EXHIBIT 99.1
CREDIT AGREEMENT
Dated as of December 31, 1996
among
KEY TRONIC CORPORATION,
as Borrower,
THE OTHER CREDIT PARTIES SIGNATORIES HERETO,
as Credit Parties,
and
GENERAL ELECTRIC CAPITAL CORPORATION,
as Lender
TABLE OF CONTENTS
Page
1. AMOUNT AND TERMS OF CREDIT.................................... 1
1.1 Credit Facilities....................................... 1
1.2 Letters of Credit....................................... 2
1.3 Prepayments............................................. 2
1.4 Use of Proceeds......................................... 4
1.5 Interest and Applicable Margins......................... 4
1.6 Eligible Accounts....................................... 6
1.7 Eligible Inventory...................................... 8
1.8 Cash Management Systems................................. 9
1.9 Fees.................................................... 9
1.10 Receipt of Payments..................................... 9
1.11 Application and Allocation of Payments..................10
1.12 Loan Account and Accounting.............................10
1.13 Indemnity...............................................10
1.14 Access..................................................11
1.15 Taxes...................................................11
1.16 Capital Adequacy; Increased Costs; Illegality...........12
1.17 Single Loan.............................................12
1.18 Appraisals..............................................12
2. CONDITIONS PRECEDENT..........................................13
2.1 Conditions to the Initial Loans.........................13
2.2 Further Conditions to Each Loan.........................14
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3. REPRESENTATIONS AND WARRANTIES................................14
3.1 Corporate Existence; Compliance with Law................14
3.2 Executive Offices; FEIN.................................15
3.3 Corporate Power, Authorization, Enforceable Obligations.15
3.4 Financial Statements and Projections....................15
3.5 Material Adverse Effect.................................16
3.6 Ownership of Property; Liens............................16
3.7 Labor Matters...........................................16
3.8 Ventures, Subsidiaries and Affiliates;
Outstanding Stock and Indebtedness......................16
3.9 Government Regulation...................................17
3.10 Margin Regulations......................................17
3.11 Taxes...................................................17
3.12 ERISA...................................................17
3.13 No Litigation...........................................18
3.14 Brokers.................................................18
3.15 Intellectual Property...................................18
3.16 Full Disclosure.........................................18
3.17 Environmental Matters...................................18
3.18 Insurance...............................................19
3.19 Deposit and Disbursement Accounts.......................19
3.20 Government Contracts....................................19
3.21 Customer and Trade Relations............................19
3.22 Agreements and Other Documents..........................19
3.23 Solvency................................................19
4. FINANCIAL STATEMENTS AND INFORMATION..........................20
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4.1 Reports and Notices.....................................20
4.2 Communication with Accountants..........................20
5. AFFIRMATIVE COVENANTS.........................................20
5.1 Maintenance of Existence and Conduct of Business........20
5.2 Payment of Obligations..................................20
5.3 Books and Records.......................................20
5.4 Insurance; Damage to or Destruction of Collateral.......21
5.5 Compliance with Laws....................................22
5.6 Supplemental Disclosure.................................22
5.7 Intellectual Property...................................22
5.8 Environmental Matters...................................22
5.9 Landlords' Agreements, Mortgagee Agreements
and Bailee Letters......................................22
5.10 Further Assurances......................................23
5.11 Sale of the CWA Facility................................23
6. NEGATIVE COVENANTS............................................23
6.1 Mergers, Subsidiaries, Etc..............................23
6.2 Investment; Loans and Advances..........................23
6.3 Indebtedness............................................23
6.4 Employee Loans and Affiliate Transactions...............24
6.5 Capital Structure and Business..........................24
6.6 Guaranteed Indebtedness.................................24
6.7 Liens...................................................24
6.8 Sale of Stock and Assets................................25
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6.9 ERISA...................................................25
6.10 Financial Covenants.....................................25
6.11 Hazardous Materials.....................................25
6.12 Sale-Leasebacks.........................................25
6.13 Cancellation of Indebtedness............................25
6.14 Restricted Payments.....................................25
6.15 Change of Corporate Name or Location;
Change of Fiscal Year...................................25
6.16 No Impairment of Intercompany Transfers.................26
6.17 No Speculative Transactions.............................26
6.18 Maintenance of Total Collateral Ratio...................26
7. TERM..........................................................26
7.1 Termination.............................................26
7.2 Survival of Obligations Upon Termination
of Financing Arrangements...............................26
8. EVENTS OF DEFAULT: RIGHTS AND REMEDIES........................26
8.1 Events of Default.......................................26
8.2 Remedies................................................28
8.3 Waivers by Credit Parties...............................28
9. PARTICIPATIONS................................................28
9.1 Participations..........................................28
10. SUCCESSORS AND ASSIGNS........................................29
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10.1 Successors and Assigns..................................29
11. MISCELLANEOUS.................................................29
11.1 Complete Agreement; Modification of Agreement...........29
11.2 Amendments and Waivers..................................29
11.3 Fees and Expenses.......................................29
11.4 No Waiver...............................................30
11.5 Remedies................................................30
11.6 Severability............................................30
11.7 Conflict of Terms.......................................30
11.8 Confidentiality.........................................30
11.9 GOVERNING LAW...........................................31
11.10 Notices.................................................31
11.11 Section Titles..........................................32
11.12 Counterparts............................................32
11.13 WAIVER OF JURY TRIAL....................................32
11.14 Press Releases..........................................32
11.15 Reinstatement...........................................32
11.16 Advice of Counsel.......................................32
11.17 No Strict Construction..................................32
CREDIT AGREEMENT, dated as of December 31, 1996 among KEY TRONIC
CORPORATION, a Washington corporation ("Borrower"), the other Credit Parties
signatories hereto, and GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation (in its individual capacity, "GE Capital"), as Lender.
RECITALS
WHEREAS, Borrower desires that Lender extend revolving and term credit
facilities to Borrower of up to Forty-One Million Dollars ($41,000,000) in the
aggregate for the purpose of refinancing Borrower's existing revolving credit
and term loan and to provide (a) working capital financing for Borrower, and (b)
funds for other general corporate purposes of Borrower; and for these purposes,
Lender is willing to make certain loans and other extensions of credit to
Borrower of up to such amount upon the terms and conditions set forth herein;
and
WHEREAS, Borrower desires to secure all of its obligations under the
Loan Documents by granting to Lender a security interest in and lien upon all of
its existing and after-acquired personal and real property and by the arranging
for the granting by certain foreign subsidiaries of a security interest in
certain of their property; and
WHEREAS, capitalized terms used in this Agreement shall have the
meanings ascribed to them in Annex A. All Annexes, Disclosure Schedules,
Exhibits and other attachments (collectively, "Appendices") hereto, or expressly
identified to this Agreement, are incorporated herein by reference, and taken
together, shall constitute but a single agreement. These Recitals shall be
construed as part of the Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, and for other good and valuable consideration,
the parties hereto agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.1 Credit Facilities.
(a) Revolving Credit Facility. (i) Subject to the terms and
conditions hereof, Lender agrees to make available from time to time until the
Revolving Commitment Termination Date advances (each, a "Revolving Credit
Advance"). The aggregate amount of Revolving Credit Advances outstanding shall
not exceed at any time the lesser of (A) the Maximum Amount or (B) the Borrowing
Base, in each case less the sum of the Letter of Credit Obligations outstanding
at such time ("Borrowing Availability"). Until the Revolving Commitment
Termination Date, Borrower may from time to time borrow, repay and reborrow
under this Section 1.1(a). Each Revolving Credit Advance shall be made on
notice by Borrower to the representative of Lender identified on Schedule 1.1 at
the address specified thereon. Those notices must be given no later than (1)
1:00 p.m. (New York time) on the Business Day of the proposed Revolving Credit
Advance, in the case of an Index Rate Loan, or (2) 1:00 p.m. (New York time) on
the date which is three (3) Business Days prior to the proposed Revolving Credit
Advance, in the case of a LIBOR Loan. Each such notice (a "Notice of Revolving
Credit Advance") must be given in writing (by telecopy or overnight courier)
substantially in the form of Exhibit 1.1(a)(i), and shall include the
information required in such Exhibit and such other information as may be
required by Lender. If Borrower desires to have the Revolving Credit Advances
bear interest by reference to a LIBOR Rate, it must comply with Section 1.5(e).
(ii) Borrower shall execute and deliver to Lender a note to
evidence the Revolving Credit Commitment. Such note shall be dated the Closing
Date and shall be substantially in the form of Exhibit 1.1(a)(ii) (the
"Revolving Note"). The Revolving Note shall represent the obligation of
Borrower to pay the amount of the Revolving Loan Commitment or, if less, the
aggregate unpaid principal amount of all Revolving Credit Advances made to
Borrower together with interest thereon as prescribed in Section 1.5. The
entire unpaid balance of the Revolving Loan and all other non-contingent
Obligations accrued as of the Revolving Commitment Termination Date shall be
immediately due and payable in full in immediately available funds on the
Revolving Commitment Termination Date. The entire unpaid balance of all
outstanding non-contingent Obligations shall be immediately due and payable in
full in immediately available funds on the Commitment Termination Date.
(iii) At the request of Borrower, in its discretion Lender may
(but shall have absolutely no obligation to), make Revolving Credit Advances to
Borrower in amounts which cause the outstanding balance of the aggregate
Revolving Loan to exceed the Borrowing Base (any such excess Revolving Credit
Advances are herein referred to collectively as "Overadvances"), and no such
event or occurrence shall cause or constitute a waiver by Lender of any Default
or Event of Default that may result therefrom or of Lender's right to refuse to
make any further Overadvances or Revolving Credit Advances, or incur any Letter
of Credit Obligations, as the case may be, at any time that an Overadvance
exists or would result therefrom. In addition, Overadvances may be made even if
the conditions to lending set forth in Section 2 have not been met. All
Overadvances shall constitute Index Rate Loans, may bear interest at the Default
Rate and shall be payable on demand. Except as otherwise provided in Section
1.11(b), the authority of Lender to make Overadvances is limited to an aggregate
amount not to exceed $1,000,000 at any time, shall not cause the Revolving Loan
to exceed the Maximum Amount.
(b) Term Loan. (i) Subject to the terms and conditions hereof,
Lender agrees to make a term loan on the Closing Date to Borrower (the "Term
Loan") in the original principal amount of the Term Loan Commitment. The Term
Loan shall be evidenced by a promissory note substantially in the form of
Exhibit 1.1(b) (the "Term Note"), and Borrower shall execute and deliver its
Term Note to Lender. The Term Note shall represent the obligation of Borrower
to pay to Lender the amount of the Term Loan Commitment, together with interest
thereon as prescribed in Section 1.5.
(ii) Borrower shall pay the principal amount of the Term Loan in
twenty-four (24) consecutive quarterly installments on the last day of March,
June, September and December of each year, commencing March, 1997, as follows:
Installment
Quarter Amount
1-4 $250,000
5-24 $500,000
Notwithstanding the foregoing, the aggregate outstanding principal
balance of the Term Loan shall be due and payable in full in immediately
available funds on the Term Loan Commitment Termination Date, if not sooner paid
in full.
(c) Reliance on Notices. Lender shall be entitled to rely upon, and
shall be fully protected in relying upon, any Notice of Revolving Credit
Advance, Notice of Conversion/Continuation or similar notice believed by Lender
to be genuine. Lender may assume that each Person executing and delivering such
a notice was duly authorized, unless the responsible individual acting thereon
for Lender has actual knowledge to the contrary.
1.2 Letters of Credit. Subject to and in accordance with the terms and
conditions contained herein and in Annex B, Borrower shall have the right to
request, and Lender agrees to incur, Letter of Credit Obligations in respect of
Borrower.
1.3 Prepayments.
(a) Voluntary Prepayments. Borrower may at any time on at least ten
(10) days' prior written notice to Lender voluntarily prepay all or part of the
Term Loan, provided that any such prepayment shall be in a minimum amount of Two
Hundred Fifty Thousand Dollars ($250,000) and integral multiples of $250,000 in
excess of such amount. Borrower may at any time on at least ten 10 days' prior
written notice to Lender terminate the Revolving Loan Commitment, provided that
upon such termination all Loans and other Obligations shall be immediately due
and payable in full. Any such voluntary prepayment of the Term Loan or
termination of the Revolving Loan Commitment must be accompanied by the payment
of the fee required by Section 1.9(c), if any, plus the payment of any LIBOR
funding breakage costs in accordance with Section 1.13(b). Upon any such
termination of the Revolving Loan Commitment, Borrower's right to request
Revolving Credit Advances, or request that Letter of Credit Obligations be
incurred on its behalf, shall simultaneously be permanently terminated. Any
partial prepayments of the Term Loan made by Borrower shall be applied to prepay
the scheduled installments of the Term Loan in inverse order of maturity and
thereafter against the Revolving Loan without any reduction to the Revolving
Loan Commitment.
(b) Mandatory Prepayments. (i) If at any time the aggregate
outstanding balance of the Revolving Loan exceeds the lesser of (A) the Maximum
Amount or (B) the Borrowing Base, Borrower shall immediately repay the aggregate
outstanding Revolving Credit Advances to the extent required to eliminate such
excess. If any such excess remains after repayment in full of the aggregate
outstanding Revolving Credit Advances, Borrower shall provide cash collateral
for the Letter of Credit Obligations in the manner set forth in Annex B, to the
extent required to eliminate such excess. Notwithstanding the foregoing, any
Overadvance made pursuant to Section 1.1(a)(iii) shall be repaid on demand.
(ii) Within three (3) months of receipt by any Credit Party of
proceeds of any asset disposition (other than a disposition of the CWA Facility
under clause (e) below), which when added to any other such proceeds during the
Fiscal Year exceeds in the aggregate Two Hundred Fifty Thousand Dollars
($250,000), (including condemnation proceeds, but excluding proceeds of asset
dispositions permitted by Section 6.8(b)), or immediately upon receipt by any
Credit Party of proceeds of any sale of Stock of any Subsidiary of any Credit
Party, Borrower shall prepay the Loans in an amount equal to all such proceeds,
net of (A) commissions (paid to non-Affiliates), (B) transfer taxes, (C) amounts
payable to holders of senior Liens (to the extent such Liens constitute
Permitted Encumbrances hereunder), if any, and (D) an appropriate reserve for
income taxes in accordance with GAAP in connection therewith. Any such
prepayment shall be applied in accordance with clause (c) below.
(iii) If Borrower issues Stock and immediately before or
immediately thereafter a Default or Event of Default shall exist, or if Borrower
issues any debt securities, whether or not a Default or Event of Default exists,
no later than the Business Day following the date of receipt of the proceeds
thereof, Borrower shall prepay the Loans in an amount equal to all such
proceeds, net of underwriting discounts and commissions and other reasonable
costs paid to non-Affiliates in connection therewith. Any such prepayment shall
be applied in accordance with clause (c) below.
(iv) Until the Termination Date, Borrower shall prepay the
Obligations on the earlier of the date which is ten (10) days after (A) the date
on which Borrower's annual audited Financial Statements for the immediately
preceding Fiscal Year are delivered pursuant to Annex E or (B) the date on which
such annual audited Financial Statements were required to be delivered pursuant
to Annex E, in an amount equal to (i) fifty percent (50%) of Excess Cash Flow
for such immediately preceding Fiscal Year ending June 28, 1997, and (ii)
twenty-five percent (25%) of Excess Cash Flow for each such immediately
preceding Fiscal Year thereafter. Any prepayments from Excess Cash Flow paid
pursuant to this clause (iv) shall be applied in accordance with clause (c)
below. Each such prepayment shall be accompanied by a certificate signed by
Borrower's chief financial officer certifying the manner in which Excess Cash
Flow and the resulting prepayment were calculated, which certificate shall be in
form and substance satisfactory to Lender.
(v) If at any time the Available Domestic Collateral Ratio is
less than eighty percent (80%), Borrower shall immediately prepay the Term Loan
in the Amount required to increase the Available Domestic Collateral Ratio to at
least eighty percent (80%). Any such prepayment shall be applied to prepay the
scheduled installments of the Term Loan in inverse order of maturity.
(vi) If at any time the Total Collateral Ratio is less than one
hundred percent (100%), Borrower shall immediately prepay the Term Loan in the
Amount required to increase the Total Collateral Ratio to at least one hundred
percent (100%). Any such prepayment shall be applied to prepay the scheduled
installments of the Term Loan in inverse order of maturity.
(c) Application of Certain Mandatory Prepayments. Any prepayments
made by Borrower pursuant to clauses (b)(ii), (b)(iii) or (b)(iv) above shall
be applied as follows: first, to Fees and reimbursable expenses of Lender then
due and payable pursuant to any of the Loan Documents; second, to interest then
due and payable on the Term Loan; third, to prepay the scheduled installments of
the Term Loan in inverse order of maturity, until such Loan shall have been
prepaid in full; fourth, to interest then due and payable on the Revolving
Credit Advances; fifth, to the outstanding principal balance of Revolving Credit
Advances until the same shall have been paid in full; and sixth, until all such
letter of Credit Obligations have been fully cash collateralized, to any Letter
of Credit Obligations, to provide cash collateral therefor in the manner set
forth in Annex B. The Revolving Loan Commitment shall not be permanently
reduced by the amount of any such prepayments.
(d) Application of Prepayments from Insurance Proceeds. Prepayments
from insurance proceeds in accordance with Section 5.4(c) shall be applied as
follows: insurance proceeds from casualties or losses to cash or Inventory
shall be applied as follows: first, to interest then due and payable on the
Revolving Credit Advances; and second, to the outstanding principal balance of
Revolving Credit Advances until the same shall have been paid in full.
Insurance proceeds from casualties or losses to Equipment, Fixtures and Real
Estate shall be applied as follows: first, to interest then due and payable on
the Term Loan; and second, to the outstanding principal balance of Term Loan
until the same shall have been paid in full. The Revolving Loan Commitment
shall not be permanently reduced by the amount of any such prepayments. If the
precise amount of insurance proceeds allocable to Inventory as compared to
Equipment, Fixtures and Real Estate are not otherwise determined, the allocation
and application of those proceeds shall be determined in accordance with their
respective book values on the date of determination.
(e) Application of Proceeds from Sale of the Cheney, WA Facility.
The proceeds of the sale of the CWA Facility, as required by Section 5.12, shall
be applied as follows:
(i) In the event the sale of the CWA Facility occurs within nine
months of the Closing Date at which time no Default or Event of Default
shall have occurred and be continuing, then the first $1,000,000 of the net
proceeds of such sale shall be applied pursuant to the provisions of clause
(c) above and the balance of such net proceeds shall be applied to the
outstanding principal amount of the Revolving Credit Advances; or
(ii) In the event the sale of the CWA Facility does not occur
within nine months of the Closing Date or at the time of sale within such
nine months a Default or Event of Default shall have occurred and is
continuing, then Borrowers shall immediately prepay $1,000,000 of the
scheduled installments of the Term Loan in inverse order of maturity. Upon
the occurrence of a subsequent sale or lease of the CWA Facility, all
proceeds thereof shall be applied to the outstanding balance of the
Revolving Credit Advances; provided, however, that if at the time of any
such sale or lease there shall have occurred a Default or Event of Default
which has not been waived or cured, all such proceeds shall be applied to
the scheduled installments on the Term Loan in inverse order of maturity.
(f) Nothing in this Section 1.3 shall be construed to constitute
Lender's consent to any transaction referred to in clauses (b)(ii) and (b)(iii)
above which is not permitted by other provisions of this Agreement or the other
Loan Documents.
1.4 Use of Proceeds. Borrower shall utilize the proceeds of the Loans
solely for the Refinancing (and to pay any related transaction expenses), and
for the financing of Borrower's ordinary working capital, capital expenditures
and general corporate needs (but excluding in any event the making of any
Restricted Payment not specifically permitted by Section 6.14). Disclosure
Schedule 1.4 contains a description of Borrower's sources and uses of funds as
of the Closing Date, including Loans and Letter of Credit Obligations to be made
or incurred on that date, and a funds flow memorandum detailing how funds from
each source are to be transferred to particular uses.
1.5 Interest and Applicable Margins. (a) Borrower shall pay interest to
Lender, in arrears on each applicable Interest Payment Date, at the following
rates: (i) with respect to the Revolving Credit Advances, the Index Rate plus
the Applicable Revolver Index Margin per annum or, at the election of Borrower,
the applicable LIBOR Rate plus the Applicable Revolver LIBOR Margin per annum,
based on the aggregate Revolving Credit Advances outstanding from time to time;
and (ii) with respect to the Term Loan, the Index Rate plus the Applicable Term
Loan Index Margin per annum or, at the election of Borrower, the applicable
LIBOR Rate plus the Applicable Term Loan LIBOR Margin per annum.
The Applicable Revolver LIBOR Margin and Applicable Term Loan LIBOR
Margin will be 1.75% and 2.00% per annum, respectively, as of the Closing Date.
The Applicable LIBOR Margins will be adjusted (up or down) by the Lender based
on Borrower's consolidated financial performance, during the immediately
preceding twelve (12) months as reflected on Borrower's Financial Statements
delivered to Lender hereunder, prospectively (i) upon the first day of the first
calendar month that occurs more than five (5) days after delivery of Borrower's
1997 audited Financial Statements and (ii) on a quarterly basis thereafter.
Adjustments in Applicable LIBOR Margins will be determined by reference to the
following grids:
If Debt Level of
Service Coverage is: Applicable LIBOR Margins:
>1.40 Level I
<1.40 Level II
-
[HIGH TO LOW] [LOW TO HIGH]
Applicable LIBOR Margins
Level I Level II
Applicable Revolver 1.50% 1.75%
LIBOR Margin
Applicable Term Loan 1.75% 2.00%
LIBOR Margin
All adjustments in the Applicable LIBOR Margins after the first
adjustment following delivery of Borrower's 1997 audited Financial Statement
will be implemented quarterly on a prospective basis, for each calendar month
commencing at least five (5) days after the date of delivery to Lender of the
quarterly unaudited or annual audited (as applicable) Financial Statements of
Borrower evidencing the need for an adjustment. Concurrently with the delivery
of those Financial Statements, Borrower shall deliver to Lender a certificate,
signed by its chief financial officer, setting forth in reasonable detail the
basis for the continuance of, or any change in, the Applicable LIBOR Margins.
If a Default or Event of Default shall have occurred or be continuing at the
time any reduction in the Applicable LIBOR Margins is to be implemented, that
reduction shall be deferred until the first day of the first calendar month
following the date on which such Default or Event of Default is waived or cured.
(b) If any payment on any Loan becomes due and payable on a day other
than a Business Day, the maturity thereof will be extended to the next
succeeding Business Day (except as set forth in the definition of LIBOR Period)
and, with respect to payments of principal, interest thereon shall be payable at
the then applicable rate during such extension.
(c) All computations of Fees calculated on a per annum basis and
interest shall be made by Lender on the basis of a three hundred and sixty (360)
day year, in each case for the actual number of days occurring in the period for
which such interest is payable. The Index Rate shall be determined each day
based upon the Index Rate as in effect each day. Each determination by Lender
of an interest rate hereunder shall be conclusive, absent manifest error.
(d) So long as any Default or Event of Default shall have occurred
and be continuing, and at the election of Lender after written notice from
Lender to Borrower, the interest rates applicable to the Loans and the Letter of
Credit Fees shall be increased by two percentage points (2%) per annum (subject
to reduction under Section 10.1 below) above the rates of interest or the rate
of such Fees otherwise applicable hereunder ("Default Rate"), and all
outstanding Obligations shall bear interest at the Default Rate applicable to
such Obligations. Interest and Letter of Credit Fees at the Default Rate shall
accrue from the initial date of such Default or Event of Default until that
Default or Event of Default is cured or waived and shall be payable upon demand.
(e) So long as no Default or Event of Default shall have occurred and
be continuing, and subject to the additional conditions precedent set forth in
Section 2.2, Borrower shall have the option to (i) request that any Revolving
Credit Advances be made as a LIBOR Loan, (ii) convert at any time all or any
part of outstanding Loans from Index Rate Loans to LIBOR Loans, (iii) convert
any LIBOR Loan to an Index Rate Loan, subject to payment of LIBOR breakage costs
in accordance with Section 1.13(b) if such conversion is made prior to the
expiration of the LIBOR Period applicable thereto, or (iv) continue all or any
portion of any Loan as a LIBOR Loan upon the expiration of the applicable LIBOR
Period and the succeeding LIBOR Period of that continued Loan shall commence on
the last day of the LIBOR Period of the Loan to be continued. Any Loan to be
made or continued as, or converted into, a LIBOR Loan must be in a minimum
amount of $1,000,000 and integral multiples of $250,000 in excess of such
amount. Any such election must be made by 1:00 p.m. (New York time) on the
second (2nd) Business Day prior to (1) the date of any proposed Advance which is
to bear interest at the LIBOR Rate, (2) the end of each LIBOR Period with
respect to any LIBOR Loans to be continued as such, or (3) the date on which
Borrower wishes to convert any Index Rate Loan to a LIBOR Loan for a LIBOR
Period designated by Borrower in such election. If no election is received with
respect to a LIBOR Loan by 1:00 p.m. (New York time) on the second (2nd)
Business Day prior to the end of the LIBOR Period with respect thereto (or if a
Default or an Event of Default shall have occurred and be continuing or the
additional conditions precedent set forth in Section 2.2 shall not have been
satisfied), that LIBOR Loan shall be converted to an Index Rate Loan at the end
of its LIBOR Period. Borrower must make such election by notice to Lender in
writing, by telecopy or overnight courier. In the case of any conversion or
continuation, such election must be made pursuant to a written notice (a "Notice
of Conversion/Continuation") in the form of Exhibit 1.5(e).
(f) Notwithstanding anything to the contrary set forth in this
Section 1.5, if a court of competent jurisdiction determines in a final order
that the rate of interest payable hereunder exceeds the highest rate of interest
permissible under law (the "Maximum Lawful Rate"), then so long as the Maximum
Lawful Rate would be so exceeded, the rate of interest payable hereunder shall
be equal to the Maximum Lawful Rate; provided, however, that if at any time
thereafter the rate of interest payable hereunder is less than the Maximum
Lawful Rate, Borrower shall continue to pay interest hereunder at the Maximum
Lawful Rate until such time as the total interest received by Lender is equal to
the total interest which would have been received had the interest rate payable
hereunder been (but for the operation of this paragraph) the interest rate
payable since the Closing Date as otherwise provided in this Agreement.
Thereafter, interest hereunder shall be paid at the rate(s) of interest and in
the manner provided in Sections 1.5(a) through (e) above, unless and until the
rate of interest again exceeds the Maximum Lawful Rate, and at that time this
paragraph shall again apply. In no event shall the total interest received by
Lender pursuant to the terms hereof exceed the amount which Lender could
lawfully have received had the interest due hereunder been calculated for the
full term hereof at the Maximum Lawful Rate. If the Maximum Lawful Rate is
calculated pursuant to this paragraph, such interest shall be calculated at a
daily rate equal to the Maximum Lawful Rate divided by the number of days in the
year in which such calculation is made. If, notwithstanding the provisions of
this Section 1.5(f), a court of competent jurisdiction shall finally determine
that Lender has received interest hereunder in excess of the Maximum Lawful
Rate, Lender shall, to the extent permitted by applicable law, promptly apply
such excess in the order specified in Section 1.11 and thereafter shall refund
any excess to Borrower or as a court of competent jurisdiction may otherwise
order.
1.6 Eligible Accounts. Based on the most recent Borrowing Base
Certificate delivered by Borrower to Lender and on other information available
to Lender, Lender shall in its reasonable credit judgment determine which
Accounts of Borrower shall be "Eligible Accounts" for purposes of this
Agreement. In determining whether a particular Account constitutes an Eligible
Account, Lender shall not include any such Account to which any of the
exclusionary criteria set forth below applies. Lender reserves the right, at
any time and from time to time after the Closing Date, to adjust any such
criteria, and to establish new criteria, in its reasonable credit judgment.
Eligible Accounts shall not include any Account of Borrower:
(a) which does not arise from the sale of goods or the performance of
services by Borrower in the ordinary course of its business;
(b) upon which (i) Borrower's right to receive payment is not
absolute or is contingent upon the fulfillment of any condition whatsoever or
(ii) Borrower is not able to bring suit or otherwise enforce its remedies
against the Account Debtor through judicial process;
(c) to the extent any defense, counterclaim, setoff or dispute is
asserted as to such Account or if the Account represents a progress billing
consisting of an invoice for goods sold or used or services rendered pursuant to
a contract under which the Account Debtor's obligation to pay that invoice is
subject to Borrower's completion of further performance under such contract;
(d) that is not a true and correct statement of bona fide
indebtedness incurred in the amount of the Account for merchandise sold to or
services rendered and accepted by the applicable Account Debtor;
(e) with respect to which an invoice, acceptable to Lender in form
and substance, has not been sent to the applicable Account Debtor;
(f) that (i) is not owned by Borrower or (ii) is subject to any
right, claim, security interest or other interest of any other Person, other
than Liens in favor of Lender;
(g) that arises from a sale to any director, officer, other employee
or Affiliate of any Credit Party, or to any entity which has any common officer
or director with any Credit Party;
(h) that is the obligation of an Account Debtor that is the United
States government or a political subdivision thereof, or any state or
municipality or department, agency or instrumentality thereof unless Lender, in
its sole discretion, has agreed to the contrary in writing and Borrower, if
necessary or desirable, has complied with the Federal Assignment of Claims Act
of 1940, and any amendments thereto, or any applicable state statute or
municipal ordinance of similar purpose and effect, with respect to such
obligation;
(i) that is the obligation of an Account Debtor located in a foreign
country other than Canada (excluding the Maritime Provinces thereof) unless (x)
payment thereof is assured by a letter of credit, satisfactory to Lender as to
form, amount and issuer or (y) such Account Debtor is a Subsidiary of a
corporation or other entity organized and existing in the United States and such
Account is not otherwise ineligible;
(j) to the extent Borrower or any Subsidiary thereof is liable for
goods sold or services rendered by the applicable Account Debtor to Borrower or
any Subsidiary thereof but only to the extent of the potential offset;
(k) that arises with respect to goods which are delivered on a
bill-and-hold, cash-on-delivery basis or placed on consignment, guaranteed sale
or other terms by reason of which the payment by the Account Debtor is or may be
conditional;
(l) that is in default; provided, that, without limiting the
generality of the foregoing, an Account shall be deemed in default upon the
occurrence of any of the following:
(i) At Lender's election for any Account, it is not paid within
(A) in the case of receivables with ninety (90) day terms from Packard Bell
or HP Singapore, within five (5) days of the due date, and (B) for all
other receivables, the earlier of: sixty (60) days following its due date
or ninety (90) days following its original invoice date, or (C) such other
time period in excess of the periods provided in clauses (A) and (B) as
Lender may determine in its sole discretion;
(ii) if any Account Debtor obligated upon such Account suspends
business, makes a general assignment for the benefit of creditors or fails
to pay its debts generally as they come due; or
(iii)if any petition is filed by or against any Account Debtor
obligated upon such Account under any bankruptcy law or any other federal,
state or foreign (including any provincial) receivership, insolvency relief
or other law or laws for the relief of debtors;
(m) which is the obligation of an Account Debtor if fifty percent
(50%) or more of the dollar amount of all Accounts owing by that Account Debtor
are ineligible under the other criteria set forth in this Section 1.6;
(n) that is an obligation from an Account Debtor other than Hewlett
Packard, IBM, Toshiba, Microsoft and Compaq for which the total unpaid Accounts
of such Account Debtor exceed twenty percent (20%) of the net amount of all
Accounts, to the extent of such excess;
(o) as to which Lender's Lien is not a first priority perfected
security interest;
(p) as to which any of the representations or warranties pertaining
to Accounts set forth in this Agreement or the Security Agreement is untrue in
any material respect;
(q) to the extent such Account is evidenced by a judgment, Instrument
or Chattel Paper;
(r) to the extent such Account exceeds any credit limit established
by Lender, in its reasonable discretion;
(s) which is payable in any currency other than Dollars;
(t) which arises out of cooperative advertising or other
merchandising activities which do not involve the sale of goods;
(u) to the extent such Account includes any amounts relating to
returns, discounts, claims, credits and allowances of any nature (whether
issued, owing, granted or outstanding);
(v) which is a contra Account generated from the sale of goods and/or
services to an Account Debtor who has supplied goods and/or services to
Borrower, provided that such Account will not be considered a contra Account if
such Account Debtor has waived in writing its right to set-off any amounts owed
it by Borrower against the Accounts owed by it to Borrower; or
(w) which is unacceptable to Lender in its reasonable credit
judgment.
