<PAGE>
FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
----------------------
Date of Report (Date of earliest event reported): January 24, 1996
-------------------------
REUTER MANUFACTURING, INC. (FORMERLY GREEN ISLE ENVIRONMENTAL SERVICES, INC.)
(Exact name of registrant as specified in its charter)
MINNESOTA 0-1561 41-0780999
--------- ------ ----------
(State of incorporation) (Commission (I.R.S. Employer
File Number) Identification No.)
410 11TH AVENUE SOUTH, HOPKINS, MINNESOTA 55343
------------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (612) 935-6921
--------------
<PAGE>
Item 5. OTHER EVENTS.
Effective December 31, 1995, Reuter Manufacturing, Inc. (the "Company") and
Sanwa Business Credit Corporation ("Sanwa") entered into a Loan and Security
Agreement (the "Loan Agreement"); a Senior Subordinated Secured Promissory Note
in the amount of $2,780,000; a Junior Subordinated Secured Promissory Note in
the amount of $1,000,000; a Mortgage, Assignment of Leases and Rents, Security
Agreement and Financing Statement; a Patent Security Agreement; an Income
Sharing Agreement; and a Common Stock Warrant Agreement (collectively, the "Loan
Documents"). The Loan Documents were executed on January 24, 1996, and will
become effective 100 days after execution. The 100 day period is intended to
confirm the enforceability of the security interest being granted to the lender.
Pursuant to the Loan Agreement, Sanwa agreed to restructure the Company's
obligations to guarantee repayment of a loan from Sanwa to EPR, Inc., a wholly
owned subsidiary of the Company, into three separate obligations: a term loan
in the amount of $2,780,000, a term loan in the amount of $1,000,000, and
payment obligations under the Income Sharing Agreement.
(a) The $2,780,000 term loan is evidenced by the Senior Subordinated
Secured Promissory Note in the amount of $2,780,000 executed by the Company
in favor of Sanwa. This note bears interest at the rate of 8% per year and
provides for twelve consecutive quarterly payments of $75,000 plus accrued
interest and a final payment of any unpaid principal and accrued interest
on December 31, 1999.
(b) The $1,000,000 term loan is evidenced by the Junior Subordinated
Secured Promissory Note in the amount of $1,000,000 executed by the Company
in favor of Sanwa. This note bears interest at the rate of 8% per year and
provides for quarterly payments of principal and interest to the extent
that the Company generates cash flow after payment of certain indebtedness
and capital expenditures and a final payment of any unpaid principal and
accrued interest on December 31, 1999.
(c) Pursuant to the Income Sharing Agreement, the Company is required to
make payments to Sanwa in an amount equal to 40% (which would be reduced
upon a change in control of the Company) of the Company's Income Before
Taxes, minus actual interest payments made by the Company under the Senior
Subordinated Secured Promissory Note. The Income Sharing Agreement remains
in effect until the Company has made total payments of $6,000,000 under the
agreement or December 31, 2010, whichever is earlier.
The following pro forma condensed balance sheet shows the effect of
restructuring under the Loan Documents, on a pro forma basis, as of September
30, 1995.
2
<PAGE>
Reuter Manufacturing, Inc.
Pro Forma Condensed Balance Sheet, September 30, 1995
(Dollars in Millions)
<TABLE>
<CAPTION>
Pro Forma
As Reported Adjustments Pro Forma
----------- ----------- ---------
<S> <C> <C> <C>
Total Assets $7.6 $7.6
------ -----
------ -----
Operating Liabilities
and line of credit 3.6 3.6
Long term debt 1.0 11.5 12.5
Eden Prairie Debt,
guaranteed by Parent 18.2 (18.2) -
------ -----
Total Liabilities 22.8 16.1
Shareholder Equity (deficit) (15.2) 6.7 (8.5)
------ -----
Total Liabilities and shareholder deficit $7.6 $7.6
------ -----
------ -----
</TABLE>
The Company's obligations under the Loan Documents are secured by a security
interest in substantially all of the Company's assets. The security interest
granted to Sanwa is subordinate to the security interest previously granted to
CIT Group/Credit Finance, Inc., with which the Company maintains a working
capital line of credit.
The Company also granted Sanwa a warrant to purchase up to 3,178,780 shares of
Common Stock of the Company for an aggregate purchase price of $10.00. The
warrant is exercisable at any time, and from time to time, following the
occurrence of an "ownership change" in respect of the Company, as defined in
Section 382(g)(1) of the Internal Revenue Code of 1986, as amended. The warrant
expires upon payment in full by the Company of all amounts due under the Income
Sharing Agreement.
In addition, the Company and Sanwa entered into separate Standstill Agreements
with each of James Taylor, the Chief Executive Officer and a Director of the
Company, and Edward E. Strickland, the Chairman of the Board of Directors of the
Company. Under the Standstill Agreements, Mr. Taylor and Mr. Strickland each
agreed not to, directly or indirectly, acquire, dispose of, or exercise any
option or other right to acquire, any Capital Stock or option or right to
acquire Capital Stock of the Company. The Standstill Agreements remain in
effect until the earlier of (a) the expiration of the Income Sharing Agreement,
(b) the death of Mr. Taylor or Mr. Strickland, as the case may be, or (c) the
occurrence of an "ownership change" in respect of the Company, as defined in
Section 382(g)(81) of the Internal Revenue Code of 1986, as amended.
The Loan and Security Agreement; Senior Subordinated Secured Promissory Note;
Junior Subordinated Secured Promissory Note; Mortgage, Assignment of Leases and
Rents, Security Agreement and Financing Statement; Patent Security Agreement;
Income Sharing Agreement; Common Stock Warrant Agreement; and Standstill
Agreements are attached hereto as Exhibits 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.7,
2.8, 2.9 and 2.10 and are incorporated herein by reference.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
a. FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
Not applicable.
3
<PAGE>
b. PRO FORMA FINANCIAL INFORMATION.
Not applicable.
c. EXHIBITS.
2.1 Loan and Security Agreement, dated December 31, 1995, between
Sanwa Business Credit Corporation and Reuter Manufacturing, Inc.
2.2 Senior Subordinated Secured Promissory Note, dated December 31,
1995, between Reuter Manufacturing, Inc. and Sanwa Business
Credit Corporation.
2.3 Junior Subordinated Secured Promissory Note, dated December 31,
1995, between Reuter Manufacturing, Inc. and Sanwa Business
Credit Corporation.
2.4 Mortgage, Security Agreement and Fixture Financing Statement,
dated December 31, 1995, between Reuter Manufacturing, Inc. and
Sanwa Business Credit Corporation.
2.5 Patent Security Agreement, dated December 31, 1995, between
Reuter Manufacturing, Inc. and Sanwa Business Credit Corporation.
2.6 Income Sharing Agreement, dated December 31, 1995, between Reuter
Manufacturing, Inc. and Sanwa Business Credit Corporation.
2.7 Intercreditor and Subordination Agreement, dated December 31,
1995, among Reuter Manufacturing, Inc., The CIT Group/Credit
Finance, Inc. and Sanwa Business Credit Corporation.
2.8 Common Stock Warrant Agreement, dated December 31, 1995, between
Reuter Manufacturing, Inc. and Sanwa Business Credit Corporation.
2.9 Standstill Agreement, dated December 31, 1995, among Edward E.
Strickland, Reuter Manufacturing, Inc. and Sanwa Business Credit
Corporation.
2.10 Standstill Agreement, dated December 31, 1995, among James
Taylor, Reuter Manufacturing, Inc. and Sanwa Business Credit
Corporation.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Reuter Manufacturing, Inc.
Registrant
Date: February 13, 1996
By/s/ James W. Taylor
--------------------------------------
James W. Taylor
President and Chief Executive Officer
5
<PAGE>
INDEX TO EXHIBITS
Exhibit Item Page
- ------- ---- ----
2.1 Loan and Security Agreement, dated December 31,
1995, between Sanwa Business Credit Corporation
and Reuter Manufacturing, Inc. . . . . . . . . . . . . . . . . . .
2.2 Senior Subordinated Secured Promissory Note,
dated December 31, 1995, between Reuter Manufacturing,
Inc. and Sanwa Business Credit Corporation . . . . . . . . . . . .
2.3 Junior Subordinated Secured Promissory Note, dated
December 31, 1995, between Reuter Manufacturing, Inc.
and Sanwa Business Credit Corporation. . . . . . . . . . . . . . .
2.4 Mortgage, Security Agreement and Fixture Financing
Statement, dated December 31, 1995, between Reuter
Manufacturing, Inc. and Sanwa Business Credit
Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.5 Patent Security Agreement, dated December 31, 1995,
between Reuter Manufacturing, Inc. and Sanwa
Business Credit Corporation. . . . . . . . . . . . . . . . . . . .
2.6 Income Sharing Agreement, dated December 31, 1995,
between Reuter Manufacturing, Inc. and Sanwa Business
Credit Corporation . . . . . . . . . . . . . . . . . . . . . . . .
2.7 Intercreditor and Subordination Agreement, dated
December 31, 1995, among Reuter Manufacturing, Inc.,
The CIT Group/Credit Finance, Inc. and Sanwa
Business Credit Corporation. . . . . . . . . . . . . . . . . . . .
2.8 Common Stock Warrant Agreement, dated December 31,
1995, between Reuter Manufacturing, Inc. and
Sanwa Business Credit Corporation. . . . . . . . . . . . . . . . .
2.9 Standstill Agreement, dated December 31, 1995,
among Edward E. Strickland, Reuter Manufacturing,
Inc. and Sanwa Business Credit Corporation . . . . . . . . . . . .
2.10 Standstill Agreement, dated December 31, 1995,
among James Taylor, Reuter Manufacturing, Inc.
and Sanwa Business Credit Corporation. . . . . . . . . . . . . . .
6
<PAGE>
7
<PAGE>
LOAN AND SECURITY AGREEMENT
BETWEEN
SANWA BUSINESS CREDIT CORPORATION
AND
REUTER MANUFACTURING, INC.
DATED AS OF DECEMBER 31, 1995
<PAGE>
TABLE OF CONTENTS
PAGE
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. RESTRUCTURED OBLIGATIONS: GENERAL TERMS. . . . . . . . . . . . . . . . . 6
2.1 Total Obligation. . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 One Obligation. . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.4 Term of Agreement . . . . . . . . . . . . . . . . . . . . . . . . 7
3. PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.1 Loan Account; Method of Making Payments . . . . . . . . . . . . . 7
3.2 Payment Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.3 Application of Payments and Collections . . . . . . . . . . . . . 7
4. COLLATERAL: GENERAL TERMS. . . . . . . . . . . . . . . . . . . . . . . . 8
4.1 Security Interest and Mortgage. . . . . . . . . . . . . . . . . . 8
4.2 Disclosure of Security Interest . . . . . . . . . . . . . . . . . 8
4.3 Special Collateral. . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . 8
4.5 Inspection and Field Reviews. . . . . . . . . . . . . . . . . . . 9
4.6 Perfected Security Interest; Location of Collateral . . . . . . . 9
4.7 Lender's Payment of Claims Asserted Against Borrower. . . . . . . 9
5. COLLATERAL: ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . .10
5.1 Assignments, Records and Accounts Report. . . . . . . . . . . . .10
5.2 Sale or Encumbrance of Accounts . . . . . . . . . . . . . . . . .10
6. COLLATERAL: INVENTORY. . . . . . . . . . . . . . . . . . . . . . . . . .10
6.1 Sale of Inventory . . . . . . . . . . . . . . . . . . . . . . . .10
6.2 Safekeeping of Inventory; Inventory Covenants . . . . . . . . . .10
6.3 Records and Schedules of Inventory. . . . . . . . . . . . . . . .10
6.4 Evidence of Ownership of Inventory. . . . . . . . . . . . . . . .11
7. COLLATERAL: EQUIPMENT. . . . . . . . . . . . . . . . . . . . . . . . . .11
7.1 Maintenance of the Equipment. . . . . . . . . . . . . . . . . . .11
7.2 Evidence of Ownership of Equipment. . . . . . . . . . . . . . . .11
7.3 Proceeds of the Equipment . . . . . . . . . . . . . . . . . . . .11
8. COLLATERAL: REAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . .11
8.1 After-Acquired Real Property. . . . . . . . . . . . . . . . . . .11
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<PAGE>
PAGE
9. WARRANTIES AND REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . .12
9.1 General Warranties and Representations. . . . . . . . . . . . . .12
9.2 Survival of Warranties and Representations. . . . . . . . . . . .15
10. COVENANTS AND CONTINUING AGREEMENTS . . . . . . . . . . . . . . . . . . .15
10.1 Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . .15
10.2 Negative Covenants. . . . . . . . . . . . . . . . . . . . . . . .17
10.3 Lender Covenants. . . . . . . . . . . . . . . . . . . . . . . . .19
10.4 Contesting Charges. . . . . . . . . . . . . . . . . . . . . . . .19
10.5 Payment of Charges. . . . . . . . . . . . . . . . . . . . . . . .19
10.6 Insurance: Payment of Premiums . . . . . . . . . . . . . . . . .20
10.7 Survival of Obligations Upon Termination of Agreement . . . . . .20
11. EVENT OF DEFAULT: RIGHTS AND REMEDIES ON EVENT OF DEFAULT. . . . . . . .20
11.1 Event of Default. . . . . . . . . . . . . . . . . . . . . . . . .20
11.2 Acceleration of the Liabilities . . . . . . . . . . . . . . . . .22
11.3 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
11.4 Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
12. CONDITIONS PRECEDENT TO AGREEMENT . . . . . . . . . . . . . . . . . . . .24
13. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
13.1 Appointment of Lender as Borrower's Lawful Attorney-In-Fact . . .26
13.2 Modification of Agreement: Sale of Interest. . . . . . . . . . .26
13.3 Attorneys' Fees and Expenses: Lender's Out-of-Pocket
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
13.4 No Waiver by Lender . . . . . . . . . . . . . . . . . . . . . . .27
13.5 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . .28
13.6 Parties; Entire Agreement . . . . . . . . . . . . . . . . . . . .28
13.7 Conflict of Terms . . . . . . . . . . . . . . . . . . . . . . . .28
13.8 Waiver by Borrower. . . . . . . . . . . . . . . . . . . . . . . .28
13.9 Governing Law; Submission to Jurisdiction . . . . . . . . . . . .29
13.10 Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
13.11 Section Titles, Etc . . . . . . . . . . . . . . . . . . . . . . .30
13.12 Representation by Counsel . . . . . . . . . . . . . . . . . . . .30
13.13 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . .31
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<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "AGREEMENT") is made as of December
31, 1995, by and between SANWA BUSINESS CREDIT CORPORATION, A DELAWARE
CORPORATION ("LENDER"), and REUTER MANUFACTURING, INC., A MINNESOTA CORPORATION
("BORROWER").
W I T N E S S E T H:
WHEREAS, Pursuant to the terms of that certain Loan and Security Agreement
dated May 6, 1988 by and between Lender and EPR, Inc., Lender made certain loans
and extended other financial obligations to EPR, Inc. (the "EPR OBLIGATIONS");
WHEREAS, Borrower guaranteed the EPR Obligations pursuant to the terms of
that certain guarantee dated May 6, 1988 (the "GUARANTEE");
WHEREAS, Borrower has requested Lender to restructure its obligations under
the Guarantee;
WHEREAS, Lender has agreed to the foregoing restructuring in accordance
with the terms of this Agreement.
NOW THEREFORE, in consideration of the terms and conditions contained
herein, and of any loans or extension of credit heretofore, now or hereafter
made to or for the benefit of Borrower by Lender, the parties hereto hereby
agree as follows:
1. DEFINITIONS.
A. GENERAL.
1.1 "ACCOUNTS" shall mean all accounts, contract rights, chattel paper,
instruments and documents, whether now owned or hereafter acquired by Borrower.
1.2 "ACCOUNT DEBTOR" shall mean any Person who is or who may become
obligated to Borrower under, with respect to, or on account of an Account.
1.3 "AFFILIATE" shall mean any and all Persons which, in the reasonable
judgment of Lender, directly or indirectly, own or control, are controlled by or
are under common control with Borrower, and any and all Persons from whom, in
the reasonable judgment of Lender, Borrower has not or is not likely to exhibit
independence of decision or action. For the purpose of this definition,
"control" means the possession, directly or indirectly, of the power
-1-
<PAGE>
to direct or cause the direction of management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
1.4 "ANCILLARY AGREEMENTS" shall mean all Security Documents and all
agreements, instruments and documents, including without limitation, the Income
Sharing Agreement, the Senior Subordinated Secured Promissory Note, the Junior
Subordinated Second Promissory Note, and any and all other notes, guaranties,
mortgages, deeds of trust, chattel mortgages, pledges, powers of attorney,
consents, assignments, contracts, notices, security agreements, leases,
financing statements, subordination agreements, trust account agreements and all
other written matter whether heretofore, now, or hereafter executed by or on
behalf of Borrower or any other Person or delivered to Lender or any Participant
with respect to this Agreement or with respect to any agreement entered into by
Borrower.
1.5 "BORROWER'S KNOWLEDGE" or words of such import shall mean all
knowledge, including, actual knowledge and knowledge of matters which any
reasonable person in such position knew or should have known, of the respective
officers, directors and managers of Borrower.
1.6 "BUDGET" shall mean a forecast of Borrower's operating income and
expenses for a period of not less than twelve (12) months, in form reasonably
acceptable to Lender, but under no circumstances containing fewer line items of
revenue and expense as are contained in the budget attached hereto as Exhibit
1.6.
1.7 "CAPITAL EXPENDITURES" shall mean as to any Person, any and all
expenditures of such Person for fixed or capital assets, including, without
limitation, the incurrence of capitalized lease obligations, all as determined
in accordance with generally accepted accounting principles.
1.8 "CHARGES" shall mean all national, federal, state, county, city,
municipal, or other governmental (including, without limitation, the Pension
Benefit Guaranty Corporation) taxes, levies, assessments, charges, liens, claims
or encumbrances upon or relating to (i) the Collateral, (ii) the Liabilities,
(iii) Borrower's employees, payroll, income or gross receipts, (iv) Borrower's
ownership or use of any of its assets, or (v) any other aspect of Borrower's
business.
1.9 "CIT" shall mean The CIT Group/Commercial Finance, Inc., or any
other entity which replaces CIT as Borrower's primary working capital lender in
an amount not to exceed and on terms substantially similar to the terms of the
agreements in existence as of the date hereof between Borrower and CIT.
1.10 "CLOSING DATE" shall mean the date on which the transactions
contemplated by this Agreement are consummated.
1.11 "CODE" shall mean the Internal Revenue Code of 1986, as amended.
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<PAGE>
1.12 "COLLATERAL" shall mean all of the property and interests in
property described in Section 4.1 and all other property and interests in
property which shall, from time to time, secure any part of the Liabilities.
1.13 "DEFAULT RATE" shall mean a rate per annum equal to two percent
(2%) in excess of the interest rate then in effect for the respective
Liabilities.
1.14 "ENVIRONMENTAL LAWS" shall mean the Resource Conservation and
Recovery Act of 1987, the Comprehensive Environmental Response, Compensation and
Liability Act, any so-called "Superfund" or "Superlien" law, the Toxic
Substances Control Act, or any other federal state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to, or
imposing liability or standards of conduct concerning, any hazardous, toxic or
dangerous waste, substance or material, as now or at any time hereafter in
effect.
1.15 "ENVIRONMENTAL LIEN" shall mean a lien in favor of any governmental
entity for (i) any liability under any Environmental Laws, or (ii) damages
arising from or costs incurred by such governmental entity in response to a
release of a Hazardous Material into the environment.
1.16 "EQUIPMENT" shall mean all of Borrower's now owned and hereafter
acquired equipment and Fixtures, including without limitation, furniture,
machinery, vehicles and trade fixtures, together with any and all accessories,
parts and appurtenances thereto, substitutions therefor and replacements
thereof.
1.17 "EVENT OF DEFAULT" shall mean the occurrence or existence of any
one or more of the events described in Section 11.1 if the same has not been
cured within any applicable cure period contained therein.
1.18 "FINANCIALS" shall mean those financial statements of Borrower or
delivered to Lender pursuant to Section 10.1(C).
1.19 "FIXTURES" shall mean all "fixtures" as such term is defined in the
Uniform Commercial Code as adopted and in effect in the State of Illinois, now
owned or hereafter acquired by Borrower.
1.20 "GENERAL INTANGIBLES" shall mean all choses in action, general
intangibles, causes of action and all other intangible personal property of
Borrower or every kind and nature (other than Accounts) now owned or hereafter
acquired by Borrower. Without in any way limiting the generality of the
foregoing, General Intangibles specifically includes, without limitation, all
corporate or other business records, security deposits, inventions, designs,
patents, patent applications, trademarks, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, and tax refund claims owned by
Borrower and all letters of credit, guarantee claims, security interests or
other security held by or granted to Borrower to secure payment by an Account
Debtor of any Accounts.
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<PAGE>
1.21 "HAZARDOUS MATERIALS" shall mean any hazardous substance or
pollutant or contaminant defined as such in (or for the purposes of) any
Environmental Law and shall include, but not be limited to, petroleum, any
radioactive material, and asbestos in any form or condition.
1.22 "INCOME SHARING AGREEMENT" shall mean that certain Income Sharing
Agreement dated as of the date hereof by and between Borrower and Lender, a copy
of which is attached hereto as Exhibit 2.1(C).
1.23 "INDEBTEDNESS" shall mean all of Borrower's liabilities,
obligations and indebtedness to any Person of any and every kind and nature,
whether primary, secondary, direct, indirect, absolute, contingent, fixed, or
otherwise, heretofore, now or hereafter owing, due, or payable, however
evidenced, created, incurred, acquired or owing and however arising, whether
under written or oral agreement, by operation of law, or otherwise. Without in
any way limiting the generality of the foregoing, Indebtedness specifically
includes (i) the Liabilities, (ii) all obligations or liabilities of any Person
that are secured by any lien, claim, encumbrance, or security interest upon
property owned by Borrower, even though Borrower has not assumed or become
liable for the payment thereof, (iii) all obligations or liabilities created or
arising under any lease of real or personal property, or conditional sale or
other title retention agreement with respect to property used or acquired by
Borrower, even though the rights and remedies of the lessor, seller or lender
thereunder are limited to repossession of such property, (iv) all obligations
and liabilities in respect of unfunded vested benefits under any Employee
Benefit Plan or in respect of withdrawal liabilities incurred under ERISA by the
Borrower or any ERISA Affiliate to any Multiemployer Plan, and (v) accrued taxes
for which Borrower has not reserved a source of payment.
1.24 "INVENTORY" shall mean all goods, inventory, merchandise and other
personal property, including, without limitation, goods in transit, wherever
located and whether now owned or hereafter acquired by Borrower which is or may
at any time be held for sale or lease, furnished under any contract of service
or held as raw materials, work in process, supplies or materials used or
consumed in Borrower's business, and all such property the sale or other
disposition of which has given rise to Accounts and which has been returned to
or repossessed or stopped in transit by Borrower.
1.25 "LIABILITIES" shall mean all of Borrower's liabilities, obligations
and indebtedness to Lender of any and every kind and nature, whether primary,
secondary, direct, absolute, contingent, fixed, or otherwise (including, without
limitation, interest, charges, expenses, attorneys' fees and other sums
chargeable to Borrower by Lender, future advances made to or for the benefit of
Borrower and obligations of performance), whether arising under this Agreement,
under any of the Ancillary Agreements or acquired by Lender from any other
source, whether heretofore, now or hereafter owing, arising, due, or payable
from Borrower to Lender, however evidenced, created, incurred, acquired or owing
and however arising, whether under written or oral agreement, operation of law,
or otherwise.
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<PAGE>
1.26 "PARTICIPANT" shall mean any Person, now or at any time or times
hereafter, participating with Lender in the loans made by Lender to Borrower
pursuant to this Agreement and the Ancillary Agreements.
1.27 "PAYMENT IN FULL" or "PAID IN FULL" or any similar term(s) with
respect to any Indebtedness means (a) the indefeasible satisfaction and final
payment in full of such Indebtedness in cash or cash equivalents reasonably
acceptable to the payee and the termination of any obligation on the part of the
holder of such Indebtedness to make any loans or to afford any financial
accommodation to the Borrower or (b) in the case of any Indebtedness consisting
of contingent obligations (including without limitation contingent obligations
in respect of letters of credit or other reimbursement guarantees), the setting
apart of cash sufficient to discharge such portion of such Indebtedness in an
account for the exclusive benefit of the holders thereof, in which account such
holders shall be granted by the Borrower a first priority perfected security
interest in a manner acceptable to such holders which payment or perfected
security interest shall have been retained by the holders, for a period of time
in excess of all applicable preference or other similar periods under applicable
bankruptcy, insolvency or creditors' rights laws.
1.28 "PERSON" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, institution, entity, party, or
government (whether national, federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality, division, agency,
body or department thereof).
1.29 "REAL PROPERTY" shall mean the real estate now owned or leased or
hereafter acquired or leased by Borrower, all fixtures and personal property
used in connection therewith and Borrower's rights to leases, rents and profits
with respect thereto.
1.30 "SECURITY DOCUMENTS" shall mean this Agreement and all other
agreements, instruments, documents, financing statements, warehouse receipts,
bills of lading, notices of assignment, schedules, assignments, mortgages and
other written matter necessary or requested by Lender to create, perfect and
maintain perfected Lender's security interest in, and/or lien on, the
Collateral.
1.31 "STOCK" shall mean all shares, options, interests, participations
or other equivalents (however designated) of or in a corporation, whether voting
or non-voting, including, without limitation, all agreements, instruments and
documents convertible, in whole or in part, into any one or more or all of the
foregoing.
1.32 "UNMATURED EVENT OF DEFAULT" shall mean any event or condition
which, with the passage of time or the giving of notice or both, would
constitute an Event of Default.
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B. ACCOUNTING TERMS. Any accounting terms used in this Agreement
which are not specifically defined shall have the meanings customarily given
them in accordance with generally accepted accounting principles.
C. OTHER TERMS. All other terms contained in this Agreement which are
not otherwise defined in this Agreement shall, unless the context indicates
otherwise, have the meanings provided for by the Uniform Commercial Code of the
State of Illinois to the extent the same are used or defined therein.
2. RESTRUCTURED OBLIGATIONS: GENERAL TERMS.
2.1 TOTAL OBLIGATION. Lender agrees to restructure Borrower's
obligations under the Guarantee into three separate obligations:
(A) A term loan (the "SENIOR SUBORDINATED SECURED NOTE") in an
aggregate principal amount not to exceed Two Million Seven Hundred Eighty
Thousand Dollars ($2,780,000) evidenced by a Senior Subordinated Secured Note in
the form attached hereto as Exhibit 2.1(A) and repayable as provided therein;
(B) A term loan (the "JUNIOR SUBORDINATED SECURED NOTE") in an
aggregate principal amount not to exceed One Million Dollars ($1,000,000)
evidenced by a Junior Subordinated Secured Note in the form attached hereto as
Exhibit 2.1(B) and repayable as provided therein;
(C) An obligation to make payments pursuant to the Income Sharing
Agreement.
