ComericA
LOAN & SECURITY AGREEMENT
(ACCOUNTS AND INVENTORY)
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OBLIGOR # NOTE # AGREEMENT DATE
October 20, 1998
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CREDIT LIMIT INTEREST RATE OFFICER NO./INITIALS
$5,000,000.00 B- 0.250% 48653, Xxxxxxx X'Xxxxx
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THIS AGREEMENT is entered into on October 20, 1998, between Comerica
Bank-California ("Bank") as secured party, whose Headquarter Office is 000
Xxxx Xxxxx Xxxxx Xxxxxx, Xxx Xxxx, XX and Xxxx Group, Inc., Xxxx Systems
International, Inc. and Xxxx XCD, Inc. ("Borrower"), a Corporation whose solo
place of business (if it has only one), chief executive office (if it has
more than one place of business) or residence (if an individual) is located
at 0000 X. Xxxxxxx Xxxxxx, Xxxxx Xxx, XX. The parties agree as follows:
1. DEFINITIONS
1.1 "Agreement" as used in this Agreement means and includes this Loan
& Security Agreement (Accounts and Inventory), any concurrent or subsequent
rider to this Loan & Security Agreement (Accounts and Inventory) and any
extensions, supplements, amendments or modifications to this Loan & Security
Agreement (Accounts and Inventory) and to any such rider.
1.2 "Bank Expenses" as used in this Agreement means and includes: all
costs or expenses required to be paid by Borrower under this Agreement which are
paid or advanced by Bank; taxes and insurance premiums of every nature and kind
of Borrower paid by Bank; filing, recording, publication and search fees,
appraiser fees, auditor fees and costs, and title insurance premiums paid or
incurred by Bank in connection with Bank's transactions with Borrower; costs and
expenses incurred by Bank in collecting the Receivables (with or without suit)
to correct any default or enforce any provision of this Agreement, or in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling,
disposing of, preparing for sale and/or advertising to sell the Collateral,
whether or not a sale is consummated; costs and expenses of suit incurred by
Bank in enforcing or defending this Agreement or any portion hereof, including,
but not limited to, expenses incurred by Bank in attempting to obtain relief
from any stay, restraining order, injunction or similar process which prohibits
Bank from exercising any of its rights or remedies; and attorneys' fees and
expenses incurred by Bank in advising, structuring, drafting, reviewing,
amending, terminating, enforcing, defending or concerning this Agreement, or any
portion hereof or any agreement related hereto, whether or not suit is brought.
Bank Expenses shall include Bank's in-house legal charges at reasonable rates.
1.3 "Base Rate" as used in this Agreement means that variable rate of
interest so announced by Bank at its headquarters office in San Jose, California
as its "Base Rate" from time to time and which serves as the basis upon which
effective rates of interest are calculated for those loans making reference
thereto.
1.4 "Borrower's Books" as used in this Agreement means and includes all
of the Borrower's books and records including but not limited to: minute books;
ledgers; records indicating, summarizing or evidencing Borrower's assets,
liabilities, Receivables, business operations or financial condition, and all
information relating thereto, computer programs; computer disk or tape files;
computer printouts; computer runs; and other computer prepared Information and
equipment of any kind.
1.5 "Borrowing Base" as used in this Agreement means the sum of: (1)
Eighty* percent (80.000%) of the net amount of Eligible Accounts after deducting
therefrom all payments, adjustments and credits applicable thereto ("Accounts
Receivable Borrowing Base"); and (2) the amount, if any, of the advances against
inventory agreed to be made pursuant to any Inventory Rider ("Inventory
Borrowing Base"), or other rider, amendment or modification to this Agreement,
that may now or hereafter be entered into by Bank and Borrower.
1.6 "Cash Flow" as used in this Agreement means for any applicable
period of determination, the Net Income (after deduction for income taxes and
other taxes of such person determined by reference to income or profits of such
person) for such period, plus, to the extent deducted in computation of such Net
Income, the amount of depreciation and amortization expense and the amount of
deferred tax liability during such period, all as determined in accordance with
GAAP. The applicable period of determination will be N/A, beginning with the
period from ________________________ to _________________________.
* No Formula required if Debt/Effective Tangible Net Worth is at or less than
2.00:1.00. Borrowing Base applies if Debt/Effective Tangible Net Worth is
greater than 2.00:1.00.
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1.7 "Collateral" as used in this Agreement means and includes each and
all of the following: the Receivables; the Intangibles; the negotiable
collateral, the Inventory; all money, deposit accounts and all other assets of
Borrower in which Bank receives a security interest or which hereafter come into
the possession, custody or control of Bank; and the proceeds of any of the
foregoing, including, but not limited to, proceeds of insurance covering the
collateral and any and all Receivables, Intangibles, negotiable collateral,
Inventory, equipment, money, deposit accounts or other tangible and intangible
property of borrower resulting from the sale or other disposition of the
collateral, and the proceeds thereof. Notwithstanding anything to the contrary
contained herein, collateral shall not include any waste or other materials
which have been or may be designated as toxic or hazardous by Bank.
1.8 "Credit" as used in this Agreement means all Obligations, except
those obligations arising pursuant to any other separate contract, instrument,
note, or other separate agreement which, by its terms, provides for a specified
interest rate and term.
1.9 "Current Assets" as used in this Agreement means, as of any
applicable date of determination, all cash, non-affiliated customer receivables,
United States government securities, claims against the United States
government, and inventories, including current portion of note receivable from
Xxx Xxxxxx.
1.10 "Current Liabilities" as used in this Agreement means, as of any
applicable date of determination, (i) all liabilities of a person that should be
classified as current in accordance with GAAP, including without limitation any
portion of the principal of the indebtedness classified as current, plus (ii) to
the extent not otherwise included, all liabilities of the Borrower to any of its
affiliates whether or not classified as current in accordance with GAAP.
1.11 "Daily Balance" as used in this Agreement means the amount
determined by taking the amount of the Credit owed at the beginning of a given
day, adding any new Credit advanced or incurred on such date, and subtracting
any payments or collections which are deemed to be paid and are applied by Bank
in reduction of the Credit on that date under the provisions of this Agreement.
1.12 "Eligible Accounts" as used in this Agreement means and includes
those accounts of Borrower which are due and payable within Thirty (30) days, or
less, from the date of invoice, have been validly assigned to Bank and strictly
comply with all of Borrower's warranties and representations to Bank; but
Eligible Accounts shall not include the following: (a) accounts with respect to
which the account debtor is an officer, employee, partner, joint venturer or
agent of Borrower; (b) accounts with respect to which goods are placed on
consignment, guaranteed sale or other terms by reason of which the payment by
the account debtor may be conditional; (c) accounts with respect to which the
account debtor is not a resident of the United States; (d) accounts with respect
to which the account debtor is the United States or any department, agency or
instrumentality of the United States; (e) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx;
(f) accounts with respect to which the account debtor is a subsidiary of,
related to, affiliated or has common shareholders, officers or directors with
Borrower; (g) accounts with respect to which Borrower is or may become liable to
the account debtor for goods sold or services rendered by the account debtor to
Borrower; (h) accounts not paid by an account debtor within ninety (90) days
from the date of the invoice; (i) accounts with respect to which account debtors
dispute liability or make any claim, or have any defense, crossclaim,
counterclaim, or offset; (j) accounts with respect to which any Insolvency
Proceeding is filed by or against the account debtor, or if an account debtor
becomes insolvent, fails or goes out of business; and (k) accounts owed by any
single account debtor which exceed twenty percent (20%) of all of the Eligible
Accounts; and (l) accounts with a particular account debtor on which over
twenty-five percent (25%) of the aggregate amount owing is greater than ninety
(90) days from the date of the invoice; (m) Allowing up to $35,000.00 per
customer per account with an aggregate cap of $400,000.00 on total foreign
accounts.*
1.13 "Event of Default" as used in this Agreement means those events
described in Section 7 contained herein below.
1.14 "Fixed Charges" as used in this Agreement means and includes for
any applicable period of determination, the sum, without duplication, of (a) all
interest paid or payable during such period by a person on debt of such person,
plus (b) all payments of principal or other sums paid or payable during such
period by such person with respect to debt of such person having a final
maturity more than one year from the date of creation of such debt, plus (c) all
debt discount and expense amortized or required to be amortized during such
period by such person, plus (d) the maximum amount of all rents and other
payments paid or required to be paid by such person during such period under any
lease or other contract or arrangement providing for use of real or personal
property in respect of which such person is obligated as a lessee, use or
obligor, plus (e) all dividends and other distributions paid or payable by such
person or otherwise accumulating during such period on any capital stock of such
person, plus (f) all loans or other advances made by such person during such
period to any Affiliate of such person. The applicable period of determination
will be N/A, beginning with the period from _________________________ to
___________________________.
* Dated terms allowed up to 45 days on foreign accounts.
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1.15 "GAAP" as used in this Agreement means as of any applicable period,
generally accepted accounting principles in effect during such period.
1.16 "Insolvency Proceeding" as used in this Agreement means and
includes any proceeding or case commenced by or against the Borrower, or any
guarantor of Borrower's Obligations, or any of Borrower's account debtors, under
any provisions of the Bankruptcy Code, as amended, or any other bankruptcy or
insolvency law, including but not limited to assignments for the benefit of
creditors, formal or informal moratoriums, composition or extensions with some
or all creditors, any proceeding seeking a reorganization, arrangement or any
other relief under the Bankruptcy code, as amended, or any other bankruptcy or
insolvency law.
1.17 "Intangibles" as used in this Agreement means and includes all of
Borrower's present and future general Intangibles and other personal property
(including, without limitation, any and all rights in any legal proceedings,
goodwill, patents, trade names, copyrights, trademarks, blueprints, drawings,
purchase orders, computer programs, computer disks, computer tapes, literature,
reports, catalogs and deposit accounts) other than goods and Receivables, as
well as Borrower's Books relating to any of the foregoing.
1.18 "Inventory" as used in this Agreement means and includes all
present and future inventory in which Borrower has any interest, including, but
not limited to, goods held by Borrower for sale or lease or to be furnished
under a contract of service and all of Borrower's present and future raw
materials, work in process, finished goods, advertising materials, and packing
and shipping materials, wherever located and any documents of title representing
any of the above, and any equipment, fixtures or other property used in the
storing, moving, preserving, identifying, accounting for and shipping or
preparing for the shipping of inventory, and any and all other items hereafter
acquired by Borrower by way of substitution, replacement, return, repossession
or otherwise, and all additions and accessions thereto, and the resulting
product or mass, and any documents of title respecting any of the above.
