[LOGO]
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement") is made and entered into as of March 27,
1998 by and between ALDILA, INC., a Delaware corporation ("Borrower") and UNION
BANK OF CALIFORNIA, N.A. ("Bank").
SECTION 1. THE LOAN
1.1.1 THE REVOLVING LOAN. Bank will loan to Borrower an amount
not to exceed Ten Million Dollars ($10,000,000) outstanding in the aggregate at
any one time (the "Revolving Loan"). Borrower may borrow, repay and reborrow all
or part of the Revolving Loan in amounts of not less than One Hundred Thousand
Dollars ($100,000) in accordance with the terms of the revolving note. All
borrowings of the Revolving Loan must be made before June 30, 1999 at which time
all unpaid principal and interest of the Revolving Loan shall be due and
payable. The Revolving Loan shall be evidenced by a promissory note (the
"Revolving Note") on the standard form used by Bank for commercial loans. Bank
shall enter each amount borrowed and repaid in Bank's records and such entries
shall be deemed to be the amount of the Revolving Loan outstanding. Omission of
Bank to make any such entries shall not discharge Borrower of its obligation to
repay in full with interest all amounts borrowed.
1.2 TERMINOLOGY.
As used herein the word "Loan" shall mean, collectively, all
the credit facilities described above.
As used herein the word "Note" shall mean, collectively, all
the promissory notes described above.
As used herein, the words "Loan Documents" shall mean all
documents executed in connection with this Agreement.
1.3 PURPOSE OF LOAN. The proceeds of the Revolving Loan shall be
used for general working capital and general corporate purposes.
1.4 INTEREST. The unpaid principal balance of the Revolving Loan
shall bear interest at the rate or rates provided in the Revolving Note and
selected by Borrower. The Revolving Loan may be prepaid in full or in part only
in accordance with the terms of the Revolving Note and any such prepayment shall
be subject to the prepayment fee provided for therein.
1.5 UNUSED COMMITMENT FEE. On the last calendar day of the third
month following the execution of this Agreement and on the last calendar day of
each three-month period thereafter until June 30, 1999, or the earlier
termination of the Loan, Borrower shall pay to Bank a fee of one-quarter of one
percent (0.25%) per year on the average unused portion of the Loan for the
preceding quarter computed on the basis of actual days elapsed of a year of 360
days.
1.6 BALANCES. Borrower shall maintain its major depository accounts
with Bank until the Note and all sums payable pursuant to this Agreement have
been paid in full.
1.7 DISBURSEMENT. Upon execution hereof, Bank shall disburse the
proceeds of the Loan as provided in Bank's standard form Authorization executed
by Borrower.
1.8 CONTROLLING DOCUMENT. In the event of any inconsistency between
the terms of this Agreement and any Note or any of the other Loan Documents, the
terms of such Note or other Loan Documents will prevail over the terms of this
Agreement.
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SECTION 2. CONDITIONS PRECEDENT
Bank shall not be obligated to disburse all or any portion of the proceeds
of the Loan unless at or prior to the time for the making of such disbursement,
the following conditions have been fulfilled to Bank's satisfaction:
2.1 COMPLIANCE. Borrower shall have performed and complied with all
terms and conditions required by this Agreement to be performed or complied with
by it prior to or at the date of the making of such disbursement and shall have
executed and delivered to Bank the Note and other documents deemed necessary by
Bank.
2.2 BORROWING RESOLUTION. Borrower shall have provided Bank with
certified copies of resolutions duly adopted by the Board of Directors of
Borrower, authorizing this Agreement and the Loan Documents. Such resolutions
shall also designate the persons who are authorized to act on Borrower's behalf
in connection with this Agreement and to do the things required of Borrower
pursuant to this Agreement.
2.3 CONTINUING COMPLIANCE. At the time any disbursement is to be
made, there shall not exist any event, condition or act which constitutes an
event of default under Section 6 hereof or any event, condition or act which
with notice, lapse of time or both would constitute such event of default; nor
shall there be any such event, condition, or act immediately after the
disbursement were it to be made.
