans, advances or guarantees or other
indebtedness subject to such guarantees either received by such
Borrower or on its behalf, promptly after the receipt thereof, or
sent by such Borrower or on its behalf, concurrently with the
sending thereof, as the case may be; and (e) loans, advances or
investments in the ordinary course of each such Person's business
operations, as presently existing, among LSAP, L&SB, LSBE, Rotex
and Tribonetics.
9.11 Dividends and Redemptions. Except for dividends duly
declared and paid by L&SB, LSBE, Rotex and Tribonetics to LSAP,
Borrowers shall not, directly or indirectly, declare or pay any
dividends on account of any shares of class of capital stock of
such Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem,
retire, defease, purchase or otherwise acquire any shares of any
class of capital stock (or set aside or otherwise deposit or invest
any sums for such purpose) for any consideration other than common
43
stock or apply or set apart any sum, or make any other distribution
(by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing other than the
distribution to Guarantor of actual franchise and related taxes
owing by Borrowers and otherwise, as may be permitted herein.
9.12 Transactions with Affiliates. Except as set out in
Schedule 9.12 hereto, and as otherwise provided herein, no Borrower
shall, directly or indirectly, (a) purchase, acquire or lease any
property from, or sell, transfer or lease any property to, (i) any
officer, director, agent or other person affiliated with such
Borrower; (ii) any other Borrower; or (iii) any officer, director,
agent or other person affiliated with any other Borrower, except in
the ordinary course of and pursuant to the reasonable requirements
of such Borrower's business and upon fair and reasonable terms no
less favorable to such Borrower than such Borrower would obtain in
a comparable arm's length transaction with an unaffiliated person
or (b) make any payments of management, consulting or other fees
for management or similar services, or of any indebtedness owing to
(i) any officer, employee, shareholder, director or other person
affiliated with such Borrower; (ii) any other Borrower; or (iii)
any officer, employee, shareholder, director or other person
affiliated with any other Borrower. except (w) reasonable
compensation to officers, employees and directors for services
rendered to such Borrower in the ordinary course of business (x)
fees (i) for services and expenses actually incurred by the
provider of such services, (ii) for services performed by the
provider of such services in the ordinary course of business of
such provider and pursuant to the reasonable requirements of any
Borrower or Guarantor pursuant to either (A) the Services Agreement
(in the form substantially similar to the draft Services Agreement
attached to the Distribution Agreement) in an amount not to exceed
$250,000 per calendar year and (B) the Services and Consulting
Agreement (in the form substantially similar to the draft Services
and Consulting Agreement attached to the Distribution Agreement)
for administrative services offered by LSB in an amount not to
exceed $750,000 per calendar year; (y) payments made pursuant to
the Tax Sharing Agreement (in the form substantially similar to the
draft Tax Sharing Agreement attached to the Distribution Agreement)
in an amount not to exceed $100,000 per calendar year, or $250,000
in the aggregate, during the term hereof; and (z) payments made
pursuant to the Indemnity Agreement (in the form substantially
similar to the draft Indemnification Agreement attached to the
Distribution Agreement) in an amount not to exceed $100,000 per
calendar year, or $500,000 in the aggregate, during the term
hereof.
9.13 Additional Bank Accounts. No Borrowers shall directly or
indirectly, open, establish or maintain any deposit account,
investment account or any other account with any bank or other
financial institution, other than the Blocked Accounts and the
accounts set forth in Schedule 8.9 hereto, except: (a) as to any
new or additional Blocked Accounts and other such new or additional
accounts which contain any Collateral or proceeds thereof, with the
prior written consent of Lender and subject to such conditions
thereto as Lender may establish and (b) as to any accounts used by
any Borrower to make payments of payroll, taxes or other
obligations to third parties, after prior written notice to Lender.
