As filed with the Securities and Exchange Commission on
February 20, 1996
Reg. No. 33-________
_______________________________________________________
_______________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM S-3
REGISTRATION STATEMENT
Under The Securities Act of 1933
___________________
THE DIANA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2448698
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8200 West Brown Deer Road
Suite 200
Milwaukee, Wisconsin 53223
(414) 355-0037
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
Richard Y. Fisher
The Diana Corporation
8200 West Brown Deer Road
Suite 200
Milwaukee, WI 53223
(414) 355-0037
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copies of all communications to:
Larry D. Lieberman
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, WI 53202
__________________
Approximate date of commencement of proposed sale to
the public: As soon as practicable after the effective
date of this Registration Statement.
If the only securities being registered on this Form
are being offered pursuant to dividend or reinvestment
plans, please check the following box. [ ]
If any of the securities being registered on this Form
are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933,
other than securities offered only in connection with
dividend or interest reinvestment plans, check the
following box. [ X ]
If this Form is filed to register additional securities
for an offering pursuant to Rule 462(b) under the
Securities Act, please check the following box and list
the Securities Act registration statement number of the
earlier effective registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act, check
the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following
box. [ ]
CALCULATION OF REGISTRATION FEE
_______________________________________________________
_______________________________________________________
Title of Proposed
each maximum Proposed
class of Shares offering maximum
securities to be price aggregate Amount of
to be registered per offering registration
registered (1) unit price fee
_______________________________________________________
_______________________________________________________
Common
Stock 350,000 $15.5625 $5,446,875 $1,879
(1)
_______________________________________________________
_______________________________________________________
(1) Estimated solely for the purpose of calculating
the registration fee in accordance with Rule 457(c)
under the Securities Act of 1933 based on the reported
average of the high and low prices of the Common Stock
on the New York Stock Exchange on February 15, 1996.
_________________
The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to
delay its effective date until the Registrant shall
file a further amendment which specifically states that
this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may
determine.
____________________________________________________
____________________________________________________
<PAGE>
PROSPECTUS
350,000 Shares
The Diana Corporation
Common Stock
This Prospectus relates to up to 350,000 shares of
common stock, $1.00 par value per share (the "Shares"),
of The Diana Corporation (the "Company") which may be
offered from time to time by the selling shareholder
named herein (the "Selling Shareholder"). The Company
will not receive any of the proceeds from the sale of
the Shares. The Company will bear the costs relating
to the registration of the Shares, estimated to be
approximately $8,000.
The Shares may be offered for sale from time to
time by the Selling Shareholder named herein, or by its
pledges, donees, transferees or other successors in
interest, to or through underwriters or directly to
other purchasers or through agents in one or more
transactions on or through the facilities of the New
York Stock Exchange, Inc. ("NYSE"), in the over-the-
counter market, in one or more private transactions, or
in a combination of such methods of sale, at prices and
on terms then prevailing, at prices related to such
prices, or at negotiated prices. The Selling
Shareholder may pledge all or a portion of the Shares
as collateral in loan transactions. Upon default by
the Selling Shareholder, the pledgee in such loan
transaction would have the same rights of sale as the
Selling Shareholder under this Prospectus. The Selling
Shareholder may also transfer Shares by gift, and upon
any such transfer the donee would have the same rights
of sale as such Selling Shareholder under this
Prospectus. The Selling Shareholder and any brokers
and dealers through whom sales of the Shares are made
may be deemed to be "underwriters" within the meaning
of the Securities Act of 1933, as amended, and the
commissions or discounts and other compensation paid to
such persons may be regarded as underwriters'
compensation.
The Shares are included for quotation on the NYSE
under the symbol "DNA".
_____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
______________________
The date of this Prospectus is February ____, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information
requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information
statements and other information with the Securities
and Exchange Commission (the "Commission"). The
Company has filed with the Commission a Registration
Statement on Form S-3 (the "Registration Statement")
under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Shares offered
hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and
exhibits thereto, or amendments thereto, to which
reference is hereby made. Such reports, proxy and
information statements, Registration Statement and
exhibits and other information filed by the Company may
be inspected and, upon payment of prescribed fees,
copied at the public reference facilities of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street N.W., Washington, D.C. 20549, and at the
Regional Offices of the Commission at 7 World Trade
Center, 13th Floor, New York, New York 10048, and at
Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661. In addition, the Company's
Common Stock is included for quotation on the NYSE, and
such reports, proxy and information statements,
Registration Statement and other information concerning
the Company should be available for inspection and
copying at the offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005, on
which exchange the Shares are traded.
___________________
No person has been authorized to give any
information or to make on behalf of the Company any
representations, other than those contained in this
Prospectus, in connection with the offer made hereby,
and, if given or made, such other information or
representation must not be relied upon as having been
authorized by the Company. This Prospectus does not
constitute an offer to sell, or a solicitation of an
offer to buy, any security other than the securities
offered hereby, or an offer to sell or solicitation of
any offer to buy such securities in any jurisdiction in
which such offer or solicitation is not qualified or to
any person to whom such offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor
any sale made hereunder shall under any circumstances
create any implication that there has been no change in
the affairs of the Company since the date hereof or
that the information contained or incorporated by
reference herein is correct as of any date subsequent
to the date hereof.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with
the Commission pursuant to the Exchange Act are
incorporated in this Prospectus by reference:
(1) the Company's Annual Report on Form 10-K for
the year ended April 1, 1995;
(2) the Company's Quarterly Reports on Form 10-Q
for the quarters ended July 22, 1995, October 14, 1995
and January 6, 1996;
(3) the Company's Current Reports on Form 8-K
filed with the Commission on July 5, 1995, October 17,
1995, December 5, 1995 and January 31, 1996 and Form 8-
K/A filed with the Commission on January 31, 1996;
(4) the description of the Company's Common Stock
contained in the Company's Registration Statement on
Form 8-A filed with the Commission under the Exchange
Act, including any amendment or report filed for the
purpose of updating such description.
All reports and other documents subsequently filed
by the Company pursuant to Section 13, 14 or 15(d) of
the Exchange Act and prior to the termination of the
offering of the Common Stock offered hereby shall be
deemed to be incorporated by reference into this
Prospectus and to be a part hereof. Such documents,
and the documents listed above, are hereinafter
referred to as "Incorporated Documents." Any statement
contained herein or in an Incorporated Document shall
be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement
contained herein or in any other subsequently filed
Incorporated Document modifies or supersedes such
statement. Any such statement so modified or
superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The information relating to the Company contained
in this Prospectus summarizes, is based upon, or refers
to, information and financial statements contained in
one or more Incorporated Documents; accordingly, such
information contained herein is qualified in its
entirety by reference to Incorporated Documents and
should be read in conjunction therewith.
The Company will provide without charge to each
person to whom a copy of this Prospectus has been
delivered, upon the written or oral request of any such
person, a copy of any or all of the Incorporated
Documents, other than exhibits to such documents
(unless such exhibits are specifically incorporated by
reference into such documents). Requests for such
copies should be directed to Corporate Secretary, The
Diana Corporation, 8200 West Brown Deer Road, Suite
200, Milwaukee, Wisconsin 53223, telephone (414) 355-
0037.
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the
sale of the Shares by the Selling Shareholder.
SELLING SHAREHOLDER
The following information regarding the Shares
offered hereby has been provided to the Company by the
Selling Shareholder identified below and reflects
information concerning beneficial ownership of Shares
as of the date of this Prospectus. All of the Shares
offered hereby were acquired by the Selling Shareholder
on January 16, 1996 in connection with the Company's
acquisition of an additional 30% interest in Sattel
Communications Corp. ("SCC"), the Company's subsidiary.
As of the date hereof, the Selling Shareholder still
owns 20% of the outstanding stock of SCC.
In recognition of the fact that the Selling
Shareholder may wish to be legally permitted to sell
its Shares, other than in transactions exempt from
registration under the securities laws, when it deems
appropriate, the Company has filed with the Commission
a Registration Statement on Form S-3 under the
Securities Act, of which this Prospectus forms a part,
with respect to the resale of the Shares from time to
time. The Shares may be resold in transactions on the
NYSE, on which exchange the Shares are included and
traded, in other public securities markets or in
private transactions or other transactions exempt from
registration under the Securities Act. See "Plan of
Distribution."
Name of Shares Owned Shares Shares Owned
Selling Prior to Offered After
Shareholder this Offering Hereby(1) Offering
_____________ _____________ _________ ___________
Sattel
Technologies,
Inc. 350,000 350,000 0(1)
______
(1) Some or all of the Shares covered by this
Prospectus may be offered from time to time on a
delayed or continuing basis by the Selling Shareholder.
The Selling Shareholder has agreed with the
Company that 50,000 Shares can be sold following
effectiveness of the Registration Statement, an
additional 150,000 Shares can be sold after January 16,
1997 and an additional 150,000 Shares can be sold after
July 16, 1997, but once the Company's stock price
closes at or above $16.75 per share, the Selling
Shareholder can thereafter sell all of the Shares.
The Selling Shareholder and the Company formed SCC
in 1994. The Selling Shareholder has transferred
certain intellectual property rights to SCC and has
entered, and likely will continue to enter, into other
arrangements with SCC in the ordinary course of
business, including supplying inventory to SCC on
agreed-upon terms. The Chairman, President, Chief
Executive Officer and majority shareholder of the
Selling Shareholder is also a member of the Board of
Directors of SCC.
PLAN OF DISTRIBUTION
Any distribution of the Shares by the Selling
Shareholder, or by pledgees, donees, transferees or
other successors in interest, may be effected from time
to time in one or more of the following transactions:
(a) to underwriters who will acquire the Shares for
their own account and resell them in one or more
transactions, including negotiated transactions, at a
fixed public offering price or at varying prices
determined at the time of sale (any public offering
price and any discount or concessions allowed or
reallowed or paid to dealers may be changed from time
to time); (b) through brokers, acting as principal or
agent, in transactions (which may involve crosses
<PAGE>
and block transactions) on or through the facilities of
the NYSE, other exchanges, in the over-the-counter market,
in special offerings, or otherwise, at market prices
prevailing at the time of sale, at prices related to
such prevailing market prices, at negotiated prices or
at fixed prices; or (c) directly or through brokers or
agents in private sales at negotiated prices, or by any
other legally available means.
The Selling Shareholder and any such underwriters,
brokers, dealers or agents, upon effecting the sale of
the Shares, may be deemed "underwriters" as that term
is defined by the Securities Act.
Underwriters participating in any offering made
pursuant to this Prospectus (as amended or supplemented
from time to time) may receive underwriting discounts
and commissions, and discounts or concessions may be
allowed or reallowed or paid to dealers, and brokers or
agents participating in such transactions may receive
brokerage or agent's commissions or fees.
In order to comply with the securities laws of
certain states, if applicable, the Shares will be sold
in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in certain
states the Shares may not be sold unless the Shares
have been registered or qualified for sale in such
state or an exemption from registration or
qualification is available and complied with.
All costs, expenses and fees in connection with
the registration of the Shares will be borne by the
Company. Commissions and discounts, if any,
attributable to the sale of the Shares will be borne by
the Selling Shareholder. The Selling Shareholder
and/or the Company may agree to indemnify any agent,
dealer or broker-dealer that participates in
transactions involving sales of the Shares against
certain liabilities, including liabilities arising
under the Securities Act. The Company and the Selling
Shareholder may agree to indemnify each other and
certain other persons against certain liabilities in
connection with the offering of the Shares, including
liabilities arising under the Securities Act.
The Selling Shareholder may also sell Shares
pursuant to Rule 144 under the Securities Act, or
otherwise, in lieu of sales by means of this
Prospectus.
LEGAL OPINION
The validity of the Shares hereby has been passed
upon by Godfrey & Kahn, S.C.
EXPERTS
The consolidated financial statements of the
Company appearing in its Annual Report (Form 10-K) for
the year ended April 1, 1995, have been audited by
Ernst & Young LLP, independent auditors, as set forth
in their report thereon included therein and
incorporated herein by reference. Such financial
statements are, and audited financial statements to be
included in subsequently filed documents will be,
incorporated herein in reliance upon the reports of
Ernst & Young LLP pertaining to such financial
statements (to the extent covered by consents filed
with the Securities and Exchange Commission) given upon
the authority of such firm as experts in accounting and
auditing.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated
expenses to be incurred by the Company in connection
with the distribution of the securities being
registered hereby:
SEC registration fee . . . . . . . . . $ 1,879
Accounting fees and expenses . . . . . 3,000
Legal fees and expenses . . . . . . . 2,500
Miscellaneous . . . . . . . . . . . . 621
_____
TOTAL . . . . . . . . . . . . . . $8,000
_____
_____
All of the above expenses other than the SEC
registration fee are estimates. All of the expenses
listed will be paid by the Company.
Item 15. Indemnification of Directors and Officers.
Under Section 145 of the Delaware General
Corporation Law, the Company is in certain
circumstances permitted, and in other circumstances may
be required, to indemnify its directors and officers
against certain expenses (including attorneys' fees)
and other amounts paid in connection with certain
threatened, pending or completed civil, criminal,
administrative or investigative actions, suits or
proceedings (including certain civil actions and suits
which may be instituted by or in the right of the
Company), in which such persons were or are parties, or
are threatened to be made parties, by reason of the
fact that such persons were or are directors or
officers of the Company. Such section also permits the
Company to purchase and maintain insurance on behalf of
its directors and officers against liability which may
be asserted against, or incurred by, such persons in
their capacities as directors or officers of the
Company, or which may arise out of their status as
directors or officers of the Company whether or not the
Company would have the power to indemnify such persons
against such liability under the provisions of such
section.
Under Article IX of the Company's Bylaws, the
Company is in certain instances required to indemnify
its directors and officers against certain expenses
(including attorneys' fees) and other amounts paid in
connection with the defense or settlement of certain
threatened, pending or completed civil, criminal,
administrative or investigative actions, suits or
proceedings (including suits which may be instituted by
or in the name of the Company), in which such persons
were or are parties, or are threatened to be made
parties, by reason of the fact that such persons were
or are directors or officers of the Company.
Through insurance, the officers and directors of
the Company may from time to time also be insured for
acts or omissions related to the conduct of their
duties.
The Company's Restated Certificate of
Incorporation limits the personal liability of
directors to the fullest extent permitted by Delaware
law.
<PAGE>
Item 16. Exhibits.
The following Exhibits are filed as part of this
Registration Statement.
Exhibit No.
___________
5.1 Opinion of Counsel
10.1 Loan and Security Agreement dated January 2,
1996 between Sanwa Business Credit
Corporation and C&L Communications, Inc., one
of the Company's subsidiaries
10.2 Exchange Agreement dated January 16, 1996
between the Company and Sattel Technologies,
Inc.
23.1 Consent of Independent Auditors
23.2 Consent of Counsel (included in Exhibit 5.1)
24.1 Powers of Attorney appear on the signature
page hereof
Item 17. Undertakings.
*(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which
offers or sales are being made, a post-effective
amendment to this Registration Statement:
(i) to include any prospectus required
by section 10(a)(3) of the Securities Act of
1933;
(ii) to reflect in the prospectus any
facts or events arising after the effective
date of the Registration Statement (or the
most recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the Registration
Statement;
(iii) to include any material
information with respect to the plan of
distribution not previously disclosed in the
Registration Statement or any material change
to such information in the Registration
Statement;
Provided, however, that paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the information required to
be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by
the Registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities
offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of
a post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
*(b) The undersigned Registrant hereby undertakes
that, for purposes of determining any liability under
the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934
that is incorporated by reference in the Registration
Statement shall be deemed to be a new Registration
Statement relating to the securities offered therein,
and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
*(h) Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and
Exchange Commission such indemnification
<PAGE>
is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of
the Registrant in the successful defence of any action,
suit or proceeding) is asserted by such director,
officer or controlling person in connection with the
securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
____________________
* Paragraph references correspond to those of Item 512
of Regulation S-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act
of 1933, the Registrant certifies that it has
reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused
this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the
City of Milwaukee, State of Wisconsin, on February 19,
1996.
THE DIANA CORPORATION
By: /s/ Richard Y. Fisher
___________________________
Richard Y. Fisher, Chairman
of the Board, and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person
whose signature appears below constitutes and appoints
Richard Y. Fisher and R. Scott Miswald, and each of
them, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including
post-effective amendments) to this Registration
Statement and to file the same, with all exhibits
thereto, and other documents in connection therewith,
with the Securities and Exchange Commission and any
other regulatory authority, granting unto said
attorney-in-fact and agent, full power and authority to
do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act
of 1933, this Registration Statement has been signed
below by the following persons in the capacities on the
dates indicated.
Signature Title Date
_________ _____ ____
/s/ Richard Y. Fisher Chairman of the Board,
______________________ Chief Executive
Richard Y. Fisher Officer and Director
/s/ Donald E. Runge President and Director
____________________
Donald E. Runge
/s/ Sydney B. Lilly Senior Vice President
____________________ and Director
Sydney B. Lilly
/s/ R. Scott Miswald Vice President,
_____________________ Treasurer and February , 1996
R. Scott Miswald Controller
(Principal
Financial
and Accounting
Officer)
/s/ Donald D. Barr Director
___________________
Donald D. Barr
/s/ Jack E. Donnelly Director
_____________________
Jack E. Donnelly
/s/ Jay M. Lieberman Director
_____________________
Jay M. Lieberman
Dated: February 19, 1996
<PAGE>
EXHIBIT 5.1
GODFREY & KAHN, S.C.
Attorneys at Law
780 North Water Street
Milwaukee, Wisconsin 53202-3590
Telephone: (414) 273-3500
February 19, 1996
The Diana Corporation
8200 West Brown Deer Road
Suite 200
Milwaukee, Wisconsin 53223
Gentlemen:
We have acted as counsel to The Diana
Corporation, a Delaware corporation (the "Company"), in
connection with the preparation of a Registration
Statement on Form S-3 to be filed with the Securities
and Exchange Commission on or about February 20, 1996
(the "Registration Statement"), relating to the sale by
a certain selling shareholder (the "Selling
Shareholder") of up to 350,000 shares of the Company's
common stock, $1.00 par value (the "Shares").
We have examined: (a) the Registration
Statement, (b) copies of the Company's Certificate of
Incorporation and By-laws, as certified by the
Company's Secretary, (c) certain resolutions of the
Company's Board of Directors, as certified by the
Company's Secretary and (d) such other proceedings,
documents and records as we have deemed necessary to
enable us to render this opinion.
Based upon the foregoing, we are of the
opinion that the Shares (a) have been duly and validly
authorized by the Board of Directors of the Company for
issuance to the Selling Shareholder, (b) have been
fully paid for by the Selling Shareholder and (c)
subject to Section 180.0622(2)(b) of the Wisconsin
Statutes, are nonassessable.
Section 180.0622(2)(b) of the Wisconsin
Statutes provides that shareholders of a corporation
may be assessed up to the par value of their shares to
satisfy the obligations of such corporation to its
employees for services rendered, but not exceeding six
months service in the case of any individual employee.
Certain Wisconsin courts have interpreted "par value"
to mean the full amount paid by the purchaser of shares
upon issuance thereof. The Supreme Court of the State
of Wisconsin has interpreted the substantially similar
predecessor to Section 180.0622(2)(b) of the Wisconsin
Statutes to apply to foreign corporations licensed to
do business in Wisconsin. We express no opinion
regarding the applicability of Section 180.0622(2)(b)
to the Shares.
The foregoing opinion is limited to the laws
of the State of Wisconsin and the General Corporation
Law of the State of Delaware.
<PAGE>
We consent to the use of this opinion as an
exhibit to the Registration Statement. In giving this
consent, however, we do not admit that we are "experts"
within the meaning of Section 11 of the Securities Act
of 1933, as amended, or within the category of persons
whose consent is required by Section 7 of said Act.
Very truly yours,
/s/ Godfrey & Kahn, S.C.
GODFREY & KAHN, S.C.
LDL/ica <PAGE>
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
SANWA BUSINESS CREDIT CORPORATION
AND
C&L COMMUNICATIONS, INC.
