SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 27, 1998
Commission file number 1-8048
TII INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
State of incorporation: DELAWARE IRS Employer Identification No: 66-0328885
1385 AKRON STREET, COPIAGUE, NEW YORK 11726
(Address and zip code of principal executive office)
(516) 789-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such 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 [_]
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of May 1, 1998 was 7,613,864.
<PAGE>
PART I. FINANCIAL INFORMATION
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
March 27,
1998 June 27, 1997
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,847 $ 247
Marketable securities available for sale -- 3,552
Receivables 7,707 7,388
Inventories 18,137 15,574
Prepaid expenses 844 402
------------ ------------
Total current assets 28,535 27,163
------------ ------------
Fixed Assets
Property, plant and equipment 41,816 37,812
Less: Accumulated depreciation and amortization (25,010) (23,768)
------------ ------------
Net fixed assets 16,806 14,044
------------ ------------
Other Assets 1,761 1,616
------------ ------------
TOTAL ASSETS $ 47,102 $ 42,823
============ ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities
Current portion of long-term debt and obligation under capital leases $ 1,888 $ 537
Accounts payable 5,758 5,833
Accrued liabilities 2,097 1,138
------------ ------------
Total current liabilities 9,743 7,508
------------ ------------
Long-term Debt 828 839
Long-term Obligations Under Capital Leases 1,826 1,465
------------ ------------
2,654 2,304
------------ ------------
Series C Convertible Redeemable Preferred Stock, 5,000 and 0 shares issued at
March 27, 1998 and June 27, 1997, respectively; liquidation preference of
$1,150 per share 4,475 --
------------ ------------
Stockholders' Investment
Preferred Stock, par value $1.00 per share; 1,000,000 authorized; issued
5,000 shares of Series C Convertible Redeemable Preferred Stock -- --
Common Stock, par value $.01 per share; 30,000,000 shares authorized;
7,625,051 and 7,448,473 shares issued at March 27, 1998 and June 27,
1997, respectively 76 75
Warrants outstanding 159 159
Capital in excess of par value 30,117 29,052
Retained earnings 159 3,999
Valuation adjustment to record marketable securities available for sale at
fair value -- 7
------------ ------------
30,511 33,292
Less - Treasury stock, at cost; 17,637 common shares (281) (281)
------------ ------------
Total stockholders' investment 30,230 33,011
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' $ 47,102 $ 42,823
INVESTMENT ============ ============
</TABLE>
See notes to consolidated financial statements
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<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March March
27, 1998 28, 1997 27, 1998 28, 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 12,332 $ 12,535 $ 35,938 $ 37,532
Cost of sales 10,571 12,178 31,234 30,638
-------- -------- -------- --------
Gross profit 1,761 357 4,704 6,894
-------- -------- -------- --------
Operating expenses
Selling, general and
administrative 2,005 1,906 5,974 5,261
Research and development 826 842 2,394 2,362
-------- -------- -------- --------
Total operating expenses 2,831 2,748 8,368 7,623
-------- -------- -------- --------
Operating loss (1,070) (2,391) (3,664) (729)
Interest expense (50) (60) (157) (229)
Interest income 28 54 117 324
Other income 79 41 39 41
-------- -------- -------- --------
Loss before provision for
income taxes (1,013) (2,356) (3,665) (593)
Provision for income taxes -- (31) -- 75
-------- -------- -------- --------
Net loss (1,013) (2,325) (3,665) (668)
Preferred stock embedded dividend (175) -- (175) --
-------- -------- -------- --------
Net loss applicable to
common shareholders $ (1,188) $ (2,325) $ (3,840) $ (668)
======== ======== ======== ========
Net loss per share:
Basic ($ 0.16) ($ 0.31) ($ 0.51) ($ 0.09)
======== ======== ======== ========
Diluted ($ 0.16) ($ 0.31) ($ 0.51) ($ 0.09)
======== ======== ======== ========
Weighted average shares
outstanding:
Basic 7,604 7,431 7,558 7,430
======== ======== ======== ========
Diluted 7,604 7,431 7,558 7,430
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements
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<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT
FOR THE NINE MONTHS ENDED MARCH 27, 1998 (unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Valuation
Adjustment
to record
Marketable
securities
Capital in available for
Common Warrants excess of Retained sale at Treasury
Stock Outstanding par value Earnings fair value Stock
------- ------------ ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, June 27, 1997 $ 75 $ 159 $29,052 $ 3,999 $ 7 $ (281)
Exercise of stock options 1 -- 815 -- -- --
Unrealized loss on marketable
securities available for sale -- -- -- -- (7) --
Issuance of Series C Preferred
Stock (Note 5) -- -- 250 -- -- --
Imbedded dividend on Series
C Preferred Stock -- -- -- (175) -- --
Net loss for the nine months
ended March 27, 1998 -- -- -- (3,665) -- --
------- ------- ------- ------- --- -------
BALANCE, March 27, 1998 $ 76 $ 159 $30,117 $ 159 $ -- $ (281)
======= ======= ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements
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<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 27, 1998
AND MARCH 28, 1997 (unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,665) $ (668)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,242 1,292
Provisions for inventory allowance, net 297 2,798
Amortization for other assets, net 177 45
Changes in assets and liabilities:
(Increase) decrease in receivables (319) 40
Increase in inventories (2,860) (4,774)
Increase in prepaid expenses and other assets (771) (399)
Increase in accounts payable and accrued liabilities 884 885
-------- --------
Net cash used in operating activities (5,015) (781)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,275) (2,827)
Purchases of marketable securities available for sale (3,276) (8,552)
Sales and maturities of marketable securities available for sale 6,828 10,759
-------- --------
Net cash provided by (used in) investing activities 277 (620)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options and warrants 816 6
Net proceeds from short-term borrowings 1,500 --
Net proceeds from issuance of preferred stock 4,550 --
Payment of long-term debt and obligation under capital
leases (528) (282)
-------- --------
Net cash provided by (used in) financing activities 6,338 (276)
-------- --------
Net increase (decrease) in cash and cash
equivalents 1,600 (1,677)
Cash and Cash Equivalents, at beginning of period 247 2,883
-------- --------
Cash and Cash Equivalents, at end of period $ 1,847 $ 1,206
======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Capital leases entered into $ 729 $ 533
======== ========
Embedded dividend on Series C Preferred Stock $ 175 $ --
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 112 $ 42
======== ========
Cash paid for interest $ 177 $ 181
======== ========
</TABLE>
See notes to consolidated financial statements
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<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The unaudited interim financial statements presented herein have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Regulation S-X
pertaining to interim financial statements. Accordingly, they do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements. The financial statements reflect all
adjustments, consisting of normal recurring adjustments and accruals which, in
the opinion of management, are considered necessary for a fair presentation of
the Company's consolidated financial position at March 27, 1998 and results of
operations and cash flows for the nine months ended March 27, 1998 and March 28,
1997. The financial statements should be read in conjunction with the summary of
significant accounting policies and notes to consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended June 27,
1997. The results of operations for the nine months ended March 27, 1998 are not
necessarily indicative of the results that may be expected for the full year
ending June 26, 1998.
NOTE 2 - EARNINGS PER COMMON SHARE
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128") requires the replacement of previously reported primary and fully diluted
earnings per share required by Accounting Principal Board Opinion No. 15 with
basic earnings per share and diluted earnings per share commencing with periods
ending after December 15, 1997. Per share amounts for the quarter and nine
months ended March 28, 1997 have been restated to conform to the requirements of
SFAS 128. Because the Company experienced a loss in all reported periods, shares
issuable upon the exercise of stock options and warrants and upon conversion of
the Company's Series C Preferred Stock were not included in the calculation of
diluted earnings per share as their effect would have been anti-dilutive.
However, the embedded dividend related to such Preferred Shares increased the
net loss applicable to common shareholders.
NOTE 3 - INVENTORIES
Inventories, net of allowances, consisted of the following components:
March 27, June 27,
1998 1997
----------- -----------
Raw material $ 8,328,000 $ 4,996,000
Work in process 5,315,000 4,584,000
Finished goods 4,494,000 5,994,000
----------- -----------
$18,137,000 $15,574,000
=========== ===========
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<PAGE>
NOTE 4 - NON-RECURRING CHARGE IN THIRD QUARTER OF FISCAL 1997
During the third quarter of fiscal 1997, Access Network Technologies ("ANT"), a
joint venture between Lucent Technologies, Inc. ("Lucent") and Raychem
Corporation ("Raychem"), was dissolved. The Company had entered into a strategic
agreement with ANT in 1995 to develop and manufacture advanced overvoltage surge
protectors. The first products introduced by the joint venture combined TII
overvoltage surge protectors with a proprietary gel sealing technology from
Raychem that makes these products virtually impenetrable by weather. Following
such dissolution, the Company increased its allowance for the inventory which
was produced for ANT. The Company and Raychem have agreed to continue to
manufacture and market the products without the participation of Lucent. In
addition, during the third quarter of fiscal 1997, the Company put into effect
certain measures to reduce costs and enhance profitability. These measures
included a reduction of personnel, the movement of certain production processes
to the Company's lower cost facility in the Dominican Republic, the outsourcing
of certain manufacturing steps, the realignment of the Company's sales and
marketing force and the discontinuance of certain lower margin products. These
actions resulted in non-recurring charges of $3.0 million ($2.9 million of which
was charged to cost of sales and $50,000 was charged to each of selling, general
and administrative expense and research and development expense) in the third
quarter of fiscal 1997, consisting of an increase to the allowance for inventory
primarily related to the ANT joint venture product line (approximately $2.7
million), as well as severance related costs (approximately $250,000) and costs
to close or move certain production processes (approximately $50,000).
NOTE 5 - SERIES C CONVERTIBLE PREFERRED STOCK
On January 26, 1998, the Company completed a private placement of 5,000 shares
of its newly created Series C Convertible Preferred Stock ("Preferred Shares")
and Warrants to purchase an aggregate of 200,000 shares of the Company's Common
Stock ("Warrants") for an aggregate purchase price of $5,000,000. The Company
incurred a commission and other issuance costs of $450,000 for net proceeds of
$4,550,000. The Preferred Shares were issued along with a beneficial conversion
feature approximating $250,000 which has been measured and recognized as
additional paid in capital. The amortization of both the issuance costs of
$450,000 and the beneficial conversion feature of $250,000 over the period to
earliest conversion (eight months) has been recognized as a non-cash preferred
stock imbedded dividend and has increased the net loss applicable to common
shareholders and has been applied to the preferred share balance. The Preferred
Shares bear no dividends, are convertible into shares of the Company's Common
Stock commencing on May 27, 1998, and are convertible at a conversion price
equal to approximately $7.08 per share until July 25, 1998 and thereafter at a
conversion price equal to the lower of $7.08 or 95% of the average of the
closing bid prices of the Company's Common Stock during the ten consecutive
trading days immediately preceding the conversion date of the Preferred Shares.
The Preferred Shares are redeemable at the option of the holders at a price
equal to $1,150 per share in the event of certain business combinations of the
Company, the sale of substantially all of the Company's assets and in certain
other cases, including the failure of the Company to obtain effectiveness of the
registration statement filed for the Common Stock underlying the Preferred
Shares and Warrants, to maintain the effectiveness of such registration
statement, to maintain the listing of the Company's Common Stock on the Nasdaq
National Market or the Company's failure to convert the Preferred Shares.
Additionally, because the Preferred Shares have conditions for redemption that
are not solely within the control of the Company, they have been classified
outside of stockholders investment in the accompanying consolidated balance
sheets.
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<PAGE>
NOTE 6 - SERIES D JUNIOR PARTICIPATING PREFERRED STOCK
On May 7, 1998, the Company adopted a Stockholder Rights Plan providing for the
distribution to the Company's stockholders of one Right (a "Right" and,
collectively with all other Rights to be issued, the "Rights") for each share of
the Company's Common Stock issued and outstanding at the opening of business on
May 21, 1998 (the "Distribution Date") and each subsequent share of Common Stock
issued. Each Right entitles the registered holder of a share of Common Stock to
purchase from the Company 1/1000 of a share of Series D Junior Participating
Preferred Stock, par value $1.00 per share, of the Company (the "Preferred
Stock") at a price of $30 per Right (the "Purchase Price"), subject to
adjustment. The Rights have a term of ten years, have no voting power or rights
to dividends, and are not detachable and not separately transferable from the
Company's Common Stock until they become exercisable. In general, the Rights
become exercisable following an announcement that a person or group of
affiliated or associated persons (an "Acquiring Person"), or the commencement of
a tender offer or exchange offer that would result in a person or group
beneficially owning at least 20% of the Company's outstanding Common Stock. If
any person becomes an Acquiring Person by acquiring beneficial ownership of at
least 20% of the Company's Common Stock, each outstanding Right (other than
those owned by an Acquiring Person) will "flip in" and become a right to buy, at
the Purchase Price, that number of shares of Common Stock of the Company that
will have a market value of two times the Purchase Price. After a person becomes
an Acquiring Person (but before such Acquiring Person owns 50% or more of the
outstanding Common Stock), the Company may permit each Right (other than those
owned by an Acquiring Person) to be exchanged, without payment of the Purchase
Price, for one share of Common Stock. If (i) the Company is acquired in a merger
or other business combination transaction and the Company does not survive or
the Company merges, consolidates or engages in a share exchange with another
person and does survive but all or part of its stock is changed, or (ii) at
least 50% of the Company's assets or earning power is sold or transferred, then
each outstanding Right will "flip over" and become a right to buy, at the
Purchase Price, that number of shares of Common Stock of the acquiring company
that will have a market value of two times the Purchase Price.
The Company may redeem the Rights in whole, but not in part, at a price of $.01
per Right at any time prior to the time a person acquires beneficial ownership
of at least 20% of the Company's Common Stock and, if certain conditions are
met, within ten days following the time a person has acquired 20% or more of the
Common Stock.
NOTE 7 - NEW REVOLVING CREDIT FACILITY
On April 30, 1998, the Company and certain of its subsidiaries entered into
Revolving Credit, Term Loan and Security Agreements with BNY Financial
Corporation, an affiliate of The Bank of New York, which establish three related
credit facilities in an aggregate principal amount of $12.5 million. These
facilities replaced the Company's then existing revolving credit loan facility
and equipment lease facility, in which the Company was not in compliance with
certain financial covenants, which facilities were repaid and terminated.
Certain long-term obligations under capital leases in the accompanying March 27,
1998 balance sheet, under the replaced equipment lease facility, have been
classified as long term, even though the Company was not in compliance with its
terms, as the Company followed the provisions of its new loan facility.
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<PAGE>
The new loan facility enables the Company to have up to $6.0 million of
revolving credit loans outstanding at any one time, limited by a borrowing base
equal to 85% of the eligible accounts receivable and 50% of the eligible
inventory, subject to certain reserves. The new facility also provides for loans
for the purpose of acquiring eligible equipment or financing or refinancing
eligible equipment previously acquired. The aggregate principal amount of all
such loans may not exceed $6.5 million, limited by a borrowing base not
exceeding 75% of the equipment purchase price of new equipment or the orderly
liquidation value of eligible equipment already owned. Any portion of the
aggregate $6.5 million commitment for capital expenditure loans not borrowed by
December 31, 1998 is extinguished. Capital expenditure loans are to be repaid
through March 31, 2003, subject to mandatory prepayments from disposition
proceeds and insurance proceeds in certain circumstances. The final scheduled
maturity date of the revolving credit loans is April 30, 2003. The maturity
dates of capital expenditure borrowings and revolving credit loans may be
extended in certain instances.
Outstanding revolving credit loans bear interest at a rate per annum based on:
(a) a floating rate (in general, equal to the greater of the bank's prime rate
and 0.50% per annum in excess of a specified weighted average of rates on
overnight Federal funds transactions), plus, in either case, 0.25% per annum; to
the extent selected by the Company, a fixed rate based upon the bank's LIBOR
rate for specified loan periods plus 2.50% per annum; and to the extent selected
by the Company, a rate equal to the daily average of a published "one-month"
LIBOR rate plus 2.50% per annum. Outstanding capital expenditure loans bear
interest based at the same rates per annum plus 0.25% per annum. The loan
agreements also require the payment by the Company of specified fees.
The loan agreements require, among other things, that: (a) the Company maintain
a consolidated tangible net worth of at least $30.0 million (with such minimum
amount to be increased each fiscal quarter, commencing June 27, 1998, by an
amount equal to 50% of the Company's consolidated net income for such quarter);
(b) capital expenditures of the Company and its subsidiaries not exceed in the
aggregate $6.0 million (for the fiscal year ending June 1998), $5.0 million (for
the fiscal year ending June 1999), or $5.8 million (for any fiscal year ending
thereafter); and (c) no new operating leases be entered into by the Company or
its subsidiaries if, after giving effect thereto, the aggregate annual rental
payments for all leased property (excluding capital leases) would exceed
$750,000 in any one fiscal year. The loan agreements also impose limitations on,
among other things, dividends on and redemptions (and repurchases) of equity
securities and the incurrence of additional indebtedness.
The Company and each of its subsidiaries has collateralized their respective
obligations by a grant of a lien and security interest against substantially all
of its respective assets and properties, regardless of whether comprising a part
of the borrower's base and pledge of all (or in one case 65%) of each
subsidiaries' capital stock.
NOTE 8 - NEW PUERTO RICO FACILITIES LEASE
In April 1998, the Company entered into a new lease to replace its expired lease
with Puerto Rico Industrial Development Company covering the Company's
manufacturing facilities in Toa Alta, Puerto Rico. The new lease is for a term
expiring April 30, 2006 and provides minimum annual rentals of approximately
$123,000, $133,000, $143,000, $149,000, $168,000 in fiscal 1998, 1999, 2000,
2001 and 2002, respectively, and $673,000 in the aggregate for fiscal 2003
through the end of the lease term. Among other things, the Company is also
responsible for operating expenses, utilities, maintenance, insurance, taxes and
most other costs associated with the property and is to employ at least 100
production workers at the facility.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
foregoing consolidated financial statements and notes thereto.
OVERVIEW
TII designs, manufactures and markets overvoltage surge protectors, network
interface devices ("NIDS"), station electronics and fiber optic products for use
in the communications industry. The Company has been a leading supplier of
overvoltage surge protectors to U.S. telephone operating companies ("telcos")
for over 25 years.
The Company's results of operations were adversely affected by several factors
in the third quarter of fiscal 1997, as well as during the first three quarters
(particularly in the second and, to a lesser degree, the third quarters) of
fiscal 1998.
During the third quarter of fiscal 1997, Access Network Technologies ("ANT"), a
joint venture between Lucent Technologies, Inc. ("Lucent") and Raychem
Corporation ("Raychem"), was dissolved. The Company had entered into a strategic
agreement with ANT in 1995 to develop and manufacture advanced overvoltage surge
protectors. The first products introduced by the joint venture combined TII
overvoltage surge protectors with a proprietary gel sealing technology from
Raychem that makes these products virtually impenetrable by weather. Following
such dissolution, the Company increased its allowance for the inventory which
was produced for ANT. In addition, during the third quarter of fiscal 1997, the
Company put into effect certain measures to reduce costs and enhance
profitability. These measures included a reduction of personnel, the movement of
certain production processes to the Company's lower cost facility in the
Dominican Republic, the outsourcing of certain manufacturing steps, the
realignment of the Company's sales and marketing force and the discontinuance of
certain lower margin products. These actions resulted in non-recurring charges
of $3.0 million ($2.9 million of which was charged to cost of sales and $50,000
was charged to each of selling, general and administrative expense and research
and development expense) in the third quarter of fiscal 1997, consisting of an
increase to the allowance for inventory primarily related to the ANT joint
venture product line (approximately $2.7 million), as well as severance related
costs (approximately $250,000) and costs to close or move certain production
processes (approximately $50,000). The Company and Raychem agreed to continue to
manufacture and market the products without the participation of Lucent. The
Company does not expect to incur any other charges as a result of the effects of
the dissolution of the ANT joint venture.
To meet its customers' needs, the Company has introduced a line of broadband
NIDS with features and functionality that the Company believes were instrumental
in its winning two major contracts in July and September 1997 with a RBOC and an
independent telco, respectively, each of which was a pre-existing unaffiliated
customer. For strategic purposes, the Company accepted orders under one
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<PAGE>
of these contracts which it believed it could fulfill under an aggressive
delivery time schedule that mandated it to seek to accelerate production.
Beginning in the fourth quarter of fiscal 1997 and continuing through the third
quarter of fiscal 1998, the Company incurred additional manufacturing expenses
in gearing up toward the accelerated production of its new broadband NID product
line, compounded, in the second quarter of fiscal 1998, by production
disruptions as the Company sought to meet a customer's requested delivery
schedules. These additional manufacturing costs included the hiring of temporary
personnel during the initial phases of production, the outsourcing of certain
production processes, initial purchases of materials in smaller than usual
quantities for which volume discounts were not available, lower initial
manufacturing yields and additional freight and other expediting costs.
Additionally, results were also adversely affected by continuing expenditures
relating to the Company's movement of certain production processes to the
Company's lower cost facility in the Dominican Republic. The disruptions were
primarily caused by the failure of certain vendors to, in turn, meet the
Company's delivery requirements for required molds and inventory components,
production breakdowns which produced significant delays and yield losses during
the initial production process and delays in completing the training of
permanent employees for both the Company's Puerto Rico and Dominican Republic
facilities, as well as temporary manufacturing employees hired at its Puerto
Rico facilities to meet the accelerated production schedule.
As a result, in the second quarter of fiscal 1998, the Company's net sales
decreased to $10.1 million (compared to $13.0 million in the comparable period
in fiscal 1997), its gross profit margin was $493,000 (compared to $3.4 million
in the second quarter of fiscal 1997) and the Company experienced a net loss of
$2.5 million (compared to a profit of $905,000 in the second quarter of fiscal
1997). While the Company resolved most of the production issues toward the end
of the second quarter, during the third quarter of fiscal 1998 the Company
continued to experience certain yield losses, costs associated with outsourcing
the production of certain injection molded parts and added costs to air freight
products to meet customer delivery requirements.
Therefore, although sales and, with the completion of its relocation program and
the commencement of volume deliveries of its broadband NIDS, gross profit
increased over second quarter levels, the Company's gross profit percentage
remained below levels in effect prior to the third quarter of fiscal 1997. While
the Company expects sales and gross profit margins to continue to increase, the
Company does not anticipate that its gross profit margins will return to levels
in effect prior to the third quarter of fiscal 1997 in the foreseeable future.
The Company also expects that, with some modifications, which should result in
some, but minimal disruption, it will be able to gear up effectively for sales
of products in its new broadband NID product line pursuant to the second new
contract, production for which began during the latter part of the third quarter
of fiscal 1998.
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<PAGE>
RESULTS OF OPERATIONS
Net sales for the third quarter of fiscal 1998 were $203,000 or 1.6% lower than
in the third quarter of fiscal 1997, but increased $2.2 million or 22% from the
second quarter of fiscal 1998. The decline from the comparable fiscal 1997 third
quarter was primarily due to a reduction in sales of the Company's overvoltage
surge protectors. Net sales for the nine months ended March 1998 were $1.6
million or 4.3% lower in the nine months ended March 1997 due principally to the
low sales levels in the second quarter of fiscal 1998, which resulted primarily
from the production disruptions due to the Company's product line transition
discussed above in "Overview". Most of the production problems the Company
encountered introducing its new broadband NID product line were resolved during
the beginning of the third quarter of fiscal 1998. The Company expects sales in
the fourth quarter of fiscal 1998 to exceed the sales level in the fourth
quarter of fiscal 1997.
As a result of increased freight costs, increased overtime, the hiring of
additional temporary personnel, outsourcing of certain production functions,
lower initial manufacturing yields, and other expediting costs to meet
customer's desired delivery schedules, gross profit margins in the third quarter
of fiscal 1998 were 14.3% of net sales versus 26.0% of net sales for the third
quarter of fiscal 1997 (before the non-recurring $2.9 million in the third
quarter of fiscal 1997 charged to cost of sales related to the Company's program
to reduce costs and to an inventory charge due to the dissolution of ANT
discussed above in "Overview"). These factors, coupled with accelerated
production startup of the Company's new Broadband NID product line, as well as,
to a lesser extent, moving costs related to relocating production processes from
the Company's Puerto Rico to its lower cost Dominican Republic facility incurred
in the first quarter of fiscal 1998, were the primary factors in the Company's
gross profit margin for the first nine months of fiscal 1998 decreasing to 13.1%
of net sales from 18.4% in the first nine months of fiscal 1997 (exclusive of
the non-recurring charges in the third quarter of fiscal 1997). As noted above,
while the Company expects gross profit margins to continue to increase somewhat,
it does not anticipate gross profit margins to return to levels in effect prior
to the third quarter of fiscal 1997 in the foreseeable future.
Selling, general and administrative expenses for the third quarter of fiscal
1998 increased by $149,000 (8.0%) over the third quarter of fiscal 1997
(exclusive of a non-recurring charge of $50,000 in the third quarter of fiscal
1997 resulting from severance and other one-time charges relating to the
Company's cost reduction program discussed above) due to an increase in
personnel and marketing and promotion costs over the prior fiscal year's third
quarter. Absent the non-recurring charge in the third quarter of fiscal 1997,
selling, general and administrative expenses for the first nine months of fiscal
1998 increased by $763,000 (14.6%) to $5.9 million from $5.2 million for the
comparable period in fiscal 1997. The increase resulted primarily from legal,
accounting and printing and other expenses incurred in connection with a
withdrawn public offering of Common Stock in the second quarter of fiscal 1998
and additional personnel, promotion and other costs associated with the
Company's efforts in obtaining new sales contracts.
Research and development expenses increased by $34,000 or 4.3% in the third
quarter of fiscal 1998 from the third quarter of fiscal 1997 (exclusive of a
non-recurring charge of $50,000 in the third quarter of fiscal 1997 resulting
from severance and other one-time charges relating to the Company's
-12-
<PAGE>
cost reduction program discussed above). Absent the non-recurring charge in the
third quarter of fiscal 1997, research and development expenses in the first
nine months of fiscal 1998 increased by $82,000 or 3.5% in the first nine months
of fiscal 1997 due to higher costs associated with product development for
expansion of the Company's broadband NID product line.
Interest expense for the third quarter of fiscal 1998 decreased by $10,000 or
16.7% over the third quarter of fiscal 1997. Interest expense for the first nine
months of fiscal 1998 was $72,000 lower than in the first nine months of fiscal
1997. Interest expense in fiscal 1997 included amortization of debt origination
costs that ceased during the first quarter of fiscal 1997. Subsequent to the end
of the third quarter of fiscal 1998, the Company replaced its then existing
revolving credit loan facility and equipment lease facility to which the
foregoing interest expense pertained, with new loan facilities which enable the
Company to have up to $6 million of revolving credit loans outstanding at any
one time (limited by certain borrowing bases and lender established reserves)
and, provided made before December 31, 1998, capital expenditure loans of up to
$6.5 million (also limited by a borrowing base). See Note 7 of the Notes to
Consolidated Financial Statements. Interest rates on the new facilities are
comparable to those under the replaced facility.
Interest income for the third quarter and first nine months of fiscal 1998
decreased by $24,000 and by $207,000 from the respective comparable periods in
fiscal 1997 due to a reduced amount of funds available for investment.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and marketable securities decreased to $1.8
million at the end of the third quarter of fiscal 1998 from $3.8 million at the
end of fiscal 1997. Working capital decreased to $18.8 million at the end of the
third quarter of fiscal 1998 from $19.7 million at the end of fiscal 1997.
During the first nine months of fiscal 1998, $5.0 million of cash was used by
operations. The Company's principal use of cash was to fund the Company's net
loss during the period ($2.2 million, net of non-cash depreciation and
amortization expenses of $1.4 million). The Company used $2.9 million to
increase its inventory balances with the purchase of significant amounts of raw
materials to support its new broadband network interface product line launch.
Furthermore, an increase in other assets and prepaid expenses used $771,000 and
an increase in accounts receivable used $319,000. These were offset, in part, by
cash provided by an increase of $884,000 in accounts payable and accrued
liabilities.
During the first nine months of fiscal 1998, cash of $277,000 was provided by
investing activities. Proceeds from sales and maturities of marketable
securities, in excess of amounts reinvested, generated $3.6 million of cash,
while capital expenditures used $3.3 million. During the first nine months of
fiscal 1998, financing activities provided $6.3 million of cash, with the
receipt of net proceeds of $4.6 million from the issuance of Series C
Convertible Preferred Stock and $816,000
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<PAGE>
from the exercise of stock options and warrants being partially offset by the
payment of $528,000 of long-term debt and obligations under capital leases.
See Note 7 of the Notes to Consolidated Financial Statements for information
concerning the Revolving Credit, Term Loan and Securities Agreements entered
into by the Company and certain of its subsidiaries with BNY Financial
Corporation, an affiliate of The Bank of New York, which established three
related credit facilities in an aggregate principal amount of $12.5 million and
replaced the Company's then existing revolving credit loan facility and
equipment lease facility, which were repaid and terminated.
Funds anticipated to be generated from operations, together with available cash
and borrowings available under the Company's and certain of its subsidiaries'
new Revolving Credit, Term Loan and Securities Agreements are considered to be
adequate to finance the Company's operational and capital needs over the
foreseeable future.
YEAR 2000 COMPLIANCE
The Company recently implemented a new enterprise resource planning system,
including new hardware and software, which is capable of processing transactions
in the year 2000 and beyond. Additionally, the Company has updated its EDI
software application and hardware for year 2000 compliance, and has acquired,
and continues to acquire, new personal computers which are also year 2000
compliant. Furthermore, the Company has participated in reviews initiated by its
largest customers and has begun a review of the year 2000 capabilities of its
largest vendors and finance organizations. Several applications have been
identified for upgrade and plans are being prepared now to ensure year 2000
capabilities. The Company believes the costs to be incurred to upgrade the
remaining systems will not exceed $250,000 and will be expensed or capitalized,
as appropriate, under its existing accounting policies. However, there can be no
assurance that this estimate will be achieved and actual results could differ
materially from those planned.
FORWARD LOOKING STATEMENTS
In order to keep the Company's stockholders and investors informed of the
Company's future plans, this Report contains (and, from time to time, other
reports and oral or written statements issued by the Company or on its behalf by
its officers may contain) forward-looking statements concerning, among other
things, the Company's future plans and objectives that are or may be deemed to
be "forward-looking statements." The Company's ability to do this has been
fostered by the Private Securities Litigation Reform Act of 1995 which provides
a "safe harbor" for forward-looking statements to encourage companies to provide
prospective information so long as those statements are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those discussed in the statement. The
Company believes that it is in the best interests of its stockholders to take
advantage of the "safe harbor" provisions of that Act. Such forward-looking
statements are subject to a number of known and unknown risks and uncertainties
that could cause the Company's actual results, performance and achievements to
differ
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<PAGE>
materially from those described or implied in the forward-looking statements.
These include, but are not limited to, general economic and business conditions;
the Company's ability to fulfill its growth strategies; the Company's ability to
market its existing, recently developed and new products; potential changes in
customer spending and purchasing policies and practices; the risks inherent in
new product introductions, such as start-up delays which could result in the
loss of the contracts and uncertainty of customer acceptance of deliveries; the
Company's ability to realize upon its inventories; dependence on third parties
for certain product components and equipment; avoiding the inherent risks of
offshore manufacturing; the regulatory environment applicable to the
telecommunications industry; competition; potential technological changes and
changes in industry standards, including the Company's ability to timely develop
new products and adapt its existing products to technological changes; the
Company's ability to attract and retain technologically qualified personnel and
certain management; the retention of the tax benefits provided by its Puerto
Rico and Dominican Republic operations; the Company's ability to protect its
proprietary rights; and the availability of financing on satisfactory terms to
support the Company's growth.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On April 30, 1998, the Company and certain of its subsidiaries entered into
Revolving Credit, Term Loan and Security Agreements (the "Loan Agreements") with
BNY Financial Corporation ("Lender"), an affiliate of The Bank of New York. The
Loan Agreements establish three related credit facilities in an aggregate
principal amount of $12.5 million. The following is a summary of certain
provisions contained in the Loan Agreements and related guarantees and
collateral agreements, copies of which are filed as exhibits to this Report.
This summary does not purport to be complete and is qualified in its entirety by
reference to such exhibits.
Pursuant to the Loan Agreements, the Company and such subsidiaries may borrow,
repay and reborrow from time to time revolving credit loans up to an aggregate
principal amount outstanding at any one time of $6.0 million. The actual amount
permitted to be borrowed by a particular borrower also is limited by a borrowing
base, which is calculated as an amount equal to 85% of the eligible accounts
receivable (as defined) and 50% of the eligible inventory (as defined) of that
particular borrower (or on a combined basis in the case of the Company and its
wholly-owned subsidiary, TII Corporation). Those percentages may be varied by
the Lender in the exercise of its reasonable discretion. The borrowing base is
subject to certain reserves established by the Lender in accordance with the
Loan Agreements. The Loan Agreements specify the criteria for eligibility of
accounts receivable and inventory and, among other things, exclude inventory
located in the Dominican Republic and all work-in-process (wherever located).
The Loan Agreements also allow for up to an aggregate of $1.0 million in
availability under the revolving credit facility to be used for letters of
credit.
The Loan Agreements also provide for capital expenditure loans ("cap/ex loans")
to be made to the borrowers for the purpose of purchasing or acquiring eligible
equipment or for financing or
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<PAGE>
refinancing eligible equipment previously acquired. The aggregate principal
amount of all such cap/ex loans may not exceed $6.5 million. The actual amount
of cap/ex loans permitted to be borrowed by a particular borrower also is
limited by a borrowing base, which is calculated as an amount not exceeding 75%
of the equipment purchase price (as defined), in the case of eligible equipment
which at the time of acquisition is new equipment, plus an amount not exceeding
75% of the orderly liquidation value (as defined) of eligible equipment already
owned by such borrower. Lender, in its discretion, may determine the increment
to the cap/ex loan borrowing base to be attributed to eligible equipment which,
at the time of acquisition, is used equipment. The borrowing base for cap/ex
loans is calculated on a combined basis in the case of the Company and TII
Corporation. The Loan Agreements specify the criteria for eligibility of
equipment and, among other things, excludes equipment located in the Dominican
Republic.
Revolving credit loans may be borrowed in accordance with the Loan Agreements at
any time prior to April 30, 2003 (subject to extension as described below).
Cap/ex loans may be borrowed in accordance with the Loan Agreements at any time
up to December 31, 1998. Any portion of the aggregate $6.5 million commitment
for cap/ex loans not borrowed by December 31, 1998 is extinguished. The
aggregate principal amount of all cap/ex loans made on or before June 30, 1998
are to be repaid in six consecutive monthly principal installments through
December 31, 1998 (with each such installment to be based on an 84-month
amortization). The principal amount of such pre-June 30th cap/ex loans still
outstanding on December 31, 1998 are to be combined with the aggregate principal
amount then outstanding of all post-June 30th cap/ex loans and would then be
repaid in 51 consecutive monthly installments of principal commencing January
31, 1999 (of which the first 50 installments shall be in equal amounts based
upon an 84-month amortization, and the 51st installment shall be in an amount
equal to the entire principal amount then outstanding). In addition, the Loan
Agreements require additional mandatory prepayments of the cap/ex loans (i) with
respect to proceeds resulting from dispositions of equipment, (ii) out of
insurance proceeds relating to equipment and (iii) in an aggregate amount equal
to 50% of the consolidated positive cash flow (calculated as provided in the
Loan Agreements) of the Company and its subsidiaries for each fiscal year
(commencing with the fiscal year ending June 1999). Mandatory prepayments from
disposition proceeds and insurance proceeds are subject to certain rights, set
forth in the Loan Agreements, in favor of the borrowers to use such proceeds
instead to effect the repair, replacement or restoration of such equipment. All
such mandatory prepayments are to be applied against the unpaid principal of the
cap/ex loan in the inverse order of maturity. The final scheduled maturity date
of the revolving credit loans is April 30, 2003 and of the cap/ex loans is March
31, 2003; however, the Loan Agreements provide for up to two successive renewal
periods of one year each unless the term of the Loan Agreements has been
previously terminated in accordance with the terms thereof or unless the Lender
or any borrower gives the other requisite notice to the contrary prior to any
such renewal. Any such renewal also would extend the period during which
additional revolving credit borrowings would be permitted. The Loan Agreements
require the payment of an early termination fee in connection with any voluntary
termination of the Loan Agreements by the borrowers (unless effected within 15
days prior to or after a scheduled termination date).
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<PAGE>
Outstanding revolving credit loans bear interest at a rate per annum based on:
(a) a floating rate (in general, equal to the greater of (i) The Bank of New
York's prime rate, and (ii) a rate 0.50% per annum in excess of a specified
weighted average of rates on overnight Federal funds transactions), plus, in
either case, 0.25% per annum; (b) to the extent selected by a borrower, a fixed
rate based upon The Bank of New York's LIBOR rate for specified loan periods
plus 2.50% per annum; and (c) to the extent selected by borrower, a rate equal
to the daily average of the "one-month" LIBOR rate as published in The Wall
Street Journal averaged on a monthly basis plus 2.50% per annum. Outstanding
cap/ex loans bear interest based on the same rates per annum, except that in
each case, the applicable margin is 0.25% per annum higher. The Loan Agreements
also permit the Lender, in its discretion, to allow revolving credit loans in an
aggregate principal amount that exceeds the calculated revolving credit
borrowing base; in which event, the specified interest rate margin may increase
by an additional 0.50% per annum. The Loan Agreements also provide for an
additional 2.00% per annum default rate of interest that would accrue during
events of default.
The Loan Agreements also require the payment by the borrowers of specified fees,
including: (a) fees relating to the issuance of letters of credit; (b) a
one-time closing fee of $75,000; (c) $1,500 monthly collateral monitoring fee;
(d) a commitment fee (regarding the revolving credit commitment) equal to 0.125%
of the unused portion of Lender's $6.0 million aggregate revolving credit
commitment; and (e) a commitment fee (regarding the cap/ex line commitment)
equal to 0.125% of the unused portion of the Lender's $6.5 million aggregate
cap/ex loan commitment. The cap/ex line commitment fee ceases to accrue as of
January 1, 1999 (contemporaneously with the termination of the Lender's
commitment to make any new cap/ex loans).
At the Lender's request, the aggregate credit facility has been structured as
three related loan facilities, under three separate but related loan agreements:
(1) one in favor of the Company and TII Corporation (jointly and severally); (2)
one in favor of the Company's 99% owned subsidiary, TII-Ditel, Inc. ("Ditel");
and (3) one in favor of the Company's Puerto Rico wholly-owned subsidiary, Crown
Tool & Die Company, Inc. ("Crown"). The payment of the obligations of the
Company and TII Corporation to the Lender under their loan agreement is jointly
and severally guaranteed by Ditel and each of the Company's other subsidiaries
(other than TII Corporation, which is a principal obligor, and other than
Crown). The payment of the obligations of Ditel to the Lender under Ditel's loan
agreement is jointly and severally guaranteed by the Company and each of its
other subsidiaries (other than Crown). The payment of the obligations of Crown
to the Lender under Crown's loan agreement is jointly and severally guaranteed
by the Company and each of its other subsidiaries. In addition, and consistent
with the requirements necessary to preserve the continued favorable tax
treatment accorded to Crown, certain payment and other obligations under the BNY
Loan Agreements do not apply to Crown.
On April 30, 1998, an aggregate principal amount of $1,652,000 in revolving
credit loans and $1,111,000 in cap/ex loans was borrowed under the Loan
Agreements and was used to (among other things) repay in full all amounts then
outstanding under the Company's then existing revolving credit loan facility and
equipment lease facility. Contemporaneously with such repayments, those
facilities were terminated.
-17-
<PAGE>
The Loan Agreements require, among other things, that: (a) the Company maintain
a consolidated tangible net worth of at least $30.0 million (with such minimum
amount to be increased each fiscal quarter, commencing June 27, 1998, by an
amount equal to 50% of the Company's consolidated net income, if any, for such
quarter); (b) capital expenditures of the Company and its subsidiaries not
exceed in the aggregate $6.0 million (for the fiscal year ending June 1998),
$5.0 million (for the fiscal year ending June 1999), or $5.8 million (for any
fiscal year ending thereafter); and (c) no new operating leases be entered into
by the Company or its subsidiaries if, after giving effect thereto, the
aggregate annual rental payments for all leased property (excluding capital
leases) would exceed $750,000 in any one fiscal year. In addition, the Loan
Agreements and related documentation also impose limitations on, among other
things, (i) mergers, consolidations, acquisitions and dispositions, (ii) liens,
(iii) guarantees, (iv) investments, (v) loans, (vi) dividends on and redemptions
(and repurchases) of equity securities, (vii) indebtedness, (viii) transactions
with affiliates and (ix) the relocation of collateral. In addition, any
purchase, redemption or acquisition by the Company or any of its subsidiaries of
any shares of the Company's Series C Convertible Preferred Stock, or of any
shares of common stock that may be issued by the Company in favor of Overseas
Private Investment Corporation, would constitute an event of default under the
Loan Agreements unless certain conditions are satisfied.
The Company and each of its subsidiaries (including Crown) has collateralized
its respective obligations by a grant of a lien and security interest against
substantially all of its respective assets and properties, regardless of whether
comprising a part of any borrowing base, and by a pledge of each subsidiaries'
capital stock (limited, in the case of the capital stock of Crown, to 65%
thereof).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
4(a) (i) Revolving Credit, Term Loan and Security
Agreement among Company, TII Corporation and
BNY Financial Corporation ("Lender")
4(a) (ii) Revolving Credit, Term Loan and Security
Agreement between Crown Tool & Die Company,
Inc. and Lender
4(b) (i) Guaranty of Company to Lender
4(b) (ii) Guaranty of TII International, Inc. to
Lender
4(b) (iii) Guaranty of Telecommunications Industries,
Inc. to Lender
4(b) (iv) Guaranty of TII Dominicana, Inc. to Lender
4(b) (v) Guaranty of TII Corporation to Lender
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<PAGE>
4(b) (vi) Guaranty of TII-Ditel, Inc. to Lender
4(c) (i) General Security Agreement from
Telecommunications Industries, Inc. in favor
of Lender
4(c) (ii) General Security Agreement from TII
International, Inc. in favor of Lender
4(c) (iii) General Security Agreement from TII
Dominicana, Inc. in favor of Lender
4(d) (i) Stock Pledge and Security Agreement from
Company in favor of Lender
4(d) (ii) Stock Pledge and Security Agreement from TII
Corporation in favor of Lender
4(d) (iii) Stock Pledge and Security Agreement from TII
International, Inc. in favor of Lender
4(e) (i) Patent Collateral Assignment and Security
Agreement between Company and Lender
4(e) (ii) Trademark Collateral Assignment and Security
Agreement between Company and Lender
10(a) Lease Contract dated April 27, 1998 between
the Company and Puerto Rico Industrial
Development Company.
11 Statement re: Computation of Per Share
Earnings
27 EDGAR Data Schedule
(b) Reports on Form 8-K:
The only Reports on Form 8-K filed by the Company during the
quarter for which this Report is filed are Reports on Form 8-K
dated (date of earliest event reported): (i) January 6, 1998
reporting under Item 5 - Other Events and Item 7 - Financial
Statements and Exhibits and (ii) January 26, 1998 reporting
under Item 5 - Other Events and Item 7 - Financial Statements
and Exhibits.
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<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TII INDUSTRIES, INC.
(Registrant)
Dated: May 11, 1998 By: /s/ Paul G. Sebetic
---------------------------
Paul G. Sebetic
Vice President-Finance and
Chief Financial Officer
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<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description
4(a) (i) Revolving Credit, Term Loan and Security Agreement among
Company, TII Corporation and BNY Financial Corporation
("Lender")
4(a) (ii) Revolving Credit, Term Loan and Security Agreement between
Crown Tool & Die Company, Inc. and Lender
4(b) (i) Guaranty of Company to Lender
4(b) (ii) Guaranty of TII International, Inc. to Lender
4(b) (iii) Guaranty of Telecommunications Industries, Inc. to Lender
4(b) (iv) Guaranty of TII Dominicana, Inc. to Lender
4(b) (v) Guaranty of TII Corporation to Lender
4(b) (vi) Guaranty of TII-Ditel, Inc. to Lender
4(c) (i) General Security Agreement from Telecommunications Industries,
Inc. in favor of Lender
4(c) (ii) General Security Agreement from TII International, Inc. in
favor of Lender
4(c) (iii) General Security Agreement from TII Dominicana, Inc. in favor
of Lender
4(d) (i) Stock Pledge and Security Agreement from Company in favor of
Lender
4(d) (ii) Stock Pledge and Security Agreement from TII Corporation in
favor of Lender
4(d) (iii) Stock Pledge and Security Agreement from TII International,
Inc. in favor of Lender
4(e) (i) Patent Collateral Assignment and Security Agreement between
Company and Lender
4(e) (ii) Trademark Collateral Assignment and Security Agreement between
Company and Lender
10(a) Lease Contract dated April 27, 1998 between the Company and
Puerto Rico Industrial Development Company.
11 Statement Re: Computation of Per Share Earnings
27 EDGAR Data Schedule
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REVOLVING CREDIT, TERM LOAN
AND SECURITY AGREEMENT
among
TII INDUSTRIES, INC., and
TII CORPORATION,
as Borrowers,
and
BNY FINANCIAL CORPORATION,
as Lender
Dated: April 30, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
1. DEFINITIONS......................................................... 1
1.1 Accounting Terms........................................... 1
1.2 General Terms.............................................. 1
1.3 Uniform Commercial Code Terms.............................. 16
2. ADVANCES, PAYMENT, INTEREST AND FEES................................ 16
2.1 Revolving Advances......................................... 16
2.2 Cap/Ex Loans............................................... 17
2.3 Appointment of Industries as Agent for Borrowing........... 20
2.4 Request for Advances....................................... 20
2.5 Disbursement of Advance Proceeds........................... 22
2.6 Repayment of Advances...................................... 22
2.7 Repayment of Overformula Amounts........................... 23
2.8 Statement of Account....................................... 23
2.9 Letters of Credit.......................................... 23
2.10 Issuance of Letters of Credit.............................. 24
2.11 Requirements For Issuance of Letters of Credit............. 24
2.12 Additional Payments........................................ 25
3. INTEREST AND FEES................................................... 25
3.1 Interest................................................... 25
3.2 Letters of Credit.......................................... 26
3.3 Closing Fee................................................ 26
3.4 Collateral Monitoring Fee.................................. 26
3.5 Unused Facility Fees....................................... 27
3.6 Computation of Interest and Fees........................... 27
3.7 Maximum Charges............................................ 27
3.8 Increased Costs............................................ 27
3.9 Capital Adequacy........................................... 28
3.10 Survival................................................... 29
4. COLLATERAL: GENERAL TERMS........................................... 29
4.1 Security Interest in the Collateral........................ 29
4.2 Perfection of Security Interest............................ 29
4.3 Disposition of Collateral.................................. 29
4.4 Preservation of Collateral................................. 30
4.5 Ownership of Collateral.................................... 30
4.6 Defense of Lender's Interests.............................. 31
4.7 Books and Records.......................................... 31
4.8 Financial Disclosure....................................... 32
4.9 Compliance with Laws....................................... 32
4.10 Inspection of Premises..................................... 32
(i)
<PAGE>
4.11 Insurance.................................................. 32
4.12 Failure to Pay Insurance................................... 34
4.13 Payment of Taxes........................................... 34
4.14 Payment of Leasehold Obligations........................... 35
4.15 Receivables................................................ 35
4.16 Inventory.................................................. 37
4.17 Maintenance of Equipment................................... 37
4.18 Exculpation of Liability................................... 37
4.19 Environmental Matters...................................... 38
5. REPRESENTATIONS AND WARRANTIES...................................... 40
5.1 Authority.................................................. 40
5.2 Formation and Qualification................................ 40
5.3 Survival of Representations and Warranties................. 40
5.4 Tax Returns................................................ 41
5.5 Financial Statements....................................... 41
5.6 Corporate Name............................................. 42
5.7 O.S.H.A. and Environment Compliance........................ 42
5.8 Solvency; No Litigation; Violation......................... 43
5.9 Patents, Trademarks, Copyrights and Licenses............... 44
5.10 Licenses and Permits....................................... 44
5.11 Default of Indebtedness.................................... 44
5.12 No Default................................................. 44
5.13 No Burdensome Restrictions................................. 44
5.14 No Labor Disputes.......................................... 45
5.15 Margin Regulations......................................... 45
5.16 Investment Company Act..................................... 45
5.17 Disclosure................................................. 45
5.18 Swaps...................................................... 45
6. AFFIRMATIVE COVENANTS............................................... 45
6.1 Payment of Fees............................................ 45
6.2 Conduct of Business and Maintenance of
Existence and Assets....................................... 46
6.3 Violations................................................. 46
6.4 Government Receivables..................................... 46
6.5 Net Worth.................................................. 46
6.6 Pledge of Credit........................................... 46
6.7 Execution of Supplemental Instruments...................... 46
6.8 Payment of Indebtedness.................................... 47
6.9 Standards of Financial Statements.......................... 47
7. NEGATIVE COVENANTS.................................................. 47
7.1 Merger, Consolidation, Acquisition and Sale of Assets...... 47
7.2 Creation of Liens.......................................... 47
7.3 Guarantees................................................. 47
(ii)
<PAGE>
7.4 Investments................................................ 47
7.5 Loans...................................................... 48
7.6 Capital Expenditures....................................... 48
7.7 Dividends.................................................. 48
7.8 Indebtedness............................................... 48
7.9 Nature of Business......................................... 49
7.10 Transactions with Affiliates............................... 49
7.11 Operating Leases........................................... 49
7.12 Subsidiaries............................................... 49
7.13 Fiscal Year and Accounting Changes......................... 49
7.14 Prepayment of Indebtedness................................. 49
8. CONDITIONS PRECEDENT................................................ 50
8.1 Conditions to Initial Advances............................. 50
8.2 Conditions to Each Advance................................. 52
9. INFORMATION AS TO BORROWERS......................................... 53
9.1 Disclosure of Material Matters............................. 53
9.2 Schedules.................................................. 53
9.3 Environmental Reports...................................... 54
9.4 Litigation................................................. 54
9.5 Occurrence of Defaults, etc................................ 54
9.6 Government Receivables..................................... 54
9.7 Annual Financial Statements................................ 54
9.8 Quarterly Financial Statements............................. 55
9.9 Monthly Financial Statements............................... 55
9.10 Other Reports.............................................. 55
9.11 Additional Information..................................... 55
9.12 Projected Operating Budget................................. 55
9.13 Variances From Operating Budget............................ 56
9.14 Additional Documents....................................... 56
10. EVENTS OF DEFAULT................................................... 56
11. LENDER'S RIGHTS AND REMEDIES AFTER DEFAULT.......................... 58
11.1 Rights and Remedies........................................ 58
11.2 Lender's Discretion........................................ 59
11.3 Setoff..................................................... 59
11.4 Rights and Remedies not Exclusive.......................... 59
12. WAIVERS AND JUDICIAL PROCEEDINGS.................................... 59
12.1 Waiver of Notice........................................... 59
12.2 Delay...................................................... 60
12.3 Jury Waiver................................................ 60
(iii)
<PAGE>
13. EFFECTIVE DATE AND TERMINATION...................................... 60
13.1 Term....................................................... 60
13.2 Termination................................................ 61
14. MISCELLANEOUS....................................................... 62
14.1 Governing Law.............................................. 62
14.2 Entire Understanding....................................... 62
14.3 Successors and Assigns; Participations; New Lenders........ 63
14.4 Application of Payments.................................... 63
14.5 Indemnity.................................................. 63
14.6 Notice..................................................... 64
14.7 Survivability.............................................. 64
14.8 Expenses................................................... 65
14.9 Injunctive Relief.......................................... 65
14.10 Captions................................................... 65
14.11 Counterparts............................................... 65
(iv)
<PAGE>
List of Exhibits
Exhibit 1.2
Exhibit 2.2(d)
Exhibit 4.5
Exhibit 5.2
Exhibit 5.6
Exhibit 5.8(b)
Exhibit 5.9
Exhibit 5.10
Exhibit 5.12
Exhibit 5.14
Exhibit 7.8
(v)
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REVOLVING CREDIT, TERM LOAN
AND
SECURITY AGREEMENT
Revolving Credit, Term Loan and Security Agreement dated April 30, 1998
among TII INDUSTRIES, INC., a corporation organized under the laws of the State
of Delaware ("Industries"), TII CORPORATION, a corporation organized under the
laws of the State of Delaware ("Corporation"), and BNY FINANCIAL CORPORATION
("BNY"), a corporation organized under the laws of the State of New York.
IN CONSIDERATION of the mutual covenants and undertakings herein
contained, Borrowers and Lender hereby agree as follows:
1. DEFINITIONS.
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 in Section 1.2 or elsewhere in this Agreement and
accounting terms partly defined in Section 1.2 to the extent not defined, shall
have the respective meanings given to them under GAAP.
1.2 General Terms. For purposes of this Agreement the following terms
shall have the following meanings:
"Advances" shall mean and include the Revolving Advances,
Letters of Credit and Cap/Ex Loans under Article 2 hereof.
"Advance Rates" shall have the meaning set forth in Section
2.1(a) hereof.
"Affiliate" of any Person shall mean (a) any Person (other
than a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with such Person, or (b) any Person
who is a director or officer (i) of such Person, (ii) of any Subsidiary of such
Person or (iii) of any Person described in clause (a) above. For purposes of
this definition, control of a Person shall mean the power, directly or
indirectly, (x) to vote ten percent (10%) or more of the securities having
ordinary voting power for the election of directors of such Person, or (y) to
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise.
"Affiliate Loan Agreements" shall mean that certain Revolving
Credit, Term Loan and Security Agreement dated the date hereof between Lender
and Ditel, that certain Revolving Credit, Term Loan and Security Agreement dated
the date hereof between Lender and Crown, and all notes, instruments, mortgages,
agreements, guaranties and other documents executed and/or delivered in
connection therewith, as the same now exist
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or may hereafter be amended, restated, renewed, replaced, extended or otherwise
modified.
"Affiliated Borrowers" shall mean, individually and
collectively, Ditel and Crown.
"Alternate Base Rate" shall mean, for any day, a rate per
annum equal to the higher of (a) the Prime Rate in effect on such day and (b)
the Federal Funds Rate in effect on such day plus one half of one percent
(0.50%).
"Alternate Base Rate Advances" shall mean any Advances or
portion thereof on which interest is payable based on the Alternate Base Rate in
accordance with the terms hereof.
"Annual Audited Financial Statements" shall have the meaning
set forth in Section 9.7 hereof.
"Applicable Cap/Ex Amount" shall have the meaning set forth in
Section 3.5(b) hereof.
"Applicable Revolver Amount" shall have the meaning set forth
in Section 3.5(a) hereof.
"Authority" shall have the meaning set forth in Section 4.19
(d) hereof.
"Average Daily Closing Cap/Ex Balances" shall have the meaning
set forth in Section 3.5(b) hereof.
"Average Daily Closing Revolver Balances" shall have the
meaning set forth in Section 3.5(a) hereof.
"Average Eurodollar Rate" shall mean, as to any one month
interest period, the daily average of the "one month" London Interbank Offered
Rate as published in The Wall Street Journal averaged on a monthly basis for
actual days elapsed over a 360 day year.
"Average Eurodollar Rate Advances" shall mean any Advances or
portion thereof on which interest is payable based on the Average Eurodollar
Rate in accordance with the terms hereof.
"Bank" shall mean The Bank of New York.
"Blocked Accounts" shall have the meaning set forth in
Section 4.15(h)hereof.
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"Borrowers" shall mean, individually and collectively,
Industries and Corporation, and their respective successors and assigns. All
references to Borrower and Borrowers shall mean each of them, jointly and
severally, individually and collectively, and the respective successors and
assigns of each.
"Business Day" shall mean any day other than a day on which
commercial banks in New York are authorized or required by law to close except
that if a determination of a Business Day shall relate to any Eurodollar Rate
Advances, the term Business Day shall also exclude any day on which banks are
closed for dealings in dollar deposits in the London interbank market or other
applicable Eurodollar Rate market.
"Cap/Ex Line Loans" shall have the meaning set forth in
Section 2.2(a) hereof.
"Cap/Ex Line Sublimit" shall have the meaning set forth in
Section 2.2(a) hereof.
"Cap/Ex Line Termination Date" shall have the meaning set
forth in Section 2.2(a) hereof.
"Cap/Ex Loan Interest Rate" shall mean the per annum rate of
interest on all Cap/Ex Loans equal to:
(a) with respect to all Cap/Ex Loans which are Alternate Base
Rate Advances, the Alternate Base Rate plus one half of one percent (0.50%);
(b) with respect to all Cap/Ex Loans which are Eurodollar Rate
Advances, the Eurodollar Rate plus two and three-quarters of one percent
(2.75%); and
(c) with respect to all Cap/Ex Loans which are Average
Eurodollar Rate Advances, the Average Eurodollar Rate plus two and
three-quarters of one percent (2.75%).
"Cap/Ex Loans" shall mean from the date hereof up to the
Cap/Ex Line Termination Date, the aggregate outstanding principal amount of all
Cap/Ex Line Loans, and from and after the Cap/Ex Line Termination Date, the
Cap/Ex Term Loan.
"Cap/Ex Mandatory Prepayment" shall have the meaning set forth
in Section 2.2(e) hereof.
"Cap/Ex Note" shall have the meaning set forth in Section
2.2(d) hereof.
"Cap/Ex Reserve" shall mean, in addition to all other
Reserves, a reserve established by Lender in an amount determined from time to
time by Lender, in its sole discretion, equal to the amount by which the
aggregate principal amount of Cap/Ex Loans
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outstanding from time to time exceeds seventy-five percent (75%) of the value of
Borrowers' Eligible Equipment in Lender's sole judgment.
"Cap/Ex Term Loan" shall have the meaning set forth in Section
2.2(d) hereof.
"Cash Flow" for any period, shall mean the sum of (a) Net
Income for such period plus (b) interest, income taxes, depreciation and
amortization and all other non-cash charges which were deducted in determining
Net Income for such period, minus (c)(i) scheduled and mandatory repayments of
Indebtedness to the extent actually paid during the period, (ii) non cash
credits which were taken into account in determining Net Income for such period,
(iii) interest expense (including all imputed interest on capital lease
obligations) to the extent actually paid during the period, (iv) income taxes to
the extent actually paid during the period, (v) dividends or other distributions
to the extent permitted hereunder made by Borrowers to holders of their
respective shares of capital stock, and (vi) any non-financed payments made in
respect of any capital or fixed assets actually paid during the period.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601 et seq.
"Change of Ownership" shall mean with respect to Corporation,
the failure of TII International, Inc. to beneficially own all of the issued and
outstanding shares of capital stock of Corporation.
"Charges" shall mean all taxes, charges, fees, imposts, levies
or other assessments, including, without limitation, all net income, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance, stamp, occupation
and property taxes, custom duties, fees, assessments, Liens, Claims and charges
of any kind whatsoever, together with any interest and any penalties, additions
to tax or additional amounts, imposed by any taxing or other authority, domestic
or foreign (including, without limitation, the Pension Benefit Guaranty
Corporation or any environmental agency or superfund), upon the Collateral, the
Borrowers or any of their respective Affiliates or Subsidiaries.
"Claims" shall mean all security interests, Liens, claims or
encumbrances held or asserted by any Person against any or all of the
Collateral, other than (a) Charges and (b) Permitted Encumbrances.
"Closing Date" shall mean April 30, 1998 or such other date as
may be agreed to by the parties hereto.
"Collateral" shall mean and include:
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(a) all Receivables;
(b) all Equipment;
(c) all General Intangibles;
(d) all Inventory;
(e) all Real Property;
(f) all Subsidiary Stock;
(g) all Leasehold Interests;
(h) all of the Borrowers' right, title and interest in and to
(i) investment property, contract rights, instruments, documents and chattel
paper; (ii) its goods and other property including, but not limited to all
merchandise returned or rejected by Customers, relating to or securing any of
the Receivables; (iii) all of the Borrowers' rights as a consignor, a consignee,
an unpaid vendor, mechanic, artisan, or other lienor, including stoppage in
transit, set off, detinue, replevin, reclamation and repurchase; (iv) all
additional amounts due to the Borrowers from any Customer relating to the
Receivables; (v) other property, including warranty claims relating to any goods
securing this Agreement; (vi) if and when obtained by the Borrowers, all real
and personal property of third parties in which Borrowers have been granted a
lien or security interest as security for the payment or enforcement of
Receivables; and (vii) any other goods, personal property or real property now
owned or hereafter acquired in which the Borrowers have expressly granted a
security interest or may in the future grant a security interest to the Lender
hereunder, or in any amendment or supplement hereto, or under any other
agreement between the Lender and the Borrowers;
(i) all of the Borrowers' ledger sheets, ledger cards, files,
correspondence, records, books of account, business papers, computers, computer
software (owned by the Borrowers or in which it has an interest), computer
programs, tapes, disks and documents relating to clauses (a), (b), (c), (d),
(e), (f), (g), or (h) above; and
(j) all proceeds and products of clauses (a), (b), (c), (d),
(e), (f), (g) and (h) above in whatever form, including, but not limited to:
cash, deposit accounts (whether or not comprised solely of proceeds),
certificates of deposit, insurance proceeds (including hazard, flood and credit
insurance), negotiable instruments and other instruments for the payment of
money, chattel paper, security agreements or documents.
"Contract Rate" shall have the meaning set forth in Section
3.1 hereof.
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"Crown" shall mean Crown Tool & Die Company, Inc., a
corporation organized under the laws of the Commonwealth of Puerto Rico, and its
successors and assigns.
"Customer" shall mean and include the account debtor with
respect to any of the Receivables and/or the prospective purchaser of goods,
services or both with respect to any contract or other arrangement with the
Borrowers, pursuant to which the Borrowers are to deliver any personal property
or perform any services.
"Default Rate" shall have the meaning set forth in Section 3.1
hereof.
"Depository Accounts" shall have the meaning set forth in
Section 4.15(h) hereof.
"Ditel" shall mean TII-Ditel, Inc., a corporation organized
under the laws of the State of North Carolina, and its successors and assigns.
"Documents" shall have the meaning set forth in Section 8.1(c)
hereof.
"Dollar" and the sign "$" shall mean lawful money of the
United States of America.
"Eligible Equipment" shall mean Equipment that meets all of
the following criteria:
(a) the Equipment shall be described (by model, make,
manufacturer, serial no. and/or such other identifying information as may be
appropriate, as determined by Lender) in a schedule to be submitted by Borrowers
to Lender;
(b) Lender shall have a perfected first priority lien on and
security interest in such Equipment;
(c) such Equipment shall be located at premises owned or
leased by Borrowers in the United States or Puerto Rico; provided that, if such
Equipment is located at premises leased by Borrowers, Borrowers have delivered
to Lender a landlord waiver in form and substance acceptable to Lender in its
sole discretion;
(d) such Equipment is acceptable as Collateral to Lender in
Lender's discretion, reasonably exercised; and
(e) Borrowers shall have delivered to Lender a copy of a bill
of sale, invoice or other instrument evidencing that the vendor of such
Equipment has transferred good and absolute title thereto to Borrowers for the
purchase price set forth therein, and if applicable, any deferred payment terms
given to Borrowers in connection with such sale.
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Such bills of sale, invoices or other instruments shall be subject to desk top
appraisal, the results of which shall be acceptable to Lender in its sole
discretion, by an appraisal firm acceptable to Lender in its sole discretion.
The criteria for Eligible Equipment shall be subject to Lender's continuing
satisfaction and may be revised by Lender from time to time in its sole
judgment. Notwithstanding anything to the contrary contained herein, Eligible
Equipment shall not include any of Borrowers' Equipment located in the Dominican
Republic. Any Equipment that is not Eligible Equipment shall nevertheless be and
remain at all times part of the Collateral.
"Eligible Inventory" shall mean and include Inventory,
excluding work in process, valued at the lower of cost or market value (and, in
the case of Eligible L/C Inventory, net of all duty, freight, taxes, costs,
insurance and other charges and expenses which may pertain to such Eligible L/C
Inventory), determined on a first-in-first-out basis, which is not, in Lender's
opinion, obsolete, slow moving or unmerchantable and which Lender, in its sole
discretion, shall not deem ineligible Inventory, based on such considerations as
Lender may from time to time deem appropriate including, without limitation,
whether the Inventory is subject to a perfected, first priority security
interest in favor of Lender and whether the Inventory conforms to all standards
imposed by any governmental agency, division or department thereof which has
regulatory authority over such goods or the use or sale thereof. Eligible
Inventory shall include all Eligible L/C Inventory. Notwithstanding anything to
the contrary contained herein, Eligible Inventory shall not include any of
Borrowers' Inventory located in the Dominican Republic.
"Eligible L/C Inventory" shall mean all raw material and
finished goods Inventory owned by Borrowers and covered by Letters of Credit,
and which raw material and finished goods Inventory are or will be in transit to
one of the Borrowers' locations (other than the Dominican Republic), and which
raw material and finished goods Inventory (a) as of the date such Inventory is
owned by one of the Borrowers (i) are fully insured, (ii) are subject to a first
priority security interest in and lien upon such goods in favor of Lender
(except for any possessory lien upon such goods in the possession of a freight
carrier or shipping company securing only the freight charges for the
transportation of such goods to such Borrowers) and (iii) all documents,
notices, instruments, statements and bills of lading relating thereto, if any,
which Lender may deem necessary or desirable to evidence ownership by such
Borrowers and/or to give effect to and protect the liens, security interests and
other rights of Lender in connection therewith, are delivered to Lender; and (b)
are and remain acceptable to Lender for lending purposes.
"Eligible Receivables" shall mean each Receivable arising in
the ordinary course of Borrowers' business and which Lender, in its sole credit
judgment, shall deem to be an Eligible Receivable, based on such considerations
as Lender may from time to time deem appropriate. In general, a Receivable shall
not be deemed eligible unless such Receivable is subject to Lender's perfected
security interest and no other Lien other than Permitted Encumbrances, and is
evidenced by an invoice or other documentary evidence satisfactory to Lender. In
addition, no Receivable shall be an Eligible Receivable if:
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(a) it arises out of a sale made by Borrowers to an Affiliate
of Borrowers, or to a Person controlled by an Affiliate of Borrowers;
(b) it is due or unpaid more than sixty (60) days after the
original due date or ninety (90) days past the invoice date:
(c) fifty percent (50%) or more of the Receivables from the
account debtor are not deemed Eligible Receivables hereunder. Such percentage
may, in Lender's sole discretion, be increased or decreased from time to time;
(d) any covenant, representation or warranty contained in this
Agreement with respect to such Receivable has been breached;
(e) the account debtor is also Borrowers' creditor or
supplier, or the account debtor has disputed liability, or the account debtor
has made any claim with respect to any other Receivable due from such account
debtor to Borrowers, or the Receivable otherwise is or may become subject to any
right of setoff by the account debtor; except that, in Lender's discretion, in
the event an account debtor has disputed liability, Lender may, in accordance
with and subject to the other terms hereof, deem any Receivable which is not
disputed as an Eligible Receivable;
(f) the account debtor has commenced a voluntary case under
the federal bankruptcy laws, as now constituted or hereafter amended, or made an
assignment for the benefit of creditors, or if a decree or order for relief has
been entered by a court having jurisdiction in the premises in respect of the
account debtor in an involuntary case under any state or federal bankruptcy
laws, as now constituted or hereafter amended, or if any other petition or other
application for relief under any state or federal bankruptcy law has been filed
against the account debtor, or if the account debtor has failed, suspended
business, ceased to be solvent, called a meeting of its creditors, or consented
to or suffered a receiver trustee, liquidator or custodian to be appointed for
it or for all or a significant portion of its assets or affairs;
(g) the sale is to an account debtor outside the United
States, Canada or Puerto Rico, unless the sale is on letter of credit, guaranty
or acceptance terms, in each case acceptable to Lender in its sole discretion,
or the Receivable arising from such sale is insured by a foreign credit
insurance policy in form, substance and amount acceptable to Lender in its sole
discretion, which policy, together with the proceeds thereof, has been duly
assigned to Lender;
(h) the sale to the account debtor is on a bill-and-hold,
guaranteed sale, sale-and-return, sale on approval, consignment or any other
repurchase or return basis or is evidenced by chattel paper;
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(i) Lender believes, in its sole judgment, that collection of
such Receivable is insecure or that such Receivable may not be paid by reason of
the account debtor's financial inability to pay;
(j) the account debtor is the United States of America, any
state or any department, agency or instrumentality of any of them, unless
Borrowers assign Borrowers' right to payment of such Receivable to Lender
pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C.
Sub-Section 203 et seq.) or has otherwise complied with other applicable
statutes or ordinances;
(k) the goods giving rise to such Receivable have not been
shipped and delivered to and accepted by the account debtor or the services
giving rise to such receivable have not been performed by Borrowers and accepted
by the account debtor or the Receivable otherwise does not represent a final
sale;
(l) the Receivables of the account debtor exceed a credit
limit determined by Lender, in its sole discretion, to the extent such
Receivable exceeds such limit;
(m) the Receivable is subject to any offset, deduction,
defense, dispute, or counterclaim or if the Receivable is contingent in any
respect or for any reason;
(n) Borrowers have made any agreement with any account debtor
for any deduction therefrom, except for discounts or allowances made in the
ordinary course of business for prompt payment, all of which discounts or
allowances are reflected in the calculation of the face value of each respective
invoice related thereto;
(o) shipment of the merchandise or the rendition of services
has not been completed;
(p) any return, rejection or repossession of the merchandise
has occurred;
(q) such Receivable is not payable to a Borrower; or
(r) such Receivable is not otherwise satisfactory to the
Lender as determined in good faith by the Lender in the exercise of its
discretion in a reasonable manner.
"Environmental Complaint" shall have the meaning set forth in
Section 4.19(d) hereof.
"Environmental Laws" shall mean all federal, state and local
environmental, land use, zoning, health, chemical use, safety and sanitation
laws, statutes, ordinances and codes relating to the protection of the
environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, guidelines, interpretations,
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decisions, orders and directives of federal, state and local governmental
agencies and authorities with respect thereto.
"Equipment" shall mean and include all of the Borrowers' goods
(excluding Inventory) whether now owned or hereafter acquired and wherever
located including, without limitation, all equipment, machinery, apparatus,
motor vehicles, fittings, furniture, furnishings, fixtures, parts, accessories
and all replacements and substitutions therefor or accessions thereto.
"Equipment Purchase Price" shall be the purchase price of any
Eligible Equipment as set forth in the bill of sale, invoice or other instrument
evidencing the purchase of such Equipment by Borrowers, net of all taxes,
transportation, installation, delivery and other soft costs of such purchase.
"Eurodollar Rate" shall mean with respect to the Interest
Period for a Eurodollar Rate Advance, the interest rate per annum equal to the
arithmetic average of the rates of interest per annum (rounded upwards, if
necessary, to the next one-sixteenth (1/16) of one percent (1%)) at which the
Bank is offered deposits of United States Dollars in the London interbank market
(or other Eurodollar Rate market selected by Borrowers and approved by Lender)
on or about 9:00 a.m. (New York time) two (2) Business Days prior to the
commencement of such Interest Period in amounts substantially equal to the
principal amount of the Eurodollar Rate Advances requested by and available to
Borrowers in accordance with this Agreement, with a maturity of comparable
duration to the Interest Period selected by Borrowers.
"Eurodollar Rate Advances" shall mean any Advances or portion
thereof on which interest is payable based on the Eurodollar Rate in accordance
with the terms hereof.
"Event of Default" shall mean the occurrence of any of the
events set forth in Article 10 hereof.
"Facility Amount" shall mean $12,500,000.
"Federal Funds Rate" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, of if such rate is not so published for
any day which is a Business Day, the average of quotations for such day on such
transactions received by the Bank from three Federal funds brokers of recognized
standing selected by the Bank.
"Formula Amount" shall have the meaning set forth in Section
2.1(a) hereof.
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"GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time.
"General Intangibles" shall mean and include all of the
Borrowers' general intangibles, whether now owned or hereafter acquired
including, without limitation, all choses in action, causes of action, corporate
or other business records, inventions, designs, patents, patent applications,
equipment formulations, manufacturing procedures, quality control procedures,
trademarks, trade secrets, goodwill, copyrights, registrations, licenses,
franchises, customer lists, tax refunds, tax refund claims, computer programs,
all claims under guaranties, security interests or other security held by or
granted to Borrowers to secure payment of any of the Receivables by an account
debtor, all rights of indemnification and all other intangible property of every
kind and nature (other than Receivables).
"Guarantor" shall mean individually and collectively, Ditel,
TII Dominicana, Inc., TII International, Inc. and Telecommunications Industries,
Inc.
"Guaranty" shall mean the guaranty of the obligations of
Borrowers executed by each Guarantor, respectively, in favor of Lender.
"Hazardous Discharge" shall have the meaning set forth in
Section 4.19(d) hereof.
"Hazardous Substance" shall mean, without limitation, any
flammable explosives, radon, radioactive materials, asbestos, urea formaldehyde
foam insulation, polychlorinated byphenyls, petroleum and petroleum products,
methane, hazardous materials, hazardous wastes, hazardous or toxic substances or
related materials as defined in CERCLA, the Hazardous Materials Transportation
Act, as amended (49 U.S.C. Sections 1801, et seq.), RCRA, Articles 15 and 27 of
the New York State Environmental Conversation Law or any other applicable
Environmental Law and in the regulations adopted pursuant hereto.
"Hazardous Wastes" includes all waste materials subject to
regulation under CERCLA, RCRA or applicable state law, and any other applicable
Federal and state laws now in force or hereafter enacted relating to hazardous
waste disposal.
"Incipient Event of Default" shall mean an event which, with
the giving of notice or passage of time or both, would constitute an Event of
Default.
"Indebtedness" of a Person at a particular date shall mean all
obligations of such Person which in accordance with GAAP would be classified
upon a balance sheet as liabilities (except capital stock and surplus earned or
otherwise) and in any event, without limitation by reason of enumeration, shall
include all indebtedness, debt and other similar monetary obligations of such
Person whether direct or guaranteed, and all premiums, if any, due at the
required prepayment dates of such indebtedness, and all indebtedness secured by
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a Lien on assets owned by such Person, whether or not such indebtedness
actually shall have been created, assumed or incurred by such Person. Any
indebtedness of such Person resulting from the acquisition by such Person of any
assets subject to any Lien shall be deemed, for the purposes hereof, to be the
equivalent of the creation, assumption and incurring of the indebtedness secured
thereby, whether or not actually so created, assumed or incurred.
"Interest Period" shall mean for any Eurodollar Rate Advance,
a period of approximately one (1), two (2), three (3) or six (6) months duration
as Borrowers may elect, the exact duration to be determined in accordance with
the customary practice in the applicable Eurodollar Rate market; provided, that,
Borrowers may not elect an Interest Period which (i) with respect to Cap/Ex Line
Loans, will end after the Cap/Ex Line Termination Date, and (ii) with respect to
all Advances, will end after the last day of the then-current term of this
Agreement.
"Inventory" shall mean all of Borrowers' now owned or
hereafter acquired inventory, goods, merchandise and other personal property,
wherever located, to be furnished under any contract of service or held for sale
or lease, all raw materials, work in process, finished goods and materials and
supplies of any kind, nature or description which are or might be used or
consumed in Borrowers' business or used in selling or furnishing such goods,
merchandise and other personal property, and all documents of title or other
documents representing them.
"Inventory Advance Rate" shall have the meaning set forth in
Section 2.1(a) hereof.
"Leasehold Interests" shall mean all of Borrowers' right,
title and interest in and to the premises located at (a) with respect to
Corporation, (i) 1375 Akron Street, Copiague, New York 11726, and (ii) 1385
Akron Street, Copiague, New York 11726, and (b) with respect to Industries, (i)
Road 165, Kilometer 1.06, Toa Alta, Puerto Rico, and (11) 7930 State Line Road,
Prairie Village, Kansas.
"Lender" shall mean BNY and its successor and assigns.
"Letters of Credit" shall have the meaning set forth in
Section 2.9 hereof.
"Letter of Credit Fees" shall have the meaning set forth in
Section 3.2(a) hereof.
"Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, security interest, lien, charge, Claim or
encumbrance, or preference, priority or other security agreement or preferential
arrangement in respect of any asset of the Borrowers or any Subsidiary of the
Borrowers of any kind or nature whatsoever including, without limitation, any
conditional sale or other title retention agreement, any lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or
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agreement to give, any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction.
"Maximum Revolving Advance Amount" shall mean $6,000,000.
"Monthly Advances" shall have the meaning set forth in Section
3.1 hereof.
"Net Income" shall mean the net income of Industries and its
Subsidiaries on a consolidated basis.
"Net Worth" at a particular date, shall mean for Industries
and its Subsidiaries on a consolidated basis, (a) the aggregate amount of all
assets as may properly be classified as such in accordance with GAAP
consistently applied, less (b) any of such assets as are properly classified as
"intangible assets," less (c) the aggregate amount of all Indebtedness.
"Obligations" shall mean and include any and all of the
Borrowers' joint and several Indebtedness and/or liabilities to the Lender or
any corporation that directly or indirectly controls or is controlled by or is
under common control with Lender of every kind, nature and description, direct
or indirect, secured or unsecured, joint, several, joint and several, absolute
or contingent, due or to become due, now existing or hereafter arising,
contractual or tortious, liquidated or unliquidated, regardless of how such
indebtedness or liabilities arise or by what agreement or instrument they may be
evidenced or whether evidenced by any agreement or instrument, including, but
not limited to, any and all of the Borrowers' Indebtedness and/or liabilities
under this Agreement or under any other agreement between the Lender and the
Borrowers and all obligations of the Borrowers to the Lender to perform acts or
refrain from taking any action.
"OPIC Stock" shall have the meaning set forth in Section 10(p)
hereof.
"Orderly Liquidation Value" shall mean the orderly liquidation
value of the Borrowers' Equipment as determined by an independent appraiser
acceptable to Lender and as reflected in a desk top appraisal prepared by such
appraiser, at Borrowers' cost and expense, and delivered to Lender.
"Other Documents" shall mean the Questionnaire and any and all
other agreements, instruments and documents, including, without limitation,
guaranties, pledges, powers of attorney, consents, and all other writings
heretofore, now or hereafter executed by Borrowers and/or delivered to Lender in
respect of the transactions contemplated by this Agreement.
"Overformula Amount" shall have the meaning set forth in
Section 2.1(b) hereof.
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"Overformula Rate" shall mean a per annum rate equal to one
half of one percent (0.5%) in excess of the applicable Contract Rate.
"Parent" of any Person shall mean a corporation or other
entity owning, directly or indirectly at least fifty percent (50%) of the shares
of stock or other ownership interests having ordinary voting power to elect a
majority of the directors of the Person, or other Persons performing similar
functions for any such Person.
"Payment Office" shall mean initially 1290 Avenue of the
Americas, New York, New York 10104; thereafter, such other office of Lender, if
any, which Lender may designate by notice to the Borrowers to be the Payment
Office.
"Permitted Encumbrances" shall mean (a) liens in favor of
Lender; (b) liens for taxes, assessments or other governmental charges not
delinquent, or, being contested in good faith and by appropriate proceedings and
with respect to which proper reserves have been taken by Borrowers; (c) liens
disclosed in the financial statements referred to in Section 5.5, the existence
of which Lender has consented to in writing; (d) deposits or pledges to secure
obligations under workmen's compensation, social security or similar laws, or
under unemployment insurance; (e) deposits or pledges to secure bids, tenders,
contracts (other than contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds and other obligations of like nature
arising in the ordinary course of Borrowers' business; (f) judgment liens that
have been stayed or bonded and mechanics', workmen's, materialmen's, carriers'
or other like liens arising in the ordinary course of Borrowers' business with
respect to obligations which are not due or which are being contested in good
faith by Borrowers; (g) liens placed upon fixed or capital assets hereafter
acquired to secure a portion of the purchase price thereof, provided that (x)
any such lien shall not encumber any other property of the Borrowers and (y) the
aggregate amount of Indebtedness secured by such liens incurred as a result of
such purchases during any fiscal year shall not exceed the amount provided for
in Section 7.6; and (h) liens disclosed on Exhibit 1.2.
"Person" shall mean an individual, a partnership, a
corporation, a business trust, a joint stock company, a trust, an unincorporated
association, a joint venture, a governmental authority or any other entity of
whatever nature.
"Positive Cash Flow" shall have the meaning set forth in
Section 2.2(e)(i) hereof.
"Prime Rate" for the purpose of this Agreement means the rate
of interest publicly announced from time to time by the Bank at its principal
office in New York as its prime rate or prime lending rate. This rate of
interest is determined from time to time by the Bank as a means of pricing some
loans to its customers and is neither tied to any external rate of interest or
index nor does it necessarily reflect the lowest rate of interest actually
charged by the Bank to any particular class or category of customers of the
Bank.
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"Pro Forma Financial Statements" shall have the meaning set
forth in Section 5.5(b) hereof.
"Questionnaire" shall mean each Questionnaire dated March 10,
1998 executed by each of the Borrowers, Affiliated Borrowers and Guarantor and
delivered to Lender under a cover letter dated April 17, 1998, as supplemented
by a letter dated April 24, 1998.
"RCRA" shall mean the Resource Conservation and Recovery Act,
42 U.S.C. Section 6901 et seq., as same may be amended from time to time.
"Real Property" shall mean all of Borrowers' right, title and
interest in and to any now owned or hereafter acquired real property and all
buildings and improvements located thereon.
"Receivables" shall mean and include all of the Borrowers'
accounts, contract rights, instruments, documents, chattel paper, general
intangibles relating to accounts, drafts and acceptances, and all other forms of
obligations owing to Borrowers arising out of or in connection with the sale or
lease of Inventory or the rendition of services, all guarantees and other
security therefor, whether secured or unsecured, now existing or hereafter
created, and whether or not specifically sold or assigned to the Lender
hereunder.
"Receivables Advance Rate" shall have the meaning set forth in
Section 2.1(a) hereof.
"Releases" shall have the meaning set forth in Section
5.7(c)(i) hereof.
"Reserves" shall mean all Obligations then chargeable to any
account of Borrowers, as well as Obligations which may, in Lender's sole
discretion, be chargeable to Borrowers' account thereafter, by reason of or in
connection with any of the following: Receivables which are not Eligible
Receivables; Inventory which is not Eligible Inventory; disputed items;
deductions; allowances; credits; bill and hold sales; consignment sales; Letters
of Credit; steamship guarantees; airway releases; offsets asserted by or granted
to account debtors; sales calling for payment in currencies other than United
States Dollars; to adjust for audit/examination of Borrowers' accounts(s) or for
any documentation correction; such additional reserves as Lender in its sole
discretion, reasonably exercised, deems appropriate, including, but not limited
to, to adjust for any condition or prospect of the Borrowers or the Borrowers'
industry; and Cap/Ex Reserves.
"Revolving Advances" shall mean Advances made other than
Letters of Credit and the Cap/Ex Loans.
"Revolving Advance Interest Rate" shall mean the per annum
rate of interest on all Revolving Advances equal to:
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(i) With respect to all Revolving Advances which are Alternate
Base Rate Advances, the Alternate Base Rate plus one quarter of one percent
(0.25%);
(ii) With respect to all Revolving Advances which are
Eurodollar Rate Advances, the Eurodollar Rate plus two and one half of one
percent (2.5%); and
(iii) With respect to all Revolving Advances which are Average
Eurodollar Rate Advances, the Average Eurodollar Rate plus two and one half of
one percent (2.5%).
"Subsidiary" of any Person shall mean a corporation or other
entity whose shares of stock or other ownership interests having ordinary voting
power (other than stock or other ownership interests having such power only by
reason of the happening of a contingency) to elect a majority of the directors
of such corporation, or other Persons performing similar functions for such
entity, are owned, directly or indirectly, by such Person.
"Subsidiary Stock" shall mean (i) with respect to Industries,
sixty-five percent (65%) of the issued and outstanding shares of stock of Crown
and all of the issued and outstanding shares of stock of TII International, Inc.
and (ii) with respect to Corporation, all of the issued and outstanding stock of
Telecommunications Industries, Inc.
"Term" shall have the meaning set forth in Section 13.1 hereof.
"Toxic Substance" shall mean and include any material present
on the Real Property or the Leasehold Interests which has been shown to have
significant adverse effect on human health or which is subject to regulation
under the Toxic Substances Control Act (TSCA), 15 U.S.C. Section 2601 et seq.,
applicable state law, or any other applicable Federal or state laws now in force
or hereafter enacted, relating to toxic substances. "Toxic Substance" includes
but is not limited to asbestos, polychlorinated biphenyls (PCBs) and lead-based
paints.
"Transactions" shall have the meaning set forth in Section 5.5
hereof.
1.3 Uniform Commercial Code Terms. All terms used herein and defined in
the Uniform Commercial Code as adopted in the State of New York shall have the
meaning given therein unless otherwise defined herein.
2. ADVANCES, PAYMENT, INTEREST AND FEES.
2.1 Revolving Advances. (a) Subject to the terms and conditions set
forth in this Agreement, Lender will make from time to time, Revolving Advances
to the Borrowers not to exceed at any one time an aggregate outstanding amount
equal to the sum of (i) the lesser of (x) the Maximum Revolving Advance Amount
and (y) the Formula Amount; less (ii) the aggregate amount of all outstanding
Revolving Advances, provided that, the aggregate amount of all outstanding
Revolving Advances hereunder, plus all issued and
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outstanding Letters of Credit hereunder, plus the aggregate amount of all
outstanding Revolving Advances under the Affiliate Loan Agreements, plus all
issued and outstanding Letters of Credit under the Affiliate Loan Agreements
shall not exceed the Maximum Revolving Advance Amount. The "Formula Amount"
shall mean the sum of the following amounts at any time and from time to time:
(i) eighty-five percent (85%) of Eligible
Receivables ("Receivables Advance Rate"),
plus
(ii) fifty percent (50%) of Eligible Inventory
("Inventory Advance Rate; together with the
Receivables Advance Rate", collectively the
"Advance Rates"), provided, however, that
the maximum amount of outstanding Revolving
Advances against Eligible Inventory to
Borrowers hereunder and to Affiliated
Borrowers under the Affiliate Loan
Agreements, shall not exceed $3,000,000 at
any one time, less
(iii) Reserves (including, without limitation,
Cap/Ex Reserves and Reserves for Letters of
Credit), less
(iv) $2,000,000 (less any portion thereof
allocated from time to time by Lender, in
its sole discretion, under the Affiliate
Loan Agreements).