44
9.14 Compliance with ERISA.
(a) No Borrower shall, with respect to any "employee
benefit plans" maintained by such Borrower or any of its ERISA
Affiliates: (i) terminate any of such employee benefit plans so as
to incur any liability to the Pension Benefit Guaranty Corporation
established pursuant to ERISA, (ii) allow or suffer to exist any
prohibited transaction involving any of such employee benefit plans
or any trust created thereunder which would subject such Borrower
or such ERISA Affiliate to a tax or penalty or other liability on
prohibited transactions imposed under Section 4975 of the Code or
ERISA, (iii) fail to pay to any such employee benefit plan any
contribution which it is obligated to pay under Section 302 of
ERISA, Section 412 of the Code or the terms of such plan, (iv)
allow or suffer to exist any accumulated funding deficiency,
whether or not waived, with respect to any such employee benefit
plan, (v) allow or suffer to exist any occurrence of a reportable
event or any other event or condition which presents a material
risk of termination by the Pension Benefit Guaranty Corporation of
any such employee benefit plan that is a single employer plan,
which termination could result in any liability to the Pension
Benefit Guaranty Corporation or (vi) incur any withdrawal liability
with respect to any multiemployer pension plan.
(b) As used in this Section 9.14, the terms "employee
benefit plans", "accumulated funding deficiency" and "reportable
event" shall have the respective meanings assigned to them in
ERISA, and the term "prohibited transaction" shall have the meaning
assigned to it in Section 4975 of the Code and ERISA.
9.15 Net Worth. LSAP shall, at all times, maintain Net Worth
of not less than $6,400,000.
9.16 Costs and Expenses. Borrowers shall pay to Lender on
demand all reasonable costs, expenses, filing fees and taxes paid
or payable in connection with the preparation, negotiation,
execution, delivery, recording, administration, collection,
liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing
Agreements and all other documents related hereto or thereto,
including any amendments, supplements or consents which may
hereafter be contemplated (whether or not executed) or entered into
in respect hereof and thereof, including: (a) all costs and
expenses of filing or recording (including Uniform Commercial Code
financing statement filing taxes and fees, documentary taxes,
intangibles taxes and mortgage recording taxes and fees, if
applicable); (b) costs, expenses and fees for insurance premiums,
environmental audits, surveys, assessments, engineering reports and
inspections, appraisal fees and search fees; (c) costs and expenses
of remitting loan proceeds, collecting checks and other items of
payment, and establishing and maintaining the Blocked Accounts,
together with Lender's customary charges and fees with respect
thereto; (d) charges, fees or expenses charged by any bank or
issuer in connection with the Letter of Credit Accommodations; (e)
costs and expenses of preserving and protecting the Collateral; (f)
costs and expenses paid or incurred in connection with obtaining
payment of the Obligations, enforcing the security interests and
liens of Lender, selling or otherwise realizing upon the
Collateral, and otherwise enforcing the provisions of this
Agreement and the other Financing Agreements or defending any
claims made or threatened against Lender arising out of the
transactions contemplated hereby and thereby (including
preparations for and consultations concerning any such matters);
(g) all out-of-pocket expenses and costs heretofore and from time
45
to time hereafter incurred by Lender during the course of periodic
field examinations of the Collateral and Borrowers' operations,
plus a per diem charge at the rate of $650.00 per person per day
for Lender's examiners in the field and office; and (h) the
reasonable fees and disbursements of outside counsel (including
legal assistants) to Lender in connection with any of the
foregoing.
