<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1996.
--------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from____________ to ___________.
Commission File Number: 016441
------
CODE - ALARM, INC.
------------------
(Exact name of registrant as specified in its charter)
MICHIGAN
--------
(State or other jurisdiction of
incorporation or organization)
38-2334698
----------------
(I.R.S. Employer
Identification No.)
950 EAST WHITCOMB, MADISON HEIGHTS, MICHIGAN 48071
- -------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): 810-583-9620
------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the registrants common stock, without
par value, as of August 13, 1996 is 2,320,861.
<PAGE> 2
INDEX
Page No.
--------
Part I. - Financial Information
Consolidated Condensed Balance Sheets -
As of June 30, 1996 (Unaudited) and December 31, 1995 3
Consolidated Condensed Statements of Operations (Unaudited) -
Three months ended March 31, 1996 and 1995, and six months
ended June 30, 1996 and 1995 4
Consolidated Condensed Statements of Cash Flows (Unaudited) -
Six months ended June 30, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. - Other Information 9
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CODE-ALARM, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30,
1996 December 31,
ASSETS (Unaudited) 1995
- ------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 322 $ 416
Accounts receivable (less allowance for 9,938 10,592
doubtful accounts of $470,000 and
$667,000, respectively)
Inventories 12,425 14,811
Refundable income taxes 590 825
Deferred income taxes 446 560
Other 1,711 1,338
-------- ---------
Total current assets 25,432 28,542
Property and equipment, net of accumulated depreciation 3,835 4,500
Excess of cost over net assets acquired, net 4,472 4,574
Other intangibles, net 687 816
Deferred income taxes 1,703 1,566
Other assets 1,831 2,045
-------- ---------
Total assets $ 37,960 $ 42,043
======== =========
LIABILITIES & SHAREHOLDERS' EQUITY
Current portion of long-term debt $ 4,007 $ 3,921
Accounts payable 8,325 12,362
Accrued expenses 2,541 1,832
Income tax payable 349 46
-------- ---------
Total current liabilities 15,222 18,161
Long-term debt 8,392 9,545
Reserve for litigation 5,887 5,839
-------- ---------
Total liabilities 29,501 33,545
-------- ---------
Shareholders' equity:
Common stock 12,213 12,210
Foreign currency translation adjustment (6) 54
(Accumulated deficit) (3,748) (3,766)
-------- ---------
Total shareholders' equity 8,459 8,498
-------- ---------
Total liabilities and shareholders' equity $ 37,960 $ 42,043
======== =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 4
CODE-ALARM, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 15,216 $ 18,910 $ 31,812 $ 36,069
Cost of sales 9,441 12,228 20,115 23,447
----------- ---------- ---------- ---------
Gross profit 5,775 6,682 11,697 12,622
Operating expenses:
Sales and marketing 2,489 2,805 5,087 5,806
Engineering 664 743 1,426 1,445
General and administrative 2,275 2,149 4,312 4,294
----------- ---------- ---------- ---------
5,428 5,697 10,825 11,545
----------- ---------- ---------- ---------
Income from operations 347 985 872 1,077
Other income (expense):
Interest expense (387) (331) (805) (630)
Litigation expense (770) (1,825)
Other expense (1) (23) ( 3) (66)
----------- ---------- ---------- ---------
Income (loss) before taxes $ (41) $ (139) $ 64 $ (1,444)
Income tax (benefit) (10) (44) 46 (279)
----------- ---------- ---------- ---------
Net income (loss) $ (31) $ (95) $ 18 $ (1,165)
=========== ========== ========== =========
Net income (loss) per common
share $ (0.01) $ (0.04) $ 0.01 $ (0.50)
=========== ========== ========== =========
Weighted average number of
common shares outstanding 2,321 2,320 2,321 2,320
=========== ========== ========== =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
CODE-ALARM, INC
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended June 30
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities $ 1,056 $ 248
Cash flows from investing activities:
Capital expenditures (48) (572)
Payments for intangible assets (38) (900)
Cash flows from financing activities:
Net borrowings (repayments) of long-term debt (1,375) 2,024
Net borrowings (repayments) on credit facility 309 (94)
Proceeds from exercise of stock options 2 1
------- --------
Net change in cash and cash equivalents (92) 707
Cash and cash equivalents, beginning of period 416 107
------- --------
Cash and cash equivalents, end of period $ 322 $ 814
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the six month period for:
Interest $ 448 $ 702
======= ========
Income taxes - -
======= ========
</TABLE>
See accompanying notes to consolidated condensed financial statements
5
<PAGE> 6
CODE-ALARM, INC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1) The consolidated condensed interim financial statements reflect all
adjustments which in the opinion of management are necessary to fairly state
results for the interim periods presented. Except for the $ 0.8 million and
$1.8 million charge recorded in connection with the patent infringement suit
for the three month and six month periods ended June 30, 1995, respectively,
all adjustments are of a normal and recurring nature. Results of operations
for the interim periods presented are not necessarily indicative of results
to be expected for the fiscal year.
2) The financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
3) Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, 1996 December 31,
(Unaudited) 1995
------------- ------------
<S> <C> <C>
Raw materials $ 5,540 $ 7,089
Work in process 499 135
Finished goods 6,386 7,587
--------- ----------
$ 12,425 $ 14,811
========= ==========
</TABLE>
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations:
Code-Alarm's consolidated net sales decreased $4,257,000, or 11.8%, for
the first six months of 1996 as compared to the first six months of 1995. The
decline in sales was noted primarily in Europe as unprofitable product lines
were dropped. North American sales were unchanged as original equipment
manufacturer sales were up, offset by a decrease in retail sales as
"do-it-yourself" products were discontinued.
Consolidated gross profit decreased $925,000, or 7.3%, for the first six
months of 1996 as compared to the first six months of 1995. Consolidated gross
profit, as a percentage of consolidated net sales for the first six months of
1996 was 36.8%, as compared to 35.0% for the same period in 1995. The
increased gross margin percentage was due to new product introduction in Europe
and to lesser extent product mix in North America.
Consolidated operating expenses decreased $720,000, or 6.2%, in the first
six months of 1996 as compared to the first six months of 1995. Consolidated
operating expenses, as a percentage of consolidated net sales for the first six
months of 1996 were 34.0%, as compared to 32.0% for the same period in 1995.
The increase in operating expenses as a percentage of net sales was due to
higher legal expenses and professional fees, and the lower sales level.
As a result of the foregoing, consolidated operating income decreased
$205,000 in the first six months of 1996 as compared to the first six months of
1995.
Interest expense increased $175,000, or 27.8%, in the first six months of
1996 compared to the first six months of 1995. The increase was due to
additional borrowings and higher average interest rates for the 1996 period.
During the first six months of 1995, the Company recorded $1.8 million in
additional charges in connection with the patent infringement suit involving a
shock sensing device. No such accrual was necessary for the first six months
of 1996.
As a result of the above, the Company recorded a net profit of $18,000
for the six months ended June 30, 1996, as compared to a net loss of $1.2
million for the comparable period in 1995.
Liquidity and Capital Resources:
The Company's consolidated working capital was $10.2 million at June 30,
1996, as compared to $10.4 million at December 31, 1995. The current ratio
(current assets divided by current liabilities) was 1.7 to 1 at June 30, 1996,
as compared to 1.6 to 1 at December 31, 1995.
Net cash provided by operating activities for the six months ended June
30, 1996, was $ 1.1 million. Capital expenditures for the period were not
significant.
On June 28, 1996, the Company entered into a new two year loan agreement
with NBD Bank ("Bank") which amended and restated the prior loan agreement with
the Bank. The new agreement provides for a $1.3 million term loan due May 23,
1997, a $1.65 million term loan due May 23, 1999, and a $14.25 million
revolving credit facility. Borrowings under the term loans bear interest at
prime rate plus 1/4% - 1/2%, and under the revolving credit facility at prime
rate plus 1%, or at the Company's option, LIBOR plus 2.25% - 2.5% for
borrowings under the term loans, and LIBOR plus 1.5% - 3.5% under the revolving
credit facility. Collateral and loan covenants are substantially the same as
prior loan agreement. As of June 30, 1996, the Company was in compliance with
all loan covenants. As of August 8, 1996, $1.0 million of the revolving
credit facility was unused and available.
7
<PAGE> 8
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Parasol Group, Ltd. v. Code-Alarm, Inc., Case No. 95-4713-RSWL
(MC) was filed on December 15, 1994, in the Superior Court for the
County of Los Angeles, California. The plaintiff sought approximately
$200,000 in damages for consulting services alleged to have been
rendered. This case was settled on June 17, 1996.
The Magnadyne Corporation v. Code-Alarm, Inc., Case No. 96-60011
was filed on January 17, 1996, in the United States District Court for
the Eastern District of Michigan, Southern Division seeking damages
for alleged patent infringement. This case was settled on May 31,
1996.
Code-Alarm, Inc. v. The Magnadyne Corporation, Barry Carren,
Do-It Yourself Security and James Compton, Civil Action No.
1-95-CV-00541 (CRR) was filed on March 21, 1995 in the United States
District Court for the District of Columbia seeking damages for
alleged patent infringement. This case was settled on May 31, 1996.
Code-Alarm, Inc. v. Sherwood, Inc., Inkel U.S.A. and Alfred J.
Menozzi, Civil Action No. 95-4797 AWT was filed July 20, 1995 in the
United States District Court for the Central District of California
sitting in Los Angeles, California seeking damages for alleged patent
infringement. This case was settled on July 30, 1996.
In the matter of Certain Starter Kill Security Systems, Inv. No.
337-TA-379, on November 21, 1995 the United States International Trade
Commission instituted, upon request of the Company, an investigation
to determine whether products allegedly imported by Directed
Electronics, Inc. ("Directed") of Vista, California from the Nutek
Company of Taipei, Taiwan infringe United States Patent Number
4,740,775 owned by the Company. In addition to claims of patent
infringement, the Company sought, in this action, to halt the
importation and sale of the alleged infringing goods into the United
States. On February 26, 1996, pursuant to Commission Rule 210.21, the
Company filed a motion to terminate the investigation. On March 5,
1996, Administrative Law Judge Luckern issued a Final Initial
Determination granting the Company's motion to terminate the
investigation. On March 15, 1996, Directed filed a petition for
review of the final initial determination and on March 22, 1996 both
the Company and the ITC filed responses opposing Directed's petition
for review. On April 9, 1996, Directed's petition review was denied.
Tadiran Electronic Industries, Inc. v. Code-Alarm, Inc., Civil
Action No. 96-CIV-05591 was filed on July 25, 1996 in the United
States District Court for the Southern District of New York claiming
damages from an alleged breach of contract by the Company. The case
is in the early stages of discovery and liability, if any, cannot be
determined at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its annual meeting on May 14, 1996. The
stockholders re-elected Mr. Rand Mueller , Mr. Alan H. Foster and
Mr. Peter J. Stouffer to the board of directors, each receiving at
least 1,933,472 votes. Mr. Kenneth Mueller, Mr. Marshall J. Mueller,
Mr. Jack D. Rutherford and Mr. William S. Pickett continue their
terms as directors of the Company.
The stockholders ratified the appointment of Deloitte & Touche
LLP as the Company's independent certifying accountants for the year
end 1996. There were 1,946,032 votes for and 1,810 votes against this
matter, with 5,260 votes abstaining.
8
<PAGE> 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The documents filed as a part of this report:
(3.1) Restated Articles of Incorporation of the Company,
incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-18, as amended,
Registration No. 33-16991C ("Form S-18").
(3.2) Bylaws of the Company, as amended, incorporated by reference
to Exhibit 3.2 to the Company's Form 10-K for the year ended
December 31, 1990 ("1990 Form 10-K").
(10.29) Loan Agreement between Code-Alarm, Inc. and NBD Bank dated
June 28, 1996.
(11) Shares issuable under employee stock options were excluded
from the computation of weighted average number of shares
outstanding since such shares were either anti-dilutive or
their anti-dilutive effect was not material.
(27) Financial Data Schedules.
(b) There were no reports on Form 8-K filed during the quarter
ended June 30, 1996.
10
<PAGE> 10
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.
CODE-ALARM, INC.
----------------
(Registrant)
Date: August 13, 1996 /s/ Rand W. Mueller
--------------- ------------------------------
Rand W. Mueller
President
Date: August 13, 1996 /s/ Robert V. Wagner
--------------- ------------------------------
Robert V. Wagner
Vice President of Finance
(Chief Financial Officer)
11
<PAGE> 11
EXHIBIT INDEX
Exhibit
Number Description Page
- -------- ----------- ----
3.1 Restated Articles of Incorporation of the Company,
incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-18,
as amended, Registration No. 33-16991C ("Form S-18").
3.2 Bylaws of the Company, as amended, incorporated by
reference to Exhibit 3.2 to the Company's Form 10-K
for the year ended December 31, 1990 ("1990 Form 10-K")
10.29* Loan Agreement between Code-Alarm, Inc. and NBD Bank
dated June 28, 1996.
27* Financial Data Schedule.
*attached as an Exhibit hereto.
<PAGE> 1
EXHIBIT 10.29
THIS LOAN AGREEMENT, dated as of June 28, 1996 (this "Agreement"), is
by and among CODE-ALARM, INC., a Michigan corporation (the "Company"), the
Guarantors named herein and NBD BANK, a Michigan banking corporation (the
"Bank").
INTRODUCTION
A. The Company and the Bank entered into a Loan Agreement dated as
of May 23, 1995, as amended by a First Amendment to Loan Agreement dated as of
June 30, 1995, a Second Amendment to Loan Agreement dated as of October 17,
1995, a Third Amendment to Loan Agreement dated as of November 21, 1995 and a
Fourth Amendment to Loan Agreement dated as of March 18, 1996 (the "Prior Loan
Agreement").
B. The Company and the Bank desire to amend and restate the Prior
Loan Agreement as herein provided to provide a term loan in the aggregate
principal amount of $1,300,000, a term loan in the original aggregate principal
amount of $2,200,000 and a revolving credit facility, including letters of
credit, in the aggregate principal amount of $14,250,000, in order to provide
funds and other financial accommodations to refinance existing indebtedness,
for working capital and for its other general corporate purposes, and the Bank
is willing to amend and restate the Prior Loan Agreement on the terms and
conditions herein set forth.
In consideration of the premises and of the mutual agreements herein
contained, the parties hereto agree that the Prior Loan Agreement shall be
amended and restated as follows:
ARTICLE I.
DEFINITIONS
2. Certain Definitions. As used herein the following terms shall
have the following respective meanings:
"Advance" shall mean any Loan and any Letter of Credit Advance.
"Affiliate", when used with respect to any person shall mean any other
person which, directly or indirectly, controls or is controlled by or is under
common control with such person. For purposes of this definition "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), with respect to any person, shall mean possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such person, whether through the ownership of voting
securities or by contract or otherwise.
"Applicable Lending Office" shall mean, with respect to any Advance made by the
Bank or with respect to the Bank's Commitment, the office of the Bank or of any
Affiliate of the Bank located at the address specified as the applicable
lending office for the Bank set forth in Section 8.2 or any other office or
Affiliate of the Bank or of any Affiliate of the Bank hereafter selected and
notified to the Company and by the Bank.
<PAGE> 2
"Applicable Margin" shall mean the following margin based upon the
Fixed Charge Coverage Ratio as adjusted on the first day of each fiscal
quarter of the Company based upon such ratio for the four fiscal quarters
immediately preceding the fiscal quarter most recently ended; provided, that,
the Eurodollar Rate shall not be adjusted pursuant to the Applicable Margin
for any outstanding Eurodollar Rate Loan until after the end of the Eurodollar
Interest Period for such Eurodollar Rate Loan:
<TABLE>
<CAPTION>
Applicable
Fixed Charge Coverage Ratio Margin
--------------------------- ------
Revolving
Credit Loans Term Loan A Term Loan B
------------ ----------- -----------
<S> <C> <C> <C>
(a) Greater than 2.0 to 1.0 1.50% 2.25% 2.50%
(b) Equal to or less than
2.0 to 1.0 but greater
than or equal to 1.50
to 1.0 2.50% 2.25% 2.50%
(c) Less than 1.50 to 1.0 3.50% 2.25% 2.50%
</TABLE>
; provided, however, that during the continuance of any Event of Default, the
Applicable Margin for Revolving Credit Loans shall be 3.50%.
"Assignment of Policy" shall mean the assignment of policy executed by
the Company in favor of the Bank in form and substance satisfactory to the Bank,
as amended or modified from time to time.
"Bank Obligations" shall mean all indebtedness, obligations and
liabilities, whether now or hereafter arising, direct, indirect, contingent or
otherwise, of the Company to the Bank pursuant to the Loan Documents.
"Borrowing" shall mean the aggregation of Advances, including each
Letter of Credit issuance, of the Bank to be made to the Company, or
continuations and conversions of any Loans, made pursuant to Article II on a
single date and, in the case of any Loans, for a single Interest Period, which
Borrowings may be classified for purposes of this Agreement by reference to the
type of Loans or the type of Advance comprising the related Borrowing, e.g., a
"Eurodollar Rate Borrowing" is a Borrowing comprised of Eurodollar Rate Loans
and a "Letter of Credit Borrowing" is an Advance comprised of a single Letter of
Credit.
"Borrowing Base" shall mean, as of any date, the sum of (a) an amount
equal to 95% of the value of Eligible Accounts Receivable owed to the Company or
any Subsidiary and qualifying as "Eligible Accounts Receivable" pursuant to
clause (g) of such definition, subject to the limitations set forth therein,
plus (b) an amount equal to 80% of the value of Eligible Accounts Receivable,
other than described in clause (a) above, plus (c) an amount equal to the
-2-
<PAGE> 3
lesser of (i) 60% of the value of Eligible Inventory constituting raw materials
or (ii) $4,700,000, plus (d) an amount equal to 60% of Eligible Inventory
constituting finished goods.
"Borrowing Base Certificate" for any date shall mean an appropriately
completed report as of such date in substantially the form of Exhibit A hereto,
certified as true and correct as of such date by a duly authorized officer of
the Company.
"Business Day" shall mean a day other than a Saturday, Sunday or other
day on which the Bank is not open to the public for carrying on substantially
all of its banking functions in Detroit, Michigan, and in the case of
transactions involving transactions in any currency than Dollars, in London,
England.
"Capital Expenditures" shall mean, for any period, the additions to
property, plant and equipment and other capital expenditures of the Company and
its Subsidiaries, on a consolidated basis, for such period.
"Capital Lease" of any person shall mean any lease which, in accordance
with generally accepted accounting principles, is or should be capitalized on
the books of such person.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations thereunder.
"C/L/C" shall mean any commercial letter of credit issued by the Bank
hereunder.
"Commitment" shall mean the commitment of the Bank to make: (a)
Revolving Credit Advances pursuant to Section 2.1(a), in amounts not exceeding
an aggregate principal amount outstanding of $14,250,000, (b) Term Loan A
pursuant to Section 2.1(b) in an original principal amount of $1,300,000
previously disbursed to the Company pursuant to the Prior Loan Agreement and (c)
Term Loan B pursuant to Section 2.1(c) in an original principal amount of
$2,200,000 previously disbursed to the Company pursuant to the Prior Loan
Agreement; as such amounts may be reduced from time to time pursuant to Section
2.2. The Commitment of the Bank to make Revolving Credit Advances under Section
2.1(a) is herein referred to as its "Revolving Credit Commitment", the
Commitment of the Bank to make the Term Loan A under Section 2.1(b) is referred
to as its "Term Loan A Commitment" and the Commitment of the Bank to make Term
Loan B under Section 2.1(c) is referred to as its "Term Loan B Commitment".
"Consent and Amendment of Security Documents" shall mean the consent and
amendment of security documents dated as of the Effective Date entered into by
the Company, the Guarantors and the Bank pursuant to this Agreement in
substantially the form of Exhibit B.
"Consolidated" or "consolidated" shall mean, when used with reference to
any financial term in this Agreement, the aggregate for two or more persons of
the amounts signified by such term for all such persons determined on a
consolidated basis in accordance with generally accepted accounting principles.
