CREDIT AGREEMENT

 

Exhibit 10 (c)

 

CREDIT AGREEMENT

between

U.S. BANK NATIONAL ASSOCIATION

and

SI TECHNOLOGIES, INC.

dated

June              , 2002

 

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CREDIT AGREEMENT

 

This Credit Agreement (the “Agreement”) is entered into on June      , 2002, between U.S. BANK NATIONAL ASSOCIATION (“U.S. Bank”) and SI TECHNOLOGIES, INC. (“SI”).

 

RECITALS

 

A. U.S. Bank extends to SI a revolving credit facility in the amount of $8,000,000 and a term loan facility. The terms and conditions of those credit facilities are set forth in an Amended and Restated Credit Agreement dated July 10, 1998, between U.S. Bank and SI (which agreement, as modified and amended, is referred to herein as the “Existing Credit Agreement”).

 

B. As of June 12, 2002, SI owed U.S. Bank the principal amount of $7,010,024.51 and accrued interest of $144,359.66 pursuant to a promissory note dated March 9, 2001, evidencing SI’s obligations in respect of the existing revolving credit facility extended by U.S. Bank. The promissory note referred to in the preceding sentence is referred to below as the “Existing Revolving Note.”

 

C. As of June 12, 2002, SI owed U.S. Bank the principal amount of $4,708,898.71 and accrued interest of $7,913.57 pursuant to a promissory note dated November 15, 2000, in the original principal amount of $6,891,071.32 (the “Existing Term Loan Note”). The loan evidenced by the Existing Term Loan Note is referred to in this Agreement as the “Existing Term Loan.”

 

D. Interest continues to accrue on SI’s obligations to U.S. Bank pursuant to the Existing Revolving Note and the Existing Term Loan Note on and after June      , 2002. In addition, SI is obligated to reimburse U.S. Bank (or pay directly if requested to do so by U.S. Bank) for fees and costs incurred by U.S. Bank in connection with its banking relationship with SI, including reasonable attorney fees.

 

E. SI’s obligations pursuant to the Existing Revolving Note and the Existing Term Loan Note are secured by first priority security interests and liens in, among other things, all accounts, chattel paper, equipment, general intangibles, and inventory of SI, as more particularly specified in various security agreements executed by SI in favor of U.S. Bank. In addition, SI’s obligations pursuant to the Existing Revolving Note and the Existing Term Loan Note are secured by first priority security interests and liens in, among other things, all accounts, chattel paper, equipment, general intangibles, and inventory of the Domestic Subsidiaries. The security interests referred to in the two preceding sentences are referred to collectively in this Agreement as the “Existing Security Agreements.”

 

F. SI’s obligations pursuant to the Existing Revolving Note and the Existing Term Loan Note also are secured by a pledge of the stock owned by SI of Allegany, Inc., NV Technology, Inc., and Revere. Furthermore, the existing loans are secured by Allegany, Inc.’s, pledge of the stock it owns of Allegany Technologies, Inc., and by Selectaid Limited’s pledge of stock it owns of Revere BV. The pledge agreements referred to in this Recital F are referred to below collectively as the “Existing Pledge Agreements.”

 

G. The credit facility evidenced by the Existing Revolving Note has matured and U.S. Bank’s commitment to extend revolving credit to SI has expired. SI has asked U.S. Bank to continue to extend a revolving credit facility to SI. U.S. Bank is willing to do so, subject to the terms and conditions set forth in this Agreement.

 

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which hereby are acknowledged, U.S. Bank and SI agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

Section 1.1 Defined Terms . As used in this Agreement, the following terms have the following meanings, which apply to both the singular and plural forms of the terms defined:

 

“ Accounts ” means all accounts (as defined in ORS Chapter 79 (or any successor statute)) of SI and its Subsidiaries.

 

“ Adjusted EBITDA ” means, during any period in question, EBITDA minus (a) cash payments in respect of income taxes of SI and its Subsidiaries, (b) cash dividends or distributions to shareholders of SI and its Subsidiaries, and (c) Unfunded Capital Expenditures of SI and its Subsidiaries.

 

“ Advance ” and “ Advances ” have the meanings specified in Section 2.1 of this Agreement.

 

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“ AeroGo ” means AeroGo, Inc., and any Successor thereof.

 

“ Affiliate ” means any Person (a) that directly or indirectly controls, is controlled by, or is under common control with SI; (b) that directly or indirectly owns or holds 5 percent or more of any class of voting stock of SI; or (c) 5 percent or more of the voting stock of which is directly or indirectly owned or held by SI. The term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.

 

“ Aggregate Net Income ” has the meaning specified in Section 10.3 of this Agreement.

 

“ Agreement ” means this Credit Agreement, and any amendments, modifications, renewals, or restatements thereof.

 

“ Borrowing Base ” has the meaning specified in Section 2.8 of this Agreement.

 

“ Budget ” has the meaning specified in Section 9.9(j) of this Agreement.

 

“ Business Day ” means a day on which U.S. Bank is open for business in Portland, Oregon, and Minneapolis, Minnesota.

 

“ Capital Expenditures ” means any expenditure by SI and its Subsidiaries for fixed or capital assets, leasehold improvements, Capital Leases, installment purchases of machinery and equipment, acquisitions of real estate, and other similar expenditures including (a) in the case of a purchase, the entire amount SI (or the Subsidiary) is contractually obligated to pay during the period in question (whether or not paid), (b) in the case of a Capital Lease, the entire implied principal amount SI (or the Subsidiary) is contractually obligated to pay during the period in question (whether or not paid), and (c) expenditures in any construction in progress account of SI (or a Subsidiary).

