<PAGE>
FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 34-26589, eff. 4/12/89)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended June 30, 1994
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____________ to _______________
Commission file number 1-3940
National-Standard Company
(Exact name of registrant as specified in its charter)
Indiana 38-1493458
(State or other jurisdiction of (Employer Identification No.)
incorporation or organization)
1618 Terminal Road, Niles, Michigan 49120
(Address of principal executive offices) (Zip Code)
(616) 683-8100
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
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requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Title of Each Class Shares Outstanding at August 2, 1994
Common Stock, $ .01 par value 5,365,690
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Part I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
National-Standard Company and Subsidiaries
Consolidated Statements of Operations (Unaudited)
($000, Except Per Share Amounts)
Three Months Ended Nine Months Ended
June 30 June 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net Sale $ 52,534 $ 52,160 $ 162,827 $ 159,006
Cost of sales 46,520 46,301 145,423 139,742
Gross pofit 6,014 5,859 17,404 19,264
Selling and administrative expenses 4,564 4,769 18,200 15,275
Operating income (loss) 1,450 1,090 (796) 3,989
Interest expense (982) (935) (2,783) (3,035)
Other income (expense), net 209 57 413 (54)
Income (loss) before income taxes
and effect of accounting change 677 212 (3,166) 900
Income taxes 4 (17) 68 -
Net income (loss) before effect
of accounting change 673 229 (3,234) 900
Effect of accounting change - - - (48,676)
Net income (loss) $ 673 $ 229 $ (3,234) $ (47,776)
Income (loss) per share before
effect of accounting change $ .13 $ .04 $ (.60) $ .18
Income (loss) per share $ .13 $ .04 $ (.60) $ (9.57)
Dividends per share $ 0.00 $ 0.00 $ 0.00 $ 0.00
Average shares outstanding 5,365,673 5,351,661 5,364,864 4,992,845
See accompanying notes to financial statements.
</TABLE>
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National-Standard Company and Subsidiaries
Consolidated Balance Sheets
($000)
<TABLE>
<CAPTION>
June 30, 1994 September 30, 1993
Assets (Unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash $ 437 $ 339
Receivables, net 22,893 24,842
Inventories:
Raw material $ 12,693 $ 8,977
Work-in-process 13,810 13,896
Finished goods 1,318 1,688
Supplies 1,511 29,332 58 24,619
Prepaid expenses 4,854 3,477
Other current assets 751 627
Total current assets $ 58,267 $ 53,904
Property, plant and equipment $152,280 $148,798
Less accumulated depreciation 111,595 40,685 107,239 41,559
Other assets 11,361 8,513
$110,313 $ 103,976
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 29,871 $ 31,342
Employee compensation and benefits 2,650 2,073
Accrued pension 266 106
Other accrued expenses 10,493 7,278
Current accrued postretirement benefit cost 4,150 4,150
Notes payable to banks and current portion
of long-term debt 6,976 8,994
Total current liabilities $ 54,406 $ 53,943
Other long-term liabilities 5,222 5,481
Long-term debt 33,141 24,100
Accrued postretirement benefit cost 45,279 45,279
Stockholders equity:
Common stock $ .01 par value. Authorized
25,000,000 shares; issued 5,376,526 and
5,368,026 shares, respectively $ 27,384 $ 26,932
Retained deficit (51,809) 48,574)
$(24,425) $(21,642)
Less:Foreign currency translation
adjustments 2,514 2,425
Note receivable ESOP common stock - 17
Unamortized value of restricted stock 80 42
Treasury stock, at cost, 10,836 and
10,388 shares, respectively 82 67
Excess of additional pension liability
over unrecognized prior service cost 634 (27,735) 634 (24,827)
$110,313 $ 103,976
See accompanying notes to financial statements.
</TABLE>
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National-Standard Company and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
($000)
<TABLE>
<CAPTION>
Nine Months Ended
June 30
1994 1993
<S> <C> <C>
Net cash provided by (used for) operating
activities $ (1,744) $ 6,759
Investing Activities:
Capital expenditures (5,034) (2,566)
Proceeds from sales of operations - 2,037
Net cash used for investing activities (5,034) (529)
Financing Activities:
Proceeds from long-term financing arrangement 34,501 -
Debt repayments, net (27,627) (7,216)
Other 2 851
Net cash provided by (used for) financing
activities 6,876 (6,365)
Net increase (decrease) in cash 98 (135)
Beginning cash 339 1,417
Ending cash $ 437 $ 1,282
Supplemental Disclosures:
Interest paid $ 3,196 $ 3,115
Income taxes paid $ 56 $ -
See accompanying notes to financial statements.
</TABLE>
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National-Standard Company and Subsidiaries
Notes to Consolidated Financial Statements
1. In the opinion of management, all adjustments necessary for a
fair statement of the financial statements for the interim
periods included herein have been made. All such adjustments
are of a normal recurring nature.
The accounting policies followed by the Company are set forth
in Note 1 to the Company's financial statements in the 1993
National-Standard Company Form 10-K, Annual Report.
2. The results of operations for the nine-month period ended
June 30, 1994 are not necessarily indicative of the results
to be expected for the full year.
3. During the fourth quarter of 1993, the Company adopted
Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions," retroactive to the beginning of 1993. The results
of operations for the nine-month period ended June 30, 1993
have been restated to reflect the effect of the change in the
accounting method.
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National-Standard Company and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net sales for the three and nine months ended June 30, 1994
increased .7% and 2.4%, respectively, over the same periods last
year. Gross margin percentages were 11.4% and 10.7%,
respectively, for the current three- and nine-month periods
compared to 11.2% and 12.1%, respectively, for the same periods
last year. The gross margin decrease for the current nine-month
period is a result of costs associated with the work stoppage
noted below.
The Company continues to experience an increase in demand for
most of its product lines. Continued strengthening in the air
bag and rechargeable battery materials business resulted in nine-
month sales of these products increasing more than 50% over the
comparable period last year. Wire sales and gross margins for
the current three- and nine-month periods continued to be
adversely affected by the work stoppage at the Columbiana,
Alabama wire drawing facility. Additional costs incurred to meet
customer commitments were in excess of $1.0 million and $3.6
million in the current three- and nine-month periods,
respectively. The Company announced during the first quarter
that it anticipated the Columbiana facility closing by June 1994.
The facility was closed according to schedule. The Company has
taken a $4.9 million charge to earnings, as reflected in the
first quarter of 1994 selling and administrative expenses, for
costs associated with the close of the Columbiana facility and
relocation of a portion of its bead and hose wire production
capacity to other National-Standard facilities.
International operations had a loss of $0.2 million in the
current three-month period and was break-even in the current
nine-month period compared to income of $0.4 million and break-
even for the same periods last year. Operations in the United
Kingdom continue to be scaled back to match current levels of
market demand for the Company's products served from the United
Kingdom.
Interest expense of $1.0 million and $2.8 million, respectively,
in the current three- and nine-month periods increased by 5.0%
and decreased by 8.3%, respectively, from the same periods last
year. The changes are due to the combined effect of lower
interest rates and the lower level of borrowing throughout most
of the nine-month period prior to the increased borrowing level
resulting from the third-quarter refinancing discussed under
Liquidity and Capital Resources.
The Company remains in an operating loss carryforward position in
the United States, Canada, and the United Kingdom and is unable
to recognize a tax benefit on losses, except to the extent it can
offset tax expense on current income.
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Liquidity and Capital Resources
During the quarter, the Company announced a new long-term
financing arrangement replacing its then current group of North
American lenders.
The new two-year agreement will provide for up to $45.0 million
in revolving credit facilities, term loans, and a line of credit
for future capital expenditures. The loans mature in October
1996 and are fully secured by the Company's assets.
Total borrowings for the three and nine months ended June 30,
1994 increased $4.9 million and $6.9 million, respectively, over
the same periods last year. The increase is due to utilization
of the new financing to reduce accounts payable, fund additional
working capital needs, fund relocation and rationalization of
production capacity and to make necessary capital expenditures.
The Company believes adequate funding is in place to fund future
growth and meet the growing demand for our products.
The Company will continue to pursue cost reduction activities in
both its domestic and international operations, including
personnel reductions and costs associated with administering its
employee benefit programs.
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Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
(10) Material Contracts - Exhibit (10) includes
the Loan and Security Agreement by and between
National-Standard Company and Foothill Capital
Corporation dated as of May 24, 1994.
(b) There were no reports on Form 8-K filed for the
three months ended June 30, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
NATIONAL-STANDARD COMPANY
Registrant
Date August 5, 1994 /s/ M. B. Savitske
M. B. Savitske
President and Chief Executive
Officer
Date August 5, 1994 /s/ W. D. Grafer
W. D. Grafer
Vice President, Finance
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LOAN AND SECURITY AGREEMENT
by and between
NATIONAL-STANDARD COMPANY
and
FOOTHILL CAPITAL CORPORATION
Dated as of May 24, 1994
<PAGE>
TABLE OF CONTENTS
PAGE
1. DEFINITIONS AND CONSTRUCTION. . . . . . . . . . . . . .
1.1 Definitions . . . . . . . . . . . . . . . . . . .
1.2 ACCOUNTING TERMS . . . . . . . . . . . . . . . . .
1.3 CODE . . . . . . . . . . . . . . . . . . . . . . .
1.4 CONSTRUCTION . . . . . . . . . . . . . . . . . . .
1.5 SCHEDULES AND EXHIBITS. . . . . . . . . . . . . .
2. LOAN AND TERMS OF PAYMENT . . . . . . . . . . . . . . .
2.1 REVOLVING ADVANCES. . . . . . . . . . . . . . . .
2.2 LETTERS OF CREDIT AND LETTER OF CREDIT
GUARANTEES. . . . . . . . . . . . . . . . . . . .
2.3 EQUIPMENT TERM LOAN, REAL PROPERTY TERM LOAN,
AND NEW EQUIPMENT TERM LOAN COMMITMENT;
VOLUNTARY PREPAYMENT; MANDATORY PREPAYMENT . . . .
2.4 OVERADVANCES . . . . . . . . . . . . . . . . . . .
2.5 INTEREST: RATES, PAYMENTS, AND CALCULATIONS . . .
2.6 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS . .
2.7 STATEMENTS OF OBLIGATIONS . . . . . . . . . . . .
2.8 FEES . . . . . . . . . . . . . . . . . . . . . . .
3. CONDITIONS; TERM OF AGREEMENT . . . . . . . . . . . . .
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE, INITIAL
L/C OR L/C GUARANTY, THE EQUIPMENT TERM LOAN,
THE REAL PROPERTY TERM LOAN, OR INITIAL FUNDING
UNDER THE NEW EQUIPMENT TERM LOAN COMMITMENT . . .
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES, L/CS, L/C
GUARANTEES, THE EQUIPMENT TERM LOAN, THE REAL
PROPERTY TERM LOAN, OR FUNDINGS UNDER THE NEW
EQUIPMENT TERM LOAN COMMITMENT. . . . . . . . . .
3.3 CONDITIONS SUBSEQUENT TO ALL ADVANCES, L/CS, L/C
GUARANTEES, THE EQUIPMENT TERM LOAN, THE REAL
PROPERTY TERM LOAN, AND FUNDINGS UNDER THE NEW
EQUIPMENT TERM LOAN COMMITMENT. . . . . . . . . .
3.4 TERM . . . . . . . . . . . . . . . . . . . . . . .
3.5 EFFECT OF TERMINATION . . . . . . . . . . . . . .
3.6 EARLY TERMINATION BY BORROWER . . . . . . . . . .
3.7 TERMINATION UPON EVENT OF DEFAULT . . . . . . . .
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4. CREATION OF SECURITY INTEREST . . . . . . . . . . . . .
4.1 GRANT OF SECURITY INTEREST . . . . . . . . . . . .
4.2 NEGOTIABLE COLLATERAL . . . . . . . . . . . . . .
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES,
NEGOTIABLE COLLATERAL . . . . . . . . . . . . . .
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED . .
4.5 POWER OF ATTORNEY . . . . . . . . . . . . . . . .
4.6 RIGHT TO INSPECT . . . . . . . . . . . . . . . . .
5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . .
5.1 NO PRIOR ENCUMBRANCES . . . . . . . . . . . . . .
5.2 ELIGIBLE ACCOUNTS . . . . . . . . . . . . . . . .
5.3 ELIGIBLE INVENTORY . . . . . . . . . . . . . . . .
5.4 LOCATION OF INVENTORY AND EQUIPMENT . . . . . . .
5.5 INVENTORY RECORDS . . . . . . . . . . . . . . . .
5.6 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN . . . . .
5.7 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES .
5.8 DUE AUTHORIZATION; NO CONFLICT . . . . . . . . . .
5.9 LITIGATION . . . . . . . . . . . . . . . . . . . .
5.10 NO MATERIAL ADVERSE CHANGE IN FINANCIAL
CONDITION . . . . . . . . . . . . . . . . . . . .
5.11 SOLVENCY . . . . . . . . . . . . . . . . . . . . .
5.12 EMPLOYEE BENEFITS . . . . . . . . . . . . . . . .
5.13 ENVIRONMENTAL CONDITION . . . . . . . . . . . . .
5.14 RELIANCE BY FOOTHILL; CUMULATIVE . . . . . . . . .
6. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . .
6.1 ACCOUNTING SYSTEM . . . . . . . . . . . . . . . .
6.2 COLLATERAL REPORTS . . . . . . . . . . . . . . . .
6.3 SCHEDULES OF ACCOUNTS . . . . . . . . . . . . . .
6.4 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES . . .
6.5 TAX RETURNS . . . . . . . . . . . . . . . . . . .
6.6 GUARANTOR REPORTS . . . . . . . . . . . . . . . .
6.7 DESIGNATION OF INVENTORY . . . . . . . . . . . . .
6.8 RETURNS. . . . . . . . . . . . . . . . . . . . . .
6.9 TITLE TO EQUIPMENT . . . . . . . . . . . . . . . .
6.10 MAINTENANCE OF EQUIPMENT . . . . . . . . . . . . .
6.11 TAXES . . . . . . . . . . . . . . . . . . . . . .
6.12 INSURANCE . . . . . . . . . . . . . . . . . . . .
6.13 FINANCIAL COVENANTS . . . . . . . . . . . . . . .
6.14 NO SETOFFS OR COUNTERCLAIMS . . . . . . . . . . .
6.15 LOCATION OF INVENTORY AND EQUIPMENT . . . . . . .
6.16 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . .
6.17 EMPLOYEE BENEFITS . . . . . . . . . . . . . . . .
6.18 LEASES . . . . . . . . . . . . . . . . . . . . . .
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7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . .
7.1 INDEBTEDNESS . . . . . . . . . . . . . . . . . . .
7.2 LIENS . . . . . . . . . . . . . . . . . . . . . .
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES . . . . . . .
7.4 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF
ASSETS . . . . . . . . . . . . . . . . . . . . . .
7.5 CHANGE NAME . . . . . . . . . . . . . . . . . . .
7.6 GUARANTEE . . . . . . . . . . . . . . . . . . . .
7.7 RESTRUCTURE . . . . . . . . . . . . . . . . . . .
7.8 PREPAYMENTS . . . . . . . . . . . . . . . . . . .
7.9 CHANGE OF CONTROL . . . . . . . . . . . . . . . .
7.10 CAPITAL EXPENDITURES . . . . . . . . . . . . . . .
7.11 BILL AND HOLDS . . . . . . . . . . . . . . . . . .
7.12 DISTRIBUTIONS . . . . . . . . . . . . . . . . . .
7.13 ACCOUNTING METHODS . . . . . . . . . . . . . . . .
7.14 INVESTMENTS . . . . . . . . . . . . . . . . . . .
7.15 TRANSACTIONS WITH AFFILIATES . . . . . . . . . . .
7.16 SUSPENSION . . . . . . . . . . . . . . . . . . . .
7.17 USE OF PROCEEDS . . . . . . . . . . . . . . . . .
7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE;
INVENTORY AND EQUIPMENT WITH BAILEES . . . . . . .
8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . .
9. FOOTHILL'S RIGHTS AND REMEDIES . . . . . . . . . . . .
9.1 RIGHTS AND REMEDIES . . . . . . . . . . . . . . .
9.2 REMEDIES CUMULATIVE . . . . . . . . . . . . . . .
10. TAXES AND EXPENSES . . . . . . . . . . . . . . . . . .
11. WAIVERS; INDEMNIFICATION . . . . . . . . . . . . . . .
11.1 DEMAND; PROTEST; ETC. . . . . . . . . . . . . . .
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL . . . . . . .
11.3 INDEMNIFICATION . . . . . . . . . . . . . . . . .
12. NOTICES . . . . . . . . . . . . . . . . . . . . . . . .
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER . . . . . .
14. DESTRUCTION OF BORROWER'S DOCUMENTS . . . . . . . . . .
15. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . .
15.1 EFFECTIVENESS . . . . . . . . . . . . . . . . . .
15.2 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . .
15.3 SECTION HEADINGS . . . . . . . . . . . . . . . . .
15.4 INTERPRETATION . . . . . . . . . . . . . . . . . .
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15.5 SEVERABILITY OF PROVISIONS . . . . . . . . . . . .
15.6 AMENDMENTS IN WRITING . . . . . . . . . . . . . .
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION . . . . . .
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS . . . . .
15.9 INTEGRATION . . . . . . . . . . . . . . . . . . .
SCHEDULES
Schedule A-1 Abondoned Equipment
Schedule E-1 Eligible Inventory
Schedule P-1 Permitted Liens
Schedule R-1 Real Property
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LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT, is entered into as of May
24, 1994, between FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), with a place of business located at
11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California
90025-3333, and NATIONAL-STANDARD COMPANY, an Indiana corporation
("Borrower"), with its chief executive office located at 1618
Terminal Road, Niles, Michigan 49120.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the
following terms shall have the following definitions:
"Abandoned Equipment" means certain of Borrower's
Equipment composing plating and cleaning lines at its Columbiana,
Alabama location that it intends to leave in place after it
vacates the premises, the principal items of which are described
on Schedule A-1 attached hereto.
"Account Debtor" means any Person who is or who may
become obligated under, with respect to, or on account of an
Account.
"Accounts" means all currently existing and hereafter
arising accounts, contract rights, and all other forms of
obligations owing to Borrower or Guarantor arising out of the
sale or lease of goods or the rendition of services by Borrower
or Guarantor, irrespective of whether earned by performance, and
any and all credit insurance, guaranties, or security therefor.
"Affiliate" means, as applied to any Person, any other
Person directly or indirectly controlling, controlled by, or
under common control with, that Person. For purposes of this
definition, "control" as applied to any Person means the
possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that
Person, whether through the ownership of voting securities, by
contract, or otherwise.
