CREDIT AGREEMENT dated September __, 1997, between XXXXX BROTHERS
XXXXXXXX & CO. ("Bank") and SONICS & MATERIALS, INC. ("Borrower").
W I T N E S S E T H:
The Bank and the Borrower, in consideration of the mutual agreements
herein contained, and for other good and valuable consideration, hereby agree as
follows:
ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Base Rate" means the rate determined by the Bank from time to
time as its "base rate."
"Bridge Loan" is defined in Section 2.1(a) hereof.
"Bridge Loan Note" means the Note described in Section 2.2(a).
"Business Day" means a day other than a Saturday, Sunday or other
day on which banks are authorized or required to close under the laws of
the State of New York.
"Change of Control" is deemed to occur if: (i) a Person (other than
Xxxxxx Xxxxxx or any member of his immediately family or any corporation,
partnership or trust, limited liability company or other entity controlled
by or established for the benefit of Xxxxxx Xxxxxx or any member of his
immediate family) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Securities Exchange Act of 1934, except that a person
shall be deemed to be the "beneficial owner" of all securities that such
person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
more than 50% of the total voting power of all outstanding shares of
capital stock having ordinary power to vote in the election of directors
of the Borrower; or (ii) there is a change in the board of directors of
the Borrower such that the individuals who constituted the board of
directors of the Borrower at the beginning of the two-year period
immediately preceding such change, together with any directors whose
election by the board of directors of the Borrower or whose nomination for
election by the stockholders of the Borrower during such two-year period
was approved by a vote of a majority of the directors then in office
(either who were directors at the beginning of such period or whose
election or nomination for election was previously so approved), cease for
any reason to constitute a majority of the directors then in office.
"Collateral" is defined in Section 3.1(e) hereof.
"Construction Project" is defined in Section 2.1(a) hereof.
"Disclosure Schedule" means the disclosure schedule prepared and
signed by the Borrower and attached hereto as Exhibit "E" setting forth
certain information with respect to the Borrower.
"EBITDA" means, for any period, the sum of the amounts for such
period of (A) Net Income, (B) provision for federal, state and local taxes
based on income, (C) Interest Expense, and (D) charges for depreciation
and amortization and other non-cash charges, all for the Borrower, and all
determined in accordance with GAAP.
"Eligible Inventory" means, as at any date of determination thereof,
the value (determined at the lower of cost or market on a first-in,
first-out basis) of all finished inventory or raw materials (other than
packaging materials and supplies) (i) which are owned by the Borrower,
(ii) which is located in a jurisdiction in the United States of America,
(iii) as to which appropriate Uniform Commercial Code financing statements
have been filed naming the Borrower as "debtor" and Bank as "secured
party" and as to which Bank has a first, perfected security interest, (iv)
which is in good condition and is not obsolete or worn out, (v) which is
either currently useable or currently saleable in the normal course of the
Borrower's business, and (vi) conforms in all respects to the applicable
representations and warranties set forth in the Security Agreement.
"Eligible Receivables" means, as at any date of determination
thereof, the aggregate of all accounts receivable of the Borrower from the
sale of goods or the provision of services in the ordinary course of
business ("receivables") at said date due the Borrower, except for any
such receivable which is: (a) not payable in U.S. Dollars; (b) payable by
its terms more than 90 days after the earlier of the date of shipment of
the related inventory or the date of issuance of the invoice therefor; (c)
due from any affiliate of the Borrower; (d) due from an account debtor
whose principal place of business is located outside of the United States
of America (unless such account is secured by a letter of credit from a
financial institution reasonably satisfactory to the Bank or otherwise
agreed in writing by the Bank); (e) due from an account debtor which the
Bank has notified the Borrower does not have a satisfactory credit
standing (as determined in the reasonable discretion of Bank); (f) unpaid
for more than 90 days from earlier of the date of shipment of the related
inventory or the date of issuance of the invoice therefor; (g) from any
account debtor if more than 25% of the aggregate amount of receivables of
such account debtor have at the time remained unpaid for more than 90 days
after the earlier of the date of shipment of the related inventory or the
date of issuance of the invoice therefor; (h) subject to any unresolved
dispute with the respective account debtor; (i) not subject to a valid and
perfected first priority security interest in favor of the Bank; (j) owing
from an account debtor which is an agency, department or instrumentality
of the United States or any state thereof; (k) an obligation for goods
sold on consignment, or approval or on a sale-or-return basis or subject
to any other repurchase or return arrangement; or (l) owing from a
supplier to or creditor of the Borrower.
"Eligible Securities" means those marketable securities of the
Borrower from time to time in the custody of the Bank which the Bank, in
its reasonable discretion, shall determine to be "Eligible Securities."
The amount of any Eligible Securities shall be determined by reference to
their market value at the time of any determination hereunder.
"Event of Default" has the meaning given to such term in Section
6.1.
"Fiscal Year" of the Borrower means each twelve month period ending
June 30.
"Fixed Charge Coverage Ratio" means, for any period, the ratio of
(i) EBITDA plus payments made by the Borrower under any lease, to (ii)
required principal and interest payments for all indebtedness of the
Borrower plus payments made by the Borrower under any lease plus capital
expenditures (determined in accordance with GAAP) of the Borrower for such
period up to $25,000.
"GAAP" means generally accepted accounting principles and practices
applied on a consistent basis.
"Intangibles" means, at a particular date, all assets of the
Borrower that would be classified as intangible assets in accordance with
GAAP.
"Interest Calculation Date" means the first day of each Interest
Period, whether or not a Business Day.
"Interest Expense" means, for any period, the aggregate amount of
interest accrued (whether or not paid) by the Borrower during such period.
