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 February 26, 1995
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 0-619
Washington Scientific Industries, Inc.
(Exact name of registrant, as specified in its charter)
Minnesota 41-0691607
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
Long Lake, Minnesota 55356
(Address of principal executive offices) (Zip Code)
(612) 473-1271
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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 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 ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
2,384,651 Common Shares were outstanding as of March 20, 1995.
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
I N D E X
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Page No.
PART I. FINANCIAL INFORMATION:
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Item 1. Financial Statements
Consolidated Balance Sheets February 26,
1995 (Unaudited) and August 28, 1994 3
Consolidated Statements of Operations
Thirteen and Twenty-Six weeks ended February 26,
1995; and Thirteen and Twenty-Six weeks
ended February 27, 1994 (Unaudited) 4
Consolidated Statements of Cash Flows
Twenty-Six weeks ended February 26, 1995 and
Twenty-Six weeks ended February 27, 1994
(Unaudited) 5
Notes to Consolidated Financial
Statements(Unaudited) 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7,8
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of
Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
</TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
February 26, August 28,
Assets 1995 1994
Current Assets:
Cash and cash equivalents $111,996 $208,014
Accounts receivable 3,969,392 4,469,397
Inventory 1,631,024 2,175,268
Prepaid expenses 355,019 437,752
Total Current Assets 6,067,431 7,290,431
Property, Plant and Equipment 6,957,323 8,604,352
Other Assets 524,654 538,758
$13,549,408 $16,433,541
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $647,184 $848,482
Trade accounts payable 1,454,032 2,614,454
Salaries, wages, and withholdings 859,064 1,168,139
Miscellaneous accrued expenses 581,520 970,340
Current portion of long-term debt 1,511,314 1,237,149
Total Current Liabilities 5,053,114 6,838,564
Long-term Debt, less current portion 3,423,705 4,848,319
Long-term Pension Liability 788,175 1,042,594
Stockholders' Equity:
Common stock issued, 2,384,651 and
2,382,401 shares respectively 238,465 238,240
Capital in excess of par value 1,406,299 1,401,165
Retained earnings 2,695,986 2,120,995
Additional minimum pension liability (56,336) (56,336)
Total Stockholders' Equity 4,284,414 3,704,064
$13,549,408 $16,433,541
See notes to consolidated financial statements.
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
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13 weeks ended 26 weeks ended
February 26, February 27, February 26, February 27,
1995 1994 1995 1994
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Net Sales $7,295,764 $6,782,531 $15,116,663 $12,968,819
Cost of products sold 6,842,001 6,411,887 14,307,584 13,000,011
Gross margin 453,763 370,644 809,079 (31,192)
Selling and administrative expense 638,970 625,761 1,185,627 1,228,010
Pension curtailment (gain) -- -- (254,419) --
Real estate sale (gain) (890,475) -- (890,475) --
Interest and other income (95,269) (72,977) (138,804) (111,975)
Interest and other expense 149,527 212,982 326,359 409,248
Earnings (loss) from continuing
operations before income taxes 651,010 (395,122) 580,791 (1,556,475)
Income taxes 5,800 -- 5,800 --
Earnings (loss) from continuing
operations $645,210 ($395,122) $574,991 ($1,556,475)
Net earnings (loss) per share $0.27 ($0.17) $0.24 ($0.66)
Weighted average number of
common shares outstanding 2,382,698 2,382,401 2,382,549 2,382,401
</TABLE>
See notes to consolidated financial statements.
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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26 weeks ended
February 26, February 27,
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $574,991 ($1,556,472)
Adjustments to reconcile net earnings to net cash
provided by operating activities:
(Gain) on sale of property, plant & equipment (895,287) (58,417)
Depreciation and amortization 1,270,933 1,441,263
Pension curtailment (gain) (254,419) --
Changes in assets and liabilities:
Decrease in accounts receivable 500,006 589,776
Decrease in refundable income taxes --
Decrease in inventories 544,244 478,359
Decrease in prepaid expenses 82,733 57,556
(Decrease) in accounts payable and accrued
expenses (1,858,317) (1,161,738)
Other assets 0 (27,202)
Net cash (used in) operating activities (35,116) (236,875)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant & equipment 1,758,552 342,476
Purchases of property, plant & equipment (53,065) (104,651)
Net cash provided by investing activities 1,705,487 237,825
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (1,570,449) (45,812)
Increase (decrease) in notes payable (201,299) 170,232
Issuance of common stock 5,359 --
Net cash provided by (used in) financing activities (1,766,389) 124,420
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (96,018) 125,370
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 208,014 153,551
CASH AND CASH EQUIVALENTS AT END OF REPORTING PERIOD $111,996 $278,921
SUPPLEMENTAL CASH FLOW INFORMATION:
Noncash investing and financing activities:
Aquisition of machinery through capital lease $420,000 $29,610
</TABLE>
See notes to consolidated financial statements.
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated balance sheet as of February 26, 1995, the
consolidated statements of earnings for the thirteen weeks ended
February 26, 1995 and February 27, 1994 and the twenty six weeks ended
February 26, 1995 and February 27, 1994 and the consolidated statements
of cash flows for the twenty six weeks then ended, respectively, have
been prepared by the Company without audit. In the opinion of
management, all adjustments (which include normal recurring
adjustments) necessary to present fairly the financial position,
results of operations and cash flows for all periods presented have
been made.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Therefore, these
condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Company's 1994 annual report to shareholders. The results of
operations for interim periods are not necessarily indicative of the
operating results for the full year.
2. SALE OF REAL ESTATE:
On January 4, 1995, the Company sold its Owatonna, Minnesota
real estate to OTC, a division of SPX Corporation, for a total cash
consideration of $1,534,000.
3. PENSION CURTAILMENT:
A pension curtailment gain was recorded in the first quarter
of fiscal 1995. As part of the Owatonna plant closing, all of the
Owatonna employees who were members of the non-union pension plan were
either terminated or transferred to the Long Lake facility. As a
result, during the first quarter of fiscal 1995, a curtailment of the
non-union employee plan occurred as defined in SFAS No.88, Employers
Accounting for Settlements and Curtailments of Defined Benefit Pension
Plans and Termination Benefits.
4. SUBSEQUENT EVENTS:
On March 31, 1995, the Company amended its line of credit
agreement and refinanced its term debt. The Agreement, which combines
the line of credit and term debt, will expire on March 31, 1998 and is
with the same bank with which the Company previously had its line of
credit.
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Net sales for the quarter ending February 26, 1995 increased $513,000
or 7.6% when compared to the second quarter of fiscal 1994. The sales increase
resulted from business with customers other than IBM. Sales to those customers
increased to $5,973,000 from $3,113,000 in the comparable quarter of the prior
year while sales to IBM declined to $1,323,000 from $2,347,000 in that same
quarter.
Net sales for the 26 weeks ended February 26, 1995 increased $2,148,000
or 16.6% from the prior year's comparable period. Business with customers other
than IBM increased to $11,389,000 from $5,901,000 in the first half of last year
and sales to IBM declined to $3,728,000 versus $7,068,000 in the first half of
fiscal 1994.
Gross margin on parts sold in the second quarter of fiscal 1995
increased to 6.2% of sales compared to 5.5% of sales in the same quarter of
fiscal 1994. Higher sales and personnel reductions were the primary reasons for
the gross margin improvement.
For the first half of fiscal 1995 gross margins were 5.4% of sales
compared to a negative .2% in the same period of the prior year. The improvement
from last year resulted from higher sales and personnel reductions.
Selling and administrative expense in the quarter ended February 26,
1995 was approximately the same as in the comparable quarter of the prior year,
but the percentage of selling and administrative expense to sales declined to
8.8% in the quarter ended February 26, 1995 compared to 9.2% in the prior year's
comparable quarter.
Selling and administrative expense decreased $42,000 in the first half
of fiscal 1995 when compared to the first half year of fiscal 1994. The
percentage of that expense to sales in the first half of fiscal 1995 and 1994
was 7.8% and 9.5%, respectively.
A gain on the sale of real estate in the amount of $890,475 was
recorded in the quarter ending February 26, 1995. That gain came from the sale
of the Company's Owatonna, Minnesota real estate which was disposed of in
connection with the Company's consolidation of its operations in Long Lake,
Minnesota.
A pension curtailment gain of $254,000 was recorded in the first
quarter of fiscal 1995. As part of the Owatonna plant restructuring, all of the
Owatonna employees who were members of the non-union pension plan were either
terminated or transferred to the Long Lake facility. As a result, during the
first quarter of fiscal 1995, a curtailment of the non-union employee plan
occurred as defined in SFAS's No. 88, Employers Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and Termination Benefits.
Interest and other income increased $22,000 in the second quarter of
fiscal 1995 from the same quarter in the prior year. First half fiscal 1995
interest and other income increased $27,000 from the first half of fiscal 1994.
Interest and other expense was lower in the second quarter and first
half of fiscal 1995 from the comparable periods of the prior year by $63,000 and
$82,000 respectively. The primary reason for lower interest and other expense
was lower average notes payable balances.
LIQUIDITY AND CAPITAL RESOURCES:
On February 26, 1995, working capital was $1,014,000 compared to
$452,000 at August 28, 1994, an increase of $562,000. The ratio of current
assets to current liabilities at February 26, 1995 and August 28, 1994 was 1.20
to 1.0 and 1.07 to 1.0 respectively.
On February 26, 1995, the Company had an outstanding bank loan balance
of $647,000 which was $201,000 lower than the bank loan balance on August 28,
1994. The Company's line of credit agreement was scheduled to expire on February
28, 1995. Subsequent to the close of the Company's fiscal quarter ended February
26, 1995, it amended its line of credit agreement to extend until March 31,
1998.
On March 31, 1995, the Company also refinanced its term debt with the
same bank with which it has its line of credit. The new term debt agreement is
for a three year time period and requires substantially lower debt payments over
the next three years than the former term debt agreements. The debt balance is
due after the three year term. However, it is management's intent to refinance
the remaining term debt balance at that time.
It is management's belief that its internally generated funds combined
with the line of credit will be sufficient to enable the Company to meet its
financial requirements during Fiscal 1995.
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders.
a. The Annual Meeting of Company Stockholders was
held on January 12, 1995.
b. Directors elected at that meeting were:
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Paul Baszucki For 1,985,934 Against 5,153
Melvin L. Katten For 1,981,744 Against 9,343
T. E. Larsen For 1,987,709 Against 3,378
Gerald E. Magnuson For 1,983,837 Against 7,250
George J. Martin For 1,990,946 Against 141
Eugene J. Mora For 1,986,634 Against 4,453
Michael J. Pudil For 1,989,848 Against 1,239
</TABLE>
c. Other matters voted on at the annual meeting were:
1. To amend the Bylaws to fix the number of directors
at seven. For 1,981,744 Against 9,343
2. To ratify and approve the Washington Scientific
Industries, Inc. 1994 Stock Plan. For 751,632
Against 329,742 Abstain 22,665 Broker non-votes
1,017,575
3. To ratify and approve the selection of Deloitte &
Touche LLP, as independent public accountants for
the Company for the current fiscal year. For
2,088,347 Against 12,703
Item 5. Other Information:
The labor contract between the Company and the
International Brotherhood of Teamsters, Chauffeurs,
Warehousemen and Helpers of America, Local 970, which was
scheduled to expire on April 10, 1995, has been extended.
The Company and the Union are negotiating a new contract
as of this date.
Item 6. Exhibits and reports on Form 8-K:
a. Exhibit 3.2. Bylaws as amended
Exhibit 10.1. Purchase Agreement dated September
13, 1994 between the Registrant and SPX
Corporation, incorporated by reference to
Exhibit 10.7 of the Registrant's Form 10-K for
the fiscal year ended August 28, 1994.
Exhibit 10.2. Washington Scientific Industries, Inc.
1994 Stock Plan.
Exhibit 10.3. Third amendment to Credit and
Security Agreement between the Company and FBS
Business Finance Corporation dated February 28, 1995.
Exhibit 10.4. Amended and Restated Credit and
Security Agreement between the Company and FBS
Business Finance Corporation dated March 31, 1995.
Exhibit 27. Financial Data Schedule.
b. There were no reports on Form 8-K filed for the twenty
six weeks ended February 26, 1995.
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.
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
Date April 10, 1995 /s/ Michael J Pudil
Michael J Pudil, President & CEO
Date April 10, 1995 /s/ W. J. Lucke
W. J. Lucke, Vice President & Treasurer
EXHIBIT 3.2
RESTATED AND AMENDED BYLAWS
OF
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
ARTICLE I.
Offices, Corporate Seal
Section 1. The registered office of the corporation shall be at 2605
West Wayzata Boulevard, Long lake, Minnesota 55356 and the corporation may have
offices at such other places as the Board of Directors shall from time to time
determine.
Section 2. The corporate seal shall be circular in form and have
inscribed thereon in a circle the name of the corporation and the State in which
it is incorporated and the words "Corporate Seal" within the circle.
ARTICLE II.
Meetings of Shareholders
Section 1. An Annual Meeting of the Shareholders of this Corporation
entitled to vote for the election of Directors shall be held at such place
within or without the State of Minnesota as the Board of Directors may
determine, at such time in each calendar year beginning in 1993 as shall be
fixed by the Board of Directors, at which time the shareholders voting as
provided in the Articles of Incorporation shall elect by majority vote a Board
of Directors for the ensuing year, and shall transact such other business as
shall properly be brought before the meeting. To be properly brought before the
meeting, business must be of a nature that is appropriate for consideration at
an annual meeting and must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors; (ii)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors; or (iii) otherwise properly brought before the meeting by a
shareholder. In addition to any other applicable requirements for business to be
properly brought before the annual meeting by a shareholder, the shareholder
must have given timely notice thereof in writing to the Secretary of the
corporation. To be timely, each such notice must be given, either by personal
delivery or by United States mail, postage prepaid, to the Secretary of the
corporation, not less than 45 days nor more than 75 days prior to the date in
the current year which corresponds to the previous year's annual meeting date.
Each such notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (w) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting; (x) the name and address of
record of the shareholders proposing such business; (y) the class or series (if
any) and number of shares of the corporation which are owned by the shareholder;
and (z) any material interest of the shareholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
transacted at the annual meeting except in accordance with the procedures set
forth in this Article; provided, however, that nothing in this Article shall be
deemed to preclude discussion by any shareholder of any business properly
brought before the annual meeting, in accordance with these Bylaws.
The holders of a majority of common shares outstanding and entitled to
vote for the election of Directors at said meeting, present in person or
represented by proxy, shall constitute a quorum for the transaction of business,
except as otherwise provided by law, by the Articles of Incorporation, or by
these Bylaws. In case a quorum be not present at the annual meeting, the meeting
may be adjourned to a later date. A notice of such adjournment shall be mailed
to each shareholder entitled to vote, at least ten days before such adjourned
meeting date, but if a quorum be present they may adjourn from day to day, as
they see fit and no notice need by given.
Section 2. Except as otherwise provided by the Board of Directors, only
shareholders of record at the close of business on the day prior to the date of
the annual meeting shall be entitled to vote at such meeting, in person or
through proxy. The appointment of proxy shall be in writing filed with the
Secretary at or before the meeting.
Section 3. Special meetings of the shareholders may be called by the
Secretary upon request of the Executive Committee of the corporation or a
majority of the members of the Board of Directors, or upon request by
shareholders as provided by law.
Section 4. There shall be mailed to each person shown by the books of
the corporation to be a holder of record of voting shares at the time of mailing
such notice, at his address as shown by the books of the corporation, a notice
setting out the time and place of the annual meeting, which notice shall be
mailed at least ten (10) days prior thereto. There shall be mailed to each
person shown by the books of the corporation to be a shareholder of record at
the time of mailing such notice and entitled to receive such notice, at his
address as shown by the books of the corporation, a notice setting out the time,
place and object of each special meeting, which notice shall be mailed at least
ten (10) days prior thereto.
Section 5. Subject to the rights of holders of any class or series of
stock having a preference over the common shares as to dividends or upon
liquidation, nominations for the election of Directors may be made by the Board
of Directors or a committee appointed by the Board of Directors or by any
shareholder entitled to vote generally in the election of Directors. However,
any shareholder entitled to vote generally in the election of Directors may
nominate one or more persons for election as Directors at a meeting only if
written notice of such shareholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the corporation not less than 45 days
nor more than 75 days prior to the date in the current year which corresponds to
the previous year's annual meeting date. Each such notice to the Secretary shall
set forth: (i) the name and address of record of the shareholder who intends to
make the nomination; (ii) a representation that the shareholder is a holder of
record of shares of the corporation entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (iii) the name, age, business and residence addresses,
and principal occupation or employment of such nominee; (iv) a description of
all arrangements or understandings between the shareholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the shareholder; (v) such other
information regarding each nominee proposed by such shareholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission; and (vi) the consent of each nominee
to serve as a Director of the corporation if so elected. The corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the corporation to determine the eligibility of such proposed
nominee to serve as a Director of the corporation. The presiding officer of the
meeting may, if the facts warrant, determine that a nomination was not made in
accordance with the foregoing procedure, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded.
ARTICLE III.
Directors
Section 1. The business and property of the corporation shall be
managed by its Board of Directors, seven (7) in number. The term of each
Director shall continue until the next annual meeting of the corporation and
until his successor is elected and qualifies.
Section 2. A majority of the Board of Directors shall constitute a
quorum for the transaction or business; provided, however, that if any vacancies
exist by reason of death, resignation, or otherwise, a majority of the remaining
Directors shall constitute a quorum for the filling of vacancies.
Section 3. The Directors shall meet annually immediately after the
election of Directors, or as soon thereafter as is practicable, at the
registered office of the corporation, or at the place the annual meeting of the
stockholders was held which elected said Directors, or at such other time and
place as may be fixed by the written consent of all of the Directors. No notice
need be given of any regular meeting. Special meetings of the Board of Directors
may be held at such place as may from time to time be fixed by resolution
adopted by a majority of the whole Board of Directors or designated in the
notice of waiver of notice of the meeting. Special meetings of the Board of
Directors may be called by the Chairman of the Board, President or a majority of
the Board of Directors. Notice of such special meetings shall be given by the
Secretary who shall give at least twenty-four (24) hours notice thereof to each
Director by mail, telegraph, telephone, or in person.
Section 4. Any action which could have been taken at a meeting of the
Board of Directors properly called for that purpose may be taken without a
meeting if done in writing signed by all of the directors, and any such action
shall be as valid and effective in all respects as if taken at a proper meeting
duly called for that purpose.
ARTICLE IV.
Executive Committee
The Board of Directors may designate not more than five of their number
to constitute an Executive Committee which shall have and exercise the power and
authority of the Board of Directors in the management of the business and
conduct of the affairs of the corporation in the interim between regular
meetings of the Board of Directors. Such Executive Committee shall be subject at
all times to the control and direction of the Board of Directors, and shall not
do any or cause any act to be done which will personally and directly benefit
any of the members of such Executive Committee.
ARTICLE V.
Officers
Section 1. The officers of this corporation shall consist of a Chairman
of the Board, a President, an Executive Vice President, one or more Vice
Presidents, a Secretary, a Treasurer, one or more Assistant Secretaries and
Assistant Treasurers, and such other officers as may be deemed necessary by the
Board of Directors. Any two officers, except those of President and Executive
Vice President or Vice President, may be held by any one person.
Section 2. Officers shall be elected at the Annual Meeting of the Board
of Directors or at such other times deemed advisable by the Board of Directors,
and shall hold office until the next Annual Meeting of Directors and until their
successors are elected and qualified. None of the officers, except the Chairman
of the Board, need be a Director.
Section 3. The Chairman of the Board shall preside at all meetings of
the shareholders and directors and shall have such other duties as may be
prescribed by the Board of Directors. The President shall be the Chief Executive
Officer of the corporation, shall preside at meetings of the shareholders and
the directors in the absence of the Chairman of the Board or in the event there
shall be no Chairman of the Board, shall make such reports to the Board of
Directors as may from time to time be required or requested, shall have such
duties and responsibilities as generally pertain to the office of President, and
shall have such other powers and shall perform such other duties as may be from
time to time assigned to him by the Board of Directors. The Vice Presidents of
the corporation, including the Executive Vice President, shall each have such
powers and duties as generally pertain to their respective offices, as well as
such powers and duties as from time to time may be conferred upon them by the
Board of Directors. In the case of the death, resignation or disability of the
President, the Executive Vice President, or if none, the Vice President who has
held that office for the longest continuous period of time, shall assume the
duties and responsibilities of the President until further action by the Board
of Directors.
Section 4. The Secretary of the corporation shall keep a record of the
meetings and proceedings of the Board of Directors and shareholders, shall have
custody of the corporate seal and all other corporate records not specifically
entrusted to some other officer by these Bylaws or by direction of the Board of
Directors. He shall give notice of meetings as required by these Bylaws or by
the Board of Directors, and shall perform such other duties as may be assigned
or delegated to him by the Board of Directors.
Section 5. The Treasurer shall keep accurate accounts of all money and
assets of the corporation received or disbursed. He shall deposit all money,
drafts and checks in the name of and to the credit of the corporation in such
banks, depositories or other financial institutions as the majority of the Board
of Directors shall designate from time to time. He shall disburse the funds of
the corporation as ordered by the Board of Directors or officers under direction
of the Board of Directors. He shall render such accounts of the financial
condition of the corporation and its financial affairs and shall perform such
other duties as may be prescribed by the Board of Directors from time to time.
ARTICLE VI.
Salaries of Officers
The salary and other compensation to the officers of the corporation
shall be fixed in the first instance and shall thereafter be subject to change
and amendment by the Board of Directors.
ARTICLE VII.
General Provisions
Section 1. This corporation shall be operated and managed within the
scope of the purposes and powers hereof as set forth and specified in its
Articles of Incorporation.
Section 2. Shares of stock in this corporation not exceeding the
authorized number thereof as specified in the Articles of Incorporation may be
issued, and certificates therefor shall be authenticated by the President and
Secretary upon authorization by the Board of Directors and receipt by the
corporation of such consideration for such shares as shall be specified by the
Board of Directors.
In the event that a bank, trust company or other similarly qualified
corporation is designated and agrees to act as the registrar and transfer agent
for the corporation then the signatures of the President and Secretary and the
seal of the corporation may be imprinted upon the stock certificates by
facsimile, and said certificates may be authenticated by signature of an
authorized agent of said registrar and transfer agent. The officers of the
corporation may delegate to such a transfer agent and registrar such of the
duties relating to the recording and maintenance of records relating to stock
and stockholders and the outstanding shares in the corporation as may be deemed
expedient and convenient, approved by the Board of Directors and assumed by said
registrar and transfer agent.
Section 3. The Board of Directors may establish reasonable regulations
for recording transfers of shares of stock in this corporation, and may
establish a date, not earlier than sixty days prior to any shareholders'
meeting, as of which the shareholders entitled to vote and to participate in any
shareholders' meeting shall be determined.
Section 4. Dividends and distributions to shareholders shall be paid at
such times and in such amounts as may be determined by the Board of Directors
consistently with applicable statutes and laws.
Section 5. From time to time, as it may deem appropriate and
advantageous to the best interests of this corporation, the Board of Directors
may by majority vote establish such bonus, pension, profit-sharing, stock bonus,
stock purchase, stock option, or other employee incentive plans, as and for the
benefit of such of the corporation's employees as it in its sole discretion
shall determine.
Section 6. Each director, officer, employee and agent, past or present,
of this corporation and each person who serves or may have served at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, and their
respective heirs, administrators and executors, shall be indemnified by this
corporation in accordance with, and to the fullest extent provided by, the
provisions of the Minnesota Business Corporation Act as it may from time to time
be amended.
Section 7. The corporation shall be governed by the Minnesota Business
Corporation Act, as amended from time to time, by its Articles of Incorporation
and by these Bylaws. In matters not provided for by said Act, said Articles or
the Bylaws, the corporation shall be governed by the determination of the Board
of Directors, to the extent consistent with law.
ARTICLE VIII.
Adoption and Amendment
Section 1. The Board of Directors may alter or amend these Bylaws and
may make or adopt additional Bylaws subject to the power of the shareholders to
change or repeal the said Bylaws; provided, however, that the Board of Directors
shall not make or alter any Bylaws relating to the qualifications,
classifications, or terms of office of the members of the Board of Directors.
Section 2. The shareholders may alter or amend these Bylaws or may make
or adopt additional Bylaws by majority vote of such shareholders at any annual
meeting thereof or any special meeting called for that purpose.
EXHIBIT 10.2
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
1994 STOCK PLAN
<TABLE>
<CAPTION>
SECTION CONTENTS PAGE
<S> <C>
1. General Purpose of Plan; Definitions A-3
2. Administration A-5
3. Stock Subject to Plan A-6
4. Eligibility A-6
5. Stock Options A-7
6. Stock Appreciation Rights A-10
7. Restricted Stock A-11
8. Deferred Stock Awards A-13
9. Transfer, Leave of Absence, etc. A-14
10. Amendments and Termination A-15
11. Unfunded Status of Plan A-15
12. General Provisions A-15
13. Effective Date of Plan A-16
</TABLE>
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
1994 STOCK PLAN
SECTION 1. General Purpose of Plan; Definitions.
The name of this plan is the Washington Scientific Industries, Inc.
1994 Stock Plan (the "Plan"). The purpose of the Plan is to enable Washington
Scientific Industries, Inc. (the "Company") and its Subsidiaries to retain and
attract executives and other key employees, consultants and non-employee
directors who contribute to the Company's success by their ability, ingenuity
and industry, and to enable such individuals to participate in the long-term
success and growth of the Company by giving them a proprietary interest in the
Company.