9.17 Further Assurances. At the request of Lender at any time
and from time to time, each Borrower shall, at its expense, duly
execute and deliver, or cause to be duly executed and delivered,
such further agreements, documents and instruments, and do or cause
to be done such further acts as may be necessary or proper to
evidence, perfect, maintain and enforce the security interests and
the priority thereof in the Collateral and to otherwise effectuate
the provisions or purposes of this Agreement or any of the other
Financing Agreements. Within three day's after Lender's request,
such Borrower shall provide a certificate from an officer of such
Borrower representing that all conditions precedent to the making
of Loans and providing Letter of Credit Accommodations contained
herein are satisfied. Where permitted by law, each Borrower hereby
authorizes Lender to execute and file one or more UCC financing
statements signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any
one or more of the following events are referred to herein
individually as an "Event of Default", and collectively as "Events
of Default":
(a) (i) any Borrower fails to pay any of its Obligations
within two (2) Business Days after the same becomes due and payable
or (ii) such Borrower or any Obligor fails to perform any of the
covenants contained in Sections 9.1, 9.2, 9.3, 9.4, 9.6, 9.14, 9.16
and 9.17 of this Agreement and such failure shall continue for ten
(10) days; provided, that, such ten (10) day period shall not apply
in the case of: (A) any failure to observe any such covenant which
is not capable of being cured at all or within such ten (10) day
period or which has been the subject of a prior failure within a
six (6) month period or (B) an intentional breach of such Borrower
or any Obligor of any such covenant or (iii) such Borrower fails to
perform any of the terms covenants, conditions or provisions
contained in this Agreement or any of the other Financing
Agreements other than those described in Sections 10.1(a)(i) and
10.1(a)(ii) above;
(b) any representation, warranty or statement of fact
made by any Borrower to Lender in this Agreement, the other
Financing Agreements or any other agreement, schedule, confirmatory
assignment or otherwise shall when made or deemed made be false or
misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform
any of the terms, covenants, conditions or provisions of any
guarantee, endorsement or other agreement of such party in favor of
Lender;
46
(d) any final judgment for the payment of money is
rendered against any Borrower or any Obligor in excess of $100,000
in any one case or in excess of $500,000 in the aggregate and shall
remain undischarged or unvacated for a period in excess of thirty
(30) days or execution shall at any time not be effectively stayed,
or any judgment other than for the payment of money, or injunction,
attachment, garnishment or execution is rendered against any
Borrower or any Obligor or any of their assets;
(e) any Obligor (being a natural person or a general
partner of an Obligor which is a partnership) dies or any Borrower
or any Obligor, which is a partnership, limited liability company,
limited liability partnership or a corporation, dissolves or
suspends or discontinues doing business;
(f) any Borrower or any Obligor becomes insolvent
(however defined or evidenced), makes an assignment for the benefit
of creditors, makes or sends notice of a bulk transfer or calls a
meeting of its creditors or principal creditors;
(g) a case or proceeding under the bankruptcy laws of
the United States of America now or hereafter in effect or under
any insolvency, reorganization, receivership, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction now
or hereafter in effect (whether at law or in equity) is filed
against any Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within
thirty (30) days after the date of its filing or any Borrower or
any Obligor shall file any answer admitting or not contesting such
petition or application or indicates its consent to, acquiescence
in or approval of, any such action or proceeding or the relief
requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of
the United States of America now or hereafter in effect or under
any insolvency, reorganization, receivership, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction now
or hereafter in effect (whether at a law or equity) is filed by any
Borrower or any Obligor or for all or any part of its property; or
(i) any default by any Borrower or Borrowers or any
Obligor under any agreement, document or instrument relating to any
indebtedness for borrowed money owing to any person other than
Lender, or any capitalized lease obligations, contingent
indebtedness in connection with any guarantee, letter of credit,
indemnity or similar type of instrument in favor of any person
other than Lender, in any case in an amount, individually or in the
aggregate in excess of $250,000, which default continues for more
than the applicable cure period, if any, with respect thereto, or
any default by any Borrower or any Obligor under any material
contract, lease, license or other obligation to any person other
than Lender, which default continues for more than the applicable
cure period, if any, with respect thereto;
(j) any change in the controlling ownership of any
Borrower;
(k) the indictment of any Borrower or any Obligor under
any criminal statute, or commencement or threatened commencement of
47
criminal or civil proceedings against any Borrower or any Obligor,
pursuant to which statute or proceedings the penalties or remedies
sought or available include forfeiture of any of the property of
such Borrower or such Obligor;
(l) there shall be a material adverse change in the
business or assets of any Borrower or any Obligor individually or
of Borrowers (in the aggregate) after the date hereof;
(m) there shall be an event of default under any of the
other Financing Agreements;
(n) (i) the Collateral Letter of Credit shall not be in
full force and effect at any time prior to the termination of the
Financing Agreements; or (ii) any drawing or renewal of the
Collateral Letter of Credit shall be subject to dispute or actual
legal challenge by LSB or the issuer thereof; or (iii) Lender shall
have received notice from the issuer of the Collateral Letter of
Credit that such Collateral Letter of Credit will not be renewed or
extended; or (iv) such Collateral Letter of Credit shall not be
renewed effective on or before its expiry date; or (v) Borrower
shall fail to furnish, or cause to be furnished, the notices
pursuant to Section 9.6(e); provided, however, that any such Event
of Default shall be deemed cured upon the indefeasible payment in
full by the issuer of the Collateral Letter of Credit to Lender of
the face amount of the Collateral Letter of Credit.
