UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarterly Period Ended June 30, 1997
Commission File Number 1-11046
TOP SOURCE TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 84-1027821
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7108 Fairway Drive, Suite 200, Palm Beach Gardens, Florida 33418
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 775-5756
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 issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at August 11, 1997
- ----------------------------- --------------------------------
Common stock: $.001 par value 28,461,477 shares
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TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements Page
Consolidated Balance Sheets as of June 30, 1997
(Unaudited) and September 30, 1996........................1
Consolidated Statements of Operations for the
Three and Nine Months Ended June 30, 1997 and 1996
(Unaudited)..............................................2-3
Consolidated Statements of Cash Flows for the Nine
Months Ended June 30, 1997 and 1996 (Unaudited)............4
Notes to Unaudited Interim Consolidated
Financial Statements.....................................5-6
ITEM 2. Management's Discussion and Analysis of Interim
Financial Condition and Results of Operations..................6-10
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders..............11
ITEM 6. Exhibits and Reports on Form 8-K.................................12
i
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TOP SOURCE TECHNOLOGIES, INC.
Form 10-Q
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1997 AND SEPTEMBER 30, 1996
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
June 30 September 30
ASSETS 1997 1996
---------------- -----------------
Current Assets:
Cash and cash equivalents $622,713 $653,129
Accounts receivable trade (net of allowance of
$83,650 at September 30) 3,939,865 4,100,672
Advances to officers 72,020 ---
Inventories 710,699 511,958
Prepaid expenses 281,332 325,946
Other 120,986 111,685
---------------- -----------------
Total current assets 5,747,615 5,703,390
Property and equipment, net 2,497,973 2,503,033
Manufacturing and distribution rights and patents, net 296,322 333,762
Capitalized database, net 2,336,736 2,494,860
Deferred income tax assets, net 355,000 355,000
Other assets, net 807,923 784,203
Net assets from discontinued operations --- 3,838,468
-----------------
================
TOTAL ASSETS $12,041,569 $16,012,716
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $1,368,355 $1,836,395
Accrued salaries 16,435 229,939
Accrued liabilities 687,049 1,520,099
Net liabilities from discontinued operations --- 489,558
---------------- -----------------
Total current liabilities 2,071,839 4,075,991
Senior convertible notes 3,020,000 3,020,000
---------------- -----------------
Total liabilities 5,091,839 7,095,991
Commitments and contingencies
Stockholders' equity:
Preferred stock - $.10 par value, 5,000,000 shares
authorized; none outstanding --- ---
Common stock-$.001 par value, 50,000,000 shares
authorized; 28,461,477 and 28,446,477 shares issued and
outstanding on June 30 and September 30, respectively 28,461 28,446
Additional paid-in capital 28,744,451 28,723,853
Accumulated deficit (20,473,830) (19,703,789)
Treasury stock-at cost; 466,234 and 87,534 shares
on June 30 and September 30, respectively (1,349,352) (131,785)
---------------- -----------------
Total stockholders' equity 6,949,730 8,916,725
---------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,041,569 $16,012,716
================ =================
See accompanying notes to unaudited interim consolidated financial statements.
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1
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TOP SOURCE TECHNOLOGIES, INC.
Form 10-Q
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1997 1996
---------------- -----------------
Revenue:
Product sales $5,589,905 $4,665,342
Service revenue 177,715 19,342
---------------- -----------------
Net sales 5,767,620 4,684,684
---------------- -----------------
Cost of sales:
Cost of product sales 3,576,113 3,103,181
Cost of services 69,282 14,242
---------------- -----------------
Cost of sales 3,645,395 3,117,423
---------------- -----------------
Gross profit 2,122,225 1,567,261
---------------- -----------------
Expenses:
General and administrative 1,336,434 1,393,343
Selling and marketing 425,686 255,208
Depreciation and amortization 286,643 228,618
Research and development 15,831 27,145
---------------- -----------------
Total expenses 2,064,594 1,904,314
---------------- -----------------
Income (loss) from operations 57,631 (337,053)
Other income (expense):
Interest income 25,215 21,361
Interest expense (70,000) (68,222)
Other income (expense), net (6,577) 9,527
---------------- -----------------
Net other expense (51,362) (37,334)
---------------- -----------------
Income (loss) before income taxes 6,269 (374,387)
Income tax expense (2,274) (212,500)
-----------------
---------------- -----------------
Income (loss) from continuing operations 3,995 (586,887)
Income (loss) from discontinued operations 6,808 (87,624)
================ =================
Net income (loss) $ 10,803 $ (674,511)
================ =================
Loss per weighted average common share outstanding:
Continuing operations ($0.02)
Discontinued operations (0.00)
=================
Total $ (0.02)
=================
Weighted average common shares outstanding 28,132,910
=================
Net income per common and common equivalent share:
Continuing operations $ 0.00
Discontinued operations 0.00
================
Total $ 0.00
================
Weighted average common and common equivalent shares:
Primary 28,880,427
================
Fully Diluted 28,880,427
================
See accompanying notes to unaudited interim consolidated financial statements.
2
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TOP SOURCE TECHNOLOGIES, INC.
Form 10-Q
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1997 1996
---------------- -----------------
Revenue:
Product sales $13,859,582 $11,389,339
Service revenue 377,150 39,100
---------------- -----------------
Net sales 14,236,732 11,428,439
---------------- -----------------
Cost of sales:
Cost of product sales 9,081,447 7,421,004
Cost of services 147,717 14,242
---------------- -----------------
Cost of sales 9,229,164 7,435,246
---------------- -----------------
Gross profit 5,007,568 3,993,193
---------------- -----------------
Expenses:
General and administrative 3,818,267 3,870,187
Selling and marketing 1,044,280 801,372
Depreciation and amortization 826,422 682,316
Research and development 19,056 61,242
---------------- -----------------
Total expenses 5,708,025 5,415,117
---------------- -----------------
Loss from operations (700,457) (1,421,924)
Other income (expense):
Interest income 92,249 87,472
Interest expense (211,150) (201,962)
Other income, net 19,850 49,476
---------------- -----------------
Net other expense (99,051) (65,014)
---------------- -----------------
Loss before income taxes (799,508) (1,486,938)
Income tax expense (39,274) (395,000)
---------------- -----------------
Loss from continuing operations (838,782) (1,881,938)
Income (loss) from discontinued operations 68,741 (90,312)
================ =================
Net loss $ (770,041) $ (1,972,250)
================ =================
Loss per weighted average common share outstanding:
Continuing operations $ (0.03) $ (0.07)
Discontinued operations 0.00 (0.00)
================ =================
Total $ (0.03) $ (0.07)
================ =================
Weighted average common shares outstanding 28,089,261 27,929,600
================ =================
See accompanying notes to unaudited interim consolidated financial statements.
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3
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<TABLE>
TOP SOURCE TECHNOLOGIES, INC.
Form 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
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<S> <C> <C>
1997 1996
---------------- -----------------
Net loss ($770,041) ($1,972,250)
Adjustments to reconcile net loss to
net cash used in operating activities:
Loss (income) from discontinued operations (68,741) 90,312
Depreciation 858,733 716,261
Amortization 207,612 207,367
Disposal of equipment 236,080 23,513
Decrease in deferred income tax assets, net --- 325,000
Advances to officers (72,020) ---
Decrease (increase) in accounts receivable, net 160,807 (501,118)
Increase in inventories (198,741) (556,378)
Decrease (increase) in prepaid expenses 44,614 (4,028)
Increase in other assets (36,036) (56,295)
Increase (decrease) in accounts payable (468,040) 284,115
Decrease in accrued salaries (213,504) (269,675)
Decrease in accrued liabilities (833,050) (151,946)
---------------- -----------------
Net cash used in operating activities (1,152,327) (1,865,122)
---------------- -----------------
INVESTING ACTIVITIES:
Purchases of property and equipment, net (1,450,809) (1,072,424)
Reimbursement of tooling costs 361,056 465,222
Additions to patent costs, net (9,033) (38,391)
Discontinued operations - change in net assets 3,417,651 217,433
---------------- -----------------
Net cash provided by (used in) investing activities 2,318,865 (428,160)
---------------- -----------------
FINANCING ACTIVITIES:
Proceeds from sale of common stock, net 20,613 1,104,415
Repurchase of treasury stock (1,217,567) ---
Proceeds from borrowings --- 960,000
-----------------
----------------
Net cash provided by (used in) financing activities (1,196,954) 2,064,415
---------------- -----------------
Net decrease in cash and cash equivalents (30,416) (228,867)
Cash and cash equivalents at beginning of period 653,129 1,154,137
---------------- -----------------
Cash and cash equivalents at end of period $622,713 $925,270
================ =================
See accompanying notes to unaudited interim consolidated financial statements.
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4
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TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying financial statements of Top Source Technologies, Inc.
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all 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
in the accompanying financial statements. The consolidated financial
statements include the accounts of the Company and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
The results of operations of any interim period are not necessarily
indicative of the results of operations for the fiscal year. For further
information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K/A No.1 for the year
ended September 30, 1996. Certain fiscal year 1996 amounts have been
reclassified to conform to current year presentation.
New Accounting Standard
In February 1997, the Financial Accounting Standards Board ("FASB")"
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share". SFAS No. 128 supersedes the previous standard
(Accounting Principles Board Opinion No. 15), modifies the methodology for
calculating earnings per share, and is effective for periods ending after
December 15, 1997; early adoption is not permitted. Upon adoption, the
Company will be required to restate previously reported earnings per share
data to conform with the requirements of SFAS No. 128. Had the provisions
of SFAS No. 128 been applicable to the accompanying condensed consolidated
financial statements, basic and diluted earnings per share, as calculated
in accordance with the provisions of SFAS No. 128, would not have been
different from the earnings per share amounts reported herein for the
quarter ending June 30, 1997.
2. INVENTORIES
Inventories consisted of the following:
June 30, September 30,
1997 1996
---- ----
Raw materials $ 547,245 $ 398,248
Finished goods 163,454 113,710
------- -------
$ 710,699 $ 511,958
============= ============
5
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TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
3. TREASURY STOCK
On November 12, 1996, the Company announced that it had put into
effect a stock repurchase plan to repurchase up to 400,000 shares of its
common stock. From November 12, 1996 through August 11, 1997, the Company
repurchased 378,700 shares of the Company's common stock at an average
purchase price of $3.21.
All shares of common stock purchased through the period ended June 30,
1997 are included in treasury stock in the accompanying balance sheet. The
Company anticipates no further stock repurchases for the immediate future.
4. DISCONTINUED OPERATIONS
On September 12, 1996, the Company's Board of Directors approved a
plan to sell certain assets and liabilities of the Company's oil analysis
subsidiary, Top Source Oil Analysis, Inc., (currently inactive) formerly
named United Testing Group, Inc. ("UTG"). The sale was consummated on
October 30, 1996. The income and losses of UTG for the three and nine
months ended June 30, 1997 and 1996 are included in the consolidated
statement of operations under "discontinued operations". Income from
discontinued operations for the three and nine month periods ended June 30,
1997 is the result of changes in estimates relating to cost to dispose of
these operations. Revenue from such operations for both the three and nine
months ended June 30, 1997 was $0, and $1,112,550 and $3,398,685 for the
three and nine month periods ended in 1996, respectively, and was not
included in service revenue in the accompanying consolidated statements of
operations.
5. RESTRUCTURING
During July 1997, the Company undertook and substantially completed a
Company-wide restructuring. During this time period, the Company closed its
New York investor relations office, consolidated its Top Source Instruments
operations in Farmington Hills, Michigan into its Top Source Automotive
facility in Troy, Michigan and reduced its personnel by approximately
one-third from 78 employees to 54 employees. The Company believes that
these reductions will not have an adverse impact on its sales, marketing
and administrative capabilities. The Company anticipates that this
restructuring will result in a net one-time charge to earnings of
approximately $350,000 in the fourth quarter of fiscal 1997 and will result
in annualized ongoing operating cost savings in excess of $2.0 million
based on the size of current operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Total revenue for the three and nine month periods ended June 30, 1997
was $5,767,620 and $14,236,732, respectively, compared to $4,684,684 and
$11,428,439, respectively, for the same periods in fiscal 1996. The
$1,082,936 and $2,808,293 increase in revenue for the three and nine month
periods ended June 30, 1997 is primarily attributable to increased product
sales of overhead speaker systems ("OHSS") at the Company's Top Source
Automotive, Inc. subsidiary ("TSA"); and increased service revenue from the
sale and lease of On-Site Analyzers ("OSAs") at Top Source Instruments,
Inc. ("TSI") compared to the same periods ended June 30, 1996. Service
revenue for the nine month period ended June 30, 1997 was $377,150 compared
to $39,100 for the nine month period ended June 30, 1996.
6
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TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Results of Operations - (Continued)
Top Source Automotive, Inc.
On June 30, 1997, TSA's contract to provide the OHSS for the Cherokee
expired. This loss combined with the planned July 1997 temporary plant
shutdown at Chrysler, partially offset by the commencement of shipments in
August of OHSS for the new Grand Cherokee vehicle, will result in fiscal
fourth quarter TSA revenues approximating 50% of second and third quarter
fiscal 1997 levels. Based on existing programs, overall TSA revenue for
fiscal year 1998, excluding any new aftermarket business that can be
obtained, is estimated to be 20% to 35% below comparable fiscal 1997
levels.
TSA is currently seeking strategic relationships and has signed
confidentiality agreements with two major Original Equipment Manufacturer
("OEM") suppliers that could result in production line orders for OHSS in
fiscal years after 1998.
In addition, the Company is seeking strategic relationships with
several aftermarket suppliers. One test market program with Kenwood U.S.A.
is scheduled to begin in the first fiscal quarter of 1998. These potential
aftermarket programs, if successful, could result in significant fiscal
1998 revenues; however, there can be no assurances that these contracts can
be obtained, or that these contracts will offset or exceed the loss of
revenues and profits on the Cherokee contract.
Top Source Instruments, Inc.
During fiscal 1997, TSI has focused most of its resources and efforts
on commercializing OSAs in three primary markets; powertrain development at
OEMs, franchised mini-labs which would use OSAs to service a variety of
industries, and refineries. In February and June 1997, the Company sold one
OSA unit to Hyundai Motor Corp. and Chrysler, respectively, for use in
powertrain development. These sales have accounted for 294,500 or 78% of
the total fiscal 1997 TSI revenue. In May 1997, TSI shipped an OSA unit for
powertrain evaluation to another automotive OEM in Detroit, Michigan.
On May 16, 1997, the Company extended until December 31, 1997, its
letter agreement (originally signed on January 10, 1997) with Cleveland
Technical Center ("CTC") a division of Conam Inspection, Inc. (the
purchaser of the UTG assets - see Discontinued Operations) a subsidiary of
Stavely Industries, plc. from the United Kingdom, to jointly market OSAs in
North America. Under the terms of this agreement, TSI and CTC will jointly
establish pilot OSA mini-laboratories for the purpose of determining the
value of a North American franchise system. CTC plans to open a mini-lab of
this nature in September 1997. The Company believes it will sign a
definitive franchise agreement with Conam or other parties that will yield
multiple OSA sales; however, there can be no assurances as to the timing of
this agreement.
7
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TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Top Source Instruments, Inc. - (Continued)
Since the Fall of 1994, the Company has been working at the Exxon,
Baton Rouge, Louisiana, refinery attempting to develop a production ready
OSA for use in hydro-carbon processing. This highly complex project
requires higher levels of precision than required for OSA applications in
most other industries and has involved repeated hardware and software
modifications to the standard OSA unit.
To date, the Company has been unable to achieve the consistent levels
of precision necessary to gain production acceptance from Exxon for the OSA
unit for use in hydro-carbon processing applications. The Company has
retained a highly respected consultant in the refinery industry and
continues to believe that it will be successful in meeting required
precision levels. Due to previous delays and the difficulty in interpreting
the efficiency of new technology development, there can be no assurances as
to the timing of ultimate success of OSAs in this specific application.
In addition to the hydro-carbon processing applications in the
refineries, the Company believes there are two other applications within
refineries where the OSAs meet required precision levels; equipment
maintenance ("EM") and blending site operations. Currently, there is an EM
unit at the Baton Rouge refinery generating nominal revenue. The Company
intends to expand its efforts to commercialize these two OSA applications
within this and other refineries, although there can be no assurances as to
degree or timing.
Although the commercialization of OSAs has taken longer than
anticipated, based on the continuing reliability demonstrated by OSA units
over a long period of time, sales and marketing initiatives in progress,
and customer endorsements, the Company anticipates generating an increasing
quarterly revenue stream from OSA units, although there can be no
assurances as to degree or timing.
Operating Ratios and Analyses
The gross profit margin for three months ended June 30, 1997 was 36.8%
compared to 33.5% for the same period in 1996. The increase in the gross
profit margin compared to the prior year is primarily attributable to
decreased labor and overhead costs relating to product sales at TSA.
General and administrative expenses decreased $56,909 for the three
month period ended June 30, 1997 compared to the same period in 1996. This
decrease is attributable to personnel reductions in the Company's corporate
office, partially offset by higher levels of expense at the Company's
subsidiary, TSI, for the comparable period.
8
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TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Results of Operations - (Continued)
Selling and marketing increased 66.8% and 30.3% for the three and nine
months ended June 30, 1997 compared to the same periods ended in 1996. The
increase was primarily attributable to the continued marketing and
promotional activities in support of the OSA.
Depreciation and amortization increased 25.4% and 21.1% for the three
and nine month periods ended June 30, 1997 compared to the same periods in
1996. The increase is primarily due to purchases of $1,450,809 in capital
assets which consists of additional OSA units at TSI and capital equipment
expenditures at TSA in the nine months ended June 30, 1997. Depreciation
and amortization of $239,923 was allocated to cost of sales as it directly
relates to the products and services sold during the nine months ended June
30, 1997 compared to $241,312 for the same period ended in 1996.
Net Income (Loss) Analysis
The net income of $10,803 for the three months ended June 30, 1997
compared to a net loss of ($674,511) in the same period in 1996 is
primarily attributable to significantly increased product and service
revenues. The decrease in the year-to-date net loss of ($770,041) for nine
months ending June 30, 1997 compared to ($1,972,250) the same period in
1996 is also primarily attributable to increased product and service
revenues.
As noted above, the Company's contract at TSA to produce the OHSS for
the Jeep(R) Cherokee expired on June 30, 1997. The significant negative
short term impact of the loss of this contract on consolidated
profitability will be partially offset by production of OHSS for the new
Jeep(R) Grand Cherokee vehicle commencing in August 1997. In order to
further reduce the impact on profitability, the Company is (1) seeking
aftermarket alliances at TSA, (2) attempting to increase revenues of OSA
units, and (3)has implemented a fourth quarter restructuring as discussed
above. The Company believes that these measures beginning in fiscal 1998
will be successful in restoring profitability to levels comparable to or
exceeding third quarter fiscal 1997 results, however, there can be no
assurances.
Liquidity and Capital Resources
Net cash used in operating activities was ($1,152,327) for the nine months
ended June 30, 1997. This usage of cash was attributable to an increase in
inventories of $198,741 due to the build-up of inventory for the new Jeep(R)
Grand Cherokee vehicle and a decrease in accounts payable, accrued salaries, and
accrued liabilities of $1,514,594. This was partially offset by a net operating
income of $227,563 which excludes depreciation, amortization and the income from
discontinued operations, a decrease in accounts receivable of $160,807, disposal
of equipment of $236,080 and a decrease in prepaid expenses of $44,614.
9
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TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Liquidity and Capital Resources - (Continued)
Net cash provided by investing activities was $2,318,865. This source
of cash was attributable to the change in net assets of Top Source Oil
Analysis, Inc. ("TSOA"), formerly UTG, of $3,417,651 and reimbursement of
tooling costs of $361,056, offset by $1,450,809 expended for capital
assets, and $9,033 for patent costs.
Net cash used in financing activities was ($1,196,954) which consisted
of net proceeds from sales of common stock through exercise of stock
options of $20,613, which was offset by the repurchase of 378,700 shares of
the Company's common stock at an average purchase price of $3.21 per share,
for a total of $1,217,567.
Prior to July 1, 1997, the Company had a $3,750,000 credit facility
with First Union Bank of Florida, ("First Union"). At June 30, 1997, no
amounts were outstanding on this facility. On July 1, 1997, the Company
entered into a three-year $5,000,000 asset-based financing agreement
("Credit Facility") with NationsCredit Commercial Corporation ("Nations").
This Credit Facility replaced the facility with First Union which was
canceled by the Company as a condition of the new Credit Facility. The
Credit Facility, which is secured by the assets of the Company enables it
to borrow up to $5,000,000 based upon certain percentages of accounts
receivable and inventory balances. The interest rate on this Credit
Facility is 1-1/2% over the prime rate with a required minimum borrowing
level of $2,500,000 for fee calculation purposes. In addition, Nations was
granted 25,000 stock options in Top Source common stock at a price equal to
105% of the fair market value of the Company's common stock at the date of
the closing of the Credit Facility. As of August 11, 1997, $1,010,649 was
available and outstanding on this Credit Facility.
Based on current cash balances, the new Credit Facility, and TSA and
TSI revenues, the Company believes it has sufficient cash flow and
liquidity to fund its current operations and anticipated increasing OSA
commercialization.
Forward-Looking Statements
The statements discussed above under Results of Operations and
Liquidity and Capital Resources relating to the Company's expectations that
it anticipates (1) generating increasing revenue from OSAs and receiving
additional purchase orders for OSA units, (2) signing a definitive
franchise agreement, (3) obtaining aftermarket and production line revenues
at TSA, (4) developing strategic relationships, (5) mitigating the
financial impact of the loss of the Jeep(R) Cherokee contract and (6)
improving current liquidity and operating results are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934.
10
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TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Forward-Looking Statements - (Continued)
As the text above discusses, the results expected by any or all of these
forward-looking statements may not occur. Important factors that could
cause actual results to differ materially from the forward-looking
statements include the following: (1) the decline in current production
levels at Chrysler for vehicles installing OHSS, (2) the continued
reliability of the OSA technology over an extended period of time, (3) the
Company's ability to market OSAs in various markets, (4) the acceptance of
the OSA technology by the marketplace, (5) the general tendency of large
corporations to slowly change from known technology to emerging new
technology, (6) the Company's reliance on a third party to manufacture
OSAs, (7) potential future competition from third parties that may develop
proprietary technology which either does not violate the Company's
proprietary rights or is claimed not to violate the Company's proprietary
rights, and (8) unanticipated business or legal disagreements which impacts
the signing of a definitive franchise agreement or strategic relationships.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 15, 1997, the Shareholders approved the following proposals at
the Annual Shareholder's Meeting:
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- -------------------------------------------------------------- ------------- ------------- ----------------- -------------
BROKER
PROPOSALS FOR AGAINST ABSTENTIONS NON-VOTES
- -------------------------------------------------------------- ------------- ------------- ----------------- -------------
o Elected nominee to the Board of Directors of the
Company to serve until the Company's next annual meeting
Nominee: Stuart Landow
The terms of the following Directors, in addition to Mr. 21,813,439 1,458,858 9,475 0
Landow, will continue until their applicable term expires:
Ronald P. Burd
Clinton D. Lauer
Paul F. Moore
Mani A. Sadeghi
William C. Willis, Jr.
- -------------------------------------------------------------- ------------- ------------- ----------------- -------------
o Ratified the appointment of Arthur Anderson LLP as
independent auditors for the fiscal year ended September 30,
1997 22,836,985 364,624 80,163 0
- -------------------------------------------------------------- ------------- ------------- ----------------- -------------
o Approved the transaction of other lawful business that may
properly come before the meeting 21,632,631 1,412,525 236,616 0
- -------------------------------------------------------------- ------------- ------------- ----------------- -------------
Total shares voted: 23,281,772
Total shares eligible: 28,016,243
- -------------------------------------------------------------- ------------- ------------- ----------------- -------------
</TABLE>
11
<PAGE>
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
10.25 NationsCredit Agreement dated July 1, 1997
10.26 Amendment to Stuart Landow Employment Agreement
11.0 Schedule of Computation of Net Income Per Share
27.0 Financial Data Schedule
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 1997.
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.
TOP SOURCE TECHNOLOGIES, INC.
By: /s/ DAVID NATAN
---------------
David Natan
Vice President and Chief Financial Officer
Dated: August 14, 1997
12
TOP SOURCE TECHNOLOGIES, INC.
