Execution Copy
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of
September 12, 1996, is made and given by AUDIO KING CORPORATION,, a Minnesota
corporation formerly known as Image Retailing Group, Inc. ("AKC"), AUDIO KING,
INC. ("AKI"), a Minnesota corporation, SPECIALTY HOME ELECTRONICS REPAIR, INC.,
a Minnesota corporation ("SHER"), FAST TRAK, INC. ("FAST TRAK") an Iowa
corporation, and AUDIO KING IOWA, INC., an Iowa corporation ("AKII") (AKC, AKI,
SHER, FAST TRAK and AKII collectively, the "Borrowers," or individually and
without distinction, a "Borrower"), to FIRST BANK NATIONAL ASSOCIATION, a
national banking association (the "Bank").
RECITALS
A. The Borrowers and the Bank entered into that certain Amended and
Restated Credit Agreement dated September 18, 1992, as amended by an Amendment
to Amended and Restated Credit Agreement dated November 19, 1993, by a Second
Amendment to Amended and Restated Credit Agreement dated as of September 15,
1994, by a Third Amendment to Amended and Restated Credit Agreement dated as of
March 30, 1995, and by a Fourth Amendment to Amended and Restated Credit
Agreement dated as of April 14, 1995 (as so amended, the "Existing Credit
Agreement") pursuant to which the Bank made revolving loan advances available to
the Borrowers evidenced by a Revolving Note of the Borrower in favor of the Bank
dated April 14, 1995 in the maximum principal amount of $11,000,000 (the
"Existing Revolving Note").
B. The Borrowers have requested the Bank to add Fast Trak and AKII as
Borrowers, extend the Termination Date, reduce the Revolving Commitment Amount,
convert $3,000,000 of the outstanding principal balance under the Existing
Revolving Note to a term loan, waive certain existing Events of Default, and to
amend and restate the Existing Revolving Note and the Existing Credit Agreement
in their entireties.
C. The Bank has agreed to add Fast Trak and AKII as Borrowers, extend
the Termination Date, reduce the Revolving Commitment Amount, convert $3,000,000
of the outstanding principal balance under the Existing Revolving Note to a term
loan, waive certain existing Events of Default, and to amend and restate the
Existing Revolving Note and the Existing Credit Agreement in their entireties.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the Borrowers and the Bank
hereto do hereby agree as follows:
PART I
Amendment and Restatement of
Existing Credit Agreement
Subject to Part II hereof, the Existing Credit Agreement is hereby
amended and restated to read in full as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 Defined Terms. As used in this Agreement the following
terms shall have the following respective meanings (and such meanings shall be
equally applicable to both the singular and plural form of the terms defined, as
the context may require):
"Adjusted CD Rate": With respect to each Interest Period applicable to
a CD Rate Advance, the sum (rounded upward, if necessary, to the next one
hundredth of one percent) of (a) the rate per annum obtained by dividing (i) the
CD Rate as of the first day of the Interest Period, by (ii) 1.00 minus the
Domestic Reserve Percentage, plus (b) the annual rate most recently estimated by
the Bank as the then current net annual assessment rate payable by the Bank to
the Federal Deposit Insurance Corporation (or any successor) for insuring time
deposits made in Dollars at the Bank's domestic offices, plus (c) the cost
(converted to an equivalent rate per annum) of customary brokerage fees incurred
by the Bank in obtaining funds by the sale of its negotiable certificates of
deposit.
"Advance": Any portion of the outstanding Revolving Loans or Term Loan
by the Bank as to which any Borrower elected one of the available interest rate
options and, if applicable, an Interest Period. An Advance may be a CD Rate
Advance or a Reference Rate Advance.
"Affiliate": When used with reference to any Person, (a) each Person
that, directly or indirectly, controls, is controlled by or is under common
control with, the Person referred to, (b) each Person which beneficially owns or
holds, directly or indirectly, five percent or more of any class of voting stock
of the Person referred to (or if the Person referred to is not a corporation,
five percent or more of the equity interest), (c) each Person, five percent or
more of the voting stock (or if such Person is not a corporation, five percent
or more of the equity interest) of which is beneficially owned or held, directly
or indirectly, by the Person referred to, and (d) each of such Person's
officers, directors, joint venturers and partners. The term control (including
the terms "controlled by" and "under common control with") means the possession,
directly, of the power to direct or cause the direction of the management and
policies of the Person in question.
"Applicable Margin": With respect to:
(a) Reference Rate Advances -- 0%.
(b) CD Rate Advances -- 2.00%.
"Applicable Term Margin": With respect to:
(a) Reference Rate Advances -- .25%.
(b) CD Rate Advances -- 2.25%.
"Bank": As defined in the opening paragraph hereof.
"Board": The Board of Governors of the Federal Reserve System or any
successor thereto.
"Borrower(s)": As defined in the opening paragraph hereof.
"Borrowing Base": As determined in accordance with the formula set
forth in Exhibit A.
"Borrowing Base Certificate": A certificate in the form of Exhibit B.
"Borrowing Base Deficiency": At the time of any determination, the
amount, if any, by which Total Revolving Outstandings exceed the Borrowing Base.
"Business Day": Any day (other than a Saturday, Sunday or legal holiday
in the State of Minnesota) on which national banks are permitted to be open in
Minneapolis, Minnesota.
"Capital Expenditures": For any period, the sum of all amounts that
would, in accordance with GAAP, be included as additions to property, plant and
equipment on a consolidated statement of cash flows for the Borrowers during
such period, in respect of (a) the acquisition, construction, improvement,
replacement or betterment of land, buildings, machinery, equipment or of any
other fixed assets or leaseholds, (b) to the extent related to and not included
in (a) above, materials, contract labor (excluding expenditures properly
chargeable to repairs or maintenance in accordance with GAAP), and (c) other
capital expenditures and other uses recorded as capital expenditures or similar
terms having substantially the same effect.
"Capitalized Lease": A lease of (or other agreement conveying the right
to use) real or personal property with respect to which at least a portion of
the rent or other amounts thereon constitute Capitalized Lease Obligations.
"Capitalized Lease Obligations": As to any Person, the obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real or personal property which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP (including Statement of Financial Accounting
Standards No. 13 of the Financial Accounting Standards Board), and, for purposes
of this Agreement, the amount of such obligations shall be the capitalized
amount thereof, determined in accordance with GAAP (including such Statement No.
13).
"Cash Flow Leverage Ratio": For any period of determination, the ratio
of (a) the sum (without duplication) of the Total Liabilities bearing interest
determined as of the last day of that period to (b) the sum of (i) net income
plus (ii) depreciation for the 12 months ending on such date, in each case
determined for said period on a consolidated basis in accordance with GAAP.
"CD Rate": With respect to any CD Rate Advance for any Interest Period
applicable thereto, the rate of interest determined by the Bank for the relevant
Interest Period to be the average (rounded upward, if necessary, to the next
1/100th of 1%) of the rates quoted to the Bank at approximately 8:00 a.m.,
Minneapolis time (or as soon thereafter as practicable), or at the option of the
Bank at approximately the time of the request for a CD Rate Advance if such
request is made later than 8:00 a.m., Minneapolis time, in each case on the
first day of the applicable Interest Period by certificate of deposit dealers
selected by the Bank, in its sole discretion, for the purchase from the Bank, at
face value, of certificates of deposit issued by the Bank in an amount and
maturity comparable to the amount and maturity of the requested CD Rate Advance,
or at the option of the Bank determined for such amount and maturity based on
published composite quotation of certificate of deposit rates selected by the
Bank.
"CD Rate Advance": An Advance with respect to which the interest rate
is determined by reference to the Adjusted CD Rate.
"Change of Control": The occurrence, after the Closing Date, of any of
the following circumstances: (a) any Person or two or more Persons acting in
concert acquiring beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934),
directly or indirectly, of securities of the Borrowers (or other securities
convertible into such securities) representing 25% or more of the combined
voting power of all securities of the Borrowers entitled to vote in the election
of directors; or (b) during any period of up to twelve consecutive months,
whether commencing before or after the Closing Date, individuals who at the
beginning of such twelve-month period were directors of the Borrowers ceasing
for any reason to constitute a majority of the Board of Directors of the
Borrowers (other than by reason of death, disability or scheduled retirement);
or (c) any Person or two or more Persons acting in concert acquiring by contract
or otherwise, or entering into a contract or arrangement which upon consummation
will result in its or their acquisition of, control over securities of the
Borrowers (or other securities convertible into such securities) representing
25% or more of the combined voting power of all securities of the Borrowers
entitled to vote in the election of directors.
"Closing Date": Any Business Day that all the conditions precedent to
the obligation of the Bank to make such Loan, as set forth in Article III, have
been, or, on such Closing Date, will be, satisfied.
"Closing Fee": As defined in Section 2.16(c).
"Code": The Internal Revenue Code of 1986, as amended.
"Commitments": The Revolving Commitment and the Term Loan Commitment.
"Compliance Certificate": A certificate in the form of Exhibit C.
"Contingent Obligation": With respect to any Person at the time of any
determination, without duplication, any obligation, contingent or otherwise, of
such Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness of any other Person (the "primary obligor") in any manner, whether
directly or otherwise: (a) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or to purchase (or to advance or
supply funds for the purchase of) any direct or indirect security therefor, (b)
to purchase property, securities or services for the purpose of assuring the
owner of such Indebtedness of the payment of such Indebtedness, (c) to maintain
working capital, equity capital or other financial statement condition of the
primary obligor so as to enable the primary obligor to pay such Indebtedness or
otherwise to protect the owner thereof against loss in respect thereof, or (d)
entered into for the purpose of assuring in any manner the owner of such
Indebtedness of the payment of such Indebtedness or to protect the owner against
loss in respect thereof; provided, that the term "Contingent Obligation" shall
not include endorsements for collection or deposit, in each case in the ordinary
course of business.
"Current Liabilities": As of any date, the consolidated current
liabilities of the Borrowers, determined in accordance with GAAP.
"Debt Service Coverage Ratio": For any period of determination, the
ratio of (a) EBIT to (b) the sum of (i) all scheduled principal payments with
respect to Funded Indebtedness (including but not limited to all payments with
respect to Capitalized Lease Obligations of the Borrowers) plus (ii) Interest
Expense, in each case determined for said period on a consolidated basis in
accordance with GAAP.
"Default": Any event which, with the giving of notice (whether such
notice is required under Section 7.1, or under some other provision of this
Agreement, or otherwise) or lapse of time, or both, would constitute an Event of
Default.
"Domestic Reserve Percentage": As of any day, that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board for determining the maximum reserve requirement (including without
limitation any basic, supplemental or emergency reserves) for a member bank of
the Federal Reserve System, with deposits comparable in amount to those held by
the Bank, in respect of new non-personal time deposits in dollars having a
maturity comparable to the related Interest Period and in an amount of $100,000
or more. The rate of interest applicable to any outstanding CD Rate Advance
shall be adjusted automatically on and as of the effective date of any change in
the Domestic Reserve Percentage.
"EBIT": For any period of determination, the consolidated net income of
the Borrowers before deductions for income taxes and Interest Expense, all as
determined in accordance with GAAP.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate": Any trade or business (whether or not incorporated)
that is a member of a group of which any Borrower is a member and which is
treated as a single employer under Section 414 of the Code.
"Event of Default": Any event described in Section 7.1.
"Existing Revolving Note": As defined in Recital A.
"Funded Indebtedness": The Term Loan and any other Indebtedness of the
Borrowers with a fiscal maturity of more than one year after the date it is
incurred, including current maturities thereof.
"GAAP": Generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of any date of
determination.
"Holding Account": A deposit account belonging to the Bank into which
the Borrowers may be required to make deposits pursuant to the provisions of
this Agreement, such account to be under the sole dominion and control of the
Bank and not subject to withdrawal by any Borrower, with any amounts therein to
be held for application toward payment of any outstanding Letters of Credit when
drawn upon. The Holding Account shall be a money market savings account or
substantial equivalent (or other appropriate investment medium as the Borrowers
may from time to time request and to which the Bank in its sole discretion shall
have consented) and shall bear interest in accordance with the terms of similar
accounts held by the Bank for its customers.
"Immediately Available Funds": Funds with good value on the day and in
the city in which payment is received.
"Indebtedness": With respect to any Person at the time of any
determination, without duplication, all obligations, contingent or otherwise, of
such Person which in accordance with GAAP should be classified upon the balance
sheet of such Person as liabilities, but in any event including: (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all obligations of such Person upon which interest charges are customarily paid
or accrued, (d) all obligations of such Person under conditional sale or other
title retention agreements relating to property purchased by such Person, (e)
all obligations of such Person issued or assumed as the deferred purchase price
of property or services, (f) all obligations of others secured by any Lien on
property owned or acquired by such Person, whether or not the obligations
secured thereby have been assumed, (g) all Capitalized Lease Obligations of such
Person, (h) all obligations of such Person in respect of interest rate
protection agreements, (i) all obligations of such Person, actual or contingent,
as an account party in respect of letters of credit or bankers' acceptances, (j)
all obligations of any partnership or joint venture as to which such Person is
or may become personally liable, and (k) all Contingent Obligations of such
Person.
"Interest Expense": For any period of determination, the aggregate
consolidated amount, without duplication, of interest paid, accrued or scheduled
to be paid in respect of any Indebtedness of the Borrowers, including (a) all
but the principal component of payments in respect of conditional sale
contracts, Capitalized Leases and other title retention agreements, (b)
commissions, discounts and other fees and charges with respect to letters of
credit and bankers' acceptance financings and (c) net costs under interest rate
protection agreements, in each case determined in accordance with GAAP.
