Exhibit 10.1

 

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[ex_117315img001.jpg]

 

Credit Agreement

 

 

 

dated as of June 29, 2018,

 

 

 

between

 

 

 

Twin Disc, Incorporated,

 

 

 

and

 

 

 

BMO Harris Bank N.A.

 

 

 

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Table of Contents

 

SECTION 1.

DEFINITIONS; INTERPRETATION

1      

Section 1.1

Definitions

1

Section 1.2

Interpretation

19

Section 1.3

Change in Accounting Principles

20

 

 

 

SECTION 2.

The Credit Facilities

20      

Section 2.1

Term Loan Commitment

20

Section 2.2

Revolving Credit Commitment

20

Section 2.3

Letters of Credit

21

Section 2.4

Applicable Interest Rates

22

Section 2.5

Minimum Borrowing Amounts; Maximum Eurodollar Loans

23

Section 2.6

Manner of Borrowing Loans and Designating Applicable Interest Rates

23

Section 2.7

Maturity of Loans

24

Section 2.8

Prepayments

24

Section 2.9

Default Rate

27

Section 2.10

Evidence of Indebtedness

27

Section 2.11

Fees

28

Section 2.12

Place and Application of Payments

29

Section 2.13

Commitment Terminations

29

Section 2.14

Sweep to Loan Arrangement

30

 

 

 

SECTION 3.

CHANGE IN CIRCUMSTANCES

30      

Section 3.1

Withholding Taxes

30

Section 3.2

Documentary Taxes

30

Section 3.3

Funding Indemnity

30

Section 3.4

Change of Law

31

Section 3.5

Unavailability of Deposits or Inability to Ascertain, or Inadequacy of, LIBOR

31

Section 3.6

Increased Cost and Reduced Return

32

Section 3.7

Lending Offices

33

Section 3.8

Discretion of Bank as to Manner of Funding

33

 

 

 

SECTION 4.

CONDITIONS PRECEDENT

33      

Section 4.1

Initial Credit Event

33

Section 4.2

All Credit Events

35

 

 

 

SECTION 5. REPRESENTATIONS AND WARRANTIES 36      

Section 5.1

Organization and Qualification

36

 

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Section 5.2

Subsidiaries

37

Section 5.3

Authority and Validity of Obligations

37

Section 5.4

Use of Proceeds; Margin Stock

38

Section 5.5

Financial Reports

38

Section 5.6

No Material Adverse Change

38

Section 5.7

Full Disclosure

38

Section 5.8

Trademarks, Franchises, and Licenses

38

Section 5.9

Governmental Authority and Licensing

38

Section 5.10

Good Title

39

Section 5.11

Litigation and Other Controversies

39

Section 5.12

Taxes

39

Section 5.13

Approvals

39

Section 5.14

Affiliate Transactions

39

Section 5.15

Investment Company

39

Section 5.16

ERISA

39

Section 5.17

Compliance with Laws

40

Section 5.18

OFAC

40

Section 5.19

Other Agreements

41

Section 5.20

Solvency

41

Section 5.21

No Default

41

Section 5.22

No Broker Fees

41

 

 

 

SECTION 6.

AFFIRMATIVE COVENANTS

41      

Section 6.1

Maintenance of Business

41

Section 6.2

Maintenance of Properties

41

Section 6.3

Taxes and Assessments

41

Section 6.4

Insurance

42

Section 6.5

Financial Reports

42

Section 6.6

Inspection

44

Section 6.7

ERISA

44

Section 6.8

Compliance with Laws

45

Section 6.9

Compliance with OFAC Sanctions Programs

46

Section 6.10

Formation of Subsidiaries

46

Section 6.11

Use of Proceeds; Margin Stock; Bank Accounts

46

Section 6.12

Guaranties and Collateral

47

 

 

 

SECTION 7.

NEGATIVE COVENANTS

48      

Section 7.1

Borrowings and Guaranties

48

Section 7.2

Liens

50

Section 7.3

Investments, Acquisitions, Loans and Advances

51

Section 7.4

Mergers, Consolidations and Sales

53

Section 7.5

Maintenance of Subsidiaries

54

Section 7.6

Dividends and Certain Other Restricted Payments

54

Section 7.7

Burdensome Contracts With Affiliates

55

Section 7.8

No Changes in Fiscal Year

55

 

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Section 7.9

Change in the Nature of Business

55

Section 7.10

No Restrictions

55

Section 7.11

Subordinated Debt

55

Section 7.12

Financial Covenants

56

 

 

 

SECTION 8.

EVENTS OF DEFAULT AND REMEDIES

56      

Section 8.1

Events of Default

56

Section 8.2

Non Bankruptcy Defaults

58

Section 8.3

Bankruptcy Defaults

58

Section 8.4

Collateral for Undrawn Letters of Credit

59

 

 

 

SECTION 9.

MISCELLANEOUS

59      

Section 9.1

No Waiver, Cumulative Remedies

59

Section 9.2

Non-Business Days

59

Section 9.3

Survival of Representations

59

Section 9.4

Survival of Indemnity and Certain Other Provisions

59

Section 9.5

Notices

60

Section 9.6

Counterparts

60

Section 9.7

Successors and Assigns

60

Section 9.8

Amendments, etc.

60

Section 9.9

Headings

61

Section 9.10

Costs and Expenses; Indemnification

61

Section 9.11

Set off

62

Section 9.12

Entire Agreement

62

Section 9.13

Governing Law

62

Section 9.14

Severability of Provisions

62

Section 9.15

Excess Interest

63

Section 9.16

Construction

63

Section 9.17

Submission to Jurisdiction; Waiver of Venue; Service of Process

63

Section 9.18

Waiver of Jury Trial

64

Section 9.19

USA Patriot Act

64

Section 9.20

Time is of the Essence

64

Section 9.21

Confidentiality

65

 

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CREDIT AGREEMENT

 

This Credit Agreement is entered into as of June 29, 2018, by and between Twin
Disc, Incorporated, a Wisconsin corporation (“Borrower”), and BMO Harris Bank
N.A., a national banking association (“Bank”). All capitalized terms used herein
without definition shall have the meanings ascribed thereto in Section 1.1.

 

PRELIMINARY STATEMENTS

 

A.     Borrower and Bank of Montreal, an Affiliate of the Bank, previously
entered into that certain Credit Agreement, dated as of April 22, 2016 (the
“2016 Credit Agreement”), whereby Bank of Montreal extended credit facilities to
Borrower.

 

B.     Borrower has requested, and Bank has agreed, to refinance the credit
facilities extended by Bank of Montreal under the 2016 Credit Agreement and
finance additional credit facilities, all on the terms and conditions of this
Agreement.

 

NOW, THEREFORE, in consideration of the mutual agreements contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:

 

SECTION 1. DEFINITIONS; INTERPRETATION.

 

Section 1.1     Definitions. The following terms when used herein shall have the
following meanings:

 

“Account Debtor” means any Person obligated to make payment on any Receivable.

 

“Acquisition” means the acquisition by Twin Disc NL Holdings, B.V.
(“Purchaser”), a Subsidiary of Borrower, of all of the outstanding share capital
of Veth Propulsion Holding, B.V. (the “Target”) from Het Komt Vast Goed, B.V.
(“Seller”), pursuant to the Purchase Documents.

 

“Adjusted LIBOR” means, for any Borrowing of Eurodollar Loans, a rate per annum
determined in accordance with the following formula:

 

Adjusted LIBOR = LIBOR     1 - Eurodollar Reserve Percentage

    

“Affiliate” means any Person directly or indirectly controlling or controlled
by, or under direct or indirect common control with, another Person. A Person
shall be deemed to control another Person for purposes of this definition if
such Person possesses, directly or indirectly, the power to direct, or cause the
direction of, the management and policies of the other Person, whether through
the ownership of voting securities, common directors, trustees or officers, by
contract or otherwise; provided that, in any event for purposes of this
definition, any Person that owns, directly or indirectly, 5% or more of the
securities having the ordinary voting power for the election of directors or
governing body of a corporation or 5% or more of the partnership or other
ownership interest of any other Person (other than as a limited partner of such
other Person) will be deemed to control such corporation or other Person.

 

 

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“Agreement” means this Credit Agreement, as the same may be amended, restated,
supplemented, or otherwise modified from time to time pursuant to the terms
hereof.

 

“Agreement as to Liens and Encumbrances” means the Agreement as to Liens and
Encumbrances referenced in Exhibit B of the Negative Pledge Agreement, dated as
of April 22, 2016, between Borrower and Bank of Montreal, as assigned to Bank
pursuant to, and amended by, the Assignment of and Amendment to Agreement as to
Liens and Encumbrances, dated as of the date hereof, among Borrower, Bank and
Bank of Montreal, and as the same may hereafter be amended, modified,
supplemented or restated from time to time.

 

“Applicable Margin” means, with respect to Loans, Reimbursement Obligations, and
the commitment/facility fees and letter of credit fees payable under Section
2.11, until the first Pricing Date, the rates per annum shown opposite Level I
below, and thereafter from one Pricing Date to the next the Applicable Margin
means the rates per annum determined in accordance with the following schedule:

 

Level

Total Funded

Debt/EBITDA Ratio for

Such Pricing Date

Applicable Margin for

(i) Revolving Loans

and (ii) Letter of

Credit Fee shall be:

Applicable

Margin for Term

Loans shall be:

Applicable Margin for

Commitment/ Facility

Fee shall be:

I

Greater than or equal to 2.50 to 1.0

2.25%

3.00%

0.15%

II

Less than 2.50 to 1.0, but

greater than or equal to

1.50 to 1.0

1.75%

3.00%

0.15%

III

Less than 1.50 to 1.0

1.25%

3.00%

0.10%

 

For purposes hereof, the term “Pricing Date” means, for any fiscal quarter of
Borrower ending on or after December 31, 2018, the date on which Bank is in
receipt of Borrower’s most recent financial statements (and, in the case of the
year-end financial statements, audit report) for the fiscal quarter then ended,
pursuant to Section 6.5. The Applicable Margin shall be established based on the
Total Funded Debt/EBITDA Ratio for the most recently completed fiscal quarter
and the Applicable Margin established on a Pricing Date shall remain in effect
until the next Pricing Date. If Borrower has not delivered its financial
statements by the date such financial statements (and, in the case of the
year-end financial statements, audit report) are required to be delivered under
Section 6.5, until such financial statements and audit report are delivered, the
Applicable Margin shall be the highest Applicable Margin (i.e., Level I shall
apply). If Borrower subsequently delivers such financial statements before the
next Pricing Date, the Applicable Margin established by such late delivered
financial statements shall take effect from the date of delivery until the next
Pricing Date. In all other circumstances, the Applicable Margin established by
such financial statements shall be in effect from the Pricing Date that occurs
immediately after the end of the fiscal quarter covered by such financial
statements until the next Pricing Date. Each determination of the Applicable
Margin made by Bank in accordance with the foregoing shall be conclusive and
binding on Borrower absent manifest error. Notwithstanding the foregoing, Bank
may, in its discretion, increase the Applicable Margin on any type of Loan by
two percent (2%) per annum during the existence of an Event of Default.

 

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“Application” is defined in Section 2.3(b).

 

“Assumed Indebtedness” means Indebtedness of a Person which is (a) in existence
at the time such Person becomes a Subsidiary of Borrower or (b) is assumed in
connection with an investment in or acquisition of such Person, and in each
case, has not been incurred or created by such Person in connection with, or in
anticipation or contemplation of, such Person becoming a Subsidiary of Borrower.

 

“Authorized Representative” means those persons shown on the list of officers
provided by Borrower pursuant to Section 4.1 or on any update of any such list
provided by Borrower to Bank, or any further or different officers of Borrower
so named by any Authorized Representative of Borrower in a written notice to
Bank.

 

“Availability” means the lesser of: (a) the Revolving Credit Commitment minus
the aggregate outstanding principal amount of Revolving Loans and L/C
Obligations; and (b) the Borrowing Base minus the aggregate outstanding
principal amount of Revolving Loans and L/C Obligations.

 

“Bank” is defined in the introductory paragraph of this Agreement.

 

“Base Rate” means, for any day, the rate per annum equal to the greatest of: (a)
the rate of interest announced or otherwise established by Bank from time to
time as its prime commercial rate as in effect on such day, with any change in
the Base Rate resulting from a change in said prime commercial rate to be
effective as of the date of the relevant change in said prime commercial rate
(it being acknowledged and agreed that such rate may not be Bank’s best or
lowest rate), (b) the sum of (i) the rate determined by Bank to be the average
(rounded upward, if necessary, to the next higher 1/100 of 1%) of the rates per
annum quoted to Bank at approximately 10:00 a.m. (or as soon thereafter as is
practicable) on such day (or, if such day is not a Business Day, on the
immediately preceding Business Day) by two or more Federal funds brokers
selected by Bank for sale to Bank at face value of Federal funds in the
secondary market in an amount equal or comparable to the principal amount for
which such rate is being determined, plus (ii) 1/2 of 1%, and (c) the LIBOR
Quoted Rate for such day plus 1.00%. As used herein, the term “LIBOR Quoted
Rate” means, for any day, the rate per annum equal to the quotient of (i) the
rate per annum (rounded upwards, if necessary, to the next higher one hundred
thousandth of a percentage point) for deposits in U.S. Dollars for a one-month
interest period as reported on the applicable Bloomberg screen page (or such
other commercially available source providing such quotations as may be
designated by the Bank from time to time) as of 11:00 a.m. (London, England
time) on such day (or, if such day is not a Business Day, on the immediately
preceding Business Day) divided by (ii) one (1) minus the Eurodollar Reserve
Percentage, provided that in no event shall the “LIBOR Quoted Rate” be less than
0.00%.

 

“Borrower” is defined in the introductory paragraph of this Agreement.

 

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“Borrowing” means the total of Loans of a single type advanced, continued for an
additional Interest Period, or converted from a different type into such type by
Bank on a single date and, in the case of Eurodollar Loans, for a single
Interest Period. A Borrowing is “advanced” on the day Bank advances funds
comprising such Borrowing to Borrower, is “continued” on the date a new Interest
Period for the same type of Loans commences for such Borrowing, and is
“converted” when such Borrowing is changed from one type of Loans to the other,
all as determined pursuant to Section 2.6.

 

“Borrowing Base” means, as of any time it is to be determined, the sum of:

 

(a)     85% of the then outstanding unpaid amount of Eligible Receivables; plus

 

(b)     the lesser of (i) $35,000,000 and (ii) 50% of the value (computed at the
lower of market or cost using the last-in/first-out method of inventory
valuation applied in accordance with GAAP) of Eligible Inventory;

 

provided that (i) Bank shall have the right upon five (5) Business Days’ notice
to Borrower to reduce the advance rates against Eligible Receivables and
Eligible Inventory in its reasonable discretion based on results from any field
audit or appraisal of the Collateral and (ii) the Borrowing Base shall be
computed only as against and on so much of such Collateral as is included on the
Borrowing Base Certificates furnished from time to time by Borrower pursuant to
this Agreement and, if required by Bank pursuant to any of the terms hereof or
any Collateral Document, as verified by such other evidence reasonably required
to be furnished to Bank pursuant hereto or pursuant to any such Collateral
Document.

 

“Borrowing Base Certificate” means the certificate in the form of Exhibit B
hereto, or in such other form acceptable to Bank, to be delivered to Bank
pursuant to Sections 4.2 and 6.5.

 

“Business Day” means any day (other than a Saturday or Sunday) on which banks
are not authorized or required to close in Milwaukee, Wisconsin. If the
applicable Business Day relates to the determination of the Monthly Reset LIBOR
Rate or the LIBOR Index Rate, then Business Day means any day on which banks on
which commercial banks are open for general business (including dealings in
foreign exchange and foreign currency deposits) in London, England.

 

“Capital Expenditures” means, with respect to any Person for any period, the
aggregate amount of all expenditures (whether paid in cash or accrued as a
liability) by such Person during that period for the acquisition or leasing
(pursuant to a Capital Lease) of fixed or capital assets or additions to
property, plant, or equipment (including replacements, capitalized repairs, and
improvements) which should be capitalized on the balance sheet of such Person in
accordance with GAAP.

 

“Capital Lease” means any lease of Property which in accordance with GAAP is
required to be capitalized on the balance sheet of the lessee.

 

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“Capitalized Lease Obligation” means, for any Person, the amount of the
liability shown on the balance sheet of such Person in respect of a Capital
Lease determined in accordance with GAAP.

 

“Cash Collateralize” means to pledge and deposit with or deliver to Bank, as
collateral for L/C Obligations, cash to be held in a Collateral Account, or, if
Bank shall agree in its sole discretion, other credit support, in each case
pursuant to documentation in form and substance satisfactory to Bank, in an
amount equal to 105% of the aggregate L/C Obligations (or such greater amount as
Bank may determine is necessary to pay the face amount thereof plus all fees and
expenses expected to accrue with respect to all outstanding Letters of Credit
through the expiration date of such Letters of Credit).

 

“CERCLA” means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. §§9601 et seq., and any future
amendments.

 

“Change Date” means, initially the first day of the first calendar month
following the Closing Date and, thereafter, the first day of every calendar
month occurring after the date thereof until the next Change Date.

 

“Change in Law” means the occurrence, after the date of this Agreement, of any
of the following: (i) the adoption or taking effect of any law, rule, regulation
or treaty, (ii) any change in any law, rule, regulation or treaty or in the
administration, interpretation or application thereof by any Governmental
Authority or (iii) the making or issuance of any request, guideline or directive
(whether or not having the force of law) by any Governmental Authority; provided
that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall
Street Reform and Consumer Protection Act and all requests, rules, guidelines or
directives thereunder or issued in connection therewith and (y) all requests,
rules, guidelines or directives promulgated by the Bank for International
Settlements, the Basel Committee on Banking Supervision (or any successor or
similar authority) or the United States or foreign regulatory authorities, in
each case pursuant to Basel III, shall in each case be deemed to be a “Change in
Law”, regardless of the date enacted, adopted or issued.

 

“Change of Control” means an event or series of events by which:

 

(a)     any “person” or “group” (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act, but excluding any employee benefit plan of Borrower
or its Subsidiaries, and any person or entity acting in its capacity as trustee,
agent or other fiduciary or administrator of any such plan) becomes the
“beneficial owner” (as defined in Rules 13d-4 and 13d-6 under the Exchange Act,
except that a person or group shall be deemed to have “beneficial ownership” of
all securities that such person or group has the right to acquire (such right,
an “option right”), whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of 50% or more of the equity
interests of Borrower on a fully-diluted basis (and taking into account all such
equity interests that such person or group has the right to acquire pursuant to
any option right); or

 

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(b)     during any period of 27 consecutive months, a majority of the members of
the board of directors or other equivalent governing body of Borrower cease to
be composed of individuals (i) who were members of that board or equivalent
governing body on the first day of such period, (ii) whose election or
nomination to that board or equivalent governing body was approved by
individuals referred to in clause (i) above constituting at the time of such
election or nomination at least a majority of that board or equivalent governing
body or (iii) whose election or nomination to that board or other equivalent
governing body was approved by individuals referred to in clauses (i) and (ii)
above constituting at the time of such election or nomination at least a
majority of that board or equivalent governing body; or

 

(c)     Borrower shall fail to own and control, beneficially and of record
(directly or indirectly), the percentage of issued and outstanding equity
interests of each of its Subsidiaries as set forth on Schedule 5.2, except where
such failure is the result of a transaction permitted under the Loan Documents.

 

“Closing Date” means the date of this Agreement or such later Business Day upon
which each condition described in Section 4.1 shall be satisfied or waived in a
manner acceptable to Bank in its discretion.

 

“Code” means the Internal Revenue Code of 1986, as amended, and any successor
statute thereto.

 

“Collateral” means all properties, rights, interests, and privileges from time
to time subject to the Liens granted to Bank, or any security trustee therefor,
by the Collateral Documents.

 

“Collateral Account” means a separate collateral account maintained with, held
in the name of, and subject to the exclusive dominion and control of, Bank for
the purpose of holding assets as security for, and for application by Bank (to
the extent available) to, the reimbursement of any payment under any Letter of
Credit then or thereafter made by Bank, and to the payment of the unpaid balance
of other Obligations.

 

“Collateral Assignment of Rights under Purchase Agreement” means the Collateral
Assignment of Rights under the Purchase Agreement by Borrower and Purchaser in
favor of Bank and consented to by Seller, as amended, supplemented, modified or
extended from time to time.

 

“Collateral Documents” means the Security Agreement, the IP Security Agreement,
the Guarantor Security Agreement, the Perfection Certificate, the Negative
Pledge Agreement, the Agreement as to Liens and Encumbrances, the Pledge
Agreement, the Collateral Assignment of Rights under the Purchase Agreement, the
Landlord Waivers and all other mortgages, deeds of trust, security agreements,
pledge agreements, assignments, financing statements and other documents as
shall from time to time secure or relate to the Obligations, the Hedging
Liability or any part thereof.

 

“Commitments” means the Revolving Credit Commitment and the Term Loan
Commitments.

 

“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et
seq.).

 

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“Controlled Group” means all members of a controlled group of corporations and
all trades or businesses (whether or not incorporated) under common control
which, together with Borrower, are treated as a single employer under Section
414 of the Code.

 

“Credit Event” means the advancing of any Loan, or the issuance of, or extension
of the expiration date or increase in the amount of, any Letter of Credit.

 

“Default” means any event or condition the occurrence of which would, with the
passage of time or the giving of notice, or both, constitute an Event of
Default.

 

“Disposition” means the sale, lease, conveyance or other disposition of
Property, other than sales or other dispositions expressly permitted under
Sections 7.4(a), 7.4(b), 7.4(f), 7.4(h) or 7.4(j).

 

“Dollar Equivalent” means, on any date of determination, (a) with respect to any
amount in U.S. Dollars, such amount and (b) with respect to any amount in Euros,
the equivalent in U.S. Dollars of such amount, determined by Bank using the
Exchange Rate with respect to Euros at the time in effect for such amount.

 

“Domestic Subsidiary” means a Subsidiary that is neither a Foreign Subsidiary
nor Twin Disc (Far East) Ltd.

 

“EBITDA” means, with reference to any period for any Person, Net Income of such
Person for such period plus all amounts deducted in arriving at such Net Income
amount in respect of (a) Interest Expense for such period, (b) federal, state,
and local income taxes for such period, (c) depreciation of fixed assets and
amortization of intangible assets for such period, (d) restructuring charges for
such period, (e) impairment charges for such period, (f) non-cash stock
compensation for such period, (g) fair market value work-in-process adjustments
for such period, and (h) one-time, non-recurring reasonable and documented
non-capitalized transaction expenses and closing fees related to this Agreement
and the Acquisition, as reviewed and reasonably approved by Bank, incurred
during such period (provided, that such transaction expenses included under this
clause (h) shall not exceed $2,000,000 in the aggregate).

 

“Eligible Inventory” means any raw materials or finished goods inventory of
Borrower (other than packaging, crating and supplies inventory but specifically
including sub-assembly inventory) which:

 

(a)     is an asset of such Person to which it has good and marketable title, is
freely assignable, and is subject to a perfected, first priority Lien in favor
of Bank free and clear of any other Liens except as permitted by Section 7.2;

 

(b)     is located in the United States of America at a Permitted Collateral
Location as set forth in (and as defined in) the Security Agreement and, in the
case of any location not owned by such Person, which is at all times subject to
a lien waiver agreement from such landlord or other third party to the extent
required by, and in form and substance satisfactory to, Bank;

 

(c)     is not so identified to a contract to sell that it constitutes a
Receivable;

 

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(d)     is not obsolete or slow moving, and is of good and merchantable quality
free from any defects which might adversely affect the market value thereof;

 

(e)     is not covered by a warehouse receipt or similar document;

 

(f)     in the case of finished goods inventory, was produced pursuant to
binding and existing purchase orders therefor to which such Person has title;

 

(g)     is not otherwise deemed to be ineligible in the reasonable judgment of
Bank (it being acknowledged and agreed that with five (5) Business Days prior
written notice any inventory or categories thereof of Borrower may be deemed
ineligible by Bank acting in is reasonable judgment); and

 

(h)     if in transit, is between locations of Loan Parties or between locations
of a Loan Party (or Loan Parties) and processors or vendors (excluding
work-in-process) in the ordinary course of business.