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS................................................5
1.1 "Accounts".................................................5
1.2 "Account Debtor"...........................................5
1.3 "Accounts Report"..........................................5
1.4 "Accumulated Funding Deficiency"...........................5
1.5 "Affiliate"................................................5
1.6 "Ancillary Agreements".....................................5
1.7 "Borrower's Knowledge".....................................5
1.8 "Business Day".............................................6
1.9 "Capital Leases"...........................................6
1.10 "Charges"..................................................6
1.11 "Closing"..................................................6
1.12 "Code".....................................................6
1.13 "Collateral"...............................................6
1.14 "Collateral Availability"..................................6
1.15 "Contract Year"............................................6
1.16 "Current Assets"...........................................6
1.17 "Current Liabilities"......................................6
1.18 "Default"..................................................7
1.19 "Default Rate".............................................7
1.20 "Depository Bank"..........................................7
1.21 "Designated Rate"..........................................7
1.22 "Eligible Accounts"........................................7
1.23 "Eligible Inventory".......................................7
1.24 "Employee Benefit Plan"....................................7
1.25 "Environmental Laws".......................................7
1.26 "Environmental Lien".......................................7
1.27 "Equipment"................................................8
1.28 "ERISA"....................................................8
1.29 "Event of Default".........................................8
1.30 "Excess Interest"..........................................8
1.31 "Financials"...............................................8
1.32 "General Intangibles"......................................8
1.33 "Hazardous Materials"......................................8
1.34 "Indebtedness".............................................8
1.35 "Interest Period"..........................................9
1.36 "Interest Rate Determination Date".........................9
1.37 "Inventory"................................................9
1.38 "Inventory Report".........................................9
1.39 "Liabilities"..............................................9
1.40 "LIBOR Rate"...............................................9
-i-
<PAGE>
1.41 "LIBOR Rate Revolving Loan"...............................10
1.42 "Maximum Amount"..........................................10
1.43 "Multiemployer Plan"......................................10
1.44 "Participant".............................................10
1.45 "PBGC"....................................................10
1.46 "Permitted Liens".........................................10
1.47 "Person"..................................................10
1.48 "Plan Administrator"......................................10
1.49 "Plan Sponsor"............................................10
1.50 "Pre-Tax Net Income"......................................10
1.51 "Prime Rate"..............................................11
1.52 "Prime Rate Revolving Loan"...............................11
1.53 "Prohibited Transaction"..................................11
1.54 "Reportable Event"........................................11
1.55 "Revolving Loan"..........................................11
1.56 "Revolving Loan Account"..................................11
1.57 "Security Documents"......................................11
1.58 "Special Collateral"......................................11
1.59 "Special Deposit Account".................................11
1.60 "Stock"...................................................11
1.61 "Tangible Net Worth"......................................11
1.62 "Telerate Screen".........................................12
1.63 "Term"....................................................12
1.64 "Total Facility"..........................................12
1.65 "Unused Facility Fee".....................................12
1.66 Accounting Terms.........................................12
1.67 Other Terms..............................................12
2. LOANS: GENERAL TERMS.....................................12
2.1 Total Facility............................................12
2.2 Advances to Borrower Constitute One Loan; Guaranties......13
2.3 Interest Rate.............................................13
2.4 Term of Agreement; Liquidated Damages.....................17
2.5 Unused Facility Fee.......................................17
2.6 Closing Fee...............................................17
2.7 Special Provisions Governing LIBOR Rate Revolving Loan....17
2.8 Purposes..................................................19
3. ELIGIBLE ACCOUNTS; ELIGIBLE INVENTORY.....................19
3.1 Eligible Accounts.........................................19
3.2 Eligible Inventory........................................21
-ii-
<PAGE>
4. PAYMENTS..................................................22
4.1 Revolving Loan Account; Method of Making Payments.........22
4.2 Payment Terms.............................................22
4.3 Collection of Accounts and Payments.......................22
4.4 Application of Payments and Collections...................23
4.5 Statements................................................23
5. COLLATERAL: GENERAL TERMS................................24
5.1 Security Interest.........................................24
5.2 Disclosure of Security Interest...........................24
5.3 Special Collateral........................................24
5.4 Further Assurances........................................24
5.5 Inspection................................................25
5.6 Location of Collateral....................................25
5.7 Lender's Payment of Claims Asserted Against Borrower......25
6. COLLATERAL: ACCOUNTS.....................................25
6.1 Verification of Accounts..................................25
6.2 Assignments, Records and Accounts Report..................25
6.3 Notice Regarding Disputed Accounts........................26
6.4 Sale or Encumbrance of Accounts...........................26
7. COLLATERAL: INVENTORY....................................26
7.1 Sale of Inventory.........................................26
7.2 Safekeeping of Inventory; Inventory Covenants.............26
7.3 Records and Schedules of Inventory........................26
7.4 Returned and Repossessed Inventory........................27
7.5 Evidence of Ownership of Inventory........................27
8. COLLATERAL: EQUIPMENT....................................27
8.1 Maintenance of the Equipment..............................27
8.2 Evidence of Ownership of Equipment........................27
8.3 Proceeds of the Equipment.................................27
9. WARRANTIES AND REPRESENTATIONS............................28
9.1 General Warranties and Representations....................28
9.2 Account Warranties and Representations....................31
9.3 Inventory Warranties and Representations..................32
-iii-
<PAGE>
9.4 ERISA Warranties and Representations......................33
9.5 Automatic Warranty and Representation and Reaffirmation of
Warranties and Representations............................35
9.6 Survival of Warranties and Representations................35
10. COVENANTS AND CONTINUING AGREEMENTS.......................35
10.1 Affirmative Covenants.....................................35
10.2 Negative Covenants........................................39
10.3 Contesting Charges........................................42
10.4 Payment of Charges........................................42
10.5 Insurance; Payment of Premiums............................42
10.6 Survival of Obligations Upon Termination of Agreement.....43
11. DEFAULT; RIGHTS AND REMEDIES ON DEFAULT...................43
11.1 Event of Default; Default.................................43
11.2 Acceleration of the Liabilities...........................46
11.3 Remedies..................................................46
11.4 Notice....................................................47
12. CONDITIONS PRECEDENT TO DISBURSEMENT......................47
12.1 Conditions Precedent................................47
12.2 Lender Satisfaction.......................................47
12.3 Additional Funding Requirements...........................48
13. MISCELLANEOUS.............................................49
13.1 Appointment of Lender as Borrower's Lawful Attorney-In
Fact......................................................49
13.2 Modification of Agreement; Sale of Interest...............50
13.3 Attorneys' Fees and Expenses; Lender's Out-of-Pocket
Expenses..................................................50
13.4 Indemnification...........................................51
13.5 Waiver by Lender..........................................51
13.6 Severability..............................................51
13.7 Parties; Entire Agreement.................................51
13.8 Conflict of Term..........................................51
13.9 Waiver by Borrower........................................52
13.10 Waiver and Governing Law................................52
13.11 Notice..................................................53
13.12 Release of Claims.......................................54
13.13 Representation by Counsel...............................54
13.14 Counterparts............................................54
13.15 LENDER'S WAIVER OF JURY.................................54
-iv-
<PAGE>
13.16 Section Titles, Etc.....................................54
-v-
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is made as
of the 2nd day of January, 1996, by and between SANWA BUSINESS CREDIT
CORPORATION, a Delaware corporation ("Lender") and C & L
COMMUNICATIONS, INC., a Texas corporation ("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower desires to borrow funds and obtain other
financial accommodations from Lender, and Lender is willing to make
certain loans and provide other financial accommodations to Borrower
upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the terms and conditions
contained herein, and of any loans or extension of credit heretofore,
now or hereafter made to or for the benefit of Borrower by Lender, the
parties hereto hereby agree as follows:
1. DEFINITIONS
When used herein, the following terms shall have the following
meanings:
1.1 "Accounts" shall mean all accounts, contract rights,
chattel paper, instruments and documents, whether now owned or
hereafter acquired by Borrower.
1.2 "Account Debtor" shall mean any Person who is or who may
become obligated to Borrower under, with respect to, or on account of
an Account.
1.3 "Accounts Report" shall mean a report delivered to Lender
by Borrower, as required by Section 6.2, consisting of a trial balance
of all Accounts of Borrower existing as of the date of such Accounts
Report, specifying for each Account Debtor obligated on the Accounts,
such Account Debtor's name, address and outstanding balance.
1.4 "Accumulated Funding Deficiency" shall have the meaning
assigned to that term in Section 302 of ERISA.
1.5 "Affiliate" shall mean any and all Persons which, in the
sole and absolute judgment of Lender, directly or indirectly, own or
control, are controlled by or are under common control with Borrower,
and any and all Persons from whom, in the sole and absolute judgment
of Lender, Borrower has not or is not likely to exhibit independence
of decision or action. For the purpose of this definition, "control"
means the possession, directly or indirectly, of the power to direct
1
<PAGE>
or cause the direction of management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
1.6 "Ancillary Agreements" shall mean all Security Documents
and agreements, instruments and documents, including without
limitation, notes, guaranties, mortgages, deeds of trust, chattel
mortgages, pledges, powers of attorney, consents, assignments,
contracts, notices, security agreements, leases, financing statements,
subordination agreements, trust account agreements and all other
written matter whether heretofore, now, or hereafter executed by or on
behalf of Borrower or any other Person or delivered to Lender or any
Participant with respect to this Agreement.
1.7 "Borrower's Knowledge" or words of such import shall mean
all knowledge, including, actual knowledge and knowledge of matters
which any reasonable person in such position knew or should have
known, of the respective officers, directors and managers of Borrower.
1.8 "Business Day" shall mean (a) for all purposes other than
as specified in clause (b), any day, other than a Saturday or Sunday,
on which the main lobby of the Depository Bank and Lender are open for
business with the general public, and (b) with respect to all notices,
determinations, findings and payments in connection with the LIBOR
Rate, any day that is a Business Day described in clause (a) and that
is also a day for trading by and between banks in dollar deposits in
the applicable interbank LIBOR market.
1.9 "Capital Leases" shall mean any lease of personal
property of any Person, as lessee, which, in accordance with generally
accepted accounting principles, is accounted for as a capital lease on
the balance sheet of such Person.
1.10 "Charges" shall mean all national, federal, state,
county, city, municipal, or other governmental (including, without
limitation, the Pension Benefit Guaranty Corporation) taxes, levies,
assessments, charges, liens, claims or encumbrances upon or relating
to (i) the Collateral, (ii) the Liabilities, (iii) Borrower's
employees, payroll, income or gross receipts, (iv) Borrower's
ownership or use of any of its assets, or (v) any other aspect of
Borrower's business.
1.11 "Closing" shall mean the date on which this Agreement is
executed by both Borrower and Lender.
1.12 "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.13 "Collateral" shall mean all of the property and interests
in property described in Section 5.1 and all other property and
interests in property which shall, from time to time, secure any part
of the Liabilities.
1.14 "Collateral Availability" shall have the meaning ascribed
to it in Section 2.1.
2
<PAGE>
1.15 "Contract Year" shall mean initially, that period of time
commencing on the Closing and one day prior to the anniversary of the
Closing, and thereafter each period of one (1) year commencing on the
date after the last day of the immediately preceeding Contract Year
and any one (1) day prior to the anniversary of such date.
1.16 "Current Assets" shall mean the aggregate net book value
of the current assets of Borrower as determined in accordance with
generally accepted accounting principles, excluding any accounts owing
to Borrower from any Affiliate.
1.17 "Current Liabilities" shall mean the aggregate amount of
all liabilities of Borrower, including the indebtedness evidenced by
the Revolving Loan and those liabilities which would be classified as
current liabilities under generally accepted accounting principles.
1.18 "Default" shall mean the occurrence or existence of any
one or more of the events described in Section 11.1.
1.19 "Default Rate" shall mean a rate per annum equal to two
hundred (200) basis points in excess of the interest rate then in
effect for the respective Liabilities.
1.20 "Depository Bank" shall mean the banking institution
which is referred to in Section 4.3 and which shall be the signatory
to the Special Deposit Agreement which is attached hereto as
Exhibit A.
1.21 "Designated Rate" shall mean, with respect to (a) Prime
Rate Revolving Loan, the Prime Rate, and (b) the LIBOR Rate Revolving
Loan, the LIBOR Rate.
1.22 "Eligible Accounts" shall mean those Accounts included in
an Accounts Report which, as of the date of such Accounts Report and
at all times thereafter, (i) satisfy the requirements for eligibility
as described in Section 3.1, (ii) do not violate the negative
covenants and other provisions of this Agreement and do satisfy the
affirmative covenants, warranties and other provisions of this
Agreement and (iii) Lender, in its sole and absolute credit judgment
and in the exercise of good faith, deems to be Eligible Accounts.
1.23 "Eligible Inventory" shall mean those items of Inventory
included in an Inventory Report which, as of the date of such
Inventory Report and at all times thereafter, (i) satisfy the
requirements for eligibility as described in Section 3.2, (ii) do not
violate the negative covenants and other provisions of this Agreement
and do satisfy the affirmative covenants, warranties and other
provisions of this Agreement and (iii) Lender, in its sole and
absolute credit judgment and in the exercise of good faith, deems to
be Eligible Inventory.
1.24 "Employee Benefit Plan" shall mean an employee benefit
plan within the meaning of ERISA Section 3(3) maintained, sponsored or
contributed to by the Borrower or any ERISA Affiliate.
3
<PAGE>
1.25 "Environmental Laws" shall mean the Resource Conservation
and Recovery Act of 1987, the Comprehensive Environmental Response,
Compensation and Liability Act, any so-called "Superfund" or
"Superlien" law, the Toxic Substances Control Act, or any other
federal state or local statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to, or imposing
liability or standards of conduct concerning, any hazardous, toxic or
dangerous waste, substance or material, as now or at any time
hereafter in effect.
1.26 "Environmental Lien" shall mean a lien in favor of any
governmental entity for (i) any liability under any Environmental
Laws, or (ii) damages arising from or costs incurred by such
governmental entity in response to a release of a Hazardous Material
into the environment.
1.27 "Equipment" shall mean all Borrower's now owned and
hereafter acquired equipment and fixtures, including without
limitation, furniture, machinery, vehicles and trade fixtures,
together with any and all accessories, parts and appurtenances
thereto, substitutions therefor and replacements thereof.
1.28 "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
1.29 "Event of Default" shall mean any event or condition
which, with the passage of time or the giving of notice or both, would
constitute a Default.
1.30 "Excess Interest" shall mean have the meaning ascribed to
it in Section 2.3(C)(ii).
1.31 "Financials" shall mean those financial statements of
Borrower attached hereto as Exhibit B or delivered to Lender pursuant
to Section 10.1.
1.32 "General Intangibles" shall mean all choses in action,
general intangibles, causes of action and all other intangible
personal property of Borrower of every kind and nature (other than
Accounts) now owned or hereafter acquired by Borrower. Without in any
way limiting the generality of the foregoing, General Intangibles
specifically includes, without limitation, all corporate or other
business records, deposit accounts, inventions, designs, patents,
patent applications, trademarks, trademark applications, trade names,
trade secrets, goodwill, copyrights, registrations, licenses,
franchises, and tax refund claims owned by Borrower and all letters of
credit, guarantee claims, security interests or other security held by
or granted to Borrower to secure payment by an Account Debtor of any
Accounts.
1.33 "Hazardous Materials" shall mean any hazardous substance
or pollutant or contaminant defined as such in (or for the purposes
of) any Environmental Law and shall include, but not be limited to,
petroleum, any radioactive material, and asbestos in any form or
condition.
1.34 "Indebtedness" shall mean all of Borrower's liabilities,
obligations and indebtedness to any Person of any and every kind and
nature, whether primary, secondary, direct, indirect, absolute,
4
<PAGE>
contingent, fixed, or otherwise, heretofore, now or hereafter owing,
due, or payable, however evidenced, created, incurred, acquired or
owing and however arising, whether under written or oral agreement, by
operation of law, or otherwise. Without in any way limiting the
generality of the foregoing, Indebtedness specifically includes (i)
the Liabilities, (ii) all obligations or liabilities of any Person
that are secured by any lien, claim, encumbrance, or security interest
upon property owned by Borrower, even though Borrower has not assumed
or become liable for the payment thereof, (iii) all obligations or
liabilities created or arising under any lease of real or personal
property, or conditional sale or other title retention agreement with
respect to property used or acquired by Borrower, even though the
rights and remedies of the lessor, seller or lender thereunder are
limited to repossession of such property, (iv) all obligations and
liabilities in respect of unfunded vested benefits under any Employee
Benefit Plan or in respect of withdrawal liabilities incurred under
ERISA by the Borrower or any ERISA Affiliate to any Multiemployer Plan
and (v) deferred taxes.
1.35 "Interest Period" means any actual period applicable to a
LIBOR Rate Revolving Loan as determined pursuant to Section 2.3(D).
1.36 "Interest Rate Determination Date" means each date for
calculating the LIBOR Rate for purposes of determining the interest
rate applicable to any LIBOR Rate Revolving Loan made pursuant to
Section 2.3. The Interest Rate Determination Date shall be the second
Business Day prior to the first day of an Interest Period for a LIBOR
Rate Revolving Loan.
1.37 "Inventory" shall mean all goods, inventory, merchandise
and other personal property including, without limitation, goods in
transit, wherever located and whether now owned or hereafter acquired
by Borrower which is or may at any time be held for sale or lease,
furnished under any contract of service or held as raw materials, work
in process, supplies or materials used or consumed in Borrower's
business, and all such property the sale or other disposition of which
has given rise to Accounts and which has been returned to or
repossessed or stopped in transit by Borrower.
1.38 "Inventory Report" shall mean a report delivered to
Lender by Borrower, as required by Section 7.3, consisting of a
detailed listing of all Inventory as of the date of such Inventory
Report describing the kind, type, quality, quantity, location and the
lower of cost (computed on the basis of an average cost flow
assumption) or market value of such Inventory.
1.39 "Liabilities" shall mean all of Borrower's liabilities,
obligations and indebtedness to Lender of any and every kind and
nature, whether primary, secondary, direct, absolute, contingent,
fixed, or otherwise (including, without limitation, interest, charges,
expenses, attorneys' fees and other sums chargeable to Borrower by
Lender, future advances made to or for the benefit of Borrower and
obligations of performance), whether arising under this Agreement,
under any of the Ancillary Agreements or acquired by Lender from any
other source, whether heretofore, now or hereafter owing, arising,
due, or payable from Borrower to Lender, however evidenced, created,
incurred, acquired or owing and however arising, whether under written
or oral agreement, operation of law, or otherwise.
5
<PAGE>
1.40 "LIBOR Rate" shall mean, for each Interest Period, a rate
of interest equal to the sum of:
(a) the rate of interest determined by the Lender
at which deposits in U.S. Dollars for the relevant Interest
Period are offered based on information presented on the
Telerate Screen as of 11:00 A.M. (London time) on the
applicable Interest Rate Determination Date; provided, that if
more than one (1) offered rate appears on the Telerate Screen
in respect of such Interest Period, the arithmetic mean of all
such rates (as determined by the Lender) will be the rate
used; provided, further, that if Telerate ceases to provide
LIBOR quotations, such rate shall be the average rate of
interest determined by the Lender at which deposits in U.S.
Dollars are offered for the relevant Interest Period by The
Sanwa Bank, Limited (or its successor) to banks in London
interbank markets as of 11:00 A.M. (London time) on the
applicable Interest Rate Determination Date, plus
(b) two hundred and twenty-five (225) basis points.
1.41 "LIBOR Rate Revolving Loan" shall mean the Revolving
Loan, to the extent that it bears interest at the LIBOR Rate.
1.42 "Maximum Amount" shall mean an amount equal to
$6,000,000.
1.43 "Multiemployer Plan" shall mean any plan described in
Section 4001(a)(3) of ERISA to which contributions are or have been
made by the Borrower or any ERISA Affiliate.
1.44 "Participant" shall mean any Person, now or at any time
or times hereafter, participating with Lender in the loans made by
Lender to Borrower pursuant to this Agreement and the Ancillary
Agreements.
1.45 "PBGC" shall mean the Pension Benefit Guaranty
Corporation or any governmental body succeeding to its functions.
1.46 "Permitted Liens" shall mean those liens scheduled on
Exhibit G to this Agreement.
1.47 "Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,
association, corporation, institution, entity, party, or government
(whether national, federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality,
division, agency, body or department thereof).
1.48 "Plan Administrator" shall have the meaning assigned to
it in Section 3(16)(A) of ERISA.
6
<PAGE>
1.49 "Plan Sponsor" shall have the meaning assigned to it in
Section 3(16)(B) of ERISA.
1.50 "Pre-Tax Net Income" shall mean, for any period, with
respect to any Person, the gross revenues of such Person, less all
operating and non-operating expenses (including, without limitation,
interest expenses and all fees and commissions) of such Person for
such period, derived in the ordinary course of its business, including
all charges of a proper character (excluding, however, current and
deferred taxes on income and provisions for taxes on income but
including current additions to bad debt and other reserves), all
determined on a basis consistent with prior years."
1.51 "Prime Rate" shall mean the highest "prime rate" of
interest quoted, from time to time, by The Wall Street Journal as the
base rate on corporate loans at large United States money center
commercial banks, provided, however, that in the event that The Wall
Street Journal ceases quoting a "prime rate" of the type described,
Prime Rate shall mean the highest per annum rate of interest quoted as
the "Bank Prime Loan" rate for "This week" in Statistical Release
H.15(519) published from time to time by the Board of Governors of the
Federal Reserve System.
1.52 "Prime Rate Revolving Loan" shall mean the Revolving
Loan, to the extent that it bears interest at the Prime Rate.
1.53 "Prohibited Transaction" shall mean a transaction that is
prohibited under Code Section 4975 or ERISA Section 406 and not exempt
under Code Section 4975 or ERISA Section 408.
1.54 "Reportable Event" shall mean (a) an event described in
Sections 4043(b), 4068(a) or 4063(a) of ERISA or in the regulations
thereunder, (b) receipt of a notice of withdrawal liability with
respect to a Multiemployer Plan pursuant to Section 4202 of ERISA, (c)
an event requiring the Borrower or any ERISA Affiliate to provide
security for an Employee Benefit Plan under Code Section 401(a)(29),
and (d) any failure to make payment required under Code Section
412(m).
1.55 "Revolving Loan" shall have the meaning ascribed to it in
Section 2.1.
1.56 "Revolving Loan Account" shall have the meaning ascribed
to it in Section 4.1.
1.57 "Security Documents" shall mean this Agreement and all
other agreements, instruments, documents, financing statements,
warehouse receipts, bills of lading, notices of assignment, schedules,
assignments, mortgages and other written matter necessary or requested
by Lender to create perfect and maintain perfected Lender's security
interest in the Collateral.
1.58 "Special Collateral" shall have the meaning ascribed to
it in Section 5.3.
7
<PAGE>
1.59 "Special Deposit Account" shall have the meaning ascribed
to it in Section 4.3.
1.60 "Stock" shall mean all shares, options, interests,
participations or other equivalents (however designated) of or in a
corporation, whether voting or non-voting, including, without
limitation, common stock, warrants, preferred stock, convertible
debentures and all agreements, instruments and documents convertible,
in whole or in part, into any one or more or all of the foregoing.
1.61 "Tangible Net Worth" shall mean, as of any particular
date, calculated on an unconsolidated basis the difference between
(a) Borrower's total assets as shown on the balance sheet of Borrower,
but excluding therefrom all values attributable to goodwill, non-
competition agreements, patents, copyrights, trademarks, licenses,
prepaid expense, Capital Leases, other General Intangibles and
Accounts due from Affiliates and (b) Borrower's total liabilities and
deferred charges shown on such balance sheet, including as liability
all guarantees of the indebtedness of Affiliates.
1.62 "Telerate Screen" means the display designated as Screen
3750 on the Telerate System or such other screen on the Telerate
System as shall display the London interbank offered rates for
deposits in U.S. dollars quoted by selected banks.
1.63 "Term" shall have the meaning ascribed to it in
Section 2.4.
1.64 "Total Facility" shall have the meaning ascribed to it in
Section 2.1.
1.65 "Unused Facility Fee" shall have the meaning set forth in
Section 2.5 herein.
1.66 Accounting Terms. Any accounting terms used in this
Agreement which are not specifically defined shall have the meanings
customarily given them in accordance with generally accepted
accounting principles.
1.67 Other Terms. All other terms contained in this Agreement
which are not otherwise defined in this Agreement shall, unless the
context indicates otherwise, have the meanings provided for by the
Uniform Commercial Code of the State of Illinois to the extent the
same are used or defined therein.
2. LOANS: GENERAL TERMS
2.1 Total Facility. Lender may, in its sole and absolute
discretion, and in the exercise of good faith, make available for
Borrower's use from time to time during the term of this Agreement,
upon Borrower's request therefor, certain loans and other financial
accommodations in an aggregate amount (except in Lender's sole and
absolute discretion) not to exceed Six Million and No/100ths Dollars
($6,000,000.00) (the "Total Facility"). The Total Facility shall be
subject to all of the terms and conditions of this Agreement and shall
8
<PAGE>
comprise a revolving line of credit consisting of advances against
Eligible Accounts and Eligible Inventory (the "Revolving Loan") in an
aggregate principal amount not to exceed, at any time outstanding, the
lesser of (i) $6,000,000.00 or (ii) the outstanding amount of
Collateral Availability. As used in this Agreement, "Collateral
Availability" shall mean, as of any date of determination, an amount
equal to the sum of (i) up to eighty percent (80%) of the net amount
(after deduction of such reserves as Lender deems proper and necessary
in the exercise of good faith) of Eligible Accounts plus (ii) up to
forty percent (40%) of the aggregate value of Eligible Inventory
(determined on the basis of the lower of an average cost or market
value, net of such reserves as Lender deems proper and necessary in
the exercise of good faith), provided that Collateral Availability as
to Eligible Inventory of Borrower shall not at any time exceed in the
aggregate Three Million Five Hundred Thousand and No/100ths Dollars
($3,500,000.00).
