1
EXHIBIT 10.13
FINOVA
LOAN AND SECURITY AGREEMENT
BORROWER: ROCKFORD CORPORATION
ADDRESS: 000 XXXXX XXXXX XXXXX
XXXXX, XXXXXXX 00000
DATE: JUNE ___, 1997
THIS LOAN AND SECURITY AGREEMENT ("Agreement") dated the date set forth above,
is entered into by and between the borrower named above (jointly and severally,
the "Borrower"), whose address is set forth above and FINOVA CAPITAL CORPORATION
("Lender"), whose address is 000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxxxxx,
Xxxxxxxxxx 00000.
1. LOANS.
1.1 Total Facility. Upon the terms and conditions set forth herein and
provided that no Event of Default or event which, with the giving of notice or
the passage of time, or both, would constitute an Event of Default, shall have
occurred and be continuing, Lender shall, upon Borrower's request, make advances
to Borrower from time to time in an aggregate outstanding principal amount not
to exceed the Total Facility amount (the "Total Facility") set forth on the
schedule hereto (the "Schedule"), subject to deduction of reserves for accrued
interest and such other reserves as Lender deems proper from time to time, and
less amounts Lender may be obligated to pay in the future on behalf of Borrower.
The Schedule is an integral part of this Agreement and all references to
"herein", "herewith" and words of similar import shall for all purposes be
deemed to include the Schedule.
1.2 Loans. Loan advances shall be comprised of the amounts shown on the
Schedule.
1.3 Overlines. If at any time or for any reason the outstanding amount of
advances made pursuant hereto exceeds any of the dollar or percentage
limitations contained in the Schedule (any such excess, an "Overline"), then
Borrower shall, upon Lender's demand, immediately pay to Lender, in cash, the
full amount of such Overline. Without limiting Borrower's obligation to repay to
Lender on demand the amount of an, Overline, Borrower agrees to pay Lender
interest on the outstanding principal amount of any Overline, on demand, at the
rate set forth in on the Schedule.
1.4 [RESERVED].
1.5 Loan Account. All advances made hereunder shall be added to and deemed
part of the Obligations when made. Lender may from time to time charge all
Obligations of Borrower to Borrower's; loan account with Lender.
2. CONDITIONS PRECEDENT.
2.1 Initial Advance. The obligation of Lender to make the initial advance
hereunder is subject to the fulfillment, to the satisfaction of Lender and its
counsel, of each of the following conditions on or prior to the date set forth
on the Schedule: (a) Loan Documents. Lender shall have received (i) each of the
Loan Documents, executed by each of the parties thereto and, if applicable, duly
acknowledged for recording or filing in the appropriate governmental offices;
(ii) such Blocked Account or Dominion Account agreements as it shall determine;
and (iii) such other documents, instruments and agreements in connection
herewith as Lender shall require, executed, certified and/or acknowledged by
such parties as Lender shall designate, (b) Terminations by Existing Lender.
Borrower's existing lender shall have executed and delivered UCC termination
statements and other documentation evidencing the termination of its liens and
security interests in the assets of Borrower or a subordination agreement in
form and substance satisfactory to Lender in its sole discretion; (c) Charter
Documents.
-1-
2
FINOVA LOAN AND SECURITY AGREEMENT
Lender shall have received copies of Borrower's By-laws and Articles or
Certificate of Incorporation, as amended, modified, or supplemented to the
Closing Date, certified by the Secretary of Borrower; (d) Good Standing. Lender
shall have received a certificate of corporate status with respect to Borrower,
dated within ten (10) days of the Closing Date, by the Secretary of State of the
state of incorporation of Borrower, which certificate shall indicate that
Borrower is in good standing in such state; (e) Foreign Qualification. Lender
shall have received certificates of corporate status with respect to Borrower
and each other Loan Party, each dated within ten (10) days of the Closing Date,
issued by the Secretary of State of each state in which its failure to be duly
qualified or licensed would have a material adverse effect on the financial
condition or assets of Borrower, indicating that Borrower is in good standing;
(f) Authorizing Resolutions and Incumbency. Lender shall have received a
certificate from the Secretary of Borrower attesting to (i) the adoption of
resolutions of Borrower's Board of Directors and Shareholders (if necessary)
authorizing the borrowing of money from Lender and execution and delivery of
this Agreement and the other Loan Documents to which Borrower is a party, and
authorizing specific officers of Borrower to execute same, and (ii) the
authenticity of original specimen signatures of such officers; (g) Insurance.
Lender shall have received the insurance certificates and certified copies of
policies required by Section 4.4 hereof, in form and substance satisfactory to
Lender and its counsel; (h) Title Insurance. Lender shall have received binding
commitments to issue such title insurance with respect to Collateral comprised
of real property as it shall determine; (i) Searches, Certificates of Title.
Lender shall have received searches reflecting the filing of its financing
statements and fixture filings in such jurisdictions as it shall determine, and
shall have received certificates of title with respect to the Collateral which
shall have been duly executed in a manner sufficient to perfect all of the
security interests granted to Lender, (j) Landlord and Mortgagee Waivers. Lender
shall have received landlord and mortgagee waivers from the lessors and
mortgagees of all locations where any Collateral is located; the landlord
waivers shall include, without limitation, a Landlord's Waiver and Consent, in
form and substance satisfactory to Lender, which shall provide, among other
items, for certain rights in favor of Lender to cure defaults under such lease,
for a subordination to the Loans of such landlord's lien rights, and for
Lender's right to continue occupancy of such premises in the event of defaults
by Borrower pursuant either to the lease or the Loan Documents; (k) Fees.
Borrower shall have paid all fees payable by it on the Closing Date pursuant to
this Agreement; (1) Opinion of Counsel. Lender shall have received an opinion of
Borrower's counsel covering such matters as Lender shall determine in its sole
discretion, (m) Officer Certificate. Lender shall have received a certificate of
the President and the Chief Financial Officer or similar official of Borrower,
attesting to the accuracy of each of the representations and warranties of
Borrower set forth in the Agreement and the fulfillment of all conditions
precedent to the initial advance thereunder; (n) Solvency Certificate. Lender
shall have received a signed certificate of the Borrower's duly elected Chief
Financial Officer concerning the solvency and financial condition of Borrower,
in a form satisfactory to Lender; (o) Interest Rate Protection. In the event
Borrower elects a variable rate of interest with respect to any Term Loan,
Borrower shall have entered into one or more interest rate protection agreements
(collectively, the "Rate Cap Agreement") in form and substance and with a
financial institution acceptable to Lender with respect to no less than 50% of
the beginning principal balance of such Term Loan; (p) Environmental -
Assessment. Borrower shall provide evidence satisfactory to Lender that the
subject transaction is environmentally acceptable. If required by Lender,
Borrower shall have retained a firm acceptable to Lender and, knowledgeable in
environmental matters to perform a Phase I environmental investigation of the
real property owned, operated or occupied by Borrower and the surrounding areas.
Such investigation may include, but not be limited to, soil and ground water
testing and core samplings to fully identify the scope of any environmental
issues impacting the transaction. All costs incurred in performing such
investigation shall be borne by Borrower. The scope and results of such
investigation must be satisfactory to Lender in form and substance. All costs
associated with compliance with the Applicable Laws, as indicated by such
investigation, shall be the sole responsibility of Borrower. Prior to the
Closing, there shall have been reported to the appropriate regulatory agencies
such matters concerning the condition of all real property owned, occupied, or
operated by Borrower as Lender, in its sole discretion, has determined are
subject to a reporting obligation under Applicable Laws; (q) Schedule
Conditions. Borrower shall have compiled with all additional conditions
precedent as set forth in the Schedule attached hereto; and (r) Other Matters.
All other documents and legal matters in connection with the transactions
contemplated by this Agreement shall have been executed, delivered, and recorded
and/or filed (where applicable), and shall be in form and substance satisfactory
to Lender and its counsel.
2.2 Subsequent Advances. The obligation of Lender to make any advance
hereunder (including the initial advance) shall be subject to the further
conditions precedent that, on and as of the date of such advance: (a) The
representations and warranties of Borrower set forth in this Agreement shall be
accurate, before and after giving effect to such advance or issuance and to the
application of any proceeds thereof, (b) No Event of Default and no event which,
with notice or passage of time or both, would constitute an Event of Default has
occurred and is continuing, or would result from such advance or issuance or
from the application of any proceeds thereof, (c) no material adverse change has
occurred in the Borrower's business, operations, financial condition, or assets
or in the condition of the Collateral, or in the prospect of repayment
-2-
3
FINOVA LOAN AND SECURITY AGREEMENT
of the Obligations; and (d) Lender shall have received such other approvals,
opinions or documents as Lender shall reasonably request.
3. INTEREST RATE AND OTHER CHARGES.
3.1 Interest; Fees. Borrower shall pay Lender interest on the daily
outstanding balance of Borrower's loan account at the per annum rate set forth
on the Schedule. Borrower shall also pay Lender the fees set forth on the
Schedule.
3.2 Default Interest Rate. Upon the occurrence of an Event of Default,
Borrower shall pay Lender interest on the daily outstanding balance of
Borrower's loan account at a rate per annum which is two percent (2%) in excess
of the highest rate of interest (in the absence of an Event of Default) at which
any part of the Obligations accrue pursuant to the Schedule.
3.3 Examination Fees. Borrower agrees to pay to Lender an examination fee in
the amount set forth on the Schedule in connection with each audit or
examination of Borrower performed by Lender prior to or after the date hereof.
Without limiting the generality of the foregoing, Borrower shall pay to Lender
an initial examination fee in an amount equal to the amount set forth on the
Schedule. Such initial examination fee shall be deemed fully earned at the time
of payment and due and payable upon the closing of this transaction, and shall
be deducted from any good faith deposit paid by Borrower to Lender prior to the
date of this Agreement.
3.4 Excess Interest. The contracted for rate of interest of the Loans
contemplated hereby, without limitation, shall consist of the following: (i) the
interest rate set forth on the Schedule, calculated and applied to the principal
balance of the Obligations in accordance with the provisions of this Agreement,
(ii) interest after an Event of Default, calculated and applied to the amount of
the Obligations in accordance with the provisions hereof, and (iii) all
Additional Sums, if any. Borrower agrees to pay an effective contracted for rate
of interest which is the sum of the above-referenced elements. The examination
fees, attorneys' fees, expert witness fees, letter of credit fees, collateral
monitoring fees, closing fees, facility fees, Termination Fees, Unused Line
Fees, other charges, goods, things in action or any other sums or things of
value paid or payable by Borrower (collectively, the "Additional Sums"), whether
pursuant to this Agreement or any other documents or instruments in any way
pertaining to this lending transaction, or otherwise with respect to this
lending transaction, that under any applicable law may be deemed to be interest
with respect to this lending transaction, for the purpose of any applicable law
that may limit the maximum amount of interest to be charged with respect to this
lending transaction, shall be payable by Borrower as, and shall be deemed to be,
additional interest and for such purposes only, the agreed upon and "contracted
for rate of interest" of this lending transaction shall be deemed to be
increased by the rate of interest resulting from the inclusion of the Additional
Sums.
