<PAGE>
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 quarterly period ended November 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
COMMISSION FILE NUMBER 0-14996
CRYENCO SCIENCES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 52-1471630
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
3811 JOLIET STREET, DENVER, COLORADO 80239
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(303) 371-6332
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest practicable date: Class
A common stock, par value $.01 per share; 6,916,197 shares outstanding as of
January 12, 1996.
<PAGE>
CRYENCO SCIENCES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION . . . . . . . . . . . . . . . . 3
Item 1. Introductory Comments . . . . . . . . . 3
Consolidated Balance Sheets
August 31, 1995 and November 30, 1995 . . . 4
Consolidated Statements of Operations
Three Month Periods Ended November 30,
1994 and November 30, 1995 . . . . . . . . . 6
Consolidated Statements of Cash Flows
Three Month Periods Ended November 30,
1994 and November 30, 1995 . . . . . . . . . 7
Notes to Consolidated Financial Statements . 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . 11
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . 13
Item 1. Legal Proceedings . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K. . . . 14
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2
<PAGE>
CRYENCO SCIENCES, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Introductory Comments:
The Consolidated Financial Statements included herein have been
prepared by Cryenco Sciences, Inc. (the "Company"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. It is suggested that these
Consolidated Financial Statements be read in conjunction with the financial
information set forth in the Company's Annual Report for the fiscal year ended
August 31, 1995.
3
<PAGE>
CRYENCO SCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1995 1995
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 632 $ 972
Accounts receivable 2,821 2,601
Costs and estimated earnings in excess
of billings on uncompleted contracts 6,707 5,846
Inventories (NOTE 2) 4,208 4,898
Prepaid expenses 116 63
------- -------
Total current assets 14,484 14,380
Property and equipment:
Leasehold improvements 684 684
Machinery and equipment 3,979 4,119
Office furniture and equipment 402 440
------- -------
5,065 5,243
Less accumulated depreciation 2,249 2,438
------- -------
2,816 2,805
Deferred financing costs 256 222
Organizational costs 103 78
Goodwill 5,375 5,338
Other assets 343 381
------- -------
Total assets $23,377 $23,204
------- -------
------- -------
</TABLE>
4
<PAGE>
CRYENCO SCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1995 1995
---------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,469 $ 3,722
Accrued expenses 877 707
Accrued management fees 324 358
Customer deposits 3 107
Current portion of long-term debt
(NOTE 3) 1,593 2,271
Income tax payable 246 215
------- -------
Total current liabilities 6,512 7,380
Long-term debt, less current portion
(NOTE 3) 5,629 4,551
------- -------
Stockholders' equity:
Preferred stock, $0.01 par value,
authorized shares - 2,000,000,
preferences, limitations and relative
rights to be established by the Board
of Directors:
Series A, nonvoting, 150,000
authorized shares, 67,838 issued
and outstanding shares (aggregate
liquidation preference of
$678,380) 1 1
Common stock, $0.01 par value:
Class A, voting, 21,500,000
authorized shares, 6,842,828
and 6,916,197 shares issued
and outstanding 68 69
Class B, nonvoting, 1,500,000
authorized shares, none issued or
outstanding -- --
Additional paid-in capital 14,022 14,021
Warrants 169 169
-------
Retained earnings (deficit) (3,024) (2,987)
-------
Total stockholders' equity 11,236 11,273
------- -------
Total liabilities and stockholders' equity $23,377 $23,204
------- -------
------- -------
</TABLE>
5
<PAGE>
CRYENCO SCIENCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, 1994 NOVEMBER 30, 1995
------------------ ------------------
<S> <C> <C>
Contract revenue $ 5,592 $ 7,313
Cost of revenue 4,488 5,945
---------- ----------
Gross profit 1,104 1,368
Selling, general and administrative
expenses 700 700
Research and development expenses 10 202
Amortization expense 86 86
---------- ----------
Operating income 308 380
Other (income) expense:
Interest income (4) (1)
Interest expense 237 236
Other expense, net 4 51
---------- ----------
Income before income taxes 71 94
Income tax expense 25 34
---------- ----------
Net income $ 46 $ 60
---------- ----------
Earnings per common and common
equivalent share (NOTE 4) $ 0.01 $ 0.01
------------- -------------
Weighted average number of shares
and common equivalent shares
outstanding 5,404,162 7,467,511
---------- ----------
---------- ----------
</TABLE>
6
<PAGE>
CRYENCO SCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
NOVEMBER 30, NOVEMBER 30,
1994 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 46 $ 60
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation 163 188
Amortization 116 121
Changes in operating assets and
liabilities:
Accounts receivable (886) 220
Costs and estimated earnings in
excess of billings on uncompleted
contracts 565 861
Inventories (915) (690)
Income taxes 25 (31)
Prepaid expenses and other assets 11 9
Accounts payable 1,110 253
Accrued expenses (33) (136)
Customer deposits (259) 104
------ ------
Net cash provided (used) by operating
activities (57) 959
------ ------
INVESTING ACTIVITIES
Purchases of property and equipment (288) (177)
Patents -- (20)
------ ------
Net cash (used) by investing activities (288) (197)
------ ------
FINANCING ACTIVITIES
Payments of long-term debt (340) (400)
Dividends paid on preferred stock (21) (22)
------ ------
Net cash (used) by financing activities (361) (422)
Net increase (decrease) in cash and cash
equivalents (706) 340
Cash and cash equivalents at beginning of
period 779 632
------ ------
Cash and cash equivalents at end
of period $ 73 $ 972
------ ------
------ ------
Supplementary disclosure of cash flow
information:
Cash paid for interest $ 206 $ 202
Cash paid for taxes -- 100
Supplementary disclosures of noncash
financing activity:
Issuance of common stock in
exchange for warrants
exercised $ 1 $ 1
</TABLE>
7
<PAGE>
CRYENCO SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1995
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended November 30, 1995
are not necessarily indicative of the results that may be expected for the year
ending August 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended August 31, 1995.
2. INVENTORIES
Inventories (in thousands) consisted of the following:
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1995 1995
---------- ------------
<S> <C> <C>
Raw materials $3,514 $3,726
Finished goods and work-in-process 794 1,272
------ ------
4,308 4,998
Less reserve for obsolescence (100) (100)
------ ------
$4,208 $4,898
------ ------
------ ------
</TABLE>
8
<PAGE>
3. LONG-TERM DEBT
Long-term debt (in thousands) at November 30, 1995 is comprised
of the following:
<TABLE>
<CAPTION>
<S> <C>
Note payable bearing interest at 14%, subordinated unsecured.
Interest is payable quarterly and principal payments of $275,000 are
due beginning November 30, 1996. $2,200
Term loan bearing interest at the adjusted LIBO rate (as defined in
the loan agreement) plus 3.5% (9.375% at November 30 1995) payable
quarterly at varying amounts through maturity at February 28, 1997. 2,125
Revolving credit facility maturing February 28, 1997. Interest is
payable quarterly at the adjusted LIBO rate (as defined in the loan
agreement) plus 3.5% (9.375% at November 30, 1995). 2,200
Other 297
------
6,822
Less current portion 2,271
------
$4,551
------
------
</TABLE>
In December 1995, the Company entered into a Credit and Security
Agreement with FBS Business Finance Corporation ("FBS"). Under the agreement,
FBS will provide a revolving loan facility of up to $10,000,000 and a term loan
facility of up to $2,960,000, subject to the amount of the Company's borrowing
base and manufacturing equipment additions in the fiscal year ending August 31,
1996, respectively. Initial funding under the agreement is dependent upon the
satisfaction of certain conditions, including certain third party consents. The
revolving loan will initially bear interest at the First Bank National
Association reference rate (the "Reference Rate") plus 1/2%, while the term loan
will initially bear interest at the Reference Rate plus 3/4%. Both loans have
provisions for incentive pricing whereby the rates may adjust upward or downward
depending upon the future performance of the Company.
On January 16, 1996 the Company obtained the initial funding under
the revolving loan in the amount of $5,825,000. The proceeds of this loan were
used to retire the outstanding Chemical Bank revolving credit facility
($2,200,000), to retire the outstanding Chemical Bank term loan ($2,125,000), to
make a partial payment on the outstanding CIT note payable ($500,000), and for
general corporate purposes ($1,000,000).
9
<PAGE>
4. EARNINGS PER SHARE
Net earnings per share is computed using the weighted average
number of shares of common stock outstanding for the period. When dilutive,
stock options and warrants are included as share equivalents using the treasury
stock method. In calculating net earnings per share, preferred dividends of
$22,293 reduced the net earnings available to common stockholders for the three
months ended November 30, 1995. Fully diluted net earnings per common share is
not significantly different from primary net earnings per common share.
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTHS ENDED
NOVEMBER 30, 1994 AND NOVEMBER 30, 1995
Contract revenue increased 30.8% to $7.3 million for the three
months ended November 30, 1995 from $5.6 million for the three months ended
November 30, 1994. The improvement is the result of increases in revenue from
industrial gas trailers which increased $2.1 million over the corresponding
period in the prior year and from LNG products which increased $527,000 over the
same period in the prior year, offset partially by decreases in TVAC-Registered
Trademark- intermodal containers and MRI cryostats and components which
decreased $544,000 and $288,000, respectively, over the same period in the prior
year.
Gross profit for the three months ended November 30, 1995 increased
23.9% to $1.4 million, or 18.7% of contract revenue, from $1.1 million, or 19.7%
of contract revenue, for the three months ended November 30, 1994. The gross
profit improvement was primarily the result of decreases in under absorbed
manufacturing overhead expenses and warranty costs compared to the same period
of the prior year. Offsetting these decreased costs were some decreases in
product gross profit margins for industrial gas trailers and MRI cryostats and
components.
Selling, general and administrative expenses were unchanged at
$700,000 for the three months ended November 30, 1995 and for the three months
ended November 30, 1994, and decreased as a percentage of contract revenue to
9.6% from 12.5% during the same period. Research and development costs
increased to $202,000 for the three months ended November 30, 1995 from $10,000
for the three months ended November 30, 1994. This increase is primarily the
result of the Company's funding of the continuing expenses of the TADOPTR
development, which was previously funded by others. Amortization expense was
essentially unchanged from the prior three month period.
Interest expense for the three months ended November 30, 1995 was
virtually unchanged from the three months ended November 30, 1994. This is due
to the reduced levels of borrowing being offset by increased capital equipment
financing costs. Other non-operating items resulted in expense of $51,000 for
the three months ended November 30, 1995, compared to expense of $4,000 in the
comparable period of 1994. The increase in expense is primarily due to cash
discounts given to customers for accelerated payments.
Income tax expense increased to $34,000 for the three months ended
November 30, 1995 from $25,000 for the three months ended November 30, 1994.
The expense in both years is the result of taxable income for the periods and
estimated annual tax rates.
11
<PAGE>
The resulting net income increased to $60,000 for the three months
ended November 30, 1995 from $46,000 for the corresponding prior year period.
This is the result of the cumulative effect of the above factors.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1995, the Company's working capital was $7.0
million, which represented a current ratio of 1.9 to 1. Also, the Company's
outstanding indebtedness under the Credit Agreement with Chemical Bank was $4.3
million, of which $2.1 million represented term indebtedness and $2.2 million
represented revolving indebtedness. At November 30, 1995, the Company's
outstanding indebtedness to The CIT Group/Equity Investments, Inc. ("CIT") was
$2.2 million which represented subordinated indebtedness.
Cash flow from operations for the three months ended November 30,
1995 resulted in cash provided of $959,000 compared to a usage of cash of
$57,000 in the same period of the prior year. In the current year, cash has
been provided by reductions in costs and estimated earnings in excess of
billings on uncompleted contracts and accounts receivable, and by increases in
accounts payable and customer deposits. Partially offsetting these sources of
cash were the increase in inventories and the decrease in accrued expenses. In
the three months ended November 30, 1994, an increase in contract revenue
resulted in a corresponding increase in accounts receivable and inventories,
which was partially offset by an increased level of accounts payable.
The Company believes that its existing capital resources, together
with cash flow from future operations will be sufficient to meet its short term
working capital needs. Additional financing may be required for future
expansion of operations, as necessary.
In December 1995, the Company entered into a Credit and Security
Agreement with FBS Business Finance Corporation ("FBS"). Under the agreement,
FBS will provide a revolving loan facility of up to $10,000,000 and a term loan
facility of up to $2,960,000, subject to the amount of the Company's borrowing
base and manufacturing equipment additions in the fiscal year ending August 31,
1996, respectively. Initial funding under the agreement is dependent upon the
satisfaction of certain conditions, including certain third party consents. The
revolving loan will initially bear interest at the First Bank National
Association reference rate (the "Reference Rate") plus 1/2%, while the term loan
will initially bear interest at the Reference Rate plus 3/4%. Both loans have
provisions for incentive pricing whereby the rates may adjust upward or downward
depending upon the future performance of the Company.
On January 16, 1996 the Company obtained the initial funding under
the revolving loan in the amount of $5,825,000. The proceeds of this loan were
used to retire the outstanding Chemical Bank revolving credit facility
($2,200,000), to retire the outstanding Chemical Bank term loan ($2,125,000), to
make a partial payment on the outstanding CIT note payable ($500,000), and for
general corporate purposes ($1,000,000).
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In November 1995, the Company was one of over 1,100 companies to
receive from the United States Environmental Protection Agency (the "EPA") a
Notice of Potential Liability and Request for Information for the waste disposal
site of Chemical Handling Corporation located in Jefferson County, Colorado.
According to the notice, Chemical Handling Corporation operated the site from
early 1988 until March 1992, as a solvent recycle and a fuel blender. During
this period the Company from time to time contracted with Chemical Handling
Corporation for the disposal of a portion of the waste products produced from
its manufacturing operations.
In March 1992, the EPA gained access to the site, and has undertaken
a number of activities to dispose of waste products found there. Following
these efforts, the EPA performed a Preliminary Assessment/Site Investigation and
determined that no further action need be taken at the site, and it will not be
proposed for listing on the National Priorities List of Superfund Sites.
Through November 1995, the EPA had incurred in excess of $2.2 million in
response costs in association with the cleanup of the site. No estimate is
available of the additional costs which may be incurred.
The Company has provided information to the EPA concerning the
nature and quantity of materials sent to Chemical Handling Corporation for
treatment, storage or disposal. Once all of the responses have been received by
the EPA, they will complete their waste-in database and determine a volumetric
ranking of waste sent to the site by all generators. This will enable the EPA
to identify the smaller or "de minimis" generators to whom the EPA intends to
make an offer for settlement in exchange for contribution protection. This
effort is expected to take several months.
The Company believes it may be among the companies identified as
"de minimis" generators; however, at this time it is impossible to estimate
either the total costs of the cleanup effort or the portion of that cost
that may be assigned to the Company. The Company may have recourse against
Chemical Handling Corporation for any costs so assigned to the Company.
13
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT DESCRIPTION OF EXHIBITS
3.1 Restated Certificate of Incorporation of
the Company, incorporated by reference
to Exhibit 3.1 to the Company's
Registration Statement on Form S-2, File
No. 33-48738, filed on June 19, 1992
(the "S-2 Registration Statement").
3.2 By-laws of the Company, incorporated by
reference to Exhibit 3.2 to the
Company's Registration Statement on Form
S-1, File No. 33-7532, filed on July 25,
1986.
3.3 Certificate of Amendment to the Restated
Certificate of Incorporation of the
Company, incorporated by reference to
Exhibit 3.3 to the Company's Annual
Report on Form 10-K for the fiscal year
ended August 31, 1995 (the "1995 Annual
Report").
3.4 Certificate of Designation, Preferences
and Rights of the Series A Preferred
Stock of the Company, incorporated by
reference to Exhibit 3.4 to the
Company's 1995 Annual Report.
3.5 Corrected Certificate of Amendment of
Restated Certificate of Incorporation of
the Company, incorporated by reference
to Exhibit 3.5 to the Company's 1995
Annual Report.
4.1 See Article Fourth of the Restated
Certificate of Incorporation, as amended
and corrected, of the Company (Exhibit
3.5 hereof), incorporated by reference
to Exhibit 4.1 to the Company's 1995
Annual Report.
4.2 Forms of Common Stock and Class B Common
Stock certificates of the Company,
incorporated by reference to Exhibit 4.3
of the Company's Registration Statement
on Form S-4, File No. 33-43782, filed on
December 19, 1991.
14
<PAGE>
4.3 Registration Rights Agreement dated as
of August 30, 1991 among Cryenco
Holdings, Inc. ("CHI"), CIT, Chemical
Bank and the Investors named therein,
incorporated by reference to Exhibit 4.3
to the Company's 1995 Annual Report.
4.4 Warrant Agreement dated as of August 30,
1991 between Chemical Bank, CHI and the
Company, incorporated by reference to
Exhibit 4.4 to the Company's 1995 Annual
Report.
4.5 Letter Agreement dated April 15, 1992
among the Company, CIT and Chemical Bank
relating to the Warrants referred to
herein at Exhibits 4.8 and 4.9,
incorporated by reference to Exhibit 4.9
to the S-2 Registration Statement.
4.6 Letter Agreement dated August 12, 1992
between the Company and Chemical Bank
relating to the Warrants referred to
herein at Exhibit 4.8, incorporated by
reference to Exhibit 4.6 to the
Company's 1995 Annual Report.
4.7 Letter Agreement dated August 12, 1992
between the Company and CIT relating to
the Warrants referred to herein at
Exhibit 4.9, incorporated by reference
to Exhibit 4.7 to the Company's 1995
Annual Report.
4.8 Warrants issued to Chemical Bank each
dated April 27, 1992, incorporated by
reference to Exhibit 4.8 to the
Company's 1995 Annual Report.
4.9 Warrants issued to CIT each dated
April 27, 1992, incorporated by
reference to Exhibit 4.9 to the
Company's 1995 Annual Report.
4.10 Warrant issued to Dain Bosworth
Incorporated dated August 20, 1992,
incorporated by reference to Exhibit
4.12 to the S-2 Registration Statement.
4.11 Warrant Agreement dated as of March 12,
1993 between the Company and Alfred
Schechter, incorporated by reference to
Exhibit 4.11 to the Company's 1995
Annual Report.
4.12 Warrant Agreement dated as of March 12,
1993 between the
15
<PAGE>
Company and Don M. Harwell, incorporated
by reference to Exhibit 4.12 to the
Company's 1995 Annual Report.
4.13 Warrant Agreement dated as of March 12,
1993 between the Company and Mezzanine
Capital Corporation Limited ("MCC"),
incorporated by reference to Exhibit
4.13 to the Company's 1995 Annual
Report.
4.14 Warrant issued to Alfred Schechter dated
March 12, 1993, incorporated by
reference to Exhibit 4.14 to the
Company's 1995 Annual Report.
4.15 Warrant issued to Don M. Harwell dated
March 12, 1993, incorporated by
reference to Exhibit 4.15 to the
Company's 1995 Annual Report.
4.16 Warrant issued to MCC dated March 12,
1993, incorporated by reference to
Exhibit 4.16 to the Company's 1995
Annual Report.
4.17 Letter Agreement dated as of June 9,
1993 between the Company and Alfred
Schechter with respect to the Exercise
Price for the Warrant referred to herein
at Exhibit 4.14, incorporated by
reference to Exhibit 4.17 to the
Company's 1995 Annual Report.
4.18 Letter Agreement dated as of June 9,
1993 between the Company and Don M.
Harwell with respect to the Exercise
Price for the Warrant referred to herein
at Exhibit 4.15, incorporated by
reference to Exhibit 4.18 to the
Company's 1995 Annual Report.
4.19 Letter Agreement dated as of June 9,
1993 between the Company and MCC with
respect to the Warrant referred to
herein at Exhibit 4.16, incorporated by
reference to Exhibit 4.19 to the
Company's 1995 Annual Report.
4.20 Warrant issued to Chemical Bank dated
November 24, 1993, incorporated by
reference to Exhibit 4.20 to the
Company's 1995 Annual Report.
4.21 Warrant issued to CIT dated November 24,
1993, incorporated by reference to
Exhibit 4.21 to the Company's 1995
Annual Report.
16
<PAGE>
4.22 Warrant Agreement dated as of January
26, 1995 between the Company and Alfred
Schechter, incorporated by reference to
Exhibit 4.22 to the Company's 1995
Annual Report.
4.23 Warrant Agreement dated as of January
26, 1995 between the Company and Don M.
Harwell, incorporated by reference to
Exhibit 4.23 to the Company's 1995
Annual Report.
4.24 Warrant Agreement dated as of January
26, 1995 between the Company and MCC,
incorporated by reference to Exhibit
4.24 to the Company's 1995 Annual
Report.
4.25 Warrant issued to Alfred Schechter dated
January 26, 1995, incorporated by
reference to Exhibit 4.25 to the
Company's 1995 Annual Report.
4.26 Warrant issued to Don M. Harwell dated
January 26, 1995, incorporated by
reference to Exhibit 4.26 to the
Company's 1995 Annual Report.
4.27 Warrant issued to MCC dated January 26,
1995, incorporated by reference to
Exhibit 4.27 to the Company's 1995
Annual Report.
4.28 See the Certificate of Designation,
Preferences and Rights of the Series A
Preferred Stock of the Company (Exhibit
3.4 hereof), incorporated by reference
to Exhibit 4.28 to the Company's 1995
Annual Report.
4.29 Warrant Agreement dated as of June 8,
1994 between the Company and Cryogenic
TADOPTR Company, L.P. and the Form of
Warrant Certificate issued pursuant
thereto, incorporated by reference to
Exhibit 4.29 to the Company's 1995
Annual Report.
4.30 Warrant Agreement dated as of December
20, 1994 between the Company and The
Edgehill Corporation, incorporated by
reference to Exhibit 4.30 to the
Company's 1995 Annual Report.
17
<PAGE>
4.31 Warrant issued to The Edgehill
Corporation dated as of December 20,
1994, incorporated by reference to
Exhibit 4.31 to the Company's 1995
Annual Report.
4.32 Registration Rights Agreement dated as
of December 20, 1994 among the Company,
certain parties named therein and
International Capital Partners, Inc.,
incorporated by reference to Exhibit
4.32 to the Company's 1995 Annual
Report.
4.33 Form of Warrant issued to each of
International Capital Partners, Inc. and
the parties named in the Registration
Rights Agreement dated as of December
20, 1994 (Exhibit 4.32 hereof),
incorporated by reference to Exhibit
4.33 to the Company's 1995 Annual
Report.
*10.1 Credit and Security Agreement dated as
of December 19, 1995 and Supplement A
thereto between Cryenco, Inc., the
Company and FBS Business Finance
Corporation.
*27 Financial Date Schedule pursuant to
Article 5 of Regulation S-X filed with
EDGAR filing only.
(b) No reports on Form 8-K have been filed during the
quarter ended November 30, 1995.
________________
* Filed herewith
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CRYENCO SCIENCES, INC.
(Registrant)
By: /s/ Alfred Schechter
-------------------------------
Alfred Schechter, Chairman
of the Board, Chief Executive
Officer and President
/s/ James A. Raabe
-------------------------------
James A. Raabe,
Chief Financial Officer
January 12, 1996
19
<PAGE>
EXHIBIT DESCRIPTION OF EXHIBITS PAGE
3.1 Restated Certificate of Incorporation of
the Company, incorporated by reference
to Exhibit 3.1 to the Company's
Registration Statement on Form S-2, File
No. 33-48738, filed on June 19, 1992
(the "S-2 Registration Statement").
3.2 By-laws of the Company, incorporated by
reference to Exhibit 3.2 to the
Company's Registration Statement on Form
S-1, File No. 33-7532, filed on July 25,
1986.
3.3 Certificate of Amendment to the Restated
Certificate of Incorporation of the
Company, incorporated by reference to
Exhibit 3.3 to the Company's Annual
Report on Form 10-K for the fiscal year
ended August 31, 1995 (the "1995 Annual
Report").
3.4 Certificate of Designation, Preferences
and Rights of the Series A Preferred
Stock of the Company, incorporated by
reference to Exhibit 3.4 to the
Company's 1995 Annual Report.
3.5 Corrected Certificate of Amendment of
Restated Certificate of Incorporation of
the Company, incorporated by reference
to Exhibit 3.5 to the Company's 1995
Annual Report.
4.1 See Article Fourth of the Restated
Certificate of Incorporation, as amended
and corrected, of the Company (Exhibit
3.5 hereof), incorporated by reference
to Exhibit 4.1 to the Company's 1995
Annual Report.
4.2 Forms of Common Stock and Class B Common
Stock certificates of the Company,
incorporated by reference to Exhibit 4.3
of the Company's Registration Statement
on Form S-4, File No. 33-43782, filed on
December 19, 1991.