(b) Discretionary Overformula Revolving Advances.
Notwithstanding anything to the contrary contained herein, the aggregate amount
of all Revolving Advances and amounts due under Letters of Credit at any time
and from time to time outstanding hereunder and under the Affiliate Loan
Agreements shall not exceed the formulas and limitations as set forth in Section
2.1(a) hereof (any such excess amount, an "Overformula Amount"). Any Revolving
Advances constituting an Overformula Amount are made available by Lender or
otherwise permitted to exist in the sole and absolute discretion of Lender and
are subject to Section 2.7 hereof.
(c) Discretionary Rights. The Advance Rates may be increased
or decreased by Lender at any time and from time to time in the exercise of its
reasonable discretion. Borrowers consent to any such increases or decreases and
acknowledge that decreasing the Advance Rates may limit or restrict Advances
requested by Borrowers.
2.2 Cap/Ex Loans.
(a) In addition to all Revolving Advances, Letters of Credit
and any other loans and financial accommodations to be made by Lender pursuant
to this Agreement and subject to the terms and conditions set forth herein,
Lender agrees, from the date hereof up to December 31, 1998 (the "Cap/Ex Line
Termination Date"), to make loans to Borrowers, upon Borrowers' written request,
for the purpose of purchasing or acquiring
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Eligible Equipment, or for the purpose of refinancing any existing Indebtedness
or making new loans, with respect to any Equipment which Lender, in its sole
discretion deems to be Eligible Equipment (the "Cap/Ex Line Loans"). Each Cap/Ex
Line Loan shall be in an amount not to exceed seventy-five percent (75%) of the
Equipment Purchase Price in respect of Eligible Equipment which is, at the time
acquired by Borrowers, new Equipment, and seventy-five percent (75%) of the
Orderly Liquidation Value in respect of Eligible Equipment which is, as of the
date of such requested Cap/Ex Line Loan, used Equipment, provided, however, that
after giving effect to a Cap/Ex Line Loan requested by Borrowers, the sum of (i)
such requested Cap/Ex Line Loan plus (ii) the aggregate original principal
amount of all Cap/Ex Line Loans which have been made to Borrowers, plus (iii)
the aggregate original principal amount of all Cap/Ex Line Loans which have been
made to Affiliated Borrowers under the Affiliate Loan Agreements shall in no
event exceed $6,500,000 ("Cap/Ex Line Sublimit"). Borrowers shall provide Lender
with not less than ten (10) days prior written notice of each requested Cap/Ex
Line Loan. Each Cap/Ex Line Loan shall bear interest from the date such Cap/Ex
Line Loan is made at the applicable Contract Rate set forth in Section 3.1 and
such interest shall be payable in accordance with Section 3.1. In addition to
the foregoing and subject to the Cap/Ex Line Sublimit, Lender may, in its sole
discretion, make additional Cap/Ex Line Loans to Borrowers in respect of
Eligible Equipment, which is, at the time acquired by Borrowers, used Equipment,
in an amount determined by Lender in its sole discretion.
(b) Each Cap/Ex Line Loan shall be in an amount of not less
than $250,000.
(c) Borrowers shall have no right to request, and Lender shall
have no obligation to make whatsoever, any Cap/Ex Line Loan after the Cap/Ex
Line Termination Date.
(d) The aggregate principal amount of all Cap/Ex Line Loans
made from the Closing Date through and including June 30, 1998 (the "June 30
Principal Balance"), shall be repaid in seven (7) consecutive monthly principal
installments (or earlier as herein provided) commencing July 31, 1998, and on
the last day of each month thereafter, of which the first six (6) installments
shall each be in an amount equal to a quotient of the June 30 Principal Balance
divided by eighty-four (84), and the seventh (7th) installment shall be in an
amount equal to the entire then unpaid principal balance of the June 30
Principal Balance ("Unpaid June 30 Principal Balance"). The Unpaid June 30
Principal Balance and the aggregate principal amount of all Cap/Ex Line Loans
made from July 1, 1998 through and including the Cap/Ex Line Termination Date
(the "Cap/Ex Term Loan") shall be consolidated and repaid in fifty-one (51)
consecutive monthly principal installments (or earlier as herein provided)
commencing on the last day of the first calendar month next following the Cap/Ex
Line Termination Date and monthly thereafter on the last day of each successive
month until paid, of which the first fifty (50) principal installments shall
each be in an amount equal to the quotient of the principal amount of the Cap/Ex
Term Loan divided by eighty-four (84), and the last and fifty-first (51st)
principal installment shall be in an amount of the entire unpaid balance of such
Cap/Ex Term Loan.
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The Cap/Ex Term Loan shall be evidenced by and subject to the terms and
conditions of a promissory note (the "Cap/Ex Note"), which Cap/Ex Note shall be
in form and substance satisfactory to Lender and shall be dated as of the last
day of the first calendar month next following the Cap/Ex Line Termination Date.
Notwithstanding anything to the contrary contained herein, if the Term of this
Agreement is extended beyond the initial Term, the amortization schedule of
principal payments of the Cap/Ex Term Loan may, in Lender's sole discretion, be
extended, and Borrowers shall execute an amended and restated promissory note in
favor of Lender, in form and substance acceptable to Lender, reflecting such
revised schedule of principal installment payments with respect to the Cap/Ex
Term Loan, provided that, the final principal installment of such Cap/Ex Term
Loan shall be due and payable not later than the seventh (7th) anniversary of
the Closing Date. In addition to all other rights and remedies under this
Agreement, the Cap/Ex Term Loan, together with all accrued and unpaid interest
thereon and the early termination fee in respect thereof, shall, at Lender's
option, be immediately due and payable if this Agreement shall be terminated or
not renewed for any reason whatsoever, or upon the occurrence of any Event of
Default hereunder.
(e) (i) In addition to, and not in limitation of, any
provision contained herein or in the Cap/Ex Note, and except as otherwise
provided in Section 4.3 and Section 4.11 hereof, Borrowers shall remit to Lender
the following mandatory prepayments in respect of the Cap/Ex Loans (each, a
"Cap/Ex Mandatory Prepayment"):
(x) Commencing with Borrowers' fiscal year
ending June, 1999, and for each of Borrowers' fiscal years thereafter, if the
Cash Flow of Borrowers for such applicable fiscal year is greater than $1.00
("Positive Cash Flow"), Borrowers shall pay to Lender an aggregate amount equal
to fifty percent (50%) of such Positive Cash Flow without duplication of any
such Positive Cash Flow payments, or portion thereof, attributable to Ditel
under that certain Revolving Credit, Term Loan and Security Agreement dated the
date hereof between Lender and Ditel, and without duplication of any Positive
Cash Flow payments, or portion thereof, attributable to Crown under that certain
Revolving Credit, Term Loan and Security Agreement dated the date hereof between
Lender and Crown. The Cap/Ex Mandatory Prepayment payable pursuant to this
Section 2.2(e)(i) shall be due and payable five (5) days after delivery to
Lender of the Annual Audited Financial Statements for such fiscal year. At
Lender's option, in addition to all other Obligations, Lender may charge any
account of Borrowers for any Cap/Ex Mandatory Prepayment due under this Section
2.2(e)(i);
(y) Subject to the terms of Section 4.3
hereof, Borrowers shall pay to Lender the net proceeds of sale or other
disposition of Equipment; and
(z) Subject to the terms of Section 4.11
hereof, Borrowers shall pay to Lender all proceeds of insurance with respect to
any Equipment.
(ii) Each Cap/Ex Mandatory Prepayment shall be
applied against the unpaid principal balance of the Cap/Ex Line Loans in such
order and manner as
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Lender shall elect and, from and after the Cap/Ex Line Termination Date, against
the unpaid principal balance of the Cap/Ex Term Loan in the inverse order of
maturities thereof.
(f) The Cap/Ex Loans shall (i) constitute a part of the
Advances and a part of the Obligations, (ii) be secured by the Collateral; and
(iii) be subject to the continued compliance with the terms and provisions of
this Agreement.
(g) The making of any Cap/Ex Line Loans is further subject to
the satisfaction of each of the following conditions precedent in a manner
satisfactory to Lender:
(i) Evidence that Borrowers have disbursed, in
connection with the purchase of the Equipment, all the proceeds received by
Borrowers to the vendors of such Equipment; and
(ii) no Event of Default or Incipient Event of
Default shall have occurred and be continuing.
2.3 Appointment of Industries as Agent for Borrowing. Each of the
Borrowers hereby irrevocably appoint Industries, and each officer thereof, as
their agent and attorney-in-fact to request Advances on their behalf, and, at
Lender's option, to receive disbursements of Advances on their behalf (which may
be made to the same account of Industries to which disbursements of Advances to
Industries are made), to receive notices and statements of account from Lender,
to take such other actions on their behalf as is provided hereunder or under any
of the Other Documents and generally to deal with Lender on their behalf, for
all matters pertaining to the financing arrangements under this Agreement and
the Other Documents.
2.4 Request for Advances.
(a) Borrowers may, from time to time, request Lender to make
Alternate Base Rate Advances, Eurodollar Rate Advances or Average Eurodollar
Rate Advances, convert Alternate Base Rate Advances, Eurodollar Rate Advances or
Average Eurodollar Rate Advances, or request that any existing Eurodollar Rate
Advances continue for an additional Interest Period. In the event that Borrowers
desire Lender to make Alternate Base Rate Advances or Average Eurodollar Rate
Advances, Borrowers shall notify Lender prior to 11:00 a.m. on a Business Day of
its request to incur such Alternate Base Rate Advance or Average Eurodollar Rate
Advances, as the case may be, on that day and the amount thereof. In the event
that Borrowers desire Lender to make Eurodollar Rate Advances, convert Alternate
Base Rate Advances to Eurodollar Rate Advances, convert Average Eurodollar Rate
Advances to Eurodollar Rate Advances or continue Eurodollar Rate Advances for an
additional Interest Period, Borrowers shall give Lender at least three (3)
Business Days' prior written notice, no later than 10:00 a.m. (New York City
time) on the day such notice is given, specifying the amount and the date (which
shall be a
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Business Day) of the proposed making of any such Eurodollar Rate Advance,
conversion of any such Alternate Base Rate Advance into a Eurodollar Rate
Advance, conversion of any such Average Eurodollar Rate Advance into a
Eurodollar Rate Advance, or continuance of existing Eurodollar Rate Advances for
an additional Interest Period. Such request from Borrowers shall specify the
amount of the Advances which will constitute Eurodollar Rate Advances (subject
to the limits set forth below) and the Interest Period to be applicable to such
Eurodollar Rate Advances. Subject to the terms and conditions contained herein,
three (3) Business Days after receipt by Lender of such a request from
Borrowers, such Eurodollar Rate Advances, shall be made, or such Alternate Base
Rate Advances shall be converted to Eurodollar Rate Advances or such Average
Eurodollar Rate Advances shall be converted to Eurodollar Rate Advances, or such
Eurodollar Rate Advances shall continue, provided, that, as of each such date,
each of the following conditions is satisfied as determined by Lender in its
sole discretion: (i) no Event of Default or Incipient Event of Default exists or
has occurred and is continuing, (ii) no party hereto shall have sent any notice
of termination or non-renewal of this Agreement, (iii) Borrowers shall have
complied with such customary procedures as are established by Lender and
specified by Lender to Borrowers from time to time for requests by Borrowers for
Eurodollar Rate Advances, (iv) no more than five (5) Interest Periods in the
aggregate for Borrower and Affiliated Borrowers may be in effect at any one
time, (v) the amount of each Eurodollar Rate Advance must be, in each case, in
an amount of not less than $1,000,000 or an integral multiple of $100,000 in
excess thereof, (vi) the maximum amount of the Eurodollar Rate Advances at any
time requested by Borrowers shall not exceed the amount equal to eighty percent
(80%) of the lowest principal amount of the Advances which it is anticipated
will be outstanding during the applicable Interest Period, in each case as
determined by Lender (but with no obligation of Lender to make such Advances)
and (vii) Lender shall have determined that the Interest Period or Eurodollar
Rate is available to Lender through the Bank and can be readily determined as of
the date of the request for such Eurodollar Rate Advances by Borrowers. Any
request by Borrowers to convert Alternate Base Rate Advances to Eurodollar Rate
Advances, or to convert Average Eurodollar Rate Advances to Eurodollar Rate
Advances, or to continue any existing Eurodollar Rate Advances shall be
irrevocable. Notwithstanding anything to the contrary contained herein, Lender
and Bank shall not be required to purchase United States Dollar deposits in the
London interbank market or other applicable Eurodollar Rate market to fund any
Eurodollar Rate Advances, but the provisions hereof shall be deemed to apply as
if Lender and Bank had purchased such deposits to fund the Eurodollar Rate
Advances.
(b) Any Eurodollar Rate Advances shall automatically convert
to Alternate Base Rate Advances upon the last day of the applicable Interest
Period, unless Lender has received and approved a request to continue such
Eurodollar Rate Advance at least three (3) Business Days prior to such last day
in accordance with the terms hereof. Borrowers shall pay to Lender, upon demand
by Lender (or Lender may, at its option, charge any loan account of Borrowers)
any amounts required to compensate Lender, the Bank or any participant with
Lender for any loss (including loss of reasonably anticipated profits), cost or
expense incurred by such person, as a result of the conversion of
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Eurodollar Rate Advances or Average Eurodollar Rate Advances, as the case may
be, to Alternate Base Rate Advances pursuant to any of the foregoing. Any
Eurodollar Rate Advances shall bear interest at the Default Rate in the event
that (i) an Event of Default shall exist or have occurred, (ii) this Agreement
shall terminate or not be renewed, or (iii) the aggregate principal amount of
the Alternate Base Rate Advances which have previously been converted to
Eurodollar Rate Advances, or which existing Eurodollar Rate Advances have been
continued, as the case may be, at the beginning of an Interest Period shall at
any time during such Interest Period exceed either (x) the aggregate principal
amount of the Advances then outstanding, or (y) the Advances then available to
Borrowers under Section 2.1 hereof. Any Average Eurodollar Rate Advances shall
automatically convert to Alternate Base Rate Advances in the event that an Event
of Default or an Incipient Event of Default shall exist or have occurred or this
Agreement shall terminate or not be renewed and such Alternate Base Rate
Advances shall bear interest at the Default Rate.
(c) Should any amount required to be paid as interest
hereunder, or as fees or other charges under this Agreement or any other
agreement with Lender, or with respect to any other Obligation, become due, same
shall be deemed a request for a Revolving Advance as of the date such payment is
due, in the amount required to pay in full such interest, fee, charge or
Obligation under this Agreement or any other agreement with Lender, and such
request shall be irrevocable.
2.5 Disbursement of Advance Proceeds. All Advances shall be disbursed
from whichever office or other place the Lender may designate from time to time
and, together with any and all other Obligations of Borrowers to Lender, shall
be charged to any account of the Borrowers on the Lender's books. During the
Term, Borrowers may use the Revolving Advances by borrowing, repaying and
reborrowing, all in accordance with the terms and conditions hereof. The
proceeds of each Revolving Advance requested by the Borrowers or deemed to have
been requested by the Borrowers under Section 2.4(c) hereof shall, with respect
to requested Revolving Advances to the extent the Lender makes such Revolving
Advances, subject to Section 2.3 hereof, be made available to the Borrowers on
the day so requested by way of credit to Industries' operating account at such
bank as Industries may designate following notification to Lender, in
immediately available federal or other immediately available funds or, with
respect to Revolving Advances deemed to have been requested, be disbursed to the
Lender in payment of outstanding Obligations.
2.6 Repayment of Advances.
(a) The Revolving Advances shall be due and payable in full on
the last day of the Term subject to earlier prepayment as herein provided. The
Cap/Ex Loans shall be due and payable as provided in Section 2.2 hereof and in
the Cap/Ex Note.
(b) The Borrowers recognize that the amounts evidenced by
checks, notes, drafts or any other items of payment relating to and/or proceeds
of Collateral may
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not be collectible by the Lender on the date received. In consideration of the
Lender's agreement to conditionally credit any account of Borrowers as of the
Business Day on which the Lender receives from the Blocked Account bank or the
Depository Account bank those items of payment, Borrowers agree that, in
computing the charges under this Agreement, all items of payment shall be deemed
applied by Lender on account of the Obligations one (1) Business Day after
confirmation to Lender by the Blocked Account bank or the Depository Account
bank as provided for in Section 4.15(h), that such items of payment have been
collected in good funds and finally credited by Lender to any account of
Borrowers. The Lender is not, however, required to credit any account of
Borrowers for the amount of any item of payment which is unsatisfactory to the
Lender and the Lender may charge any account of Borrowers for the amount of any
item of payment which is returned to the Lender unpaid.
(c) All payments of principal, interest and other amounts
payable hereunder, or under any of the related agreements shall be made to the
Lender at the Payment Office not later than 1:00 P.M. (New York Time) on the due
date therefor in lawful money of the United States of America in Federal or
other funds immediately available to the Lender. Lender shall have the right to
effectuate payment on any and all Obligations due and owing hereunder by
charging any account of Borrowers or by making Advances as provided in Section
2.5 hereof.
(d) The Borrowers shall pay principal, interest, and all other
amounts payable hereunder, or under any related agreement, without any deduction
whatsoever, including, but not limited to, any deduction for any setoff or
counterclaim.
2.7 Repayment of Overformula Amounts. The aggregate balance of all
Revolving Advances constituting an Overformula Amount shall be immediately due
and payable without the necessity of any demand, at the place designated by
Lender, whether or not an Incipient Event of Default or Event of Default has
occurred, unless otherwise expressly agreed to in writing by Lender.
2.8 Statement of Account. Lender shall maintain, in accordance with its
customary procedures, a loan account in the name of Borrowers in which shall be
recorded the date and amount of each Advance made by Lender and the date and
amount of each payment in respect thereof; provided, however, the failure by
Lender to record the date and amount of any Advance shall not adversely affect
Lender. For each month, Lender shall send to the Borrowers a statement showing
the accounting for the Advances made, payments made or credited in respect
thereof, and other transactions between Lender and the Borrowers, during such
month. The monthly statements shall be deemed correct and binding upon the
Borrowers in the absence of manifest error and shall constitute an account
stated between Lender and the Borrowers unless Lender receives a written
statement of the Borrowers' specific exceptions thereto within thirty (30) days
after such statement is received by the Borrowers. The records of Lender with
respect to the loan account shall be prima facie evidence of the amounts of
Advances and other changes thereto and of payments applicable thereto.
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2.9 Letters of Credit. Subject to the terms and conditions hereof,
Lender shall issue or cause the issuance of Letters of Credit ("Letters of
Credit"); provided, however, that Lender will not be required to issue or cause
to be issued any Letters of Credit to the extent that the face amount of such
Letters of Credit would then cause: (i) the sum of (A) the aggregate amount of
all outstanding Revolving Advances hereunder, plus (B) all issued and
outstanding Letters of Credit hereunder to exceed the lesser of (x) the Maximum
Revolving Advance Amount and (y) the Formula Amount (exclusive of, for the
purposes of calculating the Formula Amount, any Reserves established for Letters
of Credit); or (ii) the sum of (A) the aggregate amount of all outstanding
Revolving Advances hereunder, plus (B) all issued and outstanding Letters of
Credit hereunder, plus (C) the aggregate amount of all Revolving Advances under
the Affiliate Loan Agreements, plus (D) all issued and outstanding Letters of
Credit under the Affiliate Loan Agreements to exceed the lesser of (x) the
Maximum Revolving Advance Amount and (y) the aggregate Formula Amount hereunder
and under the Affiliate Loan Agreements (in each case, exclusive of, for the
purposes of calculating the Formula Amount, any Reserves established for Letters
of Credit). The maximum amount of outstanding Letters of Credit hereunder and
under the Affiliate Loan Agreements shall not exceed $1,000,000 in the aggregate
at any time. All disbursements or payments related to Letters of Credit shall be
deemed to be a Revolving Advance which is an Alternate Base Rate Advance and
shall bear interest at the applicable Revolving Advance Interest Rate set forth
in Section 1.2 hereof.
2.10 Issuance of Letters of Credit.
(a) Borrowers may request Lender to issue or cause the
issuance of a Letter of Credit or by delivering to Lender at the Payment Office,
Lender's standard form of Letter of Credit and Security Agreement together with
Bank's standard form of Letter of Credit Application (collectively, the "Letter
of Credit Application") and any draft, if applicable, completed to the
satisfaction of Lender; and, such other certificates, documents and other papers
and information as Lender may reasonably request.
(b) Each Letter of Credit shall, among other things, (i)
provide for the payment of sight drafts when presented for honor thereunder in
accordance with the terms thereof and when accompanied by the documents
described therein and (ii) have an expiry date not later than six months after
such Letter of Credit's date of issuance and in no event later than the last day
of the Term. Each Letter of Credit Application and each Letter of Credit shall
be subject to the Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication No. 500, and any
amendments or revisions thereof and, to the extent not inconsistent therewith,
the laws of the State of New York.
2.11 Requirements For Issuance of Letters of Credit
(a) In connection with the issuance of any Letter of Credit,
Borrowers shall indemnify, save and hold Lender harmless from any loss, cost,
expense or liability,
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including, without limitation, payments made by Lender, and expenses and
reasonable attorneys' fees incurred by Lender arising out of, or in connection
with, any Letter of Credit to be issued or created for Borrowers. Borrowers
shall be bound by Lender's or any issuing or accepting bank's regulations and
good faith interpretations of any Letter of Credit issued or created for
Borrowers' account, although this interpretation may be different from
Borrowers' own, and, neither Lender, the bank which opened the Letter of Credit
nor any of its correspondents shall be liable for any error, negligence, or
mistakes, whether by omission or commission, in following Borrowers'
instructions or those contained in any Letter of Credit or of any modifications,
amendments or supplements thereto or in creating or paying any Letter of Credit,
except for Lender's gross negligence or willful misconduct or such issuing
banks' or correspondents' willful misconduct.
(b) Borrowers shall authorize and direct any bank which issues
a Letter of Credit to name the applicable Borrower as the "Account Party"
therein and to deliver to Lender all instruments, documents, and other writings
and property received by the bank pursuant to the Letter of Credit or in
connection with any acceptance and to accept and rely upon Lender's instructions
and agreements with respect to all matters arising in connection with the Letter
of Credit, the application therefor or any acceptance therefor.
(c) In connection with all Letters of Credit issued or created
by Lender under this Agreement, Borrowers hereby appoint Lender, or its
designee, as its attorney-in-fact, with full power and authority (a) to sign
and/or endorse the applicable Borrower's name upon any warehouse or other
receipts, letter of credit applications and acceptances; (b) to sign the
applicable Borrower's name on bills of lading; (c) to clear Inventory through
customs in the name of the applicable Borrower or Lender or Lender's designee,
and to sign and deliver to Customs Officials powers of attorney in the name of
the applicable Borrower for such purpose; and (d) to complete in the applicable
Borrower's name or Lender's, or in the name of Lender's designee, any order,
sale or transaction, obtain the necessary documents in connection therewith, and
collect the proceeds thereof. Neither Lender nor its attorneys will be liable
for any acts or omissions nor for any error of judgment or mistakes of fact or
law, except for Lender's or its attorney's gross negligence or willful
misconduct. This power, being coupled with an interest, is irrevocable as long
as any Letters of Credit remain outstanding.
2.12 Additional Payments. Any sums expended by Lender due to the
Borrowers failure to perform or comply with its obligations under this Agreement
including, without limitation, Borrowers' obligations under Sections 4.2, 4.4,
4.10, 4.12, 4.13, 4.14 and 6.1 hereof, may be charged to any account of the
Borrowers' as a Revolving Advance and added to the Obligations. Any sums
expended by Lender or any amounts charged to any account of Borrowers as a
Revolving Advance shall be an Alternate Base Rate Advance and shall bear
interest at the applicable Revolving Advance Interest Rate as set forth in
Section 1.2 hereof.
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3. INTEREST AND FEES.
3.1 Interest. Interest on Advances shall be payable in arrears on the
last day of each month, except that, interest with respect to Eurodollar Rate
Advances shall be payable on the last day of the Interest Period with respect
thereto. Interest charges shall be computed on the actual average of such daily
Advances outstanding during the month (the "Monthly Advances") at a rate per
annum equal to (i) with respect to Revolving Advances, the Revolving Advance
Interest Rate, and (ii) with respect to Cap/Ex Loans, the Cap/Ex Loan Interest
Rate (as applicable, the "Contract Rate"). Whenever, subsequent to the date
hereof, the Alternate Base Rate or the Average Eurodollar Rate is increased or
decreased, the applicable Contract Rate shall be similarly changed without
notice or demand of any kind by an amount equal to the amount of such change in
the Alternate Base Rate or Average Eurodollar Rate, as the case may be, during
the time such change or changes remain in effect. If an Overformula Amount
exists for five (5) or more days in any month during the Term, Advances (other
than Cap/Ex Loans) for that month shall bear interest at the Overformula Rate.
Upon and after the occurrence of an Event of Default, and during the
continuation thereof, the Obligations shall bear interest at the applicable
Contract Rate plus two percent (2%) per annum (the "Default Rate").
3.2 Letters of Credit.
(a) Borrowers shall pay Lender (i) (A) for issuing or causing
the issuance of a standby Letter of Credit, a fee computed at a rate per annum
of three percent (3%) on the outstanding amount thereof from time to time, and
(B) for issuing or causing the issuance of a Letter of Credit that is not a
standby Letter of Credit, a fee equal to one-quarter of one percent (.25%) of
the original and each increase in the face amount thereof for each 30 days or
part thereof of its term (the fees set forth in (A) and (B) are hereinafter
referred to as "Letter of Credit Fees"), and (ii) issuing bank's other customary
charges payable in connection with Letters of Credit as in effect from time to
time (which charges shall be furnished to Borrowers by Lender upon request).
Such fees and charges shall be payable (i) in the case of any Letter of Credit,
monthly thereafter in advance, (ii) in the case of a standby Letter of Credit,
(A) monthly thereafter in advance and (B) upon each increase in the outstanding
amount thereof, and (iii) in the case of any Letter of Credit that is not a
standby Letter of Credit, at the time of each increase in face amount thereof.
All Letter of Credit Fees payable hereunder shall be deemed earned in full on
the date when the same are due and payable hereunder and shall not be subject to
rebate or proration upon the termination of this Agreement for any reason.
(b) On demand, Borrowers will cause cash to be deposited and
maintained in an account with Lender, as cash collateral, in an amount equal to
outstanding Letters of Credit and Borrowers hereby irrevocably authorize Lender,
in its discretion, on Borrowers' behalf and in each Borrowers' name, to open
such an account and to make and maintain deposits therein, or in an account
opened by Borrowers, in the amounts required to be made by Borrowers, out of the
proceeds of Receivables or other Collateral or out of any other funds of
Borrowers coming into Lender's possession at any
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time. Borrowers may not withdraw amounts credited to any such account except
upon payment and performance in full of all Obligations and termination of this
Agreement. In the event Borrower shall deposit with Lender cash collateral as
provided herein, Lender agrees to release any Reserve established in respect of
such outstanding Letters of Credit to the extent of such cash collateral.
3.3 Closing Fee. Upon the execution of this Agreement, Borrowers,
jointly and severally with Ditel, shall pay to Lender a closing fee of $75,000,
less that portion of the commitment fee in the amount of $37,500 heretofore paid
by Borrowers and Ditel to Lender.
3.4 Collateral Monitoring Fee. Borrowers, jointly and severally with
Ditel, shall pay to Lender monthly, on the first day of each month a collateral
monitoring fee in an amount equal to $1,500 per month.
3.5 Unused Facility Fees. (a) Borrowers, jointly and severally with
Ditel, shall pay to Lender monthly, on the first day of the month for the
immediately preceding month, if the sum of (i) the average closing daily balance
of all Revolving Advances and amounts due under Letters of Credit outstanding
during any such calendar month, and (ii) the average closing daily balance of
all "Revolving Advances" and amounts due under "Letters of Credit" outstanding
during any such calendar month under, and as said quoted terms are defined in
the Affiliate Loan Agreements (for each month, collectively, the "Average Daily
Closing Revolver Balances") is, in the aggregate, less than the Maximum
Revolving Advance Amount (such difference for each month, the "Applicable
Revolver Amount"), an unused facility fee at a rate equal to one eighth of one
percent (.125%) per annum of the Applicable Revolver Amount.
(b) From the date hereof up to January 1, 1999, Borrowers,
jointly and severally with Ditel, shall pay to Lender monthly, on the first day
of the month for the immediately preceding month, if the sum of (i) the average
closing daily balance of all Cap/Ex Loans outstanding during any such calendar
month, and (ii) the average closing daily balance of all "Cap/Ex Loans" under,
and as said quoted term is defined in the Affiliate Loan Agreements (for each
month, collectively, the "Average Daily Closing Cap/Ex Balances") is, in the
aggregate, less than $6,500,000 (the "Applicable Cap/Ex Amount"), an unused
facility fee at a rate equal to one eighth of one percent (.125%) per annum by
which the Applicable Cap/Ex Amount exceeds such Average Daily Closing Cap/Ex
Balances.
3.6 Computation of Interest and Fees. Interest and fees hereunder shall
be computed on the basis of a year of 360 days and for the actual number of days
elapsed. If any payment to be made hereunder becomes due and payable on a day
other than a Business Day, the due date thereof shall be extended to the next
succeeding Business Day and interest thereon shall be payable at the applicable
Contract Rate during such extension.
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3.7 Maximum Charges. In no event whatsoever shall interest and other
charges charged hereunder exceed the highest rate permissible under law which a
court of competent jurisdiction shall, in a final determination, deem applicable
hereto. In the event that a court determines that Lender has received interest
and other charges hereunder in excess of the highest rate applicable hereto,
such excess interest shall be first applied to any unpaid principal balance owed
by Borrowers, and if the then remaining excess interest is greater than the
previously unpaid principal balance, the Lender shall promptly refund such
excess amount to Borrowers and the provisions hereof shall be deemed amended to
provide for such permissible rate.
3.8 Increased Costs. In the event that any applicable law, treaty or
governmental regulation, or any change therein or in the interpretation or
application thereof, or compliance by the Lender (for purposes of this Section
3.8, the term "Lender" shall include Lender or any corporation or bank
controlling Lender) with any request or directive (whether or not having the
force of law) from any central bank or other financial, monetary or other
authority, shall:
(a) subject the Lender to any tax of any kind whatsoever with
respect to this Agreement or any Advance or change the basis of taxation of
payments to the Lender of principal, fees, interest or any other amount payable
hereunder or under any Other Documents (except for changes in the rate of tax on
the overall net income of the Lender by the jurisdiction in which it maintains
its principal office);
(b) impose, modify or hold applicable any reserve, special
deposit, assessment or similar requirement against assets held by, or deposits
in or for the account of, advances or loans by, or other credit extended by, any
office of the Lender, including (without limitation) pursuant to Regulation D of
the Board of Governors of the Federal Reserve System; or
(c) impose on the Lender any other condition with respect to
this Agreement, any Other Documents or any other Advances; and the result of any
of the foregoing is to increase the cost to the Lender of making, renewing or
maintaining its Advances hereunder by an amount that Lender deems to be material
or to reduce the amount of any payment (whether of principal, interest or
otherwise) in respect of any of the Advances by an amount that the Lender deems
to be material, then, in any case the Borrowers shall promptly pay the Lender,
upon its demand, such additional amount as will compensate the Lender for such
additional cost or such reduction, as the case may be. The Lender shall certify
the amount of such additional cost or reduced amount to the Borrowers, and such
certification shall be conclusive absent manifest error.
3.9 Capital Adequacy.
(a) In the event that the Lender shall have determined that
any applicable law, rule, regulation or guideline regarding capital adequacy, or
any change therein, or any change in the interpretation or administration
thereof by any governmental authority,
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central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Lender (for purposes of this
Section 3.9, the term "Lender" shall include Lender and any corporation or bank
controlling Lender) and the office or branch where Lender (as so defined) makes
or maintains any Advances with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on the Lender's capital as a consequence of its obligations hereunder to
a level below that which the Lender could have achieved but for such adoption,
change or compliance (taking into consideration the Lender's policies with
respect to capital adequacy) by an amount deemed by the Lender to be material,
then, from time to time, the Borrowers shall pay upon demand to the Lender such
additional amount or amounts as will compensate the Lender for such reduction.
In determining such amount or amounts, the Lender may use any reasonable
averaging attribution methods. The protection of this Section 3.9 shall be
available to the Lender regardless of any possible contention of invalidity or
inapplicability of the law, regulation or condition which shall have been
imposed.
(b) A certificate of the Lender setting forth such amount or
amounts as shall be necessary to compensate the Lender as specified in this
Section 3.9 shall be delivered to the Borrowers and shall be conclusive absent
manifest error.
3.10 Survival. The obligations of the Borrowers under this Article 3
shall survive termination of this Agreement and the Other Documents.
4. COLLATERAL: GENERAL TERMS.
4.1 Security Interest in the Collateral. To secure the prompt payment
and performance to Lender of the Obligations, Borrowers hereby assign, pledge
and grant to Lender a continuing security interest in and to all of the
Collateral, whether now owned or existing or hereafter acquired or arising and
wheresoever located. Borrowers shall mark their books and records as may be
necessary and appropriate to evidence, protect and perfect Lender's security
interest and shall cause its financial statements to reflect such security
interest.
4.2 Perfection of Security Interest. Borrowers shall take all action
that may be necessary or desirable, or that Lender may request, so as at all
time to maintain the validity, perfection, enforceability and priority of
Lender's security interest in the Collateral or to enable Lender to protect,
exercise or enforce its rights hereunder and in the Collateral, including, but
not limited to (i) immediately discharging all Liens other than Permitted
Encumbrances, (ii) obtaining landlords' or mortgagees' lien waivers, (iii)
delivering to Lender, endorsed or accompanied by such instruments of assignment
as Lender may specify, and stamping or marking, in such manner as Lender may
specify, any and all chattel paper, instruments, letters of credit and advices
thereof and documents evidencing or forming a part of the Collateral, (iv)
entering into warehousing, lockbox and other custodial arrangements satisfactory
to Lender, and (v) executing and delivering
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financing statements, instruments of pledge, mortgages, notices and assignments,
in each case in form and substance satisfactory to Lender, relating to the
creation, validity, perfection, maintenance or continuation of Lender's security
interest under the Uniform Commercial Code or other applicable law. All charges,
expenses and fees the Lender may incur in doing any of the foregoing, and any
local taxes relating thereto, shall be charged to any account of the Borrowers
and added to the Obligations, or at the Lender's option, shall be paid to the
Lender immediately upon demand.
4.3 Disposition of Collateral. The Borrowers will safeguard and protect
all Collateral for the Lender's general account and make no disposition thereof
whether by sale, lease or otherwise except (a) the sale of Inventory in the
ordinary course of business and (b) the disposition or transfer of obsolete and
worn-out Equipment in the ordinary course of business during any fiscal year
having an aggregate fair market value of not more than $150,000 (net of taxes
and expenses) and only to the extent that (i) the proceeds for any such
disposition are used to acquire replacement Equipment which is subject to
Lender's first priority security interest or (ii) the proceeds of which are
remitted to Lender as a prepayment on the Cap/Ex Term Loan. Borrowers shall
remit to Lender the net proceeds of any such sale or disposition immediately
upon receipt thereof. Borrowers shall only be permitted to use the proceeds of
any such disposition to acquire replacement Equipment if Borrowers provide
Lender with notice of its intent to acquire replacement Equipment within thirty
(30) days after the receipt of such proceeds by Borrowers. In the event such
notice is not received by Lender within such thirty (30) day period, or such
replacement Equipment is not purchased within ninety (90) days after such notice
is received by Lender, said proceeds shall be immediately applied by Lender in
respect of the Cap/Ex Term Loan.
4.4 Preservation of Collateral. In addition to the rights and remedies
set forth in Section 11.1 hereof, the Lender: (a) may at any time take such
steps as the Lender deems necessary to protect the Lender's interest in and to
preserve the Collateral, including after the occurrence of an Event of Default
and during its continuance, the hiring of such security guards for the placing
of such security protection measures as the Lender may deem appropriate; (b) may
employ and maintain at any of the Borrowers' premises a custodian who shall have
full authority to do all acts necessary in Lender's good faith judgment to
protect the Lender's interests in the Collateral; (c) after the occurrence of an
Event of Default and during its continuance, may lease warehouse facilities to
which the Lender may move all or part of the Collateral; (d) after the
occurrence of an Event of Default and during its continuance, may use any of the
Borrowers' owned or leased lifts, hoists, trucks and other facilities or
equipment for handling or removing the Collateral; and (e) shall have, and is
hereby granted, a right of ingress and egress to the places where the Collateral
is located, and may proceed over and through any of the Borrowers' owned or
leased property. The Borrowers shall cooperate fully with all of the Lender's
efforts to preserve the Collateral and will take such actions to preserve the
Collateral as the Lender may direct. All of the Lender's expenses of preserving
the Collateral, including any expenses relating to the bonding of a custodian,
shall be charged to the Borrowers' account and added to the Obligations.
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4.5 Ownership of Collateral. With respect to the Collateral, at the
time the Collateral becomes subject to the Lender's security interest: (a) the
Borrowers shall be the sole owner of and fully authorized and able to sell,
transfer, pledge and/or grant a first security interest in each an every item of
the Collateral to the Lender; and, except for Permitted Encumbrances the
Collateral shall be free and clear of all Liens, Claims, Charges and
encumbrances whatsoever; (b) each document and agreement executed by Borrowers
or delivered to Lender in connection with this Agreement shall be true and
correct in all respects; (c) all signatures and endorsements of Borrowers that
appear on such documents and agreements shall be genuine and Borrowers shall
have full capacity to execute same; and (d) Borrowers' Equipment and Inventory
is located as set forth on Exhibit 4.5 and shall not be removed from such
location(s) without the prior written consent of the Lender except (i) with
respect to the sale of Inventory in the ordinary course of business and
Equipment to the extent permitted in Section 4.3 hereof, (ii) the relocation of
Inventory and/or Equipment to any of the locations set forth in Exhibit 4.5
(other than the relocation to processors which shall be governed by the
provisions of Section 4.5(d)(iii) below), provided that, with respect to the
relocation of Equipment, Lender receives not less than thirty (30) days prior
written notice of any intended relocation, except that, Borrowers shall not be
permitted to relocate or move any Equipment to the Dominican Republic from the
United States, the Commonwealth of Puerto Rico or otherwise without Lender's
prior written consent, and (iii) the relocation of any of the Borrower's molds,
tools, dies and goods to any location specified in Exhibit 4.5 as a processor
location, provided that, in connection therewith, at Lender's option, Industries
and Ditel shall use their best efforts to cause any such processor designated by
Lender to execute and deliver in favor of Lender an acknowledgment and waiver in
form and substance satisfactory to Lender and the aggregate amount of all such
molds, tools and dies delivered to such processors shall not, without Lender's
prior written consent, exceed at any given time an aggregate original cost of
$600,000, subject to adjustment from time to time in Lender's sole discretion.
4.6 Defense of Lender's Interests. Until (a) payment and performance in
full of all of Obligations and (b) termination of this Agreement, the Lender's
interests in the Collateral hereby granted to the Lender shall continue in full
force and effect. During such period, the Borrowers shall not, without the
Lender's prior written consent, pledge, sell or transfer (except Inventory in
the ordinary course of business and Equipment to the extent permitted in Section
4.3 hereof, and except as otherwise expressly permitted by this Agreement and
the Other Documents), pledge, assign, create or suffer to exist a security
interest in, Lien, Claim or Charge upon or encumber or allow or suffer to be
encumbered in any way except for Permitted Encumbrances, any part of the
Collateral. The Borrowers shall defend the Lender's interests in the Collateral
against any and all persons whatsoever. In connection with the exercise of its
rights under Section 11 hereof, Lender shall have the right to take possession
of the indicia of the Collateral and the Collateral in whatever physical form
contained, including without limitation: labels, stationery, documents,
instruments and advertising materials. If Lender exercises this right to take
possession of the Collateral, Borrowers shall, upon demand, assemble it in the
best manner possible and make it available to Lender at a place reasonably
convenient to
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Lender. In addition, with respect to all Collateral, Lender shall be entitled to
all of the rights and remedies set forth herein and further provided by the
Uniform Commercial Code or other applicable law. Borrowers shall, and Lender
may, at its option, instruct all suppliers, carriers, forwarders, warehouses or
others receiving or holding cash, checks, Inventory, documents or instruments in
which Lender holds a security interest to deliver same to Lender and/or subject
to Lender's order and if they shall come into Borrowers' possession, they, and
each of them, shall be held by Borrowers in trust as Lender's trustee, and
Borrowers will immediately deliver them to Lender in their original form
together with any necessary endorsement.
4.7 Books and Records. The Borrowers (a) shall keep proper books of
record and account in which full, true and correct entries will be made of all
dealings or transactions of or in relation to its business and affairs; (b) set
up on their books, accruals with respect to all taxes, assessments, charges,
levies and claims; and (c) on a reasonably current basis set up on their books,
from their earnings, allowances against doubtful Receivables, advances and
investments and all other proper accruals (including without limitation by
reason of enumeration, accruals for premiums, if any, due on required payments
and accruals for depreciation, obsolescence, or amortization of properties),
which should be set aside from such earnings in connection with its business.
All determinations pursuant to this subsection shall be made in accordance with,
or as required by, GAAP consistently applied and, to the extent applicable, in
the opinion of such independent public accountant as shall then be regularly
engaged by Borrowers.
4.8 Financial Disclosure. The Borrowers hereby irrevocably authorize
and direct all accountants and auditors employed by the Borrowers at any time
during the term of this Agreement to exhibit and deliver to Lender copies of any
of the Borrowers' financial statements, trial balances or other accounting
records of any sort in the accountant's or auditor's possession, and to disclose
to Lender any information such accountants may have concerning the Borrowers'
financial status and business operations. The Borrowers hereby authorize all
federal, state and municipal authorities to furnish to Lender copies of reports
or examinations relating to the Borrowers, whether made by the Borrowers or
otherwise; however, Lender will attempt to obtain such information or materials
directly from the Borrowers prior to obtaining such information or materials
from such accountants.
4.9 Compliance with Laws. The Borrowers shall comply in all materials
respects with all acts, rules, regulations and orders of any legislative,
administrative or judicial body or official applicable to the Collateral or any
part thereof or to the operation of the Borrowers' business the non-compliance
with which would have a material adverse effect on the Collateral, or the
operations, business or condition (financial or otherwise) of the Borrowers. The
Borrowers may, however, contest or dispute any acts, rules, regulations, orders
and directions of those bodies or officials in any reasonable manner, provided
that any related lien is inchoate or stayed and sufficient reserves are
established to the reasonable satisfaction of the Lender to protect the Lender's
lien on or security interest in the Collateral.
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4.10 Inspection of Premises. At all reasonable times, Lender shall have
full access to and the right to audit, check, inspect and make abstracts and
copies from the Borrowers' books, records, audits, correspondence and all other
papers relating to the Collateral and the operation of Borrowers' business. Such
audits, checks, inspections and the making of abstracts shall be at Borrowers'
expense, except that, prior to an Event of Default or an unsatisfactory
inspection, as determined by Lender in its sole discretion, Borrowers shall only
be required to reimburse Lender for Lender's costs and expenses incurred in
connection with not more than three such audits, checks, inspections or making
of abstracts per annum. Lender and its agents may enter upon any of the
Borrowers' premises at any time during business hours and at any other
reasonable time, and from time to time, for the purpose of inspecting the
Collateral and any and all records pertaining thereto and the operation of
Borrowers' business.
4.11 Insurance. Borrowers shall bear the full risk of loss from any
loss of any nature whatsoever with respect to the Collateral. At the Borrowers'
own cost and expense in amounts and with carriers acceptable to Lender, the
Borrowers shall (a) keep all its insurable properties and properties in which
the Borrowers have an interest insured against the hazards of fire, flood,
sprinkler leakage, those hazards covered by extended coverage insurance and such
other hazards, and for such amounts, as is customary in the case of companies
engaged in businesses similar to Borrowers' including, without limitation,
business interruption insurance; (b) maintain a bond in such amounts as is
customary in the case of companies engaged in business similar to Borrowers'
insuring against larceny, embezzlement or other criminal misappropriation of
insured's officers and employees who may either singly or jointly with others at
any time have access to the assets or funds of Borrowers either directly or
through authority to draw upon such funds or to direct generally the disposition
of such assets; (c) maintain public and product liability insurance against
claims for personal injury, death or property damage suffered by others; (d)
maintain all such workmen's compensation or similar insurance as may be required
under the laws of any state or jurisdiction in which Borrowers are engaged in
business; (e) furnish Lender with (i) copies of all policies and evidence of the
maintenance of such policies by the renewal thereof at least ten (10) days
before any expiration date, and (ii) appropriate loss payable endorsements in
form and substance satisfactory to the Lender, naming the Lender as loss payee
as its interests may appear with respect to all insurance coverage referred to
in clauses (a), and (b) above, and providing (A) that all proceeds thereunder
shall be payable to the Lender, (B) no such insurance shall be affected by any
act or neglect of the insured or owner of the property described in such policy,
and (C) that such policy and loss payable clauses may not be cancelled, amended
or terminated unless at least thirty (30) days' prior written notice is given to
the Lender. In the event of any loss thereunder, the carriers named therein
hereby are directed by the Lender and Borrowers to make payment for such loss to
the Lender and not to the Borrowers and the Lender jointly. If any insurance
losses are paid by check, draft or other instrument payable to the Borrowers and
the Lender jointly, the Lender may endorse the applicable Borrower's name
thereon and do such other things as the Lender may deem advisable to reduce the
same to cash. The Lender in its discretion, reasonably exercised, is hereby
authorized to adjust and compromise claims under insurance coverage referred to
in clauses (a) and (b) above;
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except that, so long as no Event of Default exists and is continuing, Borrower,
with Lender's consent, which consent shall not be unreasonably withheld, shall
adjust and compromise claims under insurance coverage referred to in clauses (a)
and (b) above. All loss recoveries received by Lender upon any such insurance
may be applied to the Obligations, in such order as Lender in its sole
discretion shall determine. Any surplus shall be paid by the Lender to the
Borrowers or applied as may be otherwise required by law. Any deficiency thereon
shall be paid by the Borrowers to the Lender in respect of any then due
Obligations. Anything hereinabove to the contrary notwithstanding, and subject
to the fulfillment of the conditions set forth below, Lender shall remit to
Borrowers insurance proceeds received by Lender during any calendar year under
insurance policies procured and maintained by Borrowers which insure Borrowers'
insurable properties to the extent such insurance proceeds do not exceed
$100,000 in the aggregate during such calendar year or $25,000 per occurrence.
In the event the amount of insurance proceeds received by the Lender for any
occurrence exceeds $25,000, then the Lender shall not be obligated to remit the
insurance proceeds to Borrowers unless Borrowers shall provide Lender with
evidence reasonably satisfactory to Lender that the insurance proceeds will be
used by Borrowers to repair, replace or restore the insured property which was
the subject of the insurable loss. In the event Borrowers have previously
received (or, after giving effect to any proposed remittance by Lender to
Borrowers would receive) insurance proceeds which equal or exceed $100,000 in
the aggregate during any calendar year, and provided no Event of Default shall
exist, then upon Borrowers' written request, which request shall be made within
thirty (30) days from the receipt of any such proceeds, Lender shall remit such
insurance proceeds to Borrowers upon Borrowers providing Lender with evidence
reasonably satisfactory to Lender that the insurance proceeds will be used by
Borrowers to repair, replace or restore the insured property which was the
subject of the insurable loss. In the event Lender fails to receive any request
within such thirty (30) day period or Borrowers fail to repair, replace or
restore the insured property within ninety (90) days from the date Lender
receives such insurance proceeds, then Lender shall immediately apply such
insurance proceeds in respect of the Cap/Ex Loans in accordance with Section 2.2
(e) hereof.
4.12 Failure to Pay Insurance. If the Borrowers fail to obtain
insurance as hereinabove provided, or to keep the same in force, the Lender, if
the Lender so elects, may obtain such insurance and pay the premium therefor for
the Borrowers' account, and charge any account of Borrowers therefore and such
expenses so paid shall be part of the Obligations.
4.13 Payment of Taxes. The Borrowers will pay, when due, all taxes,
assessments and other Charges or Claims lawfully levied or assessed upon
Borrowers or any of the Collateral including, without limitation, real and
personal property taxes, assessments and charges and all franchise, income,
employment, old age benefits, withholding, and sales taxes. If any tax by any
governmental authority is or may be imposed on or as a result of any transaction
between Borrowers and Lender with Lender may be required to withhold or pay or
if any taxes, assessments, or other Charges remain unpaid after the date fixed
for their payment, or if any Claim shall be made which, in the
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Lender's opinion, may possibly create a valid Lien, Charge or Claim on the
Collateral, the Lender may without notice to Borrowers pay the taxes,
assessments, Liens, Charges or Claims and Borrowers hereby indemnify and hold
Lender harmless in respect thereof. The Lender will not pay any taxes,
assessments, Liens, Charges or Claims to the extent that Borrowers have
contested or disputed those Liens, Charges and Claims in good faith, by
expeditious protest, administrative or judicial appeal or similar proceeding
provided that any related tax lien is stayed and sufficient reserves are
established to the reasonable satisfaction of the Lender to protect the Lender's
security interest in or Lien on the Collateral. The amount of any payment by
Lender under this Section 4.13 shall be deemed to be a Revolving Advance and
shall be charged to any account of the Borrowers as an Alternate Base Rate
Advance and added to the Obligations and, until Borrowers shall furnish Lender
with an indemnity therefore (or supply Lender with evidence satisfactory to
Lender that due provision for the payment thereof has been made), Lender may
hold without interest any balance standing to Borrowers' credit and Lender shall
retain its security interest in any and all Collateral held by Lender. Nothing
contained herein shall require or be deemed to require Borrowers to pay any
income tax of Lender or any income tax which may be payable by Lender for income
earned by Lender in respect of the loans made hereunder.
4.14 Payment of Leasehold Obligations. The Borrowers shall at all times
pay, when and as due, their rental obligations under all real estate leases
under which they are tenants, and shall otherwise comply, in all material
respects, with all other terms of such leases and keep them in full force and
effect and, at the Lender's request will provide evidence of having done so.
4.15 Receivables.
(a) Nature of Receivables. Each of the Receivables shall be a
bona fide and valid account representing a bona fide indebtedness incurred by
the Customer therein named, for a fixed sum as set forth in the invoice relating
thereto (provided immaterial or unintentional invoice errors shall not be deemed
to be a breach hereof) with respect to an absolute sale or lease and delivery of
goods upon stated terms of the Borrowers, or work, labor or services theretofore
rendered by the Borrowers and as of the date each Receivable is created, same
shall be due and owing in accordance with Borrowers' standard terms of sale
without dispute, setoff or counterclaim except as may be stated on the accounts
receivable schedules delivered by the Borrowers to the Lender.
(b) Solvency of Customers. Each Customer, to the best of the
Borrowers' knowledge, as of the date each Receivable with respect to such
Customer is created, is and will be solvent and able to pay all Receivables on
which the Customer is obligated in full when due. With respect to such Customers
of Borrowers who are not solvent, the Borrowers have set up on its books and in
its financial records bad debt reserves adequate to cover such Receivables.
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(c) Location of Borrowers. The Borrowers' chief executive
office is located at 1385 Akron Street, Copiague, New York 11726. Until written
notice is given to the Lender by Borrowers of any other office at which
Borrowers keeps records pertaining to Receivables, all such records shall be
kept at such executive office or at any of the other locations listed on Exhibit
4.5.
(d) Collection of Receivables. Until the Borrowers' authority
to do so is terminated by the Lender (which notice the Lender may give at any
time following the occurrence of an Event of Default or when the Lender in its
sole discretion reasonably exercised deems it to be in the Lender's best
interest to do so), the Borrowers will, at the Borrowers' sole cost and expense,
but on the Lender's behalf and for the Lender's account, collect as proceeds of
the Lender's Collateral and in trust for the Lender all amounts received on
Receivables, and shall not commingle such collections with the Borrowers' funds
or use the same except to pay Obligations. The Borrowers shall, upon request,
deliver to the Lender in original form and on the date of receipt thereof, all
checks, drafts, notes, money orders, acceptances, cash and other evidences of
Indebtedness.
(e) Notification of Assignment of Receivables. At any time
after the occurrence of an Event of Default or Incipient Event of Default,
Lender shall have the right to send notice of the assignment of, and the
Lender's security interest in, the Receivables to any and all Customers or any
third party holding or otherwise concerned with any of the Collateral.
Thereafter, the Lender shall have the sole right to collect the Receivables,
take possession of the Collateral, or both. All costs, fees and expenses,
including stationery and postage, telephone and telegraph, secretarial and
clerical expenses and the salaries of any collection personnel used for
collection, may be charged to the Borrowers' account and added to the
Obligations.
(f) Power of Lender to Act on Borrowers' Behalf. The Lender
shall have the right to receive, endorse, assign and/or deliver in the name of
the Lender or the Borrowers any and all checks, drafts and other instruments for
the payment of money relating to the Receivables, and the Borrowers hereby waive
notice of presentment, protest and non-payment of any instrument so endorsed.
The Borrowers hereby constitute the Lender or the Lender's designee as the
Borrowers' attorney-in-fact with power (i) to endorse the applicable Borrower's
name upon any notes, acceptances, checks, drafts, money orders or other
evidences of payment or Collateral; (ii) to sign the applicable Borrower's name
on any invoice or bill of lading relating to any of the Receivables; (iii) to
send verifications of Receivables, drafts against Customers, assignments and
verifications of Receivables; (iv) to send verifications of Receivables to any
Customer; (v) to sign the applicable Borrower's name on all financing statements
or any other documents or instruments deemed necessary or appropriate by the
Lender to preserve, protect, or perfect the Lender's interest in the Collateral
and to file same; (vi) upon the occurrence of an Event of Default and during its
continuance, to demand payment of the Receivables; (vii) upon the occurrence of
an Event of Default and during its continuance, to enforce payment of the
Receivables by legal proceedings or otherwise; (viii) upon the occurrence of an
Event of Default and during its continuance, to exercise all of Borrowers'
rights and
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remedies with respect to the collection of the Receivables and any other
Collateral; (ix) upon the occurrence of an Event of Default and during its
continuance, to settle, adjust, compromise, extend or renew the Receivables; (x)
upon the occurrence of an Event of Default and during its continuance, to
settle, adjust or compromise any legal proceedings brought to collect
Receivables; (xi) upon the occurrence of an Event of Default and during its
continuance, to prepare, file and sign the applicable Borrower's name on a proof
of claim in bankruptcy or similar document against any account debtor; (xii) to
prepare, file and sign the applicable Borrower's name on any notice of Lien,
assignment or satisfaction of Lien or similar document in connection with the
Receivables; and (xiii) to do all other acts and things necessary to carry out
this Agreement. All acts of said attorney or designee are hereby ratified and
approved, and said attorney or designee shall not be liable for any acts of
omission or commission nor for any error of judgment or mistake of fact or of
law, unless done maliciously or with gross negligence; this power being coupled
with an interest is irrevocable while any of the Obligations remain unpaid. The
Lender shall have the right at any time following the occurrence of an Event of
Default to change the address for delivery of mail addressed to the Borrowers to
such address as the Lender may designate.
(g) No Liability. The Lender shall not, under any
circumstances or in any event whatsoever, have any liability for any error or
omission or delay of any kind occurring in the settlement, collection or payment
of any of the Receivables or any instrument received in payment thereof, or for
any damage resulting therefrom other than due to Lender's gross negligence or
willful misconduct, except that, in no event shall Lender be liable for lost
profits or other special or consequential damages. Upon the occurrence of an
Event of Default and during its continuance, the Lender may, without notice or
consent from the Borrowers, sue upon or otherwise collect, extend the time of
payment of, compromise or settle for cash, credit or upon any terms any of the
Receivables or any other securities, instruments or insurance applicable thereto
and/or release any obligor thereof. The Lender is authorized and empowered to
accept following the occurrence of an Event of Default the return of the goods
represented by any of the Receivables, without notice to or consent by the
Borrowers, all without discharging or in any way affecting the Borrowers'
liability hereunder.
(h) Establishment of a Lockbox Account, Dominion Account. All
proceeds of Receivables shall, at the direction of Lender, be deposited by the
Borrowers into a lockbox account, dominion account or such other "blocked
account" ("Blocked Accounts") as Lender may require pursuant to an arrangement
with such bank as may be selected by Borrowers and be acceptable to Lender. The
Borrowers shall issue to any such bank, an irrevocable letter of instruction
directing said bank to transfer such funds so deposited to the Lender, either to
any account maintained by the Lender at said bank or by wire transfer to
appropriate account(s) of the Lender. All funds deposited in such "blocked
account" shall immediately become subject to Lender's first priority security
interest and the Borrowers shall obtain the agreement by such bank to waive any
offset rights against the funds so deposited. Lender assumes no responsibility
for such "blocked account" arrangement, including without limitation, any claim
of accord and satisfaction or release
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with respect to deposits accepted by any bank thereunder. Alternatively, Lender
may establish depository accounts ("Depository Accounts") in the name of Lender
at a bank or banks for the deposit for such funds and Borrowers shall deposit
all proceeds of Receivables or cause same to be deposited, in kind, in such
Depository Accounts of Lender in lieu of depositing same to the Blocked
Accounts.
4.16 Inventory. All Inventory has been, and will be produced by
Borrowers in accordance with the Federal Fair Labor Standards Act of 1938, as
amended, and all rules, regulations and orders thereunder.
4.17 Maintenance of Equipment. The Equipment shall be maintained in
good operating condition and repair (reasonable wear and tear excepted) and all
necessary replacements of and repairs thereto shall be made so that the value
and operating efficiency of the Equipment shall be maintained and preserved.
Borrowers shall have the right to sell Equipment to the extent set forth in
Section 4.3 hereof.
4.18 Exculpation of Liability. Nothing herein contained shall be
construed to constitute the Lender as the Borrowers' agent for any purpose
whatsoever, nor shall the Lender be responsible or liable for any shortage,
discrepancy, damage, loss or destruction of any part of the Collateral wherever
the same may be located and regardless of the cause thereof other than any
damage, loss or destruction to the Collateral actually arising as a direct and
sole result of Lender's gross negligence or willful misconduct. The Lender does
not, whether by anything herein or in any assignment or otherwise, assume any of
the Borrowers' obligations under any contract or agreement assigned to the
Lender, and the Lender shall not be responsible in any way for the performance
by the Borrowers of any of the terms and conditions thereof.
4.19 Environmental Matters. (a) Borrowers will ensure that the Real
Property remains in substantial compliance with all Environmental Laws and
Borrowers will not place or permit to be placed any Hazardous Substances on any
Real Property except as not prohibited by applicable law and appropriate
governmental authorities.
(b) Borrowers will establish and maintain a system to assure
and monitor continued compliance with all applicable Environmental Laws which
system shall include periodic review of such compliance.
(c) Borrowers will (i) employ in connection with its use of
the Real Property appropriate technology necessary to maintain compliance with
any applicable Environmental Laws and (ii) dispose of any and all Hazardous
Waste generated at the Real Property only at facilities and with carriers that
maintain valid permits under RCRA and any other applicable Environmental Laws.
Borrowers shall use their best efforts to obtain certificates of disposal, such
as hazardous waste manifest receipts, from all treatment, transport, storage or
disposal facilities or operators employed by the Borrowers in connection with
the transport or disposal of any Hazardous Waste generated at the Real Property.
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(d) In the event the Borrowers obtain, give or receive notice
of any Release of Release of a reportable quantity of any Hazardous Substances
at the Real Property (any such even being hereinafter referred to as a
"Hazardous Discharge") or receives any notice of violation, request for
information or notification that Borrowers are potentially responsible for
investigation or cleanup of environmental conditions at the Real Property,
demand letter or complaint, order, citation, or other written notice with regard
to any Hazardous Discharge or violation of Environmental Laws affecting the Real
Property or Borrowers' interest therein (any of the foregoing is referred to
herein as an "Environmental Complaint") from any Person or entity, including any
state agency responsible in whole or in part for environmental matters in the
state in which the Real Property is located or the United States Environmental
Protection Agency (any such person or entity hereinafter the "Authority"), then
the Borrowers shall, within five (5) Business Days, give written notice of same
to the Lender detailing non-privileged and non-confidential facts and
circumstances of which the Borrowers are aware giving rise to the Hazardous
Discharge or Environmental Complaint. Such information is to be provided to
allow the Lender to protect its security interest in the Real Property and is
not intended to create nor shall it create any obligation upon the Lender with
respect thereto.
(e) Borrowers shall promptly forward to the Lender copies of
any request for information, notification of potential liability, demand letter
relating to potential responsibility with respect to the investigation or
cleanup of Hazardous Substances at any other site owned, operated or used by
Borrowers to dispose of Hazardous Substances and shall continue to forward
copies of correspondence between the Borrowers and the Authority regarding such
claims to the Lender until the claim is settled. The Borrowers shall promptly
forward to the Lender copies of all documents and reports concerning a hazardous
Discharge at the Real Property that the Borrowers are required to file under any
Environmental Laws. Such information is to be provided solely to allow the
Lender to protect Lender's security interest in the Real Property and the
Collateral.
(f) Borrowers shall respond promptly to any Hazardous
Discharge or Environmental Complaint and take all necessary action in order to
safeguard to health of any Person and to avoid subjecting the Collateral or Real
Property to any Lien. If Borrowers shall fail to respond promptly to any
Hazardous Discharge or Environmental Complaint or Borrowers shall fail to comply
with any of the requirements of any Environmental Laws, the Lender may, but
without the obligation to do so, for the sole purpose of protecting the Lender's
interest in Collateral: (A) give such notices or (B) enter onto the Real
Property (or authorize third parties to enter onto the Real Property) and take
such actions as the Lender (or such third parties as directed by the Lender)
deem reasonably necessary or advisable, to clean up, remove, mitigate or
otherwise deal with any such Hazardous Discharge or Environmental Complaint. All
reasonable costs and expenses incurred by the Lender (or such third parties) in
the exercise of any such rights, including any sums pain in connection with any
judicial or administrative investigation or proceedings, fines and penalties,
together with interest thereon from the date expended at the Default Rate for
Revolving Advances shall be paid upon demand by the Borrowers, and until paid
shall be added to and become a part of the Obligations secured by the Liens
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created by the terms of this Agreement or any other agreement between Lender and
Borrowers.
(g) Promptly upon the written request of the Lender from time
to time, Borrowers shall provide Lender, at the Borrowers' expense, with an
Environmental site assessment or environmental audit report prepared by an
environmental engineering firm acceptable in the reasonable opinion of the
Lender, to assess with a reasonable degree of certainty the existence of a
Hazardous Discharge and the potential costs in connection with abatement,
cleanup and removal of any Hazardous Substances found on, under, at or within
the Real Property. Any report or investigation of such Hazardous Discharge
proposed and acceptable to an appropriate Authority that is charged to oversee
the clean-up of such Hazardous Discharge shall be acceptable to the Lender. If
such estimates, individually or in the aggregate, exceed $100,000, the Lender
shall have the right to require the Borrowers to post a bond, letter of credit
or other security reasonably satisfactory to the Lender to secure payment of
these costs and expenses.
(h) Borrowers shall defend and indemnify the Lender and hold
the Lender harmless from and against all loss, liability, damage and expense,
claims, costs, fines and penalties, including attorney's fees, suffered or
incurred by the Lender under or on account of any Environmental Laws, including
without limitation, the assertion of any lien thereunder, with respect to any
Hazardous Discharge, the presence of any Hazardous Substances affecting the Real
Property, whether or not the same originates or engages from the Real Property
or any contiguous real estate, including any loss of value of the Real Property
as a result of the foregoing except to the extent such loss, liability, damage
and expenses is attributable to any Hazardous Discharge resulting from actions
on the part of the Lender. The Borrowers' obligations under this Section 4.19
shall arise upon the discovery of the presence of any Hazardous Substances at
the Real Property, whether or not any federal, state, or local environmental
agency has taken or threatened any action in connection with the presence of any
Hazardous Substances. The Borrowers' obligation and the indemnifications
hereunder shall survive the termination of this Agreement.
(i) For purposes of this Section 4.19, all references to Real
Property shall be deemed to include all of Borrowers' right, title and interest
in and to leased premises.
5. REPRESENTATIONS AND WARRANTIES.
Each Borrower represents and warrants as follows:
5.1 Authority. Each Borrower has full power, authority and legal right
to enter into this Agreement and the Other Documents and perform all obligations
hereunder. The execution, delivery and performance hereof and of the Other
Documents are within such Borrower's corporate powers, have been duly
authorized, are not in contravention of law or the terms of such Borrower's
by-laws, certificate of incorporation or other applicable documents relating to
such Borrower's formation or to the conduct of such Borrower's business or of
any material agreement or undertaking to which the Borrower is a party or
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by which the Borrower is bound, and will not conflict with nor result in any
breach in any of the provisions of or constitute a default under or result in
the creation of any Lien except Permitted Encumbrances upon any asset of the
Borrower under the provisions of any agreement, charter, instrument, by-law of
other instrument to which the Borrower is a party or by which it may be bound.
5.2 Formation and Qualification. Each Borrower is duly incorporated and
in good standing under the laws of the State of Delaware and is qualified to do
business and is in good standing in the states listed on Exhibit 5.2 which
constitute all states in which qualification and good standing are necessary for
the Borrower to conduct its business and own its properties and where the
failure to so qualify would have a material adverse effect on Borrower or its
business. Borrower has delivered to Lender true and complete copies of its
certificate of incorporation and by-laws and will promptly notify Lender of any
amendment or changes thereto.
5.3 Survival of Representations and Warranties. All representations and
warranties of each Borrower contained in this Agreement and the Other Documents
shall be true at the time of Borrower's execution of this Agreement and the
Other Documents, and shall survive the execution, delivery and acceptance
thereof by Lender and the parties thereto and the closing of the transactions
described therein or related thereto.
5.4 Tax Returns. Industries' federal tax identification number is
66-0328885, and Corporation's federal tax identification number is 11-2113711.
Each Borrower has filed all federal, state and local tax returns and other
reports it is required by law to file and has paid all taxes, assessments, fees
and other governmental charges that are due and payable (unless the same is
being contested as permitted under this Agreement). The provision for taxes on
the books of each Borrower are adequate for all years not closed by applicable
statutes, and for such Borrower's current fiscal year, and Borrower has no
knowledge of any deficiency or additional assessment in connection therewith not
provided for on its books.
5.5 Financial Statements.
(a) The preliminary pro forma consolidated and consolidating
balance sheet of Industries and its Subsidiaries prepared as of March 27, 1998
(the "Pro Forma Balance Sheet") furnished to Lender on the Closing Date reflects
the consummation of the transactions contemplated under this Agreement (the
"Transactions") and is, to the best of Borrowers' knowledge, accurate, complete
and correct in all material respects and fairly reflects Industries' and its
Subsidiaries' consolidated and consolidating financial condition in all material
respects as of the last Friday of the month immediately preceding the Closing
Date after giving effect to the Transactions, and has been prepared in
accordance with GAAP, consistently applied (except for the absence of footnote
or as otherwise disclosed therein). The Pro Forma Balance Sheet has been
certified as accurate, complete and correct in all material respects by the
President and Chief Financial Officer of Industries and its Subsidiaries, to the
best of their knowledge. All financial statements referred to in this Section
5.5(a), including the related schedules and notes thereto, have
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been prepared, in accordance with GAAP, except as may be disclosed in such
financial statements.
(b) The twelve-month consolidated cash flow projections of
Industries and its Subsidiaries, and projected balance sheets, each prepared as
of March 27, 1998, copies of which have been delivered to Lender, were prepared
by the Chief Financial Officer of Industries and its Subsidiaries, are based on
underlying assumptions which provide a reasonable basis for the projections
contained therein and reflect as of such date the judgment of Industries and its
Subsidiaries, based on then present circumstances of the most likely set of
conditions and course of action for the project period. The cash flow
projections and the projected balance sheets referred to in this Section 5.5(b),
together with the Pro Forma Balance Sheet, are referred to as the "Pro Forma
Financial Statements".
(c) (i) The consolidated and consolidating balance sheets of
Industries and its Subsidiaries and such other Persons described therein
(including the accounts of all Subsidiaries for the respective periods during
which a subsidiary relationship existed) as of June 27, 1997, and the related
statements of income, stockholder's equity, and cash flows for the period ended
on such date, all accompanied by reports thereon containing opinions without
qualification by independent certified public accountants, copies of which have
been delivered to Lender, have been prepared in accordance with GAAP, practices
and procedures, consistently applied (except for changes in application in which
such accountants concur, and any absence of footnotes and as otherwise disclosed
therein) and present fairly the consolidated financial position of Industries
and its Subsidiaries at such date and the consolidated results of their
operations for such period. (ii) Since January 30, 1998, and as certified as to
its accuracy by the Chief Financial Officer of Industries and its Subsidiaries,
there has been no material adverse change in the consolidated condition,
financial or otherwise, of Industries and its Subsidiaries as shown on the
consolidated balance sheet as of such date and no change in the aggregate value
of machinery, equipment and Real Property owned by Industries and its
Subsidiaries, except changes in the ordinary course of business.
(d) As of the Closing Date, each of the Borrowers' fiscal
quarters and fiscal months end on the last Friday of each fiscal quarter and
fiscal month, respectively.
5.6 Corporate Name. Each of the Borrowers has not been known by any
other corporate name in the past five years and does not sell Inventory under
any other name except as set forth on Exhibit 5.6, nor have either of the
Borrowers been the surviving corporation of a merger or consolidation or
acquired all or substantially all of the assets of any person during the
preceding five (5) years.
5.7 O.S.H.A. and Environment Compliance.
(a) Each of the Borrowers have duly complied with, and its
facilities, business assets, property, leaseholds and equipment are in
compliance in all material
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respects with, the provisions, of the Federal Occupational Safety and Health
Act, the Environmental Protection Act, RCRA and all other Environmental Laws;
there have been no outstanding citations, notices or orders of non-compliance
issued to Borrowers or relating to their respective business, assets, property,
leaseholds or equipment under any such laws, rules or regulations.
(b) Each of the Borrowers has been issued all required
federal, state and local licenses, certificates or permits relating to, and each
of the Borrowers and their facilities, businesses, assets, property, leaseholds
and equipment are in compliance in all material respects with, all applicable
Environmental Laws.
(c) (i) There are no visible signs of releases, spills,
discharges, leaks or disposal (collectively referred to as "Releases") of
Hazardous Substances at, upon, under or within any Real Property or any premises
leased by Borrowers; (ii) there are no underground storage tanks or
polychlorinated biphenyls on the Real Property or any premises leased by
Borrowers; (iii) neither the Real Property nor any premises leased by Borrowers
have ever been used as a treatment, storage or disposal facility of Hazardous
Waste; and (iv) no Hazardous Substances are present on the Real Property or any
premises leased by Borrowers, excepting such quantities as are handled in
accordance with all applicable manufacturer's instructions and governmental
regulations and in proper storage containers and as are necessary for the
operation of the commercial business of the Borrowers or of its tenants.
(d) Each of the Borrowers hereby indemnifies and holds Lender
harmless from and against any liability, loss, damage, suit, action or
proceeding pertaining to Hazardous Wastes or Toxic Substances at, upon, under or
within any Real Property or any premises leased by Borrowers, including, but not
limited to, claims of any federal, state or municipal government or
quasi-governmental agency or any third person, whether arising under CERCLA,
RCRA, or any other federal, state or municipal law or regulation, or tort,
contract or common law.
5.8 Solvency; No Litigation; Violation.
(a) Each of the Borrowers is solvent, able to pay its debts as
they mature, has capital sufficient to carry on its business and all businesses
in which it is about to engage, and (i) as of the Closing Date, the fair present
saleable value of its assets, calculated on a going concern basis, is in excess
of the amount of its liabilities and (ii) subsequent to the Closing Date, the
fair saleable value of its assets (calculated on a going concern basis) will be
in excess of the amount of its liabilities.
(b) Except as disclosed in Exhibit 5.8(b), or otherwise
disclosed to Lender from time to time in writing, each of the Borrowers has (i)
no pending or threatened litigations, actions or proceedings which involve the
possibility of materially and adversely affecting its business, assets,
operations, condition or prospects, financial or otherwise, or the Collateral,
or the ability of each such Borrower to perform this Agreement, and (ii)
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no liabilities nor indebtedness other than the Obligations, or otherwise as
permitted hereunder.
(c) Each of the Borrowers is not in violation of any
applicable statute, regulation or ordinance in any respect materially and
adversely affecting the Collateral or its business, assets, operations or
condition or prospects, financial or otherwise, nor is such Borrower in
violation of any order of any court, governmental authority or arbitration board
or tribunal.
(d) Each of the Borrowers has received no notice that it is
not in full compliance with any of the requirements of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and its regulations and, (i)
it has not engaged in any Prohibited Transactions as defined in Section 406 of
ERISA and Section 4975 of the Internal Revenue Code as amended, (ii) it has met
all applicable minimum funding requirements under Section 302 of ERISA in
respect of their plans and no funding requirements have been postponed or
delayed, (iii) it has no knowledge of any event or occurrence which would cause
the Pension Benefit Guaranty Corporation to institute proceedings under Title IV
of ERISA to terminate any of the employee benefit plans, (iv) there exists no
event described in Section 4043 of ERISA, excluding subsections 4043(b)(2) and
4043(b)(3) thereof, for which the thirty (30) day notice period contained in 12
CFR Section 2615.3 has not been waived, (v) it does not have any fiduciary
responsibility for investments with respect to any plan existing for the benefit
of persons other than its employees or former employees, and (vi) it has not
withdrawn, completely or partially, from any multi-employer pension plans so as
to incur liability under the Multi-Employer Pension Plan Amendments of 1980.
5.9 Patents, Trademarks, Copyrights and Licenses. All patents, patent
applications, trademarks, trademark applications, copyrights, copyright
applications, tradenames, trade secrets and licenses owned or utilized by each
of the Borrowers are set forth on Exhibit 5.9 (or, if acquired or created after
the Closing Date, are disclosed to Lender in writing), are valid and (to the
extent applicable) have been duly registered or filed with all appropriate
governmental authorities; there is no objection or pending challenge to the
validity of any patent, trademark, copyright, trade name, trade secret or
license which is material to the conduct of Borrowers' business as presently
conducted, and Borrowers are not aware of any grounds for any challenge, except
as set forth in Exhibit 5.9 hereto (or, if acquired or created after the Closing
Date, as disclosed to Lender in writing).
5.10 Licenses and Permits. Except as set forth in Exhibit 5.10, each of
the Borrowers (a) is in compliance with and (b) has procured and is now in
possession of, all material licenses or permits required by any applicable
federal, state or local law or regulation for the operation of its business in
each jurisdiction wherein it is now conducting or proposes to conduct business
and where the failure to procure such licenses or permits would have a material
adverse effect on the business, properties, condition (financial or
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otherwise) or operations, present or prospective, of Industries and its
Subsidiaries on a consolidated basis.
5.11 Default of Indebtedness. Except as disclosed to the Lender in
writing, each of the Borrowers is not in default in the payment of the principal
of or interest on any Indebtedness or under any instrument or agreement under or
subject to which any Indebtedness has been issued and no event has occurred
under the provisions of any such instrument or agreement which with or without
the lapse of time or the giving of notice, or both, constitutes or would
constitute an event of default thereunder.
5.12 No Default. Except as set forth in Exhibit 5.12, or as disclosed
to the Lender from time to time in writing, each of the Borrowers is not in
default in the payment or performance of any of its contractual obligations and
no Incipient Event of Default has occurred.
5.13 No Burdensome Restrictions. Each of the Borrowers is not party to
any contract or agreement the performance of which would affect the business,
assets, operations, condition or prospects (financial or otherwise) of
Industries and its Subsidiaries on a consolidated basis. Each of the Borrowers
has not agreed or consented to cause or permit in the future (upon the happening
of a contingency or otherwise) any of its Property, whether now owned or
hereafter acquired, to be subject to a Lien which is not a Permitted
Encumbrance.
5.14 No Labor Disputes. Each of the Borrowers is not involved in any
labor dispute; there are no strikes or walkouts or union organization of any of
its employees threatened or in existence and no labor contract is scheduled to
expire during the Term; in each case, other than as set forth on Exhibit 5.14
hereto, or as disclosed to the Lender from time to time in writing.
5.15 Margin Regulations. Each of the Borrowers is not engaged, nor will
it engage, principally or as one of its important activities, in the business of
extending credit for the purpose of "purchasing" or "carrying" any "margin
stock" within the respective meanings of each of the quoted terms under
Regulation U or Regulation G of the Board of Governors of the Federal Reserve
System as now and from time to time hereafter in effect. No part of the proceeds
of any Loan will be used for "purchasing" or "carrying" "margin stock" as
defined in Regulation U of such Board of Governors.
5.16 Investment Company Act. Each of the Borrowers is not an
"investment company" registered or required to be registered under the
Investment Company Act of 1940, as amended, nor is it controlled by such a
company.
5.17 Disclosure. No representation or warranty made by any Borrower in
this Agreement, or in any financial statement, report, certificate or any other
document furnished in connection herewith contains any untrue statement of fact
or omits to state any fact necessary to make the statements herein or therein
not misleading. There is no
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fact known to any Borrower or which reasonably should be known to any Borrower
which such Borrower has not disclosed to Lender in writing with respect to the
transactions contemplated by this Agreement which adversely affects the assets
of such Borrower or adversely affects, in any material respect, the condition
(financial or otherwise), results of operations or business of such Borrower.
5.18 Swaps. Each of the Borrowers is not a party to, nor will it be a
party to, any swap agreement whereby such Borrowers has agreed or will agree to
swap interest rates or currencies unless same provides that damages upon
termination following an event of default thereunder are payable on an unlimited
"two-way basis" without regard to fault on the part of either party.
6. AFFIRMATIVE COVENANTS.
Each of the Borrowers covenants and agrees that it shall, until payment
in full of the Obligations and termination of this Agreement:
6.1 Payment of Fees. Pay to Lender on demand all usual and customary
fees and expenses which Lender incurs in connection with (a) the forwarding of
Advance proceeds and (b) the establishment and maintenance of any Blocked
Accounts or Depository Accounts as provided for in Section 4.15(h). Lender may,
without making demand, charge the account of Borrower for all such fees and
expenses.
6.2 Conduct of Business and Maintenance of Existence and Assets. (a)
Conduct continuously and operate actively its business according to good
business practices and maintain all of its properties useful or necessary in
business in good working order and condition (reasonable wear and tear excepted
and except as may be disposed of in accordance with the terms of this
Agreement), including, without limitation, all licenses, patents, copyrights,
tradenames, trade secrets and trademarks; (b) keep in full force and effect its
existence and comply in all material respects with the laws and regulations
governing the conduct of business where the failure to do so would have a
material adverse effect on Borrower or its business; and (c) make all such
reports and pay all such franchise and other taxes and license fees and do all
such other acts and things as may be lawfully required to maintain its rights,
licenses, leases, powers and franchises under the laws of the United States or
any political subdivision thereof where the failure to do so would have a
material adverse effect on Borrower or its business.
6.3 Violations. Promptly notify the Lender in writing of any violation
of any law, statute, regulation or ordinance of any governmental entity, or of
any agency thereof, applicable to the Borrower which may adversely affect the
Collateral or may adversely affect, in any material respect, the Borrowers'
business, assets, operations, condition or prospects (financial or otherwise).
6.4 Government Receivables. Take all steps necessary to protect
Lender's interest in the Collateral under the Federal Assignment of Claims Act
or other applicable
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state or local statutes or ordinances and deliver to the Lender appropriately
endorsed, any instrument or chattel paper connected with any Receivable arising
out of contracts between Borrower and the United States, any state or any
department, agency or instrumentality of any of them.
6.5 Net Worth. Cause to be maintained at all times a consolidated Net
Worth in an amount not less than $30,000,000 ("Minimum Net Worth"). For each of
the Borrowers' fiscal quarters during the Term commencing with the fiscal
quarter beginning June 27, 1998, Minimum Net Worth shall be increased by an
amount equal to fifty percent (50%) of Net Income for each such quarter.
6.6 Pledge of Credit. Not now or hereafter pledge the Lender's credit
on any purchases or for any purpose whatsoever or use any portion of any Advance
in or for any business other than the Borrowers' business as conducted on the
date of this Agreement or as permitted under Section 7.9 hereof.
6.7 Execution of Supplemental Instruments. Execute and deliver to the
Lender from time to time, upon demand, such supplemental agreements, statements,
assignments and transfers, or instructions or documents relating to the
Collateral, and such other instruments as the Lender may reasonably request, in
order that the full intent of this Agreement may be carried into effect.
6.8 Payment of Indebtedness. Pay, discharge or otherwise satisfy at or
before maturity (subject, where applicable, to specified grace periods and, in
the case of the trade payables, to normal payment practices) all of its
obligations and liabilities of whatsoever nature, except when the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and Borrower shall have provided for such reserves as Lender may
reasonably deem proper and necessary, subject at all times to any applicable
subordination arrangement in favor of Lender.
6.9 Standards of Financial Statements. Cause all financial statements
referred to in Section 9.7, 9.8 and 9.9 to be complete and correct in all
material respects (subject, in the case of interim statements, to the absence of
footnotes and to normal year-end audit adjustments) and to be prepared in
reasonable detail and in accordance with GAAP applied consistently throughout
the periods reflected therein (except as concurred in by such reporting
accountants or officer, as the case may be, and disclosed therein).
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7. NEGATIVE COVENANTS.
Each of the Borrowers covenants and agrees that Borrowers shall not,
until satisfaction in full of the Obligations and termination of this Agreement:
7.1 Merger, Consolidation, Acquisition and Sale of Assets.
(a) Enter into any merger, consolidation or other
reorganization with or into any other Person or acquire all or a substantial
portion of the assets or stock of any Person or permit any other Person to
consolidate with or merge with Borrowers, without the prior written consent of
Lender.
(b) Sell, lease, transfer or otherwise dispose of any of
Borrowers' properties or assets, except in the ordinary course of its business
or except as expressly permitted under this Agreement or any Other Document.
7.2 Creation of Liens. Create or suffer to exist any Lien, Charge,
Claim or transfer upon or against any of its properties or assets now owned or
hereafter acquired, except Permitted Encumbrances.
7.3 Guarantees. Become liable upon the obligations of any person, firm
or corporation by assumption, endorsement or guaranty thereof or otherwise
(other than to Lender), except the endorsement of checks in the ordinary course
of business or, in the case of Industries only, guarantees of the obligations of
any Subsidiary of Industries to any trade creditors, provided that, such
guarantees are executed and delivered in connection with Indebtedness incurred
or to be incurred by such Subsidiary in the ordinary course of business and the
aggregate amount of such Indebtedness shall not exceed $100,000.
7.4 Investments. Purchase or acquire obligations or stock of, or any
other interest in, any Person, except (a) obligations issued or guaranteed by
the United States of America or any agency thereof, (b) commercial paper with
maturities of not more than 180 days and a published rating of not less than A-1
or P-1 (or the equivalent rating), (c) certificates of time deposit and bankers'
acceptances having maturities of not more than 180 days and repurchase
agreements backed by United States government securities of a commercial bank if
(i) such bank has a combined capital and surplus of at least $500,000,000, or
(ii) its debt obligations, or those of a holding company of which it is a
Subsidiary, are rated not less than A (or the equivalent rating) by a nationally
recognized investment rating agency, (d) U.S. money market funds that invest
solely in obligations issued or guaranteed by the United States of America or an
agency thereof, and (e) subject to the provisions of Section 10(p) hereof, (i)
Series C Convertible Preferred Stock of Industries, and (ii) OPIC Stock.
7.5 Loans. Make advances, loans or extensions of credit to any Person,
including without limitation, any Parent, Subsidiary or Affiliate except with
respect to (a) the extension of commercial trade credit in connection with the
sale of Inventory in the
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ordinary course of its business, (b) advances made to employees in the ordinary
course of business for valid business purposes in an aggregate amount not to
exceed $50,000 outstanding at any given time, and (c) intercompany loans among
Borrowers and Affiliated Borrowers, provided that, such loans are for valid
business purposes and the maximum outstanding amount of all loans to Crown shall
not, at any time, exceed $50,000.
7.6 Capital Expenditures. Purchase or make any expenditure or
commitments for fixed or capital assets in any fiscal year (including the
purchase price of capital assets that will be subject to capitalized leases but
excluding payments due under capitalized leases during any such fiscal year) in
an aggregate amount (exclusive of any capital expenditures permitted under
Sections 4.3 and 4.11 hereof but inclusive of all capital expenditures
contracted for, purchased or made by Affiliated Borrowers) in excess of (a)
$6,000,000 for the fiscal year ending in June, 1998, (b) $5,000,000 for the
fiscal year ending in June, 1999, (c) $5,800,000 for the fiscal year ending in
June, 2000, and (d) $5,800,000 for the fiscal year ending in June, 2001 and for
each fiscal year thereafter.
7.7 Dividends. Declare, pay or make any dividend or distribution on any
shares of the common stock or preferred stock of Borrower (other than dividends
or distributions payable in its stock, or split-ups or reclassifications of its
stock) or apply any of its funds, property or assets to the purchase, redemption
or other retirement of any common or preferred stock, or of any options to
purchase or acquire any such shares of common or preferred stock of Borrower;
except that, Industries shall be permitted to redeem, repurchase or convert
Industries' Series C Convertible Preferred Stock and/or OPIC Stock, in each case
subject to Section 10(p) hereof.
7.8 Indebtedness. Except as set forth in Exhibit 7.8, create, incur,
assume or suffer to exist any Indebtedness (exclusive of trade debt) of Borrower
except in respect of (i) Indebtedness to Lender; (ii) Indebtedness incurred for
asset purchases or capitalized leases permitted under Section 7.6 hereof; (iii)
other Indebtedness in a maximum aggregate amount outstanding at any time of not
greater than $250,000; (iv) capitalized leases existing as of the Closing Date;
(v) guarantees permitted under Section 7.3; and (vi) intercompany indebtedness
permitted under Section 7.5.
