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EXECUTION COPY
LOAN AND SECURITY AGREEMENT
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GMAC COMMERCIAL FINANCE LLC ("LENDER"), a Delaware limited
liability
company, with offices at 3000 Town Center, Suite 280,
Southfield, Michigan 48075
and I/OMAGIC CORPORATION, a Nevada corporation ("BORROWER") with
a principal
place of business at 4 Marconi, Irvine, California 92618, enter
into this Loan
and Security Agreement on March 9, 2005 (the "AGREEMENT").
1. GENERAL LENDING TERMS
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The following are the general terms of the loans to be made
under this
Agreement:
1.1 A revolving line of credit (the "REVOLVING LOANS") up to the
lesser
of the Revolving Advance Limit or the Borrowing Base. The
"Borrowing Base" is
initially (a) 85% of the aggregate outstanding amount of
Eligible Accounts; PLUS
(b) the lesser of (i) 55% of the cost of Eligible Inventory,
(ii) 85% of the
NOLV of Eligible Inventory, or (iii) $4,000,000; MINUS (c) the
Availability
Reserves. The advance rate against Eligible Accounts will reduce
by one
percentage point for each percentage point (or fraction thereof)
that Dilution
exceeds 5%. Because Dilution as of the date of this Agreement is
26%, the
initial advance rate against Eligible Accounts will be 64%.
PROVIDED, HOWEVER,
no advances shall be made against Eligible Inventory unless and
until Lender is
satisfied, in its sole Discretion, with the results of an
appraisal of
Borrower's Inventory. All Revolving Loans will be made in U.S.
Dollars, and for
Borrowing Base purposes, Accounts denominated in Canadian
Dollars will be
converted to U.S. Dollars at the prevailing exchange rate.
1.2 As provided in SECTIONS 3.2 AND 3.3 below, a $2,000,000
Letter of
Credit facility. The undrawn amount of all Outstanding Letters
of Credit will be
reserved against availability under the Line of Credit (the "LC
RESERVES"). In
addition to other reasonable, standard and customary charges,
commissions, fees,
and costs charged by the issuing bank of any Letters of Credit,
Borrower shall
pay Lender a fee on the first day of each month in arrears equal
to three and
one-half percent (3.50%) per annum times the aggregate amount
undrawn face
amount of all Letters of Credit as of the end of each day.
1.3 Subject to SECTIONS 3.4 AND SECTIONS 3.5 below, the
applicable
interest rate on all Revolving Loans is, the Prime Pate plus
three-quarters
percent (0.75%) per annum OR the LIBOR Rate plus three and
one-half percent
(3.50%) per annum. The foregoing interest rates are referred to
as the "BASE
RATES", or a "PRIME BASE RATE" or "LIBOR BASE RATE", as
applicable.
1.4 This Agreement expires on March 8, 2008 (the "TERM").
1.5 Borrower shall pay Lender a closing fee of $25,000 upon
execution
of this Agreement which fee shall be fully earned on the date
paid and which is
in addition to the commitment fee previously paid by
Borrower.
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1.6 Borrower shall pay Lender a collateral servicing fee of
$1,000 on
the first day of each month in arrears, for every month or
portion thereof that
this Agreement is in effect.
1.7 Borrower shall pay to Lender a monthly unused line fee in
arrears
on the first day of each month equal to one-quarter of one
percent (0.25%) per
annum times the Average Unused Portion of the Revolving Facility
during the
immediately preceding month.
2. DEFINITIONS.
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In addition to the terms defined in this Agreement, the
following terms
have the given definitions:
"ACCOUNT DEBTOR" means any obligor under, with respect to, or
on
account of an Account.
"ACCOUNTS" means all presently existing and hereafter
arising
"accounts" and "chattel paper" as such terms are defined in the
Uniform
Commercial Code, including accounts receivable, contract rights,
and all other
forms of obligations owing to Borrower arising out of the sale
or lease of goods
or the rendition of services by Borrower, whether or not earned
by performance,
all credit insurance, guaranties, supporting obligations and
other security
therefor, as well as all goods returned to or reclaimed by
Borrower, and
Borrower's Business Records relating to any of the
foregoing.
"AVAILABILITY RESERVES" means such reserves as Lender from time
to
time determines in its Discretion as being appropriate to
reflect the
impediments to Lender's ability to realize upon the Collateral
liabilities that
impact on the anticipated amount realizable from the Collateral.
Without
limiting the generality of the foregoing, Availability Reserves
may include (but
are not limited to) reserves based on the following:
(a) from and after the time Lender allows the inclusion of
Inventory in the Borrowing Base, rent for any leased location
where Borrower's
Inventory is located for which an acceptable Collateral Access
Agreement has not
been received by Lender;
(b) taxes and other governmental charges, including ad
valorem, personal property, sales, and other taxes which may
have priority over
Lender's security interests;
(c) claims that Lender believes in Lender's Discretion
(after
consulting with counsel) could have priority over the
Obligations by virtue of
any applicable law or regulation;
(d) from and after the time Lender allows the inclusion of
Inventory in the Borrowing Base, the Inventory Reserves;
(e) the LC Reserves; and
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(f) the Static Reserve.
"AVERAGE EXCESS AVAILABILITY" means the average daily Excess
Availability for the calendar months ending March 31 and
September 30 of each
year.
"AVERAGE UNUSED PORTION OF THE REVOLVING FACILITY" means, for
any
calendar month or portion thereof, the Revolving Advance Limit,
less the average
Daily Balance of Revolving Loans that were outstanding during
the month.
"BUSINESS DAY" means a day on which national banks are open
for
business in Detroit, Michigan other than Saturdays and
Sundays.
"BUSINESS RECORDS" means all of Borrower's books and records
including
all of the following: ledgers, records indicating, summarizing
or evidencing
Borrower's assets (including the Collateral) or liabilities; all
information
relating to Borrower's business operations or financial
condition; and all
computer programs, disk or tape files, printouts, runs or other
computer
prepared information, and the equipment containing such
information.
"CAPITAL EXPENDITURES" means, with respect to Borrower for any
period,
the sum of the aggregate of all expenditures (whether paid in
cash, capitalized
as an asset or accrued as a liability) by Borrower during such
period which, in
accordance with GAAP, are or should be included in "capital
expenditures" or
similar items reflected on the statements of cash flows of
Borrower.
