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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest even reported) March 17, 1995
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KRUG International Corp.
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(Exact name of registrant as specified in its charter)
Ohio O-2901 31-0621189
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
6 North Main Street Suite 500, Dayton, OH 45402-1900
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(Address of principal executive offices)
Registrant's telephone number, including area code (513) 224-9066
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Item 5. Other Events.
On March 17, 1995, KRUG International Corp. (the "Corporation")
entered into a five year financing agreement with Transamerica Business Credit
Corporation. The Agreement provides the Corporation with a secured, revolving
credit line of up to $10 million to be used for U.S. working capital needs.
Item 7. Financial Statements and Exhibits.
Attached hereto marked Exhibit A and hereby made a part hereof is the
Loan and Security Agreement dated March 16, 1995 among KRUG International
Corp., KRUG Life Sciences Inc., Technology/Scientific Services, Inc. and
Transamerica Business Credit Corporation.
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.
KRUG International Corp.
Date: March 24, 1995 By: /s/ Thomas W. Kemp
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Thomas W. Kemp
Vice President - Finance
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Exhibit A
________________________________________________________________________________
LOAN AND SECURITY AGREEMENT
Dated as of March 16, 1995
between
TRANSAMERICA BUSINESS CREDIT CORPORATION
Lender
and
KRUG INTERNATIONAL CORP.
Borrower
and
KRUG LIFE SCIENCES INC. AND
TECHNOLOGY/SCIENTIFIC SERVICES, INC.
Borrowing Subsidiaries
RE:
$10,000,000 LOAN FACILITY
________________________________________________________________________________
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LOAN AND SECURITY AGREEMENT
---------------------------
SECTION PAGE
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INDEX OF EXHIBITS AND SCHEDULES . . . . . . . . . . . . . . . . . . . . iii
1. GENERAL DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 1
1.1 General Terms . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Terms . . . . . . . . . . . . . . . . . . . . . . . 10
2. LOANS: GENERAL TERMS . . . . . . . . . . . . . . . . . . . . 11
2.1 Line of Credit . . . . . . . . . . . . . . . . . . . . . . 11
2.2 All Loans and Advances to Constitute One Loan . . . . . . 11
2.3 Interest on Revolving Loan Liabilities . . . . . . . . . . 11
2.4 Term of Agreement . . . . . . . . . . . . . . . . . . . . 12
2.5 Voluntary Termination Fee . . . . . . . . . . . . . . . . 12
2.6 Collateral Management Fee . . . . . . . . . . . . . . . . 12
2.7 Closing Fee . . . . . . . . . . . . . . . . . . . . . . . 12
2.8 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . 13
3. LOANS: DISBURSEMENTS . . . . . . . . . . . . . . . . . . . . 14
3.1 Revolving Loan . . . . . . . . . . . . . . . . . . . . . . 14
3.2 Eligible Accounts - Billed and Eligible Accounts
- Estimated . . . . . . . . . . . . . . . . . . . . . . 15
3.3 Letter of Credit Facility . . . . . . . . . . . . . . . . 15
3.4 Disbursements . . . . . . . . . . . . . . . . . . . . . . 17
4. LOANS: PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . 17
4.1 Payments . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.2 Depository Account; Receipt and Application of Payment . . 18
4.3 Collections; Lender's Right to Notify Account Debtors . . 18
4.4 Statement of Account . . . . . . . . . . . . . . . . . . . 19
5. COLLATERAL: GENERAL TERMS . . . . . . . . . . . . . . . . . . 19
5.1 Security Interest . . . . . . . . . . . . . . . . . . . . 19
5.2 Special Collateral . . . . . . . . . . . . . . . . . . . . 20
5.3 Further Assurances . . . . . . . . . . . . . . . . . . . . 20
5.4 Verification of Accounts; Inspection; Audit . . . . . . . 20
5.5 Records and Schedules of Accounts . . . . . . . . . . . . 20
5.6 Notice Regarding Disputed Accounts . . . . . . . . . . . . 20
5.7 Proceeds of Equipment . . . . . . . . . . . . . . . . . . 21
5.8 Proceeds of Real Property . . . . . . . . . . . . . . . . 21
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SECTION PAGE
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6. WARRANTIES AND REPRESENTATIONS . . . . . . . . . . . . . . . . . 22
6.1 General Warranties and Representations . . . . . . . . . . . 22
6.2 Account Warranties and Representations . . . . . . . . . . . 25
6.3 Warranty and Reaffirmation of Warranties and
Representations; Survival of Warranties and
Representations . . . . . . . . . . . . . . . . . . . . . . 27
7. COVENANTS AND CONTINUING AGREEMENTS . . . . . . . . . . . . . . 27
7.1 Affirmative Covenants . . . . . . . . . . . . . . . . . . . 27
7.2 Negative Covenants . . . . . . . . . . . . . . . . . . . . . 30
7.3 Financial Covenants . . . . . . . . . . . . . . . . . . . . 32
7.4 Payment of Charges and Claims . . . . . . . . . . . . . . . 35
7.5 Insurance; Payment of Premiums . . . . . . . . . . . . . . . 36
7.6 Survival of Obligations Upon Termination of Agreement. . . . 37
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT . . . . . . . 37
8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . 37
8.2 Acceleration of the Liabilities . . . . . . . . . . . . . . 40
8.3 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.4 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.5 Default Rate of Interest . . . . . . . . . . . . . . . . . . 42
8.6 Marshalling; Payments Set Aside . . . . . . . . . . . . . . 43
9. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . 43
9.1 Excess Revolving Loan Availability . . . . . . . . . . . . . 43
9.2 Dividend . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.3 Execution and Delivery of Agreement . . . . . . . . . . . . 43
9.4 Documents and Other Agreements . . . . . . . . . . . . . . . 43
9.5 Absence of Material Adverse Change . . . . . . . . . . . . . 45
9.6 Conditions to the Initial Revolving Loan Advance . . . . . . 46
9.7 Conditions to Each Revolving Loan Advance . . . . . . . . . 46
10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.1 Appointment of Lender as Borrower's and each Borrowing
Subsidiary's Lawful Attorney . . . . . . . . . . . . . . . 46
10.2 Modification of Agreement; Sale of Interest . . . . . . . . 47
10.3 Expenses (Including Attorneys' Fees) . . . . . . . . . . . 47
10.4 Waiver by Lender . . . . . . . . . . . . . . . . . . . . . 48
10.5 Severability . . . . . . . . . . . . . . . . . . . . . . . 48
10.6 Parties . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.7 Joint and Several Liability . . . . . . . . . . . . . . . . 49
10.8 Conflict of Terms . . . . . . . . . . . . . . . . . . . . . 49
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SECTION PAGE
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10.9 Waivers by Borrower and Borrowing Subsidiaries . . . 49
10.10 Authorized Signatures . . . . . . . . . . . . . . . 49
10.11 Remedies . . . . . . . . . . . . . . . . . . . . . . 49
10.12 MUTUAL WAIVER OF JURY TRIAL . . . . . . . . . . . . 49
10.13 GOVERNING LAW . . . . . . . . . . . . . . . . . . . 50
10.14 Notice . . . . . . . . . . . . . . . . . . . . . . . 50
10.15 Section Titles . . . . . . . . . . . . . . . . . . . 51
INDEX OF EXHIBITS AND SCHEDULES
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EXHIBITS
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Exhibit A - Form of Borrowing Base Certificate
Exhibit B - Form of Notice of Revolving Loan Advance
Exhibit C - Form of Revolving Credit Note
Exhibit D - Form of Opinion of Mulligan & Mulligan
Exhibit E - Form of Officers' Solvency Certificate
Exhibit F - Form of Officer's Support Letter
Exhibit G - Form of Stock Pledge Agreement
SCHEDULES
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Schedule 1.1 - Financial Statements
Schedule 6.1(B) - Liens
Schedule 6.1(H) - Offices and Other Locations
Schedule 6.1(O) - Other Actions and Indebtedness
Schedule 6.1(S) - Patents, Trademarks, Copyrights and Licenses
Schedule 6.1(T) - Capital Stock
Schedule 6.1(U) - Real Property
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LOAN AND SECURITY AGREEMENT
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THIS LOAN AND SECURITY AGREEMENT ("Agreement") is made as of March 16,
1995, by and between TRANSAMERICA BUSINESS CREDIT CORPORATION ("Lender"), a
Delaware corporation with an office located at 8750 West Bryn Mawr Avenue,
Suite 720, Chicago, Illinois 60631, and KRUG INTERNATIONAL CORP. ("Borrower"),
an Ohio corporation with its chief executive office at 6 North Main Street,
Suite 500, Dayton, Ohio 45402, and Borrower's wholly-owned Subsidiaries, KRUG
LIFE SCIENCES INC. ("Life Sciences"), an Ohio corporation with its chief
executive office at 6 North Main Street, Suite 500, Dayton, Ohio 45402, and
TECHNOLOGY/SCIENTIFIC SERVICES, INC. ("TSSI"), an Ohio corporation with its
chief executive office at 6 North Main Street, Suite 500, Dayton, Ohio 45402
(Life Sciences and TSSI hereinafter referred to individually as a "Borrowing
Subsidiary", and collectively as "Borrowing Subsidiaries").
R E C I T A L S
- - - - - - - -
A. Borrower and Borrowing Subsidiaries desire, from time to time
hereafter, to borrow from Lender, and Lender is willing, from time to time
hereafter, to make loans to Borrower and Borrowing Subsidiaries, upon the terms
and conditions set forth herein;
B. ACCORDINGLY, in consideration of the terms and conditions
contained herein, and of any extension of credit heretofore, now or hereafter
made by Lender to Borrower and Borrowing Subsidiaries, the parties hereto
hereby agree as follows:
1. GENERAL DEFINITIONS.
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1.1 GENERAL TERMS. When used herein, the following terms shall
have the following meanings:
ACCOUNT(S): account(s), chattel paper, instruments and documents,
whether now owned or hereafter acquired by Borrower or a Borrowing Subsidiary.
ACCOUNT DEBTOR: any Person who is or who may become obligated to
Borrower or a Borrowing Subsidiary under, with respect to, or on account of an
Account.
AFFILIATE: any Preson which, directly or indirectly, owns or controls,
on an aggregate basis, including all beneficial ownership and ownership or
control as a trustee, guardian or other fiduciary, at least 5% of the
outstanding capital stock having ordinary voting power to elect a majority of
the board of directors (irrespective of whether, at the time, stock of any
other class or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency) of Borrower or any
Subsidiary, or which is controlled by or is under
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common control with Borrower, or any officers or directors of Borrower, or any
Subsidiary. For the purpose of this definition, "control" means the
possession, directly or indirectly, of the power to direct or to cause the
direction of management and policies, whether through the ownership of voting
securities, by contract or otherwise.
BASE RATE: the greater of (i) the highest of the rates publicly
announced from time to time by The First National Bank of Chicago, Bank of
America, N.A., and Citibank N.A. (or such other "money center" banks as Lender,
in its sole discretion, may select from time to time) as their respective
corporate base, reference, prime or similar benchmark rate (whether or not such
rate is actually charged by any such bank), and (ii) the latest published
annualized rate for 90 day commercial paper (or the average of such rates if
more than one is published) placed by dealers, as quoted either in the Federal
Reserve Rate Report which customarily appears in the Friday issue of The Wall
Street Journal (Midwest Edition) under "Money Rates" or in the event such
report shall not so appear, in such other nationally recognized publication as
Lender may, from time to time, specify to Borrower and Borrowing Subsidiaries.
BORROWING BASE CERTIFICATE: a certificate in the form attached hereto
as EXHIBIT A.
BUSINESS DAY: any day that is not a Saturday, a Sunday, a day on which
banks are required or permitted to be closed in the States of Illinois or Ohio,
or a day on which the offices of Lender are closed.
CASH EQUIVALENTS: any assets of Borrower or a Borrowing Subsidiary
which are readily convertible into money, including deposits with any bank or
financial institution (whether as demand deposits or time deposits, and whether
or not evidenced by certificates of deposit), and readily marketable securities
of any type.
CERCLA: the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
CHARGES: see Section 6.1(G).
CODE: the Uniform Commercial Code of the jurisdiction with respect to
which such term is used, as in effect from time to time.
COLLATERAL: all of the property and interests in property described
in Sections 5.1 and 5.2 and all other property and interests in property which
shall, from time to time, secure the Liabilities.
COLONEL GLENN REAL PROPERTY: the real property commonly described as
3821 Colonel Glenn Highway, Dayton, Ohio.
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DEFAULT: any event which, with the passage of time or notice or both,
would, unless cured or waived, become an Event of Default.
ELIGIBLE ACCOUNTS: the gross outstanding balance, less all finance
charges, late fees and other fees which are unearned, of Accounts arising out
of the lease or sale of goods or services by Borrower or a Borrowing Subsidiary
in the ordinary course of its business as Lender, in its discretion, exercised
in a commercially reasonable manner, shall deem eligible, less such reserves as
Lender, in its discretion, exercised in a commercially reasonable manner, shall
from time to time deem appropriate, provided that no Account shall be deemed
eligible if:
(a) any warranty or representation contained in this
Agreement or any of the Other Agreements applicable either to Accounts
in general or to any such specific Account has been breached with
respect to such Account;
(b) 50% or more of the outstanding Accounts from the
Account Debtor which constituted Eligible Accounts at the time they
arose have become, or been reasonably determined by Lender to be,
ineligible;
(c) the Account Debtor has filed a petition for relief
under the Bankruptcy Code (or similar action under any successor law),
made a general assignment for the benefit of creditors, had filed
against it any petition or other application for relief under the
Bankruptcy Code (or similar action under any successor law), failed,
suspended business operations, become insolvent, called a meeting of
its creditors for the purpose of obtaining any financial concession or
accommodation, or had or suffered a receiver or a trustee to be
appointed for all or a significant portion of its assets or affairs;
(d) it has remained unpaid for a period exceeding ninety
(90) days from the date of the invoice issued with respect thereto;
(e) the sale represented by such Account is to an Account
Debtor which is located in a country other than the United States,
unless the sale is on letter of credit or acceptance terms acceptable
to Lender;
(f) the Account Debtor is an Affiliate or employee of
Borrower or any of its Subsidiaries;
(g) the Account Debtor is a supplier or creditor of
Borrower or any of its Subsidiaries, in which event such Account will
be deemed ineligible to the extent of the contra account;
(h) it is denominated in other than United States dollars
or is payable outside the United States;
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(i) the sale represented by such Account is on a
bill-and-hold, undelivered sale, guaranteed sale, sale or return,
consignment, or sale on approval basis;
(j) the sale represented by such Account is on terms
longer than thirty (30) days;
(k) Lender reasonably believes that the collection of
such Account is insecure or that such Account may not be paid;
(l) it is subject to any material claim or dispute by the
Account Debtor;
(m) it is subject to any set-off by the Account Debtor,
in which event such Account will be deemed ineligible to the extent of
such set-off;
(n) it is subject to any Lien whatsoever, other than
Liens in favor of Lender;
(o) Borrower, Life Sciences or TSSI, in order to be
entitled to collect the Account, is required to perform any additional
service for, or perform or incur any additional obligation to, the
Account Debtor; or
(p) it is an account of the United States of America or
an agency or department thereof, unless all of the conditions to an
assignment of such account, as specified in the Assignment of Claims
Act [41 U.S.C. Section 15, 31 U.S.C. Section 3727], have been
satisfied.
Lender may classify Accounts into any of the foregoing categories or
such other categories as Lender, in its discretion, exercised in a commercially
reasonable manner, deems appropriate in determining the eligibility of
Accounts. Lender shall promptly notify Borrower of the classification and
reclassification of Accounts and the establishment of reserves with respect to
Accounts.
ELIGIBLE ACCOUNTS - BILLED: Eligible Accounts which have been billed
and which are evidenced by an invoice or other writing in form acceptable to
Lender.
ELIGIBLE ACCOUNTS - ESTIMATED: Eligible Accounts which have not yet
been billed, but which will be billed within forty-five (45) days, as
reasonably estimated by Borrower.
ENVIRONMENTAL LAWS: all federal, state and local laws, statutes,
ordinances, regulations and policies, now or hereafter in effect, and in each
case as amended or supplemented from time to time, and any judicial or
administrative interpretation thereof, including, without limitation, any
applicable judicial or administrative order, consent decree or judgment,
relative to the applicable Real Property, including any facility, as defined in
42 U.S.C. Section 9601(9), relating to
4
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the regulation and protection of human health, safety, the environment and
natural resources (including, without limitation, ambient air, surface water,
groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic
species and vegetation). Environmental Laws include but are not limited to the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. Section 9601 ET SEQ.) ("CERCLA"); the Hazardous Material
Transportation Act, as amended (49 U.S.C. Section 1801 ET SEQ.); the Federal
Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. Section 136
ET SEQ.); the Resource Conservation and Recovery Act, as amended (42 U.S.C.
Section 6901 ET SEQ.) ("RCRA"); the Toxic Substance Control Act, as amended (15
U.S.C. Section 2601 ET SEQ.); the Clean Air Act, as amended (42 U.S.C.
Section 740 ET. SEQ.); the Federal Water Pollution Control Act, as amended (33
U.S.C. Section 1251 ET SEQ.); the Occupational Safety and Health Act, as
amended (29 U.S.C. Section 651 ET SEQ.) ("OSHA"); and the Safe Drinking Water
Act, as amended (42 U.S.C. Section 300f ET SEQ.), and any and all regulations
promulgated thereunder, and all analogous state and local counterparts or
equivalents and any transfer of ownership notification or approval statutes
such as, by way of example, the New Jersey Environmental Cleanup Responsibility
Act (N.J. Stat. Ann. Section 13: K-6 ET SEQ.) ("ECRA").
ENVIRONMENTAL LIABILITIES AND COSTS: all liabilities, obligations,
responsibilities, remedial actions, losses, damages, punitive damages,
consequential damages, treble damages, costs and expenses (including, without
limitation, all fees, disbursements and expenses of counsel, experts and
consultants and costs of investigation and feasibility studies), civil or
criminal fines or penalties, sanctions, debarments, and interest incurred as a
result of any claim, suit, action or demand by any person or entity, whether
based in contract, tort, implied or express warranty, strict liability,
criminal or civil statute or common law (including, without limitation, any
thereof arising under any Environmental Law, permit, order or agreement with
any governmental authority) and which relate to any health or safety condition
regulated under any Environmental Law or in connection with any other
environmental matter or Release or the presence of a hazardous substance or
threatened Release of a hazardous substance.
EQUIPMENT: all of Borrower's and each Borrowing Subsidiary's now owned
or hereafter acquired fixtures and equipment, including, without limitation,
furniture, vehicles and trade fixtures.
ERISA: Employee Retirement Income Security Act of 1974, as amended
from time to time, and any regulations promulgated thereunder.
EXCESS REVOLVING LOAN AVAILABILITY: see Section 9.1.
FINANCIALS: those consolidated financial statements of Borrower and
Borrower's U.S. Subsidiaries described on SCHEDULE 1.1 hereto, all of which
financial statements have been certified as accurate and complete by the chief
financial officer of Borrower and, if audited, certified by Deloitte & Touche
LLP.
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FISCAL QUARTER: each of the three month periods that end on June 30,
September 30, December 31 within each Fiscal Year.
FISCAL YEAR: the twelve month period that ends on March 31.
Subsequent changes of the fiscal year of Borrower and the Borrowing
Subsidiaries shall not change the term "Fiscal Year," unless Lender shall
consent in writing to such change.
GAAP: generally accepted accounting principles in the United States of
America as in effect from time to time.
GENERAL INTANGIBLES: all intangible personal property of Borrower and
each Borrowing Subsidiary of every kind and nature (other than accounts,
chattel paper, instruments and documents) including, without limitation, choses
in action, causes of action, corporate or other business records, inventions,
designs, patents, patent applications, trademarks, trade names, trade secrets,
goodwill, copyrights, registrations, licenses, franchises, tax refund claims,
computer programs, and any guarantee claims, security interests or other
security held by or granted to Borrower or a Borrowing Subsidiary to secure
payment by an Account Debtor of any of the Accounts.
GOVERNMENT CONTRACT: a contract between the United States of America
or an agency or department thereof and Borrower or a Borrowing Subsidiary.
HAZARDOUS SUBSTANCE: the meanings assigned to such term in CERCLA
[42 U.S.C. Section 9601(14)] and, in addition, shall include petroleum as
defined in RCRA [42 U.S.C. Section 6991(2)(B)] and pollutant or contaminant as
defined in CERCLA [42 U.S.C. Section 9601(33)].
INDEBTEDNESS: all liabilities, obligations and indebtedness of any and
every kind and nature, including, without limitation, the Liabilities and all
obligations to trade creditors, whether heretofore, now or hereafter owing,
arising, due, or payable from Borrower or a Borrowing Subsidiary to any Person
and howsoever evidenced, created, incurred, acquired, or owing, whether
primary, secondary, direct, contingent, fixed, or otherwise. Without in any
way limiting the generality of the foregoing, Indebtedness specifically
includes (i) all obligations or liabilities of any Person that are secured by
any lien, claim, encumbrance, or security interest upon property owned by
Borrower or a Borrowing Subsidiary, even though Borrower or such Borrowing
Subsidiary has not assumed or become liable for the payment thereof; (ii) 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 or a Borrowing Subsidiary,
even though the rights and remedies of the lessor, seller or lender thereunder
are limited to repossession of such property; (iii) all unfunded pension fund
obligations and liabilities; and (iv) deferred taxes.
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INVENTORY: any and all goods, merchandise and other personal property,
including, without limitation, goods in transit, wheresoever located and
whether now owned or hereafter acquired by Borrower or a Borrowing Subsidiary
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 or a Borrowing Subsidiary'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 or a Borrowing Subsidiary.
LEASES: all of those leasehold estates in real property now owned or
hereafter acquired by Borrower or a Borrowing Subsidiary, as lessee.
LETTER OF CREDIT OBLIGATIONS: all outstanding obligations incurred by
Lender at the request of Borrower or a Borrowing Subsidiary, whether direct or
indirect, contingent or otherwise, due or not due, in connection with the
issuance or guarantee, by Lender or another, of letters of credit. The amount
of such Letter of Credit Obligations shall equal the maximum amount which may
be payable by Lender thereon or pursuant to such letter of credit or guarantee.
LETTERS OF CREDIT: commercial or standby letters of credit issued at
the request and for the account of Borrower or a Borrowing Subsidiary for which
Lender has incurred Letter of Credit Obligations pursuant thereto.
LIABILITIES: all of Borrower's and each Borrowing Subsidiary's
liabilities, obligations and indebtedness to Lender of any and every kind and
nature (including, without limitation, interest, charges, expenses, attorneys'
fees and other sums chargeable to Borrower or a Borrowing Subsidiary by Lender
and future advances made to or for the benefit of Borrower or a Borrowing
Subsidiary), whether arising under this Agreement, under any of the Other
Agreements or acquired by Lender from any other source, whether heretofore, now
or hereafter owing, arising, due, or payable from Borrower or a Borrowing
Subsidiary to Lender and howsoever evidenced, created, incurred, acquired or
owing, whether primary, secondary, direct, contingent, fixed, or otherwise,
including obligations of performance.
LIEN: any mortgage or deed of trust, pledge, hypothecation,
assignment, deposit arrangement, lien, security interest, easement or
encumbrance, or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any lease intended as security or any title retention agreement,
any financing lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
perfecting a security interest under the Code or comparable law of any
jurisdiction).
