Exhibit 10.1
LOAN AGREEMENT
This Agreement dated as of July 29, 2004, is by and among Bank of
America, N.A. (the "Bank"), Mercury Air Group, Inc., a Delaware corporation
("Borrower 1"), Maytag Aircraft Corporation, a Colorado corporation ("Borrower
2"), Mercury Air Cargo, Inc., a California corporation ("Borrower 3"), MercFuel,
Inc., a Delaware xxxxxxxxxxx ("Xxxxxxxx 0"), Xxxxxx Aviation, Inc., a California
corporation ("Borrower 5"), and Mercury Air Center - Long Beach, Inc., a
California corporation ("Borrower 6") (Borrower 1, Borrower 2, Borrower 3,
Borrower 4, Borrower 5 and Borrower 6 are sometimes referred to collectively as
the "Borrowers" and individually as the "Borrower").
1. DEFINITIONS
In addition to the terms which are defined elsewhere in this Agreement, the
following terms have the meanings indicated for the purposes of this Agreement:
"Acceptable Receivable" means an account receivable which satisfies the
following requirements:
(a) The account has resulted from the sale of goods or the
performance of services by any Borrower in the ordinary course of such
Borrower's business and without any further obligation on the part of any
Borrower to service, repair, or maintain any such goods sold other than pursuant
to any applicable warranty.
(b) There are no conditions which must be satisfied before the
Borrowers are entitled to receive payment of the account. Accounts arising from
COD sales, consignments or guaranteed sales are not acceptable.
(c) The debtor upon the account does not claim any defense to
payment of the account, whether well founded or otherwise.
(d) The account balance does not include the amount of any
counterclaims or offsets which have been or may be asserted against the
Borrowers by the account debtor (including offsets for any "contra accounts"
owed by the Borrowers to the account debtor for goods purchased by the Borrowers
or for services performed for the Borrowers). To the extent any counterclaims,
offsets, or contra accounts exist in favor of the debtor, such amounts shall be
deducted from the account balance in an amount not to exceed the account balance
before deducting such amounts.
(e) The account represents a genuine obligation of the debtor for
goods sold to and accepted by the debtor, or for services performed for and
accepted by the debtor. To the extent any credit balances exist in favor of the
debtor, such credit balances shall be deducted from the account balance.
(f) The account balance does not include the amount of any finance
or service charges payable by the account debtor. To the extent any finance
charges or services charges are included, such amounts shall be deducted from
the account balance.
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(g) The Borrowers have sent an invoice to the debtor in the amount
of the account.
(h) The Borrowers are not prohibited by the laws of the state where
the account debtor is located from bringing an action in the courts of that
state to enforce the debtor's obligation to pay the account. The Borrowers have
taken all appropriate actions to ensure access to the courts of the state where
the account debtor is located, including, where necessary, the filing of a
Notice of Business Activities Report or other similar filing with the applicable
state agency or the qualification by the Borrowers as a foreign corporation
authorized to transact business in such state.
(i) The account is owned by the Borrowers free of any title defects
or any liens or interests of others except the security interest in favor of the
Bank.
(j) The debtor upon the account is not any of the following:
(i) except for Mariah Fuels, an employee, affiliate, parent or
subsidiary of any Borrower, or an entity which has common officers
or directors with any Borrower.
(ii) the U.S. government or any agency or department of the
U.S. government unless set out on Schedule 1(j)(ii) (Accepted
Government Contracts) and the Borrowers comply within the time
prescribed in Section 7.12 hereof, with the procedures in the
Federal Assignment of Claims Act of 1940 (41 U.S.C. Section15) with
respect to the obligation.
(iii) any state, county, city, town or municipality.
(k) The account is not in default. An account will be considered in
default if any of the following occur:
(i) The account is not paid within 90 days from its invoice
date, or 60 days from its due date, whichever occurs first;
(ii) The debtor obligated upon the account suspends business,
makes a general assignment for the benefit of creditors, or fails to
pay its debts generally as they come due; or
(iii) Any petition is filed by or against the debtor obligated
upon the account under any bankruptcy law or any other law or laws
for the relief of debtors.
(l) The account is not the obligation of a debtor who is in default
(as defined above) on 25% or more of the accounts upon which such debtor is
obligated.
(m) The account does not arise from the sale of goods which remain
in any Borrower's possession or under any Borrower's control.
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(n) Except for the existing obligations as set out on Schedule 1(n),
the account is not evidenced by a promissory note or chattel paper, nor is the
account debtor obligated to any Borrower under any other obligation which is
evidenced by a promissory note.
Unless notwithstanding (a) through (n), the account is otherwise
acceptable to the Bank.
In addition to the foregoing limitations, the dollar amount of
accounts included as Acceptable Receivables which are the obligations of a
single debtor shall not exceed the concentration limit established for
that debtor. To the extent the total of such accounts exceeds a debtor's
concentration limit, the amount of any such excess shall be excluded. The
concentration limit for each debtor shall be equal to 10 % of the total
amount of the Borrowers' Acceptable Receivables at that time.
"Administrative Borrower" shall have the meaning set forth in Section 6.1
hereof.
"Assignment of Claims" means an Assignment of Claims Under Government
Contract, in form and substance acceptable to the Bank, with respect to each
contract under which Borrower 2 or any other Borrower provides services or goods
to an account debtor which is the United States or any department, agency, or
instrumentality of the United States.
"Availability" means, with respect to Section 9.10 hereof, as of any date
of determination, the sum of availability of Domestic Acceptable Receivables
under the Borrowing Base plus cash maintained in accounts with the Bank.
"Basic Fixed Charge Coverage Ratio" means the ratio of (a) the sum of
EBITDA plus lease expense and rent expense, minus income tax, minus dividends,
withdrawals, and other distributions, to (b) the sum of interest expense
(excluding capitalized debt costs classified as interest expense and already
paid), lease expense, rent expense, the current portion of long term debt,
excluding any amounts due under this Agreement, and the current portion of
capitalized lease obligations.
"Borrowing Base" means the sum of (i) 80% of the balance due on Domestic
Acceptable Receivables plus (ii) 80% of the balance due on Foreign Acceptable
Receivables not to exceed the lesser of $6,000,000 or 25% of Domestic Acceptable
Receivables. After calculating the Borrowing Base, the Bank may, upon notice to
the Borrower, deduct such reserves as the Bank may establish from time to time
in its reasonable credit judgment, including, without limitation, reserves for
100% of outstanding letters of credit, reserves for dilution (any non-cash
reduction of accounts receivable), and the amount of estimated maximum exposure,
as determined by the Bank from time to time, under any interest rate contracts
which the Borrower enters into with the Bank (including interest rate swaps,
caps, floors, options thereon, combinations thereof, or similar contracts).
"Borrowing Base Certificate" means a certificate substantially in the form
of Exhibit A.
"Change of Control" means, with respect to any Person (other than Persons
described on Schedule 1 hereto), an event or series of events by which:
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(a) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any
employee benefit plan of such person or its subsidiaries, any person or entity
acting in its capacity as trustee, agent or other fiduciary or administrator of
any such plan) becomes the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Securities Exchange Act of 1934, except that a person or group
shall be deemed to have "beneficial ownership" of all securities that such
person or group has the right to acquire (such right, an "option right"),
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of 25% or more of the equity securities of such
Person entitled to vote for members of the board of directors or equivalent
governing body of such Person on a fully-diluted basis (and taking into account
all such securities that such person or group has the right to acquire pursuant
to any option right); or
(b) during any period of 12 consecutive months, a majority of the
members of the board of directors or other equivalent governing body of such
Person cease to be composed of individuals (i) who were members of that board or
equivalent governing body on the first day of such period, (ii) whose election
or nomination to that board or equivalent governing body was approved by
individuals referred to in clause (i) above constituting at the time of such
election or nomination at least a majority of that board or equivalent governing
body or (iii) whose election or nomination to that board or other equivalent
governing body was approved by individuals referred to in clauses (i) and (ii)
above constituting at the time of such election or nomination at least a
majority of that board or equivalent governing body (excluding, in the case of
both clause (ii) and clause (iii), any individual whose initial nomination for,
or assumption of office as, a member of that board or equivalent governing body
occurs as a result of an actual or threatened solicitation of proxies or
consents for the election or removal of one or more directors by any person or
group other than a solicitation for the election of one or more directors by or
on behalf of the board of directors).
"Collateral" shall mean any and all assets and rights and interests in or
to property of the Borrowers and the Guarantors in which a Lien is granted or
purported to be granted pursuant to the Collateral Documents.
"Collateral Documents" means all agreements, instruments and documents now
or hereafter executed and delivered in connection with this Agreement pursuant
to which liens are granted or purported to be granted to the Bank, including,
without limitation, the Pledge Agreements, the Security Agreements and the
Assignment of Claims, each in form and substance acceptable to the Bank.
"Commitment" means the lesser of (i) the Credit Limit or (ii) the
Borrowing Base.
"Compliance Certificate" means a certificate substantially in the form of
Exhibit B.
"Credit Limit" means the amount of Thirty Million Dollars
($30,000,000.00).
"Default" means any event or condition that constitutes an Event of
Default or that, with the giving of any notice, the passage of time, or both,
would be an Event of Default.
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"Domestic Acceptable Receivables" means all Acceptable Receivables other
than Foreign Acceptable Receivables.
"EBITDA" means net income, less income or plus loss from discontinued
operations and extraordinary items, plus income taxes, plus interest expense,
plus depreciation, depletion and amortization, plus the write-down of goodwill,
plus or minus the cumulative effect of change in accounting principles, plus
non-cash compensation.
"Event of Default" has the meaning specified in Section 11.
"Foreign Acceptable Receivables" means any account with a billing address
outside of the United States that is otherwise an Acceptable Receivable.
"GAAP" means generally accepted accounting principles in the United States
set forth in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or such other
principles as may be approved by a significant segment of the accounting
profession in the United States, that are applicable to the circumstances as of
the date of determination, consistently applied.
"Guarantors" means, collectively, Mercury Acceptance Corporation, a
California corporation; Jupiter Airline Automation Services, Inc., a Florida
corporation; AEG Finance Corporation, a Delaware corporation; Excel Cargo, Inc.,
a California corporation; Vulcan Aviation, Inc., a California corporation; and
any other Person from time to time executing a Guaranty in favor of the Bank.
