CREDIT AGREEMENT
THIS AGREEMENT is entered into as of February 27, 1998, by and between
ADVANCED MATERIALS GROUP, INC., a Nevada corporation ("Borrower"), and XXXXX
FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITAL
Borrower has requested from Bank the credit accommodation described below,
and Bank has agreed to provide said credit accommodation to Borrower on the
terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
THE CREDIT
SECTION 1.1. LINE OF CREDIT.
(a) LINE OF CREDIT. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including March 1, 2000, not to exceed at any time the aggregate
principal amount of Ten Million Dollars ($10,000,000.00) ("Line of Credit"), the
proceeds of which shall be used to finance working capital requirements and
acquisitions. Borrower's obligation to repay advances under the Line of Credit
shall be evidenced by a promissory note substantially in the form of Exhibit A
attached hereto ("Line of Credit Note"), all terms of which are incorporated
herein by this reference.
(b) SUB-FACILITY LIMITS. The Line of Credit will include Sub-Facility A
in the amount of $8,000,000.00, the proceeds of which shall be used for
Borrower's working capital requirements, including without limitation advances
by Borrower to Subsidiaries for their working capital requirements in accordance
with this Agreement; and Sub-Facility B in the amount of $2,000,000.00, the
proceeds of which may be used for acquisitions which are permitted by Bank in
accordance with this Agreement.
(c) BORROWING AND REPAYMENT. Borrower may from time to time during the
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total
outstanding borrowings under the Line of Credit shall not at any time exceed the
maximum principal amount available thereunder as set forth above; provided
further, however, that borrowings for working capital and borrowings for
acquisitions shall not at any time exceed such limitations as may be imposed by
the Sub-Facility limits as set forth above.
SECTION 1.2. INTEREST/FEES.
(a) INTEREST. The outstanding principal balance of the Line of Credit
shall bear interest at the rate of interest set forth in the Line of Credit
Note.
(b) COMPUTATION AND PAYMENT. Interest shall be computed on the basis of a
360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in the Line of Credit Note.
(c) COMMITMENT FEE. Borrower shall pay to Bank a non-refundable
commitment fee for the Line of Credit equal to $15,000.00, which fee shall be
due and payable on the date this Agreement is executed by Borrower. This fee
shall be in addition to the $10,000.00 commitment fee which was paid by Borrower
to Bank upon Borrower's acceptance of Bank's prior commitment letter relating to
this credit accommodation.
(e) UNUSED COMMITMENT FEE. Borrower shall pay to Bank a fee equal to one
quarter percent (.25%) per annum (computed on the basis of a 360-day year,
actual days elapsed) on the average daily unused amount of Sub-Facility A of the
Line of Credit, which fee shall be calculated on a quarterly basis by Bank and
shall be due and payable by Borrower in arrears within ten (10) days after each
billing is sent by Bank.
(f) EARLY TERMINATION FEE. If for any reason this Agreement is terminated
prior to the scheduled maturity date of the Line of Credit (an amendment or
amendment and restatement of this Agreement shall not be deemed a termination of
this Agreement for the purpose of this paragraph), then in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Bank's lost
profits as a result thereof, Borrower agrees to pay to Bank, upon the effective
date of such termination, an early termination fee in the amount set forth below
if such termination is effective in the period indicated (as used below,
"Maximum Amount" means $10,000,00O.00):
Amount Period
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2% of the Maximum Amount The date hereof up to and including the first
anniversary date hereof.
1% of the Maximum Amount The first anniversary date hereof up to and
including the second anniversary date hereof.
Such early termination fee shall be presumed to be the amount of damages
sustained by Bank as a result of such early termination and Borrower agrees that
it is reasonable under the circumstances currently existing.
No termination of this Agreement or the other Loan Documents shall relieve
or discharge Borrower of its respective duties, obligations and covenants under
this Agreement or the other Loan documents until all Borrower's obligations
under this Agreement and the other Loan Documents have been fully and finally
discharged and paid.
SECTION 1.3. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect
all principal, interest and fees due under or in connection with the Line of
Credit by charging Borrower's demand deposit account number 4648-071066 with
Bank, or any other demand deposit account maintained by Borrower with Bank, for
the full amount thereof. Should there be insufficient funds in any such demand
deposit account to pay all such sums when due, the full amount of such
deficiency shall be immediately due and payable by Borrower.
SECTION 1.4. COLLATERAL. As security for all indebtedness of Borrower to
Bank, Borrower hereby grants to Bank security interests of first priority in its
accounts receivable and other rights to payment, contract rights, general
intangibles, deposit accounts, chattel paper, documents, instruments, inventory,
equipment and other personal property, including without limitation its
interests as a stockholder in any Subsidiary (as defined in Section 2.1 below),
and all proceeds of the foregoing.
Each Guarantor (as defined in Section 1.5 below), as security for its
guaranty and any other liability to Bank, shall grant to Bank security interests
of first priority in its accounts receivable and other rights to payment,
contract rights, general intangibles, deposit accounts, chattel paper,
documents, instruments, inventory, equipment and other personal property,
including without limitation its interests as a stockholder in any Subsidiary,
and all proceeds of the foregoing.
