EXHIBIT 10.15
LOAN AND SECURITY AGREEMENT
DATED AS OF DECEMBER 31, 2003
AMONG
COLE TAYLOR BANK,
AS LENDER,
AND
CTI INDUSTRIES CORPORATION,
AND
CTI HELIUM, INC.,
AS BORROWERS
TABLE OF CONTENTS
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1. DEFINITIONS; RULES OF INTERPRETATION.......................................1
(a) Defined Terms.....................................................1
(b) Accounting Terms..................................................1
(c) Terms Defined in UCC..............................................2
(d) Other Definitional Provisions; Construction.......................2
(e) References to Agreements, Enactments, Etc.........................2
2. LOANS......................................................................2
(a) Revolving Loans...................................................2
(b) Term Loan.........................................................4
(c) Repayments........................................................4
(d) Notes.............................................................5
3. LETTERS OF CREDIT..........................................................6
(a) General Terms.....................................................6
(b) Requests for Letters of Credit....................................6
(c) Obligations Absolute..............................................6
(d) Expiration Dates of Letters of Credit.............................7
4. INTEREST, FEES AND CHARGES.................................................7
(a) Interest Rate.....................................................7
(b) Fees and Charges..................................................7
(c) Maximum Interest..................................................8
5. COLLATERAL.................................................................8
(a) Grant of Security Interest to Lender..............................8
(b) Other Security....................................................9
(c) Possessory Collateral.............................................9
(d) Electronic Chattel Paper..........................................9
(e) Letter-of-Credit Rights...........................................9
(f) Third-Party Collateral...........................................10
(g) Deposit Account..................................................10
6. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS THEREIN...10
7. POSSESSION OF COLLATERAL AND RELATED MATTERS..............................10
8. COLLECTIONS...............................................................11
9. COLLATERAL, AVAILABILITY AND FINANCIAL REPORTS AND SCHEDULES..............12
(a) Weekly Reports...................................................12
(b) Monthly Reports..................................................12
(c) Financial Statements.............................................13
(d) Annual Projections...............................................13
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(e) Explanation of Budgets and Projections...........................13
(f) Public Reporting.................................................14
(h) Other Information................................................14
10. TERMINATION; AUTOMATIC RENEWAL............................................14
11. REPRESENTATIONS AND WARRANTIES............................................15
(a) Financial Statements and Other Information.......................15
(b) Locations; Certain Collateral....................................15
(c) Loans by Borrower................................................15
(d) Accounts and Inventory...........................................15
(e) Liens............................................................16
(f) Organization, Authority and No Conflict..........................16
(g) Litigation.......................................................16
(h) Compliance with Laws and Maintenance of Permits..................16
(i) Affiliate Transactions...........................................16
(j) Names and Trade Names............................................17
(k) Equipment........................................................17
(l) Enforceability...................................................17
(m) Solvency.........................................................17
(n) Indebtedness.....................................................17
(o) Margin Security and Use of Proceeds..............................17
(p) Parent, Subsidiaries and Affiliates..............................17
(q) No Defaults......................................................17
(r) Employee Matters.................................................18
(s) Intellectual Property............................................18
(t) Environmental Matters............................................18
(u) ERISA Matters....................................................18
(v) Collective Enterprise............................................18
12. AFFIRMATIVE COVENANTS.....................................................19
(a) Maintenance of Records...........................................19
(b) Notices..........................................................19
(c) Compliance with Laws and Maintenance of Permits..................20
(d) Inspection and Audits............................................21
(e) Insurance........................................................21
(f) Collateral.......................................................22
(g) Use of Proceeds..................................................23
(h) Taxes............................................................23
(i) Intellectual Property............................................23
(j) Financial Services Accounts......................................23
13. NEGATIVE COVENANTS........................................................24
(a) Indebtedness.....................................................24
(b) Liens............................................................24
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(c) Mergers, Sales, Acquisitions, Subsidiaries and Other
Transactions Outside the Ordinary Course of Business.............24
(d) Dividends and Distributions......................................25
(e) Investments; Loans...............................................25
(f) Fundamental Changes, Line of Business............................25
(g) Equipment........................................................25
(h) Affiliate Transactions...........................................25
(i) Settling of Accounts.............................................25
(j) Management Fees; Compensation....................................26
14. FINANCIAL COVENANTS.......................................................26
(a) Tangible Net Worth...............................................26
(b) Fixed Charge Coverage............................................27
(c) Capital Expenditure Limitations..................................27
(d) Operating Lease Obligations......................................27
15. DEFAULT...................................................................27
(a) Payment..........................................................27
(b) Breach of this Agreement and the Other Agreements................27
(c) Breaches of Other Obligations....................................27
(d) Breach of Representations and Warranties.........................28
(e) Loss of Collateral...............................................28
(f) Levy, Seizure or Attachment......................................28
(g) Bankruptcy or Similar Proceedings................................28
(h) Appointment of Receiver..........................................28
(i) Judgment.........................................................28
(j) Death or Dissolution of Obligor..................................28
(k) Default or Revocation of Guaranty; Subordination Agreement.......29
(l) Criminal Proceedings.............................................29
(m) Change of Control................................................29
(n) Change of Management.............................................29
(o) Material Adverse Change..........................................29
16. REMEDIES UPON AN EVENT OF DEFAULT.........................................29
17. CONDITIONS PRECEDENT......................................................30
18. JOINT AND SEVERAL LIABILITY...............................................31
19. INDEMNIFICATION...........................................................33
20. NOTICE....................................................................33
21. CHOICE OF GOVERNING LAW; CONSTRUCTION; FORUM SELECTION....................33
22. MODIFICATION AND BENEFIT OF AGREEMENT.....................................34
23. HEADINGS OF SUBDIVISIONS..................................................35
24. POWER OF ATTORNEY.........................................................35
25. CONFIDENTIALITY...........................................................35
26. COUNTERPARTS..............................................................35
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27. ELECTRONIC SUBMISSIONS....................................................35
28. WAIVER OF JURY TRIAL; OTHER WAIVERS.......................................36
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ANNEX 1 - DEFINITIONS
EXHIBIT A - BORROWING BASE CERTIFICATE
EXHIBIT B - COMPLIANCE CERTIFICATE
SCHEDULE 1 - PERMITTED LIENS
SCHEDULE 11(b) - BUSINESS AND COLLATERAL LOCATIONS; CERTAIN
COLLATERAL
SCHEDULE 11(g) - LITIGATION
SCHEDULE 11(i) - AFFILIATE TRANSACTIONS
SCHEDULE 11(j) - NAMES & TRADE NAMES
SCHEDULE 11(n) - INDEBTEDNESS
SCHEDULE 11(p) - PARENT, SUBSIDIARIES AND AFFILIATES
SCHEDULE 11(s) - INTELLECTUAL PROPERTY
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (as amended, modified or supplemented
from time to time, this "Agreement"), made this 31st day of December, 2003, by
and among COLE TAYLOR BANK, an Illinois corporation ("Lender"), 111 West
Washington Street, Suite 400, Chicago, Illinois 60602, and CTI INDUSTRIES
CORPORATION, an Illinois corporation, having its principal place of business at
22160 N. Pepper Road, Barrington, Illinois 60010 ("CTI Industries"), and CTI
HELIUM, INC., an Illinois corporation, having its principal place of business at
22160 N. Pepper Road, Barrington, Illinois 60010 ("CTI Helium") (CTI Industries
and CTI Helium are collectively referred to herein as "Borrowers").
W I T N E S S E T H:
WHEREAS, Borrowers may, from time to time, request Loans from Lender, and
the parties wish to provide for the terms and conditions upon which such Loans
or other financial accommodations, if made by Lender, shall be made;
NOW, THEREFORE, in consideration of any Loan (including any Loan by
renewal or extension) hereafter made to a Borrower by Lender, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by Borrowers, the parties agree as follows:
1. DEFINITIONS; RULES OF INTERPRETATION.
(a) Defined Terms. For the purposes of this Agreement, the following
capitalized words and phrases shall have the meanings set forth in Annex I
attached hereto and made a part hereof.
(b) Accounting Terms. Any accounting terms used in this Agreement
which are not specifically defined herein shall have the meanings customarily
given them in accordance with GAAP. Calculations and determinations of financial
and accounting terms used and not otherwise specifically defined hereunder and
the preparation of financial statements to be furnished to the Lender pursuant
hereto shall be made and prepared, both as to classification of items and as to
amount, in accordance with GAAP as used in the preparation of the financial
statements of the Borrowers on the date of this Agreement. If any changes in
accounting principles or practices from those used in the preparation of the
financial statements are hereafter occasioned by the promulgation of rules,
regulations, pronouncements and opinions by or required by the Financial
Accounting Standards Board or the American Institute of Certified Public
Accountants (or any successor thereto or agencies with similar functions), which
results in a material change in the method of accounting in the financial
statements required to be furnished to the Lender hereunder or in the
calculation of financial covenants, standards or terms contained in this
Agreement, the parties hereto agree to enter into good-faith negotiations to
amend such provisions so as equitably to reflect such changes to the end that
the criteria for evaluating the financial condition and performance of the
Borrowers will be the same after such changes as they were before such changes;
and, if the parties fail to agree on the amendment of such provisions, the
Borrowers will furnish financial statements in accordance with such changes but
shall provide calculations for all financial covenants, perform all financial
covenants and
otherwise observe all financial standards and terms in accordance with
applicable accounting principles and practices in effect immediately prior to
such changes.
(c) Terms Defined in UCC. The terms "Account," "Account Debtor,"
"Certificated Security," "Chattel Paper," "Commercial Tort Claim," "Deposit
Account," "Document," "Electronic Chattel Paper," "Equipment," "Financial
Asset," "Fixture," "General Intangible," "Goods," "Health-Care-Insurance
Receivables," "Instrument," "Inventory," "Investment Property,"
"Letter-of-Credit Right," "Payment Intangible," "Proceeds," "Security,"
"Securities Account," "Security Entitlement," "Software," "Supporting
Obligation," "Tangible Chattel Paper" and "Uncertificated Security" shall have
the respective meanings assigned to such terms in the UCC. All other capitalized
words and phrases used herein and not otherwise specifically defined shall have
the respective meanings assigned to such terms in the UCC, to the extent the
same are used or defined therein.
(d) Other Definitional Provisions; Construction. Whenever the
context so requires, the neuter gender includes the masculine and feminine, the
single number includes the plural, and vice versa, and in particular the word
"Borrower" shall be so construed. The words "hereof", "herein" and "hereunder"
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
references to Article, Section, Subsection, Annex, Schedule, Exhibit and like
references are references to this Agreement unless otherwise specified. The word
"including" shall mean "including, without limitation". An Event of Default
shall "continue" or be "continuing" until such Event of Default has been waived
in accordance with Section 28(e) hereof. References in this Agreement to any
party shall include such party's successors and permitted assigns. References to
any "Section" shall be a reference to such Section of this Agreement unless
otherwise stated. To the extent any of the provisions of the Other Agreements
are inconsistent with the terms of this Loan Agreement, the provisions of this
Loan Agreement shall govern. This Agreement and the Other Agreements are the
result of negotiations among and have been reviewed by counsel to the Lender,
Borrowers and any other parties thereto, are the product of all parties and,
accordingly, shall not be construed against the Lender.
(e) References to Agreements, Enactments, Etc. Unless otherwise
expressly provided herein, (i) references to agreements (including this
Agreement) and other contractual instruments shall be deemed to include all
subsequent amendments, restatements, supplements and other modifications
thereto, but only to the extent such amendments and other modifications are not
prohibited by the terms of this Agreement or any Other Agreement, and (ii)
references to any statute or regulation shall be construed as including all
statutory and regulatory provisions amending, replacing, supplementing or
interpreting such statute or regulation.
2. LOANS.
(a) Revolving Loans. Subject to the terms and conditions of this
Agreement and the Other Agreements, during the Original Term and any Renewal
Term, Lender shall, absent the occurrence of an Event of Default, make revolving
loans and advances to Borrowers (the "Revolving Loans") in an amount up to the
sum of the following sublimits (the "Revolving Borrowing Base Amount"):
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(i) Up to eighty-five percent (85%), or such lesser percentage
as determined by Lender in its sole discretion exercised in good faith, of
the face amount (less maximum discounts, credits and allowances which may
be taken by or granted to Account Debtors in connection therewith in the
ordinary course of such Borrower's business) of Borrowers' Eligible
Accounts; provided that such advance rate shall be reduced by one (1)
percentage point for each whole or partial percentage point by which
Dilution (as determined by Lender in good faith based on the results of
the most recent twelve (12) month period for which Lender has conducted a
field audit of Borrowers) exceeds five percent (5%); plus
(ii) Up to the lesser of (A) fifty percent (50%), or such
lesser percentage as determined by Lender in its sole discretion exercised
in good faith, of the lower of cost or market value of Borrowers' Eligible
Inventory (which shall include work-in-process Inventory) or (B) an amount
not to exceed ninety percent (90%) of the Net Orderly Liquidation Value of
Borrowers' Inventory or (C) Three Million Seven Hundred Fifty Thousand and
No/100 Dollars ($3,750,000), whichever is less; minus
(iii) such reserves as Lender elects, in its sole discretion,
to establish from time to time;
provided, that (w) the Revolving Borrowing Base Amount shall in no event exceed
Seven Million Five Hundred Thousand and No/100 Dollars ($7,500,000) (the
"Maximum Revolving Loan Limit") except as such amount may be increased or
decreased by Lender, in its sole discretion, (x) the sum of the advances to all
Borrowers with respect to clause (ii) above relative to Inventory consisting of
packaging and related materials shall at no time exceed Four Hundred Thousand
Dollars ($400,000), (y) the sum of all advances with respect to Third-Party
Inventory (to the extent any such advances are otherwise permitted hereunder)
shall at no time exceed Two Hundred Thousand Dollars ($200,000), and (z) the
amount of Eligible Inventory advances with respect to clause "(ii)" above shall
include a "costing revaluation" of up to the lesser of $750,000 or the actual
amount of the "costing revaluation" line item on the most recent inventory
report delivered to Lender.
The aggregate unpaid principal balance of the Revolving Loans
shall not at any time exceed the lesser of the (i) Revolving Borrowing
Base Amount minus the Letter of Credit Obligations and (ii) the Maximum
Revolving Loan Limit minus the Letter of Credit Obligations. If at any
time the amount of outstanding Revolving Loans exceeds either the
Revolving Borrowing Base Amount or the Maximum Revolving Loan Limit, in
each case minus the Letter of Credit Obligations, or any portion of the
Revolving Loans and Letter of Credit Obligations exceeds any applicable
sublimit within the Revolving Borrowing Base Amount, Borrowers shall
immediately, and without the necessity of demand by Lender, pay to Lender
such amount as may be necessary to eliminate such excess and Lender shall
apply such payment to the Revolving Loans in such order as Lender shall
determine in its sole discretion.
Each Borrower hereby authorizes Lender, in its sole
discretion, to charge any of such Borrower's accounts or advance Revolving
Loans to make any payments of
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principal, interest, fees, costs or expenses required to be made under
this Agreement or the Other Agreements.
A request for a Revolving Loan shall be made or shall be
deemed to be made, each in the following manner: The Borrower requesting
such Revolving Loan shall give Lender same-day notice, no later than 1:00
p.m. (determined based on the local time of each Borrower at its principal
place of business) on such day, of its request for a Revolving Loan. In
the event that a Borrower maintains a controlled disbursement account with
Lender, each check presented for payment against such controlled
disbursement account and any other charge or request for payment against
such controlled disbursement account shall constitute a request for a
Revolving Loan as a Prime Rate Revolving Loan. As an accommodation to
Borrowers, Lender may permit telephone requests for Revolving Loans and
electronic transmittal of instructions, authorizations, agreements or
reports to Lender by Borrowers. Unless a Borrower specifically directs
Lender in writing not to accept or act upon telephonic or electronic
communications from such Borrower, Lender shall have no liability to
Borrowers for any loss or damage suffered by a Borrower as a result of
Lender's honoring of any requests, execution of any instructions,
authorizations or agreements or reliance on any reports communicated to it
telephonically or electronically and purporting to have been sent to
Lender by a Borrower, and Lender shall have no duty to verify the origin
of any such communication or the authority of the Person sending it.
