-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rp2/T2gnlXQTRtwtvHgMNU2vso7lpT+e9uhqIKiOiBTPTHOWOEb+z04QwjN3xa3Z 0uExQpQiOVV6vZYq2WF6yw== 0000355948-98-000008.txt : 19980401 0000355948-98-000008.hdr.sgml : 19980401 ACCESSION NUMBER: 0000355948-98-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19980228 FILED AS OF DATE: 19980331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RICHARDSON ELECTRONICS LTD/DE CENTRAL INDEX KEY: 0000355948 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 362096643 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-12906 FILM NUMBER: 98583199 BUSINESS ADDRESS: STREET 1: 40W267 KESLINGER RD CITY: LAFOX STATE: IL ZIP: 60147 BUSINESS PHONE: 7082082200 MAIL ADDRESS: STREET 1: 40W267 KESLINGER ROAD CITY: LAFOX STATE: IL ZIP: 60147 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 28, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-12906 RICHARDSON ELECTRONICS, LTD. (Exact name of registrant as specified in its charter) Delaware 36-2096643 (State of incorporation) (I.R.S. Employer Identification No.) 40W267 Keslinger Road, LaFox, Illinois 60147 (Address of principal executive offices and zip code) (630) 208-2200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of March 23, 1998 there were outstanding 8,971,591 shares of Common Stock, $.05 par value, and 3,242,240 shares of Class B Common Stock, $.05 par value, which are convertible into Common Stock on a share-for-share basis. This Quarterly Report on Form 10-Q contains 154 pages. An exhibit index is at page 13. Page 1 RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES FORM 10-Q For the Three- and Nine- Month Periods Ended February 28, 1998 INDEX Page PART I - FINANCIAL INFORMATION Consolidated Condensed Balance Sheets 3 Consolidated Condensed Statements of Income 4 Consolidated Condensed Statements of Cash Flows 5 Notes to Consolidated Condensed Financial Statements 6 Management's Discussion and Analysis of Results of Operations and Financial Condition 8 PART II - OTHER INFORMATION 13 (2) Richardson Electronics, Ltd. and Subsidiaries Consolidated Condensed Balance Sheets (in thousands) February 28 May 31 1998 1997 --------- --------- (Unaudited)(Audited) ASSETS - ------- Current assets: Cash and equivalents $ 6,886 $ 10,012 Receivables, less allowance of $1,775 and $2,102 58,786 53,333 Inventories 93,777 92,194 Other 9,998 10,497 --------- --------- Total current assets 169,447 166,036 Investments 2,776 2,152 Property, plant and equipment 48,785 45,969 Less accumulated depreciation (30,645) (28,443) --------- --------- Property, plant and equipment, net 18,140 17,526 Other assets 9,291 6,800 --------- --------- Total assets $199,654 $192,514 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY ----------------------------------- Current liabilities: Accounts payable $ 18,037 $ 12,766 Accrued expenses 10,183 12,449 --------- --------- Total current liabilities 28,220 25,215 Long-term debt 105,623 107,275 Deferred income taxes 1,600 434 Stockholders' equity: Common stock, $.05 par value; issued 8,968 at February 28, 1998 and 8,721 at May 31, 1997 449 437 Class B common stock, convertible, $.05 par value; issued 3,242 at February 28, 1998 and May 31, 1997 162 162 Additional paid-in capital 55,549 53,512 Retained earnings 14,396 9,082 Foreign currency translation adjustment (6,345) (3,603) --------- --------- Total stockholders' equity 64,211 59,590 --------- --------- Total liabilities and stockholders' equity $199,654 $192,514 ========= ========= See notes to consolidated condensed financial statements. (3) Richardson Electronics, Ltd. and Subsidiaries Consolidated Condensed Statements of Income For the Three- and Nine-Month Periods Ended February 28, 1998 and 1997 (unaudited) (in thousands, except per share amounts) Three Months Nine Months ------------------ ------------------- 1998 1997 1998 1997 -------- -------- --------- --------- (Unaudited) (Unaudited) Net sales $73,196 $64,163 $223,442 $183,874 Cost of products sold 52,336 52,992 159,596 137,182 -------- -------- --------- --------- Gross margin 20,860 11,171 63,846 46,692 Selling, general and administrative expenses 16,009 19,123 48,525 46,508 -------- -------- --------- --------- Operating income (loss) 4,851 (7,952) 15,321 184 Other (income) expense: Interest expense 2,009 1,869 6,218 5,588 Investment income (255) (82) (534) (249) Other, net 5 264 27 173 -------- -------- --------- --------- 1,759 2,051 5,711 5,512 -------- -------- --------- --------- Income (loss) before Income taxes and extraordinary item 3,092 (10,003) 9,610 (5,328) Income taxes (benefit) 910 (3,950) 2,880 (2,500) -------- -------- --------- --------- Net income (loss) before extraordinary item 2,182 (6,053) 6,730 (2,828) Extraordinary loss, net of income taxes of $312 - (488) - (488) -------- -------- --------- --------- Net income (loss) $ 2,182 $(6,541) $ 6,730 $ (3,316) ======== ======== ========= ========= Net income (loss) per share - basic: Before extraordinary item $ .18 $ (.51) $ .56 $ (.24) Extraordinary loss, net of income taxes of $312 - (.04) - (.04) -------- -------- --------- --------- Net income (loss) per share $ .18 $ (.55) $ .56 $ (.28) ======== ======== ========= ========= Average shares outstanding 12,198 11,908 12,096 11,886 ======== ======== ========= ========= Net income (loss) per share - diluted: Before extraordinary item $ .17 $ (.51) $ .54 $ (.24) Extraordinary loss, net of income taxes of $312 - (.04) (.04) -------- -------- --------- --------- Net income (loss) per share $ .17 $ (.55) $ .54 $ (.28) ======== ======== ========= ========= Average shares outstanding 12,626 11,908 12,476 11,886 ======== ======== ========= ========= Dividends per common share $ .04 $ .04 $ .12 $ .12 ======== ======== ========= ========= See notes to consolidated condensed financial statements. (4) Richardson Electronics, Ltd. and Subsidiaries Consolidated Condensed Statements of Cash Flows For the Nine-Month Periods Ended February 28, 1998 and 1997 (unaudited) (in thousands) 1998 1997 -------- -------- Operating Activities: Net income (loss) $6,730 $(3,316) Non-cash charges to income: Depreciation 2,606 1,973 Amortization of intangibles and financing costs 366 1,091 Deferred income taxes 1,508 (3,026) Contribution to employee stock ownership plan 285 800 Special charges - 11,000 -------- -------- Total non-cash charges 4,765 11,838 -------- -------- Changes in working capital, net of effects of currency translation and business acquisitions: Accounts receivable (4,758) (3,549) Inventories (862) (922) Other current assets 68 (845) Accounts payable 5,504 (974) Other liabilities (2,460) (600) -------- -------- Net changes in working capital (2,508) (6,890) -------- -------- Net cash provided by operating activities 8,987 1,632 -------- -------- Financing Activities: Proceeds from borrowings 14,531 56,918 Payments on debt (15,943) (40,123) Proceeds from sale of common stock 1,765 218 Cash dividends (1,416) (1,389) Net cash (used in) provided by financing -------- -------- activities (1,063) 15,624 -------- -------- Investing Activities: Sales of investments 3,003 3,141 Purchases of investments (3,432) (3,181) Business acquisitions (6,262) (9,409) Capital expenditures (3,201) (2,947) Other (1,158) (99) -------- -------- Net cash used in investing activities (11,050) (12,495) -------- -------- (Decrease) increase in cash and equivalents (3,126) 4,761 Cash and equivalents at beginning of year 10,012 6,784 -------- -------- Cash and equivalents at end of period $6,886 $11,545 ======== ======== See notes to consolidated condensed financial statements. (5) Note A -- Basis of Presentation The accompanying unaudited Consolidated Condensed Financial Statements (Statements) have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q. In the opinion of management, all adjustments necessary for a fair presentation of the results of operations for the periods covered have been reflected in the Statements. Certain information and footnotes necessary for a fair presentation of the financial position and results of operations in conformity with generally accepted accounting principles have been omitted in accordance with the aforementioned instructions. It is suggested that the Statements be read in conjunction with the Financial Statements and Notes thereto included in the Company's Annual Report on Form 10-K for the year ended May 31, 1997. The marketing and sales operations of the Company are organized in four strategic business units (SBUs): Electronic Device Group (EDG), Solid State and Components (SSC), Display Products Group (DPG) and Security Systems Division (SSD). References hereinafter are to the acronyms noted parenthetically. Note B -- Income Taxes The income tax provision for the nine-month period ended February 28, 1998 is based on the estimated annual effective tax rate of 30%. The estimated effective tax rate is lower than the statutory rate of 34% as a result of U.S. foreign sales corporation benefits, partially offset by expected state income taxes. The income tax benefit on pre-tax losses for the nine-month period ended February 28, 1997 is based on the estimated effective tax rate of 47% for fiscal 1997 results. This rate exceeds the statutory rate of 34% due to state income taxes, the utilization of previously unrecognized foreign net operating loss carryforwards, and U.S. foreign sales corporation tax benefits. Note C - Security Service International, Inc. Acquisition Effective August 14, 1997, the Company acquired the assets and liabilities of Security Service International, Inc. (SSI), a Canadian distributor of security systems with annual sales of $20.0 million. The acquisition was accounted for by the purchase method, and accordingly, the results of operations of SSI since the date of acquisition have been included in the Consolidated Condensed Statement of Operations. (6) Note D - Earnings per Share Net income (loss) per share amounts and average shares outstanding for all periods presented have been computed in accordance with Financial Accounting Standards Board Statement (SFAS) No. 128, Earnings per Share. SFAS No. 128 established new guidelines effective December 1997 for the calculation and presentation of earnings per share (EPS) data. Under SFAS 128, net income per share is reported in two disclosures: basic earnings per share, which excludes all common stock equivalents, and diluted earnings per share, which includes all dilutive common stock equivalents. Net income (loss) per share amounts as previously reported have been restated to comply with SFAS No. 128. The effect of this restatement was not material. The per share amounts presented in the Statement of Operations were based on the following data: Three Months Nine Months ------------------ ----------------- 1998 1997 1998 1997 -------- -------- -------- -------- Numerator for basic and diluted EPS: Net income (loss) before extraordinary item $ 2,182 $(6,053) $ 6,730 $(2,828) Extraordinary loss, net of income taxes - (488) - (488) -------- -------- -------- -------- Net income (loss) $ 2,182 $(6,541) $ 6,730 $(3,316) ======== ======== ======== ======== Denominator for basic EPS: Shares outstanding at beginning of period 12,106 11,898 11,964 11,806 Additional shares for options exercised 92 10 132 80 ------- -------- ------- ------- Weighted average shares outstanding 12,198 11,908 12,096 11,886 ======= ======== ======= ======= Denominator for diluted EPS: Weighted average shares Outstanding 12,198 11,908 12,096 11,886 Effect of dilutive stock Options 428 - 380 - ------- -------- ------- ------- Adjusted average shares outstanding 12,626 11,908 12,476 11,886 ======= ======== ======= ======= Out-of-the-money (exercise price higher than market price) stock options and the Company's 8 1/4% and 7 1/4% convertible debentures were excluded from the calculation because they were anti-dilutive. In-the-money stock options were excluded from the calculation for the fiscal 1997 third quarter and nine-month periods because the Company had a net loss. (7) Results of Operations Net sales for the third quarter of fiscal 1998 were $73.2 million, up 14.1% from last year's third quarter of $64.2 million. Sales for the nine-month period were $223.4 million, a 21.5% increase from $183.9 million in the prior year. Sales gains include the effect of recent acquisitions, which added $5.4 million to the quarter and $21.4 million to the nine-month results. Sales, percentage change from the prior year, gross margins and gross margin percent of sales by SBU are summarized in the following table. Gross margins for each SBU include provisions for returns and overstock. Provisions for LIFO, manufacturing charges and other costs are included under the caption "Corporate" (in thousands). Sales Gross Margin ------------------------- ------------------------------ FY 1998 FY 1997 % FY 1998 GM% FY 1997 GM% -------- -------- ------ -------- ----- -------- ----- Third Quarter (see note) EDG $ 28,115 $ 28,467 -1.2% $ 8,893 31.6% $ 5,998 21.1% SSC 21,427 19,438 10.2% 5,932 27.7% 3,405 17.5% DPG 7,394 6,560 12.7% 2,565 34.7% 561 8.6% SSD 16,260 9,698 67.7% 3,721 22.9% 2,140 22.1% Corporate - - (251) (933) -------- -------- ------ -------- ----- -------- ----- Total $ 73,196 $ 64,163 14.1% $20,860 28.5% $11,171 17.4% ======== ======== ======== ======== Nine Months EDG $ 86,823 $ 84,647 2.6% $27,360 31.5% $22,585 26.7% SSC 64,484 53,201 21.2% 18,459 28.6% 13,835 26.0% DPG 22,617 21,737 4.0% 7,633 33.7% 5,875 27.0% SSD 49,518 24,289 103.9% 11,457 23.1% 5,151 21.2% Corporate - - (1,063) (754) -------- -------- ------ -------- ----- -------- ----- Total $223,442 $183,874 21.5% $63,846 28.6% $46,692 25.4% ======== ======== ======== ======== Note: In the third quarter of fiscal 1997, the Company re-evaluated its reserve estimates for inventory and accounts receivable in light of changed market conditions and provided for severance and other costs associated with a Corporate reorganization. The special charge included in cost of sales was $7.2 million, which reduced gross margin for EDG by $2.8 million, SSC by $2.4 million, DPG by $1.9 million and SSD by $100,000. Sales growth was led by SSD, with gains of 67.7% for the third quarter and 103.9% for the first nine months. SSD's sales growth includes the acquisition of Burtek Systems Inc. in February 1997 and Security Service International, (8) Inc. in August 1997. Without the contribution from these acquisitions, SSD's internally generated sales growth was 12.3% in the third quarter and 26.3% in the nine-month period. Gross margins as a percent of sales in the third quarter and nine-month period were 22.9% and 23.1%, respectively compared to the prior year's third quarter and nine-month period of 23.1% and 21.6%, excluding the special charges for overstock. Margin improvement results from higher margins on proprietary and franchise product lines obtained with the acquisitions of Burtek and SSI. SSC sales increased 10.2% in the third quarter and 21.2% for the nine-month period. SSC gross margin as a percent of sales were 27.7% for the quarter and 28.6% for the nine-month period, down from the prior third quarter and nine- month period gross margin of 30.1% and 30.6%, respectively, excluding the special charges. The margin change is primarily due to product mix and competitive pressures. EDG's sales decreased 1.2% for the third quarter and increased 2.6% for the first nine months. EDG's gross margins as a percent of sales were 31.6% for the quarter and 31.5% for nine-month period which increased compared to the prior third quarter and nine-month period rates of 30.9% and 30.0%, respectively, excluding the special charges. Gross margins improved as a result of changes in pricing policies and higher efficiencies in x-ray tube loading operations. DPG sales increased 12.7% for the quarter and 4.0% for the nine-month period. Gross margins as a percent of sales declined to 34.7 % from 36.8% for the quarter and to 33.7% from 35.6% for the nine-month period, excluding the special charge. The sales gain and margin change both reflect the resumption of sales to a major European customer. Overall gross margins as a percent of sales in the third quarter and nine-month period were 28.5% and 28.6%, respectively compared to 28.6% in the prior year third quarter and 29.3% in the nine-month period, excluding the effect of the special charges. Year-to-date margin comparisons are effected by changes in product mix, as SSD with lower margins, contributed a proportionately greater percentage to total sales. On a geographic basis, the Company achieved sales growth of 27.2% in North America, 18.5% in Europe, and 6.8% in the Rest of World for the nine-month period. Excluding the effect of the aforementioned acquisitions, North America achieved internally generated sales growth of 7.6% for the nine-month period. Economic weakness in the Asia Pacific region during the third quarter of fiscal 1998 resulted in lower sales in that region compared to the same period in the prior year. (9) Sales, percentage change from the prior year, gross margins and gross margin percent of sales by area are summarized in the following table. Provisions for LIFO, manufacturing charges and other costs are included under the caption "Corporate" (in thousands). Sales Gross Margin ------------------------ ---------------------------------- FY 1998 FY 1997 % FY 1998 GM% FY 1997 GM% -------- --------- ---- --------- ----- -------- ----- (see note) North America $ 46,209 $ 39,546 16.8% $12,928 28.0% $ 7,462 18.9% Europe 16,336 13,499 21.0% 5,072 31.0% 2,870 21.3% Rest of World 10,651 11,118 -4.2% 3,111 29.2% 1,772 15.9% Corporate (251) (933) -------- -------- ----- -------- ----- -------- ----- Total $ 73,196 $ 64,163 14.1% $20,860 28.5% $11,171 17.4% ======== ======== ======== ======== North America $139,128 $109,398 27.2% $39,446 28.4% $27,798 25.4% Europe 48,498 40,929 18.5% 14,932 30.8% 11,568 28.3% Rest of World 35,816 33,547 6.8% 10,531 29.4% 8,080 24.1% Corporate (1,063) (754) -------- -------- ---- -------- ----- -------- ----- Total $223,442 $183,874 21.5% $63,846 28.6% $46,692 25.4% ======== ======== ======= ======== Note. The special charge In the third quarter of fiscal 1997 included in cost of sales reduced gross margins for North America by $4.1 million, Europe by $1.7 million and ROW by $1.4 million. North America gross margins as a percent of sales were 28.0% for the quarter and 28.4% for the nine-month period, down from the prior third quarter and nine-month period gross margins of 29.1%, excluding the special charges. Gross margins as a percent of sales for Europe were 31.0% for the quarter and 30.8% for the nine-month period compared to 33.8% in the third quarter of the prior year and 32.4% in the nine-month period in the prior year, excluding the effects of the special charges. Rest of World gross margins as a percent of sales were 29.2% for the quarter and 29.4% for the nine-month period compared to 29.0% in the third quarter of the prior year and 28.4% in the nine-month period in the prior year, excluding the effects of the special charges. The margin comparisons reflect the higher contribution from SSD sales and competitive pressures affecting SSC margins. Selling, general and administrative (S,G&A) expenses for the third quarter decreased to $16,009 compared with $19,123 in the prior year. The prior year (10) third quarter S,G&A included special charges of $3.8 million for accounts receivable provisions, severance and other costs associated with a corporate reorganization. As a percentage of sales, S,G&A was 21.9% for the quarter. S,G&A as a percent of sales decreased to 21.7% for the nine-month period compared to 23.2% in the prior year, excluding the effects of the special charges. Non-operating expenses for the third quarter decreased by $292,000, as gains from investments offset higher interest expense. Higher interest expense reflects increased borrowing levels due to business acquisitions. Investment income was $255,000, compared to $82,000 in the prior year, reflecting realized capital gains. Non-operating expenses for the first nine months increased $199,000, due to higher interest expense. Collectively, special charges effecting net income before extraordinary item in the third quarter of fiscal 1997 amounted to $11.0 million pre-tax or $6.7 million, net of tax, reducing earnings per share by $.56. The Company also recorded an $800,000 extraordinary charge for the write-off of unamortized debt issuance costs attributable to the 7% convertible debentures, which were exchanged for a new issue during the quarter. Net of tax, the charge was $488,000, or $.04 per share. Net income for the third quarter was $2.2 million or $.17 per share (diluted), compared to a net loss of $6.5 million or $.55 per share in the prior year. Net income for the nine-month period was $6.7 million, or $.54 per share, compared to a net loss of $3.3 million, or $.28 per share in the prior year. Liquidity and Capital Resources Cash provided by operations for the nine-month period was $9.0 million in fiscal 1998, compared to $1.6 million in 1997. Working capital increases reduced cash by $2.5 million, compared to $6.9 million last year. Accounts payable increased $5.5 million in 1998 and declined $1.0 million in 1997, reflecting the timing of inventory purchases. Accounts receivable increased $4.8 million in the current year, as a result of higher sales levels. Business acquisitions, capital expenditures and dividend payments were funded primarily by cash generated by operations and increases in borrowings. Interest payments for the nine-month period were $7.5 million in fiscal 1998 and $6.5 million in 1997. (11) In August 1997, the Company acquired substantially all of the assets of SSI, a Canadian distributor of security products. To complete the acquisition, the Company's Canadian subsidiary amended its revolving credit and term loan agreement from $6.0 million to $12.4 million. Effective March 1, 1998, the Company replaced its $35.0 million floating-rate bank term loan with a new $50.0 million floating-rate credit facility maturing March 1, 2001. The Company's Canadian subsidiary revolving credit and term loan agreement was amended to mature on the same date. The Company's loan agreements contain various financial and operating covenants which place restrictions on dividends and set benchmark levels for tangible net worth, debt / tangible net worth ratio and annual debt service coverage. The Company was in compliance with these covenants at February 28, 1998. The new floating-rate credit facility contains restrictions relating to the purchase by the Company of treasury stock or the payment of cash dividends. At March 1, 1998, $10.0 million was free of such restrictions. The Company's policy regarding payment of dividends is reviewed periodically by the Board of Directors in light of the Company's operating needs and capital structure. Cash reserves, investments, funds from operations and credit lines are expected to be adequate to meet the operational needs and future dividends of the Company. (12) ITEM 1. LEGAL PROCEEDINGS No material developments have occurred in the matters reported under the category "Legal Proceedings" in the Registrant's Report on Form 10-K for the fiscal year ended May 31, 1997. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 10(a) - Loan Agreement dated as of March 1, 1998 among Richardson Electronics, Ltd., various lending institutions and American National Bank and Trust Company of Chicago as Agent, establishing a $50,000,000 Credit Facility. Exhibit 10(b) - Amended and Restated Credit Agreement made as of March 1, 1998 between Burtek Systems Inc. as Borrower and First Chicago NBD Bank, Canada as Lender and Richardson Electronics, Ltd. and Guarantor. Exhibit 10(c) - Employment Agreement dated as of January 26, 1998 between the Company and Norman Hilgendorf. (13) Exhibit 10(d) - Employment contract dated May 10, 1993 as amended March 23, 1998 between the Company and Pierluigi Calderone. Exhibit 27 - Financial Data Schedule Financial Data Schedules restated for SFAS 128: Exhibit 27.1 - May 31, 1995 Exhibit 27.2 - May 31, 1996 Exhibit 27.3 - May 31, 1997 Exhibit 27.4 - August 31, 1996 Exhibit 27.5 - August 31, 1997 Exhibit 27.6 - November 30, 1996 Exhibit 27.7 - November 30, 1997 Exhibit 27.8 - February 28, 1997 (b) Reports on Form 8-K - None SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RICHARDSON ELECTRONICS, LTD. Date March 30, 1998 By /s/ William J. Garry Vice President and Chief Financial Officer (14) EX-10.A 2 EXHIBIT 10(a) LOAN AGREEMENT Dated as of March 1, 1998 among RICHARDSON ELECTRONICS, LTD., VARIOUS LENDING INSTITUTIONS, and AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, AS AGENT TABLE OF CONTENTS Page ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . .-1- ARTICLE II THE CREDITS . . . . . . . . . . . . . . . . . -15- 2.1 Description of Facility. . . . . . . . . . . . . . -15- 2.2 Advances . . . . . . . . . . . . . . . . . . . . . -15- 2.2.1 Commitment . . . . . . . . . . . . . . . -15- 2.2.2 Termination. . . . . . . . . . . . . . . -16- 2.2.3 Ratable Loans. . . . . . . . . . . . . . -16- 2.2.4 Types of Advances. . . . . . . . . . . . -16- 2.2.5 Minimum Amount of Each Advance . . . . . -16- 2.2.6 Method of Selecting Types and Interest Periods for New Advances. . . . . . . . . . . -16- 2.2.7 Conversion and Continuation of Outstanding Advances. . . . . . . . . . . . . -17- 2.3 Facility Letters of Credit . . . . . . . . . . . . -17- 2.3.1 Obligation to Issue. . . . . . . . . . . -17- 2.3.2 Types and Amounts. . . . . . . . . . . . -17- 2.3.3 Conditions . . . . . . . . . . . . . . . -18- 2.3.4 Procedure for Issuance of Facility Letters of Credit . . . . . . . . . . . . . . -18- 2.3.5 Reimbursement Obligations. . . . . . . . -19- 2.3.6 Participation. . . . . . . . . . . . . . -20- 2.3.7 Payment of Reimbursement Obligations . . -21- 2.4 General Facility Terms . . . . . . . . . . . . . . -22- 2.4.1 Fees . . . . . . . . . . . . . . . . . . -22- 2.4.1.2 Reductions in Aggregate Commitments . . . -22- 2.4.2 Optional Principal Payments; Mandatory Principal Payments. . . . . . . . . . . . . . -23- 2.4.3 Applicable Margin. . . . . . . . . . . . -24- 2.4.4 Changes in Interest Rate, etc. . . . . . -24- 2.4.5 Rates Applicable After Default . . . . . -25- 2.4.6 Method of Payment. . . . . . . . . . . . -25- 2.4.7 Notes; Telephonic Notices. . . . . . . . -26- 2.4.8 Interest Payment Dates; Interest and Fee Basis . . . . . . . . . . . . . . . . . . . . -26- 2.4.9 Notification of Advances, Interest Rates, and Prepayments . . . . . . . . . . . . . . . . . -26- 2.4.10 Lending Installations . . . . . . . . . . -26- 2.4.11 Non-Receipt of Funds by the Agent . . . . -27- 2.4.12 Withholding Tax Exemption . . . . . . . . -27- ARTICLE III CHANGE IN CIRCUMSTANCES . . . . . . . . . . . -28- 3.1 Yield Protection . . . . . . . . . . . . . . . . . -28- 3.2 Changes in Capital Adequacy Regulations. . . . . . -28- 3.3 Availability of Types of Advances. . . . . . . . . -29- 3.4 Funding Indemnification. . . . . . . . . . . . . . -29- 3.5 Taxes. . . . . . . . . . . . . . . . . . . . . . . -29- 3.6 Lender Statements; Survival of Indemnity . . . . . -30- ARTICLE IV CONDITIONS PRECEDENT. . . . . . . . . . . . . -31- 4.1 Initial Advance and Facility Letter of Credit. . . -31- 4.2 Each Advance and Facility Letter of Credit . . . . -32- ARTICLE V REPRESENTATIONS AND WARRANTIES . . . . . . . . . . -33- 5.1 Corporate Existence and Standing . . . . . . . . . -33- 5.2 Authorization and Validity . . . . . . . . . . . . -33- 5.3 No Conflict; Government Consent. . . . . . . . . . -33- 5.4 Financial Statements . . . . . . . . . . . . . . . -34- 5.5 Material Adverse Change. . . . . . . . . . . . . . -34- 5.6 Taxes. . . . . . . . . . . . . . . . . . . . . . . -34- 5.7 Litigation and Contingent Obligations. . . . . . . -34- 5.8 Subsidiaries . . . . . . . . . . . . . . . . . . . -35- 5.9 ERISA. . . . . . . . . . . . . . . . . . . . . . . -35- 5.10 Accuracy of Information. . . . . . . . . . . . . . -35- 5.11 Regulation U . . . . . . . . . . . . . . . . . . . -35- 5.12 Material Agreements. . . . . . . . . . . . . . . . -35- 5.13 Compliance With Laws . . . . . . . . . . . . . . . -35- 5.14 Ownership of Properties. . . . . . . . . . . . . . -36- 5.15 Environmental Matters. . . . . . . . . . . . . . . -36- 5.16 Investment Company Act . . . . . . . . . . . . . . -36- 5.17 Public Utility Holding Company Act . . . . . . . . -36- ARTICLE VI COVENANTS . . . . . . . . . . . . . . . . . . -36- 6.1 Financial Reporting. . . . . . . . . . . . . . . . -36- 6.2 Use of Proceeds. . . . . . . . . . . . . . . . . . -39- 6.3 Notice of Default. . . . . . . . . . . . . . . . . -39- 6.4 Conduct of Business. . . . . . . . . . . . . . . . -39- 6.5 Taxes. . . . . . . . . . . . . . . . . . . . . . . -39- 6.6 Insurance. . . . . . . . . . . . . . . . . . . . . -39- 6.7 Compliance with Laws . . . . . . . . . . . . . . . -39- 6.8 Maintenance of Properties. . . . . . . . . . . . . -39- 6.9 Inspection . . . . . . . . . . . . . . . . . . . . -40- 6.10 Financial Covenants. . . . . . . . . . . . . . . . -40- 6.10.1 Consolidated Tangible Net Worth. . . . . . -40- 6.10.2 Senior Funded Debt to Cash Flow Ratio. . . -40- 6.10.3 Adjusted Interest Coverage Ratio . . . . . -41- 6.11 Intentionally Omitted. . . . . . . . . . . . . . . -41- 6.12 Indebtedness . . . . . . . . . . . . . . . . . . . -41- 6.13 Merger . . . . . . . . . . . . . . . . . . . . . . -42- 6.14 Sale of Assets . . . . . . . . . . . . . . . . . . -42- 6.15 Investments and Acquisitions . . . . . . . . . . . -42- 6.16 Liens. . . . . . . . . . . . . . . . . . . . . . . -43- 6.17 Prohibition of Negative Pledge.. . . . . . . . . . -44- 6.18 Affiliates . . . . . . . . . . . . . . . . . . . . -44- 6.19 Amendments to Agreements . . . . . . . . . . . . . -44- 6.20 Sale of Accounts . . . . . . . . . . . . . . . . . -45- 6.21 Limit on Senior Funded Debt. . . . . . . . . . . . -45- 6.22 Fiscal Year. . . . . . . . . . . . . . . . . . . . -45- 6.23 Limitation on the Creation of Subsidiaries . . . . -45- 6.24 Subsidiary Dividends . . . . . . . . . . . . . . . -45- 6.25 Repayment of Subordinated Debt . . . . . . . . . . -45- ARTICLE VII DEFAULTS. . . . . . . . . . . . . . . . . . . -46- ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES -49- 8.1 Acceleration . . . . . . . . . . . . . . . . . . . -49- 8.2 Amendments . . . . . . . . . . . . . . . . . . . . -49- 8.3 Preservation of Rights . . . . . . . . . . . . . . -50- ARTICLE IX GENERAL PROVISIONS. . . . . . . . . . . . . . -50- 9.1 Survival of Representations. . . . . . . . . . . . -50- 9.2 Governmental Regulation. . . . . . . . . . . . . . -50- 9.3 Taxes. . . . . . . . . . . . . . . . . . . . . . . -50- 9.4 Headings . . . . . . . . . . . . . . . . . . . . . -51- 9.5 Entire Agreement . . . . . . . . . . . . . . . . . -51- 9.6 Several Obligations; Benefits of this Agreement. . -51- 9.7 Expenses; Indemnification. . . . . . . . . . . . . -51- 9.8 Numbers of Documents . . . . . . . . . . . . . . . -51- 9.9 Accounting . . . . . . . . . . . . . . . . . . . . -52- 9.10 Severability of Provisions . . . . . . . . . . . . -52- 9.11 Nonliability of Lenders. . . . . . . . . . . . . . -52- 9.12 Confidentiality. . . . . . . . . . . . . . . . . . -52- 9.13 Nonreliance. . . . . . . . . . . . . . . . . . . . -52- ARTICLE X THE AGENT . . . . . . . . . . . . . . . . . . -53- 10.1 Appointment; Nature of Relationship. . . . . . . . -53- 10.2 Powers . . . . . . . . . . . . . . . . . . . . . . -53- 10.3 General Immunity . . . . . . . . . . . . . . . . . -53- 10.4 No Responsibility for Loans, Recitals, etc.. . . . -53- 10.5 Action on Instructions of Lenders. . . . . . . . . -54- 10.6 Employment of Agents and Counsel . . . . . . . . . -54- 10.7 Reliance on Documents; Counsel . . . . . . . . . . -54- 10.8 Agent's Reimbursement and Indemnification. . . . . -54- 10.9 Notice of Default. . . . . . . . . . . . . . . . . -55- 10.10 Rights as a Lender. . . . . . . . . . . . . . -55- 10.11 Lender Credit Decision. . . . . . . . . . . . -55- 10.12 Successor Agent . . . . . . . . . . . . . . . -55- ARTICLE XI SETOFF; RATABLE PAYMENTS. . . . . . . . . . . -56- 11.1 Setoff . . . . . . . . . . . . . . . . . . . . . . -56- 11.2 Ratable Payments . . . . . . . . . . . . . . . . . -56- ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATION . . . . . . . . . . . . . . . . . . . . . -57- 12.1 Successors and Assigns . . . . . . . . . . . . . . -57- 12.2 Participation. . . . . . . . . . . . . . . . . . . -57- 12.2.1 Permitted Participants; Effect . . . . . . -57- 12.2.2 Voting Rights. . . . . . . . . . . . . . . -58- 12.2.3 Benefit of Setoff. . . . . . . . . . . . . -58- 12.3 Assignments. . . . . . . . . . . . . . . . . . . . -58- 12.3.1 Permitted Assignments. . . . . . . . . . . -58- 12.3.2 Effect; Effective Date . . . . . . . . . . -59- 12.4 Dissemination of Information . . . . . . . . . . . -59- 12.5 Tax Treatment. . . . . . . . . . . . . . . . . . . -59- ARTICLE XIII NOTICES. . . . . . . . . . . . . . . . . . . . -60- 13.1 Notices. . . . . . . . . . . . . . . . . . . . . . -60- 13.2 Change of Address. . . . . . . . . . . . . . . . . -60- ARTICLE XIV COUNTERPARTS . . . . . . . . . . . . . . . . . -60- ARTICLE XV CHOICE OF LAW, CONSENT TO JURISDICTION, WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . -60- 15.1 Choice of Law. . . . . . . . . . . . . . . . . . . -60- 15.2 Consent to Jurisdiction. . . . . . . . . . . . . . -61- 15.3 Waiver of Jury Trial . . . . . . . . . . . . . . . -61- SCHEDULE 1 Lenders and Commitments SCHEDULE 2 Lender Addresses SCHEDULE 5.5 Material Adverse Changes since August 31, 1997 SCHEDULE 5.6 Exceptions to Tax Representations SCHEDULE 5.7 Pending Litigation SCHEDULE 5.8 Borrower's Subsidiaries SCHEDULE 5.9 Exceptions to ERISA Representation with respect to Plan Withdrawals SCHEDULE 5.14 Exceptions to Representation Concerning Ownership of Properties SCHEDULE 5.15 Exceptions to Representation Concerning Environmental Matters SCHEDULE 6.12 Permitted Indebtedness SCHEDULE 6.15(viii) Description of Existing Investments SCHEDULE 6.16 Description of Existing Liens EXHIBIT A Form of Compliance Certificate EXHIBIT B Form of Note EXHIBIT C [Intentionally Omitted] EXHIBIT D Form of Facility Letter of Credit Request EXHIBIT E Form of Opinion of Outside Counsel For Borrower EXHIBIT F Form of Written Money Transfer Instructions EXHIBIT G Form of Assignment and Assumption Agreement LOAN AGREEMENT This Loan Agreement (this "Agreement"), dated as of March 1, 1998, is among RICHARDSON ELECTRONICS, LTD., a Delaware corporation (the "Borrower"), the lenders listed from time to time on Schedule I hereto (each a "Lender" and, collectively, the "Lenders"), and AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, as Agent. The parties hereto agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, the following terms shall have the meanings herein specified unless the context otherwise requires: "Acquisition" means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which the Borrower or any of its Subsidiaries (i) acquires any going concern business or all or substantially all of the assets of any firm, corporation or division thereof, whether through the purchase of assets, merger or otherwise or (ii) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding partnership interests of a partnership or membership interests in a limited liability company. "Adjusted Cash Flow" means, as at any date of determination thereof, Total Cash Flow less Capital Expenditures. "Adjusted Interest Coverage Ratio" means, as at any date of determination thereof, the quotient of (i) Adjusted Cash Flow over (ii) Interest Expense, in each case calculated for the period of the trailing four consecutive fiscal quarters ending on or most recently ended prior to such date of determination. "Advance" means a borrowing hereunder (or, in the case of a Eurodollar Advance, the conversion or continuation thereof) consisting of the aggregate amount of the several Loans made by some or all of the Lenders to the Borrower on the same Borrowing Date (or date of conversion or continuation), of the same Type and, in the case of a Eurodollar Advance, for the same Interest Period. "Affiliate" of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise. "Agent" means American National Bank and Trust Company of Chicago in its capacity as agent for the Lenders pursuant to Article X, and not in its individual capacity as a Lender, and any successor Agent appointed pursuant to Article X. "Aggregate Available Loan Commitment" means, at any date of determination thereof, the Aggregate Commitment minus the sum of (i) the Facility Letter of Credit Obligations then outstanding and (ii) the aggregate principal amount of all Advances then outstanding. "Aggregate Commitment" means the aggregate of the Commitments of all the Lenders, as reduced from time to time pursuant to the terms hereof. "Agreement" means this loan agreement, as it may be amended or modified and in effect from time to time. "Alternate Base Rate" means, for any day, a rate of interest per annum equal to the higher of (i) the Base Rate for such day and (ii) the sum of the Federal Funds Effective Rate for such day plus 1/2% per annum. "ANB" means American National Bank and Trust Company of Chicago in its individual capacity, and its successors. "Applicable Margin" means, at any date of determination thereof, the rate per annum calculated in accordance with Section 2.4.3. "Article" means an article of this Agreement unless another document is specifically referenced. "Authorized Officer" means any of the Chairman, President, Executive Vice President, Vice President and Chief Financial Officer, Secretary and Treasurer of the Borrower, or any other senior officer of the Borrower designated as such in writing to the Agent by the Borrower, in each case acting singly. "Base Rate" means a rate per annum equal to the base rate of interest announced by ANB from time to time, changing when and as said base rate changes. The Base Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. ANB may make commercial loans or other loans at rates of interest at, above or below the Base Rate. "Benefit Plan" means each employee benefit plan as defined in Section 3(3) of ERISA. "Borrower" means Richardson Electronics, Ltd., a Delaware corporation, and, subject to Section 8.2 herein, its successors and assigns. "Borrowing Date" means a date on which an Advance is made hereunder. "Business Day" means (i) with respect to any borrowing, payment or rate selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago and New York for the conduct of substantially all of their commercial lending activities and on which dealings in United States dollars are carried on in the London interbank market and (ii) for all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago for the conduct of substantially all of their commercial lending activities. "Borrowing Notice" is defined in Section 2.2.6. "Canadian Borrower" shall mean Burtek Systems, Inc., a Canadian corporation. "Canadian Credit Agreement" means that certain Credit Agreement made as of February 18, 1997, between Richardson Electronics Acquisition Corp. and First Chicago NBD Bank, Canada, as the same has been amended by (i) First Amending Agreement made as of August 14, 1997 among Burtek Systems, Inc., First Chicago NBD Bank, Canada and Richardson Electronics, Ltd., (ii) Second Amending Agreement made as of August 22, 1997, among Burtek Systems, Inc., First Chicago NBD Bank, Canada, and Richardson Electronics, Ltd., and Third Amending Agreement made as of March 1, 1998 among Burtek Systems, Inc., First Chicago NBD Bank, Canada and Richardson Electronics, Ltd., and as the same may be further amended or modified and in effect from time to time. "Canadian Dollars" means lawful money of Canada. "Canadian Guaranty" means that certain Guaranty originally dated February 28, 1997, as amended, restated and delivered as of March 1, 1998, executed by the Borrower in favor of First Chicago NBD Bank, Canada, as the same may be amended or modified and in effect from time to time. "Canadian Lender" means First Chicago NBD Bank, Canada, and its successors and assigns. "Canadian Loan Documents" has the meaning attributed to the term "Documents" in the Canadian Credit Agreement. "Canadian Loans" has the meaning attributed to the term "Loans" in the Canadian Credit Agreement. "Capital Expenditures" means, without duplication, any expenditures for any purchase or other acquisition of any asset which would be classified as a fixed or capital asset on a consolidated balance sheet of the Borrower and its Subsidiaries prepared in accordance with GAAP. "Capitalized Lease" of a Person means any lease of Property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with GAAP. "Capitalized Lease Obligations" of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with GAAP. "Change" means (i) any change after the date of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or any Lending Installation or any corporation controlling any Lender. "Change in Control" means Edward J. Richardson shall cease to own (beneficially or of record), free and clear of any prohibition or restriction on the transfer or exercise of any voting rights in respect thereof other than such restrictions in favor of the Agent and/or the Lenders, in the aggregate at least the minimum number of outstanding shares of voting stock of the Borrower required to elect a majority of the Borrower's Board of Directors and control any amendment of the Borrower's bylaws in an election in which all outstanding shares entitled to vote are in fact voted. "Code" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. "Commercial Letter of Credit" means any Facility Letter of Credit that is a commercial or trade Letter of Credit. "Commitment" means, for each Lender, the obligation of such Lender to make Loans and purchase participation in Facility Letters of Credit in an aggregate amount not exceeding the amount set forth opposite its name on Schedule 1 hereto or as set forth in any Notice of Assignment relating to any assignment that has become effective pursuant to Section 12.3.2, as such amount may be modified from time to time pursuant to the terms hereof. "Compliance Certificate" means a compliance certificate, substantially in the form of Exhibit A hereto, signed by the Chief Financial Officer or Treasurer of the Borrower, showing the calculations necessary to determine compliance with this Agreement and stating that no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof. "Condemnation" is defined in Section 7.8. "Consolidated Tangible Net Worth" means, as at any date of determination thereof, the consolidated stockholders' equity of the Borrower and its Subsidiaries, plus Subordinated Debt and less the sum of the consolidated Intangible Assets of the Borrower and its Subsidiaries, all determined as of such date in accordance with GAAP. "Contingent Obligation" of a Person means, without duplication, any agreement, undertaking or arrangement by which such Person directly or indirectly assumes guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including, without limitation, any operating agreement, comfort letter, take-or-pay contract or application or reimbursement agreement for a Letter of Credit but excluding any endorsement of instruments for deposit or collection in the ordinary course of business. "Controlled Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code. "Conversion/Continuation Notice" is defined in Section 2.2.7. "Credit Party" means the Borrower and each Subsidiary Guarantor. "Debentures" means the Borrower's 7-1/4% Convertible Subordinated Debentures due December 15, 2006 and 8-1/4% Convertible Senior Subordinated Debentures due June 15, 2006. "Default" means an event described in Article VII. "Designated Accounts" means accounts not over 60 days past due owing by a Person (i) residing, located or having its principal activities or place of business in the United States of America or any province of Canada other than Quebec, and (ii) subject to service of process within the continental United States of America or any province of Canada other than Quebec; provided that the amount of Designated Accounts owed from all Persons located in Canada shall not exceed $8 million in Canadian Dollars at any one time. "Designated Inventory" means inventory located within the continental United States of America or any province of Canada other than Quebec; provided that the aggregate amount of Designated Inventory located in Canada shall not exceed $4 million in Canadian Dollars (valued at cost) at any one time. "Dollars", "U.S. Dollars" and "$" mean dollars in lawful currency of the United States of America. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, injunctions, permits, grants, franchises, licenses, agreements and other governmental restrictions relating to (i) the protection of the environment, (ii) the effect of the environment on human health, (iii) emissions, discharges or releases of pollutants, contaminants, hazardous substances or wastes into surface water, ground water or land, or (iv) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, hazardous substances or wastes or the clean-up or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder. "Eurodollar Advance" means an Advance which bears interest at a Eurodollar Rate. "Eurodollar Base Rate" means, with respect to a Eurodollar Advance for the relevant Eurodollar Interest Period, the rate determined by the Agent to be the rate at which deposits in U.S. Dollars are offered by ANB to first-class banks in the London interbank market at approximately 11 a.m. (London time) two Business Days prior to the first day of such Eurodollar Interest Period, in the approximate amount of ANB's relevant Eurodollar Loan. "Eurodollar Interest Period" means, with respect to a Eurodollar Advance, a period of one, two, three or six months commencing on a Business Day selected by the Borrower pursuant to this Agreement. Such Eurodollar Interest Period shall end on (but exclude) the day which corresponds numerically to such date one, two, three or six months thereafter, provided, however, that if there is no such numerically corresponding day in such next, second, third or sixth succeeding month, such Eurodollar Interest Period shall end on the last Business Day of such next, second, third or sixth succeeding month. If a Eurodollar Interest Period would otherwise end on a day which is not a Business Day, such Eurodollar Interest Period shall end on the next succeeding Business Day, provided, however, that if said next succeeding Business Day falls in a new calendar month, such Eurodollar Interest Period shall end on the immediately preceding Business Day. "Eurodollar Interest Period" may be amended by the written consent of all of the Lenders and Borrower to include such other periods not otherwise included above. "Eurodollar Loan" means a Loan which bears interest at a Eurodollar Rate. "Eurodollar Rate" means, with respect to a Eurodollar Advance for the relevant Eurodollar Interest Period: (A) for the period from March 1, 1998 to and including May 30, 1998, the sum of (i) the quotient of (a) the Eurodollar Base Rate applicable to such Eurodollar Interest Period, over (b) one minus the Reserve Requirement (expressed as a decimal) applicable to such Eurodollar Interest Period, plus (ii) one and one-quarter percent (1.25%); (B) for the period from May 31, 1998 until the last Business Day on which a Eurodollar Interest Period may commence hereunder, the sum of (i) the quotient of (a) the Eurodollar Base Rate applicable to such Eurodollar Interest Period, over (b) one minus the Reserve Requirement (expressed as a decimal) applicable to such Eurodollar Interest Period, plus (ii) the Applicable Margin in effect two Business Days prior to the first day of such Eurodollar Interest Period. In all circumstances, the Eurodollar Rate shall be rounded to the next higher multiple of 1/16 of 1% if the rate is not such a multiple. "Excluded Taxes" means, in the case of each Lender or applicable Lending Installation and the Agent, taxes imposed on its overall net income, and franchise taxes imposed on it, by (i) the jurisdiction under the laws of which such Lender or the Agent is incorporated or organized, or (ii) the jurisdiction in which the Agent's or such Lender's principal executive office or such Lender's applicable Lending Installation is located. "Facility Letter of Credit Obligations" means, at any date of determination thereof, all liabilities, whether actual or contingent, of the Borrower in respect of the Facility Letters of Credit, including, without limitation, the sum of (i) Reimbursement Obligations and (ii) the aggregate undrawn face amount of any outstanding Facility Letters of Credit. "Facility Letter of Credit Request" is defined in Section 2.3.4. "Facility Letters of Credit" means, collectively, the Letters of Credit issued by the Issuer pursuant to Section 2.3. "Facility Termination Date" means March 1, 2001 or any earlier date on which the Aggregate Commitment is reduced to zero or otherwise terminated pursuant to the terms hereof. "Federal Funds Effective Rate" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10 a.m. (Chicago time) on such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by the Agent in its sole discretion. "Fiscal Year" means, with respect to the Borrower or any of its Subsidiaries, the fiscal period beginning on June 1 and ending on May 31 of each calendar year. "Floating Rate" means the Alternate Base Rate, changing when and as the Alternate Base Rate changes. "Floating Rate Advance" means an Advance which bears interest at the Floating Rate. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time; it being understood and agreed that determinations in accordance with GAAP for purposes of Sections 2.4.3 and 6.10, including defined terms as used therein, shall utilize accounting principles and policies in effect at the time of the preparation of, and in conformity with those used to prepare, the historical financial statements delivered to the Lenders pursuant to Section 6.1. "Gross Up Event" means the occurrence of any of the events stated in Sections 3.1 or 3.2 hereof. "Indebtedness" of a Person means such Person's (i) obligations for borrowed money, (ii) obligations representing the deferred purchase price of Property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (iii) obligations, whether or not assumed, secured by Liens other than Liens for inventory purchases arising in the normal course of business which Liens are not evidenced by any filings (under the UCC or otherwise) and do not secure an amount exceeding $2,500,000 in the aggregate at any one time outstanding, or payable out of the proceeds or production from property now or hereafter owned or acquired by such Person, (iv) obligations which are evidenced by notes, acceptances, or other instruments, (v) Capitalized Lease Obligations, (vi) Rate Hedging Obligations, (vii) Contingent Obligations and (viii) Subordinated Debt. "Intangible Assets" means the amount (to the extent reflected in determining consolidated stockholders' equity) of (i) all write-ups in the book value of any asset owned or acquired by the Borrower or a Subsidiary, (ii) all goodwill, covenants not to compete, prepayments, deferred charges, franchises, patents, trademarks, service marks, trade names, brand names and copyrights, (iii) all deferred financing costs (including, but not limited to, unamortized debt discount and expense, organization expense and experimental and development expenses, but excluding prepaid expenses), and (iv) leasehold improvements not recoverable at the expiration of a lease. "Interest Expense" means, for any period of calculation, all interest expense on Indebtedness, calculated for such period for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP. "Interest Period" means a Eurodollar Interest Period. "Investment" of a Person means any loan, advance (other than commission, travel and similar advances to officers, employees and sales agents made in the ordinary course of business), extension of credit (other than accounts receivable arising in the ordinary course of business on terms customary in the trade) or contribution of capital by such Person, stocks, bonds, mutual funds, partnership interests, notes, debentures or other securities owned by such Person. "Issuance Date" means, with respect to any Facility Letter of Credit, the date on which such Facility Letter of Credit is issued hereunder. "Issuance Fee" means, with respect to any Facility Letter of Credit on the Issuance Date thereof, such issuance fee as the Borrower and the Issuer of such Facility Letter of Credit shall have agreed upon in writing. "Issuer" is defined in Section 2.3.1. "Lender" is defined in the preamble to this Agreement. "Lending Installation" means, with respect to a Lender or the Agent, any office, branch, subsidiary or affiliate of such Lender or the Agent. "Letter of Credit" of a Person means a letter of credit or similar instrument which is issued upon the application of such Person or upon which such Person is an account party or for which such Person is in any way liable. "Level I Status" exists at any date if the Senior Funded Debt to Cash Flow Ratio is greater than or equal to 2.01:1.00. "Level II Status" exists at any date if the Senior Funded Debt to Cash Flow Ratio is greater than or equal to 1.51:1.0 but less than 2.01:1.00. "Level III Status" exists at any date if the Senior Funded Debt to Cash Flow Ratio is greater than or equal to 1.00:1.00 but less than 1.51:1.00. "Level IV Status" exists at any date if none of Level I Status, Level II Status, or Level III Status exists at such date. "Lien" means any lien (statutory or other), mortgage, pledge, hypothecation, filed financing statement, assignment, encumbrance or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement). "Loan" means, with respect to a Lender, a loan made by such Lender pursuant to Article II (or any conversion or continuation thereof). "Loan Documents" means this Agreement, the Notes, and any other documents and agreements contemplated hereby and executed by the Borrower or a Subsidiary in favor of the Agent or any Lender. "Material Adverse Effect" means a material adverse effect on (i) the business, Property, financial condition or results of operations of the Borrower or any of its Subsidiaries, (ii) the ability of the Borrower to perform its respective obligations under any of the Loan Documents, or (iii) the validity or enforceability of any of the Loan Documents or the rights or remedies of the Agent or the Lenders thereunder. "Material Indebtedness" is defined in Section 7.5. "Multiemployer Plan" means a Plan defined in Section 3(37) of ERISA to which the Borrower or any member of the Controlled Group may have any liability. "Net Income" shall mean, for any period, the net income (or loss), after provision for taxes, of the Borrower and its Subsidiaries on a consolidated basis for such period taken as a single accounting period but excluding any unrealized losses and gains for such period resulting from mark-to-market of Rate Hedging Agreements. "Note" means a promissory note, substantially in the form of Exhibit B hereto, with appropriate insertions, duly executed and delivered to the Agent by the Borrower for the account of a Lender and payable to the order of such Lender in the amount of its Commitment, including any amendment, modification, renewal or replacement of such promissory note. "Notice of Assignment" is defined in Section 12.3.2. "Obligations" means all unpaid principal of and accrued and unpaid interest on the Loans, all accrued and unpaid fees arising under the Loan Documents, all Facility Letter of Credit Obligations, and all expenses, reimbursements, indemnities and other obligations of the Borrower to the Lenders or to any Lender, the Agent or any indemnified party hereunder arising under the Loan Documents. "Other Taxes" is defined in Section 3.5(ii). "Participants" is defined in Section 12.2.1. "Payment Date" means the last Business Day of each of February, May, August and November. "Permitted Acquisition" means, at any time of determination, any Acquisition by the Borrower or any Subsidiary of a business or entity in substantially the same field of enterprise as the Borrower or such Subsidiary with respect to which each of the following requirements is then met: (i) Such Acquisition has been approved and recommended by the board of directors of the entity to be acquired. (ii) The Borrower or such Subsidiary shall have given the Agent notice of such Acquisition within ten (10) days prior to or following the consummation thereof. (iii) The aggregate consideration (including, without limitation, the purchase price therefor and any assumption of debt (other than accounts payable and deferred revenue obligations arising in the ordinary course of business)) for such Acquisition (singly or together with a group of related Acquisitions), less the amount of cash received by the Borrower or such Subsidiary from the entity being acquired in connection with such Acquisition, does not exceed $15 million during the Borrower's rolling four consecutive trailing fiscal quarters. (iv) Prior to and after giving effect to such Acquisition, no Default or Unmatured Default shall exist. "Person" means any natural person, corporation, limited liability company, firm, joint venture, partnership, association, enterprise, trust or other entity or organization, or any government or political subdivision or any agency, department or instrumentality thereof. "PBGC means the Pension Benefit Guaranty Corporation, or any successor thereto. "Plan" means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 302 of ERISA or Section 412 of the Code as to which the Borrower or any member of the Controlled Group may have any liability. "Pro Rata Share" means, with respect to each Lender at any time, the ratio such Lender's Commitment bears to the Aggregate Commitment. "Property" of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person. "Purchasers" is defined in Section 12.3.1. "Rate Hedging Agreement" means an agreement, device or arrangement providing for payments which are related to fluctuations of interest rates, exchange rates or forward rates. including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants. "Rate Hedging Obligations" of a Person means any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (i) any and all Rate Hedging Agreements, and (ii) any and all cancellations, buy backs, reversals, terminations or assignments of any Rate Hedging Agreement. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System. "Reimbursement Obligations" means, at any time, the aggregate of the obligations of the Borrower to the Issuer and the Lenders in respect of all unreimbursed payments or disbursements made by the Issuer and the Lenders under or in respect of drawings under the Facility Letters of Credit. "Reportable Event" means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided, however, that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. "Required Lenders" means, at any time, Lenders in the aggregate having at least 66-2/3% of the Aggregate Commitment or, subsequent to the Facility Termination Date, Lenders in the aggregate holding at least 66-2/3% of the sum of (i) the aggregate unpaid principal amount of the outstanding Advances and (ii) the Facility Letter of Credit Obligations. "Reserve Requirement" means, with respect to a Eurodollar Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on Eurocurrency liabilities. "Risk-Based Capital Guidelines" means (i) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled "International Convergence of Capital Measurements and Capital Standards," including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. "Section" means a numbered section of this Agreement, unless another document is specifically referenced. "Senior Funded Debt" means the sum of all Indebtedness that (i) is not Subordinated Debt and (ii) by its terms is or will become interest bearing, including, but not limited to, Capitalized Lease Obligations and the Obligations hereunder. "Senior Funded Debt to Cash Flow Ratio" means, as at any date of determination thereof, the ratio of (i) Senior Funded Debt outstanding at the end of the fiscal quarter ending on or most recently ended prior to such date of determination to (ii) Total Cash Flow, in each case calculated as at such date of determination for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP, and with respect to Total Cash Flow calculated for the period of four consecutive fiscal quarters ending on or most recently ended prior to such date of determination. "Single Employer Plan" means a Plan maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group. "Standby Letter of Credit" means any Facility Letter of Credit that is an irrevocable standby Letter of Credit. "Status" means, at any date of determination, whichever of Level I Status, Level II Status, Level III Status or Level IV Status exists at such time. "Subordinated Debt" means the Debentures and any unsecured Indebtedness of the Borrower (a) no part of the principal of which is stated to be payable or is required to be paid (whether by way of mandatory sinking fund, mandatory redemption, mandatory prepayment or otherwise) prior to the Facility Termination Date, and the payment of the principal of and interest on which and other obligations of the Borrower in respect thereof are subordinated to the prior payment in full of principal of and interest (including post-petition interest) on the Notes and all other obligations and liabilities of the Borrower to the Agent and the Lenders hereunder on terms and conditions first approved in writing by the Required Lenders and (b) otherwise containing terms, covenants and conditions satisfactory in form and substance to the Required Lenders, as evidenced by their prior written approval thereof. "Subsidiary" of any Person means (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries and (ii) any partnership, association (including business trusts), joint venture, limited liability company or other entity in which such Person directly or indirectly through Subsidiaries, has more than 50% voting or equity interest at the time. "Substantial Portion" means, with respect to the Property of the Borrower and its Subsidiaries, Property which (i) represents more than five percent (5%) of the consolidated assets of the Borrower and its Subsidiaries as at the last day of the calendar month ending on or most recently ended prior to the date on which such determination is made, or (ii) is responsible for more than five percent (5%) of the consolidated net sales or of the consolidated net income of the Borrower and its Subsidiaries for the period of twelve complete consecutive calendar months ending on or most recently ended prior to the date on which such determination is made. "Taxes" means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and any and all liabilities with respect to the foregoing, but excluding Excluded Taxes. "Total Cash Flow" means, as at any date of determination thereof, the sum of Net Income, Interest Expense, taxes, depreciation and amortization in each case calculated as at such date of determination for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP. Neither cash nor non-cash charges reflecting extraordinary terms, unusual items, or one time charges will be added back for the purpose of Total Cash Flow calculation. "Transferee" is defined in Section 12.4. "Type" means, with respect to any Advance, its nature as a Eurodollar Advance or a Floating Rate Advance. "Unfunded Liabilities" means the amount (if any) by which the present value of all vested and unvested accrued benefits under all Single Employer Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans as if such Plans were terminating on such date under Section 4041 of ERISA. "Unmatured Default" means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default. "Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any partnership, association, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. ARTICLE II THE CREDITS 2.1 Description of Facility. Upon the terms and subject to the conditions set forth in this Agreement, the Lenders hereby grant to the Borrower a revolving credit facility pursuant to which: (i) each Lender severally agrees to make Loans to the Borrower in accordance with Section 2.2; and (ii) each Lender severally agrees to purchase participation in Facility Letters of Credit in accordance with Section 2.3; provided, however, that in no event may the sum of (1) the aggregate principal amount of all outstanding Advances and (2) the Facility Letter of Credit Obligations exceed the Aggregate Commitment. 2.2 Advances. 2.2.1 Commitment. From and including the date of this Agreement and prior to the Facility Termination Date, each Lender severally agrees, on the terms and conditions set forth in this Agreement, to make Loans to the Borrower from time to time in amounts not to exceed in the aggregate at any one time outstanding (after giving effect to the intended use of proceeds of any Loan used to repay any outstanding Reimbursement Obligations) the amount of its Commitment. Subject to the terms of this Agreement, the Borrower may borrow, repay, and reborrow from each Lender at any time prior to the Facility Termination Date. The Commitment of each Lender to lend hereunder shall expire on the Facility Termination Date. 2.2.2 Termination. All outstanding Advances and all other unpaid Obligations owing to each Lender shall be paid in full by the Borrower on the Facility Termination Date. 2.2.3 Ratable Loans. Each Advance hereunder shall consist of Loans made from the several Lenders ratably in proportion to their respective Pro Rata Share. 2.2.4 Types of Advances. The Advances may be Eurodollar Advances, Floating Rate Advances or a combination thereof, selected by the Borrower in accordance with Sections 2.2.6 and 2.2.7. 2.2.5 Minimum Amount of Each Advance. Each Eurodollar Advance shall be in the minimum amount of $1,000,000 (and in multiples of $100,000 if in excess thereof), and each Floating Rate Advance shall be in the minimum amount of $300,000 (and in multiples of $100,000 if in excess thereof); provided, however, that any Floating Rate Advance may be in the amount of the unused Aggregate Available Loan Commitment should the Aggregate Available Loan Commitment be less than $300,000. 2.2.6 Method of Selecting Types and Interest Periods for New Advances. The Borrower shall select the Type of Advance and, in the case of each Eurodollar Advance, the Eurodollar Interest Period applicable to each such Eurodollar Advance from time to time. The Borrower shall give the Agent irrevocable notice (a "Borrowing Notice") not later than 10:00 a.m. (Chicago time) on the Borrowing Date of each Floating Rate Advance and not later than 12:00 noon (Chicago time) at least three (3) Business Days before the Borrowing Date for each Eurodollar Advance, specifying: (i) the Borrowing Date, which shall be a Business Day, of such Advance; (ii) the aggregate amount of such Advance; (iii) the Type of Advance selected; and (iv) in the case of each Eurodollar Advance, the Eurodollar Interest Period applicable thereto (which may not end after the Facility Termination Date). Not later than noon (Chicago time) on each Borrowing Date, each Lender shall make available its Loan or Loans, in funds immediately available in Chicago to the Agent at its address specified pursuant to Article XIII. The Agent will make the funds so received from the Lenders available to the Borrower at the Agent's aforesaid address. 2.2.7 Conversion and Continuation of Outstanding Advances. Floating Rate Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are converted into Eurodollar Advances. Each Eurodollar Advance shall continue as a Eurodollar Advance until the end of the then applicable Eurodollar Interest Period therefor, at which time such Eurodollar Advance shall be automatically converted into a Floating Rate Advance unless the Borrower shall have given the Agent a Conversion/Continuation Notice (as defined below) requesting that, at the end of such Eurodollar Interest Period, such Eurodollar Advance either continue as a Eurodollar Advance for the same or another Eurodollar Interest Period or be converted into a Floating Rate Advance. Subject to the terms of Section 2.2.5, the Borrower may elect from time to time to convert all or any part of an Advance of either Type into the other Type of Advance; provided that any conversion of any Eurodollar Advance shall be made on, and only on, the last day of the Eurodollar Interest Period applicable thereto. The Borrower shall give the Agent irrevocable notice (a "Conversion/Continuation Notice") of each conversion of an Advance or continuation of a Eurodollar Advance not later than 12:00 noon (Chicago time) (a) in the case of a conversion into a Floating Rate Advance, at least one Business Day before the date of the requested conversion, and (b) in the case of a conversion into or continuation of a Eurodollar Advance, at least three Business Days prior to the date of the requested conversion or continuation, specifying: (i) the requested date (which shall be a Business Day) of such conversion or continuation; (ii) the aggregate amount and Type of Advance(s) which is to be converted or continued; and (iii) the amount and Type(s) of Advance(s) into which such Advance is to be converted or continued and, in the case of a conversion into or continuation of a Eurodollar Advance, the duration of the Eurodollar Interest Period applicable thereto (which may not end after the Facility Termination Date). 2.3 Facility Letters of Credit. 2.3.1 Obligation to Issue. From and including the date of this Agreement and prior to the Business Day prior to the Facility Termination Date, the Agent agrees, on the terms and conditions set forth in this Agreement and on behalf of each of the Lenders, to issue for the account of the Borrower one or more Facility Letters of Credit in accordance with this Section 2.3 (the Agent in such capacity is referred to as the "Issuer"). 2.3.2 Types and Amounts. The Issuer shall not have any obligation to and shall not: (i) issue any Facility Letter of Credit if the aggregate maximum amount then available for drawing under Letters of Credit issued by the Issuer, after giving effect to the Facility Letter of Credit requested hereunder, shall exceed any limit imposed by law or regulation upon the Issuer; (ii) issue any Facility Letter of Credit if, after giving effect thereto, the sum of (a) the Facility Letter of Credit Obligations and (b) the aggregate unpaid principal balance of the Advances would exceed the Aggregate Commitment; (iii) issue any Facility Letter of Credit which has an expiry date (a) later than twelve months after the Issuance Date thereof or (b) after the Facility Termination Date; or (iv) issue any Facility Letter of Credit if, after giving effect to such Facility Letter of Credit requested hereunder, the Facility Letter of Credit Obligations would exceed $5,000,000 in the aggregate. 2.3.3 Conditions. In addition to being subject to the satisfaction of the conditions contained in Sections 4.1 and 4.2, the obligation of the Issuer to issue any Facility Letter of Credit is subject to the satisfaction in full of each of the following conditions: (i) the Borrower shall have delivered to the Issuer at such times and in such manner as the Issuer may reasonably prescribe such documents and materials as may be required pursuant to the terms of the requested Facility Letter of Credit (it being understood that if any inconsistency exists between the Issuer's Letter of Credit documents and the Loan Documents, the terms of the Loan Documents shall govern and control) and the requested Facility Letter of Credit shall be reasonably satisfactory to the Issuer as to form and content; and (ii) as of the Issuance Date, no order, judgment or decree of any court, arbitrator or governmental authority shall purport by its terms to enjoin or restrain the Issuer from issuing the requested Facility Letter of Credit and no law, rule or regulation applicable to the Issuer and no request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over the Issuer shall prohibit or request that the Issuer refrain from the issuance of Letters of Credit generally or the issuance of such requested Facility Letter of Credit in particular. 2.3.4 Procedure for Issuance of Facility Letters of Credit. (a) The Borrower shall give the Issuer written notice not later than noon (Chicago time) at least three Business Days before the Issuance Date of any requested Facility Letter of Credit (each a "Facility Letter of Credit Request") (except that, in lieu of such written notice, the Borrower may give the Issuer notice of such request by tested telex or other tested arrangement satisfactory to the Issuer). Such Facility Letter of Credit Request shall be irrevocable and shall specify: (1) the stated amount of such requested Facility Letter of Credit; (2) the Issuance Date (which day shall be a Business Day); (3) the date on which such requested Facility Letter of Credit is to expire (which date shall be a Business Day and shall in no event be later than the Facility Termination Date); (4) the purpose for which such Facility Letter of Credit is to be issued; (5) the Person for whose benefit the requested Facility Letter of Credit is to be issued; and (6) whether the requested Facility Letter of Credit will be a Commercial Letter of Credit or a Standby Letter of Credit. Prior to the issuance of the requested Facility Letter of Credit, the Borrower shall provide the Issuer with a copy of the form of the Facility Letter of Credit it is requesting be issued. The Issuer will notify each Lender within a reasonable time following the issuance of each Facility Letter of Credit. (b) Subject to the terms and conditions of this Section 2.3.4 and provided that the applicable conditions set forth in Sections 4.1 (in the case of the initial Facility Letter of Credit), 4.2 and 2.3.3 have been satisfied, the Issuer shall, on the applicable Issuance Date, issue a Facility Letter of Credit on behalf of the Borrower in accordance with the Issuer's usual and customary business practices. (c) The Issuer shall not extend or amend any Facility Letter of Credit unless the requirements of Sections 2.3.2 and 2.3.4 are met. 2.3.5 Reimbursement Obligations. (a) (i) The Issuer shall promptly notify the Borrower of any draw under such Facility Letter of Credit. The Borrower shall reimburse the Issuer for drawings under Standby Letters of Credit (including the Issuer's issuing costs) no later than the Business Day after the payment in respect of such Standby Letter of Credit by the Issuer, together with interest thereon at the Alternate Base Rate from the date of payment on such Standby Letter of Credit by the Issuer to and including the date on which the Issuer is reimbursed for such payment by the Borrower. The Borrower shall reimburse the Issuer for drawings under Commercial Letters of Credit (including the Issuer's issuing costs) no later than the Business Day after the payment in respect of such Commercial Letter of Credit by the Issuer, together with interest thereon at the Alternate Base Rate from the date of payment on such Commercial Letter of Credit by the Issuer to and including the date on which the Issuer is reimbursed for such payment by the Borrower; and (ii) Any Reimbursement Obligation with respect to any Facility Letter of Credit which is not paid on the date when due in accordance with Section 2.3.5(a)(i) shall (A) if there is availability for such an Advance pursuant to Section 2.2, be automatically converted on such date into a Floating Rate Advance and shall bear interest at the Floating Rate or (B) if there is no availability for an Advance pursuant to Section 2.2, be payable on demand and bear interest until paid at a rate per annum equal to the sum of (a) the Floating Rate plus (b) 2% per annum. (b) Any action taken or omitted to be taken by the Issuer under or in connection with any Facility Letter of Credit, if taken or omitted in the absence of willful misconduct or gross negligence, shall not put the Issuer under any resulting liability to any Lender or, assuming that the Issuer has complied with the procedures specified in Section 2.3.4(b) and such Lender has not given a notice contemplated by Section 2.3.6(a) that continues in full force and effect, relieve such Lender of its obligations hereunder to the Issuer. In determining whether to pay under any Facility Letter of Credit, the Issuer shall have no obligation relative to the Lenders or the Borrower other than to confirm that any documents required to be delivered under such Facility Letter of Credit appear to comply on their face with the requirements of such Facility Letter of Credit. 2.3.6 Participation. (a) Immediately upon issuance by the Issuer of any Facility Letter of Credit in accordance with the procedures set forth in Section 2.3.4, each Lender shall be deemed to have irrevocably and unconditionally purchased and received from the Issuer, without recourse or warranty, an undivided interest and participation equal to its Pro Rata Share in such Facility Letter of Credit (including, without limitation, all obligations of the Borrower with respect thereto) and any security therefor or guaranty pertaining thereto; provided, that a Letter of Credit issued by the Issuer shall not be deemed to be a Facility Letter of Credit for purposes of this Section 2.3.6 if the Issuer shall have received written notice from any Lender on or before 10:00 a.m. (Chicago time) on the Issuance Date of such Letter of Credit that one or more of the conditions contained in Section 4.2 is not then satisfied, and, in the event the Issuer receives such a notice, it shall have no further obligation to issue any Facility Letter of Credit until such notice is withdrawn by such Lender or such condition has been satisfied or has been effectively waived in accordance with the provisions of this Agreement. (b) In the event that the Issuer makes any payment under any Facility Letter of Credit and the Borrower shall not have repaid such amount to the Issuer pursuant to Section 2.3.5, the Issuer shall promptly notify each Lender of such failure, and each Lender shall promptly and unconditionally pay to the Issuer for the Issuer's account the amount of such Lender's Pro Rata Share of the unreimbursed amount of any such payment. The failure of any Lender to make available to the Issuer its Pro Rata Share of the unreimbursed amount of any such payment shall not relieve any other Lender of its obligation hereunder to make available to the Issuer its Pro Rata Share of the unreimbursed amount of any payment on the date such payment is to be made, but no Lender shall be responsible for the failure of any other Lender to make available to the Issuer its Pro Rata Share of the unreimbursed amount of any payment on the date such payment is to be made. (c) Whenever the Issuer receives a payment on account of a Reimbursement Obligation, including any interest thereon, it shall promptly pay to the account of each Lender which has funded its participating interest therein, in immediately available funds, an amount equal to each such Lender's Pro Rata Share thereof. (d) The obligations of a Lender to make payments to the Issuer with respect to a Facility Letter of Credit shall be absolute, unconditional and irrevocable, not subject to any counterclaim, set-off, qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under all circumstances. Nothing contained in this Section 2.3.6(d) shall impair or adversely affect any claim any Lender may have against the Issuer or any other Lender with respect to any gross negligence or willful misconduct of the Issuer or such other Lender in respect of any Facility Letter of Credit. 2.3.7 Payment of Reimbursement Obligations. (a) The Borrower agrees to pay to the Issuer the amount of all Reimbursement Obligations, interest and other amounts payable to the Issuer under or in connection with each Facility Letter of Credit immediately when due, irrespective of any claim, set-off, defense or other right which the Borrower or any Subsidiary may have at any time against the Issuer, the Agent or any other Person, under all circumstances, including without limitation, any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any of the other Loan Documents; (ii) the existence of any claim, setoff, defense or other right which the Borrower or any Subsidiary may have at any time against a beneficiary named in a Facility Letter of Credit or any transferee of any Facility Letter of Credit (or any Person for whom any such transferee may be acting), the Issuer, any Lender, or any other Person, whether in connection with this Agreement, any Facility Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transactions between the Borrower or any Subsidiary and the beneficiary named in any Facility Letter of Credit); (iii) any draft, certificate or any other document presented under the Facility Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; (v) the occurrence of any Default or Unmatured Default. (b) In the event any payment by the Borrower or any Subsidiary received by the Issuer with respect to a Facility Letter of Credit and distributed to the Lenders on account of their participation is thereafter set aside, avoided or recovered from the Agent in connection with any receivership, liquidation, reorganization or bankruptcy proceeding, each Lender which received such distribution shall, upon demand by the Issuer, contribute such Lender's Pro Rata Share of the amount set aside, avoided or recovered together with interest at the rate required to be paid by the Issuer upon the amount required to be repaid by it. 2.4 General Facility Terms. 2.4.1 Fees; Reductions in Aggregate Commitment. 2.4.1.1 Fees. The Borrower agrees to pay to the Agent the following fees (i) Facility Fee. For the account of each Lender in proportion to such Lender's Pro Rata Share, an annual facility fee equal to the product of (a) twelve and one-half (12.5) basis points, and (b) the Aggregate Commitment, which annual facility fee shall be computed and earned in its entirety on the date of this Agreement and each March 1 thereafter prior to the Facility Termination Date. The annual Facility Fee shall be payable annually in four equal installments in arrears on May 31, 1998 and on the last Business Day of each August, November, February and May thereafter prior to the Facility Termination Date with the outstanding unpaid balance of such fee due on the Facility Termination Date. Such facility fee shall in no circumstances be refundable to the Borrower, provided however that such Facility Fee shall be prorated for the actual days of any year (commencing January 1) in which a Facility Termination Date occurs solely because of Borrower's irrevocable payoff of all Loans on account of a breach by Lenders of Section 10.12 hereof or the occurrence of a Gross Up Event. (ii) Agent Fees. For the Agent's own account, such fees as the Borrower and the Agent shall have agreed upon pursuant to that certain letter agreement dated December 22, 1997 between the Borrower and the Agent, or as otherwise agreed upon from time to time. (iii) Standby Letter of Credit Commission. For the account of each Lender, a Standby Letter of Credit Fee payable quarterly on the last Business Day of each February, May, August and November at a per annum rate equal to the product of the then Applicable Margin and the average amount of Standby Letters of Credit outstanding during the immediately preceding fiscal quarter of the Company. (iv) Issuance Fee. The Borrower shall pay to the Issuer on or before the Issuance Date of each Facility Letter of Credit (or such later date as the Borrower and the Issuer shall agree upon in writing), solely for the account of the Issuer, the Issuance Fee in respect of such Facility Letter of Credit and shall also pay from time to time, upon written demand from Issuer, the Issuer's reasonable and customary costs of issuing and servicing such Facility Letter of Credit. (v) Canadian Credit Agreement Facility Participation Fee. For the account of each Lender, in consideration of each Lender's agreement to participate as risk participants or otherwise in the Canadian Credit Agreement, which participation inures to the benefit of the Borrower, the Borrower will pay the Agent for the ratable account of the Lenders, a facility participation fee equal to 0.125% of the Commitment ("Commitment" as defined in the Canadian Loan Agreement) which fee will be payable in quarterly installments in arrears on the last Business Day of each August, November, February, and May. Such facility participation fee shall in no circumstances be refundable to the Borrower or the Canadian Borrower. 2.4.1.2 Reductions in Aggregate Commitments. The Borrower may permanently reduce the Aggregate Commitment in whole, or in part ratably among the Lenders in integral multiples of $5,000,000, upon at least three Business Days' written notice to the Agent, which notice shall specify the amount of any such reduction, provided, however, that the amount of the Aggregate Commitment may not be reduced below an amount equal to the sum of (a) the aggregate principal amount of the outstanding Advances plus (b) the Facility Letter of Credit Obligations. 2.4.2 Optional Principal Payments; Mandatory Principal Payments. The Borrower may from time to time pay all outstanding Advances, or, pay in a minimum aggregate amount of $300,000 or any integral multiple of $100,000 in excess thereof, (i) without penalty or premium, any portion of the outstanding Floating Rate Advances upon prior notice to the Agent not later than 10:30 a.m. (Chicago time) at least one (1) Business Day before the date of such prepayment or (ii) subject to the indemnity provisions of Section 3.4, any portion of the outstanding Eurodollar Advances upon prior notice to the Agent not later than 10:30 a.m. (Chicago time) at least two (2) Business Days prior to the date of such prepayment. Any Eurodollar Advance paid prior to the last day of its applicable Interest Period shall be subject to the indemnity provisions of Section 3.4. Notwithstanding anything in this Section 2.4.2 to the contrary, if at any time the sum of the aggregate unpaid principal balance of the Advances plus the Facility Letter of Credit Obligations exceeds the Aggregate Commitment, the Borrower shall, subject to the indemnity provisions of Section 3.4, make an immediate mandatory payment on the Advances equal to such excess. 