"Interest Payment Date" means the last day of each month, commencing
October 31, 1997.
"IRB Loan" is defined in Section 2.1 hereof.
"LIBOR" means the London inter-bank offered rate for the applicable
LIBOR Term, determined by the Bank by reference to market reporting
services available to the Bank and other banks and financial institutions.
"LIBOR Term" means each period of one month, two months or three
months, as designated by the Borrower by notice to Bank in connection with
the making of any LIBOR-based Loan hereunder. Each LIBOR Term shall end on
the Interest Payment Date most closely approximating the end of the period
designated by the Borrower.
"Line of Credit" is defined in Section 2.1 hereof.
"Line of Credit Note" means the Note described in Section 2.4(a)
"Loan" is defined in Section 2.1. hereof.
"Mortgage" means the Open-End Mortgage Deed dated September __, 1997
from the Borrower, as mortgagor, to the Bank, as mortgagee.
"Mortgaged Property" means the real property of the Borrower which
is subject to the lien of the Mortgage.
"Net Income" means, for any period, the net income (or net loss) of
the Borrower and its Subsidiaries on a consolidated basis for such period
excluding extraordinary items, determined in accordance with GAAP.
"Notes" means the Term Loan Note, the Bridge Loan Note and the
Line of Credit Note.
"Permitted Corporate Transaction" means: (a) any merger or
consolidation of Borrower with another corporation, partnership, trust or other
entity; (b) the purchase by the Borrower of assets other than in the ordinary
course of business; or (c) the acquisition by the Borrower of an interest in any
corporation, partnership, trust or other entity, in each case only if (i) the
business or assets acquired are in the same or a substantially similar line of
business as the Borrower; and (ii) the value of the consideration paid (whether
by cash, securities or other assets and including consideration by reason of the
assumption of any indebtedness or in respect of any noncompetition or other
collateral agreement) in connection therewith, together with the consideration
paid in respect of all other prior Permitted Corporate Transactions in the same
Fiscal Year, does not exceed $250,000; and (iii) immediately after the
completion of such transaction, no condition or event would exist which with the
lapse of time or the giving of notice or both would constitute an Event of
Default hereunder; and (iv) in the case of any merger or consolidation, the
Borrower shall be the surviving entity; and (v) the Bank shall have been
notified of such Permitted Corporate Transaction, and provided with all such
information with respect thereto as the Bank shall reasonably request, at least
30 days prior to its effectiveness.
"Restricted Payment" means any dividend, distribution, stock
repurchase, other payment on account of the Borrower's outstanding stock,
payment in respect of any indebtedness subordinated to the debt of the
Borrower to the Bank, and any payment in respect of any non-competition
agreement.
"Security Agreement" means the General Security Agreement dated
September __, 1997, from the Borrower to the Bank.
"Tangible Net Worth" means, as of the date of determination, the
Borrower's net worth less Intangibles, all as determined in accordance
with GAAP.
"Term Loan" is defined in Section 2.1 hereof.
"Term Loan Note" means the Note described in Section 2.3(a)
hereof.
"Total Liabilities" means, as of the date of determination, all
liabilities of the Borrower that would, in accordance with GAAP, be
classified as liabilities of the Borrower.
SECTION 1.2. Accounting Terms. All accounting terms not specifically
defined herein shall be construed, and all financial data submitted pursuant to
this Agreement shall be prepared, in accordance with GAAP applied in a manner
consistent with the application of GAAP in the preparation of the financial
statements mentioned in Section 4.4.
ARTICLE 2
THE LOANS
SECTION 2.1. The Loans. Subject to the terms and conditions
hereinafter provided, Bank agrees to make loans to Borrower in the aggregate
amount of $4,945,000 (collectively, the "Loans"), as follows:
(a) a loan (the "Bridge Loan") in the maximum principal amount of
$1,600,000, which shall be advanced to the Borrower for the purpose of
financing the acquisition and construction of a manufacturing facility in
Newtown, Connecticut, to include land, building and equipment
(collectively, the "Construction Project");
(b) a loan (the "Term Loan") in the amount of $427,000, which shall
be advanced to the Borrower to refinance all of the amounts due in respect
of the Borrower's outstanding note payable to Village Bank and Trust
Company;
(c) a line of credit (the "Line of Credit") in the maximum amount of
$1,500,000 which shall be advanced to the Borrower from time to time to
provide working capital to the Borrower; and
(d) a tax-exempt industrial development loan (the "IRB Loan") in the
aggregate amount of $2,945,000 to be issued through the Connecticut
Development Authority and applied to (a) refinance on a permanent basis
amounts due under the Bridge Loan, and (b) pay all or a portion of the
remaining costs of the Construction Project.
SECTION 2.2. Bridge Loan.
(a) Bridge Loan Note. The Bank shall lend to the Borrower pursuant to the
Bridge Loan from time to time, in accordance with the provisions hereof, up to a
maximum amount of $1,600,000 to pay initial costs of the Construction Project.
The Indebtedness of the Borrower in respect of such advances shall be evidenced
by the Bridge Loan Note executed by the Borrower in favor of the Bank in the
form attached hereto as Exhibit A.
(b) Advances under Bridge Loan. The Bank shall advance amounts in respect
of the Bridge Loan to pay costs of the Construction Project upon the written
request of the Borrower, which request shall be accompanied by such additional
detail (including copies of invoices, construction draw requests or other
supporting information) as the Bank shall reasonably require; provided, however,
that (1) each advance shall be in an amount equal to $50,000 or any integral
multiple of $25,000 in excess thereof, and (2) nothing herein shall obligate
Bank to advance any monies under the Bridge Loan (A) more frequently than twice
per month, or (B) so long as any Event of Default (or any event which, with the
passage of time or the giving of notice or both would constitute an Event of
Default) shall have occurred and be continuing, or (C) at any time after
December 31, 1997.
