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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 25, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number: 0-27482
XETEL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 74-2310781
(State of Incorporation) (I.R.S. Employer ID Number)
</TABLE>
2105 GRACY FARMS LANE
AUSTIN, TEXAS 78758
(Address of principal executive offices, including zip code)
(512) 435-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such other shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [x] No [ ]
As of the close of business on November 3, 1999, 9,372,235 shares of the
registrant's common stock, par value $.0001 per share, were outstanding.
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XETEL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
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<S> <C>
ITEM 1. Condensed Financial Statements (unaudited)
Balance Sheet as of September 25, 1999 and March 27, 1999 3
Statement of Operations for the three and six months ended
September 25, 1999 and September 26, 1998 4
Statement of Cash Flows for the three and six months ended
September 25, 1999 and September 26, 1998 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk 14
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8k 14
SIGNATURES 15
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
XETEL CORPORATION
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
September 25, March 27,
1999 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,368 $ 7,330
Trade accounts receivable, net 14,721 14,940
Inventories 16,971 19,065
Prepaid expenses and other 1,984 1,833
------------ ------------
Total current assets 41,044 43,168
Property and equipment, net 6,501 7,233
Deferred tax asset 2,200 2,200
------------ ------------
TOTAL ASSETS $ 49,745 $ 52,601
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 11,821 $ 12,816
Notes payable and current portion of long-term debt 11,425 10,600
Accrued expenses and other liabilities 3,109 4,081
------------ ------------
Total current liabilities 26,355 27,497
Deferred income taxes 183 183
Long-term debt -- 2,167
Commitments
Stockholders' equity:
Common stock, $0.0001 par value, 25,000,000 shares authorized,
9,312,807 and 9,212,700 shares issued and 9,306,809 and
9,206,702 shares outstanding, respectively 21,998 21,818
Retained earnings 1,291 1,087
Deferred compensation (82) (151)
------------ ------------
Total stockholders' equity 23,207 22,754
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 49,745 $ 52,601
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements. 3
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XETEL CORPORATION
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
September 25, September 26, September 25, September 26,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 23,150 $ 36,211 $ 55,142 $ 80,518
Cost of sales 21,901 34,824 51,660 76,061
------------ ------------ ------------ ------------
GROSS PROFIT 1,249 1,387 3,482 4,457
Selling, general and administrative
expenses 1,157 1,552 2,776 3,339
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS 92 (165) 706 1,118
Other expense, net (149) (222) (377) (402)
------------ ------------ ------------ ------------
(LOSS) INCOME BEFORE INCOME TAXES (57) (387) 329 716
(Benefit) provision for income taxes (22) (147) 125 272
------------ ------------ ------------ ------------
NET (LOSS) INCOME $ (35) $ (240) $ 204 $ 444
============ ============ ============ ============
Basic (loss) earnings per share $ (0.00) $ (0.03) $ 0.02 $ 0.05
============ ============ ============ ============
Basic weighted average
shares outstanding 9,288 9,062 9,271 9,035
============ ============ ============ ============
Diluted (loss) earnings per
share $ (0.00) $ (0.03) $ 0.02 $ 0.05
============ ============ ============ ============
Diluted weighted average shares
outstanding 9,288 9,062 9,599 9,615
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements. 4
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XETEL CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
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<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
September 25, September 26, September 25, September 26,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (35) $ (240) $ 204 $ 444
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 487 706 992 1401
Other recoveries (209) -- (209) --
Recovery of obsolete inventory (66) -- (66) --
Deferred compensation 34 29 69 48
Gain on disposal of equipment (8) -- (9) (8)
Changes in operating assets and liabilities:
Trade accounts receivable 3,632 1,280 428 (499)
Inventories (2,894) 1,778 2,160 (1,934)
Prepaid expenses and other (177) (317) (151) (309)
Trade accounts payable 554 (7,489) (995) (6,707)
Accrued expenses and other
liabilities (264) 47 (972) 1,080
------------ ------------ ------------ ------------
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,054 (4,206) 1,451 (6,484)
Cash flows from investing activities:
Purchases of property and equipment (148) (429) (319) (974)
Proceeds from sale of equipment 67 -- 68 9
------------ ------------ ------------ ------------
CASH USED IN INVESTING ACTIVITIES (81) (429) (251) (965)
Cash flows from financing activities:
Net (repayments) borrowings under
debt agreements (1,017) 4,782 (1,342) 7,357
Proceeds from stock options
exercised 48 -- 50 51
Cash proceeds from stock issued
under employee stock purchase plan -- -- 130 154
------------ ------------ ------------ ------------
CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (969) 4,782 (1,162) 7,562
Increase in cash and cash equivalents 4 147 38 113
Cash and cash equivalents, beginning
of period 7,364 7,205 7,330 7,239
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 7,368 $ 7,352 $ 7,368 $ 7,352
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements. 5
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XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BUSINESS
XeTel Corporation (the "Company") provides comprehensive and customized
manufacturing solutions to original equipment manufacturers primarily in the
networking, telecommunications and computer industries. The Company incorporates
advanced design and prototype services and complex electronics manufacturing
assembly capabilities together with materials management, advanced testing,
systems integration and order fulfillment services to provide turnkey solutions
for its customers.
NOTE 2 BASIS OF PRESENTATION
The accompanying financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in the annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules or regulations.
In the opinion of management, the financial statements reflect all adjustments
of a normal recurring nature considered necessary to present fairly the
financial position, results of their operations and cash flows for those periods
presented. The results of operations for the period ended September 25, 1999 are
not necessarily indicative of the results that may be expected for any other
interim period or for the fiscal year ending April 1, 2000. The accompanying
financial statements should be read in conjunction with the financial statements
and notes thereto for the fiscal year ended March 27, 1999 as presented in the
Company's 10K filed with the SEC.
NOTE 3 TRADE ACCOUNTS RECEIVABLE, NET
Trade accounts receivable, net consist of the following (in thousands):
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<CAPTION>
September 25, March 27,
1999 1999
------------ ------------
(unaudited)
<S> <C> <C>
Trade accounts receivable $ 17,980 $ 18,408
Less: allowance for doubtful accounts (3,259) (3,468)
------------ ------------
$ 14,721 $ 14,940
============ ============
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NOTE 4 INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 25, March 27,
1999 1999
------------ ------------
(unaudited)
<S> <C> <C>
Raw materials $ 12,637 $ 15,262
Work in progress 3,847 3,584
Finished goods 487 219
------------ ------------
$ 16,971 $ 19,065
============ ============
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6
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XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
As of September 25, 1999 and March 27, 1999, the Company had allowances for
obsolete raw materials of approximately $2,965,000 and $3,031,000, respectively.
Cost of sales for the three and six months ended September 25, 1999 and
September 26, 1998 include (recoveries) provisions to the allowance for obsolete
materials of $(65,789), $2,000 and $(65,789), $126,000, respectively.
NOTE 5 BORROWINGS
During the second quarter ended September 25, 1999, the Company and its existing
primary commercial bank signed a new $20 million credit facility. This facility
replaces the previous revolving line of credit and term loan facility. The new
asset based revolving credit facility bears interest at LIBOR plus 1.75% to
2.75% and/or prime to prime plus 0.75% depending upon certain financial ratios,
matures December 31, 1999 and is secured by certain assets of the Company. The
bank facility requires the payment of a monthly commitment fee equal to
three-eighths of one percent (3/8%) on the unused balance, and borrowings are
limited based upon certain collateral availability requirements and financial
ratios.
NOTE 6 EARNINGS PER COMMON SHARE
Basic earnings per share (EPS) is based on the weighted effect of all common
shares issued and outstanding, and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
during the period. Diluted EPS is similar to basic EPS except that the weighted
average of common shares outstanding is increased to include the number of
common share equivalents, when inclusion is dilutive. Common share equivalents
are comprised of stock options. The number of common share equivalents
outstanding relating to stock options is computed using the treasury stock
method. The following table sets forth the computation of basic and diluted
earnings per share (unaudited, in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ -----------------------------
September 25, September 26, September 25, September 26,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic (loss) earnings per share:
Weighted average shares
outstanding 9,288 9,062 9,271 9,035
============ ============ ============ ============
Net (loss) income $ (35) $ (240) $ 204 $ 444
============ ============ ============ ============
Basic (loss) earnings per share $ (0.00) $ (0.03) $ 0.02 $ 0.05
============ ============ ============ ============
Diluted (loss) earnings per share:
Weighted average shares
outstanding 9,288 9,062 9,271 9,035
Common stock equivalents:
stock options -- -- 328 580
------------ ------------ ------------ ------------
9,288 9,062 9,599 9,615
============ ============ ============ ============
Net (loss) income $ (35) $ (240) $ 204 $ 444
============ ============ ============ ============
Diluted (loss) earnings per share $ (0.00) $ (0.03) $ 0.02 $ 0.05
============ ============ ============ ============
</TABLE>
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion in this document contains trend analyses and other
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended that involve risks and uncertainties, such as statements concerning:
growth and future operating results; developments in our markets and strategic
focus; new products and services and product technologies and future economic,
business and regulatory conditions. Such forward-looking statements are
generally accompanied by words such as "plan", "estimate," "expect," "believe,"
"should," "would," "could," "anticipate," "may" or other words that convey
uncertainty of future events or outcomes. These forward-looking statements and
other statements made elsewhere in this report are made in reliance on the
Private Securities Litigation Reform Act of 1995. Actual results could differ
materially from those projected in the forward-looking statements throughout
this document as a result of the risk factors set forth below and elsewhere.
All percentage amounts and ratios were calculated using the underlying data in
thousands. Operating results for the three and six-month period ended September
25, 1999, are not necessarily indicative of the results that may be expected for
the full fiscal year.
OVERVIEW
Founded in 1984, the Company Corporation offers highly customized and
comprehensive electronics manufacturing solutions to Fortune 500 and emerging
original equipment manufacturers primarily in the networking, telecommunications
and computer industries. The Company provides advanced design and prototype
services, manufactures sophisticated surface mount assemblies and supplies
turnkey solutions to original equipment manufacturers. The Company incorporates
design and prototype services and assembly capabilities, together with materials
and supply base management, advanced testing, system integration and order
fulfillment services to provide total solutions for its customers. The Company
employs approximately 460 people and is headquartered in Austin, Texas with
manufacturing services operations in Austin and Dallas, Texas and San Ramon,
California.
RISK FACTORS
The following summary of risk factors relevant to an investment in shares of the
Company's common stock is derived, in part, from the section captioned "Risk
Factors" in the prospectus of the Company dated February 13, 1996 (the
"Prospectus"), as filed with the Securities and Exchange Commission (the
"Commission") pursuant to the initial registration of shares of common stock of
the Company under the Securities Act of 1933, as amended (the "Securities Act").
This discussion does not purport to be complete and is subject to, and qualified
by, the discussion of risk factors set forth in the Prospectus. A copy of the
Prospectus and additional reports, proxy statements and other information filed
with the Commission may be read or copied at the following public reference
rooms of the Commission: 450 Fifth Street, NW., Room 1024, Washington DC 20549;
7 World Trade Center, Suite 1300, New York, New York 10048; and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies can be requested by writing
to the Commission and paying a duplicating fee at prescribed rates. Please call
the Commission's toll-free number, 1-800-SEC-0330, for further information on
the operation of the public reference rooms. Commission filings, including the
Prospectus, are also available on the Commission's internet website,
http://www.sec.gov.
FLUCTUATIONS IN OPERATING RESULTS. The Company's operating results are affected
by a number of factors, including timing of orders from and shipments to major
customers, availability of materials and components, the volume of orders
relative to the Company's capacity, timing of expenditures in anticipation of
future sales, the gain or loss of significant customers, variations in the mix
between consignment and component purchase arrangements with customers,
variations in the demand for products in the industries served by the Company
and general economic conditions. Operating results can also be significantly
influenced by the development and introduction of new products or technologies
by the Company's customers, or such customer's competitors, which may materially
and adversely affect the demand for the Company's services. The Company's
customers generally require short delivery cycles, and a substantial portion of
the Company's backlog is typically scheduled for delivery within 120 days. In
the absence of substantial backlog, quarterly sales and operating results depend
on the volume and timing of bookings received during the quarter which can be
difficult to forecast.
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Backlog fluctuations affect the Company's ability to plan production and
inventory levels, which could lead to fluctuations in operating results.
Variations in the size and delivery schedules of purchase orders received by the
Company, changes in customers' delivery requirements, or the rescheduling or
cancellation of orders and commitments, may result in substantial fluctuations
in backlog from period to period. Accordingly, the Company believes that backlog
may not be a meaningful indicator of future operating results.
A significant portion of the Company's expenses is relatively fixed in nature
and planned expenditures are based in part on anticipated orders. The inability
to adjust expenditures quickly enough to compensate for a decline in net sales
may magnify the adverse impact of such decline in the Company's results of
operations. Due to the factors noted above and elsewhere in this Form 10-Q and
other filings by the Company with the Securities and Exchange Commission, the
Company's future earnings and stock price may be subject to significant
volatility, particularly on a quarterly basis. Past financial performance should
not be considered a reliable indicator of future performance and investors
should not use historical trends to anticipate results or trends in future
periods. Any shortfall in revenue and earnings from the levels anticipated by
securities analysts could have an immediate and significant effect on the
trading price of the Company's common stock in any given period. Also, the
Company participates in a highly dynamic industry, which often results in
volatility of the Company's common stock price.
CONCENTRATION OF CUSTOMERS. The Company's customer base is highly concentrated.
The Company's three largest customers accounted for approximately 13%, 11% and
11%, respectively, of net sales for the six months ended September 25, 1999. For
the six months ended September 26, 1998, the Company's three largest customers
accounted for approximately 46%, 8% and 5%, of its net sales. The Company
anticipates that a significant portion of its sales will continue to be
concentrated in a relatively small number of customers for the foreseeable
future. In addition, the Company's objective is to develop new and expand
existing relationships with leading and emerging OEM's in the electronics
industry. Such emerging growth and technology companies tend to have limited
operating histories, and also may have changes in management and limited
capitalization. As a result, the Company may experience difficulties in
maintaining long-term relationships with these customers and in receiving
payment for services rendered to them. To the extent that any significant
customers of the Company terminate their relationship with the Company, or the
Company is unable, for any reason, to receive payment for its services, the
Company's business, financial condition and results of operations likely would
be materially and adversely affected.
UNAVAILABILITY OF COMPONENTS AND MATERIALS. Components and material used by the
Company in producing surface mount assemblies and turnkey solutions are
purchased by the Company from approved suppliers of its customers. Any failure
on the part of these suppliers to deliver required components to the Company or
any failure of such components to meet performance requirements could impair the
Company's ability to meet scheduled shipment dates and could delay sales of
systems by the Company's customers and thereby adversely affect the Company's
business, financial condition and results of operations. The Company has in the
past experienced shortages of certain types of electronic components, and may
experience shortages of certain electronic components that are customer supplied
or are in short supply generally within the electronics industry. Component
shortages or price fluctuations, to the extent not absorbed by customers under
its agreements with the Company, could have a material adverse effect on the
Company's business, financial condition and results of operations. Certain
components used in a number of the Company's customer programs are obtained from
a single source.
VARIABILITY OF CUSTOMER REQUIREMENTS; ABSENCE OF LONG-TERM PURCHASE ORDERS. The
level and timing of purchase orders placed by the Company's customers are
affected by a number of factors, including variation in demand for the
customer's products, customer attempts to manage inventory and changes in the
customer's manufacturing strategies. Many of such factors are outside of the
control of the Company. The Company typically does not obtain long-term purchase
orders or commitments, but instead works with its customers to develop
nonbinding forecasts of the future volume of orders. Based on such nonbinding
forecasts, the Company makes commitments regarding the level of business that it
will seek and accept, the timing of production schedules and the levels and
utilization of personnel and other resources. Generally, customers may cancel,
reduce or delay purchase orders and commitments without penalty, except for
payment for services rendered, materials purchased or procured and, in certain
circumstances, charges associated with such cancellation, reduction or delay.
Significant or numerous cancellations, reductions or delays in orders by
customers, or inability by customers to pay for services provided by the Company
or to pay for components and materials purchased by the Company on such
customer's behalf, have adversely affected the Company's business, financial
condition and results of operations in the past and
9
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could have a material adverse effect on the Company's business, financial
condition and results of operations in the future.
MANAGEMENT OF GROWTH AND EXPANSION. The Company's design, prototype, assembly
and turnkey solutions business and multi-site locations have grown rapidly in
recent years. This growth has increased the Company's fixed costs and required
it to hire additional personnel. Furthermore, the Company plans to establish
additional regional manufacturing services centers, which will increase the
Company's fixed costs, and will require additional personnel. A continuing
period of rapid growth, including geographic expansions and acquisitions, could
place a significant strain on the Company's management, operations and other
resources. The Company's ability to manage its growth will require it to manage
its existing resources more efficiently, to continue to invest in its
operations, including its financial and management information systems and
internal process controls, and to retain, motivate and manage its employees. If
the Company's management is unable to manage growth effectively, the quality of
the Company's services and its ability to retain key personnel could be
materially and adversely affected, which would have a material adverse effect on
the Company's business, financial condition and results of operations.
YEAR 2000 COMPLIANCE. The Company began a Year 2000 data assessment project in
fiscal 1998 to address all necessary code changes, testing and implementation
for all of its systems. Many of the Company's business and operating systems are
currently Year 2000 compliant, and therefore, the Company is undertaking
additional efforts to identify and modify those systems which may not be Year
2000 compliant. Anticipated spending for the Year 2000 date conversion project
will be expensed as incurred or new software will be capitalized and amortized
over the software's useful life and is not expected to have a significant impact
on the Company's results of operations. Project completion is planned during
calendar 1999 as described below. The costs of the project and the date on which
the Company believes it will complete the Year 2000 modifications are based on
management's best estimates, which are derived utilizing numerous assumptions of
future events, including the continuous availability of certain resources and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties. In addition, there can be no assurance that the systems of other
companies on which the Company's systems rely will be converted on a timely
basis or that such failure by another company to convert would not have an
adverse effect on the Company's systems.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of net
sales represented by certain items in the Company's statement of operations.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -------------------------------
September 25, September 26, September 25, September 26,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 94.6 96.2 93.7 94.5
------------ ------------ ------------ ------------
Gross margin 5.4 3.8 6.3 5.5
Selling, general and administrative
expenses 5.0 4.3 5.0 4.1
------------ ------------ ------------ ------------
Income from operations 0.4 (0.5) 1.3 1.4
Other expense, net (0.7) (0.6) (0.7) (0.5)
------------ ------------ ------------ ------------
Income before income taxes (0.3) (1.1) 0.6 0.9
Provision for income taxes (0.1) (0.4) 0.2 0.3
------------ ------------ ------------ ------------
Net (loss) income (0.2)% (0.7)% 0.4% 0.6%
============ ============ ============ ============
</TABLE>
10
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NET SALES
Net sales for the second quarter ended September 25, 1999 was $23.2 million, 36%
below sales in the comparable prior year period of $36.2 million. Sales to new
customers partially offset certain discontinued customer programs representing
42% of sales last year, principally a large program brought in-house by a
customer.
Net sales for the six months ended September 25, 1999 was $55.1 million, 32%
below revenue of $80.5 million in the comparable prior year period. Revenues
from new customers partially offset discontinued programs representing 54% of
sales last year.
GROSS PROFIT
Gross profit is affected by, among other factors, the level of sales, product
mix, component costs and the level of capacity utilization at the Company's
facilities. Gross profit for the three months ended September 25, 1999 was $1.2
million versus $1.4 million for the three months ended September 26, 1998. The
Company's gross margin, gross profit as a percentage of net sales, increased to
5.4% in the second quarter of fiscal 2000, versus 3.8% in the second quarter of
fiscal 1999. This increase in margin reflected actions taken to reduce costs and
improve manufacturing efficiency, as well as a favorable product mix change.
Gross profit for the six months ended September 25, 1999 was $3.5 million versus
$4.5 million in the comparable year period, primarily as a result of lower sales
levels. Gross margin increased to 6.3% compared to 5.5% in the comparable year
period. The increase in gross margin primarily represented changes in product
mix towards lower material content, higher value added services and cost
reduction actions.
OPERATING EXPENSES
Selling, general and administrative ("SG&A") expenses consist primarily of
salaries and related expenses, marketing and promotional expenses, and sales
commissions paid to direct sales personnel and independent sales representative
organizations. SG&A expenses totaled $1.2 million in the second fiscal quarter
versus $1.6 million in the comparable prior year period. The decrease is
primarily attributed to $.2 million in certain recoveries and continued cost
management and controls. SG&A expenses represented 5.0% of net sales for the
three months ended September 25, 1999 compared to 4.3% for the three months
ended September 26, 1998 largely due to lower sales levels in the current
period.
SG&A expenses for the six months ended September 25, 1999 decreased to $2.8
million versus $3.3 million reported for the six months ended September 26, 1998
with the decline due to second quarter recoveries, cost control and lower
variable expenses. SG&A expenses represented 5.0% of net sales for the six
months ended September 25, 1999 compared to 4.1% of in the prior year largely as
a result of lower sales levels.
OTHER EXPENSE, NET
Other expense, net for the three months ended September 25, 1999 decreased to
$149,000 compared to $222,000 for the three months ended September 26, 1998. The
change in other expense, net was due to decreased interest expense incurred on
the Company's outstanding debt. Other expense, net for the six months ended
September 25, 1999 was $377,000 compared to $402,000 in the corresponding prior
year period. The change in other expense, net is primarily due to the decrease
in interest expense incurred on reduced borrowings coupled with a slight
decrease in interest income.
INCOME TAXES
The benefit for income taxes of $22,000 reflects an effective tax rate of 38%
for the three months ended September 25, 1999, the same effective tax rate for
the three month period ended September 26, 1998. The provision for income taxes
of $125,000 and $272,000 for the six months ended September 26, 1999 and
September 28, 1998, respectively, also reflect an effective tax rate of 38%.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $1.1 million and $1.5 million in cash flows from operating
activities for the three and six months ended September 25, 1999. Cash flows
from operating activities during the quarter resulted primarily from lower
receivable levels, which offset increased inventory and other changes in
operating working capital.
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Working capital was $14.7 million and $15.7 million at September 25, 1999 and
March 27, 1999 respectively. In addition to the Company's working capital as of
September 25, 1999, which included cash and cash equivalents of $7.4 million,
the Company also had approximately $12.7 million in unused credit facilities.
Capital expenditures during the three and six months ended September 25, 1999
and September 26, 1998 were $148,000, $429,000, and $319,000, $974,000,
respectively. Management anticipates capital expenditures in fiscal 2000 will
approximate the level of capital expenditures made in fiscal 1999.
The Company's expenditures on research and development remained stable for the
three and six months ended September 25, 1999 and September 26, 1998 at $45,000
and $91,000, respectively.
The Company does not hold or issue derivative financial instruments in the
normal course of business.
During the second quarter ended September 25, 1999, the Company and its existing
primary commercial bank signed a new $20 million credit facility. This facility
replaces the previous revolving line of credit and term loan facility. The new
asset based revolving credit facility bears interest at LIBOR plus 1.75% to
2.75% and/or prime to prime plus 0.75% depending upon certain financial ratios,
matures December 31, 1999 and is secured by certain assets of the Company. The
bank facility requires the payment of a monthly commitment fee equal to
three-eighths of one percent (3/8%) on the unused balance, and borrowings are
limited based upon certain collateral availability requirements and financial
ratios. All debt is classified as current to reflect the new agreement.
During the quarter, the Company had $36 million in credit lines and equipment
financing facilities ($12.7 million unused), as follows: (i) a revolving line of
credit for $20 million from a commercial bank, and (ii) an equipment financing
facility for $16 million from a financial services company ($4 million unused at
September 25, 1999). There was $11.4 million and $10.1 million outstanding under
the commercial bank line of credit at September 25, 1999 and March 27, 1999,
respectively. In addition, there was $2.7 million outstanding under a term note
at March 27, 1999.
The bank revolving credit facility bore interest at LIBOR plus 1.25% to 1.75%
depending upon certain financial ratios and/or prime (such rate determined based
upon the amounts and period of loans), matured August 31, 1999 and was secured
by certain assets of the Company. The bank facility required the payment of a
monthly commitment fee equal to one-eighth of one percent (1/8%) on the unused
balance, and borrowings were limited based upon certain collateral availability
requirements. The term loan facility bore interest at 9.2% with a maturity of
August 31, 2000. The equipment financing facility provides for the leasing of
equipment over a five-year period commencing on the date of acceptance of such
equipment.
The financing facilities contain certain restrictions, which among others,
require maintenance of a minimum level of tangible net worth and other operating
and financial ratios. At March 27, 1999, the Company did not satisfy certain
financial covenants imposed under its financing facilities. The Company received
covenants and waivers with respect to these financial covenants as of March 27,
1999 and for the fourth quarter then ended.
Management believes that the Company has sufficient resources from cash provided
from operations and available borrowings to support its operations and capital
requirements through its fiscal year 2000. However, any material acquisitions of
complementary businesses, products or technologies could require additional
equity or debt financing. There can be no assurance that such financing will be
available on acceptable terms, if at all.
BACKLOG
The Company's backlog as of September 25, 1999 was approximately $85.8 million
compared to approximately $68.2 million as of June 26, 1999 and $101.6 million
as of March 27, 1999. Backlog consists of purchase orders received by the
Company and commitments under scheduled releases, both of which generally
specify delivery dates within twelve months. Variations in the size and delivery
schedules of purchase orders received by the Company, as well as changes in
customers' delivery requirements or the rescheduling or cancellation of orders
and commitments, has resulted in the past and may in the future result in
substantial fluctuation in backlog from period to period. Accordingly, the
Company believes that backlog may not be a meaningful indicator of future
financial
12
<PAGE> 13
results. For a discussion of these factors affecting the Company's business and
prospects, see "Item 1" "Business", "Risk Factors". Variability of Customer
Requirements and Fluctuations in Operating Results".
EMPLOYEES
As of September 25, 1999, the Company had approximately 460 full-time employees
supplemented from time to time by part-time employees. The employees are not
represented by a union and the Company believes its employee relations to be
satisfactory.
The Company's success depends to an extent upon the continued services of
several key employees. The loss of certain key personnel could have a material
adverse effect on the Company. The Company's business also depends upon its
ability to continue to attract and retain senior managers and skilled employees.
Failure to do so could adversely affect the Company's operations.
YEAR 2000 COMPLIANCE
Many currently installed systems and software products are coded to accept only
two digit entries in the date code field. These date code fields will need to
accept four digit entries to distinguish 21st century dates from 20th century
dates. As a result computer systems and/or software used by many companies will
need to be upgraded to comply with such "Year 2000" requirements.
An assessment of internal changes required for Year 2000 compliance has been
performed and the Company has determined that it will be necessary to upgrade
its network operating systems, test equipment, electronic mail systems, custom
reports and PC BIOS so that its computer systems will be Year 2000 compliant.
These modifications and replacements are being and will continue to be made in
conjunction with the Company's overall information systems initiatives. In
addition, the Company is continuing its discussions with third-party vendors to
ensure that any of their products that are incorporated into the Company's
products or currently in use by the Company can adequately deal with the change
in century. Areas being addressed include major third-party suppliers of
components of the Company's products as well as full reviews of the Company's
manufacturing equipment, telephone and voice mail systems, security systems and
other office support systems. The Company has also initiated formal
communications with significant suppliers and customers to determine the extent
to which the Company is vulnerable to those third parties' failure to remediate
their own Year 2000 issues. No significant information technology initiatives
have been deferred by the Company as a result of its Year 2000 project.
Since 1998, the Company has made Year 2000 compliance a priority in purchasing
and installation decisions. The Company's information systems department has
adopted a Year 2000 compliance program to assess and address any Year 2000
issues which remain related to the Company's information technology systems and
equipment. The following is a table showing the Company's status of the Year
2000 program based on management's assessment:
YEAR 2000 COMPLIANCE PROGRAM STATUS
AS OF SEPTEMBER 25, 1999
<TABLE>
<CAPTION>
Phase Percent Complete Estimated Completion Date
- ----- ---------------- -------------------------
<S> <C> <C>
Assessment of internal changes required 100% Complete
Major supplier readiness risk assessment 95% November 1999
Upgrades of commercial and internal
applications/products 98% November 1999
</TABLE>
As of September 25, 1999, the Company has spent approximately $75,000 of the
currently estimated $80,000 total cost of the program. Costs incurred and
expected to be incurred consist primarily of the cost of Company personnel
involved in updating applications and operating systems and the costs of
software updates and patches (many of which are provided free of charge from the
vendors). Such expenses are being funded through operating cash flows. The
Company has utilized the Company's internal technical personnel, and intends to
continue to use such personnel, to address Year 2000 issues, rather than
contract with third-party consultants.
13
<PAGE> 14
Based on available information, the Company does not believe any material
exposure to a significant business interruption exists as a result of Year 2000
compliance issues, or that the cost of remedial actions will have a material
adverse effect on its business, financial condition or results of operations.
Accordingly, and as the program is on schedule to be completed by November 1999,
the Company has not formulated a "worst case" scenario or adopted any formal
contingency plan in the event its Year 2000 project is not completed in a timely
manner.
