EXHIBIT 10.2
CREDIT AND SECURITY AGREEMENT
AGREEMENT made this 31st day of August, 2005, by RESISTANCE TECHNOLOGY,
INC., a Minnesota corporation ("Resistance"); and RTI ELECTRONICS, INC., a
Delaware corporation ("RTI"); herein Resistance and RTI are sometimes referred
to individually as a "Borrower" and collectively as the "Borrowers"), for the
benefit of Diversified Business Credit, Inc., a Minnesota Corporation (herein
with its participants, successors and assigns, called "Lender").
R E C I T A L S
The Lender has agreed to make loans to Borrowers from time to time, on
the terms and subject to the conditions herein set forth, and in connection
therewith, Borrowers have executed and delivered, and have caused IntriCon
Corporation, a Pennsylvania corporation (the "Guarantor") and certain other
parties to execute and deliver, for Lender's benefit various ancillary and
supplemental agreements and documents (as each may be amended from time to time
herein collectively called the "Security Documents" and together with this
Agreement, the "Loan Documents").
Any term used in the Uniform Commercial Code ("UCC") and not otherwise
defined in this Agreement shall have the meaning given to the term in the UCC.
ACCORDINGLY, to induce Lender to make one or more loans to Borrowers,
and for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Borrowers hereby jointly and severally represent,
warrant and agree for the benefit of Lender that:
1. The Loans. Borrowers will comply with the following terms and
procedures in requesting loans from Lender:
(a) The Lender agrees, on the terms and subject to the
conditions herein set forth, to make the following loan advances:
(i) The Lender shall make revolving advances (the
"Revolving Advances") to each Borrower from time to time from
the date all of the conditions set forth in Section 12(a) and
(c) are satisfied (the "Funding Date") to August 31, 2008 (the
"Termination Date") in an amount equal to such Borrower's
respective Borrowing Base (as defined below), subject further
to the limitation that the outstanding aggregate balance of
Revolving Advances to both Borrowers shall at no time exceed
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$5,500,000 (the "Maximum Line"). If the sum of the outstanding
principal balance of the Revolving Advances shall at any time
exceed the limitations set forth above, then upon any
Borrower's knowledge thereof or Lender's demand, whichever is
earlier, the Borrowers shall immediately prepay the Revolving
Advances to the extent necessary to eliminate such excess.
Within the limits set forth in this Section 1(a)(i), each
Borrower may borrow, prepay and reborrow.
(ii) As and when the Borrowers and the Lender shall
execute any Term Loan Supplement (as amended from time to
time, each hereinafter referred to as a "Term Loan
Supplement"), the Lender agrees to make a term loan advance or
advances ("Term Advances" and together with the Revolving
Advances, the "Advances") to a Borrower, subject to the
additional terms, limits and conditions set forth therein.
(b) Borrowers will request Advances from Lender in such manner
as Lender may from time to time prescribe. Each request shall be orally
or in writing (i) by an officer of any Borrower; or (ii) by a person
designated by any Borrower or by an officer of any Borrower in a
writing delivered to Lender; or (iii) by any person reasonably believed
by Lender to be an officer of any Borrower or such a designated agent.
Except as otherwise instructed in writing by such officer, agent or
person, Lender may disburse loan proceeds by deposit with any bank to
or for the account of any Borrower or to or for the account of any
third party designated by such officer, agent, or person, or by an
instrument payable to any Borrower or to any such third party delivered
to any such officer, agent, or person or to any such third party, or in
any other manner deemed appropriate by Lender. All principal of and
interest on loans made by Lender shall be repayable at the offices of
Lender in Minneapolis, Minnesota, unless Lender designates a different
place of payment by written notice to Borrowers.
(c) "Borrowing Base" shall mean, subject to change from time
to time in the Lender's sole discretion, the sum of 85% of Eligible
Accounts plus 50% of Eligible Inventory, less the Borrowing Base
Reserve.
"Borrowing Base Reserve" shall mean, as of any date
of determination, such amounts (expressed as either a specified amount
or as a percentage of a specified category or item) as the Lender may
from time to time establish and adjust in reducing availability under
the Borrowing Base (a) to reflect events, conditions, contingencies or
risks which, as determined by the Lender, do or may affect (i) the
Collateral or its value, (ii) the assets, business or prospects of the
Borrower, or (iii) the security interests and other rights of the
Lender in the Collateral (including the enforceability, perfection and
priority thereof), or (b) to reflect the Lender's judgment that any
collateral report or financial information furnished by or on behalf of
the Borrower to the Lender is or may have been incomplete, inaccurate
or misleading in any material respect, or (c) in respect of any state
of facts that the Lender determines constitutes a Default or an Event
of Default.
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"Eligible Accounts" shall mean all unpaid accounts
receivable arising from the sale or lease of goods or the performance
of services in the ordinary course of business, net of any credits (and
net of any setoffs or claims of any account debtor as determined by
Lender), but excluding any such Accounts having any of the following
characteristics:
(i) Accounts receivable which are (A) disputed or
subject to claims or set offs or a contra account; or (B) owed
by an account debtor not located in the United States or
Canada and not secured by a bank letter of credit or credit
insurance, each satisfactory to Lender in its sole discretion;
or (C) owed by an account debtor which is the subject of any
bankruptcy or insolvency proceeding or is insolvent or has
made an assignment for the benefit of creditors or has failed
or suspended or gone out of business;
(ii) Accounts receivable not yet earned by the final
delivery of goods or rendition of services, as applicable, by
any Borrower to the customer, including progress xxxxxxxx, and
that portion of Accounts for which an invoice has not been
sent to the applicable account debtor;
(iii) Accounts receivable that not as warranted
herein or in the Security Documents;
(iv) Intentionally deleted;
(v) Accounts receivable not paid within ninety (90)
days after invoice or, if Lender in its discretion has
determined that a particular dated receivable is eligible for
advance, within thirty (30) days after the due date stated;
(vi) Accounts receivable owed to any Borrower by any
shareholder, subsidiary or affiliate of such Borrower or by
any person or company obligated to pay any receivable deemed
ineligible under clauses (i) through (v), if such ineligible
receivable is 25% or more of the total amount due from such
person or company;
(vii) Intentionally deleted;
(viii) Accounts receivable owed by any unit of
government, whether foreign or domestic (provided, however,
that there shall be included in Eligible Accounts that portion
of Accounts owed by such units of government for which any
Borrower has provided evidence satisfactory to the Lender that
(A) the Lender has a first priority perfected security
interest and (B) such Accounts may be enforced by the Lender
directly against such unit of government under all applicable
laws);
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(ix) That portion of Accounts receivable that has
been restructured, extended, amended or modified (unless such
modification relates to a credit or claim that has been
disclosed to Lender and has been deducted by Lender from the
available amount of such Account; and
(x) That portion of Accounts receivable that
constitutes advertising, finance charges, service charges or
sales or excise taxes.
"Eligible Inventory" means all Inventory of each Borrower, at
the lower of cost or market value as determined in accordance with
generally accepted accounting principles (provided inventory shall be
calculated on a first-in, first-out basis); but excluding any Inventory
having any of the following characteristics:
(i) Inventory that is: in-transit; located at any
warehouse, job site or other premises not approved by the
Lender in writing; located outside of the states, or
localities, as applicable, in which the Lender has filed
financing statements to perfect a first priority security
interest in such Inventory; covered by any negotiable or
non-negotiable warehouse receipt, xxxx of lading or other
document of title; on consignment from any Person; on
consignment to any Person or subject to any bailment unless
such consignee or bailee has executed an agreement with the
Lender;
(ii) Supplies, packaging, maintenance parts or sample
Inventory;
(iii) Work-in-process Inventory;
(iv) Inventory that is damaged, obsolete, slow moving
or not currently saleable in the normal course of the
Borrower's operations;
(v) Inventory that the Borrower has returned, has
attempted to return, is in the process of returning or intends
to return to the vendor thereof;
(vi) Inventory that is perishable or live;
(vii) Inventory manufactured by the Borrower pursuant
to a license unless the applicable licensor has agreed in
writing to permit the Lender to exercise its rights and
remedies against such Inventory; and
(viii) Inventory that is subject to a Lien in favor
of any Person other than the Lender.
Notwithstanding any apportionment, exclusion or segregation of
Collateral made by Lender for purposes of determining the amount or
maximum amount of loans made to Borrowers, all rights and interests of
Lender hereunder and under the Security Documents, and all other
collateral rights, interests and properties available to Lender, shall
secure and may be applied
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to pay any or all indebtedness of Borrowers secured thereby, in any
manner or order of application and without regard to any such
apportionment, exclusion or segregation.
(d) Advances shall be funded as either "Floating Rate Loans"
which accrue interest at the applicable Floating Rate (as hereinafter
defined) or "LIBOR Rate Loans" which accrue interest at the applicable
LIBOR Rate (as hereinafter defined), as any Borrower shall specify to
the Lender (and in writing if so requested by the Lender), provided
that during the continuance of any Event of Default, no LIBOR Rate
Loans shall be made or continued except with the prior written consent
of the Lender. Floating Rate Loans and LIBOR Rate Loans may be
outstanding at the same time. So long as no Event of Default exists,
any Borrower may convert an outstanding Floating Rate Loan to or
request a LIBOR Rate Loan, or cause all or any part of any outstanding
LIBOR Rate Loan to continue to bear interest at One-Month LIBOR,
Three-Month LIBOR or Six-Month LIBOR after the end of the then
applicable 30-day, 90-day or 180-day interest period (as applicable),
by notifying the Lender not later than 11:00 a.m., Minneapolis,
Minnesota time, on a banking day which is at least two (2) banking days
prior to the first day of the new LIBOR Rate Loan or interest period.
Each such notice shall be in writing (if requested by Lender), shall be
effective when received by the Lender, and shall specify the first day
of the applicable LIBOR Rate Loan or interest period, and if
applicable, the amount of the expiring LIBOR Rate Loan to be continued.
Each new LIBOR Rate Loan or interest period, as applicable shall begin
on a banking day and provided further that LIBOR Rate Loans shall (i)
at no time exceed $6,000,000 in the aggregate, (ii) be made in minimum
increments of $500,000 and in integral multiples of $100,000 for
amounts in excess thereof, (iii) no more than three (3) Libor Rate
Loans shall be outstanding at any time, and (iv) upon the expiration of
the applicable One-Month LIBOR, Three-Month LIBOR or Six-Month LIBOR
rate associated with a LIBOR Rate Loan, such loan shall automatically
convert to a Floating Rate Loan unless continued by any Borrower in
accordance with the terms of this Agreement.
(e) Borrowers will jointly and severally pay interest on all
Advances (computed on the basis of actual days elapsed in a 360-day
year) at the greater of: (i) the rate of five and one quarter percent
(5 1/4%) per annum, and (ii) one of the following rates as applicable:
(aa) on all outstanding Floating Rate Loans under this Agreement, an
annual floating rate (the "Floating Rate") which shall at all times be
equal to one-half percent (.5%) (provided such margin shall be
increased to three quarters of one percent (.75%) for any portion
thereof that constitutes Term Advances) above the rate of interest
publicly announced by M&I Xxxxxxxx & Xxxxxx Bank from time to time as
its prime rate (or any similar successor rate), each change in the
interest rate shall take effect simultaneously with the corresponding
change in the designated bank's prime rate or any similar successor
rate; and (bb) on all LIBOR Rate Loans under this Agreement at the per
annum rate (the "LIBOR Rate") which shall at all times be equal to
One-Month LIBOR, Three-Month LIBOR or Six-Month LIBOR (as applicable
and as defined below) plus three and one-quarter percent
(3.25%)(provided such margin shall be increased to three and one-half
percent (3.50%) for any portion thereof
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that constitutes Term Advances), as such rate shall be in effect from
time to time in accordance with the terms of this Agreement.