10.2 Remedies.
(a) At any time an Event of Default exists or has
occurred and is continuing, Lender shall have all rights and
remedies provided in this Agreement, the other Financing
Agreements, the Uniform Commercial Code and other applicable law,
all of which rights and remedies may be exercised without notice to
or consent by any Borrower or any Obligor, except as such notice or
consent is expressly provided for hereunder or required by
applicable law. All rights, remedies and powers granted to Lender
hereunder, under any of the other Financing Agreements, the Uniform
Commercial Code or other applicable law, are cumulative, not
exclusive and enforceable, in Lender's discretion, alternatively,
successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of
equity for an injunction to restrain a breach or threatened breach
by any Borrower of this Agreement or any of the other Financing
Agreements. Lender may, at any time or times, proceed directly
against any Borrower (or any group of Borrowers) or any Obligor to
collect the Obligations without prior recourse to the Collateral
and without prejudice, waiver or impairment of any other rights and
remedies against, or with respect to, another Borrower Obligor or
other Person.
(b) Without limiting the foregoing, at any time an Event
of Default exists or has occurred and is continuing, Lender may, in
its discretion and without limitation, (i) accelerate the payment
of all Obligations and demand immediate payment thereof to Lender
(provided, that, upon the occurrence of any Event of Default
described in Sections 10.1(g) and 10.1(h), all Obligations shall
automatically become immediately due and payable), (ii) with or
without judicial process or the aid or assistance of others, enter
upon any premises on or in which any of the Collateral may be
located and take possession of the Collateral or complete
processing, manufacturing and repair of all or any portion of the
Collateral, (iii) require one or more Borrowers, at any Borrowers'
expense, to assemble and make available to Lender any part or all
of the Collateral at any place and time designated by Lender, (iv)
48
collect, foreclose, receive, appropriate, setoff and realize upon
any and all Collateral, (v) remove any or all of the Collateral
from any premises on or in which the same may be located for the
purpose of effecting the sale, foreclosure or other disposition
thereof or for any other purpose, (vi) sell, lease, transfer,
assign, deliver or otherwise dispose of any and all Collateral
(including entering into contracts with respect thereto, public or
private sales at any exchange, broker's board, at any office of
Lender or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with the
Lender having the right to purchase the whole or any part of the
Collateral at any such public sale, all of the foregoing being free
from any right or equity of redemption of any Borrower, which right
or equity of redemption is hereby expressly waived and released by
such Borrower and/or (vii) terminate this Agreement. If any of the
Collateral is sold or leased by Lender upon credit terms or for
future delivery, the Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by Lender. If
notice of disposition of Collateral is required by law, five (5)
days prior notice by Lender to such Borrower designating the time
and place of any public sale or the time after which any private
sale or other intended disposition of Collateral is to be made,
shall be deemed to be reasonable notice thereof and such Borrower
waives any other notice. In the event Lender institutes an action
to recover any Collateral or seeks recovery of any Collateral by
way of prejudgment remedy, such Borrower waives the posting of any
bond which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral
actually received by Lender from any sale, lease, foreclosure or
other disposition of the Collateral to payment of the Obligations,
in whole or in part and in such order as Lender may elect, whether
or not then due. Borrowers shall remain jointly and severally
liable to Lender for the payment of any deficiency with interest at
the highest rate provided for herein and all costs and expenses of
collection or enforcement, including attorneys' fees and legal
expenses.
