================================================================================
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 PERIOD ENDED March 31, 1999
--------------
OR
__TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD From _____________ to ________________
Commission file number 0-7336
RELM WIRELESS CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 04-2225121
- ------------------------------- -------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7505 Technology Drive
West Melbourne, Florida
----------------------------------------
(Address of principal executive offices)
32904
----------
(Zip Code)
(407) 984-1414
--------------
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 _______
Common Stock, $.60 Par Value -- 5,046,156 shares as of April 2, 1999
================================================================================
<PAGE>
PART I- FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RELM WIRELESS CORPORATION
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
----------- ------------
(Unaudited) (see note 1)
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 29 $ 464
Accounts receivable, net 3,920 3,498
Inventories 11,616 10,566
Investment securities-trading 1 749
Notes receivable 400 400
Real estate investments held for sale 58 58
Prepaid expenses and other current 237 239
------- -------
Total Current Assets 16,261 15,974
Property, Plant and Equipment, net 8,734 8,829
Notes Receivable 1,695 1,695
Other Assets 199 329
------- -------
Total Assets $26,889 $26,827
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - Continued
RELM WIRELESS CORPORATION
Condensed Consolidated Balance Sheets
(In thousands except share data)
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
----------- ------------
(Unaudited) (see note 1)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Current maturities of long-term liabilities: $ 1,467 $1,355
Accounts payable 4,661 4,617
Accrued expenses 1,713 3,251
Accrued restructuring liability 135 178
------- -------
Total Current Liabilities 7,976 9,401
Long-Term Liabilities
Loans, notes and mortgages 8,888 7,313
Capital lease obligations 1,299 1,442
------- -------
Total Long-Term Liabilities 10,187 8,755
Stockholders' equity:
Common; $.60 par value: 10,000,000 authorized
shares: issued and outstanding shares
5,046,416
at December 31, 1998 3,027 3,027
Additional paid-in capital 20,221 20,221
Retained earnings (deficit) (14,522) (14,577)
------- -------
Total stockholders' equity 8,726 8,671
------- -------
Total Liabilities and Stockholders' Equity $26,889 $26,827
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
RELM WIRELESS CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands except share data)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------
March 31 December 31
1999 1998
-------- -----------
<S> <C> <C>
Sales $ 6,465 $ 7,715
Expenses:
Cost of sales 4,518 6,134
Selling, general & administrative 1,771 1,694
------- -------
6,289 7,828
------- -------
Operating income (loss) 176 (113)
Other income (expense):
Interest expense (249) (201)
Net gains on investments 48 106
Other income 80 7
------- -------
Net income (loss) $ 55 $ (201)
======= =======
Earnings (loss) per share-basic and diluted $ 0.01 $ (0.04)
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
RELM WIRELESS CORPORATION
Condensed Consolidated Statements of Cash Flow
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------
March 31 December 31
1999 1998
-------- -----------
<S> <C> <C>
Cash used by operations $(2,314) $ (513)
Investing activities:
Property, plant and equipment purchases (246) (414)
Proceeds from sale of marketable securities 748 --
Other (55) --
------- -------
Cash provided (used) by investing activities 447 (414)
Financing activities:
Net changes in lines of credit 627 1,626
Proceeds from long term debt 1,065
Payment of long term debt (260) (402)
Sale of stock -- 31
------- -------
Cash provided by financing activities 1,432 1,255
Increase (decrease) in cash (435) 328
Cash and cash equivalent at beginning of period 464 213
------- -------
Cash and cash equivalent at end of period $ 29 $ 541
======= =======
Supplemental disclosure
Interest paid $ 249 $ 201
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands except share data)
1. Condensed Consolidated Financial Statements
The condensed consolidated balance sheet as of March 31, 1999, the
condensed consolidated statements of operations for the three months ended March
31, 1999 and 1998 and the condensed consolidated statements of cash flows for
the three months ended March 31, 1999 and 1998 have been prepared by the
Company, without audit. In the opinion of management, all adjustments (which
include normal recurring adjustments) necessary for a fair presentation have
been made. The balance sheet at December 31, 1998 has been derived from the
audited financial statements at that date.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's December 31, 1998 Annual
Report to Shareholders. The results of operations for the three month period
ended March 31, 1999 are not necessarily indicative of the operating results for
a full year.
The Company maintains its records on a calendar year basis. The Company's
first, second, and third quarters normally end on the Friday closest to the last
day of the last month of such quarter, which was April 2, 1999 for the first
quarter of fiscal 1999. However, for convenience, the financial statements are
dated as of March 31, 1999.
2. Inventories
The components of inventory consist of the following:
March 31 December 31
1999 1998
-------- -----------
Finished Goods $ 4,146 $ 4,641
Work in Process 2,919 1,945
Raw Materials 4,551 3,980
------- -------
$11,616 $10,566
======= =======
5
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
3. Stockholders' Equity
The consolidated changes in stockholders' equity for the three months ended
March 31, 1999 are as follows:
<TABLE>
<CAPTION>
Common Stock Additional
------------ Paid-In Accumulated
Shares Amount Capital Deficit Total
------ ------ ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 5,046,416 $ 3,027 $ 20,221 $ (14,577) $ 8,671
Net income -- -- -- 55 55
--------- --------- --------- --------- ---------
Balance March 31, 1999 5,046,416 $ 3,027 $ 20,221 $ (14,522) $ 8,726
--------- --------- --------- --------- ---------
</TABLE>
4. Earnings Per Share
The following table sets forth the computation of basic and diluted earning
(loss) per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
March 31 March 31
1999 1998
-------- --------
<S> <C> <C>
Numerator:
Net income (loss) (numerator for basic and diluted
earnings (loss) per share) $ 55 $ (201)
----------- -----------
Denominator:
Denominator for basic earnings (loss) per share
weighted average shares 5,046,416 5,081,693
Effect of dilutive securities:
Options -- --
----------- -----------
Denominator for diluted earnings (loss) per
share-adjusted weighted average shares 5,046,416 5,081,693
=========== ===========
Basic earnings (loss) per share $ 0.01 $ (0.04)
=========== ===========
Diluted earnings (loss) per share $ 0.01 $ (0.04)
=========== ===========
</TABLE>
5. Comprehensive Income
Total comprehensive income (loss) was $55 and $(201) for the three months
ended March 31, 1999 and 1998.
6
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
6. Real Estate Assets Held for Sale
The real estate investments held for sale are presented net of valuation
allowances of $241 for the three months ended March 31, 1999 and $1,966 at
December 31, 1998. The summarized results of operations of the real estate
business are as follows:
March 31 March 31
1999 1998
-------- --------
Sales $ 798 $ 358
Cost of Sales -- (352)
Selling, general and administrative
expenses (75) (60)
----- -----
Operating gain (loss) $ 723 $ (54)
===== =====
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS
Results of Operations
As an aid to understanding the Company's operating results, the following
table shows each item from the consolidated statement of operations expressed as
a percentage of net sales:
Percentage of Sales
-------------------
Three Months Ended
March 31 March 31
1999 1998
-------- --------
Sales 100% 100%
Cost of sales 69.9 79.5
Gross margin 30.1 20.5
Selling, general and
administrative (27.4) (22.0)
Interest expense (3.9) (2.6)
Other income 1.2 1.5
----- -----
Net income (loss) -- % (2.6)%
===== =====
Net Sales
Net sales for the three months ended March 31, 1999 decreased approximately
$1.2 million (16.2%) compared to the same period for the prior year. Land,
mobile and radio (LMR) product revenues decreased $813,000 (16.1%) on lower
demand in the business and industrial sector. Non-LMR product revenues decreased
$877,000 (38.1%) as the Company discontinued products that were inadequately
profitable or that did not fit its focus in the LMR industry. Also during the
quarter the Company sold most of its remaining commercial real estate assets,
which resulted in revenues of $798,000, an increase of $440,000 (122.9%)
compared to the same period for the prior year.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS - continued
Gross Margin
Gross margin as a percentage of net sales increased 9.6% to 30.1% for the
three months ended March 31, 1999 compared to the same period for the prior
year. This increase was the result of the Company's restructuring in the second
half of 1998 during which manufacturing support expenses were significantly
reduced. In addition commercial real estate sales totaling approximately
$798,000 during the three months ended March 31, 1999 significantly improved the
overall gross margin percentage. The book value of the real estate assets had
been reduced significantly in prior periods as the Company had increased the
valuation allowances related to the assets to reflect current market
projections. The Company had been trying to sell the remaining real estate
assets since 1995.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses consist of marketing,
sales, commissions, engineering, product development, management information
systems, and accounting expenses. For the three months ended March 31, 1999,
SG&A expenses totaled $1,771,000 or 27.4% of sales compared to $1,694,000 or
22.0% of sales for the same period in 1998. The increase in SG&A expenses as a
percentage of sales is directly related to the 16.2% decrease in sales.
Interest Expense
For the three months ended March 31, 1999 interest expense totaled $249,000
or 3.9% compared with $201,000 or 2.6% for the same period in 1998. This
increase is primarily due to the financing arrangement associated with the
Company's workers' compensation liabilities. Under this arrangement, the
insurance carrier assumes all of the remaining workers' compensation
liabilities.
Income Taxes
No income tax provision was provided for the three months ended March 31,
1999 as the Company has net operating loss carryforward benefits totaling
approximately $9.4 million at March 31, 1999. The Company has evaluated its tax
position versus the requirements of SFAS No. 109, Accounting for Income Taxes
and does not believe that it has met the more-likely-than-not criteria for
recognizing a deferred tax asset and has provided valuation allowances against
net deferred tax assets.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS - continued
Inflation and Changing Prices
Inflation and changing prices for the quarters ended March 31, 1999 and
1998 have contributed to increases in wages, facilities, and raw material costs.
Effects of these inflationary effects were partially offset by increased prices
to customers. The Company believes that it will be able to pass on most of its
future inflationary increases to its customers. The Company is also subject to
changing foreign currency exchange rates in its purchase of some raw materials.
The Company employs several methods to protect against increases in cost due to
currency fluctuations. It is not always possible to pass on these effects.
Competitors in the land-mobile radio markets are subject to similar
fluctuations.
Year 2000 Discussion
General
As the year 2000 approaches, an issue has emerged with many companies
regarding how existing application software programs and operating systems will
accommodate this date value. Accordingly, 1999 could be the maximum date value
that these systems will be able to process. Although the extent of the potential
impact of this problem is not precisely known, estimates indicate that it could
affect the global economy. The Company has addressed or is in the process of
addressing year 2000 related exposures.
Internal Company Systems
The Company implemented a new enterprise-wide information system in 1997.
The current release of this software is year 2000 compliant. The Company has not
yet implemented the current release. This implementation is scheduled for the
second quarter of 1999. Costs associated with the upgrade are estimated to be
approximately $20,000 and will be recognized when they are incurred. It is the
Company's policy to utilize the most current releases of software. The
aforementioned upgrade would be performed regardless of the year 2000 issue. No
other information technology projects are impacted by the upgrade.
Third Party Relationships
The Company has material relationships with certain suppliers and
customers. Generally, suppliers provide components that are necessary to
manufacture a finished product. The Company's products are sold primarily to
dealers and distributors who resell to end-users. If these suppliers and/or
customers were unable to conduct business as a result of year 2000
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Continued
Year 2000 Discussion - Continued
Third Party Relationships- continued
issues, the potential impact to the Company's business could be significant. The
amount of potential impact cannot be estimated at this time.
The Company will determine the state of readiness of material third parties
through the use of questionnaires. These questionnaires will be distributed in
the second quarter of 1999. As a contingency plan and as is its normal practice,
the Company in most cases has or will have secondary sources for purchases.
Other than the U. S. Government, no single customer represents a significant
portion (greater than 10%) of the Company's sales. The cost of administering the
questionnaire program is estimated to be less than $5,000.
Liquidity and Capital Resources
As of March 31, 1999 the Company had working capital of $8,285,000 compared
with $6,573,000 as of December 31, 1998. The increase is primarily related to a
$1,585,000 decrease in accrued expenses, a $1,050,000 increase in inventory, and
a $422,000 increase in accounts receivable. The Company entered into a new
agreement for a revolving line of credit on February 26, 1999. This agreement
provides a $7 million line of credit for a term of three years. The terms and
conditions are comparable to the previous agreement. The line of credit is
secured by substantially all of the Company's non-real estate assets. As of
March 31, 1999, the outstanding balance on the line is approximately $4.4
million.
Capital expenditures for the three months ended March 31, 1999 were
approximately $246,000 compared with $414,000 for the same period in 1998. These
expenditures are related to tooling for the manufacture of new products.
Inflation and Changing Prices
Inflation and changing prices for the quarters March 31, 1999 and 1998 have
contributed to increases in wages, facilities, and raw material costs. Effects
of these inflationary effects were partially offset by increased prices to
customers. The Company believes that it will be able to pass on most of its
future inflationary increases to its customers. The Company is also subject to
changing foreign currency exchange rates in its purchase of some raw materials.
The Company employs several methods to protect against increases in cost due to
currency fluctuations. It is not always possible to pass on these effects.
Competitors in the land-mobile radio markets are subject to similar
fluctuations.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Continued
Forward-Looking Statements
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended, and is subject to the safe-harbor created by such
sections. Such forward-looking statements concern the Company's operations,
economic performance and financial condition. Such statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions; changes
in customer preferences; competition; changes in technology; the integration of
any acquisitions; changes in business strategy; the indebtedness of the Company;
quality of management, business abilities and judgment of the Company's
personnel; the availability, terms and deployment of capital; and various other
factors referenced in this Report. The words "believe", "estimate", "expect",
"intend", "anticipate" and similar expressions an variations thereof identify
certain of such forward-looking statements. The forward-looking statements are
made as of the date of this Report, and the Company assumes no obligation to
update the forward-looking statements or to update the reasons why actual
results could differ from those projected in the forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements.
12
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosures of Market Risk
The Company is subject to the risk of fluctuating interest rates in the
ordinary course of business for borrowings under a mortgage of its primary
operating facility. The Company has entered into an interest rate swap to reduce
its exposure to such fluctuations. Under this arrangement, the Company converted
its variable LIBOR -rate mortgage into a mortgage with a fixed rate of 8.85%. As
of March 31, 1999 the amount outstanding on the mortgage was approximately $3.5
million. The Company does not expect changes in the fair market value of this
swap to have a significant effect on its operations, cash flow, or financial
position.
PART II- OTHER INFORMATION
ITEM 6. Exhibits and Reports of Form 8-K
a.) The following documents are filed as part of this report:
3. exhibits: The exhibits listed below are filed as a part of, or
incorporated by reference into this report:
number Exhibit
------ -------
10 b (1) Loan and security agreement *
10 b (2) Workers' compensation close-out agreement *
27 Financial Data Schedule
* Material contracts required to be filed pursuant to item 601 (b) (10)
of Regulation S-K.
b.) Reports on Form 8-K
c.)
The Registrant was not required to file reports on Form 8K during the
quarter ended March 31, 1999.
Pursuant to the requirements of securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
RELM WIRELESS CORPORATION
------------------------------
William P. Kelly
Chief Financial Officer and
May 5, 1999 Vice President - Finance
13
EXHIBIT 10 B (1) LOAN AND SECURITY AGREEMENT
LOAN AND SECURITY AGREEMENT
By and Between
SUMMIT COMMERCIAL/GIBRALTAR CORP.
and
RELM COMMUNICATIONS, INC.
RELM WIRELESS CORPORATION
RXD, INC.