1.7 Eligible Inventory. Based on the most recent Borrowing Base
Certificate delivered by Borrower to Lender and on other information available
to Lender, Lender shall in its reasonable credit judgment determine which
Inventory of Borrower shall be "Eligible Inventory" for purposes of this
Agreement. In determining whether any particular Inventory constitutes Eligible
Inventory, Lender shall not include any such Inventory to which any of the
exclusionary criteria set forth below applies. Lender reserves the right, at
any time and from time to time after the Closing Date, to adjust any such
criteria, and to establish new criteria, in its reasonable credit judgment.
Eligible Inventory shall not include any Inventory of Borrower:
(a) that is not owned by Borrower free and clear of all Liens and
rights of any other Person (including the rights of a purchaser that has made
progress payments and the rights of a surety that has issued a bond to assure
Borrower's performance with respect to that Inventory), except the Liens in
favor of Lender;
(b) that is (i) not located on premises owned, leased or operated by
Borrower or (ii) is stored with a bailee, warehouseman or similar Person, unless
Lender has given its prior consent thereto and unless (x) a satisfactory bailee
letter or landlord waiver has been delivered to Lender, or (y) Reserves
satisfactory to Lender have been established with respect thereto, or (iii)
located at any site if the aggregate book value of Inventory at any such
location is less than $100,000;
(c) that is placed on consignment, is in transit or is otherwise not
located on premises owned or leased by Borrower;
(d) that is covered by a negotiable document of title, unless such
document and evidence of acceptable insurance covering such Inventory have been
delivered to Lender;
(e) that in Lender's reasonable determination, is excess, obsolete,
unsalable, shopworn, seconds, damaged or unfit for sale;
(f) that consists of display items or packing or shipping materials,
manufacturing supplies, work-in-process Inventory or replacement parts;
(g) that consists of goods which have been returned by the buyer,
unless such returned goods are saleable, unused and in their original
containers;
(h) that is not of a type held for sale in the ordinary course of
Borrower's business;
(i) as to which Lender's Lien therein is not a first priority
perfected Lien;
(j) as to which any of the representations or warranties pertaining
to Inventory set forth in this Agreement or the Security Agreement is untrue;
(k) consists of Hazardous Materials or goods that can be transported
or sold only with licenses that are not readily available;
(l) is not covered by casualty insurance acceptable to Lender;
(m) consists of fabricated parts including component parts
manufactured in-house by Borrower which need additional processing and/or
assembly to become finished goods;
(n) consists of customized parts including raw materials such as
packaging, labels, manuals, diskettes and other miscellaneous supplies related
specifically to individual customers or keyboards, mechanical components, mice,
trackballs, and other items purchased specifically for individual customers.
(o) consists of domestic Inventory in transit between divisions
(intercompany transfers);
(p) consists of raw materials and finished goods that do not meet
quality control standards and are assigned a materials requirement board ("MRB")
site location code; such Inventory being referred to as non-nettable;
(q) is otherwise unacceptable to Lender in its reasonable credit
judgment.
1.8 Cash Management Systems. On or prior to the Closing Date,
Borrower will establish and will maintain until the Termination Date, the cash
management systems described on Annex C (the "Cash Management Systems").
1.9 Fees. (a) Borrower shall pay to GE Capital, individually, the
Fees specified in that certain fee letter of even date herewith among Borrower
and GE Capital (the "GE Capital Fee Letter"), at the times specified for payment
therein.
(b) As additional compensation for Lender's Revolving Loan
Commitment, Borrower agrees to pay to Lender in arrears, on the first Business
Day of each month prior to the Revolving Commitment Termination Date and on the
Revolving Commitment Termination Date, a fee for Borrower's non-use of available
funds in an amount equal to 0.375% per annum (calculated on the basis of a 360
day year for actual days elapsed) of the difference between (x) the sum of (i)
the Maximum Amount (as it may be reduced from time to time) and (ii) the then
applicable Mexico Collateral Reserve and (y) the average for the period of the
daily closing balance of the Revolving Loan outstanding during the period for
which the such fee is due.
(c) If Borrower prepays all or any portion of the Term Loan or
terminates the Revolving Loan Commitment, whether voluntarily or involuntarily
and whether before or after acceleration of the Obligations, Borrower shall pay
to Lender as liquidated damages and compensation for the costs of being prepared
to make funds available hereunder an amount determined by multiplying the
Applicable Percentage (as defined below) by (i) the principal amount of the Term
Loan prepaid, and (ii) the amount of the Maximum Revolving Loan Commitment. As
used herein, the term "Applicable Percentage" shall mean (x) three percent (3%),
in the case of a prepayment or termination on or prior to the first anniversary
of the Closing Date, (y) two percent (2%), in the case of a prepayment or
termination after the first anniversary of the Closing Date but on or prior to
the second anniversary, and (z) one percent (1%), in the case of a prepayment or
termination after the second anniversary of the Closing Date but on or prior to
the third anniversary. Notwithstanding the foregoing, no prepayment fee shall
be payable by Borrower upon a mandatory prepayment made pursuant to Section
1.3(b)(ii), (b)(iii), (b)(iv), (d) or 1.16(d), voluntary payments from proceeds
of debt or equity securities pursuant to Section 1.16(c) or prepayments
following an assignment pursuant to Section 10.1; provided that in the case of
prepayments made pursuant to Section 1.3(b)(ii) or (b)(iii), the transaction
giving rise to the applicable prepayment is expressly permitted under Section 6.
1.10 Receipt of Payments. Borrower shall make each payment under
this Agreement not later than 4:00 p.m. (New York time) on the day when due in
immediately available funds in Dollars to the Collection Account. For purposes
of computing interest and Fees and determining Borrowing Availability or Net
Borrowing Availability as of any date, all payments shall be deemed received on
the day of receipt of immediately available funds therefor in the Collection
Account prior to 4:00 p.m. (New York time). Payments received after 4:00 p.m.
(New York time) on any Business Day shall be deemed to have been received on the
following Business Day.
1.11 Application and Allocation of Payments. (a) So long as no Default or
Event of Default shall have occurred and be continuing, (i) payments consisting
of proceeds of Accounts received in the ordinary course of business shall be
applied to the Revolving Loan; (ii) payments matching specific scheduled
payments then due shall be applied to those scheduled payments; (iii) voluntary
prepayments shall be applied as determined by Borrower, subject to the
provisions of Section 1.3(a); and (iv) mandatory prepayments shall be applied as
set forth in Section 1.3. As to each other payment, and as to all payments made
when a Default or Event or Default shall have occurred and be continuing or
following the Commitment Termination Date, Borrower hereby irrevocably waives
the right to direct the application of any and all payments received from or on
behalf of Borrower, and Borrower hereby irrevocably agrees that Lender shall
have the continuing exclusive right to apply any and all such payments against
the Obligations as Lender may deem advisable notwithstanding any previous entry
by Lender in the Loan Account or any other books and records. In the absence of
a specific determination by Lender with respect thereto, payments shall be
applied to amounts then due and payable in the following order: (1) to Fees and
Lender's expenses reimbursable hereunder; (2) to interest on the Loans, ratably
in proportion to the interest accrued as to each Loan; (3) to principal payments
on the Loans and to provide cash collateral for Letter of Credit Obligations in
the manner described in Annex B, ratably to the aggregate, combined principal
balance of the other Loans and outstanding Letter of Credit Obligations; and (4)
to all other Obligations to the extent reimbursable under Section 11.3.
(b) Lender is authorized to, and at its sole election may, charge to
the Revolving Loan balance on behalf of Borrower and cause to be paid all Fees,
expenses, Charges, costs (including insurance premiums in accordance with
Section 5.4(a)) and interest and principal, other than principal of the
Revolving Loan, owing by Borrower under this Agreement or any of the other Loan
Documents if and to the extent Borrower fails to promptly pay any such amounts
as and when due, even if such charges would cause the Revolving Loan to exceed
Borrowing Availability. At Lender's option and to the extent permitted by law,
any charges so made shall constitute part of the Revolving Loan hereunder.
1.12 Loan Account and Accounting. Lender shall maintain a loan account
(the "Loan Account") on its books to record: (a) all Revolving Credit Advances
and the Term Loan, (b) all payments made by Borrower, and (c) all other debits
and credits as provided in this Agreement with respect to the Loans or any
other Obligations. All entries in the Loan Account shall be made in accordance
with Lender's customary accounting practices as in effect from time to time.
The balance in the Loan Account, as recorded on Lender's most recent printout
or other written statement, shall be presumptive evidence of the amounts due
and owing to Lender by Borrower; provided that any failure to so record or
any error in so recording shall not limit or otherwise affect Borrower's duty
to pay the Obligations. Lender shall render to Borrower a monthly accounting of
transactions with respect to the Loans setting forth the balance of the Loan
Account. Unless Borrower notifies Lender in writing of any objection to any
such accounting (specifically describing the basis for such objection), within
thirty (30) days after the date thereof, each and every such accounting shall
(absent manifest error) be deemed final, binding and conclusive upon Borrower
in all respects as to all matters reflected therein. Only those items
expressly objected to in such notice shall be deemed to be disputed by Borrower.
1.13 Indemnity. (a) Each Credit Party that is a signatory hereto shall
jointly and severally indemnify and hold harmless each of Lender and its
respective Affiliates, and each such Person's respective officers, directors,
employees, attorneys, agents and representatives (each, an "Indemnified
Person"), from and against any and all suits, actions, proceedings, claims,
damages, losses, liabilities and expenses (including attorneys' fees and
disbursements and other costs of investigation or defense, including those
incurred upon any appeal) which may be instituted or asserted against or
incurred by any such Indemnified Person as the result of credit having been
extended, suspended or terminated under this Agreement and the other Loan
Documents and the administration of such credit, and in connection with or
arising out of the transactions contemplated hereunder and thereunder and any
actions or failures to act in connection therewith, including any and all
Environmental Liabilities (except as provided below) and legal costs and
expenses arising out of or incurred in connection with disputes between or among
any parties to any of the Loan Documents, but specifically excluding
Environmental Liabilities relating to Real Property in the State of Washington
(collectively, "Indemnified Liabilities"); provided, that no such Credit Party
shall be liable for any indemnification to an Indemnified Person to the extent
that any such suit, action, proceeding, claim, damage, loss, liability or
expense results solely from that Indemnified Person's gross negligence or
willful misconduct, as finally determined by a court of competent jurisdiction.
NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO ANY
LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON
OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR
INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A
RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER ANY LOAN
DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR
THEREUNDER.
(b) To induce Lender to provide the LIBOR Rate option on the terms
provided herein, if (i) any LIBOR Loans are repaid in whole or in part prior to
the last day of any applicable LIBOR Period (whether that repayment is made
pursuant to any provision of this Agreement or any other Loan Document or is the
result of acceleration, by operation of law or otherwise); (ii) Borrower shall
default in payment when due of the principal amount of or interest on any LIBOR
Loan; (iii) Borrower shall default in making any borrowing of, conversion into
or continuation of LIBOR Loans after Borrower has given notice requesting the
same in accordance herewith; or (iv) Borrower shall fail to make any prepayment
of a LIBOR Loan after Borrower has given a notice thereof in accordance
herewith, Borrower shall indemnify and hold harmless Lender from and against all
losses, costs and expenses resulting from or arising from any of the foregoing.
Such indemnification shall include any loss (including loss of margin) or
expense arising from the reemployment of funds obtained by it or from fees
payable to terminate deposits from which such funds were obtained. For the
purpose of calculating amounts payable under this subsection, Lender shall be
deemed to have actually funded the relevant LIBOR Loan through the purchase of a
deposit bearing interest at the LIBOR Rate in an amount equal to the amount of
that LIBOR Loan and having a maturity comparable to the relevant Interest
Period; provided, however, that Lender may fund each of its LIBOR Loans in any
manner it sees fit, and the foregoing assumption shall be utilized only for the
calculation of amounts payable under this subsection. This covenant shall
survive the termination of this Agreement and the payment of the Notes and all
other amounts payable hereunder. As promptly as practicable under the
circumstances, Lender shall provide Borrower with its written calculation of all
amounts payable pursuant to this Section 1.13(b), and such calculation shall be
binding on the parties hereto unless Borrower shall object in writing within ten
(10) Business Days of receipt thereof, specifying the basis for such objection
in detail.
1.14 Access. Each Credit Party which is a party hereto shall, during
normal business hours, from time to time upon three (3) Business Day's prior
notice as frequently as Lender determines to be appropriate: (a) provide Lender
and any of its officers, employees and agents access to its properties,
facilities, advisors and employees (including officers) of each Credit Party and
to the Collateral, (b) permit Lender, and any of its officers, employees and
agents, to inspect, audit and make extracts from such Credit Party's books and
records, and (c) permit Lender, and its officers, employees and agents, to
inspect, review and evaluate the Accounts, Inventory and other Collateral of
such Credit Party. If a Default or Event of Default shall have occurred and be
continuing, each such Credit Party shall provide such access at all times and
without advance notice. Furthermore, so long as any Event of Default shall have
occurred and be continuing, Borrower shall provide Lender with access to its
suppliers and customers; provided, that Lender shall not directly contact any
such customer or supplier until at least one (1) Business Day after notice to
Borrower of Lender's decision to contact such customer or supplier. Each Credit
Party shall make available to Lender and its counsel, as quickly as is possible
under the circumstances, originals or copies of all books and records which
Lender may request. Each Credit Party shall deliver any document or instrument
necessary for Lender, as it may from time to time request, to obtain records
from any service bureau or other Person which maintains records for such Credit
Party, and shall maintain duplicate records or supporting documentation on
media, including computer tapes and discs owned by such Credit Party.
1.15 Taxes. (a) Any and all payments by Borrower hereunder or under the
Notes shall be made, in accordance with this Section 1.15, free and clear of
and without deduction for any and all present or future Taxes. If Borrower
shall be required by law to deduct any Taxes from or in respect of any sum
payable hereunder or under the Notes, (i) the sum payable shall be increased
as much as shall be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
1.15) Lender receives an amount equal to the sum it would have received had no
such deductions been made, (ii) Borrower shall make such deductions, and (iii)
Borrower shall pay the full amount deducted to the relevant taxing or other
authority in accordance with applicable law. Within thirty (30) days after the
date of any payment of Taxes, Borrower shall furnish to Lender the original or a
certified copy of a receipt evidencing payment thereof.
(b) Each Credit Party that is a signatory hereto shall indemnify and,
within ten (10) days of demand therefor, pay Lender for the full amount of Taxes
(including any Taxes imposed by any jurisdiction on amounts payable under this
Section 1.15) paid by Lender, and any liability (including penalties, interest
and expenses) arising therefrom or with respect thereto, whether or not such
Taxes were correctly or legally asserted.
1.16 Capital Adequacy; Increased Costs; Illegality. (a) If Lender shall
have determined that the adoption after the date hereof of any law, treaty,
governmental (or quasi-governmental) rule, regulation, guideline or order
regarding capital adequacy, reserve requirements or similar requirements or
compliance by Lender with any request or directive regarding capital adequacy,
reserve requirements or similar requirements (whether or not having the force
of law) from any central bank or other Governmental Authority increases or
would have the effect of increasing the amount of capital, reserves or other
funds required to be maintained by Lender and thereby reducing the rate of
return on Lender's capital as a consequence of its obligations hereunder, then
Borrower shall from time to time upon demand by Lender pay to Lender additional
amounts sufficient to compensate Lender for such reduction. A certificate as
to the amount of that reduction and showing the basis of the computation thereof
submitted by Lender to Borrower shall, absent manifest error, be final,
conclusive and binding for all purposes.
(b) If, due to either (i) the introduction of or any change in any
law or regulation (or any change in the interpretation thereof) or (ii) the
compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), there shall be
any increase in the cost to Lender of agreeing to make or making, funding or
maintaining any Loan, then Borrower shall from time to time, upon demand by
Lender, pay to Lender additional amounts sufficient to compensate Lender for
such increased cost. A certificate as to the amount of such increased cost,
submitted to Borrower by Lender, shall be conclusive and binding on Borrower for
all purposes, absent manifest error. Lender agrees that, as promptly as
practicable after it becomes aware of any circumstances referred to above which
would result in any such increased cost, Lender shall, to the extent not
inconsistent with Lender's internal policies of general application, use
reasonable commercial efforts to minimize costs and expenses incurred by it and
payable to it by Borrower pursuant to this Section 1.16(b).
(c) In the event that Lender shall require Borrower to make payments
pursuant to clauses (a) or (b) above, Borrower may, upon ninety (90) days' prior
written notice to Lender, prepay in whole the Term Loan and all Revolving Credit
Advances and terminate the Revolving Loan Commitment without incurring any
prepayment fees under Section 1.9(c) provided such prepayment is made entirely
from proceeds of the issuance of public debt securities or Stock by Borrower.
Any such prepayment must be accompanied by LIBOR funding breakage costs, if any,
in accordance with Section 1.13(b).
(d) Notwithstanding anything to the contrary contained herein, if the
introduction of or any change in any law or regulation (or any change in the
interpretation thereof) shall make it unlawful, or any central bank or other
Governmental Authority shall assert that it is unlawful, for Lender to agree to
make or to make or to continue to fund or maintain any LIBOR Loan, then, unless
Lender is able to make or to continue to fund or to maintain such LIBOR Loan at
another branch or office of Lender without, in Lender's opinion, adversely
affecting it or its Loans or the income obtained therefrom, on notice thereof
and demand therefor by Lender to Borrower, (i) the obligation of Lender to agree
to make or to make or to continue to fund or maintain LIBOR Loans shall
terminate and (ii) Borrower shall forthwith prepay in full all outstanding LIBOR
Loans owing to Lender, together with interest accrued thereon, unless Borrower,
within five (5) Business Days after the delivery of such notice and demand,
converts all such Loans into a Loan bearing interest based on the Index Rate.
1.17 Single Loan. All Loans to Borrower and all of the other Obligations
of Borrower arising under this Agreement and the other Loan Documents shall
constitute one general obligation of Borrower secured, until the Termination
Date, by all of its Collateral.
1.18 Appraisals. (a) Disclosure Schedule 1.18 sets forth the Special
Appraisal Value for Equipment and Real Estate as of the Closing Date based on
the Original Appraisal. Until such time as the principal amount of the Term
Loan is Four Million Dollars ($4,000,000) or less, and once eighteen (18)
months have transpired from the date of the applicable Original Appraisal and/or
at any time a Default or Event of Default has occurred, Lender at any time, and
at its sole discretion, may require Borrower to submit a Reappraisal covering
Equipment and, at Lender's sole discretion, Real Estate; provided, however, that
so long as no Default or Event of Default has occurred, Lender may not request
more than two (2) Reappraisals. If Lender's request for a Reappraisal is made
while a Default or an Event of Default has occurred and is continuing, all of
the fees and costs related to the Reappraisal shall be for the account of
Borrower; otherwise such fees and costs shall be for the account of the Lender.
(b) From and after the Closing Date, Borrower shall provide quarterly
to Lender a written analysis of the Equipment and Real Estate based on the
Original Appraisals or the most recent Reappraisal, as the case may be, which
analysis shall:
(i) include a separate breakout of the Collateral located in (A)
the United States and (B) Mexico in the form of Exhibit 1.18(a);
(ii) show current value reflecting a depreciation rate of 20% per
annum for Equipment and 4% per annum for Real Estate, or such other rates
as Lender in its sole discretion shall advise Borrower after first
consulting with M.B. Valuation, Inc. or, if different, the appraiser who
prepared the most recent Reappraisal in the form of Exhibit 1.18(a);
(iii) describe specifically any Equipment which has crossed from
the United States to Mexico, or from Mexico to the United States and its
corresponding depreciated value in the form of Exhibit 1.18(b); and
(iv) include a calculation of the Available Domestic Collateral
Ratio and the Total Collateral Ratio in the form of Exhibit 1.18(a).
2. CONDITIONS PRECEDENT
2.1 Conditions to the Initial Loans.
Lender shall not be obligated to make any Loan or incur any Letter of
Credit Obligations on the Closing Date, or to take, fulfill, or perform any
other action hereunder, until the following conditions have been satisfied or
provided for in a manner satisfactory to Lender, in Lender's sole discretion, or
waived in writing by Lender:
(a) Credit Agreement; Loan Documents. This Agreement or counterparts
hereof shall have been duly executed by, and delivered to, Borrower and Lender;
and Lender shall have received such documents, instruments, agreements and legal
opinions as Lender shall request in connection with the transactions
contemplated by this Agreement and the other Loan Documents, including all those
listed in the Closing Checklist attached hereto as Annex D, each in form and
substance satisfactory to Lender.
(b) Repayment of Prior Lender Obligations; Satisfaction of
Outstanding L/Cs. (i) Lender shall have received a fully executed original of a
pay-off letter satisfactory to Lender confirming that all of the Prior Lender
Obligations will be repaid in full from the proceeds of the Term Loan and the
initial Revolving Credit Advance and all Liens upon any of the property of
Borrower or any of its Subsidiaries in favor of Prior Lender shall be terminated
by Prior Lender immediately upon such payment; and (ii) all letters of credit
issued or guaranteed by Prior Lender shall have been cash collateralized,
supported by a guaranty of Lender or supported by a Letter of Credit issued
pursuant to Annex B, as mutually agreed upon by Lender, Borrower and Prior
Lender.
(c) Governmental Approvals. Lender shall have received (i)
satisfactory evidence that the Credit Parties have obtained all required
consents and approvals of all Persons including all requisite Governmental
Authorities, to the execution, delivery and performance of this Agreement and
the other Loan Documents and the consummation of the Related Transactions or
(ii) an officer's certificate in form and substance satisfactory to Lender
affirming that no such consents or approvals are required.
(d) Opening Availability. The Eligible Accounts and Eligible
Inventory of Borrower supporting the initial Revolving Credit Advance made to
Borrower and the amount of the Reserves to be established on the Closing Date
shall be sufficient in value, as determined by Lender, to provide Borrower with
Net Borrowing Availability, after giving effect to the initial Revolving Credit
Advance, the incurrence of any initial Letter of Credit Obligations and the
consummation of the Related Transactions (on a pro forma basis, with trade
payables being paid currently, and expenses and liabilities being paid in the
ordinary course of business and without acceleration of sales), but excluding
the Liquidity Reserve, of at least $4,000,000.
(e) Payment of Fees. Borrower shall have paid the Fees required to be
paid on the Closing Date in the respective amounts specified in Section 1.9
(including the Fees specified in the GE Capital Fee Letter), and shall have
reimbursed Lender for all fees, costs and expenses of closing presented as of
the Closing Date.
(f) Compliance with Laws. Each Credit Party shall be in compliance
in all material respects with all applicable foreign, federal, state and local
laws and regulations, including those specifically referenced in Section 5.5.
(g) Capital Structure: Other Indebtedness. The capital structure of
each Credit Party and the terms and conditions of all Indebtedness of each
Credit Party shall be acceptable to Lender in its sole discretion.
(h) Total Indebtedness. The total Indebtedness of Borrower on the
Closing Date, after giving effect to any Loans made on the Closing Date shall
not exceed Twenty-Five Million Dollars ($25,000,000).
(i) Consummation of Related Transactions. Lender shall have received
fully executed copies of each of the Related Transactions Documents, each of
which shall be in form and substance satisfactory to Lender and its counsel. The
Related Transactions shall have been consummated in accordance with the terms of
the Related Transactions Documents.
2.2 Further Conditions to Each Loan. Except as otherwise expressly
provided herein, Lender shall not be obligated to fund any Loan, convert or
continue any Loan as a LIBOR Loan or incur any Letter of Credit Obligation, if,
as of the date thereof:
(a) Any representation or warranty by any Credit Party contained
herein or in any of the other Loan Documents shall be, in any material respect,
untrue or incorrect as of such date, except to the extent that such
representation or warranty expressly relates to an earlier date and except for
changes therein expressly permitted or expressly contemplated by this Agreement;
or
(b) Any event or circumstance having a Material Adverse Effect shall
have occurred since the date hereof; or
(c) Any Default or Event of Default shall have occurred and be
continuing or would result after giving effect to any Loan (or the incurrence of
any Letter of Credit Obligations); or
(d) After giving effect to any Revolving Credit Advance (or the
incurrence of any Letter of Credit Obligations), the outstanding amount of the
Revolving Loan would exceed the lesser of the Borrowing Base or the Maximum
Amount.
The request and acceptance by Borrower of the proceeds of any Loan, the
incurrence of any Letter of Credit Obligations or the conversion or continuation
of any Loan into, or as, a LIBOR Loan, as the case may be, shall be deemed to
constitute, as of the date of such request or acceptance, (i) a representation
and warranty by Borrower that the conditions in this Section 2.2 have been
satisfied and (ii) a reaffirmation by Borrower of the granting and continuance
of Lender's Liens pursuant to the Collateral Documents.
3. REPRESENTATIONS AND WARRANTIES.
To induce Lender to make the Loans and to incur Letter of Credit
Obligations, the Credit Parties, jointly and severally, make the following
representations and warranties to Lender each and all of which shall survive the
execution and delivery of this Agreement.
3.1 Corporate Existence; Compliance with Law. Each Credit Party (a)
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation; (b) is duly qualified to conduct
business and is in good standing in each other jurisdiction where its ownership
or lease of property or the conduct of its business requires such qualification;
(c) has the requisite corporate power and authority and the legal right to own,
pledge, mortgage or otherwise encumber and operate its properties, to lease the
property it operates under lease and to conduct its business as now, heretofore
and proposed to be conducted; (d) has all licenses, permits, consents or
approvals from or by, and has made all filings with, and has given all notices
to, all Governmental Authorities having jurisdiction, to the extent required for
such ownership, operation and conduct; (e) is in compliance with its charter and
by-laws; and (f) subject to specific representations set forth herein regarding
ERISA, Environmental Laws, tax and other laws, is in compliance with all
applicable provisions of law, except where the failure to comply, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
3.2 Executive Offices; FEIN. As of the Closing Date, the current
location of each Credit Party's chief executive office and principal place of
business is set forth in Disclosure Schedule 3.2 and none of such locations have
changed within the past twelve (12) months. In addition, Disclosure Schedule
3.2 lists the federal employer identification number of each Credit Party.
3.3 Corporate Power, Authorization, Enforceable Obligations. The
execution, delivery and performance by each Credit Party of the Loan Documents
to which it is a party and the creation of all Liens provided for therein: (a)
are within such Person's corporate power; (b) have been duly authorized by all
necessary or proper corporate and shareholder action; (c) do not contravene any
provision of such Person's charter or bylaws; (d) do not violate any law or
regulation, or any order or decree of any court or Governmental Authority; (e)
do not conflict with or result in the breach or termination of, constitute a
default under or accelerate or permit the acceleration of any performance
required by, any indenture, mortgage, deed of trust, lease, agreement or other
instrument to which such Person is a party or by which such Person or any of its
property is bound; (f) do not result in the creation or imposition of any Lien
upon any of the property of such Person other than those in favor of Lender
pursuant to the Loan Documents; and (g) do not require the consent or approval
of any Governmental Authority or any other Person, except those referred to in
Section 2.1(c), all of which will have been duly obtained, made or complied with
prior to the Closing Date. On or prior to the Closing Date, each of the Loan
Documents shall have been duly executed and delivered by each Credit Party
thereto and each such Loan Document shall then constitute a legal, valid and
binding obligation of such Credit Party enforceable against it in accordance
with its terms.
3.4 Financial Statements and Projections. All Financial Statements
concerning Borrower and its Subsidiaries which are referenced below have been
prepared in accordance with GAAP consistently applied throughout the periods
covered (except as disclosed therein and except, with respect to unaudited
Financial Statements, for the absence of footnotes and normal year-end audit
adjustments) and present fairly in all material respects the financial condition
of the Persons covered thereby as at the dates thereof and the results of their
operations for the periods then ended.
(a) The following Financial Statements attached hereto as Disclosure
Schedule 3.4(A) have been delivered on the date hereof:
(i) The audited consolidated and unaudited consolidating balance
sheets at June 29, 1996 and July 1, 1995 and the related statements of
income and cash flows of Borrower and its Subsidiaries for the Fiscal Years
then ended, certified by Deloitte & Touche LLP.
(ii) The unaudited balance sheet(s) at September 28, 1996 and the
related statement(s) of income and cash flows of Borrower and its
Subsidiaries for the first Fiscal Quarter then ended.
(b) Pro Forma. The Pro Forma delivered on the date hereof and
attached hereto as Disclosure Schedule 3.4(B) was prepared by Borrower giving
pro forma effect to the Related Transactions, was based on the unaudited
consolidated and consolidating balance sheets of Borrower and its Subsidiaries
dated November 23, 1996, and was prepared in accordance with GAAP, with only
such adjustments thereto as would be required in accordance with GAAP.
(c) Projections. The Projections delivered on the date hereof and
attached hereto as Disclosure Schedule 3.4(C) have been prepared by Borrower in
light of the past operations of its businesses, but including future payments of
known contingent liabilities, and reflect projections for the six (6) year
period beginning on June 29, 1996 on a month by month basis for the first year
and on a year by year basis thereafter. The Projections are based upon
estimates and assumptions stated therein, all of which Borrower believes to be
reasonable and fair in light of current conditions and current facts known to
Borrower and, as of the Closing Date, reflect Borrower's good faith and
reasonable estimates of the future financial performance of Borrower and of the
other information projected therein for the period set forth therein.