(c) Interest. The outstanding principal amount of the Bridge Loan Note
shall bear interest at the Base Rate plus one-half of one percent (0.50%).
(d) Maturity. The entire principal balance of the Bridge Loan Note shall
be mature and be due and payable upon the earliest to occur of: (1) the written
demand of Bank; (2) the consummation of the IRB Loan; or (3) December 31, 1997.
(e) Prepayments. The principal of the Bridge Loan Note may be prepaid in
whole or in part (but if in part only in amounts of $50,000 or integral
multiples of $25,000 in excess thereof) at any time, without premium or penalty,
by the Borrower upon three Business Days' written notice to Bank.
SECTION 2.3. Term Loan.
(a) Term Loan Note. On the date hereof, the Bank shall lend to the
Borrower pursuant to the Term Loan the aggregate sum of $500,000, which amount
shall be applied by the Borrower on the date hereof to refinance the outstanding
indebtedness of the Borrower to Village Bank and Trust Company. The indebtedness
of the Borrower in respect of the Term Loan shall be evidenced by the Term Loan
Note executed by the Borrower in favor of Bank in the form attached hereto as
Exhibit B.
(b) Interest. The outstanding principal amount of the Term Loan Note
shall bear interest, at the Borrower's option, at:
(i) the Base Rate; or
(ii) LIBOR plus 2.25%.
Borrower shall provide the Bank with telephonic notice prior to the initial
advance of the Term Loan and, if applicable, not less than 2 Business Days prior
to the last day of each LIBOR Term, of the Borrower's selection of a rate option
and term, which telephonic notice shall be promptly confirmed in writing. In the
absence of such notice, the interest rate on the Term Loan Note shall be the
Base Rate.
(c) Maturity. The principal of the Term Loan Note shall be paid in 36
equal monthly installments of $11,861.11, commencing on November 1, 1997, and
the entire remaining principal balance of the Term Loan Note shall be mature and
be due and payable on October 1, 2000.
(d) Prepayments. The principal of the Term Loan Note may be prepaid in
whole or in part (but if in part only in amounts of $50,000 or integral
multiples of $25,000 in excess thereof) at any time, without premium or penalty,
by the Borrower upon three Business Days' written notice to Bank. No partial
prepayment shall reduce the Borrower's obligation to make principal payments
next becoming due under the Term Loan Note, but shall reduce such principal
payment obligations in reverse order of due date. In the event of the prepayment
of any portion of the Term Loan Note during any period in which the Term Loan
Note shall bear interest at a LIBOR-based interest rate prior to the end of the
applicable LIBOR Term, the Borrower shall pay to Bank, concurrently therewith, a
"breakage fee" equal to the excess, if any, of (i) the amount of interest which
otherwise would have accrued on the principal amount so repaid for the period
from the date of such repayment to the last day of the LIBOR Term for such
amount at the applicable rate of interest for such amount provided for herein
over (ii) the interest component of the amount such Lender would have bid in the
London interbank market for Dollar deposits of leading lenders and amounts
comparable to such principal amount and with maturities comparable to such
period (it being conclusively presumed for such purpose that Bank shall have
purchased funds at the applicable LIBOR corresponding to such principal for the
applicable LIBOR Term).
SECTION 2.4. Line of Credit Loans.
(a) Line of Credit Advances. The Bank shall, from time to time in its sole
discretion, make advances (each an "Advance") under the Line of Credit to the
Borrower for the purpose of funding operating or capital costs of the Borrower;
provided, however, that the aggregate outstanding amount of all Advances
hereunder shall not exceed the lesser of (i) $1,500,000, or (ii) an amount,
determined by reference to the borrowing base reports delivered by the Borrower
in accordance with Section 5.1(c) hereof, equal to:
(1) 90% of Eligible Securities; plus
(2) 80% of Eligible Receivables; plus
(3) 50% of Eligible Inventory; less
(4) $427,000 (which amount shall be reduced by all
principal reductions under the Term Loan); less
(5) $589,000 (which amount shall be reduced by all
principal reductions under the IRB Loan).
Subject to such limitation, the Borrower may borrow under this Section, repay or
prepay any Advances (subject to subsection (d) below), and reborrow hereunder.
Each Advance shall be made by the Bank hereunder upon the written request of the
Borrower in such form and upon compliance with such procedures as the Bank may
from time to time reasonably require.
The Indebtedness of the Borrower in respect of such advances shall be
evidenced by the Line of Credit Note executed by the Borrower in favor of Bank
in the form attached hereto as Exhibit C.
(b) Interest. The outstanding principal amount of each Advance under the
Line of Credit shall bear interest in each Interest Period, at the Borrower's
option, at:
(i) the Base Rate; or
(ii) LIBOR plus 2.25%.
Borrower shall provide Bank with telephonic notice at least 2 Business Days
prior to the making of each Advance, and, if applicable, at least 2 Business
Days prior to the end of any LIBOR Term, of the Borrower's selection of a rate
option and term, which telephonic notice shall be promptly confirmed in writing.
In the absence of such notice, the interest rate on the Line of Credit Note (or
each applicable Advance outstanding thereunder) shall be the Base Rate.
(c) Maturity. The entire principal balance of the Line of Credit Note
shall be mature and be due and payable upon the written demand of Bank, and
thereafter the Bank shall have no further obligation to make any Advance.
(d) Prepayments.
(i) The principal amount of the Advances outstanding under the Line
of Credit Note shall be prepaid by the Borrower upon written notice from
the Bank to the extent of any portion thereof exceeding the maximum
permitted Advances as reflected on the Borrower's borrowing base reports
delivered to the Bank in accordance with Section 5.1(c) hereof.