1.19 "Net Income" as used in this agreement means the net income (or
loss) of a person for any period determined in accordance with GAAP but
excluding in any event:
(a) any gains or losses on the sale or other disposition, not in the
ordinary course of business, of Investments or fixed or capital assets, and
any taxes on the excluded gains and any tax deductions or credits on
account on any excluded losses; and
(b) in the case of the Borrower, net earnings of any Person in which
Borrower has an ownership interest, unless such net earnings shall have
actually been received by Borrower in the form of cash distributions.
1.20 "Judicial Officer or Assignee" as used in this Agreement means and
includes any trustee, receiver, controller, custodian, assignee for the benefit
of creditors or any other person or entity having powers or duties like or
similar to the powers and duties of trustee, receiver, controller, custodian or
assignee for the benefit of creditors.
1.21 "Obligations" as used in this Agreement means and includes any and
all loans, advances, overdrafts, debts, liabilities (including, without
limitation, any and all amounts charged to Borrower's account pursuant to any
agreement authorizing Bank to charge Borrower's account), obligations, lease
payments, guaranties, covenants and duties owing by Borrower to Bank of any kind
and description whether advanced pursuant to or evidenced by this Agreement; by
any note or other instrument; or by any other agreement between Bank and
Borrower and whether or not for the payment of money, whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including, without limitation, any debt, liability or
obligation owing from Borrower to others which Bank may have obtained by
assignment, participation, purchase or otherwise, and further including, without
limitation, all interest not paid when due and all Bank Expenses which Borrower
is required to pay or reimburse by this Agreement, by law, or otherwise.
1.22 "Person" or "person" as used in this Agreement means and includes
any individual, corporation, partnership, joint venture, association, trust,
unincorporated association, joint stock company, government, municipality,
political subdivision or agency or other entity.
1.23 "Receivables" as used in this Agreement means and includes all
presently existing and hereafter arising accounts, instruments, documents,
chattel paper, general intangibles, all other forms of obligations owing to
Borrower, all of Borrower's rights in, to and under all purchase orders
heretofore or hereafter received, all moneys due to Borrower under all contracts
or agreements (whether or not yet earned or due), all merchandise returned to or
reclaimed by Borrower and the Borrower's books (except minute books) relating to
any of the foregoing.
1.24 "Subordinated Debt" as used in this Agreement means indebtedness of
the Borrower to third parties which has been subordinated to the Obligations
pursuant to a subordination agreement in form and content satisfactory to the
Bank.
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1.25 "Subordination Agreement" as used in this Agreement a subordination
agreement in form satisfactory to Bank making all present and future
indebtedness of the Borrower to N/A subordinate to the Obligations.
1.26 "Tangible Effective Net Worth" as used in this Agreement means net
worth as determined in accordance with GAAP consistently applied, increased by
Subordinated Debt if any, and decreased by the* following: patents, licenses,
goodwill, subscription lists, organization expenses, trade receivables converted
to notes, and money due from affiliates (including officers, directors,
subsidiaries and commonly held companies. * net book value of the
1.27 "Tangible Net Worth" as used in this Agreement means, as of any
applicable date of determination, the excess of:
a. the net book value of all assets of a person (other than patents,
patent rights, trademarks, trade names, franchises, copyrights, licenses,
goodwill, and similar intangible assets) after all appropriate deductions
in accordance with GAAP (including, without limitation, reserves for
doubtful receivables, obsolescence, depreciation and amortization), over
b. all total liabilities of such person.
1.28 "Total Liabilities" as used in this Agreement means the total of
all items of indebtedness, obligation or liability which, in accordance with
GAAP consistently applied, would be included in determining the total
liabilities of the Borrower as of the date Total Liabilities is to be
determined, including without limitation (a) all obligations secured by any
mortgage, pledge, security interest or other lien on property owned or acquired,
whether or not the obligations secured thereby shall have been assumed; (b) all
obligations which are capitalized lease obligations; and (c) all guaranties,
endorsements or other contingent or surety obligations with respect to the
indebtedness of others, whether or not reflected on the balance sheets of the
Borrower, including any obligation to furnish funds, directly or indirectly
through the purchase of goods, supplies, services, or by way of stock purchase,
capital contribution, advance or loan or any obligation to enter into a contract
for any of the foregoing.
1.29 "Working Capital" as used in this Agreement means, as of any
applicable date of determination, Current Assets less Current Liabilities.
1.30 Any and all terms used in this Agreement shall be construed and
defined in accordance with the meaning and definition of such terms under and
pursuant to the California Uniform Commercial Code (hereinafter referred to as
the "Code") as amended.
1.31 Letter of Credit sub-feature - the amount of $500,000.00 for the
issuance of Letters of Credit is to be allowed within the Borrowing Base and
within the Line amount.
2. LOAN AND TERMS OF PAYMENT
For value received, Borrower promises to pay to the order of Bank such amount,
as provided for below, together with interest, as provided for below.
2.1 Upon the request of Borrower, made at any time and from time to
time during the term hereof, and so long as no Event of Default has occurred,
Bank shall lend to Borrower an amount equal to the Borrowing Base; provided,
however, that in no event shall Bank be obligated to make advances to Borrower
under this Section 2.1 whenever the Daily Balance exceeds, at any time, either
the Borrowing Base* or the sum of Five Million and no/100** ($5,000,000.00),
such amount being referred to herein as "Overadvance".
* including Letter of Credit sub-feature *below
2.2 Except as hereinbelow provided, the Credit shall bear interest, on
the Daily Balance owing, at a rate of Zero 25/100** (0.250%) percentage points
per annum above* the Base Rate (the "Rate"). The Credit shall bear interest,
from and after the occurrence of an Event of Default and without constituting a
waiver of any such Event of Default, on the Daily Balance owing, at a rate three
(3) percentage points per annum above the Rate. All interest chargeable under
this Agreement that is based upon a per annum calculation shall be computed on
the basis of a three hundred sixty (360) day year for actual days elapsed.
** See Addendum A attached hereto and made a part hereof for rate options.
The Base Rate as of the date of this Agreement is Eight (8.000%) per annum.
In the event that the Base Rate announced is, from time to time hereafter,
changed, adjustment in the Rate shall be made and based on the Base Rate in
effect on the date of such change. The Rate, as adjusted, shall apply to the
Credit until the Base Rate is adjusted again. The minimum interest payable by
the Borrower under this Agreement shall in no event be less than N/A per month.
All interest payable by Borrower under the Credit shall be due and payable on
the first day of each calendar month during the
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term of this Agreement. A late payment charge equal to 5% of each late
payment may be charged on any payment not received by the Bank within 10
calendar days after the payment due date, but acceptance of payment of this
charge shall not waive any Default under this Agreement.
2.3 Without affecting Borrower's obligation to repay immediately any
Overadvance in accordance with Section 2.1 hereof, all Overadvances shall bear
additional interest on the amount thereof at a rate equal to N/A from the date
(N/A%) percentage points per month in excess of the interest rate set forth in
Section 2.2, from the date incurred incurred and for each month thereafter,
until repaid in full.
** Total accounts receivable and inventory advances will be temporarily limited
to $2,500,000 until an audit is completed and results are satisfactory to Bank.
3. TERM.
3.1 This Agreement shall remain in full force and effect until
terminated by notice, by either party. Notice of such termination shall be
effectuated by mailing of a registered or certified letter not less than thirty
(30) days prior to the effective date of such termination, addressed to the
other party at the address set forth herein and the termination shall be
effective as of the date so fixed in such notice. Notwithstanding the
foregoing, should Borrower be in default of one or more of the provisions of
this Agreement, Bank may terminate this Agreement at any time without notice.
Notwithstanding the foregoing, should either Bank or Borrower become insolvent
or unable to meet its debts as they mature, or fail, suspend, or go out of
business, the other party shall have the right to terminate this Agreement at
any time without notice. On the date of termination all Obligations shall
become immediately due and payable without notice or demand; no notice of
termination by Borrower shall be effective until Borrower shall have paid all
Obligations to Bank in full. Notwithstanding termination, until all Obligations
have been fully satisfied, Bank shall retain its security interest in all
existing Collateral and Collateral arising thereafter, and Borrower shall
continue to perform all of its Obligations.
3.2 After termination and when Bank has received payment in full of
Borrower's Obligations to Bank, Bank shall reassign to Borrower all Collateral
held by Bank, and shall execute a termination of all security agreements and
security interests given by Borrower to Bank, upon the execution and delivery of
mutual general releases.
4. CREATION OF SECURITY INTEREST
4.1 Borrower hereby grants to Bank a continuing security interest in
all presently existing and hereafter arising Collateral in order to secure
prompt repayment of any and all Obligations owed by Borrower to Bank and in
order to secure prompt performance by Borrower of each and all of its covenants
and Obligations under this Agreement and otherwise created. Bank's security
interest in the Collateral shall attach to all Collateral without further act on
the part of Bank or Borrower. In the event that any Collateral, including
proceeds, is evidenced by or consists of a letter of credit, advice of credit,
instrument, money, negotiable documents, chattel paper or similar property
(collectively, "Negotiable Collateral"), Borrower shall, immediately upon
receipt thereof, endorse and assign such Negotiable Collateral over to Bank and
deliver actual physical possession of the Negotiable Collateral to Bank.
4.2 Bank's security interest in Receivables shall attach to all
Receivables without further act on the part of Bank or Borrower. Upon request
from Bank*, Borrower shall provide Bank with schedules describing all
Receivables created or acquired by Borrower (including without limitation agings
listing the names and addresses of, and amounts owing by date by account
debtors), and shall execute and deliver written assignments of all Receivables
to Bank all in a form acceptable to Bank, provided, however, Borrower's failure
to execute and deliver such schedules and/or assignments shall not affect or
limit Bank's security interest and other rights in and to the Receivables.
Together with each schedule, Borrower shall furnish Bank with copies of
Borrower's customers' invoices or the equivalent, and original shipping or
delivery receipts for all merchandise sold, and Borrower warrants the
genuineness thereof. Bank or Bank's designee may notify customers or account
debtors of collection costs and expenses to Borrower's account but, unless and
until Bank does so or gives Borrower other written instructions, Borrower shall
collect all Receivables for Bank, receive in trust all payments thereon as
Bank's trustee, and, if so requested to do so from Bank, Borrower shall
immediately deliver said payments to Bank in their original form as received
from the account debtor and all letters of credit, advices of credit,
instruments, documents, chattel paper or any similar property evidencing or
constituting Collateral. Notwithstanding anything to the contrary contained
herein, if sales of Inventory are made for cash, Borrower shall immediately
deliver to Bank, in identical form, all such cash, checks, or other forms of
payment which Borrower receives. The receipt of any check or other item of
payment by Bank shall not be considered a payment on account until such check or
other item of payment is honored when presented for payment, in which event,
said check or other item of payment shall be deemed to have been paid to Bank
Two (2) calendar days after the date Bank actually receives such check or other
item of payment.
