LOAN AGREEMENT
Exhibit
10.22
THIS LOAN
AGREEMENT is dated this 13th day of February, 2009, by and among Flotation
Technologies, Inc., a Maine corporation having its principal place of business
at Biddeford, Maine, and a mailing address of 00 Xxxxx Xxxxxx, Xxxxxxxxx, Xxxxx
00000, (hereinafter called "Borrower" or "Debtor"); Deep Down Inc., (hereinafter
called "Parent Company"), and TD BANK, N.A. a corporation organized under the
laws of the United States of America with a place of business at Xxx Xxxxxxxx
Xxxxxx, Xxxxxxxx, Xxxxx, and a mailing address of X.X. Xxx 0000, Xxxxxxxx, Xxxxx
00000-0000 (hereinafter called "Lender" or the "Bank").
WHEREAS, the Borrower has requested
that the Bank make available to Borrower, in accordance with the terms hereof, a
loan in the principal amount of $2,160,000.00 (the “Loan”); and
WHEREAS, Bank has agreed, subject to
the terms and conditions hereof, to make the Loan available to Borrower;
and
WHEREAS, as a condition of making the
Loan the Bank has required that the Borrower’s debt to Parent Company, other
than accounts arising in the ordinary course of business, be subordinated to the
Loan, with no payments of principal or interest allowed; and
WHEREAS, as a condition of making the
Loan the Bank has required that the Bank receive and accept confirmation of
approval from Whitney National Bank; and
WHEREAS, as a condition of making the
Loan the Bank has required that a default in any obligation of Parent Company to
Whitney National Bank shall constitute a default under the Loan;
and
WHEREAS, the Loan will be secured by a
first priority Mortgage and Security Agreement and a first priority Collateral
Assignment of Leases and Rents on the Borrower’s premises at 00 Xxxxx Xxxxxx,
Xxxxxxxxx, Xxxxx, (the “Project”), and
WHEREAS,
as a condition of making the Loan the Bank has required a pledge from the
Borrower that it will not grant or permit any security interest or other
encumbrance of Borrower’s assets, except the existing security interest granted
to Whitney National Bank and the security granted to the Bank as provided
herein;
NOW,
THEREFORE, in consideration of the mutual covenants and promises hereinafter set
forth, Borrower and Lender agree as follows:
SECTION
1. DEFINITIONS
As used
herein, unless otherwise specifically defined, the following capitalized words
and phrases shall have the following meanings:
1.1 "Loan" shall mean all
advances made by Lender to Borrower from time to time pursuant to the Loan
referenced above.
1.2 "Loan Documents" means
this Agreement, the Note issued to evidence the Loan, and any and all
instruments, documents and agreements evidencing, governing or otherwise
relating to the Obligations, whether executed contemporaneously herewith or
executed at any time in the future, including without limitation the documents
listed in the Closing Agenda attached hereto, as the same may be amended,
extended, renewed, restated or otherwise modified from time to
time.
1.3 "Note" means the
Commercial Note of even date herewith executed by the Borrower to the Bank to
evidence the loan in the amount of $2,160,000.00, together with any and all
amendments and modifications thereto, substitutions therefor and renewals and
extensions thereof.
1.4 "Obligations” means
any and all notes (including without limitation the Note, together with any
amendments thereto, extensions or renewals thereof or substitutions therefor),
liabilities, advances, loans, sums due or to become due under any letters of
credit and indebtedness of Borrower to Bank of every kind, nature and
description (whether or not evidenced by any note or other instrument, and
whether or not for the payment of money), direct or indirect, absolute or
contingent, primary or secondary, joint or several, secured or unsecured, due or
to become due, now existing or hereafter arising, regardless of how they arise
or were acquired, any liability of Borrower to Bank as a guarantor or surety of
the indebtedness or liabilities of others, obligations to perform acts and
refrain from taking action as well as obligations to pay money, and all
interest, fees, charges and expenses (including reasonable attorneys' fees) paid
or incurred by Bank at any time in connection with the commitment for,
preparation, execution, delivery, amendment, review, perfection, administration
and/or enforcement of this Agreement and any other of the Loan Documents and any
and all obligations of Borrower to Bank pursuant to the Loan
Documents.
1.5 “Project” means and
includes the real estate and all appurtenances, equipment, fixtures and other
personal property of the Borrower located at or near 00 Xxxxx Xxxxxx, Xxxxxxxxx,
Xxxxx.