3.5 Material Adverse Effect. Except as set forth in Disclosure
Schedule 3.5, between June 29, 1996 and the Closing Date, (a) no Credit Party
has incurred any obligations, contingent or non-contingent liabilities,
liabilities for Charges, long-term leases or unusual forward or long-term
commitments which are not reflected in the Pro Forma and which, alone or in the
aggregate, could reasonably be expected to have a Material Adverse Effect, (b)
no contract, lease or other agreement or instrument has been entered into by any
Credit Party or has become binding upon any Credit Party's assets and no law or
regulation applicable to any Credit Party has been adopted which has had or
could reasonably be expected to have a Material Adverse Effect, and (c) no
Credit Party is in default and to the best of Borrower's knowledge no third
party is in default under any material contract, lease or other agreement or
instrument, which alone or in the aggregate could reasonably be expected to have
a Material Adverse Effect. Between June 29, 1996 and the Closing Date no event
has occurred, which alone or together with other events, could reasonably be
expected to have a Material Adverse Effect.
3.6 Ownership of Property; Liens. (a) As of the Closing Date, the real
estate ("Real Estate") listed on Disclosure Schedule 3.6 constitutes all of the
real property owned, leased, subleased, or used by any Credit Party. Each
Credit Party owns good and marketable fee simple title to all of its owned real
estate, and valid and marketable leasehold interests in all of its leased Real
Estate, all as described on Disclosure Schedule 3.6, and copies of all such
leases have been delivered to Lender. Disclosure Schedule 3.6 further describes
any Real Estate with respect to which any Credit Party is a lessor, sublessor or
assignor as of the Closing Date. Each Credit Party also has good and marketable
title to, or valid leasehold interests in, all of its personal properties and
assets. As of the Closing Date, none of the properties and assets of any Credit
Party are subject to any Liens other than Permitted Encumbrances, and there are
no facts, circumstances or conditions known to any Credit Party that may result
in any Liens (including Liens arising under Environmental Laws) other than
Permitted Encumbrances. Each Credit Party has received all deeds, assignments,
waivers, consents, non-disturbance and recognition or similar agreements, bills
of sale and other documents, and has duly effected all recordings, filings and
other actions necessary to establish, protect and perfect such Credit Party's
right, title and interest in and to all such Real Estate and other properties
and assets. Disclosure Schedule 3.6 also describes any purchase options, rights
of first refusal or other similar contractual rights pertaining to any Real
Estate. As of the Closing Date, no portion of any Credit Party's Real Estate
has suffered any material damage by fire or other casualty loss which has not
heretofore been completely repaired and restored to its original condition or
otherwise remedied. As of the Closing Date, all permits required to have been
issued or appropriate to enable the Real Estate to be lawfully occupied and used
for all of the purposes for which they are currently occupied and used have been
lawfully issued and are in full force and effect.
3.7 Labor Matters. As of the Closing Date (a) no strikes or other
material labor disputes against any Credit Party are pending or, to any Credit
Party's knowledge, threatened; (b) hours worked by and payment made to employees
of each Credit Party comply with the Fair Labor Standards Act and each other
federal, state, local or foreign law applicable to such matter; (c) all payments
due from any Credit Party for employee health and welfare insurance have been
paid or accrued as a liability on the books of such Credit Party; (d) except as
set forth in Disclosure Schedule 3.7, no Credit Party is a party to or bound by
any collective bargaining agreement, management agreement, consulting agreement
or any employment agreement (and true and complete copies of any agreements
described on Disclosure Schedule 3.7 have been delivered to Lender); (e) there
is no organizing activity involving any Credit Party pending or, to any Credit
Party's knowledge, threatened by any labor union or group of employees; (f)
there are no representation proceedings pending or, to any Credit Party's
knowledge, threatened with the National Labor Relations Board, and no labor
organization or group of employees of any Credit Party has made a pending demand
for recognition; and (g) except as set forth in Disclosure Schedule 3.7, there
are no complaints or charges against any Credit Party pending or threatened to
be filed with any Governmental Authority or arbitrator based on, arising out of,
in connection with, or otherwise relating to the employment or termination of
employment by any Credit Party of any individual.
3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and
Indebtedness. Except as set forth in Disclosure Schedule 3.8, no Credit Party
has any Subsidiaries, is engaged in any joint venture or partnership with any
other Person, or is an Affiliate of any other Person. All of the issued and
outstanding Stock of each Credit Party is owned by each of the stockholders and
in the amounts set forth on Disclosure Schedule 3.8. Except as set forth in
Disclosure Schedule 3.8, there are no outstanding rights to purchase, options,
warrants or similar rights or agreements pursuant to which any Credit Party may
be required to issue, sell, repurchase or redeem any of its Stock or other
equity securities or any Stock or other equity securities of its Subsidiaries.
All outstanding Indebtedness of each Credit Party as of the Closing Date is
described in Section 6.3 (including Disclosure Schedule 6.3).
3.9 Government Regulation. No Credit Party is an "investment company" or
an "affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940 as amended. No Credit Party is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, or any other
federal or state statute that restricts or limits its ability to incur
Indebtedness or to perform its obligations hereunder. The making of the Loans by
Lender to Borrower, the incurrence of the Letter of Credit Obligations on behalf
of Borrower, the application of the proceeds thereof and repayment thereof and
the consummation of the Related Transactions will not violate any provision of
any such statute or any rule, regulation or order issued by the Securities and
Exchange Commission.
3.10 Margin Regulations. No Credit Party is engaged, nor will it engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of "purchasing" or "carrying" any "margin security" as
such terms are defined in Regulation U or G of the Federal Reserve Board as now
and from time to time hereafter in effect (such securities being referred to
herein as "Margin Stock"). No Credit Party owns any Margin Stock, and none of
the proceeds of the Loans or other extensions of credit under this Agreement
will be used, directly or indirectly, for the purpose of purchasing or carrying
any Margin Stock, for the purpose of reducing or retiring any Indebtedness which
was originally incurred to purchase or carry any Margin Stock or for any other
purpose which might cause any of the Loans or other extensions of credit under
this Agreement to be considered a "purpose credit" within the meaning of
Regulation G, T, U or X of the Federal Reserve Board. No Credit Party will take
or permit to be taken any action which might cause any Loan Document to violate
any regulation of the Federal Reserve Board.
3.11 Taxes. All tax returns, reports and statements, including information
returns, required by any Governmental Authority to be filed by any Credit Party
have been filed with the appropriate Governmental Authority and all Charges have
been paid prior to the date on which any fine, penalty, interest or late charge
may be added thereto for nonpayment thereof (or any such fine, penalty,
interest, late charge or loss has been paid), excluding Charges or other
amounts being contested in accordance with Section 5.2(b). Proper and accurate
amounts have been withheld by each Credit Party from its respective employees
for all periods in full and complete compliance with all applicable federal,
state, local and foreign law and such withholdings have been timely paid to the
respective Governmental Authorities. Disclosure Schedule 3.11 sets forth as of
the Closing Date those taxable years for which any Credit Party's tax returns
are currently being audited by the IRS or any other applicable Governmental
Authority and any assessments or threatened assessments in connection with
such audit, or otherwise currently outstanding. Except as described on
Disclosure Schedule 3.11, no Credit Party has executed or filed with the IRS
or any other Governmental Authority any agreement or other document extending,
or having the effect of extending, the period for assessment or collection of
any Charges. None of the Credit Parties and their respective predecessors
are liable for any Charges: (a) under any agreement (including any tax sharing
agreements) or (b) to the best of each Credit Party's knowledge, as a
transferee. As of the Closing Date, no Credit Party has agreed or been
requested to make any adjustment under IRC Section 481(a), by reason of a change
in accounting method or otherwise, which would have a Material Adverse Effect.
3.12 ERISA. (a) Disclosure Schedule 3.12 lists and separately
identifies all Title IV Plans, Multiemployer Plans, ESOPs and Retiree Welfare
Plans. Copies of all such listed Plans, together with a copy of the latest form
5500 for each such Plan, have been delivered to Lender. Each Qualified Plan has
been determined by the IRS to qualify under Section 401 of the IRC, and the
trusts created thereunder have been determined to be exempt from tax under the
provisions of Section 501 of the IRC, and nothing has occurred which would cause
the loss of such qualification or tax-exempt status. Each Plan is in compliance
with the applicable provisions of ERISA and the IRC, including the filing of
reports required under the IRC or ERISA. No Credit Party or ERISA Affiliate has
failed to make any contribution or pay any amount due as required by either
Section 412 of the IRC or Section 302 of ERISA or the terms of any such Plan.
No Credit Party or ERISA Affiliate has engaged in a prohibited transaction, as
defined in Section 4975 of the IRC, in connection with any Plan, which would
subject any Credit Party to a material tax on prohibited transactions imposed by
Section 4975 of the IRC.
(b) Except as set forth in Disclosure Schedule 3.12: (i) no Title IV
Plan has any Unfunded Pension Liability; (ii) no ERISA Event or event described
in Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is
reasonably expected to occur; (iii) there are no pending, or to the knowledge of
any Credit Party, threatened claims (other than claims for benefits in the
normal course), sanctions, actions or lawsuits, asserted or instituted against
any Plan or any Person as fiduciary or sponsor of any Plan; (iv) no Credit Party
or ERISA Affiliate has incurred or reasonably expects to incur any liability as
a result of a complete or partial withdrawal from a Multiemployer Plan; (v)
within the last five years no Title IV Plan with Unfunded Pension Liabilities
has been transferred outside of the "controlled group" (within the meaning of
Section 4001(a)(14) of ERISA) of any Credit Party or ERISA Affiliate; and (vi)
no liability under any Title IV Plan has been satisfied with the purchase of a
contract from an insurance company that is not rated AAA by the Standard &
Poor's Corporation or the equivalent by another nationally recognized rating
agency.
3.13 No Litigation. No action, claim, lawsuit, demand, investigation
or proceeding is now pending or, to the knowledge of any Credit Party,
threatened against any Credit Party, before any court, board, commission, agency
or instrumentality of any federal, state, local or foreign government or of any
agency or subdivision thereof, or before any arbitrator or panel of arbitrators
(collectively, "Litigation"), (a) which challenges any Credit Party's right or
power to enter into or perform any of its obligations under the Loan Documents
to which it is a party, or the validity or enforceability of any Loan Document
or any action taken thereunder, or (b) except as set forth on Disclosure
Schedule 3.13, which has a reasonable risk of being determined adversely to any
Credit Party and which, if so determined, could have a Material Adverse Effect.
Except as set forth on Disclosure Schedule 3.13, as of the Closing Date there is
no Litigation pending or threatened which seeks damages in excess of $250,000 or
injunctive relief or alleges criminal misconduct of any Credit Party.
3.14 Brokers. No broker or finder acting on behalf of any Credit Party
brought about the obtaining, making or closing of the Loans or the transactions
contemplated by the Related Transactions Documents and no Credit Party has any
obligation to any Person in respect of any finder's or brokerage fees in
connection therewith.
3.15 Intellectual Property. As of the Closing Date, each Credit Party
owns or has rights to use all Intellectual Property necessary to continue to
conduct its business as now or heretofore conducted by it or proposed to be
conducted by it, and each Patent, Trademark, Copyright and License is listed,
together with application or registration numbers, as applicable, in Disclosure
Schedule 3.15 hereto. Each Credit Party conducts its business and affairs
without infringement of or interference with any Intellectual Property of any
other Person.
3.16 Full Disclosure. No information contained in this Agreement, any
of the other Loan Documents, any Projections, Financial Statements or Collateral
Reports or other reports from time to time delivered hereunder or any written
statement furnished by or on behalf of any Credit Party to Lender pursuant to
the terms of this Agreement contains any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made. The Liens granted to Lender pursuant to the Collateral
Documents will at all times be fully perfected first priority Liens in and to
the Collateral, subject only to Permitted Encumbrances with respect to the
Collateral other than Accounts.
3.17 Environmental Matters. (a) Except as set forth in Disclosure
Schedule 3.17, as of the Closing Date: (i) the Real Estate is free of
contamination from any Hazardous Material except for such contamination that
would not adversely impact the value or marketability of such Real Estate and
which would not result in Environmental Liabilities which could reasonably be
expected to exceed $250,000; (ii) no Credit Party has caused or suffered to
occur any Release of Hazardous Materials on, at, in, under, above, to, from or
about any of its Real Estate; (iii) the Credit Parties are and have been in
compliance with all Environmental Laws, except for such noncompliance which
would not result in Environmental Liabilities which could reasonably be expected
to exceed $250,000; (iv) the Credit Parties have obtained, and are in compliance
with, all Environmental Permits required by Environmental Laws for the
operations of their respective businesses as presently conducted or as proposed
to be conducted, except where the failure to so obtain or comply with such
Environmental Permits would not result in Environmental Liabilities which could
reasonably be expected to exceed $250,000, and all such Environmental Permits
are valid, uncontested and in good standing; (v) no Credit Party is involved in
operations or knows of any facts, circumstances or conditions, including any
Releases of Hazardous Materials, that are likely to result in any Environmental
Liabilities of such Credit Party which could reasonably be expected to exceed
$250,000, and no Credit Party has permitted any current or former tenant or
occupant of the Real Estate to engage in any such operations; (vi) the Credit
Parties' estimated costs of compliance with Environmental Laws and Environmental
Permits for each of the two Fiscal Years following the Closing Date are $150,000
each year; (vii) there is no Litigation arising under or related to any
Environmental Laws, Environmental Permits or Hazardous Material which seeks
damages, penalties, fines, costs or expenses in excess of $50,000 or injunctive
relief, or which alleges criminal misconduct by any Credit Party; (viii) no
notice has been received by any Credit Party identifying it as a "potentially
responsible party" or requesting information under CERCLA or analogous state
statutes, and to the best knowledge of the Credit Parties, after due inquiry,
there are no facts, circumstances or conditions that may result in any Credit
Party being identified as a "potentially responsible party" under CERCLA or
analogous state statutes; and (ix) the Credit Parties have provided to Lender
copies of all existing environmental reports, reviews and audits and all written
information pertaining to actual or potential Environmental Liabilities, in each
case relating to any Credit Party.
(b) Each Credit Party hereby acknowledges and agrees that Lender (i)
is not now, and has not ever been, in control of any of the Real Estate or any
Credit Party's affairs, and (ii) does not have the capacity through the
provisions of the Loan Documents or otherwise to influence any Credit Party's
conduct with respect to the ownership, operation or management of any of its
Real Estate or compliance with Environmental Laws or Environmental Permits.
3.18 Insurance. Disclosure Schedule 3.18 lists all insurance policies of
any nature maintained, as of the Closing Date, for current occurrences by each
Credit Party, as well as a summary of the terms of each such policy.
3.19 Deposit and Disbursement Accounts. Disclosure Schedule 3.19 lists
all banks and other financial institutions at which any Credit Party maintains
deposits and/or other accounts as of the Closing Date, including any
Disbursement Accounts, and such Schedule correctly identifies the name, address
and telephone number of each depository, the name in which the account is held,
a description of the purpose of the account, and the complete account number.
3.20 Government Contracts. Except as set forth in Disclosure Schedule
3.20, as of the Closing Date, no Credit Party is a party to any contract or
agreement with the federal government or any state or municipal government and
no Credit Party's Accounts are subject to the Federal Assignment of Claims Act,
as amended (31 U.S.C. Section 3727) or any similar state or local law.
3.21 Customer and Trade Relations. Except as set forth in Disclosure
Schedule 3.21, as of the Closing Date, there exists no actual or threatened
termination or cancellation of, or any material adverse modification or change
in: (a) the business relationship of any Credit Party with any customer or
group of customers whose purchases during the preceding twelve (12) months
caused them to be ranked among the ten largest customers of such Credit Party;
or (b) the business relationship of any Credit Party with any supplier material
to its operations.
3.22 Agreements and Other Documents. As of the Closing Date, each Credit
Party has provided to Lender or its counsel accurate and complete copies (or
summaries) of all of the following agreements or documents to which any it is
subject and each of which are listed on Disclosure Schedule 3.22: (a) supply
agreements and purchase agreements not terminable by such Credit Party within
sixty (60) days following written notice issued by such Credit Party and
involving transactions in excess of $1,000,000 per annum; (b) any lease of
Equipment having a remaining term of one year or longer and requiring aggregate
rental and other payments in excess of $500,000 per annum; (c) licenses and
permits held by the Credit Parties, the absence of which could be reasonably
likely to have a Material Adverse Effect; (d) instruments or documents
evidencing Indebtedness of such Credit Party and any security interest granted
by such Credit Party with respect thereto; and (e) instruments and agreements
evidencing the issuance of any equity securities, warrants, rights or options to
purchase equity securities of such Credit Party.
3.23 Solvency. Both before and after giving effect to (a) the Loans and
Letter of Credit Obligations to be made or extended on the Closing Date or such
other date as Loans and Letter of Credit Obligations requested hereunder are
made or extended, (b) the disbursement of the proceeds of such Loans pursuant to
the instructions of Borrower, (c) the Refinancing and the consummation of the
other Related Transactions and (d) the payment and accrual of all transaction
costs in connection with the foregoing, each Credit Party is Solvent.
4. FINANCIAL STATEMENTS AND INFORMATION.
4.1 Reports and Notices. (a) Each Credit Party hereby agrees that from
and after the Closing Date and until the Termination Date, it shall deliver to
Lender the Financial Statements, notices, Projections and other information at
the times, to the Persons and in the manner set forth in Annex E.
(b) Each Credit Party hereby agrees that from and after the Closing
Date and until the Termination Date, it shall deliver to Lender the Collateral
Reports (including Borrowing Base Certificates in the form of Exhibit 4.1(b)) at
the times, to the Persons and in the manner set forth in Annex F.
4.2 Communication with Accountants. Each Credit Party authorizes Lender,
upon the occurrence of a Default or Event of Default or otherwise in the event
Lender reasonably believes that a Default or an Event of Default may have
occurred, to communicate directly with its independent certified public
accountants including Deloitte & Touche LLP, and authorizes and shall instruct
those accountants and advisors to disclose and make available to Lender, upon
representation by Lender to such accountants and advisors of the occurrence of
any such event or that it reasonably believes such an event has occurred, any
and all Financial Statements and other supporting financial documents, schedules
and information relating to any Credit Party (including copies of any issued
management letters) with respect to the business, financial condition and other
affairs of any Credit Party; provided, that Lender shall give Borrower at least
one (1) Business Days' prior notice of any such direct communication.
5. AFFIRMATIVE COVENANTS
Each Credit Party jointly and severally agrees that from and after the date
hereof and until the Termination Date:
5.1 Maintenance of Existence and Conduct of Business. Each Credit Party
shall: (a) do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence and its rights and franchises;
(b) continue to conduct its business substantially as now conducted or as
otherwise permitted hereunder; (c) at all times maintain, preserve and protect
all of its assets and properties used or useful in the conduct of its business,
and keep the same in good repair, working order and condition in all material
respects (taking into consideration ordinary wear and tear) and from time to
time make, or cause to be made, all necessary or appropriate repairs,
replacements and improvements thereto consistent with industry practices; and
(d) transact business only in such corporate and trade names as are set forth in
Disclosure Schedule 5.1.
5.2 Payment of Obligations. (a) Subject to Section 5.2(b), each Credit
Party shall pay and discharge or cause to be paid and discharged promptly all
Charges payable by it, including (A) Charges imposed upon it, its income and
profits, or any of its property (real, personal or mixed) and all Charges with
respect to tax, social security and unemployment withholding with respect to its
employees before any thereof shall become past due, (B) lawful claims for
supplies before any thereof shall become past due consistent with historical
practice or industry standards, and (C) lawful claims for labor, materials and
services or otherwise, before any thereof shall become past due.
(b) Each Credit Party may in good faith contest, by appropriate
proceedings, the validity or amount of any Charges or claims described Section
5.2(a); provided, that (i) at the time of commencement of any such contest no
Default or Event of Default shall have occurred and be continuing, (ii) adequate
reserves with respect to such contest are maintained on the books of such Credit
Party, in accordance with GAAP, (iii) such contest is maintained and prosecuted
continuously and with diligence, (iv) none of the Collateral becomes subject to
forfeiture or loss as a result of such contest, (v) no Lien shall be imposed to
secure payment of such Charges or claims other than inchoate tax liens, (vi)
such Credit Party shall promptly pay or discharge such contested Charges or
claims and all additional charges, interest, penalties and expenses, if any, and
shall deliver to Lender evidence acceptable to Lender of such compliance,
payment or discharge, if such contest is terminated or discontinued adversely to
such Credit Party or the conditions set forth in this Section 5.2(b) are no
longer met, and (vii) Lender has not advised Borrower in writing that Lender
reasonably believes that nonpayment or nondischarge thereof could have or result
in a Material Adverse Effect.
5.3 Books and Records. Each Credit Party shall keep adequate books and
records with respect to its business activities in which proper entries,
reflecting all financial transactions, are made in accordance with GAAP and on a
basis consistent with the Financial Statements attached as Disclosure Schedule
3.4(A).
5.4 Insurance; Damage to or Destruction of Collateral. (a) The Credit
Parties shall, at their sole cost and expense, maintain the policies of
insurance described on Disclosure Schedule 3.18 in form and with insurers
recognized as adequate by Lender. If any Credit Party at any time or times
hereafter shall fail to obtain or maintain any of the policies of insurance
required above or to pay all premiums relating thereto, Lender may at any time
or times thereafter obtain and maintain such policies of insurance and pay such
premiums and take any other action with respect thereto which Lender deems
advisable. Lender shall have no obligation to obtain insurance for any Credit
Party or pay any premiums therefor. By doing so, Lender shall not be deemed to
have waived any Default or Event of Default arising from any Credit Party's
failure to maintain such insurance or pay any premiums therefor. All sums so
disbursed, including attorneys' fees, court costs and other charges related
thereto, shall be payable on demand by Borrower to Lender and shall be
additional Obligations hereunder secured by the Collateral.
(b) Lender reserves the right at any time upon any change in any
Credit Party's risk profile (including any change in the product mix maintained
by any Credit Party or any laws affecting the potential liability of such Credit
Party) to require additional forms and limits of insurance to, in Lender's
opinion, adequately protect both Lender's interests in all or any portion of the
Collateral and to ensure that each Credit Party is protected by insurance in
amounts and with coverage customary for its industry. If requested by Lender,
each Credit Party shall deliver to Lender from time to time a report of a
reputable insurance broker, satisfactory to Lender, with respect to its
insurance policies.
(c) Borrower shall deliver to Lender, in form and substance
satisfactory to Lender, endorsements to (i) all "All Risk" and business
interruption insurance naming Lender as loss payee, and (ii) all general
liability and other liability policies naming Lender as additional insured.
Borrower irrevocably makes, constitutes and appoints Lender (and all officers,
employees or agents designated by Lender), so long as any Default or Event of
Default shall have occurred and be continuing or the anticipated insurance
proceeds exceed $250,000, as Borrower's true and lawful agent and
attorney-in-fact for the purpose of making, settling and adjusting claims under
such "All Risk" policies of insurance, endorsing the name of Borrower on any
check or other item of payment for the proceeds of such "All Risk" policies of
insurance and for making all determinations and decisions with respect to such
"All Risk" policies of insurance. Lender shall have no duty to exercise any
rights or powers granted to it pursuant to the foregoing power-of-attorney.
Borrower shall promptly notify Lender of any loss, damage, or destruction to the
Collateral in the amount of $250,000 or more, whether or not covered by
insurance. Lender is hereby authorized to directly collect all insurance
proceeds relating to the Collateral, so long as any Default or Event of Default
shall have occurred and be continuing or the anticipated insurance proceeds
exceed $250,000. After deducting from such proceeds the expenses, if any,
incurred by Lender in the collection or handling thereof, Lender may, at its
option, apply such proceeds to the reduction of the Obligations in accordance
with Section 1.3(d), or permit or require Borrower to use such money, or any
part thereof, to replace, repair, restore or rebuild the Collateral in a
diligent and expeditious manner with materials and workmanship of substantially
the same quality as existed before the loss, damage or destruction.
Notwithstanding the foregoing, if the casualty giving rise to such insurance
proceeds would not reasonably be expected to have a Material Adverse Effect and
such insurance proceeds do not exceed $500,000 in the aggregate, Lender shall
permit Borrower to replace, restore, repair or rebuild the property; provided
that if Borrower has not completed or entered into binding agreements to
complete such replacement, restoration, repair or rebuilding within ninety (90)
days of such casualty, Lender may apply such insurance proceeds to the
Obligations in accordance with Section 1.3(d). All insurance proceeds which are
to be made available to Borrower to replace, repair, restore or rebuild the
Collateral shall be applied by Lender to reduce the outstanding principal
balance of the Revolving Loan (which application shall not result in a permanent
reduction of the Revolving Loan Commitment) and upon such application, Lender
shall establish a Reserve against the Borrowing Base in an amount equal to the
amount of such proceeds so applied. Thereafter, such funds shall be made
available to Borrower to provide funds to replace, repair, restore or rebuild
the Collateral as follows: (i) Borrower shall request a Revolving Credit Advance
in the amount requested to be released; (ii) so long as the conditions set forth
in Section 2.2 have been met, Lender shall make such Revolving Credit Advance;
and (iii) the Reserve established with respect to such insurance proceeds shall
be reduced by the amount of such Revolving Credit Advance. To the extent not
used to replace, repair, restore or rebuild the Collateral, such insurance
proceeds shall be applied in accordance with Section 1.3(d).
5.5 Compliance with Laws. Each Credit Party shall comply with all
federal, state and local laws and regulations applicable to it, including those
relating to licensing, ERISA and labor matters and Environmental Laws and
Environmental Permits, except to the extent that the failure to comply,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
5.6 Supplemental Disclosure. From time to time as may be requested
by Lender (which request will not be made more frequently than once each year
absent the occurrence and continuance of a Default or an Event of Default), the
Credit Parties shall supplement each Disclosure Schedule hereto, or any
representation herein or in any other Loan Document, with respect to any matter
hereafter arising which, if existing or occurring at the date of this Agreement,
would have been required to be set forth or described in such Disclosure
Schedule or as an exception to such representation or which is necessary to
correct any information in such Disclosure Schedule or representation which has
been rendered inaccurate thereby (and, in the case of any supplements to any
Disclosure Schedule, such Disclosure Schedule shall be appropriately marked to
show the changes made therein); provided, however, that no such supplement to
any such Disclosure Schedule or representation shall be or be deemed a waiver of
any Default or Event of Default resulting from the matters disclosed therein,
except as consented to by Lender in writing; provided further, that no
supplementation shall be required as to representations and warranties that
relate solely to the Closing Date.
5.7 Intellectual Property. Each Credit Party will conduct its business
and affairs without infringement of or interference with any Intellectual
Property of any other Person.
5.8 Environmental Matters. Each Credit Party shall and shall cause each
Person within its control to: (a) conduct its operations and keep and maintain
its Real Estate in compliance with all Environmental Laws and Environmental
Permits other than noncompliance which could not reasonably be expected to
have a Material Adverse Effect; (b) implement any and all investigation,
remediation, removal and response actions which are appropriate or necessary
to maintain the value and marketability of the Real Estate or to otherwise
comply with Environmental Laws and Environmental Permits pertaining to the
presence, generation, treatment, storage, use, disposal, transportation or
Release of any Hazardous Material on, at, in, under, above, to, from or about
any of its Real Estate; (c) notify Lender promptly after such Credit Party
becomes aware of any violation of Environmental Laws or Environmental Permits or
any Release on, at, in, under, above, to, from or about any Real Estate which is
reasonably likely to result in Environmental Liabilities in excess of $25,000
and (d) promptly forward to Lender a copy of any order, notice, request for
information or any communication or report received by such Credit Party in
connection with any such violation or Release or any other matter relating to
any Environmental Laws or Environmental Permits that could reasonably be
expected to result in Environmental Liabilities in excess of $100,000, in each
case whether or not the Environmental Protection Agency or any Governmental
Authority has taken or threatened any action in connection with any such
violation, Release or other matter. If Lender at any time has a reasonable
basis to believe that there may be a violation of any Environmental Laws or
Environmental Permits by any Credit Party or any Environmental Liability arising
thereunder, or a Release of Hazardous Materials on, at, in, under, above, to,
from or about any of its Real Estate, which, in each case, could reasonably be
expected to have a Material Adverse Effect, then each Credit Party shall, upon
Lender's written request (i) cause the performance of such environmental audits
including subsurface sampling of soil and groundwater, and preparation of such
environmental reports, at Borrower's expense, as Lender may from time to time
request, which shall be conducted by reputable environmental consulting firms
acceptable to Lender and shall be in form and substance acceptable to Lender,
and (ii) permit Lender or its representatives to have access to all Real Estate
for the purpose of conducting such environmental audits and testing as Lender
deems appropriate, including subsurface sampling of soil and groundwater.
Borrower shall reimburse Lender for the costs of such audits and tests and the
same will constitute a part of the Obligations secured hereunder.
5.9 Landlords' Agreements, Mortgagee Agreements and Bailee Letters.
Each Credit Party shall use its best efforts to obtain a landlord's agreement,
mortgagee agreement or bailee letter, as applicable, from the lessor of each
leased property or mortgagee of owned property or with respect to any warehouse,
processor or converter facility or other location where Collateral is located,
which agreement or letter shall be satisfactory in form and substance to Lender.
With respect to such locations or warehouse space leased or owned as of the
Closing Date, if Lender has not received a landlord or mortgagee agreement or
bailee letter as of the Closing Date, or if the landlord or mortgagee agreement
or bailee letter does not contain a waiver or subordination of all Liens or
claims that the landlord, mortgagee or bailee may assert against the Inventory
at that location, Borrower's Eligible Inventory at that location shall, in
Lender's discretion, be excluded from the Borrowing Base or be subject to such
Reserves as may be established by Lender in its reasonable credit judgment.
After the Closing Date, no real property or warehouse space shall be leased or
acquired by any Credit Party and no Inventory shall be shipped to a processor or
converter under arrangements established after the Closing Date, unless and
until a landlord or mortgagee agreement or bailee letter, as appropriate, shall
first have been obtained with respect to such location; provided that Borrower
may hold Inventory with a book value not to exceed $100,000 in the aggregate at
newly established locations with Lender's prior approval and subject to a
Reserve established at Lender's discretion. All such landlord or mortgagee
agreements and bailee letters shall be in form and substance satisfactory to
Lender. Each Credit Party shall timely and fully pay and perform its
obligations under all leases and other agreements with respect to each leased
location or public warehouse where any Collateral is or may be located.
5.10 Further Assurances. Each Credit Party shall at its cost and expense,
upon request of Lender, duly execute and deliver, or cause to be duly executed
and delivered, to Lender such further instruments and do and cause to be done
such further acts as may be necessary or proper in the reasonable opinion of
Lender to carry out more effectually the provisions and purposes of this
Agreement or any other Loan Document.
5.11 Sale of the CWA Facility. Within nine (9) months of the Closing
Date, Borrower shall receive proceeds of the sale of the CWA Facility for a net
cash price of at least $1,000,000; provided that, if Borrower shall prepay the
principal amount of the Term Loan in the amount of $1,000,000 pursuant to the
provisions of Section 1.3 (e) (ii), then Borrower shall thereafter be relieved
of its obligation hereunder to sell the CWA Facility and no Default on Event of
Default shall be deemed to have occurred.