"Interest Period": With respect to each CD Rate Advance, the period
commencing on the date of such Advance or on the last day of the immediately
preceding Interest Period, if any, applicable to an outstanding Advance and
ending 30, 60 or 90 days thereafter, as a Borrower may elect in the applicable
notice of borrowing, continuation or conversion; provided that:
(a) Any Interest Period that would otherwise end on a day which is not
a Business Day shall be extended to the next succeeding Business Day; and
(b) Any Interest Period applicable to an Advance on the Revolving Loan
that would otherwise end after the Termination Date shall end on the Termination
Date, and any Interest Period applicable to an Advance on the Term Loan that
would otherwise end after the scheduled maturity of such Term Loan shall end on
such maturity.
Interest Periods shall be selected so that the installment payments on the Term
Note can be paid without having to pay a CD Rate Advance prior to the last day
of the Interest Period applicable thereto.
"Investment": The acquisition, purchase, making or holding of any stock
or other security, any loan, advance, contribution to capital, extension of
credit (except for trade and customer accounts receivable for inventory sold or
services rendered in the ordinary course of business and payable in accordance
with customary trade terms), any acquisitions of real or personal property
(other than real and personal property acquired in the ordinary course of
business) and any purchase or commitment or option to purchase stock or other
debt or equity securities of or any interest in another Person or any integral
part of any business or the assets comprising such business or part thereof. The
amount of any Investment shall be the original cost of such Investment plus the
cost of all additions thereto, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment.
"Letter of Credit": An irrevocable letter of credit issued by the Bank
pursuant to this Agreement for the account of a Borrower.
"Letter of Credit Fees": As defined in Section 2.16(b).
"Letter of Credit Usage": As of any date of determination an amount
equal to the sum of (a) the amount of all Unpaid Drawings plus (b) the amount
available to be drawn under all outstanding Letters of Credit.
"Leverage Ratio": At the time of any determination, the ratio of (a)
Total Liabilities minus Subordinated Debt to (b) Tangible Net Worth.
"Lien": With respect to any Person, any security interest, mortgage,
pledge, lien, charge, encumbrance, title retention agreement or analogous
instrument or device (including the interest of each lessor under any
Capitalized Lease), in, of or on any assets or properties of such Person, now
owned or hereafter acquired, whether arising by agreement or operation of law.
"Loan": A Revolving Loan or the Term Loan.
"Loan Documents": This Agreement, the Notes and the Security Documents.
"Multiemployer Plan": A multiemployer plan, as such term is defined in
Section 4001 (a) (3) of ERISA, which is maintained (on the Closing Date, within
the five years preceding the Closing Date, or at any time after the Closing
Date) for employees of the Borrowers or any ERISA Affiliate.
"Note": The Term Note or the Revolving Note.
"Obligations": The Borrowers' obligations in respect of the due and
punctual payment of principal and interest on the Notes and Unpaid Drawings when
and as due, whether by acceleration or otherwise and all fees (including
Revolving Commitment Fees), expenses, indemnities, reimbursements and other
obligations of the Borrowers under this Agreement or any other Loan Document, in
all cases whether now existing or hereafter arising or incurred.
"PBGC": The Pension Benefit Guaranty Corporation, established pursuant
to Subtitle A of Title IV of ERISA, and any successor thereto or to the
functions thereof.
"Person": Any natural person, corporation, partnership, limited
partnership, limited liability company, joint venture, firm, association, trust,
unincorporated organization, government or governmental agency or political
subdivision or any other entity, whether acting in an individual, fiduciary or
other capacity.
"Plan": Each employee benefit plan (whether in existence on the Closing
Date or thereafter instituted), as such term is defined in Section 3 of ERISA,
maintained for the benefit of employees, officers or directors of the Borrowers
or of any ERISA Affiliate.
"Prohibited Transaction": The respective meanings assigned to such term
in Section 4975 of the Code and Section 406 of ERISA.
"Reference Rate": The rate of interest from time to time publicly
announced by the Bank as its "reference rate." The Bank may lend to its
customers at rates that are at, above or below the Reference Rate. For purposes
of determining any interest rate hereunder or under any other Loan Document
which is based on the Reference Rate, such interest rate shall change as and
when the Reference Rate shall change.
"Reference Rate Advance": An Advance with respect to which the interest
rate is determined by reference to the Reference Rate.
"Regulatory Change": Any change after the Closing Date in federal,
state or foreign laws or regulations or the adoption or making after such date
of any interpretations, directives or requests applying to a class of banks
including the Bank under any federal, state or foreign laws or regulations
(whether or not having the force of law) by any court or governmental or
monetary authority charged with the interpretation or administration thereof.
"Reportable Event": A reportable event as defined in Section 4043 of
ERISA and the regulations issued under such Section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation has waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event, provided that a failure to meet the minimum
funding standard of Section 412 of the Code and of Section 302 of ERISA shall be
a Reportable Event regardless of the issuance of any waiver in accordance with
Section 412(d) of the Code.
"Restricted Payments": With respect to AKC, all dividends or all other
distributions of any nature (cash, securities other than common stock of AKC,
assets or otherwise), and all payments on any class of equity securities
(including warrants, options or rights therefor) issued by AKC, whether such
securities are authorized or outstanding on the Closing Date or at any time
thereafter and any redemption or purchase of, or distribution in respect of, any
of the foregoing, whether directly or indirectly.
"Revolving Commitment": The obligation of the Bank to make Revolving
Loans to, and issue Letters of Credit for the account of, the Borrowers in an
aggregate principal amount outstanding at any time not to exceed the Revolving
Commitment Amount upon the terms and subject to the conditions and limitations
of this Agreement.
"Revolving Commitment Amount": Initially (a) $6,500,000 from and
including July 1 of each year to and including February 28 or 29, as the case
may be, of each subsequent year and (b) $6,500,000 minus the Seasonal Reduction
Amount during the period from and including March 1 to and including June 30 of
each year, but in each case, as the same may be reduced from time to time
pursuant to Section 2.14.
"Revolving Commitment Fees": As defined in Section 2.16(a).
"Revolving Loan": As defined in Section 2.1.
"Revolving Loan Date": The date of the making of any Revolving Loan
hereunder.
"Revolving Note": An amended and restated revolving note of the
Borrowers, in the form of Exhibit D hereto, as the same may be amended,
restated, supplemented or otherwise modified from time to time.
"Seasonal Reduction Amount": $2,000,000.
"Security Agreement": A security agreement of the Borrowers in the form
of Exhibit E hereto, as the same may be amended, restated, supplemented or
otherwise modified from time to time.
"Subordinated Debt": Any Indebtedness of the Borrowers, now existing or
hereafter created, incurred or arising, which is subordinated in right of
payment to the payment of the Obligations in a manner and to an extent (a) that
the Bank has approved in writing prior to the creation of such Indebtedness, or
(b) as to any Indebtedness of the Borrowers existing on the date of this
Agreement, that the Bank has approved as Subordinated Debt in a writing
delivered by the Bank to the Borrowers on or prior to the Closing Date.
"Subsidiary": Any corporation or other entity of which securities or
other ownership interests having ordinary voting power for the election of a
majority of the board of directors or other Persons performing similar functions
are owned by the Borrowers either directly or through one or more Subsidiaries.
"Tangible Net Worth ": As of any date of determination, the sum of the
amounts set forth on the consolidated balance sheet of the Borrowers as the sum
of the common stock, preferred stock, additional paid-in capital and retained
earnings of the Borrowers (excluding treasury stock), less the book value of all
intangible assets of the Borrowers, including all such items as goodwill,
trademarks, trade names, service marks, copyrights, patents, licenses,
unamortized debt discount and expenses and the excess of the purchase price of
the assets of any business acquired by the Borrowers over the book value of such
assets.
"Termination Date": The earliest of (a) September 30, 1998, (b) the
date on which the Revolving Commitment is terminated pursuant to Section 7.2
hereof or (c) the date on which the Revolving Commitment Amount is reduced to
zero pursuant to Section 2.14 hereof.
"Term Loan": As defined in Section 2.1.
"Term Loan Commitment": The agreement of the Bank to convert $3,000,000
of the outstanding principal under the Existing Revolving Note to the Term Loan
upon the terms and subject to the conditions of this Agreement.
"Term Note": A promissory note of the Borrowers in the form of Exhibit
F hereto, as the same may be amended, restated, supplemented or otherwise
modified from time to time.
"Total Liabilities": At the time of any determination, the amount, on a
consolidated basis, of all items of Indebtedness of the Borrowers that would
constitute "liabilities" for balance sheet purposes in accordance with GAAP.
"Total Revolving Outstandings": As of any date of determination, the
sum of (a) the aggregate unpaid principal balance of Revolving Loans outstanding
on such date, (b) the aggregate maximum amount available to be drawn under
Letters of Credit outstanding on such date and (c) the aggregate amount of
Unpaid Drawings on such date.
"Unpaid Drawing": As defined in Section 2.11.
"Unused Revolving Commitment": As of any date of determination, the
amount by which the Revolving Commitment Amount exceeds the Total Revolving
Outstandings on such date.
Section 1.2 Accounting Terms and Calculations. Except as may be
expressly provided to the contrary herein, all accounting terms used herein
shall be interpreted and all accounting determinations hereunder shall be made
in accordance with GAAP. To the extent any change in GAAP affects any
computation or determination required to be made pursuant to this Agreement,
such computation or determination shall be made as if such change in GAAP had
not occurred unless the Borrowers and the Bank agree in writing on an adjustment
to such computation or determination to account for such change in GAAP.
Section 1.3 Computation of Time Periods. In this Agreement, in the
computation of a period of time from a specified date to a later specified date,
unless otherwise stated the word "from" means "from and including" and the word
"to" or "until" each means "to but excluding".
Section 1.4 Other Definitional Terms. The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. References to Sections, Exhibits, schedules and like references are
to this Agreement unless otherwise expressly provided. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation". Unless the context in which used herein otherwise clearly requires,
"or" has the inclusive meaning represented by the phrase "and/or".
ARTICLE II
TERMS OF THE CREDIT FACILITIES
Part A -- Terms of Lending
Section 2.1 Lending Commitments. On the terms and subject to the
conditions hereof, the Bank agrees to make the following lending facilities
available to the Borrowers:
2.1(a) Revolving Credit. A revolving credit facility available as loans
(each, a "Revolving Loan" and, collectively, the "Revolving Loans") to the
Borrowers on a revolving basis at any time and from time to time from the
Closing Date to the Termination Date, during which period the Borrowers may
borrow, repay and reborrow in accordance with the provisions hereof, provided,
that no Revolving Loan will be made in any amount which, after giving effect
thereto, would cause the Total Revolving Outstandings to exceed lesser of (i)
the Revolving Commitment Amount, or (ii) the Borrowing Base. Revolving Loans may
be obtained and maintained, at the election of the Borrowers but subject to the
limitations hereof, as Reference Rate Advances or CD Rate Advances or any
combination thereof.
2.1(b) Term Loan. The conversion of $3,000,000 of the outstanding
principal under the Existing Revolving Note to a term loan (the "Term Loan")
from the Bank to the Borrowers on the Closing Date. The Term Loan and any
portion of the balance thereof (in minimum amounts of $100,000, or, if more, in
integral multiples thereof) may be made, maintained, continued and converted to
Reference Rate Advances or CD Rate Advances as any Borrower may elect in its
notice of borrowing, continuation or conversion.
Section 2.2 Procedure for Loans.
2.2(a) Procedure for Revolving Loans. Any request by a Borrower for a
Revolving Loan hereunder shall be in writing or by telephone and must be given
so as to be received by the Bank not later than 2:00 p.m. (Minneapolis time) on
the requested Revolving Loan Date a Reference Rate Advance. Each request for a
Revolving Loan hereunder shall be irrevocable and shall be deemed a
representation by such Borrower that on the requested Revolving Loan Date and
after giving effect to the requested Revolving Loan the applicable conditions
specified in Article III have been and will be satisfied. Each request for a
Revolving Loan hereunder shall specify (i) the requested Revolving Loan Date,
(ii) the amount of the Revolving Loan to be made on such date which shall be in
a minimum amount of $25,000, or, if more, an integral multiple thereof; provided
that any Revolving Loan requested as a CD Rate Advance must in a minimum amount
of $100,000 or, if more, an integral multiple thereof, (iii) whether such
Revolving Loan is to be funded as a Reference Rate Advance or as a CD Rate
Advance (and, if such Revolving Loan is to be made with more than one applicable
interest rate choice, specifying the amount to which each interest rate choice
is applicable) and (iv) in the case of a CD Rate Advance, the duration of the
initial Interest Period applicable thereto. The Bank may rely on any telephone
request for a Revolving Loan hereunder which it believes in good faith to be
genuine; and each Borrower hereby waives the right to dispute the Bank's record
of the terms of such telephone request. Unless the Bank determines that any
applicable condition specified in Article III has not been satisfied, the Bank
will make available to the Borrower at the Bank's principal office in
Minneapolis, Minnesota in Immediately Available Funds not later than 3:00 p.m.
(Minneapolis time) on the requested Revolving Loan Date the amount of the
requested Revolving Loan.
2.2(b) Procedure for Term Loan. Not later than 10:00 a.m. (Minneapolis
time) on the Closing Date the Borrowers shall deliver to the Bank a written
notice of borrowing. Such notice of borrowing shall be irrevocable and shall be
deemed a representation by the Borrowers that on the Closing Date and after
giving effect to the Term Loan the applicable conditions specified in Article
III have been and will be satisfied. Such notice of borrowing shall specify (i)
whether such Term Loan shall be a CD Rate Advance or a Reference Rate Advance,
and (ii) in the case of a CD Rate Advance, the duration of the initial Interest
Period applicable thereto.
Section 2.3 Notes. The Revolving Loans shall be evidenced by a single
Revolving Note payable to the order of the Bank in a principal amount equal to
the Revolving Commitment Amount originally in effect. The Term Loan shall be
evidenced by a Term Note payable to the order of the Bank in the principal
amount of the Term Loan.