"CAPITAL LEASE" means a capital lease or a lease which should
be
treated as a capital lease under GAAP.
"CLAIMS" means any demand, claim, action or cause of action,
damage,
liability, loss, cost, debt, expense, obligation, tax,
assessment, charge,
lawsuit, contract, agreement, undertaking or deficiency, of any
kind or nature,
whether known or unknown, fixed, actual, accrued or contingent,
liquidated or
unliquidated (including interest, penalties, attorneys' fees and
other costs and
expenses incident to proceedings or investigations relating to
any of the
foregoing or the defense of any of the foregoing), whether or
not litigation has
commenced.
"COLLATERAL" means all of the following: Accounts; Equipment;
General
Intangibles; Inventory; Negotiable Collateral; Business Records;
Commercial Tort
Claims; any money or other assets of Borrower which hereafter
come into the
possession, custody or control of Lender, including money on
deposit in any
blocked accounts to the extent such funds are determined to not
be Lender's
property; and all proceeds and products, whether tangible or
intangible, of any
of the foregoing, including proceeds of insurance covering any
or all of the
Collateral, Supporting Obligations, and any and all Accounts,
Equipment, General
Intangibles, Inventory, Negotiable Collateral, Business Records,
money, deposit
accounts or other tangible or intangible property resulting from
the sale or
other disposition of the Collateral or any portion thereof or
interest therein,
and the proceeds thereof.
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"COLLATERAL ACCESS AGREEMENT" means a written agreement between
Lender
and the owner of any premises where Collateral is located on
terms acceptable to
Lender in its Discretion, providing for among other things, a
waiver of liens on
the subject Collateral and providing Lender access to and if
applicable, the
right to occupy, the premises in connection with liquidating
Collateral.
"COMMERCIAL TORT CLAIMS" has the meaning given in the UCC, and
includes
without limitation Borrower's rights and claims arising under,
in connection
with or related to (a) the lawsuit styled IOM HOLDINGS, INC. AND
I/OMAGIC
CORPORATION V. LAWRENCE W. HOROWITZ, GREGORY B. BEAM, LAWRENCE
M. CRON, HORWITZ
& CRON, KEVIN J. SENN, SENN PALUMBO MEULMANS LLP ET AL, Case
Number 03CC07383,
Orange County California Superior Court and the claims on which
such lawsuit is
based, and (b) to the extent Borrower has any rights therein,
the arbitration
styled IOM HOLDINGS, INC. V. DEVELOPMENT SPECIALISTS, Inc., Ref.
Number 73 Y 181
00168 04 LOPE, American Arbitration Association, and the claims
on which such
arbitration is based.
"DAILY BALANCE" means, with respect to each day during the term
of this
Agreement, the amount of Revolving Loans outstanding at the end
of such day.
"DEBT" means with respect to Borrower, without duplication, at
the date
of determination, (a) all indebtedness for borrowed money,
including, (b) all
obligations for the deferred purchase price of property or
services which
evidence indebtedness, (c) all obligations evidenced by notes,
bonds, debentures
or other similar instruments, (d) all obligations created or
arising under any
conditional sale or other title retention agreement with respect
to property
acquired (whether or not the rights and remedies of the seller
or lender under
such agreement in the event of default are limited to
repossession or sale of
such property), (e) all obligations as lessee under leases that
have been or
should be, in accordance with GAAP, recorded as capital leases,
(f) all
obligations, contingent or otherwise, under acceptance, letter
of credit and
similar facilities, (g) all obligation to purchase, redeem,
retire, defease or
otherwise acquire for value any partnership or shareholder or
other equity
interests, (h) all net financial obligations in respect of Hedge
Arrangements
and all financial obligations under any similar contract, (i)
all contingent
obligations, (j) all Debt referred to in clauses (a) through (i)
above secured
by (or for which the holder of such Debt has an existing right,
contingent or
otherwise, to be secured by) any encumbrance on property
(including accounts and
contract rights), even though Borrower has not assumed or become
liable for the
payment of such Debt, (k) the amount of all trade payables and
other accrued
liabilities to the extent the same are past the due date thereof
by more than 90
days (except to the extent that such payables and liabilities
are being properly
contested with the person or entity to whom same are owing) and
(l) any other
obligation arising under arrangements or agreements that, in
substance, provide
financing to Borrower.
"DEPRECIATION & AMORTIZATION EXPENSE" means with respect to
Borrower,
for any period, depreciation, amortization, depletion and other
like reductions
to income for such period not involving any outlay of cash,
determined on a
consolidated basis in accordance with GAAP.
"DILUTION" means the aggregate amount of credits, returned
goods,
adjustments, deductions, setoffs and recoupments granted by
Borrower or taken by
all Account Debtors in any calendar month divided by the
aggregate amount of
Borrower's sales during the calendar month.
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"DISCRETION" means:
(a) Each reference in the Loan Documents to the exercise of
discretion or the like by the Lender shall be to the Lender's
exercise of its
reasonable (from the perspective of a secured, asset-based
lender) credit
judgment, in good faith, based upon Lender's consideration of
any such factor as
the Lender, taking into account information of which Lender then
has actual
knowledge, believes:
(i) Will or reasonably could be expected to
affect the value of the Collateral, the
enforceability of the Lender's liens,
security and collateral interests therein,
or the amount which Lender would likely
realize from the Collateral (taking into
account delays which may possibly be
encountered in the Lender's realizing upon
the Collateral and likely Expenses in
connection with the enforcement of remedies
and associated costs of collection);
(ii) Indicates that any report or financial
information delivered to the Lender by or on
behalf of Borrower is incomplete,
inaccurate, or misleading in any material
manner or was not prepared in accordance
with the requirements of this Agreement;
and/or
(iii) Constitutes an Event of Default or indicates
that an Event of Default will occur with the
passage of time.
(iv) Suggests a material increase in the
likelihood that Borrower will become the
subject of an Insolvency Proceeding.
(b) In the exercise of such judgment, as set forth in clause
(a) above, Lender also may take into account any of the
following factors:
(i) Those included in, or tested by, the
definitions of Eligible Inventory or
Eligible Accounts;
(ii) The current financial and business climate
of the industry in which Borrower competes
(having regard for Borrower's position in
that industry);
(iii) General economic conditions which have a
material effect on Borrower's cost
structure;
(iv) Material Adverse Changes in Borrower's
assets;
(v) Material Adverse Changes in Borrowing Base
availability versus that which was
projected; and/or
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(vi) Such other factors as Lender determines as
having a material bearing on credit risks
associated with the providing of loans and
financial accommodations to the Borrower.