4.3 Registration Rights Agreement dated as
of August 30, 1991 among Cryenco
Holdings, Inc. ("CHI"), CIT, Chemical
Bank and the Investors named therein,
incorporated by reference to Exhibit 4.3
to the Company's 1995 Annual Report.
20
<PAGE>
4.4 Warrant Agreement dated as of August 30,
1991 between Chemical Bank, CHI and the
Company, incorporated by reference to
Exhibit 4.4 to the Company's 1995 Annual
Report.
4.5 Letter Agreement dated April 15, 1992
among the Company, CIT and Chemical Bank
relating to the Warrants referred to
herein at Exhibits 4.8 and 4.9,
incorporated by reference to Exhibit 4.9
to the S-2 Registration Statement.
4.6 Letter Agreement dated August 12, 1992
between the Company and Chemical Bank
relating to the Warrants referred to
herein at Exhibit 4.8, incorporated by
reference to Exhibit 4.6 to the
Company's 1995 Annual Report.
4.7 Letter Agreement dated August 12, 1992
between the Company and CIT relating to
the Warrants referred to herein at
Exhibit 4.9, incorporated by reference
to Exhibit 4.7 to the Company's 1995
Annual Report.
4.8 Warrants issued to Chemical Bank each
dated April 27, 1992, incorporated by
reference to Exhibit 4.8 to the
Company's 1995 Annual Report.
4.9 Warrants issued to CIT each dated
April 27, 1992, incorporated by
reference to Exhibit 4.9 to the
Company's 1995 Annual Report.
4.10 Warrant issued to Dain Bosworth
Incorporated dated August 20, 1992,
incorporated by reference to Exhibit
4.12 to the S-2 Registration Statement.
4.11 Warrant Agreement dated as of March 12,
1993 between the Company and Alfred
Schechter, incorporated by reference to
Exhibit 4.11 to the Company's 1995
Annual Report.
4.12 Warrant Agreement dated as of March 12,
1993 between the Company and Don M.
Harwell, incorporated by reference to
Exhibit 4.12 to the Company's 1995
Annual Report.
21
<PAGE>
4.13 Warrant Agreement dated as of March 12,
1993 between the Company and Mezzanine
Capital Corporation Limited ("MCC"),
incorporated by reference to Exhibit
4.13 to the Company's 1995 Annual
Report.
4.14 Warrant issued to Alfred Schechter dated
March 12, 1993, incorporated by
reference to Exhibit 4.14 to the
Company's 1995 Annual Report.
4.15 Warrant issued to Don M. Harwell dated
March 12, 1993, incorporated by
reference to Exhibit 4.15 to the
Company's 1995 Annual Report.
4.16 Warrant issued to MCC dated March 12,
1993, incorporated by reference to
Exhibit 4.16 to the Company's 1995
Annual Report.
4.17 Letter Agreement dated as of June 9,
1993 between the Company and Alfred
Schechter with respect to the Exercise
Price for the Warrant referred to herein
at Exhibit 4.14, incorporated by
reference to Exhibit 4.17 to the
Company's 1995 Annual Report.
4.18 Letter Agreement dated as of June 9,
1993 between the Company and Don M.
Harwell with respect to the Exercise
Price for the Warrant referred to herein
at Exhibit 4.15, incorporated by
reference to Exhibit 4.18 to the
Company's 1995 Annual Report.
4.19 Letter Agreement dated as of June 9,
1993 between the Company and MCC with
respect to the Warrant referred to
herein at Exhibit 4.16, incorporated by
reference to Exhibit 4.19 to the
Company's 1995 Annual Report.
4.20 Warrant issued to Chemical Bank dated
November 24, 1993, incorporated by
reference to Exhibit 4.20 to the
Company's 1995 Annual Report.
4.21 Warrant issued to CIT dated November 24,
1993, incorporated by reference to
Exhibit 4.21 to the Company's 1995
Annual Report.
4.22 Warrant Agreement dated as of January
26, 1995 between the Company and Alfred
Schechter, incorporated by
22
<PAGE>
reference to Exhibit 4.22 to the Company's
1995 Annual Report.
4.23 Warrant Agreement dated as of January
26, 1995 between the Company and Don M.
Harwell, incorporated by reference to
Exhibit 4.23 to the Company's 1995
Annual Report.
4.24 Warrant Agreement dated as of January
26, 1995 between the Company and MCC,
incorporated by reference to Exhibit
4.24 to the Company's 1995 Annual
Report.
4.25 Warrant issued to Alfred Schechter dated
January 26, 1995, incorporated by
reference to Exhibit 4.25 to the
Company's 1995 Annual Report.
4.26 Warrant issued to Don M. Harwell dated
January 26, 1995, incorporated by
reference to Exhibit 4.26 to the
Company's 1995 Annual Report.
4.27 Warrant issued to MCC dated January 26,
1995, incorporated by reference to
Exhibit 4.27 to the Company's 1995
Annual Report.
4.28 See the Certificate of Designation,
Preferences and Rights of the Series A
Preferred Stock of the Company (Exhibit
3.4 hereof), incorporated by reference
to Exhibit 4.28 to the Company's 1995
Annual Report.
4.29 Warrant Agreement dated as of June 8,
1994 between the Company and Cryogenic
TADOPTR Company, L.P. and the Form of
Warrant Certificate issued pursuant
thereto, incorporated by reference to
Exhibit 4.29 to the Company's 1995
Annual Report.
4.30 Warrant Agreement dated as of December
20, 1994 between the Company and The
Edgehill Corporation, incorporated by
reference to Exhibit 4.30 to the
Company's 1995 Annual Report.
4.31 Warrant issued to The Edgehill
Corporation dated as of December 20,
1994, incorporated by reference to
Exhibit 4.31 to the Company's 1995
Annual Report.
23
<PAGE>
4.32 Registration Rights Agreement dated as
of December 20, 1994 among the Company,
certain parties named therein and
International Capital Partners, Inc.,
incorporated by reference to Exhibit
4.32 to the Company's 1995 Annual
Report.
4.33 Form of Warrant issued to each of
International Capital Partners, Inc. and
the parties named in the Registration
Rights Agreement dated as of December
20, 1994 (Exhibit 4.32 hereof),
incorporated by reference to Exhibit
4.33 to the Company's 1995 Annual
Report.
*10.1 Credit and Security Agreement dated as
of December 19, 1995 and Supplement A
thereto between Cryenco, Inc., the
Company and FBS Business Finance
Corporation.
*27 Financial Date Schedule pursuant to
Article 5 of Regulation S-X filed with
EDGAR filing only.
________________
* Filed herewith
24
<PAGE>
CREDIT AND SECURITY AGREEMENT
THIS AGREEMENT is made as of December 19, 1995, by and between FBS
BUSINESS FINANCE CORPORATION, a Delaware corporation (the "LENDER"), and
CRYENCO, INC., a Colorado corporation and CRYENCO SCIENCES, INC., a Delaware
corporation (collectively and/or individually the "BORROWER").
In consideration of the mutual agreements herein contained, the parties
hereto agree as follows:
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
1.1 DEFINITIONS. In addition to terms defined elsewhere in this
Agreement or any Supplement, Exhibit or Schedule hereto, the following terms
shall have the following respective meanings (and such meanings shall be
equally applicable to both the singular and plural forms of the terms
defined, as the context may require):
"ACCOUNT DEBTOR": Any Person who is or who may become obligated to the
Borrower under, with respect to, or on account of an Account Receivable,
General Intangible or other Collateral.
"ACCOUNT RECEIVABLE": Any account of the Borrower and any other right
of the Borrower to payment for goods sold or leased or for services rendered,
whether or not evidenced by an instrument or chattel paper and whether or not
yet earned by performance.
"ACCOUNTS RECEIVABLE AVAILABILITY": The term "Accounts Receivable
Availability" shall have the meaning given such term in SUPPLEMENT A.
"ADVERSE EVENT": The occurrence of any event that could have a material
adverse effect on the business, operations, property, assets or condition
(financial or otherwise) of the Borrower on a consolidated basis or on the
ability of the Borrower or any other Obligor to perform its obligations under
the Loan Documents.
"AFFILIATE" means any Person which directly or indirectly through one
or more intermediaries controls, or is controlled by, or is under common
control with, the Lender including, without limitation, FBNA. The term
"control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of stock, by contract or otherwise.
"AGREEMENT": This Credit and Security Agreement, as it may be amended,
modified, supplemented, restated or replaced from time to time.
"APPLICATION": An application by the Borrower, in a form and containing
terms and provisions acceptable to the Lender, for the issuance by the
Lender, or any Affiliate, of a Letter of Credit.
"ATTORNEYS' FEES": The value of the services (and costs, charges and
expenses related thereto) of the attorneys employed by the Lender (including,
without limitation, attorneys and
<PAGE>
paralegals who are employees of the Lender or any Affiliate) from time to
time (a) in connection with the negotiation, preparation, execution delivery,
administration and enforcement of the Loan Documents, (b) to prepare
documentation related to the Loans and other Obligations, (c) to represent
the Lender in any litigation, contest, dispute, suit or proceeding or to
commence, defend or intervene in any litigation contest, dispute, suit or
proceeding or to file a petition, complaint, answer, motion or other
pleading, or to take any other action in or with respect to, any litigation,
contest, dispute, suit or proceeding (whether instituted by the Lender, the
Borrower or any other Person and whether in bankruptcy or otherwise) in any
way or respect relating to the Collateral, any Third Party Collateral, the
Loan Documents, or the Borrower's or any other Obligor's affairs, (d) to
protect, collect, lease, sell, take possession of, or liquidate any of the
Collateral or any Third Party Collateral, (e) to attempt to enforce any
security interest in any of the Collateral or any Third Party Collateral or
to give any advice with respect to such enforcement, and (f) to enforce any
of the Lender's rights to collect any of the Obligations.
"BORROWING BASE": The term "Borrowing Base" shall have the meaning
given such term in SUPPLEMENT A.
"BORROWING BASE CERTIFICATE": The term "Borrowing Base Certificate"
shall have the meaning given such term in SECTION 2.5(c).
"BUSINESS DAY": Any day (other than a Saturday, Sunday or legal holiday
in the State of Minnesota) on which national banks are permitted to be open
in Minneapolis, Minnesota.
"CAPITAL EXPENDITURE": Any amount debited to the fixed asset account on
the consolidated balance sheet of the Borrower in respect of (a) the
acquisition (including, without limitation, acquisition by entry into a
Capitalized Lease), construction, improvement, replacement or betterment of
land, buildings, machinery, equipment or of any other fixed assets or
leaseholds, and (b) to the extent related to and not included in CLAUSE (a),
materials, contract labor and direct labor (excluding expenditures properly
chargeable to repairs or maintenance in accordance with GAAP).
"CAPITALIZED LEASE": Any lease which is or should be capitalized on the
books of the lessee in accordance with GAAP.
"CLOSING DATE": The date on which all of the conditions precedent to
the initial Loans are satisfied.
"CODE": The Internal Revenue Code of 1986, as amended, or any successor
statute, together with the regulations thereunder.
"COLLATERAL": The term "Collateral" shall have the meaning given such
term in SECTION 3.1.
"COLLATERAL ACCOUNT": The term "Collateral Account" shall have the
meaning given such term in SECTION 3.2(b).
2
<PAGE>
"CONSOLIDATED": When applied to any financial or accounting term, the
term "consolidated" shall refer to figures prepared on a consolidated basis
including Cryenco and CSI.
"CONTROLLED DISBURSEMENT ACCOUNT": The term "Controlled Disbursement
Account" shall have the meaning given such term in SECTION 2.3(c)
"COSTS": Costs and revenues in excess of billings, determined under the
percentage of completion method of accounting for contract revenues.
"CREDIT": The facility established under this Agreement pursuant to
which the Lender will make Revolving Loans and the Term Loan to the Borrower
or issue, or cause any Affiliate to issue, Letters of Credit for the account
of the Borrower.
"CRYENCO": Cryenco, Inc., a Colorado corporation.
"CSI": Cryenco Sciences, Inc., a Delaware corporation.
"DEFAULT RATE": With respect to a Loan, the rate of interest which is
applicable to such Loan after any amount thereof is not paid when due, as
determined pursuant to SUPPLEMENT A.
"DISBURSEMENT ACCOUNT": The term "Disbursement Account" shall have the
meaning given such term in SECTION 2.3(b).
"EBITDA": For any period of determination, the consolidated net income
of the Borrower before provision for income taxes, interest expense
(including, without limitation, implicit interest expense on Capitalized
Leases), depreciation, amortization and other non-cash expenses or charges,
all as determined in accordance with GAAP, excluding therefrom (to the extent
included): (a) non-operating gains (including, without limitation,
extraordinary or nonrecurring gains, gains from discontinuance of operations
and gains arising from the sale of assets other than Inventory) during the
applicable period; and (b) similar non-operating losses during such period.
"ELIGIBLE ACCOUNT RECEIVABLE": An Account Receivable owing to the
Borrower which meets the following requirements:
(a) it is genuine and in all respects what it purports to be;
(b) it arises from either (i) the performance of services by the
Borrower, which services have been fully performed and, if applicable,
acknowledged and/or accepted by the Account Debtor with respect thereto; or
(ii) the sale or lease of goods by the Borrower and (A) such goods comply
with such Account Debtor's specifications (if any) and have been shipped
to, or delivered to and accepted by, such Account Debtor, (B) the Borrower
has possession of, or has delivered to the Lender, at the Lender's request,
shipping and delivery receipts evidencing such shipment, delivery and
acceptance, and (C) such goods have not been returned to the Borrower;
3
<PAGE>
(c) it (i) is evidenced by an invoice rendered to the Account Debtor
with respect thereto which (A) is dated not earlier than the date of
shipment or performance and (B) has payment terms not unacceptable to the
Lender; and (ii) meets the Eligible Account Receivable requirements set
forth in SUPPLEMENT A;
(d) it is not subject to any assignment, claim or Lien other than (i)
a Lien in favor of the Lender and (ii) Liens consented to by the Lender in
writing;
(e) it is a valid, legally enforceable and unconditional obligation
of the Account Debtor with respect thereto and is not subject to setoff,
counterclaim, credit or allowance (except any credit or allowance which has
been deducted in computing the net amount of the applicable invoice as
shown in the original schedule or Borrowing Base Certificate furnished to
the Lender identifying or including such Account Receivable) or adjustment
by the Account Debtor with respect thereto, or to any claim by such Account
Debtor denying liability thereunder in whole or in part, and such Account
Debtor has not refused to accept any of the goods or services which are the
subject of such Account Receivable or offered or attempted to return any of
such goods;
(f) there are no proceedings or actions which are then threatened or
pending against the Account Debtor with respect thereto or to which such
Account Debtor is a party which might result in any material adverse change
in such Account Debtor's financial condition or in its ability to pay any
Account Receivable in full when due;
(g) it does not arise out of a contract or order which, by its terms,
forbids, restricts or makes void or unenforceable the assignment by the
Borrower to the Lender of such Account Receivable;
(h) the Account Debtor with respect thereto is not a Subsidiary,
Related Party or Obligor, or a director, officer, employee or agent of the
Borrower, a Subsidiary, Related Party or Obligor;
(i) the Account Debtor with respect thereto is a resident or citizen
of and is located within the United States of America unless the sale of
goods giving rise to such Account Receivable is on letter of credit,
banker's acceptance or other credit support terms satisfactory to the
Lender;
(j) it does not arise from a "sale on approval," "sale or return" or
"consignment," nor is it subject to any other repurchase or return
agreement;
(k) it is not an Account Receivable with respect to which possession
and/or control of the goods sold giving rise thereto is held, maintained or
retained by the Borrower, any Subsidiary, Related Party or Obligor (or by
any agent or custodian of the Borrower, any Subsidiary, Related Party or
Obligor) for the account of or subject to further and/or future direction
from the Account Debtor with respect thereto;
4
<PAGE>
(l) it does not, in any way, fail to meet or violate any warranty,
representation or covenant contained in the Loan Documents relating
directly or indirectly to the Borrower's Accounts Receivable;
(m) the Account Debtor with respect thereto is not located in the
States of Indiana, New Jersey or Minnesota, PROVIDED, HOWEVER, that such
restriction shall not apply if (i) the Borrower has filed and has effective
a Notice of Business Activities Report with the appropriate office or
agency of the States of Indiana, New Jersey or Minnesota, as applicable,
for the then current year or (ii) the Borrower is exempt from the filing of
such report;
(n) it arises in the ordinary course of the Borrower's business;
(o) if the Account Debtor with respect thereto is the United States
of America or any department, agency or instrumentality thereof, the
Borrower has assigned its right to payment of such Account Receivable to
the Lender pursuant to the Assignment of Claims Act of 1940 as amended;
(p) if the Lender, in its sole and absolute discretion, has
established a credit limit for the Account Debtor with respect thereto, the
aggregate dollar amount of Accounts Receivable due from such Account
Debtor, including such Account Receivable, does not exceed such credit
limit; and
(q) if it is evidenced by chattel paper or instruments, (i) the
Lender shall have specifically agreed to include such Account Receivable as
an Eligible Account Receivable, (ii) only payments then due and payable
under such chattel paper or instrument shall be included as an Eligible
Account Receivable and (iii) the originals of such chattel paper or
instruments have been assigned and delivered to the Lender in a manner
satisfactory to the Lender.
An Account Receivable which is at any time an Eligible Account Receivable but
which subsequently fails to meet any of the foregoing requirements shall
forthwith cease to be an Eligible Account Receivable. Further, with respect
to any Account Receivable, if the Lender at any time or times hereafter
determines, in its sole and absolute discretion, that the prospect of payment
or performance by the Account Debtor with respect thereto is or will be
impaired for any reason whatsoever, notwithstanding anything to the contrary
contained above, such Account Receivable shall forthwith cease to be an
Eligible Account Receivable.
"ELIGIBLE EQUIPMENT": Equipment which meets the following requirements:
(a) it is in good and workable condition, ordinary wear and tear
excepted;
(b) no portion of the purchase price thereof remains unpaid, as
established by documentation satisfactory to the Lender;
5
<PAGE>
(c) it is not subject to any prior assignment, claim or Lien other
than (i) a Lien in favor of the Lender and (ii) Liens consented to by the
Lender in writing;
(d) it complies with the Borrower's specifications and has been
delivered to and accepted by the Borrower;
(e) there exists no dispute with respect thereto between the Borrower
and the manufacturer or supplier thereof, including, without limitation,
warranty or other claims;
(f) it does not, in any way, fail to meet or violate any warranty,
representation or covenant contained in the Loan Documents relating
directly or indirectly to the Borrower's Equipment;
(g) the Lender has determined in its sole and absolute discretion
that it is not unacceptable due to age, type, condition or quality; and
(h) it satisfies the Eligible Equipment requirements, if any, set
forth in SUPPLEMENT A.
Equipment which at any time is Eligible Equipment but which subsequently
fails to meet any of the foregoing requirements shall forthwith cease to be
Eligible Equipment.
"ELIGIBLE INVENTORY": Inventory of the Borrower which meets the
requirements set forth in clauses (a) through (i) below:
(a) it is owned by the Borrower and is not subject to any prior
assignment, claim or Lien other than (i) a Lien in favor of the Lender and
(ii) Liens consented to by the Lender in writing;
(b) if held for sale or lease or furnishing under contracts of
service, it is (except as the Lender may otherwise consent in writing) new
and unused;
(c) except as the Lender may otherwise consent, it is not stored with
a bailee, warehouseman or similar party; if so stored with the Lender's
consent, such bailee, warehouseman or similar party has issued and
delivered to the Lender, in form and substance acceptable to the Lender,
such documents and agreements as the Lender may require, including, without
limitation, warehouse receipts therefor in the Lender's name;
(d) the Lender has determined, in its sole and absolute discretion,
that it is not unacceptable due to age, type, category, quality and/or
quantity;
(e) it is not held by the Borrower on "consignment" and is not
subject to any other repurchase or return agreement;
6
<PAGE>
(f) it complies with all standards imposed by any governmental agency
having regulatory authority over such goods and/or their use, manufacture
or sale;
(g) it does not, in any way, fail to meet or violate any warranty,
representation or covenant contained in the Loan Documents relating
directly or indirectly to the Borrower's Inventory;
(h) it satisfies the Eligible Inventory requirements, if any, set
forth in SUPPLEMENT A;
(i) it is either the raw materials or finished goods components of
Inventory.
Inventory of the Borrower which is at any time Eligible Inventory but which
subsequently fails to meet any of the foregoing requirements applicable to
Inventory shall forthwith cease to be Eligible Inventory.
"ENVIRONMENTAL LAWS": The Resource Conservation and Recovery Act of
1987, the Comprehensive Environmental Response, Compensation and Liability
Act, any so-called "Superfund" or "Superlien" law, the Toxic Substances
Control Act, and any other federal, state or local statue, law, ordinance,
code, rule, regulation, order or decree regulating, relating to, or imposing
liability or standards of conduct concerning any Hazardous Materials or other
hazardous, toxic or dangerous waste, substance or constituent, or other
substance, whether solid, liquid or gas, as now or at any time hereafter in
effect.
"ENVIRONMENTAL LIEN": A Lien in favor of any governmental entity for
(a) any liability under any Environmental Law, or (b) damages arising from or
costs incurred by such governmental entity in response to a spillage,
disposal, or release into the environment of any Hazardous Material or other
hazardous, toxic or dangerous waste, substance or constituent, or other
substance.
"EQUIPMENT": All equipment of the Borrower of every description,
including, without limitation, fixtures, furniture, vehicles and trade
fixtures, together with any and all accessions, parts and equipment attached
thereto or used in connection therewith, and any substitutions therefor and
replacements thereof.
"EQUIPMENT AVAILABILITY": The term "Equipment Availability" shall have
the meaning given such term in SUPPLEMENT A.
"EQUIPMENT AVAILABILITY SUBLIMIT": The term "Equipment Availability
Sublimit" shall have the meaning given such term in SUPPLEMENT A.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended, or any successor statute, together with the regulations thereunder.
"ERISA AFFILIATE": Any trade or business (whether or not incorporated)
that is a member of a group of which the Borrower is a member and which is
treated as a single employer under Section 414 of the Code.
7
<PAGE>
"EVENT OF DEFAULT": The term "Event of Default" shall have the meaning
given such term in SECTION 7.1.
"FBNA": First Bank National Association, a national banking association
having its offices at First Bank Place, 601 Second Avenue South, Minneapolis,
Minnesota 55402-4302.
"FEDERAL RESERVE BOARD": The Board of Governors of the Federal Reserve
System or any successor thereto.
"GAAP": Generally accepted accounting principles promulgated by the
Financial Accounting Standards Board, as applied in the preparation of the
audited financial statement of the Borrower referred to in SECTION 4.6.
"GENERAL INTANGIBLES": All of the Borrower's intangible personal property
including things in action, causes of action and all other personal property of
the Borrower of every kind and nature (other than goods, accounts, chattel
paper, documents, instruments and money) including, without limitation,
corporate or other business records, inventions, designs, patents, patent
applications, trademarks, trademark applications, trade names, trade secrets,
goodwill, copyrights, registrations, licenses, franchises, customer lists, tax
refund claims, claims against carriers and shippers, guarantee claims, security
interests, security deposits or other security held by or granted to the
Borrower to secure payment by an Account Debtor of any of the Accounts
Receivable, any other rights to payment, including, without limitation, rights
to reimbursement or indemnification, and any other rights of whatsoever nature.
"HAZARDOUS MATERIALS": Any hazardous substance or pollutant or contaminant
defined as such in (or for the purposes of) any Environmental Law including,
without limitation, petroleum, including crude oil or any fraction thereof which
is liquid at standard conditions of temperature or pressure (60 degrees
Fahrenheit and 14.7 pounds per square inch absolute), any radioactive material,
including any source, special nuclear or by-product material as defined at 42
U.S.C. section 2011 ET. SEQ., as amended or hereafter amended, and asbestos in
any form or condition.
"INDEBTEDNESS": Without duplication, all obligations, contingent or
otherwise, which in accordance with GAAP should be classified upon the obligor's
balance sheet as liabilities, but in any event including the following (whether
or not they should be classified as liabilities upon such balance sheet): (a)
any obligation secured by any mortgage, pledge, security interest, lien, charge
or other encumbrance existing on property owned or acquired subject thereto,
whether or not such obligation shall have been assumed and whether or not such
obligation is the obligation of the owner or another party; (b) any obligation
on account of deposits or advances; (c) any obligation for the deferred purchase
price of any property or services, except accounts payable arising in the
ordinary course of business; (d) any obligation as lessee under any Capitalized
Lease; (e) any guaranty, endorsement or other contingent obligation in respect
to Indebtedness of others; and (f) any undertaking or agreement to reimburse or
indemnify issuers of letters of credit. For all purposes of this Agreement, the
Indebtedness of any Person shall include the Indebtedness of any partnership or
joint venture in which such Person is a general partner or a joint venturer.