--------------------------
Dated: February 26, 1999
--------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. DEFINITIONS............................................................................................-1-
1.1. "Accounting Terms"............................................................................-1-
1.2. "Affiliate"...................................................................................-1-
1.3. "Base Rate"...................................................................................-1-
1.4 "Blocked Accounts"............................................................................-1-
1.5. "Borrowing Base"..............................................................................-1-
1.6. "Business Day"................................................................................-2-
1.7. "Capital Expenditures"........................................................................-2-
1.8. "Capitalized Leases"..........................................................................-2-
1.9. "Capitalized Lease Obligations"...............................................................-2-
1.10. "Cash Collateral Account".....................................................................-2-
1.11. "Cash Flow"...................................................................................-2-
1.12. "Cash Flow Coverage Ratio"....................................................................-2-
1.13. "Collateral"..................................................................................-2-
1.14. "Contract Period".............................................................................-2-
1.15. "Corporation".................................................................................-2-
1.16. "Current Assets"..............................................................................-2-
1.17. "Current Liabilities..........................................................................-2-
1.18. "Default".....................................................................................-2-
1.19. "EBIT"........................................................................................-2-
1.20. "Eligible Inventory"..........................................................................-3-
1.21. "Eligible Receivables"........................................................................-3-
1.22. "Environmental Cleanup Site"..................................................................-3-
1.23. "Environmental Consultant"....................................................................-3-
1.24. "Environmental Requirements"..................................................................-4-
1.25. "ERISA".......................................................................................-4-
1.26. "Event of Default"............................................................................-4-
1.27. "Fort Orange Note"............................................................................-4-
1.28. "GAAP"........................................................................................-4-
1.29. "Guarantors"..................................................................................-4-
1.30. "Indebtedness"................................................................................-4-
1.31. "Interest Expense"............................................................................-4-
1.32 "Issuing Bank"................................................................................-4-
1.33. "Lender Indebtedness".........................................................................-4-
1.34. "Letter of Credit Reserve"....................................................................-5-
1.35. "Line"........................................................................................-5-
1.36. "Line Note"...................................................................................-5-
1.37. "Loan Account"................................................................................-5-
1.38. "Loan Documents"..............................................................................-5-
1.39. "Loans".......................................................................................-5-
1.40. "Maximum Amount"..............................................................................-5-
1.41. "Mortgaged Property"..........................................................................-5-
1.42. "Net Income"..................................................................................-5-
1.43. "Notes".......................................................................................-5-
1.44. "Out-Of-Formula Advance"......................................................................-5-
1.45. "PBGC"........................................................................................-6-
1.46. "Person"......................................................................................-6-
<PAGE>
1.47. "Plan"........................................................................................-6-
1.48. "RCFI"........................................................................................-6-
1.49. "Real Property"...............................................................................-6-
1.50. "Special Materials"...........................................................................-6-
1.51. "Subsidiary"..................................................................................-6-
1.52. "Tangible Net Worth"..........................................................................-6-
1.53. "Term Loan"...................................................................................-6-
1.54. "Term Note"...................................................................................-6-
1.55 "Total Credit Facility".......................................................................-6-
1.56. "Value".......................................................................................-6-
2. THE LINE; TERM LOAN; USE OF PROCEEDS...................................................................-7-
2.1. Line of Credit................................................................................-7-
2.2. Term Loan.....................................................................................-7-
2.3. Loans; Notes..................................................................................-7-
2.4. Use of Proceeds...............................................................................-7-
2.5. Method of Advances............................................................................-7-
2.6. Letters of Credit.............................................................................-7-
2.7. Closing.......................................................................................-8-
3. INTEREST RATE..........................................................................................-8-
3.2. Default Interest..............................................................................-8-
3.3. Post Judgment Interest........................................................................-8-
3.4. Calculation...................................................................................-8-
3.5. Limitation of Interest to Maximum Lawful Rate.................................................-9-
4. PAYMENTS AND FEES......................................................................................-9-
4.1. Interest Payments on the Line.................................................................-9-
4.2. Principal Payments on the Line................................................................-9-
4.3. Principal and Interest Payments on the Term Loan..............................................-9-
4.4. Letter of Credit Fees.........................................................................-9-
4.5. Closing Fee...................................................................................-9-
4.6. Facility Fee.................................................................................-10-
4.7. Administrative Fee...........................................................................-10-
4.8. Late Charge..................................................................................-10-
4.9. Termination or Prepayment of Loans...........................................................-10-
4.10. Payment Method...............................................................................-11-
4.11. Application of Payments......................................................................-11-
4.12. Loan Account.................................................................................-11-
4.13. Indemnity; Loss of Margin....................................................................-11-
5. SECURITY; COLLECTION OF RECEIVABLES AND PROCEEDS OF COLLATERAL........................................-12-
5.1. Personal Property............................................................................-12-
5.2. Assignment Fort Orange Note..................................................................-14-
5.3. Real Property................................................................................-14-
5.4. Surety.......................................................................................-14-
5.5. Validity Guarantee...........................................................................-14-
5.6. General......................................................................................-14-
5.7. Collection of Receivables; Proceeds of Collateral. .........................................-15-
6. REPRESENTATIONS AND WARRANTIES........................................................................-16-
<PAGE>
6.1. Valid Organization, Good Standing and Qualification. ........................................-16-
6.2. Licenses.....................................................................................-16-
6.3. Ownership Interests..........................................................................-16-
6.4. Subsidiaries.................................................................................-16-
6.5. Financial Statements.........................................................................-16-
6.6. No Material Adverse Change in Financial Condition............................................-17-
6.7. Pending Litigation or Proceedings............................................................-17-
6.8. Due Authorization; No Legal Restrictions.....................................................-17-
6.9. Enforceability...............................................................................-17-
6.10. No Default Under Other Obligations, Orders or Governmental Regulations. .....................-17-
6.11. Governmental Consents........................................................................-17-
6.12. Taxes........................................................................................-17-
6.13. Title to Collateral..........................................................................-18-
6.14. Addresses....................................................................................-18-
6.15. Current Compliance...........................................................................-18-
6.16. Pension Plans................................................................................-18-
6.17. Leases and Contracts.........................................................................-18-
6.18. Intellectual Property........................................................................-19-
6.19. Eligible Inventory Warranties................................................................-19-
6.20. Eligible Account Warranties..................................................................-19-
6.21. Year 2000....................................................................................-20-
6.22. Interrelatedness of Borrowers................................................................-20-
6.23. Accuracy of Representations and Warranties...................................................-20-
7. GENERAL COVENANTS.....................................................................................-20-
7.1. Payment of Principal, Interest and Other Amounts Due.........................................-20-
7.2. Limitation on Sale and Leaseback.............................................................-20-
7.3. Limitation on Indebtedness...................................................................-20-
7.4. Investments and Loans........................................................................-21-
7.5. Guaranties...................................................................................-21-
7.6. Disposition of Assets........................................................................-21-
7.7. Merger; Consolidation; Business Acquisitions; Subsidiaries...................................-22-
7.8. Taxes; Claims for Labor and Materials........................................................-22-
7.9. Liens........................................................................................-22-
7.10. Existence; Approvals; Qualification; Business Operations; Compliance with Laws. .............-23-
7.11. Maintenance of Properties, Intellectual Property.............................................-23-
7.12. Insurance....................................................................................-23-
7.13. Inspections; Examinations....................................................................-24-
7.14. Default Under Other Indebtedness.............................................................-25-
7.15. Pension Plans................................................................................-25-
7.16. Lender of Account............................................................................-25-
7.17. Maintenance of Management....................................................................-25-
7.18. Capital Stock; Dividends.....................................................................-25-
7.19. Transactions with Affiliates.................................................................-26-
7.20. Restriction on Stock Transfer................................................................-26-
7.21. Name or Address Change.......................................................................-26-
7.22. Notices......................................................................................-26-
7.23. Additional Documents and Future Actions......................................................-26-
7.24. Accounts Receivable..........................................................................-26-
7.25. Material Adverse Contracts...................................................................-28-
7.26. Restrictions on Use of Proceeds..............................................................-28-
<PAGE>
8. FINANCIAL COVENANTS...................................................................................-28-
8.1. Cash Flow Coverage Ratio.....................................................................-28-
8.2. Tangible Net Worth...........................................................................-28-
8.3. Current Ratio................................................................................-28-
8.4. Capital Expenditures.........................................................................-28-
9. ACCOUNTING RECORDS, REPORTS AND FINANCIAL STATEMENTS..................................................-28-
9.1. Annual Statements............................................................................-28-
9.2. Projections and Cash Flow....................................................................-29-
9.3. Monthly Statements...........................................................................-29-
9.4. 10Q and 10K..................................................................................-30-
9.5. Accounts Receivable and Accounts Payable Statements..........................................-30-
9.6. Inventory Certifications.....................................................................-30-
9.7. Accounts Receivable Borrowing Base Information and Related Documents.........................-30-
9.8. Audit Reports................................................................................-30-
9.9. Reports to Governmental Agencies and Other Creditors.........................................-30-
9.10. Requested Information........................................................................-30-
9.11. Compliance Certificates......................................................................-30-
10. ENVIRONMENTAL REPRESENTATIONS AND COVENANTS. .........................................................-31-
10.1. Representations..............................................................................-31-
10.2. Real Property................................................................................-31-
10.3. Covenant Regarding Compliance................................................................-31-
10.4. Notices......................................................................................-32-
10.5. Indemnity....................................................................................-32-
10.6. Testing......................................................................................-32-
10.7. Survival.....................................................................................-32-
11. CONDITIONS OF CLOSING.................................................................................-33-
11.1. Loan Documents...............................................................................-33-
11.2. Representations and Warranties...............................................................-33-
11.3. No Default...................................................................................-33-
11.4. Proceedings and Documents....................................................................-33-
11.5. Landlord's, Mortgagee's or Warehouseman's Release and Waiver Agreements. ....................-33-
11.6. Delivery of Other Documents..................................................................-33-
11.7. Minimum Availability.........................................................................-34-
11.8. Non-Waiver of Rights.........................................................................-34-
12. CERTAIN CONDITIONS TO SUBSEQUENT ADVANCES.............................................................-34-
12.1. Representations and Warranties...............................................................-34-
12.2. No Default...................................................................................-34-
12.3. Other Requirements...........................................................................-34-
13. DEFAULT AND REMEDIES..................................................................................-35-
13.1. Events of Default............................................................................-35-
13.2. Remedies.....................................................................................-37-
13.3. Sale or Other Disposition of Collateral......................................................-37-
13.4. Actions with Respect to Accounts.............................................................-38-
13.5. Set-Off......................................................................................-40-
13.6. Turnover of Property Held by Lender..........................................................-40-
<PAGE>
13.7. Delay or Omission Not Waiver.................................................................-40-
13.8. Remedies Cumulative; Consents................................................................-40-
13.9. Certain Fees, Costs, Expenses, Expenditures and Indemnification..............................-40-
13.10. Time is of the Essence.......................................................................-41-
14. COMMUNICATIONS AND NOTICES............................................................................-41-
14.1. Communications and Notices...................................................................-41-
15. WAIVERS...............................................................................................-42-
15.1. Waivers......................................................................................-42-
15.2. Forbearance..................................................................................-43-
15.3. Limitation on Liability......................................................................-43-
16. SUBMISSION TO JURISDICTION............................................................................-43-
16.1. Submission to Jurisdiction...................................................................-43-
17. MISCELLANEOUS.........................................................................................-44-
17.1. Brokers......................................................................................-44-
17.2. Use of Lender's Name.........................................................................-44-
17.3. No Joint Venture.............................................................................-44-
17.4. Survival.....................................................................................-44-
17.5. No Assignment by Borrower....................................................................-44-
17.6. Assignment or Sale by Lender.................................................................-44-
17.7. Binding Effect...............................................................................-45-
17.8. Severability ................................................................................-45-
17.9. No Third Party Beneficiaries.................................................................-45-
17.10. Modifications................................................................................-45-
17.11. Holidays.....................................................................................-45-
17.12. Law Governing................................................................................-45-
17.13. Integration..................................................................................-45-
17.14. Exhibits and Schedules.......................................................................-45-
17.15. Headings.....................................................................................-45-
17.16. Counterparts.................................................................................-45-
17.17. Joint and Several Liability..................................................................-45-
17.18. Waiver of Right to Trial by Jury.............................................................-45-
</TABLE>
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is made effective the
26th day of February, 1999, by and between RELM COMMUNICATIONS, INC. ("RCI"),
RELM WIRELESS CORPORATION ("RWC"), RXD, INC. ("RXD") (jointly and severally,
"Borrower") and SUMMIT COMMERCIAL/GIBRALTAR CORP. ("Lender").
BACKGROUND
A. Borrower has requested that Lender extend certain credit facilities to
Borrower.
B. Lender is willing to extend such credit facilities on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the terms and conditions contained
herein, and of any extensions of credit now or hereafter made to or for the
benefit of Borrower by Lender, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. DEFINITIONS. The following words and phrases as used in capitalized form in
this Agreement, whether in the singular or plural, shall have the meanings
indicated:
1.1 "Accounting Terms". As used in this Agreement, or any certificate,
report or other document made or delivered pursuant to this Agreement,
accounting terms not defined elsewhere in this Agreement shall have the
respective meanings given to them under GAAP.
1.2 "Affiliate", as to any Person, means each other Person that directly or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, the Person in question.
1.3 "Base Rate" means the annual interest rate established from time to
time by Summit Bank and generally known by Summit Bank as its "base rate",
whether published by it publicly or only for the internal guidance of its loan
officers. The Base Rate is used merely as a pricing index and is not and should
not be considered to represent the lowest or best rate available to a borrower.
1.4 "Blocked Accounts" shall have the meaning provided for such term in
Section 5.7(a) below.
1.5. "Borrowing Base" means (a) the sum of (i) an amount up to 85% of the
Eligible Receivables, plus (ii) the lesser of (A) $3,750,000.00 or (B) the sum
of (1) an amount up to 50% of the Value of that portion of Eligible Inventory
consisting of finished goods and (2) an amount up to 20% of the Value of that
portion of Eligible Inventory consisting of raw materials, minus (b) the Letter
of Credit Reserve, minus (c) a reserve in the amount of One Hundred Thousand
Dollars ($100,000.00).
1.6 "Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, NY or in any other location where a Blocked
Account is maintained are authorized by law to close.
1.7 "Capital Expenditures" means any expenditure that would be classified
as a capital expenditure on a statement of cash flow of Borrower prepared in
accordance with GAAP.
<PAGE>
1.8 "Capitalized Leases" means all lease obligations which have been or
should be, in accordance with GAAP, capitalized on the books of the lessee.
1.9 "Capitalized Lease Obligations" means all amounts payable with respect
to a Capitalized Lease.
1.10. "Cash Collateral Account" shall have the meaning provided for such
term in Section 5.7(b) below.
1.11 "Cash Flow" for any period, means the sum of Borrower's (i) EBIT, plus
(ii) depreciation and amortization expenses and all other non-cash charges which
were deducted in determining EBIT, all determined in accordance with GAAP.
1.12 "Cash Flow Coverage Ratio" for any period, means the ratio of
Borrower's (a) Cash Flow for such period to (b) Interest Expense for such
period, plus that portion of such entity's long term debt (excluding any portion
of the Line) which became due and payable during such period, plus the cash
portion of any Capital Expenditures for such period.
1.13. "Collateral" shall have the meaning provided for such term in Section
5.6 below.
1.14. "Contract Period" shall have the meaning provided for such term in
Section 2.1 below.
1.15 "Corporation" means a corporation, partnership, limited liability
company, trust, unincorporated organization, association or joint stock company.
1.16 "Current Assets" at a particular date means the aggregate amount of
all assets of Borrower which would be classified as current assets on a balance
sheet of such entity at such date, in accordance with GAAP.
1.17 "Current Liabilities" at a particular date means the liabilities
(including tax and other proper accruals) of Borrower which would be included as
current liabilities on a balance sheet of such entity at such date, in
accordance with GAAP.
1.18. "Default" means an event which with the giving of notice or the
passage of time or both would become an Event of Default.
1.19 "EBIT" for any period, means earnings or losses of Borrower for such
period, plus the aggregate amounts deducted in determining such earnings in
respect of (i) interest paid on Indebtedness of Borrower for such period, and
(ii) income taxes for such period, each determined in accordance with GAAP.
1.20 "Eligible Inventory" means inventory in the possession of Borrower
consisting of finished goods or raw materials in which Lender has a prior,
perfected first priority lien, which complies with the representations set forth
in Section 6.19, and meets all specifications established by Lender in its sole
discretion from time to time. Without in any way limiting the generality of the
foregoing, Eligible Inventory shall not include (a) work-in-process, (b)
inventory consisting of fuels; (c) inventory consisting of stores; (d) inventory
which is not in good condition or not currently usable or salable in the
ordinary course of Borrower's business as determined by Lender; (e) inventory
consisting of finished goods which do not meet the specifications of the
purchase order for which such inventory was produced; (f) inventory with respect
to which Lender does not have a first and valid, fully perfected security
interest; (g) inventory consisting of packaging, shipping materials or supplies;
(h) inventory produced in violation of the Fair Labor Standards Act and subject
to the so-called "hot goods" provision contained in Title 29 U.S.C. Section
215(a)(1); (i) inventory held by Borrower which, in the reasonable discretion of
-2-
<PAGE>
Lender, is obsolete; and (j) inventory consisting of controlled substance or
substances for which Lender would need a license or permit to sell or dispose
of. In the event that inventory previously scheduled, listed or referred to, in
any statement or report by or on behalf of Borrower and upon which Borrower is
basing availability under the Line ceases to be Eligible Inventory, Borrower
shall notify Lender thereof immediately.
1.21. "Eligible Receivables" means accounts receivable of Borrower in which
Lender has a prior, perfected first priority lien, which have been due no more
than ninety (90) days from the original invoice date, are not subject to
offsets, deductions, counterclaim, discount, credit, charge back, freight claim,
allowance or adjustment, comply with the representations set forth in Section
6.20 and meet all specifications established by Lender in its sole discretion
from time to time. Without in any way limiting the generality of the foregoing,
Eligible Receivables shall not include: (a) non-trade receivables, (b) foreign
accounts receivable; (c) contra-accounts; (d) intercompany accounts or accounts
from other affiliated corporations, organizations or individuals; (e) accounts
receivable from the United States government or any of its agencies which, upon
request of Lender, have not been assigned to Lender under the Assignment of
Claims Act; (f) finance charges; (g) lease receivables; (h) accounts receivable
owed by a Person if fifty percent (50%) or more of such Person's accounts
receivable owed to Borrower are ninety (90) days or more past due; (i) accounts
receivable of poor quality; and (j) that portion of accounts receivable due from
any particular account debtor which, at any time, exceeds twenty-five percent
(25%) of all Eligible Receivables. In the event that any account receivable
previously scheduled, listed or referred to in any certificate, statement or
report by Borrower and upon which Borrower is basing availability under the Line
ceases to be an Eligible Receivable, Borrower shall notify Lender thereof
immediately.
1.22. "Environmental Cleanup Site" shall mean any location which is listed
or proposed for listing on the National Priorities List, on CERCLIS or on any
similar state list of sites requiring investigation or cleanup, or which is the
subject of any pending or threatened action, suit, proceeding or investigation
related to or arising from any alleged violation of any Environmental
Requirements.
1.23. "Environmental Consultant" shall have the meaning provided for such
term in Section 10.6 below.
1.24. "Environmental Requirements" means any and all applicable federal,
state or local laws, statutes, ordinances, regulations or standards,
administrative or court orders or decrees, common law doctrines or private
agreements, relating to (i) pollution or protection of the environment and
natural resources, (ii) exposure of employees or other persons to Special
Materials, (iii) protection of the public health and welfare from the effects of
Special Materials and their products, by-products, wastes, emissions, discharges
or releases, and (iv) regulation, licensing, approval or authorization of the
manufacture, generation, use, formulation, packaging, labeling, transporting,
distributing, handling, storing or disposing of any Special Materials.
1.25. "ERISA" shall have the meaning provided for such term in Section 6.16
below.
1.26 "Event of Default" means each of the events specified in Section 13.1.
1.27. "Fort Orange Note" means that certain note from Fort Orange
Acquisition Co., Inc. to RWC dated June 16, 1997 in the original principal
amount of Two Million Four Hundred Thousand Dollars ($2,400,000.00).
1.28 "GAAP" means generally accepted accounting principles in the United
States of America, in effect from time to time, consistently applied and
maintained.
1.29 "Guarantors" means, collectively, Redgo Properties, Inc. and RCFI.
-3-
<PAGE>
1.30 "Indebtedness", as applied to a Person, means:
a all items (except items of capital stock or of surplus) which in
accordance with GAAP would be included in determining total liabilities as
shown on the liability side of a balance sheet of such Person as at the
date as of which Indebtedness is to be determined;
b to the extent not included in the foregoing, all indebtedness,
obligations, and liabilities secured by any mortgage, pledge, lien,
conditional sale or other title retention agreement or other security
interest to which any property or asset owned or held by such Person is
subject, whether or not the indebtedness, obligations or liabilities
secured thereby shall have been assumed by such Person; and
c to the extent not included in the foregoing, all indebtedness,
obligations and liabilities of others which such Person has directly or
indirectly guaranteed, endorsed (other than for collection or deposit in
the ordinary course of business), sold with recourse, or agreed
(contingently or otherwise) to purchase or repurchase or otherwise acquire
or in respect of which such Person has agreed to supply or advance funds
(whether by way of loan, stock purchase, capital contribution or otherwise)
or otherwise to become directly or indirectly liable.
1.31 "Interest Expense", as applied to Borrower, means for any period, the
amount of interest paid on Indebtedness by Borrower for such period, determined
in accordance with GAAP.
1.32 "Issuing Bank" shall have the meaning provided for such term in
Section 2.6 below.
1.33 "Lender Indebtedness" shall mean all obligations and Indebtedness of
Borrower or any Guarantor to Lender, whether now or hereafter owing or existing,
including, without limitation, all obligations under the Loan Documents, all
obligations to reimburse Lender for payments made by Lender pursuant to any
letter of credit issued for the account or benefit of Borrower or any Guarantor
under this Agreement, all other obligations or undertakings now or hereafter
made by or for the benefit of Borrower to or for the benefit of Lender under any
other agreement, promissory note or undertaking now existing or hereafter
entered into by Borrower or any Guarantor with Lender, including, without
limitation, all obligations of Borrower or any Guarantor to Lender under any
guaranty or surety agreement and all obligations of Borrower or any Guarantor to
immediately pay to Lender the amount of any overdraft on any deposit account
maintained with any Affiliate of Lender, or in connection with any Blocked
Account, together with all interest and other sums payable in connection with
any of the foregoing.
1.34. "Letter of Credit Reserve" means the sum of (a) 100% of the face
amount of all outstanding standby letters of credit issued under the Line, plus
(b) 50% of the face amount of all outstanding merchandise letters of credit
issued under the Line for the purchase of Eligible Inventory consisting of
finished goods, plus (c) 80% of the face amount of all outstanding merchandise
letters of credit issued under the Line for the purchase of Eligible Inventory
consisting of raw materials.
1.35. "Line" shall have the meaning provided for such term in Section 2.1
below.
1.36. "Line Note" shall have the meaning provided for such term in Section
2.1 below.
1.37. "Loan Account" shall have the meaning provided for such term in
Section 4.12 below.
1.38. "Loan Documents" means this Agreement, the Notes, the Surety
Agreements, and all other documents, executed or delivered by Borrower or
Guarantors pursuant to this Agreement, as they may be amended from time to time.
-4-
<PAGE>
1.39. "Loans" shall have the meaning provided for such term in Section 2.3
below.
1.40. "Maximum Amount" means, at any time, the amount by which Seven
Million Dollars ($7,000,000.00) exceeds the outstanding principal balance of the
Term Loan.
1.41. "Mortgaged Property" shall have the meaning provided for such term in
Section 5.3 below.
1.42 "Net Income" means income (or loss) of Borrower after income and
franchise taxes and shall have the meaning given such term by GAAP, provided
that there shall be specifically excluded therefrom (a) gains or losses from the
sale of capital assets, (b) net income of any Person in which Borrower has an
ownership interest, unless received by Borrower in a cash distribution, and (c)
any gains arising from extraordinary items, as defined by GAAP.
1.43. "Notes" shall have the meaning provided for such term in Section 2.3
below.
1.44 "Out-Of-Formula Advance" means the amount by which the then
outstanding principal balance of the Line exceeds the Borrowing Base, subject to
such other restrictions on advances as are otherwise set forth in this
Agreement.
1.45. "PBGC" shall have the meaning provided for such term in Section 6.16
below.
1.46 "Person" means an individual, a Corporation or a government or any
agency or subdivision thereof, or any other entity.
1.47. "Plan" shall have the meaning provided for such term in Section 6.16
below.
1.48. "RCFI" means Relm Communications of Florida, Inc.
1.49. "Real Property" shall have the meaning provided for such term in
Section 10.2 below.
1.50. "Special Materials" means any and all materials which, under
Environmental Requirements, require special handling in use, generation,
collection, storage, treatment or disposal, or payment of costs associated with
responding to the lawful directives of any court or agency of competent
jurisdiction. Special materials shall include, without limitation: (i) any
flammable substance, explosive, radioactive material, hazardous material,
hazardous waste, toxic substance, solid waste, pollutant, contaminant or any
related material, raw material, substance, product or by-product of any
substance specified in or regulated or otherwise affected by any Environmental
Requirements (including but not limited to any "hazardous substance" as defined
in the Comprehensive Environmental Response, Compensation and Liability Act of
1980 as amended or any similar state or local law), (ii) any toxic chemical or
other substance from or related to industrial, commercial or institutional
activities, and (iii) asbestos, gasoline, diesel fuel, motor oil, waste and used
oil, heating oil and other petroleum products or compounds, polychlorinated
biphenyls, radon, urea formaldehyde and lead-containing materials.
1.51 "Subsidiary" means a Corporation (a) which is organized under the laws
of the United States or any State thereof, or any other county or jurisdiction,
(b) which conducts substantially all of its business and has substantially all
of its assets within the United States, and (c) of which more than fifty percent
(50%) of its outstanding voting stock of every class (or other voting equity
interest) is owned by Borrower or one or more of its Subsidiaries.
-5-
<PAGE>
1.52 "Tangible Net Worth", shall mean, at any time, the amount by which all
assets of Borrower, excluding intangible assets, as that term would be defined
under GAAP, exceed all of Borrower's liabilities, as would be shown on a balance
sheet of Borrower prepared as of such date in accordance with GAAP.
1.53. "Term Loan" shall have the meaning provided for such term in Section
2.2 below.