The Bank shall enter in its ledgers and records the amount of the Term
Loan and each Revolving Loan, the various Advances made, converted or continued
and the payments made thereon, and the Bank is authorized by each Borrower to
enter on a schedule attached to its Term Note or Revolving Note, as appropriate,
a record of such Term Loan, Revolving Loans, Advances and payments; provided,
however that the failure by the Bank to make any such entry or any error in
making such entry shall not limit or otherwise affect the obligation of any
Borrower hereunder and on the Notes, and, in all events, the principal amounts
owing by the Borrowers in respect of the Revolving Note shall be the aggregate
amount of all Revolving Loans made by the Bank less all payments of principal
thereof made by the Borrowers and the principal amount owing by the Borrowers in
respect of the Term Note shall be the aggregate amount of the Term Loan less all
payments of principal thereof made by the Borrowers.
Section 2.4 Conversions and Continuations. On the terms and subject to
the limitations hereof, the Borrowers shall have the option at any time and from
time to time to convert all or any portion of the Advances into Reference Rate
Advances or CD Rate Advances, or to continue a CD Rate Advance as such;
provided, however that a CD Rate Advance may be converted or continued only on
the last day of the Interest Period applicable thereto and no Advance may be
converted to or continued as a CD Rate Advance if a Default or Event of Default
has occurred and is continuing on the proposed date of continuation or
conversion. Advances may be converted to, or continued as, CD Rate Advances only
in integral multiples of $100,000. The Borrowers shall give the Bank written
notice of any continuation or conversion of any Advances and such notice must be
given so as to be received by the Bank not later than 1:00 p.m. (Minneapolis
time) on the date of the requested continuation of CD Rate Advances or
conversion to CD Rate Advances or Reference Rate Advances. Each such notice
shall specify (a) the amount to be continued or converted, (b) the date for the
continuation or conversion (which must be (i) the last day of the preceding
Interest Period for any continuation or conversion of CD Rate Advances, and (ii)
a Business Day in the case of conversions to or continuations as CD Rate
Advances or Reference Rate Advances), and (c) in the case of conversions to or
continuations as CD Rate Advances, the Interest Period applicable thereto. Any
notice given by the Borrowers under this Section shall be irrevocable. If the
Borrowers shall fail to notify the Bank of the continuation of any CD Rate
Advances within the time required by this Section, such Advances shall, on the
last day of the Interest Period applicable thereto, automatically be converted
into Reference Rate Advances of the same principal amount.
Section 2.5 Interest Rates, Interest Payments and Default Interest.
2.5(a) The Revolving Loans. Interest shall accrue and be payable on the
Revolving Loans as follows:
(i) Subject to paragraph (iii) below, each CD Rate Advance shall bear
interest on the unpaid principal amount thereof during the Interest Period
applicable thereto at a rate per annum equal to the sum of (A) the Adjusted CD
Rate for such Interest Period, plus (B) the Applicable Margin.
(ii) Subject to paragraph (iii) below, each Reference Rate Advance
shall bear interest on the unpaid principal amount thereof at a varying rate per
annum equal to the sum of (A) the Reference Rate, plus (B) the Applicable
Margin.
(iii) Upon the occurrence of any Event of Default, each Advance shall,
at the option of the Bank, bear interest until paid in full (A) during the
balance of any Interest Period applicable to such Advance, at a rate per annum
equal to the sum of the rate applicable to such Advance during such Interest
Period plus 2.0%, and (B) otherwise, at a rate per annum equal to the sum of (1)
the Reference Rate, plus (2) the Applicable Margin for Reference Rate Advances,
plus (3) 2.0%.
(iv) Interest shall be payable (A) with respect to each CD Rate Advance
having an interest period of 90 days or less, on the last day of the Interest
Period applicable thereto; (B) with respect to any CD Rate Advance having an
Interest Period greater than 90 days, on the last day of the Interest Period
applicable thereto and on each day that would have been the last day of the
Interest Period for such Advance had successive Interest Periods of 90 days
duration been applicable to such Advance; (C) with respect to any Reference Rate
Advance, on the last day of each month; (D) with respect to all Advances, upon
any permitted prepayment (on the amount prepaid); and (E) with respect to all
Advances, on the Termination Date; provided that interest under Section 2.5 (a)
(iii) shall be payable on demand.
2.5(b) The Term Loans. Interest shall accrue and be payable on the Term
Loan as follows:
(i) Subject to paragraph (iii) below, each CD Rate Advance shall bear
interest on the unpaid principal amount thereof during the Interest Period
applicable thereto at a rate per annum equal to the sum of (A) the Adjusted CD
Rate for such Interest Period, plus (B) the Applicable Term Margin.
(ii) Subject to paragraph (iii) below, each Reference Rate Advance
shall bear interest on the unpaid principal amount thereof at a varying rate per
annum equal to the sum of (A) the Reference Rate, plus (B) the Applicable Term
Margin.
(iii) Upon the occurrence of any Event of Default, each Advance shall,
at the option of the Bank, bear interest until paid in full (A) during the
balance of any Interest Period applicable to such Advance, at a rate per annum
equal to the sum of the rate applicable to such Advance during such Interest
Period plus 2.0%, and (B) otherwise, at a rate per annum equal to the sum of (1)
the Reference Rate, plus (2) the Applicable Term Margin for Reference Rate
Advances, plus (3) 2.0%.
(iv) Interest shall be payable (A) with respect to each CD Rate Advance
having an interest period of 90 days or less, on the last day of the Interest
Period applicable thereto; (B) with respect to any CD Rate Advance having an
Interest Period greater than 90 days, on the last day of the Interest Period
applicable thereto and on each day that would have been the last day of the
Interest Period for such Advance had successive Interest Periods of 90 days
duration been applicable to such Advance; (C) with respect to any Reference Rate
Advance, on March 31, June 30, September 30 and December 31 of each year until
the maturity of the Term Note; (D) with respect to all Advances, upon any
permitted prepayment (on the amount prepaid); and (E) with respect to all
Advances, on the scheduled maturity of the Term Note; provided that interest
under Section 2.5 (b) (iii) shall be payable on demand.
Section 2.6 Repayment and Mandatory Prepayment. The unpaid principal
balance of the Revolving Note, together with all accrued and unpaid interest
thereon, shall be due and payable on the Termination Date. The principal of the
Term Loan shall be payable as provided in the Term Note. If at any time a
Borrowing Base Deficiency exists, the Borrowers shall immediately pay to the
Bank, an amount equal to such Borrowing Base Deficiency for application to the
principal of outstanding Revolving Loans or, to the extent no Revolving Loans
are outstanding, for deposit into the Holding Account. If at any time Total
Revolving Outstandings exceed the Revolving Commitment Amount, the Borrowers
shall immediately repay to the Bank the amount of such excess. Any such payments
shall be applied first against Reference Rate Advances and then to CD Rate
Advances in order starting with the CD Rate Advances having the shortest time to
the end of the applicable Interest Period. If, after payment of all outstanding
Advances, the Total Revolving Outstandings still exceed the Revolving Commitment
Amount, the remaining amount paid by the Borrowers shall be placed in the
Holding Account.
Section 2.7 Optional Prepayments. The Borrowers may prepay Reference
Rate Advances, in whole or in part, at any time, without premium or penalty. Any
such prepayment must be accompanied by accrued and unpaid interest on the amount
prepaid. Each partial prepayment shall be in a minimum amount of $25,000 or, if
more, an integral multiple thereof. Except upon an acceleration following an
Event of Default or upon termination of the Revolving Commitment in whole, the
Borrowers may pay CD Rate Advances only on the last day of the Interest Period
applicable thereto. Amounts paid (unless following an acceleration or upon
termination of the Revolving Commitment in whole) or prepaid on Revolving Loans
under this Section 2.7 may be reborrowed upon the terms and subject to the
conditions and limitations of this Agreement. Amounts prepaid on the Term Loan
may not be reborrowed.
Part B -- Terms of the Letter of Credit Facility
Section 2.8 Letters of Credit. Upon the terms and subject to the
conditions of this Agreement, the Bank agrees to issue Letters of Credit for the
account of a Borrower from time to time between the Closing Date and the
Termination Date in such amounts as the Borrowers shall request; provided that
no Letter of Credit will be issued in any amount which, after giving effect to
such issuance, would cause (a) Total Revolving Outstandings to exceed the lesser
of (i) the Aggregate Revolving Commitment Amounts, or (ii) the Borrowing Base,
or (b) the Letter of Credit Usage to exceed $100,000.
Section 2.9 Procedures for Letters of Credit. Each request for a Letter
of Credit shall be made by the Borrowers in writing, by telex, facsimile
transmission or electronic conveyance received by the Bank by 2:00 p.m.,
Minneapolis time, on a Business Day which is not less than one Business Day
preceding the requested date of issuance (which shall also be a Business Day).
Each request for a Letter of Credit shall be deemed a representation by the
Borrowers that on the date of issuance of such Letter of Credit and after giving
effect thereto the applicable conditions specified in Article III have been and
will be satisfied. The Bank may require that such request be made on such letter
of credit application and reimbursement agreement form as the Bank may from time
to time specify, along with satisfactory evidence of the authority and
incumbency of the officials of any Borrower making such request.
Section 2.10 Terms of Letters of Credit. Letters of Credit shall be
issued in support of obligations of the Borrowers, incurred in the ordinary
course of their respective businesses. All Letters of Credit must expire not
later than the Business Day preceding September 30, 1998. No Letter of Credit
may have a term longer than [12] months.
Section 2.11 Agreement to Repay Letter of Credit Drawings. If the Bank
has received documents purporting to draw under a Letter of Credit that the Bank
believes conform to the requirements of the Letter of Credit, or if the Bank has
decided that it will comply with any Borrower's written or oral request or
authorization to pay a drawing on any Letter of Credit that the Bank does not
believe conforms to the requirements of the Letter of Credit, it will notify
such Borrower of that fact. The Borrowers shall reimburse the Bank by 9:30 a.m.
(Minneapolis time) on the day on which such drawing is to be paid in Immediately
Available Funds in an amount equal to the amount of such drawing. Any amount by
which the Borrowers have failed to reimburse the Bank for the full amount of
such drawing by 10:00 a.m. on the date on which the Bank in its notice indicated
that it would pay such drawing, until reimbursed from the proceeds of Loans
pursuant to Section 2.15 or out of funds available in the Holding Account, is an
"Unpaid Drawing."
Section 2.12 Obligations Absolute. The obligation of the Borrowers
under Section 2.11 to repay the Bank for any amount drawn on any Letter of
Credit and to repay the Bank for any Revolving Loans made under Section 2.15 to
cover Unpaid Drawings shall be absolute, unconditional and irrevocable, shall
continue for so long as any Letter of Credit is outstanding notwithstanding any
termination of this Agreement, and shall be paid strictly in accordance with the
terms of this Agreement, under all circumstances whatsoever, including without
limitation the following circumstances:
(a) Any lack of validity or enforceability of any Letter of Credit;
(b) The existence of any claim, setoff, defense or other right which
any Borrowers may have or claim at any time against any beneficiary, transferee
or holder of any Letter of Credit (or any Person for whom any such beneficiary,
transferee or holder may be acting), the Bank or any other Person, whether in
connection with a Letter of Credit, this Agreement, the transactions
contemplated hereby, or any unrelated transaction; or
(c) Any statement 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 whatsoever.
Neither the Bank nor its officers, directors or employees shall be liable or
responsible for, and the obligations of the Borrowers to the Bank shall not be
impaired by:
(i) The use which may be made of any Letter of Credit or for any
acts or omissions of any beneficiary, transferee or holder
thereof in connection therewith;
(ii) The validity, sufficiency or genuineness of documents, or of
any endorsements thereon, even if such documents or
endorsements should, in fact, prove to be in any or all
respects invalid, insufficient, fraudulent or forged;
(iii) The acceptance by the Bank of documents that appear on their
face to be in order, without responsibility for further
investigation, regardless of any notice or information to the
contrary; or
(iv) Any other action of the Bank in making or failing to make
payment under any Letter of Credit if in good faith and in
conformity with U.S. or foreign laws, regulations or customs
applicable thereto.
Notwithstanding the foregoing, the Borrowers shall have a claim against the
Bank, and the Bank shall be liable to the Borrowers, to the extent, but only to
the extent, of any direct, as opposed to consequential, damages suffered by the
Borrowers which the Borrowers prove were caused by the Bank's willful misconduct
or gross negligence in determining whether documents presented under any Letter
of Credit comply with the terms thereof.
Section 2.13 Increased Cost for Letters of Credit. If any Regulatory
Change shall either (a) impose, modify or make applicable any reserve, deposit,
capital adequacy or similar requirement against Letters of Credit issued by the
Bank, or (b) shall impose on the Bank any other conditions affecting this
Agreement or any Letter of Credit; and the result of any of the foregoing is to
increase the cost to the Bank of issuing or maintaining any Letter of Credit, or
reduce the amount of any sum received or receivable by the Bank hereunder, then,
upon demand (which demand shall be given by the Bank promptly after it
determines such increased cost or reduction), the Borrowers shall pay to the
Bank the additional amount or amounts as will compensate the Bank for such
increased cost or reduction. A certificate submitted to any Borrower by the Bank
setting forth the basis for the determination of such additional amount or
amounts necessary to compensate the Bank as aforesaid shall be conclusive and
binding on the Borrowers absent error.