 

“ Capital Lease ” means any lease of property (real, personal, or mixed) that in accordance with GAAP should be capitalized on the lessee’s balance sheet.

 

“ Capital Lease Obligation ” means the amount of the liability with respect to a Capital Lease that should be capitalized in accordance with GAAP.

 

“ Cash Collateral Account ” has the meaning specified in Section 7.3 of this Agreement.

 

“ Collateral ” means all of the assets of SI and the Subsidiaries described in the Security Documents.

 

“ Credit Insurance Deductible ” means the amount of any deductible payable by SI pursuant to the Credit Insurance Policy.

 

“ Credit Insurance Policy ” means a policy of insurance obtained by SI, which policy must be in a form satisfactory to U.S. Bank in its reasonable discretion and issued by an insurer satisfactory to U.S. Bank in its reasonable discretion, insuring the payment of Accounts of SI or its Subsidiaries with respect to which the account debtor is not a resident of the United States or Canada or a Person incorporated under the laws of a state in the United States or a province in Canada.

 

“ Dating ” means the practice of giving credit beyond a stated period by forward dating of an invoice. For example, a buyer otherwise obligated to pay for a purchase within 30 days may be given a postdated invoice bearing a date a month later than the actual date of purchase, which, in effect, means that the buyer now has 60 days in which to make payment.

 

“ Default Interest Rate ” means, with respect to the loan in question, an interest rate that is 5 percent per annum greater than the interest rate that was applicable to such loan immediately prior to the Event of Default that resulted in the invocation of the Default Interest Rate.

 

“ Domestic Subsidiaries ” means AeroGo and Revere.

 

“ EBITDA ” means, for any period in question, an amount equal to the Net Income for such period, plus the following, to the extent deducted or excluded in computing such Net Income: (a) interest expense of SI and its Subsidiaries, (b) income taxes of SI and its Subsidiaries, (c) depreciation of SI and its Subsidiaries, and (d) amortization of SI and its Subsidiaries (all as determined in accordance with GAAP).

 

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“ Eligible Accounts Receivable ” means all Accounts of SI and the Subsidiaries meeting all of the following criteria and in which U.S. Bank has a perfected, first priority security interest:

 

(a) An Account that arose from a bona fide sale of goods by SI (or a Subsidiary), or as a result of services performed by SI (or a Subsidiary) under an enforceable contract, provided that such goods have been shipped to the appropriate account debtor (or the sale otherwise has been consummated), and, in the case of services, the services have been performed for the account debtor in question in accordance with the contract or agreement governing such services;

 

(b) An Account as to which the title of SI (or a Subsidiary) to the Account is absolute and is not subject to any prior assignment, claim, lien, or security interest, other than the security interests created by the Loan Documents;

 

(c) An Account as to which the amount shown on the books of SI (or the Subsidiary) is owing to SI (or the Subsidiary) and no partial payment has been made thereon, except as reflected on the books of SI (or the Subsidiary);

 

(d) An Account to the extent that it is not subject to any reduction, counterclaim, setoff, recoupment, or any present claim for credits, allowances, or adjustment by the account debtor because of returned, inferior, or damaged goods, or unsatisfactory services, or for any other reason, except for customary discounts allowed for prompt payment (provided, however, that at all times SI shall reduce the amount of Eligible Accounts Receivable by the actual amount of credits, offsets, allowances, or adjustments against Accounts outstanding at the time in question, as reported by SI in its weekly borrowing certificates, subject to U.S. Bank’s review and approval in its reasonable discretion);

 

(e) An Account as to which the account debtor is not an Affiliate of SI, or an officer, director, or employee of SI (or a Subsidiary);

 

(f) An Account to the extent that it does not result from, include, or constitute late charges, service charges, or interest;

 

(g) An Account that is not more than 60 days past due, or more than 90 days old (as measured from the date of invoice);

 

(h) An Account that is not an obligation of an account debtor with more than 25 percent of the total amount of its Accounts payable to SI (and the Subsidiaries) that are more than 60 days past due, or more than 90 days old (as measured from the date of the invoice);

 

(i) An Account that does not arise out of a contract with, or order from, an account debtor that by its terms forbids or makes the assignment of that Account to U.S. Bank void or unenforceable;

 

(j) An Account as to which the account debtor is not the United States of America, or any agency, division, unit, instrumentality, or branch thereof;

 

(k) An Account as to which SI (or the Subsidiary) has not received any note, trade acceptance, draft, or other instrument with respect to the goods or services giving rise to the account (and, if any such instrument or chattel paper is received, SI immediately shall notify U.S. Bank and, at U.S. Bank’s request, shall endorse or assign (or cause it to be endorsed or assigned) and deliver the same to U.S. Bank);

 

(l) An Account as to which SI (or a Subsidiary) has not received any notice of the death of the account debtor, or of the dissolution, termination of existence, insolvency, business failure, appointment of a receiver for any part of the property of, assignment for the benefit of creditors by, or the filing of a petition in bankruptcy or the commencement of any proceeding under any bankruptcy or insolvency laws by or against the account debtor (and upon the receipt of any such notice, SI immediately shall advise U.S. Bank of the event or occurrence in question);

 

(m) An Account as to which the account debtor’s obligation to SI (or a Subsidiary) is denominated and payable in United States currency;

 