(c) The burden of establishing the failure of the Lender to
have acted in a reasonable manner in Lender's exercise of
Discretion shall be on
the Borrower.
"DOLLARS" or "$" means lawful money of the United States of
America.
"EBITDA" means for any Measurement Period, the following
amount
determined in accordance with GAAP -
(a) Net Income for such period; PLUS
(b) Extraordinary losses; PLUS
(c) The sum of (without duplication)
(i) Interest Expense for such period;
(ii) Income Tax Expense for such period;
(iii) Depreciation & Amortization Expense for such
period; MINUS
(d) Extraordinary gains.
"ELIGIBLE ACCOUNTS" means Borrower's Accounts listed on
Borrowing Base
Certificates delivered to Lender which Lender, in its
Discretion, determines to
be an Eligible Account. Without limiting the generality of the
immediately
preceding sentence, no Account will be a Eligible Account unless
it meets all of
the following minimum requirements:
(a) The Account is valued at its face amount and represents
a
complete, bona fide transaction for Eligible Inventory sold,
delivered, and
accepted by the Account Debtor or for services rendered (but
excluding any
amounts in the nature of a service charge added to the amount
due on an invoice
because the invoice has not been paid when due) that requires no
further act
under any circumstances on the part of the Borrower or any other
person or
entity to make such Account payable by the Account Debtor, and
the Account
arises from an arm's-length transaction in the ordinary course
of Borrower's
business between Borrower and an Account Debtor that is not an
affiliate,
partner, officer, or employee of Borrower, or a member of the
family of any
partner, officer, or employee of Borrower.
(b) The Account is not unpaid more than the earlier of (A)
70
days past the invoice due date, or (B) 100 days from the earlier
of (i) the date
on which the original invoice rendered in connection with such
Account was
issued, and (ii) the date on which the Eligible Inventory was
shipped to the
Account Debtor or the services performed.
(c) The goods the sale of which gave rise to the Account
were
shipped or delivered or provided to the Account Debtor on a
final sale basis and
not on a bill and hold sale basis, a consignment sale basis, a
guaranteed sale
basis, a sale or return basis, or on the basis of any other
similar
understanding, and no part of such goods have been returned or
rejected.
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(d) The Account is not evidenced by chattel paper or an
instrument of any kind.
(e) The Account Debtor with respect to the Account (A) is
not
insolvent, (B) is not the subject of any bankruptcy or
insolvency proceedings of
any kind or of any other proceeding or action, threatened or
pending, which
might have a materially adverse effect on its business, and (C)
is not, in
Lender's Discretion deemed ineligible for credit for other
reasons (including,
without limitation, unsatisfactory past experience of Borrower
or Lender with
the Account Debtor or unsatisfactory reputation of the Account
Debtor).
(f) The Account Debtor is located in the United States of
America or Canada.
(g) The Account Debtor is not the government of the United
States of America or Canada, or any department, agency or
instrumentality
thereof, or (B) if the Account Debtor is an entity mentioned in
the preceding
clause, the Federal Assignment of Claims Act (or applicable
similar legislation)
has been fully complied with so as to validly perfect Lender's
first-priority
security interest to Lender's satisfaction.
(h) The Account is a valid, legally enforceable obligation
of
the Account Debtor with respect thereto and is not subject to
any dispute,
condition, contingency, setoff, recoupment, reduction, claim for
credit,
allowance, adjustment, counterclaim or defense on the part of
such Account
Debtor and no fact exists that may provide a basis for any of
the foregoing in
the present or future (collectively, a "SETOFF"), other than in
respect of
ordinary course of business adjustments such as price protection
allowances,
returns, co-operative advertising allowances, and market
development funds
credits; provided that except as otherwise provided in this
Agreement, the
Account will be ineligible only to the extent of the Setoff.
(i) Unless otherwise agreed to in writing by Lender, the
Account is subject to a first-priority security interest in
Lender's favor and
is not subject to any other lien, claim, encumbrance, or
security interest
whatsoever (except as otherwise permitted by this Agreement or
any other written
agreement between Lender and Borrower).
(j) The Account is evidenced by an invoice or other
documentation in form acceptable to Lender and arises from a
contract, purchase
order, or release that is satisfactory in form and substance to
Lender.
(k) Borrower has observed and complied with (A) all laws of
the United States of America (including the Fair Labor Standards
Act) and (B)
all laws of the state in which the Account Debtor or the Account
is located
which, if not observed and complied with, would deny to the
Borrower access to
the courts of such state.
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(l) No representation or warranty contained in this
Agreement
or any other agreement between Borrower and Lender, or in any
Borrowing Base
Certificate with respect to such Account has been breached in
any material
respect.
(m) The Account is not subject to any provision prohibiting
its assignment.
(n) The Account does not represent any manufacturer's or
supplier's credits, discounts, incentive plans, or other similar
arrangements
entitling the Borrower to discounts on future purchases.
(o) The Eligible Inventory giving rise to the Account was
not,
at the time of sale thereof, subject to any lien or encumbrance
except in
Lender's favor.
(p) The Account is payable in Dollars.
In addition to the foregoing requirements, Accounts of any
Account
Debtor that are otherwise eligible will be reduced to the extent
of (a) any
accounts payable (including, without limitation, Lender's good
faith estimate of
any contingent liabilities) by Borrower to such Account Debtor
("CONTRAS")
(provided that Lender, in its Discretion may determine that none
of such
Accounts are Eligible Accounts if aggregate Contras and Setoffs
represent 10% or
more of the total amount owing to Borrower from such Account
Debtor); (b) that
portion of an Account representing a retainage or holdback by
the Account
Debtor; and (c) Accounts owing by any Account Debtor that exceed
15% of
Borrower's total Accounts if the Account Debtor is not rated by
Moody's
Investment Service or if the Account Debtor is rated as
"speculative" or
"non-investment grade". Finally, all Accounts owing by a given
Account Debtor
will be ineligible if more than 50% of the total Accounts owing
by such Account
Debtor are otherwise ineligible.
Any Account that is at any time an Eligible Account and that
subsequently fails to meet any of the requirements set forth
above will
immediately cease to be an Eligible Account and must be removed
from the
Borrowing Base immediately.