2.4.3 Applicable Margin. The Applicable Margin set forth below shall be subject to adjustment (upwards or downwards, as appropriate) based on the Borrower's Status as at the end of each fiscal quarter in accordance with the table set forth below. The Borrower's Status as at the last day of each fiscal quarter shall be determined from the then most recent annual or quarterly financial statements of the Borrower delivered by the Borrower pursuant to Section 6.1(i) or 6.1(ii) and the Compliance Certificate delivered by the Borrower pursuant to Section 6.1(iv). The adjustment, if any, to the Applicable Margin shall be effective commencing five (5) days after the delivery to the Lenders of such financial statements and Compliance Certificate. In the event that the Borrower shall at any time fail to furnish to the Lenders such financial statements and Compliance Certificate within the time limitations specified by Section 6.1, then the maximum Applicable Margin shall apply from the date of such failure until the fifteenth (15th) day after such financial statements and Compliance Certificate are so delivered. Notwithstanding anything to the contrary contained herein, the Borrower's Status from the date of this Agreement to and including the later of (i) May 30, 1998 or (ii) five (5) days after the delivery to the Lender of the May 31, 1998 annual financial statements of the Borrower accompanied by a current Compliance Certificate, shall be deemed to be Level II Status. Applicable Margin Table Status Applicable Margin (basis points) Level I 150.0 Level II 125.0 Level III 100.0 Level IV 75.0 2.4.4 Changes in Interest Rate, etc. Each Floating Rate Advance shall bear interest on the outstanding principal amount thereof, for each day from and including the date such Floating Rate Advance is made or is converted from a Eurodollar Advance into a Floating Rate Advance pursuant to Section 2.2.6 to but excluding the date it becomes due or is converted into a Eurodollar Advance pursuant to Section 2.2.6 at a rate per annum equal to the Floating Rate for such day. Changes in the rate of interest on that portion of any Advance maintained as a Floating Rate Advance will take effect simultaneously with each change in the Alternate Base Rate. Each Eurodollar Advance shall bear interest on the outstanding principal amount thereof from and including the first day of the Interest Period applicable thereto to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such Eurodollar Advance. 2.4.5 Rates Applicable After Default. Notwithstanding anything to the contrary contained in Section 2.2.5 or 2.2.6, during the continuance of a Default or Unmatured Default the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that no Advance may be made as, converted into or continued as a Eurodollar Advance. During the continuance of a Default the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that (i) each Eurodollar Advance shall bear interest for the remainder of the applicable Interest Period at the rate otherwise applicable to such Interest Period plus, to the extent permitted by law, 2% per annum and (ii) each Floating Rate Advance shall bear interest at a rate per annum equal to the Floating Rate otherwise applicable to the Floating Rate Advance plus, to the extent permitted by law, 2% per annum, provided that, during the continuance of a Default under Section 7.6 or 7.7 the interest rates set forth in clauses (i) and (ii) above shall be applicable to all Advances without any election or action on the part of the Agent or any Lender. 2.4.6 Method of Payment. All payments of the Obligations hereunder shall be made, without setoff, deduction, or counterclaim, in immediately available funds to the Agent at the Agent's address specified pursuant to Article XIII, or at any other Lending Installation of the Agent specified in writing by the Agent to the Borrower, by noon (local time at the relevant Lending Installation) on the date when due and the Agent will promptly distribute to each Lender its ratable share of each such payment received by the Agent for the account of the Lenders; provided, however, that if on any date the Borrower shall pay less than the full amount of Obligations owing on such date, such payment shall be distributed to the Lenders ratably based upon the ratio of the aggregate amount of Obligations owing to each such Lender on such date to the aggregate amount of Obligations owing to all the Lenders on such date. Each payment delivered to the Agent for the account of any Lender shall be delivered promptly by the Agent to such Lender in the same type of funds that the Agent received at its address specified pursuant to Article XIII or at any Lending Installation specified in a notice received by the Agent from such Lender. The Agent is hereby authorized to charge the account of the Borrower maintained with ANB for each payment of principal, interest and fees as it becomes due hereunder. 2.4.7 Notes; Telephonic Notices. Each Lender is hereby authorized to record the principal amount of each of its Loans and each repayment on the schedule attached to its applicable Note(s), and such entries shall be prima facie evidence of the existence and the amounts of the Obligations therein recorded; provided, however, that neither the failure to so record nor any error in such recordation shall affect the Borrower's obligations under any such Note. The Borrower hereby authorizes the Lenders and the Agent to extend, convert or continue Advances, effect selections of Types of Advances and to transfer funds and issue Facility Letters of Credit in each case based on telephonic notices made by any Authorized Officer or Authorized Officers the Agent or any Lender in good faith believes to be acting on behalf of the Borrower. The Borrower agrees to deliver promptly to the Agent a written confirmation if such confirmation is requested by the Agent or any Lender, of each telephonic notice signed by an Authorized Officer. If the written confirmation differs in any material respect from the action taken by the Agent and the Lenders, the records of the Agent and the Lenders shall govern absent manifest error. 2.4.8 Interest Payment Dates; Interest and Fee Basis. Interest accrued on each Floating Rate Advance shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof, on any date on which such Floating Rate Advance is prepaid, whether due to acceleration or otherwise, and at maturity. Interest accrued on that portion of the outstanding principal amount of any Floating Rate Advance optionally prepaid or converted into a Eurodollar Advance, in each case on a day other than a Payment Date, shall be payable on the Payment Date next succeeding the date of such prepayment or conversion, as the case may be. Interest accrued on each Eurodollar Advance shall be payable on the last day of its applicable Interest Period, on any date on which the Eurodollar Advance is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Eurodollar Advance having an Interest Period longer than three months shall also be payable on the last day of each three-month interval during such Interest Period. Interest on all Types of Advances and fees shall be calculated for actual days elapsed on the basis of a 360-day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to noon (local time) at the place of payment. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. 2.4.9 Notification of Advances, Interest Rates, and Prepayments. Promptly after receipt thereof, the Agent will notify each Lender of the contents of each Borrowing Notice, Facility Letter of Credit Request, Conversion/Continuation Notice and repayment notice received by it hereunder. The Agent will notify each Lender of the interest rate applicable to each Eurodollar Advance promptly upon determination of such interest rate and will give each Lender notice of each change in the Alternate Base Rate. 2.4.10 Lending Installations. Each Lender may book its Loans at any Lending Installation selected by such Lender and may change its Lending Installation from time to time. All terms of this Agreement shall apply to any such Lending Installation and the Notes shall be deemed held by each Lender for the benefit of such Lending Installation. Each Lender may, by written or telex notice to the Agent and the Borrower, designate a Lending Installation through which Loans will be made by it and for whose account Loan payments are to be made. 2.4.11 Non-Receipt of Funds by the Agent. Unless the Borrower or a Lender, as the case may be, notifies the Agent prior to the date on which it is scheduled to make payment to the Agent of (i) in the case of a Lender, the proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal, interest or fees to the Agent for the account of the Lenders, that it does not intend to make such payment, the Agent may assume that such payment has been made. The Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Lender or the Borrower, as the case may be, has not in fact made such payment to the Agent, the recipient of such payment shall, on demand by the Agent, repay to the Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to (i) in the case of repayment by a Lender, the Federal Funds Effective Rate for such day or (ii) in the case of repayment by the Borrower, the interest rate applicable to the relevant Advance. 2.4.12 Withholding Tax Exemption. At least five Business Days prior to the first date on which interest or fees are payable hereunder for the account of any Lender, each Lender that is not incorporated under the laws of the United States of America, or a state thereof, agrees that it will deliver to each of the Borrower and the Agent two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, certifying in either case that such Lender is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes. Each Lender which so delivers a Form 1001 or 4224 further undertakes to deliver to each of the Borrower and the Agent two additional copies of such form (or a successor form) on or before the date that such form expires (currently, three successive calendar years for Form 1001 and one calendar year for Form 4224) or becomes obsolete or after the occurrence of any event requiring a change in the most recent forms so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by the Borrower or the Agent, in each case certifying that such Lender is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender advises the Borrower and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax. ARTICLE III CHANGE IN CIRCUMSTANCES 3.1 Yield Protection. If any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) adopted, enacted, modified or otherwise becoming effective after the date hereof, or any interpretation thereof, or the compliance of any Lender therewith, (i) subjects any Lender or any applicable Lending Installation to any tax, duty, charge or withholding on or from payments due from the Borrower (excluding federal and state taxation of the overall net income of any Lender or applicable Lending Installation), or changes the basis of taxation of payments to any Lender in respect of its Loans, the Facility Letters of Credit or other amounts due it hereunder, or (ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to Eurodollar Advances), or (iii) imposes any other condition the result of which is to increase the cost to any Lender or any applicable Lending Installation of making, funding, maintaining, issuing or participating in loans or Letters of Credit or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with loans or Letters of Credit, or requires any Lender or any applicable Lending Installation to make any payment calculated by reference to the amount of loans held, Letters of Credit issued or participated in or interest received by it, in each case by an amount deemed material by such Lender, then, within 15 days of demand by such Lender, the Borrower shall pay such Lender that portion of such increased expense incurred or reduction in an amount received which such Lender reasonably determines is attributable to making, funding and maintaining its Loans and its Commitment. 3.2 Changes in Capital Adequacy Regulations. If a Lender determines the amount of capital required or expected to be maintained by such Lender, any Lending Installation of such Lender or any corporation controlling such Lender is increased as a result of a Change, then, within 15 days of demand by such Lender, the Borrower shall pay such Lender the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which such Lender determines is attributable to this Agreement, its Loans or its obligation to make Loans hereunder (after taking into account such Lender's policies as to capital adequacy). 3.3 Availability of Types of Advances. If any Lender reasonably determines that maintenance of its Eurodollar Loans would violate any applicable law, rule, regulation or directive, whether or not having the force of law, or if the Required Lenders determine that (i) deposits of a type and maturity appropriate to match fund Eurodollar Advances are not available or (ii) the interest rate applicable to a Eurodollar Advance does not accurately reflect the cost of making or maintaining such Eurodollar Advance, then the Agent shall suspend the availability of the Eurodollar Rate and require any Eurodollar Advances to be repaid or converted into a Floating Rate Advance, such repayment or conversion to occur on the last day of the applicable Interest Period (or such earlier date as may be required to comply with any applicable law). 3.4 Funding Indemnification. If any payment of a Eurodollar Advance occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Eurodollar Advance is not made on the date specified by the Borrower for any reason other than default by the Lenders, the Borrower will indemnify each Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain the Eurodollar Advance. 3.5 Taxes. (i) All payments by the Borrower to or for the account of any Lender or the Agent hereunder or under any Note shall be made free and clear of and without deduction for any and all Taxes. If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender or the Agent, (a) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.5) such Lender or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (b) the Borrower shall make such deductions, (c) the Borrower shall pay the full amount deducted to the relevant authority in accordance with applicable law and (d) the Borrower shall furnish to the Agent the original copy of a receipt evidencing payment thereof within 30 days after such payment is made. (ii) In addition, the Borrower hereby agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note ("Other Taxes"). (iii) The Borrower hereby agrees to indemnify the Agent and each Lender for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed on amounts payable under this Section 3.5) paid by the Agent or such Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. Payments due under this indemnification shall be made within 30 days of the date the Agent or such Lender makes demand therefor pursuant to Section 3.6. (iv) Each Lender that is not incorporated under the laws of the United States of America or a state thereof (each a "Non-U.S. Lender") agrees that it will, not less than ten Business Days after the date of this Agreement, (i) deliver to each of the Borrower and the Agent two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, certifying in either case that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, and (ii) deliver to each of the Borrower and the Agent a United States Internal Revenue Form W- 8 or W-9, as the case may be, and certify that it is entitled to an exemption from United States backup withholding tax. Each Non-U.S. Lender further undertakes to deliver to each of the Borrower and the Agent (x) renewals or additional copies of such form (or any successor form) on or before the date that such form expires or becomes obsolete, and (y) after the occurrence of any event requiring a change in the most recent forms so delivered by it, such additional forms or amendments thereto as may be reasonably requested by the Borrower or the Agent. All forms or amendments described in the preceding sentence shall certify that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form or amendment with respect to it and such Lender advises the Borrower and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax. (v) For any period during which a Non-U.S. Lender has failed to provide the Borrower with an appropriate form pursuant to clause (iv), above (unless such failure is due to a change in treaty, law or regulation, or any change in the interpretation or administration thereof by any governmental authority, occurring subsequent to the date on which a form originally was required to be provided), such Non-U.S. Lender shall not be entitled to indemnification under this Section 3.5 with respect to Taxes imposed by the United States; provided that, should a Non-U.S. Lender which is otherwise exempt from or subject to a reduced rate of withholding tax become subject to Taxes because of its failure to deliver a form required under clause (iv), above, the Borrower shall take such steps as such Non-U.S. Lender shall reasonably request to assist such Non-U.S. Lender to recover such Taxes. (vi) Any Lender that is entitled to an exemption from or reduction of withholding tax with respect to payments under this Agreement or any Note pursuant to the law of any relevant jurisdiction or any treaty shall deliver to the Borrower (with a copy to the Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate. 3.6 Lender Statements; Survival of Indemnity. To the extent reasonably possible, each Lender shall designate an alternate Lending Installation with respect to its Eurodollar Loans to reduce any liability of the Borrower to such Lender under Sections 3.1, 3.2 and 3.5 or to avoid the unavailability of Eurodollar Advances under Section 3.3, so long as such designation is not, in the judgment of such Lender, disadvantageous to such Lender. Each Lender shall deliver a written statement of such Lender to the Borrower (with a copy to the Agent) as to the amount due, if any, under Section 3.1, 3.2, 3.4 or 3.5. Such written statement shall set forth in reasonable detail the calculations upon which such Lender determined such amount and shall be final, conclusive and binding on the Borrower. Unless otherwise provided herein, the amount specified in the written statement of any Lender shall be payable on demand after receipt by the Borrower of such written statement. The obligations of the Borrower under Sections 3.1, 3.2 and 3.4 shall survive for a period of one year after the later of the payment in full of the Obligations and the termination of this Agreement. ARTICLE IV CONDITIONS PRECEDENT 4.1 Initial Advance and Facility Letter of Credit. The Lenders shall not be required to make the initial Advance hereunder and, if the initial Advance shall not have been made, the Issuer shall not be required to issue the initial Facility Letter of Credit hereunder unless the Borrower has furnished to the Agent with sufficient copies for the Lenders the following, each dated as of the initial Borrowing Date or Issuance Date, as the case may be (or such earlier date as shall be acceptable to the Agent): (i) Copies of the certificate of incorporation of each Credit Party, together with all amendments thereto, and certificates of good standing of each Credit Party from each jurisdiction in which such Credit Party is qualified to do business, all certified by the appropriate governmental officers in their respective jurisdiction. (ii) Copies, certified by the Secretary or an Assistant Secretary of each Credit Party, of their respective by-laws and of Board of Directors' resolutions (and resolutions of other bodies, if any are deemed necessary by counsel for the Agent) authorizing the execution of each of the Loan Documents to which such Credit Party is a party. (iii) Incumbency certificates, executed by the Secretary or an Assistant Secretary of each Credit Party, which shall identify by name and title and bear the signature of the officers of such Credit Party authorized to sign the Loan Documents to which it is a party and, with respect to the Borrower, to make borrowings hereunder, upon which certificates the Agent and the Lenders shall be entitled to rely until informed of any change in writing by the Borrower. (iv) A certificate, signed by the chief financial officer of the Borrower, stating that on the initial Borrowing Date no Default or Unmatured Default has occurred and is continuing. (v) A written opinion of Ross & Hardies, outside counsel to the Credit Parties, addressed to the Agent and the Lenders in substantially the form of Exhibit E hereto. (vi) Notes payable to the order of each of the Lenders. (vii) Written money transfer instructions, in substantially the form of Exhibit F hereto addressed to the Agent and signed by an Authorized Officer, together with such other related money transfer authorizations as the Agent may have reasonably requested. (viii) Evidence satisfactory to the Agent that (a) the Borrower shall have paid, or concurrently with the making of the initial Advance or the issuance of the initial Facility Letter of Credit shall pay, in full, all fees required to be paid pursuant to Section 2.4.1 on or before the initial Borrowing Date or Issuance Date, as the case may be. (ix) A field audit of the Borrower's La Fox, Illinois facility to be completed by the Agent which shall be acceptable to the Agent and all Lenders. (x) Execution and delivery of the Canadian Credit Agreement (as amended). (xi) Consent by the Canadian Borrower to the Canadian Lender's sale of participations in the Canadian Credit Agreement to the Lenders. (xii) Such other documents as any Lender or its counsel may have reasonably requested. 4.2 Each Advance and Facility Letter of Credit. The Lenders shall not be required to make any Advance (other than an Advance that, after giving effect thereto and to the application of the proceeds thereof, does not increase the aggregate amount of outstanding Advances) and the Issuer shall not be required to issue any Facility Letter of Credit, unless on the applicable Borrowing Date or Issuance Date, as the case may be: (i) There exists no Default or Unmatured Default. (ii) The representations and warranties contained in Article V are true and correct as of such Borrowing Date except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall be true and correct on and as of such earlier date. Each Borrowing Notice with respect to each such Advance and each Facility Letter of Credit Request with respect to each such Facility Letter of Credit shall constitute a representation and warranty by the Borrower that the conditions contained in Sections 4.2(i) and (ii) have been satisfied. ARTICLE V REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Lenders that: 5.1 Corporate Existence and Standing. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and each Subsidiary is a corporation duly incorporated, validly existing and in good standing under the laws of its respective state of incorporation; and each of the Borrower and the Subsidiaries is duly qualified and in good standing as a foreign corporation authorized to do business in each jurisdiction where such qualification is required because of the nature of its activities or properties and where the failure to maintain such qualification would singly or in the aggregate cause a Material Adverse Effect. 5.2 Authorization and Validity. The Borrower has the corporate power and authority and legal right to execute and deliver the Loan Documents to which it is a party and to perform its obligations thereunder. The execution and delivery by the Borrower of the Loan Documents and the performance of its obligations thereunder have been duly authorized by proper corporate proceedings, and the Loan Documents constitute legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with the terms thereof, except as enforceability may be limited by bankruptcy, insolvency or similar laws or general principles of equity relating to remedies affecting or relating to the enforcement of creditors' rights generally. 5.3 No Conflict; Government Consent. Neither the execution and delivery by the Borrower of the Loan Documents, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof will violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Borrower or any of its Subsidiaries, or violate the Borrower's or any Subsidiary's certificate of incorporation or by-laws or the provisions of any indenture, instrument or agreement to which the Borrower or any of its Subsidiaries is a party or is subject, or by which it or its Property is bound, or conflict with or constitute a default thereunder, or result in the creation or imposition of any Lien in, of or on the Property of the Borrower or a Subsidiary pursuant to the terms of any such indenture, instrument or agreement. No order, consent, approval, license authorization, or validation of, or filing, recording or registration with, or exemption by, or other action in respect of any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with the execution, delivery and performance of, or the legality, validity, binding effect of, any of the Loan Documents, except as may be applicable because of any Lender, the Agent or an Issuer being a party thereto or except as may be required with respect to particular Facility Letters of Credit. 5.4 Financial Statements. The August 31, 1997 consolidated financial statements of the Borrower and its Subsidiaries heretofore delivered to the Lenders were prepared in accordance with GAAP in effect on the date such statements were prepared and fairly present the consolidated financial condition and operations of the Borrower and its Subsidiaries at such date and the consolidated results of their operations for the period then ended. 5.5 Material Adverse Change. Except as set forth as of the date of this Agreement on Schedule 5.5 hereto, since August 31, 1997, there has been no change in the business, Property, financial condition or results of operations of the Borrower or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. 5.6 Taxes. Except as set forth as of the date of this Agreement on Schedule 5.6 hereto, the Borrower and its Subsidiaries have filed all United States federal tax returns and all other tax returns which are required to be filed and have paid all taxes due pursuant to said returns or pursuant to any assessment received by the Borrower or any of its Subsidiaries, except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided in accordance with GAAP and as to which no Lien exists, except for failures to file or pay which could not be reasonably expected to have a Material Adverse Effect. The United States income tax returns of the Borrower and its Subsidiaries have been audited by the Internal Revenue Service through the Fiscal Year ended May 31, 1995. No tax liens have been filed and no claims are being asserted with respect to any such taxes. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of any taxes or other governmental charges are adequate. 5.7 Litigation and Contingent Obligations. Except as set forth as of the date of this Agreement on Schedule 5.7 hereto, there is no litigation, arbitration, governmental investigation, proceeding or inquiry pending or, to the best knowledge of any of their officers, threatened against or affecting the Borrower or any of its Subsidiaries which could be reasonably expected to have a Material Adverse Effect or which seeks to prevent, enjoin or delay the making of the Loans or Advances. Other than any liability incidental to such litigation, arbitration or proceedings, neither the Borrower nor any Subsidiary has any material contingent obligations not provided for or disclosed in the financial statements referred to in Section 5.4. 5.8 Subsidiaries. Except as otherwise disclosed to the Lenders in writing on or prior to the date hereof, Schedule 5.8 hereto contains an accurate list of all Subsidiaries of the Borrower as of the date of this Agreement, setting forth their respective jurisdictions of incorporation and the percentage of their respective capital stock owned by the Borrower or other Subsidiaries. All of the issued and outstanding shares of capital stock of such Subsidiaries have been duly authorized and issued and those shares which are owned by Borrower or one or more of its Subsidiaries are fully paid and non-assessable. 5.9 ERISA. The Unfunded Liabilities of all Single Employer Plans do not in the aggregate exceed $500,000. Neither the Borrower nor any other member of the Controlled Group has incurred, or is reasonably expected to incur, any withdrawal liability to Multiemployer Plans in excess of $500,000 in the aggregate. Each Plan complies in all material respects with all applicable requirements of law and regulations, no Reportable Event has occurred with respect to any Plan, neither the Borrower nor any other members of the Controlled Group has withdrawn from any Plan, except as set forth as of the date of this Agreement on Schedule 5.9 hereto, or initiated steps to do so, and no steps have been taken to reorganize or terminate any Plan. Each Benefit Plan is in substantial compliance with ERISA and the Code and neither the Borrower or any Controlled Group member has received any notice asserting that any Benefit Plan is not in compliance with either ERISA or the Code. 5.10 Accuracy of Information. No information, exhibit or report furnished by the Borrower or any of its Subsidiaries to the Agent or to any Lender in connection with the negotiation of, or compliance with, the Loan Documents contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements contained therein not misleading. 5.11 Regulation U. Margin stock (as defined in Regulation U) constitutes less than 25% of those assets of the Borrower and each of its Subsidiaries which are subject to any limitation on sale, pledge, or other restriction hereunder. 5.12 Material Agreements. Neither the Borrower nor any Subsidiary is a party to any agreement or instrument or subject to any charter or other corporate restriction which could reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Subsidiary is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement to which it is a party, except such default which could not reasonably be expected to have a Material Adverse Effect. 5.13 Compliance With Laws. The Borrower and each of its Subsidiaries have complied with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof, having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property except for any failure to comply with any of the foregoing which could not reasonably be expected to have a Material Adverse Effect. 5.14 Ownership of Properties. Except as set forth on Schedule 5.14 hereto, on the date of this Agreement, the Borrower and its Subsidiaries will have good title, free of all Liens (other than those permitted by Section 6.16), to all of the Property and assets reflected in the Borrower's most recent consolidated financial statements provided to the Agent as owned by it. 5.15 Environmental Matters. Except as set forth as of the date of this Agreement on Schedule 5.15 hereto, in the ordinary course of its business, the officers of the Borrower consider the effect of Environmental Laws on the business of the Borrower and its Subsidiaries, in the course of which they identify and evaluate potential risks and liabilities accruing to the Borrower due to Environmental Laws. On the basis of this consideration, the Borrower has concluded that Environmental Laws cannot reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Subsidiary has any reason to believe that its operations are not in material compliance with any of the requirements of applicable Environmental Laws or are the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could reasonably be expected to have a Material Adverse Effect. 5.16 Investment Company Act. Neither the Borrower nor any Subsidiary thereof is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 5.17 Public Utility Holding Company Act. Neither the Borrower nor any Subsidiary is a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. ARTICLE VI COVENANTS During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing: 6.1 Financial Reporting. The Borrower will maintain, for itself and each Subsidiary, a system of accounting established and administered in accordance with GAAP, and furnish to the Lenders: (i) Within 90 days after the close of each of its Fiscal Years, (a) an unqualified audit report certified by independent certified public accountants, reasonably acceptable to the Agent, prepared in accordance with GAAP on a consolidated basis for itself and its Subsidiaries, including balance sheets as of the end of such period, related profit and loss and reconciliation of surplus statements, and a statement of cash flows, and accompanied by a certificate of said accountants that, in the course of their examination necessary for their certification of the foregoing, they have obtained no knowledge of any Default or Unmatured Default, or if, in the opinion of such accountants, any Default or Unmatured Default shall exist, stating the nature and status thereof, and (b) the Borrower's annual 10-K financial statement. (ii) Within 45 days after the close of each quarterly period of each of its Fiscal Years, for itself and its Subsidiaries, (a) consolidated and consolidating unaudited balance sheets as at the close of each such period and consolidated and consolidating profit and loss and reconciliation of surplus statements and a statement of cash flows for the period from the beginning of such Fiscal Year to the end of such quarter, all prepared in accordance with GAAP and certified by the chief financial officer of the Borrower; and (b) its quarterly 10-Q financial statements. (iii) Within 45 days after the close of each of the Canadian Borrower's fiscal quarters, for itself and its Subsidiaries, consolidated unaudited balance sheets as at the close of each such period and consolidated profit and loss and reconciliation of surplus statements and a statement of cash flows for the period from the beginning of the Canadian Borrower's fiscal year to the end of such quarter, all prepared in accordance with GAAP and certified by the chief financial officer of the Canadian Borrower. (iv) Together with the financial statements required under Sections 6.1(i) and (ii), a Compliance Certificate. (v) If the Borrower or any member of the Controlled Group maintains a Single Employer Plan, within 270 days after the close of each Fiscal Year, a statement of the Unfunded Liabilities of each Single Employer Plan, if any, certified as correct by a plan administrator enrolled under ERISA. (vi) As soon as possible and in any event within 10 days after the Borrower knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by the chief financial officer of the Borrower, describing said Reportable Event and the action which the Borrower proposes to take with respect thereto. (vii) As soon as possible and in any event within 10 days after the Borrower or any Controlled Group member withdraws from a Multiemployer Plan. (viii) As soon as possible and in any event within 10 days after the Borrower or any Controlled Group member terminates a Single Employer Plan under Section 4041 of ERISA. (ix) As soon as possible and in any event within 10 days after receipt by the Borrower that any Benefit Plan or Borrower or Controlled Group Member has violated the provisions of ERISA or the Code, which violation could result in liability to the Borrower in excess of $250,000. (x) As soon as possible and in any event within 10 days after receipt by the Borrower, a copy of (a) any notice or claim to the effect that the Borrower or any of its Subsidiaries is or may be liable to any Person as a result of the release by the Borrower, any of its Subsidiaries, or any other Person of any toxic or hazardous waste or substance into the environment, and (b) any notice alleging any violation of any federal, state or local environmental, health or safety law or regulation by the Borrower or any of its Subsidiaries, which, in either case, could reasonably be expected to have a Material Adverse Effect. (xi) Promptly upon the furnishing thereof to the shareholders of the Borrower, copies of all financial statements, reports and proxy statements so furnished. (xii) Promptly upon the filing thereof, copies of all registration statements and annual, quarterly, monthly or other regular reports which the Borrower or any of its Subsidiaries files with the Securities and Exchange Commission. (xiii) Concurrently with (and in no event later than two Business Days after) the delivery thereof to the Canadian Lender, copies of (i) all financial statements and other similar information in respect of the Borrower and the Canadian Borrower and (ii) such other financial information and reports in respect of the Borrower and the Canadian Borrower which, in each case, the Borrower or the Canadian Borrower delivers, or causes to be delivered, to the Canadian Lender and which have not previously been delivered to the Lenders pursuant to this Section 6.1 or otherwise. (xiv) On or before September 30 of each of the Borrower's Fiscal Years, projected statements of income and cash flow and a projected balance sheet for the Borrower covering the period to and including May 31, 2001. (xv) Within thirty days following delivery to the Borrower, a copy of each of the Borrower's auditor's management letters, if prepared. (xvi) Within forty-five days following the end of each of the Borrower's fiscal quarters, a report of the amount of Designated Inventory and Designated Accounts in form and substance acceptable to the Required Lenders which report shall contain a calculation showing compliance with Section 6.21 hereof. (xvii) Such other information (including non-financial information) as the Agent or any Lender may from time to time reasonably request. 6.2 Use of Proceeds. The Borrower will, and will cause each Subsidiary to, use the proceeds of the Advances and the Facility Letters of Credit for working capital and for general corporate purposes. The Borrower will not, nor will it permit any Subsidiary to, use any of the proceeds of the Advances or the Facility Letters of Credit to purchase or carry any "margin stock" (as defined in Regulation U). 6.3 Notice of Default. The Borrower will give prompt notice in writing to the Lenders of the occurrence of (i) any Default or Unmatured Default and (ii) any other development, financial or otherwise, which development could reasonably be expected to have a Material Adverse Effect. 6.4 Conduct of Business. The Borrower will, and will cause each Subsidiary to, carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted and to do all things necessary to remain duly incorporated, validly existing and in good standing as a domestic corporation in its jurisdiction of incorporation and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted unless failure to maintain such authority could not reasonably be expected to have a Material Adverse Effect. 6.5 Taxes. The Borrower will, and will cause each Subsidiary to, timely file complete and correct United States federal and applicable foreign, state and local tax returns required by law and pay when due all taxes, assessments and governmental charges and levies upon it or its income, profits or Property, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside in accordance with GAAP, and except to the extent that nonpayment could not reasonably be expected to have a Material Adverse Effect. 6.6 Insurance. The Borrower will, and will cause each Subsidiary to, maintain with financially sound and reputable insurance companies insurance on all their Property in such amounts and covering such risks as is consistent with sound business practice, and the Borrower will furnish to any Lender upon request full information as to the insurance carried. 6.7 Compliance with Laws. The Borrower will, and will cause each Subsidiary to, comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject including, without limitation, all Environmental Laws, except to the extent that noncompliance could not reasonably be expected to have a Material Adverse Effect. 6.8 Maintenance of Properties. The Borrower will, and will cause each Subsidiary to, do all things necessary to maintain, preserve, protect and keep its Property in good repair, working order and condition, and make all necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times, except to the extent that failure to make such repair could not reasonably be expected to have a Material Adverse Effect. 6.9 Inspection. The Borrower will, and will cause each Subsidiary to, permit the Agent and any Lender, by their respective representatives and agents, to inspect any of the Property, corporate books and financial records of the Borrower and each Subsidiary, to examine and make copies of the books of accounts and other financial records of the Borrower and each Subsidiary, and to discuss the affairs, finances and accounts of the Borrower and each Subsidiary with, and to be advised as to the same by, their respective officers at such reasonable times and intervals as the Agent or any Lender may designate. 6.10 Financial Covenants. The financial covenants referred to in this Section 6.10 shall each be computed at the end of each fiscal quarter by the Borrower, and such calculations shall be included in the Compliance Certificate referred to in Section 6.1(iv). 6.10.1 Consolidated Tangible Net Worth. The Borrower will maintain, at all times during the period set forth below, a Consolidated Tangible Net Worth of not less than the amount set forth below opposite each such period: Period Amount On or prior to 5/30/98 $115,000,000 From 5/31/98 to and $120,000,000 including 5/30/99 On or after 5/31/99 $130,000,000 6.10.2 Senior Funded Debt to Cash Flow Ratio. The Borrower will maintain, at all times during the periods set forth below, a Senior Funded Debt to Cash Flow Ratio of not greater than the ratio set forth below opposite each such period: Period Ratio On or prior to 5/30/98 2.50:1.00 From 5/31/98 to and 2.25:1.00 including 5/30/99 On or after 5/31/99 2.15:1.00 6.10.3 Adjusted Interest Coverage Ratio. The Borrower will maintain, at all times during the periods set forth below, an Adjusted Interest Coverage Ratio of not less than the ratio set forth below opposite each such period: Period Ratio On or prior to 5/30/98 1.70:1.00 From 5/31/98 to and 2.10:1.00 including 5/30/99 On or after 5/31/99 2.50:1.00 6.11 [Intentionally Omitted]. 