It is expressly understood and agreed by Borrower that nothing
contained in this Agreement shall, at any time, require Lender to make
loans or other extensions of credit to Borrower and the making and
amount of such loans or other extensions of credit to Borrower under
this Agreement shall at all times be in Lender's sole and absolute
discretion in the exercise of good faith. Lender may, in the exercise
of such discretion in the exercise of good faith, at any time and from
time to time, increase or decrease the advance percentages to be
applied to Eligible Accounts and Eligible Inventory which are
contained in this Section 2.1. In the event such percentages are
decreased, such decrease shall become effective immediately for the
purpose of calculating the amount which Lender may be willing to
advance, or allow to remain outstanding, against Eligible Accounts and
Eligible Inventory.
2.2 Advances to Borrower Constitute One Loan; Guaranties.
All loans and advances by Lender to Borrower under this Agreement and
the Ancillary Agreements shall constitute one loan to Borrower and all
indebtedness and obligations of Borrower to Lender under this
Agreement and the Ancillary Agreements shall constitute one general
obligation of Borrower secured by the Collateral of Borrower.
2.3 Interest Rate.
(A) (i) So long as no Default has occurred and is
continuing, the Borrower shall pay to the Lender interest on the
outstanding principal balance of the Revolving Loan at the applicable
Designated Rate; provided, however, that upon the occurrence and
during the continuation of any Default, Lender may at its option,
raise the interest rate charged on the Liabilities to the Default Rate
with respect to the Liabilities from the date of the occurrence of the
Event of Default until the earlier of (1) the Event of Default is
cured or waived by Lender or (2) the Liabilities are paid in full.
The applicable basis for determining the rate of interest with respect
to the Revolving Loan shall be selected by the Borrower initially at
the time a request for an advance is given pursuant to Section
12.3(J). The basis for determining the interest rate with respect to
the Revolving Loan may be changed from time to time by Borrower
pursuant to subsection 2.3(E).
9
<PAGE>
(ii) Interest on the Revolving Loan shall be computed by
multiplying the closing daily balance of the Revolving Loan as
reflected in the Borrower's Revolving Loan Account for each day during
the preceding month by the interest rate determined to be applicable
hereunder on each such day.
(iii) Interest and all fees hereunder (other than
prepayment fees) shall be computed on the basis of a 360-day year for
the actual number of days elapsed. In computing interest on the
Revolving Loan, the date of funding of the Revolving Loan or the first
day of an Interest Period applicable to such Revolving Loan if it is a
LIBOR Rate Revolving Loan, or with respect to a Prime Rate Revolving
Loan being converted from a LIBOR Rate Revolving Loan, the date of
conversion of such LIBOR Rate Revolving Loan to such Prime Rate
Revolving Loan, shall be included and the date of payment of such
Revolving Loan or the expiration date of an Interest Period applicable
to such Revolving Loan if it is a LIBOR Rate Revolving Loan, or with
respect to a Prime Rate Revolving Loan being converted to a LIBOR Rate
Revolving Loan, the date of conversion of such Prime Rate Revolving
Loan to such LIBOR Rate Revolving Loan, shall be excluded; provided,
that if a Revolving Loan is repaid on the same day on which it is
made, one day's interest shall be paid on that Revolving Loan.
(B) Following the occurrence of a Default, the Borrower shall
pay to the Lender interest from the date of such Default to and
including the date of cure of such Default on the outstanding
principal balance of the Liabilities at the Default Rate applicable to
such Liabilities; provided, however, that in the case of LIBOR Rate
Revolving Loan, upon the expiration of the Interest Period in effect
at the time any Default shall have occurred and be continuing, such
LIBOR Rate Revolving Loan shall become Prime Rate Revolving Loan and
thereafter bear interest at the Default Rate applicable to Prime Rate
Revolving Loan.
(C) (i) Interest shall be due at the Designated Rate as
provided herein, after as well as before demand, default and judgment,
notwithstanding any judgment rate of interest provided for in any
statute. If any interest payment or other charge or fee payable
hereunder exceeds the maximum amount then permitted by applicable law,
then to the extent permitted by law and subject to the provisions of
subparagraph (ii) below, the Borrower shall be obligated to pay the
maximum amount then permitted by applicable law and the Borrower shall
continue to pay the maximum amount from time to time permitted by
applicable law until all such interest payments and other charges and
fees otherwise due hereunder (in the absence of such restraint imposed
by applicable law) have been paid in full.
(ii) It is the intention of the Lender and the Borrower
to comply with the laws of the State of Illinois, and notwithstanding
any provision to the contrary contained herein or in the other
Ancillary Agreements, the Borrower shall not be required to pay and
the Lender shall not be permitted to collect any amount in excess of
the maximum amount of interest permitted by law ("Excess Interest").
If any Excess Interest is provided for or determined to have been
provided for by a court of competent jurisdiction in this Agreement or
in any of the other Ancillary Agreements, then in such event: (a) the
provisions of this subparagraph shall govern and control; (b) neither
the Borrower nor any guarantor or endorser shall be obligated to pay
10
any Excess Interest; (c) any Excess Interest that the Lender may have
received hereunder shall be, at the Lender's option (1) applied as a
credit against the outstanding principal balance of the Liabilities or
accrued and unpaid interest (not to exceed the maximum amount
permitted by law), (2) refunded to the payor thereof, or (3) any
combination of the foregoing; and (d) the interest rate(s) provided
for herein shall be automatically reduced to the maximum lawful rate
allowed under applicable law, and this Agreement and the other
Ancillary Agreements shall be deemed to have been, and shall be,
reformed and modified to reflect such reduction.
(D) In connection with each LIBOR Rate Revolving Loan, the
Borrower shall elect an interest period (each an "Interest Period") to
be applicable to such Revolving Loan, which Interest Period shall be
either a 30, 60 or 90 day period; provided, that:
(i) the initial Interest Period for any Revolving Loan
shall commence on the date of funding of such Revolving Loan;
(ii) in the case of immediately successive Interest
Periods, each successive Interest Period shall commence on the
day on which the immediately preceding Interest Period expires
(Borrower and Lender agree that this subsection does not
obligate Borrower to pay interest twice for the same days'
funds);
(iii) if an Interest Period otherwise would expire on
a day that is not a Business Day, such Interest Period shall
expire on the next succeeding Business Day; provided, that if
such next succeeding Business Day falls in a new calendar
month, then such Interest Period shall expire on the
immediately preceding Business Day;
(iv) any Interest Period that begins on the last Business
Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end
of such Interest Period) shall, subject to paragraph (v)
below, end on the last Business Day of a calendar month;
(v) no Interest Period shall extend beyond the last day
of the Term;
(vi) no Interest Period may extend beyond a date on which
the Borrower is required to make a required payment or
prepayment of principal of the Revolving Loan; and
(vii) there shall be no more than two (2) Interest
Periods relating to LIBOR Rate Revolving Loans outstanding at
any time.
(E) Subject to the provisions of subsection 2.3(D), the
Borrower shall have the option to:
11
<PAGE>
(i) convert at any time all or any part of the
outstanding Prime Rate Revolving Loan equal to Five Hundred
Thousand and No/100ths Dollars ($500,000) and integral
multiples of One Hundred Thousand and No/100ths Dollars
($100,000) in excess of that amount from Prime Rate Revolving
Loan to LIBOR Rate Revolving Loan or to convert LIBOR Rate
Revolving Loan in amounts equal to Five Hundred Thousand and
No/100ths Dollars ($500,000) and integral multiples of One
Hundred Thousand and No/100ths Dollars ($100,000) in excess of
that amount from LIBOR Rate Revolving Loan to Prime Rate
Revolving Loan; or
(ii) upon the expiration of any Interest Period
applicable to a LIBOR Rate Revolving Loan, to continue all, or
any portion of such Revolving Loan equal to any multiple of
One Hundred Thousand and No/100ths Dollars ($100,000) in
excess of or below that amount (but in no event less than
$500,000) as a LIBOR Rate Revolving Loan and the succeeding
Interest Period(s) of such continued LIBOR Rate Revolving Loan
shall commence on the last day of the Interest Period of the
LIBOR Rate Revolving Loan to be continued; provided, that
LIBOR Rate Revolving Loan may only be converted into Prime
Rate Revolving Loan on the expiration date of an Interest
Period applicable thereto; provided, further, that no
outstanding Revolving Loan may be continued as, or be
converted into, a LIBOR Rate Revolving Loan when any Default
with respect to the payment of money or any Event of Default
has occurred and is continuing.
(F) Subject to the provisions of subsection 2.3(E):
(i) the Borrower shall deliver a Notice of
Conversion/Continuation to the Lender no later than 1:00 P.M.
(Chicago, Illinois time) at least two (2) Business Days in
advance of the proposed conversion/continuation date. A
Notice of Conversion/Continuation shall certify: (1) the
proposed conversion/continuation date (which shall be a
Business Day); (2) the amount of the Revolving Loan to be
converted/continued; (3) the nature of the proposed
conversion/ continuation; (4) in the case of a conversion to,
or a continuation of, a LIBOR Rate Revolving Loan, the
requested Interest Period; and (5) in the case of a conversion
to, or a continuation of, a LIBOR Rate Revolving Loan, that no
Default or Event of Default has occurred and is continuing or
would result from the proposed conversion/continuation. In
lieu of delivering the above-described Notice of
Conversion/Continuation, the Borrower may give the Lender
telephonic notice by the required time of any proposed
conversion/continuation under subsection 2.3(E); provided,
that such notice shall be promptly confirmed in writing by
delivery of a Notice of Conversion/Continuation to the Lender
on or before the proposed conversion/continuation date. If on
any day a Revolving Loan is outstanding with respect to which
notice has not been delivered to the Lender in accordance with
the terms of this Agreement specifying the basis for
determining the rate of interest, then for that day that
Revolving Loan shall be deemed to be a Prime Rate Revolving
Loan.
12
<PAGE>
(ii) The Lender shall not incur any liability to the
Borrower in acting upon any telephonic notice referred to
above that the Lender believes in good faith to have been
given by or at the direction of an officer of Borrower or for
otherwise acting in good faith under this subsection 2.3(F)
and, upon conversion/continuation by the Lender in accordance
with this Agreement pursuant to any telephonic notice, the
Borrower shall have effected such conversion or continuation,
as the case may be, hereunder.
(iii) A Notice of Conversion/Continuation for
conversion to, or continuation of, a LIBOR Rate Revolving Loan
(or telephonic notice in lieu thereof) shall be irrevocable
once given, and the Borrower shall be bound to convert or
continue in accordance therewith.
(G) Subject to the provisions of Section 2.3, each LIBOR Rate
Revolving Loan requested must equal at least Five Hundred Thousand and
No/100ths Dollars ($500,000) and may only be in additional integral
multiples of One Hundred Thousand and No/100ths Dollars ($100,000).
2.4 Term of Agreement; Liquidated Damages. This Agreement
shall be in effect until the three year anniversary of the Closing
(the "Term"). This Agreement may also be terminated by Lender upon
the occurrence of a Default as provided in Section 11. Upon the
effective date of termination, all of the Liabilities of Borrower
shall become immediately due and payable without notice or demand.
Notwithstanding any termination, until all of the Liabilities of
Borrower shall have been fully paid and satisfied, Lender shall be
entitled to retain its security interest in the Collateral, Borrower
shall continue to remit collections of Accounts and proceeds of
Collateral as provided in this Agreement, and Lender shall retain all
of its rights and remedies under this Agreement. If, during the Term,
this Agreement is terminated by Borrower other than as permitted in
this Section 2.4, Borrower shall pay to Lender, for loss of the
bargain and not as a penalty, as liquidated damages and compensation
for the costs of being prepared to make funds available to Borrower
under this Agreement, an amount (the "Prepayment Fee") equal to three
percent (3%) of the Maximum Amount for any prepayment made during the
first Contract Year; two percent (2%) of the Maximum Amount for any
prepayment made during the second Contract Year; and one percent (1%)
of the Maximum Amount for any prepayment made in the third Contract
Year.
2.5 Unused Facility Fee. As an additional charge for
Lender's agreement to extend credit to the Borrower under the terms
hereof, Borrower shall pay Lender an Unused Facility Fee in the amount
of one-quarter of one percent (0.25%) per annum of the average unused
portion of the Revolving Loan for all periods after the Closing,
payable monthly in arrears on the last day of each such month during
the Term, commencing on January 31, 1996, and in each and every
consecutive month thereafter.
2.6 Closing Fee. Borrower shall pay the Lender a
non-refundable Closing Fee in an amount equal to Thirty Thousand and
No/100ths Dollars ($30,000) to be paid at Closing.
13
<PAGE>
2.7 Special Provisions Governing LIBOR Rate Revolving Loan.
Notwithstanding any other provision of this Agreement, the following
provisions shall govern with respect to LIBOR Rate Revolving Loan as
to the matters covered:
(A) As soon as practicable after 1:00 p.m. (Chicago, Illinois
time) on each Interest Rate Determination Date, the Lender shall
determine (which determination shall, absent manifest error, be final,
conclusive and binding upon all parties) the interest rate that shall
apply to the LIBOR Rate Revolving Loan for which an interest rate is
then being determined for the applicable Interest Period and shall
promptly give notice thereof (in writing or by telephone confirmed in
writing) to the Borrower.
(B) If on any Interest Rate Determination Date the Lender
shall have determined (which determination shall be final and
conclusive and binding upon the Borrower) that:
(i) by reason of any changes arising after the date of
this Agreement affecting the LIBOR market or affecting the
position of the Lender in such market, adequate and fair means
do not exist for ascertaining the applicable interest rate by
reference to the LIBOR Rate with respect to the LIBOR Rate
Revolving Loan as to which an interest rate determination is
then being made; or
(ii) by reason of (a) any change after the date hereof in
any applicable law or governmental rule, regulation or order
(or any interpretation thereof and including the introduction
of any new law or governmental rule, regulation or order) or
(b) other circumstances affecting the Lender or the LIBOR
market or the position of the Lender in such market (such as
for example, but not limited to, official reserve requirements
required by Regulation D to the extent not given effect in the
LIBOR Rate), the LIBOR Rate shall not represent the effective
pricing to the Lender for dollar deposits of comparable
amounts for the relevant period;
then, and in any such event, the Lender shall, promptly after being
notified of a borrowing, conversion or continuation, give notice (by
telephone confirmed in writing) to the Borrower of such determination.
Thereafter, the Borrower shall pay to the Lender, upon written demand
therefor, such additional amounts (in the form of an increased rate
of, or a different method of calculating, interest or otherwise as the
Lender in its reasonable credit judgment shall determine) as shall be
required to cause the Lender to receive interest with respect to the
LIBOR Rate Revolving Loan for the Interest Period following that
Interest Rate Determination Date at a rate per annum equal to two (2%)
percent per annum in excess of the effective pricing to the Lender for
dollar deposits to make or maintain the LIBOR Rate Revolving Loan. A
certificate as to additional amounts owed the Lender, showing in
reasonable detail the basis for the calculation thereof, submitted in
good faith to the Borrower shall, absent manifest error, be final and
conclusive and binding upon the Borrower.
(C) If on any date the Lender shall have reasonably
determined (which determination shall be final and conclusive and
binding upon the Borrower) that the making or continuation of any
14
<PAGE>
LIBOR Rate Revolving Loan has become unlawful or impossible by
compliance by the Lender in good faith with any law, governmental
rule, regulation or order (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful), then,
and in any such event, the Lender shall promptly give notice (by
telephone confirmed in writing) to the Borrower of that determination.
The obligation of the Lender to make or maintain such LIBOR Rate
Revolving Loan during any such period shall be terminated at the
earlier of the termination of the Interest Period then in effect or
when required by law and the Borrower shall no later than the
termination of the Interest Period in effect at the time any such
determination pursuant to this subsection is made or, earlier, when
required by law, repay or prepay such LIBOR Rate Revolving Loan,
together with all interest accrued thereon.
(D) The Borrower shall compensate the Lender, upon written
request by the Lender (which request shall set forth in reasonable
detail the basis for requesting such amounts and which shall, absent
manifest error, be conclusive and binding upon the Borrower), for all
reasonable losses, expenses and liabilities (including, without
limitation, any loss (including interest paid) sustained by the Lender
in connection with the re-employment of such funds) the Lender may
sustain: (1) if for any reason (other than a default by the Lender or
the failure of a borrowing to occur due to the occurrence of any event
described in subsection 2.7(C)) a borrowing of any LIBOR Rate
Revolving Loan does not occur on a date specified therefor in a
request for an advance, a Notice of Conversion/Continuation or a
telephonic request for borrowing or conversion/continuation or a
successive Interest Period does not commence after notice therefor is
given pursuant to subsection 2.3(E); or (2) as a consequence of any
other default by the Borrower to repay any LIBOR Rate Revolving Loan
when required by the terms of this Agreement; provided, that during
the period while any such amounts have not been paid, the Lender shall
reserve an equal amount from amounts otherwise available to be
borrowed under the Revolving Loan. The provisions of this subsection
2.7(D) shall survive the termination of this Agreement, the repayment
of the Revolving Loan and the discharge of the Borrower's other
obligations hereunder.
(E) The Lender may make, carry or transfer any LIBOR Rate
Revolving Loan at, to, or for the account of, any of its branch
offices or the office of an affiliate of the Lender.
(F) Calculation of all amounts payable to the Lender under
Section 2.7 shall be made as though the Lender had actually funded the
relevant LIBOR Rate Revolving Loan through the purchase of a LIBOR
deposit bearing interest at the LIBOR Rate in an amount equal to the
amount of that LIBOR Rate Revolving Loan and having a maturity
comparable to the relevant Interest Period and through the transfer of
such LIBOR deposit from an offshore office to a domestic office in the
United States of America; provided, however, that the Lender may fund
each of the LIBOR Rate Revolving Loan in any manner it sees fit and
the foregoing assumption shall be utilized only for the calculation of
amounts payable under Section 2.7.
2.8 Purposes. The purpose of the Revolving Loan is to
provide Borrower with (i) working capital financing and (ii) the funds
for any acquisitions of Borrower or its Affiliates as permitted
herein.
15
<PAGE>
3. ELIGIBLE ACCOUNTS; ELIGIBLE INVENTORY
3.1 Eligible Accounts. Upon Borrower's delivery to Lender of
an Accounts Report, Lender shall determine, in its sole and absolute
discretion and in the exercise of good faith, which individual
Accounts listed thereon are Eligible Accounts. In making this
determination, Lender will consider the following requirements:
(A) If the individual Account arises from the sale of goods,
such goods have been shipped or delivered on open account and on an
absolute sale basis and not on consignment, on approval or on a
sale-or-return basis or subject to any other repurchase or return
agreement and no material part of such goods has been returned (other
than returns described in Section 7.4), repossessed, rejected, lost or
damaged;
(B) The individual Account is not evidenced by chattel paper
or an instrument of any kind;
(C) The Account Debtor obligated on such individual Account
is not insolvent or the subject of any bankruptcy or insolvency
proceeding of any kind and Lender is satisfied with the
creditworthiness of such Account Debtor;
(D) If the individual Account is owing from an Account Debtor
located outside the United States, such Account Debtor has furnished
the Borrower with an irrevocable letter of credit which has been
issued or confirmed by a financial institution acceptable to Lender,
is in form and substance acceptable to Lender, has been pledged to
Lender, and is payable in United States dollars in an amount not less
than the face value of the individual Account;
(E) The individual Account is a valid, legally enforceable
obligation of the relevant Account Debtor and such Account Debtor has
not asserted any offset, counterclaim or defense denying liability
thereunder; provided, however, that if such offset, counterclaim or
defense has been asserted, such Account shall be ineligible only to
the extent of such asserted offset, counterclaim or defense;
(F) The individual Account is subject to and covered by
Lender's perfected security interest and is not subject to any other
lien, claim, encumbrance or security interest, except for the
Permitted Liens;
(G) The individual Account is evidenced by an invoice or
other documentation in form acceptable to Lender;
(H) The individual Account has not remained unpaid for a
period exceeding ninety (90) days after the related invoice date;
(I) Accounts owing by a single Account Debtor or its
Affiliate (whether or not such Affiliate is known by Borrower to be an
Affiliate of such Account Debtor), including currently scheduled
16
<PAGE>
Accounts, if fifty percent (50%) or more of the balance owing by such
Account Debtor and its Affiliates, in the aggregate, upon Accounts
remain ineligible by reason of the criteria set forth in clause (H)
above;
(J) The individual Account is not owing from an employee,
officer, agent, director or stockholder of Borrower or any Affiliate
or from the United States of America or any department, agency or
instrumentality thereof;
(K) Accounts with respect to which the Account Debtor is a
director, officer, employee or agent of Borrower, or is a subsidiary
or an Affiliate;
(L) Each of the warranties and representations set forth in
Section 9.2 has been reaffirmed with respect to such individual
Account at the time that the most recent Accounts Report was delivered
to Lender;
(M) The individual Account is one against which Lender is
legally permitted to make loans and advances;
(N) If the Account Debtor is located in the State of New
Jersey, all Accounts of such Account Debtor unless Borrower has filed
a Notice of Business Activities Report with the New Jersey Division of
Taxation for the then current year; and
(O) If the Account Debtor is located in the State of
Minnesota, all Accounts of such Account Debtor unless Borrower has
filed a Business Activity Report with the Minnesota Department of
Revenue.
3.2 Eligible Inventory. Upon Borrower's delivery to Lender
of an Inventory Report, Lender shall determine, in its sole and
absolute discretion and in the exercise of good faith, which items of
Inventory listed thereon are Eligible Inventory and in the exercise of
good faith. In making this determination, Lender will consider the
following requirements:
(A) The item of Inventory is in good condition, meets all
standards imposed by any governmental agency, or department or
division thereof, having regulatory authority over such goods, their
use or sale and is either currently useable or currently saleable in
the ordinary course of Borrower's (who owns such Inventory) business
and is not otherwise unacceptable to Lender due to age, type, category
or quantity;
(B) The item of Inventory is located at one of the locations
listed on Exhibit C attached hereto, is subject to and covered by
Lender's perfected security interest and is not subject to any other
lien, claim, encumbrance or security interest, except for the
Permitted Liens;
(C) The item of Inventory has not remained on hand for more
than three hundred sixty (360) days;
17
<PAGE>
(D) The item of Inventory has not been consigned, sold or
leased to any Person;
(E) Each of the warranties and representations set forth in
Section 9.3 has been reaffirmed with respect to such items of
Inventory at the date that the most recent Inventory Report was
delivered to Lender; and
(F) The item of Inventory was not purchased by Borrower in or
as part of a "bulk" transfer or sale of assets unless Borrower, and
the seller of such item, have complied with all applicable bulk sales
or bulk transfer laws.