-3-
<PAGE> 4
"Contingent Liabilities" of any person shall mean, as of any date, all
obligations of such person or of others for which such person is contingently
liable, as obligor, guarantor, surety, accommodation party, partner or in any
other capacity, or in respect of which obligations such person assures a
creditor against loss or agrees to take any action to prevent any such loss
(other than endorsements of negotiable instruments for collection in the
ordinary course of business), including without limitation all reimbursement
obligations of such person in respect of any letters of credit, surety bonds or
similar obligations (including, without limitation, bankers acceptances) and all
obligations of such person to advance funds to, or to purchase assets, property
or services from, any other person in order to maintain the financial condition
of such other person.
"Contractual Obligation" shall mean as to any person, any provision of
any security issued by such person or of any agreement, instrument or other
undertaking to which such person is a party or by which it or any of its
property is bound.
"Cumulative Net Income" of any person shall mean, as of any date, the
net income (after deduction for income and other taxes of such person, or its
shareholders in the case of a corporation that has elected to be taxed as a
Subchapter S corporation under the Code, determined by reference to income or
profits of such person) for the period commencing on the specified date through
the end of the most recently completed fiscal year of such person (but without
reduction for any net loss incurred for any fiscal year during such period),
taken as one accounting period, all as determined in accordance with generally
accepted accounting principles.
"Current Assets" and "Current Liabilities" of any person shall mean, as
of any date, all assets or liabilities, respectively, of such person which, in
accordance with generally accepted accounting principles, should be classified
as current assets or current liabilities, respectively, on a balance sheet of
such person, provided, however, that Term Loan A shall not be considered a
"Current Liability" regardless of proper classification under generally accepted
accounting principles.
"Default" shall mean any event or condition which might become an Event
of Default with notice or lapse of time or both.
"Dollars" and "$" shall mean the lawful money of the United States of
America.
"Domestic Subsidiary" shall mean any Subsidiary of the Company
incorporated or formed in any State of the United States or any political
subdivision of any such State.
"EBIT" shall mean, with respect to any person, for any period, the sum
of (a) operating net income or loss plus (b) all amounts deducted in determining
such operating net income or loss on account of (i) Interest Expense and (ii)
taxes based on or measured by income, all as determined in accordance with
Generally Accepted Accounting Principles.
-4-
<PAGE> 5
"EBITDA" shall mean, with respect to any person, for any period, EBIT
for such period plus, to the extent deducted in determining such EBIT,
depreciation and amortization expense, all as determined in accordance with
Generally Accepted Accounting Principles.
"Effective Date" shall mean June 28, 1996.
"Eligible Accounts Receivable" shall mean, as of any date, those trade
accounts receivable owned by the Company, any Guarantor or, with respect to any
account qualifying pursuant to clause (g) below, any Subsidiary, which are
payable in Dollars or any other currencies approved by the Bank in its sole
discretion (valued at the Bank's spot rate of exchange on any date of
determination) and, except with respect to accounts qualifying pursuant to
clause (g) below, in which the Company or any Guarantor has granted to the Bank
a first-priority perfected security interest pursuant to the Security Agreement,
valued at the face amount thereof less sales, excise or similar taxes and less
returns, discounts, claims, credits and allowances of any nature at any time
issued, owing, granted, outstanding, available or claimed, but shall not include
any such account receivable (a) that is not a bona fide existing obligation
created by the sale and actual delivery of inventory, goods or other property or
the furnishing of services or other good and sufficient consideration to
customers of the Company, such Guarantor or such Subsidiary in the ordinary
course of business, (b) that is more than 90 days past due or that remains
outstanding more than 90 days after the earlier of the date of the invoice or
the shipment of the related inventory, goods or other property or the furnishing
of the related services or other consideration, (c) that is subject to any
dispute, contra-account, defense, offset or counterclaim or any Lien (except
those in favor of the Bank under the Security Documents), or the inventory,
goods, property, services or other consideration of which such account
receivable constitutes proceeds is subject to any such Lien, (d) in respect of
which the inventory, goods, property, services or other consideration have been
rejected or the amount is in dispute, (e) that is due from any Affiliate or
Subsidiary of the Company, (f) that has been classified by the Company, such
Guarantor or such Subsidiary as doubtful or has otherwise failed to meet
established or customary credit standards of the Company, such Guarantor or such
Subsidiary, (g) that is payable by any person located outside the United States
(which shall not be deemed to include any territories of the United States) and
are not supported by letters of credit issued to the Bank by commercial banks,
and in form and substance, acceptable to the Bank, other than accounts owing to
the Company, such Guarantor or such Subsidiary which are insured by foreign
credit insurance, acceptable to the Bank and the Bank is listed as loss payee
with respect to such insurance, provided, however, credit shall be given for
insured accounts under this clause (g) only to the extent such account is fully
insured after giving effect to any limitations on the amount of coverage on any
individual account or the aggregate amount of coverage under the policy, (h)
with respect to which any representation or warranty contained in Section 4.11
is incorrect at any time, (i) that is payable by the United States or any of its
departments, agencies or instrumentalities or by any state or other governmental
entity, (j) that is payable by any person as to which 25% or more of the
aggregate amount of such accounts receivable payable by such person to the
Company, such Guarantor or such Subsidiary do not otherwise constitute Eligible
Accounts Receivable, (k) that is payable by any person that is the subject of
any proceeding seeking to adjudicate it a bankrupt or insolvent or seeking
liquidation, winding up or
-5-
<PAGE> 6
reorganization, arrangement, adjustment, protection, relief or composition of it
or its debts under any law relating to bankruptcy, insolvency or reorganization
or relief or protection of debtors or seeking the appointment of a receiver,
trustee, custodian or other similar official for it or for any substantial part
of its property, or that is not generally paying its debts as they become due or
has admitted in writing its inability to pay its debts generally or has made a
general assignment for the benefit of creditors, (l) that is evidenced by a
promissory note or other instrument, (m) that is subordinate or junior in right
or priority of payment to any other obligation or claim, or (n) that for any
other reason is at any time reasonably deemed by the Bank to be ineligible.
"Eligible Fixed Assets" shall mean, as of any date, those tangible fixed
assets owned by the Company or any Guarantor in which the Company or any
Guarantor has granted to the Bank a first-priority security interest pursuant to
the Security Agreement, valued at the lesser of net book value and the amount of
net proceeds estimated by the Bank in its sole discretion to be realizable from
a public auction sale thereof held on such date under forced sale conditions and
under then existing economic conditions, but not including any such fixed asset
(a) that is not useable in the business of the Company or such Guarantor, (b)
that is located outside the United States (which shall not be deemed to include
any territories of the United States), (c) that is subject to, or any accounts
or other proceeds resulting from the sale or other disposition thereof could be
subject to, any Lien (except those in favor of the Bank under the Security
Documents), (d) that is not in the possession of the Company or such Guarantor,
(e) that is held for sale or lease or is subject of any lease, (f) that is
subject to any trademark, trade name or licensing arrangement, or any law, rule
or regulation, that would limit or impair the ability of the Bank to promptly
exercise all rights of the Bank under the Security Documents, (g) if such fixed
asset is located on premises not owned by the Company or such Guarantor and the
landlord or other owner of such premises shall not have waived its distraint,
lien and similar rights with respect to such fixed asset, and shall not have
agreed to permit the Bank to enter such premises after the occurrence of an
Event of Default pursuant to a waiver and agreement of such person in favor of
and in form and substance acceptable to the Bank, (h) with respect to which any
insurance proceeds are not payable to the Bank as a loss payee or are payable to
any loss payee other than the Bank or the Company or such Guarantor or (i) that
for any other reason is at any time reasonably deemed by the Bank to be
ineligible.
"Eligible Inventory" shall mean, as of any date, that inventory owned by
the Company or any Guarantor that constitutes raw materials or finished goods in
which the Company or any Guarantor has granted to the Bank a first-priority
perfected security interest pursuant to the Security Agreement, valued at the
lower of cost or market on a FIFO basis, but shall not include any such
inventory (a) that does not constitute raw materials or finished goods readily
salable or usable in the business of the Company or such Guarantor, (b) that is
located outside the United States (which shall not be deemed to include any
territories of the United States), (c) that is subject to, or any accounts or
other proceeds resulting from the sale or other disposition thereof could be
subject to, any Lien (except those in favor of the Bank under the Security
Documents), including any sale on approval or sale or return transaction or any
consignment, (d) that is not in the possession of the Company or such Guarantor,
(e) that is held for lease or is the subject of any lease, (f) that is subject
to any trademark, trade name or
-6-
<PAGE> 7
licensing arrangement, or any law, rule or regulation, that could limit or
impair the ability of the Bank to promptly exercise all rights of the Bank
under the Security Documents, (g) if such inventory is located on premises not
owned by the Company or such Guarantor and the landlord or other owner of such
premises shall not have waived its distraint, lien and similar rights with
respect to such inventory and shall not have agreed to permit the Bank to enter
such premises pursuant to a waiver and agreement of such person in favor of and
in form and substance acceptable to the Bank, (h) with respect to which any
insurance proceeds are not payable to the Bank as a loss payee or are payable to
any loss payee other than the Bank or the Company or such Guarantor, or (i) that
for any other reason is at any time reasonably deemed by the Bank to be
ineligible.
"Environmental Laws" at any date shall mean all provisions of law,
statute, ordinances, rules, regulations, judgments, writs, injunctions, decrees,
orders, awards and standards promulgated by the government of the United States
of America or any foreign government or by any state, province, municipality or
other political subdivision thereof or therein, or by any court, agency,
instrumentality, regulatory authority or commission of any of the foregoing
concerning the protection of, or regulating the discharge of substances into,
the environment.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations thereunder.
"ERISA Affiliate" shall mean, with respect to any person, any trade or
business (whether or not incorporated) which, together with such person or any
Subsidiary of such person, would be treated as a single employer under Section
414 of the Code and the regulations promulgated thereunder.
"Eurodollar Business Day" shall mean, with respect to any Eurodollar
Rate Loan, a day which is both a Business Day and a day on which dealings in
Dollar deposits are carried out in the London interbank market.
"Eurodollar Interest Period" shall mean, with respect to any Eurodollar
Rate Loan, the period commencing on the day such Eurodollar Rate Loan is made or
converted to a Eurodollar Rate Loan and ending on the day which is one, two,
three or six months thereafter, as the Company may elect under Section 2.4 or
2.7, and each subsequent period commencing on the last day of the immediately
preceding Eurodollar Interest Period and ending on the day which is one, two,
three or six months thereafter, as the Company may elect under Section 2.4 or
2.7, provided, however, that (a) any Eurodollar Interest Period which commences
on the last Eurodollar Business Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Eurodollar Business Day of the appropriate
subsequent calendar month, (b) each Eurodollar Interest Period which would
otherwise end on a day which is not a Eurodollar Business Day shall end on the
next succeeding Eurodollar Business Day or, if such next succeeding Eurodollar
Business Day falls in the next succeeding calendar month, on the next preceding
Eurodollar Business Day, and
-7-
<PAGE> 8
(c) no Eurodollar Interest Period which would end after the Maturity Date
(or the Termination Date with respect to any Revolving Credit Loans) shall be
permitted.
"Eurodollar Rate" shall mean, with respect to any Eurodollar Rate Loan
and the related Eurodollar Interest Period, the per annum rate that is equal to
the sum of:
(a) the Applicable Margin, plus
(b) the rate per annum obtained by dividing (i) the per annum rate of
interest at which deposits in Dollars for such Eurodollar Interest Period and in
an aggregate amount comparable to the amount of such Eurodollar Rate Loan are
offered to the Bank by other prime banks in the London interbank market at
approximately 11:00 a.m. London time on the second Eurodollar Business Day prior
to the first day of such Eurodollar Interest Period by (ii) an amount equal to
one minus the stated maximum rate (expressed as a decimal) of all reserve
requirements (including, without limitation, any marginal, emergency,
supplemental, special or other reserves) that are specified on the first day of
such Eurodollar Interest Period by the Board of Governors of the Federal Reserve
System (or any successor agency thereto) for determining the maximum reserve
requirement with respect to eurocurrency funding (currently referred to as
"Eurocurrency liabilities" in Regulation D of such Board) maintained by a member
bank of such System;
all as conclusively determined by the Bank, such sum to be rounded up, if
necessary, to the nearest whole multiple of one one-hundredth of one percent
(1/100 of 1%).
"Eurodollar Rate Loan" shall mean any Loan which bears interest at the
Eurodollar Rate.
"Europe Auto" shall mean Europe Auto Equipement S.A., a corporation
organized under the laws of France.
"Event of Default" shall mean any of the events or conditions described
in Section 6.1.
"Excess Cash Flow" shall mean, for any period, the excess of (a) EBITDA
of the Company and its Subsidiaries, over (b) the sum of (i) the aggregate
amount actually paid by the Company and its Subsidiaries in cash on account of
Capital Expenditures, plus (ii) all taxes paid or payable by such person during
such period, plus (iii) Interest Expense of such person during such period, plus
(iv) all payments of principal or other sums paid or payable during such period
by such person with respect to Indebtedness of such person having a final
maturity more than one year from the date of creation of such Indebtedness.
"Federal Funds Rate" shall mean the per annum rate that is equal to the
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published by the
Federal Reserve Bank of New York for
-8-
<PAGE> 9
such day, or, if such rate is not so published for any day, the average of the
quotations for such rates received by the Bank from three federal funds brokers
of recognized standing selected by the Bank in its discretion;
all as conclusively determined by the Bank, such sum to be rounded up, if
necessary, to the nearest whole multiple of one one-hundredth of one percent
(1/100 of 1%), which Federal Funds Rate shall change simultaneously with any
change in such published or quoted rates.
"Fixed Charge Coverage Ratio" of any person shall mean, for any period,
the ratio of (a) Consolidated EBITDA as calculated for such period minus the
aggregate amount actually paid by the Company and its Subsidiaries in cash and
not financed by Indebtedness during such period on account of Capital
Expenditures minus the aggregate amount of taxes paid or payable by such person
during such period to (b) the sum, without duplication, of Interest Expense of
such person during such period, plus all payments of principal or other sums
paid or payable during such period by such person with respect to Indebtedness
of such person having a final maturity more than one year from the date of
creation of such Indebtedness (other than Revolving Credit Advances), plus all
debt discount and expense amortized or required to be amortized during such
period by such person.
"Floating Rate" shall mean the per annum rate equal to the sum of (a)
with respect to: (i) Revolving Credit Loans, one percent (1%) per annum (ii)
Term Loan A, one-quarter of 1% (1/4 of 1%) per annum, and (iii) Term Loan B,
one-half of one percent (1/2 of 1%) per annum, plus (b) the greater of (i) the
Prime Rate in effect from time to time , and (ii) the sum of one percent (1%)
per annum plus the Federal Funds Rate in effect from time to time; which
Floating Rate shall change simultaneously with any change in such Prime Rate or
Federal Funds Rate, as the case may be.
"Floating Rate Loan" shall mean any Loan which bears interest at the
Floating Rate.
"Foreign Subsidiary" shall mean any Subsidiary of the Company other than
a Domestic Subsidiary.
"Generally Accepted Accounting Principles" shall mean generally accepted
accounting principles applied on a basis consistent with that reflected in the
financial statements referred to in Section 4.6.
"Guaranties" shall mean the guaranties entered into by each of the
Guarantors for the benefit of the Bank pursuant to Article VII of this
Agreement, as amended or modified from time to time.
"Guarantor" shall mean each Domestic Subsidiary of the Company and each
person otherwise becoming a Domestic Subsidiary of the Company, or otherwise
entering into a Guaranty, from time to time.
-9-
<PAGE> 10
"Hazardous Materials" includes, without limitation, any flammable
explosives, radioactive materials, hazardous materials, hazardous wastes,
hazardous or toxic substances or related materials defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. Sections 9601, et seq.), the Hazardous Materials Transportation Act, as
amended (49 U.S.C. Sections 1801, et seq.), the Resource Conservation and
Recovery Act, as amended (42 U.S.C. Sections 6901, et seq.) and in the
regulations adopted and publications promulgated pursuant thereto, or any other
federal, state or local government law, ordinance, rule or regulation.
"Indebtedness" of any person shall mean, as of any date, (a) all
obligations of such person for borrowed money, (b) all obligations of such
person as lessee under any Capital Lease, (c) all obligations which are secured
by any Lien existing on any asset or property of such person whether or not the
obligation secured thereby shall have been assumed by such person (to the extent
of such Lien if such obligation is not assumed), (d) all obligations of such
person for the unpaid purchase price for goods, property or services acquired by
such person, except for trade accounts payable arising in the ordinary course
of business that are not past due or are being disputed in good faith, (e) all
obligations of such person to purchase goods, property or services where payment
therefor is required regardless of whether delivery of such goods or property or
the performance of such services is ever made or tendered (generally referred to
as "take or pay contracts"), (f) all liabilities of such person in respect of
Unfunded Benefit Liabilities under any Plan of such person or of any ERISA
Affiliate, and (g) all obligations of others similar in character to those
described in clauses (a) through (f) of this definition for which such person is
contingently liable, as guarantor, surety, accommodation party, partner or in
any other capacity, or in respect of which obligations such person assures a
creditor against loss or agrees to take any action to prevent any such loss
(other than endorsements of negotiable instruments for collection in the
ordinary course of business), including without limitation all reimbursement
obligations of such person in respect of letters of credit, surety bonds or
similar obligations and all obligations of such person to advance funds to, or
to purchase assets, property or services from, any other person in order to
maintain the financial condition of such other person.
"Interest Expense" of any person shall mean, for any period, all
interest paid or payable by such person on Indebtedness during such period.
"Interest Payment Date" shall mean (a) with respect to any Eurodollar
Rate Loan, the last day of each Interest Period with respect to such Eurodollar
Rate Loan and, in the case of any Interest Period exceeding three months, those
days that occur during such Interest Period at intervals of three months after
the first day of such Interest Period, and (b) in all other cases, the last
Business Day of each March, June, September and December occurring after the
date hereof, commencing with the first such Business Day occurring after the
date of this Agreement.
"Interest Period" shall mean any Eurodollar Interest Period.
"Judgment" shall mean the judgment entered against the Company in the
approximate amount of $5,900,000 relating to patent infringement action filed
against
-10-
<PAGE> 11
Electromotive Technologies Corporation in the U.S. District Court for the
Eastern District of Michigan.
"Letter of Credit" shall mean a S/L/C or C/L/C having a stated expiry
date or a date upon which the draft must be reimbursed not later than twelve
months after the date of issuance and not later than the fifth Business Day
before the Termination Date issued by the Bank for the account of the Company
under an application and related documentation acceptable to the Bank requiring,
among other things, immediate reimbursement by the Company to the Bank in
respect of all drafts or other demand for payment honored thereunder and all
expenses paid or incurred by the Bank relative thereto.
"Letter of Credit Advance" shall mean any issuance of a Letter of Credit
under Section 2.4 made pursuant to Section 2.1.
"Letter of Credit Documents" shall have the meaning ascribed thereto in
Section 3.3(b).
"Lien" shall mean any pledge, assignment, hypothecation, mortgage,
security interest, deposit arrangement, option, conditional sale or title
retaining contract, sale and leaseback transaction, financing statement filing,
lessor's or lessee's interest under any lease, subordination of any claim or
right, or any other type of lien, charge, encumbrance, preferential arrangement
or other claim or right.
"Loan" shall mean any Revolving Credit Loan, the Term Loan A and the
Term Loan B. Any such Loan or portion thereof may also be denominated as a
Floating Rate Loan or a Eurodollar Rate Loan and such Loans are referred to
herein as "types" of Loans.
"Loan Documents" shall mean, collectively, this Agreement, the Notes,
the Security Documents and all agreements, instruments and documents executed
pursuant thereto at any time.
"Material Adverse Effect" shall mean a material adverse effect on (a)
the business, assets, operations or condition (financial or otherwise) of the
Company and its Subsidiaries on a consolidated basis, (b) the ability of the
Company or any Guarantor to perform its obligations under any Loan Document, or
(c) the validity of enforceability of any Loan Document or the rights or
remedies of the Agent or the Banks under any Loan Document.
"Maturity Date A" shall mean May 23, 1997.
"Maturity Date B" shall mean May 23, 1999.
"Multiemployer Plan" shall mean any "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA or Section 414(f) of the Code.
"Note" shall mean any Revolving Credit Note or any Term Note.