"ELIGIBLE INVENTORY" means that portion of Borrower's
Inventory
consisting of goods held for sale in the ordinary course of
Borrower's business
that is listed on a Borrowing Base Certificate delivered to
Lender in accordance
with this Agreement that Lender, in its Discretion, determines
to be Eligible
Inventory. Without limiting the generality of the immediately
preceding
sentence, no Inventory will be Eligible Inventory unless it
meets all the
following minimum requirements:
(a) The Inventory has not been shipped, delivered, provided
to, purchased or sold by Borrower on a bill and hold,
consignment sale,
guaranteed sale, or sale or return basis, or any other similar
basis or
understanding.
(b) No Account has arisen with respect to such Inventory.
(c) The Inventory has not been billed to a customer on a
"progress billing" or similar basis prior to shipment to the
customer.
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(d) The Inventory is valued at the lower of cost or market
on
a first-in, first-out basis.
(e) The Inventory is in Borrower's possession, or if the
Inventory is located on premises not owned by the Borrower, the
landlord or
owner has executed an acceptable Collateral Access
Agreement.
(f) The Inventory is not subject to any royalty, copyright,
trademark, trade name, or licensing arrangement, or any law,
rule, or regulation
that could limit or impair Lender's ability to exercise its
rights with respect
to such Inventory.
(g) The Inventory is not packaging, labels, manuals or
supplies.
(h) The Inventory meets all standards imposed by any
governmental or agency, department, or division having
regulatory authority over
such Inventory or its use or sale including, without limitation,
standards set
forth in the Fair Labor Standards Act.
(i) No representation or warranty in this Agreement, any
other
agreement between Borrower and Lender, or any Borrowing Base
Certificate has
been breached, in any material respect, with respect to such
Inventory.
(j) The Inventory is not obsolete (obsolete Inventory
includes
Inventory that is not compatible with current computer software
or hardware in
the market place) or slow-moving (no sales in last six months or
quantities on
hand in excess of projected sales over the next six months), is
of good and
merchantable quality, and is readily salable in the ordinary
course of
Borrower's business.
(k) Except as otherwise permitted by this Agreement or any
other written agreement between Borrower and Lender, the
Inventory is subject to
a first-priority security interest in Lender's favor and is not
subject to any
other lien or encumbrance, except those which are subordinate to
those of Lender
pursuant to the terms of a subordination agreement(s) acceptable
in form and
substance acceptable to Lender.
Any Inventory that is at any time Eligible Inventory and
that
subsequently fails to meet any of the requirements set forth
above will cease to
be Eligible Inventory immediately and must be removed from the
Borrowing Base
immediately.
"ENVIRONMENTAL LAWS" means the Comprehensive Environmental
Response,
Compensation, and Liability Act of 1980, as amended, the
Resource Conservation
and Recovery Act of 1976, the Hazardous Materials Transportation
Act, the Toxic
Substances Control Act, the regulations pertaining to such
statutes, and any
other safety, health or environmental statutes, laws,
regulations or ordinances
of the United States or of any state, county or municipality in
which Borrower
conducts its business or the Collateral is located.
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"EQUIPMENT" means all of Borrower's present and hereafter
acquired
equipment, machinery, machine tools, motors, furniture,
furnishings, fixtures,
motor vehicles, rolling stock, processors, tools, parts, dies,
jigs, goods
(other than consumer goods, farm products or Inventory),
wherever located, and
any interest of Borrower in any of the foregoing, and all
attachments,
accessories, accessions, replacements, substitutions, additions
and improvements
to any of the foregoing, wherever located.
"ERISA" means the Employee Retirement Income Security Act of
1974, as
amended, and the regulations thereunder.
"ERISA AFFILIATE" means each trade or business (whether or
not
incorporated and whether or not foreign) which is or may
hereafter become a
member of a group of which Borrower is a member and which is
treated as a single
employer under ERISA Section 4001(b)(1), or IRC Section 414.
"EXCESS AVAILABILITY" means at any time, the amount of the
Borrowing
Base minus the amount of the Revolving Loans.
"EXPENSES" means all fees and out-of-pocket disbursements
incurred by
Lender, including reasonable out-of-pocket fees of counsel and
court costs, in
any way arising from or in connection with this Agreement, any
Loan Documents,
any of the Collateral, any of the Obligations or the business
relationship
between Lender and Borrower, including, without limitation, (a)
audit fees at
the per day rate provided for in SECTION 8.6 below; (b) all fees
and expenses
(including recording fees and insurance policy fees) of Lender
and counsel for
Lender for the preparation, examination, approval, negotiation,
execution and
delivery of, or the closing of any of the transactions
contemplated by, this
Agreement and any Loan Documents; (c) all fees and out-of-pocket
disbursements
incurred by Lender, including reasonable attorneys' fees, in any
way arising
from or in connection with any action taken by Lender to
monitor, advise,
administer, enforce or collect any of the Obligations under this
Agreement, any
Loan Documents or any other obligations of Borrower, whether
joint, joint and
several, or several, under this Agreement (or any Loan
Documents), or any other
existing or future document or agreement, or arising from or
relating to the
business relationship between Lender and Borrower, or otherwise
securing any of
the Obligations, including any actions to lift the automatic
stay or to
otherwise in any way monitor or participate in any Insolvency
Proceeding
involving Borrower; (d) all reasonable out-of-pocket expenses
and fees
(including attorneys' fees) incurred in relation to, in
connection with, in
defense of and/or in prosecution of any litigation instituted by
Borrower or any
third party against or involving Lender arising from, relating
to, or in
connection with any of the Obligations or the Borrower's other
obligations, this
Agreement (or any Loan Documents), any of the Collateral, or the
business
relationship between Lender and Borrower, including any
so-called "Lender
liability" action, any claim and delivery or other action for
possession of, or
foreclosure on, any of the Collateral, post-judgment enforcement
of any rights
or remedies including enforcement of any judgments, and
prosecution of any
appeals (whether discretionary or as of right and whether in
connection with
pre-judgment or post-judgment matters); (e) all costs, expenses
and fees
incurred by Lender or its agents in connection with any
appraisals or
environmental assessments of all or any of the Collateral (and
Borrower shall
fully cooperate with such appraisers and make their property
available for
appraisal in connection with as many appraisals or environmental
assessments as
Lender may reasonably request); (f) all fees described in
SECTION 1 above, and
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(g) all costs, expenses and fees incurred by Lender and/or its
counsel in
connection with consultants, expert witnesses or other
professionals retained by
Lender and/or its counsel in order to assist, advise and/or give
testimony with
respect to any matter relating to this Agreement or any Loan
Documents, the
Collateral or the business relationship between Lender and
Borrower (and
Borrower shall fully cooperate with such consultant, expert
witness or other
professional and shall make their premises, books and records,
accounting
systems, computer systems and other media for the recordation of
information
available to such persons).
