EXHIBIT 10.5
(THE NETWORK OF PREFERRED COMMUNITY BANKS(SM) LOGO)
Loan No. 37512-37654
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT (this "Agreement") entered into as of
MAY 2, 2005, between ADVANCED PHOTONIX, INC., A DELAWARE CORPORATION, with its
chief executive office located at 0000 XXXXXXX XXXXX, XXXXXXXXX, XXXXXXXXXX
00000 (the "Borrower") and Pacific Capital Bank, N.A., a national banking
association, doing business as Santa Xxxxxxx Bank & Trust, with an address of
c/o Loan Services, XX Xxx 00000, Xxxxx Xxxxxxx, Xxxxxxxxxx 00000-0000 (the
"Bank").
FOR VALUE RECEIVED, and in consideration of the granting by the Bank of
financial accommodations to or for the benefit of the Borrower, including
without limitation respecting the Obligations (as hereinafter defined), the
Borrower represents and agrees with the Bank, as of the date hereof and as of
the date of each loan, credit and/or other financial accommodation, as follows:
1. THE LOAN
1.1 Loan. Subject to the terms and conditions of this Agreement, the Bank hereby
agrees to make a loan to the Borrower, Silicon Sensors, Inc., Michigan
Acquisition Sub, LLC, Texas Optoelectronics, Inc., Silicon Detector Corporation
and Photonic Detectors, Inc. in the original principal amount of $2,700,000.00
(the "Loan"). The Loan shall be evidenced by that certain Term Note, of even
date herewith (the "Note") by Borrower, Silicon Sensors, Inc., Michigan
Acquisition Sub, LLC, Texas Optoelectronics, Inc., Silicon Detector Corporation
and Photonic Detectors, Inc. in favor of the Bank in the original principal
amount of $2,700,000.00. This Agreement, the Note, and any and all other
documents, amendments or renewals executed and delivered in connection with any
of the foregoing are collectively hereinafter referred to as the "Loan
Documents".
2. GRANT OF SECURITY INTEREST
2.1 Grant of Security Interest. In consideration of the Bank's extending credit
and other financial accommodations to or for the benefit of the Borrower, the
Borrower hereby grants to the Bank a security interest in, a lien on and pledge
and assignment of the Collateral (as hereinafter defined). The security interest
granted by this Agreement is given to and shall be held by the Bank as security
for the payment and performance of all Obligations, including, without
limitation, all amounts outstanding pursuant to the Loan Documents.
2.2 Definitions. The following definitions shall apply:
(a) "Code" shall mean the Uniform Commercial Code of California as
amended from time to time.
(b) "Collateral" shall mean all Borrower's present and future
right, title and interest in and to any and all of the
personal property of Borrower whether such property is now
existing or hereafter created, acquired or arising and
wherever located from time to time, including without
limitation:
(i) accounts;
(ii) chattel paper;
(iii) goods;
(iv) inventory;
(v) equipment;
(vi) farm products;
(vii) instruments;
(viii) investment property;
(ix) documents;
(x) commercial tort claims;
(xi) deposit accounts;
(xii) letter-of-credit rights;
(xiii) general intangibles;
(xiv) supporting obligations;
(xv) proceeds and products of the foregoing.
(c) "Debtors" shall mean the Borrower's customers who are indebted
to the Borrower.
(d) "Obligation(s)" shall mean, without limitation, all loans,
advances, indebtedness, notes, liabilities, rate swap
transactions, basis swaps, forward rate transactions,
commodity swaps, commodity options, equity or equity index
swaps, equity or equity index options, bond options, interest
rate options, foreign exchange transactions, cap transactions,
floor transactions, collar transactions, forward transactions,
currency swap transactions, cross-currency rate swap
transactions, currency options and amounts, liquidated or
unliquidated, owing by the Borrower to the Bank at any time,
of each and every kind, nature and description, whether
arising under this Agreement or otherwise, and whether secured
or unsecured, direct or indirect (that is, whether the same
are due directly by the Borrower to the Bank; or are due
indirectly by the Borrower to the Bank as endorser, guarantor
or other surety, or as borrower of obligations due third
persons which have been endorsed or assigned to the Bank, or
otherwise), absolute or contingent, due or to become due, now
existing or hereafter arising or contracted, including,
without limitation, payment when due of all amounts
outstanding respecting any of the Loan Documents. Said term
shall also include all interest and other charges chargeable
to the Borrower or due from the Borrower to the Bank from time
to time and all costs and expenses referred to in this
Agreement.
(e) "Person" or "party" shall mean individuals, partnerships,
corporations, limited liability companies and all other
entities.
All words and terms used in this Agreement other than those
specifically defined herein shall have the meanings accorded to them in the
Code.
2.3 Ordinary Course of Business. The Bank hereby authorizes and permits the
Borrower to hold, process, sell, use or consume in the manufacture or processing
of finished goods, or otherwise dispose of
2
inventory for fair consideration, all in the ordinary course of the Borrower's
business, excluding, without limitation, sales to creditors or in bulk or sales
or other dispositions occurring under circumstances which would or could create
any lien or interest adverse to the Bank's security interest or other right
hereunder in the proceeds resulting therefrom. The Bank also hereby authorizes
and permits the Borrower to receive from the Debtors all amounts due as proceeds
of the Collateral at the Borrower's own cost and expense, and also liability, if
any, subject to the direction and control of the Bank at all times; and the Bank
may at any time, without cause or notice, and whether or not a default has
occurred or demand has been made, terminate all or any part of the authority and
permission herein or elsewhere in this Agreement granted to the Borrower with
reference to the Collateral, and notify Debtors to make all payments due as
proceeds of the Collateral to the Bank. Until Bank shall otherwise notify
Borrower, all proceeds of and collections of Collateral shall be retained by
Borrower and used solely for the ordinary and usual operation of Borrower's
business. From and after notice by Bank to Borrower, all proceeds of and
collections of the Collateral shall be held in trust by Borrower for Bank and
shall not be commingled with Borrower's other funds or deposited in any bank
account of Borrower; and Borrower agrees to deliver to Bank on the dates of
receipt thereof by Borrower, duly endorsed to Bank or to bearer, or assigned to
Bank, as may be appropriate, all proceeds of the Collateral in the identical
form received by Borrower.
2.4 Allowances. The Borrower may grant such allowances or other adjustments to
Debtors (exclusive of extending the time for payment of any item which shall not
be done without first obtaining the Bank's written consent in each instance) as
the Borrower may reasonably deem to accord with sound business practice,
including, without limiting the generality of the foregoing, accepting the
return of all or any part of the inventory (subject to the provisions set forth
in this Agreement with reference to returned inventory).
2.5 Records. The Borrower shall hold its books and records relating to the
Collateral segregated from all the Borrower's other books and records in a
manner satisfactory to the Bank; and shall deliver to the Bank from time to time
promptly at its request all invoices, original documents of title, contracts,
chattel paper, instruments and any other writings relating thereto, and other
evidence of performance of contracts, or evidence of shipment or delivery of the
merchandise or of the rendering of services; and the Borrower will deliver to
the Bank promptly at the Bank's request from time to time additional copies of
any or all of such papers or writings, and such other information with respect
to any of the Collateral and such schedules of inventory, schedules of accounts
and such other writings as the Bank may in its reasonable sole discretion deem
to be necessary or effectual to evidence any loan hereunder or the Bank's
security interest in the Collateral.
2.6 Legends. The Borrower shall promptly make, stamp or record such entries or
legends on the Borrower's books and records or on any of the Collateral
(including, without limitation, chattel paper) as Bank shall request from time
to time, to indicate and disclose that Bank has a security interest in such
Collateral.
2.7 Inspection. The Bank, or its representatives, at any time and from time to
time, shall have the right at the sole cost and expense of Borrower, and the
Borrower will permit the Bank and/or its representatives: (a) to examine, check,
make copies of or extracts from any of the Borrower's books, records and files
(including, without limitation, orders and original correspondence); (b) to
perform field exams or otherwise inspect and examine the Collateral and to
check, test or appraise the same as to quality, quantity, value and condition;
and (c) to verify the Collateral or any portion or portions thereof or the
Borrower's compliance with the provisions of this Agreement.
2.8 Purchase Money Security Interests. To the extent Borrower uses proceeds of
any loans to purchase Collateral, the repayment of such loans shall be on a
"first-in-first-out" basis so that the portion of the loan used to purchase a
particular item of Collateral shall be repaid in the order in which Borrower
purchased such item of Collateral.
2.9 Search Reports. Bank shall receive prior to the date of this Agreement UCC
search results under all names used by the Borrower during the prior five (5)
years, from each jurisdiction where any
3
Collateral is located, from the State, if any, where Borrower is organized and
registered (as such terms are used in the Code), and the State where Borrower's
chief executive office is located. The search results shall confirm that the
security interest in the Collateral granted Bank hereunder is prior to all other
security interests in favor of any other Person.
3. REPRESENTATIONS AND WARRANTIES
3.1 Organization and Qualification. Borrower is a duly organized and validly
existing corporation under the laws of the State of its incorporation with the
exact legal name set forth in the first paragraph of this Agreement. Borrower is
in good standing under the laws of said State, has the power to own its property
and conduct its business as now conducted and as currently proposed to be
conducted, and is duly qualified to do business under the laws of each state
where the nature of the business done or property owned requires such
qualification.
3.2 Subsidiaries. Borrower has no subsidiaries other than disclosed in Schedule
A attached hereto, if any, and the Borrower has never consolidated, merged or
acquired substantially all of the assets of any other entity or person other
than as disclosed in Schedule A attached hereto, if any.
3.3 Corporate Records. Borrower's corporate charter, articles of organization or
incorporation and all amendments thereto have been duly filed and are in proper
order. All outstanding capital stock issued by the Borrower was and is properly
issued and all books and records of the Borrower, including but not limited to
its minute books, bylaws and books of account, are accurate and up to date and
will be so maintained.
3.4 Title to Properties; Absence of Liens. Borrower has good and clear record
and marketable title to all of its properties and assets, and all of its
properties and assets including the Collateral are free and clear of all
mortgages, liens, pledges, charges, encumbrances and setoffs, other than the
security interest therein granted to the Bank hereby and those mortgages, deeds
of trust, leases of personal property and security interests disclosed in
Schedule B attached hereto.
3.5 Places of Business. Borrower's chief executive office is correctly stated in
the preamble to this Agreement, and Borrower shall, during the term of this
Agreement, keep the Bank currently and accurately informed in writing of each of
its other places of business, and shall not change the location of such chief
executive office or open or close, move or change any existing or new place of
business without giving the Bank at least thirty (30) days prior written notice
thereof.
3.6 Valid Obligations. The execution, delivery and performance of the Loan
Documents have been duly authorized by all necessary corporate action and each
represents a legal, valid and binding obligation of Borrower and is fully
enforceable according to its terms, except as limited by laws relating to the
enforcement of creditors' rights.
3.7 Conflicts. There is no provision in Borrower's organizational or charter
documents, if any, or in any indenture, contract or agreement to which Borrower
is a party which prohibits, limits or restricts the execution, delivery or
performance of the Loan Documents.
3.8 Governmental Approvals. The execution, delivery and performance of the Loan
Documents does not require any approval of or filing with any governmental
agency or authority.
3.9 Litigation. There are no actions, suits or proceedings pending or to the
knowledge of Borrower threatened against Borrower which might materially
adversely affect the ability of Borrower to conduct its business or to pay or
perform the Obligations.
3.10 Accounts and Contract Rights. All accounts arise out of legally enforceable
and existing contracts, and represent unconditional and undisputed bona fide
indebtedness by a Debtor, and are not and will not be subject to any discount
(except such cash or trade discount as may be shown on any
4
invoice, contract or other writing delivered to the Bank). No contract right,
account, general intangible or chattel paper is or will be represented by any
note or other instrument, and no contract right, account or general intangible
is, or will be represented by any conditional or installment sales obligation or
other chattel paper, except such instruments or chattel paper as have been or
immediately upon receipt by the Borrower will be delivered to the Bank (duly
endorsed or assigned), such delivery, in the case of chattel paper, to include
all executed copies except those in the possession of the installment buyer and
any security for or guaranty of any of the Collateral shall be delivered to the
Bank immediately upon receipt thereof by the Borrower, with such assignments and
endorsements thereof as the Bank may request.
3.11 Title to Collateral. At the date hereof the Borrower is (and as to
Collateral that the Borrower may acquire after the date hereof, will be) the
lawful owner of the Collateral, and the Collateral and each item thereof is,
will be and shall continue to be free of all restrictions, liens, encumbrances
or other rights, title or interests (other than the security interest therein
granted to the Bank hereby), credits, defenses, recoupments, set-offs or
counterclaims whatsoever. The Borrower has and will have full power and
authority to grant to the Bank a security interest in the Collateral and the
Borrower has not transferred, assigned, sold, pledged, encumbered, subjected to
lien or granted any security interest in, and will not transfer, assign, sell
(except sales or other dispositions in the ordinary course of business in
respect to inventory as expressly permitted in this Agreement), pledge,
encumber, subject to lien or grant any security interest in any of the
Collateral (or any of the Borrower's right, title or interest therein), to any
person other than the Bank. The Collateral is and will be valid and genuine in
all respects. All accounts arise out of legally enforceable and existing
contracts in accordance with their tenor, and upon the Borrower's acquisition of
any interest in accounts, it shall in writing immediately notify the Bank
thereof, specifically identifying the same as accounts, and, except for such
accounts, no part of the Collateral (or the validity or enforceability by the
Bank thereof) is or shall be contingent upon the fulfillment of any agreement or
condition whatsoever and the Collateral, other than inventory and equipment,
shall represent unconditional and undisputed bona fide indebtedness by the
Debtor, and is not and will not be subject to any discount (except such cash or
trade discount as may be shown on any invoice, contract or other writing
delivered to the Bank). The Borrower will warrant and defend the Bank's right to
and interest in the Collateral against all claims and demands of all persons
whatsoever.
3.12 Location of Collateral. Except for sale, processing, use, consumption or
other disposition in the ordinary course of business, the Borrower will keep all
inventory and equipment only at locations specified in this Agreement or
specified to the Bank in writing. The Borrower shall, during the term of this
Agreement, keep the Bank currently and accurately informed in writing of each
location where the Borrower's records relating to its accounts and contract
rights, respectively, are kept, and shall not remove such records or any of them
to another state without giving the Bank at least thirty (30) days prior written
notice thereof.
3.13 Third Parties. The Bank shall not be deemed to have assumed any liability
or responsibility to the Borrower or any third person for the correctness,
validity or genuineness of any instruments or documents that may be released or
endorsed to the Borrower by the Bank (which shall automatically be deemed to be
without recourse to the Bank in any event) or for the existence, character,
quantity, quality, condition, value or delivery of any goods purporting to be
represented by any such documents; and the Bank, by accepting such security
interest in the Collateral, or by releasing any Collateral to the Borrower,
shall not be deemed to have assumed any obligation or liability to any supplier
or Debtor or to any other third party, and the Borrower agrees to indemnify and
defend the Bank and hold it harmless in respect to any claim or proceeding
arising out of any matter referred to in this paragraph.
3.14 Payment of Accounts. Each account or other item of Collateral, other than
inventory and equipment, will be paid in full on or before the date shown as its
due date in the schedule of Collateral, in the copy of the invoice(s) relating
to the account or other Collateral or in contracts relating thereto. Upon any
suspension of business, assignment or trust mortgage for the benefit of
creditors, dissolution, petition in receivership or under any chapter of the
Bankruptcy Code as amended from time to time by or against any Debtor, any
Debtor becoming insolvent or unable to pay its debts as they mature or any other
act of the same or different nature amounting to a business failure, the
Borrower will forthwith notify the Bank thereof.
5
3.15 Notification of Damage. The Borrower will immediately notify the Bank of
any loss or damage to, or material diminution in or any occurrence that would
adversely affect the value of inventory, equipment or other Collateral.
3.16 Taxes. Borrower has filed all Federal, state and other tax returns required
to be filed (except for such returns for which current and valid extensions have
been filed), and all taxes, assessments and other governmental charges due from
the Borrower have been fully paid. The Borrower has established on its books
reserves adequate for the payment of all Federal, state and other tax
liabilities (if any).
3.17 Use of Proceeds. No portion of any loan is to be used for (i) the purpose
of purchasing or carrying any "margin security" or "margin stock" as such terms
are used in Regulations U and X of the Board of Governors of the Federal Reserve
System, 12 C.F.R. 221 and 224 or (ii) primarily personal, family or household
purposes. The Collateral is not used or acquired primarily for personal, family
or household purposes.
3.18 Environmental. As of the date hereof neither the Borrower nor any of
Borrower's agents, employees or independent contractors (1) have caused or are
aware of a release or threat of release of Hazardous Materials (as defined
herein) on any of the premises or personal property owned or controlled by
Borrower, or any abutting property, which could give rise to liability under any
Environmental Law (as defined herein) or any other Federal, state or local law,
rule or regulation; (2) have arranged for the transport of or transported any
Hazardous Materials in a manner as to violate, or result in potential
liabilities under, any Environmental Law; (3) have received any notice, order or
demand from the Environmental Protection Agency or any other Federal, state or
local agency under any Environmental Law; (4) have incurred any liability under
any Environmental Law in connection with the mismanagement, improper disposal or
release of Hazardous Materials; or (5) are aware of any inspection or
investigation of any of the premises or personal property owned or controlled by
Borrower or abutting property by any Federal, state or local agency for possible
violations of any Environmental Law.
To the best of Borrower's knowledge, no prior owner or tenant of any
premises or property presently controlled or owned by Borrower committed or
omitted any act which caused the release of Hazardous Materials on such premises
or property which could give rise to a lien thereon by any Federal, state or
local government. No notice or statement of claim or lien affecting any property
or premises owned or controlled by Borrower has been recorded or filed in any
public records by any Federal, state or local government for costs, penalties,
fines or other charges as to such property.
Borrower agrees to indemnify and hold Bank harmless from all liability,
loss, cost, damage and expense, including attorney fees and costs of litigation,
arising from any and all of its violations of any Environmental Law (including
those arising from any lien by any Federal, state or local government arising
from the presence of Hazardous Materials) or from the presence of Hazardous
Materials located on or emanating from any of the premises owned or controlled
by the Borrower. Borrower further agrees to reimburse Bank upon demand for any
costs incurred by Bank in connection with the foregoing. Borrower agrees that
its obligations hereunder shall be continuous and shall survive the repayment of
all debts to Bank.
The term "Hazardous Materials" includes but is not limited to any and
all substances (whether solid, liquid or gas) defined, listed, or otherwise
classified as pollutants, hazardous wastes, hazardous substances, hazardous
materials, extremely hazardous wastes, or words of similar meaning or regulatory
effect under any present or future Environmental Law or that may have a negative
impact on human health or the environment, including but not limited to
petroleum and petroleum products, asbestos and asbestos-containing materials,
polychlorinated biphenyls, lead, radon, radioactive materials, flammables and
explosives.
The term "Environmental Law" means any present and future Federal,
state and local laws, statutes, ordinances, rules, regulations and the like, as
well as common law, relating to protection of human health or the environment,
relating to Hazardous Materials, relating to liability for or costs of
remediation or prevention
6
of releases of Hazardous Materials or relating to liability for or costs of
other actual or threatened danger to human health or the environment. The term
"Environmental Law" includes, but is not limited to, the following statutes, as
amended, any successor thereto, and any regulations promulgated pursuant
thereto, and any state or local statutes, ordinances, rules, regulations and the
like addressing similar issues: the Comprehensive Environmental Response,
Compensation and Liability Act; the Emergency Planning and Community
Right-to-Know Act; the Hazardous Materials Transportation Act; the Resource
Conservation and Recovery Act (including but not limited to Subtitle I relating
to underground storage tanks); the Solid Waste Disposal Act; the Clean Water
Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking
Water Act; the Occupational Safety and Health Act; the Federal Water Pollution
Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the
Endangered Species Act; the National Environmental Policy Act; and the River and
Harbors Appropriation Act.
4. AFFIRMATIVE COVENANTS
4.1 Payments and Performance. Borrower will duly and punctually pay all
Obligations becoming due to the Bank and will duly and punctually perform all
Obligations on its part to be done or performed under this Agreement.
4.2 Books and Records; Inspection. Borrower will at all times keep proper books
of account in which full, true and correct entries will be made of its
transactions in accordance with generally accepted accounting principles,
consistently applied and which are, in the opinion of a Certified Public
Accountant acceptable to Bank, adequate to determine fairly the financial
condition and the results of operations of Borrower. Borrower will at all
reasonable times make its books and records available in its offices for
inspection, examination and duplication by the Bank and the Bank's
representatives and will permit inspection of the Collateral and all of its
properties by the Bank and the Bank's representatives. Borrower will from time
to time furnish the Bank with such information and statements as the Bank may
request in its sole discretion with respect to the Obligations or the Bank's
security interest in the Collateral. Borrower shall, during the term of this
Agreement, keep the Bank currently and accurately informed in writing of each
location where the Borrower's records relating to its accounts and contract
rights are kept, and shall not remove such records to another state without
giving the Bank at least thirty (30) days prior written notice thereof.
4.3 Financial Statements. Borrower will furnish to Bank:
(a) as soon as available to Borrower, but in any event within 45
days after the close of each quarterly period of its fiscal
year, a full and complete signed copy of financial statements,
on a consolidated basis with such other entities designated by
the Bank, which shall include a balance sheet of the Borrower,
as at the end of such quarter, and statement of profit and
loss of the Borrower reflecting the results of its operations
during such quarter, and prepared on a reviewed basis in
accordance with generally accepted accounting principles,
consistently applied, subject to year-end adjustments;
(b) as soon as available to Borrower, but in any event within 90
days after the close of each fiscal year, a full and complete
signed copy of financial statements, on a consolidated basis
with such other entities designated by the Bank, which shall
include a balance sheet of the Borrower, as at the end of such
year, and statement of profit and loss of the Borrower
reflecting the results of its operations during such year,
bearing the opinion of such certified public accountants and
prepared on an audited basis in accordance with generally
accepted accounting principles, consistently applied together
with any so-called management letter;
(c) from time to time, such financial data and information about
Borrower as Bank may reasonably request; and
4.4 Conduct of Business. The Borrower will maintain its existence in good
standing and comply with all laws and regulations of the United States and of
any state or states thereof and of any political
7
subdivision thereof, and of any governmental authority which may be applicable
to it or to its business; provided that this covenant shall not apply to any
tax, assessment or charge which is being contested in good faith and with
respect to which reserves have been established and are being maintained.
4.5 Notice to Account Debtors. The Borrower agrees, at the request of the Bank,
to notify all or any of the Debtors in writing of the Bank's security interest
in the Collateral in whatever manner the Bank requests and, hereby authorizes
the Bank to notify all or any of the Debtors of the Bank's security interest in
the Borrower's accounts at the Borrower's expense.
4.6 Operating and Deposit Accounts. The Borrower shall maintain with the Bank
its primary operating and deposit accounts. At the option of the Bank, all loan
payments and fees will automatically be debited from the Borrower's primary
operating account and all advances will automatically be credited to the
Borrower's primary operating account.
4.7 Taxes. Borrower will promptly pay all real and personal property taxes,
assessments and charges and all franchise, income, unemployment, old age
benefits, withholding, sales and other taxes assessed against it or payable by
it before delinquent; provided that this covenant shall not apply to any tax
assessment or charge which is being contested in good faith and with respect to
which reserves have been established and are being maintained. The Bank may, at
its option, from time to time, discharge any taxes, liens or encumbrances of any
of the Collateral, and the Borrower will pay to the Bank on demand or the Bank
in its sole discretion may charge to the Borrower all amounts so paid or
incurred by it.
4.8 Maintenance. Borrower will keep and maintain the Collateral and its other
properties, if any, in good repair, working order and condition. The Borrower
will immediately notify the Bank of any loss or damage to or any occurrence
which would adversely affect the value of any Collateral. The Bank may, at its
option, from time to time, take any other action that the Bank may deem proper
to repair, maintain or preserve any of the Collateral, and the Borrower will pay
to the Bank on demand or the Bank in its sole discretion may charge to the
Borrower all amounts so paid or incurred by it.
4.9 Insurance. Borrower will maintain in force property and casualty insurance
on all Collateral and any other property of the Borrower, if any, against risks
customarily insured against by companies engaged in businesses similar to that
of the Borrower containing such terms and written by such companies as may be
satisfactory to the Bank, such insurance to be payable to the Bank as its
interest may appear in the event of loss and to name the Bank as insured
pursuant to a standard loss payee clause; no loss shall be adjusted thereunder
without the Bank's approval; and all such policies shall provide that they may
not be canceled without first giving at least thirty (30) days written notice of
cancellation to the Bank. In the event that the Borrower fails to provide
evidence of such insurance, the Bank may, at its option, secure such insurance
and charge the cost thereof to the Borrower. At the option of the Bank, all
insurance proceeds received from any loss or damage to any of the Collateral
shall be applied either to the replacement or repair thereof or as a payment on
account of the Obligations. From and after the occurrence of an Event of
Default, the Bank is authorized to cancel any insurance maintained hereunder and
apply any returned or unearned premiums, all of which are hereby assigned to the
Bank, as a payment on account of the Obligations.
4.10 Notification of Default. Upon becoming aware of the existence of any
condition or event which constitutes an Event of Default, or any condition or
event which would upon notice or lapse of time, or both, constitute an Event of
Default, Borrower shall promptly give Bank written notice thereof specifying the
nature and duration thereof and the action being or proposed to be taken with
respect thereto.
4.11 Notification of Material Litigation. Borrower will promptly notify the Bank
in writing of any litigation or of any investigative proceedings of a
governmental agency or authority commenced or threatened against it which would
or might be materially adverse to the financial condition of Borrower or any
guarantor of the Obligations.
8
4.12 Pension Plans. With respect to any pension or benefit plan maintained by
Borrower, or to which Borrower contributes ("Plan"), the benefits under which
are guarantied, in whole or in part, by the Pension Benefit Guaranty Corporation
created by the Employee Retirement Income Security Act of 1974, P.L. 93-406, as
amended ("ERISA") or any governmental authority succeeding to any or all of the
functions of the Pension Benefit Guaranty Corporation ("Pension Benefit Guaranty
Corporation"), Borrower will (a) fund each Plan as required by the provisions of
Section 412 of the Internal Revenue Code of 1986, as amended; (b) cause each
Plan to pay all benefits when due; (c) furnish Bank (i) promptly with a copy of
any notice of each Plan's termination sent to the Pension Benefit Guaranty
Corporation (ii) no later than the date of submission to the Department of Labor
or to the Internal Revenue Service, as the case may be, a copy of any request
for waiver from the funding standards or extension of the amortization periods
required by Section 412 of the Internal Revenue Code of 1986, as amended and
(iii) notice of any Reportable Event as such term is defined in ERISA; and (d)
subscribe to any contingent liability insurance provided by the Pension Benefit
Guaranty Corporation to protect against employer liability upon termination of a
guarantied pension plan, if available to Borrower.
5. NEGATIVE COVENANTS
5.1 Financial Covenants. The Borrower will not at any time or during any fiscal
period (as applicable) fail to be in compliance with any of the financial
covenants in this section.
(a) Definitions. The following definitions shall apply to this
Section:
(i) "Capital Expenditures" ("CAPEX") shall mean for any
period, all acquisitions of machinery, equipment, land,
leaseholds, buildings, improvements and all other expenditures
considered to be for fixed assets under GAAP, consistently
applied. Where an asset is acquired under a capital lease, the
amount required to be capitalized shall be considered a
capital expenditure during the first year of the lease.
(ii) "Combined Borrower(s)" shall mean Advanced Photonix,
Inc. and each of its subsidiaries.
(iii) "Current Maturity of Long-Term Debt" ("CMLTD") shall
mean, for any period, the current scheduled principal or
capital lease payments required to be paid during the
applicable period.
(iv) "Current Assets" shall mean current assets as defined
under GAAP.
(v) "Current Liabilities" shall mean current liabilities as
defined under GAAP.
(vi) "Distributions" shall mean all cash dividends to
shareholders, and all cash distributions to shareholders of
Subchapter S corporations, to partners of partnerships, to
members of limited liability companies or to beneficiaries of
trusts.
(vii) "Earnings" shall mean earnings as defined under GAAP.
(viii) "EBIT" shall mean, for any period, Earnings from
continuing operations before payment of interest expense,
federal, state and local income taxes, in each case for such
period, computed and calculated in accordance with GAAP.
(ix) "EBITDA" shall mean, for any period, Earnings from
continuing operations before payment of federal, state and
local income taxes, plus Interest Expense, depreciation and
amortization, in each case for such period, computed and
calculated in accordance with GAAP.
(x) "GAAP" shall mean generally accepted accounting principles
in effect from time to time in the United States.
9
(xi) "Indebtedness" shall mean (x) all indebtedness for
borrowed money or for the deferred purchase price of property
or services, and all obligations under leases which are or
should be, under GAAP, recorded as capital leases, in respect
of which a person is directly or contingently liable as
borrower, guarantor, endorser or otherwise, or in respect of
which a person otherwise assures a creditor against loss, (y)
all obligations for borrowed money or for the deferred
purchase price of property or services secured by (or for
which the holder has an existing right, contingent or
otherwise, to be secured by) any lien upon property (including
without limitation accounts receivable and contract rights)
owned by a person, whether or not such person has assumed or
become liable for the payment thereof, and (z) all other
liabilities and obligations which would be classified in
accordance with GAAP as liabilities on a balance sheet or to
which reference should be made in footnotes thereto.