7.9 Nature of Business. Substantially change the nature of the
business, in which Borrower is presently engaged, including engaging any Person
to manufacture goods for the Borrowers, nor except as specifically permitted
hereby purchase or invest, directly or indirectly, in any assets or property
other than in the ordinary course of business for assets or property which are
useful in, necessary for and are to be used in its business.
7.10 Transactions with Affiliates. Directly or indirectly, purchase,
acquire or lease any property from, or sell, transfer or lease any property to,
or otherwise deal with, any Affiliate, except leases and other transactions (to
the extent permitted under the other provisions of this Agreement) among
Borrowers, Affiliated Borrowers and any guarantor of the Obligations hereunder
for valid business purposes and made in the ordinary course of business, all in
accordance with the terms hereof, or transactions made with any other
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Affiliate in the ordinary course of business, on an arm's-length basis on terms
no less favorable than terms which would have been obtainable from a Person
other than an Affiliate, including, that certain equipment lease with PRC
Leasing, Inc.
7.11 Operating Leases. Except for those leases in effect on the date
hereof and as disclosed to Lender from time to time in writing, enter as lessee
into any lease arrangement for real or personal property (unless capitalized and
permitted under Section 7.6 hereof) if after giving effect thereto, aggregate
annual rental payments for all leased property (other than payments made in
respect of capital leases) would exceed, inclusive of (without duplication) all
annual rental payments of Affiliated Borrowers, $750,000 in any one fiscal year.
7.12 Subsidiaries.
(a) Form any Subsidiary.
(b) Enter into any partnership, joint venture or similar
arrangement.
7.13 Fiscal Year and Accounting Changes. Change Borrower's fiscal year
from the last Friday in June of each calendar year or make any significant
change (i) in accounting treatment and reporting practices except as required by
GAAP or (ii) in tax reporting treatment except as required by law.
7.14 Prepayment of Indebtedness. At any time, directly or indirectly,
prepay any Indebtedness (other than to Lender), or repurchase, redeem, retire or
otherwise acquire any Indebtedness of Borrower other than in the ordinary course
of business or except as expressly permitted hereunder. Nothing contained in
this Section 7.14 shall prohibit or restrict the prepayment of any Indebtedness
due and owing to or from any Borrower or any Affiliated Borrowers which may be
outstanding from time to time.
7.15 Payment of Royalties. During any twelve (12) month period during
which this Agreement is in effect, incur royalty payments arising from the sale
of Inventory payable to (i) Citel S.A. in excess of $100,000 for any such twelve
(12) month period, or (ii) Georgia Tech Research Corporation in excess of
$50,000 for any such twelve (12) month period, provided that, if royalty
payments arising from the sale of Inventory payable to Citel S.A. or Georgia
Tech Research Corporation, as the case may be, exceeds the above limits, upon
Lender's request, Industries shall cause Citel S.A. or Georgia Tech Research
Corporation, as the case may be, to execute and deliver to Lender a licensor's
waiver in form and content satisfactory to Lender.
8. CONDITIONS PRECEDENT.
8.1 Conditions to Initial Advances. The agreement of Lender to make the
initial Advances requested to be made on the Closing Date is subject to the
satisfaction, or
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waiver by Lender, immediately prior to or concurrently with the making of such
Advances, of the following conditions precedent:
(a) Other Loan Agreements. The Lender shall have
received:
(i) The Revolving Credit, Term Loan and Security
Agreement duly executed by Crown;
(ii) The Revolving Credit, Term Loan and Security
Agreement duly executed by Ditel;
(iii) Each Guaranty duly executed by Guarantors;
and
(iv) Such other certificates, documents, notes,
instruments, and agreements as Lender shall
require, in form and content satisfactory to
Lender.
(b) Filings Registrations and Recordings. Each document
(including, without limitation, any Uniform Commercial Code financing statement)
required by this Agreement, any related agreement or under law or reasonably
requested by the Lender to be filed, registered or recorded in order to create,
in favor of the Lender, a perfected security interest in or lien upon the
Collateral shall have been properly filed, registered or recorded in each
jurisdiction in which the filing, registration or recordation thereof is so
required or requested, and the Lender shall have received an acknowledgment
copy, or other evidence satisfactory to it, or each such filing, registration or
recordation and satisfactory evidence of the payment of any necessary fee, tax
or expense relating thereto;
(c) Corporate Proceedings of the Borrowers. The Lender shall
have received a copy of the resolutions in form and substance reasonably
satisfactory to Lender, of the Board of Directors of each of the Borrowers
authorizing (i) the execution, delivery and performance of this Agreement, and
any related agreements, (collectively the "Documents") and (ii) the granting by
each of Borrowers of the security interests in and liens upon the Collateral in
each case certified by the Secretary or an Assistant Secretary of each of the
Borrowers as of the Closing Date; and, such certificate shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded as of the date of such certificate;
(d) Incumbency Certificates of the Borrowers. The Lender shall
have received a certificate of the Secretary or any Assistant Secretary of each
of the Borrowers, dated the Closing Date, as to the incumbency and signature of
the officers of each of the Borrowers executing this Agreement, any certificate
or other documents to be delivered by it pursuant hereto, together with evidence
of the incumbency of such Secretary or Assistant Secretary;
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(e) Legal Opinion. The Lender shall have received the executed
legal opinions of counsel satisfactory to Lender in form and substance
satisfactory to the Lender which shall cover such matters incident to the
transactions contemplated by this Agreement, the Cap/Ex Note, the Affiliate Loan
Agreements and related agreements as the Lender may reasonably require;
(f) No Litigation. (i) No litigation, investigation or
proceeding before or by any arbitrator or governmental authority shall be
continuing or threatened against the Borrower or against the officers or
directors of any Borrower (A) in connection with the Documents or any of the
transactions contemplated thereby and which, in the reasonable opinion of the
Lender, is deemed material or (B) which if adversely determined, would, in the
reasonable opinion of the Lender, have a material adverse effect on the
business, assets, operations or condition (financial or otherwise) of the
Borrower; and (iii) no injunction, writ, restraining order or other order of any
nature materially adverse to any Borrower or the conduct of any Borrower's
business or inconsistent with the due consummation of the Transactions shall
have been issued by any governmental authority;
(g) Financial Condition Opinions. The Lender shall have
received executed Officers Certificates of each of the Borrowers satisfactory in
form and substance to it, certifying the solvency of each such Borrower after
giving effect to the Indebtedness contemplated hereby and as to each such
Borrower's financial resources and its ability to meet its obligations and
liabilities as they become due; to the effect that as of the Closing Date and
after giving effect to the Transactions:
(i) the assets of each Borrower, at a fair
valuation, exceed the total liabilities (including contingent, subordinated,
unmatured and unliquidated liabilities of each such Borrower;
(ii) current projections which are based on
underlying assumptions which provide a reasonable basis for the projections and
which reflect each Borrower's judgment based on present circumstances, the most
likely set of conditions and such Borrower's most likely course of action for
the period projected, demonstrate that each Borrower will have sufficient cash
flow to enable each Borrower to pay such Borrower's debts as they mature; and
(iii) Each Borrower does not have an unreasonably
small capital base with which to engage in its anticipated business.
For purposes of this subsection (i), the "fair valuation" of the assets of each
of the Borrowers shall be determined on the basis of the amount which may be
realized within a reasonable time, whether through collection or sale of such
assets at market value, conceiving the latter as the amount which could be
obtained for the property in question within such period by a capable and
diligent businessman from an interested buyer who is willing to purchase under
ordinary selling conditions.
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(h) Collateral Examination. The Lender shall have completed
Collateral examinations and received appraisals, the results of which shall be
satisfactory in form and substance to the Lender, of the Receivables, Inventory,
General Intangibles, each Property Leasehold Interest and Equipment of the
Borrowers and all books and records in connection therewith;
(i) Fees. The Lender shall have received all fees payable to
the Lender on or prior to the Closing Date pursuant to Article 3 hereof;
(j) Pro Forma Financial Statements. Lender shall have received
a copy of the Pro Forma Financial Statements (including, without limitation, a
statement of Borrowers' sources and uses of cash as of the Closing Date and an
aging of Borrowers' accounts payable) each of which shall be satisfactory in all
respects to Lender; and
(k) Other. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
Transactions shall be satisfactory in form and substance to the Lender and its
counsel.
8.2 Conditions to Each Advance. The agreement of Lender to make any
Advance requested to be made on any date (including, without limitation, its
initial Advance), is subject to the satisfaction of the following conditions
precedent as of the date such Advance is made:
(a) Representations and Warranties. Each of the
representations and warranties made by the Borrowers in or pursuant to this
Agreement, and any related agreements to which Borrowers are parties, and each
of the representations and warranties contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
this Agreement or any related agreement shall be true and correct in all
material respects on and as of such date as if made on and as of such date;
(b) No Default. No Event of Default or Incipient Event of
Default shall have occurred and be continuing on such date, or would exist after
giving effect to the Advances requested to be made, on such date; provided,
however, that Lender in its sole discretion, may continue to make Advances
notwithstanding the existence of an Event of Default or Incipient Event of
Default; and
(c) Maximum Advances. In the case of any Revolving Advances
requested to be made, after giving effect thereto, the aggregate Revolving
Advances shall not exceed the maximum Revolving Advances permitted under Section
2.1 hereof.
Each request for an Advance by the Borrowers hereunder shall constitute
a representation and warranty by the Borrowers as of the date of such Advance
that the conditions contained in this subsection shall have been satisfied.
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9. INFORMATION AS TO BORROWERS.
Each of the Borrowers covenants and agrees that each such Borrower
shall, until satisfaction in full of the Obligations and the termination of this
Agreement;
9.1 Disclosure of Material Matters. Immediately upon learning thereof,
report to the Lender all matters materially affecting the value, enforceability
or collectibility of the Collateral including, without limitation, any
Borrower's reclamation of repossession of, or the return to any Borrower of a
material amount of goods or claims or disputes asserted by any Customer or other
obligor. Each Borrower will not, without the Lender's consent, compromise or
adjust any material amount of the Receivables (or extend the time for payment
thereof) or accept any material returns of merchandise or grant any additional
discounts, allowances or credits thereon except for those compromises,
adjustments, returns, discounts, credits and allowances as have been heretofore
customary in the business of each Borrower.
9.2 Schedules. Deliver to the Lender on or before the fifteenth (15th)
day of each month as and for the prior month, or more frequently as Lender may,
in its sole discretion require, (a) accounts receivable aging, (b) accounts
payable aging and (c) Inventory reports. In addition, each Borrower will deliver
to Lender at such intervals as the Lender may require: (i) confirmatory
assignment schedules, (ii) copies of Customer's invoices, (iii) evidence of
shipment or delivery, and (iv) such further schedules, documents and/or
information regarding the Collateral as the Lender may require including,
without limitation, trial balances and test verifications. The Lender shall have
the right to confirm and verify all Receivables by any manner and through any
medium it considers advisable and do whatever it may deem reasonably necessary
to protect its interests hereunder. The items to be provided under this Section
are to be in form satisfactory to the Lender and executed by each Borrower and
delivered to the Lender from time to time solely for the Lender's convenience in
maintaining records of the Collateral, and the failure to deliver any of such
items to the Lender shall not affect, terminate, modify or otherwise limit the
Lender's lien on or security interest in the Collateral.
9.3 Environmental Reports. Furnish Lender, concurrently with the
delivery of the financial statements referred to in Sections 9.7 and 9.8,
accompanied by a certificate of each of the Borrowers signed by the President of
each of Borrowers stating, to the best of his knowledge, that such Borrowers are
in compliance in all material respects with all federal, state and local laws
relating to environmental protection and control and occupational safety and
health. To the extent any Borrower is not in compliance with the foregoing laws,
the certificate shall set forth with specificity all areas of non-compliance and
the proposed action such Borrower will implement in order to achieve full
compliance.
9.4 Litigation. Promptly notify the Lender in writing of any litigation
affecting any Borrower, whether or not the claim is covered by insurance, and of
any suit or administrative proceeding, which may affect the Collateral or may
affect, in a material
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respect, any Borrower's business, assets, operations, condition or prospects
(financial or otherwise).
9.5 Occurrence of Defaults, etc. Promptly notify the Lender in writing
upon the occurrence of (a) any Event of Default or Incipient Event of Default;
(b) any event, development or circumstance whereby the financial statements most
recently furnished to the Lender fail in any material respect to present fairly,
in accordance with GAAP consistently applied, the financial condition and
operating results of the Borrowers as of the date of such financial statements;
(c) any accumulated retirement plan funding deficiency which, if such deficiency
continued for two plan years and was not corrected as provided in Section 4971
of the Internal Revenue Code; (d) each and every default by any Borrower which
might result in the acceleration of the maturity of any Indebtedness with
respect to which there is a default existing or with respect to which the
maturity has been or could be accelerated, and the amount of such Indebtedness;
and (e) any other development in the business or affairs of any Borrower which
would reasonably be expected to be materially adverse; in each case describing
the nature thereof and in the case of notification under clause (a), (b), or (c)
the action Borrowers propose to take with respect thereto.
9.6 Government Receivables. Notify the Lender immediately if any of its
Receivables arise out of contracts between any Borrower and the United States,
any state, or any department, agency or instrumentally of any of them.
9.7 Annual Financial Statements. Furnish the Lender within ninety (90)
days after the end of each fiscal year of Borrowers, financial statements of
Industries and its Subsidiaries, on a consolidating and consolidated basis,
including, but not limited to, statements of income, stockholders' equity and
cash flows from the beginning of the current fiscal year to the end of such
fiscal year and the balance sheet as at the end of such fiscal year
(collectively, the "Annual Audited Financial Statements"), all prepared in
accordance with GAAP applied on a basis consistent with prior practices (except
as noted therein), and in reasonable detail and (as to consolidated statements
only) reported upon without qualification by an independent certified public
accounting firm selected by Borrowers and satisfactory to Lender (the
"Accountants"), it being acknowledged that as of the date hereof, Arthur
Andersen LLP is acceptable to Lender. The report of such accounting firm shall
be accompanied by a certificate of each of the Borrowers, signed by the Chief
Financial Officer of each of the Borrowers, which shall state whether, to their
knowledge, after due investigation, an Event of Default as specified in Article
10 hereof or an Incipient Event of Default has occurred.
9.8 Quarterly Financial Statements. Furnish the Lender within
forty-five (45) days after the end of each of the first three (3) fiscal
quarters, an unaudited balance sheet and income statement of Industries and its
Subsidiaries, on a consolidated basis and, if requested, on a consolidating
basis, and unaudited consolidated statements of cash flow and stockholders'
equity of Industries and its Subsidiaries, reflecting results of operations from
the beginning of the fiscal year to the end of such quarter and for such
quarter,
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prepared on a basis consistent with prior practices and complete and correct in
all material respects, subject to normal year end adjustments.
9.9 Monthly Financial Statements. Furnish the Lender within thirty (30)
days after the end of each month, an unaudited balance sheet and income
statement of Industries and its Subsidiaries, on a consolidated basis and, if
requested, on a consolidating basis, and an unaudited consolidated cash flow and
stockholders' equity of Industries and its Subsidiaries, reflecting results of
operations from the beginning of the fiscal year to the end of such month and
for such month, prepared on a basis consistent with prior practices and complete
and correct in all material respects, subject to normal year end adjustments.
The reports shall be accompanied by a certificate of Industries, signed by the
Chief Financial Officer of Industries, which shall state whether, to the best of
their knowledge, after due investigation, an Event of Default as specified in
Article 10 hereof or an Incipient Event of Default has occurred.
9.10 Other Reports. Furnish the Lender as soon as available, but in any
event within ten (10) days after the issuance thereof, with copies of such
financial statements, reports, returns, mailing, press releases or other
information that Industries sends or causes to be sent to its stockholders.
9.11 Additional Information. Furnish the Lender with additional
information as the Lender shall reasonably request in order to enable Lender to
determine whether the terms, covenants, provisions and conditions of this
Agreement and the Cap/Ex Note have been complied with by Borrowers including,
without limitation and without the necessity of any request by Lender, (a)
copies of all environmental audits and reviews, (b) at least thirty (30) days
prior thereto, of any Borrower's opening of any new office or place of business
or any Borrower's closing of any existing office or place of business, and (c)
promptly upon any Borrower's learning thereof, of any labor dispute to which any
Borrower may become a party, any strikes or walkouts relating to any of its
plants or other facilities, and the expiration of any labor contract to which
any Borrower is a party or by which any Borrower is bound.
9.12 Projected Operating Budget. Furnish Lender, no less than thirty
(30) days prior to the beginning of each of the Borrowers' fiscal years
beginning with the fiscal year ending the last Friday in June, 1998, a month by
month projected operating budget and cash flow (prepared both on an accrued
basis and cash basis) of Industries and its Subsidiaries, on a consolidated
basis and, if requested, on a consolidating basis, for such fiscal year
(including an income statement for each month and a balance sheet as at the end
of the last month in each fiscal quarter), in form and content acceptable to
Lender, such projections to be accompanied by a certificate signed by the
President or Chief Financial Officer of Industries to the effect that such
projections have been approved by the Borrowers' Board of Directors and prepared
on the basis of sound financial planning practice consistent with past budgets
and financial statements and that such officer has no reason to question the
reasonableness of any material assumptions on which such projections were
prepared. Lender reserves the right to require, in its sole discretion, that
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such projections be reviewed by the Accountants or such other Person acceptable
to Lender.
9.13 Variances From Operating Budget. Furnish Lender, concurrently with
the delivery of the financial statements referred to in Section 9.7 and each
quarterly and monthly report, a written report summarizing all material
variances from budgets submitted by the Borrowers pursuant to Section 9.12 and a
discussion and analysis by management with respect to such variances.
9.14 Additional Documents. Execute and deliver to Lender, upon request,
such documents and agreements as Lender may, from time to time, reasonably
request to carry out the purposes, terms or conditions of this Agreement.
10. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events shall
constitute an "Event of Default" :
(a) failure by any Borrower to pay any principal or interest
on the Obligations when due, whether at maturity or by reason of acceleration
pursuant to the terms of this agreement or by notice of intention to prepay, or
by required prepayment or failure to pay any other liabilities or make any other
payment, fee or charge provided for herein when due;
(b) the occurrence of an "Event of Default" under, and as such
quoted term is defined in, the Affiliate Loan Agreements;
(c) any representation or warranty made or deemed made by the
Borrowers in this Agreement or any related agreement or in any certificate,
document of financial or other statement furnished at any time in connection
herewith or therewith shall prove to have been misleading in any material
respect on the date when made or deemed to have been made;
(d) failure by Borrowers to (i) furnish financial information
when due or when requested which is unremedied for a period of five (5) days, or
(ii) permit the inspection of their books or records;
(e) issuance of a notice of Lien, Charge, Claim, levy
assessment, injunction or attachment against a material portion of the
Borrowers' property which is not stayed or lifted within thirty (30) days;
(f) (i) failure or neglect of the Borrowers to perform, keep
or observe any term, provision, condition, covenant contained in Section 4.7,
4.9, 6.3, 6.4, 9.4 or 9.11, and such failure shall continue for ten (10) days;
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(ii) failure or neglect of the Borrowers to
perform, keep or observe any term, provision, condition, covenant herein
contained (other than those Sections expressly set forth in Section 10.(f)(i)
above) or contained in any other agreement or arrangement, now or hereafter
entered into between the Borrowers and the Lender;
(g) any judgment is rendered or judgment liens filed against
the Borrowers for an amount in excess of $100,000 which within thirty (30) days
of such rendering or filing is not either satisfied, stayed or discharged of
record;
(h) any Borrower, Affiliated Borrower, Subsidiary of
Industries, or any Guarantor shall (i) apply for or consent to the appointment
of, or the taking of possession by, a receiver, custodian, trustee or liquidator
of itself or of all or a substantial part of its property, (ii) admit in writing
its inability, or be generally unable, to pay its debts as they become due or
cease operations of its present business, (iii) make a general assignment for
the benefit of creditors, (iv) commence a voluntary case under any state or
federal bankruptcy laws (as now or hereafter in effect), (v) be adjudicated a
bankrupt or insolvent, (vi) file a petition seeking to take advantage of any
other law providing for the relief of debtors, (vii) acquiesce to, or fail to
have dismissed, within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (viii) take any action for the
purpose of effecting any of the foregoing;
(i) any change in any Borrower's condition or affairs
(financial or otherwise) which in Lender's good faith opinion materially impairs
the Collateral or the ability of any Borrower to perform its Obligations under
this Agreement;
(j) if any Lien created hereunder or provided for hereby or
under any related agreement for any reason ceases to be or is not a valid and
perfected Lien having a first priority interest;
(k) a default of the obligations of any Borrower under any
other agreement with any Person (other than Lender) to which it is a party shall
occur which adversely affects, in any material respect, its condition, affairs
or prospects (financial or otherwise) which default is not cured within any
applicable grace period;
(l) termination or breach, after giving effect to any
applicable grace period, of any Guaranty or similar agreement executed and
delivered to Lender in connection with the Obligations of any Borrower, or if
any Guarantor attempts to terminate, challenges the validity of, or its
liability under, any such Guaranty or similar agreement;
(m) any Change of Ownership;
(n) any material provision of this Agreement shall, for any
reason, cease to be valid and binding on any Borrower, or any Borrower shall so
claim in writing to Lender;
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(o) failure by Borrowers to deliver to Lender on or before
April 30, 1998, a physical count of Borrowers' Inventory, the results of which
physical count of Inventory shall be acceptable to Lender in its sole
discretion, together with adjustments to Borrowers' books and records, if any,
as a result of such physical count of Inventory, which adjustments, if any,
shall be acceptable to Lender in its sole discretion; or
(p) if Industries or any of its Subsidiaries shall purchase,
redeem or acquire any outstanding shares of Series C Convertible Preferred Stock
issued by Industries or any outstanding shares of common stock issued by
Industries in favor of Overseas Private Investment Corporation ("OPIC Stock")
unless: (i)(A) no other Event of Default or Incipient Event of Default is
continuing, (B) Lender receives not less than thirty (30) days prior written
notice of any such purchase, acquisition or redemption by Industries and (C)
after giving effect to such purchase, acquisition or redemption by Industries,
the Formula Amount less the aggregate amount of all outstanding Revolving
Advances hereunder and under the Affiliated Loan Agreements shall not be less
than $1,000,000 in each instance; or (ii) such purchase, acquisition or
redemption is effected by Industries by way of a non-cash exchange or other
equity conversion.
11. LENDER'S RIGHTS AND REMEDIES AFTER DEFAULT.
11.1 Rights and Remedies. Upon the occurrence of an Event of Default
pursuant to Section 10(i), all Obligations shall be immediately due and payable
and this Agreement shall be deemed terminated; and, upon the occurrence of any
of the other Events of Default and at any time thereafter (such default not
having previously been cured), at the option of Lender all Obligations shall be
immediately due and payable and the Lender shall have the right to terminate
this Agreement. In any such event, the Lender shall have the right to exercise
any and all other rights and remedies provided for herein, under the Uniform
Commercial Code and at law or equity generally, including, without limitation,
the right to foreclose the security interests granted herein and to realize upon
any Collateral by any available judicial procedure and/or to take possession of
and sell any or all of the Collateral with or without judicial process. The
Lender may enter any Borrower's premises or other premises without legal process
and without incurring liability to such Borrower therefor, and the Lender may
thereupon, or at any time thereafter, in its discretion without notice or
demand, take the Collateral and remove the same to such place as the Lender may
deem advisable and the Lender may require such Borrower to make the Collateral
available to the Lender at a convenient place. With or without having the
Collateral at the time or place of sale, the Lender may sell the Collateral, or
any part thereof, at public or private sale, at any time or place, in one or
more sales, at such price or prices, and upon such terms, either for cash,
credit or future delivery, as the Lender may elect. Except as to that part of
the Collateral which is perishable or threatens to decline speedily in value or
is of a type customarily sold on a recognized market, the Lender shall give such
Borrower reasonable notification of such sale or sales, it being agreed that in
all events written notice mailed to such Borrower at least five (5) Business
Days prior to such sale or sales is reasonable notification. At any public sale
the Lender may bid for and become the purchaser, and Lender or any other
purchaser at any such sale thereafter shall hold
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the Collateral sold absolutely free from any claim or right of whatsoever kind,
including any equity of redemption and such right and equity are hereby
expressly waived and released by each of the Borrowers. In connection with the
exercise of the foregoing remedies, the Lender is granted permission to use each
of the Borrower's trademarks, trade styles, trade names, patents, patent
applications, licenses, franchises and other proprietary rights which are used
in connection with (a) Inventory for the purpose of disposing of such Inventory
and (b) Equipment for the purpose of completing the manufacture of unfinished
goods. The proceeds realized from the sale of any Collateral shall be applied
first to the reasonable costs, expenses and attorneys' fees and expenses
incurred by Lender for collection and for acquisition, completion, protection,
removal, storage, sale and delivery of the Collateral; secondly to interest due
upon any of the Obligations; and thirdly to the principal of the Obligations. If
any deficiency shall arise, Borrowers shall remain liable to Lender therefor.
11.2 Lender's Discretion. The Lender shall have the right in its sole
discretion to determine which rights, Liens, security interests or remedies the
Lender may at any time pursue, relinquish, subordinate, or modify or to take any
other action with respect thereto and such determination will not in any way
modify or affect any of the Lender's rights hereunder.
11.3 Setoff. In addition to any other rights which the Lender may have
under applicable law, upon the occurrence of any Event of Default hereunder, the
Lender shall have a right to apply any of Borrowers' property held by the Lender
or by the Bank to reduce the Obligations.
11.4 Rights and Remedies not Exclusive. The enumeration of the
foregoing rights and remedies is not intended to be exhaustive and the exercise
of any right or remedy shall not preclude the exercise of any other right or
remedies, all of which shall be cumulative and not alternative.
12. WAIVERS AND JUDICIAL PROCEEDINGS.
12.1 Waiver of Notice. Each of the Borrowers hereby waives notice of
non-payment of any of the Receivables, demand, presentment, protest and notice
thereof with respect to any and all instruments, notice of acceptance hereof,
notice of loans or advances made, credit extended, Collateral received or
delivered, or any other action taken in reliance hereon, and all other demands
and notices of any description, except such as are expressly provided for
herein.
12.2 Delay. No delay or omission on the Lender's part in exercising any
right, remedy or option shall operate as a waiver of such or any other right,
remedy or option or of any default.
12.3 Jury Waiver. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY
WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
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CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE: AND
EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO
TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
13. EFFECTIVE DATE AND TERMINATION.
13.1 Term. This Agreement, which shall inure to the benefit of and
shall be binding upon the respective successors and permitted assigns of each of
the Borrowers and the Lender, shall become effective on the date hereof and
shall continue in full force and effect until April __, 2003 (the "Term") unless
sooner terminated as herein provided. The Term shall be automatically extended
for successive periods of one (1) year each unless terminated by either party at
the end of such initial Term or any successive Term by giving the other party
sixty (60) days prior written notice. Borrowers may terminate this Agreement at
any time upon thirty (30) days' prior written notice to Lender ("Termination
Notice"), upon payment in full of the Obligations ("Termination Date"); and
provided further that, the Affiliated Borrowers each simultaneously terminate
the Affiliate Loan Agreements and, provided further that, Borrowers, jointly and
severally with Ditel, pay an early termination fee in an amount equal to:
(a) if such termination occurs on or prior to the Cap/Ex Line
Termination Date, three percent (3%) of the Facility Amount;
(b) if such termination occurs after the Cap/Ex Line
Termination Date but on or prior to the first anniversary of this Agreement,
three percent (3%) of the sum of (i) the Maximum Revolving Advance Amount and
(ii) the principal amount of the Cap/Ex Loans hereunder plus the principal
amount of the Cap/Ex Loans under the Affiliate Loan Agreements, outstanding, in
each instance, as of the date Lender receives the Termination Notice;
(c) if such termination occurs after the first anniversary but
on or prior to the second anniversary of this Agreement, two percent (2%) of the
sum of (i) the Maximum Revolving Advance Amount and (ii) the principal amount of
the Cap/Ex Loans hereunder plus the principal amount of the Cap/Ex Loans under
the Affiliate Loan Agreements, outstanding, in each instance, as of the date
Lender receives the Termination Notice;
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(d) if such termination occurs after the second anniversary
but prior to the fifth anniversary of this Agreement, one percent (1%) of the
sum of (i) the Maximum Revolving Advance Amount and (ii) the principal amount of
the Cap/Ex Loans hereunder plus the principal amount of the Cap/Ex Loans under
the Affiliate Loan Agreements, outstanding, in each instance, as of the date
Lender receives the Termination Notice; and
(e) if such termination occurs after the fifth anniversary of
this Agreement but prior to any anniversary of this Agreement, one percent (1%)
of the sum of (i) the Maximum Revolving Advance Amount and (ii) the principal
amount of the Cap/Ex Loans hereunder plus the principal amount of the Cap/Ex
Loans under the Affiliate Loan Agreements, outstanding, in each instance, as of
the date Lender receives the Termination Notice.
Borrowers shall have no right to terminate this Agreement as aforesaid unless
the Affiliate Loan Agreements are being simultaneously terminated by the
Affiliated Borrowers. In the event Borrowers elect to terminate this Agreement
on the fifth (5th) anniversary of this Agreement or, if this Agreement is
renewed, Borrowers elect to terminate this Agreement on an anniversary of this
Agreement, Borrowers shall not be required to pay Lender an early termination
fee, provided that, Borrowers have provided Lender with appropriate notice and
payment is received by Lender of obligations payable hereunder on such
anniversary date or within fifteen (15) days before such anniversary date or
within fifteen (15) days after such anniversary date. If Borrowers repay their
Obligations to Lender more than fifteen (15) days prior to or more than fifteen
(15) days after such anniversary date, Borrowers acknowledge, confirm and agree
that Borrowers shall pay Lender the applicable early termination fee as set
forth above.
13.2 Termination. The termination of the Agreement shall not affect any
of the Borrowers' or the Lender's rights, or any of the Obligations having their
inception prior to the effective date of such termination, and the provisions
hereof shall continue to be fully operative until all transactions entered into,
rights or interests created or Obligations have been full disposed of, concluded
or liquidated. The security interests, Liens and rights granted to the Lender
hereunder and the financing statements filed hereunder shall continue in full
force and effect, notwithstanding the termination of this Agreement or the fact
that any account of the Borrowers may from time to time be temporarily in a zero
or credit position, until all of the Obligations of each of the Borrowers have
been paid or performed in full after the termination of this Agreement or each
of the Borrowers have furnished the Lender with an indemnification satisfactory
to the Lender with respect thereto. Accordingly, each of the Borrowers waives
any rights which it may have under Section 9-404(1) of the Uniform Commercial
Code to demand the filing of termination statement with respect to the
Collateral, and Lender shall not be required to send such termination statements
to any Borrower, or to file them with any filing office, unless and until this
Agreement shall have been terminated in accordance with its terms and all
Obligations paid in full in immediately available funds. All representations,
warranties, covenants, waivers and agreements contained herein shall survive
termination hereof until all Obligations are repaid or performed in full unless
otherwise provided.
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14. MISCELLANEOUS.
14.1 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York (without giving effect to
its conflict of laws rules). Any judicial proceeding brought by or against any
Borrower with respect to any of the Obligations, this Agreement or any related
agreement may be brought in any court of competent jurisdiction in the State of
New York, United States of America, and, by execution and delivery of this
Agreement, each of the Borrowers accepts for itself and in connection with its
properties, generally and unconditionally the non-exclusive jurisdiction of he
aforesaid courts, and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Agreement. Nothing herein shall affect the right
to serve process in any manner permitted by law or shall limit the right of the
Lender to bring proceedings against any Borrower in the courts of any other
jurisdiction. Each of the Borrowers waives any objection to jurisdiction and
venue of any action instituted hereunder and shall not assert any defense based
on lack of jurisdiction or venue or based upon forum non conveniens. Any
judicial proceedings by any Borrower against the Lender involving, directly or
indirectly, any matter or claim in any way arising out of, related to or
connected with this Agreement or any related agreement, shall be brought only in
a federal or state court located in the City of New York, State of New York.
14.2 Entire Understanding. This Agreement and the documents executed
concurrently herewith contain the entire understanding between each of the
Borrowers and the Lender and supersedes all prior agreements and understandings,
if any, relating to the subject matter hereof. Any promises, representations,
warranties or guarantees not herein contained and hereinafter made shall have no
force and effect unless in writing, signed by each of the Borrowers' and
Lender's respective officers. Neither this Agreement nor any portion or
provisions hereof may be changed, modified, amended, waived, supplemented,
discharged, cancelled or terminated orally or by any course of dealing, or in
any manner other than by an agreement in writing, signed by the party to be
charged. Borrowers acknowledge that they have been advised by counsel in
connection the execution of this Agreement and Other Documents and is not
relying upon oral representations or statements inconsistent with the terms and
provisions of this Agreement.
14.3 Successors and Assigns; Participations; New Lenders.
(a) This Agreement shall be binding upon and inure to the
benefit of each of the Borrowers, the Lender, all future holders of the Cap/Ex
Note and their respective successors and assigns, except that the Borrowers may
not assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of Lender.
(b) Lender may sell, assign or transfer all or any part of its
rights under this Agreement, the Cap/Ex Note and all related agreements,
instruments and documents provided Borrowers are given notice of such sale as
soon as practicable and the transferee agrees to perform the obligations of the
transferor, In addition to the foregoing, each of the Borrowers acknowledges
that in the regular course of commercial banking
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business the Lender may at any time and from time to time sell participating
interests in the Advances to other financial institutions (each such transferee
or purchaser of a participating interest, a "Transferee"). Each Transferee may
exercise all rights of payment (including without limitation rights of set-off)
with respect to the portion of such Advances held by it or other Obligations
payable hereunder as fully as if such Transferee were the direct holder thereof.
Each of the Borrowers hereby grants to any Transferee a continuing security
interest in any deposits, moneys or other property actually or constructively
held by such Transferee as security for the Transferee's interest in the
Advances and such security interest shall be a Permitted Encumbrance hereunder.
14.4 Application of Payments. Lender shall have the continuing and
exclusive right to apply or reverse and reapply any and all proceeds of
Collateral to any portion of the Obligations then due. To the extent that any
Borrower makes a payment or Lender receives any payment or proceeds of the
Collateral for Borrowers' benefit, which are subsequently invalidated, declared
to the fraudulent or preferential, set aside or required to be repaid to a
trustee, debtor in possession, receiver, custodian or any other party under any
bankruptcy law, common law or equitable cause, then, to such extent, the
Obligations or part thereof intended to be satisfied shall be revived and
continue as if such payment or proceeds had not been received by Lender.
14.5 Indemnity. Each of the Borrowers shall indemnify Lender from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, fees and disbursements of
counsel) which may be imposed on, incurred by, or asserted against Lender in any
litigation, proceeding or investigation instituted or conducted by any
governmental agency or instrumentality or any other Person with respect to any
aspect of, or any transaction contemplated by, or referred to in, or any matter
related to, this Agreement, whether or not the Lender is a party thereto, except
to the extent that any of the foregoing arises out of the gross negligence or
willful misconduct of Lender.
14.6 Notice. Any notice or request hereunder may be given to Borrowers
and to Lender at their respective addresses set forth below or at such other
address as may hereafter be specified in a notice designated as a notice of
change of address under this Section. Any notice or request hereunder shall be
given by (a) hand delivery, (b) registered or certified mail, return receipt
requested, (c) telex or telegram, subsequently confirmed by registered or
certified mail, or (d) telefax to the number set out below (or such other number
as may hereafter be specified in a notice designated as a notice of change of
address) with telephone communication to a duly authorized officer of the
recipient confirming its receipt as subsequently confirmed by registered or
certified mail. Notices and requests shall, in the case of those by mail or
telegram, be deemed to have been given three (3) Business Days after mailing, or
when delivered to the telegraph office addresses as provided in this Section.
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(A) If to Lender, at: BNY FINANCIAL CORPORATION
1290 Avenue of the Americas
New York, New York 10104
Attention: Anthony Vassallo
Telephone: (212) 408-7229
FAX: (212) 408-4384
With copy to: BNY FINANCIAL CORPORATION
1290 Avenue of the Americas
New York, New York 10104
Attention: Frank Imperato
Telephone: (212) 408-7267
FAX: (212) 408-7372
OTTERBOURG, STEINDLER, HOUSTON
& ROSEN, PC.
230 Park Avenue
New York, New York 10169-0075
Attention: Mitchell M. Brand, Esq.
Telephone: (212) 661-9100
FAX: (212) 682-6104
(B) If to Borrowers, at: TII INDUSTRIES, INC.
TII CORPORATION,
c/o TII Industries, Inc.
1385 Akron Street
Copiague, New York 11726
Attention: Chief Financial Officer
Telephone: (516) 789-5093
FAX: (516) 789-2228
14.7 Survivability. If any or part of this Agreement is contrary to,
prohibited by, or deemed invalid under applicable laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated thereby
and shall be given effect so far as possible.
14.8 Expenses. All costs and reasonable expenses including, without
limitation reasonable attorneys' fees incurred by the Lender (a) in all efforts
made to enforce payment of any Obligation or effect collection of any
Collateral, or (b) in connection with the entering into, modification,
amendment, administration and enforcement of this Agreement or any consents or
waivers hereunder and all related agreements, documents and instruments, or (c)
in connection with the instituting, maintaining, preserving, enforcing and
foreclosing of or on the Lender's security interest or Lien in any of the
Collateral, whether through judicial proceedings or otherwise, or (d) in
defending or prosecuting any
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actions or proceedings arising out of or relating to the Lender's transactions
with any Borrower, or (e) in connection with any advice given to Lender with
respect to its rights and obligations under this Agreement and all related
agreements, or (f) subject to Section 4.10 hereof, during the course of audits,
checks or inspections of the Collateral and Borrowers' operations, plus a per
diem charge for Lender's examiners and auditors at Lender's then current rates,
and costs and expenses of examiners and auditors retained by Lender at the rates
charged to auditors may be charged to any account of the Borrowers and shall be
part of the Obligations.
14.9 Injunctive Relief. Each of the Borrowers recognizes that, in the
event any Borrower fails to perform, observe or discharge any of its obligations
or liabilities under this Agreement, any remedy at law may prove to be
inadequate relief to Lender; therefore, Lender if Lender so requests, shall be
entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages.
14.10 Captions. The captions at various places in this Agreement are
intended for convenience only and do not constitute and shall not be interpreted
as part of this Agreement.
14.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which taken together shall constitute one and the same
instrument.
[Remainder of Page Intentionally Left Blank]
66
<PAGE>
Each of the parties has signed this Agreement as of the 30th day of
April, 1998.
TII INDUSTRIES, INC.
By: /s/ Paul Sebetic
-------------------------
Its: Vice President-Finance
1385 Akron Street
Copiague, New York 11726
TII CORPORATION
By: /s/ Paul Sebetic
-------------------------
Its: Vice President-Finance
1385 Akron Street
Copiague, New York 11726
BNY FINANCIAL CORPORATION
By: /s/ Joseph A. Grimaldi
-------------------------
Its: President
1290 Avenue of the Americas
New York, New York 10104
67
<PAGE>
ACKNOWLEDGEMENT AND AGREEMENT
The undersigned, being an "Affiliated Borrower" referred to
and as defined in the within and foregoing Revolving Credit, Term Loan and
Security Agreement ("Loan Agreement"), hereby acknowledges each of the terms and
provisions of the foregoing Loan Agreement and agrees to be bound by the terms
and provisions thereof expressly applying to the undersigned.
The undersigned acknowledges and agrees that although it may
acknowledge this Loan Agreement, it is not a party thereto and does not and will
not receive any right, benefit, priority or interest under or because of the
existence of the Loan Agreement.
TII-DITEL, INC.
By: /s/ Paul Sebetic
-------------------------
Title: Vice President-Finance
68
<PAGE>
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK)
On this _____ day of April, 1998, before me personally came
________________________, to me known, who, being by me duly sworn, did depose
and say that he resides at ______________________________ and that he is the
__________________ of TII INDUSTRIES, INC., the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the board of directors of said corporation.
NOTARY PUBLIC
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK)
On this _____ day of April, 1998, before me personally came
________________________, to me known, who, being by me duly sworn, did depose
and say that he resides at _______________________________ and that he is the
__________________ of TII CORPORATION, the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by order
of the board of directors of said corporation.
NOTARY PUBLIC
69
<PAGE>
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK)
On this _____ day of April, 1998, before me personally came
________________________, to me known, who, being by me duly sworn, did depose
and say that he resides at _______________________________ and that he is the
__________________ of TII-DITEL, INC., the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by order
of the board of directors of said corporation.
NOTARY PUBLIC
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK)
On this _____ day of __________, 19__, before me personally came
_________________________, to me known, who, being by me duly sworn, did depose
and say that he resides at _______________________________________________ and
that he is the _______________ of BNY FINANCIAL CORPORATION, the corporation
described in and which executed the foregoing instrument and that he signed his
name thereto by order of the board of directors of said corporation.
NOTARY PUBLIC
70
REVOLVING CREDIT, TERM LOAN
AND SECURITY AGREEMENT
BETWEEN
CROWN TOOL & DIE COMPANY, INC.
AS BORROWER,
AND
BNY FINANCIAL CORPORATION,
AS LENDER
DATED: APRIL 30, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. DEFINITIONS.............................................................. 1
1.1 Accounting Terms............................................. 1
1.2 General Terms................................................ 1
1.3 Uniform Commercial Code Terms................................ 16
2. ADVANCES, PAYMENT, INTEREST AND FEES..................................... 16
2.1 Revolving Advances........................................... 16
2.2 Cap/Ex Loans................................................. 17
2.3 Appointment of Industries as Agent for Borrowing............. 19
2.4 Request for Advances......................................... 20
2.5 Disbursement of Advance Proceeds............................. 21
2.6 Repayment of Advances........................................ 22
2.7 Repayment of Overformula Amounts............................. 22
2.8 Statement of Account......................................... 23
2.9 Letters of Credit............................................ 23
2.10 Issuance of Letters of Credit................................ 23
2.11 Requirements For Issuance of Letters of Credit............... 24
2.12 Additional Payments.......................................... 25
3. INTEREST AND FEES........................................................ 25
3.1 Interest..................................................... 25
3.2 Letters of Credit............................................ 25
3.3 [INTENTIONALLY OMITTED]...................................... 26
3.4 [INTENTIONALLY OMITTED]...................................... 26
3.5 [INTENTIONALLY OMITTED]...................................... 26
3.6 Computation of Interest and Fees............................. 26
3.7 Maximum Charges.............................................. 26
3.8 Increased Costs.............................................. 27
3.9 Capital Adequacy............................................. 27
3.10 Survival..................................................... 28
4. COLLATERAL: GENERAL TERMS................................................ 28
4.1 Security Interest in the Collateral.......................... 28
4.2 Perfection of Security Interest.............................. 28
4.3 Disposition of Collateral.................................... 28
4.4 Preservation of Collateral................................... 29
4.5 Ownership of Collateral...................................... 29
4.6 Defense of Lender's Interests................................ 30
4.7 Books and Records............................................ 30
4.8 Financial Disclosure......................................... 31
4.9 Compliance with Laws......................................... 31
4.10 Inspection of Premises....................................... 31
(i)
<PAGE>
4.11 Insurance.................................................... 31
4.12 Failure to Pay Insurance..................................... 33
4.13 Payment of Taxes............................................. 33
4.14 Payment of Leasehold Obligations............................. 34
4.15 Receivables.................................................. 34
4.16 Inventory.................................................... 36
4.17 Maintenance of Equipment..................................... 36
4.18 Exculpation of Liability..................................... 36
4.19 Environmental Matters........................................ 37
5. REPRESENTATIONS AND WARRANTIES........................................... 39
5.1 Authority.................................................... 39
5.2 Formation and Qualification.................................. 39
5.3 Survival of Representations and Warranties................... 39
5.4 Tax Returns.................................................. 40
5.5 Financial Statements......................................... 40
5.6 Corporate Name............................................... 41
5.7 O.S.H.A. and Environment Compliance.......................... 41
5.8 Solvency; No Litigation; Violation........................... 42
5.9 Patents, Trademarks, Copyrights and Licenses................. 43
5.10 Licenses and Permits......................................... 43
5.11 Default of Indebtedness...................................... 43
5.12 No Default................................................... 43
5.13 No Burdensome Restrictions................................... 43
5.14 No Labor Disputes............................................ 44
5.15 Margin Regulations........................................... 44
5.16 Investment Company Act....................................... 44
5.17 Disclosure................................................... 44
5.18 Swaps........................................................ 44
6. AFFIRMATIVE COVENANTS.................................................... 44
6.1 Payment of Fees.............................................. 44
6.2 Conduct of Business and Maintenance of Existence and Assets.. 45
6.3 Violations................................................... 45
6.4 Government Receivables....................................... 45
6.6 Pledge of Credit............................................. 45
6.7 Execution of Supplemental Instruments........................ 45
6.8 Payment of Indebtedness...................................... 45
6.9 Standards of Financial Statements............................ 46
7. NEGATIVE COVENANTS....................................................... 46
7.1 Merger, Consolidation, Acquisition and Sale of Assets........ 46
7.2 Creation of Liens............................................ 46
7.3 Guarantees................................................... 46
7.4 Investments.................................................. 46
(ii)
<PAGE>
7.5 Loans........................................................ 47
7.6 Capital Expenditures......................................... 47
7.7 Dividends.................................................... 47
7.8 Indebtedness................................................. 47
7.9 Nature of Business........................................... 47
7.10 Transactions with Affiliates................................. 47
7.11 Operating Leases............................................. 48
7.12 Subsidiaries................................................. 48
7.13 Fiscal Year and Accounting Changes........................... 48
7.14 Prepayment of Indebtedness................................... 48
8. CONDITIONS PRECEDENT..................................................... 48
8.1 Conditions to Initial Advances............................... 48
8.2 Conditions to Each Advance................................... 51
9. INFORMATION AS TO THE BORROWER........................................... 51
9.1 Disclosure of Material Matters............................... 51
9.2 Schedules.................................................... 52
9.3 Environmental Reports........................................ 52
9.4 Litigation................................................... 52
9.5 Occurrence of Defaults, etc.................................. 52
9.6 Government Receivables....................................... 53
9.7 Annual Financial Statements.................................. 53
9.8 Quarterly Financial Statements............................... 53
9.9 Monthly Financial Statements................................. 53
9.10 Other Reports................................................ 54
9.11 Additional Information....................................... 54
9.12 Projected Operating Budget................................... 54
9.13 Variances From Operating Budget.............................. 54
9.14 Additional Documents......................................... 55
10. EVENTS OF DEFAULT........................................................ 55
11. LENDER'S RIGHTS AND REMEDIES AFTER DEFAULT............................... 57
11.1 Rights and Remedies.......................................... 57
11.2 Lender's Discretion.......................................... 57
11.3 Setoff....................................................... 58
11.4 Rights and Remedies not Exclusive............................ 58
12. WAIVERS AND JUDICIAL PROCEEDINGS......................................... 58
12.1 Waiver of Notice............................................. 58
12.2 Delay........................................................ 58
12.3 Jury Waiver.................................................. 58
(iii)
<PAGE>
13. EFFECTIVE DATE AND TERMINATION........................................... 58
13.1 Term......................................................... 58
13.2 Termination.................................................. 59
14. MISCELLANEOUS............................................................ 59
14.1 Governing Law................................................ 59
14.2 Entire Understanding......................................... 60
14.3 Successors and Assigns; Participations; New Lenders.......... 60
14.4 Application of Payments...................................... 60
14.5 Indemnity.................................................... 61
14.6 Notice....................................................... 61
14.7 Survivability................................................ 62
14.8 Expenses..................................................... 62
14.9 Injunctive Relief............................................ 62
14.10 Captions..................................................... 63
14.11 Counterparts................................................. 63
(iv)
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit 1.2
Exhibit 2.2(d)
Exhibit 4.5
Exhibit 5.2
Exhibit 5.6
Exhibit 5.8(b)
Exhibit 5.9
Exhibit 5.10
Exhibit 5.12
Exhibit 5.14
(v)
<PAGE>
REVOLVING CREDIT, TERM LOAN
AND
SECURITY AGREEMENT
------------------
Revolving Credit, Term Loan and Security Agreement dated April 30,
1998 between CROWN TOOL & DIE COMPANY, INC., a corporation organized under the
laws of the Commonwealth of Puerto Rico, and BNY FINANCIAL CORPORATION ("BNY"),
a corporation organized under the laws of the State of New York.
IN CONSIDERATION of the mutual covenants and undertakings herein
contained, the Borrower and Lender hereby agree as follows:
1. DEFINITIONS.
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 in Section 1.2 or elsewhere in this
Agreement and accounting terms partly defined in Section 1.2 to the extent not
defined, shall have the respective meanings given to them under GAAP.
1.2 GENERAL TERMS. For purposes of this Agreement the following
terms shall have the following meanings:
"ADVANCES" shall mean and include the Revolving Advances,
Letters of Credit and Cap/Ex Loans under Article 2 hereof.
"ADVANCE RATES" shall have the meaning set forth in Section
2.1(a) hereof.
"AFFILIATE" of any Person shall mean (a) any Person (other
than a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with such Person, or (b) any Person
who is a director or officer (i) of such Person, (ii) of any Subsidiary of such
Person or (iii) of any Person described in clause (a) above. For purposes of
this definition, control of a Person shall mean the power, directly or
indirectly, (x) to vote ten percent (10%) or more of the securities having
ordinary voting power for the election of directors of such Person, or (y) to
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise.
"AFFILIATE LOAN AGREEMENTS" shall mean that certain Revolving
Credit, Term Loan and Security Agreement dated the date hereof among Lender,
Industries and Corporation (the "Industries Loan Agreement"), that certain
Revolving Credit, Term Loan and Security Agreement dated the date hereof between
Lender and DITEL, and all notes, instruments, mortgages, agreements, guaranties
and other documents executed and/or
1
<PAGE>
delivered in connection therewith, as the same now exist or may hereafter be
amended, restated, renewed, replaced, extended or otherwise modified.
"AFFILIATED BORROWERS" shall mean, individually and
collectively, Industries, Corporation and DITEL.
"ALTERNATE BASE RATE" shall mean, for any day, a rate per
annum equal to the higher of (a) the Prime Rate in effect on such day and (b)
the Federal Funds Rate in effect on such day plus one half of one percent
(0.50%).
"ALTERNATE BASE RATE ADVANCES" shall mean any Advances or
portion thereof on which interest is payable based on the Alternate Base Rate in
accordance with the terms hereof.
"ANNUAL AUDITED FINANCIAL STATEMENTS" shall have the meaning
set forth in Section 9.7 hereof.
"AUTHORITY" shall have the meaning set forth in Section
4.19(d) hereof.
"AVERAGE EURODOLLAR RATE" shall mean, as to any one month
interest period, the daily average of the "one month" London Interbank Offered
Rate as published in THE WALL STREET JOURNAL averaged on a monthly basis for
actual days elapsed over a 360 day year.
"AVERAGE EURODOLLAR RATE ADVANCES" shall mean any Advances or
portion thereof on which interest is payable based on the Average Eurodollar
Rate in accordance with the terms hereof.
"BANK" shall mean The Bank of New York.
"BLOCKED ACCOUNTS" shall have the meaning set forth in Section
4.15(h) hereof.
"BORROWER" shall mean Crown Tool & Die Company, Inc., and its
successors and assigns.
"BUSINESS DAY" shall mean any day other than a day on which
commercial banks in New York are authorized or required by law to close except
that if a determination of a Business Day shall relate to any Eurodollar Rate
Advances, the term Business Day shall also exclude any day on which banks are
closed for dealings in dollar deposits in the London interbank market or other
applicable Eurodollar Rate market.
"CAP/EX LINE LOANS" shall have the meaning set forth in
Section 2.2(a) hereof.
2
<PAGE>
"CAP/EX LINE SUBLIMIT" shall have the meaning set forth in
Section 2.2(a) hereof.
"CAP/EX LINE TERMINATION DATE" shall have the meaning set
forth in Section 2.2(a) hereof.
"CAP/EX LOAN INTEREST RATE" shall mean the per annum rate of
interest on all Cap/Ex Loans equal to:
(a) with respect to all Cap/Ex Loans which are Alternate
Base Rate Advances, the Alternate Base Rate plus one half of one percent
(0.50%);
(b) with respect to all Cap/Ex Loans which are Eurodollar
Rate Advances, the Eurodollar Rate plus two and three-quarters of one percent
(2.75%); and
(c) with respect to all Cap/Ex Loans which are Average
Eurodollar Rate Advances, the Average Eurodollar Rate plus two and
three-quarters of one percent (2.75%).
"CAP/EX LOANS" shall mean from the date hereof up to the
Cap/Ex Line Termination Date, the aggregate outstanding principal amount of all
Cap/Ex Line Loans, and from and after the Cap/Ex Line Termination Date, the
Cap/Ex Term Loan.
"CAP/EX MANDATORY PREPAYMENT" shall have the meaning set forth
in Section 2.2(e) hereof.
"CAP/EX NOTE" shall have the meaning set forth in Section
2.2(d) hereof.
"CAP/EX RESERVE" shall mean, in addition to all other
Reserves, a reserve established by Lender in an amount determined from time to
time by Lender, in its sole discretion, equal to the amount by which the
aggregate principal amount of Cap/Ex Loans outstanding from time to time exceeds
seventy-five percent (75%) of the value of the Borrower's Eligible Equipment in
Lender's sole judgment.
"CAP/EX TERM LOAN" shall have the meaning set forth in Section
2.2(d) hereof.
"CASH FLOW" for any period, shall mean the sum of (a) Net
Income for such period PLUS (b) interest, income taxes, depreciation and
amortization and all other non-cash charges which were deducted in determining
Net Income for such period, MINUS (c)(i) scheduled and mandatory repayments of
Indebtedness to the extent actually paid during the period, (ii) non cash
credits which were taken into account in determining Net Income for such period,
(iii) interest expense (including all imputed interest on capital lease
obligations) to the extent actually paid during the period, (iv) income taxes to
the extent actually paid during the period, (v) dividends or other distributions
to the extent permitted
3
<PAGE>
hereunder made by Borrower to holders of its respective shares of capital stock,
and (vi) any non-financed payments made in respect of any capital or fixed
assets actually paid during the period.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601 ET SEQ.
"CHANGE OF OWNERSHIP" shall mean the failure of Industries to
beneficially own all of the issued and outstanding shares of capital stock of
Borrower.
"CHARGES" shall mean all taxes, charges, fees, imposts, levies
or other assessments, including, without limitation, all net income, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance, stamp, occupation
and property taxes, custom duties, fees, assessments, Liens, Claims and charges
of any kind whatsoever, together with any interest and any penalties, additions
to tax or additional amounts, imposed by any taxing or other authority, domestic
or foreign (including, without limitation, the Pension Benefit Guaranty
Corporation or any environmental agency or superfund), upon the Collateral, the
Borrower or any of its Subsidiaries.
"CLAIMS" shall mean all security interests, Liens, claims or
encumbrances held or asserted by any Person against any or all of the
Collateral, other than (a) Charges and (b) Permitted Encumbrances.
"CLOSING DATE" shall mean April 30, 1998 or such other date as
may be agreed to by the parties hereto.
"COLLATERAL" shall mean and include:
(a) all Receivables;
(b) all Equipment;
(c) all General Intangibles;
(d) all Inventory;
(e) all Real Property;
(f) all Subsidiary Stock;
(g) all Leasehold Interests;
4
<PAGE>
(h) all of the Borrower's right, title and interest in and
to (i) investment property, contract rights, instruments, documents and chattel
paper; (ii) its goods and other property including, but not limited to all
merchandise returned or rejected by Customers, relating to or securing any of
the Receivables; (iii) all of the Borrower's rights as a consignor, a consignee,
an unpaid vendor, mechanic, artisan, or other lienor, including stoppage in
transit, set off, detinue, replevin, reclamation and repurchase; (iv) all
additional amounts due to the Borrower from any Customer relating to the
Receivables; (v) other property, including warranty claims relating to any goods
securing this Agreement; (vi) if and when obtained by the Borrower, all real and
personal property of third parties in which the Borrower has been granted a lien
or security interest as security for the payment or enforcement of Receivables;
and (vii) any other goods, personal property or real property now owned or
hereafter acquired in which the Borrower has expressly granted a security
interest or may in the future grant a security interest to the Lender hereunder,
or in any amendment or supplement hereto, or under any other agreement between
the Lender and the Borrower;
(i) all of the Borrower's ledger sheets, ledger cards,
files, correspondence, records, books of account, business papers, computers,
computer software (owned by the Borrower or in which it has an interest),
computer programs, tapes, disks and documents relating to clauses (a), (b), (c),
(d), (e), (f), (g), or (h) above; and
(j) all proceeds and products of clauses (a), (b), (c), (d),
(e), (f), (g) and (h) above in whatever form, including, but not limited to:
cash, deposit accounts (whether or not comprised solely of proceeds),
certificates of deposit, insurance proceeds (including hazard, flood and credit
insurance), negotiable instruments and other instruments for the payment of
money, chattel paper, security agreements or documents.
"CONTRACT RATE" shall have the meaning set forth in Section
3.1 hereof.
"CORPORATION" shall mean TII Corporation, a corporation
organized under the laws of the State of Delaware, and its successors and
assigns.
"CUSTOMER" shall mean and include the account debtor with
respect to any of the Receivables and/or the prospective purchaser of goods,
services or both with respect to any contract or other arrangement with the
Borrower, pursuant to which the Borrower is to deliver any personal property or
perform any services.
"DEFAULT RATE" shall have the meaning set forth in Section 3.1
hereof.
"DEPOSITORY ACCOUNTS" shall have the meaning set forth in
Section 4.15(h) hereof.
"DITEL" shall mean TII-Ditel, Inc., a corporation organized
under the laws of the State of North Carolina, and its successors and assigns.
5
<PAGE>
"DOCUMENTS" shall have the meaning set forth in Section 8.1(c)
hereof.
"DOLLAR" and the sign "$" shall mean lawful money of the
United States of America.
"ELIGIBLE EQUIPMENT" shall mean Equipment that meets all of
the following criteria:
(a) the Equipment shall be described (by model, make,
manufacturer, serial no. and/or such other identifying information as may be
appropriate, as determined by Lender) in a schedule to be submitted by the
Borrower to Lender;
(b) Lender shall have a perfected first priority lien on and
security interest in such Equipment;
(c) such Equipment shall be located at a premises owned or
leased by the Borrower in the United States or Puerto Rico; PROVIDED THAT, if
such Equipment is located at a premises leased by the Borrower, the Borrower has
delivered to Lender a landlord waiver in form and substance acceptable to Lender
in its sole discretion;
(d) such Equipment is acceptable as Collateral to Lender in
Lender's discretion, reasonably exercised; and
(e) The Borrower shall have delivered to Lender a copy of a
bill of sale, invoice or other instrument evidencing that the vendor of such
Equipment has transferred good and absolute title thereto to the Borrower for
the purchase price set forth therein, and if applicable, any deferred payment
terms given to the Borrower in connection with such sale. Such bills of sale,
invoices or other instruments shall be subject to desk top appraisal, the
results of which shall be acceptable to Lender in its sole discretion, by an
appraisal firm acceptable to Lender in its sole discretion. The criteria for
Eligible Equipment shall be subject to Lender's continuing satisfaction and may
be revised by Lender from time to time in its sole judgment. Notwithstanding
anything to the contrary contained herein, Eligible Equipment shall not include
any of the Borrower's Equipment located in the Dominican Republic, if any. Any
Equipment that is not Eligible Equipment shall nevertheless be and remain at all
times part of the Collateral.
"ELIGIBLE INVENTORY" shall mean and include Inventory,
excluding work in process, valued at the lower of cost or market value (and, in
the case of Eligible L/C Inventory, net of all duty, freight, taxes, costs,
insurance and other charges and expenses which may pertain to such Eligible L/C
Inventory), determined on a first-in-first-out basis, which is not, in Lender's
opinion, obsolete, slow moving or unmerchantable and which Lender, in its sole
discretion, shall not deem ineligible Inventory, based on such considerations as
Lender may from time to time deem appropriate including, without limitation,
whether the Inventory is subject to a perfected, first priority security
interest in
6
<PAGE>
favor of Lender and whether the Inventory conforms to all standards imposed by
any governmental agency, division or department thereof which has regulatory
authority over such goods or the use or sale thereof. Eligible Inventory shall
include all Eligible L/C Inventory. Notwithstanding anything to the contrary
contained herein, Eligible Inventory shall not include any of the Borrower's
Inventory located in the Dominican Republic, if any.
"ELIGIBLE L/C INVENTORY" shall mean all raw material and
finished goods Inventory owned by the Borrower and covered by Letters of Credit,
and which raw material and finished goods Inventory are or will be in transit to
one of the Borrower's locations (other than the Dominican Republic), and which
raw material and finished goods Inventory (a) as of the date such Inventory is
owned by the Borrower (i) are fully insured, (ii) are subject to a first
priority security interest in and lien upon such goods in favor of Lender
(except for any possessory lien upon such goods in the possession of a freight
carrier or shipping company securing only the freight charges for the
transportation of such goods to the Borrower) and (iii) all documents, notices,
instruments, statements and bills of lading relating thereto, if any, which
Lender may deem necessary or desirable to evidence ownership by the Borrower
and/or to give effect to and protect the liens, security interests and other
rights of Lender in connection therewith, are delivered to Lender; and (b) are
and remain acceptable to Lender for lending purposes.
"ELIGIBLE RECEIVABLES" shall mean each Receivable arising in
the ordinary course of the Borrower's business and which Lender, in its sole
credit judgment, shall deem to be an Eligible Receivable, based on such
considerations as Lender may from time to time deem appropriate. In general, a
Receivable shall not be deemed eligible unless such Receivable is subject to
Lender's perfected security interest and no other Lien other than Permitted
Encumbrances, and is evidenced by an invoice or other documentary evidence
satisfactory to Lender. In addition, no Receivable shall be an Eligible
Receivable if:
(a) it arises out of a sale made by the Borrower to an
Affiliate of the Borrower, or to a Person controlled by an Affiliate of the
Borrower;
(b) it is due or unpaid more than sixty (60) days after the
original due date or ninety (90) days past the invoice date:
(c) fifty percent (50%) or more of the Receivables from the
account debtor are not deemed Eligible Receivables hereunder. Such percentage
may, in Lender's sole discretion, be increased or decreased from time to time;
(d) any covenant, representation or warranty contained in
this Agreement with respect to such Receivable has been breached;
(e) the account debtor is also the Borrower's creditor or
supplier, or the account debtor has disputed liability, or the account debtor
has made any claim with respect to any other Receivable due from such account
debtor to the Borrower, or the
7
<PAGE>
Receivable otherwise is or may become subject to any right of setoff by the
account debtor; EXCEPT THAT, in Lender's discretion, in the event an account
debtor has disputed liability, Lender may, in accordance with and subject to the
other terms hereof, deem any Receivable which is not disputed as an Eligible
Receivable;
(f) the account debtor has commenced a voluntary case under
the federal bankruptcy laws, as now constituted or hereafter amended, or made an
assignment for the benefit of creditors, or if a decree or order for relief has
been entered by a court having jurisdiction in the premises in respect of the
account debtor in an involuntary case under any state or federal bankruptcy
laws, as now constituted or hereafter amended, or if any other petition or other
application for relief under any state or federal bankruptcy law has been filed
against the account debtor, or if the account debtor has failed, suspended
business, ceased to be solvent, called a meeting of its creditors, or consented
to or suffered a receiver trustee, liquidator or custodian to be appointed for
it or for all or a significant portion of its assets or affairs;
(g) the sale is to an account debtor outside the United
States, Canada or Puerto Rico, unless the sale is on letter of credit, guaranty
or acceptance terms, in each case acceptable to Lender in its sole discretion,
or the Receivable arising from such sale is insured by a foreign credit
insurance policy in form, substance and amount acceptable to Lender in its sole
discretion, which policy, together with the proceeds thereof, has been duly
assigned to Lender;
(h) the sale to the account debtor is on a bill-and-hold,
guaranteed sale, sale-and-return, sale on approval, consignment or any other
repurchase or return basis or is evidenced by chattel paper;
(i) Lender believes, in its sole judgment, that collection
of such Receivable is insecure or that such Receivable may not be paid by reason
of the account debtor's financial inability to pay;
(j) the account debtor is the United States of America, any
state, the Commonwealth of Puerto Rico, or any department, agency or
instrumentality of any of them, unless the Borrower assigns the Borrower's right
to payment of such Receivable to Lender pursuant to the Assignment of Claims Act
of 1940, as amended (31 U.S.C. Sub-Section 203 et seq.) or has otherwise
complied with other applicable statutes or ordinances;
(k) the goods giving rise to such Receivable have not been
shipped and delivered to and accepted by the account debtor or the services
giving rise to such receivable have not been performed by the Borrower and
accepted by the account debtor or the Receivable otherwise does not represent a
final sale;
(l) the Receivables of the account debtor exceed a credit
limit determined by Lender, in its sole discretion, to the extent such
Receivable exceeds such limit;
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(m) the Receivable is subject to any offset, deduction,
defense, dispute, or counterclaim or if the Receivable is contingent in any
respect or for any reason;
(n) the Borrower has made any agreement with any account
debtor for any deduction therefrom, except for discounts or allowances made in
the ordinary course of business for prompt payment, all of which discounts or
allowances are reflected in the calculation of the face value of each respective
invoice related thereto;
(o) shipment of the merchandise or the rendition of services
has not been completed;
(p) any return, rejection or repossession of the merchandise
has occurred;
(q) such Receivable is not payable to the Borrower; or
(r) such Receivable is not otherwise satisfactory to the
Lender as determined in good faith by the Lender in the exercise of its
discretion in a reasonable manner.
"ENVIRONMENTAL COMPLAINT" shall have the meaning set forth in
Section 4.19(d) hereof.
"ENVIRONMENTAL LAWS" shall mean all federal, state and local
environmental, land use, zoning, health, chemical use, safety and sanitation
laws, statutes, ordinances and codes relating to the protection of the
environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, guidelines, interpretations,
decisions, orders and directives of federal, state and local governmental
agencies and authorities with respect thereto.
"EQUIPMENT" shall mean and include all of the Borrower's goods
(excluding Inventory) whether now owned or hereafter acquired and wherever
located including, without limitation, all equipment, machinery, apparatus,
motor vehicles, fittings, furniture, furnishings, fixtures, parts, accessories
and all replacements and substitutions therefor or accessions thereto.
"EQUIPMENT PURCHASE PRICE" shall be the purchase price of any
Eligible Equipment as set forth in the bill of sale, invoice or other instrument
evidencing the purchase of such Equipment by the Borrower, net of all taxes,
transportation, installation, delivery and other soft costs of such purchase.
"EURODOLLAR RATE" shall mean with respect to the Interest
Period for a Eurodollar Rate Advance, the interest rate per annum equal to the
arithmetic average of the rates of interest per annum (rounded upwards, if
necessary, to the next one-sixteenth (1/16) of one percent (1%)) at which the
Bank is offered deposits of United States Dollars
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in the London interbank market (or other Eurodollar Rate market selected by the
Borrower and approved by Lender) on or about 9:00 a.m. (New York time) two (2)
Business Days prior to the commencement of such Interest Period in amounts
substantially equal to the principal amount of the Eurodollar Rate Advances
requested by and available to the Borrower in accordance with this Agreement,
with a maturity of comparable duration to the Interest Period selected by the
Borrower.
"EURODOLLAR RATE ADVANCES" shall mean any Advances or portion
thereof on which interest is payable based on the Eurodollar Rate in accordance
with the terms hereof.
"EVENT OF DEFAULT" shall mean the occurrence of any of the
events set forth in Article 10 hereof.
"FACILITY AMOUNT" shall mean $12,500,000.
"FEDERAL FUNDS RATE" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, of if such rate is not so published for
any day which is a Business Day, the average of quotations for such day on such
transactions received by the Bank from three Federal funds brokers of recognized
standing selected by the Bank.
"FORMULA AMOUNT" shall have the meaning set forth in Section
2.1(a) hereof.
"GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time.
"GENERAL INTANGIBLES" shall mean and include all of the
Borrower's general intangibles, whether now owned or hereafter acquired
including, without limitation, all choses in action, causes of action, corporate
or other business records, inventions, designs, patents, patent applications,
equipment formulations, manufacturing procedures, quality control procedures,
trademarks, trade secrets, goodwill, copyrights, registrations, licenses,
franchises, customer lists, tax refunds, tax refund claims, computer programs,
all claims under guaranties, security interests or other security held by or
granted to the Borrower to secure payment of any of the Receivables by an
account debtor, all rights of indemnification and all other intangible property
of every kind and nature (other than Receivables).
"GUARANTOR" shall mean individually and collectively,
Affiliated Borrowers, TII Dominicana, Inc., TII International, Inc. and
Telecommunications Industries, Inc.
"GUARANTY" shall mean the guaranty of the obligations of the
Borrower executed by each Guarantor, respectively, in favor of Lender.
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"HAZARDOUS DISCHARGE" shall have the meaning set forth in
Section 4.19(d) hereof.
"HAZARDOUS SUBSTANCE" shall mean, without limitation, any
flammable explosives, radon, radioactive materials, asbestos, urea formaldehyde
foam insulation, polychlorinated byphenyls, petroleum and petroleum products,
methane, hazardous materials, hazardous wastes, hazardous or toxic substances or
related materials as defined in CERCLA, the Hazardous Materials Transportation
Act, as amended (49 U.S.C. Sections 1801, ET SEQ.), RCRA, Articles 15 and 27 of
the New York State Environmental Conversation Law or any other applicable
Environmental Law and in the regulations adopted pursuant hereto.
"HAZARDOUS WASTES" includes all waste materials subject to
regulation under CERCLA, RCRA or applicable state law, and any other applicable
Federal and state laws now in force or hereafter enacted relating to hazardous
waste disposal.
"INCIPIENT EVENT OF DEFAULT" shall mean an event which, with
the giving of notice or passage of time or both, would constitute an Event of
Default.
"INDEBTEDNESS" of a Person at a particular date shall mean all
obligations of such Person which in accordance with GAAP would be classified
upon a balance sheet as liabilities (except capital stock and surplus earned or
otherwise) and in any event, without limitation by reason of enumeration, shall
include all indebtedness, debt and other similar monetary obligations of such
Person whether direct or guaranteed, and all premiums, if any, due at the
required prepayment dates of such indebtedness, and all indebtedness secured by
a Lien on assets owned by such Person, whether or not such indebtedness actually
shall have been created, assumed or incurred by such Person. Any indebtedness of
such Person resulting from the acquisition by such Person of any assets subject
to any Lien shall be deemed, for the purposes hereof, to be the equivalent of
the creation, assumption and incurring of the indebtedness secured thereby,
whether or not actually so created, assumed or incurred.
"INDUSTRIES" shall mean TII Industries, Inc., a corporation
organized under the laws of the State of Delaware, and its successors and
assigns.
"INDUSTRIES LOAN AGREEMENT" shall have the meaning as set
forth in the definition of "Affiliate Loan Agreements" above.
"INTEREST PERIOD" shall mean for any Eurodollar Rate Advance,
a period of approximately one (1), two (2), three (3) or six (6) months duration
as the Borrower may elect, the exact duration to be determined in accordance
with the customary practice in the applicable Eurodollar Rate market; PROVIDED,
THAT, the Borrower may not elect an Interest Period which (i) with respect to
Cap/Ex Line Loans, will end after the Cap/Ex Line Termination Date, and (ii)
with respect to all Advances, will end after the last day of the then-current
term of this Agreement.
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"INVENTORY" shall mean all of the Borrower's now owned or
hereafter acquired inventory, goods, merchandise and other personal property,
wherever located, to be furnished under any contract of service or held for sale
or lease, all raw materials, work in process, finished goods and materials and
supplies of any kind, nature or description which are or might be used or
consumed in the Borrower's business or used in selling or furnishing such goods,
merchandise and other personal property, and all documents of title or other
documents representing them.
"INVENTORY ADVANCE RATE" shall have the meaning set forth in
Section 2.1(a) hereof.
"LEASEHOLD INTERESTS" shall mean all of the Borrower's right
title and interest in and to the premises located at Road 165, Kilometer 1.06,
Toa Alta, Puerto Rico 00953.
"LENDER" shall mean BNY and its successor and assigns.
"LETTERS OF CREDIT" shall have the meaning set forth in
Section 2.9 hereof.
"LETTER OF CREDIT FEES" shall have the meaning set forth in
Section 3.2(a) hereof.
"LIEN" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, security interest, lien, charge, Claim or
encumbrance, or preference, priority or other security agreement or preferential
arrangement in respect of any asset of the Borrower or any Subsidiary of the
Borrower of any kind or nature whatsoever including, without limitation, any
conditional sale or other title retention agreement, any lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction.
"MAXIMUM REVOLVING ADVANCE AMOUNT" shall mean $6,000,000.
"MONTHLY ADVANCES" shall have the meaning set forth in Section
3.1 hereof.
"NET INCOME" shall mean the net income of Crown.
"OBLIGATIONS" shall mean and include any and all of the
Borrower's Indebtedness and/or liabilities to the Lender or any corporation that
directly or indirectly controls or is controlled by or is under common control
with Lender of every kind, nature and description, direct or indirect, secured
or unsecured, joint, several, joint and several, absolute or contingent, due or
to become due, now existing or hereafter arising, contractual or tortious,
liquidated or unliquidated, regardless of how such indebtedness or liabilities
arise or by what agreement or instrument they may be evidenced or whether
evidenced by any agreement or instrument, including, but not limited to, any and
all of the Borrower's Indebtedness and/or liabilities under this Agreement or
under any other
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agreement between the Lender and the Borrower and all obligations of the
Borrower to the Lender to perform acts or refrain from taking any action.
"ORDERLY LIQUIDATION VALUE" shall mean the orderly liquidation
value of the Borrower's Equipment as determined by an independent appraiser
acceptable to Lender and as reflected in a desk top appraisal prepared by such
appraiser, at the Borrower's cost and expense, and delivered to Lender.
"OTHER DOCUMENTS" shall mean the Questionnaire and any and all
other agreements, instruments and documents, including, without limitation,
guaranties, pledges, powers of attorney, consents, and all other writings
heretofore, now or hereafter executed by the Borrower and/or delivered to Lender
in respect of the transactions contemplated by this Agreement.
"OVERFORMULA AMOUNT" shall have the meaning set forth in
Section 2.1(b) hereof.
"OVERFORMULA RATE" shall mean a per annum rate equal to one
half of one percent (0.5%) in excess of the applicable Contract Rate.
"PARENT" of any Person shall mean a corporation or other
entity owning, directly or indirectly at least fifty percent (50%) of the shares
of stock or other ownership interests having ordinary voting power to elect a
majority of the directors of the Person, or other Persons performing similar
functions for any such Person.
"PAYMENT OFFICE" shall mean initially 1290 Avenue of the
Americas, New York, New York 10104; thereafter, such other office of Lender, if
any, which Lender may designate by notice to the Borrower to be the Payment
Office.
"PERMITTED ENCUMBRANCES" shall mean (a) liens in favor of
Lender; (b) liens for taxes, assessments or other governmental charges not
delinquent, or, being contested in good faith and by appropriate proceedings and
with respect to which proper reserves have been taken by the Borrower; (c) liens
disclosed in the financial statements referred to in Section 5.5, the existence
of which Lender has consented to in writing; (d) deposits or pledges to secure
obligations under workmen's compensation, social security or similar laws, or
under unemployment insurance; (e) deposits or pledges to secure bids, tenders,
contracts (other than contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds and other obligations of like nature
arising in the ordinary course of the Borrower's business; (f) judgment liens
that have been stayed or bonded and mechanics', workmen's, materialmen's,
carriers', or other like liens arising in the ordinary course of the Borrower's
business with respect to obligations which are not due or which are being
contested in good faith by the Borrower; (g) liens placed upon fixed or capital
assets hereafter acquired to secure a portion of the purchase price thereof,
provided that (x) any such lien shall not encumber any other property of the
Borrower and (y) the aggregate amount of Indebtedness secured by such liens
incurred as a result of such
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purchases during any fiscal year shall not exceed the amount provided for in
Section 7.6; and (i) liens disclosed on EXHIBIT 1.2.
"PERSON" shall mean an individual, a partnership, a
corporation, a business trust, a joint stock company, a trust, an unincorporated
association, a joint venture, a governmental authority or any other entity of
whatever nature.
"POSITIVE CASH FLOW" shall have the meaning set forth in
Section 2.2(e)(i) hereof.
"PRIME RATE" for the purpose of this Agreement means the rate
of interest publicly announced from time to time by the Bank at its principal
office in New York as its prime rate or prime lending rate. This rate of
interest is determined from time to time by the Bank as a means of pricing some
loans to its customers and is neither tied to any external rate of interest or
index nor does it necessarily reflect the lowest rate of interest actually
charged by the Bank to any particular class or category of customers of the
Bank.
"PRO FORMA FINANCIAL STATEMENTS" shall have the meaning set
forth in Section 5.5(b) hereof.
"QUESTIONNAIRE" shall mean the Questionnaire dated March 10,
1998 executed by the Borrower and delivered to Lender under a cover letter dated
April 17, 1998, as supplemented by a letter dated April 24, 1998.
"RCRA" shall mean the Resource Conservation and Recovery Act,
42 U.S.C. Section 6901 ET SEQ., as same may be amended from time to time.
"REAL PROPERTY" shall mean all of the Borrower's right, title
and interest in and to any now owned or hereafter acquired real property and all
buildings and improvements located thereon.
"RECEIVABLES" shall mean and include all of the Borrower's
accounts, contract rights, instruments, documents, chattel paper, general
intangibles relating to accounts, drafts and acceptances, and all other forms of
obligations owing to the Borrower arising out of or in connection with the sale
or lease of Inventory or the rendition of services, all guarantees and other
security therefor, whether secured or unsecured, now existing or hereafter
created, and whether or not specifically sold or assigned to the Lender
hereunder.
"RECEIVABLES ADVANCE RATE" shall have the meaning set forth in
Section 2.1(a) hereof.
"RELEASES" shall have the meaning set forth in Section
5.7(c)(i) hereof.
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"RESERVES" shall mean all Obligations then chargeable to any
account of the Borrower, as well as Obligations which may, in Lender's sole
discretion, be chargeable to the Borrower's account thereafter, by reason of or
in connection with any of the following: Receivables which are not Eligible
Receivables; Inventory which is not Eligible Inventory; disputed items;
deductions; allowances; credits; bill and hold sales; consignment sales; Letters
of Credit; steamship guarantees; airway releases; offsets asserted by or granted
to account debtors; sales calling for payment in currencies other than United
States Dollars; to adjust for audit/examination of the Borrower's accounts(s) or
for any documentation correction; such additional reserves as Lender, in its
sole discretion, reasonably exercised, deems appropriate, including, but not
limited to, to adjust for any condition or prospect of the Borrower or the
Borrower's industry; and Cap/Ex Reserves.
"REVOLVING ADVANCES" shall mean Advances made other than
Letters of Credit and the Cap/Ex Loans.
"REVOLVING ADVANCE INTEREST RATE" shall mean the per annum
rate of interest on all Revolving Advances equal to:
(i) With respect to all Revolving Advances which are
Alternate Base Rate Advances, the Alternate Base Rate plus one quarter of one
percent (0.25%);
(ii) With respect to all Revolving Advances which are
Eurodollar Rate Advances, the Eurodollar Rate plus two and one half of one
percent (2.5%); and
(iii) With respect to all Revolving Advances which are Average
Eurodollar Rate Advances, the Average Eurodollar Rate plus two and one half of
one percent (2.5%).
"SUBSIDIARY" of any Person shall mean a corporation or other
entity of whose shares of stock or other ownership interests having ordinary
voting power (other than stock or other ownership interests having such power
only by reason of the happening of a contingency) to elect a majority of the
directors of such corporation, or other Persons performing similar functions for
such entity, are owned, directly or indirectly, by such Person.
"SUBSIDIARY STOCK" shall mean all of the issued and
outstanding shares of stock owned by Borrower with respect to any of its
Subsidiaries.
"TERM" shall have the meaning set forth in Section 13.1
hereof.
"TOXIC SUBSTANCE" shall mean and include any material present
on the Real Property or the Leasehold Interests which has been shown to have
significant adverse effect on human health or which is subject to regulation
under the Toxic Substances Control Act (TSCA), 15 U.S.C. Section 2601 ET SEQ.,
applicable state law, or any other applicable Federal or state laws now in force
or hereafter enacted, relating to toxic
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substances. "Toxic Substance" includes but is not limited to asbestos,
polychlorinated biphenyls (PCBs) and lead-based paints.
"TRANSACTIONS" shall have the meaning set forth in Section 5.5
hereof.
1.3 UNIFORM COMMERCIAL CODE TERMS. All terms used herein and defined in
the Uniform Commercial Code as adopted in the State of New York shall have the
meaning given therein unless otherwise defined herein.
2. ADVANCES, PAYMENT, INTEREST AND FEES.
2.1 REVOLVING ADVANCES. (a) Subject to the terms and conditions set
forth in this Agreement, Lender will make from time to time, Revolving Advances
to the Borrower not to exceed at any one time an aggregate outstanding amount
equal to the sum of (i) the lesser of (x) the Maximum Revolving Advance Amount
and (y) the Formula Amount; LESS (ii) the aggregate amount of all outstanding
Revolving Advances, PROVIDED THAT, the aggregate amount of all outstanding
Revolving Advances hereunder, PLUS all issued and outstanding Letters of Credit
hereunder, PLUS the aggregate amount of all outstanding Revolving Advances under
the Affiliate Loan Agreements, PLUS all issued and outstanding Letters of Credit
under the Affiliate Loan Agreements shall not exceed the Maximum Revolving
Advance Amount. The "Formula Amount" shall mean the sum of the following amounts
at any time and from time to time:
(i) eighty-five percent (85%) of Eligible Receivables
("Receivables Advance Rate"), PLUS
(ii) fifty percent (50%) of Eligible Inventory ("Inventory
Advance Rate; together with the Receivables Advance Rate", collectively the
"Advance Rates"), PROVIDED, HOWEVER, that the maximum amount of outstanding
Revolving Advances against Eligible Inventory to the Borrower hereunder and to
Affiliated Borrowers under the Affiliate Loan Agreements, shall not exceed
$3,000,000 at any one time, LESS
(iii) Reserves (including, without limitation, Cap/Ex Reserves
and Reserves for Letters of Credit), LESS
(iv) $2,000,000 (less any portion thereof allocated from time
to time by Lender, in its sole discretion, under the Affiliate Loan Agreements).
(b) DISCRETIONARY OVERFORMULA REVOLVING ADVANCES. Notwithstanding
anything to the contrary contained herein, the aggregate amount of all Revolving
Advances and amounts due under Letters of Credit at any time and from time to
time outstanding
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hereunder and under the Affiliate Loan Agreements shall not exceed the formulas
and limitations as set forth in Section 2.1(a) hereof (any such excess amount,
an "Overformula Amount"). Any Revolving Advances constituting an Overformula
Amount are made available by Lender or otherwise permitted to exist in the sole
and absolute discretion of Lender and are subject to Section 2.7 hereof.
(c) DISCRETIONARY RIGHTS. The Advance Rates may be increased or
decreased by Lender at any time and from time to time in the exercise of its
reasonable discretion. The Borrower consents to any such increases or decreases
and acknowledges that decreasing the Advance Rates may limit or restrict
Advances requested by the Borrower.
2.2 CAP/EX LOANS.
(a) In addition to all Revolving Advances, Letters of Credit and
any other loans and financial accommodations to be made by Lender pursuant to
this Agreement and subject to the terms and conditions set forth herein, Lender
agrees, from the date hereof up to December 31, 1998 (the "Cap/Ex Line
Termination Date"), to make loans to the Borrower, upon the Borrower's written
request, for the purpose of purchasing or acquiring Eligible Equipment, or for
the purpose of refinancing any existing Indebtedness or making new loans, with
respect to any Equipment which Lender, in its sole discretion deems to be
Eligible Equipment (the "Cap/Ex Line Loans"). Each Cap/Ex Line Loan shall be in
an amount not to exceed seventy-five percent (75%) of the Equipment Purchase
Price in respect of Eligible Equipment which is, at the time acquired by the
Borrower, new Equipment, and seventy-five percent (75%) of the Orderly
Liquidation Value in respect of Eligible Equipment which is, as of the date of
such requested Cap/Ex Line Loan, used Equipment, PROVIDED, HOWEVER, that after
giving effect to a Cap/Ex Line Loan requested by the Borrower, the sum of (i)
such requested Cap/Ex Line Loan PLUS (ii) the aggregate original principal
amount of all Cap/Ex Line Loans which have been made to the Borrower, PLUS (iii)
the aggregate original principal amount of all Cap/Ex Line Loans which have been
made to Affiliated Borrowers under the Affiliate Loan Agreements shall in no
event exceed $6,500,000 ("Cap/Ex Line Sublimit"). The Borrower shall provide
Lender with not less than ten (10) days prior written notice of each requested
Cap/Ex Line Loan. Each Cap/Ex Line Loan shall bear interest from the date such
Cap/Ex Line Loan is made at the applicable Contract Rate set forth in Section
3.1 and such interest shall be payable in accordance with Section 3.1. In
addition to the foregoing and subject to the Cap/Ex Line Sublimit, Lender may,
in its sole discretion, make additional Cap/Ex Line Loans to the Borrower in
respect of Eligible Equipment, which is, at the time acquired by the Borrower,
used Equipment, in an amount determined by Lender in its sole discretion.
(b) Each Cap/Ex Line Loan shall be in an amount of not less than
$250,000.
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(c) The Borrower shall have no right to request, and Lender shall
have no obligation to make whatsoever, any Cap/Ex Line Loan after the Cap/Ex
Line Termination Date.
