Document:

Exhibit 10.1

 

LIMITED WAIVER AND AMENDMENT NO. 1

TO

CREDIT AGREEMENT

 

This LIMITED

WAIVER AND AMENDMENT NO. 1 TO CREDIT AGREEMENT (this “Amendment”) is

entered into as of this 5th day of February, 2003, by and among ROLLER BEARING

COMPANY OF AMERICA, INC., a Delaware corporation (“Borrower”); the other

Credit Parties signatory hereto; GENERAL ELECTRIC CAPITAL CORPORATION, a

Delaware corporation (in its individual capacity, “GE Capital”), for

itself, as Lender, and as Agent for Lenders, and the other Lenders signatory

hereto from time to time.  Unless

otherwise specified herein, capitalized terms used in this Amendment shall have

the meanings ascribed to them in Annex A to the Credit Agreement (as

hereinafter defined).

 

RECITALS

 

WHEREAS,

Borrower, the other Credit Parties, Agent and Lenders entered into that certain

Credit Agreement dated as of May 30, 2002 (as amended, supplemented, restated

or otherwise modified from time to time, the “Credit Agreement”);

 

WHEREAS, in

December, 2002, Borrower made a cash dividend to Holdings in the amount of

$2,506,530 (the “December Dividend”) the proceeds of which were used by

Holdings to pay the semiannual interest due December 15 under the Discount

Debentures and the Discount Debentures Indenture;

 

WHEREAS,

Borrower has informed Agent and Lenders that the payment of the December

Dividend, as a Restricted Payment under the Senior Subordinated Indenture, did

not comply with the terms of the Senior Subordinated Indenture (“the Senior

Subordinated Indenture Default”); and

 

WHEREAS,

Borrower has requested that Agent and Lenders (i) grant limited waivers

with respect to the Credit Agreement in connection with the payment of the

December Dividend and (ii) amend certain provisions of the Credit

Agreement, all upon the terms and subject to the conditions as herein set

forth.

 

NOW THEREFORE,

in consideration of the foregoing recitals, mutual agreements contained herein

and for good and valuable consideration, the receipt and sufficiency of which

are hereby acknowledged, Agent, Lenders, Borrower and the Credit Parties agree

as follows:

 

SECTION 1.                            Amendments. 

The Credit Agreement is hereby amended as follows:

 

(a)                                  Section 1.1(a)(iii) of the Credit

Agreement is amended by replacing the phrase “to be less than $7,500,000” with

the phrase “to be less than $3,500,000 during the period from January 31, 2003

through April 30, 2003 or to be less than $7,500,000 at any other time”.

 

(b)                                 Section 1.3(b)(i) of the Credit Agreement

is amended by replacing the phrase “is less than $7,500,000” with the phrase

“is less than $3,500,000 during the period from January 31, 2003 through April

30, 2003 or is less than $7,500,000 at any other time”.

 

1

 

(c)                                  Section 1.3(b)(v) of the Credit Agreement

is amended by adding thereto the following clause (C), relettering existing

clauses (C) through (E) as clauses (D) through (F):

 

(C)  the Holdings February 2003

Issuance, so long as all proceeds of such issuance are invested in Borrower

within one Business Day following the receipt thereof by Holdings;

 

(d)                                 Section 1.6(h) of the Credit Agreement is

amended by adding at the end thereof the following:

 

provided, that the

Borrowing Availability based on such obligations shall not in any event exceed

$7,500,000 in the aggregate;

 

(e)                                  Section 2.2(d) of the Credit Agreement is

amended by replacing the phrase “shall be less than $7,500,000” with the phrase

“shall be less than $3,500,000 during the period from January 31, 2003 through

April 30, 2003 or shall be less than $7,500,000 at any other time”.

 

(f)                                    Section 6.2 of the Credit Agreement is

hereby amended by adding thereto the following clause (k), relettering existing

clause (k) as clause (l):

 

(k)  Borrower may make

(i) a one-time loan to (A) Schaublin for the purpose of repaying in

its entirety the Swiss Loan and the related indebtedness to Credit Suisse and

(B) RBC France for the purpose of repaying in its entirety its outstanding

indebtedness to CCF, provided,

that such loan shall not exceed the Dollar equivalent of Swiss Francs

10,375,000 in the aggregate, and (ii) from time to time loans to Schaublin

Holding or any of the Schaublin Operating Companies to provide working capital

financing and for other general corporate purposes, provided, that the outstanding balance of any such loans

shall not exceed at any time $1,000,000 in the aggregate (collectively, the “Schaublin

Loans”);

 

(g)                                 Section 6.3 of the Credit Agreement is

hereby amended by amending and restating clause (vi) thereof as follows:

 

(vi)  Indebtedness consisting of

intercompany loans and advances, made by Borrower to any Secured Guarantor or

by any Secured Guarantor to Borrower or another Secured Guarantor or

Indebtedness consisting of the Schaublin Loans made by Borrower to Schaublin

Holding or any of the Schaublin Operating Companies; provided, that:  (A) Borrower shall have executed and

delivered to each such Secured Guarantor, and each such Secured Guarantor and

Schaublin Holding and each Schaublin Operating Company shall have executed and

delivered to Borrower or another such Secured Guarantor, as applicable, a

demand note

 

2

 