Part C -- General
Section 2.14 Optional Reduction of Revolving Commitment Amount or
Termination of Revolving Commitment. The Borrowers may, at any time, upon not
less than 3 Business Days prior written notice to the Bank, reduce the Revolving
Commitment Amount, with any such reduction in a minimum amount of $500,000, or,
if more, in an integral multiple of $100,000; provided, however, that the
Borrowers may not at any time reduce the Revolving Commitment Amount below the
Total Revolving Outstandings. The Borrowers may, at any time when there are no
Letters of Credit outstanding, upon not less than 3 Business Days prior written
notice to the Bank, terminate the Revolving Commitment in its entirety. Upon
termination of the Revolving Commitment pursuant to this Section, the Borrowers
shall pay to the Bank the full amount of all outstanding Advances, all accrued
and unpaid interest thereon, all unpaid Revolving Commitment Fees accrued to the
date of such termination, any indemnities payable with respect to Advances
pursuant to Section 2.25 and all other unpaid Obligations of the Borrowers to
the Bank hereunder.
Section 2.15 Loans to Cover Unpaid Drawings. Whenever any Unpaid
Drawing exists for which there are not then funds in the Holding Account to
cover the same, the Bank is authorized (and each Borrower does here so authorize
the Bank) to, and shall, make a Revolving Loan (as a Reference Rate Advance) to
the Borrower in an amount equal to the amount of the Unpaid Drawing. The Bank
shall apply the proceeds of such Revolving Loan directly to reimburse itself for
such Unpaid Drawing. If at the time the Bank makes a Revolving Loan pursuant to
the provisions of this Section, the applicable conditions precedent specified in
Article III shall not have been satisfied, the Borrowers shall pay to the Bank
interest on the funds so advanced at a floating rate per annum equal to the sum
of the Reference Rate plus the Applicable Margin for Reference Rate Advances
plus two percent (2.00%).
Section 2.16 Fees.
2.16 (a) Revolving Commitment Fee. The Borrowers shall pay to the Bank
fees (the "Revolving Commitment Fees") equal to (i) an amount determined by
applying a rate of three-eighths of one percent (.375%) to the average daily
Unused Revolving Commitment for the period from the Closing Date to the
Termination Date and (ii) during the period from and including March 1 to and
including June 30 of each year, in addition to the amount set forth in clause
(i) of this Section 2.16(a), an amount determined by applying a rate one-fifth
of one percent (.20%) per annum to the Seasonal Reduction Amount. Such Revolving
Commitment Fees are payable in arrears quarterly on the last day of each quarter
and on the Termination Date.
2.16(b) Letter of Credit Fees. For each Letter of Credit issued, the
Borrowers shall pay to the Bank, in advance payable on the date of issuance, a
fee (a "Letter of Credit Fee") in an amount determined by applying a per annum
rate of one and one-half percent (1.50%) to the original face amount of the
Letter of Credit for the period from the date of issuance to the scheduled
expiration date of such Letter of Credit. In addition to the Letter of Credit
Fee, the Borrowers shall pay to the Bank, on demand, all issuance, amendment,
drawing and other fees regularly charged by the Bank to its letter of credit
customers and all out-of-pocket expenses incurred by the Bank in connection with
the issuance, amendment, administration or payment of any Letter of Credit.
2.16(c) Closing Fees. The Borrowers shall pay to the Bank on the
Closing Date, a closing fee (the "Closing Fee") in an amount equal to $22,500.
Section 2.17 Computation. Revolving Commitment Fees and Letter of
Credit Fees and interest on the Loans shall be computed on the basis of actual
days elapsed (or, in the case of Letter of Credit Fees which are paid in
advance, actual days to elapse) and a year of 360 days.
Section 2.18 Payments. Payments and prepayments of principal of, and
interest on, the Notes and all fees, expenses and other obligations under this
Agreement payable to the Bank shall be made without setoff or counterclaim in
Immediately Available Funds not later than 2:00 p.m. (Minneapolis time) on the
dates called for under this Agreement and the Notes to the Bank at its main
office in Minneapolis, Minnesota. Funds received after such time shall be deemed
to have been received on the next Business Day. Whenever any payment to be made
hereunder or on the Notes shall be stated to be due on a day which is not a
Business Day, such payment shall be made on the next succeeding Business Day and
such extension of time, in the case of a payment of principal, shall be included
in the computation of any interest on such principal payment.
Section 2.19 Use of Loan Proceeds. The proceeds of the Term Loan shall
evidence the reduction of the outstanding principal balance under the Existing
Revolving Note in the amount of $3,000,000. The proceeds of any Revolving Loan
shall be used for the Borrowers' general business purposes in a manner not in
conflict with any of the Borrowers' covenants in this Agreement.
Section 2.20 Interest Rate Not Ascertainable, Etc. If, on or prior to
the date for determining the Adjusted CD Rate in respect of the Interest Period
for any CD Rate Advance, the Bank determines (which determination shall be
conclusive and binding, absent error) that:
(a) deposits in dollars (in the applicable amount) are not being made
available to the Bank in the relevant market for such Interest Period, or
(b) the Adjusted CD Rate will not adequately and fairly reflect the
cost to the Bank of funding or maintaining CD Rate Advances for such Interest
Period, the Bank shall forthwith give notice to the Borrowers of such
determination, whereupon the obligation of the Bank to make or continue, or to
convert any Advances to, CD Rate Advances shall be suspended until the Bank
notifies the Borrowers that the circumstances giving rise to such suspension no
longer exist. While any such suspension continues, all further Advances by the
Bank shall be made as Reference Rate Advances. No such suspension shall affect
the interest rate then in effect during the applicable Interest Period for any
CD Rate Advance outstanding at the time such suspension is imposed.
Section 2.21 Increased Cost. If any Regulatory Change:
(a) shall subject the Bank to any tax, duty or other charge with
respect to its CD Rate Advances, the Notes or its obligation to make CD Rate
Advances or shall change the basis of taxation of payment to the Bank of the
principal of or interest on CD Rate Advances or any other amounts due under this
Agreement in respect of CD Rate Advances or its obligation to make CD Rate
Advances (except for changes in the rate of tax on the overall net income of the
Bank imposed by the jurisdiction in which the Bank's principal office is
located); or
(b) shall impose, modify or deem applicable any reserve, special
deposit, capital requirement or similar requirement (including, without
limitation, any such requirement imposed by the Board, but excluding with
respect to any CD Rate Advance any such requirement to the extent included in
calculating the applicable Adjusted CD Rate) against assets of, deposits with or
for the account of, or credit extended by, the Bank or on the United States
market for certificates of deposit any other condition affecting its CD Rate
Advances, the Notes or its obligation to make CD Rate Advances; and the result
of any of the foregoing is to increase the cost to the Bank of making or
maintaining any CD Rate Advance, or to reduce the amount of any sum received or
receivable by the Bank under this Agreement or under the Notes, then, within 30
days after demand by the Bank, the Borrowers shall pay to the Bank such
additional amount or amounts as will compensate the Bank for such increased cost
or reduction. The Bank will promptly notify the Borrowers of any event of which
it has knowledge, occurring after the date hereof, which will entitle the Bank
to compensation pursuant to this Section. If the Bank fails to give such notice
within 45 days after it obtains knowledge of such an event, the Bank shall, with
respect to compensation payable pursuant to this Section, only be entitled to
payment under this Section for costs incurred from and after the date 45 days
prior to the date that the Bank does give such notice. A certificate of the Bank
claiming compensation under this Section, setting forth the additional amount or
amounts to be paid to it hereunder and stating in reasonable detail the basis
for the charge and the method of computation, shall be conclusive in the absence
of error. In determining such amount, the Bank may use any reasonable averaging
and attribution methods. Failure on the part of the Bank to demand compensation
for any increased costs or reduction in amounts received or receivable with
respect to any Interest Period shall not constitute a waiver of the Bank's
rights to demand compensation for any increased costs or reduction in amounts
received or receivable in any subsequent Interest Period.
Section 2.22 Illegality. If any Regulatory Change shall make it
unlawful or impossible for the Bank to make, maintain or fund any CD Rate
Advances, the Bank shall notify the Borrowers, whereupon the obligation of the
Bank to make or continue, or to convert any Advances to, CD Rate Advances shall
be suspended until the Bank notifies the Borrowers that the circumstances giving
rise to such suspension no longer exist. If the Bank determines that it may not
lawfully continue to maintain any CD Rate Advances to the end of the applicable
Interest Periods, all of the affected Advances shall be automatically converted
to Reference Rate Advances as of the date of the Bank's notice, and upon such
conversion the Borrowers shall indemnify the Bank in accordance with Section
2.24.
Section 2.23 Capital Adequacy. In the event that any Regulatory Change
reduces or shall have the effect of reducing the rate of return on the Bank's
capital or the capital of its parent corporation (by an amount the Bank deems
material) as a consequence of the Commitments and/or its Loans to a level below
that which the Bank or its parent corporation could have achieved but for such
Regulatory Change (taking into account the Bank's policies and the policies of
its parent corporation with respect to capital adequacy), then the Borrowers
shall, within five (5) days after written notice and demand from the Bank, pay
to the Bank additional amounts sufficient to compensate the Bank or its parent
corporation for such reduction. If the Bank fails to give such notice within 45
days after it obtains knowledge of such an event, the Bank shall, with respect
to compensation payable pursuant to this Section, only be entitled to payment
under this Section for diminished returns as a result of such reduction for the
period from and after the date 45 days prior to the date that the Bank does give
such notice. Any determination by the Bank under this Section and any
certificate as to the amount of such reduction given to the Borrowers by the
Bank shall be final, conclusive and binding for all purposes, absent error.
Section 2.24 Funding Losses; CD Rate Advances. The Borrowers shall
compensate the Bank, upon its written request, for all losses, expenses and
liabilities (including any interest paid by the Bank to lenders of funds
borrowed by it to make or carry CD Rate Advances to the extent not recovered by
the Bank in connection with the re-employment of such funds and including loss
of anticipated profits) which the Bank may sustain: (i) if for any reason, other
than a default by the Bank, a funding of a CD Rate Advance does not occur on the
date specified therefor in a Borrower's request or notice as to such Advance
under Section 2.2 or 2.4, or (ii) if, for whatever reason (including, but not
limited to, acceleration of the maturity of Advances following an Event of
Default), any repayment of a CD Rate Advance, or a conversion pursuant to
Section 2.24, occurs on any day other than the last day of the Interest Period
applicable thereto. The Bank's request for compensation shall set forth the
basis for the amount requested and shall be final, conclusive and binding,
absent error.
Section 2.25 Discretion of Bank as to Manner of Funding. The Bank shall
be entitled to fund and maintain its funding of CD Rate Advances in any manner
it may elect, it being understood, however, that for the purposes of this
Agreement all determinations hereunder (including, but not limited to,
determinations under Section 2.24) shall be made as if the Bank had actually
funded and maintained each CD Rate Advances during the Interest Period for such
Advance through the issuance of its certificates of deposit having a maturity
corresponding to the last day of the Interest Period and bearing an interest
rate equal to the CD Rate for such Interest Period.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.1 Conditions of Initial Transaction. The making of the Term
Loan and the initial Revolving Loan and the issuance of the initial Letter of
Credit shall be subject to the prior or simultaneous fulfillment of the
following conditions:
3.1(a) Documents. The Bank shall have received the following:
(i) The Revolving Note and the Term Note executed by a duly authorized
officer (or officers) of each Borrower and dated the Closing Date.
(ii) The Security Documents duly executed by each Borrower.
(iii) A copy of the corporate resolution of each Borrower authorizing
the execution, delivery and performance of the Loan Documents, certified as of
the Closing Date by the Secretary of each of them.
(iv) An incumbency certificate showing the names and titles and bearing
the signatures of the officers of each Borrower authorized to execute the Loan
Documents and to request Letters of Credit, Loans and conversions and
continuations of Advances hereunder, certified as of the Closing Date by the
Secretary or an Assistant Secretary of each of them.
(v) A copy of the Articles of Incorporation of each Borrower with all
amendments thereto, certified by the appropriate governmental official of the
jurisdiction of its incorporation as of a date not more than seven days prior to
the Closing Date.
(vi) A certificate of good standing for each Borrower in the
jurisdiction of its incorporation and any jurisdiction in which such Borrower is
qualified as a foreign corporation, certified by the appropriate governmental
officials as of a date not more than seven days prior to the Closing Date.
(vii) A copy of the bylaws of each Fast Trak and AKII, certified as of
the Closing Date by the Secretary or an Assistant Secretary of each of them.
(viii) A certificate of the Secretary of Assistant Secretary of each of
AKC, AKI and SHER, certifying that as of the Closing Date there has been no
amendment to such Borrower's bylaws since the most recent certified copy thereof
delivered to the Bank.
(ix) A certificate dated the Closing Date of the chief executive
officer or chief financial officer of each Borrower certifying as to the matters
set forth in Sections 3.2 (a) and 3.2 (b) below.
3.1(b) Opinion. The Borrowers shall have requested Fuller & Finney,
their counsel, to prepare a written opinion, addressed to the Bank and dated the
Closing Date, covering the matters set forth in Exhibit G hereto, and such
opinion shall have been delivered to the Bank.
3.1(c) Compliance. The Borrowers shall have performed and complied with
all agreements, terms and conditions contained in this Agreement required to be
performed or complied with by the Borrowers prior to or simultaneously with the
Closing Date.
3.1(d) Security Documents. All Security Documents (or financing
statements with respect thereto) shall have been appropriately filed or recorded
to the satisfaction of the Bank and the priority and perfection of the Liens
created by the Security Documents shall have been established to the
satisfaction of the Bank and its counsel.
3.1(e) Other Matters. All corporate and legal proceedings relating to
the Borrowers and all instruments and agreements in connection with the
transactions contemplated by this Agreement shall be satisfactory in scope, form
and substance to the Bank and its counsel, and the Bank shall have received all
information and copies of all documents, including records of corporate
proceedings, as the Bank or its counsel may reasonably have requested in
connection therewith, such documents where appropriate to be certified by proper
corporate or governmental authorities.
3.1(f) Fees and Expenses. The Bank shall have received all fees and
other amounts due and payable by the Borrowers on or prior to the Closing Date,
including the Closing Fee and the reasonable fees and expenses of counsel to the
Bank payable pursuant to Section 8.2.