Each Borrower hereby irrevocably authorizes Lender to disburse
the proceeds of each Revolving Loan requested by such Borrower, or deemed
to be requested by such Borrower, as follows: the proceeds of each
Revolving Loan requested under Section 2(a) shall be disbursed by Lender
in lawful money of the United States of America in immediately available
funds, in the case of the initial borrowing, in accordance with the terms
of the written disbursement letter from such Borrower and, in the case of
each subsequent borrowing, by wire transfer or Automated Clearing House
(ACH) transfer to such bank account as may be agreed upon by such Borrower
and Lender from time to time, or elsewhere if pursuant to a written
direction from such Borrower.
(b) Term Loan. Subject to the terms and conditions of this Agreement
and the Other Agreements, on the date that the conditions to the initial Loans
are satisfied, Lender shall make a term loan to Borrowers in an amount equal to
the lesser of (i) Three Million Five Hundred Thousand and No/100 Dollars
($3,500,000) and (ii) eighty-five percent (85%) of the net orderly liquidation
value of Borrowers' Equipment (as determined by an appraiser acceptable to
Lender) (the "Term Loan"). Such Equipment shall be subject to the first-priority
perfected security interest in favor of Lender and to no other Lien whatsoever,
other than Permitted Liens. Amounts repaid with respect to the Term Loan may not
be reborrowed.
(c) Repayments. The Obligations shall be repaid as follows:
(i) Repayment of Revolving Loans. The Revolving Loans and all
other Obligations (other than the Term Loan) shall be repaid on the last
day of the
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Original Term or any Renewal Term if this Agreement is renewed pursuant to
Section 10 hereof.
(ii) Repayment of Term Loan. The Term Loan shall be repaid in
sixty (60) equal monthly installments of Fifty-Eight Thousand Three
Hundred Thirty-Three Dollars ($58,333.00) each, payable beginning on
February 1, 2004 and on the first day of each month thereafter; provided,
that any remaining outstanding principal balance of the Term Loan shall be
repaid at the end of the Original Term or any Renewal Term if this
Agreement is renewed pursuant to Section 10 hereof or at any time this
Agreement is terminated pursuant to the terms hereof. If any such payment
due date is not a Business Day, then such payment may be made on the next
succeeding Business Day and such extension of time shall be included in
the computation of the amount of interest and fees due hereunder.
(iii) Mandatory Prepayments of the Term Loan.
(A) Sales of Assets. Upon receipt of the proceeds of the
sale or other disposition of any Equipment or real property of a
Borrower which is subject to any mortgage lien in favor of Lender,
or if any of the Equipment or real property subject to such mortgage
is damaged, destroyed or taken by condemnation in whole or in part,
the proceeds thereof shall be paid by such Borrower to Lender as a
mandatory prepayment of the Term Loan, such payment to be applied
against the remaining installments of principal in the inverse order
of their maturities until repaid in full, and then against the other
Obligations, as determined by Lender, in its sole discretion.
(B) Excess Cash Flow. Ten (10) days after receipt of
Borrowers' Fiscal Year end audited financial statements for each
Fiscal Year of Borrowers commencing with Borrowers' Fiscal Year
ended December 31, 2004, Borrowers shall make a mandatory prepayment
of the Term Loan in an amount equal to fifty percent (50%) of
Borrowers' "Excess Cash Flow" (as described below) for the Fiscal
Year just ended, such prepayment to be applied against the remaining
installments of principal in the inverse order of their maturities,
such mandatory prepayments to continue for each Fiscal Year until
the ratio of (i) all Term Loans hereunder to (ii) the net orderly
liquidation value of the Equipment of Borrowers (based on appraisals
in form and substance acceptable to Lender in its sole discretion)
is greater than eighty percent (80%) for such Fiscal Year. For
purposes hereof, "Excess Cash Flow" shall mean, for each of
Borrowers' Fiscal Years, Borrowers' EBITDA for such period, minus
Borrowers' taxes actually paid during such period and any
distributions to their shareholders in respect of taxes actually
paid for such period, minus cash interest actually paid during such
period, minus actual principal payments made with respect to
long-term debt during such period, minus all unfinanced Capital
Expenditures by Borrowers during such period.
(d) Notes. The Loans shall, in Lender's sole discretion, be
evidenced by one or more promissory notes in form and substance satisfactory to
Lender. However, if such Loans are not so evidenced, such Loans
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may be evidenced solely by entries upon the books and records maintained by
Lender.
3. LETTERS OF CREDIT.
(a) General Terms. As of the Closing Date, no Letter of Credit
Obligations are outstanding. Subject to the terms and conditions of this
Agreement and the Other Agreements, during the Original Term or any Renewal
Term, Lender shall, in its sole discretion, absent an Event of Default, from
time to time cause to be issued and co-sign for or otherwise guarantee, upon a
Borrower's request, commercial and/or standby Letters of Credit; provided, that
the aggregate undrawn face amount of all such Letters of Credit shall at no time
exceed an amount determined by Lender in its sole discretion. Payments made by
Lender to any Person on account of any Letter of Credit shall constitute Loans
hereunder, and each Borrower agrees that each payment made by the issuer of a
Letter of Credit in respect of a Letter of Credit issued on behalf of such
Borrower shall constitute a request by such Borrower for a Loan to reimburse
such issuer. Borrowers shall remit to Lender a Letter of Credit fee in an amount
agreed between Lender and Borrowers per month on the aggregate undrawn face
amount of all Letters of Credit outstanding, which fee shall be payable monthly
in arrears on the last Business Day of each month. Borrowers shall also pay on
demand the normal and customary administrative charges of the issuer of the
Letter of Credit for issuance, amendment, negotiation, renewal or extension of
any Letter of Credit.
(b) Requests for Letters of Credit. Each Borrower shall make
requests for Letters of Credit in writing at least two (2) Business Days prior
to the date such Letter of Credit is to be issued. Each such request shall
specify the date such Letter of Credit is to be issued, the amount thereof, the
name and address of the beneficiary thereof and a description of the transaction
to be supported thereby. Any such notice shall be accompanied by the form of
Letter of Credit requested and any application or reimbursement agreement
required by the issuer of such Letter of Credit. If any term of such application
or reimbursement agreement is inconsistent with this Agreement, then the
provisions of this Agreement shall control to the extent of such inconsistency.
(c) Obligations Absolute. Each Borrower shall be obligated to
reimburse the issuer of any Letter of Credit, or Lender if Lender has reimbursed
such issuer on a Borrower's behalf, for any payments made in respect of any
Letter of Credit, which obligation shall be unconditional and irrevocable and
shall be paid regardless of: (i) any lack of validity or enforceability of any
Letter of Credit, (ii) any amendment or waiver of or consent or departure from
all or any provisions of any Letter of Credit, this Agreement or any Other
Agreement, (iii) the existence of any claim, setoff, defense or other right
which a Borrower or any other Person may have against any beneficiary of any
Letter of Credit, Lender or the issuer of the Letter of Credit, (iv) any draft
or other document presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect, (v) any payment under any Letter of
Credit against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit, and (vi) any other act or omission to
act or delay of any kind of the issuer of such Letter of Credit, the Lender or
any other Person or any other event or circumstance that might otherwise
constitute a legal or equitable discharge of a Borrower's obligations hereunder.
It is understood
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and agreed by each Borrower that the issuer of any Letter of Credit may accept
documents that appear on their face to be in order without further investigation
or inquiry, regardless of any notice or information to the contrary.
(d) Expiration Dates of Letters of Credit. The expiration date of
each Letter of Credit shall be no later than the earlier of (i) one (1) year
from the date of issuance and (ii) the thirtieth (30th) day prior to the end of
the Original Term or any Renewal Term. Notwithstanding the foregoing, a Letter
of Credit may provide for automatic extensions of its expiration date for one or
more one (1) year periods, so long as the issuer thereof has the right to
terminate the Letter of Credit at the end of each one (1) year period and no
extension period extends past the thirtieth (30th) day prior to the end of the
Original Term or any Renewal Term.
4. INTEREST, FEES AND CHARGES.
(a) Interest Rate. Each Revolving Loan and the Term Loan shall bear
interest at the rate of one and one-half percent (1 1/2%) per annum in excess of
the Prime Rate in effect from time to time, all such interest to be payable on
the first Business Day of each month in arrears. Said rate of interest shall
increase or decrease by an amount equal to each increase or decrease in the
Prime Rate effective on the effective date of each such change in the Prime
Rate. Upon the occurrence of an Event of Default and during the continuance
thereof, each Loan shall bear interest at the rate of two percent (2%) per annum
in excess of the interest rate otherwise payable thereon, which interest shall
be payable on demand. All interest shall be calculated on the basis of a 360-day
year.
(b) Fees and Charges.
(i) Closing Fee: Borrowers shall jointly and severally pay to
Lender a closing fee of One Hundred Ten Thousand Dollars ($110,000), which
fee shall be fully earned and payable on the date of disbursement of the
initial Loans hereunder.
(ii) Costs and Expenses: Borrowers shall reimburse Lender for
all costs and expenses, including, without limitation, legal expenses and
reasonable attorneys' fees (whether for internal or outside counsel),
incurred by Lender in connection with the (i) documentation and
consummation of this transaction and any other transactions between
Borrowers and Lender, including, without limitation, Uniform Commercial
Code and other public record searches and filings, overnight courier or
other express or messenger delivery, appraisal costs, surveys, title
insurance and environmental audit or review costs; (ii) collection,
protection or enforcement of any rights in or to the Collateral; (iii)
collection of any Obligations; and (iv) administration and enforcement of
any of Lender's rights under this Agreement or any Other Agreement.
Borrowers shall also pay all normal service charges with respect to all
accounts maintained by each Borrower with Lender and any additional
services requested by a Borrower from Lender. All such costs, expenses and
charges shall, if owed to Lender, be reimbursed by Lender and in such
event or in the event such costs and expenses are owed to Lender, shall
constitute Obligations hereunder, shall be payable by Borrowers to Lender
on demand and, until paid, shall bear interest at the highest rate then
applicable to Loans hereunder.
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(iii) Capital Adequacy Charge. If Lender shall have determined
that the adoption of any law, rule or regulation regarding capital
adequacy, or any change therein or in the interpretation or application
thereof, or compliance by Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any central
bank or governmental authority enacted after the date hereof, does or
shall have the effect of reducing the rate of return on such party's
capital as a consequence of its obligations hereunder to a level below
that which Lender could have achieved but for such adoption, change or
compliance (taking into consideration Lender's policies with respect to
capital adequacy) by a material amount, then from time to time, after
submission by Lender to Borrowers of a written demand therefor ("Capital
Adequacy Demand") together with the certificate described below, Borrowers
shall pay to Lender such additional amount or amounts ("Capital Adequacy
Charge") as will compensate Lender for such reduction, such Capital
Adequacy Demand to be made with reasonable promptness following such
determination. A certificate of Lender claiming entitlement to payment as
set forth above shall be conclusive in the absence of manifest error. Such
certificate shall set forth the nature of the occurrence giving rise to
such reduction, the amount of the Capital Adequacy Charge to be paid to
Lender, and the method by which such amount was determined. In determining
such amount, Lender may use any reasonable averaging and attribution
method, applied on a nondiscriminatory basis.
(c) Maximum Interest. It is the intent of the parties that the rate
of interest and other charges to each Borrower under this Agreement and the
Other Agreements shall be lawful; therefore, if for any reason the interest or
other charges payable under this Agreement are found by a court of competent
jurisdiction, in a final determination, to exceed the limit which Lender may
lawfully charge such Borrower, then the obligation to pay interest and other
charges shall automatically be reduced to such limit and, if any amount in
excess of such limit shall have been paid, then such amount shall be refunded to
such Borrower.
5. COLLATERAL.
(a) Grant of Security Interest to Lender. As security for the
payment of all Loans now or in the future made by Lender to Borrowers hereunder
and for the payment or other satisfaction of all other Obligations, each
Borrower hereby assigns to Lender and grants to Lender a continuing security
interest in the following property of such Borrower, whether now or hereafter
owned, existing, acquired or arising and wherever now or hereafter located: (a)
all Accounts (whether or not Eligible Accounts) and all Goods whose sale, lease
or other disposition by such Borrower has given rise to Accounts and have been
returned to, or repossessed or stopped in transit by, such Borrower; (b) all
Chattel Paper, Instruments, Documents and General Intangibles (including,
without limitation, all Intellectual Property, licenses, software, franchises,
tax refund claims, claims against carriers and shippers, guarantee claims,
contract rights, Payment Intangibles, security interests, security deposits and
rights to indemnification); (c) all Inventory (whether or not Eligible
Inventory); (d) all Goods (other than Inventory), including, without limitation,
Equipment, vehicles and Fixtures; (e) all Investment Property; (f) all Deposit
Accounts, bank accounts, deposits and cash; (g) all Letter-of-Credit Rights; (h)
Commercial Tort Claims listed on Schedule 11(b) hereto from time to time; (i)
any other property of such Borrower now or hereafter in the possession, custody
or control of Lender or any agent or any
8
parent, affiliate or subsidiary of Lender or any participant with Lender in the
Loans, for any purpose (whether for safekeeping, deposit, collection, custody,
pledge, transmission or otherwise) and (j) all additions and accessions to,
substitutions for, and replacements, products and Proceeds of the foregoing
property, including, without limitation, proceeds of all insurance policies
insuring the foregoing property, and all of such Borrower's books and records
relating to any of the foregoing and to such Borrower's business.
(b) Other Security. Lender, in its sole discretion, without waiving
or releasing any obligation, liability or duty of a Borrower under this
Agreement or the Other Agreements or any Event of Default, may at any time or
times hereafter, but shall not be obligated to, pay, acquire or accept an
assignment of any Lien asserted by any Person in, upon or against the
Collateral, provided, that Lender may take such actions with respect to
Permitted Liens only after the occurrence and during the continuance of an Event
of Default. All sums paid by Lender in respect thereof and all costs, fees and
expenses, including, without limitation, reasonable attorney fees, all court
costs and all other charges relating thereto incurred by Lender shall constitute
Obligations payable by Borrowers to Lender on demand and, until paid, shall bear
interest at the highest rate then applicable to Loans hereunder.
(c) Possessory Collateral. Immediately upon a Borrower's receipt of
any portion of the Collateral evidenced by an agreement, Instrument or Document,
including, without limitation, any Tangible Chattel Paper and any Investment
Property consisting of Certificated Securities, such Borrower shall deliver the
original thereof to Lender together with an appropriate endorsement or other
specific evidence of assignment thereof to Lender (in form and substance
acceptable to Lender). If an endorsement or assignment of any such items shall
not be made for any reason, Lender is hereby irrevocably authorized, as each
Borrower's attorney and agent-in-fact, to endorse or assign the same on such
Borrower's behalf.
(d) Electronic Chattel Paper. To the extent that a Borrower obtains
or maintains any Electronic Chattel Paper, such Borrower shall create, store and
assign the record or records comprising the Electronic Chattel Paper in such a
manner that (i) a single authoritative copy of the record or records exists
which is unique, identifiable and, except as otherwise provided in clauses (iv),
(v) and (vi) below, unalterable, (ii) the authoritative copy identifies Lender
as the assignee of the record or records, (iii) the authoritative copy is
communicated to and maintained by the Lender or its designated custodian, (iv)
copies or revisions that add or change an identified assignee of the
authoritative copy can only be made with the participation of Lender, (v) each
copy of the authoritative copy and any copy of a copy is readily identifiable as
a copy that is not the authoritative copy and (vi) any revision of the
authoritative copy is readily identifiable as an authorized or unauthorized
revision.
(e) Letter-of-Credit Rights. If Borrower at any time is a
beneficiary under a letter of credit now or hereafter issued in favor of
Borrower, at the request and option of Lender, Borrower shall, pursuant to an
agreement in form and substance satisfactory to Lender, either (i) arrange for
the issuer and any confirmer of such letter of credit to consent to an
assignment to Lender of the proceeds of any drawing under the letter of credit,
or (ii) arrange for Lender to become the transferee beneficiary of the letter of
credit, with Lender agreeing, in each case, that the proceeds of any drawing
under the letter to credit are to be applied as provided in this Agreement.
9
(f) Third-Party Collateral. If Borrower shall at any time hold or
acquire an interest in Collateral in the possession of a third party (other than
Certificated Securities and Goods covered by a Document), Borrower shall
immediately obtain an acknowledgment from the third party that it is holding
such Collateral for the benefit of the Lender and a collateral access agreement
in favor of Lender in form and substance satisfactory to Lender.