For purposes of the Plan, the following terms shall be defined as set
forth below:
a. "Board" means the Board of Directors of the Company.
b. "Cause" means a felony conviction of a participant or the
failure of a participant to contest prosecution for a felony,
or a participant's willful misconduct or dishonesty, any of
which is directly and materially harmful to the business or
reputation of the Company.
c. "Code" means the Internal Revenue Code of 1986, as amended.
d. "Committee" means the Committee referred to in Section 2 of
the Plan. If at any time no Committee shall be in office, then
the functions of the Committee specified in the Plan shall be
exercised by the Board, unless the Plan specifically states
otherwise.
e. "Company" means Washington Scientific Industries, Inc., a
corporation organized under the laws of the State of Minnesota
(or any successor corporation).
f. "Deferred Stock" means an award made pursuant to Section 8
below of the right to receive Stock at the end of a specified
deferral period.
g. "Disability" means permanent and total disability as
determined by the Committee.
h. "Disinterested Person" shall have the meaning set forth in
Rule 16b-3(d)(3) as promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, or any
successor definition adopted by the Commission.
i. "Early Retirement" means retirement, with consent of the
Committee at the time of retirement, from active employment
with the Company and any Subsidiary or Parent Corporation of
the Company.
j. "Fair Market Value" means the value of the Stock on a given
date as 8determined by the Committee in accordance with
Section 422(c)(7) of the Code and any applicable Treasury
Department regulations promulgated thereunder.
k. "Incentive Stock Option" means any Stock Option intended to be
and designated as an "Incentive Stock Option" within the
meaning of Section 422 of the Code.
l. "Non-Employee Director" means any member of the Board who is
not an employee of the Company, any Parent Corporation or
Subsidiary.
m. "Non-Qualified Stock Option" means any Stock Option that is
not an Incentive Stock Option, and is intended to be and is
designated as a "Non-Qualified Stock Option."
n. "Normal Retirement" means retirement from active employment
with the Company and any Subsidiary or Parent Corporation of
the Company on or after age 65.
o. "Parent Corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the
Company if, at the time of the granting of a Stock Option,
each of the corporations (other than the Company) owns stock
possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in the
chain as provided in Section 424(e) of the Code.
p. "Restricted Stock" means an award of shares of Stock that are
subject to restrictions under Section 7 below.
q. "Retirement" means Normal Retirement or Early Retirement.
r. "Stock" means the Common Stock, $.10 par value per share, of
the Company.
s. "Stock Appreciation Right" means the right pursuant to an
award granted under Section 6 below to surrender to the
Company all or a portion of a Stock Option in exchange for an
amount equal to the difference between (i) the Fair Market
Value, as of the date such Stock Option or such portion
thereof is surrendered, of the shares of Stock covered by such
Stock Option or such portion thereof, and (ii) the aggregate
exercise price of such Stock Option or such portion thereof.
t. "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5 below.
u. "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company
if, at the time of the granting of a Stock Option, each of the
corporations (other than the last corporation in the unbroken
chain) owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other
corporations in the chain as provided in Section 424(f) of the
Code.
SECTION 2. Administration.
The Plan shall be administered by the Board of Directors or by a
Committee of not less than three Disinterested Persons, who shall be appointed
by the Board of Directors of the Company and who shall serve at the pleasure of
the Board.
The Committee shall have the power and authority to grant to eligible
persons, pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock
Appreciation Rights, (iii) Restricted Stock, or (iv) Deferred Stock awards.
In particular, the Committee shall have the authority:
(i) to select the officers and other key employees of the
Company and its Subsidiaries, and consultants and
other persons having a contractual relationship with
the Company or its Subsidiaries, to whom Stock
Options, Stock Appreciation Rights, Restricted Stock
and/or Deferred Stock awards may from time to time be
granted hereunder;
(ii) to determine whether and to what extent Incentive
Stock Options, Non-Qualified Stock Options, Stock
Appreciation Rights, Restricted Stock or Deferred
Stock awards, or a combination of the foregoing, are
to be granted hereunder;
(iii) to determine the number of shares to be covered by
each such award granted hereunder;
(iv) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award
granted hereunder (including, but not limited to, any
restriction on any Stock Option or other award and/or
the shares of Stock relating thereto), and to amend
such terms and conditions (including, but not limited
to, any amendment which accelerates the vesting of
any award); and
(v) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with
respect to an award under this Plan shall be deferred
either automatically or at the election of the
participant.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan. The Committee may
delegate its authority to officers of the Company for the purpose of selecting
employees who are not officers of the Company for purposes of (i) above.
All decisions made by the Committee pursuant to the provisions of the
Plan shall be final and binding on all persons, including the Company and Plan
participants.
SECTION 3. Stock Subject to Plan.
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 250,000. Such shares shall consist, in
whole or in part, of authorized and unissued shares.
Subject to paragraph (b)(iv) of Section 6 below, if any shares that
have been optioned ceased to be subject to Options, or if any shares subject to
any Restricted Stock or Deferred Stock award granted hereunder are forfeited or
such award otherwise terminates without a payment being made to the participant,
such shares shall again be available for distribution in connection with future
awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, other change in corporate structure affecting
the Stock, or spin-off or other distribution of assets to shareholders, such
substitution or adjustment shall be made in the aggregate number of shares
reserved for issuance under the Plan, in the number and option price of shares
subject to outstanding options granted under the Plan, and in the number of
shares subject to Restricted Stock or Deferred Stock awards granted under the
Plan as may be determined to be appropriate by the Committee, in its sole
discretion, provided that the number of shares subject to any award shall always
be a whole number. Such adjusted option price shall also be used to determine
the amount payable by the Company upon the exercise of any Stock Appreciation
Right associated with any Option.
SECTION 4. Eligibility.
Officers, other key employees of the Company or its Subsidiaries,
Non-Employee Directors and consultants and other persons having a contractual
relationship with the Company or its Subsidiaries who are responsible for or
contribute to the management, growth and/or profitability of the business of the
Company and its Subsidiaries are eligible to be granted Stock Options, Stock
Appreciation Rights, Restricted Stock or Deferred Stock awards under the Plan.
Except for Non-Employee Directors, whose participation in the Plan shall be
limited as provided in paragraph (k) of Section 5, the optionees and
participants under the Plan shall be selected from time to time by the
Committee, in its sole discretion, from among those eligible, and the Committee
shall determine, in its sole discretion, the number of shares covered by each
award.
SECTION 5. Stock Options.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options. No Incentive Stock
Options shall be granted under the Plan after September 29, 2004.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of options (in each
case with or without Stock Appreciation Rights). To the extent that any option
does not qualify as an Incentive Stock Option, it shall constitute a separate
Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify either the Plan or any Incentive Stock Option
under Section 422 of the Code. The preceding sentence shall not preclude any
modification or amendment to an outstanding Incentive Stock Option, whether or
not such modification or amendment results in disqualification of such Option as
an Incentive Stock Option, provided the optionee consents in writing to the
modification or amendment.
Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(a) Option Price. The option price per share of Stock purchasable under
a Stock Option shall be determined by the Committee at the time of grant. In no
event shall the option price per share of Stock purchasable under an Incentive
Stock Option be less than 100% of the Fair Market Value of the Stock on the date
of the grant of the option. If an employee owns or is deemed to own (by reason
of the attribution rules applicable under Section 424(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company or any
Parent Corporation or Subsidiary and an Incentive Stock Option is granted to
such employee, the option price shall be no less than 110% of the Fair Market
Value of the Stock on the date the option is granted.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the option is granted. If an employee owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company or any
Parent Corporation or Subsidiary and an Incentive Stock Option is granted to
such employee, the term of such option shall be no more than five years from the
date of grant.
(c) Exercisability. Stock Options shall be exercisable at such time or
times as determined by the Committee at or after grant. If the Committee
provides, in its discretion, that any option is exercisable only in
installments, the Committee may waive such installment exercise provisions at
any time. Notwithstanding the foregoing, unless the Stock Option Agreement
provides otherwise, any Stock Option granted under this Plan shall be
exercisable in full, without regard to any installment exercise provisions, for
a period specified by the Company, but not to exceed sixty (60) days, prior to
the occurrence of any of the following events: (i) dissolution or liquidation of
the Company other than in conjunction with a bankruptcy of the Company or any
similar occurrence, (ii) any merger, consolidation, acquisition, separation,
reorganization, or similar occurrence, where the Company will not be the
surviving entity or (iii) the transfer of substantially all of the assets of the
Company or 75% or more of the outstanding Stock of the Company.
(d) Method of Exercise. Stock Options may be exercised in whole or in
part at any time during the option period by giving written notice of exercise
to the Company specifying the number of shares to be purchased. Such notice
shall be accompanied by payment in full of the purchase price, either by
certified or bank check, or by any other form of legal consideration deemed
sufficient by the Committee and consistent with the Plan's purpose and
applicable law, including promissory notes or a properly executed exercise
notice together with irrevocable instructions to a broker acceptable to the
Company to promptly deliver to the Company the amount of sale or loan proceeds
to pay the exercise price. As determined by the Committee, in its sole
discretion, payment in full or in part may also be made in the form of
unrestricted Stock already owned by the optionee or, in the case of the exercise
of a Non-Qualified Stock Option, Restricted Stock or Deferred Stock subject to
an award hereunder (based, in each case, on the Fair Market Value of the Stock
on the date the option is exercised, as determined by the Committee), provided,
however, that in the event payment is made in the form of shares of Restricted
Stock or a Deferred Stock award, the optionee will receive a portion of the
option shares in the form of, and in an amount equal to, the Restricted Stock or
Deferred Stock award tendered as payment by the optionee. An optionee may elect
to pay all or part of the option exercise price by having the Company withhold
from the shares of Stock that would otherwise be issued upon exercise that
number of shares of Stock having a Fair Market Value equal to the aggregate
option exercise price for the shares with respect to which such election is
made. No shares of Stock shall be issued until full payment therefor has been
made. An optionee shall generally have the rights to dividends and other rights
of a shareholder with respect to shares subject to the option when the optionee
has given written notice of exercise, has paid in full for such shares, and, if
requested, has given the representation described in paragraph (a) of Section
12.
(e) Non-transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution, and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee.
(f) Termination by Death. If an optionee's employment by the Company
and any Subsidiary or Parent Corporation terminates by reason of death, the
Stock Option may thereafter be immediately exercised, to the extent then
exercisable (or on such accelerated basis as the Committee shall determine at or
after grant), by the legal representative of the estate or by the legatee of the
optionee under the will of the optionee, for a period of one year (or such
shorter period as the Committee shall specify at grant) from the date of such
death or until the expiration of the stated term of the option, whichever period
is shorter.
(g) Termination by Reason of Disability. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be exercised,
to the extent it was exercisable at the time of termination due to Disability
(or on such accelerated basis as the Committee shall determine at or after
grant), but may not be exercised after one year (or such shorter period as the
Committee shall specify at grant) from the date of such termination of
employment or the expiration of the stated term of the option, whichever period
is the shorter. In the event of termination of employment by reason of
Disability, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, the
option will thereafter be treated as a Non-Qualified Stock Option.
(h) Termination by Reason of Retirement. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Retirement, any Stock Option held by such optionee may thereafter be exercised
to the extent it was exercisable at the time of such Retirement, but may not be
exercised after three months (or such longer period as the Committee shall
specify at Retirement)from the date of such termination of employment or the
expiration of the stated term of the option, whichever period is the shorter. In
the event of termination of employment by reason of Retirement, if an Incentive
Stock Option is exercised after the expiration of the exercise periods that
apply for purposes of Section 422 of the Code, the option will thereafter be
treated as a Non-Qualified Stock Option.
(i) Other Termination. Unless otherwise determined by the Committee, if
an optionee's employment by the Company and any Subsidiary or Parent Corporation
terminates for any reason other than death, Disability or Retirement, the Stock
Option shall thereupon terminate, except that the option may be exercised to the
extent it was exercisable at such termination for the lesser of three months (or
such shorter period as the Committee shall specify at grant) or the balance of
the option's term, provided, however, that if the optionee's employment is
terminated for Cause, all rights under the Stock Option shall terminate and
expire upon such termination.
(j) Annual Limit on Incentive Stock Options. The aggregate Fair Market
Value (determined as of the time the Option is granted) of the Common Stock with
respect to which an Incentive Stock Option under this Plan or any other plan of
the Company and any Subsidiary or Parent Corporation is exercisable for the
first time by an optionee during any calendar year shall not exceed $100,000.
(k) Non-Employee Directors. Each Non-Employee Director who on or after
the date this Plan is approved by the shareholders of the Company (A) is elected
or re-elected as a director of the Company at any annual meeting of the
shareholders of the Company, or (B) is elected as a director of the Company at
any special meeting of the shareholders of the Company, shall as of the date of
such election or re-election automatically be granted a Stock Option to purchase
1,000 shares of Stock at the option price per share equal to 100% of the Fair
Market Value of a share of Stock on such date. In the case of a special meeting,
the action of the shareholders in electing a Non-Employee Director shall
constitute the granting of the Stock Option to such director, and, in the case
of an annual meeting, the action of the shareholders in electing or re-electing
a Non-Employee Director shall constitute the granting of a Stock Option to such
director; and the date when the shareholders take such action shall be the date
of grant of the Stock Option. All such Stock Options shall be designated as
Non-Qualified Stock Options and shall be subject to the same terms and
provisions as are then in effect with respect to the granting of Non-Qualified
Stock Options to officers and key employees of the Company, except that (i) the
term of each such Stock Option shall be equal to five (5) years, unless such
Non-Employee Director ceases to be a member of the Board, in which case the
Stock Option shall expire 30 days after such Non-Employee Director's departure
from the Board; (ii) the Stock Option shall be exercisable as to 25% of the
shares subject to the Stock Option six months after the date the Stock Option is
granted and as to an additional 25% each of the three subsequent anniversary
dates of the grant of such options, and (iii) no Stock Appreciation Rights may
be granted to any Non-Employee Director under this paragraph (k) or in any other
manner under this Plan. Subject to the foregoing, all provisions of this Plan
not inconsistent with the foregoing shall apply to Stock Options granted to
Non-Employee Directors.
SECTION 6. Stock Appreciation Rights.
(a) Grant and Exercise. Except as set forth in paragraph (k) of Section
5, Stock Appreciation Rights may be granted in conjunction with all or part of
any Stock Option granted under the Plan. In the case of a Non-Qualified Stock
Option, such rights may be granted either at or after the time of the grant of
such Option. In the case of an Incentive Stock Option, such rights may be
granted only at the time of the grant of the option.
A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, except that a
Stock Appreciation Right granted with respect to less than the full number of
shares covered by a related stock Option shall not be reduced until the exercise
or termination of the related Stock Option exceeds the number of shares not
covered by the Stock Appreciation Right.
A Stock Appreciation Right may be exercised by an optionee, in
accordance with paragraph (b) of this Section 6, by surrendering the applicable
portion of the related Stock Option. Upon such exercise and surrender, the
optionee shall be entitled to receive an amount determined in the manner
prescribed in paragraph (b) of this Section 6. Stock Options which have been so
surrendered, in whole or in part, shall no longer be exercisable to the extent
the related Stock Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at
such time or times and to the extent that the Stock Options to which
they relate shall be exercisable in accordance with the provisions of
Section 5 and this Section 6 of the Plan.
(ii) Upon the exercise of a Stock Appreciation Right, an
optionee shall be entitled to receive up to, but not more than, an
amount in cash or shares of Stock equal in value to the excess of the
Fair Market Value of one share of Stock over the option price per share
specified in the related option multiplied by the number of shares in
respect of which the Stock Appreciation Right shall have been
exercised, with the Committee having the right to determine the form of
payment.
(iii) Stock Appreciation Rights shall be transferable only
when and to the extent that the underlying Stock Option would be
transferable under Section 5 of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the
Stock Option or part thereof to which such Stock Appreciation Right is
related shall be deemed to have been exercised for the purpose of the
limitation set forth in Section 3 of the Plan on the number of shares
of Stock to be issued under the Plan, but only to the extent of the
number of shares issued or issuable under the Stock Appreciation Right
at the time of exercise based on the value of the Stock Appreciation
Right at such time.
(v) A Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the market
price of the Stock subject to the Incentive Stock Option exceeds the
exercise price of such Option.
SECTION 7. Restricted Stock.
(a) Administration. Shares of Restricted Stock may be issued either
alone or in addition to other awards granted under the Plan. The Committee shall
determine the officers and key employees of the Company and Subsidiaries to
whom, and the time or times at which, grants of Restricted Stock will be made,
the number of shares to be awarded, the time or times within which such awards
may be subject to forfeiture, and all other conditions of the awards. The
Committee may also condition the grant of Restricted Stock upon the attainment
of specified performance goals. The provisions of Restricted Stock awards need
not be the same with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of an award of
shares of Restricted Stock shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
and has delivered a fully executed copy thereof to the Company, and has
otherwise complied with the then applicable terms and conditions.
(i) Each participant shall be issued a stock certificate in
respect of shares of Restricted Stock awarded under the Plan. Such
certificate shall be registered in the name of the participant, and
shall bear an appropriate legend referring to the terms, conditions,
and restrictions applicable to such award, substantially in the
following form:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including forfeiture) of the Washington Scientific
Industries, Inc. 1994 Stock Plan and an Agreement entered into
between the registered owner and Washington Scientific
Industries, Inc. Copies of such Plan and Agreement are on file
in the offices of Washington Scientific Industries, Inc., 2605
West Wayzata Boulevard, Long Lake, MN 55356."
(ii) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock award, the participant shall have delivered a stock
power, endorsed in blank, relating to the Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to the Plan shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of this Plan and the award
agreement, during a period set by the Committee commencing with the
date of such award (the "Restriction Period"), the participant shall
not be permitted to sell, transfer, pledge or assign shares of
Restricted Stock awarded under the Plan. In no event shall the
Restriction Period be less than one (1) year. Within these limits, the
Committee may provide for the lapse of such restrictions in
installments where deemed appropriate.
(ii) Except as provided in paragraph (c)(i) of this Section 7,
the participant shall have, with respect to the shares of Restricted
Stock, all of the rights of a shareholder of the Company, including the
right to vote the shares and the right to receive any cash dividends.
The Committee, in its sole discretion, may permit or require the
payment of cash dividends to be deferred and, if the Committee so
determines, reinvested in additional shares of Restricted Stock (to the
extent shares are available under Section 3). Certificates for shares
of unrestricted Stock shall be delivered to the grantee promptly after,
and only after, the period of forfeiture shall have expired without
forfeiture in respect of such shares of Restricted Stock.
(iii) Subject to the provisions of the award agreement and
paragraph (c)(iv) of this Section 7, upon termination of employment for
any reason during the Restriction Period, all shares still subject to
restriction shall be forfeited by the participant.
(iv) In the event of special hardship circumstances of a
participant whose employment is terminated (other than for Cause),
including death, Disability or Retirement, or in the event of an
unforeseeable emergency of a participant still in service, the
Committee may, in its sole discretion, when it finds that a waiver
would be in the best interest of the Company, waive in whole or in part
any or all remaining restrictions with respect to such participant's
shares of Restricted Stock.
(v) Notwithstanding the foregoing, all restrictions with
respect to any participant's shares of Restricted Stock shall lapse, on
the date determined by the Committee, prior to, but in no event more
than sixty (60) days prior to, the occurrence of any of the following
events: (i) dissolution or liquidation of the Company, other than in
conjunction with a bankruptcy of the Company or any similar occurrence,
(ii) any merger, consolidation, acquisition, separation,
reorganization, or similar occurrence, where the Company will not be
the surviving entity or (iii) the transfer of substantially all of the
assets of the Company or 75% or more of the outstanding Stock of the
Company.
SECTION 8. Deferred Stock Awards.
(a) Administration. Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the officers and key employees of the Company and Subsidiaries to whom and the
time or times at which Deferred Stock shall be awarded, the number of Shares of
Deferred Stock to be awarded to any participant or group of participants, the
duration of the period (the "Deferral Period") during which, and the conditions
under which, receipt of the Stock will be deferred, and the terms and conditions
of the award in addition to those contained in paragraph (b) of this Section 8.
The Committee may also condition the grant of Deferred Stock upon the attainment
of specified performance goals. The provisions of Deferred Stock awards need not
be the same with respect to each recipient.
(b) Terms and Conditions.
(i) Subject to the provisions of this Plan and the award
agreement, Deferred Stock awards may not be sold, assigned,
transferred, pledged or otherwise encumbered during the Deferral
Period. In no event shall the Deferral Period be less than one (1)
year. At the expiration of the Deferral Period (or Elective Deferral
Period, where applicable), share certificates shall be delivered to the
participant, or his legal representative, in a number equal to the
shares covered by the Deferred Stock award.
(ii) Amounts equal to any dividends declared during the
Deferral Period with respect to the number of shares covered by a
Deferred Stock award will be paid to the participant currently or
deferred and deemed to be reinvested in additional Deferred Stock or
otherwise reinvested, all as determined at the time of the award by the
Committee, in its sole discretion.
(iii) Subject to the provisions of the award agreement and
paragraph (b)(iv) of this Section 8, upon termination of employment for
any reason during the Deferral Period for a given award, the Deferred
Stock in question shall be forfeited by the participant.
(iv) In the event of special hardship circumstances of a
participant whose employment is terminated (other than for Cause)
including death, Disability or Retirement, or in the event of an
unforeseeable emergency of a participant still in service, the
Committee may, in its sole discretion, when it finds that a waiver
would be in the best interest of the Company, waive in whole or in part
any or all of the remaining deferral limitations imposed hereunder with
respect to any or all of the participant's Deferred Stock.
(v) A participant may elect to further defer receipt of the
award for a specified period or until a specified event (the "Elective
Deferral Period"), subject in each case to the Committee's approval and
to such terms as are determined by the Committee, all in its sole
discretion. Subject to any exceptions adopted by the Committee, such
election must generally be made prior to completion of one half of the
Deferral Period for a Deferred Stock award (or for an installment of
such an award).
(vi) Each award shall be confirmed by, and subject to the
terms of, a Deferred Stock agreement executed by the Company and the
participant.
SECTION 9. Transfer, Leave of Absence, etc.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer of an employee from the Company to a Parent Corporation
or Subsidiary, or from a Parent Corporation or Subsidiary to the Company, or
from one Subsidiary to another;
(b) a leave of absence, approved in writing by the Committee, for
military service or sickness, or for any other purpose approved by the Company
if the period of such leave does not exceed ninety (90) days (or such longer
period as the Committee may approve, in its sole discretion); and
(c) a leave of absence in excess of ninety (90) days, approved in
writing by the Committee, but only if the employee's right to reemployment is
guaranteed either by a statute or by contract, and provided that, in the case of
any leave of absence, the employee returns to work within 30 days after the end
of such leave.
SECTION 10. Amendments and Termination.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made (i) which would impair the rights
of an optionee or participant under a Stock Option, Stock Appreciation Right,
Restricted Stock, Deferred Stock or other Stock-based award theretofore granted,
without the optionee's or participant's consent, or (ii) which without the
approval of the stockholders of the Company would cause the Plan to no longer
comply with Rule 16b-3 under the Securities Exchange Act of 1934, Section 422 of
the Code or any other regulatory requirements.
The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively, but, subject to Section 3 above, no
such amendment shall impair the rights of any holder without his consent. The
Committee may also substitute new Stock Options for previously granted options,
including previously granted options having higher option prices.
SECTION 11. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder, provided, however, that the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.
SECTION 12. General Provisions.
(a) The Committee may require each person purchasing shares pursuant to
a Stock Option under the Plan to represent to and agree with the Company in
writing that the optionee is acquiring the shares without a view to distribution
thereof. The certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan pursuant
to any Restricted Stock, Deferred Stock or other Stock-based awards shall be
subject to such stock-transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock is
then listed, and any applicable Federal or state securities laws, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(b) Subject to paragraph (d) below, recipients of Restricted Stock,
Deferred Stock and other Stock-based awards under the Plan (other than Stock
Options) are not required to make any payment or provide consideration other
than the rendering of services.
(c) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases. The adoption
of the Plan shall not confer upon any employee of the Company or any Subsidiary
any right to continued employment with the Company or a Subsidiary, as the case
may be, nor shall it interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of any of its employees at any time.
(d) Each participant shall, no later than the date as of which any part
of the value of an award first becomes includible as compensation in the gross
income of the participant for Federal income tax purposes, pay to the Company,
or make arrangements satisfactory to the Committee regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to the award. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company and Subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant. With respect to
any award under the Plan, if the terms of such award so permit, a participant
may elect by written notice to the Company to satisfy part or all of the
withholding tax requirements associated with the award by (i) authorizing the
Company to retain from the number of shares of Stock that would otherwise be
deliverable to the participant, or (ii) delivering to the Company from shares of
Stock already owned by the participant, that number of shares having an
aggregate Fair Market Value equal to part or all of the tax payable by the
participant under this Section 12(d). Any such election shall be in accordance
with, and subject to, applicable tax and securities laws, regulations and
rulings.
SECTION 13. Effective Date of Plan.
The Plan shall be effective on September 29, 1994 (the date of approval
by the Board of Directors), subject to approval by a vote of the holders of a
majority of the Stock present and entitled to vote at the Annual Meeting of the
Company's Shareholders on January 12, 1995, and shall expire (unless terminated
earlier) as of September 29, 2004. Awards may be granted under the Plan prior to
Shareholder approval, provided such awards are made subject to Shareholder
approval. Shareholder approval of the Plan was obtained on January 12, 1995.
EXHIBIT 10.3
THIRD AMENDMENT TO CREDIT AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AND SECURITY AGREEMENT ("Amendment"),
dated as of February 28, 1995, is entered into between WASHINGTON SCIENTIFIC
INDUSTRIES, INC. (the "Borrower") and FBS BUSINESS FINANCE CORPORATION (the
"Lender").