All interest shall accrue on the principal balance outstanding
from time to time and shall be payable on the first day of the next
month in which accrued and on the Termination Date. Borrowers agree
that Lender may at any time or from time to time, without further
request by any Borrower, make a loan to Borrowers, or apply the
proceeds of any loans, for the purpose of paying all such interest
promptly when due. In the computation of interest, Lender may allow two
banking days for the collection of uncollected funds. Notwithstanding
anything to the contrary stated herein, the interest charges payable on
the Advances pursuant to this Paragraph 1(e) for each twelve month
period shall never be less than $100,000. If for any twelve month
period the interest pursuant to Paragraph 1(e) shall be less than
$100,000, Borrowers shall pay on the anniversary date of this Agreement
ending each twelve months the amount of the difference between $100,000
and the interest charges for such twelve month period.
As used herein, "One-Month LIBOR", "Three-Month LIBOR" and
"Six-Month LIBOR" mean the annual rate equal to the rate at which U.S.
dollar deposits are offered for 30, 90 and 120-day periods,
respectively, on the second banking day preceding the beginning of the
applicable LIBOR Rate Loan or renewal date of any existing LIBOR Rate
Loan (rounded upwards, if necessary, to the nearest 1/16 of 1%) as
determined by the British Bankers Association ("BBA LIBOR") and
reported by a major news service selected by Lender (such as Reuters,
Bloomberg or Moneyline Telerate).
If BBA LIBOR for a one-month, three-month or six-month period
is not provided or reported on the applicable banking day of a month
because, for example, it is a holiday or for another reason, the
One-Month LIBOR, Three-Month LIBOR or Six-Month LIBOR rate (as
applicable) shall be established as of the preceding banking day on
which a BBA LIBOR rate is provided for a one-month, three-month or
six-month period and reported by the selected news service.
Notwithstanding any provision of this Agreement to the
contrary, the Lender may fund and maintain all or any part of its LIBOR
Rate Loans in any manner it deems fit, it being understood, however,
that for the purposes of this Agreement all determinations hereunder
shall be made as if the Lender had actually funded and maintained each
LIBOR Rate Loan through the purchase of deposits bearing an interest
rate equal to the appropriate One-Month LIBOR, Three-Month LIBOR or
Six-Month LIBOR rate.
The Borrower shall compensate the Lender, upon its written
request, for all losses, expenses and liabilities (including any
interest paid by the Lender to lenders of funds borrowed by it to make
or carry LIBOR Rate Loans to the extent not recovered by the Lender in
connection with the re-employment of such funds and including loss of
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anticipated profits) which the Lender may sustain: (i) if for any
reason, other than a default by the Lender, a funding of a LIBOR Rate
Loan does not occur on the date specified therefor in the Borrower's
request or notice as to such Advance under this Agreement, or (ii) if,
for whatever reason (including, but not limited to, acceleration of the
maturity of Advances following an Event of Default), any repayment of a
LIBOR Rate Loan, or a conversion pursuant to Section 2.16, occurs on
any day other than the last day of the Interest Period applicable
thereto. The Lender's request for compensation shall set forth the
basis for the amount requested and shall be final, conclusive and
binding, absent manifest error.
If the Lender determines at any time that its Return has been
reduced as a result of any Rule Change, then the Lender shall promptly
notify the Borrowers and (A) in the event of any occurrence described
in clauses (v)(A) and (v)(B) below, the Borrowers shall enter into good
faith negotiations with the Lender in order to determine an alternate
method to determine the One-Month LIBOR, Three-Month LIBOR or Six-Month
LIBOR rate (as applicable), and during the pendency of such
negotiations with the Lender, the Lender shall be under no obligation
to make any new LIBOR Rate Loans and (B) in the event of any occurrence
described in clause (v)(C) below, for so long as such circumstances
shall continue, the Lender shall be under no obligation to make any new
LIBOR Rate Loans. For purposes of this provision:
(i) "Eurodollar Rule" means Regulation D of the
Board of Governors of the Federal Reserve System and any law,
rule, regulation, guideline, directive, requirement or request
regarding (A) taxes, duties or other charges, exemptions with
respect to LIBOR Rate Loans or the Lender's obligation to make
LIBOR Rate Loans, and (B) reserves imposed by the Board of
Governors of the Federal Reserve System (but excluding any
reserve included in the determination of the One-Month LIBOR,
Three-Month LIBOR or Six-Month LIBOR rates), special deposits
or similar requirements against assets of, deposits with or
for the account of, or credit extended by, any Related Lender,
and any other condition affecting the Lender's making,
maintaining or funding of LIBOR Rate Loans or its obligation
to make LIBOR Rate Loans, or the interpretation or
administration thereof by any governmental or regulatory
authority, central bank or comparable agency, whether or not
having the force of law, that applies to any Related Lender.
(ii) "Related Lender" includes (but is not limited
to) the Lender, any parent of the Lender, any assignee of any
interest of the Lender hereunder and any participant in the
Credit Facility.
(iii) "Return", for any period, means the percentage
determined by dividing (i) the sum of interest and ongoing
fees earned by the Lender under this Agreement during such
period, by (ii) the average capital such Lender is required to
maintain during such period as a result of its being a party
to this Agreement, as determined by such Lender based upon its
total capital requirements and a reasonable
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attribution formula that takes account of Eurodollar Rules
then in effect, costs of issuing or maintaining any loan and
amounts received or receivable under this Agreement with
respect to any loan. Return may be calculated for each
calendar quarter and for the shorter period between the end of
a calendar quarter and the date of termination in whole of
this Agreement.
(iv) "Rule Change" means any change in any Eurodollar
Rule occurring after the date of this Agreement, or any change
in the interpretation or administration thereof by any
governmental or regulatory authority, but the term does not
include any changes that at the Funding Date are scheduled to
take place under the existing Eurodollar Rules or any
increases in the capital that the Lender is required to
maintain to the extent that the increases are required due to
a regulatory authority's assessment of that Lender's financial
condition.
(v) Any One-Month LIBOR, Three-Month LIBOR or
Six-Month LIBOR rate shall be deemed inadequate or unfair if:
(A) the Lender determines that deposits in
US dollars (in the applicable amounts) are not being
offered in the London interbank eurodollar market for
such thirty, sixty or ninty-day periods; or
(B) the Lender otherwise determines that by
reason of circumstances affecting the London
interbank eurodollar market adequate and reasonable
means do not exist for ascertaining the One-Month
LIBOR, Three-Month LIBOR or Six-Month LIBOR rate; or
(C) the One-Month LIBOR, Three-Month LIBOR
or Six-Month LIBOR rate will not adequately and
fairly reflect the cost to the Lender of funding any
LIBOR Rate Loans, or that the funding of LIBOR Rate
Loans has become impracticable as a result of an
event occurring after the date of this Agreement
which in the opinion of the Lender materially affects
such LIBOR Rate Loans;
If any Rule Change should make it or, in the good faith
judgment of the Lender, shall raise a substantial question as to
whether it is unlawful for the Lender to make, create, maintain or fund
LIBOR Rate Loans, then (i) the Lender shall promptly notify the
Borrowers, (ii) the obligation of the Lender to make, maintain or
convert into LIBOR Rate Loans shall, upon the effectiveness of such
event, be suspended for the duration of such unlawfulness, and (iii)
for the duration of such unlawfulness, any notice by a Borrower
requesting the Lender to make or continue making or convert into LIBOR
Rate Loans shall be construed as a request to make or to continue
making Floating Rate Loans.
(f) The Borrowers agree to pay to the Lender an unused line
fee at the rate of one-quarter percent (0.25%) per annum on the average
daily Unused Amount from the
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date of this Agreement to and including the Termination Date, due and
payable monthly in arrears on the first day of the month and on the
Termination Date. "Unused Amount" means sum of (i) the Maximum Line,
less (ii) the amount of outstanding Revolving Advances.
(g) In addition to any other amounts payable by Borrowers to
Lender, Borrowers agree to pay to the Lender on the date of this
Agreement and on each anniversary date of this Agreement, an annual fee
equal to the greater of $27,500 or one-half percent (1/2%) of the
Maximum Line.
(h) Lender may maintain from time to time, at its discretion,
liability records as to any and all loans made or repaid and interest
accrued or paid under this Agreement. All entries made on any such
record shall be presumed correct until Borrowers establish the
contrary. On demand by Lender, Borrowers will promptly admit and
certify in writing the exact principal balance which Borrowers then
assert to be outstanding to Lender for loans under this Agreement. Any
billing statement or accounting rendered by Lender shall be conclusive
and fully binding on Borrowers unless specific written notice of
exception is given to Lender by Borrowers within thirty (30) days after
its receipt by Borrowers.
(i) Borrowers' obligations with respect to all loans shall be
fully binding and enforceable without any note or other evidence of
indebtedness. Nevertheless, if Lender so requests, Borrowers will duly
execute and deliver to Lender a promissory note in negotiable form
payable to the order of Lender in a principal amount equal to the
principal balance then outstanding to Lender for loans under this
Agreement, together with interest as set forth in Paragraph 1(d).
(j) In requesting any loans under this Agreement, Borrowers
shall be deemed to represent and warrant to Lender that, as of the date
of the proposed loans, (i) all of the representations and warranties
made in Paragraphs 3 and 4 will be true and correct except for changes
caused by transactions permitted under this Agreement, and (ii) no
breach or default under, and no Event of Default defined or described
in, this Agreement or any of the Security Documents will exist.
(k) All obligations of the Borrowers hereunder and under the
other Security Documents, whether now existing or hereafter incurred,
shall be joint and several and neither Borrower is intended as an
accommodation party of the other. Each Borrower hereby agrees to make
payment upon the maturity of the Obligations, whether by acceleration
or otherwise, and such obligation and liability on the part of each
Borrower shall in no way be affected by (i) any act or omission of the
Lender including, without limitation any extension, renewal or
forbearance granted by the Lender to any Borrower or any guarantor or
other party, (ii) any failure of the Lender to pursue or preserve its
rights against any Borrower, guarantor or other party, (iii) the
release by the Lender of any collateral now or hereafter given as
security for all
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or any part of such obligations; and each Borrower shall be and remain
liable for any deficiency remaining after foreclosure of any mortgage
or security interest securing any Obligations, whether or not the
liability of either Borrower or any other obligor for such deficiency
is discharged pursuant to statute or judicial decision.
2. Affiliate. For the purposes of this Agreement, "Affiliate" refers to
the Guarantor, RTI Tech PTE Ltd.; Resistance Technology Gmbh, and any other
corporation, partnership, individual or other entity which now or hereafter
controls, is controlled by, or is under common control with any Borrower. Each
Borrower agrees that any breach, default or event of default by or attributable
to any Affiliate under any agreement between such Affiliate and Lender shall
constitute a breach of this Agreement and an Event of Default hereunder and
under the Security Documents. "Affiliated Corporation" shall refer to any entity
that is not a natural person.
