UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter Ended
June 30, 1999
Commission File Number 1-2723
ATHEY PRODUCTS CORPORATION
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 36-0753480
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1839 South Main Street, Wake Forest, North Carolina 27587-9289
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 919-556-5171
Not Applicable
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Former name, former address and former fiscal year, If changed since last
report
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 and 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 ___.
Number of Common Shares Outstanding as of June 30, 1999: 3,805,608
ATHEY PRODUCTS CORPORATION
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I N D E X
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Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C> <C> <C>
Balance Sheets as of June 30, 1999 (unaudited) and December 31,
1998. 3 - 4
Statements of Operations for the six months ended June 30, 1999
(unaudited) and June 30, 1998 (unaudited). 5
Statements of Operations for the three months ended June 30, 1999
(unaudited) and June 30, 1998 (unaudited). 6
Statements of Cash Flows for the six months ended June 30, 1999
(unaudited) and June 30, 1998 (unaudited). 7
Notes to Financial Statements. 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 12
PART II. OTHER INFORMATION 13 - 14
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2
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ATHEY PRODUCTS CORPORATION
<TABLE>
<CAPTION>
BALANCE SHEETS
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June 30, December 31,
1999 1998
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 515,224 $ 143,391
Accounts receivable (less allowances for
doubtful accounts of $331,362 and $285,280,
for 1999 and 1998 respectively) 3,922,701 2,974,180
Inventories 16,240,195 16,466,109
Prepaid expenses 202,605 43,153
Deferred income taxes 107,489 107,489
-----------------------------
Total current assets 20,988,214 19,734,322
-----------------------------
OTHER ASSETS:
Other 2,230 2,230
-----------------------------
Total other assets 2,230 2,230
-----------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 47,785 47,785
Buildings and building improvements 3,940,997 3,929,722
Machinery and equipment 5,070,032 5,043,279
-----------------------------
9,058,814 9,020,786
Less accumulated depreciation (5,605,885) (5,421,676)
-----------------------------
Total property, plant and equipment, net 3,452,929 3,599,110
-----------------------------
$24,443,373 $23,335,662
=============================
</TABLE>
See notes to financial statements.
3
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ATHEY PRODUCTS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
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June 30, December 31,
1999 1998
-------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowing $ 5,000,000 $ 4,391,000
Accounts payable 3,862,099 3,542,854
Employee compensation and
amounts withheld 458,648 438,424
Other accrued expenses 360,094 320,733
Warranty reserve 1,855,252 1,746,166
-------------- --------------
Total current liabilities 11,536,093 10,439,177
-------------- --------------
NONCURRENT LIABILITIES:
Deferred income taxes 107,489 107,489
-------------- --------------
Total noncurrent liabilities 107,489 107,489
-------------- --------------
SHAREHOLDERS' EQUITY:
Common stock, par value $2 per share:
Authorized 10,000,000 shares;
Issued 4,020,459 shares 8,040,918 8,040,918
Additional paid-in capital 16,218,394 16,218,394
Retained earnings (deficit) (10,530,963) (10,541,758)
Less cost of 214,851 common
shares in treasury (928,558) (928,558)
-------------- --------------
Total shareholders' equity 12,799,791 12,788,996
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$ 24,443,373 $ 23,335,662
============== ==============
</TABLE>
See notes to financial statements.
4
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ATHEY PRODUCTS CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
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Six Months Six Months
Ended Ended
June 30, June 30,
1999 1998
--------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 20,493,974 $ 15,093,061
Cost of goods sold 16,917,902 12,888,159
--------------- ----------------
Gross profit 3,576,072 2,204,902
Selling, administrative and engineering expenses 3,382,224 3,379,294
--------------- ----------------
Earnings (loss) from operations 193,848 (1,174,392)
Other income 38,755 2,109,030
Other expenses 221,808 52,573
--------------- ----------------
Earnings before income tax benefit 10,795 882,065
Income tax benefit - (39,149)
--------------- ----------------
NET EARNINGS $ 10,795 $ 921,214
=============== ================
NET EARNINGS PER SHARE $ 0.00 $ 0.24
=============== ================
pWEIGHTED AVERAGE SHARES OUTSTANDING 3,805,608 3,805,608
=============== ================
</TABLE>
See notes to financial statements.
5
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ATHEY PRODUCTS CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
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Three Months Three Months
Ended Ended
June 30, June 30,
1999 1998
--------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES 10,925,928 8,044,593
Cost of goods sold 8,792,877 7,369,171
--------------- ---------------
Gross profit 2,133,051 675,422
Selling, administrative and engineering expenses 1,717,706 1,817,086
--------------- ---------------
Earnings (loss) from operations 415,345 (1,141,664)
Other income 24,979 2,101,897
Other expenses 122,246 51,488
--------------- ---------------
Earnings before income tax benefit 318,078 908,745
Income tax benefit - (30,149)
--------------- ---------------
NET EARNINGS $ 318,078 $ 938,894
=============== ===============
NET EARNINGS PER SHARE $ 0.08 $ 0.24
=============== ===============
WEIGHTED AVERAGE SHARES OUTSTANDING 3,805,608 3,805,608
=============== ===============
</TABLE>
See notes to financial statements.
