EXHIBIT 4(a)
LOAN AND SECURITY AGREEMENT
GMAC BUSINESS CREDIT, LLC ("Lender"), a Delaware limited liability
company, with offices at 3000 Town Center, Suite 280, Southfield, Michigan 48075
and TRANSCAT, INC. an Ohio Corporation ("Parent"), and TRANSMATION (CANADA),
INC., a Canadian corporation ("Subsidiary" or together with Parent, the
"Borrowers" or a "Borrower", as applicable) with a principal place of business
at 35 Vantage Point Drive, Rochester, New York 14624, enter into this Loan and
Security Agreement on November 12, 2002 (the "Agreement").
1. GENERAL LENDING TERMS
The following are the general terms of the loans to be made under this
Agreement:
A. A revolving line of credit (the "Revolving Loans") up to
the lesser of the Borrowing Base (defined below) or $10,000,000.00 (the
"Revolving Advance Limit"). The "Borrowing Base" is initially (a) 85% of
the aggregate outstanding amount of Eligible Accounts plus (b) the
lesser of (i) 48% of the aggregate value of Eligible Inventory, or (ii)
$3,000,000.00; minus (c) the Reserves. The advance rate against Eligible
Accounts will reduce by one percentage point for each percentage point
(or fraction thereof) that Dilution exceeds 5% (for so long as Dilution
exceeds 5%) and the advance rate against Eligible Inventory will change
based upon the from time-to-time OLV of Borrowers' Inventory.
B. A $1,500,000 term loan (the "Term Loan").
C. Subject to Section 3.6 below, the applicable interest
rate (prior to an Event of Default) on all Obligations other than the
Term Loan is either (at Borrowers' option) the Prime Rate, or two and
three quarters percent (2.75%) per annum in excess of the LIBOR Rate and
on the Term Loan is either (at Borrowers' option) one-half of one
percent (0.5%) in excess of the Prime rate or three and one-quarter
percent (3.25%) in excess of the LIBOR Rate (the foregoing interest
rates are referred to as the "Base Rates", a "Base Rate," a "Prime Base
Rate" or a "LIBOR Base Rate", as applicable).
D. This Agreement expires on November 11, 2005 (the
"Term").
E. Borrowers shall pay Lender a collateral servicing fee of
$6,000.00 per month in advance, beginning on the first day of the first
full month after execution of this Agreement.
F. Borrowers shall pay Lender, on the first of each month,
an "Unused Line Fee" of one-half of one percent (0.5%) per annum times
the average daily unused portion of the Revolving Advance Limit during
the preceding month.
G. While all Revolving Loans will be made in U.S. Dollars,
Revolving Loans made against Inventory located in Ontario, Canada or
Accounts
denominated in Canadian Dollars will be based upon the applicable values
of such Collateral, using the Equivalent U.S. Dollar Amount. Unless
otherwise noted, all references in this Agreement to "$" or "U.S.
Dollars" means lawful money of the United States of America.
2. DEFINITIONS.
In addition to the terms defined in this Agreement, the
following terms have the given definitions:
"ACCOUNT DEBTOR" means any obligor under, with respect
to, or on account of an Account.
"ACCOUNTS" means all presently existing and hereafter
arising accounts receivable, contract rights, and all other forms of
obligations owing to a Borrower arising out of the sale or lease of
goods or the rendition of services by a Borrower, whether or not earned
by performance, all credit insurance, guaranties, supporting
obligations, and other security therefor, as well as all goods returned
to or reclaimed by a Borrower, and a Borrower's Business Records
relating to any of the foregoing.
"ADVANCE LIMIT" means the Revolving Advance Limit plus
the from time-to-time outstanding principal balance owing on the Note.
"BIA" means the Bankruptcy and Insolvency Act (Canada),
as amended.
"BIG CAT" means Borrowers' all inclusive marketing
catalogue for distributed products for use during (and the cost of which
is amortized over) a period greater than 12 months.
"BORROWING BASE CERTIFICATE" has the meaning given in
Section 8.3.
"BUSINESS DAY" means a day on which national banks are
open for business in Detroit, Michigan.
"BUSINESS RECORDS" means all of a Borrower's books and
records including all of the following: ledgers, records indicating,
summarizing or evidencing a Borrower's assets (including the Collateral)
or liabilities; all information relating to a Borrower's business
operations or financial condition; and all computer programs, disk or
tape files, printouts, runs or other computer prepared information, and
the equipment containing such information.
"CANADIAN DOLLARS" means lawful money of Canada.
"CANADIAN LOAN DOCUMENTS" means the General Security
Agreement of even date between Lender and Subsidiary and any
registration or financing statements filed on Lender's behalf in
Ontario, Canada.
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"CAPITAL EXPENDITURES" means, with respect to Borrowers
for any period, the sum of the aggregate of all expenditures (whether
paid in cash, capitalized as an asset or accrued as a liability) by
Borrowers during such period which, in accordance with GAAP, are or
should be included in "capital expenditures" or similar items reflected
on the statements of cash flows of the respective Borrower. For purposes
of this Agreement, Capital Expenditures shall not include Big Cat
expenditures.
"CLAIMS" means any demand, claim, action or cause of
action, damage, liability, loss, cost, debt, expense, obligation, tax,
assessment, charge, lawsuit, contract, agreement, undertaking or
deficiency, of any kind or nature, whether known or unknown, fixed,
actual, accrued or contingent, liquidated or unliquidated (including
interest, penalties, attorneys' fees and other costs and expenses
incident to proceedings or investigations relating to any of the
foregoing or the defense of any of the foregoing), whether or not
litigation has commenced.
"COLLATERAL" means all of the following: the Accounts;
the Equipment; the General Intangibles; the Inventory; the Negotiable
Collateral; the Real Estate; the Business Records; investment property;
securities; any money or other assets of each Borrower which hereafter
come into the possession, custody or control of Lender; and all proceeds
and products, whether tangible or intangible, of any of the foregoing,
including proceeds of insurance covering any or all of the Collateral,
and any and all Accounts, Equipment, General Intangibles, Inventory,
Negotiable Collateral, Business Records, money, deposit accounts or
other tangible or intangible property resulting from the sale or other
disposition of the Collateral or any portion thereof or interest
therein, and the proceeds thereof.
"DEPRECIATION EXPENSE" means, for any period,
depreciation, amortization (including Big Cat amortization), depletion
and other like reductions to income for such period not involving any
outlay of cash, determined on a consolidated basis in accordance with
GAAP.
"DILUTION" means the aggregate amount of credits,
returned goods, adjustments, deductions, setoffs and recoupments granted
by either Borrower or taken by all Account Debtors in any calendar month
divided by the aggregate amount of Borrowers' sales during the calendar
month.
"EBITDA" means, for any stated period, Borrowers' Net
Income for such period with the following adjustments (all determined
according to GAAP):
(a) Plus the sum of (without duplication)
(i) Interest Expense for such period;
(ii) Income Tax Expense for such period;
(iii) Depreciation Expense for such period; and
(iv) non-recurring, extraordinary, one-time losses.
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(b) Minus (i) non-recurring, extraordinary, one-time gains for such
period, and (ii) income tax benefits.
"ELIGIBLE ACCOUNTS" means for each Borrower, the Borrower's
Accounts listed on Borrowing Base Certificates delivered to Lender which Lender,
in its discretion, determines to be an Eligible Account. Without limiting the
generality of the immediately preceding sentence, no Account will be a Eligible
Account unless it meets all of the following minimum requirements:
(1) The Account is valued at its face amount and represents
a complete, bona fide transaction for Eligible Inventory
sold, delivered, and accepted by the Account Debtor or
for services rendered (but excluding any amounts in the
nature of a service charge added to the amount due on an
invoice because the invoice has not been paid when due)
that requires no further act under any circumstances on
the part of the Borrower or any other person or entity
to make such Account payable by the Account Debtor, and
the Account arises from an arm's-length transaction in
the ordinary course of Borrower's business between
Borrower and an Account Debtor that is not an affiliate,
partner, officer, or employee of Borrower, or a member
of the family of any partner, officer, or employee of
Borrower.
(2) The Account is not unpaid more than 90 days from the
earlier of (A) the date on which the original invoice
rendered in connection with such Account was issued, and
(B) the date on which the Eligible Inventory was shipped
to, or the services were performed for, the Account
Debtor.
(3) The goods the sale of which gave rise to the Account
were shipped or delivered or provided to the Account
Debtor on a final sale basis and not on a bill and hold
sale basis, a consignment sale basis, a guaranteed sale
basis, a sale or return basis, a trial basis, or on the
basis of any other similar understanding, and no part of
such goods have been returned or rejected.
(4) The Account is not evidenced by chattel paper or an
instrument of any kind.
(5) The Account Debtor with respect to the Account (A) is
not insolvent, (B) is not the subject of any bankruptcy
or insolvency proceedings of any kind or of any other
proceeding or action, threatened or pending, which might
have a materially adverse effect on its business, and
(C) is not, in Lender's reasonable discretion deemed
ineligible for credit for other reasons (including,
without limitation, unsatisfactory past experience of
Borrower or Lender with the Account Debtor or
unsatisfactory reputation of the Account Debtor).
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(6) The Account Debtor is located within United States of
America or a Permitted Canadian Province.
(7) If the Account Debtor is not located in the United
States of America or a Permitted Canadian Province, the
Account Debtor has provided credit insurance reasonably
acceptable to Lender or a guaranty or other assurance
reasonably acceptable to Lender from a domestic
affiliate.
(8) (A) The Account Debtor is not the government of the
United States of America or Canada, or any department,
agency or instrumentality thereof (or of any State or
Province therein), or (B) if the Account Debtor is an
entity mentioned in the preceding clause, the Federal
Assignment of Claims Act (or applicable similar
legislation in Canada) has been fully complied with so
as to validly perfect Lender's first-priority security
interest to Lender's satisfaction.
(9) The Account is a valid, legally enforceable obligation
of the Account Debtor with respect thereto and is not
subject to any dispute, condition, contingency, setoff,
recoupment, reduction, claim for credit, allowance,
adjustment, counterclaim or defense on the part of such
Account Debtor (collectively, a "Setoff"), and no fact
exists that may provide a basis for any of the foregoing
in the present or future; provided that except as
otherwise provided in this Agreement, the Account will
be ineligible only to the extent of the Setoff.
(10) The Account is subject to a first-priority security
interest in Lender's favor and is not subject to any
other lien, claim, encumbrance, or security interest
whatsoever other than any Permitted Lien.
(11) The Account is evidenced by an invoice or other
documentation in form acceptable to Lender and arises
from a contract, purchase order, or release that is
satisfactory in form and substance to Lender.
(12) No representation or warranty contained in this
Agreement or any other agreement between Borrower and
Lender, or in any Borrowing Base Certificate with
respect to such Account has been breached.
(13) The Account is not subject to any provision prohibiting
its assignment.
(14) The Account does not represent any manufacturer's or
supplier's credits, discounts, incentive plans, or other
similar arrangements entitling the Borrower to discounts
on future purchases.
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(15) The Eligible Inventory giving rise to the Account was
not, at the time of sale thereof, subject to any lien or
encumbrance except in Lender's favor.
(16) The Account is payable in freely transferable U.S.
Dollars or Canadian Dollars.
In addition to the foregoing requirements, Accounts of any
Account Debtor that are otherwise qualified will be reduced to the extent of (1)
any accounts payable (including, without limitation, Lender's good faith
estimate of any contingent liabilities) by Borrower to such Account Debtor
("Contras") and (2) that portion of an Account representing a retainage or
holdback by the Account Debtor; provided that Lender, in its sole discretion may
determine that none of such Accounts are Eligible Accounts if Contras and/or
Setoffs represent 10% or more of the amount owing to Borrower from such Account
Debtor. Finally, all Accounts owing by a given Account Debtor will be ineligible
if more than 50% of the total Accounts owing by such Account Debtor are
otherwise ineligible.
Any Account that is at any time an Eligible Account and that
subsequently fails to meet any of the requirements set forth above will
immediately cease to be an Eligible Account and must be removed from the
Borrowing Base immediately.
"ELIGIBLE INVENTORY" means for each Borrower, that portion of
Borrower's Inventory consisting of new, unused, finished goods Inventory in
respect of which no further manufacturing, processing, or other work has to be
done (other than packaging or crating for shipment or distribution), held for
sale in the ordinary course of Borrower's business that is listed on a Borrowing
Base Certificate delivered to Lender in accordance with this Agreement that
Lender determines to be Eligible Inventory. Without limiting the generality of
the immediately preceding sentence, no Inventory will be Eligible Inventory
unless it meets all the following minimum requirements:
(1) The Inventory has not been shipped, delivered, provided
to, purchased or sold by Borrower on a bill and hold,
consignment sale, guaranteed sale, trial or sale or
return basis, or any other similar basis or
understanding.
(2) No Account has arisen with respect to such Inventory.
(3) The Inventory has not been billed to a customer on a
"progress billing" or similar basis prior to shipment to
the customer.
(4) The Inventory is valued at the lower of cost or market,
on a first-in-first-out basis.
(5) The Inventory is in Borrower's possession (or the
possession of Borrower's salesmen to the extent that the
value of such Inventory included in Borrower's Borrowing
Base does not exceed $200,000 in the aggregate), or if
the Inventory is located on premises not
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owned by the Borrower, the landlord or owner of such
premises must have waived its distraint, lien, and
similar rights with respect to such Inventory and must
have agreed in a written agreement satisfactory to
Lender (A) that Lender has a valid, perfected first
priority security interest in the Inventory, (B) to give
Lender notice of any default by Borrower and the option
to cure such default, (C) to permit Lender to enter such
premises to repossess or remove the Inventory at any
time, and (D) to grant Lender such other rights as
Lender may reasonably request.
(6) The Inventory is not subject to any royalty, copyright,
trademark, trade name, or licensing arrangement, or any
law, rule, or regulation that could limit or impair
Lender's ability to exercise its rights with respect to
such Inventory.
(7) The Inventory is held for resale and is not packaging,
labels, manuals, supplies or repair parts.
(8) The Inventory meets all standards imposed by any
governmental agency, department, or division having
regulatory authority over such Inventory or its use or
sale including, without limitation, standards set forth
in the Fair Labor Standards Act.
(9) No representation or warranty in this Agreement, any
other agreement between Borrower and Lender, or any
Borrowing Base Certificate has been breached with
respect to such Inventory.
(10) The Inventory is not obsolete, is of good and
merchantable quality, and is readily salable.
(11) The Inventory is subject to a first-priority security
interest in Lender's favor and is not subject to any
other lien or encumbrance.
(12) The Inventory is new and unused and has not been used on
a trial or demonstration basis.
Any Inventory that is at any time Eligible Inventory and that
subsequently fails to meet any of the requirements set forth
above will cease to be Eligible Inventory immediately and must
be removed from the Borrowing Base immediately.