2.2 ONE OBLIGATION. All indebtedness and obligations of Borrower to
Lender under this Agreement and the Ancillary Agreements shall constitute one
general obligation secured by the Collateral.
2.3 INTEREST RATE. Borrower shall pay Lender interest on the
outstanding principal balance of the Senior Subordinated Secured Note and the
Junior Subordinated Secured Note at the rate per annum of eight percent (8%);
provided, however, that upon the occurrence and during the continuance of any
Unmatured Event of Default, Lender may at its option, raise the interest rate
charged on the Liabilities to the Default Rate from the date of the occurrence
of the Event of Default until the Event of Default is cured or waived by Lender
or until the Liabilities are Paid In Full. Interest shall be computed on the
basis of a year of 360 days and actual days elapsed and shall be payable as
provided in Section 3.2. In no contingency or event whatsoever shall the rate
or amount of interest paid by Borrower under this Agreement or any of the
Ancillary Agreements exceed the maximum amount permissible under any law which a
court of competent jurisdiction shall, in a final determination, deem applicable
hereto. In the event that such a court determines that Lender has received
interest hereunder or under any Ancillary Agreement in excess of the maximum
amount permitted by law, (i) Lender
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shall apply such excess to any unpaid principal owed by Borrower to Lender or,
if the amount of such excess exceeds any unpaid balance of such principal,
Lender shall promptly refund such excess interest to Borrower and (ii) the
provisions hereof shall be deemed amended to provide for such permissible rate.
2.4 TERM OF AGREEMENT. This Agreement shall be in effect until all of
the Liabilities are Paid In Full, subject to earlier termination by Lender upon
the occurrence of an Event of Default as provided in Section 11; provided,
however, that with regard to the Income Sharing Agreement, this Agreement shall
be in effect until the earlier of (i) all of the Liabilities due under the
Income Sharing Agreement are Paid In Full or (ii) December 31, 2010. Until all
of the Liabilities shall have been fully paid and satisfied, Lender shall be
entitled to retain its security interest in the Collateral.
3. PAYMENTS.
3.1 LOAN ACCOUNT; METHOD OF MAKING PAYMENTS. Lender shall maintain a
loan account (the "LOAN ACCOUNT") on its books in which shall be recorded (i)
all liabilities of Borrower pursuant to this Agreement, (ii) all payments made
by Borrower on all of Borrower's obligations and (iii) all other appropriate
debits and credits as provided in this Agreement, including, without limitation,
all fees, charges, expenses and interest. All entries in the Loan Account shall
be made in accordance with Lender's customary accounting practices as in effect
from time to time. Lender may, in its sole and absolute discretion, elect to
bill Borrower for such amounts in which case the amount shall be immediately due
and payable with interest thereon at the rate set forth in Section 2.3.
3.2 PAYMENT TERMS. All of the Liabilities shall be payable to Lender
at the address set forth in Section 13.10. The Liabilities will be repayable as
follows in the following order: (i) first, principal and interest on the Senior
Subordinated Secured Note shall be payable as provided therein, (ii) second, all
payments pursuant to the Income Sharing Agreement shall be payable as provided
therein; (iii) third, all payments pursuant to the Junior Subordinated Secured
Note shall be payable as provided therein; (iv) fourth, fees, costs, expenses
and similar charges shall be payable as and when provided for in this Agreement
or the Ancillary Agreements and (v) fifth, the principal balance of the
remaining Liabilities shall be payable as and when provided for in this
Agreement or the Ancillary Agreements.
3.3 APPLICATION OF PAYMENTS AND COLLECTIONS. Notwithstanding anything
to the contrary contained herein, upon an occurrence of an Unmatured Event of
Default, Lender shall have the sole and absolute right to direct the application
of payments and collections received by Lender from or on behalf of Borrower,
and Borrower agrees that Lender shall have the continuing exclusive right to
apply and reapply any and all such payments and collections against the
Liabilities in such manner as Lender may deem appropriate, notwithstanding any
entry by Lender upon any of its books and records. To the extent that Borrower
makes a payment or payments to Lender or Lender receives any payment or
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proceeds of the Collateral for Borrower's benefit, which payment(s) or proceeds
or any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, receiver or any
other party under any bankruptcy act, state or federal law, common law or
equitable cause, then, to the extent of such payment or proceeds received, the
obligations to make such payments shall continue in full force and effect, as if
such payments or proceeds had not been received by Lender.
4. COLLATERAL: GENERAL TERMS.
4.1 SECURITY INTEREST AND MORTGAGE. To secure the prompt payment to
Lender of the Liabilities, Borrower hereby grants to Lender a continuing
security interest in and to all of the following property and interest in
property of Borrower, whether now owned or existing or hereafter acquired or
arising and wherever located: (i) all Accounts, Inventory, Equipment, Real
Property, vehicles, contract rights, General Intangibles, tax refunds, chattel
paper, instruments, letters of credit, documents and documents of title; (ii)
all of the Borrower's deposit accounts (general or special) with and credits and
other claims against any financial institutions with which Borrower maintains
deposits; (iii) all of Borrower's now owned or hereafter acquired monies, and
any and all other property of Borrower now or hereafter coming into the actual
possession, custody or control of CIT or Lender or any agent or affiliate of CIT
or Lender in any way or for any purpose (whether for safekeeping, deposit,
custody, pledge, transmission, collection or otherwise); (iv) all insurance
proceeds of or relating to any of the foregoing; (v) all of Borrower's books and
records relating to any of the foregoing; and (vi) all accessions and additions
to, substitutions for, and replacements, products and proceeds of any of the
foregoing.
4.2 DISCLOSURE OF SECURITY INTEREST. Borrower shall make appropriate
entries upon its financial statements and books and records disclosing Lender's
security interest in the Collateral.
4.3 SPECIAL COLLATERAL. Immediately upon Borrower's receipt of any
Collateral which is evidenced or secured by an agreement, chattel paper, letter
of credit, instrument or document, including, without limitation, promissory
notes, documents of title and warehouse receipts (the "SPECIAL COLLATERAL"),
Borrower shall deliver the original thereof to Lender or to such agent of Lender
as Lender shall designate, together with appropriate endorsements, the documents
required to draw thereunder (as may be relevant to letters of credit) or other
specific evidence (in form and substance acceptable to Lender) of assignment
thereof to Lender. Borrower shall be required to provide title certificates
noting Lender as a security holder for each item of Equipment constituting a
titled vehicle.
4.4 FURTHER ASSURANCES. At Lender's request, Borrower shall, from time
to time, (i) execute and deliver to Lender all Security Documents that Lender
may reasonably request, in form and substance acceptable to Lender, and pay the
costs of any recording or filing of the same and (ii) take such other actions as
Lender may reasonably request in order to fully effect
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the purposes of this Agreement and to protect Lender's interest in the
Collateral. Borrower hereby irrevocably makes, constitutes and appoints Lender
(and all Persons designated by Lender for that purpose) as Borrower's true and
lawful attorney and agent-in-fact to sign the name of Borrower on any of the
Security Documents and to deliver any of the Security Documents to such Persons
as Lender, in its sole discretion, may elect. Borrower agrees that a carbon,
photographic, photostatic, or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement.
4.5 INSPECTION AND FIELD REVIEWS. Lender (by any of its officers,
employees or agents) shall have the right, at any time or times during
Borrower's usual business hours, without prior notice, to inspect and perform
field reviews with regard to the Collateral and all books and records related
thereto (and to make extracts from such records) and the premises upon which any
of the Collateral is located, to discuss Borrower's affairs and finances with
any Person (including Borrower's independent certified public accountants) and
to verify the amount, quality, value and condition of, or any other matter
relating to, the Collateral. All of the foregoing shall be done in a manner
which does not unreasonably interfere with the operation of Borrower's business.
All of Lender's reasonable out of pocket costs and expenses shall be incurred by
and charged to Borrower and shall be payable by Borrower within 10 days of the
request for payment by Lender.
4.6 PERFECTED SECURITY INTEREST; LOCATION OF COLLATERAL. Borrower
hereby warrants and represents to and covenants with Lender that, subject to the
terms and conditions of this Agreement, Lender's security interest in the
Collateral is now and at all times shall be perfected and, upon proper filing of
financing statements, have priority over all other liens except for: (i) liens
arising by operation of law; (ii) the liens set forth on Exhibit 9.1(I) attached
hereto; and (iii) purchase money liens permitted under Section 7.3 hereof.
Borrower's chief executive office, principal place of business and all other
offices and locations of the Collateral and books and records related thereto
(including, without limitation, computer programs, printouts and other computer
materials and records concerning the Collateral) are set forth on Exhibit 4.6.
Borrower shall not remove its books and records or the Collateral from any such
locations (except for removal of items of Inventory upon its sale in accordance
with the terms of this Agreement) and shall not open any new offices or relocate
any of its books and records or the Collateral except within the continental
United States of America with at least thirty (30) days prior notice thereof to
Lender.
4.7 LENDER'S PAYMENT OF CLAIMS ASSERTED AGAINST BORROWER. Lender may,
but shall not be obligated to, at any time or times hereafter, in its sole
discretion, and without waiving any Unmatured Event of Default or Event of
Default or waiving or releasing any obligation, liability or duty of Borrower
under this Agreement or the Ancillary Agreements, pay, acquire or accept an
assignment of any security interest, lien, claim or other encumbrance asserted
by any Person against the Collateral. All sums paid by Lender under this
Section 4.7, shall be payable by Borrower to Lender on demand and shall be
additional Liabilities secured by the Collateral, PROVIDED, HOWEVER, that if
Lender acquires a claim prior to an Event
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of Default, Borrower shall be responsible to Lender only for the amount of the
claim without regard to other costs incurred by Lender in connection therewith.
5. COLLATERAL: ACCOUNTS.
5.1 ASSIGNMENTS, RECORDS AND ACCOUNTS REPORT. Borrower shall keep
accurate and complete records of its Accounts and upon the date they are due to
be delivered to CIT without regard to any extension or waiver by CIT shall
furnish to Lender a copy of all reports of Accounts submitted or required to be
submitted by Borrower to CIT.
5.2 SALE OR ENCUMBRANCE OF ACCOUNTS. Borrower shall not, without the
prior written consent of Lender, sell, transfer, grant a security interest in or
otherwise dispose of or encumber any of its Accounts to any Person other than
CIT and Lender.
6. COLLATERAL: INVENTORY.
6.1 SALE OF INVENTORY. Unless an Event of Default occurs and Lender
directs otherwise, Borrower may sell Inventory in the ordinary course of its
business (which does not include a transfer of Inventory with a book value in
excess of $10,000 in partial or total satisfaction of Indebtedness or sales in
bulk). All proceeds of any sales shall be part of the Collateral. Borrower
shall not rent, lease or otherwise transfer or dispose of any of the Inventory
without Lender's prior written consent, except as set forth in this Section 6.1
or except as permitted by CIT until the indebtedness due CIT is Paid in Full and
then as permitted or directed by Lender.
6.2 SAFEKEEPING OF INVENTORY; INVENTORY COVENANTS. Borrower shall
maintain all Inventory in good and saleable condition at all times. Lender
shall not be responsible for (i) the safekeeping of the Inventory; (ii) any loss
or damage thereto or destruction thereof occurring or arising in any manner or
fashion from any cause; (iii) any diminution in the value of Inventory or (iv)
any act or default of any carrier, warehouseman, bailee or forwarding agency or
any other Person in any way dealing with or handling the Inventory. All risk of
loss, damage, distribution or diminution in value of the Inventory shall be
borne by Borrower.
6.3 RECORDS AND SCHEDULES OF INVENTORY. Borrower shall keep correct
and accurate monthly records on a lower of cost or market basis itemizing and
describing the kind, type, quality and quantity of Inventory, Borrower's cost
therefor and selling price thereof, and the withdrawals therefrom and additions
thereto and Inventory then on consignment, and upon the date they are to be
delivered to CIT without regard to any extension or waiver by CIT shall furnish
to Lender a copy of its most recent report of Inventory submitted or required to
be submitted by Borrower to CIT.
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6.4 EVIDENCE OF OWNERSHIP OF INVENTORY. Borrower shall, upon Lender's
request, deliver to Lender all evidence of ownership of the Inventory.
7. COLLATERAL: EQUIPMENT.
7.1 MAINTENANCE OF THE EQUIPMENT. Borrower shall keep and maintain the
Equipment in good operating condition and repair, ordinary wear and tear
excepted, and shall make all necessary replacements thereof so that the value,
utility and operating efficiency thereof shall at all times be maintained and
preserved, ordinary wear and tear excepted, and shall promptly inform Lender of
any additions to or deletions from the Equipment. Borrower shall not permit any
such items to become affixed to real estate in such manner that such items of
Equipment will become a fixture or an accession to other personal property.
7.2 EVIDENCE OF OWNERSHIP OF EQUIPMENT. Borrower shall, upon Lender's
request, deliver to Lender all evidence of ownership of the Equipment
(including, without limitation, bills of sale, certificates of title and
applications for title).
7.3 PROCEEDS OF THE EQUIPMENT. Borrower shall not sell, transfer,
lease, grant a security interest in or otherwise dispose of or encumber the
Equipment or any part thereof to any Person other than CIT or Lender except for
purchase money liens (including capitalized leases and other forms of
installment purchase financing in an amount not to exceed $1 million in the
aggregate during the Term or which creates annual debt service obligations not
in excess of $225,000 annually, including both new and existing capital
equipment financing) granted to the Person financing a purchase of Equipment so
long as the lien granted is limited to the specific fixed assets so acquired,
and the transaction does not violate any other provision of this Agreement
(notification of such purchase money lien to be provided within ten (10) days of
acquisition of such fixed asset); PROVIDED, HOWEVER, that Borrower may sell or
otherwise dispose of any single piece of Equipment at the price set forth in
that certain appraisal of Borrower's Equipment dated May, 1995 conducted by The
Gronick Company, Incorporated, ("GRONICK") upon five (5) days' prior written
notice to Lender; PROVIDED, HOWEVER, Borrower shall not dispose of Equipment
with an appraised value (per Gronick) in excess of $100,000 in the aggregate
during the term hereof without Lender's consent. In the event any Equipment is
sold, transferred or otherwise disposed of as permitted in this Section 7.3,
Borrower shall promptly notify Lender of such fact and hold, use or deliver all
of the cash proceeds of such sale, transfer or disposition as permitted or
directed by CIT until the indebtedness due CIT is Paid in Full and then as
permitted or directed by Lender.
8. COLLATERAL: REAL PROPERTY.
8.1 AFTER-ACQUIRED REAL PROPERTY. If Borrower acquires any Real
Property or interests in Real Property after the date hereof it shall provide
Lender an opportunity to finance such acquisition in accordance with the
provisions of Section 10.1(J). If Lender
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provides such financing in accordance with the provisions of Section 10.3,
Borrower will grant liens on or security interests in such Real Property to
Lender, by way of mortgages, leasehold mortgages, landlord waivers, assignment
of rents and profits, deeds of trust, deeds to secure debt or comparable
instruments in form and substance acceptable to Lender, modified as necessary
with respect to the laws of the jurisdiction in which such real estate is
located, and will furnish to Lender a mortgagee's title insurance policy in an
amount satisfactory to Lender insuring that Lender has a valid first priority
lien in such Real Property. If Lender does not finance the acquisition of such
Real Property, and if permitted by the Person(s) who provide financing in
connection with such acquisition Borrower will grant Lender a subordinate lien
in such Real Property and furnish to Lender a mortgagee's title insurance policy
and, if any Collateral is located in the Real Property, a landlord's and
mortgagee's waiver to Lender's reasonable satisfaction, in accordance with the
provisions of this Section 8.1. If Borrower is prohibited from granting a
subordinate lien in the Real Estate, Borrower shall enter into an agreement with
Lender under which Borrower will covenant and agree for the benefit of Lender
not to grant any other Person an interest in the Real Property and, if any
Collateral is located in the Real Property, will deliver a landlord's and/or
mortgagee's waiver, as appropriate.
9. WARRANTIES AND REPRESENTATIONS.
9.1 GENERAL WARRANTIES AND REPRESENTATIONS. Borrower warrants and
represents that:
(A) Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the State of Minnesota, and is qualified or
licensed as a foreign entity to do business in all other countries, states and
provinces in which the laws thereof require Borrower to be so qualified or
licensed;
(B) Borrower has the right and power and is duly authorized and
empowered to enter into, execute, deliver and perform this Agreement and the
Ancillary Agreements;
(C) The execution, delivery and performance by Borrower of this
Agreement and the Ancillary Agreements shall not, by their execution or
performance, the lapse of time, the giving of notice or otherwise, constitute a
violation of any applicable law, rule, regulation, judgment, order or decree or
a breach of any provision contained in Borrower's articles of incorporation or
by-laws, or contained in any agreement, instrument, indenture or other document
to which Borrower is now a party or by which it is bound which violation would
have a material adverse affect on Borrower;
(D) This Agreement and the Ancillary Agreements are and will be the
legal, valid and binding agreements of Borrower enforceable in accordance with
their terms, except as enforcement thereof may be subject to the effect of
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and to general
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principles of equity (regardless of whether such enforcement is sought in a
proceeding in equity or at law);
(E) Borrower's use of the proceeds of any advances made by Lender are,
and will continue to be, legal and proper uses (duly authorized by its board of
directors), in accordance with applicable laws, rules and regulations, as in
effect as of the date hereof;
(F) Borrower has, and is current and in good standing with respect to,
all governmental approvals, permits, certificates, inspections, consents and
franchises necessary to conduct and to continue to conduct its present and
intended business as heretofore conducted by it;
(G) Except as disclosed on Exhibit 9.1(G) attached hereto or in the
Financials, Borrower has no litigation pending, or to the best of its knowledge,
threatened, and no Indebtedness (except for trade payables arising in the
ordinary course of its business since the dates reflected in the Financials) and
has not guaranteed the obligations of any other Person;
(H) Borrower is not a party to any contract or agreement or subject to
any charge, restriction, judgment, decree or order materially and adversely
affecting its business, property, assets, operations or condition, financial or
other, and is not a party to any labor dispute; there are no lockouts, strikes
or walkouts relating to any labor contracts and no such contract is scheduled to
expire during the Term;
(I) Borrower has good, indefeasible and merchantable title to and
ownership of the Collateral, free and clear of all liens, claims, security
interests and other encumbrances, except those of CIT, Lender and those, if any,
described on Exhibit 9.1(I) attached hereto and those described on Exhibit B to
Borrower's Mortgage of even date herewith in favor of Lender;
(J) Except as set forth on Exhibit 9.1(J) attached hereto, Borrower is
not in violation of any applicable statute, rule, regulation or ordinance of any
governmental entity, including, without limitation, the United States of
America, any state, city, town, municipality, county or of any other
jurisdiction, or of any agency thereof, in any respect materially and adversely
affecting the Collateral or Borrower's business, property, assets, operations or
condition, financial or other;
(K) Except as set forth on Exhibit 9.1(K) attached hereto, Borrower is
not in default under any indenture, loan agreement, mortgage, lease, trust deed,
deed of trust or other similar agreement relating to the borrowing of monies to
which it is a party or by which it is bound;
(L) The Financials fairly present the assets, liabilities and financial
condition and results of operations of Borrower and such other Persons described
therein as of the dates thereof; there are no omissions or other facts or
circumstances which are or may be material and there has been no material and
adverse change in the assets, liabilities or financial or
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other condition of Borrower since the date of the Financials; there exist no
equity or long term investments in or outstanding advances to any Person not
reflected in the Financials; there are no actions or proceedings which are
pending or, to the best of Borrower's knowledge, threatened, against Borrower or
any other Person which might result in any material adverse change in Borrower's
financial condition or materially and adversely affect Borrower's operations,
its assets or the Collateral;
(M) Borrower has filed all federal, state and local tax returns and
other reports, or has been included in consolidated returns or reports filed by
an Affiliate, which Borrower is required by law, rule or regulation to file and
all Charges that are due and payable have been paid;
(N) Borrower's execution and delivery of this Agreement and of the
Ancillary Agreements does not directly or indirectly violate or result in a
violation of any applicable laws, rules or regulations;
(O) Borrower's deconsolidation of its Florida subsidiary will have no
impact on Borrower's profit and loss statement for calendar year 1995 and
thereafter as computed under generally accepted accounting principles; and
(P) Except as set forth on Exhibit 9.1(P) attached hereto, (i) the
operations of Borrower comply in all material respects with all applicable
Environmental Laws; (ii) none of the operations of Borrower are subject to any
judicial or administrative proceeding alleging the violation of any
Environmental laws; (iii) none of the operations of Borrower are the subject of
any federal or state investigation evaluating whether any remedial action is
needed to respond to a release of any Hazardous Material into the environment;
(iv) Borrower has not filed any notice under any federal or state law indicating
past or present treatment, storage or disposal of a Hazardous Material or
reporting a spill or release of a Hazardous Material into the environment; and
(v) Borrower does not have any known material contingent liability in connection
with any release of any Hazardous Material into the environment. The
materiality standard used in this Section 9.1(N) shall be exceeded if the facts
giving rise to a breach or breaches of the representations or warranties
contained herein might result in liability in excess of $50,000 in the
aggregate. For purposes of this Section, "Borrower" shall mean Borrower and any
subsidiary or affiliate of Borrower acquired or created after the date of this
Agreement.
Borrower hereby indemnifies Lender, its successors and assignees, and
agrees to hold Lender harmless from and against any and all losses, liabilities,
damages, injuries, costs, expenses and claims of any and every kind whatsoever
(including, without limitation, court costs and attorneys' fees) which at any
time or from time to time may be paid, incurred or suffered by, or asserted
against, Lender for, with respect to, or as a direct or indirect result of the
violation by Borrower, any other obligor or any of Borrower's subsidiaries, of
any laws, including but not limited to, the Environmental Laws or any laws or
regulations relating to Hazardous Material, treatment, storage, disposal,
generation and transportation, air, water and
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noise pollution, soil or ground or water contamination, the handling, storage or
release into the environmental of Hazardous Materials; or with respect to, or as
a direct or indirect result of the presence on or under, or the escape, seepage,
leakage, spillage, discharge, emission or release from, properties utilized by
Borrower, any other obligor or any of Borrower's subsidiaries in the conduct of
their respective business into or upon any land, the atmosphere, or any
watercourse, body of water or wetlands, of any Hazardous Material (including,
without limitation, any losses, liabilities, damages, injuries, costs, expenses
or claims asserted or arising under the Environmental Laws); and the provisions
of and undertakings and indemnification set out in this Section 9.1 shall
survive the satisfaction and payment of the Liabilities and the termination of
this Agreement.
9.2 SURVIVAL OF WARRANTIES AND REPRESENTATIONS. Borrower covenants,
warrants and represents to Lender that all representations and warranties of
Borrower contained in this Agreement and the Ancillary Agreements shall be true
at the time of Borrower's execution of this Agreement and the Ancillary
Agreements, and shall survive the execution, delivery and acceptance hereof and
thereof by the parties thereto and the closing of the transactions described
herein and therein or related hereto or thereto. Borrower and Lender expressly
agree that any misrepresentation or breach of any representation or warranty
whatsoever contained in this Agreement or in any of the Ancillary Agreements
shall be deemed material.
10. COVENANTS AND CONTINUING AGREEMENTS.
10.1 AFFIRMATIVE COVENANTS. Borrower covenants that it shall, unless
Lender consents in writing otherwise:
(A) At its sole cost and expense, keep and maintain the Collateral
insured for its full insurable value against loss or damage by fire, theft,
explosion, sprinklers, flood, business interruption, boiler and all other
hazards and risks which are specified by Lender from time to time by obtaining
policies naming Lender as mortgagee, additional insured and lender loss payee
and which satisfy all terms and conditions of Exhibit 10.1(A) hereto. Lender
reserves the right to change the terms and provisions of Exhibit 10.1(A) from
time to time. In the event of such change, Borrower shall apply for renewal of
all applicable insurance policies upon the terms and conditions of Exhibit
10.1(A) in effect at the time of such renewal application;
(B) Notify Lender promptly of any event or occurrence causing a
material loss or decline in value of the Collateral and the estimated (or
actual, if available) amount of such loss or decline;
(C) Keep books of account and prepare financial statements and furnish
to Lender the following (all of the foregoing and following to be kept and
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with the Financials, unless Borrower's independent certified
public accountants concur in any changes therein and
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such changes are disclosed to Lender and are consistent with then generally
accepted accounting principles):
(i) as soon as available, but not later than ten (10) days
after the date such information must be filed with the Securities and
Exchange Commission, without giving effect to any extension, all reports
filed or required to be filed with the Securities and Exchange Commission,
with all exhibits;
(ii) as soon as available, but not later than sixty (60)
days before the beginning of each fiscal year, a cash flow projection for
such fiscal year, together with appropriate supporting documents reasonably
acceptable to Lender;
(iii) not later than the 10th day of each calendar quarter,
an updated form of the cash flow projection supplied pursuant to Section
10.1(C)(ii) projecting cash flow for the next succeeding 12 month period;
(iv) Exhibit A to the Junior Subordinated Secured Promissory
Note in the manner set forth in the Junior Subordinated Secured Promissory
Note;
(v) Exhibit A to the Income Sharing Agreement in the manner
set forth in the Income Sharing Agreement;
(vi) as soon as available, but not later than the 10th day
of each calendar quarter, information relating to any transfer of
Borrower's Stock, together with an analysis of the impact, if any, of such
charge, upon the amount of net operating loss carryforward available to
Borrower;
(vii) as soon as available, but not less than sixty (60) days
prior to the end of each fiscal year of Borrower, a Budget for the next
fiscal year; and
(viii) such other data and information (financial and other)
as Lender, from time to time, may reasonably request, bearing upon or
related to the Collateral, Borrower's financial condition or results of its
operations, or the financial condition of any Person who is a guarantor of
any of the Liabilities, including, without limitation, Accounts agings,
Accounts Payable agings, and detailed reports of inventory;
(D) Notify Lender, promptly upon, but in no event later than ten (10)
days after, Borrower's learning of (i) any litigation affecting Borrower,
whether or not the claim is considered by Borrower to be covered by insurance;
and (ii) the institution of any suit or administrative proceeding which may
materially and adversely affect the operations, financial condition or business
of Borrower or which may affect Lender's security interest in the Collateral;
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(E) Maintain insurance in the type, amount and form which satisfies the
requirements of Exhibit 10.1(A) hereto, as amended from time to time. In
addition, Borrower will deliver renewals for all of such policies at least
thirty (30) days prior to the expiration date of the subject policy;
(F) Give written notice to Lender of any proposed expenditures not
approved in the Budget;
(G) Give written notice to Lender immediately upon receipt of any
notice that (i) the operations of Borrower, any other obligor or any Affiliate
are not in full compliance with requirements of applicable Environmental Laws;
(ii) Borrower, any other obligor or any Subsidiary is subject to any Federal or
state investigation evaluating whether any remedial action is needed to respond
to the release of any Hazardous Material into the environment; or (iii) any
properties or assets of Borrower, any other obligor or any Subsidiary are
subject to any Environmental Lien;
(H) Without limiting the generality of any of Borrower's other
covenants and agreements, the operations of Borrower, any other obligor and each
of Borrower's Affiliates shall at all times comply in all material respects with
all applicable Environmental Laws. The materiality standard used in this
Section 10.1(H) shall be exceeded if the facts giving rise to a breach or
breaches of the covenant contained herein might result in liability in excess of
$50,000 in the aggregate;
(I) Promptly provide Lender with all documents requested by Lender
which are required from time to time by federal regulations and/or regulators;
and
(J) Provide Lender an opportunity to provide all of Borrower's
financing needs for purposes of providing working capital, financing to effect
an acquisition or otherwise; PROVIDED, HOWEVER Borrower may request that CIT
extend the current loan with CIT upon maturity and PROVIDED, FURTHER that if
another Person commits to provide financing to Borrower (a "Commitment")
Borrower will provide Lender an opportunity to review such request for 5 days
and to provide financing under the terms and conditions contained in the
Commitment. Except as specifically provided in this Section 10.1 (J), Borrower
shall have no obligation to obtain additional credit from Lender.