8
<PAGE>
"INDEMNIFIED LIABILITIES": The term "Indemnified Liabilities" shall have
the meaning given such term in SECTION 10.2.
"INDEMNITEES": The term "Indemnitees" shall have the meaning given such
term in SECTION 10.2.
"INVENTORY": Any and all of the Borrower's goods, including, without
limitation, goods in transit, wheresoever located which are or may at any time
be leased by the Borrower to a lessee, held for sale or lease, furnished under
any contract of service or held as raw materials, work in process, or supplies
or materials used or consumed in the Borrower's business, or which are held for
use in connection with the manufacture, packing, shipping, advertising, selling
or finishing of such goods, and all goods, the sale or other disposition of
which has given rise to an Account Receivable, which are returned to and/or
repossessed and/or stopped in transit by the Borrower or the Lender, or at any
time hereafter in the possession or under the control of the Borrower or the
Lender, or any agent or bailee of either thereof, and all documents of title or
other documents representing the same.
"INVENTORY AVAILABILITY": The term "Inventory Availability" shall have the
meaning given such term in SUPPLEMENT A.
"INVESTMENT": The acquisition, purchase, making or holding of any stock or
other security, any loan, advance, contribution to capital, extension of credit
(except for trade and customer accounts receivable for inventory sold or
services rendered in the ordinary course of business and payable in accordance
with customary trade terms), any acquisitions of real and personal property
(other than real and personal property acquired in the ordinary course of
business) and any purchase or commitment or option to purchase stock or other
debt or equity securities of, or any interest in, another Person or any integral
part of any business or the assets comprising such business or part thereof.
"L/C DRAFT": A draft drawn on the Lender, or any Affiliate, pursuant to a
Letter of Credit.
"LETTER OF CREDIT": A letter of credit issued by the Lender, or any
Affiliate, on the Application of the Borrower.
"LETTER OF CREDIT OBLIGATIONS": An amount equal to the aggregate of the
original face amounts of all Letters of Credit MINUS the sum of (a) the amount
of any reduction(s) in the original face amount of any Letter of Credit which
did not result from a draw made under such Letter of Credit, (b) the amount of
any payments made by the Lender, or any Affiliate, with respect to a Letter of
Credit or L/C Draft for which the Borrower has reimbursed the Lender, or such
Affiliate, and (c) the undrawn portion of any issued, but expired, Letter of
Credit PLUS the amount of any increase(s) in the original face amount of any
Letter of Credit. For purposes of determining the outstanding Letter of Credit
Obligations at any time, the Lender's, or any Affiliate's, acceptance of an L/C
Draft shall constitute a draw on the applicable Letter of Credit at the time of
such acceptance.
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"LETTER OF CREDIT SUBLIMIT": The term "Letter of Credit Sublimit" shall
have the meaning given such term in SUPPLEMENT A.
"LIEN": Any security interest, mortgage, pledge, lien, hypothecation,
judgment lien or similar legal process, charge, encumbrance, title retention
agreement or analogous instrument or device (including, without limitation, the
interest of lessors under Capitalized Leases and the interest of a vendor under
any conditional sale or other title retention agreement).
"LOAN": Any Revolving Loan made by the Lender to the Borrower pursuant to
SECTION 2.1.1, the Term Loan made by the Lender to the Borrower pursuant to
SECTION 2.1.2 and any other loan or advance made by the Lender to the Borrower
under or pursuant to this Agreement.
"LOAN ACCOUNT": The term "Loan Account" shall have the meaning given such
term in SECTION 2.3(A).
"LOAN DOCUMENTS": This Agreement, any Note and each other instrument,
document, guaranty, mortgage, deed of trust, chattel mortgage, pledge, power of
attorney, consent, assignment, contract, notice, security agreement, lease,
financing statement, subordination agreement, trust account agreement, or other
agreement executed and delivered by the Borrower or any guarantor or party
granting security interests in connection with this Agreement, the Loans or the
Collateral.
"NET WORTH": At any determination date, the total of all assets appearing
on a consolidated balance sheet of the Borrower at such date, prepared in
accordance with GAAP, after deducting all proper reserves (including reserves
for depreciation, obsolescence and amortization) MINUS all liabilities which in
accordance with GAAP would be included on the liability side of a consolidated
balance sheet.
"NOTE": Any promissory note of the Borrower evidencing any loan or advance
(including but not limited to the Loans) made by the Lender to the Borrower
pursuant to this Agreement.
"OBLIGATIONS": All of the liabilities, obligations and indebtedness of the
Borrower to the Lender, or any Affiliate, of any kind or nature, however
created, arising or evidenced, whether direct or indirect, absolute or
contingent, now or hereafter existing or due or to become due, and including,
without limitation, (a) the Borrower's obligations under the Loan Documents,
including obligations of performance, (b) the Borrower's obligations with
respect to any Letter of Credit or any Application, and (c) interest, charges,
expenses, Attorneys' Fees and other sums chargeable to the Borrower by the
Lender under the Loan Documents. "Obligations" shall also include the effects
of any and all amendments, extensions, renewals, refundings or refinancings of
any of the foregoing.
"OBLIGOR": The Borrower and each other Person who is or shall become
primarily or secondarily liable on any of the Obligations or who grants to the
Lender a Lien on any property of such Person as security for any of the
Obligations.
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"OCCUPATIONAL SAFETY AND HEALTH LAW": The Occupational Safety and Health
Act of 1970 and any other federal, state or local statute, law, ordinance, code,
rule, regulation, order or decree regulating, relating to or imposing liability
or standards of conduct concerning employee health and/or safety.
"OVER ADVANCE": The term "Over Advance" shall have the meaning given such
term in SECTION 2.8.
"OVERDRAFT LOAN": The term "Overdraft Loan" shall have the meaning given
such term in SECTION 2.7.
"PARTICIPANT": Any Person, now or at any time or times hereafter,
participating with the Lender in the Loans made to the Borrower hereunder.
"PBGC": The Pension Benefit Guaranty Corporation, established pursuant to
Subtitle A of Title IV of ERISA, or any successor thereto or to the functions
thereof.
"PERSON": Any natural person, corporation, partnership, joint venture,
firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision thereof, or any other entity,
whether acting in an individual, fiduciary or other capacity.
"PLAN": An employee benefit plan or other plan, maintained for employees
of the Borrower or of any ERISA Affiliate, and subject to Title IV of ERISA or
Section 412 of the Code.
"REFERENCE RATE": The rate of interest from time to time publicly
announced by FBNA as its "reference rate." The Lender may lend to its customers
at rates that are at, above or below the Reference Rate. For purposes of
determining any interest rate which is based on the Reference Rate, such
interest rate shall change on the effective date of any change in the Reference
Rate.
"RELATED PARTY": Any Person (other than a Subsidiary): (a) which directly
or indirectly, through one of more intermediaries, controls, is controlled by or
is under common control with, the Borrower, (b) which beneficially owns or holds
5% or more of the equity interest of the Borrower, or (c) 5% or more of the
equity interest of which is beneficially owned or held by the Borrower or a
Subsidiary. The term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"REPORTABLE EVENT": A reportable event, as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC, by regulation, has waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event; PROVIDED, HOWEVER, that a failure to meet the
minimum funding standard of Section 412 of the Code and Section 302 of ERISA
shall be a reportable event regardless of the issuance of any such waivers in
accordance with Section 412(d) of the Code.
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"REVOLVING CREDIT AMOUNT": The term "Revolving Credit Amount" shall have
the meaning given such term in SUPPLEMENT A.
"REVOLVING LOAN": The term "Revolving Loan" shall have the meaning given
such term in SECTION 2.1.1.
"REVOLVING LOAN AVAILABILITY": The lesser of (a) the Revolving Credit
Amount MINUS the Letter of Credit Obligations and (b) the Borrowing Base MINUS
the Letter of Credit Obligations.
"SUBORDINATED DEBT": That portion of any liabilities, obligations or
Indebtedness of the Borrower which contains terms satisfactory to the Lender and
is subordinated, in a manner satisfactory to the Lender, as to right and time of
payment of principal and interest thereon, to any and all of the Obligations.
"SUBSIDIARY": Any Person of which or in which the Borrower and its other
Subsidiaries own directly or indirectly 50% or more of: (a) the combined voting
power of all classes of stock having general voting power under ordinary
circumstances to elect a majority of the board of directors of such Person, if
it is a corporation, (b) the capital interest or profits interest of such
Person, if it is a partnership, joint venture or similar entity, or (c) the
beneficial interest of such Person, if it is a trust, association or other
unincorporated organization.
"SUPPLEMENTAL DOCUMENTATION": The term "Supplemental Documentation" shall
have the meaning given such term in SECTION 3.5.
"TAXES": With respect to any Person means taxes, assessments or other
governmental charges or levies imposed upon such Person, its income or any of
its properties, franchises or assets.
"TERM LOAN": The term "Term Loan" shall have the meaning given such term
in SECTION 2.1.2.
"TERM LOAN AVAILABILITY": The term "Term Loan Availability" shall have the
meaning given such term is SUPPLEMENT A.
"TERMINATION DATE": The term "Termination Date" shall have the meaning
given such term in SUPPLEMENT A.
"THIRD PARTY COLLATERAL": Any property of any Person other than the
Borrower which secures payment or performance of any Obligations.
"UCC": The Uniform Commercial Code as in effect in the State of Minnesota
and any successor statute, together with any regulations thereunder, in each
case as in effect from time to time. References to sections of the UCC shall be
construed to also refer to any successor sections.
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"UNMATURED EVENT OF DEFAULT": Any event which, with the giving of notice
to the Borrower or lapse of time, or both, would constitute an Event of Default.
"UNUSED REVOLVING CREDIT AMOUNT": The Revolving Credit Amount MINUS the
sum of (a) the outstanding principal balance of the Revolving Loans PLUS (b) the
Letter of Credit Obligations.
1.2 ACCOUNTING TERMS AND CALCULATIONS. Except as may be expressly
provided to the contrary herein, all accounting terms used herein or in any
certificate or other document made or delivered pursuant hereto shall be
interpreted and all accounting determination hereunder (including, without
limitation, determination of compliance with financial ratios and restrictions
in ARTICLES V and VI) shall be made in accordance with GAAP consistently
applied, using a first in first out method of Inventory valuation. Any reference
to "consolidated" financial terms shall be deemed to refer to those financial
terms as applied to the Borrower in accordance with GAAP.
1.3 OTHER DEFINITIONAL PROVISIONS. Unless otherwise defined herein, all
terms defined in this Agreement shall have such defined meanings when used in
any other Loan Document. Terms used in this Agreement which are defined in any
Supplement, Exhibit or Schedule hereto shall, unless the context otherwise
indicates, have the meanings given them in such Supplement, Exhibit or Schedule.
Other terms used in this Agreement shall, unless the context otherwise
indicates, have the meanings given such terms in the Minnesota Uniform
Commercial Code to the extent the same are used or defined therein. The words
"hereof," "herein," and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. Reference to "this Agreement" shall
include the provisions of SUPPLEMENT A. References to Sections, Exhibits,
Schedules and like references are to this Agreement unless otherwise expressly
provided. Section captions used in this Agreement are for convenience only, and
shall not affect the construction of this Agreement.
ARTICLE II REVOLVING LOANS; TERM LOAN; OTHER MATTERS
2.1 LOANS.
2.1.1 REVOLVING LOANS.
(a) Subject to the terms and conditions of the Loan Documents,
and in reliance upon the warranties of the Borrower set forth herein and in
the other Loan Documents, the Lender agrees to make such loans or advances
(individually, a "REVOLVING LOAN" and collectively, the "REVOLVING LOANS")
to the Borrower as the Borrower may from time to time request, up to but
not in excess of the Revolving Loan Availability. Revolving Loans made by
the Lender may be repaid and, subject to the terms and conditions hereof,
reborrowed to the Termination Date unless the Credit extended under this
Agreement is otherwise terminated as provided in this Agreement.
(b) In the event the aggregate outstanding principal balance
of the Revolving Loans exceeds the Revolving Loan Availability, the
Borrower shall, unless the Lender
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shall otherwise consent, immediately and without notice of any kind, make
such payments or take such other action as shall be necessary to eliminate
such excess.
2.1.2 TERM LOAN.
(a) Subject to the terms and conditions of the Loan Documents,
and in reliance upon the warranties of the Borrower set forth herein and in
the other Loan Documents, the Lender agrees to make such loans or advances
(individually and collectively, the "TERM LOAN") to the Borrower as the
Borrower may from time to time through August 31, 1996 request, up to but
not in excess of the Term Loan Availability.
(b) Unless otherwise required to be sooner paid pursuant to this
Agreement, the principal of the Term Loan shall mature and be payable in
consecutive equal monthly installments of one forty-eighth (1/48) of the
outstanding principal amount of the Term Loan on September 1, 1996, payable
on the fifteenth (15th) day of each month, commencing September 15, 1996,
and a final installment in the outstanding principal balance of the Term
Loan on the Termination Date.
(c) At any time after September 1, 1996, the Borrower may, upon
three Business Days' notice to the Lender, prepay the principal of the Term
Loan in whole or in part without premium except as set forth on
SUPPLEMENT A. Any partial prepayment of principal of the Term Loan shall
be in a minimum amount of the lesser of (i) the outstanding principal
balance of the Term Loan and (ii) $50,000 or an integral multiple thereof,
and shall be applied to the unpaid installments of the Term Loan in the
inverse order of their maturities. Any principal of the Term Loan which
is repaid may not be reborrowed.
(d) Any payment of the Term Loan may be made with the proceeds
of a Revolving Loan only if, immediately before and after giving effect to
such payment, no Event of Default or Unmatured Event of Default then exists
or would result therefrom.
2.1.3 ALL LOANS PAYABLE ON TERMINATION DATE. All Loans and other
Obligations hereunder shall be paid by the Borrower on the Termination
Date, unless payable sooner pursuant to the provisions of this Agreement,
but may, at the Borrower's election be repaid in whole or in part at any
time prior to such date without premium or penalty except as set forth on
SUPPLEMENT A. Recourse to Collateral, Third Party collateral or other
security is not required at any time.
2.2 LETTERS OF CREDIT.
(a) In addition to Loans made pursuant to SECTION 2.1, the
Lender, or any Affiliate, may, upon receipt of duly executed Applications
and such other documents, instruments and/or agreements as the Lender, or
such Affiliate, may require, issue Letters of Credit on such terms as are
satisfactory to the Lender; PROVIDED, HOWEVER, that no Letter of Credit
will be issued if, before or after taking such Letter of Credit into
account, the Letter of Credit Obligations exceeds the least of (i) the
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Letter of Credit Sublimit, (ii) the Revolving Credit Amount MINUS the
outstanding principal balance of the Revolving Loans and (iii) the
Borrowing Base MINUS the outstanding principal balance of the Revolving
Loans.
(b) The Borrower agrees to pay the Lender, or any Affiliate, on
demand, the Lender's, or such Affiliate's, standard administrative
operating fees and charges in effect from time to time for issuing and
administering any Letters of Credit. The Borrower further agrees to pay
the Lender, or any Affiliate, a commission on the undrawn amount of each
Letter of Credit and on each L/C Draft accepted by the Lender, or such
Affiliate, as the Borrower and the Lender, or such Affiliate, shall agree.
Such commissions shall be paid at such frequency as the Lender, or such
Affiliate, shall determine.
(c) The Borrower agrees to reimburse the Lender, or any
Affiliate, on demand for each payment made by the Lender, or such
Affiliate, under or pursuant to any Letter of Credit or L/C Draft. The
Borrower further agrees to pay to the Lender, or any Affiliate, on demand,
interest at the Default Rate, on any amount paid by the Lender, or such
Affiliate, under or pursuant to any Letter of Credit or L/C Draft from the
date of payment until the date of reimbursement to the Lender, or such
Affiliate.
(d) Notwithstanding anything to the contrary herein or in any
Application of the Borrower, upon the occurrence of an Event of Default or
on the Termination Date, an amount equal to the aggregate amount of the
outstanding Letter of Credit Obligations shall, at the Lender's option and
without further notice to the Borrower, be deemed (as between the Lender
and the Borrower) to have been paid or disbursed by the Lender under the
Letters of Credit and L/C Drafts accepted by the Lender, or any Affiliate,
notwithstanding that such amounts may not in fact have been so paid or
disbursed, and a Loan to the Borrower, in the amount of such Letter of
Credit Obligations, to have been made and accepted, which Loan shall be
immediately due and payable. In lieu of the foregoing, at the election of
the Lender, the Borrower shall, upon the Lender's demand, deliver to the
Lender or any Affiliate cash or other Collateral of a type satisfactory to
the Lender or such Affiliate having a value, as determined by the Lender,
or such Affiliate equal to the aggregate Letter of Credit Obligations. Any
such Collateral and/or any amounts received by the Lender, or any
Affiliate, in payment of the Loan made pursuant to this PARAGRAPH (d) shall
be held by the Lender or such Affiliate in the Collateral Account or a
separate account appropriately designated as a cash collateral account in
relation to this Agreement and the Letters of Credit and retained by the
Lender, or such Affiliate, as collateral security for the Obligations in
respect of this Agreement and each of the Letters of Credit and L/C
Drafts. Such amounts shall not be used by the Lender or such Affiliate to
pay any amounts drawn or paid under or pursuant to any Letter of Credit
or L/C Draft but may be applied to reimburse the Lender, or any Affiliate,
for drawings or payments under or pursuant to Letters of Credit or L/C
Drafts which the Lender, or such Affiliate, has paid or, if no such
reimbursement is required, to payment of such other Obligations as the
Lender shall determine. Following payment in full of all Obligations,
any amounts remaining in any cash collateral account established pursuant
to this PARAGRAPH (d) which are not (as determined by the Lender) to be
applied to reimburse the Lender, or
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any Affiliate, for amounts actually paid by the Lender, or such Affiliate,
in respect of a Letter of Credit or L/C Draft shall be returned to the
Borrower (after deduction of the Lender's, or such Affiliate's expenses).
2.3 LOAN ACCOUNT; DISBURSEMENT ACCOUNT; CONTROLLED DISBURSEMENT ACCOUNT.
(a) Loan Account. The Lender shall establish or cause to be
established on its books in the Borrower's name one or more accounts (each,
a "LOAN ACCOUNT") to evidence Loans made to the Borrower. Any amounts
advanced as Loans which are credited to the Disbursement Account, together
with any other amounts advanced to the Borrower as a Loan pursuant to this
Agreement, will be debited to the applicable Loan Account and result in an
increase in the principal balance outstanding in such Loan Account in the
amount thereof.
(b) Disbursement Account. Unless otherwise provided in this
Agreement, the Lender will credit or cause to be credited to a commercial
account (the "DISBURSEMENT ACCOUNT") maintained by the Borrower at Colorado
National Bank, 918 Seventeenth Street, Denver, Colorado 80202 the amount
of any sums advanced as Loans.
(c) Controlled Disbursement Account. The Borrower may maintain
a commercial account (the "Controlled Disbursement Account") into which
deposits from the Disbursement Account may be made by the Lender and from
which the Borrower may draw checks for corporate purposes.
2.4 INTEREST; FEES.
(a) INTEREST. The outstanding principal balance of each Loan to
the Borrower hereunder shall bear interest at the rate(s) applicable to
such Loan indicated in SUPPLEMENT A; PROVIDED, HOWEVER, that no provision
of this Agreement or any Note shall require the payment or permit the
collection of interest in excess of the rate permitted by applicable law.
Interest as aforesaid shall be charged for the actual number of days
elapsed over a year consisting of 360 days on the actual daily balance of
such Loan. Interest on the unpaid principal of any Loan shall accrue from
the date such Loan is made to the date such Loan is paid. Interest shall
be paid by the Borrower on the last day of each month, commencing on the
first such day to occur after the date hereof, and on maturity. After
maturity of any Loan, whether by acceleration or otherwise, interest shall
be payable on demand.
(b) INTEREST AFTER DEFAULT. If any Loan or any amount thereof
is not paid in full within five (5) days after the date such Loan or amount
is due, whether by acceleration or otherwise, then the Lender may elect
that the entire unpaid principal balance of such Loan shall bear interest
at the Default Rate applicable to such Loan.
(c) NON-USE FEE. The Borrower shall pay to the Lender a non-use
fee for the period from the date hereof to the date the Credit terminates
in the amount
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indicated in SUPPLEMENT A. The non-use fee shall be charged for the actual
number of days elapsed over a year consisting of 360 days on the actual
daily balance of the Revolving Loans. The non-use fee shall be paid by
the Borrower first (1st) day of the month following the close of each
quarter, beginning with the quarter ending March 31, 1996, and on the date
the Credit terminates for the period then ended.
(d) CREDIT TERMINATION FEE. Upon termination or cancellation of
the Credit by the Borrower, the Borrower shall pay to the Lender a
termination fee in the amount indicated in SUPPLEMENT A.
2.5 REQUESTS FOR REVOLVING LOANS; BORROWING BASE CERTIFICATES; OTHER
INFORMATION.
(a) Revolving Loans shall be requested by telephone, except for
Overdraft Loans. Any such telephonic notice shall be promptly confirmed by
the Borrower in writing. The Borrower's failure to confirm any such
telephonic notice or otherwise comply with the provisions of this
SECTION 2.5(A) shall not in any manner affect the obligation of the
Borrower to repay such Revolving Loan in accordance with the terms of
this Agreement.
(b) In the event that the Borrower shall at any time, or from
time to time, (i) make a request for a Revolving Loan, or (ii) be deemed to
have requested an Overdraft Loan, the Borrower agrees to forthwith provide
the Lender with such information, at such frequency and in such format, as
is required by the Lender, such information to be current as of the time of
such request.
(c) The Borrower further agrees to provide to the Lender a
current borrowing base certificate ("BORROWING BASE CERTIFICATE") at the
end of each week and at such other times as the Lender may request. Such
Borrowing Base Certificate shall be in substantially the form of EXHIBIT A,
executed and certified as accurate by such person or persons as the
Borrower designates in writing to the Lender pursuant to duly adopted
resolutions of the Borrower's Board of Directors authorizing such action.
(d) The Borrower shall provide the Lender with documentation
satisfactory to the Lender indicating the names of those employees of the
Borrower authorized by the Borrower to sign Borrowing Base Certificates,
among other things, and/or to make a telephone request for a Revolving
Loan, and/or to authorize disbursement of the proceeds of a Loan by wire
transfer or otherwise, and the Lender shall be entitled to rely upon such
documentation until notified in writing by the Borrower of any change(s) in
the names of persons so authorized. The Lender shall be entitled to act on
the instructions of anyone identifying himself as one of the persons
authorized to request Revolving Loans or disbursements of Loan proceeds by
telephone and the Borrower shall be bound thereby in the same manner as if
the person were actually so authorized. The Borrower agrees to indemnify
and hold the Lender harmless from any and all claims, damages, liabilities,
losses, costs and expenses (including Attorneys' Fees) which may arise or
be created by the acceptance of instructions for making or paying Loans or
wire transfers by telephone.
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2.6 NOTES. Except to the extent a Loan may, in the Lender's sole and
absolute discretion, be evidenced by a Note, all Loans and payments hereunder
shall be recorded on the Lender's books, which shall be rebuttable presumptive
evidence of the amount of such Loans outstanding at any time hereunder. The
Lender will account monthly as to all Loans and payments hereunder and each
monthly accounting will be fully binding on the Borrower unless, within 15 days
following the Borrower's receipt thereof, the Borrower shall provide the Lender
with a specific listing of exceptions. Notwithstanding any term or condition of
this Agreement to the contrary, the failure of the Lender to record the date and
amount of any Loan shall not limit or otherwise affect the obligation of the
Borrower to repay any such Loan.
2.7 OVERDRAFT LOANS. The Lender, in its sole and absolute discretion and
subject to the terms hereof, may make a Loan to the Borrower in an amount equal
to the amount of any overdraft which may from time to time exist with respect to
the Disbursement Account or any other bank account which the Borrower may now or
hereafter have with FBNA or any other Affiliate. The existence of such overdraft
shall be deemed to be a request by the Borrower for such Loan. The Borrower
acknowledges that the Lender is under no duty or obligation to make any Loan to
the Borrower to cover any overdraft. The Borrower further agrees that an
overdraft shall constitute a separate Loan under this Agreement (an "OVERDRAFT
LOAN"), which shall bear, from the date on which the overdraft occurred until
paid, interest in an amount equal to the greater of 130% of the highest rate of
interest then charged for Loans (other than Overdraft Loans) made hereunder, or
$50.00 per day. If the Lender, in its sole and absolute discretion, decides not
to make a Loan to cover part or all of any overdraft, the Lender ma return any
check(s) which created such overdraft.