6.12 Indebtedness. The Borrower will not, nor will it permit any Subsidiary to, create, incur or suffer to exist any Indebtedness, except: (i) Advances and Facility Letter of Credit Obligations hereunder. (ii) The Canadian Loans. (iii) The Canadian Guaranty. (iv) Indebtedness which (a) exists on the date hereof, (b) is described in Schedule 6.12 hereto, and (c) has been previously approved by the Agent. (v) Subordinated Debt with terms and conditions which in the sole opinion of the Required Lenders are no more restrictive (with respect to Senior Funded Debt) than Subordinated Debt in existence on the date hereof. (vi) Indebtedness incurred to refinance existing Indebtedness permitted pursuant to this Section 6.12; provided, however, that the maturity date of such new Indebtedness is no earlier than the maturity date of the Indebtedness being refinanced and the terms of such new Indebtedness (including, but not limited to, the amount, the term, the amount of the annual loan payment or provision for collateral or additional collateral) are no more disadvantageous to the Lenders, the Borrower and its Subsidiaries than the terms of the Indebtedness being refinanced. (vii) Contingent Obligations not exceeding $500,000 at any one time outstanding. (viii) Intercompany Indebtedness permitted under Section 6.15. 6.13 Merger. The Borrower will not, nor will it permit any Subsidiary to, merge or consolidate with or into any other Person, except that (i) a Subsidiary may amalgamate, merge or consolidate with or into the Borrower or a Wholly-Owned Subsidiary and (ii) the Borrower or any Subsidiary (other than a Subsidiary Guarantor) may merge, amalgamate or consolidate with any other Person pursuant to a Permitted Acquisition, provided that (a) the Borrower or such Subsidiary shall be the surviving entity and (b) after giving effect thereto, no Default or Unmatured Default shall exist. 6.14 Sale of Assets. The Borrower will not, nor will it permit any Subsidiary to, lease, sell or otherwise dispose of Property, to any other Person, except: (i) Sales of inventory in the ordinary course of business. (ii) Leases, sales or other dispositions of Property that, together with all other Property of the Borrower and its Subsidiaries previously leased, sold or disposed of (other than inventory in the ordinary course of business) as permitted by this Section during the twelve-month period ending with the month in which any such lease, sale or other disposition occurs, do not constitute a Substantial Portion of the Property of the Borrower and its Subsidiaries. 6.15 Investments and Acquisitions. The Borrower will not, nor will it permit any Subsidiary to, make or suffer to exist any Investments (including without limitation, loans and advances to, and other Investments in, Subsidiaries), or commitments therefor, or to become or remain a partner in any partnership or joint venture, or member in a limited liability company, or to make any Acquisition of any Person, except: (i) Short-term obligations of, or fully guaranteed by, the United States of America. (ii) Commercial paper rated A-1 or better by Standard and Poor's Corporation or P-1 or better by Moody's Investors Service, Inc. (iii) Demand deposit accounts maintained in the ordinary course of business. (iv) Certificates of deposit issued by and time deposits with commercial banks (whether domestic or foreign) having capital and surplus in excess of $100,000,000. (v) Investments not to exceed $5 million in the aggregate at any one time outstanding in the common stock and investment grade bonds of publicly held corporations which stock and bonds are traded on the New York, American or NASDAQ stock exchanges. (vi) Loans to employees of the Borrower or of any of its Subsidiaries which do not exceed, in the aggregate for all such employees at any one time outstanding, $750,000. (vii) Permitted Acquisitions. (viii) Existing Investments which (a) are in existence on the date hereof, (b) are described in Schedule 6.15 (viii) hereto and (c) have been previously approved by the Agent and the Lenders. (ix) Loans and advances to and other Investments in Borrower's Subsidiaries in the ordinary course of business not exceeding at any time outstanding for each Subsidiary, an amount which is the greater of (i) fifteen percent (15%) greater than the amount of such loans, advances and other Investments in each such Subsidiary stated in the Borrower's financial statement dated on or about the immediately preceding November 30 (the "November Statement"), or (ii) one million dollars ($1,000,000) plus the amount of such loans, advances and other Investments in each such Subsidiary stated in the November Statement; provided that in no event shall such loans, advances and other Investments exceed for all of Borrower's Subsidiaries in the aggregate at any time outstanding $10,000,000 plus the aggregate amount of such loans, advances and other Investments stated in the November Statement. 6.16 Liens. The Borrower will not, nor will it permit any Subsidiary to create, incur, or suffer to exist any Lien in, of or on the Property of the Borrower or any of its Subsidiaries, except: (i) Liens for taxes, assessments or governmental charges or levies on its Property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with generally accepted principles of accounting shall have been set aside on its books. (ii) Liens imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than 60 days past due and which are being contested in good faith by appropriate proceedings and for which adequate reserves shall have been set aside on its books. (iii) Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation. (iv) Liens arising from a judgment rendered or claim filed, not in excess, singly or in the aggregate, of $250,000 against the Borrower or any of its Subsidiaries which the Borrower or such Subsidiary shall be contesting diligently in good faith by proper legal proceedings. (v) Liens which exist on the date hereof incurred by Borrower or its Subsidiaries in the ordinary course of business securing Indebtedness less than $100,000 in the aggregate. (vi) Liens securing obligations which are excluded from Subsection (iii) of the definition of Indebtedness herein. (vii) Any extension, renewal or substitution of or for any of the foregoing Liens described in this Section 6.16, provided in each case that (a) the Indebtedness or other obligation or liability secured by the applicable Lien shall not exceed the Indebtedness or other obligation or liability existing immediately prior to such extension, renewal or substitution and (b) the Lien securing such Indebtedness or other obligation or liability shall be limited to the Property which, immediately prior to such extension, renewal or substitution, secured such Indebtedness or other obligation or liability, and improvements on or additions to such Property. (viii) A Lien upon Borrower's funds not exceeding $1 million on deposit with the French government to secure the payment by the Borrower of value added tax owed (if any) to the French government. 6.17 Prohibition of Negative Pledge. The Borrower will not, nor will it permit any of its Subsidiaries to agree, covenant, warrant, represent, pledge or otherwise commit with or to any entity other than the Agent, to not incur, create, assume or permit to exist, any mortgage, pledge, lien charge or other encumbrance of any nature whatsoever on all or any of its assets now or hereafter owned, except for such pledge made directly in connection with the purchase of inventory in the ordinary course of business, with a value of such inventory (valued at the cost of such inventory) owned by Borrower and its Subsidiaries not exceeding $2.5 million in the aggregate at any time. 6.18 Affiliates. The Borrower will not, nor will it permit any Subsidiary to, enter into any transaction (including, without limitation, the purchase or sale of any Property or service) with, or make any payment or transfer to, any Affiliate except in the ordinary course of business and pursuant to the reasonable requirements of the Borrower's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than the Borrower or such Subsidiary would obtain in a comparable arms-length transaction. 6.19 Amendments to Agreements. The Borrower will not, nor will it permit any Subsidiary to, amend any term or provision of the Canadian Credit Agreement, the Canadian Guaranty, any other Canadian Loan Document or the Debentures except with the consent of the Required Lenders and all Lenders for the type of amendments which would require the consent of the Required Lenders and all Lenders respectively under Section 8.2 hereof. The Borrower shall deliver to the Agent all amendments to the Canadian Loan Documents within five (5) days of such amendment. 6.20 Sale of Accounts. The Borrower will not, nor will it permit any Subsidiary to, sell or otherwise dispose of any notes receivable or accounts receivable, with or without recourse, except for accounts which are past due in an aggregate amount not exceeding $2 million for each of the Company's fiscal years placed with a collection agent for collection at a commission not exceeding twenty percent (20%) of the amount of such notes or accounts recovered. 6.21 Limit on Senior Funded Debt. The Borrower will not permit at any time the amount of the Borrower's and its Subsidiaries' consolidated Senior Funded Debt to exceed the sum of 80% of the value of Designated Accounts plus 50% of the value of Designated Inventory (valued at the lower of cost or market value), such Designated Accounts and Designated Inventory as in existence at the end of the Borrower's most recently completed fiscal quarter. 6.22 Fiscal Year. The Borrower will not, nor will it permit any Subsidiary to, change its Fiscal Year. 6.23 Limitation on the Creation of Subsidiaries. Notwithstanding anything to the contrary contained in this Agreement, the Borrower will not, and will not permit any of its Subsidiaries to, establish, create or acquire any Subsidiary; provided that the Borrower and its Wholly-Owned Subsidiaries shall be permitted to establish or create Wholly-Owned Subsidiaries so long as at least 30 days' prior written notice thereof (or such lesser notice as is acceptable to the Agent in its sole discretion) is given to the Agent. 6.24 Subsidiary Dividends. The Borrower's Subsidiaries shall not in any manner either directly or indirectly incur or be bound by any restrictions on dividends from such Subsidiaries to the Borrower, other than those restrictions required by applicable law. 6.25 Repayment of Subordinated Debt. The Borrower's and its Subsidiaries' amounts of Subordinated Debt which become due and remain unpaid plus the amount of the Borrower's and its Subsidiaries' actual payment of Subordinated Debt, shall not exceed $2.5 million in the aggregate for any immediately preceding four fiscal quarter trailing period of the Borrower. ARTICLE VII DEFAULTS The occurrence of any one or more of the following events shall constitute a Default: 7.1 Any representation or warranty made (or deemed made pursuant to Article IV) by or on behalf of the Borrower or any of its Subsidiaries to the Lenders or the Agent under or in connection with this Agreement, any Loan, any Facility Letter of Credit or any certificate or information delivered in connection with this Agreement or any other Loan Document shall be materially false on the date as of which made (or deemed made). 7.2 Nonpayment of principal of any Note or of any Reimbursement Obligation when due (or in the case of any Reimbursement Obligation due upon demand, upon demand), or nonpayment of interest upon any Note or of any facility fee, agent fee, Issuance Fee or other obligations (other than Reimbursement Obligations which have been converted into Floating Rate Advances pursuant to Section 2.3.6) under any of the Loan Documents within five (5) days after the same becomes due. 7.3 The breach by the Borrower of any of the terms or provisions of Article VI. 7.4 The breach by the Borrower (other than a breach which constitutes a Default under Section 7.1, 7.2 or 7.3) of any of the terms or provisions of this Agreement which is not remedied within fifteen (15) days after written notice from the Agent. 7.5 Failure of the Borrower or any of its Subsidiaries to pay when due any Indebtedness to any of the Lenders or any other Indebtedness in excess of, singly or in the aggregate, $1,000,000 (any such Indebtedness being herein defined as "Material Indebtedness"); or the default by the Borrower or any of its Subsidiaries in the performance of any term, provision or condition contained in any agreement under which any such Material Indebtedness was created or is governed, or any other event shall occur or condition exist, the effect of which is to cause, or to permit the holder or holders of such Material Indebtedness to cause, such Material Indebtedness to become due prior to its stated maturity; or any Material Indebtedness of the Borrower or any of its Subsidiaries shall be declared to be due and payable or required to be prepaid or repurchased (other than by a regularly scheduled payment) prior to the stated maturity thereof; or the Borrower or any of its Subsidiaries shall not pay, or admit in writing its inability to pay, its debts generally as they become due. 7.6 The Borrower or any of its Subsidiaries shall (i) have an order for relief entered with respect to it under the Federal bankruptcy laws or the laws of any other jurisdiction relating to bankruptcy, insolvency, reorganization or relief of debtors as now or hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any Substantial Portion of its Property, (iv) institute any proceeding seeking an order for relief under the Federal bankruptcy laws or the laws of any other jurisdiction relating to bankruptcy, insolvency, reorganization or relief of debtors as now or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (v) take any corporate action to authorize or effect any of the foregoing actions set forth in this Section 7.6 or (vi) fail to contest in good faith any appointment or proceeding described in Section 7.7. 7.7 Without the application, approval or consent of the Borrower or any of its Subsidiaries, a receiver, trustee, examiner, liquidator or similar official shall be appointed for the Borrower or any of its Subsidiaries or any Substantial Portion of its Property, or a proceeding described in Section 7.6(iv) shall be instituted against the Borrower or any of its Subsidiaries and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of 60 consecutive days. 7.8 Any court, government or governmental agency shall condemn, seize or otherwise appropriate, or take custody or control of (each a "Condemnation"), all or any portion of the Property of the Borrower and its Subsidiaries which, when taken together with all other Property of the Borrower and its Subsidiaries so condemned, seized, appropriated, or taken custody or control of, during the twelve-month period ending with the month in which any such Condemnation occurs, constitutes a Substantial Portion. 7.9 The Borrower or any of its Subsidiaries shall fail within 60 days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of, singly or in the aggregate, $500,000, which is not stayed on appeal or otherwise being appropriately contested in good faith. 7.10 The Unfunded Liabilities of all Single Employer Plans shall exceed in the aggregate $500,000 or any Reportable Event shall occur in connection with any Plan. 7.11 The Borrower or any other member of the Controlled Group shall have been notified by the sponsor of a Multiemployer Plan that it has incurred withdrawal liability to such Multiemployer Plan in an amount which, when aggregated with all other amounts required to be paid to Multiemployer Plans by the Borrower or any other member of the Controlled Group as withdrawal liability (determined as of the date of such notification), exceeds $500,000. 7.12 The Borrower or any other member of the Controlled Group shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, if as a result of such reorganization or termination the aggregate annual contributions of the Borrower and the other members of the Controlled Group (taken as a whole) to all Multiemployer Plans which are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the respective plan years of each such Multiemployer Plan immediately preceding the plan year in which the reorganization or termination occurs by an amount exceeding $500,000. 7.13 The Borrower or any other member of the Controlled Group shall terminate a Single Employer Plan resulting in Unfunded Liabilities to the Borrower in excess of $500,000. 7.14 The Borrower or any other member of the Controlled Group shall incur liability for a violation of ERISA or the Code with respect to any Benefit Plan which exceeds $250,000. 7.15 The Borrower or any of its Subsidiaries shall be the subject of any proceeding or investigation pertaining to the release by the Borrower or any of its Subsidiaries, or any other Person of any toxic or hazardous waste or substance into the environment, or any violation of any federal, state or local environmental, health or safety law or regulation, which, in either case, could have a Material Adverse Effect. 7.16 Any Change in Control shall occur, except such Change in Control consented to by the Agent and all Lenders. 7.17 Nonpayment by the Borrower or any of its Subsidiaries of any Rate Hedging Obligation when due or the default or breach by the Borrower or any of its Subsidiaries of any term, provision or condition contained in any Rate Hedging Agreement, which default or breach continues (without being waived) beyond any period of grace therein provided. 7.18 The occurrence of any "default", as defined in any Loan Document (other than this Agreement or the Notes) or the breach of any of the terms or provisions of any Loan Document (other than this Agreement), which default or breach continues beyond any period of grace therein provided and has not been waived. 7.19 The occurrence of any "Default", as defined in the Canadian Credit Agreement, the Canadian Guaranty or any other Canadian Loan Document or the breach of any of the terms or provisions of the Canadian Credit Agreement, the Canadian Guaranty or any other Canadian Loan Document, which default or breach continues beyond any period of grace therein provided and has not been waived. 7.20 The occurrence and continuance of any default or Event of Default as defined in the Debentures. ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES 8.1 Acceleration. If any Default described in Section 7.6 or 7.7 occurs with respect to the Borrower, the obligations of the Lenders to make Loans and to participate in Facility Letters of Credit hereunder, and the obligation of the Issuer to issue Facility Letters of Credit hereunder, shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Agent, the Issuer or any Lender. If any other Default occurs, the Required Lenders (or the Agent with the consent of the Required Lenders) (i) may terminate or suspend the obligations of the Lenders to make Loans and to purchase participation in Facility Letters of Credit hereunder, (ii) may terminate or suspend the obligations of the Issuer to issue Facility Letters of Credit hereunder, and/or (iii) declare the Obligations to be due and payable, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives. If, within 15 days after (x) acceleration of the maturity of the Obligations, (y) termination of the obligations of the Issuer to issue Facility Letters of Credit hereunder or (z) termination of the obligations of the Lenders to make Loans hereunder as a result of any Default (other than any Default as described in Section 7.6 or 7.7 with respect to the Borrower) and before any judgment or decree for the payment of the Obligations due shall have been obtained or entered, the Required Lenders (in their sole discretion) shall so direct, the Agent shall, by notice to the Borrower, rescind and annul such acceleration and/or termination. 8.2 Amendments. Subject to the provisions of this Article VIII, the Required Lenders (or the Agent with the consent in writing of the Required Lenders) and the Borrower may enter into agreements supplemental hereto or to any other Loan Document for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of the Lenders or the Borrower hereunder or thereunder or waiving any Default hereunder or thereunder; provided, however, that no such supplemental agreement shall, without the consent of each of the Lenders: (i) Extend the maturity of any Loan, or extend the expiry date of any Facility Letter of Credit beyond the Facility Termination Date, or forgive all or any portion of the principal amount of any Loan or Facility Letter of Credit Obligation, or reduce the rate or extend the time of payment of Reimbursement Obligations, interest or fees hereunder, or release any collateral securing the Obligations or any Subsidiary Guaranty; (ii) Reduce the percentage specified in the definition of Required Lenders; (iii) Extend the Facility Termination Date or increase the amount of the Commitment of any Lender hereunder, or permit the Borrower to assign its rights under this Agreement; or (iv) Amend this Section 8.2 or the provisions of any other section of this Agreement which designate a certain number of Lenders required to consent to or compel actions. No amendment of any provision of this Agreement relating to the Agent shall be effective without the written consent of the Agent. The Agent may waive payment of the fee required under Section 2.4.1(ii) or 12.3.2 without obtaining the consent of any other party to this Agreement. 8.3 Preservation of Rights. No delay or omission of the Lenders, the Issuer or the Agent to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of a Loan or issuance of a Facility Letter of Credit notwithstanding the existence of a Default or the inability of the Borrower to satisfy the conditions precedent to such Loan shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Lenders required pursuant to Section 8.2, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Agent, the Issuer and the Lenders until the Obligations have been paid in full. ARTICLE IX GENERAL PROVISIONS 9.1 Survival of Representations. All representations and warranties of the Borrower contained in this Agreement shall survive delivery of the Notes and the making of the Loans and the issuance of the Facility Letters of Credit herein contemplated. 9.2 Governmental Regulation. Anything contained in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to the Borrower or participate in Facility Letters of Credit in violation of any limitation or prohibition provided by any applicable statute or regulation. 9.3 Taxes. Any taxes (excluding federal income taxes on the overall net income of any Lender) or other similar assessments or charges made by any governmental or revenue authority in respect of the Loan Documents shall be paid by the Borrower, together with interest and penalties, if any. 9.4 Headings. Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents. 9.5 Entire Agreement. The Loan Documents embody the entire agreement and understanding among the Borrower, the Agent, the Issuer, and the Lenders and supersede all prior agreements and understandings among the Borrower, the Agent, the Issuer and the Lenders relating to the subject matter thereof. 9.6 Several Obligations; Benefits of this Agreement. The respective obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or agent of any other (except to the extent to which the Agent is authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns. 9.7 Expenses; Indemnification. The Borrower shall reimburse the Agent for any costs, internal charges and out-of-pocket expenses (including reasonable attorneys' fees and time charges of attorneys for the Agent, which attorneys may be employees of the Agent) paid or incurred by the Agent in connection with the preparation, negotiation, execution, delivery, review, amendment, modification, and administration of the Loan Documents. The Borrower also agrees to reimburse the Agent, the Issuer and the Lenders for any costs, internal charges and out-of-pocket expenses (including reasonable attorneys' fees and time charges of attorneys for the Agent and the Lenders which attorneys may be employees of the Agent or the Lenders) paid or incurred by the Agent, the Issuer or any Lender in connection with the collection and enforcement of the Loan Documents. The Borrower further agrees to indemnify the Agent, the Issuer, and each Lender and their respective directors, officers and employees against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Agent, the Issuer or any Lender is a party thereto) which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby or thereby or the direct or indirect application or proposed application of the proceeds of any Loan or the direct or indirect use or intended use of any Facility Letter of Credit hereunder except to the extent that they have resulted from the gross negligence or willful misconduct of the party seeking indemnification. The obligations of the Borrower under this Section shall survive the termination of this Agreement. 9.8 Numbers of Documents. All originally executed statements, notices, closing documents (other than the Notes), and requests hereunder shall be furnished to the Agent with sufficient counterparts so that the Agent may furnish one to each of the Lenders. 9.9 Accounting. Except as provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with GAAP, except that any calculation or determination which is to be made on a consolidated basis shall be made for the Borrower and all its Subsidiaries, including those Subsidiaries, if any, which are unconsolidated on the Borrower's audited financial statements. 9.10 Severability of Provisions. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 9.11 Nonliability of Lenders. The relationship between the Borrower and the Lenders shall be solely that of borrower and lender. Neither the Agent nor any Lender shall have any fiduciary responsibilities to the Borrower. Neither the Agent nor any Lender undertakes any responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower's business or operations. The Borrower agrees that none of the Agent, the Issuer or any Lender shall have liability to the Borrower (whether sounding in tort, contract or otherwise) for losses suffered by the Borrower in connection with, arising out of, or in any way related to, the transactions contemplated and the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless it is determined by a court of competent jurisdiction in a final and non-appealable order that such losses resulted from the gross negligence or willful misconduct of the party from which recovery is sought. 9.12 Confidentiality. Each Lender agrees to hold any confidential information which it may receive from the Borrower pursuant to this Agreement in confidence, except for disclosure (i) to its Affiliates and to other Lenders and their respective Affiliates, (ii) to legal counsel, accountants, and other professional advisors to that Lender or to a Transferee or prospective Transferee, (iii) to regulatory officials, (iv) to any Person as requested pursuant to or as required by law, regulation, or legal process, (v) to any Person in connection with any legal proceeding to which that Lender is a party, and (vi) permitted by Section 12.4. 9.13 Nonreliance. Each Lender hereby represents that it is not relying on or looking to any margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System) for the repayment of the Loans provided for herein. ARTICLE X THE AGENT 10.1 Appointment; Nature of Relationship. American National Bank and Trust Company of Chicago is hereby appointed by the Lenders as the Agent hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes the Agent to act as the contractual representative of such Lender with the rights and duties expressly set forth herein and in the other Loan Documents. The Agent agrees to act as such contractual representative upon the express conditions contained in this Article X. Notwithstanding the use of the defined term "Agent," it is expressly understood and agreed that the Agent shall not have any fiduciary responsibilities to any Lender by reason of this Agreement or any other Loan Document and that the Agent is merely acting as the representative of the Lenders with only those duties as are expressly set forth in this Agreement and the other Loan Documents. In its capacity as the Lenders' contractual representative, the Agent (i) does not hereby assume any fiduciary duties to any of the Lenders, (ii) is a "representative" of the Lenders within the meaning of Section 9-105 of the Uniform Commercial Code and (iii) is acting as an independent contractor, the rights and duties of which are limited to those expressly set forth in this Agreement and the other Loan Documents. Each of the Lenders hereby agrees to assert no claim against the Agent for breach of fiduciary duty, all of which claims each Lender hereby waives. 10.2 Powers. The Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to the Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Agent shall have no implied duties to the Lenders, or any obligation to the Lenders to take any action thereunder except any action specifically provided by the Loan Documents to be taken by the Agent. 10.3 General Immunity. Neither the Agent nor any of its directors, officers, agents or employees shall be liable to the Borrower, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except to the extent such action or inaction is determined in a final non-appealable judgment by a court of competent jurisdiction to have arisen from the gross negligence or willful misconduct of such Person. 10.4 No Responsibility for Loans, Recitals, etc. Neither the Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify: (i) any statement, warranty or representation made in connection with any Loan Document or any borrowing or issuance of a Facility Letter of Credit hereunder; (ii) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document, including, without limitation, any agreement by an obligor to furnish information directly to each Lender; (iii) the satisfaction of any condition specified in Article IV, except receipt of items required to be delivered to the Agent; (iv) the validity, enforceability, effectiveness, sufficiency or genuineness of any Loan Document or any other instrument or writing furnished in connection therewith; or (v) the value, sufficiency, creation, perfection or priority of any interest in any collateral security. The Agent shall have no duty to disclose to the Lenders information that is not required to be furnished by the Borrower to the Agent at such time, but is voluntarily furnished by the Borrower to the Agent (either in its capacity as Agent or in its individual capacity). 10.5 Action on Instructions of Lenders. The Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by such of the Lenders as is required under the terms of this Agreement, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders and on all holders of Notes. The Lenders hereby acknowledge that the Agent shall be under no duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement or any other Loan Document unless it shall be requested in writing to do so by the Required Lenders. The Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Document unless it shall first be indemnified to its satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action. 10.6 Employment of Agents and Counsel. The Agent may execute any of its duties as Agent hereunder and under any other Loan Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Agent shall be entitled to advice of counsel concerning all matters pertaining to the agency hereby created and its duties hereunder and under any other Loan Document. 10.7 Reliance on Documents; Counsel. The Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Agent, which counsel may be employees of the Agent. 10.8 Agent's Reimbursement and Indemnification. The Lenders agree to reimburse and indemnify the Agent ratably in proportion to their respective Commitments (or, if subsequent to the Facility Termination Date, in proportion to their Commitments immediately prior to such date), without relieving the Borrower of any of its Obligations hereunder, (i) for any amounts not reimbursed by the Borrower for which the Agent is entitled to reimbursement by the Borrower under the Loan Documents, (ii) for any other expenses incurred by the Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby, or the enforcement of any of the terms thereof or of any such other documents, provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Agent. The obligations of the Lenders under this Section 10.8 shall survive payment of the Obligations and termination of this Agreement. 10.9 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Unmatured Default hereunder unless the Agent has received written notice from a Lender or the Borrower referring to this Agreement describing such Default or Unmatured Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall give prompt notice thereof to the Lenders. 10.10 Rights as a Lender. In the event the Agent is a Lender, the Agent shall have the same rights and powers hereunder and under any other Loan Document as any Lender and may exercise the same as though it were not the Agent, and the term "Lender" or "Lenders" shall, at any time when the Agent is a Lender, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower or any of its Subsidiaries in which the Borrower or such Subsidiary is not restricted hereby from engaging with any other Person. 10.11 Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on the financial statements prepared by the Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon the 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 credit decisions in taking or not taking action under this Agreement and the other Loan Documents. 10.12 Successor Agent. The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower, such resignation to be effective upon the appointment of a successor Agent or, if no successor Agent has been appointed, forty-five days after the retiring Agent gives notice of its intention to resign. The Agent may be removed at any time with or without cause by written notice received by the Agent from the Required Lenders, such removal to be effective on the date specified by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint, with the consent of the Borrower, which consent shall not be unreasonably withheld or delayed, on behalf of the Borrower and the Lenders, a successor Agent; provided, however, that if a Default or Unmatured Default shall have occurred and be continuing at the time of such resignation or removal, the consent of the Borrower shall not be so required. If no successor Agent shall have been so appointed by the Required Lenders, and, to the extent required pursuant to the immediately preceding sentence, consented to by the Borrower, and shall have accepted such appointment, within thirty days after the resigning Agent's giving notice of its intention to resign, then the resigning Agent may appoint, on behalf of the Borrower and the Lenders, a successor Agent. If the Agent has resigned or been removed and no successor Agent has been appointed, the Lenders may perform all the duties of the Agent hereunder and the Borrower shall make all payments in respect of the Obligations to the applicable Lender and for all other purposes shall deal directly with the Lenders. No successor Agent shall be deemed to be appointed hereunder until such successor Agent has accepted the appointment. Any such successor Agent shall be a commercial bank having capital and retained earnings of at least $50,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the resigning or removed Agent. Upon the effectiveness of the resignation or removal of the Agent the resigning or removed Agent shall be discharged from its duties and obligations hereunder and under the Loan Documents. After the effectiveness of the resignation or removal of an Agent, the provisions of this Article X shall continue in effect for the benefit of such Agent in respect of any actions taken or omitted to be taken by it while it was acting as the Agent hereunder and under the other Loan Documents. In the event that there is a successor to the Agent by merger, or the Agent assigns its duties and obligations to an Affiliate pursuant to this Section 10.12, then the term "Corporate Base Rate" as used in this Agreement shall mean the prime rate, base rate or other analogous rate of the new Agent. ARTICLE XI SETOFF; RATABLE PAYMENTS 11.1 Setoff. In addition to, and without limitation of, any rights of the Lenders under applicable law, if the Borrower becomes insolvent, however evidenced or any Default occurs, any and all deposits (including all account balances, whether provisional or final and whether or not collected or available) and any other Indebtedness at any time held or owing by any Lender to or for the credit or account of the Borrower may be offset and applied toward the payment of the Obligations owing to such Lender, whether or not the Obligations, or any part hereof, shall then be due. 11.2 Ratable Payments. If any Lender, whether by setoff or otherwise, has payment made to it upon the Obligations owing to it (other than payments received pursuant to Section 3.1, 3.2, 3.4 or 3.5) in a greater proportion than that received by any other Lender, such Lender agrees, promptly upon demand, to purchase a portion of the Obligations held by the other Lenders so that after such purchase each Lender will hold its Pro Rata Share of the Obligations. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to their outstanding Obligations. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made. ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATION 12.1 Successors and Assigns. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrower, the Agent, and the Lenders and their respective successors and assigns, except that (i) the Borrower shall not have the right to assign their respective rights or obligations under the Loan Documents and (ii) any assignment by any Lender must be made in compliance with Section 12.3. Notwithstanding clause (ii) of this Section, any Lender may at any time, without the consent of the Borrower or the Agent, assign all or any portion of its rights under this Agreement and its Notes to a Federal Reserve Bank; provided, however, that no such assignment to a Federal Reserve Bank shall release the transferor Lender from its obligations hereunder. The Agent may treat the payee of any Note as the owner thereof for all purposes hereof unless and until such payee complies with Section 12.3 in the case of an assignment thereof or, in the case of any other transfer, a written notice of the transfer is filed with the Agent. Any assignee or transferee of a Note agrees by acceptance thereof to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the holder of any Note, shall be conclusive and binding on any subsequent holder, transferee or assignee of such Note or of any Note or Notes issued in exchange therefor. 12.2 Participation. 12.2.1 Permitted Participants; Effect. Any Lender may subject to the provisions of this Section 12.2.1, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any Note held by such Lender, any Facility Letter of Credit participated in by such Lender, any Commitment of such Lender or any other interest of such Lender under the Loan Documents, provided that such Participants are consented to in advance by the Borrower, such consent not to be unreasonably withheld or delayed. In the event of any such sale by a Lender of participating interests to a Participant, such Participant shall have no direct rights hereunder, such Lender's obligations under the Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the holder of any such Note for all purposes under the Loan Documents, all amounts payable by the Borrower under this Agreement shall be determined as if such Lender had not sold such participating interests, and the Borrower and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents. 12.2.2 Voting Rights. Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than any amendment, modification or waiver with respect to any Loan, Facility Letter of Credit or Commitment in which such Participant has an interest which forgives principal, interest or fees or reduces the interest rate or fees payable with respect to any such Loan, Facility Letter of Credit or Commitment, postpones any date fixed for any regularly-scheduled payment of principal of, or interest or fees on, any such Loan, Facility Letter of Credit or Commitment, releases any guarantor of any such Loan or releases any substantial portion of collateral, if any, securing any such Loan or Facility Letter of Credit. 12.2.3 Benefit of Setoff. The Borrower agrees that each Participant shall be deemed to have the right of setoff provided in Section 11.1 in respect of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Loan Documents, provided that each Lender shall retain the right of setoff provided in Section 11.1 with respect to the amount of participating interests sold to each Participant. The Lenders agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 11.1, agrees to share with each Lender, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with Section 11.2 as if each Participant were a Lender. 12.3 Assignments. 12.3.1 Permitted Assignments. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time assign to one or more banks or other entities other than the Borrower or any of its Affiliates ("Purchasers") all or any part of its rights and obligations under the Loan Documents. Such assignment shall be substantially in the form of Exhibit G hereto or in such other form as may be agreed to by the parties thereto. The consent of the Borrower, and the Agent shall be required prior to an assignment becoming effective with respect to a Purchaser which is not a Lender or an Affiliate thereof; provided, however, that if a Default has occurred and is continuing, the consent of the Borrower shall not be required. Such consents shall not be unreasonably withheld or delayed. Each such assignment shall be in an amount not less than the lesser of (i) $5 million, and (ii) the remaining amount of the assigning Lender's Commitment (calculated as at the date of such assignment). 