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MATERIAL ADVERSE EFFECT: material adverse effect on (i) the business,
assets, operations or financial or other condition of Borrower and Borrowing
Subsidiaries taken as a whole, (ii) Borrower's and Borrowing Subsidiaries'
collective ability to pay the Liabilities in accordance with the terms thereof,
and (iii) the Collateral or Lender's Liens on the Collateral or the priority of
such Liens.
MAXIMUM REVOLVING LOAN: at any particular time, an amount equal to Ten
Million Dollars ($10,000,000).
NONCOMPETITION PROCEEDS: the amount of One Hundred Fifty Thousand
Dollars ($150,000) payable to Borrower pursuant to a certain Noncompetition
Agreement As Revised entered into on March 2, 1990, among Borrower, KRUG
Properties Inc. and Dempster Inc.
OTHER AGREEMENTS: all Supplemental Documentation and all agreements,
instruments and documents, including, without limitation, notes, guarantees,
mortgages, deeds of trusts, 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 a Borrowing Subsidiary or delivered to Lender or any
Person participating with Lender in the loans made hereunder, with respect to
this Agreement or to Lender.
PARTICIPANT(S): any Person, now or from time to time hereafter,
participating with Lender in the loans made by Lender to Borrower and Borrowing
Subsidiaries pursuant to this Agreement.
PERMITTED ENCUMBRANCES: the following encumbrances: (i) Liens for
taxes or assessments or other governmental charges or levies, either not yet
due and payable or to the extent that nonpayment thereof is permitted by the
terms of this Agreement; (ii) pledges or deposits securing obligations under
workmen's compensation, unemployment insurance, social security or public
liability laws or similar legislation; (iii) pledges or deposits securing bids,
tenders, contracts (other than contracts for the payment of money) or leases to
which Borrower or a Borrowing Subsidiary is a party as lessee made in the
ordinary course of business; (iv) deposits securing public or statutory
obligations of Borrower or a Borrowing Subsidiary; (v) workers', mechanics',
suppliers', carriers', warehousemen's, landlords' or other similar liens
arising in the ordinary course of business; (vi) deposits securing or in lieu
of surety, appeal or customs bonds in proceedings to which Borrower or a
Borrowing Subsidiary is a party; (vii) any attachment or judgment Lien, unless
the judgment it secures shall not, within ten (10) days after the entry
thereof, have been discharged or execution thereof stayed pending appeal, or
shall not have been discharged prior to the expiration of any such stay; (viii)
zoning restrictions, easements, licenses, or other restrictions on the use of
real property or other minor irregularities in title (including leasehold
title) thereto, so long as the same do not materially impair the
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<PAGE> 15
present use, value or marketability of such real property, leases or leasehold
estates; (ix) liens on fixtures granted to lessors pursuant to Leases; and (x)
the Liens listed on SCHEDULE 6.1(B) hereto.
PERSON: any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
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).
REAL PROPERTY: all right, title and interest now or hereafter held by
Borrower or a Borrowing Subsidiary (whether in fee, under leasehold or
otherwise) to or in any real property.
RELEASE: the meanings assigned to such term in CERCLA [42 U.S.C.
Section 9601(22)].
REVOLVING LOAN LIABILITIES: all of Borrower's and Borrowing
Subsidiaries' liabilities, obligations and indebtedness to Lender of any and
every kind and nature arising out of or related to the Revolving Loan (as such
term is defined in Section 2.1), including, without limitation, interest,
charges, expenses, attorneys' fees and other sums chargeable to Borrower or a
Borrowing Subsidiary by Lender in connection with the Revolving Loan.
SOLVENT: when used with respect to any Person, that:
(a) the fair value and present fair salable value of such
Person's assets is in excess of the total amount of such Person's
stated liabilities including identified contingent liabilities;
(b) the present fair salable value of such Person's
assets is in excess of the amount that will be required to pay such
Person's probable liability on such Person's debts as they become
absolute and mature;
(c) such Person does not have unreasonably small capital
to carry on the business in which such Person is engaged and all
businesses in which such Person is about to engage; and
(d) such Person has not incurred debts beyond such
Person's ability to pay such debts as they mature.
SPECIAL COLLATERAL: see Section 5.2.
STOCK: all shares, options, interests, participations or other
equivalents (howsoever designated) of or in a corporation, whether voting or
non-voting, including without limitation,
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<PAGE> 16
common stock, warrants, preferred stock, convertible debentures and all
agreements, instruments and documents convertible, in whole or in part, into
any one or more or all of the foregoing.
SUBORDINATED DEBT: that portion of the Indebtedness which is
subordinated in a manner satisfactory in form and substance to Lender as to
right and time of payment of principal and interest thereon to any and all of
the Liabilities.
SUBORDINATED LOAN: a loan or advance to Borrower or a Borrowing
Subsidiary which is subordinated in a manner satisfactory in form and substance
to Lender as to right and time of payment of principal and interest thereon to
any and all of the Liabilities.
SUBSIDIARY: any corporation of which more than 50% of the outstanding
capital stock having ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether, at the time, stock of
any other class or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency) is at the time, directly
or indirectly, owned by Borrower and/or one or more Subsidiaries.
SUPPLEMENTAL DOCUMENTATION: agreements, instruments, documents,
financing statements, warehouse receipts, bills of lading, notices of
assignment of accounts, schedules of accounts assigned, mortgages and other
written matter necessary or requested by Lender to perfect and maintain
perfected Lender's security interest in the Collateral.
TERM: see Section 2.4.
U.K SUBSIDIARY: KRUG International (UK) Ltd.
U.S. SUBSIDIARIES: Life Sciences, TSSI and KRUG Properties, Inc.
VOLUNTARY TERMINATION FEE: see Section 2.5.
1.2 OTHER TERMS. Any accounting term used in this Agreement shall
have, unless otherwise specifically provided herein, the meaning customarily
given such term in accordance with GAAP, and all financial computations
hereunder shall be computed, unless otherwise specifically provided herein, in
accordance with GAAP consistently applied. In the event that changes in GAAP
shall be mandated by the Financial Accounting Standards Board and/or the
American Institute of Certified Public Accountants or any similar accounting
body of comparable standing, or shall be recommended by Borrower's independent
certified public accountants, to the extent that such changes would modify the
financial covenants contained in this Agreement or the interpretation or
computation thereof, as contemplated at the time of the execution of this
Agreement, such changes shall be followed only from and after such date as
Borrower and Borrowing Subsidiaries and Lender shall have amended this
Agreement to the extent necessary to reflect any such changes in such financial
covenants. All other undefined terms contained in
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<PAGE> 17
this Agreement shall, unless the context indicates otherwise, have the meanings
provided for by the Code as in effect in the State of Illinois to the extent
the same are used or defined therein. The words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a
whole, including the Exhibits and Schedules hereto, as the same may from time
to time be amended, modified or supplemented and not to any particular section,
subsection or clause contained in this Agreement.
Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, the feminine and the neuter.
2. LOANS: GENERAL TERMS.
---------------------
2.1 LINE OF CREDIT. Subject to all of the terms and conditions
hereof, Lender will make available for Borrower's and each Borrowing
Subsidiary's use from time to time during the term of this Agreement, upon the
request of Borrower therefor, a line of credit equal, in maximum aggregate
amount, to Ten Million Dollars ($10,000,000). This line of credit shall
consist of revolving loans ("Revolving Loan") against "Eligible Accounts -
Billed" and "Eligible Accounts - Estimated" (as determined under Section 3.2)
pursuant to Section 3.1 in a maximum aggregate principal amount not to exceed
at any point in time the lesser of Ten Million Dollars ($10,000,000), or the
"Borrowing Base" (as defined in Section 3.1). If Lender makes advances to
Borrower or a Borrowing Subsidiary from such Revolving Loan, all advances shall
be made based upon the ratios stated in Section 3.1, as then in effect, shall
be repayable as provided in Section 4.1, and shall be used by Borrower and
Borrowing Subsidiaries only for legal and proper corporate purposes which are
consistent with all applicable laws and statutes.
2.2 ALL LOANS AND ADVANCES TO CONSTITUTE ONE LOAN. Notwithstanding
the limitations on the line of credit set forth in Section 2.1, all loans and
advances by Lender to Borrower and Borrowing Subsidiaries under this Agreement
and the Other Agreements shall constitute one loan and all indebtedness and
obligations of Borrower and Borrowing Subsidiaries to Lender under this
Agreement and all Other Agreements shall constitute one general obligation
secured by the Liens in, to and on the Collateral heretofore, now, or at any
time hereafter granted by Borrower or a Borrowing Subsidiary to Lender.
Borrower and each Borrowing Subsidiary agrees that all of the rights of Lender
set forth in this Agreement shall apply to any modification of or supplement to
this Agreement and the Other Agreements.
2.3 INTEREST ON REVOLVING LOAN LIABILITIES. Borrower and
Borrowing Subsidiaries shall pay to Lender interest in arrears on the first day
of each calendar month in an amount equal to the quotient of (i) the sum of the
products of the unpaid principal amount of the Revolving Loan on each day
during the preceding calendar month, multiplied by a rate equal to the Base
Rate in effect on each such day plus one and one-half percent (1-1/2%), divided
by (ii) 360; any change in the Base Rate resulting from a change in the
applicable corporate rate
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<PAGE> 18
or the commercial paper rate shall be effective as of the date of the relevant
change. In no contingency or event whatsoever shall the interest rate charged
with respect to the Revolving Loan Liabilities pursuant to the terms of this
Agreement exceed the highest rate 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 highest applicable rate, Lender shall promptly
refund such excess interest to Borrower and Borrowing Subsidiaries.
2.4 TERM OF AGREEMENT. Subject to Lender's right to cease making
loans and advances to Borrower and Borrowing Subsidiaries, as set forth in
Section 3.1 or otherwise, the provisions of this Agreement shall be in effect
until five (5) years from the date of this Agreement (the "Term").
2.5 VOLUNTARY TERMINATION FEE. If Borrower and Borrowing
Subsidiaries desire to terminate this Agreement prior to the end of the Term,
Borrower and Borrowing Subsidiaries will give Lender ninety (90) days prior
written notice thereof, by registered or certified mail, and will pay to
Lender, in addition to the then outstanding Liabilities, in cash or by federal
wire transfer, as liquidated damages (for the loss by Lender of its opportunity
to recover its loan origination expenses and its profits over the balance of
the Term and not as a penalty), a voluntary termination fee ("Voluntary
Termination Fee") in an amount equal to the "Fee Percentage" (as defined below)
of the then outstanding Liabilities; provided, however, that Borrower and
Borrowing Subsidiaries shall not be obligated to pay a Voluntary Termination
Fee in the event that Borrower and Borrowing Subsidiaries have paid interest at
the default rate pursuant to Section 8.5 hereof for a period of six (6)
consecutive months or more. For any period within the Term hereof, the Fee
Percentage shall equal the percentage set forth opposite each such period in
the following schedule:
<TABLE>
<CAPTION>
Year Fee Percentage
---- --------------
<S> <C>
First and Second 3%
Third and Fourth 2%
Fifth 1%
</TABLE>
2.6 COLLATERAL MANAGEMENT FEE. Borrower and Borrowing
Subsidiaries shall pay to Lender on the first day of each calendar month for
the preceding month a collateral management fee in an amount equal to the
quotient of (i) the sum of the products of the unpaid principal amount of the
Revolving Loan on each day during the preceding calendar month, multiplied by
one-half percent (1/2%), divided by (ii) 360.
2.7 CLOSING FEE. Borrower and Borrowing Subsidiaries agree to pay
Lender solely as consideration for Lender agreeing to enter into this Agreement
a closing fee in the amount
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of Fifty Thousand Dollars ($50,000). Said closing fee shall be paid by
Borrower and Borrowing Subsidiaries to Lender by wire transfer or cash on the
date hereof.
2.8 INDEMNITY. Borrower and Borrowing Subsidiaries (individually
and collectively, "Indemnitor"), jointly and severally, hereby indemnify
Lender, and its directors, officers, employees, Affiliates and agents
(collectively, "Indemnified Persons") against, and agree to hold each such
Indemnified Person harmless from, any and all losses, claims, damages and
liabilities, including claims brought by any stockholder or former stockholder
of Indemnitor, and related expenses, including reasonable counsel fees and
expenses, incurred by such Indemnified Person arising out of any claim,
litigation, investigation or proceeding (whether or not such Indemnified Person
is a party thereto) relating to any transactions, services or matters that are
the subject of this Agreement; PROVIDED, HOWEVER, that such indemnity shall not
apply to any such losses, claims, damages, or liabilities or related expenses
determined by a court of competent jurisdiction to have arisen from the gross
negligence or willful misconduct of such Indemnified Person. If any litigation
or proceeding is brought against any Indemnified Person in respect of which
indemnity may be sought against Indemnitor pursuant to this Section 2.8, such
Indemnified Person shall promptly notify Indemnitor in writing of the
commencement of such litigation or proceeding, but the omission so to notify
Indemnitor shall not relieve Indemnitor from any other obligation or liability
which it may have to any Indemnified Person otherwise than under this Section
2.8. Failure of the Indemnified Person to timely notify Indemnitor of the
commencement of such litigation or proceeding shall not relieve Indemnitor of
its obligations under this Section 2.8, except where such failure irrevocably
prejudices Indemnitor's ability to defend such litigation or proceeding and to
hold such Indemnified Person harmless therefrom. In case any such litigation
or proceeding shall be brought against any Indemnified Person and such
Indemnified Person shall notify Indemnitor of the commencement of such
litigation or proceeding, Indemnitor shall be entitled to participate in such
litigation or proceeding and, after written notice from Indemnitor to such
Indemnified Person, to assume the defense of such litigation or proceeding with
counsel of its choice at its expense, provided that such counsel is
satisfactory to the Indemnified Person in the exercise of its reasonable
judgment. Notwithstanding the election of Indemnitor to assume the defense of
such litigation or proceeding, such Indemnified Person shall have the right to
employ separate counsel and to participate in the defense of such litigation or
proceeding, and Indemnitor shall bear the reasonable fees, costs and expenses
of such separate counsel if (i) the use of counsel chosen by Indemnitor to
represent such Indemnified Person would present such counsel with a conflict of
interest; (ii) the defendants in, or targets of, any such litigation or
proceeding include both an Indemnified Person and Indemnitor, and such
Indemnified Person shall have reasonably concluded that there may be legal
defenses available to it which are different from or additional to those
available to Indemnitor (in which case Indemnitor shall not have the right to
direct the defense of such action on behalf of the Indemnified Person); (iii)
Indemnitor shall not have employed counsel satisfactory to such Indemnified
Person in the exercise of the Indemnified Person's reasonable judgment to
represent such Indemnified Person within a reasonable time after notice of the
institution of such litigation or proceeding; or (iv) Indemnitor shall
authorize such Indemnified Person to employ separate counsel at the expense of
Indemnitor, PROVIDED that
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<PAGE> 20
Indemnitor shall not be liable for the fees, costs and expenses of more than
one separate counsel at the same time for all such Indemnified Persons in
connection with the same action and any separate but substantially similar or
related action in the same jurisdiction. Indemnitor shall not consent to the
entry of any judgment or enter into any settlement in any such litigation or
proceeding unless such judgment or settlement includes as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Person of a
release from all liability in respect to such claim or litigation.
The agreements of Indemnitor in this Section 2.8 shall be in addition
to any liability that Indemnitor may otherwise have. All amounts due under
this Section 2.8 shall be payable as incurred upon written demand therefor.
3. LOANS: DISBURSEMENTS.
---------------------
3.1 REVOLVING LOAN. (a) Provided that there does not then exist
a Default or an Event of Default, upon the request of Borrower or a Borrowing
Subsidiary therefor, Lender will advance funds under the Revolving Loan to
Borrower or such Borrowing Subsidiary (a "Revolving Loan Advance"), repayable
as provided in Section 4.1. Any such Revolving Loan Advance shall not exceed
the lesser of (i) "Collateral Availability" or (ii) "Unused Revolving Loan
Facility" (as such terms are hereinafter defined). The Collateral Availability
at any particular time shall be equal to the positive difference, if any,
between (x) the "Borrowing Base" (as hereinafter defined) and (y) the sum of
the aggregate outstanding principal amount of Revolving Loan Advances and the
aggregate outstanding Letter of Credit Obligations. The Unused Revolving Loan
Facility at any particular time shall be equal to the positive difference, if
any, between (i) the Maximum Revolving Loan and (ii) the sum of the aggregate
outstanding principal balance of the Revolving Loan Advances and the aggregate
outstanding Letter of Credit Obligations. The "Borrowing Base" shall mean, at
any particular time, an amount equal to (a) eighty-five percent (85%), or such
other percentage as Lender, in its sole discretion, exercised in a commercially
reasonable manner, shall from time to time consider appropriate, of Eligible
Accounts - Billed, plus (b) the lesser of (x) Four Million, Five Hundred
Thousand Dollars ($4,500,000) or (y) seventy percent (70%), or such other
percentage as Lender, in its sole discretion, exercised in a commercially
reasonable manner, shall from time to time consider appropriate, of Eligible
Accounts - Estimated, provided that Lender shall give Borrower thirty (30) days
prior written notice of any change to such percentages. Subject to the
provisions of Section 2.4 hereof, and until all amounts outstanding in respect
of the Revolving Loan shall become due and payable at the end of the Term,
Borrower and Borrowing Subsidiaries may from time to time borrow, repay and
reborrow under this Section 3.1(a). Each Revolving Loan Advance shall be made
on notice, given not later than 11:00 a.m. (Chicago time) on the Business Day
of the proposed Revolving Loan Advance, by Borrower to Lender. Each such
notice (a "Notice of Revolving Loan Advance") shall be in writing or by
telephone to Lender, as directed by Lender from time to time, confirmed
immediately in writing by Borrower, in substantially the form of EXHIBIT B
hereto, specifying therein the requested date and amount of such Revolving Loan
Advance. Lender shall, not later than 3:00 p.m. (Chicago time) on the
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<PAGE> 21
date of the proposed Revolving Loan Advance, upon fulfillment of the applicable
conditions set forth in Section 9 hereof, initiate a wire transfer to a bank
designated by Borrower and reasonably acceptable to Lender, the amount of such
Revolving Loan Advance.
(b) The Revolving Loan shall be evidenced by a promissory note to
be executed and delivered by Borrower and Borrowing Subsidiaries on the date
hereof, the form of which is attached hereto and made a part hereof as EXHIBIT
C (the "Revolving Credit Note"). The Revolving Credit Note shall be payable to
the order of Lender and shall represent the obligation of Borrower and
Borrowing Subsidiaries to pay the amount of the Revolving Loan Liabilities.
The date and amount of each Revolving Loan and payment of principal with
respect thereto shall be recorded on the books and records of Lender, which
books and records shall constitute PRIMA FACIE evidence of the accuracy of the
information therein recorded.
(c) Lender may, in its sole discretion, exercised in a
commercially reasonable manner, at any time or times hereafter, establish or
remove reserves in determining the Collateral Availability and, in the event
said reserves are established, said reserves shall become effective immediately
for purposes of calculating the Collateral Availability. All Revolving Loan
Advances shall be repayable as provided in Section 4.1 and shall be secured by
the Collateral.
3.2 ELIGIBLE ACCOUNTS - BILLED AND ELIGIBLE ACCOUNTS - ESTIMATED.
Upon delivery to Lender of a "Schedule of Accounts" (as defined in Section
5.5), Lender shall make a determination, in the exercise of its sole
discretion, exercised in a commercially reasonable manner, as to which Accounts
listed thereon shall be deemed "Eligible Accounts - Billed" and "Eligible
Accounts - Estimated", but no Account with respect to which the representations
and warranties under Section 6.2 are untrue shall be deemed an Eligible Account
- Billed or an Eligible Account - Estimated. Such standards of eligibility as
Lender may employ from time to time in making such determinations may be
revised by Lender at any time in its sole discretion, exercised in a
commercially reasonable manner.
3.3 LETTER OF CREDIT FACILITY. (a) Lender agrees, subject to the
terms and conditions hereinafter set forth, to incur, from time to time on
written request of Borrower, Letter of Credit Obligations supporting
obligations of Borrower and Borrowing Subsidiaries arising in the ordinary
course of business; PROVIDED, HOWEVER, that the amount of all Letter of Credit
Obligations incurred by Lender pursuant to this Section 3.3(a) at any one time
outstanding (whether or not then due and payable) shall not exceed an amount
equal to One Million Dollars ($1,000,000); and FURTHER PROVIDED, HOWEVER, that
Lender shall be under no obligation to incur Letter of Credit Obligations in
respect of any Letter of Credit having a term longer than one (1) year or an
expiry date which is later than the end of the Term, and the form of the
guarantee or reimbursement agreement with respect to any Letter of Credit
Obligations and the issuing bank must be reasonably satisfactory to Lender. At
the time of each request by Borrower that a Letter of Credit be issued, Lender,
at its option, may require Borrower to execute and deliver to Lender an
application for such Letter of Credit in the form customarily prescribed by
Lender
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<PAGE> 22
to issue Letters of Credit (the "Applications"). This Agreement
supersedes any terms of the Applications which are irrevocably inconsistent
with the terms hereof.
(b) In the event that Lender shall make any payment on or pursuant
to any Letter of Credit Obligation, such payment shall then be deemed to
constitute a Revolving Loan Advance under Section 3.1(a) hereof.
(c) In the event that any Letter of Credit Obligation, whether or
not then due and payable, shall for any reason be outstanding at the end of the
Term or the earlier termination of this Agreement, Borrower will pay to Lender
cash or Cash Equivalents in an amount equal to the outstanding Letter of Credit
Obligations. Such funds or Cash Equivalents shall be held by Lender in a cash
collateral account (the "Cash Collateral Account"). The Cash Collateral
Account shall be in the name of Lender (as a cash collateral account), and
shall be under the sole dominion and control of Lender and subject to the terms
of this Section 3.3(c). Borrower hereby pledges, and grants to Lender a
security interest in, all such funds or Cash Equivalents held in the Cash
Collateral Account from time to time and all proceeds thereof, as security for
the payment of all amounts due in respect of the Letter of Credit Obligations,
whether or not then due.
From time to time after funds are deposited in the Cash Collateral
Account, Lender may apply such funds or Cash Equivalents then held in the Cash
Collateral Account to the payment of any amounts, in such order as Lender may
elect, as shall be or shall become due and payable by Borrower to Lender with
respect to such Letter of Credit Obligations.
Neither Borrower nor any person or entity claiming on behalf of or
through Borrower shall have any right to withdraw any of the funds or Cash
Equivalents held in the Cash Collateral Account, except that upon the
termination of any Letter of Credit Obligation in accordance with its terms and
the payment of all amounts payable by Borrower to Lender in respect thereof,
any funds remaining in the Cash Collateral Account in excess of the then
remaining Letter of Credit Obligations shall be returned to Borrower.
Lender shall not have any obligation to invest the funds in the Cash
Collateral Account or deposit such funds in an interest-bearing account, and
interest and earnings thereon, if any, shall be the property of Lender.
Interest and earnings on the Cash Equivalents in the Cash Collateral Account
shall be the property of Borrower.
