EXHIBIT 10.1
BUSINESS LOAN AGREEMENT
BUSINESS LOAN AGREEMENT
(Receivables)
This Agreement dated as of ________, _____ is between Bank of America, N.A. (the
"Bank") and U.S. Laboratories Inc. (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:
1.1 "Borrowing Base" means 75% of the balance due on Acceptable
Receivables.
1.2 "Acceptable Receivable" means an account receivable which satisfies
the following requirements:
(a) The account is not in default. An account will be considered in
default if the account is not paid within 90 days from its invoice
date.
(b) The account is an unbilled receivable, as described as work-in-
progress on the Borrower's financial statements. The aggregate amount
of acceptable unbilled receivables may not exceed Four Hundred
Thousand Dollars ($400,000) .
1.3 "Credit Limit" means the amount of Six Million and 00/100 Dollars
($6,000,000.00).
2. FACILITY NO. 1 : 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 ("Facility No. 1") to the Borrower. The
amount of the line of credit (the "Facility No. 1 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.
During the availability period, the Borrower may repay principal
amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal
balance of advances under the line of credit to exceed the Facility
No. 1 Commitment. If
the Borrower exceeds this limit, the Borrower will immediately pay the
excess to the Bank upon the Bank's demand. The Bank may apply payments
received from the Borrower under this Paragraph to the obligations of
the Borrower 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 May 31, 2002, or such earlier date as the availability may
terminate as provided in this Agreement (the "Facility No. 1 Expiration Date").
2.3 Interest Rate.
(a) Unless the Borrower elects an optional interest rate as described
below, the interest rate is the Bank's Prime Rate.
(b) The Prime Rate is 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 reference 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.
2.4 Repayment Terms.
(a) The Borrower will pay interest on March 31, 2001, and then
monthly thereafter until payment in full of any principal outstanding
under this line of credit.
(b) The Borrower will repay in full all principal and any unpaid
interest or other charges outstanding under this line of credit no
later than the Facility No. 1 Expiration Date. Any interest period for
an optional interest rate (as described below) shall expire no later
than the Facility No. 1 Expiration Date.
2.5 Optional Interest Rates. Instead of the interest rate based on the
Bank's Prime Rate, the Borrower may elect the optional interest rates listed
below during interest periods agreed to by the Bank and the Borrower. 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) Short Term Fixed Rates.
(b) Offshore Rates.
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3. FACILITY NO. 2 : TERM LOAN AMOUNT AND TERMS
3.1 Outstanding Term Loan:. There is outstanding from the Bank to the
Borrower a term loan in the original principal amount of Two Hundred Thousand
Dollars ($200,000.00). This term loan is currently subject to the terms and
conditions of Facility No. 2 of the Business Loan Agreement dated September 16,
1999. The present principal balance of this term loan is One Hundred Seventy
Nine Thousand Seven Hundred Eighty Two and 56/100 Dollars ($179,782.56). As of
the date of this Agreement, the term loan shall be deemed to be outstanding as
Facility No. 2 under this Agreement, and shall be subject to all the terms and
conditions stated in this Agreement.
3.2 Interest Rate. Unless the Borrower elects an optional interest rate as
described below, the interest rate is the Bank's Prime Rate.
3.3 Repayment Terms.
(a) The Borrower will pay all accrued but unpaid interest on March
31, 2001, and then monthly thereafter and upon payment in full of the
principal of the loan.
(b) The Borrower will repay principal in fifty three (53) successive
monthly installments of Three Thousand Three Hundred Twenty Nine and
97/100 Dollars ($3,329.97) starting March 31, 2001. On July 31, 2005,
the Borrower will repay the remaining principal balance plus any
interest then due.
(c) The Borrower may prepay the loan in full or in part at any time.
The prepayment will be applied to the most remote payment of principal
due under this Agreement.
3.4 Optional Interest Rates. Instead of the interest rate based on the
Bank's Prime Rate, the Borrower may elect the optional interest rates listed
below during interest periods agreed to by the Bank and the Borrower. 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) Long Term Fixed Rates.
4. OPTIONAL INTEREST RATES
4.1 Optional Rates. Each optional interest rate is a rate per year.
Interest will be paid on the last day of each interest period, and on the last
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
Borrower has 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
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terminate the availability of optional interest rates for interest periods
commencing after the default occurs.