Section 3.2 Conditions Precedent to all Loans and Letters of Credit.
The obligation of the Bank to make any Loans hereunder (including the Term Loan
and the initial Revolving Loan) and to issue each Letter of Credit (including
the initial Letter of Credit) shall be subject to the fulfillment of the
following conditions:
3.2(a) Representations and Warranties. The representations and
warranties contained in Article IV shall be true and correct on and as of the
Closing Date and on the date of each Revolving Loan or the date of issuance of
each Letter of Credit, with the same force and effect as if made on such date.
3.2(b) No Default. No Default or Event of Default shall have occurred
and be continuing on the Closing Date and on the date of each Revolving Loan or
the date of issuance of each Letter of Credit or will exist after giving effect
to the Loans made on such date or the Letter of Credit so issued.
3.2(c) Notices and Requests. The Bank shall have received the
Borrowers' request for such Loan as required under Section 2.2 or its
application for such Letters of Credit specified under Section 2.9.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement and to make Loans
hereunder and to induce the Bank to issue Letters of Credit, the Borrowers
represent and warrant to the Bank:
Section 4.1 Organization, Standing, Etc. Each Borrower is a corporation
duly incorporated and validly existing and in good standing under the laws of
the jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now conducted, to enter into this
Agreement and to issue the Notes and to perform its obligations under the Loan
Documents. Each Borrower (a) holds all certificates of authority, licenses and
permits necessary to carry on its business as presently conducted in each
jurisdiction in which it is carrying on such business, except where the failure
to hold such certificates, licenses or permits would not have a material adverse
effect on the business, operations, property, assets or condition, financial or
otherwise, of such Borrower taken as a whole, and (b) is duly qualified and in
good standing as a foreign corporation in each jurisdiction in which the
character of the properties owned, leased or operated by it or the business
conducted by it makes such qualification necessary and the failure so to qualify
would permanently preclude such Borrower from enforcing its rights with respect
to any assets or expose such Borrower to any liability, which in either case
would be material to such Borrower taken as a whole.
Section 4.2 Authorization and Validity. The execution, delivery and
performance by each Borrower of the Loan Documents have been duly authorized by
all necessary corporate action by each Borrower, and this Agreement constitutes,
and the Notes and other Loan Documents when executed will constitute, the legal,
valid and binding obligations of each Borrower, enforceable against each
Borrower in accordance with their respective terms, subject to limitations as to
enforceability which might result from bankruptcy, insolvency, moratorium and
other similar laws affecting creditors' rights generally and subject to
limitations on the availability of equitable remedies.
Section 4.3 No Conflict; No Default. The execution, delivery and
performance by the Borrowers of the Loan Documents will not (a) violate any
provision of any law, statute, rule or regulation or any order, writ, judgment,
injunction, decree, determination or award of any court, governmental agency or
arbitrator presently in effect having applicability to any Borrower, (b) violate
or contravene any provision of the Articles of Incorporation or bylaws of any
Borrower, or (c) result in a breach of or constitute a default under any
indenture, loan or credit agreement or any other agreement, lease or instrument
to which any Borrower is a party or by which it or any of its properties may be
bound or result in the creation of any Lien thereunder. No Borrower is in
default under or in violation of any such law, statute, rule or regulation,
order, writ, judgment, injunction, decree, determination or award or any such
indenture, loan or credit agreement or other agreement, lease or instrument in
any case in which the consequences of such default or violation could have a
material adverse effect on the business, operations, properties, assets or
condition (financial or otherwise) of any Borrower taken as a whole.
Section 4.4 Government Consent. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with, or
exemption by, any governmental or public body or authority is required on the
part of any Borrower to authorize, or is required in connection with the
execution, delivery and performance of, or the legality, validity, binding
effect or enforceability of, the Loan Documents, except for any necessary filing
or recordation of or with respect to any of the Security Documents.
Section 4.5 Financial Statements and Condition. The Borrowers' audited
consolidated financial statements as at June 30, 1995 and its unaudited
financial statements as at June 30, 1996, as heretofore furnished to the Bank,
have been prepared in accordance with GAAP on a consistent basis (except for the
absence of footnotes and subject to year-end audit adjustments as to the interim
statements) and fairly present the financial condition of the Borrowers as at
such dates and the results of their operations and changes in financial position
for the respective periods then ended. As of the dates of such financial
statements, no Borrower had any material obligation, contingent liability,
liability for taxes or long-term lease obligation which is not reflected in such
financial statements or in the notes thereto. Since June 30, 1996, there has
been no material adverse change in the business, operations, property, assets or
condition, financial or otherwise, of any Borrower taken as a whole.
Section 4.6 Litigation. There are no actions, suits or proceedings
pending or, to the knowledge of any Borrower, threatened against or affecting
any Borrower or any of its properties before any court or arbitrator, or any
governmental department, board, agency or other instrumentality which, if
determined adversely to any Borrower, would have a material adverse effect on
the business, operations, property or condition (financial or otherwise) of any
Borrower taken as a whole or on the ability of any Borrower to perform its
obligations under the Loan Documents.
Section 4.7 Environmental, Health and Safety Laws. There does not exist
any violation by any Borrower of any applicable federal, state or local law,
rule or regulation or order of any government, governmental department, board,
agency or other instrumentality relating to environmental, pollution, health or
safety matters which will or threatens to impose a material liability on any
Borrower or which would require a material expenditure by any Borrower to cure.
No Borrower has received any notice to the effect that any part of its
operations or properties is not in material compliance with any such law, rule,
regulation or order or notice that it or its property is the subject of any
governmental investigation evaluating whether any remedial action is needed to
respond to any release of any toxic or hazardous waste or substance into the
environment, which non-compliance or remedial action could reasonably be
expected to have a material adverse effect on the business, operations,
properties, assets or condition (financial or otherwise) of any Borrower taken
as a whole.
Section 4.8 ERISA. Each Plan is in substantial compliance with all
applicable requirements of ERISA and the Code and with all material applicable
rulings and regulations issued under the provisions of ERISA and the Code
setting forth those requirements. No Reportable Event has occurred and is
continuing with respect to any Plan. All of the minimum funding standards
applicable to such Plans have been satisfied and there exists no event or
condition which would reasonably be expected to result in the institution of
proceedings to terminate any Plan under Section 4042 of ERISA. With respect to
each Plan subject to Title IV of ERISA, as of the most recent valuation date for
such Plan, the present value (determined on the basis of reasonable assumptions
employed by the independent actuary for such Plan and previously furnished in
writing to the Bank) of such Plan's projected benefit obligations did not exceed
the fair market value of such Plan's assets.
Section 4.9 Federal Reserve Regulations. No Borrower is engaged
principally or as one of its important activities in the business of extending
credit for the purpose of purchasing or carrying margin stock (as defined in
Regulation U of the Board). The value of all margin stock owned by any Borrower
does not constitute more than 25% of the value of the assets of such Borrower.
Section 4.10 Title to Property; Leases; Liens; Subordination. Each
Borrower has (a) good and marketable title to its real properties and (b) good
and sufficient title to, or valid, subsisting and enforceable leasehold interest
in, its other material properties, including all real properties, other
properties and assets, referred to as owned by such Borrower in the most recent
financial statement referred to in Section 4.5 (other than property disposed of
since the date of such financial statements in the ordinary course of business).
None of such properties is subject to a Lien, except as allowed under Section
6.14. No Borrower has subordinated any of its rights under any obligation owing
to it to the rights of any other person.
Section 4.11 Taxes. Each Borrower has filed all federal, state and
local tax returns required to be filed and has paid or made provision for the
payment of all taxes due and payable pursuant to such returns and pursuant to
any assessments made against it or any of its property and all other taxes, fees
and other charges imposed on it or any of its property by any governmental
authority (other than taxes, fees or charges the amount or validity of which is
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in accordance with GAAP have been provided on the
books of such Borrower). No tax Liens have been filed and no material claims are
being asserted with respect to any such taxes, fees or charges. The charges,
accruals and reserves on the books of each Borrower in respect of taxes and
other governmental charges are adequate and no Borrower knows of any proposed
material tax assessment against any Borrower or any basis therefor.
Section 4.12 Trademarks, Patents. Each Borrower possesses or has the
right to use all of the patents, trademarks, trade names, service marks and
copyrights, and applications therefor, and all technology, know-how, processes,
methods and designs used in or necessary for the conduct of its business,
without known conflict with the rights of others.
Section 4.13 Burdensome Restrictions. No Borrower is a party to or
otherwise bound by any indenture, loan or credit agreement or any lease or other
agreement or instrument or subject to any charter, corporate or partnership
restriction which would foreseeably have a material adverse effect on the
business, properties, assets, operations or condition (financial or otherwise)
of any Borrower or on the ability of any Borrower to carry out its obligations
under any Loan Document.
Section 4.14 Force Majeure. Since the date of the most recent financial
statement referred to in Section 4.5, the business, properties and other assets
of any Borrower have not been materially and adversely affected in any way as
the result of any fire or other casualty, strike, lockout, or other labor
trouble, embargo, sabotage, confiscation, condemnation, riot, civil disturbance,
activity of armed forces or act of God.
Section 4.15 Investment Company Act. No Borrower is an "investment
company" or a company "controlled" by an investment company within the meaning
of the Investment Company Act of 1940, as amended.
Section 4.16 Public Utility Holding Company Act. No Borrower is a
"holding company" or a "subsidiary company" of a holding company or an
"affiliate" of a holding company or of a subsidiary company of a holding company
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
Section 4.17 Retirement Benefits. Except as required under Section
4980B of the Code, Section 601 of ERISA or applicable state law, no Borrower is
obligated to provide post-retirement medical or insurance benefits with respect
to employees or former employees.
Section 4.18 Full Disclosure. Subject to the following sentence,
neither the financial statements referred to in Section 4.5 nor any other
certificate, written statement, exhibit or report furnished by or on behalf of
any Borrower in connection with or pursuant to this Agreement contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements contained therein not misleading.
Certificates or statements furnished by or on behalf of any Borrower to the Bank
consisting of projections or forecasts of future results or events have been
prepared in good faith and based on good faith estimates and assumptions of the
management of such Borrower, and no Borrower has reason to believe that such
projections or forecasts are not reasonable.
Section 4.19 Subsidiaries. Schedule 4.19 sets forth as of the date of
this Agreement a list of all Subsidiaries and the number and percentage of the
shares of each class of capital stock owned beneficially or of record by any
Borrower or any Subsidiary therein, and the jurisdiction of incorporation of
each Subsidiary.
ARTICLE V
AFFIRMATIVE COVENANTS
Until any obligation of the Bank hereunder to make the Term Loan and
Revolving Loans and of the Bank to issue Letters of Credit shall have expired or
been terminated and the Notes and all of the other Obligations have been paid in
full and all outstanding Letters of Credit shall have expired or the liability
of the Bank thereon shall have otherwise been discharged, unless the Bank shall
otherwise consent in writing:
Section 5.1 Financial Statements and Reports. The Borrowers will
furnish to the Bank:
5.1(a) As soon as available and in any event within 90 days after the
end of each fiscal year of the Borrowers, the consolidated financial statements
of the Borrowers consisting of at least statements of income, cash flow and
changes in stockholders' equity, and a consolidated balance sheet as at the end
of such year, setting forth in each case in comparative form corresponding
figures from the previous annual audit, certified without qualification by an
independent certified public accountant of recognized national standing selected
by the Borrowers and acceptable to the Bank, together with any management
letters, management reports or other supplementary comments or reports to the
Borrowers or their respective boards of directors furnished by such accountants.
5.1(b) As soon as available and in any event within 30 days after the
end of each month, unaudited consolidated statements of income, cash flow and
changes in stockholders' equity for the Borrowers for such month and for the
period from the beginning of such fiscal year to the end of such month, and a
consolidated balance sheet of the Borrowers as at the end of such month, setting
forth in comparative form figures for the corresponding period for the preceding
fiscal year, accompanied by a certificate signed by the chief financial officer
of the Borrowers stating that such financial statements present fairly the
financial condition of the Borrowers and that the same have been prepared in
accordance with GAAP (except for the absence of footnotes and subject to
year-end audit adjustments as to the interim statements).
5.1(c) As soon as practicable and in any event within 30 days after the
end of each month, a Compliance Certificate signed by the chief financial
officer of the Borrowers demonstrating in reasonable detail compliance (or
noncompliance, as the case may be) with Sections 6.10, 6.16 and 6.17, as at the
end of such month, and Sections 6.18 and 6.19 as at the end of the applicable
quarter, and stating that as at the end of such month there did not exist any
Default or Event of Default or, if such Default or Event of Default existed,
specifying the nature and period of existence thereof and what action the
Borrowers propose to take with respect thereto.
5.1(d) Prior to the end of each fiscal year of the Borrowers,
statements of forecasted consolidated income for the Borrowers for each fiscal
month in such fiscal year and a forecasted consolidated balance sheet of the
Borrowers, together with supporting assumptions, as at the end of each fiscal
month, all in reasonable detail and reasonably satisfactory in scope to the
Bank.
5.1(e) Within 30 days after the end of each month (or, at the request
of the Bank, within seven days after the end of each week), a Borrowing Base
Certificate as at the end of such month (or week), certified by a duly
authorized officer of the Borrowers.
5.1(f) Immediately upon any officer of any Borrower becoming aware of
any Default or Event of Default, a notice describing the nature thereof and what
action the Borrowers propose to take with respect thereto.
5.1(g) Immediately upon any officer of any Borrower becoming aware of
the occurrence, with respect to any Plan, of any Reportable Event or any
Prohibited Transaction, a notice specifying the nature thereof and what action
the Borrowers propose to take with respect thereto, and, when received, copies
of any notice from PBGC of intention to terminate or have a trustee appointed
for any Plan.