(d) The aggregate principal amount of all Cap/Ex Line Loans made
from the Closing Date through and including June 30, 1998 (the "June 30
Principal Balance"), shall be repaid in seven (7) consecutive monthly principal
installments (or earlier as herein provided) commencing July 31, 1998, and on
the last day of each month thereafter, of which the first six (6) installments
shall each be in an amount equal to a quotient of the June 30 Principal Balance
divided by eighty-four (84), and the seventh (7th) installment shall be in an
amount equal to the entire then unpaid principal balance of the June 30
Principal Balance ("Unpaid June 30 Principal Balance"). The Unpaid June 30
Principal Balance and the aggregate principal amount of all Cap/Ex Line Loans
made from July 1, 1998 through and including the Cap/Ex Line Termination Date
(the "Cap/Ex Term Loan") shall be consolidated and repaid in fifty-one (51)
consecutive monthly principal installments (or earlier as herein provided)
commencing on the last day of the first calendar month next following the Cap/Ex
Line Termination Date and monthly thereafter on the last day of each successive
month until paid, of which the first fifty (50) principal installments shall
each be in an amount equal to the quotient of the principal amount of the Cap/Ex
Term Loan divided by eighty-four (84), and the last and fifty-first (51st)
principal installment shall be in an amount of the entire unpaid balance of such
Cap/Ex Term Loan. The Cap/Ex Term Loan shall be evidenced by and subject to the
terms and conditions of a promissory note (the "Cap/Ex Note"), which Cap/Ex Note
shall be in form and substance satisfactory to Lender and shall be dated as of
the last day of the first calendar month next following the Cap/Ex Line
Termination Date. Notwithstanding anything to the contrary contained herein, if
the Term of this Agreement is extended beyond the initial Term, the amortization
schedule of principal payments of the Cap/Ex Term Loan may, in Lender's sole
discretion, be extended, and the Borrower shall execute an amended and restated
promissory note in favor of Lender, in form and substance acceptable to Lender,
reflecting such revised schedule of principal installment payments with respect
to the Cap/Ex Term Loan, PROVIDED THAT, the final principal installment of such
Cap/Ex Term Loan shall be due and payable not later than the seventh (7th)
anniversary of the Closing Date. In addition to all other rights and remedies
under this Agreement, the Cap/Ex Term Loan, together with all accrued and unpaid
interest thereon and the early termination fee in respect thereof, shall, at
Lender's option, be immediately due and payable if this Agreement shall be
terminated or not renewed for any reason whatsoever, or upon the occurrence of
any Event of Default hereunder.
(e) (i) In addition to, and not in limitation of, any provision
contained herein or in the Cap/Ex Note, and except as otherwise provided in
Section 4.3 and Section 4.11 hereof, the Borrower shall remit to Lender the
following mandatory prepayments in respect of the Cap/Ex Loans (each, a "Cap/Ex
Mandatory Prepayment"):
(x) Commencing with Borrower's fiscal year ending
June, 1999 and for each of the Borrower's fiscal years thereafter, if the
Borrower's Cash Flow for
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such applicable fiscal year is greater than $1.00 ("Positive Cash Flow"), the
Borrower shall pay to Lender an amount equal to fifty percent (50%) of such
Positive Cash Flow without duplication of any such Positive Cash Flow payments,
or portion thereof, attributable to Industries and/or Corporation under that
certain Revolving Credit, Term Loan and Security Agreement dated the date hereof
among Lender, Industries and Corporation, and without duplication of any
Positive Cash Flow payments, or portion thereof, attributable to Ditel under
that certain Revolving Credit, Term Loan and Security Agreement dated the date
hereof between Lender and Ditel. The Cap/Ex Mandatory Prepayment payable
pursuant to this Section 2.2(e)(i) shall be due and payable five (5) days after
delivery to Lender of the Annual Audited Financial Statements for such fiscal
year. At Lender's option, in addition to all other Obligations, Lender may
charge any account of the Borrower for any Cap/Ex Mandatory Prepayment due under
this Section 2.2(e)(i);
(y) Subject to the terms of Section 4.3 hereof, the
Borrower shall pay to Lender the net proceeds of sale or other disposition of
Equipment; and
(z) Subject to the terms of Section 4.11 hereof, the
Borrower shall pay to Lender all proceeds of insurance with respect to any
Equipment.
(ii) Each Cap/Ex Mandatory Prepayment shall be applied
against the unpaid principal balance of the Cap/Ex Line Loans in such order and
manner as Lender shall elect and, from and after the Cap/Ex Line Termination
Date, against the unpaid principal balance of the Cap/Ex Term Loan in the
inverse order of maturities thereof.
(f) The Cap/Ex Loans shall (i) constitute a part of the Advances
and a part of the Obligations, (ii) be secured by the Collateral; and (iii) be
subject to the continued compliance with the terms and provisions of this
Agreement.
(g) The making of any Cap/Ex Line Loans is further subject to the
satisfaction of each of the following conditions precedent in a manner
satisfactory to Lender:
(i) Evidence that the Borrower has disbursed, in connection
with the purchase of the Equipment, all the proceeds received by the Borrower to
the vendors of such Equipment; and
(ii) no Event of Default or Incipient Event of Default shall
have occurred and be continuing.
2.3 APPOINTMENT OF INDUSTRIES AS AGENT FOR BORROWING. The Borrower
hereby irrevocably appoints its parent, Industries, the beneficial owner of not
less than sixty-five percent (65%) of the issued and outstanding capital stock
of the Borrower, and each officer thereof, as its agent and attorney-in-fact to
request Advances on its behalf, and, at Lender's option, to receive
disbursements of Advances on its behalf (which may be made
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to any account which the Borrower may designate in writing), to receive notices
and statements of account from Lender, to take such other actions on its behalf
as is provided hereunder or under any of the Other Documents and generally to
deal with Lender on its behalf, for all matters pertaining to the financing
arrangements under this Agreement and the Other Documents.
2.4 REQUEST FOR ADVANCES.
(a) The Borrower may, from time to time, request Lender to make
Alternate Base Rate Advances, Eurodollar Rate Advances or Average Eurodollar
Rate Advances, convert Alternate Base Rate Advances, Eurodollar Rate Advances or
Average Eurodollar Rate Advances, or request that any existing Eurodollar Rate
Advances continue for an additional Interest Period. In the event that Borrower
desires Lender to make Alternate Base Rate Advances or Average Eurodollar Rate
Advances, Borrower shall notify Lender prior to 11:00 a.m. on a Business Day of
its request to incur such Alternate Base Rate Advance or Average Eurodollar Rate
Advances, as the case may be, on that day and the amount thereof. In the event
that Borrower desires Lender to make Eurodollar Rate Advances, convert Alternate
Base Rate Advances to Eurodollar Rate Advances, convert Average Eurodollar Rate
Advances to Eurodollar Rate Advances or continue Eurodollar Rate Advances for an
additional Interest Period, Borrower shall give Lender at least three (3)
Business Days' prior written notice, no later than 10:00 a.m. (New York City
time) on the day such notice is given, specifying the amount and the date (which
shall be a Business Day) of the proposed making of any such Eurodollar Rate
Advance, conversion of any such Alternate Base Rate Advance into a Eurodollar
Rate Advance, conversion of any such Average Eurodollar Rate Advance into a
Eurodollar Rate Advance, or continuance of existing Eurodollar Rate Advances for
an additional Interest Period. Such request from Borrower shall specify the
amount of the Advances which will constitute Eurodollar Rate Advances (subject
to the limits set forth below) and the Interest Period to be applicable to such
Eurodollar Rate Advances. Subject to the terms and conditions contained herein,
three (3) Business Days after receipt by Lender of such a request from Borrower,
such Eurodollar Rate Advances, shall be made, or such Alternate Base Rate
Advances shall be converted to Eurodollar Rate Advances or such Average
Eurodollar Rate Advances shall be converted to Eurodollar Rate Advances, or such
Eurodollar Rate Advances shall continue, PROVIDED, THAT, as of each such date,
each of the following conditions is satisfied as determined by Lender in its
sole discretion: (i) no Event of Default or Incipient Event of Default exists or
has occurred and is continuing, (ii) no party hereto shall have sent any notice
of termination or non-renewal of this Agreement, (iii) Borrower shall have
complied with such customary procedures as are established by Lender and
specified by Lender to Borrower from time to time for requests by Borrower for
Eurodollar Rate Advances, (iv) no more than five (5) Interest Periods in the
aggregate for Borrower and Affiliated Borrowers may be in effect at any one
time, (v) the amount of each Eurodollar Rate Advance must be, in each case, in
an amount of not less than $1,000,000 or an integral multiple of $100,000 in
excess thereof, (vi) the maximum amount of the Eurodollar Rate Advances at any
time requested by Borrower shall not exceed the amount equal to eighty percent
(80%) of the lowest principal amount of the Advances which it is
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anticipated will be outstanding during the applicable Interest Period, in each
case as determined by Lender (but with no obligation of Lender to make such
Advances) and (vii) Lender shall have determined that the Interest Period or
Eurodollar Rate is available to Lender through the Bank and can be readily
determined as of the date of the request for such Eurodollar Rate Advances by
Borrower. Any request by Borrower to convert Alternate Base Rate Advances to
Eurodollar Rate Advances, or to convert Average Eurodollar Rate Advances to
Eurodollar Rate Advances, or to continue any existing Eurodollar Rate Advances
shall be irrevocable. Notwithstanding anything to the contrary contained herein,
Lender and Bank shall not be required to purchase United States Dollar deposits
in the London interbank market or other applicable Eurodollar Rate market to
fund any Eurodollar Rate Advances, but the provisions hereof shall be deemed to
apply as if Lender and Bank had purchased such deposits to fund the Eurodollar
Rate Advances.
(b) Any Eurodollar Rate Advances shall automatically convert to
Alternate Base Rate Advances upon the last day of the applicable Interest
Period, unless Lender has received and approved a request to continue such
Eurodollar Rate Advance at least three (3) Business Days prior to such last day
in accordance with the terms hereof. Borrower shall pay to Lender, upon demand
by Lender (or Lender may, at its option, charge any loan account of Borrower)
any amounts required to compensate Lender, the Bank or any participant with
Lender for any loss (including loss of reasonably anticipated profits), cost or
expense incurred by such person, as a result of the conversion of Eurodollar
Rate Advances or Average Eurodollar Rate Advances, as the case may be, to
Alternate Base Rate Advances pursuant to any of the foregoing. Any Eurodollar
Rate Advances shall bear interest at the Default Rate in the event that (i) an
Event of Default shall exist or have occurred, (ii) this Agreement shall
terminate or not be renewed, or (iii) the aggregate principal amount of the
Alternate Base Rate Advances which have previously been converted to Eurodollar
Rate Advances, or which existing Eurodollar Rate Advances have been continued,
as the case may be, at the beginning of an Interest Period shall at any time
during such Interest Period exceed either (x) the aggregate principal amount of
the Advances then outstanding, or (y) the Advances then available to Borrower
under Section 2.1 hereof. Any Average Eurodollar Rate Advances shall
automatically convert to Alternate Base Rate Advances in the event that an Event
of Default or an Incipient Event of Default shall exist or have occurred or this
Agreement shall terminate or not be renewed and such Alternate Base Rate
Advances shall bear interest at the Default Rate.
(c) Should any amount required to be paid as interest hereunder,
or as fees or other charges under this Agreement or any other agreement with
Lender, or with respect to any other Obligation, become due, same shall be
deemed a request for a Revolving Advance as of the date such payment is due, in
the amount required to pay in full such interest, fee, charge or Obligation
under this Agreement or any other agreement with Lender, and such request shall
be irrevocable.
2.5 DISBURSEMENT OF ADVANCE PROCEEDS. All Advances shall be disbursed
from whichever office or other place the Lender may designate from time to time
and, together
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with any and all other Obligations of the Borrower to Lender, shall be charged
to any account of the Borrower on the Lender's books. During the Term, the
Borrower may use the Revolving Advances by borrowing, repaying and reborrowing,
all in accordance with the terms and conditions hereof. The proceeds of each
Revolving Advance requested by the Borrower or deemed to have been requested by
the Borrower under Section 2.4(c) hereof shall, with respect to requested
Revolving Advances to the extent the Lender makes such Revolving Advances,
subject to Section 2.3 hereof, be made available to the Borrower on the day so
requested by way of credit to Industries' operating account at such bank as
Industries may designate following notification to Lender, in immediately
available federal or other immediately available funds or, with respect to
Revolving Advances deemed to have been requested, be disbursed to the Lender in
payment of outstanding Obligations.
2.6 REPAYMENT OF ADVANCES.
(a) The Revolving Advances shall be due and payable in full on the
last day of the Term subject to earlier prepayment as herein provided. The
Cap/Ex Loans shall be due and payable as provided in Section 2.2 hereof and in
the Cap/Ex Note.
(b) The Borrower recognizes that the amounts evidenced by checks,
notes, drafts or any other items of payment relating to and/or proceeds of
Collateral may not be collectible by the Lender on the date received. In
consideration of the Lender's agreement to conditionally credit any account of
the Borrower as of the Business Day on which the Lender receives from the
Blocked Account bank or the Depository Account bank those items of payment, the
Borrower agrees that, in computing the charges under this Agreement, all items
of payment shall be deemed applied by Lender on account of the Obligations one
(1) Business Day after confirmation to Lender by the Blocked Account bank or the
Depository Account bank as provided for in Section 4.15(h), that such items of
payment have been collected in good funds and finally credited by Lender to any
account of Borrower. The Lender is not, however, required to credit any account
of the Borrower for the amount of any item of payment which is unsatisfactory to
the Lender and the Lender may charge any account of the Borrower for the amount
of any item of payment which is returned to the Lender unpaid.
(c) All payments of principal, interest and other amounts payable
hereunder, or under any of the related agreements shall be made to the Lender at
the Payment Office not later than 1:00 P.M. (New York Time) on the due date
therefor in lawful money of the United States of America in Federal or other
funds immediately available to the Lender. Lender shall have the right to
effectuate payment on any and all Obligations due and owing hereunder by
charging any account of the Borrower or by making Advances as provided in
Section 2.5 hereof.
(d) The Borrower shall pay principal, interest, and all other
amounts payable hereunder, or under any related agreement, without any deduction
whatsoever, including, but not limited to, any deduction for any setoff or
counterclaim.
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2.7 REPAYMENT OF OVERFORMULA AMOUNTS. The aggregate balance of all
Revolving Advances constituting an Overformula Amount shall be immediately due
and payable without the necessity of any demand, at the place designated by
Lender, whether or not an Incipient Event of Default or Event of Default has
occurred, unless otherwise expressly agreed to in writing by Lender.
2.8 STATEMENT OF ACCOUNT. Lender shall maintain, in accordance with its
customary procedures, a loan account in the name of the Borrower in which shall
be recorded the date and amount of each Advance made by Lender and the date and
amount of each payment in respect thereof; PROVIDED, HOWEVER, the failure by
Lender to record the date and amount of any Advance shall not adversely affect
Lender. For each month, Lender shall send to the Borrower a statement showing
the accounting for the Advances made, payments made or credited in respect
thereof, and other transactions between Lender and the Borrower, during such
month. The monthly statements shall be deemed correct and binding upon the
Borrower in the absence of manifest error and shall constitute an account stated
between Lender and the Borrower unless Lender receives a written statement of
the Borrower's specific exceptions thereto within thirty (30) days after such
statement is received by the Borrower. The records of Lender with respect to the
loan account shall be PRIMA FACIE evidence of the amounts of Advances and other
changes thereto and of payments applicable thereto.
2.9 LETTERS OF CREDIT. Subject to the terms and conditions hereof,
Lender shall issue or cause the issuance of Letters of Credit ("Letters of
Credit"); PROVIDED, HOWEVER, that Lender will not be required to issue or cause
to be issued any Letters of Credit to the extent that the face amount of such
Letters of Credit would then cause: (i) the sum of (A) the aggregate amount of
all outstanding Revolving Advances hereunder, PLUS (B) all issued and
outstanding Letters of Credit hereunder to exceed the lesser of (x) the Maximum
Revolving Advance Amount and (y) the Formula Amount (exclusive of, for the
purposes of calculating the Formula Amount, any Reserves established for Letters
of Credit); or (ii) the sum of (A) the aggregate amount of all outstanding
Revolving Advances hereunder, PLUS (B) all issued and outstanding Letters of
Credit hereunder, PLUS (C) the aggregate amount of all Revolving Advances under
the Affiliate Loan Agreements, PLUS (D) all issued and outstanding Letters of
Credit under the Affiliate Loan Agreements to exceed the lesser of (x) the
Maximum Revolving Advance Amount and (y) the aggregate Formula Amount hereunder
and under the Affiliate Loan Agreements (in each case, exclusive of, for the
purposes of calculating the Formula Amount, any Reserves established for Letters
of Credit). The maximum amount of outstanding Letters of Credit hereunder and
under the Affiliate Loan Agreements shall not exceed $1,000,000 in the aggregate
at any time. All disbursements or payments related to Letters of Credit shall be
deemed to be a Revolving Advance which is an Alternate Base Rate Advance and
shall bear interest at the applicable Revolving Advance Interest Rate set forth
in Section 1.2 hereof.
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2.10 ISSUANCE OF LETTERS OF CREDIT.
(a) The Borrower may request Lender to issue or cause the issuance
of a Letter of Credit by delivering to Lender at the Payment Office, Lender's
standard form of Letter of Credit and Security Agreement together with Bank's
standard form of Letter of Credit Application (collectively, the "Letter of
Credit Application") and any draft, if applicable, completed to the satisfaction
of Lender; and, such other certificates, documents and other papers and
information as Lender may reasonably request.
(b) Each Letter of Credit shall, among other things, (i) provide
for the payment of sight drafts when presented for honor thereunder in
accordance with the terms thereof and when accompanied by the documents
described therein and (ii) have an expiry date not later than six months after
such Letter of Credit's date of issuance and in no event later than the last day
of the Term. Each Letter of Credit Application and each Letter of Credit shall
be subject to the Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication No. 500, and any
amendments or revisions thereof and, to the extent not inconsistent therewith,
the laws of the State of New York.
2.11 REQUIREMENTS FOR ISSUANCE OF LETTERS OF CREDIT
(a) In connection with the issuance of any Letter of Credit, the
Borrower shall indemnify, save and hold Lender harmless from any loss, cost,
expense or liability, including, without limitation, payments made by Lender,
and expenses and reasonable attorneys' fees incurred by Lender arising out of,
or in connection with, any Letter of Credit to be issued or created for the
Borrower. The Borrower shall be bound by Lender's or any issuing or accepting
bank's regulations and good faith interpretations of any Letter of Credit issued
or created for the Borrower's account, although this interpretation may be
different from the Borrower's own, and, neither Lender, the bank which opened
the Letter of Credit nor any of its correspondents shall be liable for any
error, negligence, or mistakes, whether by omission or commission, in following
the Borrower's instructions or those contained in any Letter of Credit or of any
modifications, amendments or supplements thereto or in creating or paying any
Letter of Credit, except for Lender's gross negligence or willful misconduct or
such issuing banks' or correspondents' willful misconduct.
(b) The Borrower shall authorize and direct any bank which issues
a Letter of Credit to name the Borrower as the "Account Party" therein and to
deliver to Lender all instruments, documents, and other writings and property
received by the bank pursuant to the Letter of Credit or in connection with any
acceptance and to accept and rely upon Lender's instructions and agreements with
respect to all matters arising in connection with the Letter of Credit, the
application therefor or any acceptance therefor.
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(c) In connection with all Letters of Credit issued or created by
Lender under this Agreement, the Borrower hereby appoints Lender, or its
designee, as its attorney-in-fact, with full power and authority (a) to sign
and/or endorse the Borrower's name upon any warehouse or other receipts, letter
of credit applications and acceptances; (b) to sign the Borrower's name on bills
of lading; (c) to clear Inventory through customs in the name of the Borrower or
Lender or Lender's designee, and to sign and deliver to Customs Officials powers
of attorney in the name of the Borrower for such purpose; and (d) to complete in
the Borrower's name or Lender's, or in the name of Lender's designee, any order,
sale or transaction, obtain the necessary documents in connection therewith, and
collect the proceeds thereof. Neither Lender nor its attorneys will be liable
for any acts or omissions nor for any error of judgment or mistakes of fact or
law, except for Lender's or its attorney's gross negligence or willful
misconduct. This power, being coupled with an interest, is irrevocable as long
as any Letters of Credit remain outstanding.
2.12 ADDITIONAL PAYMENTS. Any sums expended by Lender due to the
Borrower's failure to perform or comply with its obligations under this
Agreement including, without limitation, the Borrower's obligations under
Sections 4.2, 4.4, 4.10, 4.12, 4.13, 4.14 and 6.1 hereof, may be charged to any
account of the Borrower's as a Revolving Advance and added to the Obligations.
Any sums expended by Lender or any amounts charged to any account of the
Borrower as a Revolving Advance shall be an Alternate Base Rate Advance and
shall bear interest at the applicable Revolving Advance Interest Rate as set
forth in Section 1.2 hereof.
3. INTEREST AND FEES.
3.1 INTEREST. Interest on Advances shall be payable in arrears on the
last day of each month, except that, interest with respect to Eurodollar Rate
Advances shall be payable on the last day of the Interest Period with respect
thereto. Interest charges shall be computed on the actual average of such daily
Advances outstanding during the month (the "Monthly Advances") at a rate per
annum equal to (i) with respect to Revolving Advances, the Revolving Advance
Interest Rate, and (ii) with respect to Cap/Ex Loans, the Cap/Ex Loan Interest
Rate (as applicable, the "Contract Rate"). Whenever, subsequent to the date
hereof, the Alternate Base Rate or the Average Eurodollar Rate is increased or
decreased, the applicable Contract Rate shall be similarly changed without
notice or demand of any kind by an amount equal to the amount of such change in
the Alternate Base Rate or Average Eurodollar Rate, as the case may be, during
the time such change or changes remain in effect. If an Overformula Amount
exists for five (5) or more days in any month during the Term, Advances (other
than Cap/Ex Loans) for that month shall bear interest at the Overformula Rate.
Upon and after the occurrence of an Event of Default, and during the
continuation thereof, the Obligations shall bear interest at the applicable
Contract Rate plus two percent (2%) per annum (the "Default Rate").
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3.2 LETTERS OF CREDIT.
(a) The Borrower shall pay Lender (i) (A) for issuing or causing
the issuance of a standby Letter of Credit, a fee computed at a rate per annum
of three percent (3%) on the outstanding amount thereof from time to time, and
(B) for issuing or causing the issuance of a Letter of Credit that is not a
standby Letter of Credit, a fee equal to one-quarter of one percent (.25%) of
the original and each increase in the face amount thereof for each 30 days or
part thereof of its term (the fees set forth in (A) and (B) are hereinafter
referred to as "Letter of Credit Fees"), and (ii) issuing bank's other customary
charges payable in connection with Letters of Credit as in effect from time to
time (which charges shall be furnished to Borrower by Lender upon request). Such
fees and charges shall be payable (i) in the case of any Letter of Credit,
monthly thereafter in advance, (ii) in the case of a standby Letter of Credit,
(A) monthly thereafter in advance and (B) upon each increase in the outstanding
amount thereof, and (iii) in the case of any Letter of Credit that is not a
standby Letter of Credit, at the time of each increase in face amount thereof.
All Letter of Credit Fees payable hereunder shall be deemed earned in full on
the date when the same are due and payable hereunder and shall not be subject to
rebate or proration upon the termination of this Agreement for any reason.
(b) On demand, Borrower will cause cash to be deposited and
maintained in an account with Lender, as cash collateral, in an amount equal to
outstanding Letters of Credit and Borrower hereby irrevocably authorizes Lender,
in its discretion, on Borrower's behalf and in the Borrower's name, to open such
an account and to make and maintain deposits therein, or in an account opened by
Borrower, in the amounts required to be made by Borrower, out of the proceeds of
Receivables or other Collateral or out of any other funds of Borrower coming
into Lender's possession at any time. Borrower may not withdraw amounts credited
to any such account except upon payment and performance in full of all
Obligations and termination of this Agreement. In the event Borrower shall
deposit with Lender cash collateral as provided herein, Lender agrees to release
any Reserve established in respect of such outstanding Letters of Credit to the
extent of such cash collateral.
3.3 [INTENTIONALLY OMITTED]
3.4 [INTENTIONALLY OMITTED]
3.5 [INTENTIONALLY OMITTED]
3.6 COMPUTATION OF INTEREST AND FEES. Interest and fees hereunder shall
be computed on the basis of a year of 360 days and for the actual number of days
elapsed. If any payment to be made hereunder becomes due and payable on a day
other than a Business Day, the due date thereof shall be extended to the next
succeeding Business Day and interest thereon shall be payable at the applicable
Contract Rate during such extension.
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3.7 MAXIMUM CHARGES. In no event whatsoever shall interest and other
charges charged hereunder exceed the highest rate permissible under law which a
court of competent jurisdiction shall, in a final determination, deem applicable
hereto. In the event that a court determines that Lender has received interest
and other charges hereunder in excess of the highest rate applicable hereto,
such excess interest shall be first applied to any unpaid principal balance owed
by the Borrower, and if then remaining excess interest is greater than the
previously unpaid principal balance, the Lender shall promptly refund such
excess amount to the Borrower and the provisions hereof shall be deemed amended
to provide for such permissible rate.
3.8 INCREASED COSTS. In the event that any applicable law, treaty or
governmental regulation, or any change therein or in the interpretation or
application thereof, or compliance by the Lender (for purposes of this Section
3.8, the term "Lender" shall include Lender or any corporation or bank
controlling Lender) with any request or directive (whether or not having the
force of law) from any central bank or other financial, monetary or other
authority, shall:
(a) subject the Lender to any tax of any kind whatsoever with
respect to this Agreement or any Advance or change the basis of taxation of
payments to the Lender of principal, fees, interest or any other amount payable
hereunder or under any Other Documents (except for changes in the rate of tax on
the overall net income of the Lender by the jurisdiction in which it maintains
its principal office);
(b) impose, modify or hold applicable any reserve, special
deposit, assessment or similar requirement against assets held by, or deposits
in or for the account of, advances or loans by, or other credit extended by, any
office of the Lender, including (without limitation) pursuant to Regulation D of
the Board of Governors of the Federal Reserve System; or
(c) impose on the Lender any other condition with respect to this
Agreement, any Other Documents or any other Advances; and the result of any of
the foregoing is to increase the cost to the Lender of making, renewing or
maintaining its Advances hereunder by an amount that Lender deems to be material
or to reduce the amount of any payment (whether of principal, interest or
otherwise) in respect of any of the Advances by an amount that the Lender deems
to be material, then, in any case the Borrower shall promptly pay the Lender,
upon its demand, such additional amount as will compensate the Lender for such
additional cost or such reduction, as the case may be. The Lender shall certify
the amount of such additional cost or reduced amount to the Borrower, and such
certification shall be conclusive absent manifest error.
3.9 CAPITAL ADEQUACY.
(a) In the event that the Lender shall have determined that any
applicable law, rule, regulation or guideline regarding capital adequacy, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority,
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central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Lender (for purposes of this
Section 3.9, the term "Lender" shall include Lender and any corporation or bank
controlling Lender) and the office or branch where Lender (as so defined) makes
or maintains any Advances with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on the Lender's capital as a consequence of its obligations hereunder to
a level below that which the Lender could have achieved but for such adoption,
change or compliance (taking into consideration the Lender's policies with
respect to capital adequacy) by an amount deemed by the Lender to be material,
then, from time to time, the Borrower shall pay upon demand to the Lender such
additional amount or amounts as will compensate the Lender for such reduction.
In determining such amount or amounts, the Lender may use any reasonable
averaging attribution methods. The protection of this Section 3.9 shall be
available to the Lender regardless of any possible contention of invalidity or
inapplicability of the law, regulation or condition which shall have been
imposed.
(b) A certificate of the Lender setting forth such amount or
amounts as shall be necessary to compensate the Lender as specified in this
Section 3.9 shall be delivered to the Borrower and shall be conclusive absent
manifest error.
3.10 SURVIVAL. The obligations of the Borrower under this Article 3 shall
survive termination of this Agreement and the Other Documents.
4. COLLATERAL: GENERAL TERMS.
4.1 SECURITY INTEREST IN THE COLLATERAL. To secure the prompt payment
and performance to Lender of the Obligations, the Borrower hereby assigns,
pledges and grants to Lender a continuing security interest in and to all of the
Collateral, whether now owned or existing or hereafter acquired or arising and
wheresoever located. The Borrower shall mark its books and records as may be
necessary and appropriate to evidence, protect and perfect Lender's security
interest and shall cause its financial statements to reflect such security
interest.
4.2 PERFECTION OF SECURITY INTEREST. The Borrower shall take all action
that may be necessary or desirable, or that Lender may request, so as at all
time to maintain the validity, perfection, enforceability and priority of
Lender's security interest in the Collateral or to enable Lender to protect,
exercise or enforce its rights hereunder and in the Collateral, including, but
not limited to (i) immediately discharging all Liens other than Permitted
Encumbrances, (ii) obtaining landlords' or mortgagees' lien waivers, (iii)
delivering to Lender, endorsed or accompanied by such instruments of assignment
as Lender may specify, and stamping or marking, in such manner as Lender may
specify, any and all chattel paper, instruments, letters of credit and advices
thereof and documents evidencing or forming a part of the Collateral, (iv)
entering into warehousing, lockbox and
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other custodial arrangements satisfactory to Lender, and (v) executing and
delivering financing statements, instruments of pledge, mortgages, notices and
assignments, in each case in form and substance satisfactory to Lender, relating
to the creation, validity, perfection, maintenance or continuation of Lender's
security interest under the Uniform Commercial Code or other applicable law. All
charges, expenses and fees the Lender may incur in doing any of the foregoing,
and any local taxes relating thereto, shall be charged to any account of the
Borrower and added to the Obligations, or at the Lender's option, shall be paid
to the Lender immediately upon demand.
4.3 DISPOSITION OF COLLATERAL. The Borrower will safeguard and protect
all Collateral for the Lender's general account and make no disposition thereof
whether by sale, lease or otherwise except (a) the sale of Inventory in the
ordinary course of business and (b) the disposition or transfer of obsolete and
worn-out Equipment in the ordinary course of business during any fiscal year
having an aggregate fair market value of not more than $150,000 (net of taxes
and expenses) and only to the extent that (i) the proceeds for any such
disposition are used to acquire replacement Equipment which is subject to
Lender's first priority security interest or (ii) the proceeds of which are
remitted to Lender as a prepayment on the Cap/Ex Term Loan. The Borrower shall
remit to Lender the net proceeds of any such sale or disposition immediately
upon receipt thereof. The Borrower shall only be permitted to use the proceeds
of any such disposition to acquire replacement Equipment if the Borrower
provides Lender with notice of its intent to acquire replacement Equipment
within thirty (30) days after the receipt of such proceeds by the Borrower. In
the event such notice is not received by Lender within such thirty (30) day
period, or such replacement Equipment is not purchased within ninety (90) days
after such notice is received by Lender, said proceeds shall be immediately
applied by Lender in respect of the Cap/Ex Term Loan.
4.4 PRESERVATION OF COLLATERAL. In addition to the rights and remedies
set forth in Section 11.1 hereof, the Lender: (a) may at any time take such
steps as the Lender deems necessary to protect the Lender's interest in and to
preserve the Collateral, including after the occurrence of an Event of Default
and during its continuance, the hiring of such security guards for the placing
of such security protection measures as the Lender may deem appropriate; (b) may
employ and maintain at any of the Borrower's premises a custodian who shall have
full authority to do all acts necessary in Lender's good faith judgment to
protect the Lender's interests in the Collateral; (c) after the occurrence of an
Event of Default and during its continuance, may lease warehouse facilities to
which the Lender may move all or part of the Collateral; (d) after the
occurrence of an Event of Default and during its continuance, may use any of the
Borrower's owned or leased lifts, hoists, trucks and other facilities or
equipment for handling or removing the Collateral; and (e) shall have, and is
hereby granted, a right of ingress and egress to the places where the Collateral
is located, and may proceed over and through any of the Borrower's owned or
leased property. The Borrower shall cooperate fully with all of the Lender's
efforts to preserve the Collateral and will take such actions to preserve the
Collateral as the Lender may direct. All of the Lender's expenses of preserving
the Collateral, including any
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expenses relating to the bonding of a custodian, shall be charged to the
Borrower's account and added to the Obligations.
4.5 OWNERSHIP OF COLLATERAL. With respect to the Collateral, at the time
the Collateral becomes subject to the Lender's security interest: (a) the
Borrower shall be the sole owner of and fully authorized and able to sell,
transfer, pledge and/or grant a first security interest in each an every item of
the Collateral to the Lender; and, except for Permitted Encumbrances the
Collateral shall be free and clear of all Liens, Claims, Charges and
encumbrances whatsoever; (b) each document and agreement executed by the
Borrower or delivered to Lender in connection with this Agreement shall be true
and correct in all respects; (c) all signatures and endorsements of the Borrower
that appear on such documents and agreements shall be genuine and the Borrower
shall have full capacity to execute same; and (d) the Borrower's Equipment and
Inventory is located as set forth on EXHIBIT 4.5 and shall not be removed from
such location(s) without the prior written consent of the Lender except (i) with
respect to the sale of Inventory in the ordinary course of business and
Equipment to the extent permitted in Section 4.3 hereof and (ii) the relocation
of Inventory and/or Equipment to any of the locations set forth in EXHIBIT 4.5
(other than the relocation to processors which shall be governed by the
provisions of Section 4.5(d)(iii) below), PROVIDED THAT, with respect to the
relocation of Equipment, Lender receives not less than thirty (30) days prior
written notice of any intended relocation, EXCEPT THAT, the Borrower shall not
be permitted to relocate or move any Equipment to the Dominican Republic from
the United States, the Commonwealth of Puerto Rico or otherwise without Lender's
prior written consent.
4.6 DEFENSE OF LENDER'S INTERESTS. Until (a) payment and performance in
full of all of Obligations and (b) termination of this Agreement, the Lender's
interests in the Collateral hereby granted to the Lender shall continue in full
force and effect. During such period, the Borrower shall not, without the
Lender's prior written consent, pledge, sell or transfer (except Inventory in
the ordinary course of business and Equipment to the extent permitted in Section
4.3 hereof, and except as otherwise expressly permitted by this Agreement and
the Other Documents), pledge, assign, create or suffer to exist a security
interest in, Lien, Claim or Charge upon or encumber or allow or suffer to be
encumbered in any way except for Permitted Encumbrances, any part of the
Collateral. The Borrower shall defend the Lender's interests in the Collateral
against any and all persons whatsoever. In connection with the exercise of its
rights under Section 11 hereof, Lender shall have the right to take possession
of the indicia of the Collateral and the Collateral in whatever physical form
contained, including without limitation: labels, stationery, documents,
instruments and advertising materials. If Lender exercises this right to take
possession of the Collateral, Borrower shall, upon demand, assemble it in the
best manner possible and make it available to Lender at a place reasonably
convenient to Lender. In addition, with respect to all Collateral, Lender shall
be entitled to all of the rights and remedies set forth herein and further
provided by the Uniform Commercial Code or other applicable law. Borrower shall,
and Lender may, at its option, instruct all suppliers, carriers, forwarders,
warehouses or others receiving or holding cash, checks, Inventory, documents or
instruments in which Lender holds a security interest to deliver same to
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Lender and/or subject to Lender's order and if they shall come into Borrower's
possession, they, and each of them, shall be held by Borrower in trust as
Lender's trustee, and Borrower will immediately deliver them to Lender in their
original form together with any necessary endorsement.
4.7 BOOKS AND RECORDS. The Borrower (a) shall keep proper books of
record and account in which full, true and correct entries will be made of all
dealings or transactions of or in relation to its business and affairs; (b) set
up on its books, accruals with respect to all taxes, assessments, charges,
levies and claims; and (c) on a reasonably current basis set up on its books,
from its earnings, allowances against doubtful Receivables, advances and
investments and all other proper accruals (including without limitation by
reason of enumeration, accruals for premiums, if any, due on required payments
and accruals for depreciation, obsolescence, or amortization of properties),
which should be set aside from such earnings in connection with its business.
All determinations pursuant to this subsection shall be made in accordance with,
or as required by, GAAP consistently applied and, to the extent applicable, in
the opinion of such independent public accountant as shall then be regularly
engaged by the Borrower.
4.8 FINANCIAL DISCLOSURE. The Borrower hereby irrevocably authorizes and
directs all accountants and auditors employed by the Borrower at any time during
the term of this Agreement to exhibit and deliver to Lender copies of any of the
Borrower's financial statements, trial balances or other accounting records of
any sort in the accountant's or auditor's possession, and to disclose to Lender
any information such accountants may have concerning the Borrower's financial
status and business operations. The Borrower hereby authorizes all federal,
state and municipal authorities to furnish to Lender copies of reports or
examinations relating to the Borrower, whether made by the Borrower or
otherwise; however, Lender will attempt to obtain such information or materials
directly from the Borrower prior to obtaining such information or materials from
such accountants.
4.9 COMPLIANCE WITH LAWS. The Borrower shall comply in all materials
respects with all acts, rules, regulations and orders of any legislative,
administrative or judicial body or official applicable to the Collateral or any
part thereof or to the operation of the Borrower's business the non-compliance
with which would have a material adverse effect on the Collateral, or the
operations, business or condition (financial or otherwise) of the Borrower. The
Borrower may, however, contest or dispute any acts, rules, regulations, orders
and directions of those bodies or officials in any reasonable manner, provided
that any related lien is inchoate or stayed and sufficient reserves are
established to the reasonable satisfaction of the Lender to protect the Lender's
lien on or security interest in the Collateral.
4.10 INSPECTION OF PREMISES. At all reasonable times, Lender shall have
full access to and the right to audit, check, inspect and make abstracts and
copies from the Borrower's books, records, audits, correspondence and all other
papers relating to the Collateral and the operation of the Borrower's business.
Such audits, checks, inspections and the making of abstracts shall be at the
Borrower's expense, EXCEPT THAT, prior to an
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Event of Default or an unsatisfactory inspection, as determined by Lender in its
sole discretion, the Borrower shall only be required to reimburse Lender for
Lender's costs and expenses incurred in connection with not more than three such
audits, checks, inspections or making of abstracts per annum. Lender and its
agents may enter upon any of the Borrower's premises at any time during business
hours and at any other reasonable time, and from time to time, for the purpose
of inspecting the Collateral and any and all records pertaining thereto and the
operation of the Borrower's business.
4.11 INSURANCE. The Borrower shall bear the full risk of loss from
any loss of any nature whatsoever with respect to the Collateral. At the
Borrower's own cost and expense in amounts and with carriers acceptable to
Lender, the Borrower shall (a) keep all its insurable properties and properties
in which the Borrower has an interest insured against the hazards of fire,
flood, sprinkler leakage, those hazards covered by extended coverage insurance
and such other hazards, and for such amounts, as is customary in the case of
companies engaged in businesses similar to the Borrower's including, without
limitation, business interruption insurance; (b) maintain a bond in such amounts
as is customary in the case of companies engaged in business similar to the
Borrower's insuring against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of the
Borrower either directly or through authority to draw upon such funds or to
direct generally the disposition of such assets; (c) maintain public and product
liability insurance against claims for personal injury, death or property damage
suffered by others; (d) maintain all such workmen's compensation or similar
insurance as may be required under the laws of any state or jurisdiction in
which the Borrower is engaged in business; (e) furnish Lender with (i) copies of
all policies and evidence of the maintenance of such policies by the renewal
thereof at least ten (10) days before any expiration date, and (ii) appropriate
loss payable endorsements in form and substance satisfactory to the Lender,
naming the Lender as loss payee as its interests may appear with respect to all
insurance coverage referred to in clauses (a), and (b) above, and providing (A)
that all proceeds thereunder shall be payable to the Lender, (B) no such
insurance shall be affected by any act or neglect of the insured or owner of the
property described in such policy, and (C) that such policy and loss payable
clauses may not be cancelled, amended or terminated unless at least thirty (30)
days' prior written notice is given to the Lender. In the event of any loss
thereunder, the carriers named therein hereby are directed by the Lender and the
Borrower to make payment for such loss to the Lender and not to the Borrower and
the Lender jointly. If any insurance losses are paid by check, draft or other
instrument payable to the Borrower and the Lender jointly, the Lender may
endorse the Borrower's name thereon and do such other things as the Lender may
deem advisable to reduce the same to cash. The Lender in its discretion,
reasonably exercised, is hereby authorized to adjust and compromise claims under
insurance coverage referred to in clauses (a) and (b) above; EXCEPT THAT, so
long as no Event of Default exists and is continuing, Borrower, with Lender's
consent, which consent shall not be unreasonably withheld, shall adjust and
compromise claims under insurance coverage referred to in clauses (a) and (b)
above. All loss recoveries received by Lender upon any such insurance may be
applied to the Obligations, in such order as Lender in its sole discretion
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shall determine. Any surplus shall be paid by the Lender to the Borrower or
applied as may be otherwise required by law. Any deficiency thereon shall be
paid by the Borrower to the Lender in respect of any then due Obligations.
Anything hereinabove to the contrary notwithstanding, and subject to the
fulfillment of the conditions set forth below, Lender shall remit to the
Borrower insurance proceeds received by Lender during any calendar year under
insurance policies procured and maintained by the Borrower which insure the
Borrower's insurable properties to the extent such insurance proceeds do not
exceed $100,000 in the aggregate during such calendar year or $25,000 per
occurrence. In the event the amount of insurance proceeds received by the Lender
for any occurrence exceeds $25,000, then the Lender shall not be obligated to
remit the insurance proceeds to the Borrower unless the Borrower shall provide
Lender with evidence reasonably satisfactory to Lender that the insurance
proceeds will be used by the Borrower to repair, replace or restore the insured
property which was the subject of the insurable loss. In the event the Borrower
has previously received (or, after giving effect to any proposed remittance by
Lender to the Borrower would receive) insurance proceeds which equal or exceed
$100,000 in the aggregate during any calendar year, and provided no Event of
Default shall exist, then upon the Borrower's written request, which request
shall be made within thirty (30) days from the receipt of any such proceeds,
Lender shall remit such insurance proceeds to the Borrower upon the Borrower
providing Lender with evidence reasonably satisfactory to Lender that the
insurance proceeds will be used by the Borrower to repair, replace or restore
the insured property which was the subject of the insurable loss. In the event
Lender fails to receive any request within such thirty (30) day period or the
Borrower fails to repair, replace or restore the insured property within ninety
(90) days from the date Lender receives such insurance proceeds, then Lender
shall immediately apply such insurance proceeds in respect of the Cap/Ex Loans
in accordance with Section 2.2 (e) hereof.
4.12 FAILURE TO PAY INSURANCE. If the Borrower fails to obtain insurance
as hereinabove provided, or to keep the same in force, the Lender, if the Lender
so elects, may obtain such insurance and pay the premium therefor for the
Borrower's account, and charge any account of the Borrower therefore and such
expenses so paid shall be part of the Obligations.
4.13 PAYMENT OF TAXES. The Borrower will pay, when due, all taxes,
assessments and other Charges or Claims lawfully levied or assessed upon the
Borrower or any of the Collateral including, without limitation, real and
personal property taxes, assessments and charges and all franchise, income,
employment, old age benefits, withholding, and sales taxes. If any tax by any
governmental authority is or may be imposed on or as a result of any transaction
between the Borrower and Lender with Lender may be required to withhold or pay
or if any taxes, assessments, or other Charges remain unpaid after the date
fixed for their payment, or if any Claim shall be made which, in the Lender's
opinion, may possibly create a valid Lien, Charge or Claim on the Collateral,
the Lender may without notice to the Borrower pay the taxes, assessments, Liens,
Charges or Claims and the Borrower hereby indemnifies and holds Lender harmless
in respect thereof. The Lender will not pay any taxes, assessments, Liens,
Charges or Claims to the extent that the
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Borrower has contested or disputed those Liens, Charges and Claims in good
faith, by expeditious protest, administrative or judicial appeal or similar
proceeding provided that any related tax lien is stayed and sufficient reserves
are established to the reasonable satisfaction of the Lender to protect the
Lender's security interest in or Lien on the Collateral. The amount of any
payment by Lender under this Section 4.13 shall be deemed to be a Revolving
Advance and shall be charged to any account of the Borrower as an Alternate Base
Rate Advance and added to the Obligations and, until the Borrower shall furnish
Lender with an indemnity therefore (or supply Lender with evidence satisfactory
to Lender that due provision for the payment thereof has been made), Lender may
hold without interest any balance standing to the Borrower's credit and Lender
shall retain its security interest in any and all Collateral held by Lender.
Nothing contained herein shall require or be deemed to require the Borrower to
pay any income tax of Lender or any income tax which may be payable by Lender
for income earned by Lender in respect of the loans made hereunder.
4.14 PAYMENT OF LEASEHOLD OBLIGATIONS. The Borrower shall at all times
pay, when and as due, its rental obligations under all real estate leases under
which they are tenants, and shall otherwise comply, in all material respects,
with all other terms of such leases and keep them in full force and effect and,
at the Lender's request will provide evidence of having done so.
4.15 RECEIVABLES.
(a) NATURE OF RECEIVABLES. Each of the Receivables shall be a bona
fide and valid account representing a bona fide indebtedness incurred by the
Customer therein named, for a fixed sum as set forth in the invoice relating
thereto (provided immaterial or unintentional invoice errors shall not be deemed
to be a breach hereof) with respect to an absolute sale or lease and delivery of
goods upon stated terms of the Borrower, or work, labor or services theretofore
rendered by the Borrower and as of the date each Receivable is created, same
shall be due and owing in accordance with the Borrower's standard terms of sale
without dispute, setoff or counterclaim except as may be stated on the accounts
receivable schedules delivered by the Borrower to the Lender.
(b) SOLVENCY OF CUSTOMERS. Each Customer, to the best of the
Borrower's knowledge, as of the date each Receivable with respect to such
Customer is created, is and will be solvent and able to pay all Receivables on
which the Customer is obligated in full when due. With respect to such Customers
of the Borrower who are not solvent, the Borrower has set up on its books and in
its financial records bad debt reserves adequate to cover such Receivables.
(c) LOCATION OF BORROWER. The Borrower's chief executive office is
located at Road 165, Kilometer 1.06, Toa Alta, Puerto Rico 00953. Until written
notice is given to the Lender by the Borrower of any other office at which the
Borrower keeps records pertaining to Receivables, all such records shall be kept
at such executive office or at any of the other locations listed on EXHIBIT 4.5.
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(d) COLLECTION OF RECEIVABLES. Until the Borrower's authority to
do so is terminated by the Lender (which notice the Lender may give at any time
following the occurrence of an Event of Default or when the Lender in its sole
discretion reasonably exercised deems it to be in the Lender's best interest to
do so), the Borrower will, at the Borrower's sole cost and expense, but on the
Lender's behalf and for the Lender's account, collect as proceeds of the
Lender's Collateral and in trust for the Lender all amounts received on
Receivables, and shall not commingle such collections with the Borrower's funds
or use the same except to pay Obligations. The Borrower shall, upon request,
deliver to the Lender in original form and on the date of receipt thereof, all
checks, drafts, notes, money orders, acceptances, cash and other evidences of
Indebtedness.
(e) NOTIFICATION OF ASSIGNMENT OF RECEIVABLES. At any time after
the occurrence of an Event of Default or Incipient Event of Default, Lender
shall have the right to send notice of the assignment of, and the Lender's
security interest in, the Receivables to any and all Customers or any third
party holding or otherwise concerned with any of the Collateral. Thereafter, the
Lender shall have the sole right to collect the Receivables, take possession of
the Collateral, or both. All costs, fees and expenses, including stationery and
postage, telephone and telegraph, secretarial and clerical expenses and the
salaries of any collection personnel used for collection, may be charged to the
Borrower's account and added to the Obligations.
(f) POWER OF LENDER TO ACT ON BORROWER'S BEHALF. The Lender shall
have the right to receive, endorse, assign and/or deliver in the name of the
Lender or the Borrower any and all checks, drafts and other instruments for the
payment of money relating to the Receivables, and the Borrower hereby waives
notice of presentment, protest and non-payment of any instrument so endorsed.
The Borrower hereby constitutes the Lender or the Lender's designee as the
Borrower's attorney-in-fact with power (i) to endorse the Borrower's name upon
any notes, acceptances, checks, drafts, money orders or other evidences of
payment or Collateral; (ii) to sign the Borrower's name on any invoice or bill
of lading relating to any of the Receivables; (iii) to send verifications of
Receivables, drafts against Customers, assignments and verifications of
Receivables; (iv) to send verifications of Receivables to any Customer; (v) to
sign the Borrower's name on all financing statements or any other documents or
instruments deemed necessary or appropriate by the Lender to preserve, protect,
or perfect the Lender's interest in the Collateral and to file same; (vi) upon
the occurrence of an Event of Default and during its continuance, to demand
payment of the Receivables; (vii) upon the occurrence of an Event of Default and
during its continuance, to enforce payment of the Receivables by legal
proceedings or otherwise; (viii) upon the occurrence of an Event of Default and
during its continuance, to exercise all of Borrower's rights and remedies with
respect to the collection of the Receivables and any other Collateral; (ix) upon
the occurrence of an Event of Default and during its continuance, to settle,
adjust, compromise, extend or renew the Receivables; (x) upon the occurrence of
an Event of Default and during its continuance, to settle, adjust or compromise
any legal proceedings brought to collect Receivables; (xi) upon the occurrence
of an Event of Default and during its continuance, to prepare, file and sign the
Borrower's name on a proof of claim in bankruptcy or similar document against
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any account debtor; (xii) to prepare, file and sign the Borrower's name on any
notice of Lien, assignment or satisfaction of Lien or similar document in
connection with the Receivables; and (xiii) to do all other acts and things
necessary to carry out this Agreement. All acts of said attorney or designee are
hereby ratified and approved, and said attorney or designee shall not be liable
for any acts of omission or commission nor for any error of judgment or mistake
of fact or of law, unless done maliciously or with gross negligence; this power
being coupled with an interest is irrevocable while any of the Obligations
remain unpaid. The Lender shall have the right at any time following the
occurrence of an Event of Default to change the address for delivery of mail
addressed to the Borrower to such address as the Lender may designate.
(g) NO LIABILITY. The Lender shall not, under any circumstances or
in any event whatsoever, have any liability for any error or omission or delay
of any kind occurring in the settlement, collection or payment of any of the
Receivables or any instrument received in payment thereof, or for any damage
resulting therefrom other than due to Lender's gross negligence or willful
misconduct, EXCEPT THAT, in no event shall Lender be liable for lost profits or
other special or consequential damages. Upon the occurrence of an Event of
Default and during its continuance, the Lender may, without notice or consent
from the Borrower, sue upon or otherwise collect, extend the time of payment of,
compromise or settle for cash, credit or upon any terms any of the Receivables
or any other securities, instruments or insurance applicable thereto and/or
release any obligor thereof. The Lender is authorized and empowered to accept
following the occurrence of an Event of Default the return of the goods
represented by any of the Receivables, without notice to or consent by the
Borrower, all without discharging or in any way affecting the Borrower's
liability hereunder.
(h) ESTABLISHMENT OF A LOCKBOX ACCOUNT, DOMINION ACCOUNT. All
proceeds of Receivables shall, at the direction of Lender, be deposited by the
Borrower into a lockbox account, dominion account or such other "blocked
account" ("Blocked Accounts") as Lender may require pursuant to an arrangement
with such bank as may be selected by the Borrower and be acceptable to Lender.
The Borrower shall issue to any such bank, an irrevocable letter of instruction
directing said bank to transfer such funds so deposited to the Lender, either to
any account maintained by the Lender at said bank or by wire transfer to
appropriate account(s) of the Lender. All funds deposited in such "blocked
account" shall immediately become subject to Lender's first priority security
interest and the Borrower shall obtain the agreement by such bank to waive any
offset rights against the funds so deposited. Lender assumes no responsibility
for such "blocked account" arrangement, including without limitation, any claim
of accord and satisfaction or release with respect to deposits accepted by any
bank thereunder. Alternatively, Lender may establish depository accounts
("Depository Accounts") in the name of Lender at a bank or banks for the deposit
for such funds and the Borrower shall deposit all proceeds of Receivables or
cause same to be deposited, in kind, in such Depository Accounts of Lender in
lieu of depositing same to the Blocked Accounts.
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4.16 INVENTORY. All Inventory has been, and will be produced by the
Borrower in accordance with the Federal Fair Labor Standards Act of 1938, as
amended, and all rules, regulations and orders thereunder.
4.17 MAINTENANCE OF EQUIPMENT. The Equipment shall be maintained in good
operating condition and repair (reasonable wear and tear excepted) and all
necessary replacements of and repairs thereto shall be made so that the value
and operating efficiency of the Equipment shall be maintained and preserved. The
Borrower shall have the right to sell Equipment to the extent set forth in
Section 4.3 hereof.
4.18 EXCULPATION OF LIABILITY. Nothing herein contained shall be
construed to constitute the Lender as the Borrower's agent for any purpose
whatsoever, nor shall the Lender be responsible or liable for any shortage,
discrepancy, damage, loss or destruction of any part of the Collateral wherever
the same may be located and regardless of the cause thereof other than any
damage, loss or destruction to the Collateral actually arising as a direct and
sole result of Lender's gross negligence or willful misconduct. The Lender does
not, whether by anything herein or in any assignment or otherwise, assume any of
the Borrower's obligations under any contract or agreement assigned to the
Lender, and the Lender shall not be responsible in any way for the performance
by the Borrower of any of the terms and conditions thereof.
4.19 ENVIRONMENTAL MATTERS. (a) The Borrower will ensure that the Real
Property remains in substantial compliance with all Environmental Laws and the
Borrower will not place or permit to be placed any Hazardous Substances on any
Real Property except as not prohibited by applicable law and appropriate
governmental authorities.
(b) The Borrower will establish and maintain a system to assure
and monitor continued compliance with all applicable Environmental Laws which
system shall include periodic review of such compliance.
(c) The Borrower will (i) employ in connection with its use of the
Real Property appropriate technology necessary to maintain compliance with any
applicable Environmental Laws and (ii) dispose of any and all Hazardous Waste
generated at the Real Property only at facilities and with carriers that
maintain valid permits under RCRA and any other applicable Environmental Laws.
The Borrower shall use its best efforts to obtain certificates of disposal, such
as hazardous waste manifest receipts, from all treatment, transport, storage or
disposal facilities or operators employed by the Borrower in connection with the
transport or disposal of any Hazardous Waste generated at the Real Property.
(d) In the event the Borrower obtains, gives or receives notice of
any Release of Release of a reportable quantity of any Hazardous Substances at
the Real Property (any such even being hereinafter referred to as a "Hazardous
Discharge") or receives any notice of violation, request for information or
notification that the Borrower is potentially responsible for investigation or
cleanup of environmental conditions at the Real
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Property, demand letter or complaint, order, citation, or other written notice
with regard to any Hazardous Discharge or violation of Environmental Laws
affecting the Real Property or the Borrower's interest therein (any of the
foregoing is referred to herein as an "Environmental Complaint") from any Person
or entity, including any state agency responsible in whole or in part for
environmental matters in the state in which the Real Property is located or the
United States Environmental Protection Agency (any such person or entity
hereinafter the "Authority"), then the Borrower shall, within five (5) Business
Days, give written notice of same to the Lender detailing non-privileged and
non-confidential facts and circumstances of which the Borrower is aware giving
rise to the Hazardous Discharge or Environmental Complaint. Such information is
to be provided to allow the Lender to protect its security interest in the Real
Property and is not intended to create nor shall it create any obligation upon
the Lender with respect thereto.
(e) The Borrower shall promptly forward to the Lender copies of
any request for information, notification of potential liability, demand letter
relating to potential responsibility with respect to the investigation or
cleanup of Hazardous Substances at any other site owned, operated or used by the
Borrower to dispose of Hazardous Substances and shall continue to forward copies
of correspondence between the Borrower and the Authority regarding such claims
to the Lender until the claim is settled. The Borrower shall promptly forward to
the Lender copies of all documents and reports concerning a hazardous Discharge
at the Real Property that the Borrower is required to file under any
Environmental Laws. Such information is to be provided solely to allow the
Lender to protect Lender's security interest in the Real Property and the
Collateral.
(f) The Borrower shall respond promptly to any Hazardous Discharge
or Environmental Complaint and take all necessary action in order to safeguard
to health of any Person and to avoid subjecting the Collateral or Real Property
to any Lien. If the Borrower shall fail to respond promptly to any Hazardous
Discharge or Environmental Complaint or the Borrower shall fail to comply with
any of the requirements of any Environmental Laws, the Lender may, but without
the obligation to do so, for the sole purpose of protecting the Lender's
interest in Collateral: (A) give such notices or (B) enter onto the Real
Property (or authorize third parties to enter onto the Real Property) and take
such actions as the Lender (or such third parties as directed by the Lender)
deem reasonably necessary or advisable, to clean up, remove, mitigate or
otherwise deal with any such Hazardous Discharge or Environmental Complaint. All
reasonable costs and expenses incurred by the Lender (or such third parties) in
the exercise of any such rights, including any sums pain in connection with any
judicial or administrative investigation or proceedings, fines and penalties,
together with interest thereon from the date expended at the Default Rate for
Revolving Advances shall be paid upon demand by the Borrower, and until paid
shall be added to and become a part of the Obligations secured by the Liens
created by the terms of this Agreement or any other agreement between Lender and
the Borrower.
(g) Promptly upon the written request of the Lender from time to
time, the Borrower shall provide Lender, at the Borrower's expense, with an
Environmental site
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assessment or environmental audit report prepared by an environmental
engineering firm acceptable in the reasonable opinion of the Lender, to assess
with a reasonable degree of certainty the existence of a Hazardous Discharge and
the potential costs in connection with abatement, cleanup and removal of any
Hazardous Substances found on, under, at or within the Real Property. Any report
or investigation of such Hazardous Discharge proposed and acceptable to an
appropriate Authority that is charged to oversee the clean-up of such Hazardous
Discharge shall be acceptable to the Lender. If such estimates, individually or
in the aggregate, exceed $100,000, the Lender shall have the right to require
the Borrower to post a bond, letter of credit or other security reasonably
satisfactory to the Lender to secure payment of these costs and expenses.
(h) The Borrower shall defend and indemnify the Lender and hold
the Lender harmless from and against all loss, liability, damage and expense,
claims, costs, fines and penalties, including attorney's fees, suffered or
incurred by the Lender under or on account of any Environmental Laws, including
without limitation, the assertion of any lien thereunder, with respect to any
Hazardous Discharge, the presence of any Hazardous Substances affecting the Real
Property, whether or not the same originates or engages from the Real Property
or any contiguous real estate, including any loss of value of the Real Property
as a result of the foregoing except to the extent such loss, liability, damage
and expenses is attributable to any Hazardous Discharge resulting from actions
on the part of the Lender. The Borrower's obligations under this Section 4.19
shall arise upon the discovery of the presence of any Hazardous Substances at
the Real Property, whether or not any federal, state, or local environmental
agency has taken or threatened any action in connection with the presence of any
Hazardous Substances. The Borrower's obligation and the indemnifications
hereunder shall survive the termination of this Agreement.
(i) For purposes of this Section 4.19, all references to Real
Property shall be deemed to include all of the Borrower's right, title and
interest in and to leased premises.
5. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants as follows:
5.1 AUTHORITY. The Borrower has full power, authority and legal right to
enter into this Agreement and the Other Documents and perform all obligations
hereunder. The execution, delivery and performance hereof and of the Other
Documents are within the Borrower's corporate powers, have been duly authorized,
are not in contravention of law or the terms of the Borrower's by-laws,
certificate of incorporation or other applicable documents relating to the
Borrower's formation or to the conduct of the Borrower's business or of any
material agreement or undertaking to which the Borrower is a party or by which
the Borrower is bound, and will not conflict with nor result in any breach in
any of the provisions of or constitute a default under or result in the creation
of any Lien except Permitted Encumbrances upon any asset of the Borrower under
the provisions of any
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agreement, charter, instrument, by-law of other instrument to which the Borrower
is a party or by which it may be bound.
5.2 FORMATION AND QUALIFICATION. The Borrower is duly incorporated and
in good standing under the laws of the Commonwealth of Puerto Rico and is
qualified to do business and is in good standing in the states listed on EXHIBIT
5.2 which constitute all states in which qualification and good standing are
necessary for the Borrower to conduct its business and own its properties and
where the failure to so qualify would have a material adverse effect on the
Borrower or its business. The Borrower has delivered to Lender true and complete
copies of its certificate of incorporation and by-laws and will promptly notify
Lender of any amendment or changes thereto.
5.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties of the Borrower contained in this Agreement and the Other Documents
shall be true at the time of the Borrower's execution of this Agreement and the
Other Documents, and shall survive the execution, delivery and acceptance
thereof by Lender and the parties thereto and the closing of the transactions
described therein or related thereto.
5.4 TAX RETURNS. The Borrower's federal tax identification number is
66-0413955. The Borrower has filed all federal, state and local tax returns and
other reports it is required by law to file and has paid all taxes, assessments,
fees and other governmental charges that are due and payable (unless the same is
being contested as permitted under this Agreement). The provision for taxes on
the books of the Borrower is adequate for all years not closed by applicable
statutes, and for the Borrower's current fiscal year, and the Borrower has no
knowledge of any deficiency or additional assessment in connection therewith not
provided for on its books.
5.5 FINANCIAL STATEMENTS.
(a) The preliminary pro forma consolidated and consolidating
balance sheet of Industries and its Subsidiaries prepared as of March 27, 1998
(the "Pro Forma Balance Sheet") furnished to Lender on the Closing Date reflects
the consummation of the transactions contemplated under this Agreement (the
"Transactions") and is, to the best of Borrower's knowledge, accurate, complete
and correct in all material respects and fairly reflects Industries' and its
Subsidiaries' consolidated and consolidating financial condition in all material
respects as of the last Friday of the month immediately preceding the Closing
Date after giving effect to the Transactions, and has been prepared in
accordance with GAAP, consistently applied (except for the absence of footnote
or as otherwise disclosed therein). The Pro Forma Balance Sheet has been
certified as accurate, complete and correct in all material respects by the
President and Chief Financial Officer of Industries and its Subsidiaries, to the
best of their knowledge. All financial statements referred to in this Section
5.5(a), including the related schedules and notes thereto, have been prepared,
in accordance with GAAP, except as may be disclosed in such financial
statements.
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(b) The twelve-month consolidated cash flow projections of
Industries and its Subsidiaries, and projected balance sheets, each prepared as
of March 27, 1998, copies of which have been delivered to Lender, were prepared
by the Chief Financial Officer of Industries and its Subsidiaries, are based on
underlying assumptions which provide a reasonable basis for the projections
contained therein and reflect as of such date the judgment of Industries and its
Subsidiaries, based on then present circumstances of the most likely set of
conditions and course of action for the project period. The cash flow
projections and the projected balance sheets referred to in this Section 5.5(b),
together with the Pro Forma Balance Sheet, are referred to as the "Pro Forma
Financial Statements".
(c) (i) The consolidated and consolidating balance sheets of
Industries and its Subsidiaries and such other Persons described therein
(including the accounts of all Subsidiaries for the respective periods during
which a subsidiary relationship existed) as of June 27, 1997, and the related
statements of income, stockholder's equity, and cash flows for the period ended
on such date, all accompanied by reports thereon containing opinions without
qualification by independent certified public accountants, copies of which have
been delivered to Lender, have been prepared in accordance with GAAP, practices
and procedures, consistently applied (except for changes in application in which
such accountants concur, and any absence of footnotes and as otherwise disclosed
therein) and present fairly the consolidated financial position of Industries
and its Subsidiaries at such date and the consolidated results of their
operations for such period. (ii) Since January 30, 1998, and as certified as to
its accuracy by the Chief Financial Officer of Industries and its Subsidiaries,
there has been no material adverse change in the consolidated condition,
financial or otherwise, of Industries and its Subsidiaries as shown on the
consolidated balance sheet as of such date and no change in the aggregate value
of machinery, equipment and Real Property owned by Industries and its
Subsidiaries, except changes in the ordinary course of business.
(d) As of the Closing Date, the Borrower's fiscal quarters and
fiscal months end on the last Friday of each fiscal quarter and fiscal month,
respectively.
5.6 CORPORATE NAME. The Borrower has not been known by any other
corporate name in the past five years and does not sell Inventory under any
other name except as set forth on EXHIBIT 5.6, nor has the Borrower been the
surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any person during the preceding five (5)
years.
5.7 O.S.H.A. AND ENVIRONMENT COMPLIANCE.
(a) The Borrower has duly complied with, and its facilities,
business assets, property, leaseholds and equipment are in compliance in all
material respects with, the provisions, of the Federal Occupational Safety and
Health Act, the Environmental Protection Act, RCRA and all other Environmental
Laws; there have been no outstanding citations, notices or orders of
non-compliance issued to the Borrower or relating to its
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respective business, assets, property, leaseholds or equipment under any such
laws, rules or regulations.
(b) The Borrower has been issued all required federal, state and
local licenses, certificates or permits relating to, and the Borrower and its
facilities, businesses, assets, property, leaseholds and equipment are in
compliance in all material respects with, all applicable Environmental Laws.
(c) (i) There are no visible signs of releases, spills,
discharges, leaks or disposal (collectively referred to as "Releases") of
Hazardous Substances at, upon, under or within any Real Property or any premises
leased by the Borrower; (ii) there are no underground storage tanks or
polychlorinated biphenyls on the Real Property or any premises leased by the
Borrower; (iii) neither the Real Property nor any premises leased by the
Borrower has ever been used as a treatment, storage or disposal facility of
Hazardous Waste; and (iv) no Hazardous Substances are present on the Real
Property or any premises leased by the Borrower, excepting such quantities as
are handled in accordance with all applicable manufacturer's instructions and
governmental regulations and in proper storage containers and as are necessary
for the operation of the commercial business of the Borrower or of its tenants.
(d) The Borrower hereby indemnifies and holds Lender harmless from
and against any liability, loss, damage, suit, action or proceeding pertaining
to Hazardous Wastes or Toxic Substances at, upon, under or within any Real
Property or any premises leased by Borrower, including, but not limited to,
claims of any federal, state or municipal government or quasi-governmental
agency or any third person, whether arising under CERCLA, RCRA, or any other
federal, state or municipal law or regulation, or tort, contract or common law.
5.8 SOLVENCY; NO LITIGATION; VIOLATION.
(a) The Borrower is solvent, able to pay its debts as they mature,
has capital sufficient to carry on its business and all businesses in which it
is about to engage, and (i) as of the Closing Date, the fair present saleable
value of its assets, calculated on a going concern basis, is in excess of the
amount of its liabilities and (ii) subsequent to the Closing Date, the fair
saleable value of its assets (calculated on a going concern basis) will be in
excess of the amount of its liabilities.
(b) Except as disclosed in EXHIBIT 5.8(B) or otherwise disclosed
to Lender from time to time, the Borrower has (i) no pending or threatened
litigations, actions or proceedings which involve the possibility of materially
and adversely affecting its business, assets, operations, condition or
prospects, financial or otherwise, or the Collateral, or the ability of the
Borrower to perform this Agreement, and (ii) no liabilities nor indebtedness
other than the Obligations or otherwise as permitted hereunder.
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(c) The Borrower is not in violation of any applicable statute,
regulation or ordinance in any respect materially and adversely affecting the
Collateral or its business, assets, operations or condition or prospects,
financial or otherwise, nor is the Borrower in violation of any order of any
court, governmental authority or arbitration board or tribunal.
(d) The Borrower has received no notice that it is not in full
compliance with any of the requirements of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and its regulations and, (i) it has
not engaged in any Prohibited Transactions as defined in Section 406 of ERISA
and Section 4975 of the Internal Revenue Code as amended, (ii) it has met all
applicable minimum funding requirements under Section 302 of ERISA in respect of
its plans and no funding requirements have been postponed or delayed, (iii) it
has no knowledge of any event or occurrence which would cause the Pension
Benefit Guaranty Corporation to institute proceedings under Title IV of ERISA to
terminate any of the employee benefit plans, (iv) there exists no event
described in Section 4043 of ERISA, excluding subsections 4043(b)(2) and
4043(b)(3) thereof, for which the thirty (30) day notice period contained in 12
CFR Section 2615.3 has not been waived, (v) it does not have any fiduciary
responsibility for investments with respect to any plan existing for the benefit
of persons other than its employees or former employees, and (vi) it has not
withdrawn, completely or partially, from any multi-employer pension plans so as
to incur liability under the Multi-Employer Pension Plan Amendments of 1980.
5.9 PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES. All patents, patent
applications, trademarks, trademark applications, copyrights, copyright
applications, tradenames, trade secrets and licenses owned or utilized by the
Borrower are set forth on EXHIBIT 5.9 (or, if acquired or created after the
Closing Date, are disclosed to Lender in writing), are valid and (to the extent
applicable) have been duly registered or filed with all appropriate governmental
authorities; there is no objection or pending challenge to the validity of any
patent, trademark, copyright, trade name, trade secret or license which is
material to the conduct of the Borrower's business as presently conducted, and
the Borrower is not aware of any grounds for any challenge, except as set forth
in EXHIBIT 5.9 hereto (or, if acquired or created after the Closing Date, as
disclosed to Lender in writing).
5.10 LICENSES AND PERMITS. Except as set forth in EXHIBIT 5.10, the
Borrower (a) is in compliance with and (b) has procured and is now in possession
of, all material licenses or permits required by any applicable federal, state
or local law or regulation for the operation of its business in each
jurisdiction wherein it is now conducting or proposes to conduct business and
where the failure to procure such licenses or permits would have a material
adverse effect on the business, properties, condition (financial or otherwise)
or operations, present or prospective, of Industries and its Subsidiaries on a
consolidated basis.
5.11 DEFAULT OF INDEBTEDNESS. Except as disclosed to the Lender in
writing, the Borrower is not in default in the payment of the principal of or
interest on any Indebtedness or under any instrument or agreement under or
subject to which any Indebtedness has
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been issued and no event has occurred under the provisions of any such
instrument or agreement which with or without the lapse of time or the giving of
notice, or both, constitutes or would constitute an event of default thereunder.
5.12 NO DEFAULT. Except as set forth in EXHIBIT 5.12 or as disclosed to
the Lender from time to time in writing, the Borrower is not in default in the
payment or performance of any of its contractual obligations and no Incipient
Event of Default has occurred.
5.13 NO BURDENSOME RESTRICTIONS. The Borrower is not party to any
contract or agreement the performance of which would affect the business,
assets, operations, condition or prospects (financial or otherwise) of
Industries and its Subsidiaries on a consolidated basis. The Borrower has not
agreed or consented to cause or permit in the future (upon the happening of a
contingency or otherwise) any of its Property, whether now owned or hereafter
acquired, to be subject to a Lien which is not a Permitted Encumbrance.
5.14 NO LABOR DISPUTES. The Borrower is not involved in any labor
dispute; there are no strikes or walkouts or union organization of any of its
employees threatened or in existence and no labor contract is scheduled to
expire during the Term; in each case, other than as set forth on EXHIBIT 5.14
hereto or as disclosed to the Lender from time to time in writing.
5.15 MARGIN REGULATIONS. The Borrower is not engaged, nor will it engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of "purchasing" or "carrying" any "margin stock" within
the respective meanings of each of the quoted terms under Regulation U or
Regulation G of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect. No part of the proceeds of any Loan will
be used for "purchasing" or "carrying" "margin stock" as defined in Regulation U
of such Board of Governors.
5.16 INVESTMENT COMPANY ACT. The Borrower is not an "investment company"
registered or required to be registered under the Investment Company Act of
1940, as amended, nor is it controlled by such a company.
5.17 DISCLOSURE. No representation or warranty made by the Borrower in
this Agreement, or in any financial statement, report, certificate or any other
document furnished in connection herewith contains any untrue statement of fact
or omits to state any fact necessary to make the statements herein or therein
not misleading. There is no fact known to the Borrower or which reasonably
should be known to the Borrower which the Borrower has not disclosed to Lender
in writing with respect to the transactions contemplated by this Agreement which
adversely affects the assets of Borrower or adversely affects, in any material
respect, the condition (financial or otherwise), results of operations or
business of the Borrower.
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5.18 SWAPS. The Borrower is not a party to, nor will it be a party to,
any swap agreement whereby the Borrower has agreed or will agree to swap
interest rates or currencies unless same provides that damages upon termination
following an event of default thereunder are payable on an unlimited "two-way
basis" without regard to fault on the part of either party.
6. AFFIRMATIVE COVENANTS.
The Borrower covenants and agrees that it shall, until payment in full of
the Obligations and termination of this Agreement:
6.1 PAYMENT OF FEES. Pay to Lender on demand all usual and customary
fees and expenses which Lender incurs in connection with (a) the forwarding of
Advance proceeds and (b) the establishment and maintenance of any Blocked
Accounts or Depository Accounts as provided for in Section 4.15(h). Lender may,
without making demand, charge the account of the Borrower for all such fees and
expenses.
6.2 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE AND ASSETS. (a)
Conduct continuously and operate actively its business according to good
business practices and maintain all of its properties useful or necessary in
business in good working order and condition (reasonable wear and tear excepted
and except as may be disposed of in accordance with the terms of this
Agreement), including, without limitation, all licenses, patents, copyrights,
tradenames, trade secrets and trademarks; (b) keep in full force and effect its
existence and comply in all material respects with the laws and regulations
governing the conduct of business where the failure to do so would have a
material adverse effect on the Borrower or its business; and (c) make all such
reports and pay all such franchise and other taxes and license fees and do all
such other acts and things as may be lawfully required to maintain its rights,
licenses, leases, powers and franchises under the laws of the United States or
any political subdivision thereof where the failure to do so would have a
material adverse effect on the Borrower or its business.
6.3 VIOLATIONS. Promptly notify the Lender in writing of any violation
of any law, statute, regulation or ordinance of any governmental entity, or of
any agency thereof, applicable to the Borrower which may adversely affect the
Collateral or may adversely affect, in any material respect, the Borrower's
business, assets, operations, condition or prospects (financial or otherwise).
6.4 GOVERNMENT RECEIVABLES. Take all steps necessary to protect Lender's
interest in the Collateral under the Federal Assignment of Claims Act or other
applicable state or local statutes or ordinances and deliver to the Lender
appropriately endorsed, any instrument or chattel paper connected with any
Receivable arising out of contracts between the Borrower and the United States,
any state or any department, agency or instrumentality of any of them.
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6.5 [INTENTIONALLY OMITTED]
6.6 PLEDGE OF CREDIT. Not now or hereafter pledge the Lender's credit on
any purchases or for any purpose whatsoever or use any portion of any Advance in
or for any business other than the Borrower's business as conducted on the date
of this Agreement or as permitted in Section 7.9 hereof.
6.7 EXECUTION OF SUPPLEMENTAL INSTRUMENTS. Execute and deliver to the
Lender from time to time, upon demand, such supplemental agreements, statements,
assignments and transfers, or instructions or documents relating to the
Collateral, and such other instruments as the Lender may reasonably request, in
order that the full intent of this Agreement may be carried into effect.
6.8 PAYMENT OF INDEBTEDNESS. Pay, discharge or otherwise satisfy at or
before maturity (subject, where applicable, to specified grace periods and, in
the case of the trade payables, to normal payment practices) all of its
obligations and liabilities of whatsoever nature, except when the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and the Borrower shall have provided for such reserves as Lender may
reasonably deem proper and necessary, subject at all times to any applicable
subordination arrangement in favor of Lender.
6.9 STANDARDS OF FINANCIAL STATEMENTS. Cause all financial statements
referred to in Section 9.7, 9.8 and 9.9 to be complete and correct in all
material respects (subject, in the case of interim statements, to the absence of
footnotes and to normal year-end audit adjustments) and to be prepared in
reasonable detail and in accordance with GAAP applied consistently throughout
the periods reflected therein (except as concurred in by such reporting
accountants or officer, as the case may be, and disclosed therein).
7. NEGATIVE COVENANTS.
The Borrower covenants and agrees that the Borrower shall not, until
satisfaction in full of the Obligations and termination of this Agreement:
7.1 MERGER, CONSOLIDATION, ACQUISITION AND SALE OF ASSETS.
(a) Enter into any merger, consolidation or other reorganization
with or into any other Person or acquire all or a substantial portion of the
assets or stock of any Person or permit any other Person to consolidate with or
merge with the Borrower, without the prior written consent of Lender.
(b) Sell, lease, transfer or otherwise dispose of any of the
Borrower's properties or assets, except in the ordinary course of its business
or except as expressly permitted under this Agreement or any Other Document.
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7.2 CREATION OF LIENS. Create or suffer to exist any Lien, Charge, Claim
or transfer upon or against any of its properties or assets now owned or
hereafter acquired, except Permitted Encumbrances.
7.3 GUARANTEES. Become liable upon the obligations of any person, firm
or corporation by assumption, endorsement or guaranty thereof or otherwise
(other than to Lender) except the endorsement of checks in the ordinary course
of business.
7.4 INVESTMENTS. Purchase or acquire obligations or stock of, or any
other interest in, any Person, except (a) obligations issued or guaranteed by
the United States of America or any agency thereof, (b) commercial paper with
maturities of not more than 180 days and a published rating of not less than A-1
or P-1 (or the equivalent rating), (c) certificates of time deposit and bankers'
acceptances having maturities of not more than 180 days and repurchase
agreements backed by United States government securities of a commercial bank if
(i) such bank has a combined capital and surplus of at least $500,000,000, or
(ii) its debt obligations, or those of a holding company of which it is a
Subsidiary, are rated not less than A (or the equivalent rating) by a nationally
recognized investment rating agency and (d) U.S. money market funds that invest
solely in obligations issued or guaranteed by the United States of America or an
agency thereof.
7.5 LOANS. Make advances, loans or extensions of credit to any Person,
including without limitation, any Parent, Subsidiary or Affiliate except with
respect to (a) the extension of commercial trade credit in connection with the
sale of Inventory in the ordinary course of its business, (b) advances made to
employees in the ordinary course of business for valid business purposes in an
aggregate amount not to exceed $50,000 outstanding at any given time, and (c)
intercompany loans among Borrower and Affiliated Borrowers, PROVIDED THAT, such
loans are for valid business purposes and the maximum outstanding amount of all
loans made by Borrower to Affiliated Borrowers or any Subsidiary of Industries
shall not, at any time, exceed $50,000.
7.6 CAPITAL EXPENDITURES. Purchase or make any expenditure or
commitments for fixed or capital assets in any fiscal year (including the
purchase price of capital assets that will be subject to capitalized leases but
excluding payments due under capitalized leases during any such fiscal year) in
an aggregate amount (exclusive of any capital expenditures permitted under
Sections 4.3 and 4.11 hereof but inclusive of all capital expenditures
contracted for, purchased or made by Affiliated Borrowers) in excess of (a)
$6,000,000 for the fiscal year ending in June, 1998, (b) $5,000,000 for the
fiscal year ending in June, 1999, (c) $5,800,000 for the fiscal year ending in
June, 2000, and (d) $5,800,000 for the fiscal year ending in June, 2001 and for
each fiscal year thereafter.
7.7 DIVIDENDS. Declare, pay or make any dividend or distribution on any
shares of the common stock or preferred stock of the Borrower (other than
dividends or distributions payable in its stock, or split-ups or
reclassifications of its stock) or apply any of its funds, property or assets to
the purchase, redemption or other retirement of any
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common or preferred stock, or of any options to purchase or acquire any such
shares of common or preferred stock of the Borrower.
7.8 INDEBTEDNESS. Create, incur, assume or suffer to exist any
Indebtedness (exclusive of trade debt) of Borrower except in respect of (i)
Indebtedness to Lender; (ii) Indebtedness incurred for asset purchases or
capitalized leases permitted under Section 7.6 hereof; (iii) other Indebtedness
in a maximum aggregate amount outstanding at any time of not greater than
$250,000; (iv) capitalized leases existing as of the Closing Date; (v)
guarantees permitted under Section 7.3; and (vi) intercompany indebtedness
permitted under Section 7.5.
7.9 NATURE OF BUSINESS. Substantially change the nature of the business
in which the Borrower is presently engaged, including engaging any Person to
manufacture goods for the Borrower nor except as specifically permitted hereby
purchase or invest, directly or indirectly, in any assets or property other than
in the ordinary course of business for assets or property which are useful in,
necessary for and are to be used in its business.
7.10 TRANSACTIONS WITH AFFILIATES. Directly or indirectly, purchase,
acquire or lease any property from, or sell, transfer or lease any property to,
or otherwise deal with, any Affiliate, except leases and other transactions made
among Borrower, Affiliated Borrowers and any guarantor of the Obligations
hereunder for valid business purposes and made in the ordinary course of
business, all in accordance with the terms hereof and to the extent permitted
under the other provisions of this Agreement, or transactions made with any
other Affiliate in the ordinary course of business, on an arm's-length basis on
terms no less favorable than terms which would have been obtainable from a
Person other than an Affiliate, including, that certain equipment lease with PRC
Leasing, Inc.
7.11 OPERATING LEASES. Except for those leases in effect on the date
hereof and as disclosed to Lender from time to time in writing, enter as lessee
into any lease arrangement for real or personal property (unless capitalized and
permitted under Section 7.6 hereof) if after giving effect thereto, aggregate
annual rental payments for all leased property (other than payments made in
respect of capital leases) would exceed, inclusive of (without duplication) all
annual rental payments of Affiliated Borrowers, $750,000 in any one fiscal year.
7.12 SUBSIDIARIES.
(a) Form any Subsidiary.
(b) Enter into any partnership, joint venture or similar
arrangement.
7.13 FISCAL YEAR AND ACCOUNTING CHANGES. Change the Borrower's fiscal
year from the last Friday in June of each calendar year or make any significant
change (i) in accounting treatment and reporting practices except as required by
GAAP or (ii) in tax reporting treatment except as required by law.
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7.14 PREPAYMENT OF INDEBTEDNESS. At any time, directly or indirectly,
prepay any Indebtedness (other than to Lender), or repurchase, redeem, retire or
otherwise acquire any Indebtedness of the Borrower other than in the ordinary
course of business or except as expressly permitted hereunder. Nothing contained
in this Section 7.14 shall prohibit or restrict the prepayment of any
Indebtedness due and owing to or from Borrower or any Affiliated Borrowers which
may be outstanding from time to time.
8. CONDITIONS PRECEDENT.
8.1 CONDITIONS TO INITIAL ADVANCES. The agreement of Lender to make the
initial Advances requested to be made on the Closing Date is subject to the
satisfaction, or waiver by Lender, immediately prior to or concurrently with the
making of such Advances, of the following conditions precedent:
(a) OTHER LOAN AGREEMENTS. The Lender shall have received:
(i) The Revolving Credit, Term Loan and Security Agreement
duly executed by DITEL.
(ii) The Revolving Credit, Term Loan and Security Agreement
duly executed by Industries and Corporation;
(iii) Each Guaranty duly executed by Guarantors;
(iv) Such other certificates, documents, notes, instruments,
and agreements as Lender shall require, in form and
content satisfactory to Lender.
(b) FILINGS REGISTRATIONS AND RECORDINGS. Each document
(including, without limitation, any Uniform Commercial Code financing statement)
required by this Agreement, any related agreement or under law or reasonably
requested by the Lender to be filed, registered or recorded in order to create,
in favor of the Lender, a perfected security interest in or lien upon the
Collateral shall have been properly filed, registered or recorded in each
jurisdiction in which the filing, registration or recordation thereof is so
required or requested, and the Lender shall have received an acknowledgment
copy, or other evidence satisfactory to it, or each such filing, registration or
recordation and satisfactory evidence of the payment of any necessary fee, tax
or expense relating thereto;
(c) CORPORATE PROCEEDINGS OF THE BORROWER. The Lender shall have
received a copy of the resolutions in form and substance reasonably satisfactory
to Lender, of the Board of Directors of the Borrower authorizing (i) the
execution, delivery and performance of this Agreement, and any related
agreements, (collectively the "Documents") and (ii) the granting by the Borrower
of the security interests in and liens
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upon the Collateral certified by the Secretary or an Assistant Secretary of the
Borrower as of the Closing Date; and, such certificate shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded as of the date of such certificate;
(d) INCUMBENCY CERTIFICATES OF THE BORROWER. The Lender shall have
received a certificate of the Secretary or any Assistant Secretary of the
Borrower, dated the Closing Date, as to the incumbency and signature of the
officers of the Borrower executing this Agreement, any certificate or other
documents to be delivered by it pursuant hereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary;
(e) LEGAL OPINION. The Lender shall have received the executed
legal opinions of counsel acceptable to Lender in form and substance
satisfactory to the Lender which shall cover such matters incident to the
transactions contemplated by this Agreement, the Affiliate Loan Agreements, and
related agreements as the Lender may reasonably require;
(f) NO LITIGATION. (i) No litigation, investigation or proceeding
before or by any arbitrator or governmental authority shall be continuing or
threatened against the Borrower or against the officers or directors of the
Borrower (A) in connection with the Documents or any of the transactions
contemplated thereby and which, in the reasonable opinion of the Lender, is
deemed material or (B) which if adversely determined, would, in the reasonable
opinion of the Lender, have a material adverse effect on the business, assets,
operations or condition (financial or otherwise) of the Borrower; and (iii) no
injunction, writ, restraining order or other order of any nature materially
adverse to the Borrower or the conduct of the Borrower's business or
inconsistent with the due consummation of the Transactions shall have been
issued by any governmental authority;
(g) FINANCIAL CONDITION OPINIONS. The Lender shall have received
an executed Officers Certificate of the Borrower satisfactory in form and
substance to it, certifying the solvency of the Borrower after giving effect to
the Indebtedness contemplated hereby and as to the Borrower's financial
resources and its ability to meet its obligations and liabilities as they become
due; to the effect that as of the Closing Date and after giving effect to the
Transactions:
(i) the assets of the Borrower, at a fair valuation, exceed
the total liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities of the Borrower;
(ii) current projections which are based on underlying
assumptions which provide a reasonable basis for the projections and which
reflect the Borrower's judgment based on present circumstances, the most likely
set of conditions and the Borrower's most likely course of action for the period
projected, demonstrate that the Borrower will have sufficient cash flow to
enable the Borrower to pay the Borrower's debts as they mature; and
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(iii) the Borrower does not have an unreasonably small capital
base with which to engage in its anticipated business.
