Exhibit 10.1
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this
“Agreement”) is entered into as of August 19,
2009, by and between KEY TRONIC CORPORATION, a Washington
corporation (“Borrower”), and WELLS FARGO BANK,
NATIONAL ASSOCIATION (“Bank”).
RECITALS
Borrower has requested that Bank
extend or continue credit to Borrower as described below, and Bank
has agreed to provide such credit to Borrower on the terms and
conditions contained herein.
NOW, THEREFORE, for valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
CREDIT TERMS
1.1 LINE OF CREDIT. Subject to the
terms and conditions of this Agreement, Bank hereby agrees to make
advances to Borrower from time to time up to and including
August 18, 2011, not to exceed at any time the aggregate
principal amount of Twenty Million and 00/100 Dollars
($20,000,000.00) (“Line of Credit”), the proceeds of
which shall be used by Borrower to refinance certain indebtedness
of Borrower, pay fees and expenses incurred in connection with the
transaction contemplated hereby and provide for working capital and
general corporate purpose needs of the Borrower and subsidiaries.
Concurrently with the execution of this Agreement, Borrower shall
pay to Bank a fully earned non-refundable commitment fee for the
Line of Credit in the amount of Fifty Thousand and 00/100 Dollars
($50,000.00), plus one quarter of one percent (.25%) per annum on
the total amount of the Line of Credit, regardless of usage,
payable upon each anniversary date thereof. Borrower’s
obligation to repay advances under the Line of Credit shall be
evidenced by a promissory note dated as of the date hereof
(“Line of Credit Note”), all terms of which are
incorporated herein by this reference. All advances under the Line
of Credit shall bear interest at the rates provided for in the Line
of Credit Note.
1.2 LETTER OF CREDIT SUBFEATURE. As
a subfeature under the Line of Credit, Bank agrees from time to
time during the term thereof to issue or cause an affiliate to
issue standby letters of credit and commercial letters of credit
for the account of Borrower (each, a “Letter of Credit”
and collectively, “Letters of Credit”); provided
however, that the aggregate undrawn amount of all outstanding
Letters of Credit shall not at any time exceed One Million and
00/100 Dollars ($1,000,000.00). The form and substance of each
Letter of Credit shall be subject to approval by Bank, in its sole
discretion. A Commercial Letter of Credit shall be issued for a
term not to exceed three hundred sixty (360) days, as
designated by Borrower; provided however, that no Letter of Credit
shall have an expiration date later than the maturity date of the
Line of Credit. The undrawn amount of all Letters of Credit shall
be reserved under the Line of Credit and shall not be available for
borrowings thereunder. Each Letter of Credit shall be subject to
the additional terms and conditions of the Letter of Credit
agreements, applications and any related documents required by Bank
in connection with the issuance thereof. Each drawing paid under a
Letter of Credit shall be deemed an advance under the Line of
Credit and shall be repaid by Borrower in accordance with the terms
and conditions of this Agreement applicable to such advances;
provided however, that if advances under the Line of Credit are not
available, for any reason, at the time any drawing is paid, then
Borrower shall immediately pay to Bank the full amount
drawn, together with interest thereon from the
date such drawing is paid to the date such amount is fully repaid
by Borrower, at the rate of interest applicable to advances under
the Line of Credit. In such event Borrower agrees that Bank, in its
sole discretion, may debit any account maintained by Borrower with
Bank for the amount of any such drawing. Borrower shall pay to Bank
a fee upon the issuance of each Letter of Credit equal to two
and one tenth percent (2.10%) of the face amount thereof (the
“Letter of Credit Issuance Fee”); provided, however,
notwithstanding the forgoing, if Borrower’s EDITDA (as
defined herein) is less than $3,750,000.00, measured quarterly on a
trailing four (4) quarter basis, then the Letter of Credit
Issuance Fee shall be increased to two and one half percent
(2.50%) of the face amount of the Letter of Credit. In
addition to the Letter of Credit Issuance Fee, Borrower shall pay
Bank (i) fees upon the payment or negotiation of each drawing
under any Letter of Credit, and (ii) fees upon the occurrence
of any other activity with respect to any Letter of Credit
(including without limitation, the transfer, amendment or
cancellation of any Letter of Credit) determined in accordance with
Bank’s standard fees and charges then in effect for such
activity.