5.1(h) Promptly upon the mailing or filing thereof, copies of all
financial statements, reports and proxy statements mailed to the shareholders of
any Borrower, and copies of all registration statements, periodic reports and
other documents filed with the Securities and Exchange Commission (or any
successor thereto) or any national securities exchange.
5.1(i) Within 30 days prior to the end of each fiscal year, a
confirmation of the Capital Expenditures budget of the Borrowers for the
upcoming two fiscal years of the Borrowers, certified by a duly authorized
officer of the Borrowers.
5.1(j) From time to time, such other information regarding the
business, operation and financial condition of the Borrowers as the Bank may
reasonably request.
Section 5.2 Corporate Existence. Each Borrower will maintain its
corporate existence in good standing under the laws of its jurisdiction of
incorporation and its qualification to transact business in each jurisdiction
where failure so to qualify would permanently preclude such Borrower from
enforcing its rights with respect to any material asset or would expose such
Borrower to any material liability; provided, however, that so long as AKC is
the surviving corporation of any merger, any Subsidiary may merge with and into
another Subsidiary or the parent of such Subsidiary.
Section 5.3 Insurance. Each Borrower shall maintain with financially
sound and reputable insurance companies such insurance as may be required by law
and such other insurance in such amounts and against such hazards as is
customary in the case of reputable firms engaged in the same or similar business
and similarly situated.
Section 5.4 Payment of Taxes and Claims. Each Borrower shall file all
tax returns and reports which are required by law to be filed by it and will pay
before they become delinquent all taxes, assessments and governmental charges
and levies imposed upon it or its property and all claims or demands of any kind
(including but not limited to those of suppliers, mechanics, carriers,
warehouses, landlords and other like Persons) which, if unpaid, might result in
the creation of a Lien upon its property; provided that the foregoing items need
not be paid if they are being contested in good faith by appropriate
proceedings, and as long as any Borrower's title to its property is not
materially adversely affected, any Borrower's use of its property in the
ordinary course of its business is not materially interfered with and adequate
reserves with respect thereto have been set aside on such Borrower's books in
accordance with GAAP.
Section 5.5 Inspection. Each Borrower shall permit any Person
designated by the Bank to visit and inspect any of the properties, corporate
books and financial records of such Borrower, to examine and to make copies of
the books of accounts and other financial records of any Borrower, and to
discuss the affairs, finances and accounts of any Borrower with, and to be
advised as to the same by, its officers at such reasonable times and intervals
as the Bank may designate. So long as no Event of Default exists, the expenses
of the Bank for not more than two audits of the Collateral during any calendar
year shall be reimbursed by the Borrowers, but the expenses of the Bank for any
additional visits, inspections and examinations shall be at the expense of the
Bank. Any such visits, inspections and examinations made while any Event of
Default is continuing shall be at the expense of the Borrowers.
Section 5.6 Maintenance of Properties. Each Borrower will maintain its
properties used or useful in the conduct of its business in good condition,
repair and working order, and supplied with all necessary equipment, and make
all necessary repairs, renewals, replacements, betterments and improvements
thereto, all as may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times.
Section 5.7 Books and Records. Each Borrower will keep adequate and
proper records and books of account in which full and correct entries will be
made of its dealings, business and affairs.
Section 5.8 Compliance. Each Borrower will comply in all material
respects with all laws, rules, regulations, orders, writs, judgments,
injunctions, decrees or awards to which it may be subject; provided, however,
that failure so to comply shall not be a breach of this covenant if such failure
does not have, or is not reasonably expected to have, a materially adverse
effect on the properties, business, prospects or condition (financial or
otherwise) of any Borrower and such Borrower is acting in good faith and with
reasonable dispatch to cure such noncompliance.
Section 5.9 Notice of Litigation. Each Borrower will give prompt
written notice to the Bank of the commencement of any action, suit or proceeding
before any court or arbitrator or any governmental department, board, agency or
other instrumentality affecting any Borrower or any property of any Borrower or
to which any Borrower is a party in which an adverse determination or result
could have a material adverse effect on the business, operations, property or
condition (financial or otherwise) of any Borrower taken as a whole or on the
ability of any Borrower to perform its obligations under this Agreement and the
other Loan Documents, stating the nature and status of such action, suit or
proceeding.
Section 5.10 ERISA. Each Borrower will maintain each Plan in compliance
with all material applicable requirements of ERISA and of the Code and with all
applicable rulings and regulations issued under the provisions of ERISA and of
the Code and will not and not permit any of the ERISA Affiliates to (a) engage
in any transaction in connection with which any Borrower or any of the ERISA
Affiliates would be subject to either a civil penalty assessed pursuant to
Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code, in either
case in an amount exceeding $50,000, (b) fail to make full payment when due of
all amounts which, under the provisions of any Plan, any Borrower or any ERISA
Affiliate is required to pay as contributions thereto, or permit to exist any
accumulated funding deficiency (as such term is defined in Section 302 of ERISA
and Section 412 of the Code), whether or not waived, with respect to any Plan in
an aggregate amount exceeding $50,000 or (c) fail to make any payments in an
aggregate amount exceeding $50,000 to any Multiemployer Plan that any Borrower
or any of the ERISA Affiliates may be required to make under any agreement
relating to such Multiemployer Plan or any law pertaining thereto.
Section 5.11 Environmental Matters; Reporting. Each Borrower will
observe and comply with all laws, rules, regulations and orders of any
government or government agency relating to health, safety, pollution, hazardous
materials or other environmental matters to the extent non-compliance could
result in a material liability or otherwise have a material adverse effect on
such Borrower taken as a whole. Each Borrower will give the Bank prompt written
notice of any violation as to any environmental matter by any Borrower and of
the commencement of any judicial or administrative proceeding relating to
health, safety or environmental matters (a) in which an adverse determination or
result could result in the revocation of or have a material adverse effect on
any operating permits, air emission permits, water discharge permits, hazardous
waste permits or other permits held by any Borrower which are material to the
operations of such Borrower, or (b) which will or threatens to impose a material
liability on any Borrower to any Person or which will require a material
expenditure by any Borrower to cure any alleged problem or violation.
Section 5.12 Further Assurances. Each Borrower shall promptly correct
any defect or error that may be discovered in any Loan Document or in the
execution, acknowledgment or recordation thereof. Promptly upon request by the
Bank, each Borrower also shall do, execute, acknowledge, deliver, record,
re-record, file, re-file, register and re-register, any and all deeds,
conveyances, mortgages, deeds of trust, trust deeds, assignments, estoppel
certificates, financing statements and continuations thereof, notices of
assignment, transfers, certificates, assurances and other instruments as the
Bank may reasonably require from time to time in order: (a) to carry out more
effectively the purposes of the Loan Documents; and (b) to better assure,
convey, grant, assign, transfer, preserve, protect and confirm unto the Bank the
rights granted now or hereafter intended to be granted to the Bank under any
Loan Document or under any other instrument executed in connection with any Loan
Document or that the Borrower may be or become bound to convey, mortgage or
assign to the Bank in order to carry out the intention or facilitate the
performance of the provisions of any Loan Document. Each Borrower hereby
irrevocably appoints the Bank (and all persons, officers, employees or agents
designated by the Bank) its agent and attorney in fact, in the event such
Borrower fails or refuses to comply with any of the provisions of this Section
5.12, to do all such acts and things in the name of such Borrower; provided that
the Bank will provide such Borrower with simultaneous notice thereof. Each
Borrower shall furnish to the Bank evidence satisfactory to the Bank of any
recording, filing or registration.
Section 5.13 Landlord Waivers. Each Borrower will deliver to the Bank a
landlord waiver in form and substance reasonably satisfactory to the Bank prior
to occupying any leased premises not occupied on the date hereof.
ARTICLE VI
NEGATIVE COVENANTS
Until any obligation of the Bank hereunder to make the Term Loan and
Revolving Loans and of the Bank to issue Letters of Credit shall have expired or
been terminated and the Notes and all of the other Obligations have been paid in
full and all outstanding Letters of Credit shall have expired or the liability
of the Bank thereon shall have otherwise been discharged, unless the Bank shall
otherwise consent in writing:
Section 6.1 Merger. No Borrower will merge or consolidate or enter into
any analogous reorganization or transaction with any Person or liquidate, wind
up or dissolve itself (or suffer any liquidation or dissolution); provided,
however, that so long as AKC is the surviving corporation of any merger, any
Subsidiary may merge with and into another Subsidiary or the parent of such
Subsidiary.
Section 6.2 Disposition of Assets. No Borrower will directly or
indirectly, sell, assign, lease, convey, transfer or otherwise dispose of
(whether in one transaction or a series of transactions) any property (including
accounts and notes receivable, with or without recourse) or enter into any
agreement to do any of the foregoing, except:
6.2(a) dispositions of inventory, or used, worn-out or surplus
equipment, all in the ordinary course of business; and
6.2(b) the sale of equipment to the extent that such equipment is
exchanged for credit against the purchase price of similar replacement
equipment, or the proceeds of such sale are applied with reasonable promptness
to the purchase price of such replacement equipment.
Section 6.3 Plans. No Borrower will permit any event to occur or
condition to exist which would permit any Plan to terminate under any
circumstances which would cause the Lien provided for in Section 4068 of ERISA
to attach to any assets of such Borrower; and no Borrower will permit, as of the
most recent valuation date for any Plan subject to Title IV of ERISA, the
present value (determined on the basis of reasonable assumptions employed by the
independent actuary for such Plan and previously furnished in writing to the
Bank) of such Plan's projected benefit obligations to exceed the fair market
value of such Plan's assets.
Section 6.4 Change in Nature of Business. No Borrower will make any
material change in the nature of the business of such Borrower, as carried on at
the date hereof.
Section 6.5 Subsidiaries. After the date of this Agreement, no Borrower
will form or acquire any corporation which would thereby become a Subsidiary.
Section 6.6 Negative Pledges; Subsidiary Restrictions. No Borrower will
enter into any agreement, bond, note or other instrument with or for the benefit
of any Person other than the Bank which would (i) prohibit any Borrower from
granting, or otherwise limit the ability of any Borrower to grant, to the Bank
any Lien on any assets or properties of any Borrower, or (ii) require any
Borrower to grant a Lien to any other Person if such Borrower grants any Lien to
the Bank.
Section 6.7 Restricted Payments. AKC will not make any Restricted
Payments.
Section 6.8 Transactions with Affiliates. No Borrower will enter into
any transaction with any Affiliate of any Borrower, except upon fair and
reasonable terms no less favorable to such Borrower than would obtain in a
comparable arm's-length transaction with a Person not an Affiliate.
Section 6.9 Accounting Changes. No Borrower will make any significant
change in accounting treatment or reporting practices, except as required by
GAAP, or change its fiscal year.
Section 6.10 Capital Expenditures. The Borrowers will not make Capital
Expenditures in an amount exceeding the following amounts during the following
periods:
Period Amount
From June 30, 1996 $ 300,000
through June 29, 1997
From June 30, 1997 $1,300,000
through June 29, 1998
From June 30, 1998 $1,300,000
through June 29, 1999
From June 30, 1999 $ 300,000
through June 29, 2000
From June 30, 2000 $ 500,000
through June 29, 2001
From June 30, 2001 $ 500,000
through June 29, 2002
Section 6.11 Subordinated Debt. No Borrower will (a) make any scheduled
payment of the principal of or interest on any Subordinated Debt which would be
prohibited by the terms of such Subordinated Debt and any related subordination
agreement; (b) directly or indirectly make any prepayment on or purchase, redeem
or defease any Subordinated Debt or offer to do so (whether such prepayment,
purchase or redemption, or offer with respect thereto, is voluntary or
mandatory); (c) amend or cancel the subordination provisions applicable to any
Subordinated Debt; (d) take or omit to take any action if as a result of such
action or omission the subordination of such Subordinated Debt, or any part
thereof, to the Obligations might be terminated, impaired or adversely affected;
or (e) omit to give the Bank prompt notice of any notice received from any
holder of Subordinated Debt, or any trustee therefor, or of any default under
any agreement or instrument relating to any Subordinated Debt by reason whereof
such Subordinated Debt might become or be declared to be due or payable.
Section 6.12 Investments. No Borrower will acquire for value, make,
have or hold any Investments, except:
6.12(a) Investments existing on the date of this Agreement.
6.12(b) Travel advances to management personnel and employees in the
ordinary course of business.
6.12(c) Investments in readily marketable direct obligations issued or
guaranteed by the United States or any agency thereof and supported by the full
faith and credit of the United States.
6.12(d) Certificates of deposit or bankers' acceptances issued by any
commercial bank organized under the laws of the United States or any State
thereof which has (i) combined capital and surplus of at least $100,000,000, and
(ii) a credit rating with respect to its unsecured indebtedness from a
nationally recognized rating service that is satisfactory to the Bank.
6.12(e) Commercial paper given the highest rating by a nationally
recognized rating service.
6.12(f) Repurchase agreements relating to securities issued or
guaranteed as to principal and interest by the United States of America.
6.12(g) Other readily marketable Investments in debt securities which
are reasonably acceptable to the Bank.
Any Investments under clauses (c), (d), (e) or (f) above must mature within one
year of the acquisition thereof by any Borrower.
Section 6.13 Indebtedness. No Borrower will incur, create, issue,
assume or suffer to exist any Indebtedness, except:
6.13(a) The Obligations.
6.13(b) Current Liabilities, other than for borrowed money, incurred in
the ordinary course of business.
6.13(c) Indebtedness existing on the date of this Agreement and
disclosed on Schedule 6.13 hereto, but not including any extension or
refinancing thereof.
6.13(d) Indebtedness secured by Liens permitted under Section 6.14
hereof.
Section 6.14 Liens. No Borrower will create, incur, assume or suffer to
exist any Lien, or enter into, or make any commitment to enter into, any
arrangement for the acquisition of any property through conditional sale,
lease-purchase or other title retention agreements, with respect to any property
now owned or hereafter acquired by any Borrower, except:
6.14(a) Liens granted to the Bank under the Security Documents to
secure the Obligations.