(d) In the event that Lender shall incur any Letter of Credit
Obligations pursuant hereto at the request or on behalf of Borrower hereunder,
Borrower agrees to pay to Lender, as compensation to Lender for such Letter of
Credit Obligations, (i) all fees and charges paid by Lender on account of such
Letter of Credit Obligation to the issuer or like party and (ii) commencing
with the month in which such Letter of Credit Obligation is incurred by Lender
and monthly thereafter for each month during which such Letter of Credit
Obligation shall remain outstanding, a fee in an amount equal to the quotient
of (x) an amount equal to (A) the
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<PAGE> 23
sum of the daily outstanding amount of such Letter of Credit Obligations on
each day during the previous month multiplied by (B) a rate equal to two
percent (2%), divided by (y) 360. Fees payable in respect of Letter of Credit
Obligations shall be paid to Lender, in arrears, on the first day of each
month.
3.4 DISBURSEMENTS. Borrower and each Borrowing Subsidiary hereby
authorizes and directs Lender to disburse for and on the behalf of Borrower,
Borrowing Subsidiaries and Borrower's and Borrowing Subsidiaries' account, the
proceeds of loans made by Lender to Borrower and Borrowing Subsidiaries,
pursuant to this Agreement, to such Person as an officer or director of
Borrower shall direct, whether in writing or orally.
4. LOANS: PAYMENTS.
----------------
4.1 PAYMENTS. Except as otherwise provided in Section 4.2, all
payments to Lender shall be payable at Lender's address set forth above or at
such other place or places as Lender may designate from time to time in writing
to Borrower and Borrowing Subsidiaries. That portion of the Liabilities
consisting of:
(a) Interest payable pursuant to this Agreement shall
be due on the first day of each month (for the preceding month), and
shall be charged through the last day of each month; provided that,
with respect to any payment of interest which becomes due hereunder,
Borrower and Borrowing Subsidiaries authorize and direct Lender, at
its option, to cause such interest to be paid on such due date by
charging such payment as a Revolving Loan Advance against the line of
credit established pursuant to Section 2.1 of this Agreement, provided
that if the then existing Excess Revolving Loan Availability (as
defined in Section 9.1 hereof) is insufficient to permit the payment
of such interest, then Lender shall notify Borrower of the amount of
interest so due and Borrower and Borrowing Subsidiaries shall pay such
interest within five (5) days after such notice;
(b) Costs, fees and expenses payable pursuant to this
Agreement shall be payable as and when provided in this Agreement and,
if not specified, on demand; provided that, with respect to payment of
any cost, fee or expense which becomes due hereunder, Borrower and
Borrowing Subsidiaries authorize and direct Lender, at its option, to
cause such cost, fee or expense to be paid on such due date by
charging such cost, fee or expense as a Revolving Loan Advance against
the line of credit established pursuant to Section 2.1 of this
Agreement;
(c) Principal payable on account of loans or advances made
by Lender to Borrower and Borrowing Subsidiaries pursuant to the
Revolving Loan shall be due and payable to the extent and on the date
of any collections received by Lender with respect to any proceeds of
the Collateral and not applied to interest; and
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<PAGE> 24
(d) The balance of the Liabilities, if any, shall be
payable as and when provided in this Agreement or the Other Agreements
and, if not specified, upon the termination of this Agreement or as
and when declared due by Lender pursuant to Section 8.2 hereof.
4.2 DEPOSITORY ACCOUNT; RECEIPT AND APPLICATION OF PAYMENT. With
respect to all cash, checks, notes, drafts or other similar items of payment
relating to or constituting the Collateral (or proceeds thereof), Borrower and
each Borrowing Subsidiary shall, no later than the first Business Day following
receipt thereof, (i) deposit or cause the same to be deposited, in kind, in a
lock box or special depository account so established by and under the
exclusive control of Lender, for application on account of the Liabilities as
provided below, and (ii) forward to Lender, on a daily basis, copies of all
such items and deposit slips related thereto, together with a collection report
in form and substance satisfactory to Lender. Borrower and each Borrowing
Subsidiary shall instruct all Account Debtors who remit by means of wire
transfer of Federal funds to cause all payments to be wire transferred to the
special depository account established by Lender. As soon as all of the
Account Debtors who remit by means of wire transfer of Federal funds
acknowledge the instructions to remit to the special depository account
established by Lender, Borrower shall close all other depository accounts. All
cash, wire transfers, notes, checks, drafts or similar items of payment by or
for the account of Borrower and each Borrowing Subsidiary shall be the sole and
exclusive property of Lender immediately upon the earlier of the receipt of
such items by Lender or the receipt of such items by Borrower or such Borrowing
Subsidiary; PROVIDED, HOWEVER, that (a) for the purpose of computing interest
hereunder such items shall be applied by Lender on account of the Liabilities
one (1) Business Day after deposit thereof to Lender's account at Lender's
master depository bank in Chicago, Illinois, and (b) no such items received by
Lender shall constitute payment to Lender unless such item is actually
collected by Lender's depository bank and such collection is credited to
Lender's account at Lender's master depository bank in Chicago, Illinois
(currently The First National Bank of Chicago). Notwithstanding anything to
the contrary herein, all such items of payment shall, solely for purposes of
determining the occurrence of an Event of Default, be deemed received upon
actual receipt by Lender, unless the same are subsequently dishonored for any
reason whatsoever. All payments made by or on behalf of and all credits due
Borrower and Borrowing Subsidiaries may be applied and reapplied in whole or in
part to any of the Liabilities to the extent and in the manner Lender deems
advisable, provided that Lender will not charge Borrower and Borrowing
Subsidiaries additional interest in the event of Lender's reapplication of
payments made by or credits due Borrower and Borrowing Subsidiaries.
4.3 COLLECTIONS; LENDER'S RIGHT TO NOTIFY ACCOUNT DEBTORS.
Borrower and each Borrowing Subsidiary hereby authorizes Lender, now and at any
time or times hereafter, without prior notice to Borrower and Borrowing
Subsidiaries, to (i) notify any or all Account Debtors that the Accounts have
been assigned to Lender and that Lender has a security interest therein and
(ii) direct such Account Debtors to make all payments due from them to Borrower
or a Borrowing Subsidiary upon the Accounts directly to Lender or to a lock box
designated by
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Lender. Lender shall promptly furnish Borrower and Borrowing Subsidiaries with
a copy of any such notice sent. Any such notice, in Lender's sole discretion,
may be sent on the stationery of Borrower or a Borrowing Subsidiary, in which
event Borrower or such Borrowing Subsidiary shall co-sign such notice with
Lender.
4.4 STATEMENT OF ACCOUNT. Lender shall provide Borrower with a
statement of account relating to the Liabilities on a monthly basis. Each such
statement of account shall be presumed correct and accurate and shall, except
for Lender's right to reapply payments, constitute an account stated between
Borrower and Borrowing Subsidiaries and Lender, unless thereafter waived in
writing by Lender or unless, within thirty (30) days after Borrower's receipt
thereof, Borrower delivers to Lender, by registered or certified mail, written
objection thereto specifying the error or errors contained therein. In the
event of such written objection, only those items expressly objected to shall
be deemed to be disputed by Borrower and Borrowing Subsidiaries. Lender's
determination, based upon the facts available, of any item objected to by
Borrower in such written objection shall (absent manifest error) be final,
binding and conclusive on Borrower and Borrowing Subsidiaries, unless Borrower
shall commence a judicial proceeding to resolve such objection within thirty
(30) days following Lender's notifying Borrower of such determination.
5. COLLATERAL: GENERAL TERMS.
--------------------------
5.1 SECURITY INTEREST. To secure the prompt payment to Lender of
the Liabilities, Borrower and each Borrowing Subsidiary hereby grants to Lender
a continuing security interest in and to all of the following property and
interests in property of Borrower and each Borrowing Subsidiary, whether now
owned or existing, hereafter acquired or arising, or in which Borrower or a
Borrowing Subsidiary now or hereafter has any rights, and wheresoever located:
(A) Accounts (excluding, however, the shares of capital
stock of KRUG International (UK) Ltd.);
(B) Equipment;
(C) Inventory;
(D) General Intangibles;
(E) All monies, residues and property of any kind now or
at any time hereafter in the possession or under the control of
Lender, a bailee of Lender, or any Participant;
(F) All accessions to, substitutions for, and all
replacements, products and proceeds of the foregoing, including,
without limitation, proceeds of insurance policies insuring the
Collateral; and
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(G) All books and records (including, without limitation,
customer lists, credit files, computer programs, printouts and other
computer materials and records) of Borrower and each Borrowing
Subsidiary pertaining to any of the foregoing.
5.2 SPECIAL COLLATERAL. Immediately upon Borrower's or a
Borrowing Subsidiary's receipt of that portion of the Collateral which is or
becomes evidenced by an agreement, instrument and/or document, including,
without limitation, promissory notes, trade acceptances, documents of title and
warehouse receipts (the "Special Collateral"), Borrower or such Borrowing
Subsidiary shall deliver the original thereof to Lender, together with
appropriate endorsements or other specific evidence (in form and substance
acceptable to Lender) of assignment thereof to Lender.
5.3 FURTHER ASSURANCES. At Lender's request, Borrower and each
Borrowing Subsidiary shall execute and deliver to Lender, at any time
hereafter, all Supplemental Documentation that Lender may reasonably request,
in form and substance acceptable to Lender, and pay the costs of any recording
or filing of the same. Borrower and each Borrowing Subsidiary agrees that a
carbon, photographic, or other reproduction of this Agreement or of a financing
statement is sufficient as a financing statement.
5.4 VERIFICATION OF ACCOUNTS; INSPECTION; AUDIT. Any of Lender's
officers, employees or agents shall have the right, at any time hereafter, in
the name of Lender or an agent of Lender or in the name of Borrower or a
Borrowing Subsidiary, to verify the validity, amount or any other matter
relating to any Accounts by mail, telephone or otherwise. Lender (by any of
its officers, employees or agents) shall have the right, at any time during
Borrower's or a Borrowing Subsidiary's usual business hours, to inspect the
Collateral, all records related thereto (and to make extracts from such
records) and the premises upon which any of the Collateral is located, and the
right, at any time, to discuss Borrower's or a Borrowing Subsidiary's affairs
and finances and the Collateral with any attorney, accountant, Account Debtor
or creditor of Borrower or a Borrowing Subsidiary.
5.5 RECORDS AND SCHEDULES OF ACCOUNTS. Borrower and each
Borrowing Subsidiary shall keep accurate and complete records of its Accounts
and shall furnish to Lender (i) weekly, in form and substance acceptable to
Lender, a report detailing, by Account Debtor, certain information regarding
the Accounts, as requested by Lender ("Schedule of Accounts"), and (ii) upon
demand, copies of proofs of delivery and customer statements, the original copy
of all documents, including, without limitation, repayment histories and
present status reports, relating to the Accounts so scheduled, and such other
matters and information relating to the status of the Accounts as Lender shall
reasonably request.
5.6 NOTICE REGARDING DISPUTED ACCOUNTS. In the event any amounts
due and owing in excess of Fifty Thousand Dollars ($50,000) are in dispute
between any Account Debtor and Borrower or a Borrowing Subsidiary, Borrower
shall provide Lender with written notice thereof
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at the time of submission of the next Schedule of Accounts pursuant to Section
5.5, upon learning of such dispute, explaining in detail the reason for the
dispute, all claims related thereto and the amount in controversy.
5.7 PROCEEDS OF EQUIPMENT. Except as expressly set out herein,
neither Borrower nor a Borrowing Subsidiary shall, without the prior written
consent of Lender, sell, lease, grant a security interest in or otherwise
dispose of or encumber the Equipment, or any part thereof. Upon any
disposition of Equipment which requires the consent of Lender, Borrower or such
Borrowing Subsidiary shall deliver all of the proceeds thereof to Lender to be
applied to the repayment of the Liabilities. Borrower or a Borrowing
Subsidiary may, without the prior written consent of Lender, sell any obsolete
or redundant equipment, provided that the aggregate fair market value of any
Equipment so sold does not exceed Fifty Thousand Dollars ($50,000) in any
fiscal year. Upon any such permitted disposition of Equipment, Borrower or
such Borrowing Subsidiary shall (i) deliver all of the cash proceeds thereof to
Lender, which proceeds shall be applied to the repayment of Liabilities, or
(ii) use the proceeds of such sale, transfer or disposition to purchase
replacement Equipment, and Borrower or such Borrowing Subsidiary shall
promptly deliver to Lender written evidence of the use of such proceeds for
such purchase. All such replacement Equipment purchased by Borrower or a
Borrowing Subsidiary shall be free and clear of Liens, except for the Lien of
Lender.
5.8 PROCEEDS OF REAL PROPERTY. Except as otherwise set out
herein, neither Borrower nor a Borrowing Subsidiary shall, without the prior
written consent of Lender, sell, lease, grant a mortgage in or otherwise
encumber the Real Property or any part thereof. Upon any disposition of Real
Property which requires the consent of Lender, Borrower or such Borrowing
Subsidiary shall deliver all of the proceeds thereof to Lender to be applied to
the repayment of the Liabilities. Borrower may, without the prior written
consent of Lender, mortgage the Colonel Glenn Real Property to secure a
mortgage loan in the principal amount of not more than Two Million, Two Hundred
Thousand Dollars ($2,200,000), repayable in monthly installments of principal
based upon a twelve (12) year amortization schedule, but with a required
balloon payment of the entire unpaid principal balance at the end of three (3)
years. Borrower may, without the prior written consent of Lender, sell the
Colonel Glenn Real Property, provided that the net cash proceeds (after
deducting all expenses including commissions, taxes payable and an appropriate
reserve for income taxes in connection therewith) therefrom are sufficient to
pay the then balance, if any, on the mortgage loan on such property, or, if
less, are not less than ninety percent (90%) of such balance AND, after giving
effect to such sale, including payment of the mortgage loan balance and the
establishment of an appropriate reserve for income taxes in connection with
such sale, Excess Revolving Loan Availability would be not less than Five
Hundred Thousand Dollars ($500,000). Any net cash proceeds from the sale of
the Colonel Glenn Real Property in excess of the amount required to pay the
then balance, if any, on the mortgage loan on such property shall be delivered
to Lender to be applied to the repayment of the Liabilities.
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6. WARRANTIES AND REPRESENTATIONS.
------------------------------
6.1 GENERAL WARRANTIES AND REPRESENTATIONS. Borrower and each
Borrowing Subsidiary warrants and represents that:
(A) Borrower and each Borrowing Subsidiary is a
corporation duly organized and existing and in good standing under the
laws of the state of its incorporation and is qualified or licensed to
do business in all other countries, states and provinces the laws of
which require Borrower or such Borrowing Subsidiary to be so qualified
or licensed, except where the failure to be so qualified or licensed
could not reasonably be expected to have a Material Adverse Effect;
(B) Borrower or a Borrowing Subsidiary has good,
indefeasible and merchantable title to and ownership of the
Collateral, free and clear of Liens, except those of Lender and those,
if any, described on SCHEDULE 6.1(B) hereto;
(C) Neither Borrower nor either Borrowing Subsidiary is a
party to any contract or agreement or subject to any charge, corporate
restriction, judgment, decree or order which could reasonably be
expected to have a Material Adverse Effect, or is a party to any labor
dispute, and there are no strikes or walkouts relating to any labor
contract, and no such contract is scheduled to expire during the Term;
(D) Neither Borrower nor either Borrowing Subsidiary is
in violation of any applicable statute, regulation or ordinance of any
governmental entity, or of any agency thereof, which could reasonably
be expected to have a Material Adverse Effect;
(E) Neither Borrower nor either Borrowing Subsidiary is
in default with respect to any indenture, loan agreement, mortgage,
lease, deed or other similar agreement relating to the borrowing of
monies to which it is a party or by which it is bound;
(F) Neither Borrower nor either Borrowing Subsidiary has
received any notice to the effect that it is not in full compliance
with any of the requirements of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the regulations
promulgated thereunder and, to the best of Borrower's and each
Borrowing Subsidiary's knowledge there exists no event described in
Section 4043(b)(3) thereof ("Reportable Event");
(G) Borrower and each Borrowing Subsidiary has filed all
federal, state and local tax returns and other reports it is required
by law to file and has paid, to the extent due and payable, all taxes,
levies, assessments, charges, liens, claims or encumbrances upon or
relating to the Collateral, the Liabilities, its employees, payroll,
income, and
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gross receipts, its ownership or use of any of its assets, and any
other aspect of its business (collectively, the "Charges");
(H) The offices or locations where Borrower and each
Borrowing Subsidiary keeps the Collateral and books and records,
including, without limitation, computer programs, printouts and other
computer materials and records concerning the Collateral, are at the
locations set forth on SCHEDULE 6.1(H) hereto;
(I) The addresses specified on SCHEDULE 6.1(H) hereto
include and designate Borrower's and each Borrowing Subsidiary's chief
executive office, chief place of business and other offices and places
of business and are Borrower's and Borrowing Subsidiaries' sole
offices and places of business;
(J) Neither Borrower nor either Borrowing Subsidiary has,
during the preceding five (5) years, been known as or used any other
corporate or fictitious name;
(K) Borrower and each Borrowing Subsidiary has the right
and power and is duly authorized and empowered to enter into, execute,
deliver and perform this Agreement and the other Agreements, and its
officers executing and delivering this Agreement and the Other
Agreements are duly authorized and empowered to do so;
(L) The execution, delivery and performance by Borrower
and each Borrowing Subsidiary of this Agreement and the Other
Agreements shall not, by the lapse of time, the giving of notice or
otherwise, constitute a violation of any applicable law or a breach of
any provision contained in its Articles or Certificate of
Incorporation or Regulations or contained in any agreement, instrument
or document to which it is now a party or by which it is bound;
(M) Borrower and each Borrowing Subsidiary has, and is
current and in good standing with respect to, all governmental
approvals, permits, certificates, inspections, consents and franchises
necessary to continue to conduct its business as heretofore conducted,
and to own or lease and operate the properties now owned or leased by
it;
(N) After giving effect to the initial Revolving Loan
Advance, the transactions contemplated by this Agreement and the Other
Agreements, and the payment of all estimated legal, investment
banking, accounting and other fees related hereto and thereto,
Borrower and Borrower's U.S. Subsidiaries, on a consolidated basis,
will be Solvent as of the date of the initial Revolving Loan Advance
and at all times thereafter;
(O) The Financials have been prepared in accordance with
generally accepted accounting principles and 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
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material and no event has occurred since the date of the Financials
and is continuing which could reasonably be expected to have a
Material Adverse Effect; there exists 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 and each Borrowing Subsidiary's
knowledge, threatened, against Borrower or either Borrowing Subsidiary
or any other Person which could reasonably be expected to have a
Material Adverse Effect; except for trade payables arising in the
ordinary course of its business since the dates reflected in the
Financials and except as disclosed on SCHEDULE 6.1(O) hereto and in
the Financials, neither Borrower nor either Borrowing Subsidiary has
any actions or proceedings pending or has any Indebtedness or has
guaranteed the obligations of any other Person;
(P) The execution and delivery of this Agreement and the
Other Agreements by Borrower and each Borrowing Subsidiary does not
directly or indirectly violate or result in a violation of Section 7
of the Securities and Exchange Act of 1934, as amended, or any
regulations issued pursuant thereto, including, without limitation,
Regulations G, U, T and X of the Board of Governors of the Federal
Reserve System, and neither Borrower nor either Borrowing Subsidiary
owns or intends to purchase or carry any "margin security" as defined
in said Regulations;
(Q) Neither Borrower nor either Borrowing Subsidiary is
in default in the payment when due of any Indebtedness, and, since the
date of the Financials, Borrower's and each Borrowing Subsidiary's
accounts payable have been paid in accordance with historical
practice;
(R) Borrower's and each Borrowing Subsidiary's use of the
proceeds of any advances and re-advances made by Lender to Borrower
and Borrowing Subsidiaries pursuant to this Agreement are, and will
continue to be legal and proper corporate uses duly authorized by its
Board of Directors and such uses are consistent with all applicable
laws and statutes, as in effect as of the date hereof;
(S) Borrower and each Borrowing Subsidiary has sufficient
personnel and possesses adequate assets, licenses, patents, patent
applications, copyrights, trademarks and trade names to continue to
conduct its business as heretofore conducted by it, and all such
licenses, patents, patent applications, copyrights, trademarks and
trade names are listed on SCHEDULE 6.1(S) hereto;
(T) The authorized capital stock and the issued and
outstanding capital stock of Borrower and each Borrowing Subsidiary is
set forth on SCHEDULE 6.1(T) hereto, and except as set forth on
SCHEDULE 6.1(T) hereto, there are no options, warrants or other rights
to acquire from Borrower or either Borrowing Subsidiary or agreements,
or other rights by Borrower or either Borrowing Subsidiary to issue or
sell its capital stock, whether on conversion or exchange of
convertible securities or otherwise; SCHEDULE
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6.1(T) lists all Persons who own of record or beneficially more than
five percent (5%) of the issued and outstanding capital stock of
Borrower and the number of shares owned by each such Person, and the
owners of the issued and outstanding stock of each Borrowing
Subsidiary and the number of shares owned by each;
(U) SCHEDULE 6.1(U) hereto lists all owned and leased
Real Property, and, except as described in SCHEDULE 6.1(U), or except
with the written consent of Lender, neither Borrower nor either
Borrowing Subsidiary is a party to any contract or agreement for the
sale, transfer, assignment or other disposition of the Real Property
or any portion thereof or interest therein;
(V) The Liens granted to Lender pursuant to this
Agreement will at the time of the initial Revolving Loan Advance be
fully perfected first priority Liens in and to the Collateral, subject
only to the Liens permitted by Section 7.2(N) hereof;
(W) No event has occurred since March 31, 1994, and is
continuing which has had or could reasonably be expected to have a
Material Adverse Effect;
(X) All premises and facilities owned, leased, used or
operated by Borrower or either Borrowing Subsidiary or, to the
knowledge of any executive officer of Borrower or either Borrowing
Subsidiary after a reasonable investigation, any predecessor in
interest, have been, and continue to be, owned, leased, used or
operated in compliance in all material respects with all applicable
Environmental Laws.
(Y) Except for Walter Middleton & Co., which is to be
paid a financial advisory fee of Forty-Five Thousand Dollars ($45,000)
by Borrower and Borrowing Subsidiaries, no broker or finder acting on
behalf of Borrower or a Borrowing Subsidiary brought about the
obtaining, making or closing of the loans pursuant to this Agreement
and neither Borrower nor either Borrowing Subsidiary has any
obligation to any other Person in respect of any finder's or brokerage
fees in connection with the loans contemplated by this Agreement; and
(Z) No information contained in this Agreement, the Other
Agreements, the Financials or any written statement furnished by or on
behalf of Borrower or either Borrowing Subsidiary pursuant to the
terms of this Agreement, which has previously been delivered to
Lender, contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained
herein or therein not misleading at the time and in light of the
circumstances under which made.