All of the foregoing shall be evidenced by and subject to the terms of such
security agreements, financing statements,
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deeds of trust and other documents as Bank shall reasonably require, all in form
and substance satisfactory to Bank. Borrower shall reimburse Bank immediately
upon demand for all costs and expenses incurred by Bank in connection with any
of the foregoing security, including without limitation, filing and recording
fees and costs of audits which may be required in the future.
SECTION 1.5. GUARANTIES. All indebtedness of Borrower to Bank shall be
jointly and severally guaranteed by the following (collectively, "Guarantors"
and each a "Guarantor"): Advanced Materials, Inc., a California corporation
("AMI"), Condor Utility Products, Inc., a California corporation ("CUP"),
Advanced Materials Foreign Sales Corporation Ltd., a Bermuda corporation
("AMF"), and each other Subsidiary, whether presently existing or hereafter
acquired, in the principal amount of Ten Million Dollars ($10,000,000.00) each,
as evidenced by and subject to the terms of continuing guaranties in form and
substance satisfactory to Bank; provided, however, that notwithstanding the
foregoing, Advanced Materials Limited, an Irish corporation ("AML"), shall not
be required to provide such a guaranty.
SECTION 1.6. SUBORDINATION OF DEBT. All obligations of Borrower or any
Guarantor to any other bank or lender or to any Subsidiary shall be subordinated
in right of repayment to all obligations to Bank, as evidenced by and subject to
the terms of continuing subordination agreements in form and substance
satisfactory to Bank; provided, however, that the obligation of Borrower as a
guarantor of AML's obligations to AML's lender which are permitted under this
Agreement shall not be subordinated to the obligations of Borrower to Bank.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement and
shall continue in full force and effect until the full and final payment, and
satisfaction and discharge, of all obligations of Borrower to Bank subject to
this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the state of Nevada, and is
qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower. Borrower owns one hundred
percent (100%) of the stock of AMI, CUP
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and AML. AMI owns one hundred percent (100%) of the stock of AMF.
As used herein, the term "Subsidiary" shall mean any corporation or other
entity of which at least a majority of the securities or other ownership
interests having ordinary voting power for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by Borrower and/or by one or more of Borrower's Subsidiaries.
As used herein, the term "Subsidiaries" shall mean each Subsidiary, which
includes, without limitation, AMI, CUP, AMF and AML.
Each Subsidiary is duly organized and existing and in good standing under
the laws of the jurisdiction of its incorporation or formation, as the case may
be, and is qualified or licensed to do business (and is in good standing as a
foreign corporation, if applicable) in all jurisdictions in which such
qualification or licensing is required or in which the failure to so qualify or
to be so licensed could have a material adverse effect on it.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Note, and
each other document, contract and instrument required hereby or at any time
hereafter delivered to Bank in connection herewith (collectively, the "Loan
Documents") have been duly authorized, and upon their execution and delivery in
accordance with the provisions hereof will constitute legal, valid and binding
agreements and obligations of Borrower or the party which executes the same,
enforceable in accordance with their respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower and each Guarantor of each of the Loan Documents to which it is a party
do not violate any provision of any law or regulation, or contravene any
provision of the Articles of Incorporation, By-Laws or other formation documents
of Borrower or any Guarantor, or result in any breach of or default under any
contract, obligation, indenture or other instrument to which Borrower or any
Guarantor is a party or by which Borrower or any Guarantor may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower or any Subsidiary other than those
disclosed by Borrower to Bank in writing prior to the date hereof.
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SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement
of Borrower and Subsidiaries dated November 30, 1997, a true copy of which has
been delivered by Borrower to Bank prior to the date hereof, (a) is complete and
correct and presents fairly the financial condition of Borrower and
Subsidiaries, (b) discloses all liabilities of Borrower and Subsidiaries that
are required to be reflected or reserved against under generally accepted
accounting principles, whether liquidated or unliquidated, fixed or contingent,
and (c) has been prepared in accordance with generally accepted accounting
principles consistently applied. Since the date of such financial statement
there has been no material adverse change in the financial condition of Borrower
or any Subsidiary, nor has Borrower or any Subsidiary mortgaged, pledged,
granted a security interest in or otherwise encumbered any of its assets or
properties except in favor of Bank or as otherwise permitted by Bank in writing.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its or any Subsidiary's income tax payable
with respect to any year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower and each Subsidiary possess,
and will hereafter possess, all permits, consents, approvals, franchises and
licenses required and rights to all trademarks, trade names, patents, and
fictitious names, if any, necessary to enable each of them to conduct the
business in which each of them is now engaged in compliance with applicable law.
SECTION 2.9. ERISA. Borrower and each Subsidiary are in compliance in
all material respects with all applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended or recodified from time to time
("ERISA"); neither Borrower nor any Subsidiary has violated any provision of any
defined employee pension benefit plan (as defined in ERISA) maintained or
contributed to by Borrower (each, a "Plan"); no Reportable Event as defined in
ERISA has occurred and is continuing with respect to any Plan initiated by
Borrower or any Subsidiary; Borrower and each Subsidiary have met each of their
minimum funding requirements under ERISA with respect to each Plan; and each
Plan will be able to fulfill its benefit obligations as they come due in
accordance with the Plan documents and under generally accepted accounting
principles.