4.2 Short Term Fixed Rate. The election of Short Term Fixed Rates shall be
subject to the following terms and requirements:
(a) The "Short Term Fixed Rate" means the fixed interest rate the
Bank and the Borrower agree will apply during the applicable interest
period.
(b) The interest period during which the Short Term Fixed Rate will
be in effect will be no shorter than 30 days and no longer than one
year.
(c) Each Short Term Fixed Rate Portion will be for an amount not less
than the following:
(i) for interest periods of 91 days or longer, Five Hundred
Thousand Dollars ($500,000).
(ii) for interest periods of between 30 days and 90 days, One
Million Dollars ($1,000,000).
(d) Each prepayment of a Short Term Fixed 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
Borrower 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.
4.3 Offshore Rate. The election of Offshore Rates shall be subject to the
following terms and requirements:
(a) The "Offshore Rate" means the interest rate the Bank and the
Borrower agree will apply to the Portion during the applicable
interest period.
(b) The interest period during which the Offshore Rate will be in
effect will be no shorter than 30 days and no longer than one year.
The last day of the
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interest period will be determined by the Bank using the practices of
the offshore dollar inter-bank market.
(c) Each Offshore Rate Portion will be for an amount not less than
the following:
(i) for interest periods of 91 days or longer, Five Hundred
Thousand Dollars ($500,000).
(ii) for interest periods of between 30 days and 90 days, One
Million Dollars ($1,000,000).
(d) Each prepayment of an Offshore 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
Borrower 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.
(f) The Bank will have no obligation to accept an election for an
Offshore 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 Offshore Rate Portion
are not available in the offshore dollar inter-bank market;
or
(ii) the Offshore Rate does not accurately reflect the cost of an
Offshore Rate Portion.
4.4 Long Term Fixed Rate. The election of Long Term Fixed Rates shall be
subject to the following terms and requirements:
(a) The interest period during which the Long Term Fixed Rate will be
in effect will be one year or more.
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(b) The "Long Term Fixed Rate" means the fixed interest rate the Bank
and the Borrower agree will apply to the Portion during the applicable
interest period.
(c) Each Long Term Fixed Rate Portion will be for an amount not less
than Two Hundred Thousand Dollars ($200,000).
(d) The Borrower may prepay the Long Term Fixed Rate Portion in whole
or in part in the minimum amount of One Hundred Thousand Dollars
($100,000). The Borrower will give the Bank irrevocable written notice
of the Borrower's intention to make the prepayment, specifying the
date and amount of the prepayment. The notice must be received by the
Bank at least 5 banking days in advance of the prepayment. All
prepayments of principal on the Long Term Fixed Rate Portion will be
applied on the most remote payment of principal then unpaid.
(e) Each prepayment of a Long Term Fixed Rate Portion, whether
voluntary, by reason of acceleration or otherwise, will be accompanied
by payment of all accrued interest on the amount of the prepayment and
the prepayment fee described below.
(f) 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
Borrower 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.
(g) The following definitions will apply to the calculation of the
prepayment fee:
"Original Payment Dates" mean the dates on which principal of the Long
Term Rate Portion would have been paid if there had been no
prepayment. If any of the principal would have been paid later than
the end of the interest period in effect at the time of prepayment,
then the Original Payment Date for that amount will be the last day of
the interest period.
"Prepaid Installment" means the amount of the prepaid principal of the
Long Term Fixed Rate Portion which would have been paid on a single
Original Payment Date.
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"Treasury Rate" means the interest rate yield for U.S. Government
Treasury Securities which the Bank determines could be obtained by
reinvesting a specified Prepaid Installment in such securities from
the date of prepayment through the Original Payment Date.
(h) The Bank may adjust the Treasury Rate to reflect the compounding,
accrual basis, or other costs of the Long Term Fixed Rate Portion.
Each of the rates is the Bank's estimate only and the Bank is under no
obligation to actually reinvest any prepayment. The rates will be
based on information from either the Telerate or Reuters information
services, The Wall Street Journal, or other information sources the
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Bank deems appropriate.
5. FEES AND EXPENSES
5.1 Fees.
(a) Waiver fee. If the Bank, at its discretion, agrees to waive or
amend any terms of this Agreement, the Borrower will, at the Bank's
option, pay the Bank a fee for each waiver or amendment in an amount
advised by the Bank at the time the Borrower requests the waiver or
amendment. Nothing in this paragraph shall imply that the Bank is
obligated to agree to any waiver or amendment requested by the
Borrower. The Bank may impose additional requirements as a condition
to any waiver or amendment.