-11-
<PAGE> 12
"Overdue Rate" shall mean (a) in respect of principal of Floating Rate
Loans, a rate per annum that is equal to the sum of three percent (3%) per annum
plus the Floating Rate, (b) in respect of principal of Eurodollar Rate Loans, a
rate per annum that is equal to the sum of three percent (3%) per annum plus the
per annum rate in effect thereon until the end of the then current Interest
Period for such Loan and, thereafter, a rate per annum that is equal to the sum
of three percent (3%) per annum plus the Floating Rate, and (c) in respect of
other amounts payable by the Company hereunder (other than interest), a per
annum rate that is equal to the sum of three percent (3%) per annum plus the
Floating Rate.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
"Permitted Liens" shall mean Liens permitted by Section 5.2(f) hereof.
"person" shall include an individual, a corporation, an association, a
partnership, a trust or estate, a joint stock company, an unincorporated
organization, a joint venture, a trade or business (whether or not
incorporated), a government (foreign or domestic) and any agency or political
subdivision thereof, or any other entity.
"Plan" shall mean, with respect to any person, any pension plan
(including a Multiemployer Plan) subject to Title IV of ERISA or to the minimum
funding standards of Section 412 of the Code which has been established or
maintained by such person, any Subsidiary of such person or any ERISA Affiliate,
or by any other person if such person, any Subsidiary of such person or any
ERISA Affiliate could have liability with respect to such pension plan.
"Pledge Agreement" shall mean the pledge agreement dated as of May 23,
1995 entered into by the Company for the benefit of the Bank pursuant to this
Agreement, as amended by the Consent and Amendment of Security Document and as
further amended or modified from time to time.
"Prime Rate" shall mean the per annum rate announced by the Bank from
time to time as its "prime rate" (it being acknowledged that such announced rate
may not necessarily be the lowest rate charged by the Bank to any of its
customers); which Prime Rate shall change simultaneously with any change in such
announced rate.
"Prohibited Transaction" shall mean any transaction involving any Plan
which is proscribed by Section 406 of ERISA or Section 4975 of the Code.
"Reportable Event" shall mean a reportable event as described in Section
4043(b) of ERISA including those events as to which the thirty (30) day notice
period is waived under Part 2615 of the regulations promulgated by the PBGC
under ERISA.
"Requirement of Law" shall mean as to any person, the certificate of
incorporation and by-laws or other organizational or governing documents of such
person, and any law, treaty,
-12-
<PAGE> 13
rule or regulation or determination of an arbitrator or a court or other
governmental authority, in each case applicable to or binding upon such person
or any of its property to which such person or any of its property is subject.
"Revolving Credit Advance" shall mean any Revolving Credit Loan and any
Letter of Credit Advance.
"Revolving Credit Loan" shall mean any borrowing under Section 2.4
evidenced by the Revolving Credit Note and made pursuant to Section 2.1.
"Revolving Credit Note" shall mean any promissory note of the Company
evidencing the Revolving Credit Loans, in substantially the form annexed hereto
as Exhibit C, as amended or modified from time to time and together with any
promissory note or notes issued in exchange or replacement therefor.
"Security Agreement" shall mean each security agreement dated as of May
23, 1995 and any other security agreement entered into by the Company or any
Guarantor for the benefit of the Bank pursuant to this Agreement, as amended by
the Consent and Amendment of Security Documents and as further amended or
modified from time to time.
"Security Documents" shall mean, collectively, the Assignment of Policy,
the Mortgages, the Pledge Agreement, the Security Agreements, the Guaranties,
the Consent and Amendment of Security Documents and all other related agreements
and documents, including financing statements and similar documents, delivered
pursuant to this Agreement or otherwise entered into by any person to secure the
Advances.
"S/L/C" shall mean any standby letter of credit issued by the Bank
hereunder.
"Subordinated Debt" of any person shall mean, as of any date, that
Indebtedness of such person for borrowed money which is expressly subordinate
and junior in right and priority of payment to the Advances and other
Indebtedness of such person to the Banks in manner and by agreement satisfactory
in form and substance to the Bank.
"Subsidiary" of any person shall mean any other person (whether now
existing or hereafter organized or acquired) in which (other than directors
qualifying shares required by law) at least a majority of the securities or
other ownership interests of each class having ordinary voting power or
analogous right (other than securities or other ownership interests which have
such power or right only by reason of the happening of a contingency), at the
time as of which any determination is being made, are owned, beneficially and of
record, by such person or by one or more of the other Subsidiaries of such
person or by any combination thereof. Unless otherwise specified, reference to
"Subsidiary" shall mean a Subsidiary of the Company.
"Tangible Net Worth" of any person shall mean, as of any date, (a) the
amount of any capital stock, paid in capital and similar equity accounts plus
(or minus in the case of
-13-
<PAGE> 14
a deficit) the capital surplus and retained earnings of such person and the
amount of any foreign currency translation adjustment account shown as a capital
account of such person, less (b) the net book value of all items of the
following character which are included in the assets of such person: (i)
goodwill, including, without limitation, the excess of cost over book value of
any asset, (ii) organization or experimental expenses, (iii) unamortized debt
discount and expense, (iv) patents, trademarks, trade names and copyrights, (v)
treasury stock, (vi) deferred taxes to the extent in excess of $2,000,000 and
deferred charges, (vii) franchises, licenses and permits, and (viii) other
assets which are deemed intangible assets under Generally Accepted Accounting
Principles.
"Term Loan A" shall mean the single borrowing under Section 2.4
evidenced by the Term Note A and made pursuant to Section 2.1(b).
"Term Loan B" shall mean the single borrowing under Section 2.4
evidenced by the Term Note B and made pursuant to Section 2.1(c).
"Term Note A" shall mean any promissory note of the Company evidencing
the Term Loan A, in substantially the form annexed hereto as Exhibit D-1, as
amended or modified from time to time and together with any promissory note or
notes issued in exchange or replacement therefor.
"Term Note B" shall mean any promissory note of the Company evidencing
the Term Loan B, in substantially the form annexed hereto as Exhibit D-2, as
amended or modified from time to time.
"Termination Date" shall mean the earlier to occur of (a) May 31, 1998
or such later date to which the Termination Date is extended pursuant to Section
2.4(c) and (b) the date on which the Commitment shall be terminated pursuant to
Section 2.2 or 6.2.
"Total Liabilities" of any person shall mean, as of any date, all
obligations which, in accordance with Generally Accepted Accounting Principles,
are or should be classified as liabilities on a balance sheet of such person and
all Contingent Liabilities of such person.
"Unfunded Benefit Liabilities" shall mean, with respect to any Plan as
of any date, the amount of the unfunded benefit liabilities determined in
accordance with Section 4001(a)(18) of ERISA.
"Working Capital" of any person shall mean, as of any date, the amount,
if any, by which the Current Assets of such person exceeds the Current
Liabilities of such person.
1.2 Other Definitions; Rules of Construction. As used herein, the
terms "Bank", "Company" and "this Agreement" shall have the respective meanings
ascribed thereto in the introductory paragraph of this Agreement, and the term
"Guaranteed Obligations" shall have the meaning ascribed thereto in Section 7.1
of this Agreement. Such terms, together with the
-14-
<PAGE> 15
other terms defined in Section 1.1, shall include both the singular and the
plural forms thereof and shall be construed accordingly. All computations
required hereunder and all financial terms used herein shall be made or
construed in accordance with Generally Accepted Accounting Principles unless
such principles are inconsistent with the express requirements of this
Agreement; provided that, if the Company notifies the Bank that the Company
wishes to amend any covenant in Article V to eliminate the effect of any change
in Generally Accepted Accounting Principles in the operation of such covenant
(or if the Bank notifies the Company that the Bank wishes to amend Article V for
such purpose), then the Company's compliance with such covenant shall be
determined on the basis of Generally Accepted Accounting Principles in effect
immediately before the relevant change in Generally Accepted Accounting
Principles became effective, until either such notice is withdrawn or such
covenant is amended in a manner satisfactory to the Company and the Bank. Use
of the terms "herein", "hereof", and "hereunder" shall be deemed references to
this Agreement in its entirety and not to the Section or clause in which such
term appears. References to "Sections" and "subsections" shall be to Sections
and subsections, respectively, of this Agreement unless otherwise specifically
provided.
ARTICLE II.
THE COMMITMENTS AND THE ADVANCES
2.1 Commitment of the Bank.
(a) Revolving Credit Advances. The Bank agrees subject to the
terms and conditions of this Agreement, to make Revolving Credit Loans to the
Company pursuant to Section 2.4 and Section 3.3 and to issue Letter of Credit
Advances to the Company pursuant to Section 2.4, from time to time from and
including the Effective Date to but excluding the Termination Date, not to
exceed in aggregate principal amount at any time outstanding the amount
determined pursuant to Section 2.1(d).
(b) Term Loan A. The Bank, subject to the terms and conditions
of this Agreement, made a single Term Loan A to the Company on or about May 23,
1995 pursuant to the Prior Loan Agreement in an amount equal to $1,300,000.
(c) Term Loan B. The Bank, subject to the terms and conditions
of this Agreement, made a single Term Loan B to the Company on or about May 23,
1995 pursuant to the Prior Loan Agreement in an amount equal to $2,200,000 and
the outstanding principal amount as of the Effective Date is $1,650,000.
(d) Limitation on Amount of Advances. Notwithstanding anything
in this Agreement to the contrary, the aggregate principal amount of the
Revolving Credit Advances made by the Bank at any time outstanding shall not
exceed the lesser of (A) the amount of the Revolving Credit Commitment as of the
date any such Advance is made or (B) the amount of the Borrowing Base as of the
close of business on the last date of the month next preceding the date any such
Advance is made, provided, however, the Bank may, in its sole and
-15-
<PAGE> 16
absolute discretion, make Advances to the Company in excess of the
Borrowing Base, but not exceeding the amount of the Revolving Credit Commitment,
and any such Advances in excess of the Borrowing Base shall be payable
immediately UPON DEMAND by the Bank, in its sole and absolute discretion,
despite the fact that there may not then exist a Default or Event of Default.
2.2 Termination and Reduction of Commitment. (a) The Company shall
have the right to terminate or reduce the Commitment at any time and from time
to time at its option, provided that (i) the Company shall give notice of such
termination or reduction to the Bank specifying the amount and effective date
thereof, (ii) each partial reduction of the Commitment shall be in a minimum
amount of $2,000,000 and in an integral multiple of $1,000,000, (iii) no such
termination or reduction shall be permitted with respect to any portion of the
Commitment as to which a request for a Advance pursuant to Section 2.4 is then
pending and (iv) the Commitment may not be terminated if any Advances are then
outstanding and may not be reduced below the principal amount of Advances then
outstanding. The Commitment or any portion thereof terminated or reduced
pursuant to this Section 2.2, whether optional or mandatory, may not be
reinstated.
(b) For purposes of this Agreement, a Letter of Credit Advance
(i) shall be deemed outstanding in an amount equal to the sum of the maximum
amount available to be drawn under the related Letter of Credit on or after the
date of determination and on or before the stated expiry date thereof plus the
amount of any draws under such Letter of Credit that have not been reimbursed as
provided in Section 3.3 and (ii) shall be deemed outstanding at all times on
and before such stated expiry date or such earlier date on which all amounts
available to be drawn under such Letter of Credit have been fully drawn, and
thereafter until all related reimbursement obligations have been paid pursuant
to Section 3.3. As provided in Section 3.3, upon each payment made by the Bank
in respect of any draft or other demand for payment under any Letter of Credit,
the amount of any Letter of Credit Advance outstanding immediately prior to such
payment shall be automatically reduced by the amount of each Revolving Credit
Loan deemed advanced in respect of the related reimbursement obligation of the
Company.
2.3 Fees. (a) The Company agrees to pay to the Bank a commitment fee
on the daily average unused amount of its respective Revolving Credit
Commitment, for the period from the Effective Date to but excluding the
Termination Date, at a rate equal to three-eighths of one percent (3/8 of 1%)
per annum. Accrued commitment fees shall be payable quarterly in arrears on the
last Business Day of each March, June, September and December, commencing on the
first such Business Day occurring after the Effective Date, and on the
Termination Date.
(b) The Company agrees to pay to the Bank a facility fee in the
amount of $100,000. Such facility fee shall be paid in ten monthly installments
in the amount of $10,000, commencing July 30 and on the 30th day of each month
thereafter to and including April 30, 1997.
-16-
<PAGE> 17
(c) The Company agrees to pay to the Bank (i) with respect to
S/L/Cs, a fee to the Bank computed at the rate of one and three-quarters
percent (1 3/4%) per annum, calculated on the maximum amount available to be
drawn from time to time under such S/L/C for the period from and including the
date of issuance of such S/L/C to and including the stated expiry date of such
S/L/C, which fee shall be paid annually, in advance at the time such S/L/C is
issued, and (ii) with respect to C/L/Cs, a fee negotiated between the Company
and the Bank at the time such C/L/C is issued in accordance with the Bank's
standard pricing for C/L/Cs, which fees shall be paid at each time as any C/L/C
is presented or drawn upon, in whole or in part, and if any C/L/C or portion
thereof is not drawn upon, the Company shall pay an expiry fee to the Bank in
accordance with the Bank's standard pricing for C/L/Cs. Such fees are
nonrefundable and the Company shall not be entitled to any rebate of any portion
thereof if such Letter of Credit does not remain outstanding through its stated
expiry date or for any other reason. The Company further agrees to pay to the
Bank, on demand, such other customary administrative fees, charges and expenses
of the Bank in respect of the issuance, negotiation, acceptance, amendment,
transfer and payment of such Letter of Credit or otherwise payable pursuant to
the application and related documentation under which such Letter of Credit is
issued.
2.4 Disbursement of Advances. (a) The Company shall give the Bank
notice of its request for each Advance, which request may be made by
telephone advice, not later than 10:00 a.m. Detroit time (i) three Eurodollar
Business Days prior to the date such Advance is requested to be made if such
Advance is to be made as a Eurodollar Rate Loan, (ii) five Business Days prior
to the date any Letter of Credit Advance is requested to be made, and (iii) one
Business Day prior to the date such Advance is requested to be made in all other
cases, which notice shall specify whether a Eurodollar Rate Loan or Floating
Rate Loan or a Letter of Credit Advance is requested and, in the case of each
requested Eurodollar Rate Loan, the Interest Period to be initially applicable
to such Loan and, in the case of each Letter of Credit Advance, such information
as may be necessary for the issuance thereof by the Bank. Subject to the terms
and conditions of this Agreement, the proceeds of each such requested Loan shall
be made available to the Company by depositing the proceeds thereof in
immediately available funds, in an account maintained and designated by the
Company at the principal office of the Bank. Subject to the terms and
conditions of this Agreement, the Bank shall, on the date any Letter of Credit
Advance is requested to be made, issue the related Letter of Credit for the
account of the Company. Notwithstanding anything herein to the contrary, the
Bank may decline to issue any requested Letter of Credit on the basis that the
beneficiary, the purpose of issuance or the terms or the conditions of drawing
are unacceptable to it in its discretion.
(b) All Revolving Credit Loans made under this Section 2.4 shall
be evidenced by the Revolving Credit Notes and the Term Loans made under this
Section 2.4 shall be evidenced by the respective Term Notes, and all such Loans
shall be due and payable and bear interest as provided in Article III. The Bank
is hereby authorized by the Company to record in its books and records, the
date, amount and type of each Loan and the duration of the related Interest
Period (if applicable), the amount of each payment or prepayment of principal
thereon, and the other information provided for in such books and records, which
books and records shall constitute prima facie evidence of the information so
recorded, provided, however, that failure
-17-
<PAGE> 18
of the Bank to record, or any error in recording, any such information shall not
relieve the Company of its obligation to repay the outstanding principal amount
of the Loans, all accrued interest thereon and other amounts payable with
respect thereto in accordance with the terms of the Notes and this Agreement.
Subject to the terms and conditions of this Agreement, the Company may borrow
Revolving Credit Loans under this Section 2.4 and under Section 3.3, prepay
Revolving Credit Loans pursuant to Section 3.1 and reborrow Revolving Credit
Loans but not Term Loans under this Section 2.4 and under Section 3.3.
(c) The Bank agrees that the then existing Termination Date
shall be extended for a period of one year beyond the then existing Termination
Date if the Bank delivers notice in writing to the Company of its decision
to extend the then existing Termination Date thirty (30) days prior to the then
existing Termination Date. Failure of the Bank to deliver such notice shall be
deemed a refusal to extend the Termination Date.
2.5 Conditions for First Disbursement. The obligation of the Bank to
make the vance hereunder is subject to receipt by the Bank of the following
documents and completion of the following matters, in form and substance
satisfactory to the Bank:
(a) Charter Documents. Certificates of recent date of the
appropriate authority or official of the Company's and each Guarantor's
respective state of incorporation (listing all charter documents of the Company
and each Guarantor, respectively, on file in that office if such listing is
available) and certifying as to the good standing and corporate existence of the
Company and each Guarantor, respectively, together with copies of such charter
documents of the Company and each Guarantor, certified as of a recent date by
such authority or official and certified as true and correct as of the Effective
Date by a duly authorized officer of the Company;
(b) By-Laws and Corporate Authorizations. Copies of the by-laws
of the Company and each Guarantor together with all authorizing resolutions and
evidence of other corporate action taken by the Company and each Guarantor
to authorize the execution, delivery and performance by the Company and each
Guarantor of this Agreement, the Notes and the Security Documents to which the
Company and such Guarantor, respectively is a party and the consummation by the
Company and such Guarantor, respectively of the transactions contemplated
hereby, certified as true and correct as of the Effective Date by a duly
authorized officer of the Company and each Guarantor, respectively;
(c) Incumbency Certificate. Certificates of incumbency of the
Company and each Guarantor containing, and attesting to the genuineness of, the
signatures of those officers authorized to act on behalf of the Company and such
Guarantor in connection with this Agreement, the Notes and the Security
Documents to which the Company or such Guarantor is a party and the consummation
by the Company and such Guarantor of the transactions contemplated hereby,
certified as true and correct as of the Effective Date by a duly authorized
officer of the Company and each Guarantor;
-18-
<PAGE> 19
(d) Notes. The Revolving Credit Note and the Term Notes duly
executed on behalf of the Company for the Bank;
(e) Security Documents. The Consent and Amendment of Security
Documents duly executed on behalf of the Company and each Guarantor, and all
other Security Documents reasonably requested by the Bank, together with
evidence of recordation, filing and other action of any kind with respect
thereto required by the Bank, together with all UCC searches, insurance
endorsements, instruments, patent, trademark and copyright searches,
environmental audits and searches and other actions required in connection
therewith by the Bank;
(f) Legal Opinions. The favorable written opinion of John
Chupa, counsel for the Company and each Guarantor in the form attached hereto as
Exhibit E;
(g) Consents, Approvals, Etc. Copies of all governmental and
nongovernmental consents, approvals, authorizations, declarations, registrations
or filings, if any, required on the part of the Company or any Guarantor in
connection with the execution, delivery and performance of this Agreement,
the Notes, the Security Documents or the transactions contemplated hereby or as
a condition to the legality, validity or enforceability of this Agreement, the
Notes or any of the Security Documents, certified as true and correct and in
full force and effect as of the Effective Date by a duly authorized officer of
the Company, or, if none are required, a certificate of such officer to that
effect;
(h) Fees. The facility fee described in Section 2.3(b); and
(i) Such other documents, and completion of such other matters,
as the Bank may reasonably request.
2.6 Further Conditions for Disbursement. The obligation of the Bank
to make any Advance (including the first Advance), or any continuation or
conversion under Section 2.7 is further subject to the satisfaction of the
following conditions precedent:
(a) The representations and warranties contained in Article IV
hereof and in the Security Documents shall be true and correct on and as of the
date such Advance is made (both before and after such Advance is made) as if
such representations and warranties were made on and as of such date;
(b) No Default or Event of Default shall exist or shall have
occurred and be continuing on the date such Advance is made (whether before
or after such Advance is made);
(c) The Bank shall have received the Borrowing Base Certificate
required pursuant to Section 5.1(d)(vi) as of the close of business on the
last day of the month next preceding the date such Advance is made; and
-19-
<PAGE> 20
(d) In the case of any Letter of Credit Advance, the Company
shall have delivered to the Bank an application for the related Letter of
Credit and other related documentation requested by and acceptable to the Bank
appropriately completed and duly executed on behalf of the Company.