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"Agreement" means this Loan and Security Agreement and
any extensions, supplements, amendments, or modifications to or
in connection with this Loan and Security Agreement.
"Authorized Officer" means any officer of Borrower.
"Average Unused Portion of the Maximum Revolving Credit
Amount" means (a) the Maximum Revolving Credit Amount; less (b)
(i) the average Daily Balance of advances made by Foothill under
Section 2.1 that were outstanding during the immediately
preceding month, plus (ii) the average Daily Balance of the
undrawn L/Cs and L/C Guarantees issued by Foothill under Section
2.2 that were outstanding during the immediately preceding month.
"Bankruptcy Code" means the United States Bankruptcy
Code (11 U.S.C. 101 et seq.), as amended, and any successor
statute.
"Borrower" has the meaning set forth in the preamble to
this Agreement.
"Borrower's Books" means all of Borrower's books and
records including: ledgers; records indicating, summarizing, or
evidencing Borrower's properties or assets (including the
Collateral or the Real Property) or liabilities; all information
relating to Borrower's business operations or financial
condition; and all computer programs, disc or tape files,
printouts, runs, or other computer prepared information, and the
equipment containing such information.
"Borrowing Base" has the meaning set forth in Section
2.1(a). For purposes of this definition, any amount that is
denominated in a currency other than Dollars shall be valued in
Dollars based on the applicable Exchange Rate for such currency
as of the date one day prior to the date of determination.
"Business Day" means any day which is not a Saturday,
Sunday, or other day on which national banks are authorized or
required to close.
"Change of Control" shall be deemed to have occurred at
such time as a "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934; exclusive, however, of National-Standard Company Master
Investment Trust or National-Standard Company Employees' Stock
Savings Trust) becomes the "beneficial owner" (as defined in Rule
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<PAGE>
13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of more than 15% of the total voting power of all
classes of stock then outstanding of Borrower normally entitled
to vote in the election of directors.
"Closing Date" means the date of the first to occur of:
the initial revolving advance hereunder, the initial issuance of
an L/C or an L/C Guaranty hereunder, the funding of the Equipment
Term Loan hereunder, the funding of the Real Property Term Loan
hereunder, or the initial funding under the New Equipment Term
Loan Commitment hereunder.
"Code" means the California Uniform Commercial Code.
"Collateral" means each of the following: the Accounts
of Borrower; Borrower's Books; the Equipment of Borrower; the
General Intangibles; the Inventory of Borrower; the Negotiable
Collateral; any money, or other assets of Borrower which now or
hereafter come into the possession, custody, or control of
Foothill; and the proceeds and products, whether tangible or
intangible, of any of the foregoing including proceeds of
insurance covering any or all of the Collateral, and any and all
Accounts of Borrower, Borrower's Books, Equipment of Borrower,
General Intangibles, Inventory of Borrower, Negotiable
Collateral, money, deposit accounts, or other tangible or
intangible property resulting from the sale, exchange,
collection, or other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds thereof.
"Consignment Agreements" means an agreement,
substantially in the form of Exhibit C-1 attached hereto, between
Foothill and each vendor that consigns Inventory to Borrower or
Guarantor.
"Consolidated Current Assets" means, as of any date of
determination, the aggregate amount of all current assets of
Borrower and its subsidiaries calculated on a consolidated basis
that would, in accordance with GAAP, be classified on a balance
sheet as current assets.
"Consolidated Current Liabilities" means, as of any
date of determination, the aggregate amount of all current
liabilities of Borrower and its subsidiaries, calculated on a
consolidated basis that would, in accordance with GAAP, be
classified on a balance sheet as current liabilities. For
purposes of this definition, all loans and advances outstanding
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under this Agreement shall be deemed to be current liabilities
without regard to whether they would be deemed to be so under
GAAP.
"Copyright Security Agreement" means a Copyright
Security Agreement, substantially in the form of Exhibit C-2
attached hereto, dated as of even date herewith, between Borrower
and Foothill.
"Daily Balance" means the amount of an Obligation owed
at the end of a given day.
"Dollars and $" means and refers to United States of
America dollars or such coin or currency of the United States of
America as at the time of payment shall be legal tender for the
payment of public and private debts in the United States of
America.
"Early Termination Premium" has the meaning set forth
in Section 3.6.
"Eligible Accounts" means Eligible Domestic Accounts
and Eligible Foreign Accounts.
"Eligible Canadian Finished Goods Inventory" means that
portion of Eligible Inventory consisting of finished goods that
are owned by Guarantor.
"Eligible Canadian Inventory" means that portion of
Eligible Inventory consisting of goods that are owned by
Guarantor.
"Eligible Canadian Raw Materials Inventory" means that
portion of Eligible Inventory consisting of raw materials that
are owned by Guarantor.
"Eligible Canadian Work-in-Process Inventory" means
that portion of Eligible Inventory consisting of in-process wire
of Guarantor.
"Eligible Domestic Accounts" means those Accounts
created by Borrower in the ordinary course of business that arise
out of Borrower's sale of goods or rendition of services, that
strictly comply with all of Borrower's representations and
warranties to Foothill, and that are and at all times shall
continue to be acceptable to Foothill in all respects; provided,
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however, that standards of eligibility may be fixed and revised
from time to time by Foothill in Foothill's reasonable credit
judgment. Eligible Domestic Accounts shall not include the
following:
(a) Accounts that the Account Debtor has failed
to pay within ninety (90) days of invoice date or Accounts with
selling terms of more than forty-five (45) days;
(b) Accounts with respect to which the Account
Debtor is an officer, employee, Affiliate, or agent of Borrower;
(c) Accounts with respect to which goods are
placed on consignment, guaranteed sale, sale or return, sale on
approval, bill and hold, or other terms by reason of which the
payment by the Account Debtor may be conditional;
(d) Accounts with respect to which the Account
Debtor is not a resident of the United States, and which are not
either (i) covered by credit insurance in form and amount, and by
an insurer, satisfactory to Foothill, or (ii) supported by one or
more letters of credit that are assignable by their terms and
have been delivered to Foothill in an amount, of a tenor, and
issued by a financial institution, acceptable to Foothill;
(e) Accounts with respect to which the Account
Debtor is the United States or any department, agency, or
instrumentality of the United States;
(f) Accounts with respect to which Borrower is or
may become liable to the Account Debtor for goods sold or
services rendered by the Account Debtor to Borrower;
(g) Accounts with respect to an Account Debtor
whose total obligations owing to Borrower exceed ten percent
(10%) of all Eligible Accounts, to the extent of the obligations
owing by such Account Debtor in excess of such percentage;
provided, however, that, in the case of Goodyear Tire & Rubber
Company, TRW Safety Systems, Inc., or Morton International, Inc.,
or in the case of any Account Debtor that is rated 5A1 by Dun &
Bradstreet, the total obligations owing to Borrower by such
Account Debtor must exceed twenty percent (20%) of all Eligible
Accounts before the excess would be deemed ineligible;
(h) Accounts with respect to which the Account
Debtor disputes liability or makes any claim with respect
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thereto, or is subject to any Insolvency Proceeding, or becomes
insolvent, or goes out of business;
(i) Accounts the collection of which Foothill, in
its reasonable credit judgment, believes to be doubtful by reason
of the Account Debtor's financial condition;
(j) Accounts owed by an Account Debtor that has
failed to pay fifty percent (50%) or more of its Accounts owed to
Borrower within ninety (90) days of the date of the applicable
invoices;
(k) Accounts that are payable in other than
Dollars; and
(l) Accounts that represent progress payments or
other advance billings that are due prior to the completion of
performance by Borrower of the subject contract for goods or
services.
"Eligible Domestic Finished Goods Inventory" means that
portion of Eligible Inventory consisting of finished goods that
are owned by Borrower.
"Eligible Domestic Raw Materials Inventory" means that
portion of Eligible Inventory consisting of raw materials that
are owned by Borrower.
"Eligible Domestic Work-in-Process Inventory" means
that portion of Eligible Inventory consisting of woven wire cloth
and in-process wire of Borrower.
"Eligible Foreign Accounts" means those Accounts that
do not qualify as Eligible Domestic Accounts solely because (a)
they are created by Guarantor instead of Borrower, and (b) (i)
the Account Debtor is a resident of Canada instead of the United
States of America, or (ii) the payments thereunder are payable in
Canadian dollars instead of Dollars.
"Eligible Inventory" means Inventory consisting of
first quality finished goods held for sale in the ordinary course
of Borrower's and Guarantor's respective businesses and raw
materials for and work-in-process of such finished goods, that
are located at Borrower's and Guarantor's premises identified on
Schedule E-1, are acceptable to Foothill in all respects, and
strictly comply with all of Borrower's and Guarantor's
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representations and warranties to Foothill. Eligible Inventory
shall not include slow moving (i.e., Inventory that was purchased
more than one year from the date of determination) or unsaleable
items, spare parts, packaging and shipping materials, supplies
used or consumed in Borrower's and Guarantor's respective
businesses, Inventory at any location other than those set forth
on Schedule E-1, Inventory subject to a security interest or lien
in favor of any third Person, bill and hold goods, Inventory that
is not subject to Foothill's perfected security interests,
returned or defective goods, "seconds," and Inventory acquired on
consignment. Eligible Inventory shall be valued at the lower of
Borrower's or Guarantor's, as the case may be, cost or market
value, net of the amount, without duplication, of the Reserves.
"Environmental Laws" means any and all federal, state,
and local laws, statutes, ordinances, codes, regulations, rules,
and other governmental restrictions or requirements relating to
the indoor or outdoor environment, health, or safety, including
the Federal Solid Waste Disposal Act, the Federal Clean Air Act,
the Federal Clean Water Act, the Federal Resource Conservation
and Recovery Act of 1976, the federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Federal
Hazardous Materials Transportation Act and the Federal
Occupational Safety and Health Act of 1970, and equivalent state
and local statutes as now or at any time hereafter in effect.
"Equipment" means all of Borrower's and Guarantor's
present and hereafter acquired machinery, machine tools, motors,
equipment, furniture, furnishings, fixtures, vehicles (including
motor vehicles and trailers), tools, parts, dies, jigs, goods
(other than consumer goods, farm products, or Inventory),
wherever located, and any interest of Borrower or Guarantor in
any of the foregoing, and all attachments, accessories,
accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located.
"Equipment Term Loan" means the term loan made, or to
be made, by Foothill to Borrower pursuant to the terms of Section
2.3(a) hereof.
"Equipment Term Note" has the meaning set forth in
Section 2.3(a) hereof.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, or any predecessor,
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successor, or superseding laws of the United States of America,
together with all regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether
or not incorporated) which, within the meaning of Section 414 of
the IRC, is: (i) under common control with Borrower;
(ii) treated, together with Borrower, as a single employer;
(iii) treated as a member of an affiliated service group of which
Borrower is also treated as a member; or (iv) is otherwise
aggregated with the Borrower for purposes of the employee
benefits requirements listed in IRC Section 414(m)(4).
"ERISA Event" shall mean any one or more of the
following: (i) a Reportable Event with respect to a Qualified
Plan or a Multiemployer Plan; (ii) a Prohibited Transaction with
respect to any Plan; (iii) a complete or partial withdrawal by
Borrower or any ERISA Affiliate from a Multiemployer Plan;
(iv) the complete or partial withdrawal of Borrower or an ERISA
Affiliate from a Qualified Plan during a plan year in which it
was, or was treated as, a "substantial employer" as defined in
Section 4001(a)(2) of ERISA; (v) a failure to make full payment
when due of all amounts which, under the provisions of any Plan
or applicable law, Borrower or any ERISA Affiliate is required to
make that is not the subject of a waiver by the Department of
Labor; (vi) the filing of a notice of intent to terminate, or the
treatment of a plan amendment as a termination, under Sections
4041 or 4041A of ERISA; (vii) an event or condition which might
reasonably be expected to constitute grounds under Section 4042
of ERISA for the termination of, or the appointment of a trustee
to administer, any Qualified Plan or Multiemployer Plan;
(viii) the imposition of any liability under Title IV of ERISA,
other than PBGC premiums due but not delinquent under Section
4007 of ERISA, upon Borrower or any ERISA Affiliate; and (ix) a
violation of the applicable requirements of Sections 404 or 405
of ERISA, or the exclusive benefit rule under Section 403(c) of
ERISA, by any fiduciary or disqualified person with respect to
any Plan for which Borrower or any ERISA Affiliate may be
directly or indirectly liable.
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"Event of Default" has the meaning set forth in Section
8.
"Exchange Rate" means and refers to the nominal rate of
exchange available to Foothill in a chosen foreign exchange
market for the purchase by Foothill at 12:00 noon, local time,
one Business Day prior to any date of determination, expressed as
the number of units of such currency per one (1) Dollar.
"FEIN" means Federal Employer Identification Number.
"Foothill" has the meaning set forth in the preamble to
this Agreement.
"Foothill Expenses" means all: costs or expenses
(including taxes, photocopying, notarization, telecommunication
and insurance premiums) required to be paid by Borrower or
Guarantor under any of the Loan Documents that are paid or
advanced by Foothill; documentation, filing, recording,
publication, appraisal (including periodic Collateral or Real
Property appraisals), real estate survey, environmental audit,
and search fees assessed, paid, or incurred by Foothill in
connection with Foothill's transactions with Borrower or
Guarantor; costs and expenses incurred by Foothill in the
disbursement of funds to Borrower (by wire transfer or
otherwise); charges paid or incurred by Foothill resulting from
the dishonor of checks; costs and expenses paid or incurred by
Foothill to correct any default or enforce any provision of the
Loan Documents, or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Collateral or the Real Property,
or any portion thereof, irrespective of whether a sale is
consummated; reasonable costs and expenses paid or incurred by
Foothill in examining Borrower's Books or Guarantor's Books (as
that term is defined in the Guaranty); costs and expenses of
third party claims or any other suit paid or incurred by Foothill
in enforcing or defending the Loan Documents; and Foothill's
reasonable attorneys fees and expenses incurred in advising,
structuring, drafting, reviewing, administering, amending,
terminating, enforcing (including reasonable attorneys fees and
expenses incurred in connection with a "workout," a
"restructuring," or an Insolvency Proceeding concerning Borrower
or any guarantor of the Obligations), defending, or concerning
the Loan Documents, irrespective of whether suit is brought.
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"GAAP" means generally accepted accounting principles
as in effect from time to time in the United States, consistently
applied.
"General Intangibles" means all of Borrower's present
and future general intangibles and other personal property
(including contract rights, rights arising under common law,
statutes, or regulations, choses or things in action, goodwill,
patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due
or recoverable from pension funds, route lists, rights to payment
and other rights under any royalty or licensing agreements,
infringements, claims, computer programs, computer discs,
computer tapes, literature, reports, catalogs, deposit accounts,
insurance premium rebates, tax refunds, and tax refund claims),
other than goods, Accounts, and Negotiable Collateral.
"Guarantor" means National-Standard Company of Canada,
Limited, a Canadian corporation.
"Guaranty" means that certain General Continuing
Guaranty dated as of even date herewith by Guarantor in favor of
Foothill and in the form of Exhibit G-1.
"Hazardous Materials" includes any flammable or
explosive material, radioactive material, hazardous waste, or
hazardous or toxic substance or chemical as defined in any
Environmental Law, including petroleum, crude oil, and fractions
derived therefrom.
"Indebtedness" shall mean: (a) all obligations of
Borrower for borrowed money; (b) all obligations of Borrower
evidenced by bonds, debentures, notes, or other similar
instruments and all reimbursement or other obligations of
Borrower in respect of letters of credit, letter of credit
guaranties, bankers acceptances, interest rate swaps, controlled
disbursement accounts, or other financial products; (c) all
obligations under capital leases; (d) all obligations or
liabilities of others secured by a lien or security interest on
any property or asset of Borrower, irrespective of whether such
obligation or liability is assumed; and (e) any obligation of
Borrower guaranteeing or intended to guarantee (whether
guaranteed, endorsed, co-made, discounted, or sold with recourse
to Borrower) any indebtedness, lease, dividend, letter of credit,
or other obligation of any other Person.
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"Insolvency Proceeding" means any proceeding commenced
by or against any Person under any provision of the Bankruptcy
Code or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal
moratoria, compositions, extensions generally with its creditors,
or proceedings seeking reorganization, arrangement, or other
similar relief.
"Inventory" means all present and future inventory in
which Borrower or Guarantor has any interest, including goods
held for sale or lease or to be furnished under a contract of
service and all of Borrower's and Guarantor's present and future
raw materials, work in process, finished goods, and packing and
shipping materials, wherever located, and any documents of title
representing any of the above.
"IRC" means the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
"Joint Venture" means the joint venture formed pursuant
to that certain Joint Venture Agreement by and among Borrower,
Toyota Tsusho America, Fujita Kanaami, Mr. H. Igarashi, and Mr.
H. Hino.
"L/C" has the meaning set forth in Section 2.2(a).
"L/C Guaranty" has the meaning set forth in Section
2.2(a).
"Loan Documents" means this Agreement, the Lockbox
Agreements, the Mortgages, the Patent Collateral Assignment, the
Trademark Security Agreement, the Copyright Security Agreement,
the Stock Pledge Agreement, the Equipment Term Note, the Real
Property Term Note, the New Equipment Term Note, any other note
or notes executed by Borrower and payable to Foothill, the
Guaranty, the Security Agreement, the Warrant Purchase Agreement,
and any other agreement entered into in connection with this
Agreement.
"Lockbox Account" shall mean the depositary account
established pursuant to the respective Lockbox Agreement.
"Lockbox Agreements" means those certain Lockbox
Operating Procedural Agreements and those certain Depository
Account Agreements, in form and substance satisfactory to
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Foothill, each of which is among Borrower or Guarantor, as
applicable, Foothill, and one of the Lockbox Banks.
"Lockbox Banks" means, in the United States, NBD, and,
in Canada, RBC.
"Machinery and Equipment" means any Equipment other
than that which is purchased with, or financed by, the proceeds
of a New Equipment Term Loan.
"Maximum Revolving Credit Amount" has the meaning set
forth in Section 2.1.
"Mortgages" means one or more mortgages, deeds of
trust, or deeds to secure debt, executed by Borrower in favor of
Foothill, the form and substance of which shall be satisfactory
to Foothill, that encumber the Real Property and the related
improvements thereto.
"Multiemployer Plan" shall mean a multiemployer plan as
defined in Sections 3(37) or 4001(a)(3) of ERISA or Section 414
of the IRC in which employees of Borrower or an ERISA Affiliate
participate or to which Borrower or any ERISA Affiliate
contribute or are required to contribute.
"NBD" means NBD Bank, N.A., a national banking
association.
"NSC-UK" means National-Standard Company, Ltd., a
company organized under the laws of England.