(d) Without limiting the foregoing, upon the occurrence
of an Event of Default or an event which with notice or passage of
time or both would constitute an Event of Default, Lender may, at
its option, without notice, (i) cease making Loans or arranging for
Letter of Credit Accommodations or reduce the lending formulas or
amounts of Revolving Loans and Letter of Credit Accommodations
available to any Borrower or all Borrowers and/or (ii) terminate
any provision of this Agreement providing for any future Loans or
Letter of Credit Accommodations to be made by Lender to any
Borrower.
(e) Upon the occurrence of any Event of Default that is
continuing. Lenders may draw on the Collateral Letter of Credit
and apply the proceeds thereof to the repayment of the Obligations.
49
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS;
GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury
Trial Waiver.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute
arising out of the relationship between the parties hereto, whether
in contract, tort, equity or otherwise, shall be governed by the
internal laws of the State of Texas (without giving effect to
principles of conflicts of law).
(b) Each Borrower and Lender irrevocably consent and
submit to the non-exclusive jurisdiction of the State of Texas and
the United States District Court for the Northern District of Texas
and waive any objection based on venue or forum non conveniens with
respect to any action instituted therein arising under this
Agreement or any of the other Financing Agreements or in any way
connected with or related or incidental to the dealings of the
parties hereto in respect of this Agreement or any of the other
Financing Agreements or the transactions related hereto or thereto,
in each case whether now existing or hereafter arising, and whether
in contract, tort, equity or otherwise, and agree that any dispute
with respect to any such matters shall be heard only in the courts
described above (except that Lender shall have the right to bring
any action or proceeding against such Borrower or its property in
the courts of any other jurisdiction which Lender deems necessary
or appropriate in order to realize on the Collateral or to
otherwise enforce its rights against such Borrower or its
property).
(c) Each Borrower hereby waives personal service of any
and all process upon it and consents that all such service of
process may be made by certified mail (return receipt requested)
directed to its address set forth on the signature pages hereof and
service so made shall be deemed to be completed five (5) days after
the same shall have been so deposited in the U.S. mails, or, at
Lender's option, by service upon Such Borrower in any other manner
provided under the rules of any such courts. Within thirty (30)
days after such service, Such Borrower shall appear in answer to
such process, failing which Such Borrower shall be deemed in
default and judgment may be entered by Lender against Such Borrower
for the amount of the claim and other relief requested.
(d) EACH BORROWER AND LENDER HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i)
ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING
AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT,
EQUITY OR OTHERWISE. EACH BORROWER AND LENDER HEREBY AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT SUCH
50
BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF
THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to any Borrower
(whether in tort, contract, equity or otherwise) for losses
suffered by such Borrowers in connection with, arising out of, or
in any way related to the transactions or relationships
contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a
final and non-appealable judgment or court order binding on Lender,
that the losses were the result of acts or omissions constituting
gross negligence or willful misconduct. In any such litigation,
Lender shall be entitled to the benefit of the rebuttable
presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this
Agreement.
11.2 Waiver of Notices. Each Borrower hereby expressly waives
demand, presentment, protest and notice of protest and notice of
dishonor with respect to any and all instruments and commercial
paper, included in or evidencing any of the Obligations or the
Collateral, and any and all other demands and notices of any kind
or nature whatsoever with respect to the Obligations, the
Collateral and this Agreement, except such as are expressly
provided for herein. No notice to or demand on such Borrower which
Lender may elect to give shall entitle such Borrower to any other
or further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any
provision hereof shall be amended, modified, waived or discharged
orally or by course of conduct, but only by a written agreement
signed by an authorized officer of Lender, and as to amendments, as
also signed by an authorized officer of each Borrower. Lender
shall not, by any act, delay, omission or otherwise be deemed to
have expressly or impliedly waived any of its rights, powers and/or
remedies unless such waiver shall be in writing and signed by an
authorized officer of Lender. Any such waiver shall be enforceable
only to the extent specifically set forth therein. A waiver by
Lender of any right, power and/or remedy on any one occasion shall
not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future
occasion, whether similar in kind or otherwise.