12.3.2 Effect; Effective Date. Upon (i) delivery to the Agent of a notice of assignment, substantially in the form attached to Exhibit G hereto (a "Notice of Assignment"), together with any consents required by Section 12.3.1, duly executed by the Purchaser, and (ii) payment by one or more of the parties to such assignment (other than the Borrower) of a $3,000 fee to the Agent for processing such assignment, such assignment shall become effective on the effective date specified in such Notice of Assignment. The Notice of Assignment shall contain a representation by the Purchaser to the effect that none of the consideration used to make the purchase of the Commitment and Loans under the applicable assignment agreement are "plan assets" as defined under ERISA and that the rights and interests of the Purchaser in and under the Loan Documents will not be "plan assets" under ERISA. On and after the effective date of such assignment, such Purchaser shall for all purposes be a Lender party to this Agreement and any other Loan Document executed by the Lenders and shall have all the rights and obligations of a Lender under the Loan Documents, to the same extent as if it were an original party hereto, and no further consent or action by the Borrower, the Lenders or the Agent shall be required to release the transferor Lender with respect to the percentage of the Aggregate Commitment, Loans and interests in Facility Letters of Credit assigned to such Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to this Section 12.3.2, the transferor Lender, the Agent and the Borrower shall make appropriate arrangements so that (i) replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, are issued to such Purchaser, in each case in principal amounts reflecting their Commitment, as adjusted pursuant to such assignment and (ii) Schedule 1 hereto is amended to reflect such assignment. 12.4 Dissemination of Information. The Borrower authorizes each Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "Transferee") and any prospective Transferee any and all information in such Lender's possession concerning the creditworthiness of the Borrower and its Subsidiaries; provided that each Transferee and prospective Transferee agrees to be bound by Section 9.12 of this Agreement. 12.5 Tax Treatment. If any interest in any Loan Document is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the provisions of Section 2.4.12. ARTICLE XIII NOTICES 13.1 Notices. Except as otherwise permitted by Section 2.4.7 with respect to borrowing notices, all notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrower, at its address, facsimile number or telex number set forth on the signature pages hereof, (y) in the case of the Agent or any Lender, at its address, facsimile number or telex number set forth on Schedule 2 hereto or (z) in the case of any party, such other address, facsimile number or telex number as such party may hereafter specify for the purpose by notice to the Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (iii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iv) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Agent under Article II shall not be effective until received. 13.2 Change of Address. The Borrower, the Agent and any Lender may each change the address for service of notice upon it by a notice in writing to the other parties hereto. ARTICLE XIV COUNTERPARTS This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. This Agreement shall be effective when it has been executed by the Borrower, the Agent and the Lenders and each party has notified the Agent by telex or telephone, that it has taken such action. A complete set of counterparts executed by all the parties hereto shall be lodged with each of the Borrower and the Agent. ARTICLE XV CHOICE OF LAW, CONSENT TO JURISDICTION, WAIVER OF JURY TRIAL 15.1 Choice of Law. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. 15.2 Consent to Jurisdiction. THE PARTIES HERETO HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE PARTIES HERETO HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVE ANY OBJECTION ANY OF THEM MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE AGENT, THE ISSUER OR ANY LENDER OR ANY AFFILIATE OF THE AGENT, THE ISSUER OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS. 15.3 Waiver of Jury Trial. THE PARTIES HERETO HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. IN WITNESS WHEREOF, the Borrower, the Lenders, the Issuer and the Agent have executed this Agreement as of the date first above written. RICHARDSON ELECTRONICS, LTD. By: Print Name: Title: Address: Attention: Telephone No.: Telecopier No.: AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, Individually and as Agent and as Issuer By: Print Name: Title: HARRIS TRUST AND SAVINGS BANK By: Print Name: Title: MELLON BANK By: Print Name: Title: PROMISSORY NOTE Amount Date Richardson Electronics, Ltd., a Delaware corporation (the "Borrower"), promises to pay to the order of (the "Lender") the lesser of the principal sum of Dollars ($__________) or the aggregate unpaid principal amount of all Loans made by the Lender to the Borrower pursuant to Section 2.2 of the Loan Agreement (as hereinafter defined), in immediately available funds at the main office of American National Bank and Trust Company of Chicago, as Agent, in Chicago, Illinois, together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in the Loan Agreement. The Borrower shall pay the principal of and accrued and unpaid interest on the Loans in full on the Facility Termination Date in respect of such Lender (or on such earlier date as may be required in accordance with the terms of the Loan Agreement). The Lender shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of each Loan and the date and amount of each principal payment hereunder. This Note is one of the Notes issued pursuant to, and is entitled to the benefits of, the Loan Agreement dated as of March 1, 1998 (which, as it may be amended or modified and in effect from time to time, is herein called the "Loan Agreement") among the Borrower, the lenders party thereto, including the Lender, and American National Bank and Trust Company of Chicago, as Agent, to which Loan Agreement reference is hereby made for a statement of the terms and conditions governing this Note, including the terms and conditions under which this Note may be prepaid or its maturity date accelerated. Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to such terms in the Loan Agreement. Richardson Electronics, Ltd. By:__________________________________ Print Name:___________________________ Title:________________________________ EX-10.B 3 EXHIBIBIT 10(b) AMENDED AND RESTATED CREDIT AGREEMENT Made as of March 1, 1998 Between BURTEK SYSTEMS INC. as Borrower and FIRST CHICAGO NBD BANK, CANADA as Lender and RICHARDSON ELECTRONICS, LTD. as Guarantor TABLE OF CONTENTS SECTION 1 - INTERPRETATION . . . . . . . . . . . . . . . . Page 2 1.1 Certain Defined Terms . . . . . . . . . . . . . . Page 2 1.2 Headings and Table of Contents . . . . . . . . . . .Page 13 1.3 References . . . . . . . . . . . . . . . . . . . .Page 13 1.4 Number and Gender . . . . . . . . . . . . . . . .Page 13 1.5 Time of Day . . . . . . . . . . . . . . . . . . . .Page 13 1.6 Governing Law . . . . . . . . . . . . . . . . . . .Page 13 1.7 Entire Agreement . . . . . . . . . . . . . . . . . .Page 13 1.8 Conflict . . . . . . . . . . . . . . . . . . . . . .Page 13 1.9 Severability . . . . . . . . . . . . . . . . . . . .Page 14 1.10 Currency . . . . . . . . . . . . . . . . . . . . . .Page 14 1.11 Time . . . . . . . . . . . . . . . . . . . . . . . .Page 14 1.12 GAAP . . . . . . . . . . . . . . . . . . . . . . . .Page 14 1.13 Schedules . . . . . . . . . . . . . . . . . . . . .Page 14 SECTION 2 - REPRESENTATIONS AND WARRANTIES . . .Page 14 2.1 Representations and Warranties . . . . . . . . . .Page 14 2.2 Deemed Repetition . . . . . . . . . . . . . . . .Page 16 SECTION 3 - CREDIT FACILITIES . . . . . . . . . . . . . . .Page 16 3.1 Revolving Credit Facility . . . . . . . . . . . . .Page 16 3.2 Term Credit Facility . . . . . . . . . . . . . . . .Page 17 SECTION 4 - PROVISIONS APPLICABLE TO BORROWINGS. . . . . .Page 17 4.1 Notice of Borrowing . . . . . . . . . . . . . . . .Page 17 4.2 Prime and US Prime Loans . . . . . . . . . . . . . .Page 18 4.3 BA Equivalent Loans . . . . . . . . . . . . . . . .Page 18 4.4 Substitute Basis of Borrowing . . . . . . . . . . .Page 19 4.5 Letters of Credit . . . . . . . . . . . . . .Page 19 4.6 Conversion Option . . . . . . . . . . . . . . . .Page 20 4.7 Reliance on Oral Instructions . . . . . . . . . . .Page 21 4.8 Evidence of Indebtedness . . . . . . . . . . . . . .Page 21 SECTION 5 - INTEREST, FEES AND EXPENSES. . . . . . . . . .Page 21 5.1 Payment of Interest on Prime Loans . . . . . . . . .Page 21 5.2 Payment of Interest on US Prime Rate Loans . . . .Page 21 5.3 Applicable Margin . . . . . . . . . . . . . . . . .Page 22 5.4 BA Equivalent Loans . . . . . . . . . . . . . . .Page 23 5.5 Letters of Credit Fee . . . . . . . . . . . . . . .Page 23 5.6 Payment of Interest on Libor Loans . . . . . . . . .Page 23 5.7 Interest on Overdue Amounts . . . . . . . . . . . .Page 24 5.8 Interest Act . . . . . . . . . . . . . . . . . . . .Page 24 5.9 Arrangement Fee . . . . . . . . . . . . . . . . . .Page 24 5.10 Administration Fee . . . . . . . . . . . . . . . .Page 24 5.11 Facility Fee . . . . . . . . . . . . . . . . . . .Page 24 5.12 Limit on Rate of Interest . . . . . . . . . . . . .Page 24 5.13 Change in Circumstances . . . . . . . . . . . . . .Page 25 5.14 Payment of Portion . . . . . . . . . . . . . . . .Page 26 5.15 Illegality . . . . . . . . . . . . . . . . . . . . .Page 26 5.16 Indemnity . . . . . . . . . . . . . . . . . . . . .Page 27 SECTION 6 - PAYMENTS AND REDUCTIONS OF COMMITMENTS . . . .Page 27 6.1 Payments Generally . . . . . . . . . . . . . . . .Page 27 6.2 No Set-Off . . . . . . . . . . . . . . . . . . . . .Page 28 6.3 Application of Payments Before Exercise of Rights .Page 28 6.4 Application of Payments After Exercise of Rights . .Page 28 6.5 Reduction of Commitment . . . . . . . . . . . . . .Page 29 SECTION 7 - COVENANTS . . . . . . . . . . . . . . . . . . .Page 29 7.1 Covenants of the Borrower . . . . . . . . . . . . .Page 29 7.2 Accounting, Financial Statements and Other Information Page 31 SECTION 8 - ENVIRONMENTAL MATTERS. . . . . . . . . . . . .Page 32 8.1 Representations and Warranties . . . . . . . . . . .Page 32 8.2 Covenants . . . . . . . . . . . . . . . . . . . . .Page 32 8.3 Indemnity . . . . . . . . . . . . . . . . . . . . .Page 33 8.4 Scope of Indemnity . . . . . . . . . . . . . . . .Page 33 8.5 Interest . . . . . . . . . . . . . . . . . . .Page 34 SECTION 9 - DEFAULT AND ENFORCEMENT . . . . . . . . . .Page 34 9.1 Events of Default . . . . . . . . . . . . . . . . .Page 34 9.2 Rights upon Default . . . . . . . . . . . . . . .Page 36 9.3 Waiver of Default . . . . . . . . . . . . . . . . .Page 36 SECTION 10 - REMEDIES . . . . . . . . . . . . . . . . . . .Page 36 10.1 Remedies Cumulative . . . . . . . . . . . . . . . .Page 36 10.2 Remedies Not Limited . . . . . . . . . . . . . . . .Page 37 10.3 Set-Off, etc. . . . . . . . . . . . . . . . . . . .Page 37 10.4 Lender May Perform Covenants . . . . . . . . . . . .Page 37 SECTION 11 - MISCELLANEOUS . . . . . . . . . . . . . . . .Page 37 11.1 Amendments and Waivers . . . . . . . . . . . . . . .Page 37 11.2 Notice . . . . . . . . . . . . . . . . . . . . . .Page 37 11.3 Judgment Currency . . . . . . . . . . . . . . . .Page 38 11.4 Further Assurances . . . . . . . . . . . . . . . .Page 38 11.5 Reimbursement of Expenses . . . . . . . . . . . . .Page 38 11.6 Survival . . . . . . . . . . . . . . . . . . . . . .Page 39 11.7 Attornment . . . . . . . . . . . . . . . . . . . . .Page 39 11.8 Successors and Assigns . . . . . . . . . . . . . . .Page 39 11.9 Counterparts . . . . . . . . . . . . . . . . . . . .Page 39 AMENDED AND RESTATED CREDIT AGREEMENT This Agreement is made as of March 1, 1998 B E T W E E N: BURTEK SYSTEMS INC. as Borrower and FIRST CHICAGO NBD BANK, CANADA as Lender and RICHARDSON ELECTRONICS, LTD. as Guarantor WHEREAS: A. First Chicago NBD Bank, Canada (the "Lender") entered into a credit agreement made as of February 18, 1997 (the "Credit Agreement") with Richardson Electronics Acquisition Corp., the partial purpose of which was to finance the acquisition by Richardson Electronics Acquisition Corp. of all the capital stock of Burtek Systems Inc. ("Old Burtek") B. Subsequent to the execution of the Credit Agreement, Richardson Electronics Acquisition Corp. acquired all the capital stock of Old Burtek. By articles of Amalgamation filed effective May 31, 1997, Richardson Electronics Acquisition Corp. amalgamated with Old Burtek to continue as the Borrower. C. The Lender and the Borrower entered into a first amending agreement made as of August 14, 1997 (the "First Amending Agreement") amending the terms of the Credit Agreement. D. The Lender and the Borrower entered into a second amending agreement made as of August 22, 1997 (the "Second Amending Agreement") further amending the terms of the Credit Agreement. E. As further amendments to the Credit Agreement are required, the Borrower and the Lender have agreed to enter into this Amended and Restated Credit Agreement to provide for such further amendments. NOW THEREFORE, for value received the parties agree as follows: SECTION 1 - INTERPRETATION 1.1 Certain Defined Terms. The terms defined herein shall have, for all purposes of this Agreement, the following meanings unless the context expressly or by necessary implication otherwise requires: "Accounts" means the accounts and records established by the Lender to record the Borrower's liability to the Lender in respect of the Borrowings made available to the Borrower. "Additional Compensation" has the meaning ascribed to it in Section 5.13(c). "Administration Fee" has the meaning ascribed to in Section 5.10. "Affected Borrowing" has the meaning ascribed to it in Section 5.14. "Affiliate" has the meaning established in the Canada Business Corporations Act in effect on the date hereof. "Agreement" means this agreement, including the Schedules, as the same may be amended, varied, supplemented, restated, renewed or replaced at any time and from time to time. "Applicable Law" means, in respect of any Person, property, transaction or event, all present or future applicable laws, statutes, regulations, treaties, orders, judgments and decrees and all applicable official directives, rules, guidelines, orders and policies of any governmental bodies having authority over any of the foregoing. "Applicable Margin" means, at any date of determination thereof, the rate per annum calculated in accordance with Section 5.3. "Arrangement Fee" has the meaning ascribed to in Section 5.9. "Associate" has the meaning established in the Canada Business Corporations Act in effect on the date hereof. "Auditors" means Ernst & Young Inc. or such other major Canadian accountancy firm appointed by the Guarantor. "Available Asset Value" means the book value of the assets of the Consolidated Guarantor determined in accordance with GAAP less the amount of all Indebtedness, other than Subordinated Claims, secured by Liens against such assets. "BA Equivalent Loan" means a loan or advance under this Agreement which is denominated in Canadian Dollars and in respect of which the Borrower is obligated to pay in accordance with Section 5.4. "BA Interest Date" means the last day of each BA Interest Period. "BA Interest Period" means, with respect to a BA Equivalent Loan, the term of days as selected by the Borrower in accordance with Section 4.3(b), commencing on the Drawdown Date or Conversion Date, as applicable, of such BA Equivalent Loan and expiring on a Business Day, which term shall not be less than 30 days or more than 180 days thereafter, in each case subject to availability. "BA Rate" means, in respect of any BA Equivalent Loan, the annual rate of interest which is the rate determined as being the rate of the Lender applicable to Canadian Dollar bankers' acceptances for the applicable BA Interest Period. "Banking Day" means a Business Day on which dealings in US Dollar deposits by and between banks in the London interbank market may be conducted. "Borrower" means Burtek Systems Inc. "Borrower's Account" means: (1) for all payments in Canadian Dollars, the following account maintained by the Borrower with the Lender at the Branch of Account to which payments and transfers are to be effected: First Chicago NBD Bank, Canada, transit #0012-270, account #100431-001, or such other account as the Borrower and the Lender may agree in writing, and (2) for all payments in US Dollars, the following account maintained by the Borrower with the Lender at the Branch of Account to which payments and transfers are to be effected: First Chicago NBD Bank, Canada, transit #0012-270, account #100431-010, or such other account as the Borrower and Lender may agree in writing. "Borrowings" means an extension of credit hereunder by the Lender to the Borrower by way of advances of Loans and Letters of Credit Advances. "Branch of Account" means, with respect to the Lender, its branch at BCE Place, 161 Bay Street, Suite 4240, Toronto, Ontario, M5J 2S1 or such other branch in Canada as the Lender and Borrower may agree in writing. "Burtek" means Burtek Systems Inc. "Business Day" means a day on which the Lender is open for money market dealings in Toronto, Ontario, but excludes Saturday, Sunday and any other day which is a statutory holiday in Toronto, Ontario and with respect to a Libor Loan, such a day is a Business Day only if it is also a Banking Day. "Canadian Dollars" and the symbols "CAD" and "$" each means lawful money of Canada. "Capitalized Lease" of a Person means any lease of Property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with GAAP. "Capitalized Lease Obligations" of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with GAAP. "Closing Date" means March 2, 1998 or such other date as the Borrower and the Lender may agree. "Commercial Letter of Credit" means a commercial letter of credit issued by the Lender to a beneficiary at the request of and for the account of the Borrower. "Commitment" means: (a) until and including February 28, 1998, the sum of CAD16,335,610; and (b) after February 28, 1998, the sum of CAD13,835,310, or the Equivalent Amount in US Dollars, to the extent not cancelled, reduced or terminated hereunder. "Compliance Certificate" means a compliance certificate signed by the Chief Financial Officer or Treasurer of the Consolidated Guarantor, substantially in the form attached to the U.S. Loan Agreement showing the calculations necessary to determine compliance with this Agreement and stating that no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof. "Consolidated Guarantor" means the Guarantor as consolidated with the Borrower in accordance with applicable GAAP. "Contaminant" means any pollutants, hazardous materials or contaminants, dangerous, toxic or hazardous substances, waste of any description whatsoever except non-hazardous waste of the kind generated by the Borrower in the normal course of its operations, including any of the foregoing as defined in any Environmental Law. "Conversion Date" means the date of which the Lender has been notified by the Borrower at the Branch of Account as being the date on which the Borrower has elected to convert a Borrowing or a portion of a Borrowing pursuant to Section 4.7. "Credit Facilities" means collectively, the Revolving Credit Facility and Term Credit Facility and individually, either one of them. "Default" means an event, circumstance or omission which constitutes an Event of Default or which, with the giving of notice or lapse of time, or both, would constitute an Event of Default. "Documents" means this Agreement and all certificates and other documents delivered or to be delivered to the Lender pursuant hereto or thereto and, when used in relation to any Person, the term "Documents" shall mean and refer to those Documents executed and delivered by such Person. "Drawdown Date" means a Business Day on which a Borrowing is to be made by way of Loan. "Environmental Activity" means any activity, event or circumstance in respect of a Contaminant, including, without limitation, its storage, use, holding, collection, purchase, accumulation, assessment, generation, manufacture, construction, processing, treatment, stabilization, disposition, handling or transportation or its Release into the natural environment including movement through or in the air, soil, subsoil, surface water or groundwater. "Environmental Laws" means any and all federal, provincial, municipal and local statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, grants, licences, agreements or other governmental restrictions of Canada, its provinces, and of all applicable municipalities thereof relating to the environment, health and safety, health protection or any Environmental Activity. "Equivalent Amount" of one currency means, on any date, the amount of a second currency into which the first currency may be converted at the spot rate at which the Lender would, on such date at or about 12:00 noon (Toronto time), be prepared to sell the same amount of such second currency in Toronto, and if such date is not a Business Day, on the immediately preceding Business Day, or at such other rate as may have been agreed by the Borrower and the Lender. "Event of Default" means any of the events or circumstances specified in Section 9.1; "Facility Fee" has the meaning ascribed to it in Section 5.11. "Facility Termination Date" means March 1, 2001 or any earlier date on which the Commitment is reduced to zero or otherwise terminated pursuant to the terms hereof. "Financial Assistance" by any Person means: (a) any loan, guarantee, sale with recourse, endorsement (other than for collection or deposit in the ordinary course of business) or other obligation (contingent or other) to pay, purchase, repurchase or otherwise acquire or become liable upon or in respect of any Indebtedness of another; and (b) without limiting the generality of the foregoing, any obligation (contingent or other) to make a payment on behalf of another for goods, property of services regardless of the non-delivery or nonfurnishing thereof, or to make an investment in another, or to maintain the capital, working capital, solvency or general financial condition of another (other than for the purchase of Marketable Securities), or to indemnify another Person against and hold such Person harmless from damage, loss or liability, all under circumstances intended to enable another to incur or pay any Indebtedness or to comply with agreement relating thereto or otherwise to assure or protect creditors against less in respect of Indebtedness. The amount of any Financial Assistance shall be the amount of all Indebtedness of the obligor to which the Financial Assistance relates, unless the Financial Assistance is limited to a determinable amount in which case the amount of such Financial Assistance shall be deemed to be such determinable amount. "Fiscal Year" means the fiscal year of the Borrower which currently runs from June 1 to May 31. "GAAP" means generally accepted accounting principles in effect from time to time in Canada applicable to the relevant Person, applied in a consistent manner from period to period. "Government Approvals" means, with respect to any Person, all material licences, permits, consents, authorizations and approvals from any and all Governmental Authorities required for the conduct of that Person's business as presently conducted. "Governmental Authority" means the government of any nation, state, province, municipality or other political subdivision thereof, and any entity exercising executive, legislative, regulatory or administrative functions, and any corporation or other entity owned or controlled in any manner by any of the foregoing. "Guarantor" means Richardson Electronics, Ltd. "Indebtedness" of a Person means: (a) any obligation, contingent and other, which should be classified upon such Person's balance sheet as a liability in accordance with GAAP, (b) any obligation secured by any Lien existing on property owned or acquired by such Person subject to such Lien whether or not the obligation secured thereby shall have been assumed, (c) any debt or liability of such Person representing the deferred acquisition cost of property or assets created or arising under any conditional sale agreement or other title retention agreement even though the rights and remedies of the seller under such agreement in the event of default are limited to repossession or sale of property or assets covered thereby, (d) any liabilities under indemnities given in respect of any bankers' acceptance, letter of credit or letter of guarantee, and (e) any Financial Assistance by such Person, and, for greater certainty, does not include equity. "Interest Determination Date" means: (i) with respect to a BA Equivalent Loan, the date which is 2 Banking Days prior to the first day of the BA Interest Period applicable to such BA Equivalent Loan, (ii) with respect to a Libor Loan, the date which is 2 Banking Days prior to the first day of the Libor Interest Period applicable to such Libor Loan. "Interest Expense" means, for any period of calculation, all interest expense on Indebtedness calculated for such period for the Consolidated Guarantor on a consolidated basis in accordance with GAAP. "Interest Payment Date" means the last Business Day of each month. "Letter of Credit" means a Commercial Letter of Credit and a Standby Letter of Credit. "Letter of Credit Advances" means a Borrowing by way of the issuance of a Letter of Credit pursuant to this Agreement. "Letters of Credit Agreement" means the agreement entered into between the Borrower and the Lender whereby the Lender agrees to issue Letters of Credit upon the application of the Borrower, including any recitals and schedules to such agreement, as amended, supplemented or restated from time to time. "Level I Status" exists at any date if the Senior Funded Debt to Cash Flow Ratio is greater than or equal to 2.01:1.00. "Level II Status" exists at any date if the Senior Funded Debt to Cash Flow Ratio is greater than or equal to 1.51:1.0 but less than 2.01:1.00. "Level III Status" exists at any date if the Senior Funded Debt to Cash Flow Ratio is greater than or equal to 1.00:1.00 but less than 1.51:1.00. "Level IV Status" exists at any date if none of Level I Status, Level II Status or Level III Status exists at such date. "Libor" means with respect to each Libor Loan the annual rate of interest for a period approximately equal to the Libor Interest Period applicable to such Libor Loan displayed on page 3750 of the Telerate service as at approximately 11:00 a.m. (London time) on the Interest Determination Date; provided, however, if such rate does not appear on the Telerate screen page as contemplated, the Libor shall be such other rate or rates as the parties may agree. "Libor Interest Date" means the last day of each Libor Interest Period. "Libor Interest Period" means, with respect to a Libor Loan, the initial period (subject to availability) of approximately one month (or longer whole multiples of 30, 60, 90 or 180 days as agreed from time to time) commencing with the date on which a Libor Loan is made and thereafter each successive period of 30 days (or longer whole multiples of 30, 60, 90 or 180 days as agreed from time to time) commencing on the last day of the immediately prior Libor Interest Period. "Libor Loan" means a loan or advance under this Agreement which is denominated in US Dollars and in respect of which the Borrower is obliged to pay interest in accordance with Section 5.6. "Lien" means any mortgage, charge, lien, hypothec, trust, encumbrance, charge, pledge, assignment, security interest, financing statement, title retention, or any other security arrangement of whatsoever nature or kind. "Loan" means a Prime Loan, US Prime Rate Loan, BA Equivalent Loan or Libor Loan. "Material Adverse Effect" means, when used with reference to any event or circumstance and any Person, an event or circumstance which has or may have a material adverse effect on (1) the business, operations, property or financial or other condition of that Person, (2) the ability of that Person to perform and discharge its obligations under this Agreement or any of the other Documents, or (3) the Lender's ability to enforce its rights under this Agreement or any of the other Documents. "Net Income" shall mean, for any period, the net income (or loss), after provision for taxes, of the Consolidated Guarantor on a consolidated basis for such period taken as a single accounting period but excluding any unrealized losses and gains for such period resulting from mark-to-market Rate Hedging Agreements. "Notice of Borrowing" has the meaning ascribed to it in Section 4.1. "Outstanding Borrowings" means, at any time, the aggregate of all accrued interest and unpaid fees payable hereunder which at such time are due and payable, the principal amount of all Loans and the aggregate amount payable by the Lender to the holder of all outstanding Letters of Credit. "Permitted Liens" means, with respect to the Borrower or any of its subsidiaries, any: (a) Liens in connection with workers compensation, unemployment insurance or other social security obligations in respect of obligations which are not yet due or which are being contested in good faith; (b) Liens now or hereafter made or incurred in the ordinary course of business to secure the performance of bids, tenders, contracts (other than for the borrowing of money), leases, statutory obligations or surety and performance bonds; (c) mechanics', worker's, materialmen's or other like Liens, arising in connection with construction or in the ordinary course of business, in respect of obligations which are not due or which are being contested in good faith; (d) Liens for Taxes not due or being contested in good faith; (e) Liens in respect of judgments or awards against the Borrower with respect to which the Borrower at the time shall in good faith be processing an appeal or proceedings for review and with respect to which the Borrower shall have secured a stay of execution pending such appeal or review; (f) Liens now or hereafter created or assumed by the Borrower on existing assets as permitted or not prohibited under existing agreements with lenders or, in connection with the acquisition or construction subsequent to the date hereof of property, whether real or personal (other than current assets), purchase money pledges of or purchase money mortgages or Liens or security interests created upon such acquired property to the extent it secures Indebtedness in an amount up to 100% of the lesser of the cost and fair market value of the property; and extensions, renewals or replacements thereof upon such property if the amount of Indebtedness secured thereby is not increased; (g) minor imperfections of title and encumbrances, if any which are not substantial in amount, and do not materially detract from the value of the properties subject thereto or materially impair the Borrower's ability to carry on its business; (h) licences or leases of patents, trademarks or trade names made in the ordinary course of business; and (i) other existing and future Liens incidental to the conduct of its business or the ownership of its property and assets. "Person" means any individual, partnership, limited partnership, limited liability company, joint venture, syndicate, sole proprietorship, company or corporation with or without share capital, unincorporated association, trust, trustee, executor, administrator or other legal personal representative, regulatory body or agency, government or governmental agency, authority or entity however designated or constituted. "Prime Loan" means a loan or advance made under this Agreement which is denominated in Canadian Dollars and in respect of which the Borrower is obliged to pay interest in accordance with Section 5.1. "Prime Rate" means the annual rate of interest in effect from time to time equal to the greater of (i) the annual rate of interest publicly announced from time to time by the Lender as being its reference rate then in effect for determining interest rates on Canadian Dollar denominated commercial loans made by the Lender in Canada; and (ii) the BA Rate plus 1.00%. Any change in the Prime Rate shall be effective on the date such change becomes effective generally. "Property" of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person. "Rate Hedging Agreement" means an agreement, device or arrangement providing for payments which are related to fluctuations of interest rates, exchange rates or forward rates, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants. "Release" means, with respect to any Contaminant, the method by which such Contaminant comes to be in the environment at large and includes, without limitation, discharging, spraying, injection, abandonment, depositing, spilling, leaking, seeping, pouring, emission, emptying, throwing, dumping, placing and exhausting, and when used as a noun has a similar meaning. "Revolving Commitment" means, (a) until and including February 28, 1998, the sum of CAD13,400,000; and (b) after February 28, 1998, the sum of CAD10,900,000 or the Equivalent Amount in US Dollars, to the extent not cancelled, reduced or terminated hereunder. "Revolving Credit Facility" means the revolving credit facility referred in Section 3.1. "Revolving Credit Facility Maturity Date" means (i) March 1, 2001 or (ii) such other date as may be agreed upon between the Borrower and the Lender from time to time. "Senior Funded Debt" means the sum of all Indebtedness of the Consolidated Guarantor that is (i) not Subordinated Debt and (ii) interest bearing, including, but not limited to, Capitalized Lease Obligations and the Outstanding Borrowings hereunder. "Senior Funded Debt to Cash Flow Ratio" means, as at any date of determination thereof, the ratio of (i) Senior Funded Debt to (ii) Total Cash Flow, in each case calculated as at such date of determination for the Consolidated Guarantor, and in each case calculated for the period of four consecutive fiscal quarters ending on or most recently ended prior to such date of determination. "Standby Letter of Credit" means a standby letter of credit issued by the Lender to a beneficiary at the request of and for the account of the Borrower. "Status" means, at any date of determination, whichever of Level I Status, Level II Status, Level III Status or Level IV Status exists at such time. "Subordinated Claims" means, at any time and from time to time, all claims of any Person in respect of Indebtedness owing by the Borrower which rank subordinate to the claims of the Lender in respect of the Outstanding Borrowings and other Indebtedness of the Borrower to the Lender hereunder. "Subordinated Debt" means any unsecured Indebtedness of the Consolidated Guarantor (a) no part of the principal of which is required to be paid (whether by way of mandatory sinking fund, mandatory redemption, mandatory prepayment or otherwise) prior to the Revolving Credit Facility Maturity Date or Term Credit Facility Maturity Date and the payment of the principal of and interest on which and other obligations of the Consolidated Guarantor in respect thereof are subordinated to the prior payment in full of principal and interest on all other obligations and liabilities of the Consolidated Guarantor to the Lender hereunder on terms and conditions first approved in writing by the Lender and (b) otherwise containing terms, covenants and conditions satisfactory in form and substance to the Lender, as evidenced by their prior written approval thereof. "Subsidiary" means a subsidiary of the Borrower as defined in the Canada Business Corporations Act. "Tax" includes all present and future taxes, levies, imposts, stamp taxes, duties, charges to tax, fees, deductions, withholdings and any restrictions or conditions resulting in a charge to tax and all penalty, interest and other payments on or in respect thereof. "Term Commitment" means CAD2,935,310.36 to the extent not cancelled, reduced or terminated hereunder. "Term Credit Facility" means the non-revolving term credit facility referred in Section 3.2. "Term Credit Facility Maturity Date" means (i) July 31, 2001, or (ii) such other date as may be agreed upon between the Borrower and the Lender from time to time. "Total Cash Flow" means, as at any date of determination thereof, the sum of Net Income, Interest Expense, taxes, depreciation and amortization in each case calculated as at such date of determination for the Consolidated Guarantor. Neither cash nor non-cash charges reflecting extraordinary terms, unusual items, or one time charges will be added back for the purpose of Total Cash Flow calculation. "Unmatured Default" means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default. "US Dollars" and the symbol "USD" each means the lawful money of the United States of America. "U.S. Guaranty" means that certain Guaranty dated as of March 1, 1998, executed by the Guarantor in favour of the Lender with respect to the indebtedness and liability of the Borrower to the Lender, as the same may be amended or modified and in effect from time to time. "U.S. Loan Agreement" means that certain Loan Agreement made as of March 1, 1998, between Richardson Electronics, Ltd., various lending institutions, and American National Bank and Trust Company of Chicago, as agent, as it may be amended or modified and in effect from time to time. "U.S. Loan Documents" has the meaning attributed to the term "Loan Documents" in the U.S. Loan Agreement. "US Prime Rate" means, with respect to a US Prime Rate Loan, the annual rate of interest in effect from time to time equal to the annual rate of interest publicly announced from time to time by the Lender as being its reference rate then in effect for determining rates on US Dollar denominated commercial loans made by the Lender in Canada. Any change in the US Prime Rate shall be effective on the date such change becomes effective generally. "US Prime Rate Loan" means a loan or advance made under this Agreement which is denominated in US Dollars and in respect of which the Borrower is obliged to pay interest in accordance with Section 5.2. "Written" or "in writing" includes printing, typewriting, or any electronic means of communication capable of being legibly reproduced at the point of reception. 1.2 Headings and Table of Contents. The insertion of headings and the provision of a table of contents are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. 1.3 References. Unless otherwise specified, all references to Sections and Schedules are to Sections of, and Schedules to this Agreement. The words "hereto", "herein", "hereof", "hereunder" and similar expressions refer to this Agreement and not to any particular Section or other provision of this Agreement. 1.4 Number and Gender. Unless otherwise specified, words importing the singular include the plural and vice versa and words importing gender include all genders. 1.5 Time of Day. Unless otherwise specified, any reference to a time of day means local time in Toronto, Ontario. 1.6 Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the Province of Ontario and of Canada applicable therein. 1.7 Entire Agreement. This Agreement, including all Schedules and all documents contemplated hereby, constitutes the entire agreement among the parties with respect to the subject matter and supersedes all prior negotiations, undertakings, representations and understandings including, without limitation, the letter agreement dated November 28, 1996 (the "Proposal Letter") between the Guarantor and the Lender and correspondence between the parties dated prior to the date hereof. 1.8 Conflict. If there is a conflict or inconsistency between the provisions of this Agreement and any other document including, without limitation, the Documents and the agreements and correspondence between the Lender and the Borrower referred to in Section 1.7, the provisions of this Agreement shall prevail. 1.9 Severability. Any provision of this Agreement which is illegal, invalid or unenforceable in any jurisdiction shall not affect the legality, validity or enforceability of the remaining provisions and any such illegality, invalidity or unenforceability in any jurisdiction shall not affect the legality, validity or enforceability of such provision in any other jurisdiction. 1.10 Currency. Unless otherwise specified, all amounts are stated in Canadian Dollars. 1.11 Time. Time shall be of the essence in all provisions of this Agreement. 1.12 GAAP. Unless otherwise provided, all accounting terms used in this Agreement shall be interpreted and all financial information prepared in accordance with GAAP, consistently applied. 