RECITALS
WHEREAS the Borrower and the Lender are parties to that certain Credit
and Security Agreement dated as of March 15, 1993, as supplemented by Supplement
A to Credit and Security Agreement dated as of March 15, 1993 ("Supplement A")
and as amended by that certain First Amendment to Credit and Security Agreement
dated as of December 10, 1993, as the maturity of which was extended by that
certain Extension Agreement dated as of March 15, 1994 and by that certain
Extension Agreement dated as of March 31, 1994 and as amended by that certain
Second Amendment to Credit and Security Agreement dated as of April 6, 1994 (as
so supplemented, amended and extended, the "Credit Agreement"); and
WHEREAS, the Lender's commitment to make loans under the Credit
Agreement terminates and the loans thereunder mature on February 28, 1995; and
WHEREAS, the Borrower has requested the Lender to extend its
commitment to make loans and the maturity of the outstanding loans under the
Credit Agreement; and
WHEREAS, the Lender is willing to grant the Borrower's request on the
terms and subject to the conditions contained herein.
NOW, THEREFORE, in consideration of the continued performance by
Borrower of its promises and obligations under this Amendment, the Credit
Agreement, and all documents executed and delivered pursuant hereto and thereto,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Borrower and the Lender hereby agree as
follows:
1. Definitions.
(a) All capitalized terms used herein shall have the meaning
ascribed to them in the Credit Agreement unless otherwise specifically
defined herein.
(b) The definition of "Termination Date" contained in Article I
of the Credit Agreement is hereby amended in its entirety as follows:
"Termination Date": The earlier of (a) March 31, 1995 or (b)
the date upon which all Obligations shall have been declared to
be due and payable as a result of the occurrence of an Event of
Default as provided in Section 7.2.
(c) The following new definition is hereby added to Article I of
the Credit Agreement:
"Third Amendment": The Third Amendment to Credit and
Security Agreement between the Borrower and the Lender dated as
of February 28, 1995.
2. Reaffirmation. Except as expressly modified by this Amendment, all
of the terms, conditions, provisions, agreements, requirements, promises,
obligations, duties, covenants and representations of the Borrower under the
Credit Agreement, the Loan Documents and any Supplemental Documentation are
hereby reaffirmed by the Borrower.
3. Representations, Warranties and Acknowledgements of Borrower. The
Borrower represents, warrants and acknowledges to the Lender that:
(a) The above Recitals are true and correct as of the date hereof.
(b) The Borrower's Obligations to the Lender exist and are owing with
no offset, defense or counterclaim assertable by the Borrower.
(c) The per annum interest rate applicable to the Obligations pursuant
to Section 3.1(a) of Supplement A is the Reference Rate in effect from time
to time plus three percent (3%), subject to reduction as provided in said
Section 3.1(a).
(d) The Borrower is a corporation duly incorporated and validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to carry
on its business as now conducted, to enter into this Amendment and to
perform its obligations hereunder and under the Credit Agreement as amended
hereby. This Amendment has been duly authorized by all necessary corporate
action and when executed and delivered will be the legal and binding
obligation of the Borrower. The execution and delivery of this Amendment
will not violate the Borrower's Articles of Incorporation or bylaws or any
law applicable to the Borrower. No governmental consent or exemption or
third party consent is required in connection with the Borrower's
execution and delivery of this Amendment that has not been obtained by the
date hereof other than previously disclosed by the Borrower to the Lender
in writing.
(e) The Borrower's audited financial statements as of August 28, 1994
have been prepared in accordance with GAAP and such audited financial
statements and the Borrower's preliminary financial statements as at
January 22, 1995 fairly present the Borrower's financial condition as at
each such date. The Borrower has no material obligation or liability not
disclosed in such financial statements, and there has been no material
adverse change in the condition of the Borrower since the dates of such
financial statements, except as disclosed by the Borrower to the Lender.
4. Amendments to Supplement A.
(a) Section 5.1 is hereby amended in its entirety as follows:
5.1 Net Loss. Permit the Borrower's net loss to exceed (a)
$536,000 for the three months ending May 29, 1994, (b) $378,000 for
the three months ending August 28, 1994,(c) $120,000 for the three
months ending November 27, 1994 and (d) $332,000 for the three months
ending February 26, 1995 and (e) for each measurement period specified
below, the amount specified therefor:
Maximum Permitted
Measurement Period Net Loss
December 27, 1993 through
January 23, 1994 $225,000
January 24, 1994 through
February 27, 1994 $125,000
February 28, 1994 through
March 27, 1994 $140,000
March 28, 1994 through
April 24, 1994 $186,000
April 25, 1994 through
May 29, 1994 $235,000
May 30, 1994 through
June 26, 1994 $112,000
June 27, 1994 through
July 24, 1994 $107,000
July 25, 1994 through
August 28, 1994 $184,000
August 29, 1994 through
September 25, 1994 $ 66,000
September 26, 1994 through
October 23, 1994 $ 71,000
October 24, 1994 through
November 27, 1994 $ 8,000
November 28, 1994 through
December 25, 1994 $ 3,000
December 26, 1994 through
January 22, 1995 $ 6,000
January 23, 1995 through
February 26, 1995 $100,000
February 27, 1995 through
March 26, 1995 $ 50,000
(b) Section 5.2 is hereby amended in its entirety as follows:
5.2 Leverage Ratio. Permit the ratio ("Leverage Ratio") of the
Borrower's consolidated total liabilities to Net Worth to exceed
(a)4.5 to 1.0 as of February 27,1994,(b) 4.5 to 1.0 as of May
29,1994,(c)4.7 to 1.0 as of August 28, 1994, (d) 4.7 to 1.0 as of
November 27,1994, and (e)4.7 to 1.0 as of February 26, 1995.
5. Amendment to Article VII of the Credit Agreement. Section 7.1(o) is
hereby amended in its entirety as follows:
7.1(o) Defaults under Amendments. The Borrower shall default in
performance of its obligations under the First Amendment, the Second
Amendment or under the Third Amendment.
6. Limited Waiver. Upon execution of this Amendment the Lender waives
the Event of Default arising out of the Borrower's failure during the reporting
period as of December 25, 1994 to comply with Section 5.1 of Supplement A (Net
Loss); provided, that, the waiver of the Event of Default granted hereby shall
not constitute a waiver by the Lender of any other Unmatured Event of Default or
Event of Default, if any, under the Credit Agreement, and shall not be, and
shall not be deemed to be, a course of action with respect thereto upon which
the Borrower may rely in the future, and the Borrower hereby expressly waives
any claim to such effect.
7. Extension Fee. In consideration of entry by the Lender into this
Amendment, the Borrower shall pay to the Lender an extension fee in the amount
of $2,000 upon execution of this Amendment. This fee shall be in addition to the
monthly administrative fee and the nonuse fee which shall continue in effect as
provided in the Credit Agreement.
8. Reaffirmation. The Borrower hereby reaffirms that from the
Effective Date (as hereinafter defined) until the Termination Date (as the
definition of such term is amended in this Third Amendment) the Borrower shall
make no payments on the Insurance Company Notes other than the payment required,
if any, on the Insurance Company Notes on March 5, 1995, as set forth in Exhibit
A-1 to that certain First Amendment to Intercreditor Agreement dated as of April
6, 1994 (a copy of which is attached to the Second Amendment to the Credit
Agreement as Exhibit C).
9. Conditions Precedent. The Borrower acknowledges that this Amendment
shall become effective as of February 28, 1995 ("Effective Date"), but only upon
receipt by the Lender of all of the following which, in the case of all
documents, instruments and agreements, shall be duly executed by the appropriate
parties and be in form and substance satisfactory to the Lender, in its sole
discretion, and to counsel to the Lender:
(a) Counterparts of this Amendment duly executed by the Lender and the
Borrower;
(b) A copy of the resolutions of the Board of Directors of the
Borrower authorizing the execution, delivery and performance of this
Amendment and of any other writings to be delivered in connection herewith,
certified by its secretary or assistant secretary;
(c) A certificate of the secretary or assistant secretary of the
Borrower certifying the names of the officers of the Borrower authorized to
sign this Amendment, together with the true signatures of such officers;
(d) Such other agreements, instruments and documents as the Lender
may request the Borrower to deliver, or to cause to be delivered, to
effectuate this Amendment.
10. No Defaults. The Borrower hereby represents and warrants to the
Lender that, except as otherwise waived herein, no Event of Default or Unmatured
Event of Default has occurred or its continuing under the Credit Agreement.
11. Reimbursement of Expenses. The Borrower agrees to promptly
reimburse the Lender for any and all reasonable expenses, fees and
disbursements, including reasonable attorneys' fees incurred in connection with
the preparation, negotiation and execution of this Amendment, and all documents
related hereto and thereto.
12. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to be
an original, and all of which counterparts of this Amendment when taken
together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date and year first written above.
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
By /s/ W.J. Lucke
Its Vice President
FBS BUSINESS FINANCE CORPORATION
By /s/ Leonard H. Ramotar
Its Vice President
EXHIBIT 10.4
AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
by and between
FBS BUSINESS FINANCE CORPORATION,
a Delaware Corporation,
and
WASHINGTON SCIENTIFIC INDUSTRIES, INC.,
a Minnesota Corporation,
Dated
MARCH 31, 1995
TABLE OF CONTENTS
Page
RECITALS 1
ARTICLE I - DEFINITIONS AND ACCOUNTING TERMS 2
1.1 Definitions 2
1.2 Accounting Terms and Calculations 14
1.3 Other Definitional Provisions 15
ARTICLE II - REVOLVING LOANS; TERM LOAN; OTHER MATTERS 15
2.1 Loans 15
2.1.1 Revolving Loans 15
2.1.2 Term Loan 15
2.1.3 All Loans Payable on Termination Date 17
2.2 Letters of Credit 17
2.3 Loan Account; Disbursement Account; Controlled
Disbursement Account 19
2.4 Interest; Fees 19
2.5 Requests for Revolving Loans; Borrowing Base
Certificates; Other Information 20
2.6 Notes 21
2.7 Overdraft Loans 21
2.8 Over Advances 21
2.9 All Loans One Obligation 22
2.10 Making of Payments; Application of Collections;
Charging of Accounts 22
2.11 Lender's Election Not to Enforce 24
ARTICLE III- COLLATERAL 24
3.1 Grant of Security Interest 24
3.2 Accounts Receivable 26
3.3 Inventory 27
3.4 Equipment 28
3.5 Supplemental Documentation 28
3.6 Power of Attorney 28
3.7 Mortgages 30
ARTICLE IV - REPRESENTATIONS AND WARRANTIES 30
4.1 Organization 3O
4.2 Authorization 30
4.3 No Conflicts 31
4.4 Validity and Binding Effect 31
4.5 No Default 31
4.6 Financial Statements 31
4.7 Insurance 31
4.8 Litigation; Contingent Liabilities 32
4.9 Liens 32
4.10 Subsidiaries 32
4.11 Partnerships 32
4.12 Business Locations 32
4.13 Collateral Locations 33
4.14 Eligibility of Collateral 33
4.15 Control of Collateral; Lease of Property 33
4.16 Patents, Trademarks, Etc. 34
4.17 Solvency 34
4.18 Contracts; Labor Matters 34
4.19 ERISA 34
4.20 Regulation U 34
4.21 Compliance 35
4.22 Taxes 35
4.23 Investment Company Act 35
4.24 Public Utility Holding Company Act 35
4.25 Environmental and Safety and Health Matters 35
ARTICLE V - AFFIRMATIVE COVENANTS 36
5.1 Financial Statements and Other Reports 36
5.1.1 Financial Reports 36
5.1.2 Agings; Ineligible Accounts Receivable Certificates 38
5.1.3 Other Reports 38
5.2 Notices 38
5.3 Existence 40
5.4 Nature of Business 40
5.5 Books, Records and Access 41
5.6 Insurance 41
5.7 Insurance Survey 42
5.8 Repair 42
5.9 Taxes 42
5.10 Compliance 43
5.11 Collateral Monitoring 43
ARTICLE VI - NEGATIVE COVENANTS 43
6.1 Merger 43
6.2 Sale of Assets 43
6.3 Purchase of Assets 43
6.4 ERISA 43
6.5 Changes in Collateral or Business Locations 43
6.6 Subsidiaries, Partnerships and Joint Ventures 44
6.7 Other Agreements 44
6.8 Restricted Payments 44
6.9 Leases 44
6.10 Investments 44
6.11 Indebtedness 44
6.12 Liens 45
6.13 Contingent Liabilities 45
6.14 Change in Accounts Receivable 45
6.15 Unconditional Purchase Obligations 45
6.16 Use of Proceeds 46
6.17 Transactions with Related Parties 46
ARTICLE VII - EVENTS OF DEFAULT AND REMEDIES 46
7.1 Events of Default 46
7.2 Effect of Event of Default; Remedies 49
7.3 Setoff 50
ARTICLE VIII - COLLATERAL AND THE LENDER'S RIGHTS 50
8.1 Notice of Disposition of Collateral 50
8.2 Application of Proceeds of Collateral 50
8.3 Care of Collateral 51
8.4 Performance of Borrower's Obligations 51
8.5 Lender's Rights 51
ARTICLE IX - CONDITIONS PRECEDENT 52
9.1 Conditions Precedent to Initial Loans 52
9.1.1 No Change in Condition 52
9.1.2 Accounting Methods 52
9.1.3 Survey 52
9.1.4 No Material Transaction 52
9.1.5 Litigation 52
9.1.6 Filing of Documents 52
9.1.7 Delivery of Documents 53
9.1.8 Security Interest 55
9.1.9 Controlled Disbursement Account Agreement 55
9.1.10 Effect of Law 55
9.1.11 Exhibits; Schedules 55
9.2 Conditions Precedent to All Loans 55
ARTICLE X - INDEMNITY 56
10.1 Environmental and Safety and Health Indemnity 56
10.2 General Indemnity 56
10.3 Capital Adequacy 57
ARTICLE XI - ADDITIONAL PROVISIONS 57
ARTICLE XII - GENERAL 57
12.1 Borrower's Waiver 57
12.2 Expenses; Attorney's Fees 58
12.3 Lender Fees and Charges 58
12.4 No Waiver by Lender; Amendments 58
12.5 Notice 59
12.6 Participations; Information 59
12.7 Severability 59
12.8 Successors 59
12.9 Entire Agreement; Effect of Agreement 59
12.10 Counterparts 60
12.11 Construction 60
12.12 Consent to Jurisdiction 60
12.13 Subsidiary Reference 60
12.14 Waiver of Jury Trial 61
12.15 Reaffirmation 61
SIGNATURE PAGE 62
AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
THIS AGREEMENT is made as of March 31, 1995, by and between FBS
BUSINESS FINANCE CORPORATION, a Delaware Corporation (the "Lender"), and
WASHINGTON SCIENTIFIC INDUSTRIES, INC., a Minnesota Corporation (the
"Borrower").
RECITALS
A. The Borrower and the Lender are parties to that certain Credit and
Security Agreement dated as of March 15, 1993, as supplemented by Supplement A
to Credit and Security Agreement dated as of March 15, 1993 ("Supplement A"),
and as amended by that certain First Amendment to Credit and Security Agreement
dated as of December 10, 1993 and as the maturity of which was extended by that
certain Extension Agreement dated as of March 15, 1994 and by that certain
Extension Agreement dated as of March 31, 1994, and as further amended by that
certain Second Amendment to Credit and Security Agreement dated as of April 6,
1994 and by that certain Third Amendment to Credit and Security Agreement dated
as of February 28, 1995 (as so supplemented, amended and extended, the
"Existing Credit Agreement").
B. The Lender has agreed to purchase certain secured loans having an
aggregate outstanding principal balance of $3,940,116.61 (the "Purchased Loans")
made to the Borrower by Northwestern National Life Insurance Company, Farm
Bureau Life Insurance Company of Michigan, Northern Life Insurance Company and
FB Annuity Company (collectively, the "Insurance Companies").
C. The Lender's commitment to make loans under the Existing Credit
Agreement terminates and the loans thereunder mature on March 31, 1995.
D. The Borrower has requested the Lender to extend its commitment to
make loans and the maturity of the outstanding loans under the Existing Credit
Agreement.
E. The Lender has agreed to extend the maturity of its commitment to
make loans the maturity thereof and the Lender and the Borrower have agreed to
amend and restate the terms and conditions of the Existing Credit Agreement and
of the Purchased Loans by entering into this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree and amend and restate in their entirety the
Existing Credit Agreement and the Purchased Loans as follows:
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
1.1 Definitions. In addition to terms defined elsewhere in this
Agreement or any Supplement, Exhibit or Schedule hereto, the following terms
shall have the following respective meanings (and such meanings shall be equally
applicable to both the singular and plural forms of the terms defined, as the
context may require):
"Account Debtor": Any Person who is or who may become obligated to the
Borrower under, with respect to, or on account of an Account Receivable, General
Intangible or other Collateral.
"Account Receivable": Any account of the Borrower and any other right
of the Borrower to payment for goods sold or leased or for services rendered,
whether or not evidenced by an instrument or chattel paper and whether or not
yet earned by performance.
"Adverse Event": The occurrence of any event that could have a
material adverse effect on the business, operations, property, assets or
condition (financial or otherwise) of the Borrower or on the ability of the
Borrower or any other Obligor to perform its obligations under the Loan
Documents.
"Affiliate" means any Person which directly or indirectly through one
or more intermediaries controls, or is controlled by, or is under common control
with, the Lender including, without limitation, FBNA. The term "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of stock, by contract or otherwise.
"Agreement": This Amended and Restated Credit and Security Agreement,
as it may be amended, modified, supplemented, restated or replaced from time to
time.
"Application": An application by the Borrower, in a form and
containing terms and provisions acceptable to the Lender, for the issuance by
the Lender, or any Affiliate, of a Letter of Credit.
"Attorneys' Fees": The value of the services (and costs, charges and
expenses related thereto) of the attorneys employed by the Lender (including,
without limitation, attorneys and paralegals who are employees of the Lender or
any Affiliate) from time to time (a) in connection with the negotiation,
preparation, execution delivery, administration and enforcement of the Loan
Documents, (b) to prepare documentation related to the Loans and other
Obligations, (c) to represent the Lender in any litigation, contest, dispute,
suit or proceeding or to commence, defend or intervene in any litigation
contest, dispute, suit or proceeding or to file a petition, complaint, answer,
motion or other pleading, or to take any other action in or with respect to, any
litigation, contest, dispute, suit or proceeding (whether instituted by the
Lender, the Borrower or any other Person and whether in bankruptcy or otherwise)
in any way or respect relating to the Collateral, any Third Party Collateral,
the Loan Documents, or the Borrower's or any other Obligor's or any Subsidiary's
affairs, (d) to protect, collect, lease, sell, take possession of, or liquidate
any of the Collateral or any Third Party Collateral, (e) to attempt to enforce
any security interest in any of the Collateral or any Third Party Collateral or
to give any advice with respect to such enforcement, and (f) to enforce any of
the Lender's rights to collect any of the Obligations.
"Borrowing Base": The term "Borrowing Base" shall have the meaning
given such term in Supplement A.
"Borrowing Base Certificate": The term "Borrowing Base Certificate"
shall have the meaning given such term in Section 2.5(c).
"Business Day": Any day (other than a Saturday, Sunday or legal
holiday in the State of Minnesota) on which national banks are permitted to be
open in Minneapolis, Minnesota.
"Capital Expenditure": Any amount debited to the fixed asset account
on the consolidated balance sheet of the Borrower in respect of (a) the
acquisition (including, without limitation, acquisition by entry into a
Capitalized Lease), construction, improvement, replacement or betterment of
land, buildings, machinery, equipment or of any other fixed assets or
leaseholds, and (b) to the extent related to and not included in clause (a),
materials, contract labor and direct labor (excluding expenditures properly
chargeable to repairs or maintenance in accordance with GAAP).
"Capitalized Lease": Any lease which is or should be capitalized on
the books of the lessee in accordance with GAAP.
"Closing Date": The date on which all of the conditions precedent to
the initial Loans are satisfied.
"Code": The Internal Revenue Code of 1986, as amended, or any
successor statute, together with the regulations thereunder.
"Collateral": The term "Collateral" shall have the meaning given such
terms in Section 3.1.
"Collateral Account": The term "Collateral Account" shall have the
meaning given such term in Section 3.2(b)
"Consolidated Note": The term "Consolidated Note" shall have the
meaning given such term in Section 2.1.2(a).
"Controlled Disbursement Account": The term "Controlled Disbursement
Account" shall have the meaning given such term in Section 2.3(c).
"Credit": The facility established under this Agreement pursuant to
which the Lender will make Revolving Loans and purchase the Purchased Loans or
issue, or cause any Affiliate to issue, Letters of Credit for the account of the
Borrower.
"Default Rate": With respect to a Loan, the rate of interest which is
applicable to such Loan after any amount thereof is not paid when due, as
determined pursuant to Supplement A.
"Disbursement Account": The term "Disbursement Account" shall have the
meaning given such term in Section 2.3(b).
"EBITDA": For any period of determination, the consolidated net income
of the Borrower and the Subsidiaries before provision for income taxes, interest
expense (including, without limitation, implicit interest expense on Capitalized
Leases), depreciation, amortization and other non-cash expenses or charges, all
as determined in accordance with GAAP, excluding therefrom (to the extent
included): (a) non-operating gains (including, without limitation, extraordinary
or nonrecurring gains, gains from discontinuance of operations and gains arising
from the sale of assets other than Inventory) during the applicable period;
provided, that gain realized by the Borrower in fiscal year 1995 from the sale
of real property in Owatonna, Minnesota and from a pension curtailment shall not
be excluded from net income; and (b) similar non-operating losses during such
period.
"Eligible Account Receivable": An Account Receivable owing to the
Borrower which meets the following requirements:
(a) it is genuine and in all respects what it purports to be;
(b) it arises from either (i) the performance of services by the
Borrower, which services have been fully performed and, if applicable,
acknowledged and/or accepted by the Account Debtor with respect thereto; or
(ii) the sale or lease of goods by the Borrower and (A) such goods comply
with such Account Debtor's specifications (if any) and have been shipped
to, or delivered to and accepted by, such Account Debtor, (B) the Borrower
has possession of, or has delivered to the Lender, at the Lender's request,
shipping and delivery receipts evidencing such shipment, delivery and
acceptance, and (C) such goods have not been returned to the Borrower;
(c) it (i) is evidenced by an invoice rendered to the Account Debtor
with respect thereto which (A) is dated not earlier than the date of
shipment or performance and (B) has payment terms not unacceptable to the
Lender; and (ii) meets the Eligible Account Receivable requirements set
forth in Supplement A;
(d) it is not subject to any assignment, claim or Lien other than (i)
a Lien in favor of the Lender and (ii) Liens consented to by the Lender in
writing;
(e) it is a valid, legally enforceable and unconditional obligation of
the Account Debtor with respect thereto and is not subject to setoff,
counterclaim, credit or allowance (except any credit or allowance which has
been deducted in computing the net amount of the applicable invoice as
shown in the original schedule or Borrowing Base Certificate furnished to
the Lender identifying or including such Account Receivable) or adjustment
by the Account Debtor with respect thereto, or to any claim by such Account
Debtor denying liability thereunder in whole or in part, and such Account
Debtor has not refused to accept any of the goods or services which are the
subject of such Account Receivable or offered or attempted to return any of
such goods;
(f) to the best of the Borrower's then present knowledge, there are no
proceedings or actions which are then threatened or pending against the
Account Debtor with respect thereto or to which such Account Debtor is a
party which might result in any material adverse change in such Account
Debtor's financial condition or in its ability to pay any Account
Receivable in full when due;
(g) it does not arise out of a contract or order which, by its terms,
forbids, restricts or makes void or unenforceable the assignment by the
Borrower to the Lender of such Account Receivable;
(h) the Account Debtor with respect thereto is not a Subsidiary,
Related Party or Obligor, or a director, officer, employee or agent of the
Borrower, a Subsidiary, Related Party or Obligor;
(i) the Account Debtor with respect thereto is a resident or citizen
of and is located within the United States of America unless the sale of
goods giving rise to such Account Receivable is on letter of credit,
banker's acceptance or other credit support terms satisfactory to the
Lender;
(j) it does not arise from a "sale on approval," "sale or return" or
"consignment," nor is it subject to any other repurchase or return
agreement;
(k) it is not an Account Receivable with respect to which possession
and/or control of the goods sold giving rise thereto is held, maintained
or retained by the Borrower, any Subsidiary, Related Party or Obligor (or
by any agent or custodian of the Borrower, any Subsidiary, Related Party or
Obligor) for the account of or subject to further and/or future direction
from the Account Debtor with respect thereto;
(l) it does not, in any way, fail to meet or violate any warranty,
representation or covenant contained in the Loan Documents relating
directly or indirectly to the Borrower's Accounts Receivable;
(m) the Account Debtor with respect thereto is not located in the
States of Indiana, New Jersey or Minnesota, provided however, that such
restriction shall not apply if (i) the Borrower has filed and has effective
a Notice of Business Activities Report with the appropriate office or
agency of the States of Indiana, New Jersey or Minnesota, as applicable,
for the then current year or (ii) the Borrower is exempt from the filing of
such report;
(n) it arises in the ordinary course of the Borrower's business;
(o) if the Account Debtor with respect thereto is the United States of
America or any department, agency or instrumentality thereof, the Borrower
has assigned its right to payment of such Account Receivable to the Lender
pursuant to the Assignment of Claims Act of 1940 as amended;
(p) if the Lender, in its sole and absolute discretion, has
established a credit limit for the Account Debtor with respect thereto, the
aggregate dollar amount of Accounts Receivable due from such Account
Debtor, including such Account Receivable, does not exceed such credit
limit; and
(q) if it is evidenced by chattel paper or instruments, (i) the Lender
shall have specifically agreed to include such Account Receivable as an
Eligible Account Receivable, (ii) only payments then due and payable under
such chattel paper or instrument shall be included as an Eligible Account
Receivable and (iii) the originals of such chattel paper or instruments
have been assigned and delivered to the Lender in a manner satisfactory to
the Lender.