The Company shall be deemed to have made a representation and warranty to the
Bank at the time of the making of, and the continuation or conversion of, each
Advance to the effects set forth in clauses (a) and (b) of this Section 2.6.
For purposes of this Section 2.6 the representations and warranties contained in
Section 4.6 hereof shall be deemed made with respect to both the financial
statements referred to therein and the most recent financial statements
delivered pursuant to Section 5.1(d)(ii) and (iii).
2.7 Subsequent Elections as to Loans. The Company may elect (a) to
continue a Eurodollar Rate Loan, or a portion thereof, as a Eurodollar Rate
Loan or (b) may elect to convert a Eurodollar Rate Loan, or a portion thereof,
to a Loan of another type or (c) elect to convert a Floating Rate Loan, or a
portion thereof, to a Eurodollar Rate Loan in each case by giving notice
thereof to the Bank, which notice may be made by telephone advice, not later
than 10:00 a.m. Detroit time three Eurodollar Business Days prior to the date
any such continuation of or conversion to a Eurodollar Rate Loan is to be
effective and not later than 10:00 a.m. Detroit time one Business Day prior to
the date such continuation or conversion is to be effective in all other cases,
provided that an outstanding Eurodollar Rate Loan may only be converted on the
last day of the then current Interest Period with respect to such Loan, and
provided, further, if a continuation of a Loan as, or a conversion of a Loan to,
a Eurodollar Rate Loan is requested, such notice shall also specify the Interest
Period to be applicable thereto upon such continuation or conversion. If the
Company shall not timely deliver such a notice with respect to any outstanding
Eurodollar Rate Loan, the Company shall be deemed to have elected to convert
such Eurodollar Rate Loan to a Floating Rate Loan on the last day of the then
current Interest Period with respect to such Loan.
2.8 Limitation of Requests and Elections. Notwithstanding any other
provision of this Agreement to the contrary, if, upon receiving a request for a
Eurodollar Rate Loan pursuant to Section 2.4, or a request for a continuation of
a Eurodollar Rate Loan as a Eurodollar Rate Loan of the then existing type, or a
request for a conversion of a Floating Rate Loan to a Eurodollar Rate Loan
pursuant to Section 2.7, (a) in the case of any Eurodollar Rate Loan, deposits
in Dollars for comparable to the Interest Period elected by the Company are not
available to the Bank in the London interbank market, or (b) the Eurodollar Rate
will not adequately and fairly reflect the cost to the Bank of making, funding
or maintaining the related Eurodollar Rate Loan, or (c) by reason of national or
international financial, political or economic conditions or by reason of any
applicable law, treaty or other international agreement, rule or regulation
(whether domestic or foreign) now or hereafter in effect, or the interpretation
or administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by the Bank with any
guideline, request or directive of such authority (whether or not having the
force of law), including without limitation exchange controls, it is
impracticable, unlawful or impossible for, or shall limit or impair the ability
of, (i) the Bank
-20-
<PAGE> 21
or fund the relevant Loan or to continue such Loan as a Loan of the then
existing type or to convert a Loan to such a Loan or (ii) the Company to make or
the Bank to receive any payment under this Agreement at the place specified for
payment hereunder or to freely convert any amount paid into at market rates
of exchange or to transfer any amount paid or so converted to the address of its
principal office specified in Section 8.2, then the Company shall not be
entitled, so long as such circumstances continue, to request a Loan of the
affected type pursuant to Section 2.4 or a continuation of or conversion to a
Loan of the affected type pursuant to Section 2.7. In the event that such
circumstances no longer exist, the Bank shall again consider requests for Loans
of the affected type pursuant to Section 2.4, and requests for continuations of
and conversions to Loans of the affected type pursuant to Section 2.7.
Notwithstanding any other provision of this Agreement to the contrary
and in order to give effect to the provisions of Section 3.1(a)(ii), the Company
shall make requests for Eurodollar Rate Loans pursuant to Section 2.4, and
requests for continuations of and conversions to Eurodollar Rate Loans pursuant
to Section 2.7, such that, on each date that any scheduled principal payment is
due with respect to the Term Loan pursuant to Section 3.1(a), either Floating
Rate Loans, or Eurodollar Rate Loans having an Interest Period ending on such
date, or any combination thereof, are outstanding on such date in an aggregate
outstanding principal amount not less than the amount of such principal payment.
2.9 Minimum Amounts; Limitation on Number of Loans; Etc. Except for
(a) Advances which exhaust the entire remaining amount of the Commitments, and
(b) payments required pursuant to Section 3.1(c) or Section 3.8, each Advance
and each continuation or conversion pursuant to Section 2.7 and each prepayment
thereof shall be in a minimum amount of, with respect to Eurodollar Rate Loans,
$1,000,000 and in integral multiples of $500,000, and, with respect to Floating
Rate Loans, $100,000 and in integral multiples of $25,000 and each Letter of
Credit Advance shall be in a minimum amount of $25,000. The aggregate number of
Eurodollar Rate Loans outstanding at any one time under this Agreement may not
exceed five.
2.10 Borrowing Base Adjustments. The Company agrees that if at any
time any trade account receivable, any inventory, or any fixed asset of the
Company fails to constitute Eligible Account Receivable, Eligible Inventory, or
Eligible Fixed Assets, as the case may be, for any reason, the Bank may, at any
time and notwithstanding any prior classification of eligibility, classify such
asset or property as ineligible and exclude the same from the computation of
the Borrowing Base without in any way impairing the rights of the Bank in and to
the same under the Security Agreement.
2.11 Security and Collateral. To secure the payment when due of the
Notes and all other obligations of the Company under this Agreement to the Bank,
the Company has executed or shall execute and deliver, or cause to be executed
and delivered, to the Bank Security Documents granting the following:
-21-
<PAGE> 22
(a) Security interests in all present and future accounts,
inventory, general intangibles, chattel paper, instruments, equipment, fixtures,
and all other personal property of the Company.
(b) Pledges of 66% of all capital stock of all present and
future Foreign Subsidiaries of the Company and 100% of all capital stock of all
present and future Domestic Subsidiaries of the Company.
(c) Guarantees of all Domestic Subsidiaries of the Company.
(d) Security interests in all present and future accounts,
inventory, general intangibles, chattel paper, instruments, equipment,
fixtures, and all other personal property of the Guarantors.
(e) Assignment of the life insurance policy on the life of Rand
Mueller in an amount not less than $2,000,000 on which the Company is named
beneficiary.
(f) All other security and collateral described in the Security
Documents.
ARTICLE III.
PAYMENTS AND PREPAYMENTS OF ADVANCES
3.1 Principal Payments and Prepayments.
(a) Unless earlier payment is required under this Agreement (i)
the Company shall pay to the Bank on the Termination Date the entire
outstanding principal amount of the Revolving Credit Loans, (ii) the Company
shall pay to the Bank the outstanding principal amount of the Term Loan A on
Maturity Date A, and (iii) the Company shall pay to the Bank the outstanding
principal amount of the Term Loan B in sixteen equal quarterly installments in
the amount of $137,500 payable on the last Business Day of each March, June,
September and December, which payments commenced on the last Business Day of
June 30, 1995, to and including Maturity Date B, when the entire outstanding
principal amount of the Term Loan B shall be due and payable.
(b) The Company may at any time and from time to time prepay all
or a portion of the Loans, without premium or penalty, provided that (i) the
Company may not prepay any portion of any Loan as to which an election for a
continuation of or a conversion to a Eurodollar Rate Loan is pending pursuant to
Section 2.4, and (ii) unless earlier payment is required under this Agreement,
any Eurodollar Rate Loan may only be prepaid on the last day of the then current
Interest Period with respect to such Loan. Upon the giving of such notice, the
aggregate principal amount of such Loan or portion thereof so specified in such
notice,
-22-
<PAGE> 23
together with such accrued interest and other amounts, shall become due and
payable on the specified prepayment date.
(c) If at any time the aggregate outstanding principal amount of
the Revolving Credit Advances shall exceed the lesser of Borrowing Base or the
Revolving Credit Commitment, the Company shall forthwith pay to the Bank,
without demand, an amount not less than the amount of such excess for
application to the outstanding principal amount of the Loans, provided that if
any such prepayment would be in excess of the outstanding amount of the Loans,
the Company shall deliver cash collateral to the Agent to secure the outstanding
Letters of Credit in the amount of such excess which is greater than the
outstanding Loans and the Company hereby grants to the Agent, for the benefit of
the Banks, a first priority lien and security interest in such collateral, and
all such cash collateral shall be under the sole and exclusive control of the
Agent.
(d) In addition to all other payments required hereunder, the
Company shall make a mandatory prepayment of principal on Term Loan B in an
amount equal to 100% of the Excess Cash Flow for each fiscal year, commencing
December 31, 1995, due and payable on or before the date 90 days after each such
fiscal year of the Company.
(e) All prepayments of any Term Loan, whether optional or
mandatory, shall be applied to installments of principal of such Term Loan in
the inverse order of their maturities and no partial prepayment of any Term
Loan shall reduce the amount or defer the date of the scheduled installments of
principal required to be paid thereon.
3.2 Interest Payments. The Company shall pay interest to the Bank on
the unpaid principal amount of each Loan, for the period commencing on the date
such Loan is made until such Loan is paid in full, on each Interest Payment Date
and at maturity (whether at stated maturity, by acceleration or otherwise), and
thereafter on demand, at the following rates per annum:
(a) During such periods that such Loan is a Floating Rate Loan,
the Floating Rate.
(b) During such periods that such Loan is a Eurodollar Rate
Loan, the Eurodollar Rate applicable to such Loan for each related Eurodollar
Interest Period.
Notwithstanding the foregoing paragraphs (a) and (b), the Company shall pay
interest on demand by the Bank at the Overdue Rate on the outstanding principal
amount of any Loan and any other amount payable by the Company hereunder (other
than interest) at any time on or after an Event of Default if required in
writing by the Bank.
3.3 Letter of Credit Reimbursement Payments. (a)(i) The Company
agrees to pay to the Bank, on the day on which the Bank shall honor a draft or
other demand for payment presented or made under any Letter of Credit, an
amount equal to the amount paid by the Bank
-23-
<PAGE> 24
in respect of such draft or other demand under such Letter of Credit and all
expenses paid or incurred by the Bank relative thereto. Unless the Company
shall have made such payment to the Bank on such day, upon each such payment
by the Bank, the Bank shall be deemed to have disbursed to the Company, and the
Company shall be deemed to have elected to satisfy its reimbursement obligation
by, a Revolving Credit Loan bearing interest at the Floating Rate for the
account of the Bank in an amount equal to the amount so paid by the Bank in
respect of such draft or other demand under such Letter of Credit. Such
Revolving Credit Loan shall be disbursed notwithstanding any failure to satisfy
any conditions for disbursement of any Loan set forth in Article II hereof and,
to the extent of the Revolving Credit Loan so disbursed, the reimbursement
obligation of the Company under this Section 3.3 shall be deemed satisfied;
provided, however, that nothing in this Section 3.3 shall be deemed to
constitute a waiver of any Default or Event of Default caused by the failure to
the conditions for disbursement or otherwise.
(ii) If, for any reason (including without limitation as a
result of the occurrence of an Event of Default with respect to the Company
pursuant to Section 6.1(h)), Floating Rate Loans may not be made by the Bank as
described in Section 3.3(a)(i), then the Company agrees that each reimbursement
amount not paid pursuant to the first sentence of Section 3.3(a)(i) shall bear
interest, payable on demand by the Bank, at the interest rate then applicable to
Floating Rate Loans.
(b) The reimbursement obligation of the Company under this
Section 3.3 shall be absolute, unconditional and irrevocable and shall remain in
full force and effect until all obligations of the Company to the Bank hereunder
shall have been satisfied, and such obligations of the Company shall not be
affected, modified or impaired upon the happening of any event, including
without limitation, any of the following, whether or not with notice to, or the
consent of, the Company:
(i) Any lack of validity or enforceability of any Letter
of Credit or any documentation relating to any Letter of Credit or to any
transaction related in any way to such Letter of Credit (the "Letter of Credit
Documents");
(ii) Any amendment, modification, waiver, consent, or any
substitution, exchange or release of or failure to perfect any interest in
collateral or security, with respect to any of the Letter of Credit Documents;
(iii) The existence of any claim, setoff, defense or other
right which the Company may have at any time against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom any
such beneficiary or any such transferee may be acting), the Bank or any other
person or entity, whether in connection with any of the Letter of Credit
Documents, the transactions contemplated herein or therein or any unrelated
transactions;
-24-
<PAGE> 25
(iv) Any draft or other statement or document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect;
(v) Payment by the Bank to the beneficiary under any
Letter of Credit against presentation of a documents which do not comply with
the terms of the Letter of Credit, including failure of any documents to
bear any reference or adequate reference to such Letter of Credit;
(vi) Any failure, omission, delay or lack on the part of
the Bank or any party to any of the Letter of Credit Documents to enforce,
assert or exercise any right, power or remedy conferred upon the Bank or any
such party under this Agreement or any of the Letter of Credit Documents, or any
other acts or omissions on the part of the Bank or any such party;
(vii) Any other event or circumstance that would, in the
absence of this clause, result in the release or discharge by operation of law
or otherwise of the Company from the performance or observance of any
obligation, covenant or agreement contained in this Section 3.3.
No setoff, counterclaim, reduction or diminution of any obligation or any
defense of any kind or nature which the Company has or may have against the
beneficiary of any Letter of Credit shall be available hereunder to the Company
against the Bank. Nothing in this Section 3.3 shall limit the liability, if
any, of the Bank to the Company pursuant to Section 8.5.
3.4 Payment Method. (a) All payments to be made by the Company
hereunder will be made to the Bank in Dollars and in immediately available,
freely transferable, cleared funds not later than 1:00 p.m. at the principal
office of the Bank specified in Section 8.2. Payments received after 1:00 p.m.
at the place for payment shall be deemed to be payments made prior to 1:00 p.m.
at the place for payment on the next succeeding Business Day. The Company
hereby authorizes the Bank to charge its account with the Bank in order to cause
timely payment of amounts due hereunder to be made (subject to sufficient funds
being available in such account for that purpose).
(b) At the time of making each such payment, the Company shall,
subject to the other terms and conditions of this Agreement, specify to the Bank
that Loan or other obligation of the Company hereunder to which such payment is
to be applied. In the event that the Company fails to so specify the relevant
obligation or if an Event of Default shall have occurred and be continuing, the
Bank may apply such payments as it may determine in its sole discretion.
3.5 No Setoff or Deduction. All payments of principal of and interest
on the Loans and other amounts payable by the Company hereunder shall be made by
the Company without setoff or counterclaim, and, subject to the next succeeding
sentence, free and clear of,
-25-
<PAGE> 26
and without deduction or withholding for, or on account of, any present or
future taxes, levies, imposts, duties, fees, assessments, or other charges of
whatever nature, imposed by any governmental authority, or by any department,
agency or other political subdivision or taxing authority. If any such taxes,
levies, imposts, duties, fees, assessments or other charges are imposed, the
Company will pay such additional amounts as may be necessary so that payment of
principal of and interest on the Loans and other amounts payable hereunder,
after withholding or deduction for or on account thereof, will not be less than
any amount provided to be paid hereunder and, in any such case, the Company will
furnish to the Bank certified copies of all tax receipts evidencing the payment
of such amounts within 45 days after the date any such payment is due pursuant
to applicable law.
3.6 Payment on Non-Business Day; Payment Computations. Except as
otherwise provided in this Agreement to the contrary, whenever any installment
of principal of, or interest on, any Loan or any other amount due hereunder
becomes due and payable on a day which is not a Business Day, the maturity
thereof shall be extended to the next succeeding Business Day and, in the case
of any installment of principal, interest shall be payable thereon at the rate
per annum determined in accordance with this Agreement during such extension.
Computations of interest and other amounts due under this Agreement shall be
made on the basis of a year of 360 days for the actual number of days elapsed,
including the first day but excluding the last day of the relevant period.
3.7 Additional Costs. (a) In the event that any applicable law,
treaty or other international agreement, rule or regulation (whether domestic or
foreign) now or hereafter in effect and whether or not presently applicable to
the Bank, or any interpretation or administration thereof by any governmental
authority charged with the interpretation or administration thereof, or
compliance by the Bank with any guideline, request or directive of any such
authority (whether or not having the force of law), shall (a) affect the basis
of taxation of payments to the Bank of any amounts payable by the Company under
this Agreement (other than taxes imposed on the overall net income of the Bank,
by the jurisdiction, or by any political subdivision or taxing authority of any
such jurisdiction, in which the Bank has its principal office), or (b) shall
impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, or credit
extended by the Bank, or (c) shall impose any other condition with respect to
this Agreement, or any of the Commitments, the Notes or the Loans or any Letter
of Credit, and the result of any of the foregoing is to increase the cost to the
Bank of making, funding or maintaining any Eurodollar Rate Loan or any Letter of
Credit or to reduce the amount of any sum receivable by the Bank thereon, then
the Company shall pay to the Bank, from time to time, upon request by the Bank
additional amounts sufficient to compensate the Bank for such increased cost or
reduced sum receivable to the extent, in the case of any Eurodollar Rate Loan,
the Bank is not compensated therefor in the computation of the interest rate
applicable to such Eurodollar Rate Loan. A statement as to the amount of such
increased cost or reduced sum receivable, prepared in good faith and in
reasonable detail by the Bank and submitted by the Bank to the Company, shall be
conclusive and binding for all purposes absent manifest error in computation.
-26-
<PAGE> 27
(b) In the event that any applicable law, treaty or other
international agreement, rule or regulation (whether domestic or foreign) now
or hereafter in effect and whether or not presently applicable to the Bank, or
any interpretation or administration thereof by any governmental authority
charged with the interpretation or administration thereof, or compliance by the
Bank with any guideline, request or directive of any such authority (whether or
not having the force of law), including any risk-based capital guidelines,
affects or would affect the amount of capital required or expected to be
maintained by the Bank (or any corporation controlling the Bank) and the Bank
determines that the amount of such capital is increased by or based upon the
existence of the Bank's obligations hereunder and such increase has the effect
of reducing the rate of return on the Bank's (or such controlling corporation's)
capital as a consequence of such obligations hereunder to a level below that
which the Bank (or such controlling corporation) could have achieved but for
such circumstances (taking into consideration its policies with respect to
capital adequacy), then the Company shall pay to the Bank from time to time,
upon request by the Bank additional amounts sufficient to compensate such Bank
(or such controlling corporation) for any increase in the amount of capital and
reduced rate of return which the Bank reasonably determines to be allocable to
the existence of the Bank's obligations hereunder. A statement as to the amount
of such compensation, prepared in good faith and in reasonable detail by the
Bank and submitted by such Bank to the Company, shall be conclusive and binding
for all purposes absent manifest error in computation. The Bank may, at its
option, specify that such amounts be paid by way of an increase in the
commitment fees payable by the Company pursuant to Section 2.3(a).
3.8 Illegality and Impossibility. In the event that any applicable
law, treaty or other international agreement, rule or regulation (whether
domestic or foreign) now or hereafter in effect and whether or not presently
applicable to the Bank, or any interpretation or administration thereof by any
governmental authority charged with the interpretation or administration
thereof, or compliance by the Bank with any guideline, request or directive of
such authority (whether or not having the force of law), including without
limitation exchange controls, shall make it unlawful or impossible for the Bank
to maintain any Loan under this Agreement, (b) shall make it impracticable,
unlawful or impossible for, or shall in any way limit or impair ability of, the
Company to make or the Bank to receive any payment under this Agreement at the
place specified for payment hereunder, the Company shall upon receipt of notice
thereof from the Bank, repay in full the then outstanding principal amount of
each Loan so affected, together with all accrued interest thereon to the date of
payment and all amounts owing to the Bank under Section 3.8, (a) on the last day
of the then current Interest Period applicable to such Loan if the Bank may
lawfully continue to maintain such Loan to such day, or (b) immediately if the
Bank may not continue to maintain such Loan to such day.