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SECTION 2.10. OTHER OBLIGATIONS. Neither Borrower nor any Subsidiary is
in default on any obligation for borrowed money, any purchase money obligation
or any other material lease, commitment, contract, instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower and each Subsidiary to the
best of their knowledge based on reasonable due diligence are in compliance in
all material respects with all applicable federal or state environmental,
hazardous waste, health and safety statutes, and any rules or regulations
adopted pursuant thereto, which govern or affect any of their operations and/or
properties, including without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, and the Federal Toxic Substances Control Act, as any of the same may be
amended, modified or supplemented from time to time. None of the operations of
Borrower or any Subsidiary to the best of their knowledge based on reasonable
due diligence is the subject of any federal or state investigation evaluating
whether any remedial action involving a material expenditure is needed to
respond to a release of any toxic or hazardous waste or substance into the
environment. Neither Borrower nor any Subsidiary to the best of their knowledge
based on reasonable due diligence has any material contingent liability in
connection with any release of any toxic or hazardous waste or substance into
the environment.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to extend any credit contemplated by this Agreement is subject to the
fulfillment to Bank's satisfaction of all of the following conditions:
(a) APPROVAL OF BANK COUNSEL. All legal matters incidental to the
extension of credit by Bank shall be satisfactory to Bank's counsel.
(b) DOCUMENTATION. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Line of Credit Note.
(ii) Articles of Incorporation and/or formation documents for Borrower and
each Guarantor.
(iii) Corporate Borrowing Resolution for Borrower and Resolutions
authorizing Guaranty for each Guarantor.
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(iv) Certificates of Incumbency for Borrower and each Guarantor.
(v) Continuing Guaranties as required hereunder.
(vi) Subordination Agreements as required hereunder.
(vii) Security Agreements covering all collateral from Borrower and each
Guarantor as required hereunder.
(viii) Intercreditor Agreements as required hereunder.
(ix) UCC Financing Statements and similar documents of registration or
recording covering all collateral from Borrower and each Guarantor as
required hereunder.
(x) Stock certificates and similar documents evidencing stock or other
ownership interests which are part of the collateral required
hereunder, together with the stock powers, as appropriate.
(xi) Such legal opinions as Bank may require from counsel to Borrower and
each Guarantor.
Such other documents as Bank may require under any other Section of this
Agreement.
(c) FINANCIAL CONDITION. There shall have been no material adverse
change, as determined by Bank in its good faith judgment, in the financial
condition or business of Borrower or any Subsidiary, nor any material decline,
as determined by Bank in its good faith judgment, in the market value of any
collateral required hereunder or a substantial or material portion of the assets
of Borrower or any Subsidiary.
(d) INSURANCE. Borrower shall have delivered to Bank evidence of
insurance coverage on Borrower's and each Subsidiary's property, in form,
substance, amounts, covering risks and issued by companies satisfactory to Bank,
and where required by Bank, with loss payable endorsements in favor of Bank.
(e) LEGAL OPINIONS. Bank shall have received, in form and substance
satisfactory to Bank in its good faith judgment, such opinion letters of counsel
to Borrower and each Guarantor with respect to the Loan Documents and such other
matters as Bank may request.
(f) Manufacturing Agreement. Bank shall have reviewed and shall be
satisfied with the Manufacturing Agreement between AMF and Foamtec (Singapore)
Pte Ltd. ("Foamtec") and related lease and other documents (collectively,
"Manufacturing Agreement"), including but not limited to the impact of the
Manufacturing Agreement on the financial condition of Borrower, AMF and the
other Subsidiaries and the impact of the Manufacturing Agreement on the value of
Bank's collateral.
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(g) Collateral. Bank shall have acquired security interests of first
priority in all collateral required hereunder, as evidenced by and subject to
the terms of such documents as Bank shall reasonably require. The foregoing
shall include, without limitation, security agreements and Uniform Commercial
Code financing statements with respect to all collateral located in the United
States, and such security agreements and other documents and instruments as may
be required by Bank in order for Bank to obtain security interests of first
priority acceptable to Bank in collateral located outside of the United States.
Borrower acknowledges that (1) Bank has not yet consulted with its outside
counsel regarding the documents, instruments, agreements and procedures which
may be required for Bank to obtain first priority security interests in
collateral located outside of the United States, to obtain a guaranty from any
foreign Subsidiary and to obtain a security interest of first priority in the
stock or other ownership interest in any foreign Subsidiary, (2) Bank intends to
so consult with its outside counsel and to require such security interests and
guaranties in accordance with this Agreement, (3) because Bank has not yet
consulted with its outside counsel, Bank is unable at the time this Agreement is
executed by Bank and Borrower to obtain or provide Borrower with a list of all
documents, instruments and agreements which may be required by Bank hereunder,
(4) Bank's failure to request or obtain all such documents, instruments and
agreements at the time this Agreement is executed by Bank and Borrower shall not
constitute a waiver by Bank of its right hereunder to decline to extend any
credit hereunder until all such documents, instruments and agreements are
provided to Bank and all other conditions set forth herein are satisfied, and
(5) Borrower shall be obligated under this Agreement to reimburse Bank for its
costs and expenses, including reasonable attorneys' fees, expended or incurred
by Bank in connection with the preparation and negotiation of all such
documents, instruments and agreements.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:
(a) COMPLIANCE. The representations and warranties contained herein and
in each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the
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passage of time or both would constitute such an Event of Default, shall have
occurred and be continuing or shall exist.