2.8 OVER ADVANCES. The Lender, in its sole and absolute discretion, may
make Loans to the Borrower, either at the Borrower's request or to pay amounts
due to the Lender under this Agreement or any other Loan Document, in excess of
the Loan Availability or permit the total Loans to at any time exceed the Loan
Availability (such excess Obligations are hereinafter referred to as "OVER
ADVANCES") and no such event or occurrence shall cause or constitute a waiver by
the Lender of its right to refuse to make any further Loan or issue, or cause to
be issued, any Letters of Credit at any time that an Over Advance exists or
would result therefrom. During any period in which an Over Advance exists, the
amount of the Over Advances shall bear interest at a rate equal to 130% of the
highest rate of interest then charged for Loans (other than Overdraft Loans)
made hereunder.
2.9 ALL LOANS ONE OBLIGATION. All Loans under this Agreement shall
constitute one Loan, and all Indebtedness and other Obligations shall constitute
one general obligation secured by the Lien granted by the Borrower hereunder on
all of the Collateral and by all other Liens heretofore, now or at any time or
times hereafter granted by the Borrower or any other Obligor to secure the
Obligations. The Borrower agrees that all of the rights of the Lender set forth
in the Loan Documents shall, unless otherwise agreed to in writing, apply to any
modification of or supplement to the Loan Documents.
2.10 MAKING OF PAYMENTS; APPLICATION OF COLLECTIONS; CHARGING OF ACCOUNTS.
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(a) All payments hereunder (including payments with respect to
any Notes) shall be made without set-off or counterclaim and shall be made
to the Lender in immediately available funds (or as the Lender may
otherwise consent) prior to 12:30 p.m., Minneapolis time, on the date due
at its office at First Bank Place, 601 Second Avenue South, Minneapolis,
Minnesota 55402-4302, or at such other place as may be designated by the
Lender to the Borrower in writing. Any payments received after such time
shall be deemed received on the next Business Day. Whenever any payment to
be made hereunder or under any Note shall be stated to be due on a date
other than a Business Day such payment may be made on the next succeeding
Business Day and such extension of time shall be included in the
computation of payment of interest or any fees.
(b) The Borrower authorizes the Lender to, and the Lender will,
subject to the provisions of this SECTION 2.10(b), apply the whole or any
part of any amounts received by the Lender, or any Affiliate (whether
deposited in the Collateral Account or otherwise received by the Lender, or
any Affiliate) from the collection of items of payment and proceeds of any
Collateral or Third Party Collateral against the principal and/or interest
of any Loans made hereunder and/or any other Obligations, whether or not
then due, in such order of application as the Lender may determine, unless
such payments or proceeds are, in the Lender's sole and absolute
discretion, released to the Borrower; PROVIDED, HOWEVER, that no checks,
drafts or other instruments received by the Lender, or any Affiliate, shall
constitute final payment to the Lender unless and until such item of
payment has actually been collected. All items or amounts which are
delivered to the Lender, by or on behalf of the Borrower or any Obligor or
any Account Debtor on account of partial or full payment or otherwise as
proceeds of any of the Collateral or Third Party Collateral (including any
items or amounts which may have been deposited to the Collateral Account)
may from time to time, in the Lender's sole and absolute discretion, be
released to the Borrower or may be applied by the Lender towards such of
the Obligations, whether or not then due, in such order of application as
the Lender may determine. Notwithstanding anything to the contrary herein,
(i) all cash, checks, instruments and other items of payment, solely for
purposes of determining the occurrence of an Event of Default hereunder,
shall be deemed received upon actual receipt by the Lender unless the same
is subsequently dishonored for any reason whatsoever, (ii) for purposes of
determining whether, under SECTIONS 2.1 and 2.2, there is availability for
Loans or Letters of Credit, all cash, checks, instruments and other items
of payment shall be applied against the Obligations on the same Business
Day as receipt thereof by the Lender in Minneapolis, Minnesota or the same
Business Day as the initiation by the Lender of an ACH transaction from a
Collateral Account, and (iii) solely for purposes of interest calculation
hereunder, all cash, checks, instruments and other items of payment shall
be deemed to have been applied against the Obligations on the first
Business Day following receipt thereof by the Lender in Minneapolis,
Minnesota or the first Business Day following the initiation by the Lender
of an ACH transaction from a Collateral Account.
(c) The Borrower hereby authorizes the Lender and the Lender
may, in its sole and absolute discretion, charge to the Borrower, at any
time, all or any
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portion of any of the Obligations (and interest, if any, thereon)
including, without limitation, any Attorneys' Fees and other costs and
expenses of the Lender for which the Borrower is liable pursuant to the
terms of the Loan Documents, by charging the Disbursement Account or any
other bank account of the Borrower with FBNA or by advancing the amount
thereof to the Borrower as a Loan; PROVIDED, HOWEVER, that the
provisions of this SECTION 2.10(c) shall not affect the Borrower's
obligation to pay when due all amounts payable by the Borrower under any
of the Loan Documents whether or not there are sufficient funds therefor
in the Disbursement Account or any such other bank account of the
Borrower with FBNA, or sufficient Loan Availability.
2.11 LENDER'S ELECTION NOT TO ENFORCE. Notwithstanding any term or
condition of this Agreement to the contrary, the Lender, in its sole and
absolute discretion, at any time and from time to time may suspend or refrain
from enforcing any or all of the restrictions imposed in this SECTION 2 but no
such suspension or failure to enforce shall impair the Lender's right and power
under this Agreement to refrain from making a Loan or issuing, or causing to be
issued, a Letter of Credit requested by the Borrower if all conditions precedent
to the Lender's obligation to make such Loan or issue, or cause to be issued,
such Letter of Credit have not been satisfied.
ARTICLE III COLLATERAL
3.1 GRANT OF SECURITY INTEREST. As security for the payment of all Loans
now or hereafter made by the Lender to the Borrower hereunder or under any Note,
and as security for the payment or other satisfaction of all other Obligations,
the Borrower hereby grants to the Lender, and its Affiliates, a security
interest in and to the following property of the Borrower, whether now owned or
existing, or hereafter acquired or coming into existence, wherever now or
hereafter located (all such property is hereinafter referred to collectively as
the "COLLATERAL"):
(a) Accounts Receivable (whether or not Eligible Accounts
Receivable), including all other rights and interests (including all liens
and security interests) that the Borrower may at any time have by law or
agreement against any Account Debtor or other obligor obligated to make any
such payment or against any of the property of such Account Debtor or other
obligor;
(b) Equipment (whether or not Eligible Equipment);
(c) Inventory (whether or not Eligible Inventory);
(d) General Intangibles;
(e) documents;
(f) all chattel paper and instruments evidencing, arising out of
or relating to any obligation to the Borrower for goods sold or leased or
services rendered or otherwise arising out of or relating to any property
described in CLAUSES (a) through (e) above;
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(g) goods, instruments, documents or chattel paper that are in
the possession or control of, or in transit to, the Lender or any Affiliate
or any agent or bailee for the Lender or any Affiliate for any reason and
all interest on, dividends and distributions and other rights in connection
with such property, and any and all balances, credits, deposits (general or
special, time or demand, provisional or final), accounts or monies of or in
the name of the Borrower now or hereafter with the Lender, or any
Affiliate, and any and all property of every kind or description of or in
the name of the Borrower now or hereafter, for any reason or purpose
whatsoever, in the possession or control of, in transit to or standing to
the Borrower's credit on the books of, the Lender, any Affiliate, or any
agent or bailee for the Lender or any Affiliate or any Participant;
(h) all interest of the Borrower in any goods the sale or lease
of which shall have given or shall give rise to, and in all guaranties and
other property securing the payment of or performance under, any Accounts
Receivable, General Intangibles or any chattel paper or instruments
referred to in CLAUSE (f) above;
(i) any and all other property of the Borrower of any kind or
description, including, without limitation, real estate of the Borrower,
subject to a separate mortgage, pledge or security interest in favor of the
Lender or in which the Lender now or hereafter has or acquires a security
interest securing any Obligations, pursuant to any written agreement or
instrument other than this Agreement;
(j) all replacements, substitutions, additions or accessions to
or for any of the foregoing;
(k) to the extent related to the property described in CLAUSES
(a) through (j) above, all books, correspondence, credit files, records,
invoices and other papers and documents, including, without limitation, to
the extent so related, all tapes, cards, computer runs, computer programs
and other papers and documents in the possession or control of the Borrower
or any computer bureau from time to time acting for the Borrower, and, to
the extent so related, all rights in, to and under all policies of
insurance, including claims of rights to payments thereunder and proceeds
therefrom, including any credit insurance; and
(l) all proceeds (including, without limitation, any Accounts
Receivable or other proceeds arising from the sale or other disposition of
any Collateral, any returns of any Equipment or Inventory sold by the
Borrower and the proceeds of any insurance covering any of the Collateral)
of any of the foregoing.
3.2 ACCOUNTS RECEIVABLE.
(a) The Borrower shall notify the Lender immediately of all
disputes and claims by any Account Debtor and settle or adjust them at no
expense to the Lender. If the Lender directs, no discount or credit
allowance shall be granted thereafter by the Borrower to any Account
Debtor. All Account Debtor payments and all net amounts received by the
Lender in settlement, adjustment or liquidation of any
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Account Receivable may be applied by the Lender to the Obligations or
credited to the Disbursement Account (subject to collection), as the
Lender may deem appropriate, as more fully described in SECTION 2.10.
If requested by the Lender, the Borrower will make proper entries in its
books, disclosing the assignment of Accounts Receivable to the Lender.
(b) Unless otherwise consented to by the Lender, the Borrower
will, forthwith upon receipt by the Borrower of all checks, drafts, cash
and other remittances in payment or as proceeds of, or on account of, any
of the Accounts Receivable or other Collateral, deposit the same in a
special bank account (the "COLLATERAL ACCOUNT") with FBNA or such other
bank or financial institution as the Lender shall consent, over which the
Lender alone has power of withdrawal, and will designate with each such
deposit the particular Accounts Receivable or other item of Collateral upon
which the remittance was made. The Borrower acknowledges that the
maintenance of the Collateral Account is solely for the convenience of the
Lender in facilitating its own operations and the Borrower does not and
shall not have any right, title or interest in the Collateral Account or in
the amounts at any time appearing to the credit thereof. Said proceeds
shall be deposited in precisely the form received except for the Borrower's
endorsement where necessary to permit collection of items, which
endorsement the Borrower agrees to make. Pending such deposit, the
Borrower agrees not to commingle any such checks, drafts, cash and other
remittances with any of its funds or property, but will hold them separate
and apart therefrom and upon an express trust for the Lender until deposit
thereof if made in the Collateral Account. Upon the full and final
liquidation of all Obligations, the Lender will pay over to the Borrower
any excess amounts received by the Lender as payment or proceeds of
Collateral, whether received by the Lender as a deposit in the Collateral
Account or received by the Lender as a direct payment on any of the sums
due hereunder.
(c) If any Accounts Receivable, chattel paper or General
Intangible arises out of contracts with the United States or any
department, agency, or instrumentality thereof, the Borrower will, unless
the Lender shall otherwise agree, immediately notify the Lender in writing
and execute any instruments and take any steps required by the Lender in
order that all monies due and to become due under such contracts shall be
assigned to the Lender and notice thereof given to the government under the
Federal Assignment of Claims Act of 1940, as amended.
(d) If any Accounts Receivable is evidenced by chattel paper or
instruments, the Borrower will, unless the Lender shall otherwise agree,
deliver the originals of same to the Lender, appropriately endorsed to the
Lender's order and, regardless of the form of such endorsement, the
Borrower hereby expressly waives presentment, demand, notice of dishonor,
protest and notice of protest and all other notices with respect thereto.
3.3 INVENTORY.
(a) Unless the Lender shall otherwise agree, if the Borrower
sells Inventory for cash, all full and partial payments therefor shall
immediately be delivered
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by the Borrower to the Lender in their original form for deposit in the
Collateral Account or other application to reduction of the
Obligations. All such cash shall be held by the Borrower in trust for
the Lender and shall be remitted to the Lender at the end of the day
received or at such other time as the Lender may designate.
(b) The Lender shall not be liable or responsible in any way for
the safekeeping of any Inventory delivered to it, to any bailee appointed
by or for it, to any warehouseman, or under any other circumstances. The
Lender shall not be responsible for collection of any proceeds or for
losses in collected proceeds held by the Borrower in trust for the Lender.
Any and all risk of loss for any or all of the foregoing shall be upon the
Borrower except for such loss as shall result from the Lender's gross
negligence or willful misconduct.
(c) If requested by the Lender, the Borrower shall, upon
acquiring an interest in any Inventory, deliver to the Lender schedules of
such Inventory, together with supplier's invoices, warranties, production,
cost and other records as the Lender may request. If requested by the
Lender, the Borrower shall deliver to the Lender schedules of the sale of
any Inventory immediately upon its sale. Any material change in the value
or condition of any Inventory and any errors discovered in schedules
delivered to the Lender shall be reported to the Lender immediately.
(d) The Borrower shall (i) notify the Lender immediately if the
Borrower obtains possession (by return, repossession or otherwise) of any
Inventory which has been sold and shall inform the Lender of the identity
of the returned or repossessed Inventory, the applicable Account Debtor and
the amount of the applicable Account Receivable; (ii) receive such
Inventory in trust; and (iii) resell such Inventory for the Lender unless
instructed to deliver it to the Lender.
3.4 EQUIPMENT.
(a) In the event any Equipment is sold, transferred or otherwise
disposed of, unless the Lender shall agree otherwise, the Borrower shall
deliver all of the proceeds of any such sale, transfer or disposition to
the Lender, which proceeds shall be deposited in the Collateral Account or
otherwise applied to the repayment of the Obligations.
(b) The Borrower will, upon request of the Lender, submit to the
Lender a current listing of all of the Borrower's Equipment which listing
shall indicate the type, model, serial number and location of such
Equipment.
3.5 SUPPLEMENTAL DOCUMENTATION. At the Lender's request, the Borrower
shall execute and/or deliver to the Lender, at any time or times hereafter, such
agreements, documents, financing statements, warehouse receipts, bills of
lading, notices of assignment of Accounts Receivable, schedules of Accounts
Receivable assigned, and other written matter necessary or requested by the
Lender to perfect and maintain perfected the security interest in the Collateral
granted hereunder (all the above hereinafter referred to as "SUPPLEMENTAL
DOCUMENTATION"), in form and substance acceptable to the Lender, and pay all
taxes, fees and
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other costs and expenses associated with any recording or filing
of the same. The Borrower hereby irrevocably makes, constitutes and appoints
the Lender (and all Persons designated by the Lender for that purpose) as the
Borrower's true and lawful attorney (and agent-in-fact) to sign the name of the
Borrower on any of the Supplemental Documentation and to deliver any of the
Supplemental Documentation to such Persons as the Lender in its sole and
absolute discretion, may elect. The Borrower agrees that a carbon,
photographic, photostatic, and other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement.
3.6 POWER OF ATTORNEY. The Borrower irrevocably designates, makes,
constitutes, and appoints the Lender (and all Persons designated by the Lender)
as the Borrower's true and lawful attorney (and agent-in-fact) and the Lender,
or the Lender's agent, may, without notice to the Borrower:
(a) at such time or times hereafter as the Lender or said agent,
in its sole and absolute discretion, may determine, in the Borrower's or
the Lender's name, (i) receive, open and dispose of all mail received at
the lockbox address of the Borrower; (ii) notify and/or require the
Borrower to notify, any Account Debtor or other Person obligated under or
in respect of any Collateral, of the fact of the Lender's Lien thereon and
of the collateral assignment thereof to the Lender; (iii) direct and/or
require the Borrower to direct, any Account Debtor or other Person
obligated under or in respect of any Collateral, to make payment directly
to the Lender of any amounts due or to become due thereunder or with
respect thereto; (iv) endorse the Borrower's name on any checks, notes,
drafts or any other items of payment relating to and/or proceeds of the
Collateral which come into the possession of the Lender or under the
Lender's control and apply such payment or proceeds to the Obligations; and
(v) endorse the Borrower's name on any chattel paper, document, instrument,
invoice, freight bill, bill of lading or similar document or agreement in
the Lender's possession relating to Accounts Receivable, Inventory
Equipment or any other Collateral; and
(b) at such time or times after the occurrence of an Event of
Default, as the Lender or said agent, in its sole and absolute discretion,
may determine, in the Borrower's or the Lender's name: (i) receive, open
and dispose of all mail received at the street address or any post office
box address of the Borrower; (ii) demand, collect, surrender, release or
exchange all or any part of any Collateral or any amounts due thereunder or
with respect thereto; (iii) settle, adjust, compromise, extend or renew for
any period (whether or not longer than the initial period) any and all sums
which are now or may hereafter become due or owing upon or with respect to
any of the Collateral; (iv) enforce, by suit or otherwise, payment or
performance of any of the Collateral; (v) settle, adjust or compromise any
legal proceedings brought to collect any sums due or owing upon or with
respect to any of the Collateral; (vi) exercise all of the Borrower's
rights and remedies with respect to the collection of any amounts due upon
or with respect to any of the Collateral; (vii) if permitted by applicable
law, sell or assign the Collateral upon such terms, for such amounts and at
such time or times as the Lender may deem advisable; (viii) discharge and
release the Collateral; (ix) prepare, file and sign the Borrower's name on
any proof of claim in bankruptcy or similar document against any Account
Debtor; (x) prepare, file and sign the Borrower's
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name on any notice of lien, assignment or satisfaction of lien or
similar document in connection with the Accounts Receivable and/or other
Collateral; and (xi) do all acts and things necessary, in the Lender's
sole and absolute discretion, to obtain repayment of the Obligations and
to fulfill the Borrower's other obligations under this Agreement.
(c) at such time or times after the assertion by the Lender that
an Event of Default has occurred and is continuing (whether or not an Event
of Default has in fact occurred), as the Lender or said agent, in its
reasonable discretion, may determine, in the Borrower's or the Lender's
name, notify the post office authorities to change the address for delivery
of the Borrower's mail to an address designated by the Lender.
Under no circumstances shall the Lender be under any duty to act in regard to
any of the foregoing matters. The costs relating to any of the foregoing
matters, including Attorneys' Fees and out-of-pocket expenses shall be borne
solely by the Borrower whether the same are incurred by the Lender or the
Borrower.
Neither the Lender nor any of its directors, officers, employees or agents will
be liable for any acts of commission or omission nor for any error in judgment
or mistake of fact or law, unless the same shall have resulted from gross
negligence or willful misconduct. This power, being coupled with an interest,
is irrevocable until either (i) all Obligations under this Agreement are paid in
full, or (ii) this Agreement is terminated, whichever shall last occur.
ARTICLE IV REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make Loans to the
Borrower hereunder, the Borrower makes the following representations and
warranties, all of which shall be true and correct as of the date the initial
Loans are made and survive the execution of this Agreement and the making of the
initial Loans:
4.1 ORGANIZATION. Each of Cryenco and CSI is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its respective incorporation. Each of Cryenco and CSI is in good
standing and is duly qualified to do business in each state where, because of
the nature of its respective activities or properties, such qualification is
required. On the date hereof, each of Cryenco and CSI conducts business in its
own name exclusively and has no trade names, styles or doing business forms
except as disclosed on SCHEDULE 4.1. Cryenco's taxpayer identification number
is I.D. No. 84-0767496. CSI's taxpayer identification number is
I.D. No. 52-1471630.
4.2 AUTHORIZATION. The Borrower is duly authorized to execute and deliver
the Loan Documents and any Supplemental Documentation contemplated by this
Agreement, and is and will continue to be duly authorized to borrow monies
hereunder and to perform its obligations under the Loan Documents and any
Supplemental Documentation contemplated by this Agreement and the borrowings
hereunder do not and will not require any consent or approval of any
governmental agency or authority.
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4.3 NO CONFLICTS. The execution, delivery and performance by the Borrower
of the Loan Documents and any Supplemental Documentation contemplated by this
Agreement, do not and will not conflict with (a) any provision of law, (b) the
charter or by-laws of the Borrower, (c) any agreement binding upon the Borrower,
or (d) any court or administrative order or decree applicable to the Borrower,
and do not and will not require, or result in, the creation or imposition of any
Lien on any asset of the Borrower except as provided herein.
4.4 VALIDITY AND BINDING EFFECT. The Loan Documents and any Supplemental
Documentation contemplated by this Agreement, when duly executed and delivered
will be, legal, valid and binding obligations of the Borrower, enforceable
against the Borrower in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency or other similar laws of
general application affecting the enforcement of creditors' rights or by general
principles of equity limiting the availability of equitable remedies.
4.5 NO DEFAULT. The Borrower is not in default under any agreement or
instrument to which the Borrower is a party or by which any of its properties or
assets is bound or affected, which default (a) might materially and adversely
affect the Lender's Lien on or rights with respect to any Collateral or Third
Party Collateral or (b) constitutes an Adverse Event. No Event of Default or
Unmatured Event of Default has occurred and is continuing.
4.6 FINANCIAL STATEMENTS. The Borrower's audited consolidated financial
statement as at August 31, 1995 and the Borrower's unaudited consolidated and
consolidating financial statements as at August 31, 1995 and October 31, 1995,
copies of which have been furnished to the Lender, have been prepared in
conformity with GAAP (except that unaudited statements do not include footnotes
required by GAAP) promulgated by the Financial Accounting Standards Board and
applied on a basis consistent with that of the preceding fiscal year and period
and present fairly the financial condition of the Borrower as at such dates and
the results of their operations for the periods then ended, subject (in the case
of the interim financial statement) to year-end audit adjustments. Since October
31, 1995, no Adverse Event has occurred.
4.7 INSURANCE. SCHEDULE 4.7 sets forth a summary of the property and
casualty insurance program carried by the Borrower on the date hereof, including
the insurer's(s') name(s), policy number(s), expiration date(s), amount(s) of
coverage, type(s) of coverage, the annual premium(s), Best's policyholder's and
financial size ratings of the insurers, exclusions, deductibles and self-insured
retention, and describes in detail any retrospective rating plan, fronting
arrangement or any other self-insurance or risk assumption agreed to by the
Borrower or imposed upon the Borrower by any such insurer. This summary also
includes any self-insurance program that is in effect.
4.8 LITIGATION; CONTINGENT LIABILITIES.
(a) Except for those referred to in SCHEDULE 4.8, no claims
litigation, arbitration proceedings or governmental proceedings are pending
or threatened against or are affecting the Borrower.
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(b) Other than any liability incident to the claims, litigation
or proceedings disclosed in SCHEDULE 4.8, the Borrower has no contingent
liabilities which are material to the Borrower.
4.9 LIENS. None of the Collateral or other property or assets of the
Borrower is subject to any Lien (including, without limitation, Liens pursuant
to Capitalized Leases under which the Borrower is a lessee) except: (a) Liens
in favor of the Lender; (b) Liens for current Taxes not delinquent or Taxes
being contested in good faith and by appropriate proceedings and as to which
such reserves or other appropriate provisions as may be required by GAAP are
being maintained; (c) carriers', warehousemen's, mechanics', materialmen's and
other like statutory Liens arising in the ordinary course of business securing
obligations which are not overdue or which are being contested in good faith and
by appropriate proceedings and as to which such reserves or other appropriate
provisions as may be required by GAAP are being maintained; and (d) Liens listed
on SCHEDULE 4.9.
4.10 SUBSIDIARIES. The Borrower has no Subsidiaries except as listed on
SCHEDULE 4.10. The Borrower and the Subsidiaries own the percentage of the
Subsidiaries as set forth on SCHEDULE 4.10.
4.11 PARTNERSHIPS. The Borrower is not a partner or joint venturer in any
partnership or joint venture other than the partnerships and joint ventures
listed on SCHEDULE 4.11.
4.12 BUSINESS LOCATIONS. On the date hereof the office where the Borrower
keeps the Borrower's books and records concerning the Borrower's Accounts
Receivable and other Collateral, and the Borrower's chief place of business and
chief executive office, is located at the address of the Borrower set forth on
the signature pages of this Agreement, and all of the Borrower's other places of
business are listed on SCHEDULE 4.12. On the date hereof, the names of any
landlords and/or mortgagees of any of such locations are identified in SCHEDULE
4.12.
4.13 COLLATERAL LOCATIONS. On the date hereof the Borrower's Inventory,
Equipment and, if applicable, fixtures (except any part thereof which prior to
the execution of this Agreement the Borrower shall have advised the Lender in
writing consists of Collateral normally used in more than one state) is located
at the addresses set forth in SCHEDULE 4.13. The legal descriptions of any real
property on which any fixtures are located and the name(s) of the record owner
of such real property is set forth in SCHEDULE 4.13.