3.9 Indemnification. If the Company makes any payment of principal
with respect to any Eurodollar Rate Loan on any other date than the last day of
an Interest Period applicable thereto (whether pursuant to Section 3.1(c),
Section 3.7, Section 6.2 or otherwise), or if the Company fails to borrow any
Eurodollar Rate Loan after notice has been given to the Bank in accordance with
Section 2.4, or if the Company fails to make any payment of principal or
interest in respect of a Eurodollar Rate Loan when due, the Company shall
reimburse the Bank
-27-
<PAGE> 28
on demand for any resulting loss or expense incurred by the Bank, including
without limitation any loss incurred in obtaining, liquidating or employing
deposits from third parties, whether or not the Bank shall have funded or
committed to fund such Loan. A statement as to the amount of such loss or
expense, prepared in good faith and in reasonable detail by the Bank and
submitted by the Bank to the Company, shall be conclusive and binding for all
purposes absent manifest error in computation. Calculation of all amounts
payable to the Bank under this Section 3.9 shall be made as though the Bank
shall have actually funded or committed to fund the relevant Eurodollar Rate
Loan through the purchase of an underlying deposit in an amount equal to the
amount of such Loan in the relevant market and having a maturity comparable to
the related Interest Period and, through the transfer of such deposit to a
domestic office of the Bank in the United States; provided, however, that the
Bank may fund any Eurodollar Rate Loan in any manner it sees fit and the
foregoing assumption shall be utilized only for the purpose of calculation of
amounts payable under this Section 3.9.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Bank that:
4.1 Corporate Existence and Power. Each of the Company and the
Guarantor is a corporation duly organized, validly existing and in good
standing under the laws of the state of its jurisdiction of incorporation or
organization, as the case may be, and is duly qualified to do business, and is
in good standing, in all additional jurisdictions where such qualification is
necessary under applicable law. Each of the Company and the Guarantor has all
requisite corporate power to own or lease the properties used in its business
and to carry on its business as now being conducted and as proposed to be
conducted, and to execute and deliver this Agreement, the Notes and the Security
Documents to which it is a party and to engage in the transactions contemplated
by this Agreement.
4.2 Corporate Authority. The execution, delivery and performance by
the Company and each Guarantor of this Agreement, the Notes and the Security
Documents to which it is a party have been duly authorized by all necessary
corporate action and are not in contravention of any law, rule or regulation, or
any judgment, decree, writ, injunction, order or award of any arbitrator, court
or governmental authority, or of the terms of the Company's or the Guarantor's
charter or by-laws, or of any contract or undertaking to which the Company or
any Guarantor is a party or by which the Company or any Guarantor or any of
their respective property may be bound or affected and will not result in the
imposition of any Lien on any of their property or of any of their Subsidiaries
except for Permitted Liens.
4.3 Binding Effect. This Agreement is, and the Notes and the Security
Documents to which the Company or any Guarantor is a party when delivered
hereunder will be, legal, valid and binding obligations of the Company and the
Guarantor, respectively, enforceable against the Company and the Guarantor in
accordance with their respective terms.
-28-
<PAGE> 29
4.4 Subsidiaries. Schedule 4.4 hereto correctly sets forth the
corporate name, jurisdiction of incorporation and ownership of each Subsidiary
of the Company and each Guarantor. Each such Subsidiary and each corporation
becoming a Subsidiary of the Company or any Guarantor after the date hereof is
and will be a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation and is and will be duly
qualified to do business in each additional jurisdiction where such
qualification is or may be necessary under applicable law. Each Subsidiary of
the Company and each Guarantor has and will have all requisite corporate power
to own or lease the properties used in its business and to carry on its business
as now being conducted and as proposed to be conducted. All outstanding shares
of capital stock of each class of each Subsidiary of the Company and each
Guarantor have been and will be validly issued and are and will be fully paid
and nonassessable and, except as otherwise indicated in Schedule 4.4 hereto or
disclosed in writing to the Bank from time to time, are and will be owned,
beneficially and of record, by the Company or another Subsidiary of the Company
free and clear of any Liens.
4.5 Litigation. Except as set forth in Schedule 4.5 hereto, there is
no action, suit or proceeding pending or, to the best of the Company's and the
Guarantors' knowledge, threatened against or affecting the Company, any
Guarantor or any of their respective Subsidiaries before or by any court,
governmental authority or arbitrator, which if adversely decided might have a
Material Adverse Effect and, to the best of the Company's and the Guarantor's
knowledge, there is no basis for any such action, suit or proceeding.
4.6 Financial Condition. The consolidated and consolidating balance
sheet of the Company and its Subsidiaries and the consolidated and consolidating
statements of income, retained earnings and cash flows of the Company and its
Subsidiaries for the fiscal year ended December 31, 1995 and reported on by
Deloitte and Touche, independent certified public accountants, and the interim
consolidated balance sheet and interim consolidated statements of income,
retained earnings and cash flows of the Company and its Subsidiaries, as of or
for the three-month period ended on March 31, 1996 copies of which have been
furnished to the Bank, fairly present, and the financial statements of the
Company and its Subsidiaries delivered pursuant to Section 5.1(d) will fairly
present, the consolidated financial position of the Company and its Subsidiaries
as at the respective dates thereof, and the consolidated results of operations
of the Company and its Subsidiaries for the respective periods indicated, all in
accordance with Generally Accepted Accounting Principles consistently applied
(subject, in the case of said interim statements, to year-end audit
adjustments). There has been no event or development which has had or could
reasonably be expected to have a Material Adverse Effect since December 31,
1995. There is no material Contingent Liability of the Company or any of its
Subsidiaries that is not reflected in such financial statements or in the notes
thereto.
4.7 Use of Advances. The Company will use the proceeds of the
Advances for its general corporate purposes, including, without limitation,
funding litigation settlements. Neither the Company nor any Guarantor nor any
of their respective Subsidiaries extends or maintains, in the ordinary course of
business, credit for the purpose, whether immediate, incidental, or ultimate, of
buying or carrying margin stock (within the meaning of Regulation U
-29-
<PAGE> 30
of the Board of Governors of the Federal Reserve System), and no part of the
proceeds of any Advance will be used for the purpose, whether immediate,
incidental, or ultimate, of buying or carrying any such margin stock or
maintaining or extending credit to others for such purpose. After applying the
proceeds of each Advance, such margin stock will not constitute more than 25% of
the value of the assets (either of the Company or any Guarantor alone or of the
Company and the Guarantors and their respective Subsidiaries on a consolidated
basis) that are subject to any provisions of this Agreement or any Security
Document that may cause the Advances to be deemed secured, directly or
indirectly, by margin stock.
4.8 Consents, Etc. Except for such consents, approvals,
authorizations, declarations, registrations or filings delivered by the Company
and the Guarantors pursuant to Section 2.5(g), if any, each of which is in full
force and effect, no consent, approval or authorization of or declaration,
registration or filing with any governmental authority or any nongovernmental
person or entity, including without limitation any creditor, lessor or
stockholder of the Company or any Guarantor or any of their respective
Subsidiaries, is required on the part of the Company or any Guarantor in
connection with the execution, delivery and performance of this Agreement, the
Notes, the Security Documents or the transactions contemplated hereby or as a
condition to the legality, validity or enforceability of this Agreement, the
Notes or any of the Security Documents.
4.9 Taxes. The Company and the Guarantors and their respective
Subsidiaries have filed all tax returns (federal, state and local) required to
be filed and have paid all taxes shown thereon to be due, including interest and
penalties, or have established adequate financial reserves on their respective
books and records for payment thereof in accordance with Generally Accepted
Accounting Principles. Neither the Company nor any Guarantor nor any of their
respective Subsidiaries knows of any actual or proposed tax assessment or any
basis therefor, and no extension of time for the assessment of deficiencies in
any federal or state tax has been granted by the Company, any Guarantor or any
such Subsidiary.
4.10 Title to Properties. Except as otherwise disclosed in the latest
balance sheet delivered pursuant to Section 4.6 or 5.1(d) of this Agreement, the
Company, the Guarantors or one or more of their respective Subsidiaries have
good and marketable fee simple title to all of the real property, and a valid
and indefeasible ownership interest in all of the other properties and assets
(including, without limitation, the collateral subject to the Security Documents
to which any of them is a party) reflected in said balance sheet or subsequently
acquired by the Company, any Guarantor or any such Subsidiary. All of such
properties and assets are free and clear of any Lien, except for Permitted
Liens.
4.11 Borrowing Base. All trade accounts receivable and inventory of
the Company represented or reported by the Company to be, or are otherwise
included in, Eligible Accounts Receivable and Eligible Inventory comply in all
respects with the requirements therefor set forth in the definition thereof, and
the computations of the Borrowing Base set forth in each Borrowing Base
Certificate is true and correct.
-30-
<PAGE> 31
4.12 ERISA. The Company, the Guarantors, their respective
Subsidiaries, their ERISA Affiliates and their respective Plans are in
compliance in all material respects with those provisions of ERISA and of the
Code which are applicable with respect to any Plan. No Prohibited Transaction
and no Reportable Event has occurred with respect to any such Plan. None of the
Company, any Guarantor, any of their respective Subsidiaries or any of their
ERISA Affiliates is an employer with respect to any Multiemployer Plan. The
Company, the Guarantors, their respective Subsidiaries and their ERISA
Affiliates have met the minimum funding requirements under ERISA and the Code
with respect to each of their respective Plans, if any, and have not incurred
any liability to the PBGC or any Plan. The execution, delivery and performance
of this Agreement, the Notes and the Security Documents does not constitute a
Prohibited Transaction. There is no material Unfunded Benefit Liability, with
respect to any Plan of the Company, any Guarantor, their respective Subsidiaries
or their ERISA Affiliates.
4.13 Disclosure. No report or other information furnished in writing
or on behalf of the Company or any Guarantor to the Bank in connection with the
negotiation or administration of this Agreement contains any material
misstatement of fact or omits to state any material fact or any fact necessary
to make the statements contained therein not misleading in light of the
circumstances in which they were made. Neither this Agreement, the Notes, the
Security Documents nor any other document, certificate, or report or statement
or other information furnished to the Bank by or on behalf of the Company or any
Guarantor in connection with the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material fact in order
to make the statements contained herein and therein not misleading in light of
the circumstances in which they were made. There is no fact known to the
Company or any Guarantor which has, or which in the future may have (so far as
the Company or any Guarantor can now foresee) a Material Adverse Effect, which
has not been set forth in this Agreement or in the other documents,
certificates, statements, reports and other information furnished in writing to
the Bank by or on behalf of the Company or any Guarantor in connection with the
transactions contemplated hereby.
4.14 Environmental Matters. The Company, the Guarantor and each of
their respective Subsidiaries is in compliance with all Environmental Laws in
jurisdictions in which the Company, the Guarantor or any such Subsidiary owns or
operates, or has owned or operated, a facility or site, or arranges or has
arranged for disposal or treatment of hazardous substances, solid waste, or
other wastes, accepts or has accepted for transport any hazardous substances,
solid wastes or other wastes or holds or has held any interest in real property
or otherwise. No demand, claim, notice, action, administrative proceeding,
investigation or inquiry whether brought by any governmental authority, private
person or entity or otherwise, arising under, relating to or in connection with
any Environmental Laws is pending or threatened against the Company, the
Guarantor or any of their respective Subsidiaries, any real property in which
the Company, the Guarantor or any such Subsidiary holds or has held an interest
or any past or present operation of the Company, the Guarantor or any such
Subsidiary. Neither the Company, the Guarantor nor any of their respective
Subsidiaries (a) is the subject of any federal or state investigation evaluating
whether any remedial action is needed to respond to a release of any toxic
substances, radioactive materials, hazardous wastes or related materials into
the
-31-
<PAGE> 32
environment, (b) has received any notice of any toxic substances, radioactive
materials, hazardous waste or related materials in, or upon any of its
properties in violation of any Environmental Laws, (c) knows of any basis for
any such investigation, notice or violation, or (d) owns or operates, or has
owned or operated, property which appears on the United States National Priority
List or any other governmental listing which identifies sites for remedial
clean-up or investigatory actions, except as disclosed on Schedule 4.14 hereto,
and as to such matters disclosed on such Schedule, none will have a Material
Adverse Effect. No release, threatened release or disposal of hazardous waste,
solid waste or other wastes is occurring or has occurred on, under or to any
real property in which the Company, the Guarantor or any of [its] [their
respective] Subsidiaries holds any interest or performs any of its operations,
in violation of any Environmental Law.
4.15 No Default. Neither the Company nor any Subsidiary is in default
or has received any written notice of default under or with respect to any of
its Contractual Obligations in any respect which could have a Material Adverse
Effect. No Default or Event of Default has occurred and is continuing.
4.16 No Burdensome Restrictions. No Requirement of Law or Contractual
Obligation applicable to the Company or any Subsidiary could have a Material
Adverse Effect on the financial condition or business of the Company and its
Subsidiaries, other than the Judgment.
ARTICLE V.
COVENANTS
5.1 Affirmative Covenants. Each of the Company and the Guarantors
covenants and agrees that, until the later of the Termination Date, the Maturity
Date A or Maturity Date B and thereafter until payment in full of the principal
of and accrued interest on the Notes and the performance of all other
obligations of the Company and the Guarantors under this Agreement, unless the
Bank shall otherwise consent in writing, it shall, and shall cause each of their
respective Subsidiaries to:
(a) Preservation of Corporate Existence, Etc. Do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
its legal existence, except to the extent permitted by Section 5.2(f), and its
qualification as a foreign corporation in good standing in each jurisdiction in
which such qualification is necessary under applicable law, and the rights,
licenses, permits (including those required under Environmental Laws),
franchises, patents, copyrights, trademarks and trade names material to the
conduct of its businesses; and defend all of the foregoing against all claims,
actions, demands, suits or proceedings at law or in equity or by or before any
governmental instrumentality or other agency or regulatory authority.
(b) Compliance with Laws, Etc. Comply in all material respects
with all applicable laws, rules, regulations and orders of any governmental
authority, whether federal, state, local or foreign (including without
limitation ERISA, the Code and Environmental Laws),
-32-
<PAGE> 33
in effect from time to time; and pay and discharge promptly when due all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income, revenues or property, before the same shall become delinquent or in
default, as well as all lawful claims for labor, materials and supplies or
otherwise, which, if unpaid, might give rise to Liens upon such properties or
any portion thereof, except to the extent that payment of any of the foregoing
is then being contested in good faith by appropriate legal proceedings and with
respect to which adequate financial reserves have been established on the books
and records of the Company, any Guarantor or any of their respective
Subsidiaries in accordance with Generally Accepted Accounting Principles.
(c) Maintenance of Properties; Insurance. Maintain, preserve and
protect all property that is material to the conduct of the business of the
Company, any Guarantor or any of their respective Subsidiaries and keep such
property in good repair, working order and condition and from time to time make,
or cause to be made all needful and proper repairs, renewals, additions,
improvements and replacements thereto necessary in order that the business
carried on in connection therewith may be properly conducted at all times in
accordance with customary and prudent business practices for similar businesses;
and, in addition to that insurance required under the Security Documents,
maintain in full force and effect insurance with responsible and reputable
insurance companies or associations in such amounts, on such terms and covering
such risks, including fire and other risks insured against by extended
coverage, as is usually carried by companies engaged in similar businesses and
owning similar properties similarly situated and maintain in full force and
effect public liability insurance, insurance against claims for personal
injury or death or property damage occurring in connection with any of its
activities or any properties owned, occupied or controlled by it, in such
amount as it shall reasonably deem necessary, and maintain such other insurance
as may be required by law or as may be reasonably requested by the Bank for
purposes of assuring compliance with this Section 5.1(c).
(d) Reporting Requirements. Furnish to the Bank the following:
(i) Promptly and in any event within three calendar days
(B) the commencement of any material litigation against, by or affecting the
Company, any Guarantor or any of their respective Subsidiaries, and any material
developments therein, or (C) entering into any material contract or undertaking
that is not entered into in the ordinary course of business or (D) any
development in the business or affairs of the Company, any Guarantor or any of
their respective Subsidiaries which has resulted in or which is likely in the
reasonable judgment of the Company or any Guarantor, to result in a Material
Adverse Effect, a statement of the Vice President-Finance of the Company or the
Guarantor, as the case may be setting forth details of each such Default or
Event of Default or such litigation, material contract or undertaking or
development and the action which the Company, such Guarantor or such
Subsidiary, as the case may be, has taken and proposes to take with respect
thereto;
(ii) As soon as available and in any event within 45 days
after the end of each fiscal month of the Company, the consolidated and
consolidating balance sheet
-33-
<PAGE> 34
of the Company and its Subsidiaries as of the end of such month, and the related
consolidated and consolidating statements of income, retained earnings and cash
flows for the period commencing at the end of the previous fiscal year and
ending with the end of such month, setting forth in each case in comparative
form the corresponding figures for the corresponding date or period of the
preceding fiscal year, all in reasonable detail and duly certified (subject to
year-end audit adjustments) by the Vice President-Finance of the Company as
having been prepared in accordance with Generally Accepted Accounting
Principles;
(iii) As soon as available and in any event within 60 days
after the end of each fiscal quarter of the Company, the consolidated and
consolidating balance sheet of the Company and its Subsidiaries as of the end of
such quarter, and the related consolidated and consolidating statements of
income, retained earnings and cash flows for the period commencing at the end of
the previous fiscal year and ending with the end of such quarter, setting forth
in each case in comparative form the corresponding figures for the corresponding
date or period of the preceding fiscal year, all in reasonable detail and duly
certified (subject to year-end audit adjustments) by the Vice President-Finance
of the Company as having been prepared in accordance with Generally Accepted
Accounting Principles, together with a certificate of the Vice President-Finance
of the Company stating (A) that no Default or Event of Default has occurred and
is continuing or, if a Default or Event of Default has occurred and is
continuing, a statement setting forth the details thereof and the action which
the Company has taken and proposes to take with respect thereto, and (B) that a
computation (which computation shall accompany such certificate and shall be in
reasonable detail) showing compliance with Section 5.2(a), (b), (c), (d) and (e)
hereof is in conformity with the terms of this Agreement;
(iv) As soon as available and in any event within 90 days
after the end of each fiscal year of the Company, a copy of the consolidated
balance sheet of the Company and its Subsidiaries as of the end of such
fiscal year and the related consolidated statements of income, retained earnings
and changes in financial position of the Company and its Subsidiaries for such
fiscal year, with a customary audit report of Deloitte and Touche, or other
independent certified public accountants selected by the Company and acceptable
to the Bank, without qualifications unacceptable to the Bank, together with a
certificate of such accountants stating (A) that they have reviewed this
Agreement and stating further whether, in the course of their review of such
financial statements, they have become aware of any Default or Event of Default
and, if such a Default or Event of Default exists and is continuing, a statement
setting forth the nature and status thereof, and (B) that a computation by the
Company (which computation shall accompany such certificate and shall be in
reasonable detail) showing compliance with Section 5.2 (a), (b), (c), (d) and
(e) hereof is in conformity with the terms of this Agreement;
(v) Promptly after the sending or filing thereof, copies
of all reports, proxy statements and financial statements, together with any
supporting schedules or exhibits attached to any such reports or statements,
which the Company or any Guarantor or any of their respective Subsidiaries
sends to or files with any of their respective security holders or
-34-
<PAGE> 35
any securities exchange or the Securities and Exchange Commission or any
successor agency thereof; and
(vi) No later than 30 days after the end of each month, a
Borrowing Base Certificate prepared as of the close of business on the last day
of each month, together with supporting schedules, in form and detail
satisfactory to the Bank, setting forth such information as the Bank may
request with respect to the aging, value, location and other information
relating to the computation of the Borrowing Base and the eligibility of any
property or assets included in such computation, certified as true and correct
by the Vice President-Finance of the Company;
(vii) As soon as available and in any event within 120 days
after the end of each fiscal year of the Company, the Guarantors and their
respective Subsidiaries, a report describing all insurance with respect to
the Company, the Guarantors and their respective Subsidiaries or any of their
respective property or assets as of the end of such fiscal year, including,
without limitation, liability, casualty, and business interruption (including
product liability), insurance, in form and detail satisfactory to the Bank,
certified as true and correct by the Vice President-Finance of the Company or
any Guarantor, as the case may be;
(viii) Promptly and in any event within 10 calendar days
after receiving or becoming aware thereof (A) a copy of any notice of intent to
terminate any Plan of the Company, any Guarantor, their respective Subsidiaries
or any ERISA Affiliate filed with the PBGC, (B) a statement of the Vice
President-Finance of the Company or any Guarantor, as the case may be; setting
forth the details of the occurrence of any Reportable Event with respect to any
such Plan, (C) a copy of any notice that the Company, any Guarantor, any of
their respective Subsidiaries or any ERISA Affiliate may receive from the PBGC
relating to the intention of the PBGC to terminate any such Plan or to appoint a
trustee to administer any such Plan, or (D) a copy of any notice of failure to
make a required installment or other payment within the meaning of Section
412(n) of the Code or Section 302(f) of ERISA with respect to any such Plan;
and
(ix) As soon as available and in any event within 30 days
after the end of each month, a report with respect to the Company setting forth
a summary as of the end of such month of (A) accounts payable of the Company,
containing an aging of such accounts payable and consolidated totals, (B)
accounts receivable, indicating the total of accounts receivable by type, by
account debtor, by terms and by age, describing any returns, defenses, setoffs
or other pertinent information in connection therewith, and (c) inventory,
indicating the types of inventory, amounts, locations and values of the types of
inventory, in form and detail satisfactory to the Bank, certified as true and
correct by the Vice President-Finance of the Company;
(x) Promptly and in any event within 10 days after
receipt, a copy of any management letter or comparable analysis prepared by the
auditors for the Company;
-35-
<PAGE> 36
(xi) Promptly, such other information respecting the
business, properties, operations or condition, financial or otherwise, of the
Company, any Guarantor or any of their respective Subsidiaries as the Bank
may from time to time reasonably request.