(b) DOCUMENTATION. Bank shall have received all additional documents
which may be required in connection with such extension of credit.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend credit
to Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, unless Bank otherwise consents in writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Borrower shall punctually pay all
principal, interest, fees or other liabilities due under any of the Loan
Documents at the times and place and in the manner specified therein.
SECTION 4.2. ACCOUNTING RECORDS. Borrower shall, and shall cause each
Subsidiary to, maintain adequate books and records in accordance with generally
accepted accounting principles consistently applied, and permit any
representative of Bank, at any reasonable time, to inspect, audit and examine
such books and records, to make copies of the same, and to inspect the
properties of Borrower and each Subsidiary.
SECTION 4.3. FINANCIAL STATEMENTS. Borrower shall provide to Bank all of
the following, in form and detail satisfactory to Bank:
(a) not later than 90 days after and as of the end of each fiscal year, an
audited consolidated financial statement and 10-K/10-KSB Report of Borrower and
Subsidiaries, prepared by a certified public accountant acceptable to Bank
(Borrower's current accountants, Xxxxxx and Xxxxx, are currently acceptable to
Bank), to include consolidations, schedules and footnotes;
(b) not later than 45 days after and as of the end of each quarter, a
consolidated financial statement of Borrower and Subsidiaries, prepared by
Borrower and a 10-Q/10-QSB Report of Borrower, prepared by a certified public
accountant acceptable to Bank (Borrower's current accountants, Xxxxxx and Xxxxx,
are currently acceptable to Bank) to include consolidations;
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(c) not later than 10 days after and as of the end of each quarter, an
aged listing of accounts receivable and accounts payable of Borrower and each
Subsidiary;
(d) not later than the last day of the first month of each new fiscal year
of Borrower, a plan and financial forecast for such fiscal year for Borrower and
Subsidiaries;
(e) from time to time such other information as Bank may reasonably
request.
SECTION 4.4. COMPLIANCE. Borrower shall, and shall cause each Subsidiary
to, preserve and maintain all licenses, permits, governmental approvals, rights,
privileges and franchises necessary for the conduct of each of their businesses;
and comply with the provisions of all documents pursuant to which each of them
is organized and/or which govern their continued existence and with the
requirements of all laws, rules, regulations and orders of any governmental
authority applicable to any of them and/or any of their businesses except in any
case where failure to do so would not have a material adverse effect on Borrower
or any Subsidiary.
SECTION 4.5. INSURANCE. Borrower shall, and shall cause each Subsidiary
to, maintain and keep in force insurance of the types and in amounts customarily
carried in similar lines of business, including but not limited to fire,
extended coverage, public liability, flood, property damage and workers'
compensation, with all such insurance carried with companies and in amounts
satisfactory to Bank, and deliver to Bank from time to time at Bank's request
schedules setting forth all insurance then in effect.
SECTION 4.6. FACILITIES. Borrower shall, and shall cause each Subsidiary
to, keep all properties useful or necessary to each of their businesses in good
repair and condition, and from time to time make necessary repairs, renewals and
replacements thereto so that such properties shall be fully and efficiently
preserved and maintained except in any case where failure to do so would not
have a material adverse effect on Borrower or any Subsidiary.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Borrower shall, and shall
cause each Subsidiary to, pay and discharge when due any and all indebtedness,
obligations, assessments and taxes, both real or personal, including without
limitation federal and state income taxes and state and local property taxes and
assessments, except such (a) as Borrower or a Subsidiary may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
and Subsidiaries have made provision,
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to Bank's satisfaction, for eventual payment thereof in the event Borrower or
any Subsidiary is obligated to make such payment.
SECTION 4.8. LITIGATION. Borrower shall promptly give notice in writing
to Bank of any litigation pending or threatened against Borrower or any
Subsidiary with a claim in excess of $100,000.00.
SECTION 4.9. FINANCIAL CONDITION. Borrower shall maintain its financial
condition on a consolidated basis as follows using generally accepted accounting
principles consistently applied and used consistently with prior practices
(except to the extent modified by the definitions herein), with compliance
determined commencing with Borrower's financial statements for the period ending
November 30, 1997:
(a) Current Ratio not less than 1.25 to 1.0 at any time up to and
including 5/31/98; 1.40 to 1 at any time from and including 6/1/98 up to and
including 8/31/98; 1.50 to 1.0 at any time from and including 9/1/98 up to and
including 5/31/99; and 2.0 to 1.0 at any time thereafter, with "Current Ratio"
defined as total current assets divided by total current liabilities (current
liabilities will include without limitation the outstanding principal balance of
the Line of Credit).
(b) Tangible Net Worth not less than $3,000,000.00 at any time up to and
including 8/31/98; $5,300,000.00 at any time from and including 9/1/98 up to and
including 5/31/99; and $7,500,000.00 at any time thereafter, with "Tangible Net
Worth" defined as the aggregate of total stockholders' equity plus subordinated
debt less any intangible assets.