(g) Deposit Account. Borrower shall deliver to Lender with respect
to each Deposit Account maintained by Borrower now or hereafter (other than with
Lender) and that is permitted hereby, upon obtaining an interest in such Deposit
Account, a deposit account control agreement in form and substance satisfactory
to Lender, executed by the financial institution at which such account is
maintained, and shall take such other actions as Lender may request to ensure
that Lender's security interest in such account is perfected by control as such
term is used in UCC Section 9-104.
6. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS
THEREIN. Each Borrower shall, at Lender's request, at any time and from time to
time, authenticate, execute and deliver to Lender such financing statements,
documents and other agreements and instruments (and pay the costs of filing or
recording the same in all public offices deemed necessary or desirable by
Lender) and do such other acts and things or cause third parties to do such
other acts and things as Lender may deem necessary or desirable in its sole
discretion in order to establish and maintain a valid, attached and perfected
security interest in the Collateral in favor of Lender (free and clear of all
other Liens, except Permitted Liens) to secure payment of the Obligations, and
in order to facilitate the collection of the Collateral. Each Borrower
irrevocably hereby makes, constitutes and appoints Lender (and all Persons
designated by Lender for that purpose) as such Borrower's true and lawful
attorney and agent-in-fact to execute and file such financing statements,
documents and other agreements and instruments and do such other acts and things
as may be necessary to preserve and perfect Lender's security interest in the
Collateral. Each Borrower further agrees that a carbon, photographic,
photostatic or other reproduction of this Agreement or of a financing statement
shall be sufficient as a financing statement; each Borrower further ratifies and
confirms the prior filing by Lender of any and all financing statements which
identify such Borrower as debtor, Lender as secured party and any or all
Collateral as collateral.
7. POSSESSION OF COLLATERAL AND RELATED MATTERS. Until otherwise notified
by Lender following the occurrence of an Event of Default, each Borrower shall
have the right, except as otherwise provided in this Agreement, in the ordinary
course of such Borrower's business, to (a) sell, lease or furnish under
contracts of service any of such Borrower's Inventory normally held by such
Borrower for any such purpose; and (b) use and consume any raw materials, work
in process or other materials normally held by such Borrower for such purpose;
and (c) dispose of obsolete or unuseful Equipment so long as all of the proceeds
thereof are paid to Lender for application to the Obligations (except for such
proceeds as are required to be delivered to the holder of a Permitted Lien which
is prior in right of payment); provided, however, that a sale in the ordinary
course of business shall not include any transfer or sale in satisfaction,
partial or complete, of a debt owed by such Borrower.
10
8. COLLECTIONS.
(a) Each Borrower shall direct all of its Account Debtors to make
all payments on the Accounts directly to a post office box (the "Lock Box")
designated by, and under the exclusive control of, Lender. Each Borrower shall
establish an account (the "Lock Box Account") in Lender's name with Lender, into
which all payments received in the Lock Box shall be deposited, and into which
such Borrower will immediately deposit all payments received by such Borrower on
Accounts in the identical form in which such payments were received, whether by
cash or check. If a Borrower, any Affiliate or Subsidiary, any shareholder,
officer, director, employee or agent of a Borrower or any Affiliate or
Subsidiary, or any other Person acting for or in concert with a Borrower shall
receive any monies, checks, notes, drafts or other payments relating to or as
Proceeds of Accounts or other Collateral, such Borrower and each such Person
shall receive all such items in trust for, and as the sole and exclusive
property of, Lender and, immediately upon receipt thereof, shall remit the same
(or cause the same to be remitted) in kind to the Lock Box Account. Each
Borrower agrees that all payments made to such Lock Box Account or otherwise
received by Lender, whether in respect of the Accounts or as Proceeds of other
Collateral or otherwise (except for proceeds of Collateral which are required to
be delivered to the holder of a Permitted Lien which is prior in right of
payment), will be applied on account of the Obligations in accordance with the
terms of this Agreement. Each Borrower agrees to pay all fees, costs and
expenses in connection with opening and maintaining the Lock Box and Lock Box
Account. All of such fees, costs and expenses shall constitute Obligations
hereunder, shall be payable to Lender by Borrowers upon demand and, until paid,
shall bear interest at the highest rate then applicable to Loans hereunder. All
checks, drafts, instruments and other items of payment or Proceeds of Collateral
shall be endorsed by the applicable Borrower to Lender, and, if that endorsement
of any such item shall not be made for any reason, Lender is hereby irrevocably
authorized to endorse the same on such Borrower's behalf. For the purpose of
this section, each Borrower irrevocably hereby makes, constitutes and appoints
Lender (and all Persons designated by Lender for that purpose) as such
Borrower's true and lawful attorney and agent-in-fact (i) to endorse such
Borrower's name upon said items of payment and/or Proceeds of Collateral and
upon any Chattel Paper, Document, Instrument, invoice or similar document or
agreement relating to any Account of such Borrower or Goods pertaining thereto;
(ii) to take control in any manner of any item of payment or Proceeds thereof
and (iii) to have access to any lock box or postal box into which any of such
Borrower's mail is deposited, and open and process all mail addressed to such
Borrower and deposited therein.
(b) Lender may, at any time and from time to time after the
occurrence and during the continuance of an Event of Default, whether before or
after notification to any Account Debtor and whether before or after the
maturity of any of the Obligations, (i) enforce collection of any of Borrowers'
Accounts or other amounts owed to a Borrower by suit or otherwise; (ii) exercise
all of such Borrower's rights and remedies with respect to proceedings brought
to collect any Accounts or other amounts owed to such Borrower; (iii) surrender,
release or exchange all or any part of any Accounts or other amounts owed to
such Borrower, or compromise or extend or renew for any period (whether or not
longer than the original period) any indebtedness thereunder; (iv) sell or
assign any Account of such Borrower or other amount owed to such Borrower upon
such terms, for such amount and at such time or times as Lender deems advisable;
(v) prepare, file and sign such Borrower's name on any proof of claim in
bankruptcy or other similar document against any Account Debtor or other Person
obligated to
11
such Borrower; and (vi) do all other acts and things which are necessary, in
Lender's sole discretion, to fulfill such Borrower's obligations under this
Agreement and the Other Agreements and to allow Lender to collect the Accounts
or other amounts owed to such Borrower. In addition to any other provision
hereof, Lender may at any time, whether before or after the occurrence and
during the continuance of an Event of Default, at Borrowers' expense, notify any
parties obligated on any of the Accounts to make payment directly to Lender of
any amounts due or to become due thereunder.
(c) For purposes of calculating interest and fees, Lender shall,
within two (2) Business Days after receipt by Lender at its office in Chicago,
Illinois of (i) checks and (ii) cash or other immediately available funds from
collections of items of payment and Proceeds of any Collateral, apply the whole
or any part of such collections or Proceeds against the Obligations in such
order as Lender shall determine in its sole discretion. For purposes of
determining the amount of Loans available for borrowing purposes, checks and
cash or other immediately available funds from collections of items of payment
and Proceeds of any Collateral shall be applied in whole or in part against the
Obligations, in such order as Lender shall determine in its sole discretion, on
the day of receipt, subject to actual collection.
(d) On a monthly basis, Lender shall deliver to Borrowers an account
statement showing all Loans, charges and payments, which shall be deemed final,
binding and conclusive upon Borrowers unless a Borrower notifies Lender in
writing, specifying any error therein, within thirty (30) days of the date such
account statement is sent to Borrowers, and any such notice shall only
constitute an objection to the items specifically identified.
9. COLLATERAL, AVAILABILITY AND FINANCIAL REPORTS AND SCHEDULES.
(a) Weekly Reports. Each Borrower shall deliver to Lender an
executed borrowing base certificate in the form of Exhibit B on a weekly basis
(via facsimile with original to follow via U.S. Mail), and otherwise, from time
to time, to the extent requested by Lender in connection with any Revolving Loan
requested of Borrowers which shall be accompanied by copies of such Borrower's
sales journal, cash receipts journal and credit memo journal for the relevant
period. Such borrowing base certificate shall reflect the activity of such
Borrower with respect to Accounts for the immediately preceding period, and
shall be in a form and with such specificity as is satisfactory to Lender and
shall contain such additional information concerning Accounts and Inventory as
may be requested by Lender, including, without limitation, but only if
specifically requested by Lender, copies of all invoices prepared in connection
with such Accounts.
(b) Monthly Reports. Borrowers shall deliver to Lender, in addition
to any other reports, as soon as practicable and in any event: (i) within ten
(10) days after the end of each month, (A) a detailed trial balance of each
Borrower's Accounts aged per invoice date, in form and substance reasonably
satisfactory to Lender, including, without limitation, the names and addresses
of all Account Debtors of each Borrower, and (B) a summary and detail of
accounts payable (such Accounts and accounts payable divided into such time
intervals as Lender may require in its sole discretion), including a listing of
any held checks; (ii) within ten (10) days after the end of each month, the
general ledger inventory account balance, a perpetual
12
inventory report and Lender's standard form of Inventory report then in effect
or the form most recently requested from Borrowers by Lender, for each Borrower
by each category of Inventory, together with a description of the monthly change
in each category of Inventory; and (iii) within ten (10) days after the end of
each month, a month-end Borrowing Base Certificate that reconciles to all
month-end reports, in form and substance acceptable to Lender.
(c) Financial Statements. Borrowers shall deliver to Lender the
following financial information, all of which shall be prepared in accordance
with GAAP consistently applied, and shall be accompanied by a certificate in the
form of Exhibit B hereto, which compliance certificate ("Compliance
Certificate") signed by the Chief Financial Officer or President of Borrowers,
which shall (x) set forth in reasonable detail the calculations for the
financial covenants contained in Section 14 hereof and (y) state that, based
upon an examination sufficient to permit him to make an informed statement, no
Default or Event of Default exists, or if such is not the case, specifying such
Default or Event of Default, its nature, when it occurred, whether it is
continuing the steps begin taken by Borrowers with respect thereto: (i) no later
than thirty (30) days after each calendar month, copies of internally prepared
financial statements, including, without limitation, balance sheets and
statements of income, of such Borrowers from and after the month ending April
30, 2004 on a consolidated and consolidating (separately for each Borrower)
basis, certified by the chief financial officer of each Borrower; (ii) no later
than thirty (30) days after the end of each of the first three quarters of each
Borrower's Fiscal Year, copies of internally prepared financial statements,
including, without limitation, balance sheets, statements of income, retained
earnings, cash flows and reconciliation of surplus of Borrowers on a
consolidated and consolidating (separately for each Borrower) basis, certified
by the chief financial officer of Borrowers; and (iii) no later than ninety (90)
days after the end of each of Borrowers' Fiscal Years, audited annual
consolidated and consolidating (separately for each Borrower) financial
statements with an unqualified opinion by independent certified public
accountants selected by Borrowers and reasonably satisfactory to Lender, which
financial statements shall be accompanied by (A) a letter from such accountants
acknowledging that they are aware that a primary intent of Borrowers in
obtaining such financial statements is to influence Lender and that Lender is
relying upon such financial statements in connection with the exercise of its
rights hereunder, provided, that Borrower shall only be required to use its
reasonable efforts exercised in good faith to obtain such letter; and (B) copies
of any management letters sent to a Borrower by such accountants.
(d) Annual Projections. As soon as practicable and in any event no
less than thirty (30) days prior to the beginning of each Fiscal Year, Borrowers
shall deliver to Lender projected balance sheets, statements of income and cash
flow for Borrowers on a consolidated and consolidating basis, for each of the
twelve (12) months during such Fiscal Year, which shall include the assumptions
used therein, together with appropriate supporting details as reasonably
requested by Lender.
(e) Explanation of Budgets and Projections. In conjunction with the
delivery of the annual presentation of projections or budgets referred to in
Subsection 9(d) above, Borrowers shall deliver a letter, signed by the president
or a vice president of each Borrower and by the treasurer or chief financial
officer of each Borrower, describing, comparing and analyzing, in detail, all
changes and developments between the anticipated financial results included in
such projections or budgets and the historical financial statements of
Borrowers.
13
(f) Public Reporting. Promptly upon the filing thereof, each
Borrower shall deliver to Lender copies of all registration statements and
annual, quarterly, monthly or other regular reports which such Borrower or any
of its Subsidiaries files with the Securities and Exchange Commission, as well
as promptly providing to Lender copies of any reports and proxy statements
delivered to its shareholders.
(g) Appraisals. Borrowers shall deliver (i) an updated Equipment
appraisal in form and substance acceptable to Lender, no later than March 31,
2004 (the "Initial 2004 M & E Appraisal") and (ii) an Inventory appraisal, in
form and substance acceptable to Lender, on or before March 31, 2004 and
thereafter not less frequently than once every 180 days.
(h) Other Information. Promptly following request therefor by
Lender, such other business or financial data, reports, appraisals and
projections as Lender may reasonably request.
10. TERMINATION; AUTOMATIC RENEWAL. THIS AGREEMENT SHALL BE IN EFFECT FOR
A PERIOD OF TWO (2) YEARS FROM THE DATE HEREOF UNTIL DECEMBER 31, 2005 (THE
"ORIGINAL TERM") AND SHALL AUTOMATICALLY RENEW ITSELF FROM YEAR TO YEAR
THEREAFTER (EACH SUCH ONE-YEAR RENEWAL BEING REFERRED TO HEREIN AS A "RENEWAL
TERM") UNLESS (A) THE DUE DATE OF THE OBLIGATIONS IS ACCELERATED PURSUANT TO
SECTION 16 HEREOF; OR (B) A BORROWER OR LENDER ELECTS TO TERMINATE THIS
AGREEMENT AT THE END OF THE ORIGINAL TERM OR AT THE END OF ANY RENEWAL TERM BY
GIVING THE OTHER PARTY WRITTEN NOTICE OF SUCH ELECTION AT LEAST NINETY (90) DAYS
PRIOR TO THE END OF THE ORIGINAL TERM OR THE THEN-CURRENT RENEWAL TERM AND IN
WHICH CASE BORROWERS SHALL PAY ALL OF THE OBLIGATIONS IN FULL ON THE LAST DAY OF
SUCH TERM. If one or more of the events specified in clauses (A) or (B) occurs
or this Agreement otherwise expires, then (i) Lender shall not make any
additional Loans on or after the date identified as the date on which the
Obligations are to be repaid; and (ii) this Agreement shall terminate on the
date thereafter that the Obligations are paid in full. At such time as Borrowers
have repaid all of the Obligations and this Agreement has terminated, each
Borrower shall deliver to Lender a release, in form and substance satisfactory
to Lender, of all obligations and liabilities of Lender and its officers,
directors, employees, agents, parents, subsidiaries and affiliates to such
Borrower, and, if such Borrower is obtaining new financing from another lender,
such Borrower shall deliver such lender's indemnification of Lender, in form and
substance satisfactory to Lender, for checks which Lender has credited to such
Borrower's account but which subsequently are dishonored for any reason or for
automatic clearinghouse or wire transfers not yet posted to such Borrower's
account. If, during the term of this Agreement, Borrowers prepay all of the
Obligations from any source other than income from the ordinary-course
operations of Borrowers' business and this Agreement is terminated, Borrowers
jointly and severally agree to pay to Lender as a prepayment fee, in addition to
the payment of all other Obligations, an amount equal to (i) three percent (3%)
of the Maximum Loan Limit if such prepayment occurs at least one (1) year prior
to the end of the Original Term, or (ii) two percent (2%) of the Maximum Loan
Limit if such prepayment occurs less than one (1) year prior to the end of the
Original Term or any then-current Renewal Term; provided,
14
however, such prepayment fee shall be waived if repayment is made within ninety
(90) days prior to the end of the Original Term or any then current Renewal
Term.
11. REPRESENTATIONS AND WARRANTIES. Each Borrower hereby represents and
warrants to Lender, which representations and warranties (whether appearing in
this Section 11 or elsewhere) shall be true at the time of Borrowers' execution
hereof and the closing of the transactions described herein or related hereto,
shall remain true until the repayment in full and satisfaction of all the
Obligations and termination of this Agreement, and shall be remade by each
Borrower at the time each Loan is made pursuant to this Agreement.
(a) Financial Statements and Other Information. The financial
statements and other information delivered or to be delivered by Borrowers to
Lender at or prior to the date of this Agreement fairly present, in all material
respects, the financial condition of Borrowers, and there has been no adverse
change in the financial condition, the operations or any other status of a
Borrower since the date of the financial statements delivered to Lender most
recently prior to the date of this Agreement. All written information now or
heretofore furnished by each Borrower to Lender is true and correct as of the
date with respect to which such information was furnished.