(e) Accounting; Access to Records, Books, Etc. Maintain a
system of accounting established and administered in accordance with sound
business practices to permit preparation of financial statements in accordance
with Generally Accepted Accounting Principles and to comply with the
requirements of this Agreement and, at any reasonable time and from time to
time, (i) permit the Bank or any agents or representatives thereof to examine
and make copies of and abstracts from the records and books of account of, and
visit the properties of, the Company, the Guarantors and their respective
Subsidiaries, and to discuss the affairs, finances and accounts of the Company,
the Guarantors and their respective Subsidiaries with their respective
directors, officers, employees and independent auditors, and by this provision
each of the Company and the Guarantors hereby authorizes such persons to discuss
such affairs, finances and accounts with the Bank, and (ii) permit the Bank or
any of its agents or representatives to conduct a comprehensive field audit of
its books, records, properties and assets, including without limitation all
collateral subject to the Security Documents, at the expense of the Company; and
(f) Additional Security and Collateral. Promptly (i) execute
and deliver and cause each Domestic Subsidiary of the Company and the
Guarantors to execute and deliver, additional Security Documents, within 30
days after request therefor by the Bank, sufficient to grant to the Bank liens
and security interests in any after acquired property of the type described in
Section 2.11, and (ii) cause each person becoming a Domestic Subsidiary of the
Company or any Guarantor from time to time to execute and deliver to the Bank,
within 30 days after such person becomes a Domestic Subsidiary, a Guaranty and
Security Documents, together with other related documents described in Section
2.5, sufficient to grant to the Bank liens and security interests in all
collateral of the type described in Section 2.11. The Company shall notify the
Bank, within 10 days after the occurrence thereof, of the acquisition of any
property by the Company or any Guarantor that is not subject to the existing
Security Documents, any person's becoming a Domestic Subsidiary and any other
event or condition that may require additional action of any nature in order to
preserve the effectiveness and perfected status of the liens and security
interests of the Bank with respect to such property pursuant to the Security
Documents.
(g) Further Assurances. Will, and will cause each Guarantor to,
execute and deliver within 30 days after request therefor by the Bank, all
further instruments and documents and take all further action that may be
necessary or desirable, or that the Bank may request, in order to give effect
to, and to aid in the exercise and enforcement of the rights and remedies of the
Bank under, this Agreement, the Notes and the Security Documents, including
without limitation causing each lessor of real property to the Company, any
Guarantor or any of their respective Subsidiaries to execute and deliver to the
Bank, prior to or upon the commencement of any tenancy, an agreement in form and
substance acceptable to the Bank duly executed on behalf of such lessor waiving
any distraint, lien and similar rights with respect to any
-36-
<PAGE> 37
property subject to the Security Documents and agreeing to permit the Bank
to enter such premises in connection therewith.
5.2 Negative Covenants. Until the later of the Termination Date, the
Maturity Date A or Maturity Date B and thereafter until payment in full of the
principal of and accrued interest on the Notes and the performance of all
other obligations of the Company and the Guarantor under this Agreement, the
Company agrees that, unless the Bank shall otherwise consent in writing it shall
not, and shall not permit any of its Subsidiaries to:
(a) Current Ratio. Permit or suffer the ratio of Consolidated
Current Assets of the Company and its Subsidiaries to Consolidated Current
Liabilities of the Company and its Subsidiaries at any time to be less than 1.4
to 1.0.
(b) Working Capital. Permit or suffer the Consolidated Working
Capital of the Company and its Subsidiaries at any time to be less than
$9,750,000.
(c) Tangible Net Worth. Permit or suffer Consolidated Tangible
Net Worth of the Company and its Subsidiaries at any time to be less than (i)
during the period from and including December 31, 1995 to and including December
30, 1996, $2,310,000, (ii) during the period from and including December 31,
1996 to and including December 30, 1997, the greater of (A) $3,000,000 or (B)
the sum of (x) $2,310,000 plus (y) an amount equal to 75% of net income (without
reduction for net loss) of the Company and its Subsidiaries for the fiscal year
of the Company ending December 31, 1996 and (iii) on December 31, 1997 and
thereafter, the sum of (A) the amount referred to in clause (ii) above plus (B)
an amount equal to 75% of Cumulative Net Income (without reduction for net loss)
of the Company and its Subsidiaries for each fiscal year of the Company,
commencing with the fiscal year ended December 31, 1997.
(d) Total Liabilities to Tangible Net Worth. Permit or suffer
Consolidated Total Liabilities of the Company and its Subsidiaries to
Consolidated Tangible Net Worth of the Company and its Subsidiaries to be
greater than (i) during the period from and including December 31, 1995 to and
including June 29, 1996, 14.15 to 1.0, (ii) during the period from and
including June 30, 1996 to and including December 30, 1996, 12.0 to 1.0 and
(iii) on December 31, 1996 and thereafter, 9.5 to 1.0.
(e) Fixed Charge Coverage Ratio. Permit or suffer the
Consolidated Fixed Charge Coverage Ratio of the Company and its Subsidiaries to
be less than 1.0 to 1.0, calculated (i) during fiscal year 1996, as of the end
of each fiscal quarter calculated for the fiscal quarter then ending and (ii)
commencing with the fiscal quarter ending March 31, 1997 and as of the end of
each fiscal quarter thereafter, as of the end of each fiscal quarter for the
four consecutive fiscal quarters then ending.
(f) Indebtedness. Create, incur, assume or in any manner become
liable in respect of, or suffer to exist, any Indebtedness other than:
-37-
<PAGE> 38
(i) The Loans;
(ii) The Indebtedness described in Schedule 5.2(f) hereto,
having the same terms as those existing on the date of this Agreement, but no
extension or renewal thereof shall be permitted;
(iii) Indebtedness in aggregate outstanding principal
amount not exceeding $300,000 in any fiscal year which is secured by one or more
liens permitted by Section 5.2(f)(vi) hereof;
(iv) Indebtedness of any Subsidiary of the Company owing to
the Company or to any other Subsidiary of the Company;
(v) Unsecured current Indebtedness constituting
obligations for the unpaid purchase price of goods, property or services
incurred in the ordinary course of business (A) to a seller of inventory
purchased for sale or lease in the ordinary course of business of the Company or
any of its Subsidiaries, (B) to a seller of other property used in the business
of the Company or any of its Subsidiaries or (C) to a provider of services to
the Company or any of its Subsidiaries;
(vi) Indebtedness for borrowed money of any Foreign
Subsidiary owing to any financial institution with notice provided to the Bank;
and
(vii) Subordinated Debt in an aggregate amount not
exceeding $11,500,000 so long as (A) no Default or Event of Default shall have
occurred and be continuing at the time such Subordinated Debt is issued and the
issuance of such Subordinated Debt would not cause a Default or Event of
Default and (B) the Company shall use proceeds of Subordinated Debt incurred
after March 31, 1996 to prepay outstanding Revolving Credit Loans and/or Term
Loans, as determined by the Bank in its sole discretion.
(g) Liens. Create, incur or suffer to exist any Lien on any of
the assets, rights, revenues or property, real, personal or mixed, tangible
or intangible, whether now owned or hereafter acquired, of the Company or any of
its Subsidiaries, other than:
(i) Liens for taxes not delinquent or for taxes being
contested in good faith by appropriate proceedings and as to which adequate
financial reserves have been established on its books and records in accordance
with Generally Accepted Accounting Principles;
(ii) Liens (other than any Lien imposed by ERISA or any
Environmental Law) created and maintained in the ordinary course of business
which are not material in the aggregate, and which would not have a Material
Adverse Effect and which constitute (A) pledges or deposits under worker's
compensation laws, unemployment insurance laws or similar legislation, (B) good
faith deposits in connection with bids, tenders, contracts or
-38-
<PAGE> 39
leases to which the Company or any of its Subsidiaries is a party for a purpose
other than borrowing money or obtaining credit, including rent security
deposits, (C) liens imposed by law, such as those of carriers, warehousemen and
mechanics, if payment of the obligation secured thereby is not yet due, (D)
Liens securing taxes, assessments or other governmental charges or levies not
yet subject to penalties for nonpayment, and (E) pledges or deposits to secure
public or statutory obligations of the Company or any of its Subsidiaries, or
surety, customs or appeal bonds to which the Company or any of its Subsidiaries
is a party;
(iii) Liens affecting real property which constitute minor
survey exceptions or defects or irregularities in title, minor encumbrances,
easements or reservations of, or rights of others for, rights of way,
sewers, electric lines, telegraph and telephone lines and other similar
purposes, or zoning or other restrictions as to the use of such real property,
provided that all of the foregoing, in the aggregate, do not at any time
materially detract from the value of said properties or materially impair their
use in the operation of the businesses of the Company or any of its
Subsidiaries;
(iv) Liens created pursuant to the Security Documents and
Liens expressly permitted by the Security Documents;
(v) Each Lien described in Schedule 5.2(f) hereto may be
suffered to exist upon the same terms as those existing on the date hereof, but
no extension or renewal thereof shall be permitted;
(vi) Any Lien created to secure payment of a portion of the
purchase price of, or existing at the time of acquisition of, any tangible fixed
asset acquired by the Company or any of its Subsidiaries may be created or
suffered to exist upon such fixed asset if the outstanding principal amount of
the Indebtedness secured by such Lien does not at any time exceed the purchase
price paid by the Company or such Subsidiary for such fixed asset and the
aggregate principal amount of all Indebtedness secured by such Liens does not
exceed $300,000 in any fiscal year, provided that such Lien does not encumber
any other asset at any time owned by the Company or such Subsidiary, and
provided, further, that not more than one such Lien shall encumber such fixed
asset at any one time; and
(vii) Liens in favor of the Company or any of its
Subsidiaries as security for Indebtedness permitted by Section 5.2(e)(iv); and
(viii) The interest or title of a lessor under any lease
otherwise permitted under this Agreement with respect to the property subject to
such lease to the extent performance of the obligations of the Company or its
Subsidiary thereunder are not delinquent.
(h) Merger; Acquisitions; Etc. Subject to Section 5.2(m),
purchase or otherwise acquire, whether in one or a series of transactions, all
or a substantial portion of the business assets, rights, revenues or property,
real, personal or mixed, tangible or intangible, of any person, or all or a
substantial portion of the capital stock of or other ownership interest in
-39-
<PAGE> 40
any other person; nor merge or consolidate or amalgamate with any other person
or take any other action having a similar effect, nor enter into any joint
venture or similar arrangement with any other person, provided, however, that
this Section 5.2(h) shall not prohibit any merger or acquisition if (i) the
Company shall be the surviving or continuing corporation thereof, (ii)
immediately before and after such merger or acquisition, no Default or Event of
Default shall exist or shall have occurred and be continuing and the
representations and warranties contained in Article IV shall be true and
correct on and as of the date thereof (both before and after such merger or
acquisition is consummated) as if made on the date such merger or acquisition
is consummated, and (iii) prior to the consummation of such merger or
acquisition, the Company shall have provided to the Bank an opinion of counsel
and a certificate of the Vice President-Finance of the Company (attaching
computations to demonstrate compliance with all financial covenants hereunder),
each stating that such merger or acquisition complies with this Section 5.2(h)
and that any other conditions under this Agreement relating to such transaction
have been satisfied.
(i) Disposition of Assets; Etc. Sell, lease, license, transfer,
assign or otherwise dispose of all or a substantial portion of its business,
assets, rights, revenues or property, real, personal or mixed, tangible or
intangible, whether in one or a series of transactions, other than inventory
sold in the ordinary course of business upon customary credit terms and sales of
scrap or obsolete material or equipment.
(j) Nature of Business. Make any substantial change in the
nature of its business from that engaged in on the date of this Agreement or
engage in any other businesses other than those in which it is engaged on the
date of this Agreement.
(k) Dividends and Other Restricted Payments. Make, pay, declare
or authorize any dividend, payment or other distribution in respect of any
class of its capital stock or any dividend, payment or distribution in
connection with the redemption, purchase, retirement or other acquisition,
directly or indirectly, of any shares of its capital stock other than such
dividends, payments or other distributions to the extent payable solely in
shares of the capital stock of the Company or to the extent payable to the
Company by a wholly-owned Subsidiary of the Company, provided, however, that,
(i) if no Default or Event of Default shall exist or shall have occurred and be
continuing and no Default or Event of Default under any other provision of this
Agreement would result therefrom and (ii) the outstanding principal amount of
Term Loan B and all accrued interest shall have been paid in full, the Company
may make, pay, declare or authorize dividends, payments and other such
distributions made after the Effective Date which, in the aggregate, do not
exceed the Consolidated Cumulative Net Income of the Company and its
Subsidiaries. For purposes of this Section 5.2(k), "capital stock" shall include
capital stock and any securities exchangeable for or convertible into capital
stock and any warrants, rights or other options to purchase or otherwise acquire
capital stock or such securities.
(l) Capital Expenditures. Acquire or contract to acquire any
fixed asset or make any other capital expenditure if the aggregate purchase
price and other acquisition costs of all such fixed assets acquired and other
capital expenditures made by the Company or
-40-
<PAGE> 41
any of its Subsidiaries during any fiscal year of the Company would exceed, on a
consolidated basis, an amount equal to $750,000.
(m) Investments, Loans and Advances. Subject to Section 5.2(h),
purchase or otherwise acquire any capital stock of or other ownership interest
in, or debt securities of or other evidences of Indebtedness of, any other
person; nor make any loan or advance of any of its funds or property or make any
other extension of credit to, or make any investment or acquire any interest
whatsoever in, any other person; nor incur any Contingent Liability; other than
(i) extensions of trade credit made in the ordinary course of business on
customary credit terms and commission, travel and similar advances made to
officers and employees in the ordinary course of business, and (ii) commercial
paper of any United States issuer having the highest rating then given by
Moody's Investors Service, Inc., or Standard & Poor's Corporation, direct
obligations of and obligations fully guaranteed by the United States of America
or any agency or instrumentality thereof, or certificates of deposit of any
commercial bank which is a member of the Federal Reserve System and which has
capital, surplus and undivided profit (as shown on its most recently published
statement of condition) aggregating not less than $100,000,000, provided,
however, that each of the foregoing investments has a maturity date not later
than 180 days after the acquisition thereof by the Company or any of its
Subsidiaries, (iii) those investments, loans, advances and other transactions
described in Schedule 5.2(l) hereto, having the same terms as existing on the
date of this Agreement, but no extension or renewal thereof shall be permitted
and (iv) investments, loans and advances to any Guarantor.
(n) Transactions with Affiliates. Enter into, become a party
to, or become liable in respect of, any contract or undertaking with any
Affiliate except in the ordinary course of business and on terms not less
favorable to the Company or such Subsidiary than those which could be obtained
if such contract or undertaking were an arms length transaction with a person
other than an Affiliate.
(o) Sale and Leaseback Transactions. Become or remain liable in
any way, whether directly or by assignment or as a guarantor or other contingent
obligor, for the obligations of the lessee or user under any lease or contract
for the use of any real or personal property if such property is owned on the
date of this Agreement or thereafter acquired by the Company or any of its
Subsidiaries and has been or is to be sold or transferred to any other person
and was, is or will be used by the Company or any such Subsidiary for
substantially the same purpose as such property was used by the Company or such
Subsidiary prior to such sale or transfer.
(p) Negative Pledge Limitation. Enter into any Agreement, with
any person other than the Bank pursuant hereto which prohibits or limits the
ability of the Company or any Subsidiary to create, incur, assume or suffer to
exist any Lien upon any of its assets, rights, revenues or property, real,
personal or mixed, tangible or intangible, whether now owned or hereafter
acquired.
-41-
<PAGE> 42
(q) Inconsistent Agreements; More Restrictive Covenants. Enter
into any agreement containing any provision which would be violated or breached
by this Agreement or any of the transactions contemplated hereby or by
performance by the Company or any of its Subsidiaries or any Guarantor of its
obligations in connection therewith, nor enter into or be a party to any
instrument or agreement relating to any of its Indebtedness, including without
limitation the Subordinated Debt which includes covenants, terms, conditions or
defaults not substantially provided for in this Agreement or more favorable to
the lender or lenders thereunder than those provided for in this Agreement.
(r) Accounting Changes. The Company shall not change its fiscal
year or make any significant changes (i) in accounting treatment and reporting
practices except as permitted by generally accepted accounting principles and
disclosed to the Banks, or (ii) in tax reporting treatment except as permitted
by law and disclosed to the Banks.
(s) Payments and Modification of Subordinated Debt. Make any
optional payment, prepayment or redemption of any Subordinated Debt, nor amend
or modify, or consent or agree to any amendment or modification of any agreement
under which any Subordinated Debt is issued or created or otherwise related
thereto, nor enter into any agreement or arrangement providing for the
defeasance of any Subordinated Debt.
ARTICLE VI.