(c) Total Liabilities divided by Tangible Net Worth not greater than 2.25
to 1.0 at any time up to and including 2/28/98; 3.0 to 1.0 at any time from and
including 3/1/98 up to and including 5/31/98; 2.25 to 1.0 at any time from and
including 6/1/98 up to and including FYE 11/30/98, and not greater than 1.75 to
1.0 at any time thereafter, with "Total Liabilities" defined as the aggregate of
current liabilities and non-current liabilities less subordinated debt, and with
"Tangible Net Worth" as defined above.
(d) Net income after taxes not less than $1.00 on an quarterly basis,
determined as of each fiscal quarter end.
(e) Interest Coverage Ratio measured on a rolling four quarter basis as of
the end of each fiscal quarter not less than 3.50 to 1.0 up to and including
8/31/98, and not less than 4.50 to 1.0 thereafter, with "Interest Coverage
Ratio" defined as EBITDA divided by total interest expense, and with "EBITDA"
defined as net profit before tax plus interest expense (net of
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capitalized interest expense), depreciation expense and amortization expense.
(f) Funded Debt to EBITDA Ratio measured on a rolling four quarter basis
as of the end of each fiscal quarter not greater than 1.50 to 1.0, with "Funded
Debt" defined as all current and non-current interest-bearing liabilities,
divided by EBITDA as defined above.
SECTION 4.10. NOTICE TO BANK. Borrower shall promptly (but in no event
more than seven (7) days after the occurrence of each such event or matter) give
written notice to Bank in reasonable detail of: (a) the occurrence of any Event
of Default, or any condition, event or act which with the giving of notice or
the passage of time or both would constitute an Event of Default; (b) the
occurrence and nature of any Reportable Event or Prohibited Transaction, each as
defined in ERISA, or any funding deficiency with respect to any Plan; or (c) any
termination or cancellation of any insurance policy which Borrower or any
Subsidiary is required to maintain, or any uninsured or partially uninsured loss
through liability or property damage, or through fire, theft or any other cause
affecting Borrower's or any Subsidiary's property in excess of an aggregate of
$150,000.00.
SECTION 4.11. ADDITIONAL NOTICE. Borrower shall provide not less than
thirty (30) days prior written notice to Bank of any change in the name or
organizational structure of Borrower or any Subsidiary.
SECTION 4.12. YEAR 2000 COMPLIANCE. Borrower shall perform all acts
reasonably necessary to ensure that (i) Borrower, each Subsidiary and any
business in which Borrower or any Subsidiary holds a substantial interest, and
(ii) all customers, suppliers and vendors that are material to Borrower's or any
Subsidary's business, become Year 2000 Compliant in a timely manner. Such acts
shall include, without limitation, performing a comprehensive review and
assessment of all of Borrower's systems and adopting a detailed plan, with
itemized budget, for the remediation, monitoring and testing of such systems. As
used in this paragraph, "Year 2000 Compliant" shall mean, in regard to any
entity, that all software, hardware, firmware, equipment, goods or systems
utilized by or material to the business operations or financial condition of
such entity, will properly perform date sensitive functions before, during and
after the year 2000. Borrower shall, immediately upon request, provide to Bank
such certifications or other evidence of Borrower's compliance with the terms of
this paragraph as Bank may from time to time require.
SECTION 4.13. RATIO OF DOMESTIC TO FOREIGN ASSETS. Borrower shall
maintain its financial condition and the financial
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condition of its Subsidiaries, as determined by Bank based on the financial
statements required hereunder, so that Domestic Accounts plus Domestic Inventory
at all times exceed fifty percent (50%) of Consolidated Accounts and Inventory.
As used herein, "Domestic Accounts" means accounts receivable of Borrower, AMI
and CUP (so long as they continue to be incorporated in the jurisdictions
specified in this Agreement and continue to maintain their chief executive
offices, billing records and operations within the U.S.). In making the forgoing
determination of accounts receivable of Borrower, AMI and CUP, intercompany
accounts receivable and accounts receivable owing from any other Subsidiary
shall be excluded. As used herein, "Domestic Inventory" means inventory located
in the U.S. of Borrower, AMI and CUP. As used herein, "Consolidated Accounts and
Inventory" means accounts receivable and inventory of Borrower and Subsidiaries
on a consolidated basis (with elimination of intercompany accounts receivable).
SECTION 4.14. RATIO OF SALES BY DOMESTIC COMPANIES TO SALES BY FOREIGN
COMPANIES. Borrower shall maintain its financial condition and the financial
condition of its Subsidiaries, as determined by Bank based on the financial
statements required hereunder, so that Domestic Company Sales at all times
exceed fifty percent (50%) of Consolidated Sales. As used herein, "Domestic
Company Sales" means sales of inventory by Borrower, AMI and CUP (so long as
they continue to be incorporated in the jurisidictions specified in this
agreement and continue to maintain their chief executative offices, billing
records and operations within the U.S.). In making the foregoing
determination of sales by Borrower, AMI and CUP, intercompany sales
[and sales to any other other Subsidiary] shall be excluded. "Consolidated
Sales" means sales of inventory by Borrower and Subsidiaries on a
consolidated basis ( with elimination of intercompany sales).