"Guaranty" means the Limited Guaranty made by the Guarantors in favor of
the Bank, substantially in the form of Exhibit C.
"IRB Obligations" means all indebtedness and other obligations of Borrower
arising in connection with the $19,000,000 California Economic Development
Financing Authority Variable Rate Demand Airport Facilities Revenue Bonds,
Series 1998 (Mercury Air Group, Inc. Project).
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge, or preference,
priority or other security interest or preferential arrangement of any kind or
nature whatsoever, xxxxxx or inchoate (including any conditional sale or other
title retention agreement, and any financing lease having substantially the same
economic effect as any of the foregoing).
"Liquidity" means, on a consolidated basis, unencumbered, unrestricted
domestic cash and cash equivalents.
"Loan Documents" means this Agreement, each Collateral Document, the
Guaranty, and such other documents as may be required hereunder.
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"Material Adverse Effect" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties, liabilities
(actual and contingent), condition (financial or otherwise) or prospects of the
Borrowers and their Subsidiaries taken as a whole; (b) a material impairment of
the ability of any Borrower or any Guarantor to perform its obligations under
any Loan Document to which it is a party; or (c) a material adverse effect upon
the legality, validity, binding effect or enforceability against any Borrower or
any Guarantor of any Loan Document.
"Notices of Assignment of Claims" means, collectively, the Notices of
Assignment of Clams, executed by the Bank, Borrower 2 and/or such other Borrower
as may be required by the Bank, and addressed to the contracting officer and
disbursing officer with respect to each contract subject to an Assignment of
Claims.
"Person" means any natural person, corporation, limited liability company,
trusts, joint venture, association, company, partnership, governmental authority
or other entity.
"Pledge Agreements" means, collectively, the Pledge and Security
Agreements executed by Borrower 1 and/or such other Borrower as may be required
by Bank, pledging to Bank certain stock of the Borrowers and Guarantors,
substantially in the form of Exhibit D.
"Prime Rate" means the rate of interest publicly announced from time to
time by the Bank as its Prime Rate. The Prime Rate is set by the Bank based on
various factors, including the Bank's costs and desired return, general economic
conditions and other factors, and is used as a referenced point for pricing some
loans. The Bank may price loans to its customers at, above, or below the Prime
Rate. Any change in the Prime Rate shall take effect at the opening of business
on the day specified in the public announcement of a change in the Bank's Prime
Rate.
"Security Agreements" means, collectively, the Security Agreement executed
by the Borrowers in favor of the Bank, substantially in the form of Exhibit E,
and the Security Agreement executed by the Guarantors in favor of the Bank,
substantially in the form of Exhibit E.
"Subordinated Liabilities" " means liabilities subordinated to the
Borrower's obligations to the Bank in a manner acceptable to the Bank in its
sole discretion.
"Subsidiary" of a Person means a corporation, partnership, joint venture,
limited liability company or other business entity of which a majority of the
shares of securities or other interest having ordinary voting power for the
election of directors or other governing body (other than securities having such
power only by reason of the happening of a contingency) are at the time
beneficially owned, or the management of which is otherwise controlled,
directly, or indirectly through one or more intermediaries, or both, by such
Person. Unless otherwise specified, all references herein to a "Subsidiary" or
the "Subsidiaries" shall refer to a Subsidiary or Subsidiaries of any Borrower.
"Tangible Net Worth" means the book value of total assets (including
leaseholds and leasehold improvements and reserves against assets but excluding
goodwill, patents, trademarks, trade names, organization expense, capitalized or
deferred research and development costs,
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deferred marketing expenses, and other like intangibles, and monies due from
affiliates, officers, directors, employees, shareholders, members or managers)
less total liabilities, including but not limited to accrued and deferred income
taxes, but excluding the non-current portion of Subordinated Liabilities.
"Total Liabilities" means the sum of current liabilities plus long term
liabilities.
2. LINE OF CREDIT AMOUNT AND TERMS
2.1 Line of Credit Amount.
(a) During the availability period described below, the Bank will
provide a line of credit to the Borrowers. The amount of the line of credit (the
"Commitment") is equal to the lesser of (i) the Credit Limit or (ii) the
Borrowing Base.
(b) This is a revolving line of credit providing for cash advances
and letters of credit. During the availability period, the Borrowers may repay
principal amounts and reborrow them.
(c) The Borrowers agree not to permit the outstanding principal
balance of advances under the line of credit plus the outstanding amounts of any
letters of credit, including amounts drawn on letters of credit and not yet
reimbursed, to exceed the Commitment. If the Borrowers exceed this limit, the
Borrowers will pay the excess to the Bank within two (2) business days of the
Bank's demand. The Bank may apply payments received from the Borrowers under
this Paragraph to the obligations of the Borrowers to the Bank in the order and
the manner as the Bank, in its discretion, may determine.
2.2 Availability Period. The line of credit is available between the date
of this Agreement and July 31, 2007, or such earlier date as the availability
may terminate as provided in this Agreement (the "Expiration Date").
2.3 Conditions to Availability of Credit. In addition to the items
required to be delivered to the Bank under the paragraph entitled "Financial
Information" in the "Covenants" section of this Agreement, the Borrowers will
promptly deliver, or cause to be delivered, the following to the Bank at such
times as may be reasonably requested by the Bank:
(a) a Borrowing Base Certificate setting forth the Acceptable
Receivables on which the requested extension of credit is to be based.
(b) provide access to or copies of the invoices or the record of
invoices from the Borrowers' sales journal for such Acceptable Receivables and a
listing of the names and addresses of the debtors obligated thereunder.
(c) provide access to or copies of the delivery receipts, purchase
orders, shipping instructions, bills of lading and other documentation
pertaining to such Acceptable Receivables.
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(d) provide access to or copies of the cash receipts journal
pertaining to the borrowing certificate.
2.4 Interest Rate. Unless the Borrowers elect an optional interest rate as
described below, the interest rate is a rate per year equal to the Bank's Prime
Rate.
2.5 Repayment Terms.
(a) The Borrowers will pay interest on August 31, 2004, and then on
the last business day of each month thereafter until payment in full of any
principal outstanding under this line of credit.
(b) The Borrowers will repay in full all principal and any unpaid
interest or other charges outstanding under this line of credit no later than
the Expiration Date. Any interest period for an optional interest rate (as
described below) shall expire no later than the Expiration Date.
2.6 Optional Interest Rates. Instead of the interest rate based on the
Bank's Prime Rate, the Borrowers may elect the optional interest rates listed
below during interest periods agreed to by the Bank and the Borrowers. The
optional interest rates shall be subject to the terms and conditions described
later in this Agreement. Any principal amount bearing interest at an optional
rate under this Agreement is referred to as a "Portion." The following optional
interest rates are available:
(a) the LIBOR Rate plus the Applicable Margin as defined below.
(b) the IBOR Rate plus the Applicable Margin as defined below.
2.7 Applicable Margin. The Applicable Margin shall be the following
amounts per annum, based upon the Basic Fixed Charge Coverage Ratio as set forth
in the most recent compliance certificate (or, if no compliance certificate is
required, the Borrower's most recent financial statements) received by the Bank
as required in the Covenants section; provided, however, that, until the Bank
receives the first compliance certificate or financial statement, such amounts
shall be those indicated for pricing level 1 set forth below:
Applicable Margin
(in percentage points per annum)
Basic Fixed Charge IBOR/LIBOR Rate +
Pricing Level Coverage Ratio
--------------------------------------------------------------------------------
1 1.0:1.0 through 2.00%
1.249:1.0
2 equal to or greater 1.75%
than 1.25:1.0
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The Applicable Margin shall be in effect from the date the most recent
compliance certificate or financial statement is received by the Bank until the
date the next compliance certificate or financial statement is received;
provided, however, that if the Borrower fails to timely deliver the next
compliance certificate or financial statement, the Applicable Margin from the
date such compliance certificate or financial statement was due until the date
such compliance certificate or financial statement is received by the Bank shall
be the highest pricing level set forth above.
2.8 Letters of Credit.
(a) This line of credit may be used for financing:
(i) commercial letters of credit with a maximum maturity of
180 days but not to extend beyond the Expiration Date. Each
commercial letter of credit will require drafts payable at sight.
(ii) standby letters of credit with a maximum maturity of 365
days but not to extend beyond the Expiration Date. The standby
letters of credit may include a provision providing that the
maturity date will be automatically extended each year for an
additional year unless the Bank gives written notice to the
contrary.
(b) The Borrowers agree:
(i) any sum drawn under a letter of credit may, at the option
of the Bank, be added to the principal amount outstanding under this
Agreement. The amount will bear interest and be due as described
elsewhere in this Agreement.
(ii) if there is a payment default under this Agreement or the
Bank has accelerated, to immediately prepay and make the Bank whole
for any outstanding letters of credit.
(iii) the issuance of any letter of credit and any amendment
to a letter of credit must be in form and content satisfactory to
the Bank and in favor of a beneficiary acceptable to the Bank.
(iv) to sign the Bank's form Application and Agreement for
Commercial Letter of Credit or Application and Agreement for Standby
Letter of Credit, as applicable.
(v) to pay any customary issuance and/or other fees that the
Bank notifies the Borrowers will be charged for issuing and
processing letters of credit for the Borrowers.
(vi) to allow the Bank to automatically charge its checking
account for applicable fees, discounts, and other charges.
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(vii) to pay the Bank a non-refundable fee equal to (i) 1.75%
per annum of the outstanding undrawn amount of each standby letter
when the Basic Fixed Charge Coverage Ratio is at pricing level 1 as
provided in Section 2.7, and (ii) 1.50% per annum of the outstanding
undrawn amount of each standby letter of credit when the Basic Fixed
Charge Coverage Ratio is at pricing level 2 as provided in Section
2.7. This fee is payable monthly in arrears, calculated on the basis
of the face amount outstanding on the day the fee is calculated.
3. OPTIONAL INTEREST RATES
3.1 Optional Rates. Each optional interest rate is a rate per year.
Interest will be paid on the last day of each interest period, and, if the
interest period is longer than one month, then on the first day of each month
during the interest period. At the end of any interest period, the interest rate
will revert to the rate based on the Prime Rate, unless the Borrowers have
designated another optional interest rate for the Portion. No Portion will be
converted to a different interest rate during the applicable interest period.