11.4 Indemnification. EACH BORROWER SHALL JOINTLY AND
SEVERALLY INDEMNIFY AND HOLD LENDER, AND ITS DIRECTORS, AGENTS,
EMPLOYEES AND COUNSEL (THE "INDEMNIFIED PARTIES"), HARMLESS FROM
AND AGAINST ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES, COSTS
OR EXPENSES IMPOSED ON, INCURRED BY OR ASSERTED AGAINST ANY OF THEM
IN CONNECTION WITH ANY LITIGATION, INVESTIGATION, CLAIM OR
PROCEEDING COMMENCED OR THREATENED RELATED TO THE NEGOTIATION,
PREPARATION, EXECUTION, DELIVERY, ENFORCEMENT, PERFORMANCE OR
ADMINISTRATION OF THIS AGREEMENT, ANY OTHER FINANCING AGREEMENTS,
OR ANY UNDERTAKING OR PROCEEDING RELATED TO ANY OF THE TRANSACTIONS
51
CONTEMPLATED HEREBY OR ANY ACT, OMISSION, EVENT OR TRANSACTION
(INCLUDING LENDER'S OWN NEGLIGENCE) RELATED OR ATTENDANT THERETO,
INCLUDING AMOUNTS PAID IN SETTLEMENT, COURT COSTS, AND THE FEES AND
EXPENSES OF COUNSEL OTHER THAN THOSE ARISING SOLELY OUT OF THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY INDEMNIFIED PARTY.
TO THE EXTENT THAT THE UNDERTAKING TO INDEMNIFY, PAY AND HOLD
HARMLESS SET FORTH IN THIS SECTION MAY BE UNENFORCEABLE BECAUSE IT
VIOLATES ANY LAW OR PUBLIC POLICY, EACH BORROWER SHALL PAY THE
MAXIMUM PORTION WHICH IT IS PERMITTED TO PAY UNDER APPLICABLE LAW
TO LENDER IN SATISFACTION OF INDEMNIFIED MATTERS UNDER THIS
SECTION. THE FOREGOING INDEMNITY SHALL SURVIVE THE PAYMENT OF THE
OBLIGATIONS AND THE TERMINATION OR NON-RENEWAL OF THIS AGREEMENT.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements
shall become effective as of the date set forth on the first page
hereof and shall continue in full force and effect for a term
ending on the date two (2) years from the date hereof (the "Renewal
Date"), and from year to year thereafter, unless sooner terminated
pursuant to the terms hereof. Lender or Borrowers may terminate
this Agreement and the other Financing Agreements effective on the
Renewal Date or on the anniversary of the Renewal Date in any year
by giving to the other party at least sixty (60) days prior written
notice; provided, that, this Agreement and all other Financing
Agreements must be terminated simultaneously. Upon the effective
date of termination of the Financing Agreements, Borrowers shall
pay to Lender, in full, all outstanding and unpaid Obligations and
shall furnish cash collateral to Lender in such amounts as Lender
determines are reasonably necessary to secure Lender from loss,
cost, damage or expense, including attorneys' fees and legal
expenses, in connection with any contingent Obligations, including
issued and outstanding Letter of Credit Accommodations and checks
or other payments provisionally credited to the Obligations and/or
as to which Lender has not yet received final and indefeasible
payment. Such payments in respect of the Obligations and cash
collateral shall be remitted by wire transfer in Federal funds to
such bank account of Lender, as Lender may, in its discretion,
designate in writing to Borrowers for such purpose. Interest shall
be due until and including the next Business Day, if the amounts so
paid by Borrowers to the bank account designated by Lender are
received in such bank account later than 12:00 noon, Dallas, Texas
time.
(b) No termination of this Agreement or the other
Financing Agreements shall relieve or discharge any Borrowers of
its respective duties, obligations and covenants under this
Agreement or the other Financing Agreements until all Obligations
have been fully and finally discharged and paid, and Lender's
continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements
and applicable law, shall remain in effect until all such
Obligations have been fully and finally discharged and paid and
52
Lender shall have no further obligations to make Loans or Letter of
Credit Accommodations available to any Borrower.