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, without Bank's prior written consent:
SECTION 5.1. USE OF FUNDS. Borrower will not use any of the proceeds of
any credit extended hereunder except for the purposes stated in Article I
hereof.
SECTION 5.2. CAPITAL EXPENDITURES. Borrower will not, nor will it permit
any Subsidiary to, make any additional investment
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in fixed assets (including without limitation capitalized lease expenditures) in
any fiscal year in excess of an aggregate of $1,000,000.00 for Borrower and
Subsidiaries combined; provided, however, that there shall be excluded from such
calculation, the AML Equipment Lease Facility (defined below).
SECTION 5.3. LEASE EXPENDITURES. Borrower will not, nor will it permit
any Subsidiary to, incur operating lease expense in any fiscal year in excess of
an aggregate of $1,000,000.00 for Borrower and Subsidiaries combined.
SECTION 5.4. OTHER INDEBTEDNESS. Borrower will not, nor will it permit
any Subsidiary to, create, incur, assume or permit to exist any indebtedness or
liabilities resulting from borrowings, loans or advances, whether secured or
unsecured, matured or unmatured, liquidated or unliquidated, joint or several,
except (a) the liabilities of Borrower and Subsidiaries to Bank, (b) any other
liabilities of Borrower and Subsidiaries existing as of, disclosed to Bank by
Borrower in writing and approved by Bank prior to, the date hereof, (c)
borrowings by any wholly-owned Subsidiary of Borrower from Borrower in the
ordinary course of business so long as (1) outstanding borrowings by AML from
Borrower at no time exceed $1,000,000.00, (2) and outstanding borrowings by AMF
from Borrower at no time exceed $3,000,000.00, and (d) borrowings by AML from a
lender in Ireland so long as (1) such borrowings by AML from another lender at
no time exceed $1,250,000.00 in the aggregate and are limited to a $1,000,000.00
equipment lease facility ("AML Equipment Lease Facility") and a $250,000
over-advance facility ("AML Over-Advance Facility"), and (2) the terms and
conditions of the AML Equipment Lease Facility and the AML Over-Advance Facility
are acceptable to Bank, and (3) such other lender enters into an intercreditor
agreement with Bank in form and substance satisfactory to Bank.
SECTION 5.5. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Borrower will
not, nor will it permit any Subsidiary to, merge into or consolidate with any
other entity; make any substantial change in the nature of their businesses as
conducted as of the date hereof; acquire all or substantially all of the assets
of any other person or entity; nor sell, lease, transfer or otherwise dispose of
all or a substantial or material portion of Borrower's or any Subsidiary's
assets except in the ordinary course of business.
SECTION 5.6. GUARANTIES. Borrower will not, nor will it permit any
Subsidiary to, guarantee or become liable in any way as surety, endorser (other
than as endorser of negotiable instruments for deposit or collection in the
ordinary course of business), accommodation endorser or otherwise for, nor
pledge or hypothecate any assets as security for, any liabilities or
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obligations of any other person or entity, except for (a) any of the foregoing
in favor of Bank, (b) any of the foregoing existing as of, and disclosed in
writing to Bank by Borrower and approved by Bank prior to, the date hereof, and
(c) an unsecured guarantee by Borrower of the AML Over-Advance Facility in favor
of the lender which has provided such facility, so long as (1) Borrower's
liability under such guarantee is limited to $250,000.00, and (2) such other
lender enters into an intercreditor agreement with Bank in form and substance
satisfactory to Bank.
SECTION 5.7. LOANS, ADVANCES, INVESTMENTS. Borrower will not, nor will
it permit any Subsidiary to, make any loans or advances to or investments in any
person or entity, except for (a) any of the foregoing existing as of, and
disclosed in writing by Borrower to Bank and approved by Bank, prior to the date
hereof, (b) advances by Borrower to any wholly-owned Subsidiary of Borrower in
the ordinary course of business so long as such borrowings are permitted by and
within the limits set forth in Section 5.4 herein, and c) the investment
hereafter of up to $3,000,000.00 by Borrower in AML.
SECTION 5.8. PLEDGE OF ASSETS. Borrower will not, nor will it permit any
Subsidiary to, mortgage, pledge, grant or permit to exist a security interest
in, or lien upon, all or any portion of Borrower's or any Subsidiary's assets
now owned or hereafter acquired, except for (a) any of the foregoing in favor of
Bank or which is existing as of, and disclosed in writing by Borrower to, and
deemed acceptable by Bank, prior to the date hereof, and (b) a security interest
granted by AML in favor of its lender which is providing the AML Equipment Lease
Facility so long as (1) such security interest is only in the equipment financed
thereby, (2) such security interest only secures the AML Equipment Lease
Facility, and (3) such other lender enters into an intercreditor agreement with
Bank in form and substance satisfactory to Bank.
SECTION 5.9. DIVIDENDS, DISTRIBUTIONS. Borrower will not, nor will it
permit any Subsidiary to, declare or pay any dividend or distribution either in
cash, stock or any other property on Borrower's or any Subsidiary's stock or
equivalent ownership interest now or hereafter outstanding, nor redeem, retire,
repurchase or otherwise acquire any shares of any class of Borrower's or any
Subsidiary's stock or equivalent ownership interest now or hereafter
outstanding, except for (a) dividends or distributions by any wholly-owned
Subsidiary of Borrower to Borrower, and (b) dividends or distributions by any
wholly-owned Subsidiary of any wholly-owned Subsidiary of Borrower to such
parent Subsidiary.