6
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ATHEY PRODUCTS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
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Six Months Ended Six Months Ended
June 30,1999 June 30,1998
---------------- ----------------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $ 10,795 $ 921,214
Adjustments to reconcile net earnings
To net cash used in operating
activities:
Depreciation and amortization 184,209 236,566
Provision for doubtful accounts 46,082 25,000
Provision for deferred income tax - (464,337)
Gain on sale of marketable securities - (2,095,965)
Changes in operating assets and liabilities:
Accounts receivable (994,603) (1,985,792)
Inventories 225,914 392,244
Prepaid expenses (159,452) 299,323
Accounts payable 319,245 (1,247,203)
Employee compensation and amounts
withheld 20,224 18,378
Other accrued expenses 39,361 136,711
Warranty reserve 109,086 434,190
Income taxes payable - 425,189
--------------- -------------
Net cash used in operating
activities (199,139) (2,904,482)
--------------- -------------
INVESTING ACTIVITIES:
Purchase of plant equipment (38,028) (154,397)
Proceeds from sale of marketable
securities - 3,041,716
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Net cash provided by (used
in) investing activities (38,028) 2,887,319
--------------- -------------
FINANCING ACTIVITIES:
Proceeds from line of credit 609,000 7,869,000
Repayment of line of credit - (3,846,000)
Excess of outstanding checks over
bank balance - (949,800)
Principal paid on obligations under
capital lease - (14,507)
--------------- -------------
Net cash provided by
financing activities 609,000 3,058,693
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NET INCREASE IN CASH
AND CASH EQUIVALENTS
371,833 3,041,530
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 143,391 6,880
--------------- --------------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 515,224 $ 3,048,410
=============== ==============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 221,782 $ 51,245
=============== ==============
</TABLE>
See notes to financial statements.
7
<PAGE>
ATHEY PRODUCTS CORPORATION
NOTES TO FINANCIAL STATEMENTS
I. The condensed financial statements included herein have been prepared by
Athey Products Corporation (the "Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations; however, the Company believes that the disclosures are
adequate to make the information presented not misleading. It is suggested
that these financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's latest annual
report on Form 10-K for the year ended December 31, 1998.
II. The financial information reflects all adjustments, which are, in the
opinion of Management, necessary to a fair presentation of the results for
the interim period presented.
III. Earnings (loss) per share amounts are computed on the basis of the weighted
average number of shares outstanding during the period, which were
3,805,608 in 1999 and 1998.
8
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ATHEY PRODUCTS CORPORATION
Item 2. Management's Discussion and Analysis of Financial condition and
Results of Operations.
The forward-looking statements included in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section, which
reflect management's best judgment based on factors currently known, involve
risks and uncertainties. Words such as "expects", "anticipates", "believes",
"intends", and "hopes", variations of such words and similar expressions are
intended to identify such forward-looking statements. Actual results could
differ materially from those anticipated in these forward-looking statements as
a result of a number of factors, including but not limited to, the factors
discussed in such section. Forward-looking information provided by the Company
in such section pursuant to the safe harbor established under the Private
Securities Litigation Reform Act of 1995 should be evaluated in the context of
these factors.
RESULTS OF OPERATIONS
Significant Events Affecting Comparability
The comparability of statement of operations data has been affected by the
following significant items.
o In May 1998, the Company sold its marketable securities for $3,041,716.
This sale resulted in a pre-tax gain of $2,095,965. The effect was an
increase in net earnings after tax of $1,383,337 or $.36 per share.
9
<PAGE>
Six Months Ended June 30, 1999
as compared to
Six Months Ended June 30, 1998
The Company's net sales for the six months ended June 30, 1999 were $20,493,974,
a 35.8% or $5,400,913 increase from the $15,093,061 recorded for the same period
in 1998. The sales increase reflects a 51.3% increase in the number of sweepers
shipped during the period as compared to the same period for 1998. This volume
increase was partially offset by a 13.9% decrease in replacement parts sales.
The increase in sweeper shipments was primarily attributable to productivity
improvements.
Cost of goods sold as a percentage of net sales was 82.6% for the six months
ended June 30, 1999 as compared to 85.4% during the same period for 1998. 1998
was adversely impacted by production inefficiencies resulting from delays in
receiving manufacturing parts.
The Company's selling, administrative and engineering expenses increased $2,930
to $3,382,224 or 16.5% of net sales, from $3,379,294 or 22.4% of net sales.
Selling, administrative and engineering expenses in 1999 have been favorably
impacted by personnel reductions and lower warranty expenses, which were offset
by increased legal and professional fees.
Earnings from operations for the first six months of 1999 represent a $1,368,240
improvement over the operational results reported from the same six months in
1998. This improvement is primarily attributable to steps taken to streamline
the Company's operations.
Other income for 1999 was $38,755 as compared to $2,109,030 recorded in 1998.