3. Security Interest.
(a) Grant of Security Interest. Each Borrower hereby assigns
to Lender and grants Lender a security interest (collectively referred
to as the "Security Interests") in the property described below, as
security for the payment and performance of each and every debt,
liability and obligation of every type and description which any
Borrower may now or at any time hereafter owe to Lender (whether such
debt, liability or obligation now exists or is hereafter created or
incurred, whether it arises in a transaction involving Lender alone or
in a transaction involving other creditors of any Borrower, and whether
it is direct or indirect, due or to become due, absolute or contingent,
primary or secondary, liquidated or unliquidated, or sole, joint,
several or joint and several, and including specifically, but not
limited to, all indebtedness of Borrowers arising under this or any
other present or future loan or credit agreement, promissory note,
guaranty or other undertaking of any Borrower enforceable by Lender;
all such debts, liabilities and obligations are herein collectively
referred to as the "Obligations"). The Security Interests shall attach
to all of the personal property and fixtures of each Borrower (the
"Collateral"), including all proceeds and products thereof and,
including, without limitation the following:
INVENTORY: All inventory, as such term is defined in the UCC, of every
type and description, now owned or hereafter acquired by such Borrower,
including inventory consisting of whole goods, spare parts or
components, supplies or materials and inventory acquired, held or
furnished for sale, for lease or under service contracts or for
manufacture or processing, or any other purpose, and wherever located.
DOCUMENTS OF TITLE: All warehouse receipts, bills of lading and other
documents of title of every type and description now owned or hereafter
acquired by such Borrower.
ACCOUNTS: All of such Borrower's accounts, as such term is defined in
the UCC, now existing or hereafter arising, including each and every
right of such Borrower to the payment
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of money, whether such right to payment now exists or hereafter arises,
whether such right to payment arises out of a sale, lease or other
disposition of goods or other property, out of a rendering of services,
out of a loan, out of the overpayment of taxes or other liabilities, or
any other transaction or event, whether such right to payment is
created, generated or earned by such Borrower or by some other person
whose interest is subsequently transferred to such Borrower, whether
such right to payment is or is not already earned by performance, and
howsoever such right to payment may be evidenced, together with all
other rights and interests (including all liens, security interests and
guaranties) which such Borrower may at any time have by law or
agreement against any account debtor or other person obligated to make
any such payment or against any property of such account debtor or
other person; all contract rights, chattel papers, bonds, notes and
other debt instruments, and all loans and obligations receivable, tax
refunds and other rights to payment in the nature of general
intangibles; all checking accounts, savings accounts and other
depository accounts and all savings certificates and certificates of
deposit maintained with or issued by Lender or any other bank or other
financial institution.
EQUIPMENT AND FIXTURES: All equipment, as such term is defined in the
UCC, now owned or hereafter acquired by such Borrower and all fixtures
of every type and description now owned or hereafter acquired by such
Borrower, including (without limitation) all present and future
machinery, vehicles, furniture, fixtures, manufacturing equipment, shop
equipment, office and recordkeeping equipment, parts, tools, supplies
and all other goods (except inventory) used or bought for use by such
Borrower for any business or enterprise; including (without limitation)
all goods that are or may be attached or affixed or otherwise become
fixtures upon any real property; and including specifically (without
limitation) the goods described in any equipment schedule or list
herewith or hereafter furnished to Lender by such Borrower, all
accessions attachments, parts and repairs now or hereafter attached or
affixed or used in connection with equipment, all substitutions and
replacements thereof, and all like or similar property now owned or
hereafter acquired by such Borrower. (No such schedule or list need be
furnished in order for the security interest granted herein to be valid
as to all of such Borrower's equipment.)
INVESTMENT PROPERTY: All investment property, as such term is defined
in the UCC, whether now owned or hereafter acquired by such Borrower,
including (without limitation) all securities, security entitlements,
securities accounts, commodity contracts, commodity accounts, stocks,
bonds, mutual fund shares, money market shares and U.S. Government
securities.
GENERAL INTANGIBLES: All general intangibles of every type and
description now owned or hereafter acquired by such Borrower, including
(without limitation) all present and future intellectual property,
proprietary rights, foreign and domestic patents, patent applications,
trademarks, trademark applications, service marks, service xxxx
applications, trade dress, mask works, copyrights, trade names, trade
secrets, shop drawings, engineering
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drawings, blueprints, specifications, parts lists, manuals, operating
instructions, customer or supplier lists and contracts, licenses,
permits, franchises, the right to use such Borrower's corporate name,
and the goodwill of such Borrower's business.
MISCELLANEOUS COLLATERAL: All instruments, chattel paper, deposit
accounts, documents, goods, letter-of-credit rights, letters of credit,
all sums on deposit in any collateral account, and any items in any
lockbox, now existing or hereafter arising, and any money or other
assets of the such Borrower that come into the possession, custody or
control of the Lender.
(b) Representations, Warranties and Covenants. Borrowers
represent, warrant and covenant as follows:
(1) Each Borrower has (or will have at the time it
acquires rights in Collateral hereafter arising) and will
maintain so long as the Security Interests may remain
outstanding, absolute title to each item of Collateral and all
proceeds thereof, free and clear of all interests, liens,
attachments, encumbrances and security interests except the
Security Interests and as provided herein and except as Lender
may otherwise agree in writing. Each Borrower will defend the
Collateral against all claims or demands of all persons (other
than Lender) claiming the Collateral or any interest therein.
Borrowers will not sell or otherwise dispose of the Collateral
or any interest therein, except the sale of inventory in the
ordinary course of such Borrower's business and except as set
forth in Section 6(d) hereof, without Lender's prior written
consent. Each Borrower's interest in the Collateral is freely
transferable to any person, without condition, limitation,
jurisdiction or restriction of governmental authority, or any
other qualification whatsoever.
(2) Each Borrower's exact legal name and federal
employer identification and organization identification
numbers are as set forth below and state of organization is as
set forth above. Each Borrower does business solely under its
own name and the trade names (if any) set forth below. The
places of business and chief executive office of each Borrower
are located at the address(es) set forth below, and all
tangible Collateral is located at such address(es). All of
each Borrower's records relating to its business or the
Collateral are kept at its chief executive office. Borrower
will not permit any tangible Collateral or any records
pertaining to Collateral to be located in any state or area in
which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not
in fact been, filed in order to perfect the Security
Interests. Borrowers will not change its name, articles of
incorporation or jurisdiction of organization without prior
written consent of Lender. Borrowers will not change its
identity or corporate structure or the location of its place
of business, without prior written notice to Lender.
12
(3) None of the Collateral is or will become a
fixture on real estate, unless a sufficient fixture filing is
in effect with respect thereto.
(4) Each account and other right to payment and each
instrument, document, chattel paper and other agreement
constituting or evidencing Collateral is (or, in the case of
all future Collateral, will be when arising or issued) the
valid, genuine and legally enforceable obligation, subject to
no defense, setoff or counterclaim (except for credits, claims
and allowances reported to the Lender in writing under Section
5(e) hereof), of the account debtor or other obligor named
therein or in each Borrower's records pertaining thereto as
being obligated to pay such obligation. Each Borrower will not
agree to modify, amend, subordinate, cancel or terminate the
obligation of any such account debtor or other obligor without
Lender's prior written consent except to provide standard and
customary credits in the ordinary course consistent with past
practices.
(5) Each Borrower will keep all tangible Collateral
in good repair, working order and condition, normal
depreciation, wear and tear excepted, and will, from time to
time, replace any worn, broken or defective parts.
(6) Each Borrower will promptly pay all taxes and
other governmental charges levied or assessed upon or against
any Collateral or upon or against the creation, perfection or
continuance of the Security Interests.
(7) Each Borrower will keep all Collateral free and
clear of all security interests, liens and encumbrances except
the Security Interests and as provided herein and except other
security interests herein or otherwise approved in writing by
Lender.
(8) Each Borrower will at all reasonable times permit
Lender or its representatives to examine or inspect any
Collateral, or any evidence of Collateral, wherever located.
(9) Each Borrower will promptly notify Lender of any
loss of or material damage to any Collateral or of any
substantial adverse change, known to such Borrower, in any
Collateral or the prospect of payment thereof.
(10) Upon request by Lender, whether such request is
made before or after the occurrence of any Event of Default,
each Borrower will promptly deliver to Lender in pledge all
instruments, documents and chattel papers constituting
Collateral, duly endorsed or assigned by such Borrower.
(11) Each Borrower will at all times keep all
tangible Collateral insured against risks of fire (including
so-called extended coverage), theft, collision (for
13
Collateral consisting of motor vehicles) and such other risks
and in such amounts as Lender may reasonably request, with any
loss payable to Lender to the extent of its interest. Prior to
any Default, each Borrower shall be permitted to settle and
receive insurance proceeds of any claims in the total
aggregate amount of $35,000 or less provided that prior
written notice thereof is given to Lender.
(12) Each Borrower will use and keep the Collateral,
and will require that others use and keep the Collateral, only
for lawful purposes, without violation of any federal, state
or local law, statute or ordinance.
(13) Each Borrower from time to time will execute and
deliver or endorse any and all instruments, documents,
conveyances, assignments, security agreements, financing
statements and other agreements and writings which Lender may
reasonably request in order to secure, protect, perfect or
enforce the Security Interests or the rights of Lender under
this Agreement (but any failure to request or assure that such
Borrower executes, delivers or endorses any such item shall
not affect or impair the validity, sufficiency or
enforceability of this Agreement and the Security Interests,
regardless of whether any such item was or was not executed,
delivered or endorsed in a similar context or on a prior
occasion).
(14) Promptly upon knowledge thereof, each Borrower
will deliver to Lender notice of any commercial tort claims it
may bring against any person, including the name and address
of each defendant, a summary of the facts, an estimate of such
Borrower's damages, copies of any complaint or demand letter
submitted by such Borrower, and such other information as the
Lender may request. Upon request by Lender, each Borrower will
grant the Lender a security interest in all commercial tort
claims it may have against any person.
(15) The proper place to file financing statements to
perfect the security interests granted by the Guarantor in the
Security Documents, other than in Collateral which are
fixtures, is the Office of Secretary of State of Pennsylvania
and the proper place to file a financing statement to perfect
such security interest in fixtures of the Guarantor is the
County Recorder of Xxxxxx County, Minnesota. When the
financing statements heretofore authorized by the Guarantor
are filed there, Lender will have valid and perfected security
interests in the "Collateral" described in the Security
Documents, subject to no prior security interest, assignment,
lien or encumbrance (except interests, if any, specifically
approved by Lender herein or otherwise in writing).
(16) The proper place to file financing statements to
perfect the Security Interests with respect to Resistance
other than in Collateral which are fixtures is the Office of
Secretary of State of Minnesota and the proper place to file a
financing
14
statement to perfect the Security Interest in Collateral which
are fixtures is the County Recorder of Xxxxxx County,
Minnesota. When the financing statements are filed there,
Lender will have valid and perfected Security Interests in the
Collateral, subject to no prior security interest, assignment,
lien or encumbrance (except interests, if any, specifically
approved by Lender herein or otherwise in writing).
(17) The proper place to file financing statements to
perfect the Security Interests with respect to RTI other than
in Collateral which are fixtures is the Office of Secretary of
State of Delaware and the proper place to file a financing
statement to perfect the Security Interest in Collateral which
are fixtures is the County Recorder of Orange County, CA. When
the financing statements are filed there, Lender will have
valid and perfected Security Interests in the Collateral,
subject to no prior security interest, assignment, lien or
encumbrance (except interests, if any, specifically approved
by Lender herein or otherwise in writing).