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(n) An Account to the extent that it does not consist of Retainage;

 

(o) An Account to the extent that it does not result from or consist of prebillings;

 

(p) An Account to the extent that it does not result from or consist of progress billings in excess of the amount permitted by the terms of the applicable contract;

 

(q) An Account to the extent that it does not consist of claims by SI (or a Subsidiary) for work beyond the scope of the original contract with the account debtor for which no change order has been issued and approved by the account debtor in question;

 

(r) An Account that does not arise out of a consignment transaction, or a sale or return agreement;

 

(s) An Account that is not subject to an agreement providing for Dating of the account debtor’s obligation to pay for the goods or services in question (unless, notwithstanding the Dating of an Account, the account debtor is obligated to pay for the goods or services by the earlier of (i) 90 days after the sale of the goods (or services), or (ii) 90 days after the date of the invoice with respect to such goods (or services)), except the remaining portion (approximately $125,000) due to SI by Consolidated Freightways, Inc., pursuant to a contract in the original amount of approximately $250,000 that provided for 12 equal monthly payments, the remaining balance of approximately $65,000 owed to SI by Tramanco in respect to Tramanco’s initial order of goods from SI, and an Account from Roadway Express, Inc., with a remaining balance of approximately $32,000 that relates to certain demonstration equipment;

 

(t) An Account as to which the account debtor’s financial condition is acceptable to U.S. Bank in its good faith discretion (provided, however, that unless U.S. Bank gives SI prior written notice that the financial condition of an account debtor of SI is not acceptable to U.S. Bank, an Account of an existing account debtor of SI (or a Subsidiary) shall not become ineligible under this item (t) of the definition of Eligible Accounts Receivable without at least 30 days’ prior written notice from U.S. Bank to SI that the financial condition of the account debtor in question is not acceptable to U.S. Bank, in its good faith discretion); and

 

(u) An Account that is not an Account that U.S. Bank, in its reasonable discretion, determines to be ineligible in whole or in part and has provided SI at least 30 days’ prior written notice thereof.

 

If the total amount owed by any account debtor to SI and its Subsidiaries exceeds 20 percent of the aggregate amount of Eligible Accounts Receivable, U.S. Bank may in its good faith discretion require that amounts in excess of such amount be excluded from the determination of Eligible Accounts Receivable, and may impose such other limitations on such Accounts as are reasonable.

 

“ Eligible Domestic Accounts ” means all Eligible Accounts Receivable of SI and the Domestic Subsidiaries with respect to which (a) the account debtor is a resident of the United States or Canada, or a Person incorporated under the laws of a state in the United States or a province in Canada, (b) the account arises out of goods sold or services performed by SI or a Subsidiary in the United States or Canada, and (c) the goods sold or services performed are delivered or provided to the account debtor in the United States or Canada.

 

“ Eligible Insured Foreign Accounts ” means Eligible Accounts Receivable of SI or a Subsidiary to the extent that such accounts are covered by the Credit Insurance Policy. If as of the date that an Account is generated by SI (or any Subsidiary covered by the Credit Insurance Policy), any amount owing from the account debtor to SI (or the Subsidiary, as applicable) is more than 90 days past due (excluding amounts that are less than 10 percent of the Credit Insurance Deductible and amounts disputed by the account debtor, provided that such dispute has been acknowledged by SI (or the Subsidiary, as applicable)), then the newly generated Account is not an Eligible Insured Foreign Account. Notwithstanding anything in this Agreement to the contrary, an Account that initially was an Eligible Insured Foreign Account shall not cease to be an Eligible Insured Foreign Account merely because it was not timely paid by the account debtor, provided that (a) the account debtor does not dispute its obligation to pay the Account in question, and (b) SI (or the Subsidiary, as applicable) (i) has timely complied with all provisions of the Credit Insurance Policy regarding proof of loss (including any requirements involving making demand for payment on the account debtor and submitting proof of loss to the insurer), (ii) has complied with the provisions of Section 7.7 of this Agreement (if such provisions are applicable to the account or accounts in question), and (iii) has made a claim under the Credit Insurance Policy with respect

 

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to the account in question before the deadline under the Credit Insurance Policy for filing a claim of loss with respect to the full amount of the Account.

 

“ Eligible Inventory ” means all inventory (as defined in ORS Chapter 79 (or any successor statute)) of raw materials and finished goods of SI and the Domestic Subsidiaries in which U.S. Bank has a perfected, first-priority security interest, except the following:

 

(a) Work-in-process;

 

(b) Slow-moving, damaged, or obsolete inventory (as determined by U.S. Bank in its reasonable discretion);

 

(c) All goods that are on consignment;

 

(d) All goods that are leased to or from others by SI (or a Subsidiary);

 

(e) Inventory located outside the United States;

 

(f) Inventory with respect to which SI (or a Subsidiary) has received progress payments, predelivery payments, deposits, or other sums in anticipation of the sale of such inventory (to the extent of such payments, deposits, or other sums);

 

(g) All goods provided to any Person on a demonstration basis, or sold subject to approval after use by the purchaser;

 

(h) Inventory that SI (or a Subsidiary) has returned, or intends to return, to the manufacturer or supplier thereof under the terms of the manufacturer’s or supplier’s warranty agreement or other agreement governing the sale of the goods in question;

 

(i) Inventory of SI (or a Subsidiary) to the extent of the unpaid acquisition cost of such inventory (if such unpaid acquisition cost is secured by a Lien encumbering the inventory);

 

(j) Inventory located in a facility owned by a Person other than SI (or a Subsidiary), unless SI has obtained from such Person a written waiver of any Lien or claim such Person has or hereafter may have or claim to have against such inventory (which waiver shall be in form and content satisfactory to U.S. Bank in its reasonable discretion); and

 

(k) Other inventory that U.S. Bank in its reasonable discretion determines should not be included in the Borrowing Base.