1.13 Schedules. The following Schedules are attached to and form part of this Agreement: Schedule 2.1(i) - Litigation Schedule 4.1 - Notice of Borrowing Schedule 4.3 (b) - Notice of Rollover of BA Equivalent Loan Schedule 4.3(c) - Notice of Rollover of Libor Loan Schedule 4.6 - Notice of Conversion Schedule 7.1(i)2 - Form of Promissory Notes Schedule 7.1(i)4 - Form of Guaranty Schedule 7.1(i)6 - Opinion of legal counsel to the Borrower Schedule 8.1(d) - Particulars of environmental inquiries SECTION 2 - REPRESENTATIONS AND WARRANTIES 2.1 Representations and Warranties. The Borrower, represents and warrants to the Lender, all of which shall survive the execution and delivery of this Agreement, as follows: (a) Existence, Power and Conduct of Business. The Borrower is a corporation duly organized and validly existing under the laws of Canada, being its jurisdiction of incorporation, except as disclosed in writing to the Lender, is up to date in all material filings required under Applicable Laws of relevance to this transaction and the business conducted by it and the properties and assets owned or leased by it, has the requisite power and authority to own and lease its properties and assets and to conduct its businesses in which it is presently engaged and except in jurisdictions where failure to register does not materially affect it or its business or except as disclosed in writing to the Lender, is duly qualified to conduct its businesses in all jurisdictions where the nature of its assets or its businesses makes such qualification necessary. (b) Power and Authority. The execution, delivery and performance by the Borrower of this Agreement and all other Documents are within its powers, have been duly authorized by all necessary corporate action and do not conflict with, result in a breach or violation of, or constitute a material default under, its constating documents, any unanimous shareholders agreement, any Applicable Law or any agreement or other document to which it is a party or by which it is bound and do not result in the creation of any Lien upon any of its assets. (c) Execution and Delivery and Binding Effect. Each of this Agreement and all other Documents has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting creditors' rights generally, the fact that specific performance and injunctive relief may be given at the discretion of the courts, and the equitable or statutory powers of the courts to stay proceedings before them and to stay the execution of judgments. (d) No Approvals Required. No further registration, order, permit, filing, consent, licence, decree or approval of, from or with any Governmental Authority is necessary or advisable in order to ensure the legality, validity, binding effect and enforceability of this Agreement or any other Document as against the Borrower. (e) Financial Statements. Its most recent annual and quarterly financial statements, copies of which have been furnished to the Lender, have been prepared in accordance with GAAP, present fairly its financial position and the results of its operations as at the date of such financial statements. (f) Title to Assets and Liens. Except as disclosed in writing and consented to by the Lender, it has good and marketable title to all of its assets and properties free and clear of any Liens other than Permitted Liens. (g) No Default. There exists to its knowledge no Event of Default which has not been waived and no Default of which the Lender has not previously been notified in writing. (h) Compliance. The Borrower is in material compliance with its constating documents, its franchises and licences, and all Applicable Laws including, without limitation, health, safety and employment standards and labour codes and, to the best knowledge of the Borrower, with Environmental Laws of all applicable Governmental Authorities. (i) Litigation. Except as set out in Schedule 2.1(i), to Borrower's knowledge, no material litigation (including, without limitation, derivative actions), arbitration proceedings, governmental proceedings or investigations or regulatory proceedings are pending or threatened against the Borrower (except as previously disclosed by notice to the Lender), which, if adversely determined, would have a Material Adverse Effect upon the Borrower, nor does the Borrower know of any basis for any of the foregoing. In addition, there are no inquiries, formal or informal, which might give rise to such actions, proceedings or investigations. (j) Full Disclosure. Neither the financial statements referred to in Section 2.1(e) nor any other statement furnished by the Borrower or on its behalf to the Lender in connection with the negotiation of this Agreement contain any untrue statement of a material fact, or omit a material fact necessary to make such statements not misleading, and all such statements, taken as a whole, together with this Agreement, do not contain any untrue statement of a material fact or omit a material fact necessary to make such statements not misleading. All expressions of expectation, intention, belief and opinion were honestly made by the Borrower on reasonable grounds after due and careful inquiry by it and any other Person who furnished such material. There is no fact within the knowledge of the Borrower which has not been disclosed to the Lender in writing which has or which the Borrower could reasonably expect to have a Material Adverse Effect. (k) Tax Returns. The Borrower has filed or caused to be filed all tax returns which, to its knowledge are required to have been filed, and has paid all Taxes shown to be due and payable on such returns or on any assessments made against it and all other Taxes, fees or other charges imposed on it by any Governmental Authority, other than those the amount or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which reserves have been provided in its books. No Liens for Taxes have been filed and, to its knowledge, no claims are being asserted with respect to any such Taxes, fees or other charges. (l) Material Change. Save as disclosed in writing and consented to by the Lender, there has been no material adverse change in the financial condition of the Borrower or any material litigation since the date of the most recent audited or unaudited financial statements (as the case may be) of the Borrower delivered under this Agreement. (m) Liabilities. As of the date of the most recent financial statements delivered to the Lender under this Agreement, the Borrower has no debts, liabilities or obligations to any Person, whether direct or indirect, absolute or contingent, matured or not, or other obligations for the payment of money which, according to GAAP, are material and which are not disclosed (1) in its most recent financial statements delivered to the Lender under this Agreement and the notes to those financial statements or (2) in writing to the Lender. (n) Security Service International SSI Inc. The Borrower has not assumed any liabilities of Security Service International SSI Inc. or of Security Service International SSI Group Inc. and all assets of Security Service International SSI Inc. and Security Service International SSI Group Inc. have been assumed by the Borrower free and clear of any Liens. The Borrower has acquired such assets of Security Service International SSI Inc. and Security Service International SSI Group Inc. in accordance with the provisions of the order dated August 21, 1997 of Mr. Justice Benjamin J. Greenberg of the Superior Court of the District of Montreal sitting in bankruptcy matters providing for the sale of such assets to the Borrower. 2.2 Deemed Repetition. The representations and warranties made in Section 2.1 shall continue in effect until payment and performance of all debts, liabilities and obligations referred to in this Agreement and any Document and shall be deemed to be repeated on each Drawdown Date, Acceptance Date and Conversion Date as if made on each such date, in each case subject to minor changes which, individually or in the aggregate, do not have a material effect. SECTION 3 - CREDIT FACILITIES 3.1 Revolving Credit Facility. (a) Establishment. Subject to this Agreement, the Lender hereby confirms its establishment in favour of the Borrower of a revolving credit facility in the principal amount of the Revolving Commitment (the "Revolving Credit Facility") available to the Borrower by way of advances of Loans and Letter of Credit Advances (up to an aggregate amount not to exceed a sub-limit of CAD1,000,000). The parties acknowledge that, as of the date hereof, the Borrower is indebted to the Lender under the Revolving Commitment in the amount of CAD10,890,000. (b) Revolving Nature of Revolving Credit Facility. Subject to this Agreement, the Borrower may, from time to time, increase or reduce the amount of its Borrowings under the Revolving Credit Facility by borrowing, repaying and reborrowing Prime Loans, US Prime Rate Loans, BA Equivalent Loans and Libor Loans and by the issuance of Letters of Credit. (c) Repayment. All Outstanding Borrowings under the Revolving Credit Facility shall be repayable by the Borrower upon the earliest of (i) Revolving Credit Facility Maturity Date (ii) demand at any time by the Lender following the occurrence of an Event of Default, and (iii) in the event that the Guarantor arranges financing with another lender to repay the Borrower's indebtedness under the Revolving Credit Facility. (d) Purpose. The proceeds of Borrowings under the Revolving Credit Facility shall be used to (i) refinance the indebtedness of the Borrower, for the Borrower's general corporate purposes and the financing of its day to day working capital requirements, whether directly or indirectly through its subsidiary and (ii) to acquire certain assets of the security equipment distribution business operated by Security Service International SSI Inc. and Security Service International SSI Group Inc. 3.2 Term Credit Facility. (a) Establishment. Subject to this Agreement, the Lender hereby confirms its establishment in favour of the Borrower of a term non-revolving credit facility in the principal amount of the Term Commitment (the "Term Credit Facility") available to the Borrower by way of two advances of a Loan. The parties agree that, as of the date hereof, the Lender has already made the two advances under the Term Commitment in the aggregate amount of CAD3,650,000, and no further advances will be made. (b) Repayment. All Outstanding Borrowings under the Term Credit Facility shall be repayable by the Borrower upon the earlier of (i) the Term Credit Facility Maturity Date; (ii) demand at any time by the Lender following the occurrence of an Event of Default; provided that prior to any such demand, the Borrower shall repay the Outstanding Borrowings under the Term Credit Facility in 48 equal monthly payments of CAD71,592.92 each on account of principal commencing August 31, 1997 with the balance due or accruing on the Term Credit Facility Maturity Date; and (iii) in the event the Guarantor refinances the Borrower's indebtedness under the Term Credit Facility. (c) Purpose. The proceeds of Borrowings under the Term Credit Facility have been used to finance the acquisition of certain assets of the security equipment distribution business operated by Security Service International SSI Inc. and Security Service International SSI Group Inc. SECTION 4 - PROVISIONS APPLICABLE TO BORROWINGS 4.1 Notice of Borrowing. Subject to the terms and conditions hereof, the Borrower may borrow by way of Loans and Letters of Credit Advances upon giving to the Lender at the Branch of Account: (1) in the case of Prime Loans and US Prime Rate Loans, irrevocable telephone notice by 5:00 p.m. two Business Day prior to the Drawdown Date, and (2) in the case of BA Equivalent Loans, Libor Loans and Letters of Credit Advances, irrevocable telephone notice by 5:00 p.m. three Business Days prior to the Drawdown Date, in each case followed by written confirmation on the same day substantially in the form of Schedule 4.1 (a "Notice of Borrowing"). 4.2 Prime and US Prime Loans. Amounts of Borrowing. Each Borrowing by way of a Prime Loan or a US Prime Loan shall be in the minimum amount of CAD or USD100,000 and thereafter in increments of CAD or USD10,000. 4.3 BA Equivalent Loans and Libor Loans. (a) Amounts of Borrowing. Each Borrowing by way of a BA Equivalent Loan shall be in the minimum amount of CAD1,000,000 and thereafter in increments of CAD100,000. Each Borrowing by way of Libor Loan shall be in the minimum amount of USD1,000,000 and thereafter in increments of USD100,000. (b) Rollover of BA Equivalent Loan. With respect to each BA Equivalent Loan which is an outstanding Borrowing, at or before 5:00 p.m. three Business Days before the applicable Interest Determination Date, the Borrower shall notify the Lender at the Branch of Account by irrevocable telephone notice followed by written confirmation on the same day in form and substance substantially as attached as Schedule 4.3(b) either of (1) the next BA Interest Period which it has selected as applicable to the BA Equivalent Loan, which new BA Interest Period shall commence on and include the last day of the prior BA Interest Period, or (2) the intention of the Borrower to repay or convert such BA Equivalent Loan at the end of the relevant Libor Interest Period. If the Borrower fails to select and to notify the Lender at the Branch of Account of the BA Interest Period applicable to the BA Equivalent Loan, or its intention to repay or convert the Borrower shall be deemed to have converted the BA Equivalent Loan into a Prime Rate Loan as of the last day of the applicable BA Interest Period. (c) Rollover of Libor Loans. With respect to each Libor Loan which is an outstanding Borrowing, at or before 5:00 p.m. three Business Days before the applicable Interest Determination Date, the Borrower shall notify the Lender at the Branch of Account by irrevocable telephone notice followed by written confirmation on the same day in form and substance substantially as attached as Schedule 4.3(c) either of (1) the next Libor Interest Period which it has selected as applicable to the Libor Loan, which new Libor Interest Period shall commence on and include the last day of the prior Libor Interest Period, or (2) the intention of the Borrower to repay or convert such Libor Loan at the end of the relevant Libor Interest Period. If the Borrower fails to select and to notify the Lender at the Branch of Account of the Libor Interest Period applicable to the Libor Loan, or its intention to repay or convert the Borrower shall be deemed to have converted the Libor Loan into a US Prime Rate Loan as of the last day of the applicable Libor Interest Period. 4.4 Substitute Basis of Borrowing. If at any time during the term of this Agreement, the Lender determines in good faith (which determination shall be final, conclusive and binding upon the Borrower) that: (a) adequate and fair means do not exist for ascertaining the rate of interest on a Libor Loan, (b) Libor does not accurately reflect the effective cost to the Lender of making, funding or maintaining a Libor Loan and the costs to the Lender are increased or the income receivable by the Lender is reduced in respect of a Libor Loan, (c) the making or the continuance of a Libor Loan or a portion of a Libor Loan by the Lender has become impracticable by reason of circumstances which materially and adversely affect the London interbank market, or (d) deposits in US Dollars are not available to the Lender in the London interbank market in sufficient amounts in the ordinary course of business for the applicable Libor Interest Period to make, fund or maintain a Libor Loan during such Libor Interest Period, then the Lender shall promptly notify the Borrower in writing of such determination setting forth the basis of such determination and each outstanding Libor Loan will automatically be converted into a US Prime Rate Loan on the expiry of its then current Libor Interest Period. The Lender will not be obligated to make any further Libor Loans available pursuant to this Agreement, so long as the circumstances referred to in this Section 4.4 continue. 4.5 Letters of Credit. (a) Letter of Credit Period. Letters of Credit shall have terms of not greater than 365 days and shall mature on a Business Day but not to extend beyond the Facility Termination Date. (b) Refusal to Issue. The Lender may refuse to issue Letters of Credit on the Borrower's behalf at any time in the Lender's sole discretion. (c) Letter of Credit Agreement. Each Letter of Credit shall be governed by the terms and conditions of the Letter of Credit Agreement or other specific agreement relative to such instruments between the Borrower and the Lender and each Letter of Credit shall be governed by the terms and conditions of the applicable Letter of Credit Agreement in the event of a conflict with this agreement. (d) Retirement of Letter of Credit. A Letter of Credit may only be retired on its maturity date (i) unless and to the extent it has been honoured or (ii) unless the written consent of the beneficiary of such instrument has been obtained and the original Letter of Credit has been returned to the Lender. (e) Charging of Letter of Credit. Each drawing under a Letter of Credit shall be charged to the Borrower's Account. 4.6 Conversion Option. (a) Notice for and Conditions of Conversion. Subject to this Agreement, the Borrower may, during the term of this Agreement, effective on any Business Day, convert, in whole or in part, Outstanding Borrowings into another basis of Borrowing permitted under the Credit Facilities, upon giving to the Lender at the Branch of Account prior irrevocable telephone notice at or before 5:00 p.m. three Business Days in advance, followed by written confirmation on the same day substantially in the form of Schedule 4.6, provided that: (i) no Default has occurred and is continuing, (ii) each conversion to a Borrowing by way of a Prime Loan or a US Prime Loan shall be for a minimum aggregate amount of CAD or USD100,000, (iii) each conversion to a Borrowing by way of BA Equivalent Loan shall be for a minimum aggregate amount of CAD1,000,000, (iv) each conversion to a Borrowing by way of Libor Loan shall be for a minimum aggregate amount of USD1,000,000, (v) a conversion to a Borrowing by way of Libor Loans shall only be made to the extent that the conditions outlined in Section 4.4 shall not exist on the relevant Conversion Date, (vi) each conversion of a Borrowing by way of a Libor Loan may be converted to another basis of Borrowing only on the last day of the relevant Libor Interest Period and, provided that, if less than all of such Libor Loan is converted, then after such conversion not less than USD1,000,000 (or increments of USD100,000 in excess thereof) shall remain as a Libor Loan, and (vii) each conversion of a Borrowing by way of a BA Equivalent may be converted to another basis of Borrowings only on the last day of the relevant BA Interest Period and provided that, if less than all such BA Equivalent Loan is converted, then after such conversion not less than CAD1,000,000 (or increments of CAD100,000 in excess thereof) shall remain as a BA Equivalent Loan. (b) Mandatory Conversion. If an Event of Default, or an event or circumstance which with notice or lapse of time or both would constitute an Event of Default, has occurred and is continuing, the Borrower shall be required to convert (i) its Borrowings by way of Libor Loans to Borrowings by way of US Prime Rate Loans on the applicable Libor Interest Date, and (ii) its Borrowings by way of BA Equivalent to Borrowings by way of Prime Loans on the applicable BA Interest Date. (c) Conversion Not Repayment. The conversion of any Borrowing to another type of Borrowing in an equal amount, as provided in this Section 4.6, shall not be deemed to constitute a repayment of any Borrowing or a new advance of funds. (d) Determination Final. With respect to all matters referred to in this Section 4.6, the determination by the Lender shall, prima facie, be final and binding on the Borrower. 4.7 Reliance on Oral Instructions. The Lender shall be entitled to act upon the oral instructions of any Person who the Lender, acting reasonably, believes has been identified by the Borrower in written instructions to the Lender as someone authorized to give oral instructions regarding the drawdown or issuance of Borrowings, and the Lender shall not be responsible for any error or omission in such instructions or in the performance thereof except in the case of negligence or wilful misconduct by the Lender or its employees. Any such oral instructions so given shall be immediately confirmed in writing by the Borrower to the Lender. 4.8 Evidence of Indebtedness. The Lender shall open and maintain at the Branch of Account, accounts and records evidencing the liability of the Borrower to the Lender with respect to Borrowings and record therein by appropriate entries all amounts of Indebtedness of the Borrower to the Lender arising under or in connection with this Agreement and all payments on account thereof. Such accounts and records will constitute, prima facie, conclusive evidence of the Indebtedness of the Borrower to the Lender from time to time, the date each Borrowing was made and the amounts the Borrower has paid from time to time on account of such Indebtedness. SECTION 5 - INTEREST, FEES AND EXPENSES 5.1 Payment of Interest on Prime Loans. Rate. The Borrower shall pay interest on Prime Loans in Canadian Dollars at a rate per annum equal to the Prime Rate. Each change in the fluctuating interest rate for a Prime Loan will take place simultaneously with the corresponding change in the Prime Rate. Calculation. Interest on Prime Loans shall be payable monthly in arrears on each Interest Payment Date for the period up to but not including such Interest Payment Date and shall be calculated on a daily basis on the principal amount of the Prime Loans remaining unpaid from time to time and on the basis of the actual number of days elapsed and a year of 365 days or 366 days, as the case may be. 5.2 Payment of Interest on US Prime Rate Loans. Rate. The Borrower shall pay interest on US Prime Rate Loans in US Dollars at a rate per annum equal to the US Prime Rate. Each change in the fluctuating interest rate for a US Prime Rate Loan will take place simultaneously with the corresponding change in the US Prime Rate. Calculation. Interest on US Prime Rate Loans shall be payable monthly in arrears on each Interest Payment Date for the period up to but not including such Interest Payment Date and shall be calculated on a daily basis on the principal amount of the US Prime Rate Loans remaining unpaid from time to time and on the basis of the actual number of days elapsed and a year of 365 days or 366 days, as the case may be. 5.3 Applicable Margin Calculation. The Applicable Margin shall be subject to adjustment (upwards or downwards, as appropriate) based on the Status of the Consolidated Guarantor as at the end of each fiscal quarter in accordance with the table set forth below. The Status of the Consolidated Guarantor as at the last day of each fiscal quarter shall be based on the Senior Funded Debt to Cash Flow Ratio of the Consolidated Guarantor determined from the then most recent annual or quarterly financial statements of the Consolidated Guarantor delivered pursuant to Section 7.2(a) and the Compliance Certificate delivered pursuant to Section 7.2(b)(ii). Any adjustment to the Applicable Margin shall be effective commencing five (5) days after the delivery to the Lender of such financial statements and Compliance Certificate. In the event that the Consolidated Guarantor shall at any time fail to furnish to the Lender such financial statements and Compliance Certificate within the time limitations specified by Section 7.2(b), then the maximum Applicable Margin shall apply from the date of such failure until the fifteenth (15th) day after such financial statements and Compliance Certificate are so delivered. Notwithstanding anything to the contrary contained herein, the Status of the Consolidated Guarantor from the date of this Agreement to and including May 30, 1998, shall be deemed to be Level II Status. Notwithstanding anything to the contrary contained herein, the Status of the Consolidated Guarantor from the date of this Agreement to and including the later of (i) May 30, 1998 and (ii) five (5) days after the delivery to the Lenders of the May 31, 1998 annual financial statements of the Consolidated Guarantor accompanied by a current Compliance Certificate, shall be deemed to be Level II Status. Applicable Margin Table Status Applicable Margin Level I 1.5% Level II 1.25% Level III 1.0% Level IV 0.75% Changes in Interest Rate, etc. Each Prime Loan or US Prime Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from and including the date such Prime Loan or US Prime Rate Loan is made or is converted from a Libor Loan into a Prime Loan or US Prime Rate Loan pursuant to Section 4.6 to but excluding the date it becomes due or is converted into a Libor Loan pursuant to Section 4.6 at a rate per annum equal to the Prime Rate or US Prime Rate for such day. Changes in the rate of interest on that portion of any Borrowings maintained as a Prime Loan or US Prime Rate Loan will take effect simultaneously with each change in such applicable rate. Each Libor Loan shall bear interest on the outstanding principal amount thereof from and including the first day of the Libor Interest Period applicable thereto to (but not including) the last day of such Libor Interest Period at the interest rate determined as applicable to such Libor Loan. Rates Applicable After Default. During the continuance of a Default or Unmatured Default the Lender may, at their option, by notice to the Borrower, declare that no Borrowings may be made as, converted into or continued as a Libor Loan, declare that (i) each Libor Loan shall bear interest for the remainder of the applicable Libor Interest Period at the rate otherwise applicable to such Libor Interest Period plus, to the extent permitted by law, 2% per annum and (ii) each Prime Loan or US Prime Rate Loan shall bear interest at a rate per annum equal to the Prime Rate or US Prime Rate otherwise applicable to the Prime Loan or US Prime Loan plus, to the extent permitted by law, 2% per annum, provided that, during the continuance of a Default under Section 9.1 the interest rates set forth in clauses (i) and (ii) above shall be applicable to all Borrowings without any election or action on the part of the Lender. 5.4 BA Equivalent Loans. Rate. The Borrower shall pay interest on each BA Equivalent Loan in Canadian Dollars for the period commencing on and including the first day of the BA Interest Period applicable to such BA Equivalent Loan up to but not including the BA Interest Date, at the rate per annum determined by the Lender to be equal to the sum of BA Rate plus the Applicable Margin. Each such determination of the rate of interest applicable to a BA Interest Period shall, prima facie, be final, and binding upon the Borrower. Upon determination of the rate of interest applicable to a BA Interest Period applicable to a BA Equivalent Loan, the Lender shall promptly notify the Borrower of such rate. Calculation. Interest on each BA Equivalent Loan shall be payable on each BA Interest Date with respect to such BA Equivalent Loan and shall be calculated on a daily basis and on the basis of the actual number of days elapsed and a year of 365 days or 366 days, as the case may be; provided however, that in the event that a relevant BA Interest Period is greater than 90 days, interest shall be due and payable not less frequently than every 90 days. 5.5 Letters of Credit Fee. Fees. The Borrower shall pay to the Lender, at the time the Lender issues (or renews) a Commercial Letter of Credit, an issuance fee at the Lender's standard rates calculated on the maximum face amount of each such Commercial Letter of Credit. The Borrower shall pay to the Lender, at the time the Lender issues (or renews) a Standby Letter of Credit, an issuance fee equal to the greater of (i) CAD$300 and (ii) the Applicable Margin of the maximum face amount of such Standby Letter of Credit. The calculation of the amount of such annual fees shall be based on the term of such Letter of Credit (or the term of such renewal) and shall be based on a 365 or 366 day year, as the case may be. 5.6 Payment of Interest on Libor Loans. Rate. The Borrower shall pay interest on each Libor Loan in US Dollars for the period commencing on and including the first day of the Libor Interest Period applicable to such Libor Loan up to but not including the Libor Interest Date, at the rate per annum determined by the Lender to be equal to the sum of Libor plus the Applicable Margin. Each such determination of the rate of interest applicable to a Libor Interest Period shall, prima facie, be final, and binding upon the Borrower. Upon determination of the rate of interest applicable to a Libor Interest Period applicable to a Libor Loan, the Lender shall promptly notify the Borrower of such rate. Calculation. Interest on each Libor Loan shall be payable on each Libor Interest Date with respect to such Libor Loan and shall be calculated on a daily basis and on the basis of the actual number of days elapsed and a year of 360 days; provided however, that in the event that a relevant Libor Interest Period is greater than 90 days, interest shall be due and payable not less frequently than every 90 days. 5.7 Interest on Overdue Amounts. Upon a default in the payment of principal, interest or other amounts due under this Agreement, the Borrower shall pay interest on such overdue amount both before and, where permitted by law, after judgment at a rate per annum equal to the rate of interest as is applicable to the relevant Borrowing prior to default (calculated on the same basis) plus 2.0% for so long as such amount remains overdue. Such interest shall be payable upon demand made by the Lender and shall be compounded on each Interest Payment Date, BA Interest Date or Libor Interest Date, as applicable. 5.8 Interest Act. For the purposes of the Interest Act (Canada), where in this Agreement a rate of interest is to be calculated on the basis of a year of 360 or 365 days, as applicable (the "first rate"), the yearly rate of interest to which the first rate is equivalent is the first rate multiplied by the actual number of days in the year for which such calculation is made and divided by 360 or 365 (as applicable). 5.9 Arrangement Fee. The Borrower has paid the Lender arrangement fees of CAD18,750 and CAD22,500 (the "Arrangement Fee"), the receipt of which are hereby acknowledged by the Lender. 5.10 Administration Fee. The Borrower will pay the Lender an administration fee of CAD1,000 (the "Administration Fee") payable quarterly in arrears on the last Business Day of each February, May, August and November, for the daily monitoring and administration of operating draws and pay downs. 5.11 Facility Fee. The Guarantor will pay to the order of American National Bank and Trust Company of Chicago as agent for the Lender, an annual facility fee equal to the product of (a) one-eighth of one percent (0.125%) and (b) the Commitment, payable in quarterly installments on the last Business Day of each February, May, August, and November. Such Facility Fee shall in no circumstances be refundable to the Borrower or Guarantor. 5.12 Limit on Rate of Interest. (a) No Payment shall exceed Lawful Rate. Notwithstanding any other term of this Agreement, the Borrower shall not be obliged to pay any interest or other amounts under or in connection with this Agreement in excess of the amount or rate permitted under or consistent with Applicable Laws. In particular but without limiting the generality of the foregoing, the Borrower shall not be obliged to pay any interest or other amounts which would result in the receipt by the Lender of interest on credit advanced at a rate in excess of the rate permitted under the Criminal Code (Canada). For purposes of this Section, "interest" and "credit advanced" have the meanings ascribed in the Criminal Code (Canada), and the "effective annual rate of interest" shall be calculated in accordance with generally accepted actuarial principles and practices. (b) Payment at Highest Lawful Rate. If, as a result of Section 5.13(a), the Borrower is not obliged to make a payment which it would otherwise be required to make, the Borrower shall make such payment to the maximum extent permitted by or consistent with Applicable Law. 5.13 Change in Circumstances. (a) Reduction in Rate of Return. If at any time the Lender determines, acting reasonably, that (1) any change in any Applicable Law or any interpretation thereof after the date of execution hereof, or (2) compliance by the Lender with any direction, requirement or request from any regulatory authority given after the date of execution hereof, whether or not having the force of law provided that if not having the force of law, the Lender's decision to comply therewith is reasonable, prudent and in good faith, has or would have, as a consequence of the Lender's obligation under this Agreement and taking into consideration the Lender's policies with respect to capital adequacy, the effect of reducing the rate of return on the Lender's capital to a level below that which the Lender could have achieved but for such change or compliance, then from time to time, upon demand of the Lender, the Borrower shall pay to the Lender such additional amounts as may be determined by the Lender as will compensate the Lender for such reduction provided that the Lender is similarly requiring payment of compensating amounts from other Borrowers whose credit facilities with the Lender are similarly effected. (b) Taxes, Reserves, Capital Adequacy, etc. If, after the date of execution hereof, any introduction of any Applicable Law or any change or introduction of a change in any Applicable Law (whether or not having the force of law) provided that if not having the force of law, the Lender's decision to comply therewith is reasonable, prudent and in good faith or in the interpretation or application thereof by any court or by any Governmental Authority, central bank or other authority or entity charged with the administration thereof or any change in the compliance of the Lender therewith now or hereafter: (i) subjects the Lender to, or causes the withdrawal or termination of a previously granted exemption with respect to, any Tax or changes the basis of taxation, or increases any existing Tax, on payments of principal, interest, fees or other amounts payable by the Borrower to the Lender under this Agreement (except for taxes on the overall net income of the Lender), (ii) imposes, modifies or deems applicable any reserve, special deposit, deposit insurance or similar requirement against assets held by, or deposits in or for the account of or loans by or any other acquisition of funds by, an office of the Lender, or (iii) imposes on the Lender or expects there to be maintained by the Lender any capital adequacy or additional capital requirement in respect of any Borrowing or any other condition with respect to this Agreement, and the result of any of the foregoing, in the sole determination of the Lender acting reasonably, shall be to increase the cost to, or reduce the amount received or receivable by, the Lender hereunder or its effective rate of return hereunder in respect of making, maintaining or funding a Borrowing hereunder, the Lender shall, acting reasonably, determine that amount of money which shall compensate the Lender for such increase in cost or reduction in income. The Lender shall make reasonable efforts to limit the incidence of any Additional Compensation, as defined below. (c) Payment of Additional Compensation. Upon the Lender having determined that it is entitled to compensation in accordance with the provisions of Sections 5.13(a) or 5.13(b) (herein referred to as "Additional Compensation"), the Lender shall promptly so notify the Borrower and shall provide to the Borrower a photocopy of the relevant Applicable Law or direction, requirement or request, as applicable, and a certificate of a duly authorized officer of the Lender setting forth the Additional Compensation and the basis of calculation thereof, which shall be prima facie evidence of such Additional Compensation. The Borrower shall pay to the Lender within 30 Business Days of the giving of such notice the Additional Compensation calculated and accruing from the date of such notification. The Lender shall be entitled to be paid such Additional Compensation from time to time to the extent that the provisions of this Section 5.13 are then applicable notwithstanding that Lender has previously been paid any Additional Compensation. (d) International Settlements Capital Rules. For greater certainty, the term "Applicable Law" for the purposes of this Section 5.13 includes any law relating in any way to international convergence of capital measurement and capital standards developed by the Bank for International Settlements. 5.14 Payment of Portion. Notwithstanding any other term or condition of this Agreement, if the Lender gives the notice provided for in Section 5.13 with respect to any Borrowing (an "Affected Borrowing"), the Borrower may at its option, upon 10 Business Days notice to that effect given to the Lender (which notice shall be irrevocable) unless such prepayment causes an Event of Default hereunder, prepay in full without penalty such Affected Borrowing outstanding together with accrued and unpaid interest on the principal amount so prepaid up to the date of such prepayment and pay such Additional Compensation as may be applicable to the date of such payment and all costs, losses and expenses incurred by the Lender by reason of the liquidation or re-employment of deposits or other funds or for any other reason whatsoever resulting from the repayment of such Affected Borrowing or any part thereof. Upon its receipt of such prepayment, the Lender shall refund a proportionate share of the Arrangement Fee. 5.15 Illegality. If any Applicable Law, or any change therein or in the interpretation or application thereof by any court or by any Governmental Authority or central bank or comparable agency or any other entity charged with the interpretation or administration thereof or compliance by the Lender with any request or direction (whether or not having the force of law provided that if not having the force of law, the Lender's decision to comply therewith is reasonable, prudent and in good faith) of any such Governmental Authority, central bank or comparable agency or entity, now or hereafter makes it unlawful or impossible for the Lender to make, fund or maintain a Borrowing or to perform its obligations under this Agreement, the Lender may, by written notice thereof to the Borrower terminate its obligations to make further advances under this Agreement, and the Borrower, if required by the Lender, shall repay forthwith (or at the end of such longer period as the Lender at its discretion has agreed) the principal amount of such Borrowing together with accrued interest (without penalty or bonus), along with such Additional Compensation as may be applicable to the date of such payment and all costs, losses and expenses incurred by the Lender by reason of the liquidation or re-deployment of deposits or other funds or for any other reason whatsoever resulting from the repayment of such Borrowing or any part thereof. If any such change shall only affect a portion of the Lender's obligations under this Agreement which is, in the opinion of the Lender acting reasonably, severable from the remainder of this Agreement so that the remainder of this Agreement may be continued in full force and effect without otherwise affecting any of the obligations of the Lender or the Borrower hereunder, the Lender shall, after allowing the Borrower the option to convert its Loan, only declare its obligations under that portion so terminated. 5.16 Indemnity. (a) General. The Borrower shall indemnify the Lender against all losses, reasonable expenses and liabilities which the Lender may sustain or incur as a consequence of (1) any Default by the Borrower under this Agreement, (2) any material misrepresentation by the Borrower contained in any writing delivered to the Lender in connection with this Agreement, or (3) any material failure by the Borrower to comply with any Applicable Law. (b) Libor Loans. For greater certainty, but without limitation, if the Borrower repays, prepays or cancels a Libor Loan on a day other than a Libor Interest Date falling on the last day of a Libor Interest Period, the Borrower shall indemnify the Lender for any loss or expense suffered or incurred by the Lender including, without limitation, any loss or expenses which the Lender incurs by reason of the liquidation or re-deployment of deposits or other funds acquired by the Lender to maintain the Libor Loan and any interest or other charges payable to lenders of funds borrowed by the Lender in order to maintain the Libor Loan together with any other charges, costs or expenses incurred by such Lender relative thereto. (c) Telephone Instructions. The Borrower shall indemnify the Lender for any loss or expense suffered or incurred by the Lender as a consequence of the Lender acting in accordance with prudent banking standards upon instructions given or agreements made over the telephone or by electronic transmission of any type with Persons who the Lender, acting reasonably, believes to have been acting on the Borrower's behalf and who have been identified in writing by the Borrower as Persons authorized to give such instructions, provided this indemnity shall not apply to losses or expenses incurred or suffered by the Lender as a result of its own gross negligence or wilful misconduct. (d) Certificate. A certificate of the Lender setting out the basis for the determination of the amount necessary to indemnify the Lender pursuant to this Section 5.16 shall be, prima facie, conclusive evidence of the correctness of such determination. SECTION 6 - PAYMENTS AND REDUCTIONS OF COMMITMENTS 6.1 Payments Generally. Each payment to the Lender under this Agreement shall be paid in the currency in which the relevant Borrowing is outstanding and all other amounts owing hereunder shall be paid in Canadian Dollars except as otherwise herein required or contemplated. Each such payment shall be made for value at or before 12:00 noon (Toronto time) on the day such payment is due, provided that, if any such day is not a Business Day, such payment shall be deemed for all purposes of this Agreement to be due on the Business Day next following such day (and any such extension shall be taken into account for purposes of the computation of interest and fees payable under this Agreement). 6.2 No Set-Off. All payments to be made by the Borrower shall be made without set-off or counterclaim and without any deduction of any kind. 6.3 Application of Payments Before Exercise of Rights. All payments made by or on behalf of the Borrower under this Agreement before the exercise by the Lender of any rights arising under Section 9.2 shall be applied in each instance in the following order: (a) firstly, in payment of any amounts due and payable as and by way of recoverable expenses hereunder; (b) secondly, in payment of any fees, interest, or default interest then due and payable on or in respect of the Borrowings; (c) thirdly, in repayment of any principal amounts outstanding on account of the Borrowings; and (d) fourthly, in payment of any other amounts then due and payable by the Borrower hereunder. 6.4 Application of Payments After Exercise of Rights. All payments made by or on behalf of the Borrower under this Agreement after the exercise by the Lender of any rights arising under Section 9.2 shall be applied in each instance in the following order, unless the Lender otherwise determines in its sole and absolute discretion: (a) firstly, in payment of the reasonable costs and expenses of any realization, including the out-of-pocket expenses of the Lender and the reasonable fees and out-of-pocket expenses of counsel employed in connection therewith, and to the payment of all reasonable funds made available by the Lender for the account of the Borrower in connection with such realization and the payment of all reasonable out-of-pocket costs and expenses incurred by the Lender in connection with the administration and enforcement of this Agreement or the other Documents, to the extent that such funds, costs and expenses shall not have been reimbursed to the Lender; (b) secondly, in payment of any unpaid fees payable hereunder to and including the date of such application; (c) thirdly, in payment of principal and then to the payment of any other Indebtedness (other than on account of interest) outstanding under this Agreement and under any other agreement applicable to the Outstanding Borrowings, and then to the payment of accrued and unpaid interest thereunder to and including the date of such application; and (d) fourthly, in payment of the balance, if any, of such proceeds to the Borrower or such other person or persons who may be entitled at law to such proceeds or, in each case, their respective successors or assigns, or as a court of competent jurisdiction may otherwise direct. 