(b) Late Fee. To the extent permitted by law, the Borrower agrees to
pay a late fee in an amount not to exceed four (4%) of any installment
that is more than fifteen (15) days late. The imposition and payment
of a late fee shall not constitute a waiver of the Bank's rights with
respect to the default.
5.2 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.
5.3 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 in excess of those fees and
costs listed above. Expenses include, but are not limited to,
reasonable attorneys' fees, including any allocated costs of the
Bank's in-house counsel.
(b) The Borrower agrees to reimburse the Bank for the cost of
periodic appraisals of the personal property collateral securing this
Agreement, at such intervals as the Bank may reasonably require. The
appraisals may be performed by employees of the Bank or by independent
appraisers.
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6. COLLATERAL
6.1 Personal Property. The Borrowers obligations to the Bank under this
Agreement will be secured by personal property the Borrower now owns or will own
in the future as listed below. The collateral is further defined in security
agreement(s) executed by the Borrower. In addition, all personal property
collateral securing this Agreement shall also secure all other present and
future obligations of the Borrower to the Bank (excluding any consumer credit
covered by the federal Truth in Lending law, unless the Borrower has otherwise
agreed in writing). All personal property collateral securing any other present
or future obligations of the Borrower to the Bank shall also secure this
Agreement.
(a) Machinery and equipment.
(b) Receivables and general intangibles.
6.2 Lent Collateral. The Borrower's obligations to the Bank under this
Agreement will be secured by personal property now owned or owned in the future
by Professional Engineering & Inspection Company, Inc., U.S. Engineering
Laboratories Inc., San Diego Testing Engineers, Inc., Los Angeles Testing
Engineers, Inc., Buena Engineers, Inc., Unitek Technical Services, Inc. and
Earth Consultants, Inc. (collectively, the "Subsidiaries") as listed below. The
collateral is further defined in security agreements executed by the
Subsidiaries.
(a) Machinery and equipment.
(b) Receivables and general intangibles.
7. DISBURSEMENTS, PAYMENTS AND COSTS
7.1 Requests for Credit. 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.
7.2 Disbursements and Payments. Each disbursement by the Bank and each
payment by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the
Bank from time to time;
(b) made for the account of the Bank's branch selected by the Bank
from time to time;
(c) made in immediately available funds, or such other type of funds
selected by the Bank;
(d) evidenced by records kept by the Bank. In addition, the Bank may,
at its discretion, require the Borrower to sign one or more promissory
notes.
7.3 Telephone and Telefax Authorization.
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(a) The Bank may honor telephone or telefax instructions for advances
or repayments or for the designation of optional interest rates given,
or purported to be given, by any one of the individuals authorized to
sign loan agreements on behalf of the Borrower, or any other
individual designated by any one of such authorized signers.
(b) Advances will be deposited in and repayments will be withdrawn
from the Borrower's account number 12892-01362, or such other of the
Borrower's accounts with the Bank as designated in writing by the
Borrower.
(c) The Borrower 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 Borrower to give such
instructions. This paragraph will survive this Agreement's
termination, and will benefit the Bank and its officers, employees,
and agents.
7.4 Direct Debit (Pre-Billing).
(a) The Borrower agrees that the Bank will debit the Borrower's
deposit account number 12892-01362, or such other of the Borrower's
accounts with the Bank as designated in writing by the Borrower (the
"Designated Account") on the date each payment of interest from the
Borrower becomes due (the "Due Date"). If the Due Date is not a
banking day, the Designated Account will be debited on the next
banking day.
(b) Approximately 10 days prior to each Due Date, the Bank will mail
to the 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 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 Borrower 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.
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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
Borrower interest on any overpayment.
(d) The Borrower 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 debit will be reversed.
7.5 Banking Days. Unless otherwise provided in this Agreement, a banking
day its a day other than a Saturday or a Sunday on which the Bank is open for
business in California. [For amounts bearing interest at an offshore rate (if
any), a banking day is a day other than a Saturday or a Sunday on which the Bank
is open for business in California and dealing in offshore dollars.] 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.