(collectively, the “Intercompany Notes”) to evidence any such

intercompany Indebtedness owing at any time by Borrower to such Secured

Guarantor or by such Secured Guarantor, Schaublin Holding and the Schaublin

Operating Companies to Borrower or such other Secured Guarantor, as applicable,

which Intercompany Notes shall be in form and substance reasonably satisfactory

to Agent and shall be pledged and delivered to Agent pursuant to the applicable

Pledge Agreement or Security Agreement as additional collateral security for

the Obligations; (B) Borrower, each Secured Guarantor, Schaublin Holding

and each of the Schaublin Operating Companies shall record all intercompany

transactions on its books and records in a manner reasonably satisfactory to

Agent; (C) the obligations of Borrower and each Secured Guarantor under

any such Intercompany Notes shall be subordinated to the Obligations in a manner

reasonably satisfactory to Agent; (D) no Event of Default shall be

continuing after giving effect to any such proposed intercompany loan; and

(E) the aggregate balance of all such intercompany loans, including the

Schaublin Loans, owing by any Secured Guarantor, Schaublin Holding or any of

the Schaublin Operating Companies incurred during the time that the EBITDA of

such Person has been negative for a trailing twelve month period ending on the

last day of any Fiscal Month shall not be increased by more than $2,000,000

over the amount of such Person’s intercompany loan obligations as of the last

day of such period; provided, that a Secured Guarantor,

Schaublin Holding or any of the Schaublin Operating Companies, as the case may

be, shall no longer be subject to that $2,000,000 limitation if that Secured

Guarantor, Schaublin Holding or the Schaublin Operating Company, as applicable,

has had positive EBITDA for the trailing twelve-month periods ending on the

last day of six consecutive Fiscal Months; provided, further, that if a Secured

Guarantor, Schaublin Holding or any of the Schaublin Operating Companies, as

the case may be, has been subject to that $2,000,000 limitation, then became

exempt from it and again has a negative EBITDA for a trailing twelve-month

period, not more than $2,000,000 of additional intercompany loans may be

received by it after the date when it again has a negative EBITDA;

 

(h)                                 Section 6.14 of the Credit Agreement is

hereby amended by adding thereto the following clause (d):

 

(d)  Notwithstanding the

foregoing Section 6.14(a), Borrower may pay a Dividend to Holdings in an

amount not to exceed $3,050,000  as long as (i) the Holdings February

Issuance has occurred and the proceeds thereof were used in accordance with Section

1.3(b)(v)(C); (ii) promptly upon receipt of the proceeds of such

Dividend, Holdings immediately uses all of such proceeds solely to 

 

3

 

redeem the preferred Stock of Holdings issued pursuant to the Holdings

February Issuance; and (iii) no Default or Event of Default has occurred and is

continuing.

 

(i)                                     Section 6.14(a) of the Credit Agreement

is hereby amended by amending and restating clauses (a) and (e) thereof as

follows:

 

(a)  payments of interest and

principal of intercompany loans and advances between Borrower and Secured

Guarantors, Schaublin Holding and Schaublin Operating Companies to the extent

permitted by Section 6.3;

 

(e)  payments of management fees

to Whitney & Co. in equal quarterly installments, as long as such payments

of management fees do not exceed $450,000 in the aggregate during any Fiscal

Year and a payment of a fee to Whitney & Co. not to exceed $151,261.50 in

connection with the Holdings February 2003 Issuance;

 

(j)                                     Section 6.16 of the Credit Agreement is

amended by replacing the phrase “Secured Guarantor” with the phrase “Secured

Guarantor, Schaublin Holding or any of the Schaublin Operating Companies”.

 

(k)                                  Section 8.1(f) of the Credit Agreement is

amended by replacing the phrase “less $7,500,000” with the phrase “less

$3,500,000 during the period from January 31, 2003 through April 30, 2003 or less

$7,500,000 at any other time”.

 

(l)                                     Section 8.1(m) of the Credit Agreement is

amended by replacing the phrase “Secured Guarantor” with the phrase “Secured

Guarantor, Schaublin Holding or any of the Schaublin Operating Companies”.

 

(m)                               Annex A to the Credit

Agreement is hereby amended by adding the following definitions thereto in their appropriate

alphabetical order:

 

“Bovagnet” means Establissements J. Bovagnet SA, a French société anomyme

and subsidiary of Schaublin.

 

“Holdings February 2003 Issuance” means an issuance by Holdings

of shares of its Class A Preferred Stock occurring on or before February 15,

2003 resulting in gross cash proceeds not to exceed $3,025,230.

 

“RBC France” means myonic SAS, Les Ulis (F) (to be renamed RBC

France SAS), a French société

par actions simplifiée and wholly-owned subsidiary of Schaublin.

 

4

 

“Schaublin” means Schaublin SA, a Swiss corporation and

wholly-owned Subsidiary of Schaublin Holding (excluding directors’ qualifying

shares).

 

“Schaublin Holding” means Schaublin Holding SA, a Swiss

corporation and wholly-owned Subsidiary of Borrower (excluding directors’

qualifying shares).

 

“Schaublin Loans” has the meaning assigned to it in Section

6.2(k).

 

“Schaublin Operating Companies” means Shaublin, Bovagnet and RBC

France.

 

“Swiss Loan” means the Indebtedness of RBC Schaublin S.A. to

Credit Suisse pursuant to the terms of the Credit Agreement dated as of

December 27, 1999, as amended and restated by that certain Credit Agreement

dated as of December 12, 2002, not to exceed Swiss Francs 11,375,000 in the

aggregate.”

 

(n)                                 Paragraph (b)

of Annex G to the Credit Agreement is hereby amended by replacing the phrase “to exceed

$7,500,000” with the phrase “to exceed $3,500,000 during the period from

January 31, 2003 through April 30, 2003 and to exceed $7,500,000 at any other

time”.

 

(o)                                 Exhibit 4.1(b) to the Credit Agreement is hereby

replaced with Exhibit 4.1(b) attached hereto.

 

SECTION 2.                            Limited Waiver.  Borrower

hereby acknowledges and agrees that an Event of Default exists under Section

6.14(b)(B) of the Credit Agreement by virtue of Borrower’s payment of the

December Dividend that resulted in the Senior Subordinated Indenture Default

(the “Existing Default”). 

Immediately upon the effectiveness of this Amendment, Agent and Lenders

hereby waive the Existing Default, provided, that Agent and Lenders shall

receive no later than February 15, 2003 a certificate from Borrower

representing and warranting to Agent and Lenders that the Senior Subordinated

Indenture Default has been cured and that no default or even of default exists

under the Senior Subordinated Indenture and the other Subordinated Debt

Documents (it being understood and agreed that if Agent and Lenders do not

receive such certificate as provided herein or any declaration, demand,

exercise of any default rights and remedies or other action is taken with

respect to the Subordinated Indenture Default, Agent’s and Lenders’ waiver

hereunder shall terminate and be of no further force and effect), and provided,

further,

that nothing contained herein shall in any way waive, release modify or limit

Borrower’s or any Credit Party’s obligations to otherwise comply with all terms

and conditions of the Credit Agreement and the other Loan Documents nor any of

Agent’s and Lenders’ rights and privileges in respect thereof.