FORM 10-Q
EXHIBIT 11.0
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<S> <C>
PRIMARY THREE MONTHS ENDED
JUNE 30, 1997
Net Income $10,803
Weighted number of common shares outstanding
during period 28,461,477
Add: Common equivalent shares (determined using the
"treasury stock" method) representing shares issuable upon
exercise of:
Common stock options 418,950
Weighted average number of shares used in calculation of
primary income per share 28,880,427
Primary net income per common share $.00
====
FULLY DILUTED
Net income $10,803
Weighted number of common shares outstanding during period
28,461,477
Add: Common equivalent shares (determined using the
"treasury stock" method) representing shares issuable upon
exercise of:
Common stock options
418,950
Weighted average number of shares used in calculation of
fully diluted income per share 28,880,427
Fully diluted net income per common share $.00
====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> APR-1-1997
<PERIOD-END> JUN-30-1997
<CASH> $ 622,713
<SECURITIES> 0
<RECEIVABLES> 3,939,865
<ALLOWANCES> 0
<INVENTORY> 710,699
<CURRENT-ASSETS> 5,747,615
<PP&E> 2,497,973
<DEPRECIATION> 2,603,902
<TOTAL-ASSETS> 12,041,569
<CURRENT-LIABILITIES> 2,071,839
<BONDS> 0
0
0
<COMMON> 28,461
<OTHER-SE> 6,921,269
<TOTAL-LIABILITY-AND-EQUITY> 12,041,569
<SALES> 14,236,732
<TOTAL-REVENUES> 14,236,732
<CGS> 9,229,164
<TOTAL-COSTS> 9,229,164
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (211,150)
<INCOME-PRETAX> (799,508)
<INCOME-TAX> (39,274)
<INCOME-CONTINUING> (838,782)
<DISCONTINUED> 68,741
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (770,041)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> 0
</TABLE>
EXHIBIT 10.25
Loan and Security Agreement
This Loan and Security Agreement (as it may be amended, this
"Agreement") is entered into on July 1, 1997 between NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("Lender"),
having an address at 1177 Avenue of the Americas, 36th Floor, New York, New York
10036 and TOP SOURCE AUTOMOTIVE, INC. ("Borrower"), whose chief executive office
is located at 7108 Fairway Drive, Suite 200, Palm Beach, Florida 33418
("Borrower's Address"). The Schedules to this Agreement are an integral part of
this Agreement and are incorporated herein by reference. Terms used, but not
defined elsewhere, in this Agreement are defined in Schedule B.
LOANS AND CREDIT ACCOMMODATIONS.
Amount. Subject to the terms and conditions contained in this
Agreement, Lender will:
Revolving Loans and Credit Accommodations. From time to time
during the Term at Borrower's request, make revolving loans to Borrower
("Revolving Loans"), and make letters of credit, bankers acceptances and other
credit accommodations ("Credit Accommodations") available to Borrower, in each
case to the extent that there is sufficient Availability at the time of such
request to cover, dollar for dollar, the requested Revolving Loan or Credit
Accommodation; provided, that after giving effect to such Revolving Loan or
Credit Accommodation, (x) the outstanding balance of all monetary Obligations
(including the principal balance of any Term Loan and, solely for the purpose of
determining compliance with this provision, the Credit Accommodation Balance)
will not exceed the Maximum Combined Facility Amount set forth in Section 1(h)
of Schedule A and (y) none of the other Loan Limits set forth in Section 1 of
Schedule A will be exceeded. For this purpose, "Availability" means:
the aggregate amount of Eligible Accounts (less maximum
existing or asserted taxes, discounts, credits and allowances)
multiplied by the Accounts Advance Rate set forth in Section 1(b)(i) of
Schedule A but not to exceed the Accounts Sublimit set forth in Section
1(c) of Schedule A;
plus
the lower of cost or market value of Eligible Inventory
multiplied by the Inventory Advance Rate(s) set forth in Section
1(b)(ii) of Schedule A, but not to exceed the Inventory Sublimit(s) set
forth in Section 1(d) of Schedule A;
minus
all Reserves which Lender has established pursuant to
Section 1.2 (including those to be established in connection with the
requested Revolving Loan or Credit Accommodation);
minus
the outstanding balance of all of the monetary
Obligations (excluding the Credit Accommodation Balance and the
principal balance of the Term Loan); and
plus
the Overadvance Amount, if any, set forth in Section 1(g)
of Schedule A.
Term Loan. On the date of this Agreement, make (i) an advance to
Borrower computed with respect to the value of Borrower's Eligible Equipment
(the ("Equipment Advance") in the principal amount, if any, set forth in Section
2(a)(i) of Schedule A, and (ii) an advance to Borrower computed with respect to
the value of Borrower's Eligible Real Property (the ("Real Property Advance") in
the principal amount, if any, set forth in Section 2(a)(ii) of Schedule A. The
Equipment Advance and the Real Property Advance are collectively referred to as
the "Term Loan."
Reserves. Lender may from time to time establish and revise such
reserves as Lender deems appropriate in its sole discretion ("Reserves") to
reflect (i) events, conditions, contingencies or risks which affect or may
affect (A) the Collateral or its value, or the security interests and other
rights of Lender in the Collateral or (B) the assets, business or prospects of
Borrower or any Obligor, (ii) Lender's good faith concern that any Collateral
report or financial information furnished by or on behalf of Borrower or any
Obligor to Lender is or may have been incomplete, inaccurate or misleading in
any material respect, (iii) any fact or circumstance which Lender determines in
good faith constitutes, or could constitute, a Default or Event of Default or
(iv) any other events or circumstances which Lender determines in good faith
make the establishment or revision of a Reserve prudent. Without limiting the
foregoing, Lender shall (x) in the case of each Credit Accommodation issued for
the purchase of Inventory (a) which meets the criteria for Eligible Inventory
set forth in clauses (i), (ii), (iii), (v) and (vi) of the definition of
Eligible Inventory, (b) which is or will be in transit to one of the locations
set forth in Section 9(d) of Schedule A, (c) which is fully insured in a manner
satisfactory to Lender and (d) with respect to which Lender is in possession of
all bills of lading and all other documentation which Lender has requested, all
in form and substance satisfactory to Lender in its sole discretion, establish a
Reserve equal to the cost of such Inventory (plus all duties, freight, taxes,
insurance, costs and other charges and expenses relating to such Credit
Accommodation or such Eligible Inventory) multiplied by a percentage equal to
100% minus the Inventory Advance Rate applicable to Eligible Inventory and (y)
in the case of any other Credit Accommodation issued for any purpose, establish
a Reserve equal to the full amount of such Credit Accommodation plus all costs
and other charges and expenses relating to such Credit Accommodation. In
addition, (x) Lender shall establish a permanent Reserve in the amount set forth
in Section 1(f) of Schedule A, and (y) if the outstanding principal balance of
the Term Loan advance with respect to Eligible Equipment exceeds the percentage
set forth in Section 2(a)(i) of Schedule A of the appraised value of such
Eligible Equipment, Lender may establish an additional Reserve in the amount of
such excess (and, for this purpose, if payments of principal on the Term Loan
advances against Eligible Equipment and Real Property are not calculated
separately, payments of principal of the Term Loan made by Borrower shall be
deemed to apply to the Term Loan advance with respect to Eligible Equipment and
Real Property, respectively, in proportion to the original principal amounts of
such advances). Lender may, in its discretion, establish and revise Reserves by
deducting them in determining Availability or by reclassifying Eligible Accounts
or Eligible Inventory as ineligible. In no event shall the establishment of a
Reserve in respect of a particular actual or contingent liability obligate
Lender to make advances hereunder to pay such liability or otherwise obligate
Lender with respect thereto.
Other Provisions Applicable to Credit Accommodations. Lender may, in its
sole discretion and on terms and conditions acceptable to Lender, make Credit
Accommodations available to Borrower either by issuing them, or by causing other
financial institutions to issue them supported by Lender's guaranty or
indemnification; provided, that after giving effect to each Credit
Accommodation, the Credit Accommodation Balance will not exceed the Credit
Accommodation Limit set forth in Section 1(e) of Schedule A. Any amounts paid by
Lender in respect of a Credit Accommodation will be treated for all purposes as
a Revolving Loan which shall be secured by the Collateral and bear interest, and
be payable, in the same manner as a Revolving Loan. Borrower agrees to execute
all documentation required by Lender or the issuer of any Credit Accommodation
in connection with any such Credit Accommodation.
Repayment. Accrued interest on all monetary Obligations shall be payable
on the first day of each month. Principal of the Term Loan shall be repaid as
set forth in Section 2(b) of Schedule A. If at any time any of the Loan Limits
are exceeded, Borrower will immediately pay to Lender such amounts (or provide
cash collateral to Lender with respect to the Credit Accommodation Balance in
the manner set forth in Section 7.3), as shall cause Borrower to be in full
compliance with all of the Loan Limits. Notwithstanding the foregoing, Lender
may, in its sole discretion, make or permit Revolving Loans, the Term Loan, any
Credit Accommodations or any other monetary Obligations to be in excess of any
of the Loan Limits; provided, that Borrower shall, upon Lender's demand, pay to
Lender such amounts as shall cause Borrower to be in full compliance with all of
the Loan Limits. All unpaid monetary Obligations shall be payable in full on the
Maturity Date (as defined in Section 7.1) or, if earlier, the date of any early
termination pursuant to Section 7.2.
Minimum Borrowing. Subject to the terms and conditions of this
Agreement, Borrower agrees to (i) borrow sufficient amounts to cause the
outstanding principal balance of the Loans to equal or exceed, at all times
prior to the Maturity Date, the Minimum Loan Amount set forth in Section 4 of
Schedule A and (ii) maintain Availability sufficient to enable Borrower to do
so; provided, that the failure of Borrower to maintain sufficient Availability
shall not constitute an Event of Default so long as Borrower is not in default
in the payment of any of the fees set forth in Section 2.2 and no other Event of
Default has occurred and is continuing. However, Lender shall not be obligated
to loan Borrower the Minimum Loan Amount other than in accordance with all of
the terms and conditions of this Agreement.
INTEREST AND FEES.
Interest. All Loans and other monetary Obligations shall bear interest
at the Interest Rate(s) set forth in Section 3 of Schedule A, except where
expressly set forth to the contrary in this Agreement or another Loan Document;
provided, that after the occurrence of an Event of Default, all Loans and other
monetary Obligations shall, at Lender's option, bear interest at a rate per
annum equal to two percent (2%) in excess of the rate otherwise applicable
thereto (the "Default Rate") until paid in full (notwithstanding the entry of
any judgment against Borrower or the exercise of any other right or remedy by
Lender), and all such interest shall be payable on demand. Changes in the
Interest Rate shall be effective as of the date of any change in the Prime Rate.
Notwithstanding anything to the contrary contained in this Agreement, the
aggregate of all amounts deemed to be interest hereunder and charged or
collected by Lender is not intended to exceed the highest rate permissible under
any applicable law, but if it should, such interest shall automatically be
reduced to the extent necessary to comply with applicable law and Lender will
refund to Borrower any such excess interest received by Lender.
Fees and Warrants. Borrower shall pay Lender the following fees, and
issue Lender the following warrants, which are in addition to all interest and
other sums payable by Borrower to Lender under this Agreement, and are not
refundable:
Closing Fee. A closing fee in the amount set forth in Section
6(a) of Schedule A, one-half of which was fully earned and paid upon issuance of
the commitment letter dated May 29, 1997, and one-half of which shall be deemed
to be fully earned as of, and payable on, the date hereof.
Facility Fees. A facility fee for the Initial Term in the amount
set forth in Section 6(b)(i) of Schedule A (which shall be fully earned as of
the date of this Agreement and shall be payable in equal installments due,
respectively, on the first and second anniversaries of the date of this
Agreement), and a facility fee for each Renewal Term in the amount set forth in
Section 6(b)(ii) of Schedule A (which shall be fully earned as of the first day
of such Renewal Term and shall be payable in equal installments due,
respectively, on the first day of such Renewal Term and on the first and second
anniversaries thereof).
Servicing Fee. A monthly servicing fee in the amount set forth in
Section 6(c) of Schedule A, in consideration of Lender's administration and
other services for each month (or part thereof), which shall be fully earned as
of, and payable in advance on, the date of this Agreement and on the first day
of each month thereafter so long as any of the Obligations are outstanding.
Unused Line Fee. An unused line fee at a rate equal to the
percentage per annum set forth in Section 6(d) of Schedule A of the amount by
which the Maximum Facility Amount set forth in Section 1(a) of Schedule A
exceeds the sum of (i) the average daily outstanding principal balance of the
Loans and the Credit Accommodation Balance during the immediately preceding
month (or part thereof), and (ii) the average daily TS Instrument Loan Balance
during the immediately proceeding month (or part thereof), which fee shall be
payable, in arrears, on the first day of each month so long as any of the
Obligations are outstanding and on the Maturity Date.
Minimum Borrowing Fee. A minimum borrowing fee equal to the
excess, if any, of (i) interest which would have been payable in respect of each
period set forth in Section 6(e)(i) of Schedule A if, at all times during such
period, the principal balance of the Loans was equal to the Minimum Loan Amount
over (ii) the actual interest payable in respect of such period, which fee shall
be fully earned as of the last day of such period and payable on the date set
forth in Section 6(e)(ii) of Schedule A and on the Maturity Date, commencing
with the immediately following period.
Success Fee. A success fee in the amount set forth in Section
6(f) of Schedule A, which shall be fully earned as of the date of this Agreement
and payable as set forth in Section 6(f) of Schedule A.
Warrants. Warrants to acquire the capital stock of Borrower, as
summarized in Section 6(g) of Schedule A and as more fully set forth in a
separate warrant agreement executed by Borrower contemporaneously with this
Agreement.
Credit Accommodation Fees. All of the fees relating to Credit
Accommodations set forth in Section 6(i) of Schedule A.
Computation of Interest and Fees. All interest and fees shall be
calculated daily on the closing balances in the Loan Account based on the actual
number of days elapsed in a year of 360 days. For purposes of calculating
interest and fees, if the outstanding daily principal balance of the Revolving
Loans is a credit balance, such balance shall be deemed to be zero.
Loan Account; Monthly Accountings. Lender shall maintain a loan account
for Borrower reflecting all advances, charges, expenses and payments made
pursuant to this Agreement (the "Loan Account"), and shall provide Borrower with
a monthly accounting reflecting the activity in the Loan Account. Each
accounting shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by Lender), unless Borrower notifies Lender in
writing to the contrary within sixty days after such account is rendered,
describing the nature of any alleged errors or admissions. However, Lender's
failure to maintain the Loan Account or to provide any such accounting shall not
affect the legality or binding nature of any of the Obligations. Interest, fees
and other monetary Obligations due and owing under this Agreement (including
fees and other amounts paid by Lender to issuers of Credit Accommodations) may,
in Lender's discretion, be charged to the Loan Account, and will thereafter be
deemed to be Revolving Loans and will bear interest at the same rate as other
Revolving Loans.
SECURITY INTEREST.
To secure the full payment and performance of all of the Obligations
when due, Borrower hereby grants to Lender a continuing security interest in all
of Borrower's property and interests in property, whether tangible or
intangible, now owned or in existence or hereafter acquired or arising, wherever
located, including Borrower's interest in all of the following, whether or not
eligible for lending purposes: (i) all Accounts, Chattel Paper, Instruments,
Documents, Goods (including Inventory, Equipment, farm products and consumer
goods), Investment Property, General Intangibles, Deposit Accounts and money,
(ii) all proceeds and products of all of the foregoing (including proceeds of
any insurance policies, proceeds of proceeds and claims against third parties
for loss or any destruction of any of the foregoing) and (iii) all books and
records relating to any of the foregoing.
ADMINISTRATION.
Lock Boxes and Blocked Accounts. Borrower will, at its expense,
establish (and revise from time to time as Lender may require) collection
procedures acceptable to Lender, in Lender's sole discretion, for the collection
of checks, wire transfers and other proceeds of Accounts ("Account Proceeds"),
which may include (i) directing all Account Debtors to send all such proceeds
directly to a post office box designated by Lender either in the name of
Borrower (but as to which Lender has exclusive access) or, at Lender's option,
in the name of Lender (a "Lock Box") or (ii) depositing all Account Proceeds
received by Borrower into one or more bank accounts maintained in Lender's name
(each, a "Blocked Account"), under an arrangement acceptable to Lender with a
depository bank acceptable to Lender, pursuant to which all funds deposited into
each Blocked Account are to be transferred to Lender in such manner, and with
such frequency, as Lender shall specify or (iii) a combination of the foregoing.
Borrower agrees to execute, and to cause its depository banks to execute, such
Lock Box and Blocked Account agreements and other documentation as Lender shall
require from time to time in connection with the foregoing.
Remittance of Proceeds. Except as provided in Section 4.1, all proceeds
arising from the sale or other disposition of any Collateral (including obsolete
Inventory sold pursuant to Section 5.18(iv)) shall be delivered, in kind, by
Borrower to Lender in the original form in which received by Borrower not later
than the following Business Day after receipt by Borrower. Until so delivered to
Lender, Borrower shall hold such proceeds separate and apart from Borrower's
other funds and property in an express trust for Lender. Nothing in this Section
4.2 shall limit the restrictions on disposition of Collateral set forth
elsewhere in this Agreement.
Application of Payments. Lender may, in its sole discretion, apply,
reverse and re-apply all cash and non-cash proceeds of Collateral or other
payments received with respect to the Obligations, in such order and manner as
Lender shall determine, whether or not the Obligations are due, and whether
before or after the occurrence of a Default or an Event of Default. For purposes
of determining Availability, such amounts will be credited to the Loan Account
and the Collateral balances to which they relate upon Lender's receipt of advice
from Lender's Bank (set forth in Section 11 of Schedule A) that such items have
been credited to Lender's account at Lender's Bank (or upon Lender's deposit
thereof at Lender's Bank in the case of payments received by Lender in kind), in
each case subject to final payment and collection. However, for purposes of
computing interest on the Obligations, such items shall be deemed applied by
Lender three Business Days after Lender's receipt of advice of deposit thereof
at Lender's Bank.
Notification; Verification. Lender or its designee may, from time to
time, whether or not a Default or Event of Default has occurred: (i) verify
directly with the Account Debtors the validity, amount and other matters
relating to the Accounts and Chattel Paper, by means of mail, telephone or
otherwise, either in the name of Borrower or Lender or such other name as Lender
may choose; (ii) notify Account Debtors that Lender has a security interest in
the Accounts and that payment thereof is to be made directly to Lender; and
(iii) demand, collect or enforce payment of any Accounts and Chattel Paper (but
without any duty to do so).
Power of Attorney. Borrower hereby grants to Lender an irrevocable power
of attorney, coupled with an interest, authorizing and permitting Lender (acting
through any of its officers, employees, attorneys or agents), at any time
(whether or not a Default or Event of Default has occurred and is continuing,
except as expressly provided below), at Lender's option, but without obligation,
with or without notice to Borrower, and at Borrower's expense, to do any or all
of the following, in Borrower's name or otherwise: (i) execute on behalf of
Borrower any documents that Lender may, in its sole discretion, deem advisable
in order to perfect and maintain Lender's security interests in the Collateral,
to exercise a right of Borrower or Lender, or to fully consummate all the
transactions contemplated by this Agreement and the other Loan Documents
(including such financing statements and continuation financing statements, and
amendments thereto, as Lender shall deem necessary or appropriate) and to file
as a financing statement any copy of this Agreement or any financing statement
signed by Borrower; (ii) execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose of
or lease (as lessor or lessee) any real or personal property which is part of
the Collateral or in which Lender has an interest; (iii) execute on behalf of
Borrower any invoices relating to any Accounts, any draft against any Account
Debtor, any proof of claim in bankruptcy, any notice of Lien or claim, and any
assignment or satisfaction of mechanic's, materialman's or other Lien; (iv)
execute on behalf of Borrower any notice to any Account Debtor; (v) receive and
otherwise take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; (vi) endorse Borrower's name on all checks and other
forms of remittances received by Lender; (vii) pay, contest or settle any Lien,
charge, encumbrance, security interest and adverse claim in or to any of the
Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; (viii) after the occurrence of a Default or
Event of Default, grant extensions of time to pay, compromise claims relating
to, and settle Accounts, Chattel Paper and General Intangibles for less than
face value and execute all releases and other documents in connection therewith;
(ix) pay any sums required on account of Borrower's taxes or to secure the
release of any Liens therefor; (x) pay any amounts necessary to obtain, or
maintain in effect, any of the insurance described in Section 5.12; (xi) settle
and adjust, and give releases of, any insurance claim that relates to any of the
Collateral and obtain payment therefor; (xii) instruct any third party having
custody or control of any Collateral or books or records belonging to, or
relating to, Borrower to give Lender the same rights of access and other rights
with respect thereto as Lender has under this Agreement; and (xiii) after the
occurrence of a Default or Event of Default, change the address for delivery of
Borrower's mail and receive and open all mail addressed to Borrower. Any and all
sums paid, and any and all costs, expenses, liabilities, obligations and
reasonable attorneys' fees incurred, by Lender with respect to the foregoing
shall be added to and become part of the Obligations, shall be payable on
demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations. Borrower agrees that Lender's rights under
the foregoing power of attorney or any of Lender's other rights under this
Agreement or the other Loan Documents shall not be construed to indicate that
Lender is in control of the business, management or properties of Borrower.
Lender shall use its best efforts to give Borrower concurrent notice of any
action taken by Lender pursuant to clauses (vii), (ix), (xi) and (xiii) above,
but shall not be liable to Borrower for its failure to do so.
Disputes. Borrower shall promptly notify Lender of all disputes or
claims relating to Accounts and Chattel Paper. Borrower will not, without
Lender's prior written consent, compromise or settle any Account or Chattel
Paper for less than the full amount thereof, grant any extension of time of
payment of any Account or Chattel Paper, release (in whole or in part) any
Account Debtor or other person liable for the payment of any Account or Chattel
Paper or grant any credits, discounts, allowances, deductions, return
authorizations or the like with respect to any Account or Chattel Paper; except
that prior to the occurrence of an Event of Default, Borrower may take any of
such actions in the ordinary course of its business, provided, that Borrower
promptly reports the same to Lender.
Invoices. At Lender's request, Borrower will cause all invoices and
statements which it sends to Account Debtors or other third parties to be
marked, in a manner satisfactory to Lender, to reflect Lender's security
interest therein.
Inventory.
Returns. Provided that no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower will promptly determine the reason for
such return and promptly issue a credit memorandum to the Account Debtor in the
appropriate amount (sending a copy to Lender). After the occurrence of an Event
of Default, Borrower will not accept any return without Lender's prior written
consent. Regardless of whether an Event of Default has occurred, Borrower will
(i) hold the returned Inventory in trust for Lender; (ii) segregate all returned
Inventory from all of Borrower's other property; (iii) conspicuously label the
returned Inventory as Lender's property; and (iv) immediately notify Lender of
the return of such Inventory, specifying the reason for such return, the
location and condition of the returned Inventory and, at Lender's request,
deliver such returned Inventory to Lender at an address specified by Lender.
Other Covenants. Borrower will not, without Lender's prior
written consent, (i) store any Inventory with any warehouseman or other third
party other than as set forth in Section 9(d) of Schedule A or (ii) sell any
Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent
basis. All of the Inventory produced by Borrower has been produced only in
accordance with the Fair Labor Standards Act of 1938 and all rules, regulations
and orders promulgated thereunder.
Access to Collateral, Books and Records. At reasonable times, and on one
Business Day's notice, prior to the occurrence of a Default or an Event of
Default, and at any time and with or without notice after the occurrence of a
Default or an Event of Default, Lender or its agents shall have the right to
inspect the Collateral, and the right to examine and copy Borrower's books and
records. Lender shall take reasonable steps to keep confidential all information
obtained in any such inspection or examination, but Lender shall have the right
to disclose any such information to its auditors, regulatory agencies, attorneys
and participants, and pursuant to any subpoena or other legal process. Borrower
agrees to give Lender access to any or all of Borrower's premises to enable
Lender to conduct such inspections and examinations. Such inspections and
examinations shall be at Borrower's expense and the charge therefor shall be
$650 per person per day (or such higher amount as shall represent Lender's then
current standard charge), plus reasonable out-of-pocket expenses. Lender may, at
Borrower's expense, use Borrower's personnel, computer and other equipment,
programs, printed output and computer readable media, supplies and premises for
the collection, sale or other disposition of Collateral to the extent Lender, in
its sole discretion, deems appropriate. Borrower hereby irrevocably authorizes
all accountants and third parties to disclose and deliver to Lender, at
Borrower's expense, all financial information, books and records, work papers,
management reports and other information in their possession regarding Borrower.
Borrower will not enter into any agreement with any accounting firm, service
bureau or third party to store Borrower's books or records at any location other
than Borrower's Address without first obtaining Lender's written consent (which
consent may be conditioned upon such accounting firm, service bureau or other
third party agreeing to give Lender the same rights with respect to access to
books and records and related rights as Lender has under this Agreement).
REPRESENTATIONS, WARRANTIES AND COVENANTS.