"ENVIRONMENTAL LAWS" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, the Resource
Conservation and Recovery Act of 1976, the Hazardous Materials Transportation
Act, the Toxic Substances Control Act, the regulations pertaining to such
statutes, and any other safety, health or environmental statutes, laws,
regulations or ordinances of the United States or of any state, county or
municipality in which Borrower conducts its business or the Collateral is
located.
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"EQUIPMENT" means all of Borrower's present and hereafter
acquired equipment, machinery, machine tools, motors, furniture, furnishings,
fixtures, motor vehicles, rolling stock, processors, tools, parts, dies, jigs,
goods (other than consumer goods, farm products or Inventory), wherever located,
and any interest of Borrower in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions and improvements
to any of the foregoing, wherever located.
"EQUIVALENT U.S. DOLLAR AMOUNT" means, on any Business Day with
respect to any amount of Canadian Dollars, the amount of U.S. Dollars which
would be required to buy such amount of Canadian Dollars using the rate reported
in the Wall Street Journal as the New York exchange mid-range rate to trading
among banks in amounts of U.S. $1 million or more, as quoted at 4 p.m. Eastern
time on the prior Business Day by Rueters and other sources (or another
comparable rate as announced from time-to-time by Lender).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"ERISA AFFILIATE" means each trade or business (whether or not
incorporated and whether or not foreign) which is or may hereafter become a
member of a group of which Borrower is a member and which is treated as a single
employer under ERISA Section 4001(b)(1), or IRC Section 414.
"EUROCURRENCY RESERVE REQUIREMENT" is defined as part of the
definition of LIBOR Rate.
"EXCESS CASH FLOW" means 20% of the following (calculated each
fiscal year according to GAAP): EBITDA less the sum of (i) principal payments on
long term debt; (ii) Interest Expense; (iii) Big Cat expenditures; (iv) taxes
paid during the fiscal year and (v) Capital Expenditures exclusive of leased or
debt financed Capital Expenditures; provided, however, that in no event shall
Excess Cash Flow exceed $200,000 per fiscal year.
"EXPENSES" means all reasonable fees and out-of-pocket
disbursements incurred by Lender, including fees of counsel and court costs, in
any way arising from or in connection with this Agreement, any Loan Documents,
any of the Collateral, any of the Obligations or the business relationship
between Lender and either Borrower, including, without limitation, (a) audit
fees at the per day rate provided for in Section 8.6 below; (b) all reasonable
fees and expenses (including recording fees and insurance policy fees) of Lender
and counsel for Lender for the preparation, examination, approval, negotiation,
execution and delivery of, or the closing of any of the transactions
contemplated by, this Agreement and any Loan Documents; (c) all reasonable fees
and out-of-pocket disbursements incurred by Lender, including reasonable
attorneys' fees, in any way arising from or in connection with any action taken
by Lender to monitor, advise, administer, enforce or collect any of the
Obligations under this Agreement, any Loan Documents or any other obligations of
either Borrower, whether joint, joint and several, or several, under this
Agreement (or any Loan Documents), or any other existing or future document or
agreement, or arising from or relating to the business
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relationship between Lender and either Borrower, or otherwise securing any of
the Obligations, including any actions to lift the automatic stay or to
otherwise in any way monitor or participate in any Insolvency Proceeding of
either Borrower; (d) all reasonable expenses and fees (including reasonable
attorneys' fees) incurred in relation to, in connection with, in defense of
and/or in prosecution of any litigation instituted by any one or more of the
Borrowers, Lender or any third party against or involving Lender arising from,
relating to, or in connection with any of the Obligations or either Borrower's
other obligations, this Agreement (or any Loan Documents), any of the
Collateral, or the business relationship between Lender and either Borrower,
including any so-called "lender liability" action, any claim and delivery or
other action for possession of, or foreclosure on, any of the Collateral,
post-judgment enforcement of any rights or remedies including enforcement of any
judgments, and prosecution of any appeals (whether discretionary or as of right
and whether in connection with pre-judgment or post-judgment matters); (e) all
reasonable costs, expenses and fees incurred by Lender or its agents in
connection with any appraisals or environmental assessments of all or any of the
Collateral (and Borrowers shall fully cooperate with such appraisers and make
their property available for appraisal in connection with as many appraisals or
environmental assessments as Lender may request); (f) all reasonable fees
described in Section 1 above, and (g) all reasonable costs, expenses and fees
incurred by Lender and/or its counsel in connection with consultants, expert
witnesses or other professionals retained by Lender and/or its counsel in order
to assist, advise and/or give testimony with respect to any matter relating to
this Agreement or any Loan Documents, the Collateral or the business
relationship between Lender and either Borrower (and Borrowers shall fully
cooperate with such consultant, expert witness or other professional and shall
make their premises, books and records, accounting systems, computer systems and
other media for the recordation of information available to such persons).
"GAAP" means generally accepted United States accounting
principles, consistently applied.
"GENERAL INTANGIBLES" means all of each Borrower's present and
future general intangibles and other personal property (including commercial
tort claims, health care receivables, contract rights, rights arising under
common law, statutes or regulations, choses or things in action, goodwill, going
concern value, "blue sky", patents, trade names, trademarks, service marks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, monies due under any royalty or licensing
agreements, route lists, infringement claims, software, computer discs, computer
tapes, literature, reports, catalogs, deposit accounts, insurance premium
rebates, business interruption insurance claims and proceeds and proceeds of
insurance, other than casualty insurance, tax refunds and tax refund claims)
other than goods and Accounts, and each Borrower's Business Records relating to
any of the foregoing.
"GSA" means the General Security Agreement of even date executed
by Subsidiary in favor of Lender.
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"HAZARDOUS MATERIAL" means any substance, material, emission or
waste which is or hereafter becomes regulated or classified as a hazardous
substance, hazardous material, toxic substance or solid waste under any
Environmental Law, asbestos, petroleum products, urea formaldehyde,
polychlorinated biphenyls (PCBs), radon and any other hazardous or toxic
substance, material, emission or waste.
"INCOME TAX EXPENSE" means for any period, the aggregate of all
taxes on income for such period, whether current or deferred, determined in
accordance with GAAP.
"INSOLVENCY PROCEEDING" means any proceeding commenced by or
against Borrower or any Guarantor under any provision of the Bankruptcy Code, 11
U.S.C. Section 101 et. seq., the Bankruptcy and Insolvency Act (Canada), the
Creditor's Company Arrangement Act (Canada) or under any other bankruptcy or
insolvency law, including assignments for the benefit of creditors, formal or
informal moratoria, compositions, extensions generally with its creditors or
proceedings seeking reorganization, liquidation, arrangement or other similar
relief.
"INTEREST EXPENSE" means, for any given period, the aggregate
amount of interest paid and/or accrued on account of any debt, plus imputed
interest paid or accrued on account of any capital leases.
"INVENTORY" means all present and future inventory in which
either Borrower has any interest, including goods held for sale or lease or to
be furnished under a contract of service, either Borrower's present and future
raw materials, work in process, finished goods and supplies and materials used
in or consumed in either Borrower's business, goods which have been returned to,
repossessed by or stopped in transit by either Borrower, packing and shipping
materials, wherever located, any documents of title representing any of the
above, and Borrower's Business Records relating to any of the foregoing.
"LIBOR BASED LOANS" means that portion of the Loans on which
interest accrues at the LIBOR Base Rate.
"LIBOR INTEREST PERIOD" is defined as a calendar month.
"LIBOR RATE" means an annual rate of interest determined by
Lender as being the rate available at approximately 11:00 a.m. London time in
the London Interbank Market, as referenced by Reuters Screen "LIBOR", in
accordance with the usual practice in such market, for 30 day LIBOR loans in
effect two Business Days prior to the first Business day of each calendar month.
LIBOR Based Loan (including those requested in connection with the conversion of
a Prime Based Loan to a LIBOR Based Loan in accordance with Section 3.6 hereof),
or for a LIBOR Based Loan which Borrower has elected to continue as a LIBOR
Based Loan beyond the expiration of the then current LIBOR Interest Period with
respect thereto, for deposits of dollars in amounts equal (as nearly as may be
estimated) to the amount of the LIBOR Based Loan which shall then be loaned by
the Lender to Borrowers as of the time of such determination, as such rate may
be adjusted by the reserve percentage applicable
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during the LIBOR Interest Period in effect (or if more than one such percentage
shall be applicable, the daily average of such percentages for those days in
such LIBOR Interest Period during which any such percentage shall be so
applicable) under regulations issued from time to time by the Board of Governors
of the Federal Reserve System (or an successor) for determining the maximum
reserve requirement (including without limitation, any emergency, supplemental
or other marginal reserve requirement) for a national bank with respect to
liabilities or assets consisting of or including "Eurocurrency Liabilities" as
such term is defined in Regulation D of the Board of Governors of the Federal
Reserve System, as in effect from time to time, having a term equal to such
LIBOR Interest Period ("Eurocurrency Reserve Requirement"), as reasonably
applied to loans of this type. Such adjustment shall be effectuated by
calculating, and the LIBOR Rate shall be equal to, the quotient of (i) the
offered rate divided by (ii) one minus the Eurocurrency Reserve Requirement.
"LIBOR RATE OPTION" is defined in Section 3.6 below.
"LINE OF CREDIT" means the revolving line of credit provided for
in this Agreement.
"LOAN DOCUMENTS" means, collectively, this Agreement, the Note,
the Canadian Loan Documents, any security agreements, pledge agreements,
assignments, deeds of trust, mortgages or other encumbrances or agreements which
secure or relate to the Obligations or the collateral security for the
Obligations, any guaranties of the Obligations, any lock box or blocked account
agreements and any other agreements entered into between either Borrower and
Lender relating to or in connection with this Agreement.
"LOANS" means the Revolving Loans together with any other loans
or advances made by Lender to Borrowers, including the Term Loan.
"MATERIAL ADVERSE EFFECT" means relative to any occurrence of
whatever nature (including any determination in litigation, arbitration or
governmental proceeding or investigation) involving or affecting either Borrower
that Lender reasonably determines will or does have a materially adverse effect
on:
A. The assets, business, profits, properties, condition
(financial or otherwise), operations or foreseeable
financial prospects of a Borrower as a consolidated
business; or
B. The ability of a Borrower to perform any of their
payment or other material obligations under this
Agreement, any other Loan Documents or the transactions
contemplated thereby.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in
ERISA Sections 3(37) or 4001(a)(3) or IRC Section 414(f) which covers employees
of Borrower or any ERISA Affiliate.
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"NEGOTIABLE COLLATERAL" means all of each Borrower's present and
future letters of credit, notes, drafts, instruments, certificated and
uncertificated securities, documents, leases and chattel paper, and each
Borrower's Business Records relating to any of the foregoing.
"NOTE" means the Promissory Note evidencing the Term Loan.
"OBLIGATIONS" means all Loans, advances, debts, liabilities
(including all amounts charged to Borrowers' loan account pursuant to any
agreement authorizing Lender to charge Borrowers' loan account), obligations,
fees, lease payments, covenants and duties owing by either Borrower to Lender of
any kind and description for the payment of money or otherwise, (whether
pursuant to or evidenced by the Loan Documents, by the Note or other instrument
or by any other agreement between Lender and either Borrower), whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, including any debt, liability or obligation owing from either
Borrower to others which Lender may obtain by assignment or otherwise, and all
interest thereon, including any interest that, but for the provisions of laws
applicable to any Insolvency Proceeding, would have accrued, and all Expenses
which either Borrower is required to pay or reimburse pursuant to the Loan
Documents, by law or otherwise.
"OLV" means the following, determined from time to time by an
appraiser acceptable to Lender in its reasonable discretion: the projected net
cash proceeds to be derived from the sale and disposition of Borrowers'
Inventory after deduction for all associated costs, expenses and fees as part of
a professionally managed liquidation sale taking place over a reasonable time
frame not to exceed 8 weeks.
"OVERADVANCE" means if at any time and for any reason, the
aggregate amount of the outstanding Revolving Loans exceeds the dollar or
percentage limitations set forth in Section 1 of this Agreement.
"PERMITTED CANADIAN PROVINCES" means Canadian Provinces and
territories other than Nunavut, Yukon, and the Northwest Territories.
"PERMITTED LIENS" means:
(a) liens for taxes, assessments or governmental charges,
and liens incident to construction, which are either not delinquent or are being
contested in good faith by a Borrower by appropriate proceedings, which will
prevent foreclosure of such liens, and against which adequate reserves have been
provided, and upon demand by Lender, with adequate security being posted with
Lender;
(b) liens or deposits in connection with workers'
compensation or other insurance or to secure customs' duties, public or
statutory obligations in lieu of surety, stay or appeal bonds, or to secure
performance of contracts or bids (other than contracts for the payment of money
borrowed), or deposits required by law or governmental regulations or by any
court order, decree, judgment or rule as condition to
12
the transaction of business or the exercise of any right, privilege or license;
or other liens or deposits of a like nature made in the ordinary course of
business; and
(c) security interests or mortgages granted to Lender;
(d) liens and security interests identified on Schedule 2;
(e) liens arising from taxes, assessments, charges or claims
that are not yet due or that remain payable without penalty;
(f) zoning restrictions, easements, minor restrictions on
the use of real property, minor irregularities in title thereto and other minor
liens that do not secure the payment of money or the performance of an
obligation and that do not in the aggregate materially detract from the value of
a property or asset to, or materially impair its use in the business of, the
applicable Borrower;
(g) liens evidenced by the Loan Documents;
(h) liens imposed by law, such as liens of landlords,
warehouses, mechanics and materialmen arising in the ordinary course of business
for sums not yet due, or which are discharged of record (by payment or bonding,
or otherwise);
(i) unless as a matter of applicable law such lien could, in
Lender's counsel's reasonable opinion, have priority over Lender's security
interest, any judgment lien which does not exceed, in any single instance,
$100,000 or, when added to the amounts of any other judgment lien(s) then
outstanding as to both Borrowers, in the aggregate $250,000, unless such
judgment or judgments shall not, within thirty (30) days after the entry thereof
have been discharged or execution thereof stayed pending appeal, or shall not
have been discharged within thirty (30) days after expiration of such stay;
(j) lien filings for informational purposes only with
respect to equipment leases entered into in the ordinary course of business; and
(k) ordinary deposits made to utility companies,
governmental or quasi-governmental agencies for or in connection with the
provision of services.
Notwithstanding anything to the contrary in the foregoing, "Permitted Liens"
shall in no event include (i) any lien imposed by, or required to be granted
pursuant to, ERISA or any Environmental Laws, (ii) any lien on any inventory of
Borrowers, or (iii) any lien on any distribution licenses or distribution
contracts issued to and held by, or entered into by, Borrowers.