(xii) "Intangible Assets" shall mean, as of the date of
determination thereof, assets that in accordance with GAAP are
properly classifiable as intangible assets, including, but not
limited to, goodwill, franchises, licenses, patents,
trademarks, trade names and copyrights.
(xiii) "Interest Expense" shall mean, for any period,
ordinary, regular, recurring and continuing expenditures for
interest on all borrowed money.
(xiv) "Subordinated Indebtedness" shall mean, as of the date
of determination thereof, all Indebtedness which has been
subordinated in writing to the obligations owing to the Bank
on terms and conditions acceptable to the Bank.
(xv) "Effective Tangible Net Worth" shall mean, as of the date
of determination thereof, Tangible Net Worth plus Subordinated
Indebtedness.
(xvi) "Tangible Net Worth" shall mean, as of the date of
determination thereof, total assets, excluding all Intangible
Assets, less total liabilities.
(xvii) "Unfinanced CAPEX" shall mean, for any period, Capital
Expenditures less new long-term Indebtedness issued during
such period to fund the Capital Expenditures.
(b) Current Ratio. The Combined Borrower's shall not permit the
ratio of its Current Assets to Current Liabilities to be less
than 1.25 to 1.00, tested quarterly.
(c) Debt to Effective Tangible Net Worth. The Combined Borrower's
shall not permit the ratio of its Indebtedness minus
Subordinated Indebtedness to Effective Tangible Net Worth to
be greater than 2.00 to 1.00, tested quarterly.
(d) Free Cash Flow. The Combined Borrower's shall not permit the
ratio of its EBITDA, minus taxes paid in cash, Distributions
and Unfinanced CAPEX, to Interest Expense plus CMLTD, to be
less than 1.25 to 1.00, for any fiscal quarter. Ratio analysis
will commence 9/30/05. For the period ending 9/30/05, 12/31/05
and 3/31/06 the calculation will include adding back to
earnings $500,000.00 of non-recurring expenses related to the
acquisition of Picotronix, Inc., dba Picometrix, Inc.
(e) EBIT to Interest Expense. The Combined Borrower's shall not
permit the ratio of its EBIT to Interest Expense to be less
than 2.00 to 1.00, for any fiscal quarter. Ratio analysis will
commence 9/30/05. For the period ending 9/30/05, 12/31/05 and
3/31/06 the calculation will include adding back to earnings
$500,000.00 of non-recurring expenses related to the
acquisition of Picotronix, Inc., dba Picometrix, Inc.
(f) No additional revolving or term debt without Bank's
concurrence.
10
(g) Balance on initial Note to Smithfield Fiduciary, LLC, Iroquois
Capital, LP, Bluegrass Growth Fund, LP, and Bluegrass Growth
Fund, Ltd, to be no greater than $5,000,000.00 in the
aggregate principal amount.
(h) No consecutive quarter losses.
(i) Intercreditor Agreement executed by Advanced Photonix, Inc.,
Silicon Sensors, Inc., Michigan Acquisition Sub, LLC, Texas
Optoelectronics, Inc., Silicon Detector Corporation, Photonic
Detectors Inc., and Smithfield Fiduciary, LLC to subordinate
$6,000,000.00 in Smithfield Fiduciary, LLC debt to Santa
Xxxxxxx Bank & Trust.
(j) Subsequent to closing, possibly within 24 hours, Michigan
Acquisition Sub, LLC will be replaced as Co-Borrower with
Picometrix, LLC.
(k) Prior to funding the loan, the merger of Picotronix, Inc., dba
Picometrix, Inc., into Michigan Acquisition Sub, LLC must be
completed.
5.2 Limitations on Indebtedness. Borrower shall not issue any evidence of
indebtedness or create, assume, guarantee, become contingently liable for, or
suffer to exist indebtedness in addition to indebtedness to the Bank, except
indebtedness or liabilities of Borrower, other than for money borrowed, incurred
or arising in the ordinary course of business.
5.3 Sale of Interest. There shall not be any sale or transfer of ownership of
any interest in the Borrower without the Bank's prior written consent unless
such transfer shall not result in change in control of Borrower.
5.4 Loans or Advances. Borrower shall not make any loans or advances to any
individual, firm or corporation, including without limitation its officers and
employees; provided, however, that Borrower may make advances to its employees,
including its officers, with respect to expenses incurred or to be incurred by
such employees in the ordinary course of business which expenses are
reimbursable by Borrower; and provided further, however, that Borrower may
extend credit in the ordinary course of business in accordance with customary
trade practices.
5.5 Dividends and Distributions. Borrower shall not, without prior written
consent of the Bank, pay any dividends on or make any distribution except to any
Combined Borrower on account of any class of Borrower's capital stock in cash or
in property (other than additional shares of such stock), or redeem, purchase or
otherwise acquire, directly or indirectly, any of such stock, except, so long as
Borrower is not in default hereunder.
5.6 Investments. The Borrower shall not make investments in, or advances to, any
individual, partnership, corporation, limited liability company, trust or other
organization or person, except for any Combined Borrower. The Borrower will not
purchase or otherwise invest in or hold securities, nonoperating real estate or
other nonoperating assets or purchase all or substantially all the assets of any
entity.
5.7 Merger. Borrower will not merge or consolidate or be merged or consolidated
with or into any other entity.
5.8 Capital Expenditures. The Borrower shall not, directly or indirectly, make
or commit to make capital expenditures by lease, purchase, or otherwise, except
in the ordinary and usual course of business for the purpose of replacing
machinery, equipment or other personal property which, as a consequence of wear,
duplication or obsolescence, is no longer used or necessary in the Borrower's
business.
11
5.9 Sale of Assets. Borrower shall not sell, lease or otherwise dispose of any
of its assets, except in the ordinary and usual course of business and except
for the purpose of replacing machinery, equipment or other personal property
which, as a consequence of wear, duplication or obsolescence, is no longer used
or necessary in the Borrower's business, provided that fair consideration is
received therefor; provided, however, in no event, except in the ordinary and
usual course of business, shall the Borrower sell, lease or otherwise dispose of
any equipment purchased with the proceeds of any loans made by the Bank.
5.10 Restriction on Liens. Borrower shall not grant any security interest in, or
mortgage of, any of its properties or assets including the Collateral. Borrower
shall not agree with any person other than the Bank to not grant any security
interest in, or mortgage of, any of its properties or assets including the
Collateral.
5.11 Other Business. Borrower shall not engage in any business other than the
business in which it is currently engaged or a business reasonably allied
thereto.
5.12 Change of Name. Borrower shall not change its legal name or the State of
its organization, without giving the Bank at least 30 days prior written notice
thereof.
6. DEFAULT
6.1 Default. "Event of Default" shall mean the occurrence of one or more of any
of the following events:
(a) default of any liability, obligation or undertaking of the
Borrower or any guarantor of the Obligations to the Bank,
hereunder or otherwise, including, without limitation, failure
to pay in full and when due any installment of principal or
interest or default of the Borrower or any guarantor of the
Obligations under any other Loan Document or any other
agreement with the Bank continuing for 10 days with respect to
the payment of money or continuing for 30 days with respect to
any other default;
(b) failure of the Borrower or any guarantor of the Obligations to
maintain aggregate collateral security value satisfactory to
the Bank continuing for 30 days;
(c) default of any material liability, obligation or undertaking
of the Borrower or any guarantor of the Obligations to any
other party continuing for 30 days;
(d) if any statement, representation or warranty heretofore, now
or hereafter made by the Borrower or any guarantor of the
Obligations in connection with this Agreement or in any
supporting financial statement of the Borrower or any
guarantor of the Obligations shall be determined by the Bank
to have been false in any material respect when made;
(e) if the Borrower or any guarantor of the Obligations is a
corporation, trust, partnership or limited liability company,
the liquidation, termination or dissolution of any such
organization, or the merger or consolidation of such
organization into another entity, or its ceasing to carry on
actively its present business or the appointment of a receiver
for its property;
(f) the institution by or against the Borrower or any guarantor of
the Obligations of any proceedings under the Bankruptcy Code
11 USC ss.101 et seq. or any other law in which the Borrower
or any guarantor of the Obligations is alleged to be insolvent
or unable to pay its debts as they mature, or the making by
the Borrower or any guarantor of the Obligations of an
assignment for the benefit of creditors or the granting by the
Borrower or any guarantor of the Obligations of a trust
mortgage for the benefit of creditors;
12
(g) the service upon the Bank of a writ in which the Bank is named
as trustee of the Borrower or any guarantor of the
Obligations;
(h) a judgement or judgements for the payment of money shall be
rendered against the Borrower or any guarantor of the
Obligations, and any such judgement shall remain unsatisfied
and in effect for any period of thirty (30) consecutive days
without a stay of execution;
(i) any xxxx, xxxx (including mechanics lien), seizure,
attachment, execution or similar process shall be issued or
levied on any of the property of the Borrower or any guarantor
of the Obligations;
(j) the termination or revocation of any guaranty of the
Obligations; or
(k) the occurrence of such a change in the condition or affairs
(financial or otherwise) of the Borrower or any guarantor of
the Obligations, or the occurrence of any other event or
circumstance, such that the Bank, in its sole discretion,
deems that it is insecure or that the prospects for timely or
full payment or performance of any obligation of the Borrower
or any guarantor of the Obligations to the Bank has been or
may be impaired.
6.2 Acceleration. If an Event of Default shall occur, at the election of the
Bank, all Obligations shall become immediately due and payable without notice or
demand, except with respect to Obligations payable on DEMAND, which shall be due
and payable on DEMAND, whether or not an Event of Default has occurred.
The Bank is hereby authorized, at its election, after an Event of
Default or after Demand, without any further demand or notice except to such
extent as notice may be required by applicable law, to take possession and/or
sell or otherwise dispose of all or any of the Collateral at public or private
sale; and the Bank may also exercise any and all other rights and remedies of a
secured party under the Code or which are otherwise accorded to it in equity or
at law, all as Bank may determine, and such exercise of rights in compliance
with the requirements of law will not be considered adversely to affect the
commercial reasonableness of any sale or other disposition of the Collateral. If
notice of a sale or other action by the Bank is required by applicable law,
unless the Collateral is perishable or threatens to decline speedily in value or
is of a type customarily sold on a recognized market, the Borrower agrees that
ten (10) days written notice to the Borrower, or the shortest period of written
notice permitted by such law, whichever is smaller, shall be sufficient notice;
and that to the extent permitted by law, the Bank, its officers, attorneys and
agents may bid and become purchasers at any such sale, if public, and may
purchase at any private sale any of the Collateral that is of a type customarily
sold on a recognized market or which is the subject of widely distributed
standard price quotations. Any sale (public or private) shall be without
warranty and free from any right of redemption, which the Borrower shall waive
and release after default upon the Bank's request therefor, and may be free of
any warranties as to the Collateral if Bank shall so decide. No purchaser at any
sale (public or private) shall be responsible for the application of the
purchase money. Any balance of the net proceeds of sale remaining after paying
all Obligations of the Borrower to the Bank shall be returned to such other
party as may be legally entitled thereto; and if there is a deficiency, the
Borrower shall be responsible for repayment of the same, with interest. Upon
demand by the Bank, the Borrower shall assemble the Collateral and make it
available to the Bank at a place designated by the Bank which is reasonably
convenient to the Bank and the Borrower. The Borrower hereby acknowledges that
the Bank has extended credit and other financial accommodations to the Borrower
upon reliance of the Borrower's granting the Bank the rights and remedies
contained in this Agreement including without limitation the right to take
immediate possession of the Collateral upon the occurrence of an Event of
Default or after DEMAND with respect to Obligations payable on DEMAND and the
Borrower hereby acknowledges that the Bank is entitled to equitable and
injunctive relief to enforce any of its rights and remedies hereunder or under
the Code and the Borrower hereby waives any defense to such equitable or
injunctive relief based upon any allegation of the absence of irreparable harm
to the Bank.
13
The Bank shall not be required to marshal any present or future
security for (including but not limited to this Agreement and the Collateral
subject to the security interest created hereby), or guarantees of, the
Obligations or any of them, or to resort to such security or guarantees in any
particular order; and all of its rights hereunder and in respect of such
securities and guaranties shall be cumulative and in addition to all other
rights, however existing or arising. To the extent that it lawfully may,
Borrower hereby agrees that it will not invoke any law relating to the
marshalling of collateral which might cause delay in or impede the enforcement
of the Bank's rights under this Agreement or under any other instrument
evidencing any of the Obligations or under which any of the Obligations is
outstanding or by which any of the Obligations is secured or guaranteed, and to
the extent that it lawfully may do so, Borrower hereby irrevocably waives the
benefits of all such laws. Except as required by applicable law, the Bank shall
have no duty as to the collection or protection of the Collateral or any income
thereon, nor as to the preservation of rights against prior parties, nor as to
the preservation of any rights pertaining thereto beyond the safe custody
thereof.
6.3 Power of Attorney. The Borrower hereby irrevocably constitutes and appoints
the Bank as the Borrower's true and lawful attorney, with full power of
substitution, at the sole cost and expense of the Borrower but for the sole
benefit of the Bank, upon the occurrence of an Event of Default or after DEMAND
with respect to Obligations payable on DEMAND, to convert the Collateral into
cash, including, without limitation, completing the manufacture or processing of
work in process, and the sale (either public or private) of all or any portion
or portions of the inventory and other Collateral; to enforce collection of the
Collateral, either in its own name or in the name of the Borrower, including,
without limitation, executing releases or waivers, compromising or settling with
any Debtors and prosecuting, defending, compromising or releasing any action
relating to the Collateral; to receive, open and dispose of all mail addressed
to the Borrower and to take therefrom any remittances or proceeds of Collateral
in which the Bank has a security interest; to notify Post Office authorities to
change the address for delivery of mail addressed to the Borrower to such
address as the Bank shall designate; to endorse the name of the Borrower in
favor of the Bank upon any and all checks, drafts, money orders, notes,
acceptances or other instruments of the same or different nature; to sign and
endorse the name of the Borrower on and to receive as secured party any of the
Collateral, any invoices, freight or express receipts, or bills of lading,
storage receipts, warehouse receipts, or other documents of title of the same or
different nature relating to the Collateral; to sign the name of the Borrower on
any notice of the Debtors or on verification of the Collateral; and to sign, if
necessary, and file or record on behalf of the Borrower any financing or other
statement in order to perfect or protect the Bank's security interest. The Bank
shall not be obliged to do any of the acts or exercise any of the powers
hereinabove authorized, but if the Bank elects to do any such act or exercise
any such power, it shall not be accountable for more than it actually receives
as a result of such exercise of power, and it shall not be responsible to the
Borrower except for its own gross negligence or willful misconduct. All powers
conferred upon the Bank by this Agreement, being coupled with an interest, shall
be irrevocable so long as any Obligation of the Borrower or any guarantor or
surety to the Bank shall remain unpaid or the Bank is obligated under this
Agreement to extend any credit to the Borrower.
6.4 Nonexclusive Remedies. All of the Bank's rights and remedies not only under
the provisions of this Agreement but also under any other agreement or
transaction shall be cumulative and not alternative or exclusive, and may be
exercised by the Bank at such time or times and in such order of preference as
the Bank in its sole discretion may determine.
6.5 Reassignment to Borrower. Whenever the Bank deems it desirable that any
legal action be instituted with respect to any Collateral or that any other
action be taken in any attempt to effectuate collection of any Collateral, the
Bank may reassign the item in question to the Borrower (and if the Bank shall
execute any such reassignment, it shall automatically be deemed to be without
recourse to the Bank in any event) and require the Borrower to proceed with such
legal or other action at the Borrower's sole liability, cost and expense, in
which event all amounts collected by the Borrower on such item shall
nevertheless be subject to the Bank's security interest.
14
7. MISCELLANEOUS
7.1 Waivers. The Borrower waives notice of intent to accelerate, notice of
acceleration, notice of nonpayment, demand, presentment, protest or notice of
protest of the Obligations, and all other notices, consents to any renewals or
extensions of time of payment thereof, and generally waives any and all
suretyship defenses and defenses in the nature thereof.
7.2 Severability. If any provision of this Agreement or portion of such
provision or the application thereof to any person or circumstance shall to any
extent be held invalid or unenforceable, the remainder of this Agreement (or the
remainder of such provision) and the application thereof to other persons or
circumstances shall not be affected thereby.
7.3 Deposit Collateral. The Borrower hereby grants to the Bank a continuing lien
and security interest in any and all deposits or other sums at any time credited
by or due from the Bank (or any of its banking or lending affiliates, or any
bank acting as a participant under any loan arrangement between the Bank and the
Borrower, or any third party acting on the Bank's behalf (collectively, the
"Bank Affiliates")) to the Borrower and any cash, securities, instruments or
other property of the Borrower in the possession of the Bank or any Bank
Affiliate, whether for safekeeping or otherwise, or in transit to or from the
Bank or any Bank Affiliate (regardless of the reason the Bank or Bank Affiliate
had received the same or whether the Bank or Bank Affiliate has conditionally
released the same) as security for the full and punctual payment and performance
of all of the liabilities and obligations of the Borrower to the Bank or any
Bank Affiliate and such deposits and other sums may be applied against such
liabilities and obligations of the Borrower to the Bank or any Bank Affiliate at
any time, whether or not such are then due, whether or not demand has been made
and whether or not other collateral is then available to the Bank or any Bank
Affiliate.
7.4 Indemnification. The Borrower shall indemnify, defend and hold the Bank
harmless of and from any claim brought or threatened against the Bank by the
Borrower, any guarantor or endorser of the Obligations, or any other person (as
well as from reasonable attorneys' fees and expenses in connection therewith) on
account of the Bank's relationship with the Borrower, or any guarantor or
endorser of the Obligations (each of which may be defended, compromised, settled
or pursued by the Bank with counsel of the Bank's election, but at the expense
of the Borrower), except for any claim arising out of the gross negligence or
willful misconduct of the Bank. The within indemnification shall survive payment
of the Obligations, and/or any termination, release or discharge executed by the
Bank in favor of the Borrower.
7.5 Costs and Expenses. The Borrower shall pay to the Bank on demand any and all
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements, court costs, litigation and other expenses) incurred or paid
by the Bank in establishing, maintaining, protecting or enforcing any of the
Bank's rights or the Obligations, including, without limitation, any and all
such costs and expenses incurred or paid by the Bank in defending the Bank's
security interest in, title or right to the Collateral or in collecting or
attempting to collect or enforcing or attempting to enforce payment of the
Obligations.
7.6 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be an original, but all of which shall constitute but one
agreement.
7.7 Complete Agreement. This Agreement and the other Loan Documents constitute
the entire agreement and understanding between and among the parties hereto
relating to the subject matter hereof, and supersedes all prior proposals,
negotiations, agreements and understandings among the parties hereto with
respect to such subject matter.
7.8 Binding Effect of Agreement. This Agreement shall be binding upon and inure
to the benefit of the respective heirs, executors, administrators, legal
representatives, successors and assigns of the parties hereto, and shall remain
in full force and effect (and the Bank shall be entitled to rely thereon) until
terminated as to future transactions by written notice from either party to the
other party of the termination hereof; provided that any such termination shall
not release or affect any Collateral in which the Bank
15
already has a security interest or any Obligations incurred or rights accrued
hereunder prior to the effective date of such notice (as hereinafter defined) of
such termination. Notwithstanding any such termination, the Bank shall have a
security interest in all Collateral to secure the payment and performance of
Obligations arising after such termination as a result of commitments or
undertakings made or entered into by the Bank prior to such termination. The
Bank may transfer and assign this Agreement and deliver the Collateral to the
assignee, who shall thereupon have all of the rights of the Bank; and the Bank
shall then be relieved and discharged of any responsibility or liability with
respect to this Agreement and the Collateral. The Borrower may not assign or
transfer any of its rights or obligations under this Agreement. Except as
expressly provided herein or in the other Loan Documents, nothing, expressed or
implied, is intended to confer upon any party, other than the parties hereto,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement or the other Loan Documents.
7.9 Further Assurances. Borrower will from time to time execute and deliver to
Bank such documents, and take or cause to be taken, all such other or further
action, as Bank may request in order to effect and confirm or vest more securely
in Bank all rights contemplated by this Agreement and the other Loan Documents
(including, without limitation, to correct clerical errors) or to vest more
fully in or assure to the Bank the security interest in the Collateral granted
to the Bank by this Agreement or to comply with applicable statute or law and to
facilitate the collection of the Collateral (including, without limitation, the
execution of stock transfer orders and stock powers, endorsement of promissory
notes and instruments and notifications to obligors on the Collateral). To the
extent permitted by applicable law, Borrower authorizes Bank to file financing
statements, continuation statements or amendments without Borrower's signature
appearing thereon, and any such financing statements, continuation statements or
amendments may be signed by Bank on behalf of Borrower, if necessary, and may be
filed at any time in any jurisdiction. Bank may at any time and from time to
time file financing statements, continuation statements and amendments thereto
which contain any information required by the Code for the sufficiency or filing
office acceptance of any financing statement, continuation statement or
amendment, including whether Borrower is an organization, the type of
organization and any organization identification number issued to Borrower.
Borrower agrees to furnish any such information to Bank promptly upon request.
In addition, Borrower shall at any time and from time to time take such steps as
Bank may reasonably request for Bank (i) to obtain an acknowledgement, in form
and substance satisfactory to Bank, of any bailee having possession of any of
the Collateral that the bailee holds such Collateral for Bank, (ii) to obtain
"control" (as defined in the Code) of any Collateral comprised of deposit
accounts, electronic chattel paper, letter of credit rights or investment
property, with any agreements establishing control to be in form and substance
satisfactory to Bank, and (iii) otherwise to insure the continued perfection and
priority of Bank's security interest in any of the Collateral and the
preservation of its rights therein. Borrower hereby constitutes Bank its
attorney-in-fact to execute, if necessary, and file all filings required or so
requested for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed; and such power, being coupled with an interest, shall be
irrevocable until this Agreement terminates in accordance with its terms, all
Obligations are paid in full and the Collateral is released.
7.10 Amendments and Waivers. This Agreement may be amended and Borrower may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, if Borrower shall obtain the Bank's prior written consent to
each such amendment, action or omission to act. No course of dealing and no
delay or omission on the part of Bank in exercising any right hereunder shall
operate as a waiver of such right or any other right and waiver on any one or
more occasions shall not be construed as a bar to or waiver of any right or
remedy of Bank on any future occasion.
7.11 Terms of Agreement. This Agreement shall continue in full force and effect
so long as any Obligations or obligation of Borrower to Bank shall be
outstanding, or the Bank shall have any obligation to extend any financial
accommodation hereunder, and is supplementary to each and every other agreement
between Borrower and Bank and shall not be so construed as to limit or otherwise
derogate from any of the rights or remedies of Bank or any of the liabilities,
obligations or undertakings of Borrower under any such agreement, nor shall any
contemporaneous or subsequent agreement between Borrower and the Bank be
construed to limit or otherwise derogate from any of the rights or remedies of
Bank or
16
any of the liabilities, obligations or undertakings of Borrower hereunder,
unless such other agreement specifically refers to this Agreement and expressly
so provides.
7.12 Notices. Any notice under or pursuant to this Agreement shall be a signed
writing or other authenticated record (within the meaning of Article 9 of the
Code). Any such notice shall be deemed duly received and effective (i) if
delivered in hand to, or received by, any officer or agent of the Borrower or
the Bank, upon such delivery or receipt, or (ii) if mailed by registered or
certified mail, return receipt requested, postage prepaid, and properly
addressed to the Borrower or the Bank, two (2) business days after being so
mailed. A party's proper address is that set forth for such party in this
Agreement or such address as that party may from time to time hereafter
designate by notice to the other party.
7.13 Governing Law. This Agreement has been executed or completed and/or is to
be performed in California, and it and all transactions thereunder or pursuant
thereto shall be governed as to interpretation, validity, effect, rights, duties
and remedies of the parties thereunder and in all other respects by the laws of
California.
7.14 Reproductions. This Agreement and all documents which have been or may be
hereinafter furnished by Borrower to the Bank may be reproduced by the Bank by
any photographic, photostatic, microfilm, xerographic or similar process, and
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made in the regular course of
business).
7.15 Jurisdiction and Venue. Borrower irrevocably submits to the nonexclusive
jurisdiction of any Federal or state court sitting in California, over any suit,
action or proceeding arising out of or relating to this Agreement. Borrower
irrevocably waives, to the fullest extent it may effectively do so under
applicable law, any objection it may now or hereafter have to the laying of the
venue of any such suit, action or proceeding brought in any such court and any
claim that the same has been brought in an inconvenient forum. Borrower hereby
consents to any and all process which may be served in any such suit, action or
proceeding, (i) by mailing a copy thereof by registered and certified mail,
postage prepaid, return receipt requested, to the Borrower's address shown in
this Agreement or as notified to the Bank and (ii) by serving the same upon the
Borrower in any other manner otherwise permitted by law, and agrees that such
service shall in every respect be deemed effective service upon Borrower.
7.16 Civil Code Section 2822. In the event that at any time, a surety is liable
upon only a portion of Borrower's obligations under the Loan Documents and
Borrower provides partial satisfaction of any such obligation(s), Borrower
hereby waives any right it would otherwise have, under Section 2822 of the
California Civil Code, to designate the portion of the obligations to be
satisfied. The designation of the portion of the obligation to be satisfied
shall, to the extent not expressly made by the terms of the Loan Documents, be
made by the Bank rather than Borrower.
7.17 JURY WAIVER. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE
BORROWER AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY, AND
AFTER AN OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL, (A) WAIVE ANY AND ALL RIGHTS
TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING IN CONNECTION WITH THIS
AGREEMENT, THE OBLIGATIONS, ALL MATTERS CONTEMPLATED HEREBY AND DOCUMENTS
EXECUTED IN CONNECTION HEREWITH AND (B) AGREE NOT TO SEEK TO CONSOLIDATE ANY
SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE, OR HAS NOT
BEEN, WAIVED. THE BORROWER CERTIFIES THAT NEITHER THE BANK NOR ANY OF ITS
REPRESENTATIVES, AGENTS OR COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
THE BANK WOULD NOT IN THE EVENT OF ANY SUCH PROCEEDING SEEK TO ENFORCE THIS
WAIVER OF RIGHT TO TRIAL BY JURY.
7.18 ARBITRATION. ARBITRATION. IN THE EVENT THAT THE JURY WAIVER SET FORTH ABOVE
IS JUDICIALLY DETERMINED TO NOT BE PERMITTED BY LAW, THE PARTIES AGREE TO
ATTEMPT IN GOOD FAITH TO RESOLVE ANY DISPUTES WHICH MAY ARISE AMONG THEM IN
17
CONNECTION WITH THE INTERPRETATION OR ENFORCEMENT OF THE PROVISIONS OF THIS
AGREEMENT, OR THE APPLICATION OR VALIDITY THEREOF. IN THE EVENT THAT ANY DISPUTE
CANNOT BE SO RESOLVED, AND UNLESS THE RELIEF SOUGHT REQUIRES THE EXERCISE OF THE
EQUITY POWERS OF A COURT OF COMPETENT JURISDICTION, SUCH DISPUTE SHALL BE
SUBMITTED TO ARBITRATION. SUCH ARBITRATION PROCEEDINGS SHALL BE HELD IN THE
COUNTY OF SANTA BARBARA, CALIFORNIA, IN ACCORDANCE WITH THE ARBITRATION
PROVISIONS OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. THIS AGREEMENT TO
ARBITRATE SHALL BE SPECIFICALLY ENFORCEABLE. ANY AWARD RENDERED IN ANY SUCH
ARBITRATION PROCEEDINGS SHALL BE FINAL AND BINDING ON EACH OF THE PARTIES
HERETO, AND JUDGEMENT MAY BE ENTERED THEREON IN ANY COURT OF COMPETENT
JURISDICTION.
Executed as of MAY 2, 2005.
Borrower:
Advanced Photonix, Inc.
By: /s/ XXXXXXX X. XXXXX
-----------------------------
Xxxxxxx X. Xxxxx,
Chief Executive Officer
Accepted: Pacific Capital Bank, N.A.
By: /s/ XXXXX XXXXXX
-------------------------------
Name: Xxxxx Xxxxxx
Title: Vice President
18
EXHIBIT A TO LOAN AND SECURITY AGREEMENT OF
ADVANCED PHOTONIX, INC.
1. Subsidiaries:
(a) Silicon Detector Corporation
(b) Silicon Sensors, Inc.
(c) Texas Optoelectronics, Inc.
(d) Michigan Acquisition Sub, LLC
(e) Photonic Detectors, Inc.
2. Consolidations, Mergers and Acquisitions:
(a) The acquisition of Picotronix, Inc. by way of the merger of
Picotronix, Inc. with and into Michigan Acquisition Sub, LLC,
a wholly-owned subsidiary of Advanced Photonix, Inc.