To induce Lender to enter into this Agreement, Borrower represents,
warrants and covenants as follows (it being understood that (i) each such
representation and warranty will be deemed remade as of the date on which each
Loan is made and each Credit Accommodation is provided and shall not be affected
by any knowledge of, or any investigation by, Lender, and (ii) the accuracy of
each such representation, warranty and covenant will be a condition to each Loan
and Credit Accommodation):
Existence and Authority. Borrower is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
formation. Borrower is qualified and licensed to do business in all
jurisdictions in which any failure to do so would have a material adverse effect
on Borrower. The execution, delivery and performance by Borrower of this
Agreement and all of the other Loan Documents have been duly and validly
authorized, do not violate Borrower's articles or certificate of incorporation,
by-laws or other organizational documents, or any law or any agreement or
instrument or any court order which is binding upon Borrower or its property, do
not constitute grounds for acceleration of any indebtedness or obligation under
any agreement or instrument which is binding upon Borrower or its property, and
do not require the consent of any Person. This Agreement and such other Loan
Documents have been duly executed and delivered by, and are enforceable against,
Borrower, and all other Obligors who have signed them, in accordance with their
respective terms. Sections 9(g) and 9(h) of Schedule A set forth the ownership
of Borrower and the names and ownership of Borrower's Subsidiaries as of the
date of this Agreement.
Name; Trade Names and Styles. The name of Borrower set forth in the
heading to this Agreement is its correct and complete legal name as of the date
hereof. Listed in Sections 9(a), 9(b) and 9(c) of Schedule A are all prior names
of Borrower and all of Borrower's present and prior trade names. Borrower shall
give Lender at least 30 days' prior written notice before changing its name or
doing business under any other name. Borrower has complied with all laws
relating to the conduct of business under a fictitious business name. Borrower
represents and warrants that (i) each trade name does not refer to another
corporation or other legal entity; (ii) all Accounts invoiced under any such
trade names are owned exclusively by Borrower and are subject to the security
interest of Lender and the other terms of this Agreement and (iii) all schedules
of Accounts, including any sales made or services rendered using any trade name
shall show Borrower's name as assignor.
Title to Collateral; Permitted Liens. Borrower has good and marketable
title to the Collateral. The Collateral now is and will remain free and clear of
any and all liens, charges, security interests, encumbrances and adverse claims,
except for Permitted Liens. Lender now has, and will continue to have, a
first-priority perfected and enforceable security interest in all of the
Collateral, subject only to the Permitted Liens, and Borrower will at all times
defend Lender and the Collateral against all claims of others. None of the
Collateral which is Equipment is or will be affixed to any real property in such
a manner, or with such intent, as to become a fixture. Except for leases or
subleases as to which Borrower has delivered to Lender a landlord's waiver in
form and substance satisfactory to Lender, Borrower is not a lessee or sublessee
under any real property lease or sublease pursuant to which the lessor or
sublessor may obtain any rights in any of the Collateral, and no such lease or
sublease now prohibits, restrains, impairs or conditions, or will prohibit,
restrain, impair or condition, Borrower's right to remove any Collateral from
the premises. Whenever any Collateral is located upon premises in which any
third party has an interest (whether as owner, mortgagee, beneficiary under a
deed of trust, lien or otherwise), Borrower shall, whenever requested by Lender,
cause each such third party to execute and deliver to Lender, in form acceptable
to Lender, such waivers and subordinations as Lender shall specify, so as to
ensure that Lender's rights in the Collateral are, and will continue to be,
superior to the rights of any such third party. Borrower will keep in full force
and effect, and will comply with all the terms of, any lease of real property
where any of the Collateral now or in the future may be located.
Accounts and Chattel Paper. As of each date reported by Borrower, all
Accounts which Borrower has reported to Lender as being Eligible Accounts comply
in all respects with the criteria for eligibility established by Lender and in
effect at such time. All Accounts and Chattel Paper are genuine and in all
respects what they purport to be, arise out of a completed, bona fide and
unconditional and non-contingent sale and delivery of goods or rendition of
services by Borrower in the ordinary course of its business and in accordance
with the terms and conditions of all purchase orders, contracts or other
documents relating thereto, each Account Debtor thereunder had the capacity to
contract at the time any contract or other document giving rise to such Accounts
and Chattel Paper were executed, and the transactions giving rise to such
Accounts and Chattel Paper comply with all applicable laws and governmental
rules and regulations.
Investment Property. Borrower will take any and all actions required or
requested by Lender, from time to time, to (i) cause Lender to obtain exclusive
control of any Investment Property in a manner acceptable to Lender and (ii)
obtain from any issuers of Investment Property and such other Persons as Lender
shall specify, for the benefit of Lender, written confirmation of Lender's
exclusive control over such Investment Property and take such other actions as
Lender may request to perfect Lender's security interest in such Investment
Property. For purposes of this Section 5.5, Lender shall have exclusive control
of Investment Property if (A) such Investment Property consists of certificated
securities and Borrower delivers such certificated securities to Lender (with
appropriate endorsements if such certificated securities are in registered
form); (B) such Investment Property consists of uncertificated securities and
either (x) Borrower delivers such uncertificated securities to Lender or (y) the
issuer thereof agrees, pursuant to documentation in form and substance
satisfactory to Lender, that it will comply with instructions originated by
Lender without further consent by Borrower, and (C) such Investment Property
consists of security entitlements and either (x) Lender becomes the entitlement
holder thereof or (y) the appropriate securities intermediary agrees, pursuant
to documentation in form and substance satisfactory to Lender, that it will
comply with entitlement orders originated by Lender without further consent by
Borrower.
Place of Business; Location of Collateral. Borrower's Address is
Borrower's chief executive office and the location of its books and records. In
addition, except as provided in the immediately following sentence, Borrower has
places of business and Collateral located only at the locations set forth on
Sections 9(d) and 9(e) of Schedule A. Borrower will give Lender at least 30
days' prior written notice before opening any additional place of business,
changing its chief executive office or the location of its books and records, or
moving any of the Collateral to a location other than Borrower's Address or one
of the locations set forth in Sections 9(d) and 9(e) of Schedule A, and will
execute and deliver all financing statements and other agreements, instruments
and documents which Lender shall require as a result thereof.
Financial Condition, Statements and Reports. All financial statements
delivered to Lender by or on behalf of Borrower have been prepared in conformity
with GAAP and completely and fairly reflect the financial condition of Borrower,
at the times and for the periods therein stated. Between the last date covered
by any such financial statement provided to Lender and the date hereof (or, with
respect to the remaking of this representation in connection with the making of
any Loan or the providing of any Credit Accommodation, the date such Loan is
made or such Credit Accommodation is provided), there has been no material
adverse change in the financial condition or business of Borrower. Borrower is
solvent and able to pay its debts as they come due, and has sufficient capital
to carry on its business as now conducted and as proposed to be conducted. All
schedules, reports and other information and documentation delivered by Borrower
to Lender with respect to the Collateral are, or will be, when delivered, true,
correct and complete as of the date delivered or the date specified therein.
Tax Returns and Payments; Pension Contributions. Borrower has timely
filed all tax returns and reports required by applicable law, has timely paid
all applicable taxes, assessments, deposits and contributions owing by Borrower
and will timely pay all such items in the future as they became due and payable.
Borrower may, however, defer payment of any contested taxes; provided, that
Borrower (i) in good faith contests Borrower's obligation to pay such taxes by
appropriate proceedings promptly and diligently instituted and conducted; (ii)
notifies Lender in writing of the commencement of, and any material development
in, the proceedings; (iii) posts bonds or takes any other steps required to keep
the contested taxes from becoming a Lien upon any of the Collateral and (iv)
maintains adequate reserves therefor in conformity with GAAP. Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay, all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not withdrawn from
participation in, permitted partial or complete termination of, or permitted the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or any other governmental agency.
Compliance with Laws. Borrower has complied in all material respects
with all provisions of all applicable laws and regulations, including those
relating to Borrower's ownership of real or personal property, the conduct and
licensing of Borrower's business, the payment and withholding of taxes, ERISA
and other employee matters, safety and environmental matters.
Litigation. Section 9(f) of Schedule A discloses all claims,
proceedings, litigation or investigations pending or (to the best of Borrower's
knowledge) threatened against Borrower. There is no claim, suit, litigation,
proceeding or investigation pending or (to the best of Borrower's knowledge)
threatened by or against or affecting Borrower in any court or before any
governmental agency (or any basis therefor known to Borrower) which may result,
either separately or in the aggregate, in any material adverse change in the
financial condition or business of Borrower, or in any material impairment in
the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Lender in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower.
Use of Proceeds. All proceeds of all Loans will be used solely for
lawful business purposes.
Insurance. Borrower will at all times carry property, liability and
other insurance, with insurers reasonably acceptable to Lender, in such form and
amounts, and with such deductibles and other provisions, as Lender shall
require, and Borrower will provide evidence of such insurance to Lender, so that
Lender is satisfied that such insurance is, at all times, in full force and
effect. Each property insurance policy shall name Lender as loss payee and shall
contain a lender's loss payable endorsement in form acceptable to Lender, each
liability insurance policy shall name Lender as an additional insured, and each
business interruption insurance policy shall be collaterally assigned to Lender,
all in form and substance satisfactory to Lender. All policies of insurance
shall provide that they may not be cancelled or changed without at least thirty
days' prior written notice to Lender, shall contain breach of warranty coverage,
and shall otherwise be in form and substance satisfactory to Lender. Upon
receipt of the proceeds of any such insurance, Lender shall apply such proceeds
in reduction of the Obligations as Lender shall determine in its sole
discretion. Borrower will promptly deliver to Lender copies of all reports made
to insurance companies.
Financial and Collateral Reports. Borrower has kept and will keep
adequate records and books of account with respect to its business activities
and the Collateral in which proper entries are made in accordance with GAAP
reflecting all its financial transactions, and will cause to be prepared and
furnished to Lender the following (all to be prepared in accordance with GAAP,
unless Borrower's certified public accountants concur in any change therein and
such change is disclosed to Lender):
Collateral Reports. On or before the fifteenth day of each month,
an aging of Borrower's Accounts, Chattel Paper and notes receivable, and weekly
Inventory reports, all in such form, and together with such additional
certificates, schedules and other information with respect to the Collateral or
the business of Borrower or any Obligor, as Lender shall request; provided, that
Borrower's failure to execute and deliver the same shall not affect or limit
Lender's security interests and other rights in any of the Accounts, nor shall
Lender's failure to advance or lend against a specific Account affect or limit
Lender's security interest and other rights therein. Together with each such
schedule, Borrower shall furnish Lender with copies (or, at Lender's request,
originals) of all contracts, orders, invoices, and other similar documents, and
all original shipping instructions, delivery receipts, bills of lading, and
other evidence of delivery, for any goods the sale or disposition of which gave
rise to such Accounts, and Borrower warrants the genuineness of all of the
foregoing. In addition, Borrower shall deliver to Lender the originals of all
Instruments, Chattel Paper, security agreements, guaranties and other documents
and property evidencing or securing any Accounts, immediately upon receipt
thereof and in the same form as received, with all necessary endorsements.
Lender may destroy or otherwise dispose of all documents, schedules and other
papers delivered to Lender pursuant to this Agreement (other than originals of
Instruments, Chattel Paper, security agreements, guaranties and other documents
and property evidencing or securing any Accounts) six months after Lender
receives them, unless Borrower requests their return in writing in advance and
arranges for their return to Borrower at Borrower's expense.
Annual Statements. Not later than 105 days after the close of
each fiscal year of Borrower, unqualified (except for a qualification for a
change in accounting principles with which the accountant concurs) audited
financial statements of Borrower and its Subsidiaries as of the end of such
year, on a consolidated and consolidating basis, certified by a firm of
independent certified public accountants of recognized standing selected by
Borrower but acceptable to Lender, together with a copy of any management letter
issued in connection therewith and a letter from such accountants acknowledging
that Lender is relying on such financial statements; provided, that such letter
may be delivered to Lender no later than (i) two Business Days after it is
delivered to Borrower by its accountants, and (ii) sixty days after Borrower
receives such audited financial statements from its accountants;
Interim Statements. Not later than twenty days after the end of
each month hereafter (or thirty days in the case of the interim financial
statement for September) unaudited interim financial statements of Borrower and
its Subsidiaries as of the end of such month and of the portion of Borrower's
fiscal year then elapsed, on a consolidated and consolidating basis, certified
by the principal financial officer of Borrower as prepared in accordance with
GAAP and fairly presenting the consolidated financial position and results of
operations of Borrower and its Subsidiaries for such month and period subject
only to changes from audit and year-end adjustments and except that such
statements need not contain notes;
Projections, Etc. Such business projections, Availability projections,
business plans, budgets and cash flow statements for Borrower and its
Subsidiaries as Lender shall request from time to time;
Shareholder Reports, Etc. Promptly after the sending or filing
thereof, as the case may be, copies of any proxy statements, financial
statements or reports which Borrower has made available to its shareholders and
copies of any regular, periodic and special reports or registration statements
which Borrower files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or any national
securities exchange;
ERISA Reports. Upon request by Lender, copies of any annual
report to be filed pursuant to the requirements of ERISA in connection with each
plan subject thereto; and
Other Information. Such other data and information (financial and
otherwise) as Lender, from time to time, may reasonably request, bearing upon or
related to the Collateral or Borrower's and each of its Subsidiary's financial
condition or results of operations.
Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Lender with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Lender, make available
Borrower and its officers, employees and agents, and Borrower's books and
records, without charge, to the extent that Lender may deem them reasonably
necessary in order to prosecute or defend any such suit or proceeding.
Maintenance of Collateral, Etc. Borrower will maintain all of its
Equipment in good working condition, ordinary wear and tear excepted, and
Borrower will not use the Collateral for any unlawful purpose. Borrower will
immediately advise Lender in writing of any material loss or damage to the
Collateral and of any investigation, action, suit, proceeding or claim relating
to the Collateral or which may result in an adverse impact upon Borrower's
business, assets or financial condition.
Notification of Changes. Borrower will promptly notify Lender in writing
of any change in its officers or directors, the opening of any new bank account
or other deposit account, or any material adverse change in the business or
financial affairs of Borrower or the existence of any circumstance which would
make any representation or warranty of Borrower untrue in any material respect
or constitute a material breach of any covenant of Borrower.
Further Assurances. Borrower agrees, at its expense, to take all
actions, and execute or cause to be executed and delivered to Lender all
promissory notes, security agreements, agreements with landlords, mortgagees and
processors and other bailees, subordination and intercreditor agreements and
other agreements, instruments and documents as Lender may request from time to
time, to perfect and maintain Lender's security interests in the Collateral and
to fully effectuate the transactions contemplated by this Agreement.
Negative Covenants. Except as set forth in Section 13 of Schedule A,
Borrower will not, without Lender's prior written consent, (i) merge or
consolidate with another Person, form any new Subsidiary or acquire any interest
in any Person; (ii) acquire any assets except in the ordinary course of business
and as otherwise permitted by this Agreement and the other Loan Documents; (iii)
enter into any transaction outside the ordinary course of business; (iv) sell or
transfer any Collateral or other assets, except that Borrower may sell finished
goods Inventory and obsolete Inventory in the ordinary course of its business;
(v) make any loans to, or investments in, any Affiliate or other Person in the
form of money or other assets; (vi) incur any debt outside the ordinary course
of business; (vii) guaranty or otherwise become liable with respect to the
obligations of another party or entity; (viii) pay or declare any dividends or
other distributions on Borrower's stock, if Borrower is a corporation (except
for dividends payable solely in capital stock of Borrower) or with respect to
any equity interests, if Borrower is not a corporation; (ix) redeem, retire,
purchase or otherwise acquire, directly or indirectly, any of Borrower's capital
stock or other equity interests; (x) make any change in Borrower's capital
structure; (xi) dissolve or elect to dissolve; (xii) pay any principal or
interest on any indebtedness owing to an Affiliate, (xiii) enter into any
transaction with an Affiliate other than on arms-length terms; or (xiv) agree to
do any of the foregoing.
Financial Covenants.
Capital Expenditures. Borrower will not expend or commit to
expend, directly or indirectly, for capital expenditures (including capital
lease obligations) in excess of the amount set forth in Section 8(a) of Schedule
A as the Capital Expenditure Limitation in any fiscal year.
Net Worth. Borrower will at all times maintain a net worth
of at least the amount set forth in Section 8(b) of Schedule A.
Tangible Net Worth. Borrower will at all times maintain a
minimum tangible net worth of at least the amount set forth in Section 8(c)
of Schedule A.
Working Capital. Borrower will at all times maintain working
capital of at least the amount set forth in Section 8(d) of Schedule A.
Net Losses. Borrower will not permit its cumulative net
loss to exceed the amount set forth in Section 8(e) of Schedule A.
Net Income. Borrower will not permit its cumulative net
income to be less than the amount set forth in Section 8(f) of Schedule A.
Leverage. Borrower will not permit the ratio of its total
liabilities to its net worth to exceed, at any time, the ratio set forth in
Section 8(g) of Schedule A.
Other Financial Covenants. Borrower will comply with any
additional financial covenants set forth in Section 8(j) of Schedule A.
RELEASE AND INDEMNITY.
Release. Borrower hereby releases Lender and its Affiliates and their
respective directors, officers, employees, attorneys and agents and any other
Person affiliated with or representing Lender (the "Released Parties") from any
and all liability arising from acts or omissions under or pursuant to this
Agreement, whether based on errors of judgment or mistake of law or fact, except
for those arising from willful misconduct or gross negligence. However, in no
circumstance will any of the Released Parties be liable for lost profits or
other special or consequential damages. Such release is made on the date hereof
and remade upon each request for a Loan or Credit Accommodation by Borrower.
Without limiting the foregoing:
Lender shall not be liable for (i) any shortage or discrepancy
in, damage to, or loss or destruction of, any goods, the sale or other
disposition of which gave rise to an Account; (ii) any error, act, omission, or
delay of any kind occurring in the settlement, failure to settle, collection or
failure to collect any Account; (iii) settling any Account in good faith for
less than the full amount thereof; or (iv) any of Borrower's obligations under
any contract or agreement giving rise to an Account; and
In connection with Credit Accommodations or any underlying
transaction, Lender shall not be responsible for the conformity of any goods to
the documents presented, the validity or genuineness of any documents, delay,
default or fraud by Borrower, shippers and/or any other Person. Borrower agrees
that any action taken by Lender, if taken in good faith, or any action taken by
an issuer of any Credit Accommodation, under or in connection with any Credit
Accommodation, shall be binding on Borrower and shall not create any resulting
liability to Lender. In furtherance thereof, Lender shall have the full right
and authority to clear and resolve any questions of non-compliance of documents,
to give any instructions as to acceptance or rejection of any documents or
goods, to execute for Borrower's account any and all applications for steamship
or airway guaranties, indemnities or delivery orders, to grant any extensions of
the maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents, and to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the Credit Accommodations or applications and other documentation pertaining
thereto.
Indemnity. Borrower hereby agrees to indemnify the Released Parties and
hold them harmless from and against any and all claims, debts, liabilities,
demands, obligations, actions, causes of action, penalties, costs and expenses
(including attorneys' fees), of every nature, character and description, which
the Released Parties may sustain or incur based upon or arising out of any of
the transactions contemplated by this Agreement or the other Loan Documents or
any of the Obligations, including any transactions or occurrences relating to
the issuance of any Credit Accommodation, the Collateral relating thereto, any
drafts thereunder and any errors or omissions relating thereto (including any
loss or claim due to any action or inaction taken by the issuer of any Credit
Accommodation) (and for this purpose any charges to Lender by any issuer of
Credit Accommodations shall be conclusive as to their appropriateness and may be
charged to the Loan Account), or any other matter, cause or thing whatsoever
occurred, done, omitted or suffered to be done by Lender relating to Borrower or
the Obligations (except any such amounts sustained or incurred as the result of
the willful misconduct or gross negligence of the Released Parties).
Notwithstanding any provision in this Agreement to the contrary, the indemnity
agreement set forth in this Section shall survive any termination of this
Agreement.
TERM.
Maturity Date. Lender's obligation to make Loans and to provide Credit
Accommodations under this Agreement shall initially continue in effect until the
Initial Maturity Date set forth in Section 7 of Schedule A (the "Initial Term");
provided, that such date shall automatically be extended (the Initial Maturity
Date, as it may be so extended, being referred to as the "Maturity Date") for
successive additional terms of three years each (each a "Renewal Term"), unless
one party gives written notice to the other, not less than sixty days prior to
the Maturity Date, that such party elects not to extend the Maturity Date. This
Agreement and the other Loan Documents and Lender's security interests in and
Liens upon the Collateral, and all representations, warranties and covenants of
Borrower contained herein and therein, shall remain in full force and effect
after the Maturity Date until all of the monetary Obligations are indefeasibly
paid in full.
Early Termination. Lender's obligation to make Loans and to provide
Credit Accommodations under this Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective thirty business days after
written notice of termination is given to Lender or (ii) by Lender at any time
after the occurrence of an Event of Default, without notice, effective
immediately; provided, that if any Affiliate of Borrower is also a party to a
financing arrangement with Lender, no such early termination by Borrower shall
be effective unless such Affiliate simultaneously terminates its financing
arrangement with Lender. If so terminated under this Section 7.2, Borrower shall
pay to Lender (i) an early termination fee (the "Early Termination Fee") in the
amount set forth in Section 6(h) of Schedule A plus (ii) any earned but unpaid
Facility Fee. Such fee shall be due and payable on the effective date of
termination and thereafter shall bear interest at a rate equal to the highest
rate applicable to any of the Obligations. In addition, if Borrower so
terminates and repays the Obligations without having provided Lender with at
least thirty days' prior written notice thereof, an additional amount equal to
thirty days of interest at the applicable Interest Rate(s), based on the average
outstanding amount of the Obligations for the six month period immediately
preceding the date of termination.
Payment of Obligations. On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay in full all Obligations, whether or not
all or any part of such Obligations are otherwise then due and payable. Without
limiting the generality of the foregoing, if, on the Maturity Date or on any
earlier effective date of termination, there are any outstanding Credit
Accommodations, then on such date Borrower shall provide to Lender cash
collateral in an amount equal to 110% of the Credit Accommodation Balance to
secure all of the Obligations (including estimated attorneys' fees and other
expenses) relating to said Credit Accommodations or such greater percentage or
amount as Lender reasonably deems appropriate, pursuant to a cash pledge
agreement in form and substance satisfactory to Lender.
Effect of Termination. No termination shall affect or impair any right
or remedy of Lender or relieve Borrower of any of the Obligations until all of
the monetary Obligations have been indefeasibly paid in full. Upon indefeasible
payment and performance in full of all of the monetary Obligations (and the
provision of cash collateral with respect to any Credit Accommodation Balance as
required by Section 7.3) and termination of this Agreement, Lender shall
promptly deliver to Borrower termination statements, requests for reconveyances
and such other documents as may be reasonably required to terminate Lender's
security interests in the Collateral.
EVENTS OF DEFAULT AND REMEDIES.
Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Lender immediate written notice thereof: (i) if any warranty, representation,
statement, report or certificate made or delivered to Lender by Borrower or any
of Borrower's officers, employees or agents is untrue or misleading; (ii) if
Borrower fails to pay when due any principal or interest on any Loan or any
other monetary Obligation; (iii) if Borrower breaches any covenant or obligation
contained in this Agreement or any other Loan Document or fails to perform any
other non-monetary Obligation and such breach or failure continues for five days
after Notice to Borrower; (iv) if any levy, assessment, attachment, seizure,
lien or encumbrance (other than a Permitted Lien) is made or permitted to exist
on all or any part of the Collateral; (v) if one or more judgments aggregating
in excess of $50,000, or any injunction or attachment, is obtained against
Borrower or any Obligor or which remains unstayed for more than ten days or is
enforced; (vi) the occurrence of any default under any financing agreement,
security agreement or other agreement, instrument or document executed and
delivered by (A) Borrower with, or in favor of, any Person other than Lender or
(B) Borrower or any Affiliate of Borrower with, or in favor of, Lender or any
Affiliate of Lender; (vii) the dissolution, death, termination of existence in
good standing, insolvency or business failure or suspension or cessation of
business as usual of Borrower or any Obligor (or of any general partner of
Borrower or any Obligor if it is a partnership) or the appointment of a
receiver, trustee or custodian for all or any part of the property of, or an
assignment for the benefit of creditors by Borrower or any Obligor, or the
commencement of any proceeding by Borrower or any Obligor under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, or if Borrower makes or sends a notice of a bulk transfer or
calls a meeting of its creditors; (viii) the commencement of any proceeding
against Borrower or any Obligor under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; (ix) the actual or
attempted revocation or termination of, or limitation or denial of liability
upon, any guaranty of the Obligations, or any security document securing the
Obligations, by any Obligor; (x) if Borrower makes any payment on account of any
indebtedness or obligation which has been subordinated to the Obligations other
than as permitted in the applicable subordination agreement, or if any Person
who has subordinated such indebtedness or obligations attempts to limit or
terminate its subordination agreement; (xi) if there is any actual or threatened
indictment of Borrower or any Obligor under any criminal statute or commencement
or threatened commencement of criminal or civil proceedings against Borrower or
any Obligor, pursuant to which the potential penalties or remedies sought or
available include forfeiture of any property of Borrower or such Obligor; (xii)
if TST ceases to own all of the outstanding capital stock of each of Borrower,
TS Instrument, ARCS and TS Oil; (xiii) if there is any change in the chief
executive officer or chief operating officer of Borrower which Lender fails to
approve in the exercise of Lender's reasonable discretion; (xiv) if an Event of
Default occurs under any Loan and Security Agreement between Lender and an
Affiliate of Borrower; or (xv) if Lender determines in good faith that the
Collateral is insufficient to fully secure the Obligations or that the prospect
of payment of performance of the Obligations is impaired.