1.3 BORROWING AND REPAYMENT.
Borrower may from time to time during the term of the Line of
Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms
and conditions contained herein or in the Line of Credit Note;
provided however, that the total outstanding borrowings under the
Line of Credit shall not at any time exceed the maximum principal
amount available thereunder, as set forth above.
1.4 COLLECTION OF PAYMENTS. Borrower
authorizes Bank to collect principal, interest and fees due under
the Line of Credit Note or this Credit Agreement by charging
Borrower’s deposit account number 4020010104 with Bank, or
any other deposit account maintained by Borrower with Bank, for the
full amount thereof. Should there be insufficient funds in any such
deposit account to pay all such sums when due, the full amount of
such deficiency shall be immediately due and payable by
Borrower.
1.5 COLLATERAL. As security for all
indebtedness and other obligations of Borrower to Bank, including,
without limitations, its obligations under the Line of Credit, Line
of Credit Note, this Agreement and the Loan Documents (as defined
herein), Borrower hereby grants to Bank security interests of first
priority in (a) all Borrower’s inventory, accounts,
equipment, general intangibles, payment intangibles, and any and
all cash and non-cash proceeds or products of the forgoing,
including, without limitation, proceeds in deposit accounts or
proceeds represented by insurance claims or policies related to
pledged collateral; and (b) a pledge of sixty five percent
(65%) of the stock of its foreign subsidiaries listed on
Schedule 1.5 attached hereto. All of the foregoing shall be
evidenced by and subject to the terms of such security agreements,
financing statements, and other documents as Bank shall reasonably
require, all in form and substance satisfactory to Bank. Borrower
shall pay to Bank immediately upon demand the full amount of all
charges, costs and expenses (to include fees paid to third parties,
including Bank’s reasonable attorney’s fees, and all
allocated costs of Bank personnel, including Bank’s in-house
counsel), expended or incurred by Bank in connection with any of
the foregoing security, including without limitation, filing and
recording fees and costs of appraisals, audits and title
insurance.
1.6 GUARANTIES. The payment and
performance of all indebtedness and other obligations of Borrower
to Bank, including, without limitation, Borrower’s
obligations under the Line of Credit Note, this Agreement and the
Loan Documents (as defined herein) shall be guaranteed jointly and
severally by any and all existing active domestic subsidiaries of
Borrower and any subsidiary of Borrower hereafter formed, which
guaranties shall be evidenced by and subject to the terms of
guaranties in form and substance satisfactory to Bank.
ARTICLE II
REPRESENTATIONS AND
WARRANTIES
Borrower makes the following
representations and warranties to Bank, which representations and
warranties shall survive the execution of this Agreement and shall
continue in full force and effect until the full and final payment,
and satisfaction and discharge, of all obligations of Borrower to
Bank subject to this Agreement.
2.1. LEGAL STATUS. Borrower is a
corporation, duly organized and existing and in good standing under
the laws of the state of Washington, and is qualified or licensed
to do business (and is in good standing as a foreign corporation,
if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to
be so licensed could have a material adverse effect on
Borrower.
2.2. AUTHORIZATION AND VALIDITY.
This Agreement and each promissory note, contract, instrument and
other document required hereby or at any time hereafter delivered
to Bank in connection herewith (collectively, the “Loan
Documents”) have been duly authorized, and upon their
execution and delivery in accordance with the provisions hereof
will constitute legal, valid and binding agreements and obligations
of Borrower or the party which executes the same, enforceable in
accordance with their respective terms.