Upon the occurrence of an event of default under this Agreement, the Bank may
terminate the availability of optional interest rates for interest periods
commencing after the default occurs.
3.2 LIBOR Rate. The election of LIBOR Rates shall be subject to the
following terms and requirements:
(a) The interest period during which the LIBOR Rate will be in
effect will be one or two weeks or one, two, three, or six months. The first day
of the interest period must be a day other than a Saturday or a Sunday on which
the Bank is open for business in New York and London and dealing in offshore
dollars (a "LIBOR Banking Day"). The last day of the interest period and the
actual number of days during the interest period will be determined by the Bank
using the practices of the London inter-bank market.
(b) Each LIBOR Rate Portion will be for an amount not less than One
Hundred Thousand Dollars ($100,000).
(c) The "LIBOR Rate" means the interest rate determined by the
following formula, rounded upward to the nearest 1/100 of one percent. (All
amounts in the calculation will be determined by the Bank as of the first day of
the interest period.)
LIBOR Rate = London Inter-Bank Offered Rate
------------------------------
(1.00 - Reserve Percentage)
Where,
(i) "London Inter-Bank Offered Rate" means the average per
annum interest rate at which U.S. dollar deposits would be offered
for the applicable interest period by major banks in the London
inter-bank market, as shown on the Telerate Page 3750 (or any
successor page) at approximately 11:00 a.m. London time two (2)
London Banking Days before the commencement of the interest period.
If such rate does not appear on the Telerate Page 3750 (or any
successor
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page), the rate for that interest period will be determined by such
alternate method as reasonably selected by the Bank. A "London
Banking Day" is a day on which the Bank's London Banking Center is
open for business and dealing in offshore dollars.
(ii) "Reserve Percentage" means the total of the maximum
reserve percentages for determining the reserves to be maintained by
member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in Federal Reserve Board Regulation D,
rounded upward to the nearest 1/100 of one percent. The percentage
will be expressed as a decimal, and will include, but not be limited
to, marginal, emergency, supplemental, special, and other reserve
percentages.
(d) The Borrowers shall irrevocably request a LIBOR Rate Portion no
later than 12:00 noon California time on the LIBOR Banking Day preceding the day
on which the London Inter-Bank Offered Rate will be set, as specified above. For
example, if there are no intervening holidays or weekend days in any of the
relevant locations, the request must be made at least three days before the
LIBOR Rate takes effect.
(e) The Borrowers may not elect a LIBOR Rate with respect to any
principal amount which is scheduled to be repaid before the last day of the
applicable interest period.
(f) Each prepayment of a LIBOR Rate Portion, whether voluntary, by
reason of acceleration or otherwise, will be accompanied by the amount of
accrued interest on the amount prepaid and a prepayment fee as described below.
A "prepayment" is a payment of an amount on a date earlier than the scheduled
payment date for such amount as required by this Agreement.
(g) The prepayment fee shall be in an amount sufficient to
compensate the Bank for any loss, cost or expense incurred by it as a result of
the prepayment, including any loss of anticipated profits and any loss or
expense arising from the liquidation or reemployment of funds obtained by it to
maintain such Portion or from fees payable to terminate the deposits from which
such funds were obtained. The Borrowers shall also pay any customary
administrative fees charged by the Bank in connection with the foregoing. For
purposes of this paragraph, the Bank shall be deemed to have funded each Portion
by a matching deposit or other borrowing in the applicable interbank market,
whether or not such Portion was in fact so funded.
(h) The Bank will have no obligation to accept an election for a
LIBOR Rate Portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for periods
equal to the interest period, of a LIBOR Rate Portion are not
available in the London inter-bank market; or
(ii) the LIBOR Rate does not accurately reflect the cost of a
LIBOR Rate Portion.
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3.3 IBOR Rate. The election of IBOR Rates shall be subject to the
following terms and requirements:
(a) The interest period during which the IBOR Rate will be in effect
will be no shorter than one day and no longer than one year. The last day of the
interest period will be determined by the Bank using the practices of the
offshore dollar inter-bank market.
(b) Each IBOR Rate Portion will be for an amount not less than One
Hundred Thousand Dollars ($100,000).
(c) The "IBOR Rate" means the interest rate determined by the
following formula, rounded upward to the nearest 1/100 of one percent. (All
amounts in the calculation will be determined by the Bank as of the first day of
the interest period.)
IBOR Rate = IBOR Base Rate
---------------------------
(1.00 - Reserve Percentage)
Where,
(i) "IBOR Base Rate" means the interest rate at which the
Bank's Grand Cayman Banking Center, Grand Cayman, British West
Indies, would offer U.S. dollar deposits for the applicable interest
period to other major banks in the offshore dollar inter-bank
market.
(ii) "Reserve Percentage" means the total of the maximum
reserve percentages for determining the reserves to be maintained by
member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in Federal Reserve Board Regulation D,
rounded upward to the nearest 1/100 of one percent. The percentage
will be expressed as a decimal, and will include, but not be limited
to, marginal, emergency, supplemental, special, and other reserve
percentages.
(d) Each prepayment of an IBOR Rate Portion, whether voluntary, by
reason of acceleration or otherwise, will be accompanied by the amount of
accrued interest on the amount prepaid, and a prepayment fee as described below.
A "prepayment" is a payment of an amount on a date earlier than the scheduled
payment date for such amount as required by this Agreement.
(e) The prepayment fee shall be in an amount sufficient to
compensate the Bank for any loss, cost or expense incurred by it as a result of
the prepayment, including any loss of anticipated profits and any loss or
expense arising from the liquidation or reemployment of funds obtained by it to
maintain such Portion or from fees payable to terminate the deposits from which
such funds were obtained. The Borrowers shall also pay any customary
administrative fees charged by the Bank in connection with the foregoing. For
purposes of this paragraph, the Bank shall be deemed to have funded each Portion
by a matching deposit or other borrowing in the applicable interbank market,
whether or not such Portion was in fact so funded.
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(f) The Bank will have no obligation to accept an election for an
IBOR Rate Portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for periods
equal to the interest period, of an IBOR Rate Portion are not
available in the offshore dollar inter-bank market; or
(ii) the IBOR Rate does not accurately reflect the cost of an
IBOR Rate Portion.
4. FEES AND EXPENSES
4.1 Fees.
(a) Loan Fee. The Borrower agrees to pay a loan fee with respect to
the Commitment in the amount of Fifty Thousand Dollars ($50,000). This fee is
due upon the closing of this Agreement.
(b) Unused Commitment Fee. The Borrower agrees to pay a fee on any
difference between the Commitment and the amount of credit it actually uses,
determined by the average of the daily amount of credit outstanding during the
specified period. The calculation of credit outstanding shall include the
undrawn amount of letters of credit. The fee will be calculated at 0.25% per
year. The fee is due monthly in arrears, commencing on August 31, 2004, and on
the last day of each month thereafter until the expiration of the availability
period.
4.2 Expenses. The Borrower agrees to immediately repay the Bank for
expenses that include, but are not limited to, filing, recording and search
fees, appraisal fees, title report fees and documentation fees. Upon Borrower's
request, Bank will provide reasonable detail explaining such expenses.
4.3 Reimbursement Costs.
(a) The Borrower agrees to reimburse the Bank for any expenses it
incurs in the preparation of this Agreement and any agreement or instrument
required by this Agreement. Expenses include, but are not limited to, reasonable
attorneys' fees, including any allocated costs of the Bank's in-house counsel.
Upon the Borrower's request, Bank will provide reasonable detail explaining such
expenses.
(b) The Borrower agrees to reimburse the Bank for the cost of
periodic audits (currently $750.00 per day) and appraisals of the personal
property collateral securing this Agreement, at such intervals as the Bank may
reasonably require, which shall be at least semi-annually. The audits and
appraisals may be performed by employees of the Bank or by independent
appraisers.
5. COLLATERAL
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5.1 Personal Property of the Borrowers. The Borrowers' obligations to the
Bank under this Agreement will be secured by personal property the Borrowers now
own or will own in the future as listed below. The collateral is further defined
in Collateral Documents executed by the Borrowers.
(a) Equipment and fixtures.
(b) Inventory.
(c) Receivables.
(d) Patents, trademarks and other general intangibles, including the
stock of subsidiaries.
5.2 Personal Property of the Guarantors. The obligations of the Guarantors
to the Bank under the Guaranty will be secured by personal property the
Guarantors now own or will own in the future as listed below. The collateral is
further defined in Collateral Documents executed by the Guarantors.
(a) Equipment and fixtures.
(b) Inventory.
(c) Receivables.
(d) Patents, trademarks and other general intangibles.
6. DISBURSEMENTS, PAYMENTS AND COSTS
6.1 Request for Credit; Borrower 1 as Agent for Borrowers.
Each request for an extension of credit will be made in writing in a
manner acceptable to the Bank, or by another means acceptable to the Bank. Each
Borrower hereby irrevocably appoints Borrower 1 as the borrowing agent and
attorney-in-fact for all Borrowers (the "Administrative Borrower") which
appointment shall remain in full force and effect unless and until the Bank
shall have received prior written notice signed by each Borrower that such
appointment has been revoked and that another Borrower has been appointed the
Administrative Borrower. Each Borrower hereby irrevocably appoints and
authorizes the Administrative Borrower (i) to provide Bank with all notices with
respect to advances and letters of credit obtained for the benefit of any
Borrower and all other notices and instructions under this Agreement and (ii) to
take such action as the Administrative Borrower deems appropriate on its behalf
to obtain advances and letters of credit and to exercise such other powers as
are reasonably incidental thereto to carry out the purposes of this Agreement.
It is understood that the delegation of these administrative duties to the
Administrative Borrower is done solely as an accommodation to Borrowers in order
to utilize the collective borrowing powers of Borrowers in the most efficient
and economical manner and at their request, and the Bank shall not incur
liability to any Borrower as a result hereof.
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6.2 Disbursements and Payments.
(a) Each payment by the Borrowers will be made in U.S. Dollars and
immediately available funds by direct debit to a deposit account as specified
below.
(b) Each disbursement by the Bank will be made in U.S. Dollars and
each payment by the Borrowers will be evidenced by records kept by the Bank. In
addition, the Bank may, at its discretion, require the Borrowers to sign one or
more promissory notes, in accordance with the terms of this Agreement.