Remedies. Upon the occurrence of any Default, and at any time
thereafter, Lender, at its option, may cease making Loans or otherwise extending
credit to Borrower under this Agreement or any other Loan Document. Upon the
occurrence of any Event of Default, and at any time thereafter, Lender, at its
option, and without notice or demand of any kind (all of which are hereby
expressly waived by Borrower), may do any one or more of the following: (i)
cease making Loans or otherwise extending credit to Borrower under this
Agreement or any other Loan Document; (ii) accelerate and declare all or any
part of the Obligations to be immediately due, payable and performable,
notwithstanding any deferred or installment payments allowed by any instrument
evidencing or relating to any of the Obligations; (iii) take possession of any
or all of the Collateral wherever it may be found, and for that purpose Borrower
hereby authorizes Lender, without judicial process, to enter onto any of
Borrower's premises without interference to search for, take possession of,
keep, store, or remove any of the Collateral, and remain (or cause a custodian
to remain) on the premises in exclusive control thereof, without charge for so
long as Lender deems it reasonably necessary in order to complete the
enforcement of its rights under this Agreement or any other agreement; provided,
that if Lender seeks to take possession of any of the Collateral by court
process, Borrower hereby irrevocably waives (A) any bond and any surety or
security relating thereto required by law as an incident to such possession, (B)
any demand for possession prior to the commencement of any suit or action to
recover possession thereof and (C) any requirement that Lender retain possession
of, and not dispose of, any such Collateral until after trial or final judgment;
(iv) require Borrower to assemble any or all of the Collateral and make it
available to Lender at one or more places designated by Lender which are
reasonably convenient to Lender and Borrower, and to remove the Collateral to
such locations as Lender may deem advisable; (v) complete the processing,
manufacturing or repair of any Collateral prior to a disposition thereof and,
for such purpose and for the purpose of removal, Lender shall have the right to
use Borrower's premises, vehicles and other Equipment and all other property
without charge; (vi) sell, lease or otherwise dispose of any of the Collateral,
in its condition at the time Lender obtains possession of it or after further
manufacturing, processing or repair, at one or more public or private sales, in
lots or in bulk, for cash, exchange or other property, or on credit (a "Sale"),
and to adjourn any such Sale from time to time without notice other than oral
announcement at the time scheduled for Sale (and, in connection therewith, (A)
Lender shall have the right to conduct such Sale on Borrower's premises without
charge, for such times as Lender deems reasonable, on Lender's premises, or
elsewhere, and the Collateral need not be located at the place of Sale; (B)
Lender may directly or through any of its Affiliates purchase or lease any of
the Collateral at any such public disposition, and if permissible under
applicable law, at any private disposition and (C) any Sale of Collateral shall
not relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title, physical condition or otherwise at the time of sale);
(vii) demand payment of and collect any Accounts, Chattel Paper, Instruments and
General Intangibles included in the Collateral and, in connection therewith,
Borrower irrevocably authorizes Lender to endorse or sign Borrower's name on all
collections, receipts, Instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of Collateral or proceeds thereof and, in Lender's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Accounts, General Intangibles and the like for less than face value; and (viii)
demand and receive possession of any of Borrower's federal and state income tax
returns and the books and records utilized in the preparation thereof or
relating thereto. In addition to the foregoing remedies, upon the occurrence of
any Event of Default resulting from a breach of any of the financial covenants
set forth in Section 5.19, Lender may, at its option, upon not less than ten
days' prior notice to Borrower, reduce any or all of the Advance Rates set forth
in Section 1(b) of Schedule A to the extent Lender, in its sole discretion,
deems appropriate. In addition to the rights and remedies set forth above,
Lender shall have all the other rights and remedies accorded a secured party
after default under the UCC and under all other applicable laws, and under any
other Loan Document, and all of such rights and remedies are cumulative and
non-exclusive. Exercise or partial exercise by Lender of one or more of its
rights or remedies shall not be deemed an election or bar Lender from subsequent
exercise or partial exercise of any other rights or remedies. The failure or
delay of Lender to exercise any rights or remedies shall not operate as a waiver
thereof, but all rights and remedies shall continue in full force and effect
until all of the Obligations have been fully paid and performed. If notice of
any sale or other disposition of Collateral is required by law, notice at least
seven days prior to the sale designating the time and place of sale in the case
of a public sale or the time after which any private sale or other disposition
is to be made shall be deemed to be reasonable notice, and Borrower waives any
other notice. If any Collateral is sold or leased by Lender on credit terms or
for future delivery, the Obligations shall not be reduced as a result thereof
until payment is collected by Lender.
Application of Proceeds. Subject to any application required by law, all
proceeds realized as the result of any Sale shall be applied by Lender to the
Obligations in such order as Lender shall determine in its sole discretion. Any
surplus shall be paid to Borrower or other persons legally entitled thereto; but
Borrower shall remain liable to Lender for any deficiency. If Lender, in its
sole discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any Sale, Lender shall have the option,
exercisable at any time, in its sole discretion, of either reducing the
Obligations by the principal amount of the purchase price or deferring the
reduction of the Obligations until the actual receipt by Lender of the cash
therefor.
GENERAL PROVISIONS.
Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally, by reputable private delivery
service, by regular first-class mail or certified mail return receipt requested,
addressed to Lender or Borrower at the address shown in the heading to this
Agreement, or by facsimile to the facsimile number shown in Section 9(i) of
Schedule A, or at any other address (or to any other facsimile number)
designated in writing by one party to the other party in the manner prescribed
in this Section 9.1. All notices shall be deemed to have been given when
received or when delivery is refused by the recipient.
Severability. If any provision of this Agreement, or the application
thereof to any party or circumstance, is held to be void or unenforceable by any
court of competent jurisdiction, such defect shall not affect the remainder of
this Agreement, which shall continue in full force and effect.
Integration. This Agreement and the other Loan Documents represent the
final, entire and complete agreement between Borrower and Lender and supersede
all prior and contemporaneous negotiations, oral representations and agreements,
all of which are merged and integrated into this Agreement. THERE ARE NO ORAL
UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT
SET FORTH IN THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
Waivers. The failure of Lender at any time or times to require Borrower
to strictly comply with any of the provisions of this Agreement or any other
Loan Documents shall not waive or diminish any right of Lender later to demand
and receive strict compliance therewith. Any waiver of any default shall not
waive or affect any other default, whether prior or subsequent, and whether or
not similar. None of the provisions of this Agreement or any other Loan Document
shall be deemed to have been waived by any act or knowledge of Lender or its
agents or employees, but only by a specific written waiver signed by an
authorized officer of Lender and delivered to Borrower. Borrower waives demand,
protest, notice of protest and notice of default or dishonor, notice of payment
and nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, Instrument, Account, General Intangible, Document, Chattel
Paper, Investment Property or guaranty at any time held by Lender on which
Borrower is or may in any way be liable, and notice of any action taken by
Lender, unless expressly required by this Agreement, and notice of acceptance
hereof.
Amendment. The terms and provisions of this Agreement may not be
amended or modified except in a writing executed by Borrower and a duly
authorized officer of Lender.
Time of Essence. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement and the other Loan Documents.
Attorneys Fees and Costs. Borrower shall reimburse Lender for all
reasonable attorneys' and paralegals' fees (including in-house attorneys and
paralegals employed by Lender) and all filing, recording, search, title
insurance, appraisal, audit, and other costs incurred by Lender, pursuant to, in
connection with, or relating to this Agreement, including all reasonable
attorneys' fees and costs Lender incurs to prepare and negotiate this Agreement
and the other Loan Documents; to obtain legal advice in connection with this
Agreement and the other Loan Documents or Borrower or any Obligor; to administer
this Agreement and the other Loan Documents (including the cost of periodic
financing statement, tax lien and other searches conducted by Lender); to
enforce, or seek to enforce, any of its rights; prosecute actions against, or
defend actions by, Account Debtors; to commence, intervene in, or defend any
action or proceeding; to initiate any complaint to be relieved of the automatic
stay in bankruptcy; to file or prosecute any probate claim, bankruptcy claim,
third-party claim, or other claim; to examine, audit, copy, and inspect any of
the Collateral or any of Borrower's books and records; to protect, obtain
possession of, lease, dispose of, or otherwise enforce Lender's security
interests in, the Collateral; and to otherwise represent Lender in any
litigation relating to Borrower. If either Lender or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its reasonable costs and attorneys'
fees, including reasonable attorneys' fees and costs incurred in the enforcement
of, execution upon or defense of any order, decree, award or judgment. All
attorneys' fees and costs to which Lender may be entitled pursuant to this
Section shall immediately become part of the Obligations, shall be due on
demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations.
Benefit of Agreement; Assignability. The provisions of this Agreement
shall be binding upon and inure to the benefit of the respective successors,
assigns, heirs, beneficiaries and representatives of Borrower and Lender;
provided, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Lender, and any prohibited
assignment shall be void. No consent by Lender to any assignment shall release
Borrower from its liability for any of the Obligations. Lender shall have the
right to assign all or any of its rights and obligations under the Loan
Documents, and to sell participating interests therein, to one or more other
Persons, and Borrower agrees to execute all agreements, instruments and
documents requested by Lender in connection with each such assignment and
participation.
Headings; Construction. Section and subsection headings are used in this
Agreement only for convenience. Borrower and Lender acknowledge that the
headings may not describe completely the subject matter of the applicable
Sections or subsections, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Lender or Borrower under any rule of construction or
otherwise.
GOVERNING LAW; CONSENT TO FORUM, ETC. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED, AND SHALL BE DEEMED TO HAVE BEEN MADE, IN
NEW YORK, NEW YORK, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE AND
FEDERAL COURTS IN NEW YORK, NEW YORK OR THE STATE IN WHICH ANY OF THE COLLATERAL
IS LOCATED SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT, ANY
OTHER LOAN DOCUMENTS OR ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT
OR THE OTHER LOAN DOCUMENTS. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND
WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. BORROWER ALSO AGREES THAT
ANY CLAIM OR DISPUTE BROUGHT BY BORROWER AGAINST LENDER PURSUANT TO THIS
AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY MATTER ARISING OUT OF THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT SHALL BE BROUGHT EXCLUSIVELY IN THE STATE AND FEDERAL
COURTS OF NEW YORK. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE IN THE MANNER
AND SHALL BE DEEMED RECEIVED AS SET FORTH IN SECTION 9.1 FOR NOTICES, TO THE
EXTENT PERMITTED BY LAW. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER
OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE THE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
WAIVER OF JURY TRIAL, ETC. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY
JURY (WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM
OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE
OBLIGATIONS OR THE COLLATERAL OR ANY CONDUCT, ACTS OR OMISSIONS OF LENDER OR
BORROWER OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR
AGENTS OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE; (ii) THE RIGHT TO INTERPOSE ANY CLAIMS,
DEDUCTIONS, SETOFFS OR COUNTERCLAIMS OF ANY KIND IN ANY ACTION OR PROCEEDING
INSTITUTED BY LENDER WITH RESPECT TO THE LOAN DOCUMENTS OR ANY MATTER RELATING
THERETO, EXCEPT FOR COMPULSORY COUNTERCLAIMS; (iii) NOTICE PRIOR TO LENDER'S
TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH
MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF
LENDER'S REMEDIES AND (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND
EXEMPTION LAWS. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING
UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER
WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS
LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
IN WITNESS WHEREOF, Borrower and Lender have signed this Agreement as of
the date set forth in the heading.
Borrower: Lender:
TOP SOURCE AUTOMOTIVE, INC. NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By__________________________________
By___________________________________ Its Authorized Signatory
Its_____________________________
<PAGE>
A-9
Schedule A
Description of Certain Terms
This Schedule is an integral part of the Loan and Security Agreement
between TOP SOURCE AUTOMOTIVE, INC. and NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION (the "Agreement").
I. Loan Limits for Revolving Loans:
A. Maximum Facility Amount:
$ 5,000,000
B. Advance Rates:
1. Accounts
Advance Rate: 85 %; provided, that if the Dilution
Percentage exceeds 5 %, such advance rate will
be reduced by the number of full or partial
percentage points of such excess
2. Inventory
Advance Rate(s):
a) Finished
goods: 50 %
b) Raw
materials: 50 %
c) Work in
process: Not applicable
C. Accounts Sublimit: Not applicable
D. Inventory Sublimit(s):
1.Overall sublimit $1,500,000, minus the portion of the TS
on advances Instrument Loan Balance that is predicated
against Eligible on eligible inventory of TS Instrument.
Inventory
2. Sublimit on Not applicable
advances against
finished goods
3. Sublimit on Not applicable
advances against
raw materials
4. Sublimit on Not applicable
advances against
work in process
E. Credit Accommodation Not applicable
Limit:
F. Permanent Reserve Amount: Not applicable
G. Overadvance Amount: Not applicable
H. Maximum Combined $ 5,000,000 minus the TS Instrument
Facility Amount: Loan Balance at such time
II. Loan Limits for Term Loan:
A. Principal Amount:
1. Equipment Advance Not applicable
2. Real Property Not applicable
Advance:
B. Repayment Schedule:
1. Equipment Advance: Not applicable
2. Real Property Not applicable
Advance:
III. Interest Rates:
A. Revolving Loans: 1.50 % per annum in excess
of the Prime Rate
B. Term Loan: Not applicable
IV. Minimum Loan Amount: $2,500,000 in the aggregate for
Borrower and TS Instrument
V. Maximum Days:
A. Maximum days after
original invoice date for
Eligible Accounts:
90
B. Maximum days after
original invoice due date
for Eligible Accounts:
Not applicable
VI. Fees:
A. Closing Fee: $ 75,000, paid jointly and
severally by Borrower and TSI
B. Facility Fee:
1. Initial Term: $ 50,000, paid jointly and
severally by Borrower and TSI
(in 2 installments of $25,000)
2. Renewal
Term(s): $ 75,000, paid jointly and
severally by Borrower and
TSI (in 3 installments of
$25,000)
C. Servicing Fee: Not applicable
D. Unused Line Fee 0.25%
Percentage:
E. Minimum Borrowing Fee:
1. Applicable period: Each month
2. Date payable: The first day of each month
F. Success Fee: Not applicable
G. Warrants: As set forth in a
separate agreement of even date
herewith executed by TST
H. Early Termination Fee: 3.0 % of the Maximum Facility
Amount if terminated
during the first year of the
Term, 2.0 % of the Maximum
Facility Amount if terminated
thereafter and prior to
the Maturity Date, in each
case paid jointly and
severally by Borrower and TSI
I. Fees for letters of credit Not applicable
and other Credit
Accommodations (or guaranties
thereof by Lender):
VII. Initial Maturity Date: June 30, 2000
VIII. Financial Covenants:
A. Capital Expenditure
Limitation: Not Applicable
B. Minimum Net Worth
Requirement: Not Applicable
C. Minimum Tangible Net
Worth: Not Applicable
D. Minimum Working Capital:
Not Applicable
E. Maximum Cumulative $ 2,000,000, exclusive of
extraordinary gains and
Pre-tax Net Loss: extraordinary losses, for
TST and each of its
Subsidiaries on a
consolidated basis for
each of Borrower's fiscal
years
F. Minimum Cumulative Net Not Applicable
Income:
G. Maximum Leverage Ratio:
Not Applicable
H. Limitation on Purchase
Money Security Interests:
Not Applicable
I. Limitation on Equipment
Leases: Not Applicable
J. Additional Financial None
Covenants:
IX. Borrower Information:
A. Prior Names of Borrower: Top Source No. 2, Inc.
B. Prior Trade Names of None, other than
Borrower: existing trade names
C. Existing Trade Names of None
Borrower:
D. Inventory Locations: 1757 Larchwood
Troy, Michigan 48083
E. Other Locations: 7108 Fairway Drive,
Suite 200
Palm Beach Gdns, FL 33418
450 Park Avenue, Ste 2100
New York, New York 10022
3125 Presidential Parkway
Atlanta, Georgia 30340
F. Litigation: As described in the letter
of even date herewith
delivered to Lender
G. Ownership of Borrower: Wholly-owned by TST
H. Subsidiaries (and None
ownership thereof):
I. Facsimile Numbers:
Borrower: (561) 691-5220
Lender: (212) 597-1666
X. Description of Real Property: Not applicable
XI. Lender's Bank: The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
XII. Other Covenants: Not applicable
XIII. Exceptions to Negative
Covenants: i) Notwithstanding Section 5.18(i),
Borrower may purchase certificates
of deposit and other short-term
investments for the purpose of
temporarily investing its idle cash
in accordance with its customary
cash management practices
(ii) Notwithstanding Sections 5.18(v)
and 5.18(vii):
(A) Borrower may make loans to its
employees, provided, that the
aggregate outstanding balance of
such loans made by Borrower
and its corporate Affiliates
does not exceed $250,000 at any
time; and
(B) Borrower may make loans to its
corporate Affiliates, and guaranty
indebtedness of its corporate
Affiliates in the ordinary course
of business, provided, that (1) the
aggregate outstanding balance of
such loans and guaranties does not
exceed $3,000,000 at any time and
(2) after making each such loan
or giving each such guaranty,
Borrower has excess Availability
of at least $500,000. Lender shall
permit such $3,000,000 limit to be
increased from time to time at the
request of Borrower so long as the
new limit does not exceed
Borrower's solvency net worth
(as determined by Lender in its
sole discretion) minus $1,000,000,
subject to such additional excess
Availability requirements as Lender
shall establish, and Lender may
reduce such $3,000,000 limit(or any
permitted increase thereof) from
time to time if and to the extent,
in Lender sole discretion, such
limit exceeds Borrower's solvency
net worth (as determined by Lender
in its sole discretion) minus
$1,000,000.
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule A as
of the date set forth in the heading to the Agreement.
Borrower: Lender:
TOP SOURCE AUTOMOTIVE, INC. NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By______________________________
By___________________________ Its Authorized Signatory
Its_____________________
<PAGE>
B-8
Schedule B
Definitions
This Schedule is an integral part of the Loan and Security Agreement
between TOP SOURCE AUTOMOTIVE, INC. and NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION (the "Agreement").
As used in the Agreement, the following terms have the following
meanings:
"Account" means any right to payment for Goods sold or leased or
for services rendered which is not evidenced by an Instrument or Chattel Paper,
whether or not it has been earned by performance.
"Account Debtor" means the obligor on an Account or Chattel
Paper.
"Account Proceeds" has the meaning set forth in Section 4.1.
"Affiliate" means, with respect to any Person, a relative,
partner, shareholder, member, manager, director, officer, or employee of such
Person, any parent or subsidiary of such Person, or any Person controlling,
controlled by or under common control with such Person or any other Person
affiliated, directly or indirectly, by virtue of family membership, ownership,
management or otherwise.
"Agreement" and "this Agreement" mean the Loan and Security
Agreement of which this Schedule B is a part and the Schedules thereto.
"ARCS" means ARCS Safety Seat, Inc., a Florida corporation and
an Affiliate of Borrower.
"Availability" has the meaning set forth in Section 1.1(a)
"Bankruptcy Code" means the United States Bankruptcy Code
(11 U.S.C. ss. 101 et seq.).
"Blocked Account" has the meaning set forth in Section 4.1.
"Borrower" has the meaning set forth in the heading to the
Agreement.
"Borrower's Address" has the meaning set forth in the heading
to the Agreement.
"Business Day" means a day other than a Saturday or Sunday or
any other day on which Lender or banks in New York are authorized to close.
"Chattel Paper" has the meaning set forth in the UCC.
"Collateral" means all property and interests in property in or
upon which a security interest or other Lien is granted pursuant to this
Agreement or the other Loan Documents.
"Credit Accommodation" has the meaning set forth in
Section 1.1(a).
"Credit Accommodation Balance" means the sum of (i) the
aggregate undrawn face amount of all outstanding Credit Accommodations and (ii)
all interest, fees and costs due or, in Lender's estimation, likely to become
due in connection therewith.
"Default" means any event which with notice or passage of time,
or both, would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 2.1.
"Deposit Account" has the meaning set forth in the UCC.
"Dilution Percentage" means the gross amount of all returns,
allowances, discounts, credits, write-offs and similar items relating to
Borrower's Accounts computed as a percentage of Borrower's gross sales,
calculated on a ninety (90) day rolling average.
"Document" has the meaning set forth in the UCC.
"Early Termination Fee" has the meaning set forth in
Section 7.2.
"Eligible Account" means, at any time of determination, an
Account which satisfies the general criteria set forth below and which is
otherwise acceptable to Lender (provided, that Lender may, in its sole
discretion, change the general criteria for acceptability of Eligible Accounts
upon at least fifteen days' prior notice to Borrower). An Account shall be
deemed to meet the current general criteria if (i) neither the Account Debtor
nor any of its Affiliates is an Affiliate, creditor or supplier of Borrower;
(ii) it does not remain unpaid more than the earlier to occur of (A) the number
of days after the original invoice date set forth in Section 5(a) of Schedule A
or (B) the number of days after the original invoice due date set forth in
Section 5(b) of Schedule A; (iii) the Account Debtor or its Affiliates are not
past due on other Accounts owing to Borrower comprising more than 25% of all of
the Accounts owing to Borrower by such Account Debtor or its Affiliates; (iv)
except with respect to Accounts owing by Chrysler Corporation, all Accounts
owing by the Account Debtor or its Affiliates do not represent more than 20% of
all otherwise Eligible Accounts (provided, that Accounts which are deemed to be
ineligible solely by reason of this clause (iv) shall be considered Eligible
Accounts to the extent of the amount thereof which does not exceed 20% of all
otherwise Eligible Accounts); (v) no covenant, representation or warranty
contained in this Agreement with respect to such Account (including any of the
representations set forth in Section 5.4) has been breached; (vi) the Account is
not subject to any contra relationship, counterclaim, dispute or set-off
(provided, that Accounts which are deemed to be ineligible solely by reason of
this clause (vi) shall be considered Eligible Accounts to the extent of the
amount thereof which is not affected by such contra relationships,
counterclaims, disputes or set-offs); (vii) the Account Debtor's chief executive
office or principal place of business is located in the United States or
Provinces of Canada which have adopted the Personal Property Security Act or a
similar act, unless (A) the sale is fully backed by a letter of credit, guaranty
or acceptance acceptable to Lender in its sole discretion, and if backed by a
letter of credit, such letter of credit has been issued or confirmed by a bank
satisfactory to Lender, is sufficient to cover such Account, and if required by
Lender, the original of such letter of credit has been delivered to Lender or
Lender's agent and the issuer thereof notified of the assignment of the proceeds
of such letter of credit to Lender or (B) such Account is subject to credit
insurance payable to Lender issued by an insurer and on terms and in an amount
acceptable to Lender; (viii) it is absolutely owing to Borrower and does not
arise from a sale on a bill-and-hold, guarantied sale, sale-or-return,
sale-on-approval, consignment, retainage or any other repurchase or return basis
or consist of progress billings; (ix) Lender shall have verified the Account in
a manner satisfactory to Lender; (x) the Account Debtor is not the United States
of America or any state or political subdivision (or any department, agency or
instrumentality thereof), unless Borrower has complied with the Assignment of
Claims Act of 1940 (31 U.S.C. ss.203 et seq.) or other applicable similar state
or local law in a manner satisfactory to Lender; (xi) it is at all times subject
to Lender's duly perfected, first priority security interest and to no other
Lien that is not a Permitted Lien, and the goods giving rise to such Account (A)
were not, at the time of sale, subject to any Lien except Permitted Liens and
(B) have been delivered to and accepted by the Account Debtor, or the services
giving rise to such Account have been performed by Borrower and accepted by the
Account Debtor; (xii) the Account is not evidenced by Chattel Paper or an
Instrument of any kind and has not been reduced to judgment; (xiii) the Account
Debtor's total indebtedness to Borrower does not exceed the amount of any credit
limit established by Borrower or Lender and the Account Debtor is otherwise
deemed to be creditworthy by Lender (provided, that Accounts which are deemed to
be ineligible solely by reason of this clause (xiii) shall be considered
Eligible Accounts to the extent the amount of such Accounts does not exceed the
lower of such credit limits); (xiv) there are no facts or circumstances
existing, or which could reasonably be anticipated to occur, which might result
in any adverse change in the Account Debtor's financial condition or impair or
delay the collectibility of all or any portion of such Account; (xv) Lender has
been furnished with all documents and other information pertaining to such
Account which Lender has requested, or which Borrower is obligated to deliver to
Lender, pursuant to this Agreement; (xvi) Borrower has not made an agreement
with the Account Debtor to extend the time of payment thereof beyond the time
periods set forth in clause (ii) above; and (xvii) Borrower has not posted a
surety or other bond in respect of the contract under which such Account arose.