19
EXHIBIT B LOAN AND SECURITY AGREEMENT OF
ADVANCED PHOTONIX, INC.
1. Liens:
(a) Smithfield Fiduciary, LLC, acting as collateral agent on
behalf of the other investors in connection with the private
placement which closed on October 12, 2004, has a first
priority security interest in all of the assets of Advanced
Photonix, Inc., except as set forth in that certain
Subordination and Intercreditor Agreement between Pacific
Capital Bank, N.A. and Smithfield Fiduciary, LLC.
(b) Xxxxx Xxxxxx and Xxxxxx Xxxxxxxxxx have a first priority
security interest in all of the intellectual property of
Michigan Acquisition Sub, LLC.
20
(THE NETWORK OF PREFERRED COMMUNITY BANKS(SM) LOGO)
Loan No. 37512-37654
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT (this "Agreement") entered into as of
MAY 2, 2005, between SILICON SENSORS, INC., A DELAWARE CORPORATION, with its
chief executive office located at 000 Xxxxxx XX, Xxxxxxxxxx, Xxxxxxxxx 00000
(the "Borrower") and Pacific Capital Bank, N.A., a national banking association,
doing business as Santa Xxxxxxx Bank & Trust, with an address of c/o Loan
Services, XX Xxx 00000, Xxxxx Xxxxxxx, Xxxxxxxxxx 00000-0000 (the "Bank").
FOR VALUE RECEIVED, and in consideration of the granting by the Bank of
financial accommodations to or for the benefit of the Borrower, including
without limitation respecting the Obligations (as hereinafter defined), the
Borrower represents and agrees with the Bank, as of the date hereof and as of
the date of each loan, credit and/or other financial accommodation, as follows:
1. THE LOAN
1.1 Loan. Subject to the terms and conditions of this Agreement, the Bank hereby
agrees to make a loan to the Borrower, Advanced Photonix, Inc., Michigan
Acquisition Sub, LLC, Texas Optoelectronics, Inc. Silicon Detector Corporation
and Photonic Detectors, Inc. in the original principal amount of $2,700,000.00
(the "Loan"). The Loan shall be evidenced by that certain Term Note, of even
date herewith (the "Note") by the Borrower, Advanced Photonix, Inc., Michigan
Acquisition Sub, LLC, Texas Optoelectronics, Inc., Silicon Detector Corporation
and Photonic Detectors, Inc. in favor of the Bank in the original principal
amount of $2,700,000.00. This Agreement, the Note, and any and all other
documents, amendments or renewals executed and delivered in connection with any
of the foregoing are collectively hereinafter referred to as the "Loan
Documents".
2. GRANT OF SECURITY INTEREST
2.1 Grant of Security Interest. In consideration of the Bank's extending credit
and other financial accommodations to or for the benefit of the Borrower, the
Borrower hereby grants to the Bank a security interest in, a lien on and pledge
and assignment of the Collateral (as hereinafter defined). The security interest
granted by this Agreement is given to and shall be held by the Bank as security
for the payment and performance of all Obligations, including, without
limitation, all amounts outstanding pursuant to the Loan Documents.
2.2 Definitions. The following definitions shall apply:
(a) "Code" shall mean the Uniform Commercial Code of California as
amended from time to time.
(b) "Collateral" shall mean all Borrower's present and future
right, title and interest in and to any and all of the
personal property of Borrower whether such property is now
existing or hereafter created, acquired or arising and
wherever located from time to time, including without
limitation:
(i) accounts;
(ii) chattel paper;
(iii) goods;
(iv) inventory;
(v) equipment;
(vi) farm products;
(vii) instruments;
(viii) investment property;
(ix) documents;
(x) commercial tort claims;
(xi) deposit accounts;
(xii) letter-of-credit rights;
(xiii) general intangibles;
(xiv) supporting obligations; and
(xv) proceeds and products of the foregoing.
(c) "Debtors" shall mean the Borrower's customers who are indebted
to the Borrower.
(d) "Obligation(s)" shall mean, without limitation, all loans,
advances, indebtedness, notes, liabilities, rate swap
transactions, basis swaps, forward rate transactions,
commodity swaps, commodity options, equity or equity index
swaps, equity or equity index options, bond options, interest
rate options, foreign exchange transactions, cap transactions,
floor transactions, collar transactions, forward transactions,
currency swap transactions, cross-currency rate swap
transactions, currency options and amounts, liquidated or
unliquidated, owing by the Borrower to the Bank at any time,
of each and every kind, nature and description, whether
arising under this Agreement or otherwise, and whether secured
or unsecured, direct or indirect (that is, whether the same
are due directly by the Borrower to the Bank; or are due
indirectly by the Borrower to the Bank as endorser, guarantor
or other surety, or as borrower of obligations due third
persons which have been endorsed or assigned to the Bank, or
otherwise), absolute or contingent, due or to become due, now
existing or hereafter arising or contracted, including,
without limitation, payment when due of all amounts
outstanding respecting any of the Loan Documents. Said term
shall also include all interest and other charges chargeable
to the Borrower or due from the Borrower to the Bank from time
to time and all costs and expenses referred to in this
Agreement.
(e) "Person" or "party" shall mean individuals, partnerships,
corporations, limited liability companies and all other
entities.
All words and terms used in this Agreement other than those
specifically defined herein shall have the meanings accorded to them in the
Code.
2.3 Ordinary Course of Business. The Bank hereby authorizes and permits the
Borrower to hold, process, sell, use or consume in the manufacture or processing
of finished goods, or otherwise dispose of
2
inventory for fair consideration, all in the ordinary course of the Borrower's
business, excluding, without limitation, sales to creditors or in bulk or sales
or other dispositions occurring under circumstances which would or could create
any lien or interest adverse to the Bank's security interest or other right
hereunder in the proceeds resulting therefrom. The Bank also hereby authorizes
and permits the Borrower to receive from the Debtors all amounts due as proceeds
of the Collateral at the Borrower's own cost and expense, and also liability, if
any, subject to the direction and control of the Bank at all times; and the Bank
may at any time, without cause or notice, and whether or not a default has
occurred or demand has been made, terminate all or any part of the authority and
permission herein or elsewhere in this Agreement granted to the Borrower with
reference to the Collateral, and notify Debtors to make all payments due as
proceeds of the Collateral to the Bank. Until Bank shall otherwise notify
Borrower, all proceeds of and collections of Collateral shall be retained by
Borrower and used solely for the ordinary and usual operation of Borrower's
business. From and after notice by Bank to Borrower, all proceeds of and
collections of the Collateral shall be held in trust by Borrower for Bank and
shall not be commingled with Borrower's other funds or deposited in any bank
account of Borrower; and Borrower agrees to deliver to Bank on the dates of
receipt thereof by Borrower, duly endorsed to Bank or to bearer, or assigned to
Bank, as may be appropriate, all proceeds of the Collateral in the identical
form received by Borrower.
2.4 Allowances. The Borrower may grant such allowances or other adjustments to
Debtors (exclusive of extending the time for payment of any item which shall not
be done without first obtaining the Bank's written consent in each instance) as
the Borrower may reasonably deem to accord with sound business practice,
including, without limiting the generality of the foregoing, accepting the
return of all or any part of the inventory (subject to the provisions set forth
in this Agreement with reference to returned inventory).
2.5 Records. The Borrower shall hold its books and records relating to the
Collateral segregated from all the Borrower's other books and records in a
manner satisfactory to the Bank; and shall deliver to the Bank from time to time
promptly at its request all invoices, original documents of title, contracts,
chattel paper, instruments and any other writings relating thereto, and other
evidence of performance of contracts, or evidence of shipment or delivery of the
merchandise or of the rendering of services; and the Borrower will deliver to
the Bank promptly at the Bank's request from time to time additional copies of
any or all of such papers or writings, and such other information with respect
to any of the Collateral and such schedules of inventory, schedules of accounts
and such other writings as the Bank may in its reasonable sole discretion deem
to be necessary or effectual to evidence any loan hereunder or the Bank's
security interest in the Collateral.
2.6 Legends. The Borrower shall promptly make, stamp or record such entries or
legends on the Borrower's books and records or on any of the Collateral
(including, without limitation, chattel paper) as Bank shall request from time
to time, to indicate and disclose that Bank has a security interest in such
Collateral.
2.7 Inspection. The Bank, or its representatives, at any time and from time to
time, shall have the right at the sole cost and expense of Borrower, and the
Borrower will permit the Bank and/or its representatives: (a) to examine, check,
make copies of or extracts from any of the Borrower's books, records and files
(including, without limitation, orders and original correspondence); (b) to
perform field exams or otherwise inspect and examine the Collateral and to
check, test or appraise the same as to quality, quantity, value and condition;
and (c) to verify the Collateral or any portion or portions thereof or the
Borrower's compliance with the provisions of this Agreement.
2.8 Purchase Money Security Interests. To the extent Borrower uses proceeds of
any loans to purchase Collateral, the repayment of such loans shall be on a
"first-in-first-out" basis so that the portion of the loan used to purchase a
particular item of Collateral shall be repaid in the order in which Borrower
purchased such item of Collateral.
2.9 Search Reports. Bank shall receive prior to the date of this Agreement UCC
search results under all names used by the Borrower during the prior five (5)
years, from each jurisdiction where any
3
Collateral is located, from the State, if any, where Borrower is organized and
registered (as such terms are used in the Code), and the State where Borrower's
chief executive office is located. The search results shall confirm that the
security interest in the Collateral granted Bank hereunder is prior to all other
security interests in favor of any other Person.
3. REPRESENTATIONS AND WARRANTIES
3.1 Organization and Qualification. Borrower is a duly organized and validly
existing corporation under the laws of the State of its incorporation with the
exact legal name set forth in the first paragraph of this Agreement. Borrower is
in good standing under the laws of said State, has the power to own its property
and conduct its business as now conducted and as currently proposed to be
conducted, and is duly qualified to do business under the laws of each state
where the nature of the business done or property owned requires such
qualification.
3.2 Subsidiaries. Borrower has no subsidiaries other than as disclosed in
Schedule A attached hereto, if any, and the Borrower has never consolidated,
merged or acquired substantially all of the assets of any other entity or person
other than as disclosed in Schedule A attached hereto, if any.
3.3 Corporate Records. Borrower's corporate charter, articles of organization or
incorporation and all amendments thereto have been duly filed and are in proper
order. All outstanding capital stock issued by the Borrower was and is properly
issued and all books and records of the Borrower, including but not limited to
its minute books, bylaws and books of account, are accurate and up to date and
will be so maintained.
3.4 Title to Properties; Absence of Liens. Borrower has good and clear record
and marketable title to all of its properties and assets, and all of its
properties and assets including the Collateral are free and clear of all
mortgages, liens, pledges, charges, encumbrances and setoffs, other than the
security interest therein granted to the Bank hereby and those mortgages, deeds
of trust, leases of personal property and security interests disclosed in
Schedule B attached hereto.
3.5 Places of Business. Borrower's chief executive office is correctly stated in
the preamble to this Agreement, and Borrower shall, during the term of this
Agreement, keep the Bank currently and accurately informed in writing of each of
its other places of business, and shall not change the location of such chief
executive office or open or close, move or change any existing or new place of
business without giving the Bank at least thirty (30) days prior written notice
thereof.
3.6 Valid Obligations. The execution, delivery and performance of the Loan
Documents have been duly authorized by all necessary corporate action and each
represents a legal, valid and binding obligation of Borrower and is fully
enforceable according to its terms, except as limited by laws relating to the
enforcement of creditors' rights.
3.7 Conflicts. There is no provision in Borrower's organizational or charter
documents, if any, or in any indenture, contract or agreement to which Borrower
is a party which prohibits, limits or restricts the execution, delivery or
performance of the Loan Documents.
3.8 Governmental Approvals. The execution, delivery and performance of the Loan
Documents does not require any approval of or filing with any governmental
agency or authority.
3.9 Litigation. There are no actions, suits or proceedings pending or to the
knowledge of Borrower threatened against Borrower which might materially
adversely affect the ability of Borrower to conduct its business or to pay or
perform the Obligations.
3.10 Accounts and Contract Rights. All accounts arise out of legally enforceable
and existing contracts, and represent unconditional and undisputed bona fide
indebtedness by a Debtor, and are not and will not be subject to any discount
(except such cash or trade discount as may be shown on any
4
invoice, contract or other writing delivered to the Bank). No contract right,
account, general intangible or chattel paper is or will be represented by any
note or other instrument, and no contract right, account or general intangible
is, or will be represented by any conditional or installment sales obligation or
other chattel paper, except such instruments or chattel paper as have been or
immediately upon receipt by the Borrower will be delivered to the Bank (duly
endorsed or assigned), such delivery, in the case of chattel paper, to include
all executed copies except those in the possession of the installment buyer and
any security for or guaranty of any of the Collateral shall be delivered to the
Bank immediately upon receipt thereof by the Borrower, with such assignments and
endorsements thereof as the Bank may request.
3.11 Title to Collateral. At the date hereof the Borrower is (and as to
Collateral that the Borrower may acquire after the date hereof, will be) the
lawful owner of the Collateral, and the Collateral and each item thereof is,
will be and shall continue to be free of all restrictions, liens, encumbrances
or other rights, title or interests (other than the security interest therein
granted to the Bank hereby), credits, defenses, recoupments, set-offs or
counterclaims whatsoever. The Borrower has and will have full power and
authority to grant to the Bank a security interest in the Collateral and the
Borrower has not transferred, assigned, sold, pledged, encumbered, subjected to
lien or granted any security interest in, and will not transfer, assign, sell
(except sales or other dispositions in the ordinary course of business in
respect to inventory as expressly permitted in this Agreement), pledge,
encumber, subject to lien or grant any security interest in any of the
Collateral (or any of the Borrower's right, title or interest therein), to any
person other than the Bank. The Collateral is and will be valid and genuine in
all respects. All accounts arise out of legally enforceable and existing
contracts in accordance with their tenor, and upon the Borrower's acquisition of
any interest in accounts, it shall in writing immediately notify the Bank
thereof, specifically identifying the same as accounts, and, except for such
accounts, no part of the Collateral (or the validity or enforceability by the
Bank thereof) is or shall be contingent upon the fulfillment of any agreement or
condition whatsoever and the Collateral, other than inventory and equipment,
shall represent unconditional and undisputed bona fide indebtedness by the
Debtor, and is not and will not be subject to any discount (except such cash or
trade discount as may be shown on any invoice, contract or other writing
delivered to the Bank). The Borrower will warrant and defend the Bank's right to
and interest in the Collateral against all claims and demands of all persons
whatsoever.
3.12 Location of Collateral. Except for sale, processing, use, consumption or
other disposition in the ordinary course of business, the Borrower will keep all
inventory and equipment only at locations specified in this Agreement or
specified to the Bank in writing. The Borrower shall, during the term of this
Agreement, keep the Bank currently and accurately informed in writing of each
location where the Borrower's records relating to its accounts and contract
rights, respectively, are kept, and shall not remove such records or any of them
to another state without giving the Bank at least thirty (30) days prior written
notice thereof.
3.13 Third Parties. The Bank shall not be deemed to have assumed any liability
or responsibility to the Borrower or any third person for the correctness,
validity or genuineness of any instruments or documents that may be released or
endorsed to the Borrower by the Bank (which shall automatically be deemed to be
without recourse to the Bank in any event) or for the existence, character,
quantity, quality, condition, value or delivery of any goods purporting to be
represented by any such documents; and the Bank, by accepting such security
interest in the Collateral, or by releasing any Collateral to the Borrower,
shall not be deemed to have assumed any obligation or liability to any supplier
or Debtor or to any other third party, and the Borrower agrees to indemnify and
defend the Bank and hold it harmless in respect to any claim or proceeding
arising out of any matter referred to in this paragraph.
3.14 Payment of Accounts. Each account or other item of Collateral, other than
inventory and equipment, will be paid in full on or before the date shown as its
due date in the schedule of Collateral, in the copy of the invoice(s) relating
to the account or other Collateral or in contracts relating thereto. Upon any
suspension of business, assignment or trust mortgage for the benefit of
creditors, dissolution, petition in receivership or under any chapter of the
Bankruptcy Code as amended from time to time by or against any Debtor, any
Debtor becoming insolvent or unable to pay its debts as they mature or any other
act of the same or different nature amounting to a business failure, the
Borrower will forthwith notify the Bank thereof.
5
3.15 Notification of Damage. The Borrower will immediately notify the Bank of
any loss or damage to, or material diminution in or any occurrence that would
adversely affect the value of inventory, equipment or other Collateral.
3.16 Taxes. Borrower has filed all Federal, state and other tax returns required
to be filed (except for such returns for which current and valid extensions have
been filed), and all taxes, assessments and other governmental charges due from
the Borrower have been fully paid. The Borrower has established on its books
reserves adequate for the payment of all Federal, state and other tax
liabilities (if any).
3.17 Use of Proceeds. No portion of any loan is to be used for (i) the purpose
of purchasing or carrying any "margin security" or "margin stock" as such terms
are used in Regulations U and X of the Board of Governors of the Federal Reserve
System, 12 C.F.R. 221 and 224 or (ii) primarily personal, family or household
purposes. The Collateral is not used or acquired primarily for personal, family
or household purposes.
3.18 Environmental. As of the date hereof neither the Borrower nor any of
Borrower's agents, employees or independent contractors (1) have caused or are
aware of a release or threat of release of Hazardous Materials (as defined
herein) on any of the premises or personal property owned or controlled by
Borrower, or any abutting property, which could give rise to liability under any
Environmental Law (as defined herein) or any other Federal, state or local law,
rule or regulation; (2) have arranged for the transport of or transported any
Hazardous Materials in a manner as to violate, or result in potential
liabilities under, any Environmental Law; (3) have received any notice, order or
demand from the Environmental Protection Agency or any other Federal, state or
local agency under any Environmental Law; (4) have incurred any liability under
any Environmental Law in connection with the mismanagement, improper disposal or
release of Hazardous Materials; or (5) are aware of any inspection or
investigation of any of the premises or personal property owned or controlled by
Borrower or abutting property by any Federal, state or local agency for possible
violations of any Environmental Law.
To the best of Borrower's knowledge, no prior owner or tenant of any
premises or property presently controlled or owned by Borrower committed or
omitted any act which caused the release of Hazardous Materials on such premises
or property which could give rise to a lien thereon by any Federal, state or
local government. No notice or statement of claim or lien affecting any property
or premises owned or controlled by Borrower has been recorded or filed in any
public records by any Federal, state or local government for costs, penalties,
fines or other charges as to such property.
Borrower agrees to indemnify and hold Bank harmless from all liability,
loss, cost, damage and expense, including attorney fees and costs of litigation,
arising from any and all of its violations of any Environmental Law (including
those arising from any lien by any Federal, state or local government arising
from the presence of Hazardous Materials) or from the presence of Hazardous
Materials located on or emanating from any of the premises owned or controlled
by the Borrower. Borrower further agrees to reimburse Bank upon demand for any
costs incurred by Bank in connection with the foregoing. Borrower agrees that
its obligations hereunder shall be continuous and shall survive the repayment of
all debts to Bank.
The term "Hazardous Materials" includes but is not limited to any and
all substances (whether solid, liquid or gas) defined, listed, or otherwise
classified as pollutants, hazardous wastes, hazardous substances, hazardous
materials, extremely hazardous wastes, or words of similar meaning or regulatory
effect under any present or future Environmental Law or that may have a negative
impact on human health or the environment, including but not limited to
petroleum and petroleum products, asbestos and asbestos-containing materials,
polychlorinated biphenyls, lead, radon, radioactive materials, flammables and
explosives.
The term "Environmental Law" means any present and future Federal,
state and local laws, statutes, ordinances, rules, regulations and the like, as
well as common law, relating to protection of human health or the environment,
relating to Hazardous Materials, relating to liability for or costs of
remediation or prevention
6
of releases of Hazardous Materials or relating to liability for or costs of
other actual or threatened danger to human health or the environment. The term
"Environmental Law" includes, but is not limited to, the following statutes, as
amended, any successor thereto, and any regulations promulgated pursuant
thereto, and any state or local statutes, ordinances, rules, regulations and the
like addressing similar issues: the Comprehensive Environmental Response,
Compensation and Liability Act; the Emergency Planning and Community
Right-to-Know Act; the Hazardous Materials Transportation Act; the Resource
Conservation and Recovery Act (including but not limited to Subtitle I relating
to underground storage tanks); the Solid Waste Disposal Act; the Clean Water
Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking
Water Act; the Occupational Safety and Health Act; the Federal Water Pollution
Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the
Endangered Species Act; the National Environmental Policy Act; and the River and
Harbors Appropriation Act.
4. AFFIRMATIVE COVENANTS
4.1 Payments and Performance. Borrower will duly and punctually pay all
Obligations becoming due to the Bank and will duly and punctually perform all
Obligations on its part to be done or performed under this Agreement.
4.2 Books and Records; Inspection. Borrower will at all times keep proper books
of account in which full, true and correct entries will be made of its
transactions in accordance with generally accepted accounting principles,
consistently applied and which are, in the opinion of a Certified Public
Accountant acceptable to Bank, adequate to determine fairly the financial
condition and the results of operations of Borrower. Borrower will at all
reasonable times make its books and records available in its offices for
inspection, examination and duplication by the Bank and the Bank's
representatives and will permit inspection of the Collateral and all of its
properties by the Bank and the Bank's representatives. Borrower will from time
to time furnish the Bank with such information and statements as the Bank may
request in its sole discretion with respect to the Obligations or the Bank's
security interest in the Collateral. Borrower shall, during the term of this
Agreement, keep the Bank currently and accurately informed in writing of each
location where the Borrower's records relating to its accounts and contract
rights are kept, and shall not remove such records to another state without
giving the Bank at least thirty (30) days prior written notice thereof.
4.3 Financial Statements. Advanced Photonix, Inc. will furnish to Bank:
(a) as soon as available to Advanced Photonix, Inc., but in any
event within 45 days after the close of each quarterly period
of its fiscal year, a full and complete signed copy of
financial statements, on a consolidated basis with such other
entities designated by the Bank, which shall include a balance
sheet of Advanced Photonix, Inc., as at the end of such
quarter, and statement of profit and loss of Advanced
Photonix, Inc. reflecting the results of its operations during
such quarter, and prepared on a reviewed basis in accordance
with generally accepted accounting principles, consistently
applied, subject to year-end adjustments;
(b) as soon as available to Advanced Photonix, Inc., but in any
event within 90 days after the close of each fiscal year, a
full and complete signed copy of financial statements, on a
consolidated basis with such other entities designated by the
Bank, which shall include a balance sheet of Advanced
Photonix, Inc., as at the end of such year, and statement of
profit and loss of Advanced Photonix, Inc. reflecting the
results of its operations during such year, bearing the
opinion of such certified public accountants and prepared on
an audited basis in accordance with generally accepted
accounting principles, consistently applied together with any
so-called management letter;
(c) from time to time, such financial data and information about
Advanced Photonix, Inc. as Bank may reasonably request; and
7
4.4 Conduct of Business. The Borrower will maintain its existence in good
standing and comply with all laws and regulations of the United States and of
any state or states thereof and of any political subdivision thereof, and of any
governmental authority which may be applicable to it or to its business;
provided that this covenant shall not apply to any tax, assessment or charge
which is being contested in good faith and with respect to which reserves have
been established and are being maintained.
4.5 Notice to Account Debtors. The Borrower agrees, at the request of the Bank,
to notify all or any of the Debtors in writing of the Bank's security interest
in the Collateral in whatever manner the Bank requests and, hereby authorizes
the Bank to notify all or any of the Debtors of the Bank's security interest in
the Borrower's accounts at the Borrower's expense.
4.6 Operating and Deposit Accounts. The Borrower shall maintain with the Bank
its primary operating and deposit accounts. At the option of the Bank, all loan
payments and fees will automatically be debited from the Borrower's primary
operating account and all advances will automatically be credited to the
Borrower's primary operating account.
4.7 Taxes. Borrower will promptly pay all real and personal property taxes,
assessments and charges and all franchise, income, unemployment, old age
benefits, withholding, sales and other taxes assessed against it or payable by
it before delinquent; provided that this covenant shall not apply to any tax
assessment or charge which is being contested in good faith and with respect to
which reserves have been established and are being maintained. The Bank may, at
its option, from time to time, discharge any taxes, liens or encumbrances of any
of the Collateral, and the Borrower will pay to the Bank on demand or the Bank
in its sole discretion may charge to the Borrower all amounts so paid or
incurred by it.
4.8 Maintenance. Borrower will keep and maintain the Collateral and its other
properties, if any, in good repair, working order and condition. The Borrower
will immediately notify the Bank of any loss or damage to or any occurrence
which would adversely affect the value of any Collateral. The Bank may, at its
option, from time to time, take any other action that the Bank may deem proper
to repair, maintain or preserve any of the Collateral, and the Borrower will pay
to the Bank on demand or the Bank in its sole discretion may charge to the
Borrower all amounts so paid or incurred by it.
4.9 Insurance. Borrower will maintain in force property and casualty insurance
on all Collateral and any other property of the Borrower, if any, against risks
customarily insured against by companies engaged in businesses similar to that
of the Borrower containing such terms and written by such companies as may be
satisfactory to the Bank, such insurance to be payable to the Bank as its
interest may appear in the event of loss and to name the Bank as insured
pursuant to a standard loss payee clause; no loss shall be adjusted thereunder
without the Bank's approval; and all such policies shall provide that they may
not be canceled without first giving at least Thirty (30) days written notice of
cancellation to the Bank. In the event that the Borrower fails to provide
evidence of such insurance, the Bank may, at its option, secure such insurance
and charge the cost thereof to the Borrower. At the option of the Bank, all
insurance proceeds received from any loss or damage to any of the Collateral
shall be applied either to the replacement or repair thereof or as a payment on
account of the Obligations. From and after the occurrence of an Event of
Default, the Bank is authorized to cancel any insurance maintained hereunder and
apply any returned or unearned premiums, all of which are hereby assigned to the
Bank, as a payment on account of the Obligations.
4.10 Notification of Default. Upon becoming aware of the existence of any
condition or event which constitutes an Event of Default, or any condition or
event which would upon notice or lapse of time, or both, constitute an Event of
Default, Borrower shall promptly give Bank written notice thereof specifying the
nature and duration thereof and the action being or proposed to be taken with
respect thereto.
4.11 Notification of Material Litigation. Borrower will promptly notify the Bank
in writing of any litigation or of any investigative proceedings of a
governmental agency or authority commenced or
8
threatened against it which would or might be materially adverse to the
financial condition of Borrower or any guarantor of the Obligations.
4.12 Pension Plans. With respect to any pension or benefit plan maintained by
Borrower, or to which Borrower contributes ("Plan"), the benefits under which
are guarantied, in whole or in part, by the Pension Benefit Guaranty Corporation
created by the Employee Retirement Income Security Act of 1974, P.L. 93-406, as
amended ("ERISA") or any governmental authority succeeding to any or all of the
functions of the Pension Benefit Guaranty Corporation ("Pension Benefit Guaranty
Corporation"), Borrower will (a) fund each Plan as required by the provisions of
Section 412 of the Internal Revenue Code of 1986, as amended; (b) cause each
Plan to pay all benefits when due; (c) furnish Bank (i) promptly with a copy of
any notice of each Plan's termination sent to the Pension Benefit Guaranty
Corporation (ii) no later than the date of submission to the Department of Labor
or to the Internal Revenue Service, as the case may be, a copy of any request
for waiver from the funding standards or extension of the amortization periods
required by Section 412 of the Internal Revenue Code of 1986, as amended and
(iii) notice of any Reportable Event as such term is defined in ERISA; and (d)
subscribe to any contingent liability insurance provided by the Pension Benefit
Guaranty Corporation to protect against employer liability upon termination of a
guarantied pension plan, if available to Borrower.
5. NEGATIVE COVENANTS
5.1 Financial Covenants. The Borrower will not at any time or during any fiscal
period (as applicable) fail to be in compliance with any of the financial
covenants in this section.
(a) Definitions. The following definitions shall apply to this
Section:
(i) "Capital Expenditures" ("CAPEX") shall mean for any
period, all acquisitions of machinery, equipment, land,
leaseholds, buildings, improvements and all other expenditures
considered to be for fixed assets under GAAP, consistently
applied. Where an asset is acquired under a capital lease, the
amount required to be capitalized shall be considered a
capital expenditure during the first year of the lease.
(ii) "Combined Borrower(s)" shall mean Advanced Photonix, Inc.
and each of its subsidiaries.
(iii) "Current Maturity of Long-Term Debt" ("CMLTD") shall
mean, for any period, the current scheduled principal or
capital lease payments required to be paid during the
applicable period.
(iv) "Current Assets" shall mean current assets as defined
under GAAP.
(v) "Current Liabilities" shall mean current liabilities as
defined under GAAP.
(vi) "Distributions" shall mean all cash dividends to
shareholders, and all cash distributions to shareholders of
Subchapter S corporations, to partners of partnerships, to
members of limited liability companies or to beneficiaries of
trusts.
(vii) "Earnings" shall mean earnings as defined under GAAP.
(viii) "EBIT" shall mean, for any period, Earnings from
continuing operations before payment of interest expense,
federal, state and local income taxes, in each case for such
period, computed and calculated in accordance with GAAP.