6.2 ACCOUNT WARRANTIES AND REPRESENTATIONS. With respect to its
Accounts, Borrower and each Borrowing Subsidiary warrants and represents to
Lender that Lender may rely, in determining which Accounts listed on any
Schedule of Accounts are Eligible Accounts-Billed, on all statements or
representations made by Borrower or a Borrowing Subsidiary on or
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with respect to any such Schedule and, unless otherwise indicated in writing by
Borrower or a Borrowing Subsidiary, that:
(A) They are genuine, are in all respects what they
purport to be, are not evidenced by a judgment and are evidenced by
executed original instruments, agreements, contracts, or documents,
which will be delivered to Lender upon request therefor;
(B) They represent undisputed, bona fide transactions
completed in accordance with the terms and provisions contained in any
documents related thereto;
(C) The face amounts shown on any Schedule of Accounts
provided to Lender and all invoices and statements delivered to Lender
with respect to any Account are actually and absolutely owing to
Borrower or a Borrowing Subsidiary and are not contingent for any
reason;
(D) To the best knowledge of Borrower's and Borrowing
Subsidiaries' executive officers, there are no setoffs, counterclaims
or disputes existing or asserted with respect thereto and neither
Borrower nor either Borrowing Subsidiary has made any agreement with
any Account Debtor thereunder for any deduction therefrom, EXCEPT
discounts or allowances allowed by Borrower or such Borrowing
Subsidiary in the ordinary course of its business for prompt payment,
all of which discounts or allowances are reflected in the calculation
of the face amount of the invoices to which such discounts or
allowances relate;
(E) To the best knowledge of Borrower's and Borrowing
Subsidiaries' executive officers, there are no facts, events or
occurrences which in any way impair the validity or enforcement
thereof or tend to reduce the amount payable thereunder from the
invoice face amount shown on any Schedule of Accounts and on all
contracts, invoices and statements delivered to Lender with respect
thereto;
(F) To the best knowledge of Borrower's and Borrowing
Subsidiaries' executive officers, all Account Debtors thereunder (i)
had the capacity to contract at the time any contract or other
document giving rise to the Account was executed and (ii) are Solvent;
(G) They are not subject to any Liens, except those of
Lender and those subordinated to Lender's Liens;
(H) No executive officer of Borrower or either Borrowing
Subsidiary has knowledge of any fact or circumstance which would
impair the validity or collectibility thereof; and
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(I) To the best knowledge of Borrower's and Borrowing
Subsidiaries' executive officers, there are no proceedings or actions
which are threatened or pending against any Account Debtor thereunder
which could reasonably be expected to have a Material Adverse Effect.
6.3 WARRANTY AND REAFFIRMATION OF WARRANTIES AND REPRESENTATIONS;
SURVIVAL OF WARRANTIES AND REPRESENTATIONS. Each request for an advance made
by Borrower or a Borrowing Subsidiary pursuant to this Agreement or the Other
Agreements shall constitute (i) a warranty and representation by Borrower and
each Borrowing Subsidiary to Lender that there does not then exist an Event of
Default or any event or condition which, with notice, lapse of time or the
making of such advance, would constitute an Event of Default, except as
otherwise notified by Borrower or a Borrowing Subsidiary and (ii) a
reaffirmation as of the date of said request of the representations and
warranties of Borrower and Borrowing Subsidiaries contained in paragraphs (A)
through (J) of Section 6.1 and in Section 6.2 with respect to Collateral then
existing. All representations and warranties of Borrower and Borrowing
Subsidiaries contained in this Agreement and the Other Agreements shall survive
the execution, delivery and acceptance thereof by the parties thereto and the
closing of the transactions described therein or related thereto.
7. COVENANTS AND CONTINUING AGREEMENTS.
-----------------------------------
7.1 AFFIRMATIVE COVENANTS. Borrower and each Borrowing
Subsidiary covenants that it shall:
(A) Deliver to Lender, on a weekly basis, a Borrowing
Base Certificate, together with such supporting records and documents
as Lender may reasonably request;
(B) Keep books of account and prepare financial
statements and shall cause to be furnished to Lender the following
(all of the foregoing and following to be kept and prepared in
accordance with GAAP, except Borrower's investment in its Subsidiaries
will be shown at cost in the unaudited consolidating schedules of
Borrower and its Subsidiaries and no independent evaluation of
intercompany payables or receivables will be made);
(i) as soon as available, but not later than
ninety (90) days after the close of each Fiscal Year of
Borrower hereafter, audited consolidated financial statements
of Borrower and its Subsidiaries as at the end of such year
certified by a firm of independent certified public
accountants of recognized standing, reasonably acceptable to
Lender and selected by Borrower (and which has acknowledged a
letter of the type referred to in Section 9.4(I)), together
with the unaudited consolidating schedules;
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(ii) concurrently with the delivery of the
financial statements described in subsection (i) above, (a) a
statement in reasonable detail showing the calculations used
in determining the financial covenants under Section 7.3
hereof, and (b) a report from such firm of independent
certified public accountants to the effect that, in connection
with their audit examination, nothing, with respect to
accounting matters, has come to their attention to cause them
to believe that a Default or Event of Default had occurred or,
if anything has come to their attention to cause them to
believe that a Default or Event of Default had occurred, a
description of such Default or Event of Default;
(iii) as soon as available, but not later than
fifteen (15) days after the end of each month hereafter, an
aged receivable trial balance as of the end of such month;
(iv) as soon as available, but not later than
twenty (20) days after the end of each month hereafter, an
accounts payable aging as of the end of such month;
(v) as soon as available, but not later than
thirty (30) days after the end of each January, February,
April, May, July, August, October and November hereafter, and
not later than forty-five (45) days after the end of each
March, June, September and December hereafter, unaudited
interim unconsolidated, consolidating and consolidated
financial statements of Borrower and its Subsidiaries
(including, as to the U.S. Subsidiaries, an accounts payable
aging and an aged receivable trial balance reconciled to such
financial statements) as at the end of the portion of
Borrower's Fiscal Year then elapsed, together with (a) a
statement in reasonable detail showing the calculations used
in determining the financial covenants under Section 7.3
hereof, and (b) the certification of Borrower's principal
financial officer that all such financial statements were
prepared in accordance with GAAP (subject to normal year-end
adjustments and the absence of footnotes) and fairly present
the financial position and results of operations of Borrower
and its Subsidiaries for such period;
(vi) as soon as possible, but not later than the
end of any Fiscal Year, a copy of Borrower's and each
Borrowing Subsidiary's operating plan for the subsequent
Fiscal Year, as approved by Borrower's or such Borrowing
Subsidiary's Board of Directors, which shall include annual
projected income statements and balance sheets for Borrower or
such Borrowing Subsidiary on an unconsolidated, consolidating
and consolidated basis, and a capital expenditure budget, all
in reasonable detail; and, within forty-five (45) days
following the end of each Fiscal Year, the annual projected
income statements and balance sheets for Borrower or such
Borrowing Subsidiary shall be supplemented by monthly
projected income statements and balance sheets for Borrower's
U.S. Subsidiaries;
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(vii) such other data and information (financial
and otherwise) as Lender, from time to time, may reasonably
request, bearing upon or related to the Collateral and
Borrower's and each Borrowing Subsidiary's financial condition
or results of operations;
(C) Promptly upon, but in no event later than three (3)
Business Days after, Borrower's or a Borrowing Subsidiary's learning
thereof, inform Lender, in writing, of (i) any material delay in
Borrower's or a Borrowing Subsidiary's performance of any of its
obligations to any Account Debtor and of any assertion of any material
claims, offsets or counterclaims by any Account Debtor and of any
material allowances, credits or other monies granted by Borrower or a
Borrowing Subsidiary to any Account Debtor; (ii) all material adverse
information relating to the financial condition of any Account Debtor;
(iii) any facts relating to any Account which would render untrue any
representation or warranty made pursuant to Section 6.2 hereof with
respect to such Account; (iv) any litigation affecting Borrower or a
Borrowing Subsidiary, whether or not the claim is considered by
Borrower or such Borrowing Subsidiary to be covered by insurance, and
of the institution of any suit or administrative proceeding which
litigation, suit or administrative proceeding could reasonably be
expected to have a Material Adverse Effect;
(D) Provide Lender with copies of all leases or similar
agreements between Borrower or a Borrowing Subsidiary and any other
Person, whether Borrower or such Borrowing Subsidiary is lessor or
lessee thereunder;
(E) Keep and maintain the Equipment in good operating
condition and repair; make all necessary replacements thereof so that
the value and operating efficiency thereof shall at all times be
maintained and preserved; promptly inform Lender of any additions to
or deletions from the Equipment; and prevent any such Equipment from
becoming a fixture to real estate or accession to other personal
property;
(F) Not later than sixty (60) days after the close of any
Fiscal Year, provide Lender with a written report setting out in such
detail as Lender may reasonably require all dispositions and purchases
by Borrower or a Borrowing Subsidiary of any Equipment or Real
Property with a book value or fair market value of more than Fifty
Thousand Dollars ($50,000), together with a summary of all other
dispositions and purchases by Borrower or a Borrowing Subsidiary of
Equipment and Real Property.
(G) If any of the Accounts, the face value of which
exceeds One Thousand Dollars ($1,000), arises out of a contract with
the United States of America, or any agency or department thereof,
promptly notify Lender thereof in writing and execute any instruments
and take any other action required or requested by Lender to perfect
Lender's security interest in such Accounts under the provisions of
the Assignment of Claims Act [41 U.S.C. Section 15, 31 U.S.C. Section
3727];
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<PAGE> 36
(H) Pay, and cause its Subsidiaries to pay, promptly when
due, all of the Charges, and promptly discharge any liens,
encumbrances or other claims against the Collateral;
(I) Maintain, and cause each U.S. Subsidiary to maintain,
such insurance as may be required by law and such other insurance to
such extent and against such hazards and liabilities as is customarily
maintained by companies similarly situated, and include Lender as an
additional insured on all liability policies;
(J) Comply, and cause each U.S. Subsidiary to comply,
strictly and in all respects with all applicable Environmental Laws,
notify Lender, and cause each Subsidiary to notify Lender, promptly in
the event of any Release of any Hazardous Substance reportable under
Section 103 of CERCLA upon any premises owned or operated by Borrower
or any Subsidiary, and promptly forward, and cause each Subsidiary to
promptly forward, to Lender a copy of any order, notice, permit,
application, or any other communication or report in connection with
any such Release of any Hazardous Substance or any other matter
relating to the Environmental Laws as they may affect such premises;
and
(K) Supplement and amend, from time to time as may be
necessary (in the event that such information is not otherwise
delivered by Borrower or a Borrowing Subsidiary to Lender pursuant to
this Agreement), as promptly as is reasonable under the circumstances
after any executive officer of Borrower or a Borrowing Subsidiary has
knowledge with respect thereto, and at least quarterly, each Schedule
or representation herein with respect to any matter hereafter arising
which, if existing or occurring at the date of this Agreement, would
have been required to be set forth or described in such Schedule or as
an exception to such representation or which is necessary to correct
any information in such Schedule or representation which has been
rendered inaccurate thereby; provided, however, that the furnishing of
such supplemental disclosure shall not constitute a cure or waiver of
any Event of Default resulting from the matters disclosed therein or
otherwise then existing.
7.2 NEGATIVE COVENANTS. Without Lender's prior written consent,
which Lender may or may not in its sole discretion give, Borrower and each
Borrowing Subsidiary covenants that it shall not:
(A) Merge or consolidate with or acquire any Person;
(B) Make any investment other than in the ordinary course
of its business;
(C) Declare or pay dividends upon any of its Stock or
make any distributions of its property or assets; provided that
Borrower may issue stock dividends upon its Stock and, with respect to
fractional shares of its Stock, may declare and pay such stock
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<PAGE> 37
dividend in cash not to exceed Twenty Thousand Dollars ($20,000) per
year in the aggregate;
(D) Redeem, retire, purchase or otherwise acquire,
directly or indirectly, any of its Stock, or make any material change
in its capital structure or in any of its business objectives,
purposes and operations which might in any way adversely affect the
repayment of the Liabilities;
(E) Enter into, or be a party to, any transaction with
any Affiliate, except in the ordinary course of and pursuant to the
reasonable requirements of its business and upon fair and reasonable
terms which are fully disclosed to Lender and are no less favorable to
it than would obtain in a comparable arm's length transaction with a
Person not an Affiliate;
(F) Enter into any transaction which materially and
adversely affects the Collateral or its ability to repay the
Indebtedness or permit or agree to any material extension, compromise
or settlement or make any material change or modification of any kind
or nature with respect to any Account, including any of the terms
relating thereto;
(G) Guarantee or otherwise, in any way, become liable
with respect to the obligations or liabilities of any Person except
(i) its Affiliates' obligations to Lender and (ii) by endorsement of
instruments or items of payment for deposit to its general account or
for delivery to Lender on account of the Liabilities;
(H) Except as otherwise expressly permitted herein or in
the Other Agreements, encumber, pledge, mortgage, grant a security
interest in, assign, sell (except for the sale of services and
property in the ordinary course of business), lease or otherwise
dispose of or transfer, whether by sale, merger, consolidation,
liquidation, dissolution, or otherwise, any of its assets;
(I) Make any loans or advances of money to any Person
(other than intracompany loans between Borrower and Borrowing
Subsidiaries), including, without limitation, its employees or
Affiliates (other than salary and routine travel or expense account
advances made in the ordinary course of business) or permit the annual
salary and all other direct and indirect remuneration to its officers
to exceed the amounts recommended by the Executive Compensation
Committee of Borrower's Board of Directors and approved by Borrower's
Board of Directors;
(J) Make capital expenditures (including capitalized
leases) during any Fiscal Year, which, in the aggregate for Borrower
and Borrowing Subsidiaries, exceed One Hundred Fifty Thousand Dollars
($150,000); provided that any permitted amount not expended in one
Fiscal Year may be expended in the immediately succeeding Fiscal Year;
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<PAGE> 38
(K) Permit the aggregate of all Accounts owing from U.K.
Subsidiary at any time to exceed Two Hundred Thousand Dollars
($200,000) (other than in connection with transactions related to
dividends from U.K. Subsidiary to Borrower), or permit the aggregate
of all Accounts owing from KRUG Properties Inc. to exceed the sum of
the amount of such Account as of March 31, 1995, plus the net expenses
of Borrower's discontinued operations for the Fiscal Years commencing
with the Fiscal Year ending March 31, 1996, but not to exceed Eight
Hundred Thousand Dollars ($800,000) for the Fiscal Year ending March
31, 1996, and Six Hundred Thousand Dollars ($600,000) for each Fiscal
Year thereafter.
(L) Remove its books and records and/or the Collateral
from the locations set forth in SCHEDULE 6.1(H), or keep any of such
books and records and/or the Collateral at any other office(s) or
location(s) unless (i) Borrower gives Lender written notice thereof
and of the new location of said books and records and/or the
Collateral at least thirty (30) days prior thereto and (ii) the other
office or location is within the continental United States of America;
(M) Create, incur, assume or have outstanding any
Indebtedness, except (i) Indebtedness owing to Lender, (ii)
Indebtedness incurred by it in the ordinary course of business, other
than Indebtedness for borrowed money, (iii) Indebtedness disclosed in
the Financials, (iv) Indebtedness existing on the date hereof and
listed inSCHEDULE 6.1(O), or (v) Subordinated Debt; or
(N) Create or permit any Lien on any of its properties or
assets except: (i) presently existing or hereinafter created Liens in
favor of Lender; (b) Permitted Encumbrances; and (c) Liens permitted
by Section 7.4 hereof.
7.3 FINANCIAL COVENANTS.
(A) Borrower and U.S. Subsidiaries shall have, on a
consolidated basis, at the end of each of the Fiscal Quarters within
the Fiscal Years ending March 31, 1995, and March 31, 1996, commencing
with the Fiscal Quarter ending March 31, 1995, a Fixed Charge Coverage
Ratio equal to or greater than 0.8 to 1.0, and at the end of each
Fiscal Quarter thereafter, a Fixed Charge Coverage Ratio equal to or
greater than 1.0 to 1.0.
(B) Borrower and Borrowing Subsidiaries shall have, on a
consolidated basis, at the end of each Fiscal Quarter, commencing with
the Fiscal Quarter ending March 31, 1995, an Interest Coverage Ratio
equal to or greater than 1.25 to 1.0.
(C) Borrower and U.S. Subsidiaries shall have, on a
consolidated basis, at the end of each Fiscal Quarter within each
Fiscal Year, commencing with the Fiscal Quarter ending March 31, 1995,
Adjusted Net Worth equal to or greater than the amount set opposite
such Fiscal Year in the following schedule:
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<PAGE> 39
<TABLE>
<CAPTION>
Fiscal Year Ending Adjusted Net Worth
------------------ ------------------
<C> <C>
3/31/95 $3,000,000
3/31/96 $3,250,000
3/31/97 $3,500,000
3/31/98 $3,750,000
3/31/99 $4,000,000
3/31/00 $4,250,000
</TABLE>
(D) Borrowing Subsidiaries shall have, on a consolidated
basis, at the end of each Fiscal Quarter, Average Accounts Receivable
Days Outstanding of eighty (80) days or less.
(E) Borrowing Subsidiaries shall have, on a consolidated
basis, at the end of each Fiscal Quarter, Average Accounts Payable
Days Outstanding of fifty (50) days or less.
(F) Borrower and all of Borrower's Subsidiaries shall
have, on a consolidated basis, at the end of each Fiscal Quarter
within each Fiscal Year, commencing with the Fiscal Quarter ending
March 31, 1995, Net Worth equal to or greater than the amount set
opposite such Fiscal Year in the following schedule:
<TABLE>
<CAPTION>
Fiscal Year Ending Net Worth
------------------ ----------
<C> <C>
3/31/95 $12,500,000
3/31/96 $13,500,000
3/31/97 $14,500,000
3/31/98 $15,500,000
3/31/99 $16,500,000
3/31/00 $17,500,000
</TABLE>
(G) In the event that, at the end of any Fiscal Quarter,
Borrower and U.S. Subsidiaries shall fail to have, on a consolidated
basis, a Fixed Charge Coverage Ratio equal to or greater than the
Fixed Charge Coverage Ratio specified for such Fiscal Quarter in
Section 7.3(A) above, then, within forty-five (45) days thereafter,
Borrower shall obtain an Acceptable Cash Infusion in an amount which,
when added to the sum of (a) EBITDA of Borrower and the U.S.
Subsidiaries for the twelve month period ending at the end of such
Fiscal Quarter, plus (b) the amount of any Acceptable Cash Infusion
pursuant to this Section 7.3(G) or Section 7.3(H) during the twelve
month period ending at the end of such Fiscal Quarter, would result in
a Fixed Charge Coverage Ratio equal to the Fixed Charge Coverage Ratio
specified for such Fiscal Quarter in Section 7.3(A).
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<PAGE> 40
(H) In the event that, at the end of any Fiscal Quarter,
Borrower and Borrowing Subsidiaries shall fail to have, on a
consolidated basis, an Interest Coverage Ratio equal to or greater
than the Interest Coverage Ratio specified for such Fiscal Quarter in
Section 7.3(B) above, then, within forty-five (45) days thereafter,
Borrower shall obtain an Acceptable Cash Infusion in an amount which,
when added to the sum of (a) EBITDA of Borrowing Subsidiaries for the
twelve month period ending at the end of such Fiscal Quarter, plus (b)
the amount of any Acceptable Cash Infusion pursuant to this Section
7.3(H) or Section 7.3(G) during the twelve month period ending at the
end of such Fiscal Quarter, would result in an Interest Coverage Ratio
equal to the Interest Coverage Ratio specified for such Fiscal Quarter
in Section 7.3(B).
(I) In the event that, at the end of any Fiscal Quarter,
Borrower and U.S. Subsidiaries shall fail to have, on a consolidated
basis, Adjusted Net Worth equal to or greater than the Adjusted Net
Worth specified for such Fiscal Quarter in Section 7.3(C) above, then,
within forty-five (45) days thereafter, Borrower shall obtain an
Acceptable Cash Infusion in an amount which, when added to the
Adjusted Net Worth at the end of such Fiscal Quarter, would result in
an Adjusted Net Worth equal to the Adjusted Net Worth specified for
such Fiscal Quarter in Section 7.3(C).
For purposes of this Section 7.3, the following terms shall have the
following meanings:
ACCEPTABLE CASH INFUSION: the cash proceeds of (i) an additional
Subordinated Loan by Borrower's U.K. Subsidiary or others, (ii)
dividends paid to Borrower by Borrower's U.K. Subsidiary, or (iii) the
sale of additional capital stock of Borrower.
ADJUSTED NET WORTH: at any time for the determination thereof, the
shareholders' equity of Borrower and the U.S. Subsidiaries, on a
consolidated basis, as determined in accordance with GAAP, except that
Borrower's investment in its U.K. Subsidiary shall be at cost,
PLUSSubordinated Debt, PLUS intercompany payables, PLUS accruals for
discontinued operations, MINUS intercompany receivables and MINUS
treasury stock.
AVERAGE ACCOUNTS PAYABLE DAYS OUTSTANDING: with respect to any Fiscal
Quarter, the month end book value of Borrowing Subsidiaries' accounts
payable (other than accounts payable with respect to capital
expenditures), for each of the three months constituting such Fiscal
Quarter, divided by the cost of goods sold (computed on a first
in-first out basis) for such Fiscal Quarter, multiplied by thirty (30)
days.
AVERAGE ACCOUNTS RECEIVABLE DAYS OUTSTANDING: with respect to any
Fiscal Quarter, the month end book value of Borrowing Subsidiaries'
accounts receivable, for each of the three months constituting such
Fiscal Quarter, divided by sales for such Fiscal Quarter, multiplied
by thirty (30) days.
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<PAGE> 41
EBITDA: for any period, net income (excluding the Noncompetition
Proceeds), PLUS interest (excluding interest accrued, but not paid, on
debt to the U.K. Subsidiary), taxes, depreciation, amortization,
extraordinary items, accruals for discontinued operations and other
non-cash items or expenses.
FIXED CHARGE COVERAGE RATIO: the ratio of (x) EBITDA, MINUS capital
expenditures to the extent permitted by this Agreement, to (y) Fixed
Charges, all for the twelve month period ending at the end of such
Fiscal Quarter.
FIXED CHARGES: for any period, the sum of (a) interest expense for
such period (excluding interest expense accrued, but not currently
payable, on debt to the U.K. Subsidiary), (b) for any period ending on
or before March 31, 1996, the greater of $183,336 or the scheduled
principal payments on long-term debt for such period (excluding
scheduled principal payments on long-term debt prior to March 31,
1995, and excluding the payment of the Noncompetition Proceeds), and
for any period ending after March 31, 1996, the scheduled principal
payments on long-term debt for such period, and (c) the capitalized
amount of obligations under capital leases due and payable for such
period, determined in accordance with GAAP, and (d) net cash payments
related to discontinued operations during such period.
INTEREST COVERAGE RATIO: the ratio of (x) EBITDA, MINUS capital
expenditures permitted by this Agreement, to (y) interest paid in
cash, all for the twelve month period ending at the end of such Fiscal
Quarter.
NET WORTH: at any time for the determination thereof, the
shareholders' equity of Borrower and all of Borrower's Subsidiaries,
on a consolidated basis, as determined in accordance with GAAP, plus
accruals for discontinued operations, and minus treasury stock, with
the assets and liabilities of Borrower's U.K. Subsidiary translated
using the exchange rates in effect as of March 31, 1995.
7.4 PAYMENT OF CHARGES AND CLAIMS. (a) If Borrower or a
Borrowing Subsidiary, at any time or times hereafter, shall fail to pay the
Charges when due or promptly obtain the discharge of such Charges or of any
Lien against the Collateral, subject to the provisions of Section 7.4(b) below,
Lender may, without waiving or releasing any obligation or liability of
Borrower and Borrowing Subsidiaries hereunder or any Event of Default, in its
sole discretion, at any time or times thereafter, make such payment, or any
part thereof, or obtain such discharge 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, upon demand, by Borrower and
Borrowing Subsidiaries to Lender and shall be additional Liabilities hereunder
secured by the Collateral.