SECTION 3. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
3.1 BUSINESS ACTIVITY. The principal business of Borrower is the
manufacture of graphite golf shafts, carbon fiber, other composite materials
and products which employ carbon fiber and composite materials.
3.2 AFFILIATES AND SUBSIDIARIES. Borrower's affiliates and
subsidiaries (those entities in which Borrower has either a controlling interest
or at least a 25% ownership interest) and their addresses, and the names of
Borrower's principal shareholders, are as provided on a schedule delivered to
Bank on or before the date of this Agreement.
3.3 AUTHORITY TO BORROW. The execution, delivery and performance of
this Agreement, the Note and all other agreements and instruments required by
Bank in connection with the Loan are not in contravention of any of the terms of
any indenture, agreement or undertaking to which Borrower is a party or by which
it or any of its property is bound or affected.
3.4 FINANCIAL STATEMENTS. The financial statements of Borrower,
including both a balance sheet at December 31, 1997, together with supporting
schedules, and an income statement for the twelve (12) months ended December
31, 1997, have heretofore been furnished to Bank, and are true and complete
and fairly represent the financial condition of Borrower during the period
covered thereby. Since December 31, 1997, there has been no material adverse
change in the financial condition or operations of Borrower.
3.5 TITLE. Except for assets which may have been disposed of in the
ordinary course of business, Borrower has good and marketable title to all of
the property reflected in its financial statements delivered to Bank and to all
property acquired by Borrower since the date of said financial statements, free
and clear of all liens, encumbrances, security interests and adverse claims
("Liens"), except for Permitted Liens, as defined in Section 5.1.
3.6 LITIGATION. There is no litigation or proceeding pending or
threatened against Borrower or any of its property which is reasonably likely to
affect the financial condition, property or business of Borrower in a materially
adverse manner or result in liability in excess of Borrower's insurance
coverage.
3.7 DEFAULT. Borrower is not now in default in the payment of any
of its material obligations, and there exists no event, condition or act which
constitutes an event of default under Section 6 hereof and no condition, event
or act which with notice or lapse of time, or both, would constitute an event of
default.
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3.8 ORGANIZATION. Borrower is duly organized, validly existing and
in good standing under the laws of the state of its organization, and has the
power and authority to carry on the business in which it is engaged and/or
proposes to engage.
3.9 POWER. Borrower has the power and authority to enter into this
Agreement and to execute and deliver the Note and all of the other Loan
Documents.
3.10 AUTHORIZATION. This Agreement and all things required by this
Agreement have been duly authorized by all requisite action of Borrower.
3.11 QUALIFICATION. Borrower is duly qualified and in good standing
as a foreign corporation in each jurisdiction where the failure to qualify would
have a material adverse effect on the operations or financial condition of
Borrower.
3.12 COMPLIANCE WITH LAWS. Borrower is not in violation with respect
to any applicable laws, rules, ordinances or regulations which violation
materially affects the operations or financial condition of Borrower.
3.13 ERISA. Any defined benefit pension plans as defined in the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of
Borrower meet, as of the date hereof, the minimum funding standards of Section
302 of ERISA, and no Reportable Event or Prohibited Transaction as defined in
ERISA has occurred with respect to any such plan.
3.14 REGULATION U. No action has been taken or is currently planned
by Borrower, or any agent acting on its behalf, which would cause this Agreement
or the Note to violate Regulation U or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Securities and
Exchange Act of 1934, in each case as in effect now or as the same may hereafter
be in effect. Borrower is not engaged in the business of extending credit for
the purpose of purchasing or carrying margin stock as one of its important
activities and none of the proceeds of the Loan will be used directly or
indirectly for such purpose.
3.15 CONTINUING REPRESENTATIONS. These representations shall be
considered to have been made again at and as of the date of each disbursement of
the Loan and shall be true and correct as of such date or dates.
SECTION 4. AFFIRMATIVE COVENANTS
Until the Note and all sums payable pursuant to this Agreement or any other
of the Loan Documents have been paid in full, unless Bank waives compliance in
writing, Borrower agrees that:
4.1 USE OF PROCEEDS. Borrower will use the proceeds of the Loan
only as provided in subsection 1.3 above.