It is the intent of the parties to comply with the usury laws of the State
of Arizona (the "Applicable Usury Law"). Accordingly, it is agreed that
notwithstanding any provisions to the contrary in this Agreement, or in any of
the documents securing payment hereof or otherwise relating hereto, in no event
whatsoever shall this Agreement or such documents require the payment or permit
the collection of interest or other charges in the nature of interest in excess
of the maximum contract rate permitted by the Applicable Usury Law (the "Maximum
Interest Rate"). In the event (a) any such excess of interest otherwise would be
contracted for, charged or received from Borrower or otherwise in connection
with the Loans evidenced hereby, (b) the maturity of the Obligations is
accelerated in whole or in part, or (c) all or part of the Obligations shall be
prepaid, so that under any of such circumstances the amount of interest
contracted for, shared or received in connection with the Loans evidenced
hereby, would exceed the Maximum Interest Rate, then in any such event (1) the
provisions of this Section 3.4 shall govern and control, (2) neither Borrower
nor any other person or entity now or hereafter liable for the payment of the
Obligations shall be obligated to pay the amount of such interest to the extent
that it is in excess of the Maximum Interest Rate, (3) any such excess which may
have been collected shall be either be applied as a credit against the then
unpaid principal amount of the Obligations or refunded to Borrower, at Lender's
option, and (4) the effective rate of interest shall be automatically reduced to
the Maximum Interest Rate. It is further agreed, without limiting the generality
of the foregoing, that to the extent permitted by the Applicable Usury Law, (x)
all calculations of interest which are made for the purpose of determining
whether such rate would exceed the Maximum Interest Rate shall be made by
amortizing, prorating, allocating and spreading during the period of the full
stated term of the Loans evidenced hereby, all interest at any time contracted
for, charged or received from Borrower or otherwise in connection with such
Loans; and (y) in the event that the effective rate of interest on the Loans
should at any time exceed the Maximum Interest Rate, such excess interest that
would otherwise have been collected had there been no ceiling imposed by the
Applicable Usury Law shall be paid to Lender from time to time, if and when the
effective interest rate on the Loans otherwise falls below the Maximum Interest
Rate, to the extent that interest paid to the date of calculation does not
exceed the Maximum Interest Rate, until the entire amount of interest which
would otherwise have been collected had there been no ceiling imposed by the
Applicable Usury Law has been paid in full. Borrower further agrees that should
the Maximum Interest Rate be increased at anytime hereafter because of a change
in the Applicable Usury Law, such increases shall apply to all indebtedness
evidenced hereby regardless of when incurred; but, again to the extent not
-3-
4
FINOVA LOAN AND SECURITY AGREEMENT
prohibited by the Applicable Usury Law, should the Maximum Interest Rate be
decreased because of a change in the Applicable Usury Law, such decreases shall
not apply to the indebtedness evidenced hereby regardless of when incurred.
4. COLLATERAL
4.1 Security Interest in the Collateral. To secure the payment and
performance of the Obligations when due, Borrower hereby grants to Lender a
first priority security interest in all of Borrower's now owned or hereafter
acquired or arising Inventory, Equipment, Receivables, Trademarks, Licenses, and
Patents and General Intangibles, including, without limitation, all of
Borrower's Deposit Accounts, Investment Property, money, any and all property
now or at any time hereafter in Lender's possession (including claims and credit
balances), and all proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties), all products and all
books and records related to any of the foregoing (all of the foregoing,
together with all other property in which Lender may be granted a lien or
security interest, is referred to herein, collectively, as the "Collateral").
4.2 Perfection and Protection of Security Interest. Borrower shall, at
Borrower's expense, take all actions requested by Lender at any time to perfect,
maintain, protect and enforce Lender's security interest and other rights in the
Collateral and the priority thereof from time to time, including, without
limitation, (i) executing and filing financing or continuation statements and
amendments thereof and executing and delivering such documents and titles in
connection with motor vehicles as Lender shall require, all in form and
substance satisfactory to Lender, (ii) maintaining a perpetual inventory and
complete and accurate stock records, (iii) delivering to Lender warehouse
receipts covering any portion of the Collateral located in warehouses and for
which warehouse receipts are issued, and transferring Inventory to warehouses
designated by Lender, (iv) placing notations on Borrower's books of account to
disclose Lender's security interest therein and (v) delivering to Lender all
letters of credit on which Borrower is named beneficiary. Lender may file,
without Borrower's signature, one or more financing statements disclosing
Lender's security interest under this Agreement. Borrower agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement. If any Collateral is
at any time in the possession, or control of any warehouseman, bailee or any of
Borrower's agents or processors, Borrower shall notify such Person of Lender's
security interest in such Collateral and, upon Lender's request, instruct them
to hold all such Collateral for Lender's account subject to Lender's
instructions. From time to time, Borrower shall, upon Lender's request, execute
and deliver confirmatory written instruments pledging the Collateral to Lender,
but Borrower's failure to do so shall not affect or limit Lender's security
interest or other rights in and to the Collateral. Until the Obligations have
been fully satisfied and. Lender's obligation to make further advances hereunder
has terminated, Lender's security interest in the Collateral shall continue in
full force and effect.
4.3 Preservation of Collateral. Lender may, in its sole discretion, at any
time discharge any lien or encumbrance on the Collateral or bond the same, pay
any insurance, maintain guards, pay any service bureau, obtain any record or
take any other action to preserve the Collateral and charge the cost thereof to
Borrower's loan account as an Obligation.
4.4 Insurance. Borrower shall maintain and deliver evidence to Lender of
such insurance as is required by Lender, written by insurers, in amounts, and
with lender's loss payee and other endorsements, satisfactory to Lender. All
premiums with respect to such insurance shall be paid by Borrower as and when
due. Accurate and complete copies of the policies shall be delivered by Borrower
to Lender. If Borrower fails to comply with this Section 4.4, Lender may (but
shall not be required to) procure such insurance at Borrower's expense and
charge the cost thereof to Borrower's loan account as an Obligation.
5. EXAMINATION OF RECORDS, FINANCIAL REPORTING.
5.1 Examinations. Lender shall at all reasonable times have full access to
and the right to examine, audit, make abstracts and copies from and inspect
Borrower's records, files, books of account and all other documents, instruments
and agreements relating to the Collateral and the right to check, test and
appraise the Collateral, Borrower shall deliver to Lender any instrument
necessary for Lender to obtain records from any service bureau maintaining
records for Borrower. All instruments and certificates prepared by Borrower
showing the value of any of the Collateral shall be accompanied, upon Lender's
request, by copies of related purchase orders and invoices. Lender may, at any
time after the occurrence of an Event of Default, remove from Borrower's
premises Borrower's books and records (or copies thereof) or require Borrower to
deliver such books and records or copies to Lender. Lender may, without expense
to Lender, use such of Borrower's personnel, supplies and premises as may be
reasonably necessary for maintaining or enforcing Lender's security interest.
5.2 Reporting Requirements. Borrower shall furnish Lender, upon request,
such information and statements as Lender shall request from time to time
regarding Borrower's business affairs, financial condition and the results of
its operations. Without limiting the generality of the foregoing, Borrower shall
provide Lender with: (i) copies of sales journals, cash receipts journals,
deposit slips and Lender's standard form collateral and loan reports, daily;
(ii) upon Lender's request, copies of sales invoices,
-4-
5
FINOVA LOAN AND SECURITY AGREEMENT
customer statements and credit memoranda issued, remittance advices and reports;
(iii) copies of shipping and delivery documents, upon request. (iv) on or prior
to the dates set forth on the Schedule, monthly agings (aged from invoice date)
and reconciliations of Receivables (with listings of concentrated accounts),
payables reports (including agings), inventory reports (including a perpetual
inventory listing) and unaudited financial statements with respect to the prior
month prepared on a basis consistent with such statements prepared in prior
months and otherwise in accordance with generally accepted accounting
principles, consistently applied; (v) audited annual financial statements,
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with the most recent Prepared Financials provided to Lender
by Borrower, with the unqualified report thereon of independent certified public
accountants acceptable to Lender, as soon as available, and in any event, within
one hundred and twenty (120) days after the end of each of Borrower's fiscal
years; (vi) an annual operating budget (including income statements, balance
sheets and cash flow statements by month) for the upcoming fiscal year, at least
thirty (30) days prior to the end of Borrower's fiscal year; (vii) such
certificates relating to the foregoing as Lender may request, including, without
limitation, a monthly certificate from the president and the chief financial
officer of Borrower showing Borrower's compliance with each of the financial
covenants set forth in this Agreement, and stating whether any Event of Default
has occurred or event which, with giving of notice or the passage of time, or
both, would constitute an Event of Default, and if so, the steps being taken to
prevent or cure such Event of Default, and (viii) a borrowing base report in
connection with and together with each request for an advance hereunder.
6. COLLATERAL REPORTING; INVENTORY
6.1 Invoices. Borrower shall not re-date any invoice or sale. from the
original date thereof or make sales on extended terms beyond those customary in
Borrower's industry, or otherwise extend or modify the term of any Receivable.
If Borrower becomes aware of any matter affecting any Receivable, including
information affecting the credit of the account debtor thereon, Borrower shall
promptly notify Lender in writing.
6.2 Instruments. In the event any Receivable is or becomes evidenced by a
promissory note, trade acceptance or any other instrument for the payment of
money, Borrower shall immediately deliver such instrument to Lender
appropriately endorsed to Lender and, regardless of the form of any presentment,
demand, notice of dishonor, protest or notice of protest with respect thereto,
Borrower shall remain liable thereon until such instrument is paid in full.
6.3 Physical Inventory. Borrower shall conduct a physical count of the
Inventory at such intervals as Lender requests and promptly supply Lender with a
copy of such accounts accompanied by a report of the value (calculated at the
lower of cost or market value on a first in, first out basis) of the Inventory
and such additional information with respect to the Inventory as Lender may
request from time to time.
6.4 Returns. For so long as no Event of Default has occurred and is
continuing and subject to the provisions of Section 9.2, if any account debtor
returns any Inventory to Borrower in the ordinary course of its business,
Borrower shall promptly determine the reason for such return and promptly issue
a credit memorandum to the account debtor (sending a copy to Lender if the
amount of such credit memorandum exceeds $25,000) in the appropriate amount. In
the event any attempted return occurs after the occurrence of any Event of
Default, Borrower shall (i) hold the returned Inventory in trust for Lender,
(ii) segregate all returned Inventory from all of its other property, (iii)
conspicuously label the returned Inventory as Lender's property and (iv)
immediately notify Lender of the return of any Inventory, specifying the reason
for such return, the location and condition of the returned Inventory, and on
Lender's request deliver such returned Inventory to Lender. Borrower shall not
consign any Inventory.
7. PRINCIPAL PAYMENTS, PROCEEDS OF COLLATERAL.
7.1 Principal Payments. Except where evidenced by notes or other instruments
issued or made by Borrower to Lender specifically containing payment provisions
which are in conflict with this Section 7.1 (in which event the conflicting
provisions of said notes or other instruments shall govern and control), that
portion of the Obligations consisting of principal payable on account of
Receivable Loans shall be payable by Borrower to Lender immediately upon the
earliest of (i) the receipt by Lender or Borrower of any proceeds of any of the
Collateral, to the extent of said proceeds, (ii) the occurrence of an Event of
Default in consequence of which Lender elects to accelerate the maturity and
payment of such loans, or (iii) any termination of this Agreement pursuant to
Section 16 hereof, provided, however, that any Overline shall be payable on
demand pursuant to the provisions of Section 1.3 hereof.
7.2 Collections. Until Lender notifies Borrower to the contrary, Borrower
may make collection of all Receivables for Lender and shall receive all payments
as trustee of Lender and immediately deliver all payments to Lender in their
original form as set forth below, duly endorsed in blank. Lender or its designee
may, at any time, notify account debtors that the Receivables have been assigned
to Lender and of Lender's security interest therein, and may collect the
Receivables directly and charge the collection costs and expenses to Borrower's
loan account. Borrower agrees that, in computing the charges under this
Agreement, all items of payment shall be deemed applied by Lender on account of
the Obligations one (1) Business Day after receipt by Lender of good funds which
have been finally credited to Lender's account, whether such funds are received
directly from Borrower or from the Blocked
-5-
6
FINOVA LOAN AND SECURITY AGREEMENT
Account bank or the Dominion Account bank, pursuant to Section 7.3, and this
provision shall apply regardless of the amount of the Obligations outstanding or
whether any Obligations are outstanding. Lender is not, however, required to
credit Borrower's account for the amount of any item of payment which is
unsatisfactory to Lender in its sole discretion and Lender may charge Borrower's
loan account for the amount of any item of payment which is returned to Lender
unpaid.