6.3 Telephone and Telefax Authorization.
(a) The Bank may honor telephone or telefax instructions for
advances or repayments or for the designation of optional interest rates and
telefax requests for the issuance of letters of credit given, or purported to be
given, by any one of the individuals authorized to sign loan agreements on
behalf of any of the Borrowers, or any other individual designated by any one of
such authorized signers.
(b) Advances will be deposited in and repayments will be withdrawn
from account number 14593-24112, owned by the Administrative Borrower, or such
other accounts with the Bank as designated in writing by the Administrative
Borrower.
(c) The Borrowers will indemnify and hold the Bank harmless from all
liability, loss, and costs in connection with any act resulting from telephone
or telefax instructions the Bank reasonably believes are made by any individual
authorized by the Borrowers to give such instructions; provided that such
indemnity shall not be available if such liability, loss and costs is the result
of the Bank's gross negligence or wilful misconduct. This paragraph will survive
this Agreement's termination, and will benefit the Bank and its officers,
employees, and agents.
6.4 Direct Debit (Pre-Billing).
(a) The Borrowers agree that the Bank will debit deposit account
number 14593-24112 owned by the Administrative Borrower, or such other of the
Borrowers' accounts with the Bank as designated in writing by the Administrative
Borrower (the "Designated Account") on the date each payment of principal and
interest and any fees from the Borrowers becomes due (the "Due Date").
(b) Approximately 10 days prior to each Due Date, the Bank will mail
to the Administrative Borrower a statement of the amounts that will be due on
that Due Date (the "Billed Amount"). The calculation will be made on the
assumption that no new extensions of credit or payments will be made between the
date of the billing statement and the Due Date, and that there will be no
changes in the applicable interest rate.
(c) The Bank will debit the Designated Account for the Billed
Amount, regardless of the actual amount due on that date (the "Accrued Amount").
If the Billed Amount
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debited to the Designated Account differs from the Accrued Amount, the
discrepancy will be treated as follows:
(i) If the Billed Amount is less than the Accrued Amount, the
Billed Amount for the following Due Date will be increased by the
amount of the discrepancy. The Borrowers will not be in default by
reason of any such discrepancy.
(ii) If the Billed Amount is more than the Accrued Amount, the
Billed Amount for the following Due Date will be decreased by the
amount of the discrepancy.
Regardless of any such discrepancy, interest will continue to accrue based
on the actual amount of principal outstanding without compounding. The Bank will
not pay the Borrowers interest on any overpayment.
(d) The Borrowers will maintain sufficient funds in the Designated
Account to cover each debit. If there are insufficient funds in the Designated
Account on the date the Bank enters any debit authorized by this Agreement, the
Bank may reverse the debit.
6.5 Banking Days. Unless otherwise provided in this Agreement, a banking
day is a day other than a Saturday, Sunday or other day on which commercial
banks are authorized to close, or are in fact closed, in the state where the
Bank's lending office is located, and, if such day relates to amounts bearing
interest at an offshore rate (if any), means any such day on which dealings in
dollar deposits are conducted among banks in the offshore dollar interbank
market. All payments and disbursements which would be due on a day which is not
a banking day will be due on the next banking day. All payments received on a
day which is not a banking day will be applied to the credit on the next banking
day.
6.6 Taxes. If any payments to the Bank under this Agreement are made from
outside the United States, the Borrowers will not deduct any foreign taxes from
any payments it makes to the Bank. If any such taxes are imposed on any payments
made by the Borrowers (including payments under this paragraph), the Borrowers
will pay the taxes and will also pay to the Bank, at the time interest is paid,
any additional amount which the Bank specifies as necessary to preserve the
after-tax yield the Bank would have received if such taxes had not been imposed.
The Borrowers will confirm that it has paid the taxes by giving the Bank
official tax receipts (or notarized copies) within thirty (30) days after the
due date.
6.7 Additional Costs. The Borrowers will pay the Bank, on demand, for the
Bank's costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency which is applicable to all national banks or
a class of all national banks. The costs and losses will be allocated to the
loan in a manner determined by the Bank, using any reasonable method. The costs
include the following:
(a) any reserve or deposit requirements; and
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(b) any capital requirements relating to the Bank's assets and
commitments for credit.
6.8 Interest Calculation. Except as otherwise stated in this Agreement,
all interest and fees, if any, will be computed on the basis of a 360-day year
and the actual number of days elapsed. This results in more interest or a higher
fee than if a 365-day year is used. Installments of principal which are not paid
when due under this Agreement shall continue to bear interest until paid.
6.9 Default Rate. Upon the occurrence of any default under this Agreement,
all amounts outstanding under this Agreement, including any interest, fees or
costs which are not paid when due, will at the option of the Bank bear interest
at a rate which is 4.0 percentage point(s) higher than the rate of interest
otherwise provided under this Agreement. This may result in compounding of
interest. This will not constitute a waiver of any default.
6.10 Overdrafts. At the Bank's sole option in each instance, the Bank may
do one of the following:
(a) The Bank may make advances under this Agreement to prevent or
cover an overdraft on any account of any Borrower with the Bank. Each such
advance will accrue interest from the date of the advance or the date on which
the account is overdrawn, whichever occurs first, at the interest rate described
in this Agreement. The Bank may make such advances even if the advances may
cause any credit limit under this Agreement to be exceeded.
(b) The Bank may reduce the amount of credit otherwise available
under this Agreement by the amount of any overdraft on any account of any
Borrower with the Bank provided that the amount of credit shall be restored upon
restitution by Borrower.
This paragraph shall not be deemed to authorize the Borrowers to create
overdrafts on any of the Borrowers' accounts with the Bank.
6.11 Payments in Kind. If the Bank requires delivery in kind of the
proceeds of collection of the Borrowers' accounts receivable, such proceeds
shall be credited to interest, principal, and other sums owed to the Bank under
this Agreement in the order and proportion determined by the Bank in its sole
discretion. All such credits will be conditioned upon collection and any
returned items may, at the Bank's option, be charged to the Borrowers.
7. CONDITIONS
The Bank must receive the following items, in form and content acceptable
to the Bank, before it is required to extend any credit to the Borrowers under
this Agreement:
7.1 Authorizations. Evidence that the execution, delivery and performance
by each Borrower and each Guarantor of this Agreement and any instrument or
agreement required under this Agreement have been duly authorized.
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7.2 Governing Documents. A copy of the Borrowers' and the Guarantors'
organizational documents.
7.3 Security Agreements. Signed original Collateral Documents.
7.4 Perfection and Evidence of Priority. Financing statements and fixture
filings (and any collateral in which the Bank requires a possessory security
interest), together with evidence that the security interests and liens in favor
of the Bank are valid, enforceable, and prior to all others' rights and
interests, except for purchase money equipment liens.
7.5 Insurance. Evidence of insurance coverage, as required in the
"Covenants" section of this Agreement.
7.6 Guaranties. Guaranty signed by each Guarantor.
7.7 Landlord's Waiver. For any personal property collateral located at
0000 XxXxxxxxx Xxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000, an agreement for the
removal of the collateral upon default, signed by the owner of the real property
and the holder of any mortgage or deed of trust on the real property.
7.8 Legal Opinions. A written opinion from legal counsel to the Borrowers
and the Guarantors, covering such matters as the Bank may require. The legal
counsel and the terms of the opinion must be acceptable to the Bank.
7.9 Good Standing. Certificates of good standing for each Borrower and
each Guarantor from its state of formation and from any other state in which
such entity is required to qualify to conduct its business.
7.10 Payment of Fees. Payment of all accrued and unpaid expenses incurred
by the Bank as required by the paragraph entitled "Reimbursement Costs."
7.11 Other Items. Any other items that the Bank reasonably requires.
7.12 Conditions Subsequent. As further consideration for the Bank's
Commitment to extend credit to the Borrowers under this Agreement, the Bank must
receive the following items, in form and content acceptable to the Bank, within
the time periods set forth below. The Borrowers acknowledge that their failure
to deliver to the Bank the items set forth below within the prescribed time
periods shall result in such government receivables being excluded from the
Borrowing Base as not being Acceptable Receivables.
(a) Government Contracts. Within 120 days from the closing date, the
Notices of Assignment of Claims, duly executed and acknowledged by all parties
thereto.
(b) Additional Landlord Waivers. Within 90 days of the closing date,
as required by the Bank, for any personal property located on real property
(other than as provided in Section 7.7) which is subject to a mortgage or a deed
of trust or which is not owned by the
18
Borrower, an agreement for removal of the collateral signed by the owner of the
real property and the holder of any mortgage or deed of trust on the property.
8. REPRESENTATIONS AND WARRANTIES
When the Borrowers sign this Agreement, and until the Bank is repaid in
full, the Borrowers make the following representations and warranties. Each
request for an extension of credit constitutes a renewal of these
representations and warranties as of the date of the request:
8.1 Organization of Borrower. Each Borrower is a corporation duly formed
and existing under the laws of the state where organized.
8.2 Authorization. This Agreement, and any instrument or agreement
required hereunder, are within each Borrower's powers, have been duly
authorized, and do not conflict with any of its organizational papers.
8.3 Enforceable Agreement. This Agreement is a legal, valid and binding
agreement of each Borrower, enforceable against each Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.
8.4 Good Standing. In each state in which each Borrower does business, it
is properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes, except to the extent that the failure to do so could
not reasonably be expected to have a Material Adverse Effect.
8.5 No Conflicts. This Agreement does not conflict with any law,
agreement, or obligation by which any Borrower is bound.
8.6 Financial Information. All financial and other information that has
been or will be supplied to the Bank is, to the best of Borrower's knowledge,
sufficiently complete to give the Bank accurate knowledge of the Borrowers' (and
any Guarantor's) financial condition, including all material contingent
liabilities. Since the date of the most recent financial statement provided to
the Bank, there has been no material adverse change in the business condition
(financial or otherwise), operations, properties or prospects of any Borrower
(or any Guarantor).
8.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or
threatened against any Borrower which, if lost, would impair such Borrower's
financial condition or ability to repay the loan, except as disclosed in
Schedule 8.7 hereto.
8.8 Collateral. All collateral required in this Agreement is owned by the
grantor of the security interest free of any title defects or any Liens or
interests of others, except those which have been approved by the Bank as
disclosed in Schedule 8.8 hereto.