(ix) "EBITDA" shall mean, for any period, Earnings from
continuing operations before payment of federal, state and
local income taxes, plus Interest Expense, depreciation and
amortization, in each case for such period, computed and
calculated in accordance with GAAP.
9
(x) "GAAP" shall mean generally accepted accounting principles
in effect from time to time in the United States.
(xi) "Indebtedness" shall mean (x) all indebtedness for
borrowed money or for the deferred purchase price of property
or services, and all obligations under leases which are or
should be, under GAAP, recorded as capital leases, in respect
of which a person is directly or contingently liable as
borrower, guarantor, endorser or otherwise, or in respect of
which a person otherwise assures a creditor against loss, (y)
all obligations for borrowed money or for the deferred
purchase price of property or services secured by (or for
which the holder has an existing right, contingent or
otherwise, to be secured by) any lien upon property (including
without limitation accounts receivable and contract rights)
owned by a person, whether or not such person has assumed or
become liable for the payment thereof, and (z) all other
liabilities and obligations which would be classified in
accordance with GAAP as liabilities on a balance sheet or to
which reference should be made in footnotes thereto.
(xii) "Intangible Assets" shall mean, as of the date of
determination thereof, assets that in accordance with GAAP are
properly classifiable as intangible assets, including, but not
limited to, goodwill, franchises, licenses, patents,
trademarks, trade names and copyrights.
(xiii) "Interest Expense" shall mean, for any period,
ordinary, regular, recurring and continuing expenditures for
interest on all borrowed money.
(xiv) "Subordinated Indebtedness" shall mean, as of the date
of determination thereof, all Indebtedness which has been
subordinated in writing to the obligations owing to the Bank
on terms and conditions acceptable to the Bank.
(xv) "Effective Tangible Net Worth" shall mean, as of the date
of determination thereof, Tangible Net Worth plus Subordinated
Indebtedness.
(xvi) "Tangible Net Worth" shall mean, as of the date of
determination thereof, total assets, excluding all Intangible
Assets, less total liabilities.
(xvii) "Unfinanced CAPEX" shall mean, for any period, Capital
Expenditures less new long-term Indebtedness issued during
such period to fund the Capital Expenditures.
(b) Current Ratio. The Combined Borrower's shall not permit the
ratio of its Current Assets to Current Liabilities to be less
than 1.25 to 1.00, tested quarterly.
(c) Debt to Effective Tangible Net Worth. The Combined Borrower's
shall not permit the ratio of its Indebtedness minus
Subordinated Indebtedness to Effective Tangible Net Worth to
be greater than 2.00 to 1.00, tested quarterly.
(d) Free Cash Flow. The Combined Borrower's shall not permit the
ratio of its EBITDA, minus taxes paid in cash, Distributions
and Unfinanced CAPEX, to Interest Expense plus CMLTD, to be
less than 1.25 to 1.00, for any fiscal quarter. Ratio analysis
will commence 9/30/05. For the period ending 9/30/05, 12/31/05
and 3/31/06 the calculation will include adding back to
earnings $500,000.00 of non-recurring expenses related to the
acquisition of Picotronix, Inc., dba Picometrix, Inc.
(e) EBIT to Interest Expense. The Combined Borrower's shall not
permit the ratio of its EBIT to Interest Expense to be less
than 2.00 to 1.00, for any fiscal quarter. Ratio analysis will
commence 9/30/05. For the period ending 9/30/05, 12/31/05 and
3/31/06 the calculation will include adding back to earnings
$500,000.00 of non-recurring expenses related to the
acquisition of Picotronix, Inc., dba Picometrix, Inc.
10
(f) No additional revolving or term debt without Bank's
concurrence.
(g) Balance on initial Note to Smithfield Fiduciary, LLC, Iroquois
Capital, LP, Bluegrass Growth Fund, LP, and Bluegrass Growth
Fund, Ltd, to be no greater than $5,000,000.00 in the
aggregate principal amount.
(h) No consecutive quarter losses.
(i) Intercreditor Agreement executed by Advanced Photonix, Inc.,
Silicon Sensors, Inc., Michigan Acquisition Sub, LLC, Texas
Optoelectronics, Inc., Silicon Detector Corporation, Photonic
Detectors Inc., and Smithfield Fiduciary, LLC to subordinate
$6,000,000.00 in Smithfield Fiduciary, LLC debt to Santa
Xxxxxxx Bank & Trust.
(j) Subsequent to closing, possibly within 24 hours, Michigan
Acquisition Sub, LLC will be replaced as Co-Borrower with
Picometrix, LLC.
(k) Prior to funding the loan, the merger of Picotronix, Inc., dba
Picometrix, Inc., into Michigan Acquisition Sub, LLC must be
completed.
5.2 Limitations on Indebtedness. Borrower shall not issue any evidence of
indebtedness or create, assume, guarantee, become contingently liable for, or
suffer to exist indebtedness in addition to indebtedness to the Bank, except
indebtedness or liabilities of Borrower, other than for money borrowed, incurred
or arising in the ordinary course of business.
5.3 Sale of Interest. There shall not be any sale or transfer of ownership of
any interest in the Borrower without the Bank's prior written consent unless
such transfer shall not result in change in control of Borrower.
5.4 Loans or Advances. Borrower shall not make any loans or advances to any
individual, firm or corporation, including without limitation its officers and
employees; provided, however, that Borrower may make advances to its employees,
including its officers, with respect to expenses incurred or to be incurred by
such employees in the ordinary course of business which expenses are
reimbursable by Borrower; and provided further, however, that Borrower may
extend credit in the ordinary course of business in accordance with customary
trade practices.
5.5 Dividends and Distributions. Borrower shall not, without prior written
consent of the Bank, pay any dividends on or make any distribution except to any
Combined Borrower on account of any class of Borrower's capital stock in cash or
in property (other than additional shares, of such stock), or redeem, purchase
or otherwise acquire, directly or indirectly, any of such stock, except, so long
as Borrower is not in default hereunder.
5.6 Investments. The Borrower shall not make investments in, or advances to, any
individual, partnership, corporation, limited liability company, trust or other
organization or person, except for any Combined Borrower. The Borrower will not
purchase or otherwise invest in or hold securities, nonoperating real estate or
other nonoperating assets or purchase all or substantially all the assets of any
entity.
5.7 Merger. Borrower will not merge or consolidate or be merged or consolidated
with or into any other entity.
5.8 Capital Expenditures. The Borrower shall not, directly or indirectly, make
or commit to make capital expenditures by lease, purchase, or otherwise, except
in the ordinary and usual course of business for the purpose of replacing
machinery, equipment or other personal property which, as a
11
consequence of wear, duplication or obsolescence, is no longer used or necessary
in the Borrower's business.
5.9 Sale of Assets. Borrower shall not sell, lease or otherwise dispose of any
of its assets, except in the ordinary and usual course of business and except
for the purpose of replacing machinery, equipment or other personal property
which, as a consequence of wear, duplication or obsolescence, is no longer used
or necessary in the Borrower's business, provided that fair consideration is
received therefor; provided, however, in no event, except in the ordinary and
usual course of business, shall the Borrower sell, lease or otherwise dispose of
any equipment purchased with the proceeds of any loans made by the Bank.
5.10 Restriction on Liens. Borrower shall not grant any security interest in, or
mortgage of, any of its properties or assets including the Collateral. Borrower
shall not agree with any person other than the Bank to not grant any security
interest in, or mortgage of, any of its properties or assets including the
Collateral.
5.11 Other Business. Borrower shall not engage in any business other than the
business in which it is currently engaged or a business reasonably allied
thereto.
5.12 Change of Name. Borrower shall not change its legal name or the State of
its organization, without giving the Bank at least 30 days prior written notice
thereof.
6. DEFAULT
6.1 Default. "Event of Default" shall mean the occurrence of one or more of any
of the following events:
(a) default of any liability, obligation or undertaking of the
Borrower or any guarantor of the Obligations to the Bank,
hereunder or otherwise, including, without limitation, failure
to pay in full and when due any installment of principal or
interest or default of the Borrower or any guarantor of the
Obligations under any other Loan Document or any other
agreement with the Bank continuing for 10 days with respect to
the payment of money or continuing for 30 days with respect to
any other default;
(b) failure of the Borrower or any guarantor of the Obligations to
maintain aggregate collateral security value satisfactory to
the Bank continuing for 30 days;
(c) default of any material liability, obligation or undertaking
of the Borrower or any guarantor of the Obligations to any
other party continuing for 30 days;
(d) if any statement, representation or warranty heretofore, now
or hereafter made by the Borrower or any guarantor of the
Obligations in connection with this Agreement or in any
supporting financial statement of the Borrower or any
guarantor of the Obligations shall be determined by the Bank
to have been false in any material respect when made;
(e) if the Borrower or any guarantor of the Obligations is a
corporation, trust, partnership or limited liability company,
the liquidation, termination or dissolution of any such
organization, or the merger or consolidation of such
organization into another entity, or its ceasing to carry on
actively its present business or the appointment of a receiver
for its property;
(f) the institution by or against the Borrower or any guarantor of
the Obligations of any proceedings under the Bankruptcy Code
11 USC ss.101 et seq. or any other law in which the Borrower
or any guarantor of the Obligations is alleged to be insolvent
or unable to pay its debts as they mature, or the making by
the Borrower or any guarantor of the Obligations of an
12
assignment for the benefit of creditors or the granting by the
Borrower or any guarantor of the Obligations of a trust
mortgage for the benefit of creditors;
(g) the service upon the Bank of a writ in which the Bank is named
as trustee of the Borrower or any guarantor of the
Obligations;
(h) a judgement or judgements for the payment of money shall be
rendered against the Borrower or any guarantor of the
Obligations, and any such judgement shall remain unsatisfied
and in effect for any period of thirty (30) consecutive days
without a stay of execution;
(i) any xxxx, xxxx (including mechanics lien), seizure,
attachment, execution or similar process shall be issued or
levied on any of the property of the Borrower or any guarantor
of the Obligations;
(j) the termination or revocation of any guaranty of the
Obligations; or
(k) the occurrence of such a change in the condition or affairs
(financial or otherwise) of the Borrower or any guarantor of
the Obligations, or the occurrence of any other event or
circumstance, such that the Bank, in its reasonable sole
discretion, deems that it is insecure or that the prospects
for timely or full payment or performance of any obligation of
the Borrower or any guarantor of the Obligations to the Bank
has been or may be impaired.
6.2 Acceleration. If an Event of Default shall occur, at the election of the
Bank, all Obligations shall become immediately due and payable without notice or
demand, except with respect to Obligations payable on DEMAND, which shall be due
and payable on DEMAND, whether or not an Event of Default has occurred.
The Bank is hereby authorized, at its election, after an Event of
Default or after Demand, without any further demand or notice except to such
extent as notice may be required by applicable law, to take possession and/or
sell or otherwise dispose of all or any of the Collateral at public or private
sale; and the Bank may also exercise any and all other rights and remedies of a
secured party under the Code or which are otherwise accorded to it in equity or
at law, all as Bank may determine, and such exercise of rights in compliance
with the requirements of law will not be considered adversely to affect the
commercial reasonableness of any sale or other disposition of the Collateral. If
notice of a sale or other action by the Bank is required by applicable law,
unless the Collateral is perishable or threatens to decline speedily in value or
is of a type customarily sold on a recognized market, the Borrower agrees that
ten (10) days written notice to the Borrower, or the shortest period of written
notice permitted by such law, whichever is smaller, shall be sufficient notice;
and that to the extent permitted by law, the Bank, its officers, attorneys and
agents may bid and become purchasers at any such sale, if public, and may
purchase at any private sale any of the Collateral that is of a type customarily
sold on a recognized market or which is the subject of widely distributed
standard price quotations. Any sale (public or private) shall be without
warranty and free from any right of redemption, which the Borrower shall waive
and release after default upon the Bank's request therefor, and may be free of
any warranties as to the Collateral if Bank shall so decide. No purchaser at any
sale (public or private) shall be responsible for the application of the
purchase money. Any balance of the net proceeds of sale remaining after paying
all Obligations of the Borrower to the Bank shall be returned to such other
party as may be legally entitled thereto; and if there is a deficiency, the
Borrower shall be responsible for repayment of the same, with interest. Upon
demand by the Bank, the Borrower shall assemble the Collateral and make it
available to the Bank at a place designated by the Bank which is reasonably
convenient to the Bank and the Borrower. The Borrower hereby acknowledges that
the Bank has extended credit and other financial accommodations to the Borrower
upon reliance of the Borrower's granting the Bank the rights and remedies
contained in this Agreement including without limitation the right to take
immediate possession of the Collateral upon the occurrence of an Event of
Default or after DEMAND with respect to Obligations payable on DEMAND and the
Borrower hereby acknowledges that the Bank is entitled to equitable and
injunctive relief to enforce any of its rights and remedies hereunder or under
the Code and the Borrower hereby waives any defense
13
to such equitable or injunctive relief based upon any allegation of the absence
of irreparable harm to the Bank.
The Bank shall not be required to marshal any present or future
security for (including but not limited to this Agreement and the Collateral
subject to the security interest created hereby), or guarantees of, the
Obligations or any of them, or to resort to such security or guarantees in any
particular order; and all of its rights hereunder and in respect of such
securities and guaranties shall be cumulative and in addition to all other
rights, however existing or arising. To the extent that it lawfully may,
Borrower hereby agrees that it will not invoke any law relating to the
marshalling of collateral which might cause delay in or impede the enforcement
of the Bank's rights under this Agreement or under any other instrument
evidencing any of the Obligations or under which any of the Obligations is
outstanding or by which any of the Obligations is secured or guaranteed, and to
the extent that it lawfully may do so, Borrower hereby irrevocably waives the
benefits of all such laws. Except as required by applicable law, the Bank shall
have no duty as to the collection or protection of the Collateral or any income
thereon, nor as to the preservation of rights against prior parties, nor as to
the preservation of any rights pertaining thereto beyond the safe custody
thereof.
6.3 Power of Attorney. The Borrower hereby irrevocably constitutes and appoints
the Bank as the Borrower's true and lawful attorney, with full power of
substitution, at the sole cost and expense of the Borrower but for the sole
benefit of the Bank, upon the occurrence of an Event of Default or after DEMAND
with respect to Obligations payable on DEMAND, to convert the Collateral into
cash, including, without limitation, completing the manufacture or processing of
work in process, and the sale (either public or private) of all or any portion
or portions of the inventory and other Collateral; to enforce collection of the
Collateral, either in its own name or in the name of the Borrower, including,
without limitation, executing releases or waivers, compromising or settling with
any Debtors and prosecuting, defending, compromising or releasing any action
relating to the Collateral; to receive, open and dispose of all mail addressed
to the Borrower and to take therefrom any remittances or proceeds of Collateral
in which the Bank has a security interest; to notify Post Office authorities to
change the address for delivery of mail addressed to the Borrower to such
address as the Bank shall designate; to endorse the name of the Borrower in
favor of the Bank upon any and all checks, drafts, money orders, notes,
acceptances or other instruments of the same or different nature; to sign and
endorse the name of the Borrower on and to receive as secured party any of the
Collateral, any invoices, freight or express receipts, or bills of lading,
storage receipts, warehouse receipts, or other documents of title of the same or
different nature relating to the Collateral; to sign the name of the Borrower on
any notice of the Debtors or on verification of the Collateral; and to sign, if
necessary, and file or record on behalf of the Borrower any financing or other
statement in order to perfect or protect the Bank's security interest. The Bank
shall not be obliged to do any of the acts or exercise any of the powers
hereinabove authorized, but if the Bank elects to do any such act or exercise
any such power, it shall not be accountable for more than it actually receives
as a result of such exercise of power, and it shall not be responsible to the
Borrower except for its own gross negligence or willful misconduct. All powers
conferred upon the Bank by this Agreement, being coupled with an interest, shall
be irrevocable so long as any Obligation of the Borrower or any guarantor or
surety to the Bank shall remain unpaid or the Bank is obligated under this
Agreement to extend any credit to the Borrower.
6.4 Nonexclusive Remedies. All of the Bank's rights and remedies not only under
the provisions of this Agreement but also under any other agreement or
transaction shall be cumulative and not alternative or exclusive, and may be
exercised by the Bank at such time or times and in such order of preference as
the Bank in its sole discretion may determine.
6.5 Reassignment to Borrower. Whenever the Bank deems it desirable that any
legal action be instituted with respect to any Collateral or that any other
action be taken in any attempt to effectuate collection of any Collateral, the
Bank may reassign the item in question to the Borrower (and if the Bank shall
execute any such reassignment, it shall automatically be deemed to be without
recourse to the Bank in any event) and require the Borrower to proceed with such
legal or other action at the Borrower's sole liability, cost and expense, in
which event all amounts collected by the Borrower on such item shall
nevertheless be subject to the Bank's security interest.
14
7. MISCELLANEOUS
7.1 Waivers. The Borrower waives notice of intent to accelerate, notice of
acceleration, notice of nonpayment, demand, presentment, protest or notice of
protest of the Obligations, and all other notices, consents to any renewals or
extensions of time of payment thereof, and generally waives any and all
suretyship defenses and defenses in the nature thereof.
7.2 Severability. If any provision of this Agreement or portion of such
provision or the application thereof to any person or circumstance shall to any
extent be held invalid or unenforceable, the remainder of this Agreement (or the
remainder of such provision) and the application thereof to other persons or
circumstances shall not be affected thereby.
7.3 Deposit Collateral. The Borrower hereby grants to the Bank a continuing lien
and security interest in any and all deposits or other sums at any time credited
by or due from the Bank (or any of its banking or lending affiliates, or any
bank acting as a participant under any loan arrangement between the Bank and the
Borrower, or any third party acting on the Bank's behalf (collectively, the
"Bank Affiliates")) to the Borrower and any cash, securities, instruments or
other property of the Borrower in the possession of the Bank or any Bank
Affiliate, whether for safekeeping or otherwise, or in transit to or from the
Bank or any Bank Affiliate (regardless of the reason the Bank or Bank Affiliate
had received the same or whether the Bank or Bank Affiliate has conditionally
released the same) as security for the full and punctual payment and performance
of all of the liabilities and obligations of the Borrower to the Bank or any
Bank Affiliate and such deposits and other sums may be applied against such
liabilities and obligations of the Borrower to the Bank or any Bank Affiliate at
any time, whether or not such are then due, whether or not demand has been made
and whether or not other collateral is then available to the Bank or any Bank
Affiliate.
7.4 Indemnification. The Borrower shall indemnify, defend and hold the Bank
harmless of and from any claim brought or threatened against the Bank by the
Borrower, any guarantor or endorser of the Obligations, or any other person (as
well as from reasonable attorneys' fees and expenses in connection therewith) on
account of the Bank's relationship with the Borrower, or any guarantor or
endorser of the Obligations (each of which may be defended, compromised, settled
or pursued by the Bank with counsel of the Bank's election, but at the expense
of the Borrower), except for any claim arising out of the gross negligence or
willful misconduct of the Bank. The within indemnification shall survive payment
of the Obligations, and/or any termination, release or discharge executed by the
Bank in favor of the Borrower.
7.5 Costs and Expenses. The Borrower shall pay to the Bank on demand any and all
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements, court costs, litigation and other expenses) incurred or paid
by the Bank in establishing, maintaining, protecting or enforcing any of the
Bank's rights or the Obligations, including, without limitation, any and all
such costs and expenses incurred or paid by the Bank in defending the Bank's
security interest in, title or right to the Collateral or in collecting or
attempting to collect or enforcing or attempting to enforce payment of the
Obligations.
7.6 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be an original, but all of which shall constitute but one
agreement.
7.7 Complete Agreement. This Agreement and the other Loan Documents constitute
the entire agreement and understanding between and among the parties hereto
relating to the subject matter hereof, and supersedes all prior proposals,
negotiations, agreements and understandings among the parties hereto with
respect to such subject matter.
7.8 Binding Effect of Agreement. This Agreement shall be binding upon and inure
to the benefit of the respective heirs, executors, administrators, legal
representatives, successors and assigns of the parties hereto, and shall remain
in full force and effect (and the Bank shall be entitled to rely thereon) until
terminated as to future transactions by written notice from either party to the
other party of the termination hereof; provided that any such termination shall
not release or affect any Collateral in which the Bank
15
already has a security interest or any Obligations incurred or rights accrued
hereunder prior to the effective date of such notice (as hereinafter defined) of
such termination. Notwithstanding any such termination, the Bank shall have a
security interest in all Collateral to secure the payment and performance of
Obligations arising after such termination as a result of commitments or
undertakings made or entered into by the Bank prior to such termination. The
Bank may transfer and assign this Agreement and deliver the Collateral to the
assignee, who shall thereupon have all of the rights of the Bank; and the Bank
shall then be relieved and discharged of any responsibility or liability with
respect to this Agreement and the Collateral. The Borrower may not assign or
transfer any of its rights or obligations under this Agreement. Except as
expressly provided herein or in the other Loan Documents, nothing, expressed or
implied, is intended to confer upon any party, other than the parties hereto,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement or the other Loan Documents.
7.9 Further Assurances. Borrower will from time to time execute and deliver to
Bank such documents, and take or cause to be taken, all such other or further
action, as Bank may request in order to effect and confirm or vest more securely
in Bank all rights contemplated by this Agreement and the other Loan Documents
(including, without limitation, to correct clerical errors) or to vest more
fully in or assure to the Bank the security interest in the Collateral granted
to the Bank by this Agreement or to comply with applicable statute or law and to
facilitate the collection of the Collateral (including, without limitation, the
execution of stock transfer orders and stock powers, endorsement of promissory
notes and instruments and notifications to obligors on the Collateral). To the
extent permitted by applicable law, Borrower authorizes Bank to file financing
statements, continuation statements or amendments without Borrower's signature
appearing thereon, and any such financing statements, continuation statements or
amendments may be signed by Bank on behalf of Borrower, if necessary, and may be
filed at any time in any jurisdiction. Bank may at any time and from time to
time file financing statements, continuation statements and amendments thereto
which contain any information required by the Code for the sufficiency or filing
office acceptance of any financing statement, continuation statement or
amendment, including whether Borrower is an organization, the type of
organization and any organization identification number issued to Borrower.
Borrower agrees to furnish any such information to Bank promptly upon request.
In addition, Borrower shall at any time and from time to time take such steps as
Bank may reasonably request for Bank (i) to obtain an acknowledgement, in form
and substance satisfactory to Bank, of any bailee having possession of any of
the Collateral that the bailee holds such Collateral for Bank, (ii) to obtain
"control" (as defined in the Code) of any Collateral comprised of deposit
accounts, electronic chattel paper, letter of credit rights or investment
property, with any agreements establishing control to be in form and substance
satisfactory to Bank, and (iii) otherwise to insure the continued perfection and
priority of Bank's security interest in any of the Collateral and the
preservation of its rights therein. Borrower hereby constitutes Bank its
attorney-in-fact to execute, if necessary, and file all filings required or so
requested for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed; and such power, being coupled with an interest, shall be
irrevocable until this Agreement terminates in accordance with its terms, all
Obligations are paid in full and the Collateral is released.
7.10 Amendments and Waivers. This Agreement may be amended and Borrower may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, if Borrower shall obtain the Bank's prior written consent to
each such amendment, action or omission to act. No course of dealing and no
delay or omission on the part of Bank in exercising any right hereunder shall
operate as a waiver of such right or any other right and waiver on any one or
more occasions shall not be construed as a bar to or waiver of any right or
remedy of Bank on any future occasion.
7.11 Terms of Agreement. This Agreement shall continue in full force and effect
so long as any Obligations or obligation of Borrower to Bank shall be
outstanding, or the Bank shall have any obligation to extend any financial
accommodation hereunder, and is supplementary to each and every other agreement
between Borrower and Bank and shall not be so construed as to limit or otherwise
derogate from any of the rights or remedies of Bank or any of the liabilities,
obligations or undertakings of Borrower under any such agreement, nor shall any
contemporaneous or subsequent agreement between Borrower and the Bank be
construed to limit or otherwise derogate from any of the rights or remedies of
Bank or
16
any of the liabilities, obligations or undertakings of Borrower hereunder,
unless such other agreement specifically refers to this Agreement and expressly
so provides.
7.12 Notices. Any notice under or pursuant to this Agreement shall be a signed
writing or other authenticated record (within the meaning of Article 9 of the
Code). Any such notice shall be deemed duly received and effective (i) if
delivered in hand to, or received by, any officer or agent of the Borrower or
the Bank, upon such delivery or receipt, or (ii) if mailed by registered or
certified mail, return receipt requested, postage prepaid, and properly
addressed to the Borrower or the Bank, two (2) business days after being so
mailed. A party's proper address is that set forth for such party in this
Agreement or such address as that party may from time to time hereafter
designate by notice to the other party.
7.13 Governing Law. This Agreement has been executed or completed and/or is to
be performed in California, and it and all transactions thereunder or pursuant
thereto shall be governed as to interpretation, validity, effect, rights, duties
and remedies of the parties thereunder and in all other respects by the laws of
California.
7.14 Reproductions. This Agreement and all documents which have been or may be
hereinafter furnished by Borrower to the Bank may be reproduced by the Bank by
any photographic, photostatic, microfilm, xerographic or similar process, and
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made in the regular course of
business).
7.15 Jurisdiction and Venue. Borrower irrevocably submits to the nonexclusive
jurisdiction of any Federal or state court sitting in California, over any suit,
action or proceeding arising out of or relating to this Agreement. Borrower
irrevocably waives, to the fullest extent it may effectively do so under
applicable law, any objection it may now or hereafter have to the laying of the
venue of any such suit, action or proceeding brought in any such court and any
claim that the same has been brought in an inconvenient forum. Borrower hereby
consents to any and all process which may be served in any such suit, action or
proceeding, (i) by mailing a copy thereof by registered and certified mail,
postage prepaid, return receipt requested, to the Borrower's address shown in
this Agreement or as notified to the Bank and (ii) by serving the same upon the
Borrower in any other manner otherwise permitted by law, and agrees that such
service shall in every respect be deemed effective service upon Borrower.
7.16 Civil Code Section 2822. In the event that at any time, a surety is liable
upon only a portion of Borrower's obligations under the Loan Documents and
Borrower provides partial satisfaction of any such obligation(s), Borrower
hereby waives any right it would otherwise have, under Section 2822 of the
California Civil Code, to designate the portion of the obligations to be
satisfied. The designation of the portion of the obligation to be satisfied
shall, to the extent not expressly made by the terms of the Loan Documents, be
made by the Bank rather than Borrower.
7.17 JURY WAIVER. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE
BORROWER AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY, AND
AFTER AN OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL, (A) WAIVE ANY AND ALL RIGHTS
TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING IN CONNECTION WITH THIS
AGREEMENT, THE OBLIGATIONS, ALL MATTERS CONTEMPLATED HEREBY AND DOCUMENTS
EXECUTED IN CONNECTION HEREWITH AND (B) AGREE NOT TO SEEK TO CONSOLIDATE ANY
SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE, OR HAS NOT
BEEN, WAIVED. THE BORROWER CERTIFIES THAT NEITHER THE BANK NOR ANY OF ITS
REPRESENTATIVES, AGENTS OR COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
THE BANK WOULD NOT IN THE EVENT OF ANY SUCH PROCEEDING SEEK TO ENFORCE THIS
WAIVER OF RIGHT TO TRIAL BY JURY.
7.18 ARBITRATION. ARBITRATION. IN THE EVENT THAT THE JURY WAIVER SET FORTH ABOVE
IS JUDICIALLY DETERMINED TO NOT BE PERMITTED BY LAW, THE PARTIES AGREE TO
ATTEMPT IN GOOD FAITH TO RESOLVE ANY DISPUTES WHICH MAY ARISE AMONG THEM IN
17
CONNECTION WITH THE INTERPRETATION OR ENFORCEMENT OF THE PROVISIONS OF THIS
AGREEMENT, OR THE APPLICATION OR VALIDITY THEREOF. IN THE EVENT THAT ANY DISPUTE
CANNOT BE SO RESOLVED, AND UNLESS THE RELIEF SOUGHT REQUIRES THE EXERCISE OF THE
EQUITY POWERS OF A COURT OF COMPETENT JURISDICTION, SUCH DISPUTE SHALL BE
SUBMITTED TO ARBITRATION. SUCH ARBITRATION PROCEEDINGS SHALL BE HELD IN THE
COUNTY OF SANTA BARBARA, CALIFORNIA, IN ACCORDANCE WITH THE ARBITRATION
PROVISIONS OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. THIS AGREEMENT TO
ARBITRATE SHALL BE SPECIFICALLY ENFORCEABLE. ANY AWARD RENDERED IN ANY SUCH
ARBITRATION PROCEEDINGS SHALL BE FINAL AND BINDING ON EACH OF THE PARTIES
HERETO, AND JUDGEMENT MAY BE ENTERED THEREON IN ANY COURT OF COMPETENT
JURISDICTION.
Executed as of MAY 2, 2005.
Borrower:
Silicon Sensors, Inc.
By: /s/ XXXXXXX X. XXXXX
------------------------------
Xxxxxxx X. Xxxxx,
Chief Executive Officer
Accepted: Pacific Capital Bank, N.A.