10.2 NEGATIVE COVENANTS. Borrower covenants that it shall not, without
the written consent of Lender:
(A) Merge or consolidate with, purchase, lease or otherwise acquire all
or substantially all of the assets or properties of, or acquire any capital
stock, equity interests, debt or other securities of, any Person or sell all or
substantially all of its assets to any Person;
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(B) Other than in the ordinary course of its business, acquire,
purchase or make any investment in the obligations, stock securities or equity
of any Person;
(C) Declare or pay dividends upon any of Borrower's Stock or make any
distribution of Borrower's property or assets or make any loans, advances or
extensions of credit to any Person including, without limitation, to any
Affiliate, officer or employee of Borrower, other than with respect to sales in
the ordinary course of Borrower's business;
(D) Enter into, or be a party to, any transaction or agreement, whether
oral or in writing, with any Affiliate, director, officer or Stockholder of
Borrower, except agreements to pay salary and similar compensation to Borrower's
employees in the ordinary course of and pursuant to the reasonable requirements
of Borrower's business and upon fair and reasonable terms which are fully
disclosed to Lender and are no less favorable to Borrower than would obtain in a
comparable arm's length transaction with a Person not an Affiliate, director,
officer or Stockholder of Borrower;
(E) Pay compensation in any form in the aggregate to any current or
former member of Borrower's Board of Directors or officer in any fiscal year in
excess of Two Hundred Thousand Dollars ($200,000), excluding from such limit any
deferred payments made to a board member pursuant to the Standstill Agreements
described in Section 12.1 herein;
(F) Enter into any transaction which materially and adversely affects
the benefit potentially available to Lender under the Income Sharing Agreement,
the Collateral or Borrower's ability to repay the Indebtedness;
(G) Guarantee or otherwise, in any way, become liable with respect to
the obligations or liabilities of any Person;
(H) Except as otherwise expressly permitted herein or in the Ancillary
Agreements, encumber, pledge, mortgage, grant a security interest in, assign,
sell, lease or otherwise dispose of or transfer, whether by sale, merger,
consolidation, liquidation, dissolution, or otherwise, any of Borrower's
properties, assets, rights or businesses or the Collateral;
(I) Incur or otherwise acquire any Indebtedness for borrowed money
(other than the obligations owed to CIT and the Liabilities), except for (i)
trade payables arising in the ordinary course of Borrower's business; (ii)
Indebtedness which is unsecured or secured by assets other than the Collateral
and in each case is to Persons who execute and deliver to Lender (in form and
substance acceptable to Lender and its counsel) subordination agreements
subordinating their claims against Borrower to the payment of the Liabilities;
and (iii) financing provided by others offered to Lender under Section 10.1(I);
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(J) Make Capital Expenditures (excluding therefrom the annual debt
service payments permitted in Section 7.3 hereinbefore) which, in the aggregate,
exceed (i) Two Hundred Fifty Thousand and No/100 Dollars ($250,000) during each
of Borrower's 1996 or 1997 fiscal years and (ii) Five Hundred Thousand Dollars
($500,000) during each of Borrower's fiscal years thereafter;
(K) Expend funds not authorized in the Budget for such fiscal year;
provided, however, that Borrower shall not be deemed to have violated this
Covenant if Borrower's expenditures related to any particular line item in the
Budget are within five percent (5%) of the budgeted amount;
(L) Materially modify, amend or supplement Borrower's Articles of
Incorporation or similar document; and
(M) Enter into any agreement (other than employment agreements) with
any Person that confers upon such Person the right or authority to control or
direct a major portion of the business or assets of Borrower.
10.3 LENDER COVENANTS. Lender covenants and agrees that:
(A) It will agree to consider, on its customary credit terms: (i)
taking out Borrower's current loan with CIT on expiration, and (ii) providing
financing for one or more acquisitions proposed by Borrower. Except as
specifically provided in this Section 10.3 Lender shall have no obligation to
make available any credit facility to Borrower; and
(B) On the Closing Date it shall return to Borrower all promissory
notes, guarantees and other agreements currently in full force and effect
between Borrower, EPR, Inc. and Lender and thereafter agree not to pursue any
claims against EPR, Inc. or Borrower except pursuant to the terms of this
Agreement and the Ancillary Agreements.
10.4 CONTESTING CHARGES. Notwithstanding anything to the contrary
herein, Borrower may dispute any Charges without prior payment thereof, even if
such non-payment may cause a lien to attach to Borrower's assets, provided that
Borrower shall give Lender prompt notice of such dispute and shall be diligently
contesting the same in good faith and by an appropriate proceeding and there is
no danger of a loss or forfeiture of any of the Collateral and provided further
that, if the same are potentially or actually in excess of $50,000 in the
aggregate at any time hereafter, Borrower shall give Lender such additional
collateral and assurances as Lender, in its reasonable discretion, deems
necessary under the circumstances, immediately upon demand by Lender.
10.5 PAYMENT OF CHARGES. Subject to the provisions of Section 10.4,
Borrower shall pay promptly when due all of the Charges. In the event Borrower,
at any time or times hereafter, shall fail to pay the Charges or to promptly
obtain the satisfaction of such Charges, Borrower shall promptly so notify
Lender thereof and Lender may, without waiving or releasing any obligation or
liability of Borrower hereunder or any Unmatured Event of Default or Event of
Default, in its sole discretion, at any time or times thereafter, make such
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payment or any part thereof, (but shall not be obligated so to do) or obtain
such satisfaction and take any other action with respect thereto which Lender
deems advisable. All sums so paid by Lender and any expenses, including
reasonable attorneys' fees, court costs, expenses and other charges relating
thereto, shall be payable by Borrower to Lender upon demand and shall be
additional Liabilities.
10.6 INSURANCE: PAYMENT OF PREMIUMS. Attached here to as
Exhibit 10.6(A) is a true and correct list of all insurance policies on the
Collateral and on Borrower. Borrower shall deliver to Lender the original (or
certified copy) of each policy of insurance and evidence of payment of all
premiums therefor and shall deliver renewals of all such policies to Lender at
least thirty (30) days prior to their expiration dates. Upon the occurrence and
during the continuation of an Event of Default or Unmatured Event of Default,
Borrower irrevocably makes, constitutes and appoints Lender (and all officers,
employees or agents designated by Lender) as Borrower's true and lawful attorney
and agent-in-fact for the purpose of making, settling and adjusting claims under
such policies, endorsing the name of Borrower in writing or by stamp on any
check, draft, instrument or other item of payment for the proceeds of such
policies and for making all determinations and decisions with respect to such
policies. If Borrower shall fail to obtain or to maintain any of the policies
required by this Agreement or to pay any premium relating thereto, then
Lender,without waiving or releasing any obligation or default by Borrower
hereunder, may (but shall be under no obligation to do so) obtain and maintain
such policies of insurance and pay such premiums and take any other action with
respect thereto which Lender deems advisable. All sums so disbursed by Lender,
including reasonable attorneys' fees, court costs, expenses and other charges
relating thereto, shall be payable by Borrower to Lender upon demand and shall
be additional Liabilities.
10.7 SURVIVAL OF OBLIGATIONS UPON TERMINATION OF AGREEMENT. Except as
otherwise expressly provided for in this Agreement and in the Ancillary
Agreements, and except upon Payment in Full by Borrower under this Agreement and
the Ancillary Agreements, no termination or cancellation (regardless of cause or
procedure) of this Agreement or the Ancillary Agreements shall in any way affect
or impair the powers, obligations, duties, rights, and liabilities of Borrower
or Lender in any way or respect relating to any transaction or event occurring
prior to such termination or cancellation, the Collateral, or any of the
undertakings, agreements, covenants, warranties and representations of Borrower
or Lender contained in this Agreement or the Ancillary Agreements. All such
undertakings, agreements, covenants, warranties and representations shall
survive such termination or cancellation.
11. EVENT OF DEFAULT: RIGHTS AND REMEDIES ON EVENT OF DEFAULT.
11.1 EVENT OF DEFAULT. The occurrence and continuation of any one or
more of the following events shall constitute an Event of Default:
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(A) Borrower fails to pay any part of the Liabilities within ten (10)
days after the same shall be due and payable or declared due and payable;
(B) A "Default" or an "Event of Default" occurs pursuant to any
agreement between Borrower and CIT and same is not cured within any applicable
cure period;
(C) Borrower or any Affiliate fails or neglects for a period of thirty
(30) days to perform, keep or observe any other term, provision, condition or
covenant contained in this Agreement or in the Ancillary Agreements, which is
required to be performed, kept or observed by Borrower or such Affiliate if the
same has not been cured within any applicable cure or grace period contained
therein;
(D) (i) a default shall occur under any agreement, document or
instrument, other than this Agreement or any of the Ancillary Agreements, now or
hereafter existing, to which Borrower is a party, if the same has not been cured
within any applicable cure or grace period contained therein, or (ii) any
Indebtedness for money borrowed or credit extended has been accelerated or is
not paid as and when it becomes due and payable if the same has not been cured
within any applicable cure or grace period contained therein;
(E) Any statement, warranty, representation, report, financial
statement, or certificate made or delivered by Borrower, or any of its officers,
employees or agents, to Lender is not true and correct in any material respect;
(F) There shall occur any material uninsured damage to or loss, theft,
or destruction of any of its assets in an amount in excess of $50,000, unless
(i) Borrower is disputing such uninsured damage, loss, theft or destruction,
(ii) Borrower gives Lender prompt notice of such dispute, diligently contests
the same in good faith and by an appropriate proceeding, (iii) there is no
danger of a loss or forfeiture of any of the Collateral and (iv) Borrower shall
give Lender such additional collateral and assurances as Lender, in its
reasonable discretion, deems necessary under the circumstances, immediately upon
demand by Lender;
(G) The Collateral or any of Borrower's other assets are attached,
seized, levied upon or subjected to a writ or distress warrant, or come within
the possession of any receiver, trustee, custodian or assignee for the benefit
of creditors and the same is not cured within forty-five (45) days thereafter;
an application of a receiver, trustee, or custodian for any of the Collateral or
any of Borrower's other assets and the same is not dismissed within forty-five
(45) days after the application therefor;
(H) An application is made by Borrower for the appointment of a
receiver, trustee or custodian for any of the Collateral or any of Borrower's
other assets; a petition under any section or chapter of the Bankruptcy Code or
any similar law or regulation is filed by or against Borrower and is not
dismissed within sixty (60) days after filing; Borrower makes an assignment for
the benefit of its creditors or any case or proceeding is filed by or against
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Borrower for its dissolution, liquidation, or termination and is not dismissed
within sixty (60) days; Borrower ceases to conduct its business as now conducted
or is enjoined, restrained or in any way prevented by court order from
conducting all or any material party of its business affairs; provided, however,
notwithstanding anything stated to the contrary in this paragraph no cure time
is allowed or permitted Borrower upon the happening of any of the foregoing
events or occurrences stated in this Section 11.1(H) if the same are the
voluntary actions taken by Borrower;
(I) Except as permitted in Section 11.1(G), a notice of lien, levy or
assessment is filed of record with respect all or any substantial portion of
Borrower's assets by the United States, or any department, agency or
instrumentality thereof, or by any state, county, municipal or other
governmental agency including, without limitation, the Pension Benefit Guaranty
Corporation, or any taxes or debts owing to any of the foregoing becomes a lien
or encumbrance upon the Collateral or any of Borrower's other assets and such
lien or encumbrance is not released within forty-five (45) days after its
creation;
(J) Judgment(s) is or are rendered against Borrower in excess of
$25,000 and Borrower fails to commence appropriate proceedings to appeal such
judgment within the applicable appeal period or, after such appeal is filed,
Borrower fails to diligently prosecute such appeal or such appeal is denied;
(K) Borrower fails generally to pay its debts as they become due; or
(L) If any material adverse change in the business or financial
condition of Borrower occurs, or if any event that materially increases Lender's
risk or materially impairs the Collateral occurs.
11.2 ACCELERATION OF THE LIABILITIES. Upon and after the occurrence of
an Event of Default, all or any portion of the Liabilities may, at the option of
Lender and without demand, notice, or legal process of any kind, be declared,
and immediately shall become, due and payable; provided, however, that Borrower
may not accelerate the sums owing under the Income Sharing Agreement -- it being
the intention of the parties hereto that such sums shall continue to be due in
accordance with the payment terms contained in the Income Sharing Agreement and
such obligations shall continue to be secured by the Collateral until the
earlier of (i) all obligations under the Income Sharing Agreement are Paid In
Full or (ii) December 31, 2010.
11.3 REMEDIES. Upon and after the occurrence of an Event of Default,
Lender shall have all of the following rights and remedies:
(A) All of the rights and remedies of a secured party under the
Illinois Uniform Commercial Code or other applicable law, all of which rights
and remedies shall be cumulative, and none exclusive, to the extent permitted by
law, and in addition to any other rights and remedies contained in this
Agreement and in any of the Ancillary Agreements;
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(B) The right to (i) peacefully enter upon the premises of Borrower or
any other place or places where the Collateral is located and kept, without any
obligation to pay rent to Borrower through self-help and without judicial
process or first obtaining a final judgment or giving Borrower notice and
opportunity for a hearing on the validity of Lender's claim, and remove the
Collateral from such premises and places to the premises of Lender or any agent
of Lender, for such time as Lender may require to collect or liquidate the
Collateral, and/or (ii) require Borrower to assemble and deliver the Collateral
to Lender at a place to be designated by Lender;
(C) The right to (i) open Borrower's mail and collect any and all
amounts due from Account Debtors provided that Lender forwards such mail to
Borrower, (ii) notify Account Debtors that the Accounts have been assigned to
Lender and that Lender has a security interest therein and (iii) direct such
Account Debtors to make all payments due from them upon the Accounts, including
the Special Collateral, directly to Lender or to a lock box designated by
Lender. Lender shall promptly furnish Borrower with a copy of any such notice
sent and Borrower hereby agrees that any such notice in Lender's sole
discretion, may be sent on Lender's stationery, in which event, Borrower shall,
upon demand, co-sign such notice with Lender; and
(D) The right to sell, lease or to otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as
provided in Section 11.4, in lots or in bulk, for cash or on credit, all as
Lender, in its sole discretion, may deem advisable. At any such sale or sales
of the Collateral, the Collateral need not be in view of those present and
attending the sale, nor at the same location at which the sale is being
conducted. Lender shall have the right to conduct such sales on Borrower's
premises or elsewhere and shall have the right to use Borrower's premises
without charge for such sales for such time or times as Lender may see it.
Lender hereby is granted a license or other right to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks and advertising matter, or any property of a
similar nature, as it pertains to the Collateral, in advertising for sale and
selling any Collateral and Borrower's rights under all licenses and all
franchise agreements shall inure to Lender's benefit but Lender shall have no
obligations thereunder. Lender may purchase all or any part of the Collateral
at public or, if permitted by law, private sale and, in lieu of actual payment
of such purchase price, may set off the amount of such price against the
Liabilities. The proceeds realized from the sale of any Collateral shall be
applied first to the reasonable costs, expenses and attorneys' and paralegals'
fees and expenses incurred by Lender for collection and for acquisition,
completion, protection, removal, storage, sale and delivery of the Collateral;
second to interest due upon any of the Liabilities; and third to the principal
of the Liabilities. Lender shall account to Borrower for any surplus. If any
deficiency shall arise, Borrower shall remain liable to Lender therefor.
11.4 NOTICE. Borrower agrees that any notice required to be given by
Lender of a sale, lease, other disposition of any of the Collateral or any other
intended action by Lender,
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which is personally delivered to Borrower or which is deposited in the United
States mail, postage prepaid and duly addressed to Borrower at the address set
forth in Section 13.10, at least ten (10) days prior to any such public sale,
lease or other disposition or other action being taken, or the time after which
any private sale of the Collateral is to be held, shall constitute commercially
reasonable and fair notice thereof to Borrower.
12. CONDITIONS PRECEDENT TO AGREEMENT.
12.1 The obligation of Lender to enter into this Agreement is subject to
the condition precedent that, Lender shall have received the following, duly
executed in form and substance satisfactory to Lender:
(A) This Agreement;
(B) A Senior Subordinated Secured Note in the original face amount of
$2,780,000 duly executed by Borrower, payable to the order of Lender in the form
of Exhibit 2.1(A) hereto;
(C) A Junior Subordinated Secured Note in the original face amount of
$1,000,000, duly executed by Borrower, payable to the order of Lender in the
form of Exhibit 2.1(B) hereto;
(D) An Income Sharing Agreement, in the form of Exhibit 2.1(C) hereto,
duly executed by Borrower and Lender;
(E) An Intercreditor and Subordination Agreement, in the form of
Exhibit 12.1(E) hereto, duly executed by Borrower, CIT and Lender;
(F) A Release, in the form of Exhibit 12.1(F) hereto, duly executed by
Borrower and EPR, Inc.;
(G) A Mortgage, in the form of Exhibit 12.1(G) hereto, duly executed by
Borrower and recorded in the recorder's office of the county in which the Real
Property is located;
(H) A Mortgagee's title insurance policy acceptable to Lender;
(I) A Standstill Agreement by any current or former member of
Borrower's Board of Directors holding more than 5% of Borrower's Stock, in the
form of Exhibit 12.1(I) hereto;
(J) A Standstill Agreement executed by James Taylor in the form of
Exhibit 12.1(I) hereto;
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(K) A Standstill Agreement executed by Edward E. Strickland in the form
of Exhibit 12.1(I) hereto;
(L) An acknowledgement by any bank or financial institution holding any
funds or negotiable instruments of Borrower in which Borrower or CIT has or may
have an interest that such bank or financial institution is holding such funds
or negotiable instruments for Lender's benefit and to perfect Lender's security
interest therein;
(M) UCC-1 and UCC-2 Financing Statements, as appropriate, duly executed
by Borrower, as Debtor, in favor of Lender, as Secured Party, in the
jurisdiction in which Borrower maintains its chief executive office and in each
other jurisdiction in which Borrower conducts its business operations and/or
maintains Collateral;
(N) UCC/Tax/Judgment Lien Search Reports dated not later than 30 days
prior to the Closing Date with respect to Borrower, together with duly executed
releases and/or termination statements of entities other than CIT as Lender may
request;
(O) Certificate of the Secretary of Borrower as to Officers and
Directors, Directors' Resolutions and miscellaneous matters dated not later than
30 days prior to the Closing Date;
(P) Favorable opinions of counsel for Borrower as to such matters as
Lender may reasonably request;
(Q) Certified copies of all policies (unless Lender is willing to
accept Certificate(s) of Insurance) in respect of all property, casualty,
liability and other insurance maintained by Borrower in respect to the
Collateral or otherwise in respect to its business, together with loss payable
and other endorsements acceptable as to form and substance to Lender;
(R) A Budget for the period January 1 through December 31, 1996
certified by an officer of Borrower as to the Closing Date;
(S) Schedule of Equipment certified by an officer of Borrower as to the
Closing Date;
(T) A fully executed escrow agreement, substantially in the form of
Exhibit 12.1(T) attached hereto;
(U) Payments by Borrower of legal, professional and appraisal fees in
the amount of $13,500;
(V) Payments by Borrower of accrued interest of $13,000; and
(W) Such other opinions, documents, assignments, certificates or
approvals as Lender reasonably may request.
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All of the foregoing shall be in form and substance reasonably acceptable
to Lender and its counsel.
12.2 The obligation of Lender to enter into this Agreement is subject to
the further condition precedent that all proceedings taken in connection with
the transaction contemplated by this Agreement, and all instruments,
authorizations and other documents applicable thereto, shall be satisfactory in
form and substance to Lender and its counsel.
13. MISCELLANEOUS.
13.1 APPOINTMENT OF LENDER AS BORROWER'S LAWFUL ATTORNEY-IN-FACT.
Borrower, irrevocably designates, makes, constitutes and appoints Lender (and
all persons designated by Lender) as Borrower's true and lawful attorney and
agent in-fact and Lender, or Lender's agent, may, without notice to Borrower:
(A) At any time after the occurrence of an Event of Default, in
Borrower's or Lender's name: (i) demand payment of the Collateral; (ii) enforce
payment of the Collateral, by legal proceedings or otherwise; (iii) exercise all
of Borrower's rights and remedies with respect to the collection of the
Collateral; (iv) settle, adjust, compromise, extend or renew the Accounts and
the Special Collateral; (v) settle, adjust or compromise any legal proceedings
brought to collect the Collateral; (vi) if permitted by applicable law, sell or
assign the Collateral upon such terms, for such amounts and at such time or
times as Lender deems advisable; (vii) satisfy and release the Accounts and
Special Collateral; (viii) take control, in any manner, of any item of payment
or proceeds referred to in Section 4.1; (ix) prepare, file and sign Borrower's
name on any proof of claim in Bankruptcy or similar document against any Account
Debtor; (x) prepare, file and sign Borrower's name on any notice of lien,
assignment or satisfaction of lien or similar document in connection with the
Collateral; (xi) do all acts and things necessary, in Lender's sole discretion,
to fulfill Borrower's obligations under this Agreement; and (xii) endorse by
writing or stamp the name of Borrower upon any chattel paper, document,
instrument, invoice, freight bill, bill of lading or similar information
recorded on or contained in any data processing equipment and computer hardware
and software relating to the Collateral to which Borrower has access; and
(B) At any time after the occurrence of an Event of Default, notify the
post office authorities to change the address for delivery of Borrower's mail to
an address designated by Lender and receive, open and dispose of all mail
addressed to Borrower.
13.2 MODIFICATION OF AGREEMENT: SALE OF INTEREST. This Agreement and
the Ancillary Agreements may not be modified, altered or amended, except by an
agreement in writing signed by Borrower and Lender. Borrower may not sell,
assign or transfer this Agreement or the Ancillary Agreements or any portion
hereof or thereof, including, without limitation, Borrower's right, title,
interest, remedies, powers, or duties hereunder or thereunder. Borrower hereby
consents to Lender's participation, sale, assignment, transfer or
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other disposition, at any time or times hereafter, of this Agreement or the
Ancillary Agreements or of any portion hereof or thereof, including, without
limitation, Lender's right, title, interest, remedies, powers, or duties
hereunder or thereunder.
13.3 ATTORNEYS' FEES AND EXPENSES: LENDER'S OUT-OF-POCKET EXPENSES.
If, at any time or times, whether prior to or subsequent to the date hereof and
regardless of the existence of an Unmatured Event of Default or an Event of
Default, Lender incurs legal or other costs and expenses or employs counsel,
accountants or other professionals for advice or other representation or
services in connection with:
(A) The preparation, negotiation and execution of this Agreement, all
Ancillary Agreements, and any amendment of or modification of this Agreement or
the Ancillary Agreements or any sale or attempted sale of any interest herein to
a Participant;
(B) Any litigation, contest, dispute, suit, proceeding or action
(whether instituted by Lender, Borrower or any other Person) in any way relating
to the Collateral, this Agreement, the Ancillary Agreements or Borrower's
affairs;
(C) Any attempt to enforce any rights of Lender or any Participant
against Borrower or any other Person which may be obligated to Lender or such
Participant by virtue of this Agreement or the Ancillary Agreements, including,
without limitation, the Account Debtors;
(D) Any attempt to inspect, verify, protect, collect, sell, liquidate
or otherwise dispose of any of the Collateral; or
(E) Any inspection, verification, protection, collection, sale,
liquidation or other disposition of any of the Collateral, including without
limitation, Lender's periodic or special audits of Borrower's books and records;
then in any such event, the reasonable attorneys' and paralegals' fees and
expenses arising from such services and all reasonably incurred expenses, costs,
charges and other fees of or paid by Lender in any way or respect arising in
connection with or relating to any of the events or actions described in this
Section 13.3 shall be payable by Borrower to Lender upon demand and shall be
additional Liabilities. Without limiting the generality of the foregoing, such
reasonable expenses, costs, charges and fees may include accountants' fees,
costs and expenses; court costs, fees and expenses; photocopying and duplicating
expenses; court reporter fees, costs and expenses; long distance telephone
charges; air express charges; telegram charges; and expenses for travel, lodging
and food paid or incurred in connection with the performance of all such
services.
13.4 NO WAIVER BY LENDER. Lender's failure, at any time or times
hereafter, to require strict performance by Borrower of any provision of this
Agreement or of any Ancillary Agreement shall not constitute a waiver, or affect
or diminish any rights of Lender
-27-
<PAGE>
thereafter to demand strict compliance and performance therewith. Any
suspension or waiver by Lender of an Unmatured Event of Default or Event of
Default under this Agreement or any Ancillary Agreement shall not suspend, waive
or affect any other Unmatured Event of Default or Event of Default under this
Agreement or the Ancillary Agreements, whether the same is prior or subsequent
thereto and whether of the same or of a different type. None of the
undertakings, agreements, warranties, covenants and representations of Borrower
contained in this Agreement or the Ancillary Agreements and no Unmatured Event
of Default or Event of Default under this Agreement or the Ancillary Agreements
shall be deemed to have been suspended or waived by Lender, unless such
suspension or waiver is by an instrument in writing signed by an officer of
Lender and directed to Borrower specifying such suspension or waiver.
13.5 SEVERABILITY. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
13. PARTIES; ENTIRE AGREEMENT. This Agreement and the Ancillary
Agreements shall be binding upon and inure to the benefit of the respective
successors and assigns of Borrower and Lender. Borrower's successors and
assigns shall include, without limitation, a trustee, receiver or debtor-in-
possession of or for Borrower. Nothing contained in this Section 13.6 shall be
deemed to modify Section 13.2. This Agreement is the complete statement of the
agreement by and between Borrower and Lender and supersedes all prior
negotiations, understandings and representations between them with respect to
the subject matter of this Agreement.
13.7 CONFLICT OF TERMS. The provisions of the Ancillary Agreements are
incorporated in this Agreement by this reference. Except as otherwise provided
in this Agreement and except as otherwise provided in the Ancillary Agreements
by specific reference to the applicable provision of this Agreement, if any
provision contained in this Agreement is in conflict with, or inconsistent with,
any provision in any Ancillary Agreement, the provision contained in this
Agreement shall govern and control.