(b) Locations; Certain Collateral. The office where each Borrower
keeps its books, records and accounts (or copies thereof) concerning the
Collateral, each Borrower's principal place of business and all of each
Borrower's other places of business, locations of Collateral and post office
boxes and locations of bank accounts are as set forth in Schedule 11(b) and at
other locations within the continental United States of which Lender has been
advised by a Borrower in accordance with Subsection 12(b)(i). The Collateral,
including, without limitation, the Equipment (except any part thereof which a
Borrower shall have advised Lender in writing consists of Collateral normally
used in more than one state) is kept, or, in the case of vehicles, based, only
at the addresses set forth on Schedule 11(b), and at other locations within the
continental United States of which Lender has been advised by a Borrower in
writing in accordance with Subsection 12(b)(i) hereof. Schedule 11(b) hereto
contains a complete listing of all of Borrower's (a) Intellectual Property which
is subject to registration statutes and licenses of Intellectual Property to
which Borrower is a party (whether as licensor or licensee), (b) Instruments
(other than Instruments deposited for collection in the ordinary course of
business), (c) Deposit Accounts, (d) Investment Property, (e) Letter-of-Credit
Rights, (f) Chattel Paper, (g) Documents, (h) Commercial Tort Claims, (i)
Collateral which is subject to certificate of title statutes and (j) tangible
Collateral located with any bailee, warehousemen or other third parties.
(c) Loans by Borrower. No Borrower has made any loans or advances to
any Affiliate or other Person except for advances authorized hereunder to
employees, officers and directors of such Borrower for travel and other expenses
arising in the ordinary course of such Borrower's business and loans permitted
pursuant to Subsection 13(e) hereof.
(d) Accounts and Inventory. Each Account or item of Inventory which
a Borrower shall, expressly or by implication, request Lender to classify as an
Eligible Account or as Eligible Inventory, respectively, shall, as of the time
when such request is made, conform in all respects to the requirements of such
classification as set forth in the respective definitions of
15
"Eligible Account" and "Eligible Inventory" as set forth herein and as otherwise
established by Lender from time to time.
(e) Liens. Each Borrower is the lawful owner of all Collateral now
purportedly owned or hereafter purportedly acquired by such Borrower, free from
all Liens, other than the Permitted Liens.
(f) Organization, Authority and No Conflict. Each Borrower is a
corporation, duly organized, validly existing and in good standing in the State
of Illinois, and such Borrower is duly qualified and in good standing in all
states where the nature and extent of the business transacted by it or the
ownership of its assets makes such qualification necessary or, if such Borrower
is not so qualified, such Borrower may cure any such failure without losing any
of its rights, incurring any Liens or material penalties or otherwise affecting
Lender's rights. CTI Industries' State Organization Identification Number is
6178-634-1 and CTI Helium's State Organizational Identification Number is
6201-017-7. Each Borrower has the right and power and is duly authorized and
empowered to enter into, execute and deliver this Agreement and the Other
Agreements and perform its obligations hereunder and thereunder. Each Borrower's
execution, delivery and performance of this Agreement and the Other Agreements
do not conflict with the provisions of the organizational documents of such
Borrower, any statute, regulation, ordinance or rule of law, or any agreement,
contract or other document which may now or hereafter be binding on such
Borrower, except for conflicts with agreements, contracts or other documents
which would not have a Material Adverse Effect on such Borrower, and each
Borrower's execution, delivery and performance of this Agreement and the Other
Agreements shall not result in the imposition of any Lien upon any of such
Borrower's property (other than Permitted Liens) under any existing indenture,
mortgage, deed of trust, loan or credit agreement or other agreement or
instrument by which such Borrower or any of its property may be bound or
affected.
(g) Litigation. Except as disclosed to Lender on Schedule 11(g)
hereto, there are no actions or proceedings which are pending or, to the best of
Borrower's knowledge, threatened against a Borrower which are, in the
determination of Lender, reasonably likely to have a Material Adverse Effect on
such Borrower, and each Borrower shall, promptly upon becoming aware of any such
pending or threatened action or proceeding, give written notice thereof to
Lender.
(h) Compliance with Laws and Maintenance of Permits. Each Borrower
has obtained all governmental consents, franchises, certificates, licenses,
authorizations, approvals and permits, the lack of which would have a Material
Adverse Effect on such Borrower. Each Borrower is in compliance in all material
respects with all applicable federal, state, local and foreign statutes, orders,
regulations, rules and ordinances (including, without limitation, Environmental
Laws and statutes, orders, regulations, rules and ordinances relating to taxes,
employer and employee contributions and similar items, securities, ERISA or
employee health and safety) the failure to comply with which would have a
Material Adverse Effect on such Borrower.
(i) Affiliate Transactions. Except as set forth on Schedule 11(i)
hereto or as permitted pursuant to Subsection 11(c) hereof, no Borrower is
conducting, permitting or
16
suffering to be conducted, transactions with any Affiliate other than
transactions with Affiliates for the purchase or sale of Inventory or services
in the ordinary course of business pursuant to terms that are no less favorable
to such Borrower than the terms upon which such transactions would have been
made had they been made to or with a Person that is not an Affiliate.
(j) Names and Trade Names. Each Borrower's name has always been as
set forth on the first page of this Agreement and no Borrower uses trade names,
assumed names, fictitious names or division names in the operation of its
business, except as set forth on Schedule 11(j) hereto.
(k) Equipment. Except for Permitted Liens, each Borrower has good
and indefeasible and merchantable title to and ownership of all Equipment. No
Equipment is a Fixture to real estate unless such real estate is owned by such
Borrower and is subject to a mortgage or mortgagee agreement in favor of Lender
or, if such real estate is leased, is subject to a landlord's agreement in favor
of Lender on terms acceptable to Lender, or an accession to other personal
property unless such personal property is subject to a first-priority Lien in
favor of Lender.
(l) Enforceability. This Agreement and the Other Agreements to which
a Borrower is a party are the legal, valid and binding obligations of such
Borrower and are enforceable against such Borrower in accordance with their
respective terms.
(m) Solvency. Each Borrower, after giving effect to the transactions
contemplated hereby, is solvent, is able to pay its debts as they become due,
has capital sufficient to carry on its business, now owns property having a
value both at fair valuation and at present fair saleable value greater than the
amount required to pay its debts, and will not be rendered insolvent by the
execution and delivery of this Agreement or any of the Other Agreements or by
completion of the transactions contemplated hereunder or thereunder.
(n) Indebtedness. Except as set forth on Schedule 11(n) hereto, no
Borrower is obligated (directly or indirectly) for any Indebtedness other than
the Loans.
(o) Margin Security and Use of Proceeds. No Borrower owns any margin
securities, and none of the proceeds of the Loans hereunder shall be used for
the purpose of purchasing or carrying any margin securities or for the purpose
of reducing or retiring any indebtedness which was originally incurred to
purchase any margin securities or for any other purpose not permitted by
Regulation U of the Board of Governors of the Federal Reserve System as in
effect from time to time.
(p) Parent, Subsidiaries and Affiliates. Except as set forth on
Schedule 11(p) hereto, no Borrower has any Parents, Subsidiaries or other
Affiliates or divisions, nor is any Borrower engaged in any joint venture or
partnership with any other Person.
(q) No Defaults. No Borrower is in default under any material
contract, lease or commitment to which it is a party or by which it is bound,
nor does any Borrower know of any dispute regarding any contract, lease or
commitment which would have a Material Adverse Effect on such Borrower.
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(r) Employee Matters. There are no controversies pending or
threatened between a Borrower and any of its employees, agents or independent
contractors, other than employee grievances arising in the ordinary course of
business which would not, in the aggregate, have a Material Adverse Effect on
such Borrower, and each Borrower is in compliance with all federal and state
laws respecting employment and employment terms, conditions and practices except
for such noncompliance as would not have a Material Adverse Effect on such
Borrower.
(s) Intellectual Property. All patents, patent applications,
copyrights, service marks, trademarks, trademark applications, trade styles and
trade names of each Borrower are listed on Schedule 11(s) hereto, and each
Borrower possesses adequate licenses with respect thereto or necessary to
continue to conduct its business as heretofore conducted by it except to the
extent that the failure to possess such items would not have a Material Adverse
Effect on Borrower and each such license is described on Schedule 11(s) hereto.
(t) Environmental Matters. No Borrower has generated, used, stored,
treated, transported, manufactured, handled, produced or disposed of any
Hazardous Materials, on or off its premises (whether or not owned by it) in any
manner which at any time violates any Environmental Law or any license, permit,
certificate, approval or similar authorization thereunder, and the operations of
each Borrower comply in all material respects with all Environmental Laws and
all licenses, permits, certificates, approvals and similar authorizations
thereunder. There has been no investigation, proceeding, complaint, order,
directive, claim, citation or notice by any governmental authority or any other
Person, nor is any pending or to the best of each Borrower's knowledge
threatened with respect to any noncompliance with or violation of the
requirements of any Environmental Law by a Borrower or the release, spill or
discharge, threatened or actual, of any Hazardous Materials or the generation,
use, storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials or any other environmental, health or safety
matter which affects a Borrower or its business, operations or assets or any
properties at which a Borrower has transported, stored or disposed of any
Hazardous Materials. No Borrower has any material liability (contingent or
otherwise) in connection with a release, spill or discharge, threatened or
actual, of any Hazardous Materials or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Materials.
(u) ERISA Matters. Each Borrower has paid and discharged all
obligations and liabilities arising under ERISA of a character which, if unpaid
or unperformed, might result in the imposition of a Lien against any of its
properties or assets.
(v) Collective Enterprise. Borrowers are engaged in the businesses
of purchasing, selling, distributing, developing and/or manufacturing helium gas
and/or balloons, punch balls and other inflatable toy products, films and
flexible containers as of the date hereof, as well as in certain other
businesses. These operations require financing on a basis such that the credit
supplied can be made available from time to time to Borrowers, as required for
the continued successful operation of Borrowers taken as a whole. Borrowers have
requested the Lender make credit available hereunder primarily for the purposes
of Subsection 12(g) and generally for the purposes of financing the operations
of Borrowers. Each Borrower expects to derive benefit (and the Board of
Directors of each Borrower has determined that such Borrower
18
may reasonably be expected to derive benefit), directly or indirectly, from a
portion of the credit extended by Lender hereunder, both in its separate
capacity and as a member of the group of companies, since the successful
operation and condition of each Borrower is dependent on the continued
successful performance of the functions of the group as a whole. Each Borrower
acknowledges that, but for the agreement of each of the other Borrowers to
execute and deliver this Agreement, Lender would not have made available the
credit facilities established hereby on the terms set forth herein.
12. AFFIRMATIVE COVENANTS. Until payment and satisfaction in full of all
Obligations and termination of this Agreement, unless Borrowers obtain Lender's
prior written consent waiving or modifying any of Borrowers' covenants hereunder
in any specific instance, each Borrower covenants and agrees as follows:
(a) Maintenance of Records. Each Borrower shall at all times keep
accurate and complete books, records and accounts with respect to all of such
Borrower's business activities, in accordance with sound accounting practices
and GAAP consistently applied, and shall keep such books, records and accounts,
and any copies thereof, only at the addresses indicated for such purpose on
Schedule 11(b).
(b) Notices. Each Borrower shall:
(i) Locations. Promptly (but in no event less than ten (10)
days prior to the occurrence thereof) notify Lender of the proposed
opening of any new place of business or new location of Collateral, the
closing of any existing place of business or location of Collateral, any
change of in the location of such Borrower's books, records and accounts
(or copies thereof), the opening or closing of any post office box, the
opening or closing of any bank account or, if any of the Collateral
consists of Goods of a type normally used in more than one state, the use
of any such Goods in any state other than a state in which such Borrower
has previously advised Lender that such Goods will be used.
(ii) Eligible Accounts and Inventory. Promptly upon becoming
aware thereof, notify Lender if any Account or Inventory identified by
such Borrower to Lender as an Eligible Account or Eligible Inventory
becomes ineligible for any reason.
(iii) Litigation and Proceedings. Promptly upon becoming aware
thereof, notify Lender of any actions or proceedings which are pending or
threatened against such Borrower which might have a Material Adverse
Effect on such Borrower and of any Commercial Tort Claims of such Borrower
which may arise, which notice shall constitute such Borrower's
authorization to amend Schedule 11(b) to add such Commercial Tort Claim.
(iv) Names and Trade Names. Notify Lender within ten (10) days
of the change of its name or the use of any trade name, assumed name,
fictitious name or division name not previously disclosed to Lender in
writing.
(v) ERISA Matters. Promptly notify Lender of (x) the
occurrence of any "reportable event" (as defined in ERISA) which might
result in the termination by
19
the Pension Benefit Guaranty Corporation (the "PBGC") of any employee
benefit plan ("Plan") covering any officers or employees of such Borrower,
any benefits of which are, or are required to be, guaranteed by the PBGC,
(y) receipt of any notice from the PBGC of its intention to seek
termination of any Plan or appointment of a trustee therefor or (z) its
intention to terminate or withdraw from any Plan.
(vi) Environmental Matters. Immediately notify Lender upon
becoming aware of any investigation, proceeding, complaint, order,
directive, claim, citation or notice with respect to any noncompliance
with or violation of the requirements of any Environmental Law by such
Borrower or the generation, use, storage, treatment, transportation,
manufacture handling, production or disposal of any Hazardous Materials or
any other environmental, health or safety matter which affects such
Borrower or its business operations or assets or any properties at which
such Borrower has transported, stored or disposed of any Hazardous
Materials unless the foregoing could not reasonably be expected to have a
Material Adverse Effect on Borrower.
(vii) Default; Material Adverse Change. Promptly advise Lender
of any material adverse change in the business, property, assets,
prospects, operations or condition, financial or otherwise, of such
Borrower, the occurrence of any Event of Default hereunder or the
occurrence of any event which, if uncured, will become an Event of Default
after notice or lapse of time, or both.
(viii) Subordinated Debt. Promptly advise Lender of any
default or any event which, with the giving of notice or lapse of time, or
both, would constitute a default, under any subordination agreement
relative to Subordinated Debt, or any agreement, instrument or document
evidencing or relating to any Subordinated Debt, and a certificate of a
authorized officer of Borrower specifying the nature thereof and
Borrower's proposed response thereto, in reasonable detail.
All of the foregoing notices shall be provided by Borrowers to Lender in
writing.
(c) Compliance with Laws and Maintenance of Permits. Each Borrower
shall maintain all governmental consents, franchises, certificates, licenses,
authorizations, approvals and permits the lack of which would have a Material
Adverse Effect on such Borrower, and each Borrower shall remain in compliance
with all applicable federal, state, local and foreign statutes, orders,
regulations, rules and ordinances (including, without limitation, Environmental
Laws and statutes, orders, regulations, rules and ordinances relating to taxes,
employer and employee contributions and similar items, securities, ERISA or
employee health and safety) the failure to comply with which would have a
Material Adverse Effect on such Borrower. Following any determination by Lender
that there is noncompliance, or any condition which requires any action by or on
behalf of a Borrower in order to avoid noncompliance, with any Environmental
Law, such Borrower shall at such Borrower's expense cause an independent
environmental engineer acceptable to Lender to conduct such tests of the
relevant site(s) as are appropriate and prepare and deliver a report setting
forth the results of such tests, a proposed plan for remediation and an estimate
of the costs thereof.
20
(d) Inspection and Audits. Each Borrower shall permit Lender, or any
Persons designated by it, to call at such Borrower's places of business at any
reasonable times and, without hindrance or delay, to inspect the Collateral and
to inspect, audit, check and make extracts from such Borrower's books, records,
journals, orders, receipts and any correspondence and other data relating to
such Borrower's business, the Collateral or any transactions between the parties
hereto, and Lender shall have the right to make such verification concerning
such Borrower's business as Lender may consider reasonable under the
circumstances. Each Borrower shall furnish to Lender such information relevant
to Lender's rights under this Agreement and the Other Agreements as Lender shall
at any time and from time to time request. Lender, through its officers,
employees or agents shall have the right, at any time and from time to time, in
Lender's name, to verify the validity, amount or any other matter relating to
any of such Borrower's Accounts, by mail, telephone, telecopy, electronic mail
or otherwise. Each Borrower authorizes Lender to discuss the affairs, finances
and business of such Borrower with any officers, employees or directors of such
Borrower, or with its Parent or any Affiliate or the officers, employees or
directors of its Parent or any Affiliate, and to discuss the financial condition
of such Borrower with such Borrower's independent public accountants. Any such
discussions shall be without liability to Lender or to Borrowers' independent
public accountants. Borrowers shall pay to Lender all customary fees (currently
$750 per person per day) and all costs and out-of-pocket expenses incurred by
Lender in the exercise of its rights hereunder, and all of such fees, costs and
expenses shall constitute Obligations hereunder, shall be payable on demand and,
until paid, shall bear interest at the highest rate then applicable to Loans
hereunder. So long as no Event of Default exists, Lender intends to conduct
audits based upon a 90 day audit schedule and so long as no Event of Default
exists, Lender shall use reasonable efforts to notify Borrowers of any change in
such audit schedule.