7.3 Establishment of a Lockbox Account or Dominion Account. All proceeds of
Collateral shall, at the direction of Lender, be deposited by Borrower into a
lockbox account, or such other "blocked account" as Lender may require (each, a
"Blocked Account") pursuant to an arrangement with such bank as may be selected
by Borrower and be acceptable to Lender. Borrower shall issue to any such bank
an irrevocable letter of instruction directing said bank to transfer such funds
so deposited to Lender, either to any account maintained by Lender at said bank
or by wire transfer to appropriate account(s) of Lender. All funds deposited in
a Blocked Account shall immediately become the sole property of Lender and
Borrower shall obtain the agreement by such bank to waive any offset rights
against the funds so deposited. Lender assumes no responsibility for any Blocked
Account arrangement, including without limitation, any claim of accord and
satisfaction or release with respect to deposits accepted by any bank
thereunder. Alternatively, Lender may establish depository accounts in the name:
of Lender at a bank or banks for the deposit of such funds (each, a "Dominion
Account") and Borrower shall deposit all proceeds of Receivables and all cash
proceeds of any sale of Inventory or, to the extent permitted herein, Equipment
or cause same to be deposited, in kind, in such Dominion Accounts of Lender in
lieu of depositing same to Blocked Accounts.
7.4 Payments Without Deductions. Borrower shall pay principal, interest, and
all other amounts payable hereunder, or under any related agreement, without any
deduction whatsoever, including, but not limited to, any deduction for any
setoff or counterclaim.
7.5 Collection Days Upon Repayment. In the event Borrower repays the
Obligations in full at any time hereafter, such payment in full shall be
credited (conditioned upon final collection) to Borrower's loan account one (1)
Business Day after Lender's receipt thereof.
7.6 Monthly Accountings. Lender shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications; of
payments made and correction of manifest error in calculation), unless Borrower
notifies Lender in writing to the contrary within sixty (60) days after each
account is rendered, describing the nature of any alleged errors or omissions.
7.7 Excess Cash Flow Prepayments. Until the Term Loans are paid in full,
Lender may deliver a notice to Borrower, such notice to be delivered within
thirty (30) days after the receipt by Lender of Borrower's audited financial
statements for any fiscal year of' Borrower, commencing with the fiscal quarter
ending December 31, 1997, requiring Borrower to make a prepayment to be applied
against the Term Loans, in an amount of up to fifty percent (50%) of Borrower's
Excess Cash Flow (the "Required Excess Cash Flow Payment") for the fiscal year
represented by such financial statements. Any prepayments required under this
Section 7.7 are strictly at the sole option of Lender. All payments required
hereunder shall be paid by Borrower within thirty (30) days following the
delivery by Lender of a written demand for such payment hereunder. Failure of
Lender to demand or require a Required Excess Cash Flow Payment with respect to
a particular fiscal year of Borrower or the failure of Lender to demand a
payment of the entire Required Excess Cash Flow Payment with respect to a
particular fiscal year of Borrower shall not constitute a waiver of Lender's
right to demand a payment of the entire Required Excess Cash Flow Payment for
any subsequent fiscal year of Borrower. All amounts paid pursuant to this
Section 7.7 shall be applied first against the outstanding principal balance of
Term Loan A, in the inverse order of the maturity of payments accruing under
Term Note A, until all amounts due under Term Note A have been paid in full, and
next against the outstanding principal balance of the Capex Note, in the inverse
order of the maturity of payments accruing under the Capex Note, until all
amounts due under the Capex Note have been paid in full. No fee or other form of
prepayment premium shall be applied to any payments required under this Section
7.7. No Termination Fee, Make Whole Premium or other form of prepayment premium
shall be applied to any payments made under this Section 7.7.
8. POWER OF ATTORNEY.
Borrower appoints Lender and its designees as Borrower's attorney, with the
power to endorse Borrower's name on any checks, notes, acceptances, money orders
or other forms of payment or security that come into Lender's possession; to
sign Borrower's name on any invoice or xxxx of lading relating to any
Receivable, on drafts against customers, on assignments of Receivables, on
notices of assignment, financing statements and other public records, on
verifications of accounts and on notices to customers or account debtors; to
send requests for verification of Receivables to customers or account debtors;
after the occurrence of any Event of Default, to notify the post office
authorities to change the address for delivery of Borrower's mail to an address
designated by Lender and to open and dispose of all mail addressed to Borrower,
and to do all other things Lender deems necessary or desirable to carry out the
terms of this Agreement. Borrower hereby ratifies and approves all acts of such
attorney. Neither Lender nor any of its designees shall be liable for any acts
or omissions
-6-
7
FINOVA LOAN AND SECURITY AGREEMENT
nor for any error of judgment or mistake of fact or law while acting as
Borrower's attorney. This power, being coupled with an interest, is irrevocable
until the Obligations have been fully satisfied and Lender's obligation to
provide loans hereunder shall have terminated.
9. RECEIVABLES.
9.1 Eligibility. Borrower represents and warrants that each Receivable
covers and shall cover a bona fide sale or lease and delivery by it of goods or
the rendition by it of services in the ordinary course of its business, and
shall be for a liquidated amount and Lender's security interest shall not be
subject to any offset. deduction, counterclaim, rights of return or
cancellation, lien or other condition. If any representation and warranty herein
is breached as to any Receivable or any Receivable ceases to be an Eligible
Receivable for any reason other than payment thereof, then Lender may, in
addition to its other rights hereunder, designate any and all Receivables owing
by that account debtor as not Eligible Receivables; provided, that Lender shall
in any such event retain its security interest in all Receivables, whether or
not Eligible Receivables, until the Obligations have been fully satisfied and
Lender's obligation to provide loans hereunder has terminated.
9.2 Disputes. Borrower shall notify Lender promptly of all disputes or
claims and settle or adjust such disputes or claims at no expense to Lender, but
no discount, credit or allowance shall be granted to any account debtor and no
returns of merchandise shall be accepted by Borrower without Lender's consent,
except for discounts, credits and allowances made or given in the ordinary
course of Borrower's business. Lender may, at any time after the occurrence of
an Event of Default, settle or adjust disputes or claims directly with account
debtors for amounts and upon terms which Lender considers advisable in its
reasonable credit judgment and, in all cases, Lender shall credit Borrower's
loan account with only the net amounts received by Lender in payment of any
Receivables.
10. EQUIPMENT.
Borrower shall keep and maintain the Equipment in good operating condition
and repair and make all necessary replacements thereto to maintain and preserve
the value and operating efficiency thereof at all times consistent with
Borrower's past practice, ordinary wear and tear excepted. Borrower shall not
permit any item of Equipment to become a fixture (other than a tirade fixture)
to real estate or an accession to other property.
11. OTHER LIENS NO DISPOSITION OF COLLATERAL
Borrower represents, warrants and covenants that (a) all Collateral is and
shall continue to be owned by it free and clear of all liens, claims and
encumbrances whatsoever (except for Lender's security interest, Permitted
Encumbrances, and such other liens, claims and encumbrances as may be permitted
by Lender in its sole discretion from time to time in writing), and (b) Borrower
shall not, without Lender's prior written approval, sell, encumber or dispose of
or permit the sale, encumbrance or disposal of any Collateral or any interest
of Borrower therein, except for (i) the sale of Inventory in the ordinary
course of Borrower's business and (ii) the sale or other disposition of
Equipment having a fair market value of less than $50.000 for any one (1) item
or $100,000 in the aggregate for all items in any one (1) FISCAL year. In the
event Lender gives any such prior written approval, the same may be conditioned
on the sale or disposition price being equal to, or greater than, an amount
acceptable to Lender. The proceeds of any such sale or disposition shall be
remitted to Lender pursuant to this Agreement for application to the
Obligations.
12. GENERAL REPRESENTATIONS AND WARRANTIES.
Except as set forth in the Disclosure Schedule attached hereto as Exhibit A
and incorporated herein by this reference, Borrower represents and warrants
that:
12.1 Due Organization. It is a corporation duly organized, validly existing
and in good standing under the laws of the State set forth on the Schedule, is
qualified and authorized to do business and is in good standing in all states in
which such qualification and good standing are necessary in order for it to
conduct its business and own its property, and has all requisite power and
authority to conduct its business as presently conducted, to own its property
and to execute and deliver each of the Loan Documents to which it is a party and
perform all of its Obligations thereunder, and has not taken any steps to
wind-up, dissolve or otherwise liquidate its assets;
12.2 Other Names. Borrower has not, during the preceding five (5) years,
been known by or used any other corporate or fictitious name except as set forth
on the Schedule, nor has Borrower been the surviving corporation of a merger or
consolidation or acquired all or substantially all of the assets of any person
during such time except as set forth on the Schedule.
12.3 Due Authorization. The execution, delivery and performance by Borrower
of the Loan Documents to which it is a party have been authorized by all
necessary corporate action and do not and shall not constitute a violation of
any applicable law or of Borrower's Articles or Certificate of Incorporation or
By-Laws or any other document, agreement or instrument to which Borrower is a
party or by which Borrower or its assets are bound;
12.4 Binding Obligation. Each of the Loan Documents to which Borrower is a
party is the legal, valid and binding obligation of Borrower enforceable against
it in accordance with its terms;
12.5 Intangible Property. Borrower possesses adequate assets, licenses,
patents, patent applications, copyrights, trademarks, trademark applications and
trade
-7-
8
FINOVA LOAN AND SECURITY AGREEMENT
names for the present and planned future conduct of its business without any
known conflict with the rights of others, and each is valid and has been duly
registered or flied with the appropriate domestic governmental authorities and
such foreign governmental authorities as Borrower deems necessary in the
exercise of Borrower's reasonable business judgment;
12.6 Capital. Borrower has capital sufficient to conduct its business, is
able to pay its debts as they mature, and owns property having a fair salable
value greater than the amount required to pay all of its debts (including
contingent debts);
12.7 Material Litigation. Borrower has no pending or overtly threatened
litigation, actions or proceedings which would materially and adversely affect
its business, assets, operations, prospects or condition, financial or
otherwise, or the Collateral or any of Lender's interests therein;
12.8 Title; Security Interests of Lender. Borrower has good, indefeasible
and merchantable title to the Collateral and, upon the filing of UCC-1 Financing
Statements and the recording of any mortgages or deeds of trust with respect to
real property, in each case in the appropriate offices, this Agreement and such
documents shall create valid and perfected first priority liens in the
Collateral, subject only to Permitted Encumbrances;
12.9 Restrictive Agreements: Labor Contracts. Borrower is not a party or
subject to any contract or subject to any charge, corporate restriction,
judgment, decree or order materially and adversely affecting its business,
assets, operations, prospects or condition, financial or otherwise, or which
restricts its right or ability to incur Indebtedness, and it is not party to any
labor dispute. In addition, no labor contract is scheduled to expire during the
Initial Term of this Agreement, except as disclosed to Lender in writing prior
to the date hereof,
12.10 Laws. Borrower is not in violation of any applicable statute,
regulation, ordinance or any order of any court, tribunal or governmental
agency, in any respect materially and adversely affecting the Collateral or its
business, assets, operations, prospects or condition. financial or otherwise;
12.11 Consents. Borrower has obtained or caused to be obtained or issued any
required consent of a governmental agency or other Person in connection with the
financing contemplated hereby;
12.12 Defaults. Borrower is not in default with respect to any note,
indenture, loan agreement, mortgage, lease, deed or other agreement to which it
is a party or by which it or its assets are bound, nor has any event occurred
which, with the giving of notice or the lapse of time, or both, would cause such
a default;
12.13 Financial Condition. The Prepared Financials fairly present Borrower's
financial condition and results of operations and those of such other Persons
described therein as of the date thereof, there are no material omissions from
the Prepared Financials or other facts or circumstances not reflected in the
Prepared Financials, and there has been no material and adverse change in such
financial conditions or operations since the date of the initial Prepared
Financials delivered to Lender hereunder other than those disclosed in
subsequent Prepared Financials;
12.14 ERISA. None of Borrower, any ERISA Affiliate, or any Plan is or has
been in violation of any of the provisions of ERISA, any of the qualification
requirements of IRC Section 401(a) or any of the published interpretations
thereunder, nor have Borrower or any ERISA Affiliate received any notice to such
effect. No notice of intent to terminate a Plan has been filed under Section
4041 of ERISA, nor has any Plan been terminated under ERISA. The PBGC has not
instituted proceedings to terminate, or appointed a trustee to administer, a
Plan. No lien upon the assets of Borrower has arisen with respect to a Plan. No
prohibited transaction or Reportable Event has occurred with respect to a Plan.