1.54. "Term Note" shall have the meaning provided for such term in Section
2.2 below.
1.55 "Total Credit Facility" shall mean, at any time, the aggregate maximum
amount of all credit facilities extended to Borrower under this Agreement.
1.56. "Value" with respect to Eligible Inventory, means the lower of cost
(determined on a first-in-first-out basis) or market value, exclusive of any
transportation, processing, storage or handling charges.
2. THE LINE; TERM LOAN; USE OF PROCEEDS.
2.1. Line of Credit. Lender will establish for Borrower for and during the
period from the date hereof and until February 26, 2002 (the "Contract Period"),
subject to the terms and conditions hereof, a revolving line of credit (the
"Line") pursuant to which Lender will from time to time make loans or other
extensions of credit to Borrower in an aggregate amount not exceeding at any
time the lesser of: the (a) Maximum Amount or (b) Borrowing Base. Lender may
require that certain reserves be established against the Borrowing Base from
time to time. Within the limitations set forth above, Borrower may borrow, repay
and reborrow under the Line. The Line shall be subject to all terms and
conditions set forth in all of the Loan Documents which terms and conditions are
incorporated herein. Borrower's obligation to repay the loans and extensions of
credit under the Line shall be evidenced by Borrower's promissory note (the
"Line Note") in the face amount of Seven Million Dollars ($7,000,000.00), which
shall be in the form attached hereto as Exhibit "A", with the blanks
appropriately filled in. The Line shall be subject to annual review and renewal
upon the expiration of the Contract Period, at the sole discretion of Lender. If
Lender determines not to terminate this Agreement after the expiration of the
Contract Period, this Agreement shall continue in full force and effect from
year to year thereafter, unless sooner terminated by (i) Lender at the end of
any such year or as otherwise provided for in this Agreement, or (ii) Borrower
pursuant to, and subject to the terms and conditions of, this Agreement. Upon
written request of Borrower made at least ninety (90) days prior to the
expiration of the Contract Period (or any extension thereof), Lender shall give
Borrower written notice, at least sixty (60) days prior to the expiration of the
Contract Period (or any extension thereof), of Lender's determination whether or
not to extend the Contract Period.
2.2. Term Loan. Lender will lend to Borrower and Borrower will borrow from
Lender the aggregate amount of Five Hundred Thousand Dollars ($500,000.00) (the
"Term Loan"). Borrower's obligation to repay the Term Loan shall be evidenced by
Borrower's promissory note (the "Term Note") in the face amount of Five Hundred
Thousand Dollars ($500,000.00), which shall be in the form attached hereto as
Exhibit "B", with the blanks appropriately filled in.
2.3. Loans; Notes. The Line and the Term Loan are sometimes collectively
referred to as the "Loans"; and the Line Note and the Term Note are sometimes
collectively referred to as the "Notes".
2.4. Use of Proceeds. Borrower agrees to use advances under the Loans to
refinance obligations of Borrower to Summit Bank, and for proper working capital
purposes.
2.5. Method of Advances. On any Business Day, Borrower may request an
advance under the Line by delivering to the individual designated by Lender no
later than 11:00 a.m. New York time on the Business Day such advance is
requested to be funded, a completed and executed borrowing base certificate
-6-
<PAGE>
together with such collateral and back-up documentation as Lender may from time
to time reasonably require. Each request for an advance under the Line shall be
conclusively presumed to be made by a person authorized by Borrower to do so.
However, Lender may require that specified officers of Borrower sign each
borrowing base certificate.
2.6. Letters of Credit. Lender, at its sole discretion, may cause to be
issued by an institution selected by Lender (the "Issuing Bank") for the account
of Borrower merchandise and standby letters of credit in form and content
satisfactory to Lender and the Issuing Bank, at their sole discretion, with a
term not to exceed the earlier to occur of (a) twelve (12) months or (b) the
expiration date of the Contract Period. Notwithstanding the foregoing, at no
time shall the aggregate face amount of all outstanding letters of credit issued
under the Line exceed the amount of Two Million Dollars ($2,000,000.00).
Borrower will execute a letter of credit application and letter of credit
agreement, and such other documents as may be required by Lender and the Issuing
Bank in connection with the issuance of letters of credit hereunder. In the
event that Lender or the Issuing Bank pays any sums due pursuant to such letters
of credit for any reason, such payment shall be deemed to be an advance under
the Line repayable by Borrower pursuant to the terms hereof.
In the event that the Line is terminated for any reason or demand is made
thereunder, Borrower will deposit with Lender an amount equal to one hundred ten
percent (110%) of the face amount of all letters of credit then outstanding
which have been issued hereunder, plus all fees related thereto or to accrue
thereunder. Such funds will be held by Lender as cash collateral to secure
Borrower's obligations hereunder.
2.7. Closing. Closing hereunder will take place at the office of Wolf,
Block, Schorr and Solis-Cohen, LLP, 250 Park Avenue, New York, NY 10177.
3. INTEREST RATE.
3.1. Interest on the Loans. Interest on the unpaid principal balance of the
Loans will accrue from the date of advance until final payment thereof at the
rate per annum which is one and one-quarter percent (1 1/4%) in excess of the
Base Rate in effect from time to time (such interest rate to change immediately
upon any change in the Base Rate).
3.2. Default Interest. Interest will accrue on the principal balance of the
Loans during the occurrence of an Event of Default or expiration of the Contract
Period at a rate which is two percent (2%) in excess of the non-default rate
otherwise set forth above for the Loans. Borrower acknowledges that (a) the
foregoing default rate is a material inducement to Lender to make advances and
extensions of credit to Borrower; (b) Lender would not make advances and
extensions of credit to Borrower in the absence of the agreement of the Borrower
to pay such default rate; (c) such default rate represents compensation for
increased risk to Lender that Borrower's obligations to Lender will not be
repaid; and (d) such default rate is not a penalty and represents a reasonable
estimate of (i) the cost to Lender in allocating its resources (both personnel
and financial) to the on-going review, monitoring, administration and collection
of the sums due from Borrower and (ii) compensation to Lender for losses that
are difficult to ascertain.
3.3. Post Judgment Interest. Any judgment obtained for sums due hereunder
or under the Loan Documents will accrue interest at the applicable default rate
set forth above until paid.
3.4. Calculation. Interest will be computed on the basis of a year of 360
days and paid for the actual number of days elapsed.
-7-
<PAGE>
3.5. Limitation of Interest to Maximum Lawful Rate. In no event will the
rate of interest payable hereunder exceed the maximum rate of interest permitted
to be charged by applicable law (including the choice of law rules) and any
interest paid in excess of the permitted rate will be refunded to Borrower. Such
refund will be made by application of the excessive amount of interest paid
against any sums outstanding hereunder and will be applied in such order as
Lender may determine. If the excessive amount of interest paid exceeds the sums
outstanding, the portion exceeding the sums outstanding will be refunded in cash
by Lender. Any such crediting or refunding will not cure or waive any Default or
Event of Default by Borrower. Borrower agrees, however, that in determining
whether or not any interest payable hereunder exceeds the highest rate permitted
by law, any non-principal payment, including without limitation prepayment fees
and late charges, will be deemed to the extent permitted by law to be an
expense, fee, premium or penalty rather than interest.
4. PAYMENTS AND FEES.
4.1. Interest Payments on the Line. Borrower will pay interest on the
principal balance of the Line monthly, on the first day of each calendar month
commencing the first day of the first calendar month following the date hereof.
4.2. Principal Payments on the Line. Borrower will pay the outstanding
principal balance of the Line, together with any accrued and unpaid interest
thereon, and any other sums due pursuant to the terms hereof, ON DEMAND after
the occurrence of an Event of Default or after expiration of the Contract
Period. If any Out-Of-Formula Advance arises or exists under the Line for any
reason whatsoever, including inventory or accounts becoming ineligible or
required reserves, Borrower will repay such Out-Of-Formula Advance immediately,
without demand.
4.3. Principal and Interest Payments on the Term Loan. Borrower will pay
the principal of the Term Loan in (a) thirty-five (35) equal and consecutive
monthly installments of Eight Thousand Three Hundred Thirty Three and 33/100
Dollars ($8,333.33) each, plus all accrued and unpaid interest on the Term Loan,
on the first day of each calendar month commencing on April 1, 1999 and (b) one
final payment of the remaining principal balance thereof, plus all accrued and
unpaid interest thereon and all other sums due in connection therewith on March
1, 2002.
4.4. Letter of Credit Fees. For each issuance or renewal of a merchandise
letter of credit, Borrower will pay to Lender an issuance or renewal fee in an
amount equal to one-half percent (1/2%) of the face amount of such merchandise
letter of credit for each ninety (90) day period or portion thereof that each
such letter of credit is outstanding, payable coincident with and as a condition
of the issuance or renewal of such merchandise letter of credit. For each
issuance or renewal of a standby letter of credit hereunder, Borrower will pay
to Lender an issuance or renewal fee in an amount equal to the greater of (a)
two percent (2 %) per annum of the face amount of such standby letter of credit
or (b) one percent (1%) of the face amount of such letter of credit, payable
coincident with and as a condition of the issuance or renewal of such standby
letter of credit. In addition, Borrower shall pay such other fees and charges in
connection with the issuance, renewal, negotiation or cancellation of each such
merchandise and standby letter of credit as may be charged by Lender and Issuing
Bank. Such fees shall be computed on the basis of a year of 360 days.
4.5. Closing Fee. Borrower shall pay to Lender a closing fee of Thirty-Five
Thousand Dollars ($35,000.00) to be paid on the date hereof.
4.6. Facility Fee. On each anniversary of the date hereof, Borrower shall
pay to Lender a facility fee of one-quarter percent (1/4%) of the Total Credit
Facility, which fee shall have been fully earned as of such date and shall be
non-refundable.
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4.7. Administrative Fee. Borrower shall pay to Lender an administrative fee
on the first day of each calendar month, commencing on the first day of the
first calendar month after the date hereof, each in an amount equal to One
Thousand Dollars ($1,000.00).
4.8. Late Charge. In the event that Borrower fails to pay any principal,
interest or other fees or expenses payable hereunder for a period of at least
fifteen (15) days from the date such payment is first due, in addition to paying
such sums, Borrower will pay to Lender a late charge equal to five percent (5%)
of such past due payment (but in no event less than Twenty Five Dollars ($25.00)
nor more than Two Thousand Five Hundred Dollars ($2,500.00)), as compensation
for the expenses incident to such past due payment.
4.9. Termination or Prepayment of Loans.
(a) Borrower may terminate the Line prior to the expiration of the
Contract Period (or any renewal thereof), following delivery of not less
than sixty (60) days prior written notice to Lender (which notice, once
delivered, shall be irrevocable) and upon payment of the applicable premium
set forth below.
(1) If the termination date is on or prior to February 25, 2000,
the termination fee shall be equal to three percent (3%) of the
maximum committed amount of the Line;
(2) If the termination date is after February 25, 2000 but before
February 26, 2001, the termination fee will be equal to two percent
(2%) of the maximum committed amount of the Line; and
(3) If the termination date is on or after February 26, 2001but
before February 26, 2002, the termination fee will be equal to one
percent (1%) of the maximum committed amount of the Line.
(b) Borrower may prepay all or any part of the principal balance of
the Term Loan at any time, following delivery of not less than sixty (60)
days prior written notice to Lender (which notice, once delivered, shall be
irrevocable) and upon payment of the applicable premium set forth below.
All prepayments will be applied to the regularly scheduled payments in the
inverse order in which they are due.
(1) Each prepayment made on or prior to February 25, 2000 will be
accompanied by a prepayment premium equal to three percent (3%) of the
principal amount prepaid;
(2) Each prepayment made after February 25, 2000 but before
February 26, 2001 will be accompanied by a prepayment premium equal to
two percent (2%) of the principal amount prepaid; and
(3) Each prepayment made on or after February 26, 2001 but before
March 1, 2002 will be accompanied by a prepayment premium equal to one
percent (1%) of the principal amount prepaid.
In the event Lender exercises its right to accelerate payments under the
Loans following an Event of Default or otherwise, any tender of payment of the
amount necessary to repay all or part of the Loans made thereafter at any time
by Borrower, its successors or assigns or by anyone on behalf of Borrower and
any receipt by Lender of proceeds of Collateral in payment of the Loans shall be
deemed to be a voluntary prepayment and in connection therewith Lender shall be
entitled to receive the premium required to be paid under the foregoing
prepayment restrictions.
4.10. Payment Method. Borrower irrevocably authorizes Lender to debit all
payments required to be made by Borrower under this Agreement, under the Loans,
or under any of the other Loan Documents, on the date due, from any Blocked
Account or from any other deposit account maintained by Borrower with Lender or
any Affiliate of Lender, or to charge the Line for the amount due from time to
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time in respect of such sums. Otherwise, Borrower will be obligated to make such
payments directly to Lender. All payments are to be made in immediately
available funds. If Lender accepts payment in any other form, such payment shall
not be deemed to have been made until the funds comprising such payment have
actually been received by or made available to Lender.
4.11. Application of Payments. Any and all payments on account of the Loans
will be applied to accrued and unpaid interest, outstanding principal and other
sums due hereunder or under the Loan Documents, in such order as Lender, in its
discretion, elects. If Borrower makes a payment or payments and such payment or
payments, or any part thereof, are subsequently invalidated, declared to be
fraudulent or preferential, set aside or are required to be repaid to a trustee,
receiver, or any other person under any bankruptcy act, state or federal law,
common law or equitable cause, then to the extent of such payment or payments,
the obligations or part thereof hereunder intended to be satisfied shall be
revived and continued in full force and effect as if said payment or payments
had not been made.
4.12. Loan Account. Lender will open and maintain on its books a loan
account (the "Loan Account") with respect to advances made, repayments,
prepayments, the computation and payment of interest and fees and the
computation and final payment of all other amounts due and sums paid to Lender
under this Agreement. Except in the case of manifest error in computation, the
Loan Account will be conclusive and binding on the Borrower as to the amount at
any time due to Lender from Borrower under this Agreement or the Notes.
4.13. Indemnity; Loss of Margin. Borrower will indemnify Lender against any
loss or expense which Lender sustains or incurs as a consequence of an Event of
Default, including, without limitation, any failure of Borrower to pay when due
(at maturity, by acceleration or otherwise) any principal, interest, fee or any
other amount due under this Agreement or the other Loan Documents. If Lender
sustains or incurs any such loss or expense it will from time to time notify
Borrower in writing of the amount determined in good faith by the Lender to be
necessary to indemnify Lender for the loss or expense. Such amount will be due
and payable by Borrower to Lender within ten (10) days after presentation by
Lender of a statement setting forth a brief explanation of and Lender's
calculation of such amount, which statement shall be conclusively deemed correct
absent manifest error. Any amount payable to the Lender under this Section will
bear interest at the default rate payable under the Line from the due date until
paid, both before and after judgment.
In the event that any present or future law, rule, regulation, treaty or
official directive or the interpretation or application thereof by any central
bank, monetary authority or governmental authority, or the compliance with any
guideline or request of any central bank, monetary authority or governmental
authority (whether or not having the force of law):
(a) subjects Lender to any tax with respect to any amounts payable
under this Agreement or the other Loan Documents by Borrower or otherwise
with respect to the transactions contemplated under this Agreement or the
other Loan Documents (except for taxes on the overall net income of Lender
imposed by the United States of America or any political subdivision
thereof); or
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit, capital maintenance, capital adequacy, or similar
requirement against assets held by, or deposits in or for the account of,
or loans or advances or commitment to make loans or advances by, or letters
of credit issued or commitment to issue letters of credit by, the Lender;
or
(c) imposes upon Lender any other condition with respect to advances
or extensions of credit or the commitment to make advances or extensions of
credit under this Agreement,
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and the result of any of the foregoing is to increase the costs of Lender,
reduce the income receivable by or return on equity of Lender or impose any
expense upon Lender with respect to any advances or extensions of credit or
commitments to make advances or extensions of credit under this Agreement,
Lender shall so notify Borrower in writing. Borrower agrees to pay Lender the
amount of such increase in cost, reduction in income, reduced return on equity
or capital, or additional expense within ten (10) days after presentation by
Lender of a statement concerning such increase in cost, reduction in income,
reduced return on equity or capital, or additional expense. Such statement shall
set forth a brief explanation of the amount and Lender's calculation of the
amount (in determining such amount the Lender may use any reasonable averaging
and attribution methods), which statement shall be conclusively deemed correct
absent manifest error. If the amount set forth in such statement is not paid
within ten (10) days after such presentation of such statement, interest will be
payable on the unpaid amount at the default rate payable under this Agreement
from the due date until paid, both before and after judgment.
5. SECURITY; COLLECTION OF RECEIVABLES AND PROCEEDS OF COLLATERAL.
5.1. Personal Property. As security for the full and timely payment and
performance of all Lender Indebtedness, Borrower and each Guarantor hereby grant
to Lender a security interest in all of the following:
(a) All of Borrower's and each Guarantor's present and future
accounts, contract rights, chattel paper, instruments and documents and all
other rights to the payment of money whether or not yet earned, for
services rendered or goods sold, consigned, leased or furnished by
Borrower, such Guarantor or otherwise, together with (i) all goods
(including any returned, rejected, repossessed or consigned goods), the
sale, consignment, lease or other furnishings of which shall be given or
may give rise to any of the foregoing, (ii) all of Borrower's and each
Guarantor's rights as a consignor, consignee, unpaid vendor or other lienor
in connection therewith, including stoppage in transit, set-off, detinue,
replevin and reclamation, (iii) all general intangibles related thereto,
(iv) all guaranties, mortgages, security interests, assignments, and other
encumbrances on real or personal property, leases and other agreements or
property securing or relating to any accounts, (v) choses-in-action, claims
and judgments, (vi) any return or unearned premiums, which may be due upon
cancellation of any insurance policies, and (vii) all products and proceeds
of any of the foregoing.
(b) All of Borrower's and each Guarantor's present and future
inventory (including but not limited to goods held for sale or lease or
furnished or to be furnished under contracts for service, raw materials,
work-in-process, finished goods and goods used or consumed in Borrower's or
such Guarantor's business) whether owned, consigned or held on consignment,
together with all merchandise, component materials, supplies, packing,
packaging and shipping materials, and all returned, rejected or repossessed
goods sold, consigned, leased or otherwise furnished by Borrower or such
Guarantor, all documents of title covering any of such goods or inventory
and all products and proceeds of any of the foregoing.
(c) All of Borrower's and each Guarantor's present and future general
intangibles (including but not limited to tax refunds and rebates, customer
lists, manufacturing and processing rights, designs, patent rights and
applications therefor, trademarks and registration or applications
therefor, tradenames, brand names, logos, inventions, copyrights and all
applications and registrations therefor), licenses, permits, approvals,
software and computer programs, license rights, royalties, trade secrets,
methods, processes, know-how, formulas, drawings, specifications,
descriptions, label designs, plans, blueprints, patterns and all memoranda,
notes and records with respect to any research and development, and all
products and proceeds of any of the foregoing.
(d) All of Borrower's and each Guarantor's present and future
machinery, equipment, furniture, fixtures, motor vehicles, tools, dies,
jigs, molds and other articles of tangible personal property of every type
together with all parts, substitutions, accretions, accessions,
attachments, accessories, additions, components and replacements thereof,
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all documents of title covering any of such goods or inventory and all
manuals of operation, maintenance or repair, and all products and proceeds
of any of the foregoing.
(e) All of Borrower's and each Guarantor's present and future general
ledger sheets, files, records, customer lists, books of account, invoices,
bills, certificates or documents of ownership, bills of sale, business
papers, correspondence, credit files, tapes, cards, computer runs and all
other data and data storage systems whether in the possession of Borrower,
such Guarantor or any service bureau.
(f) All letters of credit now existing or hereafter issued naming
Borrower or any Guarantor as a beneficiary or assigned to Borrower or any
Guarantor, including the right to receive payment thereunder, and all
documents and records associated therewith.
(g) All of Borrower's and each Guarantor's present and future
investment property and financial assets (excluding only RWC's investment
property and financial assets consisting solely of its ownership interests
in the other Borrowers or the Guarantors).
(h) All deposits, funds, instruments, documents, policies, evidences
and certificates of insurance, securities, chattel paper and other assets
of Borrower and each Guarantor or in which Borrower or any Guarantor has an
interest and all proceeds thereof, now or at any time hereafter on deposit
with or in the possession or control of Lender or any Affiliate of Lender
or owing by Lender or any Affiliate of Lender to Borrower or such Guarantor
or in transit by mail or carrier to Lender or any Affiliate of Lender or in
the possession of any other Person acting on Lender's or any such
Affiliate's behalf, without regard to whether Lender or any such Affiliate
received the same in pledge, for safekeeping, as agent for collection or
otherwise, or whether Lender has conditionally released the same, and in
all assets of Borrower or any Guarantor in which Lender now has or may at
any time hereafter obtain a lien, mortgage, or security interest for any
reason.