"FIXED CHARGES" means (without duplication) the sum of the
following
for any Measurement Period for Borrower: scheduled principal and
interest
payments on all Funded Debt and income taxes paid or payable,
all as determined
according to GAAP for the applicable period.
"FIXED CHARGE COVERAGE RATIO" means, for any Measurement Period,
the
ratio of (a) EBITDA minus internally funded Capital Expenditures
to (b) Fixed
Charges.
"FUNDED DEBT" means, with respect to Borrowers without
duplication, all
capital leases, all indebtedness that bears interest (whether
current pay,
accrued or otherwise), including without limitation, the
deferred purchase price
of property or services, all obligations to repurchase all or
any portion of any
property transferred or sold and all other obligations arising
under
arrangements or agreements that, in substance, provide
financing.
"GAAP" means generally accepted accounting principles as adopted
in the
United States of America applied on a consistent basis.
"GENERAL INTANGIBLES" means all of Borrower's present and
future
general intangibles and other personal property (including
commercial tort
claims, contract rights, rights arising under common law,
statutes or
regulations, choses or things in action, goodwill, going concern
value, patents,
trade names, trademarks, service marks, copyrights, blueprints,
drawings,
purchase orders, customer lists, monies due or recoverable from
pension funds,
monies due under any royalty or licensing agreements, route
lists, infringement
claims, computer programs, computer discs, computer tapes,
literature, reports,
catalogs, deposit accounts, insurance premium rebates, tax
refunds and tax
refund claims) other than goods and Accounts, and Borrower's
Business Records
relating to any of the foregoing.
"HAZARDOUS MATERIAL" means any substance, material, emission or
waste
which is or hereafter becomes regulated or classified as a
hazardous substance,
hazardous material, toxic substance or solid waste under any
Environmental Law,
asbestos, petroleum products, urea formaldehyde, polychlorinated
biphenyls
(PCBs), radon and any other hazardous or toxic substance,
material, emission or
waste.
"HEDGE ARRANGEMENT" means for any period, any arrangement or
transaction which is a rate swap transaction, basis swap,
forward rate
transaction, commodity swap, interest rate option, forward
foreign exchange
transaction, cap transaction, floor transaction, collar
transaction, currency
swap transaction, cross-currency rate swap transaction, currency
option or any
other similar transaction (including any option with respect to
any of such
transactions or arrangements) designed to protect or mitigate
against risks in
interest, currency exchange or commodity price fluctuations.
11
<PAGE>
"INCOME TAX EXPENSE" means with respect to Borrower, for any
period,
the aggregate of all federal, state and local taxes on
Borrower's income for
such period, whether current or deferred, determined in
accordance with GAAP.
"INTEREST EXPENSE" means with respect to Borrower, for any
period,
without duplication, the aggregate amount of interest and other
financing
charges expensed or accrued on account of such period with
respect to Funded
Debt, including interest, discount and financing fees,
commissions, discounts,
the interest or time value of money component of costs related
to factoring or
securitizing receivables or monetizing inventory and other fees
and charges
payable with respect to letters of credit, letters of guarantee
and bankers'
acceptance financing, standby fees, the interest component of
capital leases and
net payments (if any) pursuant to hedge arrangements involving
interest, all as
determined in accordance with GAAP.
"INSOLVENCY PROCEEDING" means any proceeding commenced by or
against
Borrower under any provision of the Bankruptcy Code, 11 U.S.C.
ss.101 et. seq.,
or under any other bankruptcy or insolvency law, including
assignments for the
benefit of creditors, formal or informal moratoria,
compositions, extensions
generally with its creditors or proceedings seeking
reorganization, liquidation,
arrangement or other similar relief.
"INVENTORY" means all present and future inventory in which
Borrower
has any interest, including goods held for sale or lease or to
be furnished
under a contract of service, Borrower's present and future raw
materials, work
in process, finished goods and supplies and materials used in or
consumed in
Borrower's business, goods which have been returned to,
repossessed by or
stopped in transit by Borrower, packing and shipping materials,
wherever
located, any documents of title representing any of the above,
and Borrower's
Business Records relating to any of the foregoing.
"INVENTORY RESERVES" means such reserves as may be established
from
time to time by Lender in its Discretion with respect to the
determination of
what constitutes Eligible Inventory. Without limiting the
generality of the
foregoing, Inventory Reserves may include (but are not limited
to) reserves
based on the following: negative variances in excess of 5% in
test counts or
cost verifications performed by Lender from time to time (as
part of Lender's
periodic Examinations), obsolescence (determined based upon
Inventory on hand
beyond a given number of days), or changes in Inventory
composition or mix.
"LIBOR BASED LOANS" means that portion of the Loans on which
interest
accrues at the LIBOR Base Rate.
"LIBOR RATE" means an annual rate of interest determined by
Agent as
being the rate available at approximately 11:00 a.m. London time
in the London
Interbank Market, as referenced by Reuters Screen "LIBOR", in
accordance with
the usual practice in such market, for 30 day LIBOR loans in
effect two Business
Days prior to the first Business Day of each calendar month for
deposits of
dollars in amounts in excess of $1,000,000, as such rate may be
adjusted by the
reserve percentage applicable during the succeeding month (or if
more than one
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<PAGE>
such percentage shall be applicable, the daily average of such
percentages for
those days in such LIBOR Interest Period during which any such
percentage shall
be so applicable) under regulations issued from time to time by
the Board of
Governors of the Federal Reserve System (or an successor) for
determining the
maximum reserve requirement (including without limitation, any
emergency,
supplemental or other marginal reserve requirement) for a
national bank with
respect to liabilities or assets consisting of or including
"Eurocurrency
Liabilities" as such term is defined in Regulation D of the
Board of Governs of
the Federal Reserve System, as in effect from time to time,
having a term equal
to such LIBOR Interest Period ("EUROCURRENCY RESERVE
REQUIREMENT"), as
reasonably applied to loans of this type. Such adjustment shall
be effectuated
by calculating, and the LIBOR Rate shall be equal to, the
quotient of (i) the
offered rate divided by (ii) one minus the Eurocurrency Reserve
Requirement. The
LIBOR Rate will be adjusted as of the first calendar day of each
month and shall
remain at such rate for the entire month.