 

“Eligible Receivables” means any Receivable of Borrower which:

 

(a)     arises out of the sale of finished goods inventory delivered to and
accepted by, or out of the rendition of services fully performed and accepted
by, the Account Debtor on such Receivable, does not represent a pre-billed
Receivable or a progress billing, and is net of any deposits made by or for the
account of the relevant Account Debtor;

 

(b)     is payable in U.S. Dollars and the Account Debtor on such Receivable is
located within the United States of America or Canada or, if such right has
arisen out of the sale of such goods shipped to, or out of the rendition of
services to, an Account Debtor located in any other country, such right is
either (i) secured by a valid and irrevocable transferable letter of credit
issued by a lender reasonably acceptable to Bank for the full amount thereof or
(ii) secured by an insurance policy on terms, and issued by EXIM Bank or another
insurer, satisfactory to Bank (which in any event shall insure not less than
ninety percent (90%) of the face amount of such Receivable and shall be subject
to such deductions as are acceptable to Bank), and in each case which has been
assigned or transferred to Bank in a manner acceptable to Bank;

 

(c)     is the valid, binding and legally enforceable obligation of the Account
Debtor obligated thereon and such Account Debtor is not (i) a Subsidiary or an
Affiliate of Borrower, (ii) a shareholder, director, officer or employee of
Borrower or any Subsidiary, (iii) the United States of America or Canada, or any
state, province, or political subdivision thereof, or any department, agency or
instrumentality of any of the foregoing, unless the Assignment of Claims Act or
any similar state, provincial, or local statute, as the case may be, is complied
with to the satisfaction of Bank, (iv) a debtor under any proceeding under the
United States Bankruptcy Code, as amended, or any other comparable bankruptcy or
insolvency law, or (v) an assignor for the benefit of creditors;

 

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(d)     is not evidenced by an instrument or chattel paper unless the same has
been endorsed and delivered to Bank;

 

(e)     is an asset of such Person to which it has good and marketable title, is
freely assignable, and is subject to a perfected, first priority Lien in favor
of Bank free and clear of any other Liens except as permitted by Section 7.2;

 

(f)     is not owing from an Account Debtor who is also a creditor or supplier
of such Person, and is not subject to any offset, counterclaim or other defense
with respect thereto;

 

(g)     no surety bond was required or given in connection with said Receivable
or the contract or purchase order out of which the same arose;

 

(h)     is evidenced by an invoice to the Account Debtor dated not more than
five (5) Business Days subsequent to the shipment date of the relevant inventory
or completion of performance of the relevant services and is issued on ordinary
trade terms requiring payment within 60 days of invoice date;

 

(i)     is not unpaid more than 90 days after the original invoice date or 60
days after the original due date, whichever comes first;

 

(j)     is not owed by an Account Debtor who is obligated on Receivables more
than 25% of the aggregate unpaid balance of which have been past due for longer
than the relevant period specified in subsection (i) above unless Bank has
approved the continued eligibility thereof;

 

(k)     would not cause the total Eligible Receivables owing from the Account
Debtor and its Affiliates to exceed 25% of all Receivables;

 

(l)     does not arise from a sale on a bill and hold, guaranteed sale, sale or
return, sale on approval, consignment or any other repurchase or return basis;
and

 

(m)     is not otherwise deemed to be ineligible in the reasonable judgment of
Bank (it being acknowledged and agreed that with five (5) Business Days prior
written notice any Receivable of Borrower may be deemed ineligible by Bank
acting in its reasonable judgment).

 

“Environmental Claim” means any investigation, notice, violation, demand,
allegation, action, suit, injunction, judgment, order, consent decree, penalty,
fine, lien, proceeding or claim (whether administrative, judicial or private in
nature) arising (a) pursuant to, or in connection with an actual or alleged
violation of, any Environmental Law, (b) in connection with any Hazardous
Material, (c) from any abatement, removal, remedial, corrective or response
action in connection with a Hazardous Material, Environmental Law or order of a
Governmental Authority or (d) from any actual or alleged damage, injury, threat
or harm to health, safety, natural resources or the environment.

 

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“Environmental Law” means any current or future Legal Requirement pertaining to
(a) the protection of health, safety and the indoor or outdoor environment, (b)
the conservation, management or use of natural resources and wildlife, (c) the
protection or use of surface water or groundwater, (d) the management,
manufacture, possession, presence, use, generation, transportation, treatment,
storage, disposal, Release, threatened Release, abatement, removal, remediation
or handling of, or exposure to, any Hazardous Material or (e) pollution
(including any Release to air, land, surface water or groundwater), and any
amendment, rule, regulation, order or directive issued thereunder.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
or any successor statute thereto.

 

“Euro” and “€” means the lawful currency of the European Union.

 

“Euro Sublimit” means the amount in Euros equal to the Dollar Equivalent of
$25,000,000.

 

“Eurodollar Loan” means a Loan bearing interest at the rate specified in Section
2.4(b).

 

“Eurodollar Reserve Percentage” means the maximum reserve percentage, expressed
as a decimal, at which reserves (including any emergency, marginal, special, and
supplemental reserves) are imposed by the Board of Governors of the Federal
Reserve System (or any successor) on “eurocurrency liabilities”, as defined in
such Board’s Regulation D (or any successor thereto), subject to any amendments
of such reserve requirement by such Board or its successor, taking into account
any transitional adjustments thereto. For purposes of this definition, the
relevant Loans shall be deemed to be “eurocurrency liabilities” as defined in
Regulation D without benefit or credit for any prorations, exemptions or offsets
under Regulation D. The Eurodollar Reserve Percentage shall be adjusted
automatically on and as of the effective date of any change in any such reserve
percentage.

 

“Event of Default” means any event or condition identified as such in Section
8.1.

 

“Event of Loss” means, with respect to any Property, any of the following: (a)
any loss, destruction or damage of such Property or (b) any condemnation,
seizure, or taking, by exercise of the power of eminent domain or otherwise, of
such Property, or confiscation of such Property or the requisition of the use of
such Property.

 

“Exchange Rate” means on any day, for purposes of determining the Dollar
Equivalent of any currency other than U.S. Dollars, the rate at which such other
currency may be exchanged into U.S. Dollars at the time of determination on such
day as set forth on the Reuters WRLD Page for such currency. In the event that
such rate does not appear on any Reuters WRLD Page, the Exchange Rate shall be
determined by reference to such other publicly available service for displaying
exchange rates as may be agreed upon by Bank and Borrower or, in the absence of
such an agreement, such Exchange Rate shall instead be the arithmetic average of
the spot rates of exchange of Borrower in the market where its foreign currency
exchange operations in respect of such currency are then being conducted, at or
about such time as Bank shall elect after determining that such rates shall be
the basis for determining the Exchange Rate, on such day for the purchase of
U.S. Dollars for delivery two (2) Business Days later; provided that if at the
time of any such determination, for any reason, no such spot rate is being
quoted, Bank may use any reasonable method it deems appropriate to determine
such rate, and such determination shall be conclusive absent manifest error.

 

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“Excluded Swap Obligation” means any Swap Obligation of any Borrower or any
Subsidiary (other than the direct counterparty of such Swap Obligation) if, and
to the extent that, all or a portion of the Guaranty of such Borrower or
Subsidiary of, or the grant by such Borrower or Subsidiary of a security
interest to secure, such Swap Obligation (or any Guaranty thereof) is or becomes
illegal under the Commodity Exchange Act or any rule, regulation or order of the
Commodity Futures Trading Commission (or the application or official
interpretation of any thereof) by virtue of such Borrower’s or Subsidiary’s
failure for any reason to constitute an “eligible contract participant” as
defined in the Commodity Exchange Act at the time the Guaranty of such Borrower
or Subsidiary or the grant of such security interest becomes effective with
respect to such Swap Obligation. If a Swap Obligation arises under a master
agreement governing more than one swap, such exclusion shall apply only to the
portion of such Swap Obligation that is attributable to swaps for which such
Guaranty or security interest is or becomes illegal.

 

“Foreign Subsidiary” means each Subsidiary which (a) is organized under the laws
of a jurisdiction other than the United States of America or any state thereof
or the District of Columbia, (b) conducts substantially all of its business
outside of the United States of America, and (c) has substantially all of its
assets outside of the United States of America.

 

“Funding Date” means the actual date on which the Term Loan is made by the Bank,
but in no event shall such date be later than the date that is 60 days after the
Closing Date.

 

“GAAP” means generally accepted accounting principles set forth from time to
time in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date of
determination.

 

“Governmental Authority” means the government of the United States of America or
any other nation, or of any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government (including any supra-national bodies such as the European Union or
the European Central Bank).

 

“Guarantor” and “Guarantors” each is defined in Section 6.12(a).

 

“Guarantor Security Agreement” means that certain Guarantor Security Agreement,
dated April 22, 2016, between Guarantor and Bank of Montreal, as assigned to
Bank pursuant to, and amended by, the Assignment of and Amendment to Guarantor
Security Agreement, dated as of the date hereof, among Borrower, Bank and Bank
of Montreal, and as the same may hereafter be amended, modified, supplemented or
restated from time to time.

 

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“Guaranty” and “Guaranties” each is defined in Section 6.12(a), including,
without limitation, that certain Guaranty, dated April 22, 2016, by Guarantor in
favor of Bank of Montreal, as assigned to Bank pursuant to, and amended by, the
Assignment of and Amendment to Guaranty Agreement, dated as of the date hereof,
among Borrower, Bank and Bank of Montreal, and as the same may hereafter be
amended, modified, supplemented or restated from time to time.

 

“Hazardous Material” means any substance, chemical, compound, product, solid,
gas, liquid, waste, byproduct, pollutant, contaminant or material which is
hazardous or toxic, and includes (a) asbestos, polychlorinated biphenyls and
petroleum (including crude oil or any fraction thereof) and (b) any material
classified or regulated as “hazardous” or “toxic” or words of like import
pursuant to an Environmental Law.

 

“Hazardous Material Activity” means any activity, event or occurrence involving
a Hazardous Material, including the manufacture, possession, presence, use,
generation, transportation, treatment, storage, disposal, Release, threatened
Release, abatement, removal, remediation, handling of or corrective or response
action to any Hazardous Material.

 

“Hedging Liability” means the liability of any Borrower or any Guarantor to the
Bank, or any Affiliates of the Bank, in respect of any interest rate, foreign
currency, and/or commodity swap, exchange, cap, collar, floor, forward, future
or option agreement, or any other similar interest rate, currency or commodity
hedging arrangement, as such Borrower or such Guarantor, as the case may be, may
from time to time enter into with the Bank or its Affiliates; provided, that
Hedging Liability shall not include Excluded Swap Obligations.

 

“Indebtedness for Borrowed Money” means for any Person (without duplication) (a)
all indebtedness created, assumed or incurred in any manner by such Person
representing money borrowed (including by the issuance of debt securities), (b)
all indebtedness for the deferred purchase price of property or services (other
than trade accounts payable arising in the ordinary course of business), (c) all
indebtedness secured by any Lien upon Property of such Person, whether or not
such Person has assumed or become liable for the payment of such indebtedness,
(d) all Capitalized Lease Obligations of such Person, (e) all obligations of
such Person on or with respect to letters of credit, bankers’ acceptances and
other extensions of credit whether or not representing obligations for borrowed
money, and (f) all Hedging Liability of such Persons.

 

“Interest Expense” means, with reference to any period, the sum of all interest
charges (including imputed interest charges with respect to Capitalized Lease
Obligations and all amortization of debt discount and expense) of Borrower and
its Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP.

 

“Interest Payment Date” means (a) with respect to any Eurodollar Loan, the last
day of each Interest Period with respect to such Eurodollar Loan and on the
maturity date and, if the applicable Interest Period is longer than (3) three
months, on each day occurring every three (3) months after the commencement of
such Interest Period, and (b) with respect to any LIBOR Loan, the last day of
every calendar month and on the maturity date.

 

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“Interest Period” means, with respect to any Borrowing of Eurodollar Loans, the
period commencing on the date such Borrowing of Eurodollar Loans is advanced,
continued, or created by conversion and ending 1, 2, 3, or 6 months thereafter
as selected by Borrower in its notice as provided herein; provided that:

 

i.     no Interest Period shall extend beyond the final maturity date of the
relevant Loans;

 

ii.     no Interest Period with respect to any portion of the Term Loans shall
extend beyond a date on which Borrower is required to make a scheduled payment
of principal on the Term Loans unless the aggregate principal amount of Term
Loans that are Eurodollar Loans with Interest Periods expiring on or before such
date equals or exceeds the principal amount to be paid on the Term Loans on such
payment date;

 

iii.     whenever the last day of any Interest Period would otherwise be a day
that is not a Business Day, the last day of such Interest Period shall be
extended to the next succeeding Business Day, provided that, if such extension
would cause the last day of an Interest Period for a Borrowing of Eurodollar
Loans to occur in the following calendar month, the last day of such Interest
Period shall be the immediately preceding Business Day; and

 

iv.     for purposes of determining an Interest Period for a Borrowing of
Eurodollar Loans, a month means a period starting on one day in a calendar month
and ending on the numerically corresponding day in the next calendar month;
provided that if there is no numerically corresponding day in the month in which
such an Interest Period is to end or if such an Interest Period begins on the
last Business Day of a calendar month, then such Interest Period shall end on
the last Business Day of the calendar month in which such Interest Period is to
end.

 

“IP Security Agreement” means that certain Intellectual Property Security
Agreement, dated April 22, 2016, between Borrower and Bank of Montreal, as
assigned to Bank pursuant to, and amended by, the Assignment of and Amendment to
IP Security Agreement, dated as of the date hereof, among Borrower, Bank and
Bank of Montreal, and as the same may hereafter be amended, modified,
supplemented or restated from time to time.

 

“L/C Obligations” means the aggregate undrawn face amounts of all outstanding
Letters of Credit and all unpaid Reimbursement Obligations.

 

“L/C Sublimit” means $4,000,000, as reduced pursuant to the terms hereof.

 

“Landlord Waivers” means the landlord subordination agreements in form and
substance satisfactory to Bank received from each lessor of real property to any
Borrower with respect to real property leased by any Borrower.

 

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“Legal Requirement” means any treaty, convention, statute, law, regulation,
ordinance, license, permit, governmental approval, injunction, judgment, order,
consent decree or other requirement of any Governmental Authority, whether
federal, state, or local.

 

“Letter of Credit” is defined in Section 2.3(a).

 

“LIBOR” means, for an Interest Period for a Borrowing of Eurodollar Loans, (a)
the LIBOR Index Rate for such Interest Period, if such rate is available, and
(b) if the LIBOR Index Rate cannot be determined, the arithmetic average of the
rates of interest per annum (rounded upwards, if necessary, to the nearest 1/100
of 1%) at which deposits in U.S. Dollars in immediately available funds are
offered to Bank at 11:00 a.m. (London, England time) two (2) Business Days
before the beginning of such Interest Period by three (3) or more major banks in
the interbank eurodollar market selected by Bank for delivery on the first day
of and for a period equal to such Interest Period and in an amount equal or
comparable to the principal amount of the Eurodollar Loan scheduled to be made
as part of such Borrowing, provided that in no event shall “LIBOR” be less than
0.00%.

 

“LIBOR Index Rate” means, for any Interest Period, the rate per annum (rounded
upwards, if necessary, to the next higher one hundred thousandth of a percentage
point) for deposits in U.S. Dollars for a period equal to such Interest Period,
as reported on the applicable Bloomberg screen page or any successor thereto (or
such other commercially available source providing such quotations as may be
designated by the Bank from time to time) as of 11:00 a.m. (London, England
time) on the day two (2) Business Days before the commencement of such Interest
Period. Bank’s internal records of applicable interest rates (including without
limitation Bank’s designation of any successor interest rate index in the rate
index described above shall become temporarily unavailable or shall cease to
exist) shall be determinative in the absence of manifest error.

 

“LIBOR Loans” means Revolving Loans accruing interest at the Monthly Reset LIBOR
Rate.

 

“Lien” means any mortgage, lien, security interest, pledge, charge or
encumbrance of any kind in respect of any Property, including the interests of a
vendor or lessor under any conditional sale, Capital Lease or other title
retention arrangement.

 

“Loan” means any Revolving Loan or Term Loan, whether outstanding as a LIBOR
Loan or Eurodollar Loan or otherwise, each of which is a “type” of Loan
hereunder.

 

“Loan Documents” means this Agreement, the Notes (if any), the Applications, the
Collateral Documents, the Guaranties, and each other instrument or document to
be delivered hereunder or thereunder or otherwise in connection therewith.

 

“Loan Party” and “Loan Parties” means, each and collectively, Borrower and each
Guarantor.

 

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“Material Adverse Effect” means (a) a material adverse change in, or material
adverse effect upon, the operations, business, Property, condition (financial or
otherwise) or prospects of Borrower or of Borrower and its Subsidiaries taken as
a whole, (b) a material impairment of the ability of Borrower or any Subsidiary
to perform its material obligations under any Loan Document or (c) a material
adverse effect upon (i) the legality, validity, binding effect or enforceability
against Borrower or any Subsidiary of any Loan Document or the rights and
remedies of Bank thereunder or (ii) the perfection or priority of any Lien
granted under any Collateral Document.

 

“Monthly Reset LIBOR Rate” means the one month ICE Benchmark Administration
(ICE) LIBOR and reported on the applicable Bloomberg screen page (or such other
commercially available source providing such quotation as may be designated by
Bank from time to time) as reported on the relevant Change Date (or, if such
Change Date is not a Business Day, on the immediately prior Business Day),
unless such rate is no longer available or published, in which case such rate
shall be at a comparable substitute index rate selected by Bank with notice to
Borrower; provided that in no event shall the “Monthly Reset LIBOR Rate” be less
than 0.00%. Bank’s internal records of applicable interest rates (including
without limitation Bank’s designation of any successor interest rate index in
the rate index described above shall become temporarily unavailable or shall
cease to exist) shall be determinative in the absence of manifest error.

 

“Moody’s” means Moody’s Investors Service, Inc.

 

“Negative Pledge Agreement” means the Negative Pledge Agreement executed by
Borrower on April 22, 2016, recorded as Document No. 2437708 with the Racine
County Register of Deeds, in favor of Bank of Montreal, as assigned to Bank
pursuant to, and amended by, the Assignment of and Amendment to Negative Pledge
Agreement, dated as of the date hereof, among Borrower, Bank and Bank of
Montreal, and as the same may hereafter be amended, modified, supplemented or
restated from time to time.

 

“Net Cash Proceeds” means, as applicable, (a) with respect to any Disposition by
a Person, cash and cash equivalent proceeds received by or for such Person’s
account, net of (i) reasonable direct costs relating to such Disposition and
(ii) sale, use or other transactional taxes paid or payable by such Person as a
direct result of such Disposition, (b) with respect to any Event of Loss of a
Person, cash and cash equivalent proceeds received by or for such Person’s
account (whether as a result of payments made under any applicable insurance
policy therefor or in connection with condemnation proceedings or otherwise),
net of reasonable direct costs incurred in connection with the collection of
such proceeds, awards or other payments, and (c) with respect to any offering of
equity securities of a Person or the issuance of any Indebtedness for Borrowed
Money by a Person, cash and cash equivalent proceeds received by or for such
Person’s account, net of reasonable legal, underwriting, and other fees and
expenses incurred as a direct result thereof.

 

“Net Income” means, with reference to any period for any Person, the net income
(or net loss) of such Person for such period computed on a consolidated basis in
accordance with GAAP; provided that there shall be excluded from Net Income (a)
the net income (or net loss) of such Person accrued prior to the date it becomes
a Subsidiary of, or has merged into or consolidated with, Borrower or another
Subsidiary, and (b) the net income (or net loss) of such Person (other than a
Subsidiary) in which Borrower or any of its Subsidiaries has an equity interest
in, except to the extent of the amount of dividends or other distributions
actually paid to Borrower or any of its Subsidiaries during such period.

 

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“Tangible Net Worth” means, for any Person and at any time the same is to be
determined, the difference between total assets (excluding intangibles) and
total liabilities of such Person, total assets (excluding intangibles) and total
liabilities each to be determined in accordance with GAAP.

 

“Note” and “Notes” each is defined in Section 2.10(c).

 

“Obligations” means all obligations of Borrower to pay principal and interest on
the Loans, all Reimbursement Obligations owing under the Applications, all fees
and charges payable hereunder, and all other payment obligations of Borrower or
any of its Subsidiaries arising under or in relation to any Loan Document, in
each case whether now existing or hereafter arising, due or to become due,
direct or indirect, absolute or contingent, and howsoever evidenced, held or
acquired; provided, that the Obligations shall not include Excluded Swap
Obligations.

 

“OFAC” means the United States Department of Treasury Office of Foreign Assets
Control.

 

“OFAC Event” means the event specified in Section 6.9.

 

“OFAC Sanctions Programs” means all laws, regulations, and Executive Orders
administered by OFAC, including the Bank Secrecy Act, anti-money laundering laws
(including the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. 107-56 (a/k/a
the USA Patriot Act)), and all economic and trade sanction programs administered
by OFAC, any and all similar United States federal laws, regulations or
Executive Orders, and any similar laws, regulators or orders adopted by any
State within the United States.

 

“OFAC SDN List” means the list of the Specially Designated Nationals and Blocked
Persons maintained by OFAC.

 

“PBGC” means the Pension Benefit Guaranty Corporation or any Person succeeding
to any or all of its functions under ERISA.

 

“Perfection Certificate” means that certain Perfection Certificate, dated April
22, 2016, delivered by Borrower in favor of Bank of Montreal, as assigned to
Bank pursuant to, and amended by, the Assignment of and Amendment to Perfection
Certificate, dated as of the date hereof, among Borrower, Bank and Bank of
Montreal, and as the same may hereafter be amended, modified, supplemented or
restated from time to time.

 

“Person” means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization or any other entity or
organization, including a government or agency or political subdivision thereof.

 

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“Plan” means any employee pension benefit plan covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Code that
either (a) is maintained by a member of the Controlled Group for employees of a
member of the Controlled Group or (b) is maintained pursuant to a collective
bargaining agreement or any other arrangement under which more than one employer
makes contributions and to which a member of the Controlled Group is then making
or accruing an obligation to make contributions or has within the preceding five
plan years made contributions.

 

“Pledge Agreement” means that certain Pledge Agreement, dated April 22, 2016,
among Borrower, Guarantors and Bank of Montreal, as assigned to Bank pursuant
to, and amended by, the Assignment of and Amendment to Pledge Agreement, dated
as of the date hereof, among Borrower, Bank and Bank of Montreal, and as the
same may hereafter be amended, modified, supplemented or restated from time to
time.

 

“Property” means, as to any Person, all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent balance sheet of such Person and its subsidiaries under GAAP.

 

“Purchase Documents” means, collectively, that certain Share Purchase Agreement
dated as of June 12, 2018, by and among Purchaser and Seller (the “Purchase
Agreement”), together with all of the agreements, documents and material closing
certificates executed and delivered in connection therewith.

 

“RCRA” means the Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act of 1976 and Hazardous and Solid Waste Amendments
of 1984, 42 U.S.C. §§ 6901 et seq., and any future amendments.

 

“Receivables” means all rights to the payment of a monetary obligation, now or
hereafter owing to Borrower, evidenced by accounts, instruments, chattel paper,
or general intangibles.

 

“Reimbursement Obligation” means the obligation of Borrower to reimburse Bank
for all drawings under a Letter of Credit.

 

“Release” means any spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, migration, dumping, or disposing
into the indoor or outdoor environment, including the abandonment or discarding
of barrels, drums, containers, tanks or other receptacles containing or
previously containing any Hazardous Material.

 

“Revolving Credit Commitment” means the obligation of Bank to make Revolving
Loans and to issue Letters of Credit hereunder in an aggregate principal or face
amount at any one time outstanding not to exceed $50,000,000 (inclusive of the
Euro Sublimit and L/C Sublimit).

 

“Revolving Credit Termination Date” means June 30, 2023, or such earlier date on
which the Revolving Credit Commitment is terminated in whole pursuant to Section
2.13, 8.2 or 8.3.

 

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“Revolving Loan” is defined in Section 2.2 and, as so defined, includes LIBOR
Loan or a Eurodollar Loan, each of which is a “type” of Revolving Loan
hereunder.

 

“Revolving Note” is defined in Section 2.10(c).

 

“S&P” means Standard & Poor’s Ratings Services Group, a division of The McGraw
Hill Companies, Inc.

 

“Security Agreement” means that certain Security Agreement, dated April 22,
2016, between Borrower and Bank of Montreal, as assigned to Bank pursuant to,
and amended by, the Assignment of and Amendment to Security Agreement, dated as
of the date hereof, among Borrower, Bank and Bank of Montreal, and as the same
may hereafter be amended, modified, supplemented or restated from time to time.