An Account Receivable which is at any time an Eligible Account Receivable but
which subsequently fails to meet any of the foregoing requirements shall
forthwith cease to be an Eligible Account Receivable. Further, with respect to
any Account Receivable, if the Lender at any time or times hereafter determines,
in its sole and absolute discretion, that the prospect of payment or performance
by the Account Debtor with respect thereto is or will be impaired for any reason
whatsoever, notwithstanding anything to the contrary contained above, such
Account Receivable shall forthwith cease to be an Eligible Account Receivable.
"Environmental Laws": The Resource Conservation and Recovery Act of
1987, the Comprehensive Environmental Response, Compensation and Liability Act,
any so-called "Superfund" or "Superlien" law, the Toxic Substances Control Act,
and any other federal, state or local statue, law, ordinance, code, rule,
regulation, order or decree regulating, relating to, or imposing liability or
standards of conduct concerning any Hazardous Materials or other hazardous,
toxic or dangerous waste, substance or constituent, or other substance, whether
solid, liquid or gas, as now or at any time hereafter in effect.
"Environmental Lien": A Lien in favor of any governmental entity for
(a) any liability under any Environmental Law, or (b) damages arising from or
costs incurred by such governmental entity in response to a spillage, disposal,
or release into the environment of any Hazardous Material or other hazardous,
toxic or dangerous waste, substance or constituent, or other substance.
"Equipment": All equipment of the Borrower of every description,
including, without limitation, fixtures, furniture, vehicles and trade fixtures,
together with any and all accessions, parts and equipment attached thereto or
used in connection therewith, and any substitutions therefor and replacements
thereof.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended, or any successor statute, together with the regulations thereunder.
"ERISA Affiliate": Any trade or business (whether or not incorporated)
that is a member of a group of which the Borrower is a member and which is
treated as a single employer under Section 414 of the Code.
"Event of Default": The term "Event of Default" shall have the meaning
given such term in Section 7.1.
"Excess Net Income": The amount by which the annual net income of the
Borrower for any fiscal year exceeds $1,500,000.
"Existing Credit Agreement": The term "Existing Credit Agreement"
shall have the meaning given such term in Recital A.
"FBNA": First Bank National Association a national banking association
having its offices at First Bank Place, 601 Second Avenue South, Minneapolis,
Minnesota 55402-4302.
"Federal Reserve Board": The Board of Governors of the Federal Reserve
System or any successor thereto.
"GAAP": Generally accepted accounting principles promulgated by the
Financial Accounting Standards Board, as applied in the preparation of the
audited financial statement of the Borrower referred to in Section 4.6.
"General Intangibles": All of the Borrower's intangible personal
property including things in action, causes of action and all other personal
property of the Borrower of every kind and nature (other than goods, accounts,
chattel paper, documents, instruments and money) including, without limitation,
corporate or other business records, inventions, designs, patents, patent
applications, trademarks, trademark applications, trade names, trade secrets,
goodwill, copyrights, registrations, licenses, franchises, customer lists, tax
refund claims, claims against carriers and shippers, guarantee claims, security
interests, security deposits or other security held by or granted to the
Borrower to secure payment by an Account Debtor of any of the Accounts
Receivable, any other rights to payment, including, without limitation, rights
to reimbursement or indemnification, and any other rights of whatsoever nature.
"Hazardous Materials": Any hazardous substance or pollutant or
contaminant defined as such in (or for the purposes of) any Environmental Law
including, without limitation, petroleum, including crude oil or any fraction
thereof which is liquid at standard conditions of temperature or pressure (60
degrees Fahrenheit and 14.7 pounds per square inch absolute), any radioactive
material, including any source, special nuclear or by-product material as
defined at 42 U.S.C. section 2011 et. seq., as amended or hereafter amended, and
asbestos in any form or condition.
"Indebtedness": Without duplication, all obligations, contingent or
otherwise, which in accordance with GAAP should be classified upon the obligor's
balance sheet as liabilities, but in any event including the following (whether
or not they should be classified as liabilities upon such balance sheet): (a)
any obligation secured by any mortgage, pledge, security interest, lien, charge
or other encumbrance existing on property owned or acquired subject thereto,
whether or not such obligation shall have been assumed and whether or not such
obligation is the obligation of the owner or another party; (b) any obligation
on account of deposits or advances; (c) any obligation for the deferred purchase
price of any property or services, except accounts payable arising in the
ordinary course of business; (d) any obligation as lessee under any Capitalized
Lease; (e) any guaranty, endorsement or other contingent obligation in respect
to Indebtedness of others; and (f) any undertaking or agreement to reimburse or
indemnify issuers of letters of credit. For all purposes of this Agreement, the
Indebtedness of any Person shall include the Indebtedness of any partnership or
joint venture in which such Person is a general partner or a joint venture.
"Indemnified Liabilities": The term "Indemnified Liabilities" shall
have the meaning given such term in Section 10.2.
"Indemnitees": The term "Indemnitees" shall have the meaning given
such term in Section 10.2.
"Insurance Companies": The term 'Insurance Companies" shall have the
meaning given such term in Recital B.
"Inventory": Any and all of the Borrower's goods, including, without
limitation, goods in transit, wheresoever located which are or may at any time
be leased by the Borrower to a lessee, held for sale or lease, furnished under
any contract of service or held as raw materials, work in process, or supplies
or materials used or consumed in the Borrower's business, or which are held for
use in connection with the manufacture, packing, shipping, advertising, selling
or finishing of such goods, and all goods, the sale or other disposition of
which has given rise to an Account Receivable, which are returned to and/or
repossessed and/or stopped in transit by the Borrower or the Lender, or at any
time hereafter in the possession or under the control of the Borrower or the
Lender, or any agent or bailee of either thereof, and all documents of title or
other documents representing the same.
"Investment": The acquisition, purchase, making or holding of any
stock or other security, any loan, advance, contribution to capital, extension
of credit (except for trade and customer accounts receivable for inventory sold
or services rendered in the ordinary course of business and payable in
accordance with customary trade terms), any acquisitions of real and personal
property (other than real and personal property acquired in the ordinary course
of business) and any purchase or commitment or option to purchase stock or other
debt or equity securities of, or any interest in, another Person or any integral
part of any business or the assets comprising such business or part thereof.
"L/C Draft": A draft drawn on the Lender, or any Affiliate, pursuant
to a Letter of Credit.
"Letter of Credit": A letter of credit issued by the Lender, or any
Affiliate, on the Application of the Borrower.
"Letter of Credit Obligations": An amount equal to the aggregate of
the original face amounts of all Letters of Credit minus the sum of (a) the
amount of any reduction(s) in the original face amount of any Letter of Credit
which did not result from a draw made under such Letter of Credit, (b) the
amount of any payments made by the Lender, or any Affiliate, with respect to a
Letter of Credit or L/C Draft for which the Borrower has reimbursed the Lender,
or such Affiliate, and (c) the undrawn portion of any issued, but expired,
Letter of Credit plus the amount of any increase(s) in the original face amount
of any Letter of Credit. For purposes of determining the outstanding Letter of
Credit Obligations at any time, the Lenders, or any Affiliate's, acceptance of
an L/C Draft shall constitute a draw on the applicable Letter of Credit at the
time of such acceptance.
"Letter of Credit Sublimit": The term "Letter of Credit Sublimit"
shall have the meaning given such term in Supplement A.
"Lien": Any security interest, mortgage, pledge, lien, hypothecation,
judgment lien or similar legal process, charge, encumbrance, title retention
agreement or analogous instrument or device (including, without limitation, the
interest of lessors under Capitalized Leases and the interest of a vendor under
any conditional sale or other title retention agreement).
"Loan": Any Revolving Loan made by the Lender to the Borrower pursuant
to Section 2.1.1, the Term Loan made by the Lender to the Borrower pursuant to
Section 2.1.2 and any other loan or advance made by the Lender to the Borrower
under or pursuant to this Agreement.
"Loan Account": The term "Loan Account" shall have the meaning given
such term in Section 2.3(a).
"Loan Documents": This Agreement, any Note, and each other instrument,
document, guaranty, mortgage, deed of trust, chattel mortgage, pledge, power of
attorney, consent, assignment, contract, notice, security agreement, lease,
reaffirmation agreement, financing statement, subordination agreement, trust
account agreement, or other agreement executed and delivered by the Borrower or
any guarantor or party granting security interests in connection with this
Agreement, the Loans or the Collateral.
"Long Term Debt": All Indebtedness of any Person for borrowed money or
which has been incurred in connection with the acquisition of assets in each
case having a final maturity of one or more than one year from the date of
origin thereof (or which is renewable or extendible at the option of the obligor
for a period or periods of more than one year from the date of origin),
including all payments in respect thereof that are required to be made within
one year from the date of any determination of Long Term Debt whether or not the
obligation to make such payments shall constitute a current liability of the
obligor under GAAP.
"Mandatory Prepayment Date": The date that is 95 days after the end of
each fiscal year of the Borrower in which Obligations under this Agreement are
outstanding.
"Net Worth": At any determination date, the total of all assets
appearing on a consolidated balance sheet of the Borrower at such date, prepared
in accordance with GAAP, after deducting all proper reserves (including reserves
for depreciation, obsolescence and amortization) minus all liabilities which in
accordance with GAAP would be included on the liability side of a consolidated
balance sheet.
"Note": Any promissory note of the Borrower evidencing any loan or
advance (including but not limited to the Loans) made by the Lender to the
Borrower pursuant to this Agreement or evidencing the Purchased Loans amended
and restated by this Agreement, including the Term Notes.
"Obligations": All of the liabilities, obligations and indebtedness of
the Borrower to the Lender, or any Affiliate, of any kind or nature, however
created, arising or evidenced, whether direct or indirect, absolute or
contingent, now or hereafter existing or due or to become due, and including,
without limitation, (a) the Borrower's obligations under the Loan Documents,
including obligations of performance, (b) the Borrower's obligations with
respect to any Letter of Credit or any Application, and (c) interest, charges,
expenses, Attorneys' Fees and other sums chargeable to the Borrower by the
Lender under the Loan Documents. "Obligations" shall also include any and all
amendments, extensions, renewals, refundings or refinancings of any of the
foregoing.
"Obligor": The Borrower and each other Person who is or shall become
primarily or secondarily liable on any of the Obligations or who grants to the
Lender a Lien on any property of such Person as security for any of the
Obligations.
"Occupational Safety and Health Law": The Occupational Safety and
Health Act of 1970 and any other federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to or
imposing liability or standards of conduct concerning employee health and/or
safety.
"Over Advance": The term "Over Advance" shall have the meaning given
such term in Section 2.8.
"Overdraft Loan": The term "Overdraft Loan" shall have the meaning
given such term in Section 2.7.
"Participant": Any Person, now or at any time or times hereafter,
participating with the Lender in the Loans made to the Borrower hereunder.
"PBGC": The Pension Benefit Guaranty Corporation, established pursuant
to Subtitle A of Title IV of ERISA, or any successor thereto or to the functions
thereof.
"Person": Any natural person, corporation, partnership, joint venture,
firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision thereof, or any other entity,
whether acting in an individual, fiduciary or other capacity.
"Plan": An employee benefit plan or other plan, maintained for
employees of the Borrower or of any ERISA Affiliate, and subject to Title IV of
ERISA or Section 412 of the Code.
"Purchased Loans": The term "Purchased Loans" shall have the meaning
given such term in Recital B and as more particularly described in Schedule 1.1.
"Reference Rate": The rate of interest from time to time publicly
announced by FBNA as its "reference rate." The Lender may lend to its customers
at rates that are at, above or below the Reference Rate. For purposes of
determining any interest rate which is based on the Reference Rate, such
interest rate shall change on the effective date of any change in the Reference
Rate.
"Related Party": Any Person (other than a Subsidiary): (a) which
directly or indirectly, through one of more intermediaries, controls, is
controlled by or is under common control with, the Borrower, (b) which
beneficially owns or holds 5% or more of the equity interest of the Borrower, or
(c) 5% or more of the equity interest of which is beneficially owned or held by
the Borrower or a Subsidiary. The term "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Reportable Event": A reportable event, as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC, by regulation, has waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event; provided, however, that a failure to meet the
minimum funding standard of Section 412 of the Code and Section 302 of ERISA
shall be a reportable event regardless of the issuance of any such waivers in
accordance with Section 412(d) of the Code.
"Revolving Credit Amount": The term "Revolving Credit Amount" shall
have the meaning given such term in Supplement A.
"Revolving Loan": The term "Revolving Loan" shall have the meaning
given such term in Section 2.1.1.
"Revolving Loan Availability": The lesser of (a) the Revolving Credit
Amount minus the Letter of Credit Obligations and (b) the Borrowing Base minus
the Letter of Credit Obligations.
"Subordinated Debt": That portion of any liabilities, obligations or
Indebtedness of the Borrower which contains terms satisfactory to the Lender and
is subordinated, in a manner satisfactory to the Lender, as to right and time of
payment of principal and interest thereon, to any and all of the Obligations.
"Subsidiary": Any Person of which or in which the Borrower and its
other Subsidiaries own directly or indirectly 50% or more of: (a) the combined
voting power of all classes of stock having general voting power under ordinary
circumstances to elect a majority of the board of directors of such Person, if
it is a corporation, (b) the capital interest or profits interest of such
Person, if it is a partnership, joint venture or similar entity, or (c) the
beneficial interest of such Person, if it is a trust, association or other
unincorporated organization.
"Supplemental Documentation": The term "Supplemental Documentation"
shall have the meaning given such term in Section 3.5.
"Taxes": With respect to any Person means taxes, assessments or other
governmental charges or levies imposed upon such Person, its income or any of
its properties, franchises or assets.
"Term Loan": The term "Term Loan" shall have the meaning given such
term in Section 2.1.2.
"Term Mortgage": That certain Mortgage, Security Agreement, Assignment
of Leases and Rents and Fixture Financing Statement dated as of December 10,
1993 given by Borrower in favor of Northwestern National Life Insurance Company,
Farm Bureau Life Insurance Company of Michigan and FB Annuity Company, recorded
January 19, 1994 and that certain Mortgage, Security Agreement, Assignment of
Leases and Rents and Fixture Financing Statement dated as of December 10, 1993
given by Borrower in favor of Northwestern National Life Insurance Company and
Northern Life Insurance Company, as amended and consolidated by that certain
Amendment to and Consolidation of Mortgages dated as of March 31, 1995 between
the Borrower and the Lender, as it may be amended, modified, supplemented,
restated or replaced from time to time.
"Term Notes": Term Note A and Term Note B.
"Term Note A": The replacement promissory note in the principal amount
of $1,881,000 dated March 31, 1995 made by the Borrower payable to the order of
the Lender, as it may be amended, modified, supplemented, restated or replaced
from time to time.
"Term Note B": The replacement promissory note in the principal amount
of $2,059,116.61 dated March 31, 1995 made by the Borrower payable to the order
of the Lender, as it may be amended, modified, supplemented, restated or
replaced from time to time.
"Termination Date": The term "Termination Date" shall have the
meaning given such term in Supplement A.
"Third Party Collateral": Any property of any Person other than the
Borrower which secures payment or performance of any Obligations.
"UCC": The Uniform Commercial Code as in effect in the State of
Minnesota and any successor statute, together with any regulations thereunder,
in each case as in effect from time to time. References to sections of the UCC
shall be construed to also refer to any successor sections.
"Unmatured Event of Default": Any event which, with the giving of
notice to the Borrower or lapse of time, or both, would constitute an Event of
Default.
"Unused Revolving Credit Amount": The Revolving Credit Amount (as
determined as of the last day of each month for the month ending on such date)
minus the sum of (a) the outstanding principal balance of the Revolving Loans
plus (b) the Letter of Credit Obligations.
"WSS": WSI South, Inc., formerly known as Advanced Custom Molders,
Inc., a wholly-owned subsidiary of the Borrower.
1.2 ACCOUNTING TERMS AND CALCULATIONS. Except as may be expressly
provided to the contrary herein, all accounting terms used herein or in any
certificate or other document made or delivered pursuant hereto shall be
interpreted and all accounting determination hereunder (including, without
limitation, determination of compliance with financial ratios and restrictions
in Articles V and VI) shall be made in accordance with GAAP consistently
applied, using a first in first out method of Inventory valuation. Any reference
to "consolidated" financial terms shall be deemed to refer to those financial
terms as applied to the Borrower and the Subsidiaries in accordance with GAAP.
1.3 OTHER DEFINITIONAL PROVISIONS. Unless otherwise defined herein,
all terms defined in this Agreement shall have such defined meanings when used
in any other Loan Document. Terms used in this Agreement which are defined in
any Supplement, Exhibit or Schedule hereto shall, unless the context otherwise
indicates, have the meanings given them in such Supplement, Exhibit or Schedule.
Other terms used in this Agreement shall, unless the context otherwise
indicates, have the meanings given such terms in the Minnesota Uniform
Commercial Code to the extent the same are used or defined therein. The words
"hereof," "herein," and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. Reference to "this Agreement" shall
include the provisions of Supplement A. References to Sections, Exhibits,
Schedules and like references are to this Agreement unless otherwise expressly
provided. Section captions used in this Agreement are for convenience only, and
shall not affect the construction of this Agreement.
ARTICLE II REVOLVING LOANS; TERM LOAN; OTHER MATTERS
2.1 LOANS.
2.1.1 REVOLVING LOANS.
(a) Subject to the terms and conditions of the Loan Documents,
and in reliance upon the warranties of the Borrower set forth herein
and in the other Loan Documents, the Lender agrees to make such loans
or advances (individually, a "Revolving Loan" and collectively, the
"Revolving Loans") to the Borrower as the Borrower may from time to
time request, up to but not in excess of the Revolving Loan
Availability. Revolving Loans made by the Lender may be repaid and,
subject to the terms and conditions hereof, reborrowed to the
Termination Date unless the Credit extended under this Agreement is
otherwise terminated as provided in this Agreement.
(b) In the event the aggregate outstanding principal balance of
the Revolving Loans exceeds the Revolving Loan Availability, the
Borrower shall, unless the Lender shall otherwise consent, immediately
and without notice of any kind, make such payments or take such other
action as shall be necessary to eliminate such excess.
2.1.2 TERM LOAN.
(a) Subject to the terms and conditions of the Loan Documents,
and in reliance upon the warranties of the Borrower set forth herein
and in the other Loan Documents, the Lender agrees to purchase the
Purchased Loans, which thereupon shall be the "Term Loan" under and
subject to this Agreement. The Borrower shall execute and deliver to
the Lender a promissory note payable to the order of the Lender in the
aggregate principal amount of the Purchased Loans (the "Consolidated
Note") in replacement, not in payment, of the promissory notes
evidencing the Purchased Loans. Immediately following delivery to the
Lender of the Consolidated Note, the Borrower shall execute and
deliver to the Lender the Term Notes in replacement, not in payment,
of the Consolidated Note to evidence the Term Loan. Upon receipt of
the duly executed Term Notes, the Lender shall return the Consolidated
Note to the Borrower.
(b) Unless otherwise required to be sooner paid pursuant to this
Agreement, the principal of the Term Loan shall mature and be payable
in consecutive equal monthly installments of $37,500 payable on the
last day of each month, commencing on the first such day to occur
following the date of this Agreement, and a final installment in the
outstanding principal balance of the Term Loan on the Termination
Date. Any principal of the Term Loan that is repaid may not be
reborrowed except as provided pursuant to Section 2.1.2(c).
(c) So long as there are no Revolving Loans outstanding, the
Borrower may, upon one Business Day notice to the Lender, prepay the
principal of the Term Loan in whole or in part without premium except
as set forth on Supplement A. Any partial prepayment of principal of
the Term Loan shall be in a minimum amount of the lesser of (i) the
outstanding principal balance of the Term Loan and (ii) $25,000 or an
integral multiple thereof, and shall be applied to the unpaid
installments of the Term Loan in the inverse order of their
maturities, with all such payments being applied first to Term Note B
and applied only to Term Note A following payment in full of Term Note
B. Any principal of the Term Loan which is prepaid under this Section
2.1.2(c) in reduction of Term Note B may be reborrowed, so long as (x)
no Event of Default or Unmatured Event of Default has occurred and is
continuing and (y) a principal balance was outstanding under Term Note
B prior to the requested reborrowing.
(d) Any payment of the Term Loan may be made with the proceeds of
a Revolving Loan only if, immediately before and after giving effect
to such payment, no Event of Default or Unmatured Event of Default
then exists or would result therefrom.
(e) On or before each Mandatory Prepayment Date, commencing on
November 30, 1995, the Borrower shall pay to the Lender an aggregate
amount equal to 30% of the Excess Net Income for the applicable fiscal
year, based on audited financial statements for such fiscal year,
which payment shall be applied against the unpaid installments of the
Term Loan in the inverse order of maturities, with all such payments
being applied first to Term Note B and applied only to Term Note A
following payment in full of Term Note B, and shall be paid in
accordance with the provisions of Section 2.10(a). If Revolving Loan
Availability on the Mandatory Prepayment Date is $500,000 or less, the
prepayment required under this Section 2.1.2(e) shall be due and
payable on the first Business Day on which the Revolving Loan
Availability does exceed $500,000. In no event shall the amount of the
Term Loan required to be prepaid under this Section 2.1.2(e) exceed
$200,000 for any fiscal year.
(f) Scheduled payments of principal installments of the Term Loan
and interest thereupon shall be applied against the Term Notes on a
pro rata basis.
2.1.3 ALL LOANS PAYABLE ON TERMINATION DATE. All Loans and other
Obligations hereunder shall be paid by the Borrower on the Termination
Date, unless payable sooner pursuant to the provisions of this Agreement,
but may, at the Borrower's election be repaid in whole or in part at any
time prior to such date without premium or penalty except as set forth on
Supplement A. Recourse to Collateral, Third Party Collateral or other
security is not required at any time.
2.2 LETTERS OF CREDIT.
(a) In addition to Loans made pursuant to Section 2.1, the
Lender, or any Affiliate, may, upon receipt of duly executed
Applications and such other documents, instruments and/or agreements
as the Lender, or such Affiliate, may require, issue Letters of Credit
on such terms as are satisfactory to the Lender; provided, however,
that no Letter of Credit will be issued if, before or after taking
such Letter of Credit into account, the Letter of Credit Obligations
exceeds the least of (i) the Letter of Credit Sublimit, (ii) the
Revolving Credit Amount minus the outstanding principal balance of the
Revolving Loans and (iii) the Borrowing Base minus the outstanding
principal balance of the Revolving Loans.
(b) The Borrower agrees to pay the Lender, or any Affiliate, on
demand, the Lender's, or such Affiliate's, standard administrative
operating fees and charges in effect from time to time for issuing and
administering any Letters of Credit. The Borrower further agrees to
pay the Lender, or any Affiliate, a commission on the undrawn amount
of each Letter of Credit and on each L/C Draft accepted by the Lender,
or such Affiliate, as the Borrower and the Lender, or such Affiliate,
shall agree. Such commissions shall be paid at such frequency as the
Lender, or such Affiliate, shall determine.
(c) The Borrower agrees to reimburse the Lender, or any
Affiliate, on demand for each payment made by the Lender, or such
Affiliate, under or pursuant to any Letter of Credit or L/C Draft. The
Borrower further agrees to pay to the Lender, or any Affiliate, on
demand, interest at the Default Rate, on any amount paid by the
Lender, or such Affiliate, under or pursuant to any Letter of Credit
or L/C Draft from the date of payment until the date of reimbursement
to the Lender, or such Affiliate.
(d) Notwithstanding anything to the contrary herein or in any
Application of the Borrower, upon the occurrence of an Event of
Default or on the Termination Date, an amount equal to the aggregate
amount of the outstanding Letter of Credit Obligations shall, at the
Lender's option and without further notice to the Borrower, be deemed
(as between the Lender and the Borrower) to have been paid or
disbursed by the Lender under the Letters of Credit and L/C Drafts
accepted by the Lender, or any Affiliate, notwithstanding that such
amounts may not in fact have been so paid or disbursed, and a Loan to
the Borrower, in the amount of such Letter of Credit Obligations, to
have been made and accepted, which Loan shall be immediately due and
payable. In lieu of the foregoing, at the election of the Lender, the
Borrower shall, upon the Lender's demand, deliver to the Lender or any
Affiliate cash or other Collateral of a type satisfactory to the
Lender or such Affiliate having a value, as determined by the Lender,
or such Affiliate equal to the aggregate Letter of Credit Obligations.
Any such Collateral and/or any amounts received by the Lender, or any
Affiliate, in payment of the Loan made pursuant to this paragraph (d)
shall be held by the Lender or such Affiliate in the Collateral
Account or a separate account appropriately designated as a cash
collateral account in relation to this Agreement and the Letters of
Credit and retained by the Lender, or such Affiliate, as collateral
security for the Obligations in respect of this Agreement and each of
the Letters of Credit and L/C Drafts. Such amounts shall not be used
by the Lender or such Affiliate to pay any amounts drawn or paid under
or pursuant to any Letter of Credit or L/C Draft but may be applied t
reimburse the Lender, or any Affiliate, for drawings or payments under
or pursuant to Letters of Credit or L/C Drafts which the Lender, or
such Affiliate, has paid or, if no such reimbursement is required, to
payment of such other Obligations as the Lender shall determine.
Following payment in full of a1l Obligations, any amounts remaining in
any cash collateral account established pursuant to this paragraph (d)
which are not (as determined by the Lender) to be applied to reimburse
the Lender, or any Affiliate, for amounts actually paid by the Lender,
or such Affiliate, in respect of a Letter of Credit or L/C Draft shall
be returned to the Borrower (after deduction of the Lender's, or such
Affiliate's expenses).