 

The value of Eligible Inventory shall be determined in accordance with the lower of cost or market method of determining inventory value.

 

“ Environmental Laws ” means any and all applicable federal, state, and local environmental, health, or safety statutes, laws, regulations, rules, and ordinances (whether now existing or hereafter enacted or promulgated), and all applicable judicial, administrative, and regulatory decrees, judgments, and orders, including common law rulings and determinations, relating to injury to, or the protection of, human health or the environment, including, without limitation, all requirements pertaining to reporting, licensing, permitting, investigation, remediation, and removal of emissions, discharges, releases, or threatened releases of Hazardous Materials into the environment, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of such Hazardous Materials.

 

“ Event of Default ” has the meaning specified in Section 12.1 of this Agreement.

 

“ Excess Cash Flow ” has the meaning specified in Section 4.3 of this Agreement.

 

“ Existing Credit Agreement ” has the meaning specified in Recital A of this Agreement.

 

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“ Existing Pledge Agreements ” has the meaning specified in Recital F of this Agreement, and includes any amendments, modifications, renewals, and restatements thereof.

 

“ Existing Revolving Note ” has the meaning specified in Recital B of this Agreement.

 

“ Existing Security Agreements ” has the meaning specified in Recital E of this Agreement, and includes any amendments, modifications, renewals, and restatements thereof.

 

“ Existing Term Loan Maturity Date ” has the meaning specified in Section 4.4 of this Agreement.

 

“ Existing Term Loan Note ” has the meaning specified in Recital C of this Agreement.

 

“ Fixed Charge Coverage Ratio ” has the meaning specified in Section 10.1 of this Agreement.

 

“ Fixed Charges ” means, for any period in question, the sum of (a) interest expense of SI (and its Subsidiaries), (b) the aggregate amount of all principal payments (other than payments with respect to the Revolving Credit Facility) made, accrued, or becoming due in respect of any Indebtedness of SI (and its Subsidiaries), and (c) Capital Lease expense of SI (and its Subsidiaries).

 

“ GAAP ” means the generally accepted accounting principles issued by the American Institute of Certified Public Accountants in effect in the United States at the time of application to the provisions of this Agreement.

 

“ Government Approval ” means an approval, permit, license, authorization, certificate, or consent of any Governmental Authority.

 

“ Governmental Authority ” means the government of the United States, or any state or any foreign country or any political subdivision of any thereof, or any branch, department, agency, instrumentality, court, tribunal, or regulatory authority that constitutes a part of or exercises any sovereign power of any of the foregoing.

 

“ Guaranties ” has the meaning specified in Section 6.2 of this Agreement.

 

“ Hazardous Material ” means any substance (a) the presence of which requires notification, removal, or remediation under any Environmental Law; (b) that is or becomes defined as a “hazardous waste,” “hazardous material,” or “hazardous substance” under any present or future Environmental Law, or amendments thereto, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601, et seq.) and any applicable local statutes and the regulations promulgated thereunder; (c) that is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, or otherwise hazardous and that is or becomes regulated pursuant to any Environmental Law; or (d) without limitation, that contains gasoline, diesel fuel, or other petroleum products, asbestos, or polychlorinated biphenyls.

 

“ Indebtedness ” means (a) all items of indebtedness or liability (except capital surplus, deferred credits, and reserves) that would be included in determining total liabilities as shown on the liability side of a balance sheet as of the date on which indebtedness is determined, (b) indebtedness secured by any Lien, whether or not such indebtedness shall have been assumed, (c) any other indebtedness or liability for borrowed money, or for the deferred purchase price of property or services for which the obligor is directly or contingently liable as obligor, guarantor, or otherwise, or in respect of which the obligor otherwise assures a creditor against loss, and (d) any other obligations of an obligor under a lease that has been (or should be) reflected as a Capital Lease in the obligor’s books and records.

 

“ Lien ” means any security interest, pledge, mortgage, charge, assignment, hypothecation, encumbrance, attachment, garnishment, execution, or other voluntary or involuntary lien or charge upon (or affecting the revenues of) any real property or personal property.

 

“ Loan Documents ” means this Agreement, the Notes, the Security Documents, any other documents executed by SI or any Subsidiary in favor of U.S. Bank (whether before, on, or after the date of this Agreement) in relation to the loans evidenced by the Notes or any security for or guaranties of those loans, and any amendments, modifications, renewals, and restatements thereof.

 

“ Material Adverse Effect ” means (a) a material adverse effect on the business, assets, operations, prospects, or financial condition of SI and its Subsidiaries (taken as a whole), (b) a material impairment of SI’s ability to pay or perform its obligations under the Loan Documents in accordance with the terms thereof, (c) a material impairment of the Collateral, U.S. Bank’s Liens on the Collateral, or the priority of such Liens, or (d) a material impairment of U.S. Bank’s rights and remedies under the Loan Documents.

 

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“ Maturity Date ” has the meaning specified in Section 2.10 of this Agreement.