1.6 The
singular form of any word used herein, including any of the terms defined above,
shall include the plural, and vice versa. The use herein of a word of
any gender shall include both genders.
1.7 The
headings or titles of several sections to this Agreement shall be solely for
convenience of reference and shall not affect the meaning, construction or
effect of the provisions hereof.
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SECTION
2. ESTABLISHMENT OF CREDIT FACILITIES
2.1 Establishment of
Credit. Lender agrees to loan to Borrower an amount not to
exceed in the aggregate Two Million One Hundred Sixty Thousand Dollars
($2,160,000.00), subject to the terms of this Agreement and a certain
$2,160,000.00 Commercial Note of even date herewith.
2.2 Loan
Advances. The Loan shall be used for working capital, to
support increased inventory, purchase of new equipment and completion of
building renovations. At closing the Bank will advance the sum of
$1,840,000.00. Upon completion of construction of the building
renovations and issuance of a certificate of occupancy by the City of Biddeford,
the Bank will advance the balance of the Loan in the amount of
$320,000.00. Upon disbursement of the second advance, the Bank will
recalculate the monthly payment amount on the Note to an amount that will fully
amortize the then outstanding principal balance over a term ending 20 years from
the date of the Note.
SECTION
3. REPRESENTATIONS AND WARRANTIES
3.1 General. Borrower
represents, warrants and covenants that the execution, delivery and performance
of this Agreement, and any other documents required by Lender relating to this
loan transaction are not a violation of, or contrary to, any covenants,
warranties or agreements of Borrower with any other persons or
parties. This Agreement evidences a loan for business and commercial
purposes, and not for personal, family or household purposes.
3.2 Organization, Standing,
Authority, etc. The Borrower is a corporation duly organized
and validly existing under the laws of the State of Maine, and has all requisite
power and authority to own and operate its properties, to carry on its business
as now conducted and proposed to be conducted, to enter into this Agreement, and
all other documents to be executed by it in connection with the transactions
contemplated hereby, to issue the Note and to carry out the terms hereof and
thereof. Parent Company is a corporation duly organized and validly
existing under the laws of the State of Texas, and has all requisite power and
authority to own and operate its properties, to carry on its business as now
conducted and proposed to be conducted, to enter into this Agreement, and all
other documents to be executed by it in connection with the transactions
contemplated hereby, to issue the Debt Subordination and Standby Agreement and
to carry out the terms hereof and thereof.
3.3 Litigation,
etc. There is no action, proceeding or investigation of any
sort pending or, to the knowledge of the Borrower and Parent Company, threatened
(or any basis therefor known to the Borrower and Parent Company) which questions
the validity of this Agreement, the Note, the Debt Subordination and Standby
Agreement, or the other documents executed in connection herewith, or an action
taken or to be taken pursuant hereto, or which might result, either in any case
or in the aggregate, in any material adverse change in the business operations,
affairs or condition of the Borrower or Parent Company or of their respective
properties or in any material liability on the part of the Borrower or Parent
Company.
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3.4 Authorization; Compliance
with Other Instruments. The execution, delivery and
performance of this Agreement and the Note, the Security Instruments and the
Debt Subordination and Standby Agreement have been duly authorized by all
necessary action on the part of the Borrower and Parent Company, will not result
in any violation of or be in conflict with any term of the Borrower’s and Parent
Company’s Organizational Documents, including their respective Articles of
Organization, Bylaws, or of any material agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to the
Borrower or Parent Company, or result in the creation of any mortgage, lien,
charge or encumbrance upon any of the properties or assets of the Borrower or
Parent Company pursuant to any such term. Neither the Borrower nor
Parent Company is in violation of any term of its Organizational Documents, or
of any term of any material agreement or instrument to which it is a party, or,
of any judgment, decree, order, statute, rule or governmental regulation
applicable to it, the non-compliance with which would have a material adverse
effect on the Borrower or Parent Company or their respective
properties.
SECTION
4. AFFIRMATIVE COVENANTS
Borrower covenants that from and after
the date hereof and so long as this Agreement is in effect or any amounts remain
unpaid on account of the Loan,
4.1 Financial
Reporting.