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(b) Borrower or a Borrowing Subsidiary may in good faith contest,
by proper legal actions or proceedings, the validity or amount of any Charges
or claims, and provided that Borrower or such Borrowing Subsidiary gives Lender
advance notice of its intention to contest the validity or amount of any such
Charge or claim, Lender will forebear from making any payment or otherwise
obtaining the discharge of such Charge or claim if at the time of the
commencement of any such action or proceeding, and during the pendency thereof
(i) no Event of Default shall have occurred and be continuing, (ii) reserves
with respect thereto are maintained on the books of Borrower or such Borrowing
Subsidiary in an amount acceptable to Lender, (iii) such contest operates to
suspend collection of the contested Charges or claims and is maintained and
prosecuted continuously with diligence, (iv) none of the Collateral will be
subject to forfeiture or loss of any Lien in favor of Lender by reason of the
institution or prosecution of such contest, (v) no Lien shall exist for such
Charges or claims during such action or proceeding, (vi) Borrower or such
Borrowing Subsidiary shall promptly pay or discharge such contested Charges and
all additional charges, interests, penalties and expenses, if any, and shall
deliver to Lender evidence acceptable to Lender of such compliance, payment or
discharge, if such contest is terminated or discontinued adversely to Borrower
or such Borrowing Subsidiary, and (vii) Lender has not advised Borrower or such
Borrowing Subsidiary in writing that Lender reasonably believes that
non-payment or non-discharge thereof would have a Material Adverse Effect.
7.5 INSURANCE; PAYMENT OF PREMIUMS. Borrower and each Borrowing
Subsidiary shall, at its sole cost and expense, keep and maintain the
Collateral (other than Accounts, cash and other items not generally insured)
insured for its full insurable value against loss or damage by fire, theft,
explosion, sprinklers and all other hazards and risks ordinarily insured
against by other owners or users of such properties in similar businesses and
notify Lender promptly of any 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. All policies of insurance on the Collateral shall be in
form and with insurers recognized as adequate by prudent business persons and
all such policies shall be in such amounts as may be satisfactory to Lender.
Borrower shall deliver to Lender a certificate of insurance and, upon request,
the original (or certified copy) of each policy of insurance, and evidence of
payment of all premiums therefor. Such policies of insurance shall contain an
endorsement, in form and substance acceptable to Lender, showing loss payable
to Lender, as its interests may appear. Such endorsement, or an independent
instrument furnished to Lender, shall provide that the insurance companies will
give Lender at least thirty (30) days prior written notice before any such
policy or policies of insurance shall be altered or cancelled and that no act
or default of Borrower or the insured Borrowing Subsidiary or any other person
shall affect the right of Lender to recover under such policy or policies of
insurance in case of loss or damage. Borrower and each Borrowing Subsidiary
hereby directs all insurers under such policies of insurance to pay all
proceeds payable thereunder directly to Lender, as its interests may appear.
Borrower and each Borrowing Subsidiary irrevocably makes, constitutes and
appoints Lender (and all officers, employees or agents designated by Lender) as
its true and lawful attorney (and agent-in-fact) for the purpose of making,
settling and adjusting claims under such policies of insurance, endorsing the
name
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<PAGE> 43
of Borrower or such Borrowing Subsidiary on any check, draft, instrument or
other items of payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect to such policies of
insurance. In the event Borrower or a Borrowing Subsidiary, at any time
hereafter, shall fail to obtain or maintain any of the policies of insurance
required above or to pay any premium in whole or in part relating thereto, then
Lender, without waiving or releasing any obligations or default by Borrower and
Borrowing Subsidiaries hereunder, may at any time thereafter (but shall be
under no obligation to) obtain and maintain such policies of insurance and pay
such premium 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 on demand by Borrower and Borrowing Subsidiaries to Lender and shall be
additional Liabilities hereunder secured by the Collateral.
7.6 SURVIVAL OF OBLIGATIONS UPON TERMINATION OF AGREEMENT. Except
as otherwise expressly provided for in this Agreement and in the Other
Agreements, no termination or cancellation (regardless of cause or procedure)
of this Agreement or the Other Agreements shall in any way affect or impair the
powers, obligations, duties, rights, and liabilities of Borrower, Borrowing
Subsidiaries or Lender relating to (i) any transaction or event occurring prior
to such termination or cancellation, (ii) the Collateral, or (iii) any of the
undertakings, agreements, covenants, warranties and representations of
Borrower, Borrowing Subsidiaries or Lender contained in this Agreement or the
Other Agreements. All such undertakings, agreements, covenants, warranties and
representations shall survive such termination or cancellation.
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT.
-------------------------------------------------
8.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an "Event of Default":
(A) Borrower and Borrowing Subsidiaries fail to pay the
Liabilities when due and payable;
(B) Lender notifies Borrower and Borrowing Subsidiaries
that the outstanding balance of the Revolving Loan exceeds the
limitation set forth under Section 3.1(a) and such condition is not
corrected within one (1) Business Day after such notice;
(C) For more than two (2) successive Fiscal Quarters,
Borrower and Borrowing Subsidiaries fail or neglect to perform, keep
or observe the provisions of Sections 7.3(A), 7.3(B) or 7.3(C);
(D) Borrower and Borrowing Subsidiaries fail or neglect
to perform, keep or observe any of the provisions of Sections 7.2,
7.3(D), 7.3(E), 7.3(F), 7.3(G), 7.3(H) or 7.3(I);
37
<PAGE> 44
(E) Borrower or a Borrowing Subsidiary or any Affiliate
or any guarantor of the Liabilities fails to perform, keep or observe
any other term, provision, condition, covenant, warranty or
representation contained in this Agreement or in the Other Agreements,
which is required to be performed, kept or observed by Borrower or
such Borrowing Subsidiary or such Affiliate or such guarantor, and
such failure is not cured to Lender's satisfaction within ten (10)
days after Lender gives Borrower and Borrowing Subsidiaries written
notice identifying such failure;
(F) A default shall occur under any agreement, document
or instrument, other than this Agreement or the Other Agreements, to
which Borrower or a Borrowing Subsidiary is a party, the consequences
of which could have a Material Adverse Effect;
(G) Any statement, report, financial statement or
certificate made or delivered by Borrower or a Borrowing Subsidiary,
or any of its officers, employees or agents, to Lender is untrue,
incomplete or incorrect in any material respect;
(H) There shall occur any material uninsured damage to,
or loss, theft, or destruction of, any of the Collateral;
(I) The Collateral or any other of Borrower's or a
Borrowing Subsidiary's 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 thirty (30) days
thereafter; an application is made by any Person, other than Borrower
or a Borrowing Subsidiary, for the appointment of a receiver, trustee,
or custodian for any of Borrower's or a Borrowing Subsidiary's assets
and the same is not dismissed within thirty (30) days after the
application therefor;
(J) An application is made by Borrower or a Borrowing
Subsidiary for the appointment of a receiver, trustee or custodian for
any of Borrower's or a Borrowing Subsidiary's assets; a petition under
any section or chapter of the Bankruptcy Code or any similar law or
regulation shall be filed by Borrower or a Borrowing Subsidiary;
Borrower or a Borrowing Subsidiary makes an assignment for the benefit
of its creditors or any case or proceeding is filed by Borrower or a
Borrowing Subsidiary for its dissolution, liquidation, or termination;
(K) Borrower or a Borrowing Subsidiary 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 part of
its business affairs; a petition under any section or chapter of the
Bankruptcy Code or any similar law or regulation is filed against
Borrower or a Borrowing Subsidiary or any case or proceeding is filed
against Borrower or a Borrowing Subsidiary for its dissolution or
liquidation, and such injunction, restraint or petition is not
dismissed within thirty (30) days after the entry or filing thereof;
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<PAGE> 45
(L) A notice of lien, levy or assessment is filed of
record with respect to all or any of Borrower's or a Borrowing
Subsidiary'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 if any taxes or debts owing at any
time or times hereafter to any one of these becomes a lien or
encumbrance upon any of Borrower's or a Borrowing Subsidiary's assets
and the same is not released within thirty (30) days after the same
becomes a lien or encumbrance; provided that Borrower or such
Borrowing Subsidiary shall have the right to contest in good faith and
by appropriate proceedings any such lien, levy or assessment if
Borrower or such Borrowing Subsidiary provides Lender with a bond or
indemnity satisfactory to Lender assuring the payment of such lien,
levy or assessment;
(M) Borrower or a Borrowing Subsidiary becomes insolvent
or admits in writing its inability to pay its debts as they mature;
(N) Borrower or a Borrowing Subsidiary fails to (i)
furnish Lender, within fifteen (15) days thereafter, with written
notice upon the occurrence of any of the following events: (a) the
happening of a Reportable Event with respect to any pension plan of
Borrower or such Borrowing Subsidiary governed by ERISA, (b) the
termination of any such plan, (c) the appointment of a trustee by an
appropriate United States District Court to administer any such plan,
or (d ) the institution of any proceedings by the Pension Benefit
Guaranty Corporation to terminate any such plan or to appoint a
trustee to administer any such plan; or (ii) notify Lender promptly
upon receipt by Borrower or a Borrowing Subsidiary of any notice of
the institution of any proceeding or other action which may result in
the termination of such plan;
(O) There exists any uncorrected violation by Borrower or
a Borrowing Subsidiary of any Environmental Laws which requires, or
may require, a response, as defined under CERCLA, [42 U.S.C. Section
4601(25)], corrective action as defined under RCRA and described in 58
Fed.Reg. 8658, or other remedial action by Borrower or such Borrowing
Subsidiary under any Environmental Laws ("Response"), such uncorrected
violation could reasonably be expected to have a Material Adverse
Effect, and such Response is not completed within ninety (90) days
from the date of written notice from Lender to Borrower or such
Borrowing Subsidiary of the violation, or such longer period of time
as is necessary to cure such violation as long as Borrower or such
Borrowing Subsidiary is proceeding diligently to cure such violation
and the delay could not reasonably be expected to have a Material
Adverse Effect;
(P) A default shall occur under any other agreement,
document or instrument to which Borrower or a Borrowing Subsidiary is
a party and such default is not cured within any applicable grace
period, waived in writing or being contested pursuant to the
provisions of Section 7.4 hereof, and such default (i) involves the
failure to make any
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<PAGE> 46
payment when due in respect of any Indebtedness (other than the
Liabilities) of Borrower or a Borrowing Subsidiary in excess of Fifty
Thousand Dollars ($50,000) in the aggregate, or (ii) causes such
Indebtedness or a portion thereof in excess of Fifty Thousand Dollars
($50,000) in the aggregate to become due prior to its stated maturity
or prior to its regularly scheduled dates of payment, or (iii) permits
any holder of such Indebtedness or a trustee to cause such
Indebtedness or a portion thereof in excess of Fifty Thousand Dollars
($50,000) in the aggregate to become due prior to its stated maturity
or prior to the regularly scheduled dates of payment and such default
is not cured or waived within thirty (30) days after the occurrence
thereof;
(Q) A default shall be declared under any other
agreement, document or instrument to which Borrower or a Borrowing
Subsidiary is a party and such default is not cured within any
applicable grace period, waived in writing or being contested pursuant
to the provisions of Section 7.4 hereof, and such default involves the
failure to make any payment when due in excess of Fifty Thousand
Dollars ($50,000);
(R) A "Change of Control". A "Change of Control" shall
be deemed to have occurred in the event that, after the date of this
Agreement, either (A) any Person or any Persons (other than Maurice F.
Krug) acting together which would constitute a "group" (a "Group") for
purposes of Section 13(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"), or any successor provision thereto, together with any
Affiliates thereof, shall beneficially own (as defined in Rule 13d-3
of the Exchange Act or any successor provision thereto) at least 50%
of the aggregate voting power of all classes of capital stock of
Borrower entitled to vote generally in the election of directors of
Borrower; or (B) any Person or Group (other than Maurice F. Krug),
together with any Affiliates thereof, shall succeed in having
sufficient number of its or their nominees elected to the Board of
Directors of Borrower such that such nominees, when added to any
existing director remaining on the Board of Directors of Borrower
after such election who is an Affiliate of such Group, shall
constitute a majority of the Board of Directors of Borrower; or
(S) Any other event shall have occurred and be continuing
which could reasonably be expected to have a Material Adverse Effect
and Lender shall have given Borrower and Borrowing Subsidiaries at
least ten (10) days' notice hereof.
8.2 ACCELERATION OF THE LIABILITIES. Upon the occurrence and
continuation of an Event of Default, all 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.
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8.3 REMEDIES. Upon the occurrence and during the continuation of
an Event of Default, Lender shall have the following rights and remedies:
(A) The right to terminate the financing arrangements
under this Agreement and the Other Agreements;
(B) In addition to any other rights and remedies
contained in this Agreement and in all of the Other Agreements, all of
the rights and remedies of a secured party under the Code or other
applicable law, all of which rights and remedies shall be cumulative
and non-exclusive, to the extent permitted by law;
(C) The right to open Borrower's and Borrowing
Subsidiaries' mail and collect any and all amounts due Borrower and a
Borrowing Subsidiary from Account Debtors;
(D) The right to (i) enter upon the premises of Borrower
and each Borrowing Subsidiary, without any obligation to pay rent to
Borrower or such Borrowing Subsidiary, through self-help and without
judicial process, without first obtaining a final judgment or giving
Borrower or such Borrowing Subsidiary notice and opportunity for a
hearing on the validity of Lender's claim, or any other place or
places where the Collateral is located and kept, and remove the
Collateral therefrom to the premises of Lender or any agent of Lender,
for such time as Lender may desire, in order to effectively collect or
liquidate the Collateral, or (ii) require Borrower and Borrowing
Subsidiaries to assemble the Collateral and make it available to
Lender at a place to be designated by Lender, in its sole discretion;
(E) The right to (i) demand payment of the Accounts; (ii)
enforce payment of the Accounts, by legal proceedings or otherwise;
(iii) exercise all of Borrower's and each Borrowing Subsidiaries'
rights and remedies with respect to the collection of the Accounts and
Special Collateral; (iv) settle, adjust, compromise, extend or renew
the Accounts; (v) settle, adjust or compromise any legal proceedings
brought to collect the Accounts; (vi) if permitted by applicable law,
sell or assign the Accounts and Special Collateral upon such terms,
for such amounts and at such time or times as Lender deems advisable;
(vii) discharge and release the Accounts and Special Collateral;
(viii) take control, in any manner, of any item of payment or proceeds
referred to in Section 4.2; (ix) prepare, file and sign Borrower's or
a Borrowing Subsidiary's name on any Proof of Claim in Bankruptcy or
similar document against any Account Debtor; (x) prepare, file and
sign Borrower's or a Borrowing Subsidiary's name on any notice of
lien, assignment or satisfaction of lien or similar document in
connection with the Accounts and Special Collateral; (xi) do all acts
and things necessary, in Lender's sole discretion, to fulfill
Borrower's or a Borrowing Subsidiary's obligations under this
Agreement; (xii) endorse the name of Borrower or a Borrowing
Subsidiary upon any chattel paper, document, instrument, invoice,
freight bill, bill of lading or similar document or agreement relating
to the Accounts, Inventory or Special Collateral; (xiii) use
Borrower's
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or a Borrowing Subsidiary's stationery and sign the name of Borrower
or a Borrowing Subsidiary to verifications of the Accounts and
notices thereof to Account Debtors; and (xiv) use the information
recorded on or contained in any data processing equipment and computer
hardware and software relating to the Accounts, Inventory or Special
Collateral to which Borrower or a Borrowing Subsidiary has access; and
(F) The right to (i) sell or to otherwise dispose of all
or any Collateral at public or private sale or sales, with such notice
as may be required by law, in lots or in bulk, for cash or on credit,
all as Lender, in its sole discretion, may deem advisable; (ii)
adjourn such sales from time to time with or without notice; (iii)
conduct such sales on Borrower's or a Borrowing Subsidiary's premises
or elsewhere and use Borrower's or a Borrowing Subsidiary's premises
without charge for such sales for such time or times as Lender may see
fit. Lender is hereby granted a license or other right to use,
without charge, Borrower's and each Borrowing Subsidiary'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 and each Borrowing Subsidiary's
rights under all licenses and all franchise agreements shall inure to
Lender's benefit. Lender shall have the right to sell, lease or
otherwise dispose of the Collateral, or any part thereof, for cash,
credit or any combination thereof, and 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 setoff 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' 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. If any deficiency shall arise, Borrower and
Borrowing Subsidiaries shall remain liable to Lender therefor.
8.4 NOTICE. Any notice required to be given by Lender of a sale,
lease, other disposition of the Collateral or any other intended action by
Lender, if given ten (10) days prior to such proposed action, shall constitute
commercially reasonable and fair notice thereof to Borrower and Borrowing
Subsidiaries.
8.5 DEFAULT RATE OF INTEREST. To compensate Lender for additional
unreimbursed costs resulting from an occurrence of an Event of Default,
including, without limitation, costs associated with the uncertainty of future
funding and additional supervisory and administrative efforts, upon written
notice by Lender after an Event of Default, the Revolving Loan Liabilities
shall continue to bear interest, calculated daily on the basis of a 360-day
year, at the per annum rate set forth in Section 2.3, plus additional
post-default interest of two percent (2%) per annum during the continuance of
such Event of Default.
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8.6 MARSHALLING; PAYMENTS SET ASIDE. Lender shall be under no
obligation to marshall any assets in favor of Borrower and Borrowing
Subsidiaries or any other party or against or in payment of any or all of the
Liabilities. To the extent that Borrower and Borrowing Subsidiaries make a
payment or payments to Lender or Lender enforces its security interests or
exercises its rights of set-off, and such payment or payments or the proceeds
of such enforcement or set-off or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set-aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to
the extent of such recovery, the obligation or part thereof originally intended
to be satisfied shall be revived and continued in full force and effect as if
such payment had not been made or such enforcement or set-off had not occurred.
9. CONDITIONS PRECEDENT.
--------------------
This Agreement shall become effective upon the satisfaction of the
following conditions precedent:
9.1 EXCESS REVOLVING LOAN AVAILABILITY. Lender shall have
determined, in its sole discretion, that immediately after Lender has made the
loans and advances to Borrower and Borrowing Subsidiaries contemplated hereby,
(x) the sum of "Excess Revolving Loan Availability" (as hereinafter defined)
plus Borrower's and Borrowing Subsidiaries' cash on hand, minus (y) Borrower's
and Borrowing Subsidiaries' closing costs incurred in connection with this
Agreement, as estimated by Lender, will not be less than Three Hundred Fifty
Thousand Dollars ($350,000). Excess Revolving Loan Availability shall be the
lesser of (a) Collateral Availability or (b) the Unused Revolving Loan Facility
(as such terms are defined in Section 3.1 hereof).
9.2 DIVIDEND. U.K. Subsidiary shall have paid a dividend to
Borrower in the amount of One Million, Six Hundred Thousand Dollars
($1,600,000), and the proceeds of such dividend shall have been applied by
Borrower to reduce its bank debt.
9.3 EXECUTION AND DELIVERY OF AGREEMENT. This Agreement or
counterparts thereof shall have been duly executed by, and delivered to,
Borrower, Borrowing Subsidiaries and Lender.
9.4 DOCUMENTS AND OTHER AGREEMENTS. Lender shall have received
all of the following, each in form and substance satisfactory to Lender:
(A) The Revolving Credit Note of Borrower and Borrowing
Subsidiaries payable to Lender as required by Section 3.1(b);
(B) A Certificate of the Secretary of Borrower and each
Borrowing Subsidiary, together with true and correct copies of the
Articles of Incorporation and Regulations of
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Borrower or such Borrowing Subsidiary, as in effect on the date
of this Agreement, true and correct copies of the resolutions of the
Board of Directors of Borrower or such Borrowing Subsidiary
authorizing or ratifying the execution, delivery and performance of
this Agreement and the Other Agreements to be executed by Borrower or
such Borrowing Subsidiary, and the names of the officer or officers of
Borrower or such Borrowing Subsidiary authorized to sign said
documents, together with a sample of the true signature of each such
officer;
(C) Certified copies of all documents evidencing any
other necessary corporate action, consents and governmental approvals
(if any) with respect to this Agreement and the Other Agreements;
(D) The Opinion of Mulligan & Mulligan, addressed to
Lender, in the form of Exhibit D attached hereto and made a part
hereof;
(E) Articles of Incorporation of Borrower and each
Borrowing Subsidiary, certified by the Secretary of State of the
jurisdiction of incorporation of Borrower or such Borrowing
Subsidiary;
(F) Good Standing Certificates for Borrower and each
Borrowing Subsidiary from the Secretaries of State of each state in
which Borrower and Borrowing Subsidiaries are authorized to do
business;
(G) Code lien search reports of filings against Borrower
and each Borrowing Subsidiary and tax lien and judgment searches
relating to Borrower and each Borrowing Subsidiary for such
jurisdictions as Lender deems appropriate;
(H) Code financing statements filed against Borrower and
each Borrowing Subsidiary in respect to the locations listed in
Schedule 6.1(H);
(I) Borrower's letter to Deloitte & Touche LLP with
respect to Lender's reliance on the opinions and reports of Deloitte &
Touche LLP described in Sections 7.1(B)(i) and (ii);
(J) Depository Account Agreements;
(K) Certificate of Insurance, and evidence of payment of
all premiums therefor, as required by Sections 7.1(I) and 7.5,
together with a properly executed Lender's Loss Payable Clause;
(L) Officers' Solvency Certificate in the form of Exhibit
E hereto from Borrower's chief executive officer and chief financial
officer;
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(M) Officer's Support Letters in the form of Exhibit F
hereto from each of Maurice F. Krug and Thomas W. Kemp;
(N) Stock Pledge Agreement in the form of Exhibit G
hereto executed by Borrower, together with the stock certificates to
be delivered in connection therewith, accompanied by stock powers
executed in blank (Assignment Separate from Certificate);
(O) Assignments of the Government Contracts;
(P) Copies of the Notices of Assignment of the respective
Government Contracts, as acknowledged by the respective contracting
officers and disbursing officers;
(Q) Pay-Off Letters and releases and UCC Termination
Statements with respect to existing liens and encumbrances affecting
the Collateral; and
(R) Subordination Agreement by U.K. Subsidiary in favor
of Lender, together with Certificate of Secretary and opinion of
counsel of U.K. Subsidiary and Acknowledgement by Borrower;
(S) Intercreditor Agreement among Lender, the Banks named
therein and CoreStates Bank, N.A., as Administrative Agent, as
acknowledged by Borrower and Borrowing Subsidiaries;
(T) Copies of all material contracts of Borrower and
Borrowing Subsidiaries, including Government Contracts, leases, debt
documents, collateral documents and labor contracts, all of which
shall be satisfactory to Lender; and
(U) Such additional materials as Lender may reasonably
request.