 

“ Net Income ” means, for any period in question, the consolidated net income of SI and its Subsidiaries for such period, determined in accordance with GAAP, but in any event there shall be excluded or deducted from such net income (a) any gain or loss arising from any write-up of assets, except to the extent inclusion thereof shall be approved in writing by U.S. Bank (in its sole and absolute discretion); (b) any extraordinary or nonrecurring gains; (c) the proceeds of any life insurance policy received during such period; and (d) any reversal of any contingency reserve, except to the extent that provision for such contingency reserve shall have been made from income arising during such period.

 

“ Net Worth ” means, at any date as of which the amount thereof shall be determined, the consolidated total assets of SI and its Subsidiaries minus (a) the consolidated total liabilities of SI and its Subsidiaries, and (b) the sum of any amounts attributable to (i) all reserves not already deducted from assets or included in total liabilities, (ii) any write-up in the book value of assets resulting from any revaluation thereof subsequent to the date of the most recent audited annual financial statement of SI provided to U.S. Bank, (iii) the value of any minority interests in Subsidiaries, (iv) intercompany accounts with Subsidiaries and Affiliates (including receivables due from Subsidiaries and Affiliates) (to the extent included in total assets and not included in total liabilities), (v) the value, if any, attributable to any capital stock of SI held in treasury, and (vi) the value, if any, attributable to any notes or subscriptions receivable due from stockholders in respect of capital stock.

 

“ Notes ” means the Revolving Credit Facility Note, the Term Loan Note, and the Existing Term Loan Note, and any amendments, modifications, renewals, and restatements thereof.

 

“ Obligations ” means all of SI’s obligations to U.S. Bank, including, but not limited to, SI’s obligations pursuant to the Notes, this Agreement, any automated clearing house services or other cash management services U.S. Bank makes available to SI (or any Subsidiary), and all obligations of SI (and the Subsidiaries) in relation to any VISA credit facilities extended by U.S. Bank (or any Affiliate of U.S. Bank).

 

“ Permitted Carryover ” has the meaning specified in Section 11.7 of this Agreement.

 

“ Permitted Liens ” means, with respect to SI and its Subsidiaries, (a) Liens for taxes, assessments, or other governmental charges or levies not delinquent, or being contested in good faith and by appropriate proceedings and with respect to which proper reserves have been taken by SI and its Subsidiaries; (b) deposits or pledges securing obligations under worker’s compensation insurance, unemployment insurance, social security, or public liability laws or similar legislation; (c) deposits or pledges securing bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety bonds and appeal bonds, and other obligations of like nature arising in the ordinary course of SI’s (or a Subsidiary’s) business; (d) judgment Liens that have been stayed or bonded; (e) mechanics’, workers’, materialmen’s, or other like Liens arising in the ordinary course of SI’s (or a Subsidiary’s) business with respect to obligations that are not due, or that remain payable without penalty, or the validity or amount of which is being contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof, (f) Liens placed upon fixed assets acquired after the date of this Agreement to secure a portion of the purchase price thereof, provided that any such Lien shall not encumber any other property of SI (or a Subsidiary); and (g) Liens in favor of U.S. Bank.

 

“ Person ” means an individual, sole proprietorship, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority, or other entity of whatever nature.

 

“ Prime Rate ” means the rate publicly announced by U.S. Bank on the day in question at its principal office as its “prime rate” or “reference rate” of interest. The Prime Rate is not necessarily the lowest rate of interest charged by U.S. Bank and does not necessarily correspond to the rate offered to U.S. Bank’s most substantial commercial customer or borrower.

 

“ Retainage ” means that portion of the purchase price of goods sold or services provided by SI (or any Subsidiary) that the buyer thereof is not obligated to pay to SI (or any Subsidiary) until the end of a specified period of time following the satisfactory performance by SI (or any Subsidiary) under the agreement governing the transaction in question.

 

“ Revere ” means Revere Transducers, Inc., and any Successor thereof.

 

“ Revere BV ” means Revere Transducers Europe BV, and any Successor thereof.

 

“ Revolving Credit Facility ” has the meaning specified in Section 2.2 of this Agreement.

 

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“ Revolving Credit Facility Note ” has the meaning specified in Section 2.4 of this Agreement, and includes any amendments, modifications, renewals, and restatements thereof.

 

“ Security Agreements ” means the Existing Security Agreements and the security agreements described in Section 6.1 of this Agreement, and includes any amendments, modifications, renewals, and restatements thereof.

 

“ Security Documents ” means the Security Agreements and the Existing Pledge Agreements.

 

“ SI ” means SI Technologies, Inc., and any Successor thereof.

 

“ Subordinated Indebtedness ” means loans to SI that are the subject of a Subordination Agreement.

 

“ Subordination Agreement ” means an agreement in form and content satisfactory to U.S. Bank in its reasonable discretion whereby certain Persons who have loaned money to SI agree that their right to payment of such loans is junior and subordinate to U.S. Bank’s right to payment of the Obligations.

 

“ Subsidiary ” means any corporation of which shares of stock having ordinary voting power to elect a majority of the board of directors, or other managers of such corporation, are at the time owned or controlled, directly or indirectly, by SI (or the management of which corporation otherwise is controlled directly or indirectly by SI).

 

“ Successor ” means, for any corporation, limited liability company, or banking association, any successor by merger or consolidation, or by acquisition of substantially all of the stock, membership interests, or assets of the predecessor.

 

“ Tangible Net Worth ” means Net Worth minus goodwill of SI and its Subsidiaries and all other assets of SI and its Subsidiaries properly classified as intangible assets in accordance with GAAP.