Included in other income for 1998 was a pre-tax gain of $2,095,965 on the sale
of marketable securities.
Other expenses for 1999 were $221,808 as compared to $52,573 recorded in 1998.
This increase in other expenses for 1999 is primarily related to increased
interest expense associated with the borrowings on the Company's line of credit.
The net earnings for the six months ended June 30, 1999, was $10,795 or $.00 per
share, as compared to a net earnings of $921,214 or $.24 per share recorded for
the same period in 1998.
10
<PAGE>
Three Months Ended June 30, 1999 ("Second Quarter 1999")
as compared to
Three Months Ended June 30, 1998 ("Second Quarter 1998")
The Company's net sales for the Second Quarter 1999 were $10,925,928,
representing a 35.8%, or $2,881,335 increase, from net sales of $8,044,593
achieved in the Second Quarter 1998. This sales increase is attributable to a
56.7% increase in number of units shipped, partially offset by a 22.8% decline
in replacement parts sales. The Second Quarter 1999 increase in sweeper
shipments was primarily attributable to productivity improvements.
The cost of goods sold, as a percentage of net sales, was 80.5% in the Second
Quarter 1999 compared with 91.6% in the Second Quarter 1998. The Second Quarter
1998 amount reflects significant manufacturing inefficiencies resulting from
delays in receiving manufacturing parts.
The Company's selling, administrative, and engineering expenses decreased
$99,380 to $1,717,706 or 15.7% of net sales, in the Second Quarter 1999 from
$1,817,086 or 22.6% of net sales in the Second Quarter 1998. The decrease is a
result of on-going cost reduction efforts initiated in the First Quarter of
1999.
Other income for the Second Quarter 1999 was $24,979 as compared to $2,101,897
recorded in the Second Quarter 1998. Included in other income for Second Quarter
1998 was a pre-tax gain of $2,095,965 on the sale of marketable securities.
Other expenses for the Second Quarter 1999 were $122,246 as compared to $51,488
recorded in the Second Quarter 1998. This increase in other expenses for the
Second Quarter 1999 is related to increased interest expense associated with the
borrowings on Company's line of credit.
The net earnings for the three months ended June 30, 1999 was $318,078 or $.08
per share, as compared to net earnings of $938,894 or $.24 per share for the
three months ended June 30, 1998.
Effects of Inflation
The Company attempts to minimize the impact of inflation on production and
operating costs through cost control programs and productivity improvements.
Over the past three years, the rate of inflation has not had a significant
impact on the Company's operations. Prices paid for raw materials and other
manufacturing inputs have remained fairly stable throughout this period. On a
longer-term basis, the Company has demonstrated an ability to adjust the sales
prices of its products in reaction to changing costs.
Liquidity and Capital Resources
At June 30, 1999, the Company had working capital of $9,452,121; the ratio of
current assets to current liabilities was 1.8 to 1; and the debt to equity ratio
was .91 to 1.
This compares to working capital of $9,295,145; a ratio of current assets to
current liabilities of 1.9 to 1; and a debt to equity ratio of .82 to 1 at
December 31, 1998.
11
<PAGE>
The Company did not authorize any common stock repurchases during 1999 or 1998.
The Company closed on a new credit facility with NationsCredit Commercial
Corporation on June 30, 1999, and which was funded on July 7, 1999. The new
credit facility is in the form of a revolving and term loan credit facility,
which is secured by all the assets and inventory of the company, and will
provide an aggregate principal amount of up to $9 million for working capital
and the repayment of its prior credit facility. The new credit facility provides
the financing needed by the Company to continue its increased sales growth.
Year 2000 Issue
The Company has assessed its Year 2000 exposure and determined the consequences
that any Year 2000 problems might have on the Company's business, results of
operations or financial condition, or cause the Company to incur potential
liability to third parties if its computer systems are not Year 2000 compliant.
As part of its assessment, the Company canvassed its customers and suppliers and
reviewed the Year 2000 disclosures of certain publicly-traded entities that
provide or have provided the Company with computer and financial services,
including computer equipment and software, to determine whether Year 2000 issues
will have a material effect on the Company or such third parties. Based on the
results of its assessment, the Company believes its computer software and
equipment will be Year 2000 compliant. The Company has, however, developed a
contingency plan in the event its expectations regarding the Year 2000 problem
are incorrect. Because of the uncertainly surrounding the Year 2000 problem,
however, the Company can give no assurances that its assessment or its
contingency plan will avoid potential, material effects of the Year 2000
problem.
The Company does not anticipate that any incremental expenditures it may incur
as a result of Year 2000 issues will be material. The Company uses certain
accounting, word processing and inventory management software as part of its
day-to-day operations. Although a shutdown of all its computer systems could
cause delays in production or shipments of products to customers, the Company
does not expect such an interruption. In a worst case scenario, Year 2000
problems affecting the Company, the Company's bank accounts or the business
operations of the Company's customers could materially, adversely affect the
Company's production operation or its ability to meet its obligations to third
parties.