(a) Borrower
will provide the following to Lender within 120 days after the end of each
fiscal year:
(i) balance sheets and operating
statements with respect to the Project and any other property that serves as
collateral for the Loan;
(ii) complete federal income tax
returns of Borrower, including complete tax returns on any partnerships,
corporations or other entities in which Borrower has an interest;
(iii) audited financial statements of
Parent Company, including consolidated financial statements of Borrower prepared
in accordance with generally accepted accounting principles by a certified
public accountant acceptable to Bank, accompanied by any Management
Letter;
(b) Borrower
will provide the following to Lender within 45 days after the end of each fiscal
quarter:
(i)
management prepared financial statements prepared in accordance with generally
accepted accounting principles including a detailed balance sheet and profit and
loss statement;
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(ii)
Company prepared aging of accounts receivable and accounts payable;
and
(iii)
Company prepared list of inventory.
(c) Borrower
will provide to Lender such other information regarding its business affairs and
condition as the Lender may, from time to time, reasonably request.
A failure to provide the information
required hereunder shall be a default under the Loan, and Borrower shall
thereupon be obligated to pay interest at the Default Interest Rate as stated in
the Note.
4.2 Legal Existence; Licenses;
Compliance with Laws, etc. The Borrower will maintain its
existence and business; maintain all properties which are reasonably necessary
for the conduct of its business, now or hereafter owned, in good repair, working
order and condition; take all actions necessary to maintain and keep in full
force and effect its rights, including any licenses; and, except as otherwise
provided herein, comply with all applicable statutes, rules, regulations and
orders of, and all applicable restrictions imposed by, all governmental
authorities in respect of the conduct of its business and the ownership of its
properties, including without limitation all zoning, land-use, equal access to
public accommodations and environmental laws and regulations to the extent that
the non-compliance with the foregoing would or could have a material adverse
effect on the Borrower or its properties. At closing, Borrower’s
counsel shall provide written opinions regarding these issues satisfactory to
Bank.
4.3 Insurance. The
Borrower will maintain or cause to be maintained with respect to the Project and
any other property which is to serve as collateral for the Loan or any Guaranty
insurance in form and substance reasonably satisfactory to Lender,
including:
(a) “all
risks” property insurance on the Property written on a non-reporting form and in
compliance with any co-insurance clause;
(b) flood
insurance, if the Property is located in any federally designated “special flood
hazard area”;
(c) general
liability insurance and owner’s contingent or protective liability insurance in
an amount not less than $2,000,000.00;
(d) worker’s
compensation insurance; and
(e) adequate
hazard insurance on all business assets securing the Loan naming the Bank as
loss payee.
The
property and flood insurance policies shall name the Bank as mortgagee and loss
payee and shall be first payable in case of loss to the Bank pursuant to
standard non-contributory mortgage clauses and lender’s loss payable
endorsements. The liability insurance shall name the Bank as an
additional insured. For the purpose of insurance, the Bank shall be
named as TD Bank, N.A., its successors and assigns, ATIMA, P. O. Xxx 0000,
Xxxxxxxx, Xxxxx 00000.
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All
insurance referred to in this commitment shall be in such amounts and form,
shall include such coverage, endorsements and deductibles, and shall be issued
by such insurers as shall be approved by Bank, and shall provide for written
notice to Bank at least thirty
(30) days prior to notice of cancellation, nonrenewal, modification or
expiration. Duplicate originals or certified copies of the insurance
required above, together with proof of payment of premiums, shall be delivered
to the Bank prior to the closing of the Loan.
4.4 Payment of
Taxes. The Borrower will pay and discharge promptly as they
become due and payable all taxes, assessments and other governmental charges or
levies imposed upon it or its income or upon any of its property or assets, or
upon any part thereof, as well as all lawful claims of any kind (including
claims for labor, materials and supplies, franchise, unemployment and
withholding) which, if unpaid, might by law become a lien or a charge upon the
Property or any other property to serve as collateral for the Loan; provided that the
Borrower shall not be required to pay any such tax, assessment, charge, levy or
claim if the amount, applicability or validity thereof shall currently be
contested in good faith by appropriate proceedings or other appropriate actions
promptly initiated and diligently conducted and if the Borrower shall have set
aside on its books such reserves, if any, with respect thereto as are required
by GAAP and deemed appropriate by the Borrower and its independent public
accountants, provided, further, however, that the
Borrower will pay all such taxes, or assessments, charges, levies or claims in
such a manner as to prevent, as to a municipality or other political
subdivision, the sale, forfeiture or loss of each property, and in all other
cases forthwith upon commencement of proceedings to foreclose any lien which may
attach as security therefor.