 

“ Tax ” means any tax, assessment, duty, levy, or other charge imposed by any Governmental Authority on any property, revenue, income, or franchise of any Person, and any interest or penalty with respect to any of the foregoing.

 

“ Term Loan ” has the meaning specified in Section 3.1 of this Agreement.

 

“ Term Loan Note ” has the meaning specified in Section 3.1 of this Agreement, and includes any amendments, modifications, renewals, and restatements thereof.

 

“ Unfunded Capital Expenditures ” means, for any period in question, the sum of all Capital Expenditures of SI and its Subsidiaries less the sum of all new financing amounts received or assumed by SI or any Subsidiary to acquire the capital assets in question.

 

“ U.S. Bank ” means U.S. Bank National Association and any Successor or assign thereof.

 

Section 1.2 Accounting Terms . Unless otherwise provided in this Agreement, accounting terms that are not defined specifically in this Agreement shall be interpreted and construed in accordance with GAAP and all accounting procedures shall be performed in accordance with GAAP.

 

Section 1.3 Rules of Construction . For purposes of this Agreement, the following rules of construction shall apply, unless specifically indicated to the contrary: (a) wherever from the context it appears appropriate, each term stated in either the singular or the plural form shall include the singular and the plural form thereof, (b) the term “or” is not exclusive; (c) the term “including” (or any form of that term) shall not be limiting or exclusive; (d) all references to statutes and related regulations shall include any amendments thereof and any successor statutes and regulations; (e) the words “this Agreement,” “herein,” “hereof,” “hereunder,” or other words of similar import refer to this Agreement as a whole, including any schedules, exhibits, and annexes hereto, as the same may be amended, modified, or supplemented; (f) all references in this Agreement to sections, schedules, exhibits, and annexes shall refer to the corresponding sections, schedules, exhibits, and annexes of or to this Agreement; and (g) all references to any instruments or agreements, including references to any of the Loan Documents, shall include any and all amendments, extensions, modifications, renewals, and restatements thereof, to the extent permitted under this Agreement.

 

Section 1.4 Incorporation of Recitals . The Recitals to this Agreement hereby are incorporated into and constitute a part of this Agreement.

 

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ARTICLE II

 

THE REVOLVING CREDIT FACILITY

 

Section 2.1 The Revolving Credit Facility . Upon satisfaction of the conditions precedent specified in Section 5.1 of this Agreement, and subject to the terms and conditions of this Agreement, U.S. Bank agrees to make loans and advances of credit to SI (each of which loans and advances is referred to in this Agreement as an “Advance,” and all of which are referred to in this Agreement collectively as the “Advances”). Upon the effective date of this Agreement, the Revolving Credit Facility shall replace and supersede the operating credit facility extended by U.S. Bank to SI pursuant to the Existing Revolving Note.

 

Section 2.2 Use of Funds Borrowed Under the Revolving Credit Facility . Upon the effective date of this Agreement, SI shall cause an Advance to be made under the Revolving Credit Facility in an amount equal to the principal balance outstanding under the Existing Revolving Note minus $1,500,000. The funds advanced in accordance with the preceding sentence of this Agreement shall be applied to SI’s obligation to U.S. Bank in respect of the Existing Revolving Note. Thereafter, funds borrowed by SI under the revolving credit facility governed by this Agreement (which credit facility is referred to in this Agreement as the “Revolving Credit Facility”) shall be used by SI only for general corporate purposes in the ordinary course of SI’s business.

 

Section 2.3 Maximum Revolving Credit Commitment . The maximum amount of credit that may be outstanding to SI under the Revolving Credit Facility at any time is the lesser of (a) $6,500,000, or (b) the Borrowing Base at the time in question. If the amount outstanding with respect to the Revolving Credit Facility at any time exceeds the lesser of the amounts specified in the preceding sentence, SI within three Business Days shall pay U.S. Bank an amount equal to such excess (and SI’s failure to make such payment shall constitute an Event of Default).

 

Section 2.4 The Revolving Credit Facility Note . Contemporaneously with the execution of this Agreement, SI shall execute and deliver to U.S. Bank a promissory note in form and content satisfactory to U.S. Bank in its reasonable discretion evidencing SI’s obligation to repay amounts advanced to SI pursuant to the Revolving Credit Facility (the “Revolving Credit Facility Note”). Advances to SI pursuant to the Revolving Credit Facility shall be evidenced by and repaid by SI in accordance with the Revolving Credit Facility Note and this Agreement.

 

Section 2.5 The Revolving Loan Fee . Contemporaneously with the execution of this Agreement, SI shall pay U.S. Bank a fee of $24,375 in consideration of U.S. Bank’s commitment to extend the Revolving Credit Facility to SI on the basis set forth in this Agreement.

 

Section 2.6 Interest Rate and Payment Terms for the Revolving Credit Facility Note . Amounts advanced by U.S. Bank to SI under the Revolving Credit Facility shall bear interest at the Prime Rate plus 2.75 percent per annum. Following the occurrence of an Event of Default (if any) and during the continuance thereof, U.S. Bank shall be entitled to charge, and SI shall be obligated to pay, interest on the principal balance outstanding under the Revolving Credit Facility Note at the Default Interest Rate. Interest owed by SI pursuant to the Revolving Credit Facility Note shall be calculated on the basis of a 360-day year (as more particularly described in the Revolving Credit Facility Note).