"LIBOR RATE OPTION" is defined in SECTION 3.5 below.
"LINE OF CREDIT" means the revolving line of credit provided for
in
this Agreement.
"LOAN DOCUMENTS" means, collectively, this Agreement, any notes,
any
security agreements, pledge agreements, assignments, deeds of
trust, mortgages
or other encumbrances or agreements which secure or relate to
the Obligations or
the collateral security for the Obligations, any guaranties of
the Obligations,
including, without limitation, any lock box or blocked account
agreements and
any other agreements entered into between Borrower or any
guarantor of the
Obligations and Lender relating to or in connection with this
Agreement.
"LOANS" means the Revolving Loans and any other loans or
advances made
by Lender to Borrower.
"MATERIAL ADVERSE CHANGE" means (a) a material adverse change in
the
business, operations, results of operations, assets, liabilities
or financial
condition of Borrower, including, without limitation, a material
adverse change
in the business, operations, results or operations, assets, or
liabilities since
the date of this Agreement, (b) the material impairment of
Borrower's ability to
perform its obligations under the Loan Documents to which it is
a party or of
the Lender to enforce the Obligations or realize upon the
Collateral of
Borrower, (c) a material impairment of the Collateral, or (d) a
material
impairment of the priority of the Lender's liens and security
interests with
respect to the Collateral of Borrower.
"MEASUREMENT PERIOD" means as the 3 month period ending March
31, 2005,
the six month period ending on June 30, 2005, the 9 month period
ending
September 30, 2005, the 12 months ending December 31, 2005 and
thereafter the
twelve month period ending on March 31, June 30, September 30
and December 31 of
each year.
13
<PAGE>
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in
ERISA
Sections 3(37) or 4001(a)(3) or IRC Section 414(f) which covers
employees of
Borrower or any ERISA Affiliate.
"NEGOTIABLE COLLATERAL" means all of Borrower's present and
future
letters of credit, notes, drafts, instruments, certificated and
uncertificated
securities, documents, leases and chattel paper, and Borrower's
Business Records
relating to any of the foregoing.
"NET INCOME" means, for any period, Borrower's net income for
such
period, as determined in accordance with GAAP.
"NOLV" means the appraised orderly liquidation value as
determined
annually by an appraiser acceptable to Lender, net of estimated
costs of
liquidation.
"OBLIGATIONS" means all Loans, advances, debts, liabilities
(including
all amounts charged to Borrower's loan account pursuant to any
agreement
authorizing Lender to charge Borrower's loan account),
obligations, fees, lease
payments, guaranties, reimbursement obligations in respect of
Letters of Credit,
covenants and duties owing by Borrower to Lender of any kind and
description for
the payment of money or otherwise, (whether pursuant to or
evidenced by the Loan
Documents, by any note or other instrument or by any other
agreement between
Lender and Borrower), whether direct or indirect, absolute or
contingent, due or
to become due, now existing or hereafter arising, including any
debt, liability
or obligation owing from Borrower to others which Lender may
obtain by
assignment or otherwise, and all interest thereon, including any
interest that,
but for the provisions of the Bankruptcy Code, would have
accrued, and all
Expenses which Borrower is required to pay or reimburse pursuant
to the Loan
Documents, by law or otherwise.
"OPERATING ACCOUNT" means account number 4042743 maintained by
Borrower
at United National Bank or such other account as Borrower shall
designate in
writing.
"OVERADVANCE" means if at any time and for any reason, the
aggregate
amount of the outstanding Revolving Loans exceeds the Dollar or
percentage
limitations set forth in SECTION 1 in this Agreement.
"PERMITTED LIENS" means:
(a) liens for taxes, assessments or governmental charges,
and
liens incident to construction, which are either not delinquent
or are being
contested in good faith by the Borrower by appropriate
proceedings, which will
prevent foreclosure of such liens, and against which adequate
reserves have been
provided, and upon demand by Lender, with adequate security
being posted with
Lender;
(b) liens or deposits in connection with workers'
compensation
or other insurance or to secure customs' duties, public or
statutory obligations
in lieu of surety, stay or appeal bonds, or to secure
performance of contracts
or bids (other than contracts for the payment of money
borrowed), or deposits
required by law or governmental regulations or by any court
order, decree,
judgment or rule as condition to the transaction of business or
the exercise of
any right, privilege or license; or other liens or deposits of a
like nature
made in the ordinary course of business; and
14
<PAGE>
(c) security interests or mortgages granted to Lender; and
(d) liens and security interests identified on SCHEDULE 2.
"PLAN" means any plan described in ERISA Section 3(2) maintained
for
employees of Borrower or any ERISA Affiliate, other than a
Multiemployer Plan.
"REPORTABLE EVENT" means a "reportable event" as that term is
defined
and applied in connection with ERISA.
"REVOLVING ADVANCE LIMIT" means $10,000,000.
"STATIC RESERVE" means initially $1 million, with such amount
reduced
to $500,000 if Lender is satisfied, in its Discretion, with the
results of the
restatement of financial statements announced by Borrower on or
about January
27, 2005.
"UCC" means the Uniform Commercial Code as adopted in
Michigan.
3. LINE OF CREDIT, OTHER LOANS, INTEREST AND PAYMENTS
--------------------------------------------------
3.1 REVOLVING LINE OF CREDIT. From time to time prior to the
expiration
of the Term, so long as an Event of Default has not occurred or
if an Event of
Default has occurred, such Event of Default has been timely
remedied, Lender
will, in its Discretion and subject to the terms and conditions
set forth in
this Agreement, make Revolving Loans to Borrower in such amounts
as Borrower may
request, provided that the aggregate principal amount of all
Revolving Loans
shall not exceed the lesser of the Revolving Advance Limit or
the Borrowing
Base.
Borrower may request from time to time Revolving Loan advances
by
submitting a signed, completed Borrowing Base Certificate to
Lender, in each
case given no later than 1:00 p.m. (Eastern time) on the
Business Day of the
proposed Revolving Loan advance. Subject to the terms and
conditions of this
Agreement, Lender will make the proceeds of each such requested
Revolving Loan
advance available to Borrower on the day requested by
transferring funds to
Borrower's Operating Account or as otherwise instructed by
Borrower.