If any Borrower at any time fails to perform
or observe any of the foregoing agreements, and if such
failure shall continue for a period of ten (10) calendar days
after Lender gives Borrowers written notice thereof (or in the
case of the agreements contained in Paragraphs 3(b)(7) and
3(b)(11) above, immediately upon the occurrence of such
failure, without notice or lapse of time), Lender may, but
need not, perform or observe such agreement on behalf and in
the name, place and stead of Borrowers (or, at Lender's
option, in the name of Lender) and may, but need not, take any
and all other actions which Lender may reasonably deem
necessary to cure or correct such failure (including, without
limitation, the payment of taxes, the satisfaction of security
interests, liens or encumbrances, the performance of
obligations owed to account debtors or other obligors, the
procurement and maintenance of insurance, the execution of
assignments, security agreements and financing statements, and
the endorsement of instruments); and Borrowers shall thereupon
pay to Lender on demand the amount of all monies expended and
all costs and expenses (including reasonable attorneys' fees
and legal expenses) incurred by Lender in connection with or
as a result of the performance or observance of such
agreements or the taking of such action by Lender, together
with interest thereon from the date expended or incurred at
the highest lawful rate then applicable to any of the
Obligations. To facilitate the performance or observance by
Lender of such agreements of Borrowers, each Borrower hereby
irrevocably appoints Lender, or the delegate of Lender, acting
alone, as the attorney-in-fact of such Borrower with the right
(but not the duty) from time to time to create, prepare,
complete, execute, deliver, endorse or file in the name and on
behalf of such Borrower any and all instruments, documents,
assignments, security agreements, financing statements,
applications for insurance and other agreements and writings
required to be obtained, executed, delivered or endorsed by
such Borrower under this Paragraph 3(b).
15
(c) Proceeds; Collateral Account. Each Borrower agrees to
deliver to Lender, or, at Lender's option, to deposit in a Lockbox (as
defined below), all proceeds of cash sales of inventory, all
collections on accounts, contract rights, chattel paper and other
rights to payment constituting Collateral, and all other cash proceeds
of Collateral, immediately upon receipt thereof, in the form received,
except for Borrower's endorsement when deemed necessary. As used
herein, "Lockbox" shall mean a special collateral account in the name
of the Lender or at the option of the Lender, that each Borrower shall
create and maintain for Lender, at M&I Xxxxxxxx & Xxxxxx Bank and which
shall be subject to a Lockbox agreement in form and substance
satisfactory to Lender. Each Borrower shall instruct all account
debtors to pay all Accounts directly to the Lockbox. If,
notwithstanding such instructions, any Borrower receives any payments
on Accounts, the Borrower shall immediately deposit such payments into
the Lockbox. Each Borrower shall also deposit all other cash proceeds
of Collateral directly to the Lockbox. Amounts deposited to the Lockbox
shall not bear interest and shall not be subject to withdrawal by
Borrower, except after full payment and discharge of all Obligations.
All such collections shall constitute proceeds of Collateral and shall
not constitute payment of any Obligation. Until delivered to Lender or
deposited in Lender's collateral account or Lockbox, all proceeds or
collections of Collateral shall be held in trust by each Borrower for
and as the property of Lender and shall not be commingled with any
funds or property of either Borrower. Lender may deposit any and all
collections received by it from Borrowers or out of any Lockbox in
Lender's general account and may commingle such collections with other
property of Lender or any other person. All items shall be delivered to
Lender or deposited in any Lockbox subject to final payment. If any
such item is returned uncollected, Borrowers will immediately pay
Lender, or, for items deposited in a Lockbox, the bank maintaining such
Lockbox, the amount of that item, or such bank in its discretion may
charge any uncollected item to Borrower's commercial account or other
account. Borrowers shall be liable as an endorser on all items
deposited in any collateral account or Lockbox, whether or not in fact
endorsed by Borrower. Lender from time to time at its discretion may
apply funds on deposit in any collateral account to the payment of any
or all Obligations, in any order or manner of application satisfactory
to Lender; provided, however, that prior to any Default and except as
otherwise directed by Borrower or provided under any Term Loan
Supplement, all collateral account proceeds shall be used first to pay
Revolving Advances unless such proceeds are proceeds from the sale of
real estate or Equipment of any Borrower or insurance proceeds of any
such collateral.
(d) Collection Rights of Lender. In addition to the rights of
Lender under Paragraph 3(c), with respect to any and all rights to
payment constituting Collateral, Lender may at any time after the
occurrence of any Default notify any account debtor or other person
obligated to pay the amount due that such right to payment has been
assigned or transferred to Lender for security and shall be paid
directly to Lender. Borrowers will join in giving such notice, if
Lender so requests. At any time after Borrowers or Lender gives such
notice to an account debtor or other obligor, Lender may, but need not,
in Lender's name or in Borrower's name, (i) demand, xxx for, collect or
receive any money or property at any time
16
payable or receivable on account of, or securing, any such right to
payment, or grant any extension to, make any compromise or settlement
with or otherwise agree to waive, modify, amend or change the
obligations (including collateral obligations) of any such account
debtor or other obligor; and (ii) as agent and attorney-in-fact of
Borrowers notify the United States Postal Service to change the address
for delivery of Borrower's mail to any address designated by Lender and
otherwise intercept, receive, open and dispose of Borrower's mail,
applying all Collateral as permitted under this Agreement and holding
all other mail for Borrower's account or forwarding such mail to
Borrower's last known address.
(e) Assignment of Insurance. As additional security for the
payment and performance of the Obligations, each Borrower hereby
assigns to Lender any and all monies (including, without limitation,
proceeds of insurance and refunds of unearned premiums) due or to
become due under, and all other rights of such Borrower with respect
to, any and all policies of insurance now or at any time hereafter
covering the Collateral or any evidence thereof or any business records
or valuable papers pertaining thereto, and each Borrower hereby directs
the issuer of any such policy to pay all such monies directly to
Lender. At any time, whether before or after the occurrence of any
Event of Default, Lender may (but need not), in Lender's name or in
Borrower's name, execute and deliver proofs of claim, receive all such
monies, endorse checks and other instruments representing payment of
such monies, and adjust, litigate, compromise or release any claim
against the issuer of any such policy. Notwithstanding the foregoing,
prior to the occurrence of any Default, Borrowers shall be permitted to
settle and receive insurance proceeds of any claims in the total
aggregate amount of $35,000 or less provided that written notice is
given to Lender.
(f) Filing of Financing Statements. Each Borrower authorizes
Lender to file financing statements describing the Collateral and
describing any other statutory liens held by Lender.
(g) Verification. At any time or from time to time, under its
own name or under a trade name, Lender may (but shall not be obligated
to) send to and discuss with Borrower's account debtors requests for
verification of amounts owed to Borrower. If Lender so requests at any
time, each Borrower will send requests for verification to its account
debtors or join in any requests for verification sent by Lender.
(h) Surplus and Deficiency; Care of Collateral. This Agreement
does not contemplate a sale of accounts, contract rights or chattel
paper, and, as provided by law, each Borrower is entitled to any
surplus and shall remain liable for any deficiency. Lender's duty of
care with respect to Collateral in its possession (as imposed by law)
shall be deemed fulfilled if it exercises reasonable care in physically
keeping such Collateral, or in the case of Collateral in the custody or
possession of a bailee or other third person, exercises reasonable care
in the selection of the bailee or other third person, and Lender need
not otherwise preserve, protect, insure or care for any Collateral.
Lender shall not be obligated to preserve
17
any rights any Borrower may have against prior parties, to realize on
the Collateral at all or in any particular manner or order or to apply
any cash proceeds of the Collateral in any particular order of
application.
4. Representations and Warranties. Each Borrower represents and
warrants to Lender that:
(a) The Guarantor is a corporation duly organized and existing
in good standing under the laws of the State of Pennsylvania. It has
the corporate power to own its property and to carry on its business as
now conducted and is duly qualified to do business in all states in
which such qualification is required. During its corporate existence,
the Guarantor has done business solely under the name IntriCon
Corporation and Selas Corporation. The Guarantor does not own any
capital stock of any corporation or equity of any entity except
Resistance Technology, Inc. and RTI Electronics, Inc., each wholly
owned subsidiaries, and Proucare Medical, Inc. of which the Guarantor
owns less than 1% of issued and outstanding voting stock, and hereafter
except as otherwise disclosed to the Lender in writing.
(b) Resistance is a corporation duly organized and existing in
good standing under the laws of the State of Minnesota. It has the
corporate power to own its property and to carry on its business as now
conducted and is duly qualified to do business in all states in which
such qualification is required. During its corporate existence,
Resistance has done business solely under the name Resistance
Technology, Inc. Resistance does not own any capital stock of any
corporation or equity of any entity except RTI Tech PTE LTD and
Resistance Technology Gmbh.
(c) RTI is a corporation duly organized and existing in good
standing under the laws of the State of Delaware. It has the corporate
power to own its property and to carry on its business as now conducted
and is duly qualified to do business in all states in which such
qualification is required. During its corporate existence, RTI has done
business solely under the name RTI Electronics, Inc. RTI does not own
any capital stock of any corporation.
(d) Each Borrower is duly authorized and empowered to execute,
deliver and perform the Loan Documents and to borrow money from Lender.
(e) The execution and delivery of the Loan Documents, and the
performance by each Borrower of its obligations thereunder, do not and
will not violate or conflict with any provision of law or the Articles
of Incorporation or By-Laws of such Borrower and do not and will not
violate or conflict with, or cause any default or event of default to
occur under, any agreement binding upon such Borrower.
(f) The execution and delivery of the Loan Documents have been
duly approved by all necessary action of the directors and shareholders
of each Borrower; and the Loan
18
Documents have in fact been duly executed and delivered by such
Borrower and constitute its lawful and binding obligations, legally
enforceable against it in accordance with their respective terms
(subject to laws generally affecting the enforcement of creditors'
rights).
(g) No litigation, tax claims or governmental proceedings are
pending or are threatened against any Borrower, the Guarantor or any
Affiliate and no judgment or order of any court or administrative
agency is outstanding against any Borrower, the Guarantor or any
Affiliate, except for (i) certain pending litigation involving
asbestos-related claims that have been disclosed by the Guarantor in
documents filed with the Securities and Exchange Commission and each of
which are fully covered by insurance policies maintained by the
Guarantor and/or the Borrowers, and (ii) except for other pending or
threatened litigation arising from time to time disclosed to the Lender
in writing and that, on a consolidated basis amongst the Borrowers, the
Guarantor and their Affiliates, individually does not involve claims in
excess of $35,000 or in the aggregate more than $100,000.
(h) The transactions contemplated by this Agreement and any
supplement thereto do not violate any law pertaining to usury or the
payment of interest on loans.
(i) The authorization, execution, delivery and performance of
the Loan Documents are not and will not be subject to the jurisdiction,
approval or consent of, or to any requirement of registration with or
notification to, any federal, state or local regulatory body or
administrative agency.
