EXHIBIT 10.5
February 29, 1996
EMCON
000 Xxxxx Xx Xxxxxx Xxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
Attn: R. Xxxxxxx Xxxxxxxxx, CFO
RE: EURODOLLAR RATE OPTION AGREEMENT
Dear Xx. Xxxxxxxxx:
As of this date, EMCON has entered into a Credit Agreement with The
Bank of California, N.A. ("Bank") pursuant to which EMCON has (i) a line of
credit facility in the maximum principal amount of $10,000,000 and (ii) a
$10,000,000 term loan facility (collectively, the "Credit Facility"), the terms
and conditions of which are governed by the Credit Agreement, a Line of Credit
Note, a Term Loan Note, and various other documents ("Loan Documents). In
conjunction with your current Credit Facility, Bank is pleased to offer you a
chance to participate in a special commercial pricing program.
1. AVAILABILITY AND MATURITY
Bank usually extends financing based on a fluctuating rate that
changes with the rate Bank announces to be in effect from time to time as its
prime rate ("Prime Rate"). The Prime Rate is a rate set by Bank based on various
factors, including general economic and market conditions, and is used as a
reference point in pricing certain loans. Bank may price its loans at, above or
below the Prime Rate.
In contrast, Bank's "Eurodollar Rate" is a fixed rate (more fully
defined below) Bank offers from time to time which, if you accept this proposal,
will apply to all or such portion of the principal amount outstanding under the
Credit Facility ("Covered Amount") and for such time periods as you and Bank
shall mutually agree. Pricing tied to the Eurodollar Rate is available for
periods of 1, 2, 3, 6, 9 or 12 months (each a "Period"); provided, however, that
no Period shall have a maturity date subsequent to the scheduled maturity date
for the Credit Facility with respect to which the Covered Amount relates. This
pricing may be applied to Covered Amounts in a minimum of $1,000,000 and
additional increments of $500,000 outstanding under the Credit Facility.
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Bank's "Eurodollar Rate" is, for each Period, a rate comprised of (a)
the rate of interest at which Dollar deposits for such period and in such amount
would be offered to Bank in the Eurodollar Market at a time selected by Bank two
(2) Banking Days (as defined below) prior to the commencement of the relevant
Period, adjusted for the then maximum reserve, capital adequacy, deposit
insurance, and similar requirements that under any circumstance could be
applicable to Bank pursuant to applicable law or regulation, and other amounts
associated with Bank's costs and desired return; plus (b) a margin equal to one
and one-half percent (1.50%). The Eurodollar Market is the market in which the
buying and selling of United States Dollar deposits booked outside the United
States of America occurs among the international banking community.
Bank's Eurodollar Rate is available and may be accepted only at the
time quoted by Bank for the applicable Period beginning two (2) Banking Days
hence. Due to changes in legal, regulatory, economic or market conditions, Bank
may at any time determine that pricing based on the Eurodollar Rate is not
available, and thus, may be unable to offer such a rate.
2. QUOTE, EURODOLLAR RATE, AND PAYMENTS
For a quote of Bank's Eurodollar Rate which would apply to the
specified Covered Amount and Period, you may call Bank's San Mateo Regional
Office between 8:00 a.m. and 11:00 a.m. Pacific time on any day on which such
office and Bank's San Francisco main office are open for business to the public
(each a "Banking Day"). As the Eurodollar Rate is established two (2) Banking
Days prior to the first day of the requested Period, you must call at least two
(2) Banking Days prior to such date. If you accept the Eurodollar Rate when
offered, that rate will apply to such Covered Amount for the applicable Period.
Interest shall be calculated for actual days elapsed on the basis of a three
hundred and sixty (360) day year.
During any Period, you agree to pay interest on the Covered Amount at
the Eurodollar Rate on the last day of each consecutive month, beginning the
first such date after the commencement of the Period, until the last day of the
Period, whether scheduled or accelerated ("Maturity Date"). During each Period,
you must maintain under your Credit Facility a principal balance which is not a
Covered Amount under any of your rate option agreements with Bank sufficient to
cover each scheduled instalment of principal coming due during such Period under
the Credit Facility. Should you have any obligation under any other Loan
Document to repay any portion of the Credit Facility ("Obligation") that would
conflict with your obligation under the preceding sentence ("Maintenance
Obligation"), you shall nevertheless comply with the Obligation and not with the
Maintenance Obligation, and you shall not be deemed in default hereunder.
Nonetheless, payment of the Obligation shall be deemed to be a "Prepayment", as
defined below, to the extent it repays a portion of a Covered Amount under this
or any of your other rate option agreements you may have with Bank.
If, prior to a Maturity Date and while the Credit Facility is still
available, you and Bank have not agreed that a new rate tied to the Eurodollar
Rate shall apply to a Covered Amount, then, if the term of your Credit Facility
extends beyond such Maturity Date, Bank's Prime Rate plus the applicable margin,
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if any, under the terms of your Credit Facility shall be automatically
applicable to such Covered Amount.
Bank's records of the date, Covered Amount, Period, Eurodollar Rate,
Maturity Date, and all payments of principal and interest and all other payments
and amounts due under this letter agreement shall be conclusive and binding on
you, absent obvious error.
3. PREPAYMENT LIMITATION
Do not sign this letter agreement before you read it. This letter
agreement provides for payment of liquidated damages if you wish to
repay the loan (Covered Amount) prior to the date provided for
repayment under the Credit Facility.