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SECTION 5.10. PARTNERSHIPS/JOINT VENTURES. Borrower will not, nor will it
permit any Subsidiary to, become a general partner in any partnership or a joint
venturer in any joint venture except for any of the foregoing existing as of,
and disclosed in writing by Borrower to Bank and approved by Bank, prior to the
date hereof.
SECTION 5.11. SUBSIDIARY OWNERSHIP. Borrower will not, nor will it permit
any Subsidiary to, sell, pledge, encumber or otherwise transfer any interest in
any Subsidiary, except for any of the foregoing in favor of Bank.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees or
other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to Bank in connection
with, or any representation or warranty made by Borrower or any other party
under this Agreement or any other Loan Document shall prove to be incorrect,
false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained herein or in any other Loan Document
(other than those referred to in subsections (a) and (b) above), and with
respect to any such default which by its nature can be cured, such default shall
continue for a period of twenty (20) days from its occurrence.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which Borrower, any Subsidiary or
any Guarantor has incurred any debt or other liability to any person or entity,
including Bank.
(e) The filing of a notice of judgment lien against Borrower, any
Subsidiary or any Guarantor; or the recording of any abstract of judgment
against Borrower, any Subsidiary or any Guarantor in any county in which
Borrower, such Subsidiary or such Guarantor has an interest in real property; or
the service of a notice of levy and/or of a writ of attachment or execution, or
other like process, against the assets of Borrower, any Subsidiary or any
Guarantor; or the entry of a judgment against
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Borrower, any Subsidiary or any Guarantor; provided, however, that such
judgments, liens, levies, writs, executions and other process involve debts of
or claims against Borrower, any Subsidiary or any Guarantor in excess of
$100,000.00, individually or in the aggregate for all such judgments, liens,
levies, writs, executions and other process against Borrower, Subsidiaries and
Guarantors combined, and within thirty (30) days after the creation thereof, or
at least ten (10) days prior to the date on which any assets could be lawfully
sold in satisfaction thereof, such debt or claim is not satisfied or stayed
pending appeal and insured against in a manner satisfactory to Bank.
(f) Borrower, any Subsidiary or any Guarantor shall become insolvent, or
shall suffer or consent to or apply for the appointment of a receiver, trustee,
custodian or liquidator of itself or any of its property, or shall generally
fail to pay its debts as they become due, or shall make a general assignment for
the benefit of creditors; Borrower, any Subsidiary or any Guarantor shall file a
voluntary petition in bankruptcy, or seeking reorganization, in order to effect
a plan or other arrangement with creditors or any other relief under the
Bankruptcy Reform Act, Title 11 of the United States Code, as amended or
recodified from time to time ("Bankruptcy Code"), or under any state or federal
law granting relief to debtors, whether now or hereafter in effect; or any
involuntary petition or proceeding pursuant to the Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors is filed or commenced against Borrower, any Subsidiary or any
Guarantor, or Borrower, any Subsidiary or any such Guarantor shall file an
answer admitting the jurisdiction of the court and the material allegations of
any involuntary petition; or Borrower, any Subsidiary or any such Guarantor
shall be adjudicated a bankrupt, or an order for relief shall be entered against
Borrower, any Subsidiary or any such Guarantor by any court of competent
jurisdiction under the Bankruptcy Code or any other applicable state or federal
law relating to bankruptcy, reorganization or other relief for debtors.
(g) There shall exist or occur any event or condition which Bank in good
faith believes impairs, or is substantially likely to impair, the prospect of
payment or performance by Borrower of its obligations under any of the Loan
Documents.
(h) The dissolution or liquidation of Borrower, any Subsidiary or any
Guarantor; or Borrower, any Subsidiary or any Guarantor, or any of their
directors, stockholders or members, shall take action seeking to effect the
dissolution or liquidation of Borrower, any Subsidiary or any such Guarantor.
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(i) Any change in ownership of any Subsidiary during the term of this
Agreement.
(j) Any change in ownership during the term of this Agreement of an
aggregate of twenty-five percent (25%) or more of the common stock of Borrower
in a single or in related transactions. A series of transactions shall not
constitute related transactions unless the series of transactions results in one
or more affiliated persons or entities owning or controlling an aggregate of
more than 25% of the common stock of Borrower.
(k) Any Guarantor revokes or terminates (or attempts or purports to revoke
or terminate) its guarantee in favor of Bank.
(l) Any creditor which has provided Bank with a subordination or
intercreditor agreement revokes or terminates (or attempts or purports to revoke
or terminate) such subordination or intercreditor agreement.
(m) The indictment or threatened (in writing) indictment of Borrower, any
Subsidiary or any Guarantor under any criminal statute, or commencement or
threatened (in writing) commencement of criminal or civil proceedings against
Borrower, any Subsidiary or any Guarantor, pursuant to which statute or
proceedings the penalties or remedies sought or available include forfeiture of
any of the property of Borrower, any Subsidiary or any Guarantor.