6. NEGATIVE COVENANTS.
The Credit Parties each jointly and severally covenant and agree that,
without the prior written consent of Lender, from and after the date hereof
until the Termination Date:
6.1 Mergers, Subsidiaries, Etc. No Credit Party shall directly or
indirectly, by operation of law or otherwise, (a) form or acquire any
Subsidiary, or (b) merge with, consolidate with, acquire all or substantially
all of the assets or capital stock of, or otherwise combine with or acquire, any
Person.
6.2 Investment; Loans and Advances. Except as otherwise expressly
permitted under Sections 6.3 or 6.4 below, no Credit Party shall, or shall cause
or permit any Subsidiary thereof to, make any investment in, or make or accrue
loans or advances of money to, any Person, through the direct or indirect
lending of money, holding of securities or otherwise, except for (a) notes
payable, or stock or other securities issued, by Account Debtors to either
Borrower pursuant to negotiated agreements with respect to settlement of such
Account Debtor's Accounts in the ordinary course of business, so long as the
aggregate amount of such Accounts so settled by the Credit Parties does not
exceed $100,000; and (b) any Credit Party's existing investments in its
Subsidiaries as of the Closing Date.
6.3 Indebtedness. (a) No Credit Party shall create, incur, assume or
permit to exist any Indebtedness, except (i) Indebtedness secured by Permitted
Encumbrances, (ii) the Loans and the other Obligations, (iii) deferred taxes,
(iv) unfunded pension fund and other employee benefit plan obligations and
liabilities to the extent they are permitted to remain unfunded under applicable
law, (v) existing Indebtedness described in Disclosure Schedule 6.3 and
refinancings thereof or amendments or modifications thereto on terms and
conditions no less favorable to any Credit Party, Lender or any Lender, as
determined by Lender, than the terms of the Indebtedness being refinanced,
amended or modified, and (vi) Indebtedness consisting of intercompany loans and
advances made by Borrower to any other Credit Party that is a Guarantor or by
any such Guarantor to Borrower; provided that (A) Borrower shall have executed
and delivered to each such Guarantor, and each such Guarantor shall have
executed and delivered to Borrower, on the Closing Date, a demand note
(collectively the "Intercompany Notes") to evidence any such intercompany
Indebtedness owing by Borrower to such Guarantor or by such Guarantor to
Borrower, which Intercompany Notes shall be in form and substance satisfactory
to Lender and shall be pledged and delivered to Lender pursuant to the
applicable Pledge Agreement or Security Agreement as additional collateral
security for the Obligations; (B) Borrower shall record all intercompany
transactions on its books and records in a manner satisfactory to Lender; (C) at
the time any such intercompany loan or advance is made by Borrower to any
Guarantor and after giving effect thereto, Borrower shall be Solvent; (D) the
aggregate amount of all such intercompany loans shall not exceed $1,500,000 at
any one time outstanding; and (E) no Default or Event of Default shall have
occurred and be continuing as of the date that any such intercompany loan is
proposed to be made.
(b) No Credit Party shall, directly or indirectly, voluntarily
purchase, redeem, defease or prepay any principal of, premium, if any, interest
or other amount payable in respect of any Indebtedness, other than (i) the
Obligations and (ii) Indebtedness secured by a Permitted Encumbrance if the
asset securing such Indebtedness has been sold or otherwise disposed of in
accordance with Sections 6.8(b) or (c).
6.4 Employee Loans and Affiliate Transactions.
(a) No Credit Party shall enter into or be a party to any transaction
with any other Credit Party or any Affiliate thereof except in the ordinary
course of and pursuant to the reasonable requirements of such Credit Party's
business and upon fair and reasonable terms that are no less favorable to such
Credit Party than would be obtained in a comparable arm's length transaction
with a Person not an Affiliate of such Credit Party. In addition, if any such
transaction or series of related transactions involves payments in excess of (i)
$500,000 per week in the aggregate for transactions with Key Tronic Mexico, (ii)
$3,000,000 per month in the aggregate for transactions with the Key Tronic Irish
Partnership, (iii) $100,000 in the aggregate for transactions with all other
Credit Parties or (iv) $50,000 in the aggregate for transactions with all
Affiliates other than Credit Parties, the terms of these transactions must be
disclosed in advance to Lender. All such transactions existing as of the date
hereof are described on Disclosure Schedule 6.4(a).
(b) No Credit Party shall enter into any lending or borrowing
transaction with any employees of any Credit Party, except loans to their
respective employees on an arm's-length basis in the ordinary course of business
consistent with past practices for (i) travel expenses, relocation costs and
similar purposes up to a maximum of $100,000 to any employee and up to a maximum
of $250,000 in the aggregate at any one time outstanding, and (ii) stock option
financing up to a maximum of $1,000,000 to any employee; provided, that all
loans made pursuant to clause (ii) above must be repaid within ninety (90)
Business Days; provided, further, that at no time shall the aggregate amount at
any time outstanding under clauses (i) and (ii) above exceed $1,000,000.
6.5 Capital Structure and Business. No Credit Party shall (a) make
any changes in any of its business objectives, purposes or operations which
could in any way adversely affect the repayment of the Loans or any of the other
Obligations or could have or result in a Material Adverse Effect, (b) amend its
charter or bylaws in a manner which would materially adversely affect Lender or
such Credit Party's duty or ability to repay the Obligations, or (c) make any
change in its capital structure as described on Disclosure Schedule 3.9,
including the issuance of any shares of Stock, warrants or other securities
convertible into Stock or any revision of the terms of its outstanding Stock,
except that (i) Borrower may make a Qualified Public Offering of its common
Stock, or any other issuance of common Stock upon prior written consent of
Lender, and retain the proceeds thereof so long as (A) the proceeds thereof are
applied in prepayment of the Obligations if required by Section 1.3(b)(iii) or
1.16(c), and (B) no Change of Control occurs after giving effect thereto, (ii)
Borrower may make an exchange of its Stock for outstanding options solely as
such exchange relates to the Hiller Option and the value of Stock so exchanged
does not exceed the fair market value of the Hiller Option, Borrower may extend
the Hiller Option for up to three (3) years, (iv) during the period extending
one hundred eighty (180) days from the exercise date of the Hiller Option,
Borrower may purchase Borrower's Stock on the open market in value equal to and
solely from funds obtained as a result of such exercise of the Hiller Option,
(v) Borrower may issue common Stock to its directors pursuant and according to
the terms of its existing stock option plan (without regard to any amendments or
changes thereto), and (vi) Borrower may issue common Stock to its employees and
directors pursuant and according to the terms of existing stock option plans in
an aggregate amount not to exceed 200,000 shares each year; provided that no
Default or Event of Default shall have occurred and be continuing or would
result after giving effect to any offering, issuance, payment or exchange
pursuant to clauses (i) - (vi). No Credit Party shall engage in any business
other than the businesses currently engaged in by it or businesses reasonably
related thereto.
6.6 Guaranteed Indebtedness. No Credit Party shall incur any
Guaranteed Indebtedness except (a) by endorsement of instruments or items of
payment for deposit to the general account of any Credit Party, and (b) for
Guaranteed Indebtedness incurred for the benefit of any other Credit Party if
the primary obligation is expressly permitted by this Agreement.
6.7 Liens. No Credit Party shall create, incur, assume or permit to
exist any Lien on or with respect to its Accounts or any of its other properties
or assets including without limitation all shares of Stock of any other Credit
Party or Subsidiary (whether now owned or hereafter acquired) except for
Permitted Encumbrances. In addition, no Credit Party shall become a party to
any agreement, note, indenture or instrument, or take any other action, which
would prohibit the creation of a Lien on any of its properties or other assets
in favor of Lender as additional collateral for the Obligations, except
operating leases, Capital Leases or Licenses which prohibit Liens upon the
assets that are subject thereto.
6.8 Sale of Stock and Assets. No Credit Party shall sell, transfer,
convey, assign or otherwise dispose of any of its properties or other assets,
including its capital Stock or the capital Stock of any of its Subsidiaries
(whether in a public or a private offering or otherwise) or any of their
Accounts, other than (a) sales of Stock expressly permitted under Section
6.5(c), (b) the sale or leases of the CWA Facility pursuant to Section 1.3(e),
(c) the sale of Inventory in the ordinary course of business, and (d) the sale,
transfer, conveyance or other disposition by a Credit Party of Equipment,
Fixtures or Real Estate that are obsolete or no longer used or useful in such
Credit Party's business and having a gross value not exceeding $100,000 in any
single transaction or $500,000 in the aggregate in any Fiscal Year and (e) other
Equipment and Fixtures having a value not exceeding $100,000 in any single
transaction or $500,000 in the aggregate in any Fiscal Year. With respect to
any disposition of assets or other properties permitted pursuant to clause (d)
and clause (e) above, Lender agrees on reasonable prior written notice to
release its Lien on such assets or other properties in order to permit the
applicable Credit Party to effect such disposition and shall execute and deliver
to Borrower, at Borrower's expense, appropriate UCC-3 termination statements and
other releases as reasonably requested by Borrower.
6.9 ERISA. No Credit Party shall, or shall cause or permit any ERISA
Affiliate to, cause or permit to occur an event which could result in the
imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of
ERISA.
6.10 Financial Covenants. Borrower shall not breach or fail to comply
with any of the Financial Covenants (the "Financial Covenants") set forth in
Annex G.
6.11 Hazardous Materials. No Credit Party shall cause or permit a
Release of any Hazardous Material on, at, in, under, above, to, from or about
any of the Real Estate where such Release would (a) violate in any respect, or
form the basis for any Environmental Liabilities under, any Environmental Laws
or Environmental Permits or (b) otherwise adversely impact the value or
marketability of any of the Real Estate or any of the Collateral, other than
such violations or impacts which could not reasonably be expected to have a
Material Adverse Effect.
6.12 Sale-Leasebacks. No Credit Party shall engage in any
sale-leaseback, synthetic lease or similar transaction involving any of its
assets.
6.13 Cancellation of Indebtedness. No Credit Party shall cancel any
claim or debt owing to it, except for reasonable consideration negotiated on an
arm's-length basis and in the ordinary course of its business consistent with
past practices.
6.14 Restricted Payments. No Credit Party shall make any Restricted
Payment, except (a) intercompany loans and advances between Borrower and
Guarantors to the extent permitted by Section 6.3 above, (b) employee Loans
permitted under Section 6.4(b) above, (c) transactions expressly permitted by
Section 6.5(c) above, and (d) payments of management fees not to exceed One
Hundred Eighty Thousand Dollars ($180,000) per Fiscal Year to the Hiller Group
as may be authorized from time to time by the Board of Directors of Borrower,
provided that no Default or Event of Default shall have occurred and be
continuing or would result after giving effect to any payment pursuant to clause
(d) above.
6.15 Change of Corporate Name or Location; Change of Fiscal Year. No
Credit Party shall (a) change its corporate name, or (b) change its chief
executive office, principal place of business, corporate offices or warehouses
or locations at which Collateral is held or stored, or the location of its
records concerning the Collateral, in any case without at least thirty (30) days
prior written notice to Lender and after Lender's written acknowledgment that
any reasonable action requested by Lender in connection therewith, including to
continue the perfection of any Liens in favor of Lender in any Collateral, has
been completed or taken, and any such new location shall be (i) a location in
the continental United States or (ii) subject to Section 6.19 below, the Key
Tronic Mexico Facility. Without limiting the foregoing, no Credit Party shall
change its name, identity or corporate structure in any manner which might make
any financing or continuation statement filed in connection herewith seriously
misleading within the meaning of Section 9-402(7) of the Code or any other then
applicable provision of the Code except upon prior written notice to Lender and
after Lender's written acknowledgment that any reasonable action requested by
Lender in connection therewith, including to continue the perfection of any
Liens in favor of Lender in any Collateral, has been completed or taken. No
Credit Party shall change its Fiscal Year.
6.16 No Impairment of Intercompany Transfers. No Credit Party shall
directly or indirectly enter into or become bound by any agreement, instrument,
indenture or other obligation (other than this Agreement and the other Loan
Documents) which could directly or indirectly restrict, prohibit or require the
consent of any Person with respect to the payment of dividends or distributions
or the making or repayment of intercompany loans by a Subsidiary of Borrower to
Borrower.
6.17 No Speculative Transactions. No Credit Party shall engage in any
transaction involving commodity options or futures contracts or similar
transactions, except solely to hedge against fluctuations in the prices of
commodities owned or purchased by it and the values of foreign currencies
receivable or payable by it and interest swaps, caps or collars.
6.18 Maintenance of Total Collateral Ratio. Borrower shall not permit the
Total Collateral Ratio at any time to be less than one hundred percent (100%).
6.19 Transfer of Equipment to Mexico. Borrower shall not transfer
Equipment from the United States to the Key Tronic Mexico Facility unless
Borrower's Available Domestic Collateral Ratio is at least eighty percent (80%)
and the Total Collateral Ratio is at least one hundred percent (100%), in each
case at the time of and after giving effect to, any such transfer.
7. TERM
7.1 Termination. The financing arrangements contemplated hereby shall
be in effect until the Commitment Termination Date, and, to the extent not due
and payable sooner pursuant to the terms of this Agreement, the Loans and all
other Obligations shall be automatically due and payable in full on such date.
7.2 Survival of Obligations Upon Termination of Financing Arrangements.
Except as otherwise expressly provided for in the Loan Documents, no termination
or cancellation (regardless of cause or procedure) of any financing arrangement
under this Agreement shall in any way affect or impair the obligations, duties
and liabilities of Borrower or the rights of Lender relating to any unpaid
portion of the Loans or any other Obligations, due or not due, liquidated,
contingent or unliquidated or any transaction or event occurring prior to
such termination, or any transaction or event, the performance of which is
required after the Commitment Termination Date. Except as otherwise
expressly provided herein or in any other Loan Document, all undertakings,
agreements, covenants, warranties and representations of or binding upon
Borrower, and all rights of Lender, all as contained in the Loan Documents,
shall not terminate or expire, but rather shall survive any such termination or
cancellation and shall continue in full force and effect until the Termination
Date; provided however, that in all events the provisions of Section 11 and the
indemnities contained in the Loan Documents shall survive the Termination Date.
8. EVENTS OF DEFAULT: RIGHTS AND REMEDIES
8.1 Events of Default. The occurrence of any one or more of the
following events (regardless of the reason therefor) shall constitute an "Event
of Default" hereunder:
(a) Borrower (i) fails to make any payment of principal of, or
interest on, or Fees owing in respect of, the Loans or any of the other
Obligations when due and payable, or (ii) fails to pay or reimburse Lender for
any expense reimbursable hereunder or under any other Loan Document within ten
(10) days following Lender's demand for such reimbursement or payment of
expenses.
(b) Any Credit Party shall fail or neglect to perform, keep or
observe any of the provisions of Sections 1.4, 1.8, 5.4 or 6, or any of the
provisions set forth in Annexes C or G, respectively.
(c) Borrower shall fail or neglect to perform, keep or observe any of
the provisions of Section 4 or any provisions set forth in Annexes E or F,
respectively, and the same shall remain unremedied for three (3) days or more.
(d) Any Credit Party shall fail or neglect to perform, keep or
observe any other provision of this Agreement or of any of the other Loan
Documents (other than any provision embodied in or covered by any other clause
of this Section 8.1) and the same shall remain unremedied for twenty (20) days
or more.
(e) A default or breach shall occur under any other agreement,
document or instrument to which any Credit Party is a party which is not cured
within any applicable grace period, and such default or breach (i) involves the
failure to make any payment when due in respect of any Indebtedness (other than
the Obligations) of any Credit Party in excess of $250,000 in the aggregate, or
(ii) causes, or permits any holder of such Indebtedness or a trustee to cause,
Indebtedness or a portion thereof in excess of $250,000 in the aggregate to
become due prior to its stated maturity or prior to its regularly scheduled
dates of payment, regardless of whether such default is waived, or such right is
exercised, by such holder or trustee.
(f) Any information contained in any Borrowing Base Certificate is
untrue or incorrect in any respect, or any representation or warranty herein or
in any Loan Document or in any written statement, report, financial statement or
certificate (other than a Borrowing Base Certificate) made or delivered to
Lender by any Credit Party is untrue or incorrect in any material respect as of
the date when made or deemed made.
(g) Assets of any Credit Party with a fair market value of $50,000 or
more shall be attached, seized, levied upon or subjected to a writ or distress
warrant, or come within the possession of any receiver, trustee, custodian or
assignee for the benefit of creditors of any Credit Party and such condition
continues for thirty (30) days or more.
(h) A case or proceeding shall have been commenced against any Credit
Party seeking a decree or order in respect of any Credit Party (i) under Title
11 of the United States Code, as now constituted or hereafter amended or any
other applicable federal, state or foreign bankruptcy or other similar law, (ii)
appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator
(or similar official) for any Credit Party or of any substantial part of any
such Person's assets, or (iii) ordering the winding-up or liquidation of the
affairs of any Credit Party, and such case or proceeding shall remain
undismissed or unstayed for sixty (60) days or more or such court shall enter a
decree or order granting the relief sought in such case or proceeding.
(i) Any Credit Party (i) shall file a petition seeking relief under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other applicable federal, state or foreign bankruptcy or other similar law,
(ii) shall fail to consent in a timely and appropriate manner or shall consent
to the institution of proceedings thereunder or to the filing of any such
petition or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or similar official) of any
Credit Party or of any substantial part of any such Person's assets, (iii) shall
make an assignment for the benefit of creditors, or (iv) shall take any
corporate action in furtherance of any of the foregoing.
(j) Borrower admits in writing its inability to, or is generally
unable to, pay its debts as such debts become due.
(k) A final judgment or judgments for the payment of money in excess
of $100,000 in the aggregate at any time outstanding shall be rendered against
any Credit Party and the same shall not, within thirty (30) days after the entry
thereof, have been discharged or execution thereof stayed or bonded pending
appeal, or shall not have been discharged prior to the expiration of any such
stay.
(l) Any material provision of any Loan Document shall for any reason
cease to be valid, binding and enforceable in accordance with its terms (or any
Credit Party shall challenge the enforceability of any Loan Document or shall
assert in writing, or engage in any action or inaction based on any such
assertion, that any provision of any of the Loan Documents has ceased to be or
otherwise is not valid, binding and enforceable in accordance with its terms),
or any security interest created under any Loan Document shall cease to be a
valid and perfected first priority security interest or Lien (except as
otherwise permitted herein or therein) in any of the Collateral.
(m) Any "Change of Control" shall occur.
(n) Any event not fully covered by business interruption insurance
shall occur as a result of which revenue-producing activities cease or are
substantially curtailed at the Key Tronic Mexico Facility and such cessation or
curtailment continues for more than thirty (30) days.
8.2 Remedies. (a) If any Default or Event of Default shall have
occurred and be continuing, Lender may (i) without notice, suspend this facility
with respect to further Revolving Credit Advances and/or the incurrence of
further Letter of Credit Obligations whereupon any further Advances and Letter
of Credit Obligations shall be made or extended in Lender's sole discretion so
long as such Default or Event of Default is continuing, and (ii) without notice
except as otherwise expressly provided herein, increase the rate of interest
applicable to the Loans and the Letter of Credit Fees to the Default Rate.
(b) If any Event of Default shall have occurred and be continuing,
Lender may, without notice, (i) terminate this facility with respect to further
Revolving Credit Advances or the incurrence of further Letter of Credit
Obligations; (ii) declare all or any portion of the Obligations, including all
or any portion of any Loan to be forthwith due and payable, and require that the
Letter of Credit Obligations be cash collateralized as provided in Annex B, all
without presentment, demand, protest or further notice of any kind, all of which
are expressly waived by Borrower and each other Credit Party; and (iii) exercise
any rights and remedies provided to Lender under the Loan Documents and/or at
law or equity, including all remedies provided under the Code; provided,
however, that upon the occurrence of an Event of Default specified in Sections
8.1(g), (h) or (i), all of the Obligations, including the Revolving Loan, shall
become immediately due and payable without declaration, notice or demand by any
Person.
8.3 Waivers by Credit Parties. Except as otherwise provided for in
this Agreement or by applicable law, each Credit Party waives: (a) presentment,
demand and protest and notice of presentment, dishonor, notice of intent to
accelerate, notice of acceleration, protest, default, nonpayment, maturity,
release, compromise, settlement, extension or renewal of any or all commercial
paper, accounts, contract rights, documents, instruments, chattel paper and
guaranties at any time held by Lender on which any Credit Party may in any way
be liable, and hereby ratifies and confirms whatever Lender may do in this
regard, (b) all rights to notice and a hearing prior to Lender's taking
possession or control of, or to Lender's replevy, attachment or levy upon, the
Collateral or any bond or security which might be required by any court prior to
allowing Lender to exercise any of its remedies, and (c) the benefit of all
valuation, appraisal, marshalling and exemption laws.
9. PARTICIPATIONS
9.1 Participations. (a) In the event Lender requests Borrower's
consent to sell participations in a Commitment and Borrower so consents (which
consent may not be unreasonably withheld), Lender may sell participations in any
Commitment or any portion thereof or interest therein; provided that any such
participation or participations in the aggregate may not exceed fifty percent
(50%) of the sum of (i) the Maximum Revolving Commitment and (ii) the aggregate
outstanding amount on the Term Loan. Any participation by Lender of all or any
part of its Commitments shall be in an amount at least equal to $5,000,000, and
with the understanding that all amounts payable by Borrower hereunder shall be
determined as if Lender had not sold such participation, and that the holder of
any such participation shall not be entitled to require Lender to take or omit
to take any action hereunder except actions directly affecting (i) any reduction
in the principal amount of, or interest rate or Fees payable with respect to,
any Loan in which such holder participates, (ii) any extension of the scheduled
amortization of the principal amount of any Loan in which such holder
participates or the final maturity date thereof, and (iii) any release of all or
substantially all of the Collateral (other than in accordance with the terms of
this Agreement, the Collateral Documents or the other Loan Documents). Solely
for purposes of Sections 1.13, 1.15, and 1.16, Borrower acknowledges and agrees
that a participation shall give rise to a direct obligation of Borrower to the
participant and the participant shall be considered to be a "Lender". Except as
set forth in the preceding sentence neither Borrower nor any other Credit Party
shall have any obligation or duty to any participant.
(b) Lender may furnish any information concerning Borrower in the
possession of Lender from time to time to participants (including prospective
participants). Lender shall obtain from participants confidentiality covenants
substantially equivalent to those contained in Section 11.8 hereof.
10. SUCCESSORS AND ASSIGNS
10.1 Successors and Assigns. This Agreement and the other Loan
Documents shall be binding on and shall inure to the benefit of each Credit
Party, Lender and their respective successors and assigns (including, in the
case of any Credit Party, a debtor-in-possession on behalf of such Credit
Party), except as otherwise provided herein or therein. Lender may assign its
rights and obligations under this Agreement in whole without consent; provided,
that in the event of such assignment, (i) the prepayment fees under Section
1.9(c) shall no longer be applicable and (ii) the Default Rate thereafter shall
be reduced to one percentage point (1%) per annum above the rates of interest or
the rate of the Letter of Credit Fees otherwise applicable hereunder. No Credit
Party may assign, transfer, hypothecate or otherwise convey its rights,
benefits, obligations or duties hereunder or under any of the other Loan
Documents without the prior express written consent of Lender. Any such
purported assignment, transfer, hypothecation or other conveyance by any Credit
Party without the prior express written consent of Lender shall be void. The
terms and provisions of this Agreement are for the purpose of defining the
relative rights and obligations of each Credit Party and Lender with respect to
the transactions contemplated hereby and no Person shall be a third party
beneficiary of any of the terms and provisions of this Agreement or any of the
other Loan Documents.
11. MISCELLANEOUS
11.1 Complete Agreement; Modification of Agreement. The Loan
Documents constitute the complete agreement between the parties with respect to
the subject matter thereof and may not be modified, altered or amended except as
set forth in Section 11.2 below. Any letter of interest, commitment letter
and/or fee letter (other than the GE Capital Fee Letter) between any Credit
Party and Lender or any Lender or any of their respective affiliates, predating
this Agreement and relating to a financing of substantially similar form,
purpose or effect shall be superseded by this Agreement.
11.2 Amendments and Waivers. No amendment, modification, termination
or waiver of any provision of this Agreement or any of the Notes, or any consent
to any departure by any Credit Party therefrom, shall in any event be effective
unless the same shall be in writing and signed by Lender and Borrower.
Upon indefeasible payment in full in cash and performance of all of the
Obligations (other than indemnification Obligations under Section 1.13),
termination of the Commitments and a release of all claims against Lender, and
so long as no suits, actions proceedings, or claims are pending or threatened
against any Indemnified Person asserting any damages, losses or liabilities that
are Indemnified Liabilities, Lender shall deliver to Borrower termination
statements, mortgage releases and other documents necessary or appropriate to
evidence the termination of the Liens securing payment of the Obligations.
11.3 Fees and Expenses. Borrower shall reimburse Lender for all
out-of-pocket expenses incurred in connection with the preparation of the Loan
Documents (including the reasonable fees and expenses of all of its special loan
counsel, advisors, consultants and auditors retained in connection with the Loan
Documents and the Related Transactions and advice in connection therewith).
Borrower shall reimburse Lender for all fees, costs and expenses, including the
fees, costs and expenses of counsel or other advisors (including environmental
and management consultants and appraisers) for advice, assistance, or other
representation in connection with:
(a) the forwarding to Borrower or any other Person on behalf of
Borrower by Lender of the proceeds of the Loans;
(b) any amendment, modification or waiver of, or consent with respect
to, any of the Loan Documents or Related Transactions Documents or advice in
connection with the administration of the Loans made pursuant hereto or its
rights hereunder or thereunder;
(c) any litigation, contest, dispute, suit, proceeding or action
(whether instituted by Lender, Borrower or any other Person) in any way relating
to the Collateral, any of the Loan Documents or any other agreement to be
executed or delivered in connection therewith or herewith, whether as party,
witness, or otherwise, including any litigation, contest, dispute, suit, case,
proceeding or action, and any appeal or review thereof, in connection with a
case commenced by or against Borrower or any other Person that may be obligated
to Lender by virtue of the Loan Documents; including any such litigation,
contest, dispute, suit, proceeding or action arising in connection with any
work-out or restructuring of the Loans during the pendency of one or more Events
of Default;
(d) any attempt to enforce any remedies of Lender or any Lender
against any or all of the Credit Parties or any other Person that may be
obligated to Lender or any Lender by virtue of any of the Loan Documents;
including any such attempt to enforce any such remedies in the course of any
work-out or restructuring of the Loans during the pendency of one or more Events
of Default;
(e) any work-out or restructuring of the Loans during the pendency of
one or more Events of Default;
(f) efforts to (i) monitor the Loans or any of the other Obligations,
(ii) evaluate, observe or assess any of the Credit Parties or their respective
affairs, and (iii) verify, protect, evaluate, assess, appraise, collect, sell,
liquidate or otherwise dispose of any of the Collateral;
including, without limitation, all attorneys' and other professional and service
providers' fees arising from such services, including those in connection with
any appellate proceedings; and all expenses, costs, charges and other fees
incurred by such counsel and others in any way or respect arising in connection
with or relating to any of the events or actions described in this Section 11.3
shall be payable, on demand, by Borrower to Lender. Without limiting the
generality of the foregoing, such expenses, costs, charges and fees may include:
fees, costs and expenses of accountants, environmental advisors, appraisers,
investment bankers, management and other consultants and paralegals; court costs
and expenses; photocopying and duplication expenses; court reporter fees, costs
and expenses; long distance telephone charges; air express charges; telegram or
telecopy charges; secretarial overtime charges; and expenses for travel, lodging
and food paid or incurred in connection with the performance of such legal or
other advisory services.
11.4 No Waiver. Lender's failure, at any time or times, to require
strict performance by the Credit Parties of any provision of this Agreement and
any of the other Loan Documents shall not waive, affect or diminish any right of
Lender thereafter to demand strict compliance and performance therewith. Any
suspension or waiver of an Event of Default shall not suspend, waive or affect
any other Event of Default whether the same is prior or subsequent thereto and
whether the same or of a different type. None of the undertakings, agreements,
warranties, covenants and representations of any Credit Party contained in this
Agreement or any of the other Loan Documents and no Default or Event of Default
by any Credit Party shall be deemed to have been suspended or waived by Lender,
unless such waiver or suspension is by an instrument in writing signed by an
officer of or other authorized employee of Lender and directed to Borrower
specifying such suspension or waiver.
11.5 Remedies. Lender's rights and remedies under this Agreement
shall be cumulative and nonexclusive of any other rights and remedies which
Lender may have under any other agreement, including the other Loan Documents,
by operation of law or otherwise. Recourse to the Collateral shall not be
required.
11.6 Severability. Wherever possible, each provision of this
Agreement and the other Loan Documents shall be interpreted in such a manner as
to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
11.7 Conflict of Terms. Except as otherwise provided in this
Agreement or any of the other Loan Documents by specific reference to the
applicable provisions of this Agreement, if any provision contained in this
Agreement is in conflict with, or inconsistent with, any provision in any of the
other Loan Documents, the provision contained in this Agreement shall govern and
control.
11.8 Confidentiality. Lender agrees to use commercially reasonable
efforts (equivalent to the efforts Lender applies to maintain the
confidentiality of its own confidential information) to maintain as confidential
all confidential information provided to it by the Credit Parties and designated
as confidential for a period of two (2) years following receipt thereof or
termination of this Agreement, whichever occurs last, except that Lender may
disclose such information (a) to Persons employed or engaged by Lender in
evaluating, approving, responding to requests for waiver or amendment,
structuring or administering the Loans and the Commitments; (b) to any bona fide
assignee or participant that has agreed to comply with the covenant contained in
this Section 11.8 (and any such bona fide assignee or participant may disclose
such information to Persons employed or engaged by them as described in clause
(a) above); (c) as required or requested by any Governmental Authority or
reasonably believed by Lender to be compelled by any court decree, subpoena or
legal or administrative order or process; (d) as, in the opinion of Lender's or
such Lender's counsel, required by law; (e) in connection with the exercise of
any right or remedy under the Loan Documents or in connection with any
Litigation to which Lender is a party; or (f) which ceases to be confidential
through no fault of Lender.
11.9 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF
THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER
SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICT OF LAW
PROVISIONS) AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH
CREDIT PARTY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED
IN NEW YORK COUNTY, CITY OF NEW YORK, NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION
TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER (OR ANY CREDIT
PARTY) AND LENDER PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OF THE OTHER LOAN DOCUMENTS, PROVIDED, THAT LENDER AND EACH OF THE CREDIT
PARTIES ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A
COURT LOCATED OUTSIDE OF NEW YORK COUNTY, CITY OF NEW YORK, NEW YORK AND,
PROVIDED, FURTHER NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
PRECLUDE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LENDER.
EACH CREDIT PARTY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION
IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH CREDIT PARTY HEREBY
WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF
SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH
CREDIT PARTY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER
PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO EACH CREDIT PARTY AT THE ADDRESS SET FORTH IN ANNEX I OF THIS
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
SUCH CREDIT PARTY'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN
THE U.S. MAILS, PROPER POSTAGE PREPAID. EACH CREDIT PARTY OTHER THAN BORROWER
HEREBY FURTHER IRREVOCABLY APPOINTS BORROWER AS ITS AGENT TO RECEIVE, ON BEHALF
OF ITSELF AND ITS PROPERTIES AND REVENUES, SERVICE OF PROCESS IN THE UNITED
STATES IN CONNECTION WITH ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF ANY
SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN ANNEX I OF THIS AGREEMENT
AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S.