7.6 Taxes. If any payments to the Bank under this Agreement are made from
outside the United States, the Borrower 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 Borrower (including payments under this paragraph), the Borrower
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 Borrower will confirm that it has paid the taxes by giving the Bank official
tax receipts (or notarized copies) within 30 days after the due date.
7.7 Additional Costs. The Borrower 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
(b) any capital requirements relating to the Bank's assets and
commitments for credit.
7.8 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.
7.9 Default Rate. Upon the occurrence of any default under this Agreement,
principal amounts outstanding under this Agreement will at the option of the
Bank bear
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interest at a rate which is four (4) percentage points higher than the rate of
interest otherwise provided under this Agreement. This will not constitute a
waiver of any default.
7.10 Interest Compounding. At the Bank's sole option in each instance, any
interest, fees or costs which are not paid when due under this Agreement shall
bear interest from the due date at the Bank's Prime Rate plus 2 percentage
points. This may result in compounding of interest.
7.11 Payments in Kind. If the Bank requires delivery in kind of the
proceeds of collection of the Borrower's 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 Borrower.
8. 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 Borrower under this
Agreement:
8.1 Authorizations. Evidence that the execution, delivery and performance
by the Borrower and each guarantor of this Agreement and any instrument or
agreement required under this Agreement have been duly authorized.
8.2 Security Agreements. Signed original security agreements, assignments,
financing statements and fixture filings (together with collateral in which the
Bank requires a possessory security interest), which the Bank requires.
8.3 Evidence of Priority. Evidence that security interests and liens in
favor of the Bank are valid, enforceable, and prior to all others' rights and
interests, except those the Bank consents to in writing.
8.4 Guaranties. Guaranties signed by Professional Engineering & Inspection
Company, Inc., U.S. Engineering Laboratories Inc., San Diego Testing Engineers,
Inc., Los Angeles Testing Engineers, Inc., Buena Engineers, Inc., Unitek
Technical Services, Inc. and Earth Consultants, Inc., each in the amount of Six
Million One Hundred Eighty Thousand Dollars ($6,180,000).
8.5 Legal Opinion. A written opinion from the Borrower's legal counsel,
covering such matters as the Bank may require. The legal counsel and the terms
of the opinion must be acceptable to the Bank.
8.6 Good Standing. Certificates of good standing for the Borrower from its
state of formation.
8.7 Other Items. Any other items that the Bank reasonably requires.
9. REPRESENTATIONS AND WARRANTIES
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When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each request
for an extension of credit constitutes a renewed representation:
9.1 Organization of Borrower. The Borrower is a corporation duly formed
and existing under the laws of the state where organized.
9.2 Authorization. This Agreement, and any instrument or agreement
required hereunder, are within the Borrower's powers, have been duly authorized,
and do not conflict with any of its organizational papers.
9.3 Enforceable Agreement. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the 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.
9.4 Good Standing. In each state in which the Borrower does business, it
is properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.
9.5 No Conflicts. This Agreement does not conflict with any law,
agreement, or obligation by which the Borrower is bound.
9.6 Financial Information. All financial and other information that has
been or will be supplied to the Bank is:
(a) sufficiently complete to give the Bank accurate knowledge of the
Borrower's (and any guarantor's) financial condition, including all
material contingent liabilities.
(b) in compliance with all government regulations that apply.
9.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been disclosed
in writing to the Bank.
9.8 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.
9.9 Permits, Franchises. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged.
9.10 Other Obligations. The Borrower is not in default on any obligation
for borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
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9.11 Income Tax Matters. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year.
9.12 No Tax Avoidance Plan. The Borrower's obtaining of credit from the
Bank under this Agreement does not have as a principal purpose the avoidance of
U.S. withholding taxes.
9.13 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.
9.14 Location of Borrower. The 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 under the Borrowers signature on this Agreement.
10 COVENANTS
The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:
10.1 Use of Proceeds. To use the proceeds of Facility No. 1 only for
acquisition financing and working capital.
10.2 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 Borrower's fiscal year end, the
Borrower's annual financial statements. These financial statements
must be audited by a Certified Public Accountant acceptable to the
Bank. The statements shall be prepared on a consolidated basis.
(b) Within 45 days of the period's end, the Borrowers quarterly
financial statements. These financial statements may be Borrower
prepared. The statements shall be prepared on a consolidated basis.
(c) Copies of the Borrower's Form 10-K Annual Report, Form 10-Q
Quarterly Report concurrent with the date of filing with the
Securities and Exchange Commission.