By: /s/ XXXXX XXXXXX
------------------------
Name: Xxxxx Xxxxxx
Title: Vice President
18
EXHIBIT A TO LOAN AND SECURITY AGREEMENT OF
SILICON SENORS, INC.
1. Subsidiaries: None
2. Consolidations, Mergers and Acquisitions: None
EXHIBIT B LOAN AND SECURITY AGREEMENT OF
SILICON SENORS, INC.
1. Liens:
(a) Smithfield Fiduciary, LLC, acting as collateral agent on
behalf of the other investors in connection with the private
placement which closed on October 12, 2004, has a first
priority security interest in all of the assets of Advanced
Photonix, Inc., except as set forth in that certain
Subordination and Intercreditor Agreement between Pacific
Capital Bank, N.A. and Smithfield Fiduciary, LLC.
(b) Xxxxx Xxxxxx and Xxxxxx Xxxxxxxxxx have a first priority
security interest in all of the intellectual property of
Michigan Acquisition Sub, LLC.
20
(THE NETWORK OF PREFERRED COMMUNITY BANKS(SM) LOGO)
Loan No. 37512-37654
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT (this "Agreement") entered into as of
MAY 2, 2005, between TEXAS OPTOELECTRONICS, INC., A TEXAS CORPORATION, with its
chief executive office located at 0000 XXXXXXX XXXXX, XXXXXXXXX, XXXXXXXXXX
00000 (the "Borrower") and Pacific Capital Bank, N.A., a national banking
association, doing business as Santa Xxxxxxx Bank & Trust, with an address of
c/o Loan Services, XX Xxx 00000, Xxxxx Xxxxxxx, Xxxxxxxxxx 00000-0000 (the
"Bank").
FOR VALUE RECEIVED, and in consideration of the granting by the Bank of
financial accommodations to or for the benefit of the Borrower, including
without limitation respecting the Obligations (as hereinafter defined), the
Borrower represents and agrees with the Bank, as of the date hereof and as of
the date of each loan, credit and/or other financial accommodation, as follows:
1. THE LOAN
1.1 Loan. Subject to the terms and conditions of this Agreement, the Bank hereby
agrees to make a loan to the Borrower, Advanced Photonix, Inc., Silicon Sensors,
Inc., Michigan Acquisition Sub, LLC, Silicon Detector Corporation and Photonic
Detectors, Inc. in the original principal amount of $2,700,000.00 (the "Loan").
The Loan shall be evidenced by that certain Term Note, of even date herewith
(the "Note") by Borrower, Advanced Photonix, Inc., Silicon Sensors, Inc.,
Michigan Acquisition Sub, LLC, Silicon Detector Corporation and Photonic
Detectors, Inc. in favor of the Bank in the original principal amount of
$2,700,000.00. This Agreement, the Note, and any and all other documents,
amendments or renewals executed and delivered in connection with any of the
foregoing are collectively hereinafter referred to as the "Loan Documents".
2. GRANT OF SECURITY INTEREST
2.1 Grant of Security Interest. In consideration of the Bank's extending credit
and other financial accommodations to or for the benefit of the Borrower, the
Borrower hereby grants to the Bank a security interest in, a lien on and pledge
and assignment of the Collateral (as hereinafter defined). The security interest
granted by this Agreement is given to and shall be held by the Bank as security
for the payment and performance of all Obligations, including, without
limitation, all amounts outstanding pursuant to the Loan Documents.
2.2 Definitions. The following definitions shall apply:
(a) "Code" shall mean the Uniform Commercial Code of California as
amended from time to time.
(b) "Collateral" shall mean all Borrower's present and future
right, title and interest in and to any and all of the
personal property of Borrower whether such property is now
existing or hereafter created, acquired or arising and
wherever located from time to time, including without
limitation:
(i) accounts;
(ii) chattel paper;
(iii) goods;
(iv) inventory;
(v) equipment;
(vi) farm products;
(vii) instruments;
(viii) investment property;
(ix) documents;
(x) commercial tort claims;
(xi) deposit accounts;
(xii) letter-of-credit rights;
(xiii) general intangibles;
(xiv) supporting obligations; and
(xv) proceeds and products of the foregoing.
(c) "Debtors" shall mean the Borrower's customers who are indebted
to the Borrower.
(d) "Obligation(s)" shall mean, without limitation, all loans,
advances, indebtedness, notes, liabilities, rate swap
transactions, basis swaps, forward rate transactions,
commodity swaps, commodity options, equity or equity index
swaps, equity or equity index options, bond options, interest
rate options, foreign exchange transactions, cap transactions,
floor transactions, collar transactions, forward transactions,
currency swap transactions, cross-currency rate swap
transactions, currency options and amounts, liquidated or
unliquidated, owing by the Borrower to the Bank at any time,
of each and every kind, nature and description, whether
arising under this Agreement or otherwise, and whether secured
or unsecured, direct or indirect (that is, whether the same
are due directly by the Borrower to the Bank; or are due
indirectly by the Borrower to the Bank as endorser, guarantor
or other surety, or as borrower of obligations due third
persons which have been endorsed or assigned to the Bank, or
otherwise), absolute or contingent, due or to become due, now
existing or hereafter arising or contracted, including,
without limitation, payment when due of all amounts
outstanding respecting any of the Loan Documents. Said term
shall also include all interest and other charges chargeable
to the Borrower or due from the Borrower to the Bank from time
to time and all costs and expenses referred to in this
Agreement.
(e) "Person" or "party" shall mean individuals, partnerships,
corporations, limited liability companies and all other
entities.
All words and terms used in this Agreement other than those
specifically defined herein shall have the meanings accorded to them in the
Code.
2.3 Ordinary Course of Business. The Bank hereby authorizes and permits the
Borrower to hold, process, sell, use or consume in the manufacture or processing
of finished goods, or otherwise dispose of
2
inventory for fair consideration, all in the ordinary course of the Borrower's
business, excluding, without limitation, sales to creditors or in bulk or sales
or other dispositions occurring under circumstances which would or could create
any lien or interest adverse to the Bank's security interest or other right
hereunder in the proceeds resulting therefrom. The Bank also hereby authorizes
and permits the Borrower to receive from the Debtors all amounts due as proceeds
of the Collateral at the Borrower's own cost and expense, and also liability, if
any, subject to the direction and control of the Bank at all times; and the Bank
may at any time, without cause or notice, and whether or not a default has
occurred or demand has been made, terminate all or any part of the authority and
permission herein or elsewhere in this Agreement granted to the Borrower with
reference to the Collateral, and notify Debtors to make all payments due as
proceeds of the Collateral to the Bank. Until Bank shall otherwise notify
Borrower, all proceeds of and collections of Collateral shall be retained by
Borrower and used solely for the ordinary and usual operation of Borrower's
business. From and after notice by Bank to Borrower, all proceeds of and
collections of the Collateral shall be held in trust by Borrower for Bank and
shall not be commingled with Borrower's other funds or deposited in any bank
account of Borrower; and Borrower agrees to deliver to Bank on the dates of
receipt thereof by Borrower, duly endorsed to Bank or to bearer, or assigned to
Bank, as may be appropriate, all proceeds of the Collateral in the identical
form received by Borrower.
2.4 Allowances. The Borrower may grant such allowances or other adjustments to
Debtors (exclusive of extending the time for payment of any item which shall not
be done without first obtaining the Bank's written consent in each instance) as
the Borrower may reasonably deem to accord with sound business practice,
including, without limiting the generality of the foregoing, accepting the
return of all or any part of the inventory (subject to the provisions set forth
in this Agreement with reference to returned inventory).
2.5 Records. The Borrower shall hold its books and records relating to the
Collateral segregated from all the Borrower's other books and records in a
manner satisfactory to the Bank; and shall deliver to the Bank from time to time
promptly at its request all invoices, original documents of title, contracts,
chattel paper, instruments and any other writings relating thereto, and other
evidence of performance of contracts, or evidence of shipment or delivery of the
merchandise or of the rendering of services; and the Borrower will deliver to
the Bank promptly at the Bank's request from time to time additional copies of
any or all of such papers or writings, and such other information with respect
to any of the Collateral and such schedules of inventory, schedules of accounts
and such other writings as the Bank may in its reasonable sole discretion deem
to be necessary or effectual to evidence any loan hereunder or the Bank's
security interest in the Collateral.
2.6 Legends. The Borrower shall promptly make, stamp or record such entries or
legends on the Borrower's books and records or on any of the Collateral
(including, without limitation, chattel paper) as Bank shall request from time
to time, to indicate and disclose that Bank has a security interest in such
Collateral.
2.7 Inspection. The Bank, or its representatives, at any time and from time to
time, shall have the right at the sole cost and expense of Borrower, and the
Borrower will permit the Bank and/or its representatives: (a) to examine, check,
make copies of or extracts from any of the Borrower's books, records and files
(including, without limitation, orders and original correspondence); (b) to
perform field exams or otherwise inspect and examine the Collateral and to
check, test or appraise the same as to quality, quantity, value and condition;
and (c) to verify the Collateral or any portion or portions thereof or the
Borrower's compliance with the provisions of this Agreement.
2.8 Purchase Money Security Interests. To the extent Borrower uses proceeds of
any loans to purchase Collateral, the repayment of such loans shall be on a
"first-in-first-out" basis so that the portion of the loan used to purchase a
particular item of Collateral shall be repaid in the order in which Borrower
purchased such item of Collateral.
2.9 Search Reports. Bank shall receive prior to the date of this Agreement UCC
search results under all names used by the Borrower during the prior five (5)
years, from each jurisdiction where any
3
Collateral is located, from the State, if any, where Borrower is organized and
registered (as such terms are used in the Code), and the State where Borrower's
chief executive office is located. The search results shall confirm that the
security interest in the Collateral granted Bank hereunder is prior to all other
security interests in favor of any other Person.
3. REPRESENTATIONS AND WARRANTIES
3.1 Organization and Qualification. Borrower is a duly organized and validly
existing corporation under the laws of the State of its incorporation with the
exact legal name set forth in the first paragraph of this Agreement. Borrower is
in good standing under the laws of said State, has the power to own its property
and conduct its business as now conducted and as currently proposed to be
conducted, and is duly qualified to do business under the laws of each state
where the nature of the business done or property owned requires such
qualification.
3.2 Subsidiaries. Borrower has no subsidiaries other than as disclosed in
Schedule A attached hereto, if any, and the Borrower has never consolidated,
merged or acquired substantially all of the assets of any other entity or person
other than as disclosed in Schedule A attached hereto, if any.
3.3 Corporate Records. Borrower's corporate charter, articles of organization or
incorporation and all amendments thereto have been duly filed and are in proper
order. All outstanding capital stock issued by the Borrower was and is properly
issued and all books and records of the Borrower, including but not limited to
its minute books, bylaws and books of account, are accurate and up to date and
will be so maintained.
3.4 Title to Properties; Absence of Liens. Borrower has good and clear record
and marketable title to all of its properties and assets, and all of its
properties and assets including the Collateral are free and clear of all
mortgages, liens, pledges, charges, encumbrances and setoffs, other than the
security interest therein granted to the Bank hereby and those mortgages, deeds
of trust, leases of personal property and security interests disclosed in
Schedule B attached hereto.
3.5 Places of Business. Borrower's chief executive office is correctly stated in
the preamble to this Agreement, and Borrower shall, during the term of this
Agreement, keep the Bank currently and accurately informed in writing of each of
its other places of business, and shall not change the location of such chief
executive office or open or close, move or change any existing or new place of
business without giving the Bank at least thirty (30) days prior written notice
thereof.
3.6 Valid Obligations. The execution, delivery and performance of the Loan
Documents have been duly authorized by all necessary corporate action and each
represents a legal, valid and binding obligation of Borrower and is fully
enforceable according to its terms, except as limited by laws relating to the
enforcement of creditors' rights.
3.7 Conflicts. There is no provision in Borrower's organizational or charter
documents, if any, or in any indenture, contract or agreement to which Borrower
is a party which prohibits, limits or restricts the execution, delivery or
performance of the Loan Documents.
3.8 Governmental Approvals. The execution, delivery and performance of the Loan
Documents does not require any approval of or filing with any governmental
agency or authority.
3.9 Litigation. There are no actions, suits or proceedings pending or to the
knowledge of Borrower threatened against Borrower which might materially
adversely affect the ability of Borrower to conduct its business or to pay or
perform the Obligations.
3.10 Accounts and Contract Rights. All accounts arise out of legally enforceable
and existing contracts, and represent unconditional and undisputed bona fide
indebtedness by a Debtor, and are not and will not be subject to any discount
(except such cash or trade discount as may be shown on any
4
invoice, contract or other writing delivered to the Bank). No contract right,
account, general intangible or chattel paper is or will be represented by any
note or other instrument, and no contract right, account or general intangible
is, or will be represented by any conditional or installment sales obligation or
other chattel paper, except such instruments or chattel paper as have been or
immediately upon receipt by the Borrower will be delivered to the Bank (duly
endorsed or assigned), such delivery, in the case of chattel paper, to include
all executed copies except those in the possession of the installment buyer and
any security for or guaranty of any of the Collateral shall be delivered to the
Bank immediately upon receipt thereof by the Borrower, with such assignments and
endorsements thereof as the Bank may request.
3.11 Title to Collateral. At the date hereof the Borrower is (and as to
Collateral that the Borrower may acquire after the date hereof, will be) the
lawful owner of the Collateral, and the Collateral and each item thereof is,
will be and shall continue to be free of all restrictions, liens, encumbrances
or other rights, title or interests (other than the security interest therein
granted to the Bank hereby), credits, defenses, recoupments, set-offs or
counterclaims whatsoever. The Borrower has and will have full power and
authority to grant to the Bank a security interest in the Collateral and the
Borrower has not transferred, assigned, sold, pledged, encumbered, subjected to
lien or granted any security interest in, and will not transfer, assign, sell
(except sales or other dispositions in the ordinary course of business in
respect to inventory as expressly permitted in this Agreement), pledge,
encumber, subject to lien or grant any security interest in any of the
Collateral (or any of the Borrower's right, title or interest therein), to any
person other than the Bank. The Collateral is and will be valid and genuine in
all respects. All accounts arise out of legally enforceable and existing
contracts in accordance with their tenor, and upon the Borrower's acquisition of
any interest in accounts, it shall in writing immediately notify the Bank
thereof, specifically identifying the same as accounts, and, except for such
accounts, no part of the Collateral (or the validity or enforceability by the
Bank thereof) is or shall be contingent upon the fulfillment of any agreement or
condition whatsoever and the Collateral, other than inventory and equipment,
shall represent unconditional and undisputed bona fide indebtedness by the
Debtor, and is not and will not be subject to any discount (except such cash or
trade discount as may be shown on any invoice, contract or other writing
delivered to the Bank). The Borrower will warrant and defend the Bank's right to
and interest in the Collateral against all claims and demands of all persons
whatsoever.
3.12 Location of Collateral. Except for sale, processing, use, consumption or
other disposition in the ordinary course of business, the Borrower will keep all
inventory and equipment only at locations specified in this Agreement or
specified to the Bank in writing. The Borrower shall, during the term of this
Agreement, keep the Bank currently and accurately informed in writing of each
location where the Borrower's records relating to its accounts and contract
rights, respectively, are kept, and shall not remove such records or any of them
to another state without giving the Bank at least thirty (30) days prior written
notice thereof.
3.13 Third Parties. The Bank shall not be deemed to have assumed any liability
or responsibility to the Borrower or any third person for the correctness,
validity or genuineness of any instruments or documents that may be released or
endorsed to the Borrower by the Bank (which shall automatically be deemed to be
without recourse to the Bank in any event) or for the existence, character,
quantity, quality, condition, value or delivery of any goods purporting to be
represented by any such documents; and the Bank, by accepting such security
interest in the Collateral, or by releasing any Collateral to the Borrower,
shall not be deemed to have assumed any obligation or liability to any supplier
or Debtor or to any other third party, and the Borrower agrees to indemnify and
defend the Bank and hold it harmless in respect to any claim or proceeding
arising out of any matter referred to in this paragraph.
3.14 Payment of Accounts. Each account or other item of Collateral, other than
inventory and equipment, will be paid in full on or before the date shown as its
due date in the schedule of Collateral, in the copy of the invoice(s) relating
to the account or other Collateral or in contracts relating thereto. Upon any
suspension of business, assignment or trust mortgage for the benefit of
creditors, dissolution, petition in receivership or under any chapter of the
Bankruptcy Code as amended from time to time by or against any Debtor, any
Debtor becoming insolvent or unable to pay its debts as they mature or any other
act of the same or different nature amounting to a business failure, the
Borrower will forthwith notify the Bank thereof.
5
3.15 Notification of Damage. The Borrower will immediately notify the Bank of
any loss or damage to, or material diminution in or any occurrence that would
adversely affect the value of inventory, equipment or other Collateral.
3.16 Taxes. Borrower has filed all Federal, state and other tax returns required
to be filed (except for such returns for which current and valid extensions have
been filed), and all taxes, assessments and other governmental charges due from
the Borrower have been fully paid. The Borrower has established on its books
reserves adequate for the payment of all Federal, state and other tax
liabilities (if any).
3.17 Use of Proceeds. No portion of any loan is to be used for (i) the purpose
of purchasing or carrying any "margin security" or "margin stock" as such terms
are used in Regulations U and X of the Board of Governors of the Federal Reserve
System, 12 C.F.R. 221 and 224 or (ii) primarily personal, family or household
purposes. The Collateral is not used or acquired primarily for personal, family
or household purposes.
3.18 Environmental. As of the date hereof neither the Borrower nor any of
Borrower's agents, employees or independent contractors (1) have caused or are
aware of a release or threat of release of Hazardous Materials (as defined
herein) on any of the premises or personal property owned or controlled by
Borrower, or any abutting property, which could give rise to liability under any
Environmental Law (as defined herein) or any other Federal, state or local law,
rule or regulation; (2) have arranged for the transport of or transported any
Hazardous Materials in a manner as to violate, or result in potential
liabilities under, any Environmental Law; (3) have received any notice, order or
demand from the Environmental Protection Agency or any other Federal, state or
local agency under any Environmental Law; (4) have incurred any liability under
any Environmental Law in connection with the mismanagement, improper disposal or
release of Hazardous Materials; or (5) are aware of any inspection or
investigation of any of the premises or personal property owned or controlled by
Borrower or abutting property by any Federal, state or local agency for possible
violations of any Environmental Law.
To the best of Borrower's knowledge, no prior owner or tenant of any
premises or property presently controlled or owned by Borrower committed or
omitted any act which caused the release of Hazardous Materials on such premises
or property which could give rise to a lien thereon by any Federal, state or
local government. No notice or statement of claim or lien affecting any property
or premises owned or controlled by Borrower has been recorded or filed in any
public records by any Federal, state or local government for costs, penalties,
fines or other charges as to such property.
Borrower agrees to indemnify and hold Bank harmless from all liability,
loss, cost, damage and expense, including attorney fees and costs of litigation,
arising from any and all of its violations of any Environmental Law (including
those arising from any lien by any Federal, state or local government arising
from the presence of Hazardous Materials) or from the presence of Hazardous
Materials located on or emanating from any of the premises owned or controlled
by the Borrower. Borrower further agrees to reimburse Bank upon demand for any
costs incurred by Bank in connection with the foregoing. Borrower agrees that
its obligations hereunder shall be continuous and shall survive the repayment of
all debts to Bank.
The term "Hazardous Materials" includes but is not limited to any and
all substances (whether solid, liquid or gas) defined, listed, or otherwise
classified as pollutants, hazardous wastes, hazardous substances, hazardous
materials, extremely hazardous wastes, or words of similar meaning or regulatory
effect under any present or future Environmental Law or that may have a negative
impact on human health or the environment, including but not limited to
petroleum and petroleum products, asbestos and asbestos-containing materials,
polychlorinated biphenyls, lead, radon, radioactive materials, flammables and
explosives.
The term "Environmental Law" means any present and future Federal,
state and local laws, statutes, ordinances, rules, regulations and the like, as
well as common law, relating to protection of human health or the environment,
relating to Hazardous Materials, relating to liability for or costs of
remediation or prevention
6
of releases of Hazardous Materials or relating to liability for or costs of
other actual or threatened danger to human health or the environment. The term
"Environmental Law" includes, but is not limited to, the following statutes, as
amended, any successor thereto, and any regulations promulgated pursuant
thereto, and any state or local statutes, ordinances, rules, regulations and the
like addressing similar issues: the Comprehensive Environmental Response,
Compensation and Liability Act; the Emergency Planning and Community
Right-to-Know Act; the Hazardous Materials Transportation Act; the Resource
Conservation and Recovery Act (including but not limited to Subtitle I relating
to underground storage tanks); the Solid Waste Disposal Act; the Clean Water
Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking
Water Act; the Occupational Safety and Health Act; the Federal Water Pollution
Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the
Endangered Species Act; the National Environmental Policy Act; and the River and
Harbors Appropriation Act.
4. AFFIRMATIVE COVENANTS
4.1 Payments and Performance. Borrower will duly and punctually pay all
Obligations becoming due to the Bank and will duly and punctually perform all
Obligations on its part to be done or performed under this Agreement.
4.2 Books and Records; Inspection. Borrower will at all times keep proper books
of account in which full, true and correct entries will be made of its
transactions in accordance with generally accepted accounting principles,
consistently applied and which are, in the opinion of a Certified Public
Accountant acceptable to Bank, adequate to determine fairly the financial
condition and the results of operations of Borrower. Borrower will at all
reasonable times make its books and records available in its offices for
inspection, examination and duplication by the Bank and the Bank's
representatives and will permit inspection of the Collateral and all of its
properties by the Bank and the Bank's representatives. Borrower will from time
to time furnish the Bank with such information and statements as the Bank may
request in its sole discretion with respect to the Obligations or the Bank's
security interest in the Collateral. Borrower shall, during the term of this
Agreement, keep the Bank currently and accurately informed in writing of each
location where the Borrower's records relating to its accounts and contract
rights are kept, and shall not remove such records to another state without
giving the Bank at least thirty (30) days prior written notice thereof.
4.3 Financial Statements. Advanced Photonix, Inc. will furnish to Bank:
(a) as soon as available to Advanced Photonix, Inc., but in any
event within 45 days after the close of each quarterly period,
a full and complete signed copy of financial statements, on a
consolidated basis with such other entities designated by the
Bank, which shall include a balance sheet of Advanced
Photonix, Inc., as at the end of such quarter, and statement
of profit and loss of Advanced Photonix, Inc. reflecting the
results of its operations during such quarter and prepared on
a reviewed basis in accordance with generally accepted
accounting principles, consistently applied, subject to
year-end adjustments;
(b) as soon as available to Advanced Photonix, Inc., but in any
event within 90 days after the close of each fiscal year, a
full and complete signed copy of financial statements, on a
consolidated basis with such other entities designated by the
Bank, which shall include a balance sheet of Advanced
Photonix, Inc., as at the end of such year, and statement of
profit and loss of Advanced Photonix, Inc. reflecting the
results of its operations during such year bearing the opinion
of such Certified Public Accountants and prepared in
accordance with generally accepted accounting principles,
consistently applied, together with any so called management
letter; and,
(c) from time to time, such financial data and information about
Advanced Photonix, Inc. as Bank may reasonably request.
7
4.4 Conduct of Business. The Borrower will maintain its existence in good
standing and comply with all laws and regulations of the United States and of
any state or states thereof and of any political subdivision thereof, and of any
governmental authority which may be applicable to it or to its business;
provided that this covenant shall not apply to any tax, assessment or charge
which is being contested in good faith and with respect to which reserves have
been established and are being maintained.
4.5 Notice to Account Debtors. The Borrower agrees, at the request of the Bank,
to notify all or any of the Debtors in writing of the Bank's security interest
in the Collateral in whatever manner the Bank requests and, hereby authorizes
the Bank to notify all or any of the Debtors of the Bank's security interest in
the Borrower's accounts at the Borrower's expense.
4.6 Operating and Deposit Accounts. The Borrower shall maintain with the Bank
its primary operating and deposit accounts. At the option of the Bank, all loan
payments and fees will automatically be debited from the Borrower's primary
operating account and all advances will automatically be credited to the
Borrower's primary operating account.
4.7 Taxes. Borrower will promptly pay all real and personal property taxes,
assessments and charges and all franchise, income, unemployment, old age
benefits, withholding, sales and other taxes assessed against it or payable by
it before delinquent; provided that this covenant shall not apply to any tax
assessment or charge which is being contested in good faith and with respect to
which reserves have been established and are being maintained. The Bank may, at
its option, from time to time, discharge any taxes, liens or encumbrances of any
of the Collateral, and the Borrower will pay to the Bank on demand or the Bank
in its sole discretion may charge to the Borrower all amounts so paid or
incurred by it.
4.8 Maintenance. Borrower will keep and maintain the Collateral and its other
properties, if any, in good repair, working order and condition. The Borrower
will immediately notify the Bank of any loss or damage to or any occurrence
which would adversely affect the value of any Collateral. The Bank may, at its
option, from time to time, take any other action that the Bank may deem proper
to repair, maintain or preserve any of the Collateral, and the Borrower will pay
to the Bank on demand or the Bank in its sole discretion may charge to the
Borrower all amounts so paid or incurred by it.
4.9 Insurance. Borrower will maintain in force property and casualty insurance
on all Collateral and any other property of the Borrower, if any, against risks
customarily insured against by companies engaged in businesses similar to that
of the Borrower containing such terms and written by such companies as may be
satisfactory to the Bank, such insurance to be payable to the Bank as its
interest may appear in the event of loss and to name the Bank as insured
pursuant to a standard loss payee clause; no loss shall be adjusted thereunder
without the Bank's approval; and all such policies shall provide that they may
not be canceled without first giving at least thirty (30) days written notice of
cancellation to the Bank. In the event that the Borrower fails to provide
evidence of such insurance, the Bank may, at its option, secure such insurance
and charge the cost thereof to the Borrower. At the option of the Bank, all
insurance proceeds received from any loss or damage to any of the Collateral
shall be applied either to the replacement or repair thereof or as a payment on
account of the Obligations. From and after the occurrence of an Event of
Default, the Bank is authorized to cancel any insurance maintained hereunder and
apply any returned or unearned premiums, all of which are hereby assigned to the
Bank, as a payment on account of the Obligations.
4.10 Notification of Default. Upon becoming aware of the existence of any
condition or event which constitutes an Event of Default, or any condition or
event which would upon notice or lapse of time, or both, constitute an Event of
Default, Borrower shall promptly give Bank written notice thereof specifying the
nature and duration thereof and the action being or proposed to be taken with
respect thereto.
4.11 Notification of Material Litigation. Borrower will promptly notify the Bank
in writing of any litigation or of any investigative proceedings of a
governmental agency or authority commenced or
8
threatened against it which would or might be materially adverse to the
financial condition of Borrower or any guarantor of the Obligations.
4.12 Pension Plans. With respect to any pension or benefit plan maintained by
Borrower, or to which Borrower contributes ("Plan"), the benefits under which
are guarantied, in whole or in part, by the Pension Benefit Guaranty Corporation
created by the Employee Retirement Income Security Act of 1974, P.L. 93-406, as
amended ("ERISA") or any governmental authority succeeding to any or all of the
functions of the Pension Benefit Guaranty Corporation ("Pension Benefit Guaranty
Corporation"), Borrower will (a) fund each Plan as required by the provisions of
Section 412 of the Internal Revenue Code of 1986, as amended; (b) cause each
Plan to pay all benefits when due; (c) furnish Bank (i) promptly with a copy of
any notice of each Plan's termination sent to the Pension Benefit Guaranty
Corporation (ii) no later than the date of submission to the Department of Labor
or to the Internal Revenue Service, as the case may be, a copy of any request
for waiver from the funding standards or extension of the amortization periods
required by Section 412 of the Internal Revenue Code of 1986, as amended and
(iii) notice of any Reportable Event as such term is defined in ERISA; and (d)
subscribe to any contingent liability insurance provided by the Pension Benefit
Guaranty Corporation to protect against employer liability upon termination of a
guarantied pension plan, if available to Borrower.
5. NEGATIVE COVENANTS
5.1 Financial Covenants. The Borrower will not at any time or during any fiscal
period (as applicable) fail to be in compliance with any of the financial
covenants in this section.
(a) Definitions. The following definitions shall apply to this
Section:
(i) "Capital Expenditures" ("CAPEX") shall mean for any
period, all acquisitions of machinery, equipment, land,
leaseholds, buildings, improvements and all other expenditures
considered to be for fixed assets under GAAP, consistently
applied. Where an asset is acquired under a capital lease, the
amount required to be capitalized shall be considered a
capital expenditure during the first year of the lease.
(ii) "Combined Borrower(s)" shall mean Advanced Photonix, Inc.
and each of its subsidiaries.
(iii) "Current Maturity of Long-Term Debt" ("CMLTD") shall
mean, for any period, the current scheduled principal or
capital lease payments required to be paid during the
applicable period.
(iv) "Current Assets" shall mean current assets as defined
under GAAP.
(v) "Current Liabilities" shall mean current liabilities as
defined under GAAP.
(vi) "Distributions" shall mean all cash dividends to
shareholders, and all cash distributions to shareholders of
Subchapter S corporations, to partners of partnerships, to
members of limited liability companies or to beneficiaries of
trusts.