For purposes of this subsection (i), the "fair valuation" of the assets of the
Borrower shall be determined on the basis of the amount which may be realized
within a reasonable time, whether through collection or sale of such assets at
market value, conceiving the latter as the amount which could be obtained for
the property in question within such period by a capable and diligent
businessman from an interested buyer who is willing to purchase under ordinary
selling conditions.
(h) COLLATERAL EXAMINATION. The Lender shall have completed
Collateral examinations and received appraisals, the results of which shall be
satisfactory in form and substance to the Lender, of the Receivables, Inventory,
General Intangibles, each Property Leasehold Interest and Equipment of the
Borrower and all books and records in connection therewith;
(i) FEES. The Lender shall have received all fees payable to the
Lender on or prior to the Closing Date pursuant to Article 3 of the Affiliate
Loan Agreements;
(j) PRO FORMA FINANCIAL STATEMENTS. Lender shall have received a
copy of the Pro Forma Financial Statements (including, without limitation, a
statement of the Borrower's sources and uses of cash as of the Closing Date) and
an aging of the Borrower's accounts payable) each of which shall be satisfactory
in all respects to Lender;
(k) OTHER. All corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the Transactions shall be
satisfactory in form and substance to the Lender and its counsel.
8.2 CONDITIONS TO EACH ADVANCE. The agreement of Lender to make any
Advance requested to be made on any date (including, without limitation, its
initial Advance), is subject to the satisfaction of the following conditions
precedent as of the date such Advance is made:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties made by the Borrower in or pursuant to this Agreement, and any
related agreements to which the Borrower is a party, and each of the
representations and warranties contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
this Agreement or any related agreement shall be true and correct in all
material respects on and as of such date as if made on and as of such date;
(b) NO DEFAULT. No Event of Default or Incipient Event of Default
shall have occurred and be continuing on such date, or would exist after giving
effect to the Advances requested to be made, on such date; PROVIDED, HOWEVER
that Lender in its sole
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discretion, may continue to make Advances notwithstanding the existence of an
Event of Default or Incipient Event of Default; and
(c) MAXIMUM ADVANCES. In the case of any Revolving Advances
requested to be made, after giving effect thereto, the aggregate Revolving
Advances shall not exceed the maximum Revolving Advances permitted under Section
2.1 hereof.
Each request for an Advance by the Borrower hereunder shall constitute a
representation and warranty by the Borrower as of the date of such Advance that
the conditions contained in this subsection shall have been satisfied.
9. INFORMATION AS TO THE BORROWER.
The Borrower covenants and agrees that the Borrower shall, until
satisfaction in full of the Obligations and the termination of this Agreement;
9.1 DISCLOSURE OF MATERIAL MATTERS. Immediately upon learning thereof,
report to the Lender all matters materially affecting the value, enforceability
or collectibility of any portion of the Collateral including, without
limitation, the Borrower's reclamation of repossession of, or the return to the
Borrower of a material amount of goods or claims or disputes asserted by any
Customer or other obligor. The Borrower will not, without the Lender's consent,
compromise or adjust any material amount of the Receivables (or extend the time
for payment thereof) or accept any material returns of merchandise or grant any
additional discounts, allowances or credits thereon except for those
compromises, adjustments, returns, discounts, credits and allowances as have
been heretofore customary in the business of the Borrower.
9.2 SCHEDULES. Deliver to the Lender on or before the fifteenth (15th)
day of each month as and for the prior month, or more frequently as Lender may,
in its sole discretion require, (a) accounts receivable aging, (b) accounts
payable aging and (c) Inventory reports. In addition, the Borrower will deliver
to Lender at such intervals as the Lender may require: (i) confirmatory
assignment schedules, (ii) copies of Customer's invoices, (iii) evidence of
shipment or delivery, and (iv) such further schedules, documents and/or
information regarding the Collateral as the Lender may require including,
without limitation, trial balances and test verifications. The Lender shall have
the right to confirm and verify all Receivables by any manner and through any
medium it considers advisable and do whatever it may deem reasonably necessary
to protect its interests hereunder. The items to be provided under this Section
are to be in form satisfactory to the Lender and executed by the Borrower and
delivered to the Lender from time to time solely for the Lender's convenience in
maintaining records of the Collateral, and the failure to deliver any of such
items to the Lender shall not affect, terminate, modify or otherwise limit the
Lender's lien on or security interest in the Collateral.
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9.3 ENVIRONMENTAL REPORTS. Furnish Lender, concurrently with the
delivery of the financial statements referred to in Sections 9.7 and 9.8,
accompanied by a certificate of the Borrower signed by the President of the
Borrower stating, to the best of his knowledge, that the Borrower is in
compliance in all material respects with all federal, state and local laws
relating to environmental protection and control and occupational safety and
health. To the extent the Borrower is not in compliance with the foregoing laws,
the certificate shall set forth with specificity all areas of non-compliance and
the proposed action the Borrower will implement in order to achieve full
compliance.
9.4 LITIGATION. Promptly notify the Lender in writing of any litigation
affecting the Borrower, whether or not the claim is covered by insurance, and of
any suit or administrative proceeding, which may affect the Collateral or may
affect, in a material respect, any of Borrower's business, assets, operations,
condition or prospects (financial or otherwise).
9.5 OCCURRENCE OF DEFAULTS, ETC. Promptly notify the Lender in writing
upon the occurrence of (a) any Event of Default or Incipient Event of Default;
(b) any event, development or circumstance whereby the financial statements most
recently furnished to the Lender fail in any material respect to present fairly,
in accordance with GAAP consistently applied, the financial condition and
operating results of the Borrower as of the date of such financial statements;
(c) any accumulated retirement plan funding deficiency which, if such deficiency
continued for two plan years and was not corrected as provided in Section 4971
of the Internal Revenue Code; (d) each and every default by the Borrower which
might result in the acceleration of the maturity of any Indebtedness with
respect to which there is a default existing or with respect to which the
maturity has been or could be accelerated, and the amount of such Indebtedness;
and (e) any other development in the business or affairs of the Borrower which
would reasonably be expected to be materially adverse; in each case describing
the nature thereof and in the case of notification under clause (a), (b), or (c)
the action the Borrower proposes to take with respect thereto.
9.6 GOVERNMENT RECEIVABLES. Notify the Lender immediately if any of its
Receivables arise out of contracts between the Borrower and the United States,
any state, the Commonwealth of Puerto Rico, or any department, agency or
instrumentally of any of them.
9.7 ANNUAL FINANCIAL STATEMENTS. Furnish the Lender within ninety (90)
days after the end of each fiscal year of the Borrower, financial statements of
Industries and its Subsidiaries, on a consolidating and consolidated basis,
including, but not limited to, statements of income, stockholders' equity and
cash flows from the beginning of the current fiscal year to the end of such
fiscal year and the balance sheet as at the end of such fiscal year
(collectively, the "Annual Audited Financial Statements"), all prepared in
accordance with GAAP applied on a basis consistent with prior practices (except
as noted therein), and in reasonable detail and (as to consolidated statements
only) reported upon without qualification by an independent certified public
accounting firm selected by the Borrower and satisfactory to Lender (the
"Accountants"), it being acknowledged that as of
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the date hereof, Arthur Andersen LLP is acceptable to Lender. The report of such
accounting firm shall be accompanied by a certificate of the Borrower, signed by
the Chief Financial Officer of the Borrower, which shall state whether, to its
knowledge, after due investigation, an Event of Default as specified in Article
10 hereof or an Incipient Event of Default has occurred.
9.8 QUARTERLY FINANCIAL STATEMENTS. Furnish the Lender within forty-five
(45) days after the end of each of the first three (3) fiscal quarters, an
unaudited balance sheet and income statement of Industries and its Subsidiaries,
on a consolidated basis and, if requested, on a consolidating basis, and
unaudited consolidated statements of cash flow and stockholders' equity of
Industries and its Subsidiaries, reflecting results of operations from the
beginning of the fiscal year to the end of such quarter and for such quarter,
prepared on a basis consistent with prior practices and complete and correct in
all material respects, subject to normal year end adjustments.
9.9 MONTHLY FINANCIAL STATEMENTS. Furnish the Lender within thirty (30)
days after the end of each month, an unaudited balance sheet and income
statement of Industries and its Subsidiaries, on a consolidated basis and, if
requested, on a consolidating basis, and an unaudited consolidated cash flow and
stockholders' equity of Industries and its Subsidiaries, reflecting results of
operations from the beginning of the fiscal year to the end of such month and
for such month, prepared on a basis consistent with prior practices and complete
and correct in all material respects, subject to normal year end adjustments.
The reports shall be accompanied by a certificate of Industries, signed by the
Chief Financial Officer of Industries, which shall state whether, to the best of
their knowledge, after due investigation, an Event of Default as specified in
Article 10 hereof or an Incipient Event of Default has occurred.
9.10 OTHER REPORTS. Furnish the Lender as soon as available, but in any
event within ten (10) days after the issuance thereof, with copies of such
financial statements, reports, returns, mailing, press releases or other
information that Industries sends or causes to be sent to its stockholders.
9.11 ADDITIONAL INFORMATION. Furnish the Lender with additional
information as the Lender shall reasonably request in order to enable Lender to
determine whether the terms, covenants, provisions and conditions of this
Agreement and the Cap/Ex Note have been complied with by the Borrower including,
without limitation and without the necessity of any request by Lender, (a)
copies of all environmental audits and reviews, (b) at least thirty (30) days
prior thereto, of the Borrower's opening of any new office or place of business
or the Borrower's closing of any existing office or place of business, and (c)
promptly upon the Borrower's learning thereof, of any labor dispute to which the
Borrower may become a party, any strikes or walkouts relating to any of its
plants or other facilities, and the expiration of any labor contract to which
the Borrower is a party or by which the Borrower is bound.
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9.12 PROJECTED OPERATING BUDGET. Furnish Lender, no less than thirty (30)
days prior to the beginning of each of the Borrower's fiscal years beginning
with the fiscal year ending the last Friday in June, 1998, a month by month
projected operating budget and cash flow (prepared both on an accrued basis and
cash basis) of Industries and its Subsidiaries, on a consolidated basis and, if
requested, on a consolidating basis, for such fiscal year (including an income
statement for each month and a balance sheet as at the end of the last month in
each fiscal quarter), in form and content acceptable to Lender, such projections
to be accompanied by a certificate signed by the President or Chief Financial
Officer of Industries to the effect that such projections have been approved by
the Borrower's Board of Directors and prepared on the basis of sound financial
planning practice consistent with past budgets and financial statements and that
such officer has no reason to question the reasonableness of any material
assumptions on which such projections were prepared. Lender reserves the right
to require, in its sole discretion, that such projections be reviewed by the
Accountants or such other Person acceptable to Lender.
9.13 VARIANCES FROM OPERATING BUDGET. Furnish Lender, concurrently with
the delivery of the financial statements referred to in Section 9.7 and each
quarterly and monthly report, a written report summarizing all material
variances from budgets submitted by the Borrower pursuant to Section 9.12 and a
discussion and analysis by management with respect to such variances.
9.14 ADDITIONAL DOCUMENTS. Execute and deliver to Lender, upon request,
such documents and agreements as Lender may, from time to time, reasonably
request to carry out the purposes, terms or conditions of this Agreement.
10. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events shall constitute
an "Event of Default" :
(a) failure by the Borrower to pay any principal or interest on
the Obligations when due, whether at maturity or by reason of acceleration
pursuant to the terms of this agreement or by notice of intention to prepay, or
by required prepayment or failure to pay any other liabilities or make any other
payment, fee or charge provided for herein when due;
(b) the occurrence of an "Event of Default" under, and as such
quoted term is defined in, the Affiliate Loan Agreements;
(c) any representation or warranty made or deemed made by the
Borrower in this Agreement or any related agreement or in any certificate,
document of financial or other statement furnished at any time in connection
herewith or therewith shall
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prove to have been misleading in any material respect on the date when made or
deemed to have been made;
(d) failure by the Borrower to (i) furnish financial information
when due or when requested which is unremedied for a period of five (5) days, or
(ii) permit the inspection of its books or records;
(e) issuance of a notice of Lien, Charge, Claim, levy assessment,
injunction or attachment against a material portion of the Borrower's property
which is not stayed or lifted within thirty (30) days;
(f) (i) failure or neglect of the Borrower to perform, keep or
observe any term, provision, condition, covenant contained in Section 4.7, 4.9,
6.3, 6.4, 9.4 or 9.11, and such failure shall continue for ten (10) days;
(ii) failure or neglect of the Borrower to perform, keep or
observe any term, provision, condition, covenant herein contained (other than
those Sections expressly set forth in Section 10.(f)(i) above) or contained in
any other agreement or arrangement, now or hereafter entered into between the
Borrower and the Lender;
(g) any judgment is rendered or judgment liens filed against the
Borrower for an amount in excess of $100,000 which within thirty (30) days of
such rendering or filing is not either satisfied, stayed or discharged of
record;
(h) the Borrower, Affiliated Borrowers, Subsidiary of Industries
or any Guarantor shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property, (ii) admit in writing its
inability, or be generally unable, to pay its debts as they become due or cease
operations of its present business, (iii) make a general assignment for the
benefit of creditors, (iv) commence a voluntary case under any state or federal
bankruptcy laws (as now or hereafter in effect), (v) be adjudicated a bankrupt
or insolvent, (vi) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vii) acquiesce to, or fail to have
dismissed, within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (viii) take any action for the
purpose of effecting any of the foregoing;
(i) any change in the Borrower's condition or affairs (financial
or otherwise) which in Lender's good faith opinion materially impairs the
Collateral or the ability of the Borrower to perform its Obligations under this
Agreement;
(j) if any Lien created hereunder or provided for hereby or under
any related agreement for any reason ceases to be or is not a valid and
perfected Lien having a first priority interest;
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(k) a default of the obligations of the Borrower under any other
agreement with any Person other than Lender to which it is a party shall occur
which adversely affects, in any material respect, its condition, affairs or
prospects (financial or otherwise) which default is not cured within any
applicable grace period;
(l) termination or breach, after giving effect to any applicable
grace period, of any Guaranty or similar agreement executed and delivered to
Lender in connection with the Obligations of the Borrower, or if any Guarantor
attempts to terminate, challenges the validity of, or its liability under, any
such Guaranty or similar agreement;
(m) any Change of Ownership;
(n) any material provision of this Agreement shall, for any
reason, cease to be valid and binding on the Borrower, or the Borrower shall so
claim in writing to Lender; or
(o) failure by the Borrower to deliver to Lender on or before
April 30, 1998, a physical count of the Borrower's Inventory, the results of
which physical count of Inventory shall be acceptable to Lender in its sole
discretion, together with adjustments to the Borrower's books and records, if
any, as a result of such physical count of Inventory, which adjustments, if any,
shall be acceptable to Lender in its sole discretion.
11. LENDER'S RIGHTS AND REMEDIES AFTER DEFAULT.
11.1 RIGHTS AND REMEDIES. Upon the occurrence of an Event of Default
pursuant to Section 10(i), all Obligations shall be immediately due and payable
and this Agreement shall be deemed terminated; and, upon the occurrence of any
of the other Events of Default and at any time thereafter (such default not
having previously been cured), at the option of Lender all Obligations shall be
immediately due and payable and the Lender shall have the right to terminate
this Agreement. In any such event, the Lender shall have the right to exercise
any and all other rights and remedies provided for herein, under the Uniform
Commercial Code and at law or equity generally, including, without limitation,
the right to foreclose the security interests granted herein and to realize upon
any Collateral by any available judicial procedure and/or to take possession of
and sell any or all of the Collateral with or without judicial process. The
Lender may enter the Borrower's premises or other premises without legal process
and without incurring liability to the Borrower therefor, and the Lender may
thereupon, or at any time thereafter, in its discretion without notice or
demand, take the Collateral and remove the same to such place as the Lender may
deem advisable and the Lender may require the Borrower to make the Collateral
available to the Lender at a convenient place. With or without having the
Collateral at the time or place of sale, the Lender may sell the Collateral, or
any part thereof, at public or private sale, at any time or place, in one or
more sales, at such price or prices, and upon such terms, either for cash,
credit or future delivery, as the Lender may elect. Except as to that part of
the Collateral which is perishable or threatens to decline speedily in value
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or is of a type customarily sold on a recognized market, the Lender shall give
the Borrower reasonable notification of such sale or sales, it being agreed that
in all events written notice mailed to the Borrower at least five (5) Business
Days prior to such sale or sales is reasonable notification. At any public sale
the Lender may bid for and become the purchaser, and Lender or any other
purchaser at any such sale thereafter shall hold the Collateral sold absolutely
free from any claim or right of whatsoever kind, including any equity of
redemption and such right and equity are hereby expressly waived and released by
the Borrower. In connection with the exercise of the foregoing remedies, the
Lender is granted permission to use all of the Borrower's trademarks, trade
styles, trade names, patents, patent applications, licenses, franchises and
other proprietary rights which are used in connection with (a) Inventory for the
purpose of disposing of such Inventory and (b) Equipment for the purpose of
completing the manufacture of unfinished goods. The proceeds realized from the
sale of any Collateral shall be applied first to the reasonable costs, expenses
and attorneys' fees and expenses incurred by Lender for collection and for
acquisition, completion, protection, removal, storage, sale and delivery of the
Collateral; secondly to interest due upon any of the Obligations; and thirdly to
the principal of the Obligations. If any deficiency shall arise, the Borrower
shall remain liable to Lender therefor.
11.2 LENDER'S DISCRETION. The Lender shall have the right in its sole
discretion to determine which rights, Liens, security interests or remedies the
Lender may at any time pursue, relinquish, subordinate, or modify or to take any
other action with respect thereto and such determination will not in any way
modify or affect any of the Lender's rights hereunder.
11.3 SETOFF. In addition to any other rights which the Lender may have
under applicable law, upon the occurrence of any Event of Default hereunder, the
Lender shall have a right to apply any of the Borrower's property held by the
Lender or by the Bank to reduce the Obligations.
11.4 RIGHTS AND REMEDIES NOT EXCLUSIVE. The enumeration of the foregoing
rights and remedies is not intended to be exhaustive and the exercise of any
right or remedy shall not preclude the exercise of any other right or remedies,
all of which shall be cumulative and not alternative.
12. WAIVERS AND JUDICIAL PROCEEDINGS.
12.1 WAIVER OF NOTICE. The Borrower hereby waives notice of non-payment
of any of the Receivables, demand, presentment, protest and notice thereof with
respect to any and all instruments, notice of acceptance hereof, notice of loans
or advances made, credit extended, Collateral received or delivered, or any
other action taken in reliance hereon, and all other demands and notices of any
description, except such as are expressly provided for herein.
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12.2 DELAY. No delay or omission on the Lender's part in exercising any
right, remedy or option shall operate as a waiver of such or any other right,
remedy or option or of any default.
12.3 JURY WAIVER. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES
ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A)
ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO
OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE: AND EACH PARTY HEREBY AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
13. EFFECTIVE DATE AND TERMINATION.
13.1 TERM. This Agreement, which shall inure to the benefit of and shall
be binding upon the respective successors and permitted assigns of the Borrower
and the Lender, shall become effective on the date hereof and shall continue in
full force and effect until April ___, 2003 (the "Term") unless sooner
terminated as herein provided. The Term shall be automatically extended for
successive periods of one (1) year each unless terminated by either party at the
end of such initial Term or any successive Term by giving the other party sixty
(60) days prior written notice. The Borrower may terminate this Agreement at any
time upon thirty (30) days' prior written notice, upon payment in full of the
Obligations ("Termination Date"); and PROVIDED FURTHER THAT, the Affiliated
Borrowers simultaneously terminate the Affiliate Loan Agreements and, PROVIDED
FURTHER THAT, the Affiliated Borrowers pay an early termination fee in
accordance with the terms of Section 13.1 of the Affiliate Loan Agreements.
13.2 TERMINATION. The termination of the Agreement shall not affect any
of the Borrower's or the Lender's rights, or any of the Obligations having their
inception prior to the effective date of such termination, and the provisions
hereof shall continue to be fully operative until all transactions entered into,
rights or interests created or Obligations have been full disposed of, concluded
or liquidated. The security interests, Liens and rights granted to the Lender
hereunder and the financing statements filed hereunder shall continue in full
force and effect, notwithstanding the termination of this Agreement or the fact
that any account of the Borrower may from time to time be temporarily in a zero
or
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credit position, until all of the Obligations of the Borrower has been paid or
performed in full after the termination of this Agreement or the Borrower has
furnished the Lender with an indemnification satisfactory to the Lender with
respect thereto. Accordingly, the Borrower waives any rights which it may have
under Section 9-404(1) of the Uniform Commercial Code to demand the filing of
termination statement with respect to the Collateral, and Lender shall not be
required to send such termination statements to the Borrower, or to file them
with any filing office, unless and until this Agreement shall have been
terminated in accordance with its terms and all Obligations paid in full in
immediately available funds. All representations, warranties, covenants, waivers
and agreements contained herein shall survive termination hereof until all
Obligations are repaid or performed in full unless otherwise provided.
14. MISCELLANEOUS.
14.1 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York (without giving effect to its
conflict of laws rules). Any judicial proceeding brought by or against the
Borrower with respect to any of the Obligations, this Agreement or any related
agreement may be brought in any court of competent jurisdiction in the State of
New York, United States of America, and, by execution and delivery of this
Agreement, the Borrower accepts for itself and in connection with its
properties, generally and unconditionally the non-exclusive jurisdiction of he
aforesaid courts, and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Agreement. Nothing herein shall affect the right
to serve process in any manner permitted by law or shall limit the right of the
Lender to bring proceedings against the Borrower in the courts of any other
jurisdiction. The Borrower waives any objection to jurisdiction and venue of any
action instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon FORUM NON CONVENIENS. Any judicial
proceedings by the Borrower against the Lender involving, directly or
indirectly, any matter or claim in any way arising out of, related to or
connected with this Agreement or any related agreement, shall be brought only in
a federal or state court located in the City of New York, State of New York.
14.2 ENTIRE UNDERSTANDING. This Agreement and the documents executed
concurrently herewith contain the entire understanding between the Borrower and
the Lender and supersedes all prior agreements and understandings, if any,
relating to the subject matter hereof. Any promises, representations, warranties
or guarantees not herein contained and hereinafter made shall have no force and
effect unless in writing, signed by the Borrower's and Lender's respective
officers. Neither this Agreement nor any portion or provisions hereof may be
changed, modified, amended, waived, supplemented, discharged, cancelled or
terminated orally or by any course of dealing, or in any manner other than by an
agreement in writing, signed by the party to be charged. The Borrower
acknowledges that it has been advised by counsel in connection the execution of
this Agreement and Other Documents and is not relying upon oral representations
or statements inconsistent with the terms and provisions of this Agreement.
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14.3 SUCCESSORS AND ASSIGNS; PARTICIPATIONS; NEW LENDERS.
(a) This Agreement shall be binding upon and inure to the benefit
of the Borrower, the Lender, all future holders of the Cap/Ex Note and their
respective successors and assigns, except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of Lender.
(b) Lender may sell, assign or transfer all or any part of its
rights under this Agreement, the Cap/Ex Note and all related agreements,
instruments and documents provided the Borrower is given notice of such sale as
soon as practicable and the transferee agrees to perform the obligations of the
transferor, In addition to the foregoing, the Borrower acknowledges that in the
regular course of commercial banking business the Lender may at any time and
from time to time sell participating interests in the Advances to other
financial institutions (each such transferee or purchaser of a participating
interest, a "Transferee"). Each Transferee may exercise all rights of payment
(including without limitation rights of set-off) with respect to the portion of
such Advances held by it or other Obligations payable hereunder as fully as if
such Transferee were the direct holder thereof. The Borrower hereby grants to
any Transferee a continuing security interest in any deposits, moneys or other
property actually or constructively held by such Transferee as security for the
Transferee's interest in the Advances and such security shall be a Permitted
Encumbrance hereunder.
14.4 APPLICATION OF PAYMENTS. Lender shall have the continuing and
exclusive right to apply or reverse and reapply any and all proceeds of
Collateral to any portion of the Obligations then due. To the extent that the
Borrower makes a payment or Lender receives any payment or proceeds of the
Collateral for the Borrower's benefit, which are subsequently invalidated,
declared to the fraudulent or preferential, set aside or required to be repaid
to a trustee, debtor in possession, receiver, custodian or any other party under
any bankruptcy law, common law or equitable cause, then, to such extent, the
Obligations or part thereof intended to be satisfied shall be revived and
continue as if such payment or proceeds had not been received by Lender.
14.5 INDEMNITY. The Borrower shall indemnify Lender from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses and disbursements of any kind or nature
whatsoever (including, without limitation, fees and disbursements of counsel)
which may be imposed on, incurred by, or asserted against Lender in any
litigation, proceeding or investigation instituted or conducted by any
governmental agency or instrumentality or any other Person with respect to any
aspect of, or any transaction contemplated by, or referred to in, or any matter
related to, this Agreement, whether or not the Lender is a party thereto, except
to the extent that any of the foregoing arises out of the gross negligence or
willful misconduct of Lender.
14.6 NOTICE. Any notice or request hereunder may be given to the Borrower
and to Lender at their respective addresses set forth below or at such other
address as may
61
<PAGE>
hereafter be specified in a notice designated as a notice of change of address
under this Section. Any notice or request hereunder shall be given by (a) hand
delivery, (b) registered or certified mail, return receipt requested, (c) telex
or telegram, subsequently confirmed by registered or certified mail, or (d)
telefax to the number set out below (or such other number as may hereafter be
specified in a notice designated as a notice of change of address) with
telephone communication to a duly authorized officer of the recipient confirming
its receipt as subsequently confirmed by registered or certified mail. Notices
and requests shall, in the case of those by mail or telegram. be deemed to have
been given three (3) Business Days after mailing, or when delivered to the
telegraph office addresses as provided in this Section.
(A) If to Lender, at: BNY FINANCIAL CORPORATION
1290 Avenue of the Americas
New York, New York 10104
Attention: Anthony Vassallo
Telephone: (212) 408-7229
FAX: (212) 408-4384
With copy to: BNY FINANCIAL CORPORATION
1290 Avenue of the Americas
New York, New York 10104
Attention: Frank Imperato
Telephone: (212) 408-7267
FAX: (212) 408-7372
OTTERBOURG, STEINDLER, HOUSTON
& ROSEN, PC.
230 Park Avenue
New York, New York 10169-0075
Attention: Mitchell M. Brand, Esq.
Telephone: (212) 661-9100
FAX: (212) 682-6104
(B) If to the Borrower, at: CROWN TOOL & DIE COMPANY, INC.
c/o TII Industries, Inc.
1385 Akron Street
Copiague, New York 11726
Attention: Chief Financial Officer
Telephone: (516) 789-5093
FAX: (516) 789-2228
14.7 SURVIVABILITY. If any or part of this Agreement is contrary to,
prohibited by, or deemed invalid under applicable laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the
62
<PAGE>
remainder hereof shall not be invalidated thereby and shall be given effect so
far as possible.
14.8 EXPENSES. All costs and reasonable expenses including, without
limitation reasonable attorneys' fees incurred by the Lender (a) in all efforts
made to enforce payment of any Obligation or effect collection of any
Collateral, or (b) in connection with the entering into, modification,
amendment, administration and enforcement of this Agreement or any consents or
waivers hereunder and all related agreements, documents and instruments, or (c)
in connection with the instituting, maintaining, preserving, enforcing and
foreclosing of or on the Lender's security interest or Lien in any of the
Collateral, whether through judicial proceedings or otherwise, or (d) in
defending or prosecuting any actions or proceedings arising out of or relating
to the Lender's transactions with the Borrower, or (e) in connection with any
advice given to Lender with respect to its rights and obligations under this
Agreement and all related agreements, or (f) subject to Section 4.10 hereof,
during the course of audits, checks or inspections of the Collateral and the
Borrower's operations, plus a per diem charge for Lender's examiners and
auditors at Lender's then current rates, and costs and expenses of examiners and
auditors retained by Lender at the rates charged to auditors may be charged to
any account of the Borrower and shall be part of the Obligations.
14.9 INJUNCTIVE RELIEF. The Borrower recognizes that, in the event the
Borrower fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy at law may prove to be inadequate
relief to Lender; therefore, Lender if Lender so requests, shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages.
14.10 CAPTIONS. The captions at various places in this Agreement are
intended for convenience only and do not constitute and shall not be interpreted
as part of this Agreement.
14.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which taken together shall constitute one and the same
instrument.
Each of the parties has signed this Agreement as of the 30th day of April,
1998.
CROWN TOOL & DIE COMPANY, INC.
By: /S/ PAUL SEBETIC
---------------------------
[SEAL] Its: VICE PRESIDENT-FINANCE
---------------------------
Road 165, Kilometer 1.06
Toa Alta, Puerto Rico 00953
BNY FINANCIAL CORPORATION
By: /S/ JOSEPH A. GRIMALDI
---------------------------
Its: PRESIDENT
---------------------------
1290 Avenue of the Americas
New York, New York 10104
63
<PAGE>
ACKNOWLEDGEMENT AND AGREEMENT
The undersigned, being "Affiliated Borrowers" referred to and as defined
in the within and foregoing Revolving Credit, Term Loan and Security Agreement
("Loan Agreement"), hereby acknowledge each of the terms and provisions of the
foregoing Loan Agreement and agrees to be bound by the terms and provisions
thereof expressly applying to the undersigned.
Each of the undersigned acknowledges and agrees that although they may
acknowledge this Loan Agreement, they are not a party thereto and do not and
will not receive any right, benefit, priority or interest under or because of
the existence of the Loan Agreement.
TII INDUSTRIES, INC.
By: /S/ PAUL SEBETIC
------------------------------
Title: VICE PRESIDENT-FINANCE
------------------------------
TII CORPORATION
By: /S/ PAUL SEBETIC
------------------------------
Title: VICE PRESIDENT-FINANCE
------------------------------
TII-DITEL, INC.
By:/S/ PAUL SEBETIC
------------------------------
Title: VICE PRESIDENT-FINANCE
------------------------------
64
<PAGE>
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this _____ day of April, 1998, before me personally came
___________________________, to me known, who, being by me duly sworn, did
depose and say that he resides at _______________________________ and that he is
the __________________ of TII-DITEL, INC., the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the board of directors of said corporation.
------------------------------
NOTARY PUBLIC
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this _____ day of April, 1998, before me personally came
_________________________, to me known, who, being by me duly sworn, did depose
and say that he resides at _______________________________________________ and
that he is the _______________ of BNY FINANCIAL CORPORATION, the corporation
described in and which executed the foregoing instrument and that he signed his
name thereto by order of the board of directors of said corporation.
------------------------------
NOTARY PUBLIC
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this _____ day of April, 1998, before me personally came
________________________, to me known, who, being by me duly sworn, did depose
and say that he resides at ______________________________ and that he is the
__________________ of TII INDUSTRIES, INC., the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the board of directors of said corporation.
------------------------------
NOTARY PUBLIC
65
<PAGE>
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this _____ day of April, 1998, before me personally came
________________________, to me known, who, being by me duly sworn, did depose
and say that he resides at _______________________________ and that he is the
__________________ of TII CORPORATION, the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by order
of the board of directors of said corporation.
------------------------------
NOTARY PUBLIC
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this _____ day of April, 1998, before me personally came
________________________, to me known, who, being by me duly sworn, did depose
and say that he resides at _______________________________ and that he is the
__________________ of CROWN TOOL & DIE COMPANY, INC., the corporation described
in and which executed the foregoing instrument; and that he signed his name
thereto by order of the board of directors of said corporation.
------------------------------
NOTARY PUBLIC
66
G U A R A N T Y
TO: BNY FINANCIAL CORPORATION
In consideration of your entering into or your refraining from terminating at
this time that certain Revolving Credit, Term Loan and Security Agreement dated
the date hereof ("Ditel Loan Agreement") between you and TII-Ditel, Inc.
("Ditel") and that certain Revolving Credit, Term Loan and Security Agreement
dated the date hereof (the "Crown Loan Agreement"; together with the Ditel Loan
Agreement, individually and collectively, the "Agreement") executed between you
and Crown Tool & Die Company, Inc. ("Crown"; together with Ditel, individually
and collectively, the "Client") the undersigned hereby guarantees to BNY
Financial Corporation (hereinafter called the "Company"), its successors and
assigns, the prompt payment at maturity, or whenever they may become due in
accordance with any of their terms, of all now existing and hereafter arising
liabilities, indebtedness and obligations of the Client to the Company
(including "Obligations," as defined in the Agreement, if such term is defined
therein), whenever and however arising or acquired by the Company, whether
direct or indirect, absolute or contingent (collectively, the "Obligations") and
whether the same may now be or hereafter become due from the Client or the
executors, administrators, successors or assigns of the Client, including the
cost of protest and all legal expenses of or for collection, or for realization
upon any collateral for the Obligations ("Collateral") or other guaranty. If
this guaranty and/or any Obligation is placed with an attorney for collection,
the undersigned further agrees to pay an attorney's fee of fifteen percent of
any principal and interest due and demanded, which is hereby agreed to be just
and reasonable and which shall be recoverable with the amount due under this
guaranty.
Demand of payment, presentment, protest and notice of dishonor or non-payment
are hereby expressly waived, and if any of the Obligations are payable on
demand, the Company may, in its sole and absolute discretion, determine the
reasonableness of the period, if any, to elapse prior to the making of demand.
The undersigned hereby consents and agrees that, without notice to or further
assent from the undersigned for the purposes of this Guaranty, the time of
payment of all or any of the Obligations, or any other provisions of the
Obligations, may be extended, changed or modified, the parties thereto
discharged, any or all Collateral released without obtaining other Collateral in
substitution therefor, and any composition or settlement consummated and
accepted, and that the undersigned will remain bound upon this guaranty
notwithstanding one or more such extensions, changes, modifications, discharges,
releases, compositions or settlements. The undersigned further consents and
agrees that this guaranty shall not be impaired or otherwise affected by any
failure to call for, take, hold, protect or perfect, continue the perfection of
or enforce any security interest in or other lien upon, any Collateral or by any
failure to exercise, delay in the exercise, exercise or waiver of, or
forbearance or other indulgence with respect to, any right or remedy available
to the Company. Any statement of account which is binding on the Client under
the Agreement shall be binding on the undersigned for all purposes under this
guaranty.
Subject to the terms of any security agreement executed by the undersigned in
favor of the Company pursuant to which the Collateral has been pledged to the
Company, the Company may also at any time in its discretion sell, assign,
transfer and deliver the whole of the Collateral, or any part thereof, or any
substitutes therefor, or any additions thereto, at public or private sale, at
any time or place selected by the Company, at such prices as it may deem best
and either for cash or for credit or future delivery, at the option of the
Company without either demand, advertisement or notice of any kind to the
undersigned, which are hereby expressly waived.
The undersigned assigns, pledges and grants a security interest to the Company
in any money or property belonging to the undersigned at any time in the
possession of the Company or in the possession of any parent, affiliate or
subsidiary of the Company (hereinafter called a "Related Company"), including
any deposit balances and all property held by the Company or a Related Company
for any purpose including safekeeping, custody, transmission, collection,
<PAGE>
or pledge, and all proceeds of the foregoing, as security for the performance by
the undersigned of the obligations under this guaranty, whether due or not, with
full power and authority to apply any such money, property and proceeds to the
extinguishment of any such obligations and to sell, enforce, collect or
otherwise realize on said money, property or proceeds, all in accordance with
applicable law and the terms of any and all security agreements executed by the
undersigned in favor of the Company.
The undersigned agrees that the Company is not to be obligated in any manner to
inquire into the powers of the Client, or its successors, its or their
directors, officers, or agents, acting or purporting to act on its or their
behalf, and any liabilities purporting to be contracted for the Client, or its
successors, by its or their directors, officers, or agents, in the professed
exercise of such powers, shall be deemed to form a part of the liabilities
guaranteed hereunder even though the incurrence of such liabilities be in excess
of the powers of the Client, its successors, or its or their directors,
officers, or agents aforesaid, or shall be in any way irregular, defective or
informal.
The liability of the undersigned on this guaranty shall be direct, immediate,
absolute, continuing, unconditional, unlimited and shall at all times be valid
and enforceable irrespective of any other agreements or circumstances of any
nature whatsoever which might otherwise constitute a defense hereto. Such
liability shall not be conditional or contingent upon the pursuit by the Company
of whatever remedies it may have against the Client or the Client's successors,
executors, administrators or assigns, or the security or liens it may possess,
and this guaranty shall be and shall be construed as being and intended to be, a
continuing guaranty of the payment of any and all Obligations either made,
endorsed or contracted by the Client, or any successor of the Client, prior to
the receipt by the Company of written notice of the revocation of this guaranty
by the undersigned, and of all extensions or renewals thereof in whole or in
part; and notwithstanding the death of, or the revocation of this guaranty by,
the undersigned guarantor, the liability of the guarantor so revoking and of the
estate of the guarantor who dies shall continue as to Obligations incurred or
contracted by the Client, or any successor of the Client, prior to such
revocation or death and as to all extensions and renewals thereof, in whole or
in part.
If any payment of the Obligations is made by or for the benefit of the Client
and is repaid by the Company to the Client or any other party pursuant to any
federal, state or other law, including those relating to bankruptcy, insolvency,
preference or fraudulent transfer, then to the extent of such repayment, the
liability of the undersigned with respect to such Obligation shall continue in
full force and effect. The undersigned agrees that if the Company gives to the
undersigned written notice of the institution of any action or proceeding, legal
or otherwise between the Company and the Client, the undersigned shall be
conclusively bound by the adjudication in any such legal or other proceeding, or
by any judgment or award or decree entered therein.
Until such time as the Obligations have been fully and indefeasibly paid, the
undersigned subordinates any claim or other right which the undersigned may now
have or hereafter acquire against the Client or any other person that is
primarily or contingently liable on any obligation that arises from the
existence or performance of the undersigned's obligations under this guaranty,
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution or indemnification.
The undersigned also waives the right to assert in any action or proceeding upon
this guaranty any defense, offsets or counterclaims which the undersigned may
have with respect thereto. This guaranty shall be governed by and construed and
interpreted in accordance with the laws of the State of New York and all actions
and proceedings arising out of or in connection therewith shall be litigated in
the federal or state courts of such State or, at the Company's option, in any
other courts as the Company may select and the undersigned agrees that such
courts are convenient forums and the undersigned submits to the personal
jurisdiction of such courts. This guaranty cannot be altered or discharged
orally.
Notice of the acceptance of this guaranty is hereby waived.
The provisions of this guaranty are severable, and if any clause or provision
hereof shall be held invalid or unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall attach only to such
-2-
<PAGE>
clause or provision in any such jurisdiction or part thereof, and shall not in
any manner affect such clause or provision in any other jurisdiction or any
other clause or provision in this guaranty in any jurisdiction.
THE UNDERSIGNED WAIVES THE RIGHT TO TRIAL BY JURY IN ALL ACTIONS BROUGHT BY OR
AGAINST THE COMPANY.
IN WITNESS WHEREOF, the undersigned has duly executed these presents this 30th
day of April, 1998.
TII INDUSTRIES, INC.
By: /S/ PAUL SEBETIC
-----------------------------
Title: Vice President-Finance
1385 Akron Street
Copiague, New York 11726
STATE OF
SS.
COUNTY OF
On this 29th day of April, 1998, before me personally appeared Paul Sebetic to
me known, who being by me duly sworn, did depose and say, that he is the Vice
President-Finance of TII Industries, Inc., the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the board of directors of said corporation.
/S/ BROOKE SPIEGEL
-------------------------
Notary Public
-3-
G U A R A N T Y
TO: BNY FINANCIAL CORPORATION
In consideration of your entering into or your refraining from terminating at
this time that certain Revolving Credit, Term Loan and Security Agreement dated
the date hereof ("TII Loan Agreement") among you, TII Industries, Inc.
("Industries") and TII Corporation ("Corporation"), that certain Revolving
Credit, Term Loan and Security Agreement dated the date hereof ("Ditel Loan
Agreement") between you and TII-Ditel, Inc. ("Ditel"), and that certain
Revolving Credit, Term Loan and Security Agreement dated the date hereof ("Crown
Loan Agreement"; together with the TII Loan Agreement and the Ditel Loan
Agreement, individually and collectively, the "Agreement") between you and Crown
Tool & Die Company, Inc. ("Crown"; together with Industries, Corporation and
Ditel, individually and collectively, the "Client") the undersigned hereby
guarantees to BNY Financial Corporation (hereinafter called the "Company"), its
successors and assigns, the prompt payment at maturity, or whenever they may
become due in accordance with any of their terms, of all now existing and
hereafter arising liabilities, indebtedness and obligations of the Client to the
Company (including "Obligations," as defined in the Agreement, if such term is
defined therein), whenever and however arising or acquired by the Company,
whether direct or indirect, absolute or contingent (collectively, the
"Obligations") and whether the same may now be or hereafter become due from the
Client or the executors, administrators, successors or assigns of the Client,
including the cost of protest and all legal expenses of or for collection, or
for realization upon any collateral for the Obligations ("Collateral") or other
guaranty. If this guaranty and/or any Obligation is placed with an attorney for
collection, the undersigned further agrees to pay an attorney's fee of fifteen
percent of any principal and interest due and demanded, which is hereby agreed
to be just and reasonable and which shall be recoverable with the amount due
under this guaranty.
Demand of payment, presentment, protest and notice of dishonor or non-payment
are hereby expressly waived, and if any of the Obligations are payable on
demand, the Company may, in its sole and absolute discretion, determine the
reasonableness of the period, if any, to elapse prior to the making of demand.
The undersigned hereby consents and agrees that, without notice to or further
assent from the undersigned for the purposes of this Guaranty, the time of
payment of all or any of the Obligations, or any other provisions of the
Obligations, may be extended, changed or modified, the parties thereto
discharged, any or all Collateral released without obtaining other Collateral in
substitution therefor, and any composition or settlement consummated and
accepted, and that the undersigned will remain bound upon this guaranty
notwithstanding one or more such extensions, changes, modifications, discharges,
releases, compositions or settlements. The undersigned further consents and
agrees that this guaranty shall not be impaired or otherwise affected by any
failure to call for, take, hold, protect or perfect, continue the perfection of
or enforce any security interest in or other lien upon, any Collateral or by any
failure to exercise, delay in the exercise, exercise or waiver of, or
forbearance or other indulgence with respect to, any right or remedy available
to the Company. Any statement of account which is binding on the Client under
the Agreement shall be binding on the undersigned for all purposes under this
guaranty.
Subject to the terms of any security agreement executed by the undersigned in
favor of the Company pursuant to which the Collateral has been pledged to the
Company, the Company may also at any time in its discretion sell, assign,
transfer and deliver the whole of the Collateral, or any part thereof, or any
substitutes therefor, or any additions thereto, at public or private sale, at
any time or place selected by the Company, at such prices as it may deem best
and either for cash or for credit or future delivery, at the option of the
Company without either demand, advertisement or notice of any kind to the
undersigned, which are hereby expressly waived.
The undersigned assigns, pledges and grants a security interest to the Company
in any money or property belonging to the undersigned at any time in the
possession of the Company or in the possession of any parent, affiliate or
subsidiary of the Company (hereinafter called a "Related Company"), including
any deposit balances and all property
<PAGE>
held by the Company or a Related Company for any purpose including safekeeping,
custody, transmission, collection, or pledge, and all proceeds of the foregoing,
as security for the performance by the undersigned of the obligations under this
guaranty, whether due or not, with full power and authority to apply any such
money, property and proceeds to the extinguishment of any such obligations and
to sell, enforce, collect or otherwise realize on said money, property or
proceeds, all in accordance with applicable law and the terms of any and all
security agreements executed by the undersigned in favor of the Company.
The undersigned agrees that the Company is not to be obligated in any manner to
inquire into the powers of the Client, or its successors, its or their
directors, officers, or agents, acting or purporting to act on its or their
behalf, and any liabilities purporting to be contracted for the Client, or its
successors, by its or their directors, officers, or agents, in the professed
exercise of such powers, shall be deemed to form a part of the liabilities
guaranteed hereunder even though the incurrence of such liabilities be in excess
of the powers of the Client, its successors, or its or their directors,
officers, or agents aforesaid, or shall be in any way irregular, defective or
informal.
The liability of the undersigned on this guaranty shall be direct, immediate,
absolute, continuing, unconditional, unlimited and shall at all times be valid
and enforceable irrespective of any other agreements or circumstances of any
nature whatsoever which might otherwise constitute a defense hereto. Such
liability shall not be conditional or contingent upon the pursuit by the Company
of whatever remedies it may have against the Client or the Client's successors,
executors, administrators or assigns, or the security or liens it may possess,
and this guaranty shall be and shall be construed as being and intended to be, a
continuing guaranty of the payment of any and all Obligations either made,
endorsed or contracted by the Client, or any successor of the Client, prior to
the receipt by the Company of written notice of the revocation of this guaranty
by the undersigned, and of all extensions or renewals thereof in whole or in
part; and notwithstanding the death of, or the revocation of this guaranty by,
the undersigned guarantor, the liability of the guarantor so revoking and of the
estate of the guarantor who dies shall continue as to Obligations incurred or
contracted by the Client, or any successor of the Client, prior to such
revocation or death and as to all extensions and renewals thereof, in whole or
in part.
If any payment of the Obligations is made by or for the benefit of the Client
and is repaid by the Company to the Client or any other party pursuant to any
federal, state or other law, including those relating to bankruptcy, insolvency,
preference or fraudulent transfer, then to the extent of such repayment, the
liability of the undersigned with respect to such Obligation shall continue in
full force and effect. The undersigned agrees that if the Company gives to the
undersigned written notice of the institution of any action or proceeding, legal
or otherwise between the Company and the Client, the undersigned shall be
conclusively bound by the adjudication in any such legal or other proceeding, or
by any judgment or award or decree entered therein.
Until such time as the Obligations have been fully and indefeasibly paid, the
undersigned subordinates any claim or other right which the undersigned may now
have or hereafter acquire against the Client or any other person that is
primarily or contingently liable on any obligation that arises from the
existence or performance of the undersigned's obligations under this guaranty,
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution or indemnification.
The undersigned also waives the right to assert in any action or proceeding upon
this guaranty any defense, offsets or counterclaims which the undersigned may
have with respect thereto. This guaranty shall be governed by and construed and
interpreted in accordance with the laws of the State of New York and all actions
and proceedings arising out of or in connection therewith shall be litigated in
the federal or state courts of such State or, at the Company's option, in any
other courts as the Company may select and the undersigned agrees that such
courts are convenient forums and the undersigned submits to the personal
jurisdiction of such courts. This guaranty cannot be altered or discharged
orally. Notice of the acceptance of this guaranty is hereby waived.
The provisions of this guaranty are severable, and if any clause or provision
hereof shall be held invalid or
-2-
<PAGE>
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall attach only to such clause or provision in any such
jurisdiction or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision in this
guaranty in any jurisdiction.
THE UNDERSIGNED WAIVES THE RIGHT TO TRIAL BY JURY IN ALL ACTIONS BROUGHT BY OR
AGAINST THE COMPANY.
IN WITNESS WHEREOF, the undersigned has duly executed these presents this 30th
day of April, 1998.
TII INTERNATIONAL, INC.
By /S/ PAUL SEBETIC
-----------------------------
Title: Vice President - Finance
1385 Akron Street
Copiague, New York 11726
STATE OF
SS.
COUNTY OF
On this 30th day of April, 1998, before me personally appeared Paul Sebetic to
me known, who being by me duly sworn, did depose and say, that he is the Vice
President of TII International, Inc., the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by order
of the board of directors of said corporation.
/S/ BROOKE SPIEGEL
-------------------------
Notary Public
-3-
G U A R A N T Y
TO: BNY FINANCIAL CORPORATION
In consideration of your entering into or your refraining from terminating at
this time that certain Revolving Credit, Term Loan and Security Agreement dated
the date hereof ("TII Loan Agreement") among you, TII Industries, Inc.
("Industries") and TII Corporation ("Corporation"), that certain Revolving
Credit, Term Loan and Security Agreement dated the date hereof ("Ditel Loan
Agreement") between you and TII-Ditel, Inc. ("Ditel"), and that certain
Revolving Credit, Term Loan and Security Agreement dated the date hereof ("Crown
Loan Agreement"; together with the TII Loan Agreement and the Ditel Loan
Agreement, individually and collectively, the "Agreement") between you and Crown
Tool & Die Company, Inc. ("Crown"; together with Industries, Corporation and
Ditel, individually and collectively, the "Client") the undersigned hereby
guarantees to BNY Financial Corporation (hereinafter called the "Company"), its
successors and assigns, the prompt payment at maturity, or whenever they may
become due in accordance with any of their terms, of all now existing and
hereafter arising liabilities, indebtedness and obligations of the Client to the
Company (including "Obligations," as defined in the Agreement, if such term is
defined therein), whenever and however arising or acquired by the Company,
whether direct or indirect, absolute or contingent (collectively, the
"Obligations") and whether the same may now be or hereafter become due from the
Client or the executors, administrators, successors or assigns of the Client,
including the cost of protest and all legal expenses of or for collection, or
for realization upon any collateral for the Obligations ("Collateral") or other
guaranty. If this guaranty and/or any Obligation is placed with an attorney for
collection, the undersigned further agrees to pay an attorney's fee of fifteen
percent of any principal and interest due and demanded, which is hereby agreed
to be just and reasonable and which shall be recoverable with the amount due
under this guaranty.
Demand of payment, presentment, protest and notice of dishonor or non-payment
are hereby expressly waived, and if any of the Obligations are payable on
demand, the Company may, in its sole and absolute discretion, determine the
reasonableness of the period, if any, to elapse prior to the making of demand.
The undersigned hereby consents and agrees that, without notice to or further
assent from the undersigned for the purposes of this Guaranty, the time of
payment of all or any of the Obligations, or any other provisions of the
Obligations, may be extended, changed or modified, the parties thereto
discharged, any or all Collateral released without obtaining other Collateral in
substitution therefor, and any composition or settlement consummated and
accepted, and that the undersigned will remain bound upon this guaranty
notwithstanding one or more such extensions, changes, modifications, discharges,
releases, compositions or settlements. The undersigned further consents and
agrees that this guaranty shall not be impaired or otherwise affected by any
failure to call for, take, hold, protect or perfect, continue the perfection of
or enforce any security interest in or other lien upon, any Collateral or by any
failure to exercise, delay in the exercise, exercise or waiver of, or
forbearance or other indulgence with respect to, any right or remedy available
to the Company. Any statement of account which is binding on the Client under
the Agreement shall be binding on the undersigned for all purposes under this
guaranty.
Subject to the terms of any security agreement executed by the undersigned in
favor of the Company pursuant to which the Collateral has been pledged to the
Company, the Company may also at any time in its discretion sell, assign,
transfer and deliver the whole of the Collateral, or any part thereof, or any
substitutes therefor, or any additions thereto, at public or private sale, at
any time or place selected by the Company, at such prices as it may deem best
and either for cash or for credit or future delivery, at the option of the
Company without either demand, advertisement or notice of any kind to the
undersigned, which are hereby expressly waived.
The undersigned assigns, pledges and grants a security interest to the Company
in any money or property belonging to the undersigned at any time in the
possession of the Company or in the possession of any parent, affiliate or
subsidiary of the Company (hereinafter called a "Related Company"), including
any deposit balances and all property
<PAGE>
held by the Company or a Related Company for any purpose including safekeeping,
custody, transmission, collection, or pledge, and all proceeds of the foregoing,
as security for the performance by the undersigned of the obligations under this
guaranty, whether due or not, with full power and authority to apply any such
money, property and proceeds to the extinguishment of any such obligations and
to sell, enforce, collect or otherwise realize on said money, property or
proceeds, all in accordance with applicable law and the terms of any and all
security agreements executed by the undersigned in favor of the Company.
The undersigned agrees that the Company is not to be obligated in any manner to
inquire into the powers of the Client, or its successors, its or their
directors, officers, or agents, acting or purporting to act on its or their
behalf, and any liabilities purporting to be contracted for the Client, or its
successors, by its or their directors, officers, or agents, in the professed
exercise of such powers, shall be deemed to form a part of the liabilities
guaranteed hereunder even though the incurrence of such liabilities be in excess
of the powers of the Client, its successors, or its or their directors,
officers, or agents aforesaid, or shall be in any way irregular, defective or
informal.
The liability of the undersigned on this guaranty shall be direct, immediate,
absolute, continuing, unconditional, unlimited and shall at all times be valid
and enforceable irrespective of any other agreements or circumstances of any
nature whatsoever which might otherwise constitute a defense hereto. Such
liability shall not be conditional or contingent upon the pursuit by the Company
of whatever remedies it may have against the Client or the Client's successors,
executors, administrators or assigns, or the security or liens it may possess,
and this guaranty shall be and shall be construed as being and intended to be, a
continuing guaranty of the payment of any and all Obligations either made,
endorsed or contracted by the Client, or any successor of the Client, prior to
the receipt by the Company of written notice of the revocation of this guaranty
by the undersigned, and of all extensions or renewals thereof in whole or in
part; and notwithstanding the death of, or the revocation of this guaranty by,
the undersigned guarantor, the liability of the guarantor so revoking and of the
estate of the guarantor who dies shall continue as to Obligations incurred or
contracted by the Client, or any successor of the Client, prior to such
revocation or death and as to all extensions and renewals thereof, in whole or
in part.
If any payment of the Obligations is made by or for the benefit of the Client
and is repaid by the Company to the Client or any other party pursuant to any
federal, state or other law, including those relating to bankruptcy, insolvency,
preference or fraudulent transfer, then to the extent of such repayment, the
liability of the undersigned with respect to such Obligation shall continue in
full force and effect. The undersigned agrees that if the Company gives to the
undersigned written notice of the institution of any action or proceeding, legal
or otherwise between the Company and the Client, the undersigned shall be
conclusively bound by the adjudication in any such legal or other proceeding, or
by any judgment or award or decree entered therein.
Until such time as the Obligations have been fully and indefeasibly paid, the
undersigned subordinates any claim or other right which the undersigned may now
have or hereafter acquire against the Client or any other person that is
primarily or contingently liable on any obligation that arises from the
existence or performance of the undersigned's obligations under this guaranty,
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution or indemnification.
The undersigned also waives the right to assert in any action or proceeding upon
this guaranty any defense, offsets or counterclaims which the undersigned may
have with respect thereto. This guaranty shall be governed by and construed and
interpreted in accordance with the laws of the State of New York and all actions
and proceedings arising out of or in connection therewith shall be litigated in
the federal or state courts of such State or, at the Company's option, in any
other courts as the Company may select and the undersigned agrees that such
courts are convenient forums and the undersigned submits to the personal
jurisdiction of such courts. This guaranty cannot be altered or discharged
orally. Notice of the acceptance of this guaranty is hereby waived.
The provisions of this guaranty are severable, and if any clause or provision
hereof shall be held invalid or
-2-
<PAGE>
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall attach only to such clause or provision in any such
jurisdiction or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision in this
guaranty in any jurisdiction.
THE UNDERSIGNED WAIVES THE RIGHT TO TRIAL BY JURY IN ALL ACTIONS BROUGHT BY OR
AGAINST THE COMPANY.
IN WITNESS WHEREOF, the undersigned has duly executed these presents this 30th
day of April, 1998.
TELECOMMUNICATIONS INDUSTRIES, INC.
By:/S/ PAUL SEBETIC
----------------------------
Title: VICE PRESIDENT-FINANCE
1385 Akron Street
Copiague, New York 11726
STATE OF
SS.
COUNTY OF
On this 30th day of April, 1998, before me personally appeared Paul Sebetic to
me known, who being by me duly sworn, did depose and say, that he is the Vice
President of Telecommunications Industries, Inc., the corporation described in
and which executed the foregoing instrument; and that he signed his name thereto
by order of the board of directors of said corporation.
/S/ BROOKE SPIEGEL
-------------------------
Notary Public
-3-
G U A R A N T Y
TO: BNY FINANCIAL CORPORATION
In consideration of your entering into or your refraining from terminating at
this time that certain Revolving Credit, Term Loan and Security Agreement dated
the date hereof ("TII Loan Agreement") among you, TII Industries, Inc.
("Industries") and TII Corporation ("Corporation"), that certain Revolving
Credit, Term Loan and Security Agreement dated the date hereof ("Ditel Loan
Agreement") between you and TII-Ditel, Inc. ("Ditel"), and that certain
Revolving Credit, Term Loan and Security Agreement dated the date hereof ("Crown
Loan Agreement"; together with the TII Loan Agreement and the Ditel Loan
Agreement, individually and collectively, the "Agreement") between you and Crown
Tool & Die Company, Inc. ("Crown"; together with Industries, Corporation and
Ditel, individually and collectively, the "Client") the undersigned hereby
guarantees to BNY Financial Corporation (hereinafter called the "Company"), its
successors and assigns, the prompt payment at maturity, or whenever they may
become due in accordance with any of their terms, of all now existing and
hereafter arising liabilities, indebtedness and obligations of the Client to the
Company (including "Obligations," as defined in the Agreement, if such term is
defined therein), whenever and however arising or acquired by the Company,
whether direct or indirect, absolute or contingent (collectively, the
"Obligations") and whether the same may now be or hereafter become due from the
Client or the executors, administrators, successors or assigns of the Client,
including the cost of protest and all legal expenses of or for collection, or
for realization upon any collateral for the Obligations ("Collateral") or other
guaranty. If this guaranty and/or any Obligation is placed with an attorney for
collection, the undersigned further agrees to pay an attorney's fee of fifteen
percent of any principal and interest due and demanded, which is hereby agreed
to be just and reasonable and which shall be recoverable with the amount due
under this guaranty.
Demand of payment, presentment, protest and notice of dishonor or non-payment
are hereby expressly waived, and if any of the Obligations are payable on
demand, the Company may, in its sole and absolute discretion, determine the
reasonableness of the period, if any, to elapse prior to the making of demand.
The undersigned hereby consents and agrees that, without notice to or further
assent from the undersigned for the purposes of this Guaranty, the time of
payment of all or any of the Obligations, or any other provisions of the
Obligations, may be extended, changed or modified, the parties thereto
discharged, any or all Collateral released without obtaining other Collateral in
substitution therefor, and any composition or settlement consummated and
accepted, and that the undersigned will remain bound upon this guaranty
notwithstanding one or more such extensions, changes, modifications, discharges,
releases, compositions or settlements. The undersigned further consents and
agrees that this guaranty shall not be impaired or otherwise affected by any
failure to call for, take, hold, protect or perfect, continue the perfection of
or enforce any security interest in or other lien upon, any Collateral or by any
failure to exercise, delay in the exercise, exercise or waiver of, or
forbearance or other indulgence with respect to, any right or remedy available
to the Company. Any statement of account which is binding on the Client under
the Agreement shall be binding on the undersigned for all purposes under this
guaranty.
Subject to the terms of any security agreement executed by the undersigned in
favor of the Company pursuant to which the Collateral has been pledged to the
Company, the Company may also at any time in its discretion sell, assign,
transfer and deliver the whole of the Collateral, or any part thereof, or any
substitutes therefor, or any additions thereto, at public or private sale, at
any time or place selected by the Company, at such prices as it may deem best
and either for cash or for credit or future delivery, at the option of the
Company without either demand, advertisement or notice of any kind to the
undersigned, which are hereby expressly waived.
The undersigned assigns, pledges and grants a security interest to the Company
in any money or property belonging to the undersigned at any time in the
possession of the Company or in the possession of any parent, affiliate or
subsidiary of the Company (hereinafter called a "Related Company"), including
any deposit balances and all property
<PAGE>
held by the Company or a Related Company for any purpose including safekeeping,
custody, transmission, collection, or pledge, and all proceeds of the foregoing,
as security for the performance by the undersigned of the obligations under this
guaranty, whether due or not, with full power and authority to apply any such
money, property and proceeds to the extinguishment of any such obligations and
to sell, enforce, collect or otherwise realize on said money, property or
proceeds, all in accordance with applicable law and the terms of any and all
security agreements executed by the undersigned in favor of the Company.
The undersigned agrees that the Company is not to be obligated in any manner to
inquire into the powers of the Client, or its successors, its or their
directors, officers, or agents, acting or purporting to act on its or their
behalf, and any liabilities purporting to be contracted for the Client, or its
successors, by its or their directors, officers, or agents, in the professed
exercise of such powers, shall be deemed to form a part of the liabilities
guaranteed hereunder even though the incurrence of such liabilities be in excess
of the powers of the Client, its successors, or its or their directors,
officers, or agents aforesaid, or shall be in any way irregular, defective or
informal.
The liability of the undersigned on this guaranty shall be direct, immediate,
absolute, continuing, unconditional, unlimited and shall at all times be valid
and enforceable irrespective of any other agreements or circumstances of any
nature whatsoever which might otherwise constitute a defense hereto. Such
liability shall not be conditional or contingent upon the pursuit by the Company
of whatever remedies it may have against the Client or the Client's successors,
executors, administrators or assigns, or the security or liens it may possess,
and this guaranty shall be and shall be construed as being and intended to be, a
continuing guaranty of the payment of any and all Obligations either made,
endorsed or contracted by the Client, or any successor of the Client, prior to
the receipt by the Company of written notice of the revocation of this guaranty
by the undersigned, and of all extensions or renewals thereof in whole or in
part; and notwithstanding the death of, or the revocation of this guaranty by,
the undersigned guarantor, the liability of the guarantor so revoking and of the
estate of the guarantor who dies shall continue as to Obligations incurred or
contracted by the Client, or any successor of the Client, prior to such
revocation or death and as to all extensions and renewals thereof, in whole or
in part.
If any payment of the Obligations is made by or for the benefit of the Client
and is repaid by the Company to the Client or any other party pursuant to any
federal, state or other law, including those relating to bankruptcy, insolvency,
preference or fraudulent transfer, then to the extent of such repayment, the
liability of the undersigned with respect to such Obligation shall continue in
full force and effect. The undersigned agrees that if the Company gives to the
undersigned written notice of the institution of any action or proceeding, legal
or otherwise between the Company and the Client, the undersigned shall be
conclusively bound by the adjudication in any such legal or other proceeding, or
by any judgment or award or decree entered therein.
Until such time as the Obligations have been fully and indefeasibly paid, the
undersigned subordinates any claim or other right which the undersigned may now
have or hereafter acquire against the Client or any other person that is
primarily or contingently liable on any obligation that arises from the
existence or performance of the undersigned's obligations under this guaranty,
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution or indemnification.
The undersigned also waives the right to assert in any action or proceeding upon
this guaranty any defense, offsets or counterclaims which the undersigned may
have with respect thereto. This guaranty shall be governed by and construed and
interpreted in accordance with the laws of the State of New York and all actions
and proceedings arising out of or in connection therewith shall be litigated in
the federal or state courts of such State or, at the Company's option, in any
other courts as the Company may select and the undersigned agrees that such
courts are convenient forums and the undersigned submits to the personal
jurisdiction of such courts. This guaranty cannot be altered or discharged
orally. Notice of the acceptance of this guaranty is hereby waived.
The provisions of this guaranty are severable, and if any clause or provision
hereof shall be held invalid or
-2-
<PAGE>
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall attach only to such clause or provision in any such
jurisdiction or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision in this
guaranty in any jurisdiction.
THE UNDERSIGNED WAIVES THE RIGHT TO TRIAL BY JURY IN ALL ACTIONS BROUGHT BY OR
AGAINST THE COMPANY.
IN WITNESS WHEREOF, the undersigned has duly executed these presents this 30th
day of April, 1998.
TII DOMINICANA, INC.
By: /S/ PAUL SEBETIC
-----------------------------
Title: VICE PRESIDENT-FINANCE
Calle Lateral No. 2
Solar No. 6, Seccion 3B
Zona Franca Industrial
San Pedro de Macoris, Dominican Republic
STATE OF
SS.
COUNTY OF
On this 30th day of April, 1998, before me personally appeared Paul Sebetic to
me known, who being by me duly sworn, did depose and say, that he is the Vice
President of TII Dominicana, Inc., the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by order
of the board of directors of said corporation.
G U A R A N T Y
TO: BNY FINANCIAL CORPORATION
In consideration of your entering into or your refraining from terminating at
this time that certain Revolving Credit, Term Loan and Security Agreement dated
the date hereof ("TII Loan Agreement") among you, TII Industries, Inc.
("Industries") and TII Corporation ("Corporation"), that certain Revolving
Credit, Term Loan and Security Agreement dated the date hereof ("Ditel Loan
Agreement") between you and TII-Ditel, Inc. ("Ditel"), and that certain
Revolving Credit, Term Loan and Security Agreement dated the date hereof ("Crown
Loan Agreement"; together with the TII Loan Agreement and the Ditel Loan
Agreement, individually and collectively, the "Agreement") between you and Crown
Tool & Die Company, Inc. ("Crown"; together with Industries, Corporation and
Ditel, individually and collectively, the "Client") the undersigned hereby
guarantees to BNY Financial Corporation (hereinafter called the "Company"), its
successors and assigns, the prompt payment at maturity, or whenever they may
become due in accordance with any of their terms, of all now existing and
hereafter arising liabilities, indebtedness and obligations of the Client to the
Company (including "Obligations," as defined in the Agreement, if such term is
defined therein), whenever and however arising or acquired by the Company,
whether direct or indirect, absolute or contingent (collectively, the
"Obligations") and whether the same may now be or hereafter become due from the
Client or the executors, administrators, successors or assigns of the Client,
including the cost of protest and all legal expenses of or for collection, or
for realization upon any collateral for the Obligations ("Collateral") or other
guaranty. If this guaranty and/or any Obligation is placed with an attorney for
collection, the undersigned further agrees to pay an attorney's fee of fifteen
percent of any principal and interest due and demanded, which is hereby agreed
to be just and reasonable and which shall be recoverable with the amount due
under this guaranty.
Demand of payment, presentment, protest and notice of dishonor or non-payment
are hereby expressly waived, and if any of the Obligations are payable on
demand, the Company may, in its sole and absolute discretion, determine the
reasonableness of the period, if any, to elapse prior to the making of demand.
The undersigned hereby consents and agrees that, without notice to or further
assent from the undersigned for the purposes of this Guaranty, the time of
payment of all or any of the Obligations, or any other provisions of the
Obligations, may be extended, changed or modified, the parties thereto
discharged, any or all Collateral released without obtaining other Collateral in
substitution therefor, and any composition or settlement consummated and
accepted, and that the undersigned will remain bound upon this guaranty
notwithstanding one or more such extensions, changes, modifications, discharges,
releases, compositions or settlements. The undersigned further consents and
agrees that this guaranty shall not be impaired or otherwise affected by any
failure to call for, take, hold, protect or perfect, continue the perfection of
or enforce any security interest in or other lien upon, any Collateral or by any
failure to exercise, delay in the exercise, exercise or waiver of, or
forbearance or other indulgence with respect to, any right or remedy available
to the Company. Any statement of account which is binding on the Client under
the Agreement shall be binding on the undersigned for all purposes under this
guaranty.
Subject to the terms of any security agreement executed by the undersigned in
favor of the Company pursuant to which the Collateral has been pledged to the
Company, the Company may also at any time in its discretion sell, assign,
transfer and deliver the whole of the Collateral, or any part thereof, or any
substitutes therefor, or any additions thereto, at public or private sale, at
any time or place selected by the Company, at such prices as it may deem best
and either for cash or for credit or future delivery, at the option of the
Company without either demand, advertisement or notice of any kind to the
undersigned, which are hereby expressly waived.
The undersigned assigns, pledges and grants a security interest to the Company
in any money or property belonging to the undersigned at any time in the
possession of the Company or in the possession of any parent, affiliate or
subsidiary of the Company (hereinafter called a "Related Company"), including
any deposit balances and all property
<PAGE>
held by the Company or a Related Company for any purpose including safekeeping,
custody, transmission, collection, or pledge, and all proceeds of the foregoing,
as security for the performance by the undersigned of the obligations under this
guaranty, whether due or not, with full power and authority to apply any such
money, property and proceeds to the extinguishment of any such obligations and
to sell, enforce, collect or otherwise realize on said money, property or
proceeds, all in accordance with applicable law and the terms of any and all
security agreements executed by the undersigned in favor of the Company.
The undersigned agrees that the Company is not to be obligated in any manner to
inquire into the powers of the Client, or its successors, its or their
directors, officers, or agents, acting or purporting to act on its or their
behalf, and any liabilities purporting to be contracted for the Client, or its
successors, by its or their directors, officers, or agents, in the professed
exercise of such powers, shall be deemed to form a part of the liabilities
guaranteed hereunder even though the incurrence of such liabilities be in excess
of the powers of the Client, its successors, or its or their directors,
officers, or agents aforesaid, or shall be in any way irregular, defective or
informal.
The liability of the undersigned on this guaranty shall be direct, immediate,
absolute, continuing, unconditional, unlimited and shall at all times be valid
and enforceable irrespective of any other agreements or circumstances of any
nature whatsoever which might otherwise constitute a defense hereto. Such
liability shall not be conditional or contingent upon the pursuit by the Company
of whatever remedies it may have against the Client or the Client's successors,
executors, administrators or assigns, or the security or liens it may possess,
and this guaranty shall be and shall be construed as being and intended to be, a
continuing guaranty of the payment of any and all Obligations either made,
endorsed or contracted by the Client, or any successor of the Client, prior to
the receipt by the Company of written notice of the revocation of this guaranty
by the undersigned, and of all extensions or renewals thereof in whole or in
part; and notwithstanding the death of, or the revocation of this guaranty by,
the undersigned guarantor, the liability of the guarantor so revoking and of the
estate of the guarantor who dies shall continue as to Obligations incurred or
contracted by the Client, or any successor of the Client, prior to such
revocation or death and as to all extensions and renewals thereof, in whole or
in part.
If any payment of the Obligations is made by or for the benefit of the Client
and is repaid by the Company to the Client or any other party pursuant to any
federal, state or other law, including those relating to bankruptcy, insolvency,
preference or fraudulent transfer, then to the extent of such repayment, the
liability of the undersigned with respect to such Obligation shall continue in
full force and effect. The undersigned agrees that if the Company gives to the
undersigned written notice of the institution of any action or proceeding, legal
or otherwise between the Company and the Client, the undersigned shall be
conclusively bound by the adjudication in any such legal or other proceeding, or
by any judgment or award or decree entered therein.
Until such time as the Obligations have been fully and indefeasibly paid, the
undersigned subordinates any claim or other right which the undersigned may now
have or hereafter acquire against the Client or any other person that is
primarily or contingently liable on any obligation that arises from the
existence or performance of the undersigned's obligations under this guaranty,
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution or indemnification.
The undersigned also waives the right to assert in any action or proceeding upon
this guaranty any defense, offsets or counterclaims which the undersigned may
have with respect thereto. This guaranty shall be governed by and construed and
interpreted in accordance with the laws of the State of New York and all actions
and proceedings arising out of or in connection therewith shall be litigated in
the federal or state courts of such State or, at the Company's option, in any
other courts as the Company may select and the undersigned agrees that such
courts are convenient forums and the undersigned submits to the personal
jurisdiction of such courts. This guaranty cannot be altered or discharged
orally. Notice of the acceptance of this guaranty is hereby waived.
The provisions of this guaranty are severable, and if any clause or provision
hereof shall be held invalid or
-2-
<PAGE>
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall attach only to such clause or provision in any such
jurisdiction or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision in this
guaranty in any jurisdiction.
THE UNDERSIGNED WAIVES THE RIGHT TO TRIAL BY JURY IN ALL ACTIONS BROUGHT BY OR
AGAINST THE COMPANY.
IN WITNESS WHEREOF, the undersigned has duly executed these presents this 30th
day of April, 1998.
TELECOMMUNICATIONS INDUSTRIES, INC.
By:/S/ PAUL SEBETIC
----------------------------
Title: VICE PRESIDENT-FINANCE
1385 Akron Street
Copiague, New York 11726
STATE OF
SS.
COUNTY OF
On this 30th day of April, 1998, before me personally appeared Paul Sebetic to
me known, who being by me duly sworn, did depose and say, that he is the Vice
President of Telecommunications Industries, Inc., the corporation described in
and which executed the foregoing instrument; and that he signed his name thereto
by order of the board of directors of said corporation.
/S/ BROOKE SPIEGEL
-------------------------
Notary Public
-3-
G U A R A N T Y
TO: BNY FINANCIAL CORPORATION
In consideration of your entering into or your refraining from terminating at
this time that certain Revolving Credit, Term Loan and Security Agreement dated
the date hereof ("Ditel Loan Agreement") between you and TII-Ditel, Inc.
("Ditel") and that certain Revolving Credit, Term Loan and Security Agreement
dated the date hereof (the "Crown Loan Agreement"; together with the Ditel Loan
Agreement, individually and collectively, the "Agreement") executed between you
and Crown Tool & Die Company, Inc. ("Crown"; together with Ditel, individually
and collectively, the "Client") the undersigned hereby guarantees to BNY
Financial Corporation (hereinafter called the "Company"), its successors and
assigns, the prompt payment at maturity, or whenever they may become due in
accordance with any of their terms, of all now existing and hereafter arising
liabilities, indebtedness and obligations of the Client to the Company
(including "Obligations," as defined in the Agreement, if such term is defined
therein), whenever and however arising or acquired by the Company, whether
direct or indirect, absolute or contingent (collectively, the "Obligations") and
whether the same may now be or hereafter become due from the Client or the
executors, administrators, successors or assigns of the Client, including the
cost of protest and all legal expenses of or for collection, or for realization
upon any collateral for the Obligations ("Collateral") or other guaranty. If
this guaranty and/or any Obligation is placed with an attorney for collection,
the undersigned further agrees to pay an attorney's fee of fifteen percent of
any principal and interest due and demanded, which is hereby agreed to be just
and reasonable and which shall be recoverable with the amount due under this
guaranty.
Demand of payment, presentment, protest and notice of dishonor or non-payment
are hereby expressly waived, and if any of the Obligations are payable on
demand, the Company may, in its sole and absolute discretion, determine the
reasonableness of the period, if any, to elapse prior to the making of demand.
The undersigned hereby consents and agrees that, without notice to or further
assent from the undersigned for the purposes of this Guaranty, the time of
payment of all or any of the Obligations, or any other provisions of the
Obligations, may be extended, changed or modified, the parties thereto
discharged, any or all Collateral released without obtaining other Collateral in
substitution therefor, and any composition or settlement consummated and
accepted, and that the undersigned will remain bound upon this guaranty
notwithstanding one or more such extensions, changes, modifications, discharges,
releases, compositions or settlements. The undersigned further consents and
agrees that this guaranty shall not be impaired or otherwise affected by any
failure to call for, take, hold, protect or perfect, continue the perfection of
or enforce any security interest in or other lien upon, any Collateral or by any
failure to exercise, delay in the exercise, exercise or waiver of, or
forbearance or other indulgence with respect to, any right or remedy available
to the Company. Any statement of account which is binding on the Client under
the Agreement shall be binding on the undersigned for all purposes under this
guaranty.
Subject to the terms of any security agreement executed by the undersigned in
favor of the Company pursuant to which the Collateral has been pledged to the
Company, the Company may also at any time in its discretion sell, assign,
transfer and deliver the whole of the Collateral, or any part thereof, or any
substitutes therefor, or any additions thereto, at public or private sale, at
any time or place selected by the Company, at such prices as it may deem best
and either for cash or for credit or future delivery, at the option of the
Company without either demand, advertisement or notice of any kind to the
undersigned, which are hereby expressly waived.
The undersigned assigns, pledges and grants a security interest to the Company
in any money or property belonging to the undersigned at any time in the
possession of the Company or in the possession of any parent, affiliate or
subsidiary of the Company (hereinafter called a "Related Company"), including
any deposit balances and all property held by the Company or a Related Company
for any purpose including safekeeping, custody, transmission, collection,
<PAGE>
or pledge, and all proceeds of the foregoing, as security for the performance by
the undersigned of the obligations under this guaranty, whether due or not, with
full power and authority to apply any such money, property and proceeds to the
extinguishment of any such obligations and to sell, enforce, collect or
otherwise realize on said money, property or proceeds, all in accordance with
applicable law and the terms of any and all security agreements executed by the
undersigned in favor of the Company.
The undersigned agrees that the Company is not to be obligated in any manner to
inquire into the powers of the Client, or its successors, its or their
directors, officers, or agents, acting or purporting to act on its or their
behalf, and any liabilities purporting to be contracted for the Client, or its
successors, by its or their directors, officers, or agents, in the professed
exercise of such powers, shall be deemed to form a part of the liabilities
guaranteed hereunder even though the incurrence of such liabilities be in excess
of the powers of the Client, its successors, or its or their directors,
officers, or agents aforesaid, or shall be in any way irregular, defective or
informal.
The liability of the undersigned on this guaranty shall be direct, immediate,
absolute, continuing, unconditional, unlimited and shall at all times be valid
and enforceable irrespective of any other agreements or circumstances of any
nature whatsoever which might otherwise constitute a defense hereto. Such
liability shall not be conditional or contingent upon the pursuit by the Company
of whatever remedies it may have against the Client or the Client's successors,
executors, administrators or assigns, or the security or liens it may possess,
and this guaranty shall be and shall be construed as being and intended to be, a
continuing guaranty of the payment of any and all Obligations either made,
endorsed or contracted by the Client, or any successor of the Client, prior to
the receipt by the Company of written notice of the revocation of this guaranty
by the undersigned, and of all extensions or renewals thereof in whole or in
part; and notwithstanding the death of, or the revocation of this guaranty by,
the undersigned guarantor, the liability of the guarantor so revoking and of the
estate of the guarantor who dies shall continue as to Obligations incurred or
contracted by the Client, or any successor of the Client, prior to such
revocation or death and as to all extensions and renewals thereof, in whole or
in part.
If any payment of the Obligations is made by or for the benefit of the Client
and is repaid by the Company to the Client or any other party pursuant to any
federal, state or other law, including those relating to bankruptcy, insolvency,
preference or fraudulent transfer, then to the extent of such repayment, the
liability of the undersigned with respect to such Obligation shall continue in
full force and effect. The undersigned agrees that if the Company gives to the
undersigned written notice of the institution of any action or proceeding, legal
or otherwise between the Company and the Client, the undersigned shall be
conclusively bound by the adjudication in any such legal or other proceeding, or
by any judgment or award or decree entered therein.
Until such time as the Obligations have been fully and indefeasibly paid, the
undersigned subordinates any claim or other right which the undersigned may now
have or hereafter acquire against the Client or any other person that is
primarily or contingently liable on any obligation that arises from the
existence or performance of the undersigned's obligations under this guaranty,
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution or indemnification.
The undersigned also waives the right to assert in any action or proceeding upon
this guaranty any defense, offsets or counterclaims which the undersigned may
have with respect thereto. This guaranty shall be governed by and construed and
interpreted in accordance with the laws of the State of New York and all actions
and proceedings arising out of or in connection therewith shall be litigated in
the federal or state courts of such State or, at the Company's option, in any
other courts as the Company may select and the undersigned agrees that such
courts are convenient forums and the undersigned submits to the personal
jurisdiction of such courts. This guaranty cannot be altered or discharged
orally. Notice of the acceptance of this guaranty is hereby waived.
The provisions of this guaranty are severable, and if any clause or provision
hereof shall be held invalid or unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall attach only to such
-2-
<PAGE>
clause or provision in any such jurisdiction or part thereof, and shall not in
any manner affect such clause or provision in any other jurisdiction or any
other clause or provision in this guaranty in any jurisdiction.
THE UNDERSIGNED WAIVES THE RIGHT TO TRIAL BY JURY IN ALL ACTIONS BROUGHT BY OR
AGAINST THE COMPANY.
IN WITNESS WHEREOF, the undersigned has duly executed these presents this 30th
day of April, 1998.
TII CORPORATION
By: /S/ PAUL SEBETIC
-----------------------------
Title: Vice President-Finance
1385 Akron Street
Copiague, New York 11726
STATE OF
SS.
COUNTY OF
On this 30th day of April, 1998, before me personally appeared Paul Sebetic to
me known, who being by me duly sworn, did depose and say, that he is the Vice
President of TII Corporation, the corporation described in and which executed
the foregoing instrument; and that he signed his name thereto by order of the
board of directors of said corporation.
/S/ BROOKE SPIEGEL
-------------------------
Notary Public
-3-
G U A R A N T Y
TO: BNY FINANCIAL CORPORATION
In consideration of your entering into or your refraining from terminating at
this time that certain Revolving Credit, Term Loan and Security Agreement dated
the date hereof ("TII Loan Agreement") among you, TII Industries, Inc.
("Industries") and TII Corporation ("Corporation") and that certain Revolving
Credit, Term Loan and Security Agreement dated the date hereof ("Crown Loan
Agreement"; together with the TII Loan Agreement, individually and collectively,
the "Agreement") between you and Crown Tool & Die Company, Inc. ("Crown";
together with Industries and Corporation, individually and collectively, the
"Client") the undersigned hereby guarantees to BNY Financial Corporation
(hereinafter called the "Company"), its successors and assigns, the prompt
payment at maturity, or whenever they may become due in accordance with any of
their terms, of all now existing and hereafter arising liabilities, indebtedness
and obligations of the Client to the Company (including "Obligations," as
defined in the Agreement, if such term is defined therein), whenever and however
arising or acquired by the Company, whether direct or indirect, absolute or
contingent (collectively, the "Obligations") and whether the same may now be or
hereafter become due from the Client or the executors, administrators,
successors or assigns of the Client, including the cost of protest and all legal
expenses of or for collection, or for realization upon any collateral for the
Obligations ("Collateral") or other guaranty. If this guaranty and/or any
Obligation is placed with an attorney for collection, the undersigned further
agrees to pay an attorney's fee of fifteen percent of any principal and interest
due and demanded, which is hereby agreed to be just and reasonable and which
shall be recoverable with the amount due under this guaranty.
Demand of payment, presentment, protest and notice of dishonor or non-payment
are hereby expressly waived, and if any of the Obligations are payable on
demand, the Company may, in its sole and absolute discretion, determine the
reasonableness of the period, if any, to elapse prior to the making of demand.
The undersigned hereby consents and agrees that, without notice to or further
assent from the undersigned for the purposes of this Guaranty, the time of
payment of all or any of the Obligations, or any other provisions of the
Obligations, may be extended, changed or modified, the parties thereto
discharged, any or all Collateral released without obtaining other Collateral in
substitution therefor, and any composition or settlement consummated and
accepted, and that the undersigned will remain bound upon this guaranty
notwithstanding one or more such extensions, changes, modifications, discharges,
releases, compositions or settlements. The undersigned further consents and
agrees that this guaranty shall not be impaired or otherwise affected by any
failure to call for, take, hold, protect or perfect, continue the perfection of
or enforce any security interest in or other lien upon, any Collateral or by any
failure to exercise, delay in the exercise, exercise or waiver of, or
forbearance or other indulgence with respect to, any right or remedy available
to the Company. Any statement of account which is binding on the Client under
the Agreement shall be binding on the undersigned for all purposes under this
guaranty.
Subject to the terms of any security agreement executed by the undersigned in
favor of the Company pursuant to which the Collateral has been pledged to the
Company, the Company may also at any time in its discretion sell, assign,
transfer and deliver the whole of the Collateral, or any part thereof, or any
substitutes therefor, or any additions thereto, at public or private sale, at
any time or place selected by the Company, at such prices as it may deem best
and either for cash or for credit or future delivery, at the option of the
Company without either demand, advertisement or notice of any kind to the
undersigned, which are hereby expressly waived.
The undersigned assigns, pledges and grants a security interest to the Company
in any money or property belonging to the undersigned at any time in the
possession of the Company or in the possession of any parent, affiliate or
subsidiary of the Company (hereinafter called a "Related Company"), including
any deposit balances and all property held by the Company or a Related Company
for any purpose including safekeeping, custody, transmission, collection,
<PAGE>
or pledge, and all proceeds of the foregoing, as security for the performance by
the undersigned of the obligations under this guaranty, whether due or not, with
full power and authority to apply any such money, property and proceeds to the
extinguishment of any such obligations and to sell, enforce, collect or
otherwise realize on said money, property or proceeds, all in accordance with
applicable law and the terms of any and all security agreements executed by the
undersigned in favor of the Company.
The undersigned agrees that the Company is not to be obligated in any manner to
inquire into the powers of the Client, or its successors, its or their
directors, officers, or agents, acting or purporting to act on its or their
behalf, and any liabilities purporting to be contracted for the Client, or its
successors, by its or their directors, officers, or agents, in the professed
exercise of such powers, shall be deemed to form a part of the liabilities
guaranteed hereunder even though the incurrence of such liabilities be in excess
of the powers of the Client, its successors, or its or their directors,
officers, or agents aforesaid, or shall be in any way irregular, defective or
informal.
The liability of the undersigned on this guaranty shall be direct, immediate,
absolute, continuing, unconditional, unlimited and shall at all times be valid
and enforceable irrespective of any other agreements or circumstances of any
nature whatsoever which might otherwise constitute a defense hereto. Such
liability shall not be conditional or contingent upon the pursuit by the Company
of whatever remedies it may have against the Client or the Client's successors,
executors, administrators or assigns, or the security or liens it may possess,
and this guaranty shall be and shall be construed as being and intended to be, a
continuing guaranty of the payment of any and all Obligations either made,
endorsed or contracted by the Client, or any successor of the Client, prior to
the receipt by the Company of written notice of the revocation of this guaranty
by the undersigned, and of all extensions or renewals thereof in whole or in
part; and notwithstanding the death of, or the revocation of this guaranty by,
the undersigned guarantor, the liability of the guarantor so revoking and of the
estate of the guarantor who dies shall continue as to Obligations incurred or
contracted by the Client, or any successor of the Client, prior to such
revocation or death and as to all extensions and renewals thereof, in whole or
in part.
If any payment of the Obligations is made by or for the benefit of the Client
and is repaid by the Company to the Client or any other party pursuant to any
federal, state or other law, including those relating to bankruptcy, insolvency,
preference or fraudulent transfer, then to the extent of such repayment, the
liability of the undersigned with respect to such Obligation shall continue in
full force and effect. The undersigned agrees that if the Company gives to the
undersigned written notice of the institution of any action or proceeding, legal
or otherwise between the Company and the Client, the undersigned shall be
conclusively bound by the adjudication in any such legal or other proceeding, or
by any judgment or award or decree entered therein.