2.3 LOAN ACCOUNT; DISBURSEMENT ACCOUNT; CONTROLLED DISBURSEMENT
ACCOUNT.
(a) Loan Account. The Lender shall establish or cause to be
established on its books in the Borrower's name one or more accounts
(each, a "Loan Account") to evidence Loans made to the Borrower. Any
amounts advanced as Loans which are credited to the Disbursement
Account, together with any other amounts advanced to the Borrower as a
Loan pursuant to this Agreement, will be debited to the applicable
Loan Account and result in an increase in the principal balance
outstanding in such Loan Account in the amount thereof.
(b) Disbursement Account. Unless otherwise provided in this
Agreement, the Lender will credit or cause to be credited to a
commercial account (the "Disbursement Account") maintained by the
Borrower at FBNA's office at First Bank Place, 601 Second Avenue
South, Minneapolis, Minnesota 55402-4302 the amount of any sums
advanced as Loans.
(c) Controlled Disbursement Account. The Borrower shall maintain
a commercial account (the "Controlled Disbursement Account") with
First Bank Montana, National Association, 235 First Street, Havre,
Montana 59501, into which deposits from the Disbursement Account may
be authorized by the Lender and from which the Borrower may draw
checks for corporate purposes.
2.4 INTEREST; FEES.
(a) INTEREST. The outstanding principal balance of each Loan to
the Borrower hereunder shall bear interest at the rate(s) applicable
to such Loan indicated in Supplement A; provided, however, that no
provision of this Agreement or any Note shall require the payment or
permit the collection of interest in excess of the rate permitted by
applicable law. Interest as aforesaid shall be charged for the actual
number of days elapsed over a year consisting of 360 days on the
actual daily balance of such Loan. Interest on the unpaid principal of
any Loan shall accrue from the date such Loan is made to the date such
Loan is paid. Interest shall be paid by the Borrower on the last day
of each month, commencing on the first such day to occur after the
date hereof, and on maturity. After maturity of any Loan, whether by
acceleration or otherwise, interest shall be payable on demand.
(b) INTEREST AFTER DEFAULT. If any Loan or any amount thereof is
not paid in full when due, whether by acceleration or otherwise, the
entire unpaid principal balance of such Loan shall bear interest at
the Default Rate applicable to such Loan.
(c) COMMITMENT FEE. The Borrower shall pay to the Lender a
commitment fee for the period from the date hereof to the date the
Credit terminates in the amount indicated in Supplement A. The
commitment fee shall be charged for the actual number of days
elapsed over a year consisting of 360 days on the actual daily balance
of the Revolving Loans. The commitment fee shall be paid by the
Borrower on the last day of each March, June, September and December,
commencing on the first such day to occur after the date hereof, and
on the date the Credit terminates for the period then ended.
(d) CREDIT TERMINATION FEE. Upon termination or cancellation of
the Credit by the Borrower, the Borrower shall pay to the Lender a
termination fee in the amount indicated in Supplement A.
2.5 REQUESTS FOR REVOLVING LOANS; BORROWING BASE CERTIFICATES; OTHER
INFORMATION.
(a) Revolving Loans shall be requested by telephone, except for
Overdraft Loans. Any such telephonic notice shall be promptly
confirmed by the Borrower in writing. The Borrower's failure to
confirm any such telephonic notice or otherwise comply with the
provisions of this Section 2.5(a) shall not in any manner affect the
obligation of the Borrower to repay such Revolving Loan in accordance
with the terms of this Agreement.
(b) In the event that the Borrower shall at any time, or from
time to time, (i) make a request for a Revolving Loan, or (ii) be
deemed to have requested an Overdraft Loan, the Borrower agrees to
forthwith provide the Lender with such information, at such frequency
and in such format, as is required by the Lender, such information to
be current as of the time of such request.
(c) The Borrower further agrees to provide to the Lender a
current borrowing base certificate ("Borrowing Base Certificate") at
the end of each week and at such other times as the Lender may
request. Such Borrowing Base Certificate shall be in substantially the
form of Exhibit A, executed and certified as accurate by such person
or persons as the Borrower designates in writing to the Lender
pursuant to duly adopted resolutions of the Borrower's Board of
Directors authorizing such action.
(d) The Borrower shall provide the Lender with documentation
satisfactory to the Lender indicating the names of those employees of
the Borrower authorized by the Borrower to sign Borrowing Base
Certificates, among other things, and/or to make a telephone request
for a Revolving Loan, and/or to authorize disbursement of the proceeds
of a Loan by wire transfer or otherwise, and the Lender shall be
entitled to rely upon such documentation until notified in writing by
the Borrower of any change(s) in the names of persons so authorized.
The Lender shall be entitled to act on the instructions of anyone
identifying himself as one of the persons authorized to request
Revolving Loans or disbursements of Loan proceeds by telephone and the
Borrower shall be bound thereby in the same manner as if the person
were actually so authorized. The Borrower agrees to indemnify and hold
the Lender harmless from any and all claims, damages, liabilities,
losses, costs and expenses (including Attorneys' Fees) which may arise
or be created by the acceptance of instructions for making or paying
Loans or wire transfers by telephone.
2.6 NOTES. Except to the extent a Loan may, in the Lender's sole and
absolute discretion, be evidenced by a Note, all Loans and payments hereunder
shall be recorded on the Lender's books, which shall be rebuttable presumptive
evidence of the amount of such Loans outstanding at any time hereunder. The
Lender will account monthly as to all Loans and payments hereunder and each
monthly accounting will be fully binding on the Borrower unless, within 15 days
following the Borrower's receipt thereof, the Borrower shall provide the Lender
with a specific listing of exceptions. Notwithstanding any term or condition of
this Agreement to the contrary, the failure of the Lender to record the date and
amount of any Loan shall not limit or otherwise affect the obligation of the
Borrower to repay any such Loan.
2.7 OVERDRAFT LOANS. The Lender, in its sole and absolute discretion
and subject to the terms hereof, may make a Loan to the Borrower in an amount
equal to the amount of any overdraft which may from time to time exist with
respect to the Disbursement Account or any other bank account which the Borrower
may now or hereafter have with FBNA or any other Affiliate. The existence of
such overdraft shall be deemed to be a request by the Borrower for such Loan.
The Borrower acknowledges that the Lender is under no duty or obligation to make
any Loan to the Borrower to cover any overdraft. The Borrower further agrees
that an overdraft shall constitute a separate Loan under this Agreement (an
"Overdraft Loan"), which shall bear, from the date on which the overdraft
occurred until paid, interest in an amount equal to the greater of 130% of the
highest rate of interest then charged for Loans (other than Overdraft Loans)
made hereunder, or $50.00 per day. If the Lender, in its sole and absolute
discretion, decides not to make a Loan to cover part or all of any overdraft,
the Lender may return any check(s) which created such overdraft.
2.8 OVER ADVANCES. The Lender, in its sole and absolute discretion,
may make Loans to the Borrower, either at the Borrower's request or to pay
amounts due to the Lender under this Agreement or any other Loan Document, in
excess of the Loan Availability or permit the total Loans to at any time exceed
the Loan Availability (such excess Obligations are hereinafter referred to as
"Over Advances") and no such event or occurrence shall cause or constitute a
waiver by the Lender of its right to refuse to make any further Loan or issue,
or cause to be issued, any Letters of Credit at any time that an Over Advance
exists or would result therefrom. During any period in which an Over Advance
exists, the amount of the Over Advances shall bear interest at a rate equal to
130% of the highest rate of interest then charged for Loans (other than
Overdraft Loans) made hereunder.
2.9 ALL LOANS ONE OBLIGATION. All Loans under this Agreement shall
constitute one Loan, and all Indebtedness and other Obligations shall constitute
one general obligation secured by the Lien granted by the Borrower hereunder on
all of the Collateral and by all other Liens heretofore, now or at any time or
times hereafter granted by the Borrower or any other Obligor to secure the
Obligations. The Borrower agrees that all of the rights of the Lender set forth
in the Loan Documents shall, unless otherwise agreed to in writing, apply to any
modification of or supplement to the Loan Documents.
2.10 MAKING OF PAYMENTS; APPLICATION OF COLLECTIONS; CHARGING OF
ACCOUNTS.
(a) All payments hereunder (including payments with respect to
any Notes) shall be made without set-off or counterclaim and shall be
made to the Lender in immediately available funds (or as the Lender
may otherwise consent) prior to 12:30 p.m., Minneapolis time, on the
date due at its office at First Bank Place, 601 Second Avenue South,
Minneapolis, Minnesota 55402-4302, or at such other place as may be
designated by the Lender to the Borrower in writing. Any payments
received after such time shall be deemed received on the next Business
Day. Whenever any payment to be made hereunder or under any Note shall
be stated to be due on a date other than a Business Day such payment
may be made on the next succeeding Business Day and such extension of
time shall be included in the computation of payment of interest or
any fees.
(b) The Borrower authorizes the Lender to, and the Lender
will, subject to the provisions of this Section 2.10(b) apply the
whole or any part of any amounts received by the Lender, or any
Affiliate (whether deposited in the Collateral Account or
otherwise received by the Lender, or any Affiliate) from the
collection of items of payment and proceeds of any Collateral or
Third Party Collateral against the principal and/or interest of
any Loans made hereunder and/or any other Obligations, whether or
not then due, in such order of application as the Lender may
determine, unless such payments or proceeds are, in the Lender's
sole and absolute discretion, released to the Borrower; provided,
however, that no checks, drafts or other instruments received by
the Lender, or any Affiliate, shall constitute final payment to
the Lender unless and until such item of payment has actually
been collected. All items or amounts which are delivered to the
Lender, by or on behalf of the Borrower or any Obligor or any
Account Debtor on account of partial or full payment or otherwise
as proceeds of any of the Collateral or Third Party Collateral
(including any items or amounts which may have been deposited to
the Collateral Account) may from time to time, in the Lender's
sole and absolute discretion, be released to the Borrower or may
be applied by the Lender towards such of the Obligations, whether
or not then due, in such order of application as the Lender may
determine. Notwithstanding anything to the contrary herein, (i)
all cash, checks, instruments and other items of payment, solely
for purposes of determining the occurrence of an Event of Default
hereunder, shall be deemed received upon actual receipt by the
Lender unless the same is subsequently dishonored for any reason
whatsoever, (ii) for purposes of determining whether, under
Sections 2.1 and 2.2, there is availability for Loans or Letters
of Credit, all cash, checks, instruments and other items of
payment shall be applied against the Obligations on the second
Business Day following receipt thereof by the Lender in
Minneapolis, Minnesota or the second Business Day following the
initiation by the Lender of an ACH transaction from a Collateral
Account and all good funds received by the Lender in Minneapolis,
Minnesota by federal wire transfer shall be applied against the
Obligations on the Business Day on which received, and (iii)
solely for purposes of interest calculation hereunder, all cash,
checks, instruments and other items of payment shall be deemed to
have been applied against the Obligations on the second Business
Day following receipt thereof by the Lender in Minneapolis,
Minnesota or the second Business Day following the initiation by
the Lender of an ACH transaction from a Collateral Account and
all good funds received by the Lender in Minneapolis, Minnesota
by federal wire transfer shall be applied against the Obligations
on the Business Day on which received.
(c) The Borrower hereby authorizes the Lender and the Lender may,
in its sole and absolute discretion, charge to the Borrower, at any
time, all or any portion of any of the Obligations (and interest, if
any, thereon) including, without limitation, any Attorneys' Fees and
other costs and expenses of the Lender for which the Borrower is
liable pursuant to the terms of the Loan Documents, by charging the
Disbursement Account or any other bank account of the Borrower with
FBNA or by advancing the amount thereof to the Borrower as a Loan;
provided, however, that the provisions of this Section 2.10(c) shall
not affect the Borrower's obligation to pay when due all amounts
payable by the Borrower under any of the Loan Documents whether or not
there are sufficient funds therefor in the Disbursement Account or any
such other bank account of the Borrower with FBNA, or sufficient Loan
Availability.
2.11 LENDER'S ELECTION NOT TO ENFORCE. Notwithstanding any term or
condition of this Agreement to the contrary, the Lender, in its sole and
absolute discretion, at any time and from time to time may suspend or refrain
from enforcing any or all of the restrictions imposed in this Section 2 but no
such suspension or failure to enforce shall impair the Lender's right and power
under this Agreement to refrain from making a Loan or issuing, or causing to be
issued, a Letter of Credit requested by the Borrower if all conditions precedent
to the Lender's obligation to make such Loan or issue, or cause to be issued,
such Letter of Credit have not been satisfied.
ARTICLE III COLLATERAL
3.1 GRANT OF SECURITY INTEREST. As security for the payment of all
Loans now or hereafter made by the Lender to the Borrower hereunder or under any
Note, and as security for the payment or other satisfaction of all other
Obligations, the Borrower hereby grants to the Lender, and its Affiliates, a
security interest in and to the following property of the Borrower, whether now
owned or existing, or hereafter acquired or coming into existence, wherever now
or hereafter located (all such property is hereinafter referred to collectively
as the "Collateral"):
(a) Accounts Receivable (whether or not Eligible Accounts
Receivable), including all other rights and interests (including all
liens and security interests) that the Borrower may at any time have
by law or agreement against any Account Debtor or other obligor
obligated to make any such payment or against any of the property of
such Account Debtor or other obligor;
(b) Equipment;
(c) Inventory;
(d) GeneraI Intangibles;
(e) documents;
(f) all chattel paper and instruments evidencing, arising out of
or relating to any obligation to the Borrower for goods sold or leased
or services rendered or otherwise arising out of or relating to any
property described in clauses (a) through (e) above;
(g) goods, instruments, documents or chattel paper that are in
the possession or control of, or in transit to, the Lender or any
Affiliate or any agent or bailee for the Lender or any Affiliate for
any reason and all interest on, dividends and distributions and other
rights in connection with such property, and any and all balances,
credits, deposits (general or special, time or demand, provisional or
final), accounts or monies of or in the name of the Borrower now or
hereafter with the Lender, or any Affiliate, and any and all property
of every kind or description of or in the name of the Borrower now or
hereafter, for any reason or purpose whatsoever, in the possession or
control of, in transit to or standing to the Borrower's credit on the
books of, the Lender, any Affiliate, or any agent or bailee for the
Lender or any Affiliate or any Participant;
(h) all interest of the Borrower in any goods the sale or lease
of which shall have given or shall give rise to, and in all guaranties
and other property securing the payment of or performance under, any
Accounts Receivable, General Intangibles or any chattel paper or
instruments referred to in clause (f) above;
(i) any and all other property of the Borrower of any kind or
description, including, without limitation, real estate of the
Borrower, subject to a separate mortgage, pledge or security interest
in favor of the Lender or in which the Lender now or hereafter has or
acquires a security interest securing any Obligations, pursuant to any
written agreement or instrument other than this Agreement;
(j) all replacements, substitutions, additions or accessions to
or for any of the foregoing;
(k) to the extent related to the property described in clauses
(a) through (j) above, all books, correspondence, credit files,
records, invoices and other papers and documents, including, without
limitation, to the extent so related, all tapes, cards, computer runs,
computer programs and other papers and documents in the possession or
control of the Borrower or any computer bureau from time to time
acting for the Borrower, and, to the extent so related, all rights in,
to and under all policies of insurance, including claims of rights to
payments thereunder and proceeds therefrom, including any credit
insurance; and
(l) all proceeds (including, without limitation, any Accounts
Receivable or other proceeds arising from the sale or other
disposition of any Collateral, any returns of any Equipment or
Inventory sold by the Borrower and the proceeds of any insurance
covering any of the Collateral) of any of the foregoing.
3.2 ACCOUNTS RECEIVABLE.
(a) The Borrower shall notify the Lender immediately of all
disputes and claims by any Account Debtor and settle or adjust them at
no expense to the Lender. If the Lender directs, no discount or credit
allowance shall be granted thereafter by the Borrower to any Account
Debtor. All Account Debtor payments and all net amounts received by
the Lender in settlement, adjustment or liquidation of any Account
Receivable may be applied by the Lender to the Obligations or credited
to the Disbursement Account (subject to collection), as the Lender may
deem appropriate, as more fully described in Section 2.10. If
requested by the Lender, the Borrower will make proper entries in its
books, disclosing the assignment of Accounts Receivable to the Lender.
(b) Unless otherwise consented to by the Lender, the Borrower
will, forthwith upon receipt by the Borrower of all checks, drafts,
cash and other remittances in payment or as proceeds of, or on account
of, any of the Accounts Receivable or other Collateral, deposit the
same in a special bank account (the "Collateral Account") with FBNA or
such other bank or financial institution as the Lender shall consent,
over which the Lender alone has power of withdrawal, and will
designate with each such deposit the particular Accounts Receivable or
other item of Collateral upon which the remittance was made. The
Borrower acknowledges that the maintenance of the Collateral Account
is solely for the convenience of the Lender in facilitating its own
operations and the Borrower does not and shall not have any right,
title or interest in the Collateral Account or in the amounts at any
time appearing to the credit thereof. Said proceeds shall be deposited
in precisely the form received except for the Borrower's endorsement
where necessary to permit collection of items, which endorsement the
Borrower agrees to make. Pending such deposit, the Borrower agrees not
to commingle any such checks, drafts, cash and other remittances with
any of its funds or property, but will hold them separate and apart
therefrom and upon an express trust for the Lender until deposit
thereof if made in the Collateral Account. Upon the full and final
liquidation of all Obligations, the Lender will pay over to the
Borrower any excess amounts received by the Lender as payment or
proceeds of Collateral, whether received by the Lender as a deposit in
the Collateral Account or received by the Lender as a direct payment
on any of the sums due hereunder.
(c) If any Accounts Receivable, chattel paper or General
Intangible arises out of contracts with the United States or any
department, agency, or instrumentality thereof, the Borrower will,
unless the Lender shall otherwise agree, immediately notify the Lender
in writing and execute any instruments and take any steps required by
the Lender in order that all monies due and to become due under such
contracts shall be assigned to the Lender and notice thereof given to
the government under the Federal Assignment of Claims Act of 1940, as
amended.
(d) If any Accounts Receivable is evidenced by chattel paper or
instruments, the Borrower will, unless the Lender shall otherwise
agree, deliver the originals of same to the Lender, appropriately
endorsed to the Lender's order and, regardless of the form of such
endorsement, the Borrower hereby expressly waives presentment, demand,
notice of dishonor, protest and notice of protest and all other
notices with respect thereto.
3.3 INVENTORY.
(a) Unless the Lender shall otherwise agree, if the Borrower
sells Inventory for cash, all full and partial payments therefor shall
immediately be delivered by the Borrower to the Lender in their
original form for deposit in the Collateral Account or other
application to reduction of the Obligations. All such cash shall be
held by the Borrower in trust for the Lender and shall be remitted to
the Lender at the end of the day received or at such other time as the
Lender may designate.
(b) The Lender shall not be liable or responsible in any way for
the safekeeping of any Inventory delivered to it, to any bailee
appointed by or for it, to any warehouseman, or under any other
circumstances. The Lender shall not be responsible for collection of
any proceeds or for losses in collected proceeds held by the Borrower
in trust for the Lender. Any and all risk of loss for any or all of
the foregoing shall be upon the Borrower except for such loss as shall
result from the Lender's gross negligence or willful misconduct.
(c) If requested by the Lender, the Borrower shall, upon
acquiring an interest in any Inventory, deliver to the Lender
schedules of such Inventory, together with supplier's invoices,
warranties, production, cost and other records as the Lender may
request. If requested by the Lender, the Borrower shall deliver to the
Lender schedules of the sale of any Inventory immediately upon its
sale. Any material change in the value or condition of any Inventory
and any errors discovered in schedules delivered to the Lender shall
be reported to the Lender immediately.
(d) If requested by the Lender, the Borrower shall (i) notify the
Lender immediately if the Borrower obtains possession (by return,
repossession or otherwise) of any Inventory which has been sold and
shall inform the Lender of the identity of the returned or repossessed
Inventory, the applicable Account Debtor and the amount of the
applicable Account Receivable; (ii) receive such Inventory in trust;
and (iii) resell such Inventory for the Lender unless instructed to
deliver it to the Lender.
3.4 EQUIPMENT.
(a) In the event any Equipment is sold, transferred or otherwise
disposed of, unless the Lender shall agree otherwise, the Borrower
shall deliver all of the proceeds of any such sale, transfer or
disposition to the Lender, which proceeds shall be deposited in the
Collateral Account or otherwise applied to the repayment of the
Obligations.
(b) The Borrower will, upon request of the Lender, submit to the
Lender a current listing of all of the Borrower's Equipment which
listing shall indicate the type, model, serial number and location of
such Equipment.
3.5 SUPPLEMENTAL DOCUMENTATION. At the Lender's request, the Borrower
shall execute and/or deliver to the Lender, at any time or times hereafter, such
agreements, documents, financing statements, warehouse receipts, bills of
lading, notices of assignment of Accounts Receivable, schedules of Accounts
Receivable assigned, and other written matter necessary or requested by the
Lender to perfect and maintain perfected the security interest in or Liens on
the Collateral (all the above hereinafter referred to as "Supplemental
Documentation"), in form and substance acceptable to the Lender, and pay all
taxes, fees and other costs and expenses associated with any recording or filing
of the same or otherwise necessary to perfect or maintain perfection of the
security interest in or Liens on the Collateral. The Borrower hereby irrevocably
makes, constitutes and appoints the Lender (and all Persons designated by the
Lender for that purpose) as the Borrower's true and lawful attorney (and
agent-in-fact) to sign the name of the Borrower on any of the Supplemental
Documentation and to deliver any of the Supplemental Documentation to such
Persons as the Lender in its sole and absolute discretion, may elect. The
Borrower agrees that a carbon, photographic, photostatic, and other reproduction
of this Agreement or of a financing statement is sufficient as a financing
statement.
3.6 POWER OF ATTORNEY. The Borrower irrevocably designates, makes,
constitutes, and appoints the Lender (and all Persons designated by the Lender)
as the Borrower's true and lawful attorney (and agent-in-fact) and the Lender,
or the Lender's agent, may, without notice to the Borrower:
(a) at such time or times hereafter as the Lender or said agent,
in its sole and absolute discretion, may determine, in the Borrower's
or the Lender's name, (i) receive, open and dispose of all mail
received at the lockbox address of the Borrower; (ii) notify and/or
require the Borrower to notify, any Account Debtor or other Person
obligated under or in respect of any Collateral, of the fact of the
Lender's Lien thereon and of the collateral assignment thereof to the
Lender; (iii) direct and/or require the Borrower to direct, any
Account Debtor or other Person obligated under or in respect of any
Collateral, to make payment directly to the Lender of any amounts due
or to become due thereunder or with respect thereto; (iv) endorse the
Borrower's name on any checks, notes, drafts or any other items of
payment relating to and/or proceeds of the Collateral which come into
the possession of the Lender or under the Lender's control and apply
such payment or proceeds to the Obligations; and (v) endorse the
Borrower's name on any chattel paper, document, instrument, invoice,
freight bill, bill of lading or similar document or agreement in the
Lender's possession relating to Accounts Receivable, Inventory
Equipment or any other Collateral; and
(b) at such time or times after the occurrence of an Event of
Default, as the Lender or said agent, in its sole and absolute
discretion, may determine, in the Borrower's or the Lender's name: (i)
receive, open and dispose of all mail received at the street address
or any post office box address of the Borrower; (ii) demand, collect
surrender, release or exchange all or any part of any Collateral or
any amounts due thereunder or with respect thereto; (iii) settle,
adjust, compromise, extend or renew for any period (whether or not
longer than the initial period) any and all sums which are now or may
hereafter become due or owing upon or with respect to any of the
Collateral; (iv) enforce, by suit or otherwise, payment or performance
of any of the Collateral; (v) settle, adjust or compromise any legal
proceedings brought to collect any sums due or owing upon or with
respect to any of the Collateral; (vi) exercise all of the Borrower's
rights and remedies with respect to the collection of any amounts due
upon or with respect to any of the Collateral; (vii) if permitted by
applicable law, sell or assign the Collateral upon such terms, for
such amounts and at such time or times as the Lender may deem
advisable; (viii) discharge and release the Collateral; (ix) prepare,
file and sign the Borrower's name on any proof of claim in bankruptcy
or similar document against any Account Debtor; (x) prepare, file and
sign the Borrower's name on any notice of lien, assignment or
satisfaction of lien or similar document in connection with the
Accounts Receivable and/or other Collateral; and (xi) do all acts and
things necessary, in the Lender's sole and absolute discretion, to
obtain repayment of the Obligations and to fulfill the Borrower's
other obligations under this Agreement.
(c) at such time or times after the assertion by the Lender that
Event of Default has occurred and is continuing (whether or not an
Event of Default has in fact occurred), as the Lender or said agent,
in its reasonable discretion, may determine, in the Borrower's or the
Lender's name, notify the post office authorities to change the
address for delivery of the Borrower's mail to an address designated
by the Lender.
Under no circumstances shall the Lender be under any duty to act in regard to
any of the foregoing matters. The costs relating to any of the foregoing
matters, including Attorneys' Fees and out-of-pocket expenses shall be borne
solely by the Borrower whether the same are incurred by the Lender or the
Borrower.
Neither the Lender nor any of its directors, officers, employees or agents will
be liable for any acts of commission or omission nor for any error in judgment
or mistake of fact or law, unless the same shall have resulted from gross
negligence or willful misconduct. This power, being coupled with an interest, is
irrevocable until either (i) all Obligations under this Agreement are paid in
full, or (ii) this Agreement is terminated, whichever shall last occur.