13.8 WAIVER BY BORROWER. Except as otherwise provided for in this
Agreement, Borrower waives (i) presentment, demand and protest, notice of
protest, notice of presentment, default, non-payment, maturity, release,
compromise, settlement, extension or renewal of any or all commercial paper,
accounts, contract rights, documents, instruments, chattel paper and guaranties
at any time held by Lender on which Borrower may in any way be liable and hereby
ratifies and confirms whatever Lender may do in this regard; (ii) except as
otherwise provided herein, all rights to notice and a hearing prior to Lender's
taking possession or control of, or to Lender's replevy, attachment or levy upon
the Collateral or any bond or security which might be required by any court
prior to allowing Lender to exercise any of Lender's remedies; and (iii) the
benefit of all valuation, appraisement, extension and
-28-
<PAGE>
exemption laws. Borrower acknowledges that is has been advised by its own
counsel with respect to this Agreement and the transactions evidenced by this
Agreement.
13.9 GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT HAS BEEN
DELIVERED FOR ACCEPTANCE BY LENDER IN CHICAGO, ILLINOIS AND SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS
OF LAW PROVISIONS) OF THE STATE OF ILLINOIS. BORROWER HEREBY (i) WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION TO ENFORCE OR DEFEND ANY MATTER ARISING
FROM OR RELATED TO THIS AGREEMENT; (ii) SUBMITS TO THE JURISDICTION OF ANY STATE
OR FEDERAL COURT LOCATED IN COOK COUNTY, ILLINOIS, OVER ANY ACTION OR PROCEEDING
TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS AGREEMENT;
(iii) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT BORROWER MAY EFFECTIVELY DO SO,
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR
PROCEEDING; (iv) AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTIONS BY SUIT ON
THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW; AND (v) AGREES NOT TO
INSTITUTE ANY LEGAL ACTION OR PROCEEDING AGAINST LENDER OR ANY OF LENDER'S
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTY, CONCERNING ANY MATTER
ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY COURT OTHER THAN ONE LOCATED
IN COOK COUNTY, ILLINOIS. NOTHING IN THIS SECTION 13.9 SHALL AFFECT OR IMPAIR
LENDER'S RIGHT TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR LENDER'S
RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR BORROWER'S PROPERTY
IN THE COURTS OF ANY OTHER JURISDICTION. LENDER HEREBY WAIVES ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR
RELATED TO THIS AGREEMENT.
13.10 NOTICE. Except as otherwise expressly provided for herein, any and
all notices given in connection with this Agreement shall be deemed adequately
given only if in writing and addressed to the party for whom such notices are
intended at the address set forth below. All notices shall be sent by personal
delivery, Federal Express or other overnight messenger service, first class
registered or certified mail, postage prepaid, return receipt requested,
facsimile transmission with a duplicate copy sent contemporaneously by U.S.
Mail, or by other means at least as fast and reliable as first class mail. A
written notice shall be deemed to have been given to the recipient party on the
earlier of (a) the date it shall be delivered to the address required by this
Agreement; (b) the date delivery shall have been refused at the address required
by this Agreement; or (c) with respect to notices sent by mail, the date as of
which the postal service shall have indicated such notice to be undeliverable at
the address required by this Agreement. Any and all notices referred to in this
Agreement, or which either party desires to give to the other, shall be
addressed as follows:
(a) If to Lender, at: Sanwa Business Credit Corporation
One South Wacker Drive
Chicago, Illinois 60606
Attn: Thomas P. Guido, Group Vice President
Fax: (312) 782-6486
-29-
<PAGE>
with a copy to: Richard G. Smolev, Esq.
Sachnoff & Weaver, Ltd.
30 South Wacker Drive
Chicago, Illinois 60606
Fax: (312) 207-6400
If to Borrower, at: Reuter Manufacturing, Inc.
410 Eleventh Avenue South
Hopkins, Minnesota 55343
Attn: James Taylor, President and
Chief Executive Officer
Fax: (612) 935-7798
with a copy to: Hart Kuller, Esq.
Winthrop & Weinstine, P.A.
3200 Minneapolis World Trade Center
30 East Seventh Street
St. Paul, Minnesota 55101
Fax: (612) 292-9347
The above addresses may be changed by notice of such changed, mailed as
provided herein, to the last address designated.
13.11 SECTION TITLES, ETC. The section titles and table of contents, if
any, contained in this Agreement are and shall be without substantive meaning or
content of any kind whatsoever and are not a part of the agreement between the
parties hereto. All references herein to Sections, paragraphs, clauses and
other subdivisions refer to the corresponding Sections, paragraphs, clauses and
other subdivisions of this Agreement; and the words "herein", "hereof",
"hereby", "hereto", "hereunder", and words of similar import refer to this
Agreement as a whole and not to any particular Section, paragraph, clause or
subdivision hereof. All Exhibits which are referred to herein or attached
hereto are hereby incorporated by reference.
13.12 REPRESENTATION BY COUNSEL. Borrower hereby represents that it has
been represented by competent counsel of its choice in the negotiation and
execution of this Agreement and the Ancillary Agreements; that it has read and
fully understood the terms hereof and intends to be bound hereby. This
Agreement has been thoroughly reviewed by counsel for Borrower and in the event
of an ambiguity or conflict in the terms hereof, there shall be no presumption
against Lender as the drafter hereof.
-30-
<PAGE>
13.13 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original agreement, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
specified at the beginning hereof.
REUTER MANUFACTURING, INC.
By: /s/ James W. Taylor
-------------------------------------
Name: James W. Taylor
-----------------------------------
Title: President
----------------------------------
SANWA BUSINESS CREDIT CORPORATION
By: /s/ Thomas P. Guido
-------------------------------------
Name: Thomas P. Guido
Title: Group Vice President
-31-
<PAGE>
THE SECURITY FOR THE PAYMENT OF THIS INSTRUMENT, BOTH PRINCIPAL AND
INTEREST, AND ALL OTHER INDEBTEDNESS EVIDENCED HEREBY, IS SUBJECT TO
THE PRIOR RIGHTS OF THE CIT GROUP/COMMERCIAL FINANCE, INC., ITS
SUCCESSORS AND ASSIGNS, IN THE MANNER AND TO THE EXTENT SET FORTH IN A
CERTAIN INTERCREDITOR AND SUBORDINATION AGREEMENT DATED AS OF DECEMBER
31, 1995, WHICH AGREEMENT IS INCORPORATED HEREIN BY REFERENCE.
SENIOR SUBORDINATED SECURED
PROMISSORY NOTE
---------------
$2,780,000.00 December 31, 1995
Chicago, Illinois
FOR VALUE RECEIVED, REUTER MANUFACTURING, INC., a corporation organized
under the laws of the State of Minnesota ("Borrower"), promises to pay to the
order of SANWA BUSINESS CREDIT CORPORATION, its successors, designees or assigns
("Lender"), at its offices at One South Wacker Drive, Chicago, Illinois, or at
such other place or places as Lender may from time to time designate in writing,
the principal sum of Two Million Seven Hundred Eighty Thousand and No/100
Dollars ($2,780,000.00), payable as follows: twelve (12) consecutive quarterly
principal payments of Seventy Five Thousand Dollars ($75,000.00) each commencing
December 31, 1996, together with interest payable monthly in arrears commencing
on January 31, 1996 on the principal balance from time to time remaining unpaid,
followed by a final installment on December 31, 1999 of an amount equal to the
then unpaid principal balance, plus all accrued and unpaid interest, plus any
and all outstanding costs and expenses due hereunder. For purposes hereof,
payments under the Note shall be applied in the following order: (i) Lender's
fees and costs hereunder; (ii) accrued and unpaid interest; and (iii) principal.
Notwithstanding the foregoing amortization schedule, all outstanding principal,
interest, costs and expenses due hereunder shall be paid to Lender upon
termination of any loan agreement between Borrower and Lender.
This Note is referred to in and was executed and delivered pursuant to that
certain Loan and Security Agreement of even date herewith between Borrower and
Lender (as amended, restated supplemented or modified from time to time, the
"Loan Agreement"), to which reference is hereby made for a statement of the
terms and conditions under which the loans evidenced hereby are to be repaid and
for a statement of remedies upon the occurrence of an "Event of Default" as
defined therein. The Loan Agreement is incorporated herein by reference in its
entirety. All terms which are capitalized and used herein (which are not
otherwise specifically defined herein) and which are defined in the Loan
Agreement shall be used in this Note as defined in the Loan Agreement.
Borrower further promises to pay to Lender interest on the outstanding
unpaid principal amount hereof at the rate of 8% of per annum from the date
hereof until payment in full hereof
<PAGE>
as determined in accordance with the Loan Agreement; provided, however, that,
upon the occurrence and during the continuance of an Event of Default, Borrower
promises to pay to Lender interest on the unpaid principal amount hereof at to
the Default Rate applicable to the Liabilities evidenced by this Note as
determined in accordance with the Loan Agreement. Interest shall be computed on
the basis of a 360-day year for the actual number of days elapsed. In no
contingency or event whatsoever shall the rate of interest paid by Borrower
under this Note exceed the maximum amount permissible under any law which a
court of competent jurisdiction shall, in a final determination, deem applicable
hereto. In the event that such a court determines that Lender has received
interest hereunder in excess of the maximum amount permitted by such law,
(i) Lender shall apply such excess to any unpaid principal owed by Borrower to
Lender or, if the amount of such excess exceeds the unpaid balance of such
principal, Lender shall promptly refund such excess interest to Borrower and
(ii) the provisions hereof shall be deemed amended to provide for such
permissible rate.
Borrower shall have the right to prepay this Note without penalty upon not
less than five (5) days' advance written notice to Lender.
This Note is secured by (a) the Loan Agreement and certain Ancillary
Agreements and Security Documents (as such terms are defined in the Loan
Agreement), and (b) all security interests, liens and encumbrances heretofore,
now or hereafter granted to Lender by Borrower.
Except as otherwise provided in the Loan Agreement, Borrower waives
presentment, demand and protest, notice of protest, notice of presentment and
all other notices and demands in connection with the enforcement of Lender's
rights hereunder, except as specifically provided and called for by this Note or
the Loan Agreement, and hereby consents to, and waives notice of the release,
addition, or substitution, with or without consideration, of any collateral or
of any person liable for payment of this Note. Any failure of Lender to
exercise any right available hereunder or otherwise shall not be construed as a
waiver of the right to exercise the same or as a waiver of any other right at
any other time.
Whenever in this Note reference is made to Lender or Borrower, such
reference shall be deemed to include, as applicable, a reference to their
respective successors and assigns and, in the case of Lender, any participants
to which it has sold or assigned any interest. The provisions of this Note
shall be binding upon and shall inure to the benefit of such successors, assigns
and participants. Borrower's successors and assigns shall include without
limitation, a receiver, trustee or debtor in possession of or for Borrower.
THE LOAN EVIDENCED HEREBY HAS BEEN MADE, AND THIS NOTE HAS BEEN DELIVERED,
AT CHICAGO, ILLINOIS AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE
OF ILLINOIS. BORROWER HEREBY (i) WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY
ACTION TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS NOTE;
(ii) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT
LOCATED IN COOK COUNTY, ILLINOIS, OVER ANY ACTION OR PROCEEDING TO ENFORCE OR
DEFEND ANY MATTER ARISING FROM OR RELATING TO THIS NOTE, THE LOAN AGREEMENT, THE
ANCILLARY
-2-
<PAGE>
AGREEMENTS OR THE SECURITY DOCUMENTS; (iii) IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT BORROWER MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO
THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING; (iv) AGREES THAT A FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON THE JUDGMENT OR IN ANY OTHER
MANNER PROVIDED BY LAW; AND (v) AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR
PROCEEDING AGAINST LENDER OR ANY OF LENDER'S DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS OR PROPERTY, CONCERNING ANY MATTER ARISING OUT OF OR RELATING TO THIS
NOTE, THE LOAN AGREEMENT, THE ANCILLARY AGREEMENTS OR THE SECURITY DOCUMENTS IN
ANY COURT OTHER THAN ONE LOCATED IN COOK COUNTY, ILLINOIS. NOTHING IN THIS
PARAGRAPH SHALL AFFECT OR IMPAIR LENDER'S RIGHT TO SERVE LEGAL PROCESS IN ANY
MANNER PERMITTED BY LAW OR LENDER'S RIGHT TO BRING ANY ACTION OR PROCEEDING
AGAINST BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
Wherever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited by or invalid under such law, such provision
shall be ineffective to the extent of such prohibition or provision invalidity,
without invalidating the remainder of or the remaining such provisions of this
Note.
REUTER MANUFACTURING, INC.
By:/s/ James W. Taylor
-------------------------------
Name: James W. Taylor
----------------------------
Its: President
-----------------------------
-3-
<PAGE>
THE SECURITY FOR THE PAYMENT OF THIS INSTRUMENT, BOTH PRINCIPAL AND
INTEREST, AND ALL OTHER INDEBTEDNESS EVIDENCED HEREBY, IS SUBJECT TO
THE PRIOR RIGHTS OF THE CIT GROUP/COMMERCIAL FINANCE, INC., ITS
SUCCESSORS AND ASSIGNS, IN THE MANNER AND TO THE EXTENT SET FORTH IN A
CERTAIN INTERCREDITOR AND SUBORDINATION AGREEMENT DATED DECEMBER 31,
1995, WHICH AGREEMENT IS INCORPORATED HEREIN BY REFERENCE.
JUNIOR SUBORDINATED SECURED
PROMISSORY NOTE
---------------
$1,000,000.00 December 31, 1995
Chicago, Illinois
FOR VALUE RECEIVED, REUTER MANUFACTURING, INC., a corporation organized
under the laws of the State of Minnesota ("Borrower"), promises to pay to the
order of SANWA BUSINESS CREDIT CORPORATION, its successors, designees or assigns
("Lender"), at its offices at One South Wacker Drive, Chicago, Illinois, or at
such other place or places as Lender may from time to time designate in writing,
the principal sum of One Million Dollars ($1,000,000.00) with interest payable
on the principal balance from time to time remaining unpaid. Principal and
interest due hereunder shall be payable quarterly, and shall be payable on a
mandatory basis out of Borrower's Excess Cash (defined herein). For purposes of
this Junior Subordinated Secured Promissory Note, "Excess Cash" shall mean the
mathematical result from the equation set forth on Exhibit A attached hereto and
made a part hereof. Excess Cash shall be: (i) reported to Lender on the form
attached hereto as Exhibit A and (ii) computed and paid to Lender quarterly,
within 30 days of the end of each calendar quarter, commencing on April 30,
1996. Payments of Excess Cash made pursuant to the preceding provision shall be
subject to a final adjustment which shall occur annually, which adjustment
calculation and payment to Lender (if any) shall be made within 30 days of
Borrower's receipt of its annual audited financial statement. In the event that
the final annual adjustment results in amounts due Borrower from Lender, Lender
shall address said amount by crediting said amount against Borrower's next
quarterly payments due hereunder. Payments of Excess Cash shall be applied in
the following order: (i) Lender's fees and costs hereunder; (ii) accrued and
unpaid interest and (iii) principal. Notwithstanding the foregoing, all
outstanding principal, interest, costs and expenses due hereunder shall be paid
to Lender upon the first to occur of: (i) termination of any loan agreement
between Borrower and Lender; or (ii) December 31, 1999.
This Note is referred to in and was executed and delivered pursuant to that
certain Loan and Security Agreement of even date herewith between Borrower and
Lender (as amended, restated supplemented or modified from time to time, the
"Loan Agreement"), to which reference is hereby made for a statement of the
terms and conditions under which the loans evidenced
<PAGE>
hereby are to be repaid and for a statement of remedies upon the occurrence of
an "Event of Default" as defined therein. The Loan Agreement is incorporated
herein by reference in its entirety. All terms which are capitalized and used
herein (which are not otherwise specifically defined herein) and which are
defined in the Loan Agreement shall be used in this Note as defined in the Loan
Agreement.
Borrower further promises to pay to Lender interest on the outstanding
unpaid principal amount hereof at the rate of 8% per annum, payable at the time
and in the manner set forth above from the date hereof until payment in full
hereof as determined in accordance with the Loan Agreement; provided, however,
that, upon the occurrence and during the continuance of an Event of Default,
Borrower promises to pay to Lender interest on the unpaid principal amount
hereof at to the Default Rate applicable to the Liabilities evidenced by this
Note as determined in accordance with the Loan Agreement. Interest shall be
computed on the basis of a 360-day year for the actual number of days elapsed.
In no contingency or event whatsoever shall the rate of interest paid by
Borrower under this Note exceed the maximum amount permissible under any law
which a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that such a court determines that Lender has
received interest hereunder in excess of the maximum amount permitted by such
law, (i) Lender shall apply such excess to any unpaid principal owed by Borrower
to Lender or, if the amount of such excess exceeds the unpaid balance of such
principal, Lender shall promptly refund such excess interest to Borrower and
(ii) the provisions hereof shall be deemed amended to provide for such
permissible rate.
Borrower shall have the right to prepay this Note without penalty upon not
less than five (5) days' advance written notice to Lender.
This Note is secured by (a) the Loan Agreement and certain Ancillary
Agreements and Security Documents (as such terms are defined in the Loan
Agreement), and (b) all security interests, liens and encumbrances heretofore,
now or hereafter granted to Lender by Borrower.
Except as otherwise provided in the Loan Agreement, Borrower waives
presentment, demand and protest, notice of protest, notice of presentment and
all other notices and demands in connection with the enforcement of Lender's
rights hereunder, except as specifically provided and called for by this Note or
the Loan Agreement, and hereby consents to, and waives notice of the release,
addition, or substitution, with or without consideration, of any collateral or
of any person liable for payment of this Note. Any failure of Lender to
exercise any right available hereunder or otherwise shall not be construed as a
waiver of the right to exercise the same or as a waiver of any other right at
any other time.
Whenever in this Note reference is made to Lender or Borrower, such
reference shall be deemed to include, as applicable, a reference to their
respective successors and assigns and, in the case of Lender, any Participants
to which it has sold or assigned any interest. The provisions of this Note
shall be binding upon and shall inure to the benefit of such successors, assigns
and Participants. Borrower's successors and assigns shall include without
limitation, a receiver, trustee or debtor in possession of or for Borrower.
-2-
<PAGE>
THE LOAN EVIDENCED HEREBY HAS BEEN MADE, AND THIS NOTE HAS BEEN DELIVERED,
AT CHICAGO, ILLINOIS AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE
OF ILLINOIS. BORROWER HEREBY (I) WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY
ACTION TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS NOTE;
(II) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT
LOCATED IN COOK COUNTY, ILLINOIS, OVER ANY ACTION OR PROCEEDING TO ENFORCE OR
DEFEND ANY MATTER ARISING FROM OR RELATING TO THIS NOTE, THE LOAN AGREEMENT, THE
ANCILLARY AGREEMENTS OR THE SECURITY DOCUMENTS; (III) IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT BORROWER MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING; (IV) AGREES THAT A
FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON THE JUDGMENT OR IN ANY OTHER
MANNER PROVIDED BY LAW; AND (V) AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR
PROCEEDING AGAINST LENDER OR ANY OF LENDER'S DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS OR PROPERTY, CONCERNING ANY MATTER ARISING OUT OF OR RELATING TO THIS
NOTE, THE LOAN AGREEMENT, THE ANCILLARY AGREEMENTS OR THE SECURITY DOCUMENTS IN
ANY COURT OTHER THAN ONE LOCATED IN COOK COUNTY, ILLINOIS. NOTHING IN THIS
PARAGRAPH SHALL AFFECT OR IMPAIR LENDER'S RIGHT TO SERVE LEGAL PROCESS IN ANY
MANNER PERMITTED BY LAW OR LENDER'S RIGHT TO BRING ANY ACTION OR PROCEEDING
AGAINST BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
Wherever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited by or invalid under such law, such provision
shall be ineffective to the extent of such prohibition or provision invalidity,
without invalidating the remainder of or the remaining such provisions of this
Note.
REUTER MANUFACTURING, INC.
By: /s/ James W. Taylor
-------------------------------
Name: James W. Taylor
----------------------------
Its: President
----------------------------
-3-
<PAGE>
Exhibit A
to that certain Junior Subordinated Secured
Promissory Note dated December 31, 1995
delivered by Reuter Manufacturing, Inc.
to Sanwa Business Credit Corporation
<TABLE>
<S> <C>
Income Before Taxes (A) -
--------------------------
minus non-cash gains
- ----- --------------------------
plus non-cash losses
- ---- --------------------------
plus depreciation/amortization
- ---- --------------------------
minus scheduled CIT (Term Loan) Principal Payments (B)
- ----- --------------------------
minus scheduled CIT (R/E Loan) Principal Payments (B)
- ----- --------------------------
minus scheduled CIT Accommodation Fees (B)
- ----- --------------------------
minus scheduled Senior Subordinated Interest Payments (B)
- ----- --------------------------
minus scheduled Senior Subordinated Principal Payments (B)
- ----- --------------------------
minus Income Payments (B)
- ----- --------------------------
minus Capital Expenditures (C)
- ----- --------------------------
minus Capital Equipment Principal Payments (C)
- ----- --------------------------
minus Permitted Sollami Principal Payments (C)
- ----- --------------------------
minus Retiree payments (C)
- ----- --------------------------
TOTAL: EXCESS CASH
---------------------------
</TABLE>
(A) GAAP DEFINED, INCLUDING ALL CASH GAINS AND LOSSES (INCLUDING THOSE GAINS OR
LOSSES ASSOCIATED WITH ASSET SALES). THE PARTIES HERETO AGREE THAT IN
CALCULATING INCOME BEFORE TAXES, INCOME SHALL NOT BE REDUCED BY ANY OF THE ITEMS
DESIGNATED BY FOOTNOTE (B) IN THIS FORMULA.
(B) ACTUALLY PAID.
(C) THE LESSER OF (I) ACTUAL OR (II) MAXIMUM DOLLAR AMOUNTS SET FORTH ON
SCHEDULE A ATTACHED HERETO.
NOTE: ALL TERMS WHICH ARE CAPITALIZED AND USED IN THIS FORMULA AND WHICH ARE
DEFINED IN THE LOAN AGREEMENT SHALL BE USED IN THE FORMULA AS DEFINED IN THE
LOAN AGREEMENT.
I certify that the above is correct to the best of my knowledge and belief:
REUTER MANUFACTURING, INC.
By: /s/ James W. Taylor
---------------------------------
Name: James W. Taylor
-------------------------------
Its: President
-------------------------------
-4-
<PAGE>
MORTGAGE, SECURITY AGREEMENT AND
FIXTURE FINANCING STATEMENT
BY
REUTER MANUFACTURING, INC.
AS MORTGAGOR,
TO
SANWA BUSINESS CREDIT CORPORATION
AS MORTGAGEE,
TO SECURE
$2,780,000 NOTE AND $1,000,000 NOTE
Dated: December 31, 1995
Tax statements for the real This instrument was drafted by:
property described in this
instrument should be sent WINTHROP & WEINSTINE, P.A.
to: 3200 Minnesota World Trade Center
30 East Seventh Street
Saint Paul, Minnesota 55101
Reuter Manufacturing, Inc.
410 Eleventh Avenue South
Hopkins, Minnesota 55343 THE PRINCIPAL AMOUNT
SECURED BY THIS MORTGAGE
IS $2,750,000.
<PAGE>
MORTGAGE, SECURITY AGREEMENT AND
FIXTURE FINANCING STATEMENT
THIS MORTGAGE, SECURITY AGREEMENT AND FIXTURE FINANCING STATEMENT (the
"Mortgage"), is made as of the 31st day of December, 1995, by REUTER
MANUFACTURING, INC., a Minnesota corporation (the "Mortgagor"), in favor of
SANWA BUSINESS CREDIT CORPORATION, a Delaware corporation (the "Mortgagee").
W I T N E S S E T H:
WHEREAS, the Mortgagee has agreed to make certain financial accommodations to
the Mortgagor in the amount of $3,780,000 pursuant to the terms and subject to
the conditions set forth in that certain Loan and Security Agreement of even
date herewith by and among the Mortgagee and the Mortgagor, (the "Loan
Agreement"); and
WHEREAS, pursuant to the Loan Agreement, the Mortgagor has executed and
delivered: (i) Senior Subordinated Secured Promissory Note in the principal
amount of $2,780,000, (ii) Junior Subordinated Secured Promissory Note in the
principal amount of $1,000,000, each of which is dated of even date herewith and
payable to the order of the Mortgagee (collectively, the "Notes") which Notes
are due and payable in full on December 31, 1999; and (iii) various other
documents, instruments and agreements referred to in the Loan Agreement (the
Loan Agreement, Notes and such other documents, instruments and agreements are
collectively referred to as the "Loan Documents"); and
WHEREAS, the Mortgagee has required as an express condition precedent to making
loans to the Mortgagor pursuant to the Notes that the Mortgagor secure
$2,750,000 of the principal amount of the indebtedness evidenced by the Notes by
this Mortgage.
NOW THEREFORE, THIS MORTGAGE FURTHER WITNESSETH, that in consideration of the
Mortgagee making a loan to the Mortgagor pursuant to the Notes in the original
principal amount of Three Million Seven Hundred Eighty Thousand and 00/100
Dollars ($3,780,000.00) (the "Mortgage Amount") and other good and lawful
consideration, the receipt and sufficiency of which are hereby acknowledged, and
to secure, and as security for, the payment of principal and interest and other
premiums, penalties and charges on the Notes and the performance and observance
by the Mortgagor of all of the covenants, agreements, representations,
warranties and conditions contained herein and in the Loan Documents, the
Mortgagor does hereby grant, bargain, sell, convey, assign, transfer, pledge,
set over and confirm unto the Mortgagee, its successors and assigns, forever,
and does hereby grant a mortgage lien and security interest to the Mortgagee,
its successors and assigns, forever, in and to the tracts of land legally
described in EXHIBIT A attached hereto and made a part hereof (hereinafter
referred to as the "Land");
Together with (a) all of the buildings, structures and other improvements now
standing or at any time hereafter constructed or placed upon the Land; (b) all
heating, plumbing and lighting apparatus, elevators and motors, engines and
machinery, electrical equipment, incinerator apparatus, air-conditioning
apparatus, water and gas apparatus, pipes, water heaters,
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refrigerating plant and refrigerators, water softeners, carpets, carpeting,
storm windows and doors, window screens, screen doors, storm sash, window shades
or blinds, awnings, locks, fences, trees, shrubs, and all other furniture,
fixtures, machinery, equipment, appliances and personal property of every kind
and nature whatsoever now or hereafter owned by the Mortgagor and attached or
affixed or located on or in or used or intended to be used in connection with
the ownership, use, operation or maintenance of, the Land and any improvements
located thereon, including all extensions, additions, improvements, betterments,
renewals and replacements of any of the foregoing; (c) all hereditaments,
easements, rights, privileges and appurtenances now or hereafter belonging,
attached or in any way pertaining to the Land or to any building, structure or
improvement now or hereafter located thereon; (d) the immediate and continuing
right to receive and collect all rents, income, issues and profits now due and
which may hereafter become due under or by virtue of any lease or agreement
(oral or written) for the leasing, subleasing, use or occupancy of all or part
of the Land now, heretofore or hereafter made or agreed to by the Mortgagor;
(e) all of the leases and agreements described in (d) above, together with all
guarantees therefor and any renewals or extensions thereof; and (f) all
insurance and other proceeds of, and all condemnation awards with respect to,
the foregoing (all of the foregoing is hereinafter collectively referred to as
the "Mortgaged Property").