(e) Insurance. Each Borrower shall:
(i) Keep the Collateral properly housed and insured for the
full insurable value thereof against loss or damage by fire, theft,
explosion, sprinklers, collision (in the case of motor vehicles) and such
other risks as are customarily insured against by Persons engaged in
businesses similar to that of such Borrower, with such companies, in such
amounts, with such deductibles, and under policies in such form, as shall
be satisfactory to Lender. Original (or certified) copies of such policies
of insurance have been or shall be, within ninety (90) days of the date
hereof, delivered to Lender, together with evidence of payment of all
premiums therefor, and shall contain an endorsement, in form and substance
acceptable to Lender, showing loss under such insurance policies payable
to Lender. Such endorsement, or an independent instrument furnished to
Lender, shall provide that the insurance company shall give Lender at
least thirty (30) days' written notice before any such policy of insurance
is altered or cancelled and that no act, whether willful or negligent, or
default of such Borrower or any other Person shall affect the right of
Lender to recover under such policy of insurance in case of loss or
damage. In addition, each Borrower shall cause to be executed and
delivered to Lender an assignment of proceeds of its business interruption
insurance policies. Each Borrower hereby directs all insurers under all
policies of insurance to pay all proceeds payable thereunder directly to
Lender. Each Borrower irrevocably makes, constitutes and appoints Lender
(and all officers, employees or agents designated by Lender) as such
Borrower's true and lawful attorney (and agent-in-fact) for the purpose of
making,
21
settling and adjusting claims under such policies of insurance, endorsing
the name of such Borrower on any check, draft, instrument or other item of
payment for the proceeds of such policies of insurance and making all
determinations and decisions with respect to such policies of insurance,
provided however, that if no Event of Default shall have occurred and is
continuing, Borrower may make, settle and adjust claims involving less
than $25,000 in the aggregate without Lenders' consent.
(ii) Maintain, at its expense, such public liability and
third-party property damage insurance as is customary for Persons engaged
in businesses similar to that of such Borrower with such companies and in
such amounts, with such deductibles and under policies in such form as
shall be satisfactory to Lender and original (or certified) copies of such
policies have been or shall be, within ninety (90) days after the date
hereof, delivered to Lender, together with evidence of payment of all
premiums therefor; each such policy shall contain an endorsement showing
Lender as additional insured thereunder and providing that the insurance
company shall give Lender at least thirty (30) days' written notice before
any such policy shall be altered or cancelled.
If a Borrower at any time or times hereafter shall fail to obtain or maintain
any of the policies of insurance required above or to pay any premium relating
thereto, then Lender, without waiving or releasing any obligation or default by
Borrowers hereunder, may (but shall be under no obligation to) obtain and
maintain such policies of insurance and pay such premiums and take such other
actions with respect thereto as Lender deems advisable. Such insurance, if
obtained by Lender, may, but need not, protect such Borrower's interests or pay
any claim made by or against such Borrower with respect to the Collateral. Such
insurance may be more expensive than the cost of insurance such Borrower may be
able to obtain on its own and may be cancelled only upon such Borrower providing
evidence that it has obtained the insurance as required above. All sums
disbursed by Lender in connection with any such actions, including, without
limitation, court costs, expenses, other charges relating thereto and reasonable
attorneys' fees, shall constitute Loans hereunder, shall be payable on demand by
Borrowers to Lender and, until paid, shall bear interest at the highest rate
then applicable to Loans hereunder.
(f) Collateral. Each Borrower shall keep the Collateral in good
condition, repair and order and shall make all necessary repairs to the
Equipment and replacements thereof so that the operating efficiency and the
value thereof shall at all times be preserved and maintained in all material
respects. Each Borrower shall permit Lender to examine any of the Collateral at
any time and wherever the Collateral may be located, and each Borrower shall,
immediately upon request therefor by Lender, deliver to Lender any and all
evidence of ownership of any of the Equipment, including, without limitation,
certificates of title and applications of title. Each Borrower shall, at the
request of Lender, indicate on its records concerning the Collateral a notation,
in form satisfactory to Lender, of the security interest of Lender hereunder.
If, prior to the termination of this Agreement, Borrower shall obtain rights to
any new Collateral of the type described in the last sentence of Subsection
11(b), Borrower shall notify Lender in writing (with reasonable detail) of such
changes at least once every thirty (30) days. Borrower hereby authorizes Lender
to unilaterally modify this Agreement by amending Schedule 11(b) to include any
such Collateral. Notwithstanding the foregoing, Borrower hereby agrees that
Lender's security interest shall extend to all such Collateral, regardless of
whether Lender actually amends Schedule 11(b).
22
(g) Use of Proceeds. All monies and other property obtained by a
Borrower from Lender pursuant to this Agreement shall be used solely for the
refinancing of certain indebtedness of each Borrower and for business purposes
of such Borrower.
(h) Taxes. Each Borrower shall file all required tax returns and pay
all of its taxes when due, subject to any extensions granted by the applicable
taxing authority, including, without limitation, taxes imposed by federal, state
or municipal agencies, and shall cause any Liens for taxes to be promptly
released; provided, that such Borrower shall have the right to contest the
payment of such taxes in good faith by appropriate proceedings so long as (i)
the amount so contested is shown on such Borrower's financial statements; (ii)
the contesting of any such payment does not give rise to a Lien for taxes; (iii)
such Borrower keeps on deposit with Lender (such deposit to be held without
interest) or a reserve is maintained against such Borrower's availability to
borrow money under Subsection 2(a), in either case in an amount of money which,
in the sole judgment of Lender, is sufficient to pay such taxes and any interest
or penalties that may accrue thereon; and (iv) if such Borrower fails to
prosecute such contest with reasonable diligence, Lender may apply the money so
deposited in payment of such taxes. If a Borrower fails to pay any such taxes
and in the absence of any such contest by such Borrower, Lender may (but shall
be under no obligation to) advance and pay any sums required to pay any such
taxes and/or to secure the release of any Lien therefor, and any sums so
advanced by Lender shall constitute Loans hereunder, shall be payable by such
Borrower to Lender on demand and, until paid, shall bear interest at the highest
rate then applicable to Loans hereunder.
(i) Intellectual Property. Each Borrower shall maintain adequate
licenses, patents, patent applications, copyrights, service marks, trademarks,
trademark applications, tradestyles and trade names to continue its business as
heretofore conducted by it or as hereafter conducted by it unless the failure to
maintain any of the foregoing could not reasonably be expected to have a
Material Adverse Effect on such Borrower.
(j) Financial Services Accounts. Each Borrower covenants and agrees,
at all times during the term of this Agreement, to utilize the Lender as its
primary bank of account and depository for all financial services, including all
receipts, disbursements, cash management and related services. In the event that
the average collected balances of each Borrower are not sufficient to cover the
costs of related activity, the account of such Borrower will be subject to the
standard charges of the Lender, which shall be debited against such account on a
monthly basis.
(k) Key Man Insurance. The Borrowers shall at all times (i) maintain
key man life insurance on the life of Mr. Howard Schwan in a face amount equal
to at least Two Million and No/100 Dollars ($2,000,000), in form and substance,
and issued by an insurance company, acceptable to Lender in its sole discretion
(collectively, the "Key Man Insurance"), and (ii) cause the Key Man Insurance
and all proceeds thereof to be validly assigned to Lender, and subject to the
first priority perfected security interest of Lender, and subject to no other
Lien other than Permitted Liens. Borrowers shall obtain such policy and deliver
an assignment executed on behalf of the insurer and reasonably acceptable to
Lender on the Closing Date.
(l) Keepwell Obligations. Borrowers shall deliver to Lender a
Keepwell Agreement in favor of Lender of certain principal shareholders of
Borrowers (which are
23
acceptable to Lender), pursuant to which such principals shall agree to, at the
option of Lender in its sole discretion, either (i) a Subordinated Debt
investment into CTI Industries, or (ii) execute and deliver to Lender an
individual guaranty of the Obligations of the Borrowers, in each case
(collectively, the "Principal Investment Amount") in an amount not less than the
following:
(A) If the orderly liquidation value of the Equipment of the Borrowers set
forth in the Initial 2004 M & E Appraisal is less than $4,120,000, then such
Principal Investment Amount shall be an amount equal to the positive difference
between (x) $4,120,000 and (y) the amount set forth in the Initial 2002 M & E
Appraisal for the orderly liquidation value of the Equipment of Borrowers; and
(B) If the forced liquidation value of the Equipment of Borrowers as set
forth in the Initial 2002 M & E Appraisal is less than the then outstanding
principal amount of the Term Loan, then the Principal Investment Amount shall be
an amount equal to the positive difference between (x) the amount of the forced
liquidation value of the Equipment of Borrowers as set forth in the Initial 2004
M & E Appraisal, and (y) the then outstanding principal amount of the Term Loan,
as of the date of such Initial 2004 M & E Appraisal.
13. NEGATIVE COVENANTS. Until payment and satisfaction in full of all
Obligations and termination of this Agreement, unless Borrowers obtain Lender's
prior written consent waiving or modifying any of Borrowers' covenants hereunder
in any specific instance, each Borrower agrees as follows:
(a) Indebtedness. No Borrower shall create, incur, assume or become
obligated (directly or indirectly), for any Indebtedness other than the Loans,
except that a Borrower may (i) incur Subordinated Debt; (ii) maintain its
present Indebtedness listed on Schedule 11(n) hereto; and (iii) incur purchase
money Indebtedness or Capital Lease Obligations in connection with Capital
Expenditures permitted pursuant to Subsection 14(c) hereof. Borrower shall not
make any payment of any part or all of any Subordinated Debt or take any other
action or omit to take any other action in respect of any Subordinated Debt,
except in accordance with the Subordination Agreement relative thereto or the
subordination provisions thereof; or amend or modify any agreement, instrument
or document evidencing or relating to any Subordinated Debt. Borrowers may make
regularly scheduled payments in respect of Subordinated Debt existing as of the
Closing Date (and not prepayments) of (i) interest only, not to exceed an
aggregate amount of $210,000 in any Fiscal Year of Borrowers, and (ii) principal
not to exceed an aggregate amount of $60,000 in any Fiscal Year of Borrowers, in
each case if and only to the extent that, after giving effect to such payment:
(x) no Default or Event of Default exists or would result from such payment, and
(y) Borrowers will have Excess Availability of not less than $150,000.
(b) Liens. No Borrower shall grant or permit to exist (voluntarily
or involuntarily) any Lien on any of its assets, other than Permitted Liens.
(c) Mergers, Sales, Acquisitions, Subsidiaries and Other
Transactions Outside the Ordinary Course of Business. No Borrower shall (i)
enter into any merger or consolidation; (ii) change its state of organization or
enter into any transaction which has the effect of changing its state of
organization; (iii) sell, lease or otherwise dispose of any of its
24
assets other than in the ordinary course of business; (iv) purchase the stock,
other equity interests or all or a material portion of the assets of any Person
or division of such Person; or (v) enter into any other transaction outside the
ordinary course of such Borrower's business, including, without limitation, any
purchase, redemption or retirement of any shares of any class of its stock or
any other equity interest, and any issuance of any shares of, or warrants or
other rights to receive or purchase any shares of, any class of its stock or any
other equity interest. No Borrower shall form any Subsidiaries or enter into any
joint ventures or partnerships with any other Person.
(d) Dividends and Distributions. No Borrower shall declare or pay
any dividend or other distribution (whether in cash or in kind) on any class of
its stock (if such Borrower is a corporation) or on account of any equity
interest in such Borrower (if such Borrower is a partnership, limited liability
company or other type of entity).
(e) Investments; Loans. No Borrower shall purchase or otherwise
acquire, or contract to purchase or otherwise acquire, the obligations or stock
of any Person, other than direct obligations of the United States, obligations
insured by the Federal Deposit Insurance Corporation and obligations
unconditionally guaranteed by the United States; nor shall a Borrower lend or
otherwise advance funds to any Person except for advances made to employees,
officers and directors for travel and other expenses arising in the ordinary
course of business.
(f) Fundamental Changes, Line of Business. No Borrower shall amend
its organizational documents or change its Fiscal Year or enter into a new line
of business materially different from such Borrower's current business unless
(i) such actions would not have a Material Adverse Effect on any Borrower; (ii)
such actions would not affect the obligations of any Borrower to Lender; (iii)
such actions would not affect the interpretation of any of the terms of this
Agreement or the Other Agreements and (iv) Lender has received ten (10) days'
prior written notice of such amendment or change.
(g) Equipment. No Borrower shall (i) permit any Equipment to become
a Fixture to real property unless such real property is owned by such Borrower
and is subject to a mortgage in favor of Lender or, if such real property is
leased, is subject to a landlord's agreement in favor of Lender on terms
acceptable to Lender or (ii) permit any Equipment to become an accession to any
other personal property unless such personal property is subject to a
first-priority Lien in favor of Lender.
(h) Affiliate Transactions. Except as set forth on Schedule 11(i)
hereto or as permitted pursuant to Subsection 11(c) hereof, no Borrower shall
conduct, permit or suffer to be conducted, transactions with Affiliates other
than transactions for the purchase or sale of Inventory or services in the
ordinary course of business pursuant to terms that are no less favorable to such
Borrower than the terms upon which such transactions would have been made had
they been made to or with a Person that is not an Affiliate.
(i) Settling of Accounts. Each Borrower shall not settle or adjust
any Account identified by such Borrower as an Eligible Account or with respect
to which the Account Debtor is an Affiliate without the consent of Lender,
provided, that following the
25
occurrence and during the continuance of an Event of Default, such Borrower
shall not settle or adjust any Account without the consent of Lender.
(j) Management Fees; Compensation. No Borrower shall pay any
management or consulting fees to any shareholders of CTI Industries, or any
management employees of CTI Industries (except to the extent described on
Schedule 11(i) and existing as of the Closing Date), or pay annual aggregate
compensation, whether as salary, bonus or otherwise, to all directors or
officers of such Borrower in excess of one hundred ten percent (110%) of the
aggregate compensation, whether as salary, bonus or otherwise, to all directors,
and officers of such Borrower in effect on the date of this Agreement for the
first year and one hundred ten percent (110%) of the prior year's aggregate
compensation amount for each subsequent year. The aggregate annual compensation
amount(s) shall be adjusted each year for the net addition or loss of directors
or officers.
14. FINANCIAL COVENANTS. Each Borrower shall maintain and keep (or cause
to be maintained and kept, as the case may be) in full force and effect each of
the financial covenants set forth below:
(a) Tangible Net Worth. Borrowers' Tangible Net Worth shall not at
any time be less than the Minimum Tangible Net Worth; "Minimum Tangible Net
Worth" being defined for purposes of this Subsection as follows:
(i) $2,200,000 for the period ending December 31, 2003;
(ii) thereafter, from the first day of each Fiscal Year of Borrowers
through the last day of such Fiscal Year of Borrowers, and at the last day of
each fiscal quarter of Borrowers (on a year-to-date 12 month basis), the Minimum
Tangible Net Worth during the immediately preceding Fiscal Year or fiscal
quarter period, as applicable, plus eighty percent (80%) of Borrowers' net
income (but without reduction for any net loss) for such year-to-date period,
ending on the last day of the immediately preceding period as reflected on
Borrowers' most recent financial statements delivered to Lender pursuant to
Section 9 hereof; and
(iii) For each Fiscal Year of Borrower following the Fiscal Year ended
December 31, 2003, the Minimum Tangible Net Worth amount calculated pursuant to
clause "(ii)" above shall be based upon the Tangible Net Worth of Borrowers as
of December 31 of the immediately preceding Fiscal Year;
and "Tangible Net Worth" being defined for purposes of this Subsection as
Borrowers' shareholders' equity (including retained earnings) less the book
value of all intangible assets as determined solely by Lender on a consistent
basis plus the amount of any amount of any Subordinated Debt, all as determined
under GAAP applied on a consistent basis.
26
(b) Fixed Charge Coverage. Borrowers shall not permit the ratio of
their EBITDA to Fixed Charges for each period set forth below to be less than
the ratio set forth below for the corresponding period set forth below.