(j) The conduct of its business by each Borrower is not
subject to registration with, notification to, or regulation,
licensing, franchising, consent or approval by any state or federal
governmental authority or administrative agency, except general laws
and regulations which are not related or applicable particularly or
uniquely to the type of business conducted by Borrower, which do not
materially restrict or limit the business of such Borrower, and with
which such Borrower is in full compliance. All registrations and
notifications required to be made, and all licenses, franchises,
permits, operating certificates, approvals and consents required to be
issued, to enter into or conduct such business have been duly and
lawfully made or obtained and issued, and all terms and conditions set
forth therein or imposed thereby have been duly met and complied with.
(k) To the best knowledge of each Borrower based upon
reasonable inquiry, no director, shareholder, officer, employee or
agent of, or consultant to, any Borrower is prohibited by law, by
regulation, by contract, or by the terms of any license, franchise,
permit, certificate, approval or consent from participating in the
business of any Borrower as director, shareholder, partner, officer,
employee or agent of, or as consultant to, any Borrower, or is the
subject of any pending or, to each Borrower's best knowledge,
threatened proceeding which, if determined adversely, would or could
result in such a prohibition.
19
(l) All assets of each Borrower and any Affiliate are free and
clear of liens, security interests and encumbrances, except those
permitted under Paragraph 6(b).
(m) All Borrowers and all Affiliates have filed all federal
and state tax returns which are required to be filed, and all taxes
shown as due thereon have been paid. Borrower and all Affiliates have
paid or caused to be paid to the proper authorities when due all
federal, state and local taxes required to be withheld by them.
(n) Borrowers have furnished to Lender the financial
statements described below for the periods described below:
December 31, 2003
------------------------------
December 31, 2004
------------------------------
June 30, 2005
------------------------------
These statements were prepared in accordance with generally accepted
accounting principles consistently maintained, present fairly the
financial condition of the Guarantor and the Borrowers as at the dates
thereof, and disclose fully all liabilities of the Guarantor and the
Borrowers, whether or not contingent, with respect to any pension plan.
Since the date of the most recent financial statement, there has been
no material adverse change in the financial condition of any Borrower
or the Guarantor.
(o) Each qualified retirement plan of Borrowers presently
conforms in all material respects to and is administered in a manner
consistent with the Employee Retirement Income Security Act of 1974.
(p) Borrowers will not request or maintain any credit for the
purpose of purchasing or carrying any security, within the meaning of
Regulations T X or U of the Board of Governors of the Federal Reserve
System.
(q) Payment of the Obligations to Lender have been guaranteed
by the Guarantor pursuant to one or more instruments of guaranty, which
guaranty has been secured by a first (except as may be otherwise
provided in Section 6(b)) perfected security interest in all of the
Guarantor's personal property pursuant to a security agreement, each of
which have been duly executed and delivered and legally enforceable by
Lender, without further act and without condition, in accordance with
the stated terms (subject to applicable bankruptcy, insolvency, or
other laws generally affecting the enforcement of creditors' rights as
well as general principles of equity).
5. Affirmative Covenants. Each Borrower covenants and agrees that it
will:
20
(a) Use the proceeds of any and all loans made by Lender
solely for lawful and proper corporate purposes of the Borrowers.
(b) Pay all taxes, assessments and governmental charges prior
to the time when any penalties or interest accrue, unless contested in
good faith with an adequate reserve for payment; and pay to the proper
authorities when due all federal, state and local taxes required to be
withheld by it.
(c) Continue the conduct of its business; maintain its
corporate existence; maintain all rights, licenses and franchises; and
comply in all material respects with all applicable laws and
regulations.
(d) Maintain its property in good working order and condition
and make all needful and proper repairs, replacements, additions and
improvements thereto.
(e) Deliver to Lender:
(1) Within 90 days after the end of each fiscal year,
a statement of Guarantor's and each Borrower's financial
condition as at the end of such fiscal year and a statement of
earnings and retained earnings for such fiscal year, with
comparative figures for the preceding fiscal year, prepared on
a consolidating and consolidated basis to include any
Affiliated Corporation, certified without qualification by
independent certified public accountants acceptable to Lender,
together with any management letters, management reports or
other supplementary comments or reports to each Borrower and
Guarantor or its board of directors furnished by such
accountants and requested by the Lender; including a report
signed by such accountants stating that in making the
investigations necessary for said opinion they obtained no
knowledge, except as specifically stated, of any Event of
Default (or any event or circumstance which with the giving of
notice or the passage of time or both, would constitute an
Event of Default) and all relevant facts in reasonable detail
to evidence, and the computations as to, whether or not each
Borrower and the Guarantor is in compliance with the Financial
Covenants.
(2) Within 25 days after the end of each fiscal
month, a statement of Borrowers' and Guarantor's financial
condition and an operating statement and statement of earnings
and retained earnings of Borrowers and Guarantor for such
month, in each case with comparative figures for the same
month in the preceding fiscal year, prepared on a
consolidating and consolidated basis to include any Affiliated
Corporation, certified by an officer of Borrower.
(3) Together with the financial statements furnished
by the Borrower under Sections 5(e)(1) and 5(e)(2), a
certificate of the Borrower's and Guarantor's
21
chief financial officers stating (i) that such financial
statements have been prepared in accordance with generally
accepted accounting principles, consistently applied, and
fairly represent the Borrower's and Guarantor's combined,
consolidated and consolidating financial position and the
results of its operations for such period, (ii) whether or not
such officer has knowledge of the occurrence of any Event of
Default (or any event or circumstance which with the giving of
notice or the passage of time or both, would constitute an
Event of Default) not theretofore reported and remedied and,
if so, stating in reasonable detail the facts with respect
thereto, and (iii) all relevant facts and reasonable detail to
evidence, and the computations as to, whether or not the
Borrower and the Guarantor is in compliance with all financial
covenants set forth in this Agreement.
(4) Within 25 days after the end of each month, an
aging of each Borrower's accounts receivable as at the end of
such month.
(5) Within 25 days after the end of each month, an
inventory certification report as at the end of such month.
(6) Within 25 days after the end of each month, an
aging of each Borrower's accounts payable as at the end of
such month.
(7) Promptly after the sending or filing thereof, the
Borrowers will deliver to the Lender copies of all regular and
periodic reports which any Borrower or the Guarantor shall
file with the Securities and Exchange Commission or any
national securities exchange.
(8) From time to time, any and all receivables,
schedules, collection reports, equipment schedules, copies of
invoices to account debtors and shipment documents and
delivery receipts for goods sold, and other material, reports,
records or information of each Borrower and/or any Affiliated
Corporation required by Lender.
(f) Permit any officer, employee, attorney or accountant for
Lender to audit, review, make extracts from, or copy any and all
corporate and financial books, records and properties of each Borrower
and/or any Affiliated Corporation at all times during ordinary business
hours, to send and discuss with account debtors and other obligors'
requests for verification of amounts owed to any Borrower, and to
discuss the affairs of each Borrower and/or any Affiliated Corporation
with any of its directors, officers, employees or agents.
(g) Maintain property, liability, business interruption,
xxxxxxx'x compensation and other forms of insurance in reasonable
amounts designated at any time or from time to time by Lender.
22
(h) Maintain, or cause to be maintained, the following
financial covenants of the Borrowers and the Guarantor, each as
determined on a consolidated basis in accordance with generally
accepted accounting principles, consistently applied (except as
otherwise provided below and provided that inventory shall be
calculated on a first-in, first-out basis) and measured at the end of
each fiscal quarter (collectively, the "Financial Covenants"):
(i) book net worth at and as of each period described
below of not less than the amount set forth opposite such
period:
Minimum
Period Book Net Worth
------------------- ------------------
December 31, 2005 $13,300,000
March 31, 2006 $13,450,000
June 30, 2006 $13,625,000
September 30, 2006 $13,800,000
December 31, 2006 $14,000,000
March 31, 2007 $14,200,000
June 30, 2007 $14,425,000
September 30, 2007 $14,650,000
December 31, 2007 $14,900,000
March 31, 2008 $15,150,000
June 30, 2008 $15,425,000
September 30, 2008 $15,700,000
(ii) tangible net worth (excluding all Intangible
Assets as defined below) at and as of each period described
below of not less than the amount set forth opposite such
period:
Minimum
Period Tangible Net Worth
------------------- ------------------
December 31, 2005 $6,300,000
March 31, 2006 $6,450,000
June 30, 2006 $6,625,000
September 30, 2006 $6,800,000
December 31, 2006 $7,000,000
March 31, 2007 $7,200,000
23
Minimum
Period Tangible Net Worth
------------------- ------------------
June 30, 2007 $7,425,000
September 30, 2007 $7,650,000
December 31, 2007 $7,900,000
March 31, 2008 $8,150,000
June 30, 2008 $8,425,000
September 30, 2008 $8,700,000
As used herein, "Intangible Assets" shall include intangible
assets as defined under generally accepted accounting
principles, together with all goodwill, patents, trademarks
and other intellectual property, prepaid expenses and accounts
due from any Affiliate, officer, director or employee of any
Borrower or any Affiliate.
(iii) a ratio of (a) total liabilities to (b)
tangible net worth (excluding all Intangible Assets) at and as
of each period described below of not more than the ratio set
forth opposite such period:
Maximum
Liabilities to
Period Tangible Net Worth
------------------- ------------------
December 31, 2005 2.70 to 1.00
March 31, 2006 2.70 to 1.00
June 30, 2006 2.70 to 1.00
September 30, 2006 2.70 to 1.00
December 31, 2006 2.70 to 1.00
March 31, 2007 2.50 to 1.00
June 30, 2007 2.50 to 1.00
September 30, 2007 2.50 to 1.00
December 31, 2007 2.50 to 1.00
March 31, 2008 2.50 to 1.00
June 30, 2008 2.50 to 1.00
September 30, 2008 2.50 to 1.00
(iv) achieve at the end of each period described
below and on a fiscal year-to-date basis, net income of not
less than the amount set forth opposite such period:
24
Minimum
Period Net Income
------------------- ------------------
December 31, 2005 $150,000
March 31, 2006 $150,000
June 30, 2006 $325,000
September 30, 2006 $500,000
December 31, 2006 $700,000
March 31, 2007 $200,000
June 30, 2007 $425,000
September 30, 2007 $650,000
December 31, 2007 $900,000
March 31, 2008 $250,000
June 30, 2008 $525,000
September 30, 2008 $800,000
(v) a Fixed Charge Coverage Ratio at and as of each
period described below of not less than the ratio set forth
opposite such period:
Minimum
Period Fixed Charge Coverage Ratio
------------------- ------------------
December 31, 2005 1.25 to 1.00
March 31, 2006 1.25 to 1.00
June 30, 2006 1.25 to 1.00
September 30, 2006 1.25 to 1.00
December 31, 2006 1.25 to 1.00
March 31, 2007 1.25 to 1.00
June 30, 2007 1.25 to 1.00
September 30, 2007 1.25 to 1.00
December 31, 2007 1.25 to 1.00
March 31, 2008 1.25 to 1.00
June 30, 2008 1.25 to 1.00
September 30, 2008 1.25 to 1.00
25
As used herein:
"Fixed Charge Coverage Ratio" shall mean and include,
as of a given date and for the fiscal year-to-date period
ending on such date, the ratio of (a) EBITDA minus
non-financed capital expenditures made during such period
(provided that the amount of such capital expenditures is not
less than zero) to (b) all Senior Debt Payments payable on a
current basis in such period, plus cash taxes, dividends and
distributions paid.
"EBITDA" shall mean and include with respect to any
period, net income plus interest, taxes, depreciation and
amortization.