The filing of this Mortgage shall constitute a fixture filing in the office
where it is filed and a carbon, photographic or other reproduction of this
document may also be filed as a financing statement:
Name and Address of Reuter Manufacturing, Inc.
Debtor and Record 410 Eleventh Avenue South
Owner of Real Estate: Hopkins, Minnesota 55343
Federal Tax ID #: 41-0780999
Name and Address of Sanwa Business Credit Corporation
Secured Party: One South Wacker Drive
Chicago, Illinois 60606
Description of the Types See above
(or items) of property
covered by this
financing statement:
Description of real estate See EXHIBIT A attached
to which all or a part hereto.
of the collateral is
attached or upon which
it is located:
Some of the above described collateral is or is to become fixtures upon or
minerals and mineral rights located upon the real estate described on EXHIBIT A,
and this financing statement is to be filed for record in the public real estate
records.
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This instrument is intended to be a security agreement pursuant to the Uniform
Commercial Code covering any of the items or types of property included as part
of the Mortgaged Property that may be subject to a security interest pursuant to
the Uniform Commercial Code, and Mortgagor hereby grants Mortgagee a security
interest in such items or types of property. This Mortgage, or a reproduction
hereof, is sufficient as a financing statement and as a financing statement it
covers goods which are, or are to become, fixtures on the Land. In addition,
Mortgagor will execute and deliver to Mortgagee, upon Mortgagee's request, any
financing statements or amendments thereto, or continuation statements thereto,
that Mortgagee may require to perfect a security interest in said items or types
of property. Mortgagor shall pay all costs of filing such instruments.
AND THE MORTGAGOR, for itself, its successors and assigns, does covenant with
the Mortgagee, its successors and assigns, that it is lawfully seized of the
Mortgaged Property and has good right to sell and convey the same; that the
Mortgaged Property is free from all encumbrances except as may be further stated
in this Mortgage; that the Mortgagee, its successors and assigns, shall quietly
enjoy and possess the Mortgaged Property; and that the Mortgagor will WARRANT
AND DEFEND the title to the same against all lawful claims not specifically
excepted in this Mortgage.
PROVIDED, NEVERTHELESS, that if the Mortgagor shall pay the principal balance of
the Notes in full, plus interest at the rate set forth in the Notes, as the same
changes from time to time and is adjusted in the manner set forth in the Notes,
on the unpaid principal balance, as computed in accordance with the terms and
conditions of the Notes, and any other sums due and owing under the Notes and
the Loan Agreement and shall also pay or cause to be paid all other sums, with
interest thereon, as may be advanced by the Mortgagee in accordance with this
Mortgage either to protect the lien of this Mortgage, or by way of additional
loan or for any other purpose, and shall also keep and perform all and singular
the covenants herein, required on the part of the Mortgagor to be kept and
performed (the Notes, including any and all renewals, amendments, extensions and
modifications thereof, and all such sums, together with interest thereon, and
such covenants herein collectively referred to as the "Indebtedness Secured
Hereby"), then this Mortgage shall be null and void, in which event the
Mortgagee will execute and deliver to the Mortgagor in form suitable for
recording a full satisfaction of this Mortgage; otherwise this Mortgage shall
remain in full force and effect. Notwithstanding anything to the contrary set
forth in or implied by this Mortgage, the maximum principal amount of
Indebtedness Secured Hereby is $2,750,000.00.
ARTICLE I.
GENERAL COVENANTS, AGREEMENTS, WARRANTIES
SECTION 1.1. PAYMENT OF INDEBTEDNESS; OBSERVANCE OF COVENANTS. The Mortgagor
shall duly and punctually pay each and every payment of principal, interest and
all prepayment premiums and late charges, if any, required by the Notes or the
Loan Agreement and all other Indebtedness Secured Hereby, as and when the same
shall become due, and shall duly and punctually perform and observe all of the
covenants, agreements and provisions contained herein, in the Loan Documents or
in any other instrument given as security for the payment of the Notes.
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SECTION 1.2. MAINTENANCE; REPAIRS. Subject to the provisions of Section 2.3
hereof, the Mortgagor shall keep and maintain the Mortgaged Property in good
condition, repair and operating condition free from any waste or misuse, and
will comply with all requirements of law, municipal ordinances and regulations,
restrictions and covenants affecting the Mortgaged Property and its use, and
will promptly repair or restore any building, improvements or structures now or
hereafter located on the Land which may become damaged or destroyed to their
condition prior to any such damage or destruction. The Mortgagor shall not
acquiesce in any rezoning classification, modification or restriction affecting
the Land, without the prior written consent of the Mortgagee, which consent
shall not be unreasonably withheld. The Mortgagor shall not vacate or abandon
the Mortgaged Property.
SECTION 1.3. PAYMENT OF UTILITY CHARGES, TAXES AND ASSESSMENTS. The Mortgagor
shall, before any penalty attaches thereto, pay or cause to be paid all charges
made for electricity, gas, heat, water, sewer and other utilities furnished or
used in connection with the Mortgaged property, and all taxes, assessments and
levies of every nature heretofore or hereafter assessed against the Mortgaged
Property and upon demand will furnish the Mortgagee receipted bills evidencing
such payment.
Nothing in this Section 1.3 shall require the payment or discharge of any
obligations imposed upon the Mortgagor by this Section so long as the Mortgagor
shall diligently and in good faith and at its own expense contest the same or
the validity thereof by appropriate legal proceeding which shall operate to
prevent the collection thereof or other realization thereon and the sale or
forfeiture of the Mortgaged Property or any part thereof to satisfy the same;
provided, however, that during such contest the Mortgagor shall, at the
reasonable request of the Mortgagee, provide security satisfactory to the
Mortgagee, assuring the discharge of the Mortgagor's obligation under this
Section and of any additional charge, penalty or expense arising from or
incurred as a result of such contest; and provided further, however, that if at
any time payment of any obligation imposed upon the Mortgagor by this Section
shall become necessary to prevent the delivery of a tax deed conveying the Land
or any portion thereof because of nonpayment, then the Mortgagor shall pay the
same in sufficient time to prevent the delivery of such tax deed.
SECTION 1.4. LIENS. Except for liens and encumbrances, if any, listed on
EXHIBIT B attached hereto or consented to in writing by or granted to the
Mortgagee ("Permitted Encumbrances"), the Mortgagor will keep the Mortgaged
Property free from all liens (other than liens for taxes, assessments and
mechanics' liens not yet due and payable) and encumbrances of every nature
whatsoever heretofore or hereafter arising and, upon written demand of the
Mortgagee, the Mortgagor will pay and procure the release of any such lien or
encumbrances.
SECTION 1.5. COMPLIANCE WITH LAW. The Mortgagor will promptly comply with all
present and future laws, ordinances, rules and regulations of any governmental
authority affecting the Mortgaged Property unless the same is being diligently
contested by the Mortgagor in good faith and by proper proceedings.
SECTION 1.6. RIGHT OF THE MORTGAGEE TO ENTER. The Mortgagor will permit the
Mortgagee and its agents to enter, and to authorize others to enter, upon any or
all of the Land, at any time and from time to time, during normal business
hours, to inspect the Mortgaged Property to perform or observe any covenants,
conditions or terms hereunder which the
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Mortgagor shall fail to perform, meet or comply with, or for any other purpose
in connection with the protection or preservation of the Mortgagee's security,
without thereby becoming liable to the Mortgagor or any person in possession
under the Mortgage.
SECTION 1.7. RIGHT OF THE MORTGAGEE TO PERFORM. If the Mortgagor fails to pay
all and singular any taxes, assessments, levies or other similar charges or
encumbrances heretofore or hereafter assessed against the Mortgaged Property or
fails to obtain the release of any lien or encumbrance (other than a Permitted
Encumbrance) of any nature heretofore or hereafter arising upon the Mortgaged
Property or fails to perform any other covenants and agreements contained in
this Mortgage or if any action or proceeding is commenced which adversely
affects or questions the title to or possession of the Mortgaged Property or the
interest of the Mortgagor or the Mortgagee therein, then the Mortgagee, at the
Mortgagee's option, without notice to Mortgagor in the case of emergency and
upon five (5) days notice to the Mortgagor in the case of a non-emergency, may
perform such covenants and agreements, investigate and defend against such
action or proceeding, and take such other action as the Mortgagee deems
necessary to protect the Mortgagee's interest. Any amounts disbursed by the
Mortgagee pursuant to this Section 1.7, including without limitation court costs
and expenses and attorneys' fees, with interest thereon, shall become
additional indebtedness of the Mortgagor and shall be secured by this Mortgage.
Such amount shall be payable upon written notice from the Mortgagee to the
Mortgagor requesting payment thereof, and shall bear interest from the date of
disbursement at a rate equal to the rate of interest then in effect under the
Notes, or, if such rate is illegal or usurious, at the maximum rate then
permitted by law. Nothing contained in this Section 1.7 shall require the
Mortgagee to incur any expense or to do any act or thing hereunder.
SECTION 1.8. ASSUMPTION. The Mortgagor shall not sell, assign, lease, convey,
mortgage or otherwise encumber or dispose of either the legal or equitable title
or both to all or any portion of the Mortgaged Property or any other interest
therein without the prior written consent of the Mortgagee. A sale, transfer,
assignment or other disposition of any ownership interest in the Mortgagor shall
constitute and be deemed a sale of all or a part of the Mortgaged Property for
purposes of this Section 1.8.
SECTION 1.9. FURTHER ASSURANCES. At any time and from time to time, upon
request by the Mortgagee, the Mortgagor will make, execute and deliver or cause
to be made, executed and delivered, to the Mortgagee, any and all other further
instruments, certificates and other documents as may, in the reasonable opinion
of the Mortgagee, be necessary or desirable in order to effectuate, complete or
perfect, or to continue and preserve, the obligations of the Mortgagor hereunder
and under the Notes, the Loan Agreement and the mortgage and security interest
granted by this Mortgage. Upon any failure by the Mortgagor so to do, the
Mortgagee may make, execute and record any and all such instruments,
certificates and documents for and in the name of the Mortgagor and the
Mortgagor hereby irrevocably appoints the Mortgagee its agent and attorney in
fact of the Mortgagor so to do.
SECTION 1.10. EXPENSES. The Mortgagor will pay or reimburse the Mortgagee for
all reasonable attorney's fees, costs and expenses incurred by the Mortgagee in
any legal proceeding or dispute of any kind in which the Mortgagee is made a
party, or appears as party plaintiff or defendant, affecting the Indebtedness
Secured Hereby, this Mortgage, the interest created herein
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or the Mortgaged Property, including but not limited to the exercise of the
power of sale set forth in this Mortgage, any condemnation action involving the
Mortgaged Property or any action to protect the security hereof and any such
amounts paid by the Mortgagee shall be added to the indebtedness secured by this
Mortgage.
SECTION 1.11. BOOKS AND RECORDS; FINANCIAL STATEMENTS. The Mortgagor will keep
and maintain full, true and accurate books of account adequate to reflect
correctly the results of the operation of the Mortgaged Property, all of which
books and records relating thereto shall be open to inspection by the Mortgagee
or its representative during normal business hours.
SECTION 1.12. HAZARDOUS SUBSTANCES. The Mortgagor warrants, covenants and
represents that (i) the operations of the Mortgagor comply in all material
respects with all applicable Environmental Laws (as that term is defined in the
Loan Agreement); (ii) none of the operations of the Mortgagor are subject to any
judicial or administrative proceeding alleging the violation of any
Environmental Laws; (iii) none of the operations of the Mortgagor are the
subject of any federal or state investigation evaluating whether any remedial
action is needed to respond to a release of any Hazardous Material (as that term
is defined in the Loan Agreement) into the environment; (iv) the Mortgagor has
not filed any notice under any federal or state law indicating past or present
treatment, storage or disposal of a Hazardous Material or reporting a spill or
release of a Hazardous Material into the environment; and (v) the Mortgagor does
not have any known material contingent liability in connection with any release
of any Hazardous Material into the environment. The materiality standard used
in this Section 1.12 shall be exceeded if the facts giving rise to a breach or
breaches of the representations or warranties contained herein might result in
liability in excess of $50,000 in the aggregate. For purposes of this Section
1.12, "Mortgagor" shall mean the Mortgagor and any subsidiary or affiliate of
the Mortgagor acquired or created after the date of this Mortgage.
The Mortgagor hereby indemnifies the Mortgagee its successors and assignees, and
agrees to hold the Mortgagee harmless from and against any and all losses,
liabilities, damages, injuries, costs, expenses and claims of any and every kind
whatsoever (including, without limitation, court costs and attorneys' fees)
which at any time or from time to time may be paid, incurred or suffered by, or
asserted against, the Mortgagee for, with respect to, or as a direct or indirect
result of the violation by the Mortgagor, any other obligor or any of the
Mortgagor's subsidiaries, of any laws, including but not limited to, the
Environmental Laws or any laws or regulations relating to Hazardous Material,
treatment, storage, disposal, generation and transportation, air, water and
noise pollution, soil or ground or water contamination, the handling, storage or
release into the environment of Hazardous Materials; or with respect to, or as a
direct or indirect result of the presence on or under, or the escape, seepage,
leakage, spillage, discharge, emission or release from, properties utilized by
the Mortgagor, any other obligor or any of the Mortgagor's subsidiaries in the
conduct of their respective business into or upon any land, the atmosphere, or
any watercourse, body of water or wetlands, of any Hazardous Material
(including, without limitation, any losses, liabilities, damages, injuries,
costs, expenses or claims asserted or arising under the Environmental Laws) and
the provisions of and undertakings and indemnification set out in this Section
1.12 shall survive the satisfaction and payment of the Indebtedness Secured
hereby and the termination of this Mortgage.
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ARTICLE II.
INSURANCE, CONDEMNATION AND USE OF PROCEEDS
SECTION 2.1. INSURANCE. Until the Indebtedness Secured Hereby has been paid in
full, the Mortgagor shall obtain and maintain the following:
(1) The Mortgagor shall keep the buildings, structures, fixtures and other
improvements now existing or hereafter erected on the Land insured against
loss by fire, vandalism, and malicious mischief, perils of extended
coverage, and such other hazards, casualties and contingencies as may be
specified by the Mortgagee, in an amount not less than the full insurable
value thereof, which in no event shall be less than the amount of
Indebtedness Secured Hereby, and naming the Mortgagee as mortgagee and
lender loss payee. The Mortgagor shall also maintain rent loss or business
interruption insurance with respect to such exposures and perils in an
amount sufficient to enable the Mortgagor to make the required monthly
payments under the Notes, to pay taxes and insurance and to continue
operations during an assumed reconstruction period of one (1) year, naming
the Mortgagee as mortgagee and loss payee. The Mortgagor shall also
maintain comprehensive general public liability insurance providing for
limits of coverage of not less than $2,000,000 combined single limit
coverage, and naming the Mortgagee as an additional insured.
(2) All insurance shall be carried in companies licensed to do business in
the State of Minnesota and approved by the Mortgagee and the policies and
renewals thereof shall (i) contain a waiver of defense based on
coinsurance, (ii) be constantly assigned and pledged to and held by the
Mortgagee as additional security for the Indebtedness Secured Hereby, (iii)
have attached thereto loss-payable clauses in favor of and in form
acceptable to the Mortgagee, and (iv) provide that the Mortgagee shall
receive at least thirty (30) days' prior written notice of cancellation or
any substantial modification of the policy. In default thereof, the
Mortgagee may effect any insurance required to be maintained by the
Mortgagor pursuant to this Section 2.1 and the amount paid therefor shall
become immediately due and payable with interest at a rate equal to the
rate of interest then in effect under the Notes, or, if such rate is
illegal or usurious, at the maximum rate permitted by law, and shall be
secured by this Mortgage. In the event of loss or damage to the Mortgaged
Property, the Mortgagor will give immediate written notice thereof to the
Mortgagee, who may make proof of loss or damage if not made promptly by the
Mortgagor. The Mortgagor hereby authorizes the Mortgagee to settle and
compromise all claims on such policies and hereby authorizes and directs
each insurance company concerned to make payment for any such loss to the
Mortgagee. In the event of foreclosure of this Mortgage, all right, title
and interest of the Mortgagor in and to any property insurance policies
then in force shall pass to the purchaser at the foreclosure sale.
SECTION 2.2. CONDEMNATION. The Mortgagor shall give the Mortgagee immediate
written notice of the actual or threatened commencement of any proceedings under
condemnation or eminent domain affecting all or any part of the Mortgaged
Property or any easement therein or appurtenance thereof. If all or any part of
the Mortgaged Property is damaged, taken or
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acquired, either temporarily or permanently, in any condemnation proceeding, or
by exercise of the right of eminent domain, the amount in excess of $50,000 of
any award or other payment for such taking, acquisition or damages made in
consideration thereof, to the extent of the full amount of the remaining unpaid
indebtedness secured by this instrument, is hereby assigned to the Mortgagee,
and the same shall be paid forthwith to the Mortgagee, to be applied to the
Indebtedness Secured Hereby, and any excess shall be paid to the Mortgagor.
SECTION 2.3. THE MORTGAGOR TO REPAIR, REPLACE, REBUILD OR RESTORE. If any
Indebtedness Secured Hereby is outstanding when all or any part of the Mortgaged
Property is destroyed or damaged:
(1) all proceeds of any insurance claim with respect to such destruction
or damage shall be paid directly to the Mortgagee. Unless the Mortgagor is
in full compliance with all of the terms and conditions in subsection (2)
of this Section 2.3, the Mortgagee may, at its option, apply all such
proceeds as a prepayment of the Notes;
(2) the Mortgagee shall make available to the Mortgagor proceeds, less
such sum, if any, required for payment of all expenses incurred in
collecting the same (the "Net Proceeds"), for Mortgagor to apply to payment
of the costs of repair, replacement, rebuilding or restoration of the
Mortgaged Property provided:
(a) all or substantially all of the Mortgaged Property has not been
damaged or destroyed;
(b) no Event of Default, and no event which with the giving of notice
or passage of time or both would constitute an Event of Default, has
occurred or is then continuing;
(c) the Mortgagor provides evidence to the Mortgagee that such repair,
replacement, rebuilding or restoration may be completed within twelve
(12) months from the date of such damage or destruction;
(d) the Net Proceeds shall be applied by the Mortgagee under such
construction and disbursement terms as the Mortgagee may deem
reasonably necessary, including deposit by the Mortgagor with the
Mortgagee of such funds of the Mortgagor as may be required to insure
payment of all costs of rebuilding, restoration, repair or
replacement;
(e) the Mortgagee obtains, at the Mortgagor's expense, an appraisal
prepared by an MAI designated appraiser acceptable to the Mortgagee
certifying that the fair market value of the Mortgaged Property upon
such repair, replacement, rebuilding or restoration, will not be less
than $1,000,000;
(f) such destruction or damage of the Mortgaged Property occurs at a
time greater than one (1) year from the maturity date of the Notes;
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(g) the Mortgagee receives evidence acceptable to it that all tenants,
if any, at the Mortgaged Property shall continue to be liable under
their leases at the Mortgaged Property following such repair,
rebuilding, replacement or restoration; and
(3) The balance of the Net Proceeds remaining after payment of all costs
of any repair, rebuilding, replacement or restoration of the Mortgaged
Property shall be applied as a prepayment of the Indebtedness Secured
Hereby, and any excess shall be paid to the Mortgagor. The Mortgagor shall
not, by reason of the payment of any costs of repair, rebuilding,
replacement or restoration, be entitled to any reimbursement from the
Mortgagee or any abatement or diminution of the amounts payable under the
Notes or any other Indebtedness Secured Hereby.
ARTICLE III.
DEFAULT AND REMEDIES
SECTION 3.1. EVENT OF DEFAULT. Each of the following occurrences shall
constitute an Event of Default hereunder ("Event of Default"):
(1) Mortgagor shall fail to timely pay or perform any of its covenants,
duties and obligations under the Loan Documents;
(2) Mortgagor shall fail to timely perform or observe any of the covenants
contained in this Mortgage and such failure shall continue for thirty (30)
days after Mortgagor receives written notice of such failure from
Mortgagee;
(3) any representation or warranty made by Mortgagor in this Mortgage is
untrue or misleading in any material respect, or any statement,
certificate, or report furnished hereunder by or on behalf of Mortgagor is
untrue or misleading in any material respect on the date as of which the
facts set forth are stated or certified;
(4) the Mortgagor shall be dissolved or shall become unable to pay its
debts as they fall due, or shall make a general assignment for the benefit
of creditors or shall file a voluntary petition in bankruptcy, or shall be
adjudicated as bankrupt or insolvent, or shall file any petition or answer
seeking, consenting to, or acquiescing in reorganization, arrangement,
adjustment, composition, liquidation, dissolution or similar relief, under
any statute, law or regulation, or shall file an answer admitting or shall
fail to deny the material allegations of a petition against it for any such
relief;
(5) any proceeding against the Mortgagor of the type referred to in clause
(4) above seeking any such relief shall have remained unstayed or
undismissed for an aggregate of sixty (60) days (whether or not
consecutive);
(6) a trustee, receiver or liquidator of the Mortgagor or of any
substantial part of its properties or assets shall be appointed with the
consent or acquiescence of the Mortgagor, or any such appointment, if not
so consented to or acquiesced in, shall remain unvacated or unstayed for an
aggregate of sixty (60) days (whether or not consecutive); or
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(7) execution shall have been levied against the Mortgaged Property or any
lien creditor's suit to enforce a judgment against the Mortgaged Property
shall have been brought and (in either case) shall continue unstayed and in
effect for a period of more than thirty (30) consecutive calendar days.
SECTION 3.2. REMEDIES. Upon the occurrence of an Event of Default or at any
time thereafter, the Mortgagee may, at its option, exercise any and all of the
following rights and remedies (and any other rights and remedies available to it
under applicable law or any document related hereto):
(1) the Mortgagee shall be entitled to seek immediate appointment of a
receiver for the Mortgaged Property;
(2) the Mortgagee may foreclose this Mortgage by action or advertisement
upon written notice thereof to the Mortgagor, and the Mortgagor hereby
authorizes the Mortgagee to do so, power being herein expressly granted to
sell the Mortgaged Property at public auction without any prior hearing
thereof and to convey the same to the purchaser, in fee simple, pursuant to
the statutes of Minnesota in such case made and provided and, out of the
proceeds arising from such sale, to pay all Indebtedness Secured Hereby
with interest, and all legal costs and charges of such foreclosure and the
maximum attorney's fees permitted by law, which costs, charges and fees the
Mortgagor herein agrees to pay, and to pay the surplus, if any, to the
Mortgagor, its successors or assigns; and
(3) the Mortgagee may exercise any of the remedies made available to a
secured party under the Uniform Commercial Code in effect in the State of
Minnesota, or other applicable law, with respect to any of the Mortgaged
Property which constitutes personal property, including without limitation
the right to take possession thereof, proceeding without judicial process
or by judicial process (without a prior hearing or notice thereof, which
the Mortgagor hereby waives), and the right to sell, lease or otherwise
dispose of or use any or all of such personal property. The Mortgagee may
require the Mortgagor to assemble such personal property and make it
available to the Mortgagee at a place designated by the Mortgagee which is
reasonably convenient to both the Mortgagor and the Mortgagee. If notice
to the Mortgagor of any intended disposition of any of the Mortgaged
Property constituting personal property or any other intended action is
required by law in a particular instance, such notice shall be deemed
commercially reasonable if given (in the manner specified in Section 4.2
hereof) at least ten (10) calendar days prior to the date of intended
disposition or other action.
In the event of a sale under this Mortgage, whether by virtue of judicial
proceedings or otherwise, the Mortgaged Property may, at the option of the
Mortgagee, be sold as one parcel and as an entirety or in such parcels, manner
and order as the Mortgagee in its sole discretion may elect.
SECTION 3.3. PURCHASE OF MORTGAGED PROPERTY. In case of any sale of the
Mortgaged Property pursuant to any judgment or decree of any court or otherwise
in connection with the enforcement of any of the terms of this Mortgage, the
Mortgagee, its successors and
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<PAGE>
assigns, may become the purchaser, and for the purpose of making settlement for
or payment of the purchase price, shall be entitled to turn in and use the Notes
and any claims for interest, late charges and prepayment premiums matured and
unpaid thereon, together with any other Indebtedness Secured Hereby, if any, in
order that there may be credited as paid on the purchase price the sum, or any
part thereof, then due under the Notes, including principal thereof and
interest, late charges and prepayment premiums, if any, thereon, and any other
Indebtedness Secured Hereby.
ARTICLE IV.
MISCELLANEOUS
SECTION 4.1. SUCCESSORS AND ASSIGNS. The covenants and agreements contained
herein, including, without limitation, the provision of Section 1.8 hereof,
shall bind, and the rights hereunder shall inure to, the respective heirs,
successors and assigns of the Mortgagor and the Mortgagee, including among the
Mortgagor's assigns any purchasers or transferees of the Mortgaged Property.
SECTION 4.2. NOTICES. Any notice, request, demand or other communication
permitted or required hereunder shall be deemed duly given if delivered or
mailed postage prepaid, certified or registered, addressed to the address of
such party on page 2 of this Mortgage.
SECTION 4.3. HEADINGS. The headings of the sections contained herein are for
convenience only and are not to be construed to be a part of or limit or affect
the terms hereof.
SECTION 4.4. DEFINITIONS. Except as otherwise defined herein, all capitalized
terms shall have the meaning assigned to such term in the Loan Agreement.
SECTION 4.5. TIME IS OF THE ESSENCE. Time is of the essence of this Mortgage.
SECTION 4.6. WAIVER. Mortgagor hereby waives any right to a trial by jury on
any action to enforce or defend any matter arising from or relating to this
Mortgage.
IN WITNESS WHEREOF, the Mortgagor has caused this Mortgage to be duly executed
and delivered to the Mortgagee as of the day and year first above written.
MORTGAGOR:
REUTER MANUFACTURING, INC.
a Minnesota corporation
By: /s/ James W. Taylor
------------------------------------
Its: President
------------------------------
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<PAGE>
STATE OF MINNESOTA )
) ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this ____ day of January,
1996, by ________________________, the _________________ of Reuter
Manufacturing, Inc., a Minnesota corporation, for and on behalf of said
corporation.
___________________________________
Notary Public
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<PAGE>
EXHIBIT A
(Legal Description)
Lot 3, Auditor's Subdivision Number 195, Hennepin County, Minnesota, according
to the recorded plat thereof, together with all that part of vacated 3 1/2
Street South lying between the Easterly and Westerly boundary lines of said Lot
3 extended northerly.
Hennepin County, Minnesota.