9.5 ABSENCE OF MATERIAL ADVERSE CHANGE. As of the date hereof,
since March 31, 1994, there shall have been (i) no material adverse change in
the business, financial or other condition of Borrower or either Borrowing
Subsidiary or in the Collateral or in the prospects or projections of Borrower
or either Borrowing Subsidiary, (ii) no material increase in the Indebtedness
of Borrower or either Borrowing Subsidiary, whether or not disclosed or
required to be reserved against on any pro forma balance sheet, and (iii) no
material decrease in the assets of Borrower or either Borrowing Subsidiary nor
any distribution by Borrower or a Borrowing Subsidiary either by dividends or
otherwise, except such distributions as would be permitted by Section 7.2(C)
hereof. As of the date hereof, no litigation against Borrower or either
Borrowing Subsidiary shall have been commenced or threatened which, if
successful, would be materially adverse to Borrower and Borrowing Subsidiaries
or challenge any transaction contemplated by this Agreement, and the financing
contemplated by this Agreement would not violate any agreement of Borrower or
either Borrowing Subsidiary or any law, statute, court order, administrative
rule or regulation by which Borrower or either Borrowing Subsidiary
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is bound. Borrower and each Borrowing Subsidiary shall have paid its
Indebtedness in accordance with good business and historical practices.
9.6 CONDITIONS TO THE INITIAL REVOLVING LOAN ADVANCE. It shall be
a condition to the initial Revolving Loan Advance that the conditions contained
in Sections 9.1, 9.2, 9.3, 9.4 and 9.5 shall have been fulfilled and that
Borrower shall have delivered to Lender a Notice of Revolving Loan Advance and
a Borrowing Base Certificate (as of the Business Day immediately preceding the
day of the requested Revolving Loan Advance).
9.7 CONDITIONS TO EACH REVOLVING LOAN ADVANCE. It shall be a
further condition to the funding of the initial Revolving Loan Advance and each
subsequent Revolving Loan Advance after the initial Revolving Loan Advance that
the following statements shall be true on the date of each such funding or
advance:
(A) All of the representations and warranties of Borrower and
Borrowing Subsidiaries contained herein shall be correct in all material
respects on and as of the date of each such Revolving Loan Advance as though
made on and as of such date, except (i) to the extent that any such
representation or warranty expressly relates to an earlier date, and (ii) for
changes therein permitted or contemplated by this Agreement. All of the
representations and warranties of Borrower and Borrowing Subsidiaries contained
in any of the Other Agreements shall be correct in all material respects as of
the date delivered, except to the extent that any such representation or
warranty expressly relates to an earlier date.
(B) No event shall have occurred and be continuing, or would
result from the funding of the Revolving Loan Advance, which constitutes or
would constitute a Default or an Event of Default.
(C) The aggregate unpaid principal amount of the Revolving Loan,
after giving effect to such Revolving Loan Advance, shall not exceed the lesser
of (i) Collateral Availability or (ii) the Unused Revolving Loan Facility (as
such terms are defined in Section 3.1(a)).
The acceptance by Borrower and Borrowing Subsidiaries of the proceeds
of any Revolving Loan Advance shall be deemed to constitute, as of the date of
such acceptance, (i) a representation and warranty by Borrower and Borrowing
Subsidiaries that the conditions in this Section 9.7 have been satisfied, and
(ii) a confirmation by Borrower of the granting and continuance of Lender's
Lien pursuant hereto.
10. MISCELLANEOUS.
-------------
10.1 APPOINTMENT OF LENDER AS BORROWER'S AND EACH BORROWING
SUBSIDIARY'S LAWFUL ATTORNEY. Borrower and each Borrowing Subsidiary
irrevocably designates, makes, constitutes and appoints Lender (and all persons
designated by Lender) as its true and lawful
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attorney (and agent-in-fact) and Lender, or Lender's agent, may, without notice
to Borrower or either Borrowing Subsidiary:
(A) At such time or times hereafter as Lender or said
agent, in its sole discretion, may determine, in Borrower's or such
Borrowing Subsidiary's or Lender's name, endorse Borrower's or such
Borrowing Subsidiary's name on any checks, notes, drafts or any other
payment relating to and/or proceeds of the Collateral which come into
the possession of Lender or under Lender's control; and
(B) Sign the name of Borrower or such Borrowing
Subsidiary on any of the Supplemental Documentation and deliver any of
the Supplemental Documentation to such Persons as Lender, in its sole
discretion, may elect.
10.2 MODIFICATION OF AGREEMENT; SALE OF INTEREST. This Agreement
and the Other Agreements may not be modified, altered or amended, except by an
agreement in writing signed by Borrower, Borrowing Subsidiaries and Lender.
Borrower and Borrowing Subsidiaries may not sell, assign or transfer this
Agreement, or the Other Agreements or any portion thereof, including, without
limitation, their rights, title, interests, remedies, powers, and/or duties
hereunder or thereunder. Borrower and each Borrowing Subsidiary hereby
consents to Lender's participation, sale, assignment, transfer or other
disposition, at any time or times hereafter, of this Agreement, or the Other
Agreements, or of any portion hereof or thereof, including, without limitation,
Lender's rights, title, interests, remedies, powers, and/or duties hereunder or
thereunder.
10.3 EXPENSES (INCLUDING ATTORNEYS' FEES). Borrower and Borrowing
Subsidiaries shall reimburse Lender on demand for all its expenses (including,
but not limited to, reasonable attorneys' fees) of, or incidental to:
(A) The preparation of this Agreement, all Other
Agreements, any amendment of or modification of this Agreement or the
Other Agreements;
(B) Any litigation, contest, dispute, suit, proceeding or
action (whether instituted by Lender, Borrower, a Borrowing Subsidiary
or any other Person) in any way relating to the Collateral, this
Agreement, the Other Agreements or Borrower's or a Borrowing
Subsidiary's affairs;
(C) Any Default or Event of Default or advice or any
action in connection with any Default or Event of Default, or any
attempt to enforce any rights of Lender or any Participant against
Borrower, a Borrowing Subsidiary or any other Person which may be
obligated to Lender by virtue of this Agreement or the Other
Agreements, including, without limitation, the Account Debtors;
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(D) Any attempt to inspect, verify, protect, collect,
sell, liquidate or otherwise dispose of the Collateral; and/or
(E) Routine audits of Borrower and the Collateral,
including auditor fees of Five Hundred Dollars ($500) per auditor per
day plus expenses.
Such expenses shall be additional Liabilities hereunder secured by the
Collateral. Without limiting the generality of the foregoing, such expenses,
costs, charges and fees may include paralegal fees, costs and expenses;
accountants' fees, costs and expenses; court costs and expenses; photocopying
and duplicating expenses; court reporter fees, costs and expenses; long
distance telephone charges; air express charges; telegram charges; secretarial
over-time charges; and expenses for travel, lodging and food.
10.4 WAIVER BY LENDER. Lender's failure, at any time or times
hereafter, to require strict performance by Borrower or a Borrowing Subsidiary
of any provision of this Agreement shall not waive, affect or diminish any
right of Lender thereafter to demand strict compliance and performance. Any
suspension or waiver by Lender of an Event of Default by Borrower or a
Borrowing Subsidiary under this Agreement or the Other Agreements shall not
suspend, waive or affect any other Event of Default by Borrower or a Borrowing
Subsidiary under this Agreement or the Other 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 and Borrowing Subsidiaries contained in this Agreement or the Other
Agreements and no Event of Default by Borrower or a Borrowing Subsidiary under
this Agreement or the Other 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 and Borrowing
Subsidiaries specifying such suspension or waiver.
10.5 SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law. If, however, 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, unless the ineffectiveness of such provision materially and
adversely alters the benefits accruing to the respective parties hereunder.
10.6 PARTIES. This Agreement and the Other Agreements shall be
binding upon and inure to the benefit of the successors and assigns of Borrower
and each Borrowing Subsidiary and Lender. This provision, however, shall not
be deemed to modify Section 10.2 hereof.
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10.7 JOINT AND SEVERAL LIABILITY. Borrower and each Borrowing
Subsidiary acknowledges and agrees that each of them shall be jointly and
severally liable for the repayment in full of the Liabilities.
10.8 CONFLICT OF TERMS. The Other Agreements and all Schedules and
Exhibits hereto are incorporated in this Agreement by this reference thereto.
Except as otherwise provided in this Agreement and except as otherwise provided
in the Other 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 the Other Agreements, the
provision contained in this Agreement shall govern and control.
10.9 WAIVERS BY BORROWER AND BORROWING SUBSIDIARIES. Except as
otherwise provided for in this Agreement, Borrower and each Borrowing
Subsidiary waives (i) presentment, demand and protest and notice of
presentment, protest, 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 or a Borrowing Subsidiary may in any way
be liable and hereby ratifies and confirms whatever Lender may do in this
regard; (ii) all rights to notice of 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 and exemption laws. Borrower and each Borrowing
Subsidiary acknowledges that it has been advised by counsel with respect to
this Agreement and the transactions evidenced by this Agreement.
10.10 AUTHORIZED SIGNATURES. Until Lender is notified by Borrower
to the contrary in writing as provided by Section 10.14, the signature upon
this Agreement or any of the Other Agreements of a person designated in
Borrower's or a Borrowing Subsidiary's incumbency certificate of even date
herewith shall bind Borrower or such Borrowing Subsidiary and be deemed to be
the act of Borrower affixed pursuant to and in accordance with resolutions duly
adopted by Borrower's or such Borrowing Subsidiary's Board of Directors.
10.11 REMEDIES. Lender's rights and remedies under this Agreement
shall be cumulative and nonexclusive of any other rights and remedies which
Lender may have under any other agreement, including without limitation, the
Other Agreements, by operation of law or otherwise. Recourse to the Collateral
shall not be required.
10.12 MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND
ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH
APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE
PARTIES DESIRE THAT THEIR DISPUTES BE
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RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE
BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE
PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR
PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS
AGREEMENT OR ANY OF THE OTHER AGREEMENTS.
10.13 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY
OF THE OTHER AGREEMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS
ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE
AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF
REGARDING CONFLICT OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA. LENDER AND BORROWER AND EACH BORROWING SUBSIDIARY AGREE TO SUBMIT TO
PERSONAL JURISDICTION AND TO WAIVE ANY OBJECTION AS TO VENUE IN THE COUNTY OF
COOK, STATE OF ILLINOIS. SERVICE OF PROCESS ON BORROWER OR A BORROWING
SUBSIDIARY OR LENDER IN ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE OTHER AGREEMENTS SHALL BE EFFECTIVE IF MAILED TO SUCH PARTY AT THE
ADDRESS LISTED IN SECTION 10.14 HEREOF. BORROWER AND EACH BORROWING SUBSIDIARY
HEREBY IRREVOCABLY APPOINTS CT CORPORATION SYSTEM AS ITS AGENT FOR THE PURPOSE
OF ACCEPTING THE SERVICE OF ANY PROCESS WITHIN THE STATE OF ILLINOIS.
BORROWER, EACH BORROWING SUBSIDIARY AND LENDER AGREE THAT NOTHING HEREIN SHALL
PRECLUDE LENDER, BORROWER OR EITHER BORROWING SUBSIDIARY FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION.
10.14 NOTICE. Except as otherwise provided herein, any notice or
demand which, by the provisions hereof, is required or which may be given to or
served upon Borrower, a Borrowing Subsidiary or Lender shall be in writing and,
if by telecopy, shall be deemed to have been validly served, given or delivered
when transmitted and confirmed by telecopy answerback, if by personal delivery,
shall be deemed to have been validly served, given or delivered upon actual
delivery, if by overnight air courier, shall be deemed to have been validily
served, given or delivered one (1) Business Day after delivery to the overnight
air courier, and, if mailed, shall be deemed to have been validly served, given
or delivered three (3) Business Days after deposit in the United States mails,
as registered or certified mail, with proper postage prepaid and addressed to
the party to be notified, at the following addresses (or such other address(es)
as a party may designate for itself by like notice):
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(A) If to Lender, at
Transamerica Business Credit Corporation
8750 West Bryn Mawr Avenue, Suite 720
Chicago, Illinois 60631
Attention: Mr. Keith J. Mason
Region Manager
Telecopier No.: (312) 380-6169
(B) If to Borrower or either Borrowing Subsidiary, at:
KRUG International Corp.
6 North Main Street
Suite 500
Dayton, Ohio 45402
Attention: Mr. Thomas W. Kemp
Vice-President - Finance
Telecopier No.: (513) 224-3654
10.15 SECTION TITLES. The section titles 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.
51
<PAGE> 58
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
day and year specified at the beginning hereof.
TRANSAMERICA BUSINESS CREDIT KRUG INTERNATIONAL CORP.
CORPORATION
By: /s/ Matthew N. McAlpine By: /s/ Thomas W. Kemp
-------------------------------- ---------------------------------
Name: Matthew N. McAlpine Name: Thomas W. Kemp
Title: Senior Account Executive Title: Vice-President - Finance
KRUG LIFE SCIENCES INC.
By: /s/ Thomas W. Kemp
--------------------------------
Name: Thomas W. Kemp
Title: Vice-President - Finance
TECHNOLOGY/SCIENTIFIC
SERVICES, INC.
By: /s/ Thomas W. Kemp
--------------------------------
Name: Thomas W. Kemp
Title: Vice-President - Finance
52
<PAGE> 59
EXHIBIT A
---------
BORROWING BASE CERTIFICATE
--------------------------
This Borrowing Base Certificate is submitted as of _______________, 199__,
under and pursuant to the Loan and Security Agreement dated as of March 16,
1995, by and between Transamerica Business Credit Corporation ("Lender"), and
KRUG International Corp. ("Borrower" or "KRUG International"), Krug Life
Sciences Inc. ("Life Sciences"), and Technology/Scientific Services, Inc.
("TSSI") (Life Sciences and TSSI sometimes hereinafter referred to individually
as, "Borrowing Subsidiary," and collectively as, "Borrowing Subsidiaries"), is
tendered for the purpose of inducing Lender to advance funds to Borrower and
Borrowing Subsidiaries, and is certified to be true and correct in all
particulars and, without limiting the generality of the foregoing, the Eligible
Accounts-Billed and Eligible Accounts-Estimated set forth below represent
"Eligible Accounts-Billed" and "Eligible Accounts-Estimated" pursuant to the
terms of said Loan and Security Agreement.
<TABLE>
LOAN FORMULA
<S> <C> <C> <C>
1. Eligible Accounts - Billed
(per attached Accounts
Roll Forward Reports)
- KRUG International $_________
- Life Sciences $_________
- TSSI $_________
2. Total Eligible Accounts-Billed $_________
3. 85% of Eligible Accounts-Billed $__________
4. Total Eligible Accounts-Estimated $_________
5. 70% Eligible Accounts-Estimated $__________
(maximum $4,500,000)
6. Borrowing Base
(line 3 plus line 5) $__________
7. Outstanding Revolving Loan $__________
8. Reserves $__________
9. Collateral Availability
(line 6 less lines 7 and 8) $__________
10. Maximum Revolving Loan $10,000,000
11. Unused Revolving Loan Facility
(line 10 less line 7) $__________
12. Excess Revolving Loan Availability
(lesser of line 9 or line 11) $__________
</TABLE>
------------------------------------
(Signature)
------------------------------------
(Print Name and Title)
Dated:
-----------------------------
<PAGE> 60
[KRUG International Corp. OR Krug Life Sciences Inc.
OR Technology/Scientific Services, Inc.]
Accounts Roll Forward Report
Week Ending __________________________
This Accounts Roll Forward Report is submitted under and pursuant to
the Loan and Security Agreement, dated as of March 16, 1995, by and between
Transamerica Business Credit Corporation ("Lender"), and KRUG International
Corp. ("Borrower" or "KRUG International"), Krug Life Sciences Inc. ("Life
Sciences"), and Technology/Scientific Services, Inc. ("TSSI") (Life Sciences
and TSSI sometimes hereinafter referred to individually as, "Borrowing
Subsidiary," and collectively as, "Borrowing Subsidiaries"), and is tendered
for the purpose of inducing Lender to advance funds to Borrower and Borrowing
Subsidiaries, and is certified to be true and correct in all particulars.
<TABLE>
<CAPTION>
Weekly Monthly
------ -------
<S> <C> <C>
Prior Week's Aging
------------------
Billings $____________ $___________
Collections +____________ +___________
Debit Memos -____________ -___________
Credit Memos +___________
Other (Explain) -___________
+/-___________
(A) Current Week's Aging -
Billed Accounts $____________ $___________
Ineligible Accounts (Monthly)
-----------------------------
Accounts past 90 days $____________
Extended Terms of Payment ____________
50% Rule ____________
Contra Accounts (Vendors) ____________
Foreign Accounts ____________
Other ____________
(B) Total Ineligible Accounts $____________
ELIGIBLE ACCOUNTS - BILLED
(line A less line B) $___________
</TABLE>
Prepared by:
----------------------------------------
(Signature)
Dated:
-------------------------- ----------------------------------------
(Print Name and Title)
2
<PAGE> 61
EXHIBIT B
---------
NOTICE OF REVOLVING LOAN ADVANCE
--------------------------------
Transamerica Business Credit Corporation
8750 West Bryn Mawr Avenue
Suite 720
Chicago, Illinois 60631
Facsimile No.: (312) 380-6169
Attention: Thomas V. Fernandes
Date: ______________________
Gentlemen:
The undersigned, KRUG International Corp., refers to the Loan and
Security Agreement, dated as of March 16, 1995 (the "Loan Agreement", the terms
defined therein being used herein as therein defined), by and between
Transamerica Business Credit Corporation and KRUG International Corp., Krug
Life Sciences Inc. and Technology/Scientific Services, Inc., and hereby gives
you notice, irrevocably, pursuant to Section 3.1(a) of the Loan Agreement, that
the undersigned hereby requests a Revolving Loan Advance under the Loan
Agreement, and in that connection sets forth below the information relating to
such Revolving Loan Advance as required by Section 3.1(a) of the Loan
Agreement:
(i) The date of the requested Revolving Loan Advance shall be
______________, 19__.
(ii) The aggregate amount of the requested Revolving Loan
Advance is $___________.
The undersigned hereby certifies that the statements contained in
Section 9.7 of the Loan Agreement are true on the date hereof, and will be true
on the date of the making of the requested Revolving Loan Advance, before and
after giving effect thereto and to the application of the proceeds therefrom.
Very truly yours,
KRUG INTERNATIONAL CORP.
By:
--------------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE> 62
EXHIBIT C
---------
REVOLVING CREDIT NOTE
---------------------
$10,000,000 Chicago, Illinois
March 16, 1995
FOR VALUE RECEIVED, the undersigned, KRUG International Corp., an Ohio
corporation ("Borrower"), Krug Life Sciences Inc., an Ohio corporation ("Life
Sciences"), and Technology/Scientific Services, Inc., an Ohio corporation
("TSSI") (Life Sciences and TSSI sometimes hereinafter referred to individually
as, "Borrowing Subsidiary", and collectively as, "Borrowing Subsidiaries",
jointly and severally, hereby PROMISE TO PAY to the order of TRANSAMERICA
BUSINESS CREDIT CORPORATION, a Delaware corporation ("Lender"), or its
registered assigns, at 8750 West Bryn Mawr Avenue, Suite 720, Chicago, Illinois
60631, or at such other place as the holder of this Note may designate from
time to time in writing, in lawful money of the United States of America and in
immediately available funds, the principal amount of Ten Million Dollars
($10,000,000), or such lesser principal amount as may be outstanding pursuant
to the Loan Agreement (as hereinafter defined) with respect to the Revolving
Loan (as defined in the Loan Agreement), together with interest on the unpaid
principal amount of this Note outstanding from time to time.
This Note is the Revolving Credit Note issued pursuant to Section 3.1
of that certain Loan and Security Agreement, dated as of March 16, 1995, by and
between Lender and Borrower and Borrowing Subsidiaries (the "Loan Agreement"),
and is entitled to the benefit and security of the Loan Agreement, to which
reference is hereby made for a statement of all of the terms and conditions
under which the loan evidenced hereby is made. All capitalized terms used
herein, unless otherwise defined, shall have the meanings ascribed to them in
the Loan Agreement.
The principal amount of the indebtedness evidenced hereby shall be
payable in the amounts and on the dates specified in the Loan Agreement and, if
not sooner paid in full, on March 15, 2000. Interest thereon shall be paid
until such principal amount is paid in full at such interest rates and at such
times as are specified in the Loan Agreement.
If any payment on this Note becomes due and payable on a day other
than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.
Upon and after the occurrence of an Event of Default, this Note shall
or may, as provided in the Loan Agreement, and without demand, notice or legal
process of any kind, become or be declared immediately due and payable.
<PAGE> 63
Demand, presentment, protest and notice of nonpayment and protest are
hereby waived by Borrower and Borrowing Subsidiaries.
This Note shall be interpreted, governed by, and construed in
accordance with, the laws of the State of Illinois.
KRUG INTERNATIONAL CORP., an Ohio corporation
By:
-------------------------------------------
Thomas W. Kemp
Vice-President - Finance
KRUG LIFE SCIENCES INC., an Ohio corporation
By:
-------------------------------------------
Thomas W. Kemp
Vice-President - Finance
TECHNOLOGY/SCIENTIFIC SERVICES, INC.,
an Ohio corporation
By:
-------------------------------------------
Thomas W. Kemp
Vice-President - Finance
2
<PAGE> 64
EXHIBIT D
---------
[MULLIGAN & MULLIGAN LETTERHEAD]
March 16, 1995
Transamerica Business Credit Corporation
8750 West Bryn Mawr Avenue
Suite 720
Chicago, Illinois 60631
Rudnick & Wolfe
203 North LaSalle Street
Suite 1800
Chicago, Illinois 60601
Re: KRUG INTERNATIONAL CORP., ET AL.
Gentlemen:
We have acted as counsel for KRUG International Corp., an Ohio
corporation ("Borrower"), Krug Life Sciences Inc., an Ohio corporation ("Life
Sciences") and Technology/Scientific Services, Inc., an Ohio corporation
("TSSI") (Life Sciences and TSSI sometimes hereinafter referred to individually
as, "Borrowing Subsidiary", and collectively as, "Borrowing Subsidiaries"), in
connection with the transactions contemplated by the Loan and Security
Agreement, dated as of March 16, 1995 (the "Loan Agreement"), by and between
Transamerica Business Credit Corporation ("Lender"), and Borrower and Borrowing
Subsidiaries. Unless otherwise indicated, capitalized terms used herein
without definition shall have the respective meanings set forth in the Loan
Agreement.
In so acting, we have participated in the preparation of, or have
examined, the Loan Agreement and the Other Agreements. We have also examined
the originals, or copies certified or otherwise identified to our satisfaction,
of such records, documents, certificates and other instruments as in our
judgment are necessary or appropriate to enable us to render the opinion
expressed below. We have relied, to the extent that we deem such reliance
appropriate, upon certificates and other statements of officers of Borrower and
Borrowing Subsidiaries and of public officials issued with respect to Borrower
and Borrowing Subsidiaries.