 

“Subordinated Debt” means Indebtedness for Borrowed Money which is subordinated
in right of payment to the prior payment of the Obligations pursuant to
subordination provisions approved in writing by Bank and is otherwise pursuant
to documentation that is, which is in an amount that is, and which contains
interest rates, payment terms, maturities, amortization schedules, covenants,
defaults, remedies and other material terms that are, in each case, in form and
substance satisfactory to Bank.

 

“Subsidiary” means, as to any particular parent corporation or organization, any
other corporation or organization more than 50% of the outstanding Voting Stock
of which is at the time directly or indirectly owned by such parent corporation
or organization or by any one or more other entities which are themselves
subsidiaries of such parent corporation or organization. Unless otherwise
expressly noted herein, the term “Subsidiary” means a Subsidiary of Borrower or
of any of its direct or indirect Subsidiaries.

 

“Swap Obligation” means, with respect to Borrower, any obligation to pay or
perform under any agreement, contract or transaction that constitutes a “swap”
within the meaning of Section 1a(47) of the Commodity Exchange Act.

 

“Sweep to Loan Arrangement” means a cash management arrangement established by
Borrower with Bank, as depositary, pursuant to which Bank is authorized (a) to
make advances of Revolving Loans hereunder, the proceeds of which are deposited
by Bank into a designated account of Borrower maintained at the Bank, and (b) to
accept as prepayments of Revolving Loans hereunder proceeds of excess targeted
balances held in such designated account at the Bank, which cash management
arrangement is subject to such agreement(s) and on such terms acceptable to
Bank.

 

“Term Loan” is defined in Section 2.1(a) and, as so defined, includes LIBOR Loan
or a Eurodollar Loan, each of which is a “type” of Term Loan hereunder.

 

“Term Loan Commitment” means the obligation of Bank to make the Term Loan on the
Funding Date in the principal amount not to exceed $35,000,000.

 

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“Term Loan Termination Date” means the first to occur of (i) the date that is 18
months after the Funding Date, (ii) February 28, 2020, or (iii) such earlier
date on which the Term Loan Commitment is terminated in whole pursuant to
Section 8.2 or 8.3.

 

“Term Note” is defined in Section 2.10(c).

 

“Total Funded Debt” means, at any time the same is to be determined for any
Person, the sum (but without duplication) of (a) all Indebtedness for Borrowed
Money of such Person at such time, and (b) all Indebtedness for Borrowed Money
of any other Person which is directly or indirectly guaranteed by such Person or
which such Person has agreed (contingently or otherwise) to purchase or
otherwise acquire or in respect of which such Person has otherwise assured a
creditor against loss.

 

“Total Funded Debt/EBITDA Ratio” means, as of any date, the ratio of Total
Funded Debt of Borrower and its Subsidiaries as of such date to EBITDA of
Borrower and its Subsidiaries for the period of four fiscal quarters then ended.

 

“Unfunded Vested Liabilities” means, for any Plan at any time, the amount (if
any) by which the present value of all vested nonforfeitable accrued benefits
under such Plan exceeds the fair market value of all Plan assets allocable to
such benefits, all determined as of the then most recent valuation date for such
Plan, but only to the extent that such excess represents a potential liability
of a member of the Controlled Group to the PBGC or the Plan under Title IV of
ERISA.

 

“Unused Revolving Credit Commitment” means, at any time, the difference between
the Revolving Credit Commitment then in effect and the aggregate outstanding
principal amount of Revolving Loans and L/C Obligations.

 

“U.S. Dollars” and “$” each means the lawful currency of the United States of
America.

 

“Voting Stock” of any Person means capital stock or other equity interests of
any class or classes (however designated) having ordinary power for the election
of directors or other similar governing body of such Person, other than stock or
other equity interests having such power only by reason of the happening of a
contingency.

 

“Welfare Plan” means a “welfare plan” as defined in Section 3(1) of ERISA.

 

“Wholly-owned Subsidiary” means a Subsidiary of which all of the issued and
outstanding shares of capital stock (other than directors’ qualifying shares as
required by law) or other equity interests are owned by Borrower and/or one or
more Wholly-owned Subsidiaries within the meaning of this definition.

 

Section 1.2     Interpretation. The foregoing definitions are equally applicable
to both the singular and plural forms of the terms defined. The words “hereof”,
“herein”, and “hereunder” and words of like import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement. The words “include,” “includes” and “including” shall be deemed
to be followed by the phrase “without limitation.” All references to time of day
herein are references to Milwaukee, Wisconsin, time unless otherwise
specifically provided. Where the character or amount of any asset or liability
or item of income or expense is required to be determined or any consolidation
or other accounting computation is required to be made for the purposes of this
Agreement, it shall be done in accordance with GAAP except where such principles
are inconsistent with the specific provisions of this Agreement.

 

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Section 1.3     Change in Accounting Principles. If, after the date of this
Agreement, there shall occur any change in GAAP from those used in the
preparation of the financial statements referred to in Section 5.5 and such
change shall result in a change in the method of calculation of any financial
covenant, standard or term found in this Agreement, either the Borrower or the
Bank may by notice to the other require that the Borrower and the Bank negotiate
in good faith to amend such covenants, standards, and terms so as equitably to
reflect such change in accounting principles, with the desired result being that
the criteria for evaluating the financial condition of the Borrower and its
Subsidiaries shall be the same as if such change had not been made. No delay by
the Borrower or the Bank in requiring such negotiation shall limit their right
to so require such a negotiation at any time after such a change in accounting
principles. Until any such covenant, standard, or term is amended in accordance
with this Section 1.3, financial covenants shall be computed and determined in
accordance with GAAP in effect prior to such change in accounting principles.
Without limiting the generality of the foregoing, the Borrower shall neither be
deemed to be in compliance with any financial covenant hereunder nor out of
compliance with any financial covenant hereunder if such state of compliance or
noncompliance, as the case may be, would not exist but for the occurrence of a
change in accounting principles after the date hereof.

 

SECTION 2. The Credit Facilities.

 

Section 2.1     Term Loan Commitment. Subject to the terms and conditions
hereof, Bank agrees to make a loan (the “Term Loan”) in U.S. Dollars to Borrower
in the amount of the Term Loan Commitment. The Term Loan shall be advanced in a
single Borrowing within sixty (60) days after the Closing Date, at which time
the Term Loan Commitment shall expire. As provided in Section 2.6, Borrower may
elect that the Term Loan be outstanding LIBOR Loans or Eurodollar Loans. No
amount repaid or prepaid on the Term Loan may be borrowed again.

 

Section 2.2     Revolving Credit Commitment; Euro Sublimit. Subject to the terms
and conditions hereof, Bank agrees to make a loan or loans (individually a
“Revolving Loan” and collectively the “Revolving Loans”) in U.S. Dollars and
Euros to Borrower from time to time on a revolving basis up to the amount of the
Revolving Credit Commitment, subject to any reductions thereof pursuant to the
terms hereof, before the Revolving Credit Termination Date. The Dollar
Equivalent of the sum of the aggregate principal amount of Revolving Loans and
L/C Obligations at any time outstanding shall not exceed the lesser of (i) the
Revolving Credit Commitment in effect at such time and (ii) the Borrowing Base
as then determined and computed. In addition to the foregoing, the Dollar
Equivalent of the sum of the aggregate principal amount of Revolving Loans
borrowed in Euros at any time outstanding shall not exceed the Euro Sublimit.
Bank shall determine the Dollar Equivalent of any Borrowing denominated in Euros
as of each date a Borrowing is requested by Borrower using the Exchange Rate for
Euros in relation to U.S. Dollars that is in effect on the date of
determination. As provided in Section 2.6, Borrower may elect that each
Borrowing of Revolving Loans be either LIBOR Loans or Eurodollar Loans; provided
that any Borrowing of Revolving Loans in Euros shall be Eurodollar Loans.
Revolving Loans may be repaid and the principal amount thereof reborrowed before
the Revolving Credit Termination Date, subject to the terms and conditions
hereof.

 

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Section 2.3     Letters of Credit.

 

(a)     General Terms. Subject to the terms and conditions hereof, as part of
the Revolving Credit Commitment, Bank shall issue standby and commercial letters
of credit (each a “Letter of Credit”) for the account of Borrower in an
aggregate undrawn face amount up to the L/C Sublimit. Each Letter of Credit
shall constitute usage of the Revolving Credit Commitment. For purposes of this
Agreement, a Letter of Credit shall be deemed outstanding as of any time in an
amount equal to the maximum amount which could be drawn thereunder under any
circumstances and over any period of time plus any unreimbursed drawings then
outstanding with respect thereto. If and to the extent any Letter of Credit
expires or otherwise terminates without having been drawn upon, the availability
under the Revolving Credit Commitment shall to such extent be reinstated. Each
Letter of Credit issued hereunder shall expire not later than the earlier of
(i) 12 months from the date of issuance (or be cancelable not later than 12
months from the date of issuance and each renewal) and (ii) the Revolving Credit
Termination Date. Each Letter of Credit issued hereunder shall be payable in
U.S. Dollars, conform to the general requirements of Bank for the issuance of a
standby or commercial letter of credit, as the case may be, as to form and
substance, and be a letter of credit which Bank may lawfully issue.

 

(b)     Applications. At the time Borrower requests a Letter of Credit to be
issued (or prior to the first issuance of a Letter of Credit in the case of a
continuing application), Borrower shall execute and deliver to Bank an
application for such Letter of Credit in the form then customarily prescribed by
Bank (individually an “Application” and collectively the “Applications”).
Subject to the other provisions of this Section, the obligation of Borrower to
reimburse Bank for drawings under a Letter of Credit shall be governed by the
Application for such Letter of Credit. Notwithstanding anything contained in any
Application to the contrary: (i) Borrower shall pay fees in connection with each
Letter of Credit as set forth in Section 2.11, (ii) except as otherwise provided
in Section 2.8, unless an Event of Default exists, Bank will not call for the
funding by Borrower of any amount under a Letter of Credit before being
presented with a drawing thereunder, and (iii) if Bank is not timely reimbursed
for the amount of any drawing under a Letter of Credit on the date such drawing
is paid, Borrower’s obligation to reimburse Bank for the amount of such drawing
shall bear interest (which Borrower hereby promises to pay) from and after the
date such drawing is paid at a rate per annum equal to the sum of the Applicable
Margin plus the Base Rate from time to time in effect (computed on the basis of
a year of 365 or 366 days, as the case may be, and the actual number of days
elapsed).

 

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(c)     Obligations Absolute. Borrower’s obligation to reimburse L/C Obligations
as provided in subsection (b) of this Section shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and the relevant Application under any and all circumstances
whatsoever and irrespective of (i) any lack of validity or enforceability of any
Letter of Credit or this Agreement, or any term or provision therein, (ii) any
draft or other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by Bank under a Letter of Credit
against presentation of a draft or other document that does not strictly comply
with the terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of, or
provide a right of setoff against, Borrower’s obligations hereunder. Bank shall
have no liability or responsibility by reason of or in connection with the
issuance or transfer of any Letter of Credit or any payment or failure to make
any payment thereunder (irrespective of any of the circumstances referred to in
the preceding sentence), or any error, omission, interruption, loss or delay in
transmission or delivery of any draft, notice or other communication under or
relating to any Letter of Credit (including any document required to make a
drawing thereunder), any error in interpretation of technical terms or any
consequence arising from causes beyond the control of Bank; provided that the
foregoing shall not be construed to excuse Bank from liability to Borrower to
the extent of any direct damages (as opposed to consequential damages, claims in
respect of which are hereby waived by Borrower to the extent permitted by
applicable law) suffered by Borrower that are caused by Bank’s fraud, willful
misconduct, recklessness or failure to exercise care when determining whether
drafts and other documents presented under a Letter of Credit comply with the
terms thereof. The parties hereto expressly agree that, in the absence of bad
faith, reckless disregard or willful misconduct on the part of Bank (as finally
determined by a court of competent jurisdiction), Bank shall be deemed to have
exercised care in each such determination. In furtherance of the foregoing and
without limiting the generality thereof, the parties agree that, with respect to
documents presented which appear on their face to be in substantial compliance
with the terms of a Letter of Credit, Bank may, in its sole discretion, either
accept and make payment upon such documents without responsibility for further
investigation, regardless of any notice or information to the contrary, or
refuse to accept and make payment upon such documents if such documents are not
in strict compliance with the terms of such Letter of Credit.

 

(d)     Manner of Requesting a Letter of Credit. Borrower shall provide at least
five (5) Business Days’ advance written notice to Bank of each request for the
issuance of a Letter of Credit, such notice in each case to be accompanied by an
Application for such Letter of Credit properly completed and executed by
Borrower and, in the case of an extension or amendment or an increase in the
amount of a Letter of Credit, a written request therefor, in a form acceptable
to Bank, in each case, together with the fees called for by this Agreement.    

 

Section 2.4     Applicable Interest Rates.

 

(a)     LIBOR Loans. Each LIBOR Loan shall bear interest (computed on the basis
of a year of 360 days and the actual days elapsed) on the unpaid principal
amount thereof from the date such Loan is advanced, or created by conversion
from a Eurodollar Loan, until maturity (whether by acceleration or otherwise) at
a rate per annum equal to the sum of the Applicable Margin plus the Monthly
Reset LIBOR Rate from time to time in effect, payable by Borrower on each
Interest Payment Date and at maturity (whether by acceleration or otherwise).

 

(b)     Eurodollar Loans. Each Eurodollar Loan shall bear interest during each
Interest Period it is outstanding (computed on the basis of a year of 360 days
and actual days elapsed) on the unpaid principal amount thereof from the date
such Loan is advanced or continued, or created by conversion from a LIBOR Loan,
until maturity (whether by acceleration or otherwise) at a rate per annum equal
to the sum of the Applicable Margin plus the Adjusted LIBOR applicable for such
Interest Period, payable by Borrower on each Interest Payment Date and at
maturity (whether by acceleration or otherwise).

 

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(c)     Reserved.

 

(d)     Rate Determinations. Bank shall determine each interest rate applicable
to the Loans and the Reimbursement Obligations hereunder, and its determination
thereof shall be conclusive and binding except in the case of manifest error.

 

Section 2.5     Minimum Borrowing Amounts; Maximum Eurodollar Loans. Each
Borrowing of Eurodollar Loans or LIBOR Loans advanced, continued or converted
shall be in an amount equal to the Dollar Equivalent of $1,000,000 or such
greater amount which is an integral multiple of $100,000. Without Bank’s
consent, there shall not be more than ten (10) Borrowings, in the aggregate, of
Eurodollar Loans and LIBOR Loans outstanding hereunder at any one time.

 

Section 2.6     Manner of Borrowing Loans and Designating Applicable Interest
Rates. (a)     Notice to Bank. Borrower shall give notice to Bank by no later
than 1:00 p.m.: (i) at least three (3) Business Days before the date on which
Borrower requests Bank to advance a Borrowing of Eurodollar Loans, and (ii) on
the date Borrower requests Bank to advance a Borrowing of LIBOR Loans. The Loans
included in each Borrowing shall bear interest initially at the type of rate
specified in such notice of a new Borrowing. Thereafter, subject to the terms
and conditions hereof, Borrower may from time to time elect to change or
continue the type of interest rate borne by each Borrowing or, subject to the
minimum amount requirement for each outstanding Borrowing set forth in Section
2.5, a portion thereof, as follows: (i) if such Borrowing is of Eurodollar
Loans, on the last day of the Interest Period applicable thereto, Borrower may
continue part or all of such Borrowing as Eurodollar Loans or convert part or
all of such Borrowing into LIBOR Loans, or (ii) if such Borrowing is of LIBOR
Loans, on any Business Day, Borrower may convert all or part of such Borrowing
into Eurodollar Loans for an Interest Period or Interest Periods specified by
Borrower. Borrower shall give all such notices requesting the advance,
continuation or conversion of a Borrowing to Bank by telephone, telecopy, or
other telecommunication device acceptable to Bank (which notice shall be
irrevocable once given and, if by telephone, shall be promptly confirmed in
writing), in a form acceptable to Bank. Notice of the continuation of a
Borrowing of Eurodollar Loans for an additional Interest Period or of the
conversion of part or all of a Borrowing into Eurodollar Loans must be given by
no later than 1:00 p.m. at least three (3) Business Days before the date of the
requested continuation or conversion. All such notices concerning the advance,
continuation or conversion of a Borrowing shall specify the date of the
requested advance, continuation or conversion of a Borrowing (which shall be a
Business Day), the amount of the requested Borrowing to be advanced, continued
or converted, the type of Loans to comprise such new, continued or converted
Borrowing and, if such Borrowing is to be comprised of Eurodollar Loans, the
Interest Period applicable thereto. No Borrowing of Eurodollar Loans shall be
advanced, continued, or created by conversion if any Default or Event of Default
then exists. Borrower agrees that Bank may rely on any such telephonic, telecopy
or other telecommunication notice given by any person Bank in good faith
believes is an Authorized Representative without the necessity of independent
investigation, and in the event any such notice by telephone conflicts with any
written confirmation such telephonic notice shall govern if Bank has acted in
reliance thereon.

 

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(b)     Borrower’s Failure to Notify. If Borrower fails to give notice pursuant
to Section 2.6(a) above of the continuation or conversion of any outstanding
principal amount of a Borrowing of Eurodollar Loans before the last day of its
then current Interest Period within the period required by Section 2.6(a) and
such Borrowing is not prepaid in accordance with Section 2.8(a), such Borrowing
shall automatically be converted into a Borrowing of LIBOR Loans. In the event
Borrower fails to give notice pursuant to Section 2.6(a) above of a Borrowing
equal to the amount of a Reimbursement Obligation and has not notified Bank by
12:00 noon on the day such Reimbursement Obligation becomes due that it intends
to repay such Reimbursement Obligation through funds not borrowed under this
Agreement, Borrower shall be deemed to have requested a Borrowing of LIBOR Loans
under the Revolving Credit Commitment on such day in the amount of the
Reimbursement Obligation then due, which Borrowing shall be applied to pay the
Reimbursement Obligation then due.

 

Section 2.7     Maturity of Loans.

 

(a)     Scheduled Payments of Term Loans. Borrower shall make principal payments
on the Term Loan in two (2) installments as follows: (i) on or before March 31,
2019, any principal amount in excess of $25,000,000 as of such date, and (ii) on
or before the Term Loan Termination Date, subject to Section 2.8(b), a final
payment comprised of all principal and interest then outstanding on the Term
Loan.

 

(b)     Revolving Loans. Each Revolving Loan, both for principal and interest
then outstanding, shall mature and be due and payable by Borrower on the
Revolving Credit Termination Date.    

 

Section 2.8     Prepayments.

 

(a)     Optional Prepayments. Borrower may prepay the Loans in whole or in part
(but, if in part, then: (i) if such Borrowing is of Eurodollar Loans or LIBOR
Loans, in an amount not less than $1,000,000, and (ii) in each case, in an
amount such that the minimum amount required for a Borrowing pursuant to Section
2.5 remains outstanding) any Borrowing of Eurodollar Loans at any time upon
three (3) Business Days prior notice by Borrower to Bank, and any Borrowing of
LIBOR Loans at any time upon notice delivered by Borrower to Bank no later than
10:00 a.m. on the date of prepayment (or, in any case, such shorter period of
time then agreed to by Bank), such prepayment, in each case, to be made by the
payment of the principal amount to be prepaid and, in the case of any Term Loans
or Eurodollar Loans, accrued interest thereon to the date fixed for prepayment
plus any amounts due Bank under Section 3.3; provided, that if there exists a
Swap Obligation, Borrower shall have terminated such Swap Obligation with
respect to the principal amount prepaid and shall have paid all swap breakage
and other costs for which it is responsible under any agreement related to such
Swap Obligation on account of such termination.

 

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(b)     Mandatory Prepayments.

 

(i)     If Borrower or any Subsidiary shall at any time or from time to time
make or agree to make a Disposition or shall suffer an Event of Loss with
respect to any Property, then Borrower shall promptly notify Bank of such
proposed Disposition or Event of Loss (including the amount of the estimated Net
Cash Proceeds to be received by Borrower or such Subsidiary in respect thereof)
and, promptly upon receipt by Borrower or such Subsidiary of the Net Cash
Proceeds of such Disposition or Event of Loss, Borrower shall prepay the
Obligations in an aggregate amount equal to 100% of the amount of all such Net
Cash Proceeds; provided that (x) so long as no Default or Event of Default then
exists, this subsection shall not require any such prepayment with respect to
Net Cash Proceeds received on account of an Event of Loss so long as such Net
Cash Proceeds are applied to replace or restore the relevant Property in
accordance with the relevant Collateral Documents, (y) this subsection shall not
require any such prepayment with respect to Net Cash Proceeds received on
account of Dispositions during any fiscal year of Borrower not exceeding
$250,000 in the aggregate so long as no Default or Event of Default then exists,
and (z) in the case of any Disposition not covered by clause (y) above, so long
as no Default or Event of Default then exists, if Borrower states in its notice
of such event that Borrower or the relevant Subsidiary intends to reinvest,
within 90 days of the applicable Disposition, the Net Cash Proceeds thereof in
assets similar to the assets which were subject to such Disposition, then
Borrower shall not be required to make a mandatory prepayment under this
subsection in respect of such Net Cash Proceeds to the extent such Net Cash
Proceeds are actually reinvested in such similar assets with such 90 day period.
Promptly after the end of such 90 day period, Borrower shall notify Bank whether
Borrower or such Subsidiary has reinvested such Net Cash Proceeds in such
similar assets, and, to the extent such Net Cash Proceeds have not been so
reinvested, Borrower shall promptly prepay the Obligations in the amount of such
Net Cash Proceeds not so reinvested. The amount of each such prepayment shall be
applied first to the outstanding Term Loans until paid in full and then to the
Revolving Loans; provided that proceeds relating to Eligible Inventory and
Eligible Receivables then included in the Borrowing Base shall first be applied
to the Revolving Loans. If Bank so requests, all proceeds of such Disposition or
Event of Loss shall be deposited with Bank (or its agent) and held by it in the
Collateral Account to be disbursed to or at Borrower’s direction for application
to or reimbursement for the costs of replacing, rebuilding or restoring such
Property.

 

(ii)     If after the Closing Date Borrower or any Subsidiary shall issue new
equity securities (whether common or preferred stock or otherwise), other than
equity securities issued in connection with the exercise of employee stock
options, Borrower shall promptly notify Bank of the estimated Net Cash Proceeds
of such issuance to be received by or for the account of Borrower or such
Subsidiary in respect thereof. Promptly upon receipt by Borrower or such
Subsidiary of Net Cash Proceeds of such issuance, Borrower shall prepay the
Obligations in an aggregate amount equal to 100% of the amount of such Net Cash
Proceeds. The amount of each such prepayment shall be applied first to the
outstanding Term Loans until paid in full and then to the Revolving Loans.
Borrower acknowledges that its performance hereunder shall not limit the rights
and remedies of Bank for any breach of Section 7.5 (Maintenance of Subsidiaries)
or Section 8.1(i) (Change of Control) hereof or any other terms of the Loan
Documents.

 

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(iii)     If after the Closing Date Borrower or any Subsidiary shall issue any
Indebtedness for Borrowed Money, other than Indebtedness for Borrowed Money
expressly permitted by Section 7.1, Borrower shall promptly notify Bank of the
estimated Net Cash Proceeds of such issuance to be received by or for the
account of Borrower or such Subsidiary in respect thereof. Promptly upon receipt
by Borrower or such Subsidiary of Net Cash Proceeds of such issuance, Borrower
shall prepay the Obligations in an aggregate amount equal to 100% of the amount
of such Net Cash Proceeds. The amount of each such prepayment shall be applied
first to the outstanding Term Loans until paid in full and then to the Revolving
Loans. Borrower acknowledges that its performance hereunder shall not limit the
rights and remedies of Bank for any breach of Section 7.1 or any other terms of
the Loan Documents.

 

(iv)     If after the Closing Date Borrower or any Subsidiary shall issue any
Subordinated Debt, Borrower shall promptly notify Bank of the estimated Net Cash
Proceeds of such issuance to be received by or for the account of Borrower or
such Subsidiary in respect thereof. Promptly upon receipt by Borrower or such
Subsidiary of Net Cash Proceeds of such issuance, Borrower shall prepay the
Obligations in an aggregate amount equal to 100% of the amount of such Net Cash
Proceeds. The amount of each such prepayment shall be applied first to the
outstanding Term Loans until paid in full and then to the Revolving Loans.
Borrower acknowledges that its performance hereunder shall not limit the rights
and remedies of Bank for any breach of Section 7.1 or any other terms of the
Loan Documents.