Neither Borrower nor any ERISA Affiliate has incurred any withdrawal liability
with respect to any Multiemployer Plan. Borrower and each ERISA Affiliate have
made all contributions required to be made by them to any Plan or Multiemployer
Plan when due. There is no accumulated funding deficiency in any Plan, whether
or not waived;
12.15 Taxes. Borrower has filed all tax returns and such other reports as it
is required by law to file and has paid or made adequate provision for the
payment on or prior to the date when due of all taxes, assessments and similar
charges that are due and payable;
12.16 Locations. Borrower's chief executive office and the offices and
locations where it keeps the Collateral (except for Inventory in transit) are at
the locations set forth on the Schedule, except to the extent that such
locations may have been changed after notice to Lender in accordance with
Section 13.5 below;
12.17 Business Relationships. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship between Borrower and any customer or any group of
customers whose purchases individually or in the aggregate are material to the
business of Borrower, or with any material supplier, and there exists no present
condition or state of facts or circumstances which would materially and
adversely affect Borrower or prevent Borrower from conducting such business
after the consummation of the transactions contemplated by this Agreement in
substantially the same manner in which it has heretofore been conducted; and
12.18 Reaffirmations. Each request for a loan made by Borrower pursuant to
this Agreement shall constitute (i) an automatic representation and warranty by
Borrower to Lender that there does not then exist any Event of Default
-8-
9
FINOVA LOAN AND SECURITY AGREEMENT
and (ii) a reaffirmation as of the date of said request of all of the
representations and warranties of Borrower contained in this Agreement and the
other Loan Documents.
13. AFFIRMATIVE COVENANTS.
Borrower covenants that, so long as any Obligation remains outstanding and
this Agreement is in effect, it shall:
13.1 Expenses. Borrower shall reimburse Lender for all costs, fees and
expenses incurred by Lender in connection with the negotiation, preparation,
execution, delivery, administration and enforcement of each of the Loan
Documents, including, but not limited to, the attorneys' and paralegals' fees of
in-house and outside counsel, lien, title search and insurance fees, appraisal
fees, all charges and expenses incurred in connection with any and all
environmental reports and environmental remediation activities, and all other
costs, expenses, taxes and filing or recording fees payable in connection with
the transactions contemplated by this Agreement including without limitation all
such costs, fees and expenses as Lender shall incur or for which Lender shall
become obligated in connection with (i) any inspection or verification of the
Collateral, (ii) any proceeding relating to the Loan Documents or the
Collateral, (iii) actions taken with respect to the Collateral and Lender's
security interest therein, including, without limitation, the defense or
prosecution of any action involving Lender and Borrower or any third party, (iv)
enforcement of any of Lender's rights and remedies with respect to the
Obligations or Collateral and (v) consultation with Lender's attorneys and
participation in any workout, bankruptcy or other insolvency or other proceeding
involving any Loan Party or any Affiliate, whether or not suit is filed.
Borrower shall also pay all Lender charges in connection with bank wire
transfers, forwarding of loan proceeds, deposits of checks and other items of
payment, returned checks, establishment and maintenance of lock boxes and other
blocked accounts, and all other bank and administrative matters, in accordance
with Lender's schedule of bank and administrative fees and charges in effect
from time to time.
13.2 Taxes. File all tax returns and pay or make adequate provision for the
payment of all taxes, assessments and other charges on or prior to the date when
due;
13.3 Notice of Litigation. Promptly notify Lender in writing of any
litigation, suit or administrative proceeding which may materially and adversely
affect the Collateral or Borrower's business, assets, operations, prospects or
condition, financial or otherwise, whether or not the claim is covered by
insurance, involving the amount of $50,000 or more in any one (1) matter or the
amount of $100,000 in the aggregate for all matters in any one (1) fiscal year;
13.4 ERISA. Notify Lender in writing (i) promptly upon the occurrence of any
event described in Paragraph 4043 of ERISA, other than a termination, partial
termination or merger of a Plan or a transfer of a Plan's assets and (ii) prior
to any termination, partial termination or merger of a Plan or a transfer of a
Plan's assets;
13.5 Change in Location. Notify Lender in writing forty-five (45) days prior
to any change in the location of Borrower's chief executive office or the
location of any Collateral, or Borrower's opening or closing of any other place
of business;
13.6 Corporate Existence. Maintain its corporate existence and its
qualification to do business and good standing in all states necessary for the
conduct of its business and the ownership of its property and maintain adequate
assets, licenses, patents, copyrights, trademarks and trade names for the
conduct of its business;
13.7 Labor Disputes. Promptly notify Lender in writing of any labor dispute
to which Borrower is or may become subject and the expiration of any labor
contract to which Borrower is a party or bound,
13.8 Violations of Law. Promptly notify Lender in writing of any violation
of any law, statute, regulation or ordinance of any governmental entity, or of
any agency thereof, applicable to Borrower which may materially and adversely
affect the Collateral or Borrower's business, assets, prospects, operations or
condition, financial or otherwise;
13.9 Defaults. Notify Lender in writing within five (5) Business Days of
Borrower's default under any note, indenture, loan agreement mortgage, lease or
other agreement to which Borrower is a party or bound, or of any other default
under any Indebtedness of Borrower,
13.10 Capital Expenditures. Promptly notify Lender in writing of the making
of Capital Expenditures exceeding the amount of $100,000 for any one (1) item or
$200,000 in the aggregate in any thirty (30) day period;
13.11 Books and Records. Keep adequate records and books of account with
respect to its business activities in which proper entries are made in
accordance with generally accepted accounting principles consistently applied,
reflecting all its financial transactions;
13.12 Leases, Warehouse Agreements. Provide Lender with (i) copies of all
agreements between Borrower and any landlord or warehouseman which owns any
premises at which any Collateral may, from time to time, be located, and (ii)
without limiting the landlord and mortgagee waivers to be provided pursuant to
Section 2. (j) above, landlord and mortgagee waivers in form acceptable to
Lender with respect to all locations where any Collateral is hereafter located.
13.13 Additional Documents. At Lender's request, promptly execute or cause
to be executed and delivered to Lender any and all documents, instruments or
agreements deemed necessary by Lender to facilitate the collection of the
Obligations or the Collateral or otherwise to give effect to or carry out the
terms or intent of this Agreement or any
-9-
10
FINOVA LOAN AND SECURITY AGREEMENT
of the other Loan Documents. Without limiting the generality of the foregoing,
if any of the Receivables with a face value in excess of $ 1,000.00 arises out
of a contract with the United States of America or any department, agency,
subdivision or instrumentality thereof, Borrower shall promptly notify Lender of
such fact in writing and shall execute any instruments and take any other action
required or requested by Lender to comply with the provisions of the Federal
Assignment of Claims; Act;
13.14 Financial Covenants. Comply with the financial covenants set forth on
the Schedule.
14. NEGATIVE COVENANTS.
Without Lender's prior written consent, which consent Lender may withhold in
its sole discretion, so long as any Obligation remains outstanding and this
Agreement is in effect, Borrower shall not: (a) Mergers. Merge or consolidate
with or acquire any other Person, or make any other material change in its
capital structure or in its business or operations which might adversely affect
the repayment of the Obligations; (b) Loans. Other than travel advances or loans
to Borrower's officers and employees not to exceed the amount outstanding at any
one time of $5,000 to any one (1) employee or $50,000 in the aggregate for all
employees, make advances, loans or extensions of credit to, or invest in, any
Person; (c) Dividends. Declare or pay cash dividends upon any of its stock or
distribute any of its property or redeem, retire, purchase or acquire directly
or indirectly any of its stock; (d) Adverse Transactions. Enter into any
transaction which materially and adversely affects the Collateral or its ability
to repay the Obligations in full as and when due; (e) Indebtedness of Others.
Become directly or contingently liable for the Indebtedness of any Person,
except by endorsement of instruments for deposit; (f) Repurchase. Make a sale to
any customer on a xxxx-and-hold, guaranteed sale, sale and return, sale on
approval, consignment, or any other repurchase or return basis; (g) Name. Use
any corporate or fictitious name other than its corporate name as set forth in
its Articles or Certificate of Incorporation on the date hereof or the Schedule;
(h) Prepayment. Prepay any Indebtedness other than trade payables and other than
the Obligations; (i) Capital Expenditure. Make or incur any Capital Expenditure
if, after giving effect thereto, the aggregate amount of all Capital
Expenditures by Borrower in any fiscal year would exceed the amount set forth on
the Schedule; (j) Compensation. Pay total compensation, including salaries,
withdrawals, fees, bonuses, commissions, drawing accounts and other payments,
whether directly or indirectly, in money or otherwise, during any fiscal year to
all of Borrower's executives, officers and directors (or any relative thereof)
in an amount in excess of the amount set forth on the Schedule; (k)
Indebtedness. Create, incur, assume or permit to exist any Indebtedness
(including Indebtedness in connection with Capital Leases) in excess of the
amount set forth on the Schedule, other than (i) the Obligations, (ii) trade
payables and other contractual obligations to suppliers and customers incurred
in the ordinary course of business, and (iii) other Indebtedness existing on the
date of this Agreement and reflected in the Prepared Financials (other than
Indebtedness paid on the date of this Agreement from proceeds of the initial
advances hereunder); (1) Affiliate Transactions. Except as set forth below,
sell, transfer, distribute or pay any money or property to any Affiliate, or
invest in (by capital contribution or otherwise) or purchase or repurchase any
stock or Indebtedness, or any property, of any Affiliate, or become liable on
any guaranty of the indebtedness, dividends or other obligations of any
Affiliate. Notwithstanding the foregoing, Borrower may pay compensation
permitted by Section 140) to employees who are Affiliates and, if no Event of
Default has occurred, Borrower may engage in transactions with Affiliates in the
normal course of business, in amounts and upon terms which are fully disclosed
to Lender and which are no less favorable to Borrower than would be obtainable
in a comparable arm's length transaction with a Person who is not an Affiliate;
(m) Nature of Business. Enter into any new business or make any material change
in any of Borrower's business objectives, purposes and operations; (n) Lender's
Name. Use the name of Lender in connection with any of Borrower's business or
activities, except in connection with internal business matters or as required
in dealings with governmental agencies and financial institutions or with trade
creditors of Borrower, solely for credit reference purposes, or (o) Margin
Security. Own, purchase or acquire (or enter into any contract to purchase or
acquire) any "margin security" as defined by any regulation of the Federal
Reserve Board as now in effect or as the same may hereafter be in effect.