With respect to products manufactured by the Company based on third-party
designs, there can be no assurance that such products contain all necessary date
code changes necessary to ensure Year 2000 compliance. Although the Company has
not experienced any Year 2000-related product liability claims or lawsuits to
date, production of products that are not Year 2000 compliant may entail the
risk of such claims and lawsuits. The Company's defense against any future
lawsuits, regardless of their merit, could result in substantial expense to the
Company as well as the diversion of management time and attention. In addition,
Year 2000 product liability claims, regardless of the merit or eventual outcome
of such claims, could affect the Company's business reputation and its ability
to retain existing customers or attract new customers which, in turn, could have
a material adverse effect on the Company's business, financial condition and
results of operations.
The Company believes that the purchasing patterns of customers and potential
customers may be significantly affected by Year 2000 issues. Many companies are
expending significant resources to correct, patch or replace their current
software systems to achieve Year 2000 compliance. These expenditures may result
in reduced funds available to develop new products and purchase services such as
those offered by the Company.
Significant uncertainty still exists as to the global implications of the Year
2000 issue. Costs of defending and resolving Year 2000-related disputes,
reductions in product development programs by customers or the failure of the
Company to adequately resolve internal Year 2000 compliance issues could result
in a material adverse effect on the Company's business, operating results and
financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company invests its cash in money market funds or instruments which meet
high credit quality standards specified by the Company's investment policy. The
Company does not use financial instruments for trading or other speculative
purposes. The Company's financing facilities are subject to interest rate
fluctuations.
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of stockholders held on August 17, 1999 in
Austin, Texas, the Company's stockholders voted on the election of directors.
All directors proposed by management were elected.
<TABLE>
<CAPTION>
Name of Nominee Votes in Favor Votes Against Abstentions
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sam L. Densmore (Class I Director) 8,760,729 154,737 5,000
Alan R. Schuele (Class II Director) 8,760,729 154,737 5,000
</TABLE>
Broker non-votes amounted to 206,108.
14
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The exhibits listed in the accompanying Index to Exhibits are
filed as part of this Quarterly Report on Form 10-Q.
(b) Reports on Form 8-K
The Company did not file any report on Form 8-K during the three
or six month period ended September 25, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
XETEL CORPORATION
Date: November 8, 1999 By: /s/ Angelo A. DeCaro, Jr.
-----------------------------
Angelo A. DeCaro, Jr.
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Richard S. Chilinski
------------------------
Richard S. Chilinski
Senior Vice President, Chief Financial Officer and Assistant Secretary
(Principal Financial and Accounting Officer)
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.41 Credit Agreement between Registrant and Chase Bank of
Texas
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.41
CREDIT AGREEMENT
MADE AND ENTERED INTO
BY AND AMONG
XETEL CORPORATION,
A DELAWARE CORPORATION,
AND
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
A NATIONAL BANKING ASSOCIATION
AUGUST 2, 1999
<PAGE> 2
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (together with all amendments, modifications and
supplements hereto and restatements hereof, this "AGREEMENT") is made and
entered into as of August 2, 1999, by and among XETEL CORPORATION, a Delaware
corporation ("BORROWER"), and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
("LENDER"), a national banking association.
W I T N E S S E T H:
THAT, in consideration of the mutual covenants, agreements and undertakings
herein contained, the parties hereto agree as follows:
1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS. Unless a particular word or phrase is otherwise
defined or the context otherwise requires, capitalized words and phrases used in
the Loan Documents have the meanings provided below.
ADJUSTED LIBOR RATE shall mean, with respect to any LIBOR Borrowing
for any Interest Period, an interest rate per annum equal to the lesser of (a)
the sum of (1) the product of (i) the LIBOR Rate in effect for such Interest
Period and (ii) Statutory Reserves and (2) the Applicable Margin, or (b) the
Highest Lawful Rate.
AFFILIATE of any Person shall mean any other Person which controls or
is controlled by or under common control with such Person. For purposes of this
definition, "control" (including "controlled by" and "under common control
with") means the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of securities or selection of directors. Without limiting
the generality of the foregoing, beneficial ownership of five percent (5%) or
more of any class of voting securities of a Person or five percent (5%) of the
outstanding equity interests in such Person shall be deemed to be control for
purposes of compliance with the provisions of Section 7.6 hereof.
ALTERNATE BASE RATE shall mean, for any day, a rate per annum (rounded
upwards to the nearest 1/16 of 1%) equal to the lesser of (a) the sum of (1) the
greater of (i) the Prime Rate (computed on the basis of the actual number of
days elapsed over a year of 360 days) in effect on such day, (ii) the Federal
Funds Effective Rate (computed on the basis of the actual number of days elapsed
over a 360-day year) in effect for such day plus 1/2 of 1%, and (iii) the Base
CD Rate in effect for such day plus 1% and (2) the Applicable Margin in effect
on such day, or (b) the Highest Lawful Rate. For purposes of this Agreement, any
change in the Alternate Base Rate due to a change in the Prime Rate, Federal
Funds Effective Rate or the Base CD Rate shall be effective on the effective
date of such change in the Prime Rate, Federal Funds Effective Rate or the Base
CD Rate, respectively. If for any reason the Lender shall have determined (which
determination shall be conclusive and binding, absent manifest error) that it is
unable to ascertain the Federal Funds Effective Rate or Base CD Rate, or both,
for any reason, including the inability or failure of the Lender to obtain
sufficient quotations in accordance with the terms hereof, the Alternate Base
Rate shall be determined without regard to clause (ii) or (iii), or both, as
appropriate, until the
1
<PAGE> 3
circumstances giving rise to such inability no longer exist.
ALTERNATE BASE RATE BORROWING shall mean, as of any date, that portion
of the principal balance of the Loans bearing interest at the Alternate Base
Rate as of such date.
ANNUAL AUDITED FINANCIAL STATEMENTS shall mean the annual financial
statements of a Person, including all notes thereto, which statements shall
include a balance sheet as of the end of such fiscal year and an income
statement, a retained earnings statement and a statement of cash flows for such
fiscal year, all setting forth in comparative form the corresponding figures
from the previous fiscal year and accompanied by a report and opinion of
independent certified public accountants with a "Big 5" accounting firm or other
accounting firm of similar national standing and reputation, which report shall
not contain any qualification except with respect to new accounting principles
mandated by the Financial Accounting Standards Board and shall state that such
financial statements, in the opinion of such accountants, present fairly, in all
material respects, the financial position of such Person as of the date thereof
and the results of its operations and cash flows for the period covered thereby
in conformity with GAAP. The Annual Audited Financial Statements for the
Borrower and its Subsidiaries, if any, should be prepared on both a Consolidated
and a consolidating basis in accordance with GAAP (with such consolidating
statements to be prepared in accordance with GAAP only to the extent normal and
customary).
APPLICABLE LENDING OFFICE shall mean the Lender's Domestic Lending
Office in the case of an Alternate Base Rate Borrowing and the Lender's LIBOR
Lending Office in the case of a LIBOR Borrowing.
APPLICABLE MARGIN shall mean with respect to any Loan, (a) a rate per
annum of 2.25% for LIBOR Borrowings and (b) a rate per annum of 0.25% for
Alternate Base Rate Borrowings. Commencing with the fiscal quarter of the
Borrower ending March 27, 1999, and so long as no Default or Event of Default
has occurred which has not been waived in writing by the Lender or cured to the
satisfaction of the Lender, the Applicable Margin shall be adjusted upward or
downward, as applicable, to the respective amounts shown in the schedule below
based on the Leverage Ratio for the Borrower, on a Consolidated basis, tested as
of the end of the applicable fiscal quarter of the Borrower. For purposes
hereof, any such adjustment in the respective amounts of the Applicable Margin,
whether upward or downward, shall be effective ten (10) Business Days after the
Monthly Unaudited Financial Statements of the Borrower have been delivered to
and received by the Lender as of the end of the applicable fiscal quarter in
accordance with Section 6.3(b) hereof.
2
<PAGE> 4
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Leverage Ratio Per Annum Percentage for LIBOR Per Annum Percentage for Alternate
Borrowings Base Rate Borrowings
<S> <C> <C>
Greater than 3.50X 2.75% .75%
Less than or equal to 3.50X, 2.50% .50%
but greater than 3.00X
Less than or equal to 3.00X 2.25% .25%
but greater than 2.50X
Less than or equal to 2.50X, 2.00% .00%
but greater than 2.00X
Less than or equal to 2.00X 1.75% .00%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
APPLICATIONS shall mean all applications and agreements for Letters of
Credit, or similar instruments or agreements, in Proper Form, now or hereafter
executed by any Person in connection with any Letter of Credit now or hereafter
issued or to be issued under the terms hereof at the request of any Person.
ASSESSMENT RATE shall mean the annual assessment rate (net of refunds)
estimated by the Lender (in good faith, but in no event in excess of statutory
or regulatory maximums) to be payable by the Lender to the Federal Deposit
Insurance Corporation (or any successor) for insurance by such Corporation (or
such successor) of time deposits made in dollars at the Lender's domestic
offices during the current calendar year.
AVAILABILITY shall mean at any time (a) the lesser at such time of (i)
the Commitment (as such amount may be reduced in accordance with the provisions
of this Agreement) and (ii) the Borrowing Base, less (b) the sum of (i) the
Current Sum at such time, (ii) the aggregate amount of accrued interest
outstanding under the Loans at such time, and (iii) all other outstanding
Obligations hereunder or any other Loan Documents which are due and payable at
such time, including without limitation, Commitment Fees, fees related to any
Letters of Credit, and legal fees and other amounts payable under Section 9.8
hereof.
BASE CD RATE shall mean the sum of (a) the product of (i) the
Three-Month Secondary CD Rate and (ii) Statutory Reserves and (b) the Assessment
Rate.
BORROWER shall have the meaning assigned to such term in the preamble
of this Agreement.
BORROWING BASE shall mean, as of any date, the amount of the then most
recent computation of the Borrowing Base, determined by calculating the amount
equal to:
(a) 80% of the Net Amount of Eligible Receivables at such date; plus
3
<PAGE> 5
(b) the lesser of (i) $3,000,000 or (ii) 25% of the amount of Eligible
Inventory at such date, all calculated at the lower of cost (determined on a
FIFO basis) or market;
plus
(c) 100% of the market value at such date of the Permitted Investment
Securities held in the Borrower's account with Chase Securities, Inc., but only
to the extent that the Lender has been provided with a perfected first priority
Lien against such Permitted Investment Securities as Collateral for the Loans
and the other Obligations.
Notwithstanding anything to the contrary set forth in the immediately preceding
sentence, the aggregate amount of the Borrowing Base attributable to the
components set forth in clauses (a) and (b) of the preceding sentence shall in
no event exceed $10,000,000 at anytime; provided, however, that Lender shall
consider, but in no event be obligated, to increase such maximum permitted
amount to a level acceptable to the Lender if the Borrower shall achieve an
Interest Coverage Ratio of 2.50 to 1.00 for its two (2) consecutive fiscal
quarters ending March 27, 1999 or for its three (3) consecutive fiscal quarters
ending June 26, 1999. If the Lender agrees to increase such maximum permitted
amount due to the Borrower's achieving such Interest Coverage Ratio for its two
(2) consecutive fiscal quarters ending March 27, 1999, and if the Borrower
thereafter fails to maintain such Interest Coverage Ratio for its three (3)
consecutive fiscal quarters ending June 26, 1999, the Lender shall have the
right to reinstate such $10,000,000 limitation for purposes of determining the
maximum amount of the Borrowing Base attributable to the components set forth in
such clauses (a) and (b) above.
Additionally, Lender reserves the right to adjust downward to a level acceptable
to the Lender in its reasonable discretion the eighty percent (80%) advance rate
set forth above for the Net Amount of Eligible Receivables if the Borrower's
average dilution percentage for all Receivables exceeds ten percent (10%). The
Borrowing Base will be computed on a weekly basis (based on all information
reasonably available to the Lender, including without limitation, the market
value of the Permitted Investment Securities pledged as Collateral and the
periodic reports and listings delivered to the Lender in accordance with
Sections 6.3(f), 6.3(g) and 6.3(h) hereof), and a Borrowing Base Compliance
Certificate from a Responsible Officer of each Borrower shall continue to be
periodically delivered to the Lender in accordance with Section 6.3(i) hereof.
The Lender reserves the right to periodically determine, as frequently as daily
if desired, the market value of the Permitted Investment Securities pledged as
Collateral on the basis of market quotations.
BUSINESS DAY shall mean a day when the Lender's principal office in
Austin, Texas is open for business; provided, however, that with respect to
LIBOR Borrowings, BUSINESS DAY shall also mean a day on which transactions in
dollar deposits between lenders may be carried on in the London Eurodollar
interbank market.
BUSINESS ENTITY shall mean corporations, partnerships, joint ventures,
joint stock associations, business trusts, and other business entities.
CAPITAL EXPENDITURES shall mean, for any period for which Capital
Expenditures is calculated, (a) all capital expenditures of the Borrower and its
Subsidiaries, on a Consolidated basis, for such period (including without
limitation, the aggregate amount of Capital Lease Obligations incurred during
such period which are required to be capitalized and reported as a liability on
the
4
<PAGE> 6
consolidated balance sheet of the Borrower and its Subsidiaries), less (b) any
proceeds received by or credited to the Borrower or its applicable Subsidiaries
from the disposition of obsolete or worn out equipment or other capital assets
during such period, all determined in accordance with GAAP, consistently
applied.
CAPITAL LEASE OBLIGATIONS shall mean the obligations of a Person to
pay rent or other amounts under a lease of (or other agreement conveying the
right to use) real and/or personal Property which obligations are required to be
classified and accounted for as a capital lease on a balance sheet of such
Person under GAAP (including Statement of Financial Accounting Standards No. 13
of the Financial Accounting Standards Board, as amended) and, for purposes of
this Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP (including such Statement No. 13).
CLOSING DATE shall mean the earlier to occur of (a) the date of the
first Loan under this Agreement or (b) August 2, 1999.
CODE shall mean the Internal Revenue Code of 1986, as amended, as now
or hereafter in effect, together with all regulations, rulings and
interpretations thereof or thereunder by the Internal Revenue Service.
COLLATERAL shall mean all collateral and security as described in the
Security Documents.
COMMITMENT shall mean the obligation of the Lender to make Loans and
incur liability for the Letter of Credit Exposure Amount in accordance with the
terms of this Agreement in an aggregate principal amount at any one time
outstanding up to, but not exceeding, $20,000,000 (as the same may be reduced
from time to time pursuant to Section 2.4 hereof).
COMMITMENT FEE shall have the meaning assigned to it in Section
2.3(a).
CONSEQUENTIAL LOSS shall mean, with respect to (a) the Borrower's
payment of principal of or interest on a LIBOR Borrowing on a day other than the
last day of the applicable Interest Period, (b) the Borrower's failure to borrow
a LIBOR Borrowing on the date specified by the Borrower for any reason, or (c)
any cessation of the Adjusted LIBOR Rate to apply to the Loans or any part
thereof pursuant to Section 2.9 hereof, in each case whether voluntary or
involuntary, any loss, expense, penalty, premium or liability incurred by the
Lender as a result thereof, including without limitation, any interest paid by
the Lender to lenders of funds borrowed by it to make or carry the Loans and any
other costs and expenses sustained or incurred in liquidating or employing
deposits from third parties acquired to effect or maintain the Loans.
CONSOLIDATED shall mean, for any Person, as applied to any financial
or accounting term, such term determined on a consolidated basis in accordance
with GAAP (except as otherwise required herein) for such Person and all
Subsidiaries thereof.
CONTINGENT OBLIGATION shall mean, as to any Person, any obligation of
such Person guaranteeing or intended to guarantee the payment or performance of
any Indebtedness, leases, dividends or other obligations (collectively "primary
obligations") of any other Person (the "primary obligor") in any manner, whether
directly or indirectly, including without limitation, any obligation of the
Person for whom Contingent Obligations is being determined, whether or not
contingent,
5
<PAGE> 7
(a) to purchase any such primary obligation or other property constituting
direct or indirect security therefor, (b) assume or contingently agree to become
or be secondarily liable in respect of any such primary obligation, (c) to
advance or supply funds (i) for the purchase or payment of any such primary
obligation or (ii) to maintain working capital or equity capital for the primary
obligor or otherwise to maintain the net worth or solvency of the primary
obligor, (d) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, or (e) otherwise
to assure or hold harmless the owner of such primary obligation against loss in
respect thereof; provided, however, that the term "Contingent Obligation" shall
not include endorsements of checks or other negotiable instruments in the
ordinary course of business.
CURRENT SUM shall mean on any day, the sum of (a) the outstanding
principal balance of the Note on such day plus (b) the Letter of Credit Exposure
Amount on such day.
DISCONTINUED OPERATIONS shall mean, as of any day, operations of the
Borrower or any of its Subsidiaries which have been discontinued, and which, as
of such day, have been fully terminated, disposed of or liquidated.
DOMESTIC LENDING OFFICE shall mean the office of the Lender specified
as its "Domestic Lending Office" opposite its name on the signature pages
hereof, or such other office of the Lender as the Lender may from time to time
specify to the Borrower.
EBITDA shall mean with respect to any Person for any period the sum of
(i) Net Income, (ii) Interest Expense, (iii) depreciation and amortization of
assets (excluding any depreciation and amortization applicable to Discontinued
Operations as of such day), and (iv) federal, state and local income taxes, in
each case of such Person for such period, computed and calculated in accordance
with GAAP consistently applied.
ELIGIBLE INVENTORY shall mean raw materials and finished goods
inventory of the Borrower (but only to the extent that such raw materials and
finished goods inventory is Collateral hereunder and is subject to a first
priority perfected Lien in favor of the Lender), which are and at all times
shall continue to be acceptable to the Lender in all respects. Standards of
eligibility for raw materials and finished goods inventory may be fixed and
revised prospectively from time to time solely by the Lender in the Lender's
reasonable, exclusive judgment; provided that the Lender shall give the Borrower
notice within a reasonable time after any change in such standards of
eligibility. In general, without limiting the foregoing, inventory shall in no
event be considered as Eligible Inventory without complying with the following
requirements: (a) such inventory shall be valued in accordance with GAAP and
consist of either raw materials which have been purchased by the Borrower or
finished goods which have been purchased or produced by the Borrower; (b) such
inventory is in good condition, meets all standards imposed by any Governmental
Authority having regulatory authority over it, is not obsolete, is not
work-in-progress inventory, is not damaged, is not returned (unless such
returned inventory remains salable as new goods in the ordinary course of
business), is not scrap or remnants inventory, is not packaging or shipping
supplies or materials and is currently usable or saleable in the normal course
of business of the Borrower; (c) such inventory must not be considered "slow
moving;" (d) such inventory is not in the possession of or control of any
warehouseman, bailee, or any agent or processor for the Borrower, unless such
warehouseman, bailee, agent, or processor has subordinated any Lien it may claim
therein pursuant to a written subordination agreement acceptable to the Lender;
(e) such inventory must not be in transit and
6
<PAGE> 8
must be housed or stored in the United States at a location owned or leased by
the Borrower; (f) if such inventory is housed or stored at a location which is
leased, and not owned by the Borrower, the owner of such leased facility shall
have subordinated any Lien it may claim against such inventory, whether
contractual or statutory, to the Lien which the Lender holds against such
inventory pursuant to a written subordination agreement acceptable to the Lender
in all respects; (g) such inventory must be adequately insured to the
satisfaction of the Lender pursuant to insurance coverage required by Section
6.7 hereof; and (h) the Lender has not deemed such inventory ineligible because
the Lender reasonably considers the value thereof to be impaired or its ability
to realize such value to be insecure; provided, however, that notwithstanding
the foregoing eligibility requirements set forth in clauses (a), (b) and (c) of
this sentence, if a customer of the Borrower is obligated to purchase the
applicable inventory (including work-in-process) under a valid and enforceable
manufacturing and service agreement between the Borrower and such customer, then
such eligibility standards set forth in such clauses (a), (b) and (c) shall not
be applicable to such inventory, but all other standards of eligibility
otherwise set forth in this paragraph shall continue to be binding upon and
applicable to such inventory; and provided further, however, that
notwithstanding the foregoing eligibility requirements for inventory, any
inventory acquired or manufactured by the Borrower pursuant to any manufacturing
service agreement between the Borrower and any customer of the Borrower which
has expired or has terminated for any reason shall be included within Eligible
Inventory for up to, but not later than, the earlier to occur of (i) 30 days
after the effective date of the expiration or termination of the applicable
manufacturing service agreement or (ii) the actual date the applicable customer
of Borrower is invoiced for all such inventory covered by the applicable
manufacturing service agreement which has terminated or expired.
ELIGIBLE RECEIVABLES shall mean, as at any date of determination
thereof, Receivables created by the Borrower (but only to the extent that such
Receivables are Collateral hereunder and are subject to a first priority
perfected Lien in favor of the Lender) in the ordinary course of business
arising out of the sale of goods or rendering of services by the Borrower, which
are and at all times shall continue to be acceptable to the Lender in all
respects. Standards of eligibility for Receivables may be fixed and revised from
time to time solely by the Lender in the Lender's reasonable, exclusive
judgment; provided that the Lender shall give the Borrower notice within a
reasonable time after any change in such standards of eligibility. In general,
without limiting the foregoing, an Eligible Receivable must comply with all of
the following requirements: (a) all payments due on the Receivable have been
billed and invoiced in a timely fashion and in the normal course of business;
(b) no payment is outstanding on the Receivable for more than 90 days after the
date of invoice or 60 days past due; (c) the payments due on 50% or more of all
Receivables owing to the Borrower by the applicable account debtor are less than
90 days past the date of invoice and less than 60 days past due; (d) the total
Receivables owing to the Borrower by the applicable account debtor constitute
15% or less of the aggregate Receivables owing to the Borrower by all account
debtors, or if the total Receivables of the applicable account debtor exceed 15%
of the aggregate of all Receivables owing to the Borrower by all account
debtors, the Receivables of the applicable account debtor up to such 15% limit
shall be deemed to constitute Eligible Receivables (subject to compliance with
all other applicable standards of eligibility) and the Receivables of the
applicable account debtor exceeding such 15% limit shall be included within
Eligible Receivables (subject to compliance with all other applicable standards
of eligibility) only if the Receivables exceeding such 15% limit are backed or
secured by a letter of credit or credit insurance satisfactory to the Lender in
all respects and such letter of credit or credit insurance has been assigned to
the
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Lender upon terms acceptable to the Lender in its discretion; (e) the Receivable
is free and clear of all security interests, liens, charges and encumbrances of
any nature whatsoever (except for the Lien in favor of the Lender); (f) the
Receivable arose from a completed, outright and lawful sale of goods, to which
title has passed to the applicable account debtor on an absolute sales basis, or
from the rendering of services by or on behalf of the Borrower; (g) the
Receivable constitutes an "account" within the meaning of the Uniform Commercial
Code of the state in which the Borrower's principal offices are located; (h) the
Borrower is not aware that the Receivable arises out of a bill and hold which is
not recognizable as a sale under GAAP, consignment, progress billing,
promotional (including samples), C.O.D. and cash in advance arrangement or is
subject to any setoff, contra, offset, deduction, dispute, charge back, credit,
counterclaim or other defense arising out of the transactions represented by the
Receivable or independently thereof; (i) the applicable account debtor has
finally accepted the goods or services from the sale out of which the Receivable
arose and has not objected to such account debtor's liability thereon or
returned, rejected or repossessed any of such goods, except for complaints made
or goods returned in the ordinary course of business for which, in the case of
goods returned, goods of equal or greater value have been shipped in return; (j)
the applicable account debtor is not any Governmental Authority, unless there
has been compliance satisfactory to the Lender in all respects with the
Assignment of Claims Act or similar state statutes; (k) the applicable account
debtor is not an Affiliate of the Borrower; (l) the account debtor must be
located in the United States, except for Receivables insured or backed by credit
insurance or a letter of credit in form and substance acceptable to the Lender
in all respects or Receivables owing by Ericsson, Inc., Dell International, Inc.
or any Subsidiary of Dell International, Inc.; (m) the Receivable complies with
all material Legal Requirements (including without limitation, all usury laws,
fair credit reporting and billing laws, fair debt collection practices and
rules, and regulations relating to truth in lending and other similar matters);
(n) the Receivable is in full force and effect and constitutes a legal, valid
and binding obligation of the applicable account debtor enforceable in
accordance with the terms thereof; (o) the Receivable is denominated in and
provides for payment by the applicable account debtor in U.S. dollars, except
for Receivables payable or denominated in foreign currency which are backed or
hedged by a hedging contract or other similar device which is in form and
substance acceptable to the Lender in all respects; (p) the Receivable has not
been and is not required to be charged or written off as uncollectible in
accordance with GAAP; (q) no portion of the Receivable attributable to finance
charges shall be included within Eligible Receivables; and (r) the credit
standing of the applicable account debtor in relation to the amount of credit
extended has not become unsatisfactory to the Lender in its reasonable
discretion.
ENVIRONMENTAL CLAIM shall mean any third party (including any
Governmental Authority) action, lawsuit, claim or proceeding (including claims
or proceedings at common law) which seeks to impose or alleges any liability for
(i) preservation, protection, conservation, pollution, contamination of, or
releases or threatened releases of, Hazardous Substances into the air, surface
water, ground water or land or the clean-up, abatement, removal, remediation or
monitoring of such pollution, contamination or Hazardous Substances; (ii)
generation, recycling, reclamation, handling, treatment, storage, disposal or
transportation of Hazardous Substances; (iii) exposure to Hazardous Substances;
(iv) the safety or health of employees or other Persons in connection with any
of the activities specified in any other subclause of this definition; or (v)
the manufacture, processing, distribution in commerce, presence or use of
Hazardous Substances. An "ENVIRONMENTAL CLAIM" includes a common law action, as
well as a proceeding to issue, modify or
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<PAGE> 10
terminate an Environmental Permit, or to adopt or amend a regulation, to the
extent that such a proceeding attempts to redress violations of the applicable
permit, license, or regulation as alleged by any Governmental Authority.
ENVIRONMENTAL LIABILITIES shall mean all liabilities arising from any
Environmental Claim, Environmental Permit or Requirement of Environmental Law
under any theory of recovery, at law or in equity, and whether based on
negligence, strict liability or otherwise, including: remedial, removal,
response, abatement, restoration (including natural resources), investigative,
or monitoring liabilities, personal injury and damage to property, natural
resources or injuries to persons, and any other related costs, expenses, losses,
damages, penalties, fines, liabilities and obligations, and all costs and
expenses necessary to cause the issuance, reissuance or renewal of any
Environmental Permit including attorney's fees and court costs. ENVIRONMENTAL
LIABILITY shall mean any one of them.
ENVIRONMENTAL PERMIT shall mean any permit, license, approval or other
authorization under any applicable law, regulation and other requirement of the
United States or of any state, municipality or other subdivision thereof
relating to pollution or protection of health or the environment, including
laws, regulations or other requirements relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants, Hazardous
Substances or toxic materials or wastes into ambient air, surface water, ground
water or land, or otherwise relating to the manufacture, processing,
distribution, recycling, presence, use, treatment, storage, disposal, transport,
or handling of wastes, pollutants, contaminants or Hazardous Substances.
ERISA shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and all rules, regulations, rulings and
interpretations adopted by the Internal Revenue Service or the Department of
Labor thereunder.
ERISA AFFILIATE shall mean any trade or business (whether or not
incorporated) which together with the Borrower or any Subsidiary of the Borrower
would be treated as a single employer under the provisions of Title I or Title
IV of ERISA.
EVENT OF DEFAULT shall mean any of the events specified in Section 8.1
hereof or otherwise specified as a Default in any other Loan Document, provided
there has been satisfied any requirement in connection with any such event for
the giving of notice or the lapse of time, or both, and DEFAULT shall mean any
of such events, whether or not any such requirement for the giving of notice, or
the lapse of time, or both, has been satisfied.
FEDERAL FUNDS EFFECTIVE RATE shall mean, for any day, a rate per annum
equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for the day of such
transactions received by the Lender from three Federal funds brokers of
recognized standing selected by it.
FINANCIAL OFFICER shall mean, with respect to any Person, the chief
financial officer of such Person.
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FUNDED INDEBTEDNESS shall mean, without duplication, (a) all
Indebtedness and other Obligations of the Borrower and the Guarantors under this
Agreement, the Notes and all other Loan Documents, (b) all Capital Lease
Obligations of the Borrower or any of its Subsidiaries, and (c) all other
Indebtedness for borrowed money of the Borrower, any of the Guarantors or any of
their respective Subsidiaries, in each case including all payments in respect
thereof that are due within one year from the applicable date of calculation of
Funded Indebtedness. Funded Indebtedness shall be determined in accordance with
GAAP, consistently applied.
GAAP shall mean, as to a particular Person, those principles and
practices (a) which are recognized as such by the Financial Accounting Standards
Board or successor organization, (b) which are applied for all periods after the
date hereof in a manner consistent with the manner in which such principles and
practices were applied to the most recent audited financial statements of the
relevant Person furnished to the Lender, and (c) which are consistently applied
for all periods after the date hereof so as to reflect properly the financial
condition, and results of operations and changes in financial position, of such
Person.