"Negotiable Collateral" means all of Borrower's present
and future letters of credit, notes, drafts, instruments,
certificated and uncertificated securities (including the shares
of stock of subsidiaries of Borrower), documents, personal
property leases (wherein Borrower is the lessor), chattel paper,
and Borrower's Books relating to any of the foregoing.
"New Equipment" means any Equipment that is purchased
with, or financed by, the proceeds of a New Equipment Term Loan.
"New Equipment Term Loan" means one or more of the term
loans made, or to be made, by Foothill to Borrower pursuant to
the terms of Section 2.3(c) hereof.
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"New Equipment Term Loan Commitment" has the meaning
set forth in Section 2.3(c) hereof.
"New Equipment Term Note" has the meaning set forth in
Section 2.3(c) hereof.
"Obligations" means all loans, advances, debts,
principal, interest (including any interest that, but for the
provisions of the Bankruptcy Code, would have accrued),
contingent reimbursement obligations owing to Foothill under any
outstanding L/Cs or L/C Guarantees, premiums (including Early
Termination Premiums), liabilities (including all amounts charged
to Borrower's loan account pursuant to any agreement authorizing
Foothill to charge Borrower's loan account), obligations, fees,
lease payments, guaranties, covenants, and duties owing by
Borrower or Guarantor to Foothill of any kind and description
(whether pursuant to or evidenced by the Loan Documents, by any
note or other instrument (including the Equipment Term Note, the
Real Property Term Note, and the New Equipment Term Note), or
pursuant to any other agreement between Foothill and Borrower,
and irrespective of whether for the payment of money), whether
direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, and including any debt,
liability, or obligation owing from Borrower to others that
Foothill may have obtained by assignment or otherwise, and
further including all interest not paid when due and all Foothill
Expenses that Borrower or Guarantor is required to pay or
reimburse by the Loan Documents, by law, or otherwise.
"Old Foothill Term Loan Agreement" means that certain
Term Loan and Security Agreement, dated as April 10, 1991,
between Foothill and Borrower, as amended, restated,
supplemented, or otherwise modified from time to time.
"Old Lenders' Agent" means NBD, as agent for the Old
Lenders.
"Old Lenders" means (a) as to Borrower, NBD, Commerica
Bank (formerly known as Manufacturers National Bank of Detroit),
National Westminster Bank USA, New York Life Insurance Company,
Massachusetts Life Insurance Company, Principal Mutual Life
Insurance Company, The Franklin Life Insurance Company, Pacific
Mutual Life Insurance Company, and Boulevard Bank, N.A., and (b)
as to Guarantor, RBC.
"Overadvance" has the meaning set forth in Section 2.4.
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"Participant" means any Person, other than Foothill,
that has committed to provide a portion of the financing
contemplated herein.
"Patent Security Agreement" means a Patent Security
Agreement, substantially in the form of Exhibit P-1 attached
hereto, dated as of even date herewith, between Borrower and
Foothill.
"Pay-Off Letters" mean letters, in form and substance
reasonably satisfactory to Foothill, from each Old Lender
respecting the amount necessary to repay in full all of the
obligations of Borrower or Guarantor, as applicable, owing to
that Old Lender and obtain a termination or release of all of the
security interests or liens existing in favor of that Old Lender
(or the Old Lenders' Agent, on behalf thereof) in and to the
properties or assets of Borrower or Guarantor, as applicable.
"PBGC" means the Pension Benefit Guaranty Corporation
as defined in Title IV of ERISA, or any successor thereto.
"Permitted Liens" means: (a) liens and security
interests held by Foothill; (b) liens for unpaid taxes that are
not yet due and payable and liens for taxes (other than those
that give rise to a tax lien that has priority over the security
interests of Foothill in and to the Collateral) that are the
subject of a good faith Permitted Protest; (c) liens and security
interests set forth on Schedule P-1 attached hereto; (d) purchase
money security interests and liens of lessors under capital
leases to the extent that the acquisition or lease of the
underlying asset was permitted under Section 7.10, and so long as
the security interest or lien only secures the purchase price of
the asset; (e) easements, rights of way, reservations, covenants,
conditions, restrictions, zoning variances, and other similar
encumbrances that do not materially interfere with the use or
value of the property subject thereto; (f) obligations and duties
as lessee under any lease existing on the date of this Agreement;
(g) mechanics', materialmen's, warehousemen's, or similar liens
that arise by operation of law; (h) exceptions listed in the
title insurance or commitment therefor to be delivered by
Borrower hereunder in respect of the Real Property; and (i) liens
incurred in the ordinary course of business in connection with
worker's compensation, unemployment insurance, or other forms of
governmental insurance or benefits or to secure performance of
tenders, statutory obligations, leases, and contracts (other than
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for borrowed money) entered into in the ordinary course of
business.
"Permitted Protest" means the right of Borrower to
protest any lien, tax, rental payment, or other charge, other
than any such lien or charge that secures the Obligations, pro-
vided (i) a reserve with respect to such obligation is
established on the books of Borrower in an amount that is
reasonably satisfactory to Foothill, (ii) any such protest is
instituted and diligently prosecuted by Borrower in good faith,
and (iii) Foothill is satisfied that, while any such protest is
pending, there will be no impairment of the enforceability,
validity, or priority of any of the liens or security interests
of Foothill in and to the property or assets of Borrower.
"Person" means and includes natural persons,
corporations, limited
partnerships, general partnerships, joint ventures, trusts, land
trusts, business trusts, or other organizations, irrespective of
whether they are legal entities, and governments and agencies and
political subdivisions thereof.
"Plan" means an employee benefit plan (as defined in
Section 3(3) of ERISA) which Borrower or any ERISA Affiliate
sponsors or maintains or to which Borrower or any ERISA Affiliate
makes, is making, or is obligated to make contributions,
including any Multiemployer Plan or Qualified Plan.
"Prohibited Transaction" means any transaction
described in Section 406 of ERISA which is not exempt by reason
of Section 408 of ERISA, and any transaction described in Section
4975(c) of the IRC which is not exempt by reason of Section
4975(c) of the IRC.
"Projections" means Borrower's forecasted consolidated
and consolidating: (a) balance sheets; (b) profit and loss
statements; and (c) cash flow statements, all prepared on a basis
consistent with Borrower's historical financial statements,
together with appropriate supporting details and a statement of
underlying assumptions.
"Proportionate Value of the New Equipment" means, in
connection with a sale or other disposition of Machinery and
Equipment and New Equipment, but no Real Property, the amount
derived by (a) determining the liquidation value of the subject
Machinery and Equipment (as such value has been estimated by an
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auctioneer selected by Foothill), (b) determining the liquidation
value of the subject New Equipment (as such value has been
estimated by an auctioneer selected by Foothill), (c) determining
the percentage produced by dividing the amount of (b) by the sum
of (a) plus (b), and (d) multiplying the percentage determined in
(c) times the aggregate net proceeds of such sale or other
disposition.
"Proportionate Value of the Real Property" means, in
connection with a sale or other disposition of Machinery and
Equipment or New Equipment, on the one hand, and Real Property,
on the other hand, the amount derived by (a) determining the
liquidation value of the subject Machinery and Equipment or New
Equipment, as applicable (as such value or values have been
estimated by an auctioneer selected by Foothill), (b) determining
the liquidation value of the subject Real Property (as such value
has been estimated by an auctioneer selected by Foothill), (c)
determining the percentage produced by dividing the amount of (b)
by the sum of (a) plus (b), and (d) multiplying the percentage
determined in (c) times the aggregate net proceeds of such sale
or other disposition.
"Qualified Plan" means a pension plan (as defined in
Section 3(2) of ERISA) intended to be tax-qualified under Section
401(a) of the IRC which Borrower or any ERISA Affiliate sponsors,
maintains, or to which any such person makes, is making, or is
obligated to make, contributions, or, in the case of a multiple-
employer plan (as described in Section 4064(a) of ERISA), has
made contributions at any time during the immediately preceding
period covering at least five (5) plan years, but excluding any
Multiemployer Plan.
"RBC" means The Royal Bank of Canada.
"Real Property" means the parcel or parcels of real
property and the related improvements thereto identified on
Schedule R-1, and any parcels of real property hereafter acquired
by Borrower.
"Real Property Term Loan" means the term loan made, or
to be made, by Foothill to Borrower pursuant to the terms of
Section 2.3(b) hereof.
"Real Property Term Note" has the meaning set forth in
Section 2.3(b) hereof.
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"Reference Rate" means the highest of the variable
rates of interest, per annum, most recently announced by (a) Bank
of America, N.T. & S.A., (b) Mellon Bank, N.A., and (c) Citibank,
N.A., or any successor to any of the foregoing institutions, as
its "prime rate" or "reference rate," as the case may be,
irrespective of whether such announced rate is the best rate
available from such financial institution.
"Reportable Event" shall mean any event described in
Section 4043 (other than Subsections (b)(7) and (b)(9)) of ERISA.
"Real Property Reserve" means an amount, determined by
Foothill in its reasonable discretion, sufficient to discharge
any liens, charges, or encumbrances against the Real Property
that have, or are claimed to have, priority over the liens
created under the Mortgages in favor of Foothill.
"Reserves" means the shrinkage reserve, the
obsolescence reserve, and the reconciliation variance, in amounts
deemed satisfactory by Foothill in its reasonable judgment.
"Security Agreement" means that certain Security
Agreement, dated as of even date herewith, between Guarantor and
Foothill and in the form of Exhibit S-1.
"Solvent" means, with respect to any Person on a
particular date, that on such date (a) at fair valuations, all of
the properties and assets of such Person are greater than the sum
of the debts, including contingent liabilities, of such Person,
(b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required
to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize
upon its properties and assets and pay its debts and other
liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (d) such Person does not
intend to, and does not believe that it will, incur debts beyond
such Person's ability to pay as such debts mature, and (e) such
Person is not engaged in business or a transaction, and is not
about to engage in business or a transaction, for which such
Person's properties and assets would constitute unreasonably
small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In
computing the amount of contingent liabilities at any time, it is
intended that such liabilities will be computed at the amount
that, in light of all the facts and circumstances existing at
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such time, represents the amount that reasonably can be expected
to become an actual or matured liability. In computing the
amount of liabilities at any time, there shall not be included in
liabilities the liabilities for retiree health care benefits that
are attributable to years that have yet to begin, irrespective of
whether GAAP requires such future health care benefits to be
treated as a liability.
"Stock Pledge Agreement" means a Security Agreement-
Stock Pledge, substantially in the form of Exhibit S-1 attached
hereto, dated as of even date herewith, between Borrower and
Foothill.
"Tangible Net Worth" means, as of the date any
determination thereof is to be made, the difference of (a)
Borrower's total stockholder's equity, minus (b)(i) all
intangible assets of Borrower, (ii) all of Borrower's prepaid
expenses, and (iii) all amounts due to Borrower from Affiliates,
calculated on a consolidated basis. For purposes of this
Agreement, the term `Tangible Net Worth' shall not include any
non-cash extraordinary items that arise after the Closing Date,
nor shall it include any charges resulting from changes in GAAP
that are first effective after the Closing Date.
"Term Loans" means, collectively, the Equipment Term
Loan, the Real Property Term Loan, and the New Equipment Term
Loan.
"Trademark Security Agreement" means a Trademark
Security Agreement, substantially in the form of Exhibit T-1
attached hereto, dated as of even date herewith, between Borrower
and Foothill.
"Unfunded Benefit Liability" means the excess of a
Plan's benefit liabilities (as defined in Section 4001(a)(16) of
ERISA) over the current value of such Plan's assets, determined
in accordance with the assumptions used by the Plan's actuaries
for funding the Plan pursuant to Section 412 of the IRC for the
applicable plan year.
"Voidable Transfer" has the meaning set forth in
Section 15.8.
"Warrant Purchase Agreement" means that certain Warrant
Purchase Agreement, dated as of even date herewith, between
Borrower and Foothill and in the form of Exhibit W-1.
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"Working Capital" means the result of subtracting
Consolidated Current Liabilities from Consolidated Current
Assets.
1.2 ACCOUNTING TERMS. All accounting terms not
specifically defined herein shall be construed in accordance with
GAAP. When used herein, the term "financial statements" shall
include the notes and schedules thereto. Whenever the term
"Borrower" is used in respect of a financial covenant or a
related definition, it shall be understood to mean Borrower on a
consolidated basis unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement that are
defined in the Code shall be construed and defined as set forth
in the Code unless otherwise defined herein.
1.4 CONSTRUCTION. Unless the context of this
Agreement clearly requires otherwise, references to the plural
include the singular, references to the singular include the
plural, the term "including" is not limiting, and the term "or"
has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and similar terms in this
Agreement refer to this Agreement as a whole and not to any
particular provision of this Agreement. Section, subsection,
clause, schedule, and exhibit references are to this Agreement
unless otherwise specified. Any reference in this Agreement or
in the Loan Documents to this Agreement or any of the Loan
Documents shall include all alterations, amendments, changes,
extensions, modifications, renewals, replacements, substitutions,
and supplements, thereto and thereof, as applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and
exhibits attached to this Agreement shall be deemed incorporated
herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES. (a) Subject to the terms and
conditions of this Agreement, Foothill agrees to make revolving
advances to Borrower in an amount not to exceed the lesser of (1)
the Borrowing Base, or (2) an amount equal to Borrower's and
Guarantor's aggregate cash collections with respect to Accounts
for the immediately preceding ninety (90) day period. For
purposes of this Agreement, "Borrowing Base", as of any date of
determination, shall mean:
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(i) an amount equal to the sum of: (A)
eighty-five percent (85%) of the amount of Eligible Domestic
Accounts; and (B) the lesser of (1) eighty-five percent (85%) of
the amount of Eligible Foreign Accounts and (2) Two Million
Dollars ($2,000,000); plus
(ii) an amount equal to the least of (A) the
sum of: (1)(x) sixty percent (60%) of the amount of Eligible
Domestic Finished Goods Inventory, (y) fifty percent (50%) of the
amount of Eligible Domestic Raw Material Inventory, and (z) fifty
percent (50%) of the amount of Eligible Domestic Work-in-Process
Inventory; plus (2) the lesser of (a) the sum of (x) sixty
percent (60%) of the amount of Eligible Canadian Finished Goods
Inventory, (y) fifty percent (50%) of the amount of Eligible
Canadian Raw Material Inventory, and (z) fifty percent (50%) of
the amount of Eligible Canadian Work-in-Process Inventory, and
(b) One Million Dollars ($1,000,000); (B) the amount of credit
availability created by Section 2.1(a)(i) above; and (C) Fifteen
Million Dollars ($15,000,000); minus
(iii) the amount of the Real Property
Reserve.
(b) Anything to the contrary in subsection (a)
above notwithstanding, Foothill may reduce its advance rates
based upon Eligible Domestic Accounts, Eligible Foreign Accounts,
Eligible Domestic Finished Goods Inventory, Eligible Domestic Raw
Material Inventory, Eligible Work-In-Process Inventory, Eligible
Canadian Finished Goods Inventory, Eligible Canadian Raw Material
Inventory, or Eligible Canadian Work-In-Process Inventory without
declaring an Event of Default if it determines, in its reasonable
discretion, that there is a material impairment of the prospect
of repayment of all or any portion of the Obligations or a
material impairment of the value or priority of Foothill's
security interests in the Collateral.
(c) Foothill shall have no obligation to make
advances hereunder to the extent they would cause the outstanding
Obligations under this Section 2.1 to exceed Twenty-Five Million
Dollars ($25,000,000) (the "Maximum Revolving Credit Amount").
(d) Foothill is authorized to make advances under
this Agreement based upon telephonic or other instructions
received from anyone purporting to be an Authorized Officer of
Borrower or, without instructions, if pursuant to Section 2.5(d).
Borrower agrees to establish and maintain a single designated
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deposit account for the purpose of receiving the proceeds of the
advances requested by Borrower and made by Foothill hereunder.
Unless otherwise agreed by Foothill and Borrower, any advance
requested by Borrower and made by Foothill hereunder shall be
made to such designated deposit account. Amounts borrowed
pursuant to this Section 2.1 may be repaid without penalty or
premium and, subject to the terms and conditions of this
Agreement, reborrowed at any time during the term of this
Agreement.
2.2 LETTERS OF CREDIT AND LETTER OF CREDIT GUARANTEES.
(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to issue commercial or standby letters
of credit for the account of Borrower (each, an "L/C") or to
issue standby letters of credit or guarantees of payment (each
such letter of credit or guaranty, an "L/C Guaranty") with
respect to commercial or standby letters of credit issued by
another Person for the account of Borrower in an aggregate face
amount not to exceed the lesser of: (i) the Borrowing Base less
the amount of advances outstanding pursuant to Section 2.1, and
(ii) Four Million Dollars ($4,000,000). Borrower expressly
understands and agrees that Foothill shall have no obligation to
arrange for the issuance by other financial institutions of L/Cs
that are to be the subject of L/C Guarantees. Borrower and
Foothill acknowledge and agree that certain of the L/Cs that are
to be the subject of L/C Guarantees may be outstanding on the
Closing Date. Each L/C and each letter of credit that is the
subject of an L/C Guaranty shall have an expiry date no later
than twenty (20) days prior to the date on which this Agreement
is scheduled to terminate under Section 3.4 hereof (without
regard to any potential renewal term) and all such L/Cs and
letters of credit (and the applicable L/C Guarantees) shall be in
form and substance acceptable to Foothill in its sole discretion.
Foothill shall not have any obligation to issue L/Cs or L/C
Guarantees to the extent that the face amount of all outstanding
L/Cs and L/C Guarantees, plus the amount of advances outstanding
pursuant to Section 2.1, would exceed the Maximum Revolving
Credit Amount. The L/Cs and the L/C Guarantees issued under this
Section 2.2 shall be used by Borrower, consistent with this
Agreement, for its general working capital purposes or to support
its obligations with respect to workers' compensation premiums or
other similar obligations. If Foothill is obligated to advance
funds under an L/C or L/C Guaranty, the amount so advanced
immediately shall be deemed to be an advance made by Foothill to
Borrower pursuant to Section 2.1 and, thereafter, shall bear
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interest at the rates then applicable under Section 2.5(a)(i) or
Section 2.5(b)(i), as applicable.
(b) Borrower hereby agrees to indemnify, save,
defend, and hold Foothill harmless from any loss, cost, expense,
or liability, including payments made by Foothill, expenses, and
reasonable attorneys fees incurred by Foothill arising out of or
in connection with any L/Cs or L/C Guarantees, except to the
extent that such loss, cost, expense, or liability was caused by
the gross negligence or wilful misconduct of Foothill. Borrower
agrees to be bound by the issuing bank's regulations and
interpretations of any letters of credit guarantied by Foothill
and opened to or for Borrower's account or by Foothill's
interpretations of any L/C issued by Foothill to or for
Borrower's account, even though this interpretation may be
different from Borrower's own, and Borrower understands and
agrees that Foothill shall not be liable for any error,
negligence, or mistakes, whether of omission or commission, in
following Borrower's instructions or those contained in the L/Cs
or any modifications, amendments, or supplements thereto.