* and upon the occurrence of an Event of Default by Borrower,
4.3 Bank's security interest in Inventory shall attach to all Inventory
without further act on the part of Bank or Borrower. Upon Bank's request*
Borrower will from time to time at Borrower's expense pledge, assemble and
deliver
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such Inventory to Bank or to a third party as Bank's bailee; or hold the same
in trust for Bank's account or store the same in a warehouse in Bank's name;
or deliver to Bank documents of title representing said Inventory; or
evidence of Bank's security interest in some other manner acceptable to Bank.
Until a default by Borrower under this Agreement or any other Agreement
between Borrower and Bank, Borrower may, subject to the provisions hereof and
consistent herewith, sell the Inventory, but only in the ordinary course of
Borrower's business. A sale of inventory in Borrower's ordinary course of
business does not include an exchange or a transfer in partial or total
satisfaction of a debt owing Borrower.
* and upon the occurrence of an Event of Default by Borrower,
4.4 Borrower shall execute and deliver to Bank concurrently with
Borrower's execution of this Agreement, and at any time or times hereafter at
the request of Bank, all financing statements, continuation financing
statements, security agreements, mortgages, assignments, certificates of title,
affidavits, reports, notices, schedules of accounts, letters of authority and
all other documents that Bank may request, in form satisfactory to Bank, to
perfect and maintain perfected Bank's security interest in the Collateral and in
order to fully consummate all of the transactions contemplated under this
Agreement. Borrower hereby irrevocably makes, constitutes and appoints Bank
(and any of Bank's officers, employees or agents designated by Bank) as
Borrower's true and lawful attorney-in-fact with power to sign the name of
Borrower on any financing statements, continuation financing statements,
security agreement, mortgage, assignment, certificate of title, affidavit,
letter of authority, notice of other similar documents which must be executed
and/or filed in order to perfect or continue perfected Bank's security interest
in the Collateral.
Borrower shall make appropriate entries in Borrower's Books disclosing
Bank's security interest in the Receivables. Bank (through any of Its officers,
employees or agents) shall have the right at any time or times hereafter during
Borrower's usual business hours, or during the usual business hours of any third
party having control over the records of Borrower, to inspect and verify
Borrower's Books in order to verify the amount or condition of, or any other
matter, relating to, said Collateral and Borrower's financial condition.
4.5 *Borrower appoints Bank or any other person whom Bank may designate
as Borrower's attorney-in-fact, with power: to endorse Borrower's name on any
checks, notes, acceptances, money order, drafts or other forms of payment or
security that may come into Bank's possession; to sign Borrower's name on any
invoice or xxxx of lading relating to any Receivables, on drafts against account
debtors, on schedules and assignments of Receivables, on verifications of
Receivables and on notices to account debtors; to establish a lock box
arrangement and/or to notify the post office authorities to change the address
for delivery of Borrower's mail addressed to Borrower to an address designated
by Bank, to receive and open all mail addressed to Borrower, and to retain all
mail relating to the Collateral and forward all other mail to Borrower; to send,
whether in writing or by telephone, requests for verification of Receivables;
and to do all things necessary to carry out this Agreement. Borrower ratifies
and approves all acts of the attorney-in-fact. Neither Bank nor its
attorney-in-fact will be liable for any acts or omissions or for any error of
judgment or mistake of fact or law. This power being coupled with an
interest, is irrevocable so long as a Receivables in which Bank has security
interest remain unpaid and until the Obligations have been fully satisfied.
* Upon the occurrence of an Event of Default by Borrower,
4.6 In order to protect or perfect any security interest which Bank is
granted hereunder, Bank may, in its sole discretion, discharge any lien or
encumbrance or bond the same, pay any insurance, maintain guards, warehousemen,
or any personnel to protect the Collateral, pay any service bureau, or, obtain
any records, and all costs for the same shall be added to the Obligations and
shall be payable on demand.
4.7 Borrower agrees that Bank may provide information relating to this
Agreement or relating to Borrower to Bank's parent, affiliates, subsidiaries and
service providers.
5. CONDITIONS PRECEDENT
5.1 Conditions precedent to the making of the loans and the extension
of the financial accommodations hereunder, Borrower shall execute, or cause to
be executed, and deliver to Bank, in form and substance satisfactory to Bank and
its counsel, the following:
a. This Agreement and other documents required by Bank;
b. Financing statements (Form UCC-1) in form satisfactory to Bank for
filing and recording with the appropriate governmental authorities;
c. If Borrower is a corporation, then certified extracts from the
minutes of the meeting of its board of directors, authorizing the
borrowings and the granting of the security interest provided for herein
and authorizing specific officers to execute and deliver the agreements
provided for herein;
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d. If Borrower is a corporation, then a certificate of good standing
showing that Borrower is in good standing under the laws of the state of
its incorporation and certificates indicating that Borrower is qualified to
transact business and is in good standing in any other state in which it
conducts business;
e. If Borrower is a partnership, then a copy of Borrower's partnership
agreement certified by each general partner of Borrower;
f. UCC searches, tax lien and litigation searches, fictitious business
statement filings, insurance certificates, notices or other similar
documents which Bank may require and in such form as Bank may require, in
order to reflect, perfect or protect Bank's first priority security
interest in the Collateral and in order to fully consummate all of the
transactions contemplated under this Agreement;
g. Evidence that Borrower has obtained insurance and acceptable
endorsements;
h. Waivers executed by landlords and mortgagees of any real property
on which any Collateral is located; and
i. Warranties and representations of officers.
6. WARRANTIES, REPRESENTATIONS AND COVENANTS.
6.1 If so requested by Bank, Borrower shall, at such intervals
designated by Bank, during the term hereof execute and deliver a Report of
Accounts Receivable or similar report, in form customarily used by Bank.
Borrower's Borrowing Base at all times pertinent hereto shall not be less than
the advances made hereunder. Bank shall have the right to recompute Borrower's
Borrowing Base in conformity with this Agreement.
6.2 If any warranty is breached as to any account, or any account is
not paid in full by an account debtor within Thirty* (30) days from the date of
invoice, or an account debtor disputes liability or makes any claim with respect
thereto, or a petition in bankruptcy or other application for relief under the
Bankruptcy Code or any other insolvency law is filed by or against an account
debtor, or an account debtor makes an assignment for the benefit of creditors,
becomes insolvent, fails or goes out of business, then Bank may deem ineligible
any and all accounts owing by that account debtor, and reduce Borrower's
Borrowing Base by the amount thereof. Bank shall retain its security interest
in all Receivables and accounts, whether eligible or ineligible, until all
Obligations have been fully paid and satisfied. Returns and allowances, if any,
as between Borrower and its customers, will be on the same basis and in
accordance with the usual customary practices of the Borrower, as they exist at
this time. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx. Borrower shall promptly notify
Bank of all disputes and claims and settle or adjust them on terms approved by
Bank. After default by Borrower hereunder, no discount, credit or allowance
shall be granted to any account debtor by Borrower and no return of merchandise
shall be accepted by Borrower without Bank's consent. Bank may, after default by
Borrower, settle or adjust disputes and claims directly with account debtors for
amounts and upon terms which Bank considers advisable, and in such cases Bank
will credit Borrower's account with only the net amounts received by Bank in
payment of the accounts, after deducting all Bank Expenses in connection
therewith. * 45 days for foreign accounts.
6.3 Borrower warrants, represents, covenants and agrees that:
a. Borrower has good and marketable title to the Collateral. Bank
has and shall continue to have a first priority perfected
security interest in and to the Collateral. The Collateral
shall at all times remain free and clear of all liens,
encumbrances and security interests (except those in favor of
Bank).
b. All accounts are and will, at all times pertinent hereto, be
bona fide existing obligations created by the sale and
delivery of merchandise or the rendition of services to
account debtors in the ordinary course of business, free of
liens, claims, encumbrances and security interests (except as
held by Bank and except as may be consented to, in writing, by
Bank) and are unconditionally owed to Borrower without
defenses, disputes, offsets, counterclaims, rights of return
or cancellation, and Borrower shall have received no notice of
actual or imminent bankruptcy or insolvency of any account
debtor at the time an account due from such account debtor is
assigned to Bank.
c. At the time each account is assigned to Bank, all property
giving rise to such account shall have been delivered to the
account debtor or to the agent for the account debtor for
immediate shipment to, and unconditional acceptance by, the
account debtor. Borrower shall deliver to Bank, as Bank may
from time to time require, delivery receipts, customer's
purchase orders, shipping instructions, bills of lading and
any other evidence of shipping arrangements. Absent such a
request by Bank, copies of all such documentation shall be
held by Borrower as custodian for Bank.
7
6.4 At the time each eligible account is assigned to Bank, all such
eligible accounts will be due and payable on terms set forth in Section 1.12, or
on such other terms approved in writing by Bank in advance of the creation of
such accounts and which are expressly set forth on the face of all invoices,
copies of which shall be held by Borrower as custodian for Bank, and no such
eligible account will then be past due.
6.5 Borrower shall keep the Inventory only at the following locations:
0000 X. Xxxxxxx Xx., Xxxxx Xxx, XX 00000, 0 Xxxxx Xx., Xxxxxxxx, XX 00000; and
0000 Xxxxxxxx, Xxxxxx, XX 00000 and the owner or mortgagees of the respective
locations are: Dirk Investments Inc., Radco, and Sanwa Bank (as trustee).
a. Borrower, immediately upon demand by Bank therefor, shall now and
from time to time hereafter, at such intervals as are requested by Bank,
deliver to Bank, designations of inventory specifying Borrower's cost of
inventory, the wholesale market value thereof and such other matters and
information relating to the Inventory as Bank may request;
b. Borrower's Inventory, valued at the lower of Borrower's cost or the
wholesale market value thereof, at all times pertinent hereto shall not be
less than N/A Dollars ($N/A) of which no less than N/A Dollars ($N/A) shall
be in raw materials and finished goods;
c. All of the Inventory is and shall remain free from all purchase
money or other security interests, liens or encumbrances, except as held by
Bank;
d. Borrower does now keep and hereafter at all times shall keep
correct and accurate records itemizing and describing the kind, type,
quality and quantity of the inventory, its cost therefor and selling price
thereof, and the daily withdrawals therefrom and additions thereto, all of
which records shall be available upon demand to any of Bank's officers,
agents and employees for inspection and copying;
e. All inventory, now and hereafter at all times, shall be new
inventory of good and merchantable quality free from defects;
f. Inventory is not now and shall not at any time or times hereafter
be located or stored with a bailee, warehouseman or other third party
without Bank's prior written consent, and, in such event, Borrower will
concurrently therewith cause any such bailee, warehouseman or other third
party to issue and deliver to Bank, in a form acceptable to Bank, warehouse
receipts in Bank's name evidencing the storage of inventory or other
evidence of Bank's prior rights in the inventory. In any event, Borrower
shall instruct any third party to hold all such inventory for Bank's
account subject to Bank's security interests and its instructions; and
g. Bank shall have the right upon demand now and/or at all times
hereafter, during Borrower's usual business hours, to inspect and examine
the inventory and to check and test the same as to quality, quantity, value
and condition and Borrower agrees to reimburse Bank for Bank's reasonable
costs and expenses in so doing.