"Eligible Equipment" means, at any time of determination,
Equipment owned by Borrower which Lender, in its sole discretion, deems to be
eligible for borrowing purposes.
"Eligible Inventory" means, at any time of determination,
Inventory (other than packaging materials and supplies) which satisfies the
general criteria set forth below and which is otherwise acceptable to Lender
(provided, that Lender may, in its sole discretion, change the general criteria
for acceptability of Eligible Inventory upon at least fifteen days' prior
written notice to Borrower). Inventory shall be deemed to meet the current
general criteria if (i) it consists of raw materials or finished goods; (ii) it
is in good, new and saleable condition; (iii) it is not slow-moving, obsolete,
unmerchantable, returned or repossessed; (iv) it is not in the possession of a
processor, consignee or bailee, or located on premises leased or subleased to
Borrower, or on premises subject to a mortgage in favor of a Person other than
Lender, unless such processor, consignee, bailee or mortgagee or the lessor or
sublessor of such premises, as the case may be, has executed and delivered all
documentation which Lender shall require to evidence the subordination or other
limitation or extinguishment of such Person's rights with respect to such
Inventory and Lender's right to gain access thereto; (v) it meets all standards
imposed by any governmental agency or authority; (vi) it conforms in all
respects to any covenants, warranties and representations set forth in the
Agreement; (vii) it is at all times subject to Lender's duly perfected, first
priority security interest and no other Lien except a Permitted Lien; and (viii)
it is situated at an Inventory Location listed in Section 9(d) of Schedule A or
other location of which Lender has been notified as required by Section 5.6.
"Eligible Real Property" means, at any time of determination,
Real Property owned by Borrower which Lender, in its sole discretion, deems to
be eligible for borrowing purposes.
"Equipment" means all Goods which are used or bought for use
primarily in business (including farming or a profession) or by a Person who is
a non-profit organization or governmental subdivision or agency and which are
not Inventory, farm products or consumer goods, including all machinery, molds,
machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dies and jigs, and all attachments,
accessories, accessions, replacements, substitutions, additions or improvements
to, or spare parts for, any of the foregoing.
"Equipment Advance" has the meaning set forth in Section 1.1(b).
"ERISA" means the Employee Retirement Income Security Act of
1974 and all rules, regulations and orders promulgated thereunder.
"Event of Default" has the meaning set forth in Section 8.1.
"GAAP" means generally accepted accounting principles as in
effect from time to time, consistently applied.
"General Intangibles" has the meaning set forth in the UCC, and
includes all books and records pertaining to the Collateral and other business
and financial records in the possession of Borrower or any other Person,
inventions, designs, drawings, blueprints, patents, patent applications,
trademarks, trademark applications (other than "intent to use" applications
until a verified statement of use is filed with respect to such applications)
and the goodwill of the business symbolized thereby, names, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises, customer
lists, security and other deposits, causes of action and other rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, rights to purchase or sell real or personal property, rights as a
licensor or licensee of any kind, royalties, telephone numbers, internet
addresses, proprietary information, purchase orders, and all insurance policies
and claims (including life insurance, key man insurance, credit insurance,
liability insurance, property insurance and other insurance), tax refunds and
claims, letters of credit, banker's acceptances and guaranties, computer
programs, discs, tapes and tape files in the possession of Borrower or any other
Person, claims under guaranties, security interests or other security held by or
granted to Borrower, all rights to indemnification and all other intangible
property of every kind and nature.
"Goods" means all things which are movable at the time the
security interest attaches or which are fixtures (other than money, Documents,
Instruments, Investment Property, Accounts, Chattel Paper, General Intangibles,
or minerals or the like (including oil and gas) before extraction), including
standing timber which is to be cut and removed under a conveyance or contract
for sale, the unborn young of animals, and growing crops.
"Initial Term" has the meaning set forth in Section 7.1.
"Instrument" has the meaning set forth in the UCC.
"Inventory" means all Goods held for sale or lease or furnished
or to be furnished under contracts of service, including all raw materials, work
in process, finished goods, goods in transit and materials and supplies which
are or might be used or consumed in a business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such Goods,
and all products of the foregoing, and shall include interests in goods
represented by Accounts, returned, reclaimed or repossessed goods and rights as
an unpaid vendor.
"Investment Property" shall mean all of Borrower's securities,
whether certificated or uncertificated, securities entitlements, securities
accounts, commodity contracts and commodity accounts.
"Lender" has the meaning set forth in the heading to the
Agreement.
"Lien" means any interest in property securing an obligation
owed to, or a claim by, a Person other than the owner of the property, whether
such interest is based on common law, statute or contract, including rights of
sellers under conditional sales contracts or title retention agreements and
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting property. For the purpose of this Agreement, Borrower shall be deemed
to be the owner of any property which it has acquired or holds subject to a
conditional sale agreement or other arrangement pursuant to which title to the
property has been retained by or vested in some other Person for security
purposes.
"Loan Account" has the meaning set forth in Section 2.4.
"Loan Documents" means the Agreement and all notes, guaranties,
security agreements, certificates, landlord's agreements, Lock Box and Blocked
Account agreements and all other agreements, documents and instruments now or
hereafter executed or delivered by Borrower or any Obligor in connection with,
or to evidence the transactions contemplated by, this Agreement.
"Loan Limits" means, collectively, the Availability limits and
all other limits on the amount of Loans and Credit Accommodations set forth in
this Agreement.
"Loans" means, collectively, the Revolving Loans and any Term
Loan.
"Lock Box" has the meaning set forth in Section 4.1.
"Maturity Date" has the meaning set forth in Section 7.1.
"Obligations" means all present and future Loans, advances,
debts, liabilities, obligations, guaranties, covenants, duties and indebtedness
at any time owing by Borrower to Lender, whether evidenced by this Agreement or
any other Loan Document, whether arising from an extension of credit, opening of
a Credit Accommodation, guaranty, indemnification or otherwise (including all
fees, costs and other amounts which may be owing to issuers of Credit
Accommodations and all taxes, duties, freight, insurance, costs and other
expenses, costs or amounts payable in connection with Credit Accommodations or
the underlying goods), whether direct or indirect (including those acquired by
assignment and any participation by Lender in Borrower's indebtedness owing to
others), whether absolute or contingent, whether due or to become due, and
whether arising before or after the commencement of a proceeding under the
Bankruptcy Code or any similar statute, including all interest, charges,
expenses, fees, attorney's fees, expert witness fees, audit fees, letter of
credit fees, loan fees, Early Termination Fees, Minimum Borrowing Fees and any
other sums chargeable to Borrower under this Agreement or under any other Loan
Document.
"Obligor" means any guarantor, endorser, acceptor, surety or
other person liable on, or with respect to, the Obligations or who is the owner
of any property which is security for the Obligations, other than Borrower. For
purposes of this Agreement, TST, TS Instrument, ARCS and TS Oil are deemed to be
Obligors.
"Permitted Liens" means: (i) purchase money security interests
in specific items of Equipment in an aggregate amount not to exceed the limit
set forth in Section 8(h) of Schedule A; (ii) leases of specific items of
Equipment in an aggregate amount not to exceed the limit set forth in Section
8(i) of Schedule A; (iii) Liens for taxes not yet due and payable; (iv)
additional Liens which are fully subordinate to the security interests of Lender
and are consented to in writing by Lender; (v) security interests being
terminated concurrently with the execution of this Agreement; (vi) Liens of
materialmen, mechanics, warehousemen or carriers arising in the ordinary course
of business and securing obligations which are not delinquent; (vii) Liens
incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by Liens of the type described in clause (i) or (ii) above;
provided, that any extension, renewal or replacement Lien is limited to the
property encumbered by the existing Lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods; and (ix) security
deposits posted in connection with real property leases or subleases. Lender
will have the right to require, as a condition to its consent under clause (iv)
above, that the holder of the additional Lien sign an intercreditor agreement in
form and substance satisfactory to Lender, in its sole discretion, acknowledging
that the Lien is subordinate to the security interests of Lender, and agreeing
not to take any action to enforce its subordinate Lien so long as any
Obligations remain outstanding, and that Borrower agree that any uncured default
in any obligation secured by the subordinate Lien shall also constitute an Event
of Default under this Agreement.
"Person" means any individual, sole proprietorship, partnership,
joint venture, limited liability company, trust, unincorporated organization,
association, corporation, government or any agency or political division
thereof, or any other entity.
"Prime Rate" means, at any given time, the prime rate as quoted
in The Wall Street Journal as the base rate on corporate loans posted as of such
time by at least 75% of the nation's 30 largest banks (which rate is not
necessarily the lowest rate offered by such banks).
"Real Property" means the real property described in
Section 10 of Schedule A.
"Real Property Advance" has the meaning set forth in
Section 1.1(b).
"Released Parties" has the meaning set forth in Section 6.1.
"Renewal Term" has the meaning set forth in Section 7.1.
"Reserves" has the meaning set forth in Section 1.2.
"Revolving Loans" has the meaning set forth in Section 1.1(a).
"Sale" has the meaning set forth in Section 8.2.
"Subsidiary" means any corporation or other entity of which a
Person owns, directly or indirectly, through one or more intermediaries, more
than 50% of the capital stock or other equity interest at the time of
determination.
"Term" means the period commencing on the date of this Agreement
and ending on the Maturity Date.
"Term Loan" has the meaning set forth in Section 1.1(b).
"TS Instrument" means Top Source Instruments, Inc., a
Georgia corporation and an Affiliate of Borrower.
"TS Instrument Loan Agreement" means the Loan and Security
Agreement of even date herewith between TS Instrument and Lender, as it may be
amended or otherwise modified from time to time.
"TS Instrument Loan Balance" means the outstanding balance of
all monetary obligations (including without limitation the aggregate undrawn
face amount of all outstanding letters of credit, bankers acceptances and other
credit accommodations and all interest, fees and costs due or, in Lender's
estimation, likely to become due in connection therewith) of TS Instrument under
the TS Instrument Loan Agreement.
"TS Oil" means Top Source Oil Analysis, Inc., a Georgia
corporation.
"TST" means Top Source Technologies, Inc., a Delaware
corporation and the sole shareholder of Borrower.
"UCC" means, at any given time, the Uniform Commercial Code as
adopted and in effect at such time in the State of New York.
All accounting terms used in this Agreement, unless otherwise indicated,
shall have the meanings given to such terms in accordance with GAAP. All other
terms contained in this Agreement, unless otherwise indicated, shall have the
meanings provided by the UCC, to the extent such terms are defined therein. The
term "including," whenever used in this Agreement, shall mean "including but not
limited to." The singular form of any term shall include the plural form, and
vice versa, when the context so requires. References to Sections, subsections
and Schedules are to Sections and subsections of, and Schedules to, this
Agreement. All references to agreements and statutes shall include all
amendments thereto and successor statutes in the case of statutes.
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule B as
of the date set forth in the heading to the Agreement.
Borrower: Lender:
TOP SOURCE AUTOMOTIVE, INC. NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By_______________________________________
/s/David Natan Its Authorized Signatory
By____________________________
Its_____________________
Vice President and CFO
EXHIBIT 10.25
Loan And Security Agreement
This Loan and Security Agreement (as it may be amended, this
"Agreement") is entered into on July 1, 1997 between NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("Lender"),
having an address at 1177 Avenue of the Americas, 36th Floor, New York, New York
10036 and TOP SOURCE INSTRUMENTS, INC. ("Borrower"), whose chief executive
office is located at 7108 Fairway Drive, Suite 200, Palm Beach Gardens, Florida
33418 ("Borrower's Address"). The Schedules to this Agreement are an integral
part of this Agreement and are incorporated herein by reference. Terms used, but
not defined elsewhere, in this Agreement are defined in Schedule B.
LOANS AND CREDIT ACCOMMODATIONS.
Amount. Subject to the terms and conditions contained in this
Agreement, Lender will:
Revolving Loans and Credit Accommodations. From time to time
during the Term at Borrower's request, make revolving loans to Borrower
("Revolving Loans"), and make letters of credit, bankers acceptances and other
credit accommodations ("Credit Accommodations") available to Borrower, in each
case to the extent that there is sufficient Availability at the time of such
request to cover, dollar for dollar, the requested Revolving Loan or Credit
Accommodation; provided, that after giving effect to such Revolving Loan or
Credit Accommodation, (x) the outstanding balance of all monetary Obligations
(including the principal balance of any Term Loan and, solely for the purpose of
determining compliance with this provision, the Credit Accommodation Balance)
will not exceed the Maximum Combined Facility Amount set forth in Section 1(h)
of Schedule A and (y) none of the other Loan Limits set forth in Section 1 of
Schedule A will be exceeded. For this purpose, "Availability" means:
the aggregate amount of Eligible Accounts (less maximum
existing or asserted taxes, discounts, credits and allowances)
multiplied by the Accounts Advance Rate set forth in Section 1(b)(i) of
Schedule A but not to exceed the Accounts Sublimit set forth in Section
1(c) of Schedule A;
plus
the lower of cost or market value of Eligible Inventory
multiplied by the Inventory Advance Rate(s) set forth in Section
1(b)(ii) of Schedule A, but not to exceed the Inventory Sublimit(s) set
forth in Section 1(d) of Schedule A;
minus
all Reserves which Lender has established pursuant to
Section 1.2 (including those to be established in connection with the
requested Revolving Loan or Credit Accommodation);
minus
the outstanding balance of all of the monetary
Obligations (excluding the Credit Accommodation Balance and the
principal balance of the Term Loan); and
plus
the Overadvance Amount, if any, set forth in Section 1(g)
of Schedule A.
Term Loan. On the date of this Agreement, make (i) an advance to
Borrower computed with respect to the value of Borrower's Eligible Equipment
(the ("Equipment Advance") in the principal amount, if any, set forth in Section
2(a)(i) of Schedule A, and (ii) an advance to Borrower computed with respect to
the value of Borrower's Eligible Real Property (the ("Real Property Advance") in
the principal amount, if any, set forth in Section 2(a)(ii) of Schedule A. The
Equipment Advance and the Real Property Advance are collectively referred to as
the "Term Loan."
Reserves. Lender may from time to time establish and revise such
reserves as Lender deems appropriate in its sole discretion ("Reserves") to
reflect (i) events, conditions, contingencies or risks which affect or may
affect (A) the Collateral or its value, or the security interests and other
rights of Lender in the Collateral or (B) the assets, business or prospects of
Borrower or any Obligor, (ii) Lender's good faith concern that any Collateral
report or financial information furnished by or on behalf of Borrower or any
Obligor to Lender is or may have been incomplete, inaccurate or misleading in
any material respect, (iii) any fact or circumstance which Lender determines in
good faith constitutes, or could constitute, a Default or Event of Default or
(iv) any other events or circumstances which Lender determines in good faith
make the establishment or revision of a Reserve prudent. Without limiting the
foregoing, Lender shall (x) in the case of each Credit Accommodation issued for
the purchase of Inventory (a) which meets the criteria for Eligible Inventory
set forth in clauses (i), (ii), (iii), (v) and (vi) of the definition of
Eligible Inventory, (b) which is or will be in transit to one of the locations
set forth in Section 9(d) of Schedule A, (c) which is fully insured in a manner
satisfactory to Lender and (d) with respect to which Lender is in possession of
all bills of lading and all other documentation which Lender has requested, all
in form and substance satisfactory to Lender in its sole discretion, establish a
Reserve equal to the cost of such Inventory (plus all duties, freight, taxes,
insurance, costs and other charges and expenses relating to such Credit
Accommodation or such Eligible Inventory) multiplied by a percentage equal to
100% minus the Inventory Advance Rate applicable to Eligible Inventory and (y)
in the case of any other Credit Accommodation issued for any purpose, establish
a Reserve equal to the full amount of such Credit Accommodation plus all costs
and other charges and expenses relating to such Credit Accommodation. In
addition, (x) Lender shall establish a permanent Reserve in the amount set forth
in Section 1(f) of Schedule A, and (y) if the outstanding principal balance of
the Term Loan advance with respect to Eligible Equipment exceeds the percentage
set forth in Section 2(a)(i) of Schedule A of the appraised value of such
Eligible Equipment, Lender may establish an additional Reserve in the amount of
such excess (and, for this purpose, if payments of principal on the Term Loan
advances against Eligible Equipment and Real Property are not calculated
separately, payments of principal of the Term Loan made by Borrower shall be
deemed to apply to the Term Loan advance with respect to Eligible Equipment and
Real Property, respectively, in proportion to the original principal amounts of
such advances). Lender may, in its discretion, establish and revise Reserves by
deducting them in determining Availability or by reclassifying Eligible Accounts
or Eligible Inventory as ineligible. In no event shall the establishment of a
Reserve in respect of a particular actual or contingent liability obligate
Lender to make advances hereunder to pay such liability or otherwise obligate
Lender with respect thereto.
Other Provisions Applicable to Credit Accommodations. Lender may, in its
sole discretion and on terms and conditions acceptable to Lender, make Credit
Accommodations available to Borrower either by issuing them, or by causing other
financial institutions to issue them supported by Lender's guaranty or
indemnification; provided, that after giving effect to each Credit
Accommodation, the Credit Accommodation Balance will not exceed the Credit
Accommodation Limit set forth in Section 1(e) of Schedule A. Any amounts paid by
Lender in respect of a Credit Accommodation will be treated for all purposes as
a Revolving Loan which shall be secured by the Collateral and bear interest, and
be payable, in the same manner as a Revolving Loan. Borrower agrees to execute
all documentation required by Lender or the issuer of any Credit Accommodation
in connection with any such Credit Accommodation.
Repayment. Accrued interest on all monetary Obligations shall be payable
on the first day of each month. Principal of the Term Loan shall be repaid as
set forth in Section 2(b) of Schedule A. If at any time any of the Loan Limits
are exceeded, Borrower will immediately pay to Lender such amounts (or provide
cash collateral to Lender with respect to the Credit Accommodation Balance in
the manner set forth in Section 7.3), as shall cause Borrower to be in full
compliance with all of the Loan Limits. Notwithstanding the foregoing, Lender
may, in its sole discretion, make or permit Revolving Loans, the Term Loan, any
Credit Accommodations or any other monetary Obligations to be in excess of any
of the Loan Limits; provided, that Borrower shall, upon Lender's demand, pay to
Lender such amounts as shall cause Borrower to be in full compliance with all of
the Loan Limits. All unpaid monetary Obligations shall be payable in full on the
Maturity Date (as defined in Section 7.1) or, if earlier, the date of any early
termination pursuant to Section 7.2.
Minimum Borrowing. Subject to the terms and conditions of this
Agreement, Borrower agrees to (i) borrow sufficient amounts to cause the
outstanding principal balance of the Loans to equal or exceed, at all times
prior to the Maturity Date, the Minimum Loan Amount set forth in Section 4 of
Schedule A and (ii) maintain Availability sufficient to enable Borrower to do
so; provided, that the failure of Borrower to maintain sufficient Availability
shall not constitute an Event of Default so long as Borrower is not in default
in the payment of any of the fees set forth in Section 2.2 and no other Event of
Default has occurred and is continuing. However, Lender shall not be obligated
to loan Borrower the Minimum Loan Amount other than in accordance with all of
the terms and conditions of this Agreement.
INTEREST AND FEES.
Interest. All Loans and other monetary Obligations shall bear interest
at the Interest Rate(s) set forth in Section 3 of Schedule A, except where
expressly set forth to the contrary in this Agreement or another Loan Document;
provided, that after the occurrence of an Event of Default, all Loans and other
monetary Obligations shall, at Lender's option, bear interest at a rate per
annum equal to two percent (2%) in excess of the rate otherwise applicable
thereto (the "Default Rate") until paid in full (notwithstanding the entry of
any judgment against Borrower or the exercise of any other right or remedy by
Lender), and all such interest shall be payable on demand. Changes in the
Interest Rate shall be effective as of the date of any change in the Prime Rate.
Notwithstanding anything to the contrary contained in this Agreement, the
aggregate of all amounts deemed to be interest hereunder and charged or
collected by Lender is not intended to exceed the highest rate permissible under
any applicable law, but if it should, such interest shall automatically be
reduced to the extent necessary to comply with applicable law and Lender will
refund to Borrower any such excess interest received by Lender.
Fees and Warrants. Borrower shall pay Lender the following fees, and
issue Lender the following warrants, which are in addition to all interest and
other sums payable by Borrower to Lender under this Agreement, and are not
refundable:
Closing Fee. A closing fee in the amount set forth in Section
6(a) of Schedule A, one-half of which was fully earned and paid upon issuance of
the commitment letter dated May 29, 1997, and one-half of which shall be deemed
to be fully earned as of, and payable on, the date hereof.
Facility Fees. A facility fee for the Initial Term in the amount
set forth in Section 6(b)(i) of Schedule A (which shall be fully earned as of
the date of this Agreement and shall be payable in equal installments due,
respectively, on the first and second anniversaries of the date of this
Agreement), and a facility fee for each Renewal Term in the amount set forth in
Section 6(b)(ii) of Schedule A (which shall be fully earned as of the first day
of such Renewal Term and shall be payable in equal installments due,
respectively, on the first day of such Renewal Term and on the first and second
anniversaries thereof).
Servicing Fee. A monthly servicing fee in the amount set forth in
Section 6(c) of Schedule A, in consideration of Lender's administration and
other services for each month (or part thereof), which shall be fully earned as
of, and payable in advance on, the date of this Agreement and on the first day
of each month thereafter so long as any of the Obligations are outstanding.
Unused Line Fee. An unused line fee at a rate equal to the
percentage per annum set forth in Section 6(d) of Schedule A of the amount by
which the Maximum Facility Amount set forth in Section 1(a) of Schedule A
exceeds the sum of (i) the average daily outstanding principal balance of the
Loans and the Credit Accommodation Balance during the immediately preceding
month (or part thereof), and (ii) the average daily TS Auto Loan Balance during
the immediately proceeding month (or part thereof), which fee shall be payable,
in arrears, on the first day of each month so long as any of the Obligations are
outstanding and on the Maturity Date.
Minimum Borrowing Fee. A minimum borrowing fee equal to the
excess, if any, of (i) interest which would have been payable in respect of each
period set forth in Section 6(e)(i) of Schedule A if, at all times during such
period, the principal balance of the Loans was equal to the Minimum Loan Amount
over (ii) the actual interest payable in respect of such period, which fee shall
be fully earned as of the last day of such period and payable on the date set
forth in Section 6(e)(ii) of Schedule A and on the Maturity Date, commencing
with the immediately following period.
Success Fee. A success fee in the amount set forth in Section
6(f) of Schedule A, which shall be fully earned as of the date of this Agreement
and payable as set forth in Section 6(f) of Schedule A.
Warrants. Warrants to acquire the capital stock of Borrower, as
summarized in Section 6(g) of Schedule A and as more fully set forth in a
separate warrant agreement executed by Borrower contemporaneously with this
Agreement.
Credit Accommodation Fees. All of the fees relating to Credit
Accommodations set forth in Section 6(i) of Schedule A.
Computation of Interest and Fees. All interest and fees shall be
calculated daily on the closing balances in the Loan Account based on the actual
number of days elapsed in a year of 360 days. For purposes of calculating
interest and fees, if the outstanding daily principal balance of the Revolving
Loans is a credit balance, such balance shall be deemed to be zero.
Loan Account; Monthly Accountings. Lender shall maintain a loan account
for Borrower reflecting all advances, charges, expenses and payments made
pursuant to this Agreement (the "Loan Account"), and shall provide Borrower with
a monthly accounting reflecting the activity in the Loan Account. Each
accounting shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by Lender), unless Borrower notifies Lender in
writing to the contrary within sixty days after such account is rendered,
describing the nature of any alleged errors or admissions. However, Lender's
failure to maintain the Loan Account or to provide any such accounting shall not
affect the legality or binding nature of any of the Obligations. Interest, fees
and other monetary Obligations due and owing under this Agreement (including
fees and other amounts paid by Lender to issuers of Credit Accommodations) may,
in Lender's discretion, be charged to the Loan Account, and will thereafter be
deemed to be Revolving Loans and will bear interest at the same rate as other
Revolving Loans.
SECURITY INTEREST.
To secure the full payment and performance of all of the Obligations
when due, Borrower hereby grants to Lender a continuing security interest in all
of Borrower's property and interests in property, whether tangible or
intangible, now owned or in existence or hereafter acquired or arising, wherever
located, including Borrower's interest in all of the following, whether or not
eligible for lending purposes: (i) all Accounts, Chattel Paper, Instruments,
Documents, Goods (including Inventory, Equipment, farm products and consumer
goods), Investment Property, General Intangibles, Deposit Accounts and money,
(ii) all proceeds and products of all of the foregoing (including proceeds of
any insurance policies, proceeds of proceeds and claims against third parties
for loss or any destruction of any of the foregoing) and (iii) all books and
records relating to any of the foregoing.