(ii) All or any portion of the principal amount of Advances
outstanding under the Line of Credit Note may be prepaid by the Borrower
in whole or in part (but if in part only in amounts of $50,000 or integral
multiples of $25,000 in excess thereof) at any time, provided, however,
that, in the event of the optional prepayment of all or any portion of an
Advance under the Line of Credit Note bearing interest at a LIBOR-based
interest rate prior to the end of any applicable LIBOR Term, the Borrower
shall pay to Bank, concurrently therewith, a "breakage fee" equal to the
excess, if any, of (i) the amount of interest which otherwise would have
accrued on the principal amount so repaid for the period from the date of
such repayment to the last day of the LIBOR Term for such amount at the
applicable rate of interest for such amount provided for herein over (ii)
the interest component of the amount such Lender would have bid in the
London interbank market for Dollar deposits of leading lenders and amounts
comparable to such principal amount and with maturities comparable to such
period (it being conclusively presumed for such purpose that Bank shall
have purchased funds at the applicable LIBOR corresponding to such
principal for the applicable LIBOR Term).
SECTION 2.5. IRB Loan. The Bank shall make the IRB Loan upon the terms,
and subject in all respects to the conditions, set forth in the Bank's financing
commitment dated July 18, 1997.
SECTION 2.6. Other Provisions.
(a) Interest on each of the Notes shall be calculated based upon a 360-day
year for the actual number of days elapsed.
(b) Whenever any payment to be made hereunder or under the Note shall be
stated to be due on a day that is not a Business Day, such payment may be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest hereunder or under
the Note, as the case may be.
ARTICLE 3
CONDITIONS OF LOANS
SECTION 3.1. Conditions Precedent to Loans. The obligation of Bank to make
any part of the Loans is subject to the conditions precedent that the Bank shall
have received on or before the date hereof, all of the following, in form and
substance satisfactory to the Bank:
(a) A copy, certified in writing by the Secretary or an Assistant
Secretary of the Borrower, of (1) resolutions of the Board of Directors of
the Borrower evidencing approval of this Agreement, the Notes, the
Mortgage, the Security Agreement, and other matters contemplated hereby
and, (2) each document evidencing any other necessary corporate action and
any required approvals from governmental authorities with respect to this
Agreement, the Note, the Mortgage, the Security Agreement, and other
matters contemplated hereby.
(b) An opinion or opinions of counsel for the Borrower in form
and substance satisfactory to the Bank.
(c) A written certificate by the Secretary or an Assistant Secretary
of the Borrower as to the names and signatures of the officers of the
Borrower authorized to sign this Agreement, the Note, the Mortgage, the
Security Agreement, and the other documents or certificates of the
Borrower to be executed and delivered pursuant hereto. The Bank may
conclusively rely on, and be protected in acting upon, such certificate
until it shall receive a further certificate by the Secretary or an
Assistant Secretary of the Borrower amending the prior certificate.
(d) The Notes.
(e) The Security Agreement granting to the Bank a security interest
in substantially all of the accounts, inventory, general intangibles,
equipment, investment property and financial assets of the Borrower,
whether existing or hereafter acquired, and all proceeds thereof
(collectively, the "Collateral").
(f) Financing statements of the Borrower covering the
Collateral.
(g) The Mortgage, together with a title report with respect to the
Mortgaged Property in form and substance satisfactory to the Bank.
(h) Evidence of the Borrower's insurance coverage as required by
Section 5.4 hereof and by the provisions of the Security Agreement and the
Mortgage.
(i) Such other certificates, instruments or agreements as the
Bank may reasonably require.
SECTION 3.2. Additional Conditions Precedent. The obligation of the
Bank to make any Loan, including any Advance, is subject to the further
conditions precedent that:
(a) The representations and warranties contained in Article IV
hereof shall be accurate on and as of the date of disbursement as though
made on and as of such date;
(b) No Event of Default shall have occurred and be continuing or
will result from the making of the Loan, and no event shall have occurred
and be continuing that with notice or lapse of time or both would, if
unremedied, be an Event of Default; and
(c) No material adverse change, as determined by the Bank in its
reasonable discretion, shall have occurred since the date of this
Agreement in the financial condition, results of operation or business
prospects of the Borrower.
The request for, and acceptance of, any Loan, including any Advance, by the
Borrower shall be deemed a representation and warranty by the Borrower that each
of the conditions specified in this subsection has been satisfied.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Bank as follows:
SECTION 4.1. Existence. The Borrower is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and is qualified to do business as a foreign corporation in the State of
Connecticut. The Borrower has all requisite power and authority, corporate and
otherwise, to conduct its business and to own its properties and is duly
qualified as a foreign corporation in good standing in all jurisdictions in
which its failure so to qualify could have a material adverse effect on its
financial condition or business.
SECTION 4.2. Authorization. The execution, delivery and performance by the
Borrower of this Agreement, the Note, and the Security Agreement have been duly
authorized by all necessary corporate action, and do not and will not violate
any current provision of any government regulation or statute material to the
on-going operation of the Borrower's business or of the charter or by-laws of
the Borrower or result in a breach of or constitute a default under any
indenture, instrument or other material agreement to which the Borrower is a
party or by which it or its properties may be bound or affected.
SECTION 4.3. Validity of Agreement, Note, and Security Agreement. This
Agreement constitutes, and the Note and Security Agreement when duly executed
and delivered will constitute, valid and legally binding obligations of the
Borrower, enforceable in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally.
SECTION 4.4. Financial Information. There has been no material
adverse change in the financial condition of the Borrower from that shown in
its most recent financial statements furnished to the Bank.