MAILS, PROPER POSTAGE PREPAID.
11.10 Notices. Except as otherwise provided herein, whenever it
is provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon any
of the parties by any other parties, or whenever any of the parties desires to
give or serve upon any other parties any communication with respect to this
Agreement, each such notice, demand, request, consent, approval, declaration or
other communication shall be in writing and shall be deemed to have been validly
served, given or delivered (a) upon the earlier of actual receipt and three (3)
Business Days after deposit in the United States Mail, registered or certified
mail, return receipt requested, with proper postage prepaid, (b) upon
transmission, when sent by telecopy or other similar facsimile transmission
(with such telecopy or facsimile promptly confirmed by delivery of a copy by
personal delivery or United States Mail as otherwise provided in this Section
11.10), (c) one (1) Business Day after deposit with a reputable overnight
courier with all charges prepaid or (d) when delivered, if hand-delivered by
messenger, all of which shall be addressed to the party to be notified and sent
to the address or facsimile number indicated on Annex I or to such other address
(or facsimile number) as may be substituted by notice given as herein provided.
The giving of any notice required hereunder may be waived in writing by the
party entitled to receive such notice. Failure or delay in delivering copies of
any notice, demand, request, consent, approval, declaration or other
communication to any Person (other than Borrower or Lender) designated on Annex
I to receive copies shall in no way adversely affect the effectiveness of such
notice, demand, request, consent, approval, declaration or other communication.
11.11 Section Titles. The Section titles and Table of Contents
contained in this Agreement are and shall be without substantive meaning or
content of any kind whatsoever and are not a part of the agreement between the
parties hereto.
11.12 Counterparts. This Agreement may be executed in any number
of separate counterparts, each of which shall collectively and separately
constitute one agreement.
11.13 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE, BETWEEN LENDER AND BORROWER ARISING OUT
OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS
OR THE TRANSACTIONS RELATED THERETO.
11.14 Press Releases. Each Credit Party further agrees that
neither it nor its Affiliates will in the future issue any press releases or
other public disclosure using the name of GE Capital or its affiliates or
referring to this Agreement, the other Loan Documents or the Related
Transactions Documents without at least two (2) Business Days' prior notice to
GE Capital and without the prior written consent of GE Capital unless (and only
to the extent that) such Credit Party or Affiliate is required to do so under
law and then, in any event, such Credit Party or Affiliate will consult with GE
Capital before issuing such press release or other public disclosure. Each
Credit Party consents to the publication by Lender of a tombstone or similar
advertising material relating to the financing transactions contemplated by this
Agreement.
11.15 Reinstatement. This Agreement shall remain in full force
and effect and continue to be effective should any petition be filed by or
against Borrower for liquidation or reorganization, should Borrower become
insolvent or make an assignment of the benefit of any creditor or creditors or
should a receiver or trustee be appointed for all or any significant part of
Borrower's assets, and shall continue to be effective or to be reinstated, as
the case may be, if at any time payment and performance of the Obligations, or
any part thereof, is, pursuant to applicable law, rescinded or reduced in
amount, or must otherwise be restored or returned by any obligee of the
Obligations, whether as a "voidable preference," "fraudulent conveyance," or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Obligations shall be reinstated and deemed reduced only by such
amount paid and not so rescinded, reduced, restored or returned.
11.16 Advice of Counsel. Each of the parties represents to each
other party hereto that it has discussed this Agreement and, specifically, the
provisions of Sections 11.9 and 11.13, with its counsel.
11.17 No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto and no presumption
or burden of proof shall arise favoring or disfavoring any party by virtue of
the authorship of any provisions of this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
date first written above.
KEY TRONIC CORPORATION,
as Borrower
By: /S/ RONALD F. KLAWITTER
Title: VICE PRESIDENT FINANCE
SECRETARY & TREASURER
GENERAL ELECTRIC CAPITAL
CORPORATION,
Revolving Loan as Lender
Commitment
$30,000,000 By: /S/ TIMOTHY S. VAN KIRK
Title: AUTHORIZED SIGNATORY
Term Loan Commitment:
$11,000,000
The following Persons are signatories to this Agreement as to
covenants and representations, other than payment obligations herein contained.
Credit Parties:
K.T. SERVICES, INC.
By: /S/ RONALD F. KLAWITTER
Title:VICE PRESIDENT FINANCE
SECRETARY & TREASURER
U.S. KEYBOARD COMPANY
By: /S/ RONALD F. KLAWITTER
Title:VICE PRESIDENT FINANCE
SECRETARY & TREASURER
KEY TRONIC EUROPE, LTD.
By: /S/ RONALD F. KLAWITTER
Title:VICE PRESIDENT FINANCE
SECRETARY & TREASURER
KEY TRONIC JUAREZ S.A. DE C.V.
By: /S/ RONALD F. KLAWITTER
Title:VICE PRESIDENT FINANCE
SECRETARY & TREASURER
KEY TRONIC FAR EAST PTE LIMITED
By: /S/ RONALD F. KLAWITTER
Title:VICE PRESIDENT FINANCE
SECRETARY & TREASURER
KTC FSC
By: /S/ RONALD F. KLAWITTER
Title:VICE PRESIDENT FINANCE
SECRETARY & TREASURER
ANNEX A (Recitals)
to
CREDIT AGREEMENT
DEFINITIONS
Capitalized terms used in the Agreement shall have (unless otherwise
provided elsewhere in the Agreement) the following respective meanings and all
section references in the following definitions shall refer to Sections of the
Agreement:
"Account Debtor" shall mean any Person who may become obligated to any
Credit Party under, with respect to, or on account of, an Account.
"Accounts" shall mean all "accounts," as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party and, in any event,
including (a) all accounts receivable, other receivables, book debts and other
forms of obligations (other than forms of obligations evidenced by Chattel
Paper, Documents or Instruments) now owned or hereafter received or acquired by
or belonging or owing to any Credit Party, whether arising out of goods sold or
services rendered by it or from any other transaction (including any such
obligations which may be characterized as an account or contract right under the
Code), (b) all of each Credit Party's rights in, to and under all purchase
orders or receipts now owned or hereafter acquired by it for goods or services,
(c) all of each Credit Party's rights to any goods represented by any of the
foregoing (including unpaid sellers' rights of rescission, replevin, reclamation
and stoppage in transit and rights to returned, reclaimed or repossessed goods),
(d) all monies due or to become due to any Credit Party, under all purchase
orders and contracts for the sale of goods or the performance of services or
both by such Credit Party or in connection with any other transaction (whether
or not yet earned by performance on the part of such Credit Party) now or
A-1
hereafter in existence, including the right to receive the proceeds of said
purchase orders and contracts, and (e) all collateral security and guarantees of
any kind, now or hereafter in existence, given by any Person with respect to any
of the foregoing.
"Affiliate" shall mean, with respect to any Person, (a) each Person
that, directly or indirectly, owns or controls, whether beneficially, or as a
trustee, guardian or other fiduciary, five percent (5%) or more of the Stock
having ordinary voting power in the election of directors of such Persons (b)
each Person that controls, is controlled by or is under common control with such
Person, (c) each of such Person's officers, directors, joint venturers and
partners and (d) in the case of Borrower, the immediate family members, spouses
and lineal descendants of individuals who are Affiliates of Borrower. For the
purposes of this definition, "control" of a Person shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of its
management or policies, whether through the ownership of voting securities, by
contract or otherwise; provided, however, that the term "Affiliate" shall
specifically exclude Lender; provided, further, that the term "Affiliate" shall
specifically exclude each of Zesiger Capital Group LLC, BZW Barclays Global
Investors, N.A., Dimensional Fund Advisors, Inc., any other institutional
investment manager required by Section 13(f)(1) of, and Rule 13f-1 under, the
Securities Exchange Act of 1934 to file a report on Form 13F with the Securities
and Exchange Commission with respect to Borrower's Stock and any other Person
who files or will file a statement on Schedule 13G pursuant to Rule 13d-1(b)(1)
under the Securities Exchange Act of 1934 with the Securities and Exchange
Commission with respect to Borrower's Stock so long as such Person does not (i)
directly or indirectly, own or control, whether beneficially, or as a trustee,
guardian or other fiduciary, fifteen percent (15%) or more of the Stock having
ordinary voting power in the election of directors of any Credit Party and (ii)
transact any business with any Credit Party.
A-2
"Agreement" shall mean the Credit Agreement by and between Borrower
and Lender.
"Appendices" shall have the meaning assigned to it in the recitals to
the Agreement.
"Applicable LIBOR Margins" means collectively the Applicable Revolver
LIBOR Margin and the Applicable Term Loan LIBOR Margin.
"Applicable Revolver Index Margin" shall mean the per annum interest
rate margin of minus 0.25%, payable in addition to the Index Rate applicable to
the Revolving Loan.
"Applicable Revolver LIBOR Margin" shall mean the per annum interest
rate margin from time to time in effect and payable in addition to the LIBOR
Rate applicable to the Revolving Loan, as determined by reference to Section
1.5(a) of the Agreement.
"Applicable Term Loan Index Margin" shall mean the per annum interest
rate margin of 0.00%, payable in addition to the Index Rate applicable to the
Term Loan.
"Applicable Term Loan LIBOR Margin" shall mean the per annum interest
rate margin from time to time in effect and payable in addition to the LIBOR
Rate applicable to the Term Loan, as determined by reference to Section 1.5(a)
of the Agreement.
"Available Domestic Collateral" shall mean, with respect to any Person
as of any date of determination, the sum of (a) eighty percent (80%) of the
Special Appraisal Value of Collateral consisting of Equipment if such Equipment
is (i) included in the Original Appraisal or in the most recent Reappraisal and
(ii) then located in the United States, (b) seventy percent (70%) of the Special
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Appraisal Value of Equipment (but excluding, without limitation all soft costs
such as installation, taxes and freight charges) acquired subsequent to the date
of the Original Appraisal or, if a Reappraisal has been issued, the date of the
most recent Reappraisal but which, as of the date of such determination, remains
located in the United States of America, plus (c) fifty percent (50%) of the
Special Appraisal Value of Collateral consisting of Real Estate located in the
United States.
"Available Domestic Collateral Ratio" shall mean, with respect to any
Person as of any date of determination, the percentage determined by dividing
the aggregate amount of Available Domestic Collateral by the aggregate
outstanding principal amount of the Term Loan at such time.
"Borrower" shall have the meaning assigned thereto in the recitals to
the Agreement.
"Borrower Accounts" shall have the meaning assigned to it in Annex C.
"Borrower Pledge Agreement" shall mean the Pledge Agreement of even
date herewith executed by Borrower in favor of Lender, pledging all Stock of its
Subsidiaries, if any, and all Intercompany Notes owing to or held by it.
"Borrowing Availability" shall have the meaning assigned to it in
Section 1.1(a)(i).
"Borrowing Base" shall mean, as of any date of determination by
Lender, from time to time, an amount equal to the (a) sum at such time of (i) up
to eighty-five percent (85%) of Borrower's Eligible Accounts, less any Reserves
established by Lender at such time, and (ii) up to fifty-nine percent (59%) of
the book value of Borrower's Eligible Inventory valued on a first-in, first-out
basis (at the lower of cost or market), less any Reserves established by Lender
at such time, minus (b) the Liquidity Reserve.
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"Borrowing Base Certificate" shall mean a certificate to be executed
and delivered from time to time by Borrower in the form attached to the
Agreement as Exhibit 4.1(b).
"Business Day" shall mean any day that is not a Saturday, a Sunday or
a day on which banks are required or permitted to be closed in any of the States
of Illinois, New York or Washington and in reference to LIBOR Loans shall mean
any such day that is also a LIBOR Business Day.
"Capital Expenditures" shall mean, with respect to any Person, all
expenditures (by the expenditure of cash or the incurrence of Indebtedness) by
such Person during any measuring period for any fixed assets or improvements or
for replacements, substitutions or additions thereto, that have a useful life of
more than one year and that are required to be capitalized under GAAP.
"Capital Lease" shall mean, with respect to any Person, any lease of
any property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, would be required to be classified and accounted for as a
capital lease on a balance sheet of such Person.
"Capital Lease Obligation" shall mean, with respect to any Capital
Lease of any Person, the amount of the obligation of the lessee thereunder that,
in accordance with GAAP, would appear on a balance sheet of such lessee in
respect of such Capital Lease.
"Cash Management Systems" shall have the meaning assigned to it in
Section 1.8.
"Cash Taxes" shall mean, with respect to any Person for any fiscal
period, all real estate and income taxes actually paid to any foreign or
domestic federal, state or local government during such period.
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"Change of Control" means any of the following: (a) any person or
group of persons (within the meaning of the Exchange Act) which does not
currently own shares, options or warrants shall have acquired beneficial
ownership (within the meaning of Rule 13d-3 promulgated by the SEC under the
Exchange Act) of 20% or more of the issued and outstanding shares of capital
Stock of Borrower having the right to vote for the election of directors of
Borrower under ordinary circumstances; (b) during any period of twelve
consecutive calendar months, individuals who at the beginning of such period
constituted the board of directors of Borrower (together with any new directors
whose election by the board of directors of Borrower or whose nomination for
election by the stockholders of Borrower was approved by a vote of at least two-
thirds of the directors then still in office who either were directors at the
beginning of such period or whose elections or nomination for election was
previously so approved) cease for any reason other than death or disability to
constitute a majority of the directors then in office Borrower shall cease to
own and control all of the economic and voting rights associated with all of the
outstanding capital Stock of each of its Subsidiaries.
"Charges" shall mean all federal, state, county, city, municipal,
local, foreign or other governmental taxes (including taxes owed to the PBGC at
the time due and payable), levies, assessments, charges, liens, claims or
encumbrances upon or relating to (a) the Collateral, (b) the Obligations, (c)
the employees, payroll, income or gross receipts of any Credit Party, (b) any
Credit Party's ownership or use of any properties or other assets, or (e) any
other aspect of any Credit Party's business.
"Chattel Paper" shall mean any "chattel paper," as such term is
defined in the Code, now owned or hereafter acquired by any Credit Party,
wherever located.
"Closing Date" shall mean December 31, 1996.
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"Closing Checklist" shall mean the schedule, including all appendices,
exhibits or schedules thereto, listing certain documents and information to be
delivered in connection with the Agreement, the other Loan Documents and the
transactions contemplated thereunder, substantially in the form attached hereto
as Annex D.
"Code" shall mean the Uniform Commercial Code as the same may, from
time to time, be enacted and in effect in the State of New York; provided,
however, in the event that, by reason of mandatory provisions of law, any or all
of the attachment, perfection or priority of Lender's security interest in any
Collateral is governed by the Uniform Commercial Code as enacted and in effect
in a jurisdiction other than the State of New York, the term "Code" shall mean
the Uniform Commercial Code as enacted and in effect in such other jurisdiction
solely for purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of definitions related to such
provisions.
"Collateral" shall mean all property of each Credit Party, whether now
owned by or owing to, or hereafter acquired by or arising in favor of any such
Credit Party (including under any trade names, styles or derivations thereof),
and whether owned or consigned by or to, or leased from or to, any such Credit
Party, and regardless of where located (inside or outside the United States),
including without limitation:
(a) all Real Estate;
(b) all Accounts;
(c) all Chattel Paper;
(d) all Contracts;
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(e) all Documents;
(f) all Equipment;
(g) all Fixtures;
(h) all General Intangibles;
(i) all "Goods" (as defined in the Code);
(j) all Instruments;
(k) all Inventory;
(l) all Investment Property;
(m) all money, cash or cash equivalents of any such
Credit Party;
(n) any other property covered by the Security Agreement, the
Mortgages and the other Collateral Documents and any other property, real or
personal, tangible or intangible, now existing or hereafter acquired, that may
at any time be or become subject to a security interest or Lien in favor of
Lender to secure the Obligations; and
(o) to the extent not otherwise included, all Proceeds and
products of the foregoing and all accessions to, substitutions and replacements
for, and rents and profits of, each of the foregoing.
"Collateral Documents" shall mean the Security Agreement, the Pledge
Agreements, the Guaranties, the Mortgages, the Patent Security Agreement, the
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Trademark Security Agreement and all similar agreements entered into
guaranteeing payment of, or granting a Lien upon property as security for
payment of, the Obligations.
"Collateral Reports" shall mean the reports with respect to the
Collateral referred to in Annex F.
"Collection Account" shall mean that certain account of Lender,
account number 502-328-54 in the name of Lender at Bankers Trust Company in New
York, New York.
"Commitment Termination Date" shall mean the latest of (a) the
Revolving Commitment Termination Date and (b) the Term Loan Commitment
Termination Date.
"Commitments" shall mean the aggregate of the Revolving Loan
Commitment and Term Loan Commitment, which aggregate commitment shall be Forty-
One Million Dollars ($41,000,000) on the Closing Date, as such amount may be
adjusted, if at all, from time to time in accordance with the Agreement.
"Compliance Certificate" shall have the meaning assigned to it in
Annex E.
"Concentration Account" shall have the meaning assigned to it in Annex
C.
"Contracts" shall mean all "contracts," as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, in any event,
including all contracts, undertakings, or agreements (other than rights
evidenced by Chattel Paper, Documents or Instruments) in or under which any
Credit Party may now or hereafter have any right, title or interest, including
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any agreement relating to the terms of payment or the terms of performance of
any Account.
"Copyright License" shall mean any and all rights now owned or
hereafter acquired by any Credit Party under any written agreement granting any
right to use any Copyright or Copyright registration.
"Copyrights" shall mean all of the following now owned or hereafter
acquired by any Credit Party: (a) all copyrights and general intangibles of like
nature (whether registered or unregistered), now owned or existing or hereafter
adopted, created or acquired, all registrations and recordings thereof, and all
applications in connection therewith, including without limitation all
registrations, recordings and applications in the United States Copyright Office
or in any similar office or agency of the United States, any state or territory
thereof, or any other country or any political subdivision thereof, and (b) all
reissues, extensions or renewals thereof.
"Credit Parties" shall mean Borrower, and each of its respective
Subsidiaries including KTC FSC, K.T. Services, Key Tronic Europe, Ltd., Key
Tronic Mexico, Key Tronic Far East and U.S. Keyboard.
"CWA Facility" shall mean the facility of the Borrowers located in
Cheney, WA.
"Debt Service" shall mean, with respect to any Person for any fiscal
period, an amount equal to the sum of (a) Interest Expense for such period and
(b) the scheduled amortization of any outstanding Indebtedness during such
period.
"Debt Service Coverage Ratio" shall mean, with respect to any Person
for any fiscal period, an amount equal to the ratio of (a) the sum of EBITDA
less Capital Expenditures less Cash Taxes to (b) Debt Service.
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"Default" shall mean any event which, with the passage of time or
notice or both, would, unless cured or waived, become an Event of Default.
"Default Rate" shall have the meaning assigned to it in Section
1.5(d).
"Disbursement Accounts" shall have the meaning assigned to it on Annex
C.
"Disclosure Schedules" shall mean the Schedules prepared by Borrower
and denominated as Schedules 1.4 through 6.7 in the Index to the Agreement.
"Distressed Value" shall mean the value of Collateral calculated on
the assumption that there is a need for immediate liquidation.
"Documents" shall mean any "documents," as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, wherever located.
"Dollars" or "$" shall mean lawful currency of the United States of
America.
"EBITA" shall mean, for any fiscal period, the sum of the amounts for
such period of (i)(a) Net Income, plus (b) charges against Borrower's income for
foreign, federal, state and local Taxes, plus (c) total Interest Expense, plus
(d) amortization expense including, without limitation, amortization of goodwill
and other intangible assets, plus (e) restructuring charges of Two Million Six
Hundred Sixty-Nine Thousand Dollars ($2,669,000) taken in the fiscal year ended
June 29, 1996 for the restructuring of European operation, minus (ii) the sum of
(y) Borrower's interest income, plus (z) to the extent recognized in determining
Net Income, extraordinary gains of Borrower.
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"EBITDA" shall mean, for any fiscal period, the sum of the amounts for
such period of (i)(a) Net Income, plus (b) charges against Borrower's income for
foreign, Federal, state and local Taxes, plus (c) total Interest Expense, plus
(d) Borrower's depreciation charges for such period, plus (e) amortization
expense minus (ii) the sum of (y) Borrower's interest income, plus (z) to the
extent recognized in determining Net Income, non-cash extraordinary gains of
Borrower.
"EBITA Achievement Date" shall mean the date on which Borrower has
generated EBITA of Four Million Five Hundred Thousand Dollars ($4,500,000)
calculated on a trailing twelve (12) month basis. In making this calculation,
the Two Million Six Hundred Sixty-Nine Thousand Dollars ($2,669,000)
restructuring charge taken in the Fourth Quarter of the Fiscal Year ending June
29, 1996 shall not be taken into account.
"Eligible Accounts" shall have the meaning assigned to it in Section
1.6 of the Agreement.
"Eligible Inventory" shall have the meaning assigned to it in Section
1.7 of the Agreement.
"Environmental Laws" shall mean all applicable federal, state, local
and foreign laws, statutes, ordinances, codes, rules, standards and regulations,
now or hereafter in effect, and in each case as amended or supplemented from
time to time, and any applicable judicial or administrative interpretation
thereof, including any applicable judicial or administrative order, consent
decree, order or judgment, imposing liability or standards of conduct for or
relating to the regulation and protection of human health, safety, the
environment and natural resources (including ambient air, surface water,
groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic
species and vegetation). Environmental Laws include the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. SS
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9601 et seq.) ("CERCLA"); the Hazardous Materials Transportation Authorization
Act of 1994 (49 U.S.C. SS 5101 et seq.); the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. SS 136 et seq.); the Solid Waste Disposal Act (42
U.S.C. SS 6901 et seq.); the Toxic Substance Control Act (15 U.S.C. SS 2601 et
seq.); the Clean Air Act (42 U.S.C. SS 7401 et seq.); the Federal Water
Pollution Control Act (33 U.S.C. SS 1251 et seq.); the Occupational Safety and
Health Act (29 U.S.C. SS 651 et seq.); and the Safe Drinking Water Act (42
U.S.C. SS 300(f) et seq.), each as from time to time amended, and any and all
regulations promulgated thereunder, and all analogous state, local and foreign
counterparts or equivalents and any transfer of ownership notification or
approval statutes.
"Environmental Liabilities" shall mean all liabilities, obligations,
responsibilities, response, remedial and removal costs, investigation and
feasibility study costs, capital costs, operation and maintenance costs, losses,
damages, punitive damages, property damages, natural resource damages,
consequential damages, treble damages, costs and expenses (including all fees,
disbursements and expenses of counsel, experts and consultants), fines,
penalties, sanctions and interest incurred as a result of or related to any
claim, suit, action, investigation, proceeding or demand by any Person, whether
based in contract, tort, implied or express warranty, strict liability, criminal
or civil statute or common law, including any arising under or related to any
Environmental Laws, Environmental Permits, or in connection with any Release or
threatened Release or presence of a Hazardous Material whether on, at, in,
under, from or about or in the vicinity of any Real Estate or any Collateral.
"Environmental Permits" shall mean all permits, licenses,
authorizations, certificates, approvals, registrations or other written
documents required by any Governmental Authority under any Environmental Laws.
"Equipment" shall mean all "equipment," as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, wherever located and,
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in any event, including all such Credit Party's machinery and equipment,
including processing equipment, conveyors, machine tools, data processing and
computer equipment with software and peripheral equipment (other than software
constituting part of the Accounts), and all engineering, processing and
manufacturing equipment, office machinery, furniture, materials handling
equipment, tools, attachments, accessories, automotive equipment, trailers,
trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock and other
equipment of every kind and nature, trade fixtures and fixtures not forming a
part of real property, all whether now owned or hereafter acquired, and wherever
situated, together with all additions and accessions thereto, replacements
therefor, all parts therefor, all substitutes for any of the foregoing, fuel
therefor, and all manuals, drawings, instructions, warranties and rights with
respect thereto, and all products and proceeds thereof and condemnation awards
and insurance proceeds with respect thereto.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974
(or any successor legislation thereto), as amended from time to time, and any
regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to any Credit Party, any
trade or business (whether or not incorporated) which, together with such Credit
Party, are treated as a single employer within the meaning of Sections 414(b),
(c), (m) or (o) of the IRC.
"ERISA Event" shall mean, with respect to any Credit Party or any
ERISA Affiliate, (a) any event described in Section 4043(c) of ERISA with
respect to a Title IV Plan; (b) the withdrawal of any Credit Party or ERISA
Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan
year in which it was a substantial employer, as defined in Section 4001(a)(2) of
ERISA; (c) the complete or partial withdrawal of any Credit Party or any ERISA
Affiliate from any Multiemployer Plan; (d) the filing of a notice of intent to
terminate a Title IV Plan or the treatment of a plan amendment as a termination
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under Section 4041 of ERISA; (e) the institution of proceedings to terminate a
Title IV Plan or Multiemployer Plan by the PBGC; (f) the failure by any Credit
Party or ERISA Affiliate to make when due required contributions to a
Multiemployer Plan or Title IV Plan unless such failure is cured within 30 days;
(g) any other event or condition which might reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan
or for the imposition of liability under Section 4069 or 4212(c) of ERISA; (h)
the termination of a Multiemployer Plan under Section 4041A of ERISA or the
reorganization or insolvency of a Multiemployer Plan under Section 4241 of
ERISA; or (i) the loss of a Qualified Plan's qualification or tax exempt status.
"ESOP" shall mean a Plan which is intended to satisfy the requirements
of Section 4975(e)(7) of the IRC.
"Event of Default" shall have the meaning assigned to it in Section
8.1.
"Excess Cash Flow" shall mean, without duplication, with respect to
any Fiscal Year of Borrowers and their Subsidiaries, consolidated net income
plus (i) depreciation, amortization and interest accrual to the extent deducted
in determining consolidated net income, minus (ii) Capital Expenditures
(including the principal portion of Capital Lease Obligation payments) to the
extent such Capital Expenditures were permitted to be made hereunder during such
Fiscal Year, minus (iii) scheduled principal payments, plus or minus (as the
case may be), (iv) extraordinary gains or losses which are cash items not
included in the calculation of net income, minus (v) cash proceeds of asset
dispositions resulting in mandatory prepayments under Section 1.3(b) hereof,
plus (vi) taxes deducted in determining consolidated net income to the extent
not paid for in cash.
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"Federal Funds Rate" shall mean, for any day, a floating rate equal to
the weighted average of the rates on overnight federal funds transactions among
members of the Federal Reserve System, as determined by Lender.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System, or any successor thereto.
"Fees" shall mean any and all fees payable to Lender pursuant to the
Agreement or any of the other Loan Documents.
"Financial Statements" shall mean the consolidated and consolidating
income statements, statements of cash flows and balance sheets of Borrower
delivered in accordance with Section 3.4 of the Agreement and Annex E to the
Agreement.
"Fiscal Month" shall mean any of the monthly accounting periods of
Borrower.
"Fiscal Quarter" shall mean any of the quarterly accounting periods of
Borrower, ending on or about each of September 30, December 31, March 31 and
June 30 of each year.
"Fiscal Year" shall mean any of the annual accounting periods of
Borrower ending on or about June 30 of each year.
"Fixtures" shall mean any "fixtures" as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party.
"Funded Debt" shall mean, with respect to any Person, all Indebtedness
for borrowed money evidenced by notes, bonds, debentures, or similar evidences
of Indebtedness under a revolving credit or similar agreement obligating the
lender or lenders to extend credit, and specifically including Capital Lease
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Obligations, current maturities of long-term debt, revolving credit and
short-term debt and also including, in the case of Borrower, the Obligations.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect on the Closing Date, consistently applied
as such term is further defined in Annex G to the Agreement.
"GE Capital Fee Letter" shall mean that certain letter, dated as of
December 31, 1996, between GE Capital and Borrower with respect to certain Fees
to be paid from time to time by Borrower to GE Capital.
"General Intangibles" shall mean any "general intangibles," as such
term is defined in the Code, now owned or hereafter acquired by any Credit
Party, and, in any event, including all right, title and interest which such
Credit Party may now or hereafter have in or under any Contract, all customer
lists, Licenses, Copyrights, Trademarks, Patents, and all applications therefor
and reissues, extensions or renewals thereof, rights in Intellectual Property,
interests in partnerships, joint ventures and other business associations,
licenses, permits, copyrights, trade secrets, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data bases,
data, skill, expertise, experience, processes, models, drawings, materials and
records, goodwill (including the goodwill associated with any Trademark or
Trademark License), all rights to sue for past, present or future infringement
of, and rights to enforce and maintain, any of the foregoing, all rights and
claims in or under insurance policies (including insurance for fire, damage,
loss and casualty, whether covering personal property, real property, tangible
rights or intangible rights, all liability, life, key man and business
interruption insurance, and all unearned premiums), uncertificated securities,
choses in action, deposit, checking and other bank accounts, rights to receive
tax refunds and other payments and rights of indemnification.
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"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof, and any agency, department or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Guaranteed Indebtedness" shall mean, as to any Person, any obligation
of such Person guaranteeing any indebtedness, lease, dividend, or other
obligation ("primary obligations") of any other Person (the "primary obligor")
in any manner, including any obligation or arrangement of such Person (a) to
purchase or repurchase any such primary obligation, (b) to advance or supply
funds (i) for the purchase or payment of any such primary obligation or (ii) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency or any balance sheet condition of the
primary obligor, (c) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary obligation of the ability
of the primary obligor to make payment of such primary obligation, or (d) to
indemnify the owner of such primary obligation against loss in respect thereof.
The amount of any Guaranteed Indebtedness at any time shall be deemed to be an
amount equal to the lesser at such time of (x) the stated or determinable amount
of the primary obligation in respect of which such Guaranteed Indebtedness is
made and (y) the maximum amount for which such Person may be liable pursuant to
the terms of the instrument embodying such Guaranteed Indebtedness; or, if not
stated or determinable, the maximum reasonably anticipated liability (assuming
full performance) in respect thereof.
"Guaranties" shall mean, collectively, each Subsidiary Guaranty and
any other guaranty executed by any Guarantor in favor of Lender in respect of
the Obligations.
"Guarantors" shall mean each Subsidiary of Borrower other than KTI,
and each other Person, if any, which executes a guarantee or other similar
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agreement in favor of Lender in connection with the transactions contemplated by
the Agreement and the other Loan Documents.
"Hazardous Material" shall mean any substance, material or waste which
is regulated by or forms the basis of liability now or hereafter under, any
Environmental Laws, including any material or substance which is (a) defined as
a "solid waste," "hazardous waste," "hazardous material," "hazardous substance,"
"extremely hazardous waste," "restricted hazardous waste," "pollutant,"
"contaminant," "hazardous constituent," "special waste," "toxic substance" or
other similar term or phrase under any Environmental Laws, (b) petroleum or any
fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB's), or
any radioactive substance.
"Hiller Group" shall mean Stan Hiller doing business as Hiller Group.
"Hiller Option" shall mean the option to purchase Stock of the
Borrower currently held by Hiller Keytronic Partners Limited.