8.9 Permits, Franchises. Each Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights, patent
19
rights and fictitious name rights necessary to enable it to conduct the business
in which it is now engaged.
8.10 Other Obligations. No Borrower is in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation, except as disclosed in Schedule
8.10 hereto.
8.11 Tax Matters. No Borrower has any knowledge of any pending assessments
or adjustments of its income tax for any year and all taxes due have been paid,
except as disclosed in Schedule 8.11.
8.12 No Event of Default. There is no event which is, or with notice or
lapse of time or both would be, a default under this Agreement.
8.13 Insurance. Each Borrower has obtained, and maintained in effect, the
insurance coverage required in the "Covenants" section of this Agreement.
8.14 ERISA Plans.
(a) Each Plan (other than a multiemployer plan) is in compliance in
all material respects with the applicable provisions of ERISA, the Code and
other federal or state law. Each Plan has received a favorable determination
letter from the IRS and to the best knowledge of the Borrower, nothing has
occurred which would cause the loss of such qualification. The Borrower has
fulfilled its obligations, if any, under the minimum funding standards of ERISA
and the Code with respect to each Plan, and has not incurred any liability with
respect to any Plan under Title IV of ERISA.
(b) There are no claims, lawsuits or actions (including by any
governmental authority), and there has been no prohibited transaction or
violation of the fiduciary responsibility rules, with respect to any Plan which
has resulted or could reasonably be expected to result in a Material Adverse
Effect.
(c) With respect to any Plan subject to Title IV of ERISA:
(i) No reportable event has occurred under Section 4043(c) of
ERISA for which the PBGC requires 30-day notice.
(ii) No action by any Borrower or any ERISA Affiliate to
terminate or withdraw from any Plan has been taken and no notice of
intent to terminate a Plan has been filed under Section 4041 of
ERISA.
(iii) No termination proceeding has been commenced with
respect to a Plan under Section 4042 of ERISA, and no event has
occurred or condition exists which might constitute grounds for the
commencement of such a proceeding.
(d) The following terms have the meanings indicated for purposes of
this Agreement:
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(i) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(ii) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended from time to time.
(iii) "ERISA Affiliate" means any trade or business (whether
or not incorporated) under common control with any Borrower within
the meaning of Section 414(b) or (c) of the Code.
(iv) "PBGC" means the Pension Benefit Guaranty Corporation.
(v) "Plan" means a pension, profit-sharing, or stock bonus
plan intended to qualify under Section 401(a) of the Code,
maintained or contributed to by any Borrower or any ERISA Affiliate,
including any multiemployer plan within the meaning of Section
4001(a)(3) of ERISA.
8.15 Location of Borrower. Each Borrower's place of business (or, if the
Borrower has more than one place of business, its chief executive office) is
located at the address listed on Schedule 8.15 hereto.
9. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement
and until the Bank is repaid in full:
9.1 Use of Proceeds. To use the proceeds of the line of credit only for
working capital and any lawful corporate purpose.
9.2 Financial Information. To provide the following financial information
and statements in form and content acceptable to the Bank, and such additional
information as requested by the Bank from time to time:
(a) Within 120 days of the fiscal year end of Borrower 1, its annual
financial statements. These financial statements must be audited (with an
unqualified opinion) by a Certified Public Accountant acceptable to the Bank.
These statements shall be prepared on a consolidated and consolidating basis.
(b) Within 45 days of the period's end (excluding the last period in
each fiscal year), the quarterly financial statements of Borrower 1. These
financial statements may be prepared by Borrower 1 and shall be prepared on a
consolidated and consolidating basis. These financial statements shall include a
schedule of principal debt payments, a schedule of financed and non-financed
capital expenditures, and a cash flow schedule.
(c) Copies of the Form 10-K Annual Report, Form 10-Q Quarterly
Report and Form 8-K Current Report for Borrower 1 within 30 days after the date
of filing with the Securities and Exchange Commission.
21
(d) Within the periods provided in (a) and (b) above, a Compliance
Certificate of the Borrowers signed by an authorized financial officer of the
Administrative Borrower setting forth (i) the information and computations (in
sufficient detail) to establish that the Borrowers are in compliance with all
financial covenants at the end of the period covered by the financial statements
then being furnished and (ii) whether there existed as of the date of such
financial statements and whether there exists as of the date of the certificate,
any default under this Agreement and, if any such default exists, specifying the
nature thereof and the action the Borrowers are taking and propose to take with
respect thereto.
(e) A Borrowing Base Certificate setting forth the amount of
Acceptable Receivables as of the last day of each month within twenty (20) days
after month end and, upon the Bank's reasonable request, copies of the invoices
or the record of invoices from the Borrower's sales journal for such Acceptable
Receivables, provide access to or copies of the delivery receipts, purchase
orders, shipping instructions, bills of lading and other documentation
pertaining to such Acceptable Receivables, and copies of the cash receipts
journal pertaining to the Borrowing Base Certificate.
(f) A detailed aging by invoice and a summary aging by account
debtor of the Borrowers' receivables within twenty (20) days after the end of
each month.
(g) A summary aging by vendor of accounts payable within twenty (20)
days after the end of each month from the Borrowers.
(h) A listing of the names and addresses of all debtors obligated
upon the Borrowers' accounts receivable within twenty (20) days after the end of
each fiscal year.
(i) Promptly upon the Bank's reasonable request, such other books,
records, financial and other statements, lists of property and accounts,
budgets, forecasts or reports as to the Borrowers and as to each Guarantor as
the Bank may request.
9.3 Tangible Net Worth. To maintain on a consolidated basis Tangible Net
Worth equal to at least Twenty Four Million Dollars ($ 24,000,000), increasing
at the end of each fiscal year, commencing with the fiscal year ending June 30,
2005, by an amount equal to Two Million Dollars ($2,000,000) per fiscal year.
Compliance with this covenant will be calculated quarterly, beginning with the
quarter ending June 30, 2004.
9.4 Debt to Worth. To maintain on a consolidated basis a ratio of Total
Liabilities (excluding the non-current portion of Subordinated Liabilities) to
Tangible Net Worth not exceeding 2.75:1.0 through the quarter ending December
31, 2005 and 2.50: 1.0 effective with the quarter ending March 31, 2006 and each
quarter thereafter. Compliance with this covenant will be calculated quarterly,
beginning with the quarter ending September 30, 2004.
9.5 Basic Fixed Charge Coverage Ratio. To maintain on a consolidated basis
a Basic Fixed Charge Coverage Ratio of at least 1.00:1.0 through the quarter
ending December 31, 2005 and 1.10:1:0 effective with the quarter ending March
31, 2006 and each quarter thereafter. Compliance with this covenant will be
calculated quarterly, beginning with the quarter ending September 30, 2004. This
ratio will be calculated at the end of each reporting period for which
22
the Bank requires financial statements, using the results on a cumulative basis
for fiscal year 2005. Calculation methodology will change to a rolling four
quarter basis commencing with the first quarter of fiscal year 2006 and
thereafter. The current portion of long term liabilities will be measured as of
the last day of the calculation period and for the purpose of the calculation of
the Basic Fixed Change Coverage Ratio shall be determined in accordance with the
following: (a) for the reporting period ending September 30, 2004, the current
portion of long term liabilities will be defined as those long term liabilities,
excluding any amounts due and payable in accordance with the terms of this
Agreement, that are due and payable on or before December 31, 2004; (b) for the
reporting period ending December 31, 2004, the current portion of long term
liabilities will be defined as those long term liabilities, excluding amounts
due and payable in accordance with this Agreement, that are due and payable on
or before June 30, 2005; (c) for the reporting period ending March 31, 2005, the
current portion of the long term liabilities shall be defined as those long term
liabilities, excluding amounts due and payable in accordance with this
Agreement, that are due and payable on or before December 31, 2005; and (d) for
all reporting periods after March 31, 2005, the current portion of the long term
liabilities shall be defined as those long term liabilities, excluding amounts
due and payable in accordance with the terms of this Agreement, that are defined
as the current portion of long term debt in accordance with GAAP.
9.6 Capital Expenditures. Not to spend or incur obligations (including the
total amount of any capital leases) to acquire fixed assets for more than Three
Million Five Hundred Thousand Dollars ($3,500,000) at fiscal year end 2005 and
Three Million Dollars ($3,000,000) at fiscal year end 2006 and each year
thereafter on a consolidated basis. Compliance with this covenant will be
determined annually, commencing with the fiscal year ending June 30, 2005.
9.7 Liquidity. To maintain on a consolidated basis Liquidity of not less
than Five Million Dollars ($5,000,000) through the quarter ending December 31,
2005 and Two Million Five Hundred Thousand Dollars ($2,500,000) at all times
thereafter. If Borrower maintains a Basic Fixed Charge Coverage Ratio of at
least 1.25:1.0 for three (3) consecutive fiscal quarters, the requirement for
compliance with this covenant shall be suspended; provided, however if such
ratio is not subsequently met during any fiscal quarter, this covenant shall be
automatically reinstated.
9.8 Other Debts. Not to have outstanding or incur any direct or contingent
liabilities (other than those to the Bank and excluding operating leases), or
become liable for the liabilities of others, without the Bank's written consent,
which consent shall not be unreasonably withheld. This does not prohibit:
(a) Acquiring goods, supplies, merchandise, or services on normal
trade credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
(c) Obtaining surety bonds in the usual course of business.
(d) Liabilities in existence on the date of this Agreement disclosed
in writing to the Bank.
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(e) Additional debts which do not exceed a total principal amount of
One Million Dollars ($1,000,000) outstanding at any one time.