(d) A borrowing certificate setting forth the amount of Acceptable
Receivables as of the last day of each month within 20 days after
month end.
(e) Within 45 days of each quarter end, the Borrowers backlog
reports.
(f) Promptly upon the Bank's request, a detailed aging by invoice
and a summary aging by account debtor of the Borrower's receivables.
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10.3 Tangible Net Worth. To maintain tangible net worth equal to at least
Four Million Dollars ($4,000,000).
"Tangible net worth" means the gross book value of the Borrowers assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
unamortized debt discount and expense, capitalized or deferred research and
development costs, deferred marketing expenses, deferred receivables, and other
like intangibles, and monies due from affiliates, officers, directors, employees
or shareholders of the Borrower) less total liabilities, including but not
limited to accrued and deferred income taxes, and any reserves against assets.
10.4 Total Liabilities to Tangible Net Worth. To maintain a ratio of total
liabilities to tangible net worth not exceeding 2.5:1.0. "Total liabilities"
means the sum of current liabilities plus long term liabilities.
10.5 Cash Flow Ratio. To maintain a cash flow ratio of at least 1.5:1.0.
"Cash flow ratio" is defined as the sum of earnings before interest, taxes,
depreciation and amortization minus taxes minus dividends plus any non-cash
charges divided by the sum of interest plus the current portion of long term
liabilities plus 20% of line outstandings. This ratio will be calculated at the
end of each fiscal quarter, using the results of that quarter and each of the 3
immediately preceding quarters. The current portion of long term liabilities
will be measured as of the last day of the preceding fiscal year.
10.6 Profitability. To maintain a positive net income after taxes and
extraordinary items at the end of each fiscal quarter, using the results of that
quarter and each of the 3 immediately preceding quarters.
10.7 Limitation on Losses. Not to incur a net loss after taxes and
extraordinary items in any two consecutive fiscal quarters.
10.8 Other Debts. Not to have outstanding or incur any direct or
contingent liabilities (other than those to the Bank), or become liable for the
liabilities of others, without the Bank's written consent. This does not
prohibit:
(a) Acquiring goods, supplies, or merchandise 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) Unsecured indebtedness (i) up to Five Hundred Twenty Five
Thousand Dollars ($525,000.00) for personal property (vehicles) (ii)
that is incurred to finance the Borrower's purchase of a business,
(iii) that is owed to the seller of such business, (iv) that by the
terms thereof may not be accelerated except upon a payment default,
and (v) that will not otherwise cause or result in a default under
the terms of this Agreement.
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(e) Liabilities in existence on the date of this Agreement disclosed
in writing to the Bank.
10.9 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 and security interests in favor of the Bank.
(b) Liens for taxes not yet due.
(c) Additional purchase money liens against personal property of the
Borrower which secure obligations in a total principal amount of Five
Hundred Twenty Five Thousand Dollars ($525,000.00).
10.10 Dividends. Not to declare or pay any dividends on any of its shares
except dividends payable in capital stock of the Borrower, and not to purchase,
redeem or otherwise acquire for value any of its shares, or create any sinking
fund in relation thereto.
10.11 Notices to Bank. To promptly notify the Bank in writing of:
(a) any lawsuit over Five Hundred Thousand Dollars ($500,000)
against the Borrower (or any guarantor) or any trustor.
(b) any substantial dispute between the Borrower (or any guarantor)
or any trustor and any government authority.
(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 the Borrower's (or any
guarantor's) or any trustor's business condition (financial or
otherwise), operations, properties or prospects, or ability to repay
the credit.
(e) any change in the Borrower's name, legal structure, place of
business, or chief executive office if the Borrower has more than one
place of business.
(f) any acquisitions, including proforma financial statements for
material acquisitions (using SEC definition of 10% revenues or 10%
net income).
10.12 Books and Records. To maintain adequate books and records.
10.13 Audits. To allow the Bank and its agents to inspect the Borrower's
properties (including taking and removing samples for environmental testing) and
examine, audit, and make copies of books and records at any reasonable time. If
any of the Borrower's properties, books or records are in the possession of a
third party, the 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.