15 ENVIRONMENTAL MATTERS.
15.1 Definitions. The following definitions apply to the provisions of this
Section 15: (i) The term "Applicable Law" shall include, but shall not be
limited to, each statute named or referred to in this Section 15.1 and all rules
and regulations thereunder, and any other local, state and/or federal laws,
rules, regulations or ordinances, whether currently in existence or hereafter
enacted, which govern, to the extent applicable to the Property or to Borrower,
(a) the existence, cleanup and/or remedy of contamination on real property, (b)
the protection of the environment from soil, air or water pollution, or from
spilled, deposited or otherwise emplaced contamination; (c) the emission or
discharge of hazardous substances into the environment, (d) the control of
hazardous wastes; or (e) the use, generation, transport, treatment, removal or
recovery of Hazardous Substances. (ii) The term "Hazardous Substance" shall mean
(a) any oil, flammable substance, explosives, radioactive materials, hazardous
wastes or substances, toxic wastes or substances or any other wastes, materials
or pollutants which (i) pose a hazard to the Property or to persons on or about
the Property or (ii) cause the Property to be in violation of any Applicable
Law; (b) asbestos in any form which is or could become friable, urea
-10-
11
FINOVA LOAN AND SECURITY AGREEMENT
formaldehyde foam insulation, transformers or other equipment which contain
dielectric fluid containing levels of polychlorinated biphenyls, or radon gas;
(c) any chemical, material or substance defined as or included in the definition
of "hazardous substances," "waste," "hazardous wastes," "hazardous materials,"
"extremely hazardous waste," "restricted hazardous waste," or "toxic substance"
or words of similar import under any Applicable Law, including, but not limited
to, the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), 42 USC Sections 9601 et seg.; the Resource Conservation and
Recovery Act ("RCRA"), 42 USC Sections 690V et seq.; the Hazardous
Materials Transportation Act, 49 USC Sections 1801 et seg., and the
Federal Water Pollution Control Act, 33 USC Sections 1251 et seg.; (d) any
other chemical, material or substance, exposure to which is prohibited, limited
or regulated by any governmental authority which may or could pose a hazard to
the health or safety of the occupants of the Property or the owners and/or
occupants of property adjacent to or surrounding the Property, or any other
person coming upon the Property or adjacent property; and (e) any other
chemical, materials or substance which may or could pose a hazard to the
environment. (iii) The term "Property" shall mean all real property, wherever
located, in which Borrower or any Affiliate of Borrower has any right, title or
interest, whether now existing or hereafter arising, and including, without
limitations as owner, lessor or lessee.
15.2 Covenants and Representations. Borrower represents and warrants that
there have not been during the period of Borrower's possession of any interest
in the Property and, to the best of its knowledge after reasonable inquiry,
there have not been at any other times, any activities on the Property
involving, directly or indirectly, the use, generation, treatment, storage or
disposal of any Hazardous Substances except in compliance with Applicable Law
(a) under, on or in the land included the Property, whether contained in soil,
tanks, sumps, ponds, lagoons, barrels, cans or other containments, structures or
equipment, (b) incorporated in the buildings, structures or improvements
included in the Property, including any building material containing asbestos,
or (c) used in connection with any operations on or in the Property. Without
limiting the generality of the foregoing and to the extent not included within
the scope of this Section 15.2, Borrower represents and warrants that it is in
full compliance with Applicable Law and has received no notice from any person
or any governmental agency or other entity of any violation by Borrower or its
Affiliates of any Applicable Law. Borrower shall be solely responsible for and
agrees to indemnity Lender, protect and defend with counsel reasonably
acceptable to Lender, and hold Lender harmless from and against any claims,
actions, administrative proceedings, judgments, damages, punitive damages,
penalties, fines, costs, liabilities (including sums paid in settlements of
claims), interest or losses, attorneys' fees (including any fees and expenses
incurred in enforcing this indemnity), consultant fees, expert fees, and other
out-of-pocket costs or expenses actually incurred by Lender (collectively, the
"Environmental Costs"), that may, at any time or from time to time, arise
directly or indirectly from or in connection with: (a) the presence, suspected
presence, release or suspected release of any Hazardous Substance whether into
the air, soil, surface water or groundwater of or at the Property, or any other
violation of Applicable Law, or (b) any breach of the foregoing representations
and covenants; except to the extent any of the foregoing result from the actions
of Lender, its employees, agents and representatives. All Environmental Costs
incurred or advanced by Lender shall be deemed to be made by Lender in good
faith and shall constitute Obligations hereunder.
16 TERM, TERMINATION.
16.1 Term. The initial term of this Agreement shall be as set forth on the
Schedule (the "Initial Term") and shall be automatically renewed for successive
periods of one (1) year (each, a "Renewal Term") unless earlier terminated as
provided herein.
16.2 Prior Notice. Each party shall have the right to terminate this
Agreement at the end of the Initial Term or at the end of any Renewal Term by
giving the other party written notice not less than sixty (60) days prior to the
effective date of such termination, by registered or certified mail.
16.3 Payment in Full. Upon the effective date of termination, the
Obligations shall become immediately due and payable in full in cash.
16.4 Early Termination; Termination Fee. In addition to the procedure set
forth in Section 16.2, Borrower may terminate this Agreement at any time but
only upon sixty (60) days prior written notice and prepayment of the
Obligations. Upon any such early termination by Borrower or any termination of
this Agreement by Lender upon the occurrence of an Event of Default, then, and
in any such event, Borrower shall pay to Lender upon the effective date of such
termination a fee (the "Termination Fee") in an amount equal to the amount shown
on the Schedule.
17. DEFAULT.
17.1 Events of Default. Any one or more of the following events shall
constitute an Event of Default under this Agreement:
(i) Borrower fails to pay when due and payable any portion of the
Obligations at stated maturity, upon acceleration or otherwise;
(ii) Unless such Obligation is specifically dealt with elsewhere in this
Section 17. 1, Borrower or any other Loan Party fails or neglects to perform,
keep, or observe any Obligation including, but not limited to, any term,
provision, condition, covenant or agreement contained in any Loan Document to
which such Loan Party is a party,
-11-
12
FINOVA LOAN AND SECURITY AGREEMENT
unless such failure or neglect is cured within fifteen (15) days after Lender
has given notice to Borrower, in accordance with Section 19.13 hereof, of such
failure or neglect;
(iii) Any material adverse change occurs in Borrower's business, assets,
operations or condition, financial or otherwise;
(iv) The prospect of repayment of an, portion of the Obligations or the
value or priority of Lender's security interest in the Collateral is materially
impaired;
(v) Any material portion of Borrower's assets is seized, attached, subjected
to a writ or distress warrant, is levied upon or comes into the possession of
any judicial officer,
(vi) Borrower shall generally not pay its debts as they become due or shall
enter into any agreement (whether written or oral), or offer to enter into any
agreement, with all or a significant number of its creditors regarding any
moratorium or other indulgence with respect to its debts or the participation of
such creditors or their representatives in the supervision, management or
control of the business of Borrower,
(vii) Any bankruptcy or other insolvency proceeding is commenced by
Borrower, or any such proceeding is commenced. against Borrower and remains
undischarged or unstayed for forty-five (45) clays;
(viii) Any notice of lien, levy or assessment is filed of record with
respect to any of Borrower's assets unless such lien, levy or assessment which
is the subject of such notice is paid in full, bonded over or stayed in a manner
acceptable to Lender within the earlier of thirty (30) days following filing of
such notice or twenty (20) days before the holder of such lien, levy or
assessment is legally entitled to realize upon the same;
(ix) Any judgments are entered against Borrower in an aggregate amount
exceeding $25,000 unless such judgments are paid in full, bonded over or stayed
in a manner acceptable to Lender within the earlier of thirty (30) days
following the entry of any judgment or twenty (20) days before the holder of any
judgment is legally entitled to realize upon the same;
(x) Any default shall have occurred under any material agreement between
Borrower and any third party including, without limitation, any default which
would result in a right by such third party to accelerate the maturity of any
Indebtedness of Borrower to such third party, and the period to cure such
default, if any, shall have passed;
(xi) Any representation or warranty made or deemed to be made by Borrower,
any Affiliate or any other Loan Party in any Loan Document or any other
statement, document or report made or delivered to Lender in connection
therewith shall prove to have been misleading in any material respect;
(xii) Any Guarantor dies, terminates or attempts to terminate its Guaranty
or becomes subject to any bankruptcy or other insolvency proceeding;
(xiii) Any Prohibited Transaction or Reportable Event shall occur with
respect to a Plan which could have a material adverse effect on the financial
condition of Borrower; any lien upon the assets of Borrower in connection with
any Plan shall arise; Borrower or any of its ERISA Affiliates shall fail to make
full payment when due of all amounts which Borrower or any of its ERISA
Affiliates may be required to pay to any Plan or any Multiemployer Plan as one
or more contributions thereto; Borrower or any of its ERISA Affiliates creates
or permits the creation of any accumulated funding deficiency, whether or not
waived; or
(xiv) The Control Group owns, on a fully-diluted basis, less than sixty-five
percent (65.0%) of the issued and outstanding shares of common stock or other
evidence of ownership of Borrower.
(xv) Borrower fails or neglects to perform, keep or observe Borrower's
obligations under Section 5.2 hereof and such failure continue for a period of
five (5) days; provided, however, that Borrower shall be entitled to take
advantage of the foregoing five (5) day grace period only five (5) times within
any calendar year and in the event Borrower fails to timely perform its
obligations under Section 5.2 hereof more than five (5) times during any
calendar year, such failure shall be governed by the provisions of Section 17.
I(xvi); or
(xvi) Borrower fails or neglects to perform, keep or observe the Obligations
set forth in Sections 4.2, 4.4, 5.1, 5.2 (subject to Section 17. 1(xv)), 13.6,
13.9., 13.14, or in Article 14 hereof.
17.2 Remedies. Upon the occurrence of an Event of Default, Lender may, at
its option and in its sole discretion and in addition to all of its other rights
under the Loan Documents, terminate this Agreement and declare all of the
Obligations to be immediately payable in full. Borrower agrees that Lender shall
also have all of its rights and remedies under applicable law, including,
without limitation, the default rights and remedies of a secured party under the
Code, and upon the occurrence of an Event of Default, Borrower hereby consents
to the appointment of a receiver by Lender in any action initiated by Lender
pursuant to this Agreement and to the jurisdiction and venue set forth in
Section 19.7, and Borrower waives notice and posting of a bond in connection
therewith. Further, Lender may, at, any time, take possession of the Collateral
and keep it on Borrower's premises, at no cost to Lender, or remove any part of
it to such other place(s) as Lender may desire or Borrower shall, upon Lender's
demand, at Borrower's sole cost, assemble the Collateral and make it available
to Lender at a place reasonably convenient to
-12-
13
FINOVA LOAN AND SECURITY AGREEMENT
Lender and Lender may sell and deliver any Collateral at public or private
sales, for cash, upon credit or otherwise, at such prices and upon such terms as
Lender deems advisable, at Lender's discretion, and may, if Lender deems it
reasonable, postpone or adjourn any sale of the Collateral by an announcement at
the time and place of sale or of such postponed or adjourned sale without giving
a new notice of sale. Borrower agrees that Lender has no obligation to preserve
rights to the Collateral or marshal any Collateral for the benefit of any
Person. Lender is hereby granted a license or other right to use, without
charge, Borrower's labels, patents, copyrights, name, trade secrets, trade
names, trademarks and advertising matter, or any similar property, in completing
production, advertising or selling any Collateral and Borrower's rights under
all licenses and all franchise agreements shall inure to Lender's benefit. Any
requirement of reasonable notice shall be met if such notice is mailed postage
prepaid to Borrower at its address set forth in the heading to this Agreement at
least five (5) days before sale or other disposition. The proceeds of sale shall
be applied, first, to all attorneys fees and other expenses of sale, and second,
to the Obligations in such order as Lender shall elect, in its sole discretion.
Lender shall return any excess to Borrower and Borrower shall remain liable for
any deficiency to the fullest extent permitted by law.