Lender shall not be obligated to make Revolving Loans to
Borrower at
any time; each Revolving Advance which is made under this
Agreement will be made
at the option of, and in the Discretion of, Lender. The
Revolving Loans will not
be evidenced by a promissory note and a copy of Lender's books
and records
related to the Revolving Loans shall constitute prima facie
evidence of the
outstanding amount of Revolving Loans. The Revolving Loans will
be due and
payable upon the earlier of the occurrence of an Event of
Default or the
expiration of the Initial Term.
Should an Overadvance exist, Borrower shall immediately make
principal
reduction payments of such excess to Lender as are required to
reduce the
outstanding balance of the Revolving Loans such that no
Overadvance exists.
15
<PAGE>
For each Revolving Loan made to Borrower via wire transfer,
Borrower
shall pay Lender an Electronic Payment Fee of $25.00, or such
other amount as
Lender shall customarily charge its Borrowers for the cost and
expense of making
electronic transfers of funds.
3.2 LETTERS OF CREDIT. Subject to the terms and conditions
hereof,
Lender shall cause the issuance of letters of credit ("LETTERS
OF CREDIT") for
the account of the Borrowers from time to time during the Term
of this
Agreement; PROVIDED, HOWEVER, that Agent will not be required to
issue or cause
to be issued any Letters of Credit to the extent that the face
amount of such
Letters of Credit would then cause the sum of the outstanding
Obligations
(including Outstanding Letters of Credit) to exceed the lesser
of (x) the
Revolving Advance Limit or (y) the Borrowing Base. The maximum
amount of
Outstanding Letters of Credit shall not exceed $2,000,000 in the
aggregate at
any time. All disbursements or payments related to Letters of
Credit shall be
deemed to be Revolving Loans and shall bear interest as provided
in Section 3.4.
3.3 ISSUANCE OF LETTERS OF CREDIT.
(a) Borrower may request that Lender issue or cause the
issuance of a Letter of Credit by delivering to Lender, a letter
of credit
application in the form provided by Lender (a "LETTER OF CREDIT
APPLICATION"),
properly completed to the satisfaction of Lender and the
proposed issuing bank,
together with such other certificates, documents and other
papers and
information as Lender may reasonably request.
(b) Each Letter of Credit shall, among other things, (i)
provide for the payment of sight drafts when presented for honor
thereunder in
accordance with the terms thereof and when accompanied by the
documents
described therein, and (ii) have an expiry date not later than
twelve months
after such Letter of Credit's date of issuance and in no event
later than the
last day of the Term. Each Letter of Credit Application and each
Letter of
Credit shall be subject to the Uniform Customs and Practice for
Documentary
Credits (1993 Revision), International Chamber of Commerce
Publication No. 500,
and any amendments or revision thereof and, to the extent not
inconsistent
therewith, the laws of the State of Michigan.
(c) In connection with the issuance or creation of any
Letter
of Credit, Borrower shall indemnify, save and hold Lender
harmless from any
loss, cost, expense or liability, including, without limitation,
payments made
by Lender, and expenses and reasonable attorneys' fees incurred
by Lender
arising out of, or in connection with, any Letters of Credit to
be issued or
created for Borrower. Borrower shall be bound by Lender's or any
issuing or
accepting bank's regulations and good faith interpretations of
any Letter of
Credit issued or created for Borrower's account, although this
interpretation
may be different from Borrower's; and, neither Lender nor any of
its
correspondents shall be liable for any error, negligence, or
mistakes, whether
of omission or commission, in following Borrower's instructions
or those
contained in any Letter of Credit or of any modifications,
amendments or
supplements thereto or in creating or paying any Letter of
Credit, except for
Lender's or such correspondents' gross negligence or willful
misconduct.
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<PAGE>
(d) Borrower authorizes and directs any bank which issues a
Letter of Credit to name the Borrower as the "Account Party"
therein and to
deliver to Lender all instruments, documents, and other writings
and property
received by the bank pursuant to the Letter of Credit or in
connection with any
acceptance and to accept and rely upon Lender's instructions and
agreements with
respect to all matters arising in connection with the Letter of
Credit, the
application therefor or any acceptance therefor.
(e) In connection with all Letters of Credit issued by or on
behalf of Lender under this Agreement, upon and during the
continuance of an
Event of Default, Borrower hereby appoints Lender, or its
designee, as its
attorney, with full power and authority (a) to sign and/or
endorse Borrower's
name upon any warehouse or other receipts, letter of credit
applications and
acceptances; (b) to sign the Borrower's name on bills of lading;
(c) to clear
Inventory through Customs in the name of the Borrower or Lender
or Lender's
designee, and to sign and deliver to Customs officials powers of
attorney in the
name of the Borrower for such purpose; and (d) to complete in
the Borrower's
name or Lender's, or in the name of Lender's designee, any
order, sale or
transaction, obtain the necessary documents in connection
therewith, and collect
the proceeds thereof. Neither Lender nor its attorneys will be
liable for any
acts or omissions nor for any error of judgment or mistakes of
fact or law,
except for Lender's or its attorney's gross negligence or
willful misconduct.
This power, being coupled with an interest, is irrevocable as
long as any
Letters of Credit remain outstanding.
(f) Borrower shall reimburse Lender for all out-of-pocket
charges, commissions, fees and costs of any bank that issues a
Letter of Credit.
Such unpaid amounts shall be part of the Obligations and shall
be secured by the
Collateral.
3.4 INTEREST RATE; DEFAULT INTEREST RATE. Through March 31,
2006, the
aggregate outstanding amount of all Obligations shall bear
interest at the
applicable Base Rate set forth in SECTION 1.3 above and all
interest shall be
payable on the first day of each month in arrears. Commencing
April 1, 2006 and
continuing on the first day of October and April of each year,
the applicable
rate of interest shall be determined based upon the Average
Excess Availability
for the month then ended and the grid attached as SCHEDULE 3.4.
The aggregate
outstanding amount of the Obligations shall bear interest, from
and after the
occurrence of an Event of Default and without constituting a
waiver of any such
Event of Default, at the rate of two percent (2.0%) per annum
above the
applicable Base Rate. All interest payable under the Loan
Documents shall be
computed on the basis of a three hundred sixty (360) day year
for the actual
number of days elapsed, based on the aggregate amount of the
Obligations that
are outstanding on each day. Interest shall continue to accrue
until all of the
Obligations are paid in full.