"Senior Debt Payments" shall mean and include with
respect to any period all cash actually expended to make (a)
interest payments on any Advances hereunder in respect of such
period, plus (b) payments for all fees, commissions and
charges set forth herein and with respect to any Advances in
respect of such period (other than up-front fees and
reimbursement of Lenders' expenses), plus (c) scheduled
capitalized lease payments in respect of such period, plus (d)
scheduled principal payments and interest (other than interest
payable-in-kind) with respect to any other indebtedness for
borrowed money in respect of such period (other than up-front
fees and reimbursement of Lenders' expenses).
(i) Notify Lender promptly of (i) any disputes or claims by
customers of any Borrower that individually or in the aggregate exceed
$35,000; (ii) any goods returned to or recovered by any Borrower that
individually or in the aggregate exceed $35,000; (iii) any change in
the persons constituting the officers and directors of any Borrower or
the occurrence of any Change in Control (as defined in Section 7(c)
hereof); and (iv) the occurrence of any breach, default or event of
default by or attributable to any Borrower or any Affiliate under this
Agreement or any of the Loan Documents.
(j) The Borrower will (i) comply in all material respects with
the requirements of applicable laws and regulations, the non-compliance
with which would materially and adversely affect its business or its
financial condition and (ii) use and keep the Collateral, and require
that others use and keep the Collateral, only for lawful purposes,
without violation in any material respect of any federal, state or
local law, statute or ordinance.
6. Negative Covenants. Each Borrower covenants and agrees that it will
not, and it will not permit the Guarantor, except with the prior written
approval of Lender:
(a) Become or remain liable in any manner in respect of any
indebtedness or contractual liability (including, without limitation,
notes, bonds, debentures, loans,
26
guaranties, obligations of partnerships, and pension liabilities, in
each case whether or not contingent and whether or not subordinated),
except:
(1) Indebtedness arising under this Agreement;
(2) Unsecured indebtedness, other than for money
borrowed or for the purchase of a capital asset, incurred in
the ordinary course of its business, which becomes due and
must be fully satisfied within twelve months after the date on
which it is incurred;
(3) Indebtedness arising out of the lease or purchase
of goods constituting equipment and either unsecured or
secured by a purchase money security interest securing
purchase money indebtedness only if disclosed in Schedule
6(a)(3) hereto or if hereafter incurred only if such equipment
is acquired in compliance with Paragraph 6(c);
(4) Indebtedness permitted under Paragraph 6(h)
hereto; and
(5) Presently outstanding unsecured borrowings, if
any, disclosed in the financial statements referred to in
Paragraph 4(m), but not including any extensions or renewals
thereof.
(b) Create, incur or cause to exist any mortgage, security
interest, encumbrance, lien or other charge of any kind upon any of its
property or assets, whether now owned or hereafter acquired, except:
(1) The interests created by the Loan Documents;
(2) Liens for taxes or assessments not yet due or
contested in good faith by appropriate proceedings;
(3) A purchase money security interest or lessor's
interest securing indebtedness permitted to be outstanding or
incurred under Paragraph 6(a)(3) including those disclosed in
Schedule 6(a)(3) hereto;
(4) Security interests approved by Lender in writing;
and
(5) Other liens, charges and encumbrances incidental
to the conduct of its business or the ownership of its
property which were not incurred in connection with the
borrowing of money or the purchase of property on credit and
which do not in the aggregate materially detract from the
value of its property or materially impair the use thereof in
its business.
27
(c) Expend or contract to expend, in any one calendar year,
with respect to Resistance and RTI collectively, more than Two Hundred
Fifty Thousand Dollars ($250,000) in any one transaction; or in the
annual aggregate amount of more than (i) Two Million Dollars
($2,000,000) during calendar years 2005 and 2006, (ii) Two Million Five
Hundred Thousand Dollars ($2,500,000) during calendar year 2007, or
(iii) Three Million Dollars ($3,000,000) during calendar year 2008, for
the lease, purchase or other acquisition of any capital asset, or for
the lease of any other asset, whether payable currently or in the
future.
(d) Sell, lease or otherwise dispose of any "Collateral" (as
defined herein or in the Security Documents) or all or any substantial
part of its property, except as expressly permitted hereunder or under
the Security Documents and excluding any Borrower's sale of worn out or
obsolete equipment that do not in the aggregate exceed $35,000 in book
value in any fiscal year.
(e) Consolidate or merge with any other corporation; or
acquire any business; or acquire stock of any corporation; or enter
into any other partnership or joint venture.
(f) Substantially alter the nature of the business in which it
is engaged.
(g) Declare or pay any dividends (except dividends payable
solely in its capital stock), or purchase or redeem any of its capital
stock, or otherwise distribute any property on account of its capital
stock; or enter into any agreement therefor; provided, however,
Borrowers may declare and pay dividends to the Guarantor in an amount
equal to income tax assessed against the Guarantor as a result of the
income of Borrowers being directly charged to such entity upon Lender's
receipt of evidence of such assessment satisfactory to Lender.
(h) Purchase stock or securities of, extend credit to or make
investments in, become liable as surety for, or guarantee or endorse
any obligation of, any person, firm or corporation (each a "Restricted
Investment"), except
(1) investments in direct obligations of the
United States and commercial bank deposits;
(2) extensions of credit reflected by trade
accounts receivable arising for goods sold
by Borrowers in the ordinary course of its
business;
(3) Resistance may make loans to RTI subject to
the condition that the aggregate amount of
such intercompany loans cannot at any time
exceed the sum of: (i) an amount equal to
RTI's Borrowing Base less the outstanding
balance of Revolving Advances made to RTI,
plus (ii) any additional amount to the
extent that it would not cause
28
Resistance's Excess Availability to be less
than $500,000. As used herein, "Excess
Availability" shall mean the sum of (xx)
Resistance's Borrowing Base, less (yy) the
outstanding balance of Revolving Advances
made to Resistance, and less (zz) the amount
of the additional intercompany loan made or
to be made by Resistance to RTI; and
(4) any other Restricted Investments of either
Borrower and/or the Guarantor that on a
consolidated basis do not at any time exceed
$100,000 in the aggregate.
(i) After notice from Lender, grant any discount, credit or
allowance to any customer of Borrowers or accept any return of goods
sold; provided, however, that any Borrower shall be entitled to provide
standard and customary credits in the ordinary course consistent with
past practices.
(j) In any manner transfer any property without prior or
present receipt of full and adequate consideration.
(k) Permit more than $5,000 in the aggregate to be owing to
Borrowers and the Guarantor by the officers, directors or shareholders
of any Borrower or any Affiliated Corporation, or members of their
families, on account of any loan, travel advance, credit sale or other
transaction or event, except (1) such additional amounts otherwise
permitted by Section 6(h) above, and (2) up to $300,000 of intercompany
accounts receivable due from RTI Tech PTE Ltd. to Resistance.
(l) Pay excessive or unreasonable salaries, bonuses,
commissions, consultant fees, or other compensation; or increase the
salary, bonus, commissions, consultant fees or other compensation of
any director, officer, or consultant, or any member of their families,
by more than twenty-five percent (25%) in any one year, either
individually or for all such persons in the aggregate.
(m) Permit any breach, default or event of default to occur
under any note, loan agreement, indenture, lease, mortgage, contract
for deed, security agreement or other contractual obligation binding
upon Borrowers.
(n) adopt any material change in accounting principles, other
than as required by GAAP; or adopt, permit or consent to any change in
its fiscal year.
(o) amend its certificate of incorporation, articles of
incorporation, by-laws, certificate of formation, articles of
organization, shareholder agreement or similar document
29
or agreement governing such entity's existence, organization or
management or concerning disposition of ownership interests of such
entity or voting rights among such entity's owners.
7. Event of Default. "Default", wherever used herein, means
any event that, with giving of notice or passage of time or both, would
constitute an Event of Default. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of any obligations hereunder when
they become due and payable;
(b) Default in the performance, or breach, of any covenant or
agreement of any Borrower contained in this Agreement or the Guarantor
under any Guaranty or other Loan Documents; provided, however, that if
such default shall consist of any Borrower's failure to perform any of
the Affirmative Covenants listed in Section 5 hereof (excluding the
Affirmative Covenants to set forth in Sections 5(f), (g) and (h)), such
default shall not constitute an Event of Default unless Borrower fails
to cure such default within 20 days after the receipt of written notice
from Lender.
(c) A Change of Control shall occur. "Change of Control" means
the occurrence of any of the following events:
(i) any Person or "group" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of
1934) is or becomes the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Securities Exchange Act of
1934, except that a Person will be deemed to have "beneficial
ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more
than 35% percent of the voting power of all classes of voting
stock of the Guarantor;
(ii) the Guarantor shall fail to own, with the power
to vote, one hundred percent of all outstanding capital stock
of each Borrower;
(iii) During any consecutive two-year period,
individuals who at the beginning of such period constituted
the board of Directors of the Guarantor (together with any new
Directors whose election to such board of Directors, or whose
nomination for election by the owners of the Guarantor, was
approved by a vote of 66-2/3% of the Directors then still in
office who were either Directors at the beginning of such
period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a
majority of the board of Directors of the Borrower then in
office.
(iv) the President or Chief Financial Officer of any
Borrower shall cease to
30
actively manage such Borrower's day-to-day business activities
and a qualified replacement thereof, as reasonably determined
by the Lender, has not been obtained within ninety (90) days
thereafter.
As used herein, "Person" means any individual, corporation,
partnership, joint venture, limited liability company,
association, joint-stock company, trust, unincorporated
organization or government or any agency or political
subdivision thereof.