17.3 Standards for Determining Commercial Reasonableness. Borrower and
Lender agree that the following conduct by Lender with respect to any
disposition of Collateral shall conclusively be deemed commercially reasonable
(but other conduct by Lender, including, but not limited to, Lender's use in its
sole discretion of other or different times, places and manners of noticing and
conducting any disposition of Collateral shall not be deemed unreasonable): Any
public or private disposition as to which on no later than the fifth calendar
day prior thereto written notice thereof is mailed or personally delivered to
Borrower and, with respect to any public disposition, on no later than the fifth
calendar day prior thereto notice thereof describing in general nonspecific
terms, the Collateral to be disposed of is published once in a newspaper of
general circulation in the county where the sale is to be conducted. The public
disposition shall be at any place designated by Lender, with or without the
Collateral being present, and which commences at any time between 8:00 a.m. and
5:00 p.m. (provided that no notice of any public or private disposition need be
given to the Borrower if the Collateral is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market).
Without limiting the generality of the foregoing, Borrower expressly agrees
that, with respect to any disposition of accounts, instruments and general
intangibles, it shall be commercially reasonable for Lender to direct any
prospective purchaser thereof to ascertain directly from Borrower any and all
information concerning the same, including, but not limited to, the terms of
payment aging and delinquency, if any, the financial condition of any obligor or
account debtor thereon or guarantor thereof, and any collateral therefor.
18. DEFINITIONS.
18.1 Defined Terms. As used in this Agreement, the following terms have the
definitions set forth below:
"Additional Sums" has the meaning set forth in Section 3.4 above.
"Affiliate" means any Person controlling, controlled by or under common control
with Borrower. For purposes of this definition, "control" means the possession,
directly or indirectly, of the power to direct or cause direction of the
management and policies of Borrower, whether through ownership of common or
preferred stock or other equity interests, by contract or otherwise. Without
limiting the generality of the foregoing, each of the following shall be an
Affiliate: any officer, director, employee or other agent of Borrower, any
shareholder or subsidiary of Borrower, and any other Person with whom or which
Borrower has common shareholders, officers or directors.
"Blocked Account" has the meaning given to it in Section 7.3 above.
"Capital Expenditures" means all expenditures made and liabilities incurred for
the acquisition of any fixed asset or improvement, replacement, substitution or
addition thereto which has a useful life of more than one year and including,
without limitation, those arising in connection with Capital Leases.
"Capital Lease" means any lease of property by Borrower that, in accordance with
generally accepted accounting principles, should be capitalized for financial
reporting purposes and reflected as a liability on the balance sheet of
Borrower.
"Closing" means the initial advance made by Lender pursuant to this Agreement.
"Closing Date" means the date of the Closing.
"Code" means the Uniform Commercial Code as adopted, amended, and in effect in
the State of Arizona, from time to time.
"Collateral" has the meaning set forth in Section 4.1 above.
"Collateral Assignments" means, collectively, (a) that certain Collateral
Assignment of Trademarks, Licenses and Patents and Security Agreement, of even
date herewith, between Borrower and Lender and (b) that certain Collateral
Assignment of Trademarks, Licenses and Patents and Security Agreement, of even
date herewith, between Borrower and Lender and (b) that certain Collateral
Assignment of Trademarks, Licenses and Patents and Security Agreement, of even
date herewith, between Rockford Europe Elektronik Vertriebs GmBH and Lender.
"Control Group" means, collectively, Borrower's employees as of the date hereof,
3G, W. Xxxx Xxxxxx and Xxxxxx.
-13-
14
FINOVA LOAN AND SECURITY AGREEMENT
"Current Assets" at any date means the amount at which the current assets of
Borrower would be shown on a balance sheet of Borrower as at such date, prepared
in accordance with generally accepted accounting principles, provided that
amounts due from Affiliates and investments in Affiliates shall be excluded
therefrom.
"Current Liabilities" at any date means the amount at which the current
liabilities of Borrower would be shown on a balance sheet of Borrower as at such
date, prepared in accordance with generally accepted accounting principles.
"Default" means an event which, with passage of time or giving of notice, or
both, would constitute an Event of Default.
"Deposit Accounts" has the meaning set forth in Section 47-9105 of the Code.
"Discounted Value" shall refer to the amount determined by discounting the
Remaining Scheduled Payment Amounts (based on the amortization schedule
applicable to the Term Loan being prepaid) from their respective due dates to
the date of a prepayment of the applicable Term Loan, in accordance with
accepted financial practice and at a discount factor equal to the Reinvestment
Yield.
"Dominion Account" has the meaning given to it in Section 7.3 above.
"Earnings Before Interest, Taxes, Depreciation and Amortization" (or "EBITDA")
for any fiscal period of Borrower means the net income of Borrower for such
fiscal period, plus interest expense, depreciation, amortization and other
non-cash expenses and provision for income taxes for such fiscal period, and
minus nonrecurring miscellaneous income and expenses, all calculated in
accordance with generally accepted accounting principles, consistently applied.
"Eligible Inventory" means Inventory which Lender, in its sole judgment, deems
Eligible Inventory, based on such considerations as Lender may from time to time
deem appropriate. Without limiting the generality of the foregoing, no Inventory
shall be Eligible Inventory unless, in Lender's sole judgment, such Inventory
(i) consists of finished goods or raw materials, in good, new and salable
condition which are not obsolete or unmerchantable, and are not comprised of
work in process, packaging and shipping materials or supplies, and are not
slow-moving, obsolete or held on consignment or held by outside processors, and
are not xxxx and hold goods, custom items or returned and/or defective goods;
(ii) meets all standards imposed by any governmental agency or authority; (iii)
conforms in all respects to the warranties and representations set forth herein;
(iv) is at all times subject to Lender's duly perfected, first priority security
interest; and (v) is situated at a location in compliance with Section 12.16
hereof
"Eligible Receivables" means Receivables which Lender, in its sole judgment,
shall deem eligible based on such considerations as Lender may from time to time
deem appropriate. Without limiting the foregoing, a Receivable shall not be
deemed to be an Eligible Receivable if (i) the account debtor has failed to pay
the Receivable within a period of one hundred and twenty (120) days after
invoice date, to the extent of any amount remaining unpaid after such period,
(ii) the account debtor has failed to pay more than twenty-five percent (25.0%)
of all outstanding Receivables owed by it to Borrower within one hundred and
twenty (120) days after invoice date; (iii) the account debtor is an Affiliate
of Borrower, (iv) the goods relating thereto are placed on consignment,
guaranteed sale, "xxxx and hold" or other terms pursuant to which payment by the
account debtor may be conditional; (v) the account debtor is not located in the
United States, unless the Receivable is supported by foreign credit insurance, a
letter of credit or other form of guaranty or security, in each case in form and
substance satisfactory to, and in the possession of, Lender, (vi) the account
debtor is the United States or any department, agency or instrumentality thereof
(unless such Receivable is subject to Lender's first priority security interest
and is otherwise properly assigned to Lender pursuant to the Assignment of
Claims Act of 1940, 31 U.S.C. Section 3727 et seq., as amended), or any State,
city or municipality of the United States; (vii) Borrower is or may become
liable to the account debtor for goods sold or services rendered by the account
debtor to Borrower; (viii) the account debtor's total obligations to Borrower
exceed fifteen percent (15.0%) of all Eligible Receivables, to the extent of
such excess; (ix) the account debtor disputes liability or makes any claim with
respect thereto (up to the amount of such liability or claim), or is subject to
any insolvency or bankruptcy proceeding, or becomes insolvent, fails or goes out
of a material portion of its business; (x) the amount thereof consists of late
charges or finance charges; (xi) the face amount thereof exceeds $100,000,
unless accompanied by evidence of shipment of the goods relating thereto
satisfactory to Lender in its sole discretion; or (xii) the Receivable is a
"cash on delivery" (or "C.O.D.") account.
"Equipment" means all of Borrower's present and hereafter acquired machinery,
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"ERISA" means the Employment Retirement Income Security Act of 1974, as amended,
and the regulations thereunder.
"ERISA Affiliate" means each trade or business (whether or not incorporated and
whether or not foreign) which is or may hereafter become a member of a group of
which
-14-
15
FINOVA LOAN AND SECURITY AGREEMENT
Borrower is a member and which is treated as a single employer under ERISA
Section 4001(b)(1), or IRC Section 414.
"Event of Default" means any of the events set forth in Section 17.1 of this
Agreement.
"Fixed Asset Loans" has the meaning set forth on the Schedule.
"General Intangibles" means all general intangibles of Borrower, whether now
owned or hereafter created or acquired by Borrower, including, without
limitations all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Lender, rights to purchase or sell
real or personal property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including without limitation credit, liability,
property and other insurance), tax refunds and claims, computer programs, discs,
tapes and tape files, claims under guaranties, security interests or other
security held by or granted to Borrower to secure payment of any of the
Receivables by an account debtor, all rights to indemnification and all other
intangible property of every kind and nature (other than Receivables).
"Guarantors" means the persons set forth on the Schedule.
"Guaranty" means individually and collectively, that certain Continuing Guaranty
of even date herewith from Guarantor in favor of Lender in a form acceptable to
Lender.
"Indebtedness" means all of Borrower's present and future obligations,
liabilities, debts, claims and indebtedness, contingent fixed or otherwise,
however evidenced, created, incurred, acquired, owing or arising, whether under
written or oral agreement, operation of law or otherwise, and includes, without
limiting the foregoing (i) the Obligations, (ii) obligations and liabilities of
any Person secured by a lien, claim, encumbrance or security interest upon
property owned by Borrower, even though Borrower has not assumed or become
liable therefor, (iii) obligations and liabilities created or arising under any
lease (including Capital Leases) or conditional sales contract or other title
retention agreement with respect to property used or acquired by Borrower, even
though the rights and remedies of the lessor, seller or lender are limited to
repossession, (iv) all unfunded pension fund obligations and liabilities, (v)
deferred taxes, (vi) indebtedness to Subordinating Creditors and (vii) so called
"off-balance sheet" obligations with respect to Equipment financing.
"Initial Term" has the meaning set forth on the Schedule.
"Inventory" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease, all raw materials, work in
process, finished goods and materials and supplies of any kind, nature or
description which are or might be used or consumed in Borrower's business or
used in connection with the manufacture, packing, shipping, advertising, selling
or finishing of such goods, merchandise or other personal property, and all
documents of title or other documents representing them.
"Inventory Loans" has the meaning set forth on the Schedule.
"Investment Property" has the meaning given to it in the Code.
"IRC" means the Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
"Loan Documents" means, collectively, this Agreement, the Guaranty, the Support
Agreement, the Collateral Assignments, the Subordination Agreement, the Rate Cap
Agreement, the Powers of Attorney, any note or notes executed by Borrower and
payable to Lender, and any other agreement entered into in connection with this
Agreement, such security agreements, intellectual property assignments and
mortgages as Lender may require with respect to this Agreement or the Guaranty,
together with all alterations, amendments, changes, extensions, modifications,
refinancings, refundings, renewals, replacements, restatements, or supplements,
of or to any of the foregoing.
"Loan Party" means Borrower, each Guarantor, each Subordinating Creditor and
each other party (other than Lender) to any Loan Document.
"Make Whole Premium" shall equal the excess, if any, of (a) the Discounted Value
immediately prior to any prepayment of that portion of the Term Loan which is
being prepaid over (b) the principal balance of the Term Loan being prepaid as
of the date of any such prepayment. Expressed mathematically, the difference, if
greater than zero, arising when the amount determined pursuant to clause (b) of
the preceding sentence is subtracted from the amount determined pursuant to
clause (a) of the preceding sentence.
"Multiemplover Plan" means a "multiemployer plan" as defined in ERISA Sections
3(37) or 4001(a)(3) or IRC Section 414(f) which covers employees of Borrower or
any ERISA Affiliate.
"Net Worth" at any date means the Borrower's net worth as determined in
accordance with generally accepted accounting principles, consistently applied.