5.2. Assignment Fort Orange Note. As further security for the Lender
Indebtedness, RWC shall collaterally assign to Lender all of RWC's right, title
and interest in and to the Fort Orange Note and all security in connection
therewith. With respect to such collateral assignment, RWC shall cause to be
delivered to Lender the original Fort Orange Note, endorsed to Lender, together
with such UCC-3 assignments and consents from Fort Orange Paper Co., Inc. as
Lender shall require.
5.3. Real Property. As further security for the Lender Indebtedness, at the
request of Lender at any time during the continuance of an Event of Default,
RCFI shall grant to Lender a mortgage lien encumbering the premises situate at
7505 Technology Drive, West Melbourne, Florida, and all improvements thereon and
all rights, licenses, permits and approvals related thereto, together with an
assignment of all rents and leases related thereto (collectively, the "Mortgaged
Property"), by executing and delivering to Lender a Mortgage and Security
Agreement in the form of Schedule 5.3 hereto.
5.4. Surety. As further security for the Lender Indebtedness, Borrower
shall cause to be executed and delivered to Lender, the absolute, unconditional,
unlimited surety agreement (the "Surety Agreement") of each Guarantor inform and
content satisfactory to Lender.
5.5. Validity Guarantee. As further security for the Lender Indebtedness,
Borrower shall cause to be executed and delivered to Lender a Validity Guarantee
each of Richard Laird and William Kelly in form satisfactory to Lender.
5.6. General. The collateral described above in Sections 5.1, 5.2, 5.3, 5.4
and 5.5 is collectively referred to herein as the "Collateral". The
above-described security interests, assignments, liens and guarantees shall not
be rendered void by the fact that no Lender Indebtedness exists as of any
particular date, but shall continue in full force and effect until the Lender
Indebtedness has been repaid, Lender has no agreement or commitment outstanding
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pursuant to which Lender may extend credit to or on behalf of Borrower and
Lender has executed termination statements or releases with respect thereto. IT
IS THE EXPRESS INTENT OF THE BORROWER AND GUARANTORS THAT ALL OF THE COLLATERAL
SHALL SECURE NOT ONLY THE OBLIGATIONS UNDER THE LOAN DOCUMENTS, BUT ALSO ALL
OTHER PRESENT AND FUTURE OBLIGATIONS OF BORROWER TO LENDER.
5.7. Collection of Receivables; Proceeds of Collateral.
(a) Borrower will collect its accounts receivable only in the ordinary
course of business. Borrower shall establish and maintain, at its expense,
blocked accounts, lockbox and related blocked accounts and/or such other
arrangements as Lender may require (each a "Blocked Account" and
collectively the "Blocked Accounts"), with such banks as shall be
acceptable to Lender and Borrower will notify all of its account debtors to
forward all accounts receivable collections owed to Borrower to such
Blocked Accounts. Borrower will execute such agreements as may be required
in connection with such Blocked Accounts and will pay all fees in
connection therewith. Immediately upon receipt, Borrower will forward all
other checks, drafts and other monies received by Borrower which are
proceeds of the Collateral to such Blocked Accounts.
(b) All accounts receivable collections of Borrower and all checks,
drafts and other monies received by Borrower which are proceeds of the
Collateral will be deposited in a non-interest bearing cash collateral
account maintained by Lender (the "Cash Collateral Account"). Lender will
have sole dominion and control over all items and funds in the Cash
Collateral Account and such items and funds may be withdrawn only by
Lender. Lender will have the right to apply all or any part of such funds
towards payment of any of the Lender Indebtedness.
(c) All items deposited into the Cash Collateral Account will be
credited by Lender as payments of the principal balance of the Line on the
Business Day on which such items are deposited into the Cash Collateral
Account. As compensation for the foregoing arrangement, Borrower will pay
to Lender a sum equal to two (2) days interest on all such deposits, at the
interest rate set forth in Section 3.1 above. Borrower will reimburse
Lender on demand for the amount of any items credited as provided above and
subsequently returned unpaid. Lender may terminate the foregoing
arrangement upon notice to Borrower.
(d) Borrower agrees that all monies, checks, notes, instruments,
drafts or other payments relating to or constituting proceeds of any
accounts receivable or other Collateral of Borrower which come into the
possession or under the control of Borrower or any employees, agents or
other persons acting for or in concert with Borrower, shall be received and
held in trust for Lender and such items shall be the sole and exclusive
property of Lender. Immediately upon receipt thereof, Borrower and such
other persons shall remit the same or cause the same to be remitted, in
kind, to Lender. Borrower shall deliver or cause to be delivered to Lender,
with appropriate endorsement and assignment to Lender with full recourse to
Borrower, all instruments, notes and chattel paper constituting an account
receivable or proceeds thereof or other Collateral. Lender is hereby
authorized to open all mail addressed to Borrower and endorse all checks,
drafts or other items for payment on behalf of Borrower. Lender is granted
a power of attorney by Borrower with full power of substitution to execute
on behalf of Borrower and in Borrower's name or to endorse Borrower's name
on any check, draft, instrument, note or other item of payment or to take
any other action or sign any document in order to effectuate the foregoing.
Such power of attorney being coupled with an interest is irrevocable.
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6. REPRESENTATIONS AND WARRANTIES. Borrower and Guarantors represent and warrant
as follows:
6.1. Valid Organization, Good Standing and Qualification.
(a) Borrower is a corporation duly incorporated, validly existing and
in good standing under the laws of the applicable jurisdiction set forth on
Schedule 6.1 attached hereto, has full power and authority to execute,
deliver and comply with the Loan Documents, and to carry on its business as
it is now being conducted and is duly licensed or qualified as a foreign
corporation in good standing under the laws of the state of each other
jurisdiction in which the character or location of the properties owned by
it or the business transacted by it requires such licensing or
qualification.
(b) Each Guarantor is a corporation duly incorporated, validly
existing and in good standing under the laws of the applicable jurisdiction
set forth on Schedule 6.1 attached hereto, has full power and authority to
execute, deliver and comply with the Loan Documents, and to carry on its
business as it is now being conducted and is duly licensed or qualified as
a foreign corporation partnership in good standing under the laws of the
state of each other jurisdiction in which the character or location of the
properties owned by it or the business transacted by it requires such
licensing or qualification.
6.2. Licenses. Borrower, each Guarantor and their employees, servants and
agents have all licenses, registrations, approvals and other authority as may be
necessary to enable them to own and operate their business and perform all
services and business which they have agreed to perform in any state,
municipality or other jurisdiction, except in those instances where the failure
to have such licenses, registrations, approvals or other authority would not
have a material adverse affect on the financial condition or operations of
Borrower or any Guarantor or the value of the Collateral.
6.3. Ownership Interests. The ownership of all stock, debentures, options,
warrants, bonds and other securities (debt and equity) of RCI, RXD and
Guarantors and all pledges, proxies, voting trusts, powers of attorney and other
agreements affecting the ownership or voting rights of said interests is as set
forth on Schedule 6.3 attached hereto.
6.4. Subsidiaries. Except as set forth on Schedule 6.4 attached hereto,
Borrower and Guarantors do not own any shares of stock or other equity interests
in any Person, directly or indirectly (by any Subsidiary or otherwise).
6.5. Financial Statements. Borrower and Guarantors have furnished to Lender
the audited financial statements of Borrower and Guarantors certified without
qualification by independent public accountants as of December 31, 1997 and all
management and comment letters from such accountants in connection therewith,
and its internally prepared interim financial statements as of December 31,
1998. Such financial statements of Borrower and Guarantors (together with the
related notes and comments), are correct and complete, fairly present the
financial condition and the assets and liabilities of Borrower and Guarantors at
such dates, and have been prepared in accordance with GAAP. With respect to the
interim statements, such statements are subject to year-end adjustment and any
accompanying footnotes.
6.6. No Material Adverse Change in Financial Condition. There has been no
material adverse change in the financial condition of Borrower or any Guarantor
since December 31, 1998.
6.7. Pending Litigation or Proceedings. Except as set forth on Schedule 6.7
attached hereto, there are no judgments outstanding or actions, suits or
proceedings pending or, to the best of Borrower's knowledge, threatened against
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or affecting Borrower or any Guarantor, at law or in equity or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign.
6.8. Due Authorization; No Legal Restrictions. The execution and delivery
by Borrower and Guarantors of the Loan Documents, the consummation of the
transactions contemplated by the Loan Documents and the fulfillment and
compliance with the respective terms, conditions and provisions of the Loan
Documents: (a) have been duly authorized by all requisite corporate action of
Borrower and Guarantors, (b) will not conflict with or result in a breach of, or
constitute a default (or might, upon the passage of time or the giving of notice
or both, constitute a default) under, any of the terms, conditions or provisions
of any applicable statute, law, rule, regulation or ordinance or Borrower's or
any Guarantor's Certificates or Articles of Incorporation or By-Laws or any
indenture, mortgage, loan or credit agreement or instrument to which Borrower or
any Guarantor is a party or by which it any of them may be bound or affected, or
any judgment or order of any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, and (c) will not
result in the creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the property or assets of Borrower or any
Guarantor under the terms or provisions of any such agreement or instrument,
except liens in favor of Lender.
6.9. Enforceability. The Loan Documents have been duly executed by Borrower
and Guarantors and delivered to Lender and constitute legal, valid and binding
obligations of Borrower and Guarantors, enforceable in accordance with their
terms, except as enforceability may be limited by any bankruptcy, insolvency,
reorganization, moratorium or other laws or equitable principles affecting
creditors' rights generally.
6.10. No Default Under Other Obligations, Orders or Governmental
Regulations. Borrower and Guarantors are not in violation of their Certificates
or Articles of Incorporation or in default in the performance or observance of
any of their obligations, covenants or conditions contained in any indenture or
other agreement creating, evidencing or securing any Indebtedness or pursuant to
which any such Indebtedness is issued and Borrower and Guarantors are not in
violation of or in default under any other agreement or instrument or any
judgment, decree, order, statute, rule or governmental regulation, applicable to
them or by which their properties may be bound or affected, except in those
instances where such violations or defaults would not have a material adverse
affect on the financial condition or operation of Borrower or Guarantors or the
value of the Collateral.
6.11. Governmental Consents. No consent, approval or authorization of or
designation, declaration or filing with any governmental authority on the part
of Borrower or Guarantors is required in connection with the execution, delivery
or performance by Borrower or Guarantors of the Loan Documents or the
consummation of the transactions contemplated thereby.
6.12. Taxes. Borrower and Guarantors have filed all tax returns which they
are required to file and have paid, or made provision for the payment of, all
taxes which have or may have become due pursuant to such returns or pursuant to
any assessment received by it. Such tax returns are complete and accurate in all
respects. Neither Borrower nor any Guarantor knows of any proposed additional
assessment or basis for any assessment of additional taxes.
6.13. Title to Collateral. The Collateral is and will be owned by Borrower
and Guarantors, as applicable, free and clear of all liens and other
encumbrances of any kind (including liens or other encumbrances upon properties
acquired or to be acquired under conditional sales agreements or other title
retention devices), excepting only liens in favor of the Lender and those liens
and encumbrances permitted under Section 7.9 below. Borrower and Guarantors will
defend the Collateral against any claims of all persons or entities other than
the Lender.
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6.14. Addresses. During the past five (5) years, Borrower and Guarantors
have not been known by any names (including tradenames) other than those set
forth in Schedule 6.14 attached hereto and have not been located at any
addresses other than those set forth on Schedule 6.14 attached hereto. The
portions of the Collateral which are tangible property and Borrower's and
Guarantors' books and records pertaining thereto will at all times be located at
the addresses set forth on Schedule 6.14; or such other location determined by
Borrower and Guarantors after prior notice to Lender and delivery to Lender of
any items requested by Lender to maintain perfection and priority of Lender's
security interests and access to Borrower's and Guarantors' books and records.
Schedule 6.14 identifies the chief executive office of Borrower and Guarantors.
6.15. Current Compliance. Borrower and Guarantors are currently in
compliance with all of the terms and conditions of the Loan Documents.
6.16. Pension Plans. Except as disclosed on Schedule 6.16 hereto, (a)
Borrower and Guarantors have no obligations with respect to any employee pension
benefit plan ("Plan") (as such term is defined in the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), (b) no events, including, without
limitation, any "Reportable Event" or "Prohibited Transaction" (as those terms
are defined under ERISA), have occurred in connection with any Plan of Borrower
or Guarantors which might constitute grounds for the termination of any such
Plan by the Pension Benefit Guaranty Corporation ("PBGC") or for the appointment
by any United States District Court of a trustee to administer any such Plan,
(c) all of the Borrower's and Guarantors' Plans meet with the minimum funding
standards of Section 302 of ERISA, and (d) Borrower and Guarantors have no
existing liability to the PBGC. Borrower and Guarantors are not subject to or
bound to make contributions to any "multi-employer plan" as such term is defined
in Section 4001(a)(3) of ERISA.
6.17. Leases and Contracts. Borrower and Guarantors have complied with the
provisions of all material leases, contracts or commitments of any kind (such as
employment agreements, collective bargaining agreements, powers of attorney,
distribution agreements, patent license agreements, contracts for future
purchase or delivery of goods or rendering of services, bonus, pension and
retirement plans or accrued vacation pay, insurance and welfare agreements) to
which they are a party and are not in default thereunder. Neither Borrower nor
Guarantors are aware that any other party is in default under any such leases,
contracts or other commitments and no event has occurred which, but for the
giving of notice or the passage of time or both, would constitute an event of
default thereunder.
6.18. Intellectual Property. Borrower and Guarantors own or possesses the
irrevocable right to use all of the patents, trademarks, service marks, trade
names, copyrights, licenses, franchises and permits and rights with respect to
the foregoing necessary to own and operate the Borrower's and Guarantors'
properties and to carry on their business as presently conducted and presently
planned to be conducted without conflict with the rights of others. Schedule
6.18 sets forth an accurate list and description of each such patent, trademark,
service mark, trade name, copyright, license, franchise and permit and right
with respect to the foregoing, together with all registration or application
numbers or information with respect thereto.
6.19. Eligible Inventory Warranties. With respect to Eligible Inventory
from time to time scheduled, listed or referred to in any certificate, statement
or report prepared by or for Borrower and delivered to Lender and upon which
Borrower is basing availability under the Line, Borrower warrants and represents
that (a) such inventory is located at the address or addresses listed on
Schedule 6.14 attached hereto and is not in transit; (b) Borrower has good,
indefeasible and merchantable title to such inventory and such inventory is not
subject to any lien or security interest whatsoever except for the prior,
perfected security interest granted to Lender; (c) such inventory is of good and
merchantable quality and, to the best of Borrower's knowledge based on
Borrower's current sampling and testing practices, free from any defects; (d)
such inventory is not subject to any licensing, patent, royalty, trademark,
trade name or copyright agreements with any third parties; and (e) the
completion of the manufacture and sale or other disposition of such inventory by
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Lender following an Event of Default shall not require the consent of any person
and shall not constitute a breach or default under any contract or agreement to
which the Borrower is a party or to which the inventory is subject.
6.20. Eligible Account Warranties. With respect to all Eligible Receivables
from time to time scheduled, listed or referred to in any certificate, statement
or report prepared by or for Borrower and delivered to Lender and upon which
Borrower is basing availability under the Line, Borrower warrants and represents
that (a) the accounts arose in the ordinary course of Borrower's business; (b)
the accounts are genuine, are in all respects what they purport to be, and are
not evidenced by any chattel paper, note, instrument or judgment; (c) Borrower
has absolute title to such accounts and the accounts represent undisputed, bona
fide transactions completed in accordance with the terms thereof and as
represented to Lender; (d) no payments have been or will be made thereon, except
payments immediately delivered to Lender pursuant to the Loan Documents; (e)
there are no setoffs, counterclaims, disputes, discounts, credits, charge backs,
freight claims, allowances or adjustments existing or asserted with respect
thereto and Borrower has not made any agreement with any account debtor for any
deduction therefrom; (f) Borrower is not aware of any facts, events or
occurrences which impair the validity or enforcement thereof or may reduce the
amount payable thereunder as shown on any certificates, statements or reports,
prepared by or for Borrower and delivered to Lender, Borrower's books and
records and all invoices and statements delivered to Lender with respect
thereto; (g) to the best of Borrower's knowledge, all account debtors have the
capacity to contract and are solvent; (h) the goods sold giving rise thereto are
not subject to any lien, claim, encumbrance or security interest except that of
Lender; (i) to the best of Borrower's knowledge, there are no proceedings or
actions which are threatened or pending against any account debtor which might
result in any material adverse change in such account debtor's financial
condition; (j) the account is not an account with respect to which the account
debtor is an Affiliate of Borrower or any Guarantor or a director, officer of
employee of Borrower or any Guarantor or their Affiliates; (k) the account does
not arise with respect to goods which have been returned rejected, lost or
damaged, or which have not been shipped or arise with respect to services which
have not been fully performed and accepted as satisfactory by the account
debtor; (l) the account is not an account with respect to which the account
debtor's obligation to pay the account is conditional upon the account debtor's
approval or is otherwise subject to any repurchase obligation or return right,
as with sales made on a consignment, bill-and-hold, guaranteed sale,
sale-and-return, or sale on approval basis; (m) the amounts shown on the
applicable certificates, statements, on Borrower's books and records and all
invoices and statements which may be delivered to Lender with respect to such
accounts are actually and absolutely owing to Borrower and are not in any way
contingent; and (n) the accounts have not been sold, assigned or transferred to
any other Person and no Person except Borrower has any claim thereto or (with
the exception of the applicable account debtor) any claims to the goods sold.
6.21. Year 2000. All software utilized in the conduct of Borrower's and
Guarantors' business has, or will have, prior to December 31, 1999, appropriate
capabilities and compatibility for operation to handle calendar dates falling on
or after January 1, 2000, and all information pertaining to such calendar dates,
in the same manner and with the same functionality as the software does
respecting calendar dates falling on or before December 31, 1999. In addition,
the data-related user interface functions, data-fields, and data-related program
instructions and functions of the Borrower's and Guarantors' software includes
the indication of the century.
6.22. Interrelatedness of Borrowers. The business operations of each
Borrower may be interrelated and may complement one another and the proceeds of
advances under the Line may directly or indirectly benefit each Borrower,
regardless of which Borrower requests or receives the proceeds of such advances.
6.23. Accuracy of Representations and Warranties. No representation or
warranty by Borrower or any Guarantor contained herein or in any certificate or
other document furnished by Borrower or any Guarantor pursuant hereto or in
connection herewith fails to contain any statement of material fact necessary to
make such representation or warranty not misleading in light of the
circumstances under which it was made. There is no fact which Borrower or any
Guarantor knows or should know in the exercise of its normal operations and
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reasonable due diligence and has not disclosed to Lender, which does or may
materially and adversely affect Borrower, or any Guarantor or any of their
operations.
7. GENERAL COVENANTS. Except with the prior written consent of Lender, Borrower
and each Guarantor will comply with the following:
7.1. Payment of Principal, Interest and Other Amounts Due. Borrower will
pay when due all Lender Indebtedness and all other amounts payable by it
hereunder.
7.2. Limitation on Sale and Leaseback. Neither Borrower nor any Guarantor
will enter into any arrangement whereby it will sell or transfer any real
property or improvements thereon or other fixed assets owned by it and then or
thereafter rent or lease as lessee such property, improvements or assets or any
part thereof, or other property which Borrower or such Guarantor shall intend to
use for substantially the same purposes as the property sold or transferred.
7.3. Limitation on Indebtedness. Neither Borrower nor any Guarantor will
have at any time outstanding to any Person other than Lender, any Indebtedness
for borrowed money, Capitalized Lease Obligations, or any outstanding letters of
credit, except:
(a) Current accounts payable incurred in the ordinary course of
Borrower's and Guarantors' business, accrued expenses and other current
items arising out of transactions (other than borrowings) in the ordinary
course of Borrower's or such Guarantor's business;
(b) Existing Indebtedness for borrowed money and Capitalized Lease
Obligations described on Schedule 7.3; and
(c) Future purchase money Indebtedness and Capitalized Lease
Obligations incurred to finance Capital Expenditures permitted under
Section 8.4 below, provided that Lender shall have the right of first
refusal to provide such financing on reasonably competitive terms.
Any of such existing permitted Indebtedness may not be refinanced or
replaced without the consent of the Lender.
7.4. Investments and Loans. Neither Borrower nor any Guarantor will have or
make any investments in all or a material portion of the capital stock or
securities of any Person, or any loans, advances or extensions of credit to any
Person, except:
(a) Investments in direct or indirect obligations of, or obligations
unconditionally guaranteed by, the United States of America and maturing
within twelve (12) months from the date of acquisition;
(b) Investments in commercial paper of an Affiliate of Lender or
commercial paper rated "Prime-1" by Moody's Investors Services or "A-1" by
Standard & Poor's Corporation, or with an equivalent rating by another
rating agency of nationally recognized standing, maturing within three
hundred sixty-five (365) days from the date of acquisition;
(c) Certificates of deposit maturing within twelve (12) months from
the date of acquisition issued by an Affiliate of Lender; and
(d) Investments and loans listed on Schedule 7.4 attached hereto.