6.6 Borrower represents, warrants and covenants with Bank that Borrower
will not, without Bank's prior written consent:
x. Xxxxx a security interest in or permit a lien, claim or encumbrance
upon any of the Collateral to any person, association, firm, corporation,
entity or governmental agency or instrumentality;
b. Permit any levy, attachment or restraint to be made affecting any
of Borrower's assets;
c. Permit any Judicial Officer or Assignee to be appointed or to take
possession of any or all of Borrower's* * assets
d. Other than sales of inventory in the ordinary course of Borrower's
business, to sell, lease, or otherwise dispose of, move, or transfer,
whether by sale or otherwise, any of Borrower's assets;
e. Change its name, business structure, corporate identity or
structure; add any new fictitious names, liquidate, merge or consolidate
with or into any other business organization;
f. Move or relocate any Collateral;
g. Acquire any other business organization; wherein Bank financing is
required in excess of $3,000,000.00.
h. Enter into any transaction not in the usual course of Borrower's
business;
8
i. Make any investment in securities of any person, association, firm,
entity, or corporation other than the securities of the United States of
America;
j. Make any change in Borrower's financial structure or in any of its
business objectives, purposes or operations which would adversely affect
the ability of Borrower to repay Borrower's Obligations;
k. Incur any debts outside the ordinary course of Borrower's business
except renewals or extensions of existing debts and interest thereon;
l. Make any advance or loan except in the ordinary course of
Borrower's business as currently conducted;
m. Make loans, advances or extensions of credit to any Person, except
for sales on open account and otherwise in the ordinary course of business;
n. Guarantee or otherwise, directly or indirectly, in any way be or
become responsible for obligations of any other person, whether by
agreement to purchase the indebtedness of any other Person, agreement for
the furnishing of funds to any other Person through the furnishing of
goods, supplies or services, by way of stock purchase, capital
contribution, advance or loan, for the purpose of paying or discharging (or
causing the payment or discharge of) the indebtedness of any other person,
or otherwise, except for the endorsement of negotiable instruments by the
Borrower in the ordinary course of business for deposit or collection;
o. (a) Sell, lease, transfer or otherwise dispose of properties and
assets having an aggregate book value of more than One Hundred Thousand and
no/100 Dollars ($100,000.00) (whether in one transaction or in a series of
transactions) except as to the sale of inventory in the ordinary course of
business; (b) change its name, consolidate with or merge into any other
corporation, permit another corporation to merge into it, acquire all or
substantially all the properties or assets of any other Person, enter into
any reorganization or recapitalization or reclassify its capital stock*, or
(c) enter into any sale-leaseback transaction;
* wherein Bank financing is required in excess of $3,000,000.00.
p. Purchase or hold beneficially any stock or other securities of, or
make any investment or acquire any interest whatsoever in, any other
Person, except for the common stock of the Subsidiaries owned by the
Borrower on the date of this Agreement and except for certificates of
deposit with maturities of one year or less of United States commercial
banks with capital, surplus and undivided profits in excess of One Hundred
Million Dollars ($100,000,000) and direct obligations of the United States
Government maturing within one year from the date of acquisition thereof;
q. Allow any fact, condition or event to occur or exist with respect
to any employee pension or profit sharing plans established or maintained
by it which might constitute grounds for termination of any such plan or
for the court appointment of a trustee to administer any such plan.
6.7 Borrower is not a merchant whose sales for resale of goods for
personal, family or household purposes exceeded seventy-five percent (75%) in
dollar volume of its total sales of all goods during the twelve (12) months
tpreceding the filing by Bank of a financing statement describing the
Collateral. At no time hereafter shall Borrower's sales for resale goods for
personal, family or household purposes exceed seventy-five percent (75%) in
dollar volume of its total sales.
6.8 Borrower's sole place of business or chief executive office or
residence is located at the address indicated above and Borrower covenants and
agrees that it will not, during the term of this Agreement, without prior
written notification to Bank, relocate said sole place of business or chief
executive office or residence.
6.9 If Borrower is a corporation, Borrower represents, warrants and
covenants as follows:
a. Borrower will not make any distribution or declare or pay any
dividend (in stock or in cash)* to any shareholder or on any of its capital
stock, of any class, whether now or hereafter outstanding, or purchase,
acquire, repurchase, or redeem or retire any such capital stock;
* except for income taxes payable by S-Corp shareholders.
b. Borrower is and shall at all times hereafter be a corporation duly
organized and existing in good standing the laws of the state of its
incorporation and qualified and licensed to do business in California or
any other state in which it conducts its business;
c. Borrower has the right and power and is duly authorized to enter
into this Agreement; and
9
d. The execution by Borrower of this Agreement shall not constitute a
breach of any provision contained in Borrower's articles of incorporation
or by-laws.
6.10 The execution of and performance by Borrower of all of the terms
and provisions contained in this Agreement shall not result in a breach of or
constitute an event of default under any agreement to which Borrower is now or
hereafter becomes a party.
6.11 Borrower shall promptly notify Bank in writing of its acquisition
by purchase, lease or otherwise of any after acquired property of the type
included in the Collateral, with the exception of purchases of Inventory in the
ordinary course of business.
6.12 All assessments and taxes, whether real, personal or otherwise, due
or payable by, or imposed, levied or assessed against, Borrower or any of its
property have been paid, and shall hereafter be paid in full, before
delinquency. Borrower shall make due and timely payment or deposit of all
federal, state and local taxes, assessments or contributions required of it by
law, and will execute and deliver to Bank, on demand, appropriate certificates
attesting to the payment or deposit thereof. Borrower will make timely payment
or deposit of all F.I.C.A. payments and withholding taxes required of it by
applicable laws, and will upon request furnish Bank with proof satisfactory to
it that Borrower has made such payments or deposit. If Borrower fails to pay
any such assessment, tax, contribution, or make such deposit, or furnish the
required proof, Bank may, in its sole and absolute discretion and without notice
to Borrower, (i) make payment of the same or any part thereof, or (ii) set up
such reserves in Borrower's account as Bank deems necessary to satisfy the
liability therefor, or both. Bank may conclusively rely on the usual statements
of the amount owing or other official statements issued by the appropriate
governmental agency. Each amount so paid or deposited by Bank shall constitute
a Bank Expense and an additional advance to Borrower.
6.13 There are no actions or proceedings pending by or against Borrower
or any guarantor of Borrower before any court or administrative agency and
Borrower has no knowledge of any pending, threatened or imminent litigation,
governmental investigations or claims, complaints, actions or prosecutions
involving Borrower or any guarantor of Borrower, except as heretofore
specifically disclosed in writing to Bank. If any of the foregoing arise during
the term of the Agreement, Borrower shall immediately notify Bank in writing.
6.14 a. Borrower, at its expense, shall keep and maintain its assets
insured against loss or damage by fire, theft, explosion, sprinklers and all
other hazards and risks ordinarily insured against by other owners who use such
properties in similar businesses for the full insurable value thereof. Borrower
shall also keep and maintain business interruption insurance and public
liability and property damage insurance relating to Borrower's ownership and use
of the Collateral and its other assets. All such policies of insurance shall be
in such form, with such companies, and in such amounts as may be satisfactory to
Bank. Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All such
policies of insurance (except those of public liability and property damage)
shall contain an endorsement in a form satisfactory to Bank showing Bank as a
loss payee thereof, with a waiver of warranties (Form 438-BFU), and all proceeds
payable thereunder shall be payable to Bank and, upon receipt by Bank, shall be
applied on account of the Obligations owing to Bank. To secure the payment of
the Obligations, Borrower grants Bank a security interest in and to all such
policies of insurance (except those of public liability and property damage) and
the proceeds thereof, and Borrower shall direct all insurers under such policies
of insurance to pay all proceeds thereof directly to Bank.
b.* Borrower hereby irrevocably appoints Bank (and any of Bank's
officers, employees or agents designated by Bank) as Borrower's attorney for the
purpose of making, selling and adjusting claims under such policies of
insurance, endorsing the name of Borrower on any check, draft, instrument or
other item of payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect to such policies of
insurance. Borrower will not cancel any of such policies without Bank's prior
written consent. Each such insurer shall agree by endorsement upon the policy
or policies of insurance issued by it to Borrower as required above, or by
independent instruments furnished to Bank, that it will give Bank at least ten
(10) days written notice before any such policy or policies of insurance shall
be altered or cancelled, and that no act or default of Borrower, or any other
person, shall affect the right of Bank to recover under such policy or policies
of insurance required above or to pay any premium in whole or in part relating
thereto. Bank, without waiving or releasing any Obligations or any Event of
Default, may, but shall have no obligation to do so, obtain and maintain such
policies of insurance and pay such premiums and take any other action with
respect to such policies which Bank deems advisable. All sums so disbursed by
Bank, as well as reasonable attorneys' fees, court costs, expenses and other
charges relating thereto, shall constitute Bank Expenses and are payable on
demand.
* On claims over $250,000,
6.15 All financial statements and information relating to Borrower which
have been or may hereafter be delivered by Borrower to Bank are true and correct
and have been prepared in accordance with GAAP consistently applied and there
has been no material adverse change in the financial condition of Borrower since
the submission of such financial information to Bank.