"PLAN" means any plan described in ERISA Section 3(2) maintained
for employees of Borrower or any ERISA Affiliate, other than a Multiemployer
Plan.
"PPSA" means the Personal Property Security Act (Ontario), as
amended from time to time.
13
"PRIME RATE" means the variable rate of interest, per annum,
which is quoted from time to time in The Wall Street Journal as the base "prime
rate" on corporate loans posted as of such time by at least 75% of the nation's
30 largest banks, adjusted daily. The Prime Rate is nothing more nor less than
an index for determining the interest rate payable under the terms of this
Agreement. The Prime Rate is not necessarily the best rate, or any other
definition of rates, offered by Lender.
"REAL ESTATE" means all real estate and rights in real estate
(including leasehold interests) owned by either Borrower.
"REPORTABLE EVENT" means a "reportable event" as that term is
defined and applied in connection with ERISA.
"RESERVES" means a borrowing base reserves established by Lender
in its reasonable discretion based upon commercial lending practices.
3. LINE OF CREDIT, OTHER LOANS, INTEREST AND PAYMENTS
3.1 REVOLVING LINE OF CREDIT. From time to time during the Term, so
long as an Event of Default has not occurred or if an Event of Default has
occurred, such Event of Default has been timely remedied, Lender will, in its
discretion and subject to the terms and conditions set forth in this Agreement,
make Revolving Loans to Borrowers in such amounts as Borrowers may request,
provided that the aggregate principal amount of all Revolving Loans shall not
exceed the Revolving Advance Limit. The Revolving Loans may be borrowed, repaid
and reborrowed according to the terms of this Agreement.
Borrowers may request from time to time Revolving Loan advances by
submitting a signed, completed Borrowing Base Certificate to Lender, in each
case given no later than 11:00 a.m. (Detroit, Michigan time) on the Business Day
of the proposed Revolving Loan advance. Subject to the terms and conditions of
this Agreement, Lender will make the proceeds of each such requested Revolving
Loan advance available to Borrowers on the day requested.
Lender shall not be obligated to make Revolving Loans to Borrowers at
any time; each Revolving Advance which is made under this Agreement will be made
at the option of, and in the discretion of, Lender. The Revolving Loans will not
be evidenced by a promissory note and a copy of Lender's books and records
related to the Revolving Loans shall constitute prima facie evidence of the
outstanding amount of Revolving Loans.
Should an Overadvance exist, Borrowers shall immediately make principal
reduction payments of such excess to Lender as are required to reduce the
outstanding balance of the Revolving Loans such that no Overadvance exists.
3.2 INTENTIONALLY OMITTED.
3.3 TERM LOAN. Simultaneous with the execution of this Agreement,
the Borrowers have obtained from Lender the Term Loan, which shall be evidenced
by the
14
Note payable to the order of and dated on the date of this Agreement. In
addition to principal payments called for by the Note, Borrowers shall be
obligated to make additional principal payments on account of the Term Loan
equal to Borrowers' Excess Cash Flow, with such principal payments due and
payable within the sooner of (a) 120 after the end of each of Borrower's fiscal
years, or (b) 30 days after Borrowers' receipt of audited annual financial
statements.
3.4 TERMINATION PREMIUM. If this Agreement is terminated at any time
prior to the expiration of the Term, Borrowers shall be obligated to pay Lender
a termination premium equal to the following (the "Termination Premium"):
(a) 3% of the Advance Limit if terminated before November
11, 2003.
(b) 1% of the Advance Limit if terminated after November 11,
2003 but before November 11, 2005.
The Termination Premium will also be due and payable in connection with any
termination of this Agreement pursuant to Section 9.6 below and in connection
with termination of this Agreement by Lender upon an Event of Default or by or
on behalf of Borrower, whether voluntary or involuntary, including upon an Event
of Default which is not timely cured within any applicable cure period, and
including in connection with termination of this Agreement or payment of the
Obligations by any trustee or debtor-in-possession in any Insolvency Proceeding.
The Termination Premium is presumed to be a reasonable estimate of the amount of
damages sustained by Lender as a result of the early termination of this
Agreement and Borrowers agree that such amount is reasonable under the
circumstances currently existing.
3.5 CROSS-DEFAULTS AND CROSS-COLLATERALIZATION. A default under any
Loan or Note is a default under any all other Notes and Loans and under all
Obligations. All Collateral secures all Obligations.
3.6 INTEREST RATES; DEFAULT INTEREST RATES.
(a) Generally.
The aggregate outstanding amount of all Obligations shall bear
interest at the rates set forth in Section 1 above, with the Borrowers having
the option (subject to the terms set forth below) to elect a LIBOR Base Rate for
certain Loans. The aggregate outstanding amounts of the Obligations shall bear
interest, from and after the occurrence of an Event of Default and without
constituting a waiver of any such Event of Default, at the rate of two percent
(2.0%) per annum above the otherwise applicable Base Rate(s). All interest
payable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed, based on the
aggregate amount of the Obligations that are outstanding on each day. Interest
shall continue to accrue until all of the Obligations are paid in full.
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(b) LIBOR Rate Option.
(1) Provided no Event of Default has occurred and is
continuing, Borrowers shall have the option to have the unpaid
principal balance of up to 80% of the Loans bear interest at the
applicable LIBOR Base Rate ("LIBOR Rate Option"), provided that
LIBOR Based Loans shall be in $100,000 increments and not less
than $500,000 in the aggregate.
(2) Borrowers shall elect the LIBOR Rate Option by
giving Lender written notice (in the form of Schedule 3.8) at
least three Business Days prior to but no more than five
Business Days prior to the last Business Day of each calendar
month of Borrowers' intention to have a portion of its
outstanding Term Loan or Revolving Loans treated as LIBOR Based
Loans during the, succeeding calendar month. If Borrowers fail
to timely elect the LIBOR Rate Option for a Loan, all such Loans
shall be a Prime Based Loans and shall accrue interest at the
Prime Base Rate during the succeeding calendar month, but
Borrowers shall continue to have the right to elect the LIBOR
Rate Option at the end of such succeeding month by timely giving
written notice as provide above.
(3) The LIBOR Rate may be automatically adjusted by
Lender on a prospective monthly basis to take into account the
additional or increased cost of maintaining any necessary
reserves for Eurodollar deposits or increased costs due to
changes in applicable law or regulation or the interpretation
thereof occurring subsequent to the commencement of the then
applicable LIBOR Interest Period, including but not limited to
changes in tax laws (except changes of general applicability in
corporate income tax laws as they affect financial institutions)
and changes in any applicable law or regulation that increases
the cost to Lender of funding LIBOR Based Loans. Lender shall
promptly give the Borrowers notice of such a determination and
adjustment, which determination shall be conclusive as to the
correctness of the fact and the amount of such adjustment,
absent manifest error. The Borrowers may, by written notice to
Lender, (A) request Lender to furnish to the Borrowers a
statement setting forth the basis for adjusting such LIBOR Based
Rate and the method for determining the amount of such
adjustment; and/or (B) prepay the LIBOR Based Loan with respect
to which such adjustment is made, subject to the requirements of
Section 3.6(f) and 3.4, if applicable.
(4) In the event that the Borrowers shall have
requested the LIBOR Rate Option in accordance with this
Agreement and Lender shall have reasonably determined that
Eurodollar deposits equal to the amount of the principal of the
requested LIBOR Based Loan and for the LIBOR Interest Period
specified are unavailable, impractical, or unlawful, or that the
rate based on the LIBOR Rate will not adequately and fairly
reflect the cost of funds, of making or maintaining the
principal amount of the requested LIBOR Based Loan specified by
the Borrowers, or that by reason of circumstances affecting
Eurodollar markets, adequate and
16
reasonable means do not exist for ascertaining the rate based on
the applicable LIBOR Rate, Lender shall promptly give notice of
such determination to the Borrowers that the rate based on the
LIBOR Rate is not available. A determination by Lender hereunder
shall be prima facie evidence of the correctness of the fact and
amount of such additional costs or unavailability. Upon such a
determination, (A) the right of Borrowers to select, convert to,
or maintain a LIBOR Based Loan at the rate based on the LIBOR
Rate shall be suspended until Lender shall have notified the
Borrower that such conditions shall have ceased to exist, and
(B) the Loans subject to the requested LIBOR Rate Option shall
accrue interest as Prime Based Loans.
(c) Limitation on LIBOR Based Loans. Upon the occurrence and
continuance of an Event of Default, Lender, in its sole discretion, may
eliminate the LIBOR Rate Option and the availability of LIBOR Based
Loans.
(d) Conversion. Following the occurrence of an Event of
Default, at the option of Lender, all LIBOR Based Loans may be converted
to Prime Based Loans, which conversion is independent of Lender's other
rights under this Agreement.
(e) Prepayment LIBOR Based Loans. In addition to Borrowers'
obligations under Section 3.4, if applicable, no portion of any LIBOR
Based Loan may be prepaid at any time unless Borrowers first satisfy in
full their obligations under Section 3.6(f) arising from such
prepayment.
(f) Indemnity/Loss of Margin.
(1) Borrowers shall indemnify, defend and hold
harmless Lender against any and all loss, liability, cost or
expense which Lender may sustain or incur as a consequence of
(i) any failure of Borrowers to obtain, convert or extend any
LIBOR Based Loan after notice thereof has been given to Lender;
or (ii) any payment, prepayment, termination or conversion of a
LIBOR Based Loan made for any reason on a date other than the
last day of the applicable LIBOR Interest Period; Borrowers
shall pay the full amount thereof to Lender on demand.
(2) In the event that any present or future law,
rule, regulation, treaty or official directive or the
interpretation or application thereof by any central bank,
monetary authority or governmental authority, or the compliance
with any guideline or request of any central bank, monetary
authority or governmental authority (whether or not having the
force of law) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit, or other similar
requirement with respect to deposits in or for the account of,
or loans or advances or commitment to make loans or advances by,
or letters of credit issued or commitment to issue letters of
credit by Lender and the result of any of the foregoing is to
increase the costs of Lender, reduce the income receivable by or
return on
17
equity of Lender or impose any expense upon Lender with respect
to any advances or extensions of credit or commitments to make
advances or extensions of credit under this Agreement upon
notice from Lender, Borrowers agree to pay such Lender the
amount of such increase in cost, reduction in income, reduced
return on equity or capital, or additional expense after
presentation by Lender of a statement concerning such increase
in cost, reduction in income, reduced return on equity or
capital, or additional expense. Such statement shall set forth a
brief explanation of the amount and Lender's calculation of the
amount (in determining such amount Lender may use any reasonable
averaging and attribution methods), which statement shall be
conclusively deemed correct absent manifest error.
3.7 PAYMENTS. All payments, including any prepayments, by Borrowers
on account of principal, interest, fees, or other Obligations must be made
without setoff or counterclaim to Lender at the address specified on the first
page of this Agreement in lawful money of the United States of America and in
immediately available funds. If any payment under this Agreement or the Note
becomes due on a day other than a day which is a Business Day, its maturity will
be extended to the next succeeding Business Day, and with respect to payments of
principal and interest thereon, will be payable at the then-applicable rate
during such extension.
3.8 CREDITING PAYMENTS. For the purpose of calculating Borrowing
Base availability for Revolving Loans, the receipt by Lender of any wire
transfer or electronic funds transfer of funds, check or other item of payment
shall be applied immediately to provisionally reduce the Obligations, but such
receipt shall not be considered a payment on account unless such wire transfer
or electronic funds transfer is of immediately available federal funds and is
made to the appropriate deposit account of Lender or unless and until such check
or other item of payment is honored when presented for payment. For the purpose
of calculating interest, the receipt by Lender of any check or other item of
payment shall be deemed to have occurred two (2) Business Days after the date
Lender actually receives such item of payment and as to any wire transfer or
electronic funds transfer, two (2) Business Days after the date Lender actually
receives such item of payment. In the event any check or other item of payment
is not honored when presented for payment, Borrower shall be deemed not to have
made such payment. Notwithstanding anything to the contrary contained herein,
any wire transfer, electronic funds transfer, check or other item of payment
received by Lender after 1:00 p.m., Detroit, Michigan time shall be deemed to
have been received by Lender as of the opening of business on the immediately
following Business Day.
3.9 PAYMENT MECHANICS. As an administrative convenience to Borrowers
to ensure the timely payment of amounts owing by Borrowers to Lender under this
Agreement, Borrowers hereby request Lender to advance for the account of
Borrowers an amount each month sufficient to pay interest accrued on the
principal amount of the Obligations during the immediately preceding month and
all monthly principal installments or other payments due under the Note or other
Loan Document and amounts from time to time sufficient to pay all fees and
Expenses owing by Borrowers under this Agreement. Borrowers authorize Lender, in
Lender's sole discretion, to make
18
a Revolving Loan for Borrowers' account of a sum sufficient each month to pay,
on the due date thereof, all interest accrued on the principal amount of the
Obligations during the immediately preceding month and all monthly principal
installments or other payments due under the Note or other Loan Documents and
sums from time to time sufficient to pay, on the due date thereof, all fees and
Expenses owing by Borrowers under this Agreement, and Lender may apply the
proceeds of each such Revolving Loan to the payment of such interest,
installments, fees and Expenses. Lender will provide Borrowers with an invoice
or receipt for all items charged to the Revolving Loans pursuant to this
paragraph. Each Revolving Loan made pursuant to this Section 3.9 shall
thereafter accrue interest at the rate then applicable under this Agreement.
Lender shall not be obligated to make Revolving Loans under this Section 3.9,
and such Loans shall be made in Lender's discretion.
3.10 APPOINTMENT OF AGENT. Subsidiary hereby appoints Parent as its
agent for purposes of requesting Loans, signing Borrowing Base Certificates and
providing Lender with any information requested by Lender in connection with
this Agreement, the Loan Documents and to receive any notices from Lender
hereunder or thereunder. Subsidiary ratifies the acts of Parent pursuant to this
section and agrees that Lender shall have the right to rely on certificates,
requests, Borrowing Base Certificates and other documents and information
provided by Parent in its capacity as agent for Subsidiary with the same legal
effect as if the same were signed and/or delivered by Subsidiary. The
appointment of Parent as agent pursuant to this Section 3.10 is coupled with an
interest and shall be irrevocable until all Obligations are fully and finally
paid.
3.11 ALLOCATION OF EXPENSES. Because of the interrelationship of the
Borrowers and the benefits to each Borrower of being a party to a consolidated
financing arrangement with Lender, Borrowers agree that Lender may charge all
Expenses to the Revolving Loans and any reallocation between the Borrowers shall
have no effect on Lender's rights under this Agreement.