In rendering this opinion, we have assumed that (a) Lender is duly
organized and validly existing under the laws of the jurisdiction in which it
is incorporated; (b) the execution, delivery and performance of the Loan
Agreement and the Other Agreements by Lender has been duly
<PAGE> 65
March 16, 1995
Page 2
authorized by all necessary action on its part; (c) the Loan Agreement and the
Other Agreements have been duly executed by Lender and constitute legal, valid
and binding obligations of Lender, enforceable against Lender in accordance
with their terms; (d) each document submitted to us as an original is
authentic, and each document submitted to us as a certified, conformed or
photostatic copy conforms to the original document; (e) the laws of the State
of Illinois provide that Ohio law will govern perfection and the effect of
perfection or nonperfection of a security interest in the Ohio Collateral (as
hereinafter defined); and (f) Borrower and the Borrowing Subsidiaries have good
title to the Ohio Collateral. For purposes of this opinion, "Ohio Collateral"
means such of the Collateral as is owned by Borrower or a Borrowing Subsidiary
and consists of (i) documents, instruments, goods (other than goods covered by
a certificate of title, mobile goods of a type normally used in more than one
jurisdiction and minerals) and possessory security interests in chattel paper
that are located in the State of Ohio at the time Lender's security interest is
perfected, (ii) motor vehicles covered by a certificate of title issued under
the laws of the State of Ohio, and (iii) accounts, general intangibles (other
than uncertificated securities), mobile goods of a type normally used is more
than one jurisdiction and nonpossessory interests in chattel paper.
Based upon the foregoing, and subject to the qualifications and
exceptions heretofore and hereinafter set forth, we are of the opinion that:
1. Borrower and each Borrowing Subsidiary is a corporation duly
organized and existing and in good standing under the laws of the State of
Ohio, has the corporate power to own its properties and to carry on its
business as presently conducted by it, and is in good standing under the laws
of all other countries, states and provinces the laws of which require it to be
so qualified, other than such jurisdictions where the failure to be in good
standing would not have a Material Adverse Effect.
2. The authorized capital stock and the issued and outstanding
capital stock of Borrower and each Borrowing Subsidiary consists of those
shares of common stock described in Schedule 6.1(T) to the Loan Agreement.
Such authorized shares were duly authorized and such issued and outstanding
shares were validly issued, fully paid and non-assessable by the issuer and
free of pre-emptive rights. To the best of our knowledge, there are no
options, warrants or other rights to acquire from Borrower or either Borrowing
Subsidiary or agreements, or other rights by Borrower or either Borrowing
Subsidiary to issue or sell its capital stock, whether on conversion or
exchange of convertible securities or otherwise, except as disclosed in
Schedule 6.1(T) to the Loan Agreement. To our knowledge, all Persons who own
of record more than five percent (5%) of the issued and outstanding capital
stock of Borrower and the
<PAGE> 66
March 16, 1995
Page 3
number of shares owned by each such Person are set forth on Schedule 6.1(T) to
the Loan Agreement. Based upon our review of the stock transfer records of
each Borrowing Subsidiary, on the date hereof all of the capital stock of each
Borrowing Subsidiary is owned of record by Borrower.
3. Borrower and each Borrowing Subsidiary has the requisite
corporate power and authority to execute, deliver and perform the obligations
set forth in the Loan Agreement and the Other Agreements executed by it, each
of which documents has been duly authorized by all necessary corporate action,
and the execution and performance of which will not conflict with, or result in
a breach of its Articles of Incorporation or Regulations or result in a
material breach or other material violation of any of the terms, conditions or
provisions of any applicable law or regulation or, to the best of our knowledge
and belief, any order, writ, injunction or decree of any court or governmental
authority, or any of the terms, conditions or provisions of any agreement or
instrument known to us to which Borrower or a Borrowing Subsidiary is a party
or by which Borrower or a Borrowing Subsidiary is bound.
4. To the best of our knowledge and belief, there are no
judgments outstanding against Borrower or either Borrowing Subsidiary nor is
there now pending or threatened, any action, suit or proceeding before any
court or any governmental or regulatory authority, by, against or involving
Borrower or a Borrowing Subsidiary, except as disclosed in Schedule 6.1(O) to
the Loan Agreement. To the best of our knowledge and belief, neither Borrower
nor either Borrowing Subsidiary is in default with respect to any order, writ,
injunction or decree of any court and neither Borrower nor either Borrowing
Subsidiary is in default in any material respect under any applicable law,
order, regulation or demand of any governmental agency or instrumentality, a
default under which would have a Material Adverse Effect.
5. To the best of our knowledge and belief, there is no default
by Borrower or either Borrowing Subsidiary under any contract, lease agreement,
instrument or commitment to which Borrower or a Borrowing Subsidiary is a
party, which has, or could reasonably be expected to have, a Material Adverse
Effect.
6. The Loan Agreement and the Other Agreements have been duly
executed and delivered by duly authorized officers of Borrower and each
Borrowing Subsidiary and constitute the valid and binding obligations of
Borrower and each Borrowing Subsidiary, enforceable in accordance with their
respective terms, subject to the qualifications hereafter set forth.
<PAGE> 67
March 16, 1995
Page 4
7. No consent or approval of, or other action by, any United
States federal or state regulatory authority or other person or entity, which
has not been obtained or taken, is required for the execution, delivery or
performance of the Loan Agreement or the Other Agreements executed by Borrower
or Borrowing Subsidiaries.
8. Assuming that Borrower and Borrowing Subsidiaries apply the
proceeds of the Revolving Loan as provided in the Loan Agreement, the Revolving
Loan will comply with the provisions of Regulations G, T, U and X of the Board
of Governors of the Federal Reserve System.
9. Upon (a) the filing and/or recording of appropriate and/or
required Uniform Commercial Code financing statements with the proper public
authorities, (b) possession by Lender or its agent (upon appropriate
notification) of certain of the Collateral by which perfection is obtained only
by possession, and (c) notation of Lender's interest upon and recording of the
appropriate and/or required certificates of title, the Loan Agreement will
create a perfected, continuing (assuming appropriate continuation statements
are filed) security interest in and lien against the Ohio Collateral, except as
limited by bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors' rights generally and except as follows:
(a) to the extent that the Ohio Collateral purports to
include (i) any right represented by a judgment (other than a judgment
taken on a right to payment which was part of the Ohio Collateral);
(ii) any right of setoff; (iii) any claim arising out of a tort; or
(iv) any interest in a deposit account (except as provided with
respect to proceeds under Ohio Revised Code Section 1309.25),
financing statements will be ineffective to perfect the security
interest therein, as provided under Ohio Revised Code Section 1309.04;
(b) the security interest will cover proceeds of the Ohio
Collateral only to the extent and in the circumstances described in
Ohio Revised Code Section 1309.25;
(c) the security interest in proceeds of the Ohio Collateral
may become unperfected in the instances and under the circumstances
described in Ohio Revised Code Section 1309.25;
(d) to the extent that the Ohio Collateral includes
property subject to a statute or treaty of the United States providing
for a national or international certificate of title or which
specifies a place of filing different from Ohio Revised Code Chapter
1309, the security interest in certain of the Ohio Collateral may be
perfected only in compliance
<PAGE> 68
March 16, 1995
Page 5
with such statute or treaty, and we express no opinion to the extent
that the security interest constitutes a security interest subject to
any statute of the United States and, therefore, not subject to Ohio
Revised Code Chapter 1309, as provided in Ohio Revised Code Section
1309.04; and
(e) we express no opinion as to the perfection of the
security interest:
(i) as against a "buyer in ordinary course of
business" (as such term is defined in Ohio Revised Code
Chapter 1309) of any of the Ohio Collateral;
(ii) in any of the Ohio Collateral covered by a
negotiable document of title;
(iii) as against the rights of an account debtor to
assert defenses, claims, and set-offs, and other rights of
account debtors, as provided in Ohio Revised Code Section
1309.37;
(iv) as against any right of set-off of any
banking or similar institution or any other right of any such
institution provided by law in any of the Ohio Collateral that
may be or come into such institution's possession or be in
transit to such institution; or
(v) as against the rights of a person holding a
security interest in the Ohio Collateral to which Lender has
consented or with respect to which Lender has disclaimed an
interest in the Ohio Collateral or to the extent that the
disposition of Ohio Collateral has been authorized by the
Lender.
We call to your attention that the perfection of the security
interest in the Ohio Collateral will be terminated if the following
steps are not taken to maintain the security interest as continuously
perfected:
(i) Continuation statements must be timely filled
in the appropriate places for filing within 6 months before
the expiration of each consecutive 5-year period following the
date of the original filing of the financing statements; and
such financing statements must be refiled upon the occurrence
of events described in subparagraph (ii) below.
<PAGE> 69
March 16, 1995
Page 6
(ii) The perfection of the security interest will
be terminated (A) as to any Ohio Collateral acquired by
Borrower or a Borrowing Subsidiary more than four months after
Borrower or such Borrowing Subsidiary so changes its name,
identity, or corporate structure as to make the financing
statements filed in Ohio seriously misleading, unless new
appropriate financing statements indicating the new name,
identity, or corporate structure of Borrower or such Borrowing
Subsidiary are properly filed before the expiration of such
four months, and (B) as to accounts, general intangibles, and
mobile goods of Borrower or any Borrowing Subsidiary with its
place of business, if it has one, or its chief executive
office, if it has more than one place of business, in the
State of Ohio four months after Borrower or such Borrowing
Subsidiary changes its major executive office to a new
jurisdiction outside the State of Ohio (or, if earlier, by the
time perfection under the Ohio Revised Code would have ceased)
unless such security interest is perfected in such
jurisdiction before such termination, and upon such
termination the security interest will be deemed to have been
unperfected as against a person who became a purchaser after
the change.
(iii) To the extent that any item of Ohio
Collateral is a substitute or replacement for another item of
Ohio Collateral, the security interest may be ineffective
unless the financing statements filed in Ohio are amended to
adequately describe the substitute or replacement Ohio
Collateral.
10. An Ohio court applying the laws of the State of Ohio,
including the laws on conflict of laws, should abide by the choice of Illinois
law made in the Loan Agreement and should apply the laws of the State of
Illinois rather than the laws of the State of Ohio, unless the Ohio court
determines that (i) application of the laws of the State of Illinois in the
particular instance would be contrary to the fundamental policy of a
jurisdiction (including, without limitation, the State of Ohio) having a
greater material interest in the issue than Illinois, and (ii) such other
jurisdiction would be the jurisdiction of applicable law in the absence of a
choice by the parties.
We are members of the bar of the State of Ohio and we therefore
express no opinion with respect to any matter (including, without limitation,
conflict of laws and choice of law issues) which may be governed by the laws of
any jurisdiction other than the State of Ohio and applicable laws of the United
States of America.
<PAGE> 70
March 16, 1995
Page 7
Our opinion is qualified by reference to (a) the fact that certain
remedial provisions in the Loan Agreement and the Other Agreements may be
rendered invalid or unenforceable by applicable laws, which laws, however, do
not in our opinion make the remedies provided in such documents inadequate for
the realization of the benefits and security intended to be provided thereby
and (b) the effect upon the enforceability of the Loan Agreement and the Other
Agreements of bankruptcy, reorganization, insolvency, fraudulent transfers,
moratorium or similar laws affecting generally the enforcement of creditors'
rights. Further, the use of the term "enforceable" does not imply any opinion
as to the availability of any equitable remedy. Further, (a) no opinion is
expressed with respect to the enforceability under Ohio law of any provisions
of the Loan Agreement or the Other Documents that purport to require payment or
reimbursement of attorneys' fees or litigation expenses of another party; and
(b) to the extent that the Loan Agreement or the Other Documents purport to
constitute an assignment of or a grant of a security interest in certain
policies of insurance or other rights that by their terms may not be assignable
or may not permit the grant of a security interest therein, we express no
opinion herein with respect to any such assignment or grant of a security
interest.
We have reviewed this opinion letter with our client, and have
received our client's consent to deliver it to you. This opinion letter may be
relied upon by you only in connection with the transactions contemplated by the
Loan Agreement and the Other Documents and may not be used or relied upon by
you or any other person for any other purpose whatsoever, without in each
instance our prior written consent. Our opinion is limited to the conclusions
specifically stated herein and no opinion may be inferred or implied beyond
such specific conclusions. We disclaim any undertaking or obligation to advise
you of any changes in the conclusions or other matters covered in this opinion
letter that hereafter may come to our attention.
Very truly yours,
Mulligan & Mulligan
<PAGE> 71
EXHIBIT E
---------
OFFICERS' SOLVENCY CERTIFICATE
------------------------------
This Officers' Solvency Certificate is executed and delivered on March
16, 1995, pursuant to the Loan and Security Agreement, dated as of March 16,
1995 (the "Loan Agreement"), by and between Transamerica Business Credit
Corporation ("Lender"), and KRUG International Corp., an Ohio corporation
("KRUG International"), Krug Life Sciences Inc., an Ohio corporation ("Life
Sciences"), and Technology/Scientific Services, Inc., an Ohio corporation
("TSSI") (KRUG International, Life Sciences and TSSI collectively, the
"Company"). All capitalized words and terms not defined herein which are
defined in the Loan Agreement are herein used as defined therein.
The undersigned hereby certify that they are, respectively, the Chief
Executive Officer and the Chief Financial Officer of the Company, and that as
such they are authorized to execute this Certificate on behalf of the Company,
and further certify that:
1. Attached hereto as Annex 1 is a true and complete copy of the
latest projections of the income and cash flow of the Company, on a
consolidated basis, for the fiscal years ending March 31, 1995 through 199 ,
inclusive, reflecting the transactions contemplated by the Loan Agreement.
Such projections have been prepared on the basis of the assumptions set forth
therein, which the Company believes are fair and reasonable in light of the
historical financial performance of the Company and current and reasonably
foreseeable business conditions.
2. Attached hereto as Annex 2 is the pro forma balance sheet of
the Company, on a consolidated basis, as at March 16, 1995, and such pro forma
balance sheet represents fairly and accurately the Company's financial
condition as at such date as if the transactions contemplated by the Loan
Agreement had occurred on such date and contains all pro forma adjustments
necessary in order to fairly reflect such assumptions.
3. As of the date hereof, on a consolidated basis, after giving
effect to the transactions contemplated by the Loan Agreement:
(a) the fair value and present fair salable value of the
Company's assets is in excess of the total amount of the Company's
stated liabilities including identified contingent liabilities;
(b) the present fair salable value of the Company's
assets is in excess of the amount that will be required to pay the
Company's probable liability on the Company's debts as they become
absolute and mature;
<PAGE> 72
(c) the Company does not have unreasonably small capital
to carry on the business in which the Company is engaged and all
businesses in which the Company is about to engage;
(d) the Company has not incurred debts beyond the
Company's ability to pay such debts as they mature; and
(e) the Company is not "insolvent" as such term is
defined in Section 101(32) of the Bankruptcy Code of 1978, as amended.
4. This Certificate and all the terms used herein have been
reviewed by and discussed with Mulligan & Mulligan, counsel for the Company.
The undersigned are unaware of any facts or circumstances from such review and
discussion which would affect or alter any of the statements herein.
IN WITNESS WHEREOF, the undersigned have executed this Officers'
Solvency Certificate this 16th day of March, 1995.
----------------------------------------
Name: Maurice F. Krug
Title: Chief Executive Officer
----------------------------------------
Name: Thomas W. Kemp
Title: Chief Financial Officer
2
<PAGE> 73
EXHIBIT F
---------
OFFICER'S SUPPORT LETTER
------------------------
As of March 16, 1995
Transamerica Business Credit Corporation
8750 West Bryn Mawr Avenue
Suite 720
Chicago, Illinois 60631
Re: KRUG INTERNATIONAL CORP., ET. AL.
Ladies and Gentlemen:
In order to induce Transamerica Business Credit Corporation, a
corporation organized and existing under the laws of the State of Delaware
("Lender"), to enter into a Loan and Security Agreement with KRUG International
Corp., an Ohio corporation ("Borrower"), Krug Life Sciences Inc., an Ohio
corporation ("Life Sciences"), and Technology Scientific Services, Inc., an
Ohio corporation ("TSSI") (Life Sciences and TSSI sometimes hereinafter
referred to individually as, "Borrowing Subsidiary", and collectively as
"Borrowing Subsidiaries"), which agreement is dated as of March 16, 1995 (the
Loan and Security Agreement and any and all present and future modifications
and supplements thereto being hereinafter referred to as the "Loan Agreement"),
and to induce Lender to make loans and advances to Borrower and Borrowing
Subsidiaries, and in consideration of any loans and advances or financial
accommodations heretofore or hereafter made by Lender to or for the account of
Borrower and Borrowing Subsidiaries, whether pursuant to said Loan Agreement or
otherwise, and for One Dollar ($1.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the undersigned hereby agrees with Lender that: (i) in the event Lender shall
come into possession of all or any substantial portion of the Accounts,
Inventory or other Collateral (as such terms are defined in the Loan Agreement)
by reason of a default of Borrower or either Borrowing Subsidiary under the
terms of the Loan Agreement, the undersigned will, at Lender's option,
exercised upon written notice, within thirty (30) days thereafter, to the
undersigned, and for so long as any of the "Liabilities" (as defined in the
Loan Agreement) shall remain outstanding, or for a period of six months from
the date of such written notice, whichever is shorter, accept engagement as
independent contractor for Lender for the sole purpose of liquidating and
disposing of such Accounts, Inventory or other Collateral; (ii) during such
employment, the undersigned shall devote all of his regular working hours and
exert all of his efforts to collect or obtain sales of such Accounts, Inventory
or other Collateral at the best
<PAGE> 74
Transamerica Business Credit Corporation
March 16, 1995
Page 2
obtainable prices and terms; (iii) Lender shall have the right to discharge the
undersigned from that engagement at any time, on two (2) business days' notice,
for any cause or without cause; (iv) the undersigned's sole compensation and
remuneration shall be (A) a weekly salary paid at the same weekly rate as the
average salary (exclusive of any bonus or other incentive compensation)
provided to the undersigned in the twelve months immediately preceding the
commencement of such engagement, prorated for any partial weeks thereof, (B)
all other fringe benefits provided to the undersigned in the twelve months
immediately preceding the commencement of such engagement, prorated for any
partial weeks thereof, (C) reasonable travel, lodging and related expenses in
the event that the undersigned is required to travel fifty miles or more beyond
the principal office of Borrower; and (v) the undersigned shall not have any
authority to bind Lender, except such specific authority as Lender may grant in
writing.
Any of the foregoing to the contrary notwithstanding, (i) the
undersigned shall have no liability or obligation to Lender with respect to the
repayment of the Liabilities as a result of his execution and delivery of this
Officer's Support Letter, and (ii) the undersigned shall not be required to
accept such engagement as an independent contractor for Lender if the
undersigned was not employed by Borrower or either Borrowing Subsidiary at any
time within ninety (90) days of the date on which Lender requests the
undersigned to accept such engagement.
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<PAGE> 75
EXHIBIT G
---------
STOCK PLEDGE AGREEMENT
----------------------
STOCK PLEDGE AGREEMENT, dated as of March 16, 1995, between KRUG
INTERNATIONAL CORP., an Ohio corporation ("Pledgor"), and TRANSAMERICA BUSINESS
CREDIT CORPORATION, a Delaware corporation ("Lender").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Pledgor is the record and beneficial owner of the shares of
stock described in Schedule I hereto (the "Pledged Shares" of Pledgor) issued
by the corporations named therein; and
WHEREAS, Pledgor and its wholly-owned subsidiaries, Krug Life Sciences
Inc. and Technology/Scientific Services, Inc. (collectively, "Borrowing
Subsidiaries"), entered into a Loan and Security Agreement, dated as of March
16, 1995 (as at any time amended, modified or supplemented, the "Loan
Agreement") with Lender, pursuant to which Lender has agreed, among other
things, to make Revolving Loans (as defined in the Loan Agreement) to Pledgor
and Borrowing Subsidiaries (collectively, the "Loans"), the proceeds of which
are to be used for the purposes set forth in the Loan Agreement; and
WHEREAS, in connection with the making of the Loans under the Loan
Agreement and as security for all of the Liabilities of Pledgor under the Loan
Agreement, Lenders are requiring that Pledgor shall have executed and delivered
this Stock Pledge Agreement and granted the security interest contemplated
hereby;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained and to induce Lender to make the Loans under the Loan
Agreement, it is agreed as follows:
1. DEFINITIONS. Unless otherwise defined herein, terms defined
in the Loan Agreement are used herein as therein defined, and the following
shall have (unless otherwise provided elsewhere in this Stock Pledge Agreement)
the following respective meanings (such meanings being equally applicable to
both the singular and plural form of the terms defined):
"Agreement" shall mean this Stock Pledge Agreement, including
all amendments, modifications and supplements and any exhibits or
schedules to any of the foregoing, and shall refer to the Agreement as
the same may be in effect at the time such reference becomes
operative.
<PAGE> 76
"Bankruptcy Code" shall mean title 11, United States Code, as
amended from time to time, and any successor statute thereto.
"Pledged Collateral" shall have the meaning assigned to such
term in Section 2 hereof.
"Pledged Shares" shall have the meaning assigned to such term
in the first "Whereas" clause hereof.
"Secured Obligations" shall have the meaning assigned to such
term in Section 3 hereof.
2. PLEDGE. Pledgor hereby pledges and grants to Lender a first
priority security interest in all of the following (the "Pledged Collateral"),
except as otherwise provided in Section 7(b):
a. the Pledged Shares of Pledgor and the certificates
representing the Pledged Shares, and all dividends, cash instruments
and other property or proceeds from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or all
of the Pledged Shares of Pledgor;
b. all additional shares of stock of any issuer of the
Pledged Shares of Pledgor from time to time acquired by Pledgor in any
manner (which shares shall be deemed to be part of the Pledged Shares)
and the certificates representing such shares, and all dividends,
cash, instruments and other property or proceeds from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any or all of such shares; and
c. all shares of any Person who, after the date of this
Agreement, becomes, as a result of any occurrence, a directly owned
Subsidiary of Pledgor, other than KRUG International (UK) Ltd. (which
shares shall be deemed to be part of the Pledged Shares), and the
certificates representing such shares, and all dividends, cash,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for
any or all of such shares.
3. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
Pledged Collateral is security for, the prompt payment in full when due,
whether at stated maturity, by acceleration or otherwise, and performance of
the Liabilities of Pledgor, whether for principal, premium, interest, fees,
costs and expenses, and all obligations of Pledgor now or hereafter existing
under this Agreement and under the Loan Agreement (collectively, the "Secured
Obligations").
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<PAGE> 77
4. DELIVERY OF PLEDGED COLLATERAL. All certificates representing
or evidencing the Pledged Shares shall be delivered to and held by or on behalf
of Lender pursuant hereto and shall be accompanied by duly executed instruments
of transfer or assignment in blank, all in form and substance satisfactory to
Lender. Subject to Section 7 hereof, Lender shall have the right, at any time
in its discretion and without notice to the Pledgor, to transfer to or to
register in the name of Lender, or any of its nominees, any or all of the
Pledged Shares. In addition, also subject to Section 7 hereof, Lender shall
have the right at any time to exchange certificates or instruments representing
or evidencing Pledged Shares for certificates or instruments of smaller or
larger denominations.