4.14 ELIGIBILITY OF COLLATERAL. (a) All of the Accounts Receivable are and
will continue to be bona fide existing obligations created by the sale of goods,
the rendering of services, or the furnishing of other good and sufficient
consideration to Accounts Debtors in the regular course of business and all
shipping or delivery receipts and other documents furnished or to be furnished
to the Lender in connection therewith are and will be genuine; (b) Each Account
Receivable, item of Inventory or item of Equipment which the Borrower shall,
expressly or by implication, request the Lender to classify as an Eligible
Account Receivable, as Eligible Inventory or as Eligible Equipment,
respectively, will, as of the time when such
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request is made, conform in all respects to the requirements of such
classification set forth in the respective definitions of "Eligible Account
Receivable," "Eligible Inventory" and "Eligible Equipment" set forth herein;
(c) with respect to each schedule of Inventory delivered to the Lender
pursuant to SECTION 3.3: (i) the descriptions, origins, size, qualities,
quantities, weights, and markings of all goods stated thereon, or on any
attachment thereto, are true and correct in all material respects; (ii) all
goods stated thereon have been produced by the Borrower in compliance with
all requirements of the Fair Labor Standards Act; and (iii) none of the goods
stated thereon are defective, of second quality, used, or goods returned
after shipment, except where described as such; and (iv) all Inventory not
included on such schedule has been previously scheduled.
4.15 CONTROL OF COLLATERAL; LEASE OF PROPERTY. The Borrower is not now
conducting, or permitting or suffering to be conducted, any activities pursuant
to or in conjunction with which any of the Collateral is now, or will be (while
any Obligations exist or this Agreement is in effect), in the possession or
control of, any Obligor (other than the Borrower) or Related Party. Except as
listed on SCHEDULE 4.15, none of the machinery, equipment or real property used
by the Borrower is subject to a lease (excluding only Capitalized Leases
included on SCHEDULE 6.11) under which the Borrower is the lessee.
4.16 PATENTS, TRADEMARKS, ETC. The Borrower possesses or has the right to
use all of the patents, trademarks, trade names, service marks and copyrights,
and applications therefor, and all technology, know-how, processes, methods and
designs used in or necessary for the conduct of its business, without known
conflict with the rights of others. All such licenses, patents, trademarks,
trade names, service marks and copyrights, and applications therefor existing on
the date hereof are listed on SCHEDULE 4.16.
4.17 SOLVENCY. The Borrower now has capital sufficient to carry on its
respective business and transactions and all business and transactions in which
it is about to engage and is now solvent and able to pay its respective debts as
they mature.
4.18 CONTRACTS; LABOR MATTERS. Except as disclosed on SCHEDULE 4.18: (a)
the Borrower is not a party to any contract or agreement, or subject to any
charge, corporate restriction, judgment, decree or order, the performance of
which constitutes an Adverse Event; (b) no labor contract to which the Borrower
is subject is scheduled to expire during the original term of this Agreement;
and (c) on the date of this Agreement (i) the Borrower is not a party to any
labor dispute and (ii) there are no strikes or walkouts relating to any labor
contracts to which the Borrower is subject.
4.19 ERISA. Each Plan complies with all material applicable requirements
of ERISA and the Code and with all material applicable rulings and regulations
issued under the provisions of ERISA and the Code setting forth those
requirements. No Reportable Event, other than a Reportable Event for which the
reporting requirements have been waived by regulations of the PBGC, has occurred
and is continuing with respect to any Plan. All of the minimum funding
standards applicable to such Plans have been satisfied and there exists no event
or condition which would permit the institution of proceedings to terminate any
Plan under Section 4042 of ERISA. The Current value of the Plans' benefits
guaranteed under Title IV of ERISA does not exceed the current value of the
Plans' assets allocable to such
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benefits. Except as listed on SCHEDULE 4.8, the Borrower has no contingent
liability with respect to any "employee welfare benefit plans," as such term
is defined in Section 3(1) of ERISA, which covers retired or terminated
employees and their beneficiaries.
4.20 REGULATION U. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (as
defined in Regulation U of the Federal Reserve Board), and no part of the
proceeds of any Loan will be used to purchase or carry margin stock or for any
other purpose which would violate any of the margin requirements of the Federal
Reserve Board.
4.21 COMPLIANCE. The Borrower is in material compliance with all statutes
and governmental rules and regulations applicable to them. All Inventory of the
Borrower has been produced in compliance with all requirements of the Fair Labor
Standards Act.
4.22 TAXES. The Borrower has filed all federal, state and local tax
returns required to be filed and has paid, or made adequate provisions for the
payment of, all Taxes due and payable pursuant to such returns and pursuant to
any assessments made against it or any of its property (other than Taxes the
amount or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which reserves in accordance with
GAAP have been provided on the books of the Borrower). No tax Liens have been
filed and no material claims are being asserted with respect to any such Taxes.
The charges, accruals and reserves on the books of the Borrower in respect of
Taxes are adequate. The federal income tax liability of the Borrower has been
audited by the Internal Revenue Service and has been finally determined and
satisfied (or the time for audit has expired) for all tax years up to and
including the tax year ended August 31, 1993. The Borrower is not aware of any
proposed assessment against the Borrower for additional Taxes (or any basis for
any such assessment) which might be material to the Borrower.
4.23 INVESTMENT COMPANY ACT. The Borrower is not an "investment company"
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
4.24 PUBLIC UTILITY HOLDING COMPANY ACT. The Borrower is not a "holding
company" or a "subsidiary company" of a "holding company" or an "affiliate" of a
"holding company" within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
4.25 ENVIRONMENTAL AND SAFETY AND HEALTH MATTERS. Except as disclosed on
SCHEDULE 4.25: (a) the operations of the Borrower complies in all respects with
(i) all applicable Environmental Laws, and (ii) all applicable Occupational
Safety and Health Laws; (b) none of the operations of the Borrower are subject
to any judicial or administrative proceeding alleging the violation of any
Environmental Law or Occupational Safety and Health Law; (c) none of the
operations of the Borrower is the subject of federal or state investigation
evaluating whether any remedial action is needed to respond to (i) a spillage,
disposal or release into the environment of any Hazardous Material or other
hazardous, toxic or dangerous waste, substance or constituent, or other
substance, or (ii) any unsafe or unhealthful condition at any premises of the
Borrower; (d) neither the Borrower has filed any notice under any Environmental
Law or Occupation Safety and Health Law indicating or
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reporting (i) any past or present spillage, disposal or release into the
environment of, or treatment, storage or disposal of, any Hazardous Material
or other hazardous, toxic or dangerous waste, substance or constituent, or
other substance or (ii) any unsafe or unhealthful condition at any premises
of the Borrower; and (e) the Borrower has no known contingent liability in
connection with (i) any spillage, disposal or release into the environment
of, or otherwise with respect to, any Hazardous Material or other hazardous,
toxic or dangerous waste, substance or constituent, or other substance, or
(ii) any unsafe or unhealthful condition at any premises of the Borrower.
ARTICLE V AFFIRMATIVE COVENANTS
From the date of this Agreement and thereafter until all Obligations of CSI
and Cryenco hereunder are paid in full, the Borrower agrees that unless the
Lender shall otherwise consent in writing, it will:
5.1 FINANCIAL STATEMENTS AND OTHER REPORTS.
5.1.1 FINANCIAL REPORTS. Furnish to the Lender in form
satisfactory to the Lender:
(a) ANNUAL AUDIT REPORT. As soon as available and in any event
within 90 days after the end of each fiscal year of the Borrower, CSI's 10K
report as filed with the Securities and Exchange Commission (or any
successor thereto) or any national securities exchange, and the annual
audit report of the Borrower prepared on a consolidated basis in conformity
with GAAP, consisting of at least statements of income, cash flow and
stockholders' equity, and a consolidated balance sheet as at the end of
such year, setting forth in each case in comparative form corresponding
figures from the previous annual audit, certified, without qualification,
by Ernst & Young, L.L.P. or by another independent certified public
accountants of recognized standing selected by the Borrower and acceptable
to the Lender, together with any management letters, management reports or
other supplementary comments or reports to the Borrower or its board of
directors furnished by such accountants.
(b) ACCOUNTANT'S CERTIFICATE. Together with the audited
financial statements required under SECTION 5.1.1(a), a certificate from
the accounting firm performing such audit (i) acknowledging its
understanding that the Lender and any Participant is relying on such audit
report and (ii) stating that it has reviewed this Agreement and that in
performing its examination, nothing came to its attention that caused it to
believe that any Event of Default or Unmatured Event of Default exists, or,
if such Unmatured Event of Default or Event of Default exists, describing
its nature.
(c) QUARTERLY FINANCIAL STATEMENT. As soon as available and in
any event within forty-five (45) days after the end of each of the first
three fiscal quarters of each fiscal year, a copy of CSI's unaudited 10Q
report as filed with the Securities and Exchange Commission (or any
successor thereto) or any national securities exchange prepared in the same
manner as the audit report referred to in SECTION 5.1.1(a), signed by the
Borrower's chief financial officer and consisting of at least
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consolidated statements of income, cash flow and stockholders' equity for
the Borrower for such quarter and for the period from the beginning of such
fiscal year to the end of such quarter, a consolidated balance sheet of the
Borrower as at the end of such quarter.
(d) MONTHLY FINANCIAL STATEMENT. As soon as available and in
any event within 20 days after the end of each month of each fiscal year of
the Borrower, a copy of the unaudited consolidated and consolidating
financial statement of the Borrower prepared in the same manner as the
audit report referred to in SECTION 5.1.1(a) (except that the unaudited
financial statements need not be prepared in accordance with GAAP to the
extent that footnotes are required under GAAP), signed by the Borrower's
chief financial officer and consisting of at least statements of income,
cash flow and stockholders' equity for the Borrower for such month and for
the period from the beginning of such fiscal year to the end of such month,
and balance sheets of the Borrower as at the end of such month.
(e) PROJECTIONS. As soon as available and in any event not
later than 30 days prior to the last day of each fiscal year of the
Borrower, a projected financial statement of the Borrower prepared in the
same manner as the audit report referred to in SECTION 5.1.1(a), signed by
the Borrower's chief financial officer and presenting fairly the Borrower's
best good faith projections of the financial position and results of
operations of the Borrower for each month of the following fiscal year.
(f) OFFICER'S CERTIFICATE. Together with the financial
statements furnished by the Borrower under SECTION 5.1.1(a), (c) and (d), a
certificate of the Borrower's chief financial officer, dated the date of
such annual audit report or such monthly financial statement, as the case
may be, to the effect that no Event of Default or Unmatured Event of
Default has occurred and is continuing, or, if there is any such event,
describing it and the steps, if any, being taken to cure it, and containing
a computation of, and showing compliance with, each of the financial ratios
and restrictions contained in ARTICLES V and VI and SUPPLEMENT A.
(g) GAAP CHANGES. In the event that a material change occurs,
in the Lender's judgment, in GAAP, either the Lender and the Borrower shall
amend, in writing, the covenants in this Agreement, SUPPLEMENT A, and the
other Loan Documents which are calculated on the basis of GAAP to reflect
such change, or, if the Lender and the Borrower fail to agree on and enter
into such an amendment, the Lender shall have the right to deem such change
in GAAP to be an Event of Default.
5.1.2 AGINGS; INELIGIBLE ACCOUNTS RECEIVABLE CERTIFICATION. Within
15 days after the end of each month, (a) a detailed aging of all Accounts
Receivable by invoice, including, without limitation, a reconciliation to the
aging report delivered to the Lender for the preceding month, (b) a
certification of ineligible Accounts Receivable and (c) an aging of all accounts
payable as of the end of the preceding month, each in form and content
acceptable to the Lender.
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5.1.3 INVENTORY CERTIFICATION. Within 15 days after the end of
each month, an Inventory certification report as of the end of the preceding
month for all Inventory locations showing the amount of each component of the
Borrower's Inventory and the amount of each component of the Borrower's Costs,
and the amount of work in process, and a copy of the Borrower's job status
report as of the end of the preceding month, showing the amount of each
component of the Borrower's work in process, all in form and content acceptable
to the Lender.
5.1.4 SALES AND COLLECTION REPORTS. If requested by the Lender,
not later than 4:00 p.m., Minneapolis time on each Business Day, a report of the
Borrower's sales and collections for the preceding Business Day, in form and
content acceptable to the Lender.
5.1.5 OTHER REPORTS.
(a) SEC AND OTHER REPORTS. Promptly upon the making or filing
thereof, copies of all financial statements, reports and proxy statements
mailed to the CSI's shareholders, and copies of all registration
statements, periodic reports and other documents filed with the Securities
and Exchange Commission (or any successor thereto) or any national
securities exchange.
(b) REPORT OF CHANGE IN SUBSIDIARIES OR PARTNERSHIPS. Promptly
from time to time, a written report of any new Subsidiaries of the Borrower
and of any change in the list of partnerships and joint ventures set forth
on SCHEDULE 4.11.
(c) PATENTS, ETC. Promptly from time to time, a written report
of any change to the list of patents, trademarks, copyrights and other
information set forth in SCHEDULE 4.16.
(d) OTHER REPORTS. The information required to be provided
pursuant to other provisions of this Agreement, and such other reports
from time to time requested by the Lender.
5.2 NOTICES. Notify the Lender in writing of any of the following
immediately upon learning of the occurrence thereof, describing the same and, if
applicable, the steps being taken by the Person(s) affected with respect
thereto:
(a) DEFAULT. The occurrence of (i) any Event of Default or
Unmatured Event of Default, and (ii) to the extent not included in CLAUSE
(i) above, the default by the Borrower or any other Obligor under any note,
indenture, loan agreement, mortgage, lease, deed or other material similar
agreement to which the Borrower or any other Obligor, as appropriate, is a
party or by which it is bound.
(b) LITIGATION. The institution of any litigation, arbitration
proceeding or governmental proceeding affecting the Borrower, any other
Obligor, any Collateral or any Third Party Collateral and involving more
than $50,000, whether or not considered to be covered by insurance.
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(c) JUDGMENT. The entry of any judgment or decree against the
Borrower or any other Obligor, if the amount of such judgment exceeds
$50,000.
(d) ERISA. With respect to any Plan, the occurrence of a
Reportable Event (other than a Reportable Event for which the reporting
requirements have been waived by PBGC regulations) or any "prohibited
transaction" (as defined in Section 4975 of the Code), a notice specifying
the nature thereof and what action the Borrower proposes to take with
respect thereto, and, when received, copies of any notice from PBGC of
intention to terminate or have a trustee appointed for any Plan; or the
incurrence of any material increase in the contingent liability of the
Borrower or any other Obligor with respect to any "employee welfare benefit
plan" as defined in Section 3(1) of ERISA which covers retired employees
and their beneficiaries.
(e) CHANGE IN COLLATERAL LOCATIONS. If any of the Borrower's
Inventory or Equipment is placed in locations other than those identified
in this Agreement or in SCHEDULE 4.13.
(f) CHANGE IN PLACE(S) OF BUSINESS. Any proposed opening,
closing or other change in the list of offices and other places of business
of the Borrower set forth in SCHEDULE 4.12, and any opening, closing or
other change in the offices and other places of business of each other
Obligor.
(g) CHANGE OF NAME. Any change in the name of the Borrower or
any other Obligor, and any change in the list of trade names and trade
styles set forth in SCHEDULE 4.1.
(h) ENVIRONMENTAL AND SAFETY AND HEALTH MATTERS. Receipt of any
notice that the operations of the Borrower or any other Obligor are not in
full compliance with requirements of any applicable Environmental Law or
any Occupational Safety and Health Law; receipt of notice that the Borrower
or any other Obligor is subject to federal, state or local investigation
evaluating whether any remedial action is needed to respond to (i) any
spillage, disposal or release into the environment of any Hazardous
Material or other hazardous, toxic or dangerous waste, substance or
constituent, or other substance, or (ii) any unsafe or unhealthful
condition at any premises of the Borrower or any other Obligor; or receipt
of notice that any properties or assets of the Borrower or any other
Obligor are subject to an Environmental Lien.
(i) ADVERSE EVENT. The occurrence of an Adverse Event.
(j) DEFAULT BY OTHERS. Any material default by any Account
Debtor or other Person obligated to the Borrower or any other Obligor,
under any contract, chattel paper, note or other evidence of amounts
payable or due or to become due to the Borrower or such Obligor if the
amount payable under such contract, chattel paper, note or other evidence
of amounts payable or due or to become due is material.
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(k) MOVEABLE COLLATERAL. If any of the Collateral or Third
Party Collateral shall consist of goods of a type normally used in more
than one state, whether or not actually so used, any use of any such goods
in any state other than a state in which the Borrower shall have previously
advised the Lender such goods will be used. The Borrower agrees that such
goods will not, unless the Lender shall otherwise consent in writing, be
used outside the continental United States or in Louisiana.
(l) CHANGE IN MANAGEMENT OR LINE(S) OF BUSINESS. Any
substantial change in the senior management of the Borrower, or any change
in the Borrower's line(s) of business.
(m) OTHER EVENTS. The occurrence of such other events as the
Lender may from time to time specify.
5.3 EXISTENCE. Maintain and preserve its existence as a corporation, and
all rights, privileges, licenses, patents, patent rights, copyrights,
trademarks, trade names, franchises and other authority to the extent material
and necessary for the conduct of its respective business in the ordinary course
as conducted from time to time.
5.4 NATURE OF BUSINESS. Engage in substantially the same fields of
business as it is engaged in on the date hereof.
5.5 BOOKS, RECORDS AND ACCESS. Maintain complete and accurate books and
records (including, without limitation, records relating to Accounts Receivable,
Inventory, Equipment and other Collateral), in which full and correct entries in
conformity with GAAP shall be made of all dealings and transactions in relation
to its respective business and activities. Cause its books and records as at
the end of any calendar month to be posted and closed not more than 15 days
after the last business day of such month. Permit access by the Lender and its
agents or employees to the books and records of the Borrower at the Borrower's
place or places of business at intervals to be determined by the Lender and
without hindrance or delay, and permit the Lender or its agents and employees to
inspect the Borrower's Inventory and Equipment, and to inspect, audit, check and
make copies and/or extracts from the books, records, journals, orders, receipts,
correspondence and other data relating to Inventory, Accounts Receivable,
chattel paper, General Intangibles, Equipment and any other Collateral or Third
Party Collateral, or to any other transactions between the parties hereto. Any
and all such inspections and/or audits shall be at the Borrower's expense,
including, without limitation, the pre-closing audit undertaken by the Lender,
PROVIDED, HOWEVER, that as long as the Borrower is in full compliance with the
terms and provisions of this Agreement, the Borrower will not be charged for
more than three such inspections and/or audits per year (excluding the pre-
closing audit) or for more than $3,000 per such inspection and/or audit actually
occurring hereafter (excluding the pre-closing audit).
5.6 INSURANCE. Maintain insurance to such extent and against such hazards
and liabilities as is commonly maintained by companies similarly situated or as
the Lender may reasonably request from time to time. Keep the Collateral
properly housed and insured for its full insurable value against loss or damage
by fire, theft, explosion, sprinklers, collision (in the
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case of motor vehicles) and such other risks as are customarily insured
against by persons engaged in business similar to that of the Borrower, with
such companies, in such amounts and under policies in such form as shall be
satisfactory to the Lender. Certificates of such policies of insurance have
been delivered to the Lender prior to the date hereof together with evidence
of payment of all premiums therefor. The Borrower hereby directs all
insurers under such policies of insurance to pay all proceeds payable
thereunder directly to the Lender. The Borrower irrevocably makes,
constitutes and appoints the Lender and any Person whom the Lender may from
time to time designate (and all officers, employees or agents designated by
the Lender or such Person) as the Borrower's true and lawful attorney (and
agent-in-fact) for the purpose of making, settling and adjusting claims under
such policies of insurance, endorsing the name of the Borrower on any check,
draft, instrument or other item of payment for the proceeds of such policies
of insurance and for making all determinations and decisions with respect to
such policies of insurance. In the event the Borrower at any time or times
hereafter shall fail to obtain or maintain any of the policies of insurance
required herein or to pay any premium in whole or in part relating thereto,
the Lender, without waiving or releasing any obligations or default by the
Borrower hereunder, may at any time or times thereafter (but shall be under
no obligation to do so) obtain and maintain such policies of insurance and
pay such premiums and take any other action with respect thereto which the
Lender deems advisable. All sums so disbursed by the Lender, including
reasonable Attorneys' Fees, court costs, expenses and other charges relating
thereto, shall be payable on demand by the Borrower to the Lender.
5.7 INSURANCE SURVEY. Provide to the Lender at least annually within 90
days of the end of the Borrower's fiscal year, a certificate signed by its chief
financial officer that attests to and summarizes the property and casualty
insurance program carried by the Borrower. This summary shall include the
insurer's(s') name, policy number(s), expiration date(s), amount(s) of coverage,
type(s) of coverage, the annual premium(s), Best's policyholder's and financial
size ratings of the insurers, exclusions, deductibles and self-insured retention
and shall describe in detail any retrospective rating plan, fronting arrangement
or any other self-insurance or risk assumption agreed to by the Borrower or
imposed upon the Borrower by any such insurer, as well as any self-insurance
program that is in effect. The Borrower shall (a) notify the Lender in writing
at least 30 days prior to any cancellation or material change of any such
insurance by the Borrower and (b) within five business days after receipt of any
notice (whether formal or informal) thereof, of any cancellation or change in
any of its insurance by any of its insurers or any material change in the cost
thereof or which reduces the policyholder's or financial size ratings of the
insurance carriers of the Borrower, as established by BEST'S INSURANCE REPORTS.
In the event of the Borrower's decision to change insurers, and not more
frequently than annually in the absence of any such change, the Lender shall
have the right to request the Borrower to have a risk management survey
completed by a recognized independent risk management consultant acceptable to
it and the Lender which will identify, quantify and assess any catastrophic
uninsured, underinsured or self-insured exposures faced by the Borrower. The
cost of such survey shall be borne solely by the Borrower. A copy of the
results of each such a survey shall be promptly delivered by the Borrower to the
Lender.
5.8 REPAIR. Maintain, preserve and keep its properties in good repair,
working order and condition, and from time to time make all necessary and proper
repairs, renewals,
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replacements, additions, betterments and improvements thereto so that at all
times the efficiency thereof shall be fully preserved and maintained.
5.9 TAXES. Pay when due, all of its Taxes, unless and only to the extent
that the Borrower is contesting such Taxes in good faith and by appropriate
proceedings and the Borrower has set aside on its books such reserves or other
appropriate provisions therefor as may be required by GAAP.
5.10 COMPLIANCE. Comply with all statutes and governmental rules and
regulations applicable to it, including, without limitation, the Fair Labor
Standards Act.
5.11 COLLATERAL MONITORING. Permit the Lender to (a) use the Borrower's
stationery and sign the name of the Borrower to request verification of Accounts
Receivable or other Collateral from Account Debtors, and (b) use the information
recorded on or contained in any data processing equipment and computer hardware
and software to which the Borrower has access relating to Accounts Receivable,
Inventory, Equipment and/or other Collateral.
ARTICLE VI NEGATIVE COVENANTS
From the date of this Agreement and thereafter until all Obligations of the
Borrower hereunder are paid in full, the Borrower agrees that, unless the Lender
shall otherwise consent in writing, it will not do any of the following:
6.1 MERGER. Merge or consolidate or enter into any analogous
reorganization or transaction with any Person.
6.2 SALE OF ASSETS. Sell, transfer, convey, lease, assign or otherwise
dispose (with or without recourse) of any of its assets (including, without
limitation, any Accounts Receivable, instruments or chattel paper) except for
sales and leases of Inventory in the ordinary course of business.
6.3 PURCHASE OF ASSETS. Purchase or lease or otherwise acquire all or
substantially all the assets of any Person.
6.4 ERISA. Permit any condition to exist in connection with any Plan
which might constitute grounds for the PBGC to institute proceedings to have
such Plan terminated or a trustee appointed to administer such Plan; permit any
Plan to terminate under any circumstances which would cause the lien provided
for in Section 4068 of ERISA to attach to any property, revenue or asset of the
Borrower; or permit the underfunded amount of Plan benefits guaranteed under
Title IV of ERISA to exceed $10,000.
6.5 CHANGES IN COLLATERAL OR BUSINESS LOCATIONS. Change (a) the location
of its chief executive office or chief place of business; (b) its name; or (c)
the locations where it stores or maintains Inventory or Equipment without, in
each case, at least 30 days' prior written notice to the Lender.
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6.6 SUBSIDIARIES, PARTNERSHIPS AND JOINT VENTURES. Either: (a) form or
acquire any corporation which would thereby become a Subsidiary; or (b) form or
enter into any partnership as a limited or general partner or into any joint
venture.