DEFAULT
6.1 Events of Default. The occurrence of any one of the following
events or conditions shall be deemed an "Event of Default" hereunder unless
waived pursuant to Section 8.1:
(a) Nonpayment. The Company shall fail to pay when due any
principal of the Notes, or any reimbursement obligation under Section 3.3
(whether by deemed disbursement of a Revolving Credit Loan or otherwise), or
failure to pay any interest on the Notes or any fees or any other amount payable
hereunder, which failure continues for a period of five days; or
(b) Misrepresentation. Any representation or warranty made by
the Company or any Guarantor in Article IV hereof or in any Security Document
or any other certificate, report, financial statement or other document
furnished by or on behalf of the Company or any Guarantor in connection with
this Agreement, shall prove to have been incorrect in any material respect when
made or deemed made; or
(c) Certain Covenants. The Company or any Guarantor shall fail
to perform or observe any term, covenant or agreement contained in Article V
hereof; or
-42-
<PAGE> 43
(d) Other Defaults. The Company or any Guarantor shall fail to
perform or observe any other term, covenant or agreement contained in this
Agreement or in any Security Document, and any such failure shall remain
unremedied for 15 calendar days after notice thereof shall have been given to
the Company or such Guarantor, as the case may be, by the Bank (or such longer
or shorter period of time as may be specified in such Security Document); or
(e) Cross Default. The Company or any Guarantor or any of their
respective Subsidiaries shall fail to pay any part of the principal of, the
premium, if any, or the interest on, or any other payment of money due under any
of its Indebtedness (other than Indebtedness hereunder), beyond any period of
grace provided with respect thereto, which individually or together with other
such Indebtedness as to which any such failure exists has an aggregate
outstanding principal amount in excess of $100,000; or if the Company or any
Guarantor or any of their respective Subsidiaries fails to perform or observe
any other term, covenant or agreement contained in, or if any other event or
condition occurs or exists under, any agreement, document or instrument
evidencing or securing any such Indebtedness having such aggregate outstanding
principal amount, or under which any such Indebtedness was incurred, issued or
created, beyond any period of grace, if any, provided with respect thereto if
the effect of such failure is either (i) to cause, or permit the holders of such
Indebtedness (or a trustee on behalf of such holders) to cause, any payment in
respect of such Indebtedness to become due prior to its due date or (ii) to
permit the holders of such Indebtedness (or a trustee on behalf of such holders)
to elect a majority of the board of directors of the Company; or
(f) Judgments. One or more judgments or orders for the payment
of money in an aggregate amount of $500,000 shall be rendered against the
Company or any Guarantor or any of their respective Subsidiaries, or any other
judgment or order (whether or not for the payment of money) shall be rendered
against or shall affect the Company or any Guarantor or any of their respective
Subsidiaries which causes or could cause a material adverse change in the
business, properties, operations or condition, financial or otherwise, of the
Company or any Guarantor or any of their respective Subsidiaries or which does
or could have a material adverse effect on the legality, validity or
enforceability of this Agreement, the Notes or any Security Document, and
either (i) such judgment or order shall have remained unsatisfied and the
Company or such Guarantor or such Subsidiary shall not have taken action
necessary to stay enforcement thereof by reason of pending appeal or otherwise,
prior to the expiration of the applicable period of limitations for taking such
action or, if such action shall have been taken, a final order denying such stay
shall have been rendered, or (ii) enforcement proceedings shall have been
commenced by any creditor upon any such judgment or order; provided, however,
the Judgment shall not be considered a Default or Event of Default under this
Section 6.1(f), unless the Judgment shall be modified to provide for the payment
of money by the Company in excess of $5,900,000, plus accrued interest; or
(g) ERISA. The occurrence of a Reportable Event that results in
or could result in liability of the Company, any Guarantor or any of their
respective Subsidiaries or their ERISA Affiliates to the PBGC or to any
Plan and such Reportable Event is not corrected
-43-
<PAGE> 44
within thirty (30) days after the occurrence thereof; or the occurrence of any
Reportable Event which could constitute grounds for termination of any Plan
of the Company, any Guarantor or any of their respective Subsidiaries or their
ERISA Affiliates by the PBGC or for the appointment by the appropriate United
States District Court of a trustee to administer any such Plan and such
Reportable Event is not corrected within thirty (30) days after the occurrence
thereof; or the filing by the Company, any Guarantor, any of their respective
Subsidiaries or any of their ERISA Affiliates of a notice of intent to
terminate a Plan or the institution of other proceedings to terminate a Plan; or
the Company, any Guarantor, any of their respective Subsidiaries or any of their
ERISA Affiliates shall fail to pay when due any liability to the PBGC or to a
Plan; or the PBGC shall have instituted proceedings to terminate, or to cause a
trustee to be appointed to administer, any Plan of the Company, any Guarantor,
any of their respective Subsidiaries or any of their ERISA Affiliates; or any
person engages in a Prohibited Transaction with respect to any Plan which
results in or could result in liability of the Company, any Guarantor, any of
their respective Subsidiaries, any of their ERISA Affiliates, any Plan of the
Company, any Guarantor, any of their respective Subsidiaries or their ERISA
Affiliates or fiduciary of any such Plan; or failure by the Company, any
Guarantor, any of their respective Subsidiaries or any of their ERISA Affiliates
to make a required installment or other payment to any Plan within the meaning
of Section 302(f) of ERISA or Section 412(n) of the Code that results in or
could result in liability of the Company, any Guarantor, any of their respective
Subsidiaries or any of their ERISA Affiliates to the PBGC or any Plan; or the
withdrawal of the Company, any Guarantor, any of their respective Subsidiaries
or any of their ERISA Affiliates from a Plan during a plan year in which it was
a "substantial employer" as defined in Section 4001(9a)(2) of ERISA; or the
Company, any Guarantor, any of their respective Subsidiaries or any of their
ERISA Affiliates becomes an employer with respect to any Multiemployer Plan
without the prior written consent of the Bank; or
(h) Insolvency, Etc. The Company, any Guarantor or any of their
respective Subsidiaries shall be dissolved or liquidated (or any judgment, order
or decree therefor shall be entered), or shall generally not pay its debts as
they become due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors, or
shall institute, or there shall be instituted against the Company, any Guarantor
or any of their respective Subsidiaries, any proceeding or case seeking to
adjudicate it a bankrupt or insolvent or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or composition of it
or its debts under any law relating to bankruptcy, insolvency or reorganization
or relief or protection of debtors or seeking the entry of an order for relief,
or the appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its assets, rights, revenues or property,
and, if such proceeding is instituted against the Company, such Guarantor or
such Subsidiary and is being contested by the Company, such Guarantor or such
Subsidiary, as the case may be, in good faith by appropriate proceedings, such
proceeding shall remain undismissed or unstayed for a period of 60 days; or the
Company, such Guarantor or such Subsidiary shall take any action (corporate or
other) to authorize or further any of the actions described above in this
subsection; or
-44-
<PAGE> 45
(i) Loan Documents. Any event of default described in any Loan
Document shall have occurred and be continuing, or any material provision of
Article VII hereof or of any Loan Document shall at any time for any reason
cease to be valid and binding and enforceable against any obligor thereunder, or
the validity, binding effect or enforceability thereof shall be contested by any
person, or any obligor, shall deny that it has any or further liability or
obligation thereunder, or any Loan Document shall be terminated, invalidated or
set aside, or be declared ineffective or inoperative or in any way cease to give
or provide to the Bank the benefits purported to be created thereby.
(j) Management. Rand W. Mueller shall cease to hold the office
of President and Chief Executive Officer; provided, however, that if the
employment of such individual ceases as a result of death or disability or if
such individual is terminated by the Company for cause, it shall not be a
default hereunder if a replacement for such officer acceptable to the Bank shall
have been appointed and shall have taken office within 45 calendar days of such
death, disability or termination.
6.2 Remedies.
(a) Upon the occurrence and during the continuance of any Event
of Default, the Bank may by notice to the Company (i) terminate the Commitments
or (ii) declare the outstanding principal of, and accrued interest on, the
Notes, all unpaid reimbursement obligations in respect of drawings under Letters
of Credit and all other amounts owing under this Agreement to be immediately due
and payable, or (iii) demand immediate delivery of cash collateral, and the
Company agrees to deliver such cash collateral upon demand, in an amount equal
to the maximum amount that may be available to be drawn at any time prior to the
stated expiry of all outstanding Letters of Credit, or any one or more of the
foregoing, whereupon the Commitments shall terminate forthwith and all such
amounts, including such cash collateral, shall become immediately due and
payable, provided that in the case of any event or condition described in
Section 6.1(h) with respect to the Company or any Guarantor, the Commitments
shall automatically terminate forthwith and all such amounts, including such
cash collateral, shall automatically become immediately due and payable without
notice; in all cases without demand, presentment, protest, diligence, notice of
dishonor or other formality, all of which are hereby expressly waived. Such
cash collateral delivered in respect of outstanding Letters of Credit shall be
deposited in a special cash collateral account to be held by the Bank as
collateral security for the payment and performance of the Company's obligations
under this Agreement to the Bank.
(b) The Bank may in addition to the remedies provided in Section
6.2(a), exercise and enforce any and all other rights and remedies available to
it, whether arising under this Agreement, the Notes or any Security Document or
under applicable law, in any manner deemed appropriate by the Bank, including
suit in equity, action at law, or other appropriate proceedings, whether for the
specific performance (to the extent permitted by law) of any covenant or
agreement contained in this Agreement or in the Notes or any Security Document
or in aid of the exercise of any power granted in this Agreement, the Notes or
any Security Document.
-45-
<PAGE> 46
(c) Upon the occurrence and during the continuance of any Event
of Default, the Bank may at any time and from time to time, without notice to
the Company or any Guarantor (any requirement for such notice being expressly
waived by the Company and each Guarantor) set off and apply against any and all
of the obligations of the Company and each Guarantor now or hereafter existing
under this Agreement, any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by the Bank to or for the credit or the account of the Company or any Guarantor
and any property of the Company or any Guarantor from time to time in possession
of the Bank, irrespective of whether or not the Bank shall have made any demand
hereunder and although such obligations may be contingent and unmatured. Each
of the Company and the Guarantors hereby grants to the Bank a lien on and
security interest in all such deposits, indebtedness and property as collateral
security for the payment and performance of the obligations of the Company and
each Guarantor under this Agreement. The rights of the Bank under this Section
6.2(c) are in addition to other rights and remedies (including, without
limitation, other rights of setoff) which the Bank may have.
ARTICLE VII.
GUARANTY
As an inducement to the Bank to enter into the transactions contemplated
by this Agreement, each Guarantor agrees with the Bank as follows:
7.1 Guarantee of Obligations. (a) Each Guarantor hereby (i)
guarantees, as principal obligor and not as surety only, to the Bank the prompt
payment of the principal of and any and all accrued and unpaid interest
(including interest which otherwise may cease to accrue by operation of any
insolvency law, rule, regulation or interpretation thereof) on the Advances and
all other obligations of the Company to the Bank under this Agreement when due,
whether by scheduled maturity, acceleration or otherwise, all in accordance with
the terms of this Agreement and the Notes, including, without limitation,
default interest, indemnification payments and all reasonable costs and expenses
incurred by the Bank in connection with enforcing any obligations of the Company
hereunder, including without limitation the reasonable fees and disbursements of
counsel, (ii) guarantees the prompt and punctual performance and observance of
each and every term, covenant or agreement contained in this Agreement and the
Notes to be performed or observed on the part of the Company, (iii) guarantees
the prompt and complete payment of all obligations and performance of all
covenants of the Company under any interest rate or currency swap agreements or
similar transactions with the Bank, (iv) guarantees the prompt and complete
payment of any and all other indebtedness, obligations and liabilities of any
kind of the Company or any Subsidiary to the Bank, in all cases, of any kind or
nature, howsoever created or evidenced and whether now or hereafter existing,
direct or indirect (including without limitation any participation interest
acquired by the Bank in any such indebtedness, obligations or liabilities of the
Company or any Subsidiary to any other person), absolute or contingent, joint
and/or several, secured or unsecured, arising by operation of law or otherwise,
and whether incurred by the Company or any Subsidiary as principal, surety,
endorser,
-46-
<PAGE> 47
guarantor, accommodation party or otherwise, including without limitation all
principal and all interest (including any interest accruing subsequent to any
petition filed by or against the Company or any Subsidiary under the U.S.
Bankruptcy Code), indemnity and reimbursement obligations, charges, expenses,
fees, attorneys' fees and disbursements and any other amounts owing thereunder
and (v) agrees to make prompt payment, on demand, of any and all reasonable
costs and expenses incurred by the Bank in connection with enforcing the
obligations of the Guarantors hereunder, including, without limitation, the
reasonable fees and disbursements of counsel (all of the foregoing being
collectively referred to as the "Guaranteed Obligations").
(b) If for any reason any duty, agreement or obligation of the
Company contained in this Agreement shall not be performed or observed by the
Company as provided therein, or if any amount payable under or in connection
with this Agreement shall not be paid in full when the same becomes due and
payable, each Guarantor undertakes to perform or cause to be performed promptly
each of such duties, agreements and obligations and to pay forthwith each such
amount to the Bank regardless of any defense or setoff or counterclaim which the
Company may have or assert, and regardless of any other condition or
contingency.
7.2 Nature of Guaranty. The obligations of the Guarantors hereunder
constitute an absolute and unconditional and irrevocable guaranty of payment and
not a guaranty of collection and are wholly independent of and in addition to
other rights and remedies of the Bank and are not contingent upon the pursuit by
the Bank of any such rights and remedies, such pursuit being hereby waived by
the Guarantors.
7.3 Waivers and Other Agreements. Each Guarantor hereby
unconditionally (a) waives any requirement that the Bank, upon the occurrence of
an Event of Default first make demand upon, or seek to enforce remedies against
the Company before demanding payment under or seeking to enforce the obligations
of the Guarantors hereunder, (b) covenants that the obligations of the
Guarantors hereunder will not be discharged except by complete performance of
all obligations of the Company to the Bank, (c) agrees that the obligations of
the Guarantors hereunder shall remain in full force and effect without regard
to, and shall not be affected or impaired, without limitation, by any
invalidity, irregularity or unenforceability in whole or in part of this
Agreement or any other Loan Document, or any limitation on the liability of the
Company thereunder, or any limitation on the method or terms of payment
thereunder which may or hereafter be caused or imposed in any manner whatsoever
(including, without limitation, usury laws), (d) waives diligence, presentment
and protest with respect to, and any notice of default or dishonor in the
payment of any amount at any time payable by the Company under or in connection
with this Agreement or the Notes, and further waives any requirement of notice
of acceptance of, or other formality relating to, the obligations of the
Guarantors hereunder and (e) agrees that the Guaranteed Obligations shall
include any amounts paid by the Company to the Bank which may be required to be
returned to the Company or to its representative or to a trustee, custodian or
receiver for the Company.
7.4 Obligations Absolute. The obligations, covenants, agreements and
duties of the Guarantors under this Agreement shall not be released, affected or
impaired by any of the
-47-
<PAGE> 48
following whether or not undertaken with notice to or consent of the Guarantors
: (a) an assignment or transfer, in whole or in part, of the Advances made to
the Company or of this Agreement or any Note although made without notice to
or consent of the Guarantors, or (b) any waiver by the Bank or by any other
person, of the performance or observance by the Company of any of the
agreements, covenants, terms or conditions contained in this Agreement or in the
other Loan Documents, or (c) any indulgence in or the extension of the time for
payment by the Company of any amounts payable under or in connection with this
Agreement or any other Loan Document, or of the time for performance by the
Company of any other obligations under or arising out of this Agreement or any
other Loan Document, or the extension or renewal thereof, or (d) the
modification, amendment or waiver (whether material or otherwise) of any duty,
agreement or obligation of the Company set forth in this Agreement or any other
Loan Documents (the modification, amendment or waiver from time to time of this
Agreement and the other Loan Documents being expressly authorized without
further notice to or consent of the Guarantors), or (e) the voluntary or
involuntary liquidation, sale or other disposition of all or substantially all
of the assets of the Company or any receivership, insolvency, bankruptcy,
reorganization, or other similar proceedings, affecting the Company or any of
its assets, or (f) the merger or consolidation of the Company or the Guarantors
with any other person, or (g) the release of discharge of the Company or the
Guarantors from the performance or observance of any agreement, covenant, term
or condition contained in this Agreement or any other Loan Document, by
operation of law, or (h) any other cause whether similar or dissimilar to the
foregoing which would release, affect or impair the obligations, covenants,
agreements or duties of the Guarantors hereunder.
7.5 No Investigation by Bank. Each Guarantor hereby waives
unconditionally any obligation which, in the absence of such provision, the Bank
might otherwise have to investigate or to assure that there has been compliance
with the law of any jurisdiction with respect to the Guaranteed Obligations
recognizing that, to save both time and expense, each Guarantor has requested
that the Bank not undertake such investigation. Each Guarantor hereby expressly
confirms that the obligations of such Guarantor hereunder shall remain in full
force and effect without regard to compliance or noncompliance with any such law
and irrespective of any investigation or knowledge of the Bank of any such law.
7.6 Indemnity. As a separate, additional and continuing obligation,
each Guarantor unconditionally and irrevocably undertakes and agrees with the
Bank that, should the Guaranteed Obligations not be recoverable from the
Guarantors under Section 7.1 for any reason whatsoever (including, without
limitation, by reason of any provision of this Agreement or the Notes or any
other agreement or instrument executed in connection herewith being or becoming
void, unenforceable, or otherwise invalid under any applicable law) then,
notwithstanding any knowledge thereof by the Bank at any time, each Guarantor as
sole, original and independent obligor, upon demand by the Bank, will make
payment to the Bank of the Guaranteed Obligations by way of a full indemnity in
such currency and otherwise in such manner as is provided in this Agreement and
the Notes.
-48-
<PAGE> 49
7.7 Subordination, Subrogation, Etc. Each Guarantor agrees that any
present or future indebtedness, obligations or liabilities of the Company to any
Guarantor shall be fully subordinate and junior in right and priority of payment
to any present or future indebtedness, obligations or liabilities of the Company
to the Bank. Each Guarantor waives any right of subrogation to the rights of
the Bank against the Company or any other person obligated for payment of the
Guaranteed Obligations and any right of reimbursement or indemnity whatsoever
arising or accruing out of any payment which any Guarantor may make pursuant to
this Agreement and the Notes, and any right of recourse to security for the
debts and obligations of the Company, unless and until the entire principal
balance of and interest on the Guaranteed Obligations shall have been paid in
full.
7.8 Waiver. To the extent that it lawfully may, each Guarantor agrees
that it will not at any time insist upon or plead, or in any manner whatsoever
claim or take any benefit or advantage of any applicable present or future stay,
extension or moratorium law, which may affect observance or performance of the
provisions of this Agreement or the Notes; nor will it claim, take or insist
upon any benefit or advantage of any present or future law providing for the
evaluation or appraisal of any security for its obligations hereunder or the
Company under this Agreement and under the Notes prior to any sale or sales
thereof which may be made under or by virtue of any instrument governing the
same; nor will it, after any such sale or sales claim or exercise any right,
under any applicable law, to redeem any portion of such security so sold.
7.9 Joint and Several Obligations; Contribution Rights. (a)
Notwithstanding anything to the contrary set forth herein or in any Note or in
any other Loan Document, the obligations of the Guarantors hereunder are joint
and several.
(b) If any Guarantor makes a payment in respect of the
Guaranteed Obligations it shall have the rights of contribution set forth
below against the other Guarantors; provided that such Guarantor shall not
exercise its right of contribution until all the Guaranteed Obligations shall
have been finally paid in full in cash. If any Guarantor makes a payment in
respect of the Guaranteed Obligations that is smaller in proportion to its
Payment Share (as hereinafter defined) than such payments made by the other
Guarantors are in proportion to the amounts of their respective Payment Shares,
the Guarantor making such proportionately smaller payment shall, when permitted
by the preceding sentence, pay to the other Guarantors an amount such that the
net payments made by the Guarantor in respect of the Bank Obligations shall be
shared among the Guarantors pro rata in proportion to their respective Payment
Shares. If any Guarantor receives any payment that is greater in proportion to
the amount of its Payment Shares than the payments received by the other
Guarantors are in proportion to the amounts of their respective Payment Shares,
the Guarantor receiving such proportionately greater payment shall, when
permitted by the second preceding sentence, pay to the other Guarantors an
amount such that the payments received by the Guarantors shall be shared among
the Guarantors pro rata in proportion to their respective Payment Shares.
Notwithstanding anything to the contrary contained in this paragraph or in this
Agreement, no liability or obligation of any Guarantor that shall accrue
pursuant to this paragraph shall be paid nor shall it be deemed owed pursuant to
this paragraph until all of the Bank Obligations shall be finally paid in full
in cash.
-49-
<PAGE> 50
For purposes hereof, the "Payment Share" of each Guarantor shall be the
sum of (a) the aggregate proceeds of the Guaranteed Obligations received by such
Guarantor plus (b) the product of (i) the aggregate Guaranteed Obligations
remaining unpaid on the date such Guaranteed Obligations become due and payable
in full, whether by stated maturity, acceleration, or otherwise (the
"Determination Date") reduced by the amount of such Guaranteed Obligations
attributed to such Guarantors pursuant to clause (a) above, times (ii) a
fraction, the numerator of which is such Guarantor's net worth on the effective
date of this Agreement (determined as of the end of the immediately preceding
fiscal reporting period of such Guarantor), and the denominator of which is the
aggregate net worth of all Guarantors on such effective date.