4.5 Advice of Default,
etc. The Borrower will promptly advise Lender of any notice in
respect of any material order, claim or proceeding received by the Borrower as
to violations or alleged violations of any statutes, orders, rules or
regulations relating to the foregoing or requiring any material work, repair or
capital expenditures. The Borrower also will promptly notify the
Lender of any material adverse change in the Borrower’s financial condition or
any condition or event which constitutes, or over the passage of time or upon
notice or both would constitute an Event of Default under the Note or any other
agreement with the Lender, or of any obligation of the Borrower to others, or of
any threat or pending claim, litigation, arbitration or governmental proceeding
material to the Borrower or their respective business interests.
4.6 Liability for and
Reimbursement of Costs and Expenses. The Borrower will pay or
reimburse the Lender, on demand, for all reasonable expenses (including, without
limitation, counsel fees and expenses) incurred or paid by the Lender in
connection with the preparation, review, interpretation and amendment or
restatement of the Loan Documents and any instrument, agreement or document
executed and delivered pursuant thereto or in connection therewith, or with the
enforcement by the Lender of its rights as against the Borrower or any other
person primarily or secondarily liable to the Lender in respect of any
Obligations of the Borrower to the Lender.
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4.7 Deposit
Account. The Borrower shall open and maintain a comprehensive
deposit relationship with Lender so long as any portion of the Loan remains
outstanding.
SECTION
5. FINANCIAL COVENANTS
5.1 These
Financial Covenants will be tested annually beginning with the period ending
December 31, 2009:
Tangible Net
Worth:
Borrower
will maintain a Tangible Net Worth of at least
$9,500,000.00. Tangible Net Worth Net of Subordinated Debt: Defined
As: The Book Value of Net Worth (Total Assets - Total Liabilities) As Set Forth
In The Statement of Financial Position of The Borrower Determined In Accordance
With Generally Accepted Accounting Principals, Minus The Net Book Value Of The
Following Items (But Only To The Extent That Such Items Are Included In Any
Determination Of The Total Assets Of The Borrower): (I) Good Will, Patents,
Trademarks, Copyrights, Trade Names, Customer Lists, And Other Like Intangible
Assets; (Ii) Receivables Due From Affiliates, Subsidiaries Or Other Related
Parties, Include Officers, Employees Or Stockholders Of The Borrower; And (Iv)
Any Capitalized Start-Up Or Development Expenses, And (V) Any Write-Up Or
Reappraisal Of The Borrower's Existing Assets.
Debt Service Coverage - Post
Distributions:
Borrower
will maintain a Debt Service Coverage Ratio of at least 1.50 To
1.0: Defined As: (Net Income after Tax +
Depreciation/Depletion/Amortization + Interest - Dividends/Distributions +/-
Non-Recurring Items) Divided By (Required Annual Principal & Interest
Payments). Non-Recurring Items Will Include Other Income/Expenses That Are Not
Part Of The Normal Ongoing Operations Of The Company, As Determined By The
Bank. .
Debt Service Coverage - Pre
Distributions:
Borrower
will maintain a debt service coverage ratio of at least 2.0 to 1.0: defined as:
(net income after tax + depreciation/depletion/amortization + interest +/-
non-recurring items) divided by (required annual principal & interest
payments). Non-recurring items will include other income/expenses that are not
part of the normal ongoing operations of the company, as determined by the
bank.
SECTION
6. NEGATIVE COVENANTS
6.1 So
long as any part of the Loan remains outstanding, the Borrower shall not grant
or permit any security interest or other encumbrance of Borrower’s assets,
except the existing security interest granted to Whitney National Bank and the
security granted to the Bank as provided herein. The existence of any
security interest or other encumbrance in violation of the terms of this
section, if not terminated within twenty (20) days following written notice of
such security interest or other encumbrance given by the Bank to the Borrower,
shall constitute a default under the Loan Documents.
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6.2 Borrower
shall not incur debt in excess of $100,000.00 without approval from the Bank.
Approval of additional debt exceeding $100,000.00 will not be unreasonably
withheld by the Bank.
SECTION
7. MISCELLANEOUS
7.1 Notices. All
notices and other communications hereunder shall be in writing and shall be
personally delivered or mailed by first class mail, postage prepaid, as
follows:
(a) If
to the Lender:
TD Bank, N.A.
Xxx Xxxxxxxx Xxxxxx
X.X. Xxx 0000
Xxxxxxxx,
Xxxxx 00000-0000
Attention: Commercial Loan
Department
(b) If
to the Borrower:
Flotation Technologies,
Inc.