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The Bank has no duty to inspect the Borrower's properties or to examine, audit,
or copy books and records and the Bank shall not incur any obligation or
liability by reason of not making any such inspection or inquiry. In the event
that the Bank inspects the Borrower's properties or examines, audits, or copies
books and records, the Bank will be acting solely for the purposes of protecting
the Bank's security and preserving the Bank's rights under this Agreement.
Neither the Borrower nor any other party is entitled to rely on any inspection
or other inquiry by the Bank. The Bank owes no duty of care to protect the
Borrower or any other party against, or to inform the Borrower or any other
party of, any adverse condition that may be observed as affecting the Borrower's
properties or premises, or the Borrower's business. In the event that the Bank
has a duty or obligation under applicable laws, regulations or legal
requirements to disclose any report or findings made as a result of, or in
connection with, any site visit, observation or testing by the Bank, the Bank
may make such a disclosure to the Borrower or any other party.
10.14 Compliance with Laws. To comply with the laws (including any
fictitious name statute), regulations, and orders of any government body with
authority over the Borrower's business.
10.15 Preservation of Rights. To maintain and preserve all rights,
privileges, and franchises the Borrower now has.
10.16 Maintenance of Properties. To make any repairs, renewals, or
replacements to keep the Borrower's properties in good working condition.
10.17 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.
10.18 Cooperation. To take any action reasonably requested by the Bank to
carry out the intent of this Agreement.
10.19 Insurance.
(a) 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
Borrower's properties, public liability insurance including coverage
for contractual liability, product liability and workers'
compensation, and any other insurance which is usual for the
Borrowers business.
10.20 Additional Negative Covenants. Not to, without the Bank's written
consent:
(a) engage in any business activities substantially different from
the Borrowers present business.
(b) liquidate or dissolve the Borrower's business.
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(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
for less than fair market value, or enter into any agreement to do
so.
(e) sell, assign, lease, transfer or otherwise dispose of any part
of the Borrower's business or the Borrower's assets except inventory
sold in the ordinary course of the Borrower's business.
(f) acquire or purchase a business or its assets for a
consideration, including assumption of direct or contingent debt,
unless either (i) the total cost for each acquisition is less than
Two Million Five Hundred Thousand Dollars ($2,500,000) or (ii) the
total cost of each acquisition is less than Five Hundred Thousand
Dollars ($500,000) and the costs for acquisitions for the year is
less than Four Million Dollars ($4,000,000) in the aggregate.
(g) enter into any sale and leaseback agreement covering any of its
fixed assets.
(h) voluntarily suspend its business for more than 7 consecutive
days in any 30 day period.
10.21 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.
10.22 ERISA Plans. Promptly during each year, to pay and cause any
subsidiaries 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.
11. HAZARDOUS WASTE INDEMNIFICATION
The Borrower will indemnify and hold harmless the Bank from any loss or
liability directly or indirectly arising 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 the Borrower's property or
operations or property leased to the Borrower. The indemnity includes but is not
limited to attorneys' fees (including the reasonable estimate of the allocated
cost of in-house counsel and
17
staff). The indemnity extends to the Bank, its parent, subsidiaries and all of
their directors, officers, employees, agents, successors, attorneys and assigns.
"Hazardous substances" means any substance, material or waste that is or becomes
designated or regulated as "toxic," "hazardous,"
12. DEFAULT
If any of the following events occurs, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower 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 the Borrower, then the
entire debt outstanding under this Agreement will automatically be due
immediately.
12.1 Failure to Pay. The Borrower fails to make a payment under this
Agreement when due.
12.2 Lien Priority. The Bank fails to have an enforceable first lien
(except for any prior liens to which the Bank has consented in writing) on or
security interest in any property given as security for this Agreement (or any
guaranty).
12.3 False Information. The Borrower (or any guarantor) or any trustor has
given the Bank false or misleading information or representations.
12.4 Bankruptcy. The Borrower (or any guarantor) or any trustor files a
bankruptcy petition, a bankruptcy petition is filed against the Borrower (or any
guarantor) or any trustor or the Borrower (or any guarantor) or any trustor
makes a general assignment for the benefit of creditors.
12.5 Receivers. A receiver or similar official is appointed for a
substantial portion the Borrower's (or any guarantor's) or any trustor's
business, or the business is terminated.
12.6 Lawsuits. Any lawsuit or lawsuits are filed on behalf of one or more
trade creditors against the Borrower (or any guarantor) or any trustor in an
aggregate amount of Five Hundred Thousand Dollars ($500,000) or more in excess
of any insurance coverage.
12.7 Judgments. Any judgments or arbitration awards are entered against
the Borrower (or any guarantor) or any trustor, or the Borrower (or any
guarantor) or any trustor enters into any settlement agreements with respect to
any litigation or arbitration, in an aggregate amount of One Hundred Thousand
Dollars ($100,000) or more in excess of any insurance coverage.
12.8 Government Action. Any government authority takes action that the
Bank believes materially adversely affects the Borrower's (or any guarantor's)
or any trustor's financial condition or ability to repay.
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12.9 Material Adverse Change. A material adverse change occurs, or is
reasonably likely to occur, in the Borrower's (or any guarantor's) or any
trustor's business condition (financial or otherwise), operations, properties or
prospects, or ability to repay the credit.
12.10 Cross-default. Any default occurs under any agreement in connection
with any credit the Borrower (or any guarantor) or any trustor or any of the
Borrower's related entities or affiliates has obtained from anyone else or which
the Borrower (or any guarantor) or any trustor or any of the Borrower's related
entities or affiliates has guaranteed.
12.11 Default under Related Documents. Any guaranty, subordination
agreement, security agreement, deed of trust, or other document required by this
Agreement is violated or no longer in effect.
12.12 Other Bank Agreements. The Borrower (or any guarantor) or any
trustor or any of the Borrower's related entities or affiliates fails to meet
the conditions of, or fails to perform any obligation under any other agreement
the Borrower (or any guarantor) or any trustor or any of the Borrower's related
entities or affiliates has with the Bank or any affiliate of the Bank.
12.13 Other Breach Under Agreement. The Borrower fails to meet the
conditions of, or fails to perform any obligation under, any term of this
Agreement not specifically referred to in this Article. This includes any
failure or anticipated failure by the 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 Borrower
or the Bank.
13. ENFORCING THIS AGREEMENT; MISCELLANEOUS
13.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
13.2 California Law. This Agreement is governed by California law.
13.3 Successors and Assigns. This Agreement is binding on the Borrower's
and the Bank's successors and assignees. The Borrower agrees that it 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 Borrower 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
Borrower.
13.4 Arbitration.
(a) This paragraph concerns the resolution of any controversies or
claims between the Borrower and the Bank, whether arising in
contract, tort or by statute, including but not limited to
controversies or claims that arise out of or
19
relate to: (i) this Agreement (including any renewals, extensions or
modifications); or (ii) any document related to this Agreement
(collectively a "Claim").
(b) At the request of the Borrower or the Bank, any Claim shall be
resolved by 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 rules and procedures for the arbitration of financial
services disputes of J.A.M.S./Endispute or any successor thereof
("J.A.M.S."), 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 J.A.M.S. 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 . 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 J.A.M.S. under applicable
J.A.M.S. 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.
(f) This paragraph does not limit the right of the Borrower 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.
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(g) The filing of a court action is not intended to constitute a
waiver of the right of the Borrower or the Bank, including the suing
party, thereafter to require submittal of the Claim to arbitration.
13.5 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.
13.6 Administration Costs. The Borrower shall pay the Bank for all
reasonable costs incurred by the Bank in connection with administering this
Agreement.
13.7 Attorneys' Fees. The Borrower 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 with the lawsuit or arbitration proceeding, as determined by the
court or arbitrator. In the event that any case is commenced by or against the
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.
13.8 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 Borrower concerning this credit;
(b) replace any prior oral or written agreements between the Bank
and the Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower 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.
13.9 Indemnification. The 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 Borrower hereunder, (c) any claim, whether well-founded or otherwise, that
there has been a failure to comply with any law regulating the Borrower's sales
or leases to or performance of services for debtors obligated upon the
21
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. 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 survive repayment of the Borrower's obligations to
the Bank. All sums due to the Bank hereunder shall be obligations of the
Borrower, due and payable immediately without demand.
13.10 Notices. 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 the Borrower may specify from time to time in
writing. Notices sent by 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.
13.11 Headings. Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of this
Agreement.
13.12 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.
13.13 Prior Agreement Superseded. This Agreement supersedes the Business
Loan Agreement entered into as of September 16, 1999 between the Bank and the
Borrower, and any credit outstanding thereunder shall be deemed to be
outstanding under this Agreement.
This Agreement is executed as of the date stated at the top of the first page.
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