Nevertheless, in the event that Year 2000 problems have a material effect on the
Company, its customers or service providers, the Company expects to have
sufficient cash reserves and inventory to meet its payroll and various other
obligations pending resolution of any significant Year 2000 issues.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities. None.
Item 3. Defaults upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. The annual
meeting of stockholders for the Company was held on May 27, 1999, at
which meeting the following matters were voted on by the stockholders:
(i) Set the number of directors at five (5) (3,642,362 for, 0 against,
and 55,599 abstaining) and Election of Directors.
<TABLE>
<CAPTION>
Votes Abstaining
Name Votes for Votes Against and Broker Non-Votes
---- --------- ------------- --------------------
<S> <C> <C> <C>
John P. Kelly 3,642,364 0 163,244
John F. McCullough 3,643,524 0 162,084
Martin W. McCullough 3,642,442 0 163,166
Thomas N. Nelson 3,643,765 0 161,843
Richard A. Rosenthal 3,642,362 0 163,246
</TABLE>
(ii) Ratification of the Appointment of Auditors
Votes Abstaining
Votes For Votes Against and Broker Non-Votes
--------- ------------- --------------------
3,692,939 2,280 110,389
Item 5. Other Information.
The Board of Directors of the Company announced the election of the
following on June 3, 1999:
Thomas N. Nelson President and Chief Executive Officer
Wes O. Brant Vice-President Operations
Lawrence C. Ball Vice-President Materials
William E. Carty Vice-President Manufacturing
William H. Warden Vice-President Finance, Chief Financial
Officer, and Corporate Treasurer
Phyllis C. Pearce Corporate Secretary
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Loan and Security Agreement entered into on June 30, 1999, between
Athey Products Corporation and NationsCredit Commercial
Corporation, through is NationsCredit Commercial Funding Division.
(b) No reports on Form 8-K have been filed during the Quarter for which
this report is filed.
14
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATHEY PRODUCTS CORPORATION
Date: July 23, 1999 /s/ Thomas N. Nelson
-------------------------------------------
Thomas N. Nelson
President and Chief Executive Officer
Date: July 23, 1999 /s/ William H. Warden
-------------------------------------------
William H. Warden
Vice-President Finance,
Chief Financial Officer, and
Corporate Treasurer
15
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (as it may be amended, this "AGREEMENT")
is entered into on June 30, 1999 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
ATHEY PRODUCTS CORPORATION ("BORROWER"), whose chief executive office is located
at 1839 South Main Street, Wake Forest, North Carolina 27587 ("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.
1. LOANS AND CREDIT ACCOMMODATIONS.
1.1 AMOUNT. Subject to the terms and conditions contained in this
Agreement, Lender will:
(a) REVOLVING LOANS AND CREDIT ACCOMMODATIONS. From time to time
during the Term at Borrower's request and provided that no Event of Default
exists, make revolving loans to Borrower ("REVOLVING LOANS"), and may (as
provided in Section 1.3 hereof) 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 Facility Amount set forth in Section 1(a) 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:
(i) 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
(i) the lower of cost or market value of Eligible Inventory
multiplied by the Inventory Advance Rate(s) set forth in Section
1(b) of Schedule A, but not to exceed the applicable Inventory
Sublimit(s) set forth in Section 1(d) of Schedule A;
MINUS
<PAGE>
(i) 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
(i) the outstanding balance of all of the monetary
Obligations (EXCLUDING the Credit Accommodation Balance and the
principal balance of the Term Loan); and
PLUS
(i) the Overadvance Amount, if any, set forth in Section 1(g) of
Schedule A.
(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 applicable, 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."
1.1 RESERVES. Lender may from time to time establish and revise such
reserves as Lender deems appropriate in its sole discretion reasonably exercised
("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 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, if any,
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
<PAGE>
NATIONSCREDIT COMMERCIAL FUNDING
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.
1.1 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.
1.1 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.
1.1 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. 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; and at any time the outstanding principal balance of the Loans is
less than the Minimum Loan Amount, Borrower shall pay Lender a Minimum Borrowing
Fee in accordance with Section 2.2(e).
1. INTEREST AND FEES.
1.1 INTEREST. The principal amount of 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, the principal amount of 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
<PAGE>
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.
1.1 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:
(a) CLOSING FEE. A closing fee in the amount set forth in Section
6(a) of Schedule A, which shall be deemed to be fully earned as of, and payable
on, the date hereof.
(a) FACILITY FEES. (i) A facility fee for the Initial Term, which
shall be fully earned as of the date of this Agreement, and shall be payable in
equal installments in the amount set forth in Section 6(b)(i) of Schedule A on
each anniversary of this Agreement during the Initial Term, and (ii) a facility
fee for each Renewal Term, which shall be fully earned as of the first day of
such Renewal Term, and shall be payable in equal installments in the amount set
forth in Section 6(b)(ii) of Schedule A on the first day of such Renewal Term
and on each anniversary thereof during such Renewal Term.
(a) 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.
(a) 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 exceeds the average daily outstanding
principal balance of the Loans and the Credit Accommodation Balance during the
immediately preceding 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.