3.5 LIBOR RATE OPTION. Provided no Event of Default has occurred
and is
continuing, Borrower shall have the right to have up to 80% of
the Revolving
Loans bear interest at a LIBOR Base Rate (the "LIBOR RATE
OPTION"); PROVIDED,
THAT Loans accruing interest at a LIBOR Base Rate shall be in
amounts not less
than $1,000,000 and in increments of $250,000. Borrower shall
elect (or
continue) the LIBOR Rate Option in writing at least three (3)
Business Days
prior to the first Business Day of each calendar month. If
Borrower fails to
17
<PAGE>
timely elect the LIBOR Rate Option or timely notify that it
wants to continue
the LIBOR Rate Option for a particular portion of the Loans, all
Loans shall
accrue interest at the applicable Prime Base Rate during the
succeeding calendar
month. If Borrower prepays any portion of the Revolving Loans on
which interest
is accruing at the LIBOR Rate (the "LIBOR TRANCHE") other than
on the last day
of each month, Borrower shall be obligated to pay Lender a
so-called breakage
fee equal to the difference between interest calculated on the
LIBOR Tranche
amount at the LIBOR Base Rate and interest calculated at the
Prime Base Rate for
that portion of the month the LIBOR Tranche is paid.
3.6 CROSS-DEFAULTS AND CROSS-COLLATERALIZATION. A default under
any
Loan or Loan Document is a default under any all other Loans and
Loan Documents.
All Collateral secures all Obligations.
3.7 PAYMENTS. All payments, including any prepayments, by
Borrower on
account of principal, interest, fees, or other Obligations must
be made without
setoff or counterclaim to Lender at the address specified on the
first page of
this Agreement in Dollars and in immediately available funds. If
any payment
under this Agreement or any Note becomes due on a day other than
a day which is
a Business Day, its maturity will be extended to the next
succeeding Business
Day, and with respect to payments of principal and interest
thereon, will be
payable at the then-applicable rate during such extension.
3.8 CREDITING PAYMENTS. For the purpose of calculating Borrowing
Base
availability for Revolving Loans, the receipt by Lender of any
wire transfer or
electronic funds transfer of funds, check or other item of
payment shall be
applied immediately to provisionally reduce the Obligations, but
such receipt
shall not be considered a payment on account unless such wire
transfer or
electronic funds transfer is of immediately available federal
funds and is made
to the appropriate deposit account of Lender or unless and until
such check or
other item of payment is honored when presented for payment. For
the purpose of
calculating interest, the receipt by Lender of any check or
other item of
payment shall be deemed to have occurred two (2) Business Days
after the date
Lender actually receives such item of payment and as to any wire
transfer or
electronic funds transfer, two (2) Business Days after the date
Lender actually
receives such item of payment. In the event any check or other
item of payment
is not honored when presented for payment, Borrower shall be
deemed not to have
made such payment. Notwithstanding anything to the contrary
contained herein,
any wire transfer, electronic funds transfer, check or other
item of payment
received by Lender after 1:00 p.m. Eastern time shall be deemed
to have been
received by Lender as of the opening of business on the
immediately following
Business Day.
3.9 PAYMENT MECHANICS. As an administrative convenience to
Borrower to
ensure the timely payment of amounts owing by Borrower to Lender
under this
Agreement, Borrower hereby requests Lender to advance for the
account of
Borrower an amount each month sufficient to pay interest accrued
on the
principal amount of the Obligations during the immediately
preceding month and
all monthly principal installments or other payments due under
any notes or
other Loan Document and amounts from time to time sufficient to
pay all fees and
Expenses owing by Borrower under this Agreement. Borrower
authorizes Lender, in
Lender's sole discretion, to make a Revolving Loan for
Borrower's account of a
sum sufficient each month to pay, on the due date thereof, all
interest accrued
18
<PAGE>
on the principal amount of the Obligations during the
immediately preceding
month and all monthly principal installments or other payments
due under any
notes or other Loan Documents and sums from time to time
sufficient to pay, on
the due date thereof, all fees and Expenses owing by Borrower
under this
Agreement, and Lender may apply the proceeds of each such
Revolving Loan to the
payment of such interest, installments, fees and Expenses.
Lender will provide
Borrower with an invoice or receipt for all items charged to the
Revolving Loans
pursuant to this paragraph. Each such Revolving Loan shall
thereafter accrue
interest at the rate then applicable under this Agreement.
Lender, however,
shall not be obligated to make any Revolving Loan to pay
interest, fees or
Expenses if making such Revolving Loan would create an
Overadvance.
3.10 TERMINATION PREMIUM. If this Agreement is terminated or
all
Obligations are paid in full prior to March 8, 2008, Borrower
shall be obligated
to pay Lender a termination premium equal to the following (the
"EARLY
TERMINATION PREMIUM"):
(a) 1.5% of the Revolving Advance Limit if this Agreement is
terminated or all Obligations are paid in full before March 8,
2006;
(b) 1.0% of the Revolving Advance Limit if this agreement is
terminated or all obligations are paid in full on or after March
8, 2006 but
before March 8, 2007;
(c) 0.5% of the Revolving Advance Limit if this Agreement is
terminated or all Obligations are paid in full on or after March
8, 2007 but
other than on March 8, 2008.
The Early Termination Premium will also be due and payable (i)
in
connection with any termination of this Agreement upon the
occurrence of an
Event of Default during any of the applicable periods set forth
above, (ii) if
Borrower becomes subject to an Insolvency Proceeding, or (iii)
in connection
with payment of the Obligations by any trustee, receiver,
interim receiver,
administrator, custodian, debtor-in-possession or similar court
appointed
otherwise legally authorized representative in any Insolvency
Proceeding. The
Early Termination Premium is presumed to be a reasonable
estimate of the amount
of damages sustained by the Lender as a result of the early
termination of this
Agreement and Borrower agrees that such amount is reasonable
under the
circumstances currently existing. The Early Termination Premium
is part of the
Obligations and shall be secured by the Collateral.
Notwithstanding the
foregoing, the Early Termination Fee will be waived if (a) both
of the following
occur: (i) Obligations are paid in full more than 24 months
after closing; and
(ii) Lender is paid out by either Union Ban
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