(c) Upon the payment in full, in cash, of all
Obligations and termination of the Financing Agreements, Lender
shall, at Borrowers' expense, release the Collateral from the
security interest granted herein and make such filings as may be
reasonably necessary in connection herewith.
(d) If for any reason this Agreement is terminated prior
to the end of the then current term or renewal term of this
Agreement, in view of the impracticality and extreme difficulty of
ascertaining actual damages and by mutual agreement of the parties
as to a reasonable calculation of Lender's lost profits as a result
thereof, Borrowers agree to pay to Lender, upon the effective date
of such termination, an early termination fee in the amount set
forth below if such termination is effective in the period
indicated:
Amount Period
______ ______
(i) 2% of Maximum Credit From the date hereof to
and including May 7, 2000
(ii) 1% of Maximum Credit After May 7, 2000 to and
including the Renewal Date.
(iii) .5% of Maximum Credit From the Renewal Date and to
but not including the next
occurring anniversary of
this Agreement after the
Renewal Date
Such early termination fee shall be presumed to be the amount of
damages sustained by Lender as a result of such early termination
and each Borrower agrees that it is reasonable under the
circumstances currently existing. In addition, Lender shall be
entitled to such early termination fee upon the occurrence of any
Event of Default described in Sections 10.1(g) and 10.1(h) hereof,
even if Lender does not exercise its right to terminate this
Agreement, but elects, at its option, to provide financing to any
Borrower or permit the use of cash collateral under the United
States Bankruptcy Code. The early termination fee provided for in
this Section 12.1 shall be deemed included in the Obligations.
12.2 Notices. All notices, requests and demands hereunder
shall be in writing and (a) made to Lender at its address set forth
below and to Borrowers at their chief executive offices set forth
below, or to such other address as each party may designate by
written notice to the other in accordance with this provision, and
(b) deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with
instructions to deliver the next Business Day, one (1) Business Day
after sending; and if by certified mail, return receipt requested,
five (5) days after mailing.
53
12.3 Partial Invalidity. If any provision of this Agreement
is held to be invalid or unenforceable, such invalidity or
unenforceability shall not invalidate this Agreement as a whole,
but this Agreement shall be construed as though it did not contain
the particular provision held to be invalid or unenforceable and
the rights and obligations of the parties shall be construed and
enforced only to such extent as shall be permitted by applicable
law.
12.4 Successors. This Agreement, the other Financing
Agreements and any other document referred to herein or therein
shall be binding upon and inure to the benefit of and be
enforceable by Lender, Borrowers and their respective successors
and assigns, except that no Borrower may assign its rights under
this Agreement, the other Financing Agreements and any other
document referred to herein or therein without the prior written
consent of Lender. Lender may, after notice to Borrowers, assign
its rights and delegate its obligations under this Agreement and
the other Financing Agreements and further may assign, or sell
participations in, all or any part of the Loans, the Letter of
Credit Accommodations or any other interest herein to another
financial institution or other person, in which event, the assignee
or participant shall have, to the extent of such assignment or
participation, the same rights and benefits as it would have if it
were the Lender hereunder, except as otherwise provided by the
terms of such assignment or participation.
12.5 Entire Agreement. This Agreement, the other Financing
Agreements, any supplements hereto or thereto, and any instruments
or documents delivered or to be delivered in connection herewith or
therewith represents the entire agreement and understanding
concerning the subject matter hereof and thereof between the
parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations,
warranties, commitments, proposals, offers and contracts concerning
the subject matter hereof, whether oral or written. In the event
of any inconsistency between the terms of this Agreement and any
schedule or exhibit hereto, the terms of this Agreement shall
govern.
12.6 NONAPPLICABILITY OF ARTICLE 5069-15.01 ET SEQ. BORROWER
AND LENDER HEREBY AGREE THAT, EXCEPT FOR SECTION 15.10(B) THEREOF,
THE PROVISIONS OF TEX. REV. CIV. STAT. XXX. ART. 5069-15.01 ET SEQ.