5. REPRESENTATIONS AND WARRANTIES. Pledgor represents and
warrants to Lender that:
a. Pledgor is, and at the time of delivery of the
Pledged Shares to Lender pursuant to Section 4 hereof, will be, the
sole holder of record and the sole beneficial owner of the Pledged
Collateral pledged by Pledgor free and clear of any Lien thereon or
affecting the title thereto except for the Lien created by this
Agreement.
b. All of the Pledged Shares of Pledgor have been duly
authorized, validly issued and are fully paid and non-assessable.
c. Pledgor has the right and requisite corporate
authority to pledge, assign, transfer, deliver, deposit and set over
the Pledged Collateral pledged by Pledgor to Lender as provided
herein.
d. None of the Pledged Shares of such Pledgor has been
issued or transferred in violation of the securities registration,
securities disclosure or similar laws of any jurisdiction to which
such issuance or transfer may be subject.
e. The authorized Stock of the issuers listed on
Schedule I hereto consists of the number of shares of common stock,
with the number of shares issued and outstanding, that are described
in Schedule I hereto. As of the date hereof, there are no existing
options, warrants, calls or commitments of any character whatsoever
relating to any Stock of such issuers.
f. No consent, approval, authorization or other order of
any Person and no consent, authorization, approval, or other action
by, and no notice to or filing with, any governmental authority or
regulatory body is required either (i) for the pledge by Pledgor of
the Pledged Collateral pursuant to this Agreement or for the
execution, delivery or performance of this Agreement by Pledgor or
(ii) for the exercise by the Lender of the voting or other rights
provided for in this Agreement or the remedies in respect of the
Pledged Collateral pursuant to this Agreement, except as may be
required in connection with such disposition by laws affecting the
offering and sale of securities generally.
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<PAGE> 78
g. The pledge, assignment and delivery of the Pledged
Collateral pursuant to this Agreement will create a valid first
priority Lien on and a first priority perfected security interest in
the Pledged Collateral pledged by Pledgor, and the proceeds thereof,
securing the payment of the Secured Obligations.
h. This Agreement has been duly authorized, executed and
delivered by Pledgor and constitutes a legal, valid and binding
obligation of Pledgor enforceable in accordance with its terms.
i. The Pledged Shares constitute one hundred percent
(100%) of the issued and outstanding shares of Stock of the respective
issuers thereof.
The representations and warranties set forth in this Section 5 shall
survive the execution and delivery of this Agreement.
6. COVENANTS. Pledgor covenants and agrees that until the Loan
Agreement is terminated and the Secured Obligations indefeasibly paid in full:
a. Without the prior written consent of Lender, Pledgor
will not sell, assign, transfer, pledge, or otherwise encumber any of
its rights in or to the Pledged Collateral pledged by Pledgor or any
unpaid dividends or other distributions or payments with respect
thereto or grant a Lien in any therein except as otherwise permitted
by the Loan Agreement.
b. Pledgor will, at its expense, promptly execute,
acknowledge and deliver all such instruments and take all such action
as Lender from time to time may request in order to ensure to Lender
the benefits of the Liens in and to the Pledged Collateral intended to
be created by this Agreement.
c. Pledgor has and will defend the title to the Pledged
Collateral and the Liens of Lender thereon against the claim of any
Person and will maintain and preserve such Liens until the Loan
Agreement is terminated and the Secured Obligations indefeasibly paid
in full.
d. Pledgor will, upon obtaining any additional shares of
either Borrowing Subsidiary or of any new directly owned Subsidiary,
which shares are not already Pledged Collateral, promptly (and in any
event within three (3) Business Days) deliver to Lender a Pledge
Amendment, duly executed by Pledgor, in substantially the form of
Schedule II hereto (a "Pledge Amendment"), in respect of the
additional Pledged Shares which are to be pledged pursuant to this
Agreement. Pledgor hereby authorizes Lender to attach each such
Pledge Amendment to this Agreement and agrees that all Pledged Shares
listed on any Pledge Amendment delivered to Lender shall for all
purposes hereunder be considered Pledged Collateral.
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<PAGE> 79
7. PLEDGORS' RIGHTS. As long as no Default or Event of Default
shall have occurred and be continuing and until written notice shall be given
to Pledgor in accordance with Section 8(a) hereof,
a. Pledgor shall have the right, from time to time, to
vote and give consents with respect to the Pledged Collateral or any
part thereof for all purposes not inconsistent with the provisions of
this Agreement, the Loan Agreement, and any other agreement; provided,
however, that no vote shall be cast, and no consent shall be given or
action taken, which would have the effect of impairing the position or
interest of Lender in respect of the Pledged Collateral or which would
authorize or effect (except as and to the extent expressly permitted
by the Loan Agreement) (i) the dissolution or liquidation, in whole or
in part, of any of its directly owned Subsidiaries, (ii) the
consolidation or merger of any of its directly owned Subsidiaries with
any other Person, (iii) the sale, disposition or encumbrance of all or
substantially all of the assets of any of its directly owned
Subsidiaries, (iv) any change in the authorized number of shares, the
stated capital or the authorized share capital of any of its directly
owned Subsidiaries or the issuance of any additional shares of their
Stock, or (v) the alteration of the voting rights with respect to the
Stock of any of its directly owned Subsidiaries;
b. (i) Pledgor shall be entitled, from time to time,
to collect and receive for its own use all cash dividends paid in
respect of the Pledged Shares to the extent not in violation of the
Loan Agreement, other than any and all (A) dividends paid or payable
other than in cash in respect of, and instruments and other property
received, receivable or otherwise distributed in respect of, or in
exchange for, any Pledged Collateral, (B) dividends and other
distributions paid or payable in cash in respect of any Pledged
Collateral in connection with a partial or total liquidation or
dissolution, and (c) cash paid, payable or otherwise distributed in
redemption of, or in exchange for, any Pledged Collateral; provided,
however, that until actually paid all rights to such dividends shall
remain subject to the Lien created by this Agreement; and
(ii) all dividends (other than such cash dividends
as are permitted to be paid to Pledgor in accordance with
clause (i) above) and all other distributions in respect of
any of the Pledged Shares of Pledgor, whenever paid or made,
shall be delivered to Lender to hold as Pledged Collateral and
shall, if received by Pledgor, be received in trust for the
benefit of Lender, be segregated from the other property or
funds of Pledgor, and be forthwith delivered to Lender as
Pledged Collateral in the same form as so received (with any
necessary indorsement).
8. DEFAULTS AND REMEDIES.
a. Upon the occurrence of an Event of Default and during
the continuation of such Event of Default (provided that such Event of
Default is not waived by Lender)
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<PAGE> 80
and following written notice to Pledgor, Lender (personally or through
an agent) is hereby authorized and empowered, to transfer and register
in its name or in the name of its nominee the whole or any part of the
Pledged Collateral, to exercise the voting rights with respect
thereto, to collect and receive all cash dividends and other
distributions made thereon, to sell in one or more sales after ten
(10) days' notice of the time and place of any public sale or of the
time after which a private sale is to take place (which notice Pledgor
agrees is commercially reasonable), but without any previous notice or
advertisement, the whole or any part of the Pledged Collateral and to
otherwise act with respect to the Pledged Collateral as though Lender
was the outright owner thereof, Pledgor hereby irrevocably
constituting and appointing Lender as the proxy and attorney-in-fact
of Pledgor, with full power of substitution to do so; provided,
however, Lender shall not have any duty to exercise any such right or
to preserve the same and shall not be liable for any failure to do so
or for any delay in doing so. Any sale shall be made at a public or
private sale at Lender's place of business, or at any public building
in the City of Chicago or elsewhere to be named in the notice of sale,
either for cash or upon credit or for future delivery at such price as
Lender may deem fair, and Lender may be the purchaser of the whole or
any part of the Pledged Collateral so sold and hold the same
thereafter in its own right free from any claim of such Pledgor or any
right of redemption. Each sale shall be made to the highest bidder,
but Lender reserves the right to reject any and all bids at such sale
which, in its discretion, it shall deem inadequate. Demands of
performance, except as otherwise herein specifically provided for,
notices of sale, advertisements and the presence of property at sale
are hereby waived and any sale hereunder may be conducted by an
auctioneer or any officer or agent of Lender.
b. If, at the original time or times appointed for the
sale of the whole or any part of the Pledged Collateral, the highest
bid, if there be but one sale, shall be inadequate to discharge in
full all the Secured Obligations, or if the Pledged Collateral be
offered for sale in lots, if at any of such sales, the highest bid for
the lot offered for sale would indicate to Lender, in its discretion,
the unlikelihood of the proceeds of the sales of the whole of the
Pledged Collateral being sufficient to discharge all the Secured
Obligations, Lender may, on one or more occasions and in its
discretion, postpone any of said sales by public announcement at the
time of sale or the time of previous postponement of sale, and no
other notice of such postponement or postponements of sale need be
given, any other notice being hereby waived; provided, however, that
any sale or sales made after such postponement shall be after ten (10)
days' notice to the Pledgor.
c. In the event of any sales hereunder Lender shall,
after deducting all costs or expenses of every kind (including
reasonable attorneys' fees and disbursements) for care, safekeeping,
collection, sale, delivery or otherwise, apply the residue of the
proceeds of the sales to the payment or reduction, either in whole or
in part, of the Secured Obligations in accordance with the agreements
and instruments governing and evidencing the Secured Obligations,
returning the surplus, if any, to the Pledgor.
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<PAGE> 81
d. If, at any time when Lender shall determine to
exercise its rights to sell the whole or any part of the Pledged
Collateral hereunder, such Pledged Collateral or the part thereof to
be sold shall not, for any reason whatsoever, be effectively
registered under the Securities Act of 1933, as amended (or any
similar statute then in effect) (the "Act") Lender may, in its
discretion (subject only to applicable requirements of law), sell such
Pledged Collateral or part thereof by private sale in such manner and
under such circumstances as Lender may deem necessary or advisable,
but subject to the other requirements of this Section 8, and shall not
be required to effect such registration or to cause the same to be
effected. Without limiting the generality of the foregoing, in any
such event Lender in its discretion (a) may, in accordance with
applicable securities laws, proceed to make such private sale
notwithstanding that a registration statement for the purpose of
registering such Pledged Collateral or part thereof could be or shall
have been filed under the Act (or similar statute), (b) may approach
and negotiate with a single possible purchaser to effect such sale,
and (c) may restrict such sale to a purchaser who will represent and
agree that such purchaser is purchasing for its own account, for
investment and not with a view to the distribution or sale of such
Pledged Collateral or part thereof. In addition to a private sale as
provided above in this Section 8, if any of the Pledged Collateral
shall not be freely distributable to the public without registration
under the Act (or similar statute) at the time of any proposed sale
pursuant to this Section 8, then Lender shall not be required to
effect such registration or cause the same to be effected but, in its
discretion (subject only to applicable requirements of law), may
require that any sale hereunder (including a sale at auction) be
conducted subject to restrictions (i) as to the financial
sophistication and ability of any Person permitted to bid or purchase
at any such sale, (ii) as to the content of legends to be placed upon
any certificates representing the Pledged Collateral sold in such
sale, including restrictions on future transfer thereof, (iii) as to
the representations required to be made by each Person bidding or
purchasing at such sale relating to that Person's access to financial
information about the Pledgor and such Person's intentions as to the
holding of the Pledged Collateral so sold for investment, for its own
account, and not with a view of the distribution thereof, and (iv) as
to such other matters as Lender may, in its discretion, deem necessary
or appropriate in order that such sale (notwithstanding any failure so
to register) may be effected in compliance with the Code and other
laws affecting the enforcement of creditors' rights and the Act and
all applicable state securities laws.
e. Pledgor acknowledges that notwithstanding the legal
availability of a private sale or a sale subject to the restrictions
described above in paragraph (d), Lender may, in its discretion, elect
to register any or all the Pledged Collateral under the Act (or any
applicable state securities law) in accordance with its rights
hereunder. Pledgor, however, recognizes that Lender may be unable to
effect a public sale of any or all the Pledged Collateral and may be
compelled to resort to one or more private sales thereof. Pledgor
also acknowledges any such private sale (conducted in a commercially
reasonable manner for private sales) may result in prices and other
terms less favorable to the seller than if such sale were a public
sale and, notwithstanding such circumstances, agrees that
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any such private sale shall be deemed to have been made in a
commercially reasonable manner. Lender shall be under no obligation
to delay a sale of any of the Pledged Collateral for the period of
time necessary to permit the registrant to register such securities
for public sale under the Act, or under applicable state securities
laws, even if Pledgor or issuer of the Pledged Collateral would agree
to do so.
f. Pledgor agrees that following the occurrence and
during the continuance of an Event of Default it will not at any time
plead, claim or take the benefit of any appraisal, valuation, stay,
extension, moratorium or redemption law now or hereafter in force in
order to prevent or delay the enforcement of this Agreement, or the
absolute sale of the whole or any part of the Pledged Collateral or
the possession thereof by any purchaser at any sale hereunder, and
Pledgor waives the benefit of all such laws to the extent it lawfully
may do so. Pledgor agrees that it will not interfere with any right,
power and remedy of Lender provided for in this Agreement or now or
hereafter existing at law or in equity or by statute or otherwise, or
the exercise or beginning of the exercise by Lender of any one or more
of such rights, powers, or remedies. No failure or delay on the part
of Lender to exercise any such right, power or remedy and no notice or
demand which may be given to or made upon any Pledgor by Lender with
respect to any such remedies shall operate as a waiver thereof, or
limit or impair Lender's right to take any action or to exercise any
power or remedy hereunder, without notice or demand, or prejudice its
rights as against any Pledgor in any respect.
g. Pledgor further agrees that a breach of any of the
covenants contained in this Section 8 will cause irreparable injury to
Lender, that Lender has no adequate remedy at law in respect of such
breach and, as a consequence, agrees that each and every covenant
contained in this Section 8 shall be specifically enforceable against
Pledgor, and Pledgor hereby waives and agrees not to assert any
defenses against an action for specific performance of such covenants
except for a defense that the Secured Obligations are not then due and
payable in accordance with the agreements and instruments governing
and evidencing such obligations.
9. APPLICATION OF PROCEEDS. Any cash held by Lender as Pledged
Collateral and all cash proceeds received by Lender in respect of any sale of,
liquidation of, or other realization upon all or any part of the Pledged
Collateral shall be applied by Lender as follows:
a. First, to the payment of the costs and expenses of
such sale, including reasonable compensation to the Lender and its
agents and counsel, and all expenses, liabilities and advances made or
incurred by Lender in connection therewith;
b. Next, to the payment of the Secured Obligations; and
c. Finally, after payment in full of all Secured
Obligations, to the payment to Pledgor, or its successors or assigns,
or to whomsoever may be lawfully entitled to
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receive the same or as a court of competent jurisdiction may direct,
of any surplus then remaining from such proceeds.
10. WAIVER. No delay on Lender's part in exercising any power of
sale, Lien, option or other right hereunder, and no notice or demand which may
be given to or made upon Pledgor by Lender with respect to any power of sale,
Lien, option or other right hereunder, shall constitute a waiver thereof, or
limit or impair Lender's right to take any action or to exercise any power of
sale, Lien, option, or any other right hereunder, without notice or demand, or
prejudice Lender's rights as against Pledgor in any respect.
11. ASSIGNMENT. Lender may assign, indorse or transfer any
instrument evidencing all or any part of the Secured Obligations as provided
in, and in accordance with, the Loan Agreement, and the holder of such
instrument shall be entitled to the benefits of this Agreement.
12. TERMINATION. Immediately following the payment of all Secured
Obligations, Lender shall deliver to Pledgor the Pledged Collateral pledged by
Pledgor at the time subject to this Agreement and all instruments of assignment
executed in connection therewith, free and clear of the Liens hereof, and any
assignment required to be executed by Lender to effect such redelivery and,
except as otherwise provided herein, all of Pledgor's obligations hereunder
shall at such time terminate.
13. LIEN ABSOLUTE. All rights of Lender hereunder, and all
obligations of Pledgor hereunder, shall be absolute and unconditional
irrespective of:
a. any lack of validity or enforceability of the Loan
Agreement or any other agreement or instrument governing or evidencing
any Secured Obligations;
b. any change in the time, manner or place of payment
of, or in any other term of, all or any part of the Secured
Obligations, or any other amendment or waiver of or any consent to any
departure from the Loan Agreement or any other agreement or instrument
governing or evidencing any Secured Obligations;
c. any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Secured
Obligations; or
d. any other circumstance which might otherwise
constitute a defense available to, or a discharge of, a pledgor.
14. RELEASE. Pledgor consents and agrees that Lender may at any
time, or from time to time, in its discretion (a) renew, extend or change the
time of payment, and/or the manner, place or terms of payment of all or any
part of the Secured Obligations and (b) exchange, release
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and/or surrender all or any of the Pledged Collateral, or any part thereof, by
whomsoever deposited, which is now or may hereafter be held by Lender in
connection with all or any of the Secured Obligations; all in such manner and
upon such terms as Lender may deem proper, and without notice to or further
assent from Pledgor, it being hereby agreed that Pledgor shall be and remain
bound upon this Agreement, irrespective of the existence, value or condition of
any of the Pledged Collateral, and notwithstanding any such change, exchange,
settlement, compromise, surrender, release, renewal or extension, and
notwithstanding also that the Secured Obligations may, at any time exceed the
aggregate principal amount thereof set forth in the Loan Agreement, or any
other agreement governing any Secured Obligations. Pledgor hereby waives
notice of acceptance of this Agreement, and also presentment, demand, protest
and notice of dishonor of any and all of the Secured Obligations, and
promptness in commencing suit against any party hereto or liable hereon, and in
giving any notice to or of making any claim or demand hereunder upon such
Pledgor. No act or omission of any kind on Lender's part shall in any event
affect or impair this Agreement.
15. INDEMNIFICATION. Pledgor agrees to indemnify and hold Lender
harmless from and against any taxes, liabilities, claims and damages, including
reasonable attorney's fees and disbursements, and other expenses incurred or
arising by reason of the taking or the failure to take action by Lender, in
good faith, in respect of any transaction effected under this Agreement or in
connection with the Lien provided for herein, including, without limitation,
any taxes payable in connection with the delivery or registration of any of the
Pledged Collateral as provided herein (collectively "Indemnified Claims"), in
the manner provided in Section 2.8 of the Loan Agreement. Whether or not the
transactions contemplated by this Agreement shall be consummated, Pledgor
agrees to pay to Lender all out-of-pocket costs and expenses incurred in
connection with this Agreement and all reasonable fees, expenses and
disbursements, including registration costs under the Act (or similar statute)
and the reasonable fees of Lender's agents or representatives, incurred in
connection with the execution and delivery of this Agreement and the
performance by Lender of the provisions of this Agreement and of any
transactions effected in connection with this Agreement. The obligations of
Pledgor under this Section 15 shall survive the termination of this Agreement.
The foregoing notwithstanding, the indemnity provided for herein shall not
apply to any Indemnified Claim of Lender if a court of competent jurisdiction
determines that such Indemnified Claim is the result of the gross negligence or
willful misconduct of Lender.
16. REINSTATEMENT. This Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
Pledgor for liquidation or reorganization, should Pledgor become insolvent or
make an assignment for the benefit of creditors or should a receiver or trustee
be appointed for all or any significant part of Pledgor's assets, and shall
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Secured Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise
be restored or returned, and in any such case, the Secured Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
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17. MISCELLANEOUS.
a. Lender may execute any of its duties hereunder by or
through agents or employees and shall be entitled to advice of counsel
concerning all matters pertaining to its duties hereunder.
b. Pledgor agrees to promptly reimburse Lender for
actual out-of-pocket expenses, including, without limitation,
reasonable counsel fees, incurred by Lender in connection with the
administration and enforcement of this Agreement.
c. Neither Lender nor any of its officers, directors,
employees, agents or counsel shall be liable for any action lawfully
taken or omitted to be taken by it or them hereunder or in connection
herewith, except for its or their own gross negligence or willful
misconduct.
d. This Agreement shall be binding upon the Pledgor and
its successors and assigns, and shall inure to the benefit of, and be
enforceable by, Lender and its successors and assigns, and shall be
governed by, and construed and enforced in accordance with, the
internal laws in effect in the State of Illinois without giving effect
to principles of choice of law, and none of the terms or provisions of
this Agreement may be waived, altered, modified or amended except in
writing duly signed for and on behalf of Lender and Pledgor.
18. SEVERABILITY. If for any reason any provision or provisions
hereof are determined to be invalid and contrary to any existing or future law,
such invalidity shall not impair the operation of or effect those portions of
this Agreement which are valid.
19. NOTICES. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon any
of the parties by any other party, or whenever any of the parties desires to
give or serve upon any other a communication with respect to this Agreement,
each such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and either shall be delivered in accordance
with the provisions of Section 10.14 of the Loan Agreement, addressed as
follows:
11
<PAGE> 86
a. If to Lender, at
Transamerica Business Credit Corporation
8750 West Bryn Mawr Avenue
Suite 720
Chicago, Illinois 60631
Attention: Mr. Keith J. Mason
Region Manager
Telecopy No.: (312) 380-6169
b. If to Pledgor, at its address specified in Schedule I
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, on the date on which telecopied and confirmed by
telecopy answerback, or three (3) Business Days after the same shall have been
deposited in the United States mail. Failure or delay in delivering copies of
any notice, demand, request, consent, approval, declaration or other
communication to the persons designated above to receive copies shall in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration or other communication.
20. SECTION TITLES. The Section titles 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.
21. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, which shall, collectively and separately, constitute one
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Stock Pledge
Agreement to be duly executed as of the date first written above.
KRUG INTERNATIONAL CORP.
By:
------------------------------------
Thomas W. Kemp
Vice-President - Finance
Accepted and Acknowledged by:
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By:
----------------------------
Matthew N. McAlpine
Senior Account Executive
12
<PAGE> 87
SCHEDULE I
TO THE STOCK PLEDGE AGREEMENT
Attached to and forming a part of that certain Stock Pledge Agreement dated
as of March 16, 1995, by KRUG International Corp., the Pledgor, to Transamerica
Business Credit Corporation.
<TABLE>
<CAPTION>
NAME AND ADDRESS CLASS OF STOCK NUMBER OF
OF PLEDGOR STOCK ISSUER STOCK CERTIFICATE #'S SHARES
---------- ------------ ----- --------------- ------
<S> <C> <C> <C> <C>
KRUG International Corp. (a) Krug Life Sciences Common 1 750
6 North Main Street Inc.
Suite 500
Dayton, Ohio 45402 (b)Technology/Scientific Common 1 100
Attn: Mr. Thomas W. Kemp Services, Inc.
Vice President - Finance
Telecopy No.: (513) 224-3654
</TABLE>
13
<PAGE> 88
SCHEDULE II
TO THE STOCK PLEDGE AGREEMENT
PLEDGE AMENDMENT
This Pledge Amendment, dated ________________, 19__ is delivered pursuant
to Section 6(d) of the Stock Pledge Agreement referred to below. The
undersigned hereby agrees that this Pledge Amendment may be attached to that
certain Stock Pledge Agreement, dated as of March 16, 1995, by the undersigned,
as Pledgor, to Transamerica Business Credit Corporation, and that the Pledged
Shares listed on this Pledge Amendment shall be and become a part of the
Pledged Collateral referred to in said Stock Pledge Agreement and shall secure
all Secured Obligations referred to in said Stock Pledge Agreement.
KRUG INTERNATIONAL CORP.
By:
--------------------------------------
Name:
--------------------------------
Title:
-------------------------------
<TABLE>
<CAPTION>
NAME AND ADDRESS CLASS OF STOCK NUMBER OF
OF PLEDGOR STOCK ISSUER STOCK CERTIFICATE #'S SHARES
---------- ------------ ----- --------------- ------
<S> <C> <C> <C> <C>
KRUG International Corp.
6 North Main Street
Suite 500
Dayton, Ohio 45402
Attn: Mr. Thomas W. Kemp
Vice President - Finance
Telecopy No.: (513) 224-3654
</TABLE>
14