10
6.16 a. Borrower at all times hereafter shall maintain a standard and
modern system of accounting in accordance with GAAP consistently applied with
ledger and account cards and/or computer tapes and computer disks, computer
printouts and computer records pertaining to the Collateral which contain
information as may from time to time be requested by Bank, not modify or change
its method of accounting or enter into, modify or terminate any agreement
presently existing, or at any time hereafter entered into with any third party
accounting firm and/or service bureau for the preparation and/or storage of
Borrower's accounting records without the written consent of Bank first obtained
and without said accounting firm and/or service bureau agreeing to provide
information regarding the Receivables and Inventory and Borrower's financial
condition to Bank; permit Bank and any of its employees, officers or agents,
upon demand, during Borrower's usual business hours, or the usual business hour
of third persons having control thereof, to have access to and examine all of
the Borrower's Books relating to the Collateral, Borrower's Obligations to Bank,
Borrower's financial condition and the results of Borrower's operations and in
connection therewith, permit Bank or any of its agents, employees or officers to
copy and make extracts therefrom.
b. Borrower shall deliver to Bank within forty-five (45) days after
the end of each Quarter, a COMPANY PREPARED balance sheet and profit and loss
statement covering Borrower's operations and deliver to Bank within ninety (90)
days after the end of each of Borrower's fiscal years a(n) AUDITED UNQUALIFIED
statement of the financial condition of the Borrower for each such fiscal year,
including but not limited to, a balance sheet and profit and loss statement and
any other report requested by Bank relating to the Collateral and the financial
condition of Borrower, and a certificate signed by an authorized employee of
Borrower to the effect that all reports, statements, computer disk or tape
files, computer printouts, computer runs, or other computer prepared information
of any kind or nature relating to the foregoing or documents delivered or caused
to be delivered to Bank under this subparagraph are complete, correct and
thoroughly present the financial condition of Borrower and that there exists on
the date of delivery to Bank no condition or event which constitutes a breach or
Event of Default under this Agreement.
c. In addition to the financial statements requested above, the
Borrower agrees to provide Bank with the following schedules: (If
Debt/Effective Tangible Net Worth is greater than 2.00:1.00 measured quarterly)
detailed:
___XX_________ Accounts Receivable Agings on a Monthly basis within 20 days of month end
___XX_________ Accounts Payable Agings on a Monthly basis within 20 days of month end
_______________ Job Progress Reports on a _______________ basis and
___XX_________ Inventory Reports on a Monthly basis within 20 days of month end
Borrowing Base Report required monthly within 20 days of month end
6.17 Borrower shall maintain the following financial ratios and
covenants on a consolidated and non-consolidated basis:
a. Working Capital in an amount not less than N/A
b Tangible Effective Net Worth in an amount not less than
55,500,000.00 prior to Initial Public Offering.
After Initial Public Offering an amount no less than $8,000,000.00.
(Both to step up by 50% of Effective After *
c. a ratio of Current Assets to Current Liabilities of not less than
N/A
d. a quick ratio of cash plus securities plus Receivables to Current
Liabilities of not less than 0.75:1.00
e. a ratio of Total Liabilities (less debt subordinated to Bank) to
Tangible Effective Net Worth of less than 2.25:1.00 prior to
Initial Public Offering. After Initial Public Offering to be less
than 3.00:1.00.
f. a ratio of Cash Flow to Fixed Charges of not less than 2.00:1.00
prior to Initial Public Offering. After Initial Public Offering to
be no less than 1.50:1.00 (both on a rolling four quarter basis).
g. Net income after taxes of N/A
h. Borrower shall not without Bank's prior written consent acquire or
expend for or commit itself to acquire or expend for fixed assets
by lease, purchase or otherwise in an aggregate amount that exceeds
N/A Dollars ($______) in any fiscal year; and
i. See Addendum "B" attached hereto and made a part hereof for
additional covenants, conditions and definitions.
11
*Tax Net Profit (Quarterly)
All financial covenants shall be computed in accordance with GAAP
consistently applied except as otherwise specifically set forth in this
Agreement. All monies due from affiliates (including officers, directors and
shareholders) shall be excluded from Borrower's assets for all purposes
hereunder.
6.18 Borrower shall promptly supply Bank (and cause any guarantor to
supply Bank) with such other information (including tax returns) concerning its
financial affairs (or that of any guarantor) as Bank may request from time to
time hereafter, and shall promptly notify Bank of any material adverse change in
Borrower's financial condition and of any condition or event which constitutes a
breach of or an event which constitutes an Event of Default under this
Agreement.
6.19 Borrower is now and shall be at all times hereafter solvent and
able to pay its debts (including trade debts) as they mature.
6.20 Borrower shall Immediately and without demand reimburse Bank for
all sums expended by Bank in connection with any action brought by Bank to
correct any default or enforce any provision of this Agreement, including all
Bank Expenses; Borrower authorizes and approves all advances and payments by
Bank for items described in this Agreement as Bank Expenses.
6.21 Each warranty, representation and agreement contained in this
Agreement shall be automatically deemed repeated with each advance and shall be
conclusively presumed to have been relied on by Bank regardless of any
investigation made or information possessed by Bank. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements which
Borrower shall give, or cause to be given, to Bank, either now or hereafter.
6.22 Borrower shall keep all of its principal bank accounts with Bank
and shall notify the Bank immediately in writing of the existence of any other
bank account, deposit account, or any other account into which money can be
deposited.
6.23 Borrower shall furnish to the Bank: (a) as soon as possible, but
in no event later than thirty (30) days after Borrower knows or has reason to
know that any reportable event with respect to any deferred compensation plan
has occurred, a statement of the chief financial officer of Borrower setting
forth the details concerning such reportable event and the action which Borrower
proposes to take with respect thereto, together with a copy of the notice of
such reportable event given to the Pension Benefit Guaranty Corporation, if a
copy of such notice is available to Borrower; (b) promptly after the filing
thereof with the United States Secretary of Labor or the Pension Benefit
Guaranty Corporation, copies of each annual report with respect to each deferred
compensation plan; (c) promptly after receipt thereof, a copy of any notice
Borrower may receive from the Pension Benefit Guaranty Corporation or the
internal Revenue Service with respect to any deferred compensation plan;
provided, however, this subparagraph shall not apply to notice of general
application issued by the Pension Benefit Guaranty Corporation or the Internal
Revenue Service; and (d) when the same is made available to participants in the
deferred compensation plan, all notices and other forms of Information from time
to time disseminated to the participants by the administrator of the deferred
compensation plan.
6.24 Borrower is now and shall at all times hereafter remain in
compliance with all federal, state and municipal laws, regulations and
ordinances relating to the handling, treatment and disposal of toxic substances,
wastes and hazardous material and shall maintain all necessary authorizations
and permits.
6.25 Borrower shall maintain insurance on the life of N/A in an amount
not to be less than ______________ _______________________ Dollars ($________)
under one or more policies issued by insurance companies satisfactory to Bank,
which policies shall be assigned to Bank as security for the Indebtedness and on
which Bank shall be named as sole beneficiary.
6.26 Borrower shall limit direct and indirect compensation paid to the
following employees: _____________________, _____________________,
________________________ to an aggregate of N/A Dollars ($N/A) per N/A.
7. EVENTS OF DEFAULT Any one or more of the following events shall constitute
a default by Borrower under this Agreement:
a. If Borrower fails or neglects to perform, keep or observe any term,
provision, condition, covenant, agreement, warranty or representation
contained in this Agreement, or any other present or future agreement
between Borrower and Bank;
12
b. If any representation, statement, report or certificate made or
delivered by Borrower, or any of its officers, employees or agents to Bank
is not true and correct;
c. If Borrower fails to pay when due and payable or declared due and
payable, all or any portion of the Borrower's Obligations (whether of
principal, interest, taxes, reimbursement of Bank Expenses, or otherwise);
d. If there is a material impairment of the prospect of repayment of
all or any portion of Borrower's Obligations or a material impairment of
the value or priority of Bank's security interest in the Collateral;
e. If all or any of Borrower's assets are attached, seized, subject to
a writ or distress warrant, or are levied upon, or come into the possession
of any Judicial Officer or Assignee and the same are not released,
discharged or bonded against within ten (10) days thereafter;
f. if any Insolvency Proceeding is filed or commenced by or against
Borrower without being dismissed within ten (10) days thereafter;
g. If any proceeding is filed or commenced by or against Borrower for
its dissolution or liquidation;
h. If Borrower is enjoined, restrained or in any way prevented by
court order from continuing to conduct all or any material part of its
business affairs;
i. If a notice of lien, levy or assessment is filed of record with
respect to any or all of Borrower's assets by the United States Government,
or any department, agency or instrumentality thereof, or by any state,
county, municipal or other government agency, or if any taxes or debts
owing at any time hereafter to any one or more of such entities becomes a
lien, whether xxxxxx or otherwise, upon any or all of the Borrower's assets
and the same is not paid on the payment date thereof;
j. If a judgment or other claim becomes a lien or encumbrance upon any
or all of Borrower's assets and the same is not satisfied, dismissed or
bonded against within thirty (30) days thereafter;
k. If Borrower's records are prepared and kept by an outside computer
service bureau at the time this Agreement entered into or during the term
of this agreement such an agreement with an outside service bureau is
entered into, and at any time thereafter, without first obtaining the
written consent of Bank, Borrower terminates, modifies, amends or changes
its contractual relationship with said computer service bureau or said
computer service bureau fails to provide Bank with any requested
information or financial data pertaining to Bank's Collateral, Borrower's
financial condition or the results of Borrower's operations;
l. If Borrower permits a default in any material agreement to which
Borrower is a party with third parties so as to result in an acceleration
of the maturity of Borrower's indebtedness to others, whether under any
indenture, agreement or otherwise;
m. If Borrower makes any payment on account of indebtedness which has
been subordinated to Borrower's Obligations to Bank;
n. If any misrepresentation exists now or thereafter in any warranty
or representation made to Bank by any officer or director of Borrower, or
if any such warranty or representation is withdrawn by any officer or
director;
o. If any party subordinating its claims to that of Bank's or any
guarantor of Borrower's Obligations dies or terminates its subordination or
guaranty, becomes insolvent or an Insolvency Proceeding is commenced by or
against any such subordinating party or guarantor;
p. If Borrower is an individual and Borrower dies;
q. If there is a change of ownership or control of N/A percent (N/A%)
or more of the issued and outstanding stock of Borrower; or
r. If any reportable event, which the Bank determines constitutes
grounds for the termination of any deferred compensation plan by the
Pension Benefit Guaranty Corporation or for the appointment by the
appropriate United States District Court of a trustee to administer any
such plan, shall have occurred and be continuing thirty (30) days after
written notice of such determination shall have been given to Borrower by
Bank, or any such Plan shall be terminated within the meaning of Title IV
of the Employment Retirement Income Security Act ("ERISA"), or a trustee
shall be appointed by the appropriate United States District Court to
administer any such plan, or the Pension Benefit Guaranty Corporation shall
institute proceedings to terminate any plan and in case of any event
described in this Section 7.0, the aggregate amount of the Borrower's
liability to
13
the Pension Benefit Guaranty Corporation under Sections 4062, 4063 or 4064
of ERISA shall exceed five percent (5%) of Borrower's Tangible Effective
Net Worth.