4. CONDITIONS OF BORROWING
Notwithstanding any other terms of this Agreement, Lender is not
required to make any Loan to Borrowers under this Agreement unless all of the
following conditions are met at or prior to the time such Loan is made:
4.1 REPRESENTATIONS TRUE. Borrowers' representations and warranties
in this Agreement (and in all agreements referred to or executed in connection
with this Agreement) are true in all material respects as of the date of each
Loan or advance under this Agreement with the same effect as though such
representations and warranties had been made by the Borrower at such time.
4.2 NO DEFAULT. No Event of Default under this Agreement exists, nor
does any event exist which, upon the lapse of time, service of notice, or both,
would constitute an Event of Default under this Agreement, and no suit or
proceeding at law or in equity or of any governmental body has been instituted
or, to the knowledge of the Borrowers,
19
threatened which, in either case, would materially and adversely affect
Borrowers' financial condition or business operations.
4.3 COUNSEL OPINION. Simultaneous with the execution of this
Agreement, Lender must have received from Borrowers a reasonably satisfactory
legal opinion(s) as to: (a) the due authorization, execution and delivery by
Borrowers of this Agreement, the Note, and all documents and agreements referred
to or executed in connection with this Agreement; (b) the due authorization,
validity and binding effect of the Loans contemplated by this Agreement and of
the Note; (c) Borrowers' due incorporation, existence and qualification as a
foreign corporation where the Borrowers are qualified; and (d) such other
matters as Lender may reasonably require relating to the validity and
enforceability of this Agreement. The Borrowers must also execute and deliver to
Lender or its counsel all documents Lender may request concerning Borrowers'
status and authorization to enter into the transactions contemplated by this
Agreement.
4.4 INITIAL MINIMUM AVAILABILITY. At the time of the initial Loans
under this Agreement only, Borrowers have at least $500,000 in Borrowing Base
availability after giving effect to a $250,000 liquidation reserve and after
paying all closing and transaction costs, all obligations to Borrowers' existing
senior secured lender have been paid in full and Borrowers pay all accounts
payable (excluding disputed accounts payable) to within 60 days of invoice date
and all taxes are paid current.
4.5 ADVERSE DEVELOPMENTS. Since the date of the financial statements
most recently furnished to Lender, there has been no material adverse change in
the business, prospects, operations or condition, financial or otherwise, of the
Borrowers or any of the properties or assets of the Borrowers.
5. SECURITY FOR THE OBLIGATIONS
5.1 GRANT OF SECURITY. Borrowers hereby grant Lender a continuing
security interest in all presently existing and hereafter acquired or arising
Collateral to secure prompt repayment of all Obligations and to secure the
prompt performance by Borrowers of each of its covenants and duties in this
Agreement and any other agreements with Lender. Lender's security interest in
the Collateral shall attach to all Collateral without further act on the part of
Lender or Borrowers other than execution of this Agreement and the GSA by the
applicable Borrowers. Borrowers have no authority, express or implied, to
dispose of, sell or transfer any of the Collateral other than (a) sales of
Inventory to buyers in the ordinary course of business, and (b) sales of
obsolete Equipment having a net book value of less than $50,000 per year in the
aggregate.
5.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower shall, upon the request of Lender, immediately endorse and assign such
Negotiable Collateral to Lender and deliver physical possession of such
Negotiable Collateral to Lender.
5.3 ADDITIONAL DOCUMENTATION. At the request of Lender, Borrowers
shall execute and deliver to Lender, all financing statements, continuation
financing statements, fixture filings, security agreements, pledges,
assignments, endorsements of
20
certificates of title, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other documents that Lender
may reasonably request, in form reasonably satisfactory to Lender, to perfect
and continue perfected Lender's security interest in the Collateral and in order
to fully consummate all of the transactions contemplated hereunder and under the
other Loan Documents.
5.4 POWER OF ATTORNEY. Each Borrower hereby irrevocably designates,
makes, constitutes and appoints Lender (and any of Lender's officers, employees
or agents designated by Lender) as Borrower's true and lawful attorney-in-fact.
Pursuant to this power of attorney, Lender, or Lender's agent, may, without
notice to Borrowers and in either a Borrower's or Lender's name, but at the
reasonable cost and expense of Borrowers, at such time or times as Lender in its
reasonable discretion may determine: (a) send notifications to Account Debtors
requiring that payment of all Accounts be sent to Lender or a lockbox designated
by Lender, and upon the occurrence and continuation of an Event of Default,
enforce payment of the Accounts by legal proceedings or otherwise, and generally
exercise all of either Borrower's rights and remedies with respect to the
collection of the Accounts; (b) take control, in any manner, of any item of
payment or proceeds relating to any Collateral; (c) upon the occurrence and
continuation of an Event of Default, prepare, file and sign either Borrower's
name to a proof of claim in bankruptcy or similar document against any Account
Debtor or to any notice of lien, assignment or satisfaction of lien or similar
document in connection with any of the Collateral; (d) sign Borrowers' names on
and/or file any of documents described in Section 5.5.3 or on any other similar
documents to be executed, recorded or filed in order to perfect or continue
perfected Lender's security interest in the Collateral; (e) upon the occurrence
and continuation of an Event of Default, sign either Borrowers' name on any
invoices, bills of lading, freight bills, chattel paper, documents, instruments
or similar documents or agreements relating to the Accounts, Inventory or other
Collateral, drafts against Account Debtors, schedules and assignments of
Accounts, verifications of Accounts and notices to Account Debtors; (f) send
requests for verification of Accounts; (g) endorse Borrower's name on any
checks, notes, acceptances, money orders, drafts or other items of payment or
proceeds relating to any Collateral that may come into Lender's possession and
deposit the same to the account of Lender for application to the Obligations;
(h) upon the occurrence and continuation of an Event of Default, do all other
acts and things necessary, in Lender's determination, to fulfill either
Borrower's obligations under this Agreement or any of the other Loan Documents;
(i) upon the occurrence and continuation of an Event of Default, notify the post
office authorities to change the address for delivery of either Borrower's mail
to an address designated by Lender, to receive and open all mail addressed to
either Borrower, and to retain all mail relating to the Collateral and forward
all other mail to Borrowers; (j) upon the occurrence and continuation of an
Event of Default, use the information recorded on or contained in any data
processing equipment and computer hardware and software relating to the
Accounts, Inventory, Equipment and any other Collateral and to which either
Borrower has access; (k) upon the occurrence and continuation of an Event of
Default, make, settle and adjust all claims under either Borrower's policies of
insurance relating to the Collateral, make all determinations and decisions with
respect to such policies of insurance and endorse the name of either Borrower on
any check, draft, instrument or other item of payment for the proceeds of
21
such policies of insurance; (l) upon the occurrence and continuation of an Event
of Default, sell or assign any of the Accounts and other Collateral upon such
terms, for such amounts and at such time or times as Lender deems advisable; and
(m) upon the occurrence and continuation of an Event of Default, settle, adjust
or compromise disputes and claims respecting the Accounts directly with Account
Debtors, for amounts and upon terms that Lender determines to be reasonable,
and, in furtherance thereof, execute and deliver any documents and releases that
Lender determines to be necessary. The appointment of Lender as each Borrower's
attorney-in-fact and each and every one of Lender's rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully repaid and performed and this Agreement has been terminated.
Notwithstanding anything contained herein to the contrary, any actions
taken by Lender to enforce or realize on its security under this Agreement shall
be subject to all applicable laws, including but not limited to the PPSA and
BIA.
5.5 RIGHT TO INSPECT. Lender, through any of its officers, employees
or agents, shall have the right at any time or times during the applicable
Borrower's usual business hours, or during the usual business hours of any third
party having control over any of either Borrower's Business Records, to inspect
the Business Records in order to verify the amount or condition of, or any other
matter relating to, the Collateral or either Borrower's financial condition.
Lender also shall have the right at any time or times during the applicable
Borrower's usual business hours to inspect and examine the Inventory and the
Equipment and to check and test the same as to quality, quantity, value and
condition. If an Event of Default has occurred or if Lender reasonably believes
that an Event of Default has occurred, Lender may conduct any of the inspections
referenced in this Section 5.5 at any time without regard to the applicable
Borrower's or any third party's usual business hours.
6. REPRESENTATIONS AND WARRANTIES
In order to induce Lender to make Loans as provided in this
Agreement and to accept any Notes, each Borrower individually represents and
warrants to Lender as follows:
6.1 ORGANIZATION. Parent is a Corporation duly organized and
existing under the laws of the State of Ohio, and Subsidiary is a corporation
duly organized and existing under the laws of Canada and the execution, delivery
and performance of the Loan Documents, including this Agreement and the issuance
of the Note as provided in this Agreement are within Borrower's corporate
powers, have been duly authorized, are not in contravention of law or the terms
of the Borrower's articles of incorporation, bylaws, charter or other formation
and organizational documents and do not require the consent or approval of any
governmental body, agency or authority. The Borrower is duly licensed or
qualified to do business in all jurisdictions in which the Borrower has
substantial property or business operations, except where any failure to be
licensed or qualified would not have a Material Adverse Effect on Borrower's
assets or business.
22
6.2 FINANCIAL STATEMENTS. Borrower's balance sheets and the
statements of profit and loss and surplus furnished to Lender from time to time
will be in all material respects correct and complete and will fairly present
Borrower's financial condition as of the relevant dates and the results of its
operations for the applicable time periods.
6.3 LIENS. Except for Permitted Liens, the Borrower has good and
marketable title to all its assets, including all Collateral, free and clear of
all liens and encumbrances.
6.4 ABSENCE OF CONFLICTING OBLIGATIONS. The making and execution of
the Loan Documents and compliance with its terms and the issuance of the Notes
will not result in a breach of any of the terms and conditions of or result in
the imposition of any lien, charge, or encumbrance upon any property of the
Borrower pursuant to, or constituting a default under, any indenture or other
agreement or instrument to which the Borrower is a party or by which it is
bound. Notwithstanding anything to the contrary contained in this Section 6.4 of
this Agreement, Borrower may pay the "Contingency Payment" referred to in
Section 4 of that certain Termination Agreement of approximate date hereof
between Parent and certain of its prior lenders according to the terms of such
agreement.
6.5 TAXES. Borrower has no outstanding unpaid tax liabilities
(except for taxes which are currently accruing from its current operations and
ownership of property, and which are not delinquent), and no tax deficiencies
have been proposed or assessed against Borrower. There have been no audits of
Borrower's federal income tax returns, which have resulted in or are likely to
result in the assessment of any material tax liability against Borrower and all
taxes shown by any returns have been paid.
6.6 ABSENCE OF MATERIAL LITIGATION. Except as set forth on Schedule
6.6, the Borrower is not a party to any litigation or administrative proceeding,
nor so far as is known by the Borrower is any litigation or administrative
proceeding threatened against it, which in either case would, if adversely
determined, cause any material adverse change in its properties or the conduct
of its business.
6.7 ABSENCE OF ENVIRONMENTAL PROBLEMS. Except as disclosed in
writing to Lender, the Borrower is in full and complete compliance with all
Environmental Laws involving Borrower's past or present operations, facilities
and property. Further, Borrower has not been cited for violating any applicable
Environmental Laws and Borrower has, to the best of its knowledge, all necessary
environmental permits and licenses to operate its business, except for any
non-compliance that would not have a Material Adverse Effect on Borrower's
assets or business.
6.8 LEGAL NAME. Borrower's full legal name is exactly as set forth
on the signature page of this Agreement and Borrower has not used its name since
the date of its organization, nor has it used any assumed name, tradename, or
tradestyle; provided, however, Parent has previously used the name Transmation,
Inc.
6.9 FINANCING STATEMENTS. Except for financing statements covering
Permitted Liens and Lender's liens, no financing statements covering any
Collateral,
23
proceeds of Collateral, or any other of Borrower's property are on file in any
public office.
6.10 ERISA. No Reportable Event has occurred with respect to any
Plan.
6.11 BROKER'S FEES. Except as set forth on Schedule 6.11, Borrower
has made no commitment, and has taken no action, that could result in a claim
for any brokers', finders', or similar fees or commitments in respect to the
transactions described in this Agreement. Borrower agrees to pay all finders'
fees or similar fees payable to any persons or entities in connection with this
Agreement and to defend and hold Lender harmless against any and all such fees.
6.12 PRINCIPAL PLACE OF BUSINESS.
(a) Borrower's principal place of business, records
concerning the Collateral and all other Business Records are located at
or about the address set forth at the beginning of this Agreement; and
(b) Borrower will provide Lender with 30 days prior written
notice of any change with respect to any of the foregoing.
6.13 FULL DISCLOSURE. This Agreement and all of the Exhibits,
Schedules and other written material delivered by the Borrower to Lender in
connection with the transactions contemplated by this Agreement do not contain
any statement that is false or misleading with respect to any material fact and
do not omit to state a material fact necessary in order to make the statements
therein not false or misleading. There is no additional fact that the Borrower
is aware of that has not been disclosed in writing to Lender that materially
affects adversely or, so far as the Borrower can reasonably foresee, will
materially affect adversely the Borrower's financial condition or business
prospects.
6.14 NON-AFFILIATION. Borrowers are not affiliated with an Ontario
corporation known as "Transcat Inc.," Ontario Corporation number 1440105,
however Subsidiary is authorized to use "Transcat" as a tradename in Canada.
6.15 INTELLECTUAL PROPERTY. The Borrower owns or possesses adequate
licenses or other rights to use all patents, processes, trademarks, trade names,
and copyrights necessary to conduct its business as now conducted or presently
intended to be conducted and the Borrower has no reason to believe that any such
rights conflict or will conflict with the rights of others. All of Borrower's
patents, trademarks and copyrights are described in the Collateral Assignment of
Intellectual Property and Security Agreement executed by Borrower in favor of
Lender in connection with this Agreement.
6.16 COMPLIANCE WITH LAW. Except where failure to comply would not
have a Material Adverse Effect on Borrower's assets or business, Borrower is in
compliance with all laws and regulations applicable to it, its business and
properties. Borrower has all licenses, permits, orders and approvals that are
required under any governmental
24
law or regulation in connection with the Borrower's business and properties
("Permits"). No notice of any violation has been received with respect of any
Permits and no proceeding is pending or, to the best of the Borrower's
knowledge, threatened to terminate, revoke or limit any Permits.
6.17 ACCOUNTS. All of Borrower's Accounts constitute bona fide
existing obligations created by the sale and delivery of Inventory or the
rendition of services to Account Debtors in the ordinary course of Borrower's
business, and, in the case of Accounts created by the sale and delivery of
Inventory, the Inventory giving rise to such Accounts has been delivered to the
Account Debtor. At the time of the creation of each Eligible Account or the
assignment thereof to Lender, each such Eligible Account is unconditionally owed
to Borrower without defense, dispute, offset, counterclaim or right of return or
cancellation and Borrower has not received notice of actual or imminent
bankruptcy, insolvency or material impairment of the financial condition of the
Account Debtor regarding such Eligible Account.