Borrower understands that the L/C Guarantees may require Foothill
to indemnify the issuing bank for certain costs or liabilities
arising out of claims by Borrower against such issuing bank.
Borrower hereby agrees to indemnify, save, defend, and hold
Foothill harmless with respect to any loss, cost, expense
(including attorneys fees), or liability incurred by Foothill
under any L/C Guaranty as a result of Foothill's indemnification
of any such issuing bank, except to the extent that such loss,
cost, expense, or liability was caused by the gross negligence or
wilful misconduct of Foothill.
(c) Borrower hereby authorizes and directs any
bank that issues a letter of credit guaranteed by Foothill to
deliver to Foothill all instruments, documents, and other
writings and property received by the issuing bank pursuant to
such letter of credit, and to accept and rely upon Foothill's
instructions and agreements with respect to all matters arising
in connection with such letter of credit and the related
application. Borrower may or may not be the "applicant" or
"account party" with respect to such L/Cs.
(d) Any and all service charges, commissions,
fees, and costs of the issuing bank (or other third party issuer)
incurred by Foothill relating to the letters of credit guaranteed
by Foothill shall be considered Foothill Expenses for purposes of
this Agreement and immediately shall be reimbursable by Borrower
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to Foothill. On the first day of each month, Borrower will pay
Foothill a fee equal to two percent (2.00%) per annum times the
average Daily Balance of the undrawn L/Cs and L/C Guarantees that
were outstanding during the immediately preceding month. Service
charges, commissions, fees, and costs may be charged to
Borrower's loan account at the time the service is rendered or
the cost is incurred.
(e) Immediately upon the termination of this
Agreement, Borrower agrees to either: (i) provide cash
collateral to be held by Foothill in an amount equal to the
maximum amount of Foothill's obligations under L/Cs plus the
maximum amount of Foothill's obligations to any Person under
outstanding L/C Guarantees, or (ii) cause to be delivered to
Foothill releases of all of Foothill's obligations under its
outstanding L/Cs and L/C Guarantees. At Foothill's discretion,
any proceeds of Collateral received by Foothill after the
occurrence and during the continuation of an Event of Default may
be held as the cash collateral required by this Section 2.2(e).
2.3 EQUIPMENT TERM LOAN, REAL PROPERTY TERM LOAN, AND
NEW EQUIPMENT TERM LOAN COMMITMENT; VOLUNTARY PREPAYMENT;
MANDATORY PREPAYMENT.
(a) Subject to the terms and conditions of this
Agreement, Foothill has agreed to make a term loan to Borrower on
the Closing Date in the original principal amount of Ten Million
Dollars ($10,000,000) (the "Equipment Term Loan"), to be
evidenced by and repayable in accordance with the terms and
conditions of a promissory note in the form of Exhibit E-1 (the
"Equipment Term Note"), dated as of even date herewith, executed
by Borrower in favor of Foothill. All amounts evidenced by the
Equipment Term Note shall constitute Obligations and shall be
secured by the security interests and liens granted by Borrower
to Foothill in and to the Collateral and Real Property.
(b) Subject to the terms and conditions of this
Agreement, Foothill has agreed to make a term loan to Borrower on
the Closing Date in the original principal amount of Five Million
Dollars ($5,000,000) (the "Real Property Term Loan"), to be
evidenced by and repayable in accordance with the terms and
conditions of a promissory note in the form of Exhibit R-1 (the
"Real Property Term Note"), dated as of even date herewith,
executed by Borrower in favor of Foothill. All amounts evidenced
by the Real Property Term Note shall constitute Obligations and
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shall be secured by the security interests and liens granted by
Borrower to Foothill in and to the Collateral and Real Property.
(c) Subject to the terms and conditions of this
Agreement, Foothill has agreed to make a series of term loans to
Borrower in an aggregate amount at any one time outstanding of up
to Five Million Dollars ($5,000,000) (the "New Equipment Term
Loan Commitment"), to be evidenced by and repayable in accordance
with the terms and conditions of a single promissory note in the
form of Exhibit N-1 (the "New Equipment Term Note"), dated as of
even date herewith, executed by Borrower in favor of Foothill.
Each such New Equipment Term Loan shall be made by Foothill at
such times and in such amounts as Borrower may request in
writing, shall be advanced directly to the applicable vendor or
Borrower, as the case may be, and once borrowed may be repaid or
prepaid without penalty and then, subject to the terms and
conditions of this Agreement, reborrowed at any time during the
term of this Agreement. The foregoing notwithstanding: (i) each
borrowing of a New Equipment Term Loan shall be in a minimum
principal amount of Two Hundred Thousand Dollars ($200,000), or
such lesser amount as is the then unfunded balance of the New
Equipment Term Loan Commitment; and (ii) each borrowing of a New
Equipment Term Loan shall be in an amount, as determined by
Foothill, up to seventy-five percent (75%) of Borrower's invoice
cost (net of installation and other so-called `soft costs') of
new Equipment to be purchased by Borrower or Equipment that has
been purchased by Borrower within the prior sixty (60) days, in
each case, that is acceptable to Foothill in all respects and
that is not to be affixed to real property or become installed in
or affixed to other goods. All amounts evidenced by the New
Equipment Term Note shall constitute Obligations and shall be
secured by the security interests and liens granted by Borrower
to Foothill in and to the Collateral and Real Property. Anything
contained in this Section 2.3(c) to the contrary notwithstanding,
Foothill shall have no obligation to make New Equipment Term
Loans hereunder to the extent they would cause the outstanding
New Equipment Term Loans to exceed the New Equipment Term Loan
Commitment.
(d) Borrower shall have the right, at any time
and from time to time, upon not less than twenty (20) days prior
written notice to Foothill, to prepay, in whole or in part and
without premium or penalty, the Term Loans; provided, however,
that if the proposed voluntary prepayment is being made in
conjunction with an early termination of the Loan Agreement, then
such prepayment may not be made except in accordance with the
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terms and conditions set forth in Section 3.5. With each
prepayment, Borrower shall also pay interest accrued and unpaid
on the principal amount so repaid to the date of such prepayment.
Each partial prepayment shall be in a minimum aggregate amount
equal to One Hundred Thousand Dollars ($100,000). Any voluntary
prepayment pursuant to this Section 2.3(d) shall be applied pro
rata to the Equipment Term Loan, the Real Property Term Loan, and
the New Equipment Term Loan. Any prepayment of the principal
balance of each Term Loan shall be applied to the scheduled
installments of principal thereof in the inverse order of their
maturity.
(e) (i) Immediately upon receipt by Borrower or
Guarantor of any proceeds from the sale or other disposition of
all or a portion of the Machinery and Equipment, the Real
Property, or the New Equipment, Borrower shall prepay the Term
Loans in an amount equal to all such proceeds, such amounts to be
applied to the installments due thereunder in the inverse order
of their maturity as follows:
(A) To the extent that such proceeds
are attributable solely to the sale
or other disposition of Machinery
and Equipment, Foothill will apply
such proceeds to reduce the
Equipment Term Note;
(B) To the extent that such proceeds
are attributable solely to the sale
or other disposition of Real
Property, Foothill will apply such
proceeds to reduce the Real
Property Term Note;
(C) To the extent that such proceeds
are attributable solely to the sale
or other disposition of New
Equipment, Foothill will apply such
proceeds to reduce the New
Equipment Term Note; and
(D) To the extent that such proceeds
are attributable to the sale or
other disposition of Machinery and
Equipment, Real Property, or New
Equipment, as part of one sale or
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other disposition, Foothill will
apportion such proceeds in the
manner set forth in Section
2.3(e)(ii), and thereafter apply
the applicable portion of such
proceeds to the Equipment Term
Note, the Real Property Term Note,
or the New Equipment Term Note, as
applicable.
(ii) The following shall be the method of
determining the amount of the proceeds from the sale or other
disposition of Collateral that is attributable to the Machinery
and Equipment portion, the Real Property portion, and the New
Equipment portion thereof, as applicable:
(A) If Machinery and Equipment or New
Equipment, on the one hand, and
Real Property, on the other hand,
is sold as part of one sale or
other disposition, then Foothill
shall determine the Proportionate
Value of the Real Property and
shall proceed to apply to the Real
Property Term Note the portion of
the aggregate proceeds equal to the
Proportionate Value of the Real
Property;
(B) In the case of such an allocation
where the sale or other disposition
involves both Machinery and
Equipment and New Equipment, then
after such application of the
Proportionate Value of the Real
Property to the Real Property Term
Note, Foothill shall determine the
proportion that the subject
Machinery and Equipment and New
Equipment bear to each other (based
upon the liquidation values that
were estimated by the auctioneer
selected by Foothill) and shall
apply such proportion of the
balance of the aggregate proceeds
of such sale or other disposition
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to the Equipment Term Note or New
Equipment Term Note, as applicable;
(C) In the case of such an allocation
where the sale or other disposition
involves Machinery and Equipment or
New Equipment, but not both, then
after such application of the
Proportionate Value of the Real
Property to the Real Property Term
Note, Foothill shall apply the
balance of the aggregate proceeds
of the sale or other disposition to
the Equipment Term Note or New
Equipment Term Note, as applicable;
and
(D) If Machinery and Equipment and New
Equipment, but no Real Property, is
sold as part of one sale or other
disposition, then Foothill shall
determine the Proportionate Value
of the New Equipment and shall
proceed to apply to the New
Equipment Term Note the portion of
the aggregate proceeds equal to the
Proportionate Value of the New
Equipment and the balance of the
proceeds of such sale or other
disposition to the Equipment Term
Note.
(iii) In the event that any proceeds from
the sale or other disposition of Collateral are to be applied to
any of the Equipment Term Note, the Real Property Term Note, and
the New Equipment Term Note pursuant to Section 2.3(e)(i) or
Section 2.3(e)(ii) and such promissory note already has been, or
by such application will be, paid off in full, then the amount or
balance of such amount otherwise to be applied to that promissory
note shall be applied, pro rata, to such of the Equipment Term
Note, the Real Property Term Note, and the New Equipment Term
Note not already paid off in full. In the event that all of the
Equipment Term Note, the Real Property Term Note, and the New
Equipment Term Note already have been, or by such application
will be, paid off in full, then the amount or balance of such
amount otherwise to be applied to those promissory notes pursuant
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to Section 2.3(e)(i) or Section 2.3(e)(ii) shall be applied to
reduce the amount of outstanding advances made pursuant to
Section 2.1. The provisions of this Section 2.3(e) requiring all
proceeds from any sale or other disposition of all or any portion
of the Machinery and Equipment, the Real Property, or the New
Equipment shall in no way be construed as a consent by Foothill
to any such sale or other disposition or as a waiver of the
provisions of Section 7.4 with respect to all or any portion of
the Machinery and Equipment, the Real Property, or the New
Equipment.
2.4 OVERADVANCES. If, at any time or for any reason,
the amount of Obligations owed by Borrower to Foothill pursuant
to Sections 2.1 and 2.2 is greater than either the dollar or
percentage limitations set forth in Sections 2.1 or 2.2 (an
"Overadvance"), Borrower immediately shall pay to Foothill, in
cash, the amount of such excess to be used by Foothill first, to
repay non-contingent Obligations and, thereafter, to be held by
Foothill as cash collateral to secure Borrower's obligation to
repay Foothill for all amounts paid pursuant to L/Cs or L/C
Guarantees.
2.5 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) Interest Rate. (i) All Obligations, except
for undrawn L/Cs and L/C Guarantees and except for the
Obligations evidenced by the Equipment Term Note, the Real
Property Term Note, and the New Equipment Term Note, shall bear
interest, on the average Daily Balance, at a rate of two (2.00)
percentage points above the Reference Rate. (ii) The Obligations
evidenced by the Equipment Term Note, the Real Property Term
Note, and the New Equipment Term Note shall bear interest, on the
average Daily Balance, at a rate of two and one-quarter (2.25)
percentage points above the Reference Rate.
(b) Default Rate. (i) All Obligations, except
for undrawn L/Cs and L/C Guarantees and except for the
Obligations evidenced by the Equipment Term Note, the Real
Property Term Note, and the New Equipment Term Note, shall bear
interest, from and after the occurrence and during the
continuance of an Event of Default, at a rate equal to five
(5.00) percentage points above the Reference Rate. (ii) The
Obligations evidenced by the Equipment Term Note, the Real
Property Term Note, and the New Equipment Term Note shall bear
interest, from and after the occurrence and during the
continuance of an Event of Default, at a rate equal to five and
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one-quarter (5.25) percentage points above the Reference Rate.
(iii) From and after the occurrence and during the continuance of
an Event of Default, the fee provided in Section 2.2(d) shall be
increased to a fee equal to five percent (5.00%) per annum times
the average Daily Balance of the undrawn L/Cs and L/C Guarantees
that were outstanding during the immediately preceding month.
(c) Minimum Interest. In no event shall any rate
of interest chargeable hereunder be less than seven and one-half
percent (7.50%) per annum (it being understood that the amounts
payable under Section 2.2(d) hereof constitute fees and not
interest), nor shall the amount of interest accrued and payable
to Foothill on account of the advances made pursuant to Section
2.1 hereof be less than One Hundred Twenty Five Thousand Dollars
($125,000) per month. To the extent that interest accrued
hereunder with respect to such advances at the rate set forth
herein (including the minimum interest rate) would yield less
than the foregoing minimum amount, the interest rate chargeable
hereunder for the period in question automatically shall be
deemed increased to that rate that would result in the minimum
amount of interest being accrued and payable hereunder.
(d) Payments. Interest hereunder shall be due
and payable, in arrears, on the first day of each month during
the term hereof. Borrower hereby authorizes Foothill, at its
option, without prior notice to Borrower, to charge such
interest, all Foothill Expenses (as and when incurred), and all
installments or other payments due under the Equipment Term Note,
the Real Property Term Note, or the New Equipment Term Note, or
any other note or any other Loan Document to Borrower's loan
account, which amounts thereafter shall accrue interest at the
rate then applicable hereunder. Any interest not paid when due
shall be compounded by becoming a part of the Obligations, and
such interest shall thereafter accrue interest at the rate then
applicable hereunder.
(e) Computation. The Reference Rate as of the
date of this Agreement is seven and one-quarter percent (7.25%)
per annum. In the event the Reference Rate is changed from time
to time hereafter, the applicable rate of interest hereunder
automatically and immediately shall be increased or decreased by
an amount equal to such change in the Reference Rate. The rates
of interest charged hereunder shall be based upon the average
Reference Rate in effect during the month. All interest and fees
chargeable under the Loan Documents shall be computed on the
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basis of a three hundred sixty (360) day year for the actual
number of days elapsed.
(f) Intent to Limit Charges to Maximum Lawful
Rate. In no event shall the interest rate or rates payable under
this Agreement, the Equipment Term Note, the Real Property Term
Note, or the New Equipment Term Note, plus any other amounts paid
in connection herewith, exceed the highest rate permissible under
any applicable law. Borrower and Foothill, in executing this
Agreement, the Equipment Term Note, the Real Property Term Note,
and the New Equipment Term Note, intend legally to agree upon the
rate or rates of interest and manner of payment stated within it;
provided, however, that, anything contained herein or in the
Equipment Term Note, the Real Property Term Note, or the New
Equipment Term Note to the contrary notwithstanding, if said rate
or rates of interest or manner of payment exceeds the maximum
allowable under applicable law, then, ipso facto as of the date
of this Agreement, the Equipment Term Note, the Real Property
Term Note, and the New Equipment Term Note, Borrower is and shall
be liable only for the payment of such maximum as allowed by law,
and payment received from Borrower in excess of such legal
maximum, whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such
excess.
2.6 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS.
The receipt of any wire transfer of funds, check, or other item
of payment by Foothill (whether from transfers to Foothill by the
Lockbox Banks pursuant to the Lockbox Agreements or otherwise)
immediately shall be applied to provisionally reduce the
Obligations, but shall not be considered a payment on account
unless such wire transfer is of immediately available federal
funds and is made to the appropriate deposit account of Foothill
or unless and until such check or other item of payment is
honored when presented for payment. From and after the Closing
Date, Foothill shall be entitled to charge Borrower for two (2)
Business Days of `clearance' at the rate set forth in Section
2.5(a)(i) or Section 2.5(b)(i), as applicable, on all
collections, checks, wire transfers, or other items of payment
that are received by Foothill (regardless of whether forwarded by
the Lockbox Banks to Foothill, whether provisionally applied to
reduce the Obligations, or otherwise). This across-the-board two
(2) Business Day clearance charge on all receipts is acknowledged
by the parties to constitute an integral aspect of the pricing of
Foothill's facility to Borrower, and shall apply irrespective of
the characterization of whether receipts are owned by Borrower or
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Foothill, and irrespective of the level of Borrower's Obligations
to Foothill. Should any check or item of payment not be honored
when presented for payment, then Borrower shall be deemed not to
have made such payment, and interest shall be recalculated
accordingly. Anything to the contrary contained herein
notwithstanding, any wire transfer, check, or other item of
payment shall be deemed received by Foothill only if it is
received into Foothill's Operating Account (as such account is
identified in the Lockbox Agreements) on or before 11:00 a.m. Los
Angeles time. If any wire transfer, check, or other item of
payment is received into Foothill's Operating Account (as such
account is identified in the Lockbox Agreements) after 11:00 a.m.
Los Angeles time it shall be deemed to have been received by
Foothill as of the opening of business on the immediately
following Business Day.
2.7 STATEMENTS OF OBLIGATIONS. Foothill shall render
statements to Borrower of the Obligations, including principal,
interest, fees, and including an itemization of all charges and
expenses constituting Foothill Expenses owing, and such
statements shall be conclusively presumed to be correct and
accurate and constitute an account stated between Borrower and
Foothill unless, within thirty (30) days after receipt thereof by
Borrower, Borrower shall deliver to Foothill by registered or
certified mail at its address specified in Section 12, written
objection thereto describing the error or errors contained in any
such statements.
