EXHIBIT 10.4
[COMERICA LOGO] ADVANCE FORMULA AGREEMENT
--------------------------------------------------------------------------------
As of September 20, 2004, this Agreement is made by NECI ACQUISITION, INC., a
Florida corporation ("Debtor"), unto COMERICA BANK, a Michigan banking
corporation ("Bank").
For and in consideration of the loans and other credit which Debtor may now or
hereafter obtain or request from Bank which are secured pursuant to a Security
Agreement dated September 20, 2004, executed and delivered by Debtor unto Bank
(the "Security Agreement"), and for other good and valuable consideration,
Debtor agrees as follows:
1. FORMULA LOANS. The credit which Bank may now or hereafter extend to
Debtor subject to the limitations of this Agreement and to the
conditions and limitations of any other agreement between Debtor and
Bank is identified as follows:
$5,000,000 secured revolving line of credit
and any extensions, renewals or substitutions thereof, whether in a
greater or lesser amount, including any letters of credit issued
thereunder ("Formula Loans").
2. ADVANCE FORMULA. Debtor warrants and agrees that Debtor's indebtedness
to Bank for the Formula Loans shall never exceed the sum of:
(a) Eighty percent (80%) of its Eligible Accounts, as hereinafter
defined; plus
(b) the lesser of (i) twenty-five percent (25%) of its Eligible
Inventory, as hereinafter defined, (ii) Two Million Two
Hundred Fifty Thousand Dollars ($2,250,000; provided, however,
that beginning on April 1, 2005, no more than fifty percent
(50%) of the outstanding Formula Loans as of any date of
determination may be based on this sub-section (b); minus
(c) the Equipment Lease Reserve.
3. FORMULA COMPLIANCE. If the limitations in paragraph 2, above, are
exceeded at any time, Debtor shall immediately pay Bank sums sufficient
to reduce the Formula Loans by the amount of such excess.
4. ELIGIBLE ACCOUNT. "Eligible Account" shall mean an Account (as
hereinafter defined) arising in the ordinary course of Debtor's
business which meets each of the following requirements:
(a) it is not owing more than ninety (90) days after the date of
the original invoice or other writing evidencing such Account;
(b) it is not owing by an Account Debtor (as hereinafter defined)
who has failed to pay twenty-five percent (25%) or more of the
aggregate amount of its Accounts owing to Debtor within ninety
(90) days after the date of the respective invoices or other
writings evidencing such Accounts;
(c) it arises from the sale or lease of goods and such goods have
been shipped or delivered to the Account Debtor under such
Account; or it arises from services rendered and such services
have been performed;
(d) it is evidenced by an invoice, dated not later than the date
of shipment or performance, rendered to such Account Debtor or
some other evidence of billing acceptable to Bank;
(e) it is not evidenced by any note, trade acceptance, draft or
other negotiable instrument or by any chattel paper, unless
such note or other document or instrument previously has been
endorsed and delivered by Debtor to Bank;
(f) it is a valid, legally enforceable obligation of the Account
Debtor thereunder, and is not subject to any offset,
counterclaim or other defense on the part of such Account
Debtor or to any claim on the part of such Account Debtor
denying liability thereunder in whole or in part;
(g) it is subject to a first priority, properly perfected security
interest in favor of Bank, and it is not subject to any sale
of accounts, any rights of offset, assignment, lien or
security interest whatsoever other than to Bank;
(h) it is not owing by a subsidiary or affiliate of Debtor;
(i) it is not owing by an Account Debtor which (i) does not
maintain its chief executive office in the United States of
America or Canada, (ii) is not organized under the laws of the
United States of America or Canada, or any state or province
thereof, as applicable, or (iii) is the government of any
foreign country or sovereign state, or of any state, province,
municipality or other instrumentality thereof;
(j) it is not an Account owing by the United States of America or
any state or political subdivision thereof, or by any
department, agency, public body corporate or other
instrumentality of any of the foregoing, unless all necessary
steps are taken to comply with the Federal Assignment of
Claims Act of 1940, as amended, or with any comparable state
law, if applicable, and all other necessary steps are taken to
perfect Bank's security interest in such Account;
(k) it is not owing by an Account Debtor for which Debtor has
received a notice of (i) the death of the Account Debtor or
any partner of the Account Debtor, (ii) the dissolution,
liquidation, termination of existence, insolvency or business
failure of the Account Debtor, (iii) the appointment of a
receiver for any part of the property of the Account Debtor,
or (iv) an assignment for the benefit of creditors, the filing
of a petition in bankruptcy, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or
against the Account Debtor;
(l) it is not an Account billed in advance, payable on delivery,
for consigned goods, for guaranteed sales, for unbilled sales,
for progress xxxxxxxx, payable at a future date in accordance
with its terms, subject to a retainage or holdback by the
Account Debtor or insured by a surety company; and
(m) it is not owing by any Account Debtor whose obligations Bank,
acting in its reasonable discretion, shall have notified
Debtor are not deemed to constitute Eligible Accounts.
An Account which is at any time an Eligible Account, but which
subsequently fails to meet any of the foregoing requirements, shall
forthwith cease to be an Eligible Account.
For purposes of this Agreement, an "Account" shall mean any right of
Debtor to payment for goods sold or leased or for services rendered,
but shall not include interest or service charges; and "Account Debtor"
shall mean the person who is obligated on or under an Account.