6.18 LABOR MATTERS. No strikes or other labor disputes against
Borrower are pending or, to Borrower's knowledge, threatened. To the best of
Borrowers knowledge, hours worked by and payment made to employees of Borrower
have not been in violation of the Fair Labor Standards Act or any other
applicable federal, state, local or foreign law dealing with such matters. All
payments due from Borrower on account of employee health and welfare insurance
have been paid or accrued as a liability on the books of Borrower. Except as set
forth in Schedule 6.18, Borrower has no obligation under any collective
bargaining agreement, management agreement, consulting agreement or any
employment agreement. There is no organizing activity involving Borrower pending
or, to Borrower's knowledge, threatened by any labor union or group of
employees. Except as set forth in Schedule 6.18, there are no representation
proceedings pending or, to Borrower's knowledge, no group of employees of
Borrower has made a pending demand for recognition. Except as set forth in
Schedule 6.18, there are no complaints or charges against Borrower pending or
threatened to be filed with any federal, state, local or foreign court,
governmental agency or arbitrator based on, arising out of, in connection with,
or otherwise relating to the employment or termination of employment by Borrower
of any individual.
6.19 SUBSIDIARIES. Except as set forth on Schedule 6.19, Borrower has
no subsidiaries (other than Parent which has one subsidiary, namely the
Subsidiary) and is not engaged in any joint venture or partnership with any
other person, or is an affiliate of any other person. Except as set forth on
Schedule 6.19, there are no outstanding rights to purchase options, warrants or
similar rights or agreements pursuant to which Borrower may be required to issue
or sell any of its stock or other equity securities.
6.20 DEPOSIT ACCOUNTS. Schedule 6.20 lists all banks and other
financial institutions at which Borrower maintains deposits and/or other
accounts, including any disbursement accounts, and Schedule 6.20 correctly
identifies the name, address and telephone number of each depository, the name
in which the account is held, a description of the purpose of the account, and
the complete account number.
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6.21 CUSTOMER RELATIONS. There exists no actual or, to Borrower's
knowledge, threatened termination or cancellation of, or any material adverse
modification or change in: (a) the business relationship of Borrower with any
customer or group of customers whose purchases during the preceding twelve (12)
months caused them to be ranked among the ten largest customers of Borrower; or
(b) the business relationship of Borrower with any supplier material to the
operations of Borrower. The ratings ("Customer Ratings") assigned to Borrower by
its customers and any other applicable customer have not been withdrawn,
rescinded or downgraded in the past twelve (12) months, nor has Borrower
received any notice of any adverse action taken or proposed to be taken by any
customer in respect of any Customer Ratings.
6.22 SUPPLY PROGRAMS. Borrower does not (a) participate in any
resale, "off-load" or other programs under which any of Borrower's customers (or
any affiliates of any customer) sell or supply Inventory to Borrower, including
without limitation, on a bailment, consignment or another basis, and (b)
purchase Inventory on a consignment, trial, or sale or return or similar basis.
6.23 SPECIAL RETURN PROGRAMS. Other than allowing customers to return
unused Inventory purchased in the past 30 days if such Inventory in the original
packaging, in the ordinary course of business Borrower does not allow customers
to return goods (including used goods) for credit against amounts owing to
Borrower.
6.24 INTEGRATED OPERATIONS. The Borrowers operate as an integrated
entity and share business operations, functions and services, including sales,
marketing, finance, accounting, management, quality control and shipping.
Likewise, the Borrowers historically have managed all cash on a divisional basis
and presently handle all receipts and disbursements on a divisional basis and it
is not practicable for Borrowers to manage cash on an individual Borrower basis.
As a result of the foregoing, each Borrower will benefit in a direct and
substantial way from Loans and advances made by Lender to the Borrowers together
and, but for Lender making Loans to the other Borrower and such other Borrower
being able to provide business services to the other Borrower, each Borrower's
business operations would be materially and negatively impacted.
7. NEGATIVE COVENANTS
While any of the Obligations remain unpaid, each Borrower must not agree
to and must not (without Lender's prior written consent):
7.1 RESTRICTION ON LIENS. Except for Permitted Liens, create or
permit to be created or allow to exist any mortgage, pledge, encumbrance, or
other lien upon or security interest in any property or assets now owned or
acquired in the future by the Borrower.
7.2 RESTRICTION ON INDEBTEDNESS. Create, incur, assume, or have
outstanding any indebtedness for borrowed money except:
(a) The Obligations;
26
(b) Indebtedness incurred in the ordinary course of
Borrower's business for necessary materials, supplies, etc., all of
which (other than items disputed in good faith) must be due not more
than 90 days from the date of invoice and none of which may be more than
60 days past due;
(c) Indebtedness for Permitted Liens.
(d) Indebtedness consented to by Lender, and if required by
Lender, subordinated to the Obligations pursuant to subordination
agreements acceptable to Lender;
(e) Subject to the Capital Expenditure limitations in this
Agreement, indebtedness incurred in connection with the purchase or
lease of Equipment.
7.3 MERGERS; CONSOLIDATIONS; DISPOSITION OF ASSETS. Merge with or
into or consolidate with or into any other corporation or entity; or sell,
lease, transfer or otherwise dispose of all or any part of its property, assets
or business (other than by sales of Inventory or Equipment permitted by this
Agreement).
7.4 SALE AND LEASEBACK. Enter into an agreement under which Borrower
leases or purchases any property that Borrower has sold or is to sell.
7.5 DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS. Except for dividends
payable in shares of its stock, pay or declare any dividend, or make any other
distribution on account of any shares of any class of its stock, or redeem,
purchase, or otherwise acquire directly or indirectly, any shares of any class
of its capital stock.
7.6 INVESTMENTS. Make any loans or advances to, or investments in,
other persons, corporations or entities, except:
(a) investments in (i) bank certificates of deposit and
savings Accounts; (ii) obligations of the United States; and (iii) prime
commercial paper maturing within 90 days of the date of acquisition by
the Borrower.
(b) loans and advances made to employees and agents in the
ordinary course of business, such as travel and entertainment advances
and similar items, not to exceed in the aggregate $25,000 outstanding at
any time.
7.7 CONTINGENT LIABILITIES. Guarantee or become a surety or
otherwise contingently liable for any obligations of others, except pursuant to
the deposit and collection of checks and similar items in the ordinary course of
business.
7.8 SALARIES AND OTHER COMPENSATION. Pay salaries, bonuses, profit
sharing payments, consulting or management fees, or any other compensation
(other than historical base salaries) of any kind to Borrower's members,
shareholders, affiliates, officers or directors which is not consistent with the
compensation plans provided to Lender prior to the date of this Agreement or
increase officers' base salaries by more than 10% in any calendar year.
27
7.9 STOCK. Except as set forth on Schedule 7.9, pledge, hypothecate
or otherwise encumber or sell or otherwise transfer any shares of any class of
its capital stock or make any change in Borrower's capital structure.
7.10 NATURE OF BUSINESS. Make any substantial change in the nature of
its business from that engaged in on the date of this Agreement or engage in any
other businesses other than those engaged in on the date of this Agreement.
7.11 INSIDER TRANSACTIONS. Except as set forth on Schedule 7.11,
enter into, or permit or suffer to exist, any transaction or arrangement with
any shareholder, member, employee, director, officer, affiliate, or member of
management, except on terms that are reasonably comparable to what Borrower
could obtain in arm's-length transactions, with persons who have no relationship
with Borrower.
7.12 CAPITAL EXPENDITURES. Exclusive of expenditures for Big Cat,
make or incur liabilities for Capital Expenditures exceeding $300,000 in fiscal
year 2003 (ending March 31, 2003), or $500,000 in subsequent fiscal year 2004
(ending March 31, 2004), $1,500,000 in fiscal year 2005 (ending March 31, 2005)
and $400,000 during the period April 1, 2005 to the end of the Term.
7.13 CATALOGUE SPENDING. Exclusive of the amortization of any prepaid
expenses related to the development, printing and mailing of Big Cat, spend in
excess of the following amounts for the development, printing and mailing of Big
Cat in the applicable fiscal year:
Fiscal 2003 zero
Fiscal 2004 $850,000
Fiscal 2005 zero
8. AFFIRMATIVE COVENANTS
While any of the Obligations remain unpaid, each Borrower must at all
times:
8.1 INSURANCE. Maintain adequate fire and extended coverage and
liability insurance covering all of its present and future real and personal
property, including the Collateral, with Lender's loss payable and
noncontributory mortgagee/secured party clauses in Lender's favor, protecting
Lender's interest, as such interest may appear, together with such policies of
business interruption insurance and products liability insurance as Lender may
reasonably request and insurance in accordance with all applicable workers'
compensation laws. Such insurance must be in such form, with such companies, and
in such amounts as is reasonably acceptable to Lender, insuring against
liability for damage to persons or property, and must provide for thirty (30)
days prior written notice to Lender of cancellation or material alteration.
Borrower must provide Lender with the original policies of insurance for all
such coverages, true copies of the policies or other proof of insurance
reasonably acceptable to Lender, showing that Lender's interest has properly
been endorsed on the applicable policy. Lender may, in its sole discretion, on
30 days written notice to the Borrowers, require the
28
Borrowers to obtain additional or different insurance coverages as Lender may
reasonably request.
8.2 EXISTENCE; PAYMENT OF TAXES AND OTHER LIABILITIES. Maintain its
corporate existence and pay all taxes, assessments and other governmental
charges against it or its property, and all of its other liabilities, before the
same become delinquent and before penalties accrue on these debts and
obligations except to the extent and so long as the same are being contested in
good faith by appropriate proceedings in such manner as not to cause any
material adverse effect upon its financial condition, with adequate reserves
provided for such payments, and, upon demand by Lender, posting with Lender of
adequate security to protect Lender.
8.3 ACCOUNTING RECORDS; REPORTS. Maintain a standard and modern
system for accounting in accordance with generally accepted accounting
principles consistently applied throughout all accounting periods, and furnish
to Lender:
(a) With each request for a Revolving Loan but no less
frequently than the last Business Day of each week, borrowing base
certificates (each, a "Borrowing Base Certificate") as of the close of
business of the preceding day in a form acceptable to Lender.
(b) On a daily basis, sales registers (which shall include
credits issued or taken).
(c) Within 20 calendar days after the end of each month, as
of the last day of the preceding month, aging and summary reports of
Accounts and accounts payable in such form and detail as Lender may
request.
(d) Within 20 calendar days of each month end, a perpetual
Inventory listing in such form and detail as Lender may reasonably
request.
(e) Within 30 calendar days after the end of each month of
each fiscal year, a consolidated balance sheet of the Borrowers as of
the close of each such month and of the comparable month in the
preceding fiscal year, and statements of income and surplus of the
Borrowers for each month and for that part of the fiscal year ending
with each such month and for the corresponding period of the preceding
fiscal year, all in reasonable detail and certified as true and correct
(subject to audit and normal year-end adjustments) by the chief
financial officer of the Borrowers.
(f) As soon as available and in any event within 90 calendar
days after the close of each fiscal year of Borrowers, a copy of
Borrowers' consolidated detailed long-form audit report for such year
and accompanying financial statements, as prepared by independent
certified public accountants of recognized standing selected by the
Borrowers and reasonably acceptable to Lender, together with all
management letters, which report shall be accompanied by an unqualified
opinion of such accountants, in form satisfactory to Lender, to
29
the effect that the financial statements fairly present the financial
condition of the Borrowers and the results of its operations as of the
relevant dates.
(g) Within 90 calendar days after the end of each fiscal
year of Borrowers, a schedule showing all insurance policies which the
Borrowers had in force as of the end of such fiscal year, signed by an
officer of the Borrowers.
(h) (1) As soon as possible and in any event within 30
calendar days after Borrower knows that any Reportable Event with
respect to any Plan has occurred, a statement of the chief financial
officer of the Borrowers setting forth details as to such Reportable
Event and the action which the Borrowers propose to take with respect to
the Reportable Event, together with a copy of the notice of such
Reportable Event given to the Pension Benefit Guaranty Corporation, (2)
promptly after the filing with the United States Secretary of Labor or
the Pension Benefit Guaranty Corporation, copies of each annual report
with respect to each Plan administered by the Borrower, promptly after
receipt, a copy of any notices the Borrowers may receive from the
Pension Benefit Guaranty Corporation or the Internal Revenue Service
with respect to any Plan administered by the Borrowers; provided,
however, this subpart shall not apply to notices of general application
promulgated by the Pension Benefit Guaranty Corporation or the Internal
Revenue Service; and (4) within five Business Days of filing, copies of
any filings made with the Securities and Exchange Commission, NASDAQ or
any other regulatory or governmental agency.
(i) At least 30 calendar days prior to the end of each
fiscal year end, preliminary pro forma cash flow, profit and loss and
balance sheet forecasts for the succeeding 12 month period subject to
revision by Parents' board of directors within 30 days of the fiscal
year end).
(j) Within each monthly financial statement delivered by
Borrowers, a letter of "covenant compliance" regarding Borrowers'
obligations under this Agreement, delivered to Lender and prepared, in
form and substance acceptable to Lender, signed by an officer of
Borrowers.
(k) Unless sooner requested by Lender, within 90 days of
each fiscal year end, a listing of the names and addresses of each
Borrower's customers during the prior 12 months.
(l) All other reports, documents and information that Lender
may reasonably request.
8.4 INSPECTIONS. Permit Lender's representatives to visit and
inspect any of Borrowers' properties and premises and examine, copy (by
electronic or other means) and abstract any Business Records and Collateral
records at any reasonable time, during business hours, and as often as may be
reasonably desired.
8.5 LITIGATION. Promptly furnish Lender, in writing, the details of
all material litigation, legal or administrative proceedings, or other actions
of any nature adversely
30
affecting either Borrower, including, without limitation, any notices of
violation, citation, commencement of administrative proceeding or similar notice
under any applicable Environmental Laws, commenced after the date hereof, in
which more than $50,000.00 is at issue.
8.6 AUDITS AND EXAMINATIONS. Permit Lender's representatives to
conduct on-site audits and examinations (an "Examination") of Borrowers'
business operations and Business Records as often as Lender desires. Borrowers
will pay $850 per day per auditor plus out-of-pocket expenses incurred by Lender
for each Examination performed by or on behalf of Lender.
8.7 COMPLIANCE WITH LAWS. Comply in all respects with all material
applicable laws and regulations, in effect from time to time, including without
limitation all applicable environmental laws and regulations.
8.8 MAINTENANCE OF PROPERTIES. Maintain and preserve all of its
properties that are necessary or useful in the proper conduct of its business in
good working order and condition, ordinary wear and tear excepted, and comply at
all times with the provisions of all leases to which it is a party as lessee or
under which it occupies property, so as to prevent any loss or forfeiture
thereof or thereunder.