2.8 FEES. Borrower shall pay to Foothill the
following fees:
(a) Closing Fee. A one time closing fee of Four
Hundred Seventy Six Thousand One Hundred Three and 03/100 Dollars
($476,103.03) which is earned, in full, on the Closing Date and
is due and payable by Borrower to Foothill in connection with
this Agreement on the Closing Date;
(b) Unused Line Fee. On the first day of each
month during the term of this Agreement, a fee in an amount equal
to three-eighths of one percent (0.375%) per annum times the
Average Unused Portion of the Maximum Revolving Credit Amount;
(c) Financial Examination, Documentation, and
Appraisal Fees. Foothill's customary fee of Six Hundred Dollars
($600) per day per examiner, plus out-of-pocket expenses for each
financial analysis and examination of Borrower performed by
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Foothill, its Participants, or their agents, it being the
expectation that, in the absence of an Event of Default,
Foothill, its Participants, and their agents will not perform an
audit examination of Borrower and its business more frequently
than once per quarter; Foothill's customary appraisal fee of One
Thousand Dollars ($1,000) per day per appraiser, plus out-of-
pocket expenses for each appraisal of the Collateral performed by
Foothill or its agents, it being the expectation that, in the
absence of an Event of Default, Foothill will not perform an
appraisal of the Collateral and the Real Property more frequently
than once per year; and
(d) Collateral Maintenance Fee. On the first day
of each month during the term of this Agreement, and thereafter
so long as any Obligations are outstanding, a collateral
maintenance fee in an amount equal to Ten Thousand Dollars
($10,000) per month.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE, INITIAL
L/C OR L/C GUARANTY, THE EQUIPMENT TERM LOAN, THE REAL PROPERTY
TERM LOAN, OR INITIAL FUNDING UNDER THE NEW EQUIPMENT TERM LOAN
COMMITMENT. The obligation of Foothill to make the initial
revolving advance, to provide the initial L/C or L/C Guaranty, to
make the Equipment Term Loan, to make the Real Property Term
Loan, or to make the initial funding under the New Equipment Term
Loan Commitment is subject to the fulfillment, to the
satisfaction of Foothill and its counsel, of each of the
following conditions on or before the Closing Date:
(a) the Closing Date shall occur on or before May
31, 1994;
(b) the Old Lenders or the Old Lenders' Agent on
their behalf shall have executed and delivered the Pay-Off
Letters, together with UCC termination statements and other
documentation evidencing the termination of their liens and
security interests in and to the properties and assets of
Borrower;
(c) Foothill shall have received searches
reflecting the filing of its financing statements and fixture
filings;
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(d) Foothill shall have received each of the
following documents, duly executed, and each such document shall
be in full force and effect:
i) the Lockbox Agreements;
ii) the Equipment Term Note, the Real
Property Term Note, and the New Equipment
Term Note;
iii) the Mortgages;
iv) the Consignment Agreements;
v) the Stock Pledge Agreement;
vi) the Patent Collateral Assignment;
vii) the Trademark Security Agreement;
viii) the Copyright Security Agreement;
ix) the Guaranty and the Security Agreement;
and
x) the Warrant Purchase Agreement;
(e) Foothill shall have received possession of
the shares of stock of Guarantor, NSC-UK, and National-Standard
Export Corp., as well as stock powers with respect thereto
endorsed in blank;
(f) Foothill shall have received possession of
the promissory note payable by NSC-UK to Borrower, as well as an
endorsement allonge with respect thereto endorsed in blank;
(g) Foothill shall have received a certificate
from the Secretary of Borrower attesting to the resolutions of
Borrower's Board of Directors authorizing its execution and
delivery of this Agreement and the other Loan Documents to which
it is a party and authorizing specific officers thereof to
execute same;
(h) Foothill shall have received copies of
Borrower's By-laws and Articles or Certificate of Incorporation,
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as amended, modified, or supplemented to the Closing Date,
certified by the Secretary of Borrower;
(i) Foothill shall have received a certificate of
corporate status with respect to Borrower, dated within ten (10)
days of the Closing Date, by the Secretary of State of the state
of incorporation of Borrower, which certificate shall indicate
that Borrower is in good standing in such state;
(j) Foothill shall have received certificates of
corporate status with respect to Borrower, each dated within
fifteen (15) days of the Closing Date, such certificates to be
issued by the Secretary of State of the states in which its
failure to be duly qualified or licensed would have a material
adverse effect on the financial condition or properties and
assets of Borrower, which certificates shall indicate that
Borrower is in good standing;
(k) Foothill shall have received a certificate
from the Secretary of Guarantor attesting to the resolutions of
Guarantor's Board of Directors authorizing its execution and
delivery of the Loan Documents to which it is a party and
authorizing specific officers thereof to execute same;
(l) Foothill shall have received copies of
Guarantor's By-laws and Articles or Certificate of Incorporation,
as amended, modified, or supplemented to the Closing Date,
certified by the Secretary of Guarantor;
(m) Foothill shall have received a certificate of
corporate status with respect to Guarantor, dated within ten (10)
days of the Closing Date, by the Secretary of State (or its
equivalent) of the province or other jurisdiction of
incorporation of Guarantor, which certificate shall indicate that
Guarantor is in good standing in such province or jurisdiction;
(n) Foothill shall have received certificates of
corporate status with respect to Guarantor, each dated within
fifteen (15) days of the Closing Date, such certificates to be
issued by the Secretary of State (or its equivalent) of the
provinces in which its failure to be duly qualified or licensed
would have a material adverse effect on the financial condition
or properties and assets of Guarantor, which certificates shall
indicate that Guarantor is in good standing;
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(o) Foothill shall have received the certified
copies of the policies of insurance, together with the
endorsements thereto, as are required by Section 6.12 hereof, the
form and substance of which shall be satisfactory to Foothill and
its counsel;
(p) Foothill shall have received landlord waivers
and, if requested by Foothill, mortgagee waivers from the lessors
and mortgagees of the locations where the Inventory or Equipment
is located;
(q) Foothill shall have received preliminary
title reports for Borrower's properties described on Schedule R-1
hereto, in form and substance satisfactory to Foothill and its
counsel;
(r) Foothill shall have received ALTA Lender's
Policy of Title Insurance, or commitments therefor, from a title
company reasonably satisfactory to Foothill, in an amount
reasonably satisfactory to Foothill, insuring its first priority
lien upon the Real Property, such policy to contain such
endorsements as may be required by Foothill and only those
exceptions acceptable to Foothill, and otherwise in form
satisfactory to Foothill;
(s) A Phase-I environmental report and real
estate survey shall have been completed with respect to the Real
Property as Foothill shall require, and copies thereof delivered
to Foothill; the environmental consultants retained for such
environmental report, the scope of the report, and the results of
the report shall be acceptable to Foothill and its counsel, in
their sole discretion;
(t) Foothill shall have received an opinion of
each of Borrower's counsel and Guarantor's Canadian counsel in
the forms attached hereto as Exhibits 3.1(t)(1) and (2);
(u) Foothill shall have received the warrants
issued by Borrower to Foothill under the Warrant Purchase
Agreement; and
(v) all other documents and legal matters in
connection with the transactions contemplated by this Agreement
shall have been delivered or executed or recorded and shall be in
form and substance satisfactory to Foothill and its counsel.
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3.2 CONDITIONS PRECEDENT TO ALL ADVANCES, L/CS, L/C
GUARANTEES, THE EQUIPMENT TERM LOAN, THE REAL PROPERTY TERM LOAN,
OR FUNDINGS UNDER THE NEW EQUIPMENT TERM LOAN COMMITMENT. The
following shall be conditions precedent to all advances, L/Cs,
L/C Guarantees, the making of the Equipment Term Loan, the making
of the Real Property Term Loan, or fundings under the New
Equipment Term Loan Commitment hereunder:
(a) the representations and warranties contained
in this Agreement and the other Loan Documents shall be true and
correct in all material respects on and as of the date of such
revolving advance, L/C, L/C Guaranty, the making of the Equipment
Term Loan, the making of the Real Property Term Loan, or funding
under the New Equipment Term Loan Commitment, as though made on
and as of such date (except to the extent that such representa-
tions and warranties relate solely to an earlier date);
(b) no Event of Default or event which with the
giving of notice or passage of time would constitute an Event of
Default shall have occurred and be continuing on the date of such
revolving advance, L/C, L/C Guaranty, the making of the Equipment
Term Loan, the making of the Real Property Term Loan, or funding
under the New Equipment Term Loan Commitment, nor shall either
result from the making of the advance; and
(c) no injunction, writ, restraining order, or
other order of any nature prohibiting, directly or indirectly,
the making of such revolving advance, L/C, L/C Guaranty, the
making of the Equipment Term Loan, the making of the Real
Property Term Loan, or funding under the New Equipment Term Loan
Commitment shall have been issued and remain in force by any
governmental authority against Borrower, Foothill, or any of
their Affiliates.
3.3 CONDITIONS SUBSEQUENT TO ALL ADVANCES, L/CS, L/C
GUARANTEES, THE EQUIPMENT TERM LOAN, THE REAL PROPERTY TERM LOAN,
AND FUNDINGS UNDER THE NEW EQUIPMENT TERM LOAN COMMITMENT. The
following shall be conditions subsequent to all revolving
advances, L/Cs, L/C Guarantees, the making of the Equipment Term
Loan, the Real Property Term Loan, or fundings under the New
Equipment Term Loan Commitment hereunder:
(a) on or before October 31, 1994, Borrower shall
have implemented fully an inventory reporting system that is
acceptable to Foothill with respect to its business premises
located in Stillwater, Oklahoma and Niles, Michigan, and by March
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31, 1995 with respect to its business premises located in Guelph,
Ontario; and
(b) on or before September 1, 1994, Foothill
shall have received satisfactory evidence that all delinquent
real property taxes have been paid, except such taxes as are the
subject of a good faith Permitted Protest.
3.4 TERM. This Agreement shall become effective upon
the execution and delivery hereof by Borrower and Foothill and
shall continue in full force and effect for a term ending on
October 1, 1996. The foregoing notwithstanding, Foothill shall
have the right to terminate its obligations under this Agreement
immediately and without notice upon the occurrence and during the
continuation of an Event of Default.
3.5 EFFECT OF TERMINATION. On the date of
termination, all Obligations (including contingent reimbursement
obligations under any outstanding L/Cs or L/C Guarantees)
immediately shall become due and payable without notice or
demand. No termination of this Agreement, however, shall relieve
or discharge Borrower of Borrower's duties, Obligations, or
covenants hereunder, and Foothill's continuing security interests
in the Collateral and the Real Property shall remain in effect
until all Obligations have been fully and finally discharged and
Foothill's obligation to provide advances hereunder is
terminated.
3.6 EARLY TERMINATION BY BORROWER. Borrower has the
option, at any time upon ninety (90) days prior written notice to
Foothill, to terminate this Agreement by paying to Foothill, in
cash, the Obligations (including an amount equal to the full
amount of the L/Cs or L/C Guarantees), together with a premium
(the "Early Termination Premium") equal to the greater of: (a)
the total interest for the immediately preceding six (6) months;
or (b) Seven Hundred Fifty Thousand Dollars ($750,000).
3.7 TERMINATION UPON EVENT OF DEFAULT. If Foothill
terminates this Agreement upon the occurrence of an Event of
Default that intentionally is caused by Borrower for the purpose,
in Foothill's reasonable judgment, of avoiding payment of the
Early Termination Premium provided in Section 3.6, in view of the
impracticability and extreme difficulty of ascertaining actual
damages and by mutual agreement of the parties as to a reasonable
calculation of Foothill's lost profits as a result thereof,
Borrower shall pay to Foothill upon the effective date of such
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termination, a premium in an amount equal to the Early
Termination Premium. The Early Termination Premium shall be
presumed to be the amount of damages sustained by Foothill as the
result of the early termination and Borrower agrees that it is
reasonable under the circumstances currently existing. The Early
Termination Premium provided for in this Section 3.7 shall be
deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Borrower hereby
grants to Foothill a continuing security interest in all
currently existing and hereafter acquired or arising Collateral
in order to secure prompt repayment of any and all Obligations
and in order to secure prompt performance by Borrower and
Guarantor of each of their respective covenants and duties under
the Loan Documents. Foothill's security interests in the
Collateral shall attach to all Collateral without further act on
the part of Foothill or Borrower. Anything contained in this
Agreement or any other Loan Document to the contrary
notwithstanding, except for the sale of Inventory to buyers in
the ordinary course of business, Borrower has no authority,
express or implied, to dispose of any item or portion of the
Collateral or the Real Property.
4.2 NEGOTIABLE COLLATERAL. In the event that any
Collateral, including proceeds, is evidenced by or consists of
Negotiable Collateral, Borrower shall, immediately upon the
request of Foothill, endorse and assign such Negotiable
Collateral to Foothill and deliver physical possession of such
Negotiable Collateral to Foothill.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES,
NEGOTIABLE COLLATERAL. On or before the Closing Date, Foothill,
Borrower and Guarantor, and the Lockbox Banks shall enter into
the Lockbox Agreements, in form and substance satisfactory to
Foothill in its sole discretion, (x) pursuant to which all of
Borrower's cash receipts, checks, and other items of payment
(including, insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds) will be forwarded to Foothill on a
daily basis, and (y) pursuant to which all of Guarantor's cash
receipts, checks, and other items of payment (including,
insurance proceeds, proceeds of cash sales, rental proceeds, and
tax refunds) will be deposited to an account of Foothill to be
transferred, so long as no Event of Default has occurred and is
continuing, to an account of Guarantor. At any time, Foothill or
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Foothill's designee may: (a) notify customers or Account Debtors
of Borrower and Guarantor that the Accounts of Borrower and
Guarantor, General Intangibles, or Negotiable Collateral have
been assigned to Foothill or that Foothill has a security
interest therein; and (b) collect the Accounts of Borrower and
Guarantor, General Intangibles, and Negotiable Collateral
directly and charge the collection costs and expenses to
Borrower's loan account. Borrower agrees that it will hold in
trust for Foothill, as Foothill's trustee, any cash receipts,
checks, and other items of payment (including, insurance
proceeds, proceeds of cash sales, rental proceeds, and tax
refunds) that it receives and immediately will deliver said cash
receipts, checks, and other items of payment to Foothill in their
original form as received by Borrower.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At
any time upon the request of Foothill, Borrower shall execute and
deliver, and cause Guarantor to execute and deliver, to Foothill
all financing statements, continuation financing statements,
fixture filings, security agreements, chattel mortgages, pledges,
assignments, endorsements of certificates of title, applications
for title, affidavits, reports, notices, schedules of accounts,
letters of authority, and all other documents that Foothill may
reasonably request, in form satisfactory to Foothill, to perfect
and continue perfected Foothill's security interests in the
Collateral and the Real Property, and in order to fully
consummate all of the transactions contemplated hereby and under
the other the Loan Documents.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably
makes, constitutes, and appoints Foothill (and any of Foothill's
officers, employees, or agents designated by Foothill) as
Borrower's true and lawful attorney, with power to: (a) if
Borrower refuses to, or fails timely to execute and deliver any
of the documents described in Section 4.4, sign the name of
Borrower on any of the documents described in Section 4.4; (b) at
any time that an Event of Default has occurred and is continuing
or Foothill deems itself insecure (in accordance with Section
1208 of the Code), sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against Account Debtors,
schedules and assignments of Accounts, verifications of Accounts,
and notices to Account Debtors; (c) send requests for
verification of Accounts; (d) endorse Borrower's name on any
checks, notices, acceptances, money orders, drafts, or other item
of payment or security that may come into Foothill's possession;
(e) at any time that an Event of Default has occurred and is
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continuing or Foothill deems itself insecure (in accordance with
Section 1208 of the Code), notify the post office authorities to
change the address for delivery of Borrower's mail to an address
designated by Foothill, to receive and open all mail addressed to
Borrower, and to retain all mail relating to the Collateral and
forward all other mail to Borrower; (f) at any time that an Event
of Default has occurred and is continuing or Foothill deems
itself insecure (in accordance with Section 1208 of the Code),
make, settle, and adjust all claims under Borrower's policies of
insurance and make all determinations and decisions with respect
to such policies of insurance; and (g) at any time that an Event
of Default has occurred and is continuing or Foothill deems
itself insecure (in accordance with Section 1208 of the Code),
settle and adjust disputes and claims respecting the Accounts
directly with Account Debtors, for amounts and upon terms which
Foothill determines to be reasonable, and Foothill may cause to
be executed and delivered any documents and releases which
Foothill determines to be necessary. The appointment of Foothill
as Borrower's attorney, and each and every one of Foothill's
rights and powers, being coupled with an interest, is irrevocable
until all of the Obligations have been fully and finally repaid
and performed and Foothill's obligation to extend credit
hereunder is terminated.
4.6 RIGHT TO INSPECT. Foothill (through any of its
officers, employees, or agents) shall have the right, from time
to time hereafter to inspect Borrower's Books and to check, test,
and appraise the Collateral or the Real Property in order to
verify Borrower's financial condition or the amount, quality,
value, condition of, or any other matter relating to, the
Collateral or the Real Property.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Foothill as
follows:
5.1 NO PRIOR ENCUMBRANCES. Borrower has good and
indefeasible title to the Collateral and the Real Property, free
and clear of liens, claims, security interests, or encumbrances,
except for Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are, at
the time of the creation thereof and as of each date on which
Borrower includes them in a Borrowing Base calculation or
certification, bona fide existing obligations created by the sale
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and delivery of Inventory or the rendition of services to Account
Debtors in the ordinary course of Borrower's and Guarantor's
respective businesses, unconditionally owed to Borrower or
Guarantor, as the case may be, without defenses, disputes,
offsets, counterclaims, or rights of return or cancellation. The
property giving rise to such Eligible Accounts has been delivered
to the Account Debtor, or to the Account Debtor's agent for
immediate shipment to and unconditional acceptance by the Account
Debtor. At the time of the creation of an Eligible Account and
as of each date on which Borrower includes an Eligible Account in
a Borrowing Base calculation or certification, neither Borrower
nor Guarantor has received notice of actual or imminent
bankruptcy, insolvency, or material impairment of the financial
condition of any applicable Account Debtor regarding such
Eligible Account.
5.3 ELIGIBLE INVENTORY. All Eligible Inventory is now
and at all times hereafter shall be of good and merchantable
quality, free from defects.
5.4 LOCATION OF INVENTORY AND EQUIPMENT. The
Inventory and Equipment are not stored with a bailee,
warehouseman, or similar party (without Foothill's prior written
consent) and are located only at the locations identified on
Schedule 6.15 or otherwise permitted by Section 6.15. The
foregoing to the contrary notwithstanding, Borrower and Guarantor
shall be permitted to have Inventory situated at locations other
than those set forth on Schedule 6.15 so long as such Inventory
is consigned to a third Person, so long as the maximum amount of
Inventory at any one such location does not exceed $100,000, and
so long as the aggregate amount of all Inventory at such
locations does not exceed $750,000.
5.5 INVENTORY RECORDS. Each of Borrower and Guarantor
now keeps, and hereafter at all times shall keep, correct and
accurate records itemizing and describing the kind, type,
quality, and quantity of the Inventory, and Borrower's or
Guarantor's cost therefor, as the case may be.