9.9 Other Liens. Not to create, assume, or allow any security interest or
lien (including judicial liens) on property the Borrower now or later owns,
except:
(a) Liens pursuant to any Loan Document;
(b) Liens existing on the date hereof and listed on Schedule 9.9
hereto and any renewals or extensions thereof, provided that the property
covered thereby is not increased and any renewal or extension of the obligations
secured or benefited thereby is permitted under this Agreement;
(c) Liens for taxes not yet due or which are being contested in good
faith and by appropriate proceedings diligently conducted, if adequate reserves
with respect thereto are maintained on the books of the applicable Person in
accordance with GAAP;
(d) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business which
are not overdue for a period of more than 30 days or which are being contested
in good faith and by appropriate proceedings diligently conducted, if adequate
reserves with respect thereto are maintained on the books of the applicable
Person in accordance with GAAP;
(e) pledges or deposits in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other social
security legislation, other than any Lien imposed by ERISA;
(f) deposits to secure the performance of bids, trade contracts and
leases (other than Indebtedness), statutory obligations, surety bonds (other
than bonds related to judgments or litigation), performance bonds and other
obligations of a like nature incurred in the ordinary course of business;
(g) easements, rights-of-way, restrictions and other similar
encumbrances affecting real property which, in the aggregate, are not
substantial in amount, and which do not in any case materially detract from the
value of the property subject thereto or materially interfere with the ordinary
conduct of the business of the applicable Person;
(h) Liens securing judgments for the payment of money not
constituting an Event of Default under Section 11.6 or securing appeal or other
surety bonds relating to such judgments; and
(i) liens securing indebtedness permitted under Section 9.8(e);
provided that (i) such Liens do not at any time encumber any property other than
the property financed by such indebtedness and (ii) the indebtedness secured
thereby does not exceed the cost or fair market value, whichever is lower, of
the property being acquired on the date of acquisition.
24
9.10 Cash Dividends and Stock Repurchases. Exclusive of dividends and
stock repurchases by and between any of the Borrowers to this Agreement,
Borrowers shall not do any of the following in an amount in excess of Four
Million Six Hundred Thousand Dollars ($4,600,000) during any fiscal year
("Annual Limit"): (a) declare or pay any cash dividends on any of the Borrowers'
issued and outstanding stock; (b) repurchase any of the Borrowers' previously
issued and outstanding stock for cash; or (c) create any sinking fund(s) in
relation to the transactions noted in (a) or (b) above. Provided, however, in
each case, except for any dividends or stock repurchases by and between
Borrowers to this Agreement, transactions described herein up to the Annual
Limit are permitted only so long as no Default shall exist or would result
therefrom, and the Borrowers shall have Availability of at least Five Million
Dollars ($5,000,000) before the transaction(s) and after giving effect to such
transaction(s) for at least thirty (30) consecutive days.
9.11 Loans and Investments. Not to have any existing, or make any new,
loans or other extensions of credit to, or investments in, any individual or
entity, or make any capital contributions or other transfers of assets to, any
individual or entity, except for:
(a) existing investments in the Borrower's current subsidiaries.
(b) extensions of credit in the nature of accounts receivable or
notes receivable arising from the sale or lease of goods or services in the
ordinary course of business to non-affiliated entities.
(c) investments in any of the following:
(i) certificates of deposit;
(ii) U.S. treasury bills and other obligations of the federal
government.
9.12 Notices to Bank. To promptly notify the Bank in writing of:
(a) except for existing lawsuits set forth on Schedule 9.12(a), any
new lawsuit over Five Hundred Thousand ($500,000) in excess of any insurance
coverage against any Borrower (or any Guarantor).
(b) any substantial dispute between any Borrower (or any Guarantor
and any government authority, in excess of One Million Dollars ($1,000,000) in
the aggregate.
(c) any event of default under this Agreement, or any event which,
with notice or lapse of time or both, would constitute an event of default.
(d) any material adverse change in any Borrower's (or any
guarantor's) business condition (financial or otherwise), operations, properties
or prospects, or ability to repay the credit.
(e) any change in any Borrower's name, legal structure, principal
place of business, or chief executive office if the Borrower has more than one
place of business.
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(f) excluding contingent liabilities in existence prior to closing
set forth on Schedule 9.12(f), any actual contingent liabilities of any Borrower
(or any Guarantor), and any such contingent liabilities which are reasonably
foreseeable, where such liabilities are in excess of Five Hundred Thousand
Dollars ($500,000) in the aggregate, in excess of any insurance coverage.
9.13 Books and Records. To maintain adequate books and records.
9.14 Audits. To allow the Bank and its agents to inspect any Borrower's
properties and examine, audit, and make copies of books and records at any
reasonable time upon at least 24 hours prior notice unless the Borrower is in
default. If any Borrower's properties, books or records are in the possession of
a third party, such Borrower authorizes that third party to permit the Bank or
its agents to have access to perform inspections or audits and to respond to the
Bank's requests for information concerning such properties, books and records.
9.15 Compliance with Laws. To comply with the laws (including any
fictitious name statute), regulations, and orders of any government body with
authority over the Borrowers' businesses, except where the failure to be in such
compliance would not have a Material Adverse Effect upon the Borrowers.
9.16 Preservation of Rights. To maintain and preserve all rights,
privileges, and franchises each Borrower now has, except where the failure to
maintain or preserve such rights would not have a Material Adverse Effect upon
the Borrowers.
9.17 Maintenance of Properties. To make any repairs, renewals, or
replacements to keep each Borrower's properties in good working condition,
except for ordinary wear and tear.
9.18 Perfection of Liens. To help the Bank perfect and protect its
security interests and liens, and reimburse it for related costs it incurs to
protect its security interests and liens.
9.19 Cooperation. To take any action reasonably requested by the Bank to
carry out the intent of this Agreement.
9.20 Insurance.
(a) Insurance Covering Collateral. To maintain all risk property
damage insurance policies covering the tangible property comprising the
collateral. Each insurance policy must be and include a replacement cost
endorsement in an amount acceptable to the Bank. The insurance must be issued by
an insurance company acceptable to the Bank and must include a lender's loss
payable endorsement in favor of the Bank in a form acceptable to the Bank.
(b) General Business Insurance. To maintain insurance satisfactory
to the Bank as to amount, nature and carrier covering property damage (including
loss of use and occupancy) to any of the Borrowers' properties, public liability
insurance including coverage for contractual liability, product liability and
workers' compensation, and any other insurance which is usual for the Borrowers'
businesses.
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(c) Evidence of Insurance. Upon the request of the Bank, to deliver
to the Bank a copy of each insurance policy, or, if permitted by the Bank, a
certificate of insurance listing all insurance in force.
9.21 Additional Negative Covenants. Not to, without the Bank's written
consent:
(a) engage in any business activities substantially different from
each Borrower's present business.
(b) liquidate or dissolve any Borrower's business having a tangible
net worth in excess of One Million Dollars ($1,000,000).
(c) except as set forth in Schedule 9.21(c), enter into any
consolidation, merger, or other combination, or become a partner in a
partnership, a member of a joint venture, or a member of a limited liability
company.
(d) sell, assign, lease, transfer or otherwise dispose of any assets
in excess of Five Hundred Thousand Dollars ($500,000) for less than fair market
value, or enter into any agreement to do so.
(e) sell, assign, lease, transfer or otherwise dispose of all or any
substantial part of any Borrower's business or any Borrower's assets.
(f) enter into any sale and leaseback agreement covering any of its
fixed assets in excess of Five Hundred Thousand Dollars ($500,000) in the
aggregate.
(g) acquire or purchase a business or its assets.
(h) voluntarily suspend its business for more than 7 days in any 30
day period.
9.22 ERISA Plans. Promptly during each year, to pay contributions adequate
to meet at least the minimum funding standards under ERISA with respect to each
and every Plan; file each annual report required to be filed pursuant to ERISA
in connection with each Plan for each year; and notify the Bank within ten (10)
days of the occurrence of any Reportable Event that might constitute grounds for
termination of any capital Plan by the Pension Benefit Guaranty Corporation or
for the appointment by the appropriate United States District Court of a trustee
to administer any Plan. "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time. Capitalized terms in this paragraph
shall have the meanings defined within ERISA.
9.23 Guaranties. Within 30 days after any Person becomes a wholly-owned
domestic Subsidiary, cause such Subsidiary to (a) become a Guarantor by
executing and delivering to Bank a counterpart of the Guaranty or such other
document as Bank shall deem appropriate for such purpose, and (b) deliver to
Bank such Collateral Documents as Bank may require in form acceptable to Bank.
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9.24 Bank as Principal Depository. To maintain the Bank as its principal
depository bank, including for the maintenance of business, cash management,
operating and administrative deposit accounts.
10. HAZARDOUS SUBSTANCES
10.1 Indemnity Regarding Hazardous Substances. The Borrowers will
indemnify and hold harmless the Bank from any loss or liability the Bank incurs
in connection with or as a result of this Agreement, which directly or
indirectly arises out of the use, generation, manufacture, production, storage,
release, threatened release, discharge, disposal or presence of a hazardous
substance. This indemnity will apply whether the hazardous substance is on,
under or about any Borrower's property or operations or property leased to any
Borrower. The indemnity includes but is not limited to attorneys' fees
(including the reasonable estimate of the allocated cost of in-house counsel and
staff). The indemnity extends to the Bank, its parent, subsidiaries and all of
their directors, officers, employees, agents, successors, attorneys and assigns.
10.2 Site Visits, Observations and Testing. The Bank and its agents and
representatives will have the right at any reasonable time, after giving
reasonable notice to the Borrowers, to enter and visit any locations where the
collateral securing this Agreement (the "Collateral") is located for the
purposes of observing the Collateral, taking and removing environmental samples,
and conducting tests. The Bank will make reasonable efforts during any site
visit, observation or testing conducted pursuant to this paragraph to avoid
interfering with the Borrowers' use of the Collateral. The Bank is under no duty
to observe the Collateral or to conduct tests, and any such acts by the Bank
will be solely for the purposes of protecting the Bank's security and preserving
the Bank's rights under this Agreement. No site visit, observation or testing or
any report or findings made as a result thereof ("Environmental Report") (i)
will result in a waiver of any default of the Borrowers; (ii) impose any
liability on the Bank; or (iii) be a representation or warranty of any kind
regarding the Collateral (including its condition or value or compliance with
any laws) or the Environmental Report (including its accuracy or completeness).
In the event the Bank has a duty or obligation under applicable laws,
regulations or other requirements to disclose an Environmental Report to the
Borrowers or any other party, the Borrowers authorize the Bank to make such a
disclosure. The Borrowers further understand and agree that any Environmental
Report or other information regarding a site visit, observation or testing that
is disclosed to the Borrowers by the Bank or its agents and representatives is
to be evaluated (including any reporting or other disclosure obligations of the
Borrowers) by the Borrowers without advice or assistance from the Bank.
