THIRD MASTER AMENDMENT TO LOAN
DOCUMENTS
(Sparton Corporation — Line of Credit)
This Third Master
Amendment to Loan Documents (the “Third Amendment”)
dated as of November 12, 2008 is made by and between
Sparton Corporation, an Ohio corporation
(“Borrower”); Sparton Medical Systems, Inc. f/k/a
Astro Instrumentation, Inc., a Michigan corporation
(“Sparton Medical”) ; Sparton Technology,
Inc., a New Mexico corporation (“Sparton
Technology”); Spartronics, Inc., a Michigan corporation
(“Spartronics”); Sparton Electronics Florida,
Inc., a Florida corporation (“Sparton
Florida”) and Sparton of Canada, Limited, a
Canadian corporation (“Sparton Canada”) (each of
Sparton Medical, Sparton Technology, Spartronics, Sparton Florida
and Sparton Canada may be referred individually as a
“Guarantor” and collectively, as the
“Guarantors” ) and National City Bank , a
national banking association (the “Lender”
).
A. The Lender
has made a line of credit loan available (the “Line of Credit
Loan”) to Borrower in the original principal amount of Twenty
Million and No/100 Dollars ($20,000,000.00), which Line of Credit
Loan is evidenced by, among other documents, that certain:
(1) Promissory Note (the “Original Note”) and
Promissory Note Covenant Exhibit, as amended (the “Covenant
Exhibit”), each dated January 22, 2008, as amended by
Master Amendment to Loan Documents dated as of April 21, 2008
and effective as of March 31, 2008 (the “First Master
Amendment”) and by Second Master Amendment to Loan Documents
dated as of July 31, 2008 and effective as of June 30,
2008 (the “Second Master Amendment” and, collectively
with the Original Note, the Covenant Exhibit and the First Master
Amendment, the “Sparton Corporation Note”); and
(2) Amended and Restated Security Agreement dated as of
April 21, 2008 and effective as of March 31, 2008 (the
“Sparton Corporation Security Agreement”, and together
with the Sparton Corporation Note and all other documents now or
hereafter executed in connection therewith, including, without
limitation, the Guarantees (defined below), the “Sparton
Corporation Loan Documents”).
B. The
Borrower’s obligations under the Sparton Corporation Loan
Documents have been guaranteed by the Guarantors pursuant to those
Commercial Security Guaranty agreements, each dated
January 22, 2008, signed by each Guarantor and amended by the
First Master Amendment (each, a “Guaranty” and
collectively, the “Guarantees”).
C. The Lender
has also made a term loan (the “Term Loan”) to Sparton
Medical in the original principal amount of Ten Million and No/100
Dollars ($10,000,000.00), which Term Loan is evidenced by a
Promissory Note dated May 30, 2006, as amended and Promissory
Note Covenant Exhibit dated August 1, 2007, as amended (the
“Sparton Medical Note, and together with all other documents
now or hereafter executed in connection therewith including,
without limitation, the Guarantees, the “Sparton Medical Loan
Documents”).
D. Borrower
has requested certain modifications to the terms of the Line of
Credit Loan and the Sparton Corporation Loan Documents and Lender
is willing to make such modifications subject to the terms of this
Third Amendment.
NOW, THEREFORE, in
consideration of the foregoing Recitals and other good and valuable
consideration, the receipt of which is hereby acknowledged, the
Borrower, Guarantors and the Lender hereby agree as
follows:
1.
Interest Rate . The third paragraph of the Sparton
Corporation Note entitled “VARIABLE INTEREST RATE”
shall be amended to replace “3.0 percentage points over
the Index” with “5.0 percentage points over the
Index”.
2.
Covenant Waiver . The Borrower has informed the Lender that,
as of the quarter ending September 30, 2008, it is in default
of the required: (a) minimum EBITDA set forth in
Section 2.1 of the Covenant Exhibit (as amended); and
(b) the minimum Tangible Net Worth ratio set forth in
Section 2.3 of the Covenant Exhibit (as amended)
(each, an “Existing Default” and collectively, the
“Existing Events of Default”). Borrower has requested
that the Lender waive the Existing Events of Default. The Lender
hereby waives the Existing Events of Default as of the quarter
ending September 30, 2008. This waiver shall be narrowly
construed and shall not extend to any other now or hereafter
existing violations, defaults or events of default under any of the
Sparton Corporation Loan Documents including, without limitation,
any violation of one or more of the above described covenants for
any future period of time, nor shall this waiver prejudice any
rights or remedies the Lender may have under the Sparton
Corporation Loan Documents or applicable law. This waiver does not
imply that the Bank will waive any future defaults under the
Sparton Corporation Loan Documents. Specifically, without
limitation, Borrower will continue to be required to comply with
the above described financial covenants for all future periods as
required under the Sparton Corporation Loan Documents.
3.
Electropac Lawsuit and Mortgage . Borrower has informed
Lender that it is in the process of negotiating and finalizing a
Settlement Agreement and Release (the “Electropac Settlement
Agreement”) by and among Borrower and Sparton Florida and
Electropac, Co., Inc. and Electropac Canada, Inc. (collectively,
“Electropac”) in connection with certain litigation
Captioned Sparton Electronics Florida, Inc. v. Electropac Canada,
Inc. and Electropac Co., Inc. (Middle District of Florida, Case
Number 8:05-1495-cv) (the “Electropac Litigation”).
Pursuant to the terms of the Electropac Settlement Agreement,
Sparton Florida is to receive an aggregate amount of $1,950,000.00
plus interest (the “Award”), payable by the dates set
forth in the Electropac Settlement Agreement. Payment of the Award
shall be secured by a first real estate mortgage on certain real
property and improvements located at 7 Delta Drive, Londonberry,
New Hampshire as more particularly described in the Electropac
Settlement Agreement. Borrower and Sparton Florida hereby agree
to:
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