SECTION 4.5. Litigation. There are no actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened against the Borrower or
any of its properties before any court or governmental department, commission,
board, bureau, agency or instrumentality (domestic or foreign) that, if
determined adversely to the Borrower, would have a material adverse effect on
the financial condition, operations or business prospects of the Borrower.
SECTION 4.6. Contingent Liabilities. Except as set forth on the Disclosure
Schedule, there are no suretyship agreements, guarantees or, to the best of the
Borrower's knowledge and belief, other contingent liabilities of the Borrower
that are not disclosed on the financial statements mentioned in Section 4.4 or
as otherwise disclosed in writing to the Bank.
SECTION 4.7. Investment Company Act4.7. Investment Company Act. The
Borrower is not an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of
1940, as amended.
SECTION 4.8. Federal Reserve Regulations4.8. Federal Reserve Regulations.
No indebtedness that is required to be, or will be, reduced or retired from the
proceeds of the Loans was incurred for the purpose of purchasing or carrying any
"margin stock" within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System (12 C.F.R. 221, as amended), and the Borrower does
not own or have any present intention to acquire any such margin stock.
SECTION 4.9. Taxes. The Borrower has filed all tax returns and reports
required to be filed before the date of this Agreement and, except as set forth
on the Disclosure Schedule, has paid all taxes, assessments and charges imposed
upon it or its property, or that it is required to withhold and pay over, to the
extent that they were required to be paid before the date of this Agreement.
SECTION 4.10. Encumbrances. The Collateral is not subject to any
lien, encumbrance or security interest except in favor of Bank under the
Security Agreement.
SECTION 4.11. Consents. No authorization, consent, approval, license,
exemption by or filing or registration with any court or governmental
department, commission, board (including the Board of Governors of the Federal
Reserve System), bureau, agency or instrumentality is or will be necessary for
the valid execution, delivery or performance by the Borrower of this Agreement,
the Note, or the Security Agreement.
SECTION 4.12. Compliance with Laws. The Borrower is in compliance
with all laws and regulations applicable to it that are material to the
operation of its business.
ARTICLE 5
COVENANTS OF BORROWER
So long as any amount due Bank hereunder remains unpaid, unless Bank shall
otherwise consent in writing:
SECTION 5.1. Books and Records; Financial Statements and Other
Information. The Borrower covenants that it shall keep proper books of record
and account in which full, true and correct entries will be made of all dealings
or transactions of or in relation to the business and financial affairs of the
Borrower, in accordance with generally accepted accounting principles,
consistently applied. The Borrower shall furnish to Bank the following:
(a) within 90 days after the last day of each fiscal year of the
Borrower, (i) a copy of the annual consolidated and consolidating
financial statements of the Borrower prepared in accordance with GAAP,
which shall be accompanied by an unqualified audit report of the
Borrower's certified public accountants, who shall be reasonably
acceptable to Bank, and (ii) a letter of the Vice President, Legal
Affairs-Investor Relations of the Borrower to the effect that to the best
of his or her knowledge, no event has occurred which constitutes or would,
with the passage of time or the giving of notice or both, constitute an
Event of Default hereunder, or otherwise describing any such event known
to such officer, which letter shall include, in reasonable detail, the
calculations demonstrating the compliance or non-compliance by the
Borrower, on a consolidated basis, as of the end of such fiscal year, with
each applicable financial covenant set forth in Section 5.12 hereof;
(b) within 45 days of the end of each quarter, (i) a copy of the
Borrower's unaudited consolidated financial statements for such quarter
and for the fiscal year to date, including a balance sheet, income
statement and statement of cash flows, and (ii) a letter of the Vice
President, Legal Affairs-Investor Relations of the Borrower to the effect
that, in the opinion of such officer (A) such unaudited financial
statements have been prepared in accordance with GAAP and reflect all
eliminations and adjustments (consisting only of normal recurring
adjustments, except as noted in such letter) necessary for a fair
presentation of the Borrower's financial position and results of operation
of the Borrower, on a consolidated basis, for such quarter and the year to
date, and (B) no event has occurred which constitutes or would, with the
passage of time or the giving of notice or both, constitute an Event of
Default hereunder, or otherwise describing any such event known to such
officer, which letter shall include, in reasonable detail, the
calculations demonstrating the compliance or non-compliance by the
Borrower, as of the end of such quarter, with each applicable financial
covenant set forth in Section 5.12 hereof;
(c) within fifteen (15) days of the end of each month, a borrowing
base report demonstrating the amount of availability under the Line of
Credit in accordance with Section 2.4(a) above, in the form attached as
Exhibit D hereto.
(d) as soon as practicable, but in any event within ten (10) days of
such occurrence, notice of any material adverse change in the business or
financial condition of the Borrower;
(e) as soon as practicable, but in any event within ten (10) days of
the time the Borrower becomes aware thereof (or should have become so
aware with the exercise of reasonable diligence), notice of the
institution of, or of any material adverse development with respect to,
any suit or proceeding, against the Borrower in which the amount of
damages which is sought, or which in the Borrower's reasonable opinion may
be at controversy, shall exceed $100,000;
(f) as soon as possible, but in any event within ten (10) days after
the Borrower becomes aware thereof (or should have become so aware with
the exercise of reasonable diligence), notice of the occurrence of any
Event of Default or of any act, omission, thing or condition which upon
the giving of notice or lapse of time, or both, would or might constitute
an Event of Default, which notice shall describe the Event of Default or
other act, omission, thing or condition in question and shall set forth in
detail what action the Borrower proposes to take with respect thereto;
(g) as soon as possible, but in any event within ten (10) days after
the Borrower becomes aware thereof (or should have become so aware with
the exercise of reasonable diligence), notice of the occurrence of any
"reportable event" or "prohibited transaction" (as each is defined in
ERISA) with respect to any employee benefit plan;
(h) upon request, or within a reasonable time thereafter, such other
information concerning the Borrower and its operations and financial
condition and results as the Bank may reasonably request; and
(i) as soon as possible, but in any event within ten (10) days after
the Borrower becomes aware thereof (or should have become so aware with
the exercise of reasonable diligence), notice of the occurrence of any
event or condition with respect to the Mortgaged Premises (as defined in
the Mortgage) described in Section 11 of the Mortgage.