Period Ending Ratio
------------- -----
(i) For the 3 months ending December 31, 2003 .95 to 1.0
(ii) For the 6 months ending March 31, 2004 1.0 to 1.0
(iii) For the 9 months ending June 30, 2004 .95 to 1.0
(iv) For the 12 months ending September 30, 2004 .90 to 1.0
(v) For the 12 months ending December 31, 2004 .90 to 1.0
(vi) As of the last day of the month ending each 1.0 to 1.0
fiscal quarter thereafter, for the four (4)
fiscal quarters then ending
(c) Capital Expenditure Limitations. Borrowers shall not make any
Capital Expenditures if, after giving effect to such Capital Expenditure, the
aggregate cost of all such fixed assets purchased or otherwise acquired would
exceed Five Hundred Thousand and 00/100 Dollars ($500,000) during any Fiscal
Year.
(d) Operating Lease Obligations. Borrower shall not incur operating
lease obligations requiring payments in excess of $100,000 in the aggregate
during any Fiscal Year of Borrower.
15. DEFAULT. The occurrence of any one or more of the following events
shall constitute an "Event of Default" by Borrowers hereunder:
(a) Payment. The failure of any Obligor to pay when due, declared
due or demanded by Lender any of the Obligations.
(b) Breach of this Agreement and the Other Agreements. The failure
of any Obligor to perform, keep or observe any of the covenants, conditions,
promises, agreements or obligations of such Obligor under this Agreement or any
of the Other Agreements; provided that any such failure by any Borrower under
Subsections 12(b)(i), (iv), (v), (vi), 12(c) and 12(i) of this Agreement shall
not constitute an Event of Default hereunder until the fifteenth (15th) day
following the occurrence thereof.
(c) Breaches of Other Obligations. The failure of any Obligor to
perform, keep or observe any of the covenants, conditions, promises, agreements
or obligations of such Obligor under any other agreement with any Person if such
failure might have a Material Adverse Effect on such Obligor, including under
any subordination agreement relative to Subordinated Debt of such Obligor, or
any agreement, instrument or document evidencing or relating to such
Subordinated Debt.
27
(d) Breach of Representations and Warranties. The making or
furnishing by any Obligor to Lender of any representation, warranty,
certificate, schedule, report or other communication within or in connection
with this Agreement or the Other Agreements, or in connection with any other
agreement between such Obligor and Lender, which is untrue or misleading in any
respect.
(e) Loss of Collateral. The loss, theft, damage or destruction of
any of the Collateral in an amount in excess of $25,000 in the aggregate for all
such events during any year of the Original Term or any Renewal Term as
determined by Lender in its sole discretion determined in good faith, or (except
as permitted hereby) the sale, lease or furnishing under a contract of service
of any of the Collateral.
(f) Levy, Seizure or Attachment. The making or any attempt by any
Person to make any levy, seizure or attachment upon any of the Collateral.
(g) Bankruptcy or Similar Proceedings. The commencement of any
proceedings in bankruptcy by or against any Obligor or for the liquidation or
reorganization of any Obligor, or alleging that such Obligor is insolvent or
unable to pay its debts as they mature, or for the readjustment or arrangement
of any Obligor's debts, whether under the United States Bankruptcy Code or under
any other law, whether state or federal, now or hereafter existing, for the
relief of debtors, or the commencement of any analogous statutory or
nonstatutory proceedings involving any Obligor; provided, however, that if such
commencement of proceedings against such Obligor is involuntary, such action
shall not constitute an Event of Default unless such proceedings are not
dismissed within forty-five (45) days after the commencement of such
proceedings, though Lender shall have no obligation to make Loans or issue
Letters of Credit to any Borrowers during such forty-five (45) day period or, if
earlier, until such proceedings are dismissed.
(h) Appointment of Receiver. The appointment of a receiver or
trustee for any Obligor, for any of the Collateral or for any substantial part
of any Obligor's assets or the institution of any proceedings for the
dissolution, or the full or partial liquidation, or the merger or consolidation,
of any Obligor which is a corporation, limited liability company or a
partnership; provided, however, that if such appointment or commencement of
proceedings against such Obligor is involuntary, such action shall not
constitute an Event of Default unless such appointment is not revoked or such
proceedings are not dismissed within forty-five (45) days after the commencement
of such proceedings, though Lender shall have no obligation to make Loans or
issue Letters of Credit to Borrowers during such forty-five (45) day period or,
if earlier, until such appointment is revoked or such proceedings are dismissed.
(i) Judgment. The entry of any judgments or orders aggregating in
excess of $25,000 against any Obligor which remain unsatisfied or undischarged
and in effect for thirty (30) days after such entry without a stay of
enforcement or execution.
(j) Death or Dissolution of Obligor. The death of any Obligor who is
a natural Person, or of any general partner who is a natural Person of any
Obligor which is a partnership, or any member who is a natural Person of any
Obligor which is a limited liability
28
company or the dissolution of any Obligor which is a partnership, limited
liability company, corporation or other entity.
(k) Default or Revocation of Guaranty; Subordination Agreement. The
occurrence of an event of default under, or the revocation or termination of,
any agreement, instrument or document executed and delivered by any Person to
Lender pursuant to which such Person has guaranteed to Lender the payment of all
or any of the Obligations or has granted Lender a Lien upon some or all of such
Person's real and/or personal property to secure the payment of all or any of
the Obligations or has subordinated indebtedness in whole or in part to the
Obligations.
(l) Criminal Proceedings. The institution in any court of a criminal
proceeding against any Obligor which would have a Material Adverse Effect on
such Obligor, or the indictment of any Obligor for any crime other than traffic
and boating tickets and misdemeanors not punishable by jail terms.
(m) Change of Control. The occurrence of any Change of Control.
(n) Change of Management. Howard W. Schwan shall cease to be the
President of each Borrower at any time.
(o) Material Adverse Change. Any material adverse change in the
Collateral, business, property, assets, prospects, operations or condition,
financial or otherwise of any Obligor, as determined by Lender in its sole
judgment or the occurrence of any event which, in Lender's sole judgment, could
have a Material Adverse Effect.
16. REMEDIES UPON AN EVENT OF DEFAULT.
(a) Upon the occurrence and during the continuance of an Event of
Default described in Subsection 15(g) hereof, all of the Obligations shall
immediately and automatically become due and payable, without notice of any
kind. Upon the occurrence of any other Event of Default, all Obligations may, at
the option of Lender, and without demand, notice or legal process of any kind,
be declared, and immediately shall become, due and payable.
(b) Upon the occurrence and during the continuance of an Event of
Default, Lender may exercise from time to time any rights and remedies available
to it under the Uniform Commercial Code and any other applicable law in addition
to, and not in lieu of, any rights and remedies expressly granted in this
Agreement or in any of the Other Agreements and all of Lender's rights and
remedies shall be cumulative and non-exclusive to the extent permitted by law.
In particular, but not by way of limitation of the foregoing, Lender may,
without notice, demand or legal process of any kind, take possession of any or
all of the Collateral (in addition to Collateral of which it already has
possession), wherever it may be found and, for that purpose, may pursue the same
wherever it may be found, and may enter onto any of Borrowers' premises where
any of the Collateral may be, and search for, take possession of, remove, keep
and store any of the Collateral until the same shall be sold or otherwise
disposed of, and Lender shall have the right to store the same at any of
Borrowers' premises without cost to Lender. At Lender's request, each Borrower
shall, at Borrowers' expense, assemble the Collateral and make it available to
Lender at one or more places to be designated by Lender and reasonably
convenient
29
to Lender and such Borrower. Each Borrower recognizes that if a Borrower fails
to perform, observe or discharge any of its Obligations under this Agreement or
the Other Agreements, no remedy at law will provide adequate relief to Lender,
and agrees that Lender shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages. Any
notification of intended disposition of any of the Collateral required by law
will be deemed to be a reasonable authenticated notification of disposition if
given at least ten (10) days prior to such disposition and such notice shall (i)
describe Lender and the applicable Borrower(s), (ii) describe the Collateral
that is the subject to the intended disposition, (iii) state the method of the
intended disposition, (iv) state that the applicable Borrower(s) is entitled to
an accounting of the Obligations and state the charge, if any, for an accounting
and (v) state the time and place of any public disposition or the time after
which any private sale is to be made. Lender may disclaim any warranties that
might arise in connection with the sale, lease or other disposition of the
Collateral and has no obligation to provide any warranties at such time. Any
Proceeds of any disposition by Lender of any of the Collateral may be applied by
Lender to the payment of expenses in connection with the Collateral, including,
without limitation, legal expenses and reasonable attorneys' fees, and any
balance of such Proceeds may be applied by Lender toward the payment of such of
the Obligations, and in such order of application as Lender may from time to
time elect.
17. CONDITIONS PRECEDENT. The obligation of Lender to fund the Term Loan,
to fund the initial Revolving Loan, and to issue or cause to be issued the
initial Letter of Credit is subject to the satisfaction or waiver, on or before
the date hereof, of the following conditions precedent:
(a) Lender shall have received each of the agreements, opinions,
reports, approvals, consents, certificates and other documents set forth on the
closing document list pertaining to this Agreement (the "Closing Document List")
in each case in form and substance satisfactory to Lender;
(b) Since December 31, 2002, no event shall have occurred which has
had or could reasonably be expected to have a Material Adverse Effect on any
Obligor, as determined by Lender in its sole discretion, determined in good
faith;
(c) Lender shall have received payment in full of all fees and
expenses payable to it by Borrowers or any other Person in connection herewith,
on or before disbursement of the initial Loans hereunder;
(d) Lender shall have determined that immediately after giving
effect to (A) the making of the initial Loans, including without limitation the
Term Loan and the Revolving Loans, if any, requested to be made on the date
hereof, (B) the issuance of the initial Letter of Credit, if any, requested to
be made on such date, (C) the payment of all fees due upon such date, and (D)
the payment or reimbursement by Borrowers of Lender for all closing costs and
expenses incurred in connection with the transactions contemplated hereby,
Borrowers have Excess Availability of not less than Seven Hundred Fifty Thousand
and no/100 Dollars ($750,000);
30
(e) The Obligors shall have executed and delivered to Lender all
such other documents, instruments and agreements which Lender determines are
reasonably necessary to consummate the transactions contemplated hereby;
(f) The indebtedness of Borrowers to Congress Financial shall have
been paid in full and Lender shall have been provided a payoff letter and all
applicable termination statements and other releases evidencing the payment in
full thereof, in form and substance acceptable to Lender;
(g) Lender shall be satisfied with its review of each of the
following: (i) Borrowers' licensing agreements, (ii) Borrowers' buy/sell
agreements, (iii) Borrowers' vendor payout agreements and (iv) CTI Helium's
interim year-to-date financial statements;
(h) Subordinated Agreements with respect to all Subordinated Debt
existing as of the Closing Date shall have been executed and delivered to
Lender;
(i) Validity and Support Agreement executed by Mr. Howard Schwan and
Stephen M. Merrick, in form and substance acceptable to Lender, shall have been
delivered to Lender;
(j) The Key Man Insurance shall be effective and Borrowers shall
have delivered an assignment in favor of Lender with respect to the Key Man
Insurance pursuant to Section 12(k); and
(k) Keepwell Agreement of certain principal shareholders of CTI
Industries (which are acceptable to Lender) as provided in Section 12(l)
hereof.
18. JOINT AND SEVERAL LIABILITY.
(a) Notwithstanding anything to the contrary contained herein, all
Obligations of each Borrower hereunder shall be joint and several obligations of
Borrowers.
(b) Notwithstanding any provisions of this Agreement to the
contrary, it is intended that the joint and several nature of the Obligations of
Borrowers, and the liens and security interests granted by Borrowers to secure
the Obligations, not constitute a "Fraudulent Conveyance" (as defined below).
Consequently, Lender and Borrowers agree that if the Obligations of a Borrower,
or any liens or security interests granted by such Borrower securing the
Obligations, would, but for the application of this sentence, constitute a
Fraudulent Conveyance, the Obligations of such Borrower and the liens and
security interests securing such Obligations shall be valid and enforceable only
to the maximum extent that would not cause such Obligations or such lien or
security interest to constitute a Fraudulent Conveyance, and the Obligations of
such Borrower and this Agreement shall automatically be deemed to have been
amended accordingly. For purposes hereof, "Fraudulent Conveyance" means a
fraudulent conveyance under Section 548 of Chapter 11 of Title II of the United
States Code (11 U.S.C. ss. 101, et seq.), as amended (the "Bankruptcy Code"), or
a fraudulent conveyance or fraudulent transfer under the applicable provisions
of any fraudulent conveyance or fraudulent transfer law or similar law of any
state, nation or other governmental unit, as in effect from time to time.
31
(c) Each Borrower assumes responsibility for keeping itself informed
of the financial condition of the each other Borrower, and any and all endorsers
and/or guarantors of any instrument or document evidencing all or any part of
such other Borrower's Obligations, and of all other circumstances bearing upon
the risk of nonpayment by such other Borrowers of their Obligations and each
Borrower agrees that Lender shall not have any duty to advise such Borrower of
information known to Lender regarding such condition or any such circumstances
or to undertake any investigation not a part of its regular business routine. If
Lender, in its sole discretion, undertakes at any time or from time to time to
provide any such information to a Borrower, Lender shall not be under any
obligation to update any such information or to provide any such information to
such Borrower on any subsequent occasion.
(d) Lender is hereby authorized, without notice or demand and
without affecting the liability of a Borrower hereunder, to, at any time and
from time to time, (i) renew, extend, accelerate or otherwise change the time
for payment of, or other terms relating to, a Borrower's Obligations or
otherwise modify, amend or change the terms of any promissory note or other
agreement, document or instrument now or hereafter executed by a Borrower and
delivered to Lender; (ii) accept partial payments on a Borrower's Obligations;
(iii) take and hold security or collateral for the payment of a Borrower's
Obligations hereunder or for the payment of any guaranties of a Borrower's
Obligations or other liabilities of a Borrower and exchange, enforce, waive and
release any such security or collateral; (iv) apply such security or collateral
and direct the order or manner of sale thereof as Lender, in its sole
discretion, may determine; and (v) settle, release, compromise, collect or
otherwise liquidate a Borrower's Obligations and any security or collateral
therefor in any manner, without affecting or impairing the obligations of the
other Borrowers. Lender shall have the exclusive right to determine the time and
manner of application of any payments or credits, whether received from a
Borrower or any other source, and such determination shall be binding on such
Borrower. All such payments and credits may be applied, reversed and reapplied,
in whole or in part, to any of a Borrower's Obligations as Lender shall
determine in its sole discretion without affecting the validity or
enforceability of the Obligations of the other Borrowers.
(e) Each Borrower hereby agrees that, except as hereinafter
provided, its obligations hereunder shall be unconditional, irrespective of (i)
the absence of any attempt to collect a Borrower's Obligations from any Borrower
or any guarantor or other action to enforce the same; (ii) the waiver or consent
by Lender with respect to any provision of any instrument evidencing Borrowers'
Obligations, or any part thereof, or any other agreement heretofore, now or
hereafter executed by a Borrower and delivered to Lender; (iii) failure by
Lender to take any steps to perfect and maintain its security interest in, or to
preserve its rights to, any security or collateral for Borrowers' Obligations;
(iv) the institution of any proceeding under the Bankruptcy Code, or any similar
proceeding, by or against a Borrower or Lender's election in any such proceeding
of the application of Section 1111(b)(2) of the Bankruptcy Code; (v) any
borrowing or grant of a security interest by any Borrower as
debtor-in-possession under Section 364 of the Bankruptcy Code; (vi) the
disallowance, under Section 502 of the Bankruptcy Code, of all or any portion of
Lender's claim(s) for repayment of any of Borrowers' Obligations; or (vii) any
other circumstance which might otherwise constitute a legal or equitable
discharge or defense of a guarantor.
32
(f) No payment made by or for the account of a Borrower, including,
without limitations, (i) a payment made by such Borrower on behalf of another
Borrower's Obligations or (ii) a payment made by any other person under any
guaranty, shall entitle such Borrower, by subrogation or otherwise, to any
payment from such other Borrower or from or out of such other Borrower's
property and such Borrower shall not exercise any right or remedy against such
other Borrower or any property of such other Borrower by reason of any
performance of such Borrower of its joint and several obligations hereunder.