8.9 FURTHER ASSURANCES. At Lender's request, promptly execute or
cause to be executed and delivered to Lender any and all documents, instruments
and agreements deemed necessary or appropriate to facilitate the collection of
any of the Collateral, or otherwise to give effect to or carry out the terms,
conditions or intent of this Agreement (or any agreements or documents referred
to or incorporated herein).
8.10 DOMINION OF FUNDS. All collections of any nature and kind,
including payments and deposits received by Lender and proceeds subject to the
liens and security interests of Lender, including, without limitation, proceeds
realized from the Collateral, will be turned over to Lender in the form received
or, if applicable, deposited into a lockbox or blocked account designated by
Lender.
8.11 EBITDA COVENANT. Achieve EBITDA of at least $1.6 million for the
3 fiscal quarters ended December 31, 2002 and $2.5 million at the end of each
fiscal quarter thereafter on a trailing 4 fiscal quarter basis.
9. DEFAULTS
Without limiting the discretionary nature of Lender's agreement to make
Revolving Loans, if any one or more of the following events (each an "Event of
Default" and collectively, "Events of Default") occurs, then Lender's obligation
to make or accept any Note or any Loan under this Agreement will, at Lender's
option, immediately terminate, and the unpaid principal balance of, and accrued
interest on, all Obligations will be immediately due and payable, without
further notice of any kind, notwithstanding anything contained to the contrary
in this Agreement or in any other agreement, Note or document:
31
9.1 DEFAULT IN PAYMENT OF OBLIGATIONS. The Borrowers fail to make a
payment of any principal or interest when and as due on any Note or any other
Obligations, including the Expenses.
9.2 DEFAULT UNDER LOAN DOCUMENTS. A default in the performance or
observance of any term, condition or covenant in any Loan Document required to
be observed or performed by either Borrower and which if curable (except for the
providing of timely Borrowing Base Certificates or financial reporting called
for by Section 8.3 which shall not be subject to a cure period), is cured within
5 days after Borrowers' receipt of notice of such default.
9.3 REPRESENTATIONS OR STATEMENTS FALSE. Any representation or
warranty made by either Borrower in this Agreement or any certificate delivered
in accordance with this Agreement, or any financial statement delivered to
Lender proves to have been false in any material respect as of the time when
made or given.
9.4 DEFAULT ON OTHER DEBT. Either Borrower fails to pay all or any
part of the principal of or interest on any indebtedness of or assumed by the
Borrower for borrowed money as and when due and payable, whether at maturity, by
acceleration or otherwise, and such default is not cured within the period of
grace, if any, specified in the documents(s) evidencing such indebtedness.
9.5 JUDGMENTS. A judgment is entered against either Borrower which,
together with other outstanding judgments entered against the Borrowers, exceeds
in the aggregate $100,000, and remains outstanding and unsatisfied, unbonded or
unstayed for 10 days after the date of entry of such judgment.
9.6 BANKRUPTCY; INSOLVENCY. Either Borrower: (a) becomes insolvent;
or (b) is unable, or admits in writing its or their inability to pay debts as
they generally mature; or (c) makes a general assignment for the benefit of
creditors or to an agent authorized to liquidate any substantial amount of its
or their property; or (d) files on its behalf or consents to an Insolvency
Proceeding; or (e) has an Insolvency Proceeding filed or instituted against it
that is not stayed or dismissed within 30 days after it is filed or instituted;
or (f) applies to a court for the appointment of a receiver, trustee or
custodian for any of its or their assets; or (i) has a receiver, trustee or
custodian appointed for any of its or their assets (with or without their
respective consent). Provided, however, this Agreement will be deemed terminated
immediately upon the entry of an order for relief in any proceeding under title
11 of the United States Code without any action by Lender and in the event of an
involuntary proceeding under such statute, Lender will be under no obligation to
continue financing hereunder from and after the involuntary proceeding.
9.7 REPORTABLE EVENT. If any Reportable Event occurs and continues
for 30 days or any Plan is terminated within the meaning of Title IV of ERISA,
or a trustee is appointed by the appropriate United States District Court to
administer any Plan, or the Pension Benefit Guaranty Corporation institutes
proceedings to terminate any Plan or to appoint a trustee to administer any
Plan.
32
9.8 MATERIAL LOSS OR MATERIAL ADVERSE EFFECT. Either Borrower
suffers: (i) a casualty as to any material asset or assets used in the conduct
of such Borrower's business which is not, except for deductibles acceptable to
Lender, fully covered by insurance conforming to the requirements of this
Agreement; or (ii) an event or occurrence that results in a Materially Adverse
Effect.
9.9 GOVERNMENT LIEN. A notice of lien, levy or assessment is filed
of record with respect to any of Borrower's assets by the United States' or
Canadian government, or any department, agency or instrumentality thereof, or by
any state, province, county, municipal or other governmental agency or any tax
or debt owing at any time hereafter to anyone becomes a lien, whether choate or
otherwise, upon any of either Borrower's assets and the same is not paid on the
payment date thereof and, unless such lien, levy or assessment could in Lender's
counsel's reasonable opinion, take priority over Lender's security interest,
Borrowers do not obtain a release or discharge the same within 30 days after
notice or filing of the same.
9.10 MATERIAL IMPAIRMENT. There is a material impairment of the value
or priority of Lender's security interests in the Collateral.
9.11 LEVY OR ATTACHMENT. Any material portion of Borrowers' assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any judicial officer.
9.12 CANADIAN BLOCKED ACCOUNT. Subsidiary fails to setup a
lockbox/blocked account arrangement reasonably acceptable to Lender by December
15, 2002 to provide for the processing of collections of Canadian Accounts and
the forwarding of proceeds to Lender.
9.13 WINDDOWN OF SUBSIDIARIES. Borrower fails to cause the winddown
of its three subsidiaries, Transcat FSC, Inc., Transmation Singapore Pte. Ltd.,
and Transmation Australia Pty. Ltd, and the transfer of all available assets to
Borrower by March 15, 2003.
10. REMEDIES ON OCCURRENCE OF AN EVENT OF DEFAULT
10.1 RIGHT AND REMEDIES. Upon the occurrence of an Event of Default
(not cured within the time or grace period specifically provided in Section 9)
and subject to any provisions of the PPSA or the Bankruptcy and Insolvency Act
(Canada) applicable to Subsidiary or its assets, Lender has all rights and
remedies provided by law, and all such rights and remedies granted under any
security agreement relating to the Collateral, and under all other existing and
future agreements between Lender and the Borrowers. All such rights and remedies
are cumulative. Upon the occurrence of an Event of Default, Lender may, at its
election, without notice of its election and without demand, do any one or more
of the following, all of which are authorized by Borrowers:
(a) Declare all Obligations, whether evidenced by this
Agreement, a Note, any of the other Loan Documents or otherwise,
immediately due and payable in full;
33
(b) Cease making Loans or advances under this Agreement, any
of the other Loan Documents or any other agreement between either
Borrower and Lender;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Lender, but
without affecting Lender's rights, security interests and mortgages in
the Collateral and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which Lender considers advisable
and, in such cases, Lender will credit Borrowers' loan account with
only the net amounts received by Lender in payment of such disputed
Accounts, after deducting all Expenses incurred or expended in
connection therewith;
(e) Cause Borrowers to hold all returned Inventory in trust
for Lender, segregate all returned Inventory from all other property of
Borrowers or in Borrowers' possession and conspicuously label said
returned Inventory as the property of Lender;
(f) Without notice to or demand upon Borrowers, make such
payments and do such acts as Lender considers necessary or reasonable to
protect its security interest in the Collateral. Borrowers agree to
assemble the Collateral if Lender so requires and to deliver or make the
Collateral available to Lender at a place designated by Lender.
Borrowers authorize Lender to enter any premises where the Collateral is
located, to take and maintain possession of the Collateral, or any part
of it, and to pay, purchase, contest or compromise any encumbrance,
charge or lien that in Lender's determination appears to be prior or
superior to its security interest and to pay all expenses incurred in
connection therewith;
(g) Subject to any requirements or limitations under the
PPSA or the BIA applicable to Subsidiary or its assets, without notice
to Borrowers (such notice being expressly waived) and without
constituting a retention of any Collateral in satisfaction of an
obligation (within the meaning of the Uniform Commercial Code or the
PPSA, as applicable), hold or set off and apply to the Obligations any
and all (i) balances and deposits of Borrowers held by Lender (including
any amounts received in a lockbox or blocked account), or (ii)
indebtedness at any time owing to or for the credit or the account of
Borrowers held by Lender;
(h) Subject to any requirements or limitations under the
PPSA or the BIA applicable to Subsidiary or its assets, hold, or set off
and apply, as cash collateral, any and all balances and deposits of
either Borrower held by Lender (including any amounts received in a
lockbox or blocked account) to secure the Obligations;
(i) Subject to any requirements or limitations under the
PPSA or the BIA applicable to Subsidiary or its assets, ship, reclaim,
recover, store, finish,
34
maintain, repair, prepare for sale, advertise for sale and sell the
Collateral (in the manner provided for herein). Lender is hereby granted
a license and right to use, without charge, Borrower's respective
labels, patents, copyrights, rights of use of any name, trade secrets,
trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in
completing production of, advertising for sale and selling any
Collateral. Borrowers' rights under all licenses and all franchise
agreements shall inure to Lender's benefit;
(j) Subject to any requirements or limitations under the
PPSA or the BIA applicable to Subsidiary or its assets, sell the
Collateral at either a public or private sale, or both, by way of one or
more contracts or transactions, for cash or on terms, in such manner and
at such places (including Borrowers' premises) as Lender determines is
commercially reasonable. It is not necessary that the Collateral be
present at any such sale;
(k) Subject to any requirements or limitations under the
PPSA or the BIA applicable to Subsidiary or its assets, Lender shall
give notice of the disposition of the Collateral as follows:
(1) Lender shall give the Borrowers and each holder
of a security interest in the Collateral who has filed with
Lender a written request for notice, a notice in writing of the
time and place of public sale or, if the sale is a private sale
or some other disposition other than a public sale is to be
made, then the time on or after which the private sale or other
disposition is to be made;
(2) The notice will be personally delivered or
mailed, postage prepaid, to Borrowers as provided in Section
12.8, at least ten Business Days before the date fixed for the
sale, or at least ten Business Days before the date on or after
which the private sale or other disposition is to be made,
unless the Collateral is perishable or threatens to decline
speedily in value. Notice to persons other than Borrowers
claiming an interest in the Collateral shall be sent to such
addresses as they have furnished to Lender;
(l) Subject to any requirements or limitations under the
PPSA or the BIA applicable to Subsidiary or its assets, Lender may
credit bid and purchase at any public sale;
(m) Subject to any requirements or limitations under the
PPSA or the BIA applicable to Subsidiary or its assets, any deficiency
that exists after disposition of the Collateral as provided above shall
be paid immediately by Borrowers. Any excess will be remitted without
interest by Lender to the party or parties legally entitled to such
excess; and
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(n) In addition to the foregoing, Lender shall have all
rights and remedies provided by law and any rights and remedies
contained in any other Loan Documents. All such rights and remedies
shall be cumulative.
10.2 NO WAIVER. No delay on the part of Lender in exercising any
right, power or privilege under this Agreement or any Loan Document shall
operate as a waiver, nor shall any single or partial exercise of any right,
power or privilege under this Agreement or otherwise, preclude other or further
exercise of the right, power or privilege or the exercise of any other right,
power or privilege.
11. CROSS-GUARANTY.
11.1 GUARANTY. Each Borrower hereby acknowledges and agrees that such
Borrower is jointly and severally liable for, and hereby absolutely and
unconditionally guarantees to Lender and its successors and assigns, the full
and prompt payment (whether at stated maturity, by acceleration or otherwise)
and performance of, all Obligations owed or hereafter owing to Lender by the
other Borrowers. Each Borrower agrees that its guaranty obligation hereunder is
a guaranty of payment and performance and not of collection, and that its
obligations under this Section 11 shall be absolute and unconditional,
irrespective of, and unaffected by,
(a) the genuineness, validity, regularity, enforceability or
any future amendment of, or change in, this Agreement, any other Loan
Document or any other agreement, document or instrument to which any
Borrower is or may become a party;
(b) the absence of any action to enforce this Agreement
(including this Section 11) or any other Loan Document or the waiver or
consent by Lender with respect to any of the provisions thereof; or
(c) the existence, value or condition of, or failure to
perfect its lien or security interest against, any security for the
Obligations or any action, or the absence of any action, by Lender in
respect thereof (including, without limitation, the release of any such
security); or
(d) any other action or circumstances which might otherwise
constitute a legal or equitable discharge or defense of a surety or
guarantor, it being agreed by each Borrower that its obligations under
this Section 11 shall not be discharged until the payment and
performance, in full, of the Obligations has occurred. Each Borrower
shall be regarded, and shall be in the same position, as principal
debtor with respect to the Obligations guaranteed hereunder. Each
Borrower expressly waives all rights it may have now or in the future
under any statute, or at common law, or at law or in equity, or
otherwise, to compel Lender to proceed in respect of the Obligations
guaranteed hereunder against any other Borrower or any other party or
against any security for the payment and performance of the Obligations
before proceeding against, or as a condition to proceeding against, such
Borrower. Each Borrower agrees that any notice or
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directive given at any time to Lender which is inconsistent with the
waiver in the immediately preceding sentence shall be null and void and
may be ignored by Lender, and, in addition, may not be pleaded or
introduced as evidence in any litigation relating to this Agreement
(including this Section 11) for the reason that such pleading or
introduction would be at variance with the written terms of this
Agreement (including this Section 11), unless Lender has specifically
agreed otherwise in writing. It is agreed among each Borrower and Lender
that the foregoing waivers are of the essence of the transaction
contemplated by this Agreement and the other Loan Documents and that,
but for the provisions of this Section 11 and such waivers, Lender would
decline to enter into this Agreement.
11.2 DEMAND BY LENDER. In addition to the terms of the guaranty set
forth in Section 11.1 hereof, and in no manner imposing any limitation on such
terms, it is expressly understood and agreed that, if the then outstanding
principal amount of the Obligations under this Agreement (together with all
accrued interest thereon) is declared to be immediately due and payable, then
each Borrower shall, without demand, pay to the holders of the Obligations the
entire outstanding Obligations due and owing to such holders. Payment by any
Borrower shall be made to Lender, to be credited and applied to the Obligations,
in immediately available Federal funds to an account designated by Lender or at
the address set forth herein for the giving of notice to Lender or at any other
address that may be specified in writing from time to time by Lender.