(a) 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.
(a) 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.
(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.
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NATIONSCREDIT COMMERCIAL FUNDING
(a) CREDIT ACCOMMODATION FEES. All of the fees relating to Credit
Accommodations set forth in Section 6(i) of Schedule A.
1.1 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.
1.1 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 60 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.
1. SECURITY INTEREST.
1.1 To secure the full payment and performance of all of the Obligations,
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 (including, without limitation, all of
Borrower's right, title and interest in and to each Distributor Agreement and in
Borrower's security interest and liens with respect to each distributor under
each Distributor Agreement, including, each UCC financing statement filed by
Borrower against each distributor), 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.
The due and punctual payment and performance of the Obligations shall also
be secured by the lien created by the Mortgage upon all of the Real Estate of
Borrower described therein. The Mortgage shall be executed by Borrower in favor
of Lender on the date hereof and shall be duly recorded, at Borrower's expense,
in each office where such recording is required to constitute a fully perfected
first priority Lien on the Real Estate covered thereby.
<PAGE>
1. ADMINISTRATION.
1.1 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.
1.1 REMITTANCE OF PROCEEDS. Except as provided in Section 4.1, all
proceeds arising from the sale or other disposition of any Collateral 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.
1.1 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.
1.1 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).
1.1 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
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NATIONSCREDIT COMMERCIAL FUNDING
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) after the occurrence of a Default or an Event of
Default, 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) after the occurrence of a Default or
an Event of Default, 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, or 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.
1.1 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.
1.1 INVOICES. At Lender's request at any time after the occurrence of an
Event of Default, 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.
<PAGE>
1.1 INVENTORY.
(a) 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.
(a) 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, (ii) sell any
Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent
basis or (iii) make any material modification or amendment to any Distributor
Agreement. All of the Inventory has been produced only in accordance with the
Fair Labor Standards Act of 1938 and all rules, regulations and orders
promulgated thereunder. Borrower agrees that Lender or independent appraisers
acceptable to Lender may conduct appraisals of Borrower's Inventory once every
twelve months and that Borrower shall pay all of the costs and expenses arising
from such appraisals.
1.1 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 in accordance with the terms of
the Confidentiality Agreement. 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 $750 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 Person agreeing
to give Lender the same rights with respect to access to books and records and
related rights as Lender has under this Agreement).
1. 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):
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NATIONSCREDIT COMMERCIAL FUNDING
1.1 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
(other than (i) violations of Borrower's agreements with Wachovia Bank, N.A.
which will be cured and terminated concurrently with the disbursement of the
initial loan proceeds under this Agreement and (ii) potential violations of
Borrower's equipment lease agreements previously provided to Lender by virtue of
Borrower's grant to Lender of a security interest in Borrower's rights and
interests in such equipment lease agreements), 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.
1.1 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
and trade names of Borrower for the last 10 years and all of Borrower's present
trade names. Borrower shall give Lender at least thirty 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.
1.1 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 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, 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 and
substance 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.
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1.2 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 Law.
1.1 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.
1.1 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 thirty
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
promptly execute and deliver all financing statements and other agreements,
instruments and documents which Lender shall require as a result thereof.
1.1 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.
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1.1 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.
1.1 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.
1.1 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.
1.1 USE OF PROCEEDS. All proceeds of all Loans will be used solely for
lawful business purposes.
1.1 INSURANCE. Borrower will at all times carry property, liability and
other insurance, with insurers 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.
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1.1 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):
(a) 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 in excess of the dollar amount most recently provided by
Lender to Borrower, 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.
(a) ANNUAL STATEMENTS. Not later than 90 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;
(a) INTERIM STATEMENTS. Not later than 15 days after the end of each
month hereafter, including the last month of Borrower's fiscal year, 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;
(a) 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;
(a) 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
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NATIONSCREDIT COMMERCIAL FUNDING
Borrower files with the Securities and Exchange Commission or any governmental
authority which may be substituted therefor, or any national securities
exchange;
(a) 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
(a) 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.
1.1 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.
1.1 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.
1.1 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.
1.1 YEAR 2000 COMPLIANCE. Borrower has (i) initiated a review and
assessment of all areas within its and each of its Affiliates' business and
operations (including those affected by suppliers and vendors) that could be
adversely affected by the "Year 2000 Problem" (that, the risk that computer
applications used by Borrower or any of its Affiliates (or its suppliers and
vendors) may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem
on a timely basis, and (iii) to date, implemented that plan in accordance with
that timetable. Borrower reasonably believes that all computer applications
(including those of its suppliers and vendors) that are material to its or any
of its Affiliates' business and operations will on a timely basis be able to
perform properly date- sensitive functions for all dates before and after
January 1, 2000 (that is, be "Year 2000 Compliant"), except to the extent that a
failure to do so could not reasonably be expected to have a material adverse
effect on Borrower or the Property. Borrower will promptly notify Lender in the
event the Borrower discovers or determines that any computer application
(including those of its suppliers and vendors) that is material to its or any of
its Affiliates' business and operations will not be Year 2000 Compliant on a
timely basis, except to the extent that such failure could not reasonably be
expected to have a material adverse effect.