5. ELIGIBLE INVENTORY. Unless stated otherwise in paragraph 13 below,
"Eligible Inventory" (a) shall be valued at the cost or present market
value of Debtor's Inventory (as defined in the Michigan Uniform
Commercial Code, as amended and in effect from time to time) determined
in accordance with generally accepted accounting principles,
consistently applied ("GAAP"), and (b) shall mean all of Debtor's
Inventory which is in good and merchantable condition, which is not
obsolete or discontinued, which would be properly classified as
"work-in-process" or "raw materials" or as "finished goods inventory"
under and in accordance with GAAP, provided, however, that
"work-in-process" advances based on Inventory shall not exceed
$350,000, and which is subject to a first priority, properly perfected
security interest in favor of Bank, but excluding (1) consigned goods,
inventory located outside the United States of America or Canada, (2)
Inventory covered by or subject to a seller's right to repurchase, or
any consensual or nonconsensual lien or security interest (including,
without limitation, purchase money security interests) other than in
favor of Bank, whether senior or junior to Bank's security interest,
and (3) Inventory that Bank, acting in its reasonable discretion, after
having notified Debtor, excludes. Inventory which is at any time
Eligible Inventory, but which subsequently fails to meet any of the
foregoing requirements, shall forthwith cease to be Eligible Inventory.
6. CERTIFICATES, SCHEDULES AND REPORTS. Debtor will, within seven (7) days
after and as of the end of each month (and at such other times as Bank
may request), deliver to Bank agings of the Accounts and a schedule
2
identifying each Eligible Account (not previously so identified) and
reports as to the amount of Eligible Inventory. Debtor will from time
to time deliver to Bank such additional schedules, certificates and
reports respecting all or any of the Collateral (as defined in the
Security Agreement), the items or amounts received by Debtor in full or
partial payment of any of the Collateral, and any goods (the sale or
lease of which by Debtor shall have given rise to any of the
Collateral) possession of which has been obtained by Debtor, all and as
to such extent as Bank may request. Any such schedule, certificate or
report shall be executed by a duly authorized officer of Debtor and
shall be in such form and detail as Bank may specify. Any such schedule
identifying any Eligible Account shall be accompanied (if Bank so
requests) by a true and correct copy of the invoice evidencing such
Eligible Account and by evidence of shipment or performance.
7. INSPECTIONS; COMPLIANCE. Debtor shall permit Bank and its designees
from time to time to make such inspections and audits, and to obtain
such confirmations or other information, with respect to any of the
Collateral or any Account Debtor as Bank is entitled to make or obtain
under the Credit Agreement dated as of the date hereof between Debtor
and Bank, as amended from time to time, and shall reimburse Bank on
demand for all costs and expenses incurred by Bank in connection with
such inspections and audits. Debtor shall further comply with all of
the other terms and conditions of the Security Agreement.
8. DEFAULT. Any failure by Debtor to comply with this Agreement shall
constitute a default under the Formula Loans and under the Security
Agreement and the Indebtedness, as defined therein.
9. AMENDMENTS; WAIVERS. This Agreement may be amended, modified or
terminated only in writing duly executed by Debtor and Bank. No delay
by Bank in requiring Debtor's compliance herewith shall constitute a
waiver of such right. The rights granted to Bank hereunder are
cumulative, and in addition to any other rights Bank may have by
agreement or under applicable law. This Agreement shall supersede and
replace in their entirety any prior advance formula agreements in
effect between Bank and Debtor. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of
Michigan, without regard to conflict of laws principles.
10. DEMAND BASIS FORMULA LOANS. Notwithstanding anything to the contrary
set forth in this Agreement, in the event that the Formula Loans are at
any time on a demand basis, Debtor hereby acknowledges and agrees that
the formula set forth in paragraph 2 hereof is merely for advisory and
guidance purposes and Bank shall not be obligated to make any loans or
advances under the Formula Loans, and, notwithstanding the terms of
paragraph 3 above, Bank may at any time, at its option, demand payment
of any or all of the Formula Loans, whereupon the same shall become due
and payable. Bank and Debtor acknowledge and agree that the Formula
Loans are not on a demand basis as of the date hereof.
11. DILUTION OF ACCOUNTS. In the event that Bank, at any time in its sole
discretion, determines that the dollar amount of Eligible Accounts
collectable by Debtor is reduced or diluted as a result of discounts or
rebates granted by Debtor to the respective Account Debtor(s), returned
or rejected Inventory or services, or such other reasons or factors as
Bank deems applicable, Bank may, in its sole discretion, upon five (5)
business days' prior written notice to Debtor, reduce or otherwise
modify the percentage of Eligible Accounts included within the Advance
Formula under paragraph 2(a) above and/or reduce the dollar amount of
Debtor's Eligible Accounts by an amount determined by Bank in its sole
discretion.
12. JURY WAIVER. DEBTOR AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY
JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY,
AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH
COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR
MUTUAL BENEFIT WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF
LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY
RELATED TO, THIS AGREEMENT OR THE INDEBTEDNESS.
13. SPECIAL PROVISIONS: "Equipment Lease Reserve" shall mean the total
amount outstanding under all all equipment leases of Debtor which are
in effect as of September 20, 2004.
3
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year
first above written.
DEBTOR:
Debtor's Chief Executive Office Address:
00 Xxxxx Xxxx Xxxxxx, Xxxxx 000 NECI ACQUISITION, INC.
Iselin, Xxx Xxxxxx 00000
By: /s/ Xxxxxx Xxxxxxx
-------------------------
SIGNATURE OF
Its: /s/President
------------------------
TITLE
Accepted and Approved:
COMERICA BANK
By: /s/ Illegible
------------------------
SIGNATURE OF
Its: /s/ Vice President
-----------------------
TITLE
4