 

5

 

SECTION 3.                            Conditions to Effectiveness.  This Amendment shall be effective upon

satisfaction of the following conditions precedent:

 

(a)                                  This Amendment shall have been executed

and delivered by Lenders and the Credit Parties.

 

(b)                                 Each Lender executing this Amendment shall

have been paid an amendment fee equal to the product of (i) 15 basis

points multiplied by (ii) the sum of (x) the portion of the principal

balance of the Term Loan held by such Lender plus (y) the Revolving

Loan Commitment of such Lender, which fee shall be non-refundable and fully

earned upon execution hereof by the Lenders.

 

(c)                                  The execution and delivery or

satisfaction of each of the agreements, documents or other instruments or

conditions set forth in the closing checklist attached hereto as Annex A

(the “Closing Checklist”), in a form, substance and manner satisfactory

to Agent.

 

SECTION 4.                            Limited Waiver and

Amendment.  The limited waiver and amendments set forth

herein are effective solely for the purposes set forth herein and shall be

limited precisely as written and shall not be deemed to (i) except as expressly

provided in this Amendment, be a consent to any amendment, waiver or

modification of any term or condition of the Credit Agreement or of any other

Loan Document or (ii) prejudice any right or rights that Agent or Lenders may

now have or may have in the future under or in connection with the Credit

Agreement or any other Loan Document.

 

SECTION 5.                            Representations And Warranties Of Credit Parties.

 

(a)                                  The execution, delivery and performance

by each Credit Party of this Amendment has been duly authorized by all

necessary corporate action and this Amendment is a legal, valid and binding

obligation of such Credit Party enforceable against such Credit Party in

accordance with its terms, except as the enforcement thereof may be subject to

(i) the effect of any applicable bankruptcy, insolvency, reorganization,

moratorium or similar law affecting creditors’ rights generally and (ii)

general principles of equity (regardless of whether such enforcement is sought

in a proceeding in equity or at law);

 

(b)                                 Each of the representations and

warranties contained in the Credit Agreement is true and correct in all

material respects on and as of the date hereof as if made on the date hereof,

except to the extent that such representations and warranties expressly relate

to an earlier date; and

 

(c)                                  Neither the execution, delivery and

performance of this Amendment by each Credit Party nor the consummation of the

transactions contemplated hereby does or shall contravene, result in a breach

of, or violate (i) any provision of such Credit Party’s certificate or articles

of incorporation or bylaws, (ii) any law or regulation, or any order or decree

of any court or government instrumentality, or (iii) any indenture, mortgage,

deed of trust, lease, agreement or other instrument to which such Credit Party

or any of its Subsidiaries is a party or by which such Credit Party or any of

its Subsidiaries or any of their property is bound, except in any such case to

the extent such conflict or breach has been waived by a written waiver

document, a copy of which has been delivered to Agent on or before the date

hereof.

 

6

 

SECTION 6.                            Reference To And Effect Upon The Credit Agreement.

 

(a)                                  Except as specifically set forth above,

the Credit Agreement and the other Loan Documents shall remain in full force

and effect and are hereby ratified and confirmed.

 

(b)                                 The execution, delivery and effectiveness

of this Amendment shall not operate as a waiver of any right, power or remedy

of Agent or any Lender under the Credit Agreement or any other Loan Document,

nor constitute amendment of any provision of the Credit Agreement or any other

Loan Document, except as specifically set forth herein.  Upon the effectiveness of this Amendment,

each reference in the Credit Agreement to “this Agreement”, “hereunder”,

“hereof”, “herein” or words of similar import shall mean and be a reference to

the Credit Agreement as amended hereby.

 

(c)                                  Each Credit Party acknowledges and agrees

that the execution and delivery by Agent and Requisite Lenders of this

Amendment shall not be deemed (i) to create a course of dealing or otherwise

obligate Agent or Lenders to forbear, waive, consent or execute similar amendments

under the same or similar circumstances in the future, or (ii) to amend,

relinquish or impair any right of Agent or Lenders to receive any indemnity or

similar payment from any Person or entity as a result of any matter arising

from or relating to this Amendment.

 

SECTION 7.                            Costs And Expenses.  As provided

in Section 11.3 of the Credit Agreement, Borrowers agree to reimburse Agent for

all fees, costs and expenses, including the fees, costs and expenses of counsel

or other advisors for advice, assistance, or other representation in connection

with this Amendment.

 

SECTION 8.                            GOVERNING LAW.  THIS AMENDMENT SHALL BE GOVERNED BY AND

CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS

PROVISIONS) OF THE STATE OF NEW YORK.

 

SECTION 9.                            Headings.  Section

headings in this Amendment are included herein for convenience of reference

only and shall not constitute a part of this Amendment for any other purposes.

 

SECTION 10.                     Counterparts.  This

Amendment may be executed in any number of counterparts, each of which when so

executed shall be deemed an original, but all such counterparts shall

constitute one and the same instrument. 

In the event that any signature is delivered by facsimile transmission,

such signature shall create a valid and binding obligation of the party

executing (or on whose behalf the signature is executed) the same with the same

force and effect as if such facsimile signature page were an original thereof,

and such party shall promptly follow its facsimile signature page by mailing of

a hard copy original.

 

[Signature Page Follows]

 

7

 

IN WITNESS

WHEREOF, the parties hereto have executed and delivered this Amendment as of

the date first written above.

 

	

   

  	

  BORROWER:

  
	

   

  	

   

  
	

   

  	

  ROLLER BEARING

  COMPANY OF AMERICA,

  INC.,  a Delaware corporation

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

  /s/

  	

  Anthony S.

  Cavalieri

  
	

   

  	

  Name:

  	

  Anthony S.