6.14(b) Liens existing on the date of this Agreement and disclosed on
Schedule 6.14 hereto.
6.14(c) Deposits or pledges to secure payment of workers' compensation,
unemployment insurance, old age pensions or other social security obligations,
in the ordinary course of business of such Borrowers.
6.14(d) Liens for taxes, fees, assessments and governmental charges not
delinquent or to the extent that payment therefor shall not at the time be
required to be made in accordance with the provisions of Section 5.4.
6.14(e) Liens of carriers, warehousemen, mechanics and materialmen, and
other like Liens arising in the ordinary course of business, for sums not due or
to the extent that payment therefor shall not at the time be required to be made
in accordance with the provisions of Section 5.4.
6.14(f) Liens incurred or deposits or pledges made or given in
connection with, or to secure payment of, indemnity, performance or other
similar bonds.
6.14(g) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of set-off or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution; provided that (i) such deposit account is not a
dedicated cash collateral account and is not subject to restriction against
access by such Borrower in excess of those set forth by regulations promulgated
by the Board, and (ii) such deposit account is not intended by such Borrower to
provide collateral to the depository institution.
6.14(h) Encumbrances in the nature of zoning restrictions, easements
and rights or restrictions of record on the use of real property and landlord's
Liens under leases on the premises rented, which do not materially detract from
the value of such property or impair the use thereof in the business of such
Borrower.
6.14(i) The interest of any lessor under any Capitalized Lease entered
into after the Closing Date or purchase money Liens on property acquired after
the Closing Date; provided, that, (i) the Indebtedness secured thereby is
otherwise permitted by this Agreement and (ii) such Liens are limited to the
property acquired and do not secure Indebtedness other than the related
Capitalized Lease Obligations or the purchase price of such property.
Section 6.15 Contingent Liabilities. No Borrower will be or become
liable on any Contingent Obligations.
Section 6.16 Tangible Net Worth. The Borrowers will not permit their
Tangible Net Worth at any time to be less than the following amounts during the
following periods:
Period Amount
From Closing Date $ 5,000,000
through June 29, 1997
From June 30, 1997 $ 6,000,000
through June 29, 1998
From June 30, 1998 $ 7,250,000
through June 29, 1999
From June 30, 1999 $ 8,250,000
through June 29, 2000
From June 30, 2000 $ 9,500,000
through June 29, 2001
From June 30, 2001 $ 11,000,000
through June 29, 2002
Section 6.17 Leverage Ratio. The Borrowers will not permit the Leverage
Ratio to be more than the following amounts during the following periods:
Period Amount
From Closing Date 3.00
through September 30, 1996
From October 1, 1996 3.25
through December 31, 1996
From January 1, 1997 3.00
through June 29, 1997
From June 30, 1997 2.50
through June 29, 1999
From June 30, 1999 2.00
through June 29, 2001
From June 30, 2001 1.50
through June 29, 2002
Section 6.18 Debt Service Coverage Ratio. The Borrowers will not permit
the Debt Service Coverage Ratio, as of the last day of any fiscal quarter for
the four consecutive fiscal quarters ending on that date to be less than the
following amounts during the following periods:
Period Amount
From Closing Date 0.75
through December 31, 1996
From January 1, 1997 0.58
through March 31, 1997
From April 1, 1997 1.55
through June 29, 1998
From June 30, 1998 1.80
through June 29, 1999
From June 30, 1999 1.90
through June 29, 2000
From June 30, 2000 2.25
through June 29, 2001
From June 30, 2001 2.50
through June 29, 2002
Section 6.19 Cash Flow Leverage Ratio. The Borrowers will not permit
the Cash Flow Leverage Ratio, as of the last day of any fiscal quarter for the
four consecutive fiscal quarters ending on that date to be greater than the
following amounts during the following periods:
Period Amount
From Closing Date 8.65
through December 31, 1996
From January 1, 1997 8.00
through June 29, 1997
From June 30, 1997 5.00
through June 29, 1998
From June 30, 1998 4.00
through June 29, 1999
From June 30, 1999 3.50
through June 29, 2000
From June 30, 2000 3.00
through June 29, 2002
Section 6.20 Loan Proceeds. No Borrower will use any part of the
proceeds of the Loans or Advances directly or indirectly, and whether
immediately, incidentally or ultimately, (a) to purchase or carry margin stock
(as defined in Regulation U of the Board) or to extend credit to others for the
purpose of purchasing or carrying margin stock or to refund Indebtedness
originally incurred for such purpose or (b) for any purpose which entails a
violation of, or which is inconsistent with, the provisions of Regulations G, U
or X of the Board.
Section 6.21 No Net Operating Loss. The Borrowers shall not report a
net operating loss on a consolidated basis at any fiscal year end.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default:
7.1(a) Any Borrower shall fail to make when due, whether by
acceleration or otherwise, any payment of principal of or interest on either
Note or any other Obligation required to be made to the Bank pursuant to this
Agreement or shall fail to deposit when due any amount required to be deposited
in the Holding Account hereunder.
7.1(b) Any representation or warranty made by or on behalf of any
Borrower in this Agreement or any other Loan Document or by or on behalf of the
Borrower in any certificate, statement, report or document herewith or hereafter
furnished to the Bank pursuant to this Agreement or any other Loan Document
shall prove to have been false or misleading in any material respect on the date
as of which the facts set forth are stated or certified.
7.1(c) Any Borrower shall fail to comply with Sections 5.2 or 5.3
hereof or any Section of Article VI hereof.
7.1(d) Any Borrower shall fail to comply with any other agreement,
covenant, condition, provision or term contained in this Agreement (other than
those hereinabove set forth in this Section 7.1) and such failure to comply
shall continue for 30 calendar days after whichever of the following dates is
the earliest: (i) the date any Borrower gives notice of such failure to the
Bank, (ii) the date any Borrower should have given notice of such failure to the
Banks pursuant to Section 5.1, or (iii) the date the Bank gives notice of such
failure to such Borrower.
7.1(e) Any default (however denominated or defined) shall occur under
any Security Document.
7.1(f) Any Borrower shall become insolvent or shall generally not pay
its debts as they mature or shall apply for, shall consent to, or shall
acquiesce in the appointment of a custodian, trustee or receiver of any Borrower
or for a substantial part of the property thereof or, in the absence of such
application, consent or acquiescence, a custodian, trustee or receiver shall be
appointed for any Borrower or for a substantial part of the property thereof, or
any Borrower shall make an assignment for the benefit of creditors.
7.1(g) Any bankruptcy, reorganization, debt arrangement or other
proceedings under any bankruptcy or insolvency law shall be instituted by or
against any Borrower, and, if instituted against any Borrower, shall have been
consented to or acquiesced in by such Borrower, or shall remain undismissed for
90 days, or an order for relief shall have been entered against any Borrower.
7.1(h) Any dissolution or liquidation proceeding not permitted by
Section 6.1 shall be instituted by or against any Borrower, and, if instituted
against any Borrower, shall be consented to or acquiesced in by any Borrower or
shall remain for 90 days undismissed.
7.1(i) A judgment or judgments for the payment of money in excess of
the sum of $100,000 in the aggregate shall be rendered against any Borrower and
either (i) the judgment creditor executes on such judgment or (ii) such judgment
remains unpaid or undischarged for more than 60 days from the date of entry
thereof or such longer period during which execution of such judgment shall be
stayed during an appeal from such judgment.
7.1(j) The maturity of any material Indebtedness of any Borrower (other
than Indebtedness under this Agreement) shall be accelerated, or any Borrower
shall fail to pay any such material Indebtedness when due (after the lapse of
any applicable grace period) or, in the case of such Indebtedness payable on
demand, when demanded (after the lapse of any applicable grace period), or any
event shall occur or condition shall exist and shall continue for more than the
period of grace, if any, applicable thereto and shall have the effect of
causing, or permitting the holder of any such Indebtedness or any trustee or
other Person acting on behalf of such holder to cause, such material
Indebtedness to become due prior to its stated maturity or to realize upon any
collateral given as security therefor. For purposes of this Section,
Indebtedness of any Borrower shall be deemed "material" if it exceeds $50,000 as
to any item of Indebtedness or in the aggregate for all items of Indebtedness
with respect to which any of the events described in this Section 7.1(j) has
occurred.
7.1(k) Any execution or attachment shall be issued whereby any
substantial part of the property of any Borrower shall be taken or attempted to
be taken and the same shall not have been vacated or stayed within 30 days after
the issuance thereof.
7.1(l) Any Security Document shall, at any time, cease to be in full
force and effect or shall be judicially declared null and void, or the validity
or enforceability thereof shall be contested by any Borrower, or the Bank shall
cease to have a valid and perfected security interest having the priority
contemplated thereunder in all of the collateral described therein, other than
by action or inaction of the Bank if (i) the aggregate value of the collateral
affected by any of the foregoing exceeds $25,000 and (ii) any of the foregoing
shall remain unremedied for ten days or more after receipt of notice thereof by
any Borrower from the Bank.
7.1(m) Any Change of Control shall occur.
Section 7.2 Remedies. If (a) any Event of Default described in Sections
7.1(f), (g) or (h) shall occur with respect to any Borrower, the Commitments
shall automatically terminate and the Notes and all other Obligations shall
automatically become immediately due and payable, and the Borrowers shall
without demand pay into the Holding Account an amount equal to the aggregate
face amount of all outstanding Letters of Credit; or (b) any other Event of
Default shall occur and be continuing, then the Bank may (i) declare the
Commitments terminated, whereupon the Commitments shall terminate, (ii) declare
the outstanding unpaid principal balance of the Notes, the accrued and unpaid
interest thereon and all other Obligations to be forthwith due and payable,
whereupon the Notes, all accrued and unpaid interest thereon and all such
Obligations shall immediately become due and payable, in each case without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived, anything in this Agreement or in the Notes to the
contrary notwithstanding, and (iii) demand that the Borrowers pay into the
Holding Account an amount equal to the aggregate face amount of all outstanding
Letters of Credit. Upon the occurrence of any of the events described in clauses
(a) or (b) of the preceding sentence the Bank may exercise all rights and
remedies under any of the Loan Documents, and enforce all rights and remedies
under any applicable law.
Section 7.3 Offset. In addition to the remedies set forth in Section
7.2, upon the occurrence of any Event of Default and thereafter while the same
be continuing, Each Borrower hereby irrevocably authorizes the Bank to set off
any Obligations against all deposits and credits of such Borrower with, and any
and all claims of such Borrower against, the Bank. Such right shall exist
whether or not the Bank shall have made any demand hereunder or under any other
Loan Document, whether or not the Obligations, or any part thereof, or deposits
and credits held for the account of such Borrower is or are matured or
unmatured, and regardless of the existence or adequacy of any collateral,
guaranty or any other security, right or remedy available to the Bank. The Bank
agrees that, as promptly as is reasonably possible after the exercise of any
such setoff right, it shall notify such Borrower of its exercise of such setoff
right; provided, however, that the failure of the Bank to provide such notice
shall not affect the validity of the exercise of such setoff rights. Nothing in
this Agreement shall be deemed a waiver or prohibition of or restriction on the
Bank to all rights of banker's Lien, setoff and counterclaim available pursuant
to law.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Modifications. Notwithstanding any provisions to the
contrary herein, any term of this Agreement may be amended with the written
consent of the Borrowers; provided that no amendment, modification or waiver of
any provision of this Agreement or consent to any departure by any Borrower
therefrom shall in any event be effective unless the same shall be in writing
and signed by the Bank, and then such amendment, modification, waiver or consent
shall be effective only in the specific instance and for the purpose for which
given.
Section 8.2 Expenses. Whether or not the transactions contemplated
hereby are consummated, each Borrower agrees to reimburse the Bank upon demand
for all reasonable out-of-pocket expenses paid or incurred by the Bank
(including filing and recording costs and fees and expenses of Dorsey & Whitney
LLP, counsel to the Bank) in connection with the negotiation, preparation,
approval, review, execution, delivery, administration, amendment, modification
and interpretation of this Agreement and the other Loan Documents and any
commitment letters relating thereto; provided that the legal fees (exclusive of
any disbursements or other out-of-pocket costs of the Bank or its counsel)
incurred the negotiation, preparation and execution of the Loan Documents to and
including the Closing Date shall not exceed $5,000. Each Borrower shall also
reimburse the Bank upon demand for all reasonable out-of-pocket expenses
(including expenses of legal counsel) paid or incurred by the Bank in connection
with the collection and enforcement of this Agreement and any other Loan
Document. The obligations of the Borrowers under this Section shall survive any
termination of this Agreement.
Section 8.3 Waivers, etc. No failure on the part of the Bank or the
holder of a Note to exercise and no delay in exercising any power or right
hereunder or under any other Loan Document shall operate as a waiver thereof;
nor shall any single or partial exercise of any power or right preclude any
other or further exercise thereof or the exercise of any other power or right.
The remedies herein and in the other Loan Documents provided are cumulative and
not exclusive of any remedies provided by law.
Section 8.4 Notices. Except when telephonic notice is expressly
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, facsimile transmission, overnight courier or United States mail
(postage prepaid) addressed to such party at the address specified on the
signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by facsimile transmission, from the first Business
Day after the date of sending if sent by overnight courier, or from four days
after the date of mailing if mailed; provided, however, that any notice to the
Bank under Article II hereof shall be deemed to have been given only when
received by the Bank.
Section 8.5 Taxes. Each Borrower agrees to pay, and save the Bank
harmless from all liability for, any stamp or other taxes which may be payable
with respect to the execution or delivery of this Agreement or the issuance of
the Notes, which obligation of the Borrowers shall survive the termination of
this Agreement.