2.3. NO VIOLATION. The execution,
delivery and performance by Borrower of each of the Loan Documents
do not violate any provision of any law or regulation, or
contravene any provision of the Articles of Incorporation, By-Laws,
or any resolution of the Board of Directors of Borrower, or result
in any breach of or default under any contract, obligation,
indenture or other instrument to which Borrower is a party or by
which Borrower or its assets may be bound.
2.4. LITIGATION. There are no
pending, or to the best of Borrower’s knowledge threatened,
actions, claims, investigations, suits or proceedings by or before
any governmental authority, arbitrator, court or administrative
agency which could have a material adverse effect on the financial
condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.
2.5. CORRECTNESS OF FINANCIAL
STATEMENT. The annual financial statement of Borrower dated
June 28, 2008, and all interim financial statements delivered
to Bank since said date, true copies of which have been delivered
by Borrower to Bank prior to the date hereof, (a) are complete
and correct and present fairly the financial condition of Borrower,
(b) disclose all liabilities of Borrower that are required to
be reflected or reserved against under generally accepted
accounting principles, whether liquidated or unliquidated, fixed or
contingent, and (c) have been prepared in accordance with
generally accepted accounting principles consistently applied.
Since the dates of such financial statements there has been no
material adverse change in the financial condition of Borrower, nor
has Borrower mortgaged, pledged, granted a security interest in or
otherwise encumbered any of its assets or properties except in
favor of Bank or as otherwise permitted by Bank in
writing.
2.6. INCOME TAX RETURNS. Borrower
has no knowledge of any pending assessments or adjustments of its
income tax payable with respect to any year.
2.7. NO SUBORDINATION. There is no
agreement, indenture, contract or instrument to which Borrower is a
party or by which Borrower may be bound that requires the
subordination in right of payment of any of Borrower’s
obligations subject to this Agreement to any other obligation of
Borrower.
2.8. PERMITS, FRANCHISES. Borrower
possesses, and will hereafter possess, all permits, consents,
approvals, franchises and licenses required and rights to all
trademarks, trade names, patents, and fictitious names, if any,
necessary to enable it to conduct the business in which it is now
engaged in compliance with applicable law.
2.9. ERISA. Borrower is in
compliance in all material respects with all applicable provisions
of the Employee Retirement Income Security Act of 1974, as amended
or recodified from time to time (“ERISA”); Borrower has
not violated any provision of any defined employee pension benefit
plan (as defined in ERISA) maintained or contributed to by Borrower
(each, a “Plan”); no Reportable Event as defined in
ERISA has occurred and is continuing with respect to any Plan
initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each Plan
will be able to fulfill its benefit obligations as they come due in
accordance with the Plan documents and under generally accepted
accounting principles.
2.10. OTHER OBLIGATIONS. Borrower is
not in default on any obligation for borrowed money, any purchase
money obligation or any other material lease, commitment, contract,
instrument or obligation.
2.11. ENVIRONMENTAL MATTERS. Except
as disclosed by Borrower to Bank in writing prior to the date
hereof, Borrower is in compliance in all material respects with all
applicable federal or state environmental, hazardous waste, health
and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower’s operations
and/or properties, including without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act of 1986, the Federal
Resource Conservation and Recovery Act of 1976, and the Federal
Toxic Substances Control Act, as any of the same may be amended,
modified or supplemented from time to time. None of the operations
of Borrower is the subject of any federal or state investigation
evaluating whether any remedial action involving a material
expenditure is needed to respond to a release of any toxic or
hazardous waste or substance into the environment. Borrower has no
material contingent liability in connection with any release of any
toxic or hazardous waste or substance into the
environment.
ARTICLE III
CONDITIONS
3.1. CONDITIONS OF INITIAL EXTENSION
OF CREDIT. The obligation of Bank to extend any credit contemplated
by this Agreement is subject to the fulfillment to Bank’s
satisfaction of all of the following conditions:
(a) Approval of Bank Counsel
. All legal matters incidental to the extension of credit by Bank
shall be satisfactory to Bank’s counsel.