  Cavalieri

  
	

   

  	

  Title:

  	

  Chief Financial Officer

  
	

   

  	

   

  	

   

  
	

   

  	

  GENERAL ELECTRIC

  CAPITAL

  CORPORATION, as Agent and Lender

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

  /s/

  	

  Kevin T. Murray

  
	

   

  	

   

  	

  Duly Authorized Signatory

  
	

   

  	

   

  	

   

  
	

   

  	

  CONGRESS FINANCIAL

  CORPORATION

  (WESTERN), as Lender

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

  /s/

  	

  Jeffrey K. Scott, V.P.

  
	

   

  	

  :

  	

  Duly Authorized Signatory

  
						

 

[Signature Page to Limited Waiver and

Amendment No.1]

 

S - 1

 

The following Persons are signatories to this Amendment in their

capacity as Credit Parties and not as Borrowers.

 

	

   

  	

  CREDIT PARTIES:

  
	

   

  	

   

  
	

   

  	

  INDUSTRIAL

  TECTONICS BEARINGS

  CORPORATION, a Delaware corporation

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

  /s/

  	

  Anthony S.

  Cavalieri

  
	

   

  	

  Name:

  	

  Anthony S.

  Cavalieri

  
	

   

  	

  Title:

  	

  Chief Financial Officer

  
	

   

  	

   

  	

   

  
	

   

  	

  RBC NICE BEARINGS

  INC., a Delaware corporation

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

  /s/

  	

  Anthony S.

  Cavalieri

  
	

   

  	

  Name:

  	

  Anthony S.

  Cavalieri

  
	

   

  	

  Title:

  	

  Chief Financial Officer

  
	

   

  	

   

  
	

   

  	

  BREMEN BEARINGS,

  INC., a Delaware corporation

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

  /s/

  	

  Anthony S.

  Cavalieri

  
	

   

  	

  Name:

  	

  Anthony S.

  Cavalieri

  
	

   

  	

  Title:

  	

  Chief Financial Officer

  
	

   

  	

   

  
	

   

  	

  TYSON BEARING

  COMPANY, INC., a Delaware

  corporation

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

  /s/

  	

  Anthony S.

  Cavalieri

  
	

   

  	

  Name:

  	

  Anthony S.

  Cavalieri

  
	

   

  	

  Title:

  	

  Chief Financial Officer

  
	

   

  	

   

  
	

   

  	

  RBC LINEAR

  PRECISION PRODUCTS, INC., a

  Delaware corporation

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

  /s/

  	

  Anthony S.

  Cavalieri

  
	

   

  	

  Name:

  	

  Anthony S.

  Cavalieri

  
	

   

  	

  Title:

  	

  Chief Financial Officer

  
	

   

  	

   

  
	

   

  	

  MILLER BEARING

  COMPANY, INC., a Delaware

  corporation

  
						

 

[Signature Page to Limited Waiver and

Amendment No.1]

 

S - 2

 

	

   

  	

  By:

  	

   

  	

  /s/

  	

  Anthony S.

  Cavalieri

  
	

   

  	

  Name:

  	

  Anthony S.

  Cavalieri

  
	

   

  	

  Title:

  	

  Chief Financial Officer

  
	

   

  	

   

  
	

   

  	

  RBC OKLAHOMA, INC.,

  a Delaware corporation

  
	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

  /s/

  	

  Anthony S. Cavalieri

  
	

   

  	

   

  	

  Duly Authorized Signatory

  
						

 

[Signature Page to Limited Waiver and

Amendment No.1]

 

S - 3

 

EXHIBIT 4.1(b)

to

CREDIT AGREEMENT

 

BORROWING BASE CERTIFICATE

 

ROLLER BEARING COMPANY OF AMERICA, INC.

 

Date: 

               ,          

 

This Certificate is given by Roller Bearing Company of America, Inc., a

Delaware corporation (“Borrower”) pursuant to Section 4.1(b) of that

certain Credit Agreement dated as of May 30, 2002 among Borrower, the other

Credit Parties party thereto, the Lenders from time to time party thereto and

General Electric Capital Corporation, as agent for the Lenders (as such

agreement may have been amended, restated, supplemented or otherwise modified

from time to time the “Credit Agreement”).  Capitalized terms used herein without definition shall have the

meanings set forth in the Credit Agreement.

 

The undersigned is duly authorized to execute and deliver this

Certificate on behalf of Borrower.  By

executing this Certificate such officer hereby certifies to Agent and Lenders

on behalf of Borrowers and without personal liability that:

 

(a)                                  Attached hereto as Schedule 1

is a calculation of the proposed Borrowing Base for Borrower as of the above

date;

 

(b)                                 Based on such schedule,

the proposed Borrowing Base as of the above date is:

 

$               

 

(c)                                  except as set forth

on Schedule 2 hereto, Borrower is in compliance with the Minimum

Borrowing Availability contained in Annex G of the Credit Agreement, as

demonstrated on Schedule 2 hereto

 

(d)                                 Agent shall have the

right to establish or modify or eliminate Reserves against Eligible Accounts

and Eligible Inventory from time to time in its reasonable credit judgment to

reflect issues with respect to the collectability of Accounts arising or

discovered by Agent after the Closing Date or to reflect issues with respect to

the salability of Inventory arising or discovered by Agent after the Closing

Date.  In addition, Agent reserves the

right at any time to adjust any of the criteria set forth below and to

establish new criteria in its reasonable credit judgment to reflect changes in

the Borrower’s or the applicable Secured Guarantor’s business operations, the

collectability of Accounts or salability of Inventory, subject to the approval

of Requisite Revolving Lenders in the case of adjustments or new criteria which

have the effect of making more credit

 

1

 

 

available.  Borrower acknowledges that the exercise by

Agent of any right pursuant to this clause (d) shall have the effect of

adjusting the proposed Borrowing Base set forth above.

 

2

 

IN WITNESS WHEREOF, Borrower has caused this Certificate to be executed

by its

                               

this         day of

                      ,

        .

 

	

   

  	

  ROLLER BEARING

  COMPANY OF AMERICA,

  INC.

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  By:

  	

   

  
	

   

  	

  Its:

  	

   

  

 

[Signature Page to Borrowing Base Certificate]

 

3

 

Schedule 1

to Exhibit 4.1(b)

 

BORROWING BASE CALCULATION

 

ROLLER BEARING COMPANY OF AMERICA, INC.