1.1 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
<PAGE>
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 or any of the
other Loan Documents.
1.1 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 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) to the extent within the control of Borrower or its officers,
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.
1.1 FINANCIAL COVENANTS.
(a) 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.
(a) 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.
(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.
(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.
(a) NET LOSSES. Borrower will not permit its cumulative net loss to
exceed the amount set forth in Section 8(e) of Schedule A.
(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.
(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.
(a) OTHER FINANCIAL COVENANTS. Borrower will comply with any
additional financial covenants set forth in Section 8(j) of Schedule A.
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NATIONSCREDIT COMMERCIAL FUNDING
1. RELEASE AND INDEMNITY.
1.1 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 the Released Parties' gross negligence or willful
misconduct. 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:
(a) 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
(a) 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.
1.1 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 gross negligence or willful misconduct 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.
1. TERM.
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1.1 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.
1.1 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 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 30 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.
1.1 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.
1.1 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.
1. EVENTS OF DEFAULT AND REMEDIES.
1.1 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
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NATIONSCREDIT COMMERCIAL FUNDING
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;
provided, that any breach of any covenant or other obligation contained in the
first two sentences of Section 5.1, Section 5.8, Section 5.9, Sections 5.13(b),
5.13(c), 5.13(d), 5.13(f), 5.13(g) or Section 5.14 of this Agreement shall not
constitute an Event of Default until 15 days after the earlier of (a) Borrower
has knowledge of or should have had knowledge of the existence of such breach or
(b) notice by Lender to Borrower of such breach; (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 which remains unstayed for more than 15
days or is enforced; (vi) the occurrence of any material 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 there is a change in the record or beneficial ownership of an aggregate of
more than 10% of the outstanding shares of stock of Borrower owned by John F.
McCullough, in one or more transactions, compared to the ownership of
outstanding shares of stock of Borrower owned by John F. McCullough as of the
date hereof, without the prior written consent of Lender; (xiii) if there is any
change in the chief executive officer, chief operating officer or chief
financial officer of Borrower and such officer is not replaced with a person
acceptable to Lender within 30 days of the date of any such change; or (xiv) if
an Event of Default occurs under any Loan and Security Agreement between Lender
and an Affiliate of Borrower.
1.1 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
<PAGE>
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 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 Law, 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 Applicable Law,
notice at least seven days prior to the Sale designating the time and place of
the 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.
1.1 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
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NATIONSCREDIT COMMERCIAL FUNDING
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.
1. GENERAL PROVISIONS.
1.1 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 intended recipient.
1.1 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.
1.1 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.
1.1 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.
1.1 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.
1.1 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.
<PAGE>
1.1 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.
1.1 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.
1.1 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.
1.1 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, 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 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
<PAGE>
NATIONSCREDIT COMMERCIAL FUNDING
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 COUNTY. 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.
1.1 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:
ATHEY PRODUCTS CORPORATION
<PAGE>
By: /s/ William H. Warden
-------------------------------------
WILLIAM H. WARDEN, Vice President - Finance/
Treasurer
[CORPORATE SEAL]
Accepted and agreed to in New York, New York:
LENDER:
NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By:/s/ Robert Bellish
--------------------------
Its Authorized Signatory
<PAGE>
Schedule A
Description of Certain Terms
This Schedule is an integral part of the Loan and Security Agreement dated
June 30, 1999, between ATHEY PRODUCTS CORPORATION and NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION (the
"AGREEMENT").
1. Loan Limits for Revolving Loans:
(a) Maximum Facility Amount: $9,000,000
(b) Advance Rates:
(i) Accounts Advance Rate: 80%; PROVIDED, that if the Dilution
Percentage exceeds 8.0%, Lender may (i) reduce the advance
rate by the number of full or partial percentage points of
such excess or (ii) implement a Reserve sufficient to cover
any such excess (and, for so long as no Event of Default
exists, such Reserve shall be implemented without duplication
of any other Reserves in effect at such time)
(ii) Inventory Advance Rates:
(A) New Finished Goods68% (B) Used Finished Good 9% (C)
Manufactured Raw M17%rials: (D) Purchased Raw Mate42%ls: (E)
Manufactured Servi13%Parts: (F) Purchased Service 26%ts:
(c) Accounts Sublimits:
(i) Sublimit on advances against
Nixon-Egli Accounts $1,100,000
(d) Inventory Sublimits:
(i) Overall sublimit on adva$6,000,000
against Eligible Inventory
(ii) Sublimit on advances agaNot Applicable finished goods
(iii) Sublimit on advances agaNot Applicable
raw materials
(e) Credit Accommodation Limit: Not Applicable
(f) Permanent Reserve Amount: Not Applicable
(g) Overadvance Amount: Not Applicable
<PAGE>
2. Loan Limits for Term Loan
(a) Principal Amount:
(i) Equipment Advance $1,041,000
(ii) Real Property Advance $1,400,000
(b) Repayment Schedule:
(i) Equipment Advance: The Equipment Advance shall be repaid in
equal consecutive monthly installments amortized over 60
months payable on the first day of each calendar month
commencing August 1, 1999, with the entire unpaid balance due
and payable on the Maturity Date.