6.5 Reduction of Commitment. The Borrower may reduce or cancel the amount of the Commitment at any time upon not less than five Business Days prior irrevocable written notice to the Lender without bonus or penalty; provided that on or prior to the effective date of such reduction or cancellation all Outstanding Borrowings in excess of the Commitment, as reduced or cancelled, together with interest accrued thereon and fees outstanding in respect thereof is paid in full. SECTION 7 - COVENANTS 7.1 Covenants of the Borrower. While any amount owing hereunder remains unpaid or the Lender has any obligations hereunder, the Borrower covenants with the Lender, that it will: (a) Corporate Existence and Franchises. except as otherwise expressly permitted in this Agreement, maintain in full force and effect its separate existence and all rights, licenses, leases and franchises reasonably necessary to the conduct of its business. (b) Books, Records and Inspections. maintain complete and accurate books and records, permit the Lender to have reasonable access to the Borrower's books and records, and permit the Lender to inspect the Borrower's properties and operations at reasonable times. (c) Insurance. maintain insurance to such extent and against such hazards and liabilities as may be required by law and as is commonly maintained by companies similarly situated or as the Lender may reasonably request from time to time. (d) Taxes and Liabilities. promptly pay when due all taxes, duties, assessments and other liabilities, except such taxes, duties, assessments and other liabilities as the Borrower is diligently contesting in good faith and by appropriate proceedings or which the failure to pay would not have a Material Adverse Effect; provided that the Borrower has provided for and is maintaining adequate reserves with respect thereto in accordance with GAAP. (e) Liens. not create or permit to exist any Lien with respect to any of the properties or assets of the Borrower or any Subsidiary, whether nor owned or hereafter acquired, including, without limitation, accounts or inventory now owned or hereafter acquired, except the following Liens (a) Permitted Liens; (b) Liens which arise in the ordinary course of business for sums not due or sums which the Borrower is contesting in good faith and by appropriate proceedings and with respect to which the Borrower has provided for and is maintaining adequate reserves in accordance with GAAP, but which do not involve any deposits or advances or borrowed money or the deferred purchase price of property or services; and (c) any other Lien in respect of which the Lender has provided its prior written consent. (f) Prohibition of Negative Pledge. not, nor will it permit any of its Subsidiaries to agree, covenant, warrant, represent, pledge or otherwise commit with or to any entity other than the Lender, to not incur, create, assume or permit to exist, any mortgage, pledge, lien charge or other encumbrance of any nature whatsoever on all or any of its assets now or hereafter owned, except for such pledge made directly in connection with the purchase of inventory in the ordinary course of business, with a value of such inventory owned by the Borrower and its Subsidiaries not exceeding $2,500,000.00 in the aggregate at any time. (g) Other Agreements. not enter into any agreement which would have a Material Adverse Effect on the Borrower containing any provision which would be violated or breached by the performance of its obligations hereunder or under any instrument or document delivered or to be delivered by it hereunder or in connection herewith or which would violate or breach any provision hereof or of any such instrument or document. (h) Compliance with Applicable Laws. comply with the requirements of all Applicable Laws, rules, regulations, and orders of all Governmental Authorities (Federal, state, provincial, local or foreign, and including, without limitation, environmental laws, rules, regulations and orders), except for failures to comply with such statutes, rules and regulations which in the aggregate would not materially and adversely affect the Borrower's business, credit, operations, financial condition or prospects, except where the Borrower is contesting an alleged breach in good faith and by proper proceedings and for which the Borrower is maintaining adequate reserves in accordance with GAAP. (i) Delivery of Documents. on or before the Closing Date (except as otherwise noted), the Borrower shall execute, or cause to be executed, and delivered to the Lender, in form and substance satisfactory to it acting reasonably, the following: 1. a certificate of an officer on behalf of the Borrower dated as of the Closing Date certifying: (i) the names and specimen signatures of the Persons authorized to sign the Documents to be executed and delivered by the Borrower; (ii) that the constating documents and by-laws of the Borrower attached thereto are complete and correct copies, have not been amended, modified or supplemented except as described in the certificate and are in full force and effect, except that, to the extent that the Borrower has provided the Lender within the previous 8 months with a copy of its constating documents or by-laws, instead of providing a new copy it may provide the Lender with a certificate of one of its officers to the effect that such documents are complete and correct copies of the originals thereof which originals have not been amended, modified or supplemented and are in full force and effect; (iii) that attached thereto is the resolution of the Borrower and all other authorizations necessary to authorize the execution and delivery and performance of the Documents executed and delivered by it; 2. promissory note(s) given by the Borrower in favour of the Lender evidencing the Outstanding Borrowings substantially in the form set out in Schedule 7.1(i)2. 3. Letter of Credit Agreement given by the Borrower in favour of the Bank with respect to the issuance of Letters of Credit. 4. unlimited guarantee and postponement of claim given by the Guarantor in favour of the Lender with respect to the indebtedness of the Borrower to the Lender substantially in the form set out in Schedule 7.1(i)4; 5. acknowledgements by the Guarantor and the domestic senior lenders of the Guarantor that the said guarantee shall be held by the Lender on a pari passu basis; 6. opinions of legal counsel to the Borrower and the Guarantor, addressed to the Lender substantially in the form set out in Schedule 7.1(i)6; and 7. such other documents related to the foregoing as the Lender may reasonably request. 7.2 Accounting, Financial Statements and Other Information. General. The Borrower shall maintain a system of accounting established and administered in accordance with GAAP consistently applied and shall set aside on its books all proper reserves. Reports. The Borrower shall provide to the Lender each of the following: (a) Audit Report. on or before the 90th day after each of the Guarantor's fiscal years, a copy of an annual audit report of the Guarantor prepared in conformity with GAAP, duly certified by its Auditors, together with a certificate from such Auditors containing a computation of, and showing compliance with, each of the financial ratios and restrictions contained in this Agreement. (b) Interim Reports. on or before the 45th day after the end of each of the Borrower's fiscal quarters, (i) a copy of unaudited financial statements of the Borrower prepared in a manner consistent with the financial statements referred to above, signed by a senior financial officer of the Borrower and consisting of, at least, balance sheets as at the close of such month and statements of earnings for such quarter and for the period from the beginning of such fiscal quarter to the close of such quarter, and (ii) a Compliance Certificate of the Chief Financial Officer or Treasurer of the Consolidated Guarantor substantially in the form attached to the U.S. Loan Agreement. (c) Notice of Default and Litigation. forthwith upon learning of the occurrence of any of the following written notice thereof which describes the same and the steps being taken by the Borrower with respect thereto: (i) the occurrence of an Event of Default or Default, (ii) the institution of, or any adverse determination in, any litigation, arbitration proceedings or governmental proceeding in which any injunctive relief is sought or in which money damages in excess of $1,000,000.00 are sought. (d) Other Information. such other information concerning the Borrower as the Lender may reasonably request from time to time. SECTION 8 - ENVIRONMENTAL MATTERS 8.1 Representations and Warranties. The Borrower represents and warrants to the Lender, all of which shall survive the execution and delivery of this Agreement, as follows: (a) Compliance. Subject to Section 8.1(d) below, to the best knowledge of the Borrower, the property, assets, activities and operations of the Borrower and those of any prior owner, lessee, licensee or other occupant thereof comply in all material respects with all Environmental Laws and with any authorization, permit, grant, licence, consent, right, privilege, registration, filing, commitment, order, approval, judgment, direction, ordinance or decree issued or granted by law or by any Governmental Authority and are not subject to any judicial, governmental, regulatory or other investigations, proceedings, inquiries or notices; save and except to the extent disclosed in writing to the Lender and in respect of which, to the extent possible, adequate remedial action has been undertaken. To the best knowledge of the Borrower, none of the Borrower, and any present or prior owner, lessee, licensee or occupant or any Person having the charge, management or control of any of their respective properties has filed any notice or report under any Environmental Law with any Governmental Authority. (b) Presence of Contaminant. Subject to Section 8.1(d) below, to the best knowledge of the Borrower, there neither is nor has been, any Environmental Activity at, upon, under, over, within or with respect to their properties with the exception of the handling, use or storage in accordance with Environmental Laws, of electrical and/or hydraulic equipment that may contain PCBs or related substances, which equipment is of a kind normally used in premises similar to the properties of the Borrower. (c) Liability. Subject to Section 8.1(d) below, to the best knowledge of the Borrower, none of the Borrower and any present or prior owner, lessee, licensee or occupant of any of their respective properties has been, nor is it, involved in any operations at, or with respect to their properties which could lead to the imposition of liability on the Borrower or Person who has or will have the charge, management or control of any such property or the creation of a Lien thereon under any Environmental Law; save and except to the extent disclosed in writing to the Lender and in respect of which to the extent possible adequate remedial action has been undertaken. (d) Inquiry. The representations and warranties provided in Sections 8.1(a)(b) and (c) are given after limited inquiry by the Borrower, the details of which are provided in Schedule 8.1(d). 8.2 Covenants. While any amount owing hereunder remains unpaid or the Lender has any obligations hereunder, the Borrower covenants with the Lender as follows: (a) Compliance. It shall comply in all material respects with the requirements of any Environmental Law. (b) Notification. It shall notify the Lender within 10 days of becoming aware of any Release or within 15 days of any other discovery of any Contaminant at, upon, under, over, within or with respect to any of its property or any contiguous real or immovable property. It shall promptly thereafter forward to the Lender copies of all orders, notices, permits, applications or other communications and reports in connection with any Environmental Law affecting or relating to any of its property or its operations and activities. 8.3 Indemnity. The Borrower shall at all times indemnify and hold harmless the Lender from and against any and all claims, suits, actions, debts, damages, costs, losses, obligations, judgments, charges, and expenses, of any nature whatsoever (in this Section 8.3, a "Claim") suffered or incurred by the Lender, whether upon realization of any security, or as a lender to the Borrower, or as successor to or assignee of any right or interest of the Borrower or as a result of any order, investigation or action by any Governmental Authority relating to the Borrower, or the business or property of the Borrower as privileged or hypothecary creditor or mortgagee in possession of property or as successor or successor-in-interest as a result of any taking of possession of all or any property or by foreclosure deed or deed in lieu of foreclosure or by any other means relating to the Borrower, under or on account of any breach of Environmental Law (except as a result of the negligence or wilful misconduct of the Lender), or the assertion of any Lien thereunder, with respect to: (a) the Release of a Contaminant, the threat of the Release of any Contaminant, or the presence of any Contaminant affecting any of their respective properties, (b) the Release of a Contaminant owned by, or under the charge, management or control of, the Borrower, (c) any costs incurred by any Governmental Authority or any other Person or damages from injury to, destruction of, or loss of natural resources in relation to, any such property or personal property located thereon, including reasonable costs of assessing such injury, destruction or loss incurred pursuant to any Environmental Laws, (d) liability for personal injury or property damage arising by reason of any civil law offences or quasi-offences or under any statutory or common law tort or similar theory, including, without limitation, damages assessed for the maintenance of a public or private nuisance or for the carrying on of a dangerous activity at, or with respect to its property, and/or (e) any other environmental matter affecting any property or the operations and activities of the Borrower within the jurisdiction of any federal, provincial, municipal or local environmental agency. 8.4 Scope of Indemnity. The Borrower acknowledges that the Lender has agreed to make the Credit Facilities available in reliance upon the representations, warranties, and covenants in this Section 8.4. For this reason, it is the intention of the Borrower and the Lender that the provisions of this Section 8 shall supersede any other provisions in this Agreement or in any Document which in any way limit the liability of the Borrower and that the Borrower shall be liable for any obligations arising under this Section 8 even if the amount of the liability incurred exceeds the amount outstanding under this Agreement. The obligations arising under this Article are absolute and unconditional and shall not be affected by any act, omission or circumstance whatsoever, except in respect of negligence or wilful misconduct by the Lender. The obligations of the Borrower arising under this Section 8 shall survive the repayment of the Borrowings and shall survive the transfer of any or all right, title and interest in and to any property to any party, whether or not affiliated with the Borrower. 8.5 Interest. If the Lender incurs any obligations, costs or expenses under this Section 8 or in respect of any Environmental Activity covered by this Section 8, the Borrower shall pay the same to the Lender immediately on demand, and if such payment is not received within 10 days, such amount will be treated as a Prime Loan and the Borrower will pay interest thereon on demand, but otherwise calculated as set out in Section 5.1. SECTION 9 - DEFAULT AND ENFORCEMENT 9.1 Events of Default. Upon the occurrence of any one or more of the following events the Lender may, by written notice to the Borrower, declare an Event of Default: (a) Non-payment of Principal. The Borrower fails to make when due, whether by acceleration or otherwise, any payment of principal required to be made by the Borrower hereunder and such default continues for more than one (1) Business Day. (b) Non-payment of Interest, Fees and Other Amounts. The Borrower fails to make when due, whether by acceleration or otherwise, any payment of interest, fees or any other payment hereunder not referred to in Section 9.1(a) and such failure continues for 5 Days of such due date. (c) Covenants. The Borrower fails to perform or observe to any material extent any other term, condition, covenant or undertaking contained in any Document. Except as regards breaches of covenants contained in Sections 7.1(a) and 7.2(a) in respect of which the Lender may immediately declare an Event of Default, the Borrower shall have 30 days after the occurrence of such event to remedy such failure. Only if the Borrower does not remedy such failure within that time shall the Lender become entitled to declare an Event of Default on the basis of such failure. (d) Cross-Defaults. The occurrence of any "Default", as defined in the U.S. Loan Agreement, the U.S. Guaranty or any other U.S. Loan Documents or the breach of any of the terms or provision of the U.S. Loan Agreement, the U.S. Guaranty or any other U.S. Loan Documents, which default or breach continues beyond any period of grace therein provided and has not been waived. (e) Nonpayment of Other Indebtedness. The Borrower or the Guarantor defaults in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any other Indebtedness in the principal amount in excess of $500,000 of, or guaranteed by, the Borrower or the Guarantor or defaults in the performance or observance of any obligation or condition with respect to any such other Indebtedness if the effect of such default is to accelerate the maturity of any such Indebtedness or to permit the holder or holders thereof, or any trustee or agent for such holders, to cause such Indebtedness to become due and payable prior to its expressed maturity, and continuation thereof after the Lender gives notice to the Borrower or the Guarantor that such default is an Event of Default. (f) Representation and Warranties. Any material representation, warranty or statement which is made by the Borrower in any Document or which is contained in any certificate, written statement or written notice provided under or in connection with any Document is untrue or incorrect in any material adverse respect when made and such default continues for 30 days. (g) Execution. A distress or execution or any similar process is levied or enforced against any material property or assets of the Borrower or any of its Subsidiaries with an aggregate fair market value in excess of an amount equal to 3% of the Borrower's shareholders equity. (h) Invalidity and Contestation. This Agreement or any of the other Documents shall at any time after execution and delivery and for any reason (other than in accordance with its terms) cease to be in full force and effect or shall be declared to be null and void, or the legality, validity, binding nature or enforceability of this Agreement or any other Document or any term or provision thereof shall be contested by the Borrower or any other party thereto, or the Borrower or any other such party shall deny that it has any or further liabilities or obligations thereunder. (i) Government Approval. Any material Government Approval required to enable the Borrower or any of its Subsidiaries to conduct its business substantially as presently conducted or to perform its obligations under any Document is not obtained or is withdrawn or ceases to be in full force and effect and such required Government Approval cannot be acquired or reinstated within 60 days of the date on which the Borrower or such Subsidiary knew or ought to have known such Government Approval was required or withdrawn or, if capable of acquisition or reinstatement within such 60-day period, the Borrower or such Subsidiary has not proceeded diligently to obtain or reinstate such Government Approval within such 60-day period. (j) Voluntary Proceedings. The commencement by or acquiescence of the Borrower or any of its Subsidiaries of or to proceedings for substantive relief with respect to the Borrower or a Subsidiary in any bankruptcy, insolvency, debt restructuring, reorganization, readjustment of debt, dissolution, liquidation or other similar proceedings (including, without limitation, proceedings under the Bankruptcy and Insolvency Act (Canada), the Winding-up Act (Canada), the Companies' Creditors Arrangement Act (Canada), or similar legislation in the United States of America, the corporation statute under which any of them is organized or other similar legislation) including, without limitation, the filing of a proposal or plan of arrangement or a notice of intention to file same, or proceedings for the appointment of a trustee, interim receiver, receiver, receiver and manager, custodian, liquidator, provisional liquidator, administrator, sequestrator or other like official with respect to the Borrower or any of its Subsidiaries or all or any material part of their respective assets, or any similar relief. (k) Involuntary Proceedings. If a petition or any other proceeding or case shall be filed, instituted or commenced with respect to the Borrower or any of its Subsidiaries under any bankruptcy, insolvency, debt restructuring, reorganization, incorporation, readjustment of debt, dissolution, liquidation, winding-up or similar law, now or hereafter in effect, seeking the bankruptcy, liquidation, reorganization, dissolution, winding-up, composition or readjustment of debts of the Borrower or any of its Subsidiaries, the appointment of a trustee, interim receiver, receiver, receiver and manager, custodian, liquidator, provisional liquidator, administrator, sequestrator or other like official for the Borrower or any of its Subsidiaries or all or any material part of their respective assets, or any similar relief. (l) Receiver. Any Person including, without limitation, a receiver, receiver and manager, or other similar official whether appointed privately or judicially, is appointed for the Borrower or any of its Subsidiaries or takes possession of the properties or assets of the Borrower or any of its Subsidiaries with an aggregate fair market value in excess of an amount equal to 3% of the Borrower's shareholders equity. (m) Act of Bankruptcy. The Borrower or any of it Subsidiaries is unable to pay debts generally as such debts become due, is adjudged or declared to be bankrupt or commits an act of bankruptcy. 9.2 Rights upon Default. Upon the occurrence of an Event of Default, the Lender may, on written notice to the Borrower, declare that the entire principal amount of the Outstanding Borrowings, all unpaid accrued interest and all fees and other amounts required to be paid by the Borrower hereunder are immediately due and payable without the necessity of presentment for payment, notice of non-payment and of protest (all of which are hereby expressly waived to the fullest extent permitted by Applicable Law) and proceed to exercise any and all rights and remedies hereunder and under any other Document. From and after the issuance of any declaration referred to in this Section 9.2, the Lender shall not be required to honour any cheque or other instrument presented to it regardless of the date of issue or presentation. Immediately upon receipt of such declaration, the Borrower shall pay to the Lender all amounts referred to therein. 9.3 Waiver of Default. No express or implied waiver by the Lender of any Event of Default shall in any way be or be construed to be a waiver of any future or subsequent Event of Default. To the extent permitted by Applicable Law, the Borrower hereby waives any rights now or hereafter conferred by statute or otherwise which may limit or modify any of the Lender's rights or remedies under this Agreement. The Borrower acknowledges and agrees that the exercise by the Lender of any rights under any Document without having declared an acceleration shall not in any way alter, affect or prejudice the right of the Lender to make a declaration pursuant to the provisions of Section 9.2 at any time and, without limiting the foregoing, shall not be construed as or deemed to constitute a waiver of any rights under Section 9.3. SECTION 10 - REMEDIES 10.1 Remedies Cumulative. For greater certainty, the rights and remedies of the Lender under this Agreement are cumulative and are in addition to and not in substitution for any rights or remedies provided by law. Any single or partial exercise by the Lender, of any right or remedy for a default or breach of any term, covenant, condition or agreement herein contained shall not be deemed to be a waiver of or to alter, affect or prejudice any other right or remedy or other rights or remedies to which the Lender may be lawfully entitled for the same default or breach, and any waiver by the Lender of the strict observance, performance or compliance with any term, covenant, condition or agreement herein contained, and any indulgence granted thereby, shall be deemed not to be a waiver of any subsequent default. 10.2 Remedies Not Limited. The Lender may, to the extent permitted by Applicable Law, bring suit at law, in equity or otherwise for any available relief or purpose including but not limited to (a) the specific performance of any covenant or agreement contained in this Agreement or in any other Document, (b) an injunction against a violation of any of the terms of this Agreement or any other Document, (c) in aid of the exercise of any power granted by this Agreement or any other Document or by law, or (d) the recovery of any judgment for any and all amounts due in respect of the Borrowings or amounts otherwise due hereunder or under any Document. 10.3 Set-Off, etc. Upon and after the declaration of any Event of Default pursuant to Section 9.2, the Lender and each of its branches and offices and any sub-participants are hereby authorized by the Borrower, at any time and from time to time, without notice, (a) to set off and apply any and all amounts owing by the Lender or any such branch or office or any sub-participants to the Borrower (whether payable in Canadian Dollars or any other currency, whether matured or unmatured, and in the case of deposits, whether general or special, time or demand and however evidenced) against and on account of the obligations and liabilities of the Borrower due to the Lender and any sub-participants under this Agreement or any other agreement delivered under or in connection with this Agreement including, without limitation, the Documents, (whether such obligations or liabilities are payable in Canadian Dollars or any other currency, and whether such obligations or liabilities are unmatured or contingent), (b) to hold any such amounts owing by the Lender as collateral to secure the obligations and liabilities of the Borrower under this Agreement to the extent such amounts may be required to satisfy any contingent or unmatured obligations or liabilities of the Borrower to the Lender or sub-participants hereunder, and (c) to return as unpaid for insufficient funds any and all cheques and other items drawn against any deposits so held as the Lender in its sole discretion may elect. 10.4 Lender May Perform Covenants. If the Borrower shall fail to perform any of its obligations under any covenant contained in this Agreement or any other Document, the Lender may (but has no obligation to), upon notice to the Borrower, if the Lender, acting reasonably, believes it necessary to do so to protect or preserve its rights and remedies hereunder perform any such covenant capable of being performed by it and, if any such covenant requires the payment or expenditure of money, it may make such payment or expenditure with its own funds. All amounts so paid by the Lender hereunder shall be repaid by the Borrower on demand therefor, and shall bear interest at the rate applicable to a Prime Loan from and including the date paid by the Lender hereunder to but excluding the date such amounts are irrevocably repaid in full by the Borrower. SECTION 11 - MISCELLANEOUS 11.1 Amendments and Waivers. No amendment or waiver of any provision of this Agreement or consent to any departure by the Borrower from any provision of this Agreement will in any event be effective unless it is in writing and then the amendment, modification, waiver or consent will be effective only in the specific instance, for the specific purpose and for the specific length of time for which it is given by the Lender. 11.2 Notice. Any notice, request or other communication to be given under this Agreement, except as otherwise specifically stated, shall be in writing and shall be either delivered personally or sent by telecopier or by prepaid mail to the mailing address, or telecopier number applicable, of a party stated beside the name of the party at the foot of this Agreement and to the attention of the Person or to such other mailing or telecopier number as the party may notify to the other from time to time under this provision. Any such notice, request or other communication if delivered or mailed, shall be deemed to have been given when received and, if telecopied before 4:30 p.m. on a Business Day, shall be deemed to have been received on that day, and if telecopied after 4:30 p.m. on a Business Day, shall be deemed to have been received on the Business Day next following the date of transmission. 11.3 Judgment Currency. If for the purposes of obtaining judgment in any court in any jurisdiction with respect to this Agreement, it becomes necessary to convert into the currency of such jurisdiction ("Judgment Currency") any amount due hereunder in the currency in which such amount is payable in accordance with this Agreement (the "Agreed Currency"), 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 spot rate at which the Lender would, on the relevant date at or about 12:00 noon (Toronto time), be prepared to purchase the Judgment Currency with the amount applicable in the Agreed Currency in Toronto, Ontario. 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 payment of the amount due, the Borrower will, on the date of payment, 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 paid on such date is the amount in the Judgment Currency which when converted at the rate of exchange prevailing on the date of payment is the amount then due under this Agreement in the Agreed Currency. Any additional amount due from the Borrower under this Section 11.3 will be due as a separate debt and shall not be affected by judgment being obtained for any other sums due under or in respect of this Agreement. 11.4 Further Assurances. The Borrower shall from time to time promptly upon the reasonable request of the Lender take such action, and execute and deliver such further documents, as may be reasonably necessary or appropriate to fully give effect to the provisions and intent of this Agreement. 11.5 Reimbursement of Expenses. The Borrower shall, on demand, pay to the Lender all of the reasonable legal fees of the Lender, out-of-pocket documentation costs and other out-of-pocket expenses, all reasonably incurred: (a) in the negotiation, preparation and execution of this Agreement and the other Documents; and (b) in connection with the administration of this Agreement. In addition, the Borrower shall pay all reasonable legal fees, and other out-of-pocket expenses reasonably incurred by the Lender in connection with the determination or preservation of any rights, or the enforcement of or legal advice in respect of rights or responsibilities, of the Lender under this Agreement or the other Documents. 11.6 Survival. Without prejudice to the survival or termination of any other agreement of the Borrower under this Agreement, the obligations of the Borrower under Sections 5.16, 8.3 and 11.5 shall survive the repayment of all the Borrowings. 11.7 Attornment. Each of the parties irrevocably attorns to the non-exclusive jurisdiction of the courts of Ontario. 11.8 Successors and Assigns. (a) Enurement. This Agreement shall be binding upon and enure to the benefit of the Borrower, the Lender and their respective successors and assigns, except that the Borrower may not assign or transfer all or any part of its rights and obligations under this Agreement without the Lender's prior written consent. (b) Amalgamation. The Lender acknowledges and consents to the amalgamation of the Borrower with Old Burtek provided that the Lender receives, in form and substance satisfactory to it, acknowledgements and confirmations from the Guarantor and the amalgamated party as to the continued validity, effect and applicability of the Documents. (c) Assignment By Lender. The Lender may at any time assign all or any part of its rights or obligations hereunder to another Person with the Borrower's prior written consent, which consent not to be unreasonably withheld or delayed. The Lender will only assign the Documents to a Person to the extent the Lender's rights and obligations hereunder have been assigned to that Person; provided that any such assignment shall be to a financial institution which is a Canadian resident and the Borrower shall not be liable for, or obligated to pay any increased costs, fees, interest or other amounts as a result of any assignment. (d) Sub-Participations. The Lender may grant one or more sub-participations in its rights and obligations hereunder to another bank or financial institution with the Borrower's prior written consent, which consent not to be unreasonably withheld or delayed; provided that following any such sub-participation, the Borrower shall not be liable for, or obligated to pay any increased costs, fees, interest or other amounts as a result of any such sub-participation and the Borrower shall be entitled to continue to deal with Lender notwithstanding the sub-participation. (e) Disclosure to Assignee or Sub-Participant. The Lender may disclose to an assignee or sub-participant or proposed assignee or sub-participant information in the possession of the Lender relating to the Borrower or its Subsidiaries and furnished to it in connection herewith, provided that the Lender shall require such assignee, sub-participant, proposed assignee or proposed sub-participant to enter into an agreement in form satisfactory to the Borrower acting reasonably whereby it agrees to maintain such information confidential. 11.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute one and the same agreement. IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day and year first above written. THE BORROWER: BURTEK SYSTEMS INC. Address: 40W267 Keslinger Rd. By:_________________________ La Fox, Illinois 60147 Name: U.S.A. Title: Fax: (630) 208-2950 By:_________________________ Name: Phone: (630) 208-2200 Title: THE LENDER: FIRST CHICAGO NBD BANK, CANADA Address: First Chicago NBD Bank, Canada By:_________________________ 161 Bay Street, Suite 4240 Name: Toronto, Ontario Title: M5J 2S1 By:_________________________ Name: Title: Fax: (416) 363-7574 Phone: (416) 365-5259 The undersigned acknowledges that the undersigned executed a guarantee dated as of February 28, 1997 (the "Guarantee") in favour of the Lender with respect to the indebtedness and liabilities of Richardson Electronics Acquisition Corp. (the "Original Borrower") to the Lender under a credit agreement dated as of February 18, 1997 (the "Credit Agreement"). The undersigned further acknowledges that, pursuant to an amalgamation effective May 31, 1997, the Original Borrower amalgamated with Old Burtek (Burtek Systems Inc.) to continue as the Borrower. The undersigned further acknowledges that the Lender and the Borrower entered into a first amending agreement made as of August 14, 1997 amending the terms of the Credit Agreement; and a second amending agreement made as of August 22, 1997 further amending the terms of the Credit Agreement. The undersigned acknowledges and agrees that the Guarantee shall constitute, and shall be held by the Lender as a general and continuing guarantee of the payment and fulfilment of all of the debts, liabilities and obligations, present or future, direct or indirect, contingent or not, matured or not of the Borrower to the Lender including, without limitation, pursuant to the Credit Agreement, as amended or modified. RICHARDSON ELECTRONICS, LTD. By:__________________________ Name: Title: By:__________________________ Name: Title: SCHEDULE 7.1(i)2 FORM OF PROMISSORY NOTES Term CAD Promissory Note Toronto, Ontario March 1, 1998 FIRST CHICAGO NBD BANK (CANADA) First Chicago NBD Bank, Canada BCE Place, P.O. Box 613 161 Bay Street, Suite 4240 Toronto, Ontario M5J 2S1 FOR VALUE RECEIVED the undersigned promises to pay to or to the order of FIRST CHICAGO NBD BANK (CANADA) (the "Bank") at its BCE Place, P.O. Box 613, 161 Bay Street, Suite 4240, Toronto, Ontario, M5J 2S1 branch, the amount of principal of TWO MILLION NINE HUNDRED AND THIRTY FIVE THOUSAND THREE HUNDRED AND TEN DOLLARS AND THIRTY SIX CENTS (CDN$2,935,310.36) DOLLARS in lawful money of Canada. This term note is issued under and subject to the terms of the Amended and Restated Credit Agreement dated as of March 1, 1998 (the "Credit Agreement") entered into between the Bank and the undersigned. Unless otherwise defined, capitalized terms used herein shall have the meaning ascribed thereto in the Credit Agreement. The amount of principal is to be repayable as follows: The undersigned shall pay outstanding borrowings by way of 48 equal monthly instalments of CAD$71,592.92 plus interest, commencing August 31, 1997 with the final installment due on July 31, 2001, at which time the entire balance of unpaid principal plus accrued interest shall be due and payable immediately. The undersigned further promises to pay monthly and contemporaneously with the instalments of the above-mentioned principal, the accrued interest on the unpaid principal daily computed at a rate per annum equal to the Bank's Prime Rate per annum in effect from time to time up to and after maturity and until complete payment, at the said branch. At the date of this note, such Prime Rate is 6.5% per annum. Upon default in payment when due of any installment of principal or interest, or any other term or condition of the Credit Agreement, the whole amount of this note shall fall due. BURTEK SYSTEMS INC. By:_________________________________C/S Name: EX-10.C 4 EMPLOYMENT, NONDISCLOSURE AND NON-COMPETE AGREEMENT EMPLOYMENT, NONDISCLOSURE AND NON-COMPETE AGREEMENT ("Agreement") made and entered into as of this 21st day of January, 1998 by and between RICHARDSON ELECTRONICS, LTD., a Delaware corporation with its principal place of business located at 40W267 Keslinger Road, LaFox, IL 60147 (the "Employer"), and Norman A. Hilgendorf, an individual whose current residence is located at 388 Arlington, Elmhurst, IL 60126 ("Employee"). RECITALS WHEREAS, the Employer desires to employ Employee as its Vice President and General Manager, Solid State and Components Division upon the terms and conditions stated herein; and WHEREAS, Employee desires to be so employed by the Employer at the salary and benefits provided for herein; and WHEREAS, Employee acknowledges and understands that during the course of his employment, Employee has and will become familiar with certain confidential information of the Employer which provides Employer with a competitive advantage in the marketplace in which it competes, is exceptionally valuable to the Employer, and is vital to the success of the Employer's business; and WHEREAS, the Employer and Employee desire to protect such confidential information from disclosure to third parties or its use to the detriment of the Employer; and WHEREAS, the Employee acknowledges that the likelihood of disclosure of such confidential information would be substantially reduced, and that legitimate business interests of the Employer would be protected, if Employee refrains from competing with the Employer and from soliciting its customers and employees during and following the term of the Agreement, and Employee is willing to covenant that he will refrain from such actions. NOW THEREFORE, in consideration of the promises and of the mutual covenants and agreements hereinafter set forth, the parties hereto acknowledge and agree as follows: ARTICLE ONE NATURE AND TERM OF EMPLOYMENT 1.01 Employment. The Employer hereby agrees to employ Employee and Employee hereby accepts employment as the Employer's Vice President and General Manager, Solid State and Components Division. 1.02 Term of Employment. Employee's employment pursuant to this Agreement shall commence on January 26, 1998, or such earlier date as may be agreed upon by Employee and the Employer and, subject to the other provisions of this Agreement, the term of such employment (the "Employment Term") shall continue indefinitely on an "at will" basis. 1.03 Duties. Employee shall perform such managerial duties and responsibilities in connection with the Company's Solid State and Components Division or its successor, and such other duties and responsibilities as may be assigned by the President/COO, or such other person as the Employer may designate from time to time and Employee will adhere to the policies and procedures of the Employer, including, without limitation, its Code of Conduct, and will follow the supervision and direction of Employer's President/COO or such other person as the Employer may designate from time to time in the performance of such duties. Employee agrees to devote his full working time, attention and energies to the diligent and satisfactory performance of his duties hereunder and to developing and improving the business and best interests of the Company. Employee will use all reasonable efforts to promote and protect the good name of the Company and will comply with all of his obligations, undertakings, promises, covenants and agreements as set forth in this Agreement. Employee will not, during the Employment Term or during any period during which Employee is receiving payments pursuant to Article 2 and/or Section 5.04, engage in any activity which would have, or reasonably be expected to have, an adverse affect on the Employer's reputation, goodwill or business relationships or which would result, or reasonably be expected to result, in economic harm to the Employer. ARTICLE TWO COMPENSATION AND BENEFITS For all services to be rendered by Employee in any capacity hereunder (including as an officer, director, committee member or otherwise of the Employer or any parent or subsidiary thereof or any division of any thereof) on behalf of the Employer, the Employer agrees to pay Employee so long as he is employed hereunder, and the Employee agrees to accept, the compensation set forth below. 2.01 Base Salary. During the term of Employee's employment hereunder, the Employer shall pay to Employee an annual base salary ("Base Salary") of One Hundred Fifteen Thousand and 00/100 Dollars ($115,000.00), payable in installments as are customary under the Employer's payroll practices from time to time. The Employer at its sole discretion may, but is not required to, review and adjust the Employee's Base Salary from year to year; provided, however, that, except as may be expressly consented otherwise in writing by Employee, Employer may not decrease Employee's Base Salary. No additional compensation shall be payable to Employee by reason of the number of hours worked or by reason of hours worked on Saturdays, Sundays, holidays or otherwise. 