6.7 OTHER AGREEMENTS. Enter into any agreement, bond, note or other
instrument with or for the benefit of any Person other than the Lender which
would (a) prohibit the Borrower from granting, or otherwise limit the ability of
the Borrower to grant, to the Lender any Lien on any assets or properties of the
Borrower, or (b) be violated or breached by the Borrower's performance of its
obligations under the Loan Documents.
6.8 RESTRICTED PAYMENTS. Purchase or redeem or otherwise acquire for
value any shares of the Borrower's stock, or declare or pay any dividends
thereon (other than stock dividends, dividends payable to the Borrower and
dividends payable with respect to the preferred stock of CSI which is issued
and outstanding as of the date of this Agreement), or make any distribution to
stockholders as such (other than the Borrower) or set aside any funds for any
such purpose, or prepay, purchase or redeem any subordinated Indebtedness of
the Borrower; or make any payment to Charterhouse Group International, Inc. in
respect of management fees unless and only to the extent that the amount of the
Borrowing Base exceeds the amount of the Obligations by at least $500,000
immediately after the payment and PROVIDING FURTHER, that prior to and after the
making of any such payment to Charterhouse Group International, Inc., there has
not occurred an Event of Default or an Unmatured Event of Default under this
Agreement.
6.9 CHANGE IN MANAGEMENT. Permit a change in the title or duties of any
of the following officers, directors and/or employees of the Borrower: Alfred
Schechter, Chairman and Chief Executive Officer, Dale Brubaker, President and
Chief Operating Officer, Don Harwell, Vice President and Vice Chairman and James
Raabe, Vice President and Chief Financial Officer.
6.10 INVESTMENTS. Acquire for value, make, have or hold any Investments,
except: (a) advances to employees of the Borrower for travel or other ordinary
business expenses, provided that the aggregate amount outstanding at any one
time shall not exceed $5,000 for any single employee and $25,000 in the
aggregate for all employees; (b) advances to subcontractors and suppliers in
maximum aggregate amounts reasonably acceptable to the Lender; (c) extensions of
credit in the nature of Accounts Receivable or notes receivable arising from the
sale of goods and services in the ordinary course of business; (d) shares of
stock, obligations or other securities received in settlement of claims arising
in the ordinary course of business; (e) Investments (other than Investments in
the nature of loans or advances) outstanding on the date hereof in subsidiaries
by the Borrower; (f) other Investments outstanding on the date hereof and listed
on SCHEDULE 6.10; (g) at any time except after the occurrence and during the
continuance of any Event of Default or any Unmatured Event of Default under this
Agreement, Investments in ALT USA, a joint venture between CSI and Jack B.
Kelley, Inc. not exceeding $1,200,000 during the Borrower's 1996 fiscal year,
and for any fiscal year thereafter, Investments in ALT USA which do not exceed
in the aggregate the amount by which the consolidated EBITDA of the Borrower
during the most recent four consecutive fiscal quarters exceeds the sum of their
consolidated unfinanced capital expenditures, cash taxes, interest payments,
dividends and mandatory debt retirement
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payments during the same four consecutive fiscal quarters, by at least 25%;
and (h) other Investments consented to by the Lender in writing.
6.11 INDEBTEDNESS. Incur, create, issue, assume or suffer to exist any
Indebtedness, including, without limitation, Indebtedness as lessee under any
Capitalized Lease, except: (a) Indebtedness under the terms of this Agreement;
(b) Subordinated Debt existing as of the date of this Agreement; (c)
Indebtedness hereafter incurred in connection with Liens permitted under
SECTION 6.12(d); (d) other Indebtedness outstanding on the date hereof and
listed on SCHEDULE 6.11; and (e) other Indebtedness approved in writing by
the Lender.
6.12 LIENS. Create, incur, assume or suffer to exist any Lien with respect
to any property, revenues or assets now owned or hereafter arising or acquired,
except: (a) Liens for current Taxes not delinquent or Taxes being contested in
good faith and by appropriate proceedings and as to which such reserves or other
appropriate provisions as may be required by GAAP are being maintained; (b)
carriers', warehousemen's, mechanics', materialmen's, repairmen's, and other
like statutory Liens arising in the ordinary course of business securing
obligations which are not overdue or which are being contested in good faith and
by appropriate proceedings and as to which such reserves or other appropriate
provisions as may be required by GAAP are being maintained; (c) pledges or
deposits in connection with workers' compensation, unemployment insurance and
other social security legislation; (d) Liens in connection with Capital
Expenditures attaching only to the property being acquired if the Indebtedness
secured thereby does not exceed 100% of the fair market value of such property
at the time of acquisition thereof; (e) Liens in favor of the Lender; (f) Liens
referred to in SECTION 4.9; and (g) Liens consented to by the Lender in writing.
6.13 CONTINGENT LIABILITIES. Either: (a) endorse, guarantee, contingently
agree to purchase or to provide funds for the payment of, or otherwise become
contingently liable upon, any obligation of any other Person (including without
limitation, ALT USA), except by the endorsement of negotiable instruments for
deposit or collection (or similar transactions) in the ordinary course of
business, or (b) agree to maintain the net worth or working capital of, or
provide funds to satisfy any other financial test applicable to, any other
Person.
6.14 CHANGE IN ACCOUNTS RECEIVABLE. After the occurrence of an Event of
Default or receipt of notice from the Lender that the Lender intends to commence
direct collection of Accounts Receivable, permit or agree to any extension,
compromise or settlement or make any change or modification of any kind or
nature with respect to any Account Receivable, including any of the terms
relating thereto.
6.15 UNCONDITIONAL PURCHASE OBLIGATIONS. Enter into or be a party to any
contract for the purchase of materials, supplies or other property or services,
if such contract requires that payment be made by it regardless of whether or
not delivery is ever made of such materials, supplies or other property or
services.
6.16 USE OF PROCEEDS. Use or permit any proceeds of the Loans to be used,
either directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of "purchasing or carrying any margin stock" within the meaning of
Regulation U of the Federal Reserve
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Board, as amended from time to time, and furnish to the Lender upon request,
a statement in conformity with the requirements of Federal Reserve Form U-1
referred to in Regulation U of the Federal Reserve Board.
6.17 TRANSACTIONS WITH RELATED PARTIES. Enter into or be a party to any
transaction or arrangement, including, without limitation, the purchase, sale,
lease or exchange of property or the rendering of any service, with any Related
Party, except in the ordinary course of and pursuant to the reasonable
requirements of the Borrower's business and upon fair and reasonable terms no
less favorable to the Borrower than would be obtained in a comparable
arm's-length transaction with a Person not a Related Party.
ARTICLE VII EVENTS OF DEFAULT AND REMEDIES
7.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following
events shall constitute an Event of Default:
(a) NON PAYMENT. The Borrower shall fail to pay, when due or
declared due, any of the Obligations;
(b) NON-PAYMENT OF OTHER INDEBTEDNESS. The Borrower or any
other Obligor shall fail to pay, when due, whether by acceleration or
otherwise (subject to any applicable grace period), any Indebtedness of, or
guaranteed by, the Borrower or such other Obligor;
(c) ACCELERATION OF OTHER INDEBTEDNESS. Any event or condition
shall occur which results in the acceleration of the maturity of any
Indebtedness of, or guaranteed by, the Borrower or any other Obligor or
enables the holder or holders of such other Indebtedness or any trustee or
agent for such holders (any required notice of default having been given
and any applicable grace period having expired) to accelerate the maturity
of such other Indebtedness;
(d) OTHER OBLIGATIONS. The Borrower or any other Obligor shall
fail to pay, when due, whether by acceleration or otherwise, or perform or
observe (subject to any applicable grace period or waiver of such default)
(i) any obligation or agreement of the Borrower or such other Obligor to or
with the Lender (other than any obligation or agreement of the Borrower
hereunder and under any Notes) or (ii) any material obligation or agreement
of the Borrower or such other Obligor to or with any other Person (other
than (A) any such material obligation or agreement constituting or related
to Indebtedness, (B) accounts payable arising in the ordinary course of
business, and (C) any material obligation or agreement of any Subsidiary to
the Borrower or to any other Subsidiary), except only to the extent that
the occurrence of any such failure is being contested by the Borrower or
such other Obligor, as the case may be, in good faith and by appropriate
proceedings and the Borrower or such other Obligor, as applicable, shall
have set aside on its books such reserves or other appropriate provisions
therefor as may be required by GAAP;
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(e) INSOLVENCY. The Borrower, any other Obligor or any
Subsidiary becomes insolvent, or generally fails to pay, or admits in
writing its inability to pay, its debts as they mature, or applies for,
consents to, or acquiesces in, the appointment of a trustee, receiver or
other custodian for the Borrower, such other Obligor or such Subsidiary, or
for a substantial part of the property of the Borrower, such other Obligor
or such Subsidiary, or makes a general assignment for the benefit of
creditors; or, in the absence of such application, consent or acquiescence,
a trustee, receiver or other custodian is appointed for the Borrower, any
other Obligor or any Subsidiary or for a substantial part of the property
of the Borrower, any other Obligor or any Subsidiary and is not discharged
or dismissed within 30 days; or any bankruptcy, reorganization, debt
arrangement or other proceeding under any bankruptcy or insolvency law, or
any dissolution or liquidation proceeding, is instituted by or against the
Borrower, any other Obligor or any Subsidiary; or any warrant of attachment
or similar legal process is issued against any substantial part of the
property of the Borrower, any other Obligor or any Subsidiary;
(f) ERISA. The institution by the Borrower or any ERISA
Affiliate of steps to terminate any Plan if, in order to effectuate such
termination, the Borrower or any ERISA Affiliate would be required to make
a contribution to such Plan or would incur a liability or obligation to
such Plan, in excess of $10,000; or the institution by the PBGC of steps to
terminate any Plan;
(g) NON-COMPLIANCE WITH THIS AGREEMENT.
(i) The Borrower shall fail to comply with any of the
Borrower's agreements set forth in SECTION 9 of SUPPLEMENT A; or
(ii) The Borrower shall fail to comply with any of the
Borrower's agreements set forth in this Agreement (and not
constituting an Event of Default under any of the other subsections of
this SECTION 7.1, including, without limitation, SECTION 7.1(g)(i)),
and such failure to comply shall continue for ten days;
(h) NON-COMPLIANCE WITH LOAN DOCUMENTS. Failure by the Borrower
or any other Obligor to comply with any of its respective agreements set
forth in any Loan Documents other than this Agreement (and not constituting
an Event of Default under any of the other subsections of this
SECTION 7.1), and such failure to comply shall continue after the grace
period (if any) set forth therein;
(i) WARRANTY. Any warranty made by the Borrower or any other
Obligor in any of the Loan Documents is untrue or misleading in any
material respect when made or deemed made; or any schedule, statement,
report, notice, certificate or other writing furnished by the Borrower or
any other Obligor to the Lender is untrue or misleading in any material
respect on the date as of which the facts set forth therein are stated or
certified; or any certification made or deemed made by the Borrower or any
other Obligor to the Lender is untrue or misleading in any material respect
on or as of the date made or deemed made;
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(j) LITIGATION. There shall be entered against any one of the
Borrower or any other Obligor one or more judgments or decrees in excess of
$100,000 in the aggregate at any one time outstanding, excluding those
judgments or decrees (i) that shall have been outstanding less than 30
calendar days from the entry thereof or (ii) for and to the extent which
the Borrower or such Obligor, as applicable, is insured and with respect to
which the insurer has assumed responsibility in writing or for and to the
extent which the Borrower or such Obligor, as applicable, is otherwise
indemnified if the terms of such indemnification are satisfactory to the
Lender;
(k) DEATH OF OBLIGOR. Intentionally omitted;
(l) VALIDITY. If the validity or enforceability of any of the
Loan Documents shall be challenged by the Borrower, any other Obligor or
any other Person, or shall fail to remain in full force and effect;
(m) CONDUCT OF BUSINESS. If the Borrower or any other Obligor
is enjoined, restrained or in any way prevented by court order, which has
not been dissolved or stayed within five Business Days, from conducting all
or any material part of its business affairs;
(n) ADVERSE EVENT. The Lender shall have determined in good
faith (which determination shall be conclusive) that (i) an Adverse Event
has occurred or (ii) the Lender's interest in any material Collateral or
Third Party Collateral has been adversely affected or impaired, or the
value thereof to the Lender has been diminished to a material extent, or
(iii) the prospect of payment or performance of any obligation or agreement
of the Borrower or any other Obligor under any of the Loan Documents is
materially impaired, and the condition giving rise to such determination
does not constitute an Event of Default under any of the other subsections
of this SECTION 7.1; and
(o) CHANGE IN BOARD OF DIRECTORS OR OWNERSHIP OF CRYENCO. If
less than six of the following eight Persons shall be directors of CSI:
Alfred Schechter, Dale Brubaker, Russell Haines, William Phelan, Don
Harwell, Burton Ahrens, Jerome Katz or Ajit Hutheesing; if the number of
the board of directors of CSI is increased to more than eight and the
number of the foregoing Persons who are directors of CSI shall cease to
represent at least two-thirds of the board of directors of CSI; or if CSI
shall cease to own 100% of the stock of Cryenco.
7.2 EFFECT OF EVENT OF DEFAULT; REMEDIES.
(a) In the event that one or more Events of Default described in
Section 7.1(E) shall occur, then the Credit extended under this Agreement
shall terminate and all Obligations hereunder and under any Notes shall be
immediately due and payable without demand, notice or declaration of any
kind whatsoever.
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(b) In the event an Event of Default other than one described in
Section 7.1(e) shall occur, then the Lender may declare all Obligations
hereunder and under any Notes immediately due and payable without demand or
notice of any kind whatsoever, whereupon the Credit extended under this
Agreement shall terminate and all Obligations hereunder and under any Notes
shall be immediately due and payable. The Lender shall promptly advise the
Borrower of any such declaration, but failure to do so shall not impair the
effect of such declaration.
(c) In the event of the occurrence of any Event of Default the
Lender may exercise any one or more or all of the following remedies, all
of which are cumulative and non-exclusive:
(i) any remedy contained in the Loan Documents or any
Supplemental Documentation;
(ii) any rights and remedies available to the Lender under
the Uniform Commercial Code as enacted in Minnesota as of the date of
this Agreement, and any other applicable law;
(iii) without notice, demand or legal process of any
kind, the Lender may take possession of any or all of the Collateral
(in addition to Collateral which it might already have in its
possession), wherever it might be found, and for that purpose may
pursue the same wherever it may be found, and may enter into any
premises where any of the Collateral may be or is supposed to be, and
search for, take possession of, remove, keep and store any of the
Collateral until the same shall be sold or otherwise disposed of, and
the Lender shall have the right to store the same in any of the
Borrower's premises without cost to the Lender;
(iv) at the Lender's request, the Borrower will, at the
Borrower's expense, assemble the Collateral and make it available to
the Lender at a place or places to be designated by the Lender which
is reasonably convenient to the Lender and the Borrower; and
(v) the Lender at its option, and pursuant to notification
given to the Borrower as provided for below, may sell any Collateral
actually or constructively in its possession at public or private sale
and apply the proceeds thereof as provided below.
7.3 SETOFF. In addition to and not in limitation of all rights of offset
that the Lender or any other holder of a Note may have under applicable law, the
Lender or such other holder of a Note shall, upon the occurrence of any Event of
Default, or any Unmatured Event of Default described in SECTION 7.1(e) hereof,
have the right to appropriate and apply to the payment of the Obligations any
and all balances, credits, deposits, accounts or moneys of the Borrower then or
thereafter with the Lender, or any Affiliate, or other holder.
ARTICLE VIII COLLATERAL AND THE LENDER'S RIGHTS
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8.1 NOTICE OF DISPOSITION OF COLLATERAL. Any notification of intended
disposition of any of the Collateral required by law shall be deemed reasonably
and properly given if given at least ten calendar days before such disposition.
8.2 APPLICATION OF PROCEEDS OF COLLATERAL. Any proceeds of any
disposition by the Lender of any of the Collateral may be applied by the Lender
to the payment of expenses in connection with the taking possession of, storing,
preparing for sale, and disposition of Collateral, including Attorneys' Fees and
legal expenses, and any balance of such proceeds may be applied by the Lender
toward the payment of such of the Obligations, and in such order of application,
as the Lender may from time to time elect.
8.3 CARE OF COLLATERAL. The Lender shall be deemed to have exercised
reasonable care in the custody and preservation of any Collateral in its
possession if it takes such action for that purpose as the Borrower requests in
writing, but failure of the Lender to comply with such request shall not, of
itself, be deemed a failure to exercise reasonable care, and no failure of the
Lender to preserve or protect any rights with respect to such Collateral against
prior parties, or to do any act with respect to the preservation of such
Collateral not so requested by the Borrower, shall be deemed a failure to
exercise reasonable care in the custody or preservation of such Collateral.
8.4 PERFORMANCE OF BORROWER'S OBLIGATIONS. The Lender shall have the
right, but shall not be obligated, to discharge any claims against or Liens, and
any Taxes at any time levied or placed upon, any or all Collateral including,
without limitation, those arising under statute or in favor of landlords, taxing
authorities, government, public and/or private warehousemen, common and/or
private carriers, processors, finishers, draymen, coopers, dryers, mechanics,
artisans, laborers, attorneys, courts, or others. The Lender may also pay for
maintenance and preservation of Collateral. The Lender may, but is not obligated
to, perform or fulfill any of the Borrower's responsibilities under this
Agreement which the Borrower has failed to perform or fulfill.
8.5 LENDER'S RIGHTS. None of the following shall affect the obligations
of the Borrower to the Lender under this Agreement or the Lender's rights with
respect to the remaining Collateral or any Third Party Collateral (any or all of
which actions may be taken by the Lender at any time, whether before or after an
Event of Default, at its sole and absolute discretion and without notice to the
Borrower):
(a) acceptance or retention by the Lender of other property or
interests in property as security for the Obligations, or acceptance or
retention of any obligor(s), in addition to the Borrower, with respect to
any of the Obligations;
(b) release of its security interest in, or surrender or release
of, or the substitution or exchange of or for, all or any part of the
Collateral or any Third Party Collateral or any other property securing any
of the Obligations (including, without limitation, any property of any
Obligor other than the Borrower), or any extension or renewal for one or
more periods (whether or not longer than the original period), or
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release, compromise, alteration or exchange, of any obligations of any
guarantor or other Obligor with respect to any Collateral or any such
property;
(c) extension or renewal for one or more periods (whether or not
longer than the original period), or release, compromise, alteration or
exchange of any of the Obligations, or release or compromise of any
obligation of any Obligor with respect to any of the Obligations; or
(d) failure by the Lender to resort to other security or pursue
any Person liable for any of the Obligations before resorting to the
Collateral.
ARTICLE IX CONDITIONS PRECEDENT
9.1 CONDITIONS PRECEDENT TO INITIAL LOANS. The obligation of the Lender
to make the initial Loans shall be subject to the satisfaction of the following
conditions precedent, in addition to the applicable conditions precedent set
forth in SECTION 9.2:
9.1.1 NO CHANGE IN CONDITION. No change in the condition or
operations, financial or otherwise, of the Borrower or any other Obligor, shall
have occurred which change, in the sole credit judgment of the Lender, may
constitute an Adverse Event or have a material adverse effect on any Collateral
or Third Party Collateral or the Lender's interest therein.
9.1.2 ACCOUNTING METHODS. The Borrower shall not have made any
material, as determined by the Lender, change in its accounting methods or
principles.
9.1.3 SURVEY. The Lender shall have completed its updated survey
of the business, operations and assets of the Borrower and each other Obligor,
and such survey shall provide the Lender with results and information which, in
the Lender's determination, are satisfactory to the Lender.
9.1.4 NO MATERIAL TRANSACTION. Neither the Borrower nor any other
Obligor shall have entered into any material, as determined by the Lender,
commitment or transaction, including, without limitation, transactions for
borrowings and capital expenditures, which are not in the ordinary course of
their respective businesses.
9.1.5 LITIGATION. No litigation shall be outstanding or have been
instituted or threatened which the Lender determines to be material against the
Borrower or any other Obligor.
9.1.6 FILING OF DOCUMENTS. All financing statements, mortgages
and other documents relating to the Collateral and Third Party Collateral shall
have been filed or recorded, as appropriate.
9.1.7 DELIVERY OF DOCUMENTS. The Borrower shall have delivered to
the Lender with each of the following, each duly executed and dated the date of
the initial Loans or such earlier date as shall be acceptable to the Lender:
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(a) RESOLUTIONS. A copy, duly certified by the secretary or an
assistant secretary of the Borrower, of (i) the resolutions of the Board of
Directors of the Borrower authorizing (1) the borrowings by the Borrower
hereunder, (2) the execution, delivery and performance by the Borrower of
the Loan Documents to which the Borrower is a party or by which it is bound
and (3) certain officers or employees of the Borrower to request borrowings
by telephone and to execute Borrowing Base Certificates; (ii) all documents
evidencing other necessary corporate action; and (iii) all approvals or
consents, if any, with respect to the Loan Documents;
(b) INCUMBENCY CERTIFICATE. A certificate of the secretary or
an assistant secretary of the Borrower, certifying the names of the
officers of the Borrower authorized to sign the Loan Documents to which it
is a party and any Supplemental Documentation, together with the true
signatures of such officers;
(c) OTHER AGREEMENTS. Duly executed copies of each of the Loan
Documents not specifically identified herein which the Lender determines to
be necessary or desirable, each in form and content satisfactory to the
Lender;
(d) OPINION. A legal opinion of Shack & Siegel, counsel to the
Borrower, substantially in the form set forth as EXHIBIT B;
(e) BORROWER'S CERTIFICATE. The certificate of the President of
the Borrower certifying, to the best of his/her knowledge after diligent
inquiry, to the fulfillment of all conditions precedent to closing and
funding the secured financing transaction contemplated by this Agreement
and to the truth and accuracy, as of such date, of the representations and
warranties of the Borrower contained in the Loan Documents to which the
Borrower is a party;
(f) INSURANCE. Evidence satisfactory to the Lender of the
existence of insurance on the Collateral and Third Party Collateral in
amounts and with insurers acceptable to the Lender, together with evidence
establishing that the Lender is named as a loss payee on all related
insurance policies; and if required by the Lender, additional insured on
all related insurance policies and an endorsement or an independent
instrument from each issuer of an insurance policy substantially in the
form set forth as EXHIBIT C;
(g) BYLAWS. A copy, duly certified by the secretary or an
assistant secretary of the Borrower, of the Borrower's Bylaws;
(h) ARTICLES OF INCORPORATION. A copy, duly certified by the
secretary or an assistant secretary of the Borrower, of the Borrower's
Articles of Incorporation;
(i) GOOD STANDING CERTIFICATES. Certificates of good standing
as to the Borrower issued by the Secretary of State of the state in which
the Borrower is organized, and each other state in which the failure of the
Borrower to be in good
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standing would constitute an Adverse Event or have a material adverse
effect on the Lender's rights in any Collateral or Third Party Collateral;
(j) DISBURSEMENT LETTER. Written authorization and instructions
from the Borrower, in form satisfactory to the Lender, for disbursement of
the proceeds of the initial Loans;
(k) PAYOFF LETTERS. Evidence satisfactory to the Lender that
all obligations of the Borrower to Chemical Bank[ AND CIT] have been paid
in full and that Chemical Bank[ AND CIT] have terminated, or agreed to
terminate, all of their Liens on the property of the Borrower and all
public record filings evidencing such Liens;
(l) LANDLORDS AND WAREHOUSEMEN WAIVERS. If required by the
Lender, (i) from each lessor or landlord identified on SCHEDULE 4.12 or
SCHEDULE 4.13, a landlord waiver and (ii) from each operator of a public
warehouse where Inventory is stored, a letter from such operator, in each
case in form acceptable to the Lender;
(m) SUBORDINATION AGREEMENTS. A subordination agreement from
Charterhouse Group International, Inc.[ AND A SUBORDINATION AGREEMENT FROM
THE CIT GROUP/EQUITY INVESTMENTS, INC., BOTH] in form acceptable to the
Lender; and
(n) OTHER. Such other documents, instruments or agreements as
the Lender shall determine to be necessary or desirable.
9.1.8 SECURITY INTEREST. The Lien in the Collateral and Third
Party Collateral granted to the Lender to secure the Obligations shall be
senior, perfected Liens except as otherwise agreed by the Lender.
9.1.9 RESTRICTED ACCESS LOCKBOX; COLLATERAL ACCOUNT AND
DISBURSEMENT ACCOUNT AGREEMENTS. The Borrower shall have entered into a
Restricted Access Lockbox; Collateral Account and Disbursement Account
Agreement, substantially in the form of EXHIBIT D, with the Lender and FBNA.
9.1.10 EFFECT OF LAW. No law or regulation affecting the Lender's
entering into the secured financing transaction contemplated by this Agreement
shall impose upon the Lender any material obligation, fee, liability, loss,
cost, expense or damage.