GOVERNMENTAL AUTHORITY shall mean any foreign governmental authority,
the United States of America, any state of the United States and any political
subdivision of any of the foregoing, and any agency, instrumentality,
department, commission, board, bureau, central bank, authority, court or other
tribunal, in each case whether executive, legislative, judicial, regulatory or
administrative, having jurisdiction over the Lender, the Borrower, any
Subsidiary of the Borrower, or their respective Property.
GRANTOR shall mean any Grantor, Assignor, Pledgor or Debtor, as such
terms are defined in any of the Security Documents.
GUARANTORS shall mean each and every Subsidiary of the Borrower, if
any, which is hereafter a Guarantor.
GUARANTY shall mean each and every guaranty of the Obligations from
time to time executed and delivered to the Lender by any Guarantor, as amended,
supplemented, modified, joined in pursuant to a Joinder Agreement and restated
from time to time.
HAZARDOUS SUBSTANCE shall mean any hazardous or toxic waste, substance
or product or material defined or regulated from time to time by any applicable
law, rule, regulation or order described in the definition of "Requirements of
Environmental Law," including solid waste (as defined under The Resource
Conservation and Recovery Act or its regulations, as amended from time to time),
petroleum and any fraction thereof and any radioactive materials and waste.
HIGHEST LAWFUL RATE shall mean the maximum nonusurious rate of
interest permitted by whichever of applicable federal or Texas law from time to
time permits the higher maximum nonusurious interest rate stated as a rate per
annum. On each day, if any, that applicable Texas law establishes the Highest
Lawful Rate, the Highest Lawful Rate shall be the "weekly ceiling" (as defined
in Chapter 1D and Section 303 of the Texas Finance Code, as amended,
respectively) for that day. The Bank may from time to time, as to then-current
and future balances, implement any other
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ceiling under Chapter 1D and the Texas Finance Code and/or revise the index,
formula or provision of law used to compute the rate on such obligation, if and
to the extent permitted by, and in the manner provided in, Chapter 1D and the
Texas Finance Code.
INDEBTEDNESS shall mean, as to any Person, without duplication: (a)
all indebtedness (including principal, interest, fees and charges) of such
Person for borrowed money; (b) any other indebtedness which is evidenced by a
bond, debenture or similar instrument; (c) all Capital Lease Obligations of such
Person; (d) all obligations of such Person for the deferred purchase price of
Property or services acquired or prepayments received by such Person for
inventory to be sold (except current trade accounts payable and inventory
prepayments arising in the ordinary course of business); (e) all obligations of
such Person in respect of outstanding letters of credit, acceptances and similar
obligations created for the account of such Person; (f) all indebtedness,
liabilities, and obligations secured by any Lien on any Property owned by such
Person even though such Person has not assumed or has not otherwise become
liable for the payment of any such indebtedness, liabilities or obligations
secured by such Lien; (g) net liabilities of such Person under interest rate cap
agreements, interest rate swap agreements, foreign currency exchange agreements
and other hedging agreements or arrangements (calculated on a basis satisfactory
to the Lender and in accordance with accepted practice); and (h) all other
indebtedness, liabilities and obligations of such Person which are required to
be included or listed in the liabilities section of such Person's balance sheet
according to GAAP; provided, that such term shall not mean or include any
Indebtedness in respect of which monies sufficient to pay and discharge the same
in full (either on the expressed date of maturity thereof or on such earlier
date as such Indebtedness may be duly called for redemption and payment) shall
be deposited with a depository, agency or trustee acceptable to the Lender in
trust for the payment thereof.
INTEREST COVERAGE RATIO shall mean as of any date that the Interest
Coverage Ratio is calculated, the ratio of (a) EBITDA less Capital Expenditures
for the Borrower and its Subsidiaries, on a Consolidated basis, for the
applicable calculation period to (b) Interest Expense of the Borrower and its
Subsidiaries, on a Consolidated basis, for such calculation period.
INTEREST EXPENSE shall mean, with respect to any Person for any
period, the interest expense of such Person during such period determined in
accordance with GAAP, consistently applied, and shall in any event include,
without limitation, (a) the amortization of debt discounts, (b) the amortization
of all fees payable in connection with the incurrence of Indebtedness to the
extent included in interest expense, (c) the portion of payments under Capital
Lease Obligations allocable to interest expense, and (d) all fixed and
calculable cash dividend payments on preferred stock.
INTEREST OPTION shall have the meaning given to such term in Section
2.8(a) hereof.
INTEREST PAYMENT DATES shall mean (a) for ALTERNATE BASE RATE
BORROWINGS, (1) the first Business Day of each calendar month prior to the
Maturity Date, and (2) the Maturity Date; and (b) FOR LIBOR BORROWINGS, (1) if
the Interest Period applicable to such LIBOR Borrowing is equal to or less than
three (3) months, the end of such Interest Period, and (2) in all other cases,
on that day which is three (3) calendar months following the first day of the
applicable Interest Period (or, if there be no corresponding day, on the next
succeeding day which is a Business Day) and at
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the end of such Interest Period.
INTEREST PERIOD shall mean the period commencing on the date of the
applicable LIBOR Borrowing and ending on the numerically corresponding day (or,
if there is no numerically corresponding day, on the last day) in the calendar
month that is one (1), two (2), three (3) or six (6) months thereafter, as the
Borrower may elect in accordance herewith; provided, however, that (a) if an
Interest Period would end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day, unless such next
succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day, (b) no
Interest Period shall end later than the Maturity Date, and (c) interest shall
accrue from and including the first day of an Interest Period to, but excluding,
the last day of such Interest Period.
INVESTMENT shall mean the purchase or other acquisition of any
securities or Indebtedness of, or the making of any loan, advance, transfer of
Property or capital contribution to, or the incurring of any liability,
contingently or otherwise, in respect of the Indebtedness of, any Person.
LEGAL REQUIREMENT shall mean any law, statute, ordinance, decree,
requirement, order, judgment, rule, regulation (or interpretation of any of the
foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority.
LENDER shall have the meaning assigned to such term in the preamble of
this Agreement.
LETTERS OF CREDIT shall mean all standby letters of credit issued by
the Lender for the account of the Borrower pursuant to the terms set forth in
this Agreement.
LETTER OF CREDIT ADVANCES shall mean all sums which may from time to
time be paid by the Lender pursuant to any and all of the Letters of Credit,
together with all other sums, fees, reimbursements or other obligations which
may be due to the Lender pursuant to any of the Letters of Credit.
LETTER OF CREDIT EXPOSURE AMOUNT shall mean at any time the sum of (i)
the aggregate undrawn amount of all Letters of Credit outstanding at such time
plus (ii) the aggregate amount of all Letter of Credit Advances for which the
Lender has not been reimbursed and which remain unpaid at such time.
LEVERAGE RATIO shall mean as of any day that the Leverage Ratio is
calculated, the ratio of (a) (i) Funded Indebtedness of the Borrower and its
Subsidiaries, on a Consolidated basis, as of such day less (ii) the market value
as of such day of the Permitted Investment Securities held by Chase Securities
Inc. for the account of the Borrower which are pledged as Collateral for the
Loans and other Obligations to (b) (i) EBITDA of the Borrower and its
Subsidiaries, on a Consolidated basis, for the applicable calculation period
plus (ii) any losses, if any, recognized by the Borrower during the applicable
calculation period due to any write-off of program inventory or Receivables of
the Borrower, so long as such applicable write-off has been pre-approved in
writing by the Lender.
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For purposes of calculating the Leverage Ratio for any period, EBITDA shall be
determined for the four (4) most recent consecutive fiscal quarters of the
Borrower ending on or immediately prior to the date of determination of the
Leverage Ratio. The market value of the Permitted Investment Securities pledged
as Collateral shall be determined by the Lender on the basis of market quotes as
of the applicable calculation date.
LIBOR BORROWING shall mean, as of any date, each portion of the
principal balance of the Loans bearing interest at the Adjusted LIBOR Rate as of
such date.
LIBOR LENDING OFFICE shall mean the office of the Lender specified as
its "LIBOR LENDING OFFICE" opposite or below its name on the signature pages
hereof, or (if no such office is specified, its Domestic Lending Office), or
such other office of the Lender as the Lender may from time to time specify in
writing to the Borrower.
LIBOR RATE shall mean, with respect to any LIBOR Borrowing for any
Interest Period, an interest rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to the rate at which dollar deposits approximately
equal to such LIBOR Borrowing and for a maturity equal to the applicable
Interest Period are offered in immediately available funds to the London branch
of The Chase Manhattan Bank by leading lenders in the London interbank market
for Eurodollars at approximately 11:00 a.m., London time, two (2) Business Days
prior to the first day of such Interest Period.
LIEN shall mean, with respect to any asset of any Person, (a) any
mortgage, pledge, charge, encumbrance, security interest, collateral assignment
or other lien or restriction of any kind on such asset, whether based on common
law, constitutional provision, statute or contract, (b) the interest of any
vendor or a lessor under any conditional sale agreement, title retention
agreement or capital lease relating to such asset, (c) in the case of
securities, any purchase option, call or similar right of a third party with
respect to such securities, or (d) any other right of or arrangement with any
creditor to have such creditor's claim satisfied out of such assets, or the
proceeds therefrom, prior to the general creditors of such Person owning such
assets.
LOAN DOCUMENTS shall mean this Agreement, the Note, the Applications,
the Security Documents, the Guaranties, the Letters of Credit, all instruments,
certificates and agreements now or hereafter executed or delivered to the Lender
in connection with or pursuant to any of the foregoing, and all amendments,
modifications, renewals, extensions, increases and rearrangements of, and
substitutions for, any of the foregoing.
LOANS shall mean the Loans made pursuant to Section 2.1 hereof. LOAN
shall mean any one of the Loans.
LOCKBOX AGREEMENT shall collectively mean one or more lockbox
agreements, in Proper Form, to be executed and delivered to the Lender by the
Borrower, together with all modifications and/or replacements thereof which are
approved in writing by the Lender.
MATERIAL ADVERSE EFFECT shall mean a material adverse effect on (a)
the business, assets, prospects, operations, financial or other condition of the
Borrower or any Subsidiary of the
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<PAGE> 15
Borrower, (b) the ability of the Borrower or any Guarantor to perform or pay the
Obligations in accordance with the terms hereof or of any other Loan Document,
(c) the validity or enforceability of this Agreement, the Note, or any of the
other Loan Documents, or the rights or remedies of the Lender hereunder or
thereunder, or (d) the Lender's Lien on any material portion of the Collateral
or the priority of such Lien.
MATURITY DATE shall mean the earlier of (a) December 31, 1999, (b) any
date that the Commitment is terminated in full by the Borrower pursuant to
Section 2.4 hereof, and (c) any date the Maturity Date is accelerated by the
Lender pursuant to Section 8.1 hereof.
MONTHLY UNAUDITED FINANCIAL STATEMENTS shall mean the financial
statements of a Person, including all notes thereto, which statements shall
include (a) a balance sheet as of the end of the respective calendar month or
fiscal quarter, as applicable, (b) an income statement for such respective
calendar month or fiscal quarter, as applicable, and for the fiscal year to
date, subject to normal year-end adjustments, and (c) for the end of each fiscal
quarter only, a statement of cash flows for the fiscal year to date, subject to
normal year-end adjustments, all prepared in accordance with GAAP and certified
as true and correct by a Responsible Officer of such Person. The Monthly
Unaudited Financial Statements for the Borrower shall be prepared on both a
Consolidated and consolidating basis (the parties recognizing that such
consolidating statements will be prepared in accordance with GAAP only to the
extent normal and customary).
NET AMOUNT OF ELIGIBLE RECEIVABLES shall mean and include at any time,
without duplication, the gross amount of Eligible Receivables at such time less
each of the following items: (a) unpaid sales, excise or similar taxes owed by
the Borrower (to the extent the same are included in Receivables); (b) returns,
discounts, claims, credits and allowances of any nature at any time issued,
owing, granted, outstanding, available to, or claimed by account debtors of the
Borrower (to the extent the same are included in Receivables); and (c) unpaid
service charges owed by the Borrower.
NET INCOME shall mean gross revenues and other proper income credits
for such Person, less all proper expenses and other income charges for such
Person, including taxes on income, all determined in accordance with GAAP;
provided, that there shall not be included in the calculation of such revenues
any extraordinary or nonrecurring items, as determined in accordance with GAAP.
NOTE shall mean the promissory note, substantially in the form of
Exhibit A attached hereto, of the Borrower evidencing the Loans, payable to the
order of the Lender in the amount of the Commitment, and all renewals,
extensions, modifications, rearrangements, increases, and replacements thereof
and substitutions therefor.
OBLIGATIONS shall mean, without duplication, all obligations,
liabilities and Indebtedness of the Borrower and the Guarantors with respect to
the Security Documents and all other Loan Documents, including without
limitation, (a) the principal of and interest on the Loans and (b) the payment
or performance of all other obligations, liabilities and Indebtedness of the
Borrower or the Guarantors to the Lender hereunder, under the Note, under the
Letters of Credit, under the Applications or under any one or more of the other
Loan Documents, including all fees,
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costs, expenses and indemnity obligations hereunder and thereunder. The
Obligations include interest (including post-petition interest, whether or not
such interest would be an allowable claim under any applicable bankruptcy or
other similar proceeding) and other obligations accruing or arising after (a)
commencement of any case under any bankruptcy or similar laws by or against the
Borrower or any Guarantor or (b) the obligations of the Borrower or any
Guarantor shall cease to exist by operation of law or for any other reason.
OFFICER'S CERTIFICATE shall mean a certificate substantially in the
form of Exhibit B attached hereto.
ORGANIZATIONAL DOCUMENTS shall mean, with respect to a corporation,
the certificate of incorporation, articles of incorporation and bylaws of such
corporation; with respect to a partnership, the partnership agreement
establishing such partnership; with respect to a joint venture, the joint
venture agreement establishing such joint venture, and with respect to a trust,
the instrument establishing such trust; in each case including any and all
modifications thereof as of the date of the Loan Document referring to such
Organizational Document and any and all future modifications thereof which are
consented to by the Lender.
PARTIES shall mean all Persons, other than the Lender, executing any
Loan Documents.
PAST DUE RATE shall mean, on any day, as follows: (a) with respect to
principal which is outstanding under the Note, the sum of the Interest Option
otherwise applicable thereto on such day plus four percent per annum (it being
understood by the Borrower that if any such applicable Interest Option is based
on the Adjusted LIBOR Rate, the Past Due Rate with respect to the applicable
principal amount shall only be calculated with reference to the applicable
Adjusted LIBOR Rate until the Interest Period applicable thereto expires, and
upon the expiration of such applicable Interest Period, the Past Due Rate for
such applicable principal amount shall be computed on the basis of the Alternate
Base Rate for such day plus four percent per annum), never to exceed the Highest
Lawful Rate in effect for such day, and (b) with respect to past due accrued
interest, fees and other Obligations (other than past due principal outstanding
under the Note), the sum of the Alternate Base Rate for such day plus four
percent per annum, never to exceed the Highest Lawful Rate in effect for such
day.
PBGC shall mean the Pension Benefit Guaranty Corporation.
PERMITTED INVESTMENT SECURITIES shall mean: (a) readily marketable,
direct obligations of the United States of America or any agency or wholly owned
corporation thereof which are backed by the full faith and credit of the United
States, maturing within six (6) months after the date of acquisition thereof;
(b) demand deposits, certificates of deposit or other short-term direct
obligations of (i) the Lender or (ii) any other domestic financial institution
having capital and surplus in excess of $500,000,000, maturing within six months
after the date of acquisition thereof; (c) commercial paper issued by
corporations organized under the laws of the United States of America or any
state thereof, each of which conducts a substantial part of its business in the
United States of America, maturing within six months after the date of
acquisition thereof and rated "P-1" or better by Moody Investors Service, or
"A-1" or better by Standard and Poor Corporation; and (d)
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<PAGE> 17
other Investments agreed to in writing by the Lender.
PERSON shall mean any individual, corporation, business trust,
unincorporated organization or association, partnership, joint venture,
Governmental Authority or any other form of entity.
PLAN shall mean any plan subject to Title IV of ERISA and maintained
for employees of the Borrower or of any member of a "controlled group of
corporations", as such term is defined in the Code, of which the Borrower, any
Subsidiary of the Borrower, or any ERISA Affiliate it may acquire from time to
time is a part, or any such plan to which the Borrower, any of such
Subsidiaries, or any ERISA Affiliate is required to contribute on behalf of its
employees.
PRIME RATE shall mean the rate of interest per annum publicly
announced from time to time by the Lender, or its successor financial
institution, at its principal office in Houston, Texas as its prime rate in
effect at such time. Without notice to the Borrower or any other Person, the
Prime Rate shall change automatically from time to time as and in the amount by
which said prime rate shall fluctuate, with each such change to be effective as
of the date of each change in such prime rate. THE PRIME RATE IS A REFERENCE
RATE AND DOES NOT NECESSARILY REPRESENT THE LOWEST OR BEST RATE ACTUALLY CHARGED
BY THE LENDER OR SUCH SUCCESSOR FINANCIAL INSTITUTION TO ANY OF ITS CUSTOMERS.
THE LENDER OR SUCH SUCCESSOR FINANCIAL INSTITUTION MAY MAKE COMMERCIAL LOANS OR
OTHER LOANS AT RATES OF INTEREST AT, ABOVE AND BELOW THE PRIME RATE.
PRINCIPAL OFFICE shall mean the principal office in Houston, Texas of
the Lender, or at such other place as the Lender may from time to time by notice
to the Borrower designate.
PROPER FORM shall mean in form and substance satisfactory to the
Lender.
PROPERTY shall mean any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.
RATE SELECTION DATE shall mean that Business Day which is (a) in the
case of the Alternate Base Rate Borrowings, the date of such borrowing, or (b)
in the case of LIBOR Borrowings, the date three (3) Business Days preceding the
first day of any proposed Interest Period.
RATE SELECTION NOTICE shall have the meaning ascribed to such term in
Section 2.8(b)(1) hereof.
RECEIVABLES shall mean and include all of the accounts, instruments,
documents, chattel paper and general intangibles of the Borrower, whether
secured or unsecured, whether now existing or hereafter created or arising, and
whether or not specifically assigned to the Lender.
REGULATION D shall mean Regulation D of the Board of Governors of the
Federal Reserve System from time to time in effect and shall include any
successor or other regulation
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relating to reserve requirements applicable to member lenders of the Federal
Reserve System.
REGULATORY CHANGE shall mean any change on or after the date of this
Agreement in any Legal Requirement (including Regulation D) or the adoption or
making on or after such date of any interpretation, directive or request
applying to the Lender or including the Lender under any Legal Requirement
(whether or not having the force of law) by any Governmental Authority charged
with the interpretation or administration thereof.
REPORTABLE EVENT shall mean a Reportable Event as defined in Section
4043(b) of ERISA.
REQUEST FOR EXTENSION OF CREDIT shall mean a written request for
extension of credit substantially in the form of Exhibit C attached hereto.
REQUIREMENTS OF ENVIRONMENTAL LAW shall mean all requirements imposed
by any law (including The Resource Conservation and Recovery Act, The
Comprehensive Environmental Response, Compensation, and Liability Act, the Clean
Water Act, the Clean Air Act, and any state analogues of any of the foregoing),
rule, regulation, or order of any Governmental Authority now or hereafter in
effect which relate to (i) pollution, protection or clean-up of the air, surface
water, ground water or land; (ii) solid, liquid or gaseous waste or Hazard
Substance generation, recycling, reclamation, release, threatened release,
treatment, storage, disposal or transportation; (iii) exposure of Persons or
property to Hazardous Substances; (iv) the manufacture, presence, processing,
distribution in commerce, use, discharge, releases, threatened releases, or
emissions of Hazardous Substances into the environment; or (v) the storage of
any Hazardous Substances. REQUIREMENT OF ENVIRONMENTAL LAW shall mean any one of
them.
RESPONSIBLE OFFICER shall mean, with respect to any Person, any
president or vice president, or the chief financial officer, treasurer or
assistant treasurer of such Person.
SECURITY AGREEMENTS shall mean (a) the Security Agreement (Personal
Property) of even effective date herewith, between the Borrower and the Lender,
covering all Receivables, inventory, equipment, and all other related tangible
and intangible personal Property of the Borrower more particularly described
therein, (b) the Pledge Agreement of even effective date herewith, between the
Borrower and the Lender, covering all the Permitted Investment Securities now or
hereafter owned by the Borrower and which are held in the Borrower's account(s)
with Chase Securities Inc., (c) any and all other security agreements, pledge
agreements, collateral assignments or other similar documents now or hereafter
executed in favor of the Lender, as security for the payment or performance of
any and/or all of the Obligations, and (d) any amendment, modification,
restatement or supplement of all or any of the above-described agreements and
assignments.
SECURITY DOCUMENTS shall mean the Security Agreements, all related
financing statements and any and all other agreements, mortgages, deeds of
trust, chattel mortgages, security agreements, pledges, guaranties, assignments
of income, assignments of contract rights, assignments or pledges of stock or
partnership interests, standby agreements, subordination
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agreements, undertakings and other instruments and financing statements now or
hereafter executed and delivered in connection with, or as security for, the
payment and performance of the Obligations, as any of them may from time to time
be amended, modified, restated or supplemented.
STATUTORY RESERVES shall mean (a) with respect to the Adjusted LIBOR
Rate, a fraction (expressed as a decimal), the numerator of which is the number
one and the denominator of which is the number one minus the aggregate of the
maximum reserve percentage (including without limitation, any marginal, special,
emergency or supplemental reserves) expressed as a decimal, established by the
Board of Governors of the Federal Reserve System of the United States and any
other banking authority to which the Lender is subject with respect to the
Adjusted LIBOR Rate for Eurocurrency Liabilities (as defined in Regulation D),
including without limitation, those reserve percentages imposed under Regulation
D, and (b) with respect to the Base CD Rate, a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentage
(including without limitation, any marginal, special, emergency or supplemental
reserves) expressed as a decimal, established by the Board of Governors of the
Federal Reserve System of the United States or any banking authority to which
the Lender is subject with respect to the Base CD Rate for new negotiable
non-personal time deposits in U.S. dollars of over $100,000 with maturities
approximately equal to three months. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any applicable
reserve percentage. For purposes hereof, LIBOR Borrowings shall be deemed to
constitute Eurocurrency Liabilities (as defined in Regulation D) and as such,
shall be deemed to be subject to such reserve requirements of Regulation D
without benefit of or credit for proration, exceptions or offsets which may be
available from time to time to the Lender under Regulation D.
STOCK shall mean as to a Business Entity, all capital stock or other
indicia of equity rights issued by such Business Entity from time to time.
SUBORDINATED INDEBTEDNESS shall mean, with respect to the Borrower or
any Guarantor, Indebtedness subordinated in right of payment to the Borrower's
or such Guarantor's monetary Obligations on terms satisfactory to and approved
in writing by the Lender in its discretion.
SUBSIDIARY shall mean, as to a particular parent Business Entity, any
Business Entity of which more than fifty percent (50%) of the Stock issued by
such Business Entity is at the time directly or indirectly owned by such parent
Business Entity or by one or more of its Affiliates.
TANGIBLE NET WORTH shall mean, as to any Person at any time, (a) the
sum of such Person's capital stock, capital in excess of par or stated value of
shares of its capital stock, retained earnings and any other amount which, in
accordance with GAAP, constitutes stockholders' equity, less (b) treasury stock,
officer's notes, and contract cost advances, less (c) the amount of any write-up
subsequent to the effective date of this Agreement in the value of any asset
above the cost or depreciated costs thereof to such Person, less (d) the book
value of all assets which would be treated as intangibles under GAAP, including
without limitation, good will, trademarks, trade names, patents, copyrights and
licenses.
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THREE-MONTH SECONDARY CD RATE shall mean, for any day, the secondary
market rate for three-month certificates of deposit reported as being in effect
on such day (or, if such day shall not be a Business Day, the next preceding
Business Day) by the Board of Governors of the Federal Reserve System of the
United States through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of such
Board of Governors, be published in Federal Reserve Statistical Release
H.15(519) during the week following such day), or, if such rate shall not be so
reported on such day or such next preceding Business Day, the average of the
secondary market quotations for three-month certificates of deposit of major
money center banks in New York City received at approximately 10:00 a.m. on such
day (or, if such day shall not be a Business Day, on the next preceding Business
Day) by the Lender from three New York City negotiable certificate of deposit
dealers of recognized standing selected by the Lender.
UNUSED COMMITMENT shall mean the daily difference of (a) the amount of
the highest aggregate Borrowing Base permitted on such day under the terms of
the second paragraph of the "Borrowing Base" definition set forth above, never
to exceed the Commitment on such day, less (b) the Current Sum on such day.
1.2 ACCOUNTING TERMS AND DETERMINATIONS. Except where specifically
otherwise provided:
(a) The symbol "$" and the word "dollars" shall mean lawful money of
the United States of America.
(b) Any accounting term not otherwise defined shall have the meaning
ascribed to it under GAAP.
(c) Unless otherwise expressly provided, any accounting concept and
all financial covenants shall be determined on a Consolidated basis, and
financial measurements shall be computed without duplication.
(d) Wherever the term "including" or any of its correlatives appears
in the Loan Documents, it shall be read as if it were written "including (by way
of example and without limiting the generality of the subject or concept
referred to)".
(e) Wherever the word "herein" or "hereof" is used in any Loan
Document, it is a reference to that entire Loan Document and not just to the
subdivision of it in which the word is used.
(f) References in any Loan Document to Section numbers are references
to the Sections of such Loan Document.
(g) References in any Loan Document to Exhibits, Schedules, Annexes
and Appendices are to the Exhibits, Schedules, Annexes and Appendices to such
Loan Document, and they shall be deemed incorporated into such Loan Document by
reference.
(h) Any term defined in the Loan Documents which refers to a
particular agreement, instrument, or document shall also mean, refer to, and
include all modifications, amendments, supplements, restatements, renewals,
extensions, and substitutions of the same; provided that
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nothing in this subsection shall be construed to authorize any such
modification, amendment, supplement, restatement, renewal, extension, or
substitution except as may be permitted by other provisions of the Loan
Documents.
(i) All times of day used in the Loan Documents mean local time in
Austin, Texas.
(j) Defined terms may be used in the singular or plural, as the
context requires.
2. LOANS; LETTERS OF CREDIT; NOTES, PAYMENTS; PREPAYMENTS; INTEREST RATES.
2.1 COMMITMENT. Subject to the terms and conditions hereof, the Lender
agrees to make Loans to the Borrower from time to time on and after the Closing
Date until, but not including, the Maturity Date, in an aggregate principal
amount at any one time outstanding (including the Letter of Credit Exposure
Amount at such time) up to, but not exceeding the Commitment. Notwithstanding
the foregoing, the aggregate principal amount of the Loans outstanding at any
time shall not exceed (a) the lesser of (I) the Commitment and (ii) the
applicable Borrowing Base at such time less (b) the Letter of Credit Exposure
Amount at such time. Subject to the conditions herein, any such Loan prepaid
prior to the Maturity Date may be reborrowed as an additional Loan by the
Borrower pursuant to the terms of this Agreement.
2.2 LOANS.
(a) When requesting a Loan hereunder, the Borrower shall give the
Lender notice of a request for a Loan in accordance with Section 4.1(a) hereof;
provided, however, no notice of a request for a Loan in accordance with Section
4.1(a) hereof shall be required to be presented by the Borrower to the Lender if
a check, ACH system transfer, wire transfer or account debit/credit request
issued by, authorized or requested the Borrower shall be presented for payment
against, withdrawn from or settled against any controlled disbursement account
maintained with the Lender in connection with the Lockbox Agreement, and the
Lender shall then make a Loan for the purpose of crediting said controlled
disbursement account in an amount sufficient to permit such check, ACH system
transfer, wire transfer or account debit/credit request to be honored if (I)
such Loan is to be made prior to the Maturity Date, (ii) the Availability would
be equal to or greater than zero after giving effect to such Loan, and (iii) no
Default or Event of Default shall have occurred which has not been waived in
writing by the Lender or cured to the satisfaction of the Lender.
(b) The Loans shall be in integral multiples of $1.00; provided,
however, that the LIBOR Borrowings made on any date shall be in a minimum
aggregate principal amount of $500,000, with any increases over such minimal
amount being in integral aggregate multiples of $100,000.
(c) The Lender shall render to the Borrower each month a statement of
the aggregate principal amount of new Loans made to the Borrower, the aggregate
amount of new Letter of Credit Advances which have not been reimbursed, the
aggregate face amount of new Letters of Credit issued for the account of the
Borrower, the amount of remittances and payments actually collected and applied
by the Lender to reduce the outstanding principal balance of the Loans and to
reimburse Letter of Credit Advances during such period, and the outstanding
principal balances of the Loans
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and the aggregate Letter of Credit exposure amount outstanding at the end of
such period. Such monthly statement shall be deemed to be correct, accepted by,
and binding upon the Borrower unless the Lender receives a written statement of
the Borrower's exceptions to such account statement within thirty (30) days
after such statement was rendered to the Borrower.