5.6 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The
chief executive office of Borrower is located at the address
indicated in the preamble to this Agreement and Borrower's FEIN
is 38-1493458.
5.7 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
Borrower is duly organized and existing and in good standing
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under the laws of the state of its incorporation and qualified
and licensed to do business in, and in good standing in, any
state where the failure to be so licensed or qualified could
reasonably be expected to have a material adverse effect on the
business, operations, condition (financial or otherwise),
finances, or prospects of Borrower or on the value of the
Collateral or the Real Property to Foothill. Borrower has no
subsidiaries other than Guarantor, National-Standard Export
Corp., and NSC-UK.
5.8 DUE AUTHORIZATION; NO CONFLICT. The execution,
delivery, and performance of each of the Loan Documents to which
Borrower is a party are within Borrower's corporate powers, have
been duly authorized, and are not in conflict with nor constitute
a breach of any provision contained in Borrower's Articles or
Certificate of Incorporation, or By-laws, nor will they
constitute an event of default under any material agreement to
which Borrower is a party or by which its properties or assets
may be bound.
5.9 LITIGATION. There are no actions or proceedings
pending by or against Borrower or Guarantor before any court or
administrative agency and Borrower does not have knowledge or
belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or
prosecutions involving Borrower or Guarantor, except for ongoing
collection matters in which Borrower or Guarantor is the
plaintiff, matters disclosed on Schedule 5.9, and matters arising
after the date hereof that, if decided adversely to Borrower or
Guarantor, as the case may be, would not materially impair the
prospect of repayment of the Obligations or performance by
Guarantor of its obligations under the Guaranty or materially
impair the value or priority of Foothill's security interests in
the Collateral, the "Collateral" (as defined in the Guarantor
Security Agreement), or the Real Property.
5.10 NO MATERIAL ADVERSE CHANGE IN FINANCIAL CONDITION.
All financial statements relating to Borrower or Guarantor that
have been delivered by Borrower to Foothill have been prepared in
accordance with GAAP and fairly present Borrower's (or
Guarantor's, as applicable) financial condition as of the date
thereof and Borrower's (or Guarantor's, as applicable) results of
operations for the period then ended. There has not been a
material adverse change in the financial condition of Borrower
(or Guarantor, as applicable) since the date of the latest
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financial statements submitted to Foothill on or before the
Closing Date.
5.11 SOLVENCY. Each of Borrower and Guarantor is
Solvent. No transfer of property is being made by Borrower or
Guarantor, as the case may be, and no obligation is being
incurred by Borrower or Guarantor, as the case may be, in
connection with the transactions contemplated by this Agreement
or the other Loan Documents with the intent to hinder, delay, or
defraud either present or future creditors of Borrower or
Guarantor, as the case may be.
5.12 EMPLOYEE BENEFITS. Each Plan is in compliance in
all material respects with the applicable provisions of ERISA and
the IRC. Each Qualified Plan and Multiemployer Plan has been
determined by the Internal Revenue Service to qualify under
Section 401 of the IRC, and the trusts created thereunder have
been determined to be exempt from tax under Section 501 of the
IRC, and, to the best knowledge of Borrower, nothing has occurred
that would cause the loss of such qualification or tax-exempt
status. There are no accumulated funding deficiencies with
respect to any Plan maintained or sponsored by Borrower or any
ERISA Affiliate, nor with respect to any Plan to which Borrower
or any ERISA Affiliate contributes or is obligated to contribute
which could reasonably be expected to have a material adverse
effect on the financial condition of Borrower. No Plan subject
to Title IV of ERISA has any Unfunded Benefit Liability the
required ammortization of which could reasonably be expected to
have a material adverse effect on the financial condition of
Borrower. Neither Borrower nor any ERISA Affiliate has
transferred any Unfunded Benefit Liability to a person other than
Borrower or an ERISA Affiliate or has otherwise engaged in a
transaction that could be subject to Sections 4069 or 4212(c) of
ERISA which could reasonably be expected to have a material
adverse effect on the financial condition of Borrower. Neither
Borrower nor any ERISA Affiliate has incurred nor reasonably
expects to incur (x) any liability (and no event has occurred
which, with the giving of notice under Section 4219 of ERISA,
would result in such liability) under Sections 4201 or 4243 of
ERISA with respect to a Multiemployer Plan, or (y) any liability
under Title IV of ERISA (other than premiums due but not
delinquent under Section 4007 of ERISA) with respect to a Plan,
which could, in either event, reasonably be expected to have a
material adverse effect on the financial condition of Borrower.
Except as set forth on Schedule 5.12 attached hereto, no
application for a funding waiver or an extension of any
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amortization period pursuant to Section 412 of the IRC has been
made with respect to any Plan. No ERISA Event has occurred or is
reasonably expected to occur with respect to any Plan which could
reasonably be expected to have a material adverse effect on the
financial condition of Borrower. Borrower and each ERISA
Affiliate have complied in all material respects with the notice
and continuation coverage requirements of Section 4980B of the
IRC.
5.13 ENVIRONMENTAL CONDITION. (a) Borrower represents
and warrants to Foothill that (i) if Borrower or any tenant,
subtenant, or occupant uses Hazardous Materials, such use shall
only be in the ordinary course of its business at the Real
Property and shall be in substantial compliance with all
Environmental Laws governing said use, except for violations or
alleged violations of financial responsibility requirements as
set forth in 40 Code of Federal Regulations and corresponding
state regulations, with respect to closed surface impoundments
which exist as of the date hereof at the Real Property, the
estimated amount of Borrower's aggregate liability for which
Borrower from time to time shall furnish to Foothill upon request
by Foothill; (ii) Borrower shall conduct and complete all
investigations, studies, sampling, and testing (including
environmental audits or assessments) requested by Foothill based
upon a reasonable need therefor, and all remedial, removal, and
other actions necessary to clean up and remove, report or
otherwise remedy (to "Remedy") all Hazardous Materials on, under,
from, or affecting the Real Property as required by all
Environmental Laws, with the approval of appropriate federal,
state, and local governmental authorities, and in accordance with
the enforceable orders and directives of all federal, state, and
local governmental authorities, provided, however, that, the
foregoing notwithstanding, Borrower shall not be required to
Remedy any Hazardous Materials on, under, from, or affecting the
Real Property, where no enforcement action has been taken by any
federal state or local governmental authority with respect
thereto, and no affirmative obligation to Remedy has been imposed
by any applicable Environmental Law, unless, in either case, the
cost to Remedy would when aggregated with all other such costs
have a material adverse effect on Borrower's business or
financial condition or upon the Real Property; provided further,
however, that, the foregoing notwithstanding, where enforcement
action has been taken by any federal, state, or local
governmental authority with respect to any Hazardous Materials
on, under, from, or affecting the Real Property, Borrower shall
not be required to comply with any mandates in such action so
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long as Borrower diligently is proceeding in good faith to
contest such action, and such compliance or action is held in
abeyance voluntarily, or by stay, injunction, or otherwise.
(b) Subject to the limitations set forth below,
Borrower shall defend, indemnify, and hold harmless Foothill, its
employees, agents, officers, and directors (collectively, the
"Indemnitees"), from and against any claims, demands, penalties,
fines, liabilities, settlements, damages, costs, or expenses,
including, attorneys and consultants fees, investigation and
laboratory fees, court costs, and litigation expenses incurred by
Foothill, whether prior to or after the date hereof and whether
direct, indirect, known or unknown, contingent or otherwise, as a
result of or arising from any suit, claim, investigation, action,
or proceeding, whether threatened or initiated, asserting any
legal or equitable remedy under any Environmental Law. The
indemnity obligations hereunder shall survive the termination of
the other provisions of this Agreement and the full and final
payment of the Obligations. The indemnity obligations hereunder
are specifically limited as follows:
(i) Borrower shall have no indemnity
obligation with respect to Hazardous Materials that are first
introduced to the Real Property or any part of the Real Property
subsequent to the date that Borrower's interest in and possession
of the Real Property or any part of the Real Property shall be
fully terminated by foreclosure of the applicable Mortgage or
acceptance of a deed in lieu of foreclosure;
(ii) Borrower shall have no indemnity
obligation with respect to any Hazardous Materials introduced to
the Real Property or any part of the Real Property by Foothill,
its successors or assigns, except to the extent that (a) such
Hazardous Materials existed on, under, from, or affecting the
Real Property prior to Foothill's introduction of such Hazardous
Materials, or (b) any release or threatened release of such
Hazardous Materials was caused in whole or in part by the acts or
omissions of Borrower, its agents, or employees; and
(iii) Borrower shall have no indemnity
obligation to the extent Foothill shall have been guilty of any
grossly negligent act or willful misconduct that shall have been
the proximate cause of a release of Hazardous Materials that
otherwise would be been subject to the indemnity under this
Section 5.13(b).
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(c) Borrower agrees that in the event that a Mortgage
is foreclosed or Borrower tenders a deed in lieu of foreclosure,
Borrower shall deliver the Real Property to Foothill free of any
and all Hazardous Materials that are then required to be removed
(whether over time or immediately) pursuant to applicable
federal, state and local laws, ordinances, rules, or regulations
affecting the Real Property so that the condition of the Real
Property shall conform with all Environmental Laws affecting the
Real Property.
(d) Any and all amounts owed by Borrower to Foothill
under this Section 5.13 shall constitute additional Obligations
secured by the security interests created under this Agreement
and the liens and security interest created by the Mortgages.
5.14 RELIANCE BY FOOTHILL; CUMULATIVE. Each warranty
and representation contained in this Agreement automatically
shall be deemed repeated with each advance or issuance of an L/C
or L/C Guaranty and shall be conclusively presumed to have been
relied on by Foothill regardless of any investigation made or
information possessed by Foothill. The warranties and
representations set forth herein shall be cumulative and in
addition to any and all other warranties and representations that
Borrower now or hereafter shall give, or cause to be given, to
Foothill.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any
credit hereunder shall be available and until full and final
payment of the Obligations, and unless Foothill shall otherwise
consent in writing, Borrower shall, and shall cause Guarantor to
do all of the following:
6.1 ACCOUNTING SYSTEM. Maintain a standard and modern
system of accounting in accordance with GAAP with ledger and
account cards or computer tapes, discs, printouts, and records
pertaining to the Collateral which contain information as from
time to time may be requested by Foothill. Borrower also shall,
and shall cause Guarantor to keep proper books of account showing
all sales, claims, and allowances on its Inventory.
6.2 COLLATERAL REPORTS. Deliver to Foothill, no later
than the tenth (10th) day of each month during the term of this
Agreement, a detailed aging, by total, of the Accounts, a
reconciliation statement, and a summary aging of all accounts
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payable and an aging of the accounts payable owed to Borrower's
and Guarantor's largest (by accounts payable) ten (10) vendors
and any book overdraft. Original sales invoices evidencing daily
sales shall be mailed by Borrower or Guarantor, as applicable, to
each Account Debtor with, at Foothill's request, a copy to
Foothill, and, at Foothill's direction following the occurrence
of and during the continuation of an Event of Default, the
invoices shall indicate on their face that the Account has been
assigned to Foothill and that all payments are to be made
directly to Foothill. Borrower shall, and shall cause Guarantor
to deliver to Foothill, as Foothill may from time to time
require, collection reports, sales journals, invoices, original
delivery receipts, customer's purchase orders, shipping
instructions, bills of lading, and other documentation respecting
shipment arrangements. Absent such a request by Foothill, copies
of all such documentation shall be held by Borrower or Guarantor,
as applicable, as custodian for Foothill. In addition, from time
to time, Borrower shall deliver and cause Guarantor to deliver to
Foothill such other and additional information or documentation
as Foothill may request.
6.3 SCHEDULES OF ACCOUNTS. With such regularity as
Foothill shall require, Borrower shall provide and shall cause
Guarantor to provide to Foothill with schedules describing all
Accounts. Foothill's failure to request such schedules or
Borrower's or Guarantor's failure to execute and deliver such
schedules shall not affect or limit Foothill's security interests
or other rights in and to the Accounts.
6.4 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
Deliver to Foothill: (a) as soon as available, but in any event
within thirty (30) days after the end of each month during each
of Borrower's fiscal years (except for the month of September,
which shall be within sixty (60) days), a company prepared
balance sheet, income statement, and cash flow statement covering
Borrower's operations during such period; and (b) as soon as
available, but in any event within ninety (90) days after the end
of each of Borrower's fiscal years, financial statements of
Borrower for each such fiscal year, audited by independent
certified public accountants reasonably acceptable to Foothill
and certified, without any qualifications, by such accountants to
have been prepared in accordance with GAAP, together with a
certificate of such accountants addressed to Foothill stating
that such accountants do not have knowledge of the existence of
any event or condition constituting an Event of Default, or that
would, with the passage of time or the giving of notice,
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constitute an Event of Default. Such audited financial
statements shall include a balance sheet, profit and loss
statement, and cash flow statement, and, if prepared, such
accountants' letter to management. Borrower and Guarantor shall
have issued written instructions to their independent certified
public accountants authorizing them to communicate with Foothill
and to release to Foothill whatever financial information
concerning Borrower or Guarantor that Foothill may request;
provided, however, that Borrower and Guarantor shall not be
liable if such accountants fail to comply with Foothill's request
unless their failure is caused by the gross negligence or wilful
misconduct of Borrower or Guarantor. In addition to the
financial statements referred to above, Borrower agrees to
deliver financial statements prepared on a consolidating basis so
as to present Borrower and each subsidiary of Borrower
separately, and on a consolidated basis.
Together with the above, Borrower also shall deliver to
Foothill Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual
Reports, and Form 8-K Current Reports, and any other filings made
by Borrower or Guarantor with the Securities and Exchange
Commission, if any, as soon as the same are filed, or any other
information that is provided by Borrower and Guarantor to their
respective shareholders, and any other report reasonably
requested by Foothill relating to the Collateral, the Real
Property, or the financial condition of Borrower or Guarantor.
Each month, together with the financial statements
provided pursuant to Section 6.4(a), Borrower shall deliver to
Foothill a certificate signed by its chief financial officer to
the effect that: (i) all reports, statements, or computer
prepared information of any kind or nature delivered or caused to
be delivered to Foothill hereunder have been prepared in
accordance with GAAP and fairly present the financial condition
of Borrower and Guarantor; (ii) Borrower is in timely compliance
with all of its covenants and agreements hereunder; (iii) the
representations and warranties of Borrower and Guarantor
contained in the Loan Documents are true and correct in all
material respects on and as of the date of such certificate, as
though made on and as of such date (except to the extent that
such representations and warranties relate solely to an earlier
date); and (iv) on the date of delivery of such certificate to
Foothill there does not exist any condition or event that
constitutes an Event of Default (or, in each case, to the extent
of any non-compliance, describing such non-compliance as to which
he or she may have knowledge and what action Borrower or
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Guarantor, as applicable, has taken, is taking, or proposes to
take with respect thereto).
As soon as available and in any event no later than
sixty (60) days after the start of each fiscal year of Borrower,
Borrower will deliver Borrower's Projections to Foothill. Such
Projections shall be for the forthcoming three (3) years, year by
year, and for the forthcoming fiscal year, month by month.
Borrower hereby irrevocably authorizes all auditors,
accountants, or other third parties to deliver to Foothill, at
Borrower's expense, copies of Borrower's and Guarantor's
financial statements, papers related thereto, and other
accounting records of any nature in their possession, and to
disclose to Foothill any information they may have regarding
Borrower's or Guarantor's business affairs and financial
conditions.
6.5 TAX RETURNS. Borrower agrees to deliver to
Foothill copies of each of Borrower's future federal income tax
returns, and any amendments thereto, within thirty (30) days of
the filing thereof with the Internal Revenue Service.
6.6 GUARANTOR REPORTS. Borrower agrees to cause
Guarantor to deliver its annual financial statements at the time
when Borrower provides its audited financial statements to
Foothill and copies of all income tax returns as soon as the same
are available and in any event no later than thirty (30) days
after the same are required to be filed by law.
6.7 DESIGNATION OF INVENTORY. Borrower shall now and
from time to time hereafter, but not less frequently than weekly,
execute and deliver, and cause Guarantor to execute and deliver,
to Foothill a designation of Inventory specifying Borrower's and
Guarantor's respective costs and the wholesale market value of
Borrower's and Guarantor's respective raw materials, work in
process, and finished goods. Borrower shall now and from time to
time hereafter, but not less frequently than monthly, execute and
deliver, and cause Guarantor to execute and deliver, to Foothill
a report specifying the amount, in pounds, of Inventory that is
comprised of goods consigned by third Persons to Borrower or the
Guarantor and the locations thereof, containing, in such case, a
reconciliation statement reconciling the current information as
against the information contained in the report issued for the
prior month, specifying the amount of Inventory that is consigned
by Borrower or Guarantor to third Persons and the name of such
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consignees and the locations of such consigned Inventory, and
further specifying such other information as Foothill may
reasonably request. Borrower agrees that it will, and will cause
Guarantor to, keep any and all Inventory that is consigned by one
or more third Persons to it segregated from the remainder of its
Inventory and conspicuously marked as consigned Inventory and
acknowledges and agrees that no Inventory that is used to
calculate the Borrowing Base shall consist of Inventory consigned
by one or more third Persons to Borrower or Guarantor nor
Inventory consigned by Borrower or Guarantor to one or more third
Persons.
6.8 RETURNS. Returns and allowances, if any, as
between Borrower and Guarantor and their respective Account
Debtors shall be on the same basis and in accordance with the
usual customary practices of Borrower and Guarantor,
respectively, as they exist at the time of the execution and
delivery of this Agreement. If, at a time when no Event of
Default has occurred and is continuing, any Account Debtor
returns any Inventory to Borrower or Guarantor, Borrower or
Guarantor, as applicable, promptly shall determine the reason for
such return and, if Borrower or Guarantor, as the case may be,
accepts such return, issue a credit memorandum (with, at
Foothill's request, a copy to be sent to Foothill) in the
appropriate amount to such Account Debtor. If, at a time when an
Event of Default has occurred and is continuing, any Account
Debtor returns any Inventory to Borrower or Guarantor, Borrower
or Guarantor, as applicable, promptly shall determine the reason
for such return and, if Foothill consents (which consent shall
not be unreasonably withheld), Borrower or Guarantor, as the case
may be, shall issue a credit memorandum (with, at Foothill's
request, a copy to be sent to Foothill) in the appropriate amount
to such Account Debtor. On a daily basis, Borrower shall notify
Foothill of all returns and recoveries and shall notify Foothill
of all disputes and claims in excess of $20,000 per dispute or
claim.
6.9 TITLE TO EQUIPMENT. Upon Foothill's request,
Borrower immediately shall deliver and shall cause Guarantor to
deliver to Foothill, properly endorsed, any and all evidences of
ownership of, certificates of title, or applications for title to
any items of Equipment.