ADMINISTRATION.
Lock Boxes and Blocked Accounts. Borrower will, at its expense,
establish (and revise from time to time as Lender may require) collection
procedures acceptable to Lender, in Lender's sole discretion, for the collection
of checks, wire transfers and other proceeds of Accounts ("Account Proceeds"),
which may include (i) directing all Account Debtors to send all such proceeds
directly to a post office box designated by Lender either in the name of
Borrower (but as to which Lender has exclusive access) or, at Lender's option,
in the name of Lender (a "Lock Box") or (ii) depositing all Account Proceeds
received by Borrower into one or more bank accounts maintained in Lender's name
(each, a "Blocked Account"), under an arrangement acceptable to Lender with a
depository bank acceptable to Lender, pursuant to which all funds deposited into
each Blocked Account are to be transferred to Lender in such manner, and with
such frequency, as Lender shall specify or (iii) a combination of the foregoing.
Borrower agrees to execute, and to cause its depository banks to execute, such
Lock Box and Blocked Account agreements and other documentation as Lender shall
require from time to time in connection with the foregoing.
Remittance of Proceeds. Except as provided in Section 4.1, all proceeds
arising from the sale or other disposition of any Collateral (including obsolete
Inventory sold pursuant to Section 5.18(iv)) shall be delivered, in kind, by
Borrower to Lender in the original form in which received by Borrower not later
than the following Business Day after receipt by Borrower. Until so delivered to
Lender, Borrower shall hold such proceeds separate and apart from Borrower's
other funds and property in an express trust for Lender. Nothing in this Section
4.2 shall limit the restrictions on disposition of Collateral set forth
elsewhere in this Agreement.
Application of Payments. Lender may, in its sole discretion, apply,
reverse and re-apply all cash and non-cash proceeds of Collateral or other
payments received with respect to the Obligations, in such order and manner as
Lender shall determine, whether or not the Obligations are due, and whether
before or after the occurrence of a Default or an Event of Default. For purposes
of determining Availability, such amounts will be credited to the Loan Account
and the Collateral balances to which they relate upon Lender's receipt of advice
from Lender's Bank (set forth in Section 11 of Schedule A) that such items have
been credited to Lender's account at Lender's Bank (or upon Lender's deposit
thereof at Lender's Bank in the case of payments received by Lender in kind), in
each case subject to final payment and collection. However, for purposes of
computing interest on the Obligations, such items shall be deemed applied by
Lender three Business Days after Lender's receipt of advice of deposit thereof
at Lender's Bank.
Notification; Verification. Lender or its designee may, from time to
time, whether or not a Default or Event of Default has occurred: (i) verify
directly with the Account Debtors the validity, amount and other matters
relating to the Accounts and Chattel Paper, by means of mail, telephone or
otherwise, either in the name of Borrower or Lender or such other name as Lender
may choose; (ii) notify Account Debtors that Lender has a security interest in
the Accounts and that payment thereof is to be made directly to Lender; and
(iii) demand, collect or enforce payment of any Accounts and Chattel Paper (but
without any duty to do so).
Power of Attorney. Borrower hereby grants to Lender an irrevocable power
of attorney, coupled with an interest, authorizing and permitting Lender (acting
through any of its officers, employees, attorneys or agents), at any time
(whether or not a Default or Event of Default has occurred and is continuing,
except as expressly provided below), at Lender's option, but without obligation,
with or without notice to Borrower, and at Borrower's expense, to do any or all
of the following, in Borrower's name or otherwise: (i) execute on behalf of
Borrower any documents that Lender may, in its sole discretion, deem advisable
in order to perfect and maintain Lender's security interests in the Collateral,
to exercise a right of Borrower or Lender, or to fully consummate all the
transactions contemplated by this Agreement and the other Loan Documents
(including such financing statements and continuation financing statements, and
amendments thereto, as Lender shall deem necessary or appropriate) and to file
as a financing statement any copy of this Agreement or any financing statement
signed by Borrower; (ii) execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose of
or lease (as lessor or lessee) any real or personal property which is part of
the Collateral or in which Lender has an interest; (iii) execute on behalf of
Borrower any invoices relating to any Accounts, any draft against any Account
Debtor, any proof of claim in bankruptcy, any notice of Lien or claim, and any
assignment or satisfaction of mechanic's, materialman's or other Lien; (iv)
execute on behalf of Borrower any notice to any Account Debtor; (v) receive and
otherwise take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; (vi) endorse Borrower's name on all checks and other
forms of remittances received by Lender; (vii) pay, contest or settle any Lien,
charge, encumbrance, security interest and adverse claim in or to any of the
Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; (viii) after the occurrence of a Default or
Event of Default, grant extensions of time to pay, compromise claims relating
to, and settle Accounts, Chattel Paper and General Intangibles for less than
face value and execute all releases and other documents in connection therewith;
(ix) pay any sums required on account of Borrower's taxes or to secure the
release of any Liens therefor; (x) pay any amounts necessary to obtain, or
maintain in effect, any of the insurance described in Section 5.12; (xi) settle
and adjust, and give releases of, any insurance claim that relates to any of the
Collateral and obtain payment therefor; (xii) instruct any third party having
custody or control of any Collateral or books or records belonging to, or
relating to, Borrower to give Lender the same rights of access and other rights
with respect thereto as Lender has under this Agreement; and (xiii) after the
occurrence of a Default or Event of Default, change the address for delivery of
Borrower's mail and receive and open all mail addressed to Borrower. Any and all
sums paid, and any and all costs, expenses, liabilities, obligations and
reasonable attorneys' fees incurred, by Lender with respect to the foregoing
shall be added to and become part of the Obligations, shall be payable on
demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations. Borrower agrees that Lender's rights under
the foregoing power of attorney or any of Lender's other rights under this
Agreement or the other Loan Documents shall not be construed to indicate that
Lender is in control of the business, management or properties of Borrower.
Lender shall use its best efforts to give Borrower concurrent notice of any
action taken by Lender pursuant to clauses (vii), (ix), (xi) and (xiii) above,
but shall not be liable to Borrower for its failure to do so.
Disputes. Borrower shall promptly notify Lender of all disputes or
claims relating to Accounts and Chattel Paper. Borrower will not, without
Lender's prior written consent, compromise or settle any Account or Chattel
Paper for less than the full amount thereof, grant any extension of time of
payment of any Account or Chattel Paper, release (in whole or in part) any
Account Debtor or other person liable for the payment of any Account or Chattel
Paper or grant any credits, discounts, allowances, deductions, return
authorizations or the like with respect to any Account or Chattel Paper; except
that prior to the occurrence of an Event of Default, Borrower may take any of
such actions in the ordinary course of its business, provided that Borrower
promptly reports the same to Lender.
Invoices. At Lender's request, Borrower will cause all invoices and
statements which it sends to Account Debtors or other third parties to be
marked, in a manner satisfactory to Lender, to reflect Lender's security
interest therein.
Inventory.
Returns. Provided that no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower will promptly determine the reason for
such return and promptly issue a credit memorandum to the Account Debtor in the
appropriate amount (sending a copy to Lender). After the occurrence of an Event
of Default, Borrower will not accept any return without Lender's prior written
consent. Regardless of whether an Event of Default has occurred, Borrower will
(i) hold the returned Inventory in trust for Lender; (ii) segregate all returned
Inventory from all of Borrower's other property; (iii) conspicuously label the
returned Inventory as Lender's property; and (iv) immediately notify Lender of
the return of such Inventory, specifying the reason for such return, the
location and condition of the returned Inventory and, at Lender's request,
deliver such returned Inventory to Lender at an address specified by Lender.
Other Covenants. Borrower will not, without Lender's prior
written consent, (i) store any Inventory with any warehouseman or other third
party other than as set forth in Section 9(d) of Schedule A or (ii) sell any
Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent
basis. All of the Inventory produced by Borrower has been produced only in
accordance with the Fair Labor Standards Act of 1938 and all rules, regulations
and orders promulgated thereunder.
Access to Collateral, Books and Records. At reasonable times, and on one
Business Day's notice, prior to the occurrence of a Default or an Event of
Default, and at any time and with or without notice after the occurrence of a
Default or an Event of Default, Lender or its agents shall have the right to
inspect the Collateral, and the right to examine and copy Borrower's books and
records. Lender shall take reasonable steps to keep confidential all information
obtained in any such inspection or examination, but Lender shall have the right
to disclose any such information to its auditors, regulatory agencies, attorneys
and participants, and pursuant to any subpoena or other legal process. Borrower
agrees to give Lender access to any or all of Borrower's premises to enable
Lender to conduct such inspections and examinations. Such inspections and
examinations shall be at Borrower's expense and the charge therefor shall be
$650 per person per day (or such higher amount as shall represent Lender's then
current standard charge), plus reasonable out-of-pocket expenses. Lender may, at
Borrower's expense, use Borrower's personnel, computer and other equipment,
programs, printed output and computer readable media, supplies and premises for
the collection, sale or other disposition of Collateral to the extent Lender, in
its sole discretion, deems appropriate. Borrower hereby irrevocably authorizes
all accountants and third parties to disclose and deliver to Lender, at
Borrower's expense, all financial information, books and records, work papers,
management reports and other information in their possession regarding Borrower.
Borrower will not enter into any agreement with any accounting firm, service
bureau or third party to store Borrower's books or records at any location other
than Borrower's Address without first obtaining Lender's written consent (which
consent may be conditioned upon such accounting firm, service bureau or other
third party agreeing to give Lender the same rights with respect to access to
books and records and related rights as Lender has under this Agreement).
REPRESENTATIONS, WARRANTIES AND COVENANTS.
To induce Lender to enter into this Agreement, Borrower represents,
warrants and covenants as follows (it being understood that (i) each such
representation and warranty will be deemed remade as of the date on which each
Loan is made and each Credit Accommodation is provided and shall not be affected
by any knowledge of, or any investigation by, Lender, and (ii) the accuracy of
each such representation, warranty and covenant will be a condition to each Loan
and Credit Accommodation):
Existence and Authority. Borrower is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
formation. Borrower is qualified and licensed to do business in all
jurisdictions in which any failure to do so would have a material adverse effect
on Borrower. The execution, delivery and performance by Borrower of this
Agreement and all of the other Loan Documents have been duly and validly
authorized, do not violate Borrower's articles or certificate of incorporation,
by-laws or other organizational documents, or any law or any agreement or
instrument or any court order which is binding upon Borrower or its property, do
not constitute grounds for acceleration of any indebtedness or obligation under
any agreement or instrument which is binding upon Borrower or its property, and
do not require the consent of any Person. This Agreement and such other Loan
Documents have been duly executed and delivered by, and are enforceable against,
Borrower, and all other Obligors who have signed them, in accordance with their
respective terms. Sections 9(g) and 9(h) of Schedule A set forth the ownership
of Borrower and the names and ownership of Borrower's Subsidiaries as of the
date of this Agreement.
Name; Trade Names and Styles. The name of Borrower set forth in the
heading to this Agreement is its correct and complete legal name as of the date
hereof. Listed in Sections 9(a), 9(b) and 9(c) of Schedule A are all prior names
of Borrower and all of Borrower's present and prior trade names. Borrower shall
give Lender at least 30 days' prior written notice before changing its name or
doing business under any other name. Borrower has complied with all laws
relating to the conduct of business under a fictitious business name. Borrower
represents and warrants that (i) each trade name does not refer to another
corporation or other legal entity; (ii) all Accounts invoiced under any such
trade names are owned exclusively by Borrower and are subject to the security
interest of Lender and the other terms of this Agreement and (iii) all schedules
of Accounts, including any sales made or services rendered using any trade name
shall show Borrower's name as assignor.
Title to Collateral; Permitted Liens. Borrower has good and marketable
title to the Collateral. The Collateral now is and will remain free and clear of
any and all liens, charges, security interests, encumbrances and adverse claims,
except for Permitted Liens. Lender now has, and will continue to have, a
first-priority perfected and enforceable security interest in all of the
Collateral, subject only to the Permitted Liens, and Borrower will at all times
defend Lender and the Collateral against all claims of others. None of the
Collateral which is Equipment is or will be affixed to any real property in such
a manner, or with such intent, as to become a fixture. Except for leases or
subleases as to which Borrower has delivered to Lender a landlord's waiver in
form and substance satisfactory to Lender, Borrower is not a lessee or sublessee
under any real property lease or sublease pursuant to which the lessor or
sublessor may obtain any rights in any of the Collateral, and no such lease or
sublease now prohibits, restrains, impairs or conditions, or will prohibit,
restrain, impair or condition, Borrower's right to remove any Collateral from
the premises. Whenever any Collateral is located upon premises in which any
third party has an interest (whether as owner, mortgagee, beneficiary under a
deed of trust, lien or otherwise), Borrower shall, whenever requested by Lender,
cause each such third party to execute and deliver to Lender, in form acceptable
to Lender, such waivers and subordinations as Lender shall specify, so as to
ensure that Lender's rights in the Collateral are, and will continue to be,
superior to the rights of any such third party. Borrower will keep in full force
and effect, and will comply with all the terms of, any lease of real property
where any of the Collateral now or in the future may be located.
Accounts and Chattel Paper. As of each date reported by Borrower, all
Accounts which Borrower has reported to Lender as being Eligible Accounts comply
in all respects with the criteria for eligibility established by Lender and in
effect at such time. All Accounts and Chattel Paper are genuine and in all
respects what they purport to be, arise out of a completed, bona fide and
unconditional and non-contingent sale and delivery of goods or rendition of
services by Borrower in the ordinary course of its business and in accordance
with the terms and conditions of all purchase orders, contracts or other
documents relating thereto, each Account Debtor thereunder had the capacity to
contract at the time any contract or other document giving rise to such Accounts
and Chattel Paper were executed, and the transactions giving rise to such
Accounts and Chattel Paper comply with all applicable laws and governmental
rules and regulations.
Investment Property. Borrower will take any and all actions required or
requested by Lender, from time to time, to (i) cause Lender to obtain exclusive
control of any Investment Property in a manner acceptable to Lender and (ii)
obtain from any issuers of Investment Property and such other Persons as Lender
shall specify, for the benefit of Lender, written confirmation of Lender's
exclusive control over such Investment Property and take such other actions as
Lender may request to perfect Lender's security interest in such Investment
Property. For purposes of this Section 5.5, Lender shall have exclusive control
of Investment Property if (A) such Investment Property consists of certificated
securities and Borrower delivers such certificated securities to Lender (with
appropriate endorsements if such certificated securities are in registered
form); (B) such Investment Property consists of uncertificated securities and
either (x) Borrower delivers such uncertificated securities to Lender or (y) the
issuer thereof agrees, pursuant to documentation in form and substance
satisfactory to Lender, that it will comply with instructions originated by
Lender without further consent by Borrower, and (C) such Investment Property
consists of security entitlements and either (x) Lender becomes the entitlement
holder thereof or (y) the appropriate securities intermediary agrees, pursuant
to documentation in form and substance satisfactory to Lender, that it will
comply with entitlement orders originated by Lender without further consent by
Borrower.
Place of Business; Location of Collateral. Borrower's Address is
Borrower's chief executive office and the location of its books and records. In
addition, except as provided in the immediately following sentence, Borrower has
places of business and Collateral located only at the locations set forth on
Sections 9(d) and 9(e) of Schedule A. Borrower will give Lender at least 30
days' prior written notice before opening any additional place of business,
changing its chief executive office or the location of its books and records, or
moving any of the Collateral to a location other than Borrower's Address or one
of the locations set forth in Sections 9(d) and 9(e) of Schedule A, and will
execute and deliver all financing statements and other agreements, instruments
and documents which Lender shall require as a result thereof.
Financial Condition, Statements and Reports. All financial statements
delivered to Lender by or on behalf of Borrower have been prepared in conformity
with GAAP and completely and fairly reflect the financial condition of Borrower,
at the times and for the periods therein stated. Between the last date covered
by any such financial statement provided to Lender and the date hereof (or, with
respect to the remaking of this representation in connection with the making of
any Loan or the providing of any Credit Accommodation, the date such Loan is
made or such Credit Accommodation is provided), there has been no material
adverse change in the financial condition or business of Borrower. Borrower is
solvent and able to pay its debts as they come due, and has sufficient capital
to carry on its business as now conducted and as proposed to be conducted. All
schedules, reports and other information and documentation delivered by Borrower
to Lender with respect to the Collateral are, or will be, when delivered, true,
correct and complete as of the date delivered or the date specified therein.
Tax Returns and Payments; Pension Contributions. Borrower has timely
filed all tax returns and reports required by applicable law, has timely paid
all applicable taxes, assessments, deposits and contributions owing by Borrower
and will timely pay all such items in the future as they became due and payable.
Borrower may, however, defer payment of any contested taxes; provided, that
Borrower (i) in good faith contests Borrower's obligation to pay such taxes by
appropriate proceedings promptly and diligently instituted and conducted; (ii)
notifies Lender in writing of the commencement of, and any material development
in, the proceedings; (iii) posts bonds or takes any other steps required to keep
the contested taxes from becoming a Lien upon any of the Collateral and (iv)
maintains adequate reserves therefor in conformity with GAAP. Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay, all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not withdrawn from
participation in, permitted partial or complete termination of, or permitted the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or any other governmental agency.
Compliance with Laws. Borrower has complied in all material respects
with all provisions of all applicable laws and regulations, including those
relating to Borrower's ownership of real or personal property, the conduct and
licensing of Borrower's business, the payment and withholding of taxes, ERISA
and other employee matters, safety and environmental matters.
Litigation. Section 9(f) of Schedule A discloses all claims,
proceedings, litigation or investigations pending or (to the best of Borrower's
knowledge) threatened against Borrower. There is no claim, suit, litigation,
proceeding or investigation pending or (to the best of Borrower's knowledge)
threatened by or against or affecting Borrower in any court or before any
governmental agency (or any basis therefor known to Borrower) which may result,
either separately or in the aggregate, in any material adverse change in the
financial condition or business of Borrower, or in any material impairment in
the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Lender in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower.
Use of Proceeds. All proceeds of all Loans will be used solely for
lawful business purposes.
Insurance. Borrower will at all times carry property, liability and
other insurance, with insurers reasonably acceptable to Lender, in such form and
amounts, and with such deductibles and other provisions, as Lender shall
require, and Borrower will provide evidence of such insurance to Lender, so that
Lender is satisfied that such insurance is, at all times, in full force and
effect. Each property insurance policy shall name Lender as loss payee and shall
contain a lender's loss payable endorsement in form acceptable to Lender, each
liability insurance policy shall name Lender as an additional insured, and each
business interruption insurance policy shall be collaterally assigned to Lender,
all in form and substance satisfactory to Lender. All policies of insurance
shall provide that they may not be cancelled or changed without at least thirty
days' prior written notice to Lender, shall contain breach of warranty coverage,
and shall otherwise be in form and substance satisfactory to Lender. Upon
receipt of the proceeds of any such insurance, Lender shall apply such proceeds
in reduction of the Obligations as Lender shall determine in its sole
discretion. Borrower will promptly deliver to Lender copies of all reports made
to insurance companies.
Financial and Collateral Reports. Borrower has kept and will keep
adequate records and books of account with respect to its business activities
and the Collateral in which proper entries are made in accordance with GAAP
reflecting all its financial transactions, and will cause to be prepared and
furnished to Lender the following (all to be prepared in accordance with GAAP,
unless Borrower's certified public accountants concur in any change therein and
such change is disclosed to Lender):
Collateral Reports. On or before the fifteenth day of each month,
an aging of Borrower's Accounts, Chattel Paper and notes receivable, and weekly
Inventory reports, all in such form, and together with such additional
certificates, schedules and other information with respect to the Collateral or
the business of Borrower or any Obligor, as Lender shall request; provided, that
Borrower's failure to execute and deliver the same shall not affect or limit
Lender's security interests and other rights in any of the Accounts, nor shall
Lender's failure to advance or lend against a specific Account affect or limit
Lender's security interest and other rights therein. Together with each such
schedule, Borrower shall furnish Lender with copies (or, at Lender's request,
originals) of all contracts, orders, invoices, and other similar documents, and
all original shipping instructions, delivery receipts, bills of lading, and
other evidence of delivery, for any goods the sale or disposition of which gave
rise to such Accounts, and Borrower warrants the genuineness of all of the
foregoing. In addition, Borrower shall deliver to Lender the originals of all
Instruments, Chattel Paper, security agreements, guaranties and other documents
and property evidencing or securing any Accounts, immediately upon receipt
thereof and in the same form as received, with all necessary endorsements.
Lender may destroy or otherwise dispose of all documents, schedules and other
papers delivered to Lender pursuant to this Agreement (other than originals of
Instruments, Chattel Paper, security agreements, guaranties and other documents
and property evidencing or securing any Accounts) six months after Lender
receives them, unless Borrower requests their return in writing in advance and
arranges for their return to Borrower at Borrower's expense.
Annual Statements. Not later than 105 days after the close of
each fiscal year of Borrower, unqualified (except for a qualification for a
change in accounting principles with which the accountant concurs) audited
financial statements of Borrower and its Subsidiaries as of the end of such
year, on a consolidated and consolidating basis, certified by a firm of
independent certified public accountants of recognized standing selected by
Borrower but acceptable to Lender, together with a copy of any management letter
issued in connection therewith and a letter from such accountants acknowledging
that Lender is relying on such financial statements; provided, that such letter
may be delivered to Lender no later than (i) two Business Days after it is
delivered to Borrower by its accountants, and (ii) sixty days after Borrower
receives such audited financial statements from its accountants;
Interim Statements. Not later than twenty days after the end of
each month hereafter(or thirty days in the case of the interim financial
statement for September) unaudited interim financial statements of Borrower and
its Subsidiaries as of the end of such month and of the portion of Borrower's
fiscal year then elapsed, on a consolidated and consolidating basis, certified
by the principal financial officer of Borrower as prepared in accordance with
GAAP and fairly presenting the consolidated financial position and results of
operations of Borrower and its Subsidiaries for such month and period subject
only to changes from audit and year-end adjustments and except that such
statements need not contain notes;
Projections, Etc. Such business projections, Availability
projections, business plans, budgets and cash flow statements for Borrower
and its Subsidiaries as Lender shall request from time to time;
Shareholder Reports, Etc. Promptly after the sending or filing
thereof, as the case may be, copies of any proxy statements, financial
statements or reports which Borrower has made available to its shareholders and
copies of any regular, periodic and special reports or registration statements
which Borrower files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or any national
securities exchange;
ERISA Reports. Upon request by Lender, copies of any annual
report to be filed pursuant to the requirements of ERISA in connection with each
plan subject thereto; and
Other Information. Such other data and information (financial and
otherwise) as Lender, from time to time, may reasonably request, bearing upon or
related to the Collateral or Borrower's and each of its Subsidiary's financial
condition or results of operations.
Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Lender with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Lender, make available
Borrower and its officers, employees and agents, and Borrower's books and
records, without charge, to the extent that Lender may deem them reasonably
necessary in order to prosecute or defend any such suit or proceeding.
Maintenance of Collateral, Etc. Borrower will maintain all of its
Equipment in good working condition, ordinary wear and tear excepted, and
Borrower will not use the Collateral for any unlawful purpose. Borrower will
immediately advise Lender in writing of any material loss or damage to the
Collateral and of any investigation, action, suit, proceeding or claim relating
to the Collateral or which may result in an adverse impact upon Borrower's
business, assets or financial condition.
Notification of Changes. Borrower will promptly notify Lender in writing
of any change in its officers or directors, the opening of any new bank account
or other deposit account, or any material adverse change in the business or
financial affairs of Borrower or the existence of any circumstance which would
make any representation or warranty of Borrower untrue in any material respect
or constitute a material breach of any covenant of Borrower.
Further Assurances. Borrower agrees, at its expense, to take all
actions, and execute or cause to be executed and delivered to Lender all
promissory notes, security agreements, agreements with landlords, mortgagees and
processors and other bailees, subordination and intercreditor agreements and
other agreements, instruments and documents as Lender may request from time to
time, to perfect and maintain Lender's security interests in the Collateral and
to fully effectuate the transactions contemplated by this Agreement.
Negative Covenants. Except as set forth in Section 13 of Schedule A,
Borrower will not, without Lender's prior written consent, (i) merge or
consolidate with another Person, form any new Subsidiary or acquire any interest
in any Person; (ii) acquire any assets except in the ordinary course of business
and as otherwise permitted by this Agreement and the other Loan Documents; (iii)
enter into any transaction outside the ordinary course of business; (iv) sell or
transfer any Collateral or other assets, except that Borrower may sell finished
goods Inventory and obsolete Inventory in the ordinary course of its business;
(v) make any loans to, or investments in, any Affiliate or other Person in the
form of money or other assets; (vi) incur any debt outside the ordinary course
of business; (vii) guaranty or otherwise become liable with respect to the
obligations of another party or entity; (viii) pay or declare any dividends or
other distributions on Borrower's stock, if Borrower is a corporation (except
for dividends payable solely in capital stock of Borrower) or with respect to
any equity interests, if Borrower is not a corporation; (ix) redeem, retire,
purchase or otherwise acquire, directly or indirectly, any of Borrower's capital
stock or other equity interests; (x) make any change in Borrower's capital
structure; (xi) dissolve or elect to dissolve; (xii) pay any principal or
interest on any indebtedness owing to an Affiliate, (xiii) enter into any
transaction with an Affiliate other than on arms-length terms; or (xiv) agree to
do any of the foregoing.