4.2 PAYMENT OF OBLIGATIONS. Borrower will pay and discharge
promptly all taxes, assessments and other governmental charges and claims levied
or imposed upon it or its property, or any part thereof, provided, however, that
Borrower shall have the right in good faith to contest any such taxes,
assessments, charges or claims and, pending the outcome of such contest, to
delay or refuse payment thereof provided that adequately funded reserves are
established by it to pay and discharge any such taxes, assessments, charges and
claims.
4.3 MAINTENANCE OF EXISTENCE. Borrower will maintain and preserve
its existence and assets and all rights, franchises, licenses and other
authority necessary for the conduct of its business and will maintain and
preserve its property, equipment and facilities in good order, condition and
repair, ordinary wear and tear excepted, and except for the disposition of
inventory, or of excess or obsolete equipment which is disposed of in an arm's
length transaction or has no tangible financial value, in the ordinary course of
business. Bank may, at reasonable times, visit and inspect any of the properties
of Borrower.
4.4 RECORDS. Borrower will keep and maintain full and accurate
accounts and records of its operations according to generally accepted
accounting principles and will permit Bank to have reasonable access thereto, to
make reasonable examination and photocopies thereof, and, upon reasonable
advance notice, to make audits during regular business hours. Costs for such
audits shall be paid by Borrower.
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4.5 INFORMATION FURNISHED. Borrower will furnish to Bank:
(a) Within forty five (45) days after the close of each fiscal
quarter, except for the final fiscal quarter of each fiscal year, its unaudited
balance sheet as of the close of such fiscal quarter, its unaudited income and
expense statement with supportive schedules and statement of retained earnings
for that fiscal quarter, prepared in accordance with generally accepted
accounting principles;
(b) Within ninety (90) days after the close of each fiscal year, a
copy of its statement of financial condition including at least its balance
sheet as of the close of such fiscal year, its income and expense statement and
retained earnings statement for such fiscal year, examined and prepared on an
audited basis by independent certified public accountants selected by Borrower
and reasonably satisfactory to Bank, in accordance with generally accepted
accounting principles applied on a basis consistent with that of the previous
year;
(c) As soon as available, copies of such financial statements and
reports as Borrower may file with any state or federal agency, including all
1O-Q, 10-K, and other reports as filed with the Securities and Exchange
Commission ("SEC");
(d) Such other financial statements and information as Bank may
reasonably request from time to time;
(e) In connection with each financial statement provided hereunder,
a certification of compliance with all covenants under this Agreement, executed
by Borrower's chief financial officer or other duly authorized officer of
Borrower, in form acceptable to Bank including Borrower's statement certifying
that no default has occurred and no event exists which with notice or the lapse
of time, or both, would result in a default hereunder;
(f) In connection with each fiscal year-end statement required
hereunder, any management letter of Borrower's certified public accountants;
(g) Prompt written notice to Bank of all events of default under
any of the terms or provisions of this Agreement or of any other agreement,
contract, document or instrument entered, or to be entered into with Bank; and
of any litigation which, if decided adversely to Borrower, would have a material
adverse effect on Borrower's financial condition; and of any other matter which
has resulted in, or is likely to result in, a material adverse change in its
financial condition or operations; and
(l) Prior written notice to Bank of any changes in Borrower's
officers and other senior management; Borrower's name; and location of
Borrower's assets, principal place of business or chief executive office.
4.6 PROFITABILITY. Borrower will maintain its net income, after provision
for income taxes, calculated as the sum of the most recent fiscal quarter plus
the three (3) fiscal quarters ended immediately prior to such quarter, of not
less than:
i) $1,500,000 at December 31, 1997;
ii) $1,000,000 at March 31, 1998;
iii) $ 400,000 at June 30, 1998;
iv) $ 450,000 at September 30, 1998;
v) $3,100,000 at December 31, 1998;
vi) $3,100,000 at March 31, 1999;
vii) $3,500,000 at June 30, 1999.