"Obligations" means all present and future loans, advances, debts, liabilities,
obligations, covenants, duties and
-15-
16
FINOVA LOAN AND SECURITY AGREEMENT
indebtedness at any time owing by Borrower to Lender, whether evidenced by this
Agreement any note or other instrument or document, whether arising from an
extension of credit, opening of a letter of credit, banker's acceptance, loan,
guaranty, indemnification or otherwise, whether direct or indirect (including,
without limitation, those acquired by assignment and any participation by Lender
in Borrower's debts owing to others), absolute or contingent, due or to become
due, including, without limitation, all interest, charges, expenses, fees,
attorney's fees, expert witness fees, examination fees, letter of credit fees,
collateral monitoring fees, closing fees, facility fees, Termination Fees,
Unused Line Fees and any other sums chargeable to Borrower hereunder or under
any other agreement with Lender.
"Operating Cash Flow - Actual" means, for any period, Borrower's consolidated
net income or loss (excluding the effect of any extraordinary gains or losses
from sales of property not in the ordinary course of business), determined in
accordance with generally accepted accounting principles, plus each of the
following items to the extent deducted from the revenues of Borrower in the
calculation of net income or loss: (i) depreciation; (ii) amortization; (iii)
interest expense paid, (iv) income taxes accrued; (v) depletion; and (vi) other
non-cash expense; less (i) income taxes paid; (ii) other non-cash income; and
(iii) all actual Capital Expenditures made during such period.
"Operating Cash Flow - Permitted" means, for any period, Borrower's consolidated
net income or loss (excluding the effect of any extraordinary gains or losses
from sales of property not in the ordinary course of business), determined in
accordance with generally accepted accounting principles, plus each of the
following to the extent deducted from the revenue of Borrower in the calculation
of net income or loss: (i) depreciation; (ii) amortization; (iii) interest
expense paid; (iv) income taxes accrued; (v) depletion; and (vi) other non-cash
expense; less (i) income taxes paid; (ii) other non-cash income; and (iii) all
permitted Capital Expenditures made during such period (without regard to any
waiver given by Lender as to the limitation on Capital Expenditures set forth in
Article 14).
"Overlines" has the meaning set forth in Section 1.3.
"PBGC" means the Pension Benefit Guarantee Corporation.
"Permitted Encumbrance" means each of the liens, mortgages and other security
interests set forth on the Schedule and incorporated herein by this reference.
"Person" means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, government, or any
agency or political division thereof, or any other entity.
"Plan" means any plan described in ERISA Section 3(2) maintained for employees
of Borrower or any ERISA Affiliate, other than a Multiemployer Plan.
"Powers of Attorney" means one or more powers of attorney of even date herewith,
executed by Borrower in favor of Lender with respect to any part of the
Collateral.
"Prepared Financials" means the balance sheets of Borrower as of the date set
forth in the Schedule, and as of each subsequent date on which audited balance
sheets are delivered to Lender from time to time hereunder, and the related
statements of operations, changes in stockholder's equity and changes in cash
flow for the periods ended on such dates.
"Prohibited Transaction" means any transaction described in Section 406 of ERISA
which is not exempt by reason of Section 408 of ERISA, and any transaction
described in Section 4975(c) of the IRC which is not exempt by reason of Section
4975(c)(2) of the IRC.
"Rate Cap Agreement" has the meaning set forth in Section 2. I(o) of this
Agreement.
"Receivable Loans" has the meaning set forth on the Schedule.
"Receivables" means all of Borrower's now owned and hereafter acquired accounts
(whether or not earned by performance), proceeds of any letters of credit naming
Borrower as beneficiary, contract rights, chattel paper, instruments, documents
and all other forms of obligations at any time owing to Borrower, all guaranties
and other security therefor, whether secured or unsecured, all merchandise
returned to or repossessed by Borrower, and all rights of stoppage in transit
and all other rights or remedies of an unpaid vendor, lienor or secured party.
"Reinvestment Yield" means the rates shown under the column heading "Ask Yld."
for "Govt. Bonds & Notes" in the "Treasury Bonds, Notes & Bills" Section of The
Wall Street Journal - Western Edition published on the Business Day prior to the
date of an, proposed prepayment of the Term Loan for the government bond or note
with a maturity date having the closest matching maturity to the Weighted
Average Life to Maturity, or, if there are more than one government bonds or
notes with a maturity date having the closest matching maturity to the Weighted
Average Life to Maturity, the highest of the rates shown in the "Ask Yld."
column for any such bond or note.
"Remaining Scheduled Payment Amount" means the amount of each scheduled payment
of principal of and interest on a Term Loan being prepaid that would be due on
or after the date of a prepayment of such Term Loan if no payment of such Term
Loan were made prior to its scheduled due date.
"Renewal Term" has the meaning set forth on the Schedule.
"Reportable Event" means a reportable event described in Section 4043 of ERISA
or the regulations thereunder, a withdrawal from a Plan described in Section
4063 of ERISA, or a cessation of operations described in Section 4068(f) of
ERISA.
-16-
17
FINOVA LOAN AND SECURITY AGREEMENT
"Schedule" has the meaning given to it in Section 1.1 above.
"Senior Contractual Debt Service" means, for any period, the sum of payments
made or required to be made by Borrower during such period for interest and
scheduled principal payments due on the Indebtedness owed to Lender.
"Subordinated Debt" means liabilities of Borrower the repayment of which is
subordinated, to the payment and performance of the Obligations, pursuant to a
subordination agreement on Lender's standard form.
"Subordinating Creditor" means the persons set forth on the Schedule.
"Subordination Agreement" means the Subordination Agreement of even date
herewith, by and between each Subordinating Creditor and Lender, as such
Subordination Agreement may be amended, supplemented or otherwise modified from
time to time.
"Support Agreement" means the Support Agreements of even date herewith, executed
by each of W. Xxxx Xxxxxx and Xxxxx X. Xxxxxxx in favor of Lender, as such
agreements may be supplemented or otherwise modified from time to time.
"Termination Fee" has the meaning set forth in Section 16.4 above.
"Total Contractual Debt Service" means, for any period, the sum of payments made
or required to be made by Borrower during such period for interest and scheduled
principal payments due on any and all Indebtedness of Borrower.
"Total Facility" has the meaning set forth on the Schedule.
"Trademarks, Licenses and Patents" means all of Borrower's right, title and
interest in and to: (i) trademarks, trademark registrations, trade names, trade
name registrations, and trademark or trade name applications, including without
limitation such as are listed on the Schedule, attached hereto and made a part
hereof, as the same may be amended from time to time, and (a) renewals thereof,
(b) all income, royalties, damages and payments now and hereafter due and/or
payable with respect thereto, including, without limitation, damages and
payments for past or future infringements thereof, (c) the right to xxx for
past, present and future infringements thereof, (d) all rights corresponding
thereto throughout the world, and (e) the goodwill of the business operated by
Borrower connected with and symbolized by any trademarks or trade names, (ii)
license agreements, including without limitation such as are listed on the
Schedule attached hereto and made a part hereof, and the right to prepare for
sale, sell, and advertise for sale any Inventory now or hereafter owned by
Borrower and now or hereafter covered by such licenses, and (iii) patents and
patent applications, registered or pending, including without limitation such as
are listed on the Schedule, attached hereto, together with all income,
royalties, shop rights, damages and payments thereto, the right to xxx for
infringements thereof, and all rights thereto throughout the world and all
reissues, divisions, continuations, renewals, extensions and
continuations-inpart-thereof, and the goodwill of the business connected with
the use of and symbolized by such patents.
"Unused Line Fee" has the meaning set forth in Section 3. 1 (IV) of the
Schedule.
"Weighted Average Life to Maturity" shall mean the number of years (calculated
to the nearest one-twelfth year) obtained by dividing (i) the sum of the
products obtained by multiplying each remaining scheduled payment of principal
under the Term Loan being prepaid by the number of years (calculated to the
nearest one-twelfth year) which will elapse between the date of a prepayment of
' such Term Loan and the scheduled due date of such remaining scheduled
principal payments, by (ii) the outstanding principal balance of Term Loan being
prepaid on such prepayment date.
18.2 Other Terms. All accounting terms used in this Agreement unless
otherwise indicated, shall have the meanings given to, such terms in accordance
with generally accepted accounting principles, consistently applied. All other
terms contained in this Agreement, unless otherwise indicated, shall have the
meanings provided by the Code, to the extent such terms are defined therein.
19 MISCELLANEOUS.
19.1 Recourse to Security, Certain Waivers. All Obligations shall be payable
by Borrower as provided for herein and, in full, at the termination of this
Agreement; recourse to security shall not be required at any time. Borrower
waives presentment and protest of any instrument and notice thereof, notice of
default and, to the extent permitted by applicable law, all other notices to
which Borrower might otherwise be entitled.
19.2 No Waiver by Lender. Neither Lender's failure to exercise any right,
remedy or option under this Agreement, any supplement, the Loan Documents or any
other agreement between Lender and Borrower nor any delay by Lender in
exercising the same shall operate as a waiver. No waiver by Lender shall be
effective unless in writing and then only to the extent stated. No waiver by
Lender shall affect its right to require strict performance of this Agreement.
Lender's rights and remedies shall be cumulative and not exclusive.
19.3 Binding on Successor and Assigns. All terms, conditions, promises,
covenants, provisions and warranties shall inure to the benefit of and bind
Lender's and Borrower's respective representatives, successors and assigns.
19.4 Severability. If any provision of this Agreement shall be prohibited or
invalid under applicable law, it shall be ineffective only to such extent,
without invalidating the remainder of this Agreement.
-17-
18
FINOVA LOAN AND SECURITY AGREEMENT
19.5 Amendments, Assignments. This Agreement may not be modified, altered or
amended, except by an agreement in writing signed by Borrower and Lender.
Borrower may not sell, assign or transfer any interest in this Agreement or any
other Loan Document, or any portion thereof, including, without limitation, any
of Borrower's rights, title, interests, remedies, powers and duties hereunder or
thereunder. Borrower hereby consents to Lender's participation, sale,
assignment, transfer or other disposition, at any Time or times hereafter, of
this Agreement and any of the other Loan Documents, or of any portion hereof or
thereof, including, without limitation, Lender's rights, title, interests,
remedies, powers and duties hereunder or thereunder. In connection therewith,
Lender may disclose all documents and information which Lender now or hereafter
may have relating to Borrower or Borrower's business. To the extent that Lender
assigns its rights and obligations hereunder to a third party, Lender shall
thereafter be released from such assigned obligations to Borrower and such
assignment shall effect a novation between Borrower and such third party.
19.6 Integration. This Agreement, together with the Schedule (which is a
part hereof) and the other Loan Documents, reflect the entire understanding of
the parties with respect to the transactions contemplated hereby.
19.7 Governing Law, Waivers. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN
MADE IN THE STATE OF ARIZONA AND SHALL BE INTERPRETED IN ACCORDANCE WITH THE
INTERNAL LAWS OF ARIZONA AND NOT THE CONFLICT OF LAWS RULES OF THE STATE OF
ARIZONA GOVERNING CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. BORROWER
HEREBY AGREES TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN THE COUNTY OF MARICOPA, STATE OF ARIZONA OR, AT THE SOLE OPTION
OF LENDER, IN ANY OTHER COURT IN WHICH LENDER SHALL INITIATE LEGAL OR EQUITABLE
PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN
CONTROVERSY. BORROWER WAIVES ANY OBJECTION OF FORUM NON CONVENIENS AND VENUE.
BORROWER FURTHER WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE IN THE MANNER SET FORTH IN
SECTION 19.13 HEREOF FOR THE GIVING OF NOTICE. BORROWER FURTHER WAIVES ANY RIGHT
IT MAY OTHERWISE HAVE TO COLLATERALLY ATTACK ANY JUDGMENT ENTERED AGAINST IT.