 

(v)     Borrower shall, on each date the Revolving Credit Commitment is reduced
pursuant to Section 2.13, prepay the Revolving Loans and, if necessary, Cash
Collateralize the L/C Obligations by the amount, if any, necessary to reduce the
sum of the aggregate principal amount of Revolving Loans and L/C Obligations
then outstanding to the amount to which the Revolving Credit Commitment has been
so reduced.

 

(vi)     If at any time the sum of the unpaid principal balance of the Revolving
Loans and the L/C Obligations then outstanding shall be in excess of the
Borrowing Base as then determined and computed, Borrower shall immediately and
without notice or demand pay over the amount of the excess to Bank as and for a
mandatory prepayment on such Obligations, with each such prepayment first to be
applied to the Revolving Loans until paid in full with any remaining balance to
be applied to Cash Collateralize the L/C Obligations.

 

(vii)     If at any time the Dollar Equivalent of the sum of the aggregate
principal amount of the total Revolving Loans in Euros exceeds the Euro
Sublimit, Borrower shall immediately and without notice or demand pay over the
amount of the excess to Bank as and for a mandatory prepayment on such
Obligations, with each such prepayment to be applied to the Revolving Loans
until paid in full.

 

(viii)     Unless Borrower otherwise directs, prepayments of Loans under this
Section 2.8(b) shall be applied first to Borrowings of LIBOR Loans until payment
in full thereof with any balance applied to Borrowings of Eurodollar Loans in
the order in which their Interest Periods expire. Each prepayment of Loans under
this Section 2.8(b) shall be made by the payment of the principal amount to be
prepaid and, in the case of any Term Loans or Eurodollar Loans, accrued interest
thereon to the date of prepayment together with any amounts due Bank under
Section 3.3.

 

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(c)     Any amount of Revolving Loans paid or prepaid before the Revolving
Credit Termination Date may, subject to the terms and conditions of this
Agreement, be borrowed, repaid and borrowed again. No amount of the Term Loans
paid or prepaid may be reborrowed, and, in the case of any partial prepayment,
such prepayment shall be applied to the remaining amortization payments on the
relevant Loans in the inverse order of maturity.

 

Section 2.9     Default Rate. Notwithstanding anything to the contrary contained
herein, if any Loan or any part thereof is not paid when due (whether by lapse
of time, acceleration, or otherwise), or at the election of Bank upon notice to
Borrower during the existence of any other Event of Default, Borrower shall pay
interest (after as well as before entry of judgment thereon to the extent
permitted by law) on the principal amount of all Loans and Reimbursement
Obligations, and letter of credit fees at a rate per annum equal to:

 

(a)     for any LIBOR Loan, the sum of 2.0% plus the Applicable Margin plus the
Monthly Reset LIBOR Rate from time to time in effect;

 

(b)     for any Eurodollar Loan, the sum of 2.0% plus the rate of interest in
effect thereon at the time of such default until the end of the Interest Period
applicable thereto and, thereafter, at a rate per annum equal to the sum of 2.0%
plus the Applicable Margin for LIBOR Loans plus the Monthly Reset LIBOR Rate
from time to time in effect;

 

(c)     for any Reimbursement Obligation, the sum of 2.0% plus the amounts due
under Section 2.3 with respect to such Reimbursement Obligation; and

 

(d)     for any Letter of Credit, the sum of 2.0% plus the letter of credit fee
due under Section 2.11 with respect to such Letter of Credit.

 

Section 2.10     Evidence of Indebtedness.     Bank shall maintain in accordance
with its usual practice an account or accounts evidencing the indebtedness of
Borrower hereunder, including the amounts of principal and interest payable and
paid to Bank from time to time hereunder.

 

(b)     The entries maintained in the account(s) maintained pursuant to
paragraph (a) above shall be prima facie evidence of the existence and amounts
of the Obligations therein recorded; provided, that the failure of Bank to
maintain such account(s) or any error therein shall not in any manner affect the
obligation of Borrower to repay the Obligations in accordance with their terms.

 

(c)     Bank may request that the Loans be evidenced by a promissory note or
notes in the forms of Exhibit A-1 (in the case of its Term Loan and referred to
herein as a “Term Note”), or Exhibit A-2 (in the case of its Revolving Loans and
referred to herein as a “Revolving Note”), as applicable (the Term Notes and
Revolving Notes being hereinafter referred to collectively as the “Notes” and
individually as a “Note”). In such event, Borrower shall execute and deliver to
Bank a Note payable to Bank or its registered assigns in the amount of the
relevant Term Loan or Revolving Credit Commitment, as applicable.

 

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Section 2.11     Fees. Revolving Credit Commitment Fee. Borrower shall pay to
Bank a commitment fee at the rate per annum equal to the Applicable Margin
(computed on the basis of a year of 365 or 366 days, as the case may be, and the
actual number of days elapsed) on the average daily Unused Revolving Credit
Commitment. Such commitment fee shall be payable quarterly in arrears on the
last day of each March, June, September, and December in each year (commencing
on the first such date occurring after the date hereof) and on the Revolving
Credit Termination Date, unless the Revolving Credit Commitment is terminated in
whole on an earlier date, in which event the commitment fee for the period to
the date of such termination in whole shall be paid on the date of such
termination.

 

(b)     Reserved.

 

(c)     Letter of Credit Fees. On the last day of each March, June, September,
and December in each year (commencing on the first such date occurring after the
date hereof) to and including, and on, the Revolving Credit Termination Date,
Borrower shall pay to Bank a letter of credit fee at the Applicable Margin for
Revolving Loans that are Eurodollar Loans on the daily average face amount of
Letters of Credit outstanding during the preceding calendar quarter. In addition
to such letter of credit fee, Borrower further agrees to pay to Bank issuance
fees, for each issuance, equal to 0.125% per annum of the face amount of such
Letter of Credit, and such processing, transaction and other fees and charges as
Bank from time to time customarily imposes in connection with any issuance,
amendment, cancellation, negotiation, and/or payment of letters of credit and
drafts drawn thereunder.

 

(d)     Closing Fee. Borrower shall pay to Bank on the date hereof a
non-refundable closing fee in the amount of $175,000.

 

(e)     Audit Fees. Borrower shall pay to Bank charges for audits of the
Collateral performed by Bank or its agents or representatives in such amounts as
Bank may from time to time request (Bank acknowledging and agreeing that such
charges shall be computed in the same manner as it at the time customarily uses
for the assessment of charges for similar collateral audits); provided, that in
the absence of any Default and Event of Default, Borrower shall not be required
to pay Bank for more than one (1) such audit per calendar year.

 

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Section 2.12     Place and Application of Payments. All payments of principal,
interest, fees, and all other Obligations payable under the Loan Documents shall
be made to Bank at its office at 777 North Water Street, Milwaukee, Wisconsin
(or at such other place as Bank may specify) no later than 1:00 p.m. on the date
any such payment is due and payable. Payments received by Bank after 1:00 p.m.
shall be deemed received as of the opening of business on the next Business Day.
All such payments shall be made in lawful money of the United States of America,
in immediately available funds at the place of payment, without set-off or
counterclaim and without reduction for, and free from, any and all present or
future taxes, levies, imposts, duties, fees, charges, deductions, withholdings,
restrictions, and conditions of any nature imposed by any government or any
political subdivision or taxing authority thereof (but excluding any taxes
imposed on or measured by the net income of Bank). All payments shall be applied
(i) first, towards payment of interest and fees then due hereunder and under the
other Loan Documents, (ii) second, to the payment of principal on the Loans,
unpaid Reimbursement Obligations, together with amounts to be held by Bank as
collateral security for any outstanding L/C Obligations and Hedging Liability
(provided that funds from, and proceeds of Collateral owned by, any Person
directly or indirectly liable for a Swap Obligation and that was not an
“eligible contract participant” as defined in the Commodity Exchange Act at the
time such Swap Obligation was incurred may not be used to satisfy such Swap
Obligation), and (iii) third, to the payment of all other unpaid Obligations and
all other indebtedness, obligations, and liabilities of each Borrower and its
Subsidiaries secured by the Loan Documents (provided that funds from, and
proceeds of Collateral owned by, any Person directly or indirectly liable for a
Swap Obligation and that was not an “eligible contract participant” as defined
in the Commodity Exchange Act at the time such Swap Obligation was incurred may
not be used to satisfy such Swap Obligation) to be allocated pro rata in
accordance with the aggregate unpaid amounts owing to each holder thereof.
Unless Borrower otherwise directs, principal payments shall be applied first to
the relevant Monthly Reset LIBOR Rate portion until payment in full thereof,
with any balance applied to the relevant Eurodollar portion in the order in
which their Interest Periods expire. Borrower hereby irrevocably authorizes Bank
to (a) charge from time to time any of Borrower’s deposit accounts with Bank
and/or (b) make Revolving Loans from time to time hereunder (and any such
Revolving Loan may be made by Bank hereunder without regard to the provisions of
Section 4 hereof), in each case for payment of any Obligation then due and
payable (whether such Obligation is for interest then due on a Loan, a
Reimbursement Obligation or otherwise); provided that Bank shall not be under
any obligation to charge any such deposit account or make any such Revolving
Loan under this Section, and Bank shall incur no liability to Borrower or any
other Person for its failure to do so.

 

Section 2.13     Commitment Terminations.     Optional Revolving Credit
Terminations. Borrower shall have the right at any time and from time to time,
upon five (5) Business Days prior written notice to Bank (or such shorter period
of time agreed to by Bank), to reduce or terminate the Revolving Credit
Commitment without premium or penalty and in whole or in part, any partial
reduction or termination to be in an amount not less than $5,000,000; provided
that the Revolving Credit Commitment may not be reduced to an amount less than
the sum of the aggregate principal amount of Revolving Loans and L/C Obligations
then outstanding. Any reduction or termination of the Revolving Credit
Commitment below the L/C Sublimit then in effect shall reduce the L/C Sublimit
by a like amount.

 

(b)     Mandatory Revolving Credit Termination. If at any time Net Cash Proceeds
or other amounts remain after the prepayment of the Term Loans in full pursuant
to Section 2.8(b)(i), (ii), (iii), or (iv), the Revolving Credit Commitment
shall be reduced by an amount equal to 100% of such excess.

 

(c)     Any termination of the Commitments pursuant to this Section 2.13 may not
be reinstated.

 

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Section 2.14     Sweep to Loan Arrangement. Notwithstanding any provision herein
to the contrary (including, without limitation, the provisions in Sections 2.5
and 2.8 above), so long as a Sweep to Loan Arrangement is in effect, and subject
to the terms and conditions thereof, Revolving Loans may be advanced and prepaid
hereunder notwithstanding any notice, minimum amount, or funding and payment
location requirements hereunder for any advance of Revolving Loans or for any
prepayment of any Revolving Loans. The making of any such Revolving Loans shall
otherwise be subject to the other terms and conditions of this Agreement. All
Revolving Loans advanced or prepaid pursuant to such Sweep to Loan Arrangement
shall be LIBOR Loans. Bank shall have the right in its sole discretion to
suspend or terminate the making and/or prepayment of Revolving Loans pursuant to
such Sweep to Loan Arrangement with notice to Borrower (which may be provided on
a same-day basis), whether or not any Default or Event of Default exists. Bank
shall not be liable to Borrower or any other Person for any losses directly or
indirectly resulting from events beyond Bank’s reasonable control, including any
interruption of communications or data processing services or legal restriction
or for any special, indirect, consequential or punitive damages in connection
with any Sweep to Loan Arrangement.

 

SECTION 3. CHANGE IN CIRCUMSTANCES.

 

Section 3.1     Withholding Taxes. Except as otherwise required by law, each
payment by Borrower under this Agreement or the other Loan Documents shall be
made without withholding for or on account of any present or future taxes (other
than overall net income taxes on the recipient) imposed by or within the
jurisdiction in which Borrower is domiciled, any jurisdiction from which
Borrower makes any payment, or (in each case) any political subdivision or
taxing authority thereof or therein. If any such withholding is so required,
Borrower shall make the withholding, pay the amount withheld to the appropriate
Governmental Authority before penalties attach thereto or interest accrues
thereon, and forthwith pay such additional amount as may be necessary to ensure
that the net amount actually received by Bank free and clear of such taxes
(including such taxes on such additional amount) is equal to the amount that
Bank would have received had such withholding not been made. If Bank pays any
amount in respect of any such taxes, penalties or interest, Borrower shall
reimburse Bank for that payment on demand in the currency in which such payment
was made. If Borrower pays any such taxes, penalties or interest, it shall
deliver official tax receipts evidencing that payment or certified copies
thereof to Bank on or before the thirtieth day after payment.

 

Section 3.2     Documentary Taxes. Borrower agrees to pay on demand any
documentary, stamp or similar taxes payable in respect of this Agreement or any
other Loan Document, including interest and penalties, in the event any such
taxes are assessed, irrespective of when such assessment is made and whether or
not any credit is then in use or available hereunder.

 

Section 3.3     Funding Indemnity. If Bank shall incur any loss, cost or expense
(including any loss, cost or expense incurred by reason of the liquidation or
re-employment of deposits or other funds acquired by Bank to fund or maintain
any Eurodollar Loan, LIBOR Loan or the relending or reinvesting of such deposits
or amounts paid or prepaid to Bank) as a result of:

 

(i)     any payment, prepayment or conversion of a Eurodollar Loan or LIBOR Loan
on a date other than the last day of its Interest Period,

 

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(ii)     any failure (because of a failure to meet the conditions of Section 4
or otherwise) by Borrower to borrow or continue a Eurodollar Loan, or to convert
a Loan into a Eurodollar Loan, on the date specified in a notice given pursuant
to Section 2.6(a),

 

(iii)     any failure by Borrower to make any payment of principal on any
Eurodollar Loan or LIBOR Loan when due (whether by acceleration or otherwise),
or

 

(iv)     any acceleration of the maturity of a Eurodollar Loan or LIBOR Loan as
a result of the occurrence of any Event of Default hereunder,

 

(v)     then, upon the demand of Bank, Borrower shall pay to Bank such amount as
will reimburse Bank for such loss, cost or expense. If Bank makes such a claim
for compensation, it shall provide to Borrower a certificate setting forth the
amount of such loss, cost or expense in reasonable detail and the amounts shown
on such certificate shall be conclusive and binding on Borrower absent manifest
error.

 

Section 3.4     Change of Law. Notwithstanding any other provisions of this
Agreement or any other Loan Document, if at any time any Change in Law or
regulation or in the interpretation thereof makes it unlawful for Bank to make
or continue to maintain any Eurodollar Loans or LIBOR Loans, as applicable, or
to perform its obligations as contemplated hereby, Bank shall promptly give
notice thereof to Borrower and Bank’s obligations to make or maintain such
Eurodollar Loans or LIBOR Loans, as applicable, under this Agreement shall be
suspended until it is no longer unlawful for Bank to make or maintain such
Eurodollar Loans or LIBOR Loans, as applicable. Borrower shall prepay on demand
the outstanding principal amount of any such affected Eurodollar Loans or LIBOR
Loans, as applicable, together with all interest accrued thereon and all other
amounts then due and payable to Bank under this Agreement; provided, subject to
all of the terms and conditions of this Agreement, Borrower may then elect to
borrow the principal amount of the affected Eurodollar Loans or LIBOR Loans, as
applicable, as Loans bearing interest at the Base Rate plus or minus a margin to
be agreed upon by Borrower and Bank which will cause the interest rate to
approximate the interest rate in effect immediately prior to the occurrence of
such event.

 

Section 3.5     Unavailability of Deposits or Inability to Ascertain, or
Inadequacy of, LIBOR. If on or prior to the first day of any Interest Period for
any Borrowing of Eurodollar Loans or LIBOR Loans (as applicable):

 

(a)     Bank determines that deposits in U.S. Dollars (in the applicable
amounts) are not being offered to it in the interbank eurodollar market for such
Interest Period, or that by reason of circumstances affecting the interbank
eurodollar market adequate and reasonable means do not exist for ascertaining
the applicable LIBOR, or

 

(b)     Bank determines that (i) LIBOR or the Monthly Reset LIBOR Rate, as
applicable, as determined hereby will not adequately and fairly reflect the cost
to Bank of funding their Eurodollar Loans or LIBOR Loans, as applicable, for
such Interest Period or (ii) that the making or funding of Eurodollar Loans or
LIBOR Loans, as applicable, become impracticable, then Bank shall forthwith give
notice thereof to Borrower, whereupon until Bank notifies Borrower that the
circumstances giving rise to such suspension no longer exist, the obligations of
Bank to create, continue, or effect by conversion Eurodollar Loans or LIBOR
Loans, as applicable, shall be suspended and the Loans shall thereafter bear
interest at the Base Rate plus or minus a margin to be agreed upon by Borrower
and Bank which will cause the interest rate to approximate the interest rate in
effect immediately prior to the occurrence of such event.

 

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Section 3.6     Increased Cost and Reduced Return.

 

(a)     If, on or after the date hereof, any Change in Law:

 

(i)     shall subject Bank (or its lending branch) to any tax, duty or other
charge with respect to its Eurodollar Loans, LIBOR Loans, its Notes, its
Letter(s) of Credit, any Reimbursement Obligations owed to it or its obligation
to make Eurodollar Loans or LIBOR Loans or issue a Letter of Credit, or shall
change the basis of taxation of payments to Bank (or its lending branch) of the
principal of or interest on its Eurodollar Loans or Letter(s) of Credit, or any
other amounts due under this Agreement or any other Loan Document in respect of
its Eurodollar Loans, LIBOR Loans or Letter(s) of Credit, any Reimbursement
Obligations owed to it, or its obligation to make Eurodollar Loans or LIBOR
Loans or issue a Letter of Credit (except for changes in the rate of tax on the
overall net income of Bank (or its lending branch) imposed by the jurisdiction
in which Bank’s principal executive office or lending branch is located); or

 

(ii)     shall impose, modify or deem applicable any reserve, special deposit or
similar requirement (including any such requirement imposed by the Board of
Governors of the Federal Reserve System, but excluding with respect to any
Eurodollar Loans any such requirement included in an applicable Eurodollar
Reserve Percentage) against assets of, deposits with or for the account of, or
credit extended by, Bank (or its lending branch) or shall impose on Bank (or its
lending branch) or on the interbank market any other condition affecting its
Eurodollar Loans, LIBOR Loans, its Notes, its Letter(s) of Credit, any
Reimbursement Obligation owed to it, or its obligation to make Eurodollar Loans,
LIBOR Loans, or to issue a Letter of Credit;

 

and the result of any of the foregoing is to increase the cost to Bank (or its
lending branch) of making or maintaining any Eurodollar Loan or LIBOR Loan or
issuing or maintaining a Letter of Credit, or to reduce the amount of any sum
received or receivable by Bank (or its lending branch) under this Agreement or
under any other Loan Document with respect thereto, by an amount deemed by Bank
to be material, then, within 15 days after demand by Bank, Borrower shall be
obligated to pay to Bank such additional amount or amounts as will compensate
Bank for such increased cost or reduction.

 

(b)     If, after the date hereof, Bank shall have determined that any Change in
Law has had the effect of reducing the rate of return on Bank’s capital as a
consequence of its obligations hereunder to a level below that which Bank could
have achieved but for such Change in Law (taking into consideration Bank’s
policies with respect to capital adequacy) by an amount deemed by Bank to be
material, then from time to time, within 15 days after demand by Bank, Borrower
shall pay to Bank such additional amount or amounts as will compensate Bank for
such reduction.

 

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(c)     A certificate of Bank claiming compensation under this Section 3.6 and
setting forth the additional amount or amounts to be paid to it hereunder shall
be conclusive absent manifest error. In determining such amount, Bank may use
any reasonable averaging and attribution methods.

 

Section 3.7     Lending Offices. Bank may, at its option, elect to make its
Loans hereunder at the branch, office or affiliate specified on the appropriate
signature page hereof for each type of Loan available hereunder or at such other
of its branches, offices or affiliates as it may from time to time elect. To the
extent reasonably possible, Bank shall designate an alternative branch or
funding office with respect to its Eurodollar Loans to reduce any liability of
Borrower to Bank under Section 3.6 or to avoid the unavailability of Eurodollar
Loans under Section 3.5, so long as such designation is not otherwise
disadvantageous to Bank.

 

Section 3.8     Discretion of Bank as to Manner of Funding. Notwithstanding any
other provision of this Agreement, Bank shall be entitled to fund and maintain
its funding of all or any part of its Loans in any manner it sees fit, it being
understood, however, that for the purposes of this Agreement all determinations
hereunder with respect to Eurodollar Loans shall be made as if Bank had actually
funded and maintained each Eurodollar Loan through the purchase of deposits in
the interbank eurodollar market having a maturity corresponding to such Loan’s
Interest Period, and, in the case of any Eurodollar Loan, bearing an interest
rate equal to LIBOR for such Interest Period.

 

SECTION 4. CONDITIONS PRECEDENT.

 

Section 4.1     Initial Credit Event. The obligation of Bank to participate in
any initial Credit Event hereunder is subject to satisfaction or waiver by Bank
of the following conditions precedent:

 

(a)     Bank shall have received each of the following, in each case (i) duly
executed by all applicable parties, (ii) dated a date satisfactory to Bank and
(iii) in form and substance satisfactory to Bank:

 

(i)     this Agreement duly executed by Borrower and Bank;

 

(ii)     duly executed Notes of Borrower dated the date hereof and otherwise in
compliance with the provisions of Section 2.10;

 

(iii)     the Assignment of and Amendment to Guaranty, the Assignment of and
Amendment to Security Agreement, the Assignment of and Amendment to IP Security
Agreement, the Assignment to and Amendment of Guarantor Security Agreement, the
Assignment of and Amendment to Pledge Agreement, the Assignment of and Amendment
to Perfection Certificate, the Collateral Assignment of Rights under Purchase
Documents, the Assignment of and Amendment to Negative Pledge Agreement, the
Assignment of and Amendment to Agreement as Liens and Encumbrances and each of
the other Collateral Documents required by Bank, together with (i) UCC financing
statements to be filed against Borrower and Guarantor, as debtor, in favor of
Bank, as secured party, (ii) patent, trademark, and copyright collateral
agreements to the extent requested by Bank, and (iii) deposit account,
securities account, and commodity account control agreements to the extent
requested by Bank;

 

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(iv)     copies of Borrower’s and each Guarantor’s articles of incorporation and
bylaws (or comparable organizational documents) and any amendments thereto,
certified in each instance by its Secretary or Assistant Secretary;

 

(v)     copies of resolutions of Borrower’s and each Guarantor’s Board of
Directors (or similar governing body) authorizing the execution, delivery and
performance of this Agreement and the other Loan Documents to which it is a
party and the consummation of the transactions contemplated hereby and thereby,
together with specimen signatures of the persons authorized to execute such
documents on Borrower’s and each Subsidiary’s behalf, all certified in each
instance by its Secretary or Assistant Secretary;

 

(vi)     such documents and certifications as Bank may reasonably require to
evidence that Borrower and each Guarantor is validly existing, in good standing
or active status (as applicable), and qualified to engage in business in its
jurisdiction of organization and in any other jurisdiction in which the nature
of Borrower’s or such Guarantor’s business requires such qualification;

 

(vii)     a list of Borrower’s Authorized Representatives;

 

(viii)     a Borrowing Base Certificate in the form attached hereto as Exhibit B
showing the computation of the Borrowing Base in reasonable detail as of the
close of business on May 25, 2018;

 

(ix)     financing statement, tax, and judgment lien search results against the
Property of Borrower and each Guarantor, evidencing the absence of Liens on its
Property except as permitted by Section 7.2;

 

(x)     pay off and lien release or amendment letters from secured creditors of
Borrower and each Guarantor setting forth, among other things, the total amount
of indebtedness outstanding and owing to them (or outstanding letters of credit
issued for the account of Borrower or any Guarantor) and containing an
undertaking to cause to be delivered to Bank UCC amendment or termination
statements and any other lien amendment or release instruments necessary to
amend or release their Liens on the assets of Borrower and each Guarantor;

 

(xi)     evidence reasonably satisfactory to Bank that all indebtedness to
creditors referenced in the preceding paragraph has been (or concurrently with
the initial Borrowing will be) paid in full, and that all agreements and
instruments governing indebtedness and that all Liens securing such indebtedness
have been (or concurrently with the initial Borrowing will be) terminated or
amended.