2.3 COMMITMENT, ADMINISTRATION, AND STRUCTURING FEES.
(a) In consideration of the Lender's Commitment, the Borrower agrees
to pay to the Lender a commitment fee (each a "COMMITMENT FEE") (computed on the
basis of the actual number of days elapsed in a year composed of 360 days) in an
amount equal to the sum of (I) the product of (A) 3/8 of 1% per annum times (B)
the Unused Commitment, and (ii) the effective cost to the Lender of statutory
reserves required to be maintained by the Lender for the amount of the
Commitment in excess of the amount of the highest aggregate Borrowing Base
permitted under the terms of the second paragraph of the "Borrowing Base"
definition above. The good faith determination by the Lender of the effective
cost of such requisite statutory reserves shall be conclusive and binding,
absent manifest error. The Commitment Fee shall be due and payable in arrears
(1) on the first Business Day of each calendar month after the Closing Date
prior to the Maturity Date, and (2) on the Maturity Date, with each Commitment
Fee to commence to accrue as of the date hereof and to be effective as to (x)
any reduction in the Commitment pursuant to Section 2.4(a) below as of the date
of any such decrease and (y) any reduction or increase in the amount of the
highest aggregate Borrowing Base permitted under the terms of second paragraph
of the "Borrowing Base" definition above as of the date of any such reduction or
increase, and each Commitment Fee shall cease to accrue (except with respect to
interest at the Past Due Rate on any unpaid portion thereof) on the Maturity
Date. All past due Commitment Fees shall bear interest at the Past Due Rate and
shall be payable upon demand by the Lender.
(b) The Borrower hereby agrees to pay to the Lender, (I) in advance on
the Closing Date, (1) a one-time administrative fee of $12,500 and (2) a
one-time structuring fee in the amount of $25,000, and (ii) an additional
administrative fee of $6,250 per month, payable in advance on the first day of
each September, October, November and December.
2.4 TERMINATION AND REDUCTIONS OF COMMITMENTS.
(a) Upon at least five (5) Business Days' prior irrevocable written
notice to the Lender, the Borrower may at any time in whole permanently
terminate, or from time to time in part permanently reduce, the Commitment;
provided, however, that the Commitment shall not be reduced at any time to an
amount not less than the Current Sum outstanding at such time. Each partial
reduction of the Commitment shall be in a minimum of $500,000, or an integral
multiple of $100,000 in excess thereof.
(b) Simultaneously with any termination in whole of the Commitment
pursuant to Section 2.4(a) above, the Borrower hereby agrees to pay to the
Lender the Commitment Fee due and owing through and including the date of such
termination on the amount of the Commitment so terminated.
(c) To effect the payment of any and all Commitment Fees and all other
Obligations
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outstanding and owing hereunder or under any other Loan Documents, subject to
the provisions of Sections 2.1 and 4.1 hereof, the Lender may, but shall not be
obligated to, make a Loan if (I) such Loan is to be made prior to the Maturity
Date, (ii) the Availability would be equal to or greater than zero after giving
effect to such Loan, and (iii) no Default or Event of Default shall have
occurred which has not been waived in writing by the Lender or cured to the
satisfaction of the Lender. The inability of the Lender to cause the payment of
any such Commitment Fees or other Obligations in accordance with the preceding
sentence shall not in any way whatsoever affect the Borrower's and Guarantors'
obligation to otherwise pay such amounts in accordance with the applicable terms
hereof or of any other Loan Documents.
2.5 MANDATORY AND VOLUNTARY PREPAYMENTS.
(a) If the Current Sum at any time exceeds the Commitment, the Lender
shall notify the Borrower of such excess amount (such notice being permitted to
be given orally and need not be in writing) and the Borrower shall immediately
make a prepayment on the Note or otherwise reimburse the Lender for Letter of
Credit Advances or cause one or more Letters of Credit to be canceled and
surrendered in an amount sufficient to reduce the Current Sum to an amount no
greater than the Commitment. Any prepayments required by this subparagraph (a)
shall be applied to outstanding Alternate Base Rate Borrowings up to the full
amount thereof before such prepayments are applied to outstanding LIBOR
Borrowings (together with any Consequential Loss resulting from such
prepayment).
(b) The Borrower shall make prepayments of the Loans from time to time
so that the Availability equals or exceeds zero at all times. Specifically, if
the Availability at any time is less than zero (except as permitted by Section
2.2(b) above), the Lender shall notify the Borrower of the deficiency (such
notice being permitted to be given orally and need not be in writing) and the
Borrower shall immediately make a prepayment on the Note or otherwise reimburse
the Lender for Letter of Credit Advances or cause one or more Letters of Credit
to be canceled and surrendered in an amount sufficient to cause the Availability
to be at least equal to zero. Any prepayments required by this subparagraph (b)
shall be applied to outstanding Alternate Base Rate Borrowings up to the full
amount thereof before such prepayments are applied to outstanding LIBOR
Borrowings (together with any Consequential Loss resulting from such
prepayment).
(c) In addition to the mandatory prepayments required by Section
2.5(a) and (b) above, the Borrower shall have the right, at its option, to
prepay any of the Loans in whole at any time or in part from time to time,
without premium or penalty, except as otherwise provided in this Section 2.5 or
subsections (a), (b) or (c) of Section 2.9 hereof. Each prepayment under this
subsection shall be applied to the prepayment of the unpaid principal amount of
the Note. Prepayments under this subparagraph (c) shall be subject to the
following additional conditions:
(1) In giving notice of prepayment as hereinafter provided, the
Borrower shall specify, for the purpose of paragraphs (2) and (3) immediately
following, the manner of application of such prepayment as between Alternate
Base Rate Borrowings and LIBOR Borrowings; provided that in no event shall any
LIBOR Borrowing be partially prepaid.
(2) Prepayments applied to any LIBOR Rate Borrowing may be made
on any
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Business Day, provided, that (i) if such prepayment is made on the last day of
the Interest Period corresponding to the LIBOR Borrowing to be prepaid, the
Borrower shall have given the Lender irrevocable written notice or notice by
telephone (which is to be promptly confirmed in writing) of such prepayment on
the Business Day of such prepayment, specifying the principal amount of the
LIBOR Borrowing to be prepaid and the particular LIBOR Borrowing to which
prepayment is to be applied; (ii) if such prepayment is made on any day other
than the last day of the Interest Period corresponding to the LIBOR Borrowing to
be prepaid, the Borrower shall have given the Lender at least five (5) Business
Days' prior irrevocable written or telecopied notice of such prepayment,
specifying the principal amount of the LIBOR Borrowing to be prepaid, the
particular LIBOR Borrowing to which such prepayment is to be applied and the
prepayment date; and (iii) if such prepayment is made on any day other than the
last day of the Interest Period corresponding to the LIBOR Borrowing to be
prepaid, the Borrower shall pay directly to the Lender, on the last day of such
Interest Period, the Consequential Loss as a result of such prepayment.
(3) Prepayments applied to any Alternate Base Rate Borrowing may
be made on any Business Day, provided, that the Borrower shall have given the
Lender prior irrevocable written notice or notice by telephone (which is to be
promptly confirmed in writing) of such prepayment on the Business Day of such
prepayment, specifying the principal amount of the Alternate Base Rate Borrowing
to be prepaid.
(d) Notice of any prepayment having been given, the principal amount
specified in such notice, together with (in the case of any prepayment of a
LIBOR Borrowing) interest thereon to the date of prepayment, shall be due and
payable on such prepayment date.
2.6 NOTES; PAYMENTS.
(a) All Loans made by the Lender to the Borrower shall be evidenced by
the Note.
(b) The outstanding principal balance of each and every Loan, as
evidenced by the Note, shall mature and be fully due and payable on the Maturity
Date.
(c) The Borrower hereby agrees to pay accrued interest on the unpaid
principal balance of the Loans on the Interest Payment Dates, commencing with
the first of such dates to occur after the date hereof. After the Maturity Date,
accrued and unpaid interest on the Loans shall be payable on demand.
(d) To effect payment of accrued interest owing on the Loans as of the
Interest Payment Dates, subject to the provisions of Sections 2.1 and 4.1
hereof, the Lender may, but shall not be obligated to, make a Loan to pay in
full the amount of accrued interest owing and payable on the Loans as of the
respective Interest Payment Date if (i) such Loan is to be made prior to the
Maturity Date, (ii) the Availability would be equal to or greater than zero
after giving effect to such Loan, and (iii) no Default or Event of Default shall
have occurred which has not been waived in writing by the Lender or cured to the
satisfaction of the Lender. The inability of the Lender to cause a payment of
any accrued interest owing on the Loans on any Interest Payment Date as of the
respective due date thereof in accordance with the preceding sentence shall not
in any way whatsoever effect the Borrower's obligation to otherwise pay such
amounts in accordance with the applicable terms hereof or any other Loan
Documents.
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2.7 APPLICATION OF PAYMENTS AND PREPAYMENTS.
(a) Except as otherwise provided in Sections 2.5(a), (b) and (d)
hereof, prepayments on the Note shall be applied to payment of the unpaid
principal amounts of the Note, with the balance of any such prepayments, if any,
being applied to accrued interest. Payments of accrued interest on the Note in
accordance with Section 2.6(c) hereof shall be applied to the aggregate accrued
interest then outstanding under the Note, while payment by the Borrower of the
aggregate principal amount outstanding under the Note on the Maturity Date shall
be applied to principal.
(b) All sums payable by the Borrower to the Lender hereunder or
pursuant to the Note shall be payable in United States dollars in immediately
available funds not later than 1:00 p.m. on the date such payment or prepayment
is due and shall be made without set-off, counterclaim or deduction of any kind.
Any such payment or prepayment received and accepted by the Lender after 1:00
p.m. shall be considered for all purposes (including the payment of interest, to
the extent permitted by law) as having been made on the next succeeding Business
Day. All such payments or prepayments shall be made at the Principal Office. If
any payment or prepayment becomes due and payable on a day which is not a
Business Day, then the date for the payment thereof shall be extended to the
next succeeding Business Day and interest shall be payable thereon at the then
applicable rate per annum during such extension.
2.8 INTEREST RATES FOR LOANS.
(a) The Note shall bear interest on its outstanding principal balance
at the Alternate Base Rate; provided, that (1) all principal outstanding after
the occurrence of an Event of Default which has not been cured to the
satisfaction of the Lender or waived in writing by the Lender shall bear
interest at the Past Due Rate, which shall be payable upon demand, (2) all past
due interest shall bear interest at the Past Due Rate, which shall be payable on
demand, and (3) subject to the provisions hereof, the Borrower shall have the
option of having all or any portion of the principal balances from time to time
outstanding under the Note bear interest until its maturity at a rate per annum
equal to the Adjusted LIBOR Rate (together with the Alternate Base Rate,
individually herein called an "INTEREST OPTION" and collectively called
"INTEREST OPTIONS"). The records of the Lender, with respect to Interest
Options, Interest Periods and the amounts of Loans to which they are applicable
shall be binding and conclusive, absent manifest error. Interest on the Loans
shall be calculated at the Alternate Base Rate, except where it is expressly
provided pursuant to this Agreement that the Adjusted LIBOR Rate is to apply.
(b) The Borrower shall have the right to designate or convert its
Interest Options in accordance with the provisions hereof. Provided no Default
or Event of Default has occurred which has not been waived in writing by the
Lender or cured to the satisfaction of the Lender, and subject to the provisions
of the last sentence of Subsection 2.8(a) hereinabove and of Section 2.9 hereof,
the Borrower may elect to have the Adjusted LIBOR Rate apply or continue to
apply to all or any portion of the principal balance of the Note. Each change in
Interest Options shall be a conversion of the rate of interest applicable to the
specified portion of the Loans, but such conversion alone shall not change the
outstanding principal balance of the Note. The Interest Options shall be
designated or converted in the manner provided below:
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(1) The Borrower shall give the Lender notice by telephone,
promptly confirmed by written notice (the "RATE SELECTION NOTICE") substantially
in the form of Exhibit D hereto. Each such telephone and written notice shall
specify the amount and type of borrowings which are the subject of the
designation, if any; the amount and type of borrowings into which such
borrowings are to be converted or for which an Interest Option is designated;
the proposed date for the designation or conversion (which, in the case of
conversion of LIBOR Borrowings, shall be the last day of the Interest Period
applicable thereto) and the Interest Period or Periods, if any, selected by the
Borrower. Such notice by telephone shall be irrevocable and shall be given to
the Lender no later than the applicable Rate Selection Date. If (a) a new Loan
is to be a LIBOR Borrowing, (b) an existing LIBOR Borrowing is maturing at the
time that a new Loan is being requested and the Borrower is electing to have
such existing portion of the outstanding principal balance of the Note going
forward bear interest at the same Interest Option and for the same Interest
Period as the new Loan, or (c) a portion of an Alternate Rate Borrowing is to be
converted so as to bear interest at the same Interest Option and for the same
Interest Period as the new Loan, then the Rate Selection Notice shall be
included in the Request for Extension of Credit applicable to the new Loan,
which shall be given to the Lender no later than the applicable Rate Selection
Date.
(2) No more than seven (7) LIBOR Borrowings and corresponding
Interest Periods shall be outstanding at any one time. Each LIBOR Borrowing
shall be in a minimum aggregate principal amount of at least $500,000, with any
increases over such minimum amount being in integral aggregate multiples of
$100,000.
(3) Principal included in any borrowing shall not be included in
any other borrowing which exists at the same time.
(4) Each designation or conversion shall occur on a Business Day.
(5) Except as provided in Section 2.9 hereof, no LIBOR Borrowing
shall be converted on any day other than the last day of the applicable Interest
Period.
(c) All interest and fees will be computed on the basis of a year of
360 days and actual days elapsed (including the first day but excluding the last
day) occurring in the period for which payable, unless the effect of so
computing shall be to cause the rate of interest to exceed the Highest Lawful
Rate.
2.9 SPECIAL PROVISIONS APPLICABLE TO LIBOR BORROWINGS.
(a) If, after the date of this Agreement, the adoption of any
applicable Legal Requirement or any change in any applicable Legal Requirement
or in the interpretation or administration thereof by any Governmental Authority
or compliance by the Lender with any request or directive (whether or not having
the force of law) of any Governmental Authority shall at any time make it
unlawful or impracticable for the Lender to permit the establishment of or to
maintain any LIBOR Borrowing, the commitment of the Lender to establish or
maintain the Adjusted LIBOR Rate affected by such adoption or change shall
forthwith be canceled and the Borrower shall forthwith, upon demand by the
Lender, (1) convert the Adjusted LIBOR Rate with respect to which such demand
was made to the Alternate Base Rate; (2) pay all accrued and unpaid
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interest to date on the amount so converted; and (3) pay any amounts required to
compensate the Lender for any additional cost or expense which the Lender may
incur as a result of such adoption of or change in such Legal Requirement or in
the interpretation or administration thereof and any Consequential Loss which
the Lender may incur as a result of such conversion to the Alternate Base Rate.
If, when the Lender so notifies the Borrower, the Borrower has given a Rate
Selection Notice specifying one or more borrowings of the type with respect to
which such demand was made but the selected Interest Period or Interest Periods
has not yet begun, such Rate Selection Notice shall be deemed to be of no force
and effect, as if never made, and the balance of the Loans specified in such
Rate Selection Notice shall bear interest at the Alternate Base Rate until a
different available Interest Option shall be designated in accordance herewith.
(b) If the adoption of any applicable Legal Requirement or any change
in any applicable Legal Requirement or in the interpretation or administration
thereof by any Governmental Authority or compliance by the Lender with any
request or directive (whether or not having the force of law) from any
Governmental Authority shall at any time as a result of any portion of the
principal balance of the Note being maintained on the basis of the Adjusted
LIBOR Rate:
(1) subject the Lender (or make it apparent that the Lender is
subject) to any tax (including any United States interest equalization tax),
levy, impost, duty, charge, fee, or any deduction or withholding for any tax,
levy, impost, duty, charge or fee on or from the payment due under any LIBOR
Borrowing or other amounts due hereunder, other than income taxes and franchise
taxes in lieu of income taxes of the United States and its political
subdivisions; or
(2) change the basis of taxation of payments due from the
Borrower to the Lender under any LIBOR Borrowing (otherwise than by a change in
the rate of taxation of the overall net income of the Lender); or
(3) impose, modify, increase or deem applicable any reserve
requirement (excluding that portion of any reserve requirement included in the
calculation of the Statutory Reserves, special deposit requirement or similar
requirement (including state law requirements and Regulation D) imposed,
modified, increased or deemed applicable by any Governmental Authority against
assets held by the Lender, or against deposits or accounts in or for the account
of the Lender, or against loans made by the Lender, or against any other funds,
obligations or other Property owned or held by the Lender; or
(4) impose on the Lender any other condition regarding any LIBOR
Borrowing;
and the result of any of the foregoing is to increase the cost to the Lender of
agreeing to make or of making, renewing or maintaining such borrowing on the
basis of the Adjusted LIBOR Rate, or reduce the amount of principal or interest
received by the Lender, then, upon demand by the Lender, the Borrower shall pay
to the Lender, from time to time as specified by the Lender, additional amounts
which shall compensate the Lender for such increased cost or reduced amount. The
Lender's determination of the amount of any such increased cost, increased
reserve requirement or reduced amount shall be conclusive and binding, absent
manifest error, provided that the calculation thereof is set forth in reasonable
detail in such notice.
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The Borrower shall have the right, if it receives from the Lender any
notice referred to in the preceding paragraph, upon three (3) Business Days'
notice to the Lender, either (i) to repay in full (but not in part) any
borrowing with respect to which such notice was given, together with any accrued
interest thereon, or (ii) to convert the Adjusted LIBOR Rate in effect with
respect to such borrowing from the Lender to the Alternate Base Rate; provided,
that any such repayment or conversion shall be accompanied by payment of (x) the
amount required to compensate the Lender for the increased cost or reduced
amount referred to in the preceding paragraph; (y) all accrued and unpaid
interest to date on the amount so repaid or converted; and (z) any Consequential
Loss which may be incurred as a result of such repayment or conversion.
(c) If for any reason with respect to any Interest Period the Lender
shall have determined (which determination shall be conclusive and binding upon
the Borrower) that: (1) the Lender is unable through its customary general
practices to determine a rate at which the Lender is offered deposits in United
States dollars by prime banks in the London interbank market, in the appropriate
amount for the appropriate period, or by reason of circumstances affecting the
London interbank market, generally, the Lender is not being offered deposits for
the applicable Interest Period and in an amount equal to the amount of any LIBOR
Borrowing requested by the Borrower, or (2) the Adjusted LIBOR Rate will not
adequately and fairly reflect the cost to the Lender of making and maintaining
any LIBOR Borrowing hereunder for any proposed Interest Period, then the Lender
shall give the Borrower notice thereof and thereupon, (A) any Rate Selection
Notice previously given by the Borrower designating an Adjusted LIBOR Rate which
has not commenced as of the date of such notice from the Lender shall be deemed
for all purposes hereof to be of no force and effect, as if never given, and (B)
until the Lender shall notify the Borrower that the circumstances giving rise to
such notice from the Lender no longer exist, each Rate Selection Notice
requesting an Adjusted LIBOR Rate shall be deemed a request for an Alternate
Base Rate Borrowing, and each outstanding LIBOR Borrowing then in effect shall
be converted, without any notice to or from the Borrower, upon the termination
of the Interest Period then in effect to an Alternate Base Rate Borrowing.
(d) THE BORROWER HEREBY AGREES TO INDEMNIFY THE LENDER AGAINST AND
HOLD IT HARMLESS FROM ANY LOSS OR EXPENSE WHICH IT MAY INCUR OR SUSTAIN AS A
CONSEQUENCE OF ANY UNTIMELY PAYMENT (MANDATORY OR OPTIONAL) OR DEFAULT BY THE
BORROWER IN THE PAYMENT OF ANY PRINCIPAL AMOUNT OF OR INTEREST ON THE NOTE, OR
ANY FAILURE BY THE BORROWER TO CONVERT OR TO BORROW ANY LIBOR BORROWING ON THE
DATE SPECIFIED BY THE BORROWER, IN EACH CASE INCLUDING ANY INTEREST PAYABLE BY
THE LENDER TO THE LENDERS OF THE FUNDS OBTAINED BY IT IN ORDER TO MAKE OR
MAINTAIN ANY LIBOR BORROWING (OR ANY PORTION THEREOF), AND, TO THE EXTENT NOT
COVERED ABOVE, ANY CONSEQUENTIAL LOSS. THIS AGREEMENT SHALL SURVIVE THE PAYMENT
OF THE NOTE. A CERTIFICATE AS TO ANY ADDITIONAL AMOUNTS PAYABLE TO THE LENDER
PURSUANT TO THIS PARAGRAPH SUBMITTED BY THE LENDER TO THE BORROWER SHALL BE
CONCLUSIVE AND BINDING UPON THE BORROWER, ABSENT MANIFEST ERROR, PROVIDED THE
CALCULATION HEREOF IS SET FORTH IN REASONABLE DETAIL IN SUCH NOTICE.
(e) If the Borrower requests quotes of the Adjusted LIBOR Rate for
different Interest Periods being considered for election by the Borrower, the
Lender will use reasonable efforts to provide such quotes to the Borrower
promptly. However, all such quotes provided shall be
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representative only and shall not be binding on the Lender, nor shall they be
determinative, directly or indirectly, of any Adjusted LIBOR Rate or any
component of any such rate, nor will the Borrower's failure to receive or the
Lender's failure to provide any requested quote or quotes either (1) excuse or
extend the time for performance of any obligation of the Borrower or for the
exercise of any right, option or election of the Borrower or (2) impose any duty
or liability on the Lender. If the Borrower request a list of the Business Days
in any calendar month, the Lender will use reasonable efforts to provide such
list promptly. However, any such list provided shall be understood to identify
only those days which the Lender believes in good faith at the time such list is
prepared will be the Business Days for such month. The Lender shall not have any
liability for any failure to provide, delay in providing, error or mistake in or
omission from, any such quote or list.
(f) If the Lender has a LIBOR Lending Office which differs from its
Domestic Lending Office, all Loans advanced by the Lender's LIBOR Lending Office
shall be deemed to have been made by the Lender and the obligation of the
Borrower to repay such Loans shall nevertheless be to the Lender and shall be
deemed held by the Lender, to the extent of such portions of the Loan, for the
account of the Lender's LIBOR Lending Office.
(g) Notwithstanding any provision of this Agreement to the contrary,
the Lender shall be entitled to fund and maintain its funding of all or any part
of the Loans hereunder in any manner it sees fit, it being understood, however,
that for the purposes of this Agreement, all determinations hereunder shall be
made as if the Lender had actually funded and maintained its portion of each
LIBOR Borrowing during each Interest Period for the Loans through the purchase
of deposits having a maturity corresponding to such Interest Period and bearing
an interest rate equal to the LIBOR Rate for such Interest Period.
(h) The Borrower's obligation to pay increased costs and Consequential
Loss with regard to each LIBOR Borrowing as specified in this Section 2.9 hereof
shall survive termination of this Agreement.
2.10 LETTERS OF CREDIT.
(1) Subject to the terms and conditions contained herein, the
Borrower shall have the right to utilize a portion of the Commitment from time
to time prior to the Maturity Date to obtain from the Lender one or more Letters
of Credit for the account of the Borrower in such amounts and in favor of such
beneficiaries as the Borrower from time to time shall request; provided, that in
no event shall the Lender have any obligation to issue any Letter of Credit if
(i) the face amount of such Letter of Credit, plus the Letter of Credit Exposure
Amount at such time would exceed $3,000,000, (ii) the face amount of such Letter
of Credit, plus the Current Sum at such time, would exceed the Availability,
(iii) such Letter of Credit would have an expiry date later than five (5)
Business Days prior to the scheduled Maturity Date, (iv) such Letter of Credit
is not in a form and does not contain terms satisfactory to the Lender at its
sole and absolute discretion, (v) the Borrower has not executed and delivered
such Applications and other instruments and agreements relating to such Letter
of Credit as the Lender shall have requested, (vi) an event has occurred and is
continuing which constitutes a Default or Event of Default or (vii) such Letter
of Credit is not being issued or has not been issued in connection with
transactions occurring in the ordinary course of business of the Borrower.
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(b) If requesting the issuance of any Letter of Credit, the Borrower
shall give at least three (3) Business Days' prior written notice to the Lender,
at its Domestic Lending Office, which written notice shall be the requisite
Application for a Letter of Credit on the Lender's customary form.
(c) The Borrower promises to pay to the order of the Lender the amount
of all Letter of Credit Advances. Each Letter of Credit Advance shall be
considered for all purposes as a demand obligation owing by the Borrower to the
Lender, and each Letter of Credit Advance shall bear interest from the date
thereof at the Past Due Rate, without notice of presentment, demand, protest or
other formalities of any kind (said past due interest on such Letter of Credit
Advance being payable on demand). To effect repayment of any such Letter of
Credit Advance, the Borrower may request a Loan in accordance with the other
provisions of this Agreement, or the Lender may, at its option, automatically
satisfy such Letter of Credit Advance (subject to the terms and conditions of
Sections 2.1 and 4.1 hereof) by making a Loan if (i) such Letter of Credit
Advance is (and such Loan is to be) made prior to the Maturity Date, (ii) the
Availability would be equal to or greater than zero after giving effect to such
Loan, and (iii) no Default or Event of Default shall have occurred which has not
been waived in writing by the Lender or cured to the satisfaction of the Lender.
The failure of the Lender to elect to effect repayment of any such Letter of
Credit Advance in accordance with the preceding sentence shall not in any way
whatsoever affect the Borrower's obligation to pay each Letter of Credit Advance
on demand and to pay interest at the Past Due Rate on the amount of unreimbursed
Letter of Credit Advance. All rights, powers, benefits and privileges of this
Agreement with respect to the Note, all security therefor (including the
Collateral) and guaranties thereof (including the Guaranties) and all
restrictions, provisions for repayment or acceleration and all other covenants,
warranties, representations and agreements of the Borrower contained in this
Agreement with respect to the Note shall apply to such Letter of Credit
Advances.
(d) In consideration of the issuance of each Letter of Credit pursuant
to the provisions of this Section 2.10, the Borrower agrees to pay to the Lender
a letter of credit fee (computed on the basis of the actual number of days
elapsed in a year composed of 360 days) in an amount equal to the product of (a)
one percent (1%) per annum times (b) the undrawn upon amount of the applicable
Letter of Credit, with each letter of credit fee to commence to accrue as of the
date of issuance of such Letter of Credit and to be effective as to any
reductions in the undrawn amount of such Letter of Credit as of the date of any
such reduction (whether resulting from payments thereunder by the Lender, by
agreement of the beneficiary thereunder or automatically by the terms of Letter
of Credit). Each letter of credit fee shall cease to accrue (except with respect
to interest at the Past Due Rate on any unpaid portion thereof) on the date that
such Letter of Credit expires, is returned to the Lender undrawn upon by the
beneficiary thereof or is fully paid by the Lender. Said letter of credit fees
shall be payable in arrears to the Lender at its Principal Office in immediately
available funds (i) on the first Business Day of each calendar quarter that such
Letter of Credit remains open, and (ii) on the date that such Letter of Credit
expires, is returned to the Lender undrawn upon by the beneficiary thereof or is
fully paid by the Lender. All past due letter of credit fees shall bear interest
at the Past Due Rate and shall be payable upon demand by the Lender.
(e) The obligations of the Borrower under this Agreement in respect of
the Letters of
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Credit and all Letter of Credit Advances are absolute, unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement, under all circumstances whatsoever, including the following
circumstances:
(1) any lack of validity or enforceability of this Agreement, any
Letter of Credit or any Loan Document;
(2) any amendment or waiver of default under or any consent to
departure from the terms of this Agreement or any Letter of Credit without the
express prior written consent of the Lender;
(3) the existence of any claim, set-off, defense or other right
which any beneficiary or any transferee of any Letter of Credit (or any entities
for whom any such beneficiary or any such transferee may be acting), or any
Person (other than the Lender) may have, whether in connection with this
Agreement, the Letters of Credit, the transactions contemplated hereby or any
unrelated transaction;
(4) any statement, draft, certificate, or any other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever; provided, that the Lender will examine
each document presented under each Letter of Credit to ascertain that such
document appears on its face to comply with the terms thereof; and
(5) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing.
In the event that any restriction or limitation is imposed upon or determined or
held to be applicable to the Lender or the Borrower by, under, or pursuant to
any Legal Requirement now or hereafter in effect or by reason of any
interpretation thereof by any Governmental Authority, which in the respective
sole judgment of the Lender would prevent the Lender from legally incurring
liability under a Letter of Credit issued or proposed to be issued hereunder,
then the Lender shall give prompt written notice thereof to the Borrower,
whereupon the Lender shall have no obligation to issue any additional Letters of
Credit then or at any time thereafter. In addition, if as a result of any
Regulatory Change which imposes, modifies or deems applicable (x) any tax,
reserve, special deposit or similar requirement against any Letters of Credit
issued or participated to by any Lender; (y) any fee, expense or assessment
against the Letters of Credit issued by the Lender for deposit insurance, or (z)
any other charge, expense or condition which increases the actual cost to the
Lender of issuing or maintaining such Letters of Credit, or reduces any amount
receivable by the Lender hereunder in respect of any Letter of Credit or any
participation therein (which increase in cost, or reduction in amount
receivable, shall be the result of the Lender's reasonable allocation of the
aggregate of such increases or reductions resulting from such event), then the
Borrower shall pay to the Lender, upon demand and from time to time, amounts
sufficient to compensate the Lender for each such increase from the effective
date of such increase to the date of demand therefor. Each such demand shall be
accompanied by a certificate setting forth in reasonable detail the calculation
of the amount then being demanded in accordance with the preceding sentence and
each such certificate shall be conclusive absent manifest error.