SECTION 5.2. ERISA. Each employee benefit plan as to which the Borrower
may have any liability complies in all material respects with all applicable
provisions of ERISA, including minimum funding requirements, and (i) no
Prohibited Transaction (as defined under ERISA) has occurred with respect to any
such plan, (ii) no Reportable Event (as defined under Section 4043 of ERISA) has
occurred with respect to any such plan which would cause the Pension Benefit
Guaranty Corporation to institute proceedings under Section 4042 of ERISA, (iii)
the Borrower has not withdrawn from any such plan or initiated steps to do so,
and (iv) no steps have been taken to terminate any such plan.
SECTION 5.3. Payment of Taxes and Claims5.3. Payment of Taxes and Claims.
The Borrower will pay all taxes, assessments and other governmental charges
imposed upon it or any of its properties or assets or in respect of any of its
franchises, business, income or profits before any penalty or interest accrues
thereon, and all claims (including, without limitation, claims for labor,
services, materials and supplies) for sums which have become due and payable and
which by law have or might become a lien upon any of its properties or assets,
provided that no such charge or claim need be paid if being contested in good
faith by appropriate proceedings promptly initiated and diligently conducted and
if such reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made therefor and, if the filing of a bond or other
indemnity is necessary to avoid the creation of a lien against any of the assets
of the Borrower, such bond shall have been filed or indemnity provided.
SECTION 5.4. Insurance5.4. Insurance. The Borrower will maintain or cause
to be maintained with financially sound and reputable insurers acceptable to the
Bank, insurance with respect to the properties and business of the Borrower
against loss or damage of the kinds customarily insured against by entities of
established reputation engaged in the same or similar businesses and similarly
situated, of such types and in such amounts as are customarily carried under
similar circumstances by other such persons and otherwise as is prudent for
persons engaged in conducting business similar in character and size to the
business of the Borrower. Annually (and from time to time upon request of the
Bank), the Borrower will promptly furnish or cause to be furnished to the Bank
evidence, in form and substance satisfactory to the Bank, of the maintenance of
all insurance, indemnities or bonds required by this Section or by any permit,
license, or other agreement to be maintained, including copies thereof and proof
of premium payments.
The provisions of this Section shall be in addition to any similar
requirements set forth in the Security Agreement and the Mortgage.
SECTION 5.5. Maintenance of Properties5.5. Maintenance of Properties. The
Borrower will maintain or cause to be maintained its properties in good repair,
working order and condition and make or cause to be made all appropriate and
proper repairs, renewals, replacements, additions and improvements thereto, and
keep all systems and equipment which may now or in the future be subject to
compliance with any material standards or rules imposed by any governmental
agency or authority. The Borrower shall install and maintain its equipment and
systems in compliance in all material respects with any material requirement
imposed under an governmental regulations, permits, or licenses or under
agreements affecting the Borrower. The Borrower shall maintain, preserve and
protect, and, when necessary, renew, all franchises and all service marks,
trademarks and tradenames held by any of them and all agreements to which any of
them are parties which are necessary or useful to conduct its business, except
where the failure to do any of the foregoing could not have a material adverse
effect, individually or in the aggregate, upon the financial condition, results
of operation or business prospects of the Borrower.
SECTION 5.6. Maintenance of Records5.6. Maintenance of Records. The
Borrower will keep at all times books of record and account in which full, true
and correct entries will be made of all dealings or transactions in relation to
its respective business and affairs.
SECTION 5.7. Inspection5.7. Inspection. Upon reasonable notice the
Borrower will allow any representative of the Bank to visit and inspect any of
their properties, to examine the books of account and other records and files of
the Borrower (including, without limitation, the financial statements (audited
and unaudited, to the extent prepared) and information with respect to the
Borrower), to make copies thereof and to discuss the affairs, business, finances
and accounts of the Borrower with its personnel and accountants, all at such
reasonable times (and to the extent feasible, during ordinary business hours)
and as often the Bank may reasonably request.
SECTION 5.8. Change in Organizational Documents5.8. Change in
Organizational Documents. The Borrower will not amend, or consent to, any
amendment or supplement to, its articles or certificate of incorporation, bylaws
or other organization document without the prior written consent of the Bank,
which consent shall not be unreasonably withheld.
SECTION 5.9. Subsidiaries5.9. Subsidiaries. The Borrower will not
form or acquire any subsidiary without the written consent of the Bank, which
consent shall not be unreasonably withheld.
SECTION 5.10. Compliance with Federal Reserve Regulations5.10. Compliance
with Federal Reserve Regulations. No proceeds of the Loans shall be used by the
Borrower, directly or indirectly to purchase or carry any margin stock or to
extend credit to others for the purpose of purchasing or carrying any margin
stock. The Borrower will not, directly or indirectly, otherwise take or permit
to be taken any action which would result in the Loans or the carrying out of
any of the other transactions contemplated by this Agreement, being violative of
such Regulation U or of Regulation T (12 C.F.R. 220, as amended) or of
Regulation X (12 C.F.R. 224, as amended) or any other regulation of the Board of
Governors of the Federal Reserve System.