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7.5. Guaranties. Except as contemplated under this Agreement, neither
Borrower nor any Guarantor will directly or indirectly guarantee, endorse (other
than for collection or deposit in the ordinary course of business), discount,
sell with recourse or for less than the face value or agree (contingently or
otherwise) to purchase or repurchase or otherwise acquire, or otherwise become
directly or indirectly liable for, or agree (contingently or otherwise) to
supply or advance funds (whether by loan, stock purchase, capital contribution
or otherwise) in respect of, any Indebtedness, obligations or liabilities of any
Person.
7.6. Disposition of Assets. RCI will not sell, lease, transfer or otherwise
dispose of all, substantially all, or any material portion of its property or
assets, except for sales of inventory in the ordinary course for fair
consideration. Except as otherwise prohibited under this Agreement, RWC, RXD,
RCFI and Redgo Properties, Inc. may, from time to time, sell their assets, and
Lender will, at Borrower's sole cost and expense, release its lien thereon,
provided that (a) no such party may enter into any agreement to sell any of its
assets if a Default or Event of Default shall have occurred and be continuing,
(b) such sale is for the fair market value of the asset being sold, (c) the
purchase price with respect to any such sale shall be paid in immediately
available funds, and (d) all proceeds of such sale are paid directly to Lender
to be applied to the Lender Indebtedness in such order and manner as Lender
shall determine.
7.7. Merger; Consolidation; Business Acquisitions; Subsidiaries. Neither
Borrower nor any Guarantor (a) will merge into or consolidate with any Person,
acquire any material portion of the stock, ownership interests, assets or
business of any Person, permit any Person to merge into it, except for those
mergers, consolidations or acquisitions with each other, or (b) form any new
Subsidiaries.
7.8. Taxes; Claims for Labor and Materials. Borrower and each Guarantor
will pay or cause to be paid when due all taxes, assessments, governmental
charges or levies imposed upon it or its income, profits, payroll or any
property belonging to it, including without limitation all withholding taxes,
and all claims for labor, materials and supplies which, if unpaid, might become
a lien or charge upon any of its properties or assets. Neither Borrower nor any
Guarantor will file or consent to the filing of, any consolidated income tax
return with any Person other than a Subsidiary.
7.9. Liens. Neither Borrower nor any Guarantor will create, incur or permit
to exist any mortgage, pledge, encumbrance, lien, security interest or charge of
any kind (including liens or charges upon properties acquired or to be acquired
under conditional sales agreements or other title retention devices) on its
property or assets, whether now owned or hereafter acquired, or upon any income,
profits or proceeds therefrom, except:
(a) Security interests and mortgages held by Lender;
(b) Liens incurred or deposits made in the ordinary course of business
(i) in connection with worker's compensation, unemployment insurance,
social security and other like laws or (ii) to secure the performance of
statutory obligations, not incurred in connection with either (A) the
borrowing of money or (B) the deferred purchase price of goods or
inventory;
(c) Encumbrances consisting of zoning restrictions, easements,
restrictions on the use of real property or minor irregularities of title
thereto, none of which impairs the use of such property by Borrower in the
operation of its business;
(d) Liens and security interests listed on Schedule 7.9 attached
hereto; or
(e) Purchase money liens or Capitalized Leases, provided that:
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(1) the property subject to any of the foregoing is acquired or
leased by Borrower in the ordinary course of its business and the lien
on any such property is created contemporaneously with such
acquisition;
(2) purchase money Indebtedness or Capitalized Lease Obligations
so created shall not exceed one hundred percent (100%) of the lesser
of cost or fair market value as of the time of acquisition or lease of
the property covered thereby;
(3) the purchase money Indebtedness or Capitalized Lease
Obligations shall only be secured by the property so acquired or
leased and the proceeds thereof; and
(4) the purchase money Indebtedness or Capitalized Lease
Obligations are permitted by the provisions of Section 7.3 and Section
8.4.
Neither Borrower nor any Guarantor shall enter into any agreement with any
other Person which shall prohibit the Borrower or such Guarantor from granting,
creating or suffering to exist, or otherwise restrict in any way (whether by
covenant, by identifying such event as a default under such agreement or
otherwise) the ability of the Borrower or such Guarantor to grant, create or
suffer to exist, any lien, security interest or other charge or encumbrance upon
or with respect to any of the Collateral in favor of the Lender.
7.10. Existence; Approvals; Qualification; Business Operations; Compliance
with Laws. Borrower and each Guarantor (a) will obtain, preserve and keep in
full force and effect its separate corporate existence and all rights, licenses,
registrations and franchises necessary to the proper conduct of its business or
affairs; (b) will qualify and remain qualified as a foreign corporation in each
jurisdiction in which the character or location of the properties owned by it or
the business transacted by it requires such qualification; (c) will continue to
operate its business as presently operated; and (d) will comply with the
requirements of all applicable laws and all rules, regulations (including
environmental regulations) and orders of regulatory agencies and authorities
having jurisdiction over it.
7.11. Maintenance of Properties, Intellectual Property. Borrower and each
Guarantor will maintain, preserve, protect and keep or cause to be maintained,
preserved, protected and kept its real and personal property used or useful in
the conduct of its business in good working order and condition, reasonable wear
and tear excepted, and will pay and discharge when due the cost of repairs to
and maintenance of the same.
With respect to any and all trademarks, registrations, copyrights, patents,
patent rights and applications for any of the foregoing, Borrower and each
Guarantor shall maintain and protect the same and shall take and assert any and
all remedies reasonably available to Borrower and each Guarantor to prevent any
other Person from infringing upon or claiming any interest in any such
trademarks, registrations, copyrights, patents, patent rights or application for
any of the foregoing.
Borrower and Guarantors will, if requested by Lender, (i) execute and
deliver to Lender assignments, financing statements, patent mortgages or such
other documents, in form and substance acceptable to Lender, necessary to
perfect and maintain Lender's security interest in all existing and future
patents, patent applications, trademarks, trademark applications, and other
general intangibles owned by Borrower or any Guarantor; (ii) furnish Lender with
evidence satisfactory to Lender, in its sole discretion, that all actions
necessary to maintain and protect each trademark and patent owned by Borrower or
Guarantors or their employees have been taken in a timely manner; and (iii)
execute and deliver to Lender an agreement permitting Lender to exercise all of
Borrower's and Guarantors' rights in, to and under any patent or trademark owned
by Borrower, any Guarantor or any of their employees.
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7.12. Insurance. Borrower and each Guarantor will carry adequate insurance
issued by an insurer acceptable to Lender, in amounts acceptable to Lender (at
least adequate to comply with any co-insurance provisions) and against all such
liability and hazards as are usually carried by entities engaged in the same or
a similar business similarly situated or as may be required by Lender, and in
addition, will carry business interruption insurance in such amounts as may be
required by Lender. Lender confirms that Borrower's type and amount of business
interruption insurance existing as of the date hereof is currently acceptable to
Lender. In the case of insurance on any of the Collateral, Borrower and
Guarantors shall carry insurance in the full insurable value thereof and cause
Lender to be named as insured mortgagee with respect to all real property, loss
payee (with a lender's loss payable endorsement) with respect to all personal
property, and additional insured with respect to all liability insurance, as its
interests may appear with thirty (30) days' notice to be given Lender by the
insurance carrier prior to cancellation or material modification of such
insurance coverage.
Borrower and Guarantors shall cause to be delivered to Lender the insurance
policies therefor or in the alternative, evidence of insurance and at least
thirty (30) business days prior to the expiration of any such insurance,
additional policies or duplicates thereof or in the alternative, evidence of
insurance evidencing the renewal of such insurance and payment of the premiums
therefor. Borrower and Guarantors shall direct all insurers that in the event of
any loss thereunder or the cancellation of any insurance policy, the insurers
shall make payments for such loss and pay all return or unearned premiums
directly to Lender and not to Borrower or Guarantors and Lender jointly.
In the event of any loss, Borrower will give Lender immediate notice
thereof and Lender may make proof of loss whether the same is done by Borrower
or Guarantors. Lender is granted a power of attorney by Borrower and Guarantors
with full power of substitution to file any proof of loss in Borrower's, such
Guarantor's or Lender's name, to endorse Borrower's or such Guarantor's name on
any check, draft or other instrument evidencing insurance proceeds, and to take
any action or sign any document to pursue any insurance loss claim. Such power
being coupled with an interest is irrevocable.
In the event of any loss, Lender, at its option, may (a) retain and apply
all or any part of the insurance proceeds to reduce, in such order and amounts
as Lender may elect, the Lender Indebtedness, or (b) disburse all or any part of
such insurance proceeds to or for the benefit of Borrower or the applicable
Guarantor for the purpose of repairing or replacing Collateral after receiving
proof satisfactory to Lender of such repair or replacement, in either case
without waiving or impairing the Lender Indebtedness or any provision of this
Agreement. Any deficiency thereon shall be paid by Borrower to Lender upon
demand. Neither Borrower nor any Guarantor shall take out any insurance without
having Lender named as loss payee or additional insured thereon. Borrower and
Guarantors shall bear the full risk of loss from any loss of any nature
whatsoever with respect to the Collateral.
7.13. Inspections; Examinations. Borrower and each Guarantor hereby
irrevocably authorize and direct all accountants and auditors employed by
Borrower and each Guarantor at any time to exhibit and deliver to Lender copies
of any and all of Borrower's financial statements, trial balances or other
accounting records of any sort in the accountant's or auditor's possession and
copies of all reports submitted to Borrower or Guarantors by such accountants or
auditors, including management letters, "comment" letters and audit reports, and
to disclose to Lender any information they may have concerning Borrower's and
Guarantors' financial status and business operations. Borrower and Guarantors
further authorize all federal, state and municipal authorities to furnish to
Lender copies of reports or examinations relating to Borrower, whether made by
Borrower, Guarantors or otherwise.
The officers of Lender, or such Persons as any of them may designate, may
visit and inspect any of the properties of Borrower and Guarantors, examine
(either by Lender's employees or by independent accountants) any of the
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Collateral or other assets of Borrower and Guarantors, including the books of
account of Borrower and Guarantors, and discuss the affairs, finances and
accounts of Borrower with its officers and with its independent accountants, at
such times as Lender may desire.
Lender may conduct at any time and from time to time, and Borrower and
Guarantors will fully cooperate with, field examinations of the inventory,
accounts receivable and business affairs of Borrower. Borrower shall pay Lender
Seven Hundred Fifty Dollars ($750.00), per person, for each day of any such
examination, plus all other expenses incurred by Lender in connection therewith.
7.14. Default Under Other Indebtedness. Neither Borrower nor any Guarantor
will permit any of its Indebtedness to be in default. If any Indebtedness of
Borrower or any Guarantor is declared or becomes due and payable before its
expressed maturity by reason of default or otherwise or to the knowledge of
Borrower or any Guarantor, the holder of any such Indebtedness shall have the
right (or upon the giving of notice or the passage of time, or both, shall have
the right) to declare such Indebtedness to be so due and payable, Borrower will
immediately give Lender written notice of such declaration, acceleration or
right of declaration.
7.15. Pension Plans. Borrower and each Guarantor will (a) keep in full
force and effect any and all Plans which are presently in existence or may, from
time to time, come into existence under ERISA, unless such Plans can be
terminated without material liability to Borrower or such Guarantor in
connection with such termination (as distinguished from any continuing funding
obligation); (b) make contributions to all of Borrower's or such Guarantor's
Plans in a timely manner and in a sufficient amount to comply with the
requirements of ERISA; (c) comply with all material requirements of ERISA which
relate to such Plans so as to preclude the occurrence of any Reportable Event,
Prohibited Transaction or material "accumulated funding deficiency" as such term
is defined in ERISA; and (d) notify Lender immediately upon receipt by Borrower
or such Guarantor of any notice of the institution of any proceeding or other
action which may result in the termination of any Plan and deliver to Lender,
promptly after the filing or receipt thereof, copies of all reports or notices
which Borrower or any Guarantor files or receives under ERISA with or from the
Internal Revenue Service, the PBGC, or the U.S. Department of Labor.
7.16. Lender of Account. Borrower will maintain Summit Bank as its major
bank of account, unless otherwise agreed by Lender in writing.
7.17. Maintenance of Management. Borrower will maintain its current chief
executive officer and chief financial officer or such other persons (serving in
such management positions) as may be reasonably satisfactory to Lender.
7.18. Capital Stock; Dividends. Neither Borrower nor any Guarantor will
redeem, repurchase or otherwise make any payment or distribution to acquire any
of its capital stock. Neither Borrower nor any Guarantor will pay dividends or
make other distributions on account of its capital stock.
7.19. Transactions with Affiliates. Neither Borrower nor any Guarantor will
enter into or conduct any transaction with any Affiliate except on terms that
would be usual and customary in a similar transaction between Persons not
affiliated with each other and except as disclosed to Lender. Neither Borrower
nor any Guarantor will make any loans or extensions of credit to any of its
Affiliates, shareholders, directors or officers, except for the existing loans
described in Schedule 7.19 attached hereto. Borrower and each Guarantor will
cause all of its Indebtedness at any time owed to its Affiliates, shareholders,
directors and officers to be subordinated in all respects to all present and
future Lender Indebtedness and will not make any payments thereon, except as
approved by Lender in writing.
7.20. Restriction on Stock Transfer. Neither RCI, RXD nor any Guarantor
will directly or indirectly issue, transfer, sell or otherwise dispose of, or
part with control of, or permit the transfer of, any shares of its capital
stock.
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7.21. Name or Address Change. Neither Borrower nor any Guarantor will
change its name or address except upon thirty (30) days prior written notice to
Lender and delivery to Lender of any items requested by Lender to maintain
perfection and priority of Lender's security interests and access to Borrower's
or such Guarantor's books and records.
7.22. Notices. Borrower will promptly notify Lender of (a) any action or
proceeding brought against Borrower or any Guarantor wherein such action or
proceeding would, if determined adversely to Borrower or such Guarantor result
in liability of Borrower or such Guarantor and which would have a material
adverse affect on the financial condition or operation of such party or the
value of the Collateral, (b) the occurrence of any Default or Event of Default,
(c) the failure of Borrower or any Guarantor to observe any of its undertakings
under the Loan Documents, or (e) any material adverse change in the assets,
business, operations or financial condition of Borrower or any Guarantor.
7.23. Additional Documents and Future Actions. Borrower and Guarantors
will, at their sole cost, take such actions and provide Lender from time to time
with such agreements, financing statements and additional instruments, documents
or information as the Lender may in its reasonable discretion deem necessary or
advisable to perfect, protect, maintain or enforce the security interests in the
Collateral, to permit Lender to protect or enforce its interest in the
Collateral, or to carry out the terms of the Loan Documents. Borrower and
Guarantors hereby authorize and appoint Lender as their attorney-in-fact, with
full power of substitution, to take such actions as Lender may reasonably deem
advisable to protect the Collateral and its interests thereon and its rights
hereunder, to execute on Borrower's and Guarantors' behalf and file at
Borrower's and Guarantors' expense financing statements, and amendments thereto,
in those public offices deemed necessary or appropriate by Lender to establish,
maintain and protect a continuously perfected security interest in the
Collateral, and to execute on Borrower's and Guarantors' behalf such other
documents and notices as Lender may deem advisable to protect the Collateral and
its interests therein and its rights hereunder. Such power being coupled with an
interest is irrevocable. Borrower and Guarantors irrevocably authorize the
filing of a carbon, photographic or other copy of this Agreement, or of a
financing statement, as a financing statement and agrees that such filing is
sufficient as a financing statement.
7.24. Accounts Receivable. Unless Lender notifies Borrower in writing that
it dispenses with any one or more of the following requirements, Borrower will
(a) inform Lender immediately of the rejection of goods, claims made or delay in
delivery or performance in regard to any account or contract right upon which
Borrower has based availability for advances under the Line and will adjust the
borrowing base calculation under the Line to reduce the availability for
advances under the Line by the amount of such account and will repay any
Out-Of-Formula Advance resulting therefrom; (b) make no change in any account
upon which Borrower has based availability for advances under the Line, unless
such change is reflected in the borrowing base calculation and does not result
in any Out-Of-Formula Advance under the Line; (c) furnish to Lender all
information received by Borrower materially affecting the financial standing of
any account debtor whose account or contract right has been specifically
assigned to Lender or such information regarding the financial condition of any
account debtor as may be otherwise reasonably requested by Lender; (d) pay
Lender the amount loaned against any account or contract right if the goods are
returned by purchaser or the contract is canceled or terminated or adjust the
borrowing base calculation to reduce the availability for advances under the
Line by the amount of such account and repay any Out-Of-Formula Advance
resulting therefrom; (e) immediately notify Lender if any of its accounts arise
out of contracts with the United States or any department, agency or
instrumentality thereof and, at Lender's request, execute any instruments and
take any steps required by Lender in order that all monies due and to become due
under such contract shall be assigned to Lender and notice thereof given to the
Government under the Federal Assignment of Claims Act; and (f) deliver to
Lender, with appropriate endorsement or assignment, any instrument or chattel
paper representing an account or contract right. Any permission granted to
Borrower by Lender to omit any of the requirements of this Section 7.24 may be
revoked by Lender at any time.
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Borrower will, if requested by Lender (a) give Lender assignments, in form
acceptable to Lender, of specific accounts or groups of accounts and monies due
and to become due under specific contracts and specific general intangibles; (b)
furnish to Lender a copy, with such duplicate copies as Lender may request, of
the invoice applicable to each account specifically assigned to Lender or
arising out of a contract right, bearing a statement that such account has been
assigned to Lender and such additional statements as Lender may require; (c)
mark its records evidencing its accounts in a manner satisfactory to Lender so
as to show which accounts have been assigned to Lender; (d) furnish to Lender
satisfactory evidence of the shipment and receipt of any goods specified by
Lender and the performance of any services or obligations covered by accounts or
contracts in which Lender has a security interest; (e) pay Lender the unpaid
portion of any account or contract right upon which Borrower has based
availability for advances under the Line if (i) such account is not paid
promptly after its maturity, (ii) an account debtor does not accept the goods or
services, (iii) any petition under the Bankruptcy Code or any similar Federal or
State statute is filed by or against a purchaser, or (iv) Lender shall at any
time reject the account as unsatisfactory; and until such payment is made by
Borrower, Lender may retain any such account or contract right as security and
may charge any Blocked Account or any other deposit account of Borrower
maintained with any Affiliate of Lender with any such amounts (or in lieu of
such payment or charge, Lender may establish a reserve therefor or require that
Borrower issue a credit with respect thereto); (f) join with Lender in executing
a financing statement, notice, affidavit or similar instrument, in form
satisfactory to Lender, and such continuation statements and other instruments
as Lender may from time to time request and pay the cost of filing the same in
any public office deemed advisable by Lender; (g) give Lender such financial
statements, reports, certificates, lists of purchasers (showing names,
addresses, and amounts owing) and other data concerning its accounts, contracts,
collections, inventory, general intangibles and other matters as Lender may from
time to time specify; (h) segregate cash proceeds of Collateral so that they may
be identified readily, and deliver the same to the Lender at such time or times
and in such manner and form as the Lender may direct; (i) furnish such witnesses
as may be necessary to establish legal proof of the Collateral or records
relating to the Collateral; or (j) obtain from any owner, encumbrancer or other
person having an interest in the property where any Collateral is located,
written consent to Lender's removal of the Collateral therefrom, without
liability on the part of the Lender to such owner, encumbrancer or other person,
or from any such owner, encumbrancer or other person such waivers of any
interest in the Collateral as the Lender may require.
7.25. Material Adverse Contracts. Neither Borrower nor any Guarantor will
become or be a party to any contract or agreement which has a materially adverse
impact on Borrower's or such Guarantor's ability to perform under this Agreement
or any other agreement with Lender to which Borrower or such Guarantor is a
party.
7.26. Restrictions on Use of Proceeds. Borrower will not carry or purchase
with the proceeds of the Loans any "margin security" within the meaning of
Regulations U, G, T or X of the Board of Governors of the Federal Reserve
System.
8. FINANCIAL COVENANTS. Except with the prior written consent of Lender,
Borrower will comply with the following:
8.1. Cash Flow Coverage Ratio. Borrower shall have a Cash Flow Coverage
Ratio as of the end of each fiscal quarter of Borrower, measured on a cumulative
year to date basis, of not less than (a) .81 to 1.0 during Borrower's fiscal
year ending December 31, 1999; (b) .91 to 1.0 during Borrower's fiscal year
ending December 31, 2000; and (c) 1.0 to 1.0 during each fiscal year of Borrower
ending thereafter.
8.2. Tangible Net Worth. Borrower shall have a Tangible Net Worth of not
less than Eight Million Five Hundred Thousand Dollars ($8,500,000.00) as of the
end of each fiscal quarter of Borrower.
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8.3. Current Ratio. Borrower shall have a ratio of (a) Current Assets to
(b) Current Liabilities of not less than 1.5 to 1.0 as of the end of each fiscal
quarter of Borrower.
8.4. Capital Expenditures. Borrower shall not cause, suffer or permit its
annual aggregate Capital Expenditures to exceed One Million Five Hundred
Thousand Dollars ($1,500,000.00) for any fiscal year of Borrower. The foregoing
covenant shall be on a non-cumulative basis as to any unused portions during any
fiscal year.