Notwithstanding anything contained in Section 7 to the contrary, Bank shall
refrain from exercising its rights and remedies and Event of Default shall
thereafter not be deemed to have occurred by reason of the occurrence of any of
the events set forth in Sections 7.e, 7.f or 7.j* of this Agreement if, within
ten (10)* days from the date thereof, the same is released, discharged,
dismissed, bonded against or satisfied; provided, however, if the event is the
institution of Insolvency Proceedings against Borrower, Bank shall not be
obligated to make advances to Borrower during such cure period. * and 30 days
for 7.j.
8. BANK'S RIGHTS AND REMEDIES
8.1 Upon the occurrence of an Event of Default by Borrower under this
Agreement, Bank may, at its election, without notice of its election and without
demand, do any one or more of the following, all of which are authorized by
Borrower:
a. Declare Borrower's Obligations, whether evidenced by this
Agreement, installment notes, demand notes or otherwise, immediately due
and payable to the Bank;
b. Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement, or any other agreement between Borrower and
Bank;
c. Terminate this Agreement as to any future liability or obligation
of Bank, but without affecting Bank's rights and security interests in the
Collateral, and the Obligations of Borrower to Bank;
d. Without notice to or demand upon Borrower or any guarantor, make
such payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to
assemble the Collateral if Bank so requires and to make the Collateral
available to Bank as Bank may designate. Borrower authorizes Bank to enter
the premises where the Collateral is located, take and maintain possession
of the Collateral and the premises (at no charge to Bank), or any part
thereof, and to pay, purchase, contest or compromise any encumbrance,
charge or lien which in the opinion of Bank appears to be prior or superior
to its security interest and to pay all expenses incurred in connection
therewith;
e. Without limiting Bank's rights under any security interest, Bank is
hereby granted a license or other right to use, without charge, Borrower's
labels, patents, copyrights, rights of use of any name, trade secrets,
trade names, trademarks and advertising matter, or any property of a
similar nature as it pertains to the Collateral, in completing production
of, advertising for sale and selling any Collateral and Borrower's rights
under all licenses and all franchise agreement shall inure to Bank's
benefit, and Bank shall have the right and power to enter into sublicense
agreements with respect to all such rights with third parties on terms
acceptable to Bank;
f. Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sales and sell (in the manner provided for herein)
the Inventory;
g. Sell or dispose the Collateral at either a public or private sale,
or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises) as
is commercially reasonable in the opinion of Bank. It is not necessary
that the Collateral be present at any such sale;
h. Bank shall give notice of the disposition of the Collateral as
follows:
(1) Bank shall give the Borrower and each holder of a security
interest in the Collateral who has filed with Bank a written
request for notice, a notice in writing of the time and place of
public sale, or, if the sale is a private sale or some disposition
other than a public sale is to be made of the Collateral, the time
on or after which the private sale or other disposition is to be
made;
(2) The notice shall be personally delivered or mailed, postage
prepaid, to Borrower's address appearing in this Agreement, at
least five (5) calendar days before the date fixed for the sale, or
at least five (5) calendar days before the date on or after which
the private sale or other disposition is to be made, unless the
Collateral is perishable or threatens to decline speedily in value.
Notice to persons other than Borrower claiming an interest in the
Collateral shall be sent to such addresses as have been furnished
to Bank;
(3) If the sale is to be a public sale, Bank shall also give
notice of the time and place by publishing a notice one time at
least five (5) calendar days before the date of the sale in a
newspaper of general circulation in the county in which the sale is
to be held; and
14
(4) Bank may credit bid and purchase at any public sale.
i. Borrower shall pay all Bank Expenses incurred in connection with
Bank's enforcement and exercise of any of its rights and remedies as herein
provided, whether or not suit is commenced by Bank;
j. Any deficiency which exists after disposition of the Collateral as
provided above will be paid immediately by Borrower. Any excess will be
returned, without interest and subject to the rights of third parties, to
Borrower by Bank, or, in Bank's discretion, to any party who Bank believes,
in good faith, is entitled to the excess; and
k. Without constituting a retention of Collateral in satisfaction of
an obligation within the meaning of 9505 of the Uniform Commercial Code or
an action under California Code of Civil Procedure 726, apply any and all
amounts maintained by Borrower as deposit accounts (as that term is defined
under 9105 of the Uniform Commercial Code) or other accounts that Borrower
maintains with Bank against the Obligations.
8.2 Bank's rights and remedies under this Agreement and all other
agreements shall be cumulative. Bank shall have all other rights and remedies
not inconsistent herewith as provided by law or in equity. No exercise by Bank
of one right or remedy shall be deemed an election, and no waiver by Bank of any
default on Borrower's part shall be deemed a continuing waiver. No delay by
Bank shall constitute a waiver, election or acquiescence by Bank.
9. TAXES AND EXPENSES REGARDING BORROWER'S PROPERTY
If Borrower fails to pay promptly when due to another person or entity,
monies which Borrower is required to pay by reason of any provision in this
Agreement, Bank may, but need not, pay the same and charge Borrower's account
therefor, and Borrower shall promptly reimburse Bank. All such sums shall
become additional indebtedness owing to Bank, shall bear interest at the rate
hereinabove provided, and shall be secured by all Collateral. Any payments made
by Bank shall not constitute (i) an agreement by it to make similar payments in
the future, or (ii) a waiver by Bank of any default under this Agreement. Bank
need not inquire as to, or contest the validity of, any such expense, tax,
security interest, encumbrance or lien and the receipt of the usual official
notice of the payment thereof shall be conclusive evidence that the same was
validly due and owing. Such payments shall constitute Bank Expenses and
additional advances to Borrower.
10. WAIVERS
10.1 Borrower agrees that checks and other instruments received by Bank
in payment or on account of Borrower's Obligations constitute only conditional
payment until such items are actually paid to Bank and Borrower waives the right
to direct the application of any and all payments at any time or times hereafter
received by Bank on account of Borrower's Obligations and Borrower agrees that
Bank shall have the continuing exclusive right to apply and reapply such
payments in any manner as Bank may deem advisable, notwithstanding any entry by
Bank upon its books.
10.2 Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension or renewal of
any or all commercial paper, accounts, documents, instruments chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10.3 Bank shall not in any way or manner be liable or responsible for
(a) the safekeeping of the Inventory; (b) any loss or damage thereto occurring
or arising in any manner or fashion from any cause; (c) any diminution in the
value thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency or other person whomsoever. All risk of loss, damage or
destruction of Inventory shall be borne by Borrower.
10.4 Borrower waives the right and the right to assert a confidential
relationship, if any, it may have with any accountant, accounting firm and/or
service bureau or consultant in connection with any information requested by
Bank pursuant to or in accordance with this Agreement, and agrees that a Bank
may contact directly any such accountants, accounting firm and/or service bureau
or consultant In order to obtain such information.
10.5 BORROWER AND BANK EACH WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY TRANSACTION HEREUNDER, OR
CONTEMPLATED HEREUNDER, OR ANY OTHER CLAIM (INCLUDING TORT OR BREACH OF DUTY
CLAIMS) OR DISPUTE HOWSOEVER ARISING BETWEEN BANK AND BORROWER.
10.6 In the event that Bank elects to waive any rights or remedies
hereunder, or compliance with any of the terms hereof, or delays or fails to
pursue or enforce any term, such waiver, delay or failure to pursue or enforce
shall only be effective with respect to that single act and shall not be
construed to affect any subsequent transactions or Bank's right to later pursue
such rights and remedies.
15
11. ONE CONTINUING LOAN TRANSACTION All loans and advances heretofore, now or
at any time or times hereafter made by Bank to Borrower under this Agreement or
any other agreement between Bank and Borrower, shall constitute one loan secured
by Bank's security interests in the Collateral and by all other security
interests, liens, encumbrances heretofore, now or from time to time hereafter
granted by Borrower to Bank.
Notwithstanding the above, (i) to the extent that any portion of the Obligations
are a consumer loan, that portion shall not be secured by any deed of trust or
mortgage on or other security interest in the Borrower's principal dwelling
which is not a purchase money security interest as to that portion, unless
expressly provided to the contrary in another place, or (ii) if the Borrower (or
any of them) has (have) given or give(s) Bank a deed of trust or mortgage
covering real property, that deed of trust or mortgage shall not secure the loan
and any other Obligation of the Borrower (or any of them), unless expressly
provided to the contrary in another place.
12. NOTICES Unless otherwise provided in this Agreement, all notices or
demands by either party on the other relating to this Agreement shall be in
writing and sent by regular United States mail, postage prepaid, properly
addressed to Borrower or to Bank at the addresses stated in this Agreement, or
to such other addresses as Borrower or Bank may from time to time specify to the
other in writing. Requests to Borrower by Bank hereunder may be made orally.
13. AUTHORIZATION TO DISBURSE Bank is hereby authorized to make loans and
advances hereunder upon telephonic or other instructions received from anyone
purporting to be an officer, employee, or representative of Borrower, or at the
discretion of Bank if said loans and advances are necessary to meet any
Obligations of Borrower to Bank. Bank shall have no duty to make inquiry or
verify the authority of any such party, and Borrower shall hold Bank harmless
from any damage, claims or liability by reason of Bank's honor of, or failure to
honor, any such instructions.
14. DESTRUCTION OF BORROWER'S DOCUMENTS Any documents, schedules, invoices or
other papers delivered to Bank, may be destroyed or otherwise disposed of by
Bank six (6) months after they are delivered to or received by Bank, unless
Borrower requests, in writing, the return of the said documents, schedules,
invoices or other papers and makes arrangements, at Borrower's expense, for
their return.
15. CHOICE OF LAW The validity of this Agreement, its construction,
interpretation and enforcement, and the rights of the parties hereunder and
concerning the Collateral, shall be determined according to the laws of the
State of California. The parties agree that all actions or proceedings arising
in connection with this Agreement shall be tried and litigated only in the state
and federal courts in the Northern District of California or the County of Santa
Xxxxx.
16. GENERAL PROVISIONS
16.1 This Agreement shall be binding and deemed effective when executed
by the Borrower and accepted and executed by Bank at its headquarter office.
16.2 This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties, provided, however,
that Borrower may not assign this Agreement or any rights hereunder without
Bank's prior written consent and any prohibited assignment shall be absolutely
void. No consent to an assignment by Bank shall release Borrower or any
guarantor from their Obligations to Bank. Bank may assign this Agreement and
its rights and duties hereunder. 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 hereunder. In connection therewith, Bank
may disclose all documents and information which Bank now or hereafter may have
relating to Borrower or Borrower's business.
16.3 Paragraph headings and paragraph numbers have been set forth herein
for convenience only; unless the contrary is compelled by the context,
everything contained in each paragraph applies equally to this entire Agreement.