9.1.11 EXHIBITS; SCHEDULES. All Exhibits and Schedules to the Loan
Documents shall have been completed in form and substance satisfactory to the
Lender and shall contain no facts or information which the Lender, in its sole
judgment, determines to be unacceptable.
9.2 CONDITIONS PRECEDENT TO ALL LOANS. The obligation of the Lender to
make any Loan or issue, or cause to be issued, any Letter of Credit (including
the initial Loans) shall be subject to the satisfaction of the following
conditions precedent:
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(a) REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties of the Borrower and each other Obligor set forth in the Loan
Documents to which the Borrower or such other Obligor, as applicable, is a
party shall be true and correct.
(b) EVENT OF DEFAULT. Immediately before and after making such Loan
or issuing, or causing to be issued such Letter of Credit, no Event of
Default or Unmatured Event of Default shall exist or be continuing.
ARTICLE X INDEMNITY
10.1 ENVIRONMENTAL AND SAFETY AND HEALTH INDEMNITY. The Borrower hereby
indemnifies the Lender and agrees to hold the Lender harmless from and against
any and all losses, liabilities, damages, injuries, costs, expenses and claims
of any and every kind whatsoever (including, without limitation, court costs and
Attorneys' Fees) which at any time or from time to time may be paid, incurred or
suffered by, or asserted against, the Lender for, with respect to, or as a
direct or indirect result of the violation by the Borrower, of any Environmental
Law or Occupational Safety and Health Law; or with respect to, or as a direct or
indirect result of (a) the presence on or under, or the escape, seepage,
leakage, spillage, disposal, discharge, emission or release from, properties
utilized by the Borrower in the conduct of its business into or upon any land,
the atmosphere, or any watercourse, body of water or wetland, of any Hazardous
Material or other hazardous, toxic or dangerous waste, substance or constituent,
or other substance (including, without limitation, any losses, liabilities,
damages, injuries, costs, expenses or claims asserted or arising under the
Environmental Laws) or (b) the existence of any unsafe or unhealthful condition
on or at any premises utilized by the Borrower in the conduct of its business.
The provisions of and undertakings and indemnification set out in this
SECTION 10.1 shall survive satisfaction and payment of the Obligations and
termination of this Agreement.
10.2 GENERAL INDEMNITY. In addition to the payment of expenses pursuant to
SECTION 12.3, whether or not the transactions contemplated hereby shall be
consummated, the Borrower agrees to indemnify, pay and hold the Lender and any
holder of any Notes, and the officers, directors, employees, agents, and
affiliates of the Lender and such holders (collectively called the
"INDEMNITEES") harmless from and against, any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements of counsel for any of
such Indemnitees in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not any of such
Indemnitees shall be designated a party thereto), that may be imposed on,
incurred by, or asserted against the Indemnitees, in any manner relating to or
arising out of the Loan Documents, the statements contained in any commitment
letters delivered by the Lender, the Lender's agreement to make the Loans or to
issue Letters of Credit hereunder, or the use or intended use of any Letters of
Credit, or the use or intended use of the proceeds of any of the Loans (the
"INDEMNIFIED LIABILITIES"); PROVIDED, HOWEVER, that the Borrower shall have no
obligation to an Indemnitee hereunder with respect to indemnified liabilities
arising from the gross negligence or willful misconduct of an Indemnitee. To
the extent that the
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undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, the Borrower shall contribute the maximum portion that it is
permitted to pay and satisfy under applicable law, to the payment and
satisfaction of all indemnified liabilities incurred by the Indemnitees or
any of them. The provisions of the undertakings and indemnification set out
in this SECTION 10.2 shall survive satisfaction and payment of the
Obligations and termination of this Agreement.
10.3 CAPITAL ADEQUACY. If the Lender shall reasonably determine that the
application or adoption of any law, rule, regulation, directive, interpretation,
treaty or guideline regarding capital adequacy, or any change therein or in the
interpretation or administration thereof, whether or not having the force or law
(including, without limitation, application of changes to Regulation H and
Regulation Y of the Federal Reserve Board issued by the Federal Reserve Board on
January 19, 1989 and regulations of the Comptroller of the Currency, Department
of the Treasury, 12 CFR Part 3, Appendix A, issued by the Comptroller of the
Currency on January 27, 1989) increases the amount of capital required or
expected to be maintained by the Lender or any Person controlling the Lender,
and such increase is based upon the existence of the Lender's obligations
hereunder and other commitments of this type, then from time to time, within 10
days after demand from the Lender, the Borrower shall pay to the Lender such
amount or amounts as will compensate the Lender or such controlling Person, as
the case may be, for such increased capital requirement. The determination of
any amount to be paid by the Borrower under this SECTION 10 shall take into
consideration the policies of the Lender or any Person controlling the Lender
with respect to capital adequacy and shall be based upon any reasonable
averaging, attribution and allocation methods. A certificate of the Lender
setting forth the amount or amounts as shall be necessary to compensate the
Lender as specified in this SECTION 10.3 shall be delivered to the Borrower and
shall be conclusive in the absence of manifest error.
ARTICLE XI ADDITIONAL PROVISIONS
Additional provisions are set forth in SUPPLEMENT A.
ARTICLE XII GENERAL
12.1 BORROWER'S WAIVER. Except as otherwise provided for in this
Agreement, the Borrower waives (a) presentment, demand and protest and notice of
presentment, protest, default, non-payment, maturity, release, compromise,
settlement, one or more extensions or renewals of any or all commercial paper,
accounts, documents, instruments, chattel paper and guaranties at any time held
by the Lender on which the Borrower may in any way be liable and hereby ratifies
and confirms whatever the Lender may do in this regard; (b) all rights to notice
and a hearing prior to the Lender's taking possession or control of, or the
Lender's relevy, attachment or levy on or of, the Collateral or any bond or
security which might be required by any court prior to allowing the Lender to
exercise any of the Lender's remedies; and (c) the benefit of all valuation,
appraisement and exemption laws. The Borrower acknowledges that it has been
advised by counsel of its choice with respect to this Agreement and the
transactions evidenced by this Agreement.
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12.2 EXPENSES; ATTORNEYS' FEES. The Borrower agrees, whether or not any
Loan is made hereunder, to pay the Lender upon demand for all expenses and
Attorneys' Fees, including, without limitation, those incurred by the Lender in
connection with (a) the preparation, negotiation and execution of the Loan
Documents, (b) the preparation of any and all amendments to the Loan Documents
and all other instruments or documents provided for therein or delivered or to
be delivered thereunder or in connection therewith, (c) the collection or
enforcement of the Borrower's or any other Obligor's obligations under any of
the Loan Documents and (d) the collection or enforcement of any of the Lender's
rights in or to any Collateral or Third Party Collateral. The Borrower also
agrees (y) to indemnify and hold the Lender harmless from any loss or expense
which may arise or be created by the acceptance of telephonic or other
instructions for making Loans and (z) to pay, and save the Lender harmless from
all liability for, any stamp or other taxes which may be payable with respect to
the execution or delivery of this Agreement or the issuance of any Note or of
any other instruments or documents provided for herein or to be delivered
hereunder or in connection herewith. The Borrower's foregoing obligations shall
survive any termination of this Agreement.
12.3 LENDER FEES AND CHARGES. The Borrower agrees to pay the Lender, or
any Affiliate, on demand, the customary fees and charges of the Lender, or such
Affiliate, for maintenance of accounts with the Lender, or such Affiliate, or
for providing other services to the Borrower. The Lender may, in its sole and
absolute discretion, provide for such payment by charging the Disbursement
Account or any other account of the Borrower with FBNA or advancing the amount
thereof to the Borrower as a Loan.
12.4 NO WAIVER BY LENDER; AMENDMENTS. No failure or delay on the part of
the Lender in the exercise of any power or right, and no course of dealing
between the Borrower and the Lender shall operate as a waiver of such power or
right, nor shall any single or partial exercise of any power or right preclude
other or further exercise thereof or the exercise of any other power or right.
The remedies provided for herein are cumulative and not exclusive of any
remedies which may be available to the Lender at law or in equity. No notice to
or demand on the Borrower not required hereunder shall in any event entitle the
Borrower to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the right of the Lender to any other or
further action in any circumstances without notice or demand. No amendment,
modification or waiver of, or consent with respect to, any provision of this
Agreement shall in any event be effective unless the same shall be in writing
and signed and delivered by the Lender. Any waiver of any provision of this
Agreement, and any consent to any departure by the Borrower from the terms of
any provision of this Agreement, shall b effective only in the specific instance
and for the specific purpose for which given.
12.5 NOTICE. Except as otherwise expressly provided herein, any notice
hereunder to the Borrower or the Lender shall be in writing (including
telegraphic, telex, or telecopy communication) and shall be given to the
Borrower or the Lender at its address, telex number or fax number set forth on
the signature pages hereof or at such other address, telex number or telecopier
number as the Borrower or the Lender may, by written notice, designate as its
address, telex number or fax number for purposes of notice hereunder. All such
notices shall be deemed to be given when transmitted by telex and the
appropriate answer back is received, transmitted by fax, delivered to the
telegraph office, delivered by courier, personally
49
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delivered or, in the case of notice by mail, three days following deposit in
the United States mails, properly addressed as herein provided, with proper
postage prepaid.
12.6 PARTICIPATIONS; INFORMATION. The Borrower hereby consents to the
Lender's grant of participations in or sale, assignment, transfer or other
disposition, at any time and from time to time hereafter, of the Loan Documents,
or of any portion of any thereof, including without limitation lender's rights,
titles, interests, remedies, powers and/or duties. The Lender may furnish any
information concerning the Borrower in the possession of the Lender from time to
time to assignees of the rights and/or obligations of the Lender hereunder and
to participants in any Loan (including prospective assignees and participants)
and may furnish information in response to credit inquiries consistent with
general banking practice.
12.7 SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
12.8 SUCCESSORS. This Agreement shall be binding upon the Borrower and the
Lender and their respective successors and assigns, and shall inure to the
benefit of the Borrower and the Lender and the successors and assigns of the
Lender. The Borrower shall not assign its rights or duties hereunder without
the consent of the Lender.
12.9 ENTIRE AGREEMENT. This Agreement and the other Loan Documents embody
the entire agreement and understanding between the Borrower and the Lender with
respect to the subject matter hereof and thereof. This Agreement supersedes all
prior agreements and understandings relating to the subject matter hereof.
12.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
12.11 CONSTRUCTION. The Borrower acknowledges that this Agreement
shall not be binding upon the Lender or become effective until and unless
accepted by the Lender, in writing. If so accepted by the Lender, THE LOAN
DOCUMENTS AND ANY SUPPLEMENTAL DOCUMENTATION SHALL, UNLESS OTHERWISE EXPRESSLY
PROVIDED THEREIN, BE DEEMED TO HAVE BEEN NEGOTIATED AND ENTERED INTO IN, AND
SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF, THE STATE OF MINNESOTA AS TO
INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT, CHOICE OF LAW, AND
IN ALL OTHER RESPECTS, INCLUDING, BUT NOT LIMITED TO, THE LEGALITY OF THE
INTEREST RATE AND OTHER CHARGES, BUT EXCLUDING PERFECTION OF SECURITY INTERESTS
AND LIENS WHICH SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE RELEVANT
JURISDICTION.
12.12 CONSENT TO JURISDICTION. To induce the Lender to accept this
Agreement, the Borrower, irrevocably, agrees that, subject to the Lender's sole
and absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT,
ARISING OUT OF OR FROM OR RELATED TO THE LOAN DOCUMENTS OR ANY SUPPLEMENTAL
50
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DOCUMENTATION OR THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN
THE CITY OF MINNEAPOLIS, STATE OF MINNESOTA. THE BORROWER HEREBY CONSENTS AND
SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN
SAID CITY AND STATE AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON THE
BORROWER, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED
MAIL DIRECTED TO THE BORROWER AT THE ADDRESS STATED ON THE SIGNATURE PAGE HEREOF
AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF.
12.13 SUBSIDIARY REFERENCE. Any reference herein to a Subsidiary or
Subsidiaries of the Borrower, and any financial definition, ratio, restriction
or other provision of this Agreement which is stated to be applicable to "the
Borrower" and the Subsidiaries, shall apply only to the extent the Borrower has
any Subsidiaries, and does not imply that the Borrower is permitted to have
Subsidiaries when this Agreement otherwise prohibits the existence of such
Subsidiaries.
12.14 WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER EACH WAIVES
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND
ANY RIGHTS (a) UNDER THE LOAN DOCUMENTS OR UNDER ANY AMENDMENT, INSTRUMENT,
DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN
CONNECTION THEREWITH OR (b) ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION
WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY.
12.15 OTHER BORROWER'S WAIVERS. Each Borrower waives any and all
defenses, claims and discharges of any other Borrower, or any other Obligor,
except the defense of discharge by payment in full. Without limiting the
generality of the foregoing, no Borrower will assert, plead or enforce against
the Lender any defense of waiver, release, discharge in bankruptcy, statute of
limitations, RES JUDICATA, statute of frauds, anti-deficiency statute, fraud,
usury, illegality or unenforceability which may be available to any other
Borrower or any other Person liable in respect of any Obligations, or any setoff
available against the Lender to any other Borrower or any such other Person,
whether or not on account of a related transaction. Each Borrower expressly
agrees that such Borrower shall be and remain liable for any deficiency
remaining after foreclosure of any mortgage or security interest securing the
Obligations, whether or not the liability of, or any other, Obligor for such
deficiency is discharged pursuant to statute, judicial decision or contract.
Each Borrower agrees that its liability under this Agreement shall be primary
and direct, and that the Lender shall not be required first to resort for
payment of the Obligations to any other Borrower or other Persons or their
properties, or first to enforce, realize upon or exhaust any collateral security
for the Obligations, or to commence any action or obtain any judgment against
any other Borrower or against any such collateral security or to pursue any
other right or remedy the Lender may have against any other Borrower, before
enforcing this Agreement against such Borrower.
51
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first written above.
CRYENCO, INC.
By:___________________________________
Title:________________________________
Address:
Attention:
Telephone:
Fax No.:
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CRYENCO SCIENCES, INC.
By:___________________________________
Title:__________________________________
Address:
Attention:
Telephone:
Fax No.:
FBS BUSINESS FINANCE CORPORATION
By:___________________________________
Title:__________________________________
Address: First Bank Place MPFP0804
601 Second Avenue South
Minneapolis, MN 55402-4302
Attention: Business Credit Division
Telephone: (612)
Fax No.: (612) 973-0829
53
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EXHIBITS
Exhibit A - Form of Borrowing Base Certificate
Exhibit B - Form of Borrower's Opinion of Counsel
Exhibit C - Form of Insurance Endorsement
Exhibit D - Form of Restricted Access Lockbox; Collateral Account; and
Disbursement Account Agreement
SCHEDULES
Schedule 4.1 - Trade Names, Etc.
Schedule 4.7 - Insurance
Schedule 4.8 - Litigation and Contingent Liabilities
Schedule 4.9 - Liens
Schedule 4.10- Subsidiaries
Schedule 4.11- Partnerships and Joint Ventures
Schedule 4.12- Business Locations
Schedule 4.13- Collateral Locations
Schedule 4.15- Leases
Schedule 4.16- Patents, Trademarks, Copyrights
Schedule 4.18- Contracts and Labor Disputes
Schedule 4.25- Environmental Matters
Schedule 6.10- Investments
Schedule 6.11- Indebtedness
54
<PAGE>
SUPPLEMENT A
to
CREDIT AND SECURITY AGREEMENT
Dated as of December 19, 1995 Between
FBS BUSINESS FINANCE CORPORATION (the "LENDER")
and
CRYENCO, INC. and CRYENCO SCIENCES, INC. (collectively the "BORROWER")
1. CREDIT AGREEMENT REFERENCE. This Supplement A, as it may be
amended or modified from time to time, is a part of the Credit and Security
Agreement, dated as of December 19, 1995, between the Borrower and the Lender
(together with all amendments, modifications and supplements thereto, the
"CREDIT AGREEMENT"). Capitalized terms used herein which are defined in the
Credit Agreement shall have the meanings given such terms in the Credit
Agreement unless the context otherwise requires.
2. DEFINITIONS.
2.1 CREDIT AMOUNTS.
(a) CREDIT AMOUNT. The term "Credit Amount" shall mean the
maximum amount of Loans which the Lender will make available
to the Borrower which amount shall not exceed Twelve Million
Nine Hundred Sixty Thousand and No/100ths ($12,960,000);
PROVIDED, HOWEVER, that the aggregate outstanding principal
balance of the Loans PLUS the Letter of Credit Obligations
shall not exceed the Credit Amount.
(b) REVOLVING CREDIT AMOUNT. The term "Revolving Credit
Amount" shall mean: (i) from the Closing Date until December
31, 1997, $9,000,000; and (ii) from December 31, 1997
through the Termination Date, $10,000,000, PROVIDED,
HOWEVER, that the aggregate outstanding principal balance of
the Revolving Loans PLUS the Letter of Credit Obligations
shall not exceed the Revolving Credit Amount.
2.2 BORROWING BASE.
(a) DEFINITION. The term "Borrowing Base" shall mean:
(i) an amount (the "ACCOUNTS RECEIVABLE AVAILABILITY") of up
to 85% of the net amount (as determined by the Lender after
deduction of such reserves and allowances as the Lender deems
proper and necessary) of the Borrower's Eligible Accounts
Receivable (such dollar amount, as adjusted from time to time, is
hereinafter called the "ACCOUNTS RECEIVABLE AVAILABILITY
SUBLIMIT"); PLUS
(ii) an amount (the "INVENTORY AVAILABILITY") of up to the
lesser of (1) $5,600,000 or (2)(x) 60% of the net value (the
lower of the cost, determined on a first in first out basis, or
market value) of the finished
<PAGE>
goods and raw materials components of Borrower's Eligible
Inventory, as determined by the Lender after deduction of such
reserves and allowances as the Lender deems proper and necessary,
plus (y) 60% of the net value (the lower of the cost, determined
on a first in first out basis, or market value) of the finished
goods and raw materials components of Borrower's Costs, as
determined by the Lender after deduction of such reserves and
allowances as the Lender deems proper and necessary (and after
deduction of any amount included in the Borrower's Costs which
represents labor or overhead), plus (z) 15% of the net value (the
lower of the cost, determined on a first in first out basis, or
market value) of the materials component of the work-in-process
component of the Borrower's Inventory and Costs (which materials
component is identified as the "total material cost" included in
the actual costs incurred for all jobs in progress, as shown on
the Borrower's job status report prepared at the end of each
month), as determined by the Lender after deduction of such
reserves and allowances as the Lender deems proper and necessary
(and after deduction of any amount included in the Borrower's
Costs which represents labor or overhead), as adjusted as
hereafter provided in SECTION 2.2(b) hereof (such dollar amount,
as adjusted from time to time, is hereinafter called the
"INVENTORY AVAILABILITY SUBLIMIT"); PLUS
(iii) an amount (the "EQUIPMENT AVAILABILITY") of up to the
lesser of (1) 100% of the forced liquidation value (as determined
by the Lender after deduction of such reserves and allowances as
the Lender deems proper and necessary) of the Borrower's now
owned Eligible Equipment or (2) $1,364,800 as adjusted as
hereafter provided in SECTION 2.2(B) hereof (such dollar amount,
as adjusted from time to time, is herein called the "EQUIPMENT
AVAILABILITY SUBLIMIT").
(b) AVAILABILITY ADJUSTMENTS.
(i) Inventory. On December 31, 1997, the Inventory
Availability Sublimit shall increase to $6,600,000.
(ii) Equipment. On September 1, 1996, the Equipment
Availability Sublimit shall reduce to the lesser of (i) 80% of
the forced liquidation value (as determined by the Lender after
deduction of such reserves and allowances as the Lender deems
proper and necessary) of the Borrower's now owned Eligible
Equipment or $1,091,840. On the fifteenth day of each month
beginning September 15, 1996, the Equipment Availability Sublimit
shall further reduce by one thirty-sixth (1/36) of the amount of
the Equipment Availability Sublimit on September 1, 1996, until
the Equipment Availability Sublimit is zero unless the Lender, in
its sole discretion, agrees to adjust or terminate such
reductions.
2
<PAGE>
2.3 LETTER OF CREDIT SUBLIMIT. The term "Letter of Credit Sublimit"
shall mean $500,000.
2.4 TERMINATION DATE. The term "Termination Date" shall mean
December 31, 1998.
2.5 TERM LOAN AVAILABILITY. The term "Term Loan Availability" shall
mean an amount of up to the lesser of (1) 80% of the lower of the cost or
the forced liquidation value (as determined by the Lender after deduction
of such reserves and allowances as the Lender deems proper and necessary)
of the Borrower's hereafter acquired Eligible Equipment or (2) $2,960,000.
2.6 ADDITIONAL DEFINITIONS. As used herein, the following terms
shall have the following respective meanings:
"ADJUSTED CD RATE": With respect to the Term Loan if the
Borrower elects to fix the interest rate, the interest rate per annum
equal to the sum (rounded upward, if necessary, to the next one
hundredth of one percent) of (a) the rate per annum obtained by
dividing (i) the CD Rate then in effect, by (ii) 1.00 minus the
Domestic Reserve Percentage, PLUS (b) the annual rate most recently
estimated by FBNA as the then current net annual assessment rate
payable by FBNA to the Federal Deposit Insurance Corporation (or any
successor) for insuring time deposits made in dollars at FBNA's
domestic offices, PLUS (c) the cost (converted to an equivalent rate
per annum) of the customary brokerage fees incurred by FBNA in
obtaining funds by the sale of its negotiable certificates of deposit.
"ADJUSTED EURODOLLAR RATE": With respect to each Interest Period
applicable to a Eurodollar Rate Advance, the rate (rounded upward, if
necessary, to the next one hundredth of one percent) determined by
dividing the Eurodollar Rate for such Interest Period by 1.00 minus
the Eurodollar Reserve Percentage.
"ADVANCE": Any portion of the outstanding principal balance of
the Revolving Loans as to which the Borrower elected one of the
available interest rate options and, if applicable, an Interest
Period. An Advance may be a Eurodollar Rate Advance or a Reference
Rate Advance.
"APPLICABLE MARGIN": The term "Applicable Margin" shall mean:
(1) the Initial Applicable Margin through February 29, 1996 and
thereafter if the Cash Flow Leverage Ratio (as described in Section
9.2 below) is greater than or equal to 2.5:1 but less than or equal to
3.25:1 at the end of the fiscal quarter then ended (beginning with the
fiscal quarter ending February 29, 1996); (2) the Reduced Applicable
Margin if the Cash Flow Leverage Ratio (as described in Section 9.2
below) is less than 2.5:1 at the end of the fiscal quarter then ended
(beginning with the fiscal quarter ending February 29, 1996); and (3)
the Increased Applicable Margin if the Cash Flow Leverage Ratio (as
described in
3
<PAGE>
Section 9.2 below) is greater than 3.25:1 at the end of the fiscal
quarter then ended (beginning with the fiscal quarter ending
February 29, 1996). As used in this definition, the following
terms shall have the following respective meanings:
"INCREASED APPLICABLE MARGIN": With respect to:
(a) Reference Rate Advances -- 1.0%,
(b) Eurodollar Rate Advances -- 3.5%.
"INITIAL APPLICABLE MARGIN": With respect to:
(a) Reference Rate Advances -- 0.5%,
(b) Eurodollar Rate Advances -- 3.0%.
"REDUCED APPLICABLE MARGIN": With respect to:
(a) Reference Rate Advances -- 0.%,
(b) Eurodollar Rate Advances -- 2.5%.
"BOARD": The Board of Governors of the Federal Reserve System or
any successor thereto.
"CD RATE": With respect to the Term Loan if the Borrower elects
to fix the interest rate, the rate of interest determined by FBNA for
the remaining term of the Term Loan, to be the average (rounded
upward, if necessary, to the nearest 1/100th of 1%) of the rates
quoted to FBNA (at approximately the time of the Borrower's request to
fix the interest rate paid with respect to the Term Loan) by
certificate of deposit dealers selected by FBNA, in its sole
discretion, for the purchase from FBNA, at face value, of certificates
of deposit issued by FBNA in an amount and maturity comparable to the
then remaining principal balance and then remaining term of the Term
Loan, or at the option of FBNA, determined for such amount and
maturity based on published composite quotations of certificate of
deposit rates selected by FBNA.