(vii) "Earnings" shall mean earnings as defined under GAAP.
(viii) "EBIT" shall mean, for any period, Earnings from
continuing operations before payment of interest expense,
federal, state and local income taxes, in each case for such
period, computed and calculated in accordance with GAAP.
(ix) "EBITDA" shall mean, for any period, Earnings from
continuing operations before payment of federal, state and
local income taxes, plus Interest Expense, depreciation and
amortization, in each case for such period, computed and
calculated in accordance with GAAP.
9
(x) "GAAP" shall mean generally accepted accounting principles
in effect from time to time in the United States.
(xi) "Indebtedness" shall mean (x) all indebtedness for
borrowed money or for the deferred purchase price of property
or services, and all obligations under leases which are or
should be, under GAAP, recorded as capital leases, in respect
of which a person is directly or contingently liable as
borrower, guarantor, endorser or otherwise, or in respect of
which a person otherwise assures a creditor against loss, (y)
all obligations for borrowed money or for the deferred
purchase price of property or services secured by (or for
which the holder has an existing right, contingent or
otherwise, to be secured by) any lien upon property (including
without limitation accounts receivable and contract rights)
owned by a person, whether or not such person has assumed or
become liable for the payment thereof, and (z) all other
liabilities and obligations which would be classified in
accordance with GAAP as liabilities on a balance sheet or to
which reference should be made in footnotes thereto.
(xii) "Intangible Assets" shall mean, as of the date of
determination thereof, assets that in accordance with GAAP are
properly classifiable as intangible assets, including, but not
limited to, goodwill, franchises, licenses, patents,
trademarks, trade names and copyrights.
(xiii) "Interest Expense" shall mean, for any period,
ordinary, regular, recurring and continuing expenditures for
interest on all borrowed money.
(xiv) "Subordinated Indebtedness" shall mean, as of the date
of determination thereof, all Indebtedness which has been
subordinated in writing to the obligations owing to the Bank
on terms and conditions acceptable to the Bank.
(xv) "Effective Tangible Net Worth" shall mean, as of the date
of determination thereof, Tangible Net Worth plus Subordinated
Indebtedness.
(xvi) "Tangible Net Worth" shall mean, as of the date of
determination thereof, total assets, excluding all Intangible
Assets, less total liabilities.
(xvii) "Unfinanced CAPEX" shall mean, for any period, Capital
Expenditures less new long-term Indebtedness issued during
such period to fund the Capital Expenditures.
(b) Current Ratio. The Combined Borrower's shall not permit the
ratio of its Current Assets to Current Liabilities to be less
than 1.25 to 1.00, tested quarterly.
(c) Debt to Effective Tangible Net Worth. The Combined Borrower's
shall not permit the ratio of its Indebtedness minus
Subordinated Indebtedness to Effective Tangible Net Worth to
be greater than 2.00 to 1.00, tested quarterly.
(d) Free Cash Flow. The Combined Borrower's shall not permit the
ratio of its EBITDA, minus taxes paid in cash, Distributions
and Unfinanced CAPEX, to Interest Expense plus CMLTD, to be
less than 1.25 to 1.00, for any fiscal quarter. Ratio analysis
will commence 9/30/05. For the period ending 9/30/05, 12/31/05
and 3/31/06 the calculation will include adding back to
earnings $500,000.00 of non-recurring expenses related to the
acquisition of Picotronix, Inc., dba Picometrix, Inc.
(e) EBIT to Interest Expense. The Combined Borrower's shall not
permit the ratio of its EBIT to Interest Expense to be less
than 2.00 to 1.00, for any fiscal quarter. Ratio analysis will
commence 9/30/05. For the period ending 9/30/05, 12/31/05 and
3/31/06 the calculation will include adding back to earnings
$500,000.00 of non-recurring expenses related to the
acquisition of Picotronix, Inc., dba Picometrix, Inc.
10
(f) No additional revolving or term debt without Bank's
concurrence.
(g) Balance on initial Note to Smithfield Fiduciary, LLC, Iroquois
Capital, LP, Bluegrass Growth Fund, LP and Bluegrass Growth
Fund, Ltd to be no greater than $5,000,000.00 in the aggregate
principal amount.
(h) No consecutive quarter losses.
(i) Intercreditor Agreement executed by Advanced Photonix, Inc.,
Silicon Sensors, Inc., Michigan Acquisition Sub, LLC, Texas
Optoelectronics, Inc., Silicon Detector Corporation, Photonic
Detectors Inc., and Smithfield Fiduciary, LLC to subordinate
$6,000,000.00 in Smithfield Fiduciary, LLC debt to Santa
Xxxxxxx Bank & Trust.
(j) Subsequent to closing, possibly within 24 hours, Michigan
Acquisition Sub, LLC will be replaced as Co-Borrower with
Picometrix, LLC.
(k) Prior to funding the loan, the merger of Picotronix, Inc., dba
Picometrix, Inc., into Michigan Acquisition Sub, LLC must be
completed.
5.2 Limitations on Indebtedness. Borrower shall not issue any evidence of
indebtedness or create, assume, guarantee, become contingently liable for, or
suffer to exist indebtedness in addition to indebtedness to the Bank, except
indebtedness or liabilities of Borrower, other than for money borrowed, incurred
or arising in the ordinary course of business.
5.3 Sale of Interest. There shall not be any sale or transfer of ownership of
any interest in the Borrower without the Bank's prior written consent unless
such transfer shall not result in change in control of Borrower.
5.4 Loans or Advances. Borrower shall not make any loans or advances to any
individual, firm or corporation, including without limitation its officers and
employees; provided, however, that Borrower may make advances to its employees,
including its officers, with respect to expenses incurred or to be incurred by
such employees in the ordinary course of business which expenses are
reimbursable by Borrower; and provided further, however, that Borrower may
extend credit in the ordinary course of business in accordance with customary
trade practices.
5.5 Dividends and Distributions. Borrower shall not, without prior written
consent of the Bank, pay any dividends on or make any distribution except to any
Combined Borrower on account of any class of Borrower's capital stock in cash or
in property (other than additional shares of such stock), or redeem, purchase or
otherwise acquire, directly or indirectly, any of such stock, except, so long as
Borrower is not in default hereunder.
5.6 Investments. The Borrower shall not make investments in, or advances to, any
individual, partnership, corporation, limited liability company, trust or other
organization or person, except for any Combined Borrower. The Borrower will not
purchase or otherwise invest in or hold securities, nonoperating real estate or
other nonoperating assets or purchase all or substantially all the assets of any
entity.
5.7 Merger. Borrower will not merge or consolidate or be merged or consolidated
with or into any other entity.
5.8 Capital Expenditures. The Borrower shall not, directly or indirectly, make
or commit to make capital expenditures by lease, purchase, or otherwise, except
in the ordinary and usual course of business for the purpose of replacing
machinery, equipment or other personal property which, as a
11
consequence of wear, duplication or obsolescence, is no longer used or necessary
in the Borrower's business.
5.9 Sale of Assets. Borrower shall not sell, lease or otherwise dispose of any
of its assets, except in the ordinary and usual course of business and except
for the purpose of replacing machinery, equipment or other personal property
which, as a consequence of wear, duplication or obsolescence, is no longer used
or necessary in the Borrower's business, provided that fair consideration is
received therefor; provided, however, in no event, except in the ordinary and
usual course of business, shall the Borrower sell, lease or otherwise dispose of
any equipment purchased with the proceeds of any loans made by the Bank.
5.10 Restriction on Liens. Borrower shall not grant any security interest in, or
mortgage of, any of its properties or assets including the Collateral. Borrower
shall not agree with any person other than the Bank to not grant any security
interest in, or mortgage of, any of its properties or assets including the
Collateral.
5.11 Other Business. Borrower shall not engage in any business other than the
business in which it is currently engaged or a business reasonably allied
thereto.
5.12 Change of Name. Borrower shall not change its legal name or the State of
its organization, without giving the Bank at least 30 days prior written notice
thereof.
6. DEFAULT
6.1 Default. "Event of Default" shall mean the occurrence of one or more of any
of the following events:
(a) default of any liability, obligation or undertaking of the
Borrower or any guarantor of the Obligations to the Bank,
hereunder or otherwise, including, without limitation, failure
to pay in full and when due any installment of principal or
interest or default of the Borrower or any guarantor of the
Obligations under any other Loan Document or any other
agreement with the Bank continuing for 10 days with respect to
the payment of money or continuing for 30 days with respect to
any other default;
(b) failure of the Borrower or any guarantor of the Obligations to
maintain aggregate collateral security value satisfactory to
the Bank continuing for 30 days;
(c) default of any material liability, obligation or undertaking
of the Borrower or any guarantor of the Obligations to any
other party continuing for 30 days;
(d) if any statement, representation or warranty heretofore, now
or hereafter made by the Borrower or any guarantor of the
Obligations in connection with this Agreement or in any
supporting financial statement of the Borrower or any
guarantor of the Obligations shall be determined by the Bank
to have been false in any material respect when made;
(e) if the Borrower or any guarantor of the Obligations is a
corporation, trust, partnership or limited liability company,
the liquidation, termination or dissolution of any such
organization, or the merger or consolidation of such
organization into another entity, or its ceasing to carry on
actively its present business or the appointment of a receiver
for its property;
(f) the institution by or against the Borrower or any guarantor of
the Obligations of any proceedings under the Bankruptcy Code
11 USC ss.101 et seq. or any other law in which the Borrower
or any guarantor of the Obligations is alleged to be insolvent
or unable to pay its debts as they mature, or the making by
the Borrower or any guarantor of the Obligations of an
12
assignment for the benefit of creditors or the granting by the
Borrower or any guarantor of the Obligations of a trust
mortgage for the benefit of creditors;
(g) the service upon the Bank of a writ in which the Bank is named
as trustee of the Borrower or any guarantor of the
Obligations;
(h) a judgement or judgements for the payment of money shall be
rendered against the Borrower or any guarantor of the
Obligations, and any such judgement shall remain unsatisfied
and in effect for any period of thirty (30) consecutive days
without a stay of execution;
(i) any xxxx, xxxx (including mechanics lien), seizure,
attachment, execution or similar process shall be issued or
levied on any of the property of the Borrower or any guarantor
of the Obligations;
(j) the termination or revocation of any guaranty of the
Obligations; or
(k) the occurrence of such a change in the condition or affairs
(financial or otherwise) of the Borrower or any guarantor of
the Obligations, or the occurrence of any other event or
circumstance, such that the Bank, in its reasonable sole
discretion, deems that it is insecure or that the prospects
for timely or full payment or performance of any obligation of
the Borrower or any guarantor of the Obligations to the Bank
has been or may be impaired.
6.2 Acceleration. If an Event of Default shall occur, at the election of the
Bank, all Obligations shall become immediately due and payable without notice or
demand, except with respect to Obligations payable on DEMAND, which shall be due
and payable on DEMAND, whether or not an Event of Default has occurred.
The Bank is hereby authorized, at its election, after an Event of
Default or after Demand, without any further demand or notice except to such
extent as notice may be required by applicable law, to take possession and/or
sell or otherwise dispose of all or any of the Collateral at public or private
sale; and the Bank may also exercise any and all other rights and remedies of a
secured party under the Code or which are otherwise accorded to it in equity or
at law, all as Bank may determine, and such exercise of rights in compliance
with the requirements of law will not be considered adversely to affect the
commercial reasonableness of any sale or other disposition of the Collateral. If
notice of a sale or other action by the Bank is required by applicable law,
unless the Collateral is perishable or threatens to decline speedily in value or
is of a type customarily sold on a recognized market, the Borrower agrees that
ten (10) days written notice to the Borrower, or the shortest period of written
notice permitted by such law, whichever is smaller, shall be sufficient notice;
and that to the extent permitted by law, the Bank, its officers, attorneys and
agents may bid and become purchasers at any such sale, if public, and may
purchase at any private sale any of the Collateral that is of a type customarily
sold on a recognized market or which is the subject of widely distributed
standard price quotations. Any sale (public or private) shall be without
warranty and free from any right of redemption, which the Borrower shall waive
and release after default upon the Bank's request therefor, and may be free of
any warranties as to the Collateral if Bank shall so decide. No purchaser at any
sale (public or private) shall be responsible for the application of the
purchase money. Any balance of the net proceeds of sale remaining after paying
all Obligations of the Borrower to the Bank shall be returned to such other
party as may be legally entitled thereto; and if there is a deficiency, the
Borrower shall be responsible for repayment of the same, with interest. Upon
demand by the Bank, the Borrower shall assemble the Collateral and make it
available to the Bank at a place designated by the Bank which is reasonably
convenient to the Bank and the Borrower. The Borrower hereby acknowledges that
the Bank has extended credit and other financial accommodations to the Borrower
upon reliance of the Borrower's granting the Bank the rights and remedies
contained in this Agreement including without limitation the right to take
immediate possession of the Collateral upon the occurrence of an Event of
Default or after DEMAND with respect to Obligations payable on DEMAND and the
Borrower hereby acknowledges that the Bank is entitled to equitable and
injunctive relief to enforce any of its rights and remedies hereunder or under
the Code and the Borrower hereby waives any defense
13
to such equitable or injunctive relief based upon any allegation of the absence
of irreparable harm to the Bank.
The Bank shall not be required to marshal any present or future
security for (including but not limited to this Agreement and the Collateral
subject to the security interest created hereby), or guarantees of, the
Obligations or any of them, or to resort to such security or guarantees in any
particular order; and all of its rights hereunder and in respect of such
securities and guaranties shall be cumulative and in addition to all other
rights, however existing or arising. To the extent that it lawfully may,
Borrower hereby agrees that it will not invoke any law relating to the
marshalling of collateral which might cause delay in or impede the enforcement
of the Bank's rights under this Agreement or under any other instrument
evidencing any of the Obligations or under which any of the Obligations is
outstanding or by which any of the Obligations is secured or guaranteed, and to
the extent that it lawfully may do so, Borrower hereby irrevocably waives the
benefits of all such laws. Except as required by applicable law, the Bank shall
have no duty as to the collection or protection of the Collateral or any income
thereon, nor as to the preservation of rights against prior parties, nor as to
the preservation of any rights pertaining thereto beyond the safe custody
thereof.
6.3 Power of Attorney. The Borrower hereby irrevocably constitutes and appoints
the Bank as the Borrower's true and lawful attorney, with full power of
substitution, at the sole cost and expense of the Borrower but for the sole
benefit of the Bank, upon the occurrence of an Event of Default or after DEMAND
with respect to Obligations payable on DEMAND, to convert the Collateral into
cash, including, without limitation, completing the manufacture or processing of
work in process, and the sale (either public or private) of all or any portion
or portions of the inventory and other Collateral; to enforce collection of the
Collateral, either in its own name or in the name of the Borrower, including,
without limitation, executing releases or waivers, compromising or settling with
any Debtors and prosecuting, defending, compromising or releasing any action
relating to the Collateral; to receive, open and dispose of all mail addressed
to the Borrower and to take therefrom any remittances or proceeds of Collateral
in which the Bank has a security interest; to notify Post Office authorities to
change the address for delivery of mail addressed to the Borrower to such
address as the Bank shall designate; to endorse the name of the Borrower in
favor of the Bank upon any and all checks, drafts, money orders, notes,
acceptances or other instruments of the same or different nature; to sign and
endorse the name of the Borrower on and to receive as secured party any of the
Collateral, any invoices, freight or express receipts, or bills of lading,
storage receipts, warehouse receipts, or other documents of title of the same or
different nature relating to the Collateral; to sign the name of the Borrower on
any notice of the Debtors or on verification of the Collateral; and to sign, if
necessary, and file or record on behalf of the Borrower any financing or other
statement in order to perfect or protect the Bank's security interest. The Bank
shall not be obliged to do any of the acts or exercise any of the powers
hereinabove authorized, but if the Bank elects to do any such act or exercise
any such power, it shall not be accountable for more than it actually receives
as a result of such exercise of power, and it shall not be responsible to the
Borrower except for its own gross negligence or willful misconduct. All powers
conferred upon the Bank by this Agreement, being coupled with an interest, shall
be irrevocable so long as any Obligation of the Borrower or any guarantor or
surety to the Bank shall remain unpaid or the Bank is obligated under this
Agreement to extend any credit to the Borrower.
6.4 Nonexclusive Remedies. All of the Bank's rights and remedies not only under
the provisions of this Agreement but also under any other agreement or
transaction shall be cumulative and not alternative or exclusive, and may be
exercised by the Bank at such time or times and in such order of preference as
the Bank in its sole discretion may determine.
6.5 Reassignment to Borrower. Whenever the Bank deems it desirable that any
legal action be instituted with respect to any Collateral or that any other
action be taken in any attempt to effectuate collection of any Collateral, the
Bank may reassign the item in question to the Borrower (and if the Bank shall
execute any such reassignment, it shall automatically be deemed to be without
recourse to the Bank in any event) and require the Borrower to proceed with such
legal or other action at the Borrower's sole liability, cost and expense, in
which event all amounts collected by the Borrower on such item shall
nevertheless be subject to the Bank's security interest.
14
7. MISCELLANEOUS
7.1 Waivers. The Borrower waives notice of intent to accelerate, notice of
acceleration, notice of nonpayment, demand, presentment, protest or notice of
protest of the Obligations, and all other notices, consents to any renewals or
extensions of time of payment thereof, and generally waives any and all
suretyship defenses and defenses in the nature thereof.
7.2 Severability. If any provision of this Agreement or portion of such
provision or the application thereof to any person or circumstance shall to any
extent be held invalid or unenforceable, the remainder of this Agreement (or the
remainder of such provision) and the application thereof to other persons or
circumstances shall not be affected thereby.
7.3 Deposit Collateral. The Borrower hereby grants to the Bank a continuing lien
and security interest in any and all deposits or other sums at any time credited
by or due from the Bank (or any of its banking or lending affiliates, or any
bank acting as a participant under any loan arrangement between the Bank and the
Borrower, or any third party acting on the Bank's behalf (collectively, the
"Bank Affiliates")) to the Borrower and any cash, securities, instruments or
other property of the Borrower in the possession of the Bank or any Bank
Affiliate, whether for safekeeping or otherwise, or in transit to or from the
Bank or any Bank Affiliate (regardless of the reason the Bank or Bank Affiliate
had received the same or whether the Bank or Bank Affiliate has conditionally
released the same) as security for the full and punctual payment and performance
of all of the liabilities and obligations of the Borrower to the Bank or any
Bank Affiliate and such deposits and other sums may be applied against such
liabilities and obligations of the Borrower to the Bank or any Bank Affiliate at
any time, whether or not such are then due, whether or not demand has been made
and whether or not other collateral is then available to the Bank or any Bank
Affiliate.
7.4 Indemnification. The Borrower shall indemnify, defend and hold the Bank
harmless of and from any claim brought or threatened against the Bank by the
Borrower, any guarantor or endorser of the Obligations, or any other person (as
well as from reasonable attorneys' fees and expenses in connection therewith) on
account of the Bank's relationship with the Borrower, or any guarantor or
endorser of the Obligations (each of which may be defended, compromised, settled
or pursued by the Bank with counsel of the Bank's election, but at the expense
of the Borrower), except for any claim arising out of the gross negligence or
willful misconduct of the Bank. The within indemnification shall survive payment
of the Obligations, and/or any termination, release or discharge executed by the
Bank in favor of the Borrower.
7.5 Costs and Expenses. The Borrower shall pay to the Bank on demand any and all
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements, court costs, litigation and other expenses) incurred or paid
by the Bank in establishing, maintaining, protecting or enforcing any of the
Bank's rights or the Obligations, including, without limitation, any and all
such costs and expenses incurred or paid by the Bank in defending the Bank's
security interest in, title or right to the Collateral or in collecting or
attempting to collect or enforcing or attempting to enforce payment of the
Obligations.
7.6 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be an original, but all of which shall constitute but one
agreement.
7.7 Complete Agreement. This Agreement and the other Loan Documents constitute
the entire agreement and understanding between and among the parties hereto
relating to the subject matter hereof, and supersedes all prior proposals,
negotiations, agreements and understandings among the parties hereto with
respect to such subject matter.
7.8 Binding Effect of Agreement. This Agreement shall be binding upon and inure
to the benefit of the respective heirs, executors, administrators, legal
representatives, successors and assigns of the parties hereto, and shall remain
in full force and effect (and the Bank shall be entitled to rely thereon) until
terminated as to future transactions by written notice from either party to the
other party of the termination hereof; provided that any such termination shall
not release or affect any Collateral in which the Bank
15
already has a security interest or any Obligations incurred or rights accrued
hereunder prior to the effective date of such notice (as hereinafter defined) of
such termination. Notwithstanding any such termination, the Bank shall have a
security interest in all Collateral to secure the payment and performance of
Obligations arising after such termination as a result of commitments or
undertakings made or entered into by the Bank prior to such termination. The
Bank may transfer and assign this Agreement and deliver the Collateral to the
assignee, who shall thereupon have all of the rights of the Bank; and the Bank
shall then be relieved and discharged of any responsibility or liability with
respect to this Agreement and the Collateral. The Borrower may not assign or
transfer any of its rights or obligations under this Agreement. Except as
expressly provided herein or in the other Loan Documents, nothing, expressed or
implied, is intended to confer upon any party, other than the parties hereto,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement or the other Loan Documents.
7.9 Further Assurances. Borrower will from time to time execute and deliver to
Bank such documents, and take or cause to be taken, all such other or further
action, as Bank may request in order to effect and confirm or vest more securely
in Bank all rights contemplated by this Agreement and the other Loan Documents
(including, without limitation, to correct clerical errors) or to vest more
fully in or assure to the Bank the security interest in the Collateral granted
to the Bank by this Agreement or to comply with applicable statute or law and to
facilitate the collection of the Collateral (including, without limitation, the
execution of stock transfer orders and stock powers, endorsement of promissory
notes and instruments and notifications to obligors on the Collateral). To the
extent permitted by applicable law, Borrower authorizes Bank to file financing
statements, continuation statements or amendments without Borrower's signature
appearing thereon, and any such financing statements, continuation statements or
amendments may be signed by Bank on behalf of Borrower, if necessary, and may be
filed at any time in any jurisdiction. Bank may at any time and from time to
time file financing statements, continuation statements and amendments thereto
which contain any information required by the Code for the sufficiency or filing
office acceptance of any financing statement, continuation statement or
amendment, including whether Borrower is an organization, the type of
organization and any organization identification number issued to Borrower.
Borrower agrees to furnish any such information to Bank promptly upon request.
In addition, Borrower shall at any time and from time to time take such steps as
Bank may reasonably request for Bank (i) to obtain an acknowledgement, in form
and substance satisfactory to Bank, of any bailee having possession of any of
the Collateral that the bailee holds such Collateral for Bank, (ii) to obtain
"control" (as defined in the Code) of any Collateral comprised of deposit
accounts, electronic chattel paper, letter of credit rights or investment
property, with any agreements establishing control to be in form and substance
satisfactory to Bank, and (iii) otherwise to insure the continued perfection and
priority of Bank's security interest in any of the Collateral and the
preservation of its rights therein. Borrower hereby constitutes Bank its
attorney-in-fact to execute, if necessary, and file all filings required or so
requested for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed; and such power, being coupled with an interest, shall be
irrevocable until this Agreement terminates in accordance with its terms, all
Obligations are paid in full and the Collateral is released.
7.10 Amendments and Waivers. This Agreement may be amended and Borrower may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, if Borrower shall obtain the Bank's prior written consent to
each such amendment, action or omission to act. No course of dealing and no
delay or omission on the part of Bank in exercising any right hereunder shall
operate as a waiver of such right or any other right and waiver on any one or
more occasions shall not be construed as a bar to or waiver of any right or
remedy of Bank on any future occasion.
7.11 Terms of Agreement. This Agreement shall continue in full force and effect
so long as any Obligations or obligation of Borrower to Bank shall be
outstanding, or the Bank shall have any obligation to extend any financial
accommodation hereunder, and is supplementary to each and every other agreement
between Borrower and Bank and shall not be so construed as to limit or otherwise
derogate from any of the rights or remedies of Bank or any of the liabilities,
obligations or undertakings of Borrower under any such agreement, nor shall any
contemporaneous or subsequent agreement between Borrower and the Bank be
construed to limit or otherwise derogate from any of the rights or remedies of
Bank or
16
any of the liabilities, obligations or undertakings of Borrower hereunder,
unless such other agreement specifically refers to this Agreement and expressly
so provides.
7.12 Notices. Any notice under or pursuant to this Agreement shall be a signed
writing or other authenticated record (within the meaning of Article 9 of the
Code). Any such notice shall be deemed duly received and effective (i) if
delivered in hand to, or received by, any officer or agent of the Borrower or
the Bank, upon such delivery or receipt, or (ii) if mailed by registered or
certified mail, return receipt requested, postage prepaid, and properly
addressed to the Borrower or the Bank, two (2) business days after being so
mailed. A party's proper address is that set forth for such party in this
Agreement or such address as that party may from time to time hereafter
designate by notice to the other party.
7.13 Governing Law. This Agreement has been executed or completed and/or is to
be performed in California, and it and all transactions thereunder or pursuant
thereto shall be governed as to interpretation, validity, effect, rights, duties
and remedies of the parties thereunder and in all other respects by the laws of
California.
7.14 Reproductions. This Agreement and all documents which have been or may be
hereinafter furnished by Borrower to the Bank may be reproduced by the Bank by
any photographic, photostatic, microfilm, xerographic or similar process, and
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made in the regular course of
business).
7.15 Jurisdiction and Venue. Borrower irrevocably submits to the nonexclusive
jurisdiction of any Federal or state court sitting in California, over any suit,
action or proceeding arising out of or relating to this Agreement. Borrower
irrevocably waives, to the fullest extent it may effectively do so under
applicable law, any objection it may now or hereafter have to the laying of the
venue of any such suit, action or proceeding brought in any such court and any
claim that the same has been brought in an inconvenient forum. Borrower hereby
consents to any and all process which may be served in any such suit, action or
proceeding, (i) by mailing a copy thereof by registered and certified mail,
postage prepaid, return receipt requested, to the Borrower's address shown in
this Agreement or as notified to the Bank and (ii) by serving the same upon the
Borrower in any other manner otherwise permitted by law, and agrees that such
service shall in every respect be deemed effective service upon Borrower.
7.16 Civil Code Section 2822. In the event that at any time, a surety is liable
upon only a portion of Borrower's obligations under the Loan Documents and
Borrower provides partial satisfaction of any such obligation(s), Borrower
hereby waives any right it would otherwise have, under Section 2822 of the
California Civil Code, to designate the portion of the obligations to be
satisfied. The designation of the portion of the obligation to be satisfied
shall, to the extent not expressly made by the terms of the Loan Documents, be
made by the Bank rather than Borrower.
7.17 JURY WAIVER. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE
BORROWER AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY, AND
AFTER AN OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL, (A) WAIVE ANY AND ALL RIGHTS
TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING IN CONNECTION WITH THIS
AGREEMENT, THE OBLIGATIONS, ALL MATTERS CONTEMPLATED HEREBY AND DOCUMENTS
EXECUTED IN CONNECTION HEREWITH AND (B) AGREE NOT TO SEEK TO CONSOLIDATE ANY
SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE, OR HAS NOT
BEEN, WAIVED. THE BORROWER CERTIFIES THAT NEITHER THE BANK NOR ANY OF ITS
REPRESENTATIVES, AGENTS OR COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
THE BANK WOULD NOT IN THE EVENT OF ANY SUCH PROCEEDING SEEK TO ENFORCE THIS
WAIVER OF RIGHT TO TRIAL BY JURY.
7.18 ARBITRATION. ARBITRATION. IN THE EVENT THAT THE JURY WAIVER SET FORTH ABOVE
IS JUDICIALLY DETERMINED TO NOT BE PERMITTED BY LAW, THE PARTIES AGREE TO
ATTEMPT IN GOOD FAITH TO RESOLVE ANY DISPUTES WHICH MAY ARISE AMONG THEM IN
17
CONNECTION WITH THE INTERPRETATION OR ENFORCEMENT OF THE PROVISIONS OF THIS
AGREEMENT, OR THE APPLICATION OR VALIDITY THEREOF. IN THE EVENT THAT ANY DISPUTE
CANNOT BE SO RESOLVED, AND UNLESS THE RELIEF SOUGHT REQUIRES THE EXERCISE OF THE
EQUITY POWERS OF A COURT OF COMPETENT JURISDICTION, SUCH DISPUTE SHALL BE
SUBMITTED TO ARBITRATION. SUCH ARBITRATION PROCEEDINGS SHALL BE HELD IN THE
COUNTY OF SANTA BARBARA, CALIFORNIA, IN ACCORDANCE WITH THE ARBITRATION
PROVISIONS OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. THIS AGREEMENT TO
ARBITRATE SHALL BE SPECIFICALLY ENFORCEABLE. ANY AWARD RENDERED IN ANY SUCH
ARBITRATION PROCEEDINGS SHALL BE FINAL AND BINDING ON EACH OF THE PARTIES
HERETO, AND JUDGEMENT MAY BE ENTERED THEREON IN ANY COURT OF COMPETENT
JURISDICTION.