16.4 Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against Bank or Borrower, whether under any rule
of construction or otherwise; on the contrary, this Agreement has been reviewed
by all parties and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of all parties hereto. When permitted by the context, the singular includes the
plural and vice versa.
16.5 Each provision of this Agreement shall be severable from every
other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
16.6 This Agreement cannot be changed or terminated orally. Except as
to currently existing Obligations owing by Borrower to Bank, all prior
agreements, understandings, representations, warranties, and negotiations, if
any, with respect to the subject matter hereof, are merged into this Agreement.
16.7 The parties intend and agree that their respective rights, duties,
powers, liabilities, obligations and discretions shall be performed, carried
out, discharged and exercised reasonably and in good faith.
16
16.8 In addition, if this Agreement is secured by a deed of trust or
mortgage covering real property, then the trustor or mortgagor shall not
mortgage or pledge the mortgaged premises as security for any other indebtedness
or obligations. This Agreement, together with all other indebtedness secured by
said deed of trust or mortgage, shall become due and payable immediately,
without notice, at the option of Bank, (a) if said trustor or mortgagor shall
mortgage or pledge the mortgaged premises for any other indebtedness or
obligations or shall convey, assign or transfer the mortgaged premises by deed,
installment sale contract or other instrument; (b) if the title to the mortgaged
premises shall become vested in any other person or party in any manner
whatsoever, or (c) if there is any disposition (through one or more
transactions) of legal or beneficial title to a controlling interest of said
trustor or mortgagor.
IN WITNESS WHEREOF, the parties hereto have caused this Loan & Security
Agreement (Accounts and Inventory) to be executed as of the date first
hereinabove written.
This Loan and Security Agreement is cross defaulted and/or cross collaterized to
all present and future indebtedness of Xxxx Group, Inc., Xxxx Systems
International, Inc. and Xxxx XCD, Inc.
Initial Here /s/ PJD
--------------------
ATTEST:
/s/ X. Xxxxxxxxx
---------------------------
Title: Vice President
BORROWER: Xxxx Group, Inc.
Accepted and effective as of October 20, 1998 By: /s/ Xxxxxxx X. Dirk
at Bank's Headquarter Office ------------------------------
Signature of
Title: CEO
---------------------------
Comerica Bank-California By: /s/ Xxxxxxx X. Xxxx
--------------------------------------- ------------------------------
Signature of
Title: CEO
---------------------------
By: /s/ Xxxxxxx X'Xxxxx
-------------------------------------
Signature of Xxxxxxx X'Xxxxx
Xxxx Systems International, Inc.
Title: Vice President
-------------------------------------
By: /s/ Xxxxxxx X. Xxxx
------------------------------
Signature of
Title: CEO
---------------------------
By: /s/ Xxxxxxx X. Dirk
------------------------------
Signature of
Title: CEO
---------------------------
Xxxx XCD, Inc.
By: /s/ Xxxxxxx X. Dirk
------------------------------
Signature of
Title: CEO
---------------------------
17
LIBOR
ADDENDUM "A" TO LOAN & SECURITY AGREEMENT
This Addendum "A" to Loan & Security Agreement (this "Addendum") is
entered into as of this 20th day of October, 1998, by and between Comerica
Bank-California ("Bank") and Xxxx Group, Inc., Xxxx Systems International,
Inc. and Xxxx XCD, Inc. ("Borrower"). This Addendum supplements the terms of
the Loan & Security Agreement of even date herewith.
1. DEFINITIONS.
a. ADVANCE. As used herein, "ADVANCE" means a borrowing
requested by Borrower and made by Bank under the Note, including a LIBOR Option
Advance and/or a Base Rate Option Advance.
b. BUSINESS DAY. As used herein, "BUSINESS DAY" means any day
except a Saturday, Sunday or any other day designated as a holiday under Federal
or California statute or regulation.
c. LIBOR. As used herein, "LIBOR" means the rate per annum
(rounded upward if necessary, to the nearest whole 1/8 of 1%) and determined
pursuant to the following formula:
LIBOR= BASE LIBOR
-------------------------------
100% - LIBOR Reserve Percentage
(1) "Base LIBOR" means the rate per annum determined by
Bank at which deposits for the relevant LIBOR Period would be offered to Bank in
the approximate amount of the relevant LIBOR Option Advance in the inter-bank
LIBOR market selected by Bank, upon request of Bank at 10:00 a.m. California
time, on the day that is the first day of such LIBOR Period.
(2) "LIBOR Reserve Percentage" means the reserve percentage
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the
Federal Reserve Board, as amended), adjusted by Bank for expected changes in
such reserve percentage during the applicable LIBOR Period.
d. LIBOR BUSINESS DAY. As used herein, "LIBOR Business Day"
means a Business day on which dealings in Dollar deposits may be carried out in
the interbank LIBOR market.
e. LIBOR PERIOD. As used herein, "LIBOR PERIOD" means, with
respect to a LIBOR Option Advance:
1
(1) initially, the period commencing on, as the case may
be, the date the Advance is made or the date on which the Advance is converted
to a LIBOR Option Advance, and continuing for, in every case, thirty (30), sixty
(60), ninety (90) or one hundred eighty (180) days thereafter so long as the
LIBOR Option is quoted for such period in the applicable interbank LIBOR market,
as such period is selected by Borrower in the notice of Advance as provided in
the Note or in the notice of conversion as provided in this Addendum; and
(2) thereafter, each period commencing on the last day of
the next preceding LIBOR Period applicable to such LIBOR Option Advance and
continuing for, in every case, thirty (30), sixty (60), ninety (90) or one
hundred eighty (180) days thereafter so long as the LIBOR Option is quoted for
such period in the applicable interbank LIBOR market, as such period is selected
by Borrower in the notice of continuation as provided in this Addendum.
f. NOTE. As used herein, "NOTE" means the Loan & Security
Agreement of even date herewith.
g. REGULATION D. As used herein, "REGULATION D" means
Regulation D of the Board of Governors of the Federal Reserve System as amended
or supplemented from time to time.
h. REGULATORY DEVELOPMENT. As used herein, "REGULATORY
DEVELOPMENT" means any or all of the following: (i) any change in any law,
regulation or interpretation thereof by any public authority (whether or not
having the force of law); (ii) the application of any existing law, regulation
or the interpretation thereof by any public authority (whether or not having the
force of law); and (iii) compliance by Bank with any request or directive
(whether or not having the force of law) of any public authority.
2. INTEREST RATE OPTIONS. Borrower shall have the following options
regarding the interest rate to be paid by Borrower on Advances under the Note:
a. A rate equal to TWO PERCENT (2.00%) above Bank's LIBOR (the
"LIBOR Option"), which LIBOR Option shall be in effect
during the relevant LIBOR Period; or
b. A rate equal to ONE QUARTER PERCENT (0.25%) below the "Base
Rate" as referenced in the Note and quoted from time to time
by Bank as such rate may change from time to time (the "Base
Rate Option").
3. LIBOR OPTION ADVANCE. The minimum LIBOR Option Advance will not
be less than FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($500,000.00) for any
LIBOR Option Advance.
4. PAYMENT OF INTEREST ON LIBOR OPTION ADVANCES. Interest on each
LIBOR Option Advance shall be payable pursuant to the terms of the Note.
Interest on such LIBOR
2
Option Advance shall be computed on the basis of a 360-day year and shall be
assessed for the actual number of days elapsed from the first day of the
LIBOR Period applicable thereto but not including the last day thereof.
5. BANK'S RECORDS RE: LIBOR OPTION ADVANCES. With respect to each
LIBOR Option Advance, Bank is hereby authorized to note the date, principal
amount, interest rate and LIBOR Period applicable thereto and any payments made
thereon on Bank's books and records (either manually or by electronic entry)
and/or on any schedule attached to the Note, which notations shall be prima
facie evidence of the accuracy of the information noted.
6. SELECTION/CONVERSION OF INTEREST RATE OPTIONS. At the time any
Advance is requested under the Note and/or Borrower wishes to select the LIBOR
Option for all or a portion of the outstanding principal balance of the Note,
and at the end of each LIBOR Period, Borrower shall give Bank notice specifying
(a) the interest rate option selected by Borrower; (b) the principal amount
subject thereto; and (c) if the LIBOR Option is selected, the length of the
applicable LIBOR Period. Any such notice may be given by telephone so long as,
with respect to each LIBOR Option selected by Borrower, (i) Bank receives
written confirmation from Borrower not later than three (3) LIBOR Business Days
after such telephone notice is given; and (ii) such notice is given to Bank
prior to 10:00 a.m., California time, on the first day of the LIBOR Period. For
each LIBOR Option requested hereunder, Bank will quote the applicable fixed
LIBOR Rate to Borrower at approximately 10:00 a.m., California time, on the
first day of the LIBOR Period. If Borrower does not immediately accept the rate
quoted by Bank, any subsequent acceptance by Borrower shall be subject to a
redetermination of the rate by Bank; provided, however, that if Borrower fails
to accept any such quotation given, then the quoted rate shall expire and Bank
shall have no obligation to permit a LIBOR Option to be selected on such day.
If no specific designation of interest is made at the time any Advance is
requested under the Note or at the end of any LIBOR Period, Borrower shall be
deemed to have selected the Base Rate Option for such Advance or the principal
amount to which such LIBOR Period applied. At any time the LIBOR Option is in
effect, Borrower may, at the end of the applicable LIBOR Period, convert to the
Base Rate Option. At any time the Base Rate Option is in effect, Borrower may
convert to the LIBOR OPTION, and shall designate a LIBOR Period.
7. DEFAULT INTEREST RATE. From and after the maturity date of the
Note, or such earlier date as all principal owing hereunder becomes due and
payable by acceleration or otherwise, the outstanding principal balance of the
Note shall bear interest until paid in full at an increased rate per annum
(computed on the basis of a 360-day year, actual days elapsed) equal to three
percent (3.00%) above the rate of interest from time to time applicable to the
Note.
8. PREPAYMENT. Bank is not under any obligation to accept any
prepayment of any LIBOR Option Advance except as described below or as required
under applicable law. Borrower may prepay a Base Rate Option Advance at any
time, without paying any Prepayment Amount, as defined below. Borrower may
prepay a LIBOR Option Advance in increments of Five Hundred Dollars ($500.00)
prior to the end of the LIBOR Period, as long as (i) Bank is provided written
notice of such prepayment at least five (5) LIBOR Business Days prior to the
date thereof (the "Prepayment Date"); and (ii) Borrower pays the Prepayment
Amount. The
3
notice of prepayment shall contain the following information: (a) the
Prepayment Date; and (b) the LIBOR Option Advance which will be prepaid. On
the Prepayment Date, Borrower shall pay to Bank, in addition to any other
amount that may then be due on the Note, the Prepayment Amount. Bank, in its
sole discretion, may accept any prepayment of a LIBOR Option Advance even if
not required to do so under the Note and may deduct from the amount to be
applied against the LIBOR Option Advance any other amounts required to be
paid as part of the Prepayment Amount.