(ii) Real Property Advance: The Real Property Advance shall be
repaid in equal consecutive monthly installments amortized
over 60 months payable on the first day of each calendar month
commencing August 1, 1999, with the entire unpaid balance due
and payable on the Maturity Date.
3. Interest Rates:
(a) Revolving Loans: .75% per annum in excess of the Prime Rate
(b) Term Loan: .75% per annum in excess of the Prime Rate
4. Minimum Loan Amount: $2,000,000
5. Maximum Days:
Maximum days after original INVOICE
DATE for Eligible Accounts: 90 days
6. Fees:
(a) Closing Fee: $45,000 ($22,500 of which was paid upon
issuance and acceptance of commitment
letter and $22,500 of which is due and
payable on the date hereof)
(b) Facility Fee:
(i) Initial Term: $22,500
(ii) Renewal Term(s): $22,500
(c) Servicing Fee: Not Applicable
(d) Unused Line Fee: .50% per annum
<PAGE>
(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: Not Applicable
(h) Early Termination Fee: 1.0% of the Maximum Facility Amount
multiplied by the number of full or partial
years remaining prior to the Maturity Date
if terminated prior to the Maturity Date;
PROVIDED, that if the Obligations are
repaid in full from financing received from
Bank of America, N.A. on or after December
30, 2000, then no Early Termination Fee
shall be due.
(i) Fees for letters of Not Applicable Credit Accommodations
credit and (or guaranties
thereof by Lender):
7. Initial Maturity Date: June 30, 2002
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 Net
Loss: $850,000 on a pre-tax cumulative basis for
the period from June 30, 1999, through the
end of the Initial Term
(f) Maximum Cumulative Net
Income: Not Applicable
(g) Maximum Leverage Ratio: 2.0:1
(h) Limitation on Purchase
Money Security
Interests: No Limit
(i) Limitation on Equipment
Leases No Limit
(j) Additional Financial
Covenants Not Applicable
9. Borrower Information:
(a) Prior Names of Borrower: Not Applicable
(b) Prior Trade Names of
Borrower: Not Applicable
(c) Existing Trade Names of
Borrower: Not Applicable
<PAGE>
(d) Inventory Locations: a) 1839 South Main Street
Wake Forest, North Carolina 27587
b) 21 Shear Plaza
Plainview, New York 11803
(e) Other Locations: See Schedule 1 attached hereto
(f) Litigation: See Schedule 2 attached hereto
(g) Ownership of Borrower:
John F. McCullough 41.99%
Other Directors/Officers .49%
Publicly Held 57.52%
(h) Subsidiaries (and
ownership thereof): Athey Products International 100%
(i) Facsimile Numbers:
Borrower: (919) 556-9503
Lender: (212) 597-1675
10. Description of Real Property: 1839 South Main Street
Wake Forest, North Carolina 27587
11. Lender's Bank: First National Bank of Chicago
One First National Plaza
Chicago, Illinois
12. Other Covenants: Not Applicable
13. Exceptions to Negative
Covenants: Not Applicable
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule A as of
the date set forth in the heading of the Agreement.
BORROWER:
ATHEY PRODUCTS CORPORATION
By: /s/ William H. Warden
------------------------------------
WILLIAM H. WARDEN, Vice President - Finance/
Treasurer
[CORPORATE SEAL]
[Signatures continued on the following page]
<PAGE>
Accepted and agreed to in New York, New York:
LENDER:
NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By:/s/ Robert Bellish
-------------------------
Its Authorized Signatory
<PAGE>
SCHEDULE B
DEFINITIONS
This Schedule is an integral part of the Loan and Security Agreement dated
June 30, 1999, between ATHEY PRODUCTS CORPORATION 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.
"APPLICABLE LAW" means all laws, rules and regulations applicable to the
Person, conduct, transaction, covenant or Loan Document in question, including
all applicable common law and equitable principles; all provisions of all
applicable state, federal and foreign constitutions, statutes, rules,
regulations and orders of governmental bodies; and orders, judgments and decrees
of all courts and arbitrators.
"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" means the address for Borrower 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.
"CONFIDENTIALITY AGREEMENT" means that certain Confidentiality Agreement
date as of June 16, 1999, between Borrower and Lender.
<PAGE>
"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 or twelve month rolling average, whichever yields a greater percentage.
"DISTRIBUTOR AGREEMENT" means any agreement between Borrower and any other
Person pursuant to which Borrower has granted such Person a license or right to
sell Borrower's Inventory.