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(f) THE BORROWER HEREBY INDEMNIFIES AND HOLDS HARMLESS THE LENDER FROM
AND AGAINST ANY AND ALL CLAIMS AND DAMAGES, LOSSES, LIABILITIES, COSTS OR
EXPENSES WHICH THE LENDER MAY INCUR (OR WHICH MAY BE CLAIMED AGAINST THE LENDER
BY ANY PERSON WHATSOEVER) IN CONNECTION WITH THE EXECUTION AND DELIVERY OR
TRANSFER OF OR PAYMENT OR FAILURE TO PAY UNDER ANY LETTER OF CREDIT; PROVIDED,
THAT THE BORROWER SHALL NOT BE REQUIRED TO INDEMNIFY THE LENDER FOR ANY CLAIMS,
DAMAGES, LOSSES, LIABILITIES, COSTS OR EXPENSES TO THE EXTENT, BUT ONLY TO THE
EXTENT, CAUSED BY (I) THE WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF THE PARTY
SEEKING INDEMNIFICATION OR (II) THE LENDER'S FAILURE TO PAY UNDER ANY LETTER OF
CREDIT AFTER THE PRESENTATION TO IT OF A REQUEST REQUIRED TO BE PAID UNDER
APPLICABLE LAW. NOTHING IN THIS SECTION 2.10(F) IS INTENDED TO LIMIT THE
OBLIGATIONS OF THE BORROWER UNDER ANY OTHER PROVISION OF THIS AGREEMENT.
3. COLLATERAL.
3.1 SECURITY DOCUMENTS. The Loans and all other Obligations shall be
secured by the Collateral described in the Security Documents and are entitled
to the benefits thereof. The Borrower shall duly execute and deliver the
Security Documents, all consents of third parties necessary to permit the
effective granting of the Liens created thereby, financing statements pursuant
to the Uniform Commercial Code and other documents, all in Proper Form, as may
be reasonably required by the Lender to grant to the Lender a valid, perfected
and enforceable first priority Lien on and security interest in the Collateral
(subject only to the Liens permitted under Section 7.2 hereof).
3.2 FILING AND RECORDING. The Borrower shall, at its sole cost and expense,
cause all financing statements and other Security Documents pursuant to this
Agreement to be duly recorded and/or filed or otherwise perfected in all places
necessary, in the opinion of the Lender, and take such other actions as the
Lender may reasonably request, in order to perfect and protect the Liens of the
Lender in the Collateral. The Borrower, to the extent permitted by law, hereby
authorize the Lender to file any financing statement in respect of any Lien
created pursuant to the Security Documents which may at any time be required or
which, in the opinion of the Lender, may at any time be desirable, although the
same may have been executed only by the Lender or, at the option of the Lender,
to sign such financing statement on behalf of the Borrower and file the same,
and the Borrower hereby irrevocably designates the Lender, its agents,
representatives and designees as their agent and attorney-in-fact for this
purpose. In the event that any re-recording or refiling thereof (or the filing
of any statements of continuation or assignment of any financing statement) is
required to protect and preserve such Lien, the Borrower shall, at the
Borrower's cost and expense, cause the same to be recorded and/or refiled at the
time and in the manner requested by the Lender.
4. CONDITIONS.
4.1 ALL LOANS. The obligation of the Lender to make any Loan and the
obligation of the Lender to issue any Letter of Credit is subject to the
accuracy of all representations and
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warranties of the Borrower (and each Guarantor, if applicable) on the date of
such Loan or issuance of such Letter of Credit, to the performance by the
Borrower (and each Guarantor, if applicable) of its obligations under the Loan
Documents and to the satisfaction of the following further conditions:
(a) the Lender shall have received the following, all of which shall
be duly executed and in Proper Form: (1) in the case of a Loan, other than a
Loan for the purposes described in Sections 2.6(d) and 2.10(d),
(i) by no later than 12:00 noon on the applicable Rate Selection
Date, telephonic notice from the Borrower of the proposed date and amount of
such Loan, and
(ii) by no later than 1:00 p.m. on the applicable Rate Selection
Date, a Request for Extension of Credit, signed by a Responsible Officer of the
Borrower;
or, in the case of issuance of a Letter of Credit, a completed Application (as
may be required by the Lender) signed by a Responsible Officer of the Borrower
by 12:00 noon three (3) Business Days prior to the proposed date of issuance of
such Letter of Credit and payment of the first letter of credit fee as and by
the time required in Section 2.10 of this Agreement, along with, in each case,
such financial information as the Lender may reasonably require to substantiate
compliance with all financial covenants contained herein by the Borrower; and
(2) such other Applications, certificates and other documents as the Lender may
reasonably require;
(b) Availability must be in excess of or equal to zero, after giving
effect to the requested Loan(s) or Letter(s) of Credit;
(c) all representations and warranties of the Borrower and any other
Person set forth in this Agreement and in any other Loan Document shall be true
and correct in all material respects with the same effect as though made on and
as of such date, except for (i) those representations and warranties which
relate only to the Closing Date and (ii) those changes in such representations
and warranties otherwise permitted by the terms of this Agreement;
(d) the Borrower (and each Guarantor, if applicable) shall be in
compliance with all the terms and provisions contained in this Agreement or in
any other Loan Document which are to be observed or performed by the Borrower
(or such Guarantor, if applicable), including without limitation, the provisions
of Section 6.15(a) below;
(e) there shall have occurred no Material Adverse Effect, after giving
effect to the requested Loan(s) or Letter(s) of Credit;
(f) no Default or Event of Default shall have occurred which has not
been waived in writing by the Lender or cured to the satisfaction of the Lender;
(g) if requested by the Lender, it shall have received a certificate
executed by the Financial Officer or other Responsible Officer of the Borrower
as to the compliance with subparagraphs (b) through (f) above;
(h) the making of such Loan or the issuance of such Letter of Credit,
shall not be prohibited by, or subject the Lender to, any penalty or onerous
condition under any Legal Requirement; and
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(i) the Borrower shall have paid all legal fees and expenses of the
type described in Section 9.8 hereof for which invoices have been presented (1)
through the Closing Date, with respect to the initial Loan advanced hereunder,
and (2) fifteen (15) days prior to the date of all other Loans or the issuance
of any Letter of Credit after the Closing Date.
4.2 FIRST LOAN. In addition to the matters described in Section 4.1 hereof,
the obligation of the Lender to make the initial Loan or the obligation of the
Lender to issue the first Letter of Credit is subject to the receipt by the
Lender of each of the following, in Proper Form:
(a) the Note executed by the Borrower;
(b) the Security Documents executed by the Borrower and all other
necessary Parties, as applicable;
(c) a certificate executed by the Secretary or an Assistant Secretary
of the Borrower dated as of the date hereof, substantially in the form attached
hereto as Exhibit E;
(d) the most recent schedule and aging of Receivables of the Borrower
(dated within thirty (30) days of the Closing Date);
(e) a copy of the Lender's field examination;
(f) the Borrower and the Lender shall have entered into the Lockbox
Agreement;
(g) copies of all manufacturing servicing agreements of the Borrower
which the Lender shall have requested;
(h) copies of all employment agreements, management fee agreements and
tax sharing agreements which the Lender shall have requested;
(i) copies of the Borrower's Annual Audited Financial Statements for
the fiscal year ending March 27, 1999;
(j) all other Loan Documents and any other instruments or documents
consistent with the terms of this Agreement and relating to the transactions
contemplated hereby as the Lender may reasonably request, executed by the
Borrower or any other Person required by the Lender, including without
limitation, the Lockbox Agreement;
and subject to the further conditions that, at the time of the initial Loan, (1)
the ownership, corporate structure, solvency and capitalization of the Borrower
shall be reasonably satisfactory to the Lender in all respects; (2) the Lender
shall have had the opportunity, if they elect, to examine the books of account
and other records and files of the Borrower and to make copies thereof; (3) all
such actions as the Lender shall reasonably require to perfect the Liens created
pursuant to the Security Documents shall have been taken, including without
limitation, the delivery to the Lender of all Property with respect to which
possession is necessary for the purpose of perfecting such Liens, and with
respect to Collateral covered by the Security Agreements, the filing of
appropriately completed and duly executed Uniform Commercial Code financing
statements; (4) the Lender shall also have received evidence reasonably
satisfactory to it that the Liens created by the Security Documents constitute
first priority Liens (except for any Liens expressly provided for in Sections
7.2(c), (d) and
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(e) below), including without limitation, satisfactory title commitments,
Uniform Commercial Code search reports and executed releases of liens or
termination statements with respect to any existing prior Liens to be released;
(5) the Borrower shall have paid all fees owed to the Lender by the Borrower
under the Commitment Letter or this Agreement, including without limitation,
legal fees and expenses described in Section 9.8 or otherwise for which invoices
have been presented as of the Closing Date; and (6) all other legal matters
incident to the transactions herein contemplated shall be reasonably
satisfactory to counsel for the Lender.
5. REPRESENTATIONS AND WARRANTIES.
To induce the Lender to enter into this Agreement, the Borrower represents
and warrants to the Lender, as of the date hereof and as of the date any Loan is
made hereunder or any Letter of Credit is issued hereunder, as follows:
5.1 ORGANIZATION. The Borrower is duly organized, validly existing and in
good standing under the laws of the state of Delaware; has all power and
authority to own its respective Property and assets and to conduct its
respective business as presently conducted; and is duly qualified to do business
and in good standing in each and every state in the United States of America
where its respective business requires such qualification, except for those
states in which the failure to qualify and/or be in good standing does not cause
a Material Adverse Effect to occur.
5.2 FINANCIAL STATEMENTS. The financial statements of the Borrower
delivered to the Lender prior to the Closing Date, all fairly present, in
accordance with GAAP, the financial condition and the results of operations of
the Borrower as of the dates and for the periods indicated. No Material Adverse
Effect has occurred since the date of the most recent of such financial
statements which is not otherwise disclosed in such financial statements
themselves.
5.3 ENFORCEABLE OBLIGATIONS; AUTHORIZATION. The Loan Documents are legal,
valid and binding obligations of the Borrower, enforceable in accordance with
their respective terms, except as may be limited by bankruptcy, insolvency and
other similar laws affecting creditors rights generally and by general equitable
principles. The execution, delivery and performance of the Loan Documents have
all been duly authorized by all necessary corporate, and if necessary
shareholder, action; are within the power and authority of the Borrower; do not
and will not contravene or violate any Legal Requirement or the Organizational
Documents of the Borrower; do not and will not result in the breach of, or
constitute a default under, any agreement or instrument by which the Borrower or
any of its Property may be bound or affected; and do not and will not result in
the creation of any Lien upon any Property of the Borrower except as expressly
contemplated therein. All necessary approvals of any Governmental Authority and
all other requisite permits, registrations and consents for the performance have
been obtained for the delivery and performance of the Loan Documents.
5.4 OTHER DEBT. To the Borrower's knowledge, the Borrower is not in default
in the payment of any other Indebtedness or under any agreement, mortgage, deed
of trust, security agreement or lease to which it is a party.
5.5 LITIGATION. Except as set forth on Schedule 5.5 attached hereto, there
is no litigation or administrative proceeding pending or, to the knowledge of
the Borrower, threatened against, nor any outstanding judgment, order or decree
affecting, the Borrower before or by any Governmental
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Authority or arbitral body. The Borrower is not in default with respect to any
writ, rule, regulation, or order of any Governmental Authority.
5.6 TAXES. The Borrower has filed all federal, state, local or foreign tax
returns required to have been filed and paid all taxes shown thereon to be due,
except those for which extensions have been obtained and except for those which
are being contested in good faith and by appropriate proceedings if adequate
reserves with respect thereto are maintained in accordance with GAAP. No federal
income tax returns of the Borrower have been audited by the Internal Revenue
Service, except for the Borrower's 1993, 1994 and 1995 tax years, and each of
such previous years' audits has been satisfactorily completed. The Borrower is
not a party to, and does not have any obligation under, any tax sharing
arrangement.
5.7 NO MATERIAL MISSTATEMENTS. No information, report, financial statement,
exhibit or schedule prepared or furnished by or on behalf of the Borrower to the
Lender in connection with this Agreement or any other Loan Documents knowingly
contains any material misstatement of fact or knowingly omits to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
5.8 SUBSIDIARIES. As of the date hereof, the Borrower has no Subsidiaries
other than Foreign Sales Corporation, a Jamaica corporation wholly owned by the
Borrower.
5.9 REPRESENTATIONS BY OTHERS. All representations and warranties made by
or on behalf of the Borrower in any Loan Document shall constitute
representations and warranties of the Borrower hereunder.
5.10 PERMITS, LICENSES, ETC. The Borrower possesses all material permits,
licenses, patents, patent rights, trademarks, trademark rights, trade names,
trade name rights and copyrights required to conduct its respective business.
5.11 ERISA. No Reportable Event has occurred with respect to any Plan. Each
Plan complies in all material respects with all applicable provisions of ERISA,
and the Borrower or each ERISA Affiliate have filed all reports required by
ERISA and the Code to be filed with respect to each Plan. The Borrower does not
have any knowledge of any event which could reasonably be expected to result in
a liability of the Borrower or any ERISA Affiliate to the PBGC other than for
applicable premiums. 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 Plan. No event has occurred and no condition exists that could
reasonably be expected to constitute grounds for a Plan to be terminated under
circumstances which would cause the Lien provided under Section 4068 of ERISA to
attach to any Property of the Borrower or any ERISA Affiliate. No event has
occurred and no condition exists that could reasonably be expected to cause the
Lien provided under Section 302 of ERISA or Section 412 of the Code to attach to
any Property of the Borrower or any ERISA Affiliate.
5.12 TITLE TO PROPERTIES; POSSESSION UNDER LEASES.
(a) The Borrower has good and marketable title to, or a valid
leasehold interest in, all of its Property and assets shown on the most recent
Consolidated balance sheets of the Borrower referred to in Section 5.2 hereof
and all assets and Property acquired since the date of such balance
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sheets, except for such Property as is no longer used or useful in the conduct
of their respective businesses or as have been disposed of in the ordinary
course of business, and except for minor defects in title that do not interfere
with the ability of the Borrower to conduct its business as now conducted. All
such assets and Property are free and clear of all Liens other than those
permitted by Section 7.2 hereof.
(b) The Borrower has complied in all material respects with all
obligations under all leases to which any of them is a party and under which any
of them is in occupancy, except where non-compliance does not effect the
Borrower's use or occupancy thereof, as applicable, and all such leases are in
full force and effect, and the Borrower enjoys peaceful and undisturbed
possession under all such leases.
5.13 ASSUMED NAMES. The Borrower does not currently conducts its business
under any assumed name or names, except as set forth on Schedule 5.13 attached
hereto.
5.14 INVESTMENT COMPANY ACT. The Borrower is not an investment company
within the meaning of the Investment Company Act of 1940, as amended, or,
directly or indirectly, controlled by or acting on behalf of any Person which is
an investment company, within the meaning of said Act.
5.15 PUBLIC UTILITY HOLDING COMPANY ACT. The Borrower is not a "public
utility company," or an "affiliate" or a "subsidiary company" of a "public
utility company," or a "holding company," or a "subsidiary company" of a
"registered holding company," or an "affiliate" of a "registered holding
company" or of a "subsidiary company" of a "registered holding company," as such
terms are defined in the Public Utility Holding Company Act of 1935, as amended
("PUHCA"). To the best of the Borrower's knowledge, the Borrower is not an
"affiliate" or a "subsidiary company" of an unregistered, non-exempt "holding
company" as such terms are defined in PUHCA.
5.16 AGREEMENTS. Schedule 5.16 attached hereto is a complete and correct
list, as of the Closing Date, of (i) all credit agreements for borrowed money,
indentures and capitalized leases to which the Borrower is a party and all
Property of the Borrower subject to any Lien securing such Indebtedness or lease
obligation, (ii) each letter of credit and guaranty to which the Borrower is a
party, (iii) all other material instruments in effect as of the date hereof
providing for, evidencing, securing or otherwise relating to any Indebtedness
for borrowed money of the Borrower (other than the Indebtedness hereunder), and
(iv) all obligations of the Borrower to issuers of appeal bonds issued for
account of the Borrower. The Borrower shall, upon, request by the Lender,
deliver to the Lender a complete and correct copy of all such credit agreements,
indentures, capitalized leases, letters of credit, guarantees and other
instruments or leases described in Schedule 5.16 or arising after the date
hereof, including any modifications or supplements thereto, as in effect on the
date hereof.
5.17 ENVIRONMENTAL MATTERS. Except as is described on Schedule 5.17
attached hereto, no activity of the Borrower requires any Environmental Permit
which has not been obtained and which is not now in full force and effect. The
Borrower is in compliance with all limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in any applicable Requirement of Environmental Law or Environmental
Permit. The
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Borrower (i) has obtained and maintained in effect all Environmental Permits,
(ii) along with its respective Properties has been and is in material compliance
with all applicable Requirements of Environmental Law and Environmental Permits,
(iii) along with its respective Properties is not subject to any (A)
Environmental Claims or (B) Environmental Liabilities, in either case direct or
contingent, and whether known or unknown, arising from or based upon any act,
omission, event, condition or circumstance occurring or existing on or prior to
the date hereof, except as set forth on Schedule 5.17 attached hereto, and (iv)
has not received individually or collectively any notice of any violation or
alleged violation of any Requirements of Environmental Law or Environmental
Permit or any Environmental Claim in connection with its respective Properties.
The Borrower has no actual knowledge of any violation of any applicable
Requirements of Environmental Law and Environmental Permits by, or Environmental
Claims or Environmental Liabilities arising against, any of the prior owners or
operators and predecessors in interest with respect to the Borrower's Property.
5.18 NO CHANGE IN CREDIT CRITERIA OR COLLECTION POLICIES. There has been no
material adverse change in credit criteria or collection policies concerning
Receivables of the Borrower since December 10, 1998.
5.19 SOLVENCY.
(1) The value of the assets of the Borrower is not less than the
amount that will be required to be paid on or in respect of the probable
liability on the existing debts and other liabilities (including contingent
liabilities) of the Borrower.
(b) The assets of the Borrower do not constitute unreasonably small
capital for the Borrower to carry out its businesses as now conducted and as
proposed to be conducted including the capital needs of the Borrower, taking
into account (1) the nature of the businesses conducted by the Borrower, (2) the
particular capital requirements of the businesses conducted by the Borrower, (3)
the anticipated nature of the businesses to be conducted by the Borrower in the
future, and (4) the projected capital requirements and capital availability of
such current and anticipated businesses.
(c) The Borrower does not intend to incur debts beyond its ability to
pay such debts as they mature (taking into account the timing and amounts of
cash to be received by the Borrower and the timing and amounts to be payable on
or in respect of debt of the Borrower). The cash flow of the Borrower, after
taking into account all anticipated uses of the cash of the Borrower, should at
all times be sufficient to pay all such amounts on or in respect of debt of the
Borrower when such amounts are anticipated to be required to be paid.
(d) The Borrower does not believe that final judgments against it in
actions for money damages presently pending, if any, will be rendered at a time
when, or in an amount such that, the Borrower will be unable to satisfy any such
judgments promptly in accordance with their terms (taking into account the
maximum reasonable amount of such judgments in any such actions and the earliest
reasonable time at which such judgments might be rendered). The cash flow of the
Borrower, after taking into account all other anticipated uses of the cash of
the Borrower (including the payments on or in respect of debt referred to in
subparagraph (c) of this Section 5.19), should at all times be sufficient to pay
all such judgments promptly in accordance with their terms.
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5.20 STATUS OF RECEIVABLES AND OTHER COLLATERAL. The Borrower represents
and warrants that (a) the Borrower is and shall be the sole owner, free and
clear of all Liens, except in favor of the Lender or otherwise permitted under
Section 7.2 hereunder, of and fully authorized to sell, transfer, pledge and/or
grant a security interest in each and every item of Collateral owned by the
Borrower; (b) each Eligible Receivable is and shall be a good and valid account
representing an undisputed bona fide indebtedness incurred or an amount
indisputably owed by the account debtor therein named, for a fixed sum as set
forth in the invoice relating thereto with respect to an absolute sale and
delivery upon the specified terms of goods sold by the Borrower, or work, labor
and/or services theretofore rendered by the Borrower; (c) no Eligible Receivable
is or shall be subject to any defense, offset, counterclaim, discount or
allowance (as of the time of its creation) except as may be stated in the
invoice relating thereto or discounts and allowances as may be customary in the
Borrower's business; (d) none of the transactions underlying or giving rise to
any Eligible Receivable shall violate any applicable state or federal laws or
regulations, and all documents relating to any Eligible Receivable shall be
legally sufficient under such laws or regulations and shall be legally
enforceable in accordance with their terms, subject, as to enforceability, to
the effect of any applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creators' rights generally; (e) to the best of the
Borrower's knowledge, each account debtor, guarantor or endorser with respect to
any Eligible Receivable is solvent and able to pay all Receivables on which it
is obligated in full when due; (f) all documents and agreements relating to
Eligible Receivables shall be true and correct and in all respects what they
purport to be; (g) to the best of the Borrower's knowledge, all signatures and
endorsements that appear on all documents and agreements relating to Eligible
Receivables shall be genuine and all signatories and endorsers with respect
thereto shall have full capacity to contract; (h) the Borrower shall maintain
books and records pertaining to the respective Collateral owned by each of them
in detail, form and scope as the Lender shall reasonably require; (i)
concurrently with the delivery by the Borrower to the Lender of any accounts
receivable aging or any sales report summary hereunder, the Borrower will
disclose to the Lender which Receivables, if any, arise out of contracts with
the United States or any department, agency, or instrumentality thereof, and
will, upon request from the Lender, execute or cause to be executed any
instruments and take any steps required by the Lender in order that all monies
due or to become due under any such contract shall be assigned to the Lender and
notice thereof given under the Federal Assignment of Claims Act; (j) the
Borrower will, promptly after any Responsible Officer learns thereof, report to
the Lender any material loss or destruction of, or substantial damage to, any of
the Collateral, and any other matters materially affecting the value,
enforceability, or collectability of any of the Collateral; (k) if any amount
payable under or in connection with any Receivable is evidenced by a promissory
note or other instrument, as such terms are defined in the Uniform Commercial
Code, such promissory note or other instrument shall be promptly pledged,
endorsed, assigned, and delivered to the Lender as additional Collateral; (l)
the Borrower shall not redate any invoice or sale or make or allow to be made
sales on extended dating beyond that customary in the industry; (m) the Borrower
shall conduct cycle counts of its inventory at such intervals as the Lender may
request and promptly supply the Lender with a copy of such counts upon the
written request of the Lender, accompanied by a report of the value (based on
the lower of cost, on a FIFO basis, or market value) of such inventory; and (n)
the Borrower shall not be entitled to pledge the Lender's credit on any
purchases or for any purpose.
5.21 YEAR 2000 REPROGRAMMING. Any reprogramming required to permit the
proper functioning, in and following the year 2000, of (a) the Borrower's
computer systems, and
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(b) equipment containing embedded microchips (including systems and equipment
supplied by others or with which the Borrower's systems interface), and the
testing of all such systems and equipment as so reprogrammed, will be completed
by September 30, 1999. To the Borrower's knowledge, the cost to the Borrower of
such reprogramming and testing of the reasonably foreseeable consequences of
year 2000 to the Borrower (including, without limitation, reprogramming errors
and the failure of others' systems or equipment) will not result in a Default,
an Event of Default, or a Material Adverse Effect. Except for such of the
reprogramming referred to in the preceding sentence as may be necessary, to the
Borrower's knowledge, the computer and management information systems of the
Borrower are and, with ordinary course upgrading and maintenance, will continue
to be, sufficient to permit the Borrower to conduct its business without any
Material Adverse Effect.
6. AFFIRMATIVE COVENANTS.
The Borrower covenants and agrees with the Lender that prior to the
termination of this Agreement, it will do, cause each of its Subsidiaries, if
any, to do, and if necessary cause to be done, each and all of the following:
6.1 BUSINESSES AND PROPERTIES. At all times: (a) do or cause to be done all
commercially reasonable things necessary to obtain, preserve, renew and keep in
full force and effect the rights, licenses, permits, franchises, patents,
copyrights, trademarks and trade names material to the conduct of its
businesses; (b) maintain and operate such businesses in the same general manner
in which they are presently conducted and operated; (c) comply with all Legal
Requirements applicable to the operation of such businesses whatever now in
effect or hereafter enacted (including without limitation, all Legal
Requirements relating to public and employee health and safety and all
Environmental Laws) and with any and all other Legal Requirements; and (d)
maintain, preserve and protect all Property material to the conduct of such
businesses and keep such Property in good repair, working order and condition,
and from time to time make, or cause to be made, all needful and proper repairs,
renewals, additions, improvements and replacements thereto necessary in order
that the business carried on in connection therewith may be properly conducted
at all times.
6.2 TAXES. Pay and discharge promptly when due all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits or
in respect of its Property before the same shall become delinquent or in
default, as well as all lawful claims for labor, materials, and supplies or
otherwise, which, if unpaid, might give rise to Liens upon such properties or
any part thereof (except as otherwise permitted by Section 7.2 hereof), unless
being diligently contested in good faith by appropriate proceedings and as to
which adequate reserves in an amount not less than the aggregate amount secured
by such Liens have been established in accordance with GAAP; provided, however,
that such contested amounts giving rise to such Liens shall be immediately paid
upon commencement of any procedure or proceeding to foreclose any of such Liens
unless the same shall be validly stayed by a court of competent jurisdiction or
a surety bond, which is satisfactory in all respects to the Lender, and is
delivered to the Lender in an amount no less than such contested amounts.
6.3 FINANCIAL STATEMENTS AND INFORMATION. Furnish to the Lender three (3)
copies of each of the following: (a) as soon as available and in any event
within ninety (90) days after the end of each fiscal year of the Borrower,
Annual Audited Financial Statements of the Borrower and
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its Subsidiaries; (b) as soon as available and in any event within thirty (30)
days after the end of each calendar month, Monthly Unaudited Financial
Statements of the Borrower and its Subsidiaries; (c) promptly after the same
become publicly available, copies of such registration statements, annual,
quarterly, periodic and other reports and filings, and such proxy statements and
other information, if any, filed by the Borrower with the Securities and
Exchange Commission pursuant to the requirements of the Securities Act of 1933
or the Securities Exchange Act of 1934, including without limitation, all 10-Q
and 10-K Reports; (d) concurrently with the financial statements provided for in
Subsections 6.3(a) and 6.3(b) hereof, (1) an Officer's Certificate, signed by a
Responsible Officer of the Borrower, and (2) a written certificate in Proper
Form, identifying each Subsidiary which is otherwise required by the provisions
of Section 6.10 hereof to become a Guarantor at the request of the Lender, but
which has not yet done so as of the date of such certificate, and providing an
explanation of the reasons why each such Subsidiary is not a Guarantor, signed
by a Responsible Officer of the Borrower; (e) as soon as available and in any
event within fifteen (15) days after the date of issuance thereof (if any such
management letter is ever issued), a management letter prepared by the
independent public accountants who reported on the financial statements provided
for in Subsection 6.3(a) above, with respect to the internal audit and financial
controls of the Borrower and its Subsidiaries; (f) as soon as available, and in
any event no later than the third Business Day after each Saturday of each
calendar week, a weekly Receivables report setting forth the sales, collections,
and customer credits for the Borrower for the calendar week ending on Saturday
of the immediately preceding week, certified by a Responsible Officer of the
Borrower; (g) as soon as available and in any event on or before the third
Business Day after each Saturday of each calendar week, an inventory designation
for the Borrower as of the end of business on Saturday of the immediately
preceding week, certified by a Responsible Officer of the Borrower; (h) as soon
as available and in any event within fifteen (15) days after the end of each
month, accounts receivable agings and reconciliations (it being understood that
such reconciliations shall only be current as of each fiscal month end during
the Borrower's applicable fiscal year and shall not be current as of the end of
the applicable calendar month), inventory designations, accounts payable agings,
monthly sales report summaries, open order reports and all other schedules,
computations and other information, all in reasonable detail, as may be
reasonably required or requested by the Lender, all certified by a Responsible
Officer of the Borrower; (i) as soon as available and in any event within
fifteen (15) days after the end of each month, a Borrowing Base Compliance
Certificate, signed by a Responsible Officer of the Borrower in the form
attached hereto as Exhibit F; (j) as soon as available and in any event on or
before fifteen (15) days after each annual Board of Directors meeting of the
Borrower (each such meeting to be held not later than 45 days after the end of
each fiscal year of the Borrower), management-prepared Consolidated and
consolidating financial projections of the Borrower and its Subsidiaries for the
immediately following fiscal year (setting forth such projections on both an
annual basis and on a quarterly basis for the upcoming fiscal year), such
projections to be in such format and detail as reasonably requested by the
Lender; and (k) such other information relating to the financial condition,
operations and business affairs of the Borrower or any of its Subsidiaries, as
from time to time may be reasonably requested by the Lender.