 

[All dollar amounts are in thousands]

 

	

  Line 1

  	

  Accounts of the Borrower and Secured Guarantors.

  	

   

  	

  $

  	

   

  	

  *

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

  Less:Ineligible Accounts:

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Accounts that do not arise from the sale of goods or the performance

  of services by Borrower or a Secured Guarantor in the ordinary course of its

  business;

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Accounts (i) upon which Borrower’s or the applicable Secured

  Guarantor’s right to receive payment is not absolute or is contingent upon

  the fulfillment of any condition whatsoever or (ii) as to which Borrower or

  the applicable Secured Guarantor is not able to bring suit or otherwise

  enforce its remedies against the Account Debtor through judicial process, or

  (iii) if the Account represents a progress billing consisting of an invoice

  for goods sold or used or services rendered pursuant to a contract under

  which the Account Debtor’s obligation to pay that invoice is subject to

  Borrower’s or the Secured Guarantors’ completion of further performance under

  such contract or is subject to the equitable lien of a surety bond issuer; [Note:

  includes pre-bill]

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Any Account to the extent that any defense, counterclaim, setoff or

  dispute is asserted as to such Account; [Note: current portion of a positive balance on the

  Account aging coded “RPS”]

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Accounts that are not true and correct statements of bona fide

  indebtedness incurred in the amount of the Account for merchandise sold to or

  services rendered and accepted by the applicable Account Debtor;

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Accounts with respect to which an invoice has not been sent to the

  applicable Account Debtor;

  	

   

  	

   

  	

   

  

 

2

 

	

   

  	

   

  	

  Accounts that (i) are not owned by Borrower or a Secured Guarantor or

  (ii) are subject to any right, claim, security interest or other interest of

  any other Person, other than Liens described in clauses (a) and (g)

  of the definition of Permitted Encumbrances in the Credit Agreement and Liens

  in favor of Agent, on behalf of itself and Lenders but only to the extent of

  such right, claim, security interest or other interest;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Accounts that arise from a sale to any director, officer, other

  employee or Affiliate of any Credit Party, or to any entity that has any

  common officer with any Credit Party;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Accounts that are the obligations of an Account Debtor that is the

  United States government or a political subdivision thereof, or any state,

  county or municipality or department, agency or instrumentality thereof,

  unless Borrower, or the applicable Secured Guarantor, has complied with

  respect to such obligation with the Federal Assignment of Claims Act of 1940,

  or any applicable state, county or municipal law restricting assignment

  thereof; provided, that the

  Borrowing Availability based on such obligations shall not in any event

  exceed $7,500,000 in the aggregate;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Accounts that are the obligations of an Account Debtor located in a

  foreign country other than (A) Canada (excluding the province of

  Newfoundland, the Northwest Territories and the Territory of Nunavut) or (B)

  the United Kingdom, unless payment thereof is assured by a letter of credit

  assigned and delivered to Agent or credit insurance, satisfactory to Agent as

  to form, amount and issuer;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Accounts to the extent Borrower or any Secured Guarantor or any

  Subsidiary thereof is liable for goods sold or services rendered by the

  applicable Account Debtor to Borrower or any Secured Guarantor or any

  Subsidiary thereof but only to the extent of the potential offset;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Accounts that arise with respect to goods that are delivered on a

  bill-and-hold, cash-on-delivery basis or placed on consignment, guaranteed

  sale or other terms by reason of which the payment by the Account Debtor is

  or may be conditional;

  	

   

  	

   

  

 

3

 

	

   

  	

   

  	

  Accounts that are in default; provided, that, an Account shall be

  deemed in default upon the occurrence of any of the following:  

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  (i)the Account is not paid within the earlier of: 60 days following

  its due date or 120 days following its original invoice date; unless payment

  thereof is secured by a letter of credit satisfactory to Agent as to form,

  substance and issuer.

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  past due credits

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  (ii)the Account Debtor obligated upon such Account suspends business,

  makes a general assignment for the benefit of creditors or fails to pay its

  debts generally as they come due; or

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  (iii)a petition is filed by or against any Account Debtor obligated

  upon such Account under any bankruptcy law or any other federal, state or

  foreign (including any provincial) receivership, insolvency relief or other

  law or laws for the relief of debtors;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Accounts excluded under the default criteria (i) — (iii) above shall

  be excluded in their entirety, meaning that any past due credits with respect

  thereto shall also be excluded thereunder

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Accounts that are the obligations of an Account Debtor if 50% or more

  of the Dollar amount of all Accounts owing by that Account Debtor are

  ineligible under the criteria of Accounts in default set forth immediately

  above

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Accounts as to which Agent’s Lien thereon, on behalf of itself and

  Lenders, is not a first priority perfected Lien;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Accounts as to which any of the representations or warranties in the

  Loan Documents are untrue in any material respect;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Accounts to the extent such Account is evidenced by a judgment,

  Instrument or Chattel Paper;

  	

   

  	

   

  
						

 

4

 

	

   

  	

   

  	

  Accounts to the extent that such Accounts, together with all other

  Accounts owing by such Account Debtor and its Affiliates (excluding the

  United States government as Account Debtor) as of any date of determination

  exceed 15% of all Eligible Accounts;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Accounts that are payable in any currency other than Dollars,

  Canadian Dollars, Pounds Sterling or Euros.

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  (i)                                     Dollar

  equivalent of Accounts payable in Canadian Dollars:

  	

  $____________

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  (ii)                                  Dollar

  equivalent of Accounts payable in Pounds Sterling:

  	

  $___________

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  (iii)                               Dollar

  equivalent of Accounts payable in Euros:

  	

  $___________

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

  Dollar equivalent of an Account shall be calculated at the rate at

  which Canadian Dollars, Pounds Sterling (British Pound), or Euros as

  applicable, may be exchanged into U.S. dollars as published in The Wall

  Street Journal.