2.02 Incentive Plan. During the term of the Employee's employment hereunder, the Employee shall be a participant in the SBU Incentive Plan, as modified from time to time (the "Annual Incentive Plan"). The Employee's "target bonus percentage" for purposes of the Annual Incentive Plan shall be fifty percent (50%) for calendar year 1998 (as if paid for a full year). Such bonus shall be paid strictly in accordance with the Annual Incentive Plan. For calendar year 1999 and thereafter, Employee's bonus shall be determined and paid strictly in accordance with the Annual Incentive Plan as modified or reduced by Employer at its discretion, and for any partial fiscal year the bonus shall be computed and paid only for the portion of the fiscal year Employee is employed hereunder. 2.03 Other Benefits. Employer will provide Employee such benefits (other than bonus, severance and incentive compensation benefits) as are generally provided by the Employer to its other employees, including but not limited to, health/major medical insurance, dental insurance, disability insurance, life insurance, sick days and other employee benefits (collectively "Other Benefits"), all in accordance with the terms and conditions of the applicable Other Benefits Plan. Nothing in this Agreement shall require the Employer to maintain any benefit plan nor prohibit the Employer from modifying any such plan as it sees fit from time to time. It is only intended that Employee shall be entitled to participate in any such plan offered for which he may qualify under the terms of any such plan as it may from time to time exist, in accordance with the terms thereof. 2.04 Disability. Any compensation Employee receives under any disability benefit plan provided by Employer during any period of disability, injury or illness shall be in lieu of the compensation which Employee would otherwise receive under Article Two during such period of disability, injury or sickness. 2.05 Withholding. All salary, bonus and other payments described in this Agreement shall be subject to withholding for federal, state or local taxes, amounts withheld under applicable benefit policies or programs, and any other amounts that may be required to be withheld by law, judicial order or otherwise. ARTICLE THREE CONFIDENTIAL INFORMATION RECORDS AND REPUTATION 3.01 Definition of Confidential Information. For purposes of this Agreement, the term "Confidential Information" shall mean all of the following materials and information (whether or not reduced to writing and whether or not patentable) to which Employee receives or has received access or develops or has developed in whole or in part as a direct or indirect result of his employment with Employer or through the use of any of Employer's facilities or resources: (1) Marketing techniques, practices, methods, plans, systems, processes, purchasing information, price lists, pricing policies, quoting procedures, financial information, customer names, contacts and requirements, customer information and data, product information, supplier names, contacts and capabilities, supplier information and data, and other materials or information relating to the manner in which Employer, its customers and/or suppliers do business; (2) Discoveries, concepts and ideas, whether patentable or not, or copyrightable or not, including without limitation the nature and results of research and development activities, processes, formulas, techniques, "know-how," designs, drawings and specifications; (3) Any other materials or information related to the business or activities of Employer which are not generally known to others engaged in similar businesses or activities or which could not be gathered or obtained without significant expenditure of time, effort and money; and (4) All inventions and ideas which are derived from or relate to Employee's access to or knowledge of any of the above enumerated materials and information. The Confidential Information shall not include any materials or information of the types specified above to the extent that such materials or information are publicly known or generally utilized by others engaged in the same business or activities in the course of which Employer utilized, developed or otherwise acquired such information or materials and which Employee has gathered or obtained (other than on behalf of the Employer) after termination of his employment with the Employer from such other public sources by his own expenditure of significant time, effort and money after termination of his employment with the Employer. Failure to mark any of the Confidential Information as confidential shall not affect its status as part of the Confidential Information under the terms of this Agreement. 3.02 Ownership of Confidential Information. Employee agrees that the Confidential Information is and shall at all times remain the sole and exclusive property of Employer. Employee agrees immediately to disclose to Employer all Confidential Information developed in whole or part by him during the term of his employment with Employer and to assign to Employer any right, title or interest he or she may have in such Confidential Information. Without limiting the generality of the foregoing, every invention, improvement, product, process, apparatus, or design which Employee may take, make, devise or conceive, individually or jointly with others, during the period of his employment by the Employer, whether during business hours or otherwise, which relates in any manner to the business of the Employer either now or at any time during the period of his employment), or which may be related to the Employer in connection with its business (hereinafter collectively referred to as "Invention") shall belong to and be the exclusive property of the Employer and Employee will make full and prompt disclosure to the Employer of every Invention. Employee will assign to the Employer, or its nominee, every Invention and Employee will execute all assignments and other instruments or documents and do all other things necessary and proper to confirm the Employer's right and title in and to every Invention; and Employee will perform all proper acts within his power necessary or desired by the Employer to obtain letters patent in the name of the Employer (at the Employer's expense) for every Invention in whatever countries the Employer may desire, without payment by the Employer to Employee of any royalty, license fee, price or additional compensation. 3.03. Non Disclosure of Confidential Information. Except as required in the faithful performance of Employee's duties hereunder (or as required by law), during the term of his employment with Employer and for a period after the termination of such employment until the Confidential Information no longer meets the definition set forth above of Confidential Information with respect to Employee, Employee agrees not to directly or indirectly reveal, report, publish, disseminate, disclose or transfer any of the Confidential Information to any person or entity, or utilize for himself or any other person or entity any of the Confidential Information for any purpose (including, without limitation, in the solicitation of existing Employer customers or suppliers), except in the course of performing duties assigned to him by Employer. Employee further agrees to use his best endeavors to prevent the use for himself or others, or dissemination, publication, revealing, reporting or disclosure of, any Confidential Information. 3.04 Protection of Reputation. Employee agrees that he or she will at no time, either during his employment with the Employer or at any time after termination of such employment, engage in conduct which injures, harms, corrupts, demeans, defames, disparages, libels, slanders, destroys or diminishes in any way the reputation or goodwill of the Employer, its subsidiaries, or their respective shareholders, directors, officers, employees, or agents, or the services provided by the Employer or the products sold by the Employer, or its other properties or assets, including, without limitation, its computer systems hardware and software and its data or the integrity and accuracy thereof. 3.05 Records and Use of Employer Facilities. All notes, data, reference materials, memoranda and records, including, without limitation, data on the Employer's computer system, computer reports, products, customers and suppliers lists and copies of invoices, in any way relating to any of the Confidential Information or Employer's business shall belong exclusively to Employer, and Employee agrees to maintain them in a manner so as to secure their confidentiality and to turn over to Employer all copies of such materials (in whole or in part) in his possession or control at the request of Employer or, in the absence of such a request, upon the termination of Employee's employment with Employer. Upon termination of Employee's employment with Employer, Employee shall immediately refrain from seeking access to Employer's (a) telephonic voice mail, E-mail or message systems, (b) computer system and (c) computer data bases and software. The foregoing shall not prohibit Employee from using Employer's public Internet (not intranet) site. ARTICLE FOUR NON-COMPETE AND NON-SOLICITATION COVENANTS 4.01 Non-Competition and Non-Solicitation. Employee acknowledges that it may be very difficult for him to avoid using or disclosing the Confidential Information in violation of Article Three above in the event that he or she is employed by any person or entity other than the Employer in a capacity similar or related to the capacity in which he or she is employed by the Employer. Accordingly, Employee agrees that he or she will not, during the term of employment with Employer and for a period of one (1) year after the termination of such employment, irrespective of the time, manner or cause of such termination, directly or indirectly (whether or not for compensation or profit): (1) Engage in any business or enterprise the nature of which is directly competitive with that of the Employer (a "Prohibited Business"); or (2) Participate as an officer, director, creditor, promoter, proprietor, associate, agent, employee, partner, consultant, sales representative or otherwise, or promote or assist, financially or otherwise, or directly or indirectly own any interest in any person or entity involved in any Prohibited Business; or (3) Canvas, call upon, solicit, entice, persuade, induce, respond to, or otherwise deal with, directly or indirectly, any individual or entity which, during Employee's term of employment with the Employer, was or is a customer or supplier, or proposed customer or supplier, of the Employer whom Employee called upon or dealt with, or whose account Employee supervised, for the following: (a) to purchase (with respect to customers) or sell (with respect to suppliers) products of the types or kinds sold by the Employer or which could be substituted for (including, but not limited to, rebuilt products), or which serve the same purpose or function as, products sold by the Employer (all of which products are herein sometimes referred to, jointly and severally, as "Prohibited Products"), or (b) to request or advise any such customer or supplier to withdraw, curtail or cancel its business with the Employer; or (4) For himself or for or through any other individual or entity call upon, solicit, entice, persuade, induce or offer any individual who, during Employee's term of employment with the Employer, was an employee or sales representative or distributor of the Employer, employment by, or representation as sales agent or distributor for, any one other than the Employer, or request or advise any such employee or sales agent or distributor to cease employment with or representation of the Employer, and Employee shall not approach, respond to, or otherwise deal with any such employee or sales representative or distributor of Employer for any such purpose, or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity. 4.02 Obligation independent Each obligation of each subparagraph and provision of Section 4.01 shall be independent of any obligation under any other subparagraph or provision hereof or thereof. 4.03 Public Stock Nothing in Section 4.01, however, shall prohibit Employee from owning (directly or indirectly through a parent, spouse, child or other relative or person living in the same household with Employee or any of the foregoing), as a passive investment, up to 1% of the issued and outstanding shares of any class of stock of any publicly traded company. 4.04 Business Limitation If, at the termination of Employee's employment and for the entire period of twelve (12) months prior thereto his duties and responsibilities are limited by the Employer so that he or she is specifically assigned to, or responsible for, one or more divisions, subsidiaries or business units of the Employer, then subparagraphs (1) through (3) of Section 4.01 shall apply only to any business which competes with the business of such divisions, subsidiaries or business units. 4.05 Area Limitation If at the termination of Employee's employment and for the entire period of twelve (12) months prior thereto he or she has responsibility for only a designated geographic area, then subparagraphs (1) through (3) of Section 4.01 shall apply only within such area. ARTICLE FIVE TERMINATION 5.01 Termination of Employee for Cause. The Employer shall have the right to terminate Employee's employment at any time for "cause." Prior to such termination, the Employer shall provide Employee with written notification of any and all allegations constituting "cause" and the Employee shall be given five (5) working days after receipt of such written notification to respond to those allegations in writing. Upon receipt of the Employee's response, the Employer shall meet with the Employee to discuss the allegations. For purposes hereof, "cause" shall mean (i) an act or acts of personal dishonesty taken by the Employee and intended to result in personal enrichment of the Employee, (ii) material violations by the Employee of the Employee's obligations or duties under, or any terms of, this Agreement, which are not remedied in a reasonable period (not to exceed ten (10) days) after receipt of written notice thereof from the Employer, (iii) any violation by the Employee of any of the provisions of Articles Three, or Four, or (iv) Employee being charged, indicted or convicted (by trial, guilty or no contest plea or otherwise) of (a) a felony, (b) any other crime involving moral turpitude, or (c) any violation of law which would impair the ability of the Employer or any affiliate to obtain any license or authority to do any business deemed necessary or desirable for the conduct of its actual or proposed business. 5.02 Termination of Employee Because of Employee's Disability, Injury or Illness. The Employer shall have the right to terminate Employee's employment if Employee is unable to perform the duties assigned to him by the Employer because of Employee's disability, injury or illness, provided however, such inability must have existed for a total of one hundred eighty (180) consecutive days before such termination can be made effective. Any compensation Employee receives under any disability benefit plan provided by Employer during any period of disability, injury or illness shall be in lieu of the compensation which Employee would otherwise receive under Article Two during such period of disability, injury or sickness. 5.03 Termination as a Result of Employee's Death. The obligations of the Employer to Employee pursuant to this Agreement shall automatically terminate upon Employee's death. 5.04 Termination of Employee for any Other Reason. The Employer shall have the right to terminate Employee's employment at any time at will for any reason upon ten (10) days prior written notice to Employee. If Employee's employment is terminated by the Employer during the Employment Term for any reason other than the reason set forth in Sections 5.01, 5.02 or 5.03 above, the Employer shall continue to pay to Employee for a period of six (6) months, an amount equal to one hundred percent (100%) of his then current Base Salary in installments on the same dates as the Employer make payroll payments under its customary practice. Employee shall only be entitled to receive the bonus pursuant to the Annual Incentive Plan for the year in which such termination occurs prorated and accrued to the date of termination. In such case Employee shall not be entitled to receive, unless otherwise required by law, any subsequent Other Benefits. 5.05 Termination by Employee. Subject to the provisions of Articles Three and Four above, Employee may terminate his employment by the Employer at any time by written notice to Employer. If Employee's employment is so terminated, the Employer shall be obligated to continue to pay to Employee his then current Base Salary and Other Benefits accrued up to and including the date on which Employee's employment is so terminated, however, Employee and the Employer acknowledge and agree to the fullest extent permitted by law, that Employee shall forfeit, and the Employer shall not be responsible to pay or fund, directly or indirectly, any accrued but unpaid bonus or award (howsoever described including the Annual Incentive Plan); accumulated but unpaid sick leave; accumulated but unpaid vacation time; deferred compensation; severance pay or benefits; any and all benefits which are accrued but not vested under any pension, profit sharing or other qualified retirement plan and all service credits under each such plan (subject to any reinstatement of such credits upon future reemployment with the Employer in accordance with federal law); and right to post-employment coverage under any health, insurance or other welfare benefit plan, including rights arising under Title X of COBRA or any similar federal or state law (except that continuation coverage rights of Employee's spouse and other dependents, if any, under such plans or laws shall be forfeited only with their consent); or any Other Benefits, if any, provided to Employee under any policy, program or plan of the Employer not specifically described above, after the date of termination to which Employee might otherwise be entitled under this Agreement but for his resignation. ARTICLE SIX REMEDIES 6.01 Employee acknowledges that the restrictions contained in this Agreement will not prevent him from obtaining such other gainful employment he or she may desire to obtain or cause him any undue hardship and are reasonable and necessary in order to protect the legitimate interests of Employer and that violation thereof would result in irreparable injury to Employer. Employee therefor acknowledges and agrees that in the event of a breach or threatened breach by Employee of the provisions of Article Three or Article Four or Section 1.03, Employer shall be entitled to an injunction restraining Employee from such breach or threatened breach and Employee shall lose all rights to receive any payments under Section 5.04. Nothing herein shall be construed as prohibiting or limiting Employer from pursuing any other remedies available to Employer for such breach or threatened breach, the rights hereinabove mentioned being in addition to and not in substitution of such other rights and remedies. The period of restriction specified in Article Four shall abate during the time of any violation thereof, and the portion of such period remaining at the commencement of the violation shall not begin to run until the violation is cured. 6.02 Survival. The provisions of this Article Six and of Articles Three and Four shall survive the termination or expiration of this Agreement. ARTICLE SEVEN MISCELLANEOUS 7.01 Assignment. Employee and Employer acknowledge and agree that the covenants, terms and provisions contained in this Agreement constitute a personal employment contract and the rights and obligations of the parties thereunder cannot be transferred, sold, assigned, pledged or hypothecated, excepting that the rights and obligations of the Employer under this Agreement may be assigned or transferred pursuant to a sale of the business, merger, consolidation, share exchange, sale of substantially all of the Employer's assets, or other reorganization described in Section 368 of the Code, or through liquidation, dissolution or otherwise, whether or not the Employer is the continuing entity, provided that the assignee, or transferee is the successor to all or substantially all of the assets of the Employer and such assignee or transferee assumes the rights and duties of the Employer, if any, as contained in this Agreement, either contractually or as a matter of law. 7.02 Severability. Should any of Employee's obligations under this Agreement or the application of the terms or provisions of this Agreement to any person or circumstances, to any extent, be found illegal, invalid or unenforceable in any respect, such illegality, invalidity or unenforceability shall not affect the other provisions of this Agreement, all of which shall remain enforceable in accordance with their terms, or the application of such terms or provisions to persons or circumstances other than those to which it is held illegal, invalid or unenforceable. Despite the preceding sentence, should any of Employee's obligations under this Agreement be found illegal, invalid or unenforceable because it is too broad with respect to duration, geographical or other scope, or subject matter, such obligation shall be deemed and construed to be reduced to the maximum duration, geographical or other scope, and subject matter allowable under applicable law. The covenants of Employee in Articles Three and Four and each subparagraph of Section 4.01 are of the essence of this Agreement; they shall be construed as independent of any other provision of this Agreement; and the existence of any claim or cause of action of Employee against the Employer, whether predicated on the Agreement or otherwise shall not constitute a defense to enforcement by the Employer of any of these covenants. The covenants of Employee shall be applicable irrespective of whether termination of employment hereunder shall be by the Employer or by Employee, whether voluntary or involuntary, or whether for cause or without cause. 7.03 Notices. Any notice, request or other communication required to be given pursuant to the provisions hereof shall be in writing and shall be deemed to have been given when delivered in person or three (3) days after being deposited in the United States mail, certified or registered, postage prepaid, return receipt requested and addressed to the party at its or his last known addresses. The address of any party may be changed by notice in writing to the other parties duly served in accordance herewith. 7.04 Waiver. The waiver by the Employer or Employee of any breach of any term or condition of this Agreement shall not be deemed to constitute the waiver of any other breach of the same or any other term or condition hereof. Failure by any party to claim any breach or violation of any provision of this Agreement shall not constitute a precedent or be construed as a waiver of any subsequent breaches hereof. 7.05 Continuing Obligation. The obligations, duties and liabilities of Employee pursuant to Articles Three and Four of this Agreement are continuing, absolute and unconditional and shall remain in full force and effect as provided herein and survive the termination of this Agreement. 7.06 No Conflicting Obligations or Use. Employer does not desire to acquire from Employee any secret or confidential know-how or information which he may have acquired from others nor does it wish to cause a breach of any non compete or similar agreement to which Employee may be subject. Employee represents and warrants that (i) other than for this Agreement, he is not subject to or bound by any confidentiality agreement or non disclosure or non compete agreement or any other agreement having a similar intent, effect or purpose, and (ii) he is free to use and divulge to Employer, without any obligation to or violation of any right of others, any and all information, data, plans, ideas, concepts, practices or techniques which he will use, describe, demonstrate, divulge, or in any other manner make known to Employer during the performance of services 7.07 Attorneys Fees. In the event that Employee has been found to have violated any of the terms of Articles Three or Four of this Agreement either after a preliminary injunction hearing or a trial on the merits or otherwise, Employee shall pay to the Employer the Employer's costs and expenses, including attorneys fees, in enforcing the terms of Articles Three or Four of this Agreement. 7.08 Advise New Employers. During Employee's employment with the Employer and for one (1) year thereafter, Employee will communicate the contents of Articles Three and Four to any individual or entity which Employee intends to be employed by, associated with, or represent which is engaged in a business which is competitive to the business of Employer. 7.09 Captions. The captions of Articles and Sections this Agreement are inserted for convenience only and are not to be construed as forming a part of this Agreement. EMPLOYEE ACKNOWLEDGES THAT HE OR SHE HAS READ AND FULLY UNDERSTANDS EACH AND EVERY PROVISION OF THE FOREGOING AND DOES HEREBY ACCEPT AND AGREE TO THE SAME. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. EMPLOYEE EMPLOYER /s/ Norman Hilgendorf /s/ Bruce W. Johnson President & COO EX-10.D 5 Exhibit 10(d) RICHARDSON ELECTRONICS ITALY SRL TRANSLATION Mr. Pierluigi Calderone Corporate Offices Sesto Fiorentino May 10, 1993 Dear Mr. Calderone, We confirm that you are presently employed by our company as "dirigente" (manager) having been promoted to said position starting from March 1, 1991 and having been originally hired as "quadro" (intermediate manager) starting from July 23, 1990. Your employment relationship is governed by the Collective National Labor Agreement for the Employees of Commercial Firms presently in force, by the provisions of this letter and by the provisions of the law. 1. Your employment relationship is for an indefinite time. Your work location is Sesto Fiorentino, but in relation to the requirements of the performance of your activities and discharge of your duties, it is agreed that you will work frequently away from the corporate offices. 2. In your capacity as Regional Sales Manager of our company you are responsible of the planning, direction and control of all sales activities and related activities and of the accomplishment of the budgeted financial objectives of the company. You will report to the Chairman of our company. In consideration of the close working relationships existing with our parent company Richardson Electronics, Ltd., it is agreed that you give, to the necessary extent, full collaboration also to the offices of the same and to the executives who are in charge of them, to facilitate the cooperation with them. 3. During your entire relationship with our company, you agree, without prejudice to the provisions on noncompetition for the time following the end of your relationship with us, to perform your activities only for our company, to the exclusion of any other activity on your own or on behalf of third parties, of any nature whatsoever, whether as a business entrepreneur, employee, or professional consultant, or even just by assuming a financial or corporate interest, except with the written consent of our company. 4. You agree, even after the end of your relationship with us, not to divulge, or in any manner make known, to third parties the information of which you may acquire knowledge in connection with the rendition of your services for us. In particular you agree, under sanction of damages, to keep strictly confidential all information, including without limitation that of a commercial, technical, administrative and manufacturing nature, concerning our company, Richardson Electronics, Ltd. and the affiliates with which they may have a contractual or business relationship. You agree to insure the same secrecy on all documents and files that may come in your possession in connection with the performance of your services. Said documents and files remain always the property of our company and their displacement shall be immediately reported to your superior. 5. Your gross monthly salary, which compensates all activities rendered to us and includes all indemnities, excluding only the family allowances, if due, is paid to you in 14 monthly instalments each year under deduction of the amounts to be withheld by law, as follows: base contractual salary 5,280,000 seniority increases 250,000 contractual add-on 745,779 salary exceeding base 1,927,790 Total gross monthly salary 8,203,569 The amount of salary exceeding base shall be considered as an advance on any increases that may be granted pursuant to collective or shop agreements, which increases shall be set-off against said salary exceeding base. You have also the opportunity to earn an additional amount of compensation in accordance with the rules contained in the "FY 1993 Sales Incentive Compensation Plan" which is attached to this letter as Exhibit "A", and is written in English, which you represent to understand perfectly and to accept. Your target, in accordance with said Plan, is for the year 1993 the target indicated in Exhibit "B", which is written in English and which you represent to understand perfectly and to accept. The target for the following years shall be communicated to you from time to time. You are also entitled to the reimbursement of the expenses incurred by you, provided that they are strictly pertinent to the discharge of your duties and duly documented. 6. You agree for a period of one year starting from the date of termination of your relationship with our company not to perform any activity, on your own, or on behalf of third parties, whether as an entrepreneur, an employee or a professional, directly or indirectly, in any industrial or commercial enterprise which operates in the same sector in which our company operates. The above indicated noncompetition agreement concerns the performance of activities, directly or indirectly, in the territory of the Italian Republic, except Sicily and Sardinia. By way of compensation of the noncompetition commitment indicated above, our company will pay to you an indemnity, for the year to which the noncompetition agreement pertains, equal to your last gross yearly salary in effect at the time of termination of your employment, subject to any withholding required by law. Said indemnity will be paid to you in 13 monthly instalments in arrears, under deduction of any income earned by you through the performance of activities permitted under this noncompetition agreement during the year to which the agreement pertains. It is agreed that our company can waive at any time, by written communication to you, your noncompetition commitment under this agreement. In such a case, as well as in the case of violation on your part of the non competition commitment, any obligation to pay the above indicated indemnity to you, as compensation for the noncompetition commitment on your part, will immediately end. Furthermore, in case of your violation of the noncompetition commitment, in addition to repaying to us the amount of indemnity already collected by you, you will pay to us liquidated damages in the amount of 100 million lire, without prejudice to any additional damages that we may suffer. 7. You have the right to use a company car owned by our company to perform your activity, and you will be permitted to use same for the discharge of your duties. The use of said car is regulated by the provisions known as "Corporate Automobile Policy" attached to this letter as Exhibit "C", which are written in English, and which you represent to understand perfectly and accept. 8. It is agreed that the contractual provisions contained in this letter supersede and cancel any prior agreement between the parties, including our letter-offer dated June 21, 1990 and the letter-offer of June 29, 1990 of Richardson Electronics, Ltd., both accepted by you on July 16, 1990. With respect to said letter of June 29, 1990, you agree that no employment or other relationship exists between you and Richardson Electronics, Ltd. since said letter related to the same employment relationship with us which is covered by this letter. Therefore you declare to release Richardson Electronics, Ltd. from any obligations towards you in relation to said letter and the performance of your employment services. If you accept the foregoing, please return to us duly signed by you the copy of this letter that is attached. Very truly yours, /s/ Leonard R. Prange GEB-Richardson Electronics Italy s.r.l. The Chairman For acceptance: /s/ Pierluigi Calderone The undersigned in accordance and for the purposes of Article 1341 of the Civil Code, declares to have carefully read and to approve expressly the following provisions: 3. Prohibition to perform any other activity during employment; 6. Noncompetition agreement; 8. Release from liability /s/ Pierluigi Calderone March 23, 1998 Dear Mr. Calderone: with reference to the letter dated May 10, 1993 which at present regulates your employment relationship with our Company, we wish to inform you of the changes to said letter which are necessary pursuant to your promotion, starting from April 1, 1998, to the position of "Managing Director, European Operations". In your capacity as "dirigente" of our Company, your employment relationship is governed by the Collective National Labor Agreement for the Managers of Commercial Firms presently in force, by the provisions of this letter and of the letter dated May 10, 1993, to the extent that they are not modified hereby, and by the provisions of the law. The other changes to the letter dated May 10, 1993, which at present regulates your employment relationship, are the following: A. Paragraph 1 is deleted and replaced with the following: 1. Your employment relationship is for an indefinite time. Your work location is Sesto Fiorentino, but in relation to the requirements of the performance of your activities and discharge of your duties, it is agreed that you will work frequently away from the corporate offices. Your work location can be transferred elsewhere in Italy, possibly to Rome, taking into account also the strategies which will be submitted by you to the Board of Directors and which will be approved by same. B. Paragraph 2 is deleted and replaced with following: 2. In your capacity as "Managing Director, European Operations" of our Company you are responsible of the planning, direction and control of all sales activities and related activities concerning the companies affiliated with the Richardson Group in Italy, France, Germany, England, The Netherlands and Spain, and of the accomplishment of the budgeted financial objectives in all the territory assigned to you. However, a detailed job description is set forth in Exhibit "A" hereto, which is written in English and which you represent to understand perfectly and to accept. In order to facilitate your activities outside of Italy, you will be appointed a Director of the Richardson affiliates mentioned above, and a Vice President of our parent company Richardson Electronics, Ltd. of LaFox, Illinois (U.S.A.). You will report to the Chairman of the Board of Directors of our Company. C. Paragraph 3 is deleted and replaced with following: 3. During your entire relationship with our Company, you agree, without prejudice to the provisions on non-competition for the time following the end of your relationship with us, to perform your activity only for our Company and for the other companies of the Richardson Group mentioned above at Paragraph 2, to the exclusion of any other activity on your own or on behalf of third parties, of any nature whatsoever, whether as a business entrepreneur, employee, or professional consultant, or even just by assuming a financial or corporate interest, except with the written consent of our Company. D. Paragraph 4 is deleted and replaced with following: 4. You agree, even after the end of your relationship with us, not to divulge, or in any manner make known, to third parties the information of which you may acquire knowledge in connection with the rendition of your services for us or for the other companies of the Richardson Group mentioned above at Paragraph 2. In particular you agree, under sanction of damages, to keep strictly confidential all information, including without limitation that of a commercial, technical, administrative and manufacturing nature, concerning our Company, the other companies of the Richardson Group mentioned above at Paragraph 2, and the other affiliates of the Richardson Group with which they may have a contractual or business relationship. You agree to insure the same secrecy on all documents and files that may come in your possession in connection with the performance of your services. Said documents and files remain always the property of the company owning same at the time in which they come in your possession and their displacement shall be immediately reported to the Chairman of the Board of Directors of our Company. E. The first two paragraphs of Paragraph 5 are deleted and replaced with the following: 5. Your gross monthly salary shall be paid as compensation for all your activities, whether in our favor or in favor of the other companies of the Richardson Group mentioned above at Paragraph 2, of which you will be appointed a Director and, respectively, a Vice President. Said salary, which includes all indemnities, excluding only the family allowances, shall be paid to you in 14 monthly instalments each year, under deduction of the amounts to be withheld by law, as follows: base contractual salary L. seniority increases L. contractual add-on L. salary exceeding base L. Total gross monthly salary L. $9,286 (USD) The amount of salary exceeding base shall be considered as paid on account, or as an advance, of future contractual pay increases that may be granted pursuant to collective or shop agreements, which increases shall be set-off against said salary exceeding base. [The third and fourth paragraph of Paragraph 5 remain unchanged] F. Paragraph 6 is deleted and replaced with the following: 6. You agree, for a period of one year starting from the date of termination of your relationship with our Company, not to perform any activity, directly or indirectly, on your own, or on behalf of third parties, whether as an entrepreneur, an employee or a professional, in any industrial or commercial enterprise which operates in the same sector in which our Company operates. In consideration of the geographic extension of the responsibilities now entrusted to you, as well as of your appointment as a Director of the Richardson affiliates located in the countries mentioned above at Paragraph 2, the above indicated non-competition agreement concerns the performance, directly or indirectly, of the above mentioned activities in the territory of Italy, France, Germany, England, The Netherlands and Spain. By way of compensation of the non-competition commitment indicated above, our company will pay to you an indemnity, for the year to which the non-competition agreement pertains, equal to your last gross yearly salary in effect at the time of termination of your employment, subject to any withholding required by law. Said indemnity will be paid to you in 13 monthly instalments in arrears, under deduction of any income earned by you through the performance of activities permitted under this non-competition agreement during the year to which the agreement pertains. In case of violation on your part of the non-competition commitment, any obligation to pay the above indicated indemnity to you, as compensation for the non--competition commitment on your part, will immediately end. Furthermore, in case of your violation of the non-competition commitment, in addition to repaying to us the amount of indemnity already collected by you, you will pay to us liquidated damages in the amount of 100 million lire, without prejudice to any additional damages that we may suffer. The foregoing does not prejudice any other non-competition agreement that may be entered into between you and our parent company Richardson Electronics, Ltd., or between you and the companies of which you may become a Director, as contemplated above at Paragraph 2. The other provisions of the letter dated May 10, 1993, which are not expressly modified hereby, remain unchanged. If you accept the foregoing, please return to us duly signed by you the copy of this letter that is attached. Very truly yours, /s/ William J. Garry, Director Richardson Electronics Italy s.r.l. For acceptance: /s/ Pierluigi Calderone The undersigned, in accordance with, and for the purposes of, Article 1341 of the Civil Code, declares to have carefully read and to approve expressly the following provisions in their new version stated above: 3. Prohibition to perform any other activity during employment; 6. Non-competition agreement. /s/ Pierluigi Calderone EX-27 6
5 1000 9-MOS MAY-31-1998 FEB-28-1998 6886 0 60561 1775 93777 169447 48785 (30645) 199654 28220 105623 0 0 611 63600 199654 223442 223442 159596 159596 0 339 6218 9610 2880 6730 0 0 0 6730 .56 .54
EX-27.1 7
5 1000 12-MOS MAY-31-1995 MAY-31-1995 11151 0 44153 1385 81267 143948 40848 (24460) 173514 37713 79647 0 0 573 55581 173514 208118 208118 148085 148085 0 199 6473 2631 150 2481 0 527 0 3008 .27 .26
EX-27.2 8
5 1000 12-MOS MAY-31-1996 MAY-31-1996 6784 0 49693 1461 94327 157405 42696 (26642) 180158 24254 92025 0 0 590 62202 180158 239667 239667 169123 169123 0 (7) 6624 12011 3900 8111 0 0 0 8111 .70 .68
EX-27.3 9
5 1000 12-MOS MAY-31-1997 MAY-31-1997 10012 0 55435 2102 92194 166036 45969 (28443) 192514 25215 107275 0 0 599 58991 192514 255139 255139 187675 187675 0 1749 7622 (2725) (1720) (1005) 0 (488) 0 (1493) (.12) (.12)
EX-27.4 10
5 1000 3-MOS MAY-31-1997 AUG-31-1996 8663 0 47200 1765 96654 160084 44146 27308 183331 21475 95607 0 0 595 64249 183331 57544 57544 54095 54095 0 51 1769 1893 600 1293 0 0 0 1293 .11 .11
EX-27.5 11
5 1000 3-MOS MAY-31-1998 AUG-31-1997 11341 0 56778 2147 92466 169172 46636 (28757) 197629 27208 109761 0 0 600 59092 197629 71600 71600 50962 50962 0 71 2019 2580 772 1808 0 0 0 1808 .15 .15
EX-27.6 12
5 1000 6-MOS MAY-31-1997 NOV-30-1996 8934 0 51119 1338 100490 168790 45069 (27962) 194425 25702 99699 0 0 595 66629 194425 119711 119711 84190 84190 0 (162) 3719 4675 1450 3225 0 0 0 3225 .27 .27
EX-27.7 13
5 1000 6-MOS MAY-31-1998 NOV-30-1997 8382 0 61255 1845 92740 171409 48094 (29863) 200972 31475 104317 0 0 610 63045 200972 150246 150246 107260 107260 0 201 4209 6518 1970 4548 0 0 0 4548 .38 .37
EX-27.8 14
5 1000 9-MOS MAY-31-1997 FEB-28-1997 11545 0 56000 3032 93924 170531 45373 27992 196262 28339 108820 0 0 597 57221 196262 183874 183874 137182 137182 0 1337 5588 (5328) (2500) (2828) 0 (488) 0 (3316) (.28) (.28)
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