6.4 INSPECTION. Upon reasonable notice (which may be telephonic notice), at
all reasonable times and as often as the Lender may request, permit any
authorized representative designated by the Lender to visit and inspect the
Properties and financial records of the Borrower and its Subsidiaries and to
make extracts from such financial records at the Lender's expense, and
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permit any authorized representative designated by the Lender to discuss the
affairs, finances and condition of the Borrower and its Subsidiaries with the
appropriate Financial Officer and such other officers as the Borrower shall deem
appropriate and the Borrower's independent public accountants, as applicable.
The Lender agrees that it shall schedule any meeting with any such independent
public accountant through the Borrower, and a Responsible Officer of the
Borrower shall have the right to be present at any such meeting. The Lender
shall have the right to examine, as often as it may request, the existence and
condition of the Receivables, books and records of the Borrower and its
Subsidiaries and to review their compliance with the terms and conditions of
this Agreement and the other Loan Documents, subject to governmental
confidentiality requirements. Prior to the occurrence of a Default or Event of
Default which is continuing, such examinations shall be at the Borrower's
expense not more than once prior to December 31, 1999, and thereafter, if the
Maturity Date is hereafter extended pursuant to the written consent and
agreement of the Lender, not more than three (3) times in any consecutive twelve
(12) month period; provided, however, that any and all such examinations
conducted after the occurrence of any Default or Event of Default which is then
continuing shall be at the Borrower's expense. The Lender shall also have the
right to verify with any and all customers of the Borrower and any of its
Subsidiaries the existence and condition of the Receivables, as often as the
Lender may require, without prior notice to or consent of the Borrower or any of
its Subsidiaries.
6.5 FURTHER ASSURANCES. Upon request by the Lender, promptly execute and
deliver any and all other and further instruments which may be reasonably
requested by the Lender to (a) cure any defect in the execution and delivery of
any Loan Document or more fully to describe particular aspects of the Borrower's
agreements set forth in the Loan Documents or so intended to be and (b) grant,
preserve, protect and perfect the first priority Liens created by the Security
Documents in the Collateral.
6.6 BOOKS AND RECORDS. Maintain financial records and books in accordance
with accepted financial practice and GAAP.
6.7 INSURANCE.
(a) Keep its insurable Properties adequately insured at all times by
financially sound and reputable insurers.
(b) Maintain such other insurance, to such extent and against such
risks, including fire and other risks insured against by extended coverage,
employee liability and business interruption, as is customary with companies
similarly situated and in the same or similar businesses, provided, however,
that such insurance shall insure the Property of the Borrower and each of its
Subsidiaries against all risk of physical damage, including without limitation,
loss by fire, explosion, theft, fraud and such other casualties as may be
reasonably satisfactory to the Lender, but in no event at any time in an amount
less than the replacement value of the Collateral.
(c) Maintain in full force and effect worker's compensation coverage
and public liability insurance against claims for personal injury or death or
property damage occurring upon, in, about or in connection with its operations
and with the use of any Properties owned, occupied or controlled by the Borrower
or any of its Subsidiaries, in such amounts as the Lender shall reasonably deem
necessary.
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(d) Maintain such other insurance as may be required by law or as may
be reasonably requested by the Lender for purposes of assuring compliance with
this Section 6.7. All insurance covering tangible personal Property subject to a
Lien in favor of the Lender granted pursuant to the Security Documents shall
provide that, in the case of each separate loss, the full amount of insurance
proceeds shall be payable to the Lender and shall further provide for at least
30 days' prior written notice to the Lender of the cancellation or substantial
modification thereof.
6.8 ERISA. At all times: (a) make contributions to each Plan in a timely
manner and in an amount sufficient to comply with the minimum funding standards
requirements of ERISA; (b) immediately upon acquiring knowledge of (i) any
Reportable Event in connection with any Plan for which no administrative or
statutory exemption exists or (ii) any "prohibited transaction", as such term is
defined in Section 4975 of the Code, in connection with any Plan, that could
result in the imposition of material damages or a material excise tax on the
Borrower or any of its Subsidiaries, furnish the Lender a statement executed by
a Responsible Officer of the Borrower or such Subsidiary setting forth the
details thereof and the action which the Borrower or any such Subsidiary
proposes to take with respect thereto and, when known, any action taken by the
Internal Revenue Service with respect thereto; (e) notify the Lender promptly
upon receipt by the Borrower or any Subsidiary thereof of any notice of the
institution of any proceedings or other actions which may result in the
termination of any Plan by the PBGC and furnish the Lender with copies of such
notice; (d) pay when due, or within any applicable grace period allowed by the
PBGC, all required premium payments to the PBGC; (e) furnish the Lender with
copies of the annual report for each Plan filed with the Internal Revenue
Service not later than ten (10) days after the Lender requests such report; (f)
furnish the Lender with copies of any request for waiver of the funding
standards or extension of the amortization periods required by Sections 303 and
304 of ERISA or Section 412 of the Code promptly after the request is submitted
to the Secretary of the Treasury, the Department of Labor or the Internal
Revenue Service, as the case may be; and (g) pay when due all installment
contributions required under Section 302 of ERISA or Section 412 of the Code or
within 10 days of a failure to make any such required contributions when due
furnish the Lender with written notice of such failure.
6.9 USE OF PROCEEDS. Subject to the terms and conditions contained herein,
use the proceeds of the Loans for (a) financing ongoing working capital needs of
the Borrower not otherwise prohibited herein, (b) refinancing the Borrower's
existing Indebtedness to the Lender, (c) for general corporate purposes of the
Borrower in the ordinary course of business not otherwise prohibited herein,
and/or (d) payment of the Obligations, as provided in this Agreement; provided,
that no proceeds of any Loan shall be used (w) for the purpose of purchasing or
carrying directly or indirectly any margin stock as defined in Regulation U
("REG U") of the Board of Governors of the Federal Reserve System, (x) for the
purpose of reducing or retiring any Indebtedness which was originally incurred
to purchase or carry any such margin stock, (y) for any other purpose which
would cause such Loan to be a "purpose credit" within the meaning of Reg U and
(z) for any purpose which would constitute a violation of Reg U or of
Regulations G, T or X of the Board of Governors of the Federal Reserve System or
any successor regulation of any thereof or of any other rule, statute or
regulation governing margin stock from time to time.
6.10 CORPORATE GUARANTORS, JOINDER AGREEMENTS. Promptly inform the Lender
of the creation or acquisition of any Subsidiary of the Borrower after the
Closing Date, cause each such Subsidiary created after the Closing Date (except
as provided for below) to become a
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Guarantor by execution and delivery to the Lender of a Guaranty, together with
such related certificates, legal opinions and documents (including
Organizational Documents) as the Lender may reasonably require; provided,
however, that any foreign Subsidiary shall not be required to become a Guarantor
hereunder if the Lender receives a first priority pledge of no less than
sixty-five percent (65%) of all issued and outstanding indicia of equity rights
(including capital stock) in such foreign Subsidiary contemporaneously with the
acquisition or creation by the Borrower or other Subsidiary of such foreign
Subsidiary.
6.11 NOTICE OF EVENTS. Notify the Lender immediately after any Responsible
Officer of Borrower or any of its Subsidiaries acquires knowledge of the
occurrence of, or if the Borrower or any of its Subsidiaries causes or intends
to cause, as the case may be, any of the following: (i) the institution of any
lawsuit, administrative proceeding or investigation affecting the Borrower or
any of its Subsidiaries, including without limitation, any audit by the Internal
Revenue Service; (ii) any development or change in the business or affairs of
the Borrower or any of its Subsidiaries which has had or which is likely to
have, in the reasonable judgment of any Responsible Officer of the Borrower, a
Material Adverse Effect; (iii) any Event of Default or Default, together with a
detailed statement by a Responsible Officer on behalf of the Borrower of the
steps being taken to cure the effect of such Event of Default or Default; (iv)
the occurrence of a default or event of default by the Borrower or any of its
Subsidiaries under any agreement or series of related agreements to which it is
a party, which default or event of default could have a Material Adverse Effect;
(v) any violation by, or investigation of the Borrower or any of its
Subsidiaries in connection with any actual or alleged violation of any Legal
Requirement imposed by the Environmental Protection Agency, the Occupational
Safety Hazard Administration or any other Governmental Authority which has or is
likely to have, in the reasonable judgment of any Responsible Officer of the
Borrower, a Material Adverse Effect; and (vi) any change in the accuracy of any
material representations and warranties of the Borrower or any of its
Subsidiaries in this Agreement or any other Loan Document.
6.12 ENVIRONMENTAL MATTERS. Without limiting the generality of Section
6.1(c) hereof, (a) comply in all material respects with all limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Requirement of
Environmental Law, or Environmental Permit; (b) obtain and maintain in effect
all Environmental Permits; and (c) keep its Property free of any Environmental
Claims or Environmental Liabilities.
6.13 END OF FISCAL YEAR. Cause each of its fiscal years to end on the
fourth Saturday of March or the first Saturday of April of the applicable year.
6.14 PAY OBLIGATIONS AND PERFORM OTHER COVENANTS. Make full and timely
payment of the Obligations, whether now existing or hereafter arising, duly
comply with all of the terms and covenants contained in this Agreement and in
each of the other Loan Documents at all times and places and in the manner set
forth therein, and except for the filing of continuation statements and the
making of other filings by the Lender as secured party or assignee, at all times
take all actions necessary to maintain the Liens and security interests provided
for under or pursuant to this Agreement and the Security Documents as valid
perfected first priority Liens on the Collateral intended to be covered thereby
(subject only to other Liens expressly permitted by Section 7.2 hereof) and
supply all information to the Lender necessary for such maintenance.
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6.15 COLLECTION OF RECEIVABLES; APPLICATION OF LOCKBOX AGREEMENT PROCEEDS.
(a) At the Borrower's own cost and expense, arrange for remittances on
all Receivables to be made directly to one or more lockboxes designated by the
Lender under the terms of the Lockbox Agreement or in such other manner as the
Lender may direct. All remittances on all Receivables processed through the
lockbox(es) in accordance with this Section 6.15(a) shall be promptly deposited
for collection in one or more accounts designated by the Lender, subject to
withdrawal by the Lender only, as hereinafter provided. In connection therewith,
the Lender is irrevocably authorized to cause all collected balances received
from such remittances on Receivables to be immediately applied by the Lender to
reduce the outstanding balance of the Loans.
(b) The Borrower shall cause all payments, if any, received by the
Borrower on account of Receivables which are not forwarded directly to the
above-described lockbox(es) (whether in the form of cash, checks, notes, drafts,
bills of exchanges, money orders or otherwise) to be promptly deposited in
precisely the form received (but with any endorsements of the Borrower necessary
for deposit or collection) in the account or accounts designated by the Lender
in accordance with the provisions of Section 6.15(a) above.
6.16 ADDITIONAL RECEIVABLES DOCUMENTATION. In addition to the Receivables
information delivered pursuant to the other provisions of this Agreement,
furnish such further schedules and/or information as the Lender may require
relating to the Receivables (including without limitation, sales invoices). The
items to be provided under this Section 6.16 are to be in form satisfactory to
the Lender and are to be executed and delivered to the Lender from time to time
solely for its convenience in maintaining records of the Collateral. The
Borrower's failure to give any of such items to the Lender shall not affect,
terminate, modify or otherwise limit the Lender's Lien or security interest in
the Collateral.
6.17 YEAR 2000 COMPLIANCE. Complete and furnish such questionnaires and
submit to any additional due diligence reasonably required by the Lender in
order to confirm that the representations and warranties set forth in Section
5.21 hereof are true and correct in all material respects.
7. NEGATIVE COVENANTS.
The Borrower covenants and agrees with the Lender that prior to the
termination of this Agreement, it will not, and will not suffer or permit any of
its Subsidiaries, if any, to, do any of the following, unless otherwise agreed
to in writing by the Lender:
7.1 INDEBTEDNESS. Create, incur, suffer or permit to exist, or assume or
guarantee, directly or indirectly, or become or remain liable with respect to
any Indebtedness, whether direct, indirect, absolute, contingent, or otherwise,
except the following:
(a) Indebtedness to the Lender pursuant hereto;
(b) Indebtedness secured by Liens permitted by Section 7.2 hereof;
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(c) Purchase money Indebtedness (including the amount of any Capital
Lease Obligations required to be capitalized and included as a liability on the
consolidated balance sheet of the Borrower and its Subsidiaries) incurred to
finance Capital Expenditures (to the extent permitted by Section 7.12 hereof);
(d) Subordinated Indebtedness, with no renewals, extensions,
modifications or increases thereof being permitted;
(e) other liabilities existing on the date of this Agreement and set
forth on Schedule 5.16 attached hereto, with no renewals, extensions,
modifications or increases thereof being permitted;
(f) current accounts payable and unsecured current liabilities, not
the result of borrowings, to vendors, suppliers and persons providing services,
for expenditures on ordinary trade terms for goods and services normally
required by the Borrower in the ordinary course of its business;
(g) Indebtedness of any Guarantor to the Borrower or to any other
Guarantor, or the Indebtedness of the Borrower to any Guarantor;
(h) current and deferred taxes and other assessments and governmental
charges (to the extent permitted by Section 7.2(e) hereof); and
(i) liabilities and obligations under agreements or arrangements
designed to protect the Borrower against fluctuations in interest rates accruing
under the credit facility governed by this Agreement, including without
limitation, interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements.
THE BORROWER, THE LENDER, AND EACH GUARANTOR (BY ITS EXECUTION OF A
GUARANTY) AGREE THAT, NOTWITHSTANDING ANYTHING CONTAINED IN SECTION 7.1(g) OR IN
ANY OTHER PROVISION CONTAINED IN THIS AGREEMENT WHICH MAY APPEAR TO BE TO THE
CONTRARY, ANY AND ALL INDEBTEDNESS PERMITTED BY SECTION 7.1(g) HEREOF (TOGETHER
WITH ANY AND ALL LIENS FROM TIME TO TIME SECURING THE SAME AS PERMITTED BY
SECTION 7.2(i) HEREOF) IS HEREBY MADE AND AT ALL TIMES HEREAFTER SHALL BE
INFERIOR AND SUBORDINATE IN ALL RESPECTS TO THE OBLIGATIONS FROM TIME TO TIME
OWING TO THE LENDER PURSUANT HERETO AND TO ANY LIEN AGAINST ANY COLLATERAL FROM
TIME TO TIME NOW OR HEREAFTER SECURING ANY OF SUCH OBLIGATIONS PURSUANT TO THE
TERMS HEREOF AND THE SECURITY DOCUMENTS. THE BORROWER AGREES TO EXECUTE AND
DELIVER ON ITS OWN BEHALF, AND TO CAUSE TO BE EXECUTED AND DELIVERED BY AND ON
BEHALF OF THE GUARANTORS, ANY AND ALL SUBORDINATION AGREEMENTS, IN FORM AND
CONTENT REASONABLY ACCEPTABLE TO THE LENDER, WHICH THE LENDER MAY HEREAFTER
REQUIRE TO FURTHER EVIDENCE THE SUBORDINATION OF THE INDEBTEDNESS PERMITTED BY
SECTION 7.1(g) ABOVE AND THE LIENS PERMITTED BY SECTION 7.2(i) ABOVE.
7.2 LIENS. Create or suffer to exist any Lien upon any of its Property
(including without limitation, real property assets) now owned or hereafter
acquired, or acquire any Property upon any conditional sale or other title
retention device or arrangement or any purchase money security agreement;
provided, however, that the Borrower and its Subsidiaries (or any of them), if
applicable, may create or suffer to exist:
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(a) Liens in effect on the date hereof and which are described on
Schedule 7.2 attached hereto, provided, that the Property covered thereby does
not increase in quantity and such Liens may not be renewed and extended;
(b) Liens in favor of the Lender;
(c) Liens incurred and pledges and deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance, old-age pensions and other social security benefits (not including
any lien described in Section 412(m) of the Code);
(d) Liens imposed by law, such as carriers', warehousemen's,
mechanics', materialmen's and vendors' liens and other similar liens, incurred
in good faith in the ordinary course of business and securing obligations which
are not overdue for a period of more than 15 days or which are being contested
in good faith by appropriate proceedings as to which the Borrower or any of its
Subsidiaries, as the case may be, shall, to the extent required by GAAP,
consistently applied, have set aside on its books adequate reserves;
(e) Liens securing the payment of taxes, assessments and governmental
charges or levies, that are not delinquent, are permitted by Section 6.2 hereof
or are being diligently contested in good faith by appropriate proceedings and
as to which adequate reserves have been established in accordance with GAAP;
provided, however, that in no event shall the aggregate amount of taxes,
assessments and governmental charges or levies which are either permitted by
Section 6.2 hereof or are being contested at any time exceed $50,000 and that in
no event shall the aggregate amount of such reserves be less than the aggregate
amount secured by such Liens;
(f) Zoning restrictions, easements, licenses, reservations,
provisions, covenants, conditions, waivers, restrictions on the use of property
or minor irregularities of title (and with respect to leasehold interests,
mortgages, obligations, liens and other encumbrances incurred, created, assumed
or permitted to exist and arising by, through or under a landlord or owner of
the leased property, with or without consent of the lessee) which do not in the
aggregate materially detract from the value of its Property or assets or
materially impair the use thereof in the operation of its business;
(g) Liens securing the performance of bids, tenders, leases, contracts
(other than for the repayment of borrowed money), statutory obligations, surety,
customs and appeal bonds and other obligations of like nature, incurred as an
incident to and in the ordinary course of business;
(h) Purchase money Liens securing the Indebtedness permitted by
Section 7.1(c) above, provided, as a result of the creation of any such Lien,
(i) no Default or Event of Default shall have occurred, (ii) the principal
amount of such Lien does not exceed 100% of the purchase price; of the asset
acquired with such permitted Indebtedness plus accrued interest on such
Indebtedness plus protective advances made by the holder of such permitted
Indebtedness, and (iii) such Lien shall not apply to any other Property other
than the asset acquired with such purchase money Indebtedness; and
(i) Liens in favor of the Borrower or any Guarantor securing any
Indebtedness permitted pursuant to Sections 7.1(g) hereof.
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Provided, however, notwithstanding anything contained above in this Section 7.2
to the contrary, if any of the permitted Liens are of the type that are being
contested in good faith by appropriate proceedings as to the Borrower or any of
its Subsidiaries, the Indebtedness giving, rise to such contested Lien(s) must
be immediately paid upon commencement of any foreclosure process or proceeding
with respect to such Lien(s) unless the same shall be effectively stayed or a
surety bond with respect thereto (which is satisfactory in all respects to the
Lender), is posted.
7.3 CONTINGENT LIABILITIES. Create, incur, suffer or permit to exist,
directly or indirectly, any Contingent Obligations, other than the Obligations
of each Guarantor to the Lender under the terms of any Guaranty.
7.4 MERGERS, CONSOLIDATIONS AND DISPOSITIONS AND ACQUISITIONS OF ASSETS. In
any single transaction or series of related transactions, directly or
indirectly:
(a) Wind up its affairs, liquidate or dissolve;
(b) Be a party to any merger or consolidation;
(c) Sell, convey, lease, transfer or otherwise dispose of all or any
portion of the assets (except for the sale of inventory or the sale of obsolete
or worn out fixed assets in the ordinary course of business for fair and
adequate consideration, so long as the net proceeds received by the Borrower
from any such sale of fixed assets are utilized by the Borrower to pay for the
replacement of any such obsolete or worn out fixed assets so sold or are applied
as a prepayment against the Loans and other Obligations then outstanding
hereunder) of the Borrower and/or any of its Subsidiaries, or agree to take any
such action;
(d) Sell, assign, pledge, transfer or otherwise dispose of, or in any
way part with control of, any Stock of any of its Subsidiaries or any
Indebtedness or obligations of any character of any of its Subsidiaries, or
permit any such Subsidiary to do so with respect to any Stock of any other
Subsidiary or any Indebtedness or obligations of any character of the Borrower
or any of its Subsidiaries, or permit any of its Subsidiaries to issue any
additional Stock other than to the Borrower;
(e) Take any board of director or shareholder action with a view
toward dissolution, liquidation or termination; or
(f) Purchase or otherwise acquire, directly or indirectly, in a single
transaction or a series of related transactions, all or a substantial portion of
the assets of any Person or any shares of Stock of, or similar interest in, any
Person.
7.5 NATURE OF BUSINESS. Materially change the nature of its business or
enter into any business which is substantially different from the business in
which it is engaged as of the Closing Date.
7.6 TRANSACTIONS WITH RELATED PARTIES.
(a) Except for transactions, contracts, or agreements existing on the
Closing Date and which are set forth on Schedule 7.6 attached hereto (and any
renewals and extensions of such
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existing transactions, contracts, or agreements, so long as such renewals and
extensions are upon terms and conditions substantially identical to the terms
and conditions set forth in the existing transactions, contracts, and
agreements), enter into any other transaction, contract, or agreement of any
kind with any Affiliate, officer, or director of the Borrower or any of its
Subsidiaries, unless such transaction, contract, or agreement is made upon terms
and conditions not less favorable to such Person than those which could have
been obtained from wholly independent and unrelated sources.
(b) The Borrower will not permit the compensation paid by the Borrower
or any of its Subsidiaries to any officer, stockholder, director, partner or
proprietor of the Borrower or any of its Subsidiaries to be excessive, based on
the reasonable discretion of the compensation committee established by the Board
of Directors of the Borrower, taking into consideration the financial
circumstances of the Borrower or the applicable Subsidiary, the position and
qualifications of such Person, and the compensation previously paid to such
Person prior to the Closing Date.
(c) The Borrower shall not permit any officer or director of the
Borrower or any of its Subsidiaries to acquire or otherwise usurp any corporate
opportunity rightfully belonging to the Borrower or any such Subsidiary in any
manner which would constitute a breach of such officer's or director's duty of
loyalty to the Borrower or any such Subsidiary.
7.7 INVESTMENTS, LOANS. Except for periodic loans and advances in the
ordinary course of business not to exceed $10,000.00 in the aggregate
outstanding at any time, otherwise make, directly or indirectly, any loan or
advance to or have any Investment in any Person, or make any commitment to make
such loan, advance or Investment, except:
(a) Stock of any Subsidiary created or acquired after the Closing Date
in accordance with the other provisions of this Agreement, including without
limitation, the provisions of Section 6.10 above, or with the prior written
consent of the Lender;
(b) Permitted Investment Securities; and
(c) loans otherwise permitted by the provisions of Section 7.1(g)
above.
7.8 ERISA COMPLIANCE.
(a) At any time engage in any "prohibited transaction" as defined in
ERISA; or permit any Plan to be terminated in a manner which could result in the
imposition of a Lien on any Property of the Borrower or any of its Subsidiaries
pursuant to ERISA.
(b) Engage in any transaction in connection with which the Borrower or
any Subsidiary thereof could be subject to either a material civil penalty
assessed pursuant to the provisions of Section 502 of ERISA or a material tax
imposed under the provisions of Section 4975 of the Code.
(c) Terminate any Plan in a "distress termination" under Section 4041
of ERISA, or take any other action which could result in a material liability of
the Borrower or any Subsidiary thereof to the PBGC.
(d) Fail to make payment when due of all amounts which, under the
provisions of any
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Plan, the Borrower or any Subsidiary thereof is required to
pay as contributions thereto, or, with respect to any Plan, permit to exist any
material "accumulated funding deficiency" (within the meaning of Section 302 of
ERISA and Section 412 of the Code), whether or not waived, with respect thereto.
(e) Adopt an amendment to any Plan requiring the provision of security
under Section 307 of ERISA or Section 401(a)(29) of the Code.
7.9 CREDIT EXTENSIONS. Extend credit other than (a) normal and prudent
extensions of credit to customers for goods and services in the ordinary course
of business and (b) loans otherwise permitted by the provisions of Sections
7.1(g) above.
7.10 CHANGE IN ACCOUNTING METHOD. Make or permit any change in accounting
method or financial reporting practices except as may be required by GAAP, as in
effect from time to time.
7.11 REDEMPTION, DIVIDENDS, DISTRIBUTIONS AND PAYMENTS. Except for
issuances of stock, redemptions and stock dividends required under Borrower's
shareholders rights plan in effect on the Closing Date, otherwise at any time:
(a) redeem, purchase, retire or otherwise acquire, directly or
indirectly, any shares of its Stock or set aside any amount for such purpose;
(b) declare or pay, directly or indirectly, (i) any dividend, except
dividends paid to the Borrower or any Guarantor which is a direct parent of the
Subsidiary paying a dividend, or (ii) any management or consulting fees, except
management or consulting fees paid to the Borrower or any Guarantor;
(c) make any other distribution of any Property, cash, securities or a
combination thereof, with respect to (whether by reduction of capital or
otherwise) any shares of its Stock, other than issuance or distribution of Stock
under any of the Borrower's employee stock option plans or employee stock
purchase plans; or
(d) redeem, purchase, defease or retire for value, or make any
principal payment on, any Subordinated Indebtedness, prior to the date of any
scheduled maturity, scheduled repayment or scheduled sinking fund payment
thereon.
7.12 CAPITAL EXPENDITURES. Permit the amount of payments made by the
Borrower and its Subsidiaries, on a Consolidated basis, for Capital
Expenditures, including those in respect of Capital Lease Obligations and
Indebtedness permitted under Section 7.1(c) above, to exceed $2,100,000 in the
aggregate for the period commencing on January 1, 1999 and ending on the
Maturity Date.
7.13 TANGIBLE NET WORTH. Permit the Tangible Net Worth of the Borrower and
its Subsidiaries, on a Consolidated basis, at any quarter end to be less than
$21,754,000. Additionally, such minimum level of Tangible Net Worth shall be
automatically increased by the aggregate amount, if any, of all equity added to
the consolidated balance sheet of the Borrower and its Subsidiaries after the
Closing Date as a result of the Borrower's issuance and sale of its Stock or the
permitted acquisition by the Borrower of the Stock or assets of any other
Person.
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7.14 SALE OF RECEIVABLES. Sell, assign, discount, transfer or otherwise
dispose of any Receivables, promissory notes, drafts or trade acceptances or
other rights to receive payment held by it, with or without recourse.
7.15 SALE AND LEASE-BACK TRANSACTIONS. Enter into any arrangement, directly
or indirectly, with any Person whereby the Borrower or any of its Subsidiaries
shall sell or transfer any Property, real or personal, which is used or useful
in its business, whether now owned or hereafter acquired, and thereafter rent or
lease such Property or other Property which the Borrower or such Subsidiary
intends to use for substantially the same purpose or purposes as the Property
being sold or transferred.
7.16 CHANGE OF NAME OR PLACE OF BUSINESS. Permit the Borrower or any of its
Subsidiaries to change its address, name, location of its chief executive office
or principal place of business or the place it keeps its books and records,
unless the Borrower has (a) notified the Lender of such change in writing at
least thirty (30) days before the effective date of such change, (b) taken such
action, reasonably satisfactory to the Lender, to have caused the Liens against
all Collateral in favor of the Lender to be at all times fully perfected and in
full force and effect and (c) delivered such certificates of Governmental
Authorities as the Lender may require substantiating such name change.