11.3 ENFORCEMENT OF GUARANTY. Each Borrower agrees that in no event
shall Lender have any obligation (although it is entitled, at its option) to
proceed against any other Borrower or any other person or any real or personal
property pledged to secure the Obligations before seeking satisfaction from such
Borrower, and Lender may proceed, prior or subsequent to, or simultaneously
with, the enforcement of Lender's rights under this Section 11, to exercise any
right or remedy which it may have against any property, real or personal, as a
result of any lien or security interest it may have as security for all or any
portion of the Obligations.
11.4 WAIVER. In addition to the waivers contained in Section 11.1
hereof, each Borrower waives, and agrees that it shall not at any time insist
upon, plead or in any manner whatever claim or take the benefit or advantage of,
any appraisal, valuation, stay, extension, marshaling of assets or redemption
laws, or exemption, whether now or at any time hereafter in force, which may
delay, prevent or otherwise affect the performance by such Borrower of the
Obligations guaranteed under, or the enforcement by Lender of, this Section 11.
Each Borrower hereby waives diligence, presentment and demand (whether for
non-payment or protest or of acceptance, maturity, extension of time, change in
nature or form of the Obligations, acceptance of further security, release of
further security, composition or agreement arrived at as to the amount of, or
the terms of, the Obligations, notice of adverse change in any other Borrower's
financial condition or any other fact which might materially increase the risk
to such Borrower) with respect to any of the Obligations guaranteed hereunder or
all other demands whatsoever and waives the benefit of all provisions of law
which are or might be in conflict with the terms of this Section 11. Each
Borrower represents, warrants and agrees that, as of the date hereof, its
obligations under this Section 11 are not subject to
37
any offsets or defenses against Lender or any other Borrower of any kind. Each
Borrower further agrees that its obligations under this Section 11 shall not be
subject to any counterclaims, offsets or defenses against Lender or against any
other Borrower of any kind which may arise in the future.
11.5 BENEFIT OF GUARANTY. Each Borrower agrees that the provisions of
this Section 11 are for the benefit of Lender and its successors, transferees,
endorsees and assigns, and nothing herein contained shall impair, as between any
other Borrower and Lender, the obligations of any such other Borrower under the
Loan Documents. In the event all or any part of the Obligations are transferred,
endorsed or assigned by Lender to any person or persons, any reference to
"Lender" herein shall be deemed to refer equally to such person or persons.
11.6 REINSTATEMENT. The provisions of this Section 11 shall remain in
full force and effect and continue to be effective should any petition be filed
by or against any Borrower for liquidation or reorganization, should any
Borrower become insolvent or make an assignment for the benefit of creditors or
should a receiver or trustee be appointed for all or any significant part of any
Borrower's assets, and shall continue to be effective or be reinstated, as the
case may be, if at any time payment and performance of the Obligations, or any
part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or
must otherwise be restored or returned by Lender, whether as a "voidable
preference", "fraudulent conveyance", or otherwise, all as though such payment
or performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
11.7 SUBORDINATION OF SUBROGATION, ETC. Notwithstanding anything to
the contrary in this Agreement or in any other Loan Document, and except as set
forth in Section 11.11, each Borrower hereby:
(a) expressly and irrevocably subordinates, to the fullest
extent possible at all times prior to the expiration or termination of
this Agreement, on behalf of itself and its successors and assigns
(including any surety) and any other person, any and all rights at law
or in equity to subrogation, reimbursement, exoneration, contribution,
indemnification, set off or any other rights that could accrue to a
surety against a principal, to a guarantor against a principal, to a
guarantor against a maker or obligor, to an accommodation party against
the party accommodated, to a holder or transferee against a maker, or to
the holder of any claim against any person, and which such Borrower may
have or hereafter acquire against any other Borrower or any person in
connection with or as a result of such Borrower's performance of this
Section 11, or any other documents to which such Borrower is a party or
otherwise;
(b) expressly and irrevocably subordinates any "claim" (as
such term is defined in the United States Bankruptcy Code) of any kind
against any other Borrower, and further agrees that it shall not have or
assert any such rights against any person (including any surety), either
directly or as an attempted set
38
off to any action commenced against such Borrower by Lender or any other
person until the Obligations are fully and finally paid.
(c) acknowledges and agrees (i) that this subordination is
intended to benefit Lender and shall not limit or otherwise affect such
Borrower's liability hereunder or the enforceability of this Section 11,
and (ii) that Lender and its respective successors and assigns are
intended third party beneficiaries of the waivers and agreements set
forth in this Section 11.7.
11.8 ELECTION OF REMEDIES. If Lender, under applicable law, proceeds
to realize its benefits under any of the Loan Documents giving Lender a lien or
security interest upon any Collateral, (whether owned by any Borrower or by any
other person), either by judicial foreclosure or by non-judicial sale or
enforcement, Lender may, at its sole option, determine which of its remedies or
rights it may pursue without affecting any of its rights and remedies under this
Section 11. If, in the exercise of any of its rights and remedies, Lender shall
forfeit any of its rights or remedies, including its right to enter a deficiency
judgment against any Borrower or any other person, whether because of any
applicable laws pertaining to "election of remedies" or the like, each Borrower
hereby consents to such action by Lender and waives any claim based upon such
action, even if such action by Lender shall result in a full or partial loss of
any rights of subrogation which each Borrower might otherwise have had but for
such action by Lender. Any election of remedies which results in the denial or
impairment of the right of Lender to seek a deficiency judgment against any
Borrower shall not impair any other Borrower's obligation to pay the full amount
of the Obligations. In the event Lender shall bid at any foreclosure or
trustee's sale or at any private sale permitted by law or the Loan Documents,
Lender may bid all or less than the amount of the Obligations and the amount of
such bid need not be paid by Lender but shall be credited against the
Obligations. The amount of the successful bid at any such sale, Lender or any
other party is the successful bidder, shall be conclusively deemed to be the
fair market value of the Collateral and the difference between such bid amount
and the remaining balance of the Obligations shall be conclusively deemed to be
the amount of the Obligations guaranteed under this Section 11, notwithstanding
that any present or future law or court decision or ruling may have the effect
of reducing the amount of any deficiency claim to which Lender might otherwise
be entitled but for such bidding at any such sale.
11.9 CONTINUING GUARANTY. Each Borrower agrees that the guaranty set
forth in this Section 11 is a continuing guaranty and shall remain in full force
and effect until the payment and performance in full of the Obligations.
11.10 LIMITATION. Notwithstanding any provision herein contained to
the contrary, each Borrower's liability under this Section 11 shall be limited
to an amount not to exceed as of any date of determination the greater of:
(i) the net amount of all Loans advanced to the other
Borrowers under this Agreement and then re-loaned or otherwise transferred to
such Borrower; or
39
(ii) the amount which could be claimed by the Lender from
such Borrower under this Section 11 without rendering such claim voidable or
avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under any
applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance
Act or similar statute or common law after taking into account, among other
things, such Borrower's right of contribution and indemnification from the other
Borrowers under Section 11.2 hereof.
11.11 CONTRIBUTION WITH RESPECT TO GUARANTY OBLIGATIONS.
(a) To the extent that any Borrower shall make a payment
under this Section 11 of all or any of the Obligations (other than Loans
made to that Borrower for which it is primarily liable) (a "Guarantor
Payment") which, taking into account all other Guarantor Payments then
previously or concurrently made by the other Borrowers, exceeds the
amount which such Borrower would otherwise have paid if each Borrower
had paid the aggregate Obligations satisfied by such Guarantor Payment
in the same proportion that such Borrower's "Allocable Amount" (as
defined below) (as determined immediately prior to such Guarantor
Payment) bore to the aggregate Allocable Amounts of each of the
Borrowers as determined immediately prior to the making of such
Guarantor Payment, then such Borrower shall be entitled to receive
contribution and indemnification payments from, and be reimbursed by,
the other Borrowers for the amount of such excess, pro rata based upon
their respective Allocable Amounts in effect immediately prior to such
Guarantor Payment.
(b) As of any date of determination, the "Allocable Amount"
of any Borrower shall be equal to the maximum amount of the claim which
could then be recovered from such Borrower under this Section 11 without
rendering such claim voidable or avoidable under Section 548 of Chapter
11 of the Bankruptcy Code or under any applicable state Uniform
Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar
statute or common law of the United States, Canada or any political
subdivision thereof.
(c) This Section 11.11 is intended only to define the
relative rights of Borrowers and nothing set forth in this Section 11.11
is intended to or shall impair the obligations of Borrowers, jointly and
severally, to pay any amounts as and when the same shall become due and
payable in accordance with the terms of this Agreement. Nothing
contained in this Section 11.11 shall limit the liability of any
Borrower to pay any Loans made to that Borrower and accrued interest,
and Expenses with respect thereto for which such Borrower shall be
primarily liable.
(d) The parties hereto acknowledge that the rights of
contribution and indemnification hereunder shall constitute assets of
the Borrower to which such contribution and indemnification is owing.
(e) The rights of the parties under this Section 11.11 shall
be exercisable from and after the expiration or termination of this
Agreement.
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11.12 LIABILITY CUMULATIVE. The liability of Borrowers under this
Section 11 is in addition to and shall be cumulative wiTh all liabilities of
each Borrower to Lender under this Agreement and the other Loan Documents to
which such Borrower is a party or in respect of any Obligations or obligation of
the other Borrowers, without any limitation as to amount, unless the instrument
or agreement evidencing or creating such other liability specifically provides
to the contrary.
12. GENERAL TERMS
12.1 EXPENSES, FEES AND COSTS; INDEMNIFICATION.
(a) The Borrowers are responsible for the payment of all Expenses.
The Borrowers also agree to indemnify Lender for any and all Claims that may be
imposed on, incurred by or asserted against Lender in connection with this
Agreement or any Loan Document or transaction contemplated hereby or thereby or
the business relationship between Lender and Borrowers.
(b) Borrowers' obligation to pay the Expenses and all of the
reimbursement obligations and indemnification obligations provided for in this
Section 12.1 are part of the Obligations, are secured by all of the Collateral,
and survive the repayment of the Obligations.
12.2 SUCCESSORS. The provisions of this Agreement shall inure to the
benefit of and be binding upon any successor to any of the parties to this
Agreement and shall extend and be available to any holder of the Note; provided,
however, that persons or entities which succeed to the rights of the Borrowers
under this Agreement shall not be entitled to enforce any rights or remedies of
Borrowers under or by reason of the terms of this Agreement, or any other
agreement referred to or incorporated by reference into this Agreement, unless
they shall have obtained Lender's prior written consent to succeed to such
rights.
12.3 ASSIGNMENTS AND PARTICIPATIONS. Borrowers consent to Lender's
sale of participations in the Loans and to Lender's assignment of the Loan
Documents or any interest therein to any third party. Borrowers also acknowledge
and agree that any participation will give rise to a direct obligation of
Borrowers to the participant and the participant shall, for purposes of Sections
12.1, be considered to be "Lender."
12.4 WAIVERS BY BORROWERS. Except as otherwise provided for in this
Agreement or by applicable law, Borrowers waive: (i) presentment, demand and
protest and notice of presentment, dishonor, notice of intent to accelerate,
notice of acceleration, protest, default, nonpayment, maturity, release,
compromise, settlement, extension or renewal of any or all commercial paper,
accounts, contract rights, documents, instruments, chattel paper and guaranties
at any time held by Lender on which Borrower may in any way be liable, and
hereby ratifies and confirms whatever Lender may do in this regard, (ii) all
rights to notice and a hearing prior to Lender's taking possession or control
of, or to Lender's replevy, attachment or levy upon, the Collateral or any bond
or security which might be required by any court prior to allowing
41
Lender to exercise any of its remedies, and (iii) the benefit of all valuation,
appraisal and exemption laws.
12.5 ANTI-WAIVER; AMENDMENTS; AND CUMULATIVE REMEDIES PROVISIONS. No
failure or delay on the part of Lender or the holder of the Note in the exercise
of any power or right, and no course of dealing between the Borrowers and Lender
or the holder of any Note, shall operate as a waiver of such power or right, nor
shall any single or partial exercise of any power or right preclude other or
further exercise thereof or the exercise of any other power or right. The
remedies provided for herein are cumulative and not exclusive of any remedies
which may be available to Lender at law or in equity. No notice to or demand on
the Borrowers not required hereunder or under any Note or other agreement shall
in any event entitle the Borrowers to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the right of Lender or
the holder of any Note to any other or further action in any circumstances
without notice or demand. Any waiver of any provision of this Agreement, the
Note or other agreement, and any consent to any departure by the Borrowers from
the terms of any provision of this Agreement, the Note or other agreement, shall
be effective only in the specific instance and for the specific purpose for
which given. Neither this Agreement nor the Note or other agreement nor any
terms hereof or thereof may be changed, waived, discharged or terminated unless
such change, waiver, discharge or termination is in writing signed by the
Borrowers and Lender.
12.6 CONTROLLING LAW. Except to the extent Ontario law governs the
creation, perfection or enforcement of Lender's security interest in or to
Subsidiary's Collateral, this Agreement, the Note and any other agreements
between the parties shall be governed by and construed in accordance with the
internal laws of the State of Michigan applicable to contracts made and
performed within Michigan without regard to conflict of laws provisions.
12.7 COUNTERPARTS. This Agreement may be signed in any number of
counterparts with the same effect as if all signatures were upon the same
instrument.
12.8 NOTICES. All communications or notices that are required or may
be given under this Agreement shall be deemed effective if made in writing
(including telecommunications) and, if to Borrowers, addressed to them at the
address set forth at the beginning of this Agreement, with a copy to James
Jenkins, Harter, Secrest & Emery LLP, 1600 Bausch & Lomb Place, Rochester, New
York 14604-2711, and if to Lender, addressed to it at the address specified at
the beginning of this Agreement, and a copy to Donald F. Baty, Jr., Honigman
Miller Schwartz & Cohn LLP, 2290 First National Building, 660 Woodward Avenue,
Detroit, Michigan 48226, and delivered by any of the following means: (a) hand
delivery, (b) registered or certified mail, postage prepaid, with return receipt
requested, (c) first class or express mail, postage prepaid, (d) Federal
Express, or like overnight courier service, or (e) facsimile, telex or other
wire transmission with request for assurance of receipt in a manner typical with
respect to communications of that type. Notice made in accordance with this
section shall be deemed delivered on receipt if delivered by hand or wire
transmission, on the third Business Day after mailing if mailed by first class,
registered or certified mail, or on the
42
next Business Day after mailing or deposit with an overnight courier service if
delivered by express mail or overnight courier.
12.9 LOAN AGREEMENT CONTROLS. Excluding the Canadian Security
Documents that shall govern and control Lender's rights and remedies against
Subsidiary's Collateral, notwithstanding anything contained in any other
agreement referred to in this Agreement or in any other agreement now existing
between Lender and the Borrowers to the contrary, in the event of any express
conflict between the terms and provisions of such other agreement and those
contained in this Agreement, the terms of this Agreement shall govern and
control. Notwithstanding the foregoing, this Agreement and the Canadian Security
Documents are intended to be interpreted together such that Lender has a first
priority lien, security interest and charge on and against all of each
Borrower's personal property, wherever located and whenever acquired.