4. PAYMENTS
4.1 Revolving Loan Account; Method of Making Payments.
Lender shall maintain a loan account (the "Revolving Loan Account") on
its books in which shall be recorded (i) all loans and advances made
by Lender to Borrower pursuant to this Agreement, (ii) all payments
made by Borrower on all such loans and advances and (iii) all other
appropriate debits and credits as provided in this Agreement,
including, without limitation, all fees, charges, expenses and
interest. All entries in the Revolving Loan Account shall be made in
accordance with Lender's customary accounting practices as in effect
from time to time. Unless otherwise agreed to in writing from time to
time hereafter, all payments which Borrower is required to make to
Lender under this Agreement or under any of the Ancillary Agreements
shall be made by appropriate debits to the Revolving Loan Account.
Lender may, in its sole and absolute discretion, elect to bill
Borrower for such amounts in which case the amount shall be
immediately due and payable with interest thereon at the rate set
forth at the Prime Rate.
4.2 Payment Terms. All of the Liabilities shall be payable
to Lender at the address set forth in Section 13.11. The Liabilities
of Borrower will be repayable as follows: (i) interest shall be
payable on the first day of each month (for the immediately preceding
month) out of the first collections received with respect to any
proceeds of Collateral, (ii) fees, costs, expenses and similar charges
shall be payable as and when provided for in this Agreement or the
Ancillary Agreements and (iii) the principal balance of the
Liabilities shall be payable from collections received with respect to
any proceeds of Collateral as such proceeds are received; provided,
however, that if at any time the outstanding principal balance of the
Revolving Loan to Borrower exceeds the Collateral Availability of
Borrower or the outstanding principal balance of all of the
Liabilities exceeds the Total Facility, the Borrower, shall
immediately pay to Lender such amount as is necessary to eliminate
such excess. Nothing contained in this Section 4.2 shall authorize
Borrower to sell, lease or otherwise dispose of any Collateral other
than as expressly set forth in Sections 6.4, 7.1 and 8.3.
4.3 Collection of Accounts and Payments. Borrower has
established a special account (the "Special Deposit Account") in
Borrower's name with NationsBank of Texas, N.A. ("Depository Bank") to
which Borrower will immediately deposit all remittances and proceeds
of the Collateral in the identical form in which such payment was
made, whether by cash or check. The Depository Bank shall acknowledge
and agree, in a manner satisfactory to Lender, that all payments made
18
<PAGE>
to such special account are the sole and exclusive property of Lender,
that Depository Bank has no right of setoff against the funds in such
special and that Depository Bank will wire, or otherwise transfer
immediately available funds in a manner satisfactory to Lender, funds
deposited in such special account to Lender on a daily basis as soon
as such funds are collected. Borrower hereby agrees that all payments
made to such special account or otherwise received by Lender, whether
on the Accounts or as proceeds of other Collateral or otherwise, will
be the sole and exclusive property of Lender and will be applied on
account of the Liabilities. Lender will credit (conditional upon
final collection) all payments received through the special account to
the Revolving Loan Account on the Business Day that Lender is in
receipt of good funds. Upon the occurrence and during the continuance
of an Event of Default or Default, Borrower and any Affiliates,
shareholders, directors, officers, employees, agents of Borrower and
all Persons acting for or in concert with Borrower shall, acting as
trustee for Lender, receive, as the sole and exclusive property of
Lender, any monies, checks, notes, drafts or any other payments
relating to or proceeds of Accounts or other Collateral which come
into their possession or under their control and immediately upon
receipt thereof, shall remit the same or cause the same to be
remitted, in kind, to Lender, at Lender's address set forth in
Section 13.11 or deposit such items in the special account at the
Depository Bank. Borrower agrees to pay to Lender any and all fees,
costs and expenses (if any) which Lender incurs in connection with
opening and maintaining the special account and depositing for
collection by Lender any check or item of payment received or
delivered to Depository Bank or Lender on account of the Liabilities
and Borrower further agrees to reimburse Lender for any claims
asserted by Depository Bank in connection with its Special Deposit
Account or any returned or uncollected checks received by Depository
Bank for deposit in the Special Deposit Account.
4.4 Application of Payments and Collections. Borrower
irrevocably waives the right to direct the application of payments and
collections received by Lender from or on behalf of Borrower, and
Borrower agrees that Lender shall have the continuing exclusive right
to apply and reapply any and all such payments and collections against
the Liabilities in such manner as Lender may deem appropriate,
notwithstanding any entry by Lender upon any of its books and records.
To the extent that Borrower makes a payment or payments to Lender or
Lender receives any payment or proceeds of the Collateral for
Borrower's benefit, which payment(s) or proceeds or any part thereof
are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee,
receiver or any other party under any bankruptcy act, state or federal
law, common law or equitable cause, then to the extent of such payment
or proceeds received, the Liabilities of the Borrower, as the case may
be, or part thereof intended to be satisfied shall be revived and
shall continue in full force and effect, as if such payments or
proceeds had not been received by Lender.
4.5 Statements. All advances to Borrower, and all other
debits and credits provided for in this Agreement, shall be evidenced
by entries made by Lender in its internal data control systems showing
the date, amount and reason for each such debit or credit. Until such
time as Lender shall have rendered to Borrower written statements of
account as provided herein, the balance in the Revolving Loan Account,
as set forth on Lender's most recent statement, shall be rebuttably
presumptive evidence of the amounts due and owing to Lender by
19
<PAGE>
Borrower. Not less than ten (10) days after the final day of each
calendar month, Lender shall render to Borrower a statement setting
forth the balance of the Revolving Loan Account, including principal,
interest, expenses and fees. Each such statement shall be subject to
subsequent adjustment by Lender and Lender's right to reapply payments
in accordance with Section 4.4, but shall, absent manifest errors or
omissions, be presumed correct and binding upon Borrower and shall
constitute an account stated unless, within thirty (30) days after
receipt of any statement from Lender, Borrower, shall deliver to
Lender written objection thereto specifying the error or errors, if
any, contained in such statement.
5. COLLATERAL: GENERAL TERMS
5.1 Security Interest. To secure the prompt payment to
Lender of the Liabilities, Borrower hereby grants to Lender a
continuing security interest in and to all of the following property
and interest in property of or in which Borrower has an interest,
whether now owned or existing or hereafter acquired or arising and
wherever located: (i) all Accounts, Inventory, Equipment, contract
rights, General Intangibles, tax refunds, chattel paper, instruments,
letters of credit, documents and documents of title; (ii) all of
Borrower's deposit accounts (general or special) with and credits and
other claims against Depository Bank or Lender, or any other financial
institutions with which Borrower maintains deposits; (iii) all of
Borrower's now owned or hereafter acquired monies, and any and all
other property of Borrower now or hereafter coming into the actual
possession, custody or control of Lender or any agent or affiliate of
Lender in any way or for any purpose (whether for safekeeping,
deposit, custody, pledge, transmission, collection or otherwise);
(iv) all insurance proceeds of or relating to any of the foregoing;
(v) all of Borrower's books and records relating to any of the
foregoing; and (vi) all accessions and additions to, substitutions
for, and replacements, products and proceeds of any of the foregoing.
5.2 Disclosure of Security Interest. Borrower shall make
appropriate entries upon its financial statements and books and
records disclosing Lender's security interest in the Collateral.
5.3 Special Collateral. Immediately upon Borrower's receipt
of any Collateral that is evidenced or secured by an agreement,
chattel paper, letter of credit, instrument or document, including,
without limitation, promissory notes, documents of title and warehouse
receipts (the "Special Collateral"), Borrower shall deliver the
original thereof to Lender or to such agent of Lender as Lender shall
designate, together with appropriate endorsements, the documents
required to draw thereunder (as may be relevant to letters of credit)
or other specific evidence (in form and substance acceptable to
Lender) of assignment thereof to Lender.
5.4 Further Assurances. At Lender's request, Borrower shall,
from time to time, (i) execute and deliver to Lender all Security
Documents that Lender may reasonably request, in form and substance
acceptable to Lender, and pay the costs of any recording or filing of
the same and (ii) take such other actions as Lender may request in
order to fully effect the purposes of this Agreement and to protect
Lender's interest in the Collateral. Upon the occurrence of any
Default, Borrower hereby irrevocably makes, constitutes and appoints
Lender (and all Persons designated by Lender for that purpose) as
20
<PAGE>
Borrower's true and lawful attorney and agent-in-fact to sign the name
of Borrower on any of the Security Documents and to deliver any of the
Security Documents to such Persons as Lender, in its sole discretion,
may elect. Borrower agrees that a carbon, photographic, photostatic,
or other reproduction of this Agreement or of a financing statement is
sufficient as a financing statement.
5.5 Inspection. Lender (by any of its officers, employees or
agents) shall have the right, at any time or times during Borrower's
usual business hours, without prior notice, to inspect the Collateral,
all records related thereto (and to make extracts from such records)
and the premises upon which any of the Collateral is located, to
discuss Borrower's affairs and finances with any Person and to verify
the amount, quality, value and condition of, or any other matter
relating to, the Collateral.
5.6 Location of Collateral. Borrower's chief executive
office, principal place of business and all other offices and
locations of the Collateral and books and records related thereto
(including, without limitation, computer programs, printouts and other
computer materials and records concerning the Collateral) are set
forth on Exhibit C attached hereto. Borrower shall not remove its
books and records or the Collateral from any such locations (except
for removal of items of Inventory upon its sale in accordance with the
terms of this Agreement) and shall not open any new offices or
relocate any of its books and records or the Collateral except within
the continental United States of America with at least thirty (30)
days' prior notice thereof to Lender. Upon the opening of any new
offices which are leased or the relocation of Borrower to a new office
which is leased locations, Borrower shall cause the landlord of such
location to execute and deliver to Lender a landlord's waiver in form
and substance satisfactory to Lender within thirty (30) days after the
opening of such new office or relocation from an existing office.
5.7 Lender's Payment of Claims Asserted Against Borrower.
Upon and during the continuation of an Event of Default, Lender may,
but shall not be obligated to, at any time or times hereafter, in its
sole discretion, and without waiving any Default or waiving or
releasing any obligation, liability or duty of Borrower under this
Agreement or the Ancillary Agreements, pay, acquire or accept an
assignment of any security interest, lien, claim or other encumbrance
asserted by any Person against the Collateral. All sums paid by
Lender under this Section 5.7, including all costs, fees (including
without limitation reasonable attorney's and paralegals' fees and
court costs), expenses and other charges relating thereto, shall be
payable by Borrower to Lender on demand and shall be additional
Liabilities secured by the Collateral.
6. COLLATERAL: ACCOUNTS
6.1 Verification of Accounts. Any of Lender's officers,
employees or agents shall have the right, at any time or times
hereafter, in Lender's or in Borrower's name or in the name of a firm
of independent certified public accountants acceptable to Lender, to
verify the validity, amount or any other matters relating to any
Accounts by mail, telephone, telegraph or otherwise.
21
<PAGE>
6.2 Assignments, Records and Accounts Report. Borrower shall
keep accurate and complete records of its Accounts and not less
frequently than weekly, Borrower shall deliver to Lender an Accounts
Report and formal written assignments of all Accounts, together with
copies of the invoices related thereto (collectively, the "Accounts
Documents"); provided, however, after and during the continuance an
Event of Default or Default, Borrower shall deliver to Lender the
Accounts Documents as frequently as Lender shall require, but not less
frequently than twice weekly. Borrower shall also deliver to Lender,
upon demand, the original copy of all documents, including, without
limitation, repayment histories, present status reports and shipment
reports, relating to the Accounts included in any Accounts Report and
such other matters and information relating to the status of then
existing Accounts as Lender shall reasonably request.
Borrower shall further deliver to Lender once per month, and
after and during the continuance of an Event of Default or Default, as
frequently as Lender shall require, but not less frequently than once
per month, an aged Accounts Report of Borrower setting forth the aging
of all Accounts as well as the Account Debtor's name, address and
outstanding balance.
6.3 Notice Regarding Disputed Accounts. Borrower shall give
Lender prompt notice of any Accounts in excess of $50,000 which are in
dispute between any Account Debtor and Borrower. Each Accounts Report
shall identify all disputed Accounts and disclose with respect
thereto, in reasonable detail, the reason for the dispute, all claims
related thereto and the amount in controversy.
6.4 Sale or Encumbrance of Accounts. Borrower shall not,
without the prior written consent of Lender, sell, transfer, grant a
security interest in or otherwise dispose of or encumber any of its
Accounts to any Person other than Lender, except for the Permitted
Liens.
7. COLLATERAL: INVENTORY
7.1 Sale of Inventory. Unless a Default occurs and is
continuing, Borrower may sell Inventory in the ordinary course of its
business (which does not include a transfer in partial or total
satisfaction of Indebtedness, sales in bulk, sales on consignment or
sales on an approval or sale or return basis). All proceeds of such
sales shall be part of the Collateral and remitted to the Special
Deposit Account. Borrower shall not rent, lease or otherwise transfer
or dispose of any of the Inventory without Lender's prior written
consent, except as set forth in this Section 7.1.
7.2 Safekeeping of Inventory; Inventory Covenants. Borrower
shall maintain its Inventory in good and saleable condition at all
times. Lender shall not be responsible for (i) the safekeeping of the
Inventory; (ii) any loss or damage thereto or destruction thereof
occurring or arising in any manner or fashion from any cause;
(iii) any diminution in the value of Inventory or (iv) any act or
default of any carrier, warehouseman, bailee or forwarding agency or
any other Person in any way dealing with or handling the Inventory.
All risk of loss, damage, distribution or diminution in value of the
Inventory shall be borne by Borrower.
22
<PAGE>
7.3 Records and Schedules of Inventory. Borrower shall keep
correct and accurate daily records on an average cost basis, itemizing
and describing the kind, type, quality and quantity of Inventory,
Borrower's cost therefor and selling price thereof, and the daily
withdrawals therefrom and additions thereto and Inventory then on
consignment (if any, provided that Lender's prior written consent to
such consignment must be obtained), and shall furnish to Lender
(i) daily copies of the working papers related thereto; and
(ii) monthly a current Inventory Report, based on an average cost
assumption. A physical count of the Inventory shall be conducted no
less often than annually and a report based on such count of the
Inventory shall promptly thereafter be provided to Lender together
with such supporting information including, without limitation,
invoices relating to Borrower's purchase of goods listed in said
report, as Lender shall, in its sole discretion, request.
7.4 Returned and Repossessed Inventory. If at any time prior
to the occurrence of a Default, any Account Debtor returns any of the
Inventory to Borrower, Borrower shall promptly determine the reason
for such return and, if Borrower accepts such return, issue a credit
memorandum (with a copy to be immediately sent to Lender) in the
appropriate amount to such Account Debtor; provided, however, that
Borrower shall not, without the prior consent of Lender, accept on any
single day, returned Inventory the sale price of which was in excess
of $50,000 in the aggregate. After the occurrence and during the
continuation of a Default, Borrower shall hold all returned Inventory
in trust for Lender, shall segregate all returned Inventory from all
other property of Borrower or in Borrower's possession and shall
conspicuously label such returned Inventory as the property of Lender.
Borrower shall, in all cases, immediately notify Lender of the return
of any Inventory, specifying the reason for such return and the
location and condition of the returned Inventory.
7.5 Evidence of Ownership of Inventory. Borrower shall, upon
Lender's request, deliver to Lender all evidence of ownership of the
Inventory.
8. COLLATERAL: EQUIPMENT
8.1 Maintenance of the Equipment. Borrower shall keep and
maintain the Equipment in good operating condition and repair, except
for ordinary wear and tear, and shall make all necessary replacements
thereof so that the value, utility and operating efficiency thereof
shall at all times be maintained and preserved and shall promptly
inform Lender of any additions to or deletions from the Equipment.
Borrower shall not permit any such items to become affixed to real
estate in such manner that such items of Equipment will become a
fixture or an accession to other personal property.
8.2 Evidence of Ownership of Equipment. Borrower shall, upon
Lender's request, deliver to Lender all evidence of ownership of the
Equipment (including, without limitation, bills of sale, certificates
of title and applications for title).
8.3 Proceeds of the Equipment. Borrower shall not sell,
transfer, lease, grant a security interest in or otherwise dispose of
or encumber the Equipment or any part thereof to any Person other than
23
<PAGE>
Lender; provided, however, that in any fiscal year of Borrower,
Borrower may sell or otherwise dispose of Equipment with an aggregate
net book value not to exceed $25,000. In the event any Equipment is
sold, transferred or otherwise disposed of as permitted in this
Section 8.3, Borrower shall promptly notify Lender of such fact and
deliver all of the cash proceeds of such sale, transfer or disposition
to Lender, which proceeds shall be applied to the repayment of the
Liabilities; provided, however, that with Lender's prior consent
Borrower may use the proceeds of such sale, transfer or disposition to
finance the purchase of replacement Equipment. Borrower shall deliver
to Lender written evidence of the use of the proceeds for such
purchase. All replacement Equipment purchased by Borrower shall be
free and clear of all liens, claims, security interests and other
encumbrances, except for the security interest granted to Lender,
purchase money security interests consented to in writing by Lender,
and the Permitted Liens.
9. WARRANTIES AND REPRESENTATIONS
9.1 General Warranties and Representations. Borrower
warrants and represents that:
(A) Borrower is a corporation duly organized and validly
existing and in good standing under the laws of the state of its
incorporation, and is qualified or licensed as a foreign corporation
to do business in all other countries, states and provinces in which
the laws thereof require Borrower to be so qualified or licensed and
where failure to qualify would have a material adverse affect on
Borrower's business or the Collateral;
(B) Borrower has used, during the five (5) year period
preceding the date of this Agreement, and does not intend to use, any
other corporate or fictitious name, except as disclosed in Exhibit D
attached hereto or as hereinafter disclosed in writing;
(C) Borrower has the right and power and is duly authorized
and empowered to enter into, execute, deliver and perform this
Agreement and the Ancillary Agreements;
(D) The execution, delivery and performance by Borrower of
this Agreement and the Ancillary Agreements shall not, by their
execution or performance, the lapse of time, the giving of notice or
otherwise, constitute a violation of any applicable law, rule,
regulation, judgment, order or decree or a breach of any provision
contained in Borrower's charter documents or by-laws or contained in
any agreement, instrument, indenture or other document to which
Borrower is now a party or by which it is bound, except where such
breach will not have a material adverse effect on Borrower's business
or the Collateral;
(E) Borrower's use of the proceeds of any advances made by
Lender are, and will continue to be, legal and proper corporate uses
(duly authorized by its board of directors, in accordance with any
applicable law, rule or regulation) and such uses are consistent with
all applicable laws, rules and regulations, as in effect as of the
date hereof;
24
<PAGE>
(F) Borrower has, and is current and in good standing with
respect to, all governmental approvals, permits, certificates,
inspections, consents and franchises necessary to conduct and to
continue to conduct its present and intended business as heretofore
conducted by it and to own or lease and operate its properties as now
owned or leased and operated by it;
(G) None of said approvals, permits, certificates, consents
or franchises contains any term, provision, condition or limitation
more burdensome than such as are generally applicable to Persons
engaged in the same or similar business as Borrower;
(H) Borrower now has capital sufficient to carry on its
business and transactions and all businesses and transactions in which
it is about to engage and is now solvent and able to pay its debts as
they mature and Borrower now owns property the fair saleable value of
which is greater than the amount required to pay Borrower's debts;
(I) Except as disclosed on Exhibit E attached hereto and in
the Financials or as hereinafter disclosed in writing, Borrower has no
litigation pending, or to the best of its knowledge, threatened, and
no Indebtedness (except for the Indebtedness shown on Exhibit I or as
hereinafter disclosed in writing and trade payable arising in the
ordinary course of its business since the dates reflected in the
Financials) and has not guaranteed the obligations of any other
Person;
(J) Borrower (i) is not a party to any contract or agreement
or subject to any charge, restriction, judgment, decree or order
materially and adversely affecting its business, property, assets,
operations or condition, financial or other, and is not a party to any
labor dispute; and (ii) there are no lockouts, strikes or walkouts
relating to any labor contracts and no such contract is scheduled to
expire during the Term; except as to (i) and (ii) as are disclosed on
Exhibit F attached hereto or as hereinafter disclosed to Lender in
writing;
(K) Borrower has good, indefeasible and merchantable title to
and ownership of its Collateral, free and clear of all liens, claims,
security interests and other encumbrances, except those of Lender and
those, if any, described on Exhibit G attached hereto;
(L) To the best of its knowledge, Borrower is not in
violation of any applicable statute, rule, regulation or ordinance of
any governmental entity, including, without limitation, the United
States of America, any state, city, town, municipality, county or of
any other jurisdiction, or of any agency thereof, in any respect
materially and adversely affecting the Collateral or Borrower's
business, property, assets, operations or condition, financial or
other;
(M) Borrower is not in default under any indenture, loan
agreement, mortgage, lease, trust deed, deed of trust or other similar
agreement relating to the borrowing of monies to which it is a party
or by which it is bound;
(N) The Financials fairly present the assets, liabilities and
financial condition and results of operations of Borrower and such
other Persons described therein as of the dates thereof; there are no
25
<PAGE>
omissions or other facts or circumstances which are or may be material
and there has been no material and adverse change in the assets,
liabilities or financial or other condition of Borrower since the date
of the Financials; there exist no equity or long term investments in
or outstanding advances to any Person not reflected in the Financials;
there are no actions or proceedings which are pending or, to the best
of Borrower's knowledge, threatened, against Borrower or any other
Person which might result in any material adverse change in Borrower's
financial condition or materially and adversely affect Borrower's
operations, its assets or the Collateral;
(O) Borrower has not received any notice to the effect that
it is not in full compliance with any of the requirements of ERISA and
the regulations promulgated thereunder and, to the best of Borrower's
knowledge, there exists no event described in Section 4043 of ERISA,
excluding subsections 4043(b)(2) and 4043(b)(3) thereof ("Reportable
Event");
(P) Borrower has filed all federal, state and local tax
returns and other reports, or has been included in consolidated
returns or reports filed by an Affiliate, which Borrower is required
by law, rule or regulation to file and all Charges that are due and
payable have been paid;
(Q) The execution and delivery of this Agreement or any of
the Ancillary Agreements by Borrower does do not directly or
indirectly violate or result in any violation of the Securities
Exchange Act of 1934, as amended, or any regulations issued pursuant
thereto, including without limitation, Regulation U, G, T or X of the
Board of Governors of the Federal Reserve System (12 CFR 221, 207, 220
and 224, respectively) and Borrower does not own or intend to purchase
or carry any "margin security," as defined in such Regulations;
(R) Exhibit J contains a true and complete list of all
trademarks, brand-names, copyrights, patents, patent application in
which Borrower has an interest; and
(S) (i) the operations of Borrower, any other obligor and
each of Borrower's subsidiaries, if any, comply in all material
respects with all applicable Environmental Laws; (ii) none of the
operations of Borrower, any other obligor or any Subsidiary are
subject to any judicial or administrative proceeding alleging the
violation of any Environmental laws; (iii) none of the operations of
Borrower, any other obligor or any subsidiary are the subject of any
federal or state investigation evaluating whether any remedial action
is needed to respond to a release of any Hazardous Material into the
environment; (iv) none of Borrower, any other obligor or any
Subsidiary has filed any notice under any federal or state law
indicating past or present treatment, storage or disposal of a
Hazardous Material or reporting a spill or release of a Hazardous
Material into the environment; and (v) none of Borrower, any other
obligor or any Subsidiary has any known material contingent liability
in connection with any release of any Hazardous Material into the
environment. The materiality standard used in this Section 9.1(S)
shall be exceeded if the facts giving rise to a breach or breaches of
the representations or warranties contained herein might result in
liability in excess of $50,000 in the aggregate.