4.7 CASH FLOW TO DEBT SERVICE RATIO. Borrower will maintain a
ratio of Cash Flow to Debt Service of not less than 1.25:1.0. "Cash Flow"
shall mean the sum of net income plus interest payments, tax payments,
depreciation, amortization and rents LESS income received from sub-leases,
unfinanced Normalized Capital Expenditures and dividends paid, all for the
most recent fiscal quarter plus the three (3) fiscal quarters ended
immediately prior to such quarter. "Debt Service" shall mean that portion of
rent, long-term liabilities and capital leases, net of income received from
sub-leases, coming due within twelve (12) months after the date of
calculation plus interest payments projected by Borrower for the same period,
but shall not include principal
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amounts outstanding under the Revolving Loan. "Normalized Capital Expenditures"
shall mean those capital expenditures made by Borrower except those related to
Borrower's single production line and associated facility located in Evanston,
Wyoming.
4.8 NET WORTH. Borrower will maintain net worth of not less than
Seventy Million Dollars ($70,000,000) as of December 31, 1997 and will at all
times thereafter maintain a minimum net worth that increases from said amount as
of each fiscal year end of Borrower by fifty percent (50%) of Borrower's net
income after taxes.
4.9 TOTAL LIABILITIES TO NET WORTH. Borrower will maintain a ratio
of total liabilities to net worth of not less than 0.60:1.0.
4.10 INSURANCE. Borrower will keep all of its insurable property,
real, personal or mixed, insured by good and responsible companies against fire
and such other risks as are customarily insured against by companies conducting
similar business with respect to like properties. Borrower will maintain
adequate worker's compensation insurance and adequate insurance against
liability for damages to persons and property.
4.11 ADDITIONAL REQUIREMENTS. Borrower will promptly, upon demand by
Bank, take such further action and execute all such additional documents and
instruments in connection with this Agreement as Bank in its reasonable
discretion deems necessary, and promptly supply Bank with such other information
concerning its affairs as Bank may reasonably request from time to time.
4.12 LITIGATION AND ATTORNEYS' FEES. Borrower will pay promptly to
Bank upon demand, reasonable attorneys' fees (including but not limited to the
reasonable estimate of the allocated costs and expenses of in-house legal
counsel and legal staff) and all costs and other expenses paid or incurred by
Bank in collecting, modifying or compromising the Loan or in enforcing or
exercising its rights or remedies created by, connected with or provided for in
this Agreement or any of the Loan Documents, whether or not an arbitration,
judicial action or other proceeding is commenced. If such proceeding is
commenced, only the prevailing party shall be entitled to attorneys' fees and
court costs.
4.13 BANK EXPENSES. Borrower will pay or reimburse Bank for all
costs, expenses and fees incurred by Bank in preparing and documenting this
Agreement and the Loan, and all amendments and modifications thereof, including
but not limited to all filing and recording fees, costs of appraisals, insurance
and attorneys' fees, including the reasonable estimate of the allocated costs
and expenses of in-house legal counsel and legal staff.
4.14 REPORTS UNDER PENSION PLANS. Borrower will furnish to Bank, as
soon as possible and in any event within 15 days after Borrower knows or has
reason to know that any event or condition with respect to any defined benefit
pension plans of Borrower described in Section 3 above has occurred, a statement
of an authorized officer of Borrower describing such event or condition and the
action, if any, which Borrower proposes to take with respect thereto.
SECTION 5. NEGATIVE COVENANTS
Until the Note and all other sums payable pursuant to this Agreement or any
other of the Loan Documents have been paid in full, unless Bank waives
compliance in writing, Borrower agrees that:
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5.1 ENCUMBRANCES AND LIENS.