12.10 PARTIAL INVALIDITY. The unenforceability for any reason of any
provision of this Agreement shall not impair or limit the operation or validity
of any other provisions of this Agreement or any other existing or future
agreements between Lender and Borrowers.
12.11 LEGAL RATE ADJUSTMENT. This Agreement, the Note and all other
Loan Documents between the Borrowers and Lender are expressly limited so that in
no event whatsoever shall the amount of interest paid or agreed to be paid to
Lender exceed the highest rate of interest permissible under applicable law. If,
from any circumstances, fulfillment of any provision of this Agreement or the
Note at the time performance of such provisions shall be due, shall involve
exceeding the interest limitation validly prescribed by law which a court of
competent jurisdiction may deem applicable to this Agreement and any Loans under
this Agreement, then the obligation to be fulfilled shall be reduced to an
amount computed at the highest rate of interest permissible under applicable
law, and if, for any reason whatsoever, Lender shall ever receive as interest an
amount which would be deemed unlawful under applicable law, such interest shall
be automatically applied to the payment of the principal of the Note, as the
case may be (whether or not then due and payable), and not to the payment of
interest, or shall be refunded to the Borrowers, if such principal has been paid
in full.
12.12 SETOFF. In addition to any rights and remedies of Lender
provided by law, Lender has the right, without prior written notice to the
Borrowers, any such notice being expressly waived by Borrowers to the extent
permitted by applicable law, upon the occurrence of any Event of Default and so
long as such Event of Default is continuing, to set off and apply against any
Obligations, whether matured or unmatured, of the Borrowers to Lender, any
amount owing by Lender to Borrowers, at or at any time after the happening of
any of the above mentioned events, and such right of setoff may be exercised by
Lender against Borrowers or against any assignee for the benefit of creditors,
receiver, or execution, judgment or attachment creditor of Borrowers, or against
anyone else claiming through or against the Borrowers of such assignee for the
benefit of creditors, receiver, or execution, judgment or attachment creditor,
notwithstanding the fact that such right of setoff has not been exercised by
Lender prior to the making, filing or issuance or service upon Lender of, or of
notice of, assignment
43
for the benefit of creditors, appointment or application for the appointment of
a receiver, or issuance of execution, subpoena or order or warrant.
12.13 NO MARSHALLING. Borrowers, on their own behalf and on behalf of
their respective successors and assigns hereby expressly waive all rights, if
any, to require a marshalling of assets by Lender or to require that Lender
first resort to some or any portion of the Collateral before foreclosing upon,
selling or otherwise realizing on any other portion thereof.
12.14 JUDGMENT CURRENCY. If, for the purposes of obtaining judgment in
any court, it is necessary to convert a sum due to a Lender in any currency (the
"Original Currency") into another currency (the "Other Currency"), the parties
agree, to the fullest extent that they may effectively do so, that the rate of
exchange used shall be that at which, in accordance with normal banking
procedures, Lender could purchase the Original Currency with the Other Currency
on the Business Day preceding the day on which final judgment is given or, if
permitted by applicable law, on the day on which the judgment is paid or
satisfied. The obligations of the Borrowers in respect of any sum due in the
Original Currency from it to the Lender under any of the Loan Documents shall,
notwithstanding any judgment in any Other Currency, be discharged only to the
extent that on the Business Day following receipt by the Lender of any sum
adjudged to be so due in the Other Currency, the Lender may, in accordance with
normal banking procedures, purchase the Original Currency with such Other
Currency. If the amount of the Original Currency so purchased is less than the
sum originally due to the Lender in the Original Currency, the Borrowers agree,
as a separate obligation and notwithstanding the judgment, to indemnify the
Lender, against any loss, and, if the amount of the Original Currency so
purchased exceeds the sum originally due to the Lender in the Original Currency,
the Lender shall remit such excess to the Borrowers.
12.15 REINSTATEMENT OF OBLIGATIONS AND SECURITY. To the extent that
either Borrower makes any payment to Lender or Lender receives any payment(s) or
proceeds of Accounts or other Collateral for Borrowers' benefit, which
payment(s) or proceeds or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law,
state, provincial or federal law, common law or equitable doctrine, then, to the
extent of such payment(s) or proceeds received, the Borrowers' obligations or
part thereof intended to be satisfied thereby shall be reinstated and continue
in full force and effect, and all collateral security therefor shall remain in
full force and effect (or be reinstated), as if such payment(s) or proceeds had
not been received by Lender, and an appropriate adjustment to Borrowers' loan
balance may be recorded, until payment shall have been made to Lender, which
payment shall be due on demand.
12.16 SURVIVAL; RELIANCE. All agreements, representations and
warranties made in this Agreement (and all agreements referred to or
incorporated herein) shall survive the execution of this Agreement (and all
documents and agreements referred to or incorporated herein) and the making of
the Loans and the execution and delivery of the Notes. Notwithstanding anything
in this Agreement (or any documents or agreements referred to or incorporated
herein) to the contrary, no investigation or
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inquiry by any party with respect to any matter which is the subject of any
representation, warranty, covenant or other agreement set forth herein or
therein is intended, nor shall it be interpreted, to limit, diminish or
otherwise affect the full scope and effect of any such representation, warranty,
covenant or other agreement. All terms, covenants, agreements, representations
and warranties of the Borrowers made herein (or in any documents or agreements
referred to or incorporated herein), or in any certificate or other document
delivered pursuant hereto shall be deemed to be material and to have been relied
upon by Lender, notwithstanding any investigation heretofore or hereafter made
by Lender or its agents.
12.17 INTERPRETATION. This Agreement (and all agreements referred to
or incorporated into this Agreement) are being entered into among competent
persons, who are experienced in business and represented by counsel, and has
been reviewed by the parties and their counsel. Therefore, any ambiguous
language in this Agreement (and all agreements referred to or incorporated
herein) will not necessarily be construed against any particular party as the
drafter of such language.
12.18 INDEPENDENCE OF COVENANTS. All covenants hereunder are to be
given independent effect so that if a particular action or condition is not
permitted by any such covenant, the fact that it would be permitted by an
exception to, or would be otherwise within the limitations of, another covenant
shall not avoid the occurrence of a default or an Event of Default if such
action is taken or such condition exists.
12.19 COMMUNICATION WITH ACCOUNTANTS. Borrowers authorize Lender to
communicate directly with its independent certified public accountants including
PriceWaterhouseCoopers and authorizes all such accountants to make available to
Lender all financial statements and other supporting financial documents and
schedules with respect to the business, financial condition and other affairs of
Borrowers. At or before the initial Revolving Loans are made, Borrowers shall
deliver a letter addressed to and acknowledged by such accountants instructing
them to make available to Lenders such information and records as Lender may
reasonably request and to otherwise comply with the provisions of this Section
12.19. After the closing date, if Borrowers engages the services of accountants
other than PriceWaterhouseCoopers, Borrowers shall deliver a letter addressed to
and acknowledged by such accountants containing the same terms and provisions as
the letter described above.
12.20 ILLEGALITY AND IMPOSSIBILITY. In the event that any applicable
law, treaty, rule or regulation (whether domestic or foreign) now or hereafter
in effect and whether or not presently applicable to Lender, or any
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof, or compliance by Lender with
any request or directive of such authority (whether or not having the force of
law), including, without limitation, exchange controls, shall make it unlawful
or impossible for Lender to maintain any loan or transaction under this
Agreement, the Borrowers shall, upon receipt of notice thereof from Lender,
immediately repay in full the then outstanding principal amount of all Loans so
affected, together with all accrued interest thereon to the date of payment.
This provision is for the benefit of Lender and is not intended to increase the
yield to Lender above the rates of interests provided for in this Agreement.
This Section shall apply only as long as
45
such illegality exists. Lender shall use reasonable, lawful efforts to avoid the
impact of such law, treaty, rule or regulation.
12.21 CERTAIN RULES OF CONSTRUCTION. For purposes of this Agreement:
(a) Certain References. The words "herein," "hereof" and
"hereunder," and words of similar import, refer to this Agreement as a
whole and not to any particular provision of this Agreement, and
references to Sections, Paragraphs and Exhibits, and similar references,
are to Sections or Paragraphs of, or Exhibits to, this Agreement unless
otherwise specified.
(b) General Rules. Unless the context otherwise requires:
(i) the singular includes the plural, and vice versa; (ii) all pronouns
and any variations thereof refer to the masculine, feminine or neuter,
as the identity of the person or persons may require; (iii) all
definitions and references to an agreement, instrument or document means
such agreement, instrument or document together with all exhibits and
schedules thereto and any and all amendments, restatements, supplements,
replacements, or modifications thereto as the same may be in effect at
the time such definition or reference is applicable for any purpose;
(iv) all references to any party shall include such party's successors
and permitted assigns; (v) "include", "includes", and "including" are to
be treated as if followed by "without limitation" whether or not they
are followed by these words or words with a similar meaning; and (vi)
attorneys' fees shall include allocated costs of in-house counsel.
(c) Accounting Terms and Determinations. Except as otherwise
provided in this Agreement, all accounting terms used in this Agreement
must be interpreted, all accounting determinations hereunder must be
made, and all financial statements required to be delivered hereunder
must be prepared in accordance with generally accepted accounting
principles; provided that, if Borrowers adopt a change in accounting
principles (including any changes in generally accepted accounting
principles) from those used in preparing the financial statements of
Borrowers or that affects in any material respect (as determined by
Lender) the computation of or compliance with any of the provisions of
this Agreement, then this Agreement shall be amended by the parties in
good faith to modify such provisions to take account of such change in
accounting principles for the purpose of computing any financial
covenants, restrictions or ratios in this Agreement. Unless otherwise
noted, all accounting terms shall be interpreted and applied on a
consolidated basis for both Borrowers, according to GAAP.
(d) Uniform Commercial Code. All other terms contained in
this Agreement shall have, when the context so indicates, the meanings
provided for by the Uniform Commercial Code as adopted in the State of
Michigan to the extent such terms are used or defined in the statute.
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(e) Headings. The headings of the various subdivisions
hereof are for convenience of reference only and shall in no way modify
or affect the interpretation of any of the terms or provisions hereof.
12.22 ENTIRE AGREEMENT OF THE PARTIES. This Agreement, including all
agreements referred to or incorporated into this Agreement and all recitals in
this Agreement (which recitals are incorporated as covenants of the parties),
constitute the entire agreement between the parties relating to the subject
matter of this Agreement. This Agreement supersedes all prior agreements,
commitments and understandings between the parties relating to the subject
matter of this Agreement and cannot be changed or terminated orally, and shall
be deemed effective as of the date noted above.
12.23 ACKNOWLEDGMENT OF BORROWERS. THIS AGREEMENT HAS BEEN FREELY AND
VOLUNTARILY ENTERED INTO WITH THE LENDER BY THE BORROWERS, WITHOUT ANY DURESS OR
COERCION, AND AFTER THE BORROWERS HAVE EITHER CONSULTED WITH COUNSEL OR HAVE
BEEN GIVEN AN OPPORTUNITY TO DO SO, AND THE BORROWERS, ACKNOWLEDGE THAT THEY
CAREFULLY AND COMPLETELY READ AND UNDERSTANDS ALL OF THE TERMS AND PROVISIONS OF
THIS AGREEMENT.
12.24 SUBMISSION TO JURISDICTION AND VENUE. ANY JUDICIAL PROCEEDING
AGAINST THE BORROWERS BROUGHT BY LENDER WITH RESPECT TO ANY TERM OR CONDITION OF
THIS AGREEMENT, OR ANY OTHER PRESENT OR FUTURE AGREEMENT BETWEEN BORROWERS AND
LENDER MAY BE BROUGHT BY LENDER IN A COURT OF COMPETENT JURISDICTION IN THE
STATE OF MICHIGAN, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, BORROWERS
AND LENDER ACCEPT FOR THEMSELVES AND IN CONNECTION WITH THEIR RESPECTIVE
PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY FINAL JUDGMENT
RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, OR ANY OTHER PRESENT AND
FUTURE AGREEMENT BETWEEN BORROWER AND LENDER. BORROWERS WAIVE ANY BOND OR SURETY
OR SECURITY UPON SUCH BOND OR SURETY WHICH MIGHT, BUT FOR THIS WAIVER, BE
REQUIRED OF LENDER. NOTHING CONTAINED IN THIS SECTION AFFECTS THE RIGHT OF
LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST EITHER BORROWER OR ITS PROPERTY
IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY BORROWERS
AGAINST LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER OR CLAIM IN ANY WAY
ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT OR ANY PRESENT OR
FUTURE AGREEMENT BETWEEN BORROWERS AND LENDER, MAY BE BROUGHT ONLY IN A FEDERAL
COURT LOCATED IN THE STATE OF MICHIGAN OR IN STATE COURTS IN OAKLAND COUNTY,
MICHIGAN. BORROWERS WAIVE ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION
INSTITUTED HEREUNDER OR IN CONNECTION HEREWITH AND MAY NOT ASSERT ANY DEFENSE
BASED ON LACK OF JURISDICTION OR VENUE OR BASED UPON FORUM NON CONVENIENS.
BORROWERS OR LENDER MAY FILE AN ORIGINAL
47
COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF
THE WAIVERS AND CONSENTS CONTAINED HEREIN.
12.25 WAIVER OF JURY TRIAL. THE BORROWERS AND LENDER ACKNOWLEDGE THAT
THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED.
LENDER AND THE BORROWERS, AFTER CONSULTING COUNSEL OF THEIR CHOICE, EACH HEREBY
KNOWINGLY AND VOLUNTARILY, WITHOUT COERCION, WAIVE ALL RIGHTS TO A TRIAL BY JURY
OF ALL DISPUTES BETWEEN THEM. NEITHER THE BORROWERS NOR LENDER SHALL BE DEEMED
TO HAVE GIVEN UP THIS WAIVER OF JURY TRIAL UNLESS SUCH RELINQUISHMENT IS IN A
WRITTEN INSTRUMENT SIGNED BY THE PARTY TO BE CHARGED.
TRANSCAT, INC.
an Ohio Corporation
By: /s/ Carl E. Sassano
--------------------
Name: Carl E. Sassano
---------------
Title: President & CEO
---------------
TRANSMATION (CANADA) INC.
a Canadian Corporation
By: /s/ Carl E. Sassano
--------------------
Name: Carl E. Sassano
---------------
Title: President
---------
GMAC BUSINESS CREDIT, LLC
By: /s/ Charles D. Stephenson
--------------------------
Name: Charles D. Stephenson
---------------------
Title: Deputy Chief Credit Officer
---------------------------
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