19. INDEMNIFICATION. Each Borrower agrees to defend (with counsel
satisfactory to Lender), protect, indemnify and hold harmless Lender, each
affiliate or subsidiary of Lender, and each of their respective officers,
directors, employees, attorneys and agents (each an "Indemnified Party") from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any kind
or nature (including, without limitation, the disbursements and the reasonable
fees of counsel for each Indemnified Party in connection with any investigative,
administrative or judicial proceeding, whether or not the Indemnified Party
shall be designated a party thereto), which may be imposed on, incurred by, or
asserted against, any Indemnified Party (whether direct, indirect or
consequential and whether based on any federal, state or local laws or
regulations, including, without limitation, securities laws and regulations,
Environmental Laws and commercial laws and regulations, under common law or in
equity, or based on contract or otherwise) in any manner relating to or arising
out of this Agreement or any Other Agreement, or any act, event or transaction
related or attendant thereto, the making or issuance and the management of the
Loans or any Letters of Credit or the use or intended use of the proceeds of the
Loans or any Letters of Credit; provided, however, that no Borrower shall have
any obligation hereunder to any Indemnified Party with respect to matters caused
by or resulting from the willful misconduct or gross negligence of such
Indemnified Party. To the extent that the undertaking to indemnify set forth in
the preceding sentence may be unenforceable because it is violative of any law
or public policy, each Borrower shall satisfy such undertaking to the maximum
extent permitted by applicable law. Any liability, obligation, loss, damage,
penalty, cost or expense covered by this indemnity shall be paid to each
Indemnified Party on demand, and, failing prompt payment, shall, together with
interest thereon at the highest rate then applicable to Loans hereunder from the
date incurred by each Indemnified Party until paid by Borrowers, be added to the
Obligations of Borrowers and be secured by the Collateral. The provisions of
this Section 19 shall survive the satisfaction and payment of the other
Obligations and the termination of this Agreement.
20. NOTICE. All written notices and other written communications with
respect to this Agreement shall be sent by ordinary, certified or overnight
mail, by telecopy or delivered in person, and in the case of Lender shall be
sent to it at 111 West Washington Street, Suite 400, Chicago, Illinois 60602,
attention: Mr. Jeffrey J. Podwika, facsimile number: (312) 442-5100,
jpodwika@coletaylor.com, and in the case of Borrowers shall be sent to them at
their respective principal places of business set forth on Schedule 11(b) or as
otherwise directed by Borrowers in writing. All notices shall be deemed received
upon actual receipt thereof or refusal of delivery.
21. CHOICE OF GOVERNING LAW; CONSTRUCTION; FORUM SELECTION. This Agreement
and the Other Agreements are submitted by Borrowers to Lender for Lender's
acceptance or rejection at Lender's principal place of business as an offer by
Borrowers to borrow monies from Lender now and from time to time hereafter, and
shall not be
33
binding upon Lender or become effective until accepted by Lender, in writing, at
said place of business. If so accepted by Lender, this Agreement and the Other
Agreements shall be deemed to have been made at said place of business. THIS
AGREEMENT AND THE OTHER AGREEMENTS SHALL BE GOVERNED AND CONTROLLED BY THE
INTERNAL LAWS OF THE STATE OF ILLINOIS AS TO INTERPRETATION, ENFORCEMENT,
VALIDITY, CONSTRUCTION, EFFECT, AND IN ALL OTHER RESPECTS, INCLUDING, WITHOUT
LIMITATION, THE LEGALITY OF THE INTEREST RATE AND OTHER CHARGES, BUT EXCLUDING
PERFECTION OF THE SECURITY INTERESTS IN COLLATERAL LOCATED OUTSIDE OF THE STATE
OF ILLINOIS, WHICH SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE RELEVANT
JURISDICTION IN WHICH SUCH COLLATERAL IS LOCATED. If any provision of this
Agreement shall be held to be prohibited by or invalid under applicable law,
such provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or remaining
provisions of this Agreement.
To induce Lender to accept this Agreement, each Borrower irrevocably
agrees that, subject to Lender's sole and absolute election, ALL ACTIONS OR
PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO
THIS AGREEMENT, THE OTHER AGREEMENTS OR THE COLLATERAL SHALL BE LITIGATED IN
COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. EACH BORROWER
HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL
COURTS LOCATED WITHIN SAID CITY AND STATE. EACH BORROWER HEREBY WAIVES PERSONAL
SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY
BE MADE UPON SUCH BORROWER BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT
REQUESTED, ADDRESSED TO SUCH BORROWER AT THE ADDRESS SET FORTH FOR NOTICE IN
THIS AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE
SAME HAS BEEN POSTED. LENDER AGREES TO ENDEAVOR TO PROVIDE A COPY OF SUCH
PROCESS TO THE LAW FIRM OF MERRICK & KLIMEK, P.C. BY MAIL AT THE ADDRESS OF 33
N. LASALLE STREET, SUITE 2200, CHICAGO, ILLINOIS 60602 OR BY FACSIMILE
TRANSMISSION AT FACSIMILE NUMBER (312) 284-1521. FAILURE OF LENDER TO PROVIDE A
COPY OF SUCH PROCESS SHALL NOT IMPAIR LENDER'S RIGHTS HEREUNDER, CREATE A CAUSE
OF ACTION AGAINST LENDER OR CREATE ANY CLAIM OR RIGHT ON BEHALF OF ANY BORROWER
OR ANY THIRD PARTY. EACH BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO
TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST SUCH BORROWER BY
LENDER IN ACCORDANCE WITH THIS SECTION.
22. MODIFICATION AND BENEFIT OF AGREEMENT. This Agreement and the Other
Agreements may not be modified, altered or amended except by an agreement in
writing signed by each Borrower or such other Person who is a party to such
Other Agreement and Lender. No Borrower may sell, assign or transfer this
Agreement, or the Other Agreements or any portion thereof, including, without
limitation, such Borrower's rights, titles, interest, remedies, powers or duties
hereunder and thereunder. Each Borrower hereby consents to Lender's sale,
assignment, transfer or other disposition, at any time and from time to time
34
hereafter, of this Agreement, or the Other Agreements, or of any portion
thereof, or participations therein, including, without limitation, Lender's
rights, titles, interest, remedies, powers and/or duties and agrees that it
shall execute and deliver such documents as Lender may request in connection
with any such sale, assignment, transfer or other disposition.
23. HEADINGS OF SUBDIVISIONS. The headings of subdivisions in this
Agreement are for convenience of reference only, and shall not govern the
interpretation of any of the provisions of this Agreement.
24. POWER OF ATTORNEY. Each Borrower acknowledges and agrees that its
appointment of Lender as its attorney and agent-in-fact for the purposes
specified in this Agreement is an appointment coupled with an interest and shall
be irrevocable until all of the Obligations are satisfied and paid in full and
this Agreement is terminated.
25. CONFIDENTIALITY. Lender hereby agrees to use commercially reasonable
efforts to assure that any and all information relating to such Borrower which
is (i) furnished by such Borrower to Lender (or to any affiliate of Lender); and
(ii) non-public, confidential or proprietary in nature shall be kept
confidential by Lender or such affiliate in accordance with applicable law;
provided, however, that such information and other credit information relating
to such Borrower may be distributed by Lender or such affiliate to Lender's or
such affiliate's directors, officers, employees, attorneys, affiliates,
assignees, participants, auditors, agents and regulators, and upon the order of
a court or other governmental agency having jurisdiction over Lender or such
affiliate, to any other party. Each Borrower and Lender further agree that this
provision shall survive the termination of this Agreement. Notwithstanding the
foregoing, each Borrower hereby consents to Lender publishing a tombstone or
similar advertising material relating to the financing transaction contemplated
by this Agreement.
26. COUNTERPARTS. This Agreement, any of the Other Agreements and any
amendments, waivers, consents or supplements may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which, when so executed and delivered, shall be deemed an original, but all of
which counterparts together shall constitute but one agreement.
27. ELECTRONIC SUBMISSIONS. Upon not less than thirty (30) days' prior
written notice (the "Approved Electronic Form Notice"), Lender may permit or
require that any of the documents, certificates, forms, deliveries or other
communications, authorized, required or contemplated by this Agreement or the
Other Agreements, be submitted to Lender in "Approved Electronic Form" (as
hereafter defined), subject to any reasonable terms, conditions and requirements
in the applicable Approved Electronic Forms Notice. For purposes hereof
"Electronic Form" means e-mail, e-mail attachments, data submitted on web-based
forms or any other communication method that delivers machine readable data or
information to Lender and "Approved Electronic Form" means an Electronic Form
that has been approved in writing by Lender (which approval has not been revoked
or modified by Lender) and sent to Borrowers in an Approved Electronic Form
Notice. Except as otherwise specifically provided in the applicable Approved
Electronic Form Notice, any submissions made in an applicable Approved
Electronic Form shall have the same force and effect that the same submissions
would have had
35
if they had been submitted in any other applicable form authorized, required or
contemplated by this Agreement or the Other Agreements.
28. WAIVER OF JURY TRIAL; OTHER WAIVERS.
(a) EACH BORROWER AND LENDER EACH HEREBY WAIVES ALL RIGHTS TO TRIAL
BY JURY IN ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO
THIS AGREEMENT, ANY OF THE OTHER AGREEMENTS, THE OBLIGATIONS, THE COLLATERAL,
ANY ALLEGED TORTUOUS CONDUCT BY A BORROWER OR LENDER OR WHICH, IN ANY WAY,
DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN A
BORROWER AND LENDER. IN NO EVENT SHALL LENDER BE LIABLE FOR LOST PROFITS OR
OTHER SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES.
(b) Each Borrower hereby waives demand, presentment, protest and
notice of nonpayment, and further waives the benefit of all valuation, appraisal
and exemption laws.
(c) Each Borrower hereby waives the benefit of any law that would
otherwise restrict or limit Lender or any affiliate of Lender in the exercise of
its right, which is hereby acknowledged and agreed to, to set-off against the
Obligations, without notice at any time hereafter, any indebtedness, matured or
unmatured, owing by Lender or such affiliate of Lender to such Borrower,
including, without limitation any deposit account at Lender or such affiliate.
(d) EACH BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF
ANY KIND PRIOR TO THE EXERCISE BY LENDER OF ITS RIGHTS TO REPOSSESS THE
COLLATERAL OF SUCH BORROWER WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR
LEVY UPON SUCH COLLATERAL, PROVIDED THAT IN THE EVENT THAT LENDER SEEKS TO
ENFORCE ITS RIGHTS HEREUNDER BY JUDICIAL PROCESS OR SELF HELP, LENDER SHALL
PROVIDE BORROWER WITH SUCH NOTICES AS ARE REQUIRED BY LAW.
(e) Lender's failure, at any time or times hereafter, to require
strict performance by a Borrower of any provision of this Agreement or any of
the Other Agreements shall not waive, affect or diminish any right of Lender
thereafter to demand strict compliance and performance therewith. Any suspension
or waiver by Lender of an Event of Default under this Agreement or any default
under any of the Other Agreements shall not suspend, waive or affect any other
Event of Default under this Agreement or any other default under any of the
Other Agreements, whether the same is prior or subsequent thereto and whether of
the same or of a different kind or character. No delay on the part of Lender in
the exercise of any right or remedy under this Agreement or any Other Agreement
shall preclude other or further exercise thereof or the exercise of any right or
remedy. None of the undertakings, agreements, warranties, covenants and
representations of Borrowers contained in this Agreement or any of the Other
Agreements and no Event of Default under this Agreement or default under any of
the Other Agreements shall be deemed to have been suspended or waived by Lender
unless such
36
suspension or waiver is in writing, signed by a duly authorized officer of
Lender and directed to Borrowers specifying such suspension or waiver.
SIGNATURE PAGES FOLLOW
37
Signature Page to Loan and Security Agreement
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
CTI INDUSTRIES CORPORATION
By /s/ Howard W. Schwan
-----------------------
Howard W. Schwan
President
CTI HELIUM, INC.
By /s/ Howard W. Schwan
-----------------------
Howard W. Schwan
President
Signature Page to Loan and Security Agreement
COLE TAYLOR BANK
By /s/ Jeffrey J. Podwika
-------------------------
Vice President
ANNEX I - DEFINED TERMS
"Affiliate" shall mean any Person (i) which, directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, a Borrower, (ii) which beneficially owns or holds five
percent (5%) or more of the voting control or equity interests of a Borrower, or
(iii) five percent (5%) or more of the voting control or equity interests of
which is beneficially owned or held by a Borrower.
"Business Day" shall mean any day other than a Saturday, a Sunday or any
day that banks in Chicago, Illinois are required or permitted to close.
"Capital Expenditures" shall mean with respect to any period, the
aggregate of all expenditures (whether paid in cash or accrued as liabilities
and including expenditures for Capital Lease Obligations) by Borrowers during
such period that are required by GAAP, consistently applied, to be included in
or reflected by the property, plant and equipment or similar fixed asset
accounts (or intangible accounts subject to amortization) on the balance sheet
of Borrowers.
"Capital Lease" shall mean, as to any Person, a lease of any interest in
any kind of property or asset, whether real, personal or mixed, or tangible or
intangible, by such Person as lessee that is, or should be, recorded as a
"capital lease" on the balance sheet of such Person prepared in accordance with
GAAP.
"Capital Lease Obligations" shall mean, as to any Person, indebtedness
represented by obligations under a Capital Lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP.
"Change of Control" shall mean any merger or consolidation of or with any
Borrower or sale of all or substantially all of the property or assets of any
Borrower. For purposes of this definition, "control of Borrower" shall mean the
power, direct or indirect (x) to vote 50% or more of the securities having
ordinary voting power for the election of directors of any Borrower or (y) to
direct or cause the direction of the management and policies of any Borrower by
contract or otherwise.
"Closing Date" shall mean December 31, 2003.
"Collateral" shall mean all of the property of each Borrower described in
Section 5 hereof, together with all other real or personal property of any
Obligor or any other Person now or hereafter pledged to Lender to secure, either
directly or indirectly, repayment of any of the Obligations.
"Compliance Certificate" shall have the meaning set forth in Section 9(c)
hereof.
"Contingent Liability" shall mean any agreement, undertaking or
arrangement by which any Person guarantees, endorses or otherwise becomes or is
contingently liable upon (by direct or indirect agreement, contingent or
otherwise, to provide funds for payment, to supply funds to or otherwise to
invest in a debtor, or otherwise to assure a creditor against loss) any
indebtedness, obligation or other liability of any other Person (other than by
endorsements of
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instruments in the course of collection), or guarantees the payment of dividends
or other distributions upon the shares of any other Person. The amount of any
Contingent Liability shall (subject to any limitation set forth herein) be
deemed to be the outstanding principal amount (or maximum permitted principal
amount, if larger) of the indebtedness, obligation or other liability guaranteed
or supported thereby.
"Derivative Obligations" shall mean every obligation of a Person under any
forward contract, futures contract, exchange contract, swap, option or other
financing agreement or arrangement (including, without limitation, caps, floors,
collars and similar agreement), the value of which is dependent upon interest
rates, currency exchange rates, commodities or other indices.
"Dilution" shall mean, with respect to any period, the percentage obtained
by dividing (i) the sum of non-cash credits against Accounts (including, but not
limited to returns, adjustments and rebates) of Borrowers for such period, plus
pending or probable, but not yet applied, non-cash credits against Accounts of
Borrowers for such period, as determined by Lender in its sole discretion, by
(ii) gross invoiced sales of Borrowers for such period.
"EBITDA" shall mean, with respect to any period, Borrowers' net income
after taxes for such period (excluding any after-tax gains on the sale of assets
(other than the sale of Inventory in the ordinary course of business) and
excluding other after-tax extraordinary gains) plus interest expense, income tax
expense, depreciation and amortization for such period, plus or minus any other
non-cash charges or gains which have been subtracted or added in calculating net
income after taxes for such period.