Bank establishes the Eurodollar Rate with the understanding it will
apply to the Covered Amount for the entire scheduled Period. If for any reason,
including, without limitation, acceleration, foreclosure or prepayment, Bank
receives all or any portion of a Covered Amount (each a "Prepayment") prior to
the scheduled Maturity Date, then in consideration thereof you shall pay to Bank
on demand:
a. The amount, if any, by which the additional interest which would
have been payable on the Prepayment exceeds the interest which Bank
would receive had it placed an amount equal to the Prepayment, in
United States Dollars, on deposit in the Eurodollar Market (or, at
Bank's sole discretion, invested such amount in a domestic certificate
of deposit issued by an institution rated at least "investment grade"
or "A" by Xxxxx'x or any successor rating agency) for a period equal
to the period of time remaining until the maturity of the applicable
Period. Should the scheduled maturity fall between two periods for
which rates are quoted or available to Bank, then Bank, in its sole
discretion, shall interpolate this rate; and
b. Any other out of pocket costs to Bank associated with funding or
maintaining the Covered Amount.
Bank shall provide you a statement of the amount payable on account of
each Prepayment, which statement shall be a conclusive and binding determination
of the amount owed by you for such Prepayment, absent obvious error. All
Prepayments, subject to this Section 3, shall be applied on the most remote
instalment or instalments of principal then unpaid on the Credit Facility being
prepaid.
You acknowledge that any Prepayment may result in Bank incurring
additional costs, expenses or liabilities. Therefore, you agree to pay the
above-described liquidated damages and agree that said amount is a reasonable
estimate of the costs, expenses and liabilities of Bank associated with each
Prepayment.
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4. SPECIAL FUNDING PROVISIONS
If at any time Bank determines that:
a. United States Dollar deposits in principal amounts similar to the
Covered Amount bearing interest at the Eurodollar Rate and for periods
equal to the relevant Period are not available in the Eurodollar
Market;
b. The Eurodollar Rate does not cover the cost to Bank of making,
funding or maintaining the Covered Amount at the Eurodollar Rate
during any Period;
c. Any change in financial, political or economic conditions or
currency exchange rates makes it impractical for Bank to make, fund or
maintain the Covered Amount at the Eurodollar Rate during any Period;
or
d. Any change in applicable law or regulation or in the interpretation
thereof (whether or not having the force of law) makes it unlawful or
impractical for Bank to make, fund or maintain the Covered Amount at
the Eurodollar Rate, then Bank shall promptly give notice thereof to
you and as of the date stated in such notice, the Eurodollar Rate
option shall terminate, and Bank's Prime Rate plus the applicable
margin under the terms of your Credit Facility shall be automatically
applicable to the relevant Covered Amount through the end of the
relevant Period.
5. RESERVES, DEPOSIT INSURANCE, CAPITAL ADEQUACY
You shall additionally compensate Bank upon demand for all costs
incurred, or losses suffered, including without limitation lost profits, by
reason of:
a. any and all increases in reserve, deposit insurance, capital
adequacy or similar requirements against (or against any class of or
change in or in the amount of) the assets or liabilities of Bank,
deposits with or for the account of Bank, or loans by Bank, imposed by
any governmental or regulatory authority (whether or not having the
force of law) in connection with a Covered Amount bearing interest at
the Eurodollar Rate; or
b. compliance by Bank with any direction, requirement or request from
any governmental or regulatory authority (whether or not having the
force of law) in connection with a Covered Amount bearing interest at
the Eurodollar Rate to the extent any such costs have not been
previously blended or adjusted into the Eurodollar Rate.
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Bank shall provide you with a written statement of the amount and
basis of its request for compensation under this Section, which statement shall
be a conclusive and binding determination of the amount owed by you, absent
obvious error.
6. TAXES
a. If at any time any taxes, fees or other charges of any nature are
imposed by any governmental or regulatory authority on any aspect of
the transactions referred to in this letter agreement including
without limitation all stamp or documentation duties (collectively,
"Taxes"), you shall pay such Taxes directly, or compensate Bank for
such payment, as set forth below, except for such Taxes as are imposed
on Bank's net income.
b. In the event you are prohibited by operation of law from making
payments or reimbursements to Bank without making such deductions or
paying, or causing to be paid, any and all Taxes, you shall pay to
Bank upon demand such additional amounts as may be necessary in order
to reimburse Bank for Taxes paid by Bank on your behalf such that the
aggregate net amounts received by Bank shall equal the amounts which
would have been received if such deduction or withholding had not been
required.
c. You shall confirm that all applicable Taxes shall have been paid to
appropriate taxing authorities or agencies by sending official tax
receipts or notarized copies of such receipts to Bank within thirty
(30) days after payment of any Taxes. Should Bank receive notice of
any such liability for Taxes, Bank will promptly so inform you.
7. GENERAL PROVISIONS
a. To the extent interest rates, prepayment provisions and times for
payment of interest established under this letter agreement are
different than the terms of the note or notes evidencing the Credit
Facility, the terms of this letter agreement shall prevail. All other
provisions of the Loan Documents remain in full force and effect.
b. This letter agreement shall be governed by the laws of the State of
California.
c. This letter agreement, and all confirmations provided hereunder,
evidence the entire agreement of the parties on the matters covered
herein, and supersede all prior understandings and agreements.
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If you would like to participate in Bank's Eurodollar Rate Option
program, please execute the enclosed duplicate original of this letter and
return it to Bank, on or before February 29, 1996, at which time the option
granted in this letter will otherwise expire.
The Bank is pleased to serve you.
Very truly yours,
THE BANK OF CALIFORNIA, N.A.
By: /s/
-------------------------
Xxxxx X. Xxxxxxx, V.P.
ACCEPTED AND AGREED:
EMCON
By: /s/
---------------------
Name: R. Xxxxxxx Xxxxxxxxx
Title: CFO & V.P. - Legal
Dated: February 29, 1996
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