(XXXXXX 1987) (REGULATING CERTAIN REVOLVING CREDIT LOANS AND
REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR
ANY OF THE OTHER FINANCING AGREEMENTS.
12.7 WAIVER OF CONSUMER RIGHTS. BORROWERS HEREBY WAIVE THEIR
RIGHTS UNDER THE DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION
ACT, SECTION 17.41 ET. SEQ. BUSINESS & COMMERCE CODE, A
54
LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER
CONSULTATION WITH AN ATTORNEY OF THE BORROWERS' OWN SELECTION, THE
BORROWERS VOLUNTARILY CONSENT TO THIS WAIVER. BORROWERS EXPRESSLY
WARRANT AND REPRESENT THAT THE BORROWERS (a) ARE NOT IN A
SIGNIFICANTLY DISPARATE BARGAINING POSITION RELATIVE TO LENDER, AND
(b) HAS BEEN REPRESENTED BY LEGAL COUNSEL IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
BORROWERS HAVE READ AND UNDERSTAND
SECTION 12.7: ___________________
(INITIALS OF
AUTHORIZED OFFICER OF BORROWERS)
12.8 ORAL AGREEMENTS INEFFECTIVE. THIS AGREEMENT AND THE
OTHER FINANCING AGREEMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND THE SAME MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
BORROWERS AND LENDER EACH
READ AND UNDERSTAND THIS
SECTION 12.8:
________________ (INITIALS OF AUTHORIZED OFFICER OF BORROWER)
________________ (INITIALS OF AUTHORIZED OFFICER OF BORROWER)
________________ (INITIALS OF AUTHORIZED OFFICER OF BORROWER)
________________ (INITIALS OF AUTHORIZED OFFICER OF BORROWER)
________________ (INITIALS OF AUTHORIZED OFFICER OF BORROWER)
________________ (INITIALS OF AUTHORIZED OFFICER OF BORROWER)
________________ (INITIALS OF AUTHORIZED OFFICER OF BORROWER)
________________ (INITIALS OF AUTHORIZED OFFICER OF LENDER)
55
IN WITNESS WHEREOF, Lender and Borrowers have caused these
presents to be duly executed as of the day and year first above
written.
LENDER
CONGRESS FINANCIAL CORPORATION
(SOUTHWEST)
By:___________________________
Name:
_________________________
Title:
_________________________
Address:
_______
0000 Xxxx Xxxxxx, Xxx. 0000
Xxxxxx, XX 00000
BORROWERS
L&S AUTOMOTIVE PRODUCTS CO.
By:
_________________________
Name:
_______________________
Title:
______________________
Chief Executive Office:
0 Xxxxx Xxxxxxxxxxxx
Xxxxxxxx Xxxx, Xxxxxxxx
00000
L&S BEARING CO.
By:
_______________________
Name:
_____________________
Title:
____________________
Chief Executive Office:
0 Xxxxx Xxxxxxxxxxxx
Xxxxxxxx Xxxx, Xxxxxxxx
00000
LSB EXTRUSION CO.
By:
________________________
Name:
_____________________
Title:
____________________
Chief Executive Office:
0 Xxxxx Xxxxxxxxxxxx
Xxxxxxxx Xxxx, Xxxxxxxx
00000
ROTEX CORPORATION
By:
__________________________
Name:
_________________________
Title:
________________________
Chief Executive Office:
0 Xxxxx Xxxxxxxxxxxx
Xxxxxxxx Xxxx, Xxxxxxxx
00000
TRIBONETICS CORPORATION
By:
___________________________
Name:
_________________________
Title:
_________________________
Chief Executive Office:
0 Xxxxx Xxxxxxxxxxxx
Xxxxxxxx Xxxx, Xxxxxxxx
00000
INTERNATIONAL BEARINGS, INC.
By:
__________________________
Name:
________________________
Title:
_______________________
Chief Executive Office:
0000 Xxxxxxx Xxxxxxxxx
Xxxxxxx, Xxxxxxxxx 00000