 

Section 2.7 Payment Terms . SI shall make monthly payments of interest in arrears to U.S. Bank in respect of the Revolving Credit Facility Note commencing on July 1, 2002, and on the first day of each month thereafter until the Maturity Date.

 

Section 2.8 The Borrowing Base . As used in this Agreement, the term “Borrowing Base” means the sum of (a) 80 percent of Eligible Domestic Accounts Receivable at the time in question, (b) 90 percent of Eligible Foreign Accounts Receivable at the time in question, and (c) 50 percent of Eligible Inventory at the time in question, provided, however, that the aggregate amount of Advances supported by Eligible Inventory shall not exceed $4,000,000 at any time.

 

Section 2.9 Revolving Nature of the Revolving Credit Facility . The Revolving Credit Facility is a revolving credit facility. Therefore, subject to the terms of this Agreement, SI may pay, repay, and re-borrow amounts under that credit facility.

 

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Section 2.10 Maturity Date of the Revolving Credit Facility . On the earlier of (a) November 30, 2002, or (b) acceleration of the Obligations following an Event of Default, if any, under this Agreement, U.S. Bank’s commitment to extend credit pursuant to the Revolving Credit Facility shall terminate. The earlier of the dates specified in the preceding sentence of this Agreement is referred to in this Agreement as the “Maturity Date.” On the Maturity Date, SI shall be obligated to pay in full the entire balance of principal, interest, and fees owed pursuant to the Revolving Credit Facility Note.

 

Section 2.11 Manner of Borrowing . In order to request an Advance under the Revolving Credit Facility, SI shall provide U.S. Bank with a written borrowing request in a form approved by U.S. Bank in its reasonable discretion. Each borrowing request by SI shall identify in reasonable detail the amount of the Borrowing Base (as determined in the bi-weekly borrowing base certificate then in effect) and the amount of the Advance requested by SI. Each borrowing request by SI shall constitute a representation and warranty by SI that, as of the date of the request, no Event of Default (or no event that with the giving of notice, or the passage of time, or both, would constitute an Event of Default) has occurred and is continuing. U.S. Bank will disburse any Advance to which SI is entitled under this Agreement by crediting the proceeds of the Advance to operating checking account no. 153501647538 maintained by SI with U.S. Bank. U.S. Bank shall not be required to make any Advance requested by SI at any time that SI has not timely submitted its bi-weekly Borrowing Base certificate in accordance with Section 9.9(a) or Section 9.9(b) of this Agreement.

 

Section 2.12 No Borrowing During Pendency of an Event of Default . SI shall not be entitled to borrow under the Revolving Credit Facility at any time that an Event of Default exists, or at any time that an event has occurred that with the giving of notice, or the passage of time, or both, would constitute an Event of Default.

 

ARTICLE III

 

THE NEW TERM LOAN

 

Section 3.1 The Term Loan . On the effective date of this Agreement, U.S. Bank shall convert to a new term loan (the “Term Loan”) $1,500,000 of the principal amount owed by SI to U.S. Bank in respect of the Existing Revolving Note as of the effective date of this Agreement. Contemporaneously with the execution of this Agreement, SI shall execute and deliver to U.S. Bank a promissory note in form and content satisfactory to U.S. Bank in its reasonable discretion evidencing SI’s repayment obligations in respect of the Term Loan (which note is referred to in this Agreement as the “Term Loan Note”). The Term Loan shall be repaid by SI in accordance with the provisions of the Term Loan Note and this Agreement.

 

Section 3.2 The Term Loan Fee . On or before the date of this Agreement, SI shall pay U.S. Bank a fee of $7,500 in respect of the Term Loan. In addition, if SI is not in compliance with each of the financial covenants set forth in Section 10.1 through Section 10.3 of this Agreement as of the end of SI’s 2002 fiscal year, SI shall pay U.S. Bank an additional fee of $7,500 (which fee shall be due and payable on or before September 15, 2002).

 

Section 3.3 Interest Rate for the Term Loan . SI hereby acknowledges and agrees that interest shall accrue (and shall be paid by SI as more particularly specified below and in the Term Loan Note) on the principal balance of the Term Loan at the Prime Rate plus 3.25 percent per annum. Following the occurrence of an Event of Default (if any) and during the continuance thereof, U.S. Bank shall be entitled to charge, and SI shall be obligated to pay, interest on the principal balance outstanding under the Term Loan at the Default Interest Rate. Interest owed by SI pursuant to the Term Loan Note shall be calculated on the basis of a 360-day year (as more particularly described in the Term Loan Note).

 

Section 3.4 Repayment Terms of the Term Loan . SI shall make monthly payments of interest in arrears to U.S. Bank in respect of the Term Loan commencing on July 1, 2002, and on the first day of each month thereafter until the Maturity Date. In addition, on the date of this Agreement, and on July 25, 2002, and the twenty-fifth day of each month thereafter until the Maturity Date, SI shall make principal payments to U.S. Bank in respect of the Term Loan in the amount of $25,000.

 

Section 3.5 Maturity Date of the Term Loan . On the Maturity Date, SI shall pay U.S. Bank the entire balance of principal, interest, and fees owed pursuant to the Term Loan Note.