Until such time as the Obligations have been fully and indefeasibly paid, the
undersigned subordinates any claim or other right which the undersigned may now
have or hereafter acquire against the Client or any other person that is
primarily or contingently liable on any obligation that arises from the
existence or performance of the undersigned's obligations under this guaranty,
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution or indemnification.
The undersigned also waives the right to assert in any action or proceeding upon
this guaranty any defense, offsets or counterclaims which the undersigned may
have with respect thereto. This guaranty shall be governed by and construed and
interpreted in accordance with the laws of the State of New York and all actions
and proceedings arising out of or in connection therewith shall be litigated in
the federal or state courts of such State or, at the Company's option, in any
other courts as the Company may select and the undersigned agrees that such
courts are convenient forums and the undersigned submits to the personal
jurisdiction of such courts. This guaranty cannot be altered or discharged
orally. Notice of the acceptance of this guaranty is hereby waived.
The provisions of this guaranty are severable, and if any clause or provision
hereof shall be held invalid or unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall attach only to such
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<PAGE>
clause or provision in any such jurisdiction or part thereof, and shall not in
any manner affect such clause or provision in any other jurisdiction or any
other clause or provision in this guaranty in any jurisdiction.
THE UNDERSIGNED WAIVES THE RIGHT TO TRIAL BY JURY IN ALL ACTIONS BROUGHT BY OR
AGAINST THE COMPANY.
IN WITNESS WHEREOF, the undersigned has duly executed these presents this 30th
day of April, 1998.
TII-DITEL, INC.
By: /S/ PAUL SEBETIC
-----------------------------
Title: VICE PRESIDENT-FINANCE
441 19th Street, S.E.
Hickory, North Carolina 28602
STATE OF
SS.
COUNTY OF
On this 30th day of April, 1998, before me personally appeared Paul Sebetic to
me known, who being by me duly sworn, did depose and say, that he is the Vice
President of TII-Ditel, Inc., the corporation described in and which executed
the foregoing instrument; and that he signed his name thereto by order of the
board of directors of said corporation.
/S/ BROOKE SPIEGEL
-------------------------
Notary Public
-3-
BNY FINANCIAL CORPORATION
GENERAL SECURITY AGREEMENT
In consideration of loans, credit or other financial accommodation
extended or continued from time to time to, or on the guaranty, endorsement or
other assurance of, the undersigned ("OBLIGOR") by BNY Financial Corporation
("BNY"), Obligor hereby agrees as follows:
1. SECURITY INTEREST.
(a) To secure the payment and performance of all of the
Obligations, Obligor hereby grants to BNY a continuing security interest in, and
assigns and pledges to BNY, the Collateral.
(b) (i) "COLLATERAL" shall mean and include:
(A) all Receivables;
(B) all Equipment;
(C) all General Intangibles;
(D) all Inventory;
(E) all Real Property;
(F) all Instrument Collateral;
(G) all Leasehold Interests;
(H) all of the Obligor's right, title and interest in
and to (1) investment property, contract rights, instruments, documents and
chattel paper; (2) its goods and other property including, but not limited to
all merchandise returned or rejected by customers, relating to or securing any
of the Receivables; (3) all of the Obligor's rights as a consignor, a consignee,
an unpaid vendor, mechanic, artisan, or other lienor, including stoppage in
transit, set off, detinue, replevin, reclamation and repurchase; (4) all
additional amounts due to the Obligor from any customer relating to the
Receivables; (5) other property, including warranty claims relating to any goods
securing this Agreement; (6) if and when obtained by the Obligor, all real and
personal property of third parties in which the Obligor has been granted a lien
or security interest as security for the payment or enforcement of Receivables;
and (7) any other goods, personal property or real property now owned or
hereafter acquired in which the Obligor has expressly granted a security
interest or may in the future grant a security interest to the BNY hereunder, or
in any amendment or supplement hereto, or under any other agreement between the
BNY and the Obligor;
(I) all of the Obligor's ledger sheets, ledger cards,
files, correspondence, records, books of account, business papers, computers,
computer software
<PAGE>
(owned by the Obligor or in which it has an interest), computer programs, tapes,
disks and documents relating to clauses (A), (B), (C), (D), (E), (F), (G), or
(H) above; and
(J) all proceeds and products of clauses (A), (B),
(C), (D), (E), (F), (G) and (H) above in whatever form, including, but not
limited to: cash, deposit accounts (whether or not comprised solely of
proceeds), certificates of deposit, insurance proceeds (including hazard, flood
and credit insurance), negotiable instruments and other instruments for the
payment of money, chattel paper, security agreements or documents.
(ii) "OBLIGATIONS" shall mean and include all indebtedness,
liabilities, obligations, covenants and duties of Obligor to BNY or any
Affiliate of BNY (including those which BNY or such Affiliate may have acquired
from others) of every kind, nature and description, direct or indirect, absolute
or contingent, due or not due, contractual or tortious, liquidated or
unliquidated, arising by operation of law or otherwise, now existing of
hereafter arising, and whether or not evidenced by any note or other instrument
or agreement and whether or not for the payment of money, including, but not
limited to, indebtedness, obligations and liabilities to BNY or such Affiliate
of Obligor as a member of any partnership, syndicate, association or other
group, or as a guarantor of the Obligations of any other entity to BNY or such
affiliate.
(iii) Affiliate, Equipment, General Intangibles, Instrument
Collateral, Inventory, Leasehold Interest, Real Property, Receivables, and
certain other terms used herein are defined in Section 13 hereof.
2. RANK AND PERFECTION OF SECURITY INTEREST.
(a) Obligor will not grant or permit to exist, nor shall
there exist, any security interest in, lien, attachment, levy or encumbrance
upon, or assignment or pledge as security of, any of the Collateral, except the
security interest of and assignment and pledge to BNY hereunder and Permitted
Liens.
(b) (i) Obligor will take all action requested by BNY, or
which may be necessary or desirable, to perfect, continue, evidence, preserve,
protect or validate the security interest of and assignment and pledge to BNY
hereunder or to enable BNY to exercise and enforce its rights hereunder,
including, but not limited to, (A) executing and delivering one or more notices,
statements, agreements or other writings, and (B) delivering to BNY, and
stamping or otherwise marking, in such manner as BNY may specify, any and all
chattel paper, instruments, letters and advices of credit and documents
constituting part of the Collateral, in each case endorsed or accompanied by
such instruments of assignment as BNY may specify.
(ii) Obligor hereby authorizes BNY, at its option but
without any obligation so to do, to file financing and continuation statements
and amendments to financing statements, naming Obligor as debtor, with respect
to any of the Collateral without the signature of Obligor, and agrees that a
carbon, photographic or other reproduction of this Agreement or of a financing
statement is sufficient as a financing statement.
3. COVENANTS RELATING TO COLLATERAL. Obligor covenants that:
2
<PAGE>
(a) It shall at all times: (i) be the sole owner of each and
every item of Collateral, (ii) defend the Collateral against the claims and
demands of all persons and (iii) in the case of tangible property constituting
part of the Collateral, (A) properly maintain and keep in good order and repair
such property and (B) keep such property fully insured with responsible
companies acceptable to BNY against such risks as such Collateral may be subject
to, or as BNY may request, under policies containing loss payable clauses naming
BNY as loss payee as its interests may appear and otherwise in form and
substance satisfactory to BNY, and providing that: (1) all proceeds thereof
shall be payable to BNY, (2) such insurance shall not be affected by any act or
neglect of Obligor or other owner of the property described in such policy; and
(3) such policy and loss payable clause may not be cancelled or amended except
upon thirty days' prior written notice to BNY;
(b) It will comply in all material respects with the
requirements of all leases, mortgages and other instruments relating to premises
where any Collateral is located;
(c) It will not sell or otherwise dispose of any of the
Collateral, except that, if the same constitute Collateral, (i) accounts may be
collected in the ordinary course of business, and (ii) inventory may be sold in
the ordinary course of business, and (iii) worn out or obsolete equipment may be
sold by Obligor and (iv) as otherwise agreed to by BNY;
(d) It will give BNY prompt notice of (i) any change in (A)
its name, identity or corporate structure, (B) the location of its chief
executive office or any other place of business, or (C) the location of any of
the Collateral or its books and records concerning any accounts, (ii) the
location of each new place of business opened by Obligor, (iii) each new
location of any Collateral, and (iv) any substantial loss or depreciation in the
value of any of the Collateral, and will provide BNY with such other information
as to the Collateral as BNY may request.
(e) It will (i) whether or not BNY shall have exercised its
rights under Section 4(b)(iii) hereof, receive and hold all Distributions (other
than Ordinary Distributions BNY has released pursuant to the provisions of
Section 4(c) hereof) and other Instrument Collateral in trust for BNY, and not
commingle the same with any of its other funds or property and immediately
deliver the same to BNY in the identical form received and (ii) give BNY copies
of all notices and other communications received by Obligor with respect to any
instruments registered in the name of Obligor constituting part of the
Collateral.
4. PRE-EVENT OF DEFAULT RIGHTS.
(a) At any time and from time to time: (i) BNY may and is
hereby authorized to transfer into or register in the name of itself or its
nominee any instruments or documents constituting a part of the Collateral
without notice to Obligor; (ii) with respect to instruments, if any,
constituting part of the Collateral that are registered in the name of BNY, BNY
may receive and retain all Distributions, other than Ordinary Distributions that
BNY has released pursuant to Section 4(c); and (iii) Obligor will: (A) permit
representatives of BNY during normal business hours to inspect its premises and
books and records pertaining to the Collateral and make extracts from such books
and records; and (B) upon request, enter into warehousing, lockbox or other
custodial arrangements satisfactory to BNY. The costs of such inspections shall
be subject to the provisions of Section 4.10 of the Affiliate Loan Agreements.
3
<PAGE>
(b) BNY may (i) at any time after the occurrence of an Event
of Default and during its continuance: with respect to instruments, if any,
constituting part of the Collateral, BNY may, by notice to Obligor, terminate
Obligor's rights under Section 4(c) hereof (in which case BNY's release pursuant
to such Section of any and all Ordinary Distributions shall thereupon be
automatically revoked) and, in its own or Obligor's name, exercise any and all
powers with respect to such instruments with the same force and effect as could
Obligor; (ii) BNY may, without notice to Obligor: (A) after the occurrence of an
Event of Default and during its continuance, if the Collateral consists in whole
or in part of accounts of or other claims or rights of Obligor (including
accounts, claims and rights which are Collateral by reason of their constituting
proceeds), notify the account debtors with respect to such accounts, and all
other persons against whom Obligor has such claims or rights, of BNY's rights
hereunder, collect all amounts payable with respect to such accounts, claims and
rights directly and apply such collections to the repayment of the Obligations
in such order as it may elect; (B) after the occurrence of an Event of Default
and during its continuance, in its own or Obligor's name, demand, sue for,
collect or receive any money or property payable or receivable on account of or
in exchange for, make any compromise or settlement with respect to, or modify
any of the terms of any of, the Collateral as BNY may in its sole discretion
elect; (C) after the occurrence of an Event of Default and during its
continuance, if the Collateral includes any of Obligor's accounts, receive and
open mail addressed to Obligor and change the address for delivery of Obligor's
mail to an address designated by BNY and notify the postal authorities of any
such change; (D) at any time, in the name and on behalf of Obligor, endorse
instruments and other evidences of payment collected or received by BNY on
account of the Collateral; and (E) after the occurrence of an Event of Default
and during its continuance, appropriate and hold, or apply (directly or by way
of set-off) to the payment of the Obligations (whether or not then due), all
money of Obligor then or thereafter in possession of BNY, all amounts
representing Distributions then or thereafter in the possession of BNY, the
balance of every deposit account (demand or time, matured or unmatured) of
Obligor then or thereafter with BNY and every other claim of Obligor then or
thereafter against BNY; and (iii) Obligor will, upon request of BNY: (A) receive
and hold all proceeds of Collateral in trust for BNY and not commingle any
collections with any of its other funds; and (B) immediately deliver such
collections to BNY in the identical form received.
(c) Unless and until BNY exercises its rights under Section
4(b), Obligor may, with respect to any instruments constituting part of the
Collateral, (i) collect and receive for its own use all Ordinary Distributions
(and for such purpose and to that extent, BNY hereby releases each such
Distribution from the Collateral, such release to be effective in the case of
each Ordinary Distribution at the time thereof); and (ii) vote and give
consents, ratifications and waivers with respect to such instruments except to
the extent that any such would, in the sole judgment of BNY, detract from the
value of such instruments as Collateral hereunder, and from time to time upon
request from Obligor, BNY shall deliver to Obligor suitable assignments, orders
and proxies so that Obligor may receive such Distributions and cast such votes,
consents, ratifications and waivers; each such request from Obligor shall
constitute a representation and warranty by Obligor hereunder that there is no
reason at such time for BNY to deem itself to be insecure or the risk of
non-payment or non-performance of any of the Obligations to be increased.
(d) BNY may after the occurrence of an Event of Default and
during its continuance, obtain the appointment of a receiver of any of the
Collateral and Obligor waives any right to notice of and consents to such
appointment.
4
<PAGE>
5. EVENTS OF DEFAULT.
(a) The occurrence of any one or more of the following
events shall constitute an "Event of Default" :
(i) failure by Obligor to pay any principal or
interest on the Obligations when due, whether at maturity or by reason of
acceleration pursuant to the terms of this agreement or by notice of intention
to prepay, or by required prepayment or failure to pay any other liabilities or
make any other payment, fee or charge provided for herein when due;
(ii) the occurrence of an "Event of Default" under, and
as such quoted term is defined in, the Affiliate Loan Agreements;
(iii) any representation or warranty made or deemed made
by Obligor in this Agreement or any related agreement or in any certificate,
document of financial or other statement furnished at any time in connection
herewith or therewith shall prove to have been misleading in any material
respect on the date when made or deemed to have been made;
(iv) issuance of a notice of lien, charge, claim, levy
assessment, injunction or attachment against a material portion of the Obligor's
property which is not stayed or lifted within thirty (30) days;
(v) failure or neglect of the Obligor to perform, keep
or observe any term, provision, condition, covenant contained herein;
(vi) any judgment is rendered or judgment liens filed
against the Obligor for an amount in excess of $100,000 which within thirty (30)
days of such rendering or filing is not either satisfied, stayed or discharged
of record;
(vii) any Obligor or any Affiliated Borrower of shall
(A) apply for or consent to the appointment of, or the taking of possession by,
a receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (B) admit in writing its inability, or be
generally unable, to pay its debts as they become due or cease operations of its
present business, (C) make a general assignment for the benefit of creditors,
(D) commence a voluntary case under any state or federal bankruptcy laws (as now
or hereafter in effect), (E) be adjudicated a bankrupt or insolvent, (F) file a
petition seeking to take advantage of any other law providing for the relief of
debtors, (G) acquiesce to, or fail to have dismissed, within thirty (30) days,
any petition filed against it in any involuntary case under such bankruptcy
laws, or (H) take any action for the purpose of effecting any of the foregoing;
(viii)any change in Obligor's condition or affairs
(financial or otherwise) which in BNY's good faith opinion materially impairs
the Collateral or the ability of Obligor to perform its Obligations under this
Agreement;
(ix) if any lien created hereunder or provided for
hereby or under any related agreement for any reason ceases to be or is not a
valid and perfected lien having a first priority interest;
5
<PAGE>
(x) a default of the obligations of Obligor under any
other agreement with any person (other than BNY) to which it is a party shall
occur which adversely affects, in any material respect, its condition, affairs
or prospects (financial or otherwise) which default is not cured within any
applicable grace period;
(xi) in the event that TII Corporation fails to own
100% of the issued and outstanding capital stock of Obligor;
(xii) any material provision of this Agreement shall,
for any reason, cease to be valid and binding on Obligor, or Obligor shall so
claim in writing to BNY; and
(xiii)failure by Obligor to deliver to BNY on or before
April 30, 1998, a physical count of Obligor' Inventory, the results of which
physical count of Inventory shall be acceptable to BNY in its sole discretion,
together with adjustments to Obligor' books and records, if any, as a result of
such physical count of Inventory, which adjustments, if any, shall be acceptable
to BNY in its sole discretion.
(b) The occurrence of an Event of Default shall be
conclusively presumed to have increased the risk of non-payment or
non-performance of the Obligations.
6. POST-EVENT OF DEFAULT RIGHTS. Upon the occurrence of an Event
of Default (such default not having previously been cured), and at any time or
from time to time thereafter:
(a) In the case of any Event of Default, other than an Event
of Default referred to in clause (vii) of paragraph (a) of Section 5, BNY may
declare, by notice to Obligor, any and all of the Obligations immediately due
and payable, and, in the case of any Event of Default referred to in clause
(vii) or (ix) of paragraph (a) of Section 5, all of the Obligations shall
automatically be and become due and payable, in either case without any other
presentment, demand, protest or notice of any kind, anything in any other
agreement to the contrary notwithstanding;
(b) BNY shall have no obligation to make further loans,
extensions of credit or other financial accommodations to or on behalf of
Obligor, anything in any other agreement to the contrary notwithstanding;
(c) BNY may exercise all other rights to which it is
entitled hereunder, including but not limited to those specified in Section 4
hereof;
(d) Obligor shall, upon request of BNY, assemble the
Collateral and maintain or deliver it into the possession of BNY at such place
or places as BNY may designate and as are reasonably convenient to both BNY and
Obligor;
(e) BNY may (i) without notice, demand or other process, and
without charge, enter any of Obligor's premises and, without breach of the
peace, until BNY completes the enforcement of its rights in the Collateral, take
possession of such premises or place custodians in exclusive control thereof,
remain on such premises and use the same and any of Obligor's equipment for the
purpose of completing any work-in-process, preparing any Collateral for
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<PAGE>
disposition and disposing of or collecting any Collateral, and (ii) in the
exercise of its rights under this Agreement, without payment of compensation of
any kind, use any and all trademarks, trade styles, trade names, patents, patent
applications, licenses, franchises and the like to the extent of Obligor's
rights therein and Obligor hereby grant a license for that purpose; and
(f) If the Collateral consists in whole or in part of
instruments and BNY elects to sell or otherwise dispose of such instruments, (i)
Obligor will, if it controls the issuer of such instruments, or if it otherwise
has the right to effect such registration, and if BNY deems such registration to
be desirable, cause such instruments to be registered under the Securities Act
of 1933, as amended, and take all other action, including but not limited to
complying with the "blue sky" or securities laws of the several states and
delivering to BNY appropriate quantities of prospectuses, necessary or
appropriate so as to permit the public sale of other disposition thereof by BNY
in such jurisdictions as BNY may select, and indemnify, in the form then
customary, all persons who are underwriters, statutory or otherwise, of such
instruments in connection with such sale or disposition, such indemnity, to the
extent applicable to BNY, to be in addition to that afforded BNY under Section
8(c) hereof, and (ii) BNY may elect not to exercise its rights under clause (i)
and in that event may, if in its judgment it shall be necessary or desirable so
to do, restrict the number of prospective bidders so as to comply with the
provisions of Section 5 of such Securities Act, and restrict such prospective
bidders to persons who will represent and agree that they are purchasing the
instruments in question for their own account for investment and not with a view
to the distribution or resale of any thereof and who will further agree that
such instruments purchased by them may bear an appropriate restrictive legend to
that effect.
7. GENERAL REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Obligor
hereby represents, warrants and agrees that:
(a) The execution, delivery and performance of this
Agreement are within its powers, corporate or otherwise, have been duly
authorized by all required action and do not and will not contravene any law or
any agreement or undertaking to which it is a party or by which it may in any
way be bound or, if Obligor is a corporation, its certificate of incorporation
or bylaws;
(b) Obligor will promptly (but in no event later than ten
(10) days after such request) furnish BNY with all information concerning its
business and financial condition as BNY may reasonably request; and
(c) Each of the representations and warranties contained in
the Questionnaire, if any, submitted to BNY by Obligor in connection with this
Agreement is true and correct on the date hereof as if made on the date hereof
and all other information, including financial statements and projections,
furnished to BNY at any time by or on behalf of Obligor was and will be complete
and correct in all material respects to the extent necessary for the purpose of
presenting the subject matter thereof fairly to BNY.
8. EXPENSES OF OBLIGOR'S DUTIES; BNY'S RIGHT TO PERFORM ON
OBLIGOR'S BEHALF; BNY'S EXPENSES AND INDEMNIFICATION.
(a) Obligor's agreements and duties hereunder shall be
performed by it at its sole cost and expense.
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(b) If Obligor shall fail to do any act or thing which it
has covenanted to do hereunder, BNY may (but shall not be obligated to ) do the
same or cause it to be done, either in its name or in the name and on behalf of
Obligor, and Obligor hereby irrevocably authorizes BNY so to act.
(c) Obligor agrees to reimburse BNY for all costs and
reasonable expenses, including attorney's fees and disbursements, incurred, and
to indemnify and hold BNY harmless from and against all losses suffered, by BNY
in connection with (i) BNY's exercise of any right or remedy granted to it
hereunder, (ii) any claim and the prosecution or defense thereof arising out of
or in any way connected with this Agreement, and (iii) the collection or
enforcement of the Obligations.
(d) Amounts payable by Obligor under this Section 8 shall
constitute Obligations which shall be payable on demand.
9. NO WAIVERS OF RIGHTS HEREUNDER; RIGHTS CUMULATIVE.
(a) No delay by BNY in exercising any right hereunder, or
under any of the other Obligations, shall operate as a waiver thereof, nor shall
any single or partial exercise of any right preclude other or further exercises
thereof or the exercise of any other right. No waiver of any of the other
Obligations shall be enforceable against BNY unless in writing and signed by an
officer of BNY, and unless it expressly refers to the provision affected; any
such waiver shall be limited solely to the specific event waived.
(b) All rights granted BNY hereunder shall be cumulative and
shall be supplementary of and in addition to those granted or available to BNY
with respect to the other Obligations or under applicable law and nothing herein
shall be construed as limiting any such other right.
10. ASSIGNMENT; PARTICIPATIONS.
(a) BNY may assign any or all of the Obligations and may
transfer therewith any or all of the Collateral therefor in accordance with the
provisions of the Affiliate Loan Agreements and the transferee shall have the
same rights with respect thereto as had BNY. Upon such transfer, BNY shall be
released from all responsibility for the Collateral so transferred.
(b) BNY may from time to time sell or otherwise grant
participations in any of the Obligations in accordance with the provisions of
the Affiliate Loan Agreements and the holder of any such participation shall,
subject to the terms of any agreement between BNY and such holder, be entitled
to the same benefits with respect to any Collateral for the Obligations in which
such holder is a participant as BNY. Obligor agrees that each such holder may
exercise any and all rights of banker's lien, set-off and counterclaim with
respect to its participation in the Obligations as fully as though Obligor were
directly indebted to such holder in the amount of such participation.
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<PAGE>
11. CONTINUING AGREEMENT; TERMINATION.
(a) This Agreement shall be a continuing agreement and shall
apply to all future Obligations, notwithstanding that at any particular time all
of the Obligations then outstanding shall have been paid in full.
(b) This Agreement shall continue in full force and effect
until written notice of termination shall have been received by BNY at its
address stated below, but, notwithstanding any such notice, this Agreement shall
continue in full force and effect until all Obligations then outstanding
(whether absolute or contingent) shall have been paid in full and all rights of
BNY hereunder shall have satisfied or other arrangements for the securing of
such rights satisfactory to BNY shall have been made. Upon receipt of any such
notice, BNY shall have no obligation to make further loans, extensions of credit
or other financial accommodations to or on behalf of Obligor, anything in any
other agreement to the contrary notwithstanding.
12. GOVERNING LAW; JURISDICTION; CERTAIN WAIVERS.
(a) This Agreement shall be governed by and interpreted and
enforced in accordance with the laws of the State of New York, and BNY shall
have the rights and remedies of a secured party under applicable law, including
but not limited to the Uniform Commercial Code of New York.
(b) OBLIGOR AGREES THAT ALL ACTIONS AND PROCEEDINGS RELATING
DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR ANY OF THE OTHER OBLIGATIONS SHALL
BE LITIGATED IN COURTS LOCATED WITHIN THE STATE OF NEW YORK OR ELSEWHERE AS BNY
MAY SELECT AND THAT SUCH COURTS ARE CONVENIENT FORUMS AND SUBMITS TO THE
PERSONAL JURISDICTION OF SUCH COURTS.
(c) Obligor waives personal service of process and consents
that service of process upon it may be made by certified or registered mail,
return receipt requested, directed to Obligor at its address last specified for
notices hereunder, and service so made shall be deemed completed two days after
the same shall have been so mailed.
(d) OBLIGOR WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BETWEEN IT AND BNY AND WAIVES THE RIGHT TO ASSERT IN ANY
ACTION OR PROCEEDING WITH REGARD TO THIS AGREEMENT OR ANY OF THE OBLIGATIONS ANY
OFFSETS OR COUNTERCLAIMS WHICH IT MAY HAVE.
(e) BNY shall not be required to take any steps necessary to
preserve rights against prior parties.
13. DEFINITIONS. As used herein:
(a) All terms defined in Article 1 or 9 of the New York
Uniform Commercial Code as in effect on the date of this Agreement (other than
the term "Collateral") are used herein
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(including in Schedule A hereto) with the meanings therein given; such terms
include but are not limited to "account," "chattel paper," "deposit account,"
"document," "equipment," "investment property," "general intangibles," "goods,"
"instrument," "inventory," "money," and "security interest."
(b) The following terms shall have the indicated meanings:
"AFFILIATE" of BNY shall mean a corporation that directly or indirectly controls
or is controlled by, or is under common control with, BNY. "DISTRIBUTIONS" shall
mean Ordinary Distributions and Extraordinary Distributions; "ORDINARY
DISTRIBUTIONS" shall mean cash dividends to the extent paid out of retained
earnings, and interest paid in cash, in each case with respect to all
instruments constituting part of the Collateral, except to the extent that any
such dividend is made in connection with a partial or total liquidation or a
reduction of capital, or any such interest is penalty interest, or, in each
case, to the extent the same is not in the ordinary course; and "EXTRAORDINARY
DISTRIBUTIONS" shall mean all dividends, interest and distributions on or in
respect of and all proceeds of such instruments other than Ordinary
Distributions.
"AFFILIATED BORROWERS" shall mean, individually and
collectively, TII Industries, Inc., a corporation organized under the laws of
the State of Delaware; TII Corporation, a corporation organized under the laws
of the State of Delaware; TII-Ditel, Inc., a corporation organized under the
laws of the State of North Carolina; Crown Tool & Die Company, Inc., a
corporation organized under the laws of the Commonwealth of Puerto Rico, and
their respective successors and assigns.
"AFFILIATE LOAN AGREEMENTS" shall mean shall notes,
instruments, mortgages, agreements, guaranties and other documents now or
hereafter executed and/or delivered by and among BNY and each of the Affiliated
Borrowers, as the same now exist or may hereafter be amended, restated, renewed,
replaced, extended or otherwise modified.
"EQUIPMENT" shall mean and include all of the Obligor's
goods (excluding Inventory) whether now owned or hereafter acquired and wherever
located including, without limitation, all equipment, machinery, apparatus,
motor vehicles, fittings, furniture, furnishings, fixtures, parts, accessories
and all replacements and substitutions therefor or accessions thereto.
"GENERAL INTANGIBLES" shall mean and include all of the
Obligor's general intangibles, whether now owned or hereafter acquired
including, without limitation, all choses in action, causes of action, corporate
or other business records, inventions, designs, patents, patent applications,
equipment formulations, manufacturing procedures, quality control procedures,
trademarks, trade secrets, goodwill, copyrights, registrations, licenses,
franchises, customer lists, tax refunds, tax refund claims, computer programs,
all claims under guaranties, security interests or other security held by or
granted to the Obligor to secure payment of any of the Receivables by an account
debtor, all rights of indemnification and all other intangible property of every
kind and nature (other than Receivables).
"INSTRUMENT COLLATERAL" shall mean (a) all Distributions
on or in respect of (i) the instruments or investment property listed in
Schedule A, or (ii) any instruments or property which constitute Instrument
Collateral by virtue of any provision of this definition (whether, in either
case, upon conversion of convertible securities included therein or through
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<PAGE>
stock split, spin-off, reclassification, merger, consolidation, sale of assets,
combination of shares or otherwise) and (b) all other instruments and other
property issued with respect to or in exchange for (i) the instruments listed in
Schedule A or (ii) any instruments or other property which constitute Instrument
Collateral by virtue of any provision of this definition (whether, in either
case, upon conversion of convertible securities included therein or through
stock split, spin-off, reclassification, merger, consolidation, sale of assets,
combination of shares or otherwise).
"INVENTORY" shall mean all of the Obligor's now owned or
hereafter acquired inventory, goods, merchandise and other personal property,
wherever located, to be furnished under any contract of service or held for sale
or lease, all raw materials, work in process, finished goods and materials and
supplies of any kind, nature or description which are or might be used or
consumed in the Obligor's business or used in selling or furnishing such goods,
merchandise and other personal property, and all documents of title or other
documents representing them.
"LEASEHOLD INTERESTS" shall mean all of the Obligor's
right, title and interest in and to the premises located at Local No. 2, Solar
No. 6, Seccion 3B, within the Industrial Free Zone of San Pedro de Marcoris,
Municipality and Province of San Pedro de Marcoris.
"PERMITTED LIENS" shall mean (a) liens in favor of BNY;
(b) liens for taxes, assessments or other governmental charges not delinquent,
or, being contested in good faith and by appropriate proceedings and with
respect to which proper reserves have been taken by Obligor; (c) deposits or
pledges to secure obligations under workmen's compensation, social security or
similar laws, or under unemployment insurance; (d) deposits or pledges to secure
bids, tenders, contracts (other than contracts for the payment of money),
leases, statutory obligations, surety and appeal bonds and other obligations of
like nature arising in the ordinary course of Obligor's business; and (e)
judgment liens that have been stayed or bonded and mechanics', workmen's,
materialmen's, carriers' or other like liens arising in the ordinary course of
Obligor's business with respect to obligations which are not due or which are
being contested in good faith by Obligors.
"REAL PROPERTY" shall mean all of the Obligor's right,
title and interest in and to any now owned or hereafter acquired real property
and all buildings and improvements located thereon.
"RECEIVABLES" shall mean and include all of the
Obligor's accounts, contract rights, instruments, documents, chattel paper,
general intangibles relating to accounts, drafts and acceptances, and all other
forms of obligations owing to the Obligor arising out of or in connection with
the sale or lease of Inventory or the rendition of services, all guarantees and
other security therefor, whether secured or unsecured, now existing or hereafter
created, and whether or not specifically sold or assigned to the BNY hereunder.
(c) The words "it" or "its" as used herein shall be deemed
to refer to individuals and to business entities.
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14. NOTICES.
Any notice or request hereunder may be given to Obligor and to
BNY at their respective addresses set forth below or at such other address as
may hereafter be specified in a notice designated as a notice of change of
address under this Section. Any notice or request hereunder shall be given by
(a) hand delivery, (b) registered or certified mail, return receipt requested,
(c) telex or telegram, subsequently confirmed by registered or certified mail,
or (d) telefax to the number set out below (or such other number as may
hereafter be specified in a notice designated as a notice of change of address)
with telephone communication to a duly authorized officer of the recipient
confirming its receipt as subsequently confirmed by registered or certified
mail. Notices and requests shall, in the case of those by mail or telegram, be
deemed to have been given three (3) Business Days after mailing, or when
delivered to the telegraph office addresses as provided in this Section.
(a) If to BNY, at: BNY FINANCIAL CORPORATION
1290 Avenue of the Americas
New York, New York 10104
Attention: Anthony Vassallo
Telephone: (212) 408-7229
FAX: (212) 408-4384
With copy to: BNY FINANCIAL CORPORATION
1290 Avenue of the Americas
New York, New York 10104
Attention: Frank Imperato
Telephone: (212) 408-7267
Fax: (212) 408-7372
OTTERBOURG, STEINDLER, HOUSTON
& ROSEN, PC.
230 Park Avenue
New York, New York 10169-0075
Attention: Mitchell M. Brand, Esq.
Telephone: (212) 661-9100
FAX: (212) 682-6104
(b) If to Obligor, at: TELECOMMUNICATIONS INDUSTRIES,
INC.
c/o TII Industries, Inc.
1385 Akron Street
Copiague, New York 11726
Attention: Chief Financial Officer
Telephone: (516) 789-5093
FAX: (516) 789-2228
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Any requirement under applicable law of reasonable notice by BNY to
Obligor of any event shall be met if notice is given to Obligor in the manner
prescribed above at least seven days before (a) the date of such event or (b)
the date after which such event will occur.
15. GENERAL.
(a) If this Agreement is executed by two or more Obligors,
they shall be jointly and severally liable hereunder, all provisions hereof
regarding the Obligations or the Collateral shall apply to the Obligations and
Collateral of any or all of them and the termination of this Agreement as to one
or more of such Obligors shall not terminate this Agreement as to any remaining
Obligors.
(b) This Agreement shall be binding upon the heirs,
executors, administrators, assigns or successors of each of the undersigned
Obligors and shall inure to the benefit of and be enforceable by BNY, its
successors, transferees and assigns.
(c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof in that jurisdiction or affecting the validity or
enforceability of such provision in any other jurisdiction.
Dated, in New York, New York: April 30th, 1998
TELECOMMUNICATIONS INDUSTRIES, INC.
By: /S/ PAUL SEBETIC
--------------------------------
Title: VICE PRESIDENT-FINANCE
1385 Akron Street
Copiague, New York 11726
Accepted in New York, New York, on April 30th, 1998
BNY FINANCIAL CORPORATION
By: /S/ JOHN J. MCFADDEN
--------------------------------
Title: SENIOR VICE PRESIDENT
1290 Avenue of the Americas
New York, New York 10104
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SCHEDULE A
- None -
14
BNY FINANCIAL CORPORATION
GENERAL SECURITY AGREEMENT
In consideration of loans, credit or other financial accommodation
extended or continued from time to time to, or on the guaranty, endorsement or
other assurance of, the undersigned ("OBLIGOR") by BNY Financial Corporation
("BNY"), Obligor hereby agrees as follows:
1. SECURITY INTEREST.
(a) To secure the payment and performance of all of the
Obligations, Obligor hereby grants to BNY a continuing security interest in, and
assigns and pledges to BNY, the Collateral.
(b) (i) "COLLATERAL" shall mean and include:
(A) all Receivables;
(B) all Equipment;
(C) all General Intangibles;
(D) all Inventory;
(E) all Real Property;
(F) all Instrument Collateral;
(G) all Leasehold Interests;
(H) all of the Obligor's right, title and interest in and to
(1) investment property, contract rights, instruments, documents and chattel
paper; (2) its goods and other property including, but not limited to all
merchandise returned or rejected by customers, relating to or securing any of
the Receivables; (3) all of the Obligor's rights as a consignor, a consignee, an
unpaid vendor, mechanic, artisan, or other lienor, including stoppage in
transit, set off, detinue, replevin, reclamation and repurchase; (4) all
additional amounts due to the Obligor from any customer relating to the
Receivables; (5) other property, including warranty claims relating to any goods
securing this Agreement; (6) if and when obtained by the Obligor, all real and
personal property of third parties in which the Obligor has been granted a lien
or security interest as security for the payment or enforcement of Receivables;
and (7) any other goods, personal property or real property now owned or
hereafter acquired in which the Obligor has expressly granted a security
interest or may in the future grant a security interest to the BNY hereunder, or
in any amendment or supplement hereto, or under any other agreement between the
BNY and the Obligor;
(I) all of the Obligor's ledger sheets, ledger cards, files,
correspondence, records, books of account, business papers, computers, computer
software
<PAGE>
(owned by the Obligor or in which it has an interest), computer programs, tapes,
disks and documents relating to clauses (A), (B), (C), (D), (E), (F), (G), or
(H) above; and
(J) all proceeds and products of clauses (A), (B), (C), (D),
(E), (F), (G) and (H) above in whatever form, including, but not limited to:
cash, deposit accounts (whether or not comprised solely of proceeds),
certificates of deposit, insurance proceeds (including hazard, flood and credit
insurance), negotiable instruments and other instruments for the payment of
money, chattel paper, security agreements or documents.
(ii) "OBLIGATIONS" shall mean and include all indebtedness,
liabilities, obligations, covenants and duties of Obligor to BNY or any
Affiliate of BNY (including those which BNY or such Affiliate may have acquired
from others) of every kind, nature and description, direct or indirect, absolute
or contingent, due or not due, contractual or tortious, liquidated or
unliquidated, arising by operation of law or otherwise, now existing of
hereafter arising, and whether or not evidenced by any note or other instrument
or agreement and whether or not for the payment of money, including, but not
limited to, indebtedness, obligations and liabilities to BNY or such Affiliate
of Obligor as a member of any partnership, syndicate, association or other
group, or as a guarantor of the Obligations of any other entity to BNY or such
affiliate.
(iii) Affiliate, Equipment, General Intangibles, Instrument
Collateral, Inventory, Leasehold Interest, Real Property, Receivables, and
certain other terms used herein are defined in Section 13 hereof.
2. RANK AND PERFECTION OF SECURITY INTEREST.
(a) Obligor will not grant or permit to exist, nor shall there
exist, any security interest in, lien, attachment, levy or encumbrance upon, or
assignment or pledge as security of, any of the Collateral, except the security
interest of and assignment and pledge to BNY hereunder and Permitted Liens.
(b) (i) Obligor will take all action requested by BNY, or which
may be necessary or desirable, to perfect, continue, evidence, preserve, protect
or validate the security interest of and assignment and pledge to BNY hereunder
or to enable BNY to exercise and enforce its rights hereunder, including, but
not limited to, (A) executing and delivering one or more notices, statements,
agreements or other writings, and (B) delivering to BNY, and stamping or
otherwise marking, in such manner as BNY may specify, any and all chattel paper,
instruments, letters and advices of credit and documents constituting part of
the Collateral, in each case endorsed or accompanied by such instruments of
assignment as BNY may specify.
(ii) Obligor hereby authorizes BNY, at its option but without
any obligation so to do, to file financing and continuation statements and
amendments to financing statements, naming Obligor as debtor, with respect to
any of the Collateral without the signature of Obligor, and agrees that a
carbon, photographic or other reproduction of this Agreement or of a financing
statement is sufficient as a financing statement.
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3. COVENANTS RELATING TO COLLATERAL. Obligor covenants that:
(a) It shall at all times: (i) be the sole owner of each and every
item of Collateral, (ii) defend the Collateral against the claims and demands of
all persons and (iii) in the case of tangible property constituting part of the
Collateral, (A) properly maintain and keep in good order and repair such
property and (B) keep such property fully insured with responsible companies
acceptable to BNY against such risks as such Collateral may be subject to, or as
BNY may request, under policies containing loss payable clauses naming BNY as
loss payee as its interests may appear and otherwise in form and substance
satisfactory to BNY, and providing that: (1) all proceeds thereof shall be
payable to BNY, (2) such insurance shall not be affected by any act or neglect
of Obligor or other owner of the property described in such policy; and (3) such
policy and loss payable clause may not be cancelled or amended except upon
thirty days' prior written notice to BNY;
(b) It will comply in all material respects with the requirements
of all leases, mortgages and other instruments relating to premises where any
Collateral is located;
(c) It will not sell or otherwise dispose of any of the
Collateral, except that, if the same constitute Collateral, (i) accounts may be
collected in the ordinary course of business, and (ii) inventory may be sold in
the ordinary course of business, and (iii) worn out or obsolete equipment may be
sold by Obligor and (iv) as otherwise agreed to by BNY;
(d) It will give BNY prompt notice of (i) any change in (A) its
name, identity or corporate structure, (B) the location of its chief executive
office or any other place of business, or (C) the location of any of the
Collateral or its books and records concerning any accounts, (ii) the location
of each new place of business opened by Obligor, (iii) each new location of any
Collateral, and (iv) any substantial loss or depreciation in the value of any of
the Collateral, and will provide BNY with such other information as to the
Collateral as BNY may request.
(e) It will (i) whether or not BNY shall have exercised its rights
under Section 4(b)(iii) hereof, receive and hold all Distributions (other than
Ordinary Distributions BNY has released pursuant to the provisions of Section
4(c) hereof) and other Instrument Collateral in trust for BNY, and not commingle
the same with any of its other funds or property and immediately deliver the
same to BNY in the identical form received and (ii) give BNY copies of all
notices and other communications received by Obligor with respect to any
instruments registered in the name of Obligor constituting part of the
Collateral.
4. PRE-EVENT OF DEFAULT RIGHTS.
(a) At any time and from time to time: (i) BNY may and is hereby
authorized to transfer into or register in the name of itself or its nominee any
instruments or documents constituting a part of the Collateral without notice to
Obligor; (ii) with respect to instruments, if any, constituting part of the
Collateral that are registered in the name of BNY, BNY may receive and retain
all Distributions, other than Ordinary Distributions that BNY has released
pursuant to Section 4(c); and (iii) Obligor will: (A) permit representatives of
BNY during normal business hours to inspect its premises and books and records
pertaining to the Collateral and make extracts from such books and records; and
(B) upon request, enter into warehousing, lockbox or
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other custodial arrangements satisfactory to BNY. The costs of such inspections
shall be subject to the provisions of Section 4.10 of the Affiliate Loan
Agreements.
(b) BNY may (i) at any time after the occurrence of an Event of
Default and during its continuance: with respect to instruments, if any,
constituting part of the Collateral, BNY may, by notice to Obligor, terminate
Obligor's rights under Section 4(c) hereof (in which case BNY's release pursuant
to such Section of any and all Ordinary Distributions shall thereupon be
automatically revoked) and, in its own or Obligor's name, exercise any and all
powers with respect to such instruments with the same force and effect as could
Obligor; (ii) BNY may, without notice to Obligor: (A) after the occurrence of an
Event of Default and during its continuance, if the Collateral consists in whole
or in part of accounts of or other claims or rights of Obligor (including
accounts, claims and rights which are Collateral by reason of their constituting
proceeds), notify the account debtors with respect to such accounts, and all
other persons against whom Obligor has such claims or rights, of BNY's rights
hereunder, collect all amounts payable with respect to such accounts, claims and
rights directly and apply such collections to the repayment of the Obligations
in such order as it may elect; (B) after the occurrence of an Event of Default
and during its continuance, in its own or Obligor's name, demand, sue for,
collect or receive any money or property payable or receivable on account of or
in exchange for, make any compromise or settlement with respect to, or modify
any of the terms of any of, the Collateral as BNY may in its sole discretion
elect; (C) after the occurrence of an Event of Default and during its
continuance, if the Collateral includes any of Obligor's accounts, receive and
open mail addressed to Obligor and change the address for delivery of Obligor's
mail to an address designated by BNY and notify the postal authorities of any
such change; (D) at any time, in the name and on behalf of Obligor, endorse
instruments and other evidences of payment collected or received by BNY on
account of the Collateral; and (E) after the occurrence of an Event of Default
and during its continuance, appropriate and hold, or apply (directly or by way
of set-off) to the payment of the Obligations (whether or not then due), all
money of Obligor then or thereafter in possession of BNY, all amounts
representing Distributions then or thereafter in the possession of BNY, the
balance of every deposit account (demand or time, matured or unmatured) of
Obligor then or thereafter with BNY and every other claim of Obligor then or
thereafter against BNY; and (iii) Obligor will, upon request of BNY: (A) receive
and hold all proceeds of Collateral in trust for BNY and not commingle any
collections with any of its other funds; and (B) immediately deliver such
collections to BNY in the identical form received.
(c) Unless and until BNY exercises its rights under Section 4(b),
Obligor may, with respect to any instruments constituting part of the
Collateral, (i) collect and receive for its own use all Ordinary Distributions
(and for such purpose and to that extent, BNY hereby releases each such
Distribution from the Collateral, such release to be effective in the case of
each Ordinary Distribution at the time thereof); and (ii) vote and give
consents, ratifications and waivers with respect to such instruments except to
the extent that any such would, in the sole judgment of BNY, detract from the
value of such instruments as Collateral hereunder, and from time to time upon
request from Obligor, BNY shall deliver to Obligor suitable assignments, orders
and proxies so that Obligor may receive such Distributions and cast such votes,
consents, ratifications and waivers; each such request from Obligor shall
constitute a representation and warranty by Obligor hereunder that there is no
reason at such time for BNY to deem itself to be insecure or the risk of
non-payment or non-performance of any of the Obligations to be increased.
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(d) BNY may after the occurrence of an Event of Default and during
its continuance, obtain the appointment of a receiver of any of the Collateral
and Obligor waives any right to notice of and consents to such appointment.
5. EVENTS OF DEFAULT.
(a) The occurrence of any one or more of the following events
shall constitute an "Event of Default" :
(i) failure by Obligor to pay any principal or interest on
the Obligations when due, whether at maturity or by reason of acceleration
pursuant to the terms of this agreement or by notice of intention to prepay, or
by required prepayment or failure to pay any other liabilities or make any other
payment, fee or charge provided for herein when due;
(ii) the occurrence of an "Event of Default" under, and as
such quoted term is defined in, the Affiliate Loan Agreements;
(iii) any representation or warranty made or deemed made by
Obligor in this Agreement or any related agreement or in any certificate,
document of financial or other statement furnished at any time in connection
herewith or therewith shall prove to have been misleading in any material
respect on the date when made or deemed to have been made;
(iv) issuance of a notice of lien, charge, claim, levy
assessment, injunction or attachment against a material portion of the Obligor's
property which is not stayed or lifted within thirty (30) days;
(v) failure or neglect of the Obligor to perform, keep or
observe any term, provision, condition, covenant contained herein;
(vi) any judgment is rendered or judgment liens filed against
the Obligor for an amount in excess of $100,000 which within thirty (30) days of
such rendering or filing is not either satisfied, stayed or discharged of
record;
(vii) any Obligor or any Affiliated Borrower of shall (A)
apply for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its property, (B) admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations of its present
business, (C) make a general assignment for the benefit of creditors, (D)
commence a voluntary case under any state or federal bankruptcy laws (as now or
hereafter in effect), (E) be adjudicated a bankrupt or insolvent, (F) file a
petition seeking to take advantage of any other law providing for the relief of
debtors, (G) acquiesce to, or fail to have dismissed, within thirty (30) days,
any petition filed against it in any involuntary case under such bankruptcy
laws, or (H) take any action for the purpose of effecting any of the foregoing;
(viii)any change in Obligor's condition or affairs (financial
or otherwise) which in BNY's good faith opinion materially impairs the
Collateral or the ability of Obligor to perform its Obligations under this
Agreement;
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<PAGE>
(ix) if any lien created hereunder or provided for hereby or
under any related agreement for any reason ceases to be or is not a valid and
perfected lien having a first priority interest;
(x) a default of the obligations of Obligor under any other
agreement with any person (other than BNY) to which it is a party shall occur
which adversely affects, in any material respect, its condition, affairs or
prospects (financial or otherwise) which default is not cured within any
applicable grace period;
(xi) in the event that TII Industries, Inc. fails to own 100%
of the issued and outstanding capital stock of Obligor;
(xii) any material provision of this Agreement shall, for any
reason, cease to be valid and binding on Obligor, or Obligor shall so claim in
writing to BNY; and
(xiii)failure by Obligor to deliver to BNY on or before April
30, 1998, a physical count of Obligor' Inventory, the results of which physical
count of Inventory shall be acceptable to BNY in its sole discretion, together
with adjustments to Obligor' books and records, if any, as a result of such
physical count of Inventory, which adjustments, if any, shall be acceptable to
BNY in its sole discretion.
(b) The occurrence of an Event of Default shall be conclusively
presumed to have increased the risk of non-payment or non-performance of the
Obligations.
6. POST-EVENT OF DEFAULT RIGHTS. Upon the occurrence of an Event of
Default (such default not having previously been cured), and at any time or from
time to time thereafter:
(a) In the case of any Event of Default, other than an Event of
Default referred to in clause (vii) of paragraph (a) of Section 5, BNY may
declare, by notice to Obligor, any and all of the Obligations immediately due
and payable, and, in the case of any Event of Default referred to in clause
(vii) or (ix) of paragraph (a) of Section 5, all of the Obligations shall
automatically be and become due and payable, in either case without any other
presentment, demand, protest or notice of any kind, anything in any other
agreement to the contrary notwithstanding;
(b) BNY shall have no obligation to make further loans, extensions
of credit or other financial accommodations to or on behalf of Obligor, anything
in any other agreement to the contrary notwithstanding;
(c) BNY may exercise all other rights to which it is entitled
hereunder, including but not limited to those specified in Section 4 hereof;
(d) Obligor shall, upon request of BNY, assemble the Collateral
and maintain or deliver it into the possession of BNY at such place or places as
BNY may designate and as are reasonably convenient to both BNY and Obligor;
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(e) BNY may (i) without notice, demand or other process, and
without charge, enter any of Obligor's premises and, without breach of the
peace, until BNY completes the enforcement of its rights in the Collateral, take
possession of such premises or place custodians in exclusive control thereof,
remain on such premises and use the same and any of Obligor's equipment for the
purpose of completing any work-in-process, preparing any Collateral for
disposition and disposing of or collecting any Collateral, and (ii) in the
exercise of its rights under this Agreement, without payment of compensation of
any kind, use any and all trademarks, trade styles, trade names, patents, patent
applications, licenses, franchises and the like to the extent of Obligor's
rights therein and Obligor hereby grant a license for that purpose; and
(f) If the Collateral consists in whole or in part of instruments
and BNY elects to sell or otherwise dispose of such instruments, (i) Obligor
will, if it controls the issuer of such instruments, or if it otherwise has the
right to effect such registration, and if BNY deems such registration to be
desirable, cause such instruments to be registered under the Securities Act of
1933, as amended, and take all other action, including but not limited to
complying with the "blue sky" or securities laws of the several states and
delivering to BNY appropriate quantities of prospectuses, necessary or
appropriate so as to permit the public sale of other disposition thereof by BNY
in such jurisdictions as BNY may select, and indemnify, in the form then
customary, all persons who are underwriters, statutory or otherwise, of such
instruments in connection with such sale or disposition, such indemnity, to the
extent applicable to BNY, to be in addition to that afforded BNY under Section
8(c) hereof, and (ii) BNY may elect not to exercise its rights under clause (i)
and in that event may, if in its judgment it shall be necessary or desirable so
to do, restrict the number of prospective bidders so as to comply with the
provisions of Section 5 of such Securities Act, and restrict such prospective
bidders to persons who will represent and agree that they are purchasing the
instruments in question for their own account for investment and not with a view
to the distribution or resale of any thereof and who will further agree that
such instruments purchased by them may bear an appropriate restrictive legend to
that effect.
7. GENERAL REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Obligor hereby
represents, warrants and agrees that:
(a) The execution, delivery and performance of this Agreement are
within its powers, corporate or otherwise, have been duly authorized by all
required action and do not and will not contravene any law or any agreement or
undertaking to which it is a party or by which it may in any way be bound or, if
Obligor is a corporation, its certificate of incorporation or bylaws;
(b) Obligor will promptly (but in no event later than ten (10)
days after such request) furnish BNY with all information concerning its
business and financial condition as BNY may reasonably request; and
(c) Each of the representations and warranties contained in the
Questionnaire, if any, submitted to BNY by Obligor in connection with this
Agreement is true and correct on the date hereof as if made on the date hereof
and all other information, including financial statements and projections,
furnished to BNY at any time by or on behalf of Obligor was and will be complete
and correct in all material respects to the extent necessary for the purpose of
presenting the subject matter thereof fairly to BNY.
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<PAGE>
8. EXPENSES OF OBLIGOR'S DUTIES; BNY'S RIGHT TO PERFORM ON OBLIGOR'S
BEHALF; BNY'S EXPENSES AND INDEMNIFICATION.
(a) Obligor's agreements and duties hereunder shall be performed
by it at its sole cost and expense.
(b) If Obligor shall fail to do any act or thing which it has
covenanted to do hereunder, BNY may (but shall not be obligated to ) do the same
or cause it to be done, either in its name or in the name and on behalf of
Obligor, and Obligor hereby irrevocably authorizes BNY so to act.
(c) Obligor agrees to reimburse BNY for all costs and reasonable
expenses, including attorney's fees and disbursements, incurred, and to
indemnify and hold BNY harmless from and against all losses suffered, by BNY in
connection with (i) BNY's exercise of any right or remedy granted to it
hereunder, (ii) any claim and the prosecution or defense thereof arising out of
or in any way connected with this Agreement, and (iii) the collection or
enforcement of the Obligations.
(d) Amounts payable by Obligor under this Section 8 shall
constitute Obligations which shall be payable on demand.
9. NO WAIVERS OF RIGHTS HEREUNDER; RIGHTS CUMULATIVE.
(a) No delay by BNY in exercising any right hereunder, or under
any of the other Obligations, shall operate as a waiver thereof, nor shall any
single or partial exercise of any right preclude other or further exercises
thereof or the exercise of any other right. No waiver of any of the other
Obligations shall be enforceable against BNY unless in writing and signed by an
officer of BNY, and unless it expressly refers to the provision affected; any
such waiver shall be limited solely to the specific event waived.
(b) All rights granted BNY hereunder shall be cumulative and shall
be supplementary of and in addition to those granted or available to BNY with
respect to the other Obligations or under applicable law and nothing herein
shall be construed as limiting any such other right.
10. ASSIGNMENT; PARTICIPATIONS.
(a) BNY may assign any or all of the Obligations and may transfer
therewith any or all of the Collateral therefor in accordance with the
provisions of the Affiliate Loan Agreements and the transferee shall have the
same rights with respect thereto as had BNY. Upon such transfer, BNY shall be
released from all responsibility for the Collateral so transferred.
(b) BNY may from time to time sell or otherwise grant
participations in any of the Obligations in accordance with the provisions of
the Affiliate Loan Agreements and the holder of any such participation shall,
subject to the terms of any agreement between BNY and such holder, be entitled
to the same benefits with respect to any Collateral for the Obligations in which
such holder is a participant as BNY. Obligor agrees that each such holder may
exercise any and
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all rights of banker's lien, set-off and counterclaim with respect to its
participation in the Obligations as fully as though Obligor were directly
indebted to such holder in the amount of such participation.
11. CONTINUING AGREEMENT; TERMINATION.
(a) This Agreement shall be a continuing agreement and shall apply
to all future Obligations, notwithstanding that at any particular time all of
the Obligations then outstanding shall have been paid in full.
(b) This Agreement shall continue in full force and effect until
written notice of termination shall have been received by BNY at its address
stated below, but, notwithstanding any such notice, this Agreement shall
continue in full force and effect until all Obligations then outstanding
(whether absolute or contingent) shall have been paid in full and all rights of
BNY hereunder shall have satisfied or other arrangements for the securing of
such rights satisfactory to BNY shall have been made. Upon receipt of any such
notice, BNY shall have no obligation to make further loans, extensions of credit
or other financial accommodations to or on behalf of Obligor, anything in any
other agreement to the contrary notwithstanding.
12. GOVERNING LAW; JURISDICTION; CERTAIN WAIVERS.
(a) This Agreement shall be governed by and interpreted and
enforced in accordance with the laws of the State of New York, and BNY shall
have the rights and remedies of a secured party under applicable law, including
but not limited to the Uniform Commercial Code of New York.
(b) OBLIGOR AGREES THAT ALL ACTIONS AND PROCEEDINGS RELATING
DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR ANY OF THE OTHER OBLIGATIONS SHALL
BE LITIGATED IN COURTS LOCATED WITHIN THE STATE OF NEW YORK OR ELSEWHERE AS BNY
MAY SELECT AND THAT SUCH COURTS ARE CONVENIENT FORUMS AND SUBMITS TO THE
PERSONAL JURISDICTION OF SUCH COURTS.
(c) Obligor waives personal service of process and consents that
service of process upon it may be made by certified or registered mail, return
receipt requested, directed to Obligor at its address last specified for notices
hereunder, and service so made shall be deemed completed two days after the same
shall have been so mailed.
(d) OBLIGOR WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BETWEEN IT AND BNY AND WAIVES THE RIGHT TO ASSERT IN ANY ACTION OR
PROCEEDING WITH REGARD TO THIS AGREEMENT OR ANY OF THE OBLIGATIONS ANY OFFSETS
OR COUNTERCLAIMS WHICH IT MAY HAVE.
(e) BNY shall not be required to take any steps necessary to
preserve rights against prior parties.
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13. DEFINITIONS. As used herein:
(a) All terms defined in Article 1 or 9 of the New York Uniform
Commercial Code as in effect on the date of this Agreement (other than the term
"Collateral") are used herein (including in Schedule A hereto) with the meanings
therein given; such terms include but are not limited to "account," "chattel
paper," "deposit account," "document," "equipment," "investment property,"
"general intangibles," "goods," "instrument," "inventory," "money," and
"security interest."
(b) The following terms shall have the indicated meanings:
"AFFILIATE" of BNY shall mean a corporation that directly or indirectly controls
or is controlled by, or is under common control with, BNY. "DISTRIBUTIONS" shall
mean Ordinary Distributions and Extraordinary Distributions; "ORDINARY
DISTRIBUTIONS" shall mean cash dividends to the extent paid out of retained
earnings, and interest paid in cash, in each case with respect to all
instruments constituting part of the Collateral, except to the extent that any
such dividend is made in connection with a partial or total liquidation or a
reduction of capital, or any such interest is penalty interest, or, in each
case, to the extent the same is not in the ordinary course; and "EXTRAORDINARY
DISTRIBUTIONS" shall mean all dividends, interest and distributions on or in
respect of and all proceeds of such instruments other than Ordinary
Distributions.
"AFFILIATED BORROWERS" shall mean, individually and
collectively, TII Industries, Inc., a corporation organized under the laws of
the State of Delaware; TII Corporation, a corporation organized under the laws
of the State of Delaware; TII-Ditel, Inc., a corporation organized under the
laws of the State of North Carolina; Crown Tool & Die Company, Inc., a
corporation organized under the laws of the Commonwealth of Puerto Rico, and
their respective successors and assigns.
"AFFILIATE LOAN AGREEMENTS" shall mean shall notes,
instruments, mortgages, agreements, guaranties and other documents now or
hereafter executed and/or delivered by and among BNY and each of the Affiliated
Borrowers, as the same now exist or may hereafter be amended, restated, renewed,
replaced, extended or otherwise modified.
"EQUIPMENT" shall mean and include all of the Obligor's goods
(excluding Inventory) whether now owned or hereafter acquired and wherever
located including, without limitation, all equipment, machinery, apparatus,
motor vehicles, fittings, furniture, furnishings, fixtures, parts, accessories
and all replacements and substitutions therefor or accessions thereto.
"GENERAL INTANGIBLES" shall mean and include all of the
Obligor's general intangibles, whether now owned or hereafter acquired
including, without limitation, all choses in action, causes of action, corporate
or other business records, inventions, designs, patents, patent applications,
equipment formulations, manufacturing procedures, quality control procedures,
trademarks, trade secrets, goodwill, copyrights, registrations, licenses,
franchises, customer lists, tax refunds, tax refund claims, computer programs,
all claims under guaranties, security interests or other security held by or
granted to the Obligor to secure payment of any of the Receivables by an account
debtor, all rights of indemnification and all other intangible property of every
kind and nature (other than Receivables).
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"INSTRUMENT COLLATERAL" shall mean (a) all Distributions on or
in respect of (i) the instruments or investment property listed in Schedule A,
or (ii) any instruments or property which constitute Instrument Collateral by
virtue of any provision of this definition (whether, in either case, upon
conversion of convertible securities included therein or through stock split,
spin-off, reclassification, merger, consolidation, sale of assets, combination
of shares or otherwise) and (b) all other instruments and other property issued
with respect to or in exchange for (i) the instruments listed in Schedule A or
(ii) any instruments or other property which constitute Instrument Collateral by
virtue of any provision of this definition (whether, in either case, upon
conversion of convertible securities included therein or through stock split,
spin-off, reclassification, merger, consolidation, sale of assets, combination
of shares or otherwise).
"INVENTORY" shall mean all of the Obligor's now owned or
hereafter acquired inventory, goods, merchandise and other personal property,
wherever located, to be furnished under any contract of service or held for sale
or lease, all raw materials, work in process, finished goods and materials and
supplies of any kind, nature or description which are or might be used or
consumed in the Obligor's business or used in selling or furnishing such goods,
merchandise and other personal property, and all documents of title or other
documents representing them.
"LEASEHOLD INTERESTS" shall mean all of the Obligor's right,
title and interest in and to the premises located at Local No. 2, Solar No. 6,
Seccion 3B, within the Industrial Free Zone of San Pedro de Marcoris,
Municipality and Province of San Pedro de Marcoris.
"PERMITTED LIENS" shall mean (a) liens in favor of BNY; (b)
liens for taxes, assessments or other governmental charges not delinquent, or,
being contested in good faith and by appropriate proceedings and with respect to
which proper reserves have been taken by Obligor; (c) deposits or pledges to
secure obligations under workmen's compensation, social security or similar
laws, or under unemployment insurance; (d) deposits or pledges to secure bids,
tenders, contracts (other than contracts for the payment of money), leases,
statutory obligations, surety and appeal bonds and other obligations of like
nature arising in the ordinary course of Obligor's business; and (e) judgment
liens that have been stayed or bonded and mechanics', workmen's, materialmen's,
carriers' or other like liens arising in the ordinary course of Obligor's
business with respect to obligations which are not due or which are being
contested in good faith by Obligors.
"REAL PROPERTY" shall mean all of the Obligor's right, title
and interest in and to any now owned or hereafter acquired real property and all
buildings and improvements located thereon.
"RECEIVABLES" shall mean and include all of the Obligor's
accounts, contract rights, instruments, documents, chattel paper, general
intangibles relating to accounts, drafts and acceptances, and all other forms of
obligations owing to the Obligor arising out of or in connection with the sale
or lease of Inventory or the rendition of services, all guarantees and other
security therefor, whether secured or unsecured, now existing or hereafter
created, and whether or not specifically sold or assigned to the BNY hereunder.
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(c) The words "it" or "its" as used herein shall be deemed to
refer to individuals and to business entities.
14. NOTICES.
Any notice or request hereunder may be given to Obligor and to BNY
at their respective addresses set forth below or at such other address as may
hereafter be specified in a notice designated as a notice of change of address
under this Section. Any notice or request hereunder shall be given by (a) hand
delivery, (b) registered or certified mail, return receipt requested, (c) telex
or telegram, subsequently confirmed by registered or certified mail, or (d)
telefax to the number set out below (or such other number as may hereafter be
specified in a notice designated as a notice of change of address) with
telephone communication to a duly authorized officer of the recipient confirming
its receipt as subsequently confirmed by registered or certified mail. Notices
and requests shall, in the case of those by mail or telegram, be deemed to have
been given three (3) Business Days after mailing, or when delivered to the
telegraph office addresses as provided in this Section.
(a) If to BNY, at: BNY FINANCIAL CORPORATION
1290 Avenue of the Americas
New York, New York 10104
Attention: Anthony Vassallo
Telephone: (212) 408-7229
FAX: (212) 408-4384
With copy to: BNY FINANCIAL CORPORATION
1290 Avenue of the Americas
New York, New York 10104
Attention: Frank Imperato
Telephone: (212) 408-7267
Fax: (212) 408-7372
OTTERBOURG, STEINDLER, HOUSTON
& ROSEN, PC.
230 Park Avenue
New York, New York 10169-0075
Attention: Mitchell M. Brand, Esq.
Telephone: (212) 661-9100
FAX: (212) 682-6104
(b) If to Obligor, at: TII INTERNATIONAL, INC.
c/o TII Industries, Inc.
1385 Akron Street
Copiague, New York 11726
Attention: Chief Financial Officer
Telephone: (516) 789-5093
FAX: (516) 789-2228
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Any requirement under applicable law of reasonable notice by BNY to
Obligor of any event shall be met if notice is given to Obligor in the manner
prescribed above at least seven days before (a) the date of such event or (b)
the date after which such event will occur.
15. GENERAL.
(a) If this Agreement is executed by two or more Obligors, they
shall be jointly and severally liable hereunder, all provisions hereof regarding
the Obligations or the Collateral shall apply to the Obligations and Collateral
of any or all of them and the termination of this Agreement as to one or more of
such Obligors shall not terminate this Agreement as to any remaining Obligors.
(b) This Agreement shall be binding upon the heirs, executors,
administrators, assigns or successors of each of the undersigned Obligors and
shall inure to the benefit of and be enforceable by BNY, its successors,
transferees and assigns.
(c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof in that jurisdiction or affecting the validity or
enforceability of such provision in any other jurisdiction.
Dated, in New York, New York: April 30, 1998
TII INTERNATIONAL, INC.
By: /S/ PAUL SEBETIC
------------------------
Title: VICE PRESIDENT-FINANCE
1385 Akron Street
Copiague, New York 11726
Accepted in New York, New York, on April 30, 1998
BNY FINANCIAL CORPORATION
By: /S/ JOHN J. MCFADDEN
------------------------
Title: SENIOR VICE PRESIDENT
1290 Avenue of the Americas
New York, New York 10104
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SCHEDULE A
All of the "Pledged Securities" as said term is defined in that certain Stock
Pledge and Security Agreement dated the date hereof executed by Obligor in favor
of BNY.
14
BNY FINANCIAL CORPORATION
GENERAL SECURITY AGREEMENT
In consideration of loans, credit or other financial accommodation
extended or continued from time to time to, or on the guaranty, endorsement or
other assurance of, the undersigned ("OBLIGOR") by BNY Financial Corporation
("BNY"), Obligor hereby agrees as follows:
1. SECURITY INTEREST.
(a) To secure the payment and performance of all of the
Obligations, Obligor hereby grants to BNY a continuing security interest in, and
assigns and pledges to BNY, the Collateral.
(b) (i) "COLLATERAL" shall mean and include:
(A) all Receivables;
(B) all Equipment;
(C) all General Intangibles;
(D) all Inventory;
(E) all Real Property;
(F) all Instrument Collateral;
(G) all Leasehold Interests;
(H) all of the Obligor's right, title and interest in
and to (1) investment property, contract rights, instruments, documents and
chattel paper; (2) its goods and other property including, but not limited to
all merchandise returned or rejected by customers, relating to or securing any
of the Receivables; (3) all of the Obligor's rights as a consignor, a consignee,
an unpaid vendor, mechanic, artisan, or other lienor, including stoppage in
transit, set off, detinue, replevin, reclamation and repurchase; (4) all
additional amounts due to the Obligor from any customer relating to the
Receivables; (5) other property, including warranty claims relating to any goods
securing this Agreement; (6) if and when obtained by the Obligor, all real and
personal property of third parties in which the Obligor has been granted a lien
or security interest as security for the payment or enforcement of Receivables;
and (7) any other goods, personal property or real property now owned or
hereafter acquired in which the Obligor has expressly granted a security
interest or may in the future grant a security interest to the BNY hereunder, or
in any amendment or supplement hereto, or under any other agreement between the
BNY and the Obligor;
(I) all of the Obligor's ledger sheets, ledger cards,
files, correspondence, records, books of account, business papers, computers,
computer software
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(owned by the Obligor or in which it has an interest), computer programs, tapes,
disks and documents relating to clauses (A), (B), (C), (D), (E), (F), (G), or
(H) above; and
(J) all proceeds and products of clauses (A), (B),
(C), (D), (E), (F), (G) and (H) above in whatever form, including, but not
limited to: cash, deposit accounts (whether or not comprised solely of
proceeds), certificates of deposit, insurance proceeds (including hazard, flood
and credit insurance), negotiable instruments and other instruments for the
payment of money, chattel paper, security agreements or documents.
(ii) "OBLIGATIONS" shall mean and include all indebtedness,
liabilities, obligations, covenants and duties of Obligor to BNY or any
Affiliate of BNY (including those which BNY or such Affiliate may have acquired
from others) of every kind, nature and description, direct or indirect, absolute
or contingent, due or not due, contractual or tortious, liquidated or
unliquidated, arising by operation of law or otherwise, now existing of
hereafter arising, and whether or not evidenced by any note or other instrument
or agreement and whether or not for the payment of money, including, but not
limited to, indebtedness, obligations and liabilities to BNY or such Affiliate
of Obligor as a member of any partnership, syndicate, association or other
group, or as a guarantor of the Obligations of any other entity to BNY or such
affiliate.
(iii) Affiliate, Equipment, General Intangibles, Instrument
Collateral, Inventory, Leasehold Interest, Real Property, Receivables, and
certain other terms used herein are defined in Section 13 hereof.
2. RANK AND PERFECTION OF SECURITY INTEREST.
(a) Obligor will not grant or permit to exist, nor shall there
exist, any security interest in, lien, attachment, levy or encumbrance upon, or
assignment or pledge as security of, any of the Collateral, except the security
interest of and assignment and pledge to BNY hereunder and Permitted Liens.
(b) (i) Obligor will take all action requested by BNY, or which
may be necessary or desirable, to perfect, continue, evidence, preserve, protect
or validate the security interest of and assignment and pledge to BNY hereunder
or to enable BNY to exercise and enforce its rights hereunder, including, but
not limited to, (A) executing and delivering one or more notices, statements,
agreements or other writings, and (B) delivering to BNY, and stamping or
otherwise marking, in such manner as BNY may specify, any and all chattel paper,
instruments, letters and advices of credit and documents constituting part of
the Collateral, in each case endorsed or accompanied by such instruments of
assignment as BNY may specify.
(ii) Obligor hereby authorizes BNY, at its option but without
any obligation so to do, to file financing and continuation statements and
amendments to financing statements, naming Obligor as debtor, with respect to
any of the Collateral without the signature of Obligor, and agrees that a
carbon, photographic or other reproduction of this Agreement or of a financing
statement is sufficient as a financing statement.
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3. COVENANTS RELATING TO COLLATERAL. Obligor covenants that:
(a) It shall at all times: (i) be the sole owner of each and every
item of Collateral, (ii) defend the Collateral against the claims and demands of
all persons and (iii) in the case of tangible property constituting part of the
Collateral, (A) properly maintain and keep in good order and repair such
property and (B) keep such property fully insured with responsible companies
acceptable to BNY against such risks as such Collateral may be subject to, or as
BNY may request, under policies containing loss payable clauses naming BNY as
loss payee as its interests may appear and otherwise in form and substance
satisfactory to BNY, and providing that: (1) all proceeds thereof shall be
payable to BNY, (2) such insurance shall not be affected by any act or neglect
of Obligor or other owner of the property described in such policy; and (3) such
policy and loss payable clause may not be cancelled or amended except upon
thirty days' prior written notice to BNY;
(b) It will comply in all material respects with the requirements
of all leases, mortgages and other instruments relating to premises where any
Collateral is located;
(c) It will not sell or otherwise dispose of any of the
Collateral, except that, if the same constitute Collateral, (i) accounts may be
collected in the ordinary course of business, and (ii) inventory may be sold in
the ordinary course of business, and (iii) worn out or obsolete equipment may be
sold by Obligor and (iv) as otherwise agreed to by BNY;
(d) It will give BNY prompt notice of (i) any change in (A) its
name, identity or corporate structure, (B) the location of its chief executive
office or any other place of business, or (C) the location of any of the
Collateral or its books and records concerning any accounts, (ii) the location
of each new place of business opened by Obligor, (iii) each new location of any
Collateral, and (iv) any substantial loss or depreciation in the value of any of
the Collateral, and will provide BNY with such other information as to the
Collateral as BNY may request.
(e) It will (i) whether or not BNY shall have exercised its rights
under Section 4(b)(iii) hereof, receive and hold all Distributions (other than
Ordinary Distributions BNY has released pursuant to the provisions of Section
4(c) hereof) and other Instrument Collateral in trust for BNY, and not commingle
the same with any of its other funds or property and immediately deliver the
same to BNY in the identical form received and (ii) give BNY copies of all
notices and other communications received by Obligor with respect to any
instruments registered in the name of Obligor constituting part of the
Collateral.
4. PRE-EVENT OF DEFAULT RIGHTS.
(a) At any time and from time to time: (i) BNY may and is hereby
authorized to transfer into or register in the name of itself or its nominee any
instruments or documents constituting a part of the Collateral without notice to
Obligor; (ii) with respect to instruments, if any, constituting part of the
Collateral that are registered in the name of BNY, BNY may receive and retain
all Distributions, other than Ordinary Distributions that BNY has released
pursuant to Section 4(c); and (iii) Obligor will: (A) permit representatives of
BNY during normal business hours to inspect its premises and books and records
pertaining to the Collateral and make extracts from such books and records; and
(B) upon request, enter into warehousing, lockbox or
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other custodial arrangements satisfactory to BNY. The costs of such inspections
shall be subject to the provisions of Section 4.10 of the Affiliate Loan
Agreements.
(b) BNY may (i) at any time after the occurrence of an Event of
Default and during its continuance: with respect to instruments, if any,
constituting part of the Collateral, BNY may, by notice to Obligor, terminate
Obligor's rights under Section 4(c) hereof (in which case BNY's release pursuant
to such Section of any and all Ordinary Distributions shall thereupon be
automatically revoked) and, in its own or Obligor's name, exercise any and all
powers with respect to such instruments with the same force and effect as could
Obligor; (ii) BNY may, without notice to Obligor: (A) after the occurrence of an
Event of Default and during its continuance, if the Collateral consists in whole
or in part of accounts of or other claims or rights of Obligor (including
accounts, claims and rights which are Collateral by reason of their constituting
proceeds), notify the account debtors with respect to such accounts, and all
other persons against whom Obligor has such claims or rights, of BNY's rights
hereunder, collect all amounts payable with respect to such accounts, claims and
rights directly and apply such collections to the repayment of the Obligations
in such order as it may elect; (B) after the occurrence of an Event of Default
and during its continuance, in its own or Obligor's name, demand, sue for,
collect or receive any money or property payable or receivable on account of or
in exchange for, make any compromise or settlement with respect to, or modify
any of the terms of any of, the Collateral as BNY may in its sole discretion
elect; (C) after the occurrence of an Event of Default and during its
continuance, if the Collateral includes any of Obligor's accounts, receive and
open mail addressed to Obligor and change the address for delivery of Obligor's
mail to an address designated by BNY and notify the postal authorities of any
such change; (D) at any time, in the name and on behalf of Obligor, endorse
instruments and other evidences of payment collected or received by BNY on
account of the Collateral; and (E) after the occurrence of an Event of Default
and during its continuance, appropriate and hold, or apply (directly or by way
of set-off) to the payment of the Obligations (whether or not then due), all
money of Obligor then or thereafter in possession of BNY, all amounts
representing Distributions then or thereafter in the possession of BNY, the
balance of every deposit account (demand or time, matured or unmatured) of
Obligor then or thereafter with BNY and every other claim of Obligor then or
thereafter against BNY; and (iii) Obligor will, upon request of BNY: (A) receive
and hold all proceeds of Collateral in trust for BNY and not commingle any
collections with any of its other funds; and (B) immediately deliver such
collections to BNY in the identical form received.
(c) Unless and until BNY exercises its rights under Section 4(b),
Obligor may, with respect to any instruments constituting part of the
Collateral, (i) collect and receive for its own use all Ordinary Distributions
(and for such purpose and to that extent, BNY hereby releases each such
Distribution from the Collateral, such release to be effective in the case of
each Ordinary Distribution at the time thereof); and (ii) vote and give
consents, ratifications and waivers with respect to such instruments except to
the extent that any such would, in the sole judgment of BNY, detract from the
value of such instruments as Collateral hereunder, and from time to time upon
request from Obligor, BNY shall deliver to Obligor suitable assignments, orders
and proxies so that Obligor may receive such Distributions and cast such votes,
consents, ratifications and waivers; each such request from Obligor shall
constitute a representation and warranty by Obligor hereunder that there is no
reason at such time for BNY to deem itself to be insecure or the risk of
non-payment or non-performance of any of the Obligations to be increased.
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(d) BNY may after the occurrence of an Event of Default and during
its continuance, obtain the appointment of a receiver of any of the Collateral
and Obligor waives any right to notice of and consents to such appointment.
5. EVENTS OF DEFAULT.
(a) The occurrence of any one or more of the following events
shall constitute an "Event of Default" :
(i) failure by Obligor to pay any principal or interest on
the Obligations when due, whether at maturity or by reason of acceleration
pursuant to the terms of this agreement or by notice of intention to prepay, or
by required prepayment or failure to pay any other liabilities or make any other
payment, fee or charge provided for herein when due;
(ii) the occurrence of an "Event of Default" under, and as
such quoted term is defined in, the Affiliate Loan Agreements;
(iii) any representation or warranty made or deemed made by
Obligor in this Agreement or any related agreement or in any certificate,
document of financial or other statement furnished at any time in connection
herewith or therewith shall prove to have been misleading in any material
respect on the date when made or deemed to have been made;
(iv) issuance of a notice of lien, charge, claim, levy
assessment, injunction or attachment against a material portion of the Obligor's
property which is not stayed or lifted within thirty (30) days;
(v) failure or neglect of the Obligor to perform, keep or
observe any term, provision, condition, covenant contained herein;
(vi) any judgment is rendered or judgment liens filed against
the Obligor for an amount in excess of $100,000 which within thirty (30) days of
such rendering or filing is not either satisfied, stayed or discharged of
record;
(vii) any Obligor or any Affiliated Borrower of shall (A)
apply for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its property, (B) admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations of its present
business, (C) make a general assignment for the benefit of creditors, (D)
commence a voluntary case under any state or federal bankruptcy laws (as now or
hereafter in effect), (E) be adjudicated a bankrupt or insolvent, (F) file a
petition seeking to take advantage of any other law providing for the relief of
debtors, (G) acquiesce to, or fail to have dismissed, within thirty (30) days,
any petition filed against it in any involuntary case under such bankruptcy
laws, or (H) take any action for the purpose of effecting any of the foregoing;
(viii)any change in Obligor's condition or affairs (financial
or otherwise) which in BNY's good faith opinion materially impairs the
Collateral or the ability of Obligor to perform its Obligations under this
Agreement;
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(ix) if any lien created hereunder or provided for hereby or
under any related agreement for any reason ceases to be or is not a valid and
perfected lien having a first priority interest;
(x) a default of the obligations of Obligor under any other
agreement with any person (other than BNY) to which it is a party shall occur
which adversely affects, in any material respect, its condition, affairs or
prospects (financial or otherwise) which default is not cured within any
applicable grace period;
(xi) in the event that TII International, Inc. fails to own
100% of the issued and outstanding capital stock of Obligor;
(xii) any material provision of this Agreement shall, for any
reason, cease to be valid and binding on Obligor, or Obligor shall so claim in
writing to BNY; and
(xiii)failure by Obligor to deliver to BNY on or before April
30, 1998, a physical count of Obligor' Inventory, the results of which physical
count of Inventory shall be acceptable to BNY in its sole discretion, together
with adjustments to Obligor' books and records, if any, as a result of such
physical count of Inventory, which adjustments, if any, shall be acceptable to
BNY in its sole discretion.
(b) The occurrence of an Event of Default shall be conclusively
presumed to have increased the risk of non-payment or non-performance of the
Obligations.
6. POST-EVENT OF DEFAULT RIGHTS. Upon the occurrence of an Event of
Default (such default not having previously been cured), and at any time or from
time to time thereafter:
(a) In the case of any Event of Default, other than an Event of
Default referred to in clause (vii) of paragraph (a) of Section 5, BNY may
declare, by notice to Obligor, any and all of the Obligations immediately due
and payable, and, in the case of any Event of Default referred to in clause
(vii) or (ix) of paragraph (a) of Section 5, all of the Obligations shall
automatically be and become due and payable, in either case without any other
presentment, demand, protest or notice of any kind, anything in any other
agreement to the contrary notwithstanding;
(b) BNY shall have no obligation to make further loans, extensions
of credit or other financial accommodations to or on behalf of Obligor, anything
in any other agreement to the contrary notwithstanding;
(c) BNY may exercise all other rights to which it is entitled
hereunder, including but not limited to those specified in Section 4 hereof;
(d) Obligor shall, upon request of BNY, assemble the Collateral
and maintain or deliver it into the possession of BNY at such place or places as
BNY may designate and as are reasonably convenient to both BNY and Obligor;
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(e) BNY may (i) without notice, demand or other process, and
without charge, enter any of Obligor's premises and, without breach of the
peace, until BNY completes the enforcement of its rights in the Collateral, take
possession of such premises or place custodians in exclusive control thereof,
remain on such premises and use the same and any of Obligor's equipment for the
purpose of completing any work-in-process, preparing any Collateral for
disposition and disposing of or collecting any Collateral, and (ii) in the
exercise of its rights under this Agreement, without payment of compensation of
any kind, use any and all trademarks, trade styles, trade names, patents, patent
applications, licenses, franchises and the like to the extent of Obligor's
rights therein and Obligor hereby grant a license for that purpose; and
(f) If the Collateral consists in whole or in part of instruments
and BNY elects to sell or otherwise dispose of such instruments, (i) Obligor
will, if it controls the issuer of such instruments, or if it otherwise has the
right to effect such registration, and if BNY deems such registration to be
desirable, cause such instruments to be registered under the Securities Act of
1933, as amended, and take all other action, including but not limited to
complying with the "blue sky" or securities laws of the several states and
delivering to BNY appropriate quantities of prospectuses, necessary or
appropriate so as to permit the public sale of other disposition thereof by BNY
in such jurisdictions as BNY may select, and indemnify, in the form then
customary, all persons who are underwriters, statutory or otherwise, of such
instruments in connection with such sale or disposition, such indemnity, to the
extent applicable to BNY, to be in addition to that afforded BNY under Section
8(c) hereof, and (ii) BNY may elect not to exercise its rights under clause (i)
and in that event may, if in its judgment it shall be necessary or desirable so
to do, restrict the number of prospective bidders so as to comply with the
provisions of Section 5 of such Securities Act, and restrict such prospective
bidders to persons who will represent and agree that they are purchasing the
instruments in question for their own account for investment and not with a view
to the distribution or resale of any thereof and who will further agree that
such instruments purchased by them may bear an appropriate restrictive legend to
that effect.
7. GENERAL REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Obligor hereby
represents, warrants and agrees that:
(a) The execution, delivery and performance of this Agreement are
within its powers, corporate or otherwise, have been duly authorized by all
required action and do not and will not contravene any law or any agreement or
undertaking to which it is a party or by which it may in any way be bound or, if
Obligor is a corporation, its certificate of incorporation or bylaws;
(b) Obligor will promptly (but in no event later than ten (10)
days after such request) furnish BNY with all information concerning its
business and financial condition as BNY may reasonably request; and
(c) Each of the representations and warranties contained in the
Questionnaire, if any, submitted to BNY by Obligor in connection with this
Agreement is true and correct on the date hereof as if made on the date hereof
and all other information, including financial statements and projections,
furnished to BNY at any time by or on behalf of Obligor was and will be complete
and correct in all material respects to the extent necessary for the purpose of
presenting the subject matter thereof fairly to BNY.
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8. EXPENSES OF OBLIGOR'S DUTIES; BNY'S RIGHT TO PERFORM ON OBLIGOR'S
BEHALF; BNY'S EXPENSES AND INDEMNIFICATION.
(a) Obligor's agreements and duties hereunder shall be performed
by it at its sole cost and expense.
(b) If Obligor shall fail to do any act or thing which it has
covenanted to do hereunder, BNY may (but shall not be obligated to ) do the same
or cause it to be done, either in its name or in the name and on behalf of
Obligor, and Obligor hereby irrevocably authorizes BNY so to act.
(c) Obligor agrees to reimburse BNY for all costs and reasonable
expenses, including attorney's fees and disbursements, incurred, and to
indemnify and hold BNY harmless from and against all losses suffered, by BNY in
connection with (i) BNY's exercise of any right or remedy granted to it
hereunder, (ii) any claim and the prosecution or defense thereof arising out of
or in any way connected with this Agreement, and (iii) the collection or
enforcement of the Obligations.
(d) Amounts payable by Obligor under this Section 8 shall
constitute Obligations which shall be payable on demand.
9. NO WAIVERS OF RIGHTS HEREUNDER; RIGHTS CUMULATIVE.
(a) No delay by BNY in exercising any right hereunder, or under
any of the other Obligations, shall operate as a waiver thereof, nor shall any
single or partial exercise of any right preclude other or further exercises
thereof or the exercise of any other right. No waiver of any of the other
Obligations shall be enforceable against BNY unless in writing and signed by an
officer of BNY, and unless it expressly refers to the provision affected; any
such waiver shall be limited solely to the specific event waived.
(b) All rights granted BNY hereunder shall be cumulative and shall
be supplementary of and in addition to those granted or available to BNY with
respect to the other Obligations or under applicable law and nothing herein
shall be construed as limiting any such other right.
10. ASSIGNMENT; PARTICIPATIONS.
(a) BNY may assign any or all of the Obligations and may transfer
therewith any or all of the Collateral therefor in accordance with the
provisions of the Affiliate Loan Agreements and the transferee shall have the
same rights with respect thereto as had BNY. Upon such transfer, BNY shall be
released from all responsibility for the Collateral so transferred.
(b) BNY may from time to time sell or otherwise grant
participations in any of the Obligations in accordance with the provisions of
the Affiliate Loan Agreements and the holder of any such participation shall,
subject to the terms of any agreement between BNY and such holder, be entitled
to the same benefits with respect to any Collateral for the Obligations in which
such holder is a participant as BNY. Obligor agrees that each such holder may
exercise any and
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all rights of banker's lien, set-off and counterclaim with respect to its
participation in the Obligations as fully as though Obligor were directly
indebted to such holder in the amount of such participation.
11. CONTINUING AGREEMENT; TERMINATION.
(a) This Agreement shall be a continuing agreement and shall apply
to all future Obligations, notwithstanding that at any particular time all of
the Obligations then outstanding shall have been paid in full.
(b) This Agreement shall continue in full force and effect until
written notice of termination shall have been received by BNY at its address
stated below, but, notwithstanding any such notice, this Agreement shall
continue in full force and effect until all Obligations then outstanding
(whether absolute or contingent) shall have been paid in full and all rights of
BNY hereunder shall have satisfied or other arrangements for the securing of
such rights satisfactory to BNY shall have been made. Upon receipt of any such
notice, BNY shall have no obligation to make further loans, extensions of credit
or other financial accommodations to or on behalf of Obligor, anything in any
other agreement to the contrary notwithstanding.