3.7 MORTGAGES. The Borrower hereby reaffirms all of the terms,
conditions, provisions, agreements, requirements, promises, obligations, duties,
covenants and representations of the Borrower under that certain Mortgage,
Security Agreement, Assignment of Leases and Rents and Fixture Filing dated
December 10, 1993, made by the Borrower in favor of Lender, as the same has been
amended and extended from time to time. The Borrower acknowledges and affirms
that the Term Mortgage secures payment and performance only of Term Note A.
ARTICLE IV REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make Loans to
the Borrower hereunder, the Borrower makes the following representations and
warranties, all of which shall be true and correct as of the date the initial
Loans are made and survive the execution of this Agreement and the making of the
initial Loans:
4.1 ORGANIZATION. The Borrower and each of its corporate Subsidiaries
are corporations duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of their respective incorporation. All of the
Borrower's other Subsidiaries, if any, are entities duly organized, validly
existing and in good standing under the laws of the jurisdictions of their
respective organization. The Borrower and all of the Subsidiaries are in good
standing and are duly qualified to do business in each state where, because of
the nature of their respective activities or properties, such qualification is
required. On the date hereof, the Borrower and each Subsidiary conducts business
in its own name exclusively and has no trade names, styles or doing business
forms except as disclosed on Schedule 4.1. The Borrower's taxpayer
identification number is I.D. No. 41-0691607.
4.2 AUTHORIZATION. The Borrower is duly authorized to execute and
deliver the Loan Documents and any Supplemental Documentation contemplated by
this Agreement, and is and will continue to be duly authorized to borrow monies
hereunder and to perform its obligations under the Loan Documents and any
Supplemental Documentation contemplated by this Agreement and the borrowings
hereunder do not and will not require any consent or approval of any
governmental agency or authority.
4.3 NO CONFLICTS. The execution, delivery and performance by the
Borrower of the Loan Documents and any Supplemental Documentation contemplated
by this Agreement, do not and will not conflict with (a) any provision of law,
(b) the charter or by-laws of the Borrower, (c) any agreement binding upon the
Borrower, or (d) any court or administrative order or decree applicable to the
Borrower, and do not and will not require, or result in, the creation or
imposition of any Lien on any asset of the Borrower or any of the Subsidiaries
except as provided herein.
4.4 VALIDITY AND BINDING EFFECT. The Loan Documents and any
Supplemental Documentation contemplated by this Agreement, when duly executed
and delivered will be, legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms,
except as enforceability may be limited by bankruptcy, insolvency or other
similar laws of general application affecting the enforcement of creditors'
rights or by general principles of equity limiting the availability of equitable
remedies.
4.5 NO DEFAULT. Neither the Borrower nor any of the Subsidiaries is in
default under any agreement or instrument to which the Borrower or any
Subsidiary is a party or by which any of their respective properties or assets
is bound or affected, which default (a) might materially and adversely affect
the Lender's Lien on or rights with respect to any Collateral or Third Party
Collateral or (b) constitutes an Adverse Event. No Event of Default or Unmatured
Event of Default has occurred and is continuing.
4.6 FINANCIAL STATEMENTS. The Borrower's audited consolidated and
consolidating financial statement as at August 28, 1994 and the Borrower's
unaudited consolidated and consolidating financial statement as at February 26,
1995, copies of which have been furnished to the Lender, have been prepared in
conformity with generally accepted accounting principles promulgated by the
Financial Accounting Standards Board and applied on a basis consistent with that
of the preceding fiscal year and period and present fairly the financial
condition of the Borrower and the Subsidiaries as at such dates and the results
of their operations for the periods then ended, subject (in the case of the
interim financial statement) to year-end audit adjustments. Since February 26,
1995, no Adverse Event has occurred.
4.7 INSURANCE. Schedule 4.7 sets forth a summary of the property and
casualty insurance program carried by the Borrower and the Subsidiaries on the
date hereof, including the insurer's(s') name(s), policy number(s), expiration
date(s), amount(s) of coverage, type(s) of coverage, the annual premium(s),
Best's policyholder's and financial size ratings of the insurers, exclusions,
deductibles and self-insured retention, and describes in detail any
retrospective rating plan, fronting arrangement or any other self-insurance or
risk assumption agreed to by the Borrower or any Subsidiary or imposed upon the
Borrower or any Subsidiary by any such insurer. This summary also includes any
self-insurance program that is in effect.
4.8 LITIGATION; CONTINGENT LIABILITIES.
(a) Except for those referred to in Schedule 4.8, no claims
litigation, arbitration proceedings or governmental proceedings are
pending or threatened against or are affecting the Borrower or any
Subsidiary.
(b) Other than any liability incident to the claims, litigation
or proceedings disclosed in Schedule 4.8, neither the Borrower nor any
the Subsidiary has any contingent liabilities which are material to
the Borrower or any Subsidiary.
4.9 LIENS. None of the Collateral or other property or assets of the
Borrower or any Subsidiary is subject to any Lien (including, without
limitation, Liens pursuant to Capitalized Leases under which the Borrower or any
Subsidiary is a lessee) except: (a) Liens in favor of the Lender; (b) Liens for
current Taxes not delinquent or Taxes being contested in good faith and by
appropriate proceedings and as to which such reserves or other appropriate
provisions as may be required by GAAP are being maintained; (c) carriers',
warehousemen's, mechanics', materialmen's and other like statutory Liens arising
in the ordinary course of business securing obligations which are not overdue or
which are being contested in good faith and by appropriate proceedings and as to
which such reserves or other appropriate provisions as may be required by GAAP
are being maintained; and (d) Liens listed on Schedule 4. 9.
4.10 SUBSIDIARIES. The Borrower has no Subsidiaries except as listed
on Schedule 4.10. The Borrower and the Subsidiaries own the percentage of the
Subsidiaries as set forth on Schedule 4.10.
4.11 PARTNERSHIPS. Neither the Borrower nor any of the Subsidiaries is
a partner or joint venturer in any partnership or joint venture other than the
partnerships and joint ventures listed on Schedule 4.11.
4.12 BUSINESS LOCATIONS. On the date hereof the office where the
Borrower keeps the Borrower's books and records concerning the Borrower's
Accounts Receivable and other Collateral, and the Borrower's chief place of
business and chief executive office, is located at the address of the Borrower
set forth on the signature pages of this Agreement, and all of the Borrower's
other places of business and all locations and places of business of each
Subsidiary are listed on Schedule 4.12. On the date hereof, the names of any
landlords and/or mortgagees of any of such locations are identified in Schedule
4.12.
4.13 COLLATERAL LOCATIONS. On the date hereof the Borrower's
Inventory, Equipment and, if applicable, fixtures (except any part thereof which
prior to the execution of this Agreement the Borrower shall have advised the
Lender in writing consists of Collateral normally used in more than one state)
is located at the addresses set forth in Schedule 4.13. The legal descriptions
of any real property on which any fixtures are located and the name(s) of the
record owner of such real property is set forth in Schedule 4.13.
4.14 ELIGIBILITY OF COLLATERAL. (a) All of the Accounts Receivable are
and will continue to be bona fide existing obligations created by the sale of
goods, the rendering of services, or the furnishing of other good and sufficient
consideration to Accounts Debtors in the regular course of business and all
shipping or delivery receipts and other documents furnished or to be furnished
to the Lender in connection therewith are and will be genuine; (b) Each Account
Receivable which the Borrower shall, expressly or by implication, request the
Lender to classify as an Eligible Account Receivable, will, as of the time when
such request is made, conform in all respects to the requirements of such
classification set forth in the respective definition of "Eligible Account
Receivable" set forth herein; (c) with respect to each schedule of Inventory
delivered to the Lender pursuant to Section 3.3: (i) the descriptions, origins,
size, qualities, quantities, weights, and markings of all goods stated thereon,
or on any attachment thereto, are true and correct in all material respects;
(ii) all goods stated thereon have been produced by the Borrower in compliance
with all requirements of the Fair Labor Standards Act; and (iii) none of the
goods stated thereon are defective, of second quality, used, or goods returned
after shipment, except where described as such; and (iv) all Inventory not
included on such schedule has been previously scheduled.
4.15 CONTROL OF COLLATERAL; LEASE OF PROPERTY. The Borrower is not now
conducting, or permitting or suffering to be conducted, any activities pursuant
to or in conjunction with which any of the Collateral is now, or will be (while
any Obligations exist or this Agreement is in effect), in the possession or
control of, any Subsidiary, Obligor (other than the Borrower) or Related Party.
Except as listed on Schedule 4.15, none of the machinery, equipment or real
property used by the Borrower or any Subsidiary is subject to a lease (excluding
only Capitalized Leases included on Schedule 6.11) under which the Borrower or
such Subsidiary is the lessee.
4.16 PATENTS, TRADEMARKS, ETC. The Borrower and each of the
Subsidiaries possesses or has the right to use all of the patents, trademarks,
trade names, service marks and copyrights, and applications therefor, and all
technology, know-how, processes, methods and designs used in or necessary for
the conduct of its business, without known conflict with the rights of others.
All such licenses, patents, trademarks, trade names, service marks and
copyrights, and applications therefor existing on the date hereof are listed on
Schedule 4.16.
4.17 SOLVENCY. The Borrower and each of the Subsidiaries now has
capital sufficient to carry on its respective business and transactions and all
business and transactions in which it is about to engage and is now solvent and
able to pay its respective debts as they mature, and the Borrower and each of
the Subsidiaries now owns property having a value, greater than the amount
required to pay the Borrower's or such Subsidiary's debts.
4.18 CONTRACTS; LABOR MATTERS. Except as disclosed on Schedule 4.18:
(a) neither the Borrower nor any Subsidiary is a party to any contract or
agreement, or subject to any charge, corporate restriction, judgment, decree or
order, the performance of which constitutes an Adverse Event; (b) no labor
contract to which the Borrower or any Subsidiary is subject is scheduled to
expire during the original term of this Agreement; and (c) on the date of this
Agreement (i) neither the Borrower nor any Subsidiary is a party to any labor
dispute and (ii) there are no strikes or walkouts relating to any labor
contracts to which the Borrower or any Subsidiary is subject.
4.19 ERISA. Each Plan complies with all material applicable
requirements of ERISA and the Code and with all material applicable rulings and
regulations issued under the provisions of ERISA and the Code setting forth
those requirements. No Reportable Event, other than a Reportable Event for which
the reporting requirements have been waived by regulations of the PBGC, has
occurred and is continuing with respect to any Plan. All of the minimum funding
standards applicable to such Plans have been satisfied and there exists no event
or condition which would permit the institution of proceedings to terminate any
Plan under Section 4042 of ERISA. The Current value of the Plans' benefits
guaranteed under Title IV of ERISA does not exceed the current value of the
Plans' assets allocable to such benefits. Except as listed on Schedule 4.8,
neither the Borrower nor any Subsidiary has any contingent liability with
respect to any "employee welfare benefit plans," as such term is defined in
Section 3(1) of ERISA, which covers retired or terminated employees and their
beneficiaries.
4.20 REGULATION U. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (as
defined in Regulation U of the Federal Reserve Board), and no part of the
proceeds of any Loan will be used to purchase or carry margin stock or for any
other purpose which would violate any of the margin requirements of the Federal
Reserve Board.
4.21 COMPLIANCE. The Borrower and each of the Subsidiaries are in
material compliance with all statutes and governmental rules and regulations
applicable to them. All Inventory of the Borrower has been produced in
compliance with all requirements of the Fair Labor Standards Act.
4.22 TAXES. The Borrower and each of the Subsidiaries has filed all
federal, state and local tax returns required to be filed and has paid, or made
adequate provisions for the payment of, all Taxes due and payable pursuant to
such returns and pursuant to any assessments made against it or any of its
property (other than Taxes the amount or validity of which is currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in accordance with GAAP have been provided on the books of the
Borrower). No tax Liens have been filed and no material claims are being
asserted with respect to any such Taxes. The charges, accruals and reserves on
the books of the Borrower in respect of Taxes are adequate. The federal income
tax liability of the Borrower and the Subsidiaries has been audited by the
Internal Revenue Service and has been finally determined and satisfied (or the
time for audit has expired) for all tax years up to and including the tax year
ended August 27, 1989. The Borrower is not aware of any proposed assessment
against the Borrower or any Subsidiary for additional Taxes (or any basis for
any such assessment) which might be material to the Borrower and the
Subsidiaries taken as a whole.
4.23 INVESTMENT COMPANY ACT. Neither the Borrower nor any Subsidiary
is an "investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
4.24 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower nor any
Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company" or an "affiliate" of a "holding company" within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
4.25 ENVIRONMENTAL AND SAFETY AND HEALTH MATTERS. Except as disclosed
on Schedule 4.25: (a) the operations of the Borrower and each of the
Subsidiaries complies in all respects with (i) all applicable Environmental
Laws, and (ii) all applicable Occupational Safety and Health Laws; (b) none of
the operations of the Borrower or any Subsidiary are subject to any judicial or
administrative proceeding alleging the violation of any Environmental Law or
Occupational Safety and Health Law; (c) none of the operations of the Borrower
or any Subsidiary is the subject of federal or state investigation evaluating
whether any remedial action is needed to respond to (i) a spillage, disposal or
release into the environment of any Hazardous Material or other hazardous, toxic
or dangerous waste, substance or constituent, or other substance, or (ii) any
unsafe or unhealthful condition at any premises of the Borrower or any
Subsidiary; (d) neither the Borrower nor any Subsidiary has filed any notice
under any Environmental Law or Occupation Safety and Health Law indicating or
reporting (i) any past or present spillage, disposal or release into the
environment of, or treatment, storage or disposal of, any Hazardous Material or
other hazardous, toxic or dangerous waste, substance or constituent, or other
substance or (ii) any unsafe or unhealthful condition at any premises of the
Borrower or any Subsidiary; and (e) neither the Borrower nor any Subsidiary has
any known contingent liability in connection with (i) any spillage, disposal or
release into the environment of, or otherwise with respect to, any Hazardous
Material or other hazardous, toxic or dangerous waste, substance or constituent,
or other substance, or (ii) any unsafe or unhealthful condition at any premises
of the Borrower or any Subsidiary.
ARTICLE V AFFIRMATIVE COVENANTS
From the date of this Agreement and thereafter until all Obligations of the
Borrower hereunder are paid in full, the Borrower agrees that unless the Lender
shall otherwise consent in writing, it will:
5.1 FINANCIAL STATEMENTS AND OTHER REPORTS.
5.1.1 FINANCIAL REPORTS. Furnish to the Lender in form
satisfactory to the Lender:
(a) ANNUAL AUDIT REPORT. As soon as available and in any
event within 90 days after the end of each fiscal year of the
Borrower, the annual audit report of the Borrower and the
Subsidiaries prepared on a consolidating and consolidated basis
in conformity with GAAP, consisting of at least statements of
income, cash flow and stockholders' equity, and a consolidated
and consolidating balance sheet as at the end of such year,
setting forth in each case in comparative form corresponding
figures from the previous annual audit, certified, without
qualification, by independent certified public accountants of
recognized standing selected by the Borrower and acceptable to
the Lender, together with any management letters, management
reports or other supplementary comments or reports to the
Borrower or its board of directors furnished by such accountants.
(b) ACCOUNTANT'S CERTIFICATE. Together with the audited
financial statements required under Section 5.1.1(a), a
certificate from the accounting firm performing such audit (i)
acknowledging its understanding that the Lender and any
Participant is relying on such audit report and (ii) stating that
it has reviewed this Agreement and that in performing its
examination, nothing came to its attention that caused it to
believe that any Event of Default or Unmatured Event of Default
exists, or, if such Unmatured Event of Default or Event of
Default exists, describing its nature.
(c) QUARTERLY FINANCIAL STATEMENT. As soon as available and
in any event within 30 days after the end of each of the first
three fiscal quarters of each fiscal year, a copy of the
unaudited financial statement of the Borrower and the
Subsidiaries prepared in the same manner as the audit report
referred to in Section 5.1.1(a) signed by the Borrower's chief
financial officer and consisting of at least consolidated
statements of income and cash flow for the Borrower and the
Subsidiaries for such quarter and for the period from the
beginning of such fiscal year to the end of such quarter, and a
consolidated and consolidating balance sheet of the Borrower as
at the end of such quarter.
(d) ACCOUNTING PERIOD FINANCIAL STATEMENT. As soon as
available and in any event within 20 days after the end of each
accounting period of each fiscal year of the Borrower, a copy of
the unaudited financial statement of the Borrower and the
Subsidiaries prepared in the same manner as the audit report
referred to in Section 5.1.1(a), signed by the Borrower's chief
financial officer and consisting of at least consolidated
statements of income, for the Borrower and the Subsidiaries for
such period and for the period from the beginning of such fiscal
year to the end of such period, and a consolidated and
consolidating balance sheet of the Borrower as at the end of such
period.
(e) PROJECTIONS. As soon as available and in any event not
later than 30 days after the last day of each fiscal year of the
Borrower, a projected financial statement of the Borrower and the
Subsidiaries prepared in the same manner as the audit report
referred to in Section 5.1.1(a), signed by the Borrower's chief
financial officer and presenting fairly the Borrower's best good
faith projections of the financial position and results of
operations of the Borrower and the Subsidiaries for each
accounting period of the following fiscal year.
(f) OFFICER'S CERTIFICATE. Together with the financial
statements furnished by the Borrower under Section 5.1.1(a), (c)
and (d), a certificate of the Borrower's chief financial officer,
dated the date of such annual audit report or such quarterly or
other periodic financial statement, as the case may be, to the
effect that no Event of Default or Unmatured Event of Default has
occurred and is continuing, or, if there is any such event,
describing it and the steps, if any, being taken to cure it, and
containing a computation of, and showing compliance with, each of
the financial ratios and restrictions contained in Articles V and
VI and Supplement A.
(g) GAAP CHANGES. In the event that a material change
occurs, in the Lender's judgment, in GAAP, either the Lender and
the Borrower shall amend, in writing, the covenants in this
Agreement, Supplement A. and the other Loan Documents which are
calculated on the basis of GAAP to reflect such change, or, if
the Lender and the Borrower fail to agree on and enter into such
an amendment, the Lender shall have the right to deem such change
in GAAP to be an Event of Default.
5.1.2 AGINGS; INELIGIBLE ACCOUNTS RECEIVABLE CERTIFICATION. Within 15
days after the end of each accounting period, (a) a detailed aging of all
Accounts Receivable by invoice, including, without limitation, a
reconciliation to the aging report delivered to the Lender for the
preceding accounting period, (b) a certification of ineligible Accounts
Receivable and (c) an aging of all accounts payable as of the end of the
preceding accounting period, each in form and content acceptable to the
Lender.
5.1.3 OTHER REPORTS.
(a) SEC AND OTHER REPORTS. Promptly upon the making or filing
thereof, copies of all financial statements, reports and proxy
statements mailed to the Borrower's shareholders, and copies of all
registration statements, periodic reports and other documents filed
with the Securities and Exchange Commission (or any successor thereto)
or any national securities exchange.
(b) REPORT OF CHANGE IN SUBSIDIARIES OR PARTNERSHIPS. Promptly
from time to time, a written report of any change in the list of the
Borrower's Subsidiaries set forth on Schedule 4.10 or in the list of
partnerships and joint ventures set forth on Schedule 4.11.
(c) PATENTS, ETC. Promptly from time to time, a written report of
any change to the list of patents, trademarks, copyrights and other
information set forth in Schedule 4.16.
(d) OTHER REPORTS. The information required to be provided
pursuant to other provisions of this Agreement, and such other reports
from time to time requested by the Lender.
5.2 NOTICES. Notify the Lender in writing of any of the following
immediately upon learning of the occurrence thereof, describing the same
and, if applicable, the steps being taken by the Person(s) affected with
respect thereto:
(a) DEFAULT. The occurrence of (i) any Event of Default or
Unmatured Event of Default, and (ii) to the extent not included in
clause (i) above, the default by the Borrower, any other Obligor or
any Subsidiary under any note, indenture, loan agreement, mortgage,
lease, deed or other material similar agreement to which the Borrower,
any other Obligor or any Subsidiary, as appropriate, is a party or by
which it is bound.
(b) LITIGATION. The institution of any litigation, arbitration
proceeding or governmental proceeding affecting the Borrower, any
other Obligor, any Subsidiary, any Collateral or any Third Party
Collateral, whether or not considered to be covered by insurance.
(c) JUDGMENT. The entry of any judgment or decree against the
Borrower, any other Obligor or any Subsidiary, if the amount of such
judgment exceeds $50,000.
(d) ERISA. With respect to any Plan, the occurrence of a
Reportable Event (other than a Reportable Event for which the
reporting requirements have been waived by PBGC regulations) or any
"prohibited transaction" (as defined in Section 4975 of the Code), a
notice specifying the nature thereof and what action the Borrower
proposes to take with respect thereto, and, when received, copies of
any notice from PBGC of intention to terminate or have a trustee
appointed for any Plan; or the incurrence of any material increase in
the contingent liability of the Borrower, any other Obligor or any
Subsidiary with respect to any "employee welfare benefit plan" as
defined in Section 3(1) of ERISA which covers retired employees and
their beneficiaries.
(e) CHANGE IN COLLATERAL LOCATIONS. If any of the Borrower's
Inventory or Equipment is placed in locations other than those
identified in this Agreement or in Schedule 4.13.
(f) CHANGE IN PLACE(S) OF BUSINESS. Any proposed opening, closing
or other change in the list of offices and other places of business of
the Borrower and each Subsidiary set forth in Schedule 4.12, and any
opening, closing or other change in the offices and other places of
business of each other Obligor.
(g) CHANGE OF NAME. Any change in the name of the Borrower, any
other Obligor or any Subsidiary, and any change in the list of trade
names and trade styles set forth in Schedule 4.1.
(h) ENVIRONMENTAL AND SAFETY AND HEALTH MATTERS. Receipt of any
notice that the operations of the Borrower, any other Obligor or any
Subsidiary are not in full compliance with requirements of any
applicable Environmental Law or any Occupational Safety and Health
Law; receipt of notice that the Borrower, any other Obligor or any
Subsidiary is subject to federal, state or local investigation
evaluating whether any remedial action is needed to respond to (i) any
spillage, disposal or release into the environment of any Hazardous
Material or other hazardous, toxic or dangerous waste, substance or
constituent, or other substance, or (ii) any unsafe or unhealthful
condition at any premises of the Borrower, any other Obligor or any
Subsidiary; or receipt of notice that any properties or assets of the
Borrower any other Obligor or any Subsidiary are subject to an
Environmental Lien.
(i) ADVERSE EVENT. The occurrence of an Adverse Event.
(j) DEFAULT BY OTHERS. Any material default by any Account Debtor
or other Person obligated to the Borrower, any other Obligor, or any
Subsidiary, under any contract, chattel paper, note or other evidence
of amounts payable or due or to become due to the Borrower, such
Obligor or Subsidiary if the amount payable under such contract,
chattel paper, note or other evidence of amounts payable or due or to
become due is material.
(k) MOVEABLE COLLATERAL. If any of the Collateral or Third Party
Collateral shall consist of goods of a type normally used in more than
one state, whether or not actually so used, any use of any such goods
in any state other than a state in which the Borrower shall have
previously advised the Lender such goods will be used. The Borrower
agrees that such goods will not, unless the Lender shall otherwise
consent in writing, be used outside the continental United States or
in Louisiana.
(l) CHANGE IN MANAGEMENT OR LINE(S) OF BUSINESS. Any substantial
change in the senior management of the Borrower or any Subsidiary, or
any change in the Borrower's or any Subsidiary's line(s) of business.
(m) OTHER EVENTS. The occurrence of such other events as the
Lender may from time to time specify.
5.3 EXISTENCE. Maintain and preserve, and cause each Subsidiary to
maintain and preserve, its respective existence as a corporation or other form
of business organization, as the case may be, and all rights, privileges,
licenses, patents, patent rights, copyrights, trademarks, trade names,
franchises and other authority to the extent material and necessary for the
conduct of its respective business in the ordinary course as conducted from time
to time.
5.4 NATURE OF BUSINESS. Engage, and cause each Subsidiary to engage,
in substantially the same fields of business as it is engaged in on the date
hereof.
5.5 BOOKS, RECORDS AND ACCESS. Maintain, and cause each Subsidiary to
maintain, complete and accurate books and records (including, without
limitation, records relating to Accounts Receivable, Inventory, Equipment and
other Collateral), in which full and correct entries in conformity with GAAP
shall be made of all dealings and transactions in relation to its respective
business and activities. Cause its books and records as at the end of any
accounting period to be posted and closed not more than 15 days after the last
business day of such period. Permit, and cause each Subsidiary to permit, access
by the Lender and its agents or employees to the books and records of the
Borrower and such Subsidiary at the Borrower's or such Subsidiary's place or
places of business at intervals to be determined by the Lender and without
hindrance or delay, and permit, and cause each Subsidiary to permit, the Lender
or its agents and employees to inspect the Borrower's Inventory and Equipment
and such Subsidiary's inventory and equipment, and to inspect, audit, check and
make copies and/or extracts from the books, records, journals, orders, receipts,
correspondence and other data relating to Inventory, Accounts Receivable,
chattel paper, General Intangibles, Equipment and any other Collateral or Third
Party Collateral, or to any other transactions between the parties hereto. Any
and all such inspections and/or audits shall be at the Borrower's expense.