 

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ARTICLE IV

 

MODIFICATION OF THE EXISTING TERM LOAN

 

Section 4.1 Modified Interest Rate for the Existing Term Loan . SI hereby acknowledges and agrees that on and after June 1, 2002, interest shall accrue (and shall be paid by SI as more particularly specified below and in the Existing Term Loan Note (as amended hereby)) on the principal balance of the Existing Term Loan at the Prime Rate plus 1.75 percent per annum. Following the occurrence of an Event of Default (if any) and during the continuance thereof, U.S. Bank shall be entitled to charge, and SI shall be obligated to pay, interest on the principal balance outstanding under the Existing Term Loan at the Default Interest Rate. Interest owed by SI pursuant to the Existing Term Loan Note shall be calculated on the basis of a 360-day year, as more particularly described in the Existing Term Loan Note.

 

Section 4.2 Modified Repayment Terms of the Existing Term Loan . SI shall make monthly payments of interest in arrears to U.S. Bank with respect to the Existing Term Loan commencing on July 1, 2002, and on the first day of each month thereafter until the Existing Term Loan Maturity Date. In addition, on the date of this Agreement and on July 1, 2002, and the first day of each month thereafter until the Existing Term Loan Maturity Date, SI shall make principal payments to U.S. Bank in respect of the Existing Term Loan in the amount of $56,058.32. The payment described in the preceding sentence that SI must make on the date of this Agreement shall be in lieu of the larger June 2002 payment that was scheduled to be made pursuant to the Existing Term Loan Note prior to the amendment of that note effected by this Agreement.

 

Section 4.3 Subsequent Excess Cash Flow Payments . In addition to the other payments SI is required to make under this Agreement and under the Notes to U.S. Bank, on or before September 15, 2003, and the same day of each year thereafter through and including 2005, SI shall pay U.S. Bank (for application to the Existing Term Loan) an amount equal to SI’s Excess Cash Flow (if any). As used in this Agreement, the term “Excess Cash Flow” means the amount by which actual Adjusted EBITDA for SI’s immediately preceding fiscal year exceeds the amount of Adjusted EBITDA that would have been required to provide a Fixed Charge Coverage Ratio of 1.15 to 1.00 for such year.

 

Section 4.4 Maturity Date of the Existing Term Loan . SI shall pay U.S. Bank the entire balance of principal, interest, and fees owed pursuant to the Existing Term Loan Note on the earlier of (a) November 1, 2005, or (b) acceleration of the Obligations following an Event of Default, if any, under this Agreement (the earlier of which dates is referred to in this Agreement as the “Existing Term Loan Maturity Date”).

 

Section 4.5 Amendment of Term Loan Note . Contemporaneously with the execution of this Agreement, SI shall execute and deliver to U.S. Bank a document in form and content satisfactory to U.S. Bank in its reasonable discretion amending the Existing Term Loan Note to reflect the changes to the Existing Term Loan described in this Article IV of this Agreement. Following the effective date of this Agreement, references to the Existing Term Loan Note shall mean that note, as amended hereby.

 

ARTICLE V

 

CONDITIONS OF LENDING

 

Section 5.1 Conditions Precedent . U.S. Bank’s agreements, obligations, and commitments under this Agreement are subject to fulfillment of all of the following conditions:

 

(a) Execution and Delivery of this Agreement, the Revolving Credit Facility Note, and the Term Loan Note . SI shall have executed and delivered to U.S. Bank this Agreement, the Revolving Credit Facility Note, and the Term Loan Note;

 

(b) Amendment of the Existing Term Loan Note . SI shall have executed and delivered to U.S. Bank the amendment of promissory note required pursuant to Section 4.5 of this Agreement;

 

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(c) Payment of Loan Fees . SI shall have paid U.S. Bank $31,875 in respect of the loan fees specified in Section 2.5 and Section 3.2 of this Agreement;

 

(d) Execution and Delivery of the Security Agreements . SI and the Domestic Subsidiaries shall have executed and delivered to U.S. Bank the security agreements required pursuant to Section 6.1 of this Agreement;

 

(e) Execution and Delivery of the Guaranties . The Domestic Subsidiaries shall have executed and delivered to U.S. Bank the Guaranties required pursuant to Section 6.2 of this Agreement;

 

(f) Payment of Attorney Fees . SI shall have paid U.S. Bank $14,500 for attorney fees and $275 for lien search charges incurred by U.S. Bank in connection with the negotiation and preparation of this Agreement and the other Loan Documents;

 

(g) No Defaults . As of the date of this Agreement, no Event of Default exists, and no event that with the giving of notice, or the passage of time, or both, would constitute an Event of Default, shall have occurred and be continuing; and

 

(h) Other Information . U.S. Bank shall have received such other statements, opinions, certificates, documents, and information with respect to the matters contemplated by this Agreement as U.S. Bank reasonably may request.

 

If SI satisfies all of the above-referenced conditions by June 26, 2002, this Agreement and U.S. Bank’s commitment to extend the Revolving Credit Facility shall become effective and this Agreement shall supersede the Existing Credit Agreement. If SI fails to satisfy any of the above-referenced conditions precedent by June 26, 2002, U.S. Bank shall have no commitment or obligation to extend the Revolving Credit Facility to SI and the parties’ rights and obligations with respect to the existing, matured revolving credit facility shall continue to be governed by the Existing Credit Agreement.

 

Section 5.2 Ongoing Conditions . U.S. Bank’s commitment to extend credit to SI pursuant to the Revolving Credit Facility is subject to the conditions that SI’s representations and warranties under Article VIII of this Agreement continue to be accurate and that no Event of Default exists under this Agreement (and that no event has occurred that with the giving of notice, or the passage of time, or both, would constitute an Event of Default).

 

ARTICLE VI

 

COLLATERAL FOR SI’S OBLIGATIONS

 

Section 6.1 The Ne