SECTION 5.11. Additional Negative Covenants. So long as any part of the
Loans remains unpaid, the Borrower shall not, without the written consent of
Bank which consent shall not be unreasonably withheld:
(a) Corporate Transactions. (1) Merge or consolidate with any other
corporation, partnership, trust or other entity, (2) sell, lease, transfer
or otherwise dispose of all or any material portion of its assets other
than in the ordinary course of business, (3) directly or through any
entity consolidated with the Borrower for financial reporting purposes,
purchase any assets other than in the ordinary course of business, or (4)
acquire any equity interest in any other corporation, partnership, trust
or other entity, except, in each case, in connection with a Permitted
Corporate Transaction.
(b) Nature of Business. Make any material change in the nature
of its business as conducted at the date hereof.
(c) Borrowings. Create, incur, assume, guarantee, endorse, or
otherwise become liable for, or permit to exist any direct or contingent
obligation for borrowed money (including obligations under capital
leases), except:
(1) obligations with respect to the Notes and this
Agreement; and
(2) any other indebtedness to the Bank (including with
respect to the IRB Loan).
(d) Guarantees. Assume, guarantee, endorse, or otherwise
become directly or contingently liable for the indebtedness of any
other Person.
(e) Encumbrances. Create, incur, assume or suffer to exist any
mortgage, lien, security interest, restriction or encumbrance with respect
to any of its property, including, but not limited to, the Collateral and
the Mortgaged Property, other than:
(1) liens and security interests granted in favor of the
Bank;
(2) utility, access or other easements and rights of way,
restrictions and exceptions which do not materially impair the
operation or value thereof;
(3) deposits under workers' compensation, unemployment and
social security or similar laws, or to secure performance of bids,
tenders, contracts (other than for the repayment of borrowed money)
or leases to secure indemnity, performance or similar bonds in the
ordinary course of business;
(4) liens imposed by law (whether or not inchoate), such as
carriers', warehousemen's, materialmen's or mechanics' liens,
incurred in good faith in the ordinary course of business, and which
are not delinquent, and liens arising out of a judgment or award
with respect to which an appeal is being prosecuted, a stay of
execution pending such appeal having been secured or applied for and
not denied or rendered ineffective;
(5) liens for taxes, assessments or governmental charges or
levies on property if the same shall not at the time be delinquent,
or are being contested in good faith and by appropriate proceedings;
and
(6) other liens and security interests on the property of
Borrower listed on the Disclosure Schedule attached hereto as
Exhibit "E"; provided that no such lien or security interest shall
be extended, replaced, modified or enlarged.
(f) Restricted Payments. Directly or indirectly, declare,
order, pay, make or set apart any sum or property for any Restricted
Payment, without the written consent of the Bank.
(g) Leasebacks. Directly or indirectly sell or otherwise transfer,
in one or more related transactions, any property (whether real, personal
or mixed) and thereafter rent or lease such transferred property or
substantially identical property.
Transactions with Shareholders and Affiliates. Directly or indirectly, engage in
any transaction with (a) any holder of 5% or more of any class of the
capital stock or ownership interest of the Borrower, or (b) any
corporation controlling, controlled by, or under common control with the
Borrower or any such holder, on terms that are less favorable to the
Borrower than those which might be obtained at the time from Persons which
are not such a holder or affiliated corporation.
(i) Fiscal Year. Change its Fiscal Year.
SECTION 5.12. Financial Covenants. So long as any part of the Loans
remains unpaid, the Borrower shall comply with each of the following financial
covenants. As used in this Section (and in each definition applicable hereto),
the term "Borrower" means the Borrower and each of its consolidated subsidiaries
on a consolidated basis.
(a) Tangible Net Worth. The Borrower shall maintain, at all times,
Tangible Net Worth in an amount which is not less than (i) $6,500,000 from the
date of this Agreement through June 30, 1998, and (ii) for each Fiscal Year
thereafter, an amount which is equal to the minimum Tangible Net Worth required
hereunder for the prior Fiscal Year, plus 50% of Net Income for such prior
Fiscal Year.
(b) Fixed Charge Coverage Ratio. The Borrower shall maintain in each
Fiscal Year a Fixed Charge Coverage Ratio of:
Minimum Fixed Charge
Period Coverage Ratio
Fiscal Year ending June 30, 1998 1.2:1
Each Fiscal Year thereafter 1.5:1
(c) Leverage Ratio. The Borrower shall maintain, at all times, a
ratio of Total Liabilities to Tangible Net Worth of not greater than 1.5 to
1.0.