6.10 MAINTENANCE OF EQUIPMENT. Except for the
Abandoned Equipment, Borrower shall keep and maintain and shall
cause Guarantor to keep and maintain the Equipment in good
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operating condition and repair (ordinary wear and tear excepted),
and make all necessary replacements thereto so that the value and
operating efficiency thereof shall at all times be maintained and
preserved. Borrower shall not and shall cause Guarantor not to
permit any item of Equipment to become a fixture to real estate
or an accession to other property, and the Equipment is now and
shall at all times remain personal property.
6.11 TAXES. All assessments and taxes, whether real,
personal, or otherwise, due or payable by, or imposed, levied, or
assessed against Borrower or Guarantor or any of their property
have been paid, and shall hereafter be paid in full, before
delinquency or before the expiration of any extension period.
Borrower shall and shall cause Guarantor to make due and timely
payment or deposit of all federal, state, and local taxes,
assessments, or contributions required of it by law, and will
execute and deliver to Foothill, on demand, appropriate
certificates attesting to the payment thereof or deposit with
respect thereto. Borrower will and will cause Guarantor to make
timely payment or deposit of all tax payments and withholding
taxes required of it by applicable laws, including those laws
concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish
Foothill with proof satisfactory to Foothill indicating that
Borrower or Guarantor, as applicable, has made such payments or
deposits. The foregoing to the contrary notwithstanding,
Borrower and Guarantor shall not be required to pay or discharge
any such assessment or tax (other than payroll taxes or any taxes
that are the subject of a Federal tax lien) so long as the
validity thereof shall be the subject of a Permitted Protest.
6.12 INSURANCE.
(a) Borrower, at its expense, shall and shall
cause Guarantor to keep the Collateral, the collateral that is
the subject of the Security Agreement, and the Real Property
insured against loss or damage by fire, theft, explosion,
sprinklers, and all other hazards and risks, and in such amounts,
as are ordinarily insured against by other owners in similar
businesses. Borrower also shall and shall cause Guarantor to
maintain business interruption, public liability, product
liability, and property damage insurance relating to Borrower's
or Guarantor's, as applicable, ownership and use of the
Collateral, the collateral that is the subject of the Security
Agreement, and the Real Property, as well as insurance against
larceny, embezzlement, and criminal misappropriation.
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(b) All such policies of insurance shall be in
such form, with such companies, and in such amounts as may be
reasonably satisfactory to Foothill. All such policies of
insurance (except those of public liability and property damage)
shall contain a 438BFU lender's loss payable endorsement, or an
equivalent endorsement in a form satisfactory to Foothill,
showing Foothill as sole loss payee thereof, and shall contain a
waiver of warranties, and shall specify that the insurer must
give at least ten (10) days prior written notice to Foothill
before canceling its policy for any reason. Borrower shall
deliver to Foothill certified copies of such policies of
insurance and evidence of the payment of all premiums therefor.
All proceeds payable under any such policy (other than with
respect to business interruption) shall be payable to Foothill to
be applied on account of the Obligations and all proceeds under
any such policy with respect to business interruption shall be
payable to Foothill to be applied to the revolving credit
facility set forth under Section 2.1 hereof. The foregoing
notwithstanding, Foothill agrees to exercise its reasonable
judgment in determining whether to permit Borrower to receive all
or a portion of the proceeds payable under any such policy in
order to permit it to replace or rebuild any Equipment or Real
Property that was the subject of the applicable casualty loss.
6.13 FINANCIAL COVENANTS. Borrower shall maintain:
(a) Current Ratio. A ratio of Consolidated
Current Assets divided by Consolidated Current Liabilities of at
least fifty-seven one-hundredths to one (0.57:1.0), measured on a
fiscal quarter-end basis;
(b) Tangible Net Worth. Tangible Net Worth of
not less than (i.e., not worse than) negative Thirty Two Million
Dollars (<$32,000,000>), measured on a fiscal quarter-end basis;
and
(c) Working Capital. Working Capital of not less
than (i.e., not worse than) negative Forty Three Million Dollars
(<$43,000,000>), measured on a fiscal quarter-end basis.
6.14 NO SETOFFS OR COUNTERCLAIMS. All payments
hereunder and under the other Loan Documents made by or on behalf
of Borrower shall be made without setoff or counterclaim and free
and clear of, and without deduction or withholding for or on
account of, any federal, state, or local taxes.
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6.15 LOCATION OF INVENTORY AND EQUIPMENT. Borrower and
Guarantor shall keep the Inventory and Equipment only at the
locations identified on Schedule 6.15; provided, however, that
Borrower and Guarantor may amend Schedule 6.15 so long as such
amendment occurs by written notice to Foothill not less than
thirty (30) days prior to the date on which the Inventory or
Equipment is moved to such new location, so long as such new
location is within the continental United States (or, with
respect to the Inventory of Guarantor, within Canada), and so
long as, at the time of such written notification, Borrower and
Guarantor provide any financing statements or fixture filings
necessary to perfect and continue perfected Foothill's security
interests in such assets and also provide to Foothill a
landlord's waiver in form and substance satisfactory to Foothill.
6.16 COMPLIANCE WITH LAWS. Borrower shall and shall
cause Guarantor to comply with the requirements of all applicable
laws, rules, regulations, and orders of any governmental
authority, including, in the case of Borrower, the Fair Labor
Standards Act and the Americans With Disabilities Act, other than
laws, rules, regulations, and orders the non-compliance with
which, individually or in the aggregate, would not have and could
not reasonably be expected to have a material adverse effect on
the business, operations, condition (financial or otherwise),
finances, or prospects of Borrower or Guarantor, or on the value
of the Collateral, the collateral that is the subject of the
Security Agreement, and the Real Property to Foothill.
6.17 EMPLOYEE BENEFITS.
(a) Borrower shall deliver to Foothill a written
statement by the chief financial officer of Borrower or
Guarantor, as applicable, specifying the nature of any of the
following events and the actions which Borrower or Guarantor, as
applicable, proposes to take with respect thereto promptly, and
in any event within ten (10) days of becoming aware of any of
them, and when known, any action taken or threatened by the
Internal Revenue Service, PBGC, Department of Labor, or other
party with respect thereto: (i) an ERISA Event (or comparable
event under Canadian law) with respect to any Plan; (ii) the
incurrence of an obligation to pay additional premium to the PBGC
under Section 4006(a)(3)(E) of ERISA (or comparable event under
Canadian law) with respect to any Plan; and (iii) any lien on the
assets of Borrower or Guarantor arising in connection with any
Plan.
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(b) Borrower shall also promptly furnish to Foothill
copies prepared or received by Borrower or an ERISA Affiliate of:
(i) at the request of Foothill, each annual report (Internal
Revenue Service Form 5500 series) and all accompanying schedules,
actuarial reports, financial information concerning the financial
status of each Plan, and schedules showing the amounts
contributed to each Plan by or on behalf of Borrower or its ERISA
Affiliates for the most recent three (3) plan years; (ii) all
notices of intent to terminate or to have a trustee appointed to
administer any Plan; (iii) all written demands by the PBGC under
Subtitle D of Title IV of ERISA; (iv) all notices required to be
sent to employees or to the PBGC under Section 302 of ERISA or
Section 412 of the IRC; (v) all written notices received with
respect to a Multiemployer Plan concerning (x) the imposition or
amount of withdrawal liability pursuant to Section 4202 of ERISA,
(y) a termination described in Section 4041A of ERISA, or (z) a
reorganization or insolvency described in Subtitle E of Title IV
of ERISA; (vi) the adoption of any new Plan that is subject to
Title IV of ERISA or Section 412 of the IRC by Borrower or any
ERISA Affiliate; (vii) the adoption of any amendment to any Plan
that is subject to Title IV of ERISA or Section 412 of the IRC,
if such amendment results in a material increase in benefits or
Unfunded Benefit Liability; or (viii) the commencement of
contributions by Borrower or any ERISA Affiliate to any Plan that
is subject to Title IV of ERISA or Section 412 of the IRC.
6.18 LEASES. Borrower shall and shall cause Guarantor
to pay when due all rents and other amounts payable under any
leases to which Borrower or Guarantor, as applicable, is a party
or by which Borrower's or Guarantor's properties and assets are
bound, unless such payments are the subject of a good faith
Permitted Protest. To the extent that Borrower or Guarantor
fails timely to make payment of such rents and other amounts
payable when due under its leases, Foothill shall be entitled, in
its discretion, and without the necessity of declaring an Event
of Default, to reserve an amount equal to such unpaid amounts
from the loan availability created under Section 2.1 hereof.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any
credit hereunder shall be available and until full and final
payment of the Obligations, Borrower will not, and will not
permit Guarantor to, do any of the following without Foothill's
prior written consent:
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7.1 INDEBTEDNESS. Create, incur, assume, permit,
guarantee, or otherwise become or remain, directly or indirectly,
liable with respect to any Indebtedness, except:
(a) Indebtedness evidenced by this Agreement, the
Equipment Term Note, the Real Property Term Note, or the New
Equipment Term Note;
(b) Indebtedness set forth in the latest
financial statements of Borrower submitted to Foothill on or
prior to the Closing Date;
(c) Indebtedness secured by Permitted Liens; and
(d) Indebtedness permitted under Section 7.6
hereof;
(e) refinancings, renewals, or extensions of
Indebtedness permitted under clauses (b) and (c) of this Section
7.1 (and continuance or renewal of any Permitted Liens associated
therewith) so long as: (i) the terms and conditions of such
refinancings, renewals, or extensions do not materially impair
the prospects of repayment of the Obligations by Borrower or
Guarantor, as applicable, (ii) the net cash proceeds of such
refinancings, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness so
refinanced, renewed, or extended, (iii) such refinancings,
renewals, refundings, or extensions do not result in a shortening
of the average weighted maturity of the Indebtedness so
refinanced, renewed, or extended, and (iv) to the extent that
Indebtedness that is refinanced was subordinated in right of
payment to the Obligations, then the subordination terms and
conditions of the refinancing Indebtedness must be at least as
favorable to Foothill as those applicable to the refinanced
Indebtedness.
7.2 LIENS. Create, incur, assume, or permit to exist,
or cause Guarantor to create, incur, assume, or permit to exist,
directly or indirectly, any lien on or with respect to any of
Borrower's or Guarantor's property or assets, of any kind,
whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including liens that are
replacements of Permitted Liens to the extent that the original
Indebtedness is refinanced under Section 7.1(e) and so long as
the replacement liens secure only those assets or property that
secured the original Indebtedness).
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7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into
any acquisition, merger, consolidation, reorganization, or
recapitalization, or reclassify its capital stock, or liquidate,
wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or
otherwise dispose of, in one transaction or a series of
transactions, all or any substantial part of its business,
property, or assets, whether now owned or hereafter acquired, or
acquire by purchase or otherwise all or substantially all of the
properties, assets, stock, or other evidence of beneficial
ownership of any Person.
7.4 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS.
Enter into or cause Guarantor to enter into any transaction not
in the ordinary and usual course of Borrower's or Guarantor's, as
applicable, business, including the sale, lease, or other
disposition of, moving, relocation, or transfer, whether by sale
or otherwise, of any of Borrower's or Guarantor's, as applicable,
properties, assets (other than sales of Inventory to buyers in
the ordinary course of Borrower's or Guarantor's, as applicable,
business as currently conducted).
7.5 CHANGE NAME. Change Borrower's or Guarantor's
business structure or identity or, except upon thirty (30) days
prior written notification to Foothill, change Borrower's or
Guarantor's name, FEIN, or add any new fictitious name.
7.6 GUARANTEE. Guarantee or otherwise become in any
way liable with respect to the obligations of any third Person
except by endorsement of instruments or items of payment for
deposit to the account of Borrower or Guarantor, as applicable,
or which are transmitted or turned over to Foothill. The
foregoing notwithstanding, (a) Borrower may continue its existing
guaranty of the Indebtedness of NSC-UK owing to NBD that is in a
maximum amount of Three Million Pounds Sterling ( 3,000,000), (b)
Borrower may continue its guaranty of the Indebtedness of NSC-UK
owing to Midland Bank plc that is in a maximum amount of Five
Hundred Thousand Pounds Sterling ( 500,000), (c) Borrower may
guaranty the Indebtedness of NSC-UK so long as the aggregate
amount of all such guarantees (inclusive of those under clauses
(a) and (b) above) do not exceed Four Million Pounds Sterling
( 4,000,000) at any one time, (d) Borrower may continue its
guaranties of the Indebtedness of the Joint Venture that, as of
the Closing Date, are in a maximum amount of Four Hundred Fifty
Thousand Dollars ($450,000), (e) Borrower may guaranty the
Indebtedness of the Joint Venture, so long as the aggregate
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amount of all such guarantees (inclusive of those under clause
(d) above) do not exceed One Million Seven Hundred Fifty Thousand
Dollars ($1,750,000) at any one time outstanding, and (f)
Borrower may guaranty the Indebtedness of Guarantor so long as
such Indebtedness could have been incurred hereunder.
7.7 RESTRUCTURE. Make any change in Borrower's or
Guarantor's financial structure, the principal nature of
Borrower's or Guarantor's business operations, or the date of its
fiscal year.
7.8 PREPAYMENTS. Except in connection with a
refinancing permitted by Section 7.1(d), or those required or
permitted by this Agreement, prepay any Indebtedness owing to any
third Person.
7.9 CHANGE OF CONTROL. Cause, permit, or suffer,
directly or indirectly, any Change of Control.
7.10 CAPITAL EXPENDITURES. Make any capital
expenditure, or any commitment therefor, in excess of Two Million
Dollars ($2,000,000) for any individual transaction or where the
aggregate amount of such capital expenditures, made or committed
for in any fiscal year, is in excess of Ten Million Dollars
($10,000,000). The foregoing notwithstanding, Borrower shall be
entitled to purchase or lease on a capitalized lease basis all or
any portion of those twenty-one looms that it currently leases on
an operating lease basis from Toyota Tsusho America.
7.11 BILL AND HOLDS. Sell, or cause, suffer, or permit
Guarantor to sell, any Inventory on bill and hold terms of sale.
Consign, or cause, suffer, or permit Guarantor to consign, any
Inventory other than in the ordinary course of its business
consistent with its past practices.
7.12 DISTRIBUTIONS. Make any distribution or declare
or pay any dividends (in cash) on, or purchase, acquire, redeem,
or retire any of Borrower's or Guarantor's capital stock, of any
class, whether now or hereafter outstanding.
7.13 ACCOUNTING METHODS. Except to the extent required
by GAAP or the Financial Accounting Standards Board, modify or
change its method of accounting or enter into, modify, or
terminate any agreement currently existing, or at any time
hereafter entered into with any third party accounting firm or
service bureau for the preparation or storage of Borrower's or
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Guarantor's accounting records without said accounting firm or
service bureau agreeing to provide Foothill information regarding
the Collateral and the Real Property or Borrower's or Guarantor's
financial condition. Borrower waives and shall cause Guarantor
to waive the right to assert a confidential relationship, if any,
it may have with any accounting firm or service bureau in
connection with any information requested by Foothill pursuant to
or in accordance with this Agreement or any other Loan Document,
and agrees that Foothill may contact directly any such accounting
firm or service bureau in order to obtain such information.
7.14 INVESTMENTS. Directly or indirectly make or
acquire any beneficial interest in (including stock, partnership
interest, or other securities of), or make any loan, advance, or
capital contribution to, any Person; provided, however that the
foregoing shall not prohibit (a) loans or advances by Borrower to
Guarantor or by Guarantor to Borrower; provided, however, that
the aggregate amount of all such loans or advances made by
Borrower during the term of this Agreement shall not exceed One
Million Five Hundred Thousand Dollars ($1,500,000) at any one
time outstanding;, (b) the maintenance of Borrower's existing
beneficial interests in, or loans, advances, or capital
contributions to, the Joint Venture, which as of the Closing Date
do not exceed Three Hundred Thousand Dollars ($300,000), (c) the
making or acquisition of additional beneficial interests in, or
the making of additional loans, advances, or capital
contributions to, the Joint Venture; provided, however, that the
aggregate amount of all such investments made by Borrower whether
as of the Closing Date or during the term of this Agreement shall
not exceed Six Hundred Thousand Dollars ($600,000) at any one
time outstanding; provided, however, that, if the amount of
Borrower's investments in the Joint Venture and guaranties on it
behalf would, after giving effect to any proposed investment or
guaranty, exceed Two Million Dollars ($2,000,000) then, before
making such additional investment or guaranty, Borrower shall
hypothecate to Foothill, pursuant to agreements in form and
substance satisfactory to Foothill, all of its investments
(including, if applicable, the investment to be acquired) in the
Joint Venture, (d) the maintenance of Borrower's existing
beneficial interests in, or loans, advances, or capital
contributions to, the NSC-UK, which as of the Closing Date do not
exceed Seven Million Three Hundred Twenty One Thousand Dollars
($7,321,000), and (e) the making or acquisition of additional
beneficial interests in, or the making of additional loans,
advances, or capital contributions to, NSC-UK; provided, however,
that the aggregate amount of all such investments made by
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Borrower whether as of the Closing Date or during the term of
this Agreement shall not exceed Eight Million Dollars
($8,000,000) at any one time outstanding.
7.15 TRANSACTIONS WITH AFFILIATES. Directly or
indirectly enter into or permit to exist any material transaction
with any Affiliate of Borrower except for transactions that are
in the ordinary course of Borrower's or Guarantor's business,
upon fair and reasonable terms, that are fully disclosed to
Foothill, and that are no less favorable to Borrower or
Guarantor, as applicable, than would be obtained in arm's length
transaction with a non-Affiliate.
7.16 SUSPENSION. Suspend or go out of a substantial
portion of its business, or cause, suffer, or permit Guarantor to
do the same.
7.17 USE OF PROCEEDS. Use the proceeds of the advances
made hereunder for any purpose other than: (a) on the Closing
Date, to repay in full the outstanding principal, accrued
interest, and accrued fees and expenses owing to (i) the Old
Lenders, and (ii) Foothill under the Old Foothill Term Loan
Agreement; (b) to pay transactional costs and expenses incurred
in connection with this Agreement; and (c) thereafter, consistent
with the terms and conditions hereof, for its lawful and
permitted corporate purposes.
7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE;
INVENTORY AND EQUIPMENT WITH BAILEES. Borrower covenants and
agrees that it will not, and will not permit Guarantor to,
without thirty (30) days prior written notification to Foothill,
relocate its or Guarantor's chief executive office to a new
location and so long as, at the time of such written
notification, Borrower or Guarantor, as applicable, provides any
financing statements or fixture filings necessary to perfect and
continue perfected Foothill's security interests and also
provides to Foothill a landlord's waiver in form and substance
satisfactory to Foothill. The Inventory and Equipment shall not
at any time now or hereafter be stored with a bailee,
warehouseman, or similar party without Foothill's prior written
consent.