Executed as of MAY 2, 2005.
Borrower:
Texas Optoelectronics, Inc.
By: /s/ XXXXXXX X. XXXXX
--------------------------
Xxxxxxx X. Xxxxx,
Chief Executive Officer
Accepted: Pacific Capital Bank, N.A.
By: /s/ XXXXX XXXXXX
------------------------
Name: Xxxxx Xxxxxx
Title: Vice President
18
EXHIBIT A TO LOAN AND SECURITY AGREEMENT OF
TEXAS OPTOELECTRONICS, INC.
1. Subsidiaries: None
2. Consolidations, Mergers and Acquisitions: None
19
EXHIBIT B LOAN AND SECURITY AGREEMENT OF
TEXAS OPTOELECTRONICS, INC.
1. Liens:
(a) Smithfield Fiduciary, LLC, acting as collateral agent on
behalf of the other investors in connection with the private
placement which closed on October 12, 2004, has a first
priority security interest in all of the assets of Advanced
Photonix, Inc., except as set forth in that certain
Subordination and Intercreditor Agreement between Pacific
Capital Bank, N.A. and Smithfield Fiduciary, LLC.
(b) Xxxxx Xxxxxx and Xxxxxx Xxxxxxxxxx have a first priority
security interest in all of the intellectual property of
Michigan Acquisition Sub, LLC.
20
(THE NETWORK OF PREFERRED COMMUNITY BANKS(SM) LOGO)
Loan No. 37512-37654
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT (this "Agreement") entered into as of
MAY 2, 2005, between MICHIGAN ACQUISITION SUB, LLC, A DELAWARE LIMITED LIABILITY
COMPANY, with its chief executive office located at 0000 XXXXXXXXX, XXX XXXXX,
XXXXXXXX 00000 (the "Borrower") and Pacific Capital Bank, N.A., a national
banking association, doing business as Santa Xxxxxxx Bank & Trust, with an
address of c/o Loan Services, XX Xxx 00000, Xxxxx Xxxxxxx, Xxxxxxxxxx 00000-0000
(the "Bank").
FOR VALUE RECEIVED, and in consideration of the granting by the Bank of
financial accommodations to or for the benefit of the Borrower, including
without limitation respecting the Obligations (as hereinafter defined), the
Borrower represents and agrees with the Bank, as of the date hereof and as of
the date of each loan, credit and/or other financial accommodation, as follows:
1. THE LOAN
1.1 Loan. Subject to the terms and conditions of this Agreement, the Bank hereby
agrees to make a loan to the Borrower, Advanced Photonix, Inc., Silicon Sensors,
Inc., Texas Optoelectronics, Inc. Silicon Detector Corporation and Photonic
Detectors, Inc. and Borrower in the original principal amount of $2,700,000.00
(the "Loan"). The Loan shall be evidenced by that certain Term Note, of even
date herewith (the "Note") by the Borrower, Advanced Photonix, Inc., Silicon
Sensors, Inc., Texas Optoelectronics, Inc. Silicon Detector Corporation and
Photonic Detectors, Inc. in favor of the Bank in the original principal amount
of $2,700,000.00. This Agreement, the Note, and any and all other documents,
amendments or renewals executed and delivered in connection with any of the
foregoing are collectively hereinafter referred to as the "Loan Documents".
2. GRANT OF SECURITY INTEREST
2.1 Grant of Security Interest. In consideration of the Bank's extending credit
and other financial accommodations to or for the benefit of the Borrower, the
Borrower hereby grants to the Bank a security interest in, a lien on and pledge
and assignment of the Collateral (as hereinafter defined). The security interest
granted by this Agreement is given to and shall be held by the Bank as security
for the payment and performance of all Obligations, including, without
limitation, all amounts outstanding pursuant to the Loan Documents.
2.2 Definitions. The following definitions shall apply:
(a) "Code" shall mean the Uniform Commercial Code of California as
amended from time to time.
(b) "Collateral" shall mean all Borrower's present and future
right, title and interest in and to any and all of the
personal property of Borrower whether such property is now
existing or hereafter created, acquired or arising and
wherever located from time to time, including without
limitation:
(i) accounts;
(ii) chattel paper;
(iii) goods;
(iv) inventory;
(v) equipment;
(vi) farm products;
(vii) instruments;
(viii) investment property;
(ix) documents;
(x) commercial tort claims;
(xi) deposit accounts;
(xii) letter-of-credit rights;
(xiii) general intangibles including but not limited to
trademark & patents;
(xiv) supporting obligations; and
(xv) proceeds and products of the foregoing.
(c) "Debtors" shall mean the Borrower's customers who are indebted
to the Borrower.
(d) "Obligation(s)" shall mean, without limitation, all loans,
advances, indebtedness, notes, liabilities, rate swap
transactions, basis swaps, forward rate transactions,
commodity swaps, commodity options, equity or equity index
swaps, equity or equity index options, bond options, interest
rate options, foreign exchange transactions, cap transactions,
floor transactions, collar transactions, forward transactions,
currency swap transactions, cross-currency rate swap
transactions, currency options and amounts, liquidated or
unliquidated, owing by the Borrower to the Bank at any time,
of each and every kind, nature and description, whether
arising under this Agreement or otherwise, and whether secured
or unsecured, direct or indirect (that is, whether the same
are due directly by the Borrower to the Bank; or are due
indirectly by the Borrower to the Bank as endorser, guarantor
or other surety, or as borrower of obligations due third
persons which have been endorsed or assigned to the Bank, or
otherwise), absolute or contingent, due or to become due, now
existing or hereafter arising or contracted, including,
without limitation, payment when due of all amounts
outstanding respecting any of the Loan Documents. Said term
shall also include all interest and other charges chargeable
to the Borrower or due from the Borrower to the Bank from time
to time and all costs and expenses referred to in this
Agreement.
(e) "Person" or "party" shall mean individuals, partnerships,
corporations, limited liability companies and all other
entities.
All words and terms used in this Agreement other than those
specifically defined herein shall have the meanings accorded to them in the
Code.
2.3 Ordinary Course of Business. The Bank hereby authorizes and permits the
Borrower to hold, process, sell, use or consume in the manufacture or processing
of finished goods, or otherwise dispose of
2
inventory for fair consideration, all in the ordinary course of the Borrower's
business, excluding, without limitation, sales to creditors or in bulk or sales
or other dispositions occurring under circumstances which would or could create
any lien or interest adverse to the Bank's security interest or other right
hereunder in the proceeds resulting therefrom. The Bank also hereby authorizes
and permits the Borrower to receive from the Debtors all amounts due as proceeds
of the Collateral at the Borrower's own cost and expense, and also liability, if
any, subject to the direction and control of the Bank at all times; and the Bank
may at any time, without cause or notice, and whether or not a default has
occurred or demand has been made, terminate all or any part of the authority and
permission herein or elsewhere in this Agreement granted to the Borrower with
reference to the Collateral, and notify Debtors to make all payments due as
proceeds of the Collateral to the Bank. Until Bank shall otherwise notify
Borrower, all proceeds of and collections of Collateral shall be retained by
Borrower and used solely for the ordinary and usual operation of Borrower's
business. From and after notice by Bank to Borrower, all proceeds of and
collections of the Collateral shall be held in trust by Borrower for Bank and
shall not be commingled with Borrower's other funds or deposited in any bank
account of Borrower; and Borrower agrees to deliver to Bank on the dates of
receipt thereof by Borrower, duly endorsed to Bank or to bearer, or assigned to
Bank, as may be appropriate, all proceeds of the Collateral in the identical
form received by Borrower.
2.4 Allowances. The Borrower may grant such allowances or other adjustments to
Debtors (exclusive of extending the time for payment of any item which shall not
be done without first obtaining the Bank's written consent in each instance) as
the Borrower may reasonably deem to accord with sound business practice,
including, without limiting the generality of the foregoing, accepting the
return of all or any part of the inventory (subject to the provisions set forth
in this Agreement with reference to returned inventory).
2.5 Records. The Borrower shall hold its books and records relating to the
Collateral segregated from all the Borrower's other books and records in a
manner satisfactory to the Bank; and shall deliver to the Bank from time to time
promptly at its request all invoices, original documents of title, contracts,
chattel paper, instruments and any other writings relating thereto, and other
evidence of performance of contracts, or evidence of shipment or delivery of the
merchandise or of the rendering of services; and the Borrower will deliver to
the Bank promptly at the Bank's request from time to time additional copies of
any or all of such papers or writings, and such other information with respect
to any of the Collateral and such schedules of inventory, schedules of accounts
and such other writings as the Bank may in its reasonable sole discretion deem
to be necessary or effectual to evidence any loan hereunder or the Bank's
security interest in the Collateral.
2.6 Legends. The Borrower shall promptly make, stamp or record such entries or
legends on the Borrower's books and records or on any of the Collateral
(including, without limitation, chattel paper) as Bank shall request from time
to time, to indicate and disclose that Bank has a security interest in such
Collateral.
2.7 Inspection. The Bank, or its representatives, at any time and from time to
time, shall have the right at the sole cost and expense of Borrower, and the
Borrower will permit the Bank and/or its representatives: (a) to examine, check,
make copies of or extracts from any of the Borrower's books, records and files
(including, without limitation, orders and original correspondence); (b) to
perform field exams or otherwise inspect and examine the Collateral and to
check, test or appraise the same as to quality, quantity, value and condition;
and (c) to verify the Collateral or any portion or portions thereof or the
Borrower's compliance with the provisions of this Agreement.
2.8 Purchase Money Security Interests. To the extent Borrower uses proceeds of
any loans to purchase Collateral, the repayment of such loans shall be on a
"first-in-first-out" basis so that the portion of the loan used to purchase a
particular item of Collateral shall be repaid in the order in which Borrower
purchased such item of Collateral.
2.9 Search Reports. Bank shall receive prior to the date of this Agreement UCC
search results under all names used by the Borrower during the prior five (5)
years, from each jurisdiction where any
3
Collateral is located, from the State, if any, where Borrower is organized and
registered (as such terms are used in the Code), and the State where Borrower's
chief executive office is located. The search results shall confirm that the
security interest in the Collateral granted Bank hereunder is prior to all other
security interests in favor of any other Person.
3. REPRESENTATIONS AND WARRANTIES
3.1 Organization and Qualification. Borrower is a duly organized and validly
existing limited liability company under the laws of the State of its formation,
with the exact legal name set forth in the first paragraph of this Agreement.
Borrower is in good standing under the laws of said State, has the power to own
its property and conduct its business as now conducted and as currently proposed
to be conducted, and is duly qualified to do business under the laws of each
state where the nature of the business done or property owned requires such
qualification.
3.2 Subsidiaries. Borrower has no subsidiaries other than as disclosed in
Schedule A attached hereto, if any, and the Borrower has never consolidated,
merged or acquired substantially all of the assets of any other entity or person
other than as disclosed in Schedule A attached hereto, if any.
3.3 Limited Liability Company Records. Borrower's certificate of organization,
articles of organization or other charter document and all amendments thereto
have been duly filed and are in proper order. All members of the Borrower are
properly reflected on all books and records of the Borrower, including but not
limited to its operating agreement, minute books, bylaws and books of account,
all of which are accurate and up to date and will be so maintained.
3.4 Title to Properties; Absence of Liens. Borrower has good and clear record
and marketable title to all of its properties and assets, and all of its
properties and assets including the Collateral are free and clear of all
mortgages, liens, pledges, charges, encumbrances and setoffs, other than the
security interest therein granted to the Bank hereby and those mortgages, deeds
of trust, leases of personal property and security interests disclosed in
Schedule B attached hereto.
3.5 Places of Business. Borrower's chief executive office is correctly stated in
the preamble to this Agreement, and Borrower shall, during the term of this
Agreement, keep the Bank currently and accurately informed in writing of each of
its other places of business, and shall not change the location of such chief
executive office or open or close, move or change any existing or new place of
business without giving the Bank at least thirty (30) days prior written notice
thereof.
3.6 Valid Obligations. The execution, delivery and performance of the Loan
Documents have been duly authorized by all necessary action and each represents
a legal, valid and binding obligation of Borrower and is fully enforceable
according to its terms, except as limited by equity or laws relating to the
enforcement of creditors' rights.
3.7 Conflicts. There is no provision in Borrower's organizational or charter
documents, if any, or in any indenture, contract or agreement to which Borrower
is a party which prohibits, limits or restricts the execution, delivery or
performance of the Loan Documents.
3.8 Governmental Approvals. The execution, delivery and performance of the Loan
Documents does not require any approval of or filing with any governmental
agency or authority.
3.9 Litigation. There are no actions, suits or proceedings pending or to the
knowledge of Borrower threatened against Borrower which might materially
adversely affect the ability of Borrower to conduct its business or to pay or
perform the Obligations.
3.10 Accounts and Contract Rights. All accounts arise out of legally enforceable
and existing contracts, and represent unconditional and undisputed bona fide
indebtedness by a Debtor, and are not and will not be subject to any discount
(except such cash or trade discount as may be shown on any
4
invoice, contract or other writing delivered to the Bank). No contract right,
account, general intangible or chattel paper is or will be represented by any
note or other instrument, and no contract right, account or general intangible
is, or will be represented by any conditional or installment sales obligation or
other chattel paper, except such instruments or chattel paper as have been or
immediately upon receipt by the Borrower will be delivered to the Bank (duly
endorsed or assigned), such delivery, in the case of chattel paper, to include
all executed copies except those in the possession of the installment buyer and
any security for or guaranty of any of the Collateral shall be delivered to the
Bank immediately upon receipt thereof by the Borrower, with such assignments and
endorsements thereof as the Bank may request.
3.11 Title to Collateral. At the date hereof the Borrower is (and as to
Collateral that the Borrower may acquire after the date hereof, will be) the
lawful owner of the Collateral, and the Collateral and each item thereof is,
will be and shall continue to be free of all restrictions, liens, encumbrances
or other rights, title or interests (other than the security interest therein
granted to the Bank hereby), credits, defenses, recoupments, set-offs or
counterclaims whatsoever. The Borrower has and will have full power and
authority to grant to the Bank a security interest in the Collateral and the
Borrower has not transferred, assigned, sold, pledged, encumbered, subjected to
lien or granted any security interest in, and will not transfer, assign, sell
(except sales or other dispositions in the ordinary course of business in
respect to inventory as expressly permitted in this Agreement), pledge,
encumber, subject to lien or grant any security interest in any of the
Collateral (or any of the Borrower's right, title or interest therein), to any
person other than the Bank. The Collateral is and will be valid and genuine in
all respects. All accounts arise out of legally enforceable and existing
contracts in accordance with their tenor, and upon the Borrower's acquisition of
any interest in accounts, it shall in writing immediately notify the Bank
thereof, specifically identifying the same as accounts, and, except for such
accounts, no part of the Collateral (or the validity or enforceability by the
Bank thereof) is or shall be contingent upon the fulfillment of any agreement or
condition whatsoever and the Collateral, other than inventory and equipment,
shall represent unconditional and undisputed bona fide indebtedness by the
Debtor, and is not and will not be subject to any discount (except such cash or
trade discount as may be shown on any invoice, contract or other writing
delivered to the Bank). The Borrower will warrant and defend the Bank's right to
and interest in the Collateral against all claims and demands of all persons
whatsoever.
3.12 Location of Collateral. Except for sale, processing, use, consumption or
other disposition in the ordinary course of business, the Borrower will keep all
inventory and equipment only at locations specified in this Agreement or
specified to the Bank in writing. The Borrower shall, during the term of this
Agreement, keep the Bank currently and accurately informed in writing of each
location where the Borrower's records relating to its accounts and contract
rights, respectively, are kept, and shall not remove such records or any of them
to another state without giving the Bank at least thirty (30) days prior written
notice thereof.
3.13 Third Parties. The Bank shall not be deemed to have assumed any liability
or responsibility to the Borrower or any third person for the correctness,
validity or genuineness of any instruments or documents that may be released or
endorsed to the Borrower by the Bank (which shall automatically be deemed to be
without recourse to the Bank in any event) or for the existence, character,
quantity, quality, condition, value or delivery of any goods purporting to be
represented by any such documents; and the Bank, by accepting such security
interest in the Collateral, or by releasing any Collateral to the Borrower,
shall not be deemed to have assumed any obligation or liability to any supplier
or Debtor or to any other third party, and the Borrower agrees to indemnify and
defend the Bank and hold it harmless in respect to any claim or proceeding
arising out of any matter referred to in this paragraph.
3.14 Payment of Accounts. Each account or other item of Collateral, other than
inventory and equipment, will be paid in full on or before the date shown as its
due date in the schedule of Collateral, in the copy of the invoice(s) relating
to the account or other Collateral or in contracts relating thereto. Upon any
suspension of business, assignment or trust mortgage for the benefit of
creditors, dissolution, petition in receivership or under any chapter of the
Bankruptcy Code as amended from time to time by or against any Debtor, any
Debtor becoming insolvent or unable to pay its debts as they mature or any other
act of the same or different nature amounting to a business failure, the
Borrower will forthwith notify the Bank thereof.
5
3.15 Notification of Damage. The Borrower will immediately notify the Bank of
any loss or damage to, or material diminution in or any occurrence that would
adversely affect the value of inventory, equipment or other Collateral.
3.16 Taxes. Borrower has filed all Federal, state and other tax returns required
to be filed (except for such returns for which current and valid extensions have
been filed), and all taxes, assessments and other governmental charges due from
the Borrower have been fully paid. The Borrower has established on its books
reserves adequate for the payment of all Federal, state and other tax
liabilities (if any).
3.17 Use of Proceeds. No portion of any loan is to be used for (i) the purpose
of purchasing or carrying any "margin security" or "margin stock" as such terms
are used in Regulations U and X of the Board of Governors of the Federal Reserve
System, 12 C.F.R. 221 and 224 or (ii) primarily personal, family or household
purposes. The Collateral is not used or acquired primarily for personal, family
or household purposes.
3.18 Environmental. As of the date hereof neither the Borrower nor any of
Borrower's agents, employees or independent contractors (1) have caused or are
aware of a release or threat of release of Hazardous Materials (as defined
herein) on any of the premises or personal property owned or controlled by
Borrower, or any abutting property, which could give rise to liability under any
Environmental Law (as defined herein) or any other Federal, state or local law,
rule or regulation; (2) have arranged for the transport of or transported any
Hazardous Materials in a manner as to violate, or result in potential
liabilities under, any Environmental Law; (3) have received any notice, order or
demand from the Environmental Protection Agency or any other Federal, state or
local agency under any Environmental Law; (4) have incurred any liability under
any Environmental Law in connection with the mismanagement, improper disposal or
release of Hazardous Materials; or (5) are aware of any inspection or
investigation of any of the premises or personal property owned or controlled by
Borrower or abutting property by any Federal, state or local agency for possible
violations of any Environmental Law.
To the best of Borrower's knowledge, no prior owner or tenant of any
premises or property presently controlled or owned by Borrower committed or
omitted any act which caused the release of Hazardous Materials on such premises
or property which could give rise to a lien thereon by any Federal, state or
local government. No notice or statement of claim or lien affecting any property
or premises owned or controlled by Borrower has been recorded or filed in any
public records by any Federal, state or local government for costs, penalties,
fines or other charges as to such property.
Borrower agrees to indemnify and hold Bank harmless from all liability,
loss, cost, damage and expense, including attorney fees and costs of litigation,
arising from any and all of its violations of any Environmental Law (including
those arising from any lien by any Federal, state or local government arising
from the presence of Hazardous Materials) or from the presence of Hazardous
Materials located on or emanating from any of the premises owned or controlled
by the Borrower. Borrower further agrees to reimburse Bank upon demand for any
costs incurred by Bank in connection with the foregoing. Borrower agrees that
its obligations hereunder shall be continuous and shall survive the repayment of
all debts to Bank.
The term "Hazardous Materials" includes but is not limited to any and
all substances (whether solid, liquid or gas) defined, listed, or otherwise
classified as pollutants, hazardous wastes, hazardous substances, hazardous
materials, extremely hazardous wastes, or words of similar meaning or regulatory
effect under any present or future Environmental Law or that may have a negative
impact on human health or the environment, including but not limited to
petroleum and petroleum products, asbestos and asbestos-containing materials,
polychlorinated biphenyls, lead, radon, radioactive materials, flammables and
explosives.
The term "Environmental Law" means any present and future Federal,
state and local laws, statutes, ordinances, rules, regulations and the like, as
well as common law, relating to protection of human health or the environment,
relating to Hazardous Materials, relating to liability for or costs of
remediation or prevention
6
of releases of Hazardous Materials or relating to liability for or costs of
other actual or threatened danger to human health or the environment. The term
"Environmental Law" includes, but is not limited to, the following statutes, as
amended, any successor thereto, and any regulations promulgated pursuant
thereto, and any state or local statutes, ordinances, rules, regulations and the
like addressing similar issues: the Comprehensive Environmental Response,
Compensation and Liability Act; the Emergency Planning and Community
Right-to-Know Act; the Hazardous Materials Transportation Act; the Resource
Conservation and Recovery Act (including but not limited to Subtitle I relating
to underground storage tanks); the Solid Waste Disposal Act; the Clean Water
Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking
Water Act; the Occupational Safety and Health Act; the Federal Water Pollution
Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the
Endangered Species Act; the National Environmental Policy Act; and the River and
Harbors Appropriation Act.
4. AFFIRMATIVE COVENANTS
4.1 Payments and Performance. Borrower will duly and punctually pay all
Obligations becoming due to the Bank and will duly and punctually perform all
Obligations on its part to be done or performed under this Agreement.
4.2 Books and Records; Inspection. Borrower will at all times keep proper books
of account in which full, true and correct entries will be made of its
transactions in accordance with generally accepted accounting principles,
consistently applied and which are, in the opinion of a Certified Public
Accountant acceptable to Bank, adequate to determine fairly the financial
condition and the results of operations of Borrower. Borrower will at all
reasonable times make its books and records available in its offices for
inspection, examination and duplication by the Bank and the Bank's
representatives and will permit inspection of the Collateral and all of its
properties by the Bank and the Bank's representatives. Borrower will from time
to time furnish the Bank with such information and statements as the Bank may
request in its sole discretion with respect to the Obligations or the Bank's
security interest in the Collateral. Borrower shall, during the term of this
Agreement, keep the Bank currently and accurately informed in writing of each
location where the Borrower's records relating to its accounts and contract
rights are kept, and shall not remove such records to another state without
giving the Bank at least thirty (30) days prior written notice thereof.
4.3 Financial Statements. Advanced Photonix, Inc. will furnish to Bank:
(a) as soon as available to Advanced Photonix, Inc., but in any
event within 45 days after the close of each quarterly period,
a full and complete signed copy of financial statements, on a
consolidated basis with such other entities designated by the
Bank, which shall include a balance sheet of Advanced
Photonix, Inc., as at the end of such quarter, and statement
of profit and loss of Advanced Photonix, Inc. reflecting the
results of its operations during such quarter and prepared on
a reviewed basis in accordance with generally accepted
accounting principles, consistently applied, subject to
year-end adjustments;
(b) as soon as available to Advanced Photonix, Inc., but in any
event within 90 days after the close of each fiscal year, a
full and complete signed copy of financial statements, on a
consolidated basis with such other entities designated by the
Bank, which shall include a balance sheet of Advanced
Photonix, Inc., as at the end of such year, and statement of
profit and loss of Advanced Photonix, Inc. reflecting the
results of its operations during such year bearing the opinion
of such Certified Public Accountants and prepared in
accordance with generally accepted accounting principles,
consistently applied, together with any so called management
letter; and,
(c) from time to time, such financial data and information about
Advanced Photonix, Inc. as Bank may reasonably request.
7
4.4 Conduct of Business. The Borrower will maintain its existence in good
standing and comply with all laws and regulations of the United States and of
any state or states thereof and of any political subdivision thereof, and of any
governmental authority which may be applicable to it or to its business;
provided that this covenant shall not apply to any tax, assessment or charge
which is being contested in good faith and with respect to which reserves have
been established and are being maintained.
4.5 Notice to Account Debtors. The Borrower agrees, at the request of the Bank,
to notify all or any of the Debtors in writing of the Bank's security interest
in the Collateral in whatever manner the Bank requests and, hereby authorizes
the Bank to notify all or any of the Debtors of the Bank's security interest in
the Borrower's accounts at the Borrower's expense.
4.6 Operating and Deposit Accounts. The Borrower shall maintain with the Bank
its primary operating and deposit accounts. At the option of the Bank, all loan
payments and fees will automatically be debited from the Borrower's primary
operating account and all advances will automatically be credited to the
Borrower's primary operating account.
4.7 Taxes. Borrower will promptly pay all real and personal property taxes,
assessments and charges and all franchise, income, unemployment, old age
benefits, withholding, sales and other taxes assessed against it or payable by
it before delinquent; provided that this covenant shall not apply to any tax
assessment or charge which is being contested in good faith and with respect to
which reserves have been established and are being maintained. The Bank may, at
its option, from time to time, discharge any taxes, liens or encumbrances of any
of the Collateral, and the Borrower will pay to the Bank on demand or the Bank
in its sole discretion may charge to the Borrower all amounts so paid or
incurred by it.
4.8 Maintenance. Borrower will keep and maintain the Collateral and its other
properties, if any, in good repair, working order and condition. The Borrower
will immediately notify the Bank of any loss or damage to or any occurrence
which would adversely affect the value of any Collateral. The Bank may, at its
option, from time to time, take any other action that the Bank may deem proper
to repair, maintain or preserve any of the Collateral, and the Borrower will pay
to the Bank on demand or the Bank in its sole discretion may charge to the
Borrower all amounts so paid or incurred by it.
4.9 Insurance. Borrower will maintain in force property and casualty insurance
on all Collateral and any other property of the Borrower, if any, against risks
customarily insured against by companies engaged in businesses similar to that
of the Borrower containing such terms and written by such companies as may be
satisfactory to the Bank, such insurance to be payable to the Bank as its
interest may appear in the event of loss and to name the Bank as insured
pursuant to a standard loss payee clause; no loss shall be adjusted thereunder
without the Bank's approval; and all such policies shall provide that they may
not be canceled without first giving at least thirty (30) days written notice of
cancellation to the Bank. In the event that the Borrower fails to provide
evidence of such insurance, the Bank may, at its option, secure such insurance
and charge the cost thereof to the Borrower. At the option of the Bank, all
insurance proceeds received from any loss or damage to any of the Collateral
shall be applied either to the replacement or repair thereof or as a payment on
account of the Obligations. From and after the occurrence of an Event of
Default, the Bank is authorized to cancel any insurance maintained hereunder and
apply any returned or unearned premiums, all of which are hereby assigned to the
Bank, as a payment on account of the Obligations.
4.10 Notification of Default. Upon becoming aware of the existence of any
condition or event which constitutes an Event of Default, or any condition or
event which would upon notice or lapse of time, or both, constitute an Event of
Default, Borrower shall promptly give Bank written notice thereof specifying the
nature and duration thereof and the action being or proposed to be taken with
respect thereto.
4.11 Notification of Material Litigation. Borrower will promptly notify the Bank
in writing of any litigation or of any investigative proceedings of a
governmental agency or authority commenced or
8
threatened against it which would or might be materially adverse to the
financial condition of Borrower or any guarantor of the Obligations.
4.12 Pension Plans. With respect to any pension or benefit plan maintained by
Borrower, or to which Borrower contributes ("Plan"), the benefits under which
are guarantied, in whole or in part, by the Pension Benefit Guaranty Corporation
created by the Employee Retirement Income Security Act of 1974, P.L. 93-406, as
amended ("ERISA") or any governmental authority succeeding to any or all of the
functions of the Pension Benefit Guaranty Corporation ("Pension Benefit Guaranty
Corporation"), Borrower will (a) fund each Plan as required by the provisions of
Section 412 of the Internal Revenue Code of 1986, as amended; (b) cause each
Plan to pay all benefits when due; (c) furnish Bank (i) promptly with a copy of
any notice of each Plan's termination sent to the Pension Benefit Guaranty
Corporation (ii) no later than the date of submission to the Department of Labor
or to the Internal Revenue Service, as the case may be, a copy of any request
for waiver from the funding standards or extension of the amortization periods
required by Section 412 of the Internal Revenue Code of 1986, as amended and
(iii) notice of any Reportable Event as such term is defined in ERISA; and (d)
subscribe to any contingent liability insurance provided by the Pension Benefit
Guaranty Corporation to protect against employer liability upon termination of a
guarantied pension plan, if available to Borrower.
5. NEGATIVE COVENANTS
5.1 Financial Covenants. The Borrower will not at any time or during any fiscal
period (as applicable) fail to be in compliance with any of the financial
covenants in this section.
(a) Definitions. The following definitions shall apply to this
Section:
(i) "Capital Expenditures" ("CAPEX") shall mean for any
period, all acquisitions of machinery, equipment, land,
leaseholds, buildings, improvements and all other expenditures
considered to be for fixed assets under GAAP, consistently
applied. Where an asset is acquired under a capital lease, the
amount required to be capitalized shall be considered a
capital expenditure during the first year of the lease.
(ii) "Combined Borrower(s)" shall mean Advanced Photonix, Inc.
and each of its subsidiaries.