<PAGE>
EXHIBIT B
(Permitted Encumbrances)
1. Mortgage dated February 15, 1991, filed February 20, 1991 as Document No.
2156242, executed by Reuter, Inc. to The CIT Group/Credit Finance, Inc. to
secure $6,000,000.00.
2. Financing Statement filed February 22, 1991 as Document No. 2156817 between
Reuter, Inc., debtor, and The CIT Group/Credit Finance, Inc., secured
party, as amended by Document Nos. 2307062 and 2637358, partially released
by Document No. 2541384 and continued by Document No. 2637359.
3. Financing Statement filed October 20, 1992 as Document No. 2307063 between
Reuter Manufacturing, Inc., a Division of Green Isle Environmental
Services, Inc., debtor, to The CIT Group/Credit Finance, Inc., secured
party, as amended by Document No. 2541385.
4. Financing Statement filed October 20, 1992 as Document No. 2307064 between
Reuter, Inc., a Division of Green Isle Environmental Services, Inc.,
debtor, and The CIT Group/Credit Finance, Inc., secured party, as partially
released by Document No. 2541386.
5. Financing Statement filed October 20, 1992 as Document No. 2307065 between
Green Isle Environmental Services, Inc., debtor, and The CIT Group/Credit
Finance, Inc., secured party, as partially released by Document No.
2541387.
6. Easement in favor of Northern States Power Company for electric powerline
purposes dated October 16, 1967, filed October 17, 1967 as Document No.
890732.
7. Easement for drainage ditch purposes over vacated 3 1/2 Street South
reserved by City Council Resolution filed September 29, 1980 as Document
No. 1396934.
8. The lien for delinquent real estate taxes payable in 1995, plus penalty and
interest thereon.
<PAGE>
PATENT SECURITY AGREEMENT
THIS PATENT SECURITY AGREEMENT (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "Agreement") made as
of December 31, 1995, by REUTER MANUFACTURING, INC. (the "Borrower), in favor of
SANWA BUSINESS CREDIT CORPORATION, a Delaware corporation, under that certain
Loan and Security Agreement (as amended, restated, supplemented or otherwise
modified from time to time, the "Loan Agreement") of even date herewith by and
between the Borrower and the Lender.
WITNESSETH:
WHEREAS, pursuant to the Loan Agreement, the Lender has, subject to
the satisfaction of certain conditions precedent, agreed to make loans and other
financial accommodations (collectively, the "Loans") to the Borrower; and
WHEREAS, Lender has required as a condition, among others, to the
making of the Loans to the Borrower, in order to secure the prompt and complete
payment, observance and performance of all of the Borrower's obligations and
liabilities under the Loan Agreement and under all of the other instruments,
documents and agreements executed by the Borrower and delivered to the Lender in
connection with the Loan Agreement including, without limitation, this Agreement
(all such obligations and liabilities being hereinafter referred to collectively
as the "Liabilities"), that the Borrower execute and deliver this Agreement to
the Lender;
NOW, THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Borrower agrees as follows:
1. DEFINED TERMS.
(a) Unless otherwise defined herein, the capitalized terms used
herein which are defined in the Loan Agreement shall have the meanings specified
in the Loan Agreement.
(b) The words "hereof," "herein" and "hereunder" and words of like
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section references are to
this Agreement unless otherwise specified.
(c) All terms defined in this Agreement in the singular shall have
comparable meanings when used in the plural, and vice versa, unless otherwise
specified.
2. INCORPORATION OF THE LOAN AGREEMENT. The Loan Agreement and the
terms and provisions thereof are hereby incorporated herein in their entirety by
this reference thereto.
<PAGE>
3. SECURITY INTEREST IN PATENTS AND LICENSES. To secure the prompt
and complete and timely payment, performance and satisfaction of all of the
Liabilities, the Borrower hereby grants to the Lender, a security interest in,
as and by way of a mortgage and security interest having priority over all other
security interests, except those listed on SCHEDULE C attached hereto, with
power of sale to the extent permitted by applicable law, all of the Borrower's
now owned or existing or hereafter acquired or arising:
(a) patents and patent applications, and the inventions and
improvements described and claimed therein, including, without limitation,
those patents and patent applications listed on SCHEDULE A attached hereto
and made a part hereof, and (i) the reissues, divisions, continuations,
renewals, extensions and continuations-in-part thereof, (ii) all income,
royalties, damages and payments now or hereafter due and/or payable under
and with respect thereto, including, without limitation, payments under all
licenses entered into in connection therewith and damages and payments for
past or future infringements thereof, (iii) the right to sue for past,
present and future infringements thereof, and (iv) the goodwill of the
Borrower's business symbolized by the foregoing and connected therewith,
and (v) all of the Borrower's rights corresponding thereto throughout the
world (all of the foregoing are sometimes hereinafter individually and/or
collectively referred to as the "Patents"); and
(b) rights under or interests in any patent license agreements with
any other party in connection with any of the Patents or such other party's
patents and patent applications, and the inventions and improvements
described and claimed therein, whether the Borrower is a licensor or
licensee under any such license agreement, including, without limitation,
those patent license agreements listed on SCHEDULE B attached hereto and
made a part hereof, and the right, upon the occurrence and during the
continuation of an Event of Default, to prepare and sell any and all
Inventory now or hereafter owned by the Borrower and now or hereafter
covered by such licenses, and all books and records (including, without
limitation, customer lists, credit files, computer programs, printouts and
other computer materials and records) pertaining to any of the foregoing
(all of the foregoing are hereinafter referred to collectively as the
"Licenses").
4. RESTRICTIONS ON FUTURE AGREEMENTS. The Borrower will not,
without the prior written consent of the Lender, enter into any agreement,
including, without limitation, any license agreement which purports to transfer
or assign any interest in the Patents or Licenses to any other Person. The
Borrower will not take any action or fail to take any action, and will use its
best efforts to prevent any action by any Person, including licensees, which
would in any respect adversely affect the validity or enforceability of the
rights transferred to the Lender under this Agreement or the rights associated
with any of the Patents or Licenses.
5. NEW PATENTS AND LICENSES. The Borrower represents and warrants
that the Patents listed on SCHEDULE A include all of the patents and patent
applications now owned by the Borrower, that the Licenses listed on SCHEDULE B
include all of the patent license agreements held by the Borrower, and that
except as listed on SCHEDULE C, no other liens, claims or security
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<PAGE>
interests have been granted by the Borrower to any other Person in such Patents
and Licenses. If, prior to the termination of this Agreement, the Borrower
shall obtain rights to any new patentable inventions, or become entitled to the
reissue, division, continuation, renewal, extension or continuation-in-part of
any patent or improvement on any Patent or License, or enter into any new patent
license agreement, the provisions of SECTION 3 shall automatically apply
thereto, the Borrower shall promptly so notify the Lender in writing, and the
Borrower shall execute an amendment to add such new Patents and Licenses to
SCHEDULE A or B, as appropriate, upon the request of the Lender. The Borrower
hereby authorizes the Lender to unilaterally amend this Agreement to include any
such new or other Patents on SCHEDULE A and any such new or other Licenses on
SCHEDULE B and to take any action the Lender deems appropriate to perfect or
maintain the rights and interests of the Lender, the under this Agreement with
respect to such Patents and Licenses.
6. ROYALTIES. The Borrower hereby agrees that the use by the Lender
of the Patents and Licenses as authorized hereunder shall be coextensive with
the Borrower's rights thereunder and with respect thereto and without any
liability for royalties or other related charges from the Lender to the
Borrower.
7. RIGHT TO INSPECT; FURTHER ASSIGNMENTS AND SECURITY INTERESTS.
The Lender shall have the right, at any reasonable time and from time to time,
to inspect the Borrower's premises and to examine the Borrower's books, records
and operations relating to the Patents or Licenses, including, without
limitation, the Borrower's quality control processes; provided that Lender shall
not unreasonably interfere with Borrower's business or operations during such
inspection. Notwithstanding the foregoing, after the occurrence and during the
continuation of an Event of Default, the Lender shall have the right to conduct
an inspection at such times as the Lender may, in its discretion, deem
appropriate. Any and all such visitations and inspections by the Lender shall
be at the Borrower's expense. The Borrower agrees not to sell or assign its
interest in, or grant any license under, the Patents or Licenses without the
prior written consent of the Lender.
8. TERMINATION OF THE LENDER'S SECURITY INTEREST. This Agreement is
made for collateral security purposes only. Upon payment in full of all of the
Liabilities and termination of all financing arrangements between the Lender and
the Borrower, this Agreement shall terminate and the Lender shall promptly
execute and deliver to the Borrower, at the Borrower's expense, all termination
statements and other instruments as may be necessary or proper to terminate the
Lender's security interest in the Patents or Licenses, subject to any
disposition thereof which may have been made by the Lender pursuant to this
Agreement or the Loan Agreement.
9. DUTIES OF THE BORROWER. The Borrower shall, (i) prosecute
diligently any patent application that is part of the Patents pending as of the
date hereof or thereafter until the termination of this Agreement, (ii) make
application on unpatented but patentable inventions as the Borrower deems
appropriate, and (iii) take all take reasonable steps to preserve and maintain
all of the Borrower's rights in the Patents and Licenses, including, without
limitation, making
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<PAGE>
timely filings with the United States Patent and Trademark Office or any similar
office or agency in any state, province or country for renewals and extensions
and diligently monitoring unauthorized use thereof. Anything herein to the
contrary notwithstanding, (a) the Borrower shall remain liable under the
contracts and agreements included in the Licenses to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Lender of any of the rights hereunder shall not release the Borrower from any of
its duties or obligations under the contracts and agreements included in the
Licenses, and (c) the Lender shall not have any obligation or liability under
the contracts and agreements included in the Licenses by reason of this
Agreement, nor shall the Lender be obligated to perform any of the obligations
or duties of the Borrower thereunder. Any expenses incurred in connection with
the foregoing shall be borne by the Borrower.
10. THE LENDER'S RIGHT TO SUE. After the occurrence and during the
continuation of an Event of Default, the Lender shall have the right, but shall
in no way be obligated, to bring suit in its own name to enforce the Patents or
Licenses and, if the Lender shall commence any such suit, the Borrower shall, at
the request of the Lender, do any and all lawful acts and execute any and all
proper documents required by the Lender in aid of such enforcement. The
Borrower shall, upon demand, promptly reimburse the Lender for all costs and
expenses incurred by the Lender in the exercise of such enforcement (including,
without limitation, reasonable fees and expenses of attorneys and paralegals for
the Lender).
11. WAIVERS. No course of dealing between the Borrower and the
Lender and no failure or delay on the part of the Lender to exercise, or delay
in exercising, any right, power or privilege hereunder, under the Loan Agreement
or under any other agreement, shall operate as a waiver of any of Lender's
rights, powers or privileges hereunder or under the Loan Agreement. No single
or partial exercise of any right, power or privilege hereunder, under the Loan
Agreement or under any other agreement shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
12. EXERCISE OF RIGHTS AND REMEDIES UPON AN EVENT OF DEFAULT.
Notwithstanding anything set forth herein to the contrary, it is hereby
expressly agreed that upon the occurrence and during the continuation of an
Event of Default, the Lender may exercise any of the rights and remedies
provided in this Agreement, the Loan Agreement and any other agreement executed
by the Borrower and delivered to the Lender.
13. MODIFICATION. This Agreement cannot be altered, amended or
modified in any way, except as specifically provided in SECTIONS 4 and 5 hereof
or by a writing signed by the Borrower and the Lender.
14. CUMULATIVE REMEDIES; POWER OF ATTORNEY. All of the rights and
remedies of the Lender with respect to the Patents or Licenses, whether
established hereby, by any other agreements or by law, shall be cumulative and
may be exercised singularly or concurrently. The Borrower hereby appoints the
Lender and all Persons the Lender may designate, in its sole and absolute
discretion, as the Borrower's attorney-in-fact, with full authority in the place
and stead
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<PAGE>
of the Borrower and in the name of the Borrower or otherwise, to take any action
and to execute any instrument which the Lender may deem necessary or advisable
to accomplish the purposes of this Agreement, including without limitation, from
and after the occurrence and during the continuation of an Event of Default in
the Lender's sole discretion, (i) the endorsement of the Borrower's name on all
applications, documents, papers and instruments related to the Patents or
Licenses, (ii) the assignment, pledge, conveyance or other disposition of the
Patents or Licenses to anyone on commercially reasonable terms, (iii) the grant
or issuance of any exclusive or non-exclusive license under any of the Patents
or Licenses and (iv) the taking of any other actions with respect to the Patents
or Licenses as the Lender deems necessary or desirable. The Borrower hereby
ratifies all that such attorney-in-fact shall lawfully do or cause to be done by
virtue hereof. This power of attorney is coupled with an interest and shall be
irrevocable until all of the Liabilities shall have been paid in full and all
financing arrangements between the Lender and the Borrower shall have been
terminated. The Borrower acknowledges and agrees that this Agreement is not
intended to limit or restrict in any way the rights and remedies of the Lender
under the Loan Agreement or any of the related agreements, but rather is
intended to facilitate the exercise of such rights and remedies. The Lender
shall have, in addition to all other rights and remedies given it by the terms
of this Agreement, all rights and remedies allowed by law and the rights and
remedies of a secured party under the Uniform Commercial Code as enacted in any
jurisdiction in which the Patents or Licenses may be located or deemed located.
15. BINDING EFFECT; BENEFITS. This Agreement shall be binding upon
the Borrower and its successors and assigns, and shall inure to the Lender and
its respective nominees, successors and assigns. The Borrower's successors and
assigns shall include, without limitation, a receiver, trustee or debtor-in-
possession of or for the Borrower. The Borrower shall not assign its
obligations hereunder without the Lender's prior written consent.
16. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws (as opposed to conflicts of law provisions)
and decisions of the State of Illinois. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be held
invalid or prohibited under applicable law, such provision shall be ineffective
only to the extent of such invalidity or prohibition, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
17. NOTICES. All notices or other communications required or desired
to be served, given or delivered hereunder shall be served, given or delivered
and shall be deemed to have been validly served, given or delivered in
accordance with SECTION 13.10 of the Loan Agreement.
18. DISCLAIMER OF DUTY OF THE LENDER. The Lender shall not be liable
for any act, omission, error of judgment or mistake of fact or law with respect
to the Patents or Licenses. Without limiting the generality of the foregoing,
the Lender shall not be under any obligation to take any action necessary to
preserve rights in the Patents or Licenses against any other Persons
-5-
<PAGE>
but may do so at its option, and all expenses incurred in connection therewith
shall be for the sole account of the Borrower and added to the Liabilities
secured hereby.
19. SECTION HEADINGS. The section headings herein are for
convenience of reference only, and shall not affect in any way the
interpretation of any of the provisions hereof.
20. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the day and year first above written.
REUTER MANUFACTURING, INC.
By:/s/James W Taylor
___________________________
Name:James W Taylor
________________________
Its:President
___________________________
ATTEST:
By:/s/William H. Johnson
___________________________
Secretary
Acknowledged and agreed to in
Chicago, Illinois, as of this
____ day of January, 1996
SANWA BUSINESS CREDIT CORPORATION
By:/s/Thomas P. Guido
____________________________
Name:Thomas P. Guido
__________________________
Its:Group Vice President
_____________________________
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<PAGE>
STATE OF MINNESOTA )
) SS
COUNTY OF RAMSEY )
The foregoing Patent Security Agreement was executed and acknowledged
before me this 11th day of January, 1996, by James W. Taylor, personally known
to me to be the President of Reuter Manufacturing, Inc., on behalf of such
corporation.
(SEAL)
/s/Hart Kuller
_____________________________
Notary Public
My commission expires:
Jan. 31, 2000
-7-
<PAGE>
Schedule A
to
Patent Security Agreement
dated as of December 31, 1995
Patents
-------
Attached.
-8-
<PAGE>
Schedule B
to
Patent Security Agreement
dated as of December 31, 1995
Licenses
---------
Attached.
-9-
<PAGE>
Schedule C
to
Patent Security Agreement
dated as of December 31, 1995
Senior Lienholders
------------------
Attached.
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<PAGE>
<PAGE>
INCOME SHARING AGREEMENT
THIS INCOME SHARING AGREEMENT (this "Agreement") is made and entered into
as of December 31, 1995 by and between SANWA BUSINESS CREDIT CORPORATION, a
Delaware corporation ("Lender"), and REUTER MANUFACTURING, INC., a Minnesota
corporation ("Borrower").
W I T N E S S E T H:
WHEREAS, Lender and Borrower have agreed to restructure certain obligations
of Borrower to Lender pursuant to the terms of that certain Loan and Security
Agreement of even date herewith (the "Loan Agreement"); and
WHEREAS, it is a condition precedent to the restructuring of Borrower's
obligations that the parties enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements set forth herein, and for other good and valuable
consideration, the mutuality, receipt and sufficiency of which hereby are
acknowledged, and intending to be legally bound, the parties hereto agree as
follows:
1. DEFINITIONS. Capitalized terms used herein and not otherwise defined
(including capitalized terms used in the foregoing recitals) shall have the
following meanings:
A. "CHANGE IN CONTROL" shall have the same meaning as "ownership change"
has for purposes of Section 382(g) of the Code.
B. "CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
C. "REUTER AFFILIATED GROUP" shall mean the affiliated group of
corporations, of which Borrower or any successor is a member which are
consolidated for financial statement and reporting purposes under generally
accepted accounting principles.
D. "INCOME BEFORE TAXES" shall mean Borrower's income before taxes,
calculated in accordance with generally accepted accounting principles
consistently applied, including all cash gains and losses (including those gains
or losses associated with asset sales).
E. INCOME PAYMENT" shall mean the result of (A) times (B), where (A) is
Income Before Taxes MINUS actual interest payments made by Borrower to Lender on
the $2,750,000
<PAGE>
Senior Subordinated Note of even date herewith, and (B) is forty percent (40%)
prior to a Change in Control; and, if a Change in Control has occurred, then (B)
shall mean a percentage equal to the long term tax-exempt rate as defined in
Section 382(f) of the Code.
2. QUARTERLY CALCULATION AND PAYMENT OF INCOME PAYMENT. Within thirty
(30) days of the end of each calendar quarter, Borrower shall: (i) compute
Income Before Taxes; (ii) complete the computation of Borrower's Income Payment
on the Form attached as Exhibit A hereto and (iii) forward such computation and
payment of 100% of the Income Payment due for such quarter to Lender.
3. ANNUAL CALCULATION AND PAYMENT OF INCOME PAYMENT. Within thirty (30)
days of the date on which Borrower receives its annual audited financial
statements, Borrower shall: (i) compute Borrower's Income Before Taxes; (iv)
complete the computation of Borrower's Income Payment on the form attached as
Exhibit A and (iii) forward such computation and payment of 100% of the Income
Payment remaining due to Lender after giving effect to the payments made
pursuant to Paragraph 2 hereinbefore.
4. THIRD PARTY REVIEW. If Lender disagrees with Borrower's calculation
of Income Before Taxes or the Income Payment, Lender shall be entitled to select
an independent public accounting firm to review such calculation. All costs
related to such review shall be paid for by Lender. If Lender's independent
public accounting firm disagrees with Borrower's determination of Income Before
Taxes or Income Payment, Borrower and Lender shall select a third public
accounting firm which shall calculate the Income Before Taxes or Income Payment.
The determination of such third public accounting firm shall be binding on
Borrower and Lender. Borrower and Lender shall split all costs relating to the
third accounting firm's determination. All amounts due in connection with such
adjustments shall be paid to Lender or to the third accounting firm entitled
thereto within 30 days of the date the third accounting firm's determination is
made.
5. OVERAGE. In the event the sum of the payments made by Borrower
pursuant to Paragraph 2 exceeds the amount due Lender pursuant to Paragraph 3
(an "Overage"), the Overage shall be credited against payments due Lender
pursuant to Paragraph 2 for each successive calendar quarter until the amount of
the Overage equals zero.
6. SUBSIDIARIES. All subsidiaries of Borrower included in the Reuter
Group shall be subject to this Agreement. If at any time Borrower acquires or
creates one or more corporations that are affiliated corporations of the Reuter
Group, they shall be subject to this Agreement, and, in Lender's sole
discretion, Borrower shall cause such corporations to become a party to this
Agreement.
7. TERM. The provisions of this Agreement shall apply until the earlier
of (i) Lender's receipt of Income Payments totalling Six Million Dollars
($6,000,000) or (ii) December 31, 2010.
-2-
<PAGE>
8. SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
respective successors and assigns of the parties hereto; but no assignment shall
relieve any party of its obligations hereunder without the written consent of
the other party.
9. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
10. BANKRUPTCY. If the Borrower shall become subject to a proceeding
under the United States Bankruptcy Code, Borrower shall: (i) use its best
efforts to obtain authorization to make the payments due hereunder, if any, to
Lender during the pendency of the bankruptcy; (ii) incorporate the provisions of
this Agreement in any plan of reorganization submitted or supported by Borrower
(the "Plan of Reorganization"); and (iii) use its best efforts to obtain
confirmation of the Plan of Reorganization containing the provisions of this
Agreement.
11. ENTIRE AGREEMENT. This Agreement is the complete statement of the
agreement by and between Borrower and Lender and supersedes all prior
negotiations, understandings and representations between them with respect to
the subject matter of this Agreement.
12. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT HAS BEEN
DELIVERED FOR ACCEPTANCE BY LENDER IN CHICAGO, ILLINOIS AND SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS
OF LAW PROVISIONS) OF THE STATE OF ILLINOIS. EACH OF BORROWER AND LENDER HEREBY
(I) WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION TO ENFORCE OR DEFEND ANY
MATTER ARISING FROM OR RELATED TO THIS AGREEMENT; (II) IRREVOCABLY SUBMITS TO
THE JURISDICTION OF ANY FEDERAL OR STATE COURT LOCATED IN COOK COUNTY, ILLINOIS,
OVER ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR
RELATED TO THIS AGREEMENT; AND (III) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
BORROWER MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING. BORROWER: (I) AGREES THAT A FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN ANY OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER
MANNER PROVIDED BY LAW; AND (II) AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR
PROCEEDING AGAINST LENDER OR ANY OF LENDER'S DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS OR PROPERTY, CONCERNING ANY MATTER ARISING OUT OF OR RELATING TO THIS
AGREEMENT IN ANY COURT OTHER THAN ONE LOCATED IN COOK COUNTY, ILLINOIS. NOTHING
IN THIS SECTION 13 SHALL AFFECT OR IMPAIR LENDER'S RIGHT TO SERVE LEGAL PROCESS
IN ANY MANNER PERMITTED BY LAW OR LENDER'S RIGHT TO BRING ANY ACTION OR
PROCEEDING AGAINST BORROWER OR BORROWER'S PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION.
13. NOTICE. Except as otherwise provided herein, any notice required
hereunder shall be in writing and shall be deemed to have been validly served,
given or delivered upon (i) deposit in the United States certified or registered
mails, with proper postage prepaid; (ii) sent by facsimile
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transmission with a duplicate copy sent contemporaneously by U.S. Mail; or (iii)
delivered by overnight courier or messenger delivery, addressed to the party to
be notified as follows:
(1) If to Lender, at: Sanwa Business Credit Corporation
One South Wacker Drive
Chicago, Illinois 60606
Attn: Asset Management Division
Fax: (312) 782-6486
with a copy to: Richard G. Smolev, Esq.
Sachnoff & Weaver, Ltd.
30 South Wacker Drive
Chicago, Illinois 60606
Fax: (312) 207-6400
(2) If to Borrower, at: Reuter Manufacturing, Inc.
410 Eleventh Avenue South
Hopkins, Minnesota 55343
Attn:James Taylor, President and
Chief Executive Officer
Fax: (612) 935-7798
with a copy to: Hart Kuller, Esq.
Winthrop & Weinstine, P.A.
3200 Minneapolis World Trade Center
30 East Seventh Street
St. Paul, Minnesota 55101
Fax: (612) 292-9347
The above addresses may be changed by notice of such change, mailed as provided
herein, to the last address designated.
14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original agreement, but all of
which together shall constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
specified at the beginning hereof.
REUTER MANUFACTURING, INC.
By: /s/ James W. Taylor
-----------------------------------
Name: James W. Taylor
-----------------------------------
Its: President
-----------------------------------
SANWA BUSINESS CREDIT CORPORATION
By: /s/ Thomas P. Guido
-----------------------------------
Name: Thomas P. Guido
-----------------------------------
Its: Group Vice President
-----------------------------------
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<PAGE>
Exhibit A to that certain
Income Sharing Agreement dated December 31, 1995
between Reuter Manufacturing, Inc.
and Sanwa Business Credit Corporation
REUTER MANUFACTURING, INC.
INCOME STATEMENT
Time period covered: _________________________ to ___________________________
Date prepared: ______________________________________________________________
This is (check one):
/ / The original calculation for this period
/ / A revised calculation for this period
INCOME PAYMENT CALCULATION
Income Payment Calculation:
Income Before Taxes (1)
---------------
MINUS actual Interest Payments made
on the $2,780,000 Senior Subordinated Note
---------------
MULTIPLIED BY: 40% (.40) (2) .40
---------------
TOTAL: INCOME PAYMENT
---------------
I certify that the above is correct to the best of my knowledge and belief.
REUTER MANUFACTURING, INC.
By:
-------------------------------
Name:
------------------------------
Its:
-------------------------------
(1) GAAP defined, including all cash gains and losses (including those gains or
losses associated with asset sales). The parties hereto agree that in
calculating Income Before Taxes, income shall not be reduced by: scheduled CIT
(Term Loan) Principal Payments, scheduled CIT (R/E Loan) Principal Payments,
scheduled CIT Accommodation Fees, scheduled Senior Subordinated Secured Note
Interest Payments, scheduled Senior Subordinated Secured Note Principal Payments
or Income Payments.
(2) If a Change in Control has occurred the percentage applied shall be
governed by Section 1(E) hereinbefore.
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<PAGE>
INTERCREDITOR AND SUBORDINATION AGREEMENT
THIS INTERCREDITOR AND SUBORDINATION AGREEMENT (this "Agreement") is made
and entered into as of December 31, 1995, among REUTER MANUFACTURING, INC., a
Minnesota corporation ("Borrower"), THE CIT GROUP/CREDIT FINANCE, INC. ("Senior
Lender") and SANWA BUSINESS CREDIT CORPORATION ("Subordinate Lender").
RECITALS
(A) The Senior Lender has agreed to extend certain credit
accommodations to the Borrower pursuant to the terms of the Senior Loan
Documents.
(B) The Subordinate Lender has agreed to restructure certain
obligations of the Borrower pursuant to the terms of the Subordinate Loan
Documents.
(C) It is a condition precedent to the agreements of the Senior
Lender and the Subordinate Lender that the parties hereto enter into this
Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements set forth herein, and for other good and
valuable consideration, the mutuality, receipt and sufficiency of which hereby
are acknowledged, and intending to be legally bound, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS.
Capitalized terms used herein and not otherwise defined (including
capitalized terms used in the foregoing Recitals) shall have the following
meanings:
"BORROWER OBLIGATION" means the Senior Debt or any of the Subordinate
Obligations, as the context requires.
"DEFAULT" means any Senior Default and/or any Subordinate Default, as
the context requires.