Financial Covenants.
Capital Expenditures. Borrower will not expend or commit to
expend, directly or indirectly, for capital expenditures (including capital
lease obligations) in excess of the amount set forth in Section 8(a) of Schedule
A as the Capital Expenditure Limitation in any fiscal year.
Net Worth. Borrower will at all times maintain a net worth
of at least the amount set forth in Section 8(b) of Schedule A.
Tangible Net Worth. Borrower will at all times maintain a
minimum tangible net worth of at least the amount set forth in Section 8(c)
of Schedule A.
Working Capital. Borrower will at all times maintain working
capital of at least the amount set forth in Section 8(d) of Schedule A.
Net Losses. Borrower will not permit its cumulative net
loss to exceed the amount set forth in Section 8(e) of Schedule A.
Net Income. Borrower will not permit its cumulative net
income to be less than the amount set forth in Section 8(f) of Schedule A.
Leverage. Borrower will not permit the ratio of its total
liabilities to its net worth to exceed, at any time, the ratio set forth in
Section 8(g) of Schedule A.
Other Financial Covenants. Borrower will comply with any
additional financial covenants set forth in Section 8(j) of Schedule A.
RELEASE AND INDEMNITY.
Release. Borrower hereby releases Lender and its Affiliates and their
respective directors, officers, employees, attorneys and agents and any other
Person affiliated with or representing Lender (the "Released Parties") from any
and all liability arising from acts or omissions under or pursuant to this
Agreement, whether based on errors of judgment or mistake of law or fact, except
for those arising from willful misconduct or gross negligence. However, in no
circumstance will any of the Released Parties be liable for lost profits or
other special or consequential damages. Such release is made on the date hereof
and remade upon each request for a Loan or Credit Accommodation by Borrower.
Without limiting the foregoing:
Lender shall not be liable for (i) any shortage or discrepancy
in, damage to, or loss or destruction of, any goods, the sale or other
disposition of which gave rise to an Account; (ii) any error, act, omission, or
delay of any kind occurring in the settlement, failure to settle, collection or
failure to collect any Account; (iii) settling any Account in good faith for
less than the full amount thereof; or (iv) any of Borrower's obligations under
any contract or agreement giving rise to an Account; and
In connection with Credit Accommodations or any underlying
transaction, Lender shall not be responsible for the conformity of any goods to
the documents presented, the validity or genuineness of any documents, delay,
default or fraud by Borrower, shippers and/or any other Person. Borrower agrees
that any action taken by Lender, if taken in good faith, or any action taken by
an issuer of any Credit Accommodation, under or in connection with any Credit
Accommodation, shall be binding on Borrower and shall not create any resulting
liability to Lender. In furtherance thereof, Lender shall have the full right
and authority to clear and resolve any questions of non-compliance of documents,
to give any instructions as to acceptance or rejection of any documents or
goods, to execute for Borrower's account any and all applications for steamship
or airway guaranties, indemnities or delivery orders, to grant any extensions of
the maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents, and to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the Credit Accommodations or applications and other documentation pertaining
thereto.
Indemnity. Borrower hereby agrees to indemnify the Released Parties and
hold them harmless from and against any and all claims, debts, liabilities,
demands, obligations, actions, causes of action, penalties, costs and expenses
(including attorneys' fees), of every nature, character and description, which
the Released Parties may sustain or incur based upon or arising out of any of
the transactions contemplated by this Agreement or the other Loan Documents or
any of the Obligations, including any transactions or occurrences relating to
the issuance of any Credit Accommodation, the Collateral relating thereto, any
drafts thereunder and any errors or omissions relating thereto (including any
loss or claim due to any action or inaction taken by the issuer of any Credit
Accommodation) (and for this purpose any charges to Lender by any issuer of
Credit Accommodations shall be conclusive as to their appropriateness and may be
charged to the Loan Account), or any other matter, cause or thing whatsoever
occurred, done, omitted or suffered to be done by Lender relating to Borrower or
the Obligations (except any such amounts sustained or incurred as the result of
the willful misconduct or gross negligence of the Released Parties).
Notwithstanding any provision in this Agreement to the contrary, the indemnity
agreement set forth in this Section shall survive any termination of this
Agreement.
TERM.
Maturity Date. Lender's obligation to make Loans and to provide Credit
Accommodations under this Agreement shall initially continue in effect until the
Initial Maturity Date set forth in Section 7 of Schedule A (the "Initial Term");
provided, that such date shall automatically be extended (the Initial Maturity
Date, as it may be so extended, being referred to as the "Maturity Date") for
successive additional terms of three years each (each a "Renewal Term"), unless
one party gives written notice to the other, not less than sixty days prior to
the Maturity Date, that such party elects not to extend the Maturity Date. This
Agreement and the other Loan Documents and Lender's security interests in and
Liens upon the Collateral, and all representations, warranties and covenants of
Borrower contained herein and therein, shall remain in full force and effect
after the Maturity Date until all of the monetary Obligations are indefeasibly
paid in full.
Early Termination. Lender's obligation to make Loans and to provide
Credit Accommodations under this Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective thirty business days after
written notice of termination is given to Lender or (ii) by Lender at any time
after the occurrence of an Event of Default, without notice, effective
immediately; provided, that if any Affiliate of Borrower is also a party to a
financing arrangement with Lender, no such early termination by Borrower shall
be effective unless such Affiliate simultaneously terminates its financing
arrangement with Lender. If so terminated under this Section 7.2, Borrower shall
pay to Lender (i) an early termination fee (the "Early Termination Fee") in the
amount set forth in Section 6(h) of Schedule A plus (ii) any earned but unpaid
Facility Fee. Such fee shall be due and payable on the effective date of
termination and thereafter shall bear interest at a rate equal to the highest
rate applicable to any of the Obligations. In addition, if Borrower so
terminates and repays the Obligations without having provided Lender with at
least thirty days' prior written notice thereof, an additional amount equal to
thirty days of interest at the applicable Interest Rate(s), based on the average
outstanding amount of the Obligations for the six month period immediately
preceding the date of termination.
Payment of Obligations. On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay in full all Obligations, whether or not
all or any part of such Obligations are otherwise then due and payable. Without
limiting the generality of the foregoing, if, on the Maturity Date or on any
earlier effective date of termination, there are any outstanding Credit
Accommodations, then on such date Borrower shall provide to Lender cash
collateral in an amount equal to 110% of the Credit Accommodation Balance to
secure all of the Obligations (including estimated attorneys' fees and other
expenses) relating to said Credit Accommodations or such greater percentage or
amount as Lender reasonably deems appropriate, pursuant to a cash pledge
agreement in form and substance satisfactory to Lender.
Effect of Termination. No termination shall affect or impair any right
or remedy of Lender or relieve Borrower of any of the Obligations until all of
the monetary Obligations have been indefeasibly paid in full. Upon indefeasible
payment and performance in full of all of the monetary Obligations (and the
provision of cash collateral with respect to any Credit Accommodation Balance as
required by Section 7.3) and termination of this Agreement, Lender shall
promptly deliver to Borrower termination statements, requests for reconveyances
and such other documents as may be reasonably required to terminate Lender's
security interests in the Collateral.
EVENTS OF DEFAULT AND REMEDIES.
Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Lender immediate written notice thereof: (i) if any warranty, representation,
statement, report or certificate made or delivered to Lender by Borrower or any
of Borrower's officers, employees or agents is untrue or misleading; (ii) if
Borrower fails to pay when due any principal or interest on any Loan or any
other monetary Obligation; (iii) if Borrower breaches any covenant or obligation
contained in this Agreement or any other Loan Document or fails to perform any
other non-monetary Obligation and such breach or failure continues for five days
after Notice to Borrower; (iv) if any levy, assessment, attachment, seizure,
lien or encumbrance (other than a Permitted Lien) is made or permitted to exist
on all or any part of the Collateral; (v) if one or more judgments aggregating
in excess of $50,000, or any injunction or attachment, is obtained against
Borrower or any Obligor or which remains unstayed for more than ten days or is
enforced; (vi) the occurrence of any default under any financing agreement,
security agreement or other agreement, instrument or document executed and
delivered by (A) Borrower with, or in favor of, any Person other than Lender or
(B) Borrower or any Affiliate of Borrower with, or in favor of, Lender or any
Affiliate of Lender; (vii) the dissolution, death, termination of existence in
good standing, insolvency or business failure or suspension or cessation of
business as usual of Borrower or any Obligor (or of any general partner of
Borrower or any Obligor if it is a partnership) or the appointment of a
receiver, trustee or custodian for all or any part of the property of, or an
assignment for the benefit of creditors by Borrower or any Obligor, or the
commencement of any proceeding by Borrower or any Obligor under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, or if Borrower makes or sends a notice of a bulk transfer or
calls a meeting of its creditors; (viii) the commencement of any proceeding
against Borrower or any Obligor under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; (ix) the actual or
attempted revocation or termination of, or limitation or denial of liability
upon, any guaranty of the Obligations, or any security document securing the
Obligations, by any Obligor; (x) if Borrower makes any payment on account of any
indebtedness or obligation which has been subordinated to the Obligations other
than as permitted in the applicable subordination agreement, or if any Person
who has subordinated such indebtedness or obligations attempts to limit or
terminate its subordination agreement; (xi) if there is any actual or threatened
indictment of Borrower or any Obligor under any criminal statute or commencement
or threatened commencement of criminal or civil proceedings against Borrower or
any Obligor, pursuant to which the potential penalties or remedies sought or
available include forfeiture of any property of Borrower or such Obligor; (xii)
if TST ceases to own all of the outstanding capital stock of each of Borrower,
TS Auto, ARCS and TS Oil; (xiii) if there is any change in the chief executive
officer or chief operating officer of Borrower which Lender fails to approve in
the exercise of Lender's reasonable discretion; (xiv) if an Event of Default
occurs under any Loan and Security Agreement between Lender and an Affiliate of
Borrower; or (xv) if Lender determines in good faith that the Collateral is
insufficient to fully secure the Obligations or that the prospect of payment of
performance of the Obligations is impaired.
Remedies. Upon the occurrence of any Default, and at any time
thereafter, Lender, at its option, may cease making Loans or otherwise extending
credit to Borrower under this Agreement or any other Loan Document. Upon the
occurrence of any Event of Default, and at any time thereafter, Lender, at its
option, and without notice or demand of any kind (all of which are hereby
expressly waived by Borrower), may do any one or more of the following: (i)
cease making Loans or otherwise extending credit to Borrower under this
Agreement or any other Loan Document; (ii) accelerate and declare all or any
part of the Obligations to be immediately due, payable and performable,
notwithstanding any deferred or installment payments allowed by any instrument
evidencing or relating to any of the Obligations; (iii) take possession of any
or all of the Collateral wherever it may be found, and for that purpose Borrower
hereby authorizes Lender, without judicial process, to enter onto any of
Borrower's premises without interference to search for, take possession of,
keep, store, or remove any of the Collateral, and remain (or cause a custodian
to remain) on the premises in exclusive control thereof, without charge for so
long as Lender deems it reasonably necessary in order to complete the
enforcement of its rights under this Agreement or any other agreement; provided,
that if Lender seeks to take possession of any of the Collateral by court
process, Borrower hereby irrevocably waives (A) any bond and any surety or
security relating thereto required by law as an incident to such possession, (B)
any demand for possession prior to the commencement of any suit or action to
recover possession thereof and (C) any requirement that Lender retain possession
of, and not dispose of, any such Collateral until after trial or final judgment;
(iv) require Borrower to assemble any or all of the Collateral and make it
available to Lender at one or more places designated by Lender which are
reasonably convenient to Lender and Borrower, and to remove the Collateral to
such locations as Lender may deem advisable; (v) complete the processing,
manufacturing or repair of any Collateral prior to a disposition thereof and,
for such purpose and for the purpose of removal, Lender shall have the right to
use Borrower's premises, vehicles and other Equipment and all other property
without charge; (vi) sell, lease or otherwise dispose of any of the Collateral,
in its condition at the time Lender obtains possession of it or after further
manufacturing, processing or repair, at one or more public or private sales, in
lots or in bulk, for cash, exchange or other property, or on credit (a "Sale"),
and to adjourn any such Sale from time to time without notice other than oral
announcement at the time scheduled for Sale (and, in connection therewith, (A)
Lender shall have the right to conduct such Sale on Borrower's premises without
charge, for such times as Lender deems reasonable, on Lender's premises, or
elsewhere, and the Collateral need not be located at the place of Sale; (B)
Lender may directly or through any of its Affiliates purchase or lease any of
the Collateral at any such public disposition, and if permissible under
applicable law, at any private disposition and (C) any Sale of Collateral shall
not relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title, physical condition or otherwise at the time of sale);
(vii) demand payment of and collect any Accounts, Chattel Paper, Instruments and
General Intangibles included in the Collateral and, in connection therewith,
Borrower irrevocably authorizes Lender to endorse or sign Borrower's name on all
collections, receipts, Instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of Collateral or proceeds thereof and, in Lender's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Accounts, General Intangibles and the like for less than face value; and (viii)
demand and receive possession of any of Borrower's federal and state income tax
returns and the books and records utilized in the preparation thereof or
relating thereto. In addition to the foregoing remedies, upon the occurrence of
any Event of Default resulting from a breach of any of the financial covenants
set forth in Section 5.19, Lender may, at its option, upon not less than ten
days' prior notice to Borrower, reduce any or all of the Advance Rates set forth
in Section 1(b) of Schedule A to the extent Lender, in its sole discretion,
deems appropriate. In addition to the rights and remedies set forth above,
Lender shall have all the other rights and remedies accorded a secured party
after default under the UCC and under all other applicable laws, and under any
other Loan Document, and all of such rights and remedies are cumulative and
non-exclusive. Exercise or partial exercise by Lender of one or more of its
rights or remedies shall not be deemed an election or bar Lender from subsequent
exercise or partial exercise of any other rights or remedies. The failure or
delay of Lender to exercise any rights or remedies shall not operate as a waiver
thereof, but all rights and remedies shall continue in full force and effect
until all of the Obligations have been fully paid and performed. If notice of
any sale or other disposition of Collateral is required by law, notice at least
seven days prior to the sale designating the time and place of sale in the case
of a public sale or the time after which any private sale or other disposition
is to be made shall be deemed to be reasonable notice, and Borrower waives any
other notice. If any Collateral is sold or leased by Lender on credit terms or
for future delivery, the Obligations shall not be reduced as a result thereof
until payment is collected by Lender.
Application of Proceeds. Subject to any application required by law, all
proceeds realized as the result of any Sale shall be applied by Lender to the
Obligations in such order as Lender shall determine in its sole discretion. Any
surplus shall be paid to Borrower or other persons legally entitled thereto; but
Borrower shall remain liable to Lender for any deficiency. If Lender, in its
sole discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any Sale, Lender shall have the option,
exercisable at any time, in its sole discretion, of either reducing the
Obligations by the principal amount of the purchase price or deferring the
reduction of the Obligations until the actual receipt by Lender of the cash
therefor.
GENERAL PROVISIONS.
Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally, by reputable private delivery
service, by regular first-class mail or certified mail return receipt requested,
addressed to Lender or Borrower at the address shown in the heading to this
Agreement, or by facsimile to the facsimile number shown in Section 9(i) of
Schedule A, or at any other address (or to any other facsimile number)
designated in writing by one party to the other party in the manner prescribed
in this Section 9.1. All notices shall be deemed to have been given when
received or when delivery is refused by the recipient.
Severability. If any provision of this Agreement, or the application
thereof to any party or circumstance, is held to be void or unenforceable by any
court of competent jurisdiction, such defect shall not affect the remainder of
this Agreement, which shall continue in full force and effect.
Integration. This Agreement and the other Loan Documents represent the
final, entire and complete agreement between Borrower and Lender and supersede
all prior and contemporaneous negotiations, oral representations and agreements,
all of which are merged and integrated into this Agreement. THERE ARE NO ORAL
UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT
SET FORTH IN THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
Waivers. The failure of Lender at any time or times to require Borrower
to strictly comply with any of the provisions of this Agreement or any other
Loan Documents shall not waive or diminish any right of Lender later to demand
and receive strict compliance therewith. Any waiver of any default shall not
waive or affect any other default, whether prior or subsequent, and whether or
not similar. None of the provisions of this Agreement or any other Loan Document
shall be deemed to have been waived by any act or knowledge of Lender or its
agents or employees, but only by a specific written waiver signed by an
authorized officer of Lender and delivered to Borrower. Borrower waives demand,
protest, notice of protest and notice of default or dishonor, notice of payment
and nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, Instrument, Account, General Intangible, Document, Chattel
Paper, Investment Property or guaranty at any time held by Lender on which
Borrower is or may in any way be liable, and notice of any action taken by
Lender, unless expressly required by this Agreement, and notice of acceptance
hereof.
Amendment. The terms and provisions of this Agreement may not be
amended or modified except in a writing executed by Borrower and a duly
authorized officer of Lender.
Time of Essence. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement and the other Loan Documents.
Attorneys Fees and Costs. Borrower shall reimburse Lender for all
reasonable attorneys' and paralegals' fees (including in-house attorneys and
paralegals employed by Lender) and all filing, recording, search, title
insurance, appraisal, audit, and other costs incurred by Lender, pursuant to, in
connection with, or relating to this Agreement, including all reasonable
attorneys' fees and costs Lender incurs to prepare and negotiate this Agreement
and the other Loan Documents; to obtain legal advice in connection with this
Agreement and the other Loan Documents or Borrower or any Obligor; to administer
this Agreement and the other Loan Documents (including the cost of periodic
financing statement, tax lien and other searches conducted by Lender); to
enforce, or seek to enforce, any of its rights; prosecute actions against, or
defend actions by, Account Debtors; to commence, intervene in, or defend any
action or proceeding; to initiate any complaint to be relieved of the automatic
stay in bankruptcy; to file or prosecute any probate claim, bankruptcy claim,
third-party claim, or other claim; to examine, audit, copy, and inspect any of
the Collateral or any of Borrower's books and records; to protect, obtain
possession of, lease, dispose of, or otherwise enforce Lender's security
interests in, the Collateral; and to otherwise represent Lender in any
litigation relating to Borrower. If either Lender or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its reasonable costs and attorneys'
fees, including reasonable attorneys' fees and costs incurred in the enforcement
of, execution upon or defense of any order, decree, award or judgment. All
attorneys' fees and costs to which Lender may be entitled pursuant to this
Section shall immediately become part of the Obligations, shall be due on
demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations.
Benefit of Agreement; Assignability. The provisions of this Agreement
shall be binding upon and inure to the benefit of the respective successors,
assigns, heirs, beneficiaries and representatives of Borrower and Lender;
provided, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Lender, and any prohibited
assignment shall be void. No consent by Lender to any assignment shall release
Borrower from its liability for any of the Obligations. Lender shall have the
right to assign all or any of its rights and obligations under the Loan
Documents, and to sell participating interests therein, to one or more other
Persons, and Borrower agrees to execute all agreements, instruments and
documents requested by Lender in connection with each such assignment and
participation.
Headings; Construction. Section and subsection headings are used in this
Agreement only for convenience. Borrower and Lender acknowledge that the
headings may not describe completely the subject matter of the applicable
Sections or subsections, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Lender or Borrower under any rule of construction or
otherwise.
GOVERNING LAW; CONSENT TO FORUM, ETC. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED, AND SHALL BE DEEMED TO HAVE BEEN MADE, IN
NEW YORK, NEW YORK, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE AND
FEDERAL COURTS IN NEW YORK, NEW YORK OR THE STATE IN WHICH ANY OF THE COLLATERAL
IS LOCATED SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT, ANY
OTHER LOAN DOCUMENTS OR ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT
OR THE OTHER LOAN DOCUMENTS. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND
WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. BORROWER ALSO AGREES THAT
ANY CLAIM OR DISPUTE BROUGHT BY BORROWER AGAINST LENDER PURSUANT TO THIS
AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY MATTER ARISING OUT OF THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT SHALL BE BROUGHT EXCLUSIVELY IN THE STATE AND FEDERAL
COURTS OF NEW YORK. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE IN THE MANNER
AND SHALL BE DEEMED RECEIVED AS SET FORTH IN SECTION 9.1 FOR NOTICES, TO THE
EXTENT PERMITTED BY LAW. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER
OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE THE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
WAIVER OF JURY TRIAL, ETC. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY
JURY (WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM
OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE
OBLIGATIONS OR THE COLLATERAL OR ANY CONDUCT, ACTS OR OMISSIONS OF LENDER OR
BORROWER OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR
AGENTS OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE; (ii) THE RIGHT TO INTERPOSE ANY CLAIMS,
DEDUCTIONS, SETOFFS OR COUNTERCLAIMS OF ANY KIND IN ANY ACTION OR PROCEEDING
INSTITUTED BY LENDER WITH RESPECT TO THE LOAN DOCUMENTS OR ANY MATTER RELATING
THERETO, EXCEPT FOR COMPULSORY COUNTERCLAIMS; (iii) NOTICE PRIOR TO LENDER'S
TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH
MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF
LENDER'S REMEDIES AND (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND
EXEMPTION LAWS. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING
UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER
WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS
LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
IN WITNESS WHEREOF, Borrower and Lender have signed this Agreement as of
the date set forth in the heading.
Borrower: Lender:
TOP SOURCE INSTRUMENTS, INC. NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By____________________________________
By______________________________ Its Authorized Signatory
Its_____________________________
<PAGE>
A-5
Schedule A
Description of Certain Terms
This Schedule is an integral part of the Loan and Security Agreement
between TOP SOURCE INSTRUMENTS, INC. and NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION (the "Agreement").
1. Loan Limits for Revolving Loans:
(a) Maximum Facility Amount:
$ 5,000,000
(b) Advance Rates:
(i) Accounts Advance 85 %; provided, that if the Dilution
Rate: Percentage exceeds 5 %, such advance
rate will be reduced by the number of
full or partial percentage points of
such excess
(ii) Inventory Advance
Rate(s):
(A) Finished goods: 50 %
(B) Raw materials: 50 %
(C) Work in process: Not applicable
(c) Accounts Sublimit: Not applicable
(d) Inventory Sublimit(s):
(i) Overall sublimit $250,000 (the "Sublimit Base
Line"), minus the excess, on advances if any, of
(i) the TS Auto Loan Balance that is against
Eligible predicated on eligible inventory of TS
Auto over (ii) Inventory $1,250,000 provided that
if Borrower's collected cash revenue attributable
to Borrower's sale of its on-site analyzer
for the 6 month period commencing with the
date of this Agreement totals less than $500,000,
the Sublimit Base Line shall be reduced by $41,666
on the first day of each of the 5 calendar months
immediately following said 6 month period, and the
Sublimit Base Line shall further be reduced to $0
on the first day of the immediately following
calendar month.
(ii) Sublimit on Not applicable
advances against
finished goods
(iii) Sublimit on Not applicable
advances against
raw materials
(iv) Sublimit on Not applicable
advances against
work in process
(e) Credit Accommodation Not applicable
Limit:
(f) Permanent Reserve Amount: Not applicable
(g) Overadvance Amount: Not applicable
(h) Maximum Combined $ 5,000,000 minus the
Facility Amount: TS Auto Loan Balance
at such time
2. Loan Limits for Term Loan:
(a) Principal Amount:
(i) Equipment Advance Not applicable
(ii) Real Property Not applicable
Advance:
(b) Repayment Schedule:
(i) Equipment Advance: Not applicable
(ii) Real Property Not applicable
Advance:
3. Interest Rates:
(a) Revolving Loans: 1.50 % per annum
in excess of the
Prime Rate
(b) Term Loan: Not applicable
4. Minimum Loan Amount: $2,500,000 in the
aggregate for Borrower
and TS Auto
5. Maximum Days:
(a) Maximum days after
original invoice date for
Eligible Accounts:
90
(b) Maximum days after
original invoice due date
for Eligible Accounts:
Not applicable
6. Fees:
(a) Closing Fee: $75,000, paid jointly
and severally by
Borrower and TS Auto
(b) Facility Fee:
(i) Initial Term: $ 50,000, paid jointly
and severally by
Borrower and TS Auto
(in 2 installments of
$25,000)
(ii) Renewal Term(s):
$75,000, paid jointly
and severally by
Borrower and TS Auto
(in 3 installments of
$25,000)
(c) Servicing Fee: Not applicable
(d) Unused Line Fee 0.25%
Percentage:
(e) Minimum Borrowing Fee:
(i) Applicable period: Each month
(ii) Date payable: The first day of each
month
(f) Success Fee: Not applicable
(g) Warrants: As set forth in a
separate agreement of
even date herewith
executed by TST
(h) Early Termination Fee: 3.0 % of the
Maximum Facility
Amount if terminated
during the first year
of the Term, 2.0 %
of the Maximum
Facility Amount if
terminated thereafter
and prior to the
Maturity Date, in
each case paid
jointly and
severally by Borrower
and TS Auto
(i) Fees for letters of credit Not applicable
and other Credit
Accommodations (or guaranties
thereof by Lender):
7. Initial Maturity Date: June 30, 2000
8. Financial Covenants:
(a) Capital Expenditure
Limitation: Not Applicable
(b) Minimum Net Worth
Requirement: Not Applicable
(c) Minimum Tangible Net
Worth: Not Applicable
(d) Minimum Working Capital:
Not Applicable
(e) Maximum Cumulative $2,000,000, exclusive
Pre-tax Net Loss: of extraordinary gains
and extraordinary losses,
for TST and each of its
Subsidiaries on a
consolidated basis for
each of Borrower's
fiscal years.