(a) Borrower will not create any Lien on property of any
kind, whether real, personal or mixed, now owned or hereafter acquired, or
upon the income or profits thereof, except for (i) Liens specifically
referred to in the financial statements of Borrower as at December 31, 1997
or in a schedule delivered to Bank prior to the execution hereof, (ii) Liens
incidental to the conduct of Borrower's business or the ownership of
Borrower's assets which (a) do not secure indebtedness and (b) do not in the
aggregate materially detract from the value of Borrower's assets or
materially impair the use thereof in the operation of Borrower's business,
(iii) Liens incurred by Borrower in the ordinary course of business for items
not past due and payable, including mechanics' and materialmen's liens and
deposits and charges for workers' compensation and liens for taxes and
assessments not past due and payable, or where such items are being contested
in good faith provided provision is made to the reasonable satisfaction of
Bank for the eventual payment thereof if subsequently found payable by
Borrower, (iv) purchase money security interests encumbering only the
personal property acquired, (v) operating leases or licenses under which
Borrower uses or possesses any property, whether personal or real, and (vi)
the sublease of all or any portion of the real property currently leased by
Borrower at 00000 Xxxxxxxx Xxxxxx Xxxxx, Xxx Xxxxx, Xxxxxxxxxx (collectively,
"Permitted Liens").
(b) Borrower will not assume or suffer to exist any Lien on
property of any kind, whether real, personal or mixed, now owned or hereafter
acquired, or upon the income or profits thereof, except for Permitted Liens.
5.2 BORROWINGS. Borrower will not sell, discount or otherwise
transfer any account receivable or any note, draft or other evidence of
indebtedness, except to Bank or except to a financial institution at face
value for deposit or collection purposes only and without any fee other than
fees normally charged by the financial institution for deposit or collection
services. Borrower will not borrow any money, become contingently liable to
borrow money, nor enter any agreement to directly or indirectly obtain
borrowed money, except pursuant to agreements made with Bank.
5.3 SALE OF ASSETS, LIQUIDATION OR MERGER. Borrower will neither
liquidate nor dissolve nor enter into any consolidation, merger, partnership
or other combination, nor convey, nor sell, nor lease all or the greater part
of its assets or business, nor purchase or lease all or the greater part of
the assets or business of another, provided, however, Borrower may acquire,
by purchase of stock, purchase of assets or merger, all or any substantial
division or portion of the assets and business of another entity if (a) such
acquisition is uncontested by such entity, (b) the principal business of such
entity is the same as that of Borrower as defined in Section 3.1 hereof, (c)
Borrower is the surviving entity, (d) the consideration paid or to be paid by
Borrower in connection with such acquisition, whether in the form of shares
of Borrower's stock, cash, debt due to seller, or otherwise, when added to
the consideration paid or to be paid by Borrower in connection with all other
acquisitions made by Borrower at any time on or after the date of this
Agreement but on or prior to the date of such acquisition, does not exceed,
in the aggregate, the sum of (i) twenty percent (20%) of Borrower's net worth
as at Borrower's fiscal year-ended December 31, 1997, AND (ii) fifty percent
(50%) of Borrower's cumulative EBITDA, measured quarterly on a current fiscal
year-to-date basis, (e) the amount of consideration paid or to be paid in a
form other than shares of Borrower's stock in connection with such
acquisition, when added to the consideration paid or to be paid by Borrower
in a form other than shares of Borrower's stock in connection with all other
acquisitions made by Borrower at any time on or after the date of this
Agreement but on or prior to the date of such acquisition, does not exceed an
amount equal to sixty percent (60%) of the maximum amount permitted under
subparagraph (d) above; and (f) no Event of Default shall have occurred and
be continuing either immediately prior to or immediately after the making of
such acquisition, or shall be caused thereby. "EBITDA" shall mean earnings
before interest, taxes, depreciation and amortization.
5.4 LOANS, ADVANCES AND GUARANTIES. Borrower will not, except in
the ordinary course of business as currently conducted, make any loans or
advances, become a guarantor or surety, pledge its credit or properties in any
manner or extend credit.
5.5 INVESTMENTS. Borrower will not purchase the debt or equity of
another person or entity except for savings accounts and certificates of deposit
of Bank, direct U.S. Government obligations and commercial paper issued by
corporations with the top ratings of Moody's or Standard & Poor's, provided all
such permitted investments shall mature within one year of purchase.
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5.6 PAYMENT OF DIVIDENDS. Borrower will not declare or pay any
dividends, other than a dividend payable in its own common stock, or authorize
or make any other distribution with respect to any of its stock now or hereafter
outstanding.