00 Xxxxx Xxxxxx
Xxxxxxxxx, Xxxxx 00000
(b) If
to Parent Company:
or to
such other address or addresses as the party to whom such notice is directed may
have designated in writing to the other party hereto. A notice shall
be deemed to have been given upon the earlier to occur of (i) three (3) days
after the date on which it is deposited in the U.S. mails properly addressed,
first class postage prepaid, by certified or registered mail, return receipt
requested, or (ii) receipt by the party to whom such notice is
directed.
7.2 No Waiver; Cumulative
Remedies. No failure to exercise and no delay in exercising,
on the part of Lender, any right, power or privilege hereunder, shall operate as
a waiver thereof, nor shall any single or partial exercise of any right, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and
remedies herein provided are cumulative and not exclusive of any rights or
remedies provided by law.
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7.3 Successor. This
Agreement shall be binding upon and inure to the benefit of Borrower,
Guarantors, Lender, and their respective successors and assigns.
7.4 Governing
Law. This Agreement and the rights and obligations of the
parties hereunder shall be governed by and construed and interpreted in
accordance with the laws of the State of Maine.
7.5 Waiver. Borrower
and all other parties liable for the Obligations, whether principal, guarantor,
endorser or otherwise, hereby severally waive demand, notice and protest, and
waive all recourse to suretyship and guarantorship defenses generally, including
but not limited to any extension of time for payment or performance which may be
granted to Borrower or to any other liable party, any modifications or
amendments to this Agreement or any documents securing payment and performance
hereof, any act or omission to act by or on behalf of Lender, any invalidity or
unenforceability of security given herefor, any release, whether intentional,
unintentional, or by operation of law, or security, any release, whether
intentional, unintentional or by operation of law, of a liable party or parties,
and all other indulgences of any type which may be granted by Lender to the
Borrower or any party liable for the Obligations, and do also agree to pay all
costs of collection of the Obligations, including reasonable attorneys' fees
which may be incurred in connection therewith.
7.6 Survival of
Representations. All representations and warranties of the
Borrower and all terms and provisions, covenants and conditions and agreements
to be performed by the Borrower in any of the other Loan Documents shall be true
and satisfied at the time of the delivery of this Agreement and shall survive
the execution and delivery of this Agreement.
7.7 Entire
Agreement. This Agreement and the other Loan Documents contain
the entire agreement of the parties hereto and thereto with respect to the
matters discussed herein and therein. This Agreement may not be
altered or amended except by agreement in writing signed by the
parties.
7.8 Counterparts. This
Agreement may be executed in two or more counterparts each of which shall be an
original and all of which shall constitute one agreement.
7.9 JURY
WAIVER. LENDER BORROWER AND EACH GUARANTOR, FOR THEMSELVES AND
THEIR RESPECTIVE HEIRS, SUCCESSORS AND ASSIGNS, KNOWINGLY, VOLUNTARILY AND
MUTUALLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING
TO THE TRANSACTIONS UNDER THIS AGREEMENT, ANY ALLEGED ORAL OR WRITTEN COMMITMENT
BY THE LENDER, OR ANY COLLECTION PROCEEDINGS WITH RESPECT TO THIS
AGREEMENT.
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BORROWER AND EACH GUARANTOR AGREES THAT
ANY AND ALL DISPUTES OR CLAIMS AGAINST THE BANK OR ITS AGENTS ARISING OUT OF OR
RELATING TO THIS AGREEMENT, THE LOANS, THE LOAN DOCUMENTS, ANY COLLATERAL
SECURING THE LOANS OR THE CONDUCT OF THE BANK OR ITS AGENTS SHALL BE RESOLVED
SOLELY BY MEANS OF BINDING ARBITRATION CONDUCTED IN PORTLAND, MAINE IN
ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION GOVERNING
COMMERCIAL ARBITRATION.
7.10 Writing
Required. Borrower and each Guarantor acknowledges that under
Maine law, no promise, contract, or agreement to lend money, extend credit,
forbear from collection of a debt or make any other accommodations for the
repayment of a debt for more than $250,000 may be enforced against Bank unless
the promise, contract, or agreement is in writing and signed by Bank, nor can
any change, forbearance or other accommodation relating to the Loan be enforced
against Bank unless it is in writing and signed by Bank.
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as
of the date first written above.
| BORROWER: | Flotation Technologies, Inc. |
| By: ________________________________ | |
| PARENT COMPANY: | Deep Down, Inc. |
| By: ______________________________ | |
| LENDER: | TD Bank, N.A. |
| By: /s/ Xxxxxxx Xxxxxxxx | |
|
Xxxxxxx
Xxxxxxxx, its Vice
President
|
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