"DIP FACILITY" shall have the meaning ascribed to it in Section 2.6.
"EXCESS CASH FLOW" shall have the meaning ascribed to it in the
Subordinate Loan Documents.
<PAGE>
"PAYMENT IN FULL" or "PAID IN FULL" or any similar term(s) with
respect to any Borrower Obligation means (a) the satisfaction and final payment
in full of such Borrower Obligation in cash or cash equivalents reasonably
acceptable to the payee and the termination of any obligation on the part of the
holder of such Borrower Obligation to make any loans or to afford any financial
accommodation to the Borrower or (b) in the case of any Borrower Obligation
consisting of contingent obligations (including without limitation contingent
obligations in respect of letters of credit or other reimbursement guarantees
under the Senior Loan Agreement), the setting apart of cash sufficient to
discharge such portion of such Borrower Obligation in an account for the
exclusive benefit of the holders thereof, in which account such holders shall be
granted by the Borrower a first priority perfected security interest in a manner
acceptable to such holders, which payment or perfected security interest shall
have been retained by the holders, in the case of each of (a) and (b) above, for
a period of time in excess of all applicable preference or other similar periods
under applicable bankruptcy, insolvency or creditors' rights laws.
"PERMITTED PREPAYMENTS" is defined in Section 2.3.
"PROCEEDS" means the proceeds of any of Borrower's property in which
both the Senior Lender the Subordinate Lender have perfected security interests.
"SENIOR DEBT" means that portion of the principal amount owing to the
Senior Lender under the Senior Loan Documents from time to time that does not
exceed at the date of determination the principal amount of $4,500,000, together
with all other "Obligations" as that term is defined in the Senior Loan
Documents.
"SENIOR DEFAULT" means any Event of Default under and as defined in
the Senior Loan Agreement.
"SENIOR LOAN AGREEMENT" means that certain Loan and Security Agreement
dated as of February 15, 1991 between the Senior Lender and the Borrower, as the
same may be amended, supplemented, replaced or refinanced from time to time in
compliance with Section 2.14.
"SENIOR LOAN DOCUMENTS" means the Senior Loan Agreement and all other
documents which create, evidence or secure the Senior Debt from time to time, as
any of the same may be amended, supplemented, replaced or refinanced from time
to time in compliance with Section 2.14. A true and correct list of the Senior
Loan Documents existing on the date hereof is set forth on SCHEDULE 1 hereto.
"SUBORDINATE DEBT" means all amounts owing to the Subordinate Lender
under the Subordinate Loan Documents from time to time, whether in respect of
principal, interest or otherwise.
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<PAGE>
"SUBORDINATE DEFAULT" means any Event of Default under and as defined
in the Subordinate Loan Documents.
"SUBORDINATE LOAN DOCUMENTS" means all documents which create,
evidence or secure the Subordinate Debt from time to time, as any of the same
may be amended, supplemented, refinanced or replaced from time to time in
compliance with Section 2.14. A true and correct list of the Subordinate Loan
Documents existing on the date hereof is set forth on SCHEDULE 2 hereto.
"SUBORDINATE OBLIGATION DOCUMENTS" means any of the Subordinate Loan
Documents, as the context requires.
"SUBORDINATE OBLIGATIONS" means any of the Borrower's obligations to
the Subordinate Lender under any of the Subordinate Obligation Documents.
SECTION 2. SUBORDINATION AND INTERCREDITOR PROVISIONS.
2.1 SUBORDINATION. Senior Lender hereby consents to the Borrower
granting a security interest in Borrower's property to Subordinate Lender.
Subordinate Lender agrees, for itself and each future holder of the Subordinate
Obligations held by it, that its interest in any of Borrower's property in which
both Senior Lender and Subordinate Lender have a perfected security interest,
and in and to the Proceeds, is subordinate to the interest of Senior Lender and
subject to the terms of this Agreement.
2.2 STANDBY; NON-INTERFERENCE. Subordinate Lender shall not,
without Senior Lender's prior consent, (i) except as provided herein, exercise
any rights or remedies it may have under the Subordinate Loan Documents or
otherwise; or (ii) commence or join with any other creditors of Borrower in
commencing any bankruptcy, reorganization, receivership or insolvency proceeding
against Borrower.
In the event the Borrower defaults on its obligations to Senior Lender
and, as a result, Senior Lender undertakes to enforce Senior Lender's security
interests and liens in Borrower's assets, Subordinate Lender agrees that
Subordinate Lender will not hinder, delay or otherwise prevent Senior Lender
from taking any and all action which Senior Lender deems necessary to enforce
Senior Lender's security interests and liens in Borrower's assets and to realize
thereon.
2.3 MARSHALLING WAIVER. Subordinate Lender hereby waives any
rights it has or may have in the future to require Senior Lender to marshal
Senior Lender's collateral, and agrees that, in addition to Senior Lender's
other rights hereunder, Senior Lender may proceed against Senior Lender's
collateral in any order that Senior Lender deems appropriate in the exercise of
Senior Lender's absolute discretion. Subordinate Lender also waives any right
to be subrogated to the Senior Debt unless and until the Senior Debt is paid in
full.
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<PAGE>
2.4 PERMITTED PAYMENTS; RIGHT TO RETAIN PAYMENTS. Notwithstanding
any other provision of this Agreement, the Borrower shall be entitled to make or
deliver to, and Subordinate Lender shall be entitled to receive and retain, (a)
any payments in respect of Subordinate Obligations consisting of scheduled
payments of interest or principal, mandatory prepayments (including without
limitation any mandatory payments of Excess Cash Flow and Net Operating Income
Payment), amounts payable in respect of fees, expenses, taxes or indemnification
obligations and Permitted Prepayments, and (b) any other payments in respect of
Subordinate Obligations to which the Senior Lender expressly consents. Each of
clauses (a) and (b) above is intended to constitute a separate and independent
basis for retaining the payments received by the Subordinate Lender from the
Borrower on account of the Subordinate Obligations.
2.5 PREPAYMENTS. So long as (i) no Senior Default has occurred and
is continuing or would exist immediately after such payment, (ii) the Borrower
has and immediately after such payment will have availability under the
revolving credit facility created by the Senior Loan Documents of at least
$200,000 and further provided that the Borrower does not have any trade debt
more than sixty (60) days past due, unless it is subject to a bona fide dispute
and (iii) the Senior Lender is given at least five days' prior notice of any
such payment, then the Borrower shall be permitted to make, and the Subordinate
Lender shall be permitted to retain, one or more optional prepayments of the
Subordinate Debt ("Permitted Prepayments").
2.6 BANKRUPTCY. If the Borrower shall become subject to a
proceeding under the United States Bankruptcy Code and Senior Lender shall
desire to permit the use of cash collateral by the Borrower or to provide
financing to the Borrower on substantially similar terms as the Senior Loan
Documents under either Section 363 or 364 of the United States Bankruptcy Code,
with or without obtaining a priority lien under Section 364(d) thereof (the "DIP
Facility"), Subordinate Lender hereby agrees as follows: (a) adequate notice to
Subordinate Lender shall have been given for the DIP Facility if Subordinate
Lender receives notice thereof at least 2 business days prior to the hearing on
the motion requesting the DIP Facility; and (b) if Senior Lender proposes to
provide a DIP Facility, Subordinate Lender may seek adequate protection of its
interest by demanding the same treatment as provided in the Subordinate Loan
Documents, provided, however, that failure by the Subordinate Lender to obtain
such adequate protection shall not be grounds for objecting to the DIP Facility.
Senior Lender and Borrower agree to use their best efforts to obtain the
treatment provided in the Subordinate Loan Documents as adequate protection for
Subordinate Lender. For purposes hereof, notice of a proposed financing or use
of cash collateral shall be deemed received by Subordinate Lender upon the
sending of notice by overnight delivery service, telecopy or hand delivery by
Subordinate Lender. Senior Lender is irrevocably authorized and empowered to
receive and collect any and all dividends, payments and distributions made on
account of any proof of claim relating to the Subordinate Debt in whatever form
the same may be paid or issued until the Senior Debt is paid or satisfied.
Subordinate Lender agrees to file a proof of claim in respect of the Subordinate
Debt and to execute and deliver to Senior Lender such assignments or other
instruments as Senior Lender may reasonably require to enable Senior
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<PAGE>
Lender to collect all dividends, payments and distributions which may be made at
any time on account of the Subordinated Debt until the Senior Debt is paid or
satisfied. Nothing contained herein shall prohibit Subordinate Lender from
objecting to or demanding additional adequate protection if such financing is
provided by a lender other than Senior Lender.
References herein to the Borrower shall include any successor to, or
assign of, the Borrower, including without limitation any debtor-in-possession
or trustee for the Borrower in any proceeding under the United States Bankruptcy
Code.
2.7 PAYMENT BLOCKAGE. In circumstances in which Section 2.6 does
not apply, Subordinate Lender will not be entitled to receive or retain any
direct or indirect payment (in cash, property, by set-off or otherwise) from the
Borrower of or on account of any Subordinate Obligations:
(a) during the first one hundred twenty (120) days following the
occurrence and continuation of a monetary Senior Default which has not been
cured; or
(b) during the period immediately following the date on which
Senior Lender has commenced legal proceedings to enforce its remedies pursuant
to a monetary default under the Senior Loan Documents; or
(c) during the period where there has occurred and is continuing a
material non-monetary Senior Default which has not been waived by the Senior
Lender and with respect to which the Senior Lender has commenced legal
proceedings and so notified the Subordinate Lender.
Each of the foregoing subsections (a), (b) and (c) is intended to
constitute a separate and independent basis for prohibiting each Subordinate
Party from receiving or retaining payment from the Borrower on account of the
Subordinate Obligations.
2.8 LIMITATIONS ON REMEDIES.
(a) Except in circumstances in which Section 2.6 is applicable,
Subordinate Lender shall not commence any action or proceeding against the
Borrower to enforce or collect any Subordinate Obligation to obtain possession
of property of the Borrower, to exercise control over property of the Borrower
or to create, perfect or enforce any lien against property of the Borrower until
the earliest to occur of (i) the date the Senior Lender accelerates the Senior
Debt, (ii) the date of Borrower's bankruptcy, (iii) if a monetary default (other
than a default that consists of failure to pay Senior Lender) exists and is
continuing with respect to the Subordinate Lender, the date occurring 120 days
after Subordinate Lender has given Senior Lender written notice of such default
and of its intention to take the foregoing action, unless the Subordinate Lender
shall have first obtained the written consent of the Senior Lender or (iv) if a
non-monetary default exists and is continuing with respect to the Subordinate
Lender, the date occurring 180 days after Subordinate Lender
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<PAGE>
has given Senior Lender written notice of such default and of its intention to
take the foregoing action, unless the Subordinate Lender shall have first
obtained the written consent of the Senior Lender.
(b) Nothing in this Agreement shall restrict the ability of the
Senior Lender or the Subordinate Lender to declare a Default or accelerate all
or any portion of the Borrower Obligations so long as payments are received and
turned over and remedies are pursued only in compliance with the terms of the
Senior Loan Documents, the Subordinate Loan Documents as applicable and this
Agreement.
(c) In the event Senior Lender enforces its rights and remedies
under the Senior Loan Documents, Subordinate Lender shall not take any action
which materially interferes with or impairs Senior Lender's rights and remedies.
2.9 TURN-OVER OF PROCEEDS RECEIVED. If the Borrower shall make any
payment of Proceeds which the Subordinate Lender is not permitted to receive and
retain pursuant to this Agreement then such payment shall be held in trust for
the benefit of, and shall be paid over promptly on demand to, the Senior Lender,
for application (a) first, to the payment of the Senior Debt and (b) second, to
the payment of the Subordinate Debt. Notwithstanding the foregoing, if the
Subordinate Lender receives a payment in an amount which exceeds the amount
which it is permitted to receive and retain under this Agreement, the
Subordinate Lender shall only be required to pay over the portion of such
payment which is in excess of the amount that it is so permitted to retain. If
any party pays over any payment or distribution as provided above then such
payment or distribution shall be deemed to have been made by the Borrower
directly to the party to whom such payment or distribution was paid over on
account of the Borrower Obligations owed to such party and not to the original
recipient thereof, and no Subordinate Obligations owed to such original
recipient shall be discharged by reason of its receipt of any payment or
distribution which is so paid over.
2.10 NOTICE OF DEFAULTS, ETC. In addition to any other notices
required hereunder, each of the Senior Lender and the Subordinate Lender shall
use its best efforts to give written notice to the other party hereto, promptly
upon the occurrence of the event which triggers the obligation to give such
notice, of (a) the occurrence of any Default or of an event which, with the
giving of notice or the expiration of the applicable cure period, would
constitute a Default, (b) the cure or waiver of any Default, (c) any
acceleration of the Senior Debt or any Subordinate Obligation, (d) any action or
proceeding instituted against the Borrower on account of any Default, (e) any
material amendment to any Senior Loan Document or Subordinate Obligation
Document and (f) the Payment in Full of the Senior Debt or any Subordinate
Obligation; provided, that the failure of any party to give such a notice shall
not affect the rights or obligations or create the basis of any liability of any
party hereunder.
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<PAGE>
2.11 BORROWER'S OBLIGATIONS ABSOLUTE. The provisions of this
Agreement are solely for the benefit of the Borrower, the Senior Lender and the
Subordinate Lender for the purpose of defining the relative rights of the
holders of the Borrower Obligations. Nothing herein shall impair, as between
the Borrower and any other party hereto, the obligations of the Borrower, which
are unconditional and absolute, to the Senior Lender and to the Subordinate
Lender, respectively.
2.12 SUBORDINATION NOT AFFECTED. Without the necessity of any
reservation of rights against or any notice to or further assent by the
Subordinate Lender, but subject to compliance with the terms of this Agreement
and the applicable Senior Loan Documents or Subordinate Obligation Documents,
(a) any demand for payment of any Borrower Obligation may be rescinded in whole
or in part by the holder thereof and any Borrower Obligation may be continued,
(b) the holders of any Borrower Obligation may exercise or refrain from
exercising any rights and remedies against the Borrower and others, (c) any
Borrower Obligation, or any collateral security or guaranty therefor or right of
offset with respect thereto, may be modified, accelerated, compromised, waived,
surrendered, or released by the holder thereof and (d) subject to Section 2.14,
any agreement or instrument evidencing, securing or otherwise relating to any
Borrower Obligation may be amended or modified, in each case without impairing,
abridging, releasing or affecting the subordination provided for herein.
2.13 TRANSFERS. Neither the Senior Lender nor the Subordinate
Lender shall sell, assign or otherwise transfer, in whole or in part, any of the
Borrower Obligations or any interest therein to any other person or entity
unless the transferee thereof expressly acknowledges to the other parties to
this Agreement, in writing, that it agrees to be bound by all of the terms
hereof. The Senior Lender and the Subordinate Lender hereby represent and
warrant to the others that as of the execution date hereof neither the Senior
Lender nor the Subordinate Lender has transferred or entered into any agreement
or understanding with a proposed transferee that it will transfer any of the
Borrower Obligations, except as to the interest of Showa Leasing (U.S.A.), Inc.
in the Subordinate Debt.
2.14 MODIFICATION OF DOCUMENTS. Without the prior consent of the
Subordinate Lender, the Senior Lender shall not amend, modify or otherwise alter
any Senior Loan Document so as to (i) increase the amount of the Senior Debt
beyond the principal amount of $4,500,000, except where the excess of any such
increase over the principal amount of $4,500,000 is made expressly subordinate
to all Subordinate Obligations, (ii) provide for an earlier maturity of any
monetary obligation of the Borrower thereunder, or (iii) require payments of
principal or interest thereunder to be made more frequently or in greater
amounts. Notwithstanding the foregoing, the holder or holders of the Senior
Debt may renew the Senior Debt upon the maturity thereof without any consent
from the Subordinate Parties so long as (A) any renewal or extension of the term
of the Senior Term Loan is for a period of not greater than two years from the
date of such renewal or extension, (B) the amortization schedule for any senior
term debt at the commencement of such renewal or extension term is the same as
at the commencement of the original term and (C) except as otherwise
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specifically provided in clauses (A) and (B) above, there is no amendment,
modification or other alteration to the Senior Loan Documents which is
prohibited by the previous sentence.
2.15 MISCELLANEOUS. Except as authorized in Sections 2.4 through
2.8 inclusive, regardless of whether a default or an event of default (however
defined) exists under any one or more of the Subordinated Agreements,
Subordinate Lender further agrees not to (i) accept, retain, request or take any
security for the Subordinated Debt without Senior Lender's prior written
consent, (ii) amend or modify the Subordinated Agreements, or increase or
forgive any of the Subordinated Debt, without Senior Lender's prior written
consent, (iii) accept payment of, demand payment of, sue for or receive all or
any part of the Subordinated Debt, or (iv) take any action to enforce its rights
in any collateral securing payment thereof, unless or until all Senior Debt
shall have been paid in full.
2.16 LEGENDS. Any instrument issued by the Borrower to evidence the
Subordinate Debt upon issuance or in replacement, renewal, exchange for or
substitution thereof or evidencing the transfer thereof, shall bear an
appropriate legend in substantially the following form:
The security for the payment of this
instrument, both principal and interest,
and all other indebtedness evidenced
hereby, is subject to the prior rights of
The CIT Group/Credit Finance, Inc., its
successors and assigns, in the manner and
to the extent set forth in a certain
Intercreditor and Subordination Agreement
dated as of December 31, 1995, which
Agreement is incorporated herein by
reference.
SECTION 3. MISCELLANEOUS.
3.1 NOTICES. Except as otherwise expressly provided for herein,
any and all notices given in connection with this Agreement shall be deemed to
have been validly served, given or delivered upon (i) deposit in the United
States certified or registered mails, with proper postage prepaid; (ii) sent by
facsimile transmission with a duplicate copy sent contemporaneously by U.S.
Mail; or (iii) delivered by overnight courier or messenger delivery, addressed
to the party to be notified. A written notice shall be deemed to have been
given to the recipient party on the earlier of (a) the date it shall be
delivered to the address required by this Agreement; (b) the date delivery shall
have been refused at the address required by this Agreement; or (c) with respect
to notices sent by mail, the date as of which the postal service shall have
indicated such notice to be undeliverable at the address required by this
Agreement. Any and all notices referred to in this Agreement, or which either
party desires to give to the other, shall be addressed as follows:
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If to the Borrower: Reuter Manufacturing, Inc.
410 Eleventh Avenue South
Hopkins, Minnesota 55343
Attn: James Taylor President and Chief
Executive Officer
Fax: (612) 935-7798
with a copy to: Winthrop & Weinstine, P.A.
3200 Minneapolis World Trade Center
30 East Seventh Street
St. Paul, Minnesota 55101
Attn: Hart Kuller
Fax: (612) 292-9347
If to the Senior The CIT Group/Credit Finance, Inc.
Lender: 10 South LaSalle Street
Chicago, Illinois 60603
Attn: David Brady
Fax: (312) 424-9797
with a copy to: The CIT Group/Credit Finance, Inc.
10 South LaSalle Street
Chicago, Illinois 60603
Attn: Robert Handler, Esq.
Fax: (312) 424-9797
If to the Subordinate Lender: Sanwa Business Credit Corporation
One South Wacker Drive
28th Floor
Chicago, Illinois 60606
Attn: Asset Management Division
Fax:(312) 782-6486
with a copy to: Sachnoff & Weaver, Ltd.
30 South Wacker Drive
29th Floor
Chicago, Illinois 60606
Attn: Richard G. Smolev
Fax:(312) 207-6400
The above addresses may be changed by notice of such changed, mailed
as provided herein, to the last address designated.
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<PAGE>
3.2 NO FIDUCIARY DUTY. Nothing in this Agreement shall be
construed to create or impose upon the Senior Lender any fiduciary duty to the
Subordinate Lender, or any other implied obligation to act or refrain from
acting with respect to the Borrower or the Senior Debt or the collateral
security securing the Senior Debt in any manner contrary to what the Senior
Lender may determine is in its own best interests. Nothing in this Agreement
shall be construed to create or impose upon the Subordinate Lender any fiduciary
duty to the Senior Lender or any other implied obligation to act or refrain from
acting with respect to the Borrower or any Subordinate Obligations or the
collateral security securing any Subordinate Obligations in any manner contrary
to what the Subordinate Lender may determine is in its own best interests.
3.3 SUCCESSORS; CONTINUING EFFECT. This Agreement is being
entered into for the benefit of, and shall be binding upon, the Borrower, the
Senior Lender and the Subordinate Lender and their respective successors and
assigns, including each subsequent or additional holder of Senior Debt, or
Subordinate Debt, and the terms "Senior Lender" and "Subordinate Lender", shall
include, respectively, any such subsequent or additional holder of Senior Debt
or Subordinate Debt whenever the context permits. This Agreement shall inure to
the benefit of and be enforceable by any future holder or holders of the
Borrower Obligations or any part of any of the same. This Agreement shall
remain in full force and effect as long as there are any Borrower Obligations
outstanding.
3.4 AMENDMENTS. This Agreement may be amended only by a written
instrument executed by the Senior Lender and the Subordinate Lender and, if such
amendment affects the Borrower, by the Borrower.
3.5 TERM. This Agreement shall remain in full force and effect
until the Payment in Full of the Senior Debt.
3.6 WAIVERS. No waiver shall be deemed to be made by any party
of any of its rights hereunder unless the same shall be in writing and then only
with respect to the specific instance involved, and no such waiver shall impair
or offset the rights of the waiving party or the obligations of the party
benefited by such waiver in any other respect or at any other time.
3.7 GOVERNING LAW. This Agreement, including the validity
hereof and the rights and obligations of the parties hereunder, shall be
governed by and construed and enforced in accordance with the laws of the State
of Illinois.
3.8 SUBORDINATION MAY NOT BE IMPAIRED BY THE BORROWER. No right
of the Senior Lender or the Subordinate Lender to enforce the subordination
created hereby shall be impaired by any act or failure to act by the Borrower or
by the failure by the Borrower to comply with this Agreement, regardless of any
knowledge which the Senior Lender or the Subordinate Lender may have or be
otherwise charged with.
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3.9 CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. ALL PARTIES
HERETO ABSOLUTELY AND IRREVOCABLY CONSENT AND SUBMIT TO THE JURISDICTION OF ANY
STATE OR FEDERAL COURT LOCATED IN COOK COUNTY, ILLINOIS IN CONNECTION WITH ANY
ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT. ALL
PARTIES HERETO HEREBY WAIVE AND SHALL NOT ASSERT IN ANY SUCH ACTION OR
PROCEEDING, IN EACH CASE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
CLAIM THAT (A) IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH
COURT, (B) SUCH PARTY IS IMMUNE FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE
OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION,
EXECUTION OR OTHERWISE), (C) ANY SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN
AN INCONVENIENT FORUM, (D) THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER, (E) THIS AGREEMENT MAY NOT BE ENFORCED IN OR BY ANY SUCH COURT, OR (F)
ANY PARTY HAS A RIGHT TO A TRIAL BY JURY OF ANY CLAIM ARISING HEREUNDER. ANY
ACTION BROUGHT BY ANY PARTY IN CONNECTION WITH THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY SHALL BE BROUGHT IN A STATE OR FEDERAL COURT
SITTING IN COOK COUNTY, ILLINOIS.
3.10 SPECIFIC PERFORMANCE. The parties hereto acknowledge that
legal remedies may be inadequate and therefore the Senior Lender and the
Subordinate Lender are hereby authorized to demand specific performance of the
provisions of this Agreement at any time when the Borrower, the Senior Lender or
the Subordinate Lender shall have failed to comply with any provision hereof.
Each party hereto hereby irrevocably waives any defense based on the adequacy of
a remedy at law that might be asserted as a bar to such remedy of specific
performance.
3.11 FURTHER ACTIONS. After the execution of this Agreement each
party will execute and deliver all such documents and instruments and do all
such other acts and things as may be reasonably necessary to carry out the
provisions of this Agreement.
3.12 AGREEMENT TO CONTROL. If any provision in any document or
instrument relating to the Senior Debt or the Subordinate Debt, differs with the
terms of this Agreement regarding the same or any similar matter, the provisions
of this Agreement shall control and each other provision shall be interpreted so
as to give effect to the provisions of this Agreement.
3.13 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in any number of counterparts, and by each of the parties on
separate counterparts, each of which, when so executed, shall be deemed an
original, but all of which shall constitute but one and the same instrument.
Delivery of an executed counterpart of this Agreement by telefacsimile shall be
equally as effective as delivery of a manually executed counterpart of this
Agreement, but the failure to deliver a manually executed counterpart shall not
affect the validity, enforceability or binding effect of this Agreement.
3.14 ENTIRE AGREEMENT. This Agreement contains the entire
agreement of the parties with respect to the subject matter hereof and
supersedes all prior written and oral agreements, and all contemporaneous oral
agreements, relating to such matters.
-11-
<PAGE>
3.15 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day, month and year first above written.
REUTER MANUFACTURING, INC.
By: /s/ James W. Taylor
-----------------------------------
Its: President
-----------------------------------
THE CIT GROUP/CREDIT FINANCE, INC.
By: /s/ Richard A. Simons
-----------------------------------
Its: Vice President
-----------------------------------
SANWA BUSINESS CREDIT CORPORATION
By: /s/ Thomas P. Guido
-----------------------------------
Its: Group Vice President
-----------------------------------
-12-
<PAGE>
SCHEDULE 1
LIST OF SENIOR LOAN DOCUMENTS
Loan and Security Agreement, dated February 15, 1991
Amendment, dated July 26, 1994
Amendment, dated December 15, 1994
Amendment, dated January 17, 1995
Amendment, dated October 12, 1995
Amendment, dated December 22, 1995
Fourth Amended and Restated Promissory Note
in the principal amount of $1,500,693.09, dated December 22, 1995
Mortgage and Security Agreement
Collateral Assignment of Certificate of Deposit
Patent, Trademark & License Mortgage
Lockbox Agreement
Blocked Account Agreement
<PAGE>
SCHEDULE 2
LIST OF SUBORDINATE LOAN DOCUMENTS
1. Loan and Security Agreement dated August 24, 1995.
2. Senior Subordinated Secured Promissory Note dated August 24, 1995.
3. Junior Subordinated Secured Promissory Note dated August 24, 1995.
4. Net Operating Income Agreement dated August 24, 1995.
5. Mortgage, Assignment of Leases and Rents and Security Agreement dated
August 24, 1995.
6. Standstill Agreement by and among Senior Lender, Subordinate Lender and
Edward Strickland dated August 24, 1995.
7. Standstill Agreement by and among Senior Lender, Subordinate Lender and
James Taylor dated August 24, 1995.
8. Common Stock Warrant Agreement dated August 24, 1995.
<PAGE>
REUTER MANUFACTURING, INC.
COMMON STOCK WARRANT AGREEMENT
------------------------------
This Common Stock Warrant Agreement (the "Warrant") is made and
entered into as of December 31, 1995 (the "Effective Date"), by and between
Reuter Manufacturing, Inc., a Minnesota corporation ("Reuter"), and Sanwa
Business Credit Corporation, a Delaware corporation ("SBCC"). Reuter and SBCC
are sometimes herein collectively referred to as "Parties" and separately
referred to as a "Party".