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8. EVENTS OF DEFAULT.
Any one or more of the following events shall
constitute an event of default (each, an "Event of Default")
under this Agreement:
8.1 If Borrower fails to pay when due and payable or
when declared due and payable, any portion of the Obligations
(whether of principal, interest (including any interest which,
but for the provisions of the Bankruptcy Code, would have accrued
on such amounts), fees and charges due Foothill, reimbursement of
Foothill Expenses, or other amounts constituting Obligations)
unless in any case under this Section 8.1 (except as set forth in
the following proviso) such payment is made within five days
after the date such payment was first due; provided, however,
that the five day grace period set forth herein shall not apply
to (i) Overadvances that are not caused by the charging of
interest or Foothill Expenses to Borrower's loan account with
Foothill, or (ii) any payment obligation that arises in
connection with or as a result of any fraudulent act, deceit, or
intentional or grossly negligent misrepresentation on the part of
Borrower;
8.2 (a) If Borrower fails or neglects to perform,
keep, or observe any term, provision, condition, covenant, or
agreement contained in Sections 6.3, 6.7, and 6.9 of this
Agreement and such failure continues for a period of five (5)
days from the date of such failure or neglect; (b) If Borrower
fails or neglects to perform, keep, or observe any term,
provision, condition, covenant, or agreement contained in
Sections 6.2, 6.4, 6.5, 6.6, 6.10, 6.11, 6.15, 6.16, 6.17, or
6.18 of this Agreement and such failure continues for a period of
fifteen (15) days from the date of such failure or neglect; or
(c) If Borrower fails or neglects to perform, keep, or observe
any other term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in
any other present or future agreement between Borrower and
Foothill (other than any such term, provision, condition,
covenant, or agreement that is the subject of another provision
of this Article 8);
8.3 If there is, in Foothill's judgment, a material
impairment of the prospect of repayment of any portion of the
Obligations owing to Foothill or a material impairment of the
value or priority of Foothill's security interests in the
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Collateral, the "Collateral" (as defined in the Guarantor
Security Agreement), or the Real Property;
8.4 If any material portion of Borrower's properties
or assets is attached, seized, subjected to a writ or distress
warrant, or is levied upon, or comes into the possession of any
third Person;
8.5 If an Insolvency Proceeding is commenced by
Borrower;
8.6 If an Insolvency Proceeding is commenced against
Borrower and any of the following events occur: (a) Borrower -
consents to the institution of the Insolvency Proceeding against
it; (b) the petition commencing the Insolvency Proceeding is not
timely controverted; provided, however, that, during the pendency
of such period, Foothill shall be relieved of its obligation to
make additional advances or issue additional L/Cs or L/C
Guarantees hereunder; (c) the petition commencing the Insolvency
Proceeding is not dismissed within forty-five (45) calendar days
of the date of the filing thereof; provided, however, that,
during the pendency of such period, Foothill shall be relieved of
its obligation to make additional advances or issue additional
L/Cs or L/C Guarantees hereunder; (d) an interim trustee is
appointed to take possession of all or a substantial portion of
the properties or assets of, or to operate all or any substantial
portion of the business of, Borrower; or (e) an order for relief
shall have been issued or entered therein;
8.7 If Borrower is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any
material part of its business affairs;
8.8 (a) If a notice of lien, levy, or assessment is
filed of record with respect to any of Borrower's assets by the
United States Government, or any department, agency, or
instrumentality thereof, or if any taxes or debts owing at any
time hereafter to the United States Government, or any
department, agency, or instrumentality thereof, becomes a lien,
whether choate or otherwise, upon any of Borrower's properties
and assets; or (b) if a notice of lien, levy, or assessment is
filed of record with respect to any material portion of
Borrower's assets by any state, county, municipal, or
governmental agency, or if any taxes or debts in an aggregate
amount of $100,000, or more, owing at any time hereafter to any
one or more of such entities becomes a lien, whether choate or
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otherwise, upon any of Borrower's properties or assets and the
same is not paid on the payment date thereof;
8.9 If a judgment or other claim becomes a lien or
encumbrance upon any material portion of Borrower's properties or
assets;
8.10 If there is a default in any material agreement to
which Borrower is a party with one or more third Persons
resulting in a right by such third Persons, irrespective of
whether exercised, to accelerate the maturity of Borrower's
obligations thereunder, which default is continuing and has not
been cured or waived;
8.11 If Borrower makes any payment on account of
Indebtedness that has been contractually subordinated in right of
payment to the payment of the Obligations, except to the extent
such payment is permitted by the terms of the subordination
provisions applicable to such Indebtedness;
8.12 If any material misstatement or misrepresentation
exists, at the time when made, whether made now or hereafter in
any warranty, representation, statement, or report made to
Foothill by Borrower or Guarantor or any officer, employee,
agent, or director of Borrower or Guarantor, or if any such
warranty or representation is withdrawn;
8.13 If the obligation of Guarantor or other third
Person under any Loan Document is limited or terminated by
operation of law or by Guarantor or other third Person
thereunder, or Guarantor or any other such third Person becomes
the subject of an Insolvency Proceeding; or
8.14 With respect to any Plan, the occurrence of
any of the following which could reasonably be expected to have a
material adverse effect on the financial condition of Borrower:
(i) the violation of any of the provisions of ERISA; (ii) the
loss by a Plan intended to be a Qualified Plan of its
qualification under Section 401(a) of the IRC; (iii) the
incurrence of liability under Title IV of ERISA; (iv) a failure
to make full payment when due of all amounts which, under the
provisions of any Plan or applicable law, Borrower or any ERISA
Affiliate is required to make; (v) the filing of a notice of
intent to terminate a Plan under Sections 4041 or 4041A of ERISA;
(vi) a complete or partial withdrawal of Borrower or an ERISA
Affiliate from any Plan; (vii) the receipt of a notice by the
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plan administrator of a Plan that the PBGC has instituted
proceedings to terminate such Plan or appoint a trustee to
administer such Plan; (viii) a commencement or increase of
contributions to, or the adoption of or the amendment of, a Plan;
and (ix) the assessment against Borrower or any ERISA Affiliate
of a tax under Section 4980B of the IRC.
8.15 If an event of default occurs under the Guarantor
Security Agreement.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and
during the continuation, of an Event of Default Foothill may, at
its election, without notice of its election and without demand,
do any one or more of the following, all of which are authorized
by Borrower:
(a) Declare all Obligations, whether evidenced by
this Agreement, by any of the other Loan Documents, or otherwise,
immediately due and payable;
(b) Cease advancing money or extending credit to
or for the benefit of Borrower under this Agreement, under any of
the Loan Documents, or under any other agreement between Borrower
and Foothill;
(c) Terminate this Agreement and any of the other
Loan Documents as to any future liability or obligation of
Foothill, but without affecting Foothill's rights and security
interests in the Collateral or the Real Property and without
affecting the Obligations;
(d) Settle or adjust disputes and claims directly
with Account Debtors for amounts and upon terms which Foothill
considers advisable, and in such cases, Foothill will credit
Borrower's loan account with only the net amounts received by
Foothill in payment of such disputed Accounts after deducting all
Foothill Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory
in trust for Foothill, segregate all returned Inventory from all
other property of Borrower or in Borrower's possession and
conspicuously label said returned Inventory as the property of
Foothill;
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(f) Without notice to or demand upon Borrower or
Guarantor, make such payments and do such acts as Foothill
considers necessary or reasonable to protect its security
interests in the Collateral. Borrower agrees to assemble the
Collateral if Foothill so requires, and to make the Collateral
available to Foothill as Foothill may designate. Borrower
authorizes Foothill to enter the premises where the Collateral is
located, to take and maintain possession of the Collateral, or
any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or lien that in Foothill's determination
appears to conflict with its security interests and to pay all
expenses incurred in connection therewith. With respect to any
of Borrower's owned premises, Borrower hereby grants Foothill a
license to enter into possession of such premises and to occupy
the same, without charge, for up to one hundred twenty (120) days
in order to exercise any of Foothill's rights or remedies
provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower (such notice being
expressly waived), and without constituting a retention of any
collateral in satisfaction of an obligation (within the meaning
of Section 9505 of the Code), set off and apply to the
Obligations any and all (i) balances and deposits of Borrower
held by Foothill (including any amounts received in the Lockbox
Accounts), or (ii) indebtedness at any time owing to or for the
credit or the account of Borrower held by Foothill;
(h) Hold, as cash collateral, any and all
balances and deposits of Borrower held by Foothill, and any
amounts received in the Lockbox Accounts, to secure the full and
final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell
(in the manner provided for herein) the Collateral. Foothill 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, service marks, and
advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and Borrower's
rights under all licenses and all franchise agreements shall
inure to Foothill's benefit;
(j) Sell the Collateral at either a public or
private sale, or both, by way of one or more contracts or
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transactions, for cash or on terms, in such manner and at such
places (including Borrower's premises) as Foothill determines is
commercially reasonable. It is not necessary that the Collateral
be present at any such sale;
(k) Foothill shall give notice of the disposition
of the Collateral as follows:
(1) Foothill shall give Borrower and each
holder of a security interest in the Collateral who has filed
with Foothill a written request for notice, a notice in writing
of the time and place of public sale, or, if the sale is a
private sale or some other disposition other than a public sale
is to be made of the Collateral, then the time on or after which
the private sale or other disposition is to be made;
(2) The notice shall be personally delivered
or mailed, postage prepaid, to Borrower as provided in Section
12, at least five (5) days before the date fixed for the sale, or
at least five (5) days before the date on or after which the
private sale or other disposition is to be made; no notice needs
to be given prior to the disposition of any portion of the
Collateral that is perishable or threatens to decline speedily in
value or that is of a type customarily sold on a recognized
market. Notice to Persons other than Borrower claiming an
interest in the Collateral shall be sent to such addresses as
they have furnished to Foothill;
(3) If the sale is to be a public sale,
Foothill also shall give notice of the time and place by
publishing a notice one time at least five (5) days before the
date of the sale in a newspaper of general circulation in the
county in which the sale is to be held;
(l) Foothill may credit bid and purchase at any
public sale; and
(m) Any deficiency that exists after disposition
of the Collateral as provided above will be paid immediately by
Borrower. Any excess will be returned, without interest and
subject to the rights of third Persons, by Foothill to Borrower.
9.2 REMEDIES CUMULATIVE. Foothill's rights and
remedies under this Agreement, the Loan Documents, and all other
agreements shall be cumulative. Foothill shall have all other
rights and remedies not inconsistent herewith as provided under
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the Code, by law, or in equity. No exercise by Foothill of one
right or remedy shall be deemed an election, and no waiver by
Foothill of any Event of Default shall be deemed a continuing
waiver. No delay by Foothill shall constitute a waiver,
election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes, rents,
assessments, insurance premiums, or otherwise) due to third
Persons, or fails to make any deposits or furnish any required
proof of payment or deposit, all as required under the terms of
this Agreement, then, to the extent that Foothill determines that
such failure by Borrower could have a material adverse effect on
Foothill's interests in the Collateral or the Real Property, in
its discretion and without prior notice to Borrower, Foothill may
do any or all of the following: (a) make payment of the same or
any part thereof; (b) set up such reserves in Borrower's loan
account as Foothill deems necessary to protect Foothill from the
exposure created by such failure; or (c) obtain and maintain
insurance policies of the type described in Section 6.12, and
take any action with respect to such policies as Foothill deems
prudent. Any such amounts paid by Foothill shall constitute
Foothill Expenses. Any such payments made by Foothill shall not
constitute an agreement by Foothill to make similar payments in
the future or a waiver by Foothill of any Event of Default under
this Agreement. Foothill need not inquire as to, or contest the
validity of, any such expense, tax, security interest,
encumbrance, or lien and the receipt of the usual official notice
for the payment thereof shall be conclusive evidence that the
same was validly due and owing. The foregoing to the contrary
notwithstanding, Borrower and Guarantor shall not be required to
pay or discharge any such assessment or tax (other than payroll
taxes or any taxes that are the subject of a Federal tax lien),
and Foothill shall not have the foregoing rights with respect
thereto, if the validity thereof shall be the subject of a
Permitted Protest.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrower waives demand,
protest, notice of protest, notice of default or dishonor, notice
of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and
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guarantees at any time held by Foothill on which Borrower may in
any way be liable.
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as
Foothill complies with its obligations, if any, under Section
9207 of the Code, Foothill shall not in any way or manner be
liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage thereto occurring or arising
in any manner or fashion from any cause; (c) any diminution in
the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other Person. All
risk of loss, damage, or destruction of the Collateral shall be
borne by Borrower.
11.3 INDEMNIFICATION. Borrower agrees to defend,
indemnify, save, and hold Foothill and its officers, employees,
and agents harmless against: (a) all obligations, demands,
claims, and liabilities claimed or asserted by any other Person
arising out of or relating to the transactions contemplated by
this Agreement or any other Loan Document, and (b) all losses
(including attorneys fees and disbursements) in any way suffered,
incurred, or paid by Foothill as a result of or in any way
arising out of, following, or consequential to the transactions
contemplated by this Agreement or any other Loan Document,
except, in each case, to the extent that such obligation, demand,
claim, liability, or loss was caused by the gross negligence or
wilful misconduct of Foothill. This provision shall survive the
termination of this Agreement.
12. NOTICES.
Unless otherwise provided in this Agreement, all
notices or demands by any party relating to this Agreement or any
other Loan Document shall be in writing and (except for financial
statements and other informational documents which may be sent by
first-class mail, postage prepaid) shall be personally delivered
or sent by registered or certified mail, postage prepaid, return
receipt requested, or by prepaid telex, TWX, telefacsimile, or
telegram (with messenger delivery specified) to Borrower or to
Foothill, as the case may be, at its address set forth below:
If to Borrower: NATIONAL-STANDARD COMPANY
1618 Terminal Road
Niles, Michigan 49120
Attn.: William D. Grafer
David L. Lawrence
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with a copy to: MCDERMOTT, WILL & EMERY
227 West Monroe Street
Chicago, Illinois 60606-5096
Attn.: Frederick W. Axley, Esq.
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn.: Business Finance Division
Manager
with a copy to: BROBECK, PHLEGER & HARRISON
550 South Hope Street
Los Angeles, California 90071
Attn.: John Francis Hilson, Esq.
The parties hereto may change the address at which they
are to receive notices hereunder, by notice in writing in the
foregoing manner given to the other. All notices or demands sent
in accordance with this Section 12, other than notices by
Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual
receipt or three (3) days after the deposit thereof in the mail.
Borrower acknowledges and agrees that notices sent by Foothill in
connection with Sections 9504 or 9505 of the Code shall be deemed
sent when deposited in the mail or transmitted by telefacsimile
or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES
HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED
HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE PARTIES
AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH
THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND
FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT
AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT
FOOTHILL'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE
FOOTHILL ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR
OTHER PROPERTY MAY BE FOUND. EACH OF BORROWER AND FOOTHILL
WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT
EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR
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TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 13. BORROWER AND FOOTHILL HEREBY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS,
AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER AND
FOOTHILL REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A
COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other
papers delivered to Foothill may be destroyed or otherwise
disposed of by Foothill four (4) months after they are delivered
to or received by Foothill, unless Borrower requests, in writing,
the return of said documents, schedules, or other papers and
makes arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding
and deemed effective when executed by Borrower and Foothill.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind
and inure to the benefit of the respective successors and assigns
of each of the parties; provided, however, that Borrower may not
assign this Agreement or any rights or duties hereunder without
Foothill's prior written consent and any prohibited assignment
shall be absolutely void. No consent to an assignment by
Foothill shall release Borrower from its Obligations. Foothill
may assign this Agreement and its rights and duties hereunder;
provided, however, that, in the event that the rights and duties
of Foothill hereunder are assigned (other than in connection with
the sale or merger of Foothill or the sale of a substantial
portion of its loan portfolio), Foothill shall not make any such
assignment without the prior written consent of Borrower, which
consent shall not be unreasonably withheld. Foothill reserves
the right to sell, assign, transfer, negotiate, or grant
participations in all or any part of, or any interest in
Foothill's rights and benefits hereunder. In connection with any
such assignment or participation, Foothill may disclose all
documents and information which Foothill now or hereafter may
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have relating to Borrower or Borrower's business. To the extent
that Foothill assigns its rights and obligations hereunder to a
third Person, Foothill thereafter shall be released from such
assigned obligations to Borrower and such assignment shall effect
a novation between Borrower and such third Person.
15.3 SECTION HEADINGS. Headings and numbers have been
set forth herein for convenience only. Unless the contrary is
compelled by the context, everything contained in each section
applies equally to this entire Agreement.
15.4 INTERPRETATION. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved
against Foothill or Borrower, whether under any rule of
construction or otherwise. On the contrary, this Agreement has
been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used
so as to fairly accomplish the purposes and intentions of all
parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of
this Agreement shall be severable from every other provision of
this Agreement for the purpose of determining the legal
enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement cannot be
changed or terminated orally. All prior agreements,
understandings, representations, warranties, and negotiations, if
any, are merged into this Agreement.
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This
Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when
executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this
Agreement by telefacsimile shall be equally as effective as
delivery of a manually executed counterpart of this Agreement.
Any party delivering an executed counterpart of this Agreement by
telefacsimile also shall deliver a manually executed counterpart
of this Agreement but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement.
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Obligations by Borrower or Guarantor
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of the Obligations or the transfer by either or both of such
parties to Foothill of any property of either or both of such
parties should for any reason subsequently be declared to be void
or voidable under any state or federal law relating to creditors'
rights, including provisions of the Bankruptcy Code relating to
fraudulent conveyances, preferences, and other voidable or
recoverable payments of money or transfers of property
(collectively, a "Voidable Transfer"), and if Foothill is
required to repay or restore, in whole or in part, any such
Voidable Transfer, or elects to do so upon the reasonable advice
of its counsel, then, as to any such Voidable Transfer, or the
amount thereof that Foothill is required or elects to repay or
restore, and as to all reasonable costs, expenses, and attorneys
fees of Foothill related thereto, the liability of Borrower or
Guarantor automatically shall be revived, reinstated, and
restored and shall exist as though such Voidable Transfer had
never been made.
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15.9 INTEGRATION. This Agreement, together with the
other Loan Documents, reflects the entire understanding of the
parties with respect to the transactions contemplated hereby and
shall not be contradicted or qualified by any other agreement,
oral or written, whether before or after the date hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in Los Angeles, California.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By__________________________
Title:______________________
NATIONAL-STANDARD COMPANY,
an Indiana corporation
By__________________________
Title:______________________
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