(c) It is the intent of each Guarantor and the Bank that each
Guarantor's maximum Guaranteed Obligations shall be in, but not in excess of:
(i) in a case or proceeding commenced by or against such
Guarantor under the Bankruptcy Code on or within one year from the date on
which any of the Guaranteed Obligations are incurred, the maximum amount that
would not otherwise cause the Guaranteed Obligations (or any other obligations
of such Guarantor to the Agent and the Banks) to be avoidable or unenforceable
against such Guarantor under (A) Section 548 of the Bankruptcy Code or (B) any
state fraudulent transfer or fraudulent conveyance act or statute applied in
such case or proceeding by virtue of Section 544 of the Bankruptcy Code; or
(ii) in a case or proceeding commenced by or against such
Guarantor under the Bankruptcy Code subsequent to one year from the date on
which any of the Guaranteed Obligations are incurred, the maximum amount that
would not otherwise cause the Guaranteed Obligations (or any other obligations
of such Guarantor to the Bank) to be avoidable or unenforceable against such
Guarantor under any state fraudulent transfer or fraudulent conveyance act or
statute applied in any such case or proceeding by virtue of Section 544 of the
Bankruptcy Code;
(iii) in a case or proceeding commenced by or against such
Guarantor under any law, statute or regulation other than the Bankruptcy Code
(including, without limitation, any other bankruptcy, reorganization,
arrangement, moratorium, readjustment of debt, dissolution, liquidation or
similar debtor relief laws), the maximum amount that would not otherwise cause
the Guaranteed Obligations (or any other obligations of such Guarantor to the
Bank) to be avoidable or unenforceable against such Guarantor under such law,
statute or regulation including, without limitation, any state fraudulent
transfer or fraudulent conveyance act or statute applied in any such case or
proceeding.
(d) The Guarantors acknowledge and agree that they have
requested that the Bank make credit available to the Company with each Guarantor
expecting to derive benefit, directly and indirectly, from the loans and other
credit extended by the Bank to the Company.
-50-
<PAGE> 51
ARTICLE VIII.
MISCELLANEOUS
8.1 Amendments, Etc. No amendment, modification, termination or
waiver of any provision of this Agreement nor any consent to any departure
therefrom shall be effective unless the same shall be in writing and signed by
the Company and Bank. Any such amendment, waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
9.1 Notices. (a) Except as otherwise provided in Section 8.2(c)
hereof, all notices and other communications hereunder shall be in writing and
shall be delivered or sent to the Company and the Guarantors at 950 E. Whitcomb,
Madison Heights, Michigan 48071-5612, Attention: Vice-President-Finance,
Facsimile No. (810) 585-4799, Facsimile Confirmation No. (810) 583-9620, the
Bank at 2155 W. Big Beaver, Troy, Michigan 48084, Attention: Troy Commercial
Loan Center, Facsimile No. (810) 816-0254, Facsimile Confirmation No. (810)
816-0237, or to such other address as may be designated by the Company, any
Guarantor or the Bank by notice to the other parties hereto. All notices and
other communications shall be deemed to have been given at the time of actual
delivery thereof to such address, or, unless sooner delivered, (i) if sent by
certified or registered mail, postage prepaid, to such address, on the third day
after the date of mailing, (ii) if sent by telex, upon receipt of the
appropriate answerback, or (iii) if sent by facsimile transmission, upon
confirmation of receipt by telephone at the number specified for confirmation,
provided, however, that notices to the Bank shall not be effective until
received.
(b) Notices by the Company to the Bank with respect to
terminations or reductions of the Commitments pursuant to Section 2.2,
requests for Advances pursuant to Section 2.4, requests for continuations or
conversions of Loans pursuant to Section 2.7 and notices of prepayment pursuant
to Section 3.1 shall be irrevocable and binding on the Company.
(c) Any notice to be given by the Company to the Bank pursuant
to Sections 2.4, 2.7 or 3.1 and any notice to be given by the Bank hereunder,
may be given by telephone, and all such notices given by the Company must be
immediately confirmed in writing in the manner provided in Section 8.2(a). Any
such notice given by telephone shall be deemed effective upon receipt thereof by
the party to whom such notice is to be given. The Company and the Guarantors
shall indemnify and hold harmless the Bank from any and all losses, damages,
liabilities and claims arising from its good faith reliance on any such
telephone notice.
8.3 No Waiver By Conduct; Remedies Cumulative. No course of dealing
on the part of the Bank, nor any delay or failure on the part of the Bank in
exercising any right, power or privilege hereunder shall operate as a waiver of
such right, power or privilege or otherwise prejudice the Bank's rights and
remedies hereunder; nor shall any single or partial exercise thereof preclude
any further exercise thereof or the exercise of any other right, power or
privilege. No right or remedy conferred upon or reserved to the Bank under this
Agreement, the Notes or any Security Document is intended to be exclusive of any
other right or remedy, and every right and remedy shall be cumulative and in
addition to every other right or remedy granted
-51-
<PAGE> 52
thereunder or now or hereafter existing under any applicable law. Every right
and remedy granted by this Agreement, the Notes or any Security Document or
by applicable law to the Bank may be exercised from time to time and as often as
may be deemed expedient by the Bank and, unless contrary to the express
provisions of this Agreement, the Notes or any Security Document, irrespective
of the occurrence or continuance of any Default or Event of Default.
8.4 Reliance on and Survival of Various Provisions. All terms,
covenants, agreements, representations and warranties of the Company or any
Guarantor made herein or in any Security Document or in any certificate, report,
financial statement or other document furnished by or on behalf of the Company
or any Guarantor in connection with this Agreement shall be deemed to be
material and to have been relied upon by the Bank, notwithstanding any
investigation heretofore or hereafter made by any Bank or on the Bank's behalf,
and those covenants and agreements of the Company set forth in Section 3.7, 3.9
and 8.5 hereof shall survive the repayment in full of the Advances and the
termination of the Commitments.
8.5 Expenses; Indemnification. (a) The Company agrees to pay, or
reimburse the Bank for the payment of, on demand, (i) the reasonable fees and
expenses of counsel to the Bank, including without limitation the fees and
expenses of Messrs. Dickinson, Wright, Moon, Van Dusen & Freeman, in connection
with the preparation, execution, delivery and administration of this Agreement,
the Notes, the Security Documents and in connection with advising the Bank as to
its rights and responsibilities with respect thereto, and in connection with any
amendments, waivers or consents in connection therewith, and (ii) all stamp and
other taxes and fees payable or determined to be payable in connection with the
execution, delivery, filing or recording of this Agreement, Notes, the Security
Documents (or the verification of filing, recording, perfection or priority
thereof) or the consummation of the transactions contemplated hereby, and any
and all liabilities with respect to or resulting from any delay in paying or
omitting to pay such taxes or fees, and (iii) all reasonable costs and expenses
of the Bank (including reasonable fees and expenses of counsel and whether
incurred through negotiations, legal proceedings or otherwise)) in connection
with any Default or Event of Default or the enforcement of, or the exercise or
preservation of any rights under, this Agreement or the Notes or any Security
Document or in connection with any refinancing or restructuring of the credit
arrangements provided under this Agreement and (iv) all reasonable costs and
expenses of the Bank (including reasonable fees and expenses of counsel) in
connection with any action or proceeding relating to a court order, injunction
or other process or decree restraining or seeking to restrain the Bank from
paying any amount under, or otherwise relating in any way to, any Letter of
Credit and any and all costs and expenses which any of them may incur relative
to any payment under any Letter of Credit.
(b) The Company hereby indemnifies and agrees to hold harmless
the Bank, and its officers, directors, employees and agents, harmless from and
against any and all claims, damages, losses, liabilities, costs or expenses of
any kind or nature whatsoever which the Bank or any such person may incur or
which may be claimed against any of them by reason of or in connection with any
Letter of Credit, and neither the Bank nor any of its officers, directors,
employees or agents shall be liable or responsible for: (i) the use which may be
made of any Letter of Credit or for any acts or omissions of any beneficiary in
connection therewith; (ii) the
-52-
<PAGE> 53
validity, sufficiency or genuineness of documents or of any endorsement thereon,
even if such documents should in fact prove to be in any or all respects
invalid, insufficient, fraudulent or forged; (iii) payment by the Bank to the
beneficiary under any Letter of Credit against presentation of documents which
do not comply with the terms of any Letter of Credit, including failure of any
documents to bear any reference or adequate reference to such Letter of Credit;
(iv) any error, omission, interruption or delay in transmission, dispatch or
delivery of any message or advice, however transmitted, in connection with any
Letter of Credit; or (v) any other event or circumstance whatsoever arising in
connection with any Letter of Credit; provided, however, that the Company shall
not be required to indemnify the Bank and such other persons, and the Bank shall
be liable to the Company to the extent, but only to the extent, of any direct,
as opposed to consequential or incidental, damages suffered by the Company which
were caused by (A) the Bank's wrongful dishonor of any Letter of Credit after
the presentation to it by the beneficiary thereunder of a draft or other demand
for payment and other documentation strictly complying with the terms and
conditions of such Letter of Credit, or (B) the Bank's payment by the Bank to
the beneficiary under any Letter of Credit against presentation of documents
which do not comply with the terms of the Letter of Credit to the extent, but
only to the extent, that such payment constitutes gross negligence of wilful
misconduct of the Bank. It is understood that in making any payment under a
Letter of Credit the Bank will rely on documents presented to it under such
Letter of Credit as to any and all matters set forth therein without further
investigation and regardless of any notice or information to the contrary, and
such reliance and payment against documents presented under a Letter of Credit
substantially complying with the terms thereof shall not be deemed gross
negligence or wilful misconduct of the Bank in connection with such payment. It
is further acknowledged and agreed that the Company may have rights against the
beneficiary or others in connection with any Letter of Credit with respect to
which the Bank is alleged to be liable and it shall be a precondition of the
assertion of any liability of the Bank under this Section that the Company shall
first have exhausted all remedies in respect of the alleged loss against such
beneficiary and any other parties obligated or liable in connection with such
Letter of Credit and any related transactions.
(c) The Company hereby indemnifies and agrees to hold harmless
the Bank, and its officers, directors, employees and agents, from and against
any and all claims, damages, losses, liabilities, costs or expenses of any kind
or nature whatsoever (including reasonable attorneys fees and disbursements
incurred in connection with any investigative, administrative or judicial
proceeding whether or not such person shall be designated as a party thereto)
which the Bank or any such person may incur or which may be claimed against any
of them by reason of or in connection with entering into this Agreement or the
transactions contemplated hereby, including without limitation those arising
under Environmental Laws; provided, however, that the Company shall not be
required to indemnify the Bank or such other person, to the extent, but only to
the extent, that such claim, damage, loss, liability, cost or expense is
attributable to the gross negligence or willful misconduct of the Bank.
(d) In consideration of the execution and delivery of this
Agreement by the Bank and the extension of the Commitments, the Company hereby
indemnifies, exonerates and holds the Bank and each of its officers,
directors, employees and agents (collectively, the
-53-
<PAGE> 54
"Indemnified Parties") free and harmless from and against any and all actions,
causes of action, suits, losses, costs, liabilities and damages, and
expenses incurred in connection therewith (irrespective of whether any such
Indemnified Party is a party to the action for which indemnification hereunder
is sought), including reasonable attorneys' fees and disbursements
(collectively, the "Indemnified Liabilities"), incurred by the Indemnified
Parties or any of them as a result of, or arising out of, or relating to:
(i) any transaction financed or to be financed in whole or
in part, directly or indirectly, with the proceeds of any Advance;
(ii) the entering into and performance of this Agreement
and any other agreement or instrument executed in connection herewith by any of
the Indemnified Parties (including any action brought by or on behalf of the
Company as the result of any determination by the Bank not to fund any Advance);
(iii) any investigation, litigation or proceeding related
to any acquisition or proposed acquisition by the Company or any of its
Subsidiaries of any portion of the stock or assets of any person, whether or not
the Bank is party thereto;
(iv) any investigation, litigation or proceeding related to
any environmental cleanup, audit, compliance or other matter relating to the
protection of the environment or the release by the Company or any of its
Subsidiaries of any Hazardous Material; or
(v) the presence on or under, or the escape, seepage,
leakage, spillage, discharge, emission, discharging or releasing from, any
real property owned or operated by the Company or any of its Subsidiaries of
any Hazardous Material (including any losses, liabilities, damages, injuries,
costs, expenses or claims asserted or arising under any Environmental Law),
regardless of whether caused by, or within the control of, the Company or such
Subsidiary, except for any such Indemnified Liabilities arising for the
account of a particular Indemnified Party by reason of the activities of the
Indemnified Party on the property of the Company conducted subsequent to a
foreclosure on such property by the Bank or by reason of the relevant
Indemnified Party's gross negligence or willful misconduct or breach of this
Agreement, and if and to the extent that the foregoing undertaking may be
unenforceable for any reason, the Company hereby agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Company shall be
obligated to indemnify the Indemnified Parties for all Indemnified Liabilities
subject to and pursuant to the foregoing provisions, regardless of whether the
Company or any of its Subsidiaries had knowledge of the facts and
circumstances giving rise to such Indemnified Liability.
8.6 Successors and Assigns. (a) This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns, provided that the Company may not, without the prior consent of the
Bank, assign its rights or obligations
-54-
<PAGE> 55
hereunder or under the Notes or any Security Document and the Bank shall not be
obligated to make any Advance hereunder to any entity other than the Company.
(b) The Bank may sell to any financial institution or
institutions, and such financial institution or institutions may further sell,
a participation interest (undivided or divided) in, the Advances and the Bank's
rights and benefits under this Agreement, the Notes and the Security Documents,
and to the extent of that participation interest such participant or
participants shall have the same rights and benefits against the Company under
Section 3.7, 3.9 and 6.2(c) as it or they would have had if such participant
or participants were the Bank making the Advances to the Company hereunder,
provided, however, that (i) the Bank's obligations under this Agreement shall
remain unmodified and fully effective and enforceable against the Bank, (ii) the
Bank shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) the Bank shall remain the holder of its
Notes for all purposes of this Agreement, (iv) the Company shall continue to
deal solely and directly with the Bank in connection with the Bank's rights and
obligations under this Agreement, and (v) the Bank shall not grant to its
participant any rights to consent or withhold consent to any action taken by the
Bank under this Agreement.
(c) The Bank from time to time in its sole discretion may
appoint agents for the purpose of servicing and administering this Agreement
and the transactions contemplated hereby and enforcing or exercising any
rights or remedies of the Bank provided under this Agreement, the Notes,
any Security Documents or otherwise. In furtherance of such agency, the Bank
may from time to time direct that the Company and the Guarantors provide
notices, reports and other documents contemplated by this Agreement (or
duplicates thereof) to such agent. The Company and each Guarantor hereby
consents to the appointment of such agent and agrees to provide all such
notices, reports and other documents and to otherwise deal with such agent
acting on behalf of the Bank in the same manner as would be required if dealing
with the Bank itself.
8.7 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
8.8 Governing Law. This Agreement is a contract made under, and shall
be governed by and construed in accordance with, the law of the State of
Michigan applicable to contracts made and to be performed entirely within such
State and without giving effect to choice of law principles of such State. Each
of the Company and the Guarantors and the Bank further agrees that any legal or
equitable action or proceeding with respect to this Agreement, the Notes or any
Security Document or the transactions contemplated hereby shall be brought in
any court of the State of Michigan, or in any court of the United States of
America sitting in Michigan, and the Company and each Guarantor and the Bank
hereby submits to and accepts generally and unconditionally the jurisdiction of
those courts with respect to its person and property, irrevocably consents to
the service of process in connection with any such action or proceeding by
personal delivery to the Company or such Guarantor, as the case may be, or by
the mailing thereof by
-55-
<PAGE> 56
registered or certified mail, postage prepaid to the Company or such
Guarantor at its address for notices pursuant to Section 8.2. Nothing in this
paragraph shall affect the right of the Bank to serve process in any other
manner permitted by law or limit the right of the Bank to bring any such action
or proceeding against the Company or any Guarantor or property in the courts of
any other jurisdiction in which property of the Company is located. The Company
and each Guarantor and the Bank hereby irrevocably waives any objection to the
laying of venue of any such action or proceeding in the above described courts.
8.9 Table of Contents and Headings. The table of contents and the
headings of the various subdivisions hereof are for the convenience of reference
only and shall in no way modify any of the terms or provisions hereof.
8.10 Construction of Certain Provisions. If any provision of this
Agreement refers to any action to be taken by any person, or which such person
is prohibited from taking, such provision shall be applicable whether such
action is taken directly or indirectly by such person, whether or not expressly
specified in such provision.
8.11 Integration and Severability. This Agreement, the Notes, and the
Security Documents embodies the entire agreement and understanding between the
Company, the Guarantors and the Bank, and supersede all prior agreements and
understandings, relating to the subject matter hereof. In case any one or more
of the obligations of the Company or any Guarantor under this Agreement, the
Notes or any Security Document shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
obligations of the Company and the Guarantors shall not in any way be affected
or impaired thereby, and such invalidity, illegality or unenforceability in one
jurisdiction shall not affect the validity, legality or enforceability of the
obligations of the Company or any Guarantor under this Agreement, the Notes or
any Security Document in any other jurisdiction.
8.12 Independence of Covenants. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any such covenant, the fact that it would be permitted by an exception to, or
would be otherwise within the limitations of, another covenant shall not avoid
the occurrence of a Default or an Event of Default if such action is taken or
such condition exists.
8.13 Interest Rate Limitation. Notwithstanding any provisions of this
Agreement, the Notes or any Security Document, in no event shall the amount of
interest paid or agreed to be paid by the Company exceed an amount computed at
the highest rate of interest permissible under applicable law. If, from any
circumstances whatsoever, fulfillment of any provision of this Agreement, the
Notes or any Security Document at the time performance of such provision shall
be due, shall involve exceeding the interest rate limitation validly prescribed
by law which a court of competent jurisdiction may deem applicable hereto, then,
ipso facto, the obligations to be fulfilled shall be reduced to an amount
computed at the highest rate of interest permissible under applicable law, and
if for any reason whatsoever the Bank shall ever receive as interest an amount
which would be deemed unlawful under such applicable law such interest
-56-
<PAGE> 57
shall be automatically applied to the payment of principal of the Advances
outstanding hereunder (whether or not then due and payable) and not to the
payment of interest, or shall be refunded to the Company if such principal
and all other obligations of the Company to the Bank have been paid in full.
8.14 Waiver of Jury Trial. The Bank and the Company and the Guarantors,
after consulting or having had the opportunity to consult with counsel,
knowingly, voluntarily and intentionally waive any right either of them may have
to a trial by jury in any litigation based upon or arising out of this Agreement
or any related instrument or agreement or any of the transactions contemplated
by this Agreement or any course of conduct, dealing, statements (whether oral or
written) or actions of any of them. Neither the Bank, any Guarantor nor the
Company shall seek to consolidate, by counterclaim or otherwise, any such action
in which a jury trial has been waived with any other action in which a jury
trial cannot be or has not been waived. These provisions shall not be deemed to
have been modified in any respect or relinquished by any party hereto except by
a written instrument executed by such party.
-57-
<PAGE> 58
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered on the 13th day of August, 1996, to be
effective as of the Effective Date.
CODE-ALARM, INC.
By /s/ Robert V. Wagner
----------------------------
Its Vice President
----------------------------
TESSCO GROUP, INC.
By /s/ Robert V. Wagner
----------------------------
Its Treasurer
----------------------------
CHAPMAN SECURITY SYSTEMS, INC.
By /s/ Robert V. Wagner
----------------------------
Its Treasurer
----------------------------
-58-
<PAGE> 59
ANES, INC.
By /s/ Robert V. Wagner
---------------------------------
Its Treasurer
---------------------------------
INTERCEPT SYSTEMS, INC.
By /s/ Robert V. Wagner
---------------------------------
Its Treasurer
---------------------------------
NBD BANK
By /s/ Kathryn M. Ritter
---------------------------------
Its Vice President
---------------------------------
-59-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 322
<SECURITIES> 0
<RECEIVABLES> 10,408
<ALLOWANCES> 470
<INVENTORY> 12,425
<CURRENT-ASSETS> 25,432
<PP&E> 11,260
<DEPRECIATION> 7,425
<TOTAL-ASSETS> 37,960
<CURRENT-LIABILITIES> 15,222
<BONDS> 8,392
0
0
<COMMON> 12,213
<OTHER-SE> (3,754)
<TOTAL-LIABILITY-AND-EQUITY> 37,960
<SALES> 15,216
<TOTAL-REVENUES> 15,216
<CGS> 9,441
<TOTAL-COSTS> 9,441
<OTHER-EXPENSES> 5,428
<LOSS-PROVISION> 26
<INTEREST-EXPENSE> 387
<INCOME-PRETAX> (41)
<INCOME-TAX> (10)
<INCOME-CONTINUING> (31)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31)
<EPS-PRIMARY> $ (0.01)
<EPS-DILUTED> $ (0.01)
</TABLE>