10.3 Definition of Hazardous Substances. "Hazardous substances" means any
substance, material or waste that is or becomes designated or regulated as
"toxic," "hazardous," "pollutant," or "contaminant" or a similar designation or
regulation under any federal, state or local law (whether under common law,
statute, regulation or otherwise) or judicial or administrative interpretation
of such, including without limitation petroleum or natural gas. This indemnity
will survive repayment of the Borrowers' obligations to the Bank.
11. DEFAULT
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If any of the following events (each an "Event of Default") occurs, the
Bank may do one or more of the following: declare the Borrowers in default, stop
making any additional credit available to the Borrowers, and require the
Borrowers to repay its entire debt immediately and without prior notice. If an
event of default occurs under the paragraph entitled "Bankruptcy," below, with
respect to any Borrower, then the entire debt outstanding under this Agreement
will automatically be due immediately.
11.1 Failure to Pay. The Borrowers fail to pay (i) any amount of principal
and interest payable hereunder when due, or (ii) any fees or other amounts
payable hereunder within five (5) days after the same becomes due.
11.2 Lien Priority. The Bank fails to have an enforceable first lien
(except for liens permitted under this Agreement and any prior liens to which
the Bank has consented in writing) on or security interest in any material
property given as security for this Agreement (or any guaranty).
11.3 False Information. Any Borrower or any Guarantor or any party
pledging collateral to the Bank (each an "Obligor") has given the Bank
materially false or misleading information or representations.
11.4 Bankruptcy. Any Borrower (or any Obligor) files a bankruptcy
petition, a bankruptcy petition is filed against any Borrower (or any Obligor)
or any Borrower (or any Obligor) makes a general assignment for the benefit of
creditors. The default will be deemed cured if any bankruptcy petition filed
against any Borrower (or any Obligor) is dismissed within a period of forty-five
(45) days.
11.5 Receivers. A receiver or similar official is appointed for a
substantial portion of any Borrower's (or any Obligor's) business, or the
business is terminated.
11.6 Judgments. Any judgments or arbitration awards are entered against
any Borrower (or any Obligor), or any Borrower (or any Obligor) enters into any
settlement agreements with respect to any litigation or arbitration, in an
aggregate amount of Seven Hundred Fifty Thousand Dollars ($750,000) or more in
excess of any insurance coverage and is not released, vacated or fully bonded
within 60 calendar days.
11.7 Government Action. Any government authority takes action that the
Bank in good faith believes materially adversely affects any Borrower's (or any
Obligor's) financial condition or ability to repay.
11.8 Material Adverse Change. A change occurs that has a Material Adverse
Effect on Borrowers' (or Obligors') business condition (financial or otherwise),
operations, properties or prospects, or ability to repay the credit.
11.9 Cross-default. Any default occurs under any agreement in connection
with any credit in excess of Three Hundred Thousand Dollars ($300,000) any
Borrower (or any Obligor) has obtained from anyone else, including, without
limitation, the IRB Obligations, or which any
29
Borrower (or any Obligor) has guaranteed and such default has not been cured
within any applicable cure period.
11.10 Default under Related Documents. Any default occurs under any
guaranty, subordination agreement, security agreement, deed of trust, mortgage,
or other document required by or delivered in connection with this Agreement or
any such document is no longer in effect, or any guarantor purports to revoke or
disavow the guaranty and any applicable cure period has expired.
11.11 Other Bank Agreements. Any Borrower (or any Obligor) fails to meet
the conditions of, or fails to perform any obligation under any other agreement
any Borrower (or any Obligor) has with the Bank or any affiliate of the Bank,
unless remedied by the Borrower within any applicable cure period or waived by
the Bank.
11.12 ERISA Plans. Any one or more of the following events occurs with
respect to a Plan of any Borrower subject to Title IV of ERISA, provided such
event or events could reasonably be expected, in the judgment of the Bank, to
subject any Borrower to any tax, penalty or liability (or any combination of the
foregoing) which, in the aggregate, could have a Material Adverse Effect on the
financial condition of any Borrower:
(a) A reportable event shall occur under Section 4043(c) of ERISA
with respect to a Plan.
(b) Any Plan termination (or commencement of proceedings to
terminate a Plan) or the full or partial withdrawal from a Plan by any Borrower
or any ERISA Affiliate.
11.13 Other Breach Under Agreement. Any Borrower fails to meet the
conditions of, or fails to perform any material obligation under, any term of
this Agreement not specifically referred to in this Article. This includes any
failure by any Borrower to comply with any financial covenants set forth in this
Agreement, whether such failure is evidenced by financial statements delivered
to the Bank or is otherwise known to the Borrowers or the Bank; provided,
however, that Borrower shall have five (5) business days notice to cure any
defaults under Sections 9.12 and/or 9.20.
11.14 Change of Control. There shall occur a Change of Control.
12. ENFORCING THIS AGREEMENT; MISCELLANEOUS
12.1 GAAP. Except as otherwise stated in this Agreement, all financial
statements provided to the Bank and the financial statements used to calculate
the status of compliance with financial covenants shall be prepared in
accordance with GAAP on a consistent basis. Any interim period financial
statements will include, in the opinion of management, all adjustments
consisting of normal recurring adjustments and accruals necessary for a fair
presentation of the financial results for the interim period presented and of
the financial position of the Borrower as of the end of the interim period.
12.2 California Law. This Agreement is governed by California law.
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12.3 Successors and Assigns. This Agreement is binding on the Borrowers'
and the Bank's successors and assignees. The Borrowers agree that they may not
assign this Agreement without the Bank's prior consent. The Bank may sell
participations in or assign this loan, and may exchange financial information
about the Borrowers with actual or potential participants or assignees; provided
that such actual or potential participants or assignees shall agree to treat all
financial information exchanged as confidential. If a participation is sold or
the loan is assigned, the purchaser will have the right of set-off against the
Borrowers.
12.4 Arbitration and Waiver of Jury Trial.
(a) This paragraph concerns the resolution of any controversies or
claims between the Borrowers and the Bank, whether arising in contract, tort or
by statute, including but not limited to controversies or claims that arise out
of or relate to: (i) this Agreement (including any renewals, extensions or
modifications); or (ii) any document related to this Agreement, including,
without limitation, any Collateral Documents (collectively a "Claim").
(b) At the request of the Borrowers or the Bank, any Claim shall be
resolved by binding arbitration in accordance with the Federal Arbitration Act
(Title 9, U. S. Code) (the "Act"). The Act will apply even though this Agreement
provides that it is governed by the law of a specified state.
(c) Arbitration proceedings will be determined in accordance with
the Act, the applicable rules and procedures for the arbitration of disputes of
JAMS or any successor thereof ("JAMS"), and the terms of this paragraph. In the
event of any inconsistency, the terms of this paragraph shall control.
(d) The arbitration shall be administered by JAMS and conducted in
any U. S. state where real or tangible personal property collateral for this
credit is located or if there is no such collateral, in California. All Claims
shall be determined by one arbitrator; however, if Claims exceed Five Million
Dollars ($5,000,000), upon the request of any party, the Claims shall be decided
by three arbitrators. All arbitration hearings shall commence within ninety (90)
days of the demand for arbitration and close within ninety (90) days of
commencement and the award of the arbitrator(s) shall be issued within thirty
(30) days of the close of the hearing. However, the arbitrator(s), upon a
showing of good cause, may extend the commencement of the hearing for up to an
additional sixty (60) days. The arbitrator(s) shall provide a concise written
statement of reasons for the award. The arbitration award may be submitted to
any court having jurisdiction to be confirmed and enforced.
(e) The arbitrator(s) will have the authority to decide whether any
Claim is barred by the statute of limitations and, if so, to dismiss the
arbitration on that basis. For purposes of the application of the statute of
limitations, the service on JAMS under applicable JAMS rules of a notice of
Claim is the equivalent of the filing of a lawsuit. Any dispute concerning this
arbitration provision or whether a Claim is arbitrable shall be determined by
the arbitrator(s). The arbitrator(s) shall have the power to award legal fees
pursuant to the terms of this Agreement.
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(f) This paragraph does not limit the right of the Borrowers or the
Bank to: (i) exercise self-help remedies, such as but not limited to, setoff;
(ii) initiate judicial or nonjudicial foreclosure against any real or personal
property collateral; (iii) exercise any judicial or power of sale rights, or
(iv) act in a court of law to obtain an interim remedy, such as but not limited
to, injunctive relief, writ of possession or appointment of a receiver, or
additional or supplementary remedies.
(g) The procedure described above will not apply if the Claim, at
the time of the proposed submission to arbitration, arises from or relates to an
obligation to the Bank secured by real property. In this case, both the
Borrowers and the Bank must consent to submission of the Claim to arbitration.
If both parties do not consent to arbitration, the Claim will be resolved as
follows: The Borrowers and the Bank will designate a referee (or a panel of
referees) selected under the auspices of JAMS in the same manner as arbitrators
are selected in JAMS administered proceedings. The designated referee(s) will be
appointed by a court as provided in California Code of Civil Procedure Section
638 and the following related sections. The referee (or the presiding referee of
the panel) will be an active attorney or a retired judge. The award that results
from the decision of the referee(s) will be entered as a judgment in the court
that appointed the referee, in accordance with the provisions of California Code
of Civil Procedure Sections 644 and 645.
(h) The filing of a court action is not intended to constitute a
waiver of the right of any Borrower or the Bank, including the suing party,
thereafter to require submittal of the Claim to arbitration.
(i) By agreeing to binding arbitration, the parties irrevocably and
voluntarily waive any right they may have to a trial by jury in respect of any
Claim. Furthermore, without intending in any way to limit this agreement to
arbitrate, to the extent any Claim is not arbitrated, the parties irrevocably
and voluntarily waive any right they may have to a trial by jury in respect of
such Claim. This provision is a material inducement for the parties entering
into this Agreement.
12.5 Severability; Waivers. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank retains all
rights, even if it makes a loan after default. If the Bank waives a default, it
may enforce a later default. Any consent or waiver under this Agreement must be
in writing.
12.6 Administration Costs. The Borrowers shall pay the Bank for all
reasonable costs incurred by the Bank in connection with administering this
Agreement. Upon the Borrower's request, the Bank will provide reasonable detail
explaining such costs.