ARTICLE 6
DEFAULT
SECTION 6.1. Events of Default. Each of the following shall be an
event of default ("Event of Default"):
(a) Failure to pay any interest on any Note prior to the tenth
(10th) Business Day following any Interest Payment Date; or failure to pay
any principal of any Note when due (including upon demand in the case of
the Bridge Loan Note and the Line of Credit Note); or
(b) Failure to perform or observe any other of the covenants,
agreements or conditions on its part contained in this Agreement
including, without limitation, the failure of the Borrower to observe its
covenants contained in Section 5.12 hereunder and such failure continues
(except as provided in Section 6.1(a), (d) or (e) hereof) for thirty (30)
days following written notice from Bank; or
(c) The occurrence of any default under the Security Agreement
or the Mortgage; or
(d) The Borrower or any subsidiary of the Borrower shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or shall consent
to any such relief or to the appointment of or taking position by any such
official in an involuntary case or other proceeding commenced against it,
or shall make a general assignment for the benefit of creditors, or shall
fail generally to pay its debts as they become due, or shall take any
corporate action to authorize any of the foregoing; or
(e) An involuntary case or other proceeding shall be commenced
against the Borrower or any subsidiary of the Borrower seeking
liquidation, reorganization or other relief with respect to it or its
debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial
part of its property, and such involuntary case or other proceeding shall
remain undismissed and unstayed for a period of 60 days; or an order for
relief shall be entered against the Borrower or any subsidiary under the
Federal bankruptcy laws as now or hereafter in effect; or
(f) If any Change of Control shall occur; or
(g) If the Borrower shall fail to pay any obligation for the payment
of borrowed money or the installment purchase price of property or on
account of a lease of property (a "Credit Obligation") owing by it, or any
interest or premium thereon, when due, whether such Credit Obligation
shall become due by scheduled maturity, by required prepayment, by
acceleration, by demand or otherwise, or the Borrower shall fail to
perform any term, covenant or agreement on its part to be performed under
any agreement or instrument evidencing or securing or relating to any such
Credit Obligation when required to be performed, if the effect of such
failure is to accelerate, or to permit the holder or holders of such
Credit Obligation to accelerate, the maturity of such Credit Obligation,
whether or not such failure to perform shall be waived by the holder or
holders of such Credit Obligation, unless such waiver has the effect of
terminating the right of such holder or holders to accelerate the maturity
of such Credit Obligation as a result of such failure; or
(h) If any representation or warranty by or on behalf of the
Borrower made herein or in any report, certificate, financial statement or
other instrument delivered to the Bank shall prove to be false or
misleading in any material respect when made; or
(i) If any default shall occur with respect to any other
indebtedness of the Borrower to the Bank, subject to Borrower's right to
notice and opportunity to cure, if any, under the instruments which
evidence or secure such indebtedness.
SECTION 6.2. Acceleration. If any Event of Default shall occur and be
continuing, the Bank may, by notice to Borrower, (a) declare the entire unpaid
principal amount of the Notes, all interest accrued and unpaid thereon and all
other amounts payable hereunder to be forthwith due and payable, whereupon the
Notes, all such accrued interest and all such amounts shall become and be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower;
(b) exercise its rights under the Security Agreement and the Mortgage; and (c)
exercise all of the rights and remedies of a secured party under the Uniform
Commercial Code or any other applicable law or agreement with respect to all
collateral then held for the Loans.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1. No Waiver; Cumulative Remedies. No failure or delay on the
part of the Bank or Borrower in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. No waiver of any
provision hereof shall be effective unless the same shall be in writing and
signed by the Bank and Borrower.
SECTION 7.2. Set-Off. The Bank shall have a right of setoff against, a
lien upon and a security interest in all property of the Borrower now or at any
time in the possession of the Bank any capacity whatever, including, but not
limited to, the Borrower's interest in any deposit account, as security for all
liabilities of the Borrower to the Bank.
SECTION 7.3. Notices. Unless this Agreement specifically provides
otherwise, all notices and other communications that this Agreement requires or
permits either party to give to the other shall be in writing and shall be given
to such party at its address or telecopy number specified on the signature pages
of this Agreement or at such other address or telecopy number as shall be
designated by such party in a notice to the other party complying with the terms
of this Section 7.3. Unless this Agreement specifically provides otherwise, all
notices and other communications will be effective (a) if given by mail, when
received, (b) if given by telecopy, when such telecopy is transmitted to the
appropriate telecopy number and the sender receives confirmation of transmission
during normal business hours, or (c) if given by any other means, when delivered
at the appropriate address, except that notices from the Borrower to the Bank
pursuant to any of the provisions of Article II hereof shall not be effective
until received by the Bank.
SECTION 7.4. Governing Law. This Agreement and the Note shall be
governed in all respects by the law of the State of New York.
SECTION 7.5. Judicial Proceedings.
(a) The Borrower consents and agrees that any judicial proceedings
relating in any way to this Agreement may be brought in any court of competent
jurisdiction in the State of New York or in the United States District Court for
the Southern District of New York. The Borrower hereby accepts, for itself and
its properties, the non-exclusive jurisdiction of such courts, agrees to be
bound by any judgments rendered by them in connection with this Agreement, and
will not move to transfer any such proceeding to any different court. The
Borrower waives the defense of forum non conveniens in any such action or
proceeding.
(b) Service of process in any proceeding arising out of or relating to
this Agreement may be made by any means permitted by the applicable rules of
court as then in force, or may be made by any form of mail requiring a signed
receipt.
(c) Nothing herein shall limit the right of the Bank to bring proceedings
against the Borrower in the courts of any other jurisdiction or be deemed to
constitute a consent to jurisdiction by any party hereto as to persons or
entities not parties to this Agreement or as to matters not relating to this
Agreement.
(d) THE BORROWER HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN
ANY SUCH SUIT, ACTION OR PROCEEDING. THE BORROWER FURTHER ACKNOWLEDGES AND
AGREES THAT WAIVER OF JURY TRIAL IS A SPECIFIC AND MATERIAL ASPECT OF THIS
AGREEMENT AND THAT THE BANK WOULD NOT HAVE AGREED TO MAKE ANY LOAN (INCLUDING
ANY ADVANCE) OR ACCEPT THIS AGREEMENT OR ANY NOTE WITHOUT SUCH AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
SONICS & MATERIALS, INC. Address:
Xxxx Xxxxxxx Xxxxxx
Xxxxxxx, XX 00000
By:__________________________________ Telecopier: (000)000-0000
President Attention: Xxxxxx X. Xxxxxx, Esq.
per pro. XXXXX BROTHERS XXXXXXXX & CO. Address:
00 Xxxx Xxxxxx
Xx:___________________________________ Xxx Xxxx, Xxx Xxxx
Telecopier No.: (000) 000-0000
Attention: Chief Credit Officer