(n) Any member of Borrower's Senior Management shall cease, for any
reason, to be employed by Borrower on a full-time basis, and is not replaced by
a person reasonably acceptable to Bank within 90 days. "Senior Management" as
used in this paragraph means Chief Executive Officer, President or Chief
Financial Officer.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default:
(a) all indebtedness of Borrower under each of the Loan Documents, any term
thereof to the contrary notwithstanding, shall at Bank's option and without
notice become immediately due and payable without presentment, demand, protest
or notice of dishonor, all of which are hereby expressly waived by Borrower;
(b) the obligation, if any, of Bank to extend any further credit under any of
the Loan Documents shall immediately cease and terminate; and (c) Bank shall
have all rights, powers and remedies available under each of the Loan Documents,
or accorded by law, including without limitation the right to resort to any or
all security for any credit accommodation from Bank subject hereto and to
exercise any or all of the rights of a beneficiary or secured party pursuant to
applicable law. All rights, powers and remedies of Bank may be exercised at any
time by Bank and from time to time after the occurrence of an Event of Default,
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are cumulative and not exclusive, and shall be in addition to any other rights,
powers or remedies provided by law or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any party
is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:
BORROWER: Advanced Materials Group, Inc.
00000 Xxxxx Xxxxxx Xxxx
Xxxxxx Xxxxxxxxx, XX 00000
BANK: XXXXX FARGO BANK, NATIONAL ASSOCIATION
San Xxxxxxx Valley Regional Commercial
Banking Xxxxxx
0000 X. Xxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxx Xxxxxx, XX 00000
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with (a) the negotiation and preparation of this
Agreement and the other Loan Documents, Bank's continued administration hereof
and thereof, and the preparation of any amendments and waivers hereto and
thereto, (b) the enforcement of Bank's rights and/or the
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collection of any amounts which become due to Bank under any of the Loan
Documents, and (c) the prosecution or defense of any action in any way related
to any of the Loan Documents, including without limitation, any action for
declaratory relief, whether incurred at the trial or appellate level, in an
arbitration proceeding or otherwise, and including any of the foregoing incurred
in connection with any bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by Bank or any other
person) relating to Borrower or any other person or entity.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents. In connection therewith, Bank
may disclose all documents and information which Bank now has or may hereafter
acquire relating to any credit extended by Bank to Borrower, Borrower or its
business, any Subsidiary or its business, any Guarantor or the business of such
Guarantor, or any collateral required hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to any extension of credit by Bank subject hereto and supersede all
prior negotiations, communications, discussions and correspondence concerning
the subject matter hereof. This Agreement may be amended or modified only in
writing signed by each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision of
this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the
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remainder of such provision or any remaining provisions of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to be
an original, and all of which when taken together shall constitute one and the
same Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 7.11. ARBITRATION.
(a) ARBITRATION. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Agreement. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, any of the Loan Documents, or any
past, present or future extensions of credit and other activities, transactions
or obligations of any kind related directly or indirectly to any of the Loan
Documents, including without limitation, any of the foregoing arising in
connection with the exercise of any self-help, ancillary or other remedies
pursuant to any of the Loan Documents. Any party may by summary proceedings
bring an action in court to compel arbitration of a Dispute. Any party who
fails or refuses to submit to arbitration following a lawful demand by any other
party shall bear all costs and expenses incurred by such other party in
compelling arbitration of any Dispute.
(b) GOVERNING RULES. Arbitration proceedings shall be administered by the
American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in Los Angeles
County, California selected by the AAA or other administrator. If there is any
inconsistency between the terms hereof and any such rules, the terms and
procedures set forth herein shall control. All statutes of limitation
applicable to any Dispute shall apply to any arbitration proceeding. All
discovery activities shall be expressly limited to matters directly relevant to
the Dispute being arbitrated. Judgment upon any award rendered in an
arbitration may be entered in any court having jurisdiction; provided however,
that nothing contained herein shall be deemed to be a waiver by any party that
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is a bank of the protections afforded to it under 12 U.S.C. Section 91 or any
similar applicable state law.
(c) NO WAIVER; PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
(d) ARBITRATOR QUALIFICATIONS AND POWERS; AWARDS. Arbitrators must be
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
costs and fees, to impose sanctions and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is $5,000,000 or less shall
be decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.
(e) JUDICIAL REVIEW. Notwithstanding anything herein to the contrary, in
any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions
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of law are not erroneous under the substantive law of the state of California,
and (iii) the parties shall have in addition to the grounds referred to in the
Federal Arbitration Act for vacating, modifying or correcting an award the right
to judicial review of (A) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (B) whether the
conclusions of law are erroneous under the substantive law of the state of
California. Judgment confirming an award in such a proceeding may be entered
only if a court determines the award is supported by substantial evidence and
not based on legal error under the substantive law of the state of California.
(f) REAL PROPERTY COLLATERAL; JUDICIAL REFERENCE. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to arbitration if
the Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
(g) MISCELLANEOUS. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of
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any of the Loan Documents or any relationship between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
XXXXX FARGO BANK,
ADVANCED MATERIALS GROUP, INC. NATIONAL ASSOCIATION
By: /s/ J. XXXXXXX XXXXXX By: /s/ XXXX X. XXXXX
---------------------- -----------------------------
Xxxx X. Xxxxx
Title: VP/CFO Vice President
-------------------
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