(iii) "Current Maturity of Long-Term Debt" ("CMLTD") shall
mean, for any period, the current scheduled principal or
capital lease payments required to be paid during the
applicable period.
(iv) "Current Assets" shall mean current assets as defined
under GAAP.
(v) "Current Liabilities" shall mean current liabilities as
defined under GAAP.
(vi) "Distributions" shall mean all cash dividends to
shareholders, and all cash distributions to shareholders of
Subchapter S corporations, to partners of partnerships, to
members of limited liability companies or to beneficiaries of
trusts.
(vii) "Earnings" shall mean earnings as defined under GAAP.
(viii) "EBIT" shall mean, for any period, Earnings from
continuing operations before payment of interest expense,
federal, state and local income taxes, in each case for such
period, computed and calculated in accordance with GAAP.
(ix) "EBITDA" shall mean, for any period, Earnings from
continuing operations before payment of federal, state and
local income taxes, plus Interest Expense, depreciation and
amortization, in each case for such period, computed and
calculated in accordance with GAAP.
9
(x) "GAAP" shall mean generally accepted accounting principles
in effect from time to time in the United States.
(xi) "Indebtedness" shall mean (x) all indebtedness for
borrowed money or for the deferred purchase price of property
or services, and all obligations under leases which are or
should be, under GAAP, recorded as capital leases, in respect
of which a person is directly or contingently liable as
borrower, guarantor, endorser or otherwise, or in respect of
which a person otherwise assures a creditor against loss, (y)
all obligations for borrowed money or for the deferred
purchase price of property or services secured by (or for
which the holder has an existing right, contingent or
otherwise, to be secured by) any lien upon property (including
without limitation accounts receivable and contract rights)
owned by a person, whether or not such person has assumed or
become liable for the payment thereof, and (z) all other
liabilities and obligations which would be classified in
accordance with GAAP as liabilities on a balance sheet or to
which reference should be made in footnotes thereto.
(xii) "Intangible Assets" shall mean, as of the date of
determination thereof, assets that in accordance with GAAP are
properly classifiable as intangible assets, including, but not
limited to, goodwill, franchises, licenses, patents,
trademarks, trade names and copyrights.
(xiii) "Interest Expense" shall mean, for any period,
ordinary, regular, recurring and continuing expenditures for
interest on all borrowed money.
(xiv) "Subordinated Indebtedness" shall mean, as of the date
of determination thereof, all Indebtedness which has been
subordinated in writing to the obligations owing to the Bank
on terms and conditions acceptable to the Bank.
(xv) "Effective Tangible Net Worth" shall mean, as of the date
of determination thereof, Tangible Net Worth plus Subordinated
Indebtedness.
(xvi) "Tangible Net Worth" shall mean, as of the date of
determination thereof, total assets, excluding all Intangible
Assets, less total liabilities.
(xvii) "Unfinanced CAPEX" shall mean, for any period, Capital
Expenditures less new long-term Indebtedness issued during
such period to fund the Capital Expenditures.
(b) Current Ratio. The Combined Borrower's shall not permit the
ratio of its Current Assets to Current Liabilities to be less
than 1.25 to 1.00, tested quarterly.
(c) Debt to Effective Tangible Net Worth. The Combined Borrower's
shall not permit the ratio of its Indebtedness minus
Subordinated Indebtedness to Effective Tangible Net Worth to
be greater than 2.00 to 1.00, tested quarterly.
(d) Free Cash Flow. The Combined Borrower's shall not permit the
ratio of its EBITDA, minus taxes paid in cash, Distributions
and Unfinanced CAPEX, to Interest Expense plus CMLTD, to be
less than 1.25 to 1.00, for any fiscal quarter. Ratio analysis
will commence 9/30/05. For the period ending 9/30/05, 12/31/05
and 3/31/06 the calculation will include adding back to
earnings $500,000.00 of non-recurring expenses related to the
acquisition of Picotronix, Inc., dba Picometrix, Inc.
(e) EBIT to Interest Expense. The Combined Borrower's shall not
permit the ratio of its EBIT to Interest Expense to be less
than 2.00 to 1.00, for any fiscal quarter. Ratio analysis will
commence 9/30/05. For the period ending 9/30/05, 12/31/05 and
3/31/06 the calculation will include adding back to earnings
$500,000.00 of non-recurring expenses related to the
acquisition of Picotronix, Inc., dba Picometrix, Inc.
10
(f) No additional revolving or term debt without Bank's
concurrence.
(g) Balance on initial Note to Smithfield Fiduciary, LLC, Iroquois
Capital, LP, Bluegrass Growth Fund, LP, and Bluegrass Growth
Fund, Ltd, to be no greater than $5,000,000.00 in the
aggregate principal amount.
(h) No consecutive quarter losses.
(i) Intercreditor Agreement executed by Advanced Photonix, Inc.,
Silicon Sensors, Inc., Michigan Acquisition Sub, LLC, Texas
Optoelectronics, Inc., Silicon Detector Corporation, Photonic
Detectors Inc., and Smithfield Fiduciary, LLC to subordinate
$6,000,000.00 in Smithfield Fiduciary, LLC debt to Santa
Xxxxxxx Bank & Trust.
(j) Subsequent to closing, possibly within 24 hours, Michigan
Acquisition Sub, LLC will be replaced as Co-Borrower with
Picometrix, LLC.
(k) Prior to funding the loan, the merger of Picotronix, Inc., dba
Picometrix, Inc., into Michigan Acquisition Sub, LLC must be
completed.
5.2 Limitations on Indebtedness. Borrower shall not issue any evidence of
indebtedness or create, assume, guarantee, become contingently liable for, or
suffer to exist indebtedness in addition to indebtedness to the Bank, except
indebtedness or liabilities of Borrower, other than for money borrowed, incurred
or arising in the ordinary course of business.
5.3 Sale of Interest. There shall not be any sale or transfer of ownership of
any interest in the Borrower without the Bank's prior written consent unless
such transfer shall not result in change in control of Borrower.
5.4 Loans or Advances. Borrower shall not make any loans or advances to any
individual, firm or corporation, including without limitation its officers and
employees; provided, however, that Borrower may make advances to its employees,
including its members, officers, with respect to expenses incurred or to be
incurred by such employees in the ordinary course of business which expenses are
reimbursable by Borrower; and provided further, however, that Borrower may
extend credit in the ordinary course of business in accordance with customary
trade practices.
5.5 Dividends and Distributions. Borrower shall not, without prior written
consent of the Bank, pay any dividends on or make any distribution except to any
Combined Borrower on account of any class of Borrower's capital stock in cash or
in property (other than additional shares of such stock), or redeem, purchase or
otherwise acquire, directly or indirectly, any of such stock, except, so long as
Borrower is not in default hereunder.
5.6 Investments. The Borrower shall not make investments in, or advances to, any
individual, partnership, corporation, limited liability company, trust or other
organization or person, except for any Combined Borrower. The Borrower will not
purchase or otherwise invest in or hold securities, nonoperating real estate or
other nonoperating assets or purchase all or substantially all the assets of any
entity.
5.7 Merger. Borrower shall not merge or consolidate or be merged or consolidated
with or into any other entity.
5.8 Capital Expenditures. The Borrower shall not, directly or indirectly, make
or commit to make capital expenditures by lease, purchase, or otherwise, except
in the ordinary and usual course of business for the purpose of replacing
machinery, equipment or other personal property which, as a
11
consequence of wear, duplication or obsolescence, is no longer used or necessary
in the Borrower's business.
5.9 Sale of Assets. Borrower shall not sell, lease or otherwise dispose of any
of its assets, except in the ordinary and usual course of business and except
for the purpose of replacing machinery, equipment or other personal property
which, as a consequence of wear, duplication or obsolescence, is no longer used
or necessary in the Borrower's business, provided that fair consideration is
received therefor; provided, however, in no event, except in the ordinary and
usual course of business, shall the Borrower sell, lease or otherwise dispose of
any equipment purchased with the proceeds of any loans made by the Bank.
5.10 Restriction on Liens. Borrower shall not grant any security interest in, or
mortgage of, any of its properties or assets including the Collateral. Borrower
shall not agree with any person other than the Bank to not grant any security
interest in, or mortgage of, any of its properties or assets including the
Collateral.
5.11 Other Business. Borrower shall not engage in any business other than the
business in which it is currently engaged or a business reasonably allied
thereto.
5.12 Change of Name. Borrower shall not change its legal name or the State of
its organization, without giving the Bank at least 30 days prior written notice
thereof.
6. DEFAULT
6.1 Default. "Event of Default" shall mean the occurrence of one or more of any
of the following events:
(a) default of any liability, obligation or undertaking of the
Borrower or any guarantor of the Obligations to the Bank,
hereunder or otherwise, including, without limitation, failure
to pay in full and when due any installment of principal or
interest or default of the Borrower or any guarantor of the
Obligations under any other Loan Document or any other
agreement with the Bank continuing for 10 days with respect to
the payment of money or continuing for 30 days with respect to
any other default;
(b) failure of the Borrower or any guarantor of the Obligations to
maintain aggregate collateral security value satisfactory to
the Bank continuing for 30 days;
(c) default of any material liability, obligation or undertaking
of the Borrower or any guarantor of the Obligations to any
other party continuing for 30 days;
(d) if any statement, representation or warranty heretofore, now
or hereafter made by the Borrower or any guarantor of the
Obligations in connection with this Agreement or in any
supporting financial statement of the Borrower or any
guarantor of the Obligations shall be determined by the Bank
to have been false in any material respect when made;
(e) if the Borrower or any guarantor of the Obligations is a
corporation, trust, partnership or limited liability company,
the liquidation, termination or dissolution of any such
organization, or the merger or consolidation of such
organization into another entity, or its ceasing to carry on
actively its present business or the appointment of a receiver
for its property;
(f) the institution by or against the Borrower or any guarantor of
the Obligations of any proceedings under the Bankruptcy Code
11 USC ss.101 et seq. or any other law in which the Borrower
or any guarantor of the Obligations is alleged to be insolvent
or unable to pay its debts as they mature, or the making by
the Borrower or any guarantor of the Obligations of an
assignment for the benefit of creditors or the granting by
the Borrower or any guarantor of the Obligations of trust
mortgage for the benefit of creditors;
12
(g) the service upon the Bank of a writ in which the Bank is named
as trustee of the Borrower or any guarantor of the
Obligations;
(h) a judgement or judgements for the payment of money shall be
rendered against the Borrower or any guarantor of the
Obligations, and any such judgement shall remain unsatisfied
and in effect for any period of thirty (30) consecutive days
without a stay of execution;
(i) any xxxx, xxxx (including mechanics lien), seizure,
attachment, execution or similar process shall be issued or
levied on any of the property of the Borrower or any guarantor
of the Obligations;
(j) the termination or revocation of any guaranty of the
Obligations; or
(k) the occurrence of such a change in the condition or affairs
(financial or otherwise) of the Borrower or any guarantor of
the Obligations, or the occurrence of any other event or
circumstance, such that the Bank, in its reasonable sole
discretion, deems that it is insecure or that the prospects
for timely or full payment or performance of any obligation of
the Borrower or any guarantor of the Obligations to the Bank
has been or may be impaired.
6.2 Acceleration. If an Event of Default shall occur, at the election of the
Bank, all Obligations shall become immediately due and payable without notice or
demand, except with respect to Obligations payable on DEMAND, which shall be due
and payable on DEMAND, whether or not an Event of Default has occurred.
The Bank is hereby authorized, at its election, after an Event of
Default or after Demand, without any further demand or notice except to such
extent as notice may be required by applicable law, to take possession and/or
sell or otherwise dispose of all or any of the Collateral at public or private
sale; and the Bank may also exercise any and all other rights and remedies of a
secured party under the Code or which are otherwise accorded to it in equity or
at law, all as Bank may determine, and such exercise of rights in compliance
with the requirements of law will not be considered adversely to affect the
commercial reasonableness of any sale or other disposition of the Collateral. If
notice of a sale or other action by the Bank is required by applicable law,
unless the Collateral is perishable or threatens to decline speedily in value or
is of a type customarily sold on a recognized market, the Borrower agrees that
ten (10) days written notice to the Borrower, or the shortest period of written
notice permitted by such law, whichever is smaller, shall be sufficient notice;
and that to the extent permitted by law, the Bank, its officers, attorneys and
agents may bid and become purchasers at any such sale, if public, and may
purchase at any private sale any of the Collateral that is of a type customarily
sold on a recognized market or which is the subject of widely distributed
standard price quotations. Any sale (public or private) shall be without
warranty and free from any right of redemption, which the Borrower shall waive
and release after default upon the Bank's request therefor, and may be free of
any warranties as to the Collateral if Bank shall so decide. No purchaser at any
sale (public or private) shall be responsible for the application of the
purchase money. Any balance of the net proceeds of sale remaining after paying
all Obligations of the Borrower to the Bank shall be returned to such other
party as may be legally entitled thereto; and if there is a deficiency, the
Borrower shall be responsible for repayment of the same, with interest. Upon
demand by the Bank, the Borrower shall assemble the Collateral and make it
available to the Bank at a place designated by the Bank which is reasonably
convenient to the Bank and the Borrower. The Borrower hereby acknowledges that
the Bank has extended credit and other financial accommodations to the Borrower
upon reliance of the Borrower's granting the Bank the rights and remedies
contained in this Agreement including without limitation the right to take
immediate possession of the Collateral upon the occurrence of an Event of
Default or after DEMAND with respect to Obligations payable on DEMAND and the
Borrower hereby acknowledges that the Bank is entitled to equitable and
injunctive relief to enforce any of its rights and remedies hereunder or under
the Code and the Borrower hereby waives any defense to such equitable or
injunctive relief based upon any allegation of the absence of irreparable harm
to the Bank.
13
The Bank shall not be required to marshal any present or future
security for (including but not limited to this Agreement and the Collateral
subject to the security interest created hereby), or guarantees of, the
Obligations or any of them, or to resort to such security or guarantees in any
particular order; and all of its rights hereunder and in respect of such
securities and guaranties shall be cumulative and in addition to all other
rights, however existing or arising. To the extent that it lawfully may,
Borrower hereby agrees that it will not invoke any law relating to the
marshalling of collateral which might cause delay in or impede the enforcement
of the Bank's rights under this Agreement or under any other instrument
evidencing any of the Obligations or under which any of the Obligations is
outstanding or by which any of the Obligations is secured or guaranteed, and to
the extent that it lawfully may do so, Borrower hereby irrevocably waives the
benefits of all such laws. Except as required by applicable law, the Bank shall
have no duty as to the collection or protection of the Collateral or any income
thereon, nor as to the preservation of rights against prior parties, nor as to
the preservation of any rights pertaining thereto beyond the safe custody
thereof.
6.3 Power of Attorney. The Borrower hereby irrevocably constitutes and appoints
the Bank as the Borrower's true and lawful attorney, with full power of
substitution, at the sole cost and expense of the Borrower but for the sole
benefit of the Bank, upon the occurrence of an Event of Default or after DEMAND
with respect to Obligations payable on DEMAND, to convert the Collateral into
cash, including, without limitation, completing the manufacture or processing of
work in process, and the sale (either public or private) of all or any portion
or portions of the inventory and other Collateral; to enforce collection of the
Collateral, either in its own name or in the name of the Borrower, including,
without limitation, executing releases or waivers, compromising or settling with
any Debtors and prosecuting, defending, compromising or releasing any action
relating to the Collateral; to receive, open and dispose of all mail addressed
to the Borrower and to take therefrom any remittances or proceeds of Collateral
in which the Bank has a security interest; to notify Post Office authorities to
change the address for delivery of mail addressed to the Borrower to such
address as the Bank shall designate; to endorse the name of the Borrower in
favor of the Bank upon any and all checks, drafts, money orders, notes,
acceptances or other instruments of the same or different nature; to sign and
endorse the name of the Borrower on and to receive as secured party any of the
Collateral, any invoices, freight or express receipts, or bills of lading,
storage receipts, warehouse receipts, or other documents of title of the same or
different nature relating to the Collateral; to sign the name of the Borrower on
any notice of the Debtors or on verification of the Collateral; and to sign, if
necessary, and file or record on behalf of the Borrower any financing or other
statement in order to perfect or protect the Bank's security interest. The Bank
shall not be obliged to do any of the acts or exercise any of the powers
hereinabove authorized, but if the Bank elects to do any such act or exercise
any such power, it shall not be accountable for more than it actually receives
as a result of such exercise of power, and it shall not be responsible to the
Borrower except for its own gross negligence or willful misconduct. All powers
conferred upon the Bank by this Agreement, being coupled with an interest, shall
be irrevocable so long as any Obligation of the Borrower or any guarantor or
surety to the Bank shall remain unpaid or the Bank is obligated under this
Agreement to extend any credit to the Borrower.
6.4 Nonexclusive Remedies. All of the Bank's rights and remedies not only under
the provisions of this Agreement but also under any other agreement or
transaction shall be cumulative and not alternative or exclusive, and may be
exercised by the Bank at such time or times and in such order of preference as
the Bank in its sole discretion may determine.
6.5 Reassignment to Borrower. Whenever the Bank deems it desirable that any
legal action be instituted with respect to any Collateral or that any other
action be taken in any attempt to effectuate collection of any Collateral, the
Bank may reassign the item in question to the Borrower (and if the Bank shall
execute any such reassignment, it shall automatically be deemed to be without
recourse to the Bank in any event) and require the Borrower to proceed with such
legal or other action at the Borrower's sole liability, cost and expense, in
which event all amounts collected by the Borrower on such item shall
nevertheless be subject to the Bank's security interest.
14
7. MISCELLANEOUS
7.1 Waivers. The Borrower waives notice of intent to accelerate, notice of
acceleration, notice of nonpayment, demand, presentment, protest or notice of
protest of the Obligations, and all other notices, consents to any renewals or
extensions of time of payment thereof, and generally waives any and all
suretyship defenses and defenses in the nature thereof.
7.2 Severability. If any provision of this Agreement or portion of such
provision or the application thereof to any person or circumstance shall to any
extent be held invalid or unenforceable, the remainder of this Agreement (or the
remainder of such provision) and the application thereof to other persons or
circumstances shall not be affected thereby.
7.3 Deposit Collateral. The Borrower hereby grants to the Bank a continuing lien
and security interest in any and all deposits or other sums at any time credited
by or due from the Bank (or any of its banking or lending affiliates, or any
bank acting as a participant under any loan arrangement between the Bank and the
Borrower, or any third party acting on the Bank's behalf (collectively, the
"Bank Affiliates")) to the Borrower and any cash, securities, instruments or
other property of the Borrower in the possession of the Bank or any Bank
Affiliate, whether for safekeeping or otherwise, or in transit to or from the
Bank or any Bank Affiliate (regardless of the reason the Bank or Bank Affiliate
had received the same or whether the Bank or Bank Affiliate has conditionally
released the same) as security for the full and punctual payment and performance
of all of the liabilities and obligations of the Borrower to the Bank or any
Bank Affiliate and such deposits and other sums may be applied against such
liabilities and obligations of the Borrower to the Bank or any Bank Affiliate at
any time, whether or not such are then due, whether or not demand has been made
and whether or not other collateral is then available to the Bank or any Bank
Affiliate.
7.4 Indemnification. The Borrower shall indemnify, defend and hold the Bank
harmless of and from any claim brought or threatened against the Bank by the
Borrower, any guarantor or endorser of the Obligations, or any other person (as
well as from reasonable attorneys' fees and expenses in connection therewith) on
account of the Bank's relationship with the Borrower, or any guarantor or
endorser of the Obligations (each of which may be defended, compromised, settled
or pursued by the Bank with counsel of the Bank's election, but at the expense
of the Borrower), except for any claim arising out of the gross negligence or
willful misconduct of the Bank. The within indemnification shall survive payment
of the Obligations, and/or any termination, release or discharge executed by the
Bank in favor of the Borrower.
7.5 Costs and Expenses. The Borrower shall pay to the Bank on demand any and all
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements, court costs, litigation and other expenses) incurred or paid
by the Bank in establishing, maintaining, protecting or enforcing any of the
Bank's rights or the Obligations, including, without limitation, any and all
such costs and expenses incurred or paid by the Bank in defending the Bank's
security interest in, title or right to the Collateral or in collecting or
attempting to collect or enforcing or attempting to enforce payment of the
Obligations.
7.6 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be an original, but all of which shall constitute but one
agreement.
7.7 Complete Agreement. This Agreement and the other Loan Documents constitute
the entire agreement and understanding between and among the parties hereto
relating to the subject matter hereof, and supersedes all prior proposals,
negotiations, agreements and understandings among the parties hereto with
respect to such subject matter.
7.8 Binding Effect of Agreement. This Agreement shall be binding upon and inure
to the benefit of the respective heirs, executors, administrators, legal
representatives, successors and assigns of the parties hereto, and shall remain
in full force and effect (and the Bank shall be entitled to rely thereon) until
terminated as to future transactions by written notice from either party to the
other party of the termination hereof; provided that any such termination shall
not release or affect any Collateral in which the Bank
15
already has a security interest or any Obligations incurred or rights accrued
hereunder prior to the effective date of such notice (as hereinafter defined) of
such termination. Notwithstanding any such termination, the Bank shall have a
security interest in all Collateral to secure the payment and performance of
Obligations arising after such termination as a result of commitments or
undertakings made or entered into by the Bank prior to such termination. The
Bank may transfer and assign this Agreement and deliver the Collateral to the
assignee, who shall thereupon have all of the rights of the Bank; and the Bank
shall then be relieved and discharged of any responsibility or liability with
respect to this Agreement and the Collateral. The Borrower may not assign or
transfer any of its rights or obligations under this Agreement. Except as
expressly provided herein or in the other Loan Documents, nothing, expressed or
implied, is intended to confer upon any party, other than the parties hereto,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement or the other Loan Documents.
7.9 Further Assurances. Borrower will from time to time execute and deliver to
Bank such documents, and take or cause to be taken, all such other or further
action, as Bank may request in order to effect and confirm or vest more securely
in Bank all rights contemplated by this Agreement and the other Loan Documents
(including, without limitation, to correct clerical errors) or to vest more
fully in or assure to the Bank the security interest in the Collateral granted
to the Bank by this Agreement or to comply with applicable statute or law and to
facilitate the collection of the Collateral (including, without limitation, the
execution of stock transfer orders and stock powers, endorsement of promissory
notes and instruments and notifications to obligors on the Collateral). To the
extent permitted by applicable law, Borrower authorizes Bank to file financing
statements, continuation statements or amendments without Borrower's signature
appearing thereon, and any such financing statements, continuation statements or
amendments may be signed by Bank on behalf of Borrower, if necessary, and may be
filed at any time in any jurisdiction. Bank may at any time and from time to
time file financing statements, continuation statements and amendments thereto
which contain any information required by the Code for the sufficiency or filing
office acceptance of any financing statement, continuation statement or
amendment, including whether Borrower is an organization, the type of
organization and any organization identification number issued to Borrower.
Borrower agrees to furnish any such information to Bank promptly upon request.
In addition, Borrower shall at any time and from time to time take such steps as
Bank may reasonably request for Bank (i) to obtain an acknowledgement, in form
and substance satisfactory to Bank, of any bailee having possession of any of
the Collateral that the bailee holds such Collateral for Bank, (ii) to obtain
"control" (as defined in the Code) of any Collateral comprised of deposit
accounts, electronic chattel paper, letter of credit rights or investment
property, with any agreements establishing control to be in form and substance
satisfactory to Bank, and (iii) otherwise to insure the continued perfection and
priority of Bank's security interest in any of the Collateral and the
preservation of its rights therein. Borrower hereby constitutes Bank its
attorney-in-fact to execute, if necessary, and file all filings required or so
requested for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed; and such power, being coupled with an interest, shall be
irrevocable until this Agreement terminates in accordance with its terms, all
Obligations are paid in full and the Collateral is released.
7.10 Amendments and Waivers. This Agreement may be amended and Borrower may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, if Borrower shall obtain the Bank's prior written consent to
each such amendment, action or omission to act. No course of dealing and no
delay or omission on the part of Bank in exercising any right hereunder shall
operate as a waiver of such right or any other right and waiver on any one or
more occasions shall not be construed as a bar to or waiver of any right or
remedy of Bank on any future occasion.
7.11 Terms of Agreement. This Agreement shall continue in full force and effect
so long as any Obligations or obligation of Borrower to Bank shall be
outstanding, or the Bank shall have any obligation to extend any financial
accommodation hereunder, and is supplementary to each and every other agreement
between Borrower and Bank and shall not be so construed as to limit or otherwise
derogate from any of the rights or remedies of Bank or any of the liabilities,
obligations or undertakings of Borrower under any such agreement, nor shall any
contemporaneous or subsequent agreement between Borrower and the Bank be
construed to limit or otherwise derogate from any of the rights or remedies of
Bank or
16
any of the liabilities, obligations or undertakings of Borrower hereunder,
unless such other agreement specifically refers to this Agreement and expressly
so provides.
7.12 Notices. Any notice under or pursuant to this Agreement shall be a signed
writing or other authenticated record (within the meaning of Article 9 of the
Code). Any such notice shall be deemed duly received and effective (i) if
delivered in hand to, or received by, any officer or agent of the Borrower or
the Bank, upon such delivery or receipt, or (ii) if mailed by registered or
certified mail, return receipt requested, postage prepaid, and properly
addressed to the Borrower or the Bank, two (2) business days after being so
mailed. A party's proper address is that set forth for such party in this
Agreement or such address as that party may from time to time hereafter
designate by notice to the other party.
7.13 Governing Law. This Agreement has been executed or completed and/or is to
be performed in California, and it and all transactions thereunder or pursuant
thereto shall be governed as to interpretation, validity, effect, rights, duties
and remedies of the parties thereunder and in all other respects by the laws of
California.
7.14 Reproductions. This Agreement and all documents which have been or may be
hereinafter furnished by Borrower to the Bank may be reproduced by the Bank by
any photographic, photostatic, microfilm, xerographic or similar process, and
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made in the regular course of
business).
7.15 Jurisdiction and Venue. Borrower irrevocably submits to the nonexclusive
jurisdiction of any Federal or state court sitting in California, over any suit,
action or proceeding arising out of or relating to this Agreement. Borrower
irrevocably waives, to the fullest extent it may effectively do so under
applicable law, any objection it may now or hereafter have to the laying of the
venue of any such suit, action or proceeding brought in any such court and any
claim that the same has been brought in an inconvenient forum. Borrower hereby
consents to any and all process which may be served in any such suit, action or
proceeding, (i) by mailing a copy thereof by registered and certified mail,
postage prepaid, return receipt requested, to the Borrower's address shown in
this Agreement or as notified to the Bank and (ii) by serving the same upon the
Borrower in any other manner otherwise permitted by law, and agrees that such
service shall in every respect be deemed effective service upon Borrower.
7.16 Civil Code Section 2822. In the event that at any time, a surety is liable
upon only a portion of Borrower's obligations under the Loan Documents and
Borrower provides partial satisfaction of any such obligation(s), Borrower
hereby waives any right it would otherwise have, under Section 2822 of the
California Civil Code, to designate the portion of the obligations to be
satisfied. The designation of the portion of the obligation to be satisfied
shall, to the extent not expressly made by the terms of the Loan Documents, be
made by the Bank rather than Borrower.
7.17 JURY WAIVER. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE
BORROWER AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY, AND
AFTER AN OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL, (A) WAIVE ANY AND ALL RIGHTS
TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING IN CONNECTION WITH THIS
AGREEMENT, THE OBLIGATIONS, ALL MATTERS CONTEMPLATED HEREBY AND DOCUMENTS
EXECUTED IN CONNECTION HEREWITH AND (B) AGREE NOT TO SEEK TO CONSOLIDATE ANY
SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE, OR HAS NOT
BEEN, WAIVED. THE BORROWER CERTIFIES THAT NEITHER THE BANK NOR ANY OF ITS
REPRESENTATIVES, AGENTS OR COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
THE BANK WOULD NOT IN THE EVENT OF ANY SUCH PROCEEDING SEEK TO ENFORCE THIS
WAIVER OF RIGHT TO TRIAL BY JURY.
7.18 ARBITRATION. ARBITRATION. IN THE EVENT THAT THE JURY WAIVER SET FORTH ABOVE
IS JUDICIALLY DETERMINED TO NOT BE PERMITTED BY LAW, THE PARTIES AGREE TO
ATTEMPT IN GOOD FAITH TO RESOLVE ANY DISPUTES WHICH MAY ARISE AMONG THEM IN
17
CONNECTION WITH THE INTERPRETATION OR ENFORCEMENT OF THE PROVISIONS OF THIS
AGREEMENT, OR THE APPLICATION OR VALIDITY THEREOF. IN THE EVENT THAT ANY DISPUTE
CANNOT BE SO RESOLVED, AND UNLESS THE RELIEF SOUGHT REQUIRES THE EXERCISE OF THE
EQUITY POWERS OF A COURT OF COMPETENT JURISDICTION, SUCH DISPUTE SHALL BE
SUBMITTED TO ARBITRATION. SUCH ARBITRATION PROCEEDINGS SHALL BE HELD IN THE
COUNTY OF SANTA BARBARA, CALIFORNIA, IN ACCORDANCE WