Exhibit 10.23
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
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This Second Amendment to Loan and Security Agreement (this "Amendment") is
made and entered into effective as of March 1, 1998, by and among Litronic
Industries, Inc., a California corporation (the "Company"), and Fidelity
Funding, Inc., a Texas corporation ("Fidelity").
A. The Company and Fidelity Funding of California, Inc. ("FFOC") have
entered into that certain Loan and Security Agreement (the "Original
Agreement"), dated as of June 27, 1996, and FFOC has assigned all of its right,
title and interest in, to and under the 1996 Agreement to Fidelity. The Company
and Fidelity have entered into that certain First Amendment to Loan Agreement
(the "First Amendment"), dated June 27, 1997. The 1996 Agreement as amended by
the First Amendment is referred to herein as the "Original Agreement," and the
Original Agreement as amended by this Amendment is referred to herein as the
"Agreement." Capitalized terms used but not defined in this Amendment shall
have the meanings given to them in the Original Agreement.
B. The Company and Fidelity desire to amend the Original Agreement and,
in connection therewith, hereby agree as follows:
1. The definition of "Revolving Loan Rate" in Section 1.1 of the Original
Agreement hereby is amended to read in its entirety as follows:
"REVOLVING LOAN RATE" means a rate of interest equal to the lesser of (a)
the Prime Rate in effect from time to time plus 1.50% per annum and (b) the
maximum rate permitted by applicable law; provided, however, that if (c) the
Company's net income before taxes for the 12-month period ending December 31,
1998 (determined in accordance with GAAP) as reflected in the audited financial
statements for such period delivered by the Company to Fidelity pursuant to
Section 8.3 is at least $100,000 and (d) no Event of Default or event or
circumstance that would with the giving of notice, the passage of time or both,
constitute an Event of Default, has theretofore occurred, effective as of Mach
1, 1999, "REVOLVING LOAN RATE" shall mean a rate of interest equal to the lesser
of (e) the Prime Rate in effect from time to time plus 1.25% per annum and (f)
the maximum rate permitted by applicable law. The Revolving Loan Rate shall be
automatically increased or decreased, as the case may be, without notice to the
Company from time to time as of the effective date of each change in the Prime
Rate.
2. The first sentence of Section 5.1 of the Original Agreement hereby is
deleted and is replaced in its entirety as follows:
The Company shall pay to Fidelity a commitment fee in the amount of
$25,000, payable on the date hereof, and an annual commitment fee in the amount
of $12,500, payable on each February 27 thereafter during the Term.
3. The first sentence of Section 5.2 of the Original Agreement hereby is
amended to read in its entirety as follows:
As consideration for Fidelity's commitment to advance funds hereunder the
Company shall pay to Fidelity a minimum usage fee (in this section called the
"Minimum Usage Fee") or not less than $6,000 for each calendar month (or
fraction thereof, on a prorated basis) during the Term.
4. Section 5.3 of the Original Agreement hereby deleted.
5. Compliance with the requirements of Section 8.8, 8.9 and 8.10 of the
Original Agreement through March 31, 1998, hereby is waived.
6. Effective as of March 31, 1998, Section 8.8 of the Original Agreement
hereby is amended to read in its entirety as follows:
The Company shall at all times maintain a Tangible Net Worth of not less
than the Tangible Net Worth Requirement. "TANGIBLE NET WORTH REQUIREMENT" means
negative $150,000 until May 31, 1998, $50,000 from June 1, 1998 until December
31, 1998 and for each calendar year thereafter the Tangible Net Worth
Requirement as of the last day of the preceding calendar year plus the greater
of $100,000 and 100% of the Company's Net Profit for the previous calendar year.
7. Effective as of March 31, 1998, Section 8.9 of the Original Agreement
hereby is amended to read in its entirety as follows:
The Company's Net Profit for each fiscal year of the Company shall equal or
exceed $100,000. On and after May 1, 1998, the Company's Net Profit shall not
be negative for any two or more consecutive calendar months. "NET PROFIT" means
net profit after tax determined in accordance with GAAP.
8. Effective as of March 31, 1998, Section 8.10 of the Original Agreement
hereby is amended to read in its entirety as follows:
The Company shall at all times maintain Working Capital of not less than
the Working Capital Requirement. "WORKING CAPITAL REQUIREMENT" means negative
$400,000 until May 31, 1998, negative $300,000 from June 1, 1998 until December
31, 1998 and for each calendar year thereafter the Working Capital Requirement
as of the last day of the preceding calendar year plus the greater of $50,000
and 50% of the Company's Net Profit for the previous calendar year.