7.17 AVAILABILITY. Allow Availability to be less than zero at any time.
8. EVENTS OF DEFAULT AND REMEDIES.
8.1 EVENTS OF DEFAULT. If any of the following events shall occur and be
continuing, then the Lender may, with or without notice to the Borrower, take
any or all of the following actions at the same or different times: (1)
accelerate the Maturity Date and declare the Note, all Letter of Credit
Advances, the Commitment Fees and all other Obligations then outstanding to be,
and thereupon the Note, said Letter of Credit Advances, the Commitment Fees and
all other Obligations then outstanding shall forthwith become immediately due
and payable, without notice of acceleration, notice of intention to accelerate,
presentment and demand or protest, or other notice of any kind all of which are
hereby expressly WAIVED by the Borrower and each Guarantor; (2) terminate all or
any portion of the Commitment and any obligation to issue any additional Letters
of Credit; (3) demand that the Borrower and the Guarantors provide the Lender,
and the Borrower and the Guarantors jointly and severally agree upon such demand
to, provide cash collateral in an amount equal to the aggregate Letter of Credit
Exposure Amount then outstanding, on terms and pursuant to documents in
agreement and satisfactory in all respects to the Lender; and (4) exercise any
and all other rights pursuant to the Loan Documents:
(a) The Borrower shall fail to pay or prepay any principal of or
interest on the Note, any Application, the Commitment Fees or any other
Obligation hereunder as and when due and payable, whether at the due date
thereof (by acceleration, lapse of time or otherwise) or at any date fixed for
prepayment thereof in accordance with the other provisions of this Agreement; or
(b) The Borrower or any Guarantor (I) shall fail to pay at maturity,
or within any applicable period of grace, any other Indebtedness (excluding
Indebtedness outstanding hereunder and accounts payable created in the ordinary
course of business) in excess of $100,000 in principal
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amount unless such payment is being contested in good faith (by appropriate
proceedings) and adequate reserves have been provided therefor, or (ii) shall
default in any other manner with respect to any other Indebtedness (excluding
Indebtedness outstanding hereunder and accounts payable created in the ordinary
course of business) in excess of $100,000 in principal amount if the effect of
any such default or event of default shall be to accelerate or to permit the
holder of any such Indebtedness, at its option, to accelerate the maturity of
such Indebtedness prior to the stated maturity thereof; or
(c) Any representation or warranty made or deemed made in connection
with any Loan Document shall prove to have been incorrect, false or misleading
in any material respect when made or deemed to have been made; or
(d) Default shall occur in the punctual and complete performance or
observance of any covenant, condition or agreement to be observed or performed
on the part of the Borrower or any Guarantor pursuant to the terms of any
provision of this Agreement or any other Loan Document; or
(e) Final judgment or judgments (or any decree or decrees for the
payment of any fine or any penalty) for the payment of an uninsured money award
in excess of $50,000 in the aggregate shall be rendered against the Borrower or
any Guarantor, and the same shall remain undischarged for a period of thirty
(30) days during which execution shall not be effectively stayed or bonded; or
(f) Any order shall be entered in any proceeding against the Borrower
or any Guarantor decreeing the dissolution, liquidation or split-up thereof, and
such order shall remain in effect for thirty (30) days; or
(g) The Borrower or any Guarantor shall have concealed, removed, or
permitted to be concealed or removed, any part of its Property, with intent to
hinder, delay or defraud its creditors or any of them, or made or suffered a
transfer of any of its Property which may be fraudulent under any bankruptcy,
fraudulent conveyance or similar law; or shall have made any transfer of its
Property to or for the benefit of a creditor at a time when other creditors
similarly situated have not been paid; or
(h) A change shall occur in the financial condition, business affairs
or otherwise of the Borrower or any Guarantor, or in the value of the Collateral
given as security for the Obligations hereunder, which does, or would or could
reasonably be expected to, have a Material Adverse Effect; or
(i) Any of the following shall occur: (1) a Reportable Event shall
have occurred with respect to a Plan; (2) the filing by the Borrower, any ERISA
Affiliate, or an administrator of any Plan of a notice of intent to terminate
such Plan in a "distressed termination" under the provisions of Section 4041 of
ERISA; (3) the receipt of notice by the Borrower, any ERISA Affiliate or an
administrator of a Plan that the PBGC has instituted proceedings to terminate
(or appoint a trustee to administer) such a Plan; (4) any other event or
condition exists which might, in the opinion of the Lender, constitute grounds
under the provisions of Section 4042 of ERISA for the termination of or the
appointment of a trustee to administer any Plan by the PBGC; (5) a Plan shall
fail to maintain a minimum funding standard required by Section 412 of the Code
for any plan year or a waiver of
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standard is sought or granted under the provisions of Section 412(d) of the
Code; (6) the Borrower or any ERISA Affiliate has incurred, or is likely to
incur, a liability under the provisions of Section 4062, 4063, 4064 or 4201 of
ERISA; (7) the Borrower or any ERISA Affiliate fails to pay the full amount of
an installment required under Section 412(m) of the Code; or (8) the occurrence
of any other event or condition with respect to any Plan which would constitute
an event of default or default under any other agreement entered into by the
Borrower or any ERISA Affiliate; or
(j) One or more notices of Liens arising from unpaid federal, state or
local taxes exceeding $50,000 in the aggregate shall be filed against any of the
Properties or assets of the Borrower or any Guarantor, provided, however, that a
reserve against the Borrowing Base will be established in an amount equal to the
amount of any and all federal, state or local taxes less than such $50,000
aggregate threshold which are claimed to be owing by the Borrower under any such
notices of Liens; or
(k) This Agreement, the Note, any of the Security Documents or any
other Loan Documents shall for any reason cease to be, or shall be asserted by
the Borrower or any Guarantor, not to be, a legal, valid and binding obligation
of the Borrower or such Guarantor, as applicable, enforceable in accordance with
its terms, or the Lien purported to be created by any of the Security Documents
shall for any reason cease to be, or be asserted by the Borrower not to be, a
valid, first priority perfected Lien against any Collateral (except to the
extent otherwise permitted under this Agreement or any of the Security
Documents); or
(l) The Borrower fails to perform and observe, and/or cause to be
performed and observed, all material covenants, provisions and conditions to be
performed, discharged and observed by the Borrower under the terms of the
Lockbox Agreement.
In addition, if any of the following events shall occur, then the Note, the
Letter of Credit Advances, the Commitment Fees and all other Obligations then
outstanding and payable hereunder shall automatically, without demand,
presentment, protest, notice of intent to accelerate, notice of acceleration or
other notice to any Person of any kind, all of which are hereby expressly WAIVED
by the Borrower and the Guarantors, become immediately due and payable and the
Commitment and further obligation to issue any additional Letters of Credit
shall be immediately and automatically terminated:
(m) The Borrower or any Guarantor shall make a general assignment for
the benefit of creditors or shall petition or apply to any tribunal for the
appointment of a trustee, custodian, receiver or liquidator of all or any
substantial part of its business, estate or assets or shall commence any
proceeding under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction,
whether now or hereafter in effect; or
(n) Any such petition or application shall be filed or any such
proceeding shall be commenced against the Borrower or any Guarantor, and the
Borrower or such Guarantor, by any act or omission shall indicate approval
thereof, consent thereto or acquiescence therein, or an order shall be entered
appointing a trustee, custodian, receiver or liquidator of all or any
substantial part of the assets of the Borrower or any Guarantor, or granting
relief to the Borrower or any Guarantor, or approving the petition in any such
proceeding, and such order shall remain in effect for more
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than thirty (30) days; or
(o) The Borrower or any Guarantor shall admit in writing its inability
to pay its debts as they become due or fail generally to pay its debts as they
become due; or
(p) The Borrower or any Guarantor shall suffer any writ of attachment
or execution or any similar process to be issued or levied against it or any
substantial part of its Property which is not released, stayed, bonded or
vacated within thirty (30) days after its issue or levy.
Notwithstanding any provision to the contrary contained in this Section 8.1 or
any other provision in this Agreement or any other Loan Document, the occurrence
of any of the above-described Events of Default set forth in this Section 8.1
(in the case of any and all such Events of Default other than any Automatic
Default) shall not entitle the Lender to exercise any rights or remedies
available under this Agreement, any other Loan Document or applicable law unless
and until any such Event of Default (in the case of any and all Events of
Default other than any Automatic Default) shall be continuing for more than
thirty (30) days after the occurrence of such Event of Default. Additionally,
notwithstanding any provision to the contrary contained in the preceding
sentence, in any other provision in this Agreement or in any other Loan
Document, the occurrence of any of the above-described Events of Default set
forth in this Section 8.1 (including any Automatic Default) shall not entitle
the Lender to seek the appointment of a receiver or custodian for the Borrower
or its operations or make any claims against or for any Receivables of the
Borrower in accordance with the other provisions of this Agreement, any other
Loan Document or applicable law unless and until (1) any such Event of Default
which does not constitute an Automatic Default shall be continuing for more than
thirty-five (35) days after the occurrence of such Event of Default or (2) any
such Event of Default which constitutes an Automatic Default shall be continuing
for more than five (5) days after the occurrence of such Event of Default. For
purposes hereof, an "Automatic Default" means any event of the type which is
specified in subparagraphs (a), (b), (c), (e), (f), (g), (k), (l), (m), (n), (o)
or (p) above. Except as otherwise specifically provided for in the second
sentence of this paragraph, each Automatic Default shall entitle the Lender to
immediately exercise any and all remedies provided for in this Agreement, under
any other Loan Document or under applicable law without requiring the requisite
thirty (30) days to lapse prior to the Lender exercising any and all such
available remedies.
8.2 REMEDIES CUMULATIVE. No remedy, right or power conferred upon the
Lender is intended to be exclusive of any other remedy, right or power given
hereunder or now or hereafter existing at law, in equity, or otherwise, and all
such remedies, rights and powers shall be cumulative.
9. MISCELLANEOUS.
9.1 NO WAIVER. No waiver of any Default or Event of Default shall be deemed
to be a waiver of any other Default or Event of Default. No failure to exercise
and no delay on the part of the Lender in exercising any right or power under
any Loan Document or at law or in equity shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or the
abandonment or discontinuance of steps to enforce any such right or power,
preclude any further or
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other exercise thereof or the exercise of any other right or power. No course of
dealing between the Borrower and the Lender shall operate as a waiver of any
right or power of the Lender. No notice to or demand on the Borrower or any
other Person shall entitle the Borrower or any other Person to any other or
further notice or demand in similar or other circumstances.
9.2 NOTICES. All notices under the Loan Documents shall be in writing and
either (i) delivered against receipt therefor, (ii) mailed by registered or
certified mail, return receipt requested, or (iii) sent by telex, telecopy
(promptly confirmed by mail, except for any notice pursuant to Section 4. l(a)
hereof which need not be confirmed by mail) or telegram, in each case to the
intended recipient at the "Address for Notices" specified below its name on the
signature pages hereof; or, as to the Lender, at such other address as shall be
designated by the Lender in a notice to the Borrower given in accordance with
this Section 9.2 or to such other address as a party may designate. The Borrower
may change its address for purposes hereof by providing written notice of such
address change to the Lender in accordance with the provisions of this Section
9.2, with any such change in address only being effective ten (10) Business Days
after such change of address has been deemed given in accordance with the
provisions hereof. Notices shall be deemed to have been given (whether actually
received or not) when delivered (or, if mailed, on the next Business Day after
deposit of such notice into the mail); however, the notices required or
permitted by Sections 2.2(a) and 4.1(a) hereof shall be effective only when
actually received by the Lender.
9.3 GOVERNING LAW. UNLESS OTHERWISE SPECIFIED THEREIN, EACH LOAN DOCUMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS AND THE UNITED STATES OF AMERICA.
9.4 SURVIVAL: PARTIES BOUND. All representations, warranties, covenants and
agreements made by or on behalf of the Borrower in connection herewith shall
survive the execution and delivery of the Loan Documents, shall not be affected
by any investigation made by any Person, and shall bind the Borrower and its
successors, trustees, receivers and assigns and inure to the benefit of the
successors and assigns of the Lender, provided that the undertaking of the
Lender hereunder to make Loans to the Borrower and to issue Letters of Credit
for the account of the Borrower shall not inure to the benefit of any successor
or assign of the Borrower. The term of this Agreement shall be until the final
maturity of the Note and the payment of all amounts due under the Loan
Documents.
9.5 COUNTERPARTS. This Agreement may be executed in several identical
counterparts, and by the parties hereto on separate counterparts, and each
counterpart, when so executed and delivered, shall constitute an original
instrument, and all such separate counterparts shall constitute but one and the
same instrument.
9.6 SURVIVAL. The obligations of the Borrower under Sections 2.3, 2.4(b),
2.9, 2.10(f), 9.8, 9.9, and 9.16 hereof shall survive the repayment of the
Loans, the termination of the Commitment, and the cancellation or expiration of
the Letters of Credit.
9.7 CAPTIONS. The headings and captions appearing in the Loan Documents
have been included solely for convenience and shall not be considered in
construing the Loan Documents.
9.8 EXPENSES, ETC. Whether or not any Loan is ever made or any Letter of
Credit ever
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issued, the Borrower agrees to pay or reimburse the Lender on demand for the
following: (a) the fees and expenses of Locke Liddell & Sapp LLP, counsel to the
Lender, or any other legal counsel engaged by the Lender, in connection with (i)
the preparation, execution and delivery of this Agreement (including the
exhibits and schedules hereto) and the Loan Documents and the making of the
Loans and the issuance of Letters of Credit hereunder and (ii) any modification,
supplement or waiver of any of the terms of this Agreement, the Letters of
Credit or any other Loan Document; (b) all out-of-pocket costs and expenses
(including attorneys' fees) of the Lender in connection with the enforcement of
this Agreement, the Letters of Credit or any other Loan Documents; (c) all
transfer, stamp, documentary or other similar taxes, assessments or charges
levied by any governmental or revenue authority in respect of this Agreement,
any Letter of Credit or any other Loan Document or any other document referred
to herein or therein; (d) all out-of-pocket costs, expenses, taxes, assessments
and other charges incurred in connection with any filing, registration,
recording or perfection of any security interest contemplated by this Agreement,
any other Loan Document or any document referred to herein or therein; and (e)
expenses of the Lender's field examination described in Section 4.2(i) above
incurred prior to or as of the Closing Date.
9.9 INDEMNIFICATION. THE BORROWER AGREES TO INDEMNIFY THE LENDER AND ITS
DIRECTORS, OFFICERS, EMPLOYEES, COUNSEL AND AGENTS FROM, AND HOLD EACH OF THEM
HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES (INCLUDING ENVIRONMENTAL
LIABILITIES), CLAIMS (INCLUDING ENVIRONMENTAL CLAIMS) OR DAMAGES TO WHICH ANY OF
THEM MAY BECOME SUBJECT, INSOFAR AS SUCH LOSSES, LIABILITIES, CLAIMS OR DAMAGES
ARISE OUT OF OR RESULT FROM ANY (a) ACTUAL OR PROPOSED USE BY THE BORROWER OF
THE PROCEEDS OF ANY EXTENSION OF CREDIT (WHETHER A LOAN OR A LETTER OF CREDIT)
BY THE LENDER HEREUNDER, (b) BREACH BY THE BORROWER OF THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, (c) VIOLATION BY THE BORROWER OR ANY OF ITS SUBSIDIARIES OF
ANY LAW, RULE, REGULATION OR ORDER INCLUDING ANY REQUIREMENTS OF ENVIRONMENTAL
LAW, (d) LIENS OR SECURITY INTERESTS GRANTED ON ANY PROPERTY PURSUANT TO OR
UNDER THE LOAN DOCUMENTS, TO THE EXTENT RESULTING FROM ANY HAZARDOUS SUBSTANCE
LOCATED IN, ON OR UNDER ANY SUCH PROPERTY, (e) OWNERSHIP BY THE LENDER OF ANY
PROPERTY FOLLOWING FORECLOSURE UNDER THE LOAN DOCUMENTS, TO THE EXTENT SUCH
LOSSES, LIABILITIES, CLAIMS OR DAMAGES ARISE OUT OF OR RESULT FROM ANY HAZARDOUS
SUBSTANCE, LOCATED IN, ON OR UNDER SUCH PROPERTY PRIOR TO OR AT THE TIME OF SUCH
FORECLOSURE, INCLUDING LOSSES, LIABILITIES, CLAIMS OR DAMAGES WHICH ARE IMPOSED
UPON PERSONS UNDER LAWS RELATING TO OR REGULATING HAZARDOUS SUBSTANCES, SOLELY
BY VIRTUE OF OWNERSHIP, (f) THE LENDER BEING DEEMED AN OPERATOR OF ANY SUCH
PROPERTY BY A COURT OR OTHER REGULATORY OR ADMINISTRATIVE AGENCY OR TRIBUNAL OR
OTHER THIRD PARTY, TO THE EXTENT SUCH LOSSES, LIABILITIES, CLAIMS OR DAMAGES
ARISE OUT OF OR RESULT FROM ANY HAZARDOUS SUBSTANCE, PETROLEUM, PETROLEUM
PRODUCT OR PETROLEUM WASTE LOCATED IN ON OR UNDER SUCH PROPERTY AT OR PRIOR TO
THE OF ANY FORECLOSURE THEREON UNDER THE LOAN DOCUMENT, OR (g) INVESTIGATION,
LITIGATION OR OTHER PROCEEDING (INCLUDING ANY THREATENED INVESTIGATION OR
PROCEEDING) RELATING TO ANY OF THE FOREGOING, AND THE BORROWER AGREES TO
REIMBURSE THE LENDER AND ITS DIRECTORS, OFFICERS, EMPLOYEES, COUNSEL AND AGENTS,
UPON DEMAND FOR ANY REASONABLE EXPENSES (INCLUDING LEGAL FEES) INCURRED IN
CONNECTION WITH ANY SUCH INVESTIGATION OR PROCEEDING, AND WHETHER ANY SUCH LOSS,
LIABILITY, CLAIM OR DAMAGE RESULTS FROM THE NEGLIGENCE OF ANY SUCH INDEMNIFIED
PERSON; BUT EXCLUDING ANY SUCH LOSSES, LIABILITIES, CLAIMS, DAMAGES OR EXPENSES
INCURRED BY A PERSON OR ANY AFFILIATE THEREOF OR THEIR RESPECTIVE DIRECTORS,
OFFICERS, EMPLOYEES, COUNSEL OR AGENTS BY REASON OF (i) THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF SUCH PERSON, AFFILIATE, DIRECTOR, OFFICER, EMPLOYEE OR
LENDER OR (ii) OWNERSHIP OR
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OPERATION OF ANY PROPERTY BY THE LENDER FOLLOWING FORECLOSURE UNDER THE LOAN
DOCUMENTS IF SUCH LOSSES, LIABILITIES, ETC. ARE ATTRIBUTABLE SOLELY TO THE
POST-FORECLOSURE ACTIONS OF THE LENDER. PROMPTLY AFTER RECEIPT BY AN INDEMNIFIED
PERSON OF NOTICE OF ANY CLAIM OR THE COMMENCEMENT OF ANY ACTION, SUCH
INDEMNIFIED PERSON SHALL, IF ANY CLAIM IN RESPECT THEREOF IS TO BE MADE AGAINST
THE BORROWER UNDER THIS SECTION 9.9, NOTIFY THE BORROWER IN WRITING OF THE CLAIM
OR THE COMMENCEMENT OF THAT ACTION. THE BORROWER SHALL NOT BE LIABLE FOR ANY
SETTLEMENT OF ANY SUCH CLAIM OR ACTION INVOLVING THE PAYMENT OF MONETARY DAMAGES
EFFECTED WITHOUT ITS WRITTEN CONSENT, NOT TO BE UNREASONABLY WITHHELD. IF ANY
SUCH CLAIM OR ACTION SHALL BE BROUGHT AGAINST AN INDEMNIFIED PERSON, IT SHALL
NOTIFY THE BORROWER THEREOF, AND THE BORROWER SHALL BE ENTITLED TO PARTICIPATE
IN THE JOINT DEFENSE THEREOF.
9.10 AMENDMENTS, WAIVERS, ETC. No amendment, modification or waiver of any
provision of this Agreement, the Note, or any other Loan Document, nor any
consent to any departure by the Borrower therefrom, shall in any event be
effective unless the same shall be agreed or consented to in writing by the
Lender and the Borrower, if any, and each such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
9.11 SUCCESSORS AND ASSIGNS.
(a) This Agreement shall be binding upon and inure to the benefit of
the Borrower, the Lender, and their respective successors and permitted assigns.
The Borrower may not assign or transfer any of its rights or obligations
hereunder without the prior written consent of the Lender.
(b) The Lender may sell participations to any Person in all or part of
any Loan, or all or part of the Note, the Letter of Credit Exposure Amount, or
the Commitment, to another bank or other entity, in which event, without
limiting the foregoing, the provisions of Sections 9.9, 9.15, and 9.18 shall
inure to the benefit of each purchaser of a participation. In the event the
Lender shall sell any participation, (i) the Borrower shall continue to deal
solely and directly with the Lender in connection with the Lender's rights and
obligations under the Loan Documents (including the Note), (ii) the Lender shall
retain the sole right and responsibility to enforce the obligations of the
Borrower relating to the Loans and Letter of Credit Exposure Amount, including
the right to approve any amendment, modification or waiver of any provision of
this Agreement other than (and then only if expressly permitted by the
applicable participation agreement) amendments, modifications or waivers with
respect to (A) any fees payable hereunder to the Lender and (B) the amount of
principal or the rate of interest payable on, or the dates fixed for the
scheduled repayment of principal of, the Loans and other sums to be paid to the
Lender hereunder, and (iii) the Borrower agree, to the fullest extent they may
effectively do so under applicable law, that any participant of the Lender may
exercise all rights of setoff, bankers' lien, counterclaim, or similar rights
with respect to such participation as fully as if such participant were a direct
holder of Loans if the Lender has previously given notice of such participation
to the Borrower.
(c) The Lender reserves the right to assign portions of the Loans and
Commitment to other lenders who will become parties to this Agreement and the
other Loan Documents (with a corresponding reduction in Lender's share of the
total Loans and Commitment). Borrower shall execute any and all documents
(including, without limitation, a replacement promissory note) reasonably
required to effectuate any such assignment so long as Borrower's rights and
obligations
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under the Loan Documents are not materially adversely affected.
(d) The Lender may, in connection with any participation or proposed
participation or assignment pursuant to this Section 9.11, disclose to the
participant or proposed participant or assignee any information relating to the
Borrower furnished to the Lender by or on behalf of the Borrower; provided,
however, that as a condition to any such disclosure of information relating to
the Borrower, the Lender shall require such proposed participant or assignee to
agree in writing to keep confidential all information with respect to the
Borrower furnished to it by the Lender in connection with any proposed
assignment or participation (other than information generally available to the
public or otherwise available to the Lender on a non-confidential basis).
(e) Notwithstanding anything herein to the contrary, the Lender may
pledge and assign all or any portion of its rights and interests under the Loan
Documents to any Federal Reserve Bank.
9.12 ENTIRE AGREEMENT. This Agreement and the other Loan Documents embody
the entire agreement and understanding among the Borrower and the Lender
relating to the subject matter hereof and supersedes all prior proposals,
agreements and understandings relating to the subject matter hereof. Any
conflict between the provisions of this Agreement and the provisions of any
other Loan Documents shall be governed by the provisions of this Agreement. The
Borrower certifies that it is relying on no representation, warranty, covenant
or agreement except for those set forth in this Agreement and the other Loan
Documents of even date herewith.
9.13 SEVERABILITY. If any provision of any Loan Documents shall be invalid,
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions shall not be affected or
impaired thereby.
9.14 DISCLOSURES. Every reference in the Loan Documents to disclosures of
the Borrower to the Lender in writing, to the extent that such references refer
to disclosures at or prior to the execution of this Agreement, shall be deemed
strictly to refer only to written disclosures delivered to the Lender in an
orderly manner prior to or concurrently with the execution hereof.
9.15 CAPITAL ADEQUACY.
(a) If after the date of this Agreement, the Lender shall have
determined that the adoption or effectiveness (regardless of whether previously
announced) of any applicable Legal Requirement or treaty regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any Governmental Authority or comparable agency
charged with the interpretation or administration thereof, or compliance by the
Lender with any request or directive regarding capital adequacy (whether or not
having the force of law) of any such Governmental Authority, has or would have
the effect of increasing the cost of, or reducing the rate of return on the
capital of the Lender (or any holding company of which the Lender is a part) as
a consequence of its obligations hereunder or under any Letter of Credit or the
Note to a level below that which the Lender or holding company could have
achieved but for such adoption, change or compliance by an amount deemed by the
Lender to be material, then from the to time, upon demand by the Lender (with a
copy to the Lender), the Borrower agrees to pay to the Lender such additional
amount or amounts as will compensate the Lender or holding company for such
reduction.
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(b) The certificate of the Lender setting forth such amount or amounts
as shall be necessary to compensate the Lender or its holding company as
specified in Subsection 9.15(a) above (and setting forth the calculation thereof
in reasonable detail) shall be conclusive and binding, absent manifest error.
The Borrower shall pay the Lender the amount shown as due on any such
certificate within five days after the Lender delivers such certificate. In
preparing such certificate, the Lender may employ such assumptions and
allocations of costs and expenses as it shall in good faith deem reasonable and
may use any reasonable averaging and attribution method.
9.16 TAXES.
(a) As used in this Section 9.16, the following terms shall have the
following meanings:
(i) "INDEMNIFIABLE TAX" means any Tax, but excluding, in any
case, any Tax that (a) would not be imposed in respect of a payment to a holder
of the Note under this Agreement, under the Note held by such holder or under
any of the other Loan Documents except for a present or former connection
between the jurisdiction of the Governmental Authority imposing such Tax and
such holder (or a shareholder or other Person with an interest in such holder),
including a connection arising from such holder's (or shareholder of such holder
or such other Person) being or having been a citizen or resident of such
jurisdiction, or being or having been organized, present or engaged in a trade
or business in such jurisdiction, or having or having had a permanent
establishment or fixed place of business in such jurisdiction, but excluding a
connection arising solely from such holder having executed, delivered, performed
its obligations or received a payment under, or enforced, this Agreement, the
Note held by such holder or any other Loan Documents, or (b) is imposed under
United States federal income tax law or any state income tax law.
(ii) "TAX" means any present or future tax, levy, impost,
duty, charge, assessment or fee of any nature (including interest thereon and
penalties and additions thereto) that is imposed by any Governmental Authority
in respect of a payment to a holder of the Note under this Agreement, under the
Note or under any of the other Loan Documents.
(b) If the Borrower is required by any applicable Legal Requirement to
make any deduction or withholding for or on account of any Tax from any payment
to be made by it under this Agreement, under the Note or under any other Loan
Documents, then the Borrower shall (i) promptly notify the holder of the Note
that is entitled to such payment of such requirement to so deduct or withhold
such Tax, (ii) pay to the relevant authorities the full amount required to be so
deducted or withheld, (iii) promptly forward to such holder an official receipt
(or certified copies thereof), or other documentation reasonably acceptable to
such holder, evidencing such payment to such Governmental Authorities and (iv)
if such Tax is an Indemnifiable Tax, pay, to the extent permitted by law to such
holder, in addition to whatever net amount of such payment is paid to such
holder, such additional amount as is necessary to ensure that the total amount
actually received by such holder (free and clear of Indemnifiable Tax) will
equal the full amount of the payment such holder would have received had no such
deduction or withholding been required. If the Borrower pays any additional
amount to a holder pursuant to the preceding sentence and such holder shall
receive a refund of an Indemnifiable Tax with respect to which, in the good
faith opinion of such holder, such payment was made, such holder shall pay to
the Borrower the amount of such refund
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promptly upon receipt thereof.
(c) In the event that any Governmental Authority notifies the Borrower
that it has improperly failed to withhold or deduct any Tax from a payment
received by any holder of the Note under this Agreement, under the Note held by
such holder or under any other Loan Documents, the Borrower agrees to timely and
fully pay such Tax to such Governmental Authority and such holder shall, upon
receipt of written notice of such payment, immediately pay to the Borrower, an
amount necessary in order that the amount of such payment to the Borrower after
payment of all Taxes with respect to such payment, shall equal the amount that
the Borrower paid to such Governmental Authority pursuant to this clause (c).
(d) The holder of the Note shall, upon request by the Borrower, take
requested measures to mitigate the amount of Indemnifiable Tax required to be
deducted or withheld from any payment made by the Borrower under this Agreement,
under the Note or under any other Loan Documents if such measures can, in the
sole and absolute opinion of such holder, be taken without such holder suffering
any economic, legal, regulatory or other disadvantage (provided, however, that
no such holder shall be required to designate a funding office that is not
located in the United States of America).
(e) Notwithstanding the foregoing, in no event shall the amount
payable under this Section 9.16 (to the extent, if any, constituting interest
under applicable laws) together with all amounts constituting interest under
applicable laws and payable in connection with this Agreement or the Note,
exceed the Highest Lawful Rate or the maximum amount of interest permitted to be
charged by applicable laws.
9.17 RELEASE OF CLAIMS. BORROWER HEREBY RELEASES, DISCHARGES, AND ACQUITS
FOREVER LENDER AND ITS OFFICERS, DIRECTORS, AGENTS, EMPLOYEES, AND COUNSEL FROM
ANY AND ALL CLAIMS EXISTING AS OF THE DATE HEREOF. AS USED IN THIS PARAGRAPH,
THE TERM "CLAIM" SHALL MEAN ANY AND ALL LIABILITIES, CLAIMS, DEFENSES, DEMANDS,
ACTIONS, CAUSES OF ACTION, JUDGMENTS, DEFICIENCIES, INTEREST, LIENS, COSTS OR
EXPENSES (INCLUDING BUT NOT LIMITED TO COURT COSTS, PENALTIES, ATTORNEYS' FEES
AND DISBURSEMENTS, AND AMOUNTS PAID IN SETTLEMENT) OF ANY KIND AND CHARACTER
WHATSOEVER, AT LAW OR IN EQUITY, INCLUDING BUT NOT LIMITED TO CLAIMS FOR USURY,
BREACH OF CONTRACT, BREACH OF COMMITMENT OR FAILURE TO ACT IN GOOD FAITH, IN
EACH CASE WHETHER NOW KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED, ASSERTED OR
UNASSERTED OR PRIMARY OR CONTINGENT, AND WHETHER ARISING OUT OF WRITTEN
DOCUMENTS, UNWRITTEN UNDERTAKINGS, COURSE OF CONDUCT, TORT, VIOLATION OF LAWS OR
REGULATIONS OR OTHERWISE. THIS RELEASE SHALL BE BINDING UPON THE BORROWER AND
ITS SUCCESSORS AND ASSIGNS, AND SHALL INCLUDE AND RUN IN FAVOR OF THE LENDER,
ITS SUCCESSORS AND ASSIGNS, DIRECTORS, OFFICERS, TRUSTEES, AGENTS, SERVANTS,
EMPLOYEES AND ATTORNEYS, PAST AND PRESENT.