"DOMESTIC RESERVE PERCENTAGE": As of any day, that percentage
(expressed as a decimal) which is in effect on such day, as prescribed
by the Board for determining the maximum reserve requirement
(including without limitation, any basic, supplemental or emergency
reserves) for a member bank of the Federal Reserve System, with
deposits comparable in amount to those held by FBNA, in respect of new
non-personal time deposits in dollars having a maturity comparable to
the then remaining term of the Term Loan and in an amount of $100,000
or more. The rate of interest applicable to the Term Loan shall be
adjusted automatically on and as of the effective date of any change
in the Domestic Reserve Percentage.
4
<PAGE>
"EURODOLLAR BUSINESS DAY": A Business Day which is also a day
for trading by and between Lenders in United States dollar deposits in
the interbank Eurodollar market and a day on which banks are open for
business in New York City.
"EURODOLLAR RATE": With respect to each Interest Period
applicable to a Eurodollar Rate Advance, the interest rate per annum
(rounded upward, if necessary, to the next one-sixteenth of one
percent) at which United States dollar deposits are offered to the
Lender in the interbank Eurodollar market two Eurodollar Business Days
prior to the first day of such Interest Period for delivery in
Immediately Available Funds on the first day of such Interest Period
and in an amount approximately equal to the Advance to which such
Interest Period is to apply as determined by the Lender and for a
maturity comparable to the Interest Period; PROVIDED, that in lieu of
determining the rate in the foregoing manner, the Lender may
substitute the per annum Eurodollar interest rate (LIBOR) for United
States dollars displayed on the Reuters Screen LIBO Page two
Eurodollar Business Days prior to the first day of the Interest
Period. "Reuters Screen LIBO Page" means the display designated as
page "LIBO" on the Reuter Monitor Money Rates Screen (or such other
page as may replace the LIBO page on that service) for the purpose of
displaying London Interbank offered rates of major Lenders for United
States dollar deposits.
"EURODOLLAR RATE ADVANCE": An Advance with respect to which the
interest rate is determined by reference to the Adjusted Eurodollar
Rate.
"EURODOLLAR RESERVE PERCENTAGE": As of any day, that percentage
(expressed as a decimal) which is in effect on such day, as prescribed
by the Board for determining the maximum reserve requirement
(including any basic, supplemental or emergency reserves) for a member
Lender of the Federal Reserve System, with deposits comparable in
amount to those held by the Lender, in respect of "Eurocurrency
Liabilities" as such term is defined in Regulation D of the Board. The
rate of interest applicable to any outstanding Eurodollar Rate
Advances shall be adjusted automatically on and as of the effective
date of any change in the Eurodollar Reserve Percentage.
"INTEREST PERIOD": With respect to each Eurodollar Rate Advance,
the period commencing on the date of such Advance or on the last day
of the immediately preceding Interest Period, if any, applicable to an
outstanding Advance and ending one, two, three or six months
thereafter, as the Borrower may elect in the applicable notice of
borrowing, continuation or conversion; PROVIDED THAT:
(1) Any Interest Period that would otherwise end on a
day which is not a Eurodollar Business Day shall be extended
to the next succeeding Eurodollar Business Day unless such
Eurodollar Business Day falls in another calendar month, in
which case such Interest Period
5
<PAGE>
shall end on the next preceding Eurodollar Business Day;
(2) Any Interest Period that begins on the last
Eurodollar Business Day of a calendar month (or a day for
which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end
on the last Eurodollar Business Day of a calendar month; and
(3) Any Interest Period that would otherwise end after
the Termination Date shall end on the Termination Date.
"REFERENCE RATE ADVANCE": An Advance with respect to which the
interest rate is determined by reference to the Reference Rate.
"REGULATORY CHANGE": Any change after the date of the Credit
Agreement in federal, state or foreign laws or regulations or the
adoption or making after such date of any interpretations, directives
or requests applying to a class of Lenders including the Lender under
any federal, state or foreign laws or regulations (whether or not
having the force of law) by any court or governmental or monetary
authority charged with the interpretation or administration thereof.
3. REVOLVING LOANS.
3.1 PROCEDURE FOR ADVANCES. Any request for an Advance must be given
so as to be received by the Lender not later than 1:00 p.m. (Minneapolis
time) two Eurodollar Business Days prior to the date of the requested
Advance if the Advance is requested as a Eurodollar Rate Advance and not
later than 1:00 p.m. on the date of the requested Advance if the Advance is
requested as a Reference Rate Advance. Each request for an Advance shall
specify (i) the date of the Advance, (ii) the amount of the Advance to be
made on such date which shall be in a minimum amount of $500,000 for
Eurodollar Rate Advances or, if more in the case of Eurodollar Rate
Advances, an integral multiple of $500,000, (iii) whether such Advance is
to be funded as a Reference Rate Advance or a Eurodollar Rate Advance, and
(iv) in the case of a Eurodollar Rate Advance, the duration of the initial
Interest Period applicable thereto.
3.2 CONVERSIONS AND CONTINUATIONS. On the terms and subject to the
limitations hereof, the Borrower shall have the option at any time and from
time to time to convert all or any portion of the Advances into Reference
Rate Advances or Eurodollar Rate Advances, or to continue a Eurodollar Rate
Advance as such; provided, however that a Eurodollar Rate Advance may be
converted or continued only on the last day of the Interest Period
applicable thereto and no Advance may be converted or continued as a
Eurodollar Rate Advance if a Default or Event of Default has occurred and
is continuing on the proposed date of continuation or conversion. Advances
may be converted to, or continued as, Eurodollar Rate Advances only in
amounts of $500,000 or an integral multiple thereof. The Borrower shall
give the Lender written notice of any continuation or conversion of any
Advance and such
6
<PAGE>
notice must be given so as to be received by the Lender not later than
3:00 p.m. (Minneapolis time) two Eurodollar Business Days prior to
requested date of conversion or continuation in the case of the
continuation of, or conversion to, a Eurodollar Rate Advance. Each such
notice shall specify (a) the amount to be continued or converted, (b) the
date for the continuation or conversion (which must be (i) the last day of
the preceding Interest Period for any continuation or conversion of
Eurodollar Rate Advances, and (ii) a Eurodollar Business Day), and (c) in
the case of conversions to or continuations as Eurodollar Rate Advances,
the Interest Period applicable thereto. Any notice given by the Borrower
under this Section shall be irrevocable. If the Borrower shall fail to
notify the Lender of the continuation of any Eurodollar Rate Advance within
the time required by this Section, such Advance shall, on the last day of
the Interest Period applicable thereto, automatically be converted into a
Reference Rate Advance of the same principal amount.
3.3 INTEREST RATES, INTEREST PAYMENTS AND DEFAULT INTEREST. Interest
shall accrue and be payable on the Advances as follows:
(a) Each Eurodollar Rate Advance shall bear interest on the
unpaid principal amount thereof during the Interest Period applicable
thereto at a rate per annum equal to the sum of (i) the Adjusted
Eurodollar Rate for such Interest Period, plus (ii) the Applicable
Margin.
(b) Each Reference Rate Advance shall bear interest on the
unpaid principal amount thereof at a varying rate per annum equal to
the sum of (i) the Reference Rate, plus (ii) the Applicable Margin.
(c) Any Advance not paid when due, whether at the date scheduled
therefor or earlier upon acceleration, shall bear interest until paid
in full (i) during the balance of any Interest Period applicable to
such Advance, at a rate per annum equal to the sum of the rate
applicable to such Advance during such Interest Period plus 2.0%, and
(ii) otherwise, at a rate per annum equal to the sum of (A) the
Reference Rate, plus (B) the Applicable Margin for Reference Rate
Advances, plus (C) 2.0%.
(d) Interest shall be payable (i) with respect to each
Eurodollar Rate Advance having an Interest Period of three months or
less, on the last day of the Interest Period applicable thereto; (ii)
with respect to any Eurodollar Rate Advance having an Interest Period
greater than three months, on the last day of the Interest Period
applicable thereto and on each day that would have been the last day
of the Interest Period for such Advance had successive Interest
Periods of three months duration been applicable to such Advance;
(iii) with respect to any Reference Rate Advance, on the fifteenth
(15) day of each month beginning January 15, 1996; (iv) with respect
to all Advances, upon any permitted prepayment (on the amount
prepaid); and (v) with respect to all Advances, on the Termination
Date; provided that interest under Section 3.3 (c) shall be payable on
demand.
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<PAGE>
3.4 OPTIONAL PREPAYMENTS. The Borrower may prepay Reference Rate
Advances, in whole or in part, at any time, without premium or penalty
except in the case of termination or cancellation of the Credit by the
Borrower, in which event a credit termination fee shall be due and payable
in accordance with Section 5.4. Except upon an acceleration following an
Event of Default or upon termination of the Credit in whole, the Borrower
may pay Eurodollar Rate Advances only on the last day of the Interest
Period applicable thereto. Amounts paid (unless following an acceleration
or upon termination of the Credit in whole) or prepaid on Advances under
this Section 3.4 may be reborrowed upon the terms and subject to the
conditions and limitations of the Credit Agreement.
3.5 INTEREST RATE NOT ASCERTAINABLE, ETC. If, on or prior to the
date for determining the Adjusted Eurodollar Rate in respect of the
Interest Period for any Eurodollar Rate Advance, the Lender determines
(which determination shall be conclusive and binding, absent error) that:
(a) deposits in dollars (in the applicable amount) are not being
made available to the Lender in the relevant market for such Interest
Period, or
(b) the Adjusted Eurodollar Rate will not adequately and fairly
reflect the cost to the Lender of funding or maintaining Eurodollar
Rate Advances for such Interest Period,
the Lender shall forthwith give notice to the Borrower of such
determination, whereupon the obligation of the Lender to make or continue,
or to convert any Advances to, Eurodollar Rate Advances, as the case may
be, shall be suspended until the Lender notifies the Borrower that the
circumstances giving rise to such suspension no longer exist. While any
such suspension continues, all further Advances by the Lender shall be made
as Reference Rate Advances. No such suspension shall affect the interest
rate then in effect during the applicable Interest Period for any
Eurodollar Rate Advance outstanding at the time such suspension is imposed.
3.6 INCREASED COST. If any Regulatory Change:
(a) shall subject the Lender to any tax, duty or other charge
with respect to its Eurodollar Rate Advances, its obligation to make
Eurodollar Rate Advances or shall change the basis of taxation of
payment to the Lender of the principal of or interest on Eurodollar
Rate Advances or any other amounts due under this Agreement in respect
of Eurodollar Rate Advances or its obligation to make Eurodollar Rate
Advances (except for changes in the rate of tax on the overall net
income of the Lender imposed by the jurisdiction in which the Lender's
principal office is located); or
(b) shall impose, modify or deem applicable any reserve, special
deposit, capital requirement or similar requirement (including,
without limitation, any such requirement imposed by the Board, but
excluding with respect to any Eurodollar Rate Advance any such
requirement to the extent included in
8
<PAGE>
calculating the applicable Adjusted Eurodollar Rate) against assets
of, deposits with or for the account of, or credit extended by, the
Lender or shall impose on the Lender or on the interbank Eurodollar
market any other condition affecting its Eurodollar Rate Advances or
its obligation to make Eurodollar Rate Advances;
and the result of any of the foregoing is to increase the cost to the
Lender of making or maintaining any Eurodollar Rate Advance, or to reduce
the amount of any sum received or receivable by the Lender under this
Agreement or under the Note, then, within 30 days after demand by the
Lender, the Borrower shall pay to the Lender such additional amount or
amounts as will compensate the Lender for such increased cost or reduction.
The Lender will promptly notify the Borrower of any event of which it has
knowledge, occurring after the date hereof, which will entitle the Lender
to compensation pursuant to this Section. A certificate of the Lender
claiming compensation under this Section, setting forth the additional
amount or amounts to be paid to it hereunder and stating in reasonable
detail the basis for the charge and the method of computation, shall be
conclusive in the absence of error. In determining such amount, the Lender
may use any reasonable averaging and attribution methods. Failure on the
part of the Lender to demand compensation for any increased costs or
reduction in amounts received or receivable with respect to any Interest
Period shall not constitute a waiver of the Lender's rights to demand
compensation for any increased costs or reduction in amounts received or
receivable in any subsequent Interest Period.
3.7 ILLEGALITY. If any Regulatory Change shall make it unlawful or
impossible for the Lender to make, maintain or fund any Eurodollar Rate
Advances, the Lender shall notify the Borrower, whereupon the obligation of
the Lender to make or continue, or to convert any Advances to, Eurodollar
Rate Advances shall be suspended until the Lender notifies the Borrower
that the circumstances giving rise to such suspension no longer exist. If
the Lender determines that it may not lawfully continue to maintain any
Eurodollar Rate Advances to the end of the applicable Interest Periods, all
of the affected Advances shall be automatically converted to Reference Rate
Advances as of the date of the Lender's notice, and upon such conversion
the Borrower shall indemnify the Lender in accordance with Section 3.8.
3.8 FUNDING LOSSES; EURODOLLAR RATE ADVANCES. The Borrower shall
compensate the Lender, upon its written request, for all losses, expenses
and liabilities (including any interest paid by the Lender to lenders of
funds borrowed by it to make or carry Eurodollar Rate Advances to the
extent not recovered by the Lender in connection with the re-employment of
such funds and including loss of anticipated profits) which the Lender may
sustain: (i) if for any reason, other than a default by the Lender, a
funding of a Eurodollar Rate Advance does not occur on the date specified
therefor in the Borrower's request or notice as to such Advance under
Section 3.1 or 3.2, or (ii) if, for whatever reason (including, but not
limited to, acceleration of the maturity of Advances following an Event of
Default), any repayment of a Eurodollar Rate Advance, or a conversion
pursuant to Section 3.7, occurs on any day other than the last day of the
Interest Period applicable thereto. The Lender's request for
9
<PAGE>
compensation shall set forth the basis for the amount requested and shall
be final, conclusive and binding, absent error.
3.9 DISCRETION OF LENDER AS TO MANNER OF FUNDING. The Lender shall
be entitled to fund and maintain its funding of Eurodollar Rate Advances in
any manner it may elect, it being understood, however, that for the
purposes of this Agreement all determinations hereunder (including, but not
limited to, determinations under Section 3.8, but excluding determinations
that the Lender may elect to make from the Telerate System, Inc. screen)
shall be made as if the Lender had actually funded and maintained each
Eurodollar Rate Advance during the Interest Period for such Advance through
the purchase of deposits having a maturity corresponding to the last day of
the Interest Period and bearing an interest rate equal to the Eurodollar
Rate for such Interest Period.
3.10 OVERDRAFT LOANS; OVER ADVANCES. Overdraft Loans and Over
Advances shall bear interest at the rate(s) determined pursuant to
SECTION 2.7 or SECTION 2.8 of the Credit Agreement, as applicable.
4. TERM LOAN.
4.1 PROCEDURE FOR TERM LOAN ADVANCES. Any request for an advance
under the Term Loan must be given so as to be received by the Lender not
later than 1:00 p.m. (Minneapolis time) on the date of the requested
advance. Each request for a Term Loan advance shall: (i) specify the date
of the advance, (ii) specify the amount of the advance to be made on such
date which shall be in a minimum amount of $25,000, and (iii) be
accompanied by evidence satisfactory to the Lender as to the purchase price
or value of Eligible Equipment hereafter acquired by the Borrower.
4.2 INTEREST. The unpaid principal balance of the Term Loan shall
bear interest to maturity at the Reference Rate in effect from time to time
plus 0.75% per annum. On the terms and subject to the limitations hereof,
the Borrower shall have the option between August 31 and September 15,
1996, to convert the basis for calculating interest on the Term Loan from a
floating Reference Rate basis, to a fixed rate of interest equal to the
then existing Adjusted CD Rate as determined by FBNA, plus 3.5%. The
Borrower shall give the Lender written notice of its election to exercise
said option not later than 3:00 p.m. (Minneapolis time) two Business Days
prior to the requested date of conversion and in no event later than 3:00
p.m. (Minneapolis time) on September 12, 1996. Such notice shall specify
the date for the continuation or conversion (which must be not later than
September 15, 1996). Any notice given by the Borrower under this Section
shall be irrevocable. If the Borrower shall fail to notify the Lender of
its election to convert the Term Loan to a fixed rate loan, the option of
the Borrower pursuant to this Section shall expire and interest on the Term
Loan shall continue to accrue at the Reference Rate in effect from time to
time plus 0.75% per annum.
4.3 PAYMENTS. Interest on the Term Loan shall be due and payable in
arrears on the first (1st) day of each month for interest then accrued. No
principal shall
10
<PAGE>
be due and payable until September 15, 1996. Commencing on September 15,
1996, the Borrower shall pay on the fifteenth (15th) day of each month,
one forty-eighth (1/48) of the outstanding principal balance of the Term
Loan on September 1, 1996.
4.4 PREPAYMENTS; FUNDING LOSSES. Subject to the remainder of this
Section, the Term Loan may be prepaid in whole or in part at any time
without premium or penalty. If the Borrower has elected to convert the
basis for calculating interest on the Term Loan from a floating Reference
Rate basis to a fixed rate of interest based on the Adjusted CD Rate, then
in the event of any prepayment or in the event of the acceleration of the
maturity of the Term Loan following an Event of Default, the Borrower shall
compensate the Lender, upon its written request, for all losses, expenses
and liabilities which the Lender may sustain as a result of such prepayment
or acceleration. The Lender's request for compensation shall set forth the
basis for the amount requested and shall be final, conclusive and binding,
absent error.
5. FEES.
5.1 FACILITY FEE. The Borrower shall pay to the Lender on the
Closing Date a facility fee of $32,400.
5.2 NON-USE FEE. The Borrower shall pay to the Lender a non-use fee
for the period from the earlier to occur of the Closing Date or December
29, 1995 to the date the Credit terminates in an amount equal to 0.25% per
annum on the average daily Unused Revolving Credit Amount, which non-use
fee shall be payable quarterly in arrears on the first (1st) day of the
month following the close of each quarter, beginning with the quarter
ending March 31, 1996.
5.3 LETTER OF CREDIT FEES. The Borrower shall pay the Lender, or any
Affiliate, a commission on the undrawn amount of each Letter of Credit and
on each L/C Draft accepted by the Lender, or such Affiliate, in an amount
equal to 2.0% per annum for a stand-by Letter of Credit or 1.5% for a
documentary Letter of Credit.
5.4 CREDIT TERMINATION FEE. Upon termination or cancellation of the
Credit by the Borrower, the Borrower shall pay to the Lender a termination
fee in an amount equal to (a) two percent (2%) of the Revolving Credit
Amount in the event that the Credit is terminated or cancelled by the
Borrower during the period from the date hereof through the two year
anniversary of such date, and (b) one percent (1%) of the Revolving Credit
Amount thereafter, PROVIDED, HOWEVER, that no termination fee shall be due
or payable for six (6) months after the Lender has demanded from the
Borrower such amount or amounts as will compensate the Lender for increased
capital requirements as set forth in SECTION 10.3 of the Credit Agreement.
6. ELIGIBLE ACCOUNT RECEIVABLE REQUIREMENTS. The Account Receivable
must not be unpaid on the date that is 91 days after the date of the invoice
evidencing such Account Receivable. If invoices representing 10% or more of
the unpaid amount of all Accounts Receivable from any one Account Debtor are
unpaid more than 90 days after the dates of such invoices, then all Accounts
Receivable relating to such Account Debtor shall
11
<PAGE>
cease to be Eligible Accounts Receivable. Accounts Receivable owed by Jack B.
Kelley, Inc. and which exceed more than forty percent (40%) of the aggregate
amount of all Accounts Receivable, shall not be deemed Eligible Accounts
Receivable. Accounts Receivable owed by Jack B. Kelley, Inc. and which do
not exceed more than forty percent (40%) of the aggregate amount of all
Accounts Receivable, shall not be deemed Eligible Accounts Receivable unless
Jack B. Kelley, Inc. has executed and delivered an agreement waiving any and
all rights of offset which Jack B. Kelley, Inc. might otherwise have with
respect to such Accounts Receivable, which agreement shall be in form and
substance satisfactory to the Lender.
7. ELIGIBLE INVENTORY REQUIREMENTS. None other than as stated in the
Credit Agreement.
8. ELIGIBLE EQUIPMENT REQUIREMENTS. Only Equipment to be used
directly in the Borrower's manufacturing operations shall constitute Eligible
Equipment Without limiting the generality of the foregoing, office Equipment
shall not constitute Eligible Equipment.
9. ADDITIONAL COVENANTS. From the date of the Credit Agreement and
thereafter until all of the Borrower's Obligations under the Credit Agreement
are paid in full, the Borrower agrees that, unless the Lender shall otherwise
consent in writing, it will not do any of the following:
9.1 BOOK NET WORTH. Permit the consolidated Book Net Worth of the
Borrower to be less than $10,750,000 at any time during the Borrower's 1996
fiscal year. Permit the consolidated Book Net Worth of the Borrower at any
time during the Borrower's 1997 fiscal year to be less than $10,750,000
plus 50% of the Borrower's 1996 consolidated net income after taxes plus
100% of all other equity increases during the Borrower's 1996 fiscal year
(without reduction for net losses or for other equity decreases during the
Borrower's 1996 fiscal year). Permit the consolidated Book Net Worth of
the Borrower at any time during the Borrower's 1998 fiscal year to be less
than $10,750,000 plus 50% of the Borrower's 1996 and 1997 consolidated net
income after taxes plus 100% of all other equity increases during the
Borrower's 1996 and 1997 fiscal years (without reduction for net losses or
for other equity decreases during the Borrower's 1996 or 1997 fiscal
years). Permit the consolidated Book Net Worth of the Borrower at any
time during the Borrower's 1999 fiscal year to be less than $10,750,000
plus 50% of the Borrower's 1996, 1997 and 1998 consolidated net income
after taxes plus 100% of all other equity increases during the Borrower's
1996, 1997 and 1998 fiscal years (without reduction for net losses or for
other equity decreases during the Borrower's 1996, 1997 or 1998 fiscal
years).
9.2 CASH FLOW LEVERAGE RATIO. Permit the ratio, as of the last day
of any fiscal quarter, of the consolidated interest bearing debt of the
Borrower, to the consolidated EBITDA of the Borrower during the four
consecutive fiscal quarters then ending, to exceed 4.5:1.
9.3 FIXED CHARGE COVERAGE RATIO. Permit the ratio, as of the last
day of any fiscal quarter, of the consolidated EBITDA of the Borrower
during the four
12
<PAGE>
consecutive fiscal quarters then ending, to the sum of their consolidated
unfinanced capital expenditures, cash taxes, interest payments, dividends
and mandatory debt retirement payments during the four consecutive fiscal
quarters then ending, to be less than: (a) 1.1:1 through August 31, 1996;
(b) 1.15:1 thereafter through August 31, 1997; (c) 1.2:1 thereafter;
PROVIDED, HOWEVER, that during fiscal year 1996, instead of testing the
Fixed Charge Coverage Ratio quarterly based on the consecutive four fiscal
quarters then ending, said ratio shall be tested quarterly based on actual
year to date results beginning with the fiscal quarter ending February 29,
1996.
9.4 CAPITAL EXPENDITURES. Make consolidated Capital Expenditures
and/or acquire the use of property pursuant to operating leases, if the
aggregate amount of such Capital Expenditures, plus the value of such
property to be used pursuant to any such operating lease exceeds the
following amounts for the following periods: (a) $3,700,000 during the 1996
fiscal year, (b) $6,500,000 during the 1997 fiscal year, or (c) $4,500,000
during the 1998 fiscal year; PROVIDED, HOWEVER, that if the consolidated
Fixed Charge Coverage Ratio of the Borrower is not at least 1.25:1 at the
end of the 1996 fiscal year, then the $6,500,000 figure above shall be
changed to $1,500,000, and PROVIDED FURTHER, that if the consolidated Fixed
Charge Coverage Ratio of the Borrower is not at least 1.25:1 at the end of
the 1997 fiscal year, then the $4,500,000 figure above shall be changed to
$1,500,000.
Borrower's Initials __________
Lender's Initials ____________
Date _________________________
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's Quarterly Report on form 10-Q for the fiscal quarter ended November
30, 1995 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> NOV-30-1995
<CASH> 972
<SECURITIES> 0
<RECEIVABLES> 2,601
<ALLOWANCES> 0
<INVENTORY> 4,898
<CURRENT-ASSETS> 14,380
<PP&E> 5,243
<DEPRECIATION> 2,438
<TOTAL-ASSETS> 23,204
<CURRENT-LIABILITIES> 7,380
<BONDS> 0
0
1
<COMMON> 69
<OTHER-SE> 11,203
<TOTAL-LIABILITY-AND-EQUITY> 23,204
<SALES> 7,313
<TOTAL-REVENUES> 7,313
<CGS> 5,945
<TOTAL-COSTS> 5,945
<OTHER-EXPENSES> 380
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 236
<INCOME-PRETAX> 94
<INCOME-TAX> 34
<INCOME-CONTINUING> 60
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
