Document:

Exhibit 10.78

 

CAP ROCK ENERGY CORPORATION

SUPPLEMENTAL EXECUTIVE DEFERRED

COMPENSATION RETIREMENT PLAN

 

PLAN DOCUMENT

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I  PURPOSE OF PLAN

  
	
  1.1

  	
  PURPOSE
  OF PLAN

  
	
   

  	
   

  
	
  ARTICLE II  DEFINITIONS

  
	
  2.1

  	
  ACCOUNT

  
	
  2.2

  	
  BENEFICIARY

  
	
  2.3

  	
  BOARD

  
	
  2.4

  	
  CODE

  
	
  2.5

  	
  COMMITTEE

  
	
  2.6

  	
  COMPANY

  
	
  2.7

  	
  COMPANY CONTRIBUTION

  
	
  2.8

  	
  COMPENSATION

  
	
  2.9

  	
  EFFECTIVE
  DATE

  
	
  2.10

  	
  ELIGIBLE
  EMPLOYEE

  
	
  2.11

  	
  ENTRY DATE

  
	
  2.12

  	
  NONQUALIFIED DEFERRAL CONTRIBUTION

  
	
  2.13

  	
  PARTICIPANT

  
	
  2.14

  	
  PARTICIPANT ENROLLMENT AND ELECTION FORM

  
	
  2.15

  	
  PLAN

  
	
  2.16

  	
  PLAN YEAR

  
	
  2.17

  	
  TRUST

  
	
  2.18

  	
  TRUSTEE

  
	
  2.19

  	
  VALUATION
  DATE

  
	
   

  	
   

  
	
  ARTICLE III  ELIGIBILITY AND PARTICIPATION

  
	
  3.1

  	
  REQUIREMENTS

  
	
  3.2

  	
  RE-EMPLOYMENT

  
	
  3.3

  	
  CHANGE OF EMPLOYMENT CATEGORY

  
	
   

  	
   

  
	
  ARTICLE IV 
  NONQUALIFIED DEFERRAL CONTRIBUTIONS

  
	
  4.1

  	
  NONQUALIFIED DEFERRAL ELECTIONS

  
	
  4.2

  	
  PAYROLL DEDUCTIONS

  
	
  4.3

  	
  TIMING OF CONTRIBUTION

  
	
   

  	
   

  
	
  ARTICLE V 
  COMPANY CONTRIBUTIONS

  
	
  5.1

  	
  COMPANY CONTRIBUTION

  
	
  5.2

  	
  TIMING OF CONTRIBUTION

  

 

 

	
  ARTICLE VI  PLAN ACCOUNTS

  
	
  6.1

  	
  ESTABLISHMENT OF ACCOUNTS

  
	
  6.2

  	
  NONQUALIFIED DEFERRAL ACCOUNT

  
	
  6.3

  	
  COMPANY CONTRIBUTION ACCOUNT

  
	
  6.4

  	
  ALLOCATION OF INCOME

  
	
   

  	
   

  
	
  ARTICLE VII  ALLOCATION OF FUNDS

  
	
  7.1

  	
  ALLOCATION OF EARNINGS OR LOSSES ON
  ACCOUNTS

  
	
  7.2

  	
  ACCOUNTING FOR DISTRIBUTION

  
	
  7.3

  	
  INTERIM VALUATIONS

  
	
   

  	
   

  
	
  ARTICLE VIII  VESTING

  
	
  8.1

  	
  NONQUALIFIED DEFERRAL CONTRIBUTIONS

  
	
  8.2

  	
  COMPANY CONTRIBUTIONS

  
	
   

  	
   

  
	
  ARTICLE IX 
  PAYMENTS OF BENEFITS

  
	
  9.1

  	
  PAYMENTS OF BENEFITS

  
	
  9.2

  	
  WITHDRAWAL OF FUNDS

  
	
   

  	
   

  
	
  ARTICLE X 
  COMMITTEE ADMINISTRATION

  
	
  10.1

  	
  COMMITTEE

  
	
   

  	
   

  
	
  ARTICLE XI  THE TRUST

  
	
  11.1

  	
  ESTABLISHMENT OF TRUST

  
	
   

  	
   

  
	
  ARTICLE XII  ADMINISTRATION

  
	
  12.1

  	
  ADMINISTRATIVE AUTHORITY

  
	
  12.2

  	
  MUTUAL EXCLUSION OF RESPONSIBILITY

  
	
  12.3

  	
  UNIFORMITY OF DISCRETIONARY ACTS

  
	
  12.4

  	
  LITIGATION

  
	
  12.5

  	
  PAYMENT OF ADMINISTRATION EXPENSES

  
	
  12.6

  	
  CLAIMS
  PROCEDURE

  
	
  12.7

  	
  LIABILITY OF COMMITTEE, INDEMNIFICATION

  
	
  12.8

  	
  EXPENSES

  
	
  12.9

  	
  TAXES

  
	
  12.10

  	
  ATTORNEY’S
  FEES

  

 

 

ARTICLE
I - PURPOSE OF PLAN

 

1.1                                 PURPOSE OF PLAN.   The Company intends
and desires by the adoption of this Plan to recognize the value to the Company
of the past and present services of Eligible Employees covered by the Plan and
to encourage an assure their continued service with the Company by making more
adequate provisions for their future retirement security.

 

This Plan has been adopted to
provide certain select management and highly compensated employees of Cap Rock
Energy Corporation the opportunity to accumulate deferred compensation until
retirement, disability, resignation, dismissal or death.

 

This Plan is intended to be “a
plan which is unfunded and maintained by an employer primarily for the purpose
of providing deferred compensation for a select group of management or highly
compensated employees” within the meaning of Sections 201(2), 301(a)(3) and
401(a)(1) of the Employee Retirement Income Security Act of 1974 (“ERISA”) and
shall be interpreted and administered in a manner consistent with that intent.

 

ARTICLE
II - DEFINITIONS

 

2.1                                 ACCOUNT means those separate accounts established and
maintained under the Plan in the name of each Participant as required pursuant
to the provisions of Article VII.

 

2.2                                 BENEFICIARY means a Participant’s beneficiary or
beneficiaries identified on the Participant Enrollment and Election Form.

 

2.3                                 BOARD means the Board of Directors of Cap Rock Energy
Corporation.

 

2.4                                 CODE means the Internal Revenue Code of 1986 and the regulations
thereunder, as amended from time to time.

 

2.5                                 COMMITTEE means the Retirement Committee appointed by the
Board.

 

2.6                                 COMPANY means Cap Rock Energy Corporation or any company which
is a successor as a result of merger, consolidation, liquidation, transfer of
assets, or other reorganization.

 

2.7                                 COMPANY CONTRIBUTION means an amount contributed
by the Company pursuant to the provisions of Article V.

 

2.8                                 COMPENSATION means base salary or wages, plus overtime,
bonuses, commissions, etc., which is paid the employee by the Company for the
performance of duties during the Plan Year. 
Compensation used shall be prior to any salary deferrals.

 

1

 

2.9                                 EFFECTIVE DATE means the date on which the Company
adopts the Plan.

 

2.10                           ELIGIBLE EMPLOYEE means, for any Plan Year (or
applicable portion thereof), person employed by the Company who is determined
by the Board to be a member of select group of management or highly compensated
employees, who is designated by the Board to be eligible under the Plan.  By fifteen
days prior to the beginning of a Plan Year, the Company shall notify those
individuals, if any, who will be Eligible Employees for the next Plan Year. If
the Company determines that an employee first becomes an Eligible Employee
during a Plan Year, the Company shall notify such employee of its determination
and of the date during the Plan Year on which the employee shall. first become an Eligible Employee.

 

2.11                           ENTRY DATE means the date as determined by the Company.

 

2.12                           NONQUALIFIED DEFERRAL CONTRIBUTION
means Compensation that is due to be earned and which would otherwise be paid
to the Participant, which the Participant elects to defer under the Plan and
which is contributed on behalf of each Participant by the Company pursuant to
the provisions of Article IV.

 

2.13                           PARTICIPANT means any person so designated in accordance
with the provisions of Article III, including where appropriate according to
the context of the Plan, any former employee who is or may become (or whose
Beneficiaries may become) eligible to receive a benefit under the Plan.

 

2.14                           PARTICIPANT ENROLLMENT AND ELECTION
FORM means the form on which a Participant elects to defer Compensation
hereunder and on which the Participant makes certain other designations as
required thereon.

 

2.15                           PLAN means this Cap Rock Energy Corporation Supplemental
Executive Deferred Compensation Retirement Plan.

 

2.16                           PLAN YEAR means the twelve (12) month period ending on
December 31 each year.

 

2.17                           TRUST means the trust fund established pursuant to the Plan.

 

2.18                           TRUSTEE means the trustee named in the agreement establishing
the Trust and such successor and/or additional trustees as may be named
pursuant to the terms of the agreement establishing the Trust.

 

2.19                           VALUATION DATE means the last day of each Plan Year and
any other date that the Company, in its sole discretion, designates as a
Valuation Date.

 

2

 

ARTICLE III - ELIGIBILITY AND PARTICIPATION

 

3.1                                 REQUIREMENTS.   Every Eligible Employee as
of the Effective Date shall be eligible to become a Participant on the
Effective Date. Every other Eligible Employee shall be eligible to become a
Participant on the first Entry Date occurring on or after the date on which he
or she becomes an Eligible Employee. No individual shall become a Participant,
however, if he or she in not an Eligible Employee on the date his or her
participation is to begin.

 

Participation in the Plan is
voluntary. In order to participate, an otherwise Eligible Employee must execute
a valid Participant Enrollment and Election Form in such manner as the Company
may require and must agree to make Nonqualified Deferral Contributions as
provided in Article IV.

 

3.2                                 RE-EMPLOYMENT.   If a Participant whose
employment with the Company is terminated is subsequently re-employed, he or
she shall become a Participant in the Plan in accordance with the provisions of
Section 3.1 of this Article.

 

3.3                                 CHANGE OF EMPLOYMENT CATEGORY.   During
any period in which a Participant remains in the employ of the Company, but
ceases to be an Eligible Employee, he or she shall not be eligible to make
additional Nonqualified Deferral Contributions under this Plan.

 

ARTICLE IV - NONQUALIFIED DEFERRAL
CONTRIBUTIONS

 

4.1                                 NONQUALIFIED DEFERRAL ELECTIONS.   In
accordance with rules established by the Company, a Participant may elect to
make a Nonqualified Deferral Contribution with respect to a Plan Year by use of
a Participant Enrollment and Election Form.

 

4.2                                 PAYROLL DEDUCTIONS.   Nonqualified
Deferral Contributions shall be made through payroll deductions. The
Participant may change the amount of his or her Nonqualified Deferral
Contribution amount by delivering to the Company at least fifteen days prior to  the beginning of any quarter a new Participant Enrollment and Election
form with such change being first effective for Compensation to be earned in
the first payroll period of the quarter. Once made, a Nonqualified
Deferral Contribution payroll deduction election shall continue in force
indefinitely, until changed by the Participant on a subsequent Participant
Enrollment and Election Form delivered to the Company.

 

4.3                                 TIMING OF CONTRIBUTION.   Nonqualified
Deferral Contributions shall be made at the same time Eligible Employees are
paid.

 

ARTICLE
V - COMPANY CONTRIBUTIONS

 

5.1                                 COMPANY CONTRIBUTION.   In its
sole discretion, the Company may make a Company Contribution on behalf a
Participant.

 

3

 

5.2                                 TIMING OF CONTRIBUTION.   Company
Contributions shall be made as soon as administratively feasible after declared
by the Board.

 

ARTICLE
VI - PLAN ACCOUNTS

 

6.1                                 ESTABLISHMENT OF ACCOUNTS.   There
shall be established and maintained by the Company separate Accounts in the
name of each Participant, as required and as described in this Article VI.

 

6.2                                 NONQUALIFIED DEFERRAL ACCOUNT.   The
Company shall establish an Account to which are credited a Participant’s
Nonqualified Deferral Contributions, plus amounts equal to any income, gains,
or losses (to extent realized, based upon fair market value of the Account’s
assets) attributable or allocable to the Participant’s Account.

 

6.3                                 COMPANY CONTRIBUTION ACCOUNT.   The
Company shall establish an Account to which are credited a Participant’s
Company Contributions, plus amounts equal to any income, gains, or losses (to
extent realized, based upon fair market value of the Account’s assets)
attributable or allocable to the Participant’s Account.

 

6.4                                 ALLOCATION OF INCOME.   The Company
shall have the discretion to allocate such income, gains, or losses among
Accounts pursuant to such allocation rules as the Company deems to be
reasonable and administratively practicable.

 

ARTICLE
VII - ALLOCATION OF FUNDS

 

7.1                                 ALLOCATION OF EARNINGS OR LOSSES ON
ACCOUNTS.   Each Participant’s Account shall be invested in
such investments as the Trustee shall determine. The Trustee may (but is not
required to) consider the Participant’s investment preferences when investing
amounts credited to the Participant’s Accounts.  Such investment preferences shall be related to the Trustee at
the time and in the manner prescribed by the Company, in its sole
discretion.  The Participant’s Accounts
will be credited or debited with the increase or decrease in the realizable net
asset value or credited interest, as applicable, of each investment, as
follows. As of each Valuation Date, an amount equal to the net increase of
decrease in realizable net asset value or credited interest, as applicable (as
determined by the Trustee), of each investment option within the Trust since
the preceding Valuation Date shall be allocated among all Participants’
Accounts to be invested in that investment option in accordance with the ratio
which the portion, determined as provided herein, bears to the aggregate of all
amounts to be invested within that investment option.

 

7.2                                 ACCOUNTING FOR DISTRIBUTION.   As
of the date of any distribution under the Plan to a Participant or his or her
Beneficiary or Beneficiaries, such distribution shall be charged to the
applicable Participant’s Account.

 

7.3                                 INTERIM VALUATIONS.   If it is
determined by the Company that the value of the Trust as 

 

4

 

of any date on which
distributions are to be made differs materially from the value of the Trust on
the prior Valuation Date upon which the distribution is to be based, the
Company, in its discretion, shall have the right to designate any date in the
interim as a Valuation Date for the purpose of revaluing the Trust so that the
Account from which the distribution is being made will, prior to the
distribution, reflect its share of such material difference in value.

 

ARTICLE
VIII - VESTING

 

8.1                                 NONQUALIFIED DEFERRAL CONTRIBUTIONS.   A
Participant shall always be one hundred percent (100%) vested in amounts
credited to his or her Nonqualified Deferral Account.

 

8.2                                 COMPANY CONTRIBUTIONS.   A
Participant’s Company Contribution Account will be subject to the vesting
schedule attached hereto as Exhibit “A”

 

ARTICLE IX - PAYMENTS OF BENEFITS

 

9.1                                 PAYMENTS OF BENEFITS.   The benefit
payable under this Plan on account of a Participant’s termination of
employment, retirement, disability, or death shall be distributed in a cash
lump sum as soon as practicable and no later than sixty (60) days after the
earlier of such termination of employment, retirement, incurrence of disability
(as determined by the Committee), or death. Any death benefit payable under the
Plan shall be payable to the Participant’s Beneficiary.

 

9.2                                 WITHDRAWAL OF FUNDS.   Any
participate may withdraw any amount of money at anytime that he or she has
contributed to this Plan without penalty from the Plan. Any participate
withdrawing money from the Plan in this manner shall be responsible for taxes
including income taxes as ordinary income.

 

ARTICLE X - COMMITTEE ADMINISTRATION

 

10.1                           COMMITTEE.   The Committee shall
administer, construe, and interpret this Plan and shall determine, subject to
the provision of this Plan, the Eligible Employees who become Participants in
the Plan from time to time and the amount, if any, due a Participant (or his or
her Beneficiary) under this Plan. No member of the Committee shall be liable
for any act done or determination made in good faith. No member of the
Committee who is a Participant in this Plan may vote on matters affecting his
or her personal benefit under this Plan, but any such member shall otherwise be
fully entitled to act in matters arising out of or affecting this Plan
notwithstanding his or her participation herein. In carrying out its duties
herein, the Committee shall have discretionary authority to exercise all powers
and to make all determinations, consistent with the terms of the Plan, in all
matters entrusted to it, and its determinations shall be given deference and
shall be final and binding on all interested parties.

 

ARTICLE XI - THE TRUST

 

11.1                           ESTABLISHMENT OF TRUST.   The
Company shall establish the Trust with the Trustee,

 

5

 

pursuant to such terms and
conditions as are set forth in the Trust agreement to be entered into between
the Company and the Trustee. The Trust is intended to be treated as a “grantor”
trust under the Code, and the establishment of the Trust is not intended to
cause Participants to realize current income on amounts contributed thereto,
and the Trust shall be so interpreted.

 

ARTICLE XII - ADMINISTRATION

 

12.1                           ADMINISTRATIVE AUTHORITY.   Except
as otherwise specifically provided herein, the Company shall have the sole
responsibility for and the sole control of the operation and administration of
the Plan, and shall have the power and authority to take all actions including
the right to amend or terminate the Plan, and to make all decisions and
interpretations which may be necessary or appropriate in order to administer
and operate the Plan, including, without limiting the generality of the,
foregoing, the power, duty, and responsibility to:

 

a)                                      Resolve and
determine all disputes or questions arising under the Plan, including the power
to determine the rights of Eligible Employees, Participants, and Beneficiaries,
and their respective benefits, and to remedy any ambiguities, inconsistencies,
or omissions in the Plan.

 

b)                                     Adopt such rules
of procedure and regulations as in its opinion may be necessary for the proper
and efficient administration of the Plan and as are consistent with the Plan.

 

c)                                      Implement the
Plan in accordance with its terms and the rules and regulations adopted as
above.

 

d)                                     Make
determinations with respect to the eligibility of any Eligible Employee as a
Participant and make determination concerning the crediting and distribution of
Plan Accounts.

 

e)                                      Appoint any
persons or firms, or otherwise act to secure specialized advice or assistance,
as it deems necessary or desirable in connection with the administration and
operation of the Plan, and the Company shall be entitled to rely conclusively
upon, and shall be fully protected in any action or omission taken by it in
good faith reliance upon the advice or delegate from time to time by written
instrument all or any part of its duties, powers, or responsibilities under the
Plan, both ministerial and discretionary, as it deems appropriate, to any
person or committee, and in the same manner to revoke any such delegation of
duties, powers, or responsibilities. Any action of such person or committee in
the exercise of such delegated duties, powers, or responsibilities shall have
the same force and effect for all purposes hereunder as if such action had been
taken by the Company.  Further, the
Company may authorize one or more persons to execute any certificate or
document on behalf of the Company, in which event any person notified by the
Company of such authorization shall be entitled to accept and; conclusively
rely upon any such certificate or document executed by such person as representing
action by the Company until such 

 

6

 

third person shall have been notified of the
revocation of such authority.

 

12.2                           MUTUAL EXCLUSION OF RESPONSIBILITY.   Neither
the Trustee nor the Company shall be obliged to inquire into or be responsible
for any act or failure to act, or the authority therefor, on the part of the
other.

 

12.3                           UNIFORMITY OF DISCRETIONARY ACTS.   Whenever
in the administration or operation of the Plan discretionary actions by the
Company are required or permitted, such actions shall be consistently and
uniformly applied to all persons similarly situated, and no such action shall
be taken which shall discriminate in favor of any particular person or

group of persons.

 

12.4                           LITIGATION.   Except as may be otherwise
required by law, in any action or judicial proceeding affecting the Plan, no
Participant or Beneficiary shall be entitled to any notice or service of
process, and any final judgment entered in such action shall be binding on all
persons interested in or claiming under the Plan.

 

12.5                           PAYMENT OF ADMINISTRATION EXPENSES.   All
expenses incurred in the administration and operation of the Plan and the
Trust, including any taxes payable by the Company in respect of the Plan or
Trust or payable by or from the Trust pursuant to its terms shall be paid by
the Company.

 

12.6                           CLAIMS PROCEDURE.

 

a)                                      Notice of Claim.
Any Eligible Employee or Beneficiary, or the duly authorized representative of
an Eligible Employee or Beneficiary, may file with the Committee a claim for a
Plan benefit. Such a claim must be in writing on a form provided by the
Committee and must be delivered to the Committee, in person or by mail, postage
prepaid. Within ninety (90) days after the receipt of such a claim, the
Committee shall send to the claimant, by mail, postage prepaid, a notice of the
granting or the denying, in whole or in part, of such claim, unless special
circumstances require an extension of time for processing the claim. In no
event may the extension exceed ninety (90) days from the end of the initial
period. If such an extension is necessary, the claimant will be given a written
notice to this effect prior to the expiration of the initial ninety (90) day
period. The Committee shall have full discretion to deny or grant a claim in
whole or in part in accordance with the terms of the Plan. If notice of the
denial of a claim is not furnished in accordance with this Section, the claim
shall be denied and the claimant shall be permitted to exercise his or her
right to review pursuant to Sections 13.6(c) and 13.6(d) of the Plan, as
applicable.

 

b)                                     Action on Claim.
The Committee shall provide to every claimant who is denied a claim for
benefits a written notice setting forth, in a manner calculated to be
understood by the claimant:

 

7

 

(i)                                     The specific
reason or reasons for the denial;

 

(ii)                                  A specific reference
to the pertinent Plan provisions on which the denial is based;

 

(iii)                               A description of any
additional material or information necessary of the claimant to perfect the
claim and an explanation of why such material or information is necessary; and

 

(iv)                              An explanation of the
Plan’s claim review procedure.

 

c)                                      Review of Denial.
Within sixty (60) days after the receipt by a claimant of written notification
of the denial (in whole or in part) of a claim, the claimant or the claimant’ s
duly authorized representative, upon written application to the Committee,
delivered in person or by certified mail, postage prepaid, may review pertinent
documents and may submit to the Committee, in writing, issues and comments
concerning the claim.

 

d)                                     Decision on
Review. Upon the Committee’s receipt of a notice of a request for review, the
Committee shall make a prompt decision on the review and shall communicate the
decision on review in writing to the claimant The decision on review shall be
written in a manner calculated to be understood by the claimant and shall
include specific reasons for the decision and specific references to the
pertinent Plan provisions on which the decision is based.  The decision on review shall be made not
later than sixty (60) days after the Committee’s receipt of a request for a
review, unless special circumstances require an extension of time for
processing, in which case a decision shall be rendered not later than one
hundred twenty (120) days after receipt of the request for review. If an
extension is necessary, the claimant shall be given written notice of the
extension by the Committee prior to the expiration of the initial sixty (60)
day period. If notice of the decision on review is not furnished in accordance
with this Section, the claim shall be denied on review.

 

12.7                           LIABILITY OF COMMITTEE,
INDEMNIFICATION.    To the extent permitted by law, the
Committee or any Company employee shall not be liable to any person for any
action taken or omitted in connection with the interpretation and
administration of this Plan unless attributable to his or her own bad faith or
willful misconduct.

 

12.8                           EXPENSES.   The cost of the establishment of
the Plan and the adoption of the Plan by the Company, including but not limited
to legal and accounting fees, shall be borne by the Company.

 

12.9                           TAXES.   All amounts payable hereunder shall be
reduced by any and all federal, state, and local taxes imposed upon an Eligible
Employee or his or her Beneficiary which are required to be paid or withheld by
Company. The determination by the Company regarding applicable income and 

 

8

 

employment tax withholding
requirements shall be final and binding on the Eligible Employee.

 

12.10                     ATTORNEY’S FEES.   The Company shall pay
the reasonable attorney’s fees incurred by any Eligible Employee in an action
brought against Company to enforce Eligible Employee’s rights under the Plan,
provided that such fees shall only be payable in the event that the Eligible
Employee prevails in such action.

 

	
  CAP ROCK
  ENERGY CORPORATION

  
	
   

  	
   

  
	
  By:  /s/ Celia Zinn

  	
   

  
	
  Celia Zinn, Controller

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Date:

  	
  November 14,
  2002

  	
   

  	
   

  
				

 

9

 

Exhibit “A”

 

VESTING SCHEDULE

 

	
  1 Year - 10

  	
  %

  
	
  2 Years - 20

  	
  %

  
	
  3 Years - 30

  	
  %

  
	
  4 Years - 40

  	
  %

  
	
  5 Years - 60

  	
  %

  
	
  6 Years - 80

  	
  %

  
	
  7 Years -
  100

  	
  %

  

 

* This Vesting Schedule includes
all prior years that a participant participating in this Plan participated in
the Cap Rock Electric Cooperative, Inc. Supplemental Executive Deferred
Compensation Retirement Plan.

 

10Exhibit 10.1

 

LOAN AND SECURITY AGREEMENT

 

by and among

 

MACKIE DESIGNS

INC.

MACKIE DESIGNS

UK PLC

 

as Borrowers

 

and

 

MACKIE DESIGNS

MANUFACTURING, INC.

SIA SOFTWARE

COMPANY, INC.

MACKIE

INVESTMENT CO.

 

as Guarantors

 

and

 

CONGRESS

FINANCIAL CORPORATION (FLORIDA),

as Agent

 

and

 

THE FINANCIAL

INSTITUTIONS NAMED HEREIN,

as Lenders

 

Dated: March 31, 2003

 

 

TABLE OF CONTENTS

 

	

  SECTION 1.

  	

  DEFINITIONS

  	 

	

   

  	

   

  	 

	

  SECTION 2.

  	

  CREDIT FACILITIES

  	 

	

  2.1

  	

  Loans

  	 

	

  2.2

  	

  Letter of Credit Accommodations

  	 

	

  2.3

  	

  Term Loans

  	 

	

  2.4

  	

  Commitments

  	 

	

   

  	

   

  	 

	

  SECTION 3.

  	

  INTEREST AND FEES

  	 

	

  3.1

  	

  Interest.

  	 

	

  3.2

  	

  Fees

  	 

	

  3.3

  	

  Changes in Laws and Increased Costs of

  Loans.

  	 

	

   

  	

   

  
	

  SECTION 4.

  	

  CONDITIONS PRECEDENT

  
	

  4.1

  	

  Conditions Precedent to Initial Loans and

  Letter of Credit Accommodations

  
	

  4.2

  	

  Conditions Precedent to All Loans and

  Letter of Credit Accommodations

  
	

   

  	

   

  
	

  SECTION 5.

  	

  GRANT AND PERFECTION OF SECURITY INTEREST

  
	

  5.1

  	

  Grant of Security Interest

  
	

  5.2

  	

  Special Provisions Regarding Collateral

  
	

  5.3

  	

  Perfection of Security Interests

  
	

   

  	

   

  
	

  SECTION 6.

  	

  COLLECTION AND ADMINISTRATION

  
	

  6.1

  	

  Borrowers’ Loan Accounts

  
	

  6.2

  	

  Statements

  
	

  6.3

  	

  Collection of Accounts

  
	

  6.4

  	

  Payments

  
	

  6.5

  	

  Taxes

  
	

  6.6

  	

  Authorization to Make Loans

  
	

  6.7

  	

  Use of Proceeds

  
	

  6.8

  	

  Illegality

  
	

  6.9

  	

  [Intentionally Deleted]

  
	

  6.10

  	

  Appointment of Agent for Requesting Loans

  and Receipts of Loans and Statements

  
	

  6.11

  	

  Pro Rata Treatment

  
	

  6.12

  	

  Sharing of Payments, Etc.

  
	

  6.13

  	

  Settlement Procedures

  
	

  6.14

  	

  Obligations Several; Independent Nature of

  Lenders’ Rights

  

 

i

 

	

  SECTION 7.

  	

  COLLATERAL REPORTING AND COVENANTS

  
	

  7.1

  	

  Collateral Reporting

  
	

  7.2

  	

  Accounts Covenants

  
	

  7.3

  	

  Inventory Covenants

  
	

  7.4

  	

  Equipment and Real Property Covenants

  
	

  7.5

  	

  Power of Attorney

  
	

  7.6

  	

  Right to Cure

  
	

  7.7

  	

  Access to Premises

  
	

   

  	

   

  
	

  SECTION 8.

  	

  REPRESENTATIONS AND WARRANTIES

  
	

  8.1

  	

  Corporate Existence, Power and Authority

  
	

  8.2

  	

  Name; State of Organization; Chief

  Executive Office; Collateral Locations

  
	

  8.3

  	

  Financial Statements; No Material Adverse

  Change

  
	

  8.4

  	

  Priority of Liens; Title to Properties

  
	

  8.5

  	

  Tax Returns

  
	

  8.6

  	

  Litigation

  
	

  8.7

  	

  Compliance with Other Agreements and

  Applicable Laws

  
	

  8.8

  	

  Environmental Compliance

  
	

  8.9

  	

  Employee Benefits

  
	

  8.10

  	

  Bank Accounts

  
	

  8.11

  	

  Intellectual Property

  
	

  8.12

  	

  Subsidiaries; Affiliates; Capitalization;

  Solvency

  
	

  8.13

  	

  Labor Disputes

  
	

  8.14

  	

  Restrictions on Subsidiaries

  
	

  8.15

  	

  Material Contracts

  
	

  8.16

  	

  Payable Practices

  
	

  8.17

  	

  Acquisition of Purchased Stock

  
	

  8.18

  	

  Accuracy and Completeness of Information

  
	

  8.19

  	

  Survival of Warranties; Cumulative

  
	

   

  	

   

  
	

  SECTION 9.

  	

  AFFIRMATIVE AND NEGATIVE COVENANTS

  
	

  9.1

  	

  Maintenance of Existence

  
	

  9.2

  	

  New Collateral Locations

  
	

  9.3

  	

  Compliance with Laws, Regulations, Etc.

  
	

  9.4

  	

  Payment of Taxes and Claims

  
	

  9.5

  	

  Insurance

  
	

  9.6

  	

  Financial Statements and Other Information

  
	

  9.7

  	

  Sale of Assets, Consolidation, Merger,

  Dissolution, Etc.

  
	

  9.8

  	

  Encumbrances

  
	

  9.9

  	

  Indebtedness

  
	

  9.10

  	

  Loans, Investments, Etc.

  
	

  9.11

  	

  Dividends and Redemptions

  

 

ii

 

	

  9.12

  	

  Transactions with Affiliates

  
	

  9.13

  	

  Compliance with ERISA.

  
	

  9.14

  	

  End of Fiscal Years; Fiscal Quarters

  
	

  9.15

  	

  Change in Business

  
	

  9.16

  	

  Limitation of Restrictions Affecting

  Subsidiaries

  
	

  9.17

  	

  EBITDA

  
	

  9.18

  	

  Capital Expenditures

  
	

  9.19

  	

  Excess Availability

  
	

  9.20

  	

  License Agreements.

  
	

  9.21

  	

  After Acquired Real Property

  
	

  9.22

  	

  New Subsidiaries

  
	

  9.23

  	

  Bills of Lading and Other Documents of

  Title

  
	

  9.24

  	

  Dissolution of Certain Subsidiaries

  
	

  9.25

  	

  Italian Affiliated Accounts Payable

  
	

  9.26

  	

  Costs and Expenses

  
	

  9.27

  	

  Further Assurances

  
	

   

  	

   

  
	

  SECTION 10.

  	

  EVENTS OF DEFAULT AND REMEDIES

  
	

  10.1

  	

  Events of Default

  
	

  10.2

  	

  Remedies

  
	

   

  	

   

  
	

  SECTION 11.

  	

  JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW

  
	

  11.1

  	

  Governing Law; Choice of Forum; Service of

  Process; Jury Trial Waiver

  
	

  11.2

  	

  Waiver of Notices

  
	

  11.3

  	

  Amendments and Waivers.

  
	

  11.4

  	

  Waiver of Counterclaims

  
	

  11.5

  	

  Indemnification

  
	

  11.6

  	

  Currency Indemnity

  
	

   

  	

   

  
	

  SECTION 12.

  	

  THE AGENT

  
	

  12.1

  	

  Appointment, Powers and Immunities

  
	

  12.2

  	

  Reliance by Agent

  
	

  12.3

  	

  Events of Default

  
	

  12.4

  	

  Congress in its Individual Capacity

  
	

  12.5

  	

  Indemnification

  
	

  12.6

  	

  Non-Reliance on Agent and Other Lenders

  
	

  12.7

  	

  Failure to Act

  
	

  12.8

  	

  Additional Loans

  
	

  12.9

  	

  Concerning the Collateral and the Related

  Financing Agreements

  
	

  12.10

  	

  Field

  Audit, Examination Reports and other Information; Disclaimer by Lenders

  

 

iii

 

	

  12.11

  	

  Collateral Matters

  
	

  12.12

  	

  Agency for Perfection

  
	

  12.13

  	

  Successor Agent

  
	

   

  	

   

  
	

  SECTION 13.

  	

  TERM OF AGREEMENT; MISCELLANEOUS

  
	

  13.1

  	

  Term

  
	

  13.2

  	

  Interpretative Provisions

  
	

  13.3

  	

  Notices

  
	

  13.4

  	

  Partial Invalidity

  
	

  13.5

  	

  Successors

  
	

  13.6

  	

  Assignments; Participations.

  
	

  13.7

  	

  Entire Agreement

  
	

  13.8

  	

  Counterparts,

  Etc

  
	

  13.9

  	

  Confidentiality

  
	

  13.10

  	

  Liability of UK Borrower

  

 

iv

 

INDEX TO

EXHIBITS AND

SCHEDULES

 

	

  Exhibit A

  	

  Form of Assignment and Acceptance

  
	

   

  	

   

  
	

  Exhibit B

  	

  Information Certificate

  
	

   

  	

   

  
	

  Exhibit C

  	

  Form of Compliance Certificate

  
	

   

  	

   

  
	

  Schedule 1.98

  	

  Permitted Holders

  
	

   

  	

   

  
	

  Schedule 8.14

  	

  Restrictions on Subsidiaries

  

 

i

 

LOAN AND SECURITY AGREEMENT

 

This Loan and

Security Agreement dated March 31, 2003 is entered into by and among Mackie

Designs Inc., a Washington corporation (“US Borrower”), Mackie Designs UK Plc,

a company incorporated under the laws of England and Wales with registration

number 02506901 (“UK Borrower” and, together with US Borrower, each

individually a “Borrower” and collectively, “Borrowers), Mackie Designs

Manufacturing, Inc., a Washington corporation (“Mackie Manufacturing”), SIA

Software Company, Inc., a New York corporation (“SIA”), Mackie Investment Co.,

a Washington corporation (“Mackie Investment”, and together with Mackie

Manufacturing and SIA, each individually a “Guarantor” and collectively,

“Guarantors”), the financial institutions from time to time parties hereto as

lenders, whether by execution of this Agreement or an Assignment and Acceptance

(each individually, a “Lender” and collectively, “Lenders”) and Congress

Financial Corporation (Florida) , a Florida corporation, in its capacity as

agent for Lenders (in such capacity, “Agent”).

 

W  I  T  N  E  S

S  E  T  H:

 

WHEREAS,

Borrowers and Guarantors have requested that Agent and Lenders enter into

financing arrangements with Borrowers pursuant to which Lenders may make loans

and provide other financial accommodations to Borrowers; and

 

WHEREAS, each

Lender is willing to agree (severally and not jointly) to make such loans and

provide such financial accommodations to Borrowers on a pro  rata

basis according to its Commitment (as defined below) on the terms and

conditions set forth herein and Agent is willing to act as agent for Lenders on

the terms and conditions set forth herein and the other Financing Agreements;

 

NOW,

THEREFORE, in consideration of the mutual conditions and agreements set forth

herein, and for other good and valuable consideration, the receipt and

sufficiency of which is hereby acknowledged, the parties hereto agree as

follows:

 

SECTION 1. 

DEFINITIONS

 

For purposes

of this Agreement, the following terms shall have the respective meanings given

to them below:

 

1.1                                 “Accounts”

shall mean, as to each Borrower and Guarantor, all present and future rights of

such Borrower and Guarantor to payment of a monetary obligation, whether or not

earned by performance, which is not evidenced by chattel paper or an

instrument, (a) for property that has been or is to be sold, leased, licensed,

assigned, or otherwise disposed of, (b) for services rendered or to be

 

 

rendered, (c) for a secondary obligation

incurred or to be incurred, or (d) arising out of the use of a credit or charge

card or information contained on or for use with the card.

 

1.2                                 “Adjusted

Eurodollar Rate” shall mean, with respect to each Interest Period for any

Eurodollar Rate Loan, the rate per annum (rounded upwards, if necessary, to the

next one-sixteenth (1/16) of one (1%) percent) determined by dividing (a) the

Eurodollar Rate for such Interest Period by (b) a percentage equal to: (i) one

(1) minus (ii) the Reserve Percentage. 

For purposes hereof, “Reserve Percentage” shall mean the reserve

percentage, expressed as a decimal, prescribed by any United States or foreign

banking authority for determining the reserve requirement which is or would be

applicable to deposits of United States dollars in a non-United States or an

international banking office of Reference Bank used to fund a Eurodollar Rate

Loan or any Eurodollar Rate Loan made with the proceeds of such deposit,

whether or not the Reference Bank actually holds or has made any such deposits

or loans.  The Adjusted Eurodollar Rate

shall be adjusted on and as of the effective day of any change in the Reserve

Percentage.

 

1.3                                 “Adjusted

Raw Material Net Recovery Percentage” shall mean the fraction, expressed as a

percentage, (a) the numerator of which is the amount equal to the amount of the

recovery in respect of the Inventory consisting of raw materials at such time

on a “net orderly liquidation value” basis as set forth in the most recent

acceptable appraisal of Inventory received by Agent after the date hereof in

accordance with Section 7.3, net of operating expenses, liquidation expenses

and commissions, and (b) the denominator of which is the applicable original

cost of the aggregate amount of such Inventory subject to such appraisal.

 

1.4                                 “Administrative

Borrower” shall mean Mackie Designs Inc., a Washington corporation in its

capacity as Administrative Borrower on behalf of itself and the other Borrowers

pursuant to Section 6.10 hereof and it successors and assigns in such capacity.

 

1.5                                 “Affiliate”

shall mean, with respect to a specified Person, any other Person which directly

or indirectly, through one or more intermediaries, controls or is controlled by

or is under common control with such Person, and without limiting the

generality of the foregoing, includes (a) any Person which beneficially owns or

holds fifteen (15%) percent or more of any class of Voting Stock of such Person

or other equity interests in such Person, (b) any Person of which such Person

beneficially owns or holds fifteen (15%) percent or more of any class of Voting

Stock or in which such Person beneficially owns or holds fifteen (15%) percent

or more of the equity interests and (c) any director or executive officer of

such Person.  For the purposes of this

definition, the term “control” (including with correlative meanings, the terms

“controlled by” and “under common control with”), as used with respect to any

Person, means the possession, directly or indirectly, of the power to direct or

cause the direction of the management and policies of such Person, whether

through the ownership of Voting Stock, by agreement or otherwise.

 

2

 

1.6                                 “Agent”

shall mean Congress Financial Corporation (Florida), a Florida

corporation,  in its capacity as agent

on behalf of Lenders pursuant to the terms hereof and any replacement or

successor agent hereunder.

 

1.7                                 “Agent

Payment Account” shall mean account no. 5000000030334 of Agent at Wachovia

Bank, National Association, or such other account of Agent as Agent may from

time to time designate to Administrative Borrower as the Agent Payment Account

for purposes of this Agreement and the other Financing Agreements.

 

1.8                                 “Assignment

and Acceptance” shall mean an Assignment and Acceptance substantially in the

form of Exhibit A attached hereto (with blanks appropriately completed)

delivered to Agent in connection with an assignment of a Lender’s interest

hereunder in accordance with the provisions of Section 13.6 hereof.

 

1.9                                 “Belgian

Guaranty” shall mean the letter (undated) from US Borrower and Mackie Designs

(Belgium) BVBA (“Mackie Belgium”) in favor of KBC Bank N.V. with respect to the

outstanding obligations of Sydec NV (as predecessor-in-interest to Mackie

Belgium) to KBC Bank N.V.

 

1.10                           “Blocked

Accounts” shall have the meaning set forth in Section 6.3 hereof.

 

1.11                           “Borrowers”

shall mean, collectively, the following (together with their respective

successors and assigns): (a) Mackie Designs Inc., a Washington corporation; and

(b) Mackie Designs UK Plc, a company incorporated under the laws of England and

Wales with registration number 02506901; each sometimes being referred to

herein individually as a “Borrower”.

 

1.12                           “Borrowing

Base” shall mean, at any time: 

 

(i)  as to UK Borrower, the amount equal to: 

 

(a)  the lesser of:

 

(i)  the amount equal to one hundred (100%)

percent of the US Dollar Equivalent of the Net Amount of the Accounts of UK

Borrower, or

 

(ii)  the Revolving Loan Limit for UK Borrower,

 

minus

 

(b) Reserves

attributable to UK Borrower (but solely to the extent that Reserves

attributable to UK Borrower are not deducted from the Borrowing Base of US

Borrower); and

 

3

 

(ii)  as to US Borrower, the amount equal to:

 

(a)  the lesser of:

 

(i)  the amount equal to (A) seventy-five (75%)

percent of the US Dollar Equivalent of the Net Amount of the Eligible Accounts

of US Borrower, plus (B) the lesser of (1) the Inventory Loan Limit or

(2) the sum of (x) the lesser of (a) sixty-five (65%) percent multiplied by the

US Dollar Equivalent of the Value of the Eligible Inventory consisting of

finished goods of US Borrower or (b) eighty-five (85%) percent of the Net

Recovery Percentage of the Inventory consisting of finished goods of US Borrower

multiplied by the US Dollar Equivalent of the Value of the Eligible Inventory

consisting of finished goods of US Borrower and (y) the Raw Material

Availability, or

 

(ii)  the Revolving Loan Limit for US Borrower,

 

minus

 

(b)  Reserves attributable to US Borrower plus

Reserves attributable to UK Borrower (but solely to the extent that Reserves

attributable to UK Borrower are not deducted from the Borrowing Base of UK

Borrower).

 

For purposes

only of applying the Inventory Loan Limit, Agent may treat the then undrawn

amounts of outstanding Letter of Credit Accommodations for the purpose of

purchasing Eligible Inventory as Revolving Loans to the extent Agent is in

effect basing the issuance of the Letter of Credit Accommodations on the Value

of the Eligible Inventory being purchased with such Letter of Credit

Accommodations.  In determining the

actual amounts of such Letter of Credit Accommodations to be so treated for

purposes of the sublimit, the outstanding Revolving Loans and Reserves shall be

attributed first to any components of the lending formulas set forth above that

are not subject to such sublimit, before being attributed to the components of

the lending formulas subject to such sublimit. 

The amounts of Eligible Inventory of any Borrower shall, at Agent’s

option, be determined based on the lesser of the amount of Inventory set forth

in the general ledger of such Borrower or the perpetual inventory record

maintained by such Borrower.  The

Reserves attributable to UK Borrower shall be deducted first, from the

Borrowing Base of US Borrower until such time (if any) as the aggregate

principal amount of the Revolving Loans and Letter of Credit Accommodations

outstanding to US Borrower exceeds the Borrowing Base of US Borrower and second,

to the Borrowing Base of UK Borrower.

 

1.13                           “Business

Day” shall mean (a) in connection with any Loans or Letter of Credit

Accommodations made or provided to US Borrower, or as such term is used herein

except as otherwise provided in clause (b) of this definition, any day other

than a Saturday, Sunday, or other day on which commercial banks are authorized

or required to close under the laws of the State of New York, or the State of

North Carolina, and a day on which Agent is open for the transaction of

 

4

 

business, and (b) in connection with any

Loans or Letter of Credit Accommodations made or provided to UK Borrower, or

other matters related exclusively to UK Borrower, any day (i) other than a

Saturday, Sunday or other day on which commercial banks are authorized or

required to close under the laws of the State of New York or the United Kingdom

and (ii) or which Agent’s New York office and Barclays Bank plc in London,

England is open for the transaction of business; provided, that,

in any case (whether under clause (a) and (b) of this definition or

otherwise),  if a determination of a

Business Day shall relate to any Eurodollar Rate Loans, the term Business Day

shall also exclude any day on which banks are closed for dealings in dollar

deposits in the London interbank market or other applicable Eurodollar Rate

market.

 

1.14                           “Capital

Expenditures” shall mean all expenditures for, or contracts for expenditures

for, any fixed or capital assets (including, but not limited to, tooling) or

improvements, or for replacements, substitutions or additions thereto, which

have a useful life of more than one (1) year, including, but not limited to,

the direct or indirect acquisition of such assets by way of offset items or

otherwise and shall include the principal amount of capitalized lease payments.

 

1.15                           “Capital

Leases” shall mean, as applied to any Person, any lease of (or any agreement

conveying the right to use) any property (whether real, personal or mixed) by

such Person as lessee which in accordance with GAAP, is required to be

reflected as a liability on the balance sheet of such Person.

 

1.16                           “Capital

Stock” shall mean, with respect to any Person, any and all shares, interests,

participations or other equivalents (however designated) of such Person’s

capital stock or partnership, limited liability company or other equity

interests at any time outstanding, and any and all rights, warrants or options

exchangeable for or convertible into such capital stock or other interests (but

excluding any debt security that is exchangeable for or convertible into such

capital stock).

 

1.17                           “Cash

Equivalents” shall mean, at any time, (a) any evidence of Indebtedness with a

maturity date of one hundred eighty (180) days or less issued or directly and

fully guaranteed or insured by the United States of America or any agency or

instrumentality thereof or England or Wales or any agency or instrumentality

thereof; provided, that, the full faith and credit of the United

States of America, England or Wales is pledged in support thereof; (b)

certificates of deposit or bankers’ acceptances with a maturity of one hundred

eighty (180) days or less of any financial institution that is a member of the

Federal Reserve System or a bank incorporated under the laws of England or

Wales in any case, having combined capital and surplus and undivided profits of

not less than US Dollar Equivalent of US$500,000,000; (c) commercial paper

(including variable rate demand notes) with a maturity of one hundred eighty

(180) days or less issued by an entity (except an Affiliate of any Borrower or

Guarantor) organized under the laws of any State of the United States of

America or the District of Columbia, England or Wales and rated at least A-1 by

Standard & Poor’s Ratings Service, a division of The McGraw-Hill Companies,

Inc. or at least P-1 by Moody’s Investors Service, Inc.; (d) repurchase

obligations with a term of not more than thirty (30) days for underlying

securities of the types described in clause (a) above entered into with any

financial institution having combined capital

 

5

 

and surplus and undivided profits of not less

than US Dollar Equivalent of US$500,000,000; (e) repurchase agreements and

reverse repurchase agreements relating to marketable direct obligations issued

or unconditionally guaranteed by the United States of America, England or Wales

or, in each case, issued by any governmental agency thereof and backed by the

full faith and credit of the United States of America, England or Wales, in

each case, maturing within one hundred eighty (180) days or less from the date

of acquisition; provided, that, the terms of such agreements

comply with the guidelines set forth in the Federal Financial Agreements of

Depository Institutions with Securities Dealers and Others, as adopted by the

Comptroller of the Currency on October 31, 1985; and (f) investments in money

market funds and mutual funds which invest substantially all of their assets in

securities of the types described in clauses (a) through (e) above.

 

1.18                           “Change

of Control” shall mean, other than as permitted in Section 9.7 hereof, (a) the

transfer (in one transaction or a series of transactions) of all or

substantially all of the assets of any Borrower or Guarantor to any Person or

group (as such term is used in Section 13(d)(3) of the Exchange Act); (b) the

liquidation or dissolution of any Borrower or Guarantor or the adoption of a

plan by the stockholders of any Borrower or Guarantor relating to the

dissolution or liquidation of such Borrower or Guarantor; (c) the acquisition

by any Person or group (as such term is used in Section 13(d)(3) of the

Exchange Act), except for one or more Permitted Holders, of beneficial

ownership, directly or indirectly, of a majority of the voting power of the

total outstanding Voting Stock of US Borrower or the Board of Directors of US

Borrower; (d) during any period of two (2) consecutive years, individuals who

at the beginning of such period constituted the Board of Directors of US Borrower

(together with any new directors who have been appointed by any Permitted

Holder, or whose nomination for election by the stockholders of US Borrower,

was approved by a vote of at least sixty-six and two-thirds (66 2/3%) percent

of the directors then still in office who were either directors at the

beginning of such period or whose election or nomination for election was

previously so approved) cease for any reason to constitute a majority of the

Board of Directors of US Borrower then still in office, unless the new

directors have been appointed by a Permitted Holder; (e) the failure of Parent

to own and control, directly or indirectly, more than fifty (50%) percent of

the voting power of the total outstanding Voting Stock of US Borrower; or (f)

the failure of Sun Capital Partners II, L.P. and/or its Affiliates to

collectively own and control, directly or indirectly, more than fifty (50%)

percent of the Voting Power of the total outstanding Voting Stock of either of

Parent or US Borrower.

 

1.19                           “Code”

shall mean the Internal Revenue Code of 1986, as the same now exists or may

from time to time hereafter be amended, modified, recodified or supplemented,

together with all rules, regulations and interpretations thereunder or related

thereto.

 

1.20                           “Collateral”

shall have the meaning set forth in Section 5 hereof.

 

1.21                           “Collateral

Access Agreement” shall mean an agreement in writing, in form and substance

satisfactory to Agent, from any lessor of premises to any Borrower or

Guarantor, or any other person to whom any Collateral is consigned or who has

custody, control or possession of any such Collateral or is otherwise the owner

or operator of any premises on which any of such Collateral is located

 

6

 

(including, without limitation, a Customs

Broker), pursuant to which such lessor, consignee or other person, inter

alia, acknowledges the first priority security interest of Agent in such

Collateral, agrees to waive any and all claims such lessor, consignee or other

person may, at any time, have against such Collateral, whether for processing,

storage or otherwise, and agrees to permit Agent access to, and the right to

remain on, the premises of such lessor, consignee or other person so as to

exercise Agent’s rights and remedies and otherwise deal with such Collateral

and in the case of any consignee or other person who at any time has custody,

control or possession of any Collateral, acknowledges that it holds and will

hold possession of the Collateral for the benefit of Agent and Lenders and

agrees to follow all instructions of Agent with respect thereto.

 

1.22                           “Commitment”

shall mean, at any time, as to each Lender, the principal amount set forth

below such Lender’s signature on the signature pages hereto or on Schedule 1 to

the Assignment and Acceptance Agreement pursuant to which such Lender became a

Lender hereunder in accordance with the provisions of Section 13.6 hereof, as

the same may be adjusted from time to time in accordance with the terms hereof;

sometimes being collectively referred to herein as “Commitments”.

 

1.23                           “Congress”

shall mean Congress Financial Corporation (Florida), a Florida corporation, in

its individual capacity, and its successors and assigns.

 

1.24                           “Consolidated

Net Income” shall mean, with respect to any Person for any period, the

aggregate of the net income (loss) of such Person and its Subsidiaries, on a

consolidated basis, for such period (excluding to the extent included therein

any extraordinary and/or one time or unusual and non-recurring gains or any

non-cash losses) after deducting all charges which should be deducted before

arriving at the net income (loss) for such period and, without duplication,

after deducting the Provision for Taxes for such period, all as determined in

accordance with GAAP; provided, that, (a) the net income of any

Person that is not a Subsidiary or that is accounted for by the equity method

of accounting shall be included only to the extent of the amount of dividends

or distributions paid or payable to such Person or a Subsidiary of such Person;

(b) except to the extent included pursuant to the foregoing clause, the net

income of any Person accrued prior to the date it becomes a Subsidiary of such

Person or is merged into or consolidated with such Person or any of its

Subsidiaries or that Person’s assets are acquired by such Person or by its

Subsidiaries shall be excluded; and (c) the net income (if positive) of any

Subsidiary (other than a Borrower or Obligor) to the extent that the

declaration or payment of dividends or similar distributions by such Subsidiary

to such Person or to any other wholly-owned Subsidiary of such Person is not at

the time permitted by operation of the terms of its charter or any agreement,

instrument, judgment, decree, order, statute, rule or governmental regulation

applicable to such Subsidiary shall be excluded.  For the purposes of this definition, net income excludes any gain

or non-cash loss, together with any related Provision for Taxes for such gain

or non-cash loss, realized upon the sale or other disposition of any assets

that are not sold in the ordinary course of business (including, without

limitation, dispositions pursuant to sale and leaseback transactions) or of any

Capital Stock of such Person or a Subsidiary of such Person and any net income

realized or loss incurred as a result of changes in accounting principles or

the application thereof to such Person.

 

7

 

1.25                           “Credit

Facility” shall mean the Loans and Letter of Credit Accommodations provided to

or for the benefit of any Borrower pursuant to Sections 2.1 and 2.2 hereof.

 

1.26                           “Currency

Exchange Overadvance” shall have the meaning set forth in Section 2.1(d).

 

1.27                           “Currency

Exchange Convention” shall mean, in the calculation of the US Dollar

Equivalent, a procedure used by Agent or a Lender to value in US Dollars (i)

the obligations or assets of any Borrower or Obligor that are originally

measured in Sterling, Euros or any other currency and (ii) any other amount expressed

in Sterling, Euros or any other currency, other than US Dollars, in each case

by using the spot price for the purchase of US Dollars with Sterling, Euros, or

such other currency, as the case may be, provided to Agent or such Lender by

the Reference Bank for the immediately preceding Business Day.

 

1.28                           “Customs

Broker” means each of Expeditors International of Washington, Inc., Eagle

Global Logistics, Kamino, Panalpina, Inc., United Parcel Service, Federal

Express and any other person selected by Administrative Borrower after written

notice by Administrative Borrower to Agent who is reasonably acceptable to

Agent to perform port of entry services to process Inventory imported by US

Borrower from outside the United States of America and to supply facilities,

labor and materials to US Borrower in connection therewith, provided, that,

as to each such person (a) Agent shall have received a Collateral Access

Agreement duly authorized, executed and delivered by such person, (b) such

agreement shall be in full force and effect and (c) such person shall be in

compliance in all material respects with the terms thereof.

 

1.29                           “Debenture”

shall mean the Debenture, dated on or about the date hereof, by UK Borrower in

favor of Agent, for itself and as agent for the other Lenders, as the same now

exists or may hereafter be amended, modified, supplemented, extended, renewed,

restated or replaced.

 

1.30                           “Default”

shall mean an act, condition or event which with notice or passage of time

(including applicable grace periods, if any, expressly set forth in Section

10.1) or both would constitute an Event of Default.

 

1.31                           “Defaulting

Lender” shall have the meaning set forth in Section 6.13 hereof.

 

1.32                           “Deposit

Account Control Agreement” shall mean an agreement in writing, in form and

substance satisfactory to Agent, by and among Agent, each Borrower or Guarantor

with a deposit account at any bank and the bank at which such deposit account

is at any time maintained which provides that such bank will comply with

instructions originated by Agent directing disposition of the funds in the

deposit account without further consent by such Borrower or Guarantor and such

other terms and conditions as Agent may require, including as to any such

agreement with respect to any Blocked Account, providing that all items

received or deposited in the Blocked Accounts are the property of Agent, that

the bank has no lien upon, or right to setoff against, the Blocked Accounts,

the items received for deposit therein, or the funds from time to time on

deposit therein and that the bank

 

8

 

will (unless otherwise directed by Agent)

wire, or otherwise transfer, in immediately available funds, on a daily basis

to the Agent Payment Account all funds received or deposited into the Blocked

Accounts.

 

1.33                           “Dutch

Warehouse” shall mean the warehouse located at Midderweg 37, Harbour number

M267, Moerdijk, 4782 PM, The Netherlands.

 

1.34                           “EAW

Fire Proceeding” shall mean any present or future action, suit, proceeding or

claim against any Borrower or Guarantor relating to the fire in or around the

premises of Eastern Acoustic Works, Inc. that occurred in 1996.

 

1.35                           “EBITDA”

shall mean, as to any Person, with respect to any period, an amount equal to:

(a) the Consolidated Net Income of such Person and its Subsidiaries for such

period, plus (b) depreciation, amortization and other non-cash charges

(including, but not limited to, imputed interest, deferred compensation and

charges associated with impairment of goodwill pursuant to FASB 142) for such

period (to the extent deducted in the computation of Consolidated Net Income of

such Person), all in accordance with GAAP, plus (c) Interest Expense for

such period (to the extent deducted in the computation of Consolidated Net

Income of such Person), plus (d) the Provision for Taxes for such period

(to the extent deducted in the computation of Consolidated Net Income of such

Person), plus (e) management fees paid or accrued during such period in

accordance with Section 9.12(b)(ii) (to the extent deducted in the computation

of Consolidated Net Income of such Person).

 

1.36                           “Eligible

Accounts” shall mean Accounts created by a Borrower which are and continue to

be acceptable to Agent based on the criteria set forth below.  In general, Accounts shall be Eligible

Accounts if:

 

(a)               such Accounts arise

from the actual and bona  fide sale and delivery of goods by such

Borrower or rendition of services by such Borrower in the ordinary course of

its business which transactions are completed in accordance with the terms and

provisions contained in any documents related thereto;

 

(b)              such Accounts are

not unpaid more than sixty (60) days after the original due date thereof or

more than one hundred twenty (120) days after the date of the original invoice

for them;

 

(c)               such Accounts

comply with the terms and conditions contained in Section 7.2(b) of this

Agreement;

 

(d)              such Accounts do not

arise from sales on consignment, guaranteed sale, sale and return, sale on

approval, or other terms under which payment by the account debtor may be

conditional or contingent;

 

(e)               as to such Accounts

of US Borrower, the chief executive office of the account debtor with respect

to such Accounts is located in the United States of America or Canada or,

solely in

 

9

 

the case of Australian Audio Supplies, in

Australia (provided, that, at any time promptly upon Agent’s

request, such Borrower shall execute and deliver, or cause to be executed and

delivered, such other agreements, documents and instruments as may be required

by Agent to perfect the security interests of Agent in those Accounts of an

account debtor with its chief executive office or principal place of business

in Canada or Australia in accordance with the applicable laws of the Province

of Canada or Australia in which such chief executive office or principal place

of business is located and take or cause to be taken such other and further

actions as Agent may request to enable Agent as secured party with respect

thereto to collect such Accounts under the applicable Federal or Provincial

laws of Canada or the applicable laws of Australia) or, at Agent’s option, if

the chief executive office and principal place of business of the account

debtor with respect to such Accounts is located other than in the United States

of America or Canada or Australia, then if either: (i) the account debtor has

delivered to such Borrower an irrevocable letter of credit issued or confirmed

by a bank satisfactory to Agent and payable only in the United States of

America and in US Dollars, sufficient to cover such Account, in form and

substance satisfactory to Agent and if required by Agent, the original of such

letter of credit has been delivered to Agent or Agent’s agent and the issuer

thereof, and such Borrower has complied with the terms of Section 5.3(f) hereof

with respect to the assignment of the proceeds of such letter of credit to

Agent or naming Agent as transferee beneficiary thereunder, as Agent may

specify, or (ii) such Account is subject to credit insurance payable to Agent

issued by an insurer and on terms and in an amount acceptable to Agent, or

(iii) such Account is otherwise acceptable in all respects to Agent (subject to

such lending formula with respect thereto as Agent may determine);

 

(f)                 (i) as to such

Accounts of UK Borrower, the chief executive office of the account debtor with

respect to such Accounts is located in the United Kingdom or, at Agent’s

option, if the chief executive office and principal place of business of the

account debtor with respect to such Accounts is located other than in an the

United Kingdom, then if either: (x) the account debtor has delivered to such

Borrower an irrevocable letter of credit issued or confirmed by a bank

satisfactory to Agent and payable only in the United States of America and in

US Dollars (or payable in such other country and such other currency as Agent

may determine in its sole discretion), sufficient to cover such Account, in

form and substance satisfactory to Agent and if required by Agent, the original

of such letter of credit has been delivered to Agent or Agent’s agent and the

issuer thereof, and such Borrower has complied with the terms of Section 5.3(f)

hereof with respect to the assignment of the proceeds of such letter of credit

to Agent or naming Agent as transferee beneficiary thereunder, as Agent may

specify, or (y) such Account is subject to credit insurance payable to Agent

issued by an insurer and on terms and in an amount acceptable to Agent, or (z) such

Account is otherwise acceptable in all respects to Agent (subject to such

lending formula with respect thereto as Agent may determine);

 

(g)              such Accounts do not

consist of progress billings (such that the obligation of the account debtors

with respect to such Accounts is conditioned upon such Borrower’s satisfactory

completion of any further performance under the agreement giving rise thereto),

bill and hold invoices or retainage invoices, except as to bill and hold

invoices, if Agent shall have received an agreement in writing from the account

debtor, in form and substance satisfactory to Agent, confirming the

unconditional obligation of the account debtor to take the goods related

thereto and pay such invoice;

 

10

 

(h)              the account debtor

with respect to such Accounts has not asserted a counterclaim, defense, dispute

or any right of setoff or recoupment against such Accounts (but the portion of

the Accounts of such account debtor in excess of the amount at any time and

from time to time owed by such Borrower to such account debtor or claimed owed

by such account debtor may be deemed Eligible Accounts),

 

(i)                  there are no

facts, events or occurrences which would impair the validity, enforceability or

collectability of such Accounts or reduce the amount payable or delay payment

thereunder beyond the terms set forth in clause (b) above (other than

reductions in the amount payable thereon as a result of the right to return

defective goods in the ordinary course of business);

 

(j)                  such Accounts of

US Borrower are subject to the first priority, valid and perfected security

interest of Agent and such Accounts of UK Borrower are subject to a first

priority fixed charge in favor of Agent pursuant to the Debenture, and in all

cases any goods giving rise to all such Accounts are not, and were not at the

time of the sale thereof, subject to any claim, lien, security interest, or

charge except those permitted in this Agreement;

 

(k)               neither the account

debtor nor any officer or employee of the account debtor with respect to such

Accounts is an officer, employee, agent or other Affiliate of any Borrower or

Guarantor;

 

(l)                  the account

debtors with respect to such Accounts are not any foreign government, the

United States of America, any State, political subdivision, department, agency

or instrumentality thereof, unless, if the account debtor is the United States

of America, any State, political subdivision, department, agency or

instrumentality thereof, upon Agent’s request, the Federal Assignment of Claims

Act of 1940, as amended or any similar State or local law, if applicable, has

been complied with in a manner satisfactory to Agent;

 

(m)            there are no

proceedings or actions which are threatened or pending against the account

debtors with respect to such Accounts which could be reasonably expected to

result in any material adverse change in any such account debtor’s financial

condition (including, without limitation, any bankruptcy, dissolution,

liquidation, reorganization administration, receivership or similar

proceeding);

 

(n)              such Accounts are

not evidenced by or arising under any instrument or chattel paper;

 

(o)              such Accounts are

not owed by an account debtor who has Accounts unpaid more than sixty (60) days

after the original due date thereof or more than one hundred twenty (120) days

from the original invoice date for them which constitute more than fifty (50%)

percent of the total Accounts of such account debtor;

 

11

 

(p)              the account debtor

is not located in a state requiring the filing of a Notice of Business

Activities Report or similar report in order to permit such Borrower to seek

judicial enforcement in such State of payment of such Account, unless such

Borrower has qualified to do business in such state or has filed a Notice of

Business Activities Report or equivalent report for the then current year or

such failure to file and inability to seek judicial enforcement is capable of

being remedied without any material delay or material cost;

 

(q)              such Accounts are

owed by account debtors whose total indebtedness to such Borrower does not

exceed the credit limit with respect to such account debtors as determined by

such Borrower from time to time, to the extent such credit limit as to any

account debtor is established consistent with the current practices of such

Borrower as of the date hereof and such credit limit is acceptable to Agent

(but the portion of the Accounts not in excess of such credit limit may be

deemed Eligible Accounts);

 

(r)                 such Accounts are

owed by account debtors deemed creditworthy at all times by Agent (as

determined in good faith); and

 

(s)               the aggregate

amount of such Accounts owing by a single account debtor do not constitute (i)

in the case of all account debtors (excluding Guitar Center), more than fifteen

(15%) percent of the aggregate amount of all otherwise Eligible Accounts and

(ii) in the case of Guitar Center, more than twenty five (25%) percent of the

aggregate amount of all otherwise Eligible Accounts (but in each case the

portion thereof not in excess of such percentage may be deemed Eligible

Accounts).

 

1.37                           “Eligible

Inventory” shall mean, Inventory of US Borrower located in the United States of

America consisting of finished goods held for sale in the ordinary course of

the business of such Borrower and raw materials for such finished goods and

Inventory of US Borrower located at the Dutch Warehouse consisting of finished

goods held for sale in the ordinary course of business of US Borrower, in each

case which are acceptable to Agent based on the criteria set forth below.  In general, Eligible Inventory shall not

include (a) work-in-process; (b) spare parts for equipment; (c) packaging and

shipping materials, material review board, or components which are not (or will

not be) part of finished goods; (d) demonstration or loaner Inventory, or

supplies used or consumed in US Borrower’s business; (e) Inventory at premises

other than those owned and controlled by US Borrower, except any Inventory

which would otherwise be deemed Eligible Inventory that is not located at

premises owned and operated by US Borrower may nevertheless be considered

Eligible Inventory: (i) as to locations which are leased by US Borrower, if

Agent shall have received a Collateral Access Agreement from the owner and

lessor of such location, duly authorized, executed and delivered by such owner

and lessor, or if Agent shall not have received such Collateral Access

Agreement (or Agent shall determine to accept a Collateral Access Agreement

that does not include all required provisions or provisions in the form

otherwise required by Agent), Agent may, at its option, nevertheless consider

Inventory at such location to be Eligible Inventory to the extent Agent shall

have established such Reserves in respect of amounts at any time payable by US

Borrower to the owner and lessor thereof as Agent shall determine, and (ii) as

to locations owned and operated by a third person, if

 

12

 

Agent shall have received a Collateral Access

Agreement from such owner and operator with respect to such location, duly

authorized, executed and delivered by such owner and operator or if Agent shall

not have received such Collateral Access Agreement (or Agent shall determine to

accept a Collateral Access Agreement that does not include all required

provisions or provisions in the form otherwise required by Agent), Agent may,

at its option, nevertheless consider Inventory at such location to be Eligible

Inventory to the extent Agent shall have established such Reserves in respect

of amounts at any time payable by US Borrower to the owner and operator thereof

as Agent shall determine, and in addition, if required by Agent, if Agent shall

have received: (A) UCC financing statements (or the equivalent) between the

owner and operator, as consignee or bailee and US Borrower, as consignor or

bailor, in form and substance satisfactory to Agent, which are duly assigned to

Agent and (B) a written notice to any lender to the owner and operator of the

first priority security interest in such Inventory of Agent; (f) Inventory

subject to a security interest or lien in favor of any Person other than Agent

except those permitted in this Agreement (but without limiting the right of

Agent to establish any Reserves with respect to amounts secured by such

security interest or lien in favor of any Person even if permitted herein); (g)

bill and hold goods, or unserviceable or obsolete Inventory; (h) Inventory

which is not subject to the first priority, valid and perfected security

interest of Agent; (i) returned Inventory (unless such returned Inventory is

new, first-quality merchandise that is held for resale in the ordinary course

of business), or damaged and/or defective Inventory; (j) Inventory purchased or

sold on consignment; (k) Inventory located at the Dutch Warehouse that is not

listed in the most recent report delivered by US Borrower to Agent pursuant to

Section 7.1(a)(iii)(D); (l) Inventory located outside the United States of

America or outside of the Dutch Warehouse, except Inventory which would

otherwise be Eligible Inventory located outside the United States of America or

outside of the Dutch Warehouse which is in transit to either the premises of a

Customs Broker in the United States or the premises of US Borrower in the

United States set forth on Schedule 8.2 to the Information Certificate (as

supplemented by new locations established in accordance with Section 9.2), as

the case may be, which are either owned and controlled by US Borrower or leased

by US Borrower, provided, that, (i) Agent has a first priority

perfected security interest in and lien upon, and (commencing on the date that

is sixty (60) days from the date of this Agreement) Agent or its bailee has

control and possession of, all originals of documents of title with respect to

such Inventory, (ii) Agent has received (A) commencing on the date that is

sixty (60) days from the date of this Agreement, a Collateral Access Agreement,

duly authorized, executed and delivered by the Customs Broker handling the

shipping and delivery of such Inventory, (B) a copy of the certificate of

marine cargo insurance in connection therewith in which Agent has been named as

an additional insured and loss payee in a manner acceptable to Agent and (C)

upon the request of Agent, a copy of the invoice and manifest with respect

thereto or similar documents, and (iii) such Inventory is not subject to any

Letter of Credit Accommodations; and (m) commencing on the date that is thirty

(30) days after the date of this Agreement, Inventory which is subject to a

license granted to US Borrower by Apogee Electronics Corporation unless on or

prior to such date Agent shall have received an agreement, in form and

substance satisfactory to Agent, duly authorized, executed and delivered by

Apogee Electronics Corporation and US Borrower. The criteria for Eligible

Inventory set forth above may only be changed and any new criteria for Eligible

Inventory may only be established by Agent in good faith based on either: (i)

an event, condition or other circumstance arising after the date hereof, or

(ii) an event, condition or other circumstance existing on the date hereof to

the extent Agent

 

13

 

has no written notice thereof from US

Borrower prior to the date hereof, in either case under clause (i) or (ii)

which adversely affects or could reasonably be expected to adversely affect the

Inventory in the good faith determination of Agent.  Any Inventory which is not Eligible Inventory shall nevertheless

be part of the Collateral.

 

1.38                           “Eligible

Transferee” shall mean (a) any Lender; (b) the parent company of any Lender

and/or any Affiliate of such Lender which is at least fifty (50%) percent owned

by such Lender or its parent company; (c) any person (whether a corporation,

partnership, trust or otherwise) that is engaged in the business of making,

purchasing, holding or otherwise investing in bank loans and similar extensions

of credit in the ordinary course of its business and is administered or managed

by a Lender or with respect to any Lender that is a fund which invests in bank

loans and similar extensions of credit, any other fund that invests in bank

loans and similar extensions of credit and is managed by the same investment

advisor as such Lender or by an Affiliate of such investment advisor, and in

each case is approved by Agent; and (d) any other commercial bank, financial

institution or “accredited investor” (as defined in Regulation D under the

Securities Act of 1933) approved by Agent, provided, that, (i)

neither any Borrower nor any Guarantor or any Affiliate of any Borrower or

Guarantor shall qualify as an Eligible Transferee and (ii) no Person to whom

any Indebtedness which is in any way subordinated in right of payment to any

other Indebtedness of any Borrower or Guarantor shall qualify as an Eligible

Transferee, except as Agent may otherwise specifically agree.

 

1.39                           “Environmental

Laws” shall mean all foreign, Federal, State and local laws (including common

law), legislation, rules, codes, licenses, permits (including any conditions

imposed therein), authorizations, judicial or administrative decisions,

injunctions or agreements between any Borrower or Guarantor and any

Governmental Authority, (a) relating to pollution and the protection,

preservation or restoration of the environment (including air, water vapor,

surface water, ground water, drinking water, drinking water supply, surface

land, subsurface land, plant and animal life or any other natural resource), or

to occupational health or safety, (b) 

relating to the exposure to, or the use, storage, recycling, treatment,

generation, manufacture, processing, distribution, transportation, handling,

labeling, production, release or disposal, or threatened release, of Hazardous

Materials, or (c) relating to all laws with regard to recordkeeping,

notification, disclosure and reporting requirements respecting Hazardous

Materials.  The term “Environmental

Laws” includes (i) the Federal Comprehensive Environmental Response,

Compensation and Liability Act of 1980, the Federal Superfund Amendments and

Reauthorization Act, the Federal Water Pollution Control Act of 1972, the

Federal Clean Water Act, the Federal Clean Air Act, the Federal Resource

Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste

Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic

Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act,

and the Federal Safe Drinking Water Act of 1974, (ii) applicable state

counterparts to such laws and (iii) any common law or equitable doctrine that

may impose liability or obligations for injuries or damages due to, or

threatened as a result of, the presence of or exposure to any Hazardous

Materials.

 

1.40                           “Equipment”

shall mean, as to each Borrower and Guarantor, all of such Borrower’s and

Guarantor’s now owned and hereafter acquired equipment, wherever located,

including machinery,

 

14

 

data processing and computer equipment

(whether owned or licensed and including embedded software), vehicles, tools,

furniture, fixtures, all attachments, accessions and property now or hereafter

affixed thereto or used in connection therewith, and substitutions and

replacements thereof, wherever located.

 

1.41                           “ERISA”

shall mean the Employee Retirement Income Security Act of 1974, as in effect

from time to time, together with all rules and regulations thereunder or

related thereto.

 

1.42                           “ERISA

Affiliate” shall mean any person required to be aggregated with any Borrower,

any Guarantor or any of its or their respective Subsidiaries under Sections

414(b), 414(c), 414(m) or 414(o) of the Code.

 

1.43                           “ERISA

Event” shall mean the occurrence of any of the following: (a) any “reportable

event”, as defined in Section 4043(c) of ERISA or the regulations issued

thereunder, with respect to a Plan for which the Pension Benefit Guaranty

Corporation notice requirement has not been waived; (b) the adoption of any

amendment to a Plan that would require the provision of security pursuant to

Section 401(a)(29) of the Code or Section 307 of ERISA; (c) the existence with

respect to any Plan of an “accumulated funding deficiency” (as defined in

Section 412 of the Code or Section 302 of ERISA), whether or not waived; (d)

the filing pursuant to Section 412 of the Code or Section 303(d) of ERISA of an

application for a waiver of the minimum funding standard with respect to any

Plan; (e) the occurrence of a non-exempt “prohibited transaction” (within the

meaning of Section 4975 of the Code) or with respect to which any Borrower or

Guarantor or any of its or their respective Subsidiaries could be reasonably

expected to have liability in excess of the US Dollar Equivalent of US$250,000;

(f) a complete or partial withdrawal by any Borrower or Guarantor or any ERISA

Affiliate from a Multiemployer Plan or a cessation of operations which is

treated as such a withdrawal or notification that a Multiemployer Plan is in

reorganization which could be reasonably expected to result in liability to

Borrowers or Guarantors in excess of the US Dollar Equivalent of US $250,000;

(g) the filing of a notice of intent to terminate a Plan (other than a

Multiemployer Plan), the treatment of a Plan amendment as a termination under

Section 4041 or 4041A of ERISA, or the commencement of proceedings by the

Pension Benefit Guaranty Corporation to terminate a Plan; or (h) the

appointment by the Pension Benefit Guaranty Corporation of a trustee to

administer any Plan.

 

1.44                           “Euro”

shall mean the single currency of those member states of the European Union

participating in the European economic and monetary union, and which from time

to time adopt a single, shared currency, pursuant to the Treaty on European

Union, being the Treaty of Rome of March 25, 1957, as amended by the Single

European Act 1986 and the Maastricht Treaty (which was signed at Maastricht on

February 7, 1992, and came into force on November 1, 1993), as amended from

time to time.

 

1.45                           “Euro

Equivalent” shall mean at any time (a) as to any amount denominated in Euros,

the amount thereof and (b) as to any amount denominated in US Dollars or any

other currency, the

 

15

 

equivalent amount in Euros calculated by

Agent at such time using the Currency Exchange Convention in effect on the

Business Day of determination.

 

1.46                           “Eurodollar

Rate” shall mean with respect to the Interest Period for a Eurodollar Rate

Loan, the interest rate per annum equal to the arithmetic average of the rates

of interest per annum (rounded upwards, if necessary, to the next one-sixteenth

(1/16) of one (1%) percent) at which Reference Bank is offered deposits of

United States dollars in the London interbank market (or other Eurodollar Rate

market selected by a Borrower or Administrative Borrower on behalf of such

Borrower and approved by Agent) on or about 9:00 a.m. (New York time) two (2)

Business Days prior to the commencement of such Interest Period in amounts

substantially equal to the principal amount of the Eurodollar Rate Loans

requested by and available to such Borrower in accordance with this Agreement,

with a maturity of comparable duration to the Interest Period selected by or on

behalf of a Borrower.

 

1.47                           “Eurodollar

Rate Loans” shall mean any Loans or portion thereof on which interest is

payable based on the Adjusted Eurodollar Rate in accordance with the terms

hereof.

 

1.48                           “Event

of Default” shall mean the occurrence or existence of any event or condition

described in Section 10.1 hereof.

 

1.49                           “Excess

Availability” shall mean, as to each Borrower, the US Dollar Equivalent of the

amount, as determined by Agent, calculated at any date, equal to: (a) the

lesser of: (i) the Borrowing Base of such Borrower and (ii) the Revolving Loan

Limit of such Borrower (in each case under clauses (i) and (ii) after giving

effect to any Reserves attributable to such Borrower other than Reserves in

respect of Letter of Credit Accommodations), minus (b) the sum of: (i)

the amount of all then outstanding and unpaid Obligations of such Borrower (but

not including for this purpose outstanding Letter of Credit Accommodations for

the account of such Borrower, the then aggregate outstanding principal amount

of the Term Loans or the Obligations of such Borrower arising pursuant to any

guarantees in favor of Agent and Lenders of the Obligations of the other

Borrower) plus (ii) the amount of Reserves then established in respect of

Letter of Credit Accommodations for the account of such Borrower.

 

1.50                           “Excess

Closing Availability” shall mean, as to each Borrower, the US Dollar Equivalent

of the amount, as determined by Agent, calculated at any date, equal to: (a)

the lesser of:  (i) the Borrowing Base

of such Borrower and (ii) the Revolving Loan Limit of such Borrower (in each

case under clauses (i) and (ii) after giving effect to any Reserves

attributable to such Borrower other than Reserves in respect of Letter of

Credit Accommodations), minus (b) the sum of:  (i) the amount of all then outstanding and unpaid Obligations of

such Borrower (but not including for this purpose outstanding Letter of Credit

Accommodations for the account of such Borrower, the then aggregate outstanding

principal amount of the Term Loans or the Obligations of such Borrower arising pursuant

to any guarantees in favor of Agent and Lenders of the Obligations of the other

Borrower) plus (ii) the amount of all Reserves then established in respect of

Letter of Credit Accommodations for the account

 

16

 

of such Borrower, plus (iii) the aggregate

amount of all then outstanding and unpaid trade payables and other obligations

of such Borrower which are outstanding more than sixty (60) days past due as of

such time (other than trade payables owing to Affiliates of such Borrower and

trade payables or other obligations being contested or disputed by such

Borrower in good faith), plus (iv) without duplication, the amount of checks

issued by such Borrower to pay trade payables and other obligations which are

more than sixty (60) days past due as of such time (other than trade payables

owing to Affiliates of such Borrower and trade payables or other obligations

being contested or disputed by such Borrower in good faith), but not yet sent; provided,

that, for purposes of computing the past due trade payables of such

Borrower owing to Amoisonic under clause (iii) above, the amount of such trade

payables which are outstanding more than sixty (60) days past due as of such

time shall be reduced by the unpaid Accounts of such Borrower which are due and

owing by Amoisonic as of such time.

 

1.51                           “Exchange

Act” shall mean the Securities Exchange Act of 1934, together with all rules,

regulations and interpretations thereunder or related thereto.

 

1.52                           “Exchange

Rate” shall mean the prevailing spot rate of exchange of such bank as Agent may

select for the purpose of conversion of one currency to another, at or around

11:00 a.m. New York City time, on the date on which any such conversion of

currency is to be made under this Agreement or the amount of assets in any one

currency are to be determined in another currency under this Agreement.

 

1.53                           “Expiration

Date” shall have the meaning set forth in Section 13.1 hereof.

 

1.54                           “Fee

Letter” shall mean the letter agreement, dated of even date herewith, by and

among Borrowers and Agent, setting forth certain fees payable by Borrowers to

Agent for the benefit of itself and Lenders, as the same now exists or may

hereafter be amended, modified, supplemented, extended, renewed, restated or

replaced.

 

1.55                           “Financing

Agreements” shall mean, collectively, this Agreement and all notes, guarantees,

security agreements, deposit account control agreements, investment property

control agreements, intercreditor agreements and all other agreements,

documents and instruments now or at any time hereafter executed and/or

delivered by any Borrower or Obligor in connection with this Agreement.

 

1.56                           “GAAP”

shall mean generally accepted accounting principles in the United States of

America as in effect from time to time as set forth in the opinions and

pronouncements of the Accounting Principles Board and the American Institute of

Certified Public Accountants and the statements and pronouncements of the

Financial Accounting Standards Board which are applicable to the circumstances

as of the date of determination consistently applied, except that, (a) for

purposes of Sections 9.17 and 9.18 hereof, GAAP shall be determined on the

basis of such principles in effect on the date hereof and consistent with those

used in the preparation of the most recent audited financial statements

delivered to Agent prior to the date hereof and (b) if GAAP is used with

respect to a Person that is not incorporated or formed under the laws of the

United States of America or a political

 

17

 

subdivision thereof, then GAAP shall mean the

accounting principles, concepts and policies generally adopted and accepted in

the jurisdiction of incorporation of such Person as in effect from time to

time.

 

1.57                           “Governmental

Authority” shall mean any nation or government, any state, province, or other

political subdivision thereof, any central bank (or similar monetary or

regulatory authority) thereof, and any entity exercising executive, legislative,

judicial, regulatory or administrative functions of or pertaining to

government.

 

1.58                           “Guarantors”

shall mean, collectively, the following (together with their respective

successors and assigns):  (a) Mackie

Designs Manufacturing, Inc., a Washington corporation, (b) SIA Software

Company, Inc., a New York corporation, and (c) Mackie Investment Co., a

Washington corporation; each sometimes being referred to herein individually as

a “Guarantor”.

 

1.59                           “Hazardous

Materials” shall mean any hazardous, toxic or dangerous substances, materials

and wastes, including hydrocarbons (including naturally occurring or man-made

petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde

insulation, radioactive materials, biological substances, polychlorinated

biphenyls, pesticides, herbicides and any other kind and/or type of pollutants

or contaminants (including materials which include hazardous constituents),

sewage, sludge, industrial slag, solvents and/or any other similar substances,

materials, or wastes and including any other substances, materials or wastes

that are or become regulated under any Environmental Law (including any that

are or become classified as hazardous or toxic under any Environmental Law).

 

1.60                           “HIG”

shall mean H.I.G. Sun Partners, Inc., a Cayman Islands corporation.

 

1.61                           “HIG

Subordination Agreement” shall mean the Subordination Agreement, dated of even

date herewith, by and between Agent and HIG, as acknowledged by US Borrower and

certain of its subsidiaries, as the same now exists and may hereafter be

amended, modified, supplemented, extended, renewed, restated or replaced.

 

1.62                           “Inactive

Domestic Subsidiaries” shall mean, collectively, Blackstone Technologies, Inc.,

a Massachusetts corporation, and Mackie Industrial Inc., a New Jersey

corporation.

 

1.63                           “Indebtedness”

shall mean, with respect to any Person, any liability of such Person, whether

or not contingent, (a) in respect of borrowed money (whether or not the

recourse of the lender is to the whole of the assets of such Person or only to

a portion thereof) or evidenced by bonds, notes, debentures or similar

instruments; (b) representing the balance deferred and unpaid of the purchase

price of any property or services (except any such balance that constitutes an

account payable to a trade creditor (excluding an Affiliate) created, incurred,

assumed or guaranteed by such Person in the ordinary course of business of such

Person in connection with obtaining goods, materials or services that is not

overdue by more than ninety (90) days (or in the case of accounts payable owing

to Amoisonic, one hundred twenty (120) days) past the due date, unless the

trade payable is being contested in good faith); provided, that,

for purposes of computing the amount of accounts payable of

 

18

 

any Person owing to Amoisonic under this

clause (b), the amount of such accounts payable at any time shall be reduced by

the unpaid Accounts of such Person which are due and owing by Amoisonic at such

time; (c) representing all obligations as lessee under leases which have been,

or should be, in accordance with GAAP recorded as Capital Leases; (d)

representing any contractual obligation, contingent or otherwise, of such

Person to pay or be liable for the payment of any indebtedness described in

this definition of another Person, including, without limitation, any such

indebtedness, directly or indirectly guaranteed, or any agreement to purchase,

repurchase, or otherwise acquire such indebtedness, obligation or liability or

any security therefor, or to provide funds for the payment or discharge

thereof, or to maintain solvency, assets, level of income, or other financial

condition; (e) representing all obligations with respect to redeemable stock and

redemption or repurchase obligations under any Capital Stock or other equity

securities issued by such Person (excluding redemption or repurchase

obligations that may be triggered solely at the option of such Person); (f)

representing all reimbursement obligations and other liabilities of such Person

with respect to surety bonds (whether bid, performance or otherwise), letters

of credit, banker’s acceptances, drafts or similar documents or instruments

issued for such Person’s account; (g) representing all indebtedness of such

Person in respect of indebtedness of another Person for borrowed money or

indebtedness of another Person otherwise described in this definition which is

secured by any consensual lien, security interest, collateral assignment,

conditional sale, mortgage, deed of trust, or other encumbrance on any asset of

such Person, whether or not such obligations, liabilities or indebtedness are

assumed by or are a personal liability of such Person, all as of such time; (h)

representing all obligations, liabilities and indebtedness of such Person

(marked to market) arising under swap agreements, cap agreements and collar

agreements and other agreements or arrangements designed to protect such person

against fluctuations in interest rates or currency or commodity values; and (i)

representing all obligations owed by such Person under License Agreements with

respect to non-refundable, advance or minimum guarantee royalty payments.

 

1.64                           “Information

Certificate” shall mean, collectively, the Information Certificates of

Borrowers and Guarantors constituting Exhibit B hereto containing material

information with respect to Borrowers and Guarantors, their respective

businesses and assets provided by or on behalf of Borrowers and Guarantors to

Agent in connection with the preparation of this Agreement and the other

Financing Agreements and the financing arrangements provided for herein.

 

1.65                           “Intellectual

Property” shall mean, as to each Borrower and Guarantor, such Borrower’s and

Guarantor’s now owned and hereafter arising or acquired:  patents, patent rights, patent applications,

copyrights, works which are the subject matter of copyrights, copyright

registrations, trademarks, trade names, trade styles, trademark and service

mark applications, and licenses and rights to use any of the foregoing; all

extensions, renewals, reissues, divisions, continuations, and

continuations-in-part of any of the foregoing; all rights to sue for past,

present and future infringement of any of the foregoing; inventions, trade secrets,

formulae, processes, compounds, drawings, designs, blueprints, surveys,

reports, manuals, and operating standards; goodwill (including any goodwill

associated with any trademark or the license of any trademark); customer and

other lists in whatever form maintained; trade secret rights, copyright rights,

rights in works of authorship, domain names and

 

19

 

domain name registration; software and

contract rights relating to computer software programs, in whatever form

created or maintained.

 

1.66                           “Intercreditor

Agreement” shall mean the Intercreditor and Subordination Agreement, dated as

of even date herewith, by and among Agent, Lenders and U.S. Bank National

Association, as acknowledged by US Borrower and certain of its subsidiaries, as

the same now exists and may hereafter be amended, modified, supplemented,

extended, renewed, restated or replaced.

 

1.67                           “Interest

Expense” shall mean, for any period, as to any Person, as determined in

accordance with GAAP, the total interest expense of such Person, whether paid

or accrued during such period (including the interest component of Capital

Leases for such period), including, without limitation, discounts in connection

with the sale of any Accounts and bank fees, commissions, discounts and other

fees and charges owed with respect to letters of credit, banker’s acceptances

or similar instruments.

 

1.68                           “Interest

Period” shall mean for any Eurodollar Rate Loan, a period of approximately one

(1), two (2), or three (3) months duration as any Borrower (or Administrative

Borrower on behalf of such Borrower) may elect, the exact duration to be

determined in accordance with the customary practice in the applicable

Eurodollar Rate market; provided, that, such Borrower (or Administrative

Borrower on behalf of such Borrower) may not elect an Interest Period which

will end after the last day of the then-current term of this Agreement.

 

1.69                           “Interest

Rate” shall mean,

 

(a)               Subject to clause

(b) of this definition below:

 

(i)                           as to

Prime Rate Loans that are Revolving Loans, a rate equal to three-quarters of

one (.75%) percent per annum in excess of the Prime Rate,

 

(ii)                        as to

Eurodollar Rate Loans that are Revolving Loans, a rate equal to three and

one-half (3.50%) percent per annum in excess of the Adjusted Eurodollar Rate

(in each case, based on the Eurodollar Rate applicable for the Interest Period

selected by a Borrower, or by Administrative Borrower on behalf of such

Borrower, as in effect three (3) Business Days after the date of receipt by

Agent of the request of or on behalf of a Borrower for such Eurodollar Rate

Loans in accordance with the terms hereof, whether such rate is higher or lower

than any rate previously quoted to any Borrower or Guarantor), and

 

(iii)                     as to Term

Loans, a rate equal to one (1.00%) percent per annum in excess of the Prime

Rate.

 

(b)              Notwithstanding

anything to the contrary contained in clause (a) of this definition, the

Interest Rate shall mean the per annum rates set forth above plus (in each case)

two (2%) percent, at

 

20

 

Agent’s option, upon prior notice, (i) either

(A) for the period on and after the date of termination or non-renewal hereof

until such time as all Obligations are paid and satisfied in full in

immediately available funds, or (B) for the period from and after the date of

the occurrence of any Event of Default, and for so long as such Event of

Default is continuing as determined by Agent in good faith and (ii) on the

Revolving Loans to each Borrower at any time outstanding in excess of the

Borrowing Base of such Borrower or the Revolving Loan Limit of such Borrower

(whether or not such excess(es) arise or are made with or without Agent’s or

any Lender’s knowledge or consent and whether made before or after an Event of

Default).  Upon the request of a

Borrower, Agent will promptly notify such Borrower in writing if the Interest

Rate specified in this clause (b) is in effect.

 

1.70                           “Inventory”

shall mean, as to each Borrower and Guarantor, all of such Borrower’s and

Guarantor’s now owned and hereafter existing or acquired goods, wherever

located, which (a) are leased by such Borrower or Guarantor as lessor; (b) are

held by such Borrower for sale or lease or to be furnished under a contract of

service; (c) are furnished by such Borrower or Guarantor under a contract of

service; or (d) consist of raw materials, work in process, finished goods or

materials used or consumed in its business.

 

1.71                           “Inventory

Loan Limit” shall mean at any time, the amount equal to the US Dollar

Equivalent of US$16,000,000.

 

1.72                           “Investment

Property Control Agreement” shall mean an agreement in writing, in form and

substance satisfactory to Agent, by and among Agent, any Borrower or Guarantor

(as the case may be) and any securities intermediary, commodity intermediary or

other person who has custody, control or possession of any investment property

of such Borrower or Guarantor acknowledging that such securities intermediary,

commodity intermediary or other person has custody, control or possession of

such investment property on behalf of Agent, that it will comply with

entitlement orders originated by Agent with respect to such investment

property, or other instructions of Agent, or (as the case may be) apply any

value distributed on account of any commodity contract as directed by Agent, in

each case, without the further consent of such Borrower or Guarantor and

including such other terms and conditions as Agent may require.

 

1.73                           “Italian

Affiliated Accounts Payable” shall mean the accounts payable of US Borrower

owing to Mackie Designs (Italty) S.p.A., without giving effect to any setoff,

deduction or counterclaim.

 

1.74                           “Junior

Loan Agreement” shall mean the Second Amended and Restated Subordinated Credit

Agreement] dated on or about the date hereof, by and among U.S. Bank National

Association, US Borrower, Mackie Manufacturing, Mackie Investment and SIA, as

the same now exists or may hereafter be amended, modified, supplemented,

extended, renewed, restated or replaced.

 

1.75                           “Junior

Loan Documents” shall mean, collectively, the following (as the same now exist

or may hereafter be amended, modified, supplemented, extended, renewed,

restated or replaced): (a) the

 

21

 

Junior Loan Agreement; and (b) all

agreements, documents and instruments at any time executed and/or delivered in

connection with the Junior Loan Agreement.

 

1.76                           “Lenders”

shall mean the financial institutions who are signatories hereto as Lenders and

other persons made a party to this Agreement as a Lender in accordance with

Section 13.6 hereof, and their respective successors and assigns; each

sometimes being referred to herein individually as a “Lender”.

 

1.77                           “Letter

of Credit Accommodations” shall mean, collectively, the letters of credit,

merchandise purchase or other guaranties (a) which are from time to time either

issued or opened by Agent or any Lender for the account of any Borrower or

Obligor or (b) with respect to which Agent or Lenders have agreed to indemnify

the issuer or guaranteed to the issuer the performance by any Borrower or

Obligor of its obligations to such issuer; sometimes being referred to herein

individually as “Letter of Credit Accommodation”.

 

1.78                           “License

Agreements” shall have the meaning set forth in Section 8.11 hereof.

 

1.79                           “Loan

Limit” shall mean, as to each Borrower, at any time, the amount equal to the

Maximum Credit minus the then outstanding principal amount of the Loans and the

Letter of Credit Accommodations provided to the other Borrower.

 

1.80                           “Loans”

shall mean, collectively, the Revolving Loans and the Term Loans.

 

1.81                           “Mackie

UK Reserve” shall mean, at any time, the difference between (a) an amount equal

to one hundred (100%) percent of the US Dollar Equivalent of the Net Amount of

the Accounts of UK Borrower at such time and (b) an amount equal to

seventy-five (75%) percent of the Net Amount of the Eligible Accounts of UK

Borrower at such time.

 

1.82                           “Material

Adverse Effect” shall mean a material adverse effect on (a) the financial

condition, business, performance or operations of any Borrower or of Borrowers

and Guarantors (taken as a whole); (b) the legality, validity or enforceability

of any material provision this Agreement or any material provision of the other

Financing Agreements; (c) the legality, validity, enforceability, perfection or

priority of the security interests and liens of Agent upon any Collateral

having an aggregate value in excess of the US Dollar Equivalent of US$375,000;

(d) any Collateral having an aggregate value in excess of the US Dollar

Equivalent of US$375,000; (e) the ability of Borrowers and Guarantors (taken as

a whole) to repay the Obligations or of any Borrower or Guarantor to perform

its obligations under this Agreement or any of the other Financing Agreements

as and when to be performed; or (f) the ability of Agent or any Lender to

enforce the Obligations or realize upon any Collateral having an aggregate

value in excess of the US Dollar Equivalent of US$375,000 or otherwise with

respect to the rights and remedies of Agent and Lenders under this Agreement or

any of the other Financing Agreements; provided, that, any

monetary judgment or liability in connection with the EAW

 

22

 

Fire Proceeding and the payment thereof that

does not constitute an Event of Default under Section 10.1(q) shall not (in and

of itself) be deemed to have a Material Adverse Effect.

 

1.83                           “Material

Contract” shall mean any contract or other agreement (other than the Financing

Agreements), whether written or oral, to which any Borrower or Guarantor is a

party as to which the breach, nonperformance, cancellation or failure to renew

by any party thereto would have a Material Adverse Effect.

 

1.84                           “Maximum

Credit” shall mean the amount of US Dollar Equivalent of US$28,500,000.

 

1.85                           “Monthly

Adjustment Percentage” shall mean the product of (a) the fraction, expressed as

a percentage, (i) the numerator is one and (ii) the denominator of which is the

number of months (rounded to the nearest whole number) from the date on which

Agent receives the Updated Inventory Appraisal to the date that is eighteen

(18) months following the date of this Agreement, multiplied by (b) the

difference (if positive) between (i) twenty-two (22%) percent and (ii)

eighty-five (85%) percent of the Adjusted Raw Material Net Recovery Percentage.

 

1.86                           “Multiemployer

Plan” shall mean a “multi-employer plan” as defined in Section 4001(a)(3) of

ERISA which is or was at any time during the current year or the immediately

preceding six (6) years contributed to by any Borrower, Guarantor or any ERISA

Affiliate.

 

1.87                           “Net

Amount of Eligible Accounts” shall mean, as to any Borrower, the gross amount

of the Eligible Accounts of such Borrower less (a) sales, excise or similar

taxes included in the amount thereof and (b) returns, discounts, claims,

credits and allowances of any nature at any time issued, owing, granted,

outstanding, available or claimed with respect thereto.

 

1.88                           “Net

Cash Proceeds” shall mean, with respect to any sale or other disposition of

assets permitted under Section 9.7(b), the aggregate amount of cash received

from time to time by a Borrower or Guarantor in connection with such sale or

other disposition after deducting therefrom only (a) legal fees, finder’s fees

and other similar fees and other commissions and (b) the amount of income taxes

reasonably estimated to be actually payable by such Borrower or Guarantor (or

the direct or indirect equity holders of such Borrower or Guarantor) in

connection with or as a result of such sale or other disposition.

 

1.89                           “Net

Recovery Percentage” shall mean the fraction, expressed as a percentage, (a)

the numerator of which is the amount equal to the amount of the recovery in

respect of the Inventory at such time on a “net orderly liquidation value”

basis as set forth in the most recent acceptable appraisal of Inventory

received by Agent in accordance with Section 7.3, net of operating expenses,

liquidation expenses and commissions, and (b) the denominator of which is the

applicable original cost of the aggregate amount of the Inventory subject to

such appraisal.

 

23

 

1.90                           “Net

Recovery Percentage Adjustment Reserve” shall mean, effective as of the one

month anniversary of the date of this Agreement, $100,000, as such amount shall

be increased by $100,000 on each subsequent monthly anniversary date of this

Agreement occurring prior to Agent’s receipt of the Updated Inventory

Appraisal; provided, that, the Net Recovery Percentage Adjustment

Reserve shall be reduced to zero upon the earlier to occur of (a) Agent’s

receipt of the Updated Inventory Appraisal and (b) the date that is eighteen

(18) months after the date hereof.

 

1.91                           “Obligations”

shall mean any and all Loans, Letter of Credit Accommodations and all other

obligations, liabilities and indebtedness of every kind, nature and description

owing by any or all of Borrowers to Agent or any Lender and/or any of their

Affiliates, including principal, interest, charges, fees, costs and expenses,

however evidenced, whether as principal, surety, endorser, guarantor or

otherwise, arising under this Agreement or any of the other Financing

Agreements, whether now existing or hereafter arising, whether arising before,

during or after the initial or any renewal term of this Agreement or after the

commencement of any case with respect to such Borrower under the United States

Bankruptcy Code or any similar statute (including the payment of interest and

other amounts which would accrue and become due but for the commencement of

such case, whether or not such amounts are allowed or allowable in whole or in

part in such case), whether direct or indirect, absolute or contingent, joint

or several, due or not due, primary or secondary, liquidated or unliquidated,

or secured or unsecured.

 

1.92                           “Obligor”

shall mean any Guarantor.

 

1.93                           “Operating

Leases” shall mean, as applied to any Person, any lease of (or any agreement

conveying the right to use) any property (whether real, personal or mixed) by

such Person as lessee, excluding any Capital Lease.

 

1.94                           “Other

Taxes” shall mean any present or future stamp or documentary taxes or any other

excise or property taxes, charges or similar levies which arise from any payment

made hereunder or from the execution, delivery or registration of, or otherwise

with respect to, this Agreement or any of the other Financing Agreements.

 

1.95                           “Parent”

shall mean Sun Mackie, LLC, a Delaware limited liability company, and its

successors and assigns.

 

1.96  “Participant” shall mean any financial

institution that acquires and holds a participation in the interest of any

Lender in any of the Loans and Letter of Credit Accommodations in conformity

with the provisions of Section 13.6 of this Agreement governing participations.

 

1.97                           “Past

Due Affiliated Accounts Receivable” shall mean any accounts receivable of

Borrowers and Guarantors owing by any Affiliates thereof (other than Borrowers

and Guarantors) which are unpaid more than sixty (60) days after the original

due date or more than ninety (90) days after the original invoice for them,

without giving effect to any setoff, deduction or counterclaim.

 

24

 

1.98                           “Permitted

Holders” shall mean the persons listed on Schedule 1.98 hereto and their

respective successors and assigns (including officers, directors and employees

of Borrowers and Guarantors that replace officers, directors and employees of

Borrowers and Guarantors that held Capital Stock of US Borrower on the date

hereof).

 

1.99                           “Person”

or “person” shall mean any individual, sole proprietorship, partnership,

corporation (including any corporation which elects subchapter S status under

the Code), limited liability company, limited liability partnership, business

trust, unincorporated association, joint stock corporation, trust, joint

venture or other entity or any government or any agency or instrumentality or

political subdivision thereof.

 

1.100                     “Plan” means

an employee benefit plan (as defined in Section 3(3) of ERISA) which any

Borrower or Guarantor sponsors, maintains, or to which it makes, is making, or

is obligated to make contributions, or in the case of a Multiemployer Plan has

made contributions at any time during the immediately preceding six (6) plan

years.

 

1.101                     “Prime Rate”

shall mean the rate from time to time publicly announced by the Reference Bank,

or its successors, as its prime rate, whether or not such announced rate is the

best rate available at such bank.

 

1.102                     “Prime Rate

Loans” shall mean any loans or portion thereof on which interest is payable

based on the Prime Rate in accordance with the terms hereof.

 

1.103                     “Priority

Payables” shall mean, as to any Borrower at any time, (a) the full amount of

the liabilities of such Borrower at such time which (i) have a trust imposed to

provide for payment or a security interest, pledge, lien or charge ranking or

capable of ranking senior to or pari passu with security interests, liens or

charges securing the Obligations on any of the Eligible Accounts or Eligible

Inventory of such Borrower under Federal, State, county, district, municipal or

local law in the United Kingdom or The Netherlands or (ii) have a right imposed

to provide for payment ranking or capable of ranking senior to or pari passu

with the Obligations under local or national law, regulation or directive,

including, but not limited to, claims for unremitted and/or accelerated rents,

taxes (including claims for debts due to the taxing authorities in The

Netherlands, Inland Revenue or Customs and Excise), wages, withholding taxes,

VAT and other amounts payable to an insolvency administrator, employee

withholdings or deductions and vacation pay, workers’ compensation obligations,

government royalties or pension fund obligations in each case to the extent

such trust, or security interest, lien or charge has been or may be imposed,

(b) the amount equal to sixty-five (65%) percent (in the case of finished

goods) or fifty-five (55%) percent (in the case of raw materials) multiplied by

the aggregate Value of the Eligible Inventory of such Borrower which Agent

considers is or may be subject to retention of title by a supplier or a right

of a supplier to recover possession thereof, where such supplier’s right has

priority over the security interests, liens or charges securing the

Obligations, including, without limitation, Eligible Inventory subject to a

right of a supplier to repossess goods pursuant to any applicable laws granting

revendication or similar rights to unpaid suppliers or any similar laws of the

United Kingdom,

 

25

 

Italy or The Netherlands and (c) the amount

equal to seventy-five (75%) percent of the Net Amount of Eligible Accounts of a

Borrower which Agent considers is or may be subject to retention of title by a

supplier of the Inventory giving rise to such Eligible Accounts, where such

supplier’s right has priority over the security interests, liens or charges

securing the Obligations, including, without limitation, Eligible Accounts of a

Borrower arising from the sale of Inventory subject to a right of a supplier to

repossess goods pursuant to any applicable laws granting revendication or

similar rights to unpaid suppliers or any similar laws of Italy or The Netherlands.

 

1.104                     “Pro Rata

Share” shall mean the fraction (expressed as a percentage) obtained by dividing

(a) such Lender’s Commitment by (b) the aggregate Commitments of all Lenders; provided,

that, if the Commitments have been terminated, the numerator of such

fraction shall be the outstanding amount of such Lender’s Loans and interest in

the Letter of Credit Accommodations and the denominator of such fraction shall

be the aggregate amount of all outstanding Loans and Letter of Credit

Accommodations, in each case as the same may be adjusted from time to time in

accordance with the provisions of Section 13.6.

 

1.105                     “Provision

for Taxes” shall mean an amount equal to all taxes imposed on or measured by

net income, whether Federal, State, Provincial, county or local, and whether

foreign or domestic, that are paid or payable by any Person in respect of any

period in accordance with GAAP.

 

1.106                     “Purchase

Agreements” shall mean, individually and collectively, the Stock Purchase

Agreement, dated January 16, 2003 among Parent, US Borrower and Sellers, as

amended by the First Amendment dated as of February 7, 2003, the Second

Amendment dated as of February 13, 2003 and the Third Amendment dated as of

February 21, 2003, together with bills of sale, quitclaim deeds, assignment and

assumption agreements and such other instruments of transfer as are referred to

therein and all side letters with respect thereto, and all agreements,

documents and instruments executed and/or delivered in connection therewith, as

all of the foregoing now exist or may hereafter be amended, modified,

supplemented, extended, renewed, restated or replaced; provided, that,

the term “Purchase Agreements” as used herein shall not include any of the

Financing Agreements.

 

1.107                     “Purchased

Stock” shall mean all of the issued and outstanding shares of Capital Stock of

US Borrower acquired by Parent pursuant to the Purchase Agreements.

 

1.108                     “Randolph”

shall mean Randolph Street Partners V, an Illinois general partnership.

 

1.109                     “Randolph

Subordination Agreement” shall mean the Subordination Agreement, dated of even

date herewith, by and between Agent and Randolph, as acknowledged by US

Borrower and certain of its subsidiaries, as the same now exists and may

hereafter be amended, modified, supplemented, extended, renewed, restated or

replaced.

 

1.110                     “Raw Material

Availability” shall mean (a) at any time prior to October 1, 2005, the amount

equal to twenty-two (22%) percent multiplied by the US Dollar Equivalent of the

Value of the

 

26

 

Eligible Inventory of US Borrower consisting

of raw materials; provided, that, the amount of Raw Material

Availability under this clause (a) shall be reduced as of the first day of each

month, commencing on the first day of the month following Agent’s receipt of

the Updated Inventory Appraisal and ending on October 1, 2005, by an amount

equal to the initial amount of Raw Material Availability multiplied by the

Monthly Adjustment Percentage and (b) at any time on or after October 1, 2005,

the amount equal to the lesser of (i) fifty-five (55%) percent multiplied by

the US Dollar Equivalent of the Value of the Eligible Inventory of US Borrower

consisting of raw materials or (ii) eighty-five (85%) percent of the Net

Recovery Percentage of Inventory of US Borrower consisting of raw materials

multiplied by the US Dollar Equivalent of the Value of Eligible Inventory of US

Borrower consisting of raw materials.

 

1.111                     “Real

Property” shall mean all now owned and hereafter acquired real property of each

Borrower and Guarantor, including leasehold interests, together with all

buildings, structures, and other improvements located thereon and all licenses,

easements and appurtenances relating thereto, wherever located.

 

1.112                     “Receivables”

shall mean all of the following now owned or hereafter arising or acquired

property of each Borrower and Guarantor: (a) all Accounts; (b) all interest,

fees, late charges, penalties, collection fees and other amounts due or to

become due or otherwise payable in connection with any Account; (c) all payment

intangibles of such Borrower or Guarantor; (d) 

letters of credit, indemnities, guarantees, security or other deposits

and proceeds thereof issued payable to any Borrower or Guarantor or otherwise

in favor of or delivered to any Borrower or Guarantor in connection with any

Account; or (e) all other accounts, contract rights, chattel paper,

instruments, notes, general intangibles and other forms of obligations owing to

any Borrower or Guarantor, whether from the sale and lease of goods or other

property, licensing of any property (including Intellectual Property or other

general intangibles), rendition of services or from loans or advances by any

Borrower or Guarantor or to or for the benefit of any third person (including

loans or advances to any Affiliates or Subsidiaries of any Borrower or

Guarantor) or otherwise associated with any Accounts, Inventory or general

intangibles of any Borrower or Guarantor (including, without limitation,

chooses in action, causes of action, tax refunds, tax refund claims, any funds

which may become payable to any Borrower or Guarantor in connection with the

termination of any Plan or other employee benefit plan and any other amounts

payable to any Borrower or Guarantor from any Plan or other employee benefit

plan, rights and claims against carriers and shippers, rights to

indemnification, business interruption insurance and proceeds thereof, casualty

or any similar types of insurance and any proceeds thereof and proceeds of

insurance covering the lives of employees on which any Borrower or Guarantor is

a beneficiary).

 

1.113                     “Records”

shall mean, as to each Borrower and Guarantor, all of such Borrower’s and

Guarantor’s present and future books of account of every kind or nature, purchase

and sale agreements, invoices, ledger cards, bills of lading and other shipping

evidence, statements, correspondence, memoranda, credit files and other data

relating to the Collateral or any account debtor, together with the tapes,

disks, diskettes and other data and software storage media and

 

27

 

devices, file cabinets or containers in or on

which the foregoing are stored (including any rights of any Borrower or

Guarantor with respect to the foregoing maintained with or by any other

person).

 

1.114                     “Reference

Bank” shall mean Wachovia Bank, National Association, or such other bank as

Agent may from time to time designate.

 

1.115                     “Register”

shall have the meaning set forth in Section 13.6 hereof.

 

1.116                     “Required

Lenders” shall mean, at any time, those Lenders whose Pro Rata Shares aggregate

sixty-six and two-thirds (66 2/3%) percent or more of the aggregate of the

Commitments of all Lenders, or if the Commitments shall have been terminated,

Lenders to whom at least sixty-six and two-thirds (66 2/3%) percent of the then

outstanding Obligations are owing.

 

1.117                     “Reserves”

shall mean as of any date of determination, such amounts as Agent may from time

to time establish and revise in good faith reducing the amount of Revolving

Loans and Letter of Credit Accommodations which would otherwise be available to

any Borrower under the lending formula(s) provided for herein:  (a) to reflect events, conditions,

contingencies or risks which, as determined by Agent in good faith, adversely

affect, or would have a reasonable likelihood of adversely affecting, either

(i) the Collateral or any other property which is security for the Obligations

or its value or (ii) the assets, business or prospects of any Borrower or Obligor

or (iii) the security interests and other rights of Agent or any Lender in the

Collateral (including the enforceability, perfection and priority thereof) or

(b) to reflect Agent’s good faith belief that any collateral report or

financial information furnished by or on behalf of any Borrower or Obligor to

Agent is or may have been incomplete, inaccurate or misleading in any material

respect or (c) to reflect outstanding Letter of Credit Accommodations as

provided in Section 2.2 hereof or (d) in respect of any state of facts which

Agent determines in good faith constitutes a Default or an Event of Default or

(e) to reflect the amount of the Priority Payables or (f) to reflect Agent’s

estimate of the amount of any reserve necessary to reflect changes in applicable

currency exchange rates or currency exchange markets or (g) to reflect the

amount of liability (contingent or otherwise) incurred by Agent in respect of

its agreement to guarantee or in effect guarantee any Indebtedness of Borrowers

and Guarantors to any Affiliate of Congress which is permitted under Section

9.9(g) or (h) to reflect the Mackie UK Reserve or (i) to reflect the Term Loan

Amortization Reserve or (j) to reflect the Net Recovery Percentage Adjustment

Reserve or (k) to reflect the Currency Exchange Overadvance as provided in

Section 2.1(d) or (l) to reflect amounts owing or to be owing to the

Warehousemen, if Borrowers or Guarantors fail to pay when due any amounts owing

to the Warehousemen.  Without limiting

the generality of the foregoing, Reserves may be established to reflect that

dilution with respect to the Accounts (based on the ratio of the aggregate

amount of non-cash reductions in Accounts for any period to the aggregate

dollar amount of the sales of Borrowers for such period) as calculated by Agent

for any period is or is reasonably anticipated to be greater than fifteen (15%)

percent or to reflect that the orderly liquidation value of the Equipment as

set forth in the most recent acceptable appraisals received by Agent with respect

thereto has declined so that the then outstanding principal amount of the Term

Loans is greater than such percentage with respect to such appraised values as

Agent used in establishing the original principal

 

28

 

amount of the Term Loans multiplied by such

appraised values.  To the extent Agent

may revise the lending formulas used to determine the Borrowing Base or

establish new criteria or revise existing criteria for Eligible Accounts or

Eligible Inventory so as to address any circumstances, condition, event or

contingency in a manner satisfactory to Agent, Agent shall not establish a

Reserve for the same purpose.  The

amount of any Reserve established by Agent shall have a reasonable relationship

to the event, condition or other matter which is the basis for such reserve as

determined by Agent in good faith.

 

1.118                     “Revolving

Loan Limit” shall mean, as to each Borrower, at any time, the amount equal to

the US Dollar Equivalent of US$26,000,000 minus the then outstanding principal

amount of the Revolving Loans and Letter of Credit Accommodations provided by

Lenders to the other Borrower, as such amount may be amended from time to time

with the prior written consent of Agent, Lenders and Administrative Borrower.

 

1.119                     “Revolving

Loans” shall mean the loans now or hereafter made by or on behalf of any Lender

or by Agent for the account of any Lender on a revolving basis pursuant to the

Credit Facility (involving advances, repayments and readvances) as set forth in

Section 2.1 hereof.

 

1.120                     “Sellers”

shall mean, collectively, the following (and their respective successors and

assigns): (a) Gregory Mackie, individually and as the sole trustee of certain

trusts described in the Purchase Agreements, and (b) C. Marcus Sorenson and

Judith B. Sorenson, as co-trustees of certain trusts described in the Purchase

Agreements.

 

1.121                     “Solvent”

shall mean, at any time with respect to any Person, that at such time such

Person (a) is able to pay its debts as they mature and has (and has a

reasonable basis to believe it will continue to have) sufficient capital (and

not unreasonably small capital) to carry on its business consistent with its

practices as of the date hereof, and (b) the assets and properties of such

Person at a fair valuation (and including as assets for this purpose at a fair

valuation all rights of subrogation, contribution or indemnification arising

pursuant to any guarantees given by such Person) are greater than the

Indebtedness of such Person, and including subordinated and contingent

liabilities computed at the amount which, such person has a reasonable basis to

believe, represents an amount which can reasonably be expected to become an

actual or matured liability (and including as to contingent liabilities arising

pursuant to any guarantee the face amount of such liability as reduced to

reflect the probability of it becoming a matured liability).

 

1.122                     “Special

Agent Advances” shall have the meaning set forth in Section 12.11 hereof.

 

1.123                     “Specified

Digital Inventory” shall mean digital mixers and digital accessories, as such

terms are defined in the inventory appraisal of Great American delivered to

Agent prior to the date of this Agreement.

 

29

 

1.124                     “Specified

Foreign Subsidiaries” shall mean shall mean, collectively, Mackie Designs

(France) S.A., Mackie Designs (Deutschland) GmbH and Mackie Designs

(Netherlands) B.V.; each sometimes being referred to herein as a “‘Specified

Foreign Subsidiary”.

 

1.125                     “Sterling”

and “£” shall mean lawful currency of the United Kingdom.

 

1.126                     “Sterling

Equivalent” shall mean at any time (a) as to any amount denominated in

Sterling, the amount thereof and (b) as to any amount denominated in US Dollars

or any other currency, the equivalent amount in Sterling calculated by Agent at

such time using the Currency Exchange Convention in effect on the Business Day

of determination.

 

1.127                     “Subordinated

Lenders” shall mean, collectively, the Parent, Randolph and HIG and their respective

successors and permitted assigns; each sometimes being referred to herein

individually as a “Subordinated Lender”.

 

1.128                     “Subordinated

Notes” shall mean, collectively, the separate Subordinated Promissory Notes,

each dated on or about the date hereof, issued by US Borrower in favor of

Subordinated Lenders in the original aggregate principal amount of

US$4,000,000; each sometimes being referred to herein individually as a

“Subordinated Note”.

 

1.129                     “Subordination

Agreements” shall mean, collectively, the Sun Mackie Subordination Agreement,

the HIG Subordination Agreement and the Randolph Subordination Agreement; each

sometimes being referred to herein individually as a “Subordination Agreement”.

 

1.130                     “Subsidiary”

or “subsidiary” shall mean, with respect to any Person, any corporation,

limited liability company, limited liability partnership or other limited or

general partnership, trust, association or other business entity of which an

aggregate of at least a majority of the outstanding Capital Stock or other

interests entitled to vote in the election of the board of directors of such

corporation (irrespective of whether, at the time, Capital Stock of any other

class or classes of such corporation shall have or might have voting power by

reason of the happening of any contingency), managers, trustees or other

controlling persons, or an equivalent controlling interest therein, of such

Person is, at the time, directly or indirectly, owned by such Person and/or one

or more subsidiaries of such Person.

 

1.131                     “Sun Capital”

shall mean Sun Capital Partners Management, LLC, a Delaware limited liability

company, and its successors and assigns.

 

1.132                     “Sun Mackie

Subordination Agreement” shall mean the Subordination Agreement, dated even

date herewith, by and between Agent and Parent, as acknowledged by US Borrower

and certain of its subsidiaries, as the same now exists and may hereafter be

amended, modified, supplemented, extended, renewed, restated or replaced.

 

30

 

1.133                     “Taxes” shall

mean any and all present or future taxes, levies, imposts, deductions, charges

or withholdings, and all liabilities with respect thereto, excluding, in the

case of Agent or any Lender, (a) such taxes (including income taxes, franchise

taxes or capital taxes) as are imposed on or measured by such Lender’s or

Agent’s net income or capital (or other taxes imposed in lieu thereof) by any

jurisdiction or political subdivision thereof and (b) all interest and

penalties imposed on such Lender or Agent with respect to the taxes described

in clause (a) above.

 

1.134                     “Term Loan

Amortization Reserve” shall mean $250,000.

 

1.135                     “Term Loans”

shall mean, collectively, the term loans made by or on behalf of Lenders to US

Borrower as provided for in Section 2.3 hereof; sometimes being referred to

herein individually as a “Term Loan”.

 

1.136                     “Triggering

Date” shall mean the earlier of (a) the date that is one hundred twenty (120)

days after the date of this Agreement or (b) the date upon which each of Mackie

Designs (France) S.A. and Mackie Designs (Deutschland) GmbH shall have

dissolved in accordance with Section 9.24.

 

1.137                     “UCC” shall

mean the Uniform Commercial Code as in effect in the State of Florida, and any

successor statute, as in effect from time to time (except that terms used

herein which are defined in the Uniform Commercial Code as in effect in the

State of Florida on the date hereof shall continue to have the same meaning

notwithstanding any replacement or amendment of such statute except as Agent

may otherwise determine).

 

1.138                     “Updated

Inventory Appraisal” shall mean the first written appraisal of the Inventory

received by Agent following the date hereof which is in form, scope and

methodology acceptable to Agent and by an appraiser acceptable to Agent,

addressed to Agent and Lenders and upon which Agent and Lenders are expressly

permitted to rely.

 

1.139                     “US Dollar

Equivalent” shall mean at any time (a) as to any amount denominated in US

Dollars, the amount thereof at such time, and (b) as to any amount denominated

in Sterling, Euros or any other currency, the equivalent amount in US Dollars

calculated by Agent (or by a Borrower or Guarantor with the consent of Agent)

at such time using the Currency Exchange Convention in effect on the Business

Day of determination.

 

1.140                     “US Dollars”,

“US$” and “$” shall each mean lawful currency of the United States of America.

 

1.141                     “Value” shall

mean, as determined by Agent in good faith, with respect to Inventory, the

lower of (a) cost computed on a first-in first-out basis in accordance with

GAAP or (b) market value, provided, that, for purposes of the

calculation of the Borrowing Base, (i) the Value of the Inventory shall not

include:  (A) the portion of the value

of Inventory equal to the profit earned by any Affiliate on the sale thereof to

any Borrower or (B)  write-ups or

write-downs in value with respect to currency

 

31

 

exchange rates and (ii) notwithstanding

anything to the contrary contained herein, the cost of the Inventory shall be

computed in the same manner and consistent with the most recent appraisal of

the Inventory received and accepted by Agent prior to the date hereof, if any.

 

1.142                     “VAT” shall

mean Value Added Tax imposed in the United Kingdom and any equivalent tax

applicable in any European jurisdiction.

 

1.143                     “Voting

Stock” shall mean with respect to any Person, (a) one (1) or more classes of

Capital Stock of such Person having general voting powers to elect at least a

majority of the board of directors, managers or trustees of such Person,

irrespective of whether at the time Capital Stock of any other class or classes

have or might have voting power by reason of the happening of any contingency,

and (b) any Capital Stock of such Person convertible or exchangeable without

restriction at the option of the holder thereof into Capital Stock of such

Person described in clause (a) of this definition.

 

1.144                     “Warehousemen”

shall mean Expeditors International of Washington, Inc.

 

SECTION 2. 

CREDIT FACILITIES

 

2.1                                 Loans.

 

(a)               Subject to and upon

the terms and conditions contained herein, each Lender severally (and not

jointly) agrees to fund its Pro Rata Share of Revolving Loans to a Borrower

from time to time in amounts requested by such Borrower (or Administrative

Borrower on behalf of such Borrower) up to the amount outstanding at any time

equal to the lesser of (i) the Borrowing Base of such Borrower at such time or

(ii) the Revolving Loan Limit of such Borrower at such time.

 

(b)              Agent may, in its

discretion, from time to time, upon not less than five (5) days prior notice to

Administrative Borrower, reduce the lending formula(s) with respect to Eligible

Inventory to the extent that Agent determines in good faith that: (i)  the number of days of the turnover of the

Eligible Inventory for any period has adversely changed or (ii) the liquidation

value of the Eligible Inventory, or any category thereof, has decreased,

including any decrease attributable to a change in the nature, quality or mix

of the Inventory.  The amount of any

decrease in the lending formulas shall have a reasonable relationship to the

event, condition or circumstance which is the basis for such decrease as

determined by Agent in good faith.  In

determining whether to reduce the lending formula(s), Agent may consider

events, conditions, contingencies or risks which are also considered in

determining Eligible Accounts, Eligible Inventory or in establishing Reserves.

 

(c)               Except in Agent’s

discretion, with the consent of all Lenders, or as otherwise provided herein,

(i) the aggregate principal amount of the Loans and the Letter of Credit

Accommodations outstanding at any time shall not exceed the Maximum

Credit,  (ii) the aggregate principal

amount of the Revolving Loans and Letter of Credit Accommodations outstanding

at any time to each Borrower shall not exceed the lesser of the Revolving Loan

Limit of such Borrower or the

 

32

 

Borrowing Base of such Borrower, (iii) the aggregate

principal amount of the Loans and Letter of Credit Accommodations outstanding

at any time to each Borrower shall not exceed the Loan Limit of such Borrower,

(iv) the aggregate principal amount of the Revolving Loans and Letters of

Credit Accommodations outstanding at any time to US Borrower based on the

Eligible Inventory of US (whether or not covered by Letter of Credit

Accommodations) shall not exceed the Inventory Sublimit, (v) the aggregate

principal amount of the Revolving Loans and Letter of Credit Accommodations

outstanding at any time to US Borrower based on the Eligible Inventory of US

Borrower consisting of in-transit Inventory (whether or not covered by Letter

of Credit Accommodations) shall not exceed the US Dollar Equivalent of US$2,500,000

and (vi) the aggregate principal amount of the Revolving Loans and Letter of

Credit Accommodations outstanding at any time to US Borrower based on the

Eligible Inventory of US Borrower consisting of Specified Digital Inventory

shall not at any time exceed twenty-five (25%) percent of all Inventory of US

Borrower consisting of finished goods at such time as such finished goods are

reflected in the most recent inventory reports delivered to Agent pursuant to

Section 7.1(a).

 

(d)              In the event that

the aggregate principal amount of the Revolving Loans and Letter of Credit

Accommodations outstanding to each Borrower exceed the Borrowing Base of such

Borrower or the Revolving Loan Limit of such Borrower, or the aggregate

principal amount of Revolving Loans and Letter of Credit Accommodations based

on the Eligible Inventory of US Borrower exceed the Inventory Loan Limit, or

the aggregate principal amount of Revolving Loans and Letter of Credit

Accommodations based on the Eligible Inventory of US Borrower consisting of

in-transit Inventory exceeds the sublimit set forth above, or the Loans and/or

Letter of Credit Accommodations exceed any of the other sublimits set forth in

Section 2.1(c) above, or the aggregate amount of the outstanding Letter of

Credit Accommodations exceed the sublimit for Letter of Credit Accommodations

set forth in Section 2.2(e), or the aggregate amount of the Loans and Letter of

Credit Accommodations exceed the Maximum Credit, such event shall not limit,

waive or otherwise affect any rights of Agent or Lenders in such circumstances

or on any future occasions and Borrowers shall, upon demand by Agent, which may

be made at any time or from time to time, immediately repay to Agent the entire

amount of any such excess(es) for which payment is demanded.  Notwithstanding anything to the contrary

contained in Section 2.1(c)(ii) above, if the aggregate principal amount of

Revolving Loans and Letter of Credit Accommodations outstanding to UK Borrower

at any time shall exceed the Borrowing Base of UK Borrower as a result of a

change in the rate of exchange between US Dollars and Pounds Sterling or Euros

as determined by Agent in good faith (such excess to the extent resulting from

such change being referred to as a “Currency Exchange Overadvance”), then at

Agent’s election, either (i) UK Borrower shall not be required to repay

Eurodollar Rate Loans to cure the Currency Exchange Overadvance until the last

day of the Interest Period for such Eurodollar Rate Loans and Agent shall have

the right to establish a Reserve against the Borrowing Base of US Borrower in

an amount equal to the Currency Exchange Overadvance or (ii) UK Borrower shall

be required to repay (and shall repay) Eurodollar Rate Loans to cure the

Currency Exchange Overadvance upon the demand of Agent, and UK Borrower shall

not be obligated to indemnify Agent and any Lender for any loss or expense

which Agent or such Lender may incur or sustain as a result of the repayment by

UK Borrower of Eurodollar Rate Loans prior to the last day of the Interest

Period for such Eurodollar Rate Loans solely to the

 

33

 

extent such repayment is required to cure the

Currency Exchange Overadvance; provided, that, any Reserve

established pursuant to clause (i) above with respect to any Currency Exchange

Overadvance shall be reduced to zero upon the date on which such Currency

Exchange Overadvance shall cease to exist.

 

2.2                                 Letter of Credit Accommodations.

 

(a)               Subject to and upon

the terms and conditions contained herein, at the request of any Borrower (or

Administrative Borrower on behalf of such Borrower), Agent agrees, for the

ratable risk of each Lender according to its Pro Rata Share, to provide or

arrange for Letter of Credit Accommodations denominated in US Dollars for the

account of such US Borrower containing terms and conditions acceptable to

Agent, each Lender and the issuer thereof. 

Any payments made by or on behalf of Agent or any Lender to any issuer

thereof and/or related parties in connection with the Letter of Credit

Accommodations provided to or for the benefit of any Borrower shall constitute

additional Revolving Loans to such Borrower pursuant to this Section 2.

 

(b)              In addition to any

charges, fees or expenses charged by any bank or issuer in connection with the

Letter of Credit Accommodations, Borrowers shall pay to Agent, for the benefit

of Lenders, a letter of credit fee at a rate equal to two and one-half (2.50%)

percent per annum, on the daily outstanding balance of the Letter of Credit

Accommodations for the immediately preceding month (or part thereof), payable

in arrears as of the first day of each succeeding month, except that Agent may,

and upon the written direction of Required Lenders shall, require Borrowers to

pay to Agent for the ratable benefit of Lenders such letter of credit fee, at a

rate equal to four and one-half (4.50%) percent per annum on such daily

outstanding balance for: (i)  the period

from and after the date of termination 

hereof until Agent and Lenders have received full and final payment of

all Obligations (notwithstanding entry of a judgment against any Borrower) and

(ii) the period from and after the date of the occurrence of an Event of

Default for so long as such Event of Default is continuing as determined by

Agent in good faith.  Such letter of

credit fee shall be calculated on the basis of a three hundred sixty (360) day

year and actual days elapsed and the obligation of Borrowers to pay such fee

shall survive the termination of this Agreement.

 

(c)               The Borrower requesting

such Letter of Credit Accommodation (or Administrative Borrower on behalf of

such Borrower) shall give Agent two (2) Business Days’ prior written notice of

such Borrower’s request for the issuance of a Letter of Credit Accommodation.  Such notice shall be irrevocable and shall

specify the original face amount of the Letter of Credit Accommodation

requested, the effective date (which date shall be a Business Day) of issuance

of such requested Letter of Credit Accommodation, whether such Letter of Credit

Accommodations may be drawn in a single draw or in partial draws, the date on

which such requested Letter of Credit Accommodation is to expire (which date

shall be a Business Day), the purpose for which such Letter of Credit

Accommodation is to be issued, and the beneficiary of the requested Letter of

Credit Accommodation. The Borrower requesting the Letter of Credit

Accommodation (or Administrative Borrower on behalf

 

34

 

of such Borrower) shall attach to such notice

the proposed form of the Letter of Credit Accommodation.

 

(d)              In addition to being

subject to the satisfaction of the applicable conditions precedent contained in

Section 4 hereof and the other terms and conditions contained herein, no Letter

of Credit Accommodations shall be available unless each of the following

conditions precedent have been satisfied in a manner satisfactory to

Agent:  (i) the Borrower requesting such

Letter of Credit Accommodation (or Administrative Borrower on behalf of such

Borrower) shall have delivered to the proposed issuer of such Letter of Credit

Accommodation at such times and in such manner as such proposed issuer may

require, an application, in form and substance satisfactory to such proposed

issuer and Agent, for the issuance of the Letter of Credit Accommodation and

such other documents as may be required pursuant to the terms thereof, and the

form and terms of the proposed Letter of Credit Accommodation shall be

satisfactory to Agent and such proposed issuer, (ii) as of the date of

issuance, no order of any court, arbitrator or other Governmental Authority

shall purport by its terms to enjoin or restrain money center banks generally

from issuing letters of credit of the type and in the amount of the proposed Letter

of Credit Accommodation, and no law, rule or regulation applicable to money

center banks generally and no request or directive (whether or not having the

force of law) from any Governmental Authority with jurisdiction over money

center banks generally shall prohibit, or request that the proposed issuer of

such Letter of Credit Accommodation refrain from, the issuance of letters of

credit generally or the issuance of such Letters of Credit Accommodation; and

(iii) the Excess Availability of the Borrower requesting such Letter of Credit

Accommodation, prior to giving effect to any Reserves with respect to such

Letter of Credit Accommodations, on the date of the proposed issuance of any

Letter of Credit Accommodations, shall be equal to or greater than: (A) if the

proposed Letter of Credit Accommodation is for the purpose of purchasing

Eligible Inventory and the documents of title with respect thereto are

consigned to the issuer and Agent has been named as an additional insured and a

loss payee under the marine cargo insurance policy in a manner acceptable to

Agent, the sum of (1) the percentage equal to one hundred (100%) percent minus

the then applicable percentage with respect to Eligible Inventory set forth in

the definition of the term Borrowing Base multiplied by the Value of such

Eligible Inventory, plus (2) freight, taxes, duty and other amounts which Agent

estimates must be paid in connection with such Inventory upon arrival and for

delivery to one of such Borrower’s locations for Eligible Inventory within the

United States of America and (B) if the proposed Letter of Credit Accommodation

is for any other purpose or the documents of title are not consigned to the

issuer in connection with a Letter of Credit Accommodation for the purpose of

purchasing Inventory or such Marine Cargo Insurance is not acceptable to Agent,

an amount equal to one hundred (100%) percent of the face amount thereof and

all other commitments and obligations made or incurred by Agent with respect

thereto.  Effective on the issuance of

each Letter of Credit Accommodation, a Reserve shall be established in the

applicable amount set forth in Section 2.2(d)(iii)(A) or Section

2.2(d)(iii)(B).

 

(e)               Except in Agent’s

discretion, with the consent of all Lenders, the amount of all outstanding

Letter of Credit Accommodations and all other commitments and obligations made

or

 

35

 

incurred by Agent or any Lender to or for the

benefit of Borrowers in connection therewith shall not at any time exceed, in

the aggregate, the US Dollar Equivalent of US$7,500,000.

 

(f)                 Borrowers and

Guarantors shall indemnify and hold Agent and Lenders harmless from and against

any and all losses, claims, damages, liabilities, costs and expenses which

Agent or any Lender may suffer or incur in connection with any Letter of Credit

Accommodations and any documents, drafts or acceptances relating thereto,

including any losses, claims, damages, liabilities, costs and expenses due to

any action taken by any issuer or correspondent with respect to any Letter of

Credit Accommodation, except for such losses, claims, damages, liabilities,

costs or expenses that are a direct result of the gross negligence or willful

misconduct of Agent or any Lender as determined pursuant to a final

non-appealable order of a court of competent jurisdiction.  Each Borrower and Guarantor assumes all

risks with respect to the acts or omissions of the drawer under or beneficiary

of any Letter of Credit Accommodation and for such purposes the drawer or beneficiary

shall be deemed such Borrower’s agent. 

Each Borrower and Guarantor assumes all risks for, and agrees to pay,

all foreign, Federal, State and local taxes, duties and levies relating to any

goods subject to any Letter of Credit Accommodations or any documents, drafts

or acceptances thereunder.  Each

Borrower and Guarantor hereby releases and holds Agent and Lenders harmless

from and against any acts, waivers, errors, delays or omissions, whether caused

by any Borrower, Guarantor, by any issuer or correspondent or otherwise with

respect to or relating to any Letter of Credit Accommodation, except for the

gross negligence or willful misconduct of Agent or any Lender as determined

pursuant to a final, non-appealable order of a court of competent jurisdiction.  The provisions of this Section 2.2(f) shall

survive the payment of Obligations and the termination of this Agreement.

 

(g)              In connection with

Inventory purchased pursuant to Letter of Credit Accommodations, Borrowers and

Guarantors shall, at the request of Agent, instruct all suppliers, carriers,

forwarders, customs brokers, warehouses or others receiving or holding cash,

checks, Inventory, documents or instruments in which Agent holds a security

interest to deliver them to Agent and/or subject to Agent’s order, and if they

shall come into such Borrower’s or Guarantor’s possession, to deliver them,

upon the request of Agent, to Agent in their original form.  Borrowers and Guarantors shall also, at the

request of Agent, designate Agent as the consignee on all bills of lading and

other negotiable and non-negotiable documents.

 

(h)              Each Borrower and

Guarantor hereby irrevocably authorizes and directs any issuer of a Letter of

Credit Accommodation to name such Borrower or Guarantor as the account party therein

and to deliver to Agent all instruments, documents and other writings and

property received by issuer pursuant to the Letter of Credit Accommodations and

to accept and rely upon the instructions of Agent and agreements with respect

to all matters arising in connection with the Letter of Credit Accommodations

or the applications therefor.  Nothing

contained herein shall be deemed or construed to grant any Borrower or

Guarantor any right or authority to pledge the credit of Agent or any Lender in

any manner.  Agent and Lenders shall

have no liability of any kind with respect to any Letter of Credit

Accommodation provided by an issuer other than Agent or any Lender unless Agent

has duly executed and delivered to such issuer the application or a guarantee

or indemnification in writing with

 

36

 

respect to such Letter of Credit

Accommodation.  Borrowers and Guarantors

shall be bound by any reasonable interpretation made in good faith by Agent, or

any other issuer or correspondent under or in connection with any Letter of

Credit Accommodation or any documents, drafts or acceptances thereunder,

notwithstanding that such interpretation may be inconsistent with any

instructions of any Borrower or Guarantor. 

Agent shall have the sole and exclusive right and authority to, and

Borrowers and Guarantors shall not: (i) at any time an Event of Default exists

or has occurred and is continuing, (A) approve or resolve any questions of

non-compliance of documents, (B) give any instructions as to acceptance or

rejection of any documents or goods or (C) execute any and all applications for

steamship or airway guaranties, indemnities or delivery orders, and (ii) at all

times (provided that if no Event of Default has occurred and is continuing,

Agent shall not exercise any of the following unless agreed to by or on behalf

of any Borrower), (A) grant any extensions of the maturity of, time of payment

for, or time of presentation of, any drafts, acceptances, or documents, and (B)

agree to any amendments, renewals, extensions, modifications, changes or

cancellations of any of the terms or conditions of any of the applications,

Letter of Credit Accommodations, or documents, drafts or acceptances thereunder

or any letters of credit included in the Collateral.  Agent may take such actions either in its own name or in any

Borrower’s name or in any Guarantor’s name.

 

(i)                  Any rights,

remedies, duties or obligations granted or undertaken by any Borrower or

Guarantor to any issuer or correspondent in any application for any Letter of

Credit Accommodation, or any other agreement in favor of any issuer or

correspondent relating to any Letter of Credit Accommodation, shall be deemed

to have been granted or undertaken by such Borrower or Guarantor to Agent for

the ratable benefit of Lenders.  Any

duties or obligations undertaken by Agent to any issuer or correspondent in any

application for any Letter of Credit Accommodation, or any other agreement by

Agent in favor of any issuer or correspondent to the extent relating to any

Letter of Credit Accommodation, shall be deemed to have been undertaken by

Borrowers and Guarantors to Agent for the ratable benefit of Lenders and to

apply in all respects to Borrowers and Guarantors.

 

(j)                  Immediately upon

the issuance or amendment of any Letter of Credit Accommodation, each Lender

shall be deemed to have irrevocably and unconditionally purchased and received,

without recourse or warranty, an undivided interest and participation to the

extent of such Lender’s Pro Rata Share of the liability with respect to such

Letter of Credit Accommodation (including, without limitation, all Obligations

with respect thereto).

 

(k)               Each Borrower is

irrevocably and unconditionally obligated, without presentment, demand or

protest, to pay to Agent any amounts paid by an issuer of a Letter of Credit

Accommodation with respect to such Letter of Credit Accommodation (whether

through the borrowing of Loans in accordance with Section 2.2(a) or otherwise).  In the event that any Borrower fails to pay

Agent on the date of any payment under a Letter of Credit Accommodation in an

amount equal to the amount of such payment, Agent (to the extent it has actual

notice thereof) shall promptly notify each Lender of the unreimbursed amount of

such payment and each such Lender agrees, upon one (1) Business Day’s notice,

to fund to Agent the purchase of its participation in such Letter of Credit

Accommodation in an amount equal to its Pro Rata Share of the unpaid amount.  The obligation of each

 

37

 

such Lender to deliver to Agent an amount

equal to its respective participation pursuant to the foregoing sentence is

absolute and unconditional and such remittance shall be made notwithstanding

the occurrence or continuance of any Event of Default, the failure to satisfy

any other condition set forth in Section 4 or any other event or

circumstance.  If such amount is not

made available by such Lender when due, Agent shall be entitled to recover such

amount on demand from such Lender with interest thereon, for each day from the

date such amount was due until the date such amount is paid to Agent at the

interest rate then payable by a Borrower in respect of Revolving Loans that are

Prime Rate Loans as set forth in Section 3.1(a) hereof.

 

2.3                                 Term Loans.

 

(a)               Subject to and upon

the terms and conditions contained herein, each Lender severally (and not

jointly) agrees to fund its Pro Rata Share of the Term Loans to US Borrower in

the original principal amount equal to the US Dollar Equivalent of

US$2,500,000.

 

(b)              Each of the Term

Loans is (i) evidenced by a Term Promissory Note in such original principal

amount duly executed and delivered by US Borrower to Agent concurrently

herewith; (ii) to be repaid, together with interest and other amounts, in

accordance with this Agreement, such Term Promissory Note, and the other

Financing Agreements and (iii) secured by the Collateral as provided in Section

5.1.  The principal amount of each of

the Term Loans shall be repaid in sixty (60) consecutive monthly installments

(or earlier as provided herein) payable on the first day of each month

commencing July 1, 2003, of which the first fifty-nine (59) installments shall

each be in the amount equal to one-fifty ninth of the original principal amount

of such Term Loan and the last installment shall be in the amount of the entire

unpaid balance of such Term Loan ; provided, that, the entire

unpaid principal amount of each Term Loan and all accrued and unpaid interest

thereon shall be due and payable on the effective date of termination or

non-renewal of the Financing Agreements.

 

2.4                                 Commitments. 

The aggregate amount of each Lender’s Pro Rata Share of the Loans and

Letter of Credit Accommodations shall not exceed the amount of such Lender’s

Commitment, as the same may from time to time be amended in accordance with the

provisions hereof.

 

SECTION 3. 

INTEREST AND FEES

 

3.1                                 Interest.

 

(a)               Borrowers shall pay

to Agent, for the benefit of Lenders, interest on the outstanding principal amount

of the Loans at the applicable Interest Rate. 

All interest accruing hereunder on and after the date of any Event of

Default or termination hereof shall be payable on demand.

 

(b)              Each Term Loan shall

at all times be a Prime Rate Loan. 

Subject to the terms and conditions contained herein, a Borrower (or

Administrative Borrower on behalf of such Borrower) may

 

38

 

from time to time request Revolving Loans or

may request that Prime Rate Loans be converted to Eurodollar Rate Loans or that

any existing Eurodollar Rate Loans continue for an additional Interest

Period.  Such request from a Borrower

(or Administrative Borrower on behalf of such Borrower) shall specify the

amount of the Eurodollar Rate Loans or the amount of the Prime Rate Loans to be

converted to Eurodollar Rate Loans or the amount of the Eurodollar Rate Loans

to be continued (subject to the limits set forth below) and the Interest Period

to be applicable to such Eurodollar Rate Loans.  Subject to the terms and conditions contained herein, three (3)

Business Days after receipt by Agent of such a request from a Borrower (or

Administrative Borrower on behalf of such Borrower), such Eurodollar Rate Loans

shall be made or Prime Rate Loans shall be converted to Eurodollar Rate Loans

or such Eurodollar Rate Loans shall continue, as the case may be, provided,

that, (i) no Default or Event of Default shall exist or have occurred

and be continuing, (ii) no party hereto shall have sent any notice of termination

of this Agreement, each Borrower (or Administrative Borrower on behalf of such

Borrower) shall have complied with such customary procedures as are established

by Agent and specified by Agent to Administrative Borrower from time to time

for requests by Borrowers for Eurodollar Rate Loans, (iii) no more than six (6)

Interest Periods for Eurodollar Rate Loans may be in effect at any one time,

(iv) the aggregate amount of the Eurodollar Rate Loans must be in an amount not

less than US$2,500,000 or an integral multiple of US$1,000,000 in excess

thereof, (v) the maximum amount of the Eurodollar Rate Loans in the aggregate

at any time requested by any Borrower shall not exceed the amount equal to

ninety (90%) percent of the lowest principal amount of the Revolving Loans

which it is anticipated will be outstanding during the applicable Interest

Period, in each case as determined by Agent in good faith (but with no

obligation of Agent or Lenders to make such Loans), and (vi) Agent and each

Lender shall have determined that the Interest Period or Adjusted Eurodollar

Rate is available to Agent and such Lender and can be readily determined as of

the date of the request for such Eurodollar Rate Loan by any Borrower.  Any request by or on behalf of any Borrower

for Eurodollar Rate Loans or to convert Prime Rate Loans to Eurodollar Rate

Loans or to continue any existing Eurodollar Rate Loans shall be

irrevocable.  Notwithstanding anything

to the contrary contained herein, Agent and Lenders shall not be required to

purchase United States Dollar deposits in the London interbank market or other

applicable Eurodollar Rate market to fund any Eurodollar Rate Loans, but the

provisions hereof shall be deemed to apply as if Agent and Lenders had

purchased such deposits to fund the Eurodollar Rate Loans.

 

(c)               Any Eurodollar Rate

Loans shall automatically convert to Prime Rate Loans upon the last day of the

applicable Interest Period, unless Agent has received a request to continue

such Eurodollar Rate Loan at least three (3) Business Days prior to such last

day in accordance with the terms hereof and the continuation of such Eurodollar

Rate Loans would otherwise be permitted hereunder.  Any Eurodollar Rate Loans shall, at Agent’s option, upon notice

by Agent to Administrative Borrower, be subsequently converted to Prime Rate

Loans in the event that this Agreement shall terminate or not be renewed.  Borrowers shall pay to Agent, for the

benefit of Lenders, upon demand by Agent (or Agent may, at its option, charge

any loan account of any Borrower) any amounts required to compensate any Lender

or Participant for any loss (including loss of anticipated profits), cost or

expense incurred by such person, as a result of the conversion of Eurodollar

Rate Loans to Prime Rate Loans pursuant to any of the foregoing.

 

39

 

(d)              Interest shall be

payable by Borrowers to Agent, for the account of Lenders, monthly in arrears

not later than the first day of each calendar month and shall be calculated on the

basis of a three hundred sixty (360) day year and actual days elapsed.  The interest rate on non-contingent

Obligations (other than Eurodollar Rate Loans) shall increase or decrease by an

amount equal to each increase or decrease in the Prime Rate, effective on the

first day of the month after any change in the Prime Rate is announced based on

the Prime Rate, in effect on the last day of the month in which any such change

occurs.  In no event shall charges

constituting interest payable by Borrowers to Agent and Lenders exceed the

maximum amount or the rate permitted under any applicable law or regulation,

and if any such part or provision of this Agreement is in contravention of any

such law or regulation, such part or provision shall be deemed amended to

conform thereto.

 

3.2                                 Fees.

 

(a)               Borrowers shall pay

to Agent, for the account of Lenders in accordance with their respective Pro

Rata Shares, monthly an unused line fee at a rate equal to three-eighths of one

(3/8%) percent per annum calculated upon the amount by which  US$26,000,000 exceeds the US Dollar

Equivalent of the average daily principal balance of the outstanding Revolving

Loans and Letter of Credit Accommodations during the immediately preceding

month (or part thereof) while this Agreement is in effect and for so long

thereafter as any of the Obligations are outstanding, which fee shall be

payable on the first day of each month in arrears.

 

(b)              Borrowers agree to

pay to Agent the other fees and amounts set forth in the Fee Letter in the

amounts and at the times specified therein.

 

3.3                                 Changes in Laws and Increased Costs

of Loans.

 

(a)               If after the date

hereof, either (i) any change in, or in the interpretation of, any law or

regulation is introduced, including, without limitation, with respect to

reserve requirements, applicable to Lender or any banking or financial

institution from whom any Lender borrows funds or obtains credit (a “Funding

Bank”), or (ii) a Funding Bank or any Lender complies with any future guideline

or request from any central bank or other Governmental Authority or (iii) a

Funding Bank or any Lender determines that the adoption of any applicable law,

rule or regulation regarding capital adequacy, or any change therein, or any

change in the interpretation or administration thereof by any Governmental

Authority, central bank or comparable agency charged with the interpretation or

administration thereof has or would have the effect described below, or a

Funding Bank or any Lender complies with any request or directive regarding capital

adequacy (whether or not having the force of law) of any such authority,

central bank or comparable agency, and in the case of any event set forth in

this clause (iii), such adoption, change or compliance has or would have the

direct or indirect effect of reducing the rate of return on any Lender’s

capital as a consequence of its obligations hereunder to a level below that

which Lender could have achieved but for such adoption, change or compliance

(taking into consideration the Funding Bank’s or Lender’s policies with respect

to capital adequacy) by an amount deemed by such Lender to be material, and the

result of any of the foregoing events described in

 

40

 

clauses (i), (ii) or (iii) is or results in

an increase in the cost to any Lender of funding or maintaining the Loans or

the Letter of Credit Accommodations, then Borrowers and Guarantors shall from

time to time upon demand by Agent, pay to Agent additional amounts sufficient

to indemnify Lenders against such increased cost on an after-tax basis (after

taking into account applicable deductions and credits in respect of the amount

indemnified).  A certificate as to the

amount of such increased cost shall be submitted to Administrative Borrower by

Agent and shall be conclusive, absent manifest error.

 

(b)              If prior to the

first day of any Interest Period, (i) Agent shall have determined in good faith

(which determination shall be conclusive and binding upon Borrowers and

Guarantors) that, by reason of circumstances affecting the relevant market,

adequate and reasonable means do not exist for ascertaining the Eurodollar Rate

for such Interest Period, (ii) Agent has received notice from the Required

Lenders that the Eurodollar Rate determined or to be determined for such

Interest Period will not adequately and fairly reflect the cost to Lenders of

making or maintaining Eurodollar Rate Loans during such Interest Period, or

(iii) Dollar deposits in the principal amounts of the Eurodollar Rate Loans to

which such Interest Period is to be applicable are not generally available in

the London interbank market, Agent shall give telecopy or telephonic notice

thereof to Administrative Borrower as soon as practicable thereafter, and will

also give prompt written notice to Administrative Borrower when such conditions

no longer exist.  If such notice is

given (A) any Eurodollar Rate Loans requested to be made on the first day of

such Interest Period shall be made as Prime Rate Loans, (B) any Prime Rate

Loans that were to have been converted on the first day of such Interest Period

to or continued as Eurodollar Rate Loans shall be converted to or continued as

Prime Rate Loans and (C) each outstanding Eurodollar Rate Loan shall be

converted, on the last day of the then-current Interest Period thereof, to

Prime Rate Loans.  Until such notice has

been withdrawn by Agent, no further Eurodollar Rate Loans shall be made or

continued as such, nor shall any Borrower (or Administrative Borrower on behalf

of such Borrower) have the right to convert Prime Rate Loans to Eurodollar Rate

Loans.

 

(c)               Notwithstanding any

other provision herein, if the adoption of or any change in any law, treaty,

rule or regulation or final, non-appealable determination of an arbitrator or a

court or other Governmental Authority or in the interpretation or application

thereof occurring after the date hereof shall make it unlawful for Agent or any

Lender to make or maintain Eurodollar Rate Loans as contemplated by this

Agreement, (i) Agent or such Lender shall promptly give written notice of such

circumstances to Administrative Borrower (which notice shall be withdrawn

whenever such circumstances no longer exist), (ii) the commitment of such

Lender hereunder to make Eurodollar Rate Loans, continue Eurodollar Rate Loans

as such and convert Prime Rate Loans to Eurodollar Rate Loans shall forthwith

be canceled and, until such time as it shall no longer be unlawful for such

Lender to make or maintain Eurodollar Rate Loans, such Lender shall then have a

commitment only to make a Prime Rate Loan when a Eurodollar Rate Loan is

requested and (iii) such Lender’s Prime Rate Loans then outstanding as

Eurodollar Rate Loans, if any, shall be converted automatically to Prime Rate

Loans on the respective last days of the then current Interest Periods with

respect to such Loans or within such earlier period as required by law.  If any such conversion of a Eurodollar Rate

Loan occurs on a day which is not the last day of the then current Interest

Period with respect thereto, Borrowers and

 

41

 

Guarantors shall pay to such Lender such

amounts, if any, as may be required pursuant to Section 3.3(d) below.

 

(d)              Borrowers and

Guarantors shall indemnify Agent and each Lender and to hold Agent and each

Lender harmless from any loss or expense which Agent or such Lender may sustain

or incur as a consequence of (i) default by a Borrower in making a borrowing

of, conversion into or extension of Eurodollar Rate Loans after such Borrower

(or Administrative Borrower on behalf of such Borrower) has given a notice

requesting the same in accordance with the provisions of this Loan Agreement,

(ii) default by Borrower in making any prepayment of a Eurodollar Rate Loan

after such Borrower has given a notice thereof in accordance with the

provisions of this Agreement, and (iii) the making of a prepayment of

Eurodollar Rate Loans on a day which is not the last day of an Interest Period

with respect thereto.  With respect to

Eurodollar Rate Loans, such indemnification may include an amount equal to the

excess, if any, of (A) the amount of interest which would have accrued on the

amount so prepaid, or not so borrowed, converted or extended, for the period

from the date of such prepayment or of such failure to borrow, convert or

extend to the last day of the applicable Interest Period (or, in the case of a

failure to borrow, convert or extend, the Interest Period that would have

commenced on the date of such failure) in each case at the applicable rate of

interest for such Eurodollar Rate Loans provided for herein over (B) the

amount of interest (as determined by such Agent or Lender) which would have

accrued to Agent or such Lender on such amount by placing such amount on

deposit for a comparable period with leading banks in the interbank Eurodollar

market. This covenant shall survive the termination or non-renewal of this Loan

Agreement and the payment of the Obligations.

 

SECTION 4. 

CONDITIONS PRECEDENT

 

4.1                                 Conditions Precedent to Initial

Loans and Letter of Credit Accommodations. Each of the following is a

condition precedent to Agent and Lenders making the initial Loans and providing

the initial Letter of Credit Accommodations hereunder:

 

(a)               Agent shall have

received, in form and substance satisfactory to Agent, all releases,

terminations and such other documents as Agent may request to evidence and

effectuate the termination by the existing lenders (if any) of their respective

financing arrangements with Borrowers and Guarantors and the termination and release

by it or them, as the case may be, of any interest in and to any assets and

properties of each Borrower and Guarantor, duly authorized, executed and

delivered by it or each of them, including, but not limited to, (i) UCC

termination statements for all UCC financing statements previously filed by it

or any of them or their predecessors, as secured party and any Borrower or

Guarantor, as debtor; and (ii) satisfactions and discharges of any mortgages,

deeds of trust or deeds to secure debt by any Borrower or Guarantor in favor of

it or any of them, in form acceptable for recording with the appropriate

Governmental Authority;

 

42

 

(b)              all requisite

corporate action and proceedings in connection with this Agreement and the

other Financing Agreements shall be satisfactory in form and substance to

Agent, and Agent shall have received all information and copies of all

documents, including records of requisite corporate action and proceedings

which Agent may have requested in connection therewith, such documents where

requested by Agent or its counsel to be certified by appropriate corporate

officers or Governmental Authority (and including a copy of the certificate of

incorporation or articles of organization of each Borrower and Guarantor

certified by the Secretary of State (or equivalent Governmental Authority)

which shall set forth the same complete corporate name of such Borrower or

Guarantor as is set forth herein and such document as shall set forth the organizational

identification number of each Borrower or Guarantor, if one is issued in its

jurisdiction of incorporation or organization);

 

(c)               no material adverse

change shall have occurred in the assets, business or prospects of Borrowers

since the date of Agent’s latest field examination (not including for this

purpose the field review referred to in clause (d) below) and no change or

event shall have occurred which would impair the ability of any Borrower or

Obligor to perform its obligations hereunder (taking into consideration any

rights of contribution such Borrower or Obligor may have) or under any of the

other Financing Agreements to which it is a party or of Agent or any Lender to

enforce the Obligations or realize upon the Collateral;

 

(d)              Agent shall have

completed a field review of the Records and such other information with respect

to the Collateral as Agent may require to determine the amount of Loans

available to Borrowers (including, without limitation, current perpetual

inventory records and/or roll-forwards of Accounts and Inventory through the

date of closing and test counts of the Inventory in a manner satisfactory to

Agent, together with such supporting documentation as may be necessary or

appropriate, and other documents and information that will enable Agent to

accurately identify and verify the Collateral), the results of which in each

case shall be satisfactory to Agent, not more than three (3) Business Days

prior to the date hereof;

 

(e)               Agent shall have

received, in form and substance satisfactory to Agent, all consents, waivers,

acknowledgments and other agreements from third persons which Agent may deem

necessary or desirable in order to permit, protect and perfect its security

interests in and liens upon the Collateral or to effectuate the provisions or

purposes of this Agreement and the other Financing Agreements, including,

without limitation, Collateral Access Agreements by owners and lessors of

leased premises of each Borrower located in the United States of America or the

Netherlands and by processors and warehouses at which Collateral is located in

the United States of America or the Netherlands;

 

(f)                 the aggregate

Excess Closing Availability of Borrowers as determined by Agent, as of the date

hereof, shall be not less than US Dollar Equivalent of US$3,500,000 after

giving effect to the initial Loans made or to be made and Letter of Credit

Accommodations issued or to be issued in connection with the initial

transactions hereunder;

 

43

 

(g)              Agent shall have

received, in form and substance satisfactory to Agent, Deposit Account Control

Agreements by and among Agent, each Borrower and each bank where such Borrower

has a deposit account, in each case, duly authorized, executed and delivered by

such bank and Borrower (or Agent shall be the bank’s customer with respect to

such deposit account as Agent may specify);

 

(h)              Agent shall have

received evidence, in form and substance satisfactory to Agent, that Agent has

a valid perfected first priority security interest in all of the Collateral

(other than the Collateral of UK Borrower and that Agent has valid, equitable

assignments and first ranking fixed and floating charges upon the Collateral of

UK Borrower, in each case subject only to liens expressly permitted hereunder;

 

(i)                  Agent shall have

received and reviewed lien and judgement search results (to the extent liens

are recorded and publicly available) for the jurisdiction of incorporation or

organization of each Borrower and each Guarantor, the jurisdiction of the chief

executive office of each Borrower and Guarantor and all jurisdictions in which

assets of Borrowers and Guarantors are located, which search results shall be

in form and substance satisfactory to Agent;

 

(j)                  Agent shall have

received originals of the shares of the stock certificates, if any representing

all of the issued and outstanding shares of the Capital Stock of each Borrower

and Guarantor and their respective Subsidiaries which are pledged to Agent

under the Financing Agreements, in each case together with stock powers duly

executed in blank with respect thereto;

 

(k)               Agent shall have

received evidence of insurance and loss payee endorsements required hereunder

and under the other Financing Agreements, in form and substance satisfactory to

Agent, and certificates of insurance policies and/or endorsements naming Agent

as loss payee;

 

(l)                  Agent shall have

received evidence, in form and substance satisfactory to Agent, that the

Purchase Agreements have been duly executed and delivered by and to the

appropriate parties thereto, and the transactions contemplated under the terms

of the Purchase Agreements have been consummated prior to or contemporaneously

with the execution of this Agreement;

 

(m)            Agent shall have

received, in form and substance satisfactory to Agent, a pro-forma balance

sheet of US Borrower and its Subsidiaries reflecting the initial transactions

contemplated hereunder, including, but not limited to, (i) the consummation of

the acquisition of the Purchased Stock by Parent and the other transactions

contemplated by the Purchase Agreements and (ii) the Loans and Letter of Credit

Accommodations provided by Agent and Lenders to Borrowers on the date hereof

and the use of the proceeds of the initial Loans as provided herein,

accompanied by a certificate, dated of even date herewith, of the chief

financial officer of US Borrower stating that such pro-forma balance sheet was

prepared in good faith by US Borrower and based on assumptions that are

reasonable in light of all facts and circumstances known to US Borrower at such

time;

 

44

 

(n)              Agent and Lenders

shall be satisfied that, immediately after giving effect to the transactions

contemplated to occur under this Agreement and the Purchase Agreements on the

date hereof, (i) US Borrower and its Subsidiaries are Solvent and (ii) Parent

has good and marketable title to the Purchased Stock, free and clear of all

liens except those permitted by Section 9.8 hereof;

 

(o)              with respect to all

fees and expenses incurred by Sun Capital and its Affiliates (other than

Borrowers) in connection with the transactions contemplated by the Financing

Agreements and the Purchase Agreements that Borrowers desire to reimburse with

the proceeds of the initial Loans, Agent and Lenders shall have received

satisfactory evidence of such fees and expenses and shall be satisfied with the

amount of such fees and expenses;

 

(p)              Agent shall have

received satisfactory evidence of the receipt by US Borrower on or prior to the

date hereof of an amount of not less than the US$10,000,000 in cash as an

equity contribution and not less than US$4,000,000 in cash as a subordinated

loan to US Borrower;

 

(q)              Agent shall have

received, in form and substance satisfactory to Agent, the Intercreditor

Agreement, duly authorized, executed and delivered by U.S. Bank National

Association and acknowledged by US Borrower and certain of its subsidiaries;

 

(r)                 Agent shall have

received, in form and substance satisfactory to Agent, (i) the HIG

Subordination Agreement, duly authorized, executed and delivered by HIG and

acknowledged by US Borrower and certain of its Subsidiaries, (ii) the Sun

Mackie Subordination Agreement, duly authorized, executed and delivered by

Parent and acknowledged by US Borrower and certain of its subsidiaries and

(iii) the Randolph Subordination Agreement, duly authorized, executed and

delivered by Randolph and acknowledged by US Borrower and certain of its

subsidiaries;

 

(s)               Agent and its

counsel shall have completed its due diligence review with respect to Borrowers

and Guarantor, the results of which shall be satisfactory to Agent;

 

(t)                 Agent shall have

received payment of all fees due and payable on the date hereof and

reimbursement of all documented and invoiced costs and expenses incurred by

Agent and Lenders in connection with this Agreement;

 

(u)              Agent shall have

received a certified copy of each notice required to be dispatched pursuant to

the Debenture and acknowledgments from all recipients of such notices as

required by the Debenture or agreement by the relevant recipient of the form of

acknowledgment to be given by it;

 

(v)              Agent shall have

received a copy of the mandate for each Blocked Account in the United Kingdom

duly completed (so far as possible) by UK Borrower and evidence satisfactory to

Agent that such Blocked Accounts have been opened;

 

45

 

(w)            Agent shall have

received appropriate Trade Marks Registry, Designs Registry and Patent office

forms duly completed accompanied by all necessary fees to enable the

recordation of the security interests created by the Debenture;

 

(x)                Agent shall have

received all certificates of registration with respect to all Specified

Intellectual Property (as defined in the Debenture);

 

(y)              Agent shall have

received, in form and substance satisfactory to Agent, such opinion letters of

counsel to Borrowers and Guarantors with respect to the Financing Agreements,

the Purchase Agreements and such other matters as Agent may request; and

 

(z)                the other

Financing Agreements and all instruments and documents hereunder and thereunder

shall have been duly executed and delivered to Agent, in form and substance

satisfactory to Agent.

 

4.2                                 Conditions Precedent to All Loans

and Letter of Credit Accommodations. 

Each of the following is an additional condition precedent to the Loans

and/or providing Letter of Credit Accommodations to Borrowers, including the

initial Loans and Letter of Credit Accommodations and any future Loans and

Letter of Credit Accommodations:

 

(a)               all representations

and warranties contained herein and in the other Financing Agreements shall be

true and correct in all material respects with the same effect as though such

representations and warranties had been made on and as of the date of the

making of each such Loan or providing each such Letter of Credit Accommodation

and after giving effect thereto, except to the extent that such representations

and warranties expressly relate solely to an earlier date (in which case such

representations and warranties shall have been true and accurate on and as of

such earlier date);

 

(b)              no law, regulation,

order, judgment or decree of any Governmental Authority shall exist, and no

action, suit, investigation, litigation or proceeding shall be pending or

threatened in any court or before any arbitrator or Governmental Authority,

which (i) purports to enjoin, prohibit, restrain or otherwise affect (A) the

making of the Loans or providing the Letter of Credit Accommodations, or (B) the

consummation of the transactions contemplated pursuant to the terms hereof or

the other Financing Agreements or (ii) has or has a reasonable likelihood of

having a Material Adverse Effect; and

 

(c)               no Default or Event

of Default shall exist or have occurred and be continuing on and as of the date

of the making of such Loan or providing each such Letter of Credit

Accommodation and after giving effect thereto.

 

46

 

SECTION 5. 

GRANT AND PERFECTION OF SECURITY INTEREST

 

5.1                                 Grant of Security Interest. To secure

payment and performance of all Obligations, US Borrower and each Guarantor

hereby grants to Agent, for itself and the ratable benefit of Lenders, and to

secure payment and performance of the Obligations of UK Borrower, UK Borrower

hereby grants to Agent, for itself and the ratable benefit of Lenders, in each

case a continuing security interest in, a lien upon, and a right of set off

against, and hereby collaterally assigns to Agent, for itself and the ratable

benefit of Lenders, as security, all of the following property and interests in

property of each Borrower and Guarantor, whether now owned or hereafter

acquired or existing, and wherever located (together with all other collateral

security for the Obligations at any time granted to or held or acquired by

Agent or any Lender, collectively, the “Collateral”):

 

(a)               all Accounts;

 

(b)              all general

intangibles, including, without limitation, all Intellectual Property; 

 

(c)               all goods,

including, without limitation, Inventory and Equipment; 

 

(d)              all Real Property

and fixtures;

 

(e)               all chattel paper,

including, without limitation, all tangible and electronic chattel paper; 

 

(f)                 all instruments,

including, without limitation, all promissory notes; 

 

(g)              all documents; 

 

(h)              all deposit

accounts;

 

(i)                  all letters of

credit, banker’s acceptances and similar instruments and including all

letter-of-credit rights;

 

(j)                  all supporting

obligations and all present and future liens, security interests, rights,

remedies, title and interest in, to and in respect of Receivables and other

Collateral, including (i) rights and remedies under or relating to guaranties,

contracts of suretyship, letters of credit and credit and other insurance

related to the Collateral, (ii) rights of stoppage in transit, replevin,

repossession, reclamation and other rights and remedies of an unpaid vendor,

lienor or secured party, (iii) goods described in invoices, documents,

contracts or instruments with respect to, or otherwise representing or

evidencing, Receivables or other Collateral, including returned, repossessed

and reclaimed goods, and (iv) deposits by and property of account debtors or

other persons securing the obligations of account debtors;

 

(k)               all (i) investment

property (including securities, whether certificated or uncertificated,

securities accounts, security entitlements, commodity contracts or commodity

accounts) and (ii) monies, credit balances, deposits and other property of any

Borrower or Guarantor now or hereafter held or

 

47

 

received by or in transit to Agent, any

Lender or its Affiliates or at any other depository or other institution from

or for the account of any Borrower or Guarantor, whether for safekeeping,

pledge, custody, transmission, collection or otherwise;

 

(l)                   all commercial

tort claims, including, without limitation, those identified in the Information

Certificate;

 

(m)             to the extent not

otherwise described above, all Receivables;

 

(n)               all Records;

 

(o)              to the extent not

described above, all personal and real property and fixtures and interests in

property and fixtures; and

 

(p)               all products and

proceeds of the foregoing, in any form, including insurance proceeds and all

claims against third parties for loss or damage to or destruction of or other

involuntary conversion of any kind or nature of any or all of the other

Collateral.

 

Each Borrower and Guarantor expressly

authorizes the description of Collateral as set forth above.

 

5.2                               Special Provisions Regarding

Collateral.

 

(a)               Notwithstanding

anything to the contrary contained in this Section 5, (i) to secure the payment

and performance of the Obligations of US Borrower and each Guarantor, the

pledge by US Borrower or any Guarantor of shares of Capital Stock of any direct

Subsidiary of such Borrower or Guarantor that is not incorporated or formed

under the laws of the United States of America or a political subdivision

thereof shall not exceed sixty-five (65%) percent of all of the issued and

outstanding shares of Capital Stock of such Subsidiary, (ii) the grant of a

security interest in the Collateral by UK Borrower in favor of Agent under laws

of England and Wales is further evidenced by other Financing Agreements and

(iii) the grant of a security interest in the Collateral by Borrowers in favor

of Agent under the laws of the Netherlands is created pursuant to and further

evidenced by other Financing Agreements.

 

(b)              Notwithstanding

anything to the contrary contained in this Section 5, the types or items of

Collateral described in Section 5.1 shall not include any rights or interest in

any contract, license or license agreement covering personal property of a

Borrower or Guarantor, so long as under the terms of such contract, license or

license agreement, or applicable law with respect thereto, the grant of a

security interest or lien therein to Agent is prohibited and such prohibition

has not been or is not waived or the consent of the other party to such

contract, license or license agreement has not been or is not otherwise

obtained; provided, that, the foregoing exclusion shall in no way

be construed (i) to apply if any such prohibition is unenforceable under the

UCC or other applicable law or (ii) so as to limit, impair or otherwise affect

Agent’s unconditional continuing security interests in and liens upon any

 

48

 

rights or interests of such Borrower or

Guarantor in or to monies due or to become due under any such contract, license

or license agreement (including any Receivables).

 

5.3                                 Perfection of Security Interests.

 

(a)               Each Borrower and

Guarantor irrevocably and unconditionally authorizes Agent (or its agent) to

file at any time and from time to time such financing statements with respect

to the Collateral naming Agent or its designee as the secured party and such

Borrower or Guarantor as debtor, as Agent may require, and including any other

information with respect to such Borrower or Guarantor or otherwise required by

part 5 of Article 9 of the Uniform Commercial Code of such jurisdiction as

Agent may determine, together with any amendment and continuations with respect

thereto, which authorization shall apply to all financing statements filed on,

prior to or after the date hereof.  Each

Borrower and Guarantor hereby ratifies and approves all financing statements

naming Agent or its designee as secured party and such Borrower or Guarantor,

as the case may be, as debtor with respect to the Collateral (and any

amendments with respect to such financing statements) filed by or on behalf of

Agent prior to the date hereof and ratifies and confirms the authorization of

Agent to file such financing statements (and amendments, if any).  Each Borrower and Guarantor hereby authorizes

Agent to adopt on behalf of such Borrower and Guarantor any symbol required for

authenticating any electronic filing. 

In the event that the description of the collateral in any financing

statement naming Agent or its designee as the secured party and any Borrower or

Guarantor as debtor includes assets and properties of such Borrower or

Guarantor that do not at any time constitute Collateral, whether hereunder,

under any of the other Financing Agreements or otherwise, the filing of such

financing statement shall nonetheless be deemed authorized by such Borrower or

Guarantor to the extent of the Collateral included in such description and it

shall not render the financing statement ineffective as to any of the

Collateral or otherwise affect the financing statement as it applies to any of the

Collateral.  In no event shall any

Borrower or Guarantor at any time file, or permit or cause to be filed, any

correction statement or termination statement with respect to any financing

statement (or amendment or continuation with respect thereto) naming Agent or

its designee as secured party and such Borrower or Guarantor as debtor; provided,

that, (i) upon the sale or other disposition of specific items of

Collateral in compliance with Section 9.7 hereof, Borrowers and Guarantors may

file UCC partial releases solely with respect to such Collateral and (ii) upon

the termination of this Agreement and payment and satisfaction of all of the

Obligations and the delivery of cash collateral to the extent required by

Section 13.1, Borrowers and Guarantors may file UCC termination statements with

respect to all of the Collateral (excluding such cash collateral).  Upon the request and at the expense of

Borrowers, Agent shall furnish Borrowers with copies of all financing statements

filed by or on behalf of Agent naming Agent, as secured party, and a Borrower

or Guarantor, as debtor.

 

(b)              Each Borrower and

Guarantor does not have any chattel paper (whether tangible or electronic) or

instruments as of the date hereof, except as set forth in the Information

Certificate.  In the event that any

Borrower or Guarantor shall be entitled to or shall receive any chattel paper

or instrument after the date hereof, such Borrowers and Guarantors shall

promptly notify Agent thereof in writing. 

Promptly upon the receipt thereof by or on behalf of any Borrower or

Guarantor (including by

 

49

 

any agent or representative), such Borrower

or Guarantor shall deliver, or cause to be delivered to Agent, all tangible

chattel paper and instruments that such Borrower or Guarantor has or may at any

time acquire, accompanied by such instruments of transfer or assignment duly

executed in blank as Agent may from time to time specify, in each case except

as Agent may otherwise agree.  At

Agent’s option, each Borrower and Guarantor shall, or Agent may at any time on

behalf of any Borrower or Guarantor, cause the original of any such instrument

or chattel paper to be conspicuously marked in a form and manner acceptable to

Agent with the following legend referring to chattel paper or instruments as

applicable: “This [chattel paper][instrument] is subject to the security

interest of Congress Financial Corporation (Florida), as Agent and any sale,

transfer, assignment or encumbrance of this [chattel paper][instrument]

violates the rights of such secured party.”

 

(c)               In the event that

any Borrower or Guarantor shall at any time hold or acquire an interest in any

electronic chattel paper or any “transferable record” (as such term is defined

in Section 201 of the Federal Electronic Signatures in Global and National

Commerce Act or in Section 16 of the Uniform Electronic Transactions Act as in

effect in any relevant jurisdiction), such Borrower or Guarantor shall promptly

notify Agent thereof in writing.  Promptly

upon Agent’s request, such Borrower or Guarantor shall take, or cause to be

taken, such actions as Agent may request to give Agent control of such

electronic chattel paper under Section 9-105 of the UCC and control of such

transferable record under Section 201 of the Federal Electronic Signatures in

Global and National Commerce Act or, as the case may be, Section 16 of the

Uniform Electronic Transactions Act, as in effect in such jurisdiction.

 

(d)              Each Borrower and

Guarantor does not have any deposit accounts as of the date hereof, except as

set forth in the Information Certificate. 

Borrowers and Guarantors shall not, directly or indirectly, after the

date hereof open, establish or maintain any deposit account unless each of the

following conditions is satisfied:  (i)

Agent shall have received not less than five (5) Business Days prior written

notice of the intention of any Borrower or Guarantor to open or establish such

account which notice shall specify in reasonable detail and specificity

acceptable to Agent the name of the account, the owner of the account, the name

and address of the bank at which such account is to be opened or established,

the individual at such bank with whom such Borrower or Guarantor is dealing and

the purpose of the account, (ii) the bank where such account is opened or

maintained shall be acceptable to Agent, and (iii) on or before the opening of

such deposit account, such Borrower or Guarantor shall as Agent may specify

either (A) deliver to Agent a Deposit Account Control Agreement with respect to

such deposit account duly authorized, executed and delivered by such Borrower

or Guarantor and the bank at which such deposit account is opened and

maintained or (B) arrange for Agent to become the customer of the bank with

respect to the deposit account on terms and conditions acceptable to Agent. The

terms of this subsection (d) shall not apply to deposit accounts specifically

and exclusively used for payroll, payroll taxes and other employee wage and

benefit payments to or for the benefit of any Borrower’s or Guarantor’s

salaried employees.

 

(e)               No Borrower or

Guarantor owns or holds, directly or indirectly, beneficially or as record

owner or both, any investment property, as of the date hereof, or have any

investment account,

 

50

 

securities account, commodity account or

other similar account with any bank or other financial institution or other

securities intermediary or commodity intermediary as of the date hereof, in

each case except as set forth in the Information Certificate.

 

(i)                           In the

event that any Borrower or Guarantor shall be entitled to or shall at any time

after the date hereof hold or acquire any certificated securities, such

Borrower or Guarantor shall promptly endorse, assign and deliver the same to

Agent, accompanied by such instruments of transfer or assignment duly executed

in blank as Agent may from time to time specify.  If any securities, now or hereafter acquired by any Borrower or

Guarantor are uncertificated and are issued to such Borrower or Guarantor or

its nominee directly by the issuer thereof, such Borrower or Guarantor shall

immediately notify Agent thereof and shall as Agent may specify, either (A)

cause the issuer to agree to comply with instructions from Agent as to such

securities, without further consent of any Borrower or Guarantor or such

nominee, or (B) arrange for Agent to become the registered owner of the

securities. Notwithstanding anything to the contrary contained in this Section

5.3(e)(i), to secure the payment and performance of the Obligations of US

Borrower and each Guarantor, the pledge by US Borrower or any Guarantor of

shares of Capital Stock of any direct Subsidiary of such Borrower or Guarantor

that is not incorporated or formed under the laws of the United States of

America or a political subdivision thereof shall not exceed sixty-five (65%)

percent of all of the issued and outstanding shares of Capital Stock of such

Subsidiary.

 

(ii)                        Borrowers

and Guarantors shall not, directly or indirectly, after the date hereof open,

establish or maintain any investment account, securities account, commodity

account or any other similar account (other than a deposit account) with any

securities intermediary or commodity intermediary unless each of the following

conditions is satisfied: (A) Agent shall have received not less than five (5)

Business Days prior written notice of the intention of such Borrower or

Guarantor to open or establish such account which notice shall specify in

reasonable detail and specificity acceptable to Agent the name of the account,

the owner of the account, the name and address of the securities intermediary

or commodity intermediary at which such account is to be opened or established,

the individual at such intermediary with whom such Borrower or Guarantor is

dealing and the purpose of the account, (B) the securities intermediary or

commodity intermediary (as the case may be) where such account is opened or

maintained shall be acceptable to Agent, and (C) on or before the opening of

such investment account, securities account or other similar account with a

securities intermediary or commodity intermediary, such Borrower or Guarantor

shall as Agent may specify either (1) execute and deliver, and cause to be

executed and delivered to Agent, an Investment Property Control Agreement with

respect thereto duly authorized, executed and delivered by such Borrower or

Guarantor and such securities intermediary or commodity intermediary or (2)

arrange for Agent to become the entitlement holder with respect to such

investment property on terms and conditions acceptable to Agent.

 

(f)                 Borrowers and

Guarantors are not the beneficiary or otherwise entitled to any right to

payment under any letter of credit, banker’s acceptance or similar instrument

as of the date hereof, except as set forth in the Information Certificate.  In the event that any Borrower or Guarantor

shall be

 

51

 

entitled to or shall receive any right to

payment under any letter of credit, banker’s acceptance or any similar

instrument, whether as beneficiary thereof or otherwise after the date hereof,

such Borrower or Guarantor shall promptly notify Agent thereof in writing.  Such Borrower or Guarantor shall

immediately, as Agent may specify, either (i) deliver, or cause to be delivered

to Agent, with respect to any such letter of credit, banker’s acceptance or

similar instrument, the written agreement of the issuer and any other nominated

person obligated to make any payment in respect thereof (including any

confirming or negotiating bank), in form and substance satisfactory to Agent,

consenting to the assignment of the proceeds of the letter of credit to Agent

by such Borrower or Guarantor and agreeing to make all payments thereon

directly to Agent or as Agent may otherwise direct or (ii) cause Agent to

become, at Borrowers’ expense, the transferee beneficiary of the letter of

credit, banker’s acceptance or similar instrument (as the case may be).

 

(g)              Borrowers and

Guarantors do not have any commercial tort claims as of the date hereof, except

as set forth in the Information Certificate. 

In the event that any Borrower or Guarantor shall at any time after the

date hereof have any commercial tort claims, such Borrower or Guarantor shall

promptly notify Agent thereof in writing, which notice shall (i) set forth in

reasonable detail the basis for and nature of such commercial tort claim and

(ii) include the express grant by such Borrower or Guarantor to Agent of a

security interest in such commercial tort claim (and the proceeds thereof). In

the event that such notice does not include such grant of a security interest,

the sending thereof by such Borrower or Guarantor to Agent shall be deemed to

constitute such grant to Agent. Upon the sending of such notice, any commercial

tort claim described therein shall constitute part of the Collateral and shall

be deemed included therein.  Without

limiting the authorization of Agent provided in Section 5.3(a) hereof or

otherwise arising by the execution by such Borrower or Guarantor of this

Agreement or any of the other Financing Agreements, Agent is hereby irrevocably

authorized from time to time and at any time to file such financing statements

naming Agent or its designee as secured party and such Borrower or Guarantor as

debtor, or any amendments to any financing statements, covering any such

commercial tort claim as Collateral. In addition, each Borrower and Guarantor

shall promptly upon Agent’s request, execute and deliver, or cause to be executed

and delivered, to Agent such other agreements, documents and instruments as

Agent may require in connection with such commercial tort claim.

 

(h)              Borrowers and

Guarantors do not have any goods, documents of title or other Collateral in the

custody, control or possession of a third party as of the date hereof, except

as set forth in the Information Certificate and except for goods located in the

United States, the United Kingdom and the Netherlands in transit to a location

of a Borrower or a Guarantor permitted herein in the ordinary course of

business of such Borrower or Guarantor in the possession of a Customs Broker or

the carrier transporting such goods.  In

the event that any goods, documents of title or other Collateral are at any

time after the date hereof in the custody, control or possession of any other

person not referred to in the Information Certificate or such Customs Brokers

or carriers, Borrowers and Guarantors shall promptly notify Agent thereof in

writing.  Promptly upon Agent’s request,

Borrowers and Guarantors shall deliver to Agent a Collateral Access Agreement

duly authorized, executed and delivered by such person and the Borrower or

Guarantor that is the owner of such Collateral.

 

52

 

(i)                  Borrowers and

Guarantors shall take any other actions reasonably requested by Agent from time

to time to cause the attachment, perfection and first priority of, and the

ability of Agent to enforce, the security interest of Agent in any and all of the

Collateral, including, without limitation, (i) executing, delivering and, where

appropriate, filing financing statements and amendments relating thereto under

the UCC or other applicable law, to the extent, if any, that any Borrower’s or

Guarantor’s signature thereon is required therefor, (ii) causing Agent’s name

to be noted as secured party on any certificate of title for a titled good if

such notation is a condition to attachment, perfection or priority of, or

ability of Agent to enforce, the security interest of Agent in such Collateral,

(iii) complying with any provision of any statute, regulation or treaty of the

United States as to any Collateral if compliance with such provision is a

condition to attachment, perfection or priority of, or ability of Agent to

enforce, the security interest of Agent in such Collateral, (iv) obtaining the

consents and approvals of any Governmental Authority or third party, including,

without limitation, any consent of any licensor, lessor or other person

obligated on Collateral, and taking all actions required by any earlier

versions of the UCC or by other law, as applicable in any relevant

jurisdiction.

 

(j)                  If UK Borrower

acquires any right, title and interest in or to any Intellectual Property, it

will give Agent prompt written notice of same. 

Promptly upon the request of Agent, UK Borrower will create in favor of

Agent a first ranking right of pledge or fixed charge, as the case may be, in

any such Intellectual Property by executing such deeds and agreements and taking

all such other action as Agent may reasonably require.

 

SECTION 6. 

COLLECTION AND ADMINISTRATION

 

6.1                                 Borrowers’ Loan Accounts.  Agent shall maintain one or more loan

account(s) on its books in which shall be recorded (a) all Loans, Letter of

Credit Accommodations and other Obligations and the Collateral, (b) all

payments made by or on behalf of any Borrower or Guarantor and (c) all other

appropriate debits and credits as provided in this Agreement, including fees,

charges, costs, expenses and interest. 

All entries in the loan account(s) shall be made in accordance with

Agent’s customary practices as in effect from time to time.

 

6.2                                 Statements. 

Agent shall render to Administrative Borrower each month a statement

setting forth the balance in the Borrowers’ loan account(s) maintained by Agent

for Borrowers pursuant to the provisions of this Agreement, including

principal, interest, fees, costs and expenses. 

Each such statement shall be subject to subsequent adjustment by Agent

but shall, absent manifest errors or omissions, be considered correct and

deemed accepted by Borrowers and Guarantors and conclusively binding upon

Borrowers and Guarantors as an account stated except to the extent that Agent

receives a written notice from Administrative Borrower of any specific

exceptions of Administrative Borrower thereto within forty-five (45) days after

the date such statement has been received by Administrative Borrower.  Until such time as Agent shall have rendered

to Administrative Borrower a written statement as provided above, the balance

in any Borrower’s loan account(s) shall be presumptive evidence of the amounts

due and owing to Agent and Lenders by Borrowers and Guarantors.

 

53

 

6.3                                 Collection of Accounts.

 

(a)               Borrowers shall

establish and maintain, at their expense, blocked accounts or lockboxes and

related blocked accounts (in either case, “Blocked Accounts”), as Agent may

specify, with such banks as are acceptable to Agent into which Borrowers shall

promptly deposit and direct their respective account debtors to directly remit

all payments on Receivables and all payments constituting proceeds of Inventory

or other Collateral (including, without limitation, any tax refunds or similar

payments) in the identical form in which such payments are made, whether by

cash, check or other manner.  Borrowers

shall deliver, or cause to be delivered to Agent a Depository Account Control

Agreement duly authorized, executed and delivered by each bank where a Blocked

Account is maintained as provided in Section 5.3 hereof or at any time and from

time to time Agent may become the bank’s customer with respect to any of the

Blocked Accounts and promptly upon Agent’s request, Borrowers shall execute and

deliver such agreements and documents as Agent may require in connection

therewith. Each  Borrower and Guarantor

agrees that all payments made to such Blocked Accounts or other funds received

and collected by Agent or any Lender, whether in respect of the Receivables, as

proceeds of Inventory or other Collateral or otherwise shall be treated as

payments to Agent and Lenders in respect of the Obligations and therefore shall

constitute the property of Agent and Lenders to the extent of the then

outstanding Obligations.

 

(b)              For purposes of

calculating the amount of the Revolving Loans available to each Borrower, such

payments will be applied (conditional upon final collection) to the Obligations

on the Business Day of receipt by Agent of immediately available funds in the

Agent Payment Account provided such payments and notice thereof are received in

accordance with Agent’s usual and customary practices as in effect from time to

time and within sufficient time to credit such Borrower’s loan account on such

day, and if not, then on the next Business Day.  For the purposes of calculating interest on the Obligations, such

payments or other funds received will be applied (conditional upon final

collection) to the Obligations one (1) Business Day(s) following the date of

receipt of immediately available funds by Agent in the Agent Payment Account

provided such payments or other funds and notice thereof are received in

accordance with Agent’s usual and customary practices as in effect from time to

time and within sufficient time to credit such Borrower’s loan account on such

day, and if not, then on the next Business Day.  The economic benefit of the timing in the application of payments

(and the administrative charge with respect thereto, if applicable) shall be

for the sole benefit of Agent.

 

(c)               Each Borrower and

Guarantor and their respective shareholders, directors, employees, agents,

Subsidiaries or other Affiliates shall, acting as trustee for Agent, receive,

as the property of Agent, any monies, checks, notes, drafts or any other payment

relating to and/or proceeds of Accounts or other Collateral which come into

their possession or under their control and immediately upon receipt thereof,

shall deposit or cause the same to be deposited in the Blocked Accounts, or

remit the same or cause the same to be remitted, in kind, to Agent. In the

event that the Debenture in respect of any bank at which a Blocked Account is

maintained by UK Borrower is not, at any time, effective or is not in full

force and effect, Borrowers and Guarantors shall (unless otherwise directed by

Agent and without prejudice to Agent’s or any Lender’s rights and remedies

under the Financing Agreements), for

 

54

 

so long as the Debenture is ineffective or

not in full force and effect and ending on the date when all Obligations have

been repaid or discharged in full and this Agreement terminated, collect as

agent and trustee for Agent all Receivables which would otherwise have been

payable into the Blocked Account and immediately pay (or procure the payment

of) all amounts due in respect of those Receivables into the Agent Payment

Account.  UK Borrower will not be

entitled to close or vary the operation of the Blocked Accounts without the

prior written consent of Agent or to withdraw moneys from the Blocked Account

and shall take such steps as are necessary to ensure that the Blocked Account

is at all times operated by the relevant bank so as to give effect to the

arrangements set out in the Debenture and will at all times procure that the

Blocked Account is subject to the Debenture. 

In no event shall the same be commingled with any Borrower’s or

Guarantor’s own funds.  Borrowers agree

to reimburse Agent on demand for any amounts owed or paid to any bank at which

a Blocked Account or any other deposit account is established or any other bank

or person involved in the transfer of funds to or from the Blocked Accounts

arising out of Agent’s payments to or indemnification of such bank or person.

The obligations of Borrowers to reimburse Agent for such amounts pursuant to

this Section 6.3 shall survive the termination of this Agreement.  Notwithstanding anything to the contrary

contained herein or in any of the other Financing Agreements, if Agent permits

the funds in the Blocked Account of UK Borrower to be transferred to an

operating account of UK Borrower, then UK Borrower shall promptly apply such

funds in the following order of priority: (i) first, to pay obligations

and other liabilities of UK Borrower which are then due and payable; (ii) second,

to pay obligations and liabilities of UK Borrower owing to US Borrower, whether

or not then due and payable; and (iii) third, to pay obligations and

other liabilities owing to US Borrower by its foreign Subsidiaries, whether or

not then due and payable.

 

6.4                                 Payments.

 

(a)               All Obligations

shall be payable to the Agent Payment Account as provided in Section 6.3 or

such other place as Agent may designate from time to time.  Agent shall apply payments received or

collected from any Borrower or Guarantor or for the account of any Borrower or

Guarantor (including the monetary proceeds of collections or of realization

upon any Collateral) as follows: first, to pay any fees, indemnities or

expense reimbursements then due to Agent and Lenders from any Borrower or

Guarantor; second, to pay interest due in respect of any Loans; third,

to pay principal due in respect of the Loans; fourth, to pay or prepay

any other Obligations whether or not then due, in such order and manner as

Agent determines; provided, that, notwithstanding anything to the

contrary contained in this Agreement, (i) unless so directed by Administrative

Borrower, or unless a Default or an Event of Default shall exist or have

occurred and be continuing, Agent shall not apply any payments which it

receives to any Eurodollar Rate Loans made to any Borrower, except (A) on the

expiration date of the Interest Period applicable to any such Eurodollar Rate

Loans or (B) in the event that there are no outstanding Prime Rate Loans made

to any Borrower (it being understood that Agent will attempt to honor any

written request received from any Borrower to not apply payments to any

Eurodollar Rate Loans prior to the expiration of the Interest Period applicable

thereto but Agent shall have no liability for its failure to do so), (ii) to

the extent any Borrower uses any proceeds of the Loans or Letter of Credit

Accommodations to acquire rights in or the use of any Collateral or to repay

any

 

55

 

Indebtedness used to acquire rights in or the

use of any Collateral, payments in respect of the Obligations shall be deemed

applied first to the Obligations arising from Loans and Letter of Credit

Accommodations that were not used for such purposes and second to the

Obligations arising from Loans and Letter of Credit Accommodations the proceeds

of which were used to acquire rights in or the use of any Collateral in the

chronological order in which such Borrower acquired such rights in or the use

of such Collateral, (iii) to the extent Agent or any Lender receives any

payments or collections in respect of the Obligations in a currency other than

US Dollars, Agent may, at its option (but is not obligated to), convert such

other currency to US Dollars at the Exchange Rate on such date and in such

market as Agent may select (regardless as to whether such rate is the best

available rate) and the Borrower whose Obligations are thereby paid shall pay

the costs of such conversion (or Agent may, at its option, charge such costs to

the loan account of such Borrower maintained by Agent) and (iv) subject to the

last sentence of Section 6.3(c), all such payments by UK Borrower shall be

applied to pay any Obligations of UK Borrower to Agent and Lenders before being

applied to any other Obligations. 

Payment and collections received in respect of the Obligations of any

Borrower in any currency other than the currency in which any outstanding

Obligations of such Borrower are denominated will be accepted and/or applied at

the discretion of Agent.

 

(b)              At the option of

Agent, all principal, interest, fees, costs, expenses and other charges

provided for in this Agreement or the other Financing Agreements may be charged

directly to the loan account(s) of any Borrower.  Borrowers and Guarantors shall make all payments to Agent and

Lenders on the Obligations free and clear of, and without deduction or

withholding for or on account of, any setoff, counterclaim, defense, duties,

taxes, levies, imposts, fees, deductions, withholding, restrictions or

conditions of any kind.  If after

receipt of any payment of, or proceeds of Collateral applied to the payment of,

any of the Obligations, Agent or any Lender is required to surrender or return

such payment or proceeds to any Person for any reason, then the Obligations

intended to be satisfied by such payment or proceeds shall be reinstated and

continue and this Agreement shall continue in full force and effect as if such

payment or proceeds had not been received by Agent or such Lender. Borrowers

and Guarantors shall be liable to pay to Agent, and do hereby indemnify and

hold Agent and Lenders harmless for the amount of any payments or proceeds

surrendered or returned.  This Section

6.4(b) shall remain effective notwithstanding any contrary action which may be

taken by Agent or any Lender in reliance upon such payment or proceeds.  This Section 6.4 shall survive the payment

of the Obligations and the termination of this Agreement.

 

6.5                                 Taxes.

 

(a)               Any and all

payments by each Borrower and Guarantor to Agent or any Lender under this

Agreement and any of the other Financing Agreements shall be made free and

clear of, and without deduction or withholding for any Taxes.  In addition, Borrowers shall pay all Other

Taxes (or Agent may, at its option, pay such Other Taxes and charge the loan

account of any Borrower for such amounts so paid).

 

56

 

(b)              Subject to the last

sentence of Section 6.5(f), each Borrower and Guarantor shall indemnify and

hold harmless Agent and Lenders for the full amount of Taxes or Other Taxes

paid by Agent or any Lender (including any Taxes or Other Taxes imposed by any

jurisdiction on amounts payable under this Section, but not including Other

Taxes that arise as a result of Agent or any Lender’s arrangements with the

applicable taxing jurisdiction, if any, and not as a result of this Agreement)

and any liability (including penalties, interest and expenses (including

reasonable attorney’s fees and expenses) other than those resulting solely from

a failure by Agent or any Lender to pay any Taxes or Other Taxes which it is

required to pay and for which it received an indemnity payment) arising

therefrom or with respect thereto, whether or not such Taxes or Other Taxes

were correctly or legally asserted by the relevant Governmental Authority.  Payment under this indemnification shall be

made within ten (10) days after the date Agent or any Lender makes written

demand therefor.  If Administrative

Borrower reasonably believes that such Taxes or Other Taxes were not correctly

or legally asserted, Agent or such Lender shall, upon Administrative Borrower’s

request and at Borrowers’ expense, provide such documents to Administrative

Borrower in form and substance satisfactory to Agent, as Administrative

Borrower may reasonably request, to enable Borrowers to contest such Taxes or

Other Taxes pursuant to appropriate proceedings then available to such Borrower

(so long as providing such documents shall not, in the good faith determination

of Agent, have a reasonable likelihood of resulting in any liability of Agent

or any Lender).

 

(c)               If any Borrower or

Guarantor shall be required by law to deduct or withhold any Taxes or Other

Taxes from or in respect of any sum payable hereunder to Agent or any Lender, then:

 

(i)                           subject

to the last sentence of Section 6.5(f) the sum payable shall be increased as

necessary so that after making all required deductions and withholdings

(including deductions and withholdings applicable to additional sums payable

under this Section) such Lender (or Agent on behalf of such Lender) receives an

amount equal to the sum it would have received had no such deductions or

withholdings been made;

 

(ii)                        such

Borrower or Guarantor shall make such deductions and withholdings;

 

(iii)                     such Borrower

or Guarantor shall pay the full amount deducted or withheld to the relevant

taxing authority or other authority in accordance with applicable law; and

 

(iv)                    to the extent

not paid to Agent and Lenders pursuant to Section 6.5(c)(i), such Borrower or

Guarantor shall also pay to Agent or any Lender, at the time interest is paid,

all additional amounts which Agent or any Lender specifies as necessary in its

good faith determination to preserve the after-tax yield such Lender would have

received if such Taxes or Other Taxes had not been imposed.

 

(d)              Within thirty (30)

days after the date of any payment by any Borrower or Guarantor of Taxes or

Other Taxes, such Borrower or Guarantor shall furnish to Agent the original or

a certified copy of a receipt evidencing payment thereof, or other evidence of

payment satisfactory to Agent.

 

57

 

(e)               If any Borrower or

Guarantor otherwise would be required to pay additional amounts to a Lender (or

Agent on behalf of such Lender) pursuant to subsection (c) of this Section,

then upon Borrower’s written request such Lender shall use reasonable efforts

at Borrowers’ expense (consistent with legal and regulatory restrictions) to

take such action, including changing the jurisdiction of its lending office so

as to eliminate any such additional payment by such Borrower or Guarantor which

may thereafter accrue.

 

(f)                 In the event a

Lender shall assign the Obligations and its rights hereunder to an assignee

which is organized under the laws of a jurisdiction outside the United States,

such assignee of a Lender shall provide Administrative Borrower with an IRS

Form W-8BEN or Form W-8ECI or other applicable form, certificate or document

prescribed by the Internal Revenue Service certifying as to such assignee’s

being entitled to full exemption from United States withholding tax with

respect to all payments to be made to such assignee hereunder and under any of

the other Financing Agreements (unless such assignee of a Lender is unable to

do so by reason of a change in law, including, without limitation, any statute,

treaty, ruling, determination or regulation occurring subsequent to the

effective date of such assignment). 

Notwithstanding anything to the contrary contained in this Section 6.5,

unless Administrative Borrower has received forms or other documents indicating

that payments to such assignee hereunder or under any of the other Financing

Agreements are not subject to United States of America withholding tax, US

Borrower shall, in the case of payments to or for any assignee of Lender

organized under the laws of a jurisdiction outside the United States (i)

withhold taxes from such payments at the applicable statutory rate, or at a

rate reduced by an applicable tax treaty and (ii) pay such assignee such

payment net of any taxes so withheld. 

Such assignee will be required to use reasonable efforts (including

reasonable efforts to change its lending office) to avoid or to minimize any

amounts which might otherwise be payable by any Borrower or Guarantor pursuant

to this Section 6.5; provided, that, such efforts shall not cause the

imposition on such assignee of any additional costs or legal or regulatory

burdens deemed by such assignee in good faith to be material.

 

(g)              If Agent or any Lender

receives a permanent tax benefit in respect of any Taxes or Other Taxes for

which Agent or such Lender has received an indemnification payment from any

Borrower or Guarantor hereunder, so long as no Event of Default shall exist or

have occurred and be continuing, Agent or such Lender (as the case may be)

shall credit to the loan account of Borrowers the amount of such permanent tax

benefit.

 

(h)               Each Person that is

a Lender as of the date of this Agreement represents and warrants to the

Administrative Borrower that such Person is incorporated or organized under the

laws of the United States or a state thereof.

 

6.6                                 Authorization to Make Loans.  Agent and Lenders are authorized to make the

Loans and provide the Letter of Credit Accommodations based upon telephonic or

other instructions received from anyone purporting to be an officer of

Administrative Borrower or any Borrower or other authorized person or, at the

discretion of Agent, if such Loans are necessary to satisfy any Obligations.

All requests for Loans or Letter of Credit Accommodations hereunder shall

specify the date on which

 

58

 

the requested advance is to be made or Letter

of Credit Accommodations established (which day shall be a Business Day) and

the amount of the requested Loan. 

Requests received by Agent after 2:00 p.m. Miami, Florida time on any

day shall be deemed to have been made as of the opening of business on the

immediately following Business Day.  All

Loans and Letter of Credit Accommodations under this Agreement shall be

conclusively presumed to have been made to, and at the request of and for the

benefit of, any Borrower or Guarantor when deposited to the credit of any

Borrower or Guarantor or otherwise disbursed or established in accordance with

the instructions of any Borrower or Guarantor or in accordance with the terms

and conditions of this Agreement.

 

6.7                                 Use of Proceeds. 

Borrowers shall use the initial proceeds of the Loans provided by Agent

to Borrowers hereunder only for: (a) payments to U.S. Bank National Association

to repay a portion of the Indebtedness owing to it and to each of the other

persons listed in the disbursement direction letter furnished by Borrowers to

Agent on or about the date hereof and (b) costs, expenses and fees in

connection with the preparation, negotiation, execution and delivery of the

Purchase Agreements, this Agreement and the other Financing Agreements.  All other Loans made or Letter of Credit

Accommodations provided to or for the benefit of any Borrower pursuant to the

provisions hereof shall be used by such Borrower only for general operating,

working capital and other corporate purposes of such Borrower not otherwise

prohibited by the terms hereof; provided, that, notwithstanding

anything to the contrary contained herein, the proceeds of the loans to UK

Borrower shall only be used in the following order of priority: (i) first,

to pay obligations and other liabilities of UK Borrower which are then due and

payable; (ii) second, to pay obligations and other liabilities of UK

Borrower owing to US Borrower, whether or not then due and payable; and (iii) third,

to pay obligations and other liabilities owing to US Borrower by its foreign

Subsidiaries, whether or not then due and payable.   None of the proceeds will be used, directly or indirectly, for

the purpose of purchasing or carrying any margin security or for the purposes

of reducing or retiring any indebtedness which was originally incurred to

purchase or carry any margin security or for any other purpose which might

cause any of the Loans to be considered a “purpose credit” within the meaning

of Regulation U of the Board of Governors of the Federal Reserve System, as

amended.

 

6.8                                 Illegality. 

In the event that any change in or introduction of or change in the

interpretation or application of any law, regulation, treaty, or official

directive or official request (whether or not having the force of law but, if

not, being of a type with which Agent or any Lender is accustomed to comply)

makes it unlawful (or contrary to such directive or request) in any

jurisdiction applicable to Agent or such Lender for Agent or such Lender to

make available or maintain the financing arrangements provided for herein (or

any of them) or to give effect to its obligations under the Financing

Agreements, Agent or such Lender may give seven (7) Business Days written

notice to that effect to Administrative Borrower and upon such notice this

Agreement shall terminate.  Agent or such

Lender will use reasonable efforts (including reasonable efforts to change its

lending office) to avoid the making or maintaining of such financing

arrangements from being unlawful or 

contrary to such directive or request; provided, that, such efforts

shall not cause the imposition on Agent or such Lender of any additional costs

or legal or regulatory burdens deemed by Agent or such Lender to be material.

 

59

 

6.9                                 [Intentionally Deleted]

 

6.10                           Appointment of Agent for Requesting

Loans and Receipts of Loans and Statements.

 

(a)               Each Borrower

hereby irrevocably appoints and constitutes Administrative Borrower as its

agent to request and receive Loans and Letter of Credit Accommodations pursuant

to this Agreement and the other Financing Agreements from Agent or any Lender

in the name or on behalf of such Borrower. 

Agent and Lenders may disburse the Loans to such bank account of

Administrative Borrower or a Borrower or otherwise make such Loans to a

Borrower and provide such Letter of Credit Accommodations to a Borrower as

Administrative Borrower may designate or direct, without notice to any other

Borrower or Obligor.  Notwithstanding

anything to the contrary contained herein, Agent may at any time and from time

to time require that Loans to or for the account of any Borrower be disbursed

directly to an operating account of such Borrower.

 

(b)              Administrative

Borrower hereby accepts the appointment by Borrowers to act as the agent of

Borrowers pursuant to this Section 6.10. 

Administrative Borrower shall ensure that the disbursement of any Loans

to each Borrower requested by or paid to or for the account of any Borrower, or

the issuance of any Letter of Credit Accommodations for a Borrower hereunder,

shall be paid to or for the account of such Borrower.

 

(c)               Each Borrower and

other Guarantor hereby irrevocably appoints and constitutes Administrative

Borrower as its agent to receive statements on account and all other notices

from Agent and Lenders with respect to the Obligations or otherwise under or in

connection with this Agreement and the other Financing Agreements.

 

(d)              Any notice,

election, representation, warranty, agreement or undertaking by or on behalf of

any other Borrower or any Guarantor by Administrative Borrower shall be deemed

for all purposes to have been made by such Borrower or Guarantor, as the case

may be, and shall be binding upon and enforceable against such Borrower or

Guarantor to the same extent as if made directly by such Borrower of Guarantor.

 

(e)               No purported

termination of the appointment of Administrative Borrower as agent as aforesaid

shall be effective, except after ten (10) days’ prior written notice to Agent.

 

6.11                           Pro Rata Treatment.  Except to the extent otherwise provided in this Agreement or any

other Financing Agreement:  (a) the

making and conversion of Loans shall be made among the Lenders based on their

respective Pro Rata Shares as to the Loans and (b) each payment on account of

any Obligations (including, without limitation, each payment on account of any

fees) to or for the account of one or more of Lenders in respect of any

Obligations due on a particular day shall be allocated among the Lenders

entitled to such payments based on their respective Pro Rata Shares and shall

be distributed accordingly.

 

60

 

6.12                           Sharing of Payments, Etc.

 

(a)               Each Borrower and

Guarantor agrees that, in addition to (and without limitation of) any right of

setoff, banker’s lien or counterclaim Agent or any Lender may otherwise have,

each Lender shall be entitled, at its option (but subject, as among Agent and

Lenders, to the provisions of Section 12.3(b) hereof), to offset balances held

by it for the account of such Borrower or Guarantor at any of its offices, in

dollars or in any other currency, against any principal of or interest on any

Loans owed to such Lender or any other amount payable to such Lender hereunder,

that is not paid when due (regardless of whether such balances are then due to

such Borrower or Guarantor), in which case it shall promptly notify

Administrative Borrower and Agent thereof; provided, that, such

Lender’s failure to give such notice shall not affect the validity thereof.

 

(b)              If any Lender

(including Agent) shall obtain from any Borrower or Guarantor payment of any

principal of or interest on any Loan owing to it or payment of any other amount

under this Agreement or any of the other Financing Agreements through the

exercise of any right of setoff, banker’s lien or counterclaim or similar right

or otherwise (other than from Agent as provided herein), and, as a result of

such payment, such Lender shall have received more than its Pro Rata Share of

the principal of the Loans or more than its share of such other amounts then

due hereunder or thereunder by any Borrower or Guarantor to such Lender than

the percentage thereof received by any other Lender, it shall promptly pay to

Agent, for the benefit of Lenders, the amount of such excess and simultaneously

purchase from such other Lenders a participation in the Loans or such other

amounts, respectively, owing to such other Lenders (or such interest due

thereon, as the case may be) in such amounts, and make such other adjustments

from time to time as shall be equitable, to the end that all Lenders shall

share the benefit of such excess payment (net of any expenses that may be

incurred by such Lender in obtaining or preserving such excess payment) in

accordance with their respective Pro Rata Shares or as otherwise agreed by

Lenders.  To such end all Lenders shall

make appropriate adjustments among themselves (by the resale of participation

sold or otherwise) if such payment is rescinded or must otherwise be restored.

 

(c)               Each Borrower and

Guarantor agrees that any Lender purchasing a participation (or direct

interest) as provided in this Section may exercise, in a manner consistent with

this Section, all rights of setoff, banker’s lien, counterclaim or similar

rights with respect to such participation as fully as if such Lender were a

direct holder of Loans or other amounts (as the case may be) owing to such

Lender in the amount of such participation.

 

(d)              Nothing contained

herein shall require any Lender to exercise any right of setoff, banker’s lien,

counterclaims or similar rights or shall affect the right of any Lender to

exercise, and retain the benefits of exercising, any such right with respect to

any other Indebtedness or obligation of any Borrower or Guarantor.  If, under any applicable bankruptcy,

insolvency or other similar law, any Lender receives a secured claim in lieu of

a setoff to which this Section applies, such Lender shall, to the extent

practicable, assign such rights to Agent for the benefit of Lenders and, in any

event, exercise

 

61

 

its rights in respect of such secured claim

in a manner consistent with the rights of Lenders entitled under this Section

to share in the benefits of any recovery on such secured claim.

 

6.13                           Settlement Procedures.

 

(a)               In order to

administer the Credit Facility in an efficient manner and to minimize the

transfer of funds between Agent and Lenders, Agent may, at its option, subject

to the terms of this Section, make available, on behalf of Lenders, the full

amount of the Loans requested or charged to any Borrower’s loan account(s) or

otherwise to be advanced by Lenders pursuant to the terms hereof, without

requirement of prior notice to Lenders of the proposed Loans.

 

(b)              With respect to all

Loans made by Agent on behalf of Lenders as provided in this Section, the

amount of each Lender’s Pro Rata Share of the outstanding Loans shall be

computed weekly, and shall be adjusted upward or downward on the basis of the

amount of the outstanding Loans as of 5:00 p.m. Miami, Florida time on the

Business Day immediately preceding the date of each settlement computation; provided,

that, Agent retains the absolute right at any time or from time to time

to make the above described adjustments at intervals more frequent than weekly,

but in no event more than twice in any week. 

Agent shall deliver to each of the Lenders after the end of each week,

or at such lesser period or periods as Agent shall determine, a summary

statement of the amount of outstanding Loans for such period (such week or

lesser period or periods being hereinafter referred to as a “Settlement

Period”).  If the summary statement is

sent by Agent and received by a Lender prior to 12:00 p.m. Miami, Florida time,

then such Lender shall make the settlement transfer described in this Section

by no later than 3:00 p.m. Miami, Florida time on the same Business Day and if

received by a Lender after 12:00 p.m. Miami, Florida time, then such Lender

shall make the settlement transfer by not later than 3:00 p.m. Miami, Florida

time on the next Business Day following the date of receipt.  If, as of the end of any Settlement Period,

the amount of a Lender’s Pro Rata Share of the outstanding Loans is more than

such Lender’s Pro Rata Share of the outstanding Loans as of the end of the

previous Settlement Period, then such Lender shall forthwith (but in no event

later than the time set forth in the preceding sentence) transfer to Agent by

wire transfer in immediately available funds the amount of the increase.  Alternatively, if the amount of a Lender’s

Pro Rata Share of the outstanding Loans in any Settlement Period is less than

the amount of such Lender’s Pro Rata Share of the outstanding Loans for the

previous Settlement Period, Agent shall forthwith transfer to such Lender by

wire transfer in immediately available funds the amount of the decrease.  The obligation of each of the Lenders to

transfer such funds and effect such settlement shall be irrevocable and

unconditional and without recourse to or warranty by Agent.  Agent and each Lender agrees to mark its

books and records at the end of each Settlement Period to show at all times the

dollar amount of its Pro Rata Share of the outstanding Loans and Letter of

Credit Accommodations.  Each Lender

shall only be entitled to receive interest on its Pro Rata Share of the Loans

to the extent such Loans have been funded by such Lender. Because the Agent may

be advancing and/or may be repaid Loans prior to the time when Lenders will

actually advance and/or be repaid such Loans, interest with respect to Loans

shall be allocated by Agent in accordance with the amount of Loans actually

advanced by and repaid to each Lender and the Agent and shall accrue from and

including the date such Loans are so advanced to but excluding the

 

62

 

date such Loans are either repaid by

Borrowers or actually settled with the applicable Lender as described in this

Section.

 

(c)               To the extent that

Agent has made any such amounts available and the settlement described above

shall not yet have occurred, upon repayment of any Loans by a Borrower, Agent

may apply such amounts repaid directly to any amounts made available by Agent

pursuant to this Section. In lieu of weekly or more frequent settlements, Agent

may, at its option, at any time require each Lender to provide Agent with immediately

available funds representing its Pro Rata Share of each Loan, prior to the

disbursement by Agent of such Loan to Borrower.  In such event, all Loans under this Agreement shall be made by

the Lenders simultaneously and proportionately to their Pro Rata Shares.  No Lender shall be responsible for any

default by any other Lender in the other Lender’s obligation to make a Loan

requested hereunder nor shall the Commitment of any Lender be increased or

decreased as a result of the default by any other Lender in the other Lender’s

obligation to make a Loan hereunder.

 

(d)              If Agent is not

funding a particular Loan to a Borrower (or Administrative Borrower for the

benefit of such Borrower) pursuant to this Section on any day, Agent may assume

that each Lender will make available to Agent such Lender’s Pro Rata Share of

the Loan requested or otherwise made on such day and Agent may, in its

discretion, but shall not be obligated to, cause a corresponding amount to be

made available to or for the benefit of such Borrower on such day.  If Agent makes such corresponding amount

available to a Borrower and such corresponding amount is not in fact made

available to Agent by such Lender, Agent shall be entitled to recover such corresponding

amount on demand from such Lender together with interest thereon for each day

from the date such payment was due until the date such amount is paid to Agent

at the Federal Funds Rate for each day during such period (as published by the

Federal Reserve Bank of New York or at the option of Agent based on the

arithmetic mean determined by Agent of the rates for the last transaction in

overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on

that day by each of the three leading brokers of Federal funds transactions in New

York City selected by Agent and if such amounts are not paid within three (3)

days of the demand of Agent, at the highest Interest Rate provided for in

Section 3.1 hereof applicable to Revolving Loans consisting of Prime Rate

Loans, whichever Agent may elect. 

During the period in which such Lender has not paid such corresponding

amount to Agent, notwithstanding anything to the contrary contained in this

Agreement or any of the other Financing Agreements, the amount so advanced by

Agent to or for the benefit of any Borrower shall, for all purposes hereof, be

a Loan made by Agent for its own account. 

Upon any such failure by a Lender to pay Agent, Agent shall promptly

thereafter notify Administrative Borrower of such failure and Borrowers shall

pay such corresponding amount to Agent for its own account within five (5)

Business Days of Administrative Borrower’s receipt of such notice.  A Lender who fails to pay Agent its Pro Rata

Share of any Loans made available by the Agent on such Lender’s behalf, or any

Lender who fails to pay any other amount owing by it to Agent, is a “Defaulting

Lender”.  Agent shall not be obligated

to transfer to a Defaulting Lender any payments received by Agent for the

Defaulting Lender’s benefit, nor shall a Defaulting Lender be entitled to the

sharing of any payments hereunder (including any principal, interest or fees).

Amounts payable to a Defaulting Lender shall instead be paid to or retained by

Agent.  Agent may hold

 

63

 

and, in its discretion, relend to a Borrower

the amount of all such payments received or retained by it for the account of

such Defaulting Lender.  For purposes of

voting or consenting to matters with respect to this Agreement and the other

Financing Agreements and determining Pro Rata Shares, such Defaulting Lender

shall be deemed not to be a “Lender” and such Lender’s Commitment shall be

deemed to be zero (0).  This Section

shall remain effective with respect to a Defaulting Lender until such default

is cured.  The operation of this Section

shall not be construed to increase or otherwise affect the Commitment of any

Lender, or relieve or excuse the performance by any Borrower or Obligor of

their duties and obligations hereunder.

 

(e)               Nothing in this

Section or elsewhere in this Agreement or the other Financing Agreements shall

be deemed to require Agent to advance funds on behalf of any Lender or to

relieve any Lender from its obligation to fulfill its Commitment hereunder or

to prejudice any rights that any Borrower may have against any Lender as a

result of any default by any Lender hereunder in fulfilling its Commitment.

 

6.14                           Obligations Several; Independent

Nature of Lenders’ Rights.  The

obligation of each Lender hereunder is several, and no Lender shall be

responsible for the obligation or commitment of any other Lender

hereunder.  Nothing contained in this

Agreement or any of the other Financing Agreements and no action taken by the

Lenders pursuant hereto or thereto shall be deemed to constitute the Lenders to

be a partnership, an association, a joint venture or any other kind of entity.

The amounts payable at any time hereunder to each Lender shall be a separate

and independent debt, and subject to Section 12.3 hereof, each Lender shall be

entitled to protect and enforce its rights arising out of this Agreement and it

shall not be necessary for any other Lender to be joined as an additional party

in any proceeding for such purpose.

 

SECTION 7. 

COLLATERAL REPORTING AND COVENANTS

 

7.1                                 Collateral Reporting.

 

(a)               Borrowers shall

provide Agent with the following documents in a form satisfactory to Agent:

 

(i)                           on a

regular basis as required by Agent, schedules of sales made, credits issued and

cash received;

 

(ii)                        as soon as

possible after the end of each week (but in any event within no later than

Wednesday of the immediately succeeding week), on a weekly basis or more

frequently as Agent may request, (A) perpetual inventory reports and (B) a

report of the Priority Payables of each Borrower;

 

64

 

(iii)                     as soon as

possible after the end of each month (but in any event within no later than the

fifteenth day of the immediately succeeding month), on a monthly basis or more

frequently as Agent may request, (A) agings of accounts receivable, whether

owing by Affiliates or otherwise (together with a reconciliation to the

previous month’s aging and general ledger), (B) agings of accounts payable,

whether owing to Affiliates or otherwise (and including information indicating

the amounts owing to licensors of intellectual property, owners and lessors of

leased premises, warehouses, processors, customs brokers and other third

parties from time to time in possession or control of any Collateral), (C)

summary equipment reports by location and category, (D) summary inventory

reports by location and category (including a breakdown of digital inventory

and analog inventory and including the amounts of Inventory and the value

thereof, which reveals the amounts of Inventory and the value thereof at any

leased locations and at premises of warehouses, processors, customs brokers or

other third parties), (E) reports as to transfer pricing and trade payables

among Borrowers and their respective Affiliates including a separate breakdown

for in-transit Inventory;

 

(iv)                    upon Agent’s

request, (A) copies of customer statements and credit memos, remittance advices

and reports, and copies of deposit slips and bank statements, (B) copies of

shipping and delivery documents, and (C) copies of purchase orders, invoices

and delivery documents for Inventory and Equipment acquired by any Borrower or

Guarantor;

 

(v)                       promptly

upon any Borrower obtaining knowledge or notice thereof, (A) written notice

that such Borrower may be unable to pay any wages, salaries, taxes, levies or

other assessments owing by it when due to any Person in the Netherlands, (B)

written notice that such Borrower has failed to pay any wages, salaries, taxes,

levies or other assessments owing by it when due to any Person in the Netherlands,

(C) copies of any notice of other correspondence from a Governmental Authority

in the Netherlands that such Borrower has failed to pay any wages, salaries,

taxes, levies or other assessments owing by it when due, (D) written notice

that any Borrower or Guarantor has received a tax refund or similar payment in

an amount in excess of $200,000 and (E) written notice that any Borrower or

Guarantor has failed to pay when due any amounts in excess of the US Dollar

Equivalent of $10,000 owing to the Warehousemen;

 

(vi)                    promptly upon

the receipt by any Borrower or Guarantor of any invoice from the Warehouseman,

a copy of such invoice;

 

(vii)                 promptly upon the

payment by any Borrower or Guarantor of any amounts owing to the Warehousemen,

evidence of such payment; and

 

(viii)              such other reports

as to the Collateral as Agent shall request from time to time.

 

(b)              If any Borrower’s or

Guarantor’s records or reports of the Collateral are prepared or maintained by

an accounting service, contractor, shipper or other agent, such Borrower and

Guarantor hereby irrevocably authorizes such service, contractor, shipper or

agent to deliver such

 

65

 

records, reports, and related documents to

Agent and to follow Agent’s instructions with respect to further services at

any time that an Event of Default exists or has occurred and is continuing.

 

(c)               All of the

documents, reports and schedules provided by Borrowers to Agent hereunder for

Receivables payable in any currency other than US Dollars and Inventory located

outside the United States of America shall set forth the US Dollar Equivalent

for the amount of the Receivables and Value of the Inventory included in any

such documents, reports or schedules.

 

7.2                                 Accounts Covenants.

 

(a)               Borrowers shall

notify Agent promptly of: (i) any material delay in any Borrower’s performance

of any of its material obligations to any account debtor or the assertion of

any material claims, offsets, defenses or counterclaims by any account debtor,

or any material disputes with account debtors, or any settlement, adjustment or

compromise thereof, (ii) all material adverse information known to any Borrower

or Guarantor relating to the financial condition of any account debtor and

(iii) any event or circumstance which, to the best of any Borrower’s or

Guarantor’s knowledge, would cause Agent to consider any then existing Accounts

in excess of the US Dollar Equivalent of US$150,000 as no longer constituting

Eligible Accounts.  No credit, discount,

allowance or extension or agreement for any of the foregoing shall be granted

to any account debtor without Agent’s consent, except in the ordinary course of

a Borrower’s or Guarantor’s business in accordance with practices and policies

previously disclosed in writing to Agent and except as set forth in the

schedules delivered to Agent pursuant to Section 7.1(a) above.  So long as no Event of Default exists or has

occurred and is continuing, Borrowers and Guarantors shall settle, adjust or

compromise any claim, offset, counterclaim or dispute with any account

debtor.  At any time that an Event of

Default exists or has occurred and is continuing, Agent shall, at its option,

have the exclusive right to settle, adjust or compromise any claim, offset,

counterclaim or dispute with account debtors or grant any credits, discounts or

allowances.

 

(b)              With respect to each

Account: (i) the amounts shown on any invoice delivered to Agent or schedule

thereof delivered to Agent shall be true and complete in all material respects,

(ii) no payments shall be made thereon except payments immediately delivered to

Agent pursuant to the terms of this Agreement, (iii) no credit, discount,

allowance or extension or agreement for any of the foregoing shall be granted

to any account debtor except as reported to Agent in accordance with this

Agreement and except for credits, discounts, allowances or extensions made or

given in the ordinary course of each Borrower’s business in accordance with

practices and policies previously disclosed to Agent, (iv) there shall be no

setoffs, deductions, contras, defenses, counterclaims or disputes existing or

asserted with respect thereto except as reported to Agent in accordance with

the terms of this Agreement, (v) none of the transactions giving rise thereto will

violate any applicable foreign, Federal, State or local laws or regulations,

all documentation relating thereto will be legally sufficient under such laws

and regulations and all such documentation will be legally enforceable in

accordance with its terms, except as such enforceability may be limited by

bankruptcy, insolvency, moratorium or similar laws limiting creditors’ rights

generally and by general equitable principles.

 

66

 

(c)               Agent shall have

the right, in Agent’s name (at any time or times during which an Event of

Default shall exist or be continuing) or in the name of a nominee of Agent (at

all other times), to verify the validity, amount or any other matter relating

to any Receivables or other Collateral, by mail, telephone, facsimile

transmission or otherwise.

 

7.3                                 Inventory Covenants.  With respect to the Inventory: (a) each

Borrower and Guarantor shall at all times maintain inventory records reasonably

satisfactory to Agent, keeping correct and accurate records itemizing and

describing the kind, type, quality and quantity of Inventory, such Borrower’s

or Guarantor’s cost therefor and daily withdrawals therefrom and additions

thereto; (b) Borrowers and Guarantors shall conduct a physical count of the

Inventory at least once each year but at any time or times as Agent may request

upon the occurrence and during the continuance of an Event of Default, and

promptly following such physical inventory shall supply Agent with a report in

the form and with such specificity as may be satisfactory to Agent concerning

such physical count; (c) Borrowers and Guarantors shall not remove any

Inventory from the locations set forth or permitted herein, without the prior

written consent of Agent, except for sales of Inventory in the ordinary course

of its business and except to move Inventory directly from one location set

forth or permitted herein to another such location and except for Inventory

shipped from the manufacturer thereof to such Borrower or Guarantor which is in

transit to the locations set forth or permitted herein; (d) upon Agent’s

request, Borrowers shall, at their expense, no more than three (3) times in any

twelve (12) month period, but at any time or times as Agent may request upon

the occurrence and during the continuance of an Event of Default, deliver or

cause to be delivered to Agent written appraisals as to the Inventory in form,

scope and methodology acceptable to Agent and by an appraiser acceptable to

Agent, addressed to Agent and Lenders and upon which Agent and Lenders are

expressly permitted to rely; (e) Borrowers and Guarantors shall produce, use,

store and maintain the Inventory with all reasonable care and caution and in

accordance with applicable standards of any insurance and in conformity with

applicable laws (including the requirements of the Federal Fair Labor Standards

Act of 1938, as amended and all rules, regulations and orders related thereto);

(f) none of the Inventory or other Collateral constitutes farm products or the

proceeds thereof; (g) each Borrower and Guarantor assumes all responsibility

and liability arising from or relating to the production, use, sale or other

disposition of the Inventory; (h) Borrowers and Guarantors shall not sell

Inventory to any customer on approval, or any other basis which entitles the

customer to return or may obligate any Borrower or Guarantor to repurchase such

Inventory (other than the return of defective Inventory in the ordinary course

of business); (i) Borrowers and Guarantors shall keep the Inventory in good and

marketable condition; (j) Borrowers and Guarantors shall not, without prior

written notice to Agent or the specific identification of such Inventory in a

report with respect thereto provided by Administrative Borrower to Agent pursuant

to Section 7.1(a) hereof, acquire or accept any Inventory on consignment or

approval; (k) within sixty (60) days following the date hereof, Borrowers

shall, at Lenders’ expense, deliver or cause to be delivered to Agent a written

appraisal as to the Inventory consisting of raw materials in form, scope and

methodology acceptable to Agent and by an appraiser acceptable to Agent,

addressed to Agent and Lender and upon which Agent and Lenders are expressly

permitted to rely; (l) each Borrower shall promptly notify Agent in writing if

any supplier or other creditor of such Borrower imposes any retention of title

provisions with respect to any supply arrangements with such Borrower; (m)

 

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notwithstanding anything to the contrary

contained in this Agreement or the other Financing Agreements, UK Borrower does

not and will not maintain or store any of its Inventory in the Dutch Warehouse

at any time; and (n) no Affiliate of US Borrower maintains or stores, or will

maintain or store, any inventory in the Dutch Warehouse except that Mackie

Designs (Italy) S.p.A. may maintain or store inventory consisting of finished

goods in the Dutch Warehouse so long such inventory of Mackie Designs (Italy)

S.p.A. is packaged in a manner that makes such inventory separately

identifiable from the inventory of US Borrower.

 

7.4                                 Equipment and Real Property Covenants.

With respect to the Equipment and Real Property: (a) upon Agent’s request,

Borrowers and Guarantors shall, at their expense, no more than one (1) time in

any twelve (12) month period, but at any time or times as Agent may request

upon the occurrence and during the continuance of an Event of Default, deliver

or cause to be delivered to Agent written appraisals as to the Equipment and/or

the Real Property in form, scope and methodology acceptable to Agent and by an

appraiser acceptable to Agent, addressed to Agent and upon which Agent is

expressly permitted to rely; (b) Borrowers and Guarantors shall keep the

Equipment in good order, repair, running and marketable condition (ordinary

wear and tear excepted); (c) Borrowers and Guarantors shall use the Equipment

and Real Property with all reasonable care and caution and in accordance with

applicable standards of any insurance and in conformity with all applicable

laws; (d) the Equipment is and shall be used in the business of Borrowers and

Guarantors and not for personal, family, household or farming use; (e)

Borrowers and Guarantors shall not remove any Equipment from the locations set

forth or permitted herein, except to the extent necessary to have any Equipment

repaired or maintained in the ordinary course of its business or to move

Equipment directly from one location set forth or permitted herein to another

such location and except for the movement of motor vehicles used by or for the

benefit of such Borrower or Guarantor in the ordinary course of business; (f)

the Equipment is now and shall remain personal property and Borrowers and

Guarantors shall not permit any of the Equipment to be or become a part of or

affixed to real property; (g) each Borrower and Guarantor assumes all

responsibility and liability arising from the use of the Equipment and Real

Property; and (h) promptly upon Agent’s request, each Borrower shall furnish to

Agent a list, in reasonable detail, of all Equipment owned by such Borrower.

 

7.5                                 Power of Attorney.  Each Borrower and Guarantor hereby irrevocably designates and

appoints Agent (and all persons designated by Agent) as such Borrower’s and

Guarantor’s true and lawful attorney-in-fact, and authorizes Agent, in such

Borrower’s, Guarantor’s or Agent’s name, to: (a) at any time an Event of

Default exists or has occurred and is continuing (i) demand payment on

Receivables or other Collateral, (ii) enforce payment of Receivables by legal

proceedings or otherwise, (iii) exercise all of such Borrower’s or Guarantor’s

rights and remedies to collect any Receivable or other Collateral, (iv) sell or

assign any Receivable upon such terms, for such amount and at such time or

times as the Agent deems advisable, (v) settle, adjust, compromise, extend or

renew an Account, (vi) discharge and release any Receivable, (vii) prepare,

file and sign such Borrower’s or Guarantor’s name on any proof of claim in

bankruptcy or other similar document against an account debtor or other obligor

in respect of any Receivables or other Collateral, (viii) notify the post

office authorities to change the address for delivery of remittances from

account debtors or other obligors in respect of

 

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Receivables or other proceeds of Collateral

to an address designated by Agent, and open and dispose of all mail addressed

to such Borrower or Guarantor and handle and store all mail relating to the

Collateral; and (ix) do all acts and things which are necessary, in Agent’s

determination, to fulfill such Borrower’s or Guarantor’s obligations under this

Agreement and the other Financing Agreements and (b) at any time to (i) take

control in any manner of any item of payment in respect of Receivables or

constituting Collateral or otherwise received in or for deposit in the Blocked

Accounts or otherwise received by Agent or any Lender, (ii) have access to any

lockbox or postal box into which remittances from account debtors or other

obligors in respect of Receivables or other proceeds of Collateral are sent or

received, (iii) endorse such Borrower’s or Guarantor’s name upon any items of

payment in respect of Receivables or constituting Collateral or otherwise

received by Agent and any Lender and deposit the same in Agent’s account for

application to the Obligations, (iv) endorse such Borrower’s or Guarantor’s

name upon any chattel paper, document, instrument, invoice, or similar document

or agreement relating to any Receivable or any goods pertaining thereto or any

other Collateral, including any warehouse or other receipts, or bills of lading

and other negotiable or non-negotiable documents, (v) clear Inventory the

purchase of which was financed with Letter of Credit Accommodations through

U.S. Customs or foreign export control authorities (or similar authorities) in

such Borrower’s or Guarantor’s name, Agent’s name or the name of Agent’s

designee, and to sign and deliver to customs officials powers of attorney in

such Borrower’s or Guarantor’s name for such purpose, and to complete in such

Borrower’s or Guarantor’s or Agent’s name, any order, sale or transaction,

obtain the necessary documents in connection therewith and collect the proceeds

thereof, and (vi) sign such Borrower’s or Guarantor’s name on any verification

of Receivables and notices thereof to account debtors or any secondary obligors

or other obligors in respect thereof. 

Each Borrower and each Guarantor hereby releases Agent and Lenders and

their respective officers, employees and designees from any liabilities arising

from any act or acts under this power of attorney and in furtherance thereof,

whether of omission or commission, except as a result of Agent’s or any

Lender’s own gross negligence or willful misconduct as determined pursuant to a

final non-appealable order of a court of competent jurisdiction.

 

7.6                                 Right to Cure. 

Agent may, at its option, upon prior notice to Administrative Borrower,

(a) cure any material default by any Borrower or Guarantor under any material

agreement with a third party that affects the Collateral, its value or the

ability of Agent to collect, sell or otherwise dispose of the Collateral or the

rights and remedies of Agent or any Lender therein or the ability of any

Borrower or Guarantor to perform its obligations hereunder or under any of the

other Financing Agreements, (b) pay or bond on appeal any material judgment

entered against any Borrower or Guarantor, (c) discharge material taxes or

discharge liens, security interests or other encumbrances (other than liens,

security interests or encumbrances expressly permitted by Section 9.8

(excluding Sections 9.8(c) and (l)) unless an Event of Default exists) at any

time levied on or existing with respect to the Collateral and pay any amount,

incur any expense or perform any act which, in Agent’s judgment, is necessary

or appropriate to preserve, protect, insure or maintain the Collateral and the

rights of Agent and Lenders with respect thereto.  Agent may add any amounts so expended to the Obligations and

charge any Borrower’s account therefor, such amounts to be repayable by

Borrowers on demand.  Agent and Lenders

shall be under no obligation to effect such cure, payment or bonding and shall

not, by doing so,

 

69

 

be deemed to have assumed any obligation or

liability of any Borrower or Guarantor. 

Any payment made or other action taken by Agent or any Lender under this

Section shall be without prejudice to any right to assert an Event of Default

hereunder and to proceed accordingly.

 

7.7                                 Access to Premises.  From time to time as requested by Agent, at the cost and expense

of Borrowers, (a) Agent or its designee shall have complete access to all of

each Borrower’s and Guarantor’s premises during normal business hours and after

notice to Administrative Borrower, or at any time and without notice to

Administrative Borrower if an Event of Default exists or has occurred and is

continuing, for the purposes of inspecting, verifying and auditing the

Collateral and all of each Borrower’s and Guarantor’s books and records,

including the Records, and (b) each Borrower and Guarantor shall promptly

furnish to Agent such copies of such books and records or extracts therefrom as

Agent may request, and Agent or any Lender or Agent’s designee may use during

normal business hours such of any Borrower’s and Guarantor’s personnel,

equipment, supplies and premises as may be reasonably necessary for the

foregoing and if an Event of Default exists or has occurred and is continuing

for the collection of Receivables and realization of other Collateral.

 

SECTION 8. 

REPRESENTATIONS AND WARRANTIES

 

Each Borrower

and Guarantor hereby represents and warrants to Agent and Lenders the following

(which shall survive the execution and delivery of this Agreement), the truth

and accuracy of which are a continuing condition of the making of Loans and

providing Letter of Credit Accommodations to Borrowers:

 

8.1                                 Corporate Existence, Power and

Authority.  Each Borrower and

Guarantor is a limited liability company or a corporation duly formed or

organized and in good standing under the laws of its state or jurisdiction of

incorporation or organization and is duly qualified as a foreign limited

liability company or foreign corporation and in good standing in all states or

other jurisdictions where the nature and extent of the business transacted by

it or the ownership of assets makes such qualification necessary, except for

those jurisdictions in which the failure to so qualify would not have a

material adverse effect on such Borrower’s or Guarantor’s financial condition,

results of operation or business or the rights of Agent in or to any of the

Collateral.  The execution, delivery and

performance of this Agreement, the other Financing Agreements and the

transactions contemplated hereunder and thereunder (a) are all within each

Borrower’s and Guarantor’s powers as a limited liability company or corporate

powers, (b) have been duly authorized, (c) are not in contravention of law or

the terms of any Borrower’s or Guarantor’s articles of organization, operating

agreement, certificate of incorporation, by-laws, or other organizational

documentation, or any indenture, agreement or undertaking to which any Borrower

or Guarantor is a party or by which any Borrower or Guarantor or its property

are bound and (d) will not result in the creation or imposition of, or require

or give rise to any obligation to grant, any lien, security interest, charge or

other encumbrance upon any property of any Borrower or Guarantor.  This Agreement and the other Financing

Agreements to which any Borrower or Guarantor is a party constitute legal,

valid and binding obligations of such Borrower and

 

70

 

Guarantor enforceable in accordance with

their respective terms , except as such enforceability may be limited by

bankruptcy, insolvency, moratorium or similar laws limiting creditors’ rights

generally and by general equitable principles. Neither of the Inactive Domestic

Subsidiaries owns (or will own) any material assets or conducts or engages (or

will conduct or engage) in any business.

 

8.2                                 Name; State of Organization; Chief

Executive Office; Collateral Locations.

 

(a)               The exact legal

name of each Borrower and Guarantor is as set forth on the signature page of

this Agreement and in the Information Certificate.  No Borrower or Guarantor has, during the past five years, been

known by or used any other corporate or fictitious name or been a party to any

merger or consolidation, or acquired all or substantially all of the assets of

any Person, or acquired any of its property or assets out of the ordinary

course of business, except for the acquisition of the Purchased Stock or as set

forth in the Information Certificate.

 

(b)              Each Borrower and

Guarantor is an organization of the type and formed or organized in the

jurisdiction set forth in the Information Certificate.  The Information Certificate accurately sets

forth the organizational identification number of each Borrower and Guarantor

or accurately states that such Borrower or Guarantor has none and accurately

sets forth the federal employer identification number of each Borrower and

Guarantor (excluding UK Borrower).

 

(c)               The chief executive

office and mailing address of each Borrower and Guarantor and each Borrower’s

and Guarantor’s Records concerning Accounts are located only at the address

identified as such in Schedule 8.2 to the Information Certificate and its only

other places of business and the only other locations of Collateral, if any,

are the addresses set forth in Schedule 8.2 to the Information Certificate or

are in transit to one of the addresses set forth in Schedule 8.2 to the

Information Certificate, subject to the rights of any Borrower or Guarantor to

establish new locations in accordance with Section 9.2 below; provided, that,

Borrowers and Guarantors shall have the right to send Equipment out for repair

in the ordinary course of business and consistent with past practice so long as

such Equipment is promptly returned upon the completion of such repair to a

location set forth on Schedule 8.2 to the Information Certificate (as

supplemented by new locations established in accordance with Sections

9.2).  The Information Certificate

correctly identifies any of such locations which are not owned by a Borrower or

Guarantor and sets forth the owners and/or operators thereof.

 

8.3                                 Financial Statements; No Material

Adverse Change.  All financial

statements relating to any Borrower or Guarantor and the Purchased Stock which

have been or may hereafter be delivered by any Borrower or Guarantor to Agent

and Lenders have been prepared in accordance with GAAP (except as to any

interim financial statements, to the extent such statements are subject to

normal yearend adjustments and do not include any notes) and fairly present in

all material respects the financial condition and the results of operation of

such Borrower and Guarantor and the Purchased Stock as at the dates and for the

periods set forth therein.  Except as

disclosed in any interim financial statements furnished by Borrowers and

Guarantors to Agent prior to the date of this Agreement, there has been no act,

condition or event which has had or is reasonably likely to have a Material

Adverse Effect since the

 

71

 

date of the most recent audited financial

statements of any Borrower or Guarantor and the Purchased Stock furnished by

any Borrower or Guarantor to Agent prior to the date of this Agreement.  The execution and delivery of the Purchase

Agreements and the consummation of the transactions contemplated thereby do not

and will not result in (a) any violation by any Borrower or Guarantor of any

provisions of the Worker Adjustment and Retraining Notification Act (or any

similar law) or (b) any liability to any Borrower or Guarantor under such Act

(or similar law) or under any pension plan, benefits plan, severance plan or

union contract.  The aggregate amount of

Past Due Affiliated Accounts Receivables outstanding as of March 27, 2003 is

the US Dollar Equivalent of US$196,206. 

The aggregate amount of Italian Affiliated Accounts Payable outstanding

as of March 27, 2003 is the US Dollar Equivalent of US$8,200,000.

 

8.4                                 Priority of Liens; Title to Properties.  The security interests and liens granted to

Agent under this Agreement and the other Financing Agreements constitute valid

and perfected first priority liens and security interests in and upon the

Collateral subject only to the liens indicated on Schedule 8.4 to the

Information Certificate and the other liens permitted under Section 9.8 hereof;

provided, that, solely for purposes of this sentence, the term

“Collateral” shall not be deemed to include the property described in clause

(o) of Section 5.1 that is not described in any other clause of Section 5.1

(the “Specified Collateral”) or any products or proceeds of any of the

Specified Collateral in any form. Each Borrower and Guarantor has good and

marketable fee simple title to or valid leasehold interests in all of its Real

Property and good, valid and merchantable title to all of its other properties

and assets subject to no liens, mortgages, pledges, security interests,

encumbrances or charges of any kind, except those granted to Agent and such others

as are specifically listed on Schedule 8.4 to the Information Certificate or

permitted under Section 9.8 hereof.

 

8.5                                 Tax Returns. 

Except as set forth on Schedule 8.5 to the Information Certificate, each

Borrower and Guarantor has filed, or caused to be filed, in a timely manner all

material tax returns, reports and declarations which are required to be filed

by it.  All information in such tax

returns, reports and declarations is complete and accurate in all material

respects.  Each Borrower and Guarantor

has paid or caused to be paid all material taxes due and payable or claimed due

and payable in any assessment received by it, except (a) taxes the validity of

which are being contested in good faith by appropriate proceedings diligently

pursued and available to such Borrower or Guarantor and with respect to which

adequate reserves have been set aside on its books and (b) taxes for which a

valid extension to file the applicable tax returns have been granted.  Adequate provision has been made for the

payment of all material accrued and unpaid Federal, State, county, local,

foreign and other taxes whether or not yet due and payable and whether or not

disputed.

 

8.6                                 Litigation. 

Except as set forth on Schedule 8.6 to the Information Certificate, (a)

there is no investigation by any Governmental Authority pending, or to the best

of any Borrower’s or Guarantor’s knowledge threatened, against or affecting any

Borrower or Guarantor, its or their assets or business, or the Purchased Stock

and (b) there is no action, suit, proceeding or claim by any Person pending, or

to the best of any Borrower’s or Guarantor’s knowledge threatened, against the

Purchased Stock, any Borrower or Guarantor or its or their assets or goodwill,

or against or affecting any

 

72

 

transactions contemplated by this Agreement,

in each case, which if adversely determined against such Borrower or Guarantor

has or could reasonably be expected to have a Material Adverse Effect.

 

8.7                                 Compliance with Other Agreements

and Applicable Laws.

 

(a)               Borrowers and

Guarantors are not in default in any respect under, or in violation in any

material respect of the terms of, any Material Contract.  Borrowers and Guarantors are in compliance

with the requirements of all applicable laws, rules, regulations and orders of

any Governmental Authority relating to their respective businesses, including,

without limitation, those set forth in or promulgated pursuant to the

Occupational Safety and Health Act of 1970, as amended, the Fair Labor

Standards Act of 1938, as amended, ERISA, the Code, as amended, and the rules

and regulations thereunder, and all Environmental Laws, except where the

failure to so comply would not reasonably be expected to have a Material

Adverse Effect.

 

(b)              Borrowers and

Guarantors have obtained all material permits, licenses, approvals, consents,

certificates, orders or authorizations of any Governmental Authority required

for the lawful conduct of its business (the “Permits”), except that as to Permits

required under Environmental Laws, such Permits have been obtained in

accordance with Section 8.8(d).  All of

the Permits are valid and subsisting and in full force and effect.  There are no actions, claims or proceedings

pending or to the best of any Borrower’s or Guarantor’s knowledge, threatened

that seek the revocation, cancellation, suspension or modification of any of

the Permits.

 

(c)               No consent,

approval or other action of, or filing with, or notice to any Governmental

Authority is required in connection with the execution, delivery and

performance of this Agreement, the other Financing Agreements or any of the

instruments or documents to be delivered pursuant hereto or thereto, except for

the filing of UCC financing statements and similar instruments.

 

8.8                                 Environmental Compliance.

 

(a)               Except as set forth

on Schedule 8.8 to the Information Certificate, Borrowers, Guarantors or any

Subsidiary of any Borrower or Guarantor have not generated, used, stored,

treated, transported, manufactured, handled, produced or disposed of any

Hazardous Materials, on or off its premises (whether or not owned by it) in any

manner which at any time violates any applicable Environmental Law or Permit,

except for such violations which could not reasonably be expected to result in

a Material Adverse Effect, and the operations of Borrowers, Guarantors or any

Subsidiary of any Borrower or Guarantor comply in all material respects with

all Environmental Laws and all Permits, except where the failure to so comply

could not be reasonably expected to have a Material Adverse Effect.

 

73

 

(b)              Except as set forth

on Schedule 8.8 to the Information Certificate, there has been no investigation

by any Governmental Authority or any proceeding, complaint, order, directive,

claim, citation or notice by any Governmental Authority or any other person nor

is any pending or to the best of any Borrower’s or Guarantor’s knowledge

threatened, with respect to any non-compliance with or violation of the

requirements of any Environmental Law by any Borrower or Guarantor or any

Subsidiary of any Borrower or Guarantor the release, spill or discharge,

threatened or actual, of any Hazardous Material or the generation, use,

storage, treatment, transportation, manufacture, handling, production or

disposal of any Hazardous Materials or any other environmental, occupational

health or safety matter, which could reasonably be expected to have a Material

Adverse Effect.

 

(c)               Except as set forth

on Schedule 8.8 to the Information Certificate, Borrowers, Guarantors and their

Subsidiaries have no material liability (contingent or otherwise) in connection

with a release, spill or discharge, threatened or actual, of any Hazardous

Materials or the generation, use, storage, treatment, transportation,

manufacture, handling, production or disposal of any Hazardous Materials which

could be reasonably expected to result in a Material Adverse Effect.

 

(d)              Except as set forth

on Schedule 8.8 to the Information Certificate, Borrowers, Guarantors and their

Subsidiaries have all Permits required to be obtained or filed in connection

with the operations of Borrowers and Guarantors under any Environmental Law and

all of such licenses, certificates, approvals or similar authorizations and

other Permits are valid and in full force and effect, except where the failure

to obtain or file could not be reasonably expected to have a Material Adverse

Effect.

 

8.9                                 Employee Benefits.

 

(a)               Each Plan is in

compliance in all material respects with the applicable provisions of ERISA,

the Code and other Federal or State law. 

Each Plan which is intended to qualify under Section 401(a) of the Code

has received a favorable determination letter from the Internal Revenue Service

and to the best of any Borrower’s or Guarantor’s knowledge, nothing has

occurred which would cause the loss of such qualification.  Each Borrower and its ERISA Affiliates have

made all required contributions to any Plan subject to Section 412 of the Code,

and no application for a funding waiver or an extension of any amortization

period pursuant to Section 412 of the Code has been made with respect to any

Plan.

 

(b)              There are no

pending, or to the best of any Borrower’s or Guarantor’s knowledge, threatened

claims (other than routine claims for benefits), actions or lawsuits, or action

by any Governmental Authority, with respect to any Plan.  There has been no non-exempt prohibited

transaction or violation of the fiduciary responsibility rules with respect to

any Plan which could be reasonably expected to result in any material liability

to any Borrower or Guarantor.

 

(c)               (i)  No ERISA Event has occurred and no

condition, event or circumstance exists that could be reasonably expected to

result in the occurrence of an ERISA Event; (ii) the current value

 

74

 

of the assets of each Plan subject to Title

IV of ERISA (determined in accordance with the assumptions used for funding

such Plan pursuant to Section 412 of the Code) are not less than such Plan’s

liabilities under Section 4001(a)(16) of ERISA; (iii) each Borrower and

Guarantor and their ERISA Affiliates have not incurred, and no condition, event

or circumstance exists that could be reasonably expected to result in, any

material liability under Title IV of ERISA with respect to any Plan (other than

premiums due and not delinquent under Section 4007 of ERISA); (iv) each

Borrower and Guarantor, and their ERISA Affiliates, have not incurred and do

not reasonably expect to incur, any liability (and no event has occurred which,

with the giving of notice under Section 4219 of ERISA, would result in such

liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer

Plan; and (v) each Borrower and Guarantor, and their ERISA Affiliates, have not

engaged in a transaction that would be subject to Section 4069 or 4212(c) of

ERISA.

 

8.10                           Bank Accounts. 

All of the deposit accounts, investment accounts or other accounts in

the name of or used by any Borrower or Guarantor maintained at any bank or

other financial institution are set forth on Schedule 8.10 to the Information

Certificate, subject to the right of each Borrower and Guarantor to establish

new accounts in accordance with Section 5.3 hereof.

 

8.11                           Intellectual Property.  Except as set forth on Schedule 8.11 to the

Information Certificate, to the knowledge of any Borrower and Guarantor, each

Borrower and Guarantor owns or licenses or otherwise has the right to use all

Intellectual Property necessary for the operation of its assets and its

business as presently conducted or proposed to be conducted.  As of the date hereof, Borrowers and

Guarantors do not have any Intellectual Property registered, or subject to

pending applications, in the United States Patent and Trademark Office or any

similar office or agency in the United States, any State thereof, any political

subdivision thereof or in any other country, other than those described in

Schedule 8.11 to the Information Certificate and have not granted any licenses

with respect thereto other than as set forth in Schedule 8.11 to the

Information Certificate.  Except as set

forth on Schedule 8.11 to the Information Certificate, no event has occurred

which permits or would permit after notice or passage of time or both, the

revocation, suspension or termination of such rights, other than the expiration

in the ordinary course of business of any license agreement pertaining to any

licensed Intellectual Property and the expiration of any registered

Intellectual Property in accordance with its terms.  To the knowledge of any Borrower and Guarantor, no slogan or

other advertising device, product, process, method, substance or other

Intellectual Property or goods bearing or using any Intellectual Property

presently contemplated to be sold by or employed by any Borrower or Guarantor

infringes any patent, trademark, servicemark, tradename, copyright, license or

other intellectual property owned by any other Person presently and no claim or

litigation is pending or, to the knowledge of any Borrower and Guarantor,

threatened against or affecting any Borrower or Guarantor contesting its right

to sell or use any such Intellectual Property. 

Schedule 8.11 to the Information Certificate sets forth all of the agreements

or other arrangements of each Borrower and Guarantor pursuant to which such

Borrower or Guarantor has a license (other than shrink wrap licenses available

in retail stores) or other right to use any trademarks, logos, designs,

representations or other Intellectual Property owned by another person as in

effect on the date hereof (collectively, together with such agreements or other

arrangements as may be entered into by any Borrower or Guarantor after the date

 

75

 

hereof the “License Agreements” and

individually, a “License Agreement”). 

No trademark, servicemark, copyright or other Intellectual Property at

any time used by any Borrower or Guarantor which is owned by another person, or

owned by such Borrower or Guarantor subject to any security interest, lien,

collateral assignment, pledge or other encumbrance in favor of any person other

than Agent, is affixed to any Eligible Inventory, except (a) to the extent

permitted under the term of the license agreements listed on Schedule 8.11 to

the Information Certificate and (b) to the extent the sale of Inventory to

which such Intellectual Property is affixed is permitted to be sold by such

Borrower or Guarantor under applicable law (including the United States

Copyright Act of 1976).

 

8.12                           Subsidiaries; Affiliates;

Capitalization; Solvency.

 

(a)               Each Borrower and

Guarantor does not have any direct or indirect Subsidiaries or Affiliates and

is not engaged in any joint venture or partnership except as set forth in

Schedule 8.12 to the Information Certificate.

 

(b)              Each Borrower and

Guarantor is the record and beneficial owner of all of the issued and

outstanding shares of Capital Stock of each of the Subsidiaries listed on

Schedule 8.12 to the Information Certificate as being owned by such Borrower or

Guarantor and there are no proxies, irrevocable or otherwise, with respect to

such shares and no equity securities of any of the Subsidiaries are or may

become required to be issued by reason of any options, warrants, rights to

subscribe to, calls or commitments of any kind or nature and there are no

contracts, commitments, understandings or arrangements by which any Subsidiary

is or may become bound to issue additional shares of it Capital Stock or

securities convertible into or exchangeable for such shares, except as set

forth in Schedule 8.12 to the Information Certificate.

 

(c)               The issued and

outstanding shares of Capital Stock of each Borrower and Guarantor are directly

and beneficially owned and held by the persons indicated in the Information

Certificate, and in each case all of such shares have been duly authorized and

are fully paid and non-assessable, free and clear of all claims, liens, pledges

and encumbrances of any kind, except as set forth in Schedule 8.12 to the

Information Certificate.

 

(d)              Each Borrower is

Solvent and will continue to be Solvent after the creation of the Obligations,

the security interests of Agent and the other transaction contemplated

hereunder and after giving effect to any rights of contribution which such

Borrower may have.

 

(e)               Sun Capital

Partners II, L.P. and/or its Affiliates, Randolph and HIG have, on or before

the date hereof, made a cash equity contribution to Parent in an aggregate

amount not less than $10,000,000, and the Subordinated Lenders have, on or

before the date hereof, made a cash contribution to US Borrower in the form of

a subordinated loan in an aggregate amount not less than $4,000,000, and the

proceeds of such cash equity capital contribution have been applied to pay the

purchase price for the Purchased Stock in accordance with Section 8.17.

 

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8.13                              Labor Disputes.

 

(a)               Set forth on

Schedule 8.13 to the Information Certificate is a list (including dates of

termination) of all collective bargaining or similar agreements between or

applicable to each Borrower and Guarantor and any union, labor organization or

other bargaining agent in respect of the employees of any Borrower or Guarantor

on the date hereof.

 

(b)              There is (i) no

material unfair labor practice complaint pending against any Borrower or

Guarantor or, to the best of any Borrower’s or Guarantor’s knowledge,

threatened against it, before the National Labor Relations Board (or similar

Governmental Authority), and no material grievance or material arbitration

proceeding arising out of or under any collective bargaining agreement is

pending on the date hereof against any Borrower or Guarantor or, to best of any

Borrower’s or Guarantor’s knowledge, threatened against it, and (ii) no

material strike, labor dispute, slowdown or stoppage is pending against any

Borrower or Guarantor or, to the best of any Borrower’s or Guarantor’s

knowledge, threatened against any Borrower or Guarantor.

 

8.14                           Restrictions on Subsidiaries.  Except as set forth in Schedule 8.14 hereto

and except for restrictions contained in this Agreement or any other agreement

with respect to Indebtedness of any Borrower or Guarantor permitted hereunder

as in effect on the date hereof, there are no contractual or consensual

restrictions on any Borrower or Guarantor or any of its Subsidiaries which

prohibit or otherwise restrict (a) the transfer of cash or other assets (i)

between any Borrower or Guarantor and any of its or their Subsidiaries or (ii)

between any Subsidiaries of any Borrower or Guarantor or (b) the ability of any

Borrower or Guarantor or any of its or their Subsidiaries to incur Indebtedness

or grant security interests to Agent or any Lender in the Collateral.

 

8.15                           Material Contracts.  Schedule 8.15 to the Information Certificate sets forth all

Material Contracts to which any Borrower or Guarantor is a party or is bound as

of the date hereof.  Borrowers and

Guarantors have delivered true, correct and complete copies of such Material

Contracts to Agent on or before the date hereof.  Borrowers and Guarantors are not in breach or in default in any

material respect of or under any Material Contract and have not received any

notice of the intention of any other party thereto to terminate any Material

Contract.  Each Borrower and Guarantor

is a party to all contracts necessary for the operation of its business as

presently conducted, as conducted immediately prior to the date hereof or as

presently proposed to be conducted, except for those the failure to obtain

could not reasonably be expected to have a Material Adverse Effect.

 

8.16                           Payable Practices; Retention of Title.  Each Borrower and Guarantor have not made

any material change in the historical accounts payable practices from those in

effect immediately prior to the date hereof. 

As of the date hereof, none of the conditions of supply of any supplier

or other creditor of a Borrower or Guarantor include any retention of title or

Romalpa provisions which pertain to such Borrower or Guarantor.

 

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8.17                           Acquisition of Purchased Stock.

 

(a)               The Purchase

Agreements and the transactions contemplated thereunder have been duly

executed, delivered and performed in accordance with their terms by the

respective parties thereto in all material respects, including the fulfillment

(not merely the waiver, except as may be disclosed to Agent and consented to in

writing by Agent) of all conditions precedent set forth therein and giving

effect to the terms of the Purchase Agreements and the assignments executed and

delivered by Sellers (or any of their affiliates or subsidiaries) thereunder,

Parent has acquired and has good and marketable title to the Purchased Stock,

free and clear of all claims, liens, pledges and encumbrances of any kind,

except as permitted hereunder.

 

(b)              All actions and

proceedings required (if any) of Borrowers or Guarantors by the Purchase

Agreements, applicable law or regulation (including, but not limited to,

compliance by Borrower, Guarantors, Parent and Sellers with the Hart-Scott-Rodino

Anti-Trust Improvements Act of 1976, as amended, and compliance by Borrowers

and Guarantors with the Worker Adjustment and Retaining Notification Act) have

been taken, the transactions required thereunder have been duly and validly

taken and consummated.

 

(c)               No court of

competent jurisdiction has issued any injunction, restraining order or other

order which prohibits the consummation of the transactions described in the

Purchase Agreements and no governmental or other action or proceeding has been

commenced or, to any Borrower’s knowledge, threatened, seeking any injunction,

restraining order or other order which seeks to void or otherwise modify the

transactions described in the Purchase Agreements.

 

(d)              US Borrower has

delivered, or caused to be delivered, to Agent, true, correct and complete

copies of the Purchase Agreements.

 

(e)               None of the

proceeds of any Loan have been used or shall be used for the purpose of

financing the acquisition of any shares of capital stock of US Borrower.  The Parent has used the proceeds of a cash

equity contribution contributed by Sun Capital Partners II, L.P. and/or its

Affiliates, Randolph and HIG to pay the entire purchase price for the Purchased

Stock.

 

8.18                           Accuracy and Completeness of

Information.  All information

furnished by or on behalf of any Borrower or Guarantor in writing to Agent or

any Lender in connection with this Agreement or any of the other Financing

Agreements or any transaction contemplated hereby or thereby, including all

information on the Information Certificate (but excluding any financial

projections for purposes of this Section 8.18) is true and correct in all

material respects on the date as of which such information is dated or

certified and does not omit any material fact necessary in order to make such

information not misleading in any material respect.  No event or circumstance has occurred since December 31, 2002

which has had or could reasonably be expected to have a Material Adverse Affect,

which has not been fully and accurately disclosed to Agent in writing prior to

the date hereof.

 

8.19                           Survival of Warranties; Cumulative.  All representations and warranties contained

in this Agreement or any of the other Financing Agreements shall survive the

execution and delivery of this

 

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Agreement and shall be deemed to have been

made again to Agent and Lenders on the date of each additional borrowing or

other credit accommodation hereunder and shall be conclusively presumed to have

been relied on by Agent and Lenders regardless of any investigation made or

information possessed by Agent or any Lender. 

The representations and warranties set forth herein shall be cumulative

and in addition to any other representations or warranties which any Borrower

or Guarantor shall now or hereafter give, or cause to be given, to Agent or any

Lender.

 

SECTION 9. 

AFFIRMATIVE AND NEGATIVE COVENANTS

 

9.1                               Maintenance of Existence.

 

(a)               Each Borrower and

Guarantor shall at all times preserve, renew and keep in full force and effect

its existence and rights and franchises with respect thereto and maintain in

full force and effect all licenses, trademarks, tradenames, approvals,

authorizations, leases, contracts and Permits necessary to carry on the

business as presently conducted, except as to any Guarantor permitted under

Section 9.7.

 

(b)              No Borrower or

Guarantor shall change its name unless each of the following conditions is

satisfied: (i) Agent shall have received not less than thirty (30) days prior

written notice from Administrative Borrower of such proposed change in its

corporate name, which notice shall accurately set forth the new name; and (ii)

Agent shall have received a copy of the amendment to the Articles of

Organization or Certificate of Incorporation (or similar organizational

documents) of such Borrower or Guarantor providing for the name change

certified by the Secretary of State (or similar Governmental Authority) of the

jurisdiction of incorporation or organization of such Borrower or Guarantor as

soon as it is available.

 

(c)               No Borrower or

Guarantor shall change its chief executive office or its mailing address or

organizational identification number (or if it does not have one, shall not

acquire one) unless Agent shall have received not less than thirty (30) days’

prior written notice from Administrative Borrower of such proposed change,

which notice shall set forth such information with respect thereto as Agent may

require and Agent shall have received such agreements as Agent may reasonably

require in connection therewith.  No

Borrower or Guarantor shall change its type of organization or jurisdiction of

organization.

 

9.2                                 New Collateral Locations.  US Borrower may open or occupy any new

location within the continental United States or the Netherlands, UK Borrower

may open or occupy any new location within the United Kingdom and each

Guarantor may open or occupy any new location within the United States, in each

case, provided, that, such Borrower or Guarantor (a) gives Agent thirty (30) days

prior written notice of the intended opening of any such new location and (b)

executes and delivers, or causes to be executed and delivered, to Agent such

agreements, documents, and

 

79

 

instruments as Agent may deem reasonably

necessary or desirable to perfect and protect its interests in the Collateral

at such location.

 

9.3                                 Compliance with Laws, Regulations, Etc.

 

(a)               Each Borrower and

Guarantor shall, and shall cause any Subsidiary to, at all times, comply in all

material respects with all laws, rules, regulations, licenses, approvals,

orders and other Permits applicable to it and duly observe all requirements of

any foreign, Federal, State or local Governmental Authority, including without

limitation, ERISA, the Code, the Occupational Safety and Health Act of 1970, as

amended, the Fair Labor Standards Act of 1938, as amended, and all

Environmental Laws ; provided, that, unless the failure to comply

with Environmental Laws could be reasonably expected to have a Material Adverse

Effect as determined by Agent in good faith, the failure by any Borrower or

Guarantor to comply with Environmental Laws in any material respect shall not

constitute a breach of this Section 9.3(a) so long as each of the following conditions

have been satisfied as determined by Agent in good faith: (i) such Borrower or

Guarantor is promptly and diligently taking actions in accordance with

applicable Environmental Laws to cure and remedy such non-compliance to the

extent required by Environmental Laws and adequate reserves have been

established on the books of such Borrower or Guarantor with respect thereto as

required in accordance with GAAP; (ii) such Borrower or Guarantor shall

promptly notify Agent in writing of such failure to comply and state whether or

not Sellers are liable for losses, costs and expenses in connection with such

failure, and (iii) the aggregate amounts incurred (or reasonably expected to be

incurred) by Borrowers and Guarantors in connection with such non-compliance

(whether remediation costs or otherwise) shall not exceed the US Dollar

Equivalent of US$500,000 during any twelve-month period.

 

(b)              Borrowers and

Guarantors shall give written notice to Agent promptly upon any Borrower’s or

Guarantor’s receipt of any written notice of, or any Borrower’s or Guarantor’s

otherwise obtaining knowledge of, (i) the occurrence of any event involving the

release, spill or discharge, threatened or actual, of any Hazardous Material by

any Borrower or Guarantor that is material or required to be reported to a

Governmental Authority under any Environmental Law or (ii) any investigation,

proceeding, complaint, order, directive, claims, citation or notice with

respect to: (A) any non-compliance with or violation of any Environmental Law

by any Borrower or Guarantor in any material respect or (B) the release, spill

or discharge, threatened or actual, of any Hazardous Material by any Borrower

or Guarantor other than in the ordinary course of business and other than as

permitted under any applicable Environmental Law. Copies of all material

environmental surveys, audits, assessments, feasibility studies and results of

remedial investigations shall be promptly furnished, or caused to be furnished,

by such Borrower or Guarantor to Agent.  Each Borrower and Guarantor shall take prompt action to respond to

any material non-compliance with any of the Environmental Laws and shall

regularly report to Agent on such response.

 

(c)               Without limiting

the generality of the foregoing, whenever Agent reasonably determines that

there is a violation, or any condition which requires any action by or on

behalf of any Borrower or Guarantor in order to avoid any violation, of any

Environmental Law in any material

 

80

 

respect, Borrowers shall, at Agent’s request

and Borrowers’ expense: (i) cause an independent environmental engineer

reasonably acceptable to Agent to conduct such tests of the site where a

violation or alleged violation of such Environmental Laws has occurred as to

the subject matter of such violation and prepare and deliver to Agent a report

as to the violation setting forth the results of such tests, a proposed plan

for responding to any violation of Environmental Laws described therein, and an

estimate of the costs thereof and (ii) provide to Agent a supplemental report

of such engineer whenever the scope of such violation, or such Borrower’s or

Guarantor’s response thereto or the estimated costs thereof, shall change in

any material respect.

 

(d)              Each Borrower and

Guarantor shall indemnify and hold harmless Agent and Lenders and their

respective directors, officers, employees, agents, invitees, representatives,

successors and assigns, from and against any and all losses, claims, damages,

liabilities, costs, and expenses (including reasonable attorneys’ fees and

expenses) directly or indirectly arising out of or attributable to the use,

generation, manufacture, reproduction, storage, release, threatened release,

spill, discharge, disposal or presence of a Hazardous Material, including the

costs of any required or necessary repair, cleanup or other remedial work with

respect to any property of any Borrower or Guarantor and the preparation and

implementation of any closure, remedial or other required plans (“Losses”)

except to the extent it is determined pursuant to a final non-appealable order

of a court of competent jurisdiction that the Losses were the result of acts or

omissions constituting gross negligence or willful misconduct of Agent or any Lender.  All representations, warranties, covenants

and indemnifications in this Section 9.3 shall survive the payment of the

Obligations and the termination of this Agreement.

 

9.4                                 Payment of Taxes and Claims.  Each Borrower and Guarantor shall, and shall

cause any Subsidiary to, duly pay and discharge when due all material taxes,

assessments, contributions and governmental charges upon or against it or its

properties or assets, except for taxes the validity of which are being

contested in good faith by appropriate proceedings diligently pursued and

available to such Borrower, Guarantor or Subsidiary, as the case may be, and

with respect to which adequate reserves have been set aside on its books.  Each Borrower and Guarantor shall be liable

for any tax or penalties imposed on Agent or any Lender as a result of the

financing arrangements provided for herein and each Borrower and Guarantor

agrees to indemnify and hold Agent harmless with respect to the foregoing, and

to repay to Agent, for the benefit of Lenders, on demand the amount thereof,

and until paid by such Borrower or Guarantor such amount shall be added and

deemed part of the Loans, provided, that, nothing contained

herein shall be construed to require any Borrower or Guarantor to pay any

income or franchise taxes attributable to the income of Lenders from any

amounts charged or paid hereunder to Lenders. The foregoing indemnity shall

survive the payment of the Obligations and the termination of this Agreement.

 

9.5                                 Insurance. 

Each Borrower and Guarantor shall, at all times, maintain with

financially sound and reputable insurers insurance with respect to the

Collateral against loss or damage and all other insurance of the kinds and in

the amounts customarily insured against or carried by corporations of

established reputation engaged in the same or similar businesses and similarly

situated.  Said policies of insurance

shall be reasonably satisfactory to Agent as to form, amount and insurer.  Borrowers and

 

81

 

Guarantors shall furnish certificates,

policies or endorsements to Agent as Agent shall reasonably require as proof of

such insurance, and, if any Borrower or Guarantor fails to do so, Agent is

authorized, but not required, to obtain such insurance at the expense of

Borrowers.  All policies shall provide

for at least thirty (30) days prior written notice to Agent of any cancellation

or reduction of coverage and that Agent may act as attorney for each Borrower

and Guarantor in obtaining, and at any time an Event of Default exists or has

occurred and is continuing, adjusting, settling, amending and canceling such

insurance.  Borrowers and Guarantors

shall cause Agent to be named as a loss payee and an additional insured (but

without any liability for any premiums) under such insurance policies and

Borrowers and Guarantors shall obtain non-contributory lender’s loss payable

endorsements to all insurance policies in form and substance satisfactory to

Agent.  Such lender’s loss payable

endorsements shall specify that the proceeds of such insurance (if such

proceeds exceed $10,000 during any calendar year) shall be payable to Agent as

its interests may appear and further specify that Agent and Lenders shall be

paid regardless of any act or omission by any Borrower, Guarantor or any of its

or their Affiliates. At its option, Agent may apply any insurance proceeds

received by Agent at any time to the cost of repairs or replacement of

Collateral and/or to payment of the Obligations, whether or not then due, in any

order and in such manner as Agent may determine or hold such proceeds as cash

collateral for the Obligations.

 

9.6                                 Financial Statements and Other

Information.

 

(a)               Each Borrower and

Guarantor shall, and shall cause any Subsidiary to, keep proper books and records

in which true and complete entries shall be made of all dealings or

transactions of or in relation to the Collateral and the business of such

Borrower, Guarantor and its Subsidiaries in accordance with GAAP.  Borrowers and Guarantors shall promptly

furnish to Agent and Lenders all such financial and other information as Agent

shall reasonably request relating to the Collateral and the assets, business

and operations of Borrowers and Guarantors, and Borrowers and Guarantors shall

notify the auditors and accountants of Borrowers and Guarantors that Agent is

authorized to obtain such information directly from them.  Without limiting the foregoing, Borrowers

and Guarantors shall furnish or cause to be furnished to Agent, the following:

(i) within thirty (30) days after the end of each fiscal month, monthly

unaudited consolidated financial statements, and unaudited consolidating

financial statements (including in each case balance sheets, statements of

income and loss, statements of cash flow, and statements of shareholders’

equity), all in reasonable detail, fairly presenting in all material respects

the financial position and the results of the operations of US Borrower and its

Subsidiaries as of the end of and through such fiscal month, certified to be correct

by the chief financial officer of US Borrower, subject to normal year-end

adjustments and no footnotes and accompanied by a compliance certificate

substantially in the form of Exhibit C hereto, along with a schedule in a form

satisfactory to Agent of the calculations used in determining, as of the end of

such month, whether Borrowers and Guarantors are in compliance with the

covenants set forth in Sections 9.17, 9.18 and 9.19 of this Agreement for such

month, (ii) within forty-five (45) days after the end of each fiscal quarter,

quarterly unaudited consolidated financial statements, and unaudited

consolidating financial statements (including in each case balance sheets,

statements of income and loss, statements of cash flow, and statements of

shareholders’ equity), all in reasonable detail, fairly presenting in all

material respects the financial

 

82

 

position and the results of the operations of

US Borrower and its Subsidiaries as of the end of and through such fiscal

quarter, certified to be correct by the chief financial officer of US Borrower,

subject to normal year-end adjustments and no footnotes and accompanied by a

compliance certificate substantially in the form of Exhibit C hereto, along

with a schedule in a form satisfactory to Agent of the calculations used in

determining, as of the end of such quarter, whether Borrowers and Guarantors

are in compliance with the covenants set forth in Sections 9.17, 9.18 and 9.19

of this Agreement for such quarter and (iii) within one hundred twenty (120)

days after the end of each fiscal year, commencing with the fiscal year ending

December 31, 2003, audited consolidated financial statements and unaudited

consolidating financial statements of US Borrower and its Subsidiaries

(including in each case balance sheets, statements of income and loss,

statements of cash flow, and statements of shareholders’ equity), and the

accompanying notes thereto, all in reasonable detail, fairly presenting in all

material respects the financial position and the results of the operations of

US Borrower and its Subsidiaries as of the end of and for such fiscal year,

together with the opinion of independent certified public accountants (which

shall not contain a scope or a going concern qualification) with respect to the

audited consolidated financial statements, which accountants shall be an

independent accounting firm selected by Borrowers and acceptable to Agent, that

such audited consolidated financial statements have been prepared in accordance

with GAAP, and present fairly in all material respects the results of

operations and financial condition of US Borrower and its Subsidiaries as of

the end of and for the fiscal year then ended.

 

(b)              Borrowers and

Guarantors shall promptly notify Agent in writing (or, solely in the case of

clause (vii) below, telephonically) of the details of (i) any loss, damage,

investigation, action, suit, proceeding or claim relating to Collateral having

a value of more than the US Dollar Equivalent of US$200,000 or which if

adversely determined would result in any material adverse change in any

Borrower’s or Guarantor’s business, properties, assets, goodwill or condition,

financial or otherwise, (ii) any Material Contract being terminated or amended

in any material adverse respect or any new Material Contract entered into (in

which event Borrowers and Guarantors shall provide Agent with a copy of such

Material Contract), (iii) any order, judgment or decree in excess of the US

Dollar Equivalent of US$200,000 shall have been entered against any Borrower or

Guarantor any of its or their properties or assets, (iv) any notification of a

material violation of laws or regulations received by any Borrower or

Guarantor, (v) any ERISA Event, (vi) the occurrence of any Default or Event of

Default and (vii) any material events, developments or occurrences with respect

to the EAW Fire Proceeding.

 

(c)               Promptly upon

becoming aware of the same, Borrowers and Guarantors shall notify Agent in

writing of any supplier or other creditor whose arrangements include any

retention of title liens or other rights with respect to any goods supplied to

any Borrower or Guarantor.  Borrowers

and Guarantors shall promptly after the sending or filing thereof furnish or

cause to be furnished to Agent copies of all reports which any Borrower or

Guarantor sends to its stockholders generally and copies of all reports and

registration statements which any Borrower or Guarantor files with the

Securities and Exchange Commission, any national securities exchange or the

National Association of Securities Dealers, Inc. or similar securities

commission or exchange.

 

83

 

(d)              Borrowers and

Guarantors shall furnish or cause to be furnished to Agent annual projected

financial statements (prepared on a monthly basis) and such other budgets,

forecasts, projections and other information respecting the Collateral and the

business of Borrowers and Guarantors, as Agent may, from time to time,

reasonably request.  Agent and Lenders

acknowledge that any financial projections and forecasts delivered by any

Borrower or Guarantor (i) may contain projected results which could differ from

the actual results and (ii) will be prepared by such Borrower or Guarantor in

good faith, based upon assumptions that are reasonable in light of the

circumstances existing at the time such financial projections or forecasts are

prepared.  Agent is hereby authorized to

deliver a copy of any financial statement or any other information relating to

the business of Borrowers and Guarantors to any court or other Governmental

Authority or, subject to Section 13.9, to any Lender or Participant or

prospective Lender or Participant or any Affiliate of any Lender or

Participant. Each Borrower and Guarantor hereby irrevocably authorizes and

directs all accountants or auditors to deliver to Agent, at Borrowers’ expense,

copies of the financial statements of any Borrower and Guarantor and any

reports or management letters prepared by such accountants or auditors on

behalf of any Borrower or Guarantor and to disclose to Agent and Lenders such

information as they may have regarding the business of any Borrower and

Guarantor.  Any documents, schedules,

invoices or other papers delivered to Agent or any Lender may be destroyed or

otherwise disposed of by Agent or such Lender one (1) year after the same are

delivered to Agent or such Lender, except as otherwise designated by

Administrative Borrower to Agent or such Lender in writing.

 

9.7                                 Sale of Assets, Consolidation, Merger,

Dissolution, Etc.  Each

Borrower and Guarantor shall not directly or indirectly,

 

(a)               merge into or with

or consolidate with any other Person or permit any other Person to merge into

or with or consolidate with it except  that any Guarantor may

merge with and into or consolidate with any other Guarantor, provided, that,

each of the following conditions is satisfied as determined by Agent in good

faith:  (i) Agent shall have received

not less than ten (10) Business Days’ prior written notice of the intention of

such Guarantors to so merge or consolidate, which notice shall set forth in

reasonable detail satisfactory to Agent, the persons that are merging or

consolidating, which person will be the surviving entity, the locations of the

assets of the persons that are merging or consolidating, and the material

agreements and documents relating to such merger or consolidation, (ii) Agent

shall have received such other information with respect to such merger or

consolidation as Agent may reasonably request, (iii) as of the effective date

of the merger or consolidation and after giving effect thereto, no Default or

Event of Default shall exist or have occurred and be continuing, (iv) Agent

shall have received, true, correct and complete copies of all agreements,

documents and instruments relating to such merger or consolidation, including,

but not limited to, the certificate or certificates of merger to be filed with

each appropriate Secretary of State (with a copy as filed promptly after such

filing), (v) the surviving corporation shall expressly confirm, ratify and

assume the Obligations and the Financing Agreements to which it is a party in

writing, in form and substance satisfactory to Agent, and Borrowers and

Guarantors shall execute and deliver such other agreements, documents and

instruments as Agent may request in connection therewith;

 

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(b)              sell, assign, lease,

transfer, abandon or otherwise dispose of any Capital Stock or Indebtedness to

any other Person or any of its assets to any other Person, except  for

 

(i)                           sales

of Inventory in the ordinary course of business,

 

(ii)                        the sale

or other disposition of Equipment (including worn-out or obsolete Equipment or

Equipment no longer used or useful in the business of any Borrower or

Guarantor) so long as such sales or other dispositions do not involve Equipment

having an aggregate fair market value in excess of the US Dollar Equivalent of

US$500,000 for all such Equipment disposed of in any fiscal year of Borrowers

or as Agent may otherwise agree ; provided, that, all Net Cash

Proceeds from any such sale or other disposition shall be promptly paid to

Agent to be applied to the outstanding principal amount of Revolving Loans,

which amounts may be reborrowed in accordance with the terms hereof,

 

(iii)                     the issuance

and sale by any Borrower or Guarantor of Capital Stock of such Borrower or

Guarantor after the date hereof; provided, that, (A) Agent shall

have received not less than ten (10) Business Days’ prior written notice of

such issuance and sale by such Borrower or Guarantor, which notice shall

specify the parties to whom such shares are to be sold, the terms of such sale,

the total amount which it is anticipated will be realized from the issuance and

sale of such stock and the net cash proceeds which it is anticipated will be

received by such Borrower or Guarantor from such sale, (B) such Borrower or

Guarantor shall not be required to pay any cash dividends or repurchase or

redeem such Capital Stock or make any other payments in respect thereof, except

as otherwise permitted in Section 9.11 hereof, (C) the terms of such Capital

Stock, and the terms and conditions of the purchase and sale thereof, shall not

include any terms that include any limitation on the right of any Borrower to

request or receive Loans or Letter of Credit Accommodations or the right of any

Borrower and Guarantor to amend or modify any of the terms and conditions of

this Agreement or any of the other Financing Agreements or otherwise in any way

relate to or affect the arrangements of Borrowers and Guarantors with Agent and

Lenders or are more restrictive or burdensome to any Borrower or Guarantor than

the terms of any Capital Stock in effect on the date hereof, (D) except as

Agent may otherwise agree in writing, all of the proceeds of the sale and

issuance of such Capital Stock shall be paid to Agent for application to the

Obligations in such order and manner as Agent may determine or at Agent’s

option, to be held as cash collateral for the Obligations and (E) as of the

date of such issuance and sale and after giving effect thereto, no Default or

Event of Default shall exist or have occurred, and

 

(iv)                    the issuance

of Capital Stock of any Borrower or Guarantor consisting of common stock pursuant

to an employee stock option or grant or similar equity plan or 401(k) plans of

such Borrower or Guarantor for the benefit of its employees, directors and

consultants, provided, that, in no event shall such Borrower or

Guarantor be required to issue, or shall such Borrower or Guarantor issue,

Capital Stock pursuant to such stock plans or 401(k) plans which would result

in a Change of Control or other Event of Default;

 

85

 

(c)               wind up, liquidate

or dissolve except  that any Guarantor may wind up, liquidate and

dissolve, provided, that, each of the following conditions is

satisfied, (i) the winding up, liquidation and dissolution of such Guarantor

shall not violate any law or any order or decree of any court or other

Governmental Authority in any material respect and shall not conflict with or

result in the breach of, or constitute a default under, any indenture,

mortgage, deed of trust, or any other agreement or instrument to which any

Borrower or Guarantor is a party or may be bound, (ii) such winding up,

liquidation or dissolution shall be done in accordance with the requirements of

all applicable laws and regulations, 

(iii) effective upon such winding up, liquidation or dissolution, all of

the assets and properties of such Guarantor shall be duly and validly

transferred and assigned to a Borrower, free and clear of any liens,

restrictions or encumbrances other than the security interest and liens of

Agent (and Agent shall have received such evidence thereof as Agent may

require) and Agent shall have received such deeds, assignments or other

agreements as Agent may request to evidence and confirm the transfer of such

assets to of such Guarantor to a Borrower, 

(iv) Agent shall have received all documents and agreements that any

Borrower or Guarantor has filed with any Governmental Authority or as are

otherwise required to effectuate such winding up, liquidation or dissolution,

(v) no Borrower or Guarantor shall assume any Indebtedness, obligations or

liabilities as a result of such winding up, liquidation or dissolution, or

otherwise become liable in respect of any obligations or liabilities of the

entity that is winding up, liquidating or dissolving, unless such Indebtedness

is otherwise expressly permitted hereunder, (vi) Agent shall have received not

less than ten (10) Business Days prior written notice of the intention of such

Guarantor to wind up, liquidate or dissolve, and (vii) as of the date of such

winding up, liquidation or dissolution and after giving effect thereto, no

Default or Event of Default shall exist or have occurred; or

 

(d)              agree to do any of

the foregoing; provided, that, nothing in this Section 9.7(d)

shall prohibit any Borrower or Guarantor from entering into a non-binding

letter of intent with respect to any of the foregoing.

 

9.8                                 Encumbrances. 

Each Borrower and Guarantor shall not create, incur, assume or suffer to

exist any security interest, mortgage, pledge, lien, charge or other

encumbrance of any nature whatsoever on any of its assets or properties,

including the Collateral, except:

 

(a)               the security

interests and liens of Agent for itself and the benefit of Lenders with respect

to the assets of Borrowers and Guarantors (other than UK Borrower) and the

equitable assignment and fixed and floating charges of Agent with respect to

the assets of UK Borrower;

 

(b)              liens securing the

payment of taxes, assessments or other governmental charges or levies either

not yet overdue or the validity of which are being contested in good faith by appropriate

proceedings diligently pursued and available to such Borrower, or Guarantor or

Subsidiary, as the case may be and with respect to which adequate reserves have

been set aside on its books;

 

(c)               non-consensual

statutory liens (other than liens securing the payment of taxes) arising in the

ordinary course of such Borrower’s or Guarantor’s business to the extent: (i)

such liens secure

 

86

 

Indebtedness or other liabilities which are

not overdue, (ii) such liens secure Indebtedness relating to claims or

liabilities which are fully insured and being defended at the sole cost and

expense and at the sole risk of the insurer or being contested in good faith by

appropriate proceedings diligently pursued and available to such Borrower or

Guarantor (including, to the extent permissible under Dutch law, preventive

measures and subsequent court proceedings and hearings to prevent such liens

from existing or (iii) such liens secure Indebtedness or liabilities which are

not overdue and which consist of rights of retention or other rights of

priority of a warehouseman arising under operation of Dutch law with respect to

goods of US Borrower located in the Netherlands, in each case prior to the

commencement of foreclosure or other similar proceedings and with respect to

which adequate reserves have been set aside on its books; provided, that,

notwithstanding anything in this Agreement to the contrary, no Borrower or

Guarantor shall grant, pledge or create a possessory right of pledge in any of

its assets under the laws of the Netherlands;

 

(d)              zoning restrictions,

easements, licenses, covenants and other restrictions affecting the use of Real

Property which do not interfere in any material respect with the use of such Real

Property or ordinary conduct of the business of such Borrower or Guarantor as

presently conducted thereon or materially impair the value of the Real Property

which may be subject thereto;

 

(e)               purchase money

security interests in Equipment (including Capital Leases) and purchase money

mortgages on Real Property to secure Indebtedness permitted under Section

9.9(b) hereof;

 

(f)                 pledges and

deposits of cash by any Borrower or Guarantor after the date hereof in the

ordinary course of business in connection with workers’ compensation,

unemployment insurance and other types of social security benefits consistent

with the current practices of such Borrower or Guarantor as of the date hereof;

 

(g)              pledges and deposits

of cash by any Borrower or Guarantor after the date hereof to secure the

performance of tenders, bids, leases, trade contracts (other than for the

repayment of Indebtedness), statutory obligations and other similar obligations

in each case in the ordinary course of business consistent with the current

practices of such Borrower or Guarantor as of the date hereof; provided, that,

in connection with any performance bonds issued by a surety or other person,

the issuer of such bond shall have waived in writing any rights in or to, or

other interest in, any of the Collateral in an agreement, in form and substance

satisfactory to Agent;

 

(h)              liens arising from

(i) operating leases and the precautionary UCC financing statement filings in

respect thereof and (ii) equipment or other materials which are not owned by

any Borrower or Guarantor located on the premises of such Borrower or Guarantor

(but not in connection with, or as part of, the financing thereof) from time to

time in the ordinary course of business and consistent with current practices

of such Borrower or Guarantor and the precautionary UCC financing statement

filings in respect thereof;

 

87

 

(i)                  judgments and

other similar liens arising in connection with court proceedings that do not

constitute an Event of Default, provided, that, (i) such liens

are being contested in good faith and by appropriate proceedings diligently

pursued, (ii) adequate reserves or other appropriate provision, if any, as are

required by GAAP have been made therefor, (iii) a stay of enforcement of any

such liens is in effect and (iv) Agent may establish a Reserve with respect

thereto;

 

(j)                  liens and

security interests of U.S. Bank National Association on the assets of US

Borrower, Mackie Manufacturing and SIA to secure the Indebtedness permitted by

Section 9.9(k) hereof; provided, that such liens and security

interests shall be subordinate and junior to the liens and security interests

of Agent and shall otherwise be subject to the terms of the Intercreditor

Agreement;

 

(k)               the replacement of

any lien or security interest permitted by Section 9.8(j) hereof on the same

property subject to the lien so replaced without any increase in the amount or

change in the obligors of the Indebtedness secured thereby; provided, that,

(A) any such lien or security interest shall not secure any Indebtedness or

other liabilities except for the Indebtedness permitted by Section 9.9(i)

hereof and (B) the Agent shall have received an intercreditor agreement,

substantially in the form of the Intercreditor Agreement (or otherwise

acceptable to Agent), duly authorized, executed and delivered by the holder or

holders of such lien or security interest;

 

(l)                  liens and

security interests of the Warehouseman on the Inventory of US Borrower which is

in the possession or control of the Warehouseman solely to the extent: (i) such

liens and security interests secure accrued and unpaid fees and charges that

are owing by US Borrower to the Warehouseman and (ii) such fees and charges are

not overdue.

 

(m)            the security interests

and liens set forth on Schedule 8.4 to the Information Certificate.

 

9.9                                 Indebtedness. 

Each Borrower and Guarantor shall not incur, create, assume, become or

be liable in any manner with respect to, or permit to exist, any Indebtedness,

or guarantee, assume, endorse, or otherwise become responsible for (directly or

indirectly) any Indebtedness, except:

 

(a)               the Obligations;

 

(b)              purchase money

Indebtedness (including Capital Leases) arising after the date hereof to the

extent secured by purchase money security interests in Equipment (including

Capital Leases) and purchase money mortgages on Real Property not to exceed the

US Dollar Equivalent of US$2,500,000 in the aggregate at any time outstanding

so long as such security interests and mortgages do not apply to any property

of such Borrower or Guarantor other than the Equipment or Real Property so

acquired, and the Indebtedness secured thereby does not exceed the cost of the

Equipment or Real Property so acquired, as the case may be;

 

88

 

(c)               guarantees by any

Borrower or Guarantor of the Obligations of the other Borrowers or Guarantors

in favor of Agent for the benefit of Lenders;

 

(d)              the Indebtedness of

any Borrower or Guarantor to any other Borrower or Guarantor arising after the

date hereof pursuant to loans by any Borrower or Guarantor or any of its

Subsidiaries permitted under Section 9.10(g) or (h) hereof;

 

(e)               unsecured

Indebtedness of any Borrower or Guarantor arising after the date hereof to any

third person (but not to any other Borrower or Guarantor), provided, that, each

of the following conditions is satisfied as determined by Agent: (i) such

Indebtedness shall be on terms and conditions acceptable to Agent and shall be

subject and subordinate in right of payment to the right of Agent and Lenders

to receive the prior indefeasible payment and satisfaction in full payment of

all of the Obligations pursuant to the terms of an intercreditor agreement

between Agent and such third party, in form and substance satisfactory to

Agent, (ii) Agent shall have received not less than ten (10) days prior written

notice of the intention of such Borrower or Guarantor to incur such

Indebtedness, which notice shall set forth in reasonable detail satisfactory to

Agent the amount of such Indebtedness, the person or persons to whom such

Indebtedness will be owed, the interest rate, the schedule of repayments and

maturity date with respect thereto and such other information as Agent may

request with respect thereto, (iii) Agent shall have received true, correct and

complete copies of all agreements, documents and instruments evidencing or

otherwise related to such Indebtedness, (iv) except as Agent may otherwise

agree in writing, all of the proceeds of the loans or other accommodations

giving rise to such Indebtedness shall be paid to Agent for application to the

Obligations in such order and manner as Agent may determine or at Agent’s

option, to be held as cash collateral for the Obligations, (v) as of the date of

incurring such Indebtedness and after giving effect thereto, no Default or

Event of Default shall exist or have occurred and be continuing, (vi) such

Borrower and Guarantor shall not, directly or indirectly, (A) amend, modify,

alter or change the terms of such Indebtedness or any agreement, document or

instrument related thereto, except, that, such Borrower or Guarantor may, after

prior written notice to Agent, amend, modify, alter or change the terms thereof

so as to extend the maturity thereof, or defer the timing of any payments in

respect thereof, or to forgive or cancel any portion of such Indebtedness

(other than pursuant to payments thereof), or to reduce the interest rate or

any fees in connection therewith, or (B) redeem, retire, defease, purchase or

otherwise acquire such Indebtedness (except pursuant to regularly scheduled

payments permitted herein), or set aside or otherwise deposit or invest any

sums for such purpose, and (vii) Borrowers and Guarantors shall furnish to

Agent all notices or demands in connection with such Indebtedness either

received by any Borrower or Guarantor or on its behalf promptly after the

receipt thereof, or sent by any Borrower or Guarantor or on its behalf

concurrently with the sending thereof, as the case may be;

 

(f)                 the Indebtedness

of US Borrower to the Subordinated Lenders as evidenced by the Subordinated

Notes (as in effect on the date hereof); provided, that, each of

the following conditions is satisfied as determined by Agent:

 

89

 

(i)                           the

aggregate original principal amount of such Indebtedness shall not exceed

US$4,000,000 less the aggregate amount of all repayments, repurchases or

redemptions, whether optional or mandatory, in respect thereof,

 

(ii)                        such

Indebtedness shall be on terms and conditions acceptable to Agent and Agent

shall have received true, correct and complete copies of all agreements,

documents, and instruments evidencing or otherwise related to such

Indebtedness, including the Subordinated Notes, each as duly authorized,

executed and delivered by the parties thereto,

 

(iii)                     Agent shall

have received each Subordination Agreement, in form and substance satisfactory

to Agent, duly authorized, executed and delivered by the parties thereto,

 

(iv)                    such Indebtedness

shall be at all times unsecured,

 

(v)                       Borrowers

and Guarantors shall not, and shall not permit any of their Subsidiaries to,

make any payments with respect to such Indebtedness except (A) US Borrower may

make regularly scheduled non-cash capitalized interest payments in respect of

such Indebtedness in accordance with the terms of the Subordinated Note as in

effect on the date hereof, in the form of additional indebtedness having

substantially the same terms and (B) US Borrower may convert any or all of the

principal amount of such Indebtedness into shares of capital stock of US

Borrower which by its terms could not be subject to redemption, repurchase,

retirement, defeasance or sinking fund payments or the payment of cash

dividends (whether at the request of any holder of such capital stock or

otherwise) other than at the voluntary election of US Borrower,

 

(vi)                    such Borrower

and Guarantor shall not, directly or indirectly, (A) amend, modify, alter or

change the terms of such Indebtedness or any agreement, document or instrument

related thereto, except, that, such Borrower or Guarantor may, after prior

written notice to Agent, amend, modify, alter or change the terms thereof so as

to extend the maturity thereof, or defer the timing of any payments in respect

thereof, or to forgive or cancel any portion of such Indebtedness (other than

pursuant to payments thereof), or to reduce the interest rate or any fees in

connection therewith, or (B) redeem, retire, defease, purchase or otherwise

acquire such Indebtedness (except pursuant to regularly scheduled payments

permitted herein), or set aside or otherwise deposit or invest any sums for

such purpose, and

 

(vii)                 Borrowers and

Guarantors shall furnish to Agent all demands or material notices in connection

with such Indebtedness either received by any Borrower or Guarantor promptly

after the receipt thereof, or sent by any Borrower or Guarantor or on its

behalf concurrently with the sending thereof, as the case may be;

 

(g)              Indebtedness of

Borrowers and Guarantors under interest rate swap agreements, interest rate cap

agreements, interest rate collar agreements, interest rate exchange agreements

or similar contractual arrangements intended to protect such Person against

fluctuations in interest rates

 

90

 

and currency swap agreements, forward

currency purchase agreements or similar contractual arrangements intended to

protect such Person against fluctuations in currency exchange rates; provided,

that, (i) such arrangements are with banks or other financial institutions that

have combined capital and surplus and undivided profits of not less than the US

Dollar Equivalent of US $250,000,000 and are not for speculative purposes and

(ii) such Indebtedness shall be unsecured (but such Indebtedness may be

supported by Letter of Credit Accommodations issued pursuant to Section 2.2);

 

(h)              the Indebtedness set

forth on Schedule 9.9 to the Information Certificate which is not otherwise

permitted under this Section 9.9; provided, that, (i) Borrowers

and Guarantors may only make regularly scheduled payments of principal and

interest in respect of such Indebtedness in accordance with the terms of the

agreement or instrument evidencing or giving rise to such Indebtedness as in effect

on the date hereof, (ii) Borrowers and Guarantors shall not, directly or

indirectly, (A) amend, modify, alter or change the terms of such Indebtedness

or any agreement, document or instrument related thereto as in effect on the

date hereof except, that, Borrowers and Guarantors may, after

prior written notice to Agent, amend, modify, alter or change the terms thereof

so as to extend the maturity thereof, or defer the timing of any payments in

respect thereof, or to forgive or cancel any portion of such Indebtedness

(other than pursuant to payments thereof), or to reduce the interest rate or

any fees in connection therewith, or (B) redeem, retire, defease, purchase or

otherwise acquire such Indebtedness, or set aside or otherwise deposit or

invest any sums for such purpose, and (iii) Borrowers and Guarantors shall

furnish to Agent all notices or demands in connection with such Indebtedness

either received by any Borrower or Guarantor or on its behalf, promptly after

the receipt thereof, or sent by any Borrower or Guarantor or on its behalf,

concurrently with the sending thereof, as the case may be,

 

(i)                  Indebtedness of

Borrowers and Guarantors which refinances in full the Indebtedness permitted

under Section 9.9(k) (the “Refinanced Indebtedness”), provided, that,

each of the following conditions is satisfied as determined by Agent in good

faith: (i) the aggregate principal amount of such Indebtedness shall not exceed

the outstanding principal amount of the Refinanced Indebtedness, (ii) Borrowers

and Guarantors shall not, and shall not permit any of their Subsidiaries to,

directly or indirectly, make (or be required to make) any payments in respect

of such Indebtedness other than payments of amounts which would have otherwise

been payable in respect to the Indebtedness permitted under Section 9.9(k),

(iii) the terms and conditions of such Indebtedness shall not be more

restrictive or onerous than those contained in the Junior Loan Documents as in

effect on the date hereof, (iv) Agent shall have received an intercreditor

agreement, substantially in the form of the Intercreditor Agreement (or

otherwise acceptable to Agent), duly authorized, executed and delivered by the

holder or holders of such Indebtedness, (v) Agent shall have received not less

than ten (10) days prior written notice of the intention of such Borrowers or

Guarantors to incur such Indebtedness, which notice shall set forth in

reasonable detail satisfactory to Agent the amount of such Indebtedness, the

person or persons to whom such Indebtedness will be owed, the interest rate,

the schedule of repayments and maturity date with respect hereto and such other

information as Agent may request with respect thereto, (vi) Agent shall have

received true, correct and complete copies of all agreements, documents and

instruments evidencing or otherwise related to such Indebtedness, (vii) all of

the net

 

91

 

proceeds of the loans or other accommodations

giving rise to such Indebtedness remaining after the repayment of the

Refinanced Indebtedness shall be paid to Agent for application to the

Obligations in such order as Agent may determine, (viii) Borrowers and

Guarantors shall not, directly or indirectly, amend, modify, alter or change

the terms of such Indebtedness or any agreement, document or instrument related

thereto, except, that, Borrower and Guarantors may, after prior

written notice to Agent, amend, modify, alter or change the terms thereof so as

to extend the maturity thereof, or defer the timing of any payments in respect

thereof, or to forgive or cancel any portion of such Indebtedness (other than

pursuant to payments thereof), or to reduce the interest rate or any fees in

connection therewith, or  redeem, retire,

defease, purchase or otherwise acquire such Indebtedness (except pursuant to

regularly scheduled payments permitted herein), or set aside or otherwise

deposit or invest any sums for such purpose, and (ix) Borrowers and Guarantors

shall furnish to Agent all notices or demands in connection with such

Indebtedness either received by any Borrower or Guarantor or on its behalf

promptly after the receipt thereof, or sent by any Borrower or Guarantor or on

its behalf concurrently with the sending thereof, as the case may be;

 

(j)                  unsecured

Indebtedness of US Borrower arising pursuant to the redemption by US Borrower

of its common stock in accordance with Section 9.11(d); provided, that,

(i) the aggregate principal amount of such Indebtedness incurred in any fiscal

year shall not exceed the amount expressly permitted in Section 9.11(d), (ii)

no Borrower or Guarantor shall make, or be required to make, any payments in

respect of such Indebtedness other than regularly scheduled payments of

interest at a rate per annum not to exceed the Prime Rate plus 2%, (iii) Agent

shall have received a subordination agreement, in form and substance

satisfactory to Agent, duly executed and delivered by the holder or holders of

such Indebtedness, (iv) Borrowers and Guarantors shall not, directly or

indirectly, (A) amend, modify, alter or change the terms of such Indebtedness

or any agreement, document or instrument related thereto except, that,

the Borrowers and Guarantors may, after prior written notice to the Agent,

amend, modify, alter or change the terms thereof so as to extend the maturity

thereof, or defer the timing of any payments in respect thereof, or to forgive

or cancel any portion of such Indebtedness (other than pursuant to payments

thereof), or to reduce the interest rate or any fees in connection therewith, or

(B) redeem, retire, defease, purchase or otherwise acquire such Indebtedness,

or set aside or otherwise deposit or invest any sums for such purpose, and (v)

Borrowers and Guarantors shall furnish to the Agent all notices or demands in

connection with such Indebtedness either received by any Borrower or Guarantor

or on its behalf, promptly after the receipt thereof, or sent by any Borrower

or Guarantor or on its behalf, concurrently with the sending thereof, as the

case may be;

 

(k)               the Indebtedness of

US Borrower, Mackie Manufacturing and SIA to U.S. Bank National Association as

evidenced by the Junior Loan Documents (as in effect on the date hereof); provided,

that, each of the following conditions is satisfied as determined by

Agent:

 

(i)                           the

aggregate original principal amount of such Indebtedness shall not exceed

US$11,000,000 less the aggregate amount of all repayments, repurchases or

redemptions, whether optional or mandatory, in respect thereof,

 

92

 

(ii)                        such

Indebtedness shall be on terms and conditions acceptable to Agent and Agent

shall have received true, correct and complete copies of all agreements,

documents, and instruments evidencing or otherwise related to such

Indebtedness, each as duly authorized, executed and delivered by the parties

thereto,

 

(iii)                     Agent shall

have received the Intercreditor Agreement, in form and substance satisfactory

to Agent, duly authorized, executed and delivered by the parties thereto,

 

(iv)                    Borrowers and

Guarantors shall not, and shall not permit any of their respective Subsidiaries

to, make any payments with respect to such Indebtedness except for payments

expressly permitted by the terms of Section 3.2 of the Intercreditor Agreement;

 

(v)                       Borrowers

and Guarantors shall not, directly or indirectly, (A) amend, modify, alter or

change the terms of such Indebtedness or any agreement, document or instrument

related thereto, except, that, Borrowers or Guarantors may, after

prior written notice to Agent, amend, modify, alter or change the terms thereof

so as to extend the maturity thereof, or defer the timing of any payments in

respect thereof, or to forgive or cancel any portion of such Indebtedness

(other than pursuant to payments thereof), or to reduce the interest rate or

any fees in connection therewith, or (B) redeem, retire, defease, purchase or

otherwise acquire such Indebtedness (except pursuant to regularly scheduled

payments permitted herein), or set aside or otherwise deposit or invest any

sums for such purpose, and

 

(vi)                    Borrowers and

Guarantors shall furnish to Agent all demands or material notices in connection

with such Indebtedness either received by any Borrower or Guarantor promptly

after the receipt thereof, or sent by any Borrower or Guarantor or on its

behalf concurrently with the sending thereof, as the case may be;

 

(l)                  the Indebtedness

of US Borrower to KBC Bank, N.V. as evidenced by the Belgian Guarantee (as in

effect on the date hereof); provided, that, each of the following

conditions is satisfied as determined by Agent:

 

(i)                           the

aggregate maximum principal amount of such Indebtedness shall not exceed

580,000 Euros less the aggregate amount of all repayments, repurchases or

redemptions, whether optional or mandatory, in respect thereof, plus interest,

fees and expenses,

 

(ii)                        such

Indebtedness shall be unsecured  and

Agent shall have received true, correct and complete copies of all agreements,

documents, and instruments evidencing or otherwise related to such

Indebtedness, each as duly authorized, executed and delivered by the parties

thereto,

 

(iii)                     Borrowers and

Guarantors shall not, directly or indirectly, (A) amend, modify, alter or

change the terms of such Indebtedness or any agreement, document or instrument

related thereto, except, that, Borrowers or Guarantors may, after

prior written notice to Agent, amend, modify,

 

93

 

alter or change the terms thereof so as to

extend the maturity thereof, or defer the timing of any payments in respect

thereof, or to forgive or cancel any portion of such Indebtedness (other than

pursuant to payments thereof), or to reduce the interest rate or any fees in

connection therewith, or (B) redeem, retire, defease, purchase or otherwise

acquire such Indebtedness (except pursuant to regularly scheduled payments

permitted herein), or set aside or otherwise deposit or invest any sums for

such purpose, and

 

(iv)                    Borrowers and

Guarantors shall furnish to Agent all demands and material notices or demands

in connection with such Indebtedness either received by any Borrower or

Guarantor promptly after the receipt thereof, or sent by any Borrower or

Guarantor or on its behalf concurrently with the sending thereof, as the case

may be; and

 

(m)            Indebtedness of US

Borrower arising pursuant to the redemption by US Borrower of its common stock

in accordance with Section 9.11(d); provided, that, (i) the

aggregate principal amount of such Indebtedness incurred in any fiscal year

shall not exceed $1,000,000 (plus any non-cash capitalized interest on any such

outstanding Indebtedness to the extent permitted by clause (ii) below), (ii) no

Borrower or Guarantor shall make, or be required to make, any payments in

respect of such Indebtedness prior to the end of the then current term of this

Agreement except for regularly scheduled non-cash capitalized interest payments

in respect of such Indebtedness, (iii) the Borrowers and Guarantors shall not,

directly or indirectly, (A) amend, modify, alter or change the terms of such

Indebtedness or any agreement, document or instrument related thereto except,

that, the Borrowers and Guarantors may, after prior written notice to

the Agent, amend, modify, alter or change the terms thereof so as to extend the

maturity thereof, or defer the timing of any payments in respect thereof, or to

forgive or cancel any portion of such Indebtedness (other than pursuant to

payments thereof), or to reduce the interest rate or any fees in connection

therewith, or (B) redeem, retire, defease, purchase or otherwise acquire such

Indebtedness, or set aside or otherwise deposit or invest any sums for such

purpose, (iv) such Indebtedness shall be subject to, and subordinate in right

of payment to, the right of Agent and Lenders to receive the prior final

payment and satisfaction in full of all of the Obligations on terms and

conditions acceptable to Agent, (v) Agent shall have received a subordination

agreement, in form and substance satisfactory to Agent, duly authorized,

executed and delivered by each holder of such Indebtedness and (vi) the

Borrowers and Guarantors shall furnish to the Agent all notices or demands in

connection with such Indebtedness either received by any Borrower or Guarantor

or on its behalf, promptly after the receipt thereof, or sent by any Borrower

or Guarantor or on its behalf, concurrently with the sending thereof, as the

case may be.

 

9.10                           Loans, Investments, Etc.  Each Borrower and Guarantor shall not

directly or indirectly, make any loans or advance money or property to any

person, or invest in (by capital contribution, dividend or otherwise) or

purchase or repurchase the Capital Stock or Indebtedness or all or a

substantial part of the assets or property of any person, or form or acquire

any Subsidiaries, or agree to do any of the foregoing, except:

 

94

 

(a)               the endorsement of

instruments for collection or deposit in the ordinary course of business;

 

(b)              investments in cash

or Cash Equivalents, provided, that, except for investments in

cash in an amount not at any time to exceed the US Dollar Equivalent of

US$100,000 maintained in a bank account of US Borrower located in Japan, (i) no

Loans are then outstanding and (ii) the terms and conditions of Section 5.3

hereof shall have been satisfied with respect to the deposit account,

investment account or other account in which such cash or Cash Equivalents are

held;

 

(c)               the existing equity

investments of each Borrower and Guarantor as of the date hereof in its

Subsidiaries, provided, that, no Borrower or Guarantor shall have

any further obligations or liabilities to make any capital contributions or

other additional investments or other payments to or in or for the benefit of

any of such Subsidiaries;

 

(d)              loans and advances

by any Borrower or Guarantor to employees of such Borrower or Guarantor not to

exceed the principal amount of the US Dollar Equivalent of US$250,000 in the

aggregate at any time outstanding for: (i) reasonably and necessary

work-related travel or other ordinary business expenses to be incurred by such

employee in connection with their work for such Borrower or Guarantor and (ii)

reasonable and necessary relocation expenses of such employees (including home

mortgage financing for relocated employees);

 

(e)               stock or

obligations issued to any Borrower or Guarantor by any Person (or the

representative of such Person) in respect of Indebtedness of such Person owing

to such Borrower or Guarantor in connection with the insolvency, bankruptcy,

receivership or reorganization of such Person or a composition or readjustment

of the debts of such Person; provided, that, the original of any

such stock or instrument evidencing such obligations shall be promptly

delivered to Agent, upon Agent’s request, together with such stock power,

assignment or endorsement by such Borrower or Guarantor as Agent may request;

 

(f)                 obligations of

account debtors to any Borrower or Guarantor arising from Accounts which are

past due evidenced by a promissory note made by such account debtor payable to

such Borrower or Guarantor; provided, that, promptly upon the

receipt of the original of any such promissory note by such Borrower or

Guarantor, such promissory note shall be endorsed to the order of Agent by such

Borrower or Guarantor and promptly delivered to Agent as so endorsed; and

 

(g)              loans by US Borrower

or a Guarantor to another Borrower or Guarantor or to the Specified Foreign

Subsidiaries after the date hereof, provided, that,

 

(i)                           as to

all of such loans, (A) within thirty (30) days after the end of each fiscal

month, Borrowers shall provide to Agent a report in form satisfactory to Agent

of the outstanding amount of such loans as of the last day of the immediately

preceding month and indicating any loans made and payments received during the

immediately preceding month, (B) the Indebtedness arising

 

95

 

pursuant to any such loan shall not be

evidenced by a promissory note or other instrument, unless the single original

of such note or other instrument is promptly delivered to Agent to hold as part

of the Collateral, with such endorsement and/or assignment by the payee of such

note or other instrument as Agent may require, (C) as of the date of any such

loan and after giving effect thereto, the Borrower or Guarantor making such

loan shall be Solvent, and (D) as of the date of any such loan and after giving

effect thereto, no Default or Event of Default shall exist or have occurred and

be continuing,

 

(ii)                        as to

loans by a Guarantor to a Borrower, (A) the Indebtedness arising pursuant to

such loan shall be subject to, and subordinate in right of payment to, the

right of Agent and Lenders to receive the prior final payment and satisfaction

in full of all of the Obligations on terms and conditions acceptable to Agent,

(B) promptly upon Agent’s request, Agent shall have received a subordination

agreement, in form and substance satisfactory to Agent, providing for the terms

of the subordination in right of payment of such Indebtedness of such Borrower

to the prior final payment and satisfaction in full of all of the Obligations,

duly authorized, executed and delivered by such Guarantor and such Borrower,

and (C) such Borrower shall not, directly or indirectly make, or be required to

make, any payments in respect of such Indebtedness prior to the end of the then

current term of this Agreement;

 

(iii)                     as to loans

by US Borrower to a Guarantor or another Borrower or to the Specified Foreign

Subsidiaries, as of the date of any such loan and after giving effect thereto,

(A) the Excess Availability of US Borrower shall be not less than the US Dollar

Equivalent of US$1,500,000, (B) no loans may be made by US Borrower to UK

Borrower at any time if the Excess Availability of UK Borrower is greater than

zero at such time, (C) the aggregate outstanding principal amount of all loans

made by US Borrower to UK Borrower shall not exceed the US Dollar Equivalent of

US $3,000,000 at any time and the proceeds of all such loans shall be used by

UK Borrower solely to pay its obligations and liabilities that are then due and

payable and (D) no such loans may be made to Mackie Designs (France) S.A. or

Mackie Designs (Deutschland) GmbH at any time on or after the Triggering Date;

 

(iv)                    as to loans by

US Borrower or a Guarantor to the Specified Foreign Subsidiaries, as of the

date of any such loan and after giving effect thereto, (A) all of the Specified

Foreign Subsidiaries (taken as a whole) shall not have cash or Cash Equivalents

in excess of the US Dollar Equivalent of US$750,000 for more than five consecutive

Business Days, (B) the aggregate outstanding principal amount of all such loans

to the Specified Foreign Subsidiaries shall not exceed the US Dollar Equivalent

of US$4,700,000 at any time, (C) at all times on and after the Triggering Date

the aggregate outstanding principal amount of all such loans to Mackie Designs

(Netherlands) B.V. shall not exceed the US Dollar Equivalent of US$2,800,000

and (D) any such loans to a Specified Foreign Subsidiary shall be used solely

for its working capital purposes (excluding payments in respect of

Indebtedness); provided, that, nothing contained in Section

9.10(g) shall restrict or otherwise limit the ability of the Specified Foreign

Subsidiaries to pay cash interest in respect of such loans or non-cash

capitalized interest payments in respect of such loans in the form of

additional indebtedness owing by the Specified Subsidiaries,;

 

96

 

(h)              loans to a Borrower

or Guarantor by a Subsidiary thereof that is neither a Borrower or Guarantor, provided,

that, as to all such loans, (i) within thirty (30) days after the end of

each fiscal month, Borrowers and Guarantors shall provide to Agent a report in

form satisfactory to Agent of the outstanding amount of such loans as of the last

day of the immediately preceding month and indicating any loans made and

payments received during the immediately preceding month, (ii) the Indebtedness

arising pursuant to such loans shall be subject to, and subordinate in right of

payment to, the right of Agent and Lenders to receive the prior final payment

and satisfaction in full of all of the Obligations on terms and conditions

acceptable to Agent, (iii) promptly upon Agent’s request, Agent shall have

received a subordination agreement, in form and substance satisfactory to

Agent, providing for the terms of the subordination in right of payment of such

Indebtedness of such Borrower or Guarantor to the prior final payment and

satisfaction in full of all of the Obligations, duly authorized, executed and

delivered by such Subsidiary, and (iv) such Borrower or Guarantor shall not,

directly or indirectly make, or be required to make, any payments in respect of

such Indebtedness prior to the end of the then current term of this Agreement.