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  Line 2

  	

   

  	

  Less Unapplied Cash Reserves, if any

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 3

  	

   

  	

  Total Ineligible Accounts

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 4

  	

   

  	

  Total Eligible Accounts (Accounts less Total Ineligible Accounts and

  Reserves, if any) (Line 1 less Line 3)

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Advance Rate

  	

  85

  	

  %

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 5

  	

   

  	

  Accounts Availability

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 6

  	

   

  	

  Less Dilution Reserve, if any

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 7

  	

   

  	

  Net Accounts Availability

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 8

  	

   

  	

  Inventory (other than Component Parts and Purchased Parts)

  	

   

  	

   

  

 

5

 

	

  Less:

  	

   

  	

  Ineligible Inventory:

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Inventory that is not owned by Borrower or any Secured Guarantor free

  and clear of all Liens and rights of any other Person (including the rights

  of a purchaser that has made progress payments and the rights of a surety

  that has issued a bond to assure Borrower’s or a Secured Guarantor’s

  performance with respect to that Inventory), except Liens described in clauses

  (a), (d), (e) and (g) of the definition of Permitted

  Encumbrances in the Credit Agreement and the Liens in favor of Agent, on

  behalf of itself and Lenders;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Inventory that (i) is not located on premises owned, leased or rented

  by Borrower or any Secured Guarantor and set forth in Disclosure Schedule

  (3.2), (ii) is not located on premises acquired or leased by

  Borrower or any Secured Guarantor in connection with any Permitted

  Acquisition, or (iii) is stored at a leased location, unless Agent has

  given its prior consent thereto and unless either (x) a reasonably

  satisfactory landlord waiver has been delivered to Agent, or (y) Reserves

  reasonably satisfactory to Agent have been established with respect thereto,

  or (iii) is stored with a bailee or warehouseman unless a reasonably

  satisfactory, acknowledged bailee letter has been received by Agent and

  Reserves reasonably satisfactory to Agent have been established with respect

  thereto, or (iv) is located at a location owned by Borrower or any Secured

  Guarantor subject to a mortgage in favor of a lender other than Agent, unless

  a reasonably satisfactory mortgagee waiver has been delivered to Agent, or

  (v) is located at any site if the aggregate book value of Inventory at any

  such location is less than $50,000;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Inventory that is placed on consignment or is in transit, except for

  Inventory in transit between domestic locations of Credit Parties as to which

  Agent’s Liens have been perfected at origin and destination;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Inventory that is covered by a negotiable document of title, unless

  such document has been delivered to Agent with all necessary endorsements,

  free and clear of all Liens except those in favor of Agent and Lenders;

  	

   

  	

   

  

 

6

 

	

   

  	

   

  	

  Inventory that is excess, obsolete, slow moving (in excess of

  2-years’ supply),  unsalable

  (scrap),  shopworn, seconds, damaged

  or unfit for sale;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Inventory that consists of display items or packing or shipping

  materials, manufacturing supplies, Inventory which is not subject to an

  outstanding purchase order that is not revocable by its terms or is not sold

  in the ordinary course of business, work-in-process Inventory or replacement

  parts;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  custom-made

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Inventory that is not of a type held for sale in the ordinary course

  of Borrower’s or the applicable Secured Guarantor’s business;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Inventory that is not subject to a first priority lien in favor of

  Agent on behalf of itself and Lenders subject to Permitted Encumbrances

  (includes Inventory at foreign locations);

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Inventory that breaches in any material respect any of the

  representations or warranties pertaining to Inventory set forth in the Loan

  Documents;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Inventory that consists of any costs associated with “freight-in”

  charges;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Inventory that consists of Hazardous Materials or goods that can be

  transported or sold only with licenses that are not readily available; or

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Inventory that is not covered by casualty insurance in accordance

  with Section 5.4 of the Credit Agreement.

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 10

  	

   

  	

  Less Costing Reserves, if any

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 11

  	

   

  	

  Less Gross Margin Reserve, if any

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 12

  	

   

  	

  Less Shipping Overhead Reserve, if any

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 13

  	

   

  	

  Less Timing Reserve, if any

  	

   

  	

   

  

 

7

 

	

  Line 14

  	

   

  	

  Less Intercompany Profit

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 15

  	

   

  	

  Total Ineligible Inventory

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 16

  	

   

  	

  Total Eligible Finished Goods and Raw Material Inventory (Line 8 less

  Line 15) (excluding Component Parts and Purchased Parts, “FG & RM

  Eligible Inventory”)

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Advance Rate

  	

  65

  	

  %

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 17

  	

   

  	

  FG & RM Inventory Availability

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 18

  	

   

  	

  Landlord Wavier/Rent Reserve, if any

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 19

  	

   

  	

  Net FG & RM Inventory Availability

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 20

  	

   

  	

  Inventory consisting of Component Parts and Purchased Parts

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Less:      Ineligible

  Component Parts and Purchased Parts:  

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Component Parts and Purchased Parts that are not owned by Borrower or

  any Secured Guarantor free and clear of all Liens and rights of any other

  Person (including the rights of a purchaser that has made progress payments

  and the rights of a surety that has issued a bond to assure Borrower’s or a

  Secured Guarantor’s performance with respect to that Inventory), except Liens

  described in clauses (a), (d), (e) and (g) of the

  definition of Permitted Encumbrances in the Credit Agreement and the Liens in

  favor of Agent, on behalf of itself and Lenders;

  	

   

  	

   

  

 

8

 

	

   

  	

   

  	