26
<PAGE>
Borrower hereby indemnifies Lender, its successors and
assignees, and agrees to hold Lender harmless from and against any and
all losses, liabilities, damages, injuries, costs, expenses and claims
of any and every kind whatsoever (including, without limitation, court
costs and attorneys' fees) which at any time or from time to time may
be paid, incurred or suffered by, or asserted against, Lender for,
with respect to, or as a direct or indirect result of the violation by
Borrower, of the Environmental Laws or any laws or regulations
relating to Hazardous Material, treatment, storage, disposal,
generation and transportation, air, water and noise pollution, soil or
ground or water contamination, the handling, storage or release into
the environmental of Hazardous Materials; or with respect to, or as a
direct or indirect result of the presence on or under, or the escape,
seepage, leakage, spillage, discharge, emission or release from,
properties utilized by Borrower, any other obligor or any of
Borrower's subsidiaries in the conduct of their respective business
into or upon any land, the atmosphere, or any watercourse, body of
water or wetlands, of any Hazardous Material (including, without
limitation, any losses, liabilities, damages, injuries, costs,
expenses or claims asserted or arising under the Environmental Laws);
and the provisions of and undertakings and indemnification set out in
this Section 9.1(S) shall survive the satisfaction and payment of the
Liabilities and the termination of this Agreement.
9.2 Account Warranties and Representations. Borrower
warrants and represents that Lender may rely, in determining which
Accounts listed on any Accounts Report submitted by Borrower are
Eligible Accounts, without independent investigation, on all
statements, warranties and representations made by Borrower on or with
respect to any such Accounts Report and, unless otherwise indicated in
writing by Borrower, that:
(A) Such Accounts are genuine, are in all respects what they
purport to be, are not reduced to a judgment and, if evidenced by any
instrument, item of chattel paper, agreement, contract or documents,
are evidenced by only one executed original instrument, item of
chattel paper, agreement, contract, or document, which original has
been endorsed and delivered to Lender;
(B) Such Accounts represent undisputed, bona fide
transactions completed in accordance with the terms and provisions
contained in any documents related thereto;
(C) Except for credits issued to any Account Debtor in the
ordinary course of Borrower's business for Inventory returned pursuant
to Section 7.4, the amounts shown on the Accounts Report, and all
invoices and statements delivered to Lender with respect to any
Account, are actually and absolutely owing to Borrower and are not
contingent for any reason;
(D) To the best of Borrower's knowledge, except as may be
disclosed on such Accounts Report, there are no setoffs, counterclaims
or disputes existing or asserted with respect to any Accounts included
on an Accounts Report, and Borrower has not made any agreement with
any Account Debtor for any deduction from such Account, except for
discounts or allowances allowed by Borrower in the ordinary course of
its business, which discounts and allowances have been disclosed to
Lender and are reflected in the calculation of the invoice related to
such Account;
27
<PAGE>
(E) To the best of Borrower's knowledge, there are no facts,
events or occurrences which in any way impair the validity or
enforcement of any of the Accounts or tend to reduce the amount
payable thereunder from the amount of the invoice shown on any
Accounts Report, and on all contracts, invoices and statements
delivered to Lender with respect thereto;
(F) To the best of Borrower's knowledge, all Account Debtors
are solvent and had the capacity to contract at the time any contract
or other document giving rise to or evidencing the Accounts was
executed;
(G) The goods, the sale of which gave rise to the Accounts,
are not, and were not at the time of the sale thereof, subject to any
lien, claim, security interest or other encumbrance, except those of
Lender, and those removed or terminated prior to the date hereof, and
the Permitted Liens;
(H) Borrower has no knowledge of any fact or circumstance
which would impair the validity or collectibility of any of the
Accounts;
(I) To the best of Borrower's knowledge, there are no
proceedings or actions which are threatened or pending against any
Account Debtor which might result in any material adverse change in
its financial or other condition; and
(J) The Accounts have not been pledged or sold to any other
Person or otherwise encumbered and the Borrower is the owner of the
Accounts free of all liens and encumbrances except those of Lender and
except for the Permitted Liens.
9.3 Inventory Warranties and Representations. Borrower
warrants and represents that Lender may rely, in determining which
items of Inventory listed on any Inventory Report submitted by
Borrower are Eligible Inventory, without independent investigation, on
all statements, warranties and representations made by Borrower on or
with respect to any such Inventory Report and, unless otherwise
indicated in writing by Borrower, that:
(A) All Inventory is located on premises listed on Exhibit C
or is Inventory which is in transit and is so identified on the
relevant Inventory Report;
(B) The Inventory is not subject to any lien, claim, security
interest or other encumbrance whatsoever, except for the security
interest of Lender hereunder and except for the Permitted Liens;
(C) Except as specified on Exhibit C, no Inventory is now,
and shall not at any time or times hereafter be, stored with a bailee,
warehouseman or similar party without Lender's prior written consent
and, if Lender gives such consent, Borrower will concurrently
therewith cause any such bailee, warehouseman or similar party to
issue and deliver to Lender, in form and substance acceptable to
Lender, warehouse receipts therefor in Lender's name; and
28
<PAGE>
(D) Borrower is the owner of all of the Inventory purported
to be owned by Borrower free and clear of all liens and encumbrances,
except for the Permitted Liens, and none of the Inventory has been
leased, rented, transferred or sold, either on consignment, on a sale
or return basis, on approval, or otherwise.
9.4 ERISA Warranties and Representations. Borrower warrants
and represents that:
(A) Exhibit K hereto describes the Employee Benefit Plans to
which Borrower may have obligations;
(B) Each Employee Benefit Plan of Borrower or any of its
ERISA Affiliates is in compliance in all material respects with the
applicable provisions of ERISA and the Code, except where the failure
to so comply would not have a material (in the reasonable opinion of
the Lender) adverse effect on the financial condition or results or
operations of Borrower, and each such Employee Benefit Plan that is
intended to be qualified under Section 401(a) of the Code has been
determined by the Internal Revenue Service to be so qualified (or,
consistent with Section 1140 of the Tax Reform Act of 1986, will be
submitted to the Internal Revenue Service for such a determination
within the applicable remedial amendment period), and each trust
related to any such Employee Benefit Plan has been determined to be
exempt from federal income tax under Section 501(a) of the Code;
(C) Except as set forth in Exhibit K, neither Borrower nor
any of its ERISA Affiliates maintains or contributes to any Employee
Benefit Plan with an actuarial present value of projected benefit
obligations that exceeds the fair market value of the net assets
available for such benefits, calculated on the basis of the actuarial
assumptions specified in the most recent actuarial valuation for such
Employee Benefit Plan, and no such Employee Benefit Plan provides for
subsidized early retirement benefits that, in the event of a reduction
in force or plant closing, would have a material (in the reasonable
opinion of the Lender) adverse effect on the financial condition or
results or operations of Borrower;
(D) Except as set forth on Exhibit K, neither Borrower nor
any of its ERISA Affiliates maintains or contributes to any employee
welfare benefit plan within the meaning of Section 3(1) of ERISA that
provides benefits to employees after termination of employment other
than as required by Section 601 of ERISA;
(E) Neither Borrower nor any of its ERISA Affiliates has
breached in any material respect any of the responsibilities,
obligations, or duties imposed on it by ERISA or the regulations
promulgated thereunder with respect to any Employee Benefit Plan,
which breach would have a material (in the reasonable opinion of the
Lender) adverse effect on the financial condition or results or
operations of Borrower;
(F) Neither Borrower nor any ERISA Affiliate has (i) failed
to make a required contribution or payment to a Multiemployer Plan or
(ii) made a complete or partial withdrawal under Sections 4203 or 4205
29
<PAGE>
of ERISA from a Multiemployer Plan, where such failure or complete or
partial withdrawal would have a material (in the reasonable opinion of
the Lender) adverse effect on the financial condition or results or
operations of Borrower;
(G) At the date hereof, the aggregate potential withdrawal
liability, as determined in accordance with Title IV of ERISA, of
Borrower and any ERISA Affiliates with respect to all Employee Benefit
Plans that are Multiemployer Plans does not exceed $250,000 and, to
the best of Borrower's and its ERISA Affiliates' knowledge, no
Multiemployer Plan is in reorganization or insolvent within the
meaning of Section 4241 or 4245 of ERISA;
(H) Neither Borrower nor any ERISA Affiliate has failed to
make a required installment or any other required payment under
Section 412 of the Code on or before the due date for such installment
or other payment;
(I) Neither Borrower nor any ERISA Affiliate is required to
provide security to an Employee Benefit Plan under Section 401(a)(29)
of the Code due to an Employee Benefit Plan amendment that results in
an increase in current liability for the plan year;
(J) No liability to the PBGC has been, or is expected by
Borrower or any ERISA Affiliate to be, incurred by Borrower or any
ERISA Affiliate, which liability would have a material (in the
reasonable opinion of the Lender) adverse effect on the financial
condition or results or operations of Borrower, and there are no
premium payments that have become due and which are unpaid;
(K) No events have occurred in connection with any Employee
Benefit Plan that might constitute grounds for the termination of any
such Employee Benefit Plan by the PBGC or for the appointment by any
United States District Court of a trustee to administer any such
Employee Benefit Plan;
(L) Except as set forth in Exhibit K, no Reportable Event
has, in the case of any Employee Benefit Plan maintained by Borrower
or an ERISA Affiliate other than a Multiemployer Plan, occurred and is
continuing, or to the best of Borrower's knowledge, has occurred and
is continuing in the case of any such Employee Benefit Plan that is a
Multiemployer Plan;
(M) No Employee Benefit Plan maintained by the Borrower or an
ERISA Affiliate had an Accumulated Funding Deficiency, whether or not
waived, as of the last day of the most recent fiscal year of such
Employee Benefit Plan or, in the case of any Multiemployer Plan, as of
the most recent fiscal year of such Multiemployer Plan for which the
annual reports of such Multiemployer Plan's actuaries and auditors
have been received; and
(N) Neither Borrower nor any ERISA Affiliate has engaged in a
Prohibited Transaction prior to the date hereof, which Prohibited
Transaction would have a material (in the reasonable opinion of the
Lender) adverse effect on the financial condition or results or
30
<PAGE>
operations of Borrower, and the execution, delivery, and carrying out
of this Agreement will not involve any non-exempt Prohibited
Transactions (within the meaning of Part 4 of Subtitle B of Title I of
ERISA) or any transaction in connection with which a tax could be
imposed pursuant to Section 4975 of the Code.
9.5 Automatic Warranty and Representation and Reaffirmation
of Warranties and Representations. Each request for an advance made
by Borrower pursuant to this Agreement or the Ancillary Agreements
shall constitute (i) an automatic warranty and representation by
Borrower to Lender that there does not then exist a Default or an
Event of Default and (ii) a reaffirmation as of the date of said
request of all of the warranties and representations of Borrower
contained in this Agreement and in the Ancillary Agreements.
9.6 Survival of Warranties and Representations. Borrower
covenants, warrants and represents to Lender that all representations
and warranties of Borrower contained in this Agreement and the
Ancillary Agreements shall be true at the time of Borrower's execution
of this Agreement and the Ancillary Agreements, and shall survive the
execution, delivery and acceptance hereof and thereof by the parties
thereto and the closing of the transactions described herein and
therein or related hereto or thereto. Borrower and Lender expressly
agree that any misrepresentation or breach of any representation or
warranty whatsoever contained in this Agreement or in any of the
Ancillary Agreements shall be deemed material.
10. COVENANTS AND CONTINUING AGREEMENTS
10.1 Affirmative Covenants. Borrower covenants that it shall:
(A) At all times during the Term, maintain a ratio of total
liabilities to Tangible Net Worth of not more than 6.0:1.0; (ii)
Tangible Net Worth at least equal to $2,000,000, to be adjusted for
any dividends paid to or for the benefit of the holder or holders of
Borrower's Stock, as permitted by Section 10.2(C), but in no event
less than $1,500,000; (iii) a ratio of Current Assets to Current
Liabilities of not less than 1.0:1.0; and (v) Pre-Tax Net Income of
not less than $1,000,000, computed on a rolling 12-month basis; all as
determined for each of the foregoing financial covenants in accordance
with generally accepted accounting principles consistently applied;
(B) Pay to Lender, on demand, any and all fees, costs or
expenses which Lender or any Participant pays to a bank or other
similar institution arising out of or in connection with (i) the
forwarding to Borrower or any other Person on behalf of Borrower, by
Lender or any Participant, of proceeds of loans made by Lender to
Borrower pursuant to this Agreement and (ii) the depositing for
collection, by Lender or any Participant, of any check or item of
payment received or delivered to Lender or any Participant on account
of the Liabilities;
(C) At its sole cost and expense, keep and maintain the
Collateral insured for its full insurable value against loss or damage
by fire, theft, explosion, sprinklers and all other hazards and risks
ordinarily insured against by other owners or users of such properties
31
<PAGE>
in similar businesses and notify Lender promptly of any event or
occurrence causing a material loss or decline in value of the
Collateral and the estimated (or actual, if available) amount of such
loss or decline;
(D) Promptly upon Borrower's learning thereof, notify Lender
of (i) any material delay in Borrower's performance of any of its
obligations to any Account Debtor and of any assertion of any claims,
offsets, defenses or counterclaims by any Account Debtor and of any
allowances or credits granted (including all credits issued for
returned or repossessed Inventory) or other monies advanced by
Borrower to any Account Debtor and (ii) all material adverse
information relating to the financial or other condition of any
Account Debtor;
(E) Keep books of account and prepare financial statements
and furnish to Lender the following (all of the foregoing and
following to be kept and prepared in accordance with generally
accepted accounting principles applied on a basis consistent with the
Financials, unless Borrower's independent certified public accountants
concur in any changes therein and such changes are disclosed to Lender
and are consistent with then generally accepted accounting
principles):
(i) as soon as available, but not later than one hundred
twenty (120) days after the close of each fiscal year of
Borrower, financial statements of Borrower (including a
balance sheet, statement of cash flows and profit and loss
statement with supporting footnotes) as at the end of such
year and for the year then ended all in reasonable detail as
requested by Lender and examined by a firm of independent
certified public accountants of recognized national standing
selected by Borrower and containing the unqualified opinion of
such independent certified public accountants with respect to
the financial statements;
(ii) as soon as available, but no later than thirty (30)
days after the end of each month, an unaudited financial
statement of Borrower on an unconsolidated basis (including a
statement of profit and loss and of surplus for the month then
ended, statement of cash flows and a balance sheet as at the
end of such month) as at the end of the portion of Borrower's
fiscal year then elapsed, all in reasonable detail as
requested by Lender and certified by Borrower's principal
financial officer as prepared in accordance with generally
accepted accounting principles and fairly presenting the
financial position and results of operations of Borrower for
such period;
(iii) as soon as available, but not later than sixty
(60) days before the beginning of each fiscal year, Borrower's
balance sheet, profit and loss statement and cash flow
projection, prepared on a month by month basis, for such
fiscal year, together with appropriate supporting documents
reasonably acceptable to Lender; and
32
<PAGE>
(iv) such other data and information (financial and
other) as Lender, from time to time, may reasonably request,
bearing upon or related to the Collateral, Borrower's
financial condition or results of its operations, or the
financial condition of any Person who is a guarantor of any of
the Liabilities;
(F) Notify Lender promptly upon, but in no event later than,
five (5) days after Borrower's learning thereof, that any Eligible
Account or Eligible Inventory has ceased to be an Eligible Account or
Eligible Inventory, respectively, and the reason(s) for such
ineligibility;
(G) Notify Lender, promptly upon Borrower's learning of (i)
any litigation affecting Borrower, whether or not the claim is
considered by Borrower to be covered by insurance; and (ii) the
institution of any suit or administrative proceeding which may
materially and adversely affect the operations, financial condition or
business of Borrower or which may affect Lender's security interest in
the Collateral;
(H) Provide Lender with copies of all agreements between
Borrower and any warehouse at which Inventory may, from time to time,
be kept and all leases or similar agreements between Borrower and any
Person, whether Borrower is lessor or lessee thereunder;
(I) Maintain product liability insurance in an amount
customary for the business conducted by Borrower;
(J) As to the following ERISA reports:
(i) As soon as possible, and in any event within ten
(10) Business Days, after Borrower knows or has reason to know
that, regarding any Employee Benefit Plan with respect to the
Borrower or an ERISA Affiliate, a Prohibited Transaction or a
Reportable Event has occurred (whether or not the requirement
for notice of such Reportable Event has been waived by the
PBGC), deliver to the Lender a certificate of a responsible
officer of Borrower setting forth the details of such
Prohibited Transaction or Reportable Event, the action that
Borrower proposes to take with respect thereto, and, when
known, any action taken or threatened by the Internal Revenue
Service, Department of Labor, or PBGC;
(ii) Upon request of the Lender made from time to time,
deliver to the Lender a copy of the most recent actuarial
report, funding waiver, and annual report received with
respect to any Employee Benefit Plan maintained by Borrower or
an ERISA Affiliate; and
(iii) Upon reasonable request of the Lender made from
time to time, deliver to the Lender a copy of any Employee
Benefit Plan maintained by Borrower or any ERISA Affiliates;
and
3
<PAGE>
(iv) As soon as possible, and in any event within ten
(10) Business Days, after it knows or has reason to know that
any of the following have occurred with respect to any
Employee Benefit Plan maintained by or contributed to Borrower
or an ERISA Affiliate, deliver to the Lender a certificate of
a responsible officer of Borrower setting forth the details of
the events described in (a) through (l) and the action that
the Borrower or any ERISA Affiliate proposes to take with
respect thereto, together with a copy of any notice or filing
from the PBGC or other agency of the United States government
with respect to such of the events described in (a) through
(l): (a) any Employee Benefit Plan has been terminated; (b)
the Plan Sponsor intends to terminate any Employee Benefit
Plan; (c) the PBGC has instituted or will institute
proceedings under Section 4042 of ERISA to terminate any
Employee Benefit Plan or to appoint a trustee to administer
such Employee Benefit Plan, or the Borrower or any ERISA
Affiliate receives a notice from a Multiemployer Plan that
such action has been taken by the PBGC with respect to such
Multiemployer Plan; (d) Borrower or any ERISA Affiliate
withdraws from any Employee Benefit Plan, or notice of any
withdrawal liability is received by Borrower or any ERISA
Affiliate; (e) any Employee Benefit Plan has received an
unfavorable determination letter from the Internal Revenue
Service regarding the qualification of the Employee Benefit
Plan under Section 401(a) of the Code; (f) the Borrower or any
ERISA Affiliate fails to make a required installment or any
other required payment under Section 412 of the Code on or
before the due date for such installment or payment or has
applied for a waiver of the minimum funding standard under
Section 412 of the Code; (g) the imposition of any tax under
Code Section 4980B(a) or the assessment by the Secretary of
Labor of a civil penalty under Section 502(c) of ERISA; (h)
there is a partial or complete withdrawal (as described in
ERISA Section 4203 or 4205) by the Borrower or any ERISA
Affiliate from a Multiemployer Plan; (i) the Borrower or any
ERISA Affiliate is in "default" (as defined in ERISA Section
4219(c)(5)) with respect to payments to a Multiemployer Plan
required by reason of its complete or partial withdrawal from
such Employee Benefit Plan; (j) a Multiemployer Plan is in
"reorganization" or "insolvent" (as described in Title IV of
ERISA) or such Multiemployer Plan intends to terminate or has
terminated under Section 4041A of ERISA; (k) the institution
of a proceeding by a fiduciary of a Multiemployer Plan against
the Borrower or any ERISA Affiliate to enforce Section 515 of
ERISA; or (l) the Borrower or any ERISA Affiliate has
increased benefits under any existing Employee Benefit Plan or
commenced contributions to an Employee Benefit Plan to which
Borrower or any ERISA Affiliate was not previously
contributing. For purposes of this Section, the Borrower shall
be deemed (i) to have knowledge of all facts known by the Plan
Administrator of any Employee Benefit Plan of which Borrower
is the Plan Sponsor or in which Borrower participates or to
which Borrower contributes, and (ii) to have knowledge of all
facts known by the Plan Administrator of any Employee Benefit
Plan of which any ERISA Affiliate is the Plan Sponsor or in
which any ERISA Affiliate participates or to which any ERISA
Affiliate contributes and which facts could lead to an event
or condition that could have a material (in the reasonable
34
<PAGE>
opinion of the Lender) adverse effect on the financial
condition or results or operations of Borrower;
(K) Give written notice to Lender immediately upon receipt of
any notice that (i) the operations of Borrower, any other obligor or
any Subsidiary are not in full compliance with requirements of
applicable Environmental Laws; (ii) Borrower, any other obligor or any
Subsidiary is subject to any Federal or state investigation evaluating
whether any remedial action is needed to respond to the release of any
Hazardous Material into the environment; or (iii) any properties or
assets of Borrower, any other obligor or any Subsidiary are subject to
any Environmental Lien;
(L) Without limiting the generality of any of Borrower's
other covenants and agreements, the operations of Borrower, any other
obligor and each of Borrower's Subsidiaries shall at all times comply
in all material respects with all applicable Environmental Laws. The
materiality standard used in this Section 10.1(L) shall be exceeded if
the facts giving rise to a breach or breaches of the covenant
contained herein might result in liability in excess of $50,000 in the
aggregate, whether or not such liability may be covered by insurance;
and
(M) Within ten (10) days after the end of each fiscal month
of Borrower, deliver to Lender a Covenant Compliance Certificate, in
the form of Exhibit L attached hereto executed by an officer of
Borrower attesting to the items set forth in such Certificate.