9. ACCOUNTING RECORDS, REPORTS AND FINANCIAL STATEMENTS. Borrower and Guarantors
will maintain books of record and account in which full, correct and current
entries in accordance with GAAP will be made of all of their dealings, business
and affairs, and Borrower and Guarantors will deliver to Lender the following:
9.1. Annual Statements. As soon as available and in any event within ninety
(90) days after the end of each fiscal year of Borrower:
(a) the audited consolidated and consolidating income and retained
earnings statements of Borrower and Guarantors for such fiscal year,
(b) the audited consolidated and consolidating balance sheet of
Borrower and Guarantors as at the end of such fiscal year, and
(c) the audited consolidated and consolidating statement of cash flow
of Borrower and Guarantors for such fiscal year,
setting forth in comparative form the corresponding figures as at the end of the
previous fiscal year, all in reasonable detail, including all supporting
schedules and comments. The foregoing statements and balance sheets shall be
prepared in accordance with GAAP by independent certified public accountants of
recognized standing acceptable to Lender in the reasonable exercise of its
discretion, with respect to which such accountants shall deliver their
unqualified opinion.
9.2. Projections and Cash Flow. As soon as available and in any event not
less than thirty (30) days prior to the end of each fiscal year of Borrower and
Guarantors, projections and cash flows on a quarterly basis for the next
succeeding twelve (12) months, prepared by the chief financial officer of
Borrower and Guarantors. Borrower and Guarantors have furnished to Lender
initial projections dated as of the date hereof and attached hereto as Schedule
9.2 containing the information required by this Section 9.2. Borrower and
Guarantors represent and covenant that (a) the initial projections attached
hereto have been and all projections required by this Section 9.2 shall be
prepared by the chief financial officer of Borrower and Guarantors and
represent, and in the future shall represent, the best available good faith
estimate of Borrower and Guarantors regarding the course of Borrower's and
Guarantors' business for the periods covered thereby; (b) the assumptions set
forth in the initial projections are and the assumptions set forth in the future
projections delivered hereafter shall be reasonable and realistic based on then
current economic conditions; (c) Borrower and Guarantors know of no reason,
other than the potential impact of then current economic, political or other
market conditions noted on such projections, why they should not be able to
achieve the performance levels set forth in the initial projections and shall
have no knowledge at the time of delivery of future projections of any reason
why they shall not be able to meet the performance levels set forth in said
projections; and (d) Borrower and Guarantors have sufficient capital as may be
required for its ongoing business and to pay its existing and anticipated debts
as they mature.
9.3. Monthly Statements. As soon as available and in any event within
thirty (30) days after the end of each calendar month:
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(a) the consolidated and consolidating income and retained earnings
statements of Borrower and Guarantors for such month,
(b) the consolidated and consolidating balance sheet of Borrower and
Guarantors as of the end of such month, and
(c) the consolidated and consolidating statement of cash flow of
Borrower and Guarantors for such month,
setting forth in comparative form the corresponding figures as at the end of the
corresponding month of the previous fiscal year (if applicable) and the
projected figures based upon the projections required under Section 9.3, all in
reasonable detail, subject to year-end adjustments, and certified by the chief
financial officer of Borrower and Guarantors to be accurate and to have been
prepared in accordance with GAAP.
9.4. 10Q and 10K. Contemporaneously with the filing thereof with the
Securities and Exchange Commission, copies of Borrower's 10Q and 10-K Reports.
9.5. Accounts Receivable and Accounts Payable Statements. As soon as
available and in any event within fifteen (15) days after the end of each
calendar month, a schedule of the Borrower's accounts receivable and accounts
payable, identifying all Eligible Receivables, and the aging thereof by open
invoice of each customer of Borrower, all certified as to accuracy by the chief
financial officer of Borrower. Borrower will also provide Lender with all
information requested by Lender with respect to any account debtor.
9.6. Inventory Certifications. At least once every fifteen (15) days, a
report in form satisfactory to Lender of the level of Borrower's inventory, with
such details as may be requested by Lender including, without limitation,
identification of all Eligible Inventory, all certified as to accuracy by the
chief financial officer of Borrower.
9.7. Accounts Receivable Borrowing Base Information and Related Documents.
On each Business Day and as a condition of each advance under the Line, an
accounts receivable assignment and a sales, collection and credit report in the
form of Exhibit "C" attached hereto, a copy of Borrower's sales, collection and
credit journal entries for the period then ended, together with such additional
information and details as may be requested by Lender, all certified as to
accuracy by the chief financial officer of Borrower.
9.8. Audit Reports. Promptly upon receipt thereof, one copy of each other
report submitted to Borrower or any Guarantor, by independent accountants,
including management letters, "comment" letters, in connection with any annual,
interim or special audit report made by them of the books of Borrower or such
Guarantor.
9.9. Reports to Governmental Agencies and Other Creditors. With reasonable
promptness, copies of all such financial reports, statements and returns which
Borrower or any Guarantor shall file with any federal or state department,
commission, board, bureau, agency or instrumentality and any report or statement
delivered by Borrower or such Guarantor to any supplier or other creditor in
connection with any payment restructuring.
9.10. Requested Information. With reasonable promptness, all such other
data and information in respect of the condition, operation and affairs of
Borrower or any Guarantor as Lender may reasonably request from time to time.
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9.11. Compliance Certificates. Within the periods provided in Sections 9.1
and 9.3 above, a certificate of the chief financial officer of Borrower and
Guarantors: (a) stating that, to the best of such party's knowledge after due
investigation and inquiry, Borrower and Guarantors have observed, performed and
complied with each and every undertaking contained herein, (b) setting forth the
information and computations (in sufficient detail) required in order to
establish compliance with the financial covenants in Article 8 of this
Agreement, and (c) certifying that, to the best of such party's knowledge after
due investigation and inquiry, as of the date of such certification, there does
not exist any Default or Event of Default. Such certificate will be in the form
of Exhibit "D" attached hereto.
10. ENVIRONMENTAL REPRESENTATIONS AND COVENANTS.
10.1. Representations. Borrower and Guarantors represent to Lender as
follows: (a) the Borrower and Guarantors are in compliance with all
Environmental Requirements and Borrower and Guarantors have no knowledge of any
circumstances which may prevent or interfere with such compliance in the future;
(b) the Borrower and Guarantors have all licenses, permits, approvals and
authorizations required under applicable Environmental Requirements; (c) there
are no pending or threatened claims against Borrower and Guarantors or any of
their assets related to the failure to comply with any Environmental
Requirements, or any facts or circumstances which could give rise to such a
claim; (d) no facility or property now or previously owned, operated or leased
by Borrower or Guarantors is an Environmental Cleanup Site; (e) neither Borrower
nor Guarantors have treated, stored, transported, handled or disposed of Special
Materials at or adjacent to any Environmental Cleanup Site; (f) there are no
liens or claims for cost reimbursement outstanding or threatened against
Borrower or Guarantors or any of their assets, or any facts or circumstances
which could give rise to such a lien or claim; and (g) there are no facts or
circumstances which, under the provisions of any Environmental Requirements,
could restrict the use, occupancy or transferability of any of the Collateral or
any of the facilities owned, leased or operated by Borrower or Guarantors.
10.2. Real Property. Borrower and Guarantors represent and warrant to
Lender that there are no Special Materials presently located on or, to the best
of their knowledge, near any real property owned, leased or operated by Borrower
or Guarantors (collectively, "Real Property"), except for Special Materials
which are and have at all times been treated, stored, transported, handled and
disposed of in compliance with all Environmental Requirements. Borrower and
Guarantors represent to Lender that the Real Property is not now being used nor,
to the best of its knowledge, has it ever been used in the past for activities
involving Special Materials, including but not limited to the use, generation,
collection, storage, treatment, or disposal of any Special Materials except for
Special Materials which are and have at all times been treated, stored,
transported, handled and disposed of in compliance with all Environmental
Requirements. Without limiting the generality of the foregoing, the Real
Property is not being used nor, to the best of Borrower's and Guarantors'
knowledge, has it ever been used in the past for a landfill, surface impoundment
or other area for the treatment, storage or disposal of solid waste (including
solid waste such as sludge).
10.3. Covenant Regarding Compliance. Borrower and Guarantors shall take, at
Borrower's and Guarantors' sole expense, such actions as may be necessary to
comply with all Environmental Requirements, as hereinafter defined. If Borrower
or Guarantors shall fail to take such action, Lender may make advances or
payments towards performance or satisfaction of the same but shall be under no
obligation to do so. All sums so advanced or paid, including all sums advanced
or paid by Lender in connection with any judicial or administrative
investigation or proceeding relating thereto, including, without limitation,
attorney's fees, fines, or other penalty payments, shall be at once repayable by
Borrower and Guarantors and all sums so advanced or paid shall become a part of
the Lender Indebtedness.
The Borrower and Guarantors will maintain all licenses, permits, approvals
and authorizations required under applicable Environmental Requirements. In
connection with off-site treatment, storage, handling, transportation or
disposal of Special Materials, the Borrower and Guarantors will conduct such
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activities only at facilities and with carriers who operate in compliance with
all Environmental Requirements and will obtain certificates of compliance or
disposal from all contractors retained in connection with such activities.
10.4. Notices. In the event Borrower or any Guarantor becomes aware of any
past, present or future facts or circumstances which have given rise or could
give rise to a claim against Borrower or any Guarantor related to a failure to
comply with any Environmental Requirements, Borrower will promptly give Lender
notice thereof, together with a written statement of an officer of Borrower or
such Guarantor setting forth the details thereof and the action with respect
thereto taken in connection therewith.
10.5. Indemnity. Borrower and Guarantors agree to indemnify, defend and
hold harmless Lender, its parents, subsidiaries, successors and assigns, and any
officer, director, shareholder, employee, Affiliate or agent of Lender, for all
loss, liability, damage, cost and expenses, including, without limitation,
attorney's fees and disbursements (including the reasonable allocated cost of
in-house counsel and staff) arising from or related to (a) the release of any
Special Materials at any facility at any time owned, leased or operated by
Borrower or any Guarantor, (b) the release of any Special Materials treated,
stored, transported, handled, generated or disposed of by or on behalf of
Borrower or any Guarantor at any third party owned site, (c) any claim against
Borrower or any Guarantor that they have failed to comply with all Environmental
Requirements, and (d) the breach by Borrower or any Guarantor of any
representation or covenant in this Section 10.
10.6. Testing. Lender shall have the right from time to time to designate
such persons ("Environmental Consultants") as Lender may select to visit,
inspect, examine and test all properties owned, leased or operated by and all
products and wastes generated, treated, stored, transported, handled or disposed
of by or on behalf of Borrower or any Guarantor, for the purpose of
investigating compliance with Environmental Requirements, any actual or
potential claims related thereto, and any condition which could result in
potential liability, cost or expenses to the Lender. Borrower and Guarantors
will permit such Environmental Consultants to have access to all of such
properties, products and wastes and all books, records and reports related to
compliance by Borrower and Guarantors with all Environmental Requirements.
Borrower and Guarantors will supply Lender or the Environmental Consultants with
all information, records, correspondence, audits, reviews and materials related
to compliance by the Borrower and Guarantors with all Environmental Requirements
and will make available to Lender or the Environmental Consultants appropriate
personnel employed by or consultants retained by the Borrower or any Guarantor
having knowledge of such matters.
Provided that an Event of Default has occurred, or the Lender has a good
faith belief that Borrower or any Guarantor has failed to comply with all
Environmental Requirements, the cost of such tests, examinations and inspections
shall be borne by Borrower and in the event Lender pays such costs, such sums
shall be at once repayable by Borrower and all sums so advanced or paid by
Lender shall become part of the Lender Indebtedness. Notwithstanding the
foregoing, the Lender shall have no obligation to perform any tests,
examinations or inspections or to monitor the Borrower's or any Guarantor's
compliance with any Environmental Requirements.
10.7. Survival. The representations and covenants of Borrower and
Guarantors contained in this Section 10.7, including without limitation the
indemnification obligation of Borrower and Guarantors, shall survive the
occurrence of any event whatsoever, including the payment of the Lender
Indebtedness or any investigation by or knowledge of Lender.
11. CONDITIONS OF CLOSING. The obligation of Lender to make available the Loans
is subject to the performance by Borrower and Guarantors of all of their
agreements to be performed hereunder and to the following further conditions
(any of which may be waived by Lender):
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11.1. Loan Documents. Borrower, Guarantors and all other required persons
and entities will have executed and delivered to Lender the Loan Documents.
11.2. Representations and Warranties. All representations and warranties of
Borrower and Guarantors set forth in the Loan Documents will be true at and as
of the date hereof.
11.3. No Default. No condition or event shall exist or have occurred which
would constitute a Default or an Event of Default hereunder.
11.4. Proceedings and Documents. All proceedings taken by Borrower and
Guarantors in connection with the transactions contemplated by this Agreement
and all documents incident to such transactions shall be satisfactory in form
and substance to Lender and Lender's counsel, and Lender shall have received all
documents or other evidence which it reasonably may request in connection with
such proceedings and transactions. Borrower and Guarantors shall have delivered
to Lender a certificate, in form and substance satisfactory to Lender, dated the
date hereof and signed on behalf of the Borrower and Guarantors by an officer of
Borrower and Guarantors, certifying (a) true copies of the Articles of
Incorporation and bylaws of the Borrower and Guarantors in effect on such date,
(b) true copies of all corporate actions taken by Borrower and Guarantors
relative to the Loan Documents, and (c) the names, true signatures and
incumbency of the officers of the Borrower authorized to execute and deliver
this Agreement and the other Loan Documents. Lender may conclusively rely on
such certificate unless and until a later certificate revising the prior
certificate has been received by Lender.
11.5. Landlord's, Mortgagee's or Warehouseman's Release and Waiver
Agreements. Lender shall have received a landlord's, mortgagee's or
warehouseman's release and waiver agreement, satisfactory in form and substance
to Lender, from each landlord, mortgagee and warehouseman for each location
owned or leased by Borrower or any Guarantor or at which Borrower or any
Guarantor warehouses inventory or any other Collateral.
11.6. Delivery of Other Documents. The following documents shall have been
delivered by or on behalf of Borrower and Guarantors to Lender:
(a) Good Standing and Tax Lien Certificates. A good standing
certificate certifying to the subsistence/good standing and corporate
status of Borrower and Guarantors, good standing/foreign qualification
certificates from all other jurisdictions in which Borrower and Guarantors
are required to be qualified to do business, and tax lien certificates for
Borrower and Guarantors from each jurisdiction in which Borrower and
Guarantors are required to be qualified to do business.
(b) Authorization Documents. Evidence of authorization of Borrower's
and Guarantors' execution and full performance of this Agreement, the Loan
Documents and all other documents and actions required hereunder.
(c) Insurance. Evidence of the insurance coverage required under
Section 7.12.
(d) Opinion of Counsel. An opinion of counsel for Borrower and
Guarantors in form and content satisfactory to Lender.
(e) Appraisals. An appraisal of Borrower's equipment, in form,
substance and showing a value satisfactory to Lender.
(f) Blocked Accounts. Agreements with respect to Blocked Accounts as
shall be required by Lender.
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(g) Other Documents. Such other documents as may be required to be
submitted to Lender by the terms hereof or of any Loan Document.
11.7. [THIS SPACE INTENTIONALLY LEFT BLANK]
11.8. Non-Waiver of Rights. By completing the closing hereunder, or by
making advances hereunder, Lender does not thereby waive a breach of any
warranty or representation made by Borrower or Guarantors hereunder or any
agreement, document, or instrument delivered to Lender or otherwise referred to
herein, and any claims and rights of Lender resulting from any breach or
misrepresentation by Borrower or Guarantors are specifically reserved by Lender.
12. CERTAIN CONDITIONS TO SUBSEQUENT ADVANCES. Subsequent advances shall be
conditioned upon the following conditions and each request by Borrower for an
advance shall constitute a representation by Borrower and Guarantors to Lender
that each condition has been met or satisfied:
12.1. Representations and Warranties. All representations and warranties of
Borrower and Guarantors contained herein or in the Loan Documents shall be true
at and as of the date of such advance as if made on such date, and each request
for an advance shall constitute reaffirmation by Borrower and Guarantors that
such representations and warranties are then true.
12.2. No Default. No condition or event shall exist or have occurred at or
as of the date of such advance which would constitute a Default or an Event of
Default.
12.3. Other Requirements. Lender shall have received all certificates,
authorizations, affidavits, schedules and other documents which are provided for
hereunder or under the Loan Documents, or which Lender may reasonably request.
13. DEFAULT AND REMEDIES.
13.1. Events of Default. The occurrence of any one or more of the following
events shall constitute an Event or Events of Default hereunder:
(a) The failure of Borrower to pay any amount of principal or interest
on the Notes, or any fee or other sums payable hereunder, or any other
Lender Indebtedness on the date on which such payment is due, whether on
demand, at the stated maturity or due date thereof, or by reason of any
requirement for the prepayment thereof, by acceleration or otherwise;
(b) The failure of Borrower or any Guarantor to duly perform or
observe any obligation, covenant or agreement on its part contained herein
or in any other Loan Document, not otherwise constituting an Event of
Default under this Section 13.1 and such failure continues unremedied for a
period of ten (10) days after the earlier of (i) notice from Lender to
Borrower of the existence of such failure or (ii) the date Borrower or
Guarantor knows of such failure; provided however, in the event such
failure is incapable of being remedied or is the result of noncompliance
with any of the financial covenants set forth in Article 8 above, Borrower
shall not be entitled to any such notice or grace;
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(c) The failure of Borrower or any Guarantor to pay any Indebtedness
for borrowed money due to any third Person or the existence of any other
event of default under any loan, security agreement, mortgage or other
agreement pertaining thereto binding Borrower or any Guarantor, after the
expiration of any notice and/or grace periods permitted in such documents,
where such Indebtedness has an outstanding principal balance in excess of
Fifty Thousand Dollars ($50,000.00) or such failure would have a material
adverse affect on the financial condition or operations of Borrower or
Guarantors or the value of the Collateral;
(d) The failure of Borrower or any Guarantor to pay or perform any
other obligation to Lender under any other agreement or note or otherwise
arising, whether or not related to this Agreement, after the expiration of
any notice and/or grace periods permitted in such documents;
(e) The adjudication of Borrower or any Guarantor as bankrupt or
insolvent, or the entry of an Order for Relief against Borrower or any
Guarantor or the entry of an order appointing a receiver or trustee for
Borrower or any Guarantor of any of their property or approving a petition
seeking reorganization or other similar relief under the bankruptcy or
other similar laws of the United States or any state or any other competent
jurisdiction;
(f) A proceeding under any bankruptcy, reorganization, arrangement of
debt, insolvency, readjustment of debt or receivership law is filed by or
(unless dismissed within 60 days, provided Lender shall have no obligation
to advance any additional funds or make any other extensions of credit
during such period) against Borrower or any Guarantor, or Borrower or any
Guarantor makes an assignment for the benefit of creditors, or Borrower or
any Guarantor takes any action to authorize any of the foregoing;
(g) The suspension of the operation of Borrower's or any Guarantor's
present business, or Borrower or any Guarantor becoming unable to meet its
debts as they mature, or the admission in writing by Borrower or any
Guarantor to such effect, or Borrower or any Guarantor calling any meeting
of all or any material portion of its creditors for the purpose of debt
restructure;
(h) All or any part of the Collateral or the assets of Borrower or any
Guarantor are attached, seized, subjected to a writ or distress warrant, or
levied upon, or come within the possession or control of any receiver,
trustee, custodian or assignee for the benefit of creditors;
(i) The entry of a final judgment for the payment of money against
Borrower or any Guarantor in excess of Twenty-Five Thousand Dollars
($25,000.00) individually or in the aggregate which, within ten (10) days
after such entry, shall not have been discharged or execution thereof
stayed pending appeal or shall not have been discharged within five (5)
days after the expiration of any such stay;
(j) Any representation or warranty of Borrower or any Guarantor in any
of the Loan Documents is discovered to be untrue in any material respect or
any statement, certificate or data furnished by Borrower or any Guarantor
pursuant hereto is discovered to be untrue in any material respect as of
the date as of which the facts therein set forth are stated or certified;
(k) Borrower or any Guarantor voluntarily or involuntarily dissolves
or is dissolved, terminates or is terminated;
(l) Borrower or any Guarantor is enjoined, restrained, or in any way
prevented by the order of any court or any administrative or regulatory
agency, the effect of which order restricts Borrower or any Guarantor from
conducting all or any material part of its business;
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(m) A breach by Borrower or any Guarantor occurs under any material
agreement, document or instrument, whether heretofore, now or hereafter
existing between Borrower or any Guarantor and any other Person;
(n) A material and adverse change occurs in any of Borrower's or any
Guarantor's operations, management or financial condition or in the value
of the Collateral;
(o) Any material uninsured damage to, or loss, theft, or destruction
of, any of the Collateral occurs;
(p) Any strike, lockout, labor dispute, embargo, condemnation, act of
God or public enemy, or other casualty loss occurs resulting in the
cessation or substantial curtailment of production or other revenue
producing activities at any facility of Borrower or any Guarantor for more
than thirty (30) consecutive days;
(q) The loss, suspension, revocation or failure to renew any license
or permit now held or hereafter acquired by Borrower or any Guarantor,
which loss, suspension, revocation or failure to renew might have a
material adverse effect on the business profits, assets or financial
condition of Borrower or any Guarantor;
(r) Any projection delivered to Lender pursuant hereto indicates that
an Event of Default will occur; and/or
(s) The validity or enforceability of this Agreement, or any of the
Loan Documents, is contested by the Borrower or any Guarantor; or Borrower
or any Guarantor denies that it has any or any further liability or
obligation hereunder or thereunder; or
(t) The indictment or threatened indictment of Borrower or any
Guarantor under any criminal statute, or the commencement or threatened
commencement of any criminal or civil proceeding against Borrower or any
Guarantor, pursuant to which the penalties or remedies sought are available
and include forfeiture of any of the Collateral.