  Component Parts and Purchased Parts that (i) are not located on

  premises owned, leased or rented by Borrower or any Secured Guarantor and set

  forth in Disclosure Schedule (3.2), (ii) are not located on

  premises acquired or leased by Borrower or any Secured Guarantor in

  connection with any Permitted Acquisition, or (iii) are stored at a

  leased location, unless Agent has given its prior consent thereto and unless

  either (x) a reasonably satisfactory landlord waiver has been delivered to

  Agent, or (y) Reserves reasonably satisfactory to Agent have been established

  with respect thereto, or (iii) is stored with a bailee or warehouseman

  unless a reasonably satisfactory, acknowledged bailee letter has been

  received by Agent and Reserves reasonably satisfactory to Agent have been

  established with respect thereto, or (iv) are located at a location owned by

  Borrower or any Secured Guarantor subject to a mortgage in favor of a lender

  other than Agent, unless a reasonably satisfactory mortgagee waiver has been

  delivered to Agent, or (v) are located at any site if the aggregate book

  value of Inventory at any such location is less than $50,000;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Component Parts and Purchased Parts that are placed on consignment or

  are in transit, except for Component Parts and Purchased Parts in transit

  between domestic locations of Credit Parties as to which Agent’s Liens have

  been perfected at origin and destination;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Component Parts and Purchased Parts that are covered by a negotiable

  document of title, unless such document has been delivered to Agent with all

  necessary endorsements, free and clear of all Liens except those in favor of

  Agent and Lenders;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Component Parts and Purchased Parts that are excess, obsolete, slow

  moving (in excess of 2-years’ supply), or unfit for sale;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Component Parts and Purchased Parts that are not subject to a first

  priority lien in favor of Agent on behalf of itself and Lenders subject to

  Permitted Encumbrances;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Component Parts and Purchased Parts that breach in any material

  respect any of the representations or warranties pertaining to Component

  Parts and Purchased Parts set forth in the Loan Documents;

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Component Parts and Purchased Parts that consist of any costs

  associated with “freight-in” charges;

  	

   

  	

   

  

 

9

 

	

   

  	

   

  	

  Component Parts and Purchased Parts that consist of Hazardous

  Materials or goods that can be transported or sold only with licenses that

  are not readily available; or

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Component Parts and Purchased Parts that are not covered by casualty

  insurance in accordance with Section 5.4 of the Credit Agreement.

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 21

  	

   

  	

  Total Ineligible Component Parts and Purchased Parts

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 22

  	

   

  	

  Total Eligible Component Parts and Purchased Parts (Line 20 less

  Line 21)

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 23

  	

   

  	

  Total Eligible Inventory (Line 19 plus Line 22)

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 24

  	

   

  	

  25% of Total Eligible Inventory

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 25

  	

   

  	

  Total Eligible Component Parts and Purchased Parts in excess of

  25% of the total value of the Total Eligible Inventory, if any

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Line 22 less Line 25

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Advance Rate

  	

  30

  	

  %

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 26

  	

   

  	

  Component Parts and Purchase Parts Availability

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Line 27

  	

   

  	

  Borrowing Base (Line 7 plus Line 19 plus Line 26)

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Less:Revolving Loan outstanding other than Overadvances (i.e., the sum of (i) the aggregate

  amount of Revolving Credit Advances outstanding to Borrower plus (ii)

  the aggregate Letter of Credit Obligations incurred on behalf of Borrower)

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Less:Swing Line Loan outstanding other than Overadvances

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Less:Required Minimum Borrowing Availability

  	

  $

  	

   7,500,000

  	

  *

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Borrowing Availability

  	

   

  	

   

  

 

*3,500,000 during the period from January 31, 2003 through April 30,

2003

 

10

 

Schedule 2

to Exhibit 4.1(b)

 

MINIMUM BORROWING AVAILABILITY

(Section E(b))

 

	

  A.                                   Maximum

  Amount

  	

   

  	

  $

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  B.                                     Borrowing

  Base (from Schedule 1 to Exhibit 4.1(b) above)

  	

   

  	

  $

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  C.                                     The

  lesser of A  and

  B above 

  	

   

  	

  $

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  D.                                    Overadvances made

  but not demanded under Section 1.1(a)(iii) of the Credit Agreement

  	

   

  	

  $

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  E.                                    Revolving Loan

  outstanding other than Overadvances in D (i.e.,

  the sum of (i) the aggregate amount of Revolving Credit Advances outstanding

  to Borrower plus (ii) the aggregate Letter of Credit Obligations

  incurred on behalf of Borrower).

  	

   

  	

  $

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  F.                                      Swing Line Loan

  outstanding

  	

   

  	

  $

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  G.                                   E  plus  F

  	

   

  	

  $

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  H.                                    Borrowing

  Availability (C  minus

  G )

  	

   

  	

  $

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

  Required Minimum Borrowing Availability

  	

   

  	

  $

  	

  7,500,000

  	

  *

  
	

   

  	

   

  	

   

  	

   

  
	

  In Compliance

  	

   

  	

  Yes/No

  	

   

  

 

*3,500,000 for the period from January 31, 2003 through April 30, 2003

 

11<PAGE>

                                   EXHIBIT 4.1

                                                                   David M. Otto
                                                               dotto@ottolaw.com

                                  April 6, 2001

Paul Fernandez, CFO
15047 Marine Drive
White Rock, BC
V4B 1C5

     RE:  ENGAGEMENT OF THE OTTO LAW GROUP, PLLC.

Dear Mr. Fernandez:

     Thank you for speaking with Tom Puzzo today regarding retaining The Otto
Law Group to represent you with regard to filing Dicom Imaging Systems, Inc.'s
Form 10-KSB.  I will have the primary responsibility for your representation.
However, in the interest of efficiency, economy, and the wise use of expertise,
we may use the services of other attorneys and legal professionals in this
office.  Please contact me at once if at any time you have any questions or
concerns.

                                 ATTORNEYS FEES

     The  following  policies with respect to fee and expense charges applies to
you  and  to  all  of our clients, unless other arrangements are made in writing
(all  dollar  amounts  represent  United  States  currency):

     A. FEES.  Consistent with the ethical standard applicable to Washington
attorneys, we charge reasonable fees for our legal services.  In establishing a
reasonable fee, we take into consideration a number of factors, including those
set forth in the Rules of Professional Conduct:

1.     The time and labor required, the novelty and difficulty of the questions
       involved, and the skill requisite to perform the legal service properly;
2.     The likelihood that the acceptance of the particular employment will
       preclude other employment by the lawyer;
3.     The fee customarily charged is the locality for similar services;
4.     The amount involved and the results obtained;
5.     The time limitations imposed by the client or by the circumstances;
6.     The nature and length of the professional relationship with the client;
       and
7.     The experience, reputation, and ability of the lawyer or lawyers
       performing the services.