5.6 INSURANCE. Maintain, and cause each Subsidiary to maintain,
insurance to such extent and against such hazards and liabilities as is commonly
maintained by companies similarly situated or as the Lender may reasonably
request from time to time. Keep the Collateral properly housed and insured for
its full insurable value against loss or damage by fire, theft, explosion,
sprinklers, collision (in the case of motor vehicles) and such other risks as
are customarily insured against by persons engaged in business similar to that
of the Borrower, with such companies, in such amounts and under policies in such
form as shall be satisfactory to the Lender. Certificates of such policies of
insurance have been delivered to the Lender prior to the date hereof together
with evidence of payment of all premiums therefor. The Borrower hereby directs
all insurers under such policies of insurance to pay all proceeds payable
thereunder directly to the Lender. The Borrower irrevocably makes, constitutes
and appoints the Lender and any Person whom the Lender may from time to time
designate (and all officers, employees or agents designated by the Lender or
such Person) as the Borrower's true and lawful attorney (and agent-in-fact) for
the purpose of making, settling and adjusting claims under such policies of
insurance, endorsing the name of the Borrower on any check, draft, instrument or
other item of payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect to such policies of
insurance. In the event the Borrower at any time or times hereafter shall fail
to obtain or maintain any of the policies of insurance required herein or to pay
any premium in whole or in part relating thereto, the Lender, without waiving or
releasing any obligations or default by the Borrower hereunder, may at any time
or times thereafter (but shall be under no obligation to do so) obtain and
maintain such policies of insurance and pay such premiums and take any other
action with respect thereto which the Lender deems advisable. All sums so
disbursed by the Lender, including reasonable Attorneys' Fees, court costs,
expenses and other charges relating thereto, shall be payable on demand by the
Borrower to the Lender.
5.7 INSURANCE SURVEY. Provide to the Lender at least annually within
90 days of the end of the Borrower's Fiscal year, a certificate signed by its
chief financial officer that attests to and summarizes the property and casualty
insurance program carried by the Borrower and the Subsidiaries. This summary
shall include the insurer's(s') name, policy number(s), expiration date(s),
amount(s) of coverage, type(s) of coverage, the annual premium(s), Best's
policyholder's and financial size ratings of the insurers, exclusions,
deductibles and self-insured retention and shall describe in detail any
retrospective rating plan, fronting arrangement or any other self-insurance or
risk assumption agreed to by the Borrower or any Subsidiary or imposed upon the
Borrower or any Subsidiary by any such insurer, as well as any self-insurance
program that is in effect. The Borrower shall (a) notify the Lender in writing
at least 30 days prior to any cancellation or material change of any such
insurance by the Borrower or any Subsidiary and (b) within five business days
after receipt of any notice (whether formal or informal) thereof, of any
cancellation or change in any of its insurance by any of its insurers or any
material change in the cost thereof or which reduces the policyholder's or
financial size ratings of the insurance carriers of the Borrower or any
Subsidiary, as established by Best's Insurance Reports. Annually, the Lender
shall have the right to request the Borrower to have a risk management survey
completed by a recognized independent risk management consultant acceptable to
it and the Lender which will identify, quantify and assess any catastrophic
uninsured, underinsured or self-insured exposures faced by the Borrower and the
Subsidiaries. The cost of such survey shall be borne solely by the Borrower. A
copy of the results of each such a survey shall be promptly delivered by the
Borrower to the Lender.
5.8 REPAIR. Maintain, preserve and keep, and cause each Subsidiary to
maintain, preserve and keep, its properties in good repair, working order and
condition, and from time to time make, and cause each Subsidiary to make, all
necessary and proper repairs, renewals, replacements, additions, betterments and
improvements thereto so that at all times the efficiency thereof shall be fully
preserved and maintained.
5.9 TAXES. Pay, and cause each Subsidiary to pay, when due, all of its
Taxes, unless and only to the extent that the Borrower or such Subsidiary, as
the case may be, is contesting such Taxes in good faith and by appropriate
proceedings and the Borrower or such Subsidiary has set aside on its books such
reserves or other appropriate provisions therefor as may be required by GAAP.
5.10 COMPLIANCE. Comply, and cause each Subsidiary to comply, with all
statutes and governmental rules and regulations applicable to it, including,
without limitation, the Fair Labor Standards Act.
5.11 COLLATERAL MONITORING. Permit the Lender to (a) use the
Borrower's stationery and sign the name of the Borrower to request verification
of Accounts Receivable or other Collateral from Account Debtors, and (b) use the
information recorded on or contained in any data processing equipment and
computer hardware and software to which the Borrower has access relating to
Accounts Receivable, Inventory, Equipment and/or other Collateral.
ARTICLE VI NEGATIVE COVENANTS
From the date of this Agreement and thereafter until all Obligations
of the Borrower hereunder are paid in full, the Borrower agrees that, unless the
Lender shall otherwise consent in writing, it will not, and will not permit any
Subsidiary to, do any of the following:
6.1 MERGER. Merge or consolidate or enter into any analogous
reorganization or transaction with any Person.
6.2 SALE OF ASSETS. Sell, transfer, convey, lease, assign or otherwise
dispose (with or without recourse) of any of its assets (including, without
limitation, any Accounts Receivable, instruments or chattel paper) except for
sales and leases of Inventory in the ordinary course of business.
6.3 PURCHASE OF ASSETS. Purchase or lease or otherwise acquire all or
substantially all the assets of any Person.
6.4 ERISA. Permit any condition to exist in connection with any Plan
which might constitute grounds for the PBGC to institute proceedings to have
such Plan terminated or a trustee appointed to administer such Plan; permit any
Plan to terminate under any circumstances which would cause the lien provided
for in Section 4068 of ERISA to attach to any property, revenue or asset of the
Borrower or any Subsidiary; or permit the underfunded amount of Plan benefits
guaranteed under Title IV of ERISA to exceed $100,000.
6.5 CHANGES IN COLLATERAL OR BUSINESS LOCATIONS. Change (a) the
location of its chief executive office or chief place of business; (b) its name;
or (c) the locations where it stores or maintains Inventory or Equipment
without, in each case, at least 30 days' prior written notice to the Lender.
6.6 SUBSIDIARIES, PARTNERSHIPS AND JOINT VENTURES. Either: (a) form or
acquire any corporation which would thereby become a Subsidiary; or (b) form or
enter into any partnership as a limited or general partner or into any joint
venture.
6.7 OTHER AGREEMENTS. Enter into any agreement, bond, note or other
instrument with or for the benefit of any Person other than the Lender which
would (a) prohibit the Borrower or such Subsidiary from granting, or otherwise
limit the ability of the Borrower or such Subsidiary to grant, to the Lender any
Lien on any assets or properties of the Borrower or such Subsidiary, or (b) be
violated or breached by the Borrower's performance of its obligations under the
Loan Documents.
6.8 RESTRICTED PAYMENTS. Purchase or redeem or otherwise acquire for
value any shares of the Borrower's or any Subsidiary's stock, declare or pay any
dividends thereon (other than stock dividends and dividends payable to the
Borrower), make any distribution to stockholders as such (other than the
Borrower) or set aside any funds for any such purpose prepay, purchase or redeem
any subordinated Indebtedness of the Borrower or any Subsidiary; and not take
any action which will result in a decrease in the Borrower's or any Subsidiary's
ownership interest in any Subsidiary.
6.9 LEASES. Enter into or permit to exist any arrangements for the
leasing by the Borrower or any Subsidiary, as lessee, of any real or personal
property (or any interest therein) under leases (other than Capitalized Leases),
except as listed on Schedule 4.15 or which require the payment by the Borrower
and the Subsidiaries on a consolidated basis of rental amounts in the aggregate
in excess of one percent (1%) of gross sales of the Borrower and the
Subsidiaries in any one fiscal year.
6.10 INVESTMENTS. Acquire for value, make, have or hold any
Investments, except: (a) advances to employees of the Borrower or any Subsidiary
for travel or other ordinary business expenses, provided that the aggregate
amount outstanding at any one time shall not exceed $100,000 in the aggregate
for all employees; (b) advances to subcontractors and suppliers in maximum
aggregate amounts reasonably acceptable to the Lender; (c) extensions of credit
in the nature of Accounts Receivable or notes receivable arising from the sale
of goods and services in the ordinary course of business; (d) shares of stock,
obligations or other securities received in settlement of claims arising in the
ordinary course of business; (e) Investments (other than Investments in the
nature of loans or advances) outstanding on the date hereof in subsidiaries by
the Borrower and other Subsidiaries; (f) other Investments outstanding on the
date hereof and listed on Schedule 6.10; and (g) other Investments consented to
by the Lender in writing.
6.11 INDEBTEDNESS. Incur, create, issue, assume or suffer to exist any
Indebtedness, including, without limitation, Indebtedness as lessee under any
Capitalized Lease, except: (a) Indebtedness under the terms of this Agreement;
(b) Subordinated Debt; (c) Indebtedness hereafter incurred in connection with
Liens permitted under Section 6.12(d); (d) other Indebtedness outstanding on the
date hereof and listed on Schedule 6.11 and (e) other Indebtedness approved in
writing by the Lender.
6.12 LIENS. Create, incur, assume or suffer to exist any Lien with
respect to any property, revenues or assets now owned or hereafter arising or
acquired, except: (a) Liens for current Taxes not delinquent or Taxes being
contested in good faith and by appropriate proceedings and as to which such
reserves or other appropriate provisions as may be required by GAAP are being
maintained; (b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's, and other like statutory Liens arising in the ordinary course of
business securing obligations which are not overdue or which are being contested
in good faith and by appropriate proceedings and as to which such reserves or
other appropriate provisions as may be required by GAAP are being maintained;
(c) pledges or deposits in connection with workers' compensation, unemployment
insurance and other social security legislation; (d) Liens in connection with
Capital Expenditures attaching only to the property being acquired if the
Indebtedness secured thereby does not exceed 100% of the fair market value of
such property at the time of acquisition thereof; (e) Liens in favor of the
Lender; (f) Liens referred to in Section 4.9; and (g) Liens consented to by the
Lender in writing.
6.13 CONTINGENT LIABILITIES. Either: (a) endorse, guarantee,
contingently agree to purchase or to provide funds for the payment of, or
otherwise become contingently liable upon, any obligation of any other Person,
except by the endorsement of negotiable instruments for deposit or collection
(or similar transactions) in the ordinary course of business, or (b) agree to
maintain the net worth or working capital of, or provide funds to satisfy any
other financial test applicable to, any other Person.
6.14 CHANGE IN ACCOUNTS RECEIVABLE. After the occurrence of an Event
of Default or receipt of notice from the Lender that the Lender intends to
commence direct collection of Accounts Receivable, permit or agree to any
extension, compromise or settlement or make any change or modification of any
kind or nature with respect to any Account Receivable, including any of the
terms relating thereto.
6.15 UNCONDITIONAL PURCHASE OBLIGATIONS. Enter into or be a party to
any contract for the purchase of materials, supplies or other property or
services, if such contract requires that payment be made by it regardless of
whether or not delivery is ever made of such materials, supplies or other
property or services.
6.16 USE OF PROCEEDS. Use or permit any proceeds of the Loans to be
used, either directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of "purchasing or carrying any margin stock" within the
meaning of Regulation U of the Federal Reserve Board, as amended from time to
time, and furnish to the Lender upon request, a statement in conformity with the
requirements of Federal Reserve Form U-1 referred to in Regulation U of the
Federal Reserve Board.
6.17 TRANSACTIONS WITH RELATED PARTIES. Enter into or be a party to
any transaction or arrangement, including, without limitation, the purchase,
sale, lease or exchange of property or the rendering of any service, with any
Related Party, except in the ordinary course of and pursuant to the reasonable
requirements of the Borrower's or such Subsidiary's business and upon fair and
reasonable terms no less favorable to the Borrower or such Subsidiary that would
obtain in a comparable arm's-length transaction with a Person not a Related
Party.
ARTICLE VII EVENTS OF DEFAULT AND REMEDIES
7.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an Event of Default:
(a) NON PAYMENT. The Borrower shall fail to pay, when due or
declared due, any of the Obligations;
(b) NON-PAYMENT OF OTHER INDEBTEDNESS. The Borrower, any other
Obligor or any Subsidiary shall fail to pay, when due, whether by
acceleration or otherwise (subject to any applicable grace period),
any Indebtedness of, or guaranteed by, the Borrower, such other
Obligor or such Subsidiary;
(c) ACCELERATION OF OTHER INDEBTEDNESS. Any event or condition
shall occur which results in the acceleration of the maturity of any
Indebtedness of, or guaranteed by, the Borrower, any other Obligor or
any Subsidiary or enables the holder or holders of such other
Indebtedness or any trustee or agent for such holders (any required
notice of default having been given and any applicable grace period
having expired) to accelerate the maturity of such other Indebtedness;
(d) OTHER OBLIGATIONS. The Borrower, any other Obligor or any
Subsidiary shall fail to pay, when due, whether by acceleration or
otherwise, or perform or observe (subject to any applicable grace
period or waiver of such default) (i) any obligation or agreement of
the Borrower, such other Obligor or such Subsidiary to or with the
Lender (other than any obligation or agreement of the Borrower
hereunder and under any Notes) or (ii) any material obligation or
agreement of the Borrower, such other Obligor or such Subsidiary to or
with any other Person (other than (A) any such material obligation or
agreement constituting or related to Indebtedness, (B) accounts
payable arising in the ordinary course of business, and (C) any
material obligation or agreement of any Subsidiary to the Borrower or
to any other Subsidiary), except only to the extent that the
occurrence of any such failure is being contested by the Borrower,
such other Obligor or such Subsidiary, as the case may be, in good
faith and by appropriate proceedings and the Borrower, such other
Obligor or such Subsidiary, as applicable, shall have set aside on its
books such reserves or other appropriate provisions therefor as may be
required by GAAP;
(e) INSOLVENCY. The Borrower, any other Obligor or any Subsidiary
becomes insolvent, or generally fails to pay, or admits in writing its
inability to pay, its debts as they mature, or applies for, consents
to, or acquiesces in, the appointment of a trustee, receiver or other
custodian for the Borrower, such other Obligor or such Subsidiary, or
for a substantial part of the property of the Borrower, such other
Obligor or such Subsidiary, or makes a general assignment for the
benefit of creditors; or, in the absence of such application, consent
or acquiescence, a trustee, receiver or other custodian is appointed
for the Borrower, any other Obligor or any Subsidiary or for a
substantial part of the property of the Borrower, any other Obligor or
any Subsidiary and is not discharged or dismissed within 30 days; or
any bankruptcy, reorganization, debt arrangement or other proceeding
under any bankruptcy or insolvency law, or any dissolution or
liquidation proceeding, is instituted by or against the Borrower, any
other Obligor or any Subsidiary; or any warrant of attachment or
similar legal process is issued against any substantial part of the
property of the Borrower, any other Obligor or any Subsidiary;
(f) ERISA. The institution by the Borrower or any ERISA Affiliate
of steps to terminate any Plan if, in order to effectuate such
termination, the Borrower or any ERISA Affiliate would be required to
make a contribution to such Plan or would incur a liability or
obligation to such Plan, in excess of $100,000; or the institution by
the PBGC of steps to terminate any Plan;
(g) NON-COMPLIANCE WITH THIS AGREEMENT.
(i) The Borrower shall fail to comply with any of the
Borrower's agreements set forth in Section 7 of Supplement A; or
(ii) The Borrower shall fail to comply with any of the
Borrower's agreements set forth in this Agreement (and not
constituting an Event of Default under any of the other
subsections of this Section 7.1, including, without limitation,
Section 7.1(g)(i)), and such failure to comply shall continue for
twenty days;
(h) NON-COMPLIANCE WITH LOAN DOCUMENTS. Failure by the Borrower,
any other Obligor or any Subsidiary to comply with any of its
respective agreements set forth in any Loan Documents other than this
Agreement (and not constituting an Event of Default under any of the
other subsections of this Section 7.1), and such failure to comply
shall continue after the grace period (if any) set forth therein;
(i) WARRANTY. Any warranty made by the Borrower or any other
Obligor in any of the Loan Documents is untrue or misleading in any
material respect when made or deemed made; or any schedule, statement,
report, notice, certificate or other writing furnished by the Borrower
or any other Obligor to the Lender is untrue or misleading in any
material respect on the date as of which the facts set forth therein
are stated or certified; or any certification made or deemed made by
the Borrower or any other Obligor to the Lender is untrue or
misleading in any material respect on or as of the date made or deemed
made;
(j) LITIGATION. There shall be entered against any one of the
Borrower, any other Obligor or any Subsidiary one or more judgments or
decrees in excess of $100,000 in the aggregate at any one time
outstanding, excluding those judgments or decrees (i) that shall have
been outstanding less than 30 calendar days from the entry thereof or
(ii) for and to the extent which the Borrower, such Obligor or such
Subsidiary, as applicable, is insured and with respect to which the
insurer has assumed responsibility in writing or for and to the extent
which the Borrower, such Obligor or such Subsidiary, as applicable, is
otherwise indemnified if the terms of such indemnification are
satisfactory to the Lender;
(k) DEATH OF OBLIGOR. If any natural person who is an Obligor,
partner in a partnership which is an Obligor, or owner of a material
interest in a corporate Obligor, shall die or be declared legally
incompetent;
(l) VALIDITY. If the validity or enforceability of any of the
Loan Documents shall be challenged by the Borrower, any other Obligor
or any other Person, or shall fail to remain in full force and effect;
(m) CONDUCT OF BUSINESS. If the Borrower, any other Obligor or
any Subsidiary is enjoined, restrained or in any way prevented by
court order, which has not been dissolved or stayed within five
Business Days, from conducting all or any material part of its
business affairs; [and]
(n) ADVERSE EVENT. The Lender shall have determined in good faith
(which determination shall be conclusive) that (i) an Adverse Event
has occurred or (ii) the Lender's interest in any material Collateral
or Third Party Collateral has been adversely affected or impaired, or
the value thereof to the Lender has been diminished to a material
extent, or (iii) the prospect of payment or performance of any
obligation or agreement of the Borrower or any other Obligor under any
of the Loan Documents is materially impaired, and the condition giving
rise to such determination does not constitute an Event of Default
under any of the other subsections of this Section 7.1; and
(o) CHANGE IN MANAGEMENT OR LINE(S) OF BUSINESS. Any substantial
change in the senior management of the Borrower or any Subsidiary or
any substantial change in the line(s) of business of the Borrower or
any Subsidiary.
7.2 EFFECT OF EVENT OF DEFAULT; REMEDIES.
(a) In the event that one or more Events of Default described in
Section 7.1(e) shall occur, then the Credit extended under this
Agreement shall terminate and all Obligations hereunder and under any
Notes shall be immediately due and payable without demand, notice or
declaration of any kind whatsoever.
(b) In the event an Event of Default other than one described in
Section 7.1(e) shall occur, then the Lender may declare all
Obligations hereunder and under any Notes immediately due and payable
without demand or notice of any kind whatsoever, whereupon the Credit
extended under this Agreement shall terminate and all Obligations
hereunder and under any Notes shall be immediately due and payable.
The Lender shall promptly advise the Borrower of any such declaration,
but failure to do so shall not impair the effect of such declaration.
(c) In the event of the occurrence of any Event of Default the
Lender may exercise any one or more or all of the following remedies,
all of which are cumulative and non-exclusive:
(i) any remedy contained in the Loan Documents or any
Supplemental Documentation;
(ii) any rights and remedies available to the Lender under
the Uniform Commercial Code as enacted in Minnesota as of the
date of this Agreement, and any other applicable law;
(iii) without notice, demand or legal process of any kind,
the Lender may take possession of any or all of the Collateral
(in addition to Collateral which it might already have in its
possession), wherever it might be found, and for that purpose may
pursue the same wherever it may be found, and may enter into any
premises where any of the Collateral may be or is supposed to be,
and search for, take possession of, remove, keep and store any of
the Collateral until the same shall be sold or otherwise disposed
of, and the Lender shall have the right to store the same in any
of the Borrower's premises without cost to the Lender;
(iv) at the Lender's request, the Borrower will, at the
Borrower's expense, assemble the Collateral and make it available
to the Lender at a place or places to be designated by the Lender
which is reasonably convenient to the Lender and the Borrower;
and
(v) the Lender at its option, and pursuant to notification
given to the Borrower as provided for below, may sell any
Collateral actually or constructively in its possession at public
or private sale and apply the proceeds thereof as provided below.
7.3 SETOFF. In addition to and not in limitation of all rights of
offset that the Lender or any other holder of a Note may have under applicable
law, the Lender or such other holder of a Note shall, upon the occurrence of any
Event of Default, or any Unmatured Event of Default described in Section 7.1(e)
hereof, have the right to appropriate and apply to the payment of the
Obligations any and all balances, credits, deposits, accounts or moneys of the
Borrower then or thereafter with the Lender, or any Affiliate, or other holder.
ARTICLE VIII COLLATERAL AND THE LENDER'S RIGHTS
8.1 NOTICE OF DISPOSITION OF COLLATERAL. Any notification of intended
disposition of any of the Collateral required by law shall be deemed reasonably
and properly given if given at least ten calendar days before such disposition.
8.2 APPLICATION OF PROCEEDS OF COLLATERAL. Any proceeds of any
disposition by the Lender of any of the Collateral may be applied by the Lender
to the payment of expenses in connection with the taking possession of, storing,
preparing for sale, and disposition of Collateral, including Attorneys' Fees and
legal expenses, and any balance of such proceeds may be applied by the Lender
toward the payment of such of the Obligations, and in such order of application,
as the Lender may from time to time elect.
8.3 CARE OF COLLATERAL. The Lender shall be deemed to have exercised
reasonable care in the custody and preservation of any Collateral in its
possession if it takes such action for that purpose as the Borrower requests in
writing, but failure of the Lender to comply with such request shall not, of
itself, be deemed a failure to exercise reasonable care, and no failure of the
Lender to preserve or protect any rights with respect to such Collateral against
prior parties, or to do any act with respect to the preservation of such
Collateral not so requested by the Borrower, shall be deemed a failure to
exercise reasonable care in the custody or preservation of such Collateral.
8.4 PERFORMANCE OF BORROWER'S OBLIGATIONS. The Lender shall have the
right, but shall not be obligated, to discharge any claims against or Liens, and
any Taxes at any time levied or placed upon any or all Collateral including,
without limitation, those arising under statute or in favor of landlords, taxing
authorities, government, public and/or private warehousemen, common and/or
private carriers, processors, finishers, draymen, coopers, dryers, mechanics,
artisans, laborers, attorneys, courts, or others. The Lender may also pay for
maintenance and preservation of Collateral. The Lender may, but is not obligated
to, perform or fulfill any of the Borrower's responsibilities under this
Agreement which the Borrower has failed to perform or fulfill.
8.5 LENDER'S RIGHTS. None of the following shall affect the
obligations of the Borrower to the Lender under this Agreement or the Lender's
rights with respect to the remaining Collateral or any Third Party Collateral
(any or all of which actions may be taken by the Lender at any time, whether
before or after an Event of Default, at its sole and absolute discretion and
without notice to the Borrower):
(a) acceptance or retention by the Lender of other property or
interests in property as security for the Obligations, or acceptance
or retention of any obligor(s), in addition to the Borrower, with
respect to any of the Obligations;
(b) release of its security interest in, or surrender or release
of, or the substitution or exchange of or for, all or any part of the
Collateral or any Third Party Collateral or any other property
securing any of the Obligations (including, without limitation, any
property of any Obligor other than the Borrower), or any extension or
renewal for one or more periods (whether or not longer than the
original period), or release, compromise, alteration or exchange, of
any obligations of any guarantor or other Obligor with respect to any
Collateral or any such property;
(c) extension or renewal for one or more periods (whether or not
longer than the original period), or release, compromise, alteration
or exchange of any of the Obligations, or release or compromise of any
obligation of any Obligor with respect to any of the Obligations; or
(d) failure by the Lender to resort to other security or pursue
any Person:liable for any of the Obligations before resorting to the
Collateral.
ARTICLE IX CONDITIONS PRECEDENT
9.1 CONDITIONS PRECEDENT TO INITIAL LOANS. The effectiveness of this
Agreement and the obligation of the Lender to make the initial Loans under this
Agreement and to purchase the Purchased Loans shall be subject to the
satisfaction of the following conditions precedent, in addition to the
applicable conditions precedent set forth in Section 9.2:
9.1.1 NO CHANGE IN CONDITION. No change in the condition or
operations, financial or otherwise, of the Borrower, any other Obligor
or any Subsidiary, shall have occurred which change, in the sole
credit judgment of the Lender, may constitute an Adverse Event or have
a material adverse effect on any Collateral or Third Party Collateral
or the Lender's interest therein.
9.1.2 ACCOUNTING METHODS. The Borrower shall not have made any
material, as determined by the Lender, change in its accounting
methods or principles.
9.1.3 SURVEY. The Lender shall have completed its updated survey
of the business, operations and assets of the Borrower, each
Subsidiary and each other Obligor, and such survey shall provide the
Lender with results and information which, in the Lender's
determination, are satisfactory to the Lender.
9.1.4 NO MATERIAL TRANSACTION. None of the Borrower, any other
Obligor or any Subsidiary shall have entered into any material, as
determined by the Lender, commitment or transaction, including,
without limitation, transactions for borrowings and capital
expenditures, which are not in the ordinary course of their respective
businesses.
9.1.5 LITIGATION. No litigation shall be outstanding or have been
instituted or threatened which the Lender determines to be material
against the Borrower, any other Obligor or any Subsidiary.
9.1.6 FILING OF DOCUMENTS. All financing statements, mortgages,
assignments of and amendments to mortgages and other documents
relating to the Collateral and Third Party Collateral shall have been
filed or recorded, as appropriate.