9. Section 14.4 of the Original Agreement hereby is amended to read in
its entirety as follows:
The term of this Agreement shall be for a period ending on February 28,
2000 (the original term, and any extension thereof made by Fidelity pursuant to
this section, are herein called the "Term"); provided, however, that Fidelity
may extend the term hereof for additional
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one-year periods, if Fidelity elects to do so in its sole discretion, by
notifying the Company in writing at least 30 days before the end of the term
then in effect; and provided further that Fidelity may terminate this Agreement
at any time effective immediately upon the occurrence of an Event of Default;
and provided further that the Company may terminate this Agreement at any time
with 30 days' prior written notice to Fidelity upon the sale of all or
substantially all of the assets of the Company to a Person who is not an
Affiliate of the Company. The Company acknowledges that, except as expressly
provided above, it shall have no right to terminate this Agreement prior to the
end of the Term, termination of this Agreement at any tine prior to the end of
the Term would result in the loss by Fidelity of benefits under this Agreement
and the damages incurred by Fidelity as a result of such termination would be
difficult and impractical to ascertain. Therefore, in the event this Agreement
is terminated prior to the end of the Term for any reason other than the sale of
all or substantially all of the assets of the Company to a Person who is not an
Affiliate of the Company, the Company shall pay to Fidelity an early termination
fee in an amount equal to (x) the average monthly accrued interest and fees
earned by Fidelity hereunder prior to the date of termination multiplied by (y)
the number of months remaining in the Term as of the date of termination, but in
no event shall such early termination fee exceed the maximum amount permitted by
applicable law. Any termination of this Agreement shall not affect Fidelity's
security interest in the Collateral, and this Agreement shall continue to be
effective, until all Obligations have been paid in full.
10. Representations and Warranties of the Company. In order to induce
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Fidelity to enter into this Amendment, the Company represents and warrants to
Fidelity that:
(a) The representations and warranties contained in Section 7 of the
Original Agreement are true and correct at and as of the time of the
effectiveness hereof; provided, however, that the Company's current address
at this time is 0000 Xxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxxxxxxx 00000.
(b) The Company is duly authorized to execute, deliver and perform
its obligations under this Amendment and is and will continue to be duly
authorized to perform its obligations under the Original Agreement as
amended hereby. The Company has duly taken all corporate action necessary
to authorize the execution and delivery of this Amendment and to authorize
the performance of the obligations of the Company hereunder.
(c) The execution and delivery by the Company of this Amendment, the
performance by the Company of its obligations hereunder and the
consummation of the transactions contemplated hereby do not and will not
conflict with any provision of law, statute, rule or regulation or of the
articles of incorporation and bylaws of the Company, or of any material
agreement, judgment, license, order or permit applicable to or binding upon
the Company, or result in the creation of any lien, charge or encumbrance
upon any assets or properties of the Company. Except for those which have
been duly obtained, no consent, approval, authorization or order of any
court or governmental authority or third
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party is required in connection with the execution and delivery by the
Company of this Amendment or to consummate the transactions contemplated
hereby.
(d) The Agreement (including this Amendment) has been duly executed
and delivered by the Company and is a legal and binding instrument and
agreement of the Company, enforceable against the Company in accordance
with its terms, except as limited by bankruptcy, insolvency and similar
laws and by general principles of equity.
(e) No Event of Default or any event that, with the giving of notice,
the passage of time or both, would constitute an Event of Default has
occurred or is continuing.
11. Miscellaneous.
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(a) The Agreement is hereby ratified and confirmed in all respects.
The execution, delivery and effectiveness of this Amendment shall not,
except as expressly provided herein, operate as a waiver of any right,
power or remedy of Fidelity under the Agreement nor constitute a waiver of
any provision thereof.
(b) All representations, warranties, covenants and agreements of the
Company herein shall survive the execution and delivery of this Amendment
and the performance hereof and shall further survive until the Agreement is
terminated.
(c) This Amendment may be separately executed in counterparts and by
the different parties hereto in separate counterparts, each of which when
so executed shall be deemed to constitute one and same Amendment.
(d) The Company agrees to pay Fidelity the reasonable fees, charges
and expenses, not to exceed an aggregate of $2,000, of its in-house counsel
in connection with the negotiation and preparation of this Amendment and
the consummation of the transactions contemplated hereby.
IN WITNESS WHEREOF, the Company and Fidelity have executed this Amendment
as of the date first written above.
FIDELITY: THE COMPANY:
FIDELITY FUNDING, INC., LITRONIC INDUSTRIES, INC.,
a Texas corporation a California corporation
By: /s/ XXXXXXX X. XXXXXX By: /s/ XXXX XXXX
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Xxxxxxx X. Xxxxxx Name: Xxxx Xxxx
President Title: President
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CONSENT AND AGREEMENT
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Each of the undersigned hereby consents to the provisions of this Amendment
and the transactions contemplated therein and hereby ratifies and confirms the
general continuing guaranty dated as of June 27, 1996, made by Xxxx Xxxx for the
benefit of Fidelity relating to the Company, and agrees that his or her
obligations and covenants thereunder are unimpaired hereby and shall remain in
full force and effect.
/s/ XXXX XXXX
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Xxxx Xxxx
/s/ XXXXXXXXX X. XXXX
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Xxxxxxxxx Xxxx
The undersigned hereby consents to the provisions of this Amendment and the
transactions contemplated therein and hereby ratifies and confirms the
subordination agreement dated as of June 27, 1996, made by him for the benefit
of Fidelity relating to the Company, and agrees that his obligations and
covenants thereunder are unimpaired hereby and shall remain in full force and
effect.
/s/ XXXX XXXX
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Xxxx Xxxx
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