RECITALS
This Warrant is entered into in light of the following background:
A. Reuter has requested SBCC to make certain financial
accommodations to Reuter.
B. It is a material condition of SBCC's granting of the requested
financial accommodations that Reuter enter into this Warrant.
AGREEMENT
NOW THEREFORE, for and in consideration of the background Recitals and
the mutual promises, terms and conditions contained herein and other valuable
consideration, the receipt and sufficiency of which is acknowledged, the Parties
agree as follows:
1. GRANT OF WARRANT. Reuter hereby grants SBCC, its nominees,
successors or assigns the right to purchase up to 3,178,780 shares (the
"Shares") of Reuter's authorized, unissued, nonassessable Common Stock, par
value $.1875 per share (the "Common Stock"), upon the payment by SBCC to Reuter
of the total purchase price of ten dollars ($10.00) (the "Purchase Price").
SBCC shall have the right to exercise this Warrant in whole or in part at any
time or times after the occurrence of an event described in Section 3(a) below.
The number of Shares purchasable upon exercise of this Warrant (the "Share
Number") shall be subject to adjustment from time to time as set forth in
Section 4.
2. COVENANTS OF REUTER. Reuter will at all times reserve and
keep available out of its authorized shares of Common Stock, solely for the
purpose of issue upon the exercise of this Warrant as herein provided, such
number of shares of Common Stock as shall then be issuable upon the exercise
of this Warrant. Reuter covenants that all shares of Common Stock which
shall be so issued shall be duly and validly issued and fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof. Reuter will take all such action as may be necessary to
assure that all such shares of Common Stock may be so issued without
violation of any applicable requirements of any federal or state securities
laws or of any national stock exchange upon which the shares of Common Stock
of Reuter may be listed. Reuter will not take any action which results in
any adjustment of the Share Number if the total number of
<PAGE>
shares of Common Stock issued and issuable after such action upon exercise of
this Warrant would exceed the total number of shares of Common Stock then
authorized by Reuter's Certificate of Incorporation.
3. EXERCISE OF WARRANT.
a. VESTING. SBCC can exercise the Warrant at any time, and
from time to time, in whole or in part, following the occurrence of an
"ownership change" in respect of Reuter, for the purposes of Section 382(g)(1)
of the Internal Revenue Code of 1986, as amended, except an "ownership change"
resulting directly or indirectly from the acquisition of securities of Reuter by
the holder of this Warrant, or a person or entity acting on behalf of or in
concert with such holder.
b. EXERCISE OF WARRANT. In order to exercise this Warrant, the
holder of this Warrant shall deliver to Reuter, at its address specified below,
(i) a written notice of such holder's election to exercise this Warrant,
specifying the number of shares of Common Stock to be purchased, (ii) this
Warrant and (iii) payment of the Purchase Price for the number of shares
specified, in cash or by a certified or cashier's check. Reuter may require
SBCC to furnish a written statement that the Shares are being purchased for its
own account and not with a view to the distribution thereof. Upon receipt of
written notice, Reuter shall as promptly as practicable execute or cause to be
executed and delivered to such holder a certificate or certificates representing
the aggregate number of Shares purchased. SBCC agrees that such certificate or
certificates may bear a legend setting forth restrictions on transferability of
the shares of Common Stock evidenced by such certificate or certificates. If
this Warrant shall have been exercised only in part, Reuter shall also cancel
this Warrant and deliver a new Warrant of like tenor evidencing the rights of
such holder to purchase the remaining Shares called for by this Warrant.
Notwithstanding the foregoing, Reuter shall not be required to deliver
any certificate for shares of Common Stock upon exercise of this Warrant, except
in accordance with the provisions, and subject to the limitations, of paragraph
5(d) hereof.
c. PURCHASE PRICE. The Purchase Price for an individual Share
under this Warrant at any time shall be $10.00 divided by the then-current Share
Number.
4. ADJUSTMENTS.
a. DIVIDENDS. No payment or adjustment shall be made upon any
exercise of this Warrant on account of any previous cash dividends.
b. SUBDIVISION OR COMBINATION OF STOCK.
i. In case Reuter shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares or declare a
dividend or make any other distribution upon the Common Stock of Reuter payable
in Common Stock, the Share Number in
-2-
<PAGE>
effect immediately prior to such subdivision, dividend or distribution shall be
proportionately increased, and conversely, in case the outstanding shares of
Common Stock of Reuter shall be combined into a smaller number of shares, the
Share Number in effect immediately prior to such combination shall be
proportionately reduced. No fractional shares shall be issued upon the exercise
of this Warrant.
ii. RECORD DATE. In case Reuter shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a
dividend or other distribution payable in Common Stock, then such record date
shall be deemed to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the declaration of such dividend
or the making of such other distribution, as the case may be.
c. REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE.
i. If any capital reorganization or reclassification of
the capital stock of Reuter, or any consolidation or merger of Reuter with
another corporation, or the sale of all or substantially all of its assets to
another corporation, shall be effected in such a way that holders of Common
Stock shall be entitled to receive stock, securities or assets with respect to
or in exchange for Common Stock, then, Reuter covenants and agrees that, as a
condition of such reorganization, reclassification, consolidation, merger or
sale, it shall ensure that lawful and adequate provisions shall be made whereby
SBCC shall thereafter have the right to receive upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
of Reuter immediately theretofore receivable upon the exercise of this Warrant,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such stock immediately receivable upon
the exercise of this Warrant had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of SBCC to the
end that the provisions hereof (including without limitation provisions for
adjustments of the Share Number) shall thereafter be applicable, as nearly as
may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of this Warrant.
ii. In the event of a merger or consolidation of Reuter
with or into another corporation as a result of which a greater or lesser number
of shares of common stock of the surviving corporation are issuable to holders
of Common Stock of Reuter outstanding immediately prior to such merger or
consolidation, then the Share Number in effect immediately prior to such merger
or consolidation shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of Common Stock of Reuter.
Reuter covenants and agrees that it will not effect any such consolidation,
merger or sale, unless prior to the consummation thereof the successor
corporation (if other than Reuter) resulting from such consolidation or merger
or the corporation purchasing such assets shall assume by written instrument
executed and mailed or delivered to the registered holder hereof at the last
address of such holder appearing on the books of Reuter, the obligation to
deliver to such holder such shares
-3-
<PAGE>
of stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to receive.
d. NOTICE OF ADJUSTMENT. Upon any adjustment of the Share
Number, then and in each such case Reuter shall give written notice thereof,
which notice shall state the Share Number resulting from such adjustment,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
e. OTHER NOTICES. In case at any time:
i. Reuter shall declare any dividend upon its Common Stock
payable in stock;
ii. Reuter shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of
stock of any class or other rights;
iii. there shall be any capital reorganization, or
reclassification of the capital stock of Reuter, or
consolidation or merger of Reuter with, or sale of all
or substantially all of its assets to, another
corporation; or
iv. there shall be a voluntary dissolution, liquidation or
winding up of Reuter;
then, in any one or more of said cases, Reuter shall give, (i) at least 20 days
prior written notice of the date on which the books of Reuter shall close or a
record shall be taken for such dividend, distribution or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least 20
days prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (i) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto, and such notice in
accordance with the foregoing clause (ii) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
5. MISCELLANEOUS.
a. TERMINATION. This Warrant will terminate and cease to be
exercisable upon the indefeasible payment in full of all sums due SBCC under the
Income Sharing Agreement of even date herewith by and between the parties
hereto.
-4-
<PAGE>
b. ISSUE TAX. The issuance of certificates for shares of
Common Stock upon exercise of this Warrant shall be made without charge to SBCC
for any issuance tax in respect thereof, provided that Reuter shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than that of the
holder of this Warrant.
c. CLOSING OF BOOKS. Reuter will not close its books against
the transfer of any shares of Common Stock issued or issuable upon the exercise
of this Warrant.
d. TRANSFERABILITY; REGISTRATION UNDER SECURITIES ACT. Neither
this Warrant nor the shares of Common Stock issuable upon exercise of this
Warrant have been registered under the Securities Act of 1933, as amended, nor
under the securities law of any state. This Warrant cannot be exercised, sold
or transferred, in whole or in part, and the shares of Common Stock issuable
upon exercise of this Warrant cannot be sold or transferred, unless and until
they are so registered or upon receipt of an opinion of SBCC's counsel addressed
to Reuter, such counsel and opinion to be reasonably satisfactory to Reuter,
that such registration is not then required under applicable state or federal
law under the circumstances of such sale or transfer. If in the opinion of such
counsel the proposed exercise, sale or transfer may be effected without
registration or qualification (under federal or state law), such holder shall be
entitled to exercise sell or transfer the Warrant or the Shares, as the case may
be, in accordance with the opinion of such counsel; provided, that an
appropriate legend may be endorsed on this Warrant, and/or the certificates
evidencing the Shares purchased upon exercise of this Warrant, regarding the
restrictions upon the transfer thereof necessary or advisable in the opinion of
counsel to prevent further transfers which would be in violation of Section 5 of
the Securities Act of 1933.
e. NOTICE. Except as otherwise expressly provided for herein,
any and all notices given in connection with this Warrant shall be deemed
adequately given only if in writing and addressed to the party for whom such
notices are intended at the address set forth below. All notices shall be sent
by personal delivery, Federal Express, or other overnight messenger service,
first class registered or certified mail, postage prepaid, return receipt
requested, facsimile transmission with a duplicate copy sent contemporaneously
by U.S. Mail, or by other means at least as fast and reliable as first class
mail. A written notice shall be deemed to have been given to the recipient
party on the earlier of (a) the date it shall be delivered to the address
required by this Warrant; (b) the date delivery shall have been refused at the
address required by this Warrant; or (c) with respect to notices sent by mail,
the date as of which the postal service shall have indicated such notice to be
undeliverable at the address required by this Warrant. Any and all notices
referred to in this Warrant, or which either party desires to give to the other,
shall be addressed as follows:
(a) If to SBCC, at: Sanwa Business Credit Corporation
One South Wacker Drive
Chicago, Illinois 60606
Attn: Asset Management Division
Fax: (312) 782-6486
-5-
<PAGE>
with a copy to: Richard G. Smolev, Esq.
Sachnoff & Weaver, Ltd.
30 South Wacker Drive
Chicago, Illinois 60606
Fax: (312) 207-6400
(b) If to Reuter, at: Reuter Manufacturing, Inc.
410 Eleventh Avenue South
Hopkins, Minnesota 55343
Attn: James Taylor, President and
Chief Executive Officer
Fax: (612) 935-7798
with a copy to: Hart Kuller, Esq.
Winthrop & Weinstine, P.A.
3200 Minneapolis World Trade Center
30 East Seventh Street
St. Paul, Minnesota 55101
Fax: (612) 292-9347
The above addresses may be changed by notice of such changed, mailed as provided
herein, to the last address designated.
f. LIMITATION OF LIABILITY. No provisions hereof, in the
absence of affirmative action by SBCC to purchase Shares hereunder, and no mere
enumeration herein of the rights or privileges of SBCC shall give rise to any
liability of such holder for the Purchase Price or as a shareholder of Reuter
(whether such liability is asserted by Reuter or creditors of Reuter).
g. NO VOTING RIGHTS. This Warrant shall not entitle the holder
hereof to any voting rights or other rights as a stockholder of the Company.
h. ENTIRE AGREEMENT. This Warrant constitutes the entire
agreement by and between the Parties with respect to the matters herein
contemplated. This Warrant supersedes all previous agreements, negotiations and
commitments in respect thereto. This Warrant shall not be changed or modified
in any manner, except by mutual consent in a writing of subsequent date signed
by the duly authorized representatives of each Party hereto at any time prior to
the date of exercise.
-6-
<PAGE>
i. COUNTERPARTS. This Warrant may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the Parties have executed this Warrant as of the
Effective Date.
REUTER MANUFACTURING, INC. SANWA BUSINESS CREDIT
CORPORATION
By: /s/ James W. Taylor By: /s/ Thomas P. Guido
------------------------------ --------------------------
Its: President Its: Group Vice President
----------------------------- --------------------------
-7-
<PAGE>
STANDSTILL AGREEMENT
This Standstill Agreement ("Agreement") is entered into as of December 31,
1995 between Edward E. Strickland ("Strickland"), Reuter Manufacturing, Inc.
("Reuter"), a Minnesota corporation and Sanwa Business Credit Corporation, a
Delaware corporation ("Lender").
RECITALS
A. Strickland is the owner of 224,250 shares of common stock in and a
member of the Board of Directors of Reuter;
B. Strickland is the owner of options to acquire 38,000 shares of common
stock in Reuter;
C. Reuter has requested Lender to restructure the terms of its
obligations to Lender and in connection therewith, has offered to enter into
that certain Income Sharing Agreement (the "Income Sharing Agreement") of even
date herewith;
D. It is a condition of Lender's agreement to restructure the obligations
of Reuter to Lender that Strickland enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which is acknowledged, the parties agree as follows:
1. TERM OF AGREEMENT. This Agreement shall apply until the first to
occur of the following: (i) expiration of the Income Sharing Agreement; (ii) the
death of Strickland; or (iii) the occurrence of an event (other than one caused
by Strickland, directly or indirectly) which causes an "ownership change" in
respect of Reuter for the purposes of Section 382(g)(1) of the Internal Revenue
Code of 1986, as amended (the "Termination Date").
2. COVENANTS OF STRICKLAND. Prior to the Termination Date, neither
Strickland nor any person, corporation or other entity controlled by Strickland
will, directly or indirectly: (i) acquire, offer to acquire or agree to acquire,
or (ii) exercise any option or right to acquire (now or hereafter existing), or
(iii) transfer, offer to or transfer or agree to transfer any Reuter stock or
option or right to acquire any Reuter stock or otherwise take any similar steps
to diminish the value of the net operating losses of Reuter.
3. SPECIFIC PERFORMANCE. Strickland acknowledges and agrees that Lender
would suffer irreparable damage in the event any of the provisions of this
Agreement were not performed in accordance with the specific terms or otherwise
were breached. Accordingly, it is agreed that Lender shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof in
addition to any other remedy to which Lender may be entitled at law or equity.
<PAGE>
4. NO FIDUCIARY DUTY. Nothing in this Agreement shall be construed to
create or impose upon the Lender any fiduciary duty to Strickland, or any other
implied obligation to act or refrain from acting with respect to Reuter in any
manner contrary to what the Lender may determine is in its own best interests.
5. SUCCESSORS; CONTINUING EFFECT. This Agreement is being entered into
for the benefit of, and shall be binding upon, Strickland, Reuter and Lender and
their respective successors and assigns. This Agreement shall inure to the
benefit of and be enforceable by any future holder or holders of any obligations
of Reuter to Lender or any part of any of the same.
6. AMENDMENTS. This Agreement may be amended only by a written
instrument executed by Strickland and Lender and, if such amendment affects
Reuter, by Reuter.
7. WAIVERS. No waiver shall be deemed to be made by any party of any of
its rights hereunder unless the same shall be in writing and then only with
respect to the specific instance involved, and no such waiver shall impair or
offset the rights of the waiving party or the obligations of the party benefited
by such waiver in any other respect or at any other time.
8. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT HAS BEEN
DELIVERED FOR ACCEPTANCE BY LENDER IN CHICAGO, ILLINOIS AND SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS
OF LAW PROVISIONS) OF THE STATE OF ILLINOIS. EACH OF THE PARTIES HERETO HEREBY
(i) WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION TO ENFORCE OR DEFEND ANY
MATTER ARISING FROM OR RELATED TO THIS AGREEMENT; (ii) IRREVOCABLY SUBMITS TO
THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN COOK COUNTY, ILLINOIS,
OVER ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR
RELATED TO THIS AGREEMENT; AND (iii) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
SUCH PARTY MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING. EACH OF REUTER AND STRICKLAND
HEREBY: (i) AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTIONS BY SUIT ON
THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW; AND (ii) AGREES NOT TO
INSTITUTE ANY LEGAL ACTION OR PROCEEDING AGAINST LENDER OR ANY OF LENDER'S
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTY, CONCERNING ANY MATTER
ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY COURT OTHER THAN ONE LOCATED
IN COOK COUNTY, ILLINOIS. NOTHING IN THIS SECTION 8 SHALL AFFECT OR IMPAIR
LENDER'S RIGHT TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR LENDER'S
RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST REUTER OR STRICKLAND OR THE
PROPERTY OF REUTER OR STRICKLAND IN THE COURTS OF ANY OTHER JURISDICTION.
9. FURTHER ACTIONS. After the execution of this Agreement each party
will execute and deliver all such documents and instruments and do all such
other acts and things as may be reasonably necessary to carry out the provisions
of this Agreement.
10. NOTICES. Except as otherwise expressly provided for herein, any and
all notices given in connection with this Agreement shall be deemed adequately
given only if in writing and addressed to the party for whom such notices are
intended at the address set forth below. All notices shall be sent by personal
delivery, Federal Express or other overnight messenger service, first class
registered or certified mail, postage prepaid, return receipt requested,
facsimile
-2-
<PAGE>
transmission with a duplicate copy sent contemporaneously by U.S. Mail, or by
other means at least as fast and reliable as first class mail. A written notice
shall be deemed to have been given to the recipient party on the earlier of (a)
the date it shall be delivered to the address required by this Agreement, (b)
the date delivery shall have been refused at the address required by this
Agreement; or (c) with respect to notices sent by mail, the date as of which the
postal service shall have indicated such notice to be undeliverable at the
address required by this Agreement. Any and all notices referred to in this
Agreement, or which either party desires to give to the other, shall be
addressed as follows:
If to Strickland: Edward E. Strickland
c/o Reuter Manufacturing, Inc.
410 Eleventh Avenue South
Hopkins, Minnesota 55343
Fax: (612) 935-7798
If to Green Isle: Reuter Manufacturing, Inc.
410 Eleventh Avenue South
Hopkins, Minnesota 55343
Attn: James Taylor President and Chief Executive
Officer
Fax: (612) 935-7798
with a copy to: Winthrop & Weinstine, P.A.
3200 Minneapolis World Trade Center
30 East Seventh Street
St. Paul, Minnesota 55101
Attn: Hart Kuller
Fax: (612) 292-9347
If to the Lender: Sanwa Business Credit Corporation
One South Wacker Drive
Suite 3900
Chicago, IL 60606
Attn: Asset Management Division
Fax: (312) 782-6486
with a copy to: Sachnoff & Weaver, Ltd.
30 South Wacker Drive
Suite 2900
Chicago, IL 60606
Attn: Richard G. Smolev
Fax: (312) 207-6400
The above addresses may be changed by notice of such changed, mailed as provided
herein, to the last address designated.
-3-
<PAGE>
11. COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be executed
in any number of counterparts, and by each of the parties on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all of which shall constitute but one and the same instrument. Delivery of an
executed counterpart of this Agreement by telefacsimile shall be equally as
effective as delivery of a manually executed counterpart of this Agreement, but
the failure to deliver a manually executed counterpart shall not affect the
validity, enforceability or binding effect of this Agreement.
12. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to the subject matter hereof and supersedes all prior
written and oral agreements, and all contemporaneous oral agreements, relating
to such matters.
13. SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day, month and year first above written.
/s/ Edward E. Strickland
---------------------------------------------
EDWARD E. STRICKLAND
REUTER MANUFACTURING, INC.
By: /s/ James W. Taylor
------------------------------
Name: James W. Taylor
-----------------------------
Its: President
-----------------------------
SANWA BUSINESS CREDIT CORPORATION
By: /s/ Thomas P. Guido
-------------------------------
Name: Thomas P. Guido
-----------------------------
Its: Group Vice President
-----------------------------
-4-
<PAGE>
STANDSTILL AGREEMENT
--------------------
This Standstill Agreement ("Agreement") is entered into as of December 31,
1995 between James Taylor ("Taylor"), Reuter Manufacturing, Inc. ("Reuter"), a
Minnesota corporation and Sanwa Business Credit Corporation, a Delaware
corporation ("Lender").
RECITALS
A. Taylor is the owner of 98,600 shares of common stock in Reuter;
B. Taylor is the owner of options to acquire 139,000 shares of common
stock in and a member of the Board of Directors of Reuter;
C. Reuter has requested Lender to restructure the terms of its
obligations to Lender and in connection therewith, has offered to enter into
that certain Income Sharing Agreement (the "Income Sharing Agreement") of even
date herewith; and
D. It is a condition of Lender's agreement to restructure the obligations
of Reuter to Lender that Taylor enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which is acknowledged, the parties agree as follows:
1. TERM OF AGREEMENT. This Agreement shall apply until the first to
occur of the following: (i) the expiration of the Income Sharing Agreement; (ii)
the death of Taylor; or (iii) the occurrence of an event (other than one caused
by Taylor, directly or indirectly) which causes an "ownership change" in respect
of Reuter for the purposes of Section 382(g)(1) of the Internal Revenue Code of
1986, as amended (the "Termination Date").
2. COVENANTS OF TAYLOR. Prior to the Termination Date, neither Taylor
nor any person, corporation or other entity controlled by Taylor will, directly
or indirectly: (i) acquire, offer to acquire or agree to acquire, or (ii)
exercise any option or right to acquire (now or hereafter existing), or (iii)
transfer, offer to or transfer or agree to transfer any Reuter stock or option
or right to acquire any Reuter stock or otherwise take any similar steps to
diminish the value of the net operating losses of Reuter.
3. SPECIFIC PERFORMANCE. Taylor acknowledges and agrees that Lender
would suffer irreparable damage in the event any of the provisions of this
Agreement were not performed in accordance with the specific terms or otherwise
were breached. Accordingly, it is agreed that Lender shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof in
addition to any other remedy to which Lender may be entitled at law or equity.
<PAGE>
4. NO FIDUCIARY DUTY. Nothing in this Agreement shall be construed to
create or impose upon the Lender any fiduciary duty to Taylor, or any other
implied obligation to act or refrain from acting with respect to Reuter in any
manner contrary to what the Lender may determine is in its own best interests.
5. SUCCESSORS; CONTINUING EFFECT. This Agreement is being entered into
for the benefit of, and shall be binding upon, Taylor, Reuter and Lender and
their respective successors and assigns. This Agreement shall inure to the
benefit of and be enforceable by any future holder or holders of any obligations
of Reuter to Lender or any part of any of the same.
6. AMENDMENTS. This Agreement may be amended only by a written
instrument executed by Taylor and Lender and, if such amendment affects Reuter,
by Reuter.
7. WAIVERS. No waiver shall be deemed to be made by any party of any of
its rights hereunder unless the same shall be in writing and then only with
respect to the specific instance involved, and no such waiver shall impair or
offset the rights of the waiving party or the obligations of the party benefited
by such waiver in any other respect or at any other time.
8. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement has been
delivered for acceptance by Lender in Chicago, Illinois and shall be governed by
and construed in accordance with the internal laws (as opposed to the conflicts
of law provisions) of the State of Illinois. Each of the parties hereto hereby
(i) waives any right to a trial by jury in any action to enforce or defend any
matter arising from or related to this Agreement; (ii) irrevocably submits to
the jurisdiction of any state or federal court located in Cook County, Illinois,
over any action or proceeding to enforce or defend any matter arising from or
related to this Agreement; and (iii) irrevocably waives, to the fullest extent
such party may effectively do so, the defense of an inconvenient forum to the
maintenance of any such action or proceeding. Reuter and Taylor each (i) agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in any other jurisdictions by suit on the judgment or in any
other manner provided by law; and (ii) agrees not to institute any legal action
or proceeding against Lender or any of Lender's directors, officers, employees,
agents or property, concerning any matter arising out of or relating to this
Agreement in any court other than one located in Cook County, Illinois. Nothing
in this Section 8 shall affect or impair Lender's right to serve legal process
in any manner permitted by law or Lender's right to bring any action or
proceeding against Reuter or Taylor or the property of Reuter or Taylor in the
courts of any other jurisdiction.
9. FURTHER ACTIONS. After the execution of this Agreement each party
will execute and deliver all such documents and instruments and do all such
other acts and things as may be reasonably necessary to carry out the provisions
of this Agreement.
10. NOTICES. Except as otherwise expressly provided for herein, any and
all notices given in connection with this Agreement shall be deemed adequately
given only if in writing and addressed to the party for whom such notices are
intended at the address set forth below. All notices shall be sent by personal
delivery, Federal Express or other overnight messenger service,
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<PAGE>
first class registered or certified mail, postage prepaid, return receipt
requested, facsimile transmission with a duplicate copy sent contemporaneously
by U.S. Mail, or by other means at least as fast and reliable as first class
mail. A written notice shall be deemed to have been given to the recipient
party on the earlier of (a) the date it shall be delivered to the address
required by this Agreement; (b) the date delivery shall have been refused at the
address required by this Agreement; or (c) with respect to notices sent by mail,
the date as of which the postal service shall have indicated such notice to be
undeliverable at the address required by this Agreement. Any and all notices
referred to in this Agreement, or which either party desires to give to the
other, shall be addressed as follows:
If to Taylor: James Taylor
c/o Reuter Manufacturing, Inc.
410 Eleventh Avenue South
Hopkins, MN 55343
Fax: (612) 935-7798
If to Green Isle: Reuter Manufacturing, Inc.
410 Eleventh Avenue South
Hopkins, Minnesota 55343
Attn: James Taylor, President and
Chief Executive Officer
Fax: (612) 935-7798
with a copy to: Winthrop & Weinstine, P.A.
3200 Minneapolis World Trade Center
30 East Seventh Street
St. Paul, Minnesota 55101
Attn: Hart Kuller
Fax: (612) 292-9347
If to the Lender: Sanwa Business Credit Corporation
One South Wacker Drive
Suite 3900
Chicago, IL 60606
Attn: Asset Management Division
Fax: (312) 782-6486
with a copy to: Sachnoff & Weaver, Ltd.
30 South Wacker Drive
Suite 2900
Chicago, IL 60606
Attn: Richard G. Smolev
Fax: (312) 207-6400
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<PAGE>
The above addresses may be changed by notice of such changed, mailed as provided
herein, to the last address designated.
11. COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be executed
in any number of counterparts, and by each of the parties on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all of which shall constitute but one and the same instrument. Delivery of an
executed counterpart of this Agreement by telefacsimile shall be equally as
effective as delivery of a manually executed counterpart of this Agreement, but
the failure to deliver a manually executed counterpart shall not affect the
validity, enforceability or binding effect of this Agreement.
12. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to the subject matter hereof and supersedes all prior
written and oral agreements, and all contemporaneous oral agreements, relating
to such matters.
13. SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day, month and year first above written.
/s/ James W. Taylor
------------------------------------
JAMES TAYLOR
REUTER MANUFACTURING, INC.
By: /s/ James W. Taylor
-------------------------------
Name: James W. Taylor
------------------------------
Its: President
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SANWA BUSINESS CREDIT CORPORATION
By: /s/ Thomas P. Guido
-------------------------------
Name: Thomas P. Guido
------------------------------
Its: Group Vice President
------------------------------
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