 

(i)                  the loans and

advances set forth on Schedule 9.10 to the Information Certificate; provided,

that, as to such loans and advances, Borrowers and Guarantors shall not,

directly or indirectly, amend, modify, alter or change the terms of such loans

and advances or any agreement, document or instrument related thereto and

Borrowers and Guarantors shall furnish to Agent all notices or demands in

connection with such loans and advances either received by any Borrower or

Guarantor or on its behalf, promptly after the receipt thereof, or sent by any

Borrower or Guarantor or on its behalf, concurrently with the sending thereof,

as the case may be; and

 

(j)                  the formation of

new Subsidiaries incorporated or formed outside of the United States of America

or any state thereof; provided, that (i) no Borrower or Guarantor

shall at any time make any capital contributions or investments or other

payments to or in or for the benefit of any such Subsidiaries and (ii) no

Borrower or Guarantor shall have any liability (whether by contract, operation

of law or otherwise) in respect of the indebtedness and obligations of any such

Subsidiary;

 

(k)               loans by UK

Borrower to the Subsidiaries of US Borrower that are incorporated or formed

outside of the United States of America or any state thereof; provided, that

(i) the proceeds of such loans shall be immediately used by such Subsidiaries

to pay obligations and other liabilities owing to US Borrower by such

Subsidiaries, whether or not then due and payable, (ii) the proceeds of such

loans shall be remitted by UK Borrower directly to US Borrower (it being

understood that no such Subsidiaries shall receive any cash proceeds of such

loans at any time); and (iii) the Indebtedness arising pursuant to any such

loan shall not be evidenced by a promissory note or other instrument unless the

single original of such note or other instrument is promptly delivered to Agent

to hold as part of the Collateral, with such endorsement and/or assignment by

the payee of such note or other instrument as Agent may require;

 

(l)                  loans and

advances made prior to the date hereof and outstanding as of the date hereof

(i) to Mackie Designs (Netherlands) B.V. in the aggregate principal amount of

US$1,300,000

 

97

 

and (ii) to Mackie Designs Engineering

Services BVBA in the aggregate principal amount of US$660,000;

 

(m)            sales of goods by any

Borrower or Guarantor in the ordinary course of business (whether for cash or

on credit) so long as any such sale and any such credit do not contravene or

breach any other terms or provisions of this Agreement; and

 

(n)              the payment by US

Borrower to KBC Bank N.V. pursuant to the Belgian Guaranty, to the extent

permitted by Section 9.9(l), together with any rights of subrogation arising in

favor of US Borrower as a result of such payment

 

9.11                           Dividends and Redemptions.  Each Borrower and Guarantor shall not,

directly or indirectly, declare or pay any dividends on account of any shares

of class of any Capital Stock of such Borrower or Guarantor now or hereafter

outstanding, or set aside or otherwise deposit or invest any sums for such

purpose, or redeem, retire, defease, purchase or otherwise acquire any shares

of any class of Capital Stock (or set aside or otherwise deposit or invest any

sums for such purpose) for any consideration or apply or set apart any sum, or

make any other distribution (by reduction of capital or otherwise) in respect

of any such shares or agree to do any of the foregoing, except  that:

 

(a)               any Borrower or

Guarantor may declare and pay such dividends or redeem, retire, defease,

purchase or otherwise acquire any shares of any class of Capital Stock for

consideration in the form of shares of common stock (so long as after giving

effect thereto no Change of Control or other Default or Event of Default shall

exist or occur);

 

(b)              Borrowers and

Guarantors may pay dividends to the extent permitted in Section 9.12 below;

 

(c)               any Subsidiary of a

Borrower or Guarantor may pay dividends to a Borrower; and

 

(d)              US Borrower may

repurchase Capital Stock consisting of its common stock held by employees

pursuant to any employee stock ownership plan thereof upon the termination,

retirement or death of any such employee in accordance with the provisions of

such plan, provided, that, as to any such repurchase, each of the

following conditions is satisfied: (i) as of the date of the payment for such

repurchase and after giving effect thereto, no Default or Event of Default

shall exist or have occurred and be continuing, (ii) such repurchase shall be paid

with funds legally available therefor either in cash or in the form of

Indebtedness permitted under Section 9.9(j), (iii) such repurchase shall not

violate any law or regulation or the terms of any indenture, agreement or

undertaking to which such Borrower or Guarantor is a party or by which such

Borrower or Guarantor or its or their property are bound, (iv) the aggregate

amount of all cash payments for such repurchases in any fiscal year shall not

exceed the US Dollar Equivalent of US$250,000 and (v) the aggregate amount of

all payments for such repurchases through the incurrence of subordinated

Indebtedness shall not exceed the US Dollar Equivalent of US$1,000,000 in any

fiscal year;

 

98

 

9.12                           Transactions with Affiliates.  Each Borrower and Guarantor shall not,

directly or indirectly:

 

(a)               purchase, acquire

or lease any property or services from, or sell, transfer or lease any property

or services to, any officer, director or other Affiliate of such Borrower or

Guarantor, except (i) for transfers of property expressly permitted under

Section 9.7 and loans and investments expressly permitted under Sections 9.9

and 9.10 and (ii) except for transfers in the ordinary course of and pursuant

to the reasonable requirements of such Borrower’s or Guarantor’s business (as

the case may be) and upon fair and reasonable terms no less favorable to such

Borrower or Guarantor than such Borrower or Guarantor would obtain in a

comparable arm’s length transaction with an unaffiliated person; provided,

that, with respect to accounts receivables of a Borrower or Guarantor

owing by an Affiliate thereof and existing on the date hereof, the payment

terms for such account receivables offered by Borrowers and Guarantors may be

longer than the payment terms offered by Borrowers and Guarantors to

unaffiliated account debtors; or

 

(b)              make any payments

(whether by dividend, loan or otherwise) of management, consulting or other

fees for management or similar services, or of any Indebtedness owing to any

officer, employee, shareholder, director or any other Affiliate of any Borrower

or Guarantor, except:

 

(i)                  reasonable

compensation to officers, employees and directors for services rendered to any

Borrower or Guarantor in the ordinary course of business;

 

(ii)               payments by a

Borrower or Guarantor to Sun Capital of a management fee in an aggregate amount

per calendar quarter not to exceed the greater of six (6%) percent of EBITDA of

US Borrower and its Subsidiaries for such fiscal quarter and US Dollar

Equivalent of US$100,000 (the “Quarterly Amount”); provided, that,

as to any such payment, as of the date of such payment and after giving effect

thereto, (A) no Event of Default has occurred and is continuing or would result

therefrom, and (B) the aggregate Excess Availability of Borrowers for the

thirty (30) consecutive days immediately preceding the date of such payment,

and the aggregate Excess Availability of Borrowers on the date of any such

payment and after giving effect thereto, shall, in each case, be not less than

the US Dollar Equivalent of US$1,500,000; provided, further, that,

if the aggregate amount of management fees paid by Borrowers and Guarantors

under this clause (ii) during any calendar quarter is less than the Quarterly

Amount for such fiscal quarter, then the Quarterly Amount for the succeeding

fiscal quarters shall be increased by the amount equal to such shortfall until

such shortfall is paid in full to Sun Capital pursuant to this Section

9.12(b)(ii); and

 

(iii)            reimbursement of

reasonable out-of-pocket costs and expenses incurred by Sun Capital and its

Affiliates for the direct benefit of Borrowers and Guarantors in the ordinary

course of and pursuant to the reasonable requirements of their business; provided

that, as of the date of such reimbursement and after giving effect

thereto no Event of Default has occurred and is continuing or would result

therefrom.

 

99

 

9.13                           Compliance with ERISA.  Each Borrower and Guarantor shall, and shall

cause each of its ERISA Affiliates, to: (a) maintain each Plan in compliance in

all material respects with the applicable provisions of ERISA, the Code and

other Federal and State law; (b) cause each Plan which is qualified under

Section 401(a) of the Code to maintain such qualification; (c) not terminate

any of such Plans so as to incur any material liability to the Pension Benefit

Guaranty Corporation; (d) not allow or suffer to exist any prohibited

transaction involving any of such Plans or any trust created thereunder which

would subject such Borrower, Guarantor or such ERISA Affiliate to a material

tax or penalty or other liability on prohibited transactions imposed under

Section 4975 of the Code or ERISA; (e) make all required contributions to any

Plan which it is obligated to pay under Section 302 of ERISA, Section 412 of

the Code or the terms of such Plan; (f) not allow or suffer to exist any

accumulated funding deficiency, whether or not waived, with respect to any such

Plan; or (g) allow or suffer to exist any occurrence of a reportable event or

any other event or condition which presents a material risk of termination by

the Pension Benefit Guaranty Corporation of any such Plan that is a single

employer plan, which termination could result in any material liability to the

Pension Benefit Guaranty Corporation.

 

9.14                           End of Fiscal Years; Fiscal Quarters.  Each Borrower and Guarantor shall, for

financial reporting purposes, cause its, and each of its Subsidiaries’ (a)

fiscal years to end on December 31, of each year and (b) fiscal quarters to end

on March, 31, June 30, September 30 and December 31 of each year.

 

9.15                           Change in Business.  Each Borrower and Guarantor shall not engage in any business

other than the business of such Borrower or Guarantor on the date hereof and

any business reasonably related, ancillary or complimentary to the business in

which such Borrower or Guarantor is engaged on the date hereof.

 

9.16                           Limitation of Restrictions

Affecting Subsidiaries.  Each

Borrower and Guarantor shall not, directly, or indirectly, create or otherwise

cause or suffer to exist any encumbrance or restriction which prohibits or

limits the ability of any Subsidiary of such Borrower or Guarantor which is

also a Borrower or Guarantor to (a) pay dividends or make other distributions

or pay any Indebtedness owed to such Borrower or Guarantor or any such

Subsidiary of such Borrower or Guarantor; (b) make loans or advances to such

Borrower or Guarantor or any such Subsidiary of such Borrower or Guarantor, (c)

transfer any of its properties or assets to such Borrower or Guarantor or any

such Subsidiary of such Borrower or Guarantor; or (d) create, incur, assume or

suffer to exist any lien upon any of its property, assets or revenues, whether

now owned or hereafter acquired, other than encumbrances and restrictions

arising under (i) applicable law, (ii) this Agreement, (iii) customary

provisions restricting subletting or assignment of any lease governing a

leasehold interest of such Borrower or Guarantor or any such Subsidiary of such

Borrower or Guarantor, (iv) customary restrictions on dispositions of real

property interests found in reciprocal easement agreements of such Borrower or

Guarantor or any such Subsidiary of such Borrower or Guarantor, (v) any agreement

relating to permitted Indebtedness incurred by any such Subsidiary of such

Borrower or Guarantor prior to the date on which such Subsidiary was acquired

by such Borrower or such Guarantor and outstanding on such acquisition date,

(vi) customary provisions in license agreements restricting assignments or

transfers of the rights of

 

100

 

a licensee under such license agreement and

(vii) the extension, refinancing, or continuation of contractual obligations in

existence on the date hereof; provided, that, any such

encumbrances or restrictions contained in such extension, refinancing or

continuation are no less favorable to Agent and Lenders than those encumbrances

and restrictions under or pursuant to the contractual obligations so extended,

refinanced or continued.

 

9.17                           EBITDA.  US

Borrower and its Subsidiaries shall not permit the EBITDA of US Borrower and

its Subsidiaries, for each period set forth below, to be less than the amount

listed opposite such period:

 

	

  Period

  	

   

  	

  Amount

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  4/1/03 -

  6/30/03

  	

   

  	

  $

  	

  1,397,000

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  4/1/03 -

  9/30/03

  	

   

  	

  $

  	

  3,044,000

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  4/1/03 -

  12/31/03

  	

   

  	

  $

  	

  5,919,000

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  4/1/03 -

  3/31/04

  	

   

  	

  $

  	

  7,797,000

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  7/1/03 -

  6/30/04

  	

   

  	

  $

  	

  8,581,000

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  10/1/03 -

  9/30/04

  	

   

  	

  $

  	

  8,963,000

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  1/1/04 -

  12/31/04

  	

   

  	

  $

  	

  8,822,000

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  4/1/04 -

  3/31/05

  	

   

  	

  $

  	

  8,282,000

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  7/1/04 -

  6/30/05

  	

   

  	

  $

  	

  8,996,000

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  10/1/04 -

  9/30/05

  	

   

  	

  $

  	

  9,153,000

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  1/1/05 -

  12/31/05

  	

   

  	

  $

  	

  9,375,000

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  4/1/05 -

  3/31/06

  	

   

  	

  $

  	

  8,770,000

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  Each twelve-month

  period thereafter ending on the last day of each calendar quarter

  	

   

  	

  $

  	

  8,770,000

  	

   

  

 

9.18                           Capital Expenditures.  US Borrower and its Subsidiaries shall not

directly or indirectly, make or commit to make, whether through purchase,

capital leases or otherwise, Capital Expenditures in any fiscal year of US

Borrower and its Subsidiaries in excess of $4,000,000 such fiscal year (the

“Base Amount”); provided, that, if the aggregate amount of

Capital Expenditures expended by US Borrower and its Subsidiaries during any

fiscal year, commencing with the fiscal year ending December 31, 2003, is less

than the Base Amount for such fiscal year, then the amount of Capital

Expenditures

 

101

 

permitted to be expended hereunder in the

immediately succeeding fiscal year shall be increased by the lesser of (a) such

shortfall and (b) 50% of such Base Amount.

 

9.19                           Excess Availability.  Borrowers shall, at all times, maintain

aggregate Excess Availability of not less than the US Dollar Equivalent of

US$1,500,000 (inclusive of the Term Loan Amortization Reserve).

 

9.20                           License Agreements.

 

(a)               Each Borrower and

Guarantor shall (i) promptly and faithfully observe and perform all of the

material terms, covenants, conditions and provisions of the material License

Agreements to which it is a party to be observed and performed by it, at the

times set forth therein, if any, (ii) not do, permit, suffer or refrain from

doing anything that could reasonably be expected to result in a default under

or breach of any of the terms of any material License Agreement, (iii) not

cancel, surrender, modify, amend, waive or release any material License

Agreement in any material respect or any term, provision or right of the

licensee thereunder in any material respect, or consent to or permit to occur

any of the foregoing; except, that, subject to Section 9.20(b)

below, such Borrower or Guarantor may cancel, surrender or release any material

License Agreement in the ordinary course of the business of such Borrower or

Guarantor; provided, that, such Borrower or Guarantor (as the

case may be) shall give Agent not less than fifteen (15) days prior written

notice of its intention to so cancel, surrender and release any such material

License Agreement, (iv) give Agent prompt written notice of any material

License Agreement entered into by such Borrower or Guarantor after the date

hereof, together with a true, correct and complete copy thereof and such other

information with respect thereto as Agent may request, (v) give Agent prompt

written notice of any material breach of any obligation, or any default, by any

party under any material License Agreement, and deliver to Agent (promptly upon

the receipt thereof by such Borrower or Guarantor in the case of a notice to

such Borrower or Guarantor and concurrently with the sending thereof in the

case of a notice from such Borrower or Guarantor) a copy of each notice of

default and every other notice and other communication received or delivered by

such Borrower or Guarantor in connection with any material License Agreement

which relates to the right of such Borrower or Guarantor to continue to use the

property subject to such License Agreement, and (vi) furnish to Agent, promptly

upon the request of Agent, such information and evidence as Agent may

reasonably require from time to time concerning the observance, performance and

compliance by such Borrower or Guarantor or the other party or parties thereto

with the material terms, covenants or provisions of any material License

Agreement.

 

(b)              Each Borrower and

Guarantor will either exercise any option to renew or extend the term of each

material License Agreement to which it is a party in such manner as will cause

the term of such material License Agreement to be effectively renewed or

extended for the period provided by such option and give prompt written notice

thereof to Agent or give Agent prior written notice that such Borrower or

Guarantor does not intend to renew or extend the term of any such material

License Agreement or that the term thereof shall otherwise be expiring, not

less than sixty (60) days prior to the date of any such non-renewal or

expiration.  In the event of the failure

of such Borrower or Guarantor

 

102

 

to extend or renew any material License

Agreement to which it is a party, Agent shall have, and is hereby granted, the

irrevocable right and authority, at its option, to renew or extend the term of

such material License Agreement, whether in its own name and behalf, or in the

name and behalf of a designee or nominee of Agent or in the name and behalf of

such Borrower or Guarantor, as Agent shall determine at any time that an Event

of Default shall exist or have occurred and be continuing.  Agent may, but shall not be required to,

perform any or all of such obligations of such Borrower or Guarantor under any

of the License Agreements, including, but not limited to, the payment of any or

all sums due from such Borrower or Guarantor thereunder.  Any sums so paid by Agent shall constitute

part of the Obligations.

 

9.21                           After Acquired Real Property.  If any Borrower or Guarantor hereafter

acquires any Real Property, fixtures or any other property that is of the kind

or nature that can be perfected by the filing of a mortgage, deed of trust or

deed to secure debt and such Real Property, fixtures or other property at any

one location has a fair market value in an amount equal to or greater than the

US Dollar Equivalent of US$200,000 (or if a Default or Event of Default exists,

then regardless of the fair market value of such assets), without limiting any

other rights of Agent or any Lender, or duties or obligations of any Borrower

or Guarantor, promptly upon Agent’s request, such Borrower or Guarantor shall execute

and deliver to Agent a mortgage, deed of trust or deed to secure debt, as Agent

may determine, in form and substance satisfactory to Agent and in form

appropriate for recording in the real estate records of the jurisdiction in

which such Real Property or other property is located granting to Agent a

perfected lien and mortgage on and security interest in such Real Property,

fixtures or other property (except as such Borrower or Guarantor would

otherwise be permitted to incur hereunder or as otherwise consented to in

writing by Agent) and such other agreements, documents and instruments as Agent

may in good faith require in connection therewith.

 

9.22                           New Subsidiaries.  If Borrower or any Guarantor shall form or acquire any Subsidiary

on or after the date hereof, (a) Borrower or such Guarantor shall promptly

cause any such Subsidiary to execute and deliver to Agent, in form and

substance satisfactory to Agent, (i) an absolute and unconditional guarantee of

payment of any and all present and future Obligations, (ii) a security

agreement granting to Agent, for the ratable benefit of Lenders, a first

security interest and lien on all of the assets of such Subsidiary (except as

otherwise consented to by Agent in writing), (iii) related Uniform Commercial

Code Financing Statements (and similar lien registrations), and (iv) such other

agreements, documents and instruments as Agent may require, including, but not

limited to, supplements and amendments hereto and other loan agreements or

instruments evidencing indebtedness of such new Subsidiary to Agent and

Lenders, and (b) promptly upon Agent’s request (i) Borrower or such Guarantor

shall execute and deliver to Agent in form and substance satisfactory to Agent,

a pledge and security agreement granting to Agent, for the ratable benefit of

Lenders, a pledge of and lien on all of the issued and outstanding shares of

Capital Stock of such Subsidiary, and (ii) such Borrower or Guarantor shall

deliver to Agent the original stock certificates evidencing such shares of Capital

Stock (or such other evidence as may be issued in the case of a partnership or

limited liability company) together with stock powers with respect thereto duly

executed in blank (or the equivalent thereof in the case of a partnership or

limited liability company) ; provided, that, (x) any Subsidiary

of Borrower or

 

103

 

Guarantor that is not incorporated or formed

under the United States of America or a political subdivision thereof shall not

be required to guaranty or pledge its assets to secure any Obligations other

than the Obligations of UK Borrower and (y) to secure the Obligations of

Borrowers and Guarantors (other than UK Borrower) the pledge of shares of

Capital Stock of any Subsidiary of a Borrower or Guarantor that is not

incorporated or formed under the United States of America or a political

subdivision thereof shall not exceed sixty-five (65%) percent of all of the

issued and outstanding shares of Capital Stock of such Subsidiary.

 

9.23                           Bills of Lading and Other Documents

of Title.  In the event that any

Inventory which would otherwise be Eligible Inventory located outside the

United States of America or outside the Dutch Warehouse which is in transit to

premises of a Customs Broker in the United States or premises of US Borrower in

the United States of America as described in the definition of Eligible

Inventory, constitutes Eligible Inventory then (a) US Borrower shall cause all

bills of lading and other documents of title relating to goods being purchased

by it which are outside the United States and in transit to such premises to

name US Borrower as consignee, unless and until Agent may direct otherwise; (b)

at such time and from time to time as Lender may direct, US Borrower shall

cause Agent or such other financial institution or other person as Agent may

specify to be named as consignee; (c) without limiting any other rights of

Agent hereunder, Agent shall have the right to endorse and negotiate on behalf

of, and as attorney-in-fact for, US Borrower any bill of lading or other

document of title with respect to such goods naming US Borrower as consignee to

Agent; (d) there shall be three (3) originals of each of such bill of lading or

other document of title which unless and until Agent shall direct otherwise,

shall be delivered as follows: (i) one (1) original to such Customs Broker as

US Borrower may specify (so long as Agent has received a Collateral Access

Agreement duly authorized, executed and delivered by such Customs Broker), and

(ii) two (2) originals to Agent or to such other person as Agent may designate

for such purpose; and (e) US Borrower shall cause all bills of lading or other

documents of title relating to goods purchased by US Borrower which are outside

the United States and in transit to the premises of US Borrower or the premises

of a Customs Broker in the United States to be issued in a form so as to

constitute negotiable documents as such term is defined in the UCC.

 

9.24                           Dissolution of Certain Subsidiaries.  Borrowers and Guarantors shall, on or before

one hundred eighty (180) days after the date hereof, cause each Inactive

Domestic Subsidiary to (a) dissolve in accordance with the requirements of all

applicable laws and regulations and (b) assign all assets of such Subsidiary to

its shareholders.  Borrowers and

Guarantors shall use commercially reasonable efforts to cause each of Mackie

Designs (France) S.A. and Mackie Designs (Deutschland) GmbH to (i) dissolve in

accordance with the requirements of all applicable laws and regulations and

(ii) assign all assets of such Person to its shareholders.

 

9.25                           Italian Affiliated Accounts Payable.  Borrowers and Guarantors shall not, and

shall not permit any of their Subsidiaries to, directly or indirectly, make any

payments with respect to the Italian Affiliated Accounts Payable except for

Italian Affiliated Accounts Payable that are unpaid for more than ninety (90)

days after the original invoice date for them.

 

104

 

9.26                              Costs and Expenses.  Borrowers and Guarantors shall pay to Agent and Lenders on demand

all costs, expenses, filing fees and taxes paid or payable in connection with

the preparation, negotiation, execution, delivery, recording, administration,

collection, liquidation, enforcement and defense of the Obligations, Agent’s

rights in the Collateral, this Agreement, the other Financing Agreements and

all other documents related hereto or thereto, including any amendments,

supplements or consents which may hereafter be contemplated (whether or not

executed) or entered into in respect hereof and thereof, including:  (a) all costs and expenses of filing or

recording (including Uniform Commercial Code financing statement filing taxes

and fees, documentary taxes, intangibles taxes and mortgage recording taxes and

fees, if applicable); (b) costs and expenses and fees for insurance premiums,

appraisal fees and search fees, costs and expenses of remitting loan proceeds,

collecting checks and other items of payment, and establishing and maintaining

the Blocked Accounts, together with Agent’s customary charges and fees with

respect thereto; (c) charges, fees or expenses charged by any bank or issuer in

connection with the Letter of Credit Accommodations; (d) costs and expenses of

preserving and protecting the Collateral; (e) costs and expenses paid or

incurred in connection with obtaining payment of the Obligations, enforcing the

security interests and liens of Agent, selling or otherwise realizing upon the

Collateral, and otherwise enforcing the provisions of this Agreement and the

other Financing Agreements or defending any claims made or threatened against

Agent or any Lender arising out of the transactions contemplated hereby and

thereby (including preparations for and consultations concerning any such

matters); (f) all out-of-pocket expenses and costs heretofore and from time to

time hereafter incurred by Agent and Lenders during the course of periodic

field examinations of the Collateral and such Borrower’s or Guarantor’s

operations, plus a per diem charge at the rate of US$750 per person per day for

Agent’s examiners in the field and office; and (g) the reasonable fees and

disbursements of counsel (including legal assistants) to Agent and Lenders in

connection with any of the foregoing; provided, that, Borrowers

and Guarantors shall not be required to pay for the Updated Inventory

Appraisal.

 

9.27                           Further Assurances.  At the request of Agent at any time and from time to time,

Borrowers and Guarantors shall, at their expense, duly execute and deliver, or

cause to be duly executed and delivered, such further agreements, documents and

instruments, and do or cause to be done such further acts as may be necessary

or proper to evidence, perfect, maintain and enforce the security interests and

the priority thereof in the Collateral and to otherwise effectuate the

provisions or purposes of this Agreement or any of the other Financing

Agreements.  Agent may at any time and

from time to time request a certificate from an officer of any Borrower or Guarantor

representing that all conditions precedent to the making of Loans and providing

Letter of Credit Accommodations contained herein are satisfied.  In the event of such request by Agent, Agent

and Lenders may, at Agent’s option, cease to make any further Loans or provide

any further Letter of Credit Accommodations until Agent has received such

certificate and, in addition, Agent has determined that such conditions are

satisfied.

 

105

 

SECTION 10. 

EVENTS OF DEFAULT AND REMEDIES

 

10.1                              Events of Default.  The occurrence or existence of any one or more of the following

events are referred to herein individually as an “Event of Default”, and

collectively as “Events of Default”:

 

(a)               (i) any Borrower

fails to pay any of the Obligations when due or (ii) any Borrower or Obligor

fails to perform any of the covenants contained in Sections 9.3, 9.4, 9.6,

9.13, 9.14, 9.15, and 9.16 of this Agreement and such failure shall continue

for fifteen (15) days; provided, that, such fifteen (15) day

period shall not apply in the case of: (A) any failure to observe any such

covenant which is not capable of being cured at all or within such fifteen (15)

day period or which has been the subject of a prior failure within a six (6)

month period or (B) an intentional breach by any Borrower or Obligor of any

such covenant or (iii) any Borrower or Obligor fails to perform any of the

terms, covenants, conditions or provisions contained in this Agreement or any

of the other Financing Agreements other than those described in Sections

10.1(a)(i) and 10.1(a)(ii) above;

 

(b)              any representation,

warranty or statement of fact made by any Borrower or Guarantor to Agent in

this Agreement, the other Financing Agreements or any other written agreement,

schedule, confirmatory assignment or otherwise shall when made or deemed made

be false or misleading in any material respect;

 

(c)               any Obligor revokes

or terminates or fails to perform any of the terms, covenants, conditions or

provisions of any guarantee, endorsement or other agreement of such party in

favor of Agent or any Lender;

 

(d)              one or more

judgments for the payment of money is or are rendered against any Borrower or

Obligor in excess of the US Dollar Equivalent of US$375,000 in the aggregate

(to the extent not covered by insurance where the insurer has assumed

responsibility in writing for such judgment) and shall remain undischarged or

unvacated for a period in excess of forty-five (45) days or execution shall at

any time not be effectively stayed, or any judgment other than for the payment

of money, or injunction, attachment, garnishment or execution is rendered

against any Borrower or Obligor or any of the Collateral having a value in

excess of the US Dollar Equivalent of US$375,000; provided, that,

this clause (d) shall not apply to judgments, injunctions, attachments,

garnishments or executions in connection with the EAW Fire Proceeding;

 

(e)               any Obligor (being

a natural person or a general partner of an Obligor which is a partnership) dies

or any Borrower or Obligor, which is a partnership, limited liability company,

limited liability partnership or a corporation, dissolves or suspends or

discontinues doing business;

 

(f)                 any Borrower or

Obligor makes an assignment for the benefit of creditors, makes or sends notice

of a bulk transfer or calls a meeting of its creditors or principal creditors

in connection with a moratorium or adjustment of the Indebtedness due to them;

 

106

 

(g)              a case or proceeding

under the bankruptcy laws of the United States of America now or hereafter in

effect or under any insolvency, reorganization, receivership, readjustment of

debt, dissolution or liquidation law or statute or under any bankruptcy or

insolvency laws of  The Netherlands or

the United Kingdom (including the Insolvency Act of 1986) or any similar law or

statue of any jurisdiction now or hereafter in effect (whether at law or in

equity) is filed against any Borrower or Obligor or all or any part of its properties

and such petition or application is not dismissed within forty-five (45) days

after the date of its filing or any Borrower or Obligor shall file any answer

admitting or not contesting such petition or application or indicates its

consent to, acquiescence in or approval of, any such action or proceeding or

the relief requested is granted sooner;

 

(h)              a case or proceeding

under the bankruptcy laws of the United States of America now or hereafter in

effect or under any insolvency, reorganization, receivership, readjustment of

debt, dissolution or liquidation law or statue or under any bankruptcy or

insolvency laws of The Netherlands or the United Kingdom (including the

Insolvency Act of 1986) or any similar law or statue of any jurisdiction now or

hereafter in effect (whether at a law or equity) is filed by any Borrower or

Obligor or for all or any part of its property;

 

(i)                  any default in

respect of any Indebtedness of any Borrower or Obligor (other than Indebtedness

owing to Agent and Lenders hereunder), in any case in an amount in excess of

the US Dollar Equivalent of US$375,000, which default continues for more than

the applicable cure period, if any, with respect thereto and/or is not waived

in writing by the other parties thereto, or any default by any Borrower or

Obligor under any Material Contract, which default continues for more than the

applicable cure period, if any, with respect thereto and/or is not waived in

writing by the other parties thereto;

 

(j)                  any material

provision hereof or of any of the other Financing Agreements shall for any

reason cease to be valid, binding and enforceable with respect to any party

hereto or thereto (other than Agent) in accordance with its terms, or any such

party shall challenge the enforceability hereof or thereof, or shall assert in

writing, or take any action or fail to take any action based on the assertion

that any provision hereof or of any of the other Financing Agreements has

ceased to be or is otherwise not valid, binding or enforceable in accordance with

its terms, or any security interest provided for herein or in any of the other

Financing Agreements shall cease to be a valid and perfected first priority

security interest in any of the Collateral purported to be subject thereto

(except as otherwise permitted herein or therein);

 

(k)               an ERISA Event

shall occur which results in or could reasonably be expected to result in

liability of any Borrower in an aggregate amount in excess of the US Dollar

Equivalent of US$375,000;

 

(l)                  any Change of

Control shall occur;

 

107

 

(m)            the indictment by any

Governmental Authority, or as Agent may reasonably and in good faith determine,

the threatened indictment by any Governmental Authority of any Borrower or

Obligor of which any Borrower, Obligor or Agent receives notice, in either

case, as to which there is a reasonable likelihood of an adverse determination,

in the good faith determination of Agent, under any criminal statute, or

commencement or threatened commencement of criminal or civil proceedings

against such Borrower or Obligor, pursuant to which statute or proceedings the

penalties or remedies sought or available include forfeiture of (i) any of the

Collateral having a value in excess of US Dollar Equivalent of US$375,000 or

(ii) any other property of any Borrower or Guarantor which is necessary or

material to the conduct of its business;

 

(n)              there shall occur

any event, development or condition that would constitute or have a Material

Adverse Effect after the date hereof;

 

(o)              any bank at which

any deposit account of any Borrower or Guarantor is maintained shall fail to

comply with any of the material terms of any Deposit Account Control Agreement

to which such bank is a party or any securities intermediary, commodity

intermediary or other financial institution at any time in custody, control or

possession of any investment property of any Borrower or Guarantor shall fail

to comply with any of the material terms of any Investment Property Control

Agreement to which such person is a party;

 

(p)              any Governmental

Authority in The Netherlands or Italy shall have the right to levy on or

otherwise seize any assets of any Borrower as a result of the failure by any

Borrower to pay any wage, salary, tax, levy or other assessment when due;

 

(q)              (i) one or more

judgments in connection with the EAW Fire Proceeding for the payment of money

is or are rendered against any Borrower or Obligor in excess of the US Dollar

Equivalent of US$1,000,000 in the aggregate ( but only to the extent not

covered by insurance where the insurer has assumed responsibility in writing

for such judgment or portion of such judgment) and shall remain undischarged or

unvacated for a period in excess of forty-five (45) days or execution shall at

any time not be effectively stayed, or any judgment in connection with the EAW

Fire Proceeding other than for the payment of money, or injunction, attachment,

garnishment or execution in connection with the EAW Fire Proceeding is rendered

against any Borrower or Obligor or any of the Collateral having a value in

excess of the US Dollar Equivalent of US$1,000,000 or (ii) Borrowers or

Guarantors shall be liable in respect of the EAW Fire Proceeding (whether by

settlement agreement or otherwise) in an aggregate amount in excess of the US

Dollar Equivalent of $1,000,000; provided, that, no such

judgment, injunction, attachment, garnishment, execution or liability shall

constitute an Event of Default under this clause (q) if (A) as of the date of

the occurrence of any of the foregoing, the aggregate Excess Availability of

Borrowers shall not be less than the sum of the amount of any of the foregoing

plus the US Dollar Equivalent of US$4,000,000 and (B) after giving effect to

any payment in respect of any of the foregoing, the aggregate Excess

Availability of Borrowers shall not be less than the US Dollar Equivalent of

US$4,000,000;

 

108

 

(r)                 the aggregate

outstanding amount of Past Due Affiliated Accounts Receivable shall exceed the

US Dollar Equivalent of $500,000 at any time; or

 

(s)               there shall be an

event of default (after applicable grace periods, if any) under any of the

other Financing Agreements.

 

10.2                              Remedies.

 

(a)               At any time an

Event of Default exists or has occurred and is continuing, Agent and Lenders

shall have all rights and remedies provided in this Agreement, the other

Financing Agreements, the UCC and other applicable law, all of which rights and

remedies may be exercised without notice to or consent by any Borrower or

Obligor, except as such notice or consent is expressly provided for hereunder

or required by applicable law.  All

rights, remedies and powers granted to Agent and Lenders hereunder, under any

of the other Financing Agreements, the UCC or other applicable law, are

cumulative, not exclusive and enforceable, in Agent’s discretion,

alternatively, successively, or concurrently on any one or more occasions, and

shall include, without limitation, the right to apply to a court of equity for

an injunction to restrain a breach or threatened breach by any Borrower or

Obligor of this Agreement or any of the other Financing Agreements.  Subject to Section 12 hereof, Agent may, and

at the direction of the Required Lenders shall, at any time or times, proceed

directly against any Borrower or Obligor to collect the Obligations without

prior recourse to the Collateral.

 

(b)              Without limiting the

foregoing, at any time an Event of Default exists or has occurred and is

continuing, Agent may, in its discretion, and upon the direction of the

Required Lenders, shall (i) upon notice to Administrative Borrower, accelerate

the payment of all Obligations and demand immediate payment thereof to Agent

for itself and the ratable benefit of Lenders, (provided, that, upon the occurrence

of any Event of Default described in Sections 10.1(g) and 10.1(h), all

Obligations shall automatically become immediately due and payable), (ii) with

or without judicial process or the aid or assistance of others, enter upon any

premises on or in which any of the Collateral may be located and take

possession of the Collateral or complete processing, manufacturing and repair

of all or any portion of the Collateral, (iii) require any Borrower or Obligor,

at Borrowers’ expense, to assemble and make available to Agent any part or all

of the Collateral at any place and time designated by Agent, (iv) collect,

foreclose, receive, appropriate, setoff and realize upon any and all

Collateral, (v) remove any or all of the Collateral from any premises on or in which

the same may be located for the purpose of effecting the sale, foreclosure or

other disposition thereof or for any other purpose, (vi) sell, lease, transfer,

assign, deliver or otherwise dispose of any and all Collateral (including

entering into contracts with respect thereto, public or private sales at any

exchange, broker’s board, at any office of Agent or elsewhere) at such prices

or terms as Agent may deem reasonable, for cash, upon credit or for future

delivery, with the Agent having the right to purchase the whole or any part of

the Collateral at any such public sale, all of the foregoing being free from

any right or equity of redemption of any Borrower or Obligor, which right or

equity of redemption is hereby expressly waived and released by Borrowers and

Obligors and/or (vii) terminate this Agreement.  If any of the Collateral is sold or leased by Agent upon credit

terms or for future delivery, the Obligations shall not be reduced as a result

thereof until

 

109

 

payment therefor is finally collected by

Agent.  If notice of disposition of

Collateral is required by law, ten (10) days prior notice by Agent to

Administrative Borrower designating the time and place of any public sale or

the time after which any private sale or other intended disposition of

Collateral is to be made, shall be deemed to be reasonable notice thereof and

Borrowers and Obligors waive any other notice. 

In the event Agent institutes an action to recover any Collateral or

seeks recovery of any Collateral by way of prejudgment remedy, each Borrower

and Obligor waives the posting of any bond which might otherwise be required.

At any time an Event of Default exists or has occurred and is continuing, upon

Agent’s request, Borrowers will either, as Agent shall specify, furnish cash

collateral to the issuer to be used to secure and fund Agent’s reimbursement

obligations to the issuer in connection with any Letter of Credit

Accommodations or furnish cash collateral to Agent for the Letter of Credit

Accommodations.  Such cash collateral

shall be in the amount equal to one hundred five (105%) percent of the

aggregate undrawn amount of the Letter of Credit Accommodations outstanding

plus the amount of any fees and expenses payable in connection therewith

through the end of the latest expiration date of such Letter of Credit

Accommodations.

 

(c)               At any time or

times that an Event of Default exists or has occurred and is continuing, Agent

may, in its discretion, and upon the direction of the Required Lenders, Agent

shall, enforce the rights of any Borrower or Obligor against any account

debtor, secondary obligor or other obligor in respect of any of the Accounts or

other Receivables.  Without limiting the

generality of the foregoing, at any time an Event of Default exists or has

occurred and is continuing, Agent may, in its discretion, and upon the

direction of the Required Lenders, Agent shall, at such time or times (i)

notify any or all account debtors, secondary obligors or other obligors in respect

thereof that the Receivables have been assigned to Agent and that Agent has a

security interest therein and Agent may direct any or all accounts debtors,

secondary obligors and other obligors to make payment of Receivables directly

to Agent, (ii) extend the time of payment of, compromise, settle or adjust for

cash, credit, return of merchandise or otherwise, and upon any terms or

conditions, any and all Receivables or other obligations included in the

Collateral and thereby discharge or release the account debtor or any secondary

obligors or other obligors in respect thereof without affecting any of the

Obligations,  (iii) demand, collect or

enforce payment of any Receivables or such other obligations, but without any

duty to do so, and Agent and Lenders shall not be liable for any failure to

collect or enforce the payment thereof nor for the negligence of its agents or

attorneys with respect thereto and (iv) take whatever other action Agent may

deem necessary or desirable for the protection of its interests and the

interests of Lenders.  At any time that

an Event of Default exists or has occurred and is continuing, at Agent’s

request, all invoices and statements sent to any account debtor shall state

that the Accounts and such other obligations have been assigned to Agent and

are payable directly and only to Agent and Borrowers and Obligors shall deliver

to Agent such originals of documents evidencing the sale and delivery of goods

or the performance of services giving rise to any Accounts as Agent may require.  In the event any account debtor returns

Inventory when an Event of Default exists or has occurred and is continuing,

Borrowers shall, upon Agent’s request, hold the returned Inventory in trust for

Agent, segregate all returned Inventory from all of its other property, dispose

of the returned Inventory solely according to Agent’s instructions, and not

issue any credits, discounts or allowances with respect thereto without Agent’s

prior written consent.

 

110

 

(d)              To the extent that

applicable law imposes duties on Agent or any Lender to exercise remedies in a

commercially reasonable manner (which duties cannot be waived under such law

and to the extent not prohibited by Section 9-602 of the UCC), each Borrower

and Guarantor acknowledges and agrees that it is not commercially unreasonable

for Agent or any Lender (i) to fail to incur expenses reasonably deemed

significant by Agent or any Lender to prepare Collateral for disposition or

otherwise to complete raw material or work in process into finished goods or

other finished products for disposition, (ii) to fail to obtain third party

consents for access to Collateral to be disposed of, or to obtain or, if not

required by other law, to fail to obtain consents of any Governmental Authority

or other third party for the collection or disposition of Collateral to be

collected or disposed of, (iii) to fail to exercise collection remedies against

account debtors, secondary obligors or other persons obligated on Collateral or

to remove liens or encumbrances on or any adverse claims against Collateral,

(iv) to exercise collection remedies against account debtors and other persons

obligated on Collateral directly or through the use of collection agencies and

other collection specialists, (v) to advertise dispositions of Collateral

through publications or media of general circulation, whether or not the

Collateral is of a specialized nature, (vi) to contact other persons, whether

or not in the same business as any Borrower or Guarantor, for expressions of

interest in acquiring all or any portion of the Collateral, (vii) to hire one

or more professional auctioneers to assist in the disposition of Collateral,

whether or not the collateral is of a specialized nature, (viii) to dispose of

Collateral by utilizing Internet sites that provide for the auction of assets

of the types included in the Collateral or that have the reasonable capability

of doing so, or that match buyers and sellers of assets, (ix) to dispose of

assets in wholesale rather than retail markets, (x) to disclaim disposition

warranties, (xi) to purchase insurance or credit enhancements to insure Agent

or Lenders against risks of loss, collection or disposition of Collateral or to

provide to Agent or Lenders a guaranteed return from the collection or

disposition of Collateral, or (xii) to the extent deemed appropriate by Agent,

to obtain the services of other brokers, investment bankers, consultants and

other professionals to assist Agent in the collection or disposition of any of

the Collateral. Each Borrower and Guarantor acknowledges that the purpose of

this Section is to provide non-exhaustive indications of what actions or

omissions by Agent or any Lender would not be commercially unreasonable in the

exercise by Agent or any Lender of remedies against the Collateral and that

other actions or omissions by Agent or any Lender shall not be deemed

commercially unreasonable solely on account of not being indicated in this

Section. Without limitation of the foregoing, nothing contained in this Section

shall be construed to grant any rights to any Borrower or Guarantor or to

impose any duties on Agent or Lenders that would not have been granted or

imposed by this Agreement or by applicable law in the absence of this Section.

 

(e)               For the purpose of

enabling Agent to exercise the rights and remedies hereunder, each Borrower and

Obligor hereby grants to Agent, to the extent assignable, an irrevocable,

nonexclusive license (exercisable at any time an Event of Default shall exist

or have occurred and for so long as the same is continuing) without payment of

royalty or other compensation to any Borrower or Obligor, to use, assign,

license or sublicense any of the trademarks, service-marks, trade names,

business names, trade styles, designs, logos and other source of business

identifiers and other Intellectual Property and general intangibles now owned

or hereafter acquired by any Borrower or Obligor, wherever the same maybe

located, including in such license reasonable access to all media in

 

111

 

which any of

the licensed items may be recorded or stored and to all computer programs used

for the compilation or printout thereof.

 

(f)            Agent

may apply the cash proceeds of Collateral actually received by Agent from any

sale, lease, foreclosure or other disposition of the Collateral to payment of

the Obligations, in whole or in part and in such order as Agent may elect,

whether or not then due.  Borrowers and

Guarantors shall remain liable to Agent and Lenders for the payment of any

deficiency with interest at the highest rate provided for herein and all costs

and expenses of collection or enforcement, including attorneys’ fees and

expenses.

 

(g)         Without

limiting the foregoing, upon the occurrence of a Default or an Event of

Default, (i) Agent and Lenders may, at Agent’s option, and upon the occurrence

of an Event of Default at the direction of the Required Lenders, Agent and

Lenders shall, without notice, (A) cease making Loans or arranging for Letter

of Credit Accommodations or reduce the lending formulas or amounts of Loans and

Letter of Credit Accommodations available to Borrowers and/or (B) terminate any

provision of this Agreement providing for any future Loans or Letter of Credit Accommodations

to be made by Agent and Lenders to Borrowers and (ii) Agent may, at its option,

establish such Reserves as Agent determines, without limitation or restriction,

notwithstanding anything to the contrary contained herein.

 

SECTION 11.  JURY TRIAL

WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW

 

11.1                           Governing Law; Choice of Forum; Service

of Process; Jury Trial Waiver.

 

(a)          The

validity, interpretation and enforcement of this Agreement and the Financing

Agreements (other than the Financing Agreements which are expressly stated to

be governed by other laws) and any dispute arising out of the relationship

between the parties hereto, whether in contract, tort, equity or otherwise,

shall be governed by the internal laws of the State of Florida but excluding

any principles of conflicts of law or other rule of law that would cause the

application of the law of any jurisdiction other than the laws of the State of

Florida.

 

(b)         Borrowers,

Guarantors, Agent and Lenders irrevocably consent and submit to the

non-exclusive jurisdiction of the Circuit Court of Dade County, Florida and the

United States District Court for the Southern District of Florida, whichever

Agent may elect, and waive any objection based on venue or forum non

conveniens with respect to any action instituted therein arising under this

Agreement or any of the other Financing Agreements or in any way connected with

or related or incidental to the dealings of the parties hereto in respect of

this Agreement or any of the other Financing Agreements or the transactions

related hereto or thereto, in each case whether now existing or hereafter

arising, and whether in contract, tort, equity or otherwise, and agree that any

dispute with respect to any such matters shall be heard only in the courts described

above (except that Agent and Lenders shall have the right to bring any action

or proceeding against any Borrower or Guarantor or its or their

 

112

 

property in

the courts of any other jurisdiction which Agent deems necessary or appropriate

in order to realize on the Collateral or to otherwise enforce its rights

against any Borrower or Guarantor or its or their property).

 

(c)          Each

Borrower and Guarantor hereby waives personal service of any and all process

upon it and consents that all such service of process may be made by certified

mail (return receipt requested) directed to its address set forth herein and

service so made shall be deemed to be completed five (5) days after the same

shall have been so deposited in the U.S. mails, or, at Agent’s option, by

service upon any Borrower or Guarantor (or Administrative Borrower on behalf of

such Borrower or Guarantor) in any other manner provided under the rules of any

such courts.

 

(d)         BORROWERS,

GUARANTORS, AGENT AND LENDERS EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF

ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT OR

ANY OF THE OTHER FINANCING AGREEMENTS OR IN ANY WAY CONNECTED WITH OR RELATED

OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS

AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED

HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND

WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE.  BORROWERS, GUARANTORS, AGENT AND LENDERS EACH HEREBY AGREES AND

CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE

DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY BORROWER, ANY GUARANTOR,

AGENT OR ANY LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS

AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES

HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

 

(e)          Agent

and Lenders shall not have any liability to any Borrower or Guarantor (whether

in tort, contract, equity or otherwise) for losses suffered by such Borrower or

Guarantor in connection with, arising out of, or in any way related to the

transactions or relationships contemplated by this Agreement, or any act,

omission or event occurring in connection herewith, unless it is determined by

a final and non-appealable judgment or court order binding on Agent and such

Lender, that the losses were the result of acts or omissions constituting gross

negligence or willful misconduct.  In

any such litigation, Agent and Lenders shall be entitled to the benefit of the

rebuttable presumption that it acted in good faith and with the exercise of

ordinary care in the performance by it of the terms of this Agreement.  Each Borrower and Guarantor:  (i) certifies that neither Agent, any Lender

nor any representative, agent or attorney acting for or on behalf of Agent or

any Lender has represented, expressly or otherwise, that Agent and Lenders

would not, in the event of litigation, seek to enforce any of the waivers provided

for in this Agreement or any of the other Financing Agreements and (ii)

acknowledges that in entering into this Agreement and the other Financing

Agreements, Agent and Lenders are relying upon, among other things, the waivers

and certifications set forth in this Section 11.1 and elsewhere herein and

therein.

 

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11.2                           Waiver of Notices.  Each Borrower and Guarantor hereby expressly waives demand,

presentment, protest and notice of protest and notice of dishonor with respect

to any and all instruments and chattel paper, included in or evidencing any of

the Obligations or the Collateral, and any and all other demands and notices of

any kind or nature whatsoever with respect to the Obligations, the Collateral

and this Agreement, except such as are expressly provided for herein.  No notice to or demand on any Borrower or

Guarantor which Agent or any Lender may elect to give shall entitle such

Borrower or Guarantor to any other or further notice or demand in the same,

similar or other circumstances.