12. GOVERNING LAW; JURISDICTION; CERTAIN WAIVERS.
(a) This Agreement shall be governed by and interpreted and
enforced in accordance with the laws of the State of New York, and BNY shall
have the rights and remedies of a secured party under applicable law, including
but not limited to the Uniform Commercial Code of New York.
(b) OBLIGOR AGREES THAT ALL ACTIONS AND PROCEEDINGS RELATING
DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR ANY OF THE OTHER OBLIGATIONS SHALL
BE LITIGATED IN COURTS LOCATED WITHIN THE STATE OF NEW YORK OR ELSEWHERE AS BNY
MAY SELECT AND THAT SUCH COURTS ARE CONVENIENT FORUMS AND SUBMITS TO THE
PERSONAL JURISDICTION OF SUCH COURTS.
(c) Obligor waives personal service of process and consents that
service of process upon it may be made by certified or registered mail, return
receipt requested, directed to Obligor at its address last specified for notices
hereunder, and service so made shall be deemed completed two days after the same
shall have been so mailed.
(d) OBLIGOR WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BETWEEN IT AND BNY AND WAIVES THE RIGHT TO ASSERT IN ANY ACTION OR
PROCEEDING WITH REGARD TO THIS AGREEMENT OR ANY OF THE OBLIGATIONS ANY OFFSETS
OR COUNTERCLAIMS WHICH IT MAY HAVE.
(e) BNY shall not be required to take any steps necessary to
preserve rights against prior parties.
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13. DEFINITIONS. As used herein:
(a) All terms defined in Article 1 or 9 of the New York Uniform
Commercial Code as in effect on the date of this Agreement (other than the term
"Collateral") are used herein (including in Schedule A hereto) with the meanings
therein given; such terms include but are not limited to "account," "chattel
paper," "deposit account," "document," "equipment," "investment property,"
"general intangibles," "goods," "instrument," "inventory," "money," and
"security interest."
(b) The following terms shall have the indicated meanings:
"AFFILIATE" of BNY shall mean a corporation that directly or indirectly controls
or is controlled by, or is under common control with, BNY. "DISTRIBUTIONS" shall
mean Ordinary Distributions and Extraordinary Distributions; "ORDINARY
DISTRIBUTIONS" shall mean cash dividends to the extent paid out of retained
earnings, and interest paid in cash, in each case with respect to all
instruments constituting part of the Collateral, except to the extent that any
such dividend is made in connection with a partial or total liquidation or a
reduction of capital, or any such interest is penalty interest, or, in each
case, to the extent the same is not in the ordinary course; and "EXTRAORDINARY
DISTRIBUTIONS" shall mean all dividends, interest and distributions on or in
respect of and all proceeds of such instruments other than Ordinary
Distributions.
"AFFILIATED BORROWERS" shall mean, individually and
collectively, TII Industries, Inc., a corporation organized under the laws of
the State of Delaware; TII Corporation, a corporation organized under the laws
of the State of Delaware; TII-Ditel, Inc., a corporation organized under the
laws of the State of North Carolina; Crown Tool & Die Company, Inc., a
corporation organized under the laws of the Commonwealth of Puerto Rico, and
their respective successors and assigns.
"AFFILIATE LOAN AGREEMENTS" shall mean shall notes,
instruments, mortgages, agreements, guaranties and other documents now or
hereafter executed and/or delivered by and among BNY and each of the Affiliated
Borrowers, as the same now exist or may hereafter be amended, restated, renewed,
replaced, extended or otherwise modified.
"EQUIPMENT" shall mean and include all of the Obligor's goods
(excluding Inventory) whether now owned or hereafter acquired and wherever
located including, without limitation, all equipment, machinery, apparatus,
motor vehicles, fittings, furniture, furnishings, fixtures, parts, accessories
and all replacements and substitutions therefor or accessions thereto.
"GENERAL INTANGIBLES" shall mean and include all of the
Obligor's general intangibles, whether now owned or hereafter acquired
including, without limitation, all choses in action, causes of action, corporate
or other business records, inventions, designs, patents, patent applications,
equipment formulations, manufacturing procedures, quality control procedures,
trademarks, trade secrets, goodwill, copyrights, registrations, licenses,
franchises, customer lists, tax refunds, tax refund claims, computer programs,
all claims under guaranties, security interests or other security held by or
granted to the Obligor to secure payment of any of the Receivables by an account
debtor, all rights of indemnification and all other intangible property of every
kind and nature (other than Receivables).
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"INSTRUMENT COLLATERAL" shall mean (a) all Distributions on or
in respect of (i) the instruments or investment property listed in Schedule A,
or (ii) any instruments or property which constitute Instrument Collateral by
virtue of any provision of this definition (whether, in either case, upon
conversion of convertible securities included therein or through stock split,
spin-off, reclassification, merger, consolidation, sale of assets, combination
of shares or otherwise) and (b) all other instruments and other property issued
with respect to or in exchange for (i) the instruments listed in Schedule A or
(ii) any instruments or other property which constitute Instrument Collateral by
virtue of any provision of this definition (whether, in either case, upon
conversion of convertible securities included therein or through stock split,
spin-off, reclassification, merger, consolidation, sale of assets, combination
of shares or otherwise).
"INVENTORY" shall mean all of the Obligor's now owned or
hereafter acquired inventory, goods, merchandise and other personal property,
wherever located, to be furnished under any contract of service or held for sale
or lease, all raw materials, work in process, finished goods and materials and
supplies of any kind, nature or description which are or might be used or
consumed in the Obligor's business or used in selling or furnishing such goods,
merchandise and other personal property, and all documents of title or other
documents representing them.
"LEASEHOLD INTERESTS" shall mean all of the Obligor's right,
title and interest in and to the premises located at Local No. 2, Solar No. 6,
Seccion 3B, within the Industrial Free Zone of San Pedro de Marcoris,
Municipality and Province of San Pedro de Marcoris.
"PERMITTED LIENS" shall mean (a) liens in favor of BNY; (b)
liens for taxes, assessments or other governmental charges not delinquent, or,
being contested in good faith and by appropriate proceedings and with respect to
which proper reserves have been taken by Obligor; (c) deposits or pledges to
secure obligations under workmen's compensation, social security or similar
laws, or under unemployment insurance; (d) deposits or pledges to secure bids,
tenders, contracts (other than contracts for the payment of money), leases,
statutory obligations, surety and appeal bonds and other obligations of like
nature arising in the ordinary course of Obligor's business; and (e) judgment
liens that have been stayed or bonded and mechanics', workmen's, materialmen's,
carriers' or other like liens arising in the ordinary course of Obligor's
business with respect to obligations which are not due or which are being
contested in good faith by Obligors.
"REAL PROPERTY" shall mean all of the Obligor's right, title
and interest in and to any now owned or hereafter acquired real property and all
buildings and improvements located thereon.
"RECEIVABLES" shall mean and include all of the Obligor's
accounts, contract rights, instruments, documents, chattel paper, general
intangibles relating to accounts, drafts and acceptances, and all other forms of
obligations owing to the Obligor arising out of or in connection with the sale
or lease of Inventory or the rendition of services, all guarantees and other
security therefor, whether secured or unsecured, now existing or hereafter
created, and whether or not specifically sold or assigned to the BNY hereunder.
11
<PAGE>
(c) The words "it" or "its" as used herein shall be deemed to
refer to individuals and to business entities.
14. NOTICES.
Any notice or request hereunder may be given to Obligor and to BNY
at their respective addresses set forth below or at such other address as may
hereafter be specified in a notice designated as a notice of change of address
under this Section. Any notice or request hereunder shall be given by (a) hand
delivery, (b) registered or certified mail, return receipt requested, (c) telex
or telegram, subsequently confirmed by registered or certified mail, or (d)
telefax to the number set out below (or such other number as may hereafter be
specified in a notice designated as a notice of change of address) with
telephone communication to a duly authorized officer of the recipient confirming
its receipt as subsequently confirmed by registered or certified mail. Notices
and requests shall, in the case of those by mail or telegram, be deemed to have
been given three (3) Business Days after mailing, or when delivered to the
telegraph office addresses as provided in this Section.
(a) If to BNY, at: BNY FINANCIAL CORPORATION
1290 Avenue of the Americas
New York, New York 10104
Attention: Anthony Vassallo
Telephone: (212) 408-7229
FAX: (212) 408-4384
With copy to: BNY FINANCIAL CORPORATION
1290 Avenue of the Americas
New York, New York 10104
Attention: Frank Imperato
Telephone: (212) 408-7267
Fax: (212) 408-7372
OTTERBOURG, STEINDLER, HOUSTON
& ROSEN, PC.
230 Park Avenue
New York, New York 10169-0075
Attention: Mitchell M. Brand, Esq.
Telephone: (212) 661-9100
FAX: (212) 682-6104
(b) If to Obligor, at: TII DOMINICANA, INC.
c/o TII Industries, Inc.
1385 Akron Street
Copiague, New York 11726
Attention: Chief Financial Officer
Telephone: (516) 789-5093
FAX: (516) 789-2228
12
<PAGE>
Any requirement under applicable law of reasonable notice by BNY to
Obligor of any event shall be met if notice is given to Obligor in the manner
prescribed above at least seven days before (a) the date of such event or (b)
the date after which such event will occur.
15. GENERAL.
(a) If this Agreement is executed by two or more Obligors, they
shall be jointly and severally liable hereunder, all provisions hereof regarding
the Obligations or the Collateral shall apply to the Obligations and Collateral
of any or all of them and the termination of this Agreement as to one or more of
such Obligors shall not terminate this Agreement as to any remaining Obligors.
(b) This Agreement shall be binding upon the heirs, executors,
administrators, assigns or successors of each of the undersigned Obligors and
shall inure to the benefit of and be enforceable by BNY, its successors,
transferees and assigns.
(c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof in that jurisdiction or affecting the validity or
enforceability of such provision in any other jurisdiction.
Dated, in New York, New York: April 30, 1998
TII DOMINICANA, INC.
By: /S/ PAUL SEBETIC
------------------------
Title: VICE PRESIDENT-FINANCE
1385 Akron Street
Copiague, New York 11726
Accepted in New York, New York, on April 30, 1998
BNY FINANCIAL CORPORATION
By: /S/ JOHN J. MCFADDEN
------------------------
Title: SENIOR VICE PRESIDENT
1290 Avenue of the Americas
New York, New York 10104
13
<PAGE>
SCHEDULE A
None
14
STOCK PLEDGE AND SECURITY AGREEMENT
Stock Pledge and Security Agreement (this "Pledge Agreement"), dated
as of the 30th day of April, 1998, by TII INDUSTRIES, INC., having its principal
place of business at 1385 Akron Street, Copiague, New York 11726 ("Pledgor"), to
and in favor of BNY FINANCIAL CORPORATION, having an office at 1290 Avenue of
the Americas, New York, New York 10104 ("Pledgee").
W I T N E S S E T H:
WHEREAS, Pledgee and Pledgor are contemporaneously herewith entering
into financing arrangements pursuant to which Pledgee may make loans and
advances and provide other financial accommodations to Pledgee as set forth in
the Revolving Credit, Term Loan and Security Agreement, dated of the date
herewith, by and among Pledgee, Pledgor and TII Corporation (the "Credit
Agreement") together with various other agreements, documents and instruments
referred to therein or at any time executed and/or delivered in connection
therewith or related thereto, including but not limited to, this Agreement (all
of the foregoing, as the same now exist or may hereafter be amended, modified,
supplemented, renewed, restated or replaced, being collectively referred to
herein as the "Financing Agreements");
WHEREAS, in order to induce Pledgee to enter into the Financing
Agreements and to make loans and advances and provide other financial
accommodations pursuant thereto, Pledgor has agreed to grant to Pledgee certain
collateral security as set forth herein;
WHEREAS, Pledgor is now the direct and beneficial owner of all of
the shares of capital stock described on SCHEDULE A hereto (the "Pledged
Securities"); and
WHEREAS, Pledgor has agreed to secure the payment and performance of
its obligations under the Financing Agreements, by (i) executing and delivering
to Pledgee this Pledge Agreement, (ii) delivering to Pledgee the Pledged
Securities which are registered in the name of Pledgor, together with
appropriate powers duly executed in blank by Pledgor, and (iii) delivering to
Pledgee any and all other documents which Pledgee deems necessary to protect
Pledgee's interests hereunder;
<PAGE>
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, receipt of which is hereby acknowledged, Pledgor
hereby agrees as follows:
1. CERTAIN DEFINITIONS
As used above and elsewhere in this Pledge Agreement the
following terms shall have the following meanings (all terms defined in the
Uniform Commercial Code which are not otherwise defined herein or in the Credit
Agreement, shall have the meanings set forth therein):
(a) "ISSUERS" shall mean and include each and every issuer
of the Pledged Securities.
(b) "PLEDGED PROPERTY" shall mean and include the (i)
Pledged Securities, together with all cash dividends, stock dividends,
redemptions, stock, securities options, substitutions, exchanges and other
distributions now or hereafter distributed by any of the Issuers with respect to
the Pledged Securities hereinafter be delivered into the possession of Pledgee,
(ii) Pledgor's records with respect to the foregoing, and (iii) the proceeds of
all of the foregoing.
(c) CREDIT AGREEMENT TERMS. Terms used herein which are
defined in the Credit Agreement and are not otherwise defined herein shall have
the meanings set forth in the Credit Agreement.
2. PLEDGE AND GRANT OF SECURITY INTEREST
As security for the prompt and unconditional payment and
performance when due of its Obligations to Pledgee, Pledgor hereby pledges,
hypothecates, assigns, transfers and sets over to Pledgee, the Pledged Property,
and grants to Pledgee a continuing security interest in the Pledged Property and
the proceeds thereof.
3. REPRESENTATIONS, COVENANTS AND WARRANTIES
Pledgor hereby covenants, represents and warrants, that:
(a) The Pledged Securities are authorized, validly issued,
fully paid and non-assessable capital stock of the respective Issuers,
constitute Pledgor's entire interest in the Issuers (except that it constitutes
sixty-five percent (65%) of the stock of Crown) and constitute all of the issued
and outstanding shares of capital stock of Issuers;
-2-
<PAGE>
(b) The Pledged Property is directly, legally and
beneficially owned by Pledgor free and clear of all claims, liens, pledges and
encumbrances of any kind, nature or description, except in favor of Pledgee;
(c) The Pledged Property is not subject to any restrictions
relative to the transfer thereof, except as required by applicable law, and
Pledgor has the right to transfer and hypothecate the Pledged Property free and
clear of any liens, encumbrances or restrictions, except as otherwise provided
herein;
(d) The Pledged Property is duly and validly pledged to
Pledgee and no consent or approval of any governmental or regulatory authority
or of any securities exchange or the like, nor any consent or approval of any
other third party is necessary to the validity of this Pledge Agreement which
has not been obtained and a copy of which has not been furnished to Pledgee;
(e) During the term of this Pledge Agreement, if Pledgor
shall receive, have registered in its name or become entitled to receive or
acquire, or have registered in its name any stock certificate, option, or right
with respect to the securities of any Issuer (including without limitation, any
certificate representing a dividend or a distribution or exchange of or in
connection with any reclassification of the Pledged Securities) whether as an
addition to, in substitution of, or in exchange for any of the Pledged Property,
Pledgor agrees to accept same as Pledgee's agent, to hold same in trust for
Pledgee and to deliver same forthwith to Pledgee or Pledgee's agent or bailee in
the form received, with the endorsement(s) of Pledgor where necessary and/or
appropriate powers and/or assignments duly executed to be held by Pledgee or
Pledgee's agent or bailee subject to the terms hereof, or if any of the
foregoing is uncertificated, register same with the Pledgee's security interest
noted therein as further security for Pledgor's Obligations to Pledgee;
(f) During the term of this Pledge Agreement, Pledgor shall
not directly or indirectly sell, assign, transfer, or otherwise dispose of, or
grant any option with respect to the Pledged Property, nor shall Pledgor create,
incur or permit any further pledge, hypothecation, encumbrance, lien, mortgage
or security interest with respect to the Pledged Property;
(g) So long as no default has occurred and is continuing,
Pledgor shall have the right to vote and exercise all corporate rights and to
receive cash dividends or real or personal property distributed by any Issuer
with respect to the Pledged Securities, provided that any stock of any Issuer,
or any options with respect to stock of any Issuer, so distributed shall be
subject to the security interest therein of Pledgee, as provided in subparagraph
(e) above; and
-3-
<PAGE>
(h) During the term of this Pledge Agreement, Pledgor shall
not permit any Issuer, directly or indirectly, to issue, sell, grant, assign,
transfer or otherwise dispose of, any additional shares of capital stock of the
Issuer or any option or warrant with respect to, or other right or security
convertible into, any additional shares of capital stock of such Issuer, now or
hereafter authorized, unless all such additional shares, options, warrants,
rights or other such securities are made and shall remain part of the Pledged
Property subject to the first priority security interest granted herein.
4. EVENTS OF DEFAULT
The occurrence of an Event of Default under the Credit Agreement
shall constitute a default under this Pledge Agreement.
5. REMEDIES AFTER DEFAULT
Immediately upon the occurrence of a default, and during the
continuance thereof, in addition to all other rights and remedies of Pledgee,
whether provided under law, the Financing Agreements or otherwise, Pledgee shall
have the following rights and remedies which may be exercised without notice to,
or consent by, the Pledgor, except as such notice or consent is expressly
provided for hereunder:
(a) Pledgee, at its option, shall be empowered to exercise its
continuing right to instruct the Issuers (or the appropriate transfer agent of
the Pledged Securities) to register any or all of the Pledged Property in the
name of Pledgee or in the name of Pledgee's nominee and Pledgee may complete, in
any manner Pledgee may deem expedient, any and all stock powers, assignments or
other documents heretofore or hereafter executed in blank by Pledgor and
delivered to Pledgee and, in furtherance of the foregoing, Pledgor shall execute
and deliver to Pledgee together herewith a Special Power of Attorney in the form
of EXHIBIT 1 hereto. After said instruction, and without further notice, Pledgee
may exercise all voting and corporate rights with respect to the Pledged
Securities and may exercise any and all rights of conversion, redemption,
exchange, subscription or any other rights, privileges, or options pertaining to
any shares of the Pledged Securities as if Pledgee were the absolute owner
thereof, including without limitation, the right to exchange, at its discretion,
any and all of the Pledged Securities upon any merger, consolidation,
reorganization, recapitalization or other readjustment with respect thereto.
Upon the exercise of any such rights, privileges or options by Pledgee, Pledgee
shall have the right to deposit and deliver any and all of the Pledged
Securities to any committee, depository, transfer agent, registrar or other
designated agency upon such terms and conditions as Pledgee may determine, all
without liability. However, Pledgee shall have no duty to exercise any of the
aforesaid rights, privileges or options and shall not be responsible for any
failure to do so or delay in doing so.
-4-
<PAGE>
(b) In addition to all of the rights and remedies of a secured
party under the Uniform Commercial Code or other applicable law, Pledgee shall
have the right, at any time and without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon Pledgor, or any other Person
(all and each of which demands, advertisements and/or notices are hereby
expressly waived to the extent permitted by law), to proceed forthwith to
collect, redeem, receive, appropriate, sell, or otherwise dispose of and deliver
the Pledged Property or any part thereof in one or more lots at public or
private sale or sales at any exchange, brokers board or at any of Pledgee's
offices or elsewhere at such prices and on such terms as Pledgee may deem best.
The foregoing disposition(s) may be for cash or on credit or for future delivery
without assumption of any credit risk by Pledgee, with Pledgee having the right
to purchase all or any part of said Pledged Property so sold at any such sale or
sales, public or private, free of any right or equity of redemption in Pledgor,
which right or equity is hereby expressly waived or released by Pledgor. The
proceeds of any such collection, redemption, recovery, receipt, appropriation,
realization or sale, after deducting all costs and expenses of every kind
incurred relative thereto or incidental to the care, safekeeping or otherwise of
any and all Pledged Property or in any way relating to the rights of Pledgee
hereunder (including, without limitation, appraisal, accountants, and attorneys'
fees and legal expenses whether or not due) shall be applied in such order and
manner as Pledgee may determine in its sole discretion. Pledgor agrees that five
(5) business days prior notice by Pledgee, sent by certified mail, postage
prepaid, designating the date after which a private sale may take place or a
public auction may be held, is reasonable notification of such matters.
(c) Pledgor recognizes that Pledgee may be unable to effect a
public sale of all or part of the Pledged Property by reason of certain
prohibitions contained in the Securities Act of 1933, as amended, as now or
hereafter in effect or in applicable Blue Sky or other state securities law, as
now or hereafter in effect, but may be compelled to resort to one or more
private sales to a restricted group of purchasers who will be obliged to agree,
among other things, to acquire such Pledged Property for their own account for
investment and not with a view to the distribution or resale thereof. If at the
time of any sale of the Pledged Property or any part thereof, the same shall
not, be effectively registered (if required) under the Securities Act of 1933
(or other applicable state securities law), as then in effect, Pledgee in its
sole and absolute discretion is authorized to sell the Pledged Property, or such
part thereof, by private sale in such manner and under such circumstances as
Pledgee or its counsel may deem necessary or advisable in order that such sale
may legally be effected without registration. Pledgor acknowledges and agrees
that private sales so made may be at prices and other terms less favorable to
the seller than if the Pledged Property were sold at public sale, and that
Pledgee has no obligation to delay the sale of any Pledged Property for the
period of time necessary to permit the Issuer of the Pledged Property, even if
such Issuer would agree, to register the
-5-
<PAGE>
Pledged Property for public sale under such applicable securities laws. Pledgor
acknowledges and agrees that any private sales made under the foregoing
circumstances shall be deemed to have been in a commercially reasonable manner.
(d) All of the Pledgee's rights and remedies, including but not
limited to the foregoing and those otherwise arising under this Pledge
Agreement, the Financing Agreements, the instruments and securities comprising
the Pledged Property, applicable law or otherwise, shall be cumulative and not
exclusive and shall be enforceable alternatively, successively or concurrently
as Pledgee may deem expedient. No failure or delay on the part of Pledgee in
exercising any of its options, powers or rights or partial or single exercise
thereof, shall constitute a waiver of such option, power or right.
6. FURTHER ASSURANCES
Pledgor agrees that at any time, and from time to time, upon the
request of Pledgee, Pledgor will execute and deliver such further documents,
including but not limited to stock powers, or other appropriate instruments of
transfer in form reasonably satisfactory to counsel for Pledgee, and will take
or cause to be taken such further acts as Pledgee may reasonably request in
order to effect the purposes of this Pledge Agreement and perfect or continue
the perfection of the security interest in the Pledged Property granted to
Pledgee hereunder, in conformity with applicable law.
7. MISCELLANEOUS
(a) Pledgee or Pledgee's agent or bailee shall have no duty or
liability to protect or preserve any rights pertaining thereto and shall be
relieved of all responsibility for the Pledged Property upon surrendering it to
Pledgor. Upon the termination of the Financing Agreements and the indefeasible
payment in full of Pledgor's Obligations to Pledgee this Agreement shall
terminate and Pledgee shall execute and deliver all instruments as may be
necessary or proper to return or release its security interest in the Pledged
Property.
(b) No course of dealing between Pledgor and Pledgee, nor any
failure or delay by Pledgee to exercise any right, power or privilege under this
Pledge Agreement, the Financing Agreements or under any of the other documents
or agreements between Pledgor and Pledgee, shall operate as a waiver hereof or
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. No waiver of any
provision of this Pledge Agreement shall be effective unless the same shall be
in writing and signed by Pledgee, and then such waiver shall be effective only
in the specific instance and for the purpose for which given.
-6-
<PAGE>
(c) This Pledge Agreement may not be changed, modified or amended,
in whole or in part, except by a writing signed by Pledgor and Pledgee.
(d) The provisions of this Pledge Agreement are severable, and if
any clause or provision hereof shall be held invalid or unenforceable in whole
or in part in any jurisdiction, then such invalidity or unenforceability shall
attach only to such clause or provision in any such jurisdiction or part
thereof, and shall not in any manner affect such clause or provision in any
other jurisdiction or any other clause or provision in this Pledge Agreement in
any jurisdiction.
(e) THE PARTIES HERETO WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDING OF ANY KIND OR NATURE IN ANY COURT WHETHER ARISING OUT OF, UNDER OR
BY REASON OF THIS PLEDGE AGREEMENT OR THE PLEDGED PROPERTY.
(f) This Pledge Agreement shall inure to the benefit of Pledgor
and Pledgee and their respective successors and assigns permitted under the
Financing Agreements, and shall be binding upon Pledgor and its successors and
assigns permitted under the Financing Agreements until all of the Pledgor's
Obligations to Pledgee have been indefeasibly paid in full.
(g) In the event any term or provision of this Pledge Agreement
conflicts with any term or provision of the Financing Agreements, such term or
provision of the Financing Agreements shall control.
8. GOVERNING LAW
THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ITS
CONFLICT OF LAWS RULES). ANY JUDICIAL PROCEEDING BROUGHT BY OR AGAINST THE
PLEDGOR WITH RESPECT TO ANY OF THE OBLIGATIONS, THIS PLEDGE AGREEMENT OR ANY
RELATED AGREEMENT MAY BE BROUGHT IN ANY COURT OF COMPETENT JURISDICTION IN THE
STATE OF NEW YORK, UNITED STATES OF AMERICA, AND, BY EXECUTION AND DELIVERY OF
THIS PLEDGE AGREEMENT, THE PLEDGOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND UNCONDITIONALLY THE NON-EXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH THIS PLEDGE AGREEMENT. NOTHING HEREIN SHALL AFFECT
THE RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT OF THE PLEDGEE TO BRING PROCEEDINGS AGAINST THE PLEDGOR IN THE
-7-
<PAGE>
COURTS OF ANY OTHER JURISDICTION. THE PLEDGOR WAIVES ANY OBJECTION TO
JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREUNDER AND SHALL NOT ASSERT
ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE OR BASED UPON FORUM NON
CONVENIENS. ANY JUDICIAL PROCEEDINGS BY THE PLEDGOR AGAINST THE PLEDGEE
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER OR CLAIM IN ANY WAY ARISING OUT
OF, RELATED TO OR CONNECTED WITH THIS PLEDGE AGREEMENT OR ANY RELATED AGREEMENT,
SHALL BE BROUGHT ONLY IN A FEDERAL OR STATE COURT LOCATED IN THE CITY OF NEW
YORK, STATE OF NEW YORK.
IN WITNESS WHEREOF, the undersigned has caused these presents to be
duly executed and delivered on the day and year first above written.
PLEDGOR:
TII INDUSTRIES, INC.
By: /S/ PAUL SEBETIC
-------------------------
Title: VICE PRESIDENT-FINANCE
-------------------------
-8-
<PAGE>
SCHEDULE A
PLEDGED SECURITIES
Class Certificate Number
Issuer of Stock Number of Shares
- ------ -------- ------ ---------
Crown Tool & Die Company, Inc. Common 4 650
TII International, Inc. Common 1 1,000
<PAGE>
EXHIBIT 1
SPECIAL POWER OF ATTORNEY
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
KNOW ALL MEN BY THESE PRESENTS, that TII INDUSTRIES, INC. having an
office at 1385 Akron Street, Copiague, New York 11726 (hereinafter "Pledgor"),
hereby appoints and constitutes BNY FINANCIAL CORPORATION, (hereinafter
"Pledgee") and each officer thereof, its true and lawful attorney, with full
power of substitution and with full power and authority to perform the following
acts on behalf of Pledgor at any time after the occurrence and during the
continuance of a default under the Pledge Agreement (as hereinafter defined):
1. Execution and delivery of any and all agreements, documents,
instruments of assignment, or other papers which Pledgee in its reasonable
discretion, deems necessary or advisable for the purpose of assigning, selling,
or otherwise disposing of all of the right, title, and interest of Pledgor in
and to the Pledged Securities, as defined in the Pledge Agreement, together with
all cash dividends, stock dividends, redemptions, securities or substitutions,
exchanges or other distributions now or hereafter pledged, assigned or otherwise
transferred to Pledgee by Pledgor in respect of the Pledged Securities and all
registrations, recordings, reissues, extensions, and renewals thereof, or for
the purpose of recording, registering and filing of, or accomplishing any other
formality with respect to the foregoing.
2. Execution and delivery of any and all documents, statements,
certificates or other papers which Pledgee in its sole discretion, deems
necessary or advisable to further the purposes described in paragraph 1 hereof.
This Power of Attorney, being a power coupled with an interest, is
made pursuant to a Stock Pledge and Security Agreement between Pledgor and
Pledgee dated of even date herewith (the "Pledge Agreement") and may not be
revoked until indefeasible payment in full of all Pledgor's "Obligations", as
such term is defined in the Pledge Agreement.
Dated as of April ___, 1998
PLEDGOR:
TII INDUSTRIES, INC.
By: __________________________
Title: _______________________
STOCK PLEDGE AND SECURITY AGREEMENT
Stock Pledge and Security Agreement (this "Pledge Agreement"), dated as of
the 30th day of April, 1998, by TII CORPORATION, having its principal place of
business at 1385 Akron Street, Copiague, New York 11726 ("Pledgor"), to and in
favor of BNY FINANCIAL CORPORATION, having an office at 1290 Avenue of the
Americas, New York, New York 10104 ("Pledgee").
W I T N E S S E T H:
WHEREAS, Pledgee and Pledgor are contemporaneously herewith entering into
financing arrangements pursuant to which Pledgee may make loans and advances and
provide other financial accommodations to Pledgee as set forth in the Revolving
Credit, Term Loan and Security Agreement, dated of the date herewith, by and
among Pledgee, Pledgor and TII Corporation (the "Credit Agreement") together
with various other agreements, documents and instruments referred to therein or
at any time executed and/or delivered in connection therewith or related
thereto, including but not limited to, this Agreement (all of the foregoing, as
the same now exist or may hereafter be amended, modified, supplemented, renewed,
restated or replaced, being collectively referred to herein as the "Financing
Agreements");
WHEREAS, in order to induce Pledgee to enter into the Financing Agreements
and to make loans and advances and provide other financial accommodations
pursuant thereto, Pledgor has agreed to grant to Pledgee certain collateral
security as set forth herein;
WHEREAS, Pledgor is now the direct and beneficial owner of all of the
shares of capital stock described on SCHEDULE A hereto (the "Pledged
Securities"); and
WHEREAS, Pledgor has agreed to secure the payment and performance of its
obligations under the Financing Agreements, by (i) executing and delivering to
Pledgee this Pledge Agreement, (ii) delivering to Pledgee the Pledged Securities
which are registered in the name of Pledgor, together with appropriate powers
duly executed in blank by Pledgor, and (iii) delivering to Pledgee any and all
other documents which Pledgee deems necessary to protect Pledgee's interests
hereunder;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, receipt of which is hereby acknowledged, Pledgor hereby
agrees
<PAGE>
as follows:
1. CERTAIN DEFINITIONS
As used above and elsewhere in this Pledge Agreement the following
terms shall have the following meanings (all terms defined in the Uniform
Commercial Code which are not otherwise defined herein or in the Credit
Agreement, shall have the meanings set forth therein):
(a) "ISSUERS" shall mean and include each and every issuer of the
Pledged Securities.
(b) "PLEDGED PROPERTY" shall mean and include the (i) Pledged
Securities, together with all cash dividends, stock dividends, redemptions,
stock, securities options, substitutions, exchanges and other distributions now
or hereafter distributed by any of the Issuers with respect to the Pledged
Securities hereinafter be delivered into the possession of Pledgee, (ii)
Pledgor's records with respect to the foregoing, and (iii) the proceeds of all
of the foregoing.
(c) CREDIT AGREEMENT TERMS. Terms used herein which are defined in
the Credit Agreement and are not otherwise defined herein shall have the
meanings set forth in the Credit Agreement.
2. PLEDGE AND GRANT OF SECURITY INTEREST
As security for the prompt and unconditional payment and performance
when due of its Obligations to Pledgee, Pledgor hereby pledges, hypothecates,
assigns, transfers and sets over to Pledgee, the Pledged Property, and grants to
Pledgee a continuing security interest in the Pledged Property and the proceeds
thereof.
3. REPRESENTATIONS, COVENANTS AND WARRANTIES
Pledgor hereby covenants, represents and warrants, that:
(a) The Pledged Securities are authorized, validly issued, fully
paid and non-assessable capital stock of the respective Issuers, constitute
Pledgor's entire interest in the Issuers and constitute all of the issued and
outstanding shares of capital stock of Issuers;
(b) The Pledged Property is directly, legally and beneficially
owned by
-2-
<PAGE>
Pledgor free and clear of all claims, liens, pledges and encumbrances of any
kind, nature or description, except in favor of Pledgee;
(c) The Pledged Property is not subject to any restrictions
relative to the transfer thereof, except as required by applicable law, and
Pledgor has the right to transfer and hypothecate the Pledged Property free and
clear of any liens, encumbrances or restrictions, except as otherwise provided
herein;
(d) The Pledged Property is duly and validly pledged to Pledgee
and no consent or approval of any governmental or regulatory authority or of any
securities exchange or the like, nor any consent or approval of any other third
party is necessary to the validity of this Pledge Agreement which has not been
obtained and a copy of which has not been furnished to Pledgee;
(e) During the term of this Pledge Agreement, if Pledgor shall
receive, have registered in its name or become entitled to receive or acquire,
or have registered in its name any stock certificate, option, or right with
respect to the securities of any Issuer (including without limitation, any
certificate representing a dividend or a distribution or exchange of or in
connection with any reclassification of the Pledged Securities) whether as an
addition to, in substitution of, or in exchange for any of the Pledged Property,
Pledgor agrees to accept same as Pledgee's agent, to hold same in trust for
Pledgee and to deliver same forthwith to Pledgee or Pledgee's agent or bailee in
the form received, with the endorsement(s) of Pledgor where necessary and/or
appropriate powers and/or assignments duly executed to be held by Pledgee or
Pledgee's agent or bailee subject to the terms hereof, or if any of the
foregoing is uncertificated, register same with the Pledgee's security interest
noted therein as further security for Pledgor's Obligations to Pledgee;
(f) During the term of this Pledge Agreement, Pledgor shall not
directly or indirectly sell, assign, transfer, or otherwise dispose of, or grant
any option with respect to the Pledged Property, nor shall Pledgor create, incur
or permit any further pledge, hypothecation, encumbrance, lien, mortgage or
security interest with respect to the Pledged Property;
(g) So long as no default has occurred and is continuing, Pledgor
shall have the right to vote and exercise all corporate rights and to receive
cash dividends or real or personal property distributed by any Issuer with
respect to the Pledged Securities, provided that any stock of any Issuer, or any
options with respect to stock of any Issuer, so distributed shall be subject to
the security interest therein of Pledgee, as provided in subparagraph (e) above;
and
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<PAGE>
(h) During the term of this Pledge Agreement, Pledgor shall not
permit any Issuer, directly or indirectly, to issue, sell, grant, assign,
transfer or otherwise dispose of, any additional shares of capital stock of the
Issuer or any option or warrant with respect to, or other right or security
convertible into, any additional shares of capital stock of such Issuer, now or
hereafter authorized, unless all such additional shares, options, warrants,
rights or other such securities are made and shall remain part of the Pledged
Property subject to the first priority security interest granted herein.
4. EVENTS OF DEFAULT
The occurrence of an Event of Default under the Credit Agreement
shall constitute a default under this Pledge Agreement.
5. REMEDIES AFTER DEFAULT
Immediately upon the occurrence of a default, and during the
continuance thereof, in addition to all other rights and remedies of Pledgee,
whether provided under law, the Financing Agreements or otherwise, Pledgee shall
have the following rights and remedies which may be exercised without notice to,
or consent by, the Pledgor, except as such notice or consent is expressly
provided for hereunder:
(a) Pledgee, at its option, shall be empowered to exercise its
continuing right to instruct the Issuers (or the appropriate transfer agent of
the Pledged Securities) to register any or all of the Pledged Property in the
name of Pledgee or in the name of Pledgee's nominee and Pledgee may complete, in
any manner Pledgee may deem expedient, any and all stock powers, assignments or
other documents heretofore or hereafter executed in blank by Pledgor and
delivered to Pledgee and, in furtherance of the foregoing, Pledgor shall execute
and deliver to Pledgee together herewith a Special Power of Attorney in the form
of EXHIBIT 1 hereto. After said instruction, and without further notice, Pledgee
may exercise all voting and corporate rights with respect to the Pledged
Securities and may exercise any and all rights of conversion, redemption,
exchange, subscription or any other rights, privileges, or options pertaining to
any shares of the Pledged Securities as if Pledgee were the absolute owner
thereof, including without limitation, the right to exchange, at its discretion,
any and all of the Pledged Securities upon any merger, consolidation,
reorganization, recapitalization or other readjustment with respect thereto.
Upon the exercise of any such rights, privileges or options by Pledgee, Pledgee
shall have the right to deposit and deliver any and all of the Pledged
Securities to any committee, depository, transfer agent, registrar or other
designated agency upon such terms and conditions as Pledgee may determine, all
without liability. However, Pledgee shall have no duty to exercise any of the
aforesaid rights, privileges or options and shall not be responsible for any
failure to do so or delay in doing so.
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<PAGE>
(b) In addition to all of the rights and remedies of a secured
party under the Uniform Commercial Code or other applicable law, Pledgee shall
have the right, at any time and without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon Pledgor, or any other Person
(all and each of which demands, advertisements and/or notices are hereby
expressly waived to the extent permitted by law), to proceed forthwith to
collect, redeem, receive, appropriate, sell, or otherwise dispose of and deliver
the Pledged Property or any part thereof in one or more lots at public or
private sale or sales at any exchange, brokers board or at any of Pledgee's
offices or elsewhere at such prices and on such terms as Pledgee may deem best.
The foregoing disposition(s) may be for cash or on credit or for future delivery
without assumption of any credit risk by Pledgee, with Pledgee having the right
to purchase all or any part of said Pledged Property so sold at any such sale or
sales, public or private, free of any right or equity of redemption in Pledgor,
which right or equity is hereby expressly waived or released by Pledgor. The
proceeds of any such collection, redemption, recovery, receipt, appropriation,
realization or sale, after deducting all costs and expenses of every kind
incurred relative thereto or incidental to the care, safekeeping or otherwise of
any and all Pledged Property or in any way relating to the rights of Pledgee
hereunder (including, without limitation, appraisal, accountants, and attorneys'
fees and legal expenses whether or not due) shall be applied in such order and
manner as Pledgee may determine in its sole discretion. Pledgor agrees that five
(5) business days prior notice by Pledgee, sent by certified mail, postage
prepaid, designating the date after which a private sale may take place or a
public auction may be held, is reasonable notification of such matters.
(c) Pledgor recognizes that Pledgee may be unable to effect a
public sale of all or part of the Pledged Property by reason of certain
prohibitions contained in the Securities Act of 1933, as amended, as now or
hereafter in effect or in applicable Blue Sky or other state securities law, as
now or hereafter in effect, but may be compelled to resort to one or more
private sales to a restricted group of purchasers who will be obliged to agree,
among other things, to acquire such Pledged Property for their own account for
investment and not with a view to the distribution or resale thereof. If at the
time of any sale of the Pledged Property or any part thereof, the same shall
not, be effectively registered (if required) under the Securities Act of 1933
(or other applicable state securities law), as then in effect, Pledgee in its
sole and absolute discretion is authorized to sell the Pledged Property, or such
part thereof, by private sale in such manner and under such circumstances as
Pledgee or its counsel may deem necessary or advisable in order that such sale
may legally be effected without registration. Pledgor acknowledges and agrees
that private sales so made may be at prices and other terms less favorable to
the seller than if the Pledged Property were sold at public sale, and that
Pledgee has no obligation to delay the sale of any Pledged Property for the
period of time necessary to
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<PAGE>
permit the Issuer of the Pledged Property, even if such Issuer would agree, to
register the Pledged Property for public sale under such applicable securities
laws. Pledgor acknowledges and agrees that any private sales made under the
foregoing circumstances shall be deemed to have been in a commercially
reasonable manner.
(d) All of the Pledgee's rights and remedies, including but not
limited to the foregoing and those otherwise arising under this Pledge
Agreement, the Financing Agreements, the instruments and securities comprising
the Pledged Property, applicable law or otherwise, shall be cumulative and not
exclusive and shall be enforceable alternatively, successively or concurrently
as Pledgee may deem expedient. No failure or delay on the part of Pledgee in
exercising any of its options, powers or rights or partial or single exercise
thereof, shall constitute a waiver of such option, power or right.
6. FURTHER ASSURANCES
Pledgor agrees that at any time, and from time to time, upon the
request of Pledgee, Pledgor will execute and deliver such further documents,
including but not limited to stock powers, or other appropriate instruments of
transfer in form reasonably satisfactory to counsel for Pledgee, and will take
or cause to be taken such further acts as Pledgee may reasonably request in
order to effect the purposes of this Pledge Agreement and perfect or continue
the perfection of the security interest in the Pledged Property granted to
Pledgee hereunder, in conformity with applicable law.
7. MISCELLANEOUS
(a) Pledgee or Pledgee's agent or bailee shall have no duty or
liability to protect or preserve any rights pertaining thereto and shall be
relieved of all responsibility for the Pledged Property upon surrendering it to
Pledgor. Upon the termination of the Financing Agreements and the indefeasible
payment in full of Pledgor's Obligations to Pledgee this Agreement shall
terminate and Pledgee shall execute and deliver all instruments as may be
necessary or proper to return or release its security interest in the Pledged
Property.
(b) No course of dealing between Pledgor and Pledgee, nor any
failure or delay by Pledgee to exercise any right, power or privilege under this
Pledge Agreement, the Financing Agreements or under any of the other documents
or agreements between Pledgor and Pledgee, shall operate as a waiver hereof or
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. No waiver of any
provision of this Pledge Agreement shall be effective unless the same shall be
in writing and signed by Pledgee, and then such waiver shall be effective only
in the specific
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<PAGE>
instance and for the purpose for which given.
(c) This Pledge Agreement may not be changed, modified or amended,
in whole or in part, except by a writing signed by Pledgor and Pledgee.
(d) The provisions of this Pledge Agreement are severable, and if
any clause or provision hereof shall be held invalid or unenforceable in whole
or in part in any jurisdiction, then such invalidity or unenforceability shall
attach only to such clause or provision in any such jurisdiction or part
thereof, and shall not in any manner affect such clause or provision in any
other jurisdiction or any other clause or provision in this Pledge Agreement in
any jurisdiction.
(e) THE PARTIES HERETO WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDING OF ANY KIND OR NATURE IN ANY COURT WHETHER ARISING OUT OF, UNDER OR
BY REASON OF THIS PLEDGE AGREEMENT OR THE PLEDGED PROPERTY.
(f) This Pledge Agreement shall inure to the benefit of Pledgor
and Pledgee and their respective successors and assigns permitted under the
Financing Agreements, and shall be binding upon Pledgor and its successors and
assigns permitted under the Financing Agreements until all of the Pledgor's
Obligations to Pledgee have been indefeasibly paid in full.
(g) In the event any term or provision of this Pledge Agreement
conflicts with any term or provision of the Financing Agreements, such term or
provision of the Financing Agreements shall control.
8. GOVERNING LAW
THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ITS
CONFLICT OF LAWS RULES). ANY JUDICIAL PROCEEDING BROUGHT BY OR AGAINST THE
PLEDGOR WITH RESPECT TO ANY OF THE OBLIGATIONS, THIS PLEDGE AGREEMENT OR ANY
RELATED AGREEMENT MAY BE BROUGHT IN ANY COURT OF COMPETENT JURISDICTION IN THE
STATE OF NEW YORK, UNITED STATES OF AMERICA, AND, BY EXECUTION AND DELIVERY OF
THIS PLEDGE AGREEMENT, THE PLEDGOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND UNCONDITIONALLY THE NON-EXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH THIS PLEDGE AGREEMENT. NOTHING HEREIN SHALL AFFECT
THE RIGHT
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<PAGE>
TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE
PLEDGEE TO BRING PROCEEDINGS AGAINST THE PLEDGOR IN THE COURTS OF ANY OTHER
JURISDICTION. THE PLEDGOR WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY
ACTION INSTITUTED HEREUNDER AND SHALL NOT ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE OR BASED UPON FORUM NON CONVENIENS. ANY JUDICIAL
PROCEEDINGS BY THE PLEDGOR AGAINST THE PLEDGEE INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER OR CLAIM IN ANY WAY ARISING OUT OF, RELATED TO OR
CONNECTED WITH THIS PLEDGE AGREEMENT OR ANY RELATED AGREEMENT, SHALL BE BROUGHT
ONLY IN A FEDERAL OR STATE COURT LOCATED IN THE CITY OF NEW YORK, STATE OF NEW
YORK.
IN WITNESS WHEREOF, the undersigned has caused these presents to be
duly executed and delivered on the day and year first above written.
PLEDGOR:
TII CORPORATION
By: /S/ PAUL SEBETIC
---------------------------
Title: VICE PRESIDENT
---------------------------
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<PAGE>
SCHEDULE A
PLEDGED SECURITIES
Class Certificate Number
Issuer of Stock Number of Shares
Telecommunications Common 2 100
Industries, Inc.
<PAGE>
EXHIBIT 1
SPECIAL POWER OF ATTORNEY
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
KNOW ALL MEN BY THESE PRESENTS, that TII CORPORATION having an
office at 1385 Akron Street, Copiague, New York 11726 (hereinafter "Pledgor"),
hereby appoints and constitutes BNY FINANCIAL CORPORATION, (hereinafter
"Pledgee") and each officer thereof, its true and lawful attorney, with full
power of substitution and with full power and authority to perform the following
acts on behalf of Pledgor at any time after the occurrence and during the
continuance of a default under the Pledge Agreement (as hereinafter defined):
1. Execution and delivery of any and all agreements, documents,
instruments of assignment, or other papers which Pledgee in its reasonable
discretion, deems necessary or advisable for the purpose of assigning, selling,
or otherwise disposing of all of the right, title, and interest of Pledgor in
and to the Pledged Securities, as defined in the Pledge Agreement, together with
all cash dividends, stock dividends, redemptions, securities or substitutions,
exchanges or other distributions now or hereafter pledged, assigned or otherwise
transferred to Pledgee by Pledgor in respect of the Pledged Securities and all
registrations, recordings, reissues, extensions, and renewals thereof, or for
the purpose of recording, registering and filing of, or accomplishing any other
formality with respect to the foregoing.
2. Execution and delivery of any and all documents, statements,
certificates or other papers which Pledgee in its sole discretion, deems
necessary or advisable to further the purposes described in paragraph 1 hereof.
This Power of Attorney, being a power coupled with an interest, is
made pursuant to a Stock Pledge and Security Agreement between Pledgor and
Pledgee dated of even date herewith (the "Pledge Agreement") and may not be
revoked until indefeasible payment in full of all Pledgor's "Obligations", as
such term is defined in the Pledge Agreement.
Dated as of April ___, 1998
PLEDGOR:
TII CORPORATION
By: ________________________
Title: _____________________
STOCK PLEDGE AND SECURITY AGREEMENT
-----------------------------------
Stock Pledge and Security Agreement (this "Pledge Agreement"), dated as of
the 30th day of April, 1998, by TII INTERNATIONAL, INC., having its principal
place of business at 1385 Akron Street, Copiague, New York 11726 ("Pledgor"), to
and in favor of BNY FINANCIAL CORPORATION, having an office at 1290 Avenue of
the Americas, New York, New York 10104 ("Pledgee").
W I T N E S S E T H:
WHEREAS, Pledgee and Pledgor are contemporaneously herewith entering into
financing arrangements pursuant to which Pledgee may make loans and advances and
provide other financial accommodations to Pledgee as set forth in the Revolving
Credit, Term Loan and Security Agreement, dated of the date herewith, by and
among Pledgee, Pledgor and TII Corporation (the "Credit Agreement") together
with various other agreements, documents and instruments referred to therein or
at any time executed and/or delivered in connection therewith or related
thereto, including but not limited to, this Agreement (all of the foregoing, as
the same now exist or may hereafter be amended, modified, supplemented, renewed,
restated or replaced, being collectively referred to herein as the "Financing
Agreements");
WHEREAS, in order to induce Pledgee to enter into the Financing Agreements
and to make loans and advances and provide other financial accommodations
pursuant thereto, Pledgor has agreed to grant to Pledgee certain collateral
security as set forth herein;
WHEREAS, Pledgor is now the direct and beneficial owner of all of the
shares of capital stock described on SCHEDULE A hereto (the "Pledged
Securities"); and
WHEREAS, Pledgor has agreed to secure the payment and performance of its
obligations under the Financing Agreements, by (i) executing and delivering to
Pledgee this Pledge Agreement, (ii) delivering to Pledgee the Pledged Securities
which are registered in the name of Pledgor, together with appropriate powers
duly executed in blank by Pledgor, and (iii) delivering to Pledgee any and all
other documents which Pledgee deems necessary to protect Pledgee's interests
hereunder;
<PAGE>
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, receipt of which is hereby acknowledged, Pledgor hereby
agrees as follows:
1. CERTAIN DEFINITIONS
As used above and elsewhere in this Pledge Agreement the following
terms shall have the following meanings (all terms defined in the Uniform
Commercial Code which are not otherwise defined herein or in the Credit
Agreement, shall have the meanings set forth therein):
(a) "ISSUERS" shall mean and include each and every issuer of the
Pledged Securities.
(b) "PLEDGED PROPERTY" shall mean and include the (i) Pledged
Securities, together with all cash dividends, stock dividends, redemptions,
stock, securities options, substitutions, exchanges and other distributions now
or hereafter distributed by any of the Issuers with respect to the Pledged
Securities hereinafter be delivered into the possession of Pledgee, (ii)
Pledgor's records with respect to the foregoing, and (iii) the proceeds of all
of the foregoing.
(c) CREDIT AGREEMENT TERMS. Terms used herein which are defined in
the Credit Agreement and are not otherwise defined herein shall have the
meanings set forth in the Credit Agreement.
2. PLEDGE AND GRANT OF SECURITY INTEREST
As security for the prompt and unconditional payment and performance
when due of its Obligations to Pledgee, Pledgor hereby pledges, hypothecates,
assigns, transfers and sets over to Pledgee, the Pledged Property, and grants to
Pledgee a continuing security interest in the Pledged Property and the proceeds
thereof.
3. REPRESENTATIONS, COVENANTS AND WARRANTIES
Pledgor hereby covenants, represents and warrants, that:
(a) The Pledged Securities are authorized, validly issued, fully
paid and non-assessable capital stock of the respective Issuers, constitute
Pledgor's entire interest in the Issuers and constitute all of the issued and
outstanding shares of capital stock of Issuers;
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<PAGE>
(b) The Pledged Property is directly, legally and beneficially
owned by Pledgor free and clear of all claims, liens, pledges and encumbrances
of any kind, nature or description, except in favor of Pledgee;
(c) The Pledged Property is not subject to any restrictions
relative to the transfer thereof, except as required by applicable law, and
Pledgor has the right to transfer and hypothecate the Pledged Property free and
clear of any liens, encumbrances or restrictions, except as otherwise provided
herein;
(d) The Pledged Property is duly and validly pledged to Pledgee
and no consent or approval of any governmental or regulatory authority or of any
securities exchange or the like, nor any consent or approval of any other third
party is necessary to the validity of this Pledge Agreement which has not been
obtained and a copy of which has not been furnished to Pledgee;
(e) During the term of this Pledge Agreement, if Pledgor shall
receive, have registered in its name or become entitled to receive or acquire,
or have registered in its name any stock certificate, option, or right with
respect to the securities of any Issuer (including without limitation, any
certificate representing a dividend or a distribution or exchange of or in
connection with any reclassification of the Pledged Securities) whether as an
addition to, in substitution of, or in exchange for any of the Pledged Property,
Pledgor agrees to accept same as Pledgee's agent, to hold same in trust for
Pledgee and to deliver same forthwith to Pledgee or Pledgee's agent or bailee in
the form received, with the endorsement(s) of Pledgor where necessary and/or
appropriate powers and/or assignments duly executed to be held by Pledgee or
Pledgee's agent or bailee subject to the terms hereof, or if any of the
foregoing is uncertificated, register same with the Pledgee's security interest
noted therein as further security for Pledgor's Obligations to Pledgee;
(f) During the term of this Pledge Agreement, Pledgor shall not
directly or indirectly sell, assign, transfer, or otherwise dispose of, or grant
any option with respect to the Pledged Property, nor shall Pledgor create, incur
or permit any further pledge, hypothecation, encumbrance, lien, mortgage or
security interest with respect to the Pledged Property;
(g) So long as no default has occurred and is continuing, Pledgor
shall have the right to vote and exercise all corporate rights and to receive
cash dividends or real or personal property distributed by any Issuer with
respect to the Pledged Securities, provided that any stock of any Issuer, or any
options with respect to stock of any Issuer, so distributed shall be subject to
the security interest therein of Pledgee, as provided in subparagraph (e) above;
and
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<PAGE>
(h) During the term of this Pledge Agreement, Pledgor shall not
permit any Issuer, directly or indirectly, to issue, sell, grant, assign,
transfer or otherwise dispose of, any additional shares of capital stock of the
Issuer or any option or warrant with respect to, or other right or security
convertible into, any additional shares of capital stock of such Issuer, now or
hereafter authorized, unless all such additional shares, options, warrants,
rights or other such securities are made and shall remain part of the Pledged
Property subject to the first priority security interest granted herein.
4. EVENTS OF DEFAULT
The occurrence of an Event of Default under the Credit Agreement
shall constitute a default under this Pledge Agreement.
5. REMEDIES AFTER DEFAULT
Immediately upon the occurrence of a default, and during the
continuance thereof, in addition to all other rights and remedies of Pledgee,
whether provided under law, the Financing Agreements or otherwise, Pledgee shall
have the following rights and remedies which may be exercised without notice to,
or consent by, the Pledgor, except as such notice or consent is expressly
provided for hereunder:
(a) Pledgee, at its option, shall be empowered to exercise its
continuing right to instruct the Issuers (or the appropriate transfer agent of
the Pledged Securities) to register any or all of the Pledged Property in the
name of Pledgee or in the name of Pledgee's nominee and Pledgee may complete, in
any manner Pledgee may deem expedient, any and all stock powers, assignments or
other documents heretofore or hereafter executed in blank by Pledgor and
delivered to Pledgee and, in furtherance of the foregoing, Pledgor shall execute
and deliver to Pledgee together herewith a Special Power of Attorney in the form
of EXHIBIT 1 hereto. After said instruction, and without further notice, Pledgee
may exercise all voting and corporate rights with respect to the Pledged
Securities and may exercise any and all rights of conversion, redemption,
exchange, subscription or any other rights, privileges, or options pertaining to
any shares of the Pledged Securities as if Pledgee were the absolute owner
thereof, including without limitation, the right to exchange, at its discretion,
any and all of the Pledged Securities upon any merger, consolidation,
reorganization, recapitalization or other readjustment with respect thereto.
Upon the exercise of any such rights, privileges or options by Pledgee, Pledgee
shall have the right to deposit and deliver any and all of the Pledged
Securities to any committee, depository, transfer agent, registrar or other
designated agency upon such terms and conditions as Pledgee may determine, all
without liability. However, Pledgee shall have no duty to exercise any of the
aforesaid rights, privileges or options and shall not be responsible for any
failure to do so or delay in doing so.
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<PAGE>
(b) In addition to all of the rights and remedies of a secured
party under the Uniform Commercial Code or other applicable law, Pledgee shall
have the right, at any time and without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon Pledgor, or any other Person
(all and each of which demands, advertisements and/or notices are hereby
expressly waived to the extent permitted by law), to proceed forthwith to
collect, redeem, receive, appropriate, sell, or otherwise dispose of and deliver
the Pledged Property or any part thereof in one or more lots at public or
private sale or sales at any exchange, brokers board or at any of Pledgee's
offices or elsewhere at such prices and on such terms as Pledgee may deem best.
The foregoing disposition(s) may be for cash or on credit or for future delivery
without assumption of any credit risk by Pledgee, with Pledgee having the right
to purchase all or any part of said Pledged Property so sold at any such sale or
sales, public or private, free of any right or equity of redemption in Pledgor,
which right or equity is hereby expressly waived or released by Pledgor. The
proceeds of any such collection, redemption, recovery, receipt, appropriation,
realization or sale, after deducting all costs and expenses of every kind
incurred relative thereto or incidental to the care, safekeeping or otherwise of
any and all Pledged Property or in any way relating to the rights of Pledgee
hereunder (including, without limitation, appraisal, accountants, and attorneys'
fees and legal expenses whether or not due) shall be applied in such order and
manner as Pledgee may determine in its sole discretion. Pledgor agrees that five
(5) business days prior notice by Pledgee, sent by certified mail, postage
prepaid, designating the date after which a private sale may take place or a
public auction may be held, is reasonable notification of such matters.
(c) Pledgor recognizes that Pledgee may be unable to effect a
public sale of all or part of the Pledged Property by reason of certain
prohibitions contained in the Securities Act of 1933, as amended, as now or
hereafter in effect or in applicable Blue Sky or other state securities law, as
now or hereafter in effect, but may be compelled to resort to one or more
private sales to a restricted group of purchasers who will be obliged to agree,
among other things, to acquire such Pledged Property for their own account for
investment and not with a view to the distribution or resale thereof. If at the
time of any sale of the Pledged Property or any part thereof, the same shall
not, be effectively registered (if required) under the Securities Act of 1933
(or other applicable state securities law), as then in effect, Pledgee in its
sole and absolute discretion is authorized to sell the Pledged Property, or such
part thereof, by private sale in such manner and under such circumstances as
Pledgee or its counsel may deem necessary or advisable in order that such sale
may legally be effected without registration. Pledgor acknowledges and agrees
that private sales so made may be at prices and other terms less favorable to
the seller than if the Pledged Property were sold at public sale, and that
Pledgee has no obligation to delay the sale of any Pledged Property for the
period of time necessary to permit the Issuer of the Pledged Property, even if
such Issuer would agree, to register the
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<PAGE>
Pledged Property for public sale under such applicable securities laws. Pledgor
acknowledges and agrees that any private sales made under the foregoing
circumstances shall be deemed to have been in a commercially reasonable manner.
(d) All of the Pledgee's rights and remedies, including but not
limited to the foregoing and those otherwise arising under this Pledge
Agreement, the Financing Agreements, the instruments and securities comprising
the Pledged Property, applicable law or otherwise, shall be cumulative and not
exclusive and shall be enforceable alternatively, successively or concurrently
as Pledgee may deem expedient. No failure or delay on the part of Pledgee in
exercising any of its options, powers or rights or partial or single exercise
thereof, shall constitute a waiver of such option, power or right.
6. FURTHER ASSURANCES
Pledgor agrees that at any time, and from time to time, upon the
request of Pledgee, Pledgor will execute and deliver such further documents,
including but not limited to stock powers, or other appropriate instruments of
transfer in form reasonably satisfactory to counsel for Pledgee, and will take
or cause to be taken such further acts as Pledgee may reasonably request in
order to effect the purposes of this Pledge Agreement and perfect or continue
the perfection of the security interest in the Pledged Property granted to
Pledgee hereunder, in conformity with applicable law.
7. MISCELLANEOUS
(a) Pledgee or Pledgee's agent or bailee shall have no duty or
liability to protect or preserve any rights pertaining thereto and shall be
relieved of all responsibility for the Pledged Property upon surrendering it to
Pledgor. Upon the termination of the Financing Agreements and the indefeasible
payment in full of Pledgor's Obligations to Pledgee this Agreement shall
terminate and Pledgee shall execute and deliver all instruments as may be
necessary or proper to return or release its security interest in the Pledged
Property.
(b) No course of dealing between Pledgor and Pledgee, nor any
failure or delay by Pledgee to exercise any right, power or privilege under this
Pledge Agreement, the Financing Agreements or under any of the other documents
or agreements between Pledgor and Pledgee, shall operate as a waiver hereof or
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. No waiver of any
provision of this Pledge Agreement shall be effective unless the same shall be
in writing and signed by Pledgee, and then such waiver shall be effective only
in the specific instance and for the purpose for which given.
-6-
<PAGE>
S41\BNY\TII\PLEDGEIN.428:gmd
(c) This Pledge Agreement may not be changed, modified or amended,
in whole or in part, except by a writing signed by Pledgor and Pledgee.
(d) The provisions of this Pledge Agreement are severable, and if
any clause or provision hereof shall be held invalid or unenforceable in whole
or in part in any jurisdiction, then such invalidity or unenforceability shall
attach only to such clause or provision in any such jurisdiction or part
thereof, and shall not in any manner affect such clause or provision in any
other jurisdiction or any other clause or provision in this Pledge Agreement in
any jurisdiction.
(e) THE PARTIES HERETO WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDING OF ANY KIND OR NATURE IN ANY COURT WHETHER ARISING OUT OF, UNDER OR
BY REASON OF THIS PLEDGE AGREEMENT OR THE PLEDGED PROPERTY.
(f) This Pledge Agreement shall inure to the benefit of Pledgor
and Pledgee and their respective successors and assigns permitted under the
Financing Agreements, and shall be binding upon Pledgor and its successors and
assigns permitted under the Financing Agreements until all of the Pledgor's
Obligations to Pledgee have been indefeasibly paid in full.
(g) In the event any term or provision of this Pledge Agreement
conflicts with any term or provision of the Financing Agreements, such term or
provision of the Financing Agreements shall control.
8. GOVERNING LAW
THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ITS
CONFLICT OF LAWS RULES). ANY JUDICIAL PROCEEDING BROUGHT BY OR AGAINST THE
PLEDGOR WITH RESPECT TO ANY OF THE OBLIGATIONS, THIS PLEDGE AGREEMENT OR ANY
RELATED AGREEMENT MAY BE BROUGHT IN ANY COURT OF COMPETENT JURISDICTION IN THE
STATE OF NEW YORK, UNITED STATES OF AMERICA, AND, BY EXECUTION AND DELIVERY OF
THIS PLEDGE AGREEMENT, THE PLEDGOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND UNCONDITIONALLY THE NON-EXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH THIS PLEDGE AGREEMENT. NOTHING HEREIN SHALL AFFECT
THE RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT OF THE PLEDGEE TO BRING PROCEEDINGS AGAINST THE PLEDGOR IN THE
-7-
<PAGE>
COURTS OF ANY OTHER JURISDICTION. THE PLEDGOR WAIVES ANY OBJECTION TO
JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREUNDER AND SHALL NOT ASSERT
ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE OR BASED UPON FORUM NON
CONVENIENS. ANY JUDICIAL PROCEEDINGS BY THE PLEDGOR AGAINST THE PLEDGEE
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER OR CLAIM IN ANY WAY ARISING OUT
OF, RELATED TO OR CONNECTED WITH THIS PLEDGE AGREEMENT OR ANY RELATED AGREEMENT,
SHALL BE BROUGHT ONLY IN A FEDERAL OR STATE COURT LOCATED IN THE CITY OF NEW
YORK, STATE OF NEW YORK.
IN WITNESS WHEREOF, the undersigned has caused these presents to be
duly executed and delivered on the day and year first above written.
PLEDGOR:
TII INTERNATIONAL, INC.
By: /S/ PAUL SEBETIC
-------------------------
Title: VICE PRESIDENT-FINANCE
-------------------------
-8-
<PAGE>
SCHEDULE A
PLEDGED SECURITIES
Class Certificate Number
Issuer of Stock Number of Shares
- ------ -------- ------ ---------
TII Dominicana, Inc. Common 1 1,000
TII Corporation Common 2 1,000
TII-Ditel, Inc. Common 29 308,960
<PAGE>
EXHIBIT 1
SPECIAL POWER OF ATTORNEY
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
KNOW ALL MEN BY THESE PRESENTS, that TII INTERNATIONAL, INC. having
an office at 1385 Akron Street, Copiague, New York 11726 (hereinafter
"Pledgor"), hereby appoints and constitutes BNY FINANCIAL CORPORATION,
(hereinafter "Pledgee") and each officer thereof, its true and lawful attorney,
with full power of substitution and with full power and authority to perform the
following acts on behalf of Pledgor at any time after the occurrence and during
the continuance of a default under the Pledge Agreement (as hereinafter
defined):
1. Execution and delivery of any and all agreements, documents,
instruments of assignment, or other papers which Pledgee in its reasonable
discretion, deems necessary or advisable for the purpose of assigning, selling,
or otherwise disposing of all of the right, title, and interest of Pledgor in
and to the Pledged Securities, as defined in the Pledge Agreement, together with
all cash dividends, stock dividends, redemptions, securities or substitutions,
exchanges or other distributions now or hereafter pledged, assigned or otherwise
transferred to Pledgee by Pledgor in respect of the Pledged Securities and all
registrations, recordings, reissues, extensions, and renewals thereof, or for
the purpose of recording, registering and filing of, or accomplishing any other
formality with respect to the foregoing.
2. Execution and delivery of any and all documents, statements,
certificates or other papers which Pledgee in its sole discretion, deems
necessary or advisable to further the purposes described in paragraph 1 hereof.
This Power of Attorney, being a power coupled with an interest, is
made pursuant to a Stock Pledge and Security Agreement between Pledgor and
Pledgee dated of even date herewith (the "Pledge Agreement") and may not be
revoked until indefeasible payment in full of all Pledgor's "Obligations", as
such term is defined in the Pledge Agreement.
Dated as of April ___, 1998
PLEDGOR:
TII INTERNATIONAL, INC.
By: ________________________
Title:________________________
PATENT COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT
AGREEMENT made this 30th day of April, 1998 by and between TII INDUSTRIES,
INC., a Delaware corporation ("DEBTOR"), with its chief executive office at 1385
Akron Street, Copiague, New York 11726 and BNY FINANCIAL CORPORATION, a New York
corporation ("SECURED PARTY"), having an office at 1290 Avenue of the Americas,
New York, New York 10104.
W I T N E S S E T H:
WHEREAS, Debtor has adopted, used and is using, and is the owner of the
entire right, title, and interest in and to the patents and applications
therefor described in Exhibit A annexed hereto and made a part hereof; and
WHEREAS, Secured Party and Debtor are contemporaneously herewith entering
into financing arrangements pursuant to which Secured Party may make loans and
advances and provide other financial accommodations to Debtor as set forth in
the Revolving Credit, Term Loan and Security Agreement, dated of even date
herewith, by and among Secured Party and Debtor and TII Corporation (the "CREDIT
AGREEMENT"), together with various other agreements, documents and instruments
referred to therein or at any time executed and/or delivered in connection
therewith or related thereto, including, but not limited to, this Agreement (all
of the foregoing, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, being collectively
referred to herein as the "FINANCING AGREEMENTS"); and
WHEREAS, in order to induce Secured Party to enter into the Financing
Agreements and make loans and advances and provide other financial
accommodations pursuant thereto, Debtor has agreed to grant to Secured Party
certain collateral security as set forth herein;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Debtor hereby agrees as follows:
1. GRANT OF SECURITY INTEREST
As collateral security for the prompt performance, observance and
indefeasible payment in full of all of the Obligations (as hereinafter defined),
Debtor hereby grants to Secured Party a continuing security interest in and a
general lien upon, and hereby
<PAGE>
assigns and transfers to Secured Party: (a) all of Debtor's now existing or
hereafter acquired right, title and interest in and to: all of Debtor's interest
in any patents; all applications, registrations and recordings relating to such
patents in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any State thereof, any political
subdivision thereof or in any other countries, and all reissues, extensions and
renewals thereof including, without limitation, those patents, applications,
registrations and recordings described in Schedule A hereto (the "PATENTS"), and
(b) any and all proceeds of any of the foregoing, including, without limitation,
any claims by Debtor against third parties for infringement of the Patents or
any licenses with respect thereto (all of the foregoing are collectively
referred to herein as the "COLLATERAL").
2. OBLIGATIONS SECURED
The security interest, lien and other interests granted to Secured Party
pursuant to this Agreement shall secure the prompt performance, observance and
indefeasible payment in full of any and all loans, indebtedness, liabilities and
obligations of any kind owing by Debtor to Secured Party, however evidenced,
whether as principal, guarantor or otherwise, whether arising under the
Agreement, the other Financing Agreements or otherwise whether direct or
indirect, absolute or contingent, joint or several, secured or unsecured, due or
not due, primary or secondary, liquidated or unliquidated, original, renewed or
extended, whether arising directly or acquired from others (including without
limitation, Secured Party's participations or interests in Debtor's obligations
to others) and including, without limitation, Secured Party's charges,
commissions, interest, expenses, costs and attorneys' fees chargeable to Debtor
under this Agreement, the Financing Agreements or in connection with any of the
foregoing (all hereinafter referred to as "OBLIGATIONS").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS
Debtor hereby represents, warrants and covenants with and to Secured Party
that the following (which shall survive the execution and delivery of this
Agreement), the truth and accuracy of which, or compliance with, being a
continuing condition of the making of loans by Secured Party to Debtor under the
Financing Agreements:
(a) Debtor will pay and perform all of the Obligations according
to their terms.
(b) All of the existing Collateral is valid and subsisting in full
force and effect, and Debtor owns the sole, full, and clear title thereto, and
the right and power to grant the security interests granted hereunder. Debtor
will, at Debtor's expense, perform
-2-
<PAGE>
all acts and execute all documents necessary to maintain the existence of the
Collateral as valid, subsisting and registered patents including, without
limitation, the filing of any renewal affidavits and applications. The
Collateral is not subject to any liens, claims, mortgages, assignments,
licenses, security interests, or encumbrances of any nature whatsoever, except
the security interests granted hereunder and the licenses permitted under
Section 3(e) below.
(c) Debtor will not assign, sell, mortgage, lease, transfer,
pledge, hypothecate, grant a security interest in or lien upon, encumber, grant
an exclusive or non-exclusive license relating to the Collateral, except as
permitted herein or in the Financing Agreements, or otherwise dispose of any of
the Collateral without the prior written consent of Secured Party. Nothing in
this Agreement shall be deemed a consent by Secured Party to any such action,
except as such action is expressly permitted hereunder.
(d) Debtor will, at Debtor's expense, perform all acts and execute
all documents requested at any time by Secured Party to evidence, perfect,
maintain, record, or enforce the security interest in the Collateral granted
hereunder or to otherwise further the provisions of this Agreement. Debtor
hereby authorizes Secured Party to execute and file one or more financing
statements (or similar documents) with respect to the Collateral signed only by
Secured Party or as otherwise determined by Secured Party. Debtor further
authorizes Secured Party to have this or any other similar security agreement
filed with the Commissioner of Patents and Trademarks or other appropriate
federal, state or government office.
(e) As of the date hereof, Debtor does not have any Patents
registered, or subject to pending applications, in the United States Patent and
Trademark Office or any similar office or agency in the United States other than
those described in Schedule A annexed hereto and has not granted any licenses
with respect thereto other than as set forth in Schedule B hereto.
(f) Debtor will, concurrently with the execution and delivery of
this Agreement, execute and deliver to Secured Party five (5) originals of a
Special Power of Attorney in the form of Exhibit 1 annexed hereto for the
implementation of the assignment, sale or other disposition of the Collateral
pursuant to Secured Party's exercise of the rights and remedies granted to
Secured Party hereunder.
(g) Secured Party may, in its discretion, pay any amount or do any
act which Debtor fails to pay or do as required hereunder or as requested by
Secured Party to preserve, defend, protect, maintain, record, amend or enforce
the Obligations, the Collateral, or the security interest granted hereunder
including but not limited to all filing
-3-
<PAGE>
or recording fees, court costs, collection charges and reasonable attorneys'
fees. Debtor will be liable to Secured Party for any such payment, which payment
shall be deemed an advance by Secured Party to Debtor, shall be payable on
demand together with interest at the then applicable rate set forth in the
Financing Agreements and shall be part of the Obligations secured hereby.
(h) Debtor shall not file any application for the registration of
a Patent with the United States Patent and Trademark Office or any similar
office or agency in the United States, any state therein, or any other country,
unless Debtor has by thirty (30) days prior written notice informed Secured
Party of such action. Upon request of Secured Party, Debtor shall execute and
deliver to Secured Party any and all assignments, agreements, instruments,
documents, and such other papers as may be requested by Secured Party to
evidence the security interests of Secured Party in such Patent.
(i) Debtor has not abandoned any of the Patents and Debtor will
not do any act, nor omit to do any act, whereby the Patents may become
abandoned, invalidated, unenforceable, avoided, or avoidable. Debtor shall
notify Secured Party immediately if it knows or has reason to know of any reason
why any application, registration, or recording may become abandoned, canceled,
invalidated, avoided, or avoidable.
(j) Debtor will render any assistance necessary to Secured Party
in any proceeding before the United States Patent and Trademark Office, any
federal or state court, or any similar office or agency in the United States or
any state therein or any other country to maintain such application and
registration of the Patents as Debtor's exclusive property and to protect
Secured Party's interest therein, including, without limitation, filing of
renewals, affidavits of use, affidavits of incontestability and opposition,
interference, and cancellation proceedings.
(k) Debtor will promptly notify Secured Party if Debtor (or any
affiliate or subsidiary thereof) learns of any use by any person of any other
process or product which infringes upon any Patent. If requested by Secured
Party, Debtor, at Debtor's expense, shall join with Secured Party in such action
as Secured Party, in Secured Party's discretion, may deem advisable for the
protection of Secured Party's interest in and to the Patents.
(l) Debtor assumes all responsibility and liability arising from
the use of the Patents and Debtor hereby indemnifies and holds Secured Party
harmless from and against any claim, suit, loss, damage, or expense (including
attorneys' fees) arising out of any alleged defect in any product manufactured,
promoted, or sold by Debtor (or any affiliate or subsidiary thereof) in
connection with any Patent or out of the manufacture,
-4-
<PAGE>
promotion, labelling, sale or advertisement of any such product by Debtor (or
any affiliate or subsidiary thereof).
(m) Debtor will promptly pay Secured Party for any and all costs
and reasonable expenditures incurred by Secured Party pursuant to the provisions
of this Agreement or for the defense, protection, or enforcement of the
Obligations, the Collateral, or the security interests granted hereunder,
including, but not limited to, all filing or recording fees, court costs,
collection charges, travel expenses, and attorneys' fees and reasonable legal
expenses. Such costs and reasonable expenditures shall be payable on demand,
together with interest at the then applicable rate set forth in the Financing
Agreements and shall be part of the Obligations secured hereby.
4. EVENTS OF DEFAULT
All Obligations shall become immediately due and payable, without notice
or demand, at the option of Secured Party, upon the occurrence of any one or
more defaults or events of default under the Financing Agreements (each an
"EVENT OF DEFAULT" hereunder).
5. RIGHTS AND REMEDIES
Upon the occurrence of any such Event of Default and during the
continuance thereof, in addition to all other rights and remedies of Secured
Party, whether provided under law, the Financing Agreements or otherwise,
Secured Party shall have the following rights and remedies which may be
exercised without notice to, or consent by, Debtor except as such notice or
consent is expressly provided for hereunder:
(a) Secured Party may require that neither Debtor nor any
affiliate or subsidiary of Debtor make any use of the Patents for any purpose
whatsoever. Secured Party may make use of any Patents for the sale of goods,
completion of work-in-process or rendering of services or otherwise in
connection with enforcing any other security interest granted to Secured Party
by Debtor or any subsidiary or affiliate of Debtor.
(b) Secured Party may grant such license or licenses relating to
the Collateral for such term or terms, on such conditions, and in such manner,
as Secured Party shall in its discretion deem appropriate. Such license or
licenses may be general, special, or otherwise, and may be granted on an
exclusive or non-exclusive basis throughout all or any part of the United States
of America, its territories and possessions, and all foreign countries.
-5-
<PAGE>
(c) Secured Party may assign, sell, or otherwise dispose of the
Collateral or any part thereof, either with or without special conditions or
stipulations except that if notice to Debtor of intended disposition of
Collateral is required by law, the giving of five (5) business days prior notice
in the manner set forth in subparagraph 6(b) hereof shall be deemed reasonable
notice thereof and Debtor waives any other notice with respect thereto. Secured
Party shall have the power to buy the Collateral or any part thereof, and
Secured Party shall also have the power to execute assurances and perform all
other acts which Secured Party may, in its discretion, deem appropriate or
proper to complete such assignment, sale, or disposition.
(d) In addition to the foregoing, in order to implement the
assignment, sale, or other disposition of any of the Collateral pursuant to
Subparagraph 5(c) hereof, Secured Party may at any time execute and deliver on
behalf of Debtor, pursuant to the authority granted in the Powers of Attorney
described in Subparagraph 3(f) hereof, one or more instruments of assignment of
the Patents (or any application, registration, or recording relating thereto),
in form suitable for filing, recording, or registration. Debtor agrees to pay
Secured Party on demand all costs incurred in any such transfer of the
Collateral, including, but not limited to, any taxes, fees, and reasonable
attorneys' fees and legal expenses.
(e) Secured Party may first apply the proceeds actually received
from any such license, assignment, sale, or other disposition of Collateral to
the costs and expenses thereof, including, without limitation, attorneys' fees
and all legal, travel, and other expenses which may be incurred by Secured
Party. Thereafter, Secured Party may apply any remaining proceeds to such of the
Obligations as Secured Party may in its discretion determine. Debtor shall
remain liable to Secured Party for any expenses or obligations remaining unpaid
after the application of such proceeds, and Debtor will pay Secured Party on
demand any such unpaid amount, together with interest at a rate equal to the
highest rate then payable on the Obligations.
(f) Debtor shall supply to Secured Party or to Secured Party's
designee, Debtor's knowledge and expertise relating to the manufacture and sale
of the products and services to which the Patents relate and Debtor's customer
lists and other records relating to the Patents and the distribution thereof.
(g) Nothing contained herein shall be construed as requiring
Secured Party to take any such action at any time. All of Secured Party's rights
and remedies, whether provided under law, this Agreement, the other Financing
Agreements or otherwise, shall be cumulative and none is exclusive. Such rights
and remedies may be enforced alternatively, successively, or concurrently.
-6-
<PAGE>
6. MISCELLANEOUS
(a) Any failure or delay by Secured Party to require strict
performance by Debtor of any of the provisions, warranties, terms, and
conditions contained herein or in any other agreement, document, or instrument,
shall not affect Secured Party or Secured Party's right to demand strict
compliance and performance therewith, and any waiver of any default shall not
waive or affect any other default, whether prior or subsequent thereto, and
whether of the same or of a different type. None of the warranties, conditions,
provisions, and terms contained herein or in any other agreement, document, or
instrument shall be deemed to have been waived by any act or knowledge of
Secured Party, its agents, officers, or employees, but only by an instrument in
writing, signed by an officer of Secured Party and directed to Debtor,
specifying such waiver.
(b) All notices, requests and demands to or upon the respective
parties hereto shall be deemed to have been given or made: if by hand, telex,
telegram or facsimile immediately upon sending; if by Federal Express, Express
Mail or any other overnight delivery service, one (1) day after dispatch; and if
mailed by certified mail, return receipt requested, five (5) business days after
mailing. All notices, requests and demands are to be given to the respective
parties at the following addresses (or to such other addresses as either party
may designate by notice in accordance with the provisions of this paragraph) set
forth herein:
If to Debtor: TII INDUSTRIES, INC.
1385 Akron Street
Copiague, New York 11726
Attention: President
If to Secured Party: BNY FINANCIAL CORPORATION
1290 Avenue of the Americas
New York, New York 10104
Attention: Mr. Frank Imperato
(c) In the event that any provision hereof shall be deemed to be
invalid by any court, such invalidity shall not affect the remainder of this
Agreement.
(d) All references to Debtor and Secured Party herein shall
include their respective successors and assigns. All references to the term
"person" herein shall mean an individual, sole proprietorship, limited
partnership, general partnership, a corporation (including a business trust), a
joint stock company, a trust, an unincorporated association, a joint venture
association, organization or other entity or a government department or any
agency, instrumentality or political subdivision thereof.
-7-
<PAGE>
(e) This Agreement shall be binding upon and for the benefit of
the parties hereto and their respective successors and assigns. No provision
hereof shall be modified, altered or limited except by a written instrument
expressly referring to this Agreement signed by the party to be charged thereby.
(f) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ITS
CONFLICT OF LAWS RULES). ANY JUDICIAL PROCEEDING BROUGHT BY OR AGAINST THE
DEBTOR WITH RESPECT TO ANY OF THE OBLIGATIONS, THIS AGREEMENT OR ANY RELATED
AGREEMENT MAY BE BROUGHT IN ANY COURT OF COMPETENT JURISDICTION IN THE STATE OF
NEW YORK, UNITED STATES OF AMERICA, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, THE DEBTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS AGREEMENT. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE
PROCESS IN ANY MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE SECURED
PARTY TO BRING PROCEEDINGS AGAINST THE DEBTOR IN THE COURTS OF ANY OTHER
JURISDICTION. THE DEBTOR WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY
ACTION INSTITUTED HEREUNDER AND SHALL NOT ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE OR BASED UPON FORUM NON CONVENIENS. ANY JUDICIAL
PROCEEDINGS BY THE DEBTOR AGAINST THE SECURED PARTY INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER OR CLAIM IN ANY WAY ARISING OUT OF, RELATED TO OR
CONNECTED WITH THIS AGREEMENT OR ANY RELATED AGREEMENT, SHALL BE BROUGHT ONLY IN
A FEDERAL OR STATE COURT LOCATED IN THE CITY OF NEW YORK, STATE OF NEW YORK.
(g) In the event of any conflict of any of the terms or provisions
of this Agreement with any of the terms or provisions of the Credit Agreement,
the terms or provisions of the Credit Agreement shall control.
-8-
<PAGE>
IN WITNESS WHEREOF, Debtor and Secured Party have executed this
Agreement as of the day and year first above written.
TII INDUSTRIES, INC.
By: /S/ PAUL SEBETIC
--------------------------
Title:VICE PRESIDENT-FINANCE
--------------------------
BNY FINANCIAL CORPORATION
By: /S/ JOHN J. MCFADDEN
--------------------------
Title:SENIOR VICE PRESIDENT
--------------------------
-9-
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
As of this ____ day of April, 1998, before me personally came
__________ __________, to me known, who being duly sworn, did depose and say,
that he is a ____________________ of TII INDUSTRIES, INC., the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto by order of the Board of Directors of said corporation.
-----------------------------
Notary Public
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
As of this ____ day of April, 1998, before me personally came
__________ __________, to me known, who, being duly sworn, did depose and say,
that he is a __________________ of BNY FINANCIAL CORPORATION, the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto by order of the Board of Directors of said corporation.
-----------------------------
Notary Public
-10-
<PAGE>
SCHEDULE A
LIST OF PATENTS AND APPLICATIONS
PATENT DESCRIPTION PATENT NUMBER DATE OF PATENT/APPLICATION
To Be Completed
<PAGE>
SCHEDULE B - LICENSES
PATENT COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT
None
<PAGE>
EXHIBIT 1
SPECIAL POWER OF ATTORNEY
(PATENT)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
KNOW ALL MEN BY THESE PRESENTS, that TII INDUSTRIES, INC.
("DEBTOR"), having an office at 1385 Akron Street, Copiague, New York 11726,
hereby appoints and constitutes, severally, BNY FINANCIAL CORPORATION ("SECURED
PARTY"), and each of its officers, its true and lawful attorney, with full power
of substitution and with full power and authority to perform the following acts
on behalf of Debtor at any time after the occurrence and during the continuance
of an Event of Default under the Security Agreement (as hereinafter defined):
1. Execution and delivery of any and all agreements, documents,
instrument of assignment, or other papers which Secured Party, in its
discretion, deems necessary or advisable for the purpose of assigning, selling,
or otherwise disposing of all right, title, and interest of Debtor in and to any
patents and all registrations, recordings, reissues, extensions, and renewals
thereof, or for the purpose of recording, registering and filing of, or
accomplishing any other formality with respect to the foregoing.
2. Execution and delivery of any and all documents, statements,
certificates or other papers which Secured Party, in its discretion, deems
necessary or advisable to further the purposes described in Subparagraph 1
hereof.
This Power of Attorney, being a power coupled with an interest, is
made pursuant to a Patent Collateral Assignment and Security Agreement between
Debtor and Secured Party, of even date herewith (the "SECURITY AGREEMENT") and
may not be revoked until payment in full of all Debtor's "Obligations", as such
term is defined in the Security Agreement and is subject to the terms and
provisions thereof.
April ___, 1998
TII INDUSTRIES, INC.
By: _________________________
Title:_________________________
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
As of this ____ day of April, 1998, before me personally came
__________ __________, to me known, who being duly sworn, did depose and say,
that he is a ____________________ of TII INDUSTRIES, INC., the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto by order of the Board of Directors of said corporation.
__________________________
Notary Public
TRADEMARK COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT
------------------------------------------------------
AGREEMENT made this 30th day of April, 1998 by and between TII INDUSTRIES,
INC., a Delaware corporation ("DEBTOR"), with its chief executive office at 1385
Akron Street, Copiague, New York 11726 and BNY FINANCIAL CORPORATION, a New York
corporation ("SECURED PARTY"), having an office at 1290 Avenue of the Americas,
New York, New York 10104.
W I T N E S S E T H:
WHEREAS, Debtor has adopted, used and is using, and is the owner of the
entire right, title, and interest in and to the trademarks, trade names, terms,
designs and applications therefor described in Schedule A annexed hereto and
made a part hereof; and
WHEREAS, Secured Party and Debtor are contemporaneously herewith entering
into financing arrangements pursuant to which Secured Party may make loans and
advances and provide other financial accommodations to Debtor as set forth in
the Revolving Credit, Term Loan and Security Agreement, dated of even date
herewith, by and among Secured Party and Debtor and TII Corporation (the "CREDIT
AGREEMENT"), together with various other agreements, documents and instruments
referred to therein or at any time executed and/or delivered in connection
therewith or related thereto, including, but not limited to, this Agreement (all
of the foregoing, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, being collectively
referred to herein as the "FINANCING AGREEMENTS"); and
WHEREAS, in order to induce Secured Party to enter into the Financing
Agreements and to make loans and advances and provide other financial
accommodations pursuant thereto, Debtor has agreed to grant to Secured Party
certain collateral security as set forth herein;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Debtor hereby agrees as follows:
1. GRANT OF SECURITY INTEREST
As collateral security for the prompt performance, observance and
indefeasible payment in full of all of the Obligations (as hereinafter defined),
Debtor hereby grants to Secured Party a continuing security interest in and a
general lien upon, and hereby conditionally assigns to Secured Party: (a) all of
Debtor's now existing or hereafter acquired right, title, and interest in and
to: all of Debtor's trademarks, trade names, tradestyles and service marks; all
prints and labels on which said trademarks, trade
<PAGE>
names, tradestyles and service marks appear, have appeared or will appear, and
all designs and general intangibles of a like nature; all applications,
registrations and recordings relating to the foregoing in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof, any political subdivision thereof or in any other
countries, and all reissues, extensions and renewals thereof including those
trademarks, terms, designs and applications described in Schedule A hereto (the
"TRADEMARKS"); (b) the goodwill of the business symbolized by each of the
Trademarks, including, without limitation, all customer lists and other records
relating to the distribution of products or services bearing the Trademarks; and
(c) any and all proceeds of any of the foregoing, including, without limitation,
any claims by Debtor against third parties for infringement of the Trademarks or
any licenses with respect thereto (all of the foregoing are collectively
referred to herein as the "COLLATERAL").