(f) Minimum Cumulative Net Not Applicable
Income:
(g) Maximum Leverage Ratio: Not Applicable
(h) Limitation on Purchase Not Applicable
Money Security Interests:
(i) Limitation on Equipment Not Applicable
Leases:
(j) Additional Financial None
Covenants:
9. Borrower Information:
(a) Prior Names of Borrower: On-Site Analysis, Inc.
(b) Prior Trade Names of None
Borrower:
(c) Existing Trade Names of None
Borrower:
(d) Inventory Locations: 1757 Larchwood
Troy, Michigan 48083
(e) Other Locations: 7108 Fairway Drive,
Suite 200
Palm Bch Gdns, Fl 33418
450 Park Ave., Ste 2100
New York, NY 10022
3125 Presidential Pkwy
Atlanta, Georgia 30340
(f) Litigation: As described in the
letter of even date
herewith delivered to
Lender
(g) Ownership of Borrower: Wholly-owned by TST
(h) Subsidiaries (and None
ownership thereof):
(i) Facsimile Numbers:
Borrower: (561) 691-5220
Lender: (212) 597-1666
10. Description of Real Property: Not applicable
11. Lender's Bank: The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
12. Other Covenants: Not applicable
13. Exceptions to Negative
Covenants: (i) Notwithstanding Section 5.18(i),
Borrower may purchase
certificates of deposit and
other short-term investments
for the purpose of temporarily
investing its idle cash in
accordance with its customary
cash management practices
(ii) Notwithstanding Section 5.18(v),
Borrower may make loans to
its employees, provided, that
the aggregate outstanding
balance of such loans made by
Borrower and its corporate
Affiliates does not exceed
$250,000 at any time.
IN WITNESS WHEREOF, Borrower and Lender have signed this
Schedule A as of the date set forth in the heading to the Agreement.
Borrower: Lender:
TOP SOURCE INSTRUMENTS, INC. NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By_________________________________
By______________________________ Its Authorized Signatory
Its____________________________
<PAGE>
B-8
Schedule B
Definitions
This Schedule is an integral part of the Loan and Security Agreement
between TOP SOURCE INSTRUMENTS, INC. and NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION (the "Agreement").
As used in the Agreement, the following terms have the following
meanings:
"Account" means any right to payment for Goods sold or leased or
for services rendered which is not evidenced by an Instrument or Chattel Paper,
whether or not it has been earned by performance.
"Account Debtor" means the obligor on an Account or Chattel
Paper.
"Account Proceeds" has the meaning set forth in Section 4.1.
"Affiliate" means, with respect to any Person, a relative,
partner, shareholder, member, manager, director, officer, or employee of such
Person, any parent or subsidiary of such Person, or any Person controlling,
controlled by or under common control with such Person or any other Person
affiliated, directly or indirectly, by virtue of family membership, ownership,
management or otherwise.
"Agreement" and "this Agreement" mean the Loan and Security
Agreement of which this Schedule B is a part and the Schedules thereto.
"ARCS" means ARCS Safety Seat, Inc., a Florida corporation and
an Affiliate of Borrower.
"Availability" has the meaning set forth in Section 1.1(a)
"Bankruptcy Code" means the United States Bankruptcy Code
(11 U.S.C. ss. 101 et seq.).
"Blocked Account" has the meaning set forth in Section 4.1.
"Borrower" has the meaning set forth in the heading to the
Agreement.
"Borrower's Address" has the meaning set forth in the heading
to the Agreement.
"Business Day" means a day other than a Saturday or Sunday or
any other day on which Lender or banks in New York are authorized to close.
"Chattel Paper" has the meaning set forth in the UCC.
"Collateral" means all property and interests in property in or
upon which a security interest or other Lien is granted pursuant to this
Agreement or the other Loan Documents.
"Credit Accommodation" has the meaning set forth in
Section 1.1(a).
"Credit Accommodation Balance" means the sum of (i) the
aggregate undrawn face amount of all outstanding Credit Accommodations and (ii)
all interest, fees and costs due or, in Lender's estimation, likely to become
due in connection therewith.
"Default" means any event which with notice or passage of time,
or both, would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 2.1.
"Deposit Account" has the meaning set forth in the UCC.
"Dilution Percentage" means the gross amount of all returns,
allowances, discounts, credits, write-offs and similar items relating to
Borrower's Accounts computed as a percentage of Borrower's gross sales,
calculated on a ninety (90) day rolling average.
"Document" has the meaning set forth in the UCC.
"Early Termination Fee" has the meaning set forth in
Section 7.2.
"Eligible Account" means, at any time of determination, an
Account which satisfies the general criteria set forth below and which is
otherwise acceptable to Lender (provided, that Lender may, in its sole
discretion, change the general criteria for acceptability of Eligible Accounts
upon at least fifteen days' prior notice to Borrower). An Account shall be
deemed to meet the current general criteria if (i) neither the Account Debtor
nor any of its Affiliates is an Affiliate, creditor or supplier of Borrower;
(ii) it does not remain unpaid more than the earlier to occur of (A) the number
of days after the original invoice date set forth in Section 5(a) of Schedule A
or (B) the number of days after the original invoice due date set forth in
Section 5(b) of Schedule A; (iii) the Account Debtor or its Affiliates are not
past due on other Accounts owing to Borrower comprising more than 25% of all of
the Accounts owing to Borrower by such Account Debtor or its Affiliates; (iv)
except with respect to Accounts owing by Chrysler Corporation, all Accounts
owing by the Account Debtor or its Affiliates do not represent more than 20% of
all otherwise Eligible Accounts (provided, that Accounts which are deemed to be
ineligible solely by reason of this clause (iv) shall be considered Eligible
Accounts to the extent of the amount thereof which does not exceed 20% of all
otherwise Eligible Accounts); (v) no covenant, representation or warranty
contained in this Agreement with respect to such Account (including any of the
representations set forth in Section 5.4) has been breached; (vi) the Account is
not subject to any contra relationship, counterclaim, dispute or set-off
(provided, that Accounts which are deemed to be ineligible solely by reason of
this clause (vi) shall be considered Eligible Accounts to the extent of the
amount thereof which is not affected by such contra relationships,
counterclaims, disputes or set-offs); (vii) the Account Debtor's chief executive
office or principal place of business is located in the United States or
Provinces of Canada which have adopted the Personal Property Security Act or a
similar act, unless (A) the sale is fully backed by a letter of credit, guaranty
or acceptance acceptable to Lender in its sole discretion, and if backed by a
letter of credit, such letter of credit has been issued or confirmed by a bank
satisfactory to Lender, is sufficient to cover such Account, and if required by
Lender, the original of such letter of credit has been delivered to Lender or
Lender's agent and the issuer thereof notified of the assignment of the proceeds
of such letter of credit to Lender or (B) such Account is subject to credit
insurance payable to Lender issued by an insurer and on terms and in an amount
acceptable to Lender; (viii) it is absolutely owing to Borrower and does not
arise from a sale on a bill-and-hold, guarantied sale, sale-or-return,
sale-on-approval, consignment, retainage or any other repurchase or return basis
or consist of progress billings; (ix) Lender shall have verified the Account in
a manner satisfactory to Lender; (x) the Account Debtor is not the United States
of America or any state or political subdivision (or any department, agency or
instrumentality thereof), unless Borrower has complied with the Assignment of
Claims Act of 1940 (31 U.S.C. ss.203 et seq.) or other applicable similar state
or local law in a manner satisfactory to Lender; (xi) it is at all times subject
to Lender's duly perfected, first priority security interest and to no other
Lien that is not a Permitted Lien, and the goods giving rise to such Account (A)
were not, at the time of sale, subject to any Lien except Permitted Liens and
(B) have been delivered to and accepted by the Account Debtor, or the services
giving rise to such Account have been performed by Borrower and accepted by the
Account Debtor; (xii) the Account is not evidenced by Chattel Paper or an
Instrument of any kind and has not been reduced to judgment; (xiii) the Account
Debtor's total indebtedness to Borrower does not exceed the amount of any credit
limit established by Borrower or Lender and the Account Debtor is otherwise
deemed to be creditworthy by Lender (provided, that Accounts which are deemed to
be ineligible solely by reason of this clause (xiii) shall be considered
Eligible Accounts to the extent the amount of such Accounts does not exceed the
lower of such credit limits); (xiv) there are no facts or circumstances
existing, or which could reasonably be anticipated to occur, which might result
in any adverse change in the Account Debtor's financial condition or impair or
delay the collectibility of all or any portion of such Account; (xv) Lender has
been furnished with all documents and other information pertaining to such
Account which Lender has requested, or which Borrower is obligated to deliver to
Lender, pursuant to this Agreement; (xvi) Borrower has not made an agreement
with the Account Debtor to extend the time of payment thereof beyond the time
periods set forth in clause (ii) above; and (xvii) Borrower has not posted a
surety or other bond in respect of the contract under which such Account arose.
"Eligible Equipment" means, at any time of determination,
Equipment owned by Borrower which Lender, in its sole discretion, deems to be
eligible for borrowing purposes.
"Eligible Inventory" means, at any time of determination,
Inventory (other than packaging materials and supplies) which satisfies the
general criteria set forth below and which is otherwise acceptable to Lender
(provided, that Lender may, in its sole discretion, change the general criteria
for acceptability of Eligible Inventory upon at least fifteen days' prior
written notice to Borrower). Inventory shall be deemed to meet the current
general criteria if (i) it consists of raw materials or finished goods; (ii) it
is in good, new and saleable condition; (iii) it is not slow-moving, obsolete,
unmerchantable, returned or repossessed; (iv) it is not in the possession of a
processor, consignee or bailee, or located on premises leased or subleased to
Borrower, or on premises subject to a mortgage in favor of a Person other than
Lender, unless such processor, consignee, bailee or mortgagee or the lessor or
sublessor of such premises, as the case may be, has executed and delivered all
documentation which Lender shall require to evidence the subordination or other
limitation or extinguishment of such Person's rights with respect to such
Inventory and Lender's right to gain access thereto; (v) it meets all standards
imposed by any governmental agency or authority; (vi) it conforms in all
respects to any covenants, warranties and representations set forth in the
Agreement; (vii) it is at all times subject to Lender's duly perfected, first
priority security interest and no other Lien except a Permitted Lien; and (viii)
it is situated at an Inventory Location listed in Section 9(d) of Schedule A or
other location of which Lender has been notified as required by Section 5.6.
"Eligible Real Property" means, at any time of determination,
Real Property owned by Borrower which Lender, in its sole discretion, deems to
be eligible for borrowing purposes.
"Equipment" means all Goods which are used or bought for use
primarily in business (including farming or a profession) or by a Person who is
a non-profit organization or governmental subdivision or agency and which are
not Inventory, farm products or consumer goods, including all machinery, molds,
machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dies and jigs, and all attachments,
accessories, accessions, replacements, substitutions, additions or improvements
to, or spare parts for, any of the foregoing.
"Equipment Advance" has the meaning set forth in Section 1.1(b).
"ERISA" means the Employee Retirement Income Security Act of
1974 and all rules, regulations and orders promulgated thereunder.
"Event of Default" has the meaning set forth in Section 8.1.
"GAAP" means generally accepted accounting principles as in
effect from time to time, consistently applied.
"General Intangibles" has the meaning set forth in the UCC, and
includes all books and records pertaining to the Collateral and other business
and financial records in the possession of Borrower or any other Person,
inventions, designs, drawings, blueprints, patents, patent applications,
trademarks, trademark applications (other than "intent to use" applications
until a verified statement of use is filed with respect to such applications)
and the goodwill of the business symbolized thereby, names, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises, customer
lists, security and other deposits, causes of action and other rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, rights to purchase or sell real or personal property, rights as a
licensor or licensee of any kind, royalties, telephone numbers, internet
addresses, proprietary information, purchase orders, and all insurance policies
and claims (including life insurance, key man insurance, credit insurance,
liability insurance, property insurance and other insurance), tax refunds and
claims, letters of credit, banker's acceptances and guaranties, computer
programs, discs, tapes and tape files in the possession of Borrower or any other
Person, claims under guaranties, security interests or other security held by or
granted to Borrower, all rights to indemnification and all other intangible
property of every kind and nature.
"Goods" means all things which are movable at the time the
security interest attaches or which are fixtures (other than money, Documents,
Instruments, Investment Property, Accounts, Chattel Paper, General Intangibles,
or minerals or the like (including oil and gas) before extraction), including
standing timber which is to be cut and removed under a conveyance or contract
for sale, the unborn young of animals, and growing crops.
"Initial Term" has the meaning set forth in Section 7.1.
"Instrument" has the meaning set forth in the UCC.
"Inventory" means all Goods held for sale or lease or furnished
or to be furnished under contracts of service, including all raw materials, work
in process, finished goods, goods in transit and materials and supplies which
are or might be used or consumed in a business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such Goods,
and all products of the foregoing, and shall include interests in goods
represented by Accounts, returned, reclaimed or repossessed goods and rights as
an unpaid vendor.
"Investment Property" shall mean all of Borrower's securities,
whether certificated or uncertificated, securities entitlements, securities
accounts, commodity contracts and commodity accounts.
"Lender" has the meaning set forth in the heading to the
Agreement.
"Lien" means any interest in property securing an obligation
owed to, or a claim by, a Person other than the owner of the property, whether
such interest is based on common law, statute or contract, including rights of
sellers under conditional sales contracts or title retention agreements and
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting property. For the purpose of this Agreement, Borrower shall be deemed
to be the owner of any property which it has acquired or holds subject to a
conditional sale agreement or other arrangement pursuant to which title to the
property has been retained by or vested in some other Person for security
purposes.
"Loan Account" has the meaning set forth in Section 2.4.
"Loan Documents" means the Agreement and all notes, guaranties,
security agreements, certificates, landlord's agreements, Lock Box and Blocked
Account agreements and all other agreements, documents and instruments now or
hereafter executed or delivered by Borrower or any Obligor in connection with,
or to evidence the transactions contemplated by, this Agreement.
"Loan Limits" means, collectively, the Availability limits and
all other limits on the amount of Loans and Credit Accommodations set forth in
this Agreement.
"Loans" means, collectively, the Revolving Loans and any Term
Loan.
"Lock Box" has the meaning set forth in Section 4.1.
"Maturity Date" has the meaning set forth in Section 7.1.
"Obligations" means all present and future Loans, advances,
debts, liabilities, obligations, guaranties, covenants, duties and indebtedness
at any time owing by Borrower to Lender, whether evidenced by this Agreement or
any other Loan Document, whether arising from an extension of credit, opening of
a Credit Accommodation, guaranty, indemnification or otherwise (including all
fees, costs and other amounts which may be owing to issuers of Credit
Accommodations and all taxes, duties, freight, insurance, costs and other
expenses, costs or amounts payable in connection with Credit Accommodations or
the underlying goods), whether direct or indirect (including those acquired by
assignment and any participation by Lender in Borrower's indebtedness owing to
others), whether absolute or contingent, whether due or to become due, and
whether arising before or after the commencement of a proceeding under the
Bankruptcy Code or any similar statute, including all interest, charges,
expenses, fees, attorney's fees, expert witness fees, audit fees, letter of
credit fees, loan fees, Early Termination Fees, Minimum Borrowing Fees and any
other sums chargeable to Borrower under this Agreement or under any other Loan
Document.
"Obligor" means any guarantor, endorser, acceptor, surety or
other person liable on, or with respect to, the Obligations or who is the owner
of any property which is security for the Obligations, other than Borrower. For
purposes of this Agreement, TST, TS Auto, ARCS and TS Oil are deemed to be
Obligors.
"Permitted Liens" means: (i) purchase money security interests
in specific items of Equipment in an aggregate amount not to exceed the limit
set forth in Section 8(h) of Schedule A; (ii) leases of specific items of
Equipment in an aggregate amount not to exceed the limit set forth in Section
8(i) of Schedule A; (iii) Liens for taxes not yet due and payable; (iv)
additional Liens which are fully subordinate to the security interests of Lender
and are consented to in writing by Lender; (v) security interests being
terminated concurrently with the execution of this Agreement; (vi) Liens of
materialmen, mechanics, warehousemen or carriers arising in the ordinary course
of business and securing obligations which are not delinquent; (vii) Liens
incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by Liens of the type described in clause (i) or (ii) above;
provided, that any extension, renewal or replacement Lien is limited to the
property encumbered by the existing Lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods; and (ix) security
deposits posted in connection with real property leases or subleases. Lender
will have the right to require, as a condition to its consent under clause (iv)
above, that the holder of the additional Lien sign an intercreditor agreement in
form and substance satisfactory to Lender, in its sole discretion, acknowledging
that the Lien is subordinate to the security interests of Lender, and agreeing
not to take any action to enforce its subordinate Lien so long as any
Obligations remain outstanding, and that Borrower agree that any uncured default
in any obligation secured by the subordinate Lien shall also constitute an Event
of Default under this Agreement.
"Person" means any individual, sole proprietorship, partnership,
joint venture, limited liability company, trust, unincorporated organization,
association, corporation, government or any agency or political division
thereof, or any other entity.
"Prime Rate" means, at any given time, the prime rate as quoted
in The Wall Street Journal as the base rate on corporate loans posted as of such
time by at least 75% of the nation's 30 largest banks (which rate is not
necessarily the lowest rate offered by such banks).
"Real Property" means the real property described in
Section 10 of Schedule A.
"Real Property Advance" has the meaning set forth in
Section 1.1(b).
"Released Parties" has the meaning set forth in Section 6.1.
"Renewal Term" has the meaning set forth in Section 7.1.
"Reserves" has the meaning set forth in Section 1.2.
"Revolving Loans" has the meaning set forth in Section 1.1(a).
"Sale" has the meaning set forth in Section 8.2.
"Subsidiary" means any corporation or other entity of which a
Person owns, directly or indirectly, through one or more intermediaries, more
than 50% of the capital stock or other equity interest at the time of
determination.
"Term" means the period commencing on the date of this Agreement
and ending on the Maturity Date.
"Term Loan" has the meaning set forth in Section 1.1(b).
"TS Auto" means Top Source Automotive, Inc., a Florida
corporation and an Affiliate of Borrower.
"TS Auto Loan Agreement" means the Loan and Security Agreement
of even date herewith between TS Auto and Lender, as it may be amended or
otherwise modified from time to time.
"TS Auto Loan Balance" means the outstanding balance of all
monetary obligations (including without limitation the aggregate undrawn face
amount of all outstanding letters of credit, bankers acceptances and other
credit accommodations and all interest, fees and costs due or, in Lender's
estimation, likely to become due in connection therewith) of TS Auto under the
TS Auto Loan Agreement.
"TS Oil" means Top Source Oil Analysis, Inc., a Georgia
corporation.
"TST" means Top Source Technologies, Inc., a Delaware
corporation and the sole shareholder of Borrower.
"UCC" means, at any given time, the Uniform Commercial Code as
adopted and in effect at such time in the State of New York.
All accounting terms used in this Agreement, unless otherwise indicated,
shall have the meanings given to such terms in accordance with GAAP. All other
terms contained in this Agreement, unless otherwise indicated, shall have the
meanings provided by the UCC, to the extent such terms are defined therein. The
term "including," whenever used in this Agreement, shall mean "including but not
limited to." The singular form of any term shall include the plural form, and
vice versa, when the context so requires. References to Sections, subsections
and Schedules are to Sections and subsections of, and Schedules to, this
Agreement. All references to agreements and statutes shall include all
amendments thereto and successor statutes in the case of statutes.
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule B as
of the date set forth in the heading to the Agreement.
Borrower: Lender:
TOP SOURCE INSTRUMENTS, INC. NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By___________________________________
/s/ David Natan Its Authorized Signatory
By_______________________________
Its______________________________
Vice President and CFO
Exhibit 10.26
Top Source Technologies, Inc.
7108 Fairway Drive
Suite 200
Palm Beach Gardens, FL 33418
Effective as of June 1, 1997
Mr. Stuart Landow
Top Source Technologies, Inc.
450 Park Avenue, Suite 2100
New York, NY 10022-2660
Re: Employment Agreement
Dear Mr. Landow:
We refer to the Employment Agreement dated as of August 18,
1993, as amended by the letter agreement dated November 30, 1993 (as so amended,
the "Employment Agreement") between you and Top Source Technologies, Inc. (the
"Company").
Section 3 of the Employment Agreement provides that the
initial five year term of the Employment Agreement shall continue in effect
until August 18, 1998, unless earlier terminated pursuant to the Employment
Agreement, "provided, however, that the term of [the Employment Agreement] shall
automatically be extended without further action of either party for additional
one year periods unless written notice of either party's intention not to extend
shall have been provided to the other party ...
no later than one year prior to the end of the then effective term".
Section 6 of the Employment Agreement provides, inter alia,
that upon your resignation from employment with the Company for "Good Reason"
you shall be entitled to certain benefits. "Good Reason" is defined to include
"any action by the Company which results in a material diminution in [your]
position, authority, duties or responsibilities as set forth in [the Employment]
Agreement".
As you know, the Company's Board of Directors has determined
that it would best serve stockholder interests to augment top management by
retaining the services of an additional executive, as chief executive officer
(the "New Executive"), to work with you in executing the Company's business
plan. Indeed, as you know, in recent days the Company and Mr. William Willis,
Jr. have agreed on the principal terms under which Mr. Willis has assumed the
position of chief executive officer of the Company. The Company acknowledges
that the retention of Mr. Willis as the New Executive has triggered your right
to resign from employment with the Company for Good Reason.
The Company believes that it would be in the best interests of
the Company and its stockholders for you to continue your employment with the
Company for some period of time after the Company retains the New Executive,
without requiring you to waive any rights that you may have under the Employment
Agreement. This would enable you and the Company to evaluate your relationship
with the New Executive and the Company and determine whether you will continue
your employment with the Company on a longer-term basis, and if so on what
terms.
Accordingly, it has been agreed that Section 3 of the
Employment Agreement will be amended by extending the initial term so that it
expires on June 1, 1999 (rather than August 18, 1998), unless earlier terminated
pursuant to the Employment Agreement, and we have agreed that (i) during the
period from the date of this letter through June 1, 1998, you and the Company
shall negotiate in good faith in an effort to reach agreement on the terms and
conditions of a new employment agreement taking into account your duties and
responsibilities (although it is understood and acknowledged that neither you
nor the Company shall be under any legal obligation to enter into such an
agreement), and (ii) you will be able to exercise your right to terminate the
Employment Agreement for "Good Reason" based on the Company retaining the New
Executive (and any such termination shall not be treated as a breach of your
obligation under clause (i) of this sentence) only during the period commencing
on July 1, 1997 and ending on July 1, 1998; provided, however, that no matter
what date during such period you elect to exercise such right to terminate the
Employment Agreement for "Good Reason" based on the Company retaining the New
Executive, the payments that you will be entitled to receive under the
Employment Agreement will be calculated as if such termination had taken place
on July 1, 1997, except that your previously granted options on Company stock
will continue to be exercisable for one year from your actual date of
termination in accordance with the terms of the grant agreements covering such
options.
The foregoing is without prejudice to any other rights of
either party to the Employment Agreement, including either party's rights to
take any actions to which they may be entitled upon a breach of the Employment
Agreement by the other party.
To indicate your agreement with and acceptance of this
amendment to the Employment Agreement, please evidence such agreement by
executing the acknowledgment below and returning it to Weil, Gotshal & Manges
LLP, 767 Fifth Avenue, New York, NY 10153, Fax: (212) 310-8007, Attention:
Dennis J. Block.
Except as specifically amended above, the Employment Agreement
shall remain in full force and effect.
This Amendment may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument. The execution of this Amendment may
be by actual or facsimile signature.
TOP SOURCE TECHNOLOGIES, INC.
/s/ William C. Willis, Jr.
By:__________________________
Name: William C. Willis, Jr.
Title: President and CEO
Acknowledged and Agreed:
/s/STUART LANDOW
- ------------------------
Stuart Landow