 

11.3                           Amendments and Waivers.

 

(a)          Neither

this Agreement nor any other Financing Agreement nor any terms hereof or

thereof may be amended, waived, discharged or terminated unless such amendment,

waiver, discharge or termination is in writing signed by Agent and the Required

Lenders or at Agent’s option, by Agent with the authorization of the Required

Lenders, and as to amendments to any of the Financing Agreements (other than

with respect to any provision of Section 12 hereof), by any Borrower; except,

that, no such amendment, waiver, discharge or termination shall:

 

(i)            reduce the interest

rate or any fees or extend the time of payment of principal, interest or any

fees or reduce the principal amount of any Loan or Letter of Credit

Accommodations, in each case without the consent of each Lender directly

affected thereby,

 

(ii)         increase the Commitment

of any Lender over the amount thereof then in effect or provided hereunder, in

each case without the consent of the Lender directly affected thereby,

 

(iii)      release any Collateral

(except as expressly required hereunder or under any of the other Financing

Agreements or applicable law and except as permitted under Section 12.11(b)

hereof), without the consent of Agent and all of Lenders,

 

(iv)     reduce any percentage

specified in the definition of Required Lenders, without the consent of Agent

and all of Lenders,

 

(v)        consent to the assignment

or transfer by any Borrower or Guarantor of any of their rights and obligations

under this Agreement, without the consent of Agent and all of Lenders,

 

(vi)     amend, modify or waiver any

terms of this Section 11.3 hereof, without the consent of Agent and all of

Lenders, or

 

(vii)  increase the advance rates constituting part of the

Borrowing Base (in excess of the advance rates set forth in the definition of

“Borrowing Base” as in effect on the date hereof), without the consent of Agent

and all of Lenders.

 

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(b)         Agent

and Lenders shall not, by any act, delay, omission or otherwise be deemed to

have expressly or impliedly waived any of its or their rights, powers and/or

remedies unless such waiver shall be in writing and signed as provided

herein.  Any such waiver shall be

enforceable only to the extent specifically set forth therein.  A waiver by Agent or any Lender of any

right, power and/or remedy on any one occasion shall not be construed as a bar

to or waiver of any such right, power and/or remedy which Agent or any Lender

would otherwise have on any future occasion, whether similar in kind or

otherwise.

 

(c)          Notwithstanding

anything to the contrary contained in Section 11.3(a) above, in the event that

any Borrower or Guarantor requests that this Agreement or any other Financing

Agreements be amended or otherwise modified in a manner which would require the

unanimous consent of all of the Lenders and such amendment or other

modification is agreed to by the Required Lenders, then, with the consent of

Administrative Borrower, Agent and the Required Lenders, Administrative

Borrower and the Required Lenders may amend this Agreement without the consent

of the Lenders that did not agree to such amendment or other modification

(collectively, the “Minority Lenders”) to provide for  the termination of the Commitment of each of the Minority

Lenders,  the addition to this Agreement

of one or more other Lenders, or an increase in the Commitment of one or more

of the Required Lenders, so that the Commitments, after giving effect to such

amendment, shall be in the same aggregate amount as the Commitments immediately

before giving effect to such amendment, 

if any Loans are outstanding at the time of such amendment, the making

of such additional Loans by such new Lenders or Required Lenders, as the case

may be, as may be necessary to repay in full the outstanding Loans of the

Minority Lenders immediately before giving effect to such amendment and  the payment of all interest, fees and other

Obligations payable or accrued in favor of the Minority Lenders and such other

modifications to this Agreement as Borrowers and the Required Lenders may

determine to be appropriate.

 

(d)         The

consent of Agent shall be required for any amendment, waiver or consent

affecting the rights or duties of Agent hereunder or under any of the other

Financing Agreements, in addition to the consent of the Lenders otherwise

required by this Section and the exercise by Agent of any of its rights

hereunder with respect to Reserves or Eligible Accounts or Eligible Inventory

shall not be deemed an amendment to the advance rates provided for in this

Section 11.3.

 

11.4                           Waiver of Counterclaims.  Each Borrower and Guarantor waives all

rights to interpose any claims, deductions, setoffs or counterclaims of any

nature (other then compulsory counterclaims) in any action or proceeding with

respect to this Agreement, the Obligations, the Collateral or any matter

arising therefrom or relating hereto or thereto.

 

11.5                           Indemnification.  Each Borrower and Guarantor shall, jointly and severally,

indemnify and hold Agent and each Lender, and its officers, directors, agents,

employees, advisors and counsel and their respective Affiliates (each such

person being an “Indemnitee”), harmless from and against any and all losses,

claims, damages, liabilities, costs or expenses (including attorneys’ fees and

expenses) imposed on, incurred by or asserted against any of them in connection

with any litigation, investigation, claim or proceeding commenced or threatened

related to the negotiation, preparation, execution,

 

115

 

delivery,

enforcement, performance or administration of this Agreement, any other

Financing Agreements, or any undertaking or proceeding related to any of the

transactions contemplated hereby or any act, omission, event or transaction

related or attendant thereto, including amounts paid in settlement, court

costs, and the fees and expenses of counsel except that Borrowers and

Guarantors shall not have any obligation under this Section 11.5 to indemnify an

Indemnitee with respect to a matter covered hereby resulting from the gross

negligence or willful misconduct of such Indemnitee as determined pursuant to a

final, non-appealable order of a court of competent jurisdiction (but without

limiting the obligations of Borrowers or Guarantors as to any other

Indemnitee).   To the extent that the

undertaking to indemnify, pay and hold harmless set forth in this Section may

be unenforceable because it violates any law or public policy, Borrowers and

Guarantors shall pay the maximum portion which it is permitted to pay under

applicable law to Agent and Lenders in satisfaction of indemnified matters

under this Section.  To the extent

permitted by applicable law, no Borrower or Guarantor shall assert, and each

Borrower and Guarantor 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, any of the other Financing Agreements or any

undertaking or transaction contemplated hereby.  All amounts due under this Section shall be payable upon demand.

The foregoing indemnity shall survive the payment of the Obligations and the

termination or non-renewal of this Agreement.

 

11.6                           Currency Indemnity.  If, for the purposes of obtaining judgment in any court in any

jurisdiction with respect to this Agreement or any of the other Financing

Agreements, it becomes necessary to convert into the currency of such

jurisdiction (the “Judgment Currency”) any amount due under this Agreement or

under any of the other Financing Agreements in any currency other than the

Judgment Currency (the “Currency Due”), then conversion shall be made at the

rate of exchange prevailing on the Business Day before the day on which

judgment is given.  For this purpose,

“rate of exchange” means the rate at which Agent is able, on the relevant date,

to purchase the Currency Due with the Judgment Currency in accordance with its

normal practice.  In the event that

there is a change in the rate of exchange prevailing between the Business Day

before the day on which the judgment is given and the date of receipt by Agent

of the amount due, Borrowers will, on the date of receipt by Agent, pay such

additional amounts, if any, or be entitled to receive reimbursement of such

amount, if any, as may be necessary to ensure that the amount received by Agent

and Lenders on such date is the amount in the Judgment Currency which when

converted at the rate of exchange prevailing on the date of receipt by Agent is

the amount then due under this Agreement or such other of the Financing

Agreements in the Currency Due.  If the

amount of the Currency Due which Agent is able to purchase is less than the

amount of the Currency Due originally due to it, Borrowers shall indemnify and

save Agent and Lenders harmless from and against loss or damage arising as a

result of such deficiency.  The

indemnity contained herein shall constitute an obligation separate and independent

from the other obligations contained in this Agreement and the other Financing

Agreements, shall give rise to a separate and independent cause of action,

shall apply irrespective of any indulgence granted by Agent from time to time

and shall continue in full force and effect notwithstanding any judgment or

order for a liquidated sum in respect of an amount due under this Agreement or

any of the other Financing Agreements or under any judgment or order.

 

116

 

SECTION 12.  THE AGENT

 

12.1                           Appointment, Powers and Immunities.  Each Lender irrevocably designates, appoints

and authorizes Congress to act as Agent hereunder and under the other Financing

Agreements with such powers as are specifically delegated to Agent by the terms

of this Agreement and of the other Financing Agreements, together with such

other powers as are reasonably incidental thereto.  Agent (a) shall have no duties or responsibilities except those

expressly set forth in this Agreement and in the other Financing Agreements,

and shall not by reason of this Agreement or any other Financing Agreement be a

trustee or fiduciary for any Lender (except to the extent specifically provided

in the Financing Agreements that are governed by the laws of England and

Wales); (b) shall not be responsible to Lenders for any recitals, statements,

representations or warranties contained in this Agreement or in any of the

other Financing Agreements, or in any certificate or other document referred to

or provided for in, or received by any of them under, this Agreement or any

other Financing Agreement, or for the value, validity, effectiveness,

genuineness, enforceability or sufficiency of this Agreement or any other

Financing Agreement or any other document referred to or provided for herein or

therein or for any failure by any Borrower or any Obligor or any other Person

to perform any of its obligations hereunder or thereunder; and (c) shall not be

responsible to Lenders for any action taken or omitted to be taken by it

hereunder or under any other Financing Agreement or under any other document or

instrument referred to or provided for herein or therein or in connection

herewith or therewith, except for its own gross negligence or willful

misconduct as determined by a final non-appealable judgment of a court of

competent jurisdiction.  Agent may

employ agents and attorneys-in-fact and shall not be responsible for the

negligence or misconduct of any such agents or attorneys-in-fact selected by it

in good faith.  Agent may deem and treat

the payee of any note as the holder thereof for all purposes hereof unless and

until the assignment thereof pursuant to an agreement (if and to the extent

permitted herein) in form and substance satisfactory to Agent shall have been

delivered to and acknowledged by Agent.

 

12.2                           Reliance by Agent.  Agent shall be entitled to rely upon any certification, notice or

other communication (including any thereof by telephone, telecopy, telex,

telegram or cable) believed by it to be genuine and correct and to have been

signed or sent by or on behalf of the proper Person or Persons, and upon advice

and statements of legal counsel, independent accountants and other experts

selected by Agent.  As to any matters

not expressly provided for by this Agreement or any other Financing Agreement,

Agent shall in all cases be fully protected in acting, or in refraining from

acting, hereunder or thereunder in accordance with instructions given by all of

Lenders as is required under the circumstances described herein and Required

Lenders in all other matters and such instructions of Agent and any action

taken or failure to act pursuant thereto shall be binding on all Lenders.

 

12.3                           Events of Default.

 

(a)          Agent

shall not be deemed to have knowledge or notice of the occurrence of an Event

of Default or other failure of a condition precedent to the Loans and Letter of

Credit Accommodations hereunder, unless and until Agent has received written

notice from a Lender, or a

 

117

 

Borrower

specifying such Event of Default or any unfulfilled condition precedent, and

stating that such notice is a “Notice of Default or Failure of Condition”.  In the event that Agent receives such a

Notice of Default or Failure of Condition, Agent shall give prompt notice

thereof to the Lenders.  Agent shall

(subject to Section 12.7) take such action with respect to any such Event of

Default or failure of condition precedent as shall be directed by the Required

Lenders; provided, that, unless and until Agent shall have

received such directions, Agent may (but shall not be obligated to) take such

action, or refrain from taking such action, with respect to or by reason of

such Event of Default or failure of condition precedent, as it shall deem

advisable in the best interest of Lenders. 

Without limiting the foregoing, and notwithstanding the existence or

occurrence and continuance of an Event of Default or any other failure to

satisfy any of the conditions precedent set forth in Section 4 of this

Agreement to the contrary, Agent may, but shall have no obligation to, continue

to make Loans and issue or cause to be issued Letter of Credit Accommodations

for the ratable account and risk of Lenders from time to time if Agent believes

making such Loans or issuing or causing to be issued such Letter of Credit

Accommodations is in the best interests of Lenders.

 

(b)         Except

with the prior written consent of Agent, no Lender may assert or exercise any

enforcement right or remedy in respect of the Loans, Letter of Credit

Accommodations or other Obligations, as against any Borrower or Obligor or any

of the Collateral or other property of any Borrower or Obligor.

 

12.4                           Congress in its Individual Capacity.  With respect to its Commitment and the Loans

made and Letter of Credit Accommodations issued or caused to be issued by it

(and any successor acting as Agent), so long as Congress shall be a Lender

hereunder, it shall have the same rights and powers hereunder as any other

Lender and may exercise the same as though it were not acting as Agent, and the

term “Lender” or “Lenders” shall, unless the context otherwise indicates,

include Congress in its individual capacity as Lender hereunder.  Congress (and any successor acting as Agent)

and its Affiliates may (without having to account therefor to any Lender) lend

money to, make investments in and generally engage in any kind of business with

Borrowers (and any of its Subsidiaries or Affiliates) as if it were not acting

as Agent, and Congress and its Affiliates may accept fees and other

consideration from any Borrower or Guarantor and any of its Subsidiaries and

Affiliates for services in connection with this Agreement or otherwise without

having to account for the same to Lenders.

 

12.5                           Indemnification.  Lenders agree to indemnify Agent (to the

extent not reimbursed by Borrowers hereunder and without limiting any

obligations of Borrowers hereunder) ratably, in accordance with their Pro Rata

Shares, for any and all claims of any kind and nature whatsoever that may be

imposed on, incurred by or asserted against Agent (including by any Lender)

arising out of or by reason of any investigation in or in any way relating to

or arising out of this Agreement or any other Financing Agreement or any other

documents contemplated by or referred to herein or therein or the transactions

contemplated hereby or thereby (including the costs and expenses that Agent is

obligated to pay hereunder) or the enforcement of any of the terms hereof or

thereof or of any such other documents, provided, that, no Lender shall be

liable for any of the foregoing to the extent it arises from the gross

negligence or willful misconduct of the party to be indemnified as determined

by a final non-appealable

 

118

 

judgment of a

court of competent jurisdiction.  The

foregoing indemnity shall survive the payment of the Obligations and the

termination or non-renewal of this Agreement.

 

12.6                           Non-Reliance on Agent and Other

Lenders.  Each Lender agrees

that it has, independently and without reliance on Agent or other Lender, and

based on such documents and information as it has deemed appropriate, made its

own credit analysis of Borrowers and Obligors and has made its own decision to

enter into this Agreement and that it will, independently and without reliance

upon Agent or any other Lender, and based on such documents and information as

it shall deem appropriate at the time, continue to make its own analysis and

decisions in taking or not taking action under this Agreement or any of the

other Financing Agreements.  Agent shall

not be required to keep itself informed as to the performance or observance by

any Borrower or Obligor of any term or provision of this Agreement or any of

the other Financing Agreements or any other document referred to or provided

for herein or therein or to inspect the properties or books of any Borrower or

Obligor. Agent will use reasonable efforts to provide Lenders with any

information received by Agent from any Borrower or Obligor which is required to

be provided to Lenders hereunder and with a copy of any Notice of Default or

Failure of Condition received by Agent from any Borrower or any Lender;

provided, that, Agent shall not be liable to any Lender for any failure to do

so, except to the extent that such failure is attributable to Agent’s own gross

negligence or willful misconduct as determined by a final non-appealable

judgment of a court of competent jurisdiction. 

Except for notices, reports and other documents expressly required to be

furnished to Lenders by Agent hereunder, Agent shall not have any duty or

responsibility to provide any Lender with any other credit or other information

concerning the affairs, financial condition or business of any Borrower or

Obligor that may come into the possession of Agent.

 

12.7                           Failure to Act. 

Except for action expressly required of Agent hereunder and under the

other Financing Agreements, Agent shall in all cases be fully justified in

failing or refusing to act hereunder and thereunder unless it shall receive

further assurances to its satisfaction from Lenders of their indemnification

obligations under Section 12.5 hereof against any and all liability and expense

that may be incurred by it by reason of taking or continuing to take any such

action.

 

12.8                           Additional Loans.  Agent shall not make any Revolving Loans or provide any Letter of

Credit Accommodations to any Borrower on behalf of Lenders intentionally and

with actual knowledge that such Revolving Loans or Letter of Credit Accommodations

would cause the aggregate amount of the total outstanding Revolving Loans and

Letter of Credit Accommodations to each Borrower to exceed the Borrowing Base

of such Borrower, without the prior consent of all Lenders, except, that,

Agent may make such additional Revolving Loans or provide such additional

Letter of Credit Accommodations on behalf of Lenders, intentionally and with

actual knowledge that such Revolving Loans or Letter of Credit Accommodations

will cause the total outstanding Revolving Loans and Letter of Credit

Accommodations to each Borrower to exceed the Borrowing Base of such Borrower,

as Agent may deem necessary or advisable in its discretion, provided, that:

(a) the total principal amount of the additional Revolving Loans or additional

Letter of Credit Accommodations to any Borrower which Agent may make or provide

after obtaining such actual knowledge that the aggregate principal

 

119

 

amount of the

Revolving Loans equal or exceed the Borrowing Bases of Borrowers, plus the

amount of Special Agent Advances made pursuant to Section 12.11(a)(iii) hereof

then outstanding, shall not exceed the aggregate amount equal to the US Dollar

Equivalent of US$2,850,000 outstanding at any time and shall not cause the

total principal amount of the Loans and Letter of Credit Accommodations to

exceed the Maximum Credit and (b) no such additional Revolving Loan or Letter

of Credit Accommodation shall be outstanding more than ninety (90) days after

the date such additional Revolving Loan or Letter of Credit Accommodation is

made or issued (as the case may be), except as the Required Lenders may

otherwise agree.  Each Lender shall be

obligated to pay Agent the amount of its Pro Rata Share of any such additional

Revolving Loans or Letter of Credit Accommodations.

 

12.9                           Concerning the Collateral and the Related

Financing Agreements.  Each Lender

authorizes and directs Agent to enter into this Agreement and the other

Financing Agreements.  Each Lender

agrees that any action taken by Agent or Required Lenders in accordance with

the terms of this Agreement or the other Financing Agreements and the exercise

by Agent or Required Lenders of their respective powers set forth therein or

herein, together with such other powers that are reasonably incidental thereto,

shall be binding upon all of the Lenders.

 

12.10                     Field Audit, Examination Reports and other

Information; Disclaimer by Lenders. 

By signing this Agreement, each Lender:

 

(a)          is

deemed to have requested that Agent furnish such Lender, promptly after it

becomes available, a copy of each field audit or examination report and a

report with respect to the Borrowing Base prepared or received by Agent (each

field audit or examination report and monthly report with respect to the Borrowing

Base being referred to herein as a “Report” and collectively, “Reports”);

 

(b)         expressly

agrees and acknowledges that Agent (i) does not make any representation or

warranty as to the accuracy of any Report, or (ii) shall not be liable for any

information contained in any Report;

 

(c)          expressly

agrees and acknowledges that the Reports are not comprehensive audits or

examinations, that Agent or any other party performing any audit or examination

will inspect only specific information regarding Borrowers and Guarantors and

will rely significantly upon Borrowers’ and Guarantors’ books and records, as

well as on representations of Borrowers’ and Guarantors’ personnel; and

 

(d)         agrees

to keep all Reports confidential and strictly for its internal use in accordance

with the terms of Section 13.9 hereof, and not to distribute or use any Report

in any other manner.

 

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12.11                     Collateral Matters.

 

(a)          Agent

may, at its option, from time to time, at any time on or after an Event of

Default and for so long as the same is continuing or upon any other failure of

a condition precedent to the Loans and Letter of Credit Accommodations

hereunder, make such disbursements and advances (“Special Agent Advances”)

which Agent, in its sole discretion, deems necessary or desirable either (i) to

preserve or protect the Collateral or any portion thereof or (ii) to enhance

the likelihood or maximize the amount of repayment by Borrowers and Guarantors

of the Loans and other Obligations or (iii) to pay any other amount chargeable

to any Borrower or Guarantor pursuant to the terms of this Agreement or any of

the other Financing Agreements consisting of costs, fees and expenses and

payments to any issuer of Letter of Credit Accommodations.  Special Agent Advances shall be repayable on

demand and be secured by the Collateral. 

Special Agent Advances shall not constitute Loans but shall otherwise

constitute Obligations hereunder.  Agent

shall notify each Lender and Administrative Borrower in writing of each such

Special Agent Advance, which notice shall include a description of the purpose

of such Special Agent Advance.  Without

limitation of its obligations pursuant to Section 6.13, each Lender agrees that

it shall make available to Agent, upon Agent’s demand, in immediately available

funds, the amount equal to such Lender’s Pro Rata Share of each such Special

Agent Advance.  If such funds are not

made available to Agent by such Lender, Agent shall be entitled to recover such

funds, on demand from such Lender together with interest thereon for each day

from the date such payment was due until the date such amount is paid to Agent

at the Federal Funds Rate for each day during such period (as published by the

Federal Reserve Bank of New York or at Agent’s option based on the arithmetic

mean determined by Agent of the rates for the last transaction in overnight

Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by

each of the three leading brokers of Federal funds transactions in New York

City selected by Agent) and if such amounts are not paid within three (3) days

of Agent’s demand, at the highest Interest Rate provided for in Section 3.1

hereof applicable to Revolving Loans consisting of Prime Rate Loans.

 

(b)         Lenders

hereby irrevocably authorize Agent, at its option and in its discretion to

release any security interest in, mortgage or lien upon, any of the Collateral

(i) upon termination of the Commitments and payment and satisfaction of all of

the Obligations and delivery of cash collateral to the extent required under

Section 13.1 below, or (ii) constituting property being sold or disposed of if

Administrative Borrower or any Borrower certifies to Agent that the sale or

disposition is made in compliance with Section 9.7 hereof (and Agent may rely

conclusively on any such certificate, without further inquiry), or (iii)

constituting property in which any Borrower or Guarantor did not own an

interest at the time the security interest, mortgage or lien was granted or at any

time thereafter, or (iv) having a value in the aggregate in any twelve (12)

month period of less than the US Dollar Equivalent of US$1,000,000 or (v) if

approved, authorized or ratified in writing by all of Lenders.  Except as provided above, Agent will not

release any security interest in, mortgage or lien upon, any of the Collateral

without the prior written authorization of all of Lenders. Upon request by

Agent at any time, Lenders will promptly confirm in writing Agent’s authority

to release particular types or items of Collateral pursuant to this Section.

 

(c)          Without

any manner limiting Agent’s authority to act without any specific or further

authorization or consent by the Required Lenders, each Lender agrees to confirm

in writing, upon

 

121

 

request by

Agent, the authority to release Collateral conferred upon Agent under this

Section.  Agent shall (and is hereby

irrevocably authorized by Lenders to) execute such documents as may be

necessary to evidence the release of the security interest, mortgage or liens

granted to Agent upon any Collateral to the extent set forth above; provided,

that, Agent shall not be required to execute any such document on terms

which, in Agent’s opinion, would expose Agent to liability or create any

obligations or entail any consequence other than the release of such security

interest, mortgage or liens without recourse or warranty and  such release shall not in any manner

discharge, affect or impair the Obligations or any security interest, mortgage

or lien upon (or obligations of any Borrower or Guarantor in respect of) the

Collateral retained by such Borrower or Guarantor.

 

(d)         Agent

shall have no obligation whatsoever to any Lender or any other Person to

investigate, confirm or assure that the Collateral exists or is owned by any

Borrower or Guarantor or is cared for, protected or insured or has been

encumbered, or that any particular items of Collateral meet the eligibility

criteria applicable in respect of the Loans or Letter of Credit Accommodations

hereunder, or whether any particular reserves are appropriate, or that the

liens and security interests granted to Agent pursuant hereto or any of the

Financing Agreements or otherwise have been properly or sufficiently or lawfully

created, perfected, protected or enforced or are entitled to any particular

priority, or to exercise at all or in any particular manner or under any duty

of care, disclosure or fidelity, or to continue exercising, any of the rights,

authorities and powers granted or available to Agent in this Agreement or in

any of the other Financing Agreements, it being understood and agreed that in

respect of the Collateral, or any act, omission or event related thereto, Agent

may act in any manner it may deem appropriate, in its discretion, given Agent’s

own interest in the Collateral as a Lender and that Agent shall have no duty or

liability whatsoever to any other Lender.

 

(e)          Upon

any sale or transfer of Collateral to a Person that is not a Borrower or

Guarantor which is expressly permitted pursuant to the terms of this Agreement

or any other Financing Agreement, or consented to in writing by the Required

Lenders or all of the Lenders, as applicable, and upon at least five Business

Days’ prior written request by Administrative Borrower, Agent shall (and is

hereby irrevocably authorized by the Lenders to) execute such documents as may

be necessary to evidence the release of the Liens granted to such Loan Agent

for the benefit of the Lenders herein or pursuant hereto upon the Collateral

that was so sold or transferred, provided that (i) Agent shall not be required

to execute any such document on terms which, in such Agent’s opinion, would

expose Agent to liability or create any obligation or entail any consequence other

than the release of such Liens without recourse or warranty and (ii) such

release shall not in any manner discharge, affect or impair the Obligations or

any Liens upon (or obligations of Borrowers and Guarantors in respect of) all

interests retained by Borrowers and Guarantors, including (without limitation)

the proceeds of the sale, all of which shall continue to constitute part of the

Collateral.

 

(f)            Upon

any sale or transfer of all of the issued and outstanding Capital Stock of a

Borrower or Guarantor to a Person that is not a Borrower or Guarantor or an

Affiliate thereof which is expressly permitted pursuant to the terms of this

Agreement or any other Financing Agreement, or consented to in writing by the

Required Lenders or all of the Lenders, as applicable, and upon at least

 

122

 

five Business

Days’ prior written request by Administrative Borrower, Agent shall (and is

hereby irrevocably authorized by the Lenders to) execute such documents as may

be necessary to evidence the release of such Borrower or Guarantor from the

Financing Agreements to which it is a party, provided that (i) Agent shall not

be required to execute any such document on terms which, in such Agent’s

opinion, would expose Agent to liability or create any obligation or entail any

consequence other than the release of such Borrower or Guarantor without

recourse or warranty and (ii) such release shall not in any manner discharge,

affect or impair the Obligations of or any Liens upon the assets of the other

Borrowers and Guarantors or the Liens upon the proceeds of the sale, all of

which shall continue to constitute part of the Collateral.

 

12.12                     Agency for Perfection.  Each Lender hereby appoints Agent and each

other Lender as agent and bailee for the purpose of perfecting the security

interests in and liens upon the Collateral of Agent in assets which, in

accordance with Article 9 of the UCC can be perfected only by possession (or

where the security interest of a secured party with possession has priority

over the security interest of another secured party) and Agent and each Lender

hereby acknowledges that it holds possession of any such Collateral for the

benefit of Agent as secured party.  Should

any Lender obtain possession of any such Collateral, such Lender shall notify

Agent thereof, and, promptly upon Agent’s request therefor shall deliver such

Collateral to Agent or in accordance with Agent’s instructions.

 

12.13                     Successor Agent. Agent may resign as Agent upon

thirty (30) days’ notice to Lenders and Administrative Borrower. If Agent

resigns under this Agreement, the Required Lenders shall appoint from among the

Lenders a successor agent for Lenders. 

If no successor agent is appointed prior to the effective date of the

resignation of Agent, Agent may appoint, after consulting with Lenders and

Administrative Borrower, a successor agent from among Lenders.  Upon the acceptance by the Lender so

selected of its appointment as successor agent hereunder, such successor agent

shall succeed to all of the rights, powers and duties of the retiring Agent and

the term “Agent” as used herein and in the other Financing Agreements shall

mean such successor agent and the retiring Agent’s appointment, powers and

duties as Agent shall be terminated. 

After any retiring Agent’s resignation hereunder as Agent, the

provisions of this Section 12 shall inure to its benefit as to any actions

taken or omitted by it while it was Agent under this Agreement.  If no successor agent has accepted

appointment as Agent by the date which is thirty (30) days after the date of a

retiring Agent’s notice of resignation, the retiring Agent’s resignation shall

nonetheless thereupon become effective and Lenders shall perform all of the

duties of Agent hereunder until such time, if any, as the Required Lenders

appoint a successor agent as provided for above.

 

SECTION 13.  TERM OF

AGREEMENT; MISCELLANEOUS

 

13.1                           Term.

 

(a)          This

Agreement and the other Financing Agreements shall become effective as of the

date set forth on the first page hereof and shall continue in full force and

effect for a term ending on the

 

123

 

date three (3)

years from the date hereof (the “Expiration Date”); provided, that,

this Agreement and all other Financing Agreements must be terminated

simultaneously.  In addition, Borrowers

may terminate this Agreement at any time upon ten (10) days prior written

notice to Agent (which notice shall be irrevocable) and Agent may, at its

option, and shall at the direction of Required Lenders, terminate this

Agreement at any time on or after an Event of Default; provided, that,

in each case, this Agreement and all other Financing Agreements must be

terminated simultaneously.  Upon the

Expiration Date or any other effective date of termination of the Financing

Agreements, Borrowers shall pay to Agent all outstanding and unpaid Obligations

(other than unasserted contingent indemnification obligations) and shall

furnish cash collateral to Agent (or at Agent’s option, a letter of credit

issued for the account of Borrowers and at Borrowers’ expense, in form and

substance satisfactory to Agent, by an issuer acceptable to Agent and payable

to Agent as beneficiary) in such amounts as Agent determines are reasonably

necessary to secure Agent and Lenders from loss, cost, damage or expense,

including reasonable attorneys’ fees and expenses, in connection with any

contingent Obligations, including issued and outstanding Letter of Credit

Accommodations and checks or other payments provisionally credited to the

Obligations and/or as to which Agent or any Lender has not yet received final

and indefeasible payment.  The amount of

such cash collateral (or letter of credit, as Agent may determine) as to any

Letter of Credit Accommodations shall be in the amount equal to one hundred

five (105%) percent of the amount of the Letter of Credit Accommodations plus

the amount of any fees and expenses payable in connection therewith through the

end of the latest expiration date of such Letter of Credit Accommodations.  Such payments in respect of the Obligations

and cash collateral shall be remitted by wire transfer in Federal funds to the

Agent Payment Account or such other bank account of Agent, as Agent may, in its

discretion, designate in writing to Administrative Borrower for such

purpose.  Interest shall be due until

and including the next Business Day, if the amounts so paid by Borrowers to the

Agent Payment Account or other bank account designated by Agent are received in

such bank account later than 12:00 noon, Miami, Florida time.

 

(b)         No

termination of this Agreement or the other Financing Agreements shall relieve

or discharge any Borrower or Guarantor of its respective duties, obligations

and covenants under this Agreement or the other Financing Agreements until all

Obligations have been fully and finally discharged and paid, and Agent’s

continuing security interest in the Collateral and the rights and remedies of

Agent and Lenders hereunder, under the other Financing Agreements and applicable

law, shall remain in effect until all such Obligations have been fully and

finally discharged and paid. 

Accordingly, each Borrower and Guarantor waives any rights it may have

under the UCC to demand the filing of termination statements with respect to the

Collateral and Agent shall not be required to send such termination statements

to Borrowers or Guarantors, or to file them with any filing office, unless and

until this Agreement shall have been terminated in accordance with its terms

and all Obligations paid and satisfied in full in immediately available funds.

 

(c)          If

for any reason this Agreement is terminated prior to the third anniversary of

the date hereof, in view of the impracticality and extreme difficulty of

ascertaining actual damages and by mutual agreement of the parties as to a

reasonable calculation of Agent’s and each Lender’s lost profits as a result

thereof, Borrowers agree to pay to Agent for itself and the ratable benefit of

Lenders in

 

124

 

accordance

with their respective Pro Rata Shares, upon the effective date of such

termination, an early termination fee in the amount equal to

 

	

  Amount

  	

   

  	

  Period

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  (i) 2% of Maximum Credit

  	

   

  	

  From the

  date hereof to and excluding the first anniversary of the date hereof

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  (ii) 1% of Maximum Credit

  	

   

  	

  From and

  after the first anniversary of the date hereof to and excluding the second

  anniversary of the date hereof

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  (iii) .50% of Maximum Credit

  	

   

  	

  from and

  after the second anniversary of the date hereof to and excluding the third

  anniversary of the date hereof or if the term of this Agreement is extended,

  at any time prior to the end of the then current term

  	

   

  

 

Such early

termination fee shall be presumed to be the amount of damages sustained by

Agent and Lenders as a result of such early termination and Borrowers and

Guarantors agree that it is reasonable under the circumstances currently

existing.  In addition, Agent and

Lenders shall be entitled to such early termination fee upon the occurrence of

any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if

Agent and Lenders do not exercise the right to terminate this Agreement, but

elect, at their option, to provide financing to any Borrower or permit the use

of cash collateral under the United States Bankruptcy Code.  The early termination fee provided for in

this Section 13.1 shall be deemed included in the Obligations.

 

13.2                           Interpretative Provisions.

 

(a)          All

terms used herein which are defined in Article 1, Article 8 or Article 9 of the

UCC shall have the meanings given therein unless otherwise defined in this

Agreement.

 

(b)         All

references to the plural herein shall also mean the singular and to the

singular shall also mean the plural unless the context otherwise requires.

 

(c)          All

references to any Borrower, Guarantor, Agent and Lenders pursuant to the

definitions set forth in the recitals hereto, or to any other person herein,

shall include their respective successors and assigns.

 

(d)         The

words “hereof”, “herein”, “hereunder”, “this Agreement” and words of similar

import when used in this Agreement shall refer to this Agreement as a whole and

not any particular provision of this Agreement and as this Agreement now exists

or may hereafter be amended, modified, supplemented, extended, renewed,

restated or replaced.

 

125

 

(e)          The

word “including” when used in this Agreement shall mean “including, without

limitation”.

 

(f)            An

Event of Default shall exist or continue or be continuing until such Event of

Default is waived in accordance with Section 11.3 or is cured in a manner

satisfactory to Agent, if such Event of Default is capable of being cured as

determined by Agent.

 

(g)         For

all purposes of this Agreement (but not for purposes of the preparation of any

financial statements delivered pursuant hereto), the equivalent in Euros,

Sterling, or other currency of any amount in US Dollars, and the equivalent

other than US Dollars of any amount in Euros, Sterling or other currency, shall

be determined pursuant to the Currency Exchange Convention.

 

(h)         All

references to the term “good faith” used herein when applicable to Agent or any

Lender shall mean, notwithstanding anything to the contrary contained herein or

in the UCC, honesty in fact in the conduct or transaction concerned.  Borrowers and Guarantors shall have the

burden of proving any lack of good faith on the part of Agent or any Lender

alleged by any Borrower or Guarantor at any time.

 

(i)             Any

accounting term used in this Agreement shall have, unless otherwise

specifically provided herein, the meaning customarily given in accordance with

GAAP, and all financial computations hereunder shall be computed unless

otherwise specifically provided herein, in accordance with GAAP as consistently

applied and using the same method for inventory valuation as used in the

preparation of the financial statements of US Borrower most recently received

by Agent prior to the date hereof.

 

(j)             In

the computation of periods of time from a specified date to a later specified

date, the word “from” means “from and including”, the words “to” and “until”

each mean “to but excluding” and the word “through” means “to and including”.

 

(k)          Unless

otherwise expressly provided herein, (i) references herein to any agreement,

document or instrument shall be deemed to include all subsequent amendments,

modifications, supplements, extensions, renewals, restatements or replacements

with respect thereto, but only to the extent the same are not prohibited by the

terms hereof or of any other Financing Agreement, and (ii) references to any

statute or regulation are to be construed as including all statutory and

regulatory provisions consolidating, amending, replacing, recodifying,

supplementing or interpreting the statute or regulation.

 

(l)             The

captions and headings of this Agreement are for convenience of reference only

and shall not affect the interpretation of this Agreement.

 

126

 

(m)       This

Agreement and other Financing Agreements may use several different limitations,

tests or measurements to regulate the same or similar matters.  All such limitations, tests and measurements

are cumulative and shall each be performed in accordance with their terms.

 

(n)         This

Agreement and the other Financing Agreements are the result of negotiations

among and have been reviewed by counsel to Agent and the other parties, and are

the products of all parties. 

Accordingly, this Agreement and the other Financing Agreements shall not

be construed against Agent or Lenders merely because of Agent’s or any Lender’s

involvement in their preparation.

 

13.3                           Notices. All notices, requests and demands hereunder

shall be in writing and deemed to have been given or made:  if delivered in person, immediately upon

delivery; if by telex, telegram or facsimile transmission, immediately upon

sending and upon confirmation of receipt; if by nationally recognized overnight

courier service with instructions to deliver the next Business Day, one (1)

Business Day after sending; and if by certified mail, return receipt requested,

five (5) days after mailing.  All

notices, requests and demands upon the parties are to be given to the following

addresses (or to such other address as any party may designate by notice in

accordance with this Section):

 

	

  If to any Borrower or

  Guarantor:

  	

   

  	

  Mackie Designs Inc.

  	

   

  
	

   

  	

   

  	

  16220 Woodinville-Redmond Rd., N.E.

  	

   

  
	

   

  	

   

  	

  Woodinville, Washington 98072

  	

   

  
	

   

  	

   

  	

  Attention: Chief Financial Officer

  	

   

  
	

   

  	

   

  	

  Telephone No.: (425) 487-4333

  	

   

  
	

   

  	

   

  	

  Telecopy No.: (425) 892-6595

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  with a copy to:

  	

   

  	

  Sun Mackie,

  LLC

  	

   

  
	

   

  	

   

  	

  5200 Town Center Circle, Suite 470

  	

   

  
	

   

  	

   

  	

  Boca Raton, Florida 33486

  	

   

  
	

   

  	

   

  	

  Attention:

  	

  Marc J.

  Leder, Rodger R. Krouse

  	

   

  
	

   

  	

   

  	

   

  	

  and C. Deryl

  Couch

  	

   

  
	

   

  	

   

  	

  Telephone No.: (561) 394-0550

  	

   

  
	

   

  	

   

  	

  Telecopy No.: (561) 394-0540

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  with a copy to:

  	

   

  	

  Kirkland

  & Ellis

  	

   

  
	

   

  	

   

  	

  200 East Randolph

  	

   

  
	

   

  	

   

  	

  Chicago, Illinois 60601

  	

   

  
	

   

  	

   

  	

  Attention: Francesco Penati, Esq.

  	

   

  
	

   

  	

   

  	

  Telephone No.: (312) 861-3053

  	

   

  
	

   

  	

   

  	

  Telecopy No.: (312) 861-2200

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  If to Agent:

  	

   

  	

  Congress

  Financial Corporation (Florida)

  	

   

  
	

   

  	

   

  	

  777 Brickell Avenue

  	

   

  
	

   

  	

   

  	

  Miami, Florida 33131

  	

   

  

 

127

 

	

   

  	

   

  	

  Attention: Portfolio Manager

  	

   

  
	

   

  	

   

  	

  Telephone No.: 305-371-6671

  	

   

  
	

   

  	

   

  	

  Telecopy No.: 305-371-9456

  	

   

  

 

13.4                           Partial Invalidity.  If any provision of this Agreement is held to be invalid or

unenforceable, such invalidity or unenforceability shall not invalidate this

Agreement as a whole, but this Agreement shall be construed as though it did

not contain the particular provision held to be invalid or unenforceable and

the rights and obligations of the parties shall be construed and enforced only

to such extent as shall be permitted by applicable law.

 

13.5                           Successors. 

This Agreement, the other Financing Agreements and any other document

referred to herein or therein shall be binding upon and inure to the benefit of

and be enforceable by Agent, Lenders, Borrowers, Guarantors and their

respective successors and assigns, except that Borrower may not assign its

rights under this Agreement, the other Financing Agreements and any other

document referred to herein or therein without the prior written consent of

Agent and Lenders.  Any such purported

assignment without such express prior written consent shall be void.  No Lender may assign its rights and

obligations under this Agreement without the prior written consent of Agent,

except as provided in Section 13.6 below. The terms and provisions of this

Agreement and the other Financing Agreements are for the purpose of defining

the relative rights and obligations of Borrowers, Guarantors, Agent and Lenders

with respect to the transactions contemplated hereby and there shall be no

third party beneficiaries of any of the terms and provisions of this Agreement

or any of the other Financing Agreements.

 

13.6                           Assignments; Participations.

 

(a)          Each

Lender may assign all or, if less than all, a portion equal to at least the US

Dollar Equivalent of US$5,000,000 in the aggregate for the assigning Lender, of

such rights and obligations under this Agreement to one or more Eligible

Transferees (but not including for this purpose any assignments in the form of

a participation), each of which assignees shall become a party to this

Agreement as a Lender by execution of an Assignment and Acceptance; provided, that,

(i) such transfer or assignment will not be effective until recorded by Agent

on the Register, (ii) each such assignment by a Lender shall be of a uniform

(and not a varying) percentage of all rights and obligations in respect of the

Revolving Loans, Term Loans and Commitments of such Lender and (iii) Agent

shall have received for its sole account payment of a processing fee from the

assigning Lender or the assignee in the amount of US$5,000.

 

(b)         Agent

shall maintain a register of the names and addresses of Lenders, their

Commitments and the principal amount of their Loans (the “Register”).  Agent shall also maintain a copy of each

Assignment and Acceptance delivered to and accepted by it and shall modify the

Register to give effect to each Assignment and Acceptance.  The entries in the Register shall be

conclusive and binding for all purposes, absent manifest error, and any

Borrowers, Obligors, Agent and Lenders may treat each Person whose name is

recorded in the Register as a Lender hereunder for all purposes of this

 

128

 

Agreement.  The Register shall be available for

inspection by Administrative Borrower and any Lender at any reasonable time and

from time to time upon reasonable prior notice.

 

(c)          Upon

such execution, delivery, acceptance and recording, from and after the

effective date specified in each Assignment and Acceptance,  the assignee thereunder shall be a party

hereto and to the other Financing Agreements and, to the extent that rights and

obligations hereunder have been assigned to it pursuant to such Assignment and

Acceptance, have the rights and obligations (including, without limitation, the

obligation to participate in Letter of Credit Accommodations) of a Lender

hereunder and thereunder and  the

assigning Lender shall, to the extent that rights and obligations hereunder

have been assigned by it pursuant to such Assignment and Acceptance, relinquish

its rights and be released from its obligations under this Agreement.

 

(d)         By

execution and delivery of an Assignment and Acceptance, the assignor and

assignee thereunder confirm to and agree with each other and the other parties

hereto as follows: (i) other than as provided in such Assignment and

Acceptance, the assigning Lender makes no representation or warranty and

assumes no responsibility with respect to any statements, warranties or

representations made in or in connection with this Agreement or any of the

other Financing Agreements or the execution, legality, enforceability,

genuineness, sufficiency or value of this Agreement or any of the other

Financing Agreements furnished pursuant hereto, (ii) the assigning Lender makes

no representation or warranty and assumes no responsibility with respect to the

financial condition of any Borrower, Obligor or any of their Subsidiaries or

the performance or observance by any Borrower or Obligor of any of the

Obligations; (iii) such assignee confirms that it has received a copy of this

Agreement and the other Financing Agreements, together with such other

documents and information it has deemed appropriate to make its own credit

analysis and decision to enter into such Assignment and Acceptance, (iv) such

assignee will, independently and without reliance upon the assigning Lender,

Agent and based on such documents and information as it shall deem appropriate

at the time, continue to make its own credit decisions in taking or not taking

action under this Agreement and the other Financing Agreements, (v) such

assignee appoints and authorizes Agent to take such action as agent on its

behalf and to exercise such powers under this Agreement and the other Financing

Agreements as are delegated to Agent by the terms hereof and thereof, together

with such powers as are reasonably incidental thereto, and (vi) such assignee

agrees that it will perform in accordance with their terms all of the

obligations which by the terms of this Agreement and the other Financing

Agreements are required to be performed by it as a Lender.  Agent and Lenders may furnish any

information concerning any Borrower or Obligor in the possession of Agent or

any Lender from time to time to assignees and Participants.

 

(e)          Each

Lender may sell participations to one or more banks or other entities in or to

all or a portion of its rights and obligations under this Agreement and the

other Financing Agreements (including, without limitation, all or a portion of

its Commitments and the Loans owing to it and its participation in the Letter

of Credit Accommodations, without the consent of Agent or the other Lenders); provided,

that, (i) such Lender’s obligations under this Agreement (including,

without limitation, its Commitment hereunder) and the other Financing

Agreements shall remain unchanged,

 

129

 

(ii) such

Lender shall remain solely responsible to the other parties hereto for the

performance of such obligations, and Borrowers, Guarantors, the other Lenders

and Agent shall continue to deal solely and directly with such Lender in

connection with such Lender’s rights and obligations under this Agreement and

the other Financing Agreements, and (iii) the Participant shall not have any

rights under this Agreement or any of the other Financing Agreements (the

Participant’s rights against such Lender in respect of such participation to be

those set forth in the agreement executed by such Lender in favor of the

Participant relating thereto) and all amounts payable by any Borrower or

Obligor hereunder shall be determined as if such Lender had not sold such participation.

 

(f)            Nothing

in this Agreement shall prevent or prohibit any Lender from pledging its Loans

hereunder to a Federal Reserve Bank in support of borrowings made by such

Lenders from such Federal Reserve Bank.

 

(g)         Borrowers

and Guarantors shall assist Agent or any Lender permitted to sell assignments

or participations under this Section 13.6 in whatever manner reasonably

necessary in order to enable or effect any such assignment or participation,

including (but not limited to) the execution and delivery of any and all

agreements, notes and other documents and instruments as shall be requested and

the delivery of informational materials, appraisals or other documents for, and

the participation of relevant management in meetings and conference calls with,

potential Lenders or Participants. Borrowers shall certify the correctness,

completeness and accuracy, in all material respects, of all descriptions of

Borrowers and Guarantors and their affairs provided, prepared or reviewed by

any Borrower or Guarantor that are contained in any selling materials and all

other information provided by it and included in such materials.

 

13.7                           Entire Agreement.  This Agreement, the other Financing Agreements, any supplements

hereto or thereto, and any instruments or documents delivered or to be

delivered in connection herewith or therewith represents the entire agreement

and understanding concerning the subject matter hereof and thereof between the

parties hereto, and supersede all other prior agreements, understandings, negotiations

and discussions, representations, warranties, commitments, proposals, offers

and contracts concerning the subject matter hereof, whether oral or

written.  In the event of any

inconsistency between the terms of this Agreement and any schedule or exhibit

hereto, the terms of this Agreement shall govern.

 

13.8                           Counterparts,

Etc.  This Agreement or any of the other Financing

Agreements may be executed in any number of counterparts, each of which shall

be an original, but all of which taken together shall constitute one and the

same agreement. Delivery of an executed counterpart of this Agreement or any of

the other Financing Agreements by telefacsimile shall have the same force and

effect as the delivery of an original executed counterpart of this Agreement or

any of such other Financing Agreements. 

Any party delivering an executed counterpart of any such agreement by

telefacsimile shall also deliver an original executed counterpart, but the

failure to do so shall not affect the validity, enforceability or binding

effect of such agreement.

 

130

 

13.9                           Confidentiality.

 

(a)          Agent

and each Lender shall use all reasonable efforts to keep confidential, in

accordance with its customary procedures for handling confidential information

and safe and sound lending practices, any non-public information supplied to it

by any Borrower or Guarantor pursuant to this Agreement, provided, that,

nothing contained herein shall limit the disclosure of any such information: (i)

to the extent required by statute, rule, regulation, subpoena or court order,

(ii) to bank examiners and other regulators, auditors and/or accountants, (iii)

in connection with any litigation to which Agent or such Lender is a party

relating to this Agreement, (iv) to any Lender or any Affiliate of any Lender

or to any Participant (or prospective Lender or Participant) so long as such

Lender or Participant (or prospective Lender or Participant) shall have been

instructed to treat such information as confidential in accordance with this

Section 13.9, or (v) to counsel for Agent or any Participant or Lender (or

prospective Participant or Lender so long as clause (iv) of this Section is

satisfied as to such person).

 

(b)         In

the event that Agent or any Lender receives a request or demand to disclose any

confidential information pursuant to any subpoena or court order, Agent or such

Lender, as the case may be, agrees (i) to the extent permitted by applicable

law or if permitted by applicable law, statute, rule or regulation to the

extent Agent determines in good faith that it will not create any risk of

liability to Agent or such Lender, that Agent or such Lender will promptly

notify Administrative Borrower of such request so that Administrative Borrower

may seek a protective order or other appropriate relief or remedy and (ii) if

disclosure of such information is required, disclose such information and,

subject to reimbursement by Borrowers of Agent’s or such Lender’s reasonable

expenses, cooperate with Administrative Borrower in reasonable efforts to

obtain an order or other reliable assurance that confidential treatment will be

accorded to such portion of the disclosed information which Administrative

Borrower so designates, to the extent permitted by applicable law or if

permitted by applicable law, to the extent Agent or such Lender determines in

good faith that it will not create any risk of liability to Agent or such

Lender.

 

(c)          In

no event shall this Section 13.9 or any other provision of this Agreement or applicable

law be deemed: (i) to apply to or restrict disclosure of information that has

been or is made public by any Borrower or Guarantor or any third party, (ii) to

apply to or restrict disclosure of information that was or becomes available to

Agent or any Lender from a person other than any Borrower or Guarantor, (iii)

require Agent or any Lender to return any materials furnished by any Borrower

or Guarantor to Agent or (iv) prevent Agent from responding to routine

informational requests in accordance with the Code of Ethics for the

Exchange of Credit Information promulgated by The Robert Morris Associates

or other applicable industry standards relating to the exchange of credit

information.  The obligations of Agent

and Lenders under this Section 13.9 shall supersede and replace the obligations

of Agent and Lenders under any confidentiality letter signed prior to the date

hereof.

 

13.10                     Liability of UK Borrower.  Notwithstanding anything to the contrary

contained herein or in any other Financing Agreements (including Sections 6.4,

6.5, 6.12, 9.25 and 11.6), UK Borrower

 

131

 

shall not be

jointly and severally liable for the Obligations of US Borrower or any

Guarantor to Agent and Lenders; it being understood that UK Borrower shall be

liable for the Obligations of UK Borrower to Agent and Lenders.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

132

 

IN WITNESS

WHEREOF, Agent, Lenders, Borrowers and Guarantors have caused these presents to

be duly executed as of the day and year first above written.

 

 

	

   

  	

  BORROWERS

  
	

   

  	

   

  	

   

  
	

   

  	

  MACKIE

  DESIGNS INC.

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

  /s/ James T.

  Engen

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  Title:

  	

  President

  & CEO

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  MACKIE

  DESIGNS UK PLC

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

  James T.

  Engen

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  Title:

  	

  Director

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

  Tony

  Williams

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  Title:

  	

  Director

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  GUARANTORS

  
	

   

  	

   

  	

   

  
	

   

  	

  MACKIE

  DESIGNS MANUFACTURING, INC.

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

  /s/ James T.

  Engen

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  Title:

  	

  President

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  SIA SOFTWARE

  COMPANY, INC.

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

  /s/ James T.

  Engen

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  Title:

  	

  President

  	

   

  
										

 

[SIGNATURES CONTINUED ON NEXT PAGE]

 

133

 

[SIGNATURES CONTINUED FROM PREVIOUS PAGE]

 

	

   

  	

  MACKIE

  INVESTMENT CO.

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

  /s/ James T.

  Engen

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  Title:

  	

  President

  & CEO

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  AGENT

  
	

   

  	

   

  	

   

  
	

   

  	

  CONGRESS FINANCIAL CORPORATION (FLORIDA), as Agent

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

  Daniel Cott

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  Title:

  	

  Sr. Vice

  President

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  LENDER

  
	

   

  	

   

  	

   

  
	

   

  	

  CONGRESS FINANCIAL CORPORATION (FLORIDA)

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

  Daniel Cott

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  Title:

  	

  Sr. Vice

  President

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  Commitment:

  US$28,500,000

  
								

 

134

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