"Indebtedness" of any Person shall mean without duplication (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property payment for which is deferred six (6) months or more, but
excluding obligations to trade creditors incurred in the ordinary course of
business that are not overdue by more than six (6) months unless being contested
in good faith, (b) all reimbursement and other obligations with respect to
letters of credit, bankers' acceptances and surety bonds, whether or not
matured, (c) all obligations evidenced by notes, bonds, debentures or similar
instruments, (d) all indebtedness created or arising under any conditional sale
or other title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (e) all Capital Lease Obligations, (f) all obligations of such Person
under commodity purchase or option agreements or other commodity price hedging
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arrangements, in each case whether contingent or matured, (g) all obligations of
such Person under any foreign exchange contract, currency swap agreement,
interest rate swap, cap or collar agreement or other similar agreement or
arrangement designed to alter the risks of that Person arising from fluctuations
in currency values or interest rates, in each case whether contingent or
matured, (h) all Indebtedness referred to above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or in property or other assets (including accounts
and contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness, and (i) the
Obligations.
"Indemnified Liabilities" shall have the meaning assigned to it in
Section 1.13.
"Index Rate" shall mean, for any day, a floating rate equal to the
higher of (i) the rate publicly quoted from time to time by
The Wall Street Journal as the "base rate on corporate loans at large U.S. money
center commercial banks" (or, if The Wall Street Journal ceases quoting a base
rate of the type described, the highest per annum rate of interest published by
the Federal Reserve Board in Federal Reserve statistical release H.15 (519)
entitled "Selected Interest Rates" as the Bank prime loan rate or its
equivalent), and (ii) the Federal Funds Rate plus fifty (50) basis points per
annum. Each change in any interest rate provided for in the Agreement based
upon the Index Rate shall take effect at the time of such change in the Index
Rate.
"Index Rate Loan" shall mean a Loan or portion thereof bearing
interest by reference to the Index Rate.
"Instruments" shall mean any "instrument," as such term is defined in
the Code, now owned or hereafter acquired by any Credit Party, wherever located,
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and, in any event, including all certificated securities, all certificates of
deposit, and all notes and other, without limitation, evidences of indebtedness,
other than instruments that constitute, or are a part of a group of writings
that constitute, Chattel Paper.
"Intellectual Property" shall mean any and all Licenses, Patents,
Copyrights, Trademarks, trade secrets and customer lists.
"Intercompany Notes" shall have the meaning assigned to it in Section
6.3.
"Interest Expense" shall mean, with respect to any Person for any
fiscal period, interest expense (whether cash or non-cash) of such Person
determined in accordance with GAAP for the relevant period ended on such date,
including, in any event, interest expense with respect to any Funded Debt of
such Person.
"Interest Payment Date" means (a) as to any Index Rate Loan, the first
Business Day of each month to occur while such Loan is outstanding, and (b) as
to any LIBOR Loan, the last day of the applicable LIBOR Period, provided that,
in addition to the foregoing, each of (x) the date upon which all of the
Commitments have been terminated and the Loans have been paid in full (y) the
Revolving Commitment Termination Date and (z) the Term Loan Commitment
Termination Date shall be deemed to be an "Interest Payment Date" with respect
to any interest which is then accrued under the Agreement.
"Inventory" shall mean any "inventory," as such term is defined in the
Code, now or hereafter owned or acquired by any Credit Party, wherever located,
and in any event including inventory, merchandise, goods and other personal
property which are held by or on behalf of any Credit Party for sale or lease or
are furnished or are to be furnished under a contract of service, or which
constitute raw materials, work in process or materials used or consumed or to be
A-21
used or consumed in such Credit Party's business or in the processing,
production, packaging, promotion, delivery or shipping of the same, including
other supplies.
"Investment Property" shall have the meaning ascribed thereto in
Section 9-115 of the Code in those jurisdictions in which such definition has
been adopted and shall include (i) all securities, whether certificated or
uncertificated, including stocks, bonds, interests in limited liability
companies, partnership interests, treasuries, certificates of deposit, and
mutual fund shares; (ii) all securities entitlements of Borrower, including the
rights of Borrower to any securities account and the financial assets held by a
securities intermediary in such securities account and any free credit balance
or other money owing by any securities intermediary with respect to that
account; (iii) all securities accounts held by Borrower; (iv) all commodity
contracts held by Borrower; and (v) all commodity accounts held by Borrower.
"IRC" shall mean the Internal Revenue Code of 1986, as amended, and
any successor thereto.
"IRS" shall mean the Internal Revenue Service, or any successor
thereto.
"KTC FSC" shall mean KTC FSC, a corporation formed under the laws of
Guam.
"KTI" shall mean KTI Limited, a limited liability company formed under
the laws of the Republic of Ireland.
"K.T. Services" shall mean K.T. Services, Inc. a Washington
corporation.
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"Key Tronic Europe, Ltd." shall mean Key Tronic Europe, Ltd., a
limited liability company formed under the laws of the Cayman Islands.
"Key Tronic Far East" shall mean Key Tronic Far East Pte Limited, a
limited liability company formed under the laws of Singapore.
"Key Tronic Irish Partnership" shall mean the partnership created
under the Partnership Act of 1890 of the Republic of Ireland by Key Tronic
Europe Ltd. and KTI, general partners, and conducting business in Ireland under
the partnership name "Key Tronic Europe".
"Key Tronic Mexico" shall mean Key Tronic Juarez SA de CV, a
corporation formed under the laws of Mexico.
"Key Tronic Mexico Facility" shall mean the facility owned by Key
Tronic Mexico located at Auxiliar 3 Avenida Parque Industriales "Gema", Ciudad
Juarez, Chih. Mexico.
"L/C Issuer" shall have the meaning assigned to such term in Annex B.
"Lender" shall mean GE Capital.
"Letter of Credit Fee" has the meaning ascribed thereto in Annex B.
"Letter of Credit Obligations" shall mean all outstanding obligations
incurred by Lender at the request of Borrower, whether direct or indirect,
contingent or otherwise, due or not due, in connection with the issuance of a
reimbursement agreement or guaranty by Lender with respect to any Letter of
Credit. The amount of such Letter of Credit Obligations shall equal the maximum
amount which may be payable by Lender thereupon or pursuant thereto.
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"Letters of Credit" shall mean commercial or standby letters of credit
issued for the account of Borrower by any L/C Issuer, and bankers' acceptances
issued by Borrower, for which Lender has incurred Letter of Credit Obligations.
"Leverage Ratio" shall mean, with respect to any Person as of any date
of determination, the percentage determined by dividing (a) Funded Debt, by (b)
the sum of (i) Funded Debt, plus (ii) Net Worth.
"LIBOR Business Day" shall mean a Business Day on which banks in the
city of London are generally open for interbank or foreign exchange
transactions.
"LIBOR Loan" shall mean a Loan or any portion thereof bearing interest
by reference to the LIBOR Rate.
"LIBOR Period" shall mean, with respect to any LIBOR Loan, each period
commencing on a LIBOR Business Day selected by Borrower pursuant to the
Agreement and ending one, two or three months thereafter, as selected by
Borrower's irrevocable notice to Lender as set forth in Section 1.5(e); provided
that the foregoing provision relating to LIBOR Periods is subject to the
following:
(a) if any LIBOR Period would otherwise end on a day that is not a
LIBOR Business Day, such LIBOR Period shall be extended to the next
succeeding LIBOR Business Day unless the result of such extension would be
to carry such LIBOR Period into another calendar month in which event such
LIBOR Period shall end on the immediately preceding LIBOR Business Day;
(b) any LIBOR Period that would otherwise extend beyond the Revolving
Commitment Termination Date or the Term Loan Commitment Termination Date
shall end two (2) LIBOR Business Days prior to such date;
A-24
(c) any LIBOR Period pertaining to a LIBOR Loan that begins on the
last LIBOR Business Day of a calendar month (or on a day for which there is
no numerically corresponding day in the calendar month at the end of such
LIBOR Period) shall end on the last LIBOR Business Day of a calendar month;
(d) Borrower shall select LIBOR Periods so as not to require a
payment or prepayment of any LIBOR Loan during a LIBOR Period for such
Loan; and
(e) Borrower shall select LIBOR Periods so that there shall be no
more than five (5) separate LIBOR Loans in existence at any one time.
"LIBOR Rate" shall mean for each LIBOR Period, a rate of interest
determined by Lender equal to:
(a) the offered rate for deposits in United States Dollars for the
applicable LIBOR Period which appears on Telerate Page 3750 as of
11:00 a.m., London time, on the second full LIBOR Business Day next
preceding the first day of each LIBOR Period (unless such date is not a
Business Day, in which event the next succeeding Business Day will be
used); divided by
(b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day which is two (2) LIBOR Business Days
prior to the beginning of such LIBOR Period (including basic, supplemental,
marginal and emergency reserves under any regulations of the Board of
Governors of the Federal Reserve system or other governmental authority
having jurisdiction with respect thereto, as now and from time to time in
effect) for Eurocurrency funding (currently referred to as "Eurocurrency
liabilities" in Regulation D of such Board which are required to be
maintained by a member bank of the Federal Reserve System (such rate to be
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adjusted to the nearest one sixteenth of one percent (1/16th of 1%) or, if
there is not a nearest one sixteenth of one percent (1/16th of 1%), to the
next highest one sixteenth of one percent (1/16th of 1%).
If such interest rates shall cease to be available from Telerate News
Service, the LIBOR Rate shall be determined from such financial reporting
service or other information as shall be mutually acceptable to Lender and
Borrower.
"License" shall mean any Copyright License, Patent License, Trademark
License or other license of rights or interests now held or hereafter acquired
by any Credit Party.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including any lease or title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement perfecting a security interest
under the Code or comparable law of any jurisdiction).
"Liquidity Reserve" shall mean a reserve against availability as
follows:
Amount of
Liquidity Reserve
From Closing Date until
EBITA Achievement Date $2,500,000
Thereafter, upon notice from Borrower
requesting elimination of the Liquidity
Reserve -0-
"Litigation" shall have the meaning assigned to it in Section 3.13.
"Loan Account" shall have the meaning assigned to it in Section 1.12.
"Loan Documents" shall mean the Agreement, the Notes, the Collateral
Documents and all other agreements, instruments, documents and certificates
identified in the Closing Checklist executed and delivered to, or in favor of,
Lender and including all other pledges, powers of attorney, consents,
assignments, contracts, notices, and all other written matter whether
heretofore, now or hereafter executed by or on behalf of any Credit Party, or
any employee of any Credit Party, and delivered to Lender in connection with the
Agreement or the transactions contemplated hereby. Any reference in the
Agreement or any other Loan Document to a Loan Document shall include all
appendices, exhibits or schedules thereto, and all amendments, restatements,
supplements or other modifications thereto, and shall refer to such Agreement as
the same may be in effect at any and all times such reference becomes operative.
"Loans" shall mean the Revolving Loan and the Term Loan.
"Material Adverse Effect" shall mean a material adverse effect on (a)
the business, assets, operations, prospects or financial or other condition of
any Credit Party, (b) Borrower's ability to pay any of the Loans or any of the
other Obligations in accordance with the terms of the Agreement, (c) the
Collateral or Lender's Liens on the Collateral or the priority of such Liens, or
(d) Lender's rights and remedies under the Agreement and the other Loan
Documents.
"Maximum Amount" shall mean, at any particular time, an amount equal
to the Revolving Loan Commitment less the Liquidity Reserve at such time.
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"Maximum Revolving Commitment" shall mean Thirty Million Dollars
($30,000,000).
"Mortgaged Properties" shall have the meaning assigned to it in Annex
D.
"Mortgages" shall mean each of the mortgages, deeds of trust,
leasehold mortgages, leasehold deeds of trust, collateral assignments of leases
or other real estate security documents delivered by any Credit Party to Lender
with respect to the Mortgaged Properties, all in form and substance satisfactory
to Lender.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA, and to which any Credit Party or ERISA Affiliate is
making, is obligated to make, has made or been obligated to make, contributions
on behalf of participants who are or were employed by any of them.
"Net Borrowing Availability" shall mean as of any date of
determination, the lesser of (i) the Maximum Amount and (ii) the Borrowing Base,
in each case less the Revolving Loan then outstanding.
"Net Worth" shall mean, with respect to any Person as of any date of
determination, the book value of the assets of such Person, minus (a) reserves
applicable thereto, and minus (b) all of such Person's liabilities on a
consolidated basis (including accrued and deferred income taxes), all as
determined in accordance with GAAP.
"Notes" shall mean the Revolving Note and the Term Note, collectively.
"Notice of Conversion/Continuation" shall have the meaning assigned to
it in Section 1.5(e).
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"Notice of Revolving Credit Advance" shall have the meaning assigned
to it in Section 1.1(a).
"Obligations" shall mean all loans, advances, debts, liabilities and
obligations, for the performance of covenants, tasks or duties or for payment of
monetary amounts (whether or not such performance is then required or
contingent, or such amounts are liquidated or determinable) owing by any Credit
Party to Lender, and all covenants and duties regarding such amounts, of any
kind or nature, present or future, whether or not evidenced by any note,
agreement or other instrument, arising under the Agreement or any of the other
Loan Documents. This term includes all principal, interest (including all
interest which accrues after the commencement of any case or proceeding in
bankruptcy after the insolvency of, or for the reorganization of any Credit
Party, whether or not allowed in such proceeding), Fees, Charges, expenses,
attorneys' fees and any other sum chargeable to any Credit Party under the
Agreement or any of the other Loan Documents.
"Orderly Liquidation Value" shall mean the value of collateral
calculated on the assumption that it is liquidated in an orderly manner without
being subject to pressures for immediate liquidation.
"Original Appraisal" shall mean, with respect to Equipment and with
respect to Real Estate, each of the appraisals dated respectively August 7, 1996
and August 13, 1996, prepared by M.B. Valuation Services, Inc.
"Overadvance" shall have the meaning assigned to it in Section
1.1(a)(iii).
"Patent Security Agreements" shall mean the Patent Security Agreements
made in favor of Lender, by each applicable Credit Party.
A-29
"Patent License" shall mean rights under any written agreement now
owned or hereafter acquired by any Credit Party granting any right with respect
to any invention on which a Patent is in existence.
"Patents" shall mean all of the following in which any Credit Party
now holds or hereafter acquires any interest: (a) all patents of the United
States or any other country, all recordings thereof, and all applications for
patents of the United States or any other country, including recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any State or Territory thereof, or any
other country, and (b) all reissues, divisions, renewals, continuations,
continuations-in-part or extensions thereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor thereto.
"Permitted Encumbrances" shall mean the following encumbrances: (a)
Liens for taxes or assessments or other governmental Charges not yet due and
payable; (b) pledges or deposits securing obligations under workmen's
compensation, unemployment insurance, social security or public liability laws
or similar legislation; (c) pledges or deposits securing bids, tenders,
contracts (other than contracts for the payment of money) or leases to which any
Credit Party is a party as lessee made in the ordinary course of business; (d)
deposits securing statutory obligations of any Credit Party; (e) inchoate and
unperfected workers', mechanics', suppliers' or similar liens arising in the
ordinary course of business; (f) carriers', warehousemen's or other similar
possessory liens arising in the ordinary course of business and securing
liabilities in an outstanding aggregate amount not in excess of $25,000 at any
time; (g) deposits securing, or in lieu of, surety, appeal or customs bonds in
proceedings to which any Credit Party is a party; (h) any attachment or judgment
lien not constituting an Event of Default under Section 8.1(j); (i) zoning
restrictions, easements, licenses, or other restrictions on the use of any Real
A-30
Estate or other minor irregularities in title (including leasehold title)
thereto, so long as the same do not materially impair the use, value, or
marketability of such Real Estate; (j) Liens existing on the Closing Date and
listed on Disclosure Schedule 6.7; (k) presently existing or hereinafter created
Liens in favor of Lender; and (l) Liens created after the date hereof by
conditional sale or other title retention agreements (including Capital Leases)
or in connection with purchase money Indebtedness with respect to Equipment and
Fixtures acquired by any Credit Party in the ordinary course of business,
involving the incurrence of an aggregate amount of purchase money Indebtedness
and Capital Lease Obligations of not more than $1,000,000 outstanding at any one
time for all such Liens (provided that such Liens attach only to the assets
subject to such purchase money debt and such Indebtedness is incurred within
twenty (20) days following such purchase and does not exceed 100% of the
purchase price of the subject assets); and (m) other Liens securing Indebtedness
not exceeding $250,000 in the aggregate at any time outstanding.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, public benefit corporation, other entity
or government (whether federal, state, county, city, municipal, local, foreign,
or otherwise, including any instrumentality, division, agency, body or
department thereof).
"Plan" shall mean, at any time, an employee benefit plan, as defined
in Section 3(3) of ERISA, which any Credit Party maintains, contributes to or
has an obligation to contribute to on behalf of participants who are or were
employed by any Credit Party.
"Pledge Agreements" shall mean the Borrower Pledge Agreement, and any
other pledge agreement entered into after the Closing Date by any Credit Party
(as required by the Agreement or any other Loan Document).
A-31
"Prior Lender" shall mean The CIT Group/Business Credit, Inc., a New
York corporation.
"Prior Lender Obligations" shall mean all Obligations of any Credit
Party relating to the Financing Agreement between Borrower and Prior Lender
dated as of October 24, 1994, and any documents relating thereto.
"Proceeds" shall mean "proceeds," as such term is defined in the Code
and, in any event, shall include (a) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to any Credit Party from time to time
with respect to any of the Collateral, (b) any and all payments (in any form
whatsoever) made or due and payable to any Credit Party from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any Governmental Authority
(or any Person acting under color of governmental authority), (c) any claim of
any Credit Party against third parties (i) for past, present or future
infringement of any Patent or Patent License, or (ii) for past, present or
future infringement or dilution of any Copyright, Copyright License, Trademark
or Trademark License, or for injury to the goodwill associated with any
Trademark or Trademark License, (d) any recoveries by any Credit Party against
third parties with respect to any litigation or dispute concerning any of the
Collateral, and (e) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral, upon disposition or
otherwise.
"Pro Forma" means the unaudited consolidated and consolidating balance
sheet of Borrower and its Subsidiaries as of November 23, 1996 after giving pro
forma effect to the Related Transactions.
"Projections" means Borrower's forecasted consolidated and
consolidating: (a) balance sheets; (b) profit and loss statements; (c) cash
flow statements; and (d) capitalization statements, all prepared on a consistent
A-32
basis with the historical Financial Statements of Borrower, together with
appropriate supporting details and a statement of underlying assumptions.
"Qualified Plan" shall mean a Plan which is intended to be
tax-qualified under Section 401(a) of the IRC.
"Qualified Public Offering" shall mean a firm underwritten public
offering registered on form S-1 or S-3 under the Securities Act of 1933, as
amended, by a nationally recognized investment banking firm, resulting in net
proceeds to the issuer of at least $10,000,000, and after giving effect to which
the issuer shall be qualified for listing on the NASDAQ or the New York Stock
Exchange.
"Real Estate" shall have the meaning assigned to it in Section 3.6.
"Reappraisal" shall mean an appraisal requested by the Lender
subsequent to the Closing Date made by M.B. Valuation Services, Inc. or another
independent appraiser mutually acceptable to Borrower and Lender, which
appraisal shall be in form and substance satisfactory to the Lender in its sole
discretion.
"Refinancing" shall mean the repayment in full by Borrower of the
Prior Lender Obligations on the Closing Date.
"Related Transactions" means each borrowing under the Revolving Loan
and the Term Loan on the Closing Date, the Refinancing, the payment of all fees,
costs and expenses associated with all of the foregoing and the execution and
delivery of all of the Related Transactions Documents.
"Related Transactions Documents" shall mean the Loan Documents and all
documents contemplated in the Loan Documents, including without limitation
documents relating to Cash Management Systems and the Refinancing.
A-33
"Release" shall mean any release, threatened release, spill, emission,
leaking, pumping, pouring, emitting, emptying, escape, injection, deposit,
disposal, discharge, dispersal, dumping, leaching or migration of Hazardous
Material in the indoor or outdoor environment, including the movement of
Hazardous Material through or in the air, soil, surface water, ground water or
property.
"Reserves" shall mean, with respect to the Borrowing Base of Borrower
(a) reserves established by Lender from time to time against Eligible Inventory
pursuant to Section 5.9, (b) reserves established pursuant to Section 5.4(c),
and (c) such other reserves against Eligible Accounts or Eligible Inventory of
Borrower which Lender may, in its reasonable credit judgment, establish from
time to time. Without limiting the generality of the foregoing, Reserves
established to ensure the payment of accrued Interest Expenses or Indebtedness
shall be deemed to be a reasonable exercise of Lender's credit judgment.
"Restricted Payment" shall mean (a) the declaration or payment of any
dividend or the incurrence of any liability to make any other payment or
distribution of cash or other property or assets in respect of a Person's Stock,
(b) any payment on account of the purchase, redemption, defeasance, sinking fund
or other retirement of a Person's Stock or any other payment or distribution
made in respect thereof, either directly or indirectly, (c) any payment or
prepayment of principal of, premium, if any, or interest, fees or other charges
on or with respect to, and any redemption, purchase, retirement, defeasance,
sinking fund or similar payment and any claim for rescission with respect to,
any Subordinated Debt; (d) any payment made to redeem, purchase, repurchase or
retire, or to obtain the surrender of, any outstanding warrants, options or
other rights to acquire Stock of such Person now or hereafter outstanding; (e)
any payment of a claim for the rescission of the purchase or sale of, or for
material damages arising from the purchase or sale of, any shares of such
Person's Stock or of a claim for reimbursement, indemnification or contribution
A-34
arising out of or related to any such claim for damages or rescission; (f) any
payment, loan, contribution, or other transfer of funds or other property to any
Stockholder of such Person; and (g) any payment of management fees (or other
fees of a similar nature) by such Person to any Stockholder of such Person or
their Affiliates.
"Retiree Welfare Plan" shall mean, at any time, a Plan that is a
"welfare plan" as defined in Section 3(2) of ERISA, that provides for continuing
coverage or benefits for any participant or any beneficiary of a participant
after such participant's termination of employment, other than continuation
coverage provided pursuant to Section 4980B of the IRC and at the sole expense
of the participant or the beneficiary of the participant.
"Revolving Credit Advance" shall have the meaning assigned to it in
Section 1.1(a)(i).
"Revolving Commitment Termination Date" shall mean the earliest of (a)
the Revolving Loan Maturity Date, (b) the date of termination of Lender's
obligation to make Revolving Credit Advances and/or incur Letter of Credit
Obligations or permit existing Loans to remain outstanding pursuant to Section
8.2(b), and (c) the date of indefeasible prepayment in full by Borrower of the
Loans and the cancellation and return (or stand-by guarantee) of all Letters of
Credit or the cash collateralization of all Letter of Credit Obligations
pursuant to Annex B, and the permanent reduction of the Revolving Loan
Commitment to zero dollars ($0), in accordance with the provisions of Sections
1.3(a) or 1.16(c).
"Revolving Loan" shall mean, at any time, the sum of (i) the aggregate
amount of Revolving Credit Advances outstanding to Borrower plus (ii) the
aggregate Letter of Credit Obligations incurred on behalf of Borrower.
A-35
"Revolving Loan Commitment" shall mean the commitment to make
Revolving Credit Advances and/or incur Letter of Credit Obligations, which
commitment shall be the Maximum Revolving Commitment on the Closing Date, as
such amount may be adjusted, if at all, from time to time in accordance with the
Agreement.
"Revolving Loan Maturity Date" shall mean December 31, 2001; provided
however, that at the discretion of the Lender and upon mutual written agreement,
Lender and the Borrower may, (i) at the end of the second (2nd) year of the term
of this Credit Agreement extend the Revolving Loan Maturity Date to December 31,
2002, and (ii) at the end of the third (3rd) year of the term of this Credit
Agreement, further extend the Revolving Loan Maturity Date to December 31, 2003.
In no event shall Lender have any obligations to agree to such extensions.
"Revolving Note" shall have the meaning assigned to it in
Section 1.1(a)(ii).
"Security Agreement" shall mean the Security Agreement of even date
herewith entered into among Lender and each Credit Party that is a signatory
thereto.
"Solvent" shall mean, with respect to any Person on a particular date,
that on such date (a) the fair value of the property of such Person is greater
than the total amount of liabilities, including contingent liabilities, of such
Person; (b) the present fair salable value of the assets of such Person is not
less than the amount that will be required to pay the probably liability of such
Person on its debts as they become absolute and matured; (c) such Person does
not intend to, and does not believe that it will, incur debts or liabilities
beyond such Person's ability to pay as such debts and liabilities mature; and
(d) such Person is not engaged in a business or transaction, and is not about to
engage in a business or transaction, for which such Person's property would
constitute an unreasonably small capital. The amount of contingent liabilities
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(such as litigation, guarantees and pension plan liabilities) at any time shall
be computed as the amount which, in light of all the facts and circumstances
existing at the time, represents the amount which can be reasonably be expected
to become an actual or matured liability.
"Special Appraisal Value" shall mean, as of any date of
determination, an amount equal to:
(a) with respect to Real Estate, the valuation based on Distressed
Value as set forth in the Original Appraisal or the most recent Reappraisal
which covers Real Estate, adjusted to reflect the current value as described in
Section 1.18(b)(ii); and
(b) with respect to Equipment
(i) the valuation based on Orderly Liquidation Value as set forth
in the Original Appraisal or the most recent Reappraisal which covers
Equipment, adjusted to reflect the current value as described in Section
1.18(b)(ii).
"Stock" shall mean all shares, options, warrants, general or limited
partnership interests or other equivalents (regardless of how designated) of or
in a corporation, partnership or equivalent entity whether voting or nonvoting,
including common stock, preferred stock or any other "equity security" (as such
term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated
by the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended).
"Subsidiary" shall mean, with respect to any Person, (a) any
corporation of which an aggregate of more than fifty percent (50%) of the
outstanding Stock having ordinary voting power to elect a majority of the board
of directors of such corporation (irrespective of whether, at the time, Stock of
any other class or classes of such corporation shall have or might have voting
A-37
power by reason of the happening of any contingency) is at the time, directly or
indirectly, owned legally or beneficially by such Person and/or one or more
Subsidiaries of such Person, or with respect to which any such Person has the
right to vote or designate the vote of fifty percent (50%) or more of such Stock
whether by proxy, agreement, operation of law or otherwise, and (b) any
partnership or limited liability company in which such Person and/or one or more
Subsidiaries of such Person shall have an interest (whether in the form of
voting or participation in profits or capital contribution) of more than fifty
percent (50%) or of which any such Person is a general partner or may exercise
the powers of a general partner.
"Subsidiary Guaranty" shall mean the Subsidiary Guaranty of even date
herewith executed by each Subsidiary of Borrower other than KTI in favor of
Lender.
"Taxes" shall mean taxes, levies, imposts, deductions, Charges or
withholdings, and all liabilities with respect thereto, excluding taxes imposed
on or measured by the net income of Lender by the jurisdictions under the laws
of which Lender is organized or any political subdivision thereof.
"Term Loan" shall have the meaning assigned to it in
Section 1.1(b)(i).
"Term Loan Commitment" shall mean the commitment of Lender to make the
Term Loan, which commitment shall be Eleven Million Dollars ($11,000,000) on the
Closing Date.
"Term Loan Commitment Termination Date" shall mean the earliest of (a)
the date of the last quarterly installment due on the Term Loan pursuant to
Section 1.1(b), (b) the date of termination of Lender's obligation to make
Revolving Credit Advances and/or incur Letter of Credit Obligations or permit
existing Loans to remain outstanding pursuant to Section 8.2(b), and (c) the
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date of indefeasible prepayment in full by Borrower of the Loans and the
cancellation and return (or stand-by guarantee) of all Letters of Credit or the
cash collateralization of all Letter of Credit Obligations pursuant to Annex B,
and the permanent reduction of the Revolving Loan Commitment to zero dollars
($0), in accordance with the provisions of Sections 1.3(a) or 1.16(c).
"Term Note" shall have the meaning assigned to it in Section
1.1(b)(i).
"Termination Date" shall mean the date on which the Loans have been
indefeasibly repaid in full and all other Obligations under the Agreement and
the other Loan Documents have been completely discharged and Letter of Credit
Obligations have been cash collateralized and Borrower shall not have any
further right to borrow any monies thereunder.
"Title IV Plan" shall mean an employee pension benefit plan, as
defined in Section 3 (2) of ERISA (other than a Multiemployer Plan), which is
covered by Title IV of ERISA, and which any Credit Party or ERISA Affiliate
maintains, contributes to or has an obligation to contribute to on behalf of
participants who are or were employed by any of them.
"Total Collateral" shall mean, with respect to any Person as of any
date of determination, the sum of (a) Available Domestic Collateral and (b)
prior to the Mexico Collateral Perfection Date, the Mexico Collateral Reserve,
and (c) on or after the Mexico Collateral Perfection Date, fifty percent (50%)
of the Special Appraisal Value of Collateral consisting of Equipment located in
Mexico.
"Total Collateral Ratio" shall mean, with respect to any Person as of
any date of determination, the percentage determined by dividing the aggregate
amount of Total Collateral by the aggregate outstanding principal amount of the
Term Loan at such time.
A-39
"Trademark Security Agreements" shall mean the Trademark Security
Agreements made in favor of Lender by each applicable Credit Party.
"Trademark License" shall mean rights under any written agreement now
owned or hereafter acquired by any Credit Party granting any right to use any
Trademark.
"Trademarks" shall mean all of the following now owned or hereafter
acquired by any Credit Party: (a) all trademarks, trade names, corporate names,
business names, trade styles, service marks, logos, symbols, other source or
business identifiers, prints and labels on which any of the foregoing have
appeared or appear, designs and general intangibles of like nature (whether
registered or unregistered), now owned or existing or hereafter adopted, used or
acquired, all registrations and recordings thereof, and all applications in
connection therewith, including registrations, recordings and applications in
the United States Patent and Trademark Office or in any similar office or agency
of the United States, any state or territory thereof, or any other country or
any political subdivision thereof; (b) all reissues, extensions or renewals
thereof; and (c) all goodwill associated with or symbolized by any of the
foregoing.
"U.S. Keyboard" shall mean U.S. Keyboard Company, a Washington
corporation.
"Unfunded Pension Liability" shall mean, at any time, the aggregate
amount, if any, of the sum of (a) the amount by which the present value of all
accrued benefits under each Title IV Plan exceeds the fair market value of all
assets of such Title IV Plan allocable to such benefits in accordance with Title
IV of ERISA, all determined as of the most recent valuation date for each such
Title IV Plan using the actuarial assumptions for funding purposes in effect
under such Title IV Plan, and (b) for a period of five (5) years following a
A-40
transaction which might reasonably be expected to be covered by Section 4069 of
ERISA, the liabilities (whether or not accrued) that could be avoided by any
Credit Party or any ERISA Affiliate as a result of such transaction.