(d) Any Financial Covenant shall become inapplicable due to
the lapse of time and the failure to amend any such covenant to cover
future periods;
(e) Any Borrower or any Guarantor shall be or become
insolvent, or admit in writing its or his inability to pay its or his
debts as they mature, or make an assignment for the benefit of
creditors; or any Borrower or any Guarantor shall apply for or consent
to the appointment of any receiver, trustee, or similar officer for it
or him or for all or any substantial part of its or his property; or
such receiver, trustee or similar officer shall be appointed without
the application or consent of the Borrower or such Guarantor, as the
case may be; or any Borrower or any Guarantor shall institute (by
petition, application, answer, consent or otherwise) any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it or him
under the laws of any jurisdiction; or any such proceeding shall be
instituted (by petition, application or otherwise) against any such
Borrower or any such Guarantor; or any judgment, writ, warrant of
attachment or execution or similar process shall be issued or levied
against a substantial part of the property of any Borrower or any
Guarantor;
(f) A petition shall be filed by or against any Borrower or
any Guarantor under the United States Bankruptcy Code naming the
Borrower or such Guarantor as debtor and in the case of any involuntary
bankruptcy proceeding, either (i) such proceeding shall continue
without dismissal or stay for a period of sixty (60) consecutive days,
or (ii) an order granting the relief requested in the proceeding
(including, but not limited to, an order for relief under federal
bankruptcy laws) shall be entered;
(g) Any representation or warranty made by any Borrower in
this Agreement, by any Guarantor in any Loan Documents, or by any
Borrower (or any of its officers) or any Guarantor (or any of its
officers) in any agreement, certificate, instrument or financial
statement or other statement contemplated by or made or delivered
pursuant to or in connection with this Agreement or any such guaranty
shall prove to have been incorrect in any material respect when deemed
to be effective;
(h) The rendering against any Borrower or any Guarantor of an
arbitration award, final judgment, decree or order for the payment of
money in excess of $50,000
31
and the continuance of such arbitration award, judgment, decree or
order unsatisfied and in effect for any period of 30 consecutive days
without a stay of execution;
(i) A default under any bond, debenture, note or other
evidence of material indebtedness of any Borrower or Guarantor owed to
any person or entity other than the Lender, or under any indenture or
other instrument under which any such evidence of indebtedness has been
issued or by which it is governed, or under any material lease or other
contract, and the expiration of the applicable period of grace, if any,
specified in such evidence of indebtedness, indenture, other
instrument, lease or contract;
(j) Any reportable event under Employee Retirement Income
Security Act of 1974 ("ERISA") which the Lender determines in good
faith might constitute grounds for the termination of any pension plan
or for the appointment by the appropriate United States District Court
of a trustee to administer any pension plan, of any Borrower or the
Guarantor shall have occurred and be continuing 30 days after written
notice to such effect shall have been given to the Borrowers by the
Lender; or a trustee shall have been appointed by an appropriate United
States District Court to administer any pension plan; or the Pension
Benefit Guaranty Corporation shall have instituted proceedings to
terminate any Pension Plan or to appoint a trustee to administer any
pension plan; or any Borrower, the Guarantor or any "ERISA Affiliate"
(as hereinafter defined) shall have filed for a distress termination of
any pension plan under Title IV of ERISA; or any Borrower, the
Guarantor or any ERISA Affiliate shall have failed to make any
quarterly contribution required with respect to any pension plan under
Section 412(m) of the IRC, which the Lender determines in good faith
may by itself, or in combination with any such failures that the Lender
may determine are likely to occur in the future, result in the
imposition of a lien on any Borrower's or the Guarantor's assets in
favor of the pension plan; or any withdrawal, partial withdrawal,
reorganization or other event occurs with respect to a Multiemployer
Plan which results or could reasonably be expected to result in a
material liability of any Borrower or the Guarantor to the
Multiemployer Plan under Title IV of ERISA.
As used herein, "ERISA Affiliate" means any trade or business (whether
or not incorporated) that is a member of a group which includes any
Borrower or the Guarantor and which is treated as a single employer
under Section 414 of the IRC.
(k) An event of default shall occur under any Loan Document;
(l) Any Borrower or the Guarantor shall liquidate, dissolve,
terminate or suspend its business operations or otherwise fail to
operate its business in the ordinary course, or sell or attempt to sell
all or substantially all of its assets, without the Lender's prior
written consent;
32
(m) Default in the payment of any amount owed by any Borrower
or the Guarantor to the Lender other than any indebtedness arising
hereunder;
(n) Any Guarantor shall repudiate, purport to revoke or fail
to perform his or its obligations under his or its guaranty or support
agreement in favor of the Lender, any individual Guarantor shall die or
any other Guarantor shall cease to exist;
(o) Any event shall occur, whether or not insured or
insurable, as a result of which (a) a Borrower's Borrowing Base is
reduced during any month by more than fifteen percent (15%) other than
as result of sales of inventory and collections of accounts in the
ordinary course, (b) contingent liabilities are incurred by the
Borrowers and the Guarantor on a consolidated basis in excess of
$1,000,000 which would be required to be reflected in the footnotes to
a balance sheet prepared in accordance with generally accepted
accounting principles, consistently applied, (c) operations of either
Borrower are suspended or terminated for twenty (20) days or more at
any facility of Borrower generating more than twenty percent (20%) of
such Borrower's consolidated revenues for the preceding fiscal year; or
(d) any customer or group of customers representing more than twenty
percent (20%) of any Borrower's consolidated revenues for the preceding
fiscal year terminate or suspend purchases of inventory from such
Borrower; or
(p) Any breach, default or event of default by or attributable
to any Affiliate under any agreement between such Affiliate and the
Lender shall occur.
8. Remedies upon Default. Upon the occurrence of any Event of Default,
and at any time thereafter unless and until such Event of Default is waived in
writing by Lender, Lender may exercise one or several or all of the following
rights and remedies:
(a) Lender may by notice to the Borrowers terminate this
Agreement with immediate effectiveness and without notice or lapse of
time. Notwithstanding such termination, all claims, rights and security
interests of Lender and all debts, liabilities, obligations and duties
of Borrowers shall remain in full force and effect. The Lender may, by
notice to the Borrowers, declare the Borrowers' obligations hereunder
to be forthwith due and payable, whereupon all such obligations shall
become and be forthwith due and payable, without presentment, notice of
dishonor, protest or further notice of any kind, all of which the
Borrowers expressly waive.
(b) Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the Uniform
Commercial Code, including, without limitation, the right to take
possession of Collateral, or any evidence thereof, proceeding without
judicial process (without a prior hearing or notice thereof, which
Borrowers hereby expressly waives) and the right to sell, lease or
otherwise dispose of any or all of the Collateral, and in connection
therewith Borrowers will on demand assemble the Collateral
33
and make it available to Lender at a place to be designated by Lender
which is reasonably convenient to all parties. If notice to any
Borrower of any intended disposition of Collateral or any other
intended action is required by law in a particular instance, such
notice shall be deemed commercially reasonable if given (in the manner
specified in Paragraph 13(a) at least ten calendar days prior to the
date of intended disposition or other action. For the purpose of
enabling Lender to exercise such rights and remedies:
(1) Each Borrower hereby grants Lender (in addition
to Lender's security interest in general intangibles) a
nonexclusive license to use, sell or otherwise exploit in any
manner any and all trade names, trademarks, patents,
copyrights, licenses and other intangible properties
necessary, appropriate or useful in the enforcement of the
Security Interests; and
(2) Each Borrower hereby grants Lender the right to
possess and hold all premises owned, leased or held by any
Borrower upon which any Collateral is or may be located (the
"Premises"), subject to the following terms and conditions:
(A) Lender may take possession of the
Premises upon the occurrence of an Event of Default.
(B) Lender may use the Premises only to
hold, process, manufacture and sell or otherwise
dispose of goods which are inventory, or to provide
services under contracts for receivables, or to use,
operate, store, liquidate or realize upon goods which
are equipment or any other Collateral granted under
this Agreement and for other purposes which Lender
may in good xxxxx xxxx to be related or incidental
purposes.
(C) The right of Lender to hold the Premises
shall cease and terminate upon the earlier of (i)
payment in full and discharge of all Obligations;
(ii) final sale or disposition of all goods
constituting Collateral (including both inventory and
equipment) and delivery of all such goods to
purchasers.
(D) Lender shall not be obligated to pay or
account for any rent or other compensation for this
grant or for the possession, occupancy or use of any
of the Premises.
(E) Borrowers acknowledge and agree that the
breach of this grant is not fully compensable by
money damages, and that, accordingly, this grant may
be enforced by an action for specific performance.
34
(c) Upon the occurrence of any Default, the Lender shall have
the right to suspend the making of any Advances, until such Default has
been cured or waived.
(d) Lender may exercise or enforce any and all other rights or
remedies available by law or agreement against the Collateral, against
each Borrower, the Guarantor or against any other person or property.
9. Acceleration Upon Bankruptcy. All of the Obligations shall be
immediately and automatically due and payable, without further act or condition,
if any case under the United States Bankruptcy Code is commenced voluntarily by
any Borrower or the Guarantor or involuntarily against any Borrower or the
Guarantor.
10. Setoff. Borrowers agree that Lender may at any time or from time to
time, at its sole discretion and without demand and without notice to anyone,
set off any deposit or other liability owed to any Borrower by Lender, whether
or not due, against any indebtedness owed to Lender by any Borrower (for loans
under this Agreement or for any other transaction or event), whether or not due.
In addition, each person holding a participating interest in any loans made to
any Borrower by Lender shall have the right to appropriate or set off any
deposit or other liability then owed by such person to any or all Borrowers,
whether or not due, and apply the same to the payment of said participating
interest, as fully as if such person had lent directly to Borrowers the amount
of such participating interest.
11. Termination by Borrowers. Borrowers may terminate this Agreement
and (subject to payment and performance of all outstanding secured obligations)
may obtain any release or termination of the Security Documents to which
Borrowers are otherwise entitled by law, effective only on the third or any
subsequent anniversary date of this Agreement, and then only if Lender receives
at least 30 days prior written notice of Borrower's intent to terminate this
Agreement effective on such anniversary date of this Agreement. If this
Agreement is terminated prior to the date that is three years from the date of
this Agreement, the Borrowers shall pay the Lender a prepayment fee equal to the
applicable following percent of the maximum credit line (inclusive of any then
outstanding Term Advances) as follows: (a) three percent (3.0%) of the maximum
credit line if terminated prior to the first anniversary hereof; (b) two percent
(2.0%) of the maximum credit line if terminated on or after the first
anniversary but before the second anniversary hereof; and (c) one percent (1.0%)
of the maximum credit line if terminated on or after the second anniversary
hereof; provided, however, that (i) if all or substantially all of the
outstanding secured obligations hereunder are refinanced by the Borrowers with
M&I Xxxxxxxx and Xxxxxxx Bank on or after the second anniversary date of this
Agreement, or (ii) if this Agreement is terminated during the last two weeks
prior to the Termination Date, then such prepayment fee shall be waived. No such
termination shall be effective unless Borrowers provide Lender with at least
thirty (30) days prior written notice of Borrower's intent to terminate this
Agreement and the date on which such termination is to be effective. Upon any
such termination, all obligations of Borrowers under the Loan Documents shall
remain in full force and effect until all indebtedness arising under this
35
Agreement and all other debts, liabilities and obligations of Borrowers secured
hereby, or by the Security Documents or any other collateral security have been
fully paid and satisfied.
12. Conditions of Lending.
(a) Conditions Precedent to the Initial Advance. The Lender's
obligation to make the initial Advance hereunder shall be subject to the
condition precedent that the Lender shall have received all of the following,
each in form and substance satisfactory to the Lender:
(i) This Agreement and all Security Documents, properly
executed by the Borrowers, each Guarantor and any applicable third
parties to the extent a party thereto.
(ii) A true and correct copy of any and all leases pursuant to
which any Borrower is leasing its premises, together with a landlord's
disclaimer and consent with respect to each such lease.
(iii) Current searches of appropriate filing offices showing
that (i) no liens have been filed and remain in effect against any
Borrower except liens permitted hereunder or liens held by persons who
have agreed in writing that upon receipt of proceeds of the initial
Advance, they will satisfy, release or terminate such liens in a manner
satisfactory to the Lender, and (ii) the Lender has duly filed all
financing statements necessary to perfect the Security Interest, to the
extent the Security Interest is capable of being perfected by filing.
(iv) A certificate of each Borrower's Secretary or Assistant
Secretary certifying that attached to such certificate are (i) the
resolutions of the Borrower's Directors and, if required, Owners,
authorizing the execution, delivery and performance of the Loan
Documents, (ii) true, correct and complete copies of the Borrower's
organizational documents, and (iii) examples of the signatures of the
Borrower's officers or agents authorized to execute and deliver this
Agreement and the Security Documents and other instruments, agreements
and certificates, including advance requests, on the Borrower's behalf.
(v) A current certificate issued by Secretary of State of the
state of each Borrower's organization certifying that such Borrower is
in compliance with all applicable organizational requirements of such
state.
(vi) Evidence that the Borrower is duly licensed or qualified
to transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it
makes such licensing or qualification necessary.