Section 8.6 Successors and Assigns; Disposition of Loans; Transferees.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, except that no Borrower may
assign its rights or delegate its obligations hereunder or under any other Loan
Document without the prior written consent of the Bank. The Bank may at any time
sell, assign, transfer, grant participations in, or otherwise dispose of any
portion of the Commitments, the Loans and/or Advances (each such interest so
disposed of being herein called a "Transferred Interest") to banks or other
financial institutions ("Transferees"). Each Borrower agrees that each
Transferee shall be entitled to the benefits of Sections 2.21, 2.22, 2.23, 2.24
and 8.2 with respect to its Transferred Interest and that each Transferee may
exercise any and all rights of banker's Lien, setoff and counterclaim as if such
Transferee were a direct lender to such Borrower. If the Bank makes any
assignment to a Transferee, then upon notice to the Borrowers such Transferee,
to the extent of such assignment (unless otherwise provided therein), shall
become a "Bank" hereunder and shall have all the rights and obligations of the
Bank hereunder and the Bank shall be released from its duties and obligations
under this Agreement to the extent of such assignment. Notwithstanding the sale
by the Bank of any participation hereunder, (a) no participant shall be deemed
to be or have the rights and obligations of the Bank hereunder except that any
participant shall have a right of setoff under Section 7.3 as if it were the
Bank and the amount of its participation were owing directly to such participant
by the Borrowers and (b) the Bank shall not in connection with selling any such
participation condition the Bank's rights in connection with consenting to
amendments or granting waivers concerning any matter under any Loan Document
upon obtaining the consent of such participant other than on matters relating to
(i) any reduction in the amount of any principal of, or the amount of or rate of
interest on, the Note or Advance in which such participation is sold, (ii) any
postponement of the date fixed for any payment of principal of or interest on
the Note or Advance in which such participation is sold, (iii) the release or
subordination of any material portion of any collateral other than pursuant to
the terms of any Security Document or (iv) the release of any Guaranty.
Section 8.7 Confidentiality of Information. The Bank shall use
reasonable efforts to assure that information about any Borrower and its
operations, affairs and financial condition, not generally disclosed to the
public or to trade and other creditors, which is furnished to the Bank pursuant
to the provisions hereof is used only for the purposes of this Agreement and any
other relationship between the Bank and any Borrower and shall not be divulged
to any Person other than the Bank, its Affiliates and their respective officers,
directors, employees and agents, except: (a) to their attorneys and accountants,
(b) in connection with the enforcement of the rights of the Bank hereunder and
under the Notes and the Security Documents or otherwise in connection with
applicable litigation, (c) in connection with assignments and participations and
the solicitation of prospective assignees and participants referred to in the
immediately preceding Section, and (d) as may otherwise be required or requested
by any regulatory authority having jurisdiction over the Bank or by any
applicable law, rule, regulation or judicial process, the opinion of the Bank's
counsel concerning the making of such disclosure to be binding on the parties
hereto. The Bank shall not incur any liability to any Borrower by reason of any
disclosure permitted by this Section 8.7.
Section 8.8 Governing Law and Construction. THE VALIDITY, CONSTRUCTION
AND ENFORCEABILITY OF THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF
LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES
APPLICABLE TO NATIONAL BANKS. Whenever possible, each provision of this
Agreement and the other Loan Documents and any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto shall
be interpreted in such manner as to be effective and valid under such applicable
law, but, if any provision of this Agreement, the other Loan Documents or any
other statement, instrument or transaction contemplated hereby or thereby or
relating hereto or thereto shall be held to be prohibited or invalid under such
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement, the other Loan Documents or any
other statement, instrument or transaction contemplated hereby or thereby or
relating hereto or thereto.
Section 8.9 Consent to Jurisdiction. AT THE OPTION OF THE BANK, THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY BE ENFORCED IN ANY FEDERAL COURT OR
MINNESOTA STATE COURT SITTING IN HENNEPIN COUNTY; AND EACH BORROWER CONSENTS TO
THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE
IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT ANY BORROWER COMMENCES ANY ACTION
IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING
DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE BANK
AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE
JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE
ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.
Section 8.10 Waiver of Jury Trial. EACH OF THE BORROWERS AND THE BANK
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
Section 8.11 Survival of Agreement. All representations, warranties,
covenants and agreement made by any Borrower herein or in the other Loan
Documents and in the certificates or other instruments prepared or delivered in
connection with or pursuant to this Agreement or any other Loan Document shall
be deemed to have been relied upon by the Bank and shall survive the making of
the Loans by the Bank and the execution and delivery to the Bank by the
Borrowers of the Notes, regardless of any investigation made by or on behalf of
the Bank, and shall continue in full force and effect as long as any Obligation
is outstanding and unpaid and so long as the Commitments have not been
terminated; provided, however, that the obligations of the Borrowers under
Sections 8.2, 8.5 and 8.12 shall survive payment in full of the Obligations and
the termination of the Commitments.
Section 8.12 Indemnification. Each Borrower hereby agrees to defend,
protect, indemnify and hold harmless the Bank and its Affiliates and the
directors, officers, employees, attorneys and agents of the Bank and its
Affiliates (each of the foregoing being an "Indemnitee" and all of the foregoing
being collectively the "Indemnitees") from and against any and all claims,
actions, damages, liabilities, judgments, costs and expenses (including all
reasonable fees and disbursements of counsel which may be incurred in the
investigation or defense of any matter) imposed upon, incurred by or asserted
against any Indemnitee, whether direct, indirect or consequential and whether
based on any federal, state, local or foreign laws or regulations (including
securities laws, environmental laws, commercial laws and regulations), under
common law or on equitable cause, or on contract or otherwise:
(a) by reason of, relating to or in connection with the execution,
delivery, performance or enforcement of any Loan Document, any commitments
relating thereto, or any transaction contemplated by any Loan Document; or
(b) by reason of, relating to or in connection with any credit extended
or used under the Loan Documents or any act done or omitted by any Person, or
the exercise of any rights or remedies thereunder, including the acquisition of
any collateral by the Bank by way of foreclosure of the Lien thereon, deed or
bill of sale in lieu of such foreclosure or otherwise;
provided, however, that no Borrower shall be liable to any Indemnitee for any
portion of such claims, damages, liabilities and expenses resulting from such
Indemnitee's gross negligence or willful misconduct. In the event this indemnity
is unenforceable as a matter of law as to a particular matter or consequence
referred to herein, it shall be enforceable to the full extent permitted by law.
If any action or proceeding is brought against any of the Indemnitees,
the Borrowers, upon notice from any Indemnitee, shall defend such action or
proceeding, at their sole cost and expense, by counsel chosen by the Borrower,
following consultation with, and satisfactory to, the Indemnitee. The Borrower
or its counsel shall keep each Indemnitee fully informed at all times of the
status of defense. Notwithstanding the foregoing, each Indemnitee may retain its
own counsel to defend or assist in defending any such action or proceeding.
Should an Indemnitee retain its own counsel, the Indemnitee shall pay the fees
and expenses of such counsel if the amount claimed in such action or proceeding
is less than $500,000, and the Borrowers shall pay the fees and expenses of such
counsel if the amount claimed exceeds, or could reasonably be expected to
exceed, $500,000.
This indemnification applies, without limitation, to any act, omission,
event or circumstance existing or occurring on or prior to the later of the
Termination Date or the date of payment in full of the Obligations, including
specifically Obligations arising under clause (b) of this Section. The
indemnification provisions set forth above shall be in addition to any liability
any Borrower may otherwise have. Without prejudice to the survival of any other
obligation of any Borrower hereunder the indemnities and obligations of the
Borrowers contained in this Section shall survive the payment in full of the
other Obligations.
Section 8.13 Captions. The captions or headings herein and any table of
contents hereto are for convenience only and in no way define, limit or describe
the scope or intent of any provision of this Agreement.
Section 8.14 Entire Agreement. This Agreement and the other Loan
Documents embody the entire agreement and understanding between the Borrowers
and the Bank with respect to the subject matter hereof and thereof. This
Agreement supersedes all prior agreements and understandings relating to the
subject matter hereof. Nothing contained in this Agreement or in any other Loan
Document, expressed or implied, is intended to confer upon any Persons other
than the parties hereto any rights, remedies, obligations or liabilities
hereunder or thereunder.
Section 8.15 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
Section 8.16 Borrower Acknowledgements. Each Borrower hereby
acknowledges that (a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan Documents, (b) the
Bank has no fiduciary relationship to such Borrower, the relationship being
solely that of debtor and creditor, (c) no joint venture exists between such
Borrower and the Bank, and (d) the Bank undertakes no responsibility to such
Borrower to review or inform such Borrower of any matter in connection with any
phase of the business or operations of any Borrower and such Borrower shall rely
entirely upon its own judgment with respect to its business, and any review,
inspection or supervision of, or information supplied to, any Borrower by the
Bank is for the protection of the Bank and neither such Borrower nor any third
party is entitled to rely thereon.
Section 8.17 Joint and Several Obligations. Each Borrower shall be
jointly and severally liable for (a) the Obligations arising in connection with
the Loans made to it and the Letters of Credit issued for its account and (b)
the Obligations arising in connection with Loans made to the other Borrowers and
Letters of Credit issued for the account of the other Borrowers; provided,
however, that if it is at any time determined that any Borrower is liable as a
guarantor (and not as a co-obligor or co-borrower) with respect to such
Obligations arising in connection with Loans made to the other Borrowers and
Letters of Credit issued for the account of the other Borrowers (the "Guaranteed
Obligations"), each Borrower hereby agrees to the terms set forth on Exhibit H
hereto with respect to the Guaranteed Obligations.
PART II
Waiver of Default; Disclaimer of Defenses;
Effectiveness and Disclaimer of Novation
A. Waiver of Existing Events of Default. Subject to the satisfaction of
the conditions set forth in Part I, Section 3.1, the Bank hereby, effective as
of the date hereof, consents to (i) the Company's failure to comply with the
provisions of Section 6.8 (Capital Expenditures), Section 6.14 (Tangible Net
Worth), Section 6.16 (Debt Service Coverage Ratio) and Section 6.18 (Cash Flow
Leverage Ratio) of the Existing Credit Agreement on June 30, 1996 and waives the
Bank's right in connection therewith to declare a Default or Event of Default
under the Existing Credit Agreement, or to exercise any remedies or rights
arising out of such a Default or Event of Default to the extent (but only to the
extent) that the Bank may have had such rights based solely on said failure to
comply with the provisions of Section 6.8, Section 6.14, Section 6.16 and
Section 6.18 of the Existing Credit Agreement prior to the date hereof. This
waiver is for the limited purpose set forth herein, shall be limited to the
precise meaning of the words as written herein and shall not be deemed to (i) be
a consent to any waiver or modification of any other term or condition of this
Agreement or the Existing Credit Agreement or any instrument or agreement
referred to herein or therein, or (ii) prejudice any right or remedy that the
Bank may now have (except to the extent such right or remedy is based upon
existing Defaults or Events of Default that will not exist after giving effect
to the waiver set forth herein) or may have in the future under or in connection
with this Agreement or the Existing Credit Agreement or any instrument or
agreement referred to therein.
B. Disclaimer of Defenses, Claims and Rights of Borrowers under
Existing Documents. Each Borrower hereby acknowledges that it has no defense,
claim, counterclaim or right of setoff with respect to any Borrower's
obligations under the Existing Credit Agreement, the Existing Revolving Note,
any other "Loan Document" (as such term is defined in the Existing Credit
Agreement), or any amendment thereof, any and all of which are hereby expressly
waived and released. Each Borrower acknowledges that the Bank is relying on the
foregoing representation, waiver and release as an inducement to enter into this
Agreement.
C. Effectiveness; Disclaimer of Novation. This Agreement and Waiver of
Default as set forth in clause A of this Part II shall become effective when all
of the conditions precedent set forth in Section 3.1 have been satisfied. The
execution and delivery by the parties of this Agreement and the other
instruments and documents contemplated hereby, including, without limitation,
the amended and restated Revolving Note and the amended and restated Security
Agreement are not intended as a novation, discharge or extinguishment of the
Borrowers' existing obligations under the Existing Credit Agreement or the
Existing Revolving Note or as a termination or release of the Bank's security
interests in the collateral described in the amended and restated Security
Agreement, all of which obligations and security interests shall remain in full
force and effect, subject to the amendments effected by this Agreement and the
other documents referred to herein.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
AUDIO KING CORPORATION
By /s/ H. G. Thorne
Its President
AUDIO KING, INC.
By /s/ H. G. Thorne
Its President
SPECIALTY HOME ELECTRONICS
REPAIR, INC.
By /s/ H. G. Thorne
Its President
FAST TRAK, INC.
By /s/ H. G. Thorne
Its President
AUDIO KING IOWA, INC.
By /s/ H. G. Thorne
Its President
Address for Borrowers:
3501 Highway 100 South
St. Louis Park, Minnesota 55416
Attn: Gary Thorne
Telephone No.: 612-920-0505
Telecopier No.: 612-920-0940
FIRST BANK NATIONAL ASSOCIATION
By /s/ Carol M. Prusinger
Its Senior Vice President
Address:
First Bank Place
601 Second Avenue South
Minneapolis, MN 55402-4302
Attention: Jon M. Hoffman - MPFP0601
Telephone No.: 612-973-0690
Telecopier No.: 612-973-0821
LIST OF EXHIBITS AND SCHEDULES
Exhibits
Exhibit A - Formula for Borrowing Base
Exhibit B - Borrowing Base Certificate
Exhibit C - Compliance Certificate
Exhibit D - Revolving Note
Exhibit E - Security Agreement
Exhibit F - Term Note
Exhibit G - Opinion
Exhibit H - Guaranteed Obligations
Schedules
Schedule 4.19 - List of all Subsidiaries
Schedule 6.13 - Indebtedness
Schedule 6.14 - Liens