2. OBLIGATIONS SECURED
The security interest, lien and other interests granted to Secured Party
pursuant to this Agreement shall secure the prompt performance, observance and
indefeasible payment in full of any and all loans, indebtedness, liabilities and
obligations of any kind owing by Debtor to Secured Party, however evidenced,
whether as principal, guarantor or otherwise, whether arising under this
Agreement, the other Financing Agreements or otherwise, whether now existing or
hereafter arising, whether direct or indirect, absolute or contingent, joint or
several, due or not due, primary or secondary, liquidated or unliquidated,
secured or unsecured, original, renewed or extended and whether arising directly
or acquired from others (including, without limitation, Secured Party's
participations or interests in Debtor's obligations to others) and including,
without limitation, Secured Party's charges, commissions, interest, expenses,
costs and attorneys' fees chargeable to Debtor under this Agreement, the
Financing Agreements or in connection with any of the foregoing (all hereinafter
referred to as "OBLIGATIONS").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS
Debtor hereby represents, warrants and covenants to Secured Party the
following (which shall survive the execution and delivery of this Agreement),
the truth and accuracy of which, or compliance with, being a continuing
condition of the making of loans by Secured Party to Debtor under the Financing
Agreements:
(a) Debtor will pay and perform all of the Obligations according
to their terms.
-2-
<PAGE>
(b) All of the existing Collateral is valid and sub-sisting in
full force and effect, and Debtor owns the sole, full, and clear title thereto,
and the right and power to grant the security interests granted hereunder.
Debtor will, at Debtor's expense, perform all acts and execute all documents
necessary to maintain the existence of the Collateral as valid, subsisting and
registered trademarks, including, without limitation, the filing of any renewal
affidavits and applications. The Collateral is not subject to any liens, claims,
mortgages, assignments, licenses, security interests, or encumbrances of any
nature what soever, except the security interests granted hereunder and the
licenses permitted under Section 3(e) below.
(c) Debtor will not assign, sell, mortgage, lease, transfer,
pledge, hypothecate, grant a security interest in or lien upon, encumber, grant
an exclusive or non-exclusive license relating thereto, except as permitted
herein, in the Financing Agreements, or otherwise dispose of any of the
Collateral without the prior written consent of Secured Party. Nothing in this
Agreement shall be deemed a consent by Secured Party to any such action, except
as such action is expressly permitted hereunder.
(d) Debtor will, at Debtor's expense, perform all acts and execute
all documents requested at any time by Secured Party to evidence, perfect,
maintain, record, or enforce the security interest in the Collateral granted
hereunder or to otherwise further the provisions of this Agreement. Debtor
hereby authorizes Secured Party to execute and file one or more financing
statements (or similar documents) with respect to the Collateral, signed only by
Secured Party or as otherwise determined by Secured Party. Debtor further
authorizes Secured Party to have this or any other similar security agreement
filed with the Commissioner of Patents and Trademarks or other appropriate
federal, state or government office.
(e) As of the date hereof, Debtor does not have any Trademarks
registered, or subject to pending applications, in the United States Patent and
Trademark Office or any similar office or agency in the United States other than
those described in Schedule A annexed hereto and has not granted any licenses
with respect thereto other than as set forth in Schedule B hereto.
(f) Debtor will, concurrently with the execution and delivery of
this Agreement, execute and deliver to Secured Party five (5) originals of a
Power of Attorney in the form of Exhibit I annexed hereto for the implementation
of the assignment, sale or other disposition of the Collateral pursuant to
Secured Party's exercise of the rights and remedies granted to Secured Party
hereunder.
(g) Secured Party may, in its discretion, pay any amount or do any
act which Debtor fails to pay or do as required hereunder or as requested by
Secured Party
-3-
<PAGE>
to preserve, defend, protect, maintain, record, amend or enforce the
Obligations, the Collateral, or the security interest granted hereunder
including but not limited to all filing or recording fees, court costs,
collection charges and reasonable attorneys' fees. Debtor will be liable to
Secured Party for any such payment, which payment shall be deemed an advance by
Secured Party to Debtor, shall be payable on demand together with interest at
the then applicable rate set forth in the Financing Agreements and shall be part
of the Obligations secured hereby.
(h) Debtor shall not file any application for the registration of
a Trademark with the United States Patent and Trademark Office or any similar
office or agency in the United States, any state therein, or any other country,
unless Debtor has by thirty (30) days prior written notice informed Secured
Party of such action. Upon request of Secured Party, Debtor shall execute and
deliver to Secured Party any and all assignments, agreements, instruments,
documents and such other papers as may be requested by Secured Party to evidence
the security interests of Secured Party in such Trademark.
(i) Debtor has not abandoned any of the Trademarks and Debtor will
not do any act, nor omit to do any act, whereby the Trademarks may become
abandoned, invalidated, unenforceable, avoided or avoidable. Debtor shall notify
Secured Party immediately if it knows or has reason to know of any reason why
any application, registration, or recording may become abandoned, canceled,
invalidated, avoided, or avoidable.
(j) Debtor will render any assistance necessary to Secured Party
in any proceeding before the United States Patent and Trademark Office, any
federal or state court, or any similar office or agency in the United States or
any state therein or any other country to maintain such application and
registration of the Trademarks as Debtor's exclusive property and to protect
Secured Party's interest therein, including, without limitation, filing of
renewals, affidavits of use, affidavits of incontestability and opposition,
interference, and cancellation proceedings.
(k) Debtor will promptly notify Secured Party if Debtor (or any
affiliate or subsidiary thereof) learns of any use by any person of any term or
design likely to cause confusion with any Trademark. If requested by Secured
Party, Debtor, at Debtor's expense, shall join with Secured Party in such action
as Secured Party, in its discretion, may deem advisable for the protection of
Secured Party's interest in and to the Trademarks.
(l) Debtor assumes all responsibility and liability arising from
the use of the Trademarks and Debtor hereby indemnifies and holds Secured Party
harmless from and against any claim, suit, loss, damage, or expense (including
attorneys' fees) arising
-4-
<PAGE>
out of any alleged defect in any product manufactured, promoted, or sold by
Debtor (or any affiliate or subsidiary thereof) in connection with any Trademark
or out of the manufacture, promotion, labelling, sale or advertisement of any
such product by Debtor (or any affiliate or subsidiary thereof).
(m) Debtor will promptly pay Secured Party for any and all costs
and reasonable expenditures incurred by Secured Party, pursuant to the
provisions of this Agreement or for the defense, protection, or enforcement of
the Obligations, the Collateral, or the security interests granted hereunder,
including, but not limited to, all filing or recording fees, court costs,
collection charges, travel expenses, and reasonable attorneys' fees and
reasonable legal expenses. Such costs and reasonable expenditures shall be
payable on demand, together with interest at the then applicable rate set forth
in the Financing Agreements and shall be part of the Obligations secured hereby.
4. EVENTS OF DEFAULT
All Obligations shall become immediately due and payable, without notice
or demand, at the option of Secured Party, upon the occurrence of any one or
more defaults or events of default under the Financing Agreements (each an
"EVENT OF DEFAULT" hereunder).
5. RIGHTS AND REMEDIES
Upon the occurrence of any such Event of Default and during the
continuance thereof, in addition to all other rights and remedies of Secured
Party, whether provided under law, the Financing Agreements or otherwise,
Secured Party shall have the following rights and remedies which may be
exercised without notice to, or consent by, Debtor except as such notice or
consent is expressly provided for hereunder:
(a) Secured Party may require that neither Debtor nor any
affiliate or subsidiary of Debtor make any use of the Trademarks or any marks
similar thereto for any purpose whatsoever. Secured Party may make use of any
Trademarks for the sale of goods, completion of work in process or rendering of
services in connection with enforcing any other security interest granted to
Secured Party by Debtor or any subsidiary of Debtor.
(b) Secured Party may grant such license or licenses relating to
the Collateral for such term or terms, on such conditions, and in such manner,
as Secured Party shall in its discretion deem appropriate. Such license or
licenses may be general, special, or otherwise, and may be granted on an
exclusive or non-exclusive basis throughout all or any part of the United States
of America, its territories and possessions, and all foreign countries.
-5-
<PAGE>
(c) Secured Party may assign, sell or otherwise dispose of the
Collateral or any part thereof, either with or without special conditions or
stipulations except that if notice to Debtor of intended disposition of
Collateral is required by law, the giving of five (5) business days notice in
the manner set forth in subparagraph 6(b) hereof shall be deemed reasonable
notice thereof and Debtor waives any other notice with respect thereto. Secured
Party shall have the power to buy the Collateral or any part thereof, and
Secured Party shall also have the power to execute assurances and perform all
other acts which Secured Party may, in its discretion, deem appropriate or
proper to complete such assignment, sale, or disposition.
(d) In addition to the foregoing, in order to implement the
assignment, sale, or other disposition of any of the Collateral pursuant to
Subparagraph 5(c) hereof, Secured Party may at any time execute and deliver on
behalf of Debtor, pursuant to the authority granted in the Powers of Attorney
described in Subparagraph 3(f) hereof, one or more instruments of assignment of
the Trademarks (or any application, registration, or recording relating
thereto), in form suitable for filing, recording, or registration. Debtor agrees
to pay Secured Party on demand all costs incurred in any such transfer of the
Collateral, including, but not limited to, any taxes, fees, legal expenses and
reasonable attorneys' fees and legal expenses.
(e) Secured Party may first apply the proceeds actually received
from any such license, assignment, sale, or other disposition of Collateral to
the costs and expenses thereof, including, without limitation, attorneys' fees
and all legal, travel and other expenses which may be incurred by Secured Party.
Thereafter, Secured Party may apply any remaining proceeds to such of the
Obligations as Secured Party may in its discretion determine. Debtor shall
remain liable to Secured Party for any expenses or obligations remaining unpaid
after the application of such proceeds, and Debtor will pay Secured Party on
demand any such unpaid amount, together with interest at a rate equal to the
highest rate then payable on the Obligations.
(f) Debtor shall supply to Secured Party or its designee, Debtor's
knowledge and expertise relating to the manufacture and sale of the products and
services bearing the Trademarks and Debtor's customer lists and other records
relating to the Trademarks and the distribution thereof.
(g) Nothing contained herein shall be construed as requiring
Secured Party to take any such action at any time. All of Secured Party's rights
and remedies, whether provided under law, the Financing Agreements, this
Agreement, or otherwise, shall be cumulative and none is exclusive. Such rights
and remedies may be enforced alternatively, successively, or concurrently.
-6-
<PAGE>
6. MISCELLANEOUS
(a) Any failure or delay by Secured Party to require strict
performance by Debtor of any of the provisions, warranties, terms, and
conditions contained herein or in any other agreement, document, or instrument,
shall not affect Secured Party or Secured Party's right to demand strict
compliance and performance therewith, and any waiver of any default shall not
waive or affect any other default, whether prior or subsequent thereto, and
whether of the same or of a different type. None of the warranties, conditions,
provisions, and terms contained herein or in any other agreement, document, or
instrument shall be deemed to have been waived by any act or knowledge of
Secured Party, its agents, officers, or employees, but only by an instrument in
writing, signed by an officer of Secured Party and directed to Debtor,
specifying such waiver.
(b) All notices, requests and demands to or upon the respective
parties hereto shall be deemed to have been given or made: if by hand, telex,
telegram or facsimile immediately upon sending; if by Federal Express, Express
Mail or any other overnight delivery service, one (1) day after dispatch; and if
mailed by certified mail, return receipt requested, five (5) business days after
mailing. All notices, requests and demands are to be given to the respective
parties at the following addresses (or to such other addresses as either party
may designate by notice in accordance with the provisions of this paragraph) set
forth herein:
If to Debtor: TII INDUSTRIES, INC.
1385 Akron Street
Copiague, New York 11726
Attention: President
If to Secured Party: BNY FINANCIAL CORPORATION
1290 Avenue of the Americas
New York, New York 10104
Attention: Mr. Frank Imperato
(c) In the event that any provision hereof shall be deemed to be
invalid by any court, such invalidity shall not affect the remainder of this
Agreement.
(d) All references to Debtor and Secured Party herein shall
include their respective successors and assigns. All references to the term
"person" or "Person" herein shall mean any individual, sole proprietorship,
limited partnership, general partnership, corporation (including a business
trust), unincorporated association, joint stock corporation, trust, joint
venture, association, organization or other entity or government or any agency
or instrumentality or political subdivision thereof.
-7-
<PAGE>
(e) This Agreement shall be binding upon and for the benefit of
the parties hereto and their respective successors and assigns. No provision
hereof shall be modified, altered or limited except by a written instrument
expressly referring to this Agreement signed by the party to be charged thereby.
(f) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ITS
CONFLICT OF LAWS RULES). ANY JUDICIAL PROCEEDING BROUGHT BY OR AGAINST THE
DEBTOR WITH RESPECT TO ANY OF THE OBLIGATIONS, THIS AGREEMENT OR ANY RELATED
AGREEMENT MAY BE BROUGHT IN ANY COURT OF COMPETENT JURISDICTION IN THE STATE OF
NEW YORK, UNITED STATES OF AMERICA, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, THE DEBTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS AGREEMENT. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE
PROCESS IN ANY MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE SECURED
PARTY TO BRING PROCEEDINGS AGAINST THE DEBTOR IN THE COURTS OF ANY OTHER
JURISDICTION. THE DEBTOR WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY
ACTION INSTITUTED HEREUNDER AND SHALL NOT ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE OR BASED UPON FORUM NON CONVENIENS. ANY JUDICIAL
PROCEEDINGS BY THE DEBTOR AGAINST THE SECURED PARTY INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER OR CLAIM IN ANY WAY ARISING OUT OF, RELATED TO OR
CONNECTED WITH THIS AGREEMENT OR ANY RELATED AGREEMENT, SHALL BE BROUGHT ONLY IN
A FEDERAL OR STATE COURT LOCATED IN THE CITY OF NEW YORK, STATE OF NEW YORK.
(g) In the event of any conflict of any of the terms or provisions
of this Agreement with any of the terms or provisions of the Credit Agreement,
the terms or provisions of the Credit Agreement shall control.
-8-
<PAGE>
IN WITNESS WHEREOF, Debtor and Secured Party have executed this
Agreement as of the day and year first above written.
TII INDUSTRIES, INC.
By: /S/ PAUL SEBETIC
---------------------------
Title: VICE PRESIDENT-FINANCE
---------------------------
BNY FINANCIAL CORPORATION
By: /S/ JOHN J. MCFADDEN
---------------------------
Title: SENIOR VICE PRESIDENT
---------------------------
-9-
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
As of this ____ day of April, 1998, before me personally came
____________ ______________________, to me known, who being duly sworn, did
depose and say, that he is a ________________________ of TII INDUSTRIES, INC.,
the corporation described in and which executed the foregoing instrument; and
that he signed his name thereto by order of the Board of Directors of said
corporation.
__________________________
Notary Public
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
As of this ____ day of April, 1998, before me personally came
_____________ _______________________, to me known, who, being duly sworn, did
depose and say, that he is a __________________________ of BNY FINANCIAL
CORPORATION, the corporation described in and which executed the foregoing
instrument; and that he signed his name thereto by order of the Board of
Directors of said corporation.
__________________________
Notary Public
-10-
<PAGE>
SCHEDULE A
LIST OF TRADEMARKS AND APPLICATIONS
REGISTRATION
TRADEMARK NUMBER REGISTRATION DATE
[TO BE COMPLETED BY DEBTOR]
-11-
<PAGE>
SCHEDULE B
PERMITTED LIENS AND LICENSES
None
-12-
<PAGE>
EXHIBIT I
SPECIAL POWER OF ATTORNEY
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
KNOW ALL MEN BY THESE PRESENTS, that TII INDUSTRIES, INC.
("DEBTOR"), having an office at 1385 Akron Street, Copiague, New York 11726,
hereby appoints and constitutes, severally, BNY FINANCIAL CORPORATION ("SECURED
PARTY"), and each of its officers, its true and lawful attorney, with full power
of substitution and with full power and authority to perform the following acts
on behalf of Debtor at any time after the occurrence and during the continuance
of an Event of Default under the Security Agreement (as hereinafter defined):
1. Execution and delivery of any and all agreements, documents,
instrument of assignment, or other papers which Secured Party, in its
discretion, deems necessary or advisable for the purpose of assigning, selling,
or otherwise disposing of all right, title, and interest of Debtor in and to any
trademarks and all registrations, recordings, reissues, extensions, and renewals
thereof, or for the purpose of recording, registering and filing of, or
accomplishing any other formality with respect to the foregoing.
2. Execution and delivery of any and all documents, statements,
certificates or other papers which Secured Party, in its discretion, deems
necessary or advisable to further the purposes described in Subparagraph 1
hereof.
This Power of Attorney, being a power coupled with an interest, is
made pursuant to a Trademark Collateral Assignment and Security Agreement
between Debtor and Secured Party, of even date herewith (the "SECURITY
AGREEMENT") and may not be revoked until indefeasible payment in full of all
Debtor's "Obligations", as such term is defined in the Security Agreement and is
subject to the terms and provisions thereof.
April, ___, 1998
TII INDUSTRIES, INC.
By:_______________________
Title:____________________
-13-
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
As of this ____ day of April, 1998, before me personally came
__________ ______________________, to me known, who being duly sworn, did depose
and say, that he is a Vice President of TII INDUSTRIES, INC., the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto by order of the Board of Directors of said corporation.
__________________________
Notary Public
-14-
PUERTO RICO INDUSTRIAL DEVELOPMENT COMPANY
PO BOX 362350
SAN JUAN, PUERTO RICO 00936-2350
LEASE CONTRACT
--------------
PROJECT NO.: PROYECTO NUM.:S-1231-0-77 (22,560.76 P.C.) and
T-0149-0-52 (20,308.44 P.C.); Part of Lot No. 1A (L-82-57) of 1,550.00 S.Q. M.T.
(site for water tanks); Lot No. 1B (L-82-57) of 10,181.00 S.Q. M.T. Equivalent
to 2.59 "cuerdas"
LOCATION: TOA ALTA, PUERTO RICO
THIS AGREEMENT ENTERED into on April 27, 1998 by:
AS "LANDLORD", THE PUERTO RICO INDUSTRIAL DEVELOPMENT COMPANY, AND
AS "TENANT", TII INDUSTRIES, INC.
WITNESSETH
----------
WHEREAS, LANDLORD is the owner of certain landsite and building,
identified in the Epigraph, hereinafter referred to as the Premises.
WHEREAS, LANDLORD has agreed to lease to TENANT, and TENANT has
agreed to hire from LANDLORD the Premises.
NOW THEREFORE, in consideration of the foregoing premises, the
parties herein agree on this Lease subject to the following:
TERMS AND CONDITIONS
--------------------
ONE: LANDLORD hereby demises and lets unto TENANT, and TENANT hereby
leases from LANDLORD the Premises which are fully described in Schedule "A"
hereto annexed and made a part hereof.
The Premises are subject to the encumbrances, liens and/or
restrictions, if any, that may appear from said Schedule "A". Furthermore, the
air rights of the Premises, are excepted and reserved to LANDLORD.
TWO: Premises shall be used and occupied exclusively in the
manufacture of STAMPED METAL PRODUCTS AND MACHINE PARTS (SIC. #03469), SURGE
ARRESTING EQUIPMENT (SIC. #03643) AND ELECTRONIC COMPONENTS (SIC. #03679).
THREE: TENANT shall hold the Premises for a period of ten (10)
years, to commence on May 1, 1996.
FOUR: Commencing July 1, 1996, TENANT shall pay to LANDLORD an
annual rental of:
A. PROJECT NUMBER S-1231-0-77: TENANT SHALL PAY RENT FOR AN AREA OF
18,961 SQ FT DUE TO A 3,600 SQ FT FLOOR AREA WHICH IS ACTUALLY
DAMAGED.
TERM ANNUAL RENTAL MONTHLY
---- ------------- -------
1st year $2.75 $4,345.23
2nd year $2.95 $4,661.25
<PAGE>
TERM ANNUAL RENTAL MONTHLY
---- ------------- -------
3rd year $3.20 $5,056.27
4th year $3.45 $5,451.29
5th year $3.60 $5,688.30
6th year and for $4.10 $6,478.34
the remnant of the
term
Commencing on May 1, 1996, TENANT shall pay to Landlord an annual rental of:
B. PROJECT NUMBER T-0149-0-52:
TERM ANNUAL RENTAL MONTHLY
---- ------------- -------
1st year $2.75 $4,654.02
2nd year $2.95 $4,992.49
3rd year $3.20 $5,415.58
4th year $3.45 $5,838.68
5th year $3.60 $6,092.53
6th year to 10th year $4.10 $6,938.72
C. FOR LOT 1B (L-82-57), TENANT SHALL PAY $600.00 PER MONTH UNTIL THE
TERMINATION OF THE CONTRACT, COMMENCING THE FIRST DAY OF THE MONTH
AFTER THE DATE OF DELIVERY OF THE LOT.
The monthly installments for rent specified herein, shall be paid in
advance on the first day of each month at LANDLORD'S office, or at any other
place that LANDLORD may notify. In the event that the date of commencement does
not fall on the first of the month, TENANT further agrees to pay the first
partial monthly installments, prior to, or on the date of commencement.
FIVE: The amount of $9,684.29 deposited by TENANT under the
provisions of a previous Lease Contracts for the project T-0149-0-32 (CR #12422
of 12-15-98) and M-0804-0-67-01, 02 and 03 (CR #117323 of 9-16-85); therefore,
simultaneously herewith TENANT shall pay $4,138.63 in a certified check.
This deposit shall guarantee the compliance by TENANT of its
obligations, under this Contract, particularly, but not limited to, the payment
of rent, the compliance of the environmental clauses herein included and the
return of the Premises in proper condition at the termination of this Lease. On
said termination, if TENANT is not in default of any of the terms and conditions
of this Contract, LANDLORD will return to TENANT the sum of money, if any, held
pursuant to this provision, after LANDLORD's Environmental Office certifies that
there are no environmental deficiencies as a result of TENANT's manufacturing
operation on the demised Premises.
SIX: TENANT agrees to have on the date of commencement of the
term of this Lease a capitalization of $971,755.00.
Likewise TENANT agrees to install within six (6) months from the
same date manufacturing machinery and equipment with a value of at least
$250,000.00.
-2-
<PAGE>
This shall not include the cost of transportation and installation
thereof, nor its ordinary depreciation after installation; and within eighteen
(18) months from the date of commencement of the term, to employ a minimum of
One Hundred (100) production workers. The aforementioned levels, shall be
maintained throughout the term of this Lease or any extension thereof.
SEVEN: All notices, demands, approvals, consents and/or
communications herein required or permitted shall be in writing. If by mail
should be certified and to the following addresses, to LANDLORD: PO BOX 362350,
SAN JUAN, PUERTO RICO 00936-2350. To TENANT: PO BOX 433, TOA ALTA, PUERTO RICO
00954.
EIGHT: NET LEASE - This Lease shall be interpreted as a net
lease; it being the exclusive responsibility of TENANT to pay for all operating
expenses, utilities, maintenance, expenses, insurance, taxes or any other costs,
expenses or charges of any nature not specifically assumed by LANDLORD
hereunder.
NINE: WARRANTY AS TO USE - LANDLORD does hereby warrant that
at the time of the commencement of the term of this Lease, the Premises may be
used by TENANT for the manufacturing purposes herein intended which are deemed
consistent with the design and construction in accordance with the corresponding
plans and specifications.
TEN: ALTERATIONS - TENANT shall make no alterations,
additions or improvements to the Premises without the prior consent of LANDLORD
and all such alterations, additions or improvements made by or for TENANT, shall
be at TENANT's own cost and expenses and shall, when made, be the property of
LANDLORD without additional consideration and shall remain upon and be
surrendered with the Premises as a part thereof at the expiration or earlier
termination of this Lease, subject to any right of LANDLORD to require removal
or to remove as provided for hereinafter.
In the event TENANT asks for LANDLORD'S consent for any alteration;
LANDLORD may at its option, require from TENANT to submit plans and
specifications for said alteration. Before commencing any such work, said plans
and specifications, if required, shall be filed with and approved by all
governmental agencies having jurisdiction thereof, and the consent of any
mortgagee having any interest in or lien upon this Lease shall be procured by
TENANT and delivered to LANDLORD if required by the term of the mortgage.
Before commencing any such work, TENANT shall at TENANT'S own cost
and expense, deliver to LANDLORD a General Accident Liability Policy more
particularly described in Article THIRTY (30) hereof, but said policy shall
recite and refer to such work, and in addition thereto, if the estimated cost of
such work is more than FIVE THOUSAND DOLLARS ($5,000.00), TENANT shall, at
TENANT'S own cost and expense, deliver to LANDLORD a surety bond, or a
performance bond from a company acceptable to LANDLORD, or a similar bond or
other security satisfactory to LANDLORD, in an amount equal to the estimated
cost of such work, guaranteeing the completion of such work within a reasonable
time, due regard being had to conditions, free and clear of materialmen liens,
mechanics liens or any other kind of lien, encumbrances, chattel mortgages and
conditional bills of sale and in accordance with said plans and specifications
submitted to and approved by LANDLORD. At LANDLORD'S option TENANT shall provide
a blanket written guarantee in an amount sufficient to satisfy LANDLORD as to
all alterations, changes, additions and improvements to the Premises in lieu of
separate guarantee for each such project.
TENANT shall pay the increased premium, if any, charged by the
insurance companies carrying insurance policies on said building, to cover the
additional risk during the course of such work.
ELEVEN: POWER SUBSTATION - If required by TENANT'S operations,
TENANT shall, at its own cost and expense, construct and/or install a power
substation and connect it to the PUERTO RICO ELECTRICAL POWER AUTHORITY (PREPA)
distribution lines, for voltages up to 13.2 KV; and to PREPA transmission lines
for voltages of 38 KV, all in conformity to PREPA's
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requirements. Such construction shall, in no event, be undertaken by TENANT
until after LANDLORD has approved the location thereof, as well as the routing
of the power line extension.
TWELVE: REPAIRS AND MAINTENANCE - TENANT shall, at its own cost and
expense, put, keep and maintain in thorough repair and good order and safe
condition the building and improvements standing upon the Premises at the
commencement of the term hereon or thereafter erected upon the premises, or
forming part of the Premises, and their full equipment and appurtenances, the
side walks areas, sidewalk hoists, railings, gutters, curbs and the like in from
of the adjacent to the Premises, and each and every part thereof, both inside
and outside, extraordinary and ordinary, and shall repair the whole and each and
every part thereof in order to keep the same at all times during the term hereof
in through repair and good order and safe conditions, whenever the necessity or
desirability therefor may occur, and whether or not the same shall occur, in
whole or in part, by wear, tear, obsolescence or defects, and shall use all
reasonable precautions to prevent waste, damage or injury, except as provided
hereinafter.
LANDLORD and not TENANT, shall be responsible for and shall promptly
correct any defects in the building on the Premises which are due to faulty
design, or to errors of construction not apparent at the time the Premises were
inspected by TENANT for purposes of occupancy by TENANT; this shall not be
interpreted to relieve TENANT of any responsibility or liability herein
otherwise provided, including among others, for structural failure due to the
fault or negligence of TENANT.
TENANT shall also, at TENANT's own cost and expense, maintain the
landsite in thoroughly clean condition; free from solid waste (which includes
liquid and gaseous as defined by the Resource Conservation and Recovery Act),
and the Regulation on Hazardous and Non-Hazardous Waste of the Environmental
Quality Board, as amended, rubbish, garbage and other obstructions.
Specifically, TENANT shall not use said landsite, nor permit it to be used, as a
deposit or as dump for raw materials, waste materials, hazardous, toxic or
non-toxic substances, or substances of whichever nature. TENANT shall neither
make any excavation for the purpose of storing, putting away and/or concealing
raw materials or waste materials of any kind. Underground storage of hazardous
and/or toxic substances is specifically prohibited.
TENANT shall not do or cause to be done, nor permit on the Premises
anything deemed extra hazardous, nor shall it store in the Premises flammable or
toxic products of any class or kind without taking the proper precautions and
complying with applicable federal and Commonwealth laws and regulations.
In case TENANT needs to store in the landsite raw materials of a
hazardous and/or toxic nature or hazardous and/or toxic wastes, TENANT shall
notify LANDLORD and secure its prior authorization. LANDLORD shall be furnished
with a copy of any permit issued for such storage.
Although it is not intended that TENANT shall be responsible for any
decrease in value of the Premises due to the mere passing of time, or for
ordinary wear and tear of surfaces and other structural members of the building,
nevertheless TENANT shall: (i) replace, with like kind and quality, doors,
windows; electrical, sanitary and plumbing, fixtures; building equipment and/or
other facilities or fixtures in the Premises which through TENANT's use, fault
or negligence, become too worn out to repair during the life of this Lease, (ii)
paint the property inside and outside as required.
In addition to the foregoing, TENANT shall indemnify and safe
harmless LANDLORD from and against any and all cost, expenses, claims, losses,
damages, or penalties, including counsel fees, because of or due to TENANT's
failure to comply with the foregoing, and TENANT shall not call upon LANDLORD
for any disbursement or outlay of money whatsoever, and hereby expressly
releases and discharges LANDLORD of and from any liability or responsibility
whatsoever in connection therewith.
THIRTEEN: ROOF CARE - TENANT, without the prior consent of LANDLORD,
shall not: (i) erect or cause to be erected on the roof any bill board, aerial
sign, or structure of any kind, (ii) place any fixture, equipment or any other
loan over the roof, (iii) drill any hole on the roof for whichever purpose, (iv)
use the roof for storage, nor (v) correct any leaks whatsoever, this being
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LANDLORD's sole responsibility. Furthermore, TENANT shall take all reasonable
precautions to insure that the drainage facilities of the roof are not clogged
and are in good and operable conditions at all times.
FOURTEEN: FLOOR LOADS - TENANT hereby acknowledges that it has been
informed by LANDLORD that the maximum floor loan of the Premises herein demised
is 150 pounds per square foot. Therefore, TENANT hereby agrees that in the event
the load of the machinery and equipment to be installed thereat exceeds such
maximum loan, it shall, at its own cost and expense, carry out any improvements
to the floor of the Premises which may be necessary to support such additional
load; it being further agreed and understood that construction and/or
installation of such improvements shall not be commenced until after LANDLORD's
approval of the plans to be prepared therefor by TENANT and thereafter, after
completion of construction and/or installation of said facilities, they shall be
deemed covered by and subject to the applicable provisions of this Contract; it
being further specifically agreed and understood that upon termination of this
Lease, such facilities shall be removed by TENANT, at its own cost and expense,
or in the alternative, and upon request by LANDLORD, they shall remain as part
of the Premises with no right whatsoever on the part of TENANT to be reimbursed
and/or compensated therefor.
FIFTEEN: FIXTURES - TENANT shall not affix to the ceiling, nor to
its supporting joists or columns, nor to any of its walls, any air conditioning
unit, nor any other fixture, without the prior consent of LANDLORD.
SIXTEEN: ENVIRONMENTAL PROTECTION AND COMPLIANCE - TENANT agrees, as
a condition hereof, that it will not discharge its solid, liquid or gaseous
industrial and/or sanitary effluent or discharges, either into the sewer system
and/or into any other place until after required authorizations therefor has
been obtained from the Puerto Rico Aqueduct and Sewer Authority, and/or the
Department of Health of Puerto Rico and/or Environmental Quality Board, and/or
any other governmental agency having jurisdiction thereof and TENANT further
agrees and undertakes to pre-treat any such effluent, prior to discharge thereof
as required by the said Authority, Department and/or governmental agency with
jurisdiction, and/or to install any equipment or system required, and to fully
abide by and comply with any and all requisites imposed thereby, and upon
request by LANDLORD to submit evidence of such compliance; it being agreed that
non-compliance thereof by TENANT for a period of ninety (90) days after notice,
shall be deemed an additional event of default under the provisions hereof.
Provided, that no construction and/or installation shall be made until LANDLORD
has approved of it.
TENANT shall also, at TENANT's own cost and expense, construct and
maintain Premises, processes and/or operating procedures in compliance with the
terms, conditions and commitments specified in any Environmental Impact
Statement, Environmental Assessment or any other analogous document produced by
the Commonwealth of Puerto Rico, Economic Development Administration /LANDLORD
as lead agency /or by any other governmental agency in connection with the
approval or operation of the project.
TENANT shall also serve LANDLORD with a copy of any lawsuit, notice
of violation, order to show cause or any other regulatory or legal action
against TENANT in any environmental-related case or issue.
TENANT shall also serve LANDLORD with a copy of any permit granted
to TENANT for air emissions, water discharge, solid waste generation, storage,
treatment and/or disposal, and for any hazardous and/or toxic waste raw
materials or by-products used or generated, stored, treated and/or disposed or
any other endorsement, authorization or permit required to be obtained by
TENANT.
TENANT shall also serve LANDLORD with a copy of any filing or
notification to be filed by TENANT with any regulatory agency or any
environmentally related case or issue, especially in any situation involving
underground or surface water pollution, hazardous and/or toxic waste spillage
and ground contamination. The notification to LANDLORD shall take place not
later than the actual filing of the pertinent documents with the regulatory
agency.
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SEVENTEEN: IMPROPER USE - TENANT, during the term of this Lease and
of any renewal or extension thereof, agrees not to use or keep or allow the
leased Premises or any portion thereof to be used or occupied for any unlawful
purpose or in violation of this Lease or of any certificate of occupancy or
certificate of compliance covering or affecting the use of the Premises or any
portion thereof, and will not suffer any act to be done or any condition to
exist on the Premises or any portion thereof, or any article to be brought
thereon, which may be dangerous, unless safeguarded as required by law, or which
may in law, constitute a nuisance, public or private, or which may made void or
voidable any insurance then in force on the leased Premises.
EIGHTEEN: GOVERNMENT REGULATIONS - TENANT agrees and undertakes to
abide by and comply with any and all rules, regulations and requirements of the
Planning Board of Puerto Rico, the Department of Health, the Environmental
Quality Board, the Environmental Protection Agency (EPA), where applicable
and/or of any other governmental agency, having jurisdiction thereon applicable
to TENANT's operations at the Premises and/or products to be manufactured
thereat, and if requested by LANDLORD, TENANT shall submit evidence of such
compliance; it being agreed and understood that noncompliance with any and all
such rules, regulations and requisites shall be deemed an additional event of
default under the provisions of this Contract, unless remedied within thirty
(30) days after receipt of notice thereof.
Any and all improvements to the Premises required by any
governmental agency, having jurisdiction thereon so as to carry TENANT's
operations in accordance with the regulations and requisites thereof, shall be
at TENANT's own cost and expense, except for any improvements that may be
required as a result of any violation by LANDLORD that may exist at the
effective date hereof other than violations caused by TENANT or TENANT's agents.
TENANT further agrees and undertakes to install in the Premises, at
its own costs and expense, such devices as may be necessary to prevent any
hazard, which may be caused or created by its operations from affecting the
environmental integrity of the landsite or causing any nuisance to adjacent
tenants and/or the community in general; it being agreed and understood that
creating or causing any such nuisance, shall be deemed an additional event of
default under the provisions of this Contract.
TENANT further agrees and undertakes to abide by and comply with any
and all rules, regulations and requisites of the Fire Department relative to the
use and storage of raw materials, finished products and/or inflammable
materials, and/or of any other governmental agency, having jurisdiction thereof
applicable to TENANT's operations at the Premises, and if requested by LANDLORD,
TENANT shall submit evidence of such compliance; it being agreed and understood
that noncompliance by TENANT with any of the aforementioned rules, regulations
and requisites shall be deemed, in each of such cases, an additional event of
default under the provisions of this Contract, unless remedied within thirty
(30) days after receipt of notice thereof.
If as a consequence of the foregoing dispositions, TENANT need to
make alterations to the Premises, the same shall be done subject to the
dispositions of Article TEN hereof.
NINETEEN: USE PERMIT - TENANT agrees to abide by and comply with any
and all conditions and requisites included in the Use Permit which may be issued
by the Puerto Rico Permits and Regulations Administration (ARPE), and if
requested by LANDLORD, shall submit evidence of such compliance; it being agreed
and understood that noncompliance by TENANT with any and all such conditions and
requisites and/or the cancellation of the said Use Permit shall, in each of such
cases, be deemed an additional event of default under the provisions of this
Contract.
TWENTY: INSPECTION - TENANT shall permit LANDLORD or LANDLORD's
agents to enter the Premises at all reasonable time for the purpose of
inspecting the same, or of making repairs that TENANT has neglected or refused
to make as required by the terms, covenants and conditions of this Lease, and
also for the purpose of showing the Premises to persons wishing to purchase the
same, and during the year next preceding the expiration of this Lease, shall
permit inspection thereof by or on behalf of prospective TENANTS. If, at a
reasonable time, admission to the Premises for the purposes aforesaid cannot be
obtained, or if at any time an entry shall be deemed necessary for the
inspection or protection of the property, or for making any repairs, whether for
the benefit of
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TENANT or LANDLORD, LANDLORD's agents or representatives may enter the Premises
by force, or otherwise, without rendering LANDLORD, or LANDLORD's agents or
representative liable to any claim or cause of action or damage by reason
thereof, and accomplish such purpose.
The provisions contained in this Article are not to be construed as
an increase of LANDLORD's obligations under this Lease; it being expressly
agreed that the right and authority hereby reserved does not impose, nor does
LANDLORD assume, by reason thereof, any responsibility of liability whatsoever
for the repair, care of supervision of the Premises, or any building, equipment
or appurtenance on the Premises.
TWENTY-ONE: LANDLORD'S ENTRY FOR REPAIRS AND ALTERATIONS - LANDLORD
reserves the right to make such repairs, changes, alterations, additions or
improvements in or to any portion of the building and the fixtures and equipment
which are reputed part thereof as it may deem necessary or desirable and for the
purpose of making the same, to use the street entrances, halls, stairs and
elevators of the building provided that there be no unnecessary obstruction of
TENANT's right of entry to and peaceful enjoyment of the Premises, and TENANT
shall make no claim for rent abatement compensation or damages against LANDLORD
by reason of any inconvenience or annoyance arising therefrom.
TWENTY-TWO: LANDLORD EXCUSED IN CERTAIN INSTANCES - If, by reason of
inability to obtain and utilized labor, materials or supplies, or by reason of
circumstances directly or indirectly the result of any state of war, or of
emergency duly proclaimed by the corresponding governmental authority, or by
reason of any laws, rules, orders, regulations or requirements of any
governmental now or hereafter in force or by reason of strikes or riots, or by
reason of accidents, in damage to or the making of repairs, replacements or
improvements to the building or any of the equipment thereof, or by reason of
any other cause reasonable beyond the control of LANDLORD, LANDLORD shall be
unable to perform or shall be delayed in the performance of any covenant to
supply any service, such non-performance or delay in performance shall not be
ground to any claim against LANDLORD for damages or constitute a total or
partial eviction, constructive or otherwise. It being agreed and understood that
the time for completion of any such construction, shall be extended for a period
of time equal to the number of days of any such delay.
TWENTY-THREE: QUIET ENJOYMENT - TENANT on paying the full rent and
keeping and performing the conditions and covenants herein contained, shall and
may peaceably and quietly enjoy the Premises for the term aforesaid, subject,
however, to the terms of this Lease and to the mortgages hereinafter mentioned.
TWENTY-FOUR: LEASEHOLD IMPROVEMENTS - If leasehold improvements made
by or for the benefit of TENANT in the Premises at his request or other personal
property to TENANT are assessable or taxable and a tax liability is imposed to
TENANT or LANDLORD, it is understood that it shall be the sole responsibility of
TENANT to pay such taxes and in no event shall such taxes be the liability of or
be transferable to LANDLORD. In the event that by operation of law, such taxes
became a liability of LANDLORD, TENANT shall pay such taxes as they become due
and payable and shall promptly reimburse LANDLORD for any payments or expenses
incurred or disbursed by LANDLORD by reasons of any such assessment. Said amount
shall be due and payable, as additional rent, with the next installment of rent.
In the event that TENANT fails to make this payment when due, it shall be
subject to the dispositions of Article THIRTY-SEVEN hereof.
TWENTY-FIVE: STOPPAGE OF OPERATIONS - It is understood by the
parties hereto that this Lease is made by LANDLORD in furtherance of the
industrialization plans of the Commonwealth of Puerto Rico, and it is
accordingly understood that TENANT will use all reasonable efforts while this
Lease is in effect to maintain a manufacturing operation upon the Premises, but
nothing contained in this paragraph shall be deemed to require TENANT to
maintain such an operation otherwise than in accordance with sound principles of
business management, or (without limiting the generality of the foregoing) to
prevent TENANT from curtailing such operation or from shutting it down, whenever
and as often as TENANT may, in the exercise of sound business judgment, deem
such action advisable. However, TENANT shall give to LANDLORD notice of any
necessary or convenient curtailment and/or shut-down, at least seven (7) days
prior to the date fixed therefor except in cases of any emergency shut-down, in
which case such notice shall be given at the earliest possible time.
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No curtailment of operations or shut-down in accordance with the provisions of
this paragraph shall constitute a default under the provisions of this Contract
which will enable LANDLORD to terminate it, unless such plants shall have been
shut-down for a period of six (6) consecutive months. A shut-down on account of
unforeseeable event or events which although foreseeable could not be prevented,
shall not constitute a breach of this agreement. Nothing in this paragraph
contained shall relieve TENANT from the payment of rent during the period of any
shut-down or curtailments of operations.
TWENTY-SIX: ASSIGNMENT AND SUBLETTING - TENANT shall not assign,
this Lease nor let or sublet the Premised or any part thereof except to its
parent company, to a wholly owned subsidiary, to an affiliate of TENANT, wholly
owned by TENANT's parent company or to a corporation to be organized by TENANT.
In any of these cases, TENANT shall promptly notify LANDLORD of said assignment
or subletting, it being agreed and understood that no such assignment or
subletting shall: (i) reduce or, in any way, affect the obligations of TENANT
under this Lease, nor (ii) release TENANT from liability under this Lease.
TWENTY-SEVEN: SUCCESSORS IN INTEREST - This Lease Contract and every
provision thereof, shall bind and inure to the benefit of the legal
representatives, successors and assigns on the parties. However, the term
"LANDLORD", as used in this Contract, so far as any covenants or obligations on
the part of LANDLORD under this Lease are concerned, shall be limited to mean
and include only the owner or lessor, at the time in question, of the Premises,
so that in the event hereafter of a transfer of the title to the Premises,
whether any such transfer be voluntary or by operation of law or otherwise, the
person, natural or juridical, by whom any such transfer is made, shall be and
hereby is entirely freed and relieved of all personal liability as respects the
performance of the covenants and obligations of LANDLORD under this Lease from
and after the date of such transfer.
TWENTY-EIGHT: NO REPRESENTATION BY LANDLORD - LANDLORD, LANDLORD's
agents or employees, or the agents, executives or employees of the LANDLORD,
have made no representations or promises with respect to the Premises except as
herein expressly set forth and no rights, easements or licenses are acquired by
TENANT by implication or otherwise except as expressly set forth in the
provisions of this Contract. The taking possession of the Premises by TENANT,
shall be conclusive evidence, as against TENANT, that TENANT accepts same "AS
IS" and that said Premises, particularly the building which forms a part of the
same, were in good and satisfactory conditions at the time such possession was
so taken.
TWENTY-NINE: DAMAGES - LANDLORD shall not be responsible for any
latent defect or change of conditions in the Premises resulting in damage to the
same, or the property or person therein, except to the extent of LANDLORD's
gross negligence, and provided such claims or loss is not covered by insurances
herein required from TENANT. TENANT shall promptly notify LANDLORD of any damage
to or defects in the Premises, particularly in any part of the building's
sanitary, electrical, air conditioning or other systems located in or passing
through the Premises, and the damage or defective conditions, subject to the
provisions of Article TWENTY-ONE (21) hereof, shall be remedied by LANDLORD with
reasonable diligence.
THIRTY: GENERAL LIABILITY INSURANCE - TENANT shall indemnify, have
harmless and defend LANDLORD and agents, servants and employees of LANDLORD
against and from any and all liability, fines, suits, claims, demands, expenses,
including attorneys' fees, and actions of any kind or nature arising by reason
of injury to person or property including the loss of use resulting thereof or,
violation of law occurring in the Premises occasioned in whole or in part by any
negligent act or omission on the part of TENANT or an employee (whether or not
acting within the scope of his employment), servant, agent, licensee, visitor,
assignor or undertenant of TENANT, or by any neglectful use or occupancy of the
Premises or any breach, violation or non-performance of any covenant in this
Lease on the part of TENANT to be observed or performed.
Pursuant to the foregoing, TENANT shall, maintain during the term of
this Lease, at its own cost and expense, a Comprehensive General Liability
Policy. Said policy shall: (i) be for a combined single limit of no less than
$500,000.00 per accident, (ii) hold LANDLORD harmless against any and all
liability as hereinbefore stated, and (iii) the care, custody and control
exclusion shall be deleted
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from this coverage. LANDLORD may require additional reasonable limits of public
liability insurance and coverages, when changing circumstances so require.
THIRTY-ONE: PROPERTY INSURANCE - TENANT recognizes that the rent
provided for herein does not include any element to indemnify, repair, replace
or make whole TENANT, his employees, servants, agents, licensees, visitors,
assignees, or undertenant for any loss or damage to any property or injury to
any person in the Premises.
Accordingly, during the term of this Lease, TENANT shall keep the
building standing upon the Premises at the commencement of the term hereof or
thereafter erected upon the Premises, including all equipment appurtenant to the
Premises and all alterations, changes, additions and improvements, insured for
the benefit of LANDLORD and TENANT, as their respective interest may appear, in
an amount at least equal to the percentages stated below (as LANDLORD may from
time to time determine). The basis of the Property Insurance shall be
Replacement Cost and the coverage an "All Risks" Property Insurance Policy.
Coverages included in the All Risks Form:
1. Fire - "Building & Contents Form"
(a) Building - 100% of insurable value exclusive of
foundations
(b) Contents - All equipment appurtenant to the
Premises (State value of Policy)
2. Additional Coverages under the Fire Policy
(a) Extended Coverage Endorsement - 100% of insurable
value exclusive of foundations
(b) Earthquake - 100% of insurable value including
foundations
(c) Vandalism and Malicious Mischief Endorsement
(d) Improvements and Betterments - For all
alterations, changes, additions and improvements
3. Landsite and Flood whenever applicable and/or necessary
4. Boiler and Machinery (if any) - 100% of insurable value
5. Pollution Liability Policy - if necessary.
THIRTY-TWO: MULTIFACTORY BUILDING SPECIFIC DISPOSITIONS - In the
event that the Premises constitute a section or sections of an industrial
building and landsite in which other operations are conducted by other TENANTS:
(i) the insurance coverage herein required, shall be acquired by LANDLORD for
the whole of the industrial building and TENANT shall reimburse LANDLORD, for
its proportionate share in the total cost of said policies, (ii) if, because of
anything done, caused or permitted to be done, permitted or omitted by TENANT,
the premium rate for any kind of insurance affecting the Premises shall be
increased, TENANT shall pay to LANDLORD the additional amount which LANDLORD may
be thereby obligated to pay for such insurance, and if LANDLORD shall demand
that TENANT remedy the condition which cause the increase in the insurance
premiums rate, TENANT will remedy such conditions within five (5) days after
such demand, and (iii) the insurance policies required in the preceding Articles
THIRTY (30) and THIRTY-ONE (31) shall be endorsed to include a waiver of
subrogation against TENANT. All amounts to be reimbursed by TENANT under this
Article, shall be due and payable, as additional rent, with the next installment
of rent. In the event that TENANT fails to make this payment, when due, it shall
be subject to the dispositions of Article THIRTY-SEVEN (37) hereof.
THIRTY-THREE: ADDITIONAL DISPOSITIONS ABOUT INSURANCE - All the
Insurance policies herein required from TENANT, shall be taken in form and
substance acceptable to LANDLORD with
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insurance companies duly authorized to do business in Puerto Rico, having an "A"
and a higher financial fatting according to Best's Insurance Report; and shall
include LANDLORD as additional insured. TENANT shall instruct the corresponding
insurer to deliver such policies or certified copies of Certificates of
Insurance, in lieu of, directly to LANDLORD. LANDLORD reserves the right not to
deliver possession of the Premises to Tenant, unless, and until two (2) days
after such original policies, or certified copies or certificates have been
deposited with LANDLORD.
Furthermore, said policies, shall: (i) provide that they may not be
canceled by the insurer for nonpayment of premium or otherwise, until at least
ten (10) days after services of notice by registered or certified mail of the
proposed cancellation upon LANDLORD, and (ii) be promptly renewed by TENANT upon
expiration and TENANT shall, within ten (10) days after such renewal, deliver to
LANDLORD adequate evidence of the payment of premiums thereof. If such premiums
or any of them shall be not be so paid, LANDLORD may procure the same in the
manner set forth for governmental agencies, and TENANT shall reimburse LANDLORD
any amount so paid. This reimbursement being due and payable with the next
installment of rent. In the event that TENANT fails to make this payment when
due, it shall be subject to the dispositions of Article THIRTY-SEVEN (37)
hereof. It is expressly agreed and understood, that payment by LANDLORD of any
such premiums shall not be deemed to waive or release the default in the payment
thereof by TENANT nor the right of LANDLORD to take such action as may be
available hereunder as in the case of default in the payment of rent.
Upon the commencement of the term hereof, TENANT shall pay to
LANDLORD the apportioned unearned premiums on all such policies of insurance
then carried by LANDLORD in respect of the Premises in the event TENANT
continues with the insurance policies placed in LANDLORD.
TENANT shall not violate nor permit to be violated any of the
conditions or provisions of any of said policies, and TENANT shall so perform
and satisfy the requirements of the companies writing such policies that at all
times companies of good standing and acceptable to LANDLORD shall be willing to
write and continue such insurance.
TENANT shall cooperate with LANDLORD in connection with the
collection of any insurance monies that may be due in the event of loss and
shall execute and deliver to LANDLORD such proofs of loss and other instruments
that may be required for the purpose of facilitating the recovery of any such
insurance monies, and in the event that TENANT shall fail or neglect so to
cooperate or to execute, acknowledge and deliver any such instrument, LANDLORD,
in addition to any other remedies, may as the agent or attorney-in-fact of
TENANT, execute and deliver any proof of loss or any other instruments as may
seem desirable to LANDLORD and any mortgagee for the collection of such
insurance monies. This shall not be interpreted as any waiver of the obligations
of TENANT under Articles THIRTY, THIRTY-ONE, THIRTY-TWO and THIRTY-THREE hereof
or exclusively in favor of LANDLORD under Article THIRTY-NINE hereof.
THIRTY-FOUR: WAIVERS - The receipt by LANDLORD of the rent,
additional rent, or any other sum or charges payable by TENANT with or without
knowledge of the breach of any covenant of this Contract, shall not be deemed a
waiver of such breach. No act or omission of LANDLORD or its agent during the
term of this Lease shall be deemed an acceptance of a surrender of the Premises
and no agreement to accept a surrender of the Premises shall be valid unless it
be made in writing and subscribed by LANDLORD. This Contract contains all the
agreements and conditions made between the parties hereto with respect to the
Premises and it cannot be changed orally. Any additions to, or changes in this
Lease must be in writing, signed by the party to be charged.
Failure on the part of LANDLORD to act or complain of any action or
nonaction on the part of TENANT shall not be deemed to be a waiver of any of its
respective rights hereunder nor constitute a waiver at any subsequent time of
the same provision. The consent or approval by LANDLORD to, or of any action by
the other requiring consent or approval, shall not be deemed to waive or render
unnecessary the consent or approval by LANDLORD of any subsequent similar act.
THIRTY-FIVE: REINSTATEMENT - No receipt of monies by LANDLORD for
TENANT after the termination or cancellation hereof in any lawful manner shall
reinstate, continue or extend the term
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hereof, or affect any notice theretofore given to TENANT, or operate as a waiver
of the right of LANDLORD to enforce the payment of rent, additional rent, or
other charges then due or thereafter falling due, or operate as a waiver of the
right of LANDLORD to recover possession of the Premises by proper suit, action,
proceeding or remedy; it being agreed that, after the service of notice to
terminate or cancel this Lease, and the expiration of the time therein
specified, if the default has not been cured in the meantime, or after the
commencement of suit, action or summary proceedings or of any other remedy, or
after a final order, warrant of judgment of the possession of the Premises,
LANDLORD may demand, receive and collect any monies then due, or thereafter
becoming due, without in any manner affecting such notice, proceeding, suit,
action, order, warrant or judgment; and any and all such monies so collected
shall be deemed to be payments for the use and occupation of the Premises, or at
the election of LANDLORD, on account of TENANT's liability hereunder. Delivery
or acceptance of the keys to the Premises, or any similar act, by the LANDLORD,
or its agents or employees, during the term hereof, shall not be deemed to be a
delivery or an acceptance of a surrender of the Premises unless LANDLORD shall
explicitly consent to it, in the manner set forth hereinbefore.
THIRTY-SIX: SUBORDINATION AND ATTORNMENT - This Lease is and shall
be subject and subordinate to all liens, or mortgages which may now or hereafter
affect the Premises and to all renewals, modifications, consolidations,
replacements and extensions thereof and, although this subordination provision
shall be deemed for all purposes to be automatic and effective without any
further instrument on the part of TENANT, TENANT shall execute any further
instrument requested by LANDLORD to confirm such subordination.
TENANT further covenants and agrees that if by reason of a default
upon the part of LANDLORD of any mortgage affecting the Premises, the mortgage
is terminated or foreclosed by summary proceedings or otherwise, TENANT will
attorn to the mortgagee or the purchaser in foreclosure proceedings, as the case
may be, and will recognize such mortgage or purchaser, as the TENANT's landlord
under this Lease. TENANT agrees to execute and deliver, at any time and from
time to time, upon the request of LANDLORD or of the mortgagee or the purchaser
in foreclosure proceedings, as the case may be, any reasonable instrument which
may be necessary or appropriate to evidence such attornment. TENANT further
waives the provision of any statute or rule of law now or hereafter in effect
which may give or purport to give TENANT any right of election to terminate this
Lease or to surrender possession of the Premises demised hereby in the event any
such proceeding is brought by the holder of any such mortgage, and TENANT's
obligations hereunder shall not be affected in any way whatsoever by any such
proceeding.
TENANT covenants and agrees, upon demand of the holder of any
mortgage duly recorded or recordable in the corresponding Registry of the
Property or of any receiver duly appointed by the foreclose any such mortgage,
to pay to the holder of any such mortgage or to such receiver, as the case may
be, all rent becoming due under this Lease after such demand, provided such
holder of any such mortgage or any such receiver complies with the obligations
of LANDLORD under this Lease.
TENANT, upon request of LANDLORD or any holder of any mortgage or
lien affecting the Premises, shall from time to time, deliver or cause to be
delivered to LANDLORD or such lien holder or mortgagee, within ten (10) working
days from date of demand a certificate duly executed and acknowledged in form
for recording, without charges, certifying, if true, or to the extent true, that
this Lease is valid and subsisting and in full force and effect and LANDLORD is
not in default under any of the terms of this Lease.
THIRTY-SEVEN: LATE PAYMENTS AND PAYMENT BY LANDLORD - In the event
that (i) TENANT makes late payment, or fails to make payments to LANDLORD, in
whole or in part, of the rent, or of the additional rent, or of any of the other
payments of money required to be paid by TENANT to LANDLORD, as stipulated in
this Lease, when and as due and payable; or if (ii) LANDLORD, without assuming
any obligation to do so, after any notice or grace period provided hereunder,
performs or causes to be performed, at the cost and expense of TENANT, any of
the acts or obligations agreed to be performed by TENANT, as stipulated in this
Lease, and TENANT fails to refund LANDLORD any amounts of money paid or incurred
by LANDLORD in performing of causing the performance of such acts or
obligations, when and as due and payable, TENANT undertakes and agrees to pay
LANDLORD as additional rent, interest on such lately paid or unpaid
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rents, additional rent, and/or on such other payments of money required to be
paid, and/or on any such amounts of money required to be refunded, from and
after the date when payment thereof matured or became due and payable, until
full payment, at the rate of twelve (12%) percent per annum, or if such 12%
interest, is unlawful, then and in such event, at the highest maximum prevailing
rate of interest on commercial unsecured loans as fixed by the Board of
Regulatory Rates of Interest and Financial Charges, created under Law #1,
approved October 15, 1973 (10 LPRA 998), as amended, or by any successor statute
or regulation thereof.
THIRTY-EIGHT: ABATEMENT - If any substantial service or facility to
be provided by LANDLORD is unavailable for a period exceeding thirty (30) days
and LANDLORD has been notified of the same, should time the unavailability of
such service render all or any portion of the Premises untenable, TENANT after
the aforesaid thirty (30) days, shall be entitled to an abatement of a portion
of the rent that shall reflect that portion of the Premises which is untenable,
provided the damage to the service or facility is not attributable to the act or
neglect of TENANT or the employees, servants, licensees, visitors, assigns or
undertenants of TENANT.
THIRTY-NINE: FIRE OR OTHER CASUALTY - If before or during the term
of this Lease, the Premises shall be damaged by fire or other casualty, LANDLORD
after written notice thereof is given by TENANT, shall repair the same with
reasonable dispatch after notice to it of the damage, due allowances being made
for any delay due to causes beyond the LANDLORD's reasonable control, provided,
however, that LANDLORD shall not be required to repair or replace any furniture,
furnishings or other personal property which TENANT may have placed or installed
or which it may be entitled or required to remove from the Premises. LANDLORD
shall proceed with due diligence to obtain the corresponding insurance
adjustment of the loss and TENANT shall fully cooperate with LANDLORD and assist
in the adjustment of the loss. Until such repairs are completed, and provided
such damage or other casualty is not attributable to the act or neglect of
TENANT or the employees, servants, licensees, visitors, assigns or undertenants
of TENANT, the rent required to be paid pursuant to Article FOUR hereof, shall
be abated in proportion to the part of the Premises which are untenable. If the
building, be so damaged that LANDLORD shall decide to demolish and/or to
reconstruct the building, in whole or in part, LANDLORD may terminate this Lease
by notifying TENANT within a reasonable time after such damage of LANDLORD's
election to terminate this Lease, such termination to be effective immediately
if the term shall not have commenced or on a date to be specified in such notice
if given during the term. In the event of the giving of such notice during the
term of this Lease, the rent shall be apportioned and paid up to the time of
such fire or other casualty if the Premises are damaged, or up to the specified
date of termination if the Premises are not damaged and LANDLORD shall not be
otherwise liable to TENANT for the value of the unexpired term of this Lease.
FORTY: DEFAULT PROVISIONS - If, during the term of this Lease,
TENANT shall: (i) apply for or consent in writing to, the appointment of a
receiver, trustee or liquidator of TENANT or of all or substantially all of its
assets or (ii) seek relief under the Bankruptcy Act, or admit in writing its
inability to pay its debts as they become due, or (iii) make a general
assignment for the benefit of this creditors, or (iv) file a petition case or an
answer seeking relief (other than a reorganization not involving the liabilities
of TENANT) or arrangement with creditors, or take advantage of any insolvency
law, or (v) file an answer admitting the material allegations of a case filed
against it in any bankruptcy, reorganization or insolvency proceeding or, if an
order, judgment or decree shall be entered by any court of competent
jurisdiction on the application of TENANT or creditor adjudicating TENANT a
bankrupt or insolvent, or approving a petition seeking reorganization of TENANT
(other than a reorganization not involving the liabilities of TENANT) or
appointment of a receiver, trustee or liquidator of TENANT, or of all or
substantially all its assets, and such order, judgment or decree, shall continue
stayed and in effect for any period of sixty (60) consecutive days, the term of
this Lease and all right, title and interest of TENANT hereunder shall expire as
fully and completely as if that day were the date herein specifically fixed for
the expiration of the term, and TENANT will then, quit and surrender the
Premises to LANDLORD, but TENANT shall remain liable as hereinafter provided.
If, during the term of this Lease: (i) TENANT shall default in
fulfilling any of the covenants of this Lease (other than the covenants for the
payment of rent or additional rent), or of any other standing contract with
LANDLORD or (ii) if, during the term of this Lease TENANT shall abandon,
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vacate, or remove from the Premises the major portion of the goods, wares,
equipment, or furnishings usually kept on said premises, of (iii) this Lease,
without the prior consent of LANDLORD, shall be encumbered, assigned or
transferred in any manner in whole or in part or shall, by operation of law,
pass to or devolve upon any third party, except as herein provided, or (iv) if
TENANT is in violation of laws, rules and regulations regarding minimum wages of
its employees, or of any other law, rules and regulations applicable to his
operations, but which have not been specifically mentioned in this Lease,
LANDLORD may give to TENANT notice of any such default or the happening of any
event referred to above and if at the expiration of thirty (30) days after the
service of such a notice the default or event upon which said notice was based
shall continue to exist, or in the case of a default which cannot with due
diligence be cured within a period of thirty (30) days, if TENANT fails to
proceed promptly after the service of such notice and with all due diligence to
cure the same and thereafter to prosecute the curing of such default with all
due diligence (it being intended that in connection with a default not
susceptible of being cured with due diligence within thirty (30) days that the
time of TENANT within which to cure the same shall be extended for such period
as may be necessary to complete the same with all due diligence), LANDLORD may
give to TENANT a notice of expiration of the term of this Lease as of the date
of the service of such second notice, and upon the giving of said notice of
expiration the term of this Lease and all right, title and interest of TENANT
hereunder shall expire as full and completely as if that day were the date
herein specifically fixed for the expiration of the term, and TENANT or any
party holding under his will then quit and surrender the Premises to LANDLORD,
but TENANT shall remain liable as hereinafter provided.
If, (i) TENANT shall default in the payment of the rent, the
additional rent, or of any other payment as required under this Lease and such
default shall continue for ten (10) working days after notice thereof by
LANDLORD, of (ii) if the default of the payment of the rent, continues for
thirty (30) days from the date any such payment became due and payable
(AUTOMATIC DEFAULT TERMINATION), or (iii) if this Lease shall terminate as in
Paragraph one and two of this Article provided, this Lease shall terminate and
TENANT will then quit and surrender the Premises to LANDLORD, but TENANT shall
remain liable as hereinafter provided, LANDLORD or LANDLORD's agents and
servants may immediately or at any time thereafter re-enter the Premises and
remove all persons and all or any property therefrom, whether by summary
dispossess proceedings or by any suitable action or proceeding at law, or with
the license and permission of TENANT, which shall under this Contract be deemed
given upon expiration of the strict thirty (30) days notice period of
subdivision of paragraph Two of this Article, without LANDLORD being liable to
indictment, prosecution or damages therefor and repossess and enjoy the Premises
with all additions, alterations and improvements.
If TENANT shall fail to take possession of the Premises within ten
(10) days after the commencement of the term of this Lease, or if TENANT shall
vacate and abandon the Premises, LANDLORD shall have the right, at LANDLORD's
option, to terminate this Lease and the term hereof, as well as all the right,
title and interest of TENANT hereunder, by giving TENANT five (5) days notice in
writing of such intention, and upon the expiration of the time fixed in such
latter notice, if such default be not cured prior thereto, this Lease and the
term hereof, as well as all the right, title and interest of TENANT hereunder,
shall wholly cease and expire in the same manner and with the same force and
effect (except as to TENANT's liability) as if the date fixed by such latter
notice were the expiration of the term herein originally granted; and TENANT
shall immediately quit and surrender to LANDLORD the Premises and each and every
part thereof and LANDLORD may enter into or repossess the Premises, either by
force, summary proceedings or otherwise. The right granted to LANDLORD in this
Article or any other Article of this Lease to terminate this Lease, shall apply
to any extension or renewal of the term hereby granted, and the exercise of any
such right by LANDLORD during the term hereby granted, shall terminate any
extension or renewal of the term hereby granted and any right on the part of
TENANT thereto.
Upon the termination of this Lease by reason of any of the foregoing
events, or in the event of the termination of this Lease by summary dispossess
proceedings or under any provisions of law, now or at any time hereafter, in
force by reason of, or based upon, or arising out of a default under or breach
of this Lease on the part of TENANT, or upon LANDLORD recovering possession of
the Premises in the manner or in any of the circumstances hereinbefore
mentioned, or in any other manner or circumstances whatsoever, whether with or
without legal proceedings, by reason of, or based upon, or arising out of a
default under or breach of this Lease on the part of TENANT,
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LANDLORD, at its option, but without assuming any obligation to do so in any
case, may at any time, and from time to time, relet the Premises or any part or
parts thereof for the account of TENANT or otherwise on such terms as LANDLORD
may elect, including the granting of concessions, and receive and collect the
rents therefor, applying the same at a rental not higher than the one stipulated
in this Contract, first to the payment of such reasonable expenses as LANDLORD
may have incurred in recovering possession of the Premises, including reasonable
legal expenses, and for putting the same into good order or condition or
preparing or altering the same for re-rental, and expenses, commissions and
charges paid, assumed, or incurred by LANDLORD in and about the reletting of the
Premises or any portion thereof and then to the fulfillment of the covenants of
TENANT hereunder. Any such reletting herein provided for, may be for the
remainder of the term of this Lease or for a longer or shorter period or at a
higher or lower rental. In any such case, whether or not the Premises or any
part thereof be relet, TENANT shall pay to LANDLORD the rent required to be paid
by TENANT up to the time of such termination of this Lease, and/or the full rent
provided for in the agreement for any holdover of such period after termination
and up to the surrender or recovery of possession of the Premises by LANDLORD,
as the case may be, and thereafter TENANT covenants and agrees, to pay to
LANDLORD until the end of the term of this Lease as originally demised the
equivalent of any deficiency amount of all the rent reserved herein, less the
net avails of reletting, if any, as specified hereinabove, in this Article and
the same shall be due and payable by TENANT to LANDLORD as provided herein, that
is to say, TENANT shall pay to LANDLORD the amount of any deficiency then
existing.
FORTY-ONE: LANDLORD'S REMEDIES - In the event TENANT shall default
in the performance of any of the terms, covenants or provisions herein
contained, LANDLORD may, but without the obligation to do so, perform the same
for the account of TENANT and any amount paid or expense incurred by LANDLORD in
the performance of the same shall be repaid by TENANT on demand. In the event of
a breach or threatened breach by TENANT or any subtenant or other person holding
or claiming under TENANT of any of the covenants, conditions or provisions
hereof, LANDLORD shall have the right of injunction to restrain the same, and
the right to invoke any remedy allowed by law or in equity as if specific
remedies, indemnity or reimbursement were not herein provided for. The rights
and remedies given to LANDLORD in this Lease are distinct, separate and
cumulative, and no one of them, whether or not exercise by LANDLORD, shall be
deemed to be a waiver, or an exclusion of any of the others.
FORTY-TWO: NOTICE OF DEFAULT - Anything in this Lease to the
contrary notwithstanding, it is specifically agreed that there shall be no
enforceable default against LANDLORD under any provisions of this Lease, unless
notice of such default be given by TENANT to LANDLORD in which TENANT shall
specify the default or omission complained of, and LANDLORD shall have thirty
(30) days after receipt of such notice in which to remedy such default, or if
said default or omission shall be of such a nature that the same cannot be cured
within said period, then the same shall not be an enforceable default if
LANDLORD shall have commenced taking the necessary steps to cure or remedy said
default within the said thirty (30) days and diligently proceeds with the
correction thereof.
FORTY-THREE: CAPITALIZATION - For the purpose of this Contract,
specifically of Article SIX, Capitalization includes the total of owner's equity
sources (preferred stock, common stock and surplus accounts) plus long-term
debts, it being agreed and understood that the amortization of any such debt
shall in no way diminish the amount originally determined as capitalization.
FORTY-FOUR: DISCLOSURE OF INFORMATION - TENANT agrees to furnish to
LANDLORD within ninety (90) days after the expiration of each fiscal year of
TENANT, an annual statement certified by an independent Certified Public
Accountant showing as of the end of each such fiscal year: (i) TENANT's paid-in
capital, (ii) long-term debts and capitalization as required by Articles SIX and
FORTY-THREE hereof, (iii) investment in machinery and its capacity to provide
employment, (iv) taxes (including Social Security taxes) paid, and (v) any other
information as required by this Lease.
In the event such statement is not filed with LANDLORD as herein
provided, LANDLORD may obtain such information from TENANT at TENANT's expense,
and for such purpose TENANT shall make available to LANDLORD's designated
representatives, its books of accounts and other
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necessary data and facilities, all of which shall be provided and made available
at TENANT's principal office in Puerto Rico.
FORTY-FIVE: AUTOMATIC RENEWAL - In the event TENANT does not vacate
the Premises in the manner and under the conditions hereinbefore provided,
within ninety (90) days after the normal expiration of the term hereof, LANDLORD
shall have the option to be exercised at any time thereafter, to notify TENANT
that the lease herein has been renewed for an additional term of ten (10) years
from the date of the last normal expiration of the term hereof and, in such
event, the parties agree that this Contract shall be held to have been renewed
and to continue in full force and effect for such additional term of ten (10)
years upon the mere mailing of such notice by LANDLORD to TENANT. This provision
shall in no way prejudice, affect or deny any right which LANDLORD may otherwise
have because, or at the time, of any such termination of the term hereof,
particularly whenever LANDLORD does not exercise such option; it being agreed
and understood that such renewal shall be upon the same terms and conditions
contained herein except that the rental rate to be charged shall be the rate
then currently being charged by LANDLORD for similar buildings in the area, but
in no event shall it be less than the rate herein stipulated.
FORTY-SIX: PARTIAL INVALIDITY AND APPLICABLE LAW - If any term or
provisions of this Lease or the application thereof to any person or
circumstances shall, to any extent, be invalid or unenforceable, the remainder
of this Lease and the application of such term or provisions to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby, and each term and provision of this Lease shall
be valid and be enforceable to the fullest extent permitted by law. This
Contract is entered into and shall be interpreted in accordance with the law of
the Commonwealth of Puerto Rico.
FORTY-SEVEN: LEASE TERMINATION AND HOLDING OVER - Upon the
expiration of termination of this Lease:
(i) TENANT shall inform LANDLORD in writing of TENANT's
activities affecting each or any environmental area of concern during the period
of TENANT's operation, including a description from an environmental standpoint
of the physical conditions of the Premises and landsite. TENANT shall also
inform LANDLORD in writing of any environmental regulatory violations,
compliance plans, permits, closure plans, clean-up actions or any other
regulatory procedures related to the operation. In the event that the
information reveals TENANT's noncompliance of any of the above, or in the event
that a physical inspection of the Premises and adjacent areas by LANDLORD, or
any other source of information reveal the possibility of contamination, in that
event, TENANT shall, at LANDLORD's request submit a plan of action with the
appropriate financial provisions to execute it. LANDLORD shall hold TENANT
responsible for any and all environmental damage, or any damage to third parties
as a result of any environmental damage, or any remedial action (including
monitoring) to be performed at landsite or otherwise as a result of TENANT's
operations after termination of Lease and until such a time as complete
remediation or fulfillment of TENANT's obligations is effected. In case TENANT
fails to comply with the foregoing provisions, LANDLORD may elect to effect them
at TENANT's expense and responsibility.
(ii) TENANT shall remove all hazardous and toxic substances
belonging to TENANT or to a third party. TENANT shall also remove all other
property of TENANT and that of any third party and failing so to do, TENANT
hereby appoints LANDLORD its agent so that LANDLORD may cause all of the said
property to be removed at the expense and risk of TENANT. TENANT covenants and
agrees to give full and timely observance and compliance to this covenant to
remove all its property and surrender the Premises broom clean. TENANT hereby
agrees to pay all reasonable necessary cost and expenses thereby incurred by
LANDLORD. If, as the sole result of the removal of TENANT's property any portion
of the Additional Premises or of the building of which they are a part, are
damaged, TENANT shall pay to LANDLORD the reasonable cost of repairing such
damages unless due to the gross negligence of LANDLORD, its agents, servants,
employees and contractors. TENANT's obligation to observe or perform this
covenant shall survive the expiration or other termination of the term of this
Lease.
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FORTY-EIGHT: CHANGE OF ADDRESS - TENANT shall promptly notify
LANDLORD of any change in the addresses other than those required from it in
Article SEVEN hereof.
FORTY-NINE: TENANT will indemnify LANDLORD for any and all
liability, loss, damages, expenses, penalties and/or fines, and any additional
expenses including any attorney fees LANDLORD may suffer as a result of claims,
lawsuits, demands, administrative orders, costs, resolutions or judgments
against it arising out of negligence and/or failure of TENANT or those acting
under TENANT to confirm to the statutes, ordinances, or other regulations or
requirements of any governmental authority, be it Federal, of the Commonwealth
of Puerto Rico, its instrumentalities or public corporations, in connection with
the performance of this Lease.
FIFTY: Inasmuch as TENANT is presently in possession of the demised
premises pursuant to a certain Lease Contract executed between the parties
hereto, TENANT hereby accepts the Premises in their present condition.
FIFTY-ONE: Anything contained in this Contract to the contrary
notwithstanding, in the event that TENANT requires additional volume of water
and/or pressure as is now available within the area wherein the demised premises
are located, it shall be at its own cost and expense the construction and/or
installation of such improvements and/or facilities as may be necessary to or
convenient and/or required by the Puerto Rico Aqueduct and Sewer Authority to
increase such volume and/or pressure; it being agreed and understood, however,
that such construction and/or installation shall in no event be commenced until
after LANDLORD's written approval has first been requested and obtained.
FIFTY-TWO: TENANT hereby acknowledges that in the industrial park
there are other industries; therefore TENANT hereby specifically agrees and
undertakes to take such steps and install such equipment as may be necessary to
prevent that any hazard and/or noise which may be created by its operations may
in any way or manner unduly affect the operations of the other industries and
therefore TENANT hereby releases and saves LANDLORD harmless from any and all
claims or demands arising therefrom or in connection therewith.
FIFTY-THREE: TENANT shall, at its own cost and expense, install a
fire protection system and shall obtain the endorsement and approval from said
Fire Department for such installation.
FIFTY-FOUR: TENANT shall procure and obtain a permit for the
operation of a solid waste emission source from the Environmental Quality Board
and authorization for the Office of Solid Waste and/or from the Municipality of
Toa Alta for the final disposition of wastes.
FIFTY-FIVE: LANDLORD hereby demises and lets unto TENANT and TENANT
hereby leases from LANDLORD during the term of this lease, Lot Number 1B
(L-82-57) of approximately 10,181.00 square meters, in its present conditions,
according to the following terms and conditions:
USE OF PROPERTY - The property identified as Lot No. 1B
(L-82-57) herein demised shall be used by TENANT exclusively as parking
facilities. LANDLORD agrees to pave and improve Lot 1B (1-82-57).
INSURANCE - During the term of this Lease, TENANT shall
provide and keep in force, at its own cost and expense and for the benefit of
LANDLORD insurance policies under the following Risk and Insurance Coverages:
1. COMPREHENSIVE GENERAL LIABILITY POLICY - Including
Puerto Rico Industrial Development Company as
additional insured.
2. LIMITS/COVERAGES - Combined Single Limit of
$1,000,000.00, Hold Harmless Clause, Indemnity
Agreement.
TENANT shall indemnify and save harmless from and against all
losses, liabilities, claims, or demand whatsoever (including, without
limitation, costs and expenses in connection therewith), arising out of any
personal injury, including death resulting therefrom, or out of any
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damage to, or loss or destruction of property, in any manner, based upon,
occasioned by, or attributable or related to the performance, whether by the
TENANT, any employee of the TENANT, or any other person.
All said policies shall be delivered to LANDLORD upon the
commencement of the term of this Lease with evidence of payment of the premiums
therefor.
Any improvement necessary for the use and enjoyment of the property
by TENANT shall be at TENANT's own cost and expense; provided however that
TENANT shall not construct on the property improvements of permanent nature
without the prior written consenlt of LANDLORD.
LANDLORD hereby reserves the right to inspect the propert; however
it shall be necessary during working hours, but without interfering with
TENANT's inteended use, and TENANT hereby agrees to immediately correct any and
all deficiencies as may be notified by LANDLORD.
Upon termination of the Lease by its normal expiration of the term
hereof, or by any other reason, or if TENANT decides to surrender Lot No. 1B
(L-82-57) to LANDLORD before the expiration of the term hereof. TENANT shall
coordinate the delivery of the Premises with LANDLORD's Conservation Office and
with the Contracts Departments subject to the following:
1. TENANT shall remove any improvements constructed
thereon;
2. TENANT shall repair and correct any damage to the
property in the proess of said removal; and
3. TENANT shall return the property to its original
conditions, all at its own cost and expense; or at
LANDLORD's option, TENANT shall return the property with
improvements for the benefit LANDLORD without the right
to be reimbursed or compensated thereof.
FIFTY-SIX: LANDLORD gives its consent to TENANT so that it can
sub-lease Project Number T-0149-0-52 to Crown Tool & Die Corp. or any other
entity controlled by TENANT. This permit is conditioned to the following: (I)
TENANT shall give a copy of the Sub-lease Agreement to LANDLORD, which should
include an acceptance by Crown Tool & Die Corp. to maintain an investment in
machinery and equipment of $650,000 and twenty-five (25) employments additional
to the condition that the rent charge by TENANT to Crown Tool & Die Corp. will
not exceed the rent established on this lease agreement; (II) This consent do
not relieve TENANT of the obligation established in this Contract.
FIFTY-SEVEN: TENANT will deliver to LANDLORD Projects
M-0804-0-67-01, M-0804-0-67-02 and 0804-0-67-03 in coordination with the
Conservation Office and the Contract Department according to LANDLORD's
established procedures.
FIFTY-EIGHT: TENANT, at its own cost and expense, shall implement
the necessary measures and install the control equipment to maintain the
atmospherici air quality levels in compliance with the environmental laws and
regulations of the Environmental Quality Board and the Environmental Protection
Agency, as promulgated by any succeeding law or regulations.
FIFTY-NINE: Inasmuch as TENANT represented that in order to carry
out its operations it is necessary to install and operate an emergency
generator; it is hereby specifically agreed and understood that:
1. Such installation shall be made in coordination and with
the approval of LANDLORD;
2. TENANT shall request and obtain from the Environmental
Quality Board, the necessary permit to operate the said installation and,
thereafter, shall abide by and comply with all requisites imposed by the said
Board for such operations.
-17-
<PAGE>
It being further agreed and understood that non-compliance by TENANT
with the foregoing provisions shall constitute an additional event of default
under the provisions of this Contract.
SIXTY: TENANT must strictly comply with the rules established in
"OSHA Standards for General Industry" regulations, in specific, sections
1910.104, 1910.106 and 1910.110 and with any other local applicable regulations
in relation to the localization, accessibility, spillage and escapes,
elevations, dams, distances between tanks, design, construction, security
equipment, operation and maintenance of the propane and oxygen tanks to be
installed. As a desirable security measure a minimum distance of 25 feet between
the exterior diameter of the tanks and the closest industrial building is
suggested when and if the physical conditions of the lot so permits. Under no
circumstances will distances smaller than those established in the hereinabove
mentioned regulations be permitted.
SIXTY-ONE: It is hereby agreed and understood that TENANT shall take
the necessary steps to comply with the regulations and law requirements of the
Puerto Rico Occupational Safety and Health Office (PROSHO).
SIXTY-TWO: TENANT shall, at its own cost and expense, construct
and/or install all necessary equipment required to connect the building's
electrical system to the Puerto Rico Electrical Power Authority's electrical
distribution lines, such connection to be made in compliance with the
requirement of PREPA.
SIXTY-THREE: TENANT must comply with the rules and regulations of
pre-treatment established by the Puerto Rico Aqueduct and Sewer Authority, the
Environmental Quality Board and the Environmental Protection Agency related to
the effluent industrial discharge in the sanitary sewer system and their final
disposition. Also, any improvement necessary to provide pre-treatment facilities
for the above mentioned effluents shall be at TENANT's own cost and expense and
in coordination and with the approval of LANDLORD's Engineering and Maintenance
Departments.
SIXTY-FOUR: It is hereby agreed and understood that TENANT, at its
own cost and expense, shall install an air conditioning system in the demised
premises, in the event TENANT needs to use and/or install it in his process.
Such air conditioning system shall be considered as a special facility from
LANDLORD, and it shall be installed in coordination with LANDLORD's Engineering
and Maintenance Departments.
SIXTY-FIVE: Anything herein to the contrary notwithstanding, the
parties have agreed and understood that the following special facilities, shall
be utilized by TENANT "AS IS" and "WHERE IS", free of charge, but TENANT shall
repair and maintain said special facilities as provided under the applicable
provisions of the Contract:
A. PROJECT NUMBER S-1231-0-77
1. A Transclosure Type Substation of 300 KVA, 4.16 KV - 120/208V.
2. A Controlex Main Electric Distribution Panel, 30, 4H, 120-208V
1,200 A.
3. A 150 KVA Westinghouse Dry Transformer, 120-208V/480V, Serie
Number J93J2204.
4. A Controlex Electric Distribution Panel 277/480V, 225 A.
5. A Safety Switch of 200A-240-30.
B. PROJECT NUMBER T-0149-0-52
1. Automatic Sprinkler System on the building (except in the
Annex which was constructed by TII Industries, Inc.)
2. A 50,000 Gallon Water Tank which supplies water to the above
mentioned Sprinkle System located on Lot Number 1A of the
Industrial Park.
3. A Pumping System for the Sprinkle System located on Lot 1A.
-18-
<PAGE>
The above mentioned special facilities shall be deemed an integral
part of the demised premises and as such subject to and covered by the terms and
conditions of this Contract as they maybe applicable thereto.
SIXTY-SIX: TENANT shall furnish to LANDLORD, in addition to any
other information, documents or instruments that may be required in this
Contract:
a) Prompt written notice of the occurrence of any event
that by law or regulation would require any oral,
telephonic or written notice or communication to the US
Environmental Protection Agency and/or to the Puerto
Rico Environmental Quality Board, or any successor
agency, and copies of all orders, notices or other
communications and reports received, made or given in
connection with any such event, and any enforcement
action taken against TENANT or against any property
owned, occupied or used by TENANT;
b) Quarterly certifications subscribed by an authorized
representative designated by TENANT, as to the
environmental condition of the leased premises,
containing the information required by LANDLORD, which
is specified in the form included as Schedule "B" of
this Contract, or any subsequent modification thereto;
c) Any other information and documents relating to TENANT's
compliance with environmental legislation and
regulations under federal and Commonwealth laws.
SIXTY-EIGHT: Notwithstanding anything to the contrary in this
Contract, the parties agree that an area of approximately 3,600 sq. ft. within
building S-1231-0-77 is damaged and TENANT shall not be required to repair this
area at any time during the term of this Contract nor upon termination hereof.
SIXTY-NINE: TENANT agrees to submit to LANDLORD within thirty (30)
days from the date of execution of this Contract: (a) evidence of its
registration in the Department of State of the Commonwealth of Puerto Rico and
the name and address of its resident agent; and (b) a certificate of a
resolution of its Board of Directors either authorizing or ratifying the
execution of this Contract.
IN WITNESS WHEREOF, LANDLORD and TENANT have respectively signed
upon proper authority this Lease, this _____ day of ____________________
PUERTO RICO INDUSTRIAL DEVELOPMENT
COMPANY
S.S.P. #66-0292871
By: /S/ ANDRES GOMEZ ALAYON
----------------------------
By: /S/ PAUL SEBETIC
----------------------------
TII INDUSTRIES, INC.
S.S.P. #66-032-8885
-19-
TII INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March March
27, 1998 28, 1997 27, 1998 28, 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
DILUTED EARNINGS PER SHARE
Shares used in computing earnings per share:
Weighted average shares outstanding 7,604,000 7,431,000 7,558,000 7,430,000
Incremental shares attributed to
common stock equivalents - options
and warrants -- -- -- --
OPIC convertible debenture -- -- -- --
----------- ----------- ----------- -----------
7,604,000 7,431,000 7,558,000 7,430,000
=========== =========== =========== ===========
Earnings:
Net profit ($1,188,000) ($2,325,000) ($3,840,000) ($ 668,000)
Add: Interest expense reduction -- -- -- --
----------- ----------- ----------- -----------
($1,188,000) ($2,325,000) ($3,840,000) ($ 668,000)
=========== =========== =========== ===========
Diluted earnings per share ($ 0.16) ($ 0.31) ($ 0.51) ($ 0.09)
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000277928
<NAME> TII INDUSTRIES, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-26-1998
<PERIOD-START> JUN-28-1997
<PERIOD-END> MAR-27-1998
<CASH> 1,847
<SECURITIES> 0
<RECEIVABLES> 7,707
<ALLOWANCES> 0
<INVENTORY> 18,137
<CURRENT-ASSETS> 28,535
<PP&E> 41,816
<DEPRECIATION> 25,010
<TOTAL-ASSETS> 47,102
<CURRENT-LIABILITIES> 9,743
<BONDS> 0
0
0
<COMMON> 76
<OTHER-SE> 30,154
<TOTAL-LIABILITY-AND-EQUITY> 47,102
<SALES> 35,938
<TOTAL-REVENUES> 35,938
<CGS> 31,234
<TOTAL-COSTS> 8,368
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,665)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,665)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,665)
<EPS-PRIMARY> (0.51)
<EPS-DILUTED> (0.51)
</TABLE>