10.2 Negative Covenants. Borrower covenants that it shall
not:
(A) Merge or consolidate with or acquire any Person, or
otherwise acquire all or substantially all of the assets or properties
of any other Person (any such merger, consolidate or acquisition is
sometimes referred to in this Agreement as an "Acquisition");
provided, however, as long as at the time of any proposed Acquisition,
no Default or Event of Default has occurred or would be created by the
making of such Acquisition, Borrower may make an Acquisition for a
total purchase price up to $2,000,000.00 without the prior consent of
Lender provided that (i) the Acquisition target is engaged in the same
or a similar business as Borrower, (ii) Borrower has Collateral
Availability of at least $1,000,000.00 immediately after the closing
of the Acquisition, and (iii) Lender is notified of the proposed
Acquisition at least thirty days prior to the closing thereof;
(B) Other than in the ordinary course of business, make any
investment in the securities of any Person; provided, however, as long
as at the time of any proposed Acquisition of securities, no Default
or Event of Default has occurred or would be created by the making of
such Acquisition, Borrower may make an investment in the securities of
any Person provided further that (i) the Acquisition target is engaged
in the same or a similar business as Borrower, (ii) the Borrower
acquires at least 51% of the issued and outstanding voting securities
of such Person, (iii) the Borrower has Collateral Availability of at
least $1,000,000 immediately after the closing of the Acquisition of
such securities, and (iv) Lender is notified of the proposed
Acquisition of securities at least 30 days prior to the closing
thereof;
(C) Declare or pay dividends upon any of Borrower's Stock or
make any distribution of Borrower's property or assets to any Person,
including, without limitation, any Affiliate, officer or employee of
35
<PAGE>
Borrower; provided that, as long as at the time of any proposed
payment of a dividend, no Default or Event of Default has occurred and
is continuing or would be created by the making of such payment,
Borrower may declare and pay dividends upon Borrower's Stock in an
amount not to exceed $1,000,000.00 in any twelve month period
(calculated on a rolling forward basis), provided further, that
immediately after the payment of the dividend Borrower has Collateral
Availability of $1,000,000.00 or more, and Borrower may issue stock
dividends upon its Stock so long as the same is in accordance with all
applicable laws;
(D) Except as otherwise provided in Section 10.2(O), make any
loans or other advances of money (other than salary) to officers,
directors, stockholders or Affiliates of Borrower, or permit the
annual salary and all other direct and indirect remuneration to
Borrower's officers to exceed $350,000 individually or $635,000 in the
aggregate, or permit the payment of any management fee to an
Affiliate, except to D.O.N. Incorporated in an amount not to exceed
$200,000.00 per year provided that no Default or Event of Default
exists at the time of the intended payment of such management fee or
would be created thereby;
(E) Redeem, retire, purchase or otherwise acquire, directly
or indirectly, any of Borrower's Stock, or make any material change in
Borrower's capital structure or in any of its business objectives,
purposes and operations which might in any way adversely affect the
repayment of Liabilities;
(F) Enter into, or be a party to, any transaction with any
Affiliate, director, officer or stockholder of Borrower, except in the
ordinary course of and pursuant to the reasonable requirements of
Borrower's business and upon fair and reasonable terms which are fully
disclosed to Lender (except that sales to Valley Communications, Inc.
("Valley") in the ordinary course of Borrower's business need not be
disclosed to Lender outside of Borrower's reporting requirements set
forth herein) and are no less favorable to Borrower than Borrower
would obtain in a comparable arm's-length transaction with a Person
not an Affiliate, director, officer or stockholder of Borrower;
(G) Enter into any transaction which materially and adversely
affects the Collateral or Borrower's ability to repay the Indebtedness
or permit or agree to any extension, compromise or settlement or make
any change or modification of any kind or nature with respect to any
Account, including any of the terms relating thereto, except for
credits given for Inventory returned pursuant to Section 7.4;
(H) Guarantee or otherwise, in any way, become liable with
respect to the obligations or liabilities of any Person, except by
endorsement of instruments or items of payment for deposit to the
general account of Borrower or for delivery to Lender on account of
the Liabilities;
(I) Except as otherwise permitted hereunder make deposits to
or withdrawals from any of its deposit accounts for the benefit of any
Affiliate;
(J) Except as otherwise expressly permitted herein or in the
Ancillary Agreements, pledge, mortgage, grant a security interest in,
encumber, assign, sell, lease or otherwise dispose of or transfer,
36
<PAGE>
whether by sale, merger, consolidation, liquidation, dissolution, or
otherwise, any of Borrower's assets;
(K) Incur any Indebtedness for borrowed money other than the
indebtedness scheduled on Exhibit I attached hereto and the
Liabilities, except for Indebtedness which is unsecured and is to
Persons who execute and deliver to Lender (in form and substance
acceptable to Lender and its counsel) subordination agreements
subordinating their claims against Borrower to the payment of the
Liabilities;
(L) Make capital expenditures in any fiscal year which, in
the aggregate, exceed $350,000.00 in any fiscal year;
(M) Permit any Accounts owing to Borrower from any Affiliate
to be payable on terms which would not allow Borrower to demand
payment upon the occurrence of a default or permit the aggregate
amount of all Accounts owing from its Affiliates (other than from
Valley) at any time to exceed $10,000 unless a Default has occurred in
which case Borrower shall not permit any Accounts to be owing from its
Affiliates; or
(N) Do any of the following:
(i) Establish, maintain, and operate any Employee
Benefit Plan that is not in compliance in all material
respects with the provisions of ERISA, the Code, and all other
applicable laws, and the regulations and interpretations
thereunder, except where the failure to so comply would not
have a material (in the reasonable opinion of the Lender)
adverse effect on the financial condition or results or
operations of the Borrower;
(ii) Allow to exist any Accumulated Funding Deficiency
with respect to any Employee Benefit Plan;
(iii) Terminate any Employee Benefit Plan, or
withdraw or effect a partial withdrawal from any Multiemployer
Plan, if such termination, withdrawal, or partial withdrawal
would have a material (in the reasonable opinion of the
Lender) adverse effect on the financial condition or results
or operations of Borrower;
(iv) Fail to make any contribution or payment to any
Multiemployer Plan which Borrower or any ERISA Affiliate may
be required to make under any agreement relating to such
Multiemployer Plan;
(v) Fail to make any required installment or any other
payment required under Section 412 of the Code on or before
the due date for such installment or other payment;
(vi) Amend any Employee Benefit Plan so as to result in
an increase in current liability for the plan year such that
Borrower or any ERISA Affiliate is required to provide
37
<PAGE>
security to such Employee Benefit Plan under Section
401(a)(29) of the Code;
(vii) Enter into any Prohibited Transaction involving
any Employee Benefit Plan, which Prohibited Transaction would
have a material (in the reasonable opinion of the Lender)
adverse effect on the financial condition or results or
operations of Borrower;
(viii) Permit the occurrence of any Reportable Event,
or any other event or condition, which would have a material
(in the reasonable opinion of the Lender) adverse effect on
the financial condition or results or operations of Borrower;
or
(ix) Allow or permit to exist with respect to any
Employee Benefit Plan any other event or condition known or
which reasonably should be known to Borrower and which would
have a material (in the reasonable opinion of the Lender)
adverse effect on the financial condition or results or
operations of Borrower.
(O) Make any loans, advances or extensions of credit to any
Person, including, without limitation, any Affiliate, officer or
employee of Borrower; provided, that, as long as at the time of any
proposed loan, advance or extension of credit, no Default or Event of
Default has occurred or in continuing, or would be created by the
making of such loan, advance of extension of credit, Borrower may make
an equity contribution of up to $2,900,000 to C&L Acquisition
Corporation.
10.3 Contesting Charges. Notwithstanding anything to the
contrary herein, Borrower may dispute any Charges without prior
payment thereof, even if such non-payment may cause a lien to attach
to Borrower's assets, provided that Borrower shall give Lender prompt
notice of such dispute and shall be diligently contesting the same in
good faith and by an appropriate proceeding and there is no danger of
a loss or forfeiture of any of the Collateral and provided further
that, if the same are potentially or actually in excess of $25,000 in
the aggregate for Borrower at any time hereafter, Borrower shall give
Lender such additional collateral and assurances as Lender, in its
sole discretion, deems necessary under the circumstances, immediately
upon demand by Lender.
10.4 Payment of Charges. Subject to the provisions of Section
10.3, Borrower shall pay promptly when due all of the Charges. In the
event Borrower, at any time or times hereafter, shall fail to pay the
Charges or to promptly obtain the satisfaction of such Charges,
Borrower shall promptly so notify Lender thereof and Lender may,
without waiving or releasing any obligation or liability of Borrower
hereunder or any Default, in its sole discretion, at any time or times
thereafter, make such payment or any part thereof (but shall not be
obligated so to do), or obtain such satisfaction and take any other
action with respect thereto which Lender deems advisable. All sums so
paid by Lender and any expenses, including reasonable attorneys' fees,
court costs, expenses and other charges relating thereto, shall be
payable by Borrower to Lender upon demand and shall be additional
Liabilities.
38
<PAGE>
10.5 Insurance; Payment of Premiums. All policies of
insurance on the Collateral or otherwise required hereunder shall be
in form and amount satisfactory to Lender and with insurers reasonably
recognized as adequate by Lender. Borrower shall deliver to Lender
the original (or a certified copy) of each policy of insurance and
evidence of payment of all premiums therefor and shall deliver
renewals of all such policies to Lender at least thirty (30) days
prior to their expiration dates. Such policies of insurance shall
contain an endorsement, in form and substance acceptable to Lender,
showing all losses payable to Lender to the extent of the Liabilities
outstanding at the time of the payment. Such endorsement shall
provide that the insurance companies will give Lender at least thirty
(30) days' prior notice before any such policy shall be altered or
cancelled and that no act or default of Borrower or any other person
shall affect the right of Lender to recover under such policy in case
of loss or damage. Borrower hereby directs all insurers under such
policies to pay all proceeds payable thereunder directly to Lender.
Upon the occurrence and during the continuation of a Default or Event
of Default, Borrower irrevocably makes, constitutes and appoints
Lender (and all officers, employees or agents designated by Lender) as
Borrower's true and lawful attorney and agent-in-fact for the purpose
of making, settling and adjusting claims under such policies (provided
that Lender shall consult with Borrower prior to finally making,
settling or adjusting claims under such policies), endorsing the name
of Borrower in writing or by stamp on any check, draft, instrument or
other item of payment for the proceeds of such policies and for making
all determinations and decisions with respect to such policies. If
Borrower shall fail to obtain or maintain any of the policies required
by this Section 10.5 or to pay any premium relating thereto, then
Lender, without waiving or releasing any obligation or default by
Borrower hereunder, may (but shall be under no obligation to do so)
obtain and maintain such policies of insurance and pay such premiums
and take any other action with respect thereto which Lender deems
advisable. All sums so disbursed by Lender, including reasonable
attorneys' fees, court costs, expenses and other charges relating
thereto, shall be payable by Borrower to Lender upon demand and shall
be additional Liabilities.
10.6 Survival of Obligations Upon Termination of Agreement.
Except as otherwise expressly provided for in this Agreement and in
the Ancillary Agreements, no termination or cancellation (regardless
of cause or procedure) of this Agreement or the Ancillary Agreements
shall in any way affect or impair the powers, obligations, duties,
rights, and liabilities of Borrower or Lender in any way or respect
relating to any transaction or event occurring prior to such
termination or cancellation, the Collateral, or any of the
undertakings, agreements, covenants, warranties and representations of
Borrower or Lender contained in this Agreement or the Ancillary
Agreements. All such undertakings, agreements, covenants, warranties
and representations shall survive such termination or cancellation.
11. DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
11.1 Event of Default; Default. The occurrence of any one or
more of the following events shall constitute an Event of Default
which, if not cured within the applicable grace period or waived in
writing by Lender, shall constitute a Default:
(A) Borrower fails to pay any part of the Liabilities when
due and payable or declared due and payable or is in default in the
payment of any of the Indebtedness;
39
<PAGE>
(B) Borrower or any Affiliate or guarantor of the Liabilities
fails or neglects to perform, keep or observe any other term,
provision, condition or covenant contained in this Agreement or in the
Ancillary Agreements, which is required to be performed, kept or
observed by Borrower or such Affiliate or guarantor and the same is
not cured to Lender's satisfaction within twenty (20) days after
Lender gives Borrower notice identifying such default; provided,
however, that breach of any of the provisions, conditions or covenants
contained in Sections 9.1(H), 9.1(N), 9.2(J), 10.1(A) and 10.2 shall
without notice or time to cure be a Default;
(C) Borrower shall default under any agreement, document or
instrument, other than this Agreement or any of the Ancillary
Agreements, now or hereafter existing, to which Borrower is a party;
(D) Any statement, warranty, representation, report,
financial statement, or certificate made or delivered by Borrower, or
any of its officers, employees or agents, to Lender is not true and
correct in any material respect;
(E) There shall occur any material uninsured damage to or
loss, theft, or destruction of any of the Collateral;
(F) The Collateral or any of Borrower's other assets are
attached, seized, levied upon or subjected to a writ or distress
warrant, or come within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors and the same is not
cured within thirty (30) days thereafter; an application is made by
any Person other than Borrower for the appointment of a receiver,
trustee, or custodian for any of the Collateral or any of Borrower's
other assets and the same is not dismissed within sixty (60) days
after the application therefor;
(G) An application is made by Borrower for the appointment of
a receiver, trustee or custodian for any of the Collateral or any of
Borrower's other assets; a petition under any section or chapter of
the Bankruptcy Code or any similar law or regulation is filed by or
against Borrower or any guarantor of the Liabilities and, if filed
against Borrower or any guarantor, is not dismissed within sixty (60)
days after filing; Borrower makes an assignment for the benefit of its
creditors or any case or proceeding is filed by or against Borrower
for its dissolution, liquidation, or termination; Borrower ceases to
conduct its business as now conducted or is enjoined, restrained or in
any way prevented by court order from conducting all or any material
part of its business affairs;
(H) Except as permitted in Section 10.3, a notice of lien,
levy or assessment is filed of record with respect to all or any
substantial portion of Borrower's assets by the United States, or any
department, agency or instrumentality thereof, or by any state,
county, municipal or other governmental agency including, without
limitation, the Pension Benefit Guaranty Corporation, or any taxes or
debts owing to any of the foregoing becomes a lien or encumbrance upon
the Collateral or any of Borrower's other assets and such lien or
encumbrance is not released within thirty (30) days after its
creation;
(I) Judgment(s) is or are rendered against Borrower in the
aggregate in excess of $50,000 and Borrower fails within twenty (20)
days after the entry thereof to pay such judgment, or fails to
40
<PAGE>
commence appropriate proceedings to appeal such judgment(s) within the
applicable appeal period or, after such appeal is filed, Borrower
fails to diligently prosecute such appeal or such appeal is denied;
(J) Borrower becomes insolvent or fails generally to pay its
debts as they become due;
(K) Any individual who is liable for the payment of any of
the Liabilities, either primarily or secondarily (as a guarantor or an
accommodation party ) shall die or become incompetent;
(L) Any Person who is a guarantor, surety or endorser of all
or any part of the Liabilities shall withdraw or terminate his, her or
its guaranty, or if any guaranty of any of the Liabilities ceases to
be effective for any reason; or
(M) As to the following ERISA reports:
(i) As soon as possible, and in any event within ten
(10) Business Days, after Borrower knows or has reason to know
that, regarding any Employee Benefit Plan with respect to the
Borrower or an ERISA Affiliate, a Prohibited Transaction or a
Reportable Event has occurred (whether or not the requirement
for notice of such Reportable Event has been waived by the
PBGC), deliver to the Lender a certificate of a responsible
officer of Borrower setting forth the details of such
Prohibited Transaction or Reportable Event, the action that
Borrower proposes to take with respect thereto, and, when
known, any action taken or threatened by the Internal Revenue
Service, Department of Labor, or PBGC;
(ii) Upon request of the Lender made from time to time,
deliver to the Lender a copy of the most recent actuarial
report, funding waiver, and annual report received with
respect to any Employee Benefit Plan maintained by Borrower or
an ERISA Affiliate; and
(iii) Upon reasonable request of the Lender made from
time to time, deliver to the Lender a copy of any Employee
Benefit Plan maintained by Borrower or any ERISA Affiliates;
and
(iv) As soon as possible, and in any event within ten
(10) Business Days, after it knows or has reason to know that
any of the following have occurred with respect to any
Employee Benefit Plan maintained by or contributed to Borrower
or an ERISA Affiliate, deliver to the Lender a certificate of
a responsible officer of Borrower setting forth the details of
the events described in (a) through (l) and the action that
the Borrower or any ERISA Affiliate proposes to take with
respect thereto, together with a copy of any notice or filing
from the PBGC or other agency of the United States government
with respect to such of the events described in (a) through
(l): (a) any Employee Benefit Plan has been terminated; (b)
the Plan Sponsor intends to terminate any Employee Benefit
41
<PAGE>
Plan; (c) the PBGC has instituted or will institute
proceedings under Section 4042 of ERISA to terminate
any Employee Benefit Plan or to appoint a trustee to
administer such Employee Benefit Plan, or the Borrower
or any ERISA Affiliate receives a notice from a
Multiemployer Plan that such action has been taken by
the PBGC with respect to such Multiemployer Plan; (d)
Borrower or any ERISA Affiliate withdraws from any
Employee Benefit Plan, or notice of any withdrawal
liability is received by Borrower or any ERISA
Affiliate; (e) any Employee Benefit Plan has received
an unfavorable determination letter from the Internal
Revenue Service regarding the qualification of the
Employee Benefit Plan under Section 401(a) of the Code;
(f) the Borrower or any ERISA Affiliate fails to make a
required installment or any other required payment
under Section 412 of the Code on or before the due date
for such installment or payment or has applied for a
waiver of the minimum funding standard under Section
412 of the Code; (g) the imposition of any tax under
Code Section 4980B(a) or the assessment by the
Secretary of Labor of a civil penalty under Section
502(c) of ERISA; (h) there is a partial or complete
withdrawal (as described in ERISA Section 4203 or 4205)
by the Borrower or any ERISA Affiliate from a
Multiemployer Plan; (i) the Borrower or any ERISA
Affiliate is in "default" (as defined in ERISA Section
4219(c)(5)) with respect to payments to a Multiemployer
Plan required by reason of its complete or partial
withdrawal from such Employee Benefit Plan; (j) a
Multiemployer Plan is in "reorganization" or
"insolvent" (as described in Title IV of ERISA) or such
Multiemployer Plan intends to terminate or has
terminated under Section 4041A of ERISA; (k) the
institution of a proceeding by a fiduciary of a
Multiemployer Plan against the Borrower or any ERISA
Affiliate to enforce Section 515 of ERISA; or (l) the
Borrower or any ERISA Affiliate has increased benefits
under any existing Employee Benefit Plan or commenced
contributions to an Employee Benefit Plan to which
Borrower or any ERISA Affiliate was not previously
contributing. For purposes of this Section, the
Borrower shall be deemed (i) to have knowledge of all
facts known by the Plan Administrator of any Employee
Benefit Plan of which Borrower is the Plan Sponsor or
in which Borrower participates or to which Borrower
contributes, and (ii) to have knowledge of all facts
known by the Plan Administrator of any Employee Benefit
Plan of which any ERISA Affiliate is the Plan Sponsor
or in which any ERISA Affiliate participates or to
which any ERISA Affiliate contributes and which facts
could lead to an event or condition that could have a
material (in the reasonable opinion of the Lender)
adverse effect on the financial condition or results or
operations of Borrower.
11.2 Acceleration of the Liabilities. Upon and after the
occurrence of a Default, all of the Liabilities of Borrower may, at
the option of Lender and without demand, notice, or legal process of
any kind, be declared, and immediately shall become, due and payable.
11.3 Remedies. Upon and after the occurrence of a Default,
which is not waived or cured during any applicable grace or cure
period, Lender shall have all of the following rights and remedies:
42
<PAGE>
(A) All of the rights and remedies of a secured party under
the Illinois Uniform Commercial Code or other applicable law, all of
which rights and remedies shall be cumulative, and non-exclusive, to
the extent permitted by law, and in addition to any other rights and
remedies contained in this Agreement and in any of the Ancillary
Agreements;
(B) The right to (i) peacefully enter upon the premises of
Borrower or any other place or places where the Collateral is located
and kept, without any obligation to pay rent to Borrower or any other
person, through self-help and without judicial process or first
obtaining a final judgment or giving Borrower notice and opportunity
for a hearing on the validity of Lender's claim, and remove the
Collateral from such premises and places to the premises of Lender or
any agent of Lender, for such time as Lender may require to collect or
liquidate the Collateral, and/or (ii) require Borrower to assemble and
deliver the Collateral to Lender at a place to be designated by
Lender;
(C) The right to (i) open Borrower's mail and collect any and
all amounts due from Account Debtors, (ii) notify Account Debtors that
the Accounts have been assigned to Lender and that Lender has a
security interest therein and (iii) direct such Account Debtors to
make all payments due from them upon the Accounts, including the
Special Collateral, directly to Lender or to a lock box designated by
Lender. Lender shall promptly furnish Borrower with a copy of any
such notice sent, and Borrower hereby agrees that any such notice, in
Lender's sole discretion, may be sent on Lender's stationery, in which
event, Borrower shall, upon demand, co-sign such notice with Lender;
and
(D) The right to sell, lease or to otherwise dispose of all
or any Collateral in its then condition, or after any further
manufacturing or processing thereof, at public or private sale or
sales, with such notice as provided in Section 11.4, in lots or in
bulk, for cash or on credit, all as Lender, in its sole discretion,
may deem advisable. At any such sale or sales of the Collateral, the
Collateral need not be in view of those present and attending the
sale, nor at the same location at which the sale is being conducted.
Lender shall have the right to conduct such sales on Borrower's
premises or elsewhere and shall have the right to use Borrower's
premises without charge for such sales for such time or times as
Lender may see fit. Lender is hereby granted a license or other right
to use, without charge, Borrower's labels, patents, copyrights, rights
of use of any name, trade secrets, trade names, trademarks and
advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in advertising for sale and selling any
Collateral and Borrower's rights under all licenses and all franchise
agreements shall inure to Lender's benefit but Lender shall have no
obligations thereunder. Lender may purchase all or any part of the
Collateral at public or, if permitted by law, private sale and, in
lieu of actual payment of such purchase price, may setoff the amount
of such price against the Liabilities. The proceeds realized from the
sale of any Collateral shall be applied first to the reasonable costs,
expenses and attorneys' and paralegal fees and expenses incurred by
Lender for collection and for acquisition, completion, protection,
removal, storage, sale and delivery of the Collateral; second to
interest due upon any of the Liabilities; and third to the principal
of the Liabilities Lender shall account to Borrower for any surplus.
If any deficiency shall arise, Borrower shall remain liable to Lender
therefor.
43
<PAGE>
11.4 Notice. Borrower agrees that any notice required to be
given by Lender of a sale, lease, other disposition of any of the
Collateral or any other intended action by Lender, which is personally
delivered to Borrower or which is deposited in the United States mail,
postage prepaid and duly addressed to Borrower at the address set
forth in Section 13.11, at least ten (10) days prior to any such
public sale, lease or other disposition or other action being taken,
or the time after which any private sale of the Collateral is to be
held, shall constitute commercially reasonable and fair notice thereof
to Borrower.
12. CONDITIONS PRECEDENT TO DISBURSEMENT.
12.1 Conditions Precedent. The obligation of Lender to make
the loans to Borrower pursuant to the Total Facility is subject to the
condition precedent that, in addition to satisfaction of the
conditions set forth in Sections 12.2 and 12.3 hereof, Lender shall
have received, prior to the first disbursement of the proceeds of any
of the loans hereunder, the documents set forth on the Closing
Checklist, a copy of which is attached hereto as Exhibit H, duly
executed in the form and substance satisfactory to Lender;
12.2 Lender Satisfaction. The obligation of Lender to make
the loans pursuant to the Total Facility to Borrower is subject to the
further condition precedent that all proceedings taken in connection
with the transaction contemplated by this Agreement, and all
instruments, authorizations and other documents applicable thereto,
shall be satisfactory in form and substance to Lender and its counsel.