19.8 Survival. All of the representations and warranties of Borrower
contained in this Agreement shall survive the execution, delivery and acceptance
thereof by the parties. No termination of this Agreement or of any guaranty of
the Obligations shall affect or impair the powers, obligations, duties, rights,
representations, warranties or liabilities of the parties hereto and all shall
survive such termination.
19.9 Evidence of Obligations. Each Obligation may, in Lender's discretion,
be evidenced by notes or other instruments issued or made by Borrower to Lender.
If not so evidenced, such Obligation shall be evidenced solely by entries upon
Lender's books and records.
19.10 Collateral Security. The Obligations shall constitute one loan secured
by the Collateral. Lender may, in its sole discretion, (i) exchange, enforce,
waive or release any of the Collateral, (ii) apply Collateral and direct the
order or manner of sale thereof as it may determine and (iii) settle,
compromise, collect or otherwise liquidate any Collateral in any manner without
affecting its right to take any other action with respect to any other
Collateral.
19.11 Application of Collateral. Lender shall have the continuing and
exclusive right to apply or reverse and re-apply any and all payments to any
portion of the Obligations in such order and manner as Lender shall determine in
its sole discretion. To the extent that Borrower makes a payment or Lender
receives any payment or proceeds of the Collateral for Borrower's benefit which
is subsequently invalidated, declared to be fraudulent or preferential, set
aside or required to be repaid to a trustee, debtor in possession, receiver or
any other party under any bankruptcy law, common law or equitable cause, then,
to such extent, the Obligations or part thereof intended to be satisfied shall
be revived and continue as if such payment or proceeds had not been received by
Lender.
19.12 Loan Requests. Each oral or written request for a loan by any Person
who purports to be any employee, officer or authorized agent of Borrower shall
be made to Lender on or prior to 10:00 a.m., Los Angeles time, on the Business
Day on which the proceeds thereof are requested to be paid to Borrower and shall
be conclusively presumed to be made by a Person authorized by Borrower to do so
and the crediting of a loan to Borrower's operating account shall conclusively
establish Borrower's obligation to repay such loan. Unless and until Borrower
otherwise directs Lender in writing, all loans shall be wired to Borrower's
operating account set forth on the Schedule.
19.13 Notices. Any notice required hereunder shall be in writing and
addressed to the Borrower and Lender at their addresses set forth at the
beginning of this Agreement. Notices hereunder shall be deemed received on the
earlier of receipt, whether by mail, personal delivery, facsimile, or otherwise,
or three (3) days after deposit in the United States mail, postage prepaid.
19.14 Brokerage Fees. Borrower represents and warrants to Lender that, with
respect to the financing transaction herein contemplated, and except for a
commission payable by Borrower to Vrolyk & Co. in an
-18-
19
FINOVA LOAN AND SECURITY AGREEMENT
amount not to exceed $350,000, no Person is entitled to any brokerage fee or
other commission and Borrower agrees to indemnify and hold Lender harmless
against any and all such claims.
19.15 Disclosure. No representation or warranty made by Borrower in this
Agreement, or in any financial statement, report, certificate or any other
document furnished in connection herewith contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements herein or therein not misleading. There is no fact known to Borrower
or which reasonably should be known to Borrower which Borrower has not disclosed
to Lender in writing with respect to the transactions contemplated by this
Agreement which materially and adversely affects the business, assets,
operations, prospects or condition (financial or otherwise), of Borrower.
19.16 Publicity. Lender is hereby authorized to issue appropriate press
releases and to cause a tombstone to be published announcing the consummation of
this transaction and the aggregate amount thereof.
19.17 Captions. The Section titles contained in this Agreement are without
substantive meaning and arc not part of this Agreement.
19.18 Injunctive Relief. Borrower recognizes that, in the event Borrower
fails to perform, observe or discharge any of its Obligations under this
Agreement, any remedy at law may prove to be inadequate relief to Lender.
Therefore, Lender, if it so requests, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
19.19 Counterparts. This Agreement may be executed in one or more
counterparts, each of which taken together shall constitute one and the same
instrument.
19.20 Construction. The parties acknowledge that each party and its counsel
have reviewed this Agreement and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement or any amendments or
exhibits hereto.
19.21 Time of Essence. Time is of the essence for the performance by
Borrower of the Obligations set forth in this Agreement.
19.22 Limitation of Actions. Borrower agrees that any claim or cause of
action by Borrower against Lender, or any of Lender's directors, officers,
employees, agents, accountants or attorneys, based upon, arising from, or
relating to this Agreement, or any other present or future agreement, or any
other transaction contemplated hereby or thereby or relating hereto or thereto,
or any other matter, cause or thing whatsoever, whether or not relating hereto
or thereto, occurred, done, omitted. or suffered to be done by Lender, or by
Lender's directors, officers, employees, agents, accountants or attorneys,
whether sounding in contract or in tort or otherwise, shall be barred unless
asserted by Borrower by the commencement of an action or proceeding in a court
of competent jurisdiction by the filing of a complaint within one year after the
first act, occurrence or omission upon which such claim or cause of action, or
any part thereof, is based and service of a summons and complaint on an officer
of Lender or any other person authorized to accept service of process on behalf
of Lender, within 30 days thereafter. Borrower agrees that such one-year period
of time is a reasonable and sufficient time for Borrower to investigate and act
upon any such claim or cause of action. The one year period provided herein
shall not be waived, tolled, or extended except by a specific written agreement
of Lender. This provision shall survive any termination of this Loan Agreement
or any other agreement.
19.23 Liability. Neither Lender nor any Lender Affiliate shall be liable for
any indirect, special, incidental or consequential damages in connection with
any breach of contract, tort or other wrong relating to this Agreement or the
Obligations or the establishment, administration or collection thereof
(including without limitations damages for loss of profits, business
interruption, or the like), whether such damages are foreseeable or
unforeseeable, even if LENDER has been advised of the possibility of such
damages. Neither Lender, nor any Lender Affiliate shall be liable for any
claims, demands, losses or damages, of any kind whatsoever, made, claimed,
incurred or suffered by the Borrower through the ordinary negligence of Lender,
or any Lender Affiliate. "Lender Affiliate" shall mean Lender's directors,
officers, employees, agents, attorneys or any other person or entity affiliated
with or representing Lender.
19.24 Notice of Breach by Lender. Borrower agrees to give Lender written
notice of (i) any action or inaction by Lender or any attorney of Lender in
connection with any Loan Documents that may be actionable against Lender or any
attorney of Lender or (ii) any defense to the payment of the Obligations for any
reason, including, but not limited to, commission of a tort or violation of any
contractual duty or duty implied by law. Borrower agrees that unless such notice
is fully given as promptly as possible (and in any event within thirty (30)
days) after Borrower has knowledge, or with the exercise of reasonable diligence
should have had knowledge, of any such action, inaction or defense, Borrower
shall not assert, and Borrower shall be deemed to have waived, any claim or
defense arising therefrom.
19.25 Application of Insurance Proceeds. The net proceeds of any casualty
insurance insuring the Collateral, after deducting all costs and expenses
(including attorneys' fees) of collection, shall be applied, at Lender's option,
either toward replacing or restoring the Collateral, in a manner and on terms
satisfactory to Lender, or toward payment of the Obligations. Any proceeds
applied to the payment of Obligations shall be applied in such manner as Lender
may elect. In no event shall such application relieve
-19-
20
FINOVA LOAN AND SECURITY AGREEMENT
Borrower from payment in full of all installments of principal and interest
which thereafter become due in the order of maturity thereof.
19.26 MUTUAL WAIVER OF RIGHT TO JURY TRIAL LENDER AND BORROWER EACH HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING
OUT OF, OR IN ANY WAY RELATING TO: (i) THIS AGREEMENT; OR (ii) ANY OTHER PRESENT
OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN LENDER AND BORROWER; OR (iii) ANY
CONDUCT, ACTS OR OMISSIONS OF LENDER OR BORROWER OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
LENDER OR BORROWER; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE.
[SIGNATURE PAGE FOLLOWS]
-20-
21
FINOVA LOAN AND SECURITY AGREEMENT
"BORROWER"
ROCKFORD CORPORATION
WITNESS
/s/ BY: /s/ W. Xxxx Xxxxxx
----------------------------- ---------------------------------
NAME: W. Xxxx Xxxxxx
TITLE: President
"LENDER"
FINOVA CAPITAL CORPORATION
WITNESS
/s/ BY: /s
----------------------------- ---------------------------------
NAME:
-------------------------------
TITLE: Vice President
State of Arizona )
) ss.
County of Maricopa )
The foregoing was acknowledged before me this 18 day of June, 1997, by
W. Xxxx Xxxxxx the President of ROCKFORD CORPORATION, an Arizona corporation, on
behalf of said corporation.
/s/
-------------------------------------
Notary Public
My Commission Expires:
State of )
--------------
) ss.
County of )
--------------
The foregoing was acknowledged before me this day of June, 1997,
-----
by , the of FINOVA
------------------------------ -------------------------
CAPITAL CORPORATION, a Delaware corporation, on behalf of said corporation.
-------------------------------------
Notary Public
My Commission Expires:
22
STATE OF California
) SS.
COUNTY OF Los Angeles
On June 24, 1997, before me, Xxxx Xxxxxx, Notary Public,
personally appeared Xxxxxxxx X. Breed,
personally known to me
---
X proved to me on the basis of satisfactory evidence
---
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
Witness my hand and official seal.
[Notary Seal] /s/
---------------------------------
Xxxx Xxxxxx
My Commission Expires Feb 2, 2001
23
SCHEDULE OF EXCEPTIONS OF GENERAL REPRESENTATIONS AND
WARRANTIES
Section
12.1 Due Organization
Response: No exceptions
12.2 Other Names
Response: No exceptions
12.3 Due Authorization
Response: No exceptions
12.4 Binding Obligation
Response: No exceptions
12.5 Intangible Property
Response: Rockford Corporation conducts business in the following
countries and has not trademarked the Rockford name: Barbados, Lebanon,
Belgium, Netherlands Antilles, Bermuda, Netherlands, Croatia, New
Caledonia, Cyprus, Panama, Egypt, Puerto Rico, French Polynesia,
Slovenia, Honduras, South Africa, Jamaica, Syria, Jordan, Virgin
Islands
Rockford's plans to apply for trademarks in these countries over the
next several years due to the expense.
Connecting Punch has not been trademarked domestic and internationally.
We are in process of applying for the trademark in the United States.
We have yet to determine the need of trademarking Connecting Punch
internationally.
24
12.6 Capital
Response: No exceptions
12.7 Material Litigation
Response: See attached listing of pending litigation
letter.
12.8 Title: Security Interest of Lender
Response: No exceptions
12.9 Restrictive Agreements: Labor Contracts
Response: No exceptions
12.10 Laws
Response: No exceptions
12.11 Consents
Response: No exceptions
12.12 Defaults
Response: The Senior Notes that remain outstanding have a waiver
through December 31, 1997. If the notes are not called it could
possibility result in a default of the loan covenants within the
agreement.
12.13 Financial Condition
Response: No exceptions
25
12.14 ERISA
Response: No exceptions
12.15 Taxes
Response: No exceptions
12.16 Locations
Response: No exceptions
12.17 Business Relationships
Response: Harkzell Manufacturing is a company that produces our heat
sinks for our electronics products. Harkzell is one of our largest
vendors. On June 12' Harkzell visited Rockford and announce about a
150/o price increase on our existing heat sinks. We are reviewing our
options of either moving the production to a new vendor or continuing
working with a vendor we are experiencing a difficult relationship. We
expect to have a plan in place shortly to address this situation.
Rockford Corporation has in process the termination of 3 to 5 dealers
on a monthly basis. The dealers usually represent a small portion of
the companies total business. This is a process that we see continuing
into the future.
12.18 Reaffirmations
Response: No exceptions