13.2. Remedies. At the option of the Lender, upon the occurrence of an
Event of Default, or at any time thereafter:
(a) The entire unpaid principal of the Loans, all other Lender
Indebtedness, or any part thereof, all interest accrued thereon, all fees
due hereunder and all other obligations of Borrower and Guarantors to
Lender hereunder or under any other agreement, note or otherwise arising
will become immediately due and payable without any further demand or
notice;
(b) The Line will immediately terminate and the Borrower will receive
no further extensions of credit thereunder;
(c) Lender may increase the interest rate on the Loans to the
applicable default rate set forth herein, without notice;
(d) Lender may reduce availability for advances under the Line or
require additional reserves without notice;
(e) Lender may enter the premises occupied by Borrower or any
Guarantor and take possession of the Collateral and any records relating
thereto; and/or
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(f) Lender may exercise each and every right and remedy granted to it
under the Loan Documents, under the Uniform Commercial Code and under any
other applicable law or at equity.
If an Event of Default occurs under Section 13.1(e) or (f), all Lender
Indebtedness shall become immediately due and payable.
13.3. Sale or Other Disposition of Collateral. The sale, lease or other
disposition of the Collateral, or any part thereof, by Lender after an Event of
Default may be for cash, credit or any combination thereof, and Lender may
purchase all or any part of the Collateral at public or, if permitted by law,
private sale, and in lieu of actual payment of such purchase price, may set-off
the amount of such purchase price against the Lender Indebtedness then owing.
Any sales of the Collateral may be adjourned from time to time with or without
notice. The Lender may cause the Collateral to remain on Borrower's or any
Guarantor's premises or otherwise or to be removed and stored at premises owned
by other persons, at Borrower's expense, pending sale or other disposition of
the Collateral. Borrower or Guarantors, at Lender's request, shall assemble the
Collateral consisting of inventory and tangible assets and make such assets
available to Lender at a place to be designated by Lender. Lender shall have the
right to conduct such sales on Borrower's or any Guarantor's premises, at
Borrower's and Guarantors' expense, or elsewhere, on such occasion or occasions
as Lender may see fit. Any notice required to be given by Lender of a sale,
lease or other disposition or other intended action by Lender with respect to
any of the Collateral which is deposited in the United States mail, postage
prepaid and duly addressed to Borrower at the address specified in Section 14.1
below, at least five (5) business days prior to such proposed action, shall
constitute fair and reasonable notice to Borrower and Guarantors of any such
action. The net proceeds realized by Lender upon any such sale or other
disposition, after deduction for the expenses of retaking, holding, storing,
transporting, preparing for sale, selling or otherwise disposing of the
Collateral incurred by Lender in connection therewith and all other costs and
expenses related thereto including attorney fees, shall be applied in such order
as Lender, in its sole discretion, elects, toward satisfaction of the Lender
Indebtedness. Lender shall account to Borrower for any surplus realized upon
such sale or other disposition, and Borrower and Guarantors shall remain liable
for any deficiency. The commencement of any action, legal or equitable, or the
rendering of any judgment or decree for any deficiency shall not affect Lender's
security interest in the Collateral. Borrower and Guarantors agree that Lender
has no obligation to preserve rights to the Collateral against any other
parties. Lender is hereby granted a license or other right to use, after an
Event of Default, without charge, Borrower's or Guarantors' labels, general
intangibles, intellectual property, equipment, real estate, patents, copyrights,
rights of use of any name, trade secrets, trade names, trademarks, service marks
and advertising matter, or any property of a similar nature, as it pertains to
the Collateral, in completing production of, advertising for sale and selling
any inventory or other Collateral and Borrower's and Guarantors' rights under
all contracts, licenses, approvals, permits, leases and franchise agreements
shall inure to Lender's benefit. Lender shall be under no obligation to marshall
any assets in favor of Borrower or Guarantors or any other party or against or
in payment of any or all of the Lender Indebtedness.
13.4. Actions with Respect to Accounts. Borrower and Guarantors hereby
irrevocably make, constitute and appoint Lender (and any of Lender's designated
officers, employees or agents) as its true and lawful attorney-in-fact, with
full power of substitution, with power to sign its name and to take any of the
following actions, in its name or the name of Lender, as Lender may determine,
without notice to Borrower or Guarantors and at Borrower's and Guarantors'
expense:
(a) Verify the validity and amount of or any other matter relating to
the Collateral by mail, telephone, telecopy or otherwise;
(b) Notify all account debtors that Borrower's and Guarantors'
accounts have been assigned to Lender and that Lender has a security
interest therein;
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(c) Direct all account debtors to make payment of all Borrower's and
Guarantors' accounts directly to Lender or such other place as Lender shall
designate and forward invoices directly to such account debtors;
(d) Take control in any manner of any cash or non-cash items of
payment or proceeds of such accounts;
(e) Notify the United States Postal Service to change the address for
delivery of mail addressed to Borrower or Guarantors to such address as
Lender may designate;
(f) Have access to any lockbox or postal boxes into which Borrower's
or Guarantors' mail is deposited and receive, open and dispose of all mail
addressed to Borrower (any sums received pursuant to the exercise of the
rights provided in Sections 13.4 (a) through (f) above may, at Lender's
option, be deposited in the cash collateral account provided for herein);
(g) Take control in any manner of any rejected, returned, stopped in
transit or repossessed goods relating to any accounts;
(h) Upon the occurrence of an Event of Default, enforce payment of and
collect any accounts, by legal proceedings or otherwise, and for such
purpose Lender may:
(1) Demand payment of any accounts or direct any account
debtors to make payment of accounts directly to Lender or such other
place as Lender shall designate;
(2) Receive and collect all monies due or to become due to
Borrower or Guarantors;
(3) Exercise all of Borrower's or Guarantors' rights and
remedies with respect to the collection of accounts;
(4) Settle, adjust, compromise, extend, renew, discharge or
release the accounts;
(5) Sell or assign the accounts on such terms, for such
amount and at such times as Lender deems advisable;
(6) Prepare, file and sign Borrower's or Guarantors' name or
names on any Proof of Claim or similar document in any proceeding
filed under federal or state bankruptcy, insolvency, reorganization or
other similar law as to any account debtor;
(7) Prepare, file and sign Borrower's or Guarantors' name or
names on any Notice of Lien, Claim of Mechanic's Lien, Assignment or
Satisfaction of Lien or Mechanic's Lien or similar document in
connection with the Collateral;
(8) Endorse the name of Borrower or Guarantors upon any chattel
papers, documents, instruments, invoices, freight bills, bills of
lading or similar documents or agreements relating to the accounts or
goods pertaining thereto or upon any checks or other media of payment
or evidences of a security interest that may come into Lender's
possession;
(9) Sign the name of Borrower or Guarantors to verifications of
accounts and notices thereof sent by account debtors to Borrower or
Guarantors; or
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(10) Take all other actions necessary or desirable to protect
Borrower's, Guarantors' or Lender's interest in the accounts.
Borrower and Guarantors ratify and approve all acts of said attorneys and agree
that said attorneys shall not be liable for any acts of commission or omission,
nor for any error of judgment or mistake of fact or law, except willful
misconduct. This power, being coupled with an interest, is irrevocable. Borrower
and Guarantors agree to assist the Lender in the collection and enforcement of
their accounts and not to hinder, delay or impede the Lender in its collection
or enforcement of said accounts.
13.5. Set-Off. Without limiting the rights of Lender under applicable law,
Lender has and may exercise a right of set-off, a lien against and a security
interest in all property of Borrower or Guarantors now or at any time in
Lender's or any Affiliate of Lender's possession in any capacity whatsoever,
including but not limited to any balance of any deposit, trust or agency
account, or any other bank account with Lender or any Affiliate, as security for
all Lender Indebtedness. At any time and from time to time following the
occurrence of a Default or an Event of Default, Lender may without notice or
demand, set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by Lender or any Affiliate to or for the credit of Borrower or
Guarantors against any or all of the Lender Indebtedness and the Borrower's and
Guarantors' obligations under the Loan Documents.
13.6. Turnover of Property Held by Lender. Borrower and Guarantors
irrevocably authorize any Affiliate of Lender, upon and following the occurrence
of an Event of Default, at the request of Lender and without further notice, to
turnover to Lender any property of Borrower or Guarantors held by such
Affiliate, including without limitation, funds and securities for the Borrower's
or Guarantors' account and to debit, for the benefit of Lender, any deposit
account maintained by Borrower or Guarantors with such Affiliate (even if such
deposit account is not then due or there results a loss or reduction of interest
or the imposition of a penalty in accordance with law applicable to the early
withdrawal of time deposits), in the amount requested by Lender up to the amount
of the Lender Indebtedness, and to pay or transfer such amount or property to
Lender for application to the Lender Indebtedness.
13.7. Delay or Omission Not Waiver. Neither the failure nor any delay on
the part of Lender to exercise any right, remedy, power or privilege under the
Loan Documents upon the occurrence of any Event of Default or otherwise shall
operate as a waiver thereof or impair any such right, remedy, power or
privilege. No waiver of any Event of Default shall affect any later Event of
Default or shall impair any rights of Lender. No single, partial or full
exercise of any rights, remedies, powers and privileges by the Lender shall
preclude further or other exercise thereof. No course of dealing between Lender
and Borrower or Guarantors shall operate as or be deemed to constitute a waiver
of Lender's rights under the Loan Documents or affect the duties or obligations
of Borrower or Guarantors.
13.8. Remedies Cumulative; Consents. The rights, remedies, powers and
privileges provided for herein shall not be deemed exclusive, but shall be
cumulative and shall be in addition to all other rights, remedies, powers and
privileges in Lender's favor at law or in equity. Whenever the Lender's consent
or approval is required or permitted, such consent or approval shall be at the
sole and absolute discretion of Lender.
13.9. Certain Fees, Costs, Expenses, Expenditures and Indemnification.
Borrower agrees to pay on demand all costs and expenses of Lender, including
without limitation:
(a) all costs and expenses in connection with the preparation, review,
negotiation, execution, delivery and administration of the Loan Documents,
and the other documents to be delivered in connection therewith, or any
amendments, extensions and increases to any of the foregoing (including,
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without limitation, reasonable attorney's fees and expenses, and the cost
of appraisals and reappraisals of Collateral), and the cost of periodic
lien searches and tax clearance certificates, as Lender deems advisable;
(b) all losses, costs and expenses in connection with the enforcement,
protection and preservation of the Lender's rights or remedies under the
Loan Documents, or any other agreement relating to any Lender Indebtedness,
or in connection with legal advice relating to the rights or
responsibilities of Lender (including without limitation court costs,
reasonable attorney's fees and expenses of accountants and appraisers); and
(c) any and all stamp and other taxes payable or determined to be
payable in connection with the execution and delivery of the Loan
Documents, and all liabilities to which Lender may become subject as the
result of delay in paying or omission to pay such taxes.
In the event Borrower shall fail to pay taxes, insurance, assessments,
costs or expenses which it is required to pay hereunder, or fails to keep the
Collateral free from security interests or lien (except as expressly permitted
herein), or fails to maintain or repair the Collateral as required hereby, or
otherwise breaches any obligations under the Loan Documents, Lender in its
discretion, may make expenditures for such purposes and the amount so expended
(including reasonable attorney's fees and expenses, filing fees and other
charges) shall be payable by Borrower on demand and shall constitute part of the
Lender Indebtedness.
With respect to any amount required to be paid by Borrower under this
Section, in the event Borrower fails to pay such amount on demand, Borrower
shall also pay to Lender interest thereon at the default rate set forth in
Section 3.2 above.
Borrower agrees to indemnify and hold harmless, Lender and Lender's
officers, directors, shareholders, employees and agents, from and against any
and all claims, liabilities, losses, damages, costs and expenses (whether or not
such Person is a party to any litigation), including reasonable attorney's fees
and costs and costs of investigation, document production, attendance at
depositions or other discovery with respect to or arising out of this Agreement,
the use of any proceeds advanced hereunder, the transactions contemplated
hereunder, or any claim, demand, action or cause of action being asserted
against Borrower or any of its Affiliates.
Borrower's obligations under this Section shall survive termination of this
Agreement and repayment of the Lender Indebtedness.
13.10. Time is of the Essence. Time is of the essence in Borrower's and
Guarantors' performance of their obligations under the Loan Documents.
14. COMMUNICATIONS AND NOTICES.
14.1. Communications and Notices. All notices, requests and other
communications made or given in connection with the Loan Documents shall be in
writing and, unless receipt is stated herein to be required, shall be deemed to
have been validly given if delivered personally to the individual or division or
department to whose attention notices to a party are to be addressed, or by
private carrier, or registered or certified mail, return receipt requested, or
by telecopy with the original forwarded by first-class mail, in all cases, with
charges prepaid, addressed as follows, until some other address (or individual
or division or department for attention) shall have been designated by notice
given by one party to the other:
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To Borrower:
Relm Communications, Inc.
7505 Communications Drive
West Melbourne, FL 32904
Attention: William P. Kelly, Vice President/Finance/CFO
Telecopy Number: (407) 984-0168
With a copy to:
Holland & Knight LLP
200 South Orange Avenue, Suite 2600
Orlando, FL 32801
Attention: Gary Whitlock, Esquire
Telecopy Number: 407-872-6207
To Lender:
Summit Commercial/Gibraltar Corporation
546 Fifth Avenue
New York, NY 10036
Attention: Alan Lapidus, Vice President
Telecopy Number: (212) 398-6990
With a copy to:
Wolf, Block, Schorr and Solis-Cohen LLP
350 Sentry Parkway, Bldg. 640
P. O. Box 3038
Blue Bell, PA 19422-0757
Attention: Richard M. Zucker, Esquire
Telecopy Number: (610) 238-0305 or 0374
15. WAIVERS.
15.1. Waivers. In connection with any proceedings under the Loan Documents,
including without limitation any action by Lender in replevin, foreclosure or
other court process or in connection with any other action related to the Loan
Documents or the transactions contemplated hereunder, Borrower and Guarantors
waive:
(a) all procedural errors, defects and imperfections in such
proceedings;
(b) all benefits under any present or future laws exempting any
property, real or personal, or any part of any proceeds thereof from
attachment, levy or sale under execution, or providing for any stay of
execution to be issued on any judgment recovered under any of the Loan
Documents or in any replevin or foreclosure proceeding, or otherwise
providing for any valuation, appraisal or exemption;
(c) presentment for payment, demand, notice of demand, notice of
non-payment, protest and notice of protest of any of the Loan Documents,
including the Note;
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(d) any requirement for bonds, security or sureties required by
statute, court rule or otherwise; and
(e) any demand for possession of Collateral prior to commencement of
any suit.
15.2. Forbearance. Lender may release, compromise, forbear with respect to,
waive, suspend, extend or renew any of the terms of the Loan Documents, without
notice to Borrower or Guarantors.
15.3. Limitation on Liability. Borrower and Guarantors shall be responsible
for and Lender is hereby released from any claim or liability in connection
with:
(a) Safekeeping any Collateral;
(b) Any loss or damage to any Collateral;
(c) Any diminution in value of the Collateral; or
(d) Any act or default of another Person.
Lender shall only be liable for any act or omission on its part
constituting wilful misconduct. In the event that Lender breaches its required
standard of conduct, Borrower and Guarantors agree that their liability shall be
only for direct damages suffered and shall not extend to consequential or
incidental damages. In the event Borrower or any Guarantor brings suit against
Lender in connection with the transactions contemplated hereunder and Lender is
found not to be liable, Borrower and Guarantors will indemnify and hold Lender
harmless from all costs and expenses, including attorney's fees, incurred by
Lender in connection with such suit. This Agreement is not intended to obligate
Lender to take any action with respect to the Collateral or to incur expenses or
perform any obligation or duty of Borrower.
16. SUBMISSION TO JURISDICTION.
16.1. Submission to Jurisdiction. Borrower and Guarantors hereby consent to
the exclusive jurisdiction of any state or federal court located within the
State of New York, and irrevocably agree that, subject to the Lender's election,
all actions or proceedings relating to the Loan Documents or the transactions
contemplated hereunder shall be litigated in such courts, and Borrower and
Guarantors waive any objection which they may have based on lack of personal
jurisdiction, improper venue or forum non conveniens to the conduct of any
proceeding in any such court and waive personal service of any and all process
upon them, and consent that all such service of process be made by mail or
messenger directed to them at the address set forth in Section 14.1. Nothing
contained in this Section 16.1 shall affect the right of Lender to serve legal
process in any other manner permitted by law or affect the right of Lender to
bring any action or proceeding against Borrower or Guarantors or their property
in the courts of any other jurisdiction.
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17. MISCELLANEOUS.
17.1. Brokers. The transaction contemplated hereunder was brought about and
entered into by Lender and Borrower and Guarantors acting as principal and
without any brokers, agents or finders being the effective procuring cause
hereof. Borrower and Guarantors represent to Lender that Borrower and Guarantors
have not committed Lender to the payment of any brokerage fee or commission in
connection with this transaction. If any such claim is made against Lender by
any broker, finder or agent or any other Person, Borrower and Guarantors agree
to indemnify, defend and hold Lender harmless against any such claim, at
Borrower's and Guarantors' own cost and expense, including Lender's attorneys'
fees. Borrower and Guarantors further agree that until any such claim or demand
is adjudicated in Lender's favor, the amount claimed and/or demanded shall be
deemed part of the Lender Indebtedness secured by the Collateral.
17.2. Use of Lender's Name. Borrower and Guarantors shall not use Lender's
name or the name of any of Lender's Affiliates in connection with any of its
business or activities except as may otherwise be required by the rules and
regulations of the Securities and Exchange Commission or any like regulatory
body and except as may be required in its dealings with any governmental agency.
17.3. No Joint Venture. Nothing contained herein is intended to permit or
authorize Borrower or Guarantors to make any contract on behalf of Lender, nor
shall this Agreement be construed as creating a partnership, joint venture or
making Lender an investor in Borrower.
17.4. Survival. All covenants, agreements, representations and warranties
made by Borrower and Guarantors in the Loan Documents or made by or on their
behalf in connection with the transactions contemplated here shall be true at
all times this Agreement is in effect and shall survive the execution and
delivery of the Loan Documents, any investigation at any time made by Lender or
on its behalf and the making by Lender of the loans or advances to Borrower. All
statements contained in any certificate, statement or other document delivered
by or on behalf of Borrower or Guarantors pursuant hereto or in connection with
the transactions contemplated hereunder shall be deemed representations and
warranties by Borrower and Guarantors.
17.5. No Assignment by Borrower. Borrower may not assign any of its rights
hereunder without the prior written consent of Lender, and Lender shall not be
required to lend hereunder except to Borrower as it presently exists.
17.6. Assignment or Sale by Lender. Lender may sell, assign or participate
all or a portion of its interest in the Loan Documents and in connection
therewith may make available to any prospective purchaser, assignee or
participant any information relative to Borrower and Guarantors in its
possession.
17.7. Binding Effect. This Agreement and all rights and powers granted
hereby will bind and inure to the benefit of the parties hereto and their
respective permitted successors and assigns.
17.8. Severability . The provisions of this Agreement and all other Loan
Documents are deemed to be severable, and the invalidity or unenforceability of
any provision shall not affect or impair the remaining provisions which shall
continue in full force and effect.
17.9. No Third Party Beneficiaries. The rights and benefits of this
Agreement and the Loan Documents shall not inure to the benefit of any third
party.
17.10. Modifications. No modification of this Agreement or any of the Loan
Documents shall be binding or enforceable unless in writing and signed by or on
behalf of the party against whom enforcement is sought.
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17.11. Holidays. If the day provided herein for the payment of any amount
or the taking of any action falls on a Saturday, Sunday or public holiday at the
place for payment or action, then the due date for such payment or action will
be the next succeeding Business Day.
17.12. Law Governing. This Agreement has been made, executed and delivered
in the State of New York and will be construed in accordance with and governed
by the laws of such State.
17.13. Integration. The Loan Documents shall be construed as integrated and
complementary of each other, and as augmenting and not restricting Lender's
rights, powers, remedies and security. The Loan Documents contain the entire
understanding of the parties thereto with respect to the matters contained
therein and supersede all prior agreements and understandings between the
parties with respect to the subject matter thereof and do not require parol or
extrinsic evidence in order to reflect the intent of the parties. In the event
of any inconsistency between the terms of this Agreement and the terms of the
other Loan Documents, the terms of this Agreement shall prevail.