<PAGE>

In general, our fees are based upon an hourly rate and reflect all of these
factors, as well as special arrangements made with you.  Attorneys and other
legal professionals maintain contemporaneous time records to document their time
expended.  I will review all statements before they are issued to ensure that
the amount charged is appropriate.

     At present, or standard rates, with certain exceptions, are as follows:

          Principal or senior Attorneys:     $ 275.00 per hour
          Associate or Junior Attorneys:     $ 185.00 per hour
                          Legal Interns:     $ 120.00 per hour
          Legal Assistants or Paralegals:    $   60.00 per hour

     We normally review our rates annually, to bring them in line with any
changes in the cost of doing business.  If appropriate, adjustment of our hourly
rates is usually effective as of January 1, which is the beginning of the fiscal
year.

     B. COSTS.  We also charge for expenses incurred in connection with a
particular matter.  These include, but are not limited to, the following:

1.     Long distance telephone charges;
2.     Copying costs;
3.     Out-of-town Travel expenses;
4.     Parking;
5.     Special delivery, courier, express mail and telecommunication costs;
6.     Computer research charges; and
7.     Corporate filing and other recording fees.

For cost items that exceed $100.00, we will generally submit invoices to you for
direct payment, and for lesser charges we will generally advance the amount and
include a charge for direct payment, and for lesser charges we will generally
advance the amount and include a charge for reimbursement in our statement.
Extraordinary expenses will not be incurred, except in emergency situations,
without your specific authorization.

     C.  RETAINER.  For new clients, as well as for other special projects for
existing clients, we customarily request an appropriate advance or retainer
deposit against fees and expenses to be incurred.  All retainers deposited by
you shall be considered earned when received and are not deposited in an IOLTA
interest-bearing trust account.  However, such retainer will be credited against
charges on a monthly basis.  Any balance remaining from any advanced or retainer
deposits at the conclusion of a project will be refunded promptly.

     In this particular case, I have requested that you deposit a retainer of
$3,000 before commencing work.  The retainer will be earned upon receipt.

<PAGE>

     D.  BILLING.  We will submit a monthly statement for services rendered and
expenses incurred.  These statements will reflect a detailed breakdown of  the
services performed, the calculation of the fee, and the expenses for which
reimbursement is sought.  If your situation requires a particular form of
statement, we will make every reasonable effort to accommodate that situation.
We welcome the opportunity to discuss our statements with you and to answer any
questions you may have.

     E.  PAYMENT.  We are proud of the promptness with which we attend to our
clients' legal needs and ask that you reciprocate by remitting payment on our
statements promptly.  We ask that all statements be paid in full within 30 days
of their date.  If payment is not received in full within thirty (30) days of
statement date, then interest of 1% per month will be charged on the unpaid
balance.

     Unless otherwise arranged, if an account is outstanding for more than 30
days, we reserve the right to terminate work until the account is brought
current.  While we regret ever having to take this extreme step, we feel that it
is only fair to our clients who have paid promptly for our services to make
certain that their legal needs have our undivided attention.  In the event that
it becomes necessary to commence collection, the prevailing party will be
entitled to all filing fees and collection costs, including actual attorneys'
fees.

     F.  DISPUTE RESOLUTION.  In rare cases, a dispute may arise between a
client and the attorney regarding the reasonableness of the attorney's fee.  If
such a dispute should arise regarding the amount of the fee charged, the law
firm and you agree that the exclusive means of resolving the amount of the fee
charged shall be by submission to the Washington State Bar Association's Fee
Arbitration Board.  The law firm and the client agree that the decision of the
Fee Arbitration Board shall be conclusive of any dispute over the reasonableness
of the law firm's fee.  The procedures of Washington's arbitration statue,
Chapter 7.04 revised Code of Washington, will govern confirmation of any award
made by the Bar Association's Fee Arbitration Board.

                          ATTORNEY CLIENT RELATIONSHIP

     The  following  policies  with  respect  to  our  representation in general
applies  to  you  and  to  all  of  our  clients:

     A.  SCOPE OF REPRESENTATION.  We shall keep you reasonably informed about
the status of each matter, shall explain each matter to the extent reasonably
necessary for you to make informed decisions regarding our representation, and
shall abide by your decisions concerning the objectives of representation,
subject to the limitations imposed by the Rules of Professional Conduct.

     B.  CONFIDENTIALITY.  All confidences or secrets communicated by you to
lawyers and legal professionals of this firm shall not be revealed, unless you
consent after consultation, except for disclosures that are impliedly authorized
in order to carry out our legal representation and subject to the limitations
imposed by the Rules of Professional Conduct.

<PAGE>

     C.  CONFLICT OF INTEREST.  Washington law provides severe penalties for an
attorney who fails to disclose a conflict of interest to a client.  There is
always a potential conflict of interest whenever an attorney represents more
than on individual, even a husband and wife.  Therefore, our representation of
you is based upon our mutual understanding that my law firm does not currently
have any known conflict of interest in representing you.  We required you to do
likewise.

D.  TERMINATION.  You have the right to terminate our representation of you at
any time.  We have the same right, subject to an obligation to give you
reasonable notice to arrange alternative representation.  On termination, all
fees and costs incurred prior to termination shall be paid promptly.
Thereafter, we will deliver original documents entrusted to us and any
documents, which you paid for that have not previously been delivered.  You may
obtain copies of any additional documents in our files upon request and payment
of photocopying charges.

E.  COMPLETION OF REPRESENTATION.  Upon completion of the representation of any
client, we will retain files relating to the representation for a reasonable
time.  At a minimum, files will be retained by the law firm for three years from
the conclusion of the matter.  After that period of time, the files will be
destroyed unless you request in writing that files be retained for a longer
period.

Please review this information carefully and if you have any questions, please
do not hesitate to call me.  Before we can start work on this matter, we must
receive from you a signed copy of this letter to indicate your consent to the
terms and conditions discussed above.  I look forward to working with you.

                         Very truly yours,

                         THE OTTO LAW GROUP, PLLC

                         David M. Otto

Agreed  and  Accepted  this  ____  day  of  April,  2001.

Dicom  Imaging  Systems,  Inc.

_____________________________________
Paul Fernandez, CFO

<PAGE>

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