"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 of
Borrower 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 number of days after the original
INVOICE DATE set forth in Section 5 of Schedule A; (iii) the Account Debtor or
its Affiliates are not past due on other Accounts owing to Borrower comprising
more than 50% of all of the Accounts owing to Borrower by such Account Debtor or
its Affiliates; (iv) all Accounts owing by the Account Debtor (other than
Nixon-Egli) 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) all Accounts owing by Nixon-Egli or its Affiliates do
not represent more than 25% of all otherwise Eligible Accounts (PROVIDED, that
Accounts which are deemed to be ineligible solely by reason of this clause (v)
shall be considered Eligible Accounts to the extent of the amount thereof which
does not exceed 25% of all otherwise Eligible Accounts); (vi) 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; (vii) 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 (vii) 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); (viii) 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, and, if the Account Debtor's chief executive
office or principal place of business is located outside of
<PAGE>
any such jurisdictions, (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; (ix) 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; (x) Lender shall have verified the Account in a
manner satisfactory to Lender; (xi) 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; (xii) 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; (xiii) the Account is not evidenced by Chattel
Paper or an Instrument of any kind and has not been reduced to judgment; (xiv)
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 (xiv) shall be
considered Eligible Accounts to the extent the amount of such Accounts does not
exceed the lower of such credit limits); (xvi) 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;
(xvii) 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; (xviii) 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 (xix)
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 New Finished Goods, Used Finished Goods, Manufactured Raw
Materials, Purchased Raw Materials, Manufactured Service Parts or Purchased
Service Parts that is readily marketable in its current form; (ii) it does not
consist of Work In Process; (iii) it is in good and saleable condition; (iv) it
is not slow-moving, obsolete, unmerchantable, returned or repossessed; (v) 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; (vi) it meets all standards imposed by any governmental agency or
authority; (vii) it conforms in all respects to any covenants, warranties and
representations set forth in the Agreement; (viii) it
<PAGE>
is at all times subject to Lender's duly perfected, first priority security
interest and no other Lien except a Permitted Lien; and (ix) 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.
<PAGE>
"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, promissory notes 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 the
Agreement.
"LOANS" means, collectively, the Revolving Loans and any Term Loan.
"LOCK BOX" has the meaning set forth in Section 4.1.
"MANUFACTURED RAW MATERIALS" means Inventory of Borrower consisting of raw
materials manufactured by Borrower and in new condition.
"MANUFACTURED SERVICE PARTS" means Inventory of Borrower consisting of
service parts manufactured by Borrower and in new condition.
"MATURITY DATE" has the meaning set forth in Section 7.1.
"MORTGAGE" means the deed of trust to be executed by Borrower on the date
hereof in favor of Lender and by which Borrower shall grant and convey to
Lender, as security for the Obligations, a lien upon the Real Property.
<PAGE>
"NEW FINISHED GOODS" means Inventory of Borrower consisting of finished
goods in new condition.
"NIXON-EGLI" means Nixon-Egli Equipment Co. of South California, Inc.
"NIXON-EGLI ACCOUNTS" means all Accounts owing to Borrower by Nixon-Egli
which constitute Eligible Accounts.
"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 or arising under the
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 the 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.
"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) Liens other than those
set forth in clauses (i), (ii) and (iii) above 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 described in
clause (iv) above 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.
<PAGE>
"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).
"PURCHASED RAW MATERIALS" means Inventory of Borrower consisting of raw
materials purchased from another Person and in new condition.
"PURCHASES SERVICE PARTS" means Inventory of Borrower consisting of
service parts purchased from another Person and in new condition.
"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).
"UCC" means, at any given time, the Uniform Commercial Code as adopted and
in effect at such time in the State of New York.
"USED FINISHED GOODS" means Inventory of Borrower consisting of finished
goods previously used by Borrower or another Person.
"WORK IN PROCESS" means Inventory of Borrower consisting of work in
process.
All accounting terms used in the Agreement, unless otherwise indicated,
shall have the meanings given to such terms in accordance with GAAP. All other
terms contained in the 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 the 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, the
Agreement.
<PAGE>
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:
ATHEY PRODUCTS CORPORATION
By: /s/ William H. Warden
-------------------------------------
WILLIAM H. WARDEN, Vice President - Finance/
Treasurer
[CORPORATE SEAL]
Accepted and agreed to in New York, New York:
LENDER:
NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By:/s/ Robert Bellish
-------------------------
Its Authorized Signatory
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 515,224
<SECURITIES> 0
<RECEIVABLES> 4,254,063
<ALLOWANCES> 331,362
<INVENTORY> 16,240,195
<CURRENT-ASSETS> 20,988,214
<PP&E> 9,058,814
<DEPRECIATION> 5,605,885
<TOTAL-ASSETS> 24,443,373
<CURRENT-LIABILITIES> 11,536,093
<BONDS> 0
0
0
<COMMON> 8,040,918
<OTHER-SE> 4,758,873
<TOTAL-LIABILITY-AND-EQUITY> 24,443,373
<SALES> 20,493,974
<TOTAL-REVENUES> 0
<CGS> 16,917,902
<TOTAL-COSTS> 3,382,224
<OTHER-EXPENSES> 221,808
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 221,782
<INCOME-PRETAX> 10,795
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,795
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,795
<EPS-BASIC> .000
<EPS-DILUTED> 0
</TABLE>