"Eligible Account" shall mean an Account owing to a Borrower which is
acceptable to Lender in its sole discretion for lending purposes. Without
limiting Lender's discretion, Lender shall, in general, consider an Account to
be an Eligible Account if it meets, and so long as it continues to meet, the
following requirements:
(i) it is genuine and in all respects what it purports to be;
(ii) it is owned by such Borrower, such Borrower has the right
to subject it to a security interest in favor of Lender or assign it to
Lender and it is subject to a first priority perfected security interest
in favor of Lender and to no other Lien whatsoever, other than Permitted
Liens;
(iii) it arises from (A) the performance of services by such
Borrower in the ordinary course of such Borrower's business, and such
services have been fully performed and acknowledged and accepted by the
Account Debtor thereunder; or (B) the sale or lease of Goods by such
Borrower in the ordinary course of such Borrower's business, and (x) such
Goods have been completed in accordance with the Account Debtor's
specifications (if any) and delivered to the Account Debtor, (y) such
Account Debtor has not refused to accept, returned or offered to return
any of the Goods which are the subject of such Account, and (z) such
Borrower has possession of, or such Borrower has delivered to Lender (at
Lender's request), shipping and delivery receipts evidencing delivery of
such Goods;
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(iv) it is evidenced by an invoice rendered to the Account
Debtor thereunder, is due and payable within ninety (90) days after the
date of the invoice and does not remain unpaid ninety (90) days past the
invoice date thereof; provided, however, that if more than twenty-five
percent (25%) of the aggregate dollar amount of invoices owing by a
particular Account Debtor remain unpaid ninety (90) days after the
respective invoice dates thereof, then all Accounts owing by that Account
Debtor shall be deemed ineligible;
(v) it is a valid, legally enforceable and unconditional
obligation of the Account Debtor thereunder, and is not subject to setoff,
counterclaim, credit, allowance or adjustment by such Account Debtor, or
to any claim by such Account Debtor denying liability thereunder in whole
or in part;
(vi) it does not arise out of a contract or order which fails
in any material respect to comply with the requirements of applicable law;
(vii) the Account Debtor thereunder is not a director,
officer, employee or agent of a Borrower, or a Subsidiary, Parent or
Affiliate;
(viii) it is not an Account with respect to which the Account
Debtor is the United States of America or any state or local government,
or any department, agency or instrumentality thereof, unless such Borrower
assigns its right to payment of such Account to Lender pursuant to, and in
full compliance with, the Assignment of Claims Act of 1940, as amended, or
any comparable state or local law, as applicable;
(ix) it is not an Account with respect to which the Account
Debtor is located in a state which requires such Borrower, as a
precondition to commencing or maintaining an action in the courts of that
state, either to (A) receive a certificate of authority to do business and
be in good standing in such state; or (B) file a notice of business
activities report or similar report with such state's taxing authority,
unless (x) such Borrower has taken one of the actions described in clauses
(A) or (B); (y) the failure to take one of the actions described in either
clause (A) or (B) may be cured retroactively by such Borrower at its
election; or (z) such Borrower has proven, to Lender's satisfaction, that
it is exempt from any such requirements under any such state's laws;
(x) the Account Debtor is located within the United States of
America;
(xi) it is not an Account with respect to which the Account
Debtor's obligation to pay is subject to any repurchase obligation or
return right, as with sales made on a bill-and-hold, guaranteed sale, sale
on approval, sale or return or consignment basis;
(xii) it is not an Account (A) with respect to which any
representation or warranty contained in this Agreement is untrue; or (B)
which violates any of the covenants of such Borrower contained in this
Agreement;
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(xiii) it is not an Account which, when added to a particular
Account Debtor's other indebtedness to such Borrower, exceeds twenty
percent (20%) of all Accounts of such Borrower or a credit limit
determined by Lender in its sole discretion determined in good faith for
that Account Debtor (except that Accounts excluded from Eligible Accounts
solely by reason of this clause (xiii) shall be Eligible Accounts to the
extent of such credit limit), provided that Lender shall give such
Borrower written notice of any such credit limit; and
(xiv) it is not an Account with respect to which the prospect
of payment or performance by the Account Debtor is or will be impaired, as
determined by Lender in its sole discretion determined in good faith.
"Eligible Inventory" shall mean Inventory and work-in-process Inventory of
a Borrower, each to the extent acceptable to Lender in its sole discretion
determined in good faith for lending purposes. Without limiting Lender's
discretion, Lender shall, in general, consider Inventory to be Eligible
Inventory if it meets, and so long as it continues to meet, the following
requirements:
(i) it is owned by such Borrower, such Borrower has the right
to subject it to a security interest in favor of Lender and it is subject
to a first priority perfected security interest in favor of Lender and to
no other Lien whatsoever, other than Permitted Liens;
(ii) it is located on one of the premises listed on Schedule
11(b) (or other locations of which Lender has been advised in writing
pursuant to Subsection 12(b)(i) hereof) and is not in transit;
(iii) if held for sale or lease or furnishing under contracts
of service, it is (except as Lender may otherwise consent in writing) new
and unused and free from defects which would, in Lender's sole
determination, determined in good faith, affect its market value;
(iv) it is not stored with a bailee, consignee, warehouseman,
processor or similar party unless Lender has given its prior written
approval and such Borrower has caused any such bailee, consignee,
warehouseman, processor or similar party to issue and deliver to Lender,
in form and substance acceptable to Lender, such Uniform Commercial Code
financing statements, warehouse receipts, waivers, collateral access
agreements and other documents as Lender shall require (such Inventory
being referred to herein as "Third-Party Inventory");
(v) Lender has determined, in good faith, in accordance with
Lender's customary business practices, that it is not unacceptable due to
age, type, category or quantity; and
(vi) it is not Inventory (A) with respect to which any of the
representations and warranties contained in this Agreement are untrue; or
(B) which violates any of the covenants of such Borrower contained in this
Agreement.
4
"Environmental Laws" shall mean all federal, state, district, local and
foreign laws, rules, regulations, ordinances, and consent decrees relating to
health, safety, hazardous substances, pollution and environmental matters, as
now or at any time hereafter in effect, applicable to a Borrower's business or
facilities owned or operated by a Borrower, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contamination, chemicals, or hazardous, toxic or dangerous substances, materials
or wastes into the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata) or otherwise
relating to the generation, manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, modified or restated from time to time.
"Event of Default" shall have the meaning specified in Section 15 hereof.
"Excess Availability" shall mean, as of any date of determination by
Lender, the excess, if any, of the lesser of (i) the Maximum Revolving Loan
Limit less the sum of the outstanding Revolving Loans and Letter of Credit
Obligations and (ii) the Revolving Borrowing Base Amount less the sum of the
outstanding Revolving Loans and Letter of Credit Obligations, in each case as of
the close of business on such date and assuming, for purposes of calculation,
that all accounts payable which remain unpaid more than sixty (60) days after
the due dates thereof as the close of business on such date are treated as
additional Revolving Loans outstanding on such date.
"Excess Cash Flow" shall have the meaning set forth in Section
2(c)(iii)(B) hereof.
"Fiscal Year" shall mean each twelve (12) month accounting period of
Borrowers, which ends on December 31 of each year.
"Fixed Charges" shall mean for any period, without duplication, scheduled
payments of principal during the applicable period with respect to all
Indebtedness of Borrowers and their Subsidiaries, on a consolidated basis, for
borrowed money, plus scheduled payments of principal during the applicable
period with respect to all Capital Lease Obligations of Borrowers and their
Subsidiaries, on a consolidated basis, plus scheduled payments of interest
during the applicable period with respect to all Indebtedness of Borrowers and
their Subsidiaries, on a consolidated basis, for borrowed money including
Capital Lease Obligations, plus unfinanced Capital Expenditures of Borrowers and
their Subsidiaries, on a consolidated basis, during the applicable period, plus
payments during the applicable period in respect of income or franchise taxes of
Borrowers and their Subsidiaries, on a consolidated basis, plus any cash
dividends or payments of Subordinated Debt permitted by Lender paid by Borrowers
during such period.
"GAAP" shall mean generally accepted accounting principles, using the
accrual basis of accounting and consistently applied with prior periods;
provided, however, that GAAP with respect to any interim financial statements or
reports shall be deemed subject to fiscal year-end adjustments and footnotes
made in accordance with GAAP.
5
"Hazardous Materials" shall mean any hazardous, toxic or dangerous
substance, materials and wastes, including, without limitation, hydrocarbons
(including naturally occurring or man-made petroleum and hydrocarbons),
flammable explosives, asbestos, urea formaldehyde insulation, radioactive
materials, biological substances, polychlorinated biphenyls, pesticides,
herbicides and any other kind and/or type of pollutants or contaminants
(including, without limitation, materials which include hazardous constituents),
sewage, sludge, industrial slag, solvents and/or any other similar substances,
materials, or wastes and including any other substances, materials or wastes
that are, or become, regulated under any Environmental Law (including, without
limitation, any that are, or become, classified as hazardous or toxic under any
Environmental Law).
"Indebtedness" of any Person shall mean, without duplication, (a) all
indebtedness of such Person for borrowed money, whether or not evidenced by
bonds, debentures, notes or similar instruments, (b) all Capital Lease
Obligations of such Person, (c) all obligations of such Person to pay the
deferred purchase price of property or services (excluding trade accounts
payable in the ordinary course of business), (d) all indebtedness secured by a
Lien on the property of such Person, whether or not such indebtedness shall have
been assumed by such Person, (e) all obligations, contingent or otherwise, with
respect to the face amount of all letters of credit (whether or not drawn) and
banker's acceptances issued for the account of such Person, (f) all Derivative
Obligations of such Person, (g) all Contingent Obligations, and (h) all
liabilities of any partnership or joint venture of which such Person is a
general partner or joint venturer.
"Indemnified Party" shall have the meaning specified in Section 19 hereof.
"Initial 2004 M & E Appraisal" shall have the meaning set forth in Section
9(g) hereof.
"Intellectual Property" shall mean all past, present and future: trade
secrets (including, without limitation, customer lists), know-how and other
proprietary information; trademarks, Internet domain names, service marks, trade
dress, trade names, business names, designs, logos, slogans (and all
translations, adaptations, derivations and combinations of the foregoing),
indicia and other source and/or business identifiers, and the goodwill of the
business relating thereto and all registrations or applications for
registrations which have heretofore been or may hereafter be issued thereon
throughout the world; copyrights (including copyrights for computer programs)
and copyright registrations or applications for registrations which have
heretofore been or may hereafter be issued throughout the world and all tangible
property embodying the copyrights; unpatented inventions (whether or not
patentable); patent applications and patents; industrial designs, industrial
design applications and registered industrial designs; license agreements
related to any of the foregoing and income therefrom; books, records, writings,
computer tapes or disks, flow diagrams, specification sheets, computer software,
source codes, object codes, executable code, data, databases and other physical
manifestations, embodiments or incorporations of any of the foregoing; the right
to sue for all past, present and future infringements of any of the foregoing;
all other intellectual property; and all common law and other rights throughout
the world in and to all of the foregoing.
"Key-Man Insurance" shall have the meaning set forth in Section 17(j)
hereto.
6
"Letter of Credit" shall mean any Letter of Credit issued on behalf of a
Borrower in accordance with this Agreement.
"Letter of Credit Obligations" shall mean, as of any date of
determination, the sum of (i) the aggregate undrawn face amount of all Letters
of Credit, and (ii) the aggregate unreimbursed amount of all drawn Letters of
Credit not already converted to Loans hereunder.
"Lien" shall mean any mortgage, pledge, claim, hypothecation, judgment
lien or similar legal process, title retention lien, or other lien or security
interest, including, without limitation, the interest of a vendor under any
conditional sale or other title retention agreement and the interest of a lessor
under a lease of any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible, that is, or should be, accounted
for as a Capital Lease.
"Loan Documents" shall mean this Agreement and the Other Agreements.
"Loans" shall mean all loans and advances made by Lender to or on behalf
of Borrowers hereunder.
"Lock Box" and "Lock Box Account" shall have the meanings specified in
Subsection 8(a) hereof.
"Material Adverse Effect" shall mean a material adverse effect on the
business, property, assets, prospects, operations or condition, financial or
otherwise, of a Person.
"Maximum Loan Limit" shall mean Eleven Million and No/100 Dollars
($11,000,000).
"Maximum Revolving Loan Limit" shall have the meaning specified in
Subsection 2(a) hereof.
"Net Orderly Liquidation Value" shall mean the aggregate net realizable
value of Borrowers' Inventory, by category, recoverable in an orderly
liquidation thereof (net of all liquidation expenses), as determined by a
certified appraiser satisfactory to Lender.
"Obligations" shall mean any and all obligations, liabilities and
indebtedness of Borrowers to Lender, or to any parent, affiliate or subsidiary
of Lender, of any and every kind and nature, howsoever created, arising or
evidenced and howsoever owned, held or acquired, whether now or hereafter
existing, whether now due or to become due, whether primary, secondary, direct,
indirect, absolute, contingent or otherwise (including, without limitation,
obligations of performance), whether several, joint or joint and several, and
whether arising or existing under written or oral agreement or by operation of
law.
"Obligor" shall mean Borrowers and each other Person who is or shall
become primarily or secondarily liable for any of the Obligations.
"Original Term" shall have the meaning specified in Section 10 hereof.
7
"Other Agreements" shall mean all agreements, instruments and documents,
other than this Agreement, including, without limitation, guaranties, mortgages,
trust deeds, pledges, powers of attorney, consents, assignments, contracts,
notices, security agreements, leases, financing statements, subordination
agreements, and all other writings heretofore, now or from time to time
hereafter executed by or on behalf of a Borrower or any other Person and
delivered to Lender or to any parent, affiliate or subsidiary of Lender in
connection with the Obligations or the transactions contemplated hereby, as each
of the same may be amended, modified or supplemented from time to time.
"Parent" shall mean any Person now or at any time or times hereafter
owning or controlling (alone or with any other Person) at least a majority of
the issued and outstanding equity of a Borrower and, if a Borrower is a
partnership, the general partner of such Borrower.
"PBGC" shall have the meaning specified in Subsection 12(b)(v) hereof.
"Permitted Liens" shall mean (i) statutory Liens of landlords, carriers,
warehousemen, processors, mechanics, materialmen or suppliers incurred in the
ordinary course of business and securing amounts not yet due or declared to be
due by the claimant thereunder or amounts which are being contested in good
faith and by appropriate proceedings and for which Borrower has maintained
adequate reserves; (ii) Liens in favor of Lender; (iii) zoning restrictions and
easements, licenses, covenants and other restrictions affecting the use of real
property that do not individually or in the aggregate have a material adverse
effect on a Borrower's ability to use such real property for its intended
purpose in connection with such Borrower's business; (iv) Liens in connection
with purchase money indebtedness and Capital Leases otherwise permitted pursuant
to this Agreement, provided, that such liens attach only to the assets the
purchase of which was financed by such purchase money indebtedness or which is
the subject of such Capital Leases; (v) Liens set forth on Schedule 1; (vi)
Liens specifically permitted by Lender in writing; and (vii) involuntary Liens
securing amounts less than $100,000 and which are released or for which a bond
acceptable to Lender in its sole discretion, determined in good faith, has been
posted within ten (10) days of its creation.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, entity, party or foreign or United
States government (whether federal, state, county, city, municipal or
otherwise), including, without limitation, any instrumentality, division,
agency, body or department thereof.
"Plan" shall have the meaning specified in Subsection 12(b)(v) hereof.
"Prime Rate" shall mean Lender's publicly announced prime rate (which is
not intended to be Lender's lowest or most favorable rate in effect at any time)
in effect from time to time.
"Principal Investment Amount" shall have the meaning set forth in Section
12(l) hereof.
"Renewal Term" shall have the meaning specified in Section 10 hereof.
8
"Revolving Borrowing Base Amount" shall have the meaning specified in
Subsection 2(a) hereof.
"Revolving Loans" shall have the meaning specified in Subsection 2(a)
hereof.
"Subordination Agreements" shall mean, individually and collectively, all
subordination agreements, intercreditor agreements, consent and similar
agreements among either Borrower, Lender and any holder of Indebtedness, whether
entered into on or prior to the date hereof or from time to time hereafter,
together with all modifications, amendments and restatements of any of the
foregoing.
"Subordinated Debt" shall mean Indebtedness of any Borrower or any
Subsidiary of any Borrower that is subordinated to the Obligations in a manner
satisfactory to Agent, and contains terms, including, without limitation,
payment terms, satisfactory to Agent.
"Subsidiary" shall mean any corporation of which more than fifty percent
(50%) of the outstanding capital stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of whether,
at the time, stock of any other class of such corporation shall have or might
have voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned by a Borrower, or any partnership, joint venture
or limited liability company of which more than fifty percent (50%) of the
outstanding equity interests are at the time, directly or indirectly, owned by a
Borrower or any partnership of which a Borrower is a general partner.
"Tangible Net Worth" shall have the meaning specified in Subsection 14(a)
hereof.
"Term Loan" shall have the meaning specified in Subsection 2(b) hereof.
"Third Party Inventory" shall have the meaning set forth in the definition
"Eligible Inventory".
"UCC" shall mean the Uniform Commercial Code as in effect from time to
time in the State of Illinois.
9