36
(vii) A certificate of an Officer of the Borrower confirming,
in his representative capacity, the representations and warranties set
forth in paragraphs 3 and 4 above.
(viii) An opinion of counsel to the Borrowers and Guarantor,
addressed to the Lender.
(ix) Certificates of the insurance required hereunder, with
all hazard insurance containing a lender's loss payable endorsement in
the Lender's favor and with all liability insurance naming the Lender
as an additional insured.
(x) Without limiting the foregoing, a separate guaranty and
security agreement providing for a broad form security interest,
properly executed by each Guarantor, pursuant to which each Guarantor
unconditionally guarantees and secures the full and prompt payment of
all Obligations.
(xi) Payment of the fees and commissions due hereunder through
the date of the initial Advance and expenses incurred by the Lender
through such date and required to be paid by the Borrowers hereunder,
including all legal expenses incurred through the date of this
Agreement.
(xii) All collateral schedules, security interest
subordination agreements, searches, abstracts, releases and termination
statements which Lender may request adequately to assure and confirm
the creation, perfection and priority of the security interests created
hereunder or under the Security Documents.
(xiii) Such other documents as the Lender in its sole
discretion may require.
(b) Conditions Precedent to Term Advances: The Lender's
obligation to make any Term Advances shall further be subject to the
terms set forth in the applicable Term Loan Supplement.
(c) Conditions Precedent to All Advances. The Lender's
obligation to make any Advance shall be subject to the further
conditions precedent that:
(i) the representations and warranties set forth herein are
correct on the and as of the date of such Advance as though made on and
as of such date, except to the extent that such representations and
warranties relate solely to an earlier date; and
(ii) no event has occurred and in continuing, or would result
from such Advance that constitutes an Event of Xxxxxxx.
00
00. Miscellaneous. Each Borrower agrees that:
(a) This Agreement can be waived, amended, terminated or
discharged, and the Security Interests can be released, only explicitly
in a writing signed by Lender. A waiver so signed shall be effective
only in the specific instance and for the specific purpose given. Mere
delay or failure to act shall not preclude the exercise or enforcement
of any rights and remedies available to Lender. All rights and remedies
of Lender shall be cumulative and may be exercised singularly in any
order or sequence, or concurrently, at Lender's option, and the
exercise or enforcement of any such right or remedy shall neither be a
condition to nor bar the exercise of enforcement of any other. All
notices to be given to any Borrower shall be deemed sufficiently given
if actually received by any officer of any Borrower or if delivered or
mailed by registered, certified or ordinary mail, postage prepaid, to
any Borrower at its address set forth below or at its most recent
address shown on Lender's records.
(b) Intentionally deleted.
(c) On demand, Borrowers will pay or reimburse Lender for all
expenses, including all reasonable fees and disbursements of legal
counsel, incurred by Lender in connection with the preparation,
negotiation, execution, performance or enforcement of this Agreement or
the Security Documents, or any document contemplated thereby, or the
perfection, protection, enforcement or foreclosure of the security
interests created hereby or by the Security Documents, or in connection
with the protection or enforcement of the interests and collateral
security of Lender in any litigation or bankruptcy or insolvency
proceeding or the prosecution or defense or any action or proceeding
relating in any way to the transactions contemplated by this Agreement.
(d) Lender and its participants, if any, are not partners or
joint venturers, and Lender shall have no liability or responsibility
for any obligation, act or omission of its participants under or as to
this Agreement.
(e) This Agreement shall be binding upon each Borrower and its
successors and assigns and shall inure to the benefit of Lender and its
participants, successors and assigns. This Agreement shall be effective
when executed by each Borrower and delivered to Lender, whether or not
this Agreement is executed by Lender. All rights and powers
specifically conferred upon Lender may be transferred or delegated by
Lender to any of its participants, successors or assigns. Except to the
extent otherwise required by law, this Agreement and the transactions
evidenced hereby shall be governed by the substantive laws of the State
of Minnesota. If any provision or application of this Agreement is held
unlawful or unenforceable in any respect, such illegality or
unenforceability shall not affect other provisions or applications
which can be given effect, and this Agreement shall be construed as if
the unlawful or unenforceable provision or application had never been
contained herein or prescribed hereby. All representations and
warranties contained in this Agreement or in
38
any other agreement between Borrower or Borrowers and Lender shall
survive the execution, delivery and performance of this Agreement and
the creation and payment of any indebtedness to Lender. Each Borrower
waives notice of the acceptance of this Agreement by Lender.
14. Interest Rate. Nothing herein contained nor any transaction related
hereto shall be construed or shall operate so as to require the Borrowers or any
person liable for repayment of loans made hereunder to pay interest in an amount
or at a rate greater than the maximum allowed, from time to time, by applicable
laws, if any. Should any interest or other charges, including any property,
tangible or intangible, or other items of value received by the Lender, imposed
against or paid by the Borrowers or any party liable for the payment of such
loans, result in a computation of earning of interest in excess of the maximum
legal rate of interest permitted under applicable law in effect while such
interest is being earned, then any and all of that excess shall be and is waived
by the Lender, and all of that excess shall be automatically credited against
and in reduction of the principal balance of such loans, without premium, with
the same force and effect as though the Borrowers had specifically designated
such extra sums to be so applied to principal and the Lender to accept such
extra payment(s) as a premium-free prepayment, and any portion of the excess
that exceeds the principal balance of loans made hereunder shall be paid by the
Lender to the Borrowers or to any party liable for the payment of such loans, as
applicable, it being the intent of the parties hereto that under no
circumstances shall the Borrowers or any party liable for the payment of the
indebtedness evidenced hereby be required to pay interest in excess of the
maximum rate allowed by any applicable laws. The provisions of this Agreement
are hereby modified to the extent necessary to conform with the limitations and
provisions of this Paragraph, and this Paragraph shall govern over all other
provisions in any document or agreement now or hereafter existing. This
Paragraph shall never be superseded or waived unless there is a written document
executed by the Lender and the Borrower, expressly declaring the usury
limitation of this Agreement to be null and void, and no other method or
language shall be effective to supersede or waive this Paragraph.
15. Environmental Laws. Each Borrower is and will continue to be
throughout the term of this Agreement in full and complete compliance in all
material respects with all federal, state and local laws, rules and regulations
governing hazardous and toxic substances, waste or materials, any pollutants or
contaminants or any other similar substances, or pertaining to environmental
regulations, contamination or cleanup, including, without limitation, the
Comprehensive Environmental Response Compensation and Liability Act, as amended,
or any other state lien or state super lien or environmental cleanup statute
(all such laws, rules and regulations being referred to collectively as
"Environmental Laws").
Each Borrower indemnifies, defends and holds Lender and its officers,
directors, employees and agents, harmless from and against any liability, laws,
claims, damages or expense (including attorneys' fees and disbursements) arising
out of or based upon any violation or claim of violation of Environmental Laws
by any Borrower or with respect to any assets owned or used by any Borrower or
any properties leased or occupied by any Borrower. This indemnity shall be
continuing and
39
remain in full force and effect and shall survive the Loan
Documents or any exercise of any remedy by Lender even if all indebtedness and
other obligations to Lender have been satisfied in full.
16. Indemnification. Borrowers shall pay, indemnify, defend and hold
the Lender, each affiliate of Lender, and each participant in the obligations
with Lender, and each of their respective officers, directors, employees,
agents, and attorneys-in-fact (each, an "Indemnified Person") harmless (to the
fullest extent permitted by law) from and against any and all claims, demands,
suits, actions, investigations, proceedings and damages, and all reasonable
attorneys' fees and disbursements and other costs and expenses actually incurred
in connection therewith (as and when they are incurred and irrespective of
whether suit is brought), at any time asserted against, imposed upon, or
incurred by any of them (a) in connection with or as a result of or related to
the execution, delivery, enforcement, performance, or administration of this
Agreement, any of the other Security Documents, or the transactions contemplated
hereby or thereby, and (b) with respect to any investigation, litigation, or
proceeding related to this Agreement, any other Security Document, or the use of
the proceeds of the credit provided hereunder (irrespective of whether any
Indemnified Person is a party thereto), or any act, omission, event, or
circumstance in any manner related thereto (all the foregoing, collectively, the
"Indemnified Liabilities"). The foregoing to the contrary notwithstanding,
Borrowers shall have no obligation to any Indemnified Person under this
Paragraph 16 with respect to any Indemnified Liability that a court of competent
jurisdiction finally determines to have resulted from the willful misconduct or
gross negligence of such Indemnified Person. This provision shall survive the
termination of this Agreement and the repayment of the Obligations. If any
Indemnified Person makes any payment to any other Indemnified Person with
respect to an Indemnified Liability as to which Borrowers was required to
indemnify the Indemnified Person receiving such payment, the Indemnified Person
making such payment is entitled to be indemnified and reimbursed by Borrowers
with respect thereto. WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO
EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE
OR IN PART ARE CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH
INDEMNIFIED PERSON OR OF ANY OTHER PERSON.
17. Jurisdiction and Venue. EACH BORROWER HEREBY CONSENTS TO THE
EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT SITUATED IN HENNEPIN OR
XXXXXX COUNTY, MINNESOTA AND WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS,
WITH REGARD TO ANY ACTIONS, CLAIMS, DISPUTES OR PROCEEDINGS RELATED TO THIS
AGREEMENT, THE COLLATERAL, THE OBLIGATIONS, OR ANY OTHER SECURITY DOCUMENT, OR
ANY TRANSACTIONS ARISING THEREFROM, OR ENFORCEMENT AND/OR INTERPRETATION OF ANY
OF THE FOREGOING. Nothing herein shall affect Lender's rights to serve process
in any manner permitted by law, or limit Lender's right to bring proceedings
against Borrower in the competent courts of any other jurisdiction or
jurisdictions.
40
18. Waiver of Trial by Jury. EACH BORROWER HEREBY WAIVES ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THIS AGREEMENT, THE
COLLATERAL, THE OBLIGATIONS OR ANY OTHER SECURITY DOCUMENT OR TRANSACTIONS
BETWEEN BORROWERS AND LENDER.
41
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the proper officers thereunto duly authorized on the day and year first above
written.
RESISTANCE TECHNOLOGY, INC. RTI ELECTRONICS, INC.
By: /s/Xxxxxxx X. Xxxxxxxx By: /s/Xxxxxxx X. Xxxxxxxx
Chief Financial Officer & Secretary Chief Financial Officer & Secretary
Federal Identification Number:_______ Federal Identification Number:_________
Organizational Number: 3A-94 Organizational Number: C2001241
42
TRADE NAMES OF BORROWER: ADDRESS OF CHIEF EXECUTIVE OFFICES:
??? RTI
RTI Plastics
Resistance 0000 Xxx Xxx Xxxx
Xxxxx Xxxxx, XX 00000
RTI 0000 X. Xxx Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
COLLATERAL LOCATIONS: OTHER ADDRESSES:
0000 Xxx Xxx Xxxx
Xxxxx Xxxxx, XX 00000
0000 XxXxxxxx Xxxxxx
Xx. Xxxx, XX 00000
0000 X. Xxx Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Accepted at Minneapolis, Minnesota
on _______________, 2005.
DIVERSIFIED BUSINESS CREDIT, INC.
By: _/s/_____________________________
Its: ______________________________
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SCHEDULE 6(A)(3)
PURCHASE MONEY INDEBTEDNESS AND SECURITY INTERESTS
1. [to be completed by Borrower]
Schedule 6(a)(3)