All other undefined terms contained in any of the Loan Documents
shall, unless the context indicates otherwise, have the meanings provided for by
the Code as in effect in the State of New York to the extent the same are used
or defined therein. Unless otherwise specified, references in the Agreement or
any of the Appendices to a Section, subsection or clause refer to such Section,
subsection or clause as contained in the Agreement. The words "herein,"
"hereof" and "hereunder" and other words of similar import refer to the
Agreement as a whole, including all Annexes, Exhibits and Schedules, as the same
may from time to time be amended, restated, modified or supplemented, and not to
any particular section, subsection or clause contained in the Agreement or any
such Annex, Exhibit or Schedule.
Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter genders. The words "including", "includes" and
"include" shall be deemed to be followed by the words "without limitation";
references to Persons include their respective successors and assigns (to the
extent and only to the extent permitted by the Loan Documents) or, in the case
of governmental Persons, Persons succeeding to the relevant functions of such
Persons; and all references to statutes and related regulations shall include
any amendments of the same and any successor statutes and regulations.
A-41
ANNEX B (Section 1.2)
to
CREDIT AGREEMENT
LETTERS OF CREDIT
(a) Issuance. Subject to the terms and conditions of the Agreement,
Lender agrees to incur, from time to time prior to the Revolving Commitment
Termination Date, upon the request of Borrower and for Borrower's account,
Letter of Credit Obligations by causing Letters of Credit to be issued (by a
bank or other legally authorized Person selected by or acceptable to Lender in
its sole discretion (each, an "L/C Issuer")) for Borrower's account and
guaranteed by Lender; provided, however, that the aggregate amount of all such
Letter of Credit Obligations shall not at any time exceed the least of (i) Two
Million Dollars $2,000,000) (the "L/C Sublimit"), and (ii) the Maximum Amount
less the aggregate outstanding principal balance of the Revolving Credit
Advances, and (iii) the Borrowing Base less the aggregate outstanding principal
balance of the Revolving Credit Advances. No such Letter of Credit shall have
an expiry date which is more than one year following the date of issuance
thereof, and Lender shall be under no obligation to incur Letter of Credit
Obligations in respect of any Letter of Credit having an expiry date which is
later than the Revolving Commitment Termination Date.
(b) Revolving Credit Advances Automatic. In the event that Lender
shall make any payment on or pursuant to any Letter of Credit Obligation, such
payment shall then be deemed automatically to constitute a Revolving Credit
Advance to Borrower under Section 1.1(a) of the Agreement regardless of whether
a Default or Event of Default shall have occurred and be continuing and
notwithstanding Borrower's failure to satisfy the conditions precedent set forth
in Section 2.
B-1
(c) Cash Collateral. If Borrower is required to provide cash
collateral for any Letter of Credit Obligations pursuant to the Agreement prior
to the Revolving Commitment Termination Date, Borrower will pay to Lender cash
or cash equivalents acceptable to Lender ("Cash Equivalents") in an amount equal
to 105% of the Revolving Loan Commitment then available to be drawn under each
applicable Letter of Credit outstanding for the benefit of Borrower. Such funds
or Cash Equivalents shall be held by Lender in a cash collateral account (the
"Cash Collateral Account") maintained at a bank or financial institution
acceptable to Lender. The Cash Collateral Account shall be in the name of
Borrower and shall be pledged to, and subject to the control of Lender in a
manner satisfactory to Lender. Borrower hereby pledges and grants to Lender a
security interest in all such funds and Cash Equivalents held in the Cash
Collateral Account from time to time and all proceeds thereof, as security for
the payment of all amounts due in respect of the Letter of Credit Obligations
and other Obligations, whether or not then due. The Agreement, including this
Annex B, shall constitute a security agreement under applicable law.
If any Letter of Credit Obligations, whether or not then due and
payable, shall for any reason be outstanding on the Revolving Commitment
Termination Date, Borrower shall either (i) provide cash collateral therefor in
the manner described above, or (ii) cause all such Letters of Credit and
guaranties thereof to be canceled and returned, or (iii) deliver a stand-by
letter (or letters) of credit in guarantee of such Letter of Credit Obligations,
which stand-by letter (or letters) of credit shall be of like tenor and duration
as, and in an amount equal to 105% of the aggregate maximum amount then
available to be drawn under, the Letters of Credit to which such outstanding
Letter of Credit Obligations relate and shall be issued by a Person, and shall
be subject to such terms and conditions, as are be satisfactory to Lender in its
sole discretion.
From time to time after funds are deposited in the Cash Collateral
Account by Borrower, whether before or after the Commitment Termination Date,
B-2
Lender may apply such funds or Cash Equivalents then held in the Cash Collateral
Account to the payment of any amounts, in such order as Lender may elect, as
shall be or shall become due and payable by Borrower to Lender with respect to
such Letter of Credit Obligations of Borrower and, upon the satisfaction in full
of all Letter of Credit Obligations of Borrower, to any other Obligations of
Borrower then due and payable.
Neither Borrower nor any Person claiming on behalf of or through
Borrower shall have any right to withdraw any of the funds or Cash Equivalents
held in the Cash Collateral Account, except that upon the termination of all
Letter of Credit Obligations and the payment of all amounts payable by Borrower
to Lender in respect thereof, any funds remaining in the Cash Collateral Account
shall be applied to other Obligations when due and owing and upon payment in
full of such Obligations, any remaining amount shall be paid to Borrower or as
otherwise required by law.
(d) Fees and Expenses. Borrower agrees to pay to Lender, as
compensation to Lender for Letter of Credit Obligations incurred hereunder, (x)
all costs and expenses incurred by Lender on account of such Letter of Credit
Obligations, and (y) for each month during which any Letter of Credit Obligation
shall remain outstanding, a fee (the "Letter of Credit Fee") in an amount equal
to one and on quarter percent (1.25%) per annum (calculated on the basis of a
360-day year and actual days elapsed) multiplied by the face amount of the
applicable Letter of Credit. Such fee shall be paid to Lender in arrears, on
the first day of each month. In addition, Borrower shall pay to any L/C Issuer,
on demand, such fees (including all per annum fees), charges and expenses of
such L/C Issuer in respect of the issuance, negotiation, acceptance, amendment,
transfer and payment of such Letter of Credit or otherwise payable pursuant to
the application and related documentation under which such Letter of Credit is
issued.
B-3
(e) Request for Incurrence of Letter of Credit Obligations. Borrower
shall give Lender at least two (2) Business Days prior written notice requesting
the incurrence of any Letter of Credit Obligation, specifying the date such
Letter of Credit Obligation is to be incurred, identifying the beneficiary to
which such Letter of Credit Obligation relates and describing the nature of the
transactions proposed to be supported thereby. The notice shall be accompanied
by the form of the Letter of Credit (which shall be acceptable to the L/C
Issuer) to be guarantied. Notwithstanding anything contained herein to the
contrary, Letter of Credit applications by Borrower and approvals by Lender may
be made and transmitted pursuant to electronic codes and security measures
mutually agreed upon and established by and among Borrower, Lender and the L/C
Issuer.
(f) Obligation Absolute. The obligation of Borrower to reimburse
Lender for payments made with respect to any Letter of Credit Obligation shall
be absolute, unconditional and irrevocable, without necessity of presentment,
demand, protest or other formalities. Such obligations of Borrower shall be
paid strictly in accordance with the terms hereof under all circumstances
including the following circumstances:
(i) any lack of validity or enforceability of any Letter of Credit or
the Agreement or the other Loan Documents or any other agreement;
(ii) the existence of any claim, set-off, defense or other right which
Borrower or any of its Affiliates may at any time have against a
beneficiary or any transferee of any Letter of Credit (or any Persons or
entities for whom any such transferee may be acting), Lender, or any other
Person, whether in connection with the Agreement, the Letter of Credit, the
transactions contemplated herein or therein or any unrelated transaction
(including any underlying transaction between Borrower or any of its
Affiliates and the beneficiary for which the Letter of Credit was
procured);
B-4
(iii) any draft, demand, certificate or any other document
presented under any Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect;
(iv) payment by Lender or any L/C Issuer under any Letter of Credit or
guaranty thereof against presentation of a demand, draft or certificate or
other document which does not comply with the terms of such Letter of
Credit or such guaranty;
(v) any other circumstance or happening whatsoever, which is similar
to any of the foregoing; or
(vi) the fact that a Default or an Event of Default shall have
occurred and be continuing.
(g) Indemnification; Nature of Lender's Duties. In addition to
amounts payable as elsewhere provided in the Agreement, Borrower hereby agrees
to pay and to protect, indemnify, and save Lender harmless from and against any
and all claims, demands, liabilities, damages, losses, costs, charges and
expenses (including attorneys' fees and allocated costs of internal counsel)
which Lender may incur or be subject to as a consequence, direct or indirect, of
(i) the issuance of any Letter of Credit or guaranty thereof, or (ii) the
failure of Lender or of any L/C Issuer to honor a demand for payment under any
Letter of Credit or guaranty thereof as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto government or
Governmental Authority, in each case other than to the extent solely as a result
of the gross negligence or willful misconduct of Lender (as finally determined
by a court of competent jurisdiction).
B-5
As between Lender and Borrower, Borrower assumes all risks of the acts
and omissions of, or misuse of any Letter of Credit by beneficiaries of any
Letter of Credit. In furtherance and not in limitation of the foregoing, to the
fullest extent permitted by law, Lender shall not be responsible: (i) for the
form, validity, sufficiency, accuracy, genuineness or legal effect of any
document issued by any party in connection with the application for and issuance
of any Letter of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) for failure of the beneficiary of
any Letter of Credit to comply fully with conditions required in order to demand
payment under such Letter of Credit; provided that, in the case of any payment
by Lender under any Letter of Credit or guaranty thereof, Lender shall be liable
to the extent such payment was made solely as a result of its gross negligence
or willful misconduct (as finally determined by a court of competent
jurisdiction) in determining that the demand for payment under such Letter of
Credit or guaranty thereof complies on its face with any applicable requirements
for a demand for payment under such Letter of Credit or guaranty thereof; (iv)
for errors, omissions, interruptions or delays in transmission or delivery of
any messages, by mail, cable, telegraph, telex or otherwise, whether or not they
be in cipher; (v) for errors in interpretation of technical terms; (vi) for any
loss or delay in the transmission or otherwise of any document required in order
to make a payment under any Letter of Credit or guaranty thereof or of the
proceeds thereof; (vii) for the credit of the proceeds of any drawing under any
Letter of Credit or guaranty thereof; and (viii) for any consequences arising
from causes beyond the control of Lender. None of the above shall affect,
impair, or prevent the vesting of any of Lender's rights or powers hereunder or
under the Agreement.
B-6
Nothing contained herein shall be deemed to limit or to expand any
waivers, covenants or indemnities made by Borrower in favor of any L/C Issuer in
any letter of credit application, reimbursement agreement or similar document,
instrument or agreement between Borrower and such L/C Issuer.
B-7
ANNEX C (Section 1.8)
to
CREDIT AGREEMENT
CASH MANAGEMENT SYSTEMS
Borrower shall, and shall cause its Subsidiaries to, establish and maintain
the Cash Management Systems described below:
C-1
(a) On or before the Closing Date and until the Termination Date,
Borrower shall (i) establish lock boxes ("Lock Boxes") at one or more of the
banks set forth on Disclosure Schedule 3.19, and shall request in writing and
otherwise take such reasonable steps to ensure that all Account Debtors forward
payment directly to such Lock Boxes, and (ii) deposit and cause its Subsidiaries
to deposit or cause to be deposited promptly, and in any event no later than the
first Business Day after the date of receipt thereof, all cash, checks, drafts
or other similar items of payment relating to or constituting payments made in
respect of any and all Collateral (whether or not otherwise delivered to a Lock
Box) into bank accounts in Borrower's name or any such Subsidiary's name
(collectively, the "Borrower Accounts") at banks set forth on Disclosure
Schedule 3.19 (each, a "Relationship Bank"). On or before the Closing Date,
Borrower shall have established a concentration account in its name (the
"Concentration Account") at the bank which shall be designated as the
Concentration Account bank for Borrower on Disclosure Schedule 3.19 (the
"Concentration Account Bank") which bank shall be satisfactory to Lender.
(b) On or before the Closing Date (or such later date as Lender shall
consent to in writing), the Concentration Account Bank, each bank where a
Disbursement Account is located and all other Relationship Banks, shall have
entered into tri-party blocked account agreements with Lender and Borrower and
Subsidiaries thereof, as applicable, in form and substance acceptable to Lender,
which shall become operative on or prior to the Closing Date. Each such blocked
account agreement shall provide, among other things, that (i) all items of
payment deposited in such account and proceeds thereof deposited in the
Concentration Account are held by such bank as agent or bailee-in-possession for
Lender, (ii) the bank executing such agreement has no rights of setoff or
recoupment or any other claim against such account, as the case may be, other
than for payment of its service fees and other charges directly related to the
administration of such account and for returned checks or other items of
payment, and (iii) from and after the Closing Date (A) with respect to banks at
which a Borrower Account is located, such bank agrees to forward immediately all
C-2
amounts in each Borrower Account to the Concentration Account Bank and to
commence the process of daily sweeps from such Borrower Account into the
Concentration Account and (B) with respect to the Concentration Account Bank,
such bank agrees to immediately forward all amounts received in the
Concentration Account to the Collection Account through daily sweeps from such
Concentration Account into the Collection Account. Borrower shall not, and shall
not cause or permit any Subsidiary thereof to, accumulate or maintain cash in
disbursement or payroll accounts as of any date of determination in excess of
checks outstanding against such accounts as of that date and amounts necessary
to meet minimum balance requirements.
(c) So long as no Default or Event of Default has occurred and is
continuing, Borrower may amend Disclosure Schedule 3.19 to add or replace a
Relationship Bank, Lock Box or Borrower Account or to replace the Concentration
Account or any Disbursement Account; provided, however, that (i) Lender shall
have consented in writing in advance to the opening of such account or Lock Box
with the relevant bank and (ii) prior to the time of the opening of such account
or Lock Box, Borrower and/or the Subsidiaries thereof, as applicable, and such
bank shall have executed and delivered to Lender a tri-party blocked account
agreement, in form and substance satisfactory to Lender. Borrower shall close
any of its accounts (and establish replacement accounts in accordance with the
foregoing sentence) promptly and in any event within thirty (30) days of notice
from Lender that the creditworthiness of any bank holding an account is no
longer acceptable in Lender's reasonable judgment, or as promptly as practicable
and in any event within sixty (60) days of notice from Lender that the operating
performance, funds transfer and/or availability procedures or performance with
respect to accounts or lockboxes of the bank holding such accounts or Lender's
liability under any tri-party blocked account agreement with such bank is no
longer acceptable in Lender's reasonable judgment.
(d) The Lock Boxes, Borrower Accounts, Disbursement Accounts and the
Concentration Account shall be cash collateral accounts, with all cash, checks
C-3
and other similar items of payment in such accounts securing payment of the
Loans and all other Obligations, and in which Borrower and each Subsidiary
thereof shall have granted a Lien to Lender pursuant to the Security Agreement.
(e) All amounts deposited in the Collection Account shall be deemed
received by Lender in accordance with Section 1.10 of the Agreement and shall be
applied (and allocated) by Lender in accordance with Section 1.11 of the
Agreement. In no event shall any amount be so applied unless and until such
amount shall have been credited in immediately available funds to the Collection
Account.
(f) Borrower may maintain, in its name, an account (each a
"Disbursement Account" and collectively, the "Disbursement Accounts") at a bank
acceptable to Lender into which Lender shall, from time to time, deposit
proceeds of Revolving Credit Advances made to Borrower pursuant to Section 1.1
for use by Borrower solely in accordance with the provisions of Section 1.4.
(g) Borrower shall and shall cause its Affiliates, officers,
employees, agents, directors or other Persons acting for or in concert with
Borrower (each a "Related Person") to (i) hold in trust for Lender all checks,
cash and other items of payment received by Borrower or any such Related Person,
and (ii) within one (1) Business Day after receipt by Borrower or any such
Related Person of any checks, cash or other items or payment, deposit the same
into a Borrower Account. Borrower and each Related Person thereof acknowledges
and agrees that all cash, checks or items of payment constituting proceeds of
Collateral are the property of Lender. All proceeds of the sale or other
disposition of any Collateral, shall be deposited directly into Borrower
Accounts.
C-4
ANNEX D (Section 2.1(a))
to
CREDIT AGREEMENT
SCHEDULE OF ADDITIONAL CLOSING DOCUMENTS
In addition to, and not in limitation of, the conditions described in Section
2.1 of the Agreement, pursuant to Section 2.1(a), the following items must be
received by Lender in form and substance satisfactory to Lender on or prior to
the Closing Date (each capitalized term used but not otherwise defined herein
shall have the meaning ascribed thereto in Annex A to the Agreement):
D-1
A. Appendices. All Appendices to the Agreement, in form and substance
satisfactory to Lender.
B. Revolving Note and Term Note. Duly executed originals of the
Revolving Note and Term Note, each dated the Closing Date.
C. Security Agreement. Duly executed originals of the Security
Agreement, dated the Closing Date, and all instruments, documents and
agreements executed pursuant thereto, including without limitation the Power of
Attorney attached as Exhibit A thereto and financing statements to be filed in
Texas, New Mexico and Washington.
D. Insurance. Satisfactory evidence that the insurance policies
required by Section 5.4 are in full force and effect, together with
appropriate evidence showing loss payable and/or additional insured clauses
or endorsements, as requested by Lender, in favor of Lender.
E. Security Interests and Code Filings. (a) Evidence satisfactory to
Lender that Lender has a valid and perfected first priority security interest
in the Collateral, including (i) such documents duly executed by each Credit
Party (including financing statements under the Code and other applicable
documents under the laws of any jurisdiction with respect to the perfection of
Liens) as Lender may request in order to perfect its security interests in the
Collateral and (ii) copies of Code search reports listing all effective
financing statements that name any Credit Party as debtor, together with copies
of such financing statements, none of which shall cover the Collateral, except
for those relating to the Prior Lender Obligations (all of which shall be
terminated on the Closing Date).
D-2
(b) Evidence satisfactory to Lender, including copies, of all UCC-1
and other financing statements filed in favor of any Credit Party with respect
to each location, if any, at which Inventory may be consigned.
(c) Control Letters from (i) all issuers of uncertificated securities
and financial assets held by Borrower, (ii) all securities intermediaries with
respect to all securities accounts and securities entitlements of Borrower, and
(iii) all futures commission agents and clearing houses with respect to all
commodities contracts and commodities accounts held by Borrower.
F. Payoff Letter; Termination Statements. Copies of a duly executed
payoff letter, in form and substance satisfactory to Lender, by and between all
parties to the Prior Lender loan documents evidencing repayment in full of all
Prior Lender Obligations, together with (a) UCC-3 or other appropriate
termination statements, in form and substance satisfactory to Lender, manually
signed by the Prior Lender releasing all liens of Prior Lender upon any of the
personal property of each Credit Party, and (b) termination of all blocked
account agreements, bank agency agreements or other similar agreements or
arrangements or arrangements in favor of Prior Lender or relating to the Prior
Lender Obligations.
G. Intellectual Property Security Agreements. Duly executed originals of
Trademark Security Agreements and Patent Security Agreements, each dated the
Closing Date and signed by each Credit Party which owns Trademarks and/or
Patents, as applicable, all in form and substance satisfactory to Lender,
together with all instruments, documents and agreements executed pursuant
thereto.
H. Subsidiary Guaranties. Guaranties executed by and each direct and
indirect Subsidiary of Borrower in favor of Lender.
D-3
I. Initial Borrowing Base Certificate. Duly executed originals of an
initial Borrowing Base Certificate from Borrower, dated the Closing Date,
reflecting information concerning Eligible Accounts and Eligible Inventory of
Borrower.
J. Initial Notice of Revolving Credit Advance. Duly executed originals
of a Notice of Revolving Credit Advance, dated the Closing Date, with respect
to the initial Revolving Credit Advance to be requested by Borrower on the
Closing Date.
K. Letter of Direction. Duly executed originals of a letter of direction
from Borrower addressed to Lender with respect to the disbursement on the
Closing Date of the proceeds of the Term Loan and the initial Revolving Credit
Advance.
L. Cash Management System; Blocked Account Agreements. Evidence
satisfactory to Lender that, as of the Closing Date, Cash Management Systems
complying with Annex C to the Agreement have been established and are currently
being maintained in the manner set forth in such Annex C, together with copies
of duly executed tri-party blocked account and lock box agreements, satisfactory
to Lender, with the banks as required by Annex C.
M. Charter and Good Standing. For each Credit Party, such Person's (a)
charter and all amendments thereto, (b) good standing certificates (including
verification of tax status) in its state of incorporation and (c) good standing
certificates (including verification of tax status) and certificates of
qualification to conduct business in each jurisdiction where its ownership or
lease of property or the conduct of its business requires such qualification,
each dated a recent date prior to the Closing Date and certified by the
applicable Secretary of State or other authorized Governmental Authority.
D-4
N. Bylaws and Resolutions. For each Credit Party, (a) such Person's
bylaws, together with all amendments thereto and (b) resolutions of such
Person's Board of Directors and stockholders, approving and authorizing the
execution, delivery and performance of the Loan Documents to which such Person
is a party and the transactions to be consummated in connection therewith,
each certified as of the Closing Date by such Person's corporate secretary or
an assistant secretary as being in full force and effect without any
modification or amendment.
O. Incumbency Certificates. For each Credit Party, signature and
incumbency certificates of the officers of each such Person executing any of
the Loan Documents, certified as of the Closing Date by such Person's
corporate secretary or an assistant secretary as being true, accurate,
correct and complete.
P. Opinions of Counsel. Duly executed originals of opinions of Paine,
Hamblen, Coffin, Brooke & Miller, counsel for the Credit Parties, together with
any local counsel opinions requested by Lender, each in form and substance
satisfactory to Lender and its counsel, dated the Closing Date, and each
accompanied by a letter addressed to such counsel from the Credit Parties,
authorizing and directing such counsel to address its opinion to Lender, and to
include in such opinion an express statement to the effect that Lender is
authorized to rely on such opinion.
Q. Pledge Agreements. Duly executed copies of each of the Pledge
Agreements accompanied by (as applicable) (a) share certificates representing
all of the outstanding Stock being pledged pursuant to such Pledge Agreement
and stock powers for such share certificates executed in blank and (b) the
original Intercompany Notes being pledged pursuant to such Pledge Agreement,
duly endorsed in blank.
R. Accountants' Letter. A letter authorizing the independent certified
public accountants of the Credit Parties to communicate with Lender in
D-5
accordance with Section 4.2 and acknowledging Lender's reliance on the auditor's
certification of past and future Financial Statements.
S. Appointment of Agent for Service. An appointment of Borrower as each
Credit Party's agent for service of process.
T. Fee Letter. Duly executed originals of the GE Capital Fee Letter.
U. Officer's Certificate. Lender shall have received duly executed
originals of a certificate of the Vice President of Finance, Secretary and
Treasurer of Borrower, dated the Closing Date, stating that, since June 29,
1996, (a) no event or condition has occurred or is existing which could
reasonably be expected to have a Material Adverse Effect; (b) there has been no
material adverse change in the industry in which any Borrower operates; (c) no
Litigation has been commenced which, if successful, would have a Material
Adverse Effect or could challenge any of the transactions contemplated by the
Agreement and the other Loan Documents; (d) there have been no Restricted
Payments made by any Credit Party; and (e) there has been no material increase
in liabilities, liquidated or contingent, and no material decrease in assets of
Borrower or any of its Subsidiaries.
V. Waivers. Lender shall have received landlord waivers and consents,
bailee letters and mortgagee agreements in form and substance satisfactory to
Lender, in each case as required pursuant to Section 5.9.
W. Mortgages. Mortgages covering all of the Real Estate (the "Mortgaged
Properties") together with: (a) title insurance policies, current as-built
surveys, zoning letters and certificates of occupancy, in each case satisfactory
in form and substance to Lender, in its sole discretion; (b) evidence that
counterparts of the Mortgages have been recorded in all places to the extent
necessary or desirable, in the judgment of Lender, to create a valid and
enforceable first priority lien (subject to Permitted Encumbrances) on each
D-6
Mortgaged Property in favor of Lender (or in favor of such other trustee as may
be required or desired under local law); and (c) an opinion of counsel in each
state in which any Mortgaged Property is located in form and substance and from
counsel satisfactory to Lender.
X. Environmental Reports. Lender shall have received Phase I
Environmental Site Assessment Reports, consistent with American Society for
Testing and Materials (ASTM) Standard E 1527-94, and applicable state
requirements, on all of the Real Estate, dated no more than 6 months prior
to the Closing Date, prepared by environmental engineers satisfactory to Lender,
all in form and substance satisfactory to Lender, in its sole discretion; and
Lender shall have further received such environmental review and audit reports,
including Phase II reports, with respect to the Real Estate of any Credit Party
as Lender shall have requested, and Lender shall be satisfied, in its sole
discretion, with the contents of all such environmental reports. Lender shall
have received letters executed by the environmental firms preparing such
environmental reports, in form and substance satisfactory to Lender,
authorizing Lender to rely on such reports.
Y. Appraisals. Lender shall have received appraisals as to all Equipment
and as to each parcel of Real Estate owned by each Credit Party of the Mortgaged
Properties, each of which shall be in form and substance satisfactory to Lender.
Z. Audited Financials; Financial Condition. Lender shall have received
Borrower's final Financial Statements for its Fiscal Year ended June 29, 1996,
audited by Deloitte & Touche LLP. Borrower shall have provided Lender with its
current operating statements, a consolidated and consolidating balance sheet and
statement of cash flows, the Pro Forma, Projections, and a Borrowing Base
Certificate with respect to Borrower certified by its Chief Financial Officer,
in each case in form and substance satisfactory to Lender, and Lender shall be
satisfied, in its sole discretion, with all of the foregoing. Lender shall have
further received a certificate of the Chief Executive Officer and/or the Chief
D-7
Financial Officer of Borrower, based on such Pro Forma and Projections, to the
effect that (a) Borrower will be Solvent upon the consummation of the
transactions contemplated herein; (b) the Pro Forma fairly presents the
financial condition of Borrower as of the date thereof after giving effect to
the transactions contemplated by the Loan Documents; (c) the Projections are
based upon estimates and assumptions stated therein, all of which Borrower
believes to be reasonable and fair in light of current conditions and current
facts known to Borrower and, as of the Closing Date, reflect Borrower's good
faith and reasonable estimates of its future financial performance and of the
other information projected therein for the period set forth therein; and (d)
containing such other statements with respect to the solvency of Borrower and
matters related thereto as Lender shall request.
AA. Other Documents. Such other certificates, documents and
agreements respecting any Credit Party as Lender may, in its sole discretion,
request.
D-8
ANNEX E (Section 4.1(a))
to
CREDIT AGREEMENT
FINANCIAL STATEMENTS AND PROJECTIONS -- REPORTING
Borrower shall deliver or cause to be delivered to Lender the
following:
(a) Monthly Financials. Within thirty (30) days after the end of
each Fiscal Month, financial information regarding Borrower and its
Subsidiaries, certified by the Chief Financial Officer of Borrower, consisting
of consolidated and consolidating (i) unaudited balance sheets as of the close
of such Fiscal Month and the related statements of income and cash flow for that
portion of the Fiscal Year ending as of the close of such Fiscal Month; (ii)
unaudited statements of income and cash flows for such Fiscal Month, setting
forth in comparative form the figures for the corresponding period in the prior
year and the figures contained in the Projections for such Fiscal Year, all
prepared in accordance with GAAP (subject to normal year-end adjustments); and
(iii) a summary of the outstanding balance of all Intercompany Notes as of the
last day of that Fiscal Month. Such financial information shall be accompanied
by (A) a statement in reasonable detail (each, a "Compliance Certificate")
showing the calculations used in determining compliance with each financial
covenant set forth on Annex G which is tested on a quarterly basis, and (B)
certification of the Chief Financial Officer of Borrower that (i) such financial
information presents fairly in accordance with GAAP (subject to normal year-end
adjustments) the financial position and results of operations of Borrower and
its Subsidiaries, on a consolidated and consolidating basis, in each case as at
the end of such month and for the period then ended and (ii) any other
information presented is true, correct and complete in all material respects and
that there was no Default or Event of Default in existence as of such time or,
E-1
if a Default or Event of Default shall have occurred and be continuing,
describing the nature thereof and all efforts undertaken to cure such Default or
Event of Default;
(b) Operating Plan. As soon as available, but not later than thirty
(30) days after the end of each Fiscal Year, an annual operating plan for
Borrower, approved by the Board of Directors of Borrower, for the following
year, which will include a statement of all of the material assumptions on which
such plan is based, will include monthly balance sheets and a monthly budget for
the following year and will integrate sales, gross profits, operating expenses,
operating profit, cash flow projections and Borrowing Availability projections
all prepared on the same basis and in similar detail as that on which operating
results are reported (and in the case of cash flow projections, representing
management's good faith estimates of future financial performance based on
historical performance), and including plans for personnel, Capital Expenditures
and facilities;
(c) Annual Audited Financials. Within ninety (90) days after the end
of each Fiscal Year, audited Financial Statements for Borrower and its
Subsidiaries on a consolidated and consolidating basis, consisting of balance
sheets and statements of income and retained earnings and cash flows, setting
forth in comparative form in each case the figures for the previous Fiscal Year
and the figures contained in the Projections for such Fiscal Year, which
Financial Statements shall be prepared in accordance with GAAP, certified
without qualification, by an independent certified public accounting firm of
national standing or otherwise acceptable to Lender. Such Financial Statements
shall be accompanied by (i) a statement prepared in reasonable detail showing
the calculations used in determining compliance with each of the financial
covenants set forth on Annex G, (ii) a report from such accounting firm to the
effect that, in connection with their audit examination, nothing has come to
their attention to cause them to believe that a Default or Event of Default has
occurred (or specifying those Defaults and Events of Default that they became
E-2
aware of), it being understood that such audit examination extended only to
accounting matters and that no special investigation was made with respect to
the existence of Defaults or Events of Default, (iii) a letter addressed to
Lender in form and substance reasonably satisfactory to Lender and subject to
standard qualifications taken by nationally recognized accounting firms, signed
by such accounting firm acknowledging that Lender is entitled to rely upon such
accounting firm's certification of such audited Financial Statements, (iv) the
annual letters to such accountants in connection with their audit examination
detailing contingent liabilities and material litigation matters, and (v) the
certification of the Chief Executive Officer or Chief Financial Officer of
Borrower that all such Financial Statements present fairly in accordance with
GAAP the financial position, results of operations and statements of cash flows
of Borrower and its Subsidiaries on a consolidated and consolidating basis, as
at the end of such year and for the period then ended, and that there was no
Default or Event of Default in existence as of such time or, if a Default or
Event of Default shall have occurred and be continuing, describing the nature
thereof and all efforts undertaken to cure such Default or Event of Default;
(d) Management Letters. Within five (5) Business Days after receipt
thereof by any Credit Party, copies of all management letters, exception reports
or similar letters or reports received by such Credit Party from its independent
certified public accountants;
(e) Default Notices. As soon as practicable, and in any event within
five (5) Business Days after an executive officer of Borrower has actual
knowledge of the existence of any Default, Event of Default or other event which
has had a Material Adverse Effect, telephonic or telecopied notice specifying
the nature of such Default or Event of Default or other event, including the
anticipated effect thereof, which notice, if given telephonically, shall be
promptly confirmed in writing on the next Business Day;
E-3
(f) SEC Filings and Press Releases. Promptly upon their becoming
available, copies of: (i) all Financial Statements, reports, notices and proxy
statements made publicly available by any Credit Party to its security holders;
(ii) all regular and periodic reports and all registration statements and
prospectuses, if any, filed by any Credit Party with any securities exchange or
with the Securities and Exchange Commission or any governmental or private
regulatory authority; and (iii) all press releases and other statements made
available by any Credit Party to the public concerning material adverse changes
or developments in the business of any such Person;
(g) Subordinated Debt and Equity Notices. As soon as practicable,
copies of all material written notices given or received by any Credit Party
with respect to any Subordinated Debt or Stock of such Person, and, within two
(2) Business Days after any Credit Party obtains knowledge of any matured or
unmatured event of default with respect to any Subordinated Debt, notice of such
event of default;
(h) Supplemental Schedules. Supplemental disclosures, if any,
required by Section 5.6 of the Agreement;
(i) Litigation. Promptly upon learning thereof, written notice of any
Litigation commenced or threatened against any Credit Party that (i) seeks
damages in excess of $100,000, (ii) seeks injunctive relief, (iii) is asserted
or instituted against any Plan, its fiduciaries or its assets or against any
Credit Party or ERISA Affiliate in connection with any Plan, (iv) alleges
criminal misconduct by any Credit Party, or (v) alleges the violation of any law
regarding, or seeks remedies in connection with, any Environmental Liabilities;
(j) Insurance Notices. Disclosure of losses or casualties required by
Section 5.4 of the Agreement;
E-4
(k) Copies of (i) any and all default notices received under or with
respect to any leased location or public warehouse where Collateral is located,
and (ii) such other notices or documents as Lender may request in its reasonable
discretion; and
(l) Other Documents. Such other financial and other information
respecting any Credit Party's business or financial condition as Lender shall,
from time to time, request.