12.7 Attorneys' Fees. The Borrowers shall reimburse the Bank for any
reasonable costs and attorneys' fees incurred by the Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and in
connection with any amendment, waiver, "workout" or restructuring under this
Agreement. In the event of a lawsuit or arbitration proceeding, the prevailing
party is entitled to recover costs and reasonable attorneys' fees incurred in
connection
32
with the lawsuit or arbitration proceeding, as determined by the court or
arbitrator. In the event that any case is commenced by or against any Borrower
under the Bankruptcy Code (Title 11, United States Code) or any similar or
successor statute, the Bank is entitled to recover costs and reasonable
attorneys' fees incurred by the Bank related to the preservation, protection, or
enforcement of any rights of the Bank in such a case. As used in this paragraph,
"attorneys' fees" includes the allocated costs of the Bank's in-house counsel.
12.8 Joint and Several Liability.
(a) Each Borrower agrees that it is jointly and severally liable to
the Bank for the payment of all obligations arising under this Agreement, and
that such liability is independent of the obligations of the other Borrower(s).
Each obligation, promise, covenant, representation and warranty in this
Agreement shall be deemed to have been made by, and be binding upon, each
Borrower, unless this Agreement expressly provides otherwise. The Bank may bring
an action against any Borrower, whether an action is brought against the other
Borrower(s).
(b) Each Borrower agrees that any release which may be given by the
Bank to the other Borrower(s) or any guarantor will not release such Borrower
from its obligations under this Agreement.
(c) Each Borrower waives any right to assert against the Bank any
defense, setoff, counterclaim, or claims which such Borrower may have against
the other Borrower(s) or any other party liable to the Bank for the obligations
of the Borrowers under this Agreement.
(d) Each Borrower waives any defense by reason of any other
Borrower's or any other person's defense, disability, or release from liability.
The Bank can exercise its rights against each Borrower even if any other
Borrower or any other person no longer is liable because of a statute of
limitations or for other reasons.
(e) Each Borrower agrees that it is solely responsible for keeping
itself informed as to the financial condition of the other Borrower(s) and of
all circumstances which bear upon the risk of nonpayment. Each Borrower waives
any right it may have to require the Bank to disclose to such Borrower any
information which the Bank may now or hereafter acquire concerning the financial
condition of the other Borrower(s).
(f) Each Borrower waives all rights to notices of default or
nonperformance by any other Borrower under this Agreement. Each Borrower further
waives all rights to notices of the existence or the creation of new
indebtedness by any other Borrower and all rights to any other notices to any
party liable on any of the credit extended under this Agreement.
(g) The Borrowers represent and warrant to the Bank that each will
derive benefit, directly and indirectly, from the collective administration and
availability of credit under this Agreement. The Borrowers agree that the Bank
will not be required to inquire as to the disposition by any Borrower of funds
disbursed in accordance with the terms of this Agreement.
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(h) Until all obligations of the Borrowers to the Bank under this
Agreement have been paid in full and any commitments of the Bank or facilities
provided by the Bank under this Agreement have been terminated, each Borrower
(a) waives any right of subrogation, reimbursement, indemnification and
contribution (contractual, statutory or otherwise), including without
limitation, any claim or right of subrogation under the Bankruptcy Code (Title
11, United States Code) or any successor statute, which such Borrower may now or
hereafter have against any other Borrower with respect to the indebtedness
incurred under this Agreement; (b) waives any right to enforce any remedy which
the Bank now has or may hereafter have against any other Borrower, and waives
any benefit of, and any right to participate in, any security now or hereafter
held by the Bank.
(i) Each Borrower waives any right to require the Bank to proceed
against any other Borrower or any other person; proceed against or exhaust any
security; or pursue any other remedy. Further, each Borrower consents to the
taking of, or failure to take, any action which might in any manner or to any
extent vary the risks of the Borrower under this Agreement or which, but for
this provision, might operate as a discharge of the Borrower.
12.9 One Agreement. This Agreement and any related security or other
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between
the Bank and the Borrowers concerning this credit;
(b) replace any prior oral or written agreements between the Bank
and the Borrowers concerning this credit; and
(c) are intended by the Bank and the Borrowers as the final,
complete and exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other
agreements required by this Agreement, this Agreement will prevail.
12.10 Disposition of Schedules, Reports, Etc. Delivered by Borrowers.
Subject to Section 12.13, the Bank will not be obligated to return any
schedules, invoices, statements, budgets, forecasts, reports or other papers
delivered by the Borrowers. The Bank will destroy or otherwise dispose of such
materials at such time as the Bank, in its discretion, deems appropriate.
12.11 Returned Merchandise. Until the Bank exercises its rights to collect
the accounts receivable as provided under any security agreement required under
this Agreement, the Borrowers may continue their present policies for returned
merchandise and adjustments. Credit adjustments with respect to returned
merchandise shall be made immediately upon receipt of the merchandise by any
Borrower or upon such other disposition of the merchandise by the debtor in
accordance with such Borrower's instructions. If a credit adjustment is made
with respect to any Acceptable Receivable, the amount of such adjustment shall
no longer be included in the amount of such Acceptable Receivable in computing
the Borrowing Base.
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12.12 Verification of Receivables. The Bank may at any time, either orally
or in writing, request confirmation from any debtor of the current amount and
status of the accounts receivable upon which such debtor is obligated.
12.13 Confidentiality. The Bank shall use any confidential non-public
information concerning the Borrower that is furnished to it by or on behalf of
the Borrower in connection with the Loan Documents (collectively, "Confidential
Information") solely for the purpose of evaluating and providing products and
services to them and administering and enforcing the Loan Documents, and it will
hold the Confidential Information in confidence. Notwithstanding the foregoing,
the Bank may disclose Confidential Information (a) to its affiliates or any of
its or its affiliates' directors, officers, employees, advisors, or
representatives (collectively, the "Representatives") whom it determines need to
know such information for the purposes set forth in this Section; (b) to any
bank or financial institution or other entity to which the Bank has assigned or
desires to assign an interest or participation in the Loan Documents or the
Obligations, provided that any such foregoing recipient of such Confidential
Information agrees to keep such Confidential Information confidential as
specified herein; (c) to any governmental agency or regulatory body having or
claiming to have authority to regulate or oversee any aspect of the Bank's
business or that of its Representatives in connection with the exercise of such
authority or claimed authority; (d) to the extent necessary or appropriate to
effect or preserve the Bank's or any of its Affiliates' security (if any) for
any Obligation or to enforce any right or remedy or in connection with any
claims asserted by or against the Bank or any of its Representatives; and (e)
pursuant to any subpoena or any similar legal process. For purposes hereof, the
term "Confidential Information" shall not include information that (x) is in the
Bank's possession prior to its being provided by or on behalf of the Borrower,
provided that such information is not known by the Bank to be subject to another
confidentiality agreement with, or other legal or contractual obligation of
confidentiality to, the Borrower, (y) is or becomes publicly available (other
than through a breach hereof by the Bank), or (z) becomes available to the Bank
on a nonconfidential basis, provided that the source of such information was not
known by the Bank to be bound by a confidentiality agreement or other legal or
contractual obligation of confidentiality with respect to such information.
12.14 Indemnification. Each Borrower will indemnify and hold the Bank
harmless from any loss, liability, damages, judgments, and costs of any kind
relating to or arising directly or indirectly out of (a) this Agreement or any
document required hereunder, (b) any credit extended or committed by the Bank to
the Borrowers hereunder, (c) any claim, whether well-founded or otherwise, that
there has been a failure to comply with any law regulating any Borrower's sales
or leases to or performance of services for debtors obligated upon any
Borrower's accounts receivable and disclosures in connection therewith, and (d)
any litigation or proceeding related to or arising out of this Agreement, any
such document, any such credit, or any such claim; provided, however, such
indemnity shall not be available to the extent such losses, damages, judgments
and costs are determined by a court of competent jurisdiction by final and
non-appealable judgment to have resulted from the gross negligence or wilful
misconduct by the Bank. This indemnity includes but is not limited to attorneys'
fees (including the allocated cost of in-house counsel). This indemnity extends
to the Bank, its parent, subsidiaries and all of their directors, officers,
employees, agents, successors, attorneys, and assigns. This indemnity will
35
survive repayment of the Borrowers' obligations to the Bank. All sums due to the
Bank hereunder shall be obligations of the Borrowers, due and payable
immediately without demand.
12.15 Notices. Unless otherwise provided in this Agreement or in another
agreement between the Bank and the Borrower, all notices required under this
Agreement shall be personally delivered or sent by first class mail, postage
prepaid, or by overnight courier, to the addresses on the signature page of this
Agreement, or sent by facsimile to the fax numbers listed on the signature page,
or to such other addresses as the Bank and Administrative Borrower may specify
from time to time in writing. Notices and other communications sent by (a) first
class mail shall be deemed delivered on the earlier of actual receipt or on the
fourth business day after deposit in the U.S. mail, postage prepaid, (b)
overnight courier shall be deemed delivered on the next business day, and (c)
telecopy shall be deemed delivered when transmitted.
12.16 Headings. Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of this
Agreement.
12.17 Counterparts. This Agreement may be executed in as many counterparts
as necessary or convenient, and by the different parties on separate
counterparts each of which, when so executed, shall be deemed an original but
all such counterparts shall constitute but one and the same agreement.
[Remainder of Page Intentionally Left Blank]
36
This Agreement is executed as of the date stated at the top of the first
page.
Bank of America, N.A. Mercury Air Group, Inc.
By: /s/ Xxxxxxx X. Xxxxxxxx
Typed Name: Xxxxxxx X. Xxxxxxxx By: /s/ Xxxxxx X. Xxxxxx
Title: Vice President Typed Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
Address where notices to the Bank are
to be sent:
0000 Xxxxxxx Xxxx Xxxx, Xxxxx 000 Mercury Air Cargo, Inc.
Xxx Xxxxxxx, XX 00000
Facsimile: (000) 000-0000 By: /s/ Xxxxxx X. Xxxxxx
Typed Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
MercFuel, Inc.
By: /s/ Xxxxxx X. Xxxxxx
Typed Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
Maytag Aircraft Corporation
By: /s/ Xxxxxx X. Xxxxxx
Typed Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
Hermes Aviation, Inc.
By: /s/ Xxxxxx X. Xxxxxx
Typed Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
37
Mercury Air Center-Long Beach, Inc.
By: /s/ Xxxxxx X. Xxxxxx
Typed Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
Address where notices to the Borrowers
are to be sent:
0000 XxXxxxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
38