9.18 RIGHT OF SETOFF. The Lender is hereby authorized at any the and from
time to time, without notice to the Borrower or any of the Guarantors (any such
notice being expressly waived by
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the Borrower and by the Guarantors by their execution of a Guaranty or a Joinder
Agreement), to setoff and apply any and all deposits (general or special, time
or demand, provisional or final, whether or not such setoff results in any loss
of interest or other penalty, and including without limitation all certificates
of deposit) at any time held, and any other funds or property at any time held,
and other Indebtedness at any time owing by the Lender to or for the credit or
the account of the Borrower or any such Guarantor against any and all of the
Indebtedness arising in connection with this Agreement irrespective of whether
or not the Lender shall have made any demand under this Agreement, the Note, or
any other Loan Document. The Borrower and each of the Guarantors (by their
execution of a Guaranty) also hereby grants to the Lender a security interest in
and hereby transfers, assigns, sets over, and conveys to the Lender, as security
for payment of all Loans and Letter of Credit Exposure Amount, all such
deposits, funds or property of the Borrower or any such Guarantor or
Indebtedness of the Lender to the Borrower or any such Guarantor. Should the
right of the Lender to realize funds in any manner set forth hereinabove be
challenged and any application of such funds be reversed, whether by court order
or otherwise, the Lender shall make restitution or refund to the Borrower or
such Guarantor, as applicable. The Lender agrees to promptly notify the Borrower
after any such setoff and application, provided that the failure to give such
notice will not affect the validity of such setoff and application. The rights
of the Lender under this Section are in addition to other rights and remedies
(including without limitation other rights of setoff) which the Lender may have.
9.19 ADDITIONAL PROVISIONS REGARDING COLLECTION OF RECEIVABLES: CONTROL
INVENTORY AND OTHER COLLATERAL.
(a) The Borrower hereby designates and constitutes the Lender or the
Lender's designee as the Borrower's attorney-in-fact with power to do each of
the following: (i) to endorse the Borrower's name upon any notes, acceptances,
checks, drafts, money orders or other evidence of payment of any Receivables or
any other Collateral that may come into its possession; (ii) to sign or endorse
the Borrower's name on any invoice, bill of lading or other title or ownership
documents relating to any Receivables or inventory, drafts against any customers
of the Borrower, assignments and verifications of Receivables and notices to
customers of such Borrower; (iii) to send verifications of Receivables; (iv) to
notify the U.S. Postal Service authorities to change the address for delivery of
mail addressed to the Borrower to such address as the Lender may designate at
any time after the occurrence of any Event of Default which has not been waived
in writing by the Lender or cured to the satisfaction of the Lender; (v) to
exercise any of the Borrower's rights and privileges under any and all of the
Borrower's manufacturing service agreements with any customer of the Borrower
after the occurrence of any Event of Default which is then continuing; and (vi)
to do all other acts and things necessary to carry out this Agreement. All acts
of said attorney or designee are hereby ratified and approved by the Borrower,
and said attorneys or designee shall not be liable for any acts of omission or
commission, for any error of judgment or for any mistake of fact or law,
provided that the Lender or its designee shall not be relieved of liability to
the extent it is determined by a final judicial decision that its act, error or
mistake constituted gross negligence or willful misconduct. The power of
attorney granted under this subparagraph is coupled with an interest and is
irrevocable until all of the Obligations are paid in full and this Agreement and
the Commitment is terminated.
(b) The Lender, without notice to or consent of the Borrower, at any
time after the
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occurrence of an Event of Default which is then continuing, (i) may sue upon,
extend the time of payment of, or compromise or settle for cash, credit or
otherwise upon any terms, any of the Receivables or any instruments or insurance
applicable thereto and/or release any account debtor thereon; (ii) is authorized
and empowered to accept or direct shipments of inventory and accept the return
of the goods represented by any of the Receivables; and (iii) shall have the
right to receive, endorse, assign and/or deliver in its name or the name of the
Borrower any and all checks, drafts and other instruments for the payment of
money relating to the Receivables, and the Borrower hereby waives notice of
presentment, protest and non-payment of any instrument so endorsed.
(c) Nothing herein contained shall be construed to constitute the
Borrower as agent of the Lender for any purpose whatsoever, and the Lender shall
not be responsible or liable for any shortage, discrepancy, damage, loss or
destruction of any part of the Collateral wherever the same may be located and
regardless of the cause thereof (except to the extent it is determined by a
final judicial decision that the Lender's act or omission constituted gross
negligence of willful conduct). The Lender shall not, under any circumstances or
in any event whatsoever, have any liability for any error or omission or delay
of any kind occurring in the settlement, collection or payment of any of the
Receivables or any instrument received in payment thereof or for any damage
resulting therefrom (except to the extent it is determined by a final judicial
decision that the Lender's error, omission or delay constituted gross negligence
or willful misconduct). The Lender does not, by anything herein or in any
assignment or otherwise, assume any of the Borrower's obligations under any
contract or agreement assigned to the Lender, and the Lender shall not be
responsible in any way for the performance by the Borrower of any of the terms
and conditions thereof.
(d) Upon the occurrence and during the continuation of any Event of
Default: (i) if any of the Receivables includes a charge for any tax payable to
any governmental tax authority, the Lender is hereby authorized (but in no event
obligated) in its discretion to pay the amount thereof to the proper taxing
authority for, the account of the Borrower and to charge the Borrower's account
therefor; and (ii) the Borrower shall notify the Lender if any Receivables
include any tax due to any such taxing authority and, in the absence of such
notice, the Lender shall have the right to retain the full proceeds of such
Receivables and shall not be liable for any taxes that may be due from the
Borrower by reason of the sale and delivery creating such Receivables.
(e) Upon the occurrence and continuation of any Event of Default, the
Lender may at any time and from time to time employ and maintain in the premises
of the Borrower a custodian selected by the Lender who shall have full authority
to do all acts necessary to protect the Lenders' interests and to report to the
Lender thereon. The Borrower hereby agrees to cooperate with any such custodian
and to do so whatever the Lender may reasonably request to preserve the
Collateral. All costs and expenses incurred by the Lender by reason of the
employment of the custodian shall be charged to the Borrower's account and added
to the Obligations.
9.20 LIMITATION OF INTEREST. The Borrower and the Lender intend to strictly
comply with all applicable laws, including applicable usury laws. Accordingly,
the provisions of this Section 9.20 shall govern and control over every other
provision of this Agreement or any other Loan Document which conflicts or is
inconsistent with this Section, even if such provision declares that it
controls. As used in this Section, the term "interest" includes the aggregate of
all charges, fees, benefits or other compensation which constitute interest
under applicable law, PROVIDED that, to
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the maximum extent permitted by applicable law, (a) any non-principal payment
shall be characterized as an expense or as compensation for something other than
the use, forbearance or detention of money and not as interest, and (b) all
interest at any time contracted for, reserved, charged or received shall be
amortized, prorated, allocated and spread, in equal parts during the full term
of the Loans and the Commitment. In no event shall the Borrower or any other
Person be obligated to pay, or the Lender have any right or privilege to
reserve, receive or retain, (Y) any interest in excess of the maximum amount of
nonusurious interest permitted under the laws of the State of Texas or the
applicable laws (if any) of the United States or of any other state, or (Z)
total interest in excess of the amount which the Lender could lawfully have
contracted for, reserved, received, retained or charged had the interest been
calculated for the full term of the Loans at the Highest Lawful Rate. On each
day, if any, that the Stated Rate or such other rate, respectively, or any rate
called for under any other Loan Document exceeds the Highest Lawful Rate, the
rate at which interest shall accrue shall automatically be fixed by operation of
this sentence at the Highest Lawful Rate for that day, and shall remain fixed at
the Highest Lawful Rate for each day thereafter until the total amount of
interest accrued equals the total amount of interest which would have accrued if
there were no such ceiling rate as is imposed by this sentence. Thereafter,
interest shall accrue at the Stated Rate or such other rate, respectively,
unless and until the Stated Rate or such other rate again exceeds the Highest
Lawful Rate when the provisions of the immediately preceding sentence shall
again automatically operate to limit the interest accrual rate. The daily
interest rates to be used in calculating interest at the Highest Lawful Rate
shall be determined by dividing the applicable Highest Lawful Rate per annum by
the number of days in the calendar year for which such calculation is being
made. None of the terms and provisions contained in this Agreement or in any
other Loan Document which directly or indirectly relate to interest shall ever
be construed without reference to this Section 9.20, or be construed to create a
contract to pay for the use, forbearance or detention of money at an interest
rate in excess of the Highest Lawful Rate. If the term of any Loans or the Note
is shortened by reason of acceleration of maturity as a result of any Default or
by any other cause, or by reason of any required or permitted prepayment, and if
for that (or any other) reason the Lender at any time, including the stated
maturity, is owed or receives (and/or has received) interest in excess of
interest calculated at the Highest Lawful Rate, then and in any such event all
of any such excess interest shall be canceled automatically as of the date of
such acceleration, prepayment or other event which produces the excess, and, if
such excess interest has been paid to such Lender, it shall be credited pro
tanto against the then-outstanding principal balance of the Borrower's
obligations to the Lender, effective as of the date or dates when the event
occurs which causes it to be excess interest, until such excess is exhausted or
all of such principal has been fully paid and satisfied, whichever occurs first,
and any remaining balance of such excess shall be promptly refunded to its
payor.
9.21 JOINT AND SEVERAL OBLIGATIONS. Notwithstanding anything to the
contrary contained herein or in any other Loan Documents, the Borrower and the
Guarantors are jointly and severally responsible for their respective
agreements, covenants, representations, warranties and obligations contained and
set forth in this Agreement or in any other Loan Document to which they are a
party.
9.22 REPLACEMENT OF EXISTING CREDIT FACILITY. Effective as of the Closing
Date, this Agreement, together with the Loan Documents, supersedes and replaces
the Credit Facility evidenced by that certain Amendment and Restatement of
Credit Agreement dated effective June 25, 1998, executed by and between the
Lender and the Borrower, as amended by that certain First
62
<PAGE> 64
Amendment to Credit Agreement dated effective September 24, 1998, executed by
and between the Lender and the Borrower.
[THE REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY]
63
<PAGE> 65
THIS CREDIT AGREEMENT, TOGETHER WITH ALL OTHER LOAN DOCUMENTS (AS DEFINED
HEREIN) CONSTITUTE A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES TO IT AND 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
XETEL CORPORATION,
a Delaware corporation
By:
----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Address for Notices:
2105 Gracy Farms Lane
Austin, Texas 78758
Attention: Chief Financial Officer
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
a national banking association
By:
----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Addresses for Notices:
712 Main, 24 CBBE 74
Houston, Texas 77002
Attention: Mr. Bruce Shilcutt
Domestic Lending Office:
712 Main
Houston, Texas 77002
64
<PAGE> 66
Austin, Texas
$20,000,000.00 August 2, 1999
FOR VALUE RECEIVED, XETEL CORPORATION, a Delaware corporation ( herein
called "Borrower"), promises to pay to the order of CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION, a national banking association (herein called "Payee"), at
its banking office located at 700 Lavaca, Austin, Texas, 78701, or at such other
place as Payee may hereafter designate in writing, in immediately available
funds and in lawful money of the United States of America, the principal sum of
TWENTY MILLION DOLLARS ($20,000,000.00) (or the unpaid balance of all principal
advanced against this note, if that amount is less), together with interest on
the unpaid principal balance of this note from time to time outstanding until
maturity at the rate or rates provided for in the Credit Agreement and interest
on all past due amounts, both principal and accrued interest, at the Past Due
Rate; provided, that for the full term of this note, the interest rate produced
by the aggregate of all sums paid or agreed to be paid to the holder of this
note for the use, forbearance or detention of the debt evidenced hereby shall
not exceed the Highest Lawful Rate.
If, for any reason whatever, the interest paid or received on this note
during its full term produces a rate which exceeds the Highest Lawful Rate, the
holder of this note shall refund to the payor or, at the holder's option, credit
against the principal of this note such portion of said interest as shall be
necessary to cause the interest paid on this note to produce a rate equal to the
Highest Lawful Rate. All sums paid or agreed to be paid to the holder of this
note for the use, forbearance or detention of the indebtedness evidenced hereby
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread in equal parts throughout the full term of this note, so
that the interest rate is uniform throughout the full term of this note.
This note has been issued pursuant to the terms of a Credit Agreement
(which, as it may have been or may be amended, restated, modified or
supplemented from time to time, is herein called the "Credit Agreement") of even
date herewith, by and among Borrower and Payee, to which reference is made for
all purposes. This note is the Note under the terms of the Credit Agreement, and
advances against this note by Payee or other holder hereof, payments and
prepayments hereunder and acceleration hereof shall be governed by the Credit
Agreement. Capitalized words and phrases used herein and not defined herein and
which are defined in the Credit Agreement shall have the same meanings herein as
are ascribed to them in the Credit Agreement.
The unpaid principal balance of this note at any time shall be the
total of all principal lent or advanced against this note less the sum of all
principal payments and permitted prepayments made on this note by or for the
account of Borrower. All loans and advances and all payments and permitted
prepayments made hereon may be endorsed by the holder of this note on the
schedule which is attached hereto (and hereby made a part hereof for all
purposes) or otherwise recorded in the holder's records; provided, that any
failure to make notation of (a) any advance shall not cancel, limit or otherwise
affect Borrower's obligations or any holder's rights with respect to that
advance, or (b) any payment or permitted prepayment of principal shall not
cancel, limit or otherwise affect Borrower's entitlement to credit for that
payment as of the date received by the holder.
EXHIBIT A
Page 1 of 2 Pages
<PAGE> 67
Borrower and any and all co-makers, endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of intent to
accelerate and notice of acceleration, notice of protest and notice of
dishonor), demand, presentment for payment, protest, diligence in collecting and
the filing of suit for the purpose of fixing liability and consent that the time
of payment hereof may be extended and re-extended from time to time without
notice to any of them. Each such person agrees that his, her or its liability on
or with respect to this note shall not be affected by any release of or change
in any guaranty or security at any time existing or by any failure to perfect or
maintain perfection of any lien against or security interest in any such
security or the partial or complete unenforceability of any guaranty or other
surety obligation, in each case in whole or in part, with or without notice and
before or after maturity.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN
EFFECT.
XETEL CORPORATION,
a Delaware corporation
By:
----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
EXHIBIT A
Page 2 of 2 Pages
<PAGE> 68
OFFICER'S CERTIFICATE
Date:
-------------
Chase Bank of Texas, National Association
712 Main, 24 CBBE 74
Houston, Texas 77002
Attention: Mr. Bruce Shilcutt
Re: Financial Statements Required under Credit Agreement (as the
same may have been amended, modified and restated from time to
time, the "CREDIT AGREEMENT") dated as of August 2, 1999, by and
among Xetel Corporation and Chase Bank of Texas, National
Association
Gentlemen:
Capitalized words and phrases used herein and not defined herein and
defined in the Credit Agreement are used herein with the same meanings as are
assigned to them in the Credit Agreement.
The undersigned hereby certifies, warrants and represents to the
addressee named above that to the best knowledge of the undersigned:
(1) He or she is the duly appointed and acting Financial Officer of
Borrower;
(2) The attached financial statements dated as of ________________were
prepared in conformity with GAAP consistently applied, subject only to
normal and customary adjustments and excluding footnotes except for
such financial statements as the end of a fiscal quarter or fiscal
year, and present fairly the financial position of Borrower and its
Subsidiaries, on a Consolidated and consolidating basis, as of the date
thereof and the results of its operations for the period covered
thereby.
(3) The following constitute true, correct and complete financial
calculations for the Borrower and its Subsidiaries, on a Consolidated
basis, as of the end of the period covered by the attached financial
statements:
(a) CAPITAL EXPENDITURES:
<TABLE>
<S> <C> <C>
(i) Aggregate Capital Expenditures of Borrower and its
Subsidiaries on or after January 1, 1999 $
------------
(ii) Maximum allowable Capital Expenditures of Borrower
and its Subsidiaries $ 2,100,000
</TABLE>
EXHIBIT B
Page 1 of 1 Pages
<PAGE> 69
(b) TANGIBLE NET WORTH:
<TABLE>
<S> <C> <C>
(i) Actual Tangible Net Worth of Borrower and its
Subsidiaries on a Consolidated basis $
------------
(ii) Tangible Net Worth of Borrower and its Subsidiaries
on a Consolidated basis as of fiscal year ending
March 27, 1999 $22,754,000
(iii) Aggregate amount of equity added to Borrower's
balance sheet after March 27, 1999 due to issuance
and sale of Borrower's Stock or permitted acquisition
of Stock or assets of another Person $
------------
(iv) Required Tangible Net Worth of Borrower and its
Subsidiaries on a Consolidated Basis [Line (ii) plus
Line (iii) less $1,000,000] $
------------
</TABLE>
(c) INTEREST COVERAGE RATIO:
<TABLE>
<S> <C> <C>
(i) EBITDA: $
------------
(ii) Capital Expenditures: $
------------
(iii) Adjusted EBITDA [Line (i) less Line (ii)]: $
------------
(iv) Interest Expense: $
------------
(v) Actual Interest Coverage Ratio [ratio of Line (iii)
to Line (iv)]: to 1.00
------
</TABLE>
EXHIBIT B
Page 2
<PAGE> 70
(d) LEVERAGE RATIO:
<TABLE>
<S> <C> <C>
(i) Funded Indebtedness $
------------
(ii) Market value of Permitted Investment Securities held
in pledged Chase Securities account $
------------
(iii) Adjusted Funded Indebtedness [Line (i) less Line
(ii)] $
------------
(iv) EBITDA $
------------
(v) Recognized losses for pre-approved write-offs of
inventory and Receivables $
------------
(vi) Adjusted EBITDA [Line (iv) plus Line (v)] $
------------
(vii) Actual Leverage Ratio [ratio of Line (iii) to Line
(vi)] to 1.00
------
</TABLE>
(e) EBITDA:
<TABLE>
<S> <C> <C>
(i) Net Income: $
------------
(ii) Interest Expense: $
------------
(iii) Depreciation and amortization: $
------------
(iv) Federal, state and local income taxes: $
------------
(v) Actual EBITDA [sum of (i), (ii), (iii) and (iv)]
</TABLE>
(4) The undersigned hereby certifies to his or her best knowledge as
follows:
EXHIBIT B
Page 3
<PAGE> 71
(a) each representation or warranty of Borrower contained in the Credit
Agreement is true and correct in all material respects on and as of the
date hereof with the same effect as though such representations and
warranties had been made on and of this date, except for (i) those
representations and warranties which relate only to the Closing Date or
(ii) such changes in the representations and warranties otherwise
permitted by the terms of the Credit Agreement;
(b) no Event of Default or Default under the Credit Agreement has occurred
and is still continuing; and
(c) neither the Borrower or nor any of its Subsidiaries is in default in
the due performance of any covenant on its part in the Credit Agreement
or any other Loan Documents.
-------------------------------
Name:
--------------------------
EXHIBIT B
Page 4
<PAGE> 72
REQUEST FOR EXTENSION OF CREDIT
Date:
-------------
Chase Bank of Texas, National Association
712 Main, 24 CBBE 74
Houston, Texas 77002
Attention: Mr. Bruce Shilcutt
Re: Loan under Credit Agreement dated as of July _____, 1999, by and
between Xetel Corporation and Chase Bank of Texas, National
Association (as the same may have been amended, modified and/or
restated from time to time, the "CREDIT AGREEMENT")
Gentlemen:
Capitalized words and phrases used herein, but not defined herein,
shall have the same meanings as are ascribed to them in the Credit Agreement.
Borrower requests that a Loan be made under the Credit Agreement in the
amount of $________ and that such Loan be made on ________, 19__, which is a
Business Day (unless this request for a Loan is received by Agent after 1:00
p.m., Austin, Texas time, in which case, then on the next to occur Business Day
hereafter).
The Loan is to be an (CHECK ONE) Alternate Base Rate Borrowing LIBOR
Borrowing. If the Loan is to be a LIBOR Borrowing, the Interest Period is to be
(CHECK ONE) one two three six months.
[Borrower further requests that simultaneously with the making of the
Loan described above, the current [Alternate Base Rate Borrowing] [LIBOR
Borrowing] which matures on the same day that said Loan is to be made (i) be
converted to a LIBOR Borrowing with the same Interest Period selected for such
Loan and (ii) have its unpaid principal balance be combined with the new Loan so
that the aggregate thereof is treated as a single LIBOR Borrowing for the
Interest Period designated for the new Loan above and for all other purposes in
the Credit Agreement.]
Borrower hereby represents and warrants as follows:
(i) each representation or warranty of Borrower contained in the
Credit Agreement is true in all material respects on and as of
the date hereof with the same effect as though such
representations and warranties had been made on and of this
date, except for (1) those representations and warranties
which relate only to the Closing
EXHIBIT C
Page 1
<PAGE> 73
Date or (2) such changes in the representations and warranties
otherwise permitted by the terms of the Credit Agreement;
(ii) no Event of Default or Default under the Credit Agreement has
occurred and is still continuing;
(iii) neither the Borrower, nor any of its Subsidiaries, is in
default in the due performance of any covenant on its part in
the Credit Agreement or any other Loan Documents;
(iv) the business and operations of Borrower and all of its
Subsidiaries, as conducted at all times relevant to the
transactions contemplated by the Credit Agreement to and
including the close of business on the date hereof, have been
and are in compliance with all applicable Legal Requirements
materially affecting the business and operations of Borrower
or any of its Subsidiaries.
The undersigned Responsible Officer executing this Request for
Extension of Credit on behalf of Borrower is the duly elected, qualified and
acting ____________.
XETEL CORPORATION,
a Delaware corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
EXHIBIT C
Page 2
<PAGE> 74
RATE SELECTION NOTICE
Xetel Corporation (the "Borrower"), and Chase Bank of Texas, National
Association (the "Lender") executed and delivered that certain Credit Agreement
(as amended, supplemented and restated, the "Credit Agreement") dated as of July
___, 1999. Any term used herein and not otherwise defined herein shall have the
meaning herein ascribed to it in the Credit Agreement.
In accordance with the Credit Agreement, Borrower hereby notifies the
Lender of the exercise of an Interest Option.
E. CURRENT BORROWING(S)
<TABLE>
<S> <C>
1. Interest Option now in effect:
-------------
2. Amount: $
-------------
3. Expiration of current Interest Period,
if applicable: ______, 199__
</TABLE>
F. PROPOSED BORROWING
<TABLE>
<S> <C>
1. Amount: $
-------------
2. Date Interest Option is to be effective: ______, 199__
3. Interest Option to be applicable
(check one):
[ ] Alternate Base Rate
[ ] LIBOR Rate
4. Interest Period (check one if applicable):
[ ] 1 month [ ] 3 months
[ ] 2 months [ ] 6 months
</TABLE>
EXHIBIT E
Page 1
<PAGE> 75
Borrower represents and warrants that the Interest Option and the
Interest Period (if applicable) selected above comply with all provisions of the
Credit Agreement and that there exists no Event of Default or Default under the
Credit Agreement.
XETEL CORPORATION,
a Delaware corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
EXHIBIT E
Page 2
<PAGE> 76
SECRETARY'S CERTIFICATE
I, the undersigned, do hereby certify that I am the duly elected and
acting Secretary of XETEL CORPORATION (the "Company"), a Delaware corporation;
that the Company is duly organized and existing under the laws of the State of
Delaware; that all franchise and other taxes required to maintain the Company's
existence have been paid when due and that no such taxes are delinquent; that no
proceedings are pending for the forfeiture of the Company's Certificate of
Incorporation or for the Company's dissolution, voluntarily or involuntarily;
that the Company is fully qualified and in good standing to do business in the
State of Texas and all other jurisdictions in which the nature of its business
requires it to be qualified; that there is no provision of the Certificate of
Incorporation or Bylaws of the Company limiting the power of the Board of
Directors to pass the resolution set forth below; that as of the 15th day of
August, 1996, at a meeting of the Board of Directors of the Company duly called
and held in accordance with applicable law and the Bylaws of the Company, the
following resolutions have been duly adopted; that said resolutions have been
recorded in the minute books of the Company kept by me, are in accord with and
pursuant to the Certificate of Incorporation and Bylaws of the Company, have not
been amended, modified, superseded or revoked, and are now in full force and
effect, to-wit:
RESOLVED, that one (1) of the following officers or employees of this
Company, herein called "Authorized Persons," whether one or more:
<TABLE>
<S> <C>
Angelo A. DeCaro President and Chief Executive Officer
Richard S. Chilinski Vice President, Chief Financial Officer, &
Assistant Secretary
</TABLE>
are hereby authorized for and on behalf of and as the act and deed of
this Company to borrow money or to obtain credit from TEXAS COMMERCE
BANK NATIONAL ASSOCIATION, now known as Chase Bank of Texas, National
Association ("Bank"), in such amounts, for such times, in such forms
(including, but not limited to, notes, facilities, acceptances, letters
of credit and overdrafts) and upon such terms as may be deemed by such
Authorized Persons to
EXHIBIT E
Page 3
<PAGE> 77
be advisable; to renew and extend from time to time any such loan or
credit arrangement; to execute and deliver to Bank, in such form as may
be required by Bank, notes, loan agreements, drafts, letters of credit
applications and other instruments and documents relating to any
indebtedness owing by this Company to Bank or relating to any other
arrangement whereby Bank extends credit to this Company, whether fixed
or contingent; to mortgage, hypothecate, encumber, pledge, assign or
transfer to Bank, or otherwise subject to any lien or security interest
in favor of Bank, as security for any such indebtedness, any property
of this Company, real or personal, tangible or intangible; to sell to
Bank with or without recourse, any of this Company's notes, bills
receivable, acceptances or other paper, whether or not negotiable; and
to take all such other actions as such Authorized Persons may deem to
be necessary or desirable, or as Bank may require, to consummate any
transaction contemplated in these resolutions.
FURTHER RESOLVED, that Bank be and it hereby is authorized to credit
this Company on Bank's books with the proceeds as directed by such
Authorized Persons, whether to the order of any of said persons in his
individual capacity or not, and whether such proceeds are deposited to
the individual credit of any such person or not.
FURTHER RESOLVED, that the foregoing authority shall be and continue in
full force and effect until revoked or modified by written notice
actually delivered to the President or a Vice President of Bank;
provided that such revocation shall not be effective with respect to
any exercise of any said authority prior to the receipt by Bank of such
notice.
I further certify that the following are the duly elected and incumbent
officers of the Corporation, that each holds the office set forth opposite his
or her name, that the true and correct signature of such officer is as set forth
beside his or her name and that the seal affixed hereto is the authentic seal of
the Corporation:
<TABLE>
<S> <C> <C>
PRINT NAME TITLE SIGNATURE
ANGELO A. DeCaro President/Chief
--------------------
Financial Officer
RICHARD CHILINSKI Vice President/
--------------------
Chief Financial Officer
-------------------- Secretary
--------------------
</TABLE>
EXHIBIT E
Page 4
<PAGE> 78
I further certify that the Certificate of Incorporation and Bylaws of
the Company previously furnished to the Lender in connection with existing
indebtedness of the Company are unchanged and remain in effect to the date of
this certificate.
IN WITNESS WHEREOF, I have hereunto subscribed my hand by order of the
Board of Directors thereof on this day of July, 1999.
------------------------------------
Secretary of Xetel Corporation
I do hereby certify that I am the duly elected and acting
_______________ of Xetel Corporation and that _______________, is the duly
elected and acting Secretary of Xetel Corporation.
--------------------------------------------
President of Xetel Corporation
EXHIBIT E
Page 5
<PAGE> 79
BORROWING BASE CERTIFICATE
[To Be Supplied By Chase]
EXHIBIT H
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-01-2000
<PERIOD-START> MAR-27-1999
<PERIOD-END> SEP-25-1999
<CASH> 7,368
<SECURITIES> 0
<RECEIVABLES> 17,980
<ALLOWANCES> (3,259)
<INVENTORY> 16,971
<CURRENT-ASSETS> 41,044
<PP&E> 16,878
<DEPRECIATION> (10,377)
<TOTAL-ASSETS> 49,745
<CURRENT-LIABILITIES> 26,355
<BONDS> 0
0
0
<COMMON> 21,998
<OTHER-SE> (1,209)
<TOTAL-LIABILITY-AND-EQUITY> 23,207
<SALES> 23,150
<TOTAL-REVENUES> 23,150
<CGS> 21,901
<TOTAL-COSTS> 23,058
<OTHER-EXPENSES> (32)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 181
<INCOME-PRETAX> (57)
<INCOME-TAX> (22)
<INCOME-CONTINUING> (35)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35)
<EPS-BASIC> (0.0)
<EPS-DILUTED> (0.0)
</TABLE>