E-5
ANNEX F (Section 4.1(b))
to
CREDIT AGREEMENT
COLLATERAL REPORTS
Borrower shall deliver or cause to be delivered the following:
(a) To Lender, upon its request, and in no event less frequently than
ten (10) Business Days after the end of each Fiscal Month, each of the
following:
(i) a Borrowing Base Certificate with respect to Borrower,
accompanied by such supporting detail and documentation as shall be
requested by Lender in its reasonable discretion;
(ii) with respect to Borrower, a summary of Inventory by location and
type with a supporting perpetual Inventory report, in each case accompanied
by such supporting detail and documentation as shall be requested by Lender
in its reasonable discretion; and
(iii) with respect to Borrower, a monthly trial balance showing
Accounts outstanding aged from invoice due date as follows: 1 to 30 days,
31 to 60 days, 61 to 90 days and 91 days or more, accompanied by such
supporting detail and documentation as shall be requested by Lender in its
reasonable discretion.
provided, however, that until such time as Borrower has generated EBITA on a
trailing twelve month basis of at least $4.5 million, Borrower will deliver each
of the reports described in clauses (i), (ii) and (iii) above on a weekly basis.
For purposes of this calculation, EBITA shall not include the $2.7 million
F-1
restructuring charge taken in the Fourth Quarter of the Fiscal Year ending June
30, 1996.
(b) To Lender, on a weekly basis or at such more frequent intervals
as Lender may request from time to time, collateral reports with respect to
Borrower, including all additions and reductions (cash and non-cash) with
respect to Accounts of Borrower, in each case accompanied by such supporting
detail and documentation as shall be requested by Lender in its reasonable
discretion;
(c) To Lender, at the time of delivery of each of the monthly
Financial Statements delivered pursuant to Annex E, a reconciliation of the
Accounts trial balance and month-end Inventory reports of Borrower to Borrower's
general ledger and monthly Financial Statements delivered pursuant to such Annex
E, in each case accompanied by such supporting detail and documentation as shall
be requested by Lender in its reasonable discretion;
(d) To Lender, at the time of delivery of each of the quarterly or
annual Financial Statements delivered pursuant to Annex E, (i) a listing of
government contracts of Borrower subject to the Federal Assignment of Claims Act
of 1940; and (ii) a list of any applications for the registration of any Patent,
Trademark or Copyright with the United States Patent and Trademark Office, the
United States Copyright Office or any similar office or agency which any Credit
Party thereof has filed in the prior Fiscal Quarter;
(e) Borrower, at its own expense, shall deliver to Lender the results
of each physical verification, if any, which Borrower or any of its Subsidiaries
may in their discretion have made, or caused any other Person to have made on
their behalf, of all or any portion of their Inventory (and, if a Default or an
Event of Default shall have occurred and be continuing, Borrower shall, upon the
request of Lender, conduct, and deliver the results of, such physical
verifications as Lender may require);
F-2
(f) Borrower, at its own expense, shall deliver to Lender such
appraisals of its assets as Lender may request at any time after the occurrence
and during the continuance of a Default or an Event of Default, such appraisals
to be conducted by an appraiser, and in form and substance, satisfactory to
Lender; and
(g) Such other reports, statements and reconciliations with respect
to the Borrowing Base or Collateral of any or all Credit Parties as Lender shall
from time to time request in its reasonable discretion.
F-3
ANNEX G (Section 6.10)
to
CREDIT AGREEMENT
FINANCIAL COVENANTS
Borrower shall not breach or fail to comply with any of the following
financial covenants, each of which shall be calculated in accordance with GAAP
consistently applied:
(a) Maximum Capital Expenditures. Borrower and its Subsidiaries on a
consolidated basis shall not make Capital Expenditures during the following
periods that exceed in the aggregate the amounts set forth opposite each of such
periods:
Period Maximum Capital
Expenditures per Period
Fiscal Year ending on or about June 30, 1997 $ 10,500,000
Fiscal Year ending on or about June 30, 1998 $ 11,400,000
Fiscal Year ending on or about June 30, 1999 $ 12,200,000
Fiscal Year ending on or about June 30, 2000 $ 12,600,000
Fiscal Year ending on or about June 30, 2001 $ 13,000,000
Each Fiscal Year thereafter $ 13,400,000
; provided, however, that the amount of permitted Capital Expenditures
referenced above will be increased in any period by the positive amount equal to
the lesser of (a) 25% of the amount of permitted Capital Expenditures for the
immediately prior period, and (b) the amount (if any), equal to the difference
obtained by taking the Capital Expenditures limit specified above for the
immediately prior period minus the actual amount of any Capital Expenditures
expended during such prior period (the "Carry Over Amount"), and for purposes of
G-1
measuring compliance herewith, the Carry Over Amount shall be deemed to be the
first amount spent on Capital Expenditures in that succeeding year.
(b) Minimum Debt Service Coverage Ratio. Borrower and its Subsidiaries
shall have on a consolidated basis at the end of each Fiscal Quarter set forth
below, a Debt Service Coverage Ratio for the 12-month period then ended (or with
respect to the Fiscal Quarters ending on or before the end of the Fiscal Quarter
ending on or about December 31, 1997, the period commencing on December 29, 1996
and ending on the last day of such Fiscal Quarter) of not less than the
following:
1.0 for the first Fiscal Quarter ending on or about March 31, 1997;
1.1 for the two Fiscal Quarters ending on or about June 30, 1997;
1.2 for the three Fiscal Quarters ending on or about September 30, 1997;
and
1.2 for the four Fiscal Quarters ending on or about December 31, 1997 and
each Fiscal Quarter end thereafter
(c) Minimum EBITDA. Borrower and its Subsidiaries on a consolidated
basis shall have, at the end of each Fiscal Quarter set forth below, EBITDA for
the 12-month period then ended (or with respect to the Fiscal Quarters ending on
or before the end of the Fiscal Quarter ending on or about December 31, 1997,
the period commencing on December 29, 1996 and ending on the last day of such
Fiscal Quarter) of not less than the following:
$2,800,000 for the Fiscal Quarter ending on or about March 31, 1997;
$5,600,000 for the two Fiscal Quarters, ending on or about June 30, 1997;
$9,500,000 for the three Fiscal Quarters ending on or about September 30,
1997;
$13,000,000 for the four Fiscal Quarters ending on or about December 31,
1997; and
$13,800,000 for each Fiscal Quarter end thereafter.
G-2
(d) Maximum Leverage Ratio. Borrower and its Subsidiaries on a
consolidated basis shall have, at the end of each Fiscal Quarter from and after
the Fiscal Quarter ending on or about March 31, 1997, a Leverage Ratio not in
excess of .45 to 1.0.
Unless otherwise specifically provided herein, any accounting term
used in the Agreement shall have the meaning customarily given such term in
accordance with GAAP, and all financial computations hereunder shall be computed
in accordance with GAAP consistently applied. That certain items or
computations are explicitly modified by the phrase "in accordance with GAAP"
shall in no way be construed to limit the foregoing. If any "Accounting
Changes" (as defined below) occur and such changes result in a change in the
calculation of the financial covenants, standards or terms used in the Agreement
or any other Loan Document, then Borrower and Lender agree to enter into
negotiations in order to amend such provisions of the Agreement so as to
equitably reflect such Accounting Changes with the desired result that the
criteria for evaluating Borrower's and its Subsidiaries' financial condition
shall be the same after such Accounting Changes as if such Accounting Changes
had not been made; "Accounting Changes" means (i) changes in accounting
principles required by the promulgation of any rule, regulation, pronouncement
or opinion by the Financial Accounting Standards Board of the American Institute
of Certified Public Accountants (or successor thereto or any agency with similar
functions), (ii) changes in accounting principles concurred in by Borrower's
certified public accountants; (iii) purchase accounting adjustments under A.P.B.
16 and/or 17 and EITF 88-16, and the application of the accounting principles
set forth in FASB 109, including the establishment of reserves pursuant thereto
and any subsequent reversal (in whole or in part) of such reserves; and (iv) the
reversal of any reserves established as a result of purchase accounting
adjustments. All such adjustments resulting from expenditures made subsequent
to the Closing Date (including capitalization of costs and expenses or payment
of pre-Closing Date liabilities) shall be treated as expenses in the period the
G-3
expenditures are made and deducted as part of the calculation of EBITDA in such
period. If Borrower and Lender agree upon the required amendments, then after
appropriate amendments have been executed and the underlying Accounting Change
with respect thereto has been implemented, any reference to GAAP contained in
the Agreement or in any other Loan Document shall, only to the extent of such
Accounting Change, refer to GAAP, consistently applied after giving effect to
the implementation of such Accounting Change. If Borrower and Lender cannot
agree upon the required amendments within thirty (30) days following the date of
implementation of any Accounting Change, then all Financial Statements delivered
and all calculations of financial covenants and other standards and terms in
accordance with the Agreement and the other Loan Documents shall be prepared,
delivered and made without regard to the underlying Accounting Change.
Notwithstanding the foregoing, if net income is reduced in any period for FAS
109 reserve reversals under clause (iii) above, net income in subsequent periods
shall be increased by a like amount to the extent that the underlying tax
benefits are realized (Cash Taxes reduced).
G-4
ANNEX H (Section 1.1(d))
to
CREDIT AGREEMENT
LENDERS' WIRE TRANSFER INFORMATION
Banker's Trust
New York, NY
ABA # 02100103-3
GECC/CAF Depository
Account # 50232854
BNF REF: #CFC4062 KeyTronic
I-1
ANNEX I (Section 11.10)
to
CREDIT AGREEMENT
NOTICE ADDRESSES
(A) If to Lender, at
General Electric Capital Corporation
105 West Madison Street - Suite 1600
Chicago, Illinois 60602
Attention: Michael McKay or Key Tronic Account Manager
Telecopier No.: (312) 419-5992
Telephone No.: (312) 419-0985
with copies to:
Paul, Hastings, Janofsky & Walker LLP
23rd Floor
555 South Flower Street
Los Angeles, California 90071
Attention: Michael L. Owen
Telecopier No.: (213) 627-0705
Telephone No.: (213) 683-6214
and
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: John Sirico
I-2
Telecopier No.: (203) 316-7889
Telephone No.: (203) 316-7552
(B) If to Borrower, at
Key Tronic Corporation
If by mail: P.O. Box 14687
Spokane, WA 99214-0687
If by Federal Express:
4424 N. Sullivan Rd.
Spokane, WA 99216
Attention: Ronald F. Klawitter, Vice President or
Chief Financial Officer
Telecopier No.: (509) 927-5555
Telephone No.: (509) 927-5295
With copies to:
I-3
Key Tronic Corporation
If by mail: P. O. Box 14687
Spokane, WA 99214-0687
If by Federal Express:
4424 N. Sullivan Rd.
Spokane, WA 99216
Attention: Keith Cripe, Controller
Telecopier No.: (509) 927-5244
Telephone No.: (509) 927-5360
(C) If to K. T. Services, Inc., at:
K. T. Services, Inc.
C/O Key Tronic Corporation
If by mail: P. O. Box 14687
Spokane, WA 99214-0687
If by Federal Express:
4424 N. Sullivan Rd.
Spokane, WA 99216
Attention: Ronald F. Klawitter, Secretary
Telecopier No.: (509) 927-5555
Telephone No.: (509) 927-5295
(D) If to U.S. Keyboard Company, at:
U.S. Keyboard Company
C/O Key Tronic Corporation
If by mail: P. O. Box 14687
I-4
Spokane, WA 99214-0687
If by Federal Express:
4424 N. Sullivan Rd.
Spokane, WA 99216
Attention: Ronald F. Klawitter, Secretary
Telecopier No.: (509) 927-5555
Telephone No.: (509) 927-5295
(E) If to Key Tronic Europe, Ltd., at:
Key Tronic Europe, Ltd.
The Ramparts
Dundalk, Ireland
or
Key Tronic Europe, Ltd.
C/O Key Tronic Corporation
If by mail: P. O. Box 14687
Spokane, WA 99214-0687
If by Federal Express:
4424 N. Sullivan Rd.
Spokane, WA 99216
Attention: Ronald F. Klawitter
Telecopier No.: (509) 927-5555
Telephone No.: (509) 927-5295
I-5
(F) If to Key Tronic Juarez, S.A. de C.V., at:
Key Tronic Juarez, S.A. de C.V.
Parque Industrial Gema
CD Juarez, Chich, Mexico
or
Key Tronic Juarez, S.A. de C.V.
C/O Key Tronic Corporation
If by mail: P. O. Box 14687
Spokane, WA 99214-0687
If by Federal Express:
4424 N. Sullivan Rd.
Spokane, WA 99216
Attention: Ronald F. Klawitter, Secretary
Telecopier No.: (509) 927-5555
Telephone No.: (509) 927-5295
(G) If to Key Tronic Far East Pte Limited, at:
Key Tronic Far East Pte Limited
24 Raffles Place, #26-05
Clifford Centre
Singapore 0104
or
I-6
Key Tronic Far East Pte Limited
C/O Key Tronic Corporation
If by mail: P. O. Box 14687
Spokane, WA 99214-0687
If by Federal Express:
4424 N. Sullivan Rd.
Spokane, WA 99216
Attention: Ronald F. Klawitter
Telecopier No.: (509) 927-5555
Telephone No.: (509) 927-5295
(H) If to KTC FSC, at:
KTC FSC
Suite 101, 250 Martyr
St Agana, Guam
or
Key Tronic Far East Pte Limited
C/O Key Tronic Corporation
If by mail: P. O. Box 14687
Spokane, WA 99214-0687
If by Federal Express:
4424 N. Sullivan Rd.
Spokane, WA 99216
Attention: Ronald F. Klawitter
Telecopier No.: (509) 927-5555
Telephone No.: (509) 927-5295
I-7
EXHIBIT 1.l(a)(i)
GE CAPITAL COMMERCIAL FINANCE NOTICE OF REVOLVING CREDIT ADVANCE
Previously Faxed: Yes No (Circle One)
Company Name: KEY TRONIC CORPORATION DATE: / / Certificate Number:
1. REQUESTED REVOLVING CREDIT ADVANCE
(A) Aggregate Amount of Revolving Credit
Advance $______
(B) Requested date for Revolving Credit
Advance: / /
(C) Form Revolving Credit Advance
(LIBOR Loan or Index Rate Loan): __________
(D) If LIBOR Loan, the duration of the
LIBOR Period shall be (one, two, or three) months
2. ACCOUNTS RECEIVABLE (Line 6 of previous
Notice of Revolving Credit Advance
dated / / ) $______
3 Additions to Accounts Receivable since
last Notice of Revolving Credit Advance
(A) New sales dated / / to / / $______
(B) Other additions (Explain:_________________) $______
(C) TOTAL ADDITIONS $______
4. Reductions to Accounts Receivable since last
Notice of Revolving Credit Advance
(A) Cash collections dated / / to / / $______
(B) Discounts and Credits issued since last
Notice of Revolving Credit Advance $______
(C) Other reductions/additions since last
Notice of Revolving Credit Advance $______
(D) TOTAL REDUCTIONS $______
5. Other adjustments to Accounts Receivable
(Explain: _________________________) $______
6. NEW ACCOUNTS RECEIVABLE BALANCE
(Total of Lines 2, 3C, 4D, and 5) $______
7. Total ineligible Accounts Receivable
(Line 2 of Borrowing Base Certificate
dated / / ) $______
8. Eligible Accounts Receivable
(Line 6 minus Line 7) $______
9. Eligible Accounts Receivable Availability
(85 % of Line 8) $______
10. Eligible Inventory Availability (Line 10 of
Borrowing Base Certificate dated / / ) $______
11. Liquidity Reserve $______
12. Total Borrowing Availability (The lesser
of (a) the total of Lines 9 and 10 or (b) the
Maximum Amount of $30,000,000, in each case
minus line 11) $______
- --------------------------------------------------------------------------------
13. BEGINNING REVOLVING CREDIT LOAN BALANCE
(Line 16 of previous Notice of Revolving
Credit Advance dated / / ) $______
14. Plus Revolving Credit Advance requested (line 1A) $______
15. Less TOTAL cash collections against Revolving
Credit Loan since last Notice of Revolving
Credit Advance $______
(A) Date Amt. $ (C) Date Amt. $
(B) Date Amt. $ (D) Date Amt. $
(E) TOTAL CASH REMITTED $______
16. New Revolving Credit Loan Balance
(Line 13 plus Line 14 minus Line 15E) $______
17. Letter of Credit Obligations $______
18. NET BORROWING AVAILABILITY (Line 13 minus
the total of Line 16 Ins Line 17) $______
The undersigned hereby certifies that the statements contained in
Section 2.2 of the Credit Agreement dated December 31, 1996, between Key Tronic
Corporation, General Electric Capital Corporation and the other parties thereto,
if any (as from time to time amended, supplemented, restated to otherwise
modified, the "Credit Agreement") are true and correct on the date hereof, and
will be true and correct on the date of the requested Revolving Credit Advance,
before and after giving effect thereto and the application of the proceeds
therefrom.
By:
Title:
EXHIBIT 1.1(a)(ii)
FORM OF REVOLVING CREDIT NOTE
$30,000,000.00 December 31, 1996
For value received, the receipt and sufficiency of which are hereby
acknowledged, KEY TRONIC CORPORATION, a Washington corporation ("Borrower"),
hereby promises to pay to the order of GENERAL ELECTRIC CAPITAL CORPORATION, a
New York corporation ("Lender"), the sum of Thirty Million Dollars
($30,000,000.00) (the "Maximum Revolving Commitment") or such greater or lesser
amount as shall be advanced by Lender from time to time, together with interest
on the unpaid balance of such amount from the date of the initial Revolving
Credit Advance. This Note is the Revolving Credit Note issued under the Credit
Agreement between Borrower and Lender of even date herewith (said agreement, as
the same may be amended, restated or supplemented from time to time, being
herein called the "Agreement") to which a reference is made for a statement of
all of the terms and conditions of the Loan evidenced hereby. Capitalized terms
not defined in this Note shall have the respective meanings assigned to them in
the Agreement. This Note is secured by the Agreement, the Security Agreement,
the other Loan Documents and the Collateral, and is entitled to the benefit of
the rights and security provided thereby.
Interest on the outstanding principal balance under this Note is payable at the
rate specified in Section 1.5 of the Agreement, or, under the circumstances
contemplated by the Agreement, at the Default Rate, in immediately available
United States Dollars at the time and in the manner specified in the Agreement.
The outstanding principal and interest under this Note shall be immediately due
and payable on the Revolving Loan Maturity Date. Payments received by Lender
shall be applied against principal and interest as provided for in the
Agreement. Borrower acknowledges that (a) Lender is authorized under the
Agreement to charge to the Revolving Credit Loan unpaid Obligations of Borrower
to Lender, (b) the principal amount of the Revolving Credit Loan will be
increased by such amounts, and (c) the principal, as so increased, will bear
interest as provided for herein and in the Agreement.
To the fullest extent permitted by applicable law, Borrower waives: (a)
presentment, demand and protest, and notice of presentment, dishonor, intent to
accelerate, acceleration, protest, default, nonpayment, maturity, release,
compromise, settlement, extension or renewal of any or all Loan Documents or
this Note; (b) all rights to notice and a hearing prior to Lender's taking
possession or control of, or to Lender's replevy, attachment or levy upon, the
Collateral or any bond or security that might be required by any court prior to
allowing Lender to exercise any of its remedies; and (c) the benefit of all
valuation, appraisal and exemption laws.
Borrower acknowledges that this Note is executed as part of a commercial
transaction and that the proceeds of this Note will not be used for any personal
or consumer purpose.
Borrower agrees to pay to Lender all Fees and expenses described in Section 1.9
(inc1uding the GE Capital Fee Letter) and Annex B to the Credit Agreement.
BORROWER ACKNOWLEDGES THAT BORROWER HAS WAIVED THE RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING ON THIS NOTE. THIS NOTE IS GOVERNED BY THE LAW OF THE STATE
OF NEW YORK.
KEY TRONIC CORPORATION
("Borrower")
By:
Title:
EXHIBIT 1.1(b)
FORM OF TERM NOTE
$11,000,000.00 December 31, 1996
For value received, the receipt and sufficiency of which are hereby
acknowledged, KEY TRONIC CORPORATION, a Washington corporation ("Borrower"),
hereby promises to pay to the order of GENERAL ELECTRIC CAPITAL CORPORATION, a
New York corporation ("Lender"), the sum of Eleven Million Dollars
($11,000,000.00) together with interest on the unpaid balance of such amount
from the date of this Note. This Note is the Term Note issued under the Credit
Agreement between Borrower and Lender of even date herewith (said agreement, as
the same may be amended, restated or supplemented from time to time, being
herein called the "Agreement") to which a reference is made for a statement of
all of the terms and conditions of the Loan evidenced hereby. Capitalized terms
not defined in this Note shall have the respective meanings assigned to them in
the Agreement. This Note is secured by the Agreement, the Security Agreement,
the other Loan Documents and the Collateral, and is entitled to the benefit of
the rights and security provided thereby.
Interest on the outstanding principal balance under this Note is payable at the
rate specified in Section 1.5 of the Agreement or, under the circumstances
contemplated by the Agreement, at the Default Rate, in immediately available
United States Dollars at the time and in the manner specified in the Agreement.
The outstanding principal and interest under this Note shall be immediately due
and payable on the Commitment Maturity Date, and prior to the Commitment
Termination Date, the outstanding principal shall be due and payable in twenty-
four (24) consecutive quarterly installments on the last day of March, June,
September and December of each year, commencing March, 1997, as follows:
Installment
Quarter Amount
14 $250,000
5-24 $500,000
Payments received by Lender shall be applied against principal and interest as
provided for in the Agreement. To the fullest extent permitted by applicable
law, Borrower waives: (a) presentment, demand and protest, and notice of
presentment, dishonor, intent to accelerate, acceleration, protest, default,
nonpayment, maturity, release, compromise, settlement, extension or renewal of
any or all Loan Documents or this Note; (b) all rights to notice and a hearing
prior to Lender's taking possession or control of, or to Lender's replevy,
attachment or levy upon, the Collateral or any bond or security that might be
required by any court prior to allowing Lender to exercise any of its remedies;
and (c) the benefit of all valuation, appraisal and exemption laws.
Borrower acknowledges that this Note is executed as part of a commercial
transaction and that the proceeds of this Note will not be used for any personal
or consumer purpose.
Borrower agrees to pay to Lender all Fees and expenses described in Section 1.9
(including the GE Capital Fee Letter) and Annex B to the Credit Agreement.
1
BORROWER ACKNOWLEDGES THAT BORROWER HAS WAIVED THE RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING ON THIS NOTE. THIS NOTE IS GOVERNED BY THE LAW OF THE STATE
OF NEW YORK.
KEY TRONIC CORPORATION
("Borrower")
By:
Title:
2
EXHIBIT 1.18(a)
KEY TRONIC CORPORATION
FORM OF CURRENT COLLATERAL VALUE REPORT
AVAILABLE DOMESTIC COLLATERAL
Equipment
Orderly Liquidation Value of equipment
(8/7/96 or most recent appraisal) $______
Less: OLV of equipment under lease $______
Less: OLV of equipment transferred to Mexico from US $______
Less: OLV of equipment sold $______
Subtotal: Current United States based equipment OLV $______
Less: ACC Depr at 5.00 % per quarter since Closing
Date or most recent re-appraisal date $______
Subtotal: Net United States OLV $______
Advance Rate 80%
Subtotal $______(A)
Machinery & Equipment purchased since most recent
appraisal at cost and located in the U.S. $______
Less: Soft costs such as taxes, installation,
freight, etc. $______
Subtotal: Net Purchase Price $______
Less: Acc Depr at 5.00% per quarter since
purchase date $______
Subtotal: Net United States OLV $______
Unappraised equipment advance rate 70%
Subtotal $______(B)
Real Estate
Real Estate in the U.S. included in the
most recent appraisal 1/ $______
Less: Acc Depr at [.00% per quarter since
Closing Date or most recent re-appraisal date $______
- -----------------
1/ Limited to Real Estate owned at Closing Date.
Subtotal $______
Term Loan Advance percentage for appraisal real estate 50%
Subtotal $______(C)
AVAILABLE DOMESTIC COLLATERAL
(sum of (A), (B) and (C) above) $______(D)
Term Loan Outstanding $______
Ratio of Available Domestic Collateral to Term
Loan Outstanding ___%
Ratio of Available Domestic Collateral to Term Loan
Outstanding greater than 80%? ______
MEXICO COLLATERAL
Orderly Liquidation Value of Equipment
(8/7/96 or most recent appraisal) $______
Less: OLV of equipment under lease $______
Plus: OLV of equipment transferred to Mexico from US $______
Less: OLV of equipment sold $______
Subtotal: Current Mexico based equipment OLV $______
Less: Acc Depr at 5.00% per quarter since
Closing Date or most recent re-appraisal date $______
Subtotal: Net Mexico OLV $______
Mexico Advance Rate 50%
SUBTOTAL $______(E)
TOTAL COLLATERAL (Sum of (D) and (E) above) $______
Term Loan Outstanding $______
Ratio of Total Collateral to Term Loan Outstanding ____%
Ratio of Total Collateral to Term Loan Outstanding
greater than 100%? ______
EXHIBIT 1.18(B)
FORM OF EQUIPMENT TRANSFER REPORT
Equipment Description Special Appraisal Date of Transfer
EXHIBIT 4. 1(b)
GE CAPITAL COMMERCIAL FINANCE BORROWING BASE CERTIFICATE
Previously Faxed: Yes No (Circle One)
Company Name: Key Tronic Corporation Date: / / B.B.C.# ____________
1. Period end accounts receivable as of:___/___/___ $________
2. Ineligible Accounts as of:___/___/___
Intercompany accounts $________
Ineligible past due accounts $________
Ineligible foreign accounts $________
Unresolved chargebacks $________
Contra accounts $________
Government accounts $________
Credit balances over 90 days past invoice date $________
Co-op advertising $________
Unissued customer rebates $________
Extended term customers $________
50% Cross aging exclusion $________
Warranty reserve $________
Sales returns and allowances reserve $________
Other: $________
Add back: Over 90 days past invoice ($_______)
due > total balance
Add back: Net credit balances ($_______)
TOTAL INELIGIBLE ACCOUNTS $________
3. Eligible Accounts (Line 1 minus Line 2) $________
4. Eligible Accounts advance rate 85%
5. Eligible Accounts availability (Line 3 multiplied by Line 4) $________
- --------------------------------------------------------------------------------
6. Total Inventory as of: ___/___/___ Source: _____________
Raw Materials $________
Fabricated Parts $________
Order-In-Process $________
Finished Goods $________
In-transit Inventory (from vendor
FOB shipping point) $________
Total Inventory $________
7. Ineligible Inventory as of: ___/___/___
A. Ineligible Raw Materials Inventory $________
In-transit Inventory (from vendor
FOB shipping point) $________
In-transit Inventory (domestic intercompany) $________
Customized Inventory
Non-nettable Inventory $________
Foreign Inventory $________
Surplus/Inactive/Obsolete Reserves $________
Other:______________________________ $________
Add Back: Customized Inventory included in ($________)
Surplus/Inactive/Obsolete
Add Back: Customized Inventory included in Non ($________)
nettable
Subtotal: Ineligible Raw Materials Inventory $________
B. Ineligible Work-In-Process Inventory
Fabricated parts $________
Order-in-process $________
Other: $________
Subtotal: Ineligible Work-In-Process Inventory $_______
C. Ineligible Finished Goods Inventory
Ineligible foreign finished goods $________
In-transit finished goods (domestic) $________
Non-nettable finished goods (domestic) $________
Surplus/Inactive/Obsolete Reserves $________
Other: $________
Add back: Eligible new product included in
Surplus/Inactive/Obsolete Reserve ($________)
Subtotal: Ineligible Finished Goods $_______
Total Ineligible Inventory ((A) plus (B) plus (C)) $_______
8. Eligible Inventory (Line 6 minus Line 7) $_______
9. Eligible Inventory advance rate 59%
10. Eligible Inventory availability (Line 8 multiplied $_______
by Line 9)
- --------------------------------------------------------------------------------
11. Liquidity Reserve $_______
12. Borrowing Availability (The lesser of (a) the
total of Lines 5 and 10 or (b) the Maximum Amount
of $30,000,000, in each case minus line 11) $_______
13. Revolving Credit Loan Balance $_______
14. Letter of Credit Obligations $_______
15. Net Borrowing Availability (Line 12 minus the
total of Lines 13 and 14) $_______
- --------------------------------------------------------------------------------
The undersigned certifies that (a) all of the foregoing information
regarding Eligible Accounts is true and correct on the date hereof and
relates solely to Eligible Accounts within the meaning given such term in the
Credit Agreement dated December 31, 1996 between Key Tronic Corporation,
General Electric Capital Corporation and the other parties thereto, if any
(as from time to time amended, supplemented, restated or otherwise modified,
the "Credit Agreement"), and (b) all of the foregoing information regarding
Eligible Inventory is true and correct on the date hereof and relates solely
to Eligible Inventory within the meaning given such term in the Credit
Agreement.
Prepared by:____________________________ By:_______________________
THIS PAGE MUST BE KEPT AS THE LAST PAGE OF THE DOCUMENT.
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