 

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(xii)     a favorable written opinion of counsel to Borrower and each Guarantor;

 

(xiii)     evidence satisfactory to Bank that all due diligence with respect to
Borrower, each Guarantor and Target has been completed, including confirmatory
third-party due diligence consisting of a third-party due diligence report,
quality of earnings, a legal and tax review, an industry and technology review,
inventory appraisal, management background checks, an insurance review, and
customer and supplier calls, all conducted by firms acceptable to Bank;

 

(xiv)     five-year projected financial statements for Borrower and a closing
balance sheet for Borrower adjusted to give effect to the Acquisition in form
and substance previously provided to Bank;

 

(xv)     complete, signed copies of the Purchase Documents; and

 

(xvi)     such other agreements, instruments, documents, certificates, and
opinions as Bank may reasonably request.

 

(b)     Bank shall have received the initial fees called for by Section 2.11,
together with all other fees, costs and expenses required to be paid by Borrower
at or before closing;

 

(c)     the capital and organizational structure of Borrower and its
Subsidiaries shall be satisfactory to Bank;

 

(d)     after giving effect to each initial Credit Event, payment of all fees
and expenses in connection therewith, and any payables stretched beyond their
customary payment practices, Availability shall be at least $5,000,000.00; and

 

(e)     after giving effect to each initial Credit Event, (i) Borrower’s EBITDA
for the most recently-ended twelve months (“LTM”) through April 30, 2018 shall
be at least $23,000,000 (inclusive of Target’s verified EBITDA), and (ii) the
Total Funded Debt/EBITDA Ratio is less than 3.00 to 1.00, each calculated based
on LTM EBITDA through April 30, 2018.

 

Section 4.2     All Credit Events. The obligation of Bank to participate in any
Credit Event (including any initial Credit Event) hereunder is subject to the
following conditions precedent:

 

(a)     each of the representations and warranties set forth herein and in the
other Loan Documents shall be and remain true and correct in all respect (or in
all material respect if such representation or warranty is not by its terms
already qualified as to materiality) as of said time, except to the extent the
same expressly relate to an earlier date, in which case such representations and
warranties shall be and remain true and correct in all respect (or in all
material respect if such representation or warranty is not by its terms already
qualified as to materiality) as of such earlier date;

 

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(b)     no Default or Event of Default shall have occurred and be continuing or
would occur as a result of such Credit Event;

 

(c)     in the case of a Borrowing, Bank shall have received the notice required
by Section 2.6; in the case of the issuance of any Letter of Credit, Bank shall
have received a duly completed Application for such Letter of Credit together
with any fees called for by Section 2.11; and, in the case of an extension or
increase in the amount of a Letter of Credit, Bank shall have received a written
request therefor in a form acceptable to Bank together with fees called for by
Section 2.11;

 

(d)     after giving effect to such Credit Event, the sum of the aggregate
principal amount of Revolving Loans and L/C Obligations at any time outstanding
shall not exceed the lesser of (i) the Revolving Credit Commitment in effect at
such time and (ii) the Borrowing Base; and

 

(e)     such Credit Event shall not violate any order, judgment or decree of any
court or other authority or any provision of law or regulation applicable to
Bank (including Regulation U of the Board of Governors of the Federal Reserve
System) as then in effect.

 

Each request for a Borrowing hereunder and each request for the issuance of,
increase in the amount of, or extension of the expiration date of, a Letter of
Credit shall be deemed to be a representation and warranty by Borrower on the
date on such Credit Event as to the facts specified in subsections (a) through
(e) of this Section; provided that Bank may continue to make advances under the
Revolving Credit Commitment, in the sole discretion of Bank, notwithstanding the
failure of Borrower to satisfy one or more of the conditions set forth above and
any such advances so made shall not be deemed a waiver of any Default or Event
of Default or other condition set forth above that may then exist. Subject to
the foregoing, prior to Bank making the Term Loan and additional advances
hereunder for the purpose consummating the acquisition contemplated by the
Purchase Documents, Bank shall have received confirmation from the Notary (as
defined in the Purchase Agreement) or Borrower that all conditions precedent set
forth in the Purchase Agreement have been satisfied by the parties thereto.

 

SECTION 5. REPRESENTATIONS AND WARRANTIES.

 

Borrower represents and warrants to Bank as follows:

 

Section 5.1     Organization and Qualification. Borrower is (a) duly organized,
validly existing, and in active status as a corporation under the laws of the
State of Wisconsin, (b) has full and adequate power to own its Property and
conduct its business as now conducted, and (c) is duly licensed or qualified and
in good standing in each jurisdiction in which the nature of the business
conducted by it or the nature of the Property owned or leased by it requires
such licensing or qualifying, except, with respect to this clause (c), where the
failure to do so could not reasonably be expected to have a Material Adverse
Effect.

 

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Section 5.2     Subsidiaries. Each Subsidiary (a) is duly organized, validly
existing, and in good standing under the laws of the jurisdiction in which it is
organized, (b) has full and adequate power to own its Property and conduct its
business as now conducted, and (c) is duly licensed or qualified and in good
standing in each jurisdiction in which the nature of the business conducted by
it or the nature of the Property owned or leased by it requires such licensing
or qualifying, except, with respect to this clause (c), where the failure to do
so could not reasonably be expected to have a Material Adverse Effect. Schedule
5.2 hereto identifies each Subsidiary, the jurisdiction of its organization, the
percentage of issued and outstanding shares of each class of its capital stock
or other equity interests owned by Borrower and the other Subsidiaries and, if
such percentage is not 100% (excluding directors’ qualifying shares as required
by law), a description of each class of its authorized capital stock and other
equity interests and the number of shares of each class issued and outstanding.
All of the outstanding shares of capital stock and other equity interests of
each Subsidiary are validly issued and outstanding and fully paid and
non-assessable and all such shares and other equity interests indicated on
Schedule 5.2 as owned by Borrower or another Subsidiary are owned, beneficially
and of record, by Borrower or such Subsidiary free and clear of all Liens other
than the Liens granted in favor of Bank pursuant to the Collateral Documents.
There are no outstanding commitments or other obligations of any Subsidiary to
issue, and no options, warrants or other rights of any Person to acquire, any
shares of any class of capital stock or other equity interests of any
Subsidiary.

 

Section 5.3     Authority and Validity of Obligations. Borrower has full right
and authority to enter into this Agreement and the other Loan Documents executed
by it, to make the borrowings herein provided for, to grant to Bank the Liens
described in the Collateral Documents executed by Borrower, and to perform all
of its obligations hereunder and under the other Loan Documents executed by it.
Each Subsidiary has full right and authority to enter into the Loan Documents
executed by it, to guarantee the Obligations or Hedging Liability, to grant to
Bank the Liens described in the Collateral Documents executed by such Person,
and to perform all of its obligations under the Loan Documents executed by it.
The Loan Documents delivered by Borrower and its Subsidiaries have been duly
authorized, executed, and delivered by such Persons and constitute valid and
binding obligations of Borrower and its Subsidiaries enforceable against them in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency, fraudulent conveyance or similar laws affecting
creditors’ rights generally and general principles of equity (regardless of
whether the application of such principles is considered in a proceeding in
equity or at law); and this Agreement and the other Loan Documents do not, nor
does the performance or observance by Borrower or any Subsidiary of any of the
matters and things herein or therein provided for, (a) contravene or constitute
a default under any provision of law or any judgment, injunction, order or
decree binding upon Borrower or any Subsidiary or any provision of the
organizational documents (e.g., charter, certificate or articles of
incorporation and bylaws, certificate or articles of association and operating
agreement, partnership agreement, or other similar organizational documents) of
Borrower or any Subsidiary, (b) conflict with, contravene or constitute a
default under any material indenture or agreement of or affecting Borrower or
any Subsidiary or any of their Property, or (c) result in the creation or
imposition of any Lien on any Property of Borrower or any Subsidiary other than
the Liens granted in favor of Bank pursuant to the Collateral Documents.

 

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Section 5.4     Margin Stock. Neither Borrower nor any Subsidiary is engaged,
principally or as one of its important activities, in the business of purchasing
or carrying margin stock or in the business of extending credit for the purpose
of purchasing or carrying margin stock (within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System), and no part of the
proceeds of any Loan or any other extension of credit made hereunder will be
used to purchase or carry any such margin stock or to extend credit to others
for the purpose of purchasing or carrying any such margin stock. Margin stock
(as hereinabove defined) constitutes less than 25% of the assets of Borrower and
its Subsidiaries which are subject to any limitation on sale, pledge or other
restriction hereunder.

 

Section 5.5     Financial Reports.   The consolidated balance sheet of Borrower
and its Subsidiaries as of June 30, 2017, and the related consolidated
statements of income, retained earnings and cash flows of Borrower and its
Subsidiaries for the fiscal year then ended, and accompanying notes thereto,
which financial statements are accompanied by the audit report of an independent
public accountant reasonably acceptable to Bank, and the unaudited interim
consolidated balance sheet of Borrower and its Subsidiaries as at March 31,
2018, and the related consolidated statements of income, retained earnings and
cash flows of Borrower and its Subsidiaries for the nine (9) months then ended,
heretofore furnished to Bank, fairly present the consolidated financial
condition of Borrower and its Subsidiaries as at said dates and the consolidated
results of their operations and cash flows for the periods then ended in
conformity with GAAP applied on a consistent basis. Neither Borrower nor any
Subsidiary has contingent liabilities which are material to it other than as
indicated on such financial statements or, with respect to future periods, on
the financial statements furnished pursuant to Section 6.5.

 

Section 5.6     No Material Adverse Change. Since March 31, 2018, there has been
no change in the condition (financial or otherwise) or business prospects of
Borrower or any Subsidiary except those occurring in the ordinary course of
business, none of which individually or in the aggregate could reasonably be
expected to have a Material Adverse Effect.

 

Section 5.7     Full Disclosure. The statements and information furnished to
Bank in connection with the negotiation of this Agreement and the other Loan
Documents and the commitments by Bank to provide all or part of the financing
contemplated hereby do not contain any untrue statements of a material fact or
omit a material fact necessary to make the statements contained herein or
therein not misleading, Bank acknowledging that as to any projections furnished
to Bank, Borrower only represents that the same were prepared on the basis of
information and estimates Borrower believed to be reasonable.

 

Section 5.8     Trademarks, Franchises, and Licenses. Borrower and Guarantors
own, possess, or have the right to use all necessary patents, licenses,
franchises, trademarks, trade names, trade styles, copyrights, trade secrets,
know how, and confidential commercial and proprietary information to conduct
their businesses as now conducted, without known conflict with any patent,
license, franchise, trademark, trade name, trade style, copyright or other
proprietary right of any other Person.

 

Section 5.9     Governmental Authority and Licensing. Borrower and its
Subsidiaries have received all licenses, permits, and approvals of all
Governmental Authorities, if any, necessary to conduct their businesses, in each
case except where the failure to obtain or maintain the same could not
reasonably be expected to have a Material Adverse Effect. No investigation or
proceeding is pending or, to the knowledge of Borrower, threatened, before or by
any Governmental Authority that could reasonably be expected to have a Material
Adverse Effect.

 

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Section 5.10     Good Title. Borrower and Guarantors have good and defensible
title (or valid leasehold interests) to their assets as reflected on the most
recent consolidated balance sheet of Borrower and its Subsidiaries furnished to
Bank (except for sales of assets in the ordinary course of business), subject to
no Liens other than such thereof as are permitted by Section 7.2.

 

Section 5.11     Litigation and Other Controversies. There is no litigation or
governmental or arbitration proceeding or labor controversy pending, nor to the
knowledge of Borrower threatened, against Borrower or any Guarantor or any of
their Property which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.

 

Section 5.12     Taxes. All tax returns required to be filed by Borrower or any
Subsidiary in any jurisdiction have, in fact, been filed, and all taxes,
assessments, fees, and other governmental charges upon Borrower or any
Subsidiary or upon any of its Property, income or franchises, which are shown to
be due and payable in such returns, have been paid, except such taxes,
assessments, fees and governmental charges, if any, as are being contested in
good faith and by appropriate proceedings which prevent enforcement of the
matter under contest and as to which adequate reserves established in accordance
with GAAP have been provided. Borrower does not know of any proposed additional
tax assessment against it or its Subsidiaries for which adequate provisions in
accordance with GAAP have not been made on their accounts. Adequate provisions
in accordance with GAAP for taxes on the books of Borrower and each Subsidiary
have been made for all open years, and for its current fiscal period.

 

Section 5.13     Approvals. No authorization, consent, license or exemption
from, or filing or registration with, any court or Governmental Authority, nor
any approval or consent of any other Person, is or will be necessary to the
valid execution, delivery or performance by Borrower or any Guarantor of any
Loan Document, except for such approvals which have been obtained prior to the
date of this Agreement and remain in full force and effect.

 

Section 5.14     Affiliate Transactions. Neither Borrower nor any Subsidiary is
a party to any contracts or agreements with any of its Affiliates (other than
with Wholly-owned Subsidiaries) on terms and conditions which are less favorable
to Borrower or such Subsidiary than would be usual and customary in similar
contracts or agreements between Persons not affiliated with each other.

 

Section 5.15     Investment Company. Neither Borrower nor any Subsidiary is an
“investment company” or a company “controlled” by an “investment company” within
the meaning of the Investment Company Act of 1940, as amended.

 

Section 5.16     ERISA. Borrower and each other member of its Controlled Group
has fulfilled its obligations under the minimum funding standards of and is in
compliance in all material respects with ERISA and the Code to the extent
applicable to it and has not incurred any liability to the PBGC or a Plan under
Title IV of ERISA other than a liability to the PBGC for premiums under Section
4007 of ERISA. Neither Borrower nor any Subsidiary has any contingent
liabilities with respect to any post-retirement benefits under a Welfare Plan,
other than liability for continuation coverage described in article 6 of Title I
of ERISA.

 

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Section 5.17     Compliance with Laws.

 

(a)     Borrower and its Subsidiaries are in compliance with the requirements of
all federal, state and local laws, rules and regulations applicable to or
pertaining to their Property or business operations (including the Occupational
Safety and Health Act of 1970, the Americans with Disabilities Act of 1990, and
laws and regulations establishing quality criteria and standards for air, water,
land and toxic or hazardous wastes and substances), except for any such
noncompliance that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.

 

(b)     Without limiting the representations and warranties set forth in Section
5.17(a) above, except for such matters, individually or in the aggregate, which
could not reasonably be expected to result in a Material Adverse Effect and
except as set forth on Schedule 5.17(b), Borrower represents and warrants that:
(i) Borrower and its Subsidiaries, and each of the Premises, comply in all
material respects with all applicable Environmental Laws; (ii) Borrower and its
Subsidiaries have obtained all governmental approvals required for their
operations and each of the Premises by any applicable Environmental Law; (iii)
Borrower and its Subsidiaries have not, and Borrower has no knowledge of any
other Person who has, caused any Release, threatened Release or disposal of any
Hazardous Material at, on, about, or off any of the Premises in any material
quantity and, to the knowledge of Borrower, none of the Premises are adversely
affected by any Release, threatened Release or disposal of a Hazardous Material
originating or emanating from any other property; (iv) none of the Premises
contain and have contained any: (1) underground storage tank, (2) material
amounts of asbestos containing building material, (3) landfills or dumps, (4)
hazardous waste management facility as defined pursuant to RCRA or any
comparable state law, or (5) site on or nominated for the National Priority List
promulgated pursuant to CERCLA or any state remedial priority list promulgated
or published pursuant to any comparable state law; (v) Borrower and its
Subsidiaries have not used a material quantity of any Hazardous Material and
have conducted no Hazardous Material Activity at any of the Premises; (vi)
Borrower and its Subsidiaries have no material liability for response or
corrective action, natural resource damage or other harm pursuant to CERCLA,
RCRA or any comparable state law; (vii) Borrower and its Subsidiaries are not
subject to, have no notice or knowledge of and are not required to give any
notice of any Environmental Claim involving Borrower or any Subsidiary or any of
the Premises, and there are no conditions or occurrences at any of the Premises
which could reasonably be anticipated to form the basis for an Environmental
Claim against Borrower or any Subsidiary or such Premises; (viii) none of the
Premises are subject to any, and Borrower has no knowledge of any imminent
restriction on the ownership, occupancy, use or transferability of the Premises
in connection with any (1) Environmental Law or (2) Release, threatened Release
or disposal of a Hazardous Material; and (ix) there are no conditions or
circumstances at any of the Premises which pose an unreasonable risk to the
environment or the health or safety of Persons.

 

Section 5.18     OFAC. (a) Borrower is in compliance with the requirements of
all OFAC Sanctions Programs applicable to it, (b) each Subsidiary of Borrower is
in compliance with the requirements of all OFAC Sanctions Programs applicable to
such Subsidiary, (c) Borrower has provided to Bank all information regarding
Borrower and its Affiliates and Subsidiaries necessary for Bank to comply with
all applicable OFAC Sanctions Programs, and (d) to the best of Borrower’s
knowledge, neither Borrower nor any of its Affiliates or Subsidiaries is, as of
the date hereof, named on the current OFAC SDN List.

 

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Section 5.19     Other Agreements. Neither Borrower nor any Guarantor is in
default under the terms of any covenant, indenture or agreement of or affecting
such Person or any of its Property, except for any such default that could not
reasonably be expected to have a Material Adverse Effect.

 

Section 5.20     Solvency. Borrower and its Subsidiaries are solvent, able to
pay their debts as they become due, and have sufficient capital to carry on
their business and all businesses in which they are about to engage.

 

Section 5.21     No Default. No Default or Event of Default has occurred and is
continuing.

 

Section 5.22     No Broker Fees. No broker’s or finder’s fee or commission will
be payable with respect hereto or any of the transactions contemplated hereby;
and Borrower hereby agrees to indemnify Bank against, and agree that they will
hold Bank harmless from, any claim, demand, or liability for any such broker’s
or finder’s fees alleged to have been incurred in connection herewith or
therewith and any expenses (including reasonable attorneys’ fees) arising in
connection with any such claim, demand, or liability.

 

SECTION 6. AFFIRMATIVE COVENANTS.

 

So long as all or any portion of the Commitments remains outstanding or any
Obligations hereunder remain outstanding, Borrower agrees that:

 

Section 6.1     Maintenance of Business. Borrower shall, and shall cause each
Subsidiary to, preserve and maintain its existence, except as otherwise provided
in Section 7.4(c)-(e). Borrower shall, and shall cause each Subsidiary to,
preserve and keep in force and effect all licenses, permits, franchises,
approvals, patents, trademarks, trade names, trade styles, copyrights, and other
proprietary rights necessary to the proper conduct of its business, except where
the failure to do so could not reasonably be expected to have a Material Adverse
Effect.

 

Section 6.2     Maintenance of Properties. Borrower shall, and shall cause each
Subsidiary to, maintain, preserve, and keep its property, plant, and equipment
in good repair, working order and condition (ordinary wear and tear excepted),
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions, and betterments thereto so that at all times the
efficiency thereof shall be fully preserved and maintained, in each case except
where the failure to do so could not reasonably be expected to have a Material
Adverse Effect.

 

Section 6.3     Taxes and Assessments. Borrower shall duly pay and discharge,
and shall cause each Subsidiary to duly pay and discharge, all taxes, rates,
assessments, fees, and governmental charges upon or against it or its Property,
in each case before the same become delinquent and before penalties accrue
thereon, unless and to the extent that the same are being contested in good
faith and by appropriate proceedings which prevent enforcement of the matter
under contest and adequate reserves are provided therefor.

 

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Section 6.4     Insurance. Borrower shall insure and keep insured, and shall
cause each Subsidiary to insure and keep insured, with good and responsible
insurance companies, all insurable Property owned by it which is of a character
usually insured by Persons similarly situated and operating like Properties
against loss or damage from such hazards and risks (including flood insurance
(to the extent it can be obtained) with respect to any improvements on real
Property consisting of building or parking facilities in an area designated by a
governmental body as having special flood hazards), and in such amounts, as are
insured by Persons similarly situated and operating like Properties, but in no
event at any time in an amount less than the replacement value of the
Collateral. Borrower shall also maintain, and shall cause each Subsidiary to
maintain, insurance with respect to the business of Borrower and its
Subsidiaries, covering commercial general liability, statutory worker’s
compensation and occupational disease, statutory structural work act liability,
and business interruption and such other risks with good and responsible
insurance companies, in such amounts and on such terms as Bank shall reasonably
request, but in any event as and to the extent usually insured by Persons
similarly situated and conducting similar businesses. Borrower shall in any
event maintain insurance on the Collateral to the extent required by the
Collateral Documents. All such policies of insurance shall contain satisfactory
lender's loss payable endorsements, naming Bank as a loss payee, assignee or
additional insured, as appropriate, as its interest may appear, and showing only
such other loss payees, assignees and additional insureds as are satisfactory to
Bank. Each policy of insurance or endorsement shall contain a clause requiring
the insurer to make best efforts to give not less than 30 days' prior written
notice to Bank in the event of cancellation of the policy for any reason
whatsoever and a clause specifying that the interest of Bank shall not be
impaired or invalidated by any act or neglect of Borrower, any of its
Subsidiaries, or the owner of the premises or Property or by the occupation of
the premises for purposes more hazardous than are permitted by said policy.
Borrower shall deliver to Bank (a) on the date of this Agreement, and at such
other times as Bank shall reasonably request, certificates evidencing the
maintenance of insurance required hereunder, (b) prior to the termination of any
such policies, certificates evidencing the renewal thereof, and (c) promptly
following request by Bank, copies of all insurance policies of Borrower and its
Subsidiaries. Borrower also agrees to deliver to Bank, promptly as rendered,
true copies of all reports made in any reporting forms to insurance companies.

 

Section 6.5     Financial Reports. Borrower shall, and shall cause each
Subsidiary to, maintain a standard system of accounting in accordance with GAAP
and shall furnish to Bank and its duly authorized representatives such
information respecting the business and financial condition of Borrower and each
Subsidiary as Bank may reasonably request; and without any request, shall
furnish to Bank:

 

(a)     as soon as available, and in any event no later than 30 days after the
last day of each calendar month, a Borrowing Base Certificate showing the
computation of the Borrowing Base in reasonable detail as of the close of
business on the last day of such month, together with an accounts receivable and
accounts payable aging, prepared by Borrower and certified to by its chief
financial officer or another officer of Borrower acceptable to Bank;

 

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(b)     as soon as available, and in any event no later than 40 days after the
last day of each fiscal quarter of Borrower, including the fiscal quarter ending
on the last day of the fiscal year of Borrower, a copy of the consolidated and
consolidating balance sheet of Borrower and its Subsidiaries as of the last day
of such period and the consolidated and consolidating statements of income,
retained earnings, and cash flows of Borrower and its Subsidiaries for the
fiscal quarter and the fiscal year-to-date period then ended, each in reasonable
detail showing in comparative form the figures for the corresponding date and
period in the previous fiscal year, prepared by Borrower in accordance with GAAP
and certified to by its chief financial officer or such other officer acceptable
to Bank;

 

(c)     as soon as available, and in any event no later than 90 days after the
last day of each fiscal year of Borrower, a copy of the consolidated and
consolidating balance sheet of Borrower and its Subsidiaries as of the close of
such period and the consolidated and consolidating statements of income,
retained earnings, and cash flows of Borrower and the Subsidiaries for such
period, and accompanying notes thereto, each in reasonable detail showing in
comparative form the figures for the previous fiscal year, accompanied by an
unqualified opinion thereon of a firm of independent public accountants of
recognized national standing, selected by Borrower and satisfactory to Bank, to
the effect that the financial statements have been prepared in accordance with
GAAP and present fairly in accordance with GAAP the consolidated financial
condition of Borrower and the Subsidiaries as of the close of such fiscal year
and the results of their operations and cash flows for the fiscal year then
ended and that an examination of such accounts in connection with such financial
statements has been made in accordance with generally accepted auditing
standards and, accordingly, such examination included such tests of the
accounting records and such other auditing procedures as were considered
necessary in the circumstances;

 

(d)     as soon as available, and in any event no later than 45 days after the
last day of each fiscal quarter of Borrower, including the fiscal quarter ending
on the last day of the fiscal year of Borrower, a written certificate in the
form attached hereto as Exhibit C signed by the chief financial officer of
Borrower or another officer of Borrower acceptable to Bank to the effect that to
the best of such officer’s knowledge and belief no Default or Event of Default
has occurred during the period covered by such statements or, if any such
Default or Event of Default has occurred during such period, setting forth a
description of such Default or Event of Default and specifying the action, if
any, taken by Borrower or any Subsidiary to remedy the same. Such certificate
shall also set forth the calculations supporting such statements in respect of
Section 7.12 (Financial Covenants).

 

(e)     with each of the financial statements delivered pursuant to subsection
(c) above, the written statement of the accountants who certified the audit
report thereby required that in the course of their audit they have obtained no
knowledge of any Default or Event of Default, or, if such accountants have
obtained knowledge of any such Default or Event of Default, they shall disclose
in such statement the nature and period of the existence thereof;

 

(f)     as soon as available, and in any event no later than 30 days prior to
the end of each fiscal year of Borrower, a copy of Borrower’s consolidated and
consolidating business plan for the following fiscal year, such business plan to
show Borrower’s projected consolidated and consolidating revenues, expenses and
balance sheet on a quarter by quarter/month by month basis, such business plan
to be in reasonable detail prepared by Borrower and in form satisfactory to Bank
(which shall include a summary of all assumptions made in preparing such
business plan);

 

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(g)     as soon as available, but in any event within 30 days after the end of
each calendar month from, (i) reconciliations of all Borrower’s Accounts as
shown on the month-end Borrowing Base Certificate for the immediately preceding
month to Borrower’s accounts receivable agings, to Borrower’s general ledger and
to Borrower’s most recent financial statements, (ii) accounts payable agings,
(iii) reconciliations of Borrower’s Inventory as shown on Borrower’s perpetual
inventory, to Borrower’s general ledger and to Borrower’s financial statements
and (iv) Inventory status reports, all with supporting materials as Bank shall
reasonably request;

 

(h)     promptly after receipt thereof, any additional written reports,
management letters or other detailed information contained in writing concerning
significant aspects of Borrower’s or any Subsidiary’s operations and financial
affairs given to it by its independent public accountants;

 

(i)     promptly after the sending or filing thereof, copies of each financial
statement, report, notice or proxy statement sent by Borrower or any Subsidiary
to its stockholders or other equity holders, and copies of each regular,
periodic or special report, registration statement or prospectus (including all
Form 10 K, Form 10 Q and Form 8 K reports) filed by Borrower or any Subsidiary
with any securities exchange or the Securities and Exchange Commission or any
successor agency;

 

(j)     promptly after receipt thereof, a copy of each audit made by any
regulatory agency of the books and records of Borrower or any Subsidiary or of
notice of any material noncompliance with any applicable law, regulation or
guideline relating to Borrower or any Subsidiary, or its business; and

 

(k)     promptly after knowledge thereof shall have come to the attention of any
responsible officer of Borrower, written notice of (i) any threatened or pending
litigation or governmental or arbitration proceeding or labor controversy
against Borrower or any Subsidiary or any of their Property which, if adversely
determined, could reasonably be expected to have a Material Adverse Effect or
(ii) the occurrence of any Default or Event of Default hereunder.

 

Section 6.6     Inspection. Borrower shall, and shall cause each Subsidiary to,
permit Bank and its duly authorized representatives and agents to visit and
inspect any of its Property, corporate books, and financial records, to examine
and make copies of its books of accounts and other financial records, and to
discuss its affairs, finances, and accounts with, and to be advised as to the
same by, its officers, employees and independent public accountants (and by this
provision Borrower hereby authorizes such accountants to discuss with Bank the
finances and affairs of Borrower and its Subsidiaries) at such reasonable times
and intervals as Bank may designate; provided, that in the absence of any
Default and Event of Default, Bank shall not perform, or cause to be performed,
more than one (1) such exam per calendar year.

 

Section 6.7     ERISA. Borrower shall, and shall cause each Subsidiary to,
promptly pay and discharge all obligations and liabilities arising under ERISA
of a character which if unpaid or unperformed could reasonably be expected to
result in the imposition of a Lien against any of its Property. Borrower shall,
and shall cause each Subsidiary to, promptly notify Bank of: (a) the occurrence
of any reportable event (as defined in ERISA) with respect to a Plan, (b)
receipt of any notice from the PBGC of its intention to seek termination of any
Plan or appointment of a trustee therefor, (c) its intention to terminate or
withdraw from any Plan, and (d) the occurrence of any event with respect to any
Plan which would result in the incurrence by Borrower or any Subsidiary of any
material liability, fine or penalty, or any material increase in the contingent
liability of Borrower or any Subsidiary with respect to any post retirement
Welfare Plan benefit.

 

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Section 6.8     Compliance with Laws.

 

(a)     Borrower shall, and shall cause each Subsidiary to, comply in all
respects with the requirements of all federal, state, and local laws, rules,
regulations, ordinances and orders applicable to or pertaining to its Property
or business operations, except where any such non- compliance, individually or
in the aggregate, could not reasonably be expected to have a Material Adverse
Effect or result in a Lien upon any of its Property.

 

(b)     Without limiting the agreements set forth in Section 6.8(a) above,
Borrower shall, and shall cause each Subsidiary to, at all times, do the
following to the extent the failure to do so, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect: (i) comply in
all material respects with, and maintain each of the Premises in compliance in
all material respects with, all applicable Environmental Laws; (ii) require that
each tenant and subtenant, if any, of any of the Premises or any part thereof
comply in all material respects with all applicable Environmental Laws; (iii)
obtain and maintain in full force and effect all material governmental approvals
required by any applicable Environmental Law for operations at each of the
Premises; (iv) cure any material violation by it or at any of the Premises of
applicable Environmental Laws; (v) not allow the presence or operation at any of
the Premises of any (1) landfill or dump or (2) hazardous waste management
facility or solid waste disposal facility as defined pursuant to RCRA or any
comparable state law; (vi) not manufacture, use, generate, transport, treat,
store, release, dispose or handle any Hazardous Material at any of the Premises
except in the ordinary course of its business and in de minimis amounts; (vii)
within ten (10) Business Days notify Bank in writing of and provide any
reasonably requested documents upon learning of any of the following in
connection with Borrower or any Subsidiary or any of the Premises: (1) any
material liability for response or corrective action, natural resource damage or
other harm pursuant to CERCLA, RCRA or any comparable state law; (2) any
material Environmental Claim; (3) any material violation of an Environmental Law
or material Release, threatened Release or disposal of a Hazardous Material; (4)
any restriction on the ownership, occupancy, use or transferability arising
pursuant to any (x) Release, threatened Release or disposal of a Hazardous
Material or (y) Environmental Law; or (5) any environmental, natural resource,
health or safety condition, which could reasonably be expected to have a
Material Adverse Effect; (viii) conduct at its expense any investigation, study,
sampling, testing, abatement, cleanup, removal, remediation or other response
action necessary to remove, remediate, clean up or abate any material Release,
threatened Release or disposal of a Hazardous Material as required by any
applicable Environmental Law, (ix) abide by and observe any restrictions on the
use of the Premises imposed by any Governmental Authority as set forth in a deed
or other instrument affecting Borrower’s or any Subsidiary’s interest therein;
(x) promptly provide or otherwise make available to Bank any reasonably
requested environmental record concerning the Premises which Borrower or any
Subsidiary possesses or can reasonably obtain; and (xi) perform, satisfy, and
implement any operation or maintenance actions required by any Governmental
Authority or Environmental Law, or included in any no further action letter or
covenant not to sue issued by any Governmental Authority under any Environmental
Law.

 

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Section 6.9     Compliance with OFAC Sanctions Programs.

 

(a)     Borrower shall at all times comply with the requirements of all OFAC
Sanctions Programs applicable to Borrower and shall cause each of its
Subsidiaries to comply with the requirements of all OFAC Sanctions Programs
applicable to such Subsidiary.

 

(b)     Borrower shall provide Bank any information regarding Borrower, its
Affiliates, and its Subsidiaries necessary for Bank to comply with all
applicable OFAC Sanctions Programs; subject however, in the case of Affiliates,
to Borrower’s ability to provide information applicable to them.

 

(c)     If Borrower obtains actual knowledge or receives any written notice that
Borrower, any Affiliate or any Subsidiary is named on the then current OFAC SDN
List (such occurrence, an “OFAC Event”), Borrower shall promptly (i) give
written notice to Bank of such OFAC Event, and (ii) comply with all applicable
laws with respect to such OFAC Event (regardless of whether the party included
on the OFAC SDN List is located within the jurisdiction of the United States of
America), including the OFAC Sanctions Programs, and Borrower hereby authorizes
and consents to Bank taking any and all steps Bank deems necessary, in its sole
discretion, to avoid violation of all applicable laws with respect to any such
OFAC Event, including the requirements of the OFAC Sanctions Programs (including
the freezing and/or blocking of assets and reporting such action to OFAC).

 

Section 6.10     Formation of Subsidiaries. Promptly upon the formation or
acquisition of any Subsidiary (but in no event later than 30 days after such
formation or acquisition), Borrower shall provide Bank notice thereof and timely
comply with the requirements of Section 6.12 (at which time Schedule 5.2 shall
be deemed amended to include reference to such Subsidiary). Except for Foreign
Subsidiaries existing on the Closing Date and identified on Schedule 5.2,
Borrower shall not, nor shall it permit any Subsidiary to, form or acquire any
Foreign Subsidiary.

 

Section 6.11     Use of Proceeds; Margin Stock; Bank Accounts. Borrower shall
use the credit extended under this Agreement solely to pay for the Acquisition
(including reasonable costs and expenses related thereto), for Capital
Expenditures, for its general working capital purposes, to refinance existing
Indebtedness for Borrowed Money and for such other general corporate purposes as
are consistent with all applicable laws. Neither Borrower nor any Subsidiary
will engage, principally or as one of its important activities, in the business
of purchasing or carrying margin stock or in the business of extending credit
for the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System), and no
part of the proceeds of any Loan or any other extension of credit made hereunder
will be used to purchase or carry any such margin stock or to extend credit to
others for the purpose of purchasing or carrying any such margin stock. Borrower
shall at all times maintain all of its deposit and operating accounts of any
kind with the Bank or its Affiliates.

 

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Section 6.12     Guaranties and Collateral.

 

(a)      Guaranties. The payment and performance of the Obligations and Hedging
Liability shall at all times be guaranteed by each direct and indirect Domestic
Subsidiary of Borrower pursuant to one or more guaranty agreements in form and
substance acceptable to Bank (as the same may be amended, restated,
supplemented, or otherwise modified from time to time individually a “Guaranty”
and collectively the “Guaranties” and each such Domestic Subsidiary executing
and delivering a Guaranty being referred to herein as a “Guarantor” and
collectively the “Guarantors”).

 

(b)      Collateral. The Obligations and Hedging Liability shall be secured by
valid, perfected, and enforceable Liens on all right, title, and interest of
Borrower and each Guarantor in all of their accounts, chattel paper,
instruments, documents, general intangibles, letter of credit rights, supporting
obligations, deposit accounts, investment property, inventory, equipment,
fixtures, commercial tort claims and certain other personal Property, whether
now owned or hereafter acquired or arising, and all proceeds thereof; provided,
that, unless otherwise required by Bank during the existence of any Event of
Default, Liens on the Voting Stock of a Foreign Subsidiary, which, if granted,
would cause a material adverse effect on Borrower’s federal income tax
liability, shall be limited to 65% of the total outstanding Voting Stock of such
Foreign Subsidiary. Borrower acknowledges and agrees that the Liens on the
Collateral shall be valid and perfected first priority Liens except as permitted
by Section 7.2, subject, however, to the proviso appearing at the end of the
preceding sentence, in each case pursuant to one or more Collateral Documents
from such Persons, each in form and substance satisfactory to Bank.

 

(c)     Reserved.

 

(d)     Further Assurances. Borrower agrees that it shall, and shall cause each
Subsidiary to, from time to time at the request of Bank, execute and deliver
such documents and do such acts and things as Bank may reasonably request in
order to provide for or perfect or protect Bank’s Liens on the Collateral.

 

Section 6.13     Post-Closing Deliveries.

 

(a)     Stock Certificates. Within 30 days after the Closing Date, Borrower will
deliver (or cause Bank of Montreal to deliver) to Bank original stock
certificates or other similar instruments or securities representing all of the
issued and outstanding shares of capital stock or other equity interests in each
of the entities being pledged as of the Closing Date which are currently held by
Bank of Montreal, and (ii) stock powers for the Collateral consisting of the
stock or other equity interest in each entity being pledged, executed in blank
and undated, which are currently held by Bank of Montreal. If such stock
certificates are not timely delivered to Bank as a result of a delay caused by
Bank of Montreal, failure to timely deliver such certificates shall not be an
Event of Default under this Agreement and the foregoing time period for delivery
shall be extended as long as is necessary for Bank of Montreal to deliver such
certificates.

 

(b)     Landlord Waivers. Within 90 days after the Closing Date, Borrower will
deliver (or cause the respective landlords to deliver) to Bank the Landlord
Waivers (or consents to the assignment of existing Landlord Waivers) for the
following: (i) 90895 Roberts Road, P.O. Box 8099, Coburg, OR 97408, from M L
Coburg, LLC, (ii) 18547 East Valley Highway, Kent, WA 98032, from Hill
Investment Company, and (iii) and other locations reasonably requested by Bank,
or at which Borrower would otherwise be required to obtain a Landlord Waiver
pursuant to the terms of this Agreement.

 

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SECTION 7. NEGATIVE COVENANTS.

 

So long as all or any portion of the Commitments remains outstanding or any
Obligations hereunder remain outstanding, Borrower agrees that, unless otherwise
permitted by Bank in writing:

 

Section 7.1     Borrowings and Guaranties. Borrower shall not, nor shall it
permit any Loan Party or Subsidiary to, issue, incur, assume, create or have
outstanding any Indebtedness for Borrowed Money, or incur liabilities for
interest rate, currency, or commodity cap, collar, swap, or similar hedging
arrangements, or be or become liable as endorser, guarantor, surety or otherwise
for any debt, obligation or undertaking of any other Person, or otherwise agree
to provide funds for payment of the obligations of another, or supply funds
thereto or invest therein or otherwise assure a creditor of another against
loss, or apply for or become liable to the issuer of a letter of credit which
supports an obligation of another, or subordinate any claim or demand it may
have to the claim or demand of any other Person; provided that the foregoing
shall not restrict nor operate to prevent:

 

(a)     the Obligations of Borrower and its Subsidiaries owing to Bank under the
Loan Documents and other indebtedness and obligations of such Persons owing to
Bank;

 

(b)     indebtedness outstanding on the date hereof and listed on
Schedule 7.1(b), which Indebtedness exceeds $50,000 for any single obligation
and, in the aggregate, obligations totaling $300,000 or more for any Loan Party;

 

(c)     indebtedness at or below $50,000 for any single obligation and, in the
aggregate, obligations totaling $300,000 or less for any Loan Party (such
indebtedness does not include the indebtedness otherwise permitted in this
Section 7.1);

 

(d)     Guaranties of any Loan Party in respect of Indebtedness for Borrower
Money otherwise permitted hereunder of any Loan Party; provided, that any
Guaranty permitted hereunder that is subordinated to the Obligations shall be
subordinated to the Obligations on substantially the same terms as such
Subordinated Indebtedness;

 

(e)     purchase money indebtedness and Capitalized Lease Obligations of the
Loan Parties in an amount not to exceed $10,000,000 in the aggregate at any one
time outstanding;

 

(f)     the Hedging Liability of Borrower and its Subsidiaries, along with any
other obligations of Borrower or any Subsidiary arising out of interest rate,
foreign currency, and commodity hedging agreements entered into with financial
institutions in connection with bona fide hedging activities in the ordinary
course of business and not for speculative purposes;

 

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(g)     indebtedness arising in the ordinary course of business in connection
with treasury management and commercial credit card, merchant card and purchase
or procurement card services;

 

(h)     endorsement of items for deposit or collection of commercial paper
received in the ordinary course of business;

 

(i)     Assumed Indebtedness of Borrower in an aggregate principal amount not to
exceed $1,000,000 at any time outstanding;

 

(j)     indebtedness with respect to the deferred purchase price for any
acquisition permitted by Section 7.3 (including, for avoidance of doubt, the
earn out contemplated under the Purchase Documents for the Acquisition);
provided, that such indebtedness does not require the payment in cash of
principal (other than in respect of working capital adjustments) prior to the
Revolving Credit Termination Date, has a maturity which extends beyond the
Revolving Credit Termination Date, and is subordinated to the Obligations on
terms reasonably acceptable to Bank;

 

(k)     indebtedness of Foreign Subsidiaries in an aggregate principal amount at
any time outstanding not to exceed 5% of the total consolidated assets of
Borrower and its Subsidiaries as of the end of the most recently ended fiscal
year of Borrower;

 

(l)     indebtedness from time to time owing by any Subsidiary to Borrower in
the ordinary course of business;

 

(m)     unsecured Indebtedness for Borrower Money of (A) any Loan Party owing to
any other Loan Party or any Subsidiary that is not a Loan Party, (B) any
Subsidiary that is not a Loan Party owing to any other Subsidiary that is not a
Loan Party and (C) any Subsidiary that is not a Loan Party owing to any Loan
Party; provided , that any such Indebtedness for Borrowed Money described in
this clause which is owing to a Loan Party, shall (1) to the extent the
aggregate principal amount thereof is in excess of $500,000.00, be evidenced by
promissory notes in form and substance satisfactory to Bank and pledged to Bank
on terms acceptable to it, (2) be permitted under Section 7.3(h)(iv) or (k), and
(3) not be forgiven or otherwise discharged for any consideration other than
payment in full in cash unless Bank otherwise consents; and

 

(n)     other unsecured Indebtedness for Borrowed Money having a stated maturity
date no earlier than 91 days following the Revolving Credit Termination Date and
not exceeding $10,000,000 in the aggregate in any fiscal year of Borrower, if
(i) (A) no Default has occurred and is continuing or would result from such
Indebtedness for Borrowed Money, (B) such Indebtedness for Borrowed Money is
evidenced by a subordination agreement in form and substance satisfactory to
Bank and on terms acceptable to it; and (ii) at least ten (10) Business Days
prior to each such incurrence, Borrower has delivered a certificate to Bank
demonstrating compliance with (A) above.

 

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Section 7.2     Liens. Borrower shall not, nor shall it permit any Subsidiary
to, create, incur or permit to exist any Lien of any kind on any Property owned
by any such Person; provided that the foregoing shall not apply to nor operate
to prevent:

 

(a)     Liens at or below $150,000 for any single Lien and, in the aggregate,
Liens totaling $500,000 or less for any Loan Party (such Liens do not include
Liens otherwise permitted in this Section 7.2);

 

(b)     Liens existing on the date hereof and listed on Schedule 7.2(b), which
Liens exceed $150,000 per Lien and, in the aggregate, exceed $500,000 per Loan
Party, and any renewals or extensions thereof, provided, that (i) the property
covered thereby is not changed, (ii) the amount secured or benefited thereby is
not increased from the amount outstanding on the date of renewal or extension,
(iii) the direct or any contingent obligor with respect thereto is not changed;
and (iv) any renewal or extension of the obligations secured or benefited
thereby is otherwise permitted under Section 7.1(b);

 

(c)     Liens arising by statute in connection with worker’s compensation,
unemployment insurance, old age benefits, social security obligations, taxes,
assessments, statutory obligations or other similar charges (other than Liens
arising under ERISA), good faith cash deposits in connection with tenders,
contracts or leases to which Borrower or any Subsidiary is a party or other cash
deposits required to be made in the ordinary course of business; provided in
each case that the obligation is not for borrowed money and that the obligation
secured is not overdue or, if overdue, is being contested in good faith by
appropriate proceedings which prevent enforcement of the matter under contest
and adequate reserves have been established therefor;

 

(d)     mechanics’, workmen’s, materialmen’s, landlords’, carriers’ or other
similar Liens arising in the ordinary course of business with respect to
obligations which are not overdue for a period of more than 30 days or which are
being contested in good faith by appropriate proceedings which prevent
enforcement of the matter under contest;

 

(e)     judgment liens and judicial attachment liens not constituting an Event
of Default under Section 8.1(g) and the pledge of assets for the purpose of
securing an appeal, stay or discharge in the course of any legal proceeding;

 

(f)     Liens arising in the ordinary course of business on deposits to secure
the performance of bids, trade contracts and leases (other than Indebtedness),
statutory obligations, surety bonds (other than bonds related to judgments or
litigation), performance bonds and other obligations of a like nature, in each
case, incurred in the ordinary course of business;

 

(g)     Liens on equipment of Borrower or any Subsidiary created solely for the
purpose of securing indebtedness permitted by Section 7.1(e), representing or
incurred to finance the purchase price of such Property; provided that no such
Lien shall extend to or cover other Property of Borrower or such Subsidiary
other than the respective Property so acquired, and the principal amount of
indebtedness secured by any such Lien shall at no time exceed the purchase price
of such Property, as reduced by repayments of principal thereon;

 

(h)     any interest or title of a lessor under any operating lease;

 

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(i)     Liens securing Indebtedness permitted under Section 7.1(j); provided,
that (i) such Liens do not at any time encumber any property other than the
property financed by such Indebtedness for Borrowed Money and (ii) the
Indebtedness for Borrowed Money secured thereby does not exceed the cost or fair
market value, whichever is lower, of the property being acquired on the date of
acquisition;

 

(j)     Liens securing Assumed Indebtedness of the Loan Parties permitted
pursuant to Section 7.1(i); provided, that (i) such Liens do not at any time
encumber any property other than property of the Subsidiary acquired, or the
property acquired, and proceeds thereof in connection with such Assumed
Indebtedness and shall not attach to any assets of the Loan Parties theretofore
existing or (except for any such proceeds) which arise after the date thereof
and (ii) the Assumed Indebtedness and other secured Indebtedness of the Loan
Parties secured by any such Lien does not exceed the fair market value of the
property being acquired in connection with such Assumed Indebtedness;

 

(k)     Liens on assets of Foreign Subsidiaries of Borrower securing
Indebtedness for Borrowed Money of such Foreign Subsidiaries permitted pursuant
to clause (k) of Section 7.1;

 

(l)     easements, rights of way, restrictions, and other similar encumbrances
against real property incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not materially detract
from the value of the Property subject thereto or materially interfere with the
ordinary conduct of the business of Borrower or any Subsidiary;

 

(m)     Liens in favor of customs and revenue authorities imposed by Law to
secure payment of customs duties in connection with the importation of goods and
arising in the ordinary course of business which are not overdue for a period of
more than 30 days or which are being contested in good faith by appropriate
proceedings which prevent enforcement of the matter under contest;

 

(n)     Special tool builders’ or similar liens arising by operation of law; and

 

(o)     Liens granted in favor of Bank pursuant to the Collateral Documents.

 

Section 7.3     Investments, Acquisitions, Loans and Advances. Borrower shall
not, nor shall it permit any Subsidiary to, directly or indirectly, make, retain
or have outstanding any investments (whether through purchase of stock or
obligations or otherwise) in, or loans or advances to (other than for travel
advances and other similar cash advances made to employees in the ordinary
course of business), any other Person, or acquire all or any substantial part of
the assets or business of any other Person or division thereof; provided that
the foregoing shall not apply to nor operate to prevent:

 

(a)     investments in direct obligations of the United States of America or of
any agency or instrumentality thereof whose obligations constitute full faith
and credit obligations of the United States of America, provided that any such
obligations shall mature within one year of the date of issuance thereof;

 

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(b)     investments in commercial paper rated at least P-1 by Moody’s and at
least A-1 by S&P maturing within one year of the date of issuance thereof;

 

(c)     investments in certificates of deposit issued by Bank or by any United
States commercial bank having capital and surplus of not less than $100,000,000
which have a maturity of one year or less;

 

(d)     investments in repurchase obligations with a term of not more than 7
days for underlying securities of the types described in subsection (a) above
entered into with any bank meeting the qualifications specified in subsection
(c) above, provided all such agreements require physical delivery of the
securities securing such repurchase agreement, except those delivered through
the Federal Reserve Book Entry System;

 

(e)     investments in money market funds that invest solely, and which are
restricted by their respective charters to invest solely, in investments of the
type described in the immediately preceding subsections (a), (b), (c), and (d)
above;

 

(f)     loans and advances to officers, directors and employees of the Loan
Parties and Subsidiaries made in the ordinary course of business in an aggregate
amount at any one time outstanding not to exceed $100,000;

 

(g)     investments consisting of extensions of credit in the nature of accounts
receivable or notes receivable arising from the grant of trade credit in the
ordinary course of business, and investments received in satisfaction or partial
satisfaction thereof from financially troubled Account Debtors to the extent
reasonably necessary in order to prevent or limit loss;

 

(h)     Borrower’s investments in its Subsidiaries outstanding on the date
hereof, (ii) additional Investments by Borrower and its Subsidiaries in Loan
Parties, (iii) additional Investments by Subsidiaries of Borrower that are not
Loan Parties in other Subsidiaries that are not Loan Parties, and (iv) so long
as no Default has occurred and is continuing or would result from such
investment, additional investments by the Loan Parties in Subsidiaries that are
not Loan Parties in an aggregate amount invested from the date hereof not to
exceed $250,000;

 

(i)     intercompany advances made from time to time from Borrower to any one or
more Subsidiaries in the ordinary course of business;

 

(j)     investments arising in connection with an acquisition permitted by this
Section 7.3;

 

(k)     other investments, loans, and advances in addition to those otherwise
permitted by this Section 7.3 in an amount not to exceed $2,000,000 in the
aggregate in any fiscal year of Borrower (as calculated to include any
acquisitions permitted under this Section 7.3 during such fiscal year), so long
as (i) when consummated, no Default has occurred and is continuing or would
result from such Investment and (ii) at least ten (10) Business Days prior to
each such investment, Borrower has delivered a certificate to Bank demonstrating
compliance with (i) above; and

 

(l)     Guaranties permitted by Section 7.1.

 

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In determining the amount of investments, acquisitions, loans, and advances
permitted under this Section 7.3, investments and acquisitions shall always be
taken at the original cost thereof (regardless of any subsequent appreciation or
depreciation therein), and loans and advances shall be taken at the principal
amount thereof then remaining unpaid.

 

Section 7.4     Mergers, Consolidations and Sales. Borrower shall not, nor shall
it permit any Subsidiary to, be a party to any merger or consolidation, or sell,
transfer, lease or otherwise dispose of all or any part of its Property,
including any disposition of Property as part of a sale and leaseback
transaction, or in any event sell or discount (with or without recourse) any of
its notes or accounts receivable; provided that this Section 7.4 shall not apply
to nor operate to prevent:

 

(a)     the sale or lease of inventory in the ordinary course of business;

 

(b)     the sale, transfer, lease or other disposition of Property of Borrower
and its Subsidiaries to one another in the ordinary course of its business;

 

(c)     any Subsidiary of Borrower may merge or consolidate with or liquidate or
dissolve into a Loan Party; provided, that, (i) the Loan Party shall be the
continuing or surviving Person, and (ii) in the case of any merger of a Loan
Party and a Subsidiary Guarantor, such Loan Party shall be the continuing or
surviving Person;

 

(d)     in connection with an acquisition permitted under Section 7.3, any
Subsidiary of a Loan Party may merge with or into or consolidate with any other
Person or permit any other Person to merge with or into or consolidate with it;
provided, that, (i) the Person surviving such merger shall be a Wholly-Owned
Subsidiary of a Loan Party and (ii) in the case of any such merger to which any
Loan Party is a party, such Loan Party is the surviving Person;

 

(e)     any Subsidiary that is not a Loan Party may merge into any other
Subsidiary that is not a Loan Party; provided, that, when any Wholly-Owned
Subsidiary is merging with another Subsidiary that is not wholly-owned, the
Wholly-Owned Subsidiary shall be the continuing or surviving Person;

 

(f)     the sale of delinquent notes or accounts receivable in the ordinary
course of business for purposes of collection only (and not for the purpose of
any bulk sale or securitization transaction);

 

(g)     the sale, transfer or other disposition of any tangible personal
property that, in the reasonable business judgment of Borrower or its
Subsidiary, has become obsolete or worn out, and which is disposed of in the
ordinary course of business, so long as (i) no Event of Default has occurred and
is continuing at the time of such disposition, (ii) the aggregate fair market
value or a book value, whichever is more, of such property does not exceed
$500,000 in any twelve-month period and (iii) all proceeds thereof are applied
in accordance with Section 2.8(b);

 

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(h)     dispositions that constitute (i) an investment permitted under
Section 7.3, (ii) a Lien permitted under Section 7.2, (iii) a merger,
dissolution, consolidation or liquidation permitted under this Section 7.4, or
(iv) a Restricted Payment permitted under Section 7.6;

 

(i)     dispositions that result from a casualty or condemnation in respect of
such property or assets and is not otherwise an Event of Default so long as all
proceeds thereof are applied in accordance with Section 2.8(b); and

 

(j)     the sale, transfer, lease or other disposition of Property of Borrower
or any Subsidiary (including any disposition of Property as part of a sale and
leaseback transaction) aggregating for Borrower and its Subsidiaries, so long as
(i) no Event of Default has occurred and is continuing at the time of such
disposition and (ii) the fair market value of all such assets disposed of,
whether individually or in a series of related transactions, does not exceed
$500,000 in the aggregate in any fiscal year of Borrower.

 

Section 7.5     Maintenance of Subsidiaries. Borrower shall not assign, sell or
transfer, nor shall it permit any Subsidiary to issue, assign, sell or transfer,
any shares of capital stock or other equity interests of a Subsidiary; provided
that the foregoing shall not operate to prevent (a) Liens on the capital stock
or other equity interests of Subsidiaries granted to Bank pursuant to the
Collateral Documents, (b) the issuance, sale, and transfer to any person of any
shares of capital stock of a Subsidiary solely for the purpose of qualifying,
and to the extent legally necessary to qualify, such person as a director of
such Subsidiary, and (c) any transaction permitted by Section 7.4(c)-(e) above.

 

Section 7.6     Dividends and Certain Other Restricted Payments. Borrower shall
not, nor shall it permit any Subsidiary to, (a) declare or pay any dividends on
or make any other distributions in respect of any class or series of its capital
stock or other equity interests (other than dividends or distributions payable
solely in its capital stock or other equity interests), or (b) directly or
indirectly purchase, redeem, or otherwise acquire or retire any of its capital
stock or other equity interests or any warrants, options, or similar instruments
to acquire the same (collectively referred to herein as “Restricted Payments”);
provided, that in each case (except Section 7.6(a)) so long as no Default or
Event of Default shall have occurred and be continuing (both before or as a
result of the making of such Restricted Payment):

 

(a)     each Subsidiary may make Restricted Payments, directly or indirectly, to
Borrower;

 

(b)     Borrower and each Subsidiary may declare and make dividend payments or
other distributions payable solely in the common stock or other common equity
interests of such Person;

 

(c)     Borrower may repurchase shares tendered by employees to satisfy tax
withholding obligations on awards of equity compensation, so long as such
repurchases are completed in the ordinary course of business and do not exceed
$2,000,000, in the aggregate, in any fiscal year of Borrower; and

 

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(d)     Borrower shall be permitted to make other Restricted Payments in the
form of cash dividends, distributions, purchases, redemptions or other
acquisitions of or with respect to shares of its common stock or other common
equity interests in an aggregate amount in any fiscal year of Borrower not to
exceed $3,000,000 if, at least ten (10) Business Days prior to each such
Restricted Payment, Borrower has delivered a certificate to Bank demonstrating
compliance with the requirements set forth herein.

 

Section 7.7     Burdensome Contracts With Affiliates. Borrower shall not, nor
shall it permit any Subsidiary to, enter into any contract, agreement or
business arrangement with any of its Affiliates (other than with Wholly-owned
Subsidiaries) on terms and conditions which are less favorable to Borrower or
such Subsidiary than would be usual and customary in similar contracts,
agreements or business arrangements between Persons not affiliated with each
other.

 

Section 7.8     No Changes in Fiscal Year. The fiscal year of Borrower ends on
June 30 of each year; and Borrower shall not change its fiscal year from its
present basis.

 

Section 7.9     Change in the Nature of Business. Borrower shall not, nor shall
it permit any Subsidiary to, engage in any business or activity if as a result
the general nature of the business of Borrower or any Subsidiary would be
changed in any material respect from the general nature of the business engaged
in by it as of the Closing Date.

 

Section 7.10     No Restrictions. Except pursuant to this Agreement and the
other Loan Documents, Borrower shall not, nor shall it permit any Subsidiary to,
directly or indirectly create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of Borrower or any Subsidiary to: (a) pay dividends or make any other
distribution on any Subsidiary’s capital stock or other equity interests owned
by Borrower or any other Subsidiary, (b) pay any indebtedness owed to Borrower
or any other Subsidiary, (c) make loans or advances to Borrower or any other
Subsidiary, (d) transfer any of its Property to Borrower or any other
Subsidiary, or (e) guarantee the Obligations and/or grant Liens on its assets to
Bank as required by the Loan Documents.

 

Section 7.11     Subordinated Debt. Borrower shall not, nor shall it permit any
Subsidiary to, (a) amend or modify any of the terms or conditions relating to
Subordinated Debt, (b) make any voluntary prepayment of Subordinated Debt or
effect any voluntary redemption thereof, or (c) make any payment on account of
Subordinated Debt which is prohibited under the terms of any instrument or
agreement subordinating the same to the Obligations. Notwithstanding the
foregoing, Borrower may agree to a decrease in the interest rate applicable
thereto or to a deferral of repayment of any of the principal of or interest on
the Subordinated Debt beyond the current due dates therefor.

 

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Section 7.12     Financial Covenants.

 

(a)     Total Funded Debt/EBITDA Ratio. As of the last day of each fiscal
quarter of Borrower ending during the relevant period set forth below, Borrower
shall not permit the Total Funded Debt/EBITDA Ratio to be greater than the
corresponding ratio set forth opposite such period:

 

Period(s) Ending

Total Funded Debt/EBITDA Ratio

shall not be greater than:

   

Fiscal quarter ending on or about 9/30/2018 –

9/30/2019

3.50 to 1.0

   

Fiscal quarters ending on or about 12/31/2019 –

9/30/2020

3.25 to 1.0

 

   

Fiscal quarters ending on or about 12/31/2020

and at all times thereafter

3.00 to 1.0

 

(b)     Tangible Net Worth. Borrower shall at all times maintain Tangible Net
Worth of Borrower and its Subsidiaries determined on a consolidated basis in an
amount not less than (i) $70,000,000 plus (ii) 50% of Net Income for each fiscal
year of Borrower ending on June 30, 2019 and thereafter for which such Net
Income is a positive amount (i.e., there shall be no reduction to the minimum
amount of Tangible Net Worth required to be maintained hereunder for any fiscal
year of Borrower in which Net Income is less than zero).

 

SECTION 8. EVENTS OF DEFAULT AND REMEDIES.

 

Section 8.1     Events of Default. Any one or more of the following shall
constitute an “Event of Default” hereunder:

 

(a)     default in the payment when due of all or any part of any Obligation
payable by Borrower hereunder or under any other Loan Document (whether at the
stated maturity thereof or at any other time provided for in this Agreement), or
default shall occur in the payment when due of any other indebtedness or
obligation (whether direct, contingent or otherwise) of Borrower owing to Bank,
and such default continues for three (3) days after such payment is due;
provided that Borrower shall not have the benefit of using such 3-day cure
period for any principal payments due and owing to Bank;

 

(b)     default in the observance or performance of any covenant set forth in
Sections 6.1, 6.4, 6.5, 6.6, 6.11, or Article 7 or any provision in any Loan
Document dealing with the use, disposition or remittance of the proceeds of
Collateral or requiring the maintenance of insurance thereon, and such default
continues for five (5) Business Days; provided, that Borrower may only have the
benefit of using such cure period three (3) times per fiscal year;

 

(c)     default in the observance or performance of any other provision hereof
or of any other Loan Document which is not remedied within thirty (30) days
after the earlier of (i) the date on which such failure shall first become known
to any officer of Borrower or (ii) written notice thereof is given to Borrower
by Bank;

 

(d)     any representation or warranty made herein or in any other Loan Document
or in any certificate furnished to Bank pursuant hereto or thereto or in
connection with any transaction contemplated hereby or thereby proves untrue in
any respect (or in any material respect if such representation, warranty,
certification or statement is not by its terms already qualified as to
materiality) as of the date of the issuance or making or deemed making thereof;

 

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(e)     any event occurs or condition exists (other than those described in
subsections (a) through (d) above) which is specified as an event of default
under any of the other Loan Documents, or any of the Loan Documents shall for
any reason not be or shall cease to be in full force and effect or is declared
to be null and void, or any of the Collateral Documents shall for any reason
fail to create a valid and perfected first priority Lien in favor of Bank in any
Collateral purported to be covered thereby except as expressly permitted by the
terms thereof and except as permitted by Section 7.2, or any Subsidiary takes
any action for the purpose of terminating, repudiating or rescinding any Loan
Document executed by it or any of its obligations thereunder;

 

(f)     default shall occur under any Indebtedness for Borrowed Money issued,
assumed or guaranteed by Borrower or any Subsidiary aggregating in excess of
$500,000, or under any indenture, agreement or other instrument under which the
same may be issued, and such default shall continue for a period of time
sufficient to permit the acceleration of the maturity of any such Indebtedness
for Borrowed Money (whether or not such maturity is in fact accelerated), or any
such Indebtedness for Borrowed Money shall not be paid when due (whether by
demand, lapse of time, acceleration or otherwise);

 

(g)     any judgment or judgments, writ or writs or warrant or warrants of
attachment, or any similar process or processes, shall be entered or filed
against Borrower or any Subsidiary, or against any of its Property, in an
aggregate amount in excess of $500,000 (except to the extent fully covered by
insurance as to which the insurer has been notified of such judgment and has not
denied coverage), and which remains undischarged, unvacated, unbonded or
unstayed for a period of 30 days;

 

(h)     Borrower or any Subsidiary, or any member of its Controlled Group, shall
fail to pay when due an amount or amounts aggregating in excess of $500,000
which it shall have become liable to pay to the PBGC or to a Plan under Title IV
of ERISA; or notice of intent to terminate a Plan or Plans having aggregate
Unfunded Vested Liabilities in excess of $500,000 (collectively, a “Material
Plan”) shall be filed under Title IV of ERISA by Borrower or any Subsidiary, or
any other member of its Controlled Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings under
Title IV of ERISA to terminate or to cause a trustee to be appointed to
administer any Material Plan or a proceeding shall be instituted by a fiduciary
of any Material Plan against Borrower or any Subsidiary, or any member of its
Controlled Group, to enforce Section 515 or 4219(c)(5) of ERISA and such
proceeding shall not have been dismissed within 30 days thereafter; or a
condition shall exist by reason of which the PBGC would be entitled to obtain a
decree adjudicating that any Material Plan must be terminated;

 

(i)     any Change of Control shall occur;

 

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(j)     Borrower or any Subsidiary shall (i) have entered involuntarily against
it an order for relief under the United States Bankruptcy Code, as amended, (ii)
not pay, or admit in writing its inability to pay, its debts generally as they
become due, (iii) make an assignment for the benefit of creditors, (iv) apply
for, seek, consent to or acquiesce in, the appointment of a receiver, custodian,
trustee, examiner, liquidator or similar official for it or any substantial part
of its Property, (v) institute any proceeding seeking to have entered against it
an order for relief under the United States Bankruptcy Code, as amended, to
adjudicate it insolvent, or seeking dissolution, winding up, liquidation,
reorganization, arrangement, adjustment or composition of it or its debts under
any law relating to bankruptcy, insolvency or reorganization or relief of
debtors or fail to file an answer or other pleading denying the material
allegations of any such proceeding filed against it, (vi) take any corporate
action in furtherance of any matter described in parts (i) through (v) above, or
(vii) fail to contest in good faith any appointment or proceeding described in
Section 8.1(k); or

 

(k)     a custodian, receiver, trustee, examiner, liquidator or similar official
shall be appointed for Borrower or any Subsidiary, or any substantial part of
any of its Property, or a proceeding described in Section 8.1(j)(v) shall be
instituted against Borrower or any Subsidiary, and such appointment continues
undischarged or such proceeding continues undismissed or unstayed for a period
of 60 days.

 

Section 8.2     Non Bankruptcy Defaults. When any Event of Default (other than
those described in Section 8.1(j) or (k) with respect to Borrower) has occurred
and is continuing, Bank may, by written notice to Borrower: (a) terminate the
remaining Commitments and all other obligations of Bank hereunder on the date
stated in such notice (which may be the date thereof); (b) declare the principal
of and the accrued interest on all outstanding Loans to be forthwith due and
payable and thereupon all outstanding Loans, including both principal and
interest thereon, shall be and become immediately due and payable together with
all other amounts payable under the Loan Documents without further demand,
presentment, protest or notice of any kind; and (c) demand that Borrower
immediately Cash Collateralize the L/C Obligations, and Borrower agrees to
immediately make such payment and acknowledges and agrees that Bank would not
have an adequate remedy at law for failure by Borrower to honor any such demand
and that Bank shall have the right to require Borrower to specifically perform
such undertaking whether or not any drawings or other demands for payment have
been made under any Letter of Credit.

 

Section 8.3     Bankruptcy Defaults. When any Event of Default described in
Section 8.1(j) or (k) with respect to Borrower has occurred and is continuing,
then all outstanding Loans together with all other amounts payable under the
Loan Documents shall immediately become due and payable without presentment,
demand, protest or notice of any kind, the obligation of Bank to extend further
credit pursuant to any of the terms hereof shall immediately terminate and
Borrower shall immediately Cash Collateralize the L/C Obligations, Borrower
acknowledging and agreeing that Bank would not have an adequate remedy at law
for failure by Borrower to honor any such demand and that Bank shall have the
right to require Borrower to specifically perform such undertaking whether or
not any draws or other demands for payment have been made under any of the
Letters of Credit.

 

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Section 8.4     Collateral for Undrawn Letters of Credit. If the prepayment of
the amount available for drawing under any or all outstanding Letters of Credit
is required under Section 8.2 or Section 8.3 above, Borrower shall forthwith pay
the amount required to be so prepaid. All such amounts prepaid shall be held by
Bank in one or more separate collateral accounts (each such account, and the
credit balances, properties, and any investments from time to time held therein,
and any substitutions for such account, any certificate of deposit or other
instrument evidencing any of the foregoing and all proceeds of and earnings on
any of the foregoing being collectively called the “Collateral Account”) as
security for, and for application by Bank (to the extent available) to, the
reimbursement of any payment under any Letter of Credit then or thereafter made
by Bank, and to the payment of the unpaid balance of all other Obligations (and
to all Hedging Liability). The Collateral Account shall be held in the name of
and subject to the exclusive dominion and control of Bank. If and when requested
by Borrower, Bank shall invest funds held in the Collateral Account from time to
time in direct obligations of, or obligations the principal of and interest on
which are unconditionally guaranteed by, the United States of America with a
remaining maturity of one year or less, provided that Bank is irrevocably
authorized to sell investments held in the Collateral Account when and as
required to make payments out of the Collateral Account for application to
amounts due and owing from Borrower to Bank; provided, that (i) if Borrower
shall have made payment of all obligations required under Section 8.2 or 8.3, so
long as no Letters of Credit, Commitments, Loans or other Obligations or Hedging
Liability remain outstanding, at the request of Borrower, Bank shall release to
Borrower any remaining amounts held in the Collateral Account.

 

SECTION 9. MISCELLANEOUS.

 

Section 9.1     No Waiver, Cumulative Remedies. No delay or failure on the part
of Bank in the exercise of any power or right under any Loan Document shall
operate as a waiver thereof or as an acquiescence in any default, nor shall any
single or partial exercise of any power or right preclude any other or further
exercise thereof or the exercise of any other power or right. The rights and
remedies hereunder of Bank are cumulative to, and not exclusive of, any rights
or remedies which Bank would otherwise have.

 

Section 9.2     Non-Business Days. If any payment hereunder becomes due and
payable on a day which is not a Business Day, the due date of such payment shall
be extended to the next succeeding Business Day on which date such payment shall
be due and payable . In the case of any payment of principal falling due on a
day which is not a Business Day, interest on such principal amount shall
continue to accrue during such extension at the rate per annum then in effect,
which accrued amount shall be due and payable on the next scheduled date for the
payment of interest.

 

Section 9.3     Survival of Representations. All representations and warranties
made herein or in any other Loan Document or in certificates given pursuant
hereto or thereto shall survive the execution and delivery of this Agreement and
the other Loan Documents, and shall continue in full force and effect with
respect to the date as of which they were made as long as any credit is in use
or available hereunder.

 

Section 9.4     Survival of Indemnity and Certain Other Provisions. All
indemnity provisions and other provisions relative to reimbursement to Bank of
amounts sufficient to protect the yield of Bank with respect to the Loans and
Letters of Credit, including, but not limited to, Sections 3.3, 3.6, and 9.10,
shall survive the payment and satisfaction of all Obligations and the
termination of this Agreement and the other Loan Documents, and shall remain in
force beyond the expiration of any applicable statute of limitations and payment
or satisfaction in full of any single claim thereunder. All such indemnity and
other provisions shall be binding upon the successors and assigns of Borrower
and shall inure to the benefit of each applicable Indemnitee and its successors
and assigns.

 

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Section 9.5     Notices. Except as otherwise specified herein, all notices
hereunder and under the other Loan Documents shall be in writing (including
notice by electronic delivery) and shall be given to the relevant party at its
mailing address or email address set forth below, or such other address as such
party may hereafter specify by notice to the other given by courier, by United
States certified or registered mail or by electronics means capable of creating
a written record of such notice and its receipt. Notices under the Loan
Documents shall be addressed:

 

to Borrower:

 

Twin Disc, Incorporated

1328 Racine Street

Racine, Wisconsin 53403

Attention:        Chief Financial Officer and

Assistant Treasurer

Telephone:       262-638-4242

Email:              knutson.jeff@twindisc.com

to Bank:

 

BMO Harris Bank N.A.

777 North Water Street

Milwaukee, Wisconsin 53202

Attention:               Mark Czarnecki, SVP

Telephone:              414-765-7920

Email:                     mark.czarnecki@bmo.com

 

Each such notice, request or other communication shall be effective (i) if given
via email, when such email is transmitted to the email address specified in this
Section and a confirmation of such email has been received by the sender, (ii)
if given by mail, 5 days after such communication is deposited in the mail,
certified or registered with return receipt requested, addressed as aforesaid or
(iii) if given by any other means, when delivered at the addresses specified in
this Section; provided that any notice given pursuant to Section 2 shall be
effective only upon receipt.

 

Section 9.6     Counterparts. This Agreement may be executed in any number of
counterparts, and by the different parties hereto on separate counterpart
signature pages, each of which shall constitute an original, and all such
counterparts taken together shall be deemed to constitute one and the same
instrument.

 

Section 9.7     Successors and Assigns. This Agreement shall be binding upon
Borrower and its successors and assigns, and shall inure to the benefit of Bank
and its successors and assigns, including any subsequent holder of any of the
Obligations. Borrower may not assign any of its rights or obligations under any
Loan Document without the written consent of Bank.

 

Section 9.8     Amendments, etc. No amendment, modification, termination or
waiver of any provision of this Agreement or of any other Loan Document, nor
consent to any departure by Borrower therefrom, shall in any event be effective
unless the same shall be in writing and signed by Borrower and Bank. No notice
to or demand on Borrower in any case shall entitle Borrower to any other or
further notice or demand in similar or other circumstances.

 

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Section 9.9     Headings. Article and Section headings used in this Agreement
are for reference only and shall not affect the construction of this Agreement.

 

Section 9.10     Costs and Expenses; Indemnification. (a)     Borrower agrees to
pay all costs and expenses of Bank in connection with the preparation,
negotiation, execution, delivery, and administration of the Loan Documents,
including the reasonable fees and disbursements of counsel to Bank, in
connection with the preparation and execution of the Loan Documents and in
connection with the transactions contemplated hereby or thereby, and any
amendment, waiver or consent related thereto, whether or not the transactions
contemplated herein are consummated, together with any fees and charges suffered
or incurred by Bank in connection with periodic environmental audits, fixed
asset appraisals, title insurance policies, collateral filing fees and lien
searches. Borrower agrees to pay to Bank all costs and expenses incurred or paid
by Bank, including reasonable attorneys’ fees and disbursements and court costs,
in connection with any Default or Event of Default hereunder or in connection
with the enforcement of any of the Loan Documents (including all such costs and
expenses incurred in connection with any proceeding under the United States
Bankruptcy Code involving Borrower or any Subsidiary as a debtor thereunder).
Borrower further agrees to indemnify Bank, and any security trustee therefor,
their respective Affiliates, and each of their respective directors, officers,
employees, agents, advisors, and consultants (each such Person being called an
“Indemnitee”) against all losses, claims, damages, penalties, judgments,
liabilities and expenses (including all reasonable fees and disbursements of
counsel for any such Indemnitee and all reasonable expenses of litigation or
preparation therefor, whether or not the Indemnitee is a party thereto, or any
settlement arrangement arising from or relating to any such litigation) which
any of them may pay or incur arising out of or relating to any Loan Document or
any of the transactions contemplated thereby or the direct or indirect
application or proposed application of the proceeds of any Loan or Letter of
Credit, other than those which arise from the bad faith, reckless disregard or
willful misconduct of the party claiming indemnification. Borrower, upon demand
by Bank at any time, shall reimburse Bank for any legal or other expenses
(including all reasonable fees and disbursements of counsel for any such
Indemnitee) incurred in connection with investigating or defending against any
of the foregoing (including any settlement costs relating to the foregoing)
except if the same is directly due to the bad faith, reckless disregard or
willful misconduct of the party to be indemnified. To the extent permitted by
applicable law, Borrower shall not assert or cause any Subsidiary to assert, and
hereby waives, any claim against any Indemnitee, on any theory of liability, for
special, indirect, consequential or punitive damages (as opposed to direct or
actual damages) arising out of, in connection with, or as a result of, this
Agreement or the other Loan Documents or any agreement or instrument
contemplated hereby or thereby, the transactions contemplated hereby or thereby,
any Loan or Letter of Credit or the use of the proceeds thereof.

 

(b)     Borrower unconditionally agrees to forever indemnify, defend and hold
harmless, and covenants not to sue for any claim for contribution against, each
Indemnitee for any damages, costs, loss or expense, including, response,
remedial or removal costs and all fees and disbursements of counsel for any such
Indemnitee, arising out of any of the following: (i) any presence, release,
threatened release or disposal of any hazardous or toxic substance or petroleum
by Borrower or any Subsidiary or otherwise occurring on or with respect to its
Property (whether owned or leased), (ii) the operation or violation of any
Environmental Law, whether federal, state, or local, and any regulations
promulgated thereunder, by Borrower or any Subsidiary or otherwise occurring on
or with respect to its Property (whether owned or leased), (iii) any claim for
personal injury or property damage in connection with Borrower or any Subsidiary
or otherwise occurring on or with respect to its Property (whether owned or
leased), and (iv) the inaccuracy or breach of any environmental representation,
warranty or covenant by Borrower or any Subsidiary made herein or in any other
Loan Document evidencing or securing any Obligations or setting forth terms and
conditions applicable thereto or otherwise relating thereto, except for damages
arising from the bad faith, reckless disregard or willful misconduct of the
relevant Indemnitee.    

 

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Section 9.11     Set off. In addition to any rights now or hereafter granted
under the Loan Documents or applicable law and not by way of limitation of any
such rights, upon the occurrence of any Event of Default, Bank and each of its
affiliates is hereby authorized by Borrower at any time or from time to time,
without notice to Borrower, or to any other Person, any such notice being hereby
expressly waived, to set off and to appropriate and to apply any and all
deposits (general or special, including, but not limited to, indebtedness
evidenced by certificates of deposit, whether matured or unmatured, and in
whatever currency denominated, but not including trust accounts) and any other
indebtedness at any time held or owing by Bank or that affiliate, to or for the
credit or the account of Borrower, whether or not matured, against and on
account of the Obligations of Borrower to Bank under the Loan Documents,
including, but not limited to, all claims of any nature or description arising
out of or connected with the Loan Documents, irrespective of whether or not (a)
Bank shall have made any demand hereunder or (b) the principal of or the
interest on the Loans and other amounts due hereunder shall have become due and
payable pursuant to Section 8 and although said obligations and liabilities, or
any of them, may be contingent or unmatured.

 

Section 9.12     Entire Agreement. The Loan Documents constitute the entire
understanding of the parties thereto with respect to the subject matter thereof
and any prior agreements, whether written or oral, with respect thereto are
superseded hereby.

 

Section 9.13     Governing Law. This Agreement and the other Loan Documents
(except as otherwise specified therein), and any claim, controversy, dispute or
cause of action (whether in contract, tort or otherwise) based upon, arising out
of or relating to this Agreement or any Loan Document, and the rights and duties
of the parties hereto, shall be governed by and construed and determined in
accordance with the internal laws of the State of Wisconsin.

 

Section 9.14     Severability of Provisions. Any provision of any Loan Document
that is unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such unenforceability without invalidating the
remaining provisions hereof or affecting the enforceability of such provision in
any other jurisdiction. All rights, remedies and powers provided in this
Agreement and the other Loan Documents may be exercised only to the extent that
the exercise thereof does not violate any applicable mandatory provisions of
law, and all the provisions of this Agreement and other Loan Documents are
intended to be subject to all applicable mandatory provisions of law which may
be controlling and to be limited to the extent necessary so that they will not
render this Agreement or the other Loan Documents invalid or unenforceable.

 

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Section 9.15     Excess Interest. Notwithstanding any provision to the contrary
contained herein or in any other Loan Document, no such provision shall require
the payment or permit the collection of any amount of interest in excess of the
maximum amount of interest permitted by applicable law to be charged for the use
or detention, or the forbearance in the collection, of all or any portion of the
Loans or other obligations outstanding under this Agreement or any other Loan
Document (“Excess Interest”). If any Excess Interest is provided for, or is
adjudicated to be provided for, herein or in any other Loan Document, then in
such event (a) the provisions of this Section shall govern and control, (b)
neither Borrower nor any guarantor or endorser shall be obligated to pay any
Excess Interest, (c) any Excess Interest that Bank may have received hereunder
shall, at the option of Bank, be (i) applied as a credit against the then
outstanding principal amount of Obligations hereunder and accrued and unpaid
interest thereon (not to exceed the maximum amount permitted by applicable law),
(ii) refunded to Borrower, or (iii) any combination of the foregoing, (d) the
interest rate payable hereunder or under any other Loan Document shall be
automatically subject to reduction to the maximum lawful contract rate allowed
under applicable usury laws (the “Maximum Rate”), and this Agreement and the
other Loan Documents shall be deemed to have been, and shall be, reformed and
modified to reflect such reduction in the relevant interest rate, and (e)
neither Borrower nor any guarantor or endorser shall have any action against
Bank for any damages whatsoever arising out of the payment or collection of any
Excess Interest. Notwithstanding the foregoing, if for any period of time
interest on any of the Obligations is calculated at the Maximum Rate rather than
the applicable rate under this Agreement, and thereafter such applicable rate
becomes less than the Maximum Rate, the rate of interest payable on the
Obligations shall remain at the Maximum Rate until Bank have received the amount
of interest which Bank would have received during such period on the Obligations
had the rate of interest not been limited to the Maximum Rate during such
period.

 

Section 9.16     Construction. The parties acknowledge and agree that the Loan
Documents shall not be construed more favorably in favor of any party hereto
based upon which party drafted the same, it being acknowledged that all parties
hereto contributed substantially to the negotiation of the Loan Documents. The
provisions of this Agreement relating to Subsidiaries shall only apply during
such times as Borrower has one or more Subsidiaries. Nothing contained herein
shall be deemed or construed to permit any act or omission which is prohibited
by the terms of any Collateral Document, the covenants and agreements contained
herein being in addition to and not in substitution for the covenants and
agreements contained in the Collateral Documents.

 

Section 9.17     Submission to Jurisdiction; Waiver of Venue; Service of
Process.

 

(a)      BORROWER IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS
PROPERTY, TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF WISCONSIN
SITTING IN MILWAUKEE COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE
EASTERN DISTRICT OF WISCONSIN, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF
THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH
STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH
FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY
SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT
THAT BANK MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST BORROWER OR ITS PROPERTY IN THE
COURTS OF ANY OTHER JURISDICTION.

 

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(b)      BORROWER IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO
THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH
(a) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

 

(c)      EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE
MANNER PROVIDED FOR NOTICES IN SECTION 9.5. NOTHING IN THIS AGREEMENT WILL
AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY APPLICABLE LAW.

 

Section 9.18     Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

Section 9.19     USA Patriot Act. Bank hereby notifies Borrower that pursuant to
the requirements of the USA Patriot Act (Title III of Pub. L. 107 56 (signed
into law October 26, 2001)) (the “Act”), it is required to obtain, verify, and
record information that identifies Borrower, which information includes the name
and address of Borrower and other information that will allow Bank to identify
Borrower in accordance with the Act.

 

Section 9.20     Time is of the Essence. Time is of the essence of this
Agreement and each of the other Loan Documents.

 

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Section 9.21     Confidentiality. Bank agrees to maintain the confidentiality of
the Information (as defined below), except that Information may be disclosed (a)
to its and its Affiliates’ directors, officers, employees and agents, including
accountants, legal counsel and other advisors to the extent any such Person has
a need to know such Information (it being understood that the Persons to whom
such disclosure is made will first be informed of the confidential nature of
such Information and instructed to keep such Information confidential), (b) to
the extent requested by any regulatory authority (including any self-regulatory
authority, such as the National Association of Insurance Commissioners), (c) to
the extent required by applicable laws or regulations or by any subpoena or
similar legal process, (d) to any other party hereto, (e) in connection with the
exercise of any remedies hereunder or under any other Loan Document or any suit,
action or proceeding relating to this Agreement or any other Loan Document or
the enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section, to (A)
any assignee of or participant in, or any prospective assignee of or participant
in, any of its rights or obligations under this Agreement or (B) any actual or
prospective counterparty (or its advisors) to any swap or derivative transaction
relating to Borrower or any Subsidiary and its obligations, (g) with the prior
written consent of Borrower, (h) to the extent such Information (A) becomes
publicly available other than as a result of a breach of this Section or (B)
becomes available to Bank or any of its Affiliates on a non-confidential basis
from a source other than Borrower or any Subsidiary or any of their directors,
officers, employees or agents, including accountants, legal counsel and other
advisors, or (i) to rating agencies if requested or required by such agencies in
connection with a rating relating to the Loans or Commitments hereunder;
provided that only basic information about the pricing and structure of the
transaction evidenced hereby may be disclosed pursuant to this subsection (i).
For purposes of this Section, “Information” means all information received from
Borrower or any of the Subsidiaries or from any other Person on behalf of
Borrower or any Subsidiary relating to Borrower or any Subsidiary or any of
their respective businesses, other than any such information that is available
to Bank on a non-confidential basis prior to disclosure by Borrower or any of
its Subsidiaries or from any other Person on behalf of Borrower or any of the
Subsidiaries; provided that, in the case of information received from the
Borrower or any Subsidiary, or on behalf of Borrower or any Subsidiary, after
the date hereof, such information is clearly identified at the time of delivery
as confidential. Any Person required to maintain the confidentiality of
Information as provided in this Section shall be considered to have complied
with its obligation to do so if such Person has exercised the same degree of
care to maintain the confidentiality of such Information as such Person would
accord to its own confidential information.

 

[Signature Pages to Follow]

 

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This Credit Agreement is entered into between us for the uses and purposes
hereinabove set forth as of the date first above written.

 

 

“Borrower”

 

TWIN DISC, INCORPORATED

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

Name: Jeffrey S. Knutson

Title: Vice President – Finance and Chief

Financial Officer

 

 

 

“Bank”

 

BMO HARRIS BANK N.A.

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

Name: Mark Czarnecki

Title: Senior Vice President

 

 

S-1

 

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Schedule 5.2

 

Subsidiaries

 

Name

Jurisdiction of

Organization

 

Percentage

Ownership

Owner

Twin Disc International, S.P.R.L.

Belgium

99.99%

157,573 ordinary shares and 10,835 preferred shares owned by Twin Disc, Inc.; 1
ordinary share owned by John H. Batten

 

Twin Disc S.r.l.

Italy

100%

Twin Disc International, S.P.R.L

 

Twin Disc (Pacific) Pty. Ltd.

Australia

100%

Twin Disc, Incorporated

 

Twin Disc (Far East) Ltd.

Delaware (operating in Singapore)

100%

Twin Disc, Incorporated

 

Twin Disc (Far East) Pte. Ltd

Singapore

100%

9,004,731 Shares owned by Twin Disc (Far East) Ltd.; 1 Share owned by Twin Disc,
Inc.

 

Twin Disc Power Transmission (Shanghai) Co. Ltd.

China

100%

Twin Disc (Far East) Pte. Ltd.

 

Twin Disc Power Transmission Private Ltd.

India

100%

1,100,500 Shares owned by Twin Disc (Far East) Pte. Ltd.; 9,900 Shares owned by
Twin Disc, Inc.; 100 Shares owned by Twin Disc International, S.P.R.L

 

Mill-Log Equipment Co., Inc.

United States (Oregon)

100%

Twin Disc, Incorporated

 

Mill-Log Wilson Equipment

Canada

100%

Mill-Log Equipment Co., Inc.

 

 

 

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Twin Disc Nico Co., Ltd

Japan

66%

 

34%

Twin Disc, Incorporated

 

Hitachi

 

Twin Disc Japan

Japan

100%

Twin Disc, Incorporated

 

Rolla SP Propellers SA

Switzerland

100%

Twin Disc International, S.P.R.L

 

Twin Disc NL Holdings B.V.

Netherlands

100%

Twin Disc, Incorporated

 

Exploitatiemaatschappij Veth B.V.*

Netherlands

100%

Twin Disc NL Holdings, B.V.

 

Veth Diesel, B.V.*

Netherlands

100%

Twin Disc NL Holdings, B.V.

 

Veth Electra, B.V.*

Netherlands

100%

Twin Disc NL Holdings, B.V.

 

Veth Propulsion, B.V.*

Netherlands

100%

Twin Disc NL Holdings, B.V.

 

Veth Thrusters, B.V.*

Netherlands

100%

Twin Disc NL Holdings, B.V.

 

 

 

 

 

* Upon completion of Acquisition

 

S-2

 

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Schedule 5.17(b)

 

Compliance with Environmental Laws

 

 

None.

 

 

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Schedule 7.1(b)

 

Borrowings and Guaranties

 

 

None.

 

 

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Schedule 7.2(b)

 

Liens

 

 

None.

 

 

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Exhibit A-1

 

Term Note

 

U.S. $35,000,000 July 2, 2018

     

 

For Value Received, the undersigned, Twin Disc, Incorporated, a Wisconsin
corporation (“Borrower”), hereby promises to pay to BMO Harris Bank N.A.
(“Bank”) at the principal office of Bank in Milwaukee, Wisconsin (or such other
location as Bank may designate to Borrower), in immediately available funds, the
principal sum of Thirty Five Million and No/100 Dollars ($35,000,000) or, if
less, the aggregate unpaid principal amount of all Term Loans made or maintained
by Bank to Borrower pursuant to the Credit Agreement (as defined below), in
installments in the amounts called for by Section 2.7(a) of the Credit
Agreement, together with interest on the principal amount of such Term Loan from
time to time outstanding hereunder at the rates, and payable in the manner and
on the dates, specified in the Credit Agreement.

 

This Term Note (this “Note”) is the Term Note referred to in the Credit
Agreement dated as of June 29, 2018, between Borrower and Bank (as amended,
restated, supplemented, or otherwise modified from time to time, the “Credit
Agreement”), and this Note and the holder hereof are entitled to all the
benefits and security provided for thereby or referred to therein, to which
Credit Agreement reference is hereby made for a statement thereof. All defined
terms used in this Note, except terms otherwise defined herein, shall have the
same meaning as in the Credit Agreement. This Note shall be governed by and
construed in accordance with the internal laws of the State of Wisconsin.

 

Voluntary prepayments may be made hereon, certain prepayments are required to be
made hereon, and this Note may be declared due prior to the expressed maturity
hereof, all in the events, on the terms and in the manner as provided for in the
Credit Agreement.

 

Borrower hereby waives demand, presentment, protest or notice of any kind
hereunder.

 

 

TWIN DISC, INCORPORATED

 

 

 

 

 

 

 

 

 

 

By

 

 

 

Name: Jeffrey Knutson

Title: Vice President – Finance and Chief

Financial Officer

 

 

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Exhibit A-2

 

Amended and Restated Revolving Note

 

U.S. $50,000,000

June 29, 2018

  

For Value Received, the undersigned, Twin Disc, Incorporated, a Wisconsin
corporation (“Borrower”), hereby promises to pay to BMO Harris Bank N.A.
(“Bank”) at the principal office of Bank in Milwaukee, Wisconsin (or such other
location as Bank may designate to Borrower), in immediately available funds, the
principal sum of Fifty Million and No/100 Dollars ($50,000,000) or, if less, the
aggregate unpaid principal amount of all Revolving Loans made by Bank to
Borrower pursuant to the Credit Agreement (as defined below), together with
interest on the principal amount of each Revolving Loan from time to time
outstanding hereunder at the rates, and payable in the manner and on the dates,
specified in the Credit Agreement.

 

This Amended and Restated Revolving Note (this “Note”) is one of the Revolving
Notes referred to in the Credit Agreement dated as of the date hereof, among
Borrower and Bank (as extended, renewed, amended or restated from time to time,
the “Credit Agreement”), and this Note and the holder hereof are entitled to all
the benefits and security provided for thereby or referred to therein, to which
Credit Agreement reference is hereby made for a statement thereof. All defined
terms used in this Note, except terms otherwise defined herein, shall have the
same meaning as in the Credit Agreement. This Note shall be governed by and
construed in accordance with the internal laws of the State of Wisconsin.

 

Voluntary prepayments may be made hereon, certain prepayments are required to be
made hereon, and this Note may be declared due prior to the expressed maturity
hereof, all in the events, on the terms and in the manner as provided for in the
Credit Agreement.

 

Borrower hereby waives demand, presentment, protest or notice of any kind
hereunder.

 

This Note is an amendment and restatement of that certain Revolving Credit Note
dated as of April 22, 2016, issued by Borrower and payable to the order of Bank
of Montreal (“BMO”), in the principal amount of $40,000,000 (the “Original
Note”), as the Original Note was assigned to Bank as of the date hereof pursuant
to the Assignment and Assumption of Revolving Loan Note, among Borrower, Bank
and BMO, and this Note is a continuation of the indebtedness evidenced by the
Original Note. This Note is not intended as, and shall not be, construed as a
repayment, novation or refinancing of, the Original Note or the indebtedness
evidenced thereby.

 

 

TWIN DISC, INCORPORATED

 

 

 

 

 

 

By

 

 

 

Name: Jeffrey Knutson

Title: Vice President – Finance and Chief

Financial Officer

 

 

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Exhibit B

 

Borrowing Base Certificate

 

 

See attached.

 

 

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BMO Harris Bank N.A. Twin Disc, Incorporated     Borrowing Base Certificate  
Report No.     1     5/31/2018  

 

          

COLLATERAL ACTIVITY   US$

 

ACCOUNTS RECEIVABLE:

Date Total A/R

1    Beginning Accounts Receivable Balance

2    GROSS SALES (INVOICES)

3    Debit Memos/Others Adjustments

4    Credit Memos/Other Adjustments

1-May-18

 

 

5    TOTAL NET SALES (2+3+4)    

6    Gross Collections

7    Non A/R Collections

8    Discounts/Allowances

 

    9    TOTAL DEDUCTIONS (6+7+8)   0.00 10  Net Ending Balance 31-May-18   11
 Less: Ineligible Accounts 31-May-18   12  Total Eligible Accounts Receivable  
0.00 13  Accounts Receivable Advance Rate   85.0% 14  A/R AVAILABLE   0.00

 

INVENTORY:

 

DESCRIPTION

 

Date

Finished Goods

Inventory

Sub-Assembly

Inventory

Raw Material

Inventory

Mill Log

Inventory

Work In Process

Inventory

 

Total Inventory

15  Total Inventory

31-May-18

           

16  Less:  Ineligible Inventory

31-May-18

           

17  Total Eligible Inventory

             

18  Inventory Advance Rates

 

50.0%

50.0%

50.0%

50.0%

0.0%

 

19  INVENTORY AVAILABLE

 

 

 

 

 

 

 

20  Inventory Sub-Limit

           

35,000,000.00

 

 21  GROSS AVAILABILITY (14+ lesser of 19 or 20)

 

 LOAN ACTIVITY:

 

22  Beginning Loan Balance  

23  Total Paydowns

24  Total Advances

1-May-18        

0.00

0.00

 

 

25  Ending Loan Balance (28+29+30)  31-May-18

1-May-18         0.00 

 

                26   LETTER OF CREDIT BALANCE           0.00                    
27   AVAILABILITY REMAINING          

0.00  

 

 

 

Pursuant to, and in accordance with, the terms and provisions of the Credit and
Security Agreement, dated as of June 29, 2018 (the "Agreement"), among BMO
Harris Bank, N.A., and Twin Disc, Incorporated (as "Borrower"), is executing and
delivering to BMO Harris Bank N.A. this Borrowing Base Certificate accompanied
by supporting data. Borrower represents and warrants to BMO Harris Bank, N.A.
that this Borrowing Base Certificate and such supporting data is true and
correct, and is based on information contained in the Borrowers' own financial
accounting records. Borrower, by the execution of this Borrowing Base
Certificate, hereby ratifies, confirms and affirms all of the terms, conditions
and provisions of the Agreement, and further certifies on this         day of
             , 20   , that the Borrowers are in compliance with said
Agreement.     

 

BORROWER: Twin Disc, Incorporated

 

Authorized Signer:                                                        

 

 

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Exhibit C

 

Twin Disc, Incorporated

 

Compliance Certificate

 

To:         BMO Harris Bank N.A.

 

This Compliance Certificate is furnished to BMO Harris Bank N.A. (“Bank”)
pursuant to that certain Credit Agreement dated as of June 29, 2018, between
Twin Disc, Incorporated, a Wisconsin corporation (“Borrower”), and Bank (the
“Credit Agreement”). Unless otherwise defined herein, the terms used in this
Compliance Certificate have the meanings ascribed thereto in the Credit
Agreement.

 

The Undersigned hereby certifies that:

 

1.      I am the duly elected Vice President – Finance and Chief Financial
Officer of Borrower;

 

2.     I have reviewed the terms of the Credit Agreement and I have made, or
have caused to be made under my supervision, a detailed review of the
transactions and conditions of Borrower and its Subsidiaries during the
accounting period covered by the attached financial statements;

 

3.     The examinations described in paragraph 2 did not disclose, and I have no
knowledge of, the existence of any condition or the occurrence of any event
which constitutes a Default or Event of Default during or at the end of the
accounting period covered by the attached financial statements or as of the date
of this Certificate, except as set forth below;

 

4.     The financial statements required by Section 6.5 of the Credit Agreement
and being furnished to you concurrently with this certificate are, to the best
of my knowledge, true, correct and complete as of the dates and for the periods
covered thereby; and

 

5.     The Attachment hereto sets forth financial data and computations
evidencing Borrower’s compliance with certain covenants of the Credit Agreement,
all of which data and computations are, to the best of my knowledge, true,
complete and correct and have been made in accordance with the relevant Sections
of the Credit Agreement.

 

 

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Described below are the exceptions, if any, to paragraph 3 by listing, in
detail, the nature of the condition or event, the period during which it has
existed and the action which Borrower has taken, is taking, or proposes to take
with respect to each such condition or event:

 

                       

 

The foregoing certifications, together with the computations set forth in the
Attachment hereto and the financial statements delivered with this Certificate
in support hereof, are made and delivered this _________ day of
__________________, ___.

 

 

TWIN DISC, INCORPORATED

 

       

 

 

 

 

 

By

 

 

 

Name: Jeffrey Knutson

Title: Vice President – Finance and Chief

Financial Officer

 

-2-

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Schedule I

to Compliance Certificate

 

Twin Disc, Incorporated

 

Compliance Calculations

for Credit Agreement dated as of June 29, 2018

 

Calculations as of _____________, _______

 

      A.

Total Funded Debt/EBITDA Ratio (Section 7.12(a))

   

1.      Total Funded Debt

$___________

 

2.      Net Income for past 4 quarters

___________

 

3.      Interest Expense for past 4 quarters

___________

 

4.      Income taxes for past 4 quarters

___________

 

5.      Depreciation and Amortization Expense for past 4 quarters

___________

 

6.      Restructuring charges for past 4 quarters

___________

 

7.      Impairment charges for past 4 quarters

___________

 

8.      Non-cash stock compensation for past 4 quarters

___________

 

9.      FMV WIP adjustments for past 4 quarters

___________

 

10.    Sum of Lines A2, A3, A4, A5, A6, A7, A8 and A9

         (“EBITDA”)

___________

 

11.    Ratio of Line A1 to A10

____:1.0

 

12.    Line A11 ratio must not exceed

3.50:1.0

 

13.    Borrower is in compliance (circle yes or no)

yes/no

      B.

Net Worth (Section 7.12(b))

   

1.      Net Worth

$___________

 

2.      Line B1 shall not be less than

$70,000,000

 

3.      Borrower is in compliance (circle yes or no)

yes/no

 

 

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