SECTION 6. EVENTS OF DEFAULT
The occurrence of any of the following events ("Events of Default") shall
terminate any obligation on the part of Bank to make or continue the Loan and
automatically, unless otherwise provided under the Note, shall make all sums of
interest and principal and any other amounts owing under the Loan immediately
due and payable, without notice of default, presentment or demand for payment,
protest or notice of nonpayment or dishonor, or any other notices or demands:
6.1 Borrower shall default in the due and punctual payment of the
principal of or the interest on the Note or any of the other Loan Documents; or
6.2 Any default shall occur under the Note; or
6.3 Borrower shall default in the due performance or observance of
any covenant or condition of the Loan Documents.
SECTION 7. MISCELLANEOUS PROVISIONS
7.1 ADDITIONAL REMEDIES. The rights, powers and remedies given to
Bank hereunder shall be cumulative and not alternative and shall be in addition
to all rights, powers and remedies given to Bank by law against Borrower or any
other person, including but not limited to Bank's rights of setoff or banker's
lien.
7.2 NONWAIVER. Any forbearance or failure or delay by Bank in
exercising any right, power or remedy hereunder shall not be deemed a waiver
thereof and any single or partial exercise of any right, power or remedy shall
not preclude the further exercise thereof. No waiver shall be effective unless
it is in writing and signed by an officer of Bank.
7.3 INUREMENT. The benefits of this Agreement shall inure to the
successors and assigns of Bank and the permitted successors and assignees of
Borrower, and any assignment by Borrower without Bank's consent shall be null
and void.
7.4 APPLICABLE LAW. This Agreement and all other agreements and
instruments required by Bank in connection therewith shall be governed by and
construed according to the laws of the State of California.
7.5 SEVERABILITY. Should any one or more provisions of this
Agreement be determined to be illegal or unenforceable, all other provisions
nevertheless shall be effective. In the event of any conflict between the
provisions of this Agreement and the provisions of any note or reimbursement
agreement evidencing any indebtedness hereunder, the provisions of such note or
reimbursement agreement shall prevail.
7.6 INTEGRATION CLAUSE. Except for documents and instruments
specifically referenced herein, this Agreement constitutes the entire agreement
between Bank and Borrower regarding the Loan and all prior communications verbal
or written between Borrower and Bank shall be of no further effect or
evidentiary value.
7.7 CONSTRUCTION. The section and subsection headings herein are
for convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
7.8 AMENDMENTS. This Agreement may be amended only in writing
signed by all parties hereto.
7.9 COUNTERPARTS. Borrower and Bank may execute one or more
counterparts to this Agreement, each of which shall be deemed an original, but
when together shall be one and the same instrument.
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SECTION 8. SERVICE OF NOTICES
8.1 Any notices or other communications provided for or allowed
hereunder shall be effective only when given by one of the following methods and
addressed to the respective party at its address given with the signatures at
the end of this Agreement and shall be considered to have been validly given:
(a) upon delivery, if delivered personally; (b) upon receipt, if mailed, first
class postage prepaid, with the United States Postal Service; (c) on the next
business day, if sent by overnight courier service of recognized standing; and
(d) upon telephoned confirmation of receipt, if telecopied.
8.2 The addresses to which notices or demands are to be given may
be changed from time to time by notice delivered as provided above.
THIS AGREEMENT is executed on behalf of the parties by duly authorized
officers as of the date first above written.
UNION BANK OF CALIFORNIA, N.A. ALDILA, INC.
By: /s/ Xxxxxxx Xxxxxxx By: /s/ Xxxxxx X. Xxxxxxx
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Title Vice President Title Vice President
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By: /s/ Xxxxx Xxxxx By:
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Title: Vice President Title:
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Address: 000 X Xxxxxx, 0xx Xxxxx Address: 00000 Xxxxxxxx Xxxxxx Xxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000 Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx, Attention: Xxxxxx X. Xxxxxxx,
Vice President Vice President of Finance
Telecopier:(000) 000-0000 Telecopier:(000) 000-0000
Telephone: (000) 000-0000 Telephone: (000) 000-0000
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