(b) Documentation . Bank
shall have received, in form and substance satisfactory to Bank,
each of the following, duly executed:
(i) This Agreement, the Revolving
Line of Credit Note, the Security Agreement (Rights to Payment and
Inventory), Security Agreement (Equipment), and Pledge Agreement,
and each and every other instrument or document required
thereby.
(ii) A Borrowing Resolution,
authorizing Borrower’s entering into the Line of Credit and
executing the Loan Documents.
(iii) The guaranties of each of
Borrower’s active domestic subsidiaries.
(iv) A Resolution Authorizing
Guaranty from each of Borrower’s active domestic
subsidiaries.
(v) Such other documents as Bank may
require under any other Section of this Agreement.
(c) Financial Condition .
There shall have been no material adverse change, as determined by
Bank, in the financial condition or business of Borrower or any
guarantor hereunder, nor any material decline, as determined by
Bank, in the market value of any collateral required hereunder or a
substantial or material portion of the assets of Borrower or any
such guarantor.
(d) Insurance . Borrower
shall have delivered to Bank evidence of insurance coverage on all
Borrower’s property, in form, substance, amounts, covering
risks and issued by companies satisfactory to Bank, and where
required by Bank, with loss payable endorsements in favor of Bank,
including without limitation, policies of fire and extended
coverage insurance covering all real property collateral required
hereby, with replacement cost and mortgagee loss payable
endorsements, and such policies of insurance against specific
hazards affecting any such real property as may be required by
governmental regulation or Bank.
(e) Lien Search . Bank shall
have received such lien searches as it may require to confirm that
its lien on the collateral is in a first priority position, subject
only to such exceptions as are acceptable to bank, in its sole
discretion.
3.2. CONDITIONS OF EACH EXTENSION OF
CREDIT. The obligation of Bank to make each extension of credit
requested by Borrower hereunder shall be subject to the fulfillment
to Bank’s satisfaction of each of the following
conditions:
(a) Compliance . The
representations and warranties contained herein and in each of the
other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of
credit by Bank pursuant hereto, with the same effect as though such
representations and warranties had been made on and as of each such
date, and on each such date, no Event of Default as defined herein,
and no condition, event or act which with the giving of notice or
the passage of time or both would constitute such an Event of
Default, shall have occurred and be continuing or shall
exist.
(b) Documentation . Bank
shall have received all additional documents which may be required
in connection with such extension of credit.
ARTICLE IV
AFFIRMATIVE
COVENANTS
Borrower covenants that so long as
Bank remains committed to extend credit to Borrower pursuant
hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all
obligations of Borrower subject hereto, Borrower shall, unless Bank
otherwise consents in writing:
4.1. PUNCTUAL PAYMENTS. Punctually
pay all principal, interest, fees or other liabilities due under
any of the Loan Documents at the times and place and in the manner
specified therein, and immediately upon demand by Bank, the amount
by which the outstanding principal balance of any credit subject
hereto at any time exceeds any limitation on borrowings applicable
thereto.
4.2. ACCOUNTING RECORDS. Maintain
adequate books and records in accordance with generally accepted
accounting principles consistently applied, and permit any
representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same, and
to inspect the properties of Borrower.
4.3. FINANCIAL STATEMENTS. Provide
to Bank all of the following, in form and detail satisfactory to
Bank, which statements shall be in accordance with generally
accepted accounting principles consistently applied (and consistent
with prior practices):
(a) not later than 120 days after
and as of the end of each fiscal year, an audited consolidated
financial statement of Borrower (including balance sheet and
statements of income, retained earnings and cash flow), together
with all notes to management, prepared by and including the
unqualified opinion of a recognized independent accounting firm
acceptable to Bank;
(b) not later than 45 days after and
as of the end of each fiscal quarter, a financial statement of
Borrower, prepared by Borr