12.3 Additional Funding Requirements. In addition to the
foregoing, prior to Lender making of any and all loans hereunder, all
of the following shall have been satisfied in a manner satisfactory to
Lender:
(A) No change in the condition or operations, financial or
otherwise, of Borrower shall have occurred which change, in the
reasonable credit judgment of Lender, may have a material adverse
effect on Borrower or on any of the Collateral;
(B) No litigation shall be outstanding or have been
instituted or threatened which Lender determines to be material
against Borrower or any of the Collateral;
(C) All of the representations and warranties of Borrower set
forth in this Agreement and each of the other Agreements to which
Borrower is a party shall be true and correct on the date of the
contemplated loan to the same extent as originally made on such date;
(D) No Event of Default or Default shall exist or be
continuing;
(E) Lender shall be satisfied that the transactions
contemplated by this Agreement are in compliance with all applicable
laws, regulations, orders, and contractual obligations deemed relevant
by Lender;
(F) Lender's continuing due diligence review with respect to
Borrower, including, without limitation, investigations and reviews of
Borrower's condition (financial or otherwise), business, operations,
44
<PAGE>
results of operations, assets, prospects, litigation and environmental
matters, and field review of the Collateral by Lender's
representatives, shall continue to be satisfactory to Lender as of the
Closing Date;
(G) Lender's liens and security interests securing the
Liabilities shall have been duly created and perfected and be of first
priority, except as otherwise expressly permitted by this Agreement;
(H) The corporate, capital and legal structure, as well as
the ownership and the organizational documents, of Borrower shall be
satisfactory to Lender in all respects; and
(I) The Lender shall have received, on or prior to 1:00 P.M.
(Chicago, Illinois time) no later than the day a Prime Rate Revolving
Loan is to be made and at least two (2) Business Days prior to the day
a LIBOR Rate Revolving Loan is to be made, (i) a telephonic request
(which telephonic request, in the case of LIBOR Rate Revolving Loan,
shall be promptly confirmed in writing) from the Borrower for an
advance in a specific amount, and (ii) a current daily certificate
identifying the current Borrowing Base and all other documents
required to have been delivered to the Lender hereunder prior to such
date. In the case of LIBOR Rate Revolving Loan, advances may be made
with respect to the Revolving Loan no more than twice each week and
only in minimum amounts of Five Hundred Thousand and No/100ths Dollars
($500,000) or integral multiples of One Hundred Thousand and No/100ths
Dollars ($100,000) in excess thereof. Each request for an advance for
a Prime Rate Revolving Loan or a LIBOR Rate Revolving Loan shall
specify: (1) the proposed date of funding (which shall be a Business
Day); (2) the amount and type of advance requested; (3) that the
aggregate amount of the Revolving Loan (including the advance then
noticed) will not exceed the unused loan availability; (4) whether
such advance shall consist of a Prime Rate Revolving Loan or a LIBOR
Rate Revolving Loan; and (5) if such advance, or a portion thereof is
a LIBOR Rate Revolving Loan, the amount thereof and the initial
Interest Period therefor.
13. MISCELLANEOUS
13.1 Appointment of Lender as Borrower's Lawful Attorney-In
Fact. Borrower irrevocably designates, makes, constitutes and
appoints Lender (and all persons designated by Lender) as Borrower's
true and lawful attorney and agent in-fact and Lender, or Lender's
agent, may, without notice to Borrower:
(A) At any time hereafter, endorse by writing or stamp
Borrower's name on any checks, notes, drafts or any other payment
relating to and/or proceeds of the Collateral which come into the
possession of Lender or under Lender's control and deposit the same to
the account of Lender for application to the Liabilities;
(B) At any time after the occurrence of a Default, which is
not waived or cured during any applicable grace or cure period, in
Borrower's or Lender's name: (i) demand payment of the Collateral;
(ii) enforce payment of the Collateral, by legal proceedings or
otherwise; (iii) exercise all of Borrower's rights and remedies with
respect to the collection of the Collateral; (iv) settle, compromise,
extend or renew the Accounts and the Special Collateral; (v) settle,
45
<PAGE>
adjust or compromise any legal proceedings brought to collect the
Collateral; (vi) if permitted by applicable law, sell or assign the
Collateral upon such terms, for such amounts and at such time or times
as Lender deems advisable; (vii) satisfy and release the Accounts and
Special Collateral; (viii) take control, in any manner, of any item of
payment or proceeds referred to in Section 4.3; (ix) prepare, file and
sign Borrower's name on any proof of claim in Bankruptcy or similar
document against any Account Debtor; (x) prepare, file and sign
Borrower's name on any notice of lien, assignment or satisfaction of
lien or similar document in connection with the Collateral; (xi) do
all acts and things necessary, in Lender's sole discretion, to fulfill
Borrower's obligations under this Agreement; (xii) endorse by writing
or stamp the name of Borrower upon any chattel paper, document,
instrument, invoice, freight bill, bill of lading or similar document
or agreement relating to the Collateral; and (xiii) use the
information recorded on or contained in any data processing equipment
and computer hardware and software relating to the Collateral to which
Borrower has access; and
(C) Upon and after the occurrence of a Default, which is not
waived or cured during any applicable grace or cure period, notify the
post office authorities to change the address for delivery of
Borrower's mail to an address designated by Lender and receive, open
and dispose of all mail addressed to Borrower.
13.2 Modification of Agreement; Sale of Interest. This
Agreement and the Ancillary Agreements may not be modified, altered or
amended, except by an agreement in writing signed by Borrower and
Lender. Borrower may not sell, assign or transfer this Agreement or
the Ancillary Agreements or any portion hereof or thereof, including,
without limitation, Borrower's right, title, interest, remedies,
powers, or duties hereunder or thereunder. Borrower hereby consents
to Lender's participation, sale, assignment, transfer or other
disposition, at any time or times hereafter, of this Agreement or the
Ancillary Agreements or of any portion hereof or thereof, including,
without limitation, Lender's right, title, interest, remedies, powers,
or duties hereunder or thereunder.
13.3 Attorneys' Fees and Expenses; Lender's Out-of-Pocket
Expenses. If, at any time or times, whether prior or subsequent to
the date hereof and regardless of the existence of a Default or an
Event of Default, Lender incurs legal or other costs and expenses or
employs counsel, accountants or other professionals for advice or
other representation or services in connection with:
(A) The preparation, negotiation and execution of this
Agreement, all Ancillary Agreements, any amendment of or modification
of this Agreement or the Ancillary Agreements or any sale or attempted
sale of any interest herein to a Participant;
(B) Any litigation, contest, dispute, suit, proceeding or
action (whether instituted by Lender, Borrower or any other Person) in
any way relating to the Collateral, this Agreement, the Ancillary
Agreements or Borrower's affairs;
(C) Any attempt to enforce any rights of Lender or any
Participant against Borrower or any other Person which may be
obligated to Lender or such Participant by virtue of this Agreement or
the Ancillary Agreements, including, without limitation, the Account
Debtors;
46
<PAGE>
(D) Any attempt to inspect, verify, protect, collect, sell,
liquidate or otherwise dispose of any of the Collateral; or
(E) Any inspection, verification, protection, collection,
sale, liquidation or other disposition of any of the Collateral,
including without limitation, Lender's periodic or special audits of
Borrower's books and records;
then, in any such event, the reasonable attorneys' and paralegals'
fees and expenses arising from such services and all reasonably
incurred expenses, costs, charges and other fees of or paid by Lender
in any way or respect arising in connection with or relating to any of
the events or actions described in this Section 13.3 shall be payable
by Borrower to Lender upon demand and shall be additional Liabilities.
Without limiting the generality of the foregoing, such expenses,
costs, charges and fees may include accountants' fees, costs and
expenses; court costs, fees and expenses; photocopying and duplicating
expenses; court reporter fees, costs and expenses; long distance
telephone charges; air express charges; telegram charges; secretarial
overtime charges; and expenses for travel, lodging and food paid or
incurred in connection with the performance of all such services.
13.4 Indemnification. Borrower further agrees to indemnify
and save harmless Lender, any Participants and each of their
respective officers, directors, employees, agents, attorneys-in-fact
and Affiliates from and against any and all actions, causes of action,
suits, losses, liabilities and damages and expenses (including,
without limitation, attorneys' fees) in connection therewith (herein
called the "Indemnified Liabilities") incurred by Lender, any
Participants or any of their respective officers, directors,
employees, agents, attorneys-in-fact or Affiliates as a result of, or
arising out of or relating to any of the transactions contemplated
hereby or by the other Security Documents, except for any Indemnified
Liabilities arising on account of the gross negligence or willful
misconduct of the Person seeking indemnity under this Section 13.3;
provided, however, that, if and to the extent such agreement to
indemnify may be unenforceable for any reason, the Borrower shall make
the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which shall be permissible under
applicable law. The agreements in this Section 13.3 shall survive the
payment of the Liabilities.
13.5 Waiver by Lender. Lender's failure, at any time or times
hereafter, to require strict performance by Borrower of any provision
of this Agreement or of any Ancillary Agreement shall not constitute a
waiver, or affect or diminish any right of Lender thereafter to demand
strict compliance and performance therewith. Any suspension or waiver
by Lender of a Default under this Agreement or any Ancillary Agreement
shall not suspend, waive or affect any other Default under this
Agreement or the Ancillary Agreements, whether the same is prior or
subsequent thereto and whether of the same or of a different type.
None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement or the
Ancillary Agreements and no Default under this Agreement or the
Ancillary Agreements shall be deemed to have been suspended or waived
by Lender, unless such suspension or waiver is by an instrument in
writing signed by an officer of Lender and directed to Borrower
specifying such suspension or waiver.
47
<PAGE>
13.6 Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement
shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining
provisions of this Agreement.
13.7 Parties; Entire Agreement. This Agreement and the
Ancillary Agreements shall be binding upon and inure to the benefit of
the respective successors and assigns of Borrower and Lender.
Borrower's successors and assigns shall include, without limitation, a
trustee, receiver or debtor-in-possession of or for Borrower. Nothing
contained in this Section 13.7 shall be deemed to modify Section 13.2.
Except as provided in Section 13.8, this Agreement is the complete
statement of the agreement by and between Borrower and Lender and
supersedes all prior negotiations, understandings and representations
between them with respect to the subject matter of this Agreement.
13.8 Conflict of Term. The provisions of the Ancillary
Agreements are incorporated in this Agreement by this reference.
Except as otherwise provided in this Agreement and except as otherwise
provided in the Ancillary Agreement, by specific reference to the
applicable provision of this Agreement, if any provision contained in
this Agreement is in conflict with, or inconsistent with, any
provision in any Ancillary Agreement, the provision contained in this
Agreement shall govern and control.
13.9 Waiver by Borrower. Except as otherwise provided for in
this Agreement, Borrower waives (i) presentment, demand and protest,
notice of protest, notice of presentment, default, nonpayment,
maturity, release, compromise, settlement, extension or renewal of any
or all commercial paper, accounts, contract rights, documents,
instruments, chattel paper and guaranties at any time held by Lender
on which Borrower may in any way be liable and hereby ratifies and
confirms whatever Lender may do in this regard; (ii) all rights to
notice and a hearing prior to Lender's taking possession or control
of, or to Lender's replevy, attachment or levy upon the Collateral or
any bond or security which might be required by any court prior to
allowing Lender to exercise any of Lender's remedies; and (iii) the
benefit of all valuation, appraisement, extension and exemption laws.
Borrower acknowledges that it has been advised by its own counsel with
respect to this Agreement and the transactions evidenced by this
Agreement.
13.10 Waiver and Governing Law. THE LOANS EVIDENCED
HEREBY HAVE BEEN MADE, AND THIS AGREEMENT HAS BEEN DELIVERED, AT
CHICAGO, ILLINOIS, AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS. BORROWER (i) WAIVES ANY RIGHT
TO A TRIAL BY JURY IN ANY ACTION TO ENFORCE OR DEFEND ANY MATTER
ARISING FROM OR RELATED TO THIS AGREEMENT OR ANY OF THE ANCILLARY
AGREEMENTS; (ii) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY STATE
OR FEDERAL COURT LOCATED IN COOK COUNTY, ILLINOIS, OVER ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO
THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS; (iii) IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT BORROWER MAY EFFECTIVELY DO SO, THE
48
<PAGE>
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION
OR PROCEEDING; (iv) AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER
JURISDICTION BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED
BY LAW; AND (v) AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING
AGAINST LENDER OR ANY OF LENDER'S DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS OR PROPERTY, CONCERNING ANY MATTER ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS IN ANY COURT
OTHER THAN ONE LOCATED IN COOK COUNTY, ILLINOIS. BORROWER WAIVES
PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR
PAPERS ISSUED IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
MATTER ARISING FROM OR RELATED TO THIS AGREEMENT OR ANY OF THE
ANCILLARY AGREEMENTS, AND AGREES THAT SERVICE OF SUCH SUMMONS AND
COMPLAINT, OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR
CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN
SECTION 13.11. SHOULD BORROWER FAIL TO APPEAR OR ANSWER ANY SUMMONS,
COMPLAINT, PROCESS OR PAPERS SERVED WITHIN THIRTY (30) DAYS AFTER THE
MAILING THEREOF, IT SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR
JUDGMENT MAY BE ENTERED AGAINST IT AS DEMANDED OR PRAYED FOR IN SUCH
SUMMONS, COMPLAINT, PROCESS OR PAPERS. NOTHING IN THIS PARAGRAPH
SHALL AFFECT OR IMPAIR LENDER'S RIGHT TO SERVE LEGAL PROCESS IN ANY
MANNER PERMITTED BY LAW OR LENDER'S RIGHT TO BRING ANY ACTION OR
PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION.
13.11 Notice. Except as otherwise provided herein, any
notice required hereunder shall be in writing and shall be deemed to
have been validly served, given or delivered upon deposit in the
United States certified or registered mails, with proper postage
prepaid, addressed to the party to be notified as follows:
(a) If to Lender, at:
Sanwa Business Credit Corporation
One South Wacker Drive
Chicago, Illinois 60606
Attn: First Vice President
Asset Based Lending Division,
Commercial Financial Services
Group
with a copy to:
Sachnoff & Weaver, Ltd.
30 South Wacker Drive
Suite 2900
49
<PAGE>
Chicago, Illinois 60606
Attn: Richard G. Smolev
(b) If to Borrower, at:
C&L Communications, Inc.
26254 IH, West
Boerne, Texas 78006
Attn: Michael Sonaco
with a copy to:
Richard Y. Fisher
The Diana Corporation
8200 West Brown Deer Road
Suite 200
Milwaukee, Wisconsin 53223
and
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202
Attn: Kenneth Hunt
or to such other address as each party may designate for
itself by like notice.
13.12 Release of Claims. Borrower releases
Lender from any and all causes of action or claims which
Borrower may now or hereafter have for any asserted loss or
damage to Borrower claimed to be caused by or arising from:
(a) any failure of Lender to protect, enforce or collect in
whole or in part any of the Collateral; (b) Lender's
notification to any Account Debtor of Lender's security
interests in the Accounts and Special Collateral; (c)
Lender's directing any Account Debtor to pay any sums owing
to Borrower directly to Lender; and (d) any other act or
omission to act on the part of Lender, its officers, agents
or employees, except for gross negligence or willful
misconduct.
13.13 Representation by Counsel. Borrower hereby
represents that it has been represented by competent counsel
of its choice in the negotiation and execution of this
Agreement and the Ancillary Agreements; that it has read and
fully understood the terms hereof and intends to be bound
hereby. This Agreement has been thoroughly reviewed by
counsel for Borrower and in the event of an ambiguity or
conflict in the terms hereof, there shall be no presumption
against Lender as the drafter hereof.
13.14 Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall
constitute an original agreement, but all of which together
shall constitute one and the same instrument.
50
<PAGE>
13.15 LENDER'S WAIVER OF JURY. LENDER HEREBY
WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION TO ENFORCE OR
PROSECUTE ANY MATTER ARISING FROM OR RELATED TO THIS
AGREEMENT.
13.16 Section Titles, Etc. The section titles and
table of contents, if any, contained in this Agreement are
and shall be without substantive meaning or content of any
kind whatsoever and are not a part of the agreement between
the parties hereto. All references herein to Sections,
paragraphs, clauses and other subdivisions refer to the
corresponding Sections, paragraphs, clauses and other
subdivisions of this Agreement; and the words "herein,"
"hereof," "hereby," "hereto," "hereunder," and words of
similar import refer to this Agreement as a whole and not to
any particular Section, paragraph, clause or subdivision
hereof. All Exhibits which are referred to herein or
attached hereto are hereby incorporated by reference.
IN WITNESS WHEREOF, this Agreement has been duly
executed as of the day and year specified at the beginning
hereof.
BORROWER:
ATTEST: C & L COMMUNICATIONS, INC.
By:
Its:
LENDER:
SANWA BUSINESS CREDIT CORPORATION
By:
Its:
Attachments: Exhibit A, B, C, D, E, F, G, H, I, J, K and L
51
<PAGE>
EXHIBITS
Exhibit A (1.20) Special Deposit Agreement
Exhibit B (1.31) Financials
Exhibit C Summary of Locations
Exhibit D Fictitious Name
Exhibit E Litigation
Exhibit F Labor Matters
Exhibit G (1.46) Existing Permitted Liens
Exhibit H Closing Checklist
Exhibit I Permitted Indebtedness
Exhibit J Trademarks
Exhibit K ERISA Matters
Exhibit L Form of Covenant Compliance Checklist
52
EXHIBIT 10.2
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT is made and entered
into this 16th day of January, 1996, by and among THE
DIANA CORPORATION, a Delaware corporation ("Diana"),
and SATTEL TECHNOLOGIES, INC., a California corporation
("Sattel").
BACKGROUND
Diana owns five hundred (500) and Sattel owns
five hundred (500) shares of common stock, without par
value of Sattel Communications Corp. (the "Company").
Diana wishes to acquire, in exchange solely for its own
voting stock, an additional 300 shares of the stock of
the Company, the result of which will be that Diana
will immediately after the acquisition have control of
the Company (within the meaning of Section 368(c)(1) of
the Internal Revenue Code of 1986, as amended).
Accordingly, Diana and Sattel desire to exchange (the
"Exchange") three hundred (300) shares of common stock
of the Company (the "Subject Shares") held by Sattel
for three hundred fifty thousand (350,000) shares of
common stock, $1.00 par value per share, of Diana (the
"Diana Shares") pursuant to the terms and conditions
hereinafter set forth. In connection with the
Exchange, Diana has agreed to undertake certain
obligations to register the Diana Shares and to grant
Sattel certain registration rights with respect thereto
as more specifically set forth herein.
NOW, THEREFORE, in consideration of the
mutual covenants contained herein, and for other good
and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, Sattel and Diana agree
as follows:
1. Exchange of Stock. At the Closing (as
_________________
hereinafter defined) subject to the terms and
conditions set forth herein, Sattel shall transfer,
assign and convey to Diana all of Sattel's right, title
and interest in the Subject Shares, free and clear of
all liens, claims, encumbrances and restrictions. In
exchange for the Subject Shares, at the Closing, Diana
shall transfer, assign and convey to Sattel all of
Diana's right, title and interest in the Diana Shares,
free and clear of all liens, claims, encumbrances and
restrictions.
2. Closing. The Closing of the Exchange
_______
(the "Closing") shall occur concurrently with the
execution and delivery of this Agreement. At the
Closing, the following shall occur, all of which
actions shall be deemed to have occurred
simultaneously:
(a) Sattel shall deliver to Diana a
certificate or certificates representing the
Subject Shares duly
<PAGE>
endorsed or endorsed in blank or accompanied by
validly executed stock powers.
(b) Diana shall deliver to Sattel a
certificate or certificates representing the Diana
Shares registered in the name of Sattel.
3. Representations and Warranties of Sattel.
________________________________________
Sattel hereby represents and warrants to Diana as
follows, which representations and warranties shall
survive the Closing.
3.1. Title to Subject Shares. Sattel owns
_______________________
and at the Closing will deliver to Diana good, valid
and marketable title to the Subject Shares, free and
clear of all liens, encumbrances, agreements, charges,
options, security interests, pledges, claims or
restrictions of any nature whatsoever, except for
restrictions of applicable state and federal securities
laws.
3.2. Authority. The execution, delivery and
_________
performance of this Agreement by Sattel have been duly
authorized by all necessary corporate proceedings on
the part of Sattel, and this Agreement constitutes the
valid and legally binding obligation of Sattel,
enforceable in accordance with its terms, except to the
extent limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally, or by general
equitable principles.
3.3. Investment Representations and
______________________________
Covenants.
_________
(a) Sattel is acquiring the Diana
Shares for investment, for Sattel's own account
and not with a view to or for resale,
fractionalization, or division, in connection with
any distribution thereof in violation of the
Securities Act of 1933, as amended, or the
applicable rules and regulations adopted
thereunder (collectively, the "Securities Act"),
except for distributions through the Registration
Rights Agreement in compliance with the Securities
Act. Sattel understands that the offer and sale
of the Diana Shares to Sattel have not been
registered under the Securities Act or under any
state securities laws, by reason of exemptions
from the registration provisions of the Securities
Act, and the applicable state securities laws, but
will be registered in accordance with the
Registration Rights Agreement. Accordingly, the
Diana Shares are "restricted securities" under the
Securities Act and Sattel acknowledges and agrees
that the Diana Shares must be held indefinitely
unless they are subsequently registered under the
Securities Act, as required under the Registration
<PAGE>
Rights Agreement, and any applicable state
securities laws, or an exemption from such
registration is available, as determined by Diana
in its sole discretion.
(b) Sattel is familiar with, and Sattel
has been given full access by Diana to, all
information concerning the business and
financial condition, properties, operations
and prospects of Diana that Sattel has deemed
relevant for purposes of acquiring the Diana
Shares. Sattel has had full opportunity to
discuss with Diana its business, financial
condition, properties, operations, and
prospects, and all such other matters as
Sattel has deemed appropriate in connection
with acquiring the Diana Shares. Sattel has
reviewed, among other things, a copy of
Diana's most recent Form 10-K, Form 10-Q,
Annual Report to Stockholders, and Proxy
Statement.
(c) Sattel is able to bear the economic
risk of making the investment in the Diana Shares,
including, without limiting the generality of the
foregoing, the risk of losing part of or all
Sattel's investment and the possible inability to
sell or transfer the Diana Shares for an
indefinite period of time.
(d) By reason of Sattel's knowledge and
experience in financial and business matters in
general, Sattel is capable of evaluating the
merits and risks of acquiring the Diana Shares.