9.1.7 DELIVERY OF DOCUMENTS. The Borrower shall have delivered to
the Lender with each of the following, each duly executed and dated
the date of the purchase of the Purchased Loans or such earlier date
as shall be acceptable to the Lender:
(a) RESOLUTIONS. A copy, duly certified by the secretary or
an assistant secretary of the Borrower, of (i) the resolutions of
the Board of Directors of the Borrower authorizing (1) the
borrowings by the Borrower hereunder, (2) the execution, delivery
and performance by the Borrower of the Loan Documents to which
the Borrower is a party or by which it is bound and (3) certain
officers or employees of the Borrower to request borrowings by
telephone and to execute Borrowing Base Certificates; (ii) all
documents evidencing other necessary corporate action; and (iii)
all approvals or consents, if any, with respect to the Loan
Documents;
(b) INCUMBENCY CERTIFICATE. A certificate of the secretary
or an assistant secretary of the Borrower, certifying the names
of the officers of the Borrower authorized to sign the Loan
Documents to which it is a party and any Supplemental
Documentation, together with the true signatures of such
officers;
(c) OTHER AGREEMENTS. Duly executed copies of each of the
Loan Documents not specifically identified herein which the
Lender determines to be necessary or desirable, each in form and
content satisfactory to the Lender;
(d) OPINION. A legal opinion of Lindquist & Vennum P.L.L.P.,
counsel to the Borrower, substantially in the form set forth as
Exhibit B;
(e) BORROWER'S CERTIFICATE. The certificate of the President
or Vice President of the Borrower certifying, to the best of
his/her knowledge after diligent inquiry, to the fulfillment of
all conditions precedent to closing and funding the secured
financing transaction contemplated by this Agreement and to the
truth and accuracy, as of such date, of the representations and
warranties of the Borrower contained in the Loan Documents to
which the Borrower is a party;
(f) INSURANCE. Evidence satisfactory to the Lender of the
existence of insurance on the Collateral and Third Party
Collateral in amounts and with insurers acceptable to the Lender,
together with evidence establishing that the Lender is named as a
loss payee on all related insurance policies; and if required by
the Lender, additional insured on all related insurance policies
and an endorsement or an independent instrument from each issuer
of an insurance policy substantially in the form set forth as
Exhibit C;
(g) BYLAWS. A copy, duly certified by the secretary or an
assistant secretary of the Borrower, of the Borrower's Bylaws;
(h) ARTICLES OF INCORPORATION. A copy, duly certified by the
secretary or an assistant secretary of the Borrower, of the
Borrower's Articles of Incorporation;
(i) GOOD STANDING CERTIFICATES. Certificates of good
standing as to the Borrower and each of other corporate or
partnership Obligor issued by the Secretary of State of the state
in which the Borrower or such other Obligor, as applicable, is
organized, and each other state in which the failure of the
Borrower or such other Obligor, as applicable, to be in good
standing would constitute an Adverse Event or have a material
adverse effect on the Lender's rights in any Collateral or Third
Party Collateral;
(j) REAL ESTATE. If any Collateral or Third Party Collateral
consists of real property, and if required by the Lender, (i)
such title insurance policies or endorsements thereto, as
applicable, in such form and amount, and issued by such title
insurers, and (ii) such surveys, in each case as shall be
acceptable to the Lender;
(k) PURCHASED LOANS. Evidence satisfactory to the Lender
that upon (i) execution and delivery of all documents of
assignment (which documents shall be acceptable to the Lender in
form and substance) between the Insurance Companies and the
Lender assigning to the Lender all of the right, title and
interest of the Insurance Companies in and to the Purchased Loans
to the Lender and (ii) payment of the purchase price therefor to
the Insurance Companies, the Lender shall receive immediately all
original promissory notes, evidencing the Purchased Loans duly
endorsed to it, and such other agreements as it may require
pursuant to the documents of assignment.
(l) LANDLORDS AND WAREHOUSEMEN WAIVERS. If required by the
Lender, (i) from each lessor or landlord identified on Schedule
4.12 or Schedule 4.13, a landlord waiver and (ii) from each
operator of a public warehouse where Inventory is stored, a
letter from such operator, in each case in form acceptable to the
Lender;
(m) NOTES. The Consolidated Note and the Term Notes, in form
and substance acceptable to the Lender.
(n) REAFFIRMATION. A reaffirmation, in form and substance
acceptable to the Lender, duly executed by WSS, reaffirming its
obligations as an Obligor.
(o) OTHER. Such other documents, instruments or agreements
as the Lender shall determine to be necessary or desirable.
9.1.8 SECURITY INTEREST. The Lien in the Collateral and Third Party
Collateral granted to the Lender to secure the Obligations shall be senior,
perfected Liens except as otherwise agreed by the Lender.
9.1.9 CONTROLLED DISBURSEMENT ACCOUNT AGREEMENT. The Borrower shall
have executed and delivered to the Lender an agreement extending the term
of the Controlled Disbursement Account Agreement among the Lender, the
Borrower and First Bank Montana, National Association.
9.1.10 EFFECT OF LAW. No law or regulation affecting the Lender's
entering into the secured financing transaction contemplated by this
Agreement shall impose upon the Lender any material obligation, fee,
liability, loss, cost, expense or damage.
9.1.11 EXHIBITS; SCHEDULES. All Exhibits and Schedules to the Loan
Documents shall have been completed in form and substance satisfactory to
the Lender and shall contain no facts or information which the Lender, in
its sole judgment, determines to be unacceptable.
9.2 CONDITIONS PRECEDENT TO ALL LOANS. The obligation of the Lender to
make any Loan or issue, or cause to be issued, any Letter of Credit (including
the initial Loans) or to purchase the Purchased Loans shall be subject to the
satisfaction of the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties of the Borrower and each other Obligor set forth in the Loan
Documents to which the Borrower or such other Obligor, as applicable, is a
party shall be true and correct.
(b) EVENT OF DEFAULT. Immediately before and after making such Loan or
issuing, or causing to be issued such Letter of Credit, or purchasing the
Purchased Loans no Event of Default or Unmatured Event of Default shall
exist or be continuing.
ARTICLE X INDEMNITY
10.1 ENVIRONMENTAL AND SAFETY AND HEALTH INDEMNITY. The Borrower
hereby indemnifies the Lender and agrees to hold the Lender harmless from and
against any and all losses, liabilities, damages, injuries, costs, expenses and
claims of any and every kind whatsoever (including, without limitation, court
costs and Attorneys' Fees) which at any time or from time to time may be paid,
incurred or suffered by, or asserted against, the Lender for, with respect to,
or as a direct or indirect result of the violation by the Borrower or any
Subsidiary, of any Environmental Law or Occupational Safety and Health Law; or
with respect to, or as a direct or indirect result of (a) the presence on or
under, or the escape, seepage, leakage, spillage, disposal, discharge, emission
or release from, properties utilized by the Borrower and/or any Subsidiary in
the conduct of its business into or upon any land, the atmosphere, or any
watercourse, body of water or wetland, of any Hazardous Material or other
hazardous, toxic or dangerous waste, substance or constituent, or other
substance (including, without limitation, any losses, liabilities, damages,
injuries, costs, expenses or claims asserted or arising under the Environmental
Laws) or (b) the existence of any unsafe or unhealthful condition on or at any
premises utilized by the Borrower and/or any Subsidiary in the conduct of its
business. The provisions of and undertakings and indemnification set out in this
Section 10.1 shall survive satisfaction and payment of the Obligations and
termination of this Agreement.
10.2 GENERAL INDEMNITY. In addition to the payment of expenses
pursuant to Section 12.3 whether or not the transactions contemplated hereby
shall be consummated, the Borrower agrees to indemnify, pay and hold the Lender
and any holder of any Notes, and the officers, directors, employees, agents, and
affiliates of the Lender and such holders (collectively called the
"Indemnitees") harmless from and against, any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements of counsel for any of
such Indemnitees in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not any of such
Indemnitees shall be designated a party thereto), that may be imposed on,
incurred by, or asserted against the Indemnitees, in any manner relating to or
arising out of the Loan Documents, the statements contained in any commitment
letters delivered by the Lender, the Lender's agreement to make the Loans, to
issue Letters of Credit hereunder or to purchase the Purchased Loans, or the use
or intended use of any Letters of Credit, or the use or intended use of the
proceeds of any of the Loans (the "Indemnified Liabilities"); provided, however,
that the Borrower shall have no obligation to an Indemnitee hereunder with
respect to indemnified liabilities arising from the gross negligence or willful
misconduct of an Indemnitee. To the extent that the undertaking to indemnify,
pay and hold harmless set forth in the preceding sentence may be unenforceable
because it is violative of any law or public policy, the Borrower shall
contribute the maximum portion that it is permitted to pay and satisfy under
applicable law, to the payment and satisfaction of all indemnified liabilities
incurred by the Indemnitees or any of them. The provisions of the undertakings
and indemnification set out in this Section 10.2 shall survive satisfaction and
payment of the Obligations and termination of this Agreement.
10.3 CAPITAL ADEQUACY. If the Lender shall reasonably determine that
the application or adoption of any law, rule, regulation, directive,
interpretation, treaty or guideline regarding capital adequacy, or any change
therein or in the interpretation or administration thereof, whether or not
having the force or law (including, without limitation, application of changes
to Regulation H and Regulation Y of the Federal Reserve Board issued by the
Federal Reserve Board on January 19, 1989 and regulations of the Comptroller of
the Currency, Department of the Treasury, 12 CFR Part 3, Appendix A, issued by
the Comptroller of the Currency on January 27, 1989) increases the amount of
capital required or expected to be maintained by the Lender or any Person
controlling the Lender, and such increase is based upon the existence of the
Lender's obligations hereunder and other commitments of this type, then from
time to time, within 10 days after demand from the Lender, the Borrower shall
pay to the Lender such amount or amounts as will compensate the Lender or such
controlling Person, as the case may be, for such increased capital requirement.
The determination of any amount to be paid by the Borrower under this Section 10
shall take into consideration the policies of the Lender or any Person
controlling the Lender with respect to capital adequacy and shall be based upon
any reasonable averaging, attribution and allocation methods. A certificate of
the Lender setting forth the amount or amounts as shall be necessary to
compensate the Lender as specified in this Section 10.3 shall be delivered to
the Borrower and shall be conclusive in the absence of manifest error.
ARTICLE XI ADDITIONAL PROVISIONS
Additional provisions are set forth in Supplement A.
ARTICLE XII GENERAL
12.1 BORROWER'S WAIVER. Except as otherwise provided for in this
Agreement, the Borrower waives (a) presentment, demand and protest and notice of
presentment, protest, default, non-payment, maturity, release, compromise,
settlement, one or more extensions or renewals of any or all commercial paper,
accounts, documents, instruments, chattel paper and guaranties at any time held
by the Lender on which the Borrower may in any way be liable and hereby ratifies
and confirms whatever the Lender may do in this regard; (b) all rights to notice
and a hearing prior to the Lender's taking possession or control of, or the
Lender's relevy, attachment or levy on or of, the Collateral or any bond or
security which might be required by any court prior to allowing the Lender to
exercise any of the Lender's remedies; and (c) the benefit of all valuation,
appraisement and exemption laws. The Borrower acknowledges that i has been
advised by counsel of its choice with respect to this Agreement and the
transactions evidenced by this Agreement.
12.2 EXPENSES; ATTORNEY'S FEES. The Borrower agrees, whether or not
any Loan is made hereunder, to pay the Lender upon demand for all expenses and
Attorneys' Fees, including, without limitation, those incurred by the Lender in
connection with (a) the preparation, negotiation and execution of the Loan
Documents, (b) the preparation of any and all amendments to the Loan Documents
and all other instruments or documents provided for therein or delivered or to
be delivered thereunder or in connection therewith, (c) the collection or
enforcement of the Borrower's or any other Obligor's obligations under any of
the Loan Documents and (d) the collection or enforcement of any of the Lender's
rights in or to any Collateral or Third Party Collateral. The Borrower also
agrees (y) to indemnify and hold the Lender harmless from any loss or expense
which may arise or be created by the acceptance of telephonic or other
instructions for making Loans and (z) to pay, and save the Lender harmless from
all liability for, any stamp or other taxes which may be payable with respect to
the execution or delivery of this Agreement or the issuance of any Note or of
any other instruments or documents provided for herein or to be delivered
hereunder or in connection herewith. The Borrower's foregoing obligations shall
survive any termination of this Agreement.
12.3 LENDER FEES AND CHARGES. The Borrower agrees to pay the Lender,
or any Affiliate, on demand the customary fees and charges of the Lender, or
such Affiliate, for maintenance of accounts with the Lender, or such Affiliate,
or for providing other services to the Borrower. The Lender may, in its sole and
absolute discretion, provide for such payment by charging the Disbursement
Account or any other account of the borrower with FBNA or advancing the amount
thereof to the Borrower as a Loan.
12.4 NO WAIVER BY LENDER; AMENDMENTS. No failure or delay on the part
of the Lender in the exercise of any power or right, and no course of dealing
between the Borrower and the Lender shall operate as a waiver of such power or
right, nor shall any single or partial exercise of any power or right preclude
other or further exercise thereof or the exercise of any other power or right.
The remedies provided for herein are cumulative and not exclusive of any
remedies which may be available to the Lender at law or in equity. No notice to
or demand on the Borrower not required hereunder shall in any event entitle the
Borrower to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the right of the Lender to any other or
further action in any circumstances without notice or demand. No amendment,
modification or waiver of, or consent with respect to, any provision of this
Agreement shall in any event be effective unless the same shall be in writing
and signed and delivered by the Lender. Any waiver of any provision of this
Agreement, and any consent to any departure by the Borrower from the terms of
any provision of this Agreement, shall b effective only in the specific instance
and for the specific purpose for which given.
12.5 NOTICE. Except as otherwise expressly provided herein, any notice
hereunder to the Borrower or the Lender shall be in writing (including
telegraphic, telex, or telecopy communication) and shall be given to the
Borrower or the Lender at its address, telex number or fax number set forth on
the signature pages hereof or at such other address, telex number or telecopier
number as the Borrower or the Lender may, by written notice, designate as its
address, telex number or fax number for purposes of notice hereunder. All such
notices shall be deemed to be given when transmitted by telex and the
appropriate answer back is received, transmitted by fax, delivered to the
telegraph office, delivered by courier, personally delivered or, in the case of
notice by mail, three days following deposit in the United States mails,
properly addressed as herein provided, with proper postage prepaid.
12.6 PARTICIPATIONS; INFORMATION. The Borrower hereby consents to the
Lender's grant of participations in or sale, assignment, transfer or other
disposition, at any time and from time to time hereafter, of the Loan Documents,
or of any portion of any thereof, including without limitation lender's rights,
titles, interests, remedies, powers and/or duties. The Lender may furnish any
information concerning the Borrower in the possession of the Lender from time to
time to assignees of the rights and/or obligations of the Lender hereunder and
to participants in any Loan (including prospective assignees and participants)
and may furnish information in response to credit inquiries consistent with
general banking practice.
12.7 SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
12.8 SUCCESSORS. This Agreement shall be binding upon the Borrower and
the Lender and their respective successors and assigns, and shall inure to the
benefit of the Borrower and the Lender and the successors and assigns of the
Lender. The Borrower shall not assign its rights or duties hereunder without the
consent of the Lender.
12.9 ENTIRE AGREEMENT; EFFECT OF AGREEMENT. This Agreement and the
other Loan Documents embody the entire agreement and understanding between the
Borrower and the Lender with respect to the subject matter hereof and thereof.
This Agreement supersedes all prior agreements and understandings relating to
the subject matter hereof. This Agreement is an amendment and restatement of the
Existing Credit Agreement and of the terms governing the Purchased Loans and is
not a novation.
12.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
12.11 CONSTRUCTION. The Borrower acknowledges that this Agreement
shall not be binding upon the Lender or become effective until and unless
accepted by the Lender, in writing. If so accepted by the Lender, THE LOAN
DOCUMENTS AND ANY SUPPLEMENTAL DOCUMENTATION SHALL, UNLESS OTHERWISE EXPRESSLY
PROVIDED THEREIN, BE DEEMED TO HAVE BEEN NEGOTIATED AND ENTERED INTO IN, AND
SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF, THE STATE OF MINNESOTA AS TO
INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT, CHOICE OF LAW, AND
IN ALL OTHER RESPECTS, INCLUDING, BUT NOT LIMITED TO, THE LEGALITY OF THE
INTEREST RATE AND OTHER CHARGES, BUT EXCLUDING PERFECTION OF SECURITY INTERESTS
AND LIENS WHICH SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE RELEVANT
JURISDICTION.
12.12 CONSENT TO JURISDICTION. To induce the Lender to accept this
Agreement, the Borrower, irrevocably, agrees that, subject to the Lender's sole
and absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT,
ARISING OUT OF OR FROM OR RELATED TO THE LOAN DOCUMENTS OR ANY SUPPLEMENTAL
DOCUMENTATION OR THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN
THE CITY OF MINNEAPOLIS, STATE OF MINNESOTA. THE BORROWER HEREBY CONSENTS AND
SUBMITS TO THE jURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN
SAID CITY AND STATE AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON THE
BORROWER, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED
MAIL DIRECTED TO THE BORROWER AT THE ADDRESS STATED ON THE SIGNATURE PAGE HEREOF
AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF.
12.13 SUBSIDIARY REFERENCE. Any reference herein to a Subsidiary or
Subsidiaries of the Borrower, and any financial definition, ratio, restriction
or other provision of this Agreement which is stated to be applicable to "the
Borrower" and the Subsidiaries or which is to be determined on a "consolidated"
or "consolidating" basis, shall apply only to the extent the Borrower has any
Subsidiaries and, where applicable, to the extent any such Subsidiaries are
consolidated with the Borrower for financial reporting purposes.
12.14 WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER EACH WAIVES
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND
ANY RIGHTS (a) UNDER THE LOAN DOCUMENTS OR UNDER ANY AMENDMENT, INSTRUMENT,
DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN
CONNECTION THEREWITH OR (b) ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION
WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY.
12.15 REAFFIRMATION. Except as expressly modified by this Agreement
and any other agreements entered into in connection herewith, the Borrower
hereby reaffirms all of the terms, conditions, provisions, agreements,
requirements, promises, obligations, duties, covenants and representations of
the Borrower under all Loan Documents executed and delivered in connection with
the Existing Credit Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first written above.
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
By: /s/ Michael J. Pudil
Title: President/CEO
Address: 2605 West Wayzata Boulevard
Long Lake, Minnesota 55356
Attention: President
Telephone: (612) 473-1271
Fax No.: (612) 473-2945
FBS BUSINESS FINANCE CORPORATION
By: /s/ Leonard H. Ramotar
Title: Vice President
Address: First Bank Place MPFP0804
601 Second Avenue South
Minneapolis, MN 55402-4302
Attention: Business Credit Division
Telephone: (612) 973-3251
Fax No.: (612) 973-0829
SUPPLEMENT A
to
AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
Dated as of MARCH 31, 1995 Between
FBS BUSINESS FINANCE CORPORATION (the "Lender")
and
WASHINGTON SCIENTIFIC INDUSTRIES, INC. (the "Borrower")
1. CREDIT AGREEMENT REFERENCE. This Supplement A, as it may be amended
or modified from time to time, is a part of the Amended and Restated Credit and
Security Agreement, dated as of March 31, 1995, between the Borrower and the
Lender (together with all amendments, modifications and supplements thereto, the
"Credit Agreement"). Capitalized terms used herein which are defined in the
Credit Agreement shall have the meanings given such terms in the Credit
Agreement unless the context otherwise requires.
2. DEFINITIONS.
2.1 REVOLVING CREDIT AMOUNT. The term "Revolving Credit Amount"
shall mean the maximum amount of Revolving Loans which the Lender will
make available to the Borrower which amount shall not exceed THREE
MILLION AND NO/100 DOLLARS ($3,000,000); provided, however, that the
aggregate outstanding principal balance of the Revolving Loans plus
the Letter of Credit Obligations shall not exceed the Revolving Credit
Amount.
2.2 BORROWING BASE.
(a) DEFINITION. The term "Borrowing Base" shall mean an
amount of up to 80% of the net amount (as determined by the
Lender after deduction of such reserves and allowances as
the Lender deems proper and necessary) of the Borrower's
Eligible Accounts Receivable.
(b) LENDER'S RIGHTS. The Borrower agrees that nothing
contained in this Supplement A (a) shall be construed as the
Lender's agreement to resort or look to a particular type or
item of Collateral or as security for any specific Loan or
advance or in any way limit the Lender's right to resort to
any or all of the Collateral or as security for any of the
Obligations, (b) shall be deemed to limit or reduce any lien
on or any security interest in or upon any portion of the
Collateral or other security for the Obligations or (c)
shall supersede Section 2.10 of the Credit Agreement.
2.3 LETTER OF CREDIT SUBLIMIT. The term "Letter of Credit
Sublimit" shall mean $0.
2.4 TERMINATION DATE. The term "Termination Date" shall mean
March 31, 1998.
3. INTEREST; FEES.
3.1 LOANS.
(a) INTEREST TO MATURITY. The unpaid principal balance of
the Revolving Loans shall bear interest to maturity at the
Reference Rate in effect from time to time plus 1.50% per
annum. The unpaid principal balance of the Term Loan shall bear
interest to maturity at the Reference Rate in effect from time to
time plus 1.75% per annum.
(b) DEFAULT RATE. If any amount of the Loans is not paid
when due, whether by acceleration or otherwise, the entire unpaid
principal balance of the Loans (other than Overdraft Loans and
Over Advances) shall bear interest until paid at a rate per annum
equal to the greater of (i) the Reference Rate from time to time
in effect plus 4% or (ii) 4% above the Reference Rate in effect
at the time such amount became due.
3.2 OVERDRAFT LOANS; OVER ADVANCES. Overdraft Loans and Over
Advances shall bear interest at the rate(s) determined pursuant to
Section 2.7 or Section 2.8 of the Credit Agreement, as applicable.
3.3 COMMITMENT FEE. The Borrower shall pay to the Lender a
commitment fee for the period from the date hereof to the date the
Credit terminates in an amount equal to .75% per annum on the average
daily Unused Revolving Credit Amount.
3.4 LETTER OF CREDIT FEES. The Borrower shall pay the Lender, or
any Affiliate, a commission on the undrawn amount of each Letter of
Credit and on each L/C Draft accepted by the Lender, or such
Affiliate, in an amount equal to N/A % per annum.
3.5 PREPAYMENT FEE. Upon prepayment in full of the Term Loan
pursuant to any third party refinancing of the same or in connection
with a sale of the Borrower or substantially all of its assets, the
Borrower shall pay to the Lender a prepayment fee in an amount equal
to one percent (1%) of the outstanding principal balance of the Term
Loan; provided, that if at the time of such prepayment the advance
rate then applicable to Eligible Accounts Receivable pursuant to
Section 2.2(a) of this Supplement A is less than 75%, the prepayment
fee shall not be applicable.
4. ELIGIBLE ACCOUNT RECEIVABLE REQUIREMENTS.
(a) For Accounts Receivable which are due and payable in
full within 30 days of the date of the invoice evidencing such
Account Receivable, such Account Receivable must not be unpaid on
the date that is 60 days after the due date. For Accounts
Receivable which are due and payable in full within 60, 90 or 120
days of the date of the invoice evidencing such Account
Receivable, such Account Receivable must not be unpaid on the
date that is 30 days after the due date.
(b) If invoices representing 10% or more of the unpaid net
amount of all Accounts Receivable from any one Account Debtor are
unpaid more than the number of days set forth in Section 4(a)
above for such Accounts Receivable, then all Accounts Receivable
relating to such Account Debtor shall cease to be Eligible
Accounts Receivable.
5. ADDITIONAL COVENANTS. From the date of the Credit Agreement and
thereafter until all of the Borrower's Obligations under the Credit Agreement
are paid in full, the Borrower agrees that, unless the Lender shall otherwise
consent in writing, it will not, and will not permit any Subsidiary to, do any
of the following:
5.1 NET WORTH. Permit the Borrower's Net Worth at any time to be
less than $3,000,000.
5.2 LIABILITIES TO NET WORTH RATIO. Permit the ratio, as of the
last day of any fiscal quarter, of the Borrower's consolidated total
liabilities to the Borrower's Net Worth to exceed 4.0 to 1.0.
5.3 CAPITAL EXPENDITURES.
(a) Make Capital Expenditures in an amount exceeding $3,000,000
on a consolidated basis in any fiscal year.
(b) Fund any Capital Expenditures with Revolving Loans in an
amount exceeding $1,000,000 in any fiscal year.
5.4 CASH FLOW COVERAGE RATIO. Permit the ratio, as of the last day of
any fiscal quarter, of the Borrower's EBITDA for the four consecutive
fiscal quarters ending on that date to be the sum of (a) its consolidated
interest expense (including, without limitation, imputed interest expense
on Capitalized Leases), plus (b) mandatory principal payments on Long Term
Debt, exclusive of the sum of $554,000 paid to the Insurance Companies in
the second fiscal quarter Of 1995, plus. (c) cash Capital Expenditures not
financed by Long Term Debt, plus income taxes actually paid during such
period, to be less than 1.1 to 1.0.
Borrower's Initials MJP
Lender's Initials LHR
Date 3/31/95
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
WASHINGTON SCIENTIFIC INDUSTRIES
FINANCIAL DATA SCHEDULE
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-27-1995
<PERIOD-END> FEB-26-1995
<CASH> 111,996
<SECURITIES> 0
<RECEIVABLES> 3,969,392
<ALLOWANCES> 0
<INVENTORY> 1,631,024
<CURRENT-ASSETS> 6,067,431
<PP&E> 27,640,835
<DEPRECIATION> 20,683,512
<TOTAL-ASSETS> 13,549,408
<CURRENT-LIABILITIES> 5,053,114
<BONDS> 0
<COMMON> 238,465
0
0
<OTHER-SE> 4,045,949
<TOTAL-LIABILITY-AND-EQUITY> 13,459,408
<SALES> 7,295,764
<TOTAL-REVENUES> 7,295,764
<CGS> 6,842,001
<TOTAL-COSTS> 6,842,001
<OTHER-EXPENSES> (346,774)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 149,527
<INCOME-PRETAX> 651,010
<INCOME-TAX> 5,800
<INCOME-CONTINUING> 645,210
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 645,210
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.00
</TABLE>