The Prepaid Principal Amount (as defined below) will be applied to the
LIBOR Option Advance being prepaid as Bank shall determine in its sole
discretion.
If Bank exercises its right to accelerate the payment of the Note prior to
maturity based upon an Event of Default under the Note, Borrower shall pay to
Bank, in addition to any other amounts that may then be due on the Note, on the
date specified by Bank as the Prepayment Date, the Prepayment Amount.
Bank's determination of the Prepayment Amount shall be conclusive in the
absence of obvious error or fraud. If requested in writing by Borrower, Bank
shall provide Borrower a written statement specifying the Prepayment Amount.
The following (the "Prepayment Amount") shall be due and payable in full on
the Prepayment Date:
a. If the principal amount of the LIBOR Option Advance being prepaid
exceeds Seven Hundred Fifty Thousand Dollars ($750,000), then the
Prepayment Amount is the sum of: (i) the amount of the principal
balance of the LIBOR Option Advance which Borrower has elected to
prepay or the amount of the principal balance of the LIBOR Option
Advance which Bank has required Borrower to prepay because of
acceleration, as the case may be (the "Prepaid Principal
Amount"); (ii) interest accruing on the Prepaid Principal Amount
up to, but not including, the Prepayment Date; (iii) Five Hundred
Dollars ($500.00); plus (iv) the present value, discounted at the
Reinvestment Rates (as defined below) of the positive amount by
which (A) the interest Bank would have earned had the Prepaid
Principal Amount not been paid prior to the end of the LIBOR
Period at the Note's interest rate exceeds (B) the interest Bank
would earn by reinvesting the Prepaid Principal Amount at the
Reinvestment Rates.
b. If the principal amount of the LIBOR Option Advance being prepaid
is Seven Hundred Fifty Thousand Dollars ($750,000) or less, then
the Prepayment Amount is the sum of: (i) the principal amount of
the LIBOR Option Advance which Borrower has elected to prepay or
the principal amount of the LIBOR Option Advance which Bank has
required Borrower to prepay because of acceleration due to an
Event of Default under the Note, as the case may be (the "Prepaid
Principal Amount"); (ii) interest
4
accruing on the Prepaid Principal Amount up to, but not
including, the Prepayment Date; plus (iii) an amount equal to
two percent (2%) of the Prepaid Principal Amount.
"Reinvestment Rates" means the per annum rates of interest equal to one
half percent (1/2%) above the rates of interest reasonably determined by Bank to
be in effect not more than seven (7) days prior to the Prepayment Date in the
secondary market for United States Treasury Obligations in amount(s) and with
maturity(ies) which correspond (as closely as possible) to the LIBOR Option
Advance being prepaid.
BY INITIALING BELOW, BORROWER ACKNOWLEDGE(S) AND AGREE(S) THAT: (A) THERE
IS NO RIGHT TO PREPAY ANY LIBOR OPTION ADVANCE, IN WHOLE OR IN PART, WITHOUT
PAYING THE PREPAYMENT AMOUNT, EXCEPT AS OTHERWISE REQUIRED UNDER APPLICABLE LAW;
(B) BORROWER SHALL BE LIABLE FOR PAYMENT OF THE PREPAYMENT AMOUNT IF BANK
EXERCISES ITS RIGHT TO ACCELERATE PAYMENT OF ANY LIBOR OPTION ADVANCE AS PART OR
ALL OF THE OBLIGATIONS OWING UNDER THE NOTE, INCLUDING, WITHOUT LIMITATION,
ACCELERATION UNDER A DUE-ON-SALE PROVISION; (C) BORROWER WAIVES ANY RIGHTS UNDER
SUCCESSOR STATUTE; AND (D) BANK HAS MADE EACH LIBOR OPTION ADVANCE PURSUANT TO
THE NOTE IN RELIANCE ON THESE AGREEMENTS.
/s/ PJD
-------------------
BORROWER'S INITIALS
9. HOLD HARMLESS AND INDEMNIFICATION. Borrower agrees to indemnify
Bank and to hold Bank harmless from, and to reimburse Bank on demand for, all
losses and expenses which Bank sustains or incurs as a result of (i) any payment
of a LIBOR Option Advance prior to the last day of the applicable LIBOR Period
for any reason, including, without limitation, termination of the Note, whether
pursuant to this Addendum or the occurrence of an Event of Default; (ii) any
termination of a LIBOR Period prior to the date it would otherwise end in
accordance with this Addendum; or (iii) any failure by Borrower, for any reason,
to borrow any portion of a LIBOR Option Advance.
10. FUNDING LOSSES. The indemnification and hold harmless provisions
set forth in this Addendum shall include, without limitation, all losses and
expenses arising from interest and fees that Bank pays to lenders of funds it
obtains in order to fund the loans to Borrower on the basis of the LIBOR
Option(s) and all losses incurred in liquidating or re-deploying deposits from
which such funds were obtained and loss of profit for the period after
termination. A written statement by Bank to Borrower of such losses and
expenses shall be conclusive and binding, absent manifest error, for all
purposes. This obligation shall survive the termination of this Addendum and
the payment of the Note.
5
11. REGULATORY DEVELOPMENTS OR OTHER CIRCUMSTANCES RELATING TO
ILLEGALITY OR IMPRACTICALITY OF LIBOR. If any Regulatory Development or other
circumstances relating to the interbank Euro-dollar markets shall, at any time,
in Bank's reasonable determination, make it unlawful or impractical for Bank to
fund or maintain, during any LIBOR Period, to determine or charge interest rates
based upon LIBOR, Bank shall give notice of such circumstances to Borrower and:
(i) In the case of a LIBOR Period in progress, Borrower shall, if
requested by Bank, promptly pay any interest which had accrued prior
to such request and the date of such request shall be deemed to be the
last day of the term of the LIBOR Period; and
(ii) No LIBOR Period may be designated thereafter until Bank determines
that such would be practical.
12. ADDITIONAL COSTS. Borrower shall pay to Bank from time to time,
upon Bank's request, such amounts as Bank determines are needed to compensate
Bank for any costs it incurred which are attributable to Bank having made or
maintained a LIBOR Option Advance or to Bank's obligation to make a LIBOR Option
Advance, or any reduction in any amount receivable by Bank hereunder with
respect to any LIBOR Option or such obligation (such increases in costs and
reductions in amounts receivable being herein called "ADDITIONAL COSTS"),
resulting from any Regulatory Developments, which (i) change the basis of
taxation of any amounts payable to Bank hereunder with respect to any LIBOR
Option Advance (other than taxes imposed on the overall net income of Bank for
any LIBOR Option Advance by the jurisdiction where Bank is headquartered or the
jurisdiction where Bank extends the LIBOR Option Advance; (ii) impose or modify
any reserve, special deposit, or similar requirements relating to any extensions
of credit or other assets of, or any deposits with or other liabilities of, Bank
(including any LIBOR Option Advance or any deposits referred to in the
definition of LIBOR); or (iii) impose any other condition affecting this
Addendum (or any of such extension of credit or liabilities). Bank shall notify
Borrower of any event occurring after the date hereof which entitles Bank to
compensation pursuant to this paragraph as promptly as practicable after it
obtains knowledge thereof and determines to request such compensation.
Determinations by Bank for purposes of this paragraph, shall be conclusive,
provided that such determinations are made on a reasonable basis.
13. LEGAL EFFECT. Except as specifically modified hereby, all of the
terms and conditions of the Note remain in full force and effect.
6
IN WITNESS WHEREOF, the parties have agreed to the foregoing as of the date
first set forth above.
XXXX GROUP, INC. COMERICA BANK-CALIFORNIA
By: /s/ Xxxxxxx X. Dirk By: /s/ Xxxxxxx X'Xxxxx
----------------------------- -------------------------------------
Xxxxxxx X'Xxxxx
Title: CEO Title: Vice President
-------------------------- ----------------------------------
By:
-----------------------------
Title:
--------------------------
XXXX SYSTEMS INTERNATIONAL, INC.
By: /s/ Xxxxxxx X. Dirk
-----------------------------
Title: CEO
--------------------------
By:
-----------------------------
Title:
--------------------------
XXXX XCD, INC.
By: /s/ Xxxxxxx X. Dirk
-----------------------------
Title: CEO
--------------------------
By:
-----------------------------
Title:
--------------------------
7
ADDENDUM "B"
TO LOAN AND SECURITY AGREEMENT
Attached to that certain Loan and Security
Agreement dated October 20, 1998 by and between
Xxxx Group, Inc., Xxxx Systems International,
Inc., Xxxx XCD, Inc. and Comerica Bank-California
and made a part thereof.
CONTROLS:
1) Annual 10-K within 15 days of filing (after Initial Public Offering);
2) Quarterly 10-Q within 15 days of filing (after Initial Public Offering);
3) Quarterly Covenant Compliance Certificate within 45 days of either 10-Q
filing or quarter end;
4) Annual personal financial statement within 120 days of calendar year end
and individual tax return with all schedules and K1s included, within 30
days of filing for Xxxxxxx Xxxx;
5) Accounts Receivable and Inventory audits post-closing within 30 days;
6) Semi-annual Accounts Receivable and Inventory audits satisfactory to the
Bank;
7) Satisfactory post-closing litigation check in California and West Virginia
within 30 days; and,
8) other information as may be requested by the Bank from time to time.
OTHER COVENANTS:
1) Post-acquisition balance sheet and Covenant Compliance Certificate within
30 days of closing; and,
2) All out-of-pocket expenses incurred by Bank will be reimbursed by Xxxx
Group, Inc. to Bank, including but not limited to Bank audits and legal
fees, if any.
COVENANT VIOLATION:
1) In the event of a covenant violation, Bank may charge a default fee of
$1,000.00 per covenant per occurrence. In the event that Borrower shall
fail to timely deliver any financial statements, Accounts Receivable or
Accounts Payable agings, Covenant Compliance and Borrowing Base
Certificates, Borrower may pay an Administrative Fee of $100.00 per late
item per occurrence.
DEFINITIONS:
1) Effective Tangible Net Worth is defined as Net Worth, minus Intangible
Assets and Notes Receivable from shareholders/affiliates, plus Subordinated
Debt.
2) Cash Flow Coverage is defined at Net Income after Tax/Distributions, plus
Non-cash Depreciation and Amortization, divided by current maturities of
long term debt and current maturities of capital leases.