17.14. Exhibits and Schedules. All exhibits and schedules attached hereto
are hereby made a part of this Agreement.
17.15. Headings. The headings of the Articles, Sections, paragraphs and
clauses of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part of this Agreement.
17.16. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
17.17. Joint and Several Liability. Except as expressly set forth in this
Agreement, all agreements, covenants, conditions, representations, warranties
and provisions of this Agreement shall apply jointly and severally to each
Borrower.
17.18. Waiver of Right to Trial by Jury. BORROWER, EACH GUARANTOR AND
LENDER WAIVE ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION (a) ARISING UNDER ANY OF THE LOAN DOCUMENTS OR (b) IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF BORROWER, GUARANTORS OR LENDER
WITH RESPECT TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR
THERETO, IN EACH CASE WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWER, GUARANTORS AND LENDER AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND
THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF
THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF BORROWER,
GUARANTORS AND LENDER TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. BORROWER
AND GUARANTORS ACKNOWLEDGE THAT THEY HAVE HAD THE OPPORTUNITY TO CONSULT WITH
COUNSEL REGARDING THIS SECTION, THAT THEY FULLY UNDERSTAND ITS TERMS, CONTENT
AND EFFECT, AND THAT THEY VOLUNTARILY AND KNOWINGLY AGREE TO THE TERMS OF THIS
SECTION.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
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RELM COMMUNICATIONS, INC.
By: _________________________________________
William P. Kelly, Vice President/CFO
(CORPORATE SEAL)
RELM WIRELESS CORPORATION
By: _________________________________________
William P. Kelly, Vice President/CFO
(CORPORATE SEAL)
RXD, INC.
By: _________________________________________
William P. Kelly, Vice President/CFO
(CORPORATE SEAL)
(SIGNATURES CONTINUED ON FOLLOWING PAGE)
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(SIGNATURES CONTINUED FROM PREVIOUS PAGE)
SUMMIT COMMERCIAL/GIBRALTAR CORP.
By: _________________________________________
Name/Title: _________________________________
The undersigned, intending to be legally bound, hereby joins in the
representations and warranties and consents to and agrees to be bound by the
terms, conditions and covenants applicable to the undersigned as set forth in
the foregoing Loan and Security Agreement, including without limitations the
waivers set forth in Sections 15.1 and 17.18.
RELM COMMUNICATIONS OF FLORIDA, INC.
By: ___________________________________
William P. Kelly, Vice President/CFO
(CORPORATE SEAL)
REDGO PROPERTIES, INC.
By: ___________________________________
William P. Kelly, Vice President/CFO
(CORPORATE SEAL)
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EXHIBITS
Exhibit "A" - Line Note
Exhibit "B" - Term Note
Exhibit "C" - Form of Accounts Receivable Assignment and Collection
Report
Exhibit "D" - Form of Compliance Certificate
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SCHEDULES
Schedule 5.3 Form of Mortgage and Security Agreement
Schedule 6.1 Jurisdiction of Incorporation
Schedule 6.3 Ownership Interests, Pledges, etc.
Schedule 6.4 Stock owned by Borrower or Guarantors
Schedule 6.7 Pending or Threatened Litigation or Proceedings Against or
Affecting Borrower and Guarantors
Schedule 6.14 Names (including tradenames) and Addresses of Borrower and
Guarantors, identifying chief executive office
Schedule 6.16 Employee Pension Benefit Plan Obligations of Borrower and
Guarantors
Schedule 6.18 Intellectual Property
Schedule 7.3 Permitted Indebtedness for Borrowed Money
Schedule 7.4 Permitted Investments and Loans
Schedule 7.9 Permitted Liens and Security Interests
Schedule 7.19 Permitted Loans to Affiliates, Shareholders, Officers or
Directors
Schedule 9.2 Initial Projections
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EXHIBIT 10 B (2) WORKERS' COMPENSATION CLOSE-OUT AGREEMENT
CLOSE-OUT AGREEMENT
THIS AGREEMENT, made and effective as of December 21, 1998 by and between
The Travelers Indemnity Company of Hartford, Connecticut on behalf of itself and
its property-casualty insurance subsidiaries and affiliates who have issued the
Insurance Policies to which this Agreement applies (hereinafter referred to as
"Travelers"), and Relm Wireless Corporation (formally known as Adage, Inc.) and
its subsidiaries and affiliates (hereinafter referred to as "Insured")
(hereinafter Travelers and Insured may individually be referred to as a "party"
and collectively be referred to as "the parties").
WHEREAS, Travelers has issued or allegedley issued to Insured certain
Insurance Policies per Exhibit 1, which Exhibit is attached hereto and
incorporated by reference (the "Insurance Policies") as well as other insurance
policies which are not the subject of this Agreement; and
WHEREAS, Insured's duty to pay Obligations related to the Insurance
Policies is set forth in certain Agreement Letters, Premium Payment Agreements
and/or certain premium computation endorsements contained in certain of those
Insurance Policies ("the Insurance Agreements") listed in Exhibit 1 hereto; and
<PAGE>
WHEREAS, the parties wish to finally determine and settle certain of
Insured's Obligations and Travelers duties related to Insured's Obligations
under the Insurance Agreements and the Insurance Policies.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, and the payments to be made hereunder, the parties hereto
intending to be legally bound, hereby agree as follows:
I. Time and Place of Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place on 12/21/98 (the "Closing
Date"). The "Closing" will be conduct via wire transfer.
II. Close-Out Payment. At the Closing, Insured shall pay to Travelers the sum
of $1,879,801 (U.S.) (the "Close-Out Payment") by certified check or wire
transfer payable to The Travelers Indemnity Company. The Close-Out Payment
includes Travelers estimate of all future Obligations under the Insurance
Policies and Insurance Agreements, and all Obligations which are due and
owing on or prior to the effective date of this Agreement. For purposes of
this Agreement, "Obligations" is defined herein the same way as in the
Insurance Agreements. As a result of, and substantially contemporaneous
with, the aforementioned payment and the execution of this Agreement, the
parties agree that Insured has received new value, including but not
limited to, the following:
(a) The Obligations of Insured under the Insurance Agreements (except
those described herein) have been discharged. Travelers has agreed to
accept the Close-Out Payment from Insured.
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(b) For those completed Obligations only, no other premium adjustments
will be performed by Travelers and no other premium will be due from
Insured.
III. Mutual Release.
(a) Subject to the provisions of Section VI herein, at the Closing, upon
execution of this Agreement by both parties and receipt of the
Close-Out Payment by Travelers from Insured. Travelers and Insured
shall each hereby release and forever discharge the other, including,
but limited to, their respective predecessors, successors and assigns,
and their respective parents, shareholders, affiliates, subsidiaries,
officers, directors, and employees from any and all Obligations
arising under the Insurance Policies and the Insurance Agreements,
whether known or unknown, reported or unreported, and whether
currently existing or arising in the future, including, but not
limited to, all claims, debts, demands, causes of action, covenants,
contracts, provisions, controversies, agreements, damages, judgments,
losses, premiums, awards, proceedings, costs, fees, taxes and expenses
or other charges whatsoever associated with the aforementioned
Obligations of Insured, except for certain Obligations of Insured set
forth herein. Travelers and Insured further acknowledge that the
performance of the other hereunder is in complete accord, satisfaction
and settlement of Insured's Obligations and Travelers duties under the
Insurance Policies and the Insurance Agreements referenced above,
except for certain Obligations of Insured set forth herein, provided
that, except as specifically set forth in this Agreement, the
Insurance Policies remain in effect without modification. Travelers
continues to have a duty to defend and pay on behalf of Insured up to
the applicable limit of liability under the Insurance Policies, and
Insured continues to have a duty to cooperate with Travelers in the
exercise of Travelers aforementioned duty to defend and to pay on
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behalf of Insured. Nothing contained herein shall be construed to
relieve Travelers of its duty to defend and pay on behalf of Insured
under any other insurance policies issued by Travelers to Insured
which policies are not the subject of this Agreement and which are not
listed in Exhibit I attached to this Agreement.
(b) All premiums, premium taxes, assigned risk overburden charges,
assessments, surcharges and miscellaneous charges of whatever nature
or kind, (whether actual or estimated) previously paid by or on behalf
of the Insured and any affiliated entities in respect to the Insurance
Policies and Insurance Agreements, shall be deemed to be, and the
Insured hereby agrees that such amounts are fully earned and Travelers
shall have no further duty to Insured to account for or return such
premiums and other payments, and all provisions in the Insurance
Policies and Insurance Agreements providing for the return of unearned
premiums or other payments are hereby terminated and are of no further
force or effect.
IV. Voidability of Mutual Release. In the event that a court of the United
States or any state does not enforce the valid mutual releases given by
the parties herein, then this Agreement and the mutual releases herein by
the parties shall be null and void. In the event the mutual releases by
the parties herein are voided by such a court of competent jurisdiction,
the rights, duties and obligations of the parties shall be determined by
such a court in the absence of the mutual releases.
V. Representations and Warranties of Insured. Insured represents and warrants
as follows:
(a) Insured is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation.
4
<PAGE>
(b) The execution and delivery of this Agreement, and every instrument and
document contemplated thereby, is within the corporate powers of
Insured, has been duly authorized, and is legal, valid and binding,
and does not conflict with, result in any breach in any of the
provisions of, constitute a default under, or result in the creation
of any lien upon any property of Insured under the provisions of, any
agreement, charter instrument, by-law or other instrument to which
Insured is a party or by which Insured or any of its property, may be
bound.
(c) (i) All information supplied to Travelers by Insured and/or its
representatives relating to Insured and/or its assets and affairs
(including, but not limited to, representations made by Insured or
its representatives, as of the closing date of this agreement,
regarding the continuing solvency of Insured after the completion
of this transaction), is true and accurate in all material
respects; and
(d) (i) Insured is not aware, as of the closing date of this Agreement, of
any Environmental Claim against the Insured that impacts or may
impact Workers' Compensation Insurance Policies. For the purposes
of this paragraph "Insured" means the Board of Directors and the
Chief Financial Officer. For purposes of this Agreement
"Environmental Claim" means any claim, demand, request, inquiry,
order, suit or cause of action, administrative, judicial or
otherwise, arising from any past or present, actual, threatened,
potential or alleged contamination of air, environment, soil,
sediments, tangible property, premises, persons, natural
resources, water (including without limitation groundwater,
surface water, or any other form or body of
5
<PAGE>
water) or the atmosphere by or arising from the presence,
movement, emission, discharge, seepage, release, disposal,
storage, dumping, landfilling or escape of irritants,
contaminants, pollutants, vapors, soot, smoke, fumes, acids,
alkalis, chemicals, oil, polychlorinated biphenyls, petroleum,
petroleum products or derivatives, asbestos, contaminating liquids
or gases, waste materials of any type or any other substance
alleged by any person or entity to be (before or after their
presence, movement, emission, discharge, seepage, release,
disposal, storage, dumping, landfilling or escape) harmful,
injurious, hazardous, noxious, nuisance-causing or toxic;
"Environmental Claim" also means any claim, demand, request,
inquiry, order, suit or cause of action, administrative, judicial
or otherwise, for any loss, cost, expense or damage arising out of
any claim, demand, request, inquiry, order, suit or cause of
action that Insured or others test for, monitor, clean up, remove,
contain, treat, detoxify or neutralize, or in any way respond to,
or assess the effects of any past or present, actual, threatened,
potential or alleged contamination of air, environment, soil,
sediments, tangible property, premises, persons, natural
resources, water (including without limitation groundwater,
surface water, or any other form or body of water) or the
atmosphere by or arising from the presence, movement, emission,
discharge, seepage, release, disposal, storage, dumping,
landfilling or escape of irritants, contaminants, pollutants,
vapors, soot, smoke, fumes, acids, alkalis, chemicals, oil,
polychlorinated biphenyls, petroleum, petroleum products or
derivatives, asbestos, contaminating liquids or gases, waste
materials of any type or any other substance alleged by any person
or entity to be (before or after their presence, movement,
emission, discharge, seepage, release, disposal, storage, dumping,
6
<PAGE>
landfilling or escape) harmful, injurious, hazardous, noxious,
nuisance-causing or toxic; and
(ii) All provisions of any Consent Decree(s)/Order(s) pertaining to
"Environmental Claim" as defined above, including, without
limitation payment of any sums due, have been complied with and
will be complied with in the future as required, pursuant to
their terms; and
(iii) No criminal liability in connection with the violation of any
environmental code(s), statute(s), regulation(s) or law(s) has
been or is now being asserted against Insured.
VI. Reopener.
(a) In the event that either party is made aware of any breach of Section
V.(d)(i)-(iii) representations and warranties, and the Insured submits
any Environmental Claim as described in Section V.(d)(i) herein for
coverage is alleged under the Insurance Policies, the Insured consents
to a reopening of the rating plan(s) set forth in the Insurance
Agreements as respects such Environmental Claim(s) for any policy
period(s) which still have amounts to be paid before reaching the
maximum cap as of the date of closure for such Environmental Claims
and to pay to Travelers any Obligations which are or become due and
owing as a result of such reopening. In the event of any breach as
contemplated by this paragraph, Insured agrees to give prompt written
notice of such breach to Travelers.
(b) In the event an Environmental Claim is asserted against the Insured
and the Insured submits such Claim for coverage under the Insurance
Policies, the Insured consents to a reopening of the rating plan(s)
7
<PAGE>
set forth in the Insurance Agreements for any policy period(s) which
still have amounts to be paid before reaching the maximum cap as of
the date of closure for such Claims and to pay to Travelers any
Obligations which are or become due and owing as a result of such
reopening. Insured agrees to give Travelers prompt written notice of
any such Environmental Claim asserted against the Insured.
(c) Notwithstanding the foregoing, nothing in this section is, or is to be
construed as, an admission by Travelers that such Claim(s) are covered
under any of the Insurance Policies or under any other insurance
policy.
VII. Representations and Warranties of Travelers. Travelers represents and
warrants as follows:
(a) Travelers is a corporation(s) duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation; and
(b) The execution and delivery of this Agreement, and every document
and/or instrument contemplated thereby, is within the corporate powers
of Travelers, has been duly authorized and is legal, valid and
binding, and does not conflict with, result in any breach in any of
the provisions of, constitute a default under, or result in the
creation of any lien upon any property of Travelers under the
provisions of any agreement, charter instrument, by-law or other
instrument to which Travelers is a party or by which Travelers or any
of its property, may be bound.
VIII. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Connecticut. The parties
8
<PAGE>
agree to submit to the jurisdiction of the federal or state courts in the
State of Connecticut for purposes of resolving any dispute or claim in
connection with this Agreement or the transactions contemplated hereby.
IX. Modification. This Agreement may not be altered, modified, or amended in
whole or in part, in any way except by an instrument in writing signed by
all parties hereto.
X. Waiver. Other than as provided in Seciton VI, no breach of any condition
of this Agreement by any party hereto may be waived, in any way, except by
a written instrument signed by the parties hereto. Continuing performance
or waiver by any party hereto after breach thereof shall in no way be
construed as a waiver of any subsequent breach, whether or not of a
similar nature. Continuing performance by any party hereto shall not be
regarded as waiving any rights resulting from a breach thereof.
XI. Assignment. This Agreement shall be binding upon and shall inure to the
benefit of any and all successors, assigns, parents, shareholders,
subsidiaries, affiliates, officers, directors, employees, liquidators,
rehabilitators, receivers or trustees of the parties hereto.
XII. Legal Agreement. Nothing contained in this Agreement shall be construed to
require the commission of any act contrary to law, and wherever there is
any conflict between any provision(s) of this Agreement and any statute,
law, ordinance, or regulation, the latter shall prevail: provided,
however, that in such event the provision(s) of this Agreement so affected
shall be curtailed and limited only to the extent necessary to permit
compliance with the minimum legal requirement, and no other provisions of
this Agreement shall be affected thereby, and all such other provisions of
this Agreement shall continue in full force and effect.
9
<PAGE>
XIII. Third Parties. This Agreement shall not be deemed to give any right or
remedy to any third party whatsoever unless said right or remedy is
specifically and explicitly granted to such third party by the terms
hereof.
XIV. Notices. All notices which are contemplated by this Agreement shall be in
writing. Delivery of such notices, and of instruments, certifications,
documents and/or other deliveries (other than the Close-Out Payment)
(collectively "Notices") contemplated by this Agreement shall become
effective, and/or delivery of the same shall be deemed complete, upon
receipt by the intended recipient thereof. All Notices shall be sent by
first class United States mail postage prepaid or delivered by overnight
courier
10
<PAGE>
to Travelers, addressed as follows:
------------------------
The Travelers Indemnity Company
One Tower Square
Hartford, Connecticut 06183
if to Insured, addressed as follows:
------------------------
------------------------
------------------------
------------------------
XV. No Admission. The parties agree that this Agreement does not constitute
and shall not be construed to reflect the adoption of any coverage
position by Travelers or the adoption by Travelers of any position as to
any other issues in dispute between the parties.
XVI. Entire Agreement. This Agreement contains the full and complete
understanding and agreement between the parties hereto with respect to the
subject matter hereof and this Agreement replaces any and all prior
agreements and offers to enter into agreements, whether oral or written,
pertaining to the subject matter hereof.
XVII. Duplicate Originals, Execution in Counterpart. Two or more duplicate
originals hereof may be signed by the parties, each of which shall be an
original but all of which together shall constitute one and the same
instrument. This Agreement may be executed in one or more counterparts and
shall be effective when at least one counterpart shall have been executed
by each party hereto, and each set of counterparts which, collectively,
show execution by each party hereto shall constitute one duplicate
original.
11
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized officers this 21st day of December, 1998.
Relm Wireless Corporation The Travelers Indemnity Company
(formally known as Adage, Inc.)
By:____________________________ By:____________________________________
Name:__________________________ Name: Lawrence Welch
Title:____________________________ Title: Chief Operations Officer
Attest:___________________________ Attest:___________________________________
12
<PAGE>
EXHIBIT 1
List of Insurance Policies and Insurance Agreements to which this Agreement
applies, including, but not limited to the following.*
(by policy number and policy year, and by date of Agreement, as applicable)
<TABLE>
<CAPTION>
Type of Coverage: Policy Number Policy Period
- ----------------- ------------- -------------
<S> <C> <C>
Workers' Compensation UDRJ-UB-651G395-8-90 6/1/90 to 6/1/91
WC UDSJ-UB-651G394-6-90 6/1/90 to 6/1/91
WC 651G396-A-90 6/1/90 to 6/1/91
WC UDRJ-UB-651G395-9-91 6/1/91 to 6/1/92
WC UDSJ-UB-651G394-6-91 6/1/91 to 6/1/92
WC URLJ-UB-651G396-A-91 6/1/91 to 6/1/92
WC 651G395-8-91 6/1/91 to 6/1/92
WC UDSJ-UB-651G394-6-92 6/1/92 to 6/1/93
WC UDRJ-UB-651G466-6-92 6/1/92 to 6/1/93
WC URLJ-UB-651G396-A-92 6/1/92 to 6/1/93
WC UC2J-UB-651G395-8-92 6/1/92 to 6/1/93
WC UDSJ-UB-651G394-6-93 6/1/93 to 6/1/94
WC URLJ-UB-651G396-A-93 6/1/93 to 6/1/94
WC UC2J-UB-651G395-8-93 6/1/93 to 6/1/94
WC UDSJ-UB-651G394-6-94 6/1/94 to 6/1/95
WC URLJ-UB-651G396-A-94 6/1/94 to 6/1/95
WC UC2J-UB-651G395-8-94 6/1/94 to 6/1/95
WC URLJ-UB-651G396-A-95 6/1/95 to 7/1/96
WC UC2J-UB-651G395-8-95 6/1/95 to 7/1/96
WC 651G394-6-95 6/1/95 to 7/1/96
WC URLJ-UB-651G396-A-96 7/1/96 to 7/1/97
WC UC2J-UB-822K802-8-96 7/1/96 to 7/1/97
WC 822K803-A-96 7/1/96 to 7/1/97
</TABLE>
* The Close-Out Agreement pertains to all Workers' Compensation Retrospective
Rated and Deductible policies for the policy period 6/1/90 to 7/1/97.
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1999
<PERIOD-END> APR-2-1999
<CASH> 29
<SECURITIES> 1
<RECEIVABLES> 5,481
<ALLOWANCES> (1,561)
<INVENTORY> 11,616
<CURRENT-ASSETS> 16,261
<PP&E> 14,481
<DEPRECIATION> (5,747)
<TOTAL-ASSETS> 26,889
<CURRENT-LIABILITIES> 7,976
<BONDS> 0
0
0
<COMMON> 3,027
<OTHER-SE> 5,699
<TOTAL-LIABILITY-AND-EQUITY> 26,889
<SALES> 6,465
<TOTAL-REVENUES> 6,593
<CGS> 4,518
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,771
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 249
<INCOME-PRETAX> 55
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