(e) The Diana Shares and each
certificate evidencing the Diana Shares (or
interests therein) shall (unless the transfer of
the securities evidenced by such certificate shall
have been registered under the Securities Act and
applicable state securities laws) be stamped or
otherwise imprinted with a legend in substantially
the following form (in addition to any legend
required under applicable state securities laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED OR ANY
STATE SECURITIES LAWS. THEY MAY NOT BE OFFERED
FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAW, OR (ii) AN APPLICABLE EXEMPTION
THEREFROM AND IN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE DIANA CORPORATION IS FURNISHED
TO THE EFFECT THAT SUCH EXEMPTION IS AVAILABLE.
<PAGE>
(f) Sattel will comply with all
applicable federal and state securities laws in
connection with any sale or transfer of the Diana
Shares including, without limitation, Rules 10b-5
and 10b-6 under the Securities Exchange Act of
1934, as amended, and Section 5 of the Securities
Act.
4. Representations and Warranties of Diana.
_______________________________________
Diana hereby represents and warrants to Sattel as
follow, which representations and warranties shall
survive the Closing.
4.1. Title to Subject Shares. Diana owns or
_______________________
will newly issue the Diana Shares and at the Closing
will deliver to Sattel good, valid and marketable title
to the Diana Shares, free and clear of all liens,
encumbrances, agreements, charges, options, security
interests, pledges, claims or restrictions of any
nature whatsoever except for restrictions of applicable
state and federal securities laws.
4.2. Authority. The execution, delivery and
_________
performance of this Agreement by Diana have been duly
authorized by all necessary corporate proceedings on
the part of Diana, and this Agreement constitutes the
valid and legally binding obligation of Diana,
enforceable in accordance with its terms, except to the
extent limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally, or by general
equitable principles.
4.3. Investment Representations and
______________________________
Covenants.
_________
(a) Diana is acquiring the Subject
Shares for investment, for Diana's own account and
not with a view to or for resale,
fractionalization, or division, in connection with
any distribution thereof in violation of the
Securities Act. Diana understands that the offer
and sale of the Subject Shares to Diana have not
been registered under the Securities Act or under
any state securities laws, by reason of exemptions
from the registration provisions of the Securities
Act, and the applicable state securities laws.
Accordingly, the Subject Shares are "restricted
securities" under the Securities Act and Diana
acknowledges and agrees that the Subject Shares
must be held indefinitely unless they are
subsequently registered under the Securities Act,
and any applicable state securities laws, or an
exemption from such registration is available, as
determined by the Company in its sole discretion.
<PAGE>
(b) Diana is familiar with, and Diana
has been given full access to, all information
concerning the business and financial condition,
properties, operations and prospects of the
Company that Diana has deemed relevant for
purposes of acquiring the Subject Shares. Diana
has had full opportunity to discuss with the
Company and Sattel the Company's business,
financial condition, properties, operations, and
prospects, and all such other matters as Diana has
deemed appropriate in connection with acquiring
the Subject Shares. Notwithstanding the
foregoing, nothing contained herein shall relieve
Sattel of its obligations pursuant to specific
representations and warranties made to Diana in
this Agreement.
(c) Diana is able to bear the economic
risk of making the investment in the Subject
Shares, including, without limiting the generality
of the foregoing, the risk of losing part of or
all Diana's investment and the possible inability
to sell or transfer the Subject Shares for an
indefinite period of time.
(d) By reason of Diana's knowledge and
experience in financial and business matters
concerning the Company (and in the prior Joint
Venture), Diana is capable of evaluating the
merits and risks of acquiring the Subject Shares.
5. Registration Rights. Diana hereby grants
___________________
to Sattel the registration rights set forth on Exhibit
_______
A, attached hereto and incorporated herein, with
__
respect to the Diana Shares (the "Registration
Rights").
6. Miscellaneous.
_____________
6.1. Successors and Assigns. This Agreement
______________________
shall be binding upon and inure to the benefit of the
parties and each of their respective successors and
assigns.
6.2. Severability. If any provision of this
____________
Agreement is held for any reason to be unenforceable by
a court of competent jurisdiction, the remainder of
this Agreement shall, nevertheless, remain in full
force and effect in such jurisdiction.
6.3. Use of Words. The use of the plural
____________
shall, when appropriate, include the singular and vice
versa. Section headings are for reference purposes
only and shall not affect the meaning or interpretation
of this Agreement or any provision hereof.
<PAGE>
6.4. Governing Law. This Agreement. shall
_____________
be governed by and construed in accordance with the
laws of Nevada without regard to the principles of
conflicts of law thereunder.
6.5. Entire Agreement. This Agreement and
________________
the documents and instruments delivered in connection
with this Agreement constitute the entire agreement
among the parties and all prior agreements,
correspondence, discussions and understandings of the
parties are merged and made a part of this Agreement.
6.6. Notices. Any notice required or
_______
permitted to be given or made by either party to the
other hereunder shall be deemed delivered if hand
delivered, five (5) days after mailed postage prepaid,
one (1) business day after being sent by prepaid
express or courier delivery service or one (1) business
day after being sent by facsimile transmission and
actually received by receiving equipment to the parties
at their respective addresses set forth opposite the
signatures hereto or to such changed address as either
party shall designate by proper notice to the other.
6.7. Counterparts. This Agreement may be
____________
executed in one or more counterparts, each of which
shall be deemed an original, but all of which shall
constitute one and the same instrument.
6.8. Reorganization. It is anticipated that
______________
the exchange of Subject Shares for the Diana Shares
will qualify as a "reorganization" under Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as
amended. However, each party has made its own
determination, with advice of its counsel, regarding
how the transaction will be treated for tax purposes
and is not relying upon the other party or its counsel
with respect to such treatment. Both Diana and Sattel
agree to report the transaction as a reorganization
under section 368(a)(i)(b) for income tax purposes.
6.9. Tax Returns. It is understood that the
___________
Company will report its income, or loss, for the period
ending on the date of Closing as a separate taxpayer,
but thereafter will become a member of the Diana
consolidated group.
<PAGE>
IN WITNESS WHEREOF, the undersigned have
executed this Agreement as of the date first above
written.
Address for Notice: THE DIANA CORPORATION
8200 W. Brown Deer Rd.
Milwaukee, WI 53223
Fax No. (414) 355-0815
By: /s/ Richard Y. Fisher
______________________
Richard Y. Fisher,
Chairman
With a copy to:
Godfrey & Kahn, S.C.
780 N. Water Street
Milwaukee, WI 53202
Attn: Kenneth C. Hunt
Fax No. (414) 273-5198
Address for Notice: SATTEL TECHNOLOGIES, INC.
9145 Deering Ave.
Chatsworth, CA 91311
Fax No. (818) 785-0629
By: /s/ George M. Weischadle
________________________
George Weischadle,
Chairman
With a copy to:
Fulbright & Jaworski, LLP
865 South Figueroa Street
29th Floor
Los Angeles, CA 90017
Attn: Timothy R. Greenleaf
Paul S. Blencoe
Fax No. (213) 680-4518
<PAGE>
EXHIBIT A
TO
EXCHANGE AGREEMENT
REGISTRATION RIGHTS
___________________
1. Initial Registration. Promptly (but in
____________________
no event later than twenty (20) days) after the
closing, Diana shall file with the Securities and
Exchange commission (the "commission") and use its
reasonable best efforts to cause to become effective a
Registration Statement (the "Registration Statement")
on a proper form to be selected by Diana under and
complying with the Securities Act of 1933 as amended
(the "Securities Act") with respect to the offering by
Sattel of the three hundred fifty thousand (350,000)
Diana Shares. Diana shall keep the Registration
Statement effective until the earlier of the date on
which Sattel has transferred all of the Diana Shares or
January 11, 1998. Sattel shall be permitted to sell
under the Registration Statement, up to fifty thousand
(50,000) Diana Shares at any time following the date on
which the Registration Statement becomes effective, an
additional one hundred fifty thousand (150,000) Diana
Shares at any time after twelve (12) months following
the Closing, and the remaining one hundred fifty
thousand (150,000) Diana Shares at any time after
eighteen (18) months following the Closing; provided
that if the closing price on the New York Stock
Exchange ("NYSE") of a Diana Share shall on any date be
equal or greater than 125% of the closing price on the
NYSE of a Diana Share on the date of the Closing, then
Sattel shall thereafter be permitted to sell all of its
Diana Shares. Notwithstanding the foregoing, Sattel
shall notify Diana of, and obtain confirmation from
Diana prior to, any offers or sales by Sattel of Diana
Shares of no Blackout Condition. If Diana determines,
in its reasonable good faith judgement, that because of
the existence of, or in anticipation of, any
acquisition or financing activity, the unavailability
of any required financial statements as the result of
an actual, or proposed, acquisition, or the existence
of any other material non-public information (a
"Blackout Condition"), it would be materially adverse
to Diana for the registration of the Diana Shares to be
maintained effective, or to be filed and become
effective, or for the Diana Shares to be sold under the
Registration Statement, then Diana shall be entitled,
until such Blackout Condition no longer exists, or is
terminated or provided herein, to (i) if required by
law, cause the Registration Statement to be withdrawn
and the effectiveness of the Registration Statement to
be delayed or terminated; (ii) direct that Sattel not
make any public sales of Diana Shares; or (iii) in the
event the Registration Statement has not yet been
filed, to delay or not file the Registration
<PAGE>
Statement; provided that, unless Diana notifies Sattel of a
Blackout Condition, Sattel may sell 50,000 Diana Shares
within the first sixty (60) days following the
effective date of the Registration Statement without
further notice. Diana shall have one (1) business day
after the receipt of notice from Sattel to declare the
existence of a Blackout Condition. Diana's response
shall be communicated via personal delivery, telecopy
or overnight courier. If no timely response is
received by Sattel from Diana, Diana shall be deemed to
have permitted such sale. In the event Diana causes
the Registration Statement to be withdrawn or delayed
and terminated pursuant to clause (i), or clause (iii),
of the preceding sentence as a result of a Blackout
Condition, Diana shall file and use its reasonable best
efforts to cause the Registration Statement to become
effective promptly after a Blackout Condition ceases to
exist. For purposes hereof, a Blackout Condition other
than the unavailability of any required financial
statements shall be deemed to terminate on the earlier
of (i) the date such Blackout Condition ceases to exist
or (ii) thirty (30) days after Diana's determination
thereof, and a Blackout Condition which is the
unavailability of any required financial statements as
the result of an actual or proposed acquisition shall
be deemed to terminate on the earlier of (i) the date
such Blackout condition ceases to exist or (ii)
seventy-five (75) days after the closing date of such
acquisition. Sattel shall not to make any offers or
sales of Diana Shares to the public until the Blackout
Condition no longer exists or is terminated and shall
comply with any prospectus delivery requirements in
connection with Sattel's offer and sale of Diana Shares
under the Registration Statement. Sattel shall offer
and sell the Diana Shares only in accordance with the
plan of distribution described in the Registration
Statement.
2. Registration Procedures. Promptly after
_______________________
the Closing, Diana shall:
(a) prepare and file with the
Commission the Registration Statement, and use its
reasonable best efforts to cause such Registration
Statement to become and remain effective all as
set forth in paragraph 1;
(b) prepare and file with the
Commission such amendments to such Registration
Statement and supplements to the prospectus
contained therein as may be necessary to keep such
Registration Statement effective for such period
as may be reasonably necessary to effect the sale
of such securities;
(c) furnish to Sattel and to the
underwriters of the securities being registered
such reasonable number of
<PAGE>
copies of the Registration Statement, preliminary
prospectus, final prospectus and such other documents
as such underwriters may reasonably request in order to
facilitate the public offering of such securities;
(d) use its best efforts to register or
qualify the securities covered by such
Registration Statement under such state securities
or blue sky laws of such jurisdictions as Sattel
may reasonably request in writing except that
Diana shall not for any purpose be required to
execute a general consent to service of process or
to qualify to do business as a foreign corporation
in any jurisdiction wherein it is not so
qualified;
(e) notify Sattel promptly after it
shall receive notice thereof, of the time when
such Registration Statement has become effective
or a supplement to any prospectus forming a part
of such Registration Statement has been filed;
(f) notify Sattel promptly of any
request by the Commission for the amending or
supplementing of such Registration Statement or
prospectus or for additional information;
(g) prepare and file with the
Commission, promptly upon the request of Sattel
any amendments or supplements to such Registration
Statement or prospectus which, in the opinion of
counsel for Sattel is required under the
Securities Act or the rules and regulations
thereunder in connection with the distribution of
the Diana Shares by Sattel;
(h) prepare and promptly file with the
Commission and promptly notify Sattel of the
filing of such amendment or supplement to such
Registration Statement or prospectus as may be
necessary to correct any statements or omissions
if, at the time when a prospectus relating to such
securities is required to be delivered under the
Securities Act, any event shall have occurred as
the result of which any such prospectus or any
other prospectus as then in effect would include
an untrue statement of a material fact or omit to
state any material fact necessary to make the
statements therein, in the light of the
circumstances in which they were made, not
misleading;
(i) advise Sattel promptly after it
shall receive notice or obtain knowledge thereof,
of the issuance of any stop order by the
Commission suspending the effectiveness of
<PAGE>
such Registration Statement or the initiation or
threatening of any proceeding for that purpose and
promptly use its reasonable best efforts to
prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be
issued;
(j) not file any amendment or
supplement to such Registration Statement or
prospectus to which Sattel shall have reasonably
objected on the grounds that such amendment or
supplement does not comply in all material
respects with the requirements of the Securities
Act or the rules and regulations thereunder, after
having been furnished with a copy thereof at least
five business days prior to the filing thereof,
unless in the opinion of counsel for Diana the
filing of such amendment or supplement is
reasonably necessary to protect Diana from any
liabilities under any applicable federal or state
law and such filing will not violate applicable
law; and
(k) at the request of Sattel, in
connection with an underwritten offering of Diana
Shares, furnish: (i) an opinion, dated as of the
closing date, of the counsel representing Diana
for the purposes of such registration, addressed
to the underwriters, and to Sattel, covering such
matters as such underwriters and Sattel may
reasonably request; and (ii) letters dated as of
the effective date of the Registration Statement
and as of the closing date, from the independent
certified public accountants of Diana, addressed
to the underwriters, and to Sattel, covering such
matters as such underwriters and holder or holders
may reasonably request.
3. Expenses. With respect to the
________
registration of the Diana Shares pursuant to the
Registration Statement, Diana shall bear the following
fees, costs and expenses: all registration, filing and
NASD fees, printing expenses, fees and disbursements of
counsel and accountants for Diana, all internal Diana
expenses, all legal fees and disbursements and other
expenses of complying with state securities or blue sky
laws of any jurisdictions in which the securities to be
offered are to be registered or qualified, and the
premiums and other costs of policies of insurance
against liability (if any) arising out of such public
offering. Fees and disbursements of counsel and
accountants for Sattel, underwriting discounts and
commissions and transfer taxes relating to Diana
Shares, fees and disbursements of counsel for the
underwriter or underwriters of such securities (if
selling securityholders are required to bear such fees
and disbursements) and any other expenses incurred by
Sattel not expressly included above, shall be borne by
Sattel.
<PAGE>
4. Indemnification. Pursuant to the
_______________
registration of the Diana Shares hereunder:
(a) Diana will indemnify and hold
harmless Sattel, its directors and officers, and
any underwriter (as defined in the Securities Act)
for Sattel and each person, if any, who controls
Sattel or such underwriter within the meaning of
the Securities Act, from and against, and will
reimburse Sattel and each such underwriter and
controlling person with respect to, any and all
loss, damage, liability, cost and expense to which
Sattel or any such underwriter or controlling
person may become subject under the Securities Act
or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any
untrue statement or alleged untrue statement of
any material fact contained in such Registration
Statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission
to state therein a material fact required to be
stated therein or necessary to make the statements
therein, in light of the circumstances in which
they were made, not misleading; provided, however,
that Diana will not be liable in any such case to
the extent that any such loss, damage, liability,
cost or expense arises out of or is based upon an
untrue statement or alleged untrue statement or
omission or alleged omission so made in conformity
with information furnished by Sattel, such
underwriter or such controlling person in writing
specifically for use in the preparation thereof;
provided, however, that the foregoing indemnity
with respect to any preliminary prospectus shall
not inure to the benefit of any underwriter from
whom the person asserting any such loss, damage,
liability, cost or expense purchased Diana Shares,
or any persons controlling such underwriter, if a
copy of the prospectus (as then amended or
supplemented if Diana shall have furnished any
amendments or supplements thereto) was not sent or
given by or on behalf of such underwriter to such
person at or prior to the written confirmation of
the sale of Diana Shares to such person and if the
prospectus (as so amended or supplemented) would
have cured the defect giving rise to such loss,
damage, liability, cost or expense.
(b) Sattel will indemnify and hold
harmless Diana, its directors and officers, any
controlling person and any underwriter from and
against, and will reimburse Diana, its directors
and officers, any controlling person and any
underwriter with respect to, any and all loss,
damage, liability, cost or expense to which Diana
or any controlling person and/or any underwriter
may become subject
<PAGE>
under the Securities Act or otherwise, insofar as
such losses damages, liabilities, costs or expenses
are caused by any untrue or alleged untrue statement
of any material fact contained in such Registration
Statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or
are based upon the omission or the alleged omission
to state therein a material fact required to be stated
therein or necessary to make the statements
therein, in light of the circumstances in which
they were made, not misleading, in each case to
the extent, but only to the extent, that such
untrue statement or alleged untrue statement or
omission or alleged omission was so made in
reliance upon written information furnished by
Sattel specifically for use in the preparation
thereof.
(c) Promptly after receipt by an
indemnified party pursuant to the provisions of
paragraph (a) or (b) of this paragraph 4 of notice
of the commencement of any action involving the
subject matter of the foregoing indemnity
provisions such indemnified party will, if a claim
thereof is to be made against the indemnifying
party pursuant to the provisions of said paragraph
(a) or (b), promptly notify the indemnifying party
of the commencement thereof; but the omission to
so notify the indemnifying party will not relieve
it from any liability which it may have to any
indemnified party otherwise than hereunder. In
case such action is brought against any
indemnified party and it notifies the indemnifying
party of the commencement thereof, the
indemnifying party shall have the right to
participate in, and, to the extent that it may
wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof,
with counsel reasonably satisfactory to such
indemnified party, provided, however, if the
defendants in any action include both the
indemnified party and the indemnifying party and
if there is a conflict of interest which would
prevent counsel for the indemnifying party from
also representing the indemnified party, the
indemnified party or parties shall have the right
to select separate counsel to participate in the
defense of such action on behalf of such
indemnified party or parties, but in no event
shall the indemnifying parties be responsible for
more than one such additional firm for all
indemnified parties. After notice from the
indemnifying party to such indemnified party of
its election so to assume the defense thereof, the
indemnifying party will not be liable to such
indemnified party pursuant to the provisions of
said paragraph (a) or (b) for any legal or other
expense subsequently incurred by such indemnified
party in connection with the defense thereof other
than reasonable costs of investigation, unless
<PAGE>
(i) the indemnified party shall have employed counsel
in accordance with the proviso of the preceding
sentence, (ii) the indemnifying party shall not
have employed counsel satisfactory to the
indemnified party to represent the indemnified
party within a reasonable time after the notice of
the commencement of the action, or (iii) the
indemnifying party has authorized the employment
of counsel for the indemnified party at the
expense of the indemnifying party.
(d) If the indemnification provided for
in this paragraph 4 is unavailable or insufficient
to hold harmless an indemnified party under
paragraph (a) or (b) above, then each indemnifying
party shall contribute to the amount paid or
payable by such indemnified party as a result of
the losses, claims, damages or liabilities
referred to in paragraph (a) or (b) above, in such
proportion as is in such proportion as is
appropriate to reflect the relative fault of
Diana, the selling stockholders and the
underwriters in connection with the statements or
omissions that resulted in such losses, claims,
damages or liabilities, as well as any other
relevant equitable considerations. The relative
fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue
statement of a material fact or the omission or
alleged omission to state a material fact relates
to information supplied by Diana, the selling
stockholders or the underwriters and the parties'
relevant intent, knowledge, access to information
and opportunity to correct or prevent such untrue
statement or omission. Diana, the selling
stockholders and the underwriters shall agree that
it would not be just and equitable if
contributions pursuant to this paragraph (d) were
to be determined by pro rata allocation (even if
the underwriters were treated as one entity for
such purpose) or by any other method of allocation
which does not take account of the equitable
considerations referred to in the first sentence
of this paragraph (d). The amount paid by an
indemnified party as a result of the losses,
claims, damages or liabilities referred to in the
first sentence of this paragraph (d) shall be
deemed to include any legal or other expenses
reasonably incurred by such indemnified party in
connection with investigating or defending against
any action or claim which is the subject of this
paragraph (d) . No person guilty of fraudulent
misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of
such fraudulent misrepresentation.
5. Sattel Cooperation. Diana may require
__________________
Sattel to furnish Diana in a timely manner such
information with respect to
<PAGE>
Sattel and the distribution of Diana Stock as Diana may
from time to time reasonably request. In connection with
the registration of Diana Stock, Sattel will (a) cooperate
with Diana and the underwriter, if any, in preparing
the Registration Statement, (b) promptly supply Diana
and the underwriter with all information and documents
as the underwriter or Diana may deem reasonably
necessary, (c) discontinue sales of Diana Stock upon
notification of any stop order or suspension of the
effectiveness of the Registration Statement, (d) notify
Diana immediately upon any change in the plan of
distribution or other information concerning Sattel
described in the prospectus, (e) discontinue use of any
prospectus following notification by Diana that the
prospectus must be amended or supplemented, (f) comply
with the applicable requirements of Rules 10b-5 and
10b-6 under the Securities Exchange Act of 1934, as
amended, (g) not use any prospectus other than the most
recent prospectus included in the Registration
Statement, and (h) otherwise comply with the prospectus
delivery requirements under the Securities Act.
6. Defined Terms. Terms with initial
_____________
capital letters not otherwise defined herein shall have
the meaning assigned in the Exchange Agreement to which
these Registration Rights are an exhibit.
7. Assignment. Sattel's rights under this
__________
agreement may be assigned, in whole or in part, to any
subsequent transferee of Sattel's Diana shares,
including, without limitation, any pledgee of such
Diana Shares.
8. Notices. All notices hereunder shall be
_______
in writing and shall be deemed to have been duly given
upon delivery if delivered personally, twenty-four (24)
hours after transmission by telecopy with answerback,
12:00 p.m. (noon) of the next business day after being
sent via overnight courier, and five (5) days after
being mailed, certified return receipt requested.
Actual notice, however given, shall always be
effective.
<PAGE>
EXHIBIT 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the
caption "Experts" in the Registration Statement (Form
S-3) and related Prospectus of The Diana Corporation
for the registration of 350,000 shares of its common
stock and to the incorporation by reference therein of
our report dated June 2, 1995, except for Note 3 as to
which the date is June 28, 1995, with respect to the
consolidated financial statements and schedules of The
Diana Corporation included in its Annual Report (Form
10-K) for the fiscal year ended April 1, 1995, filed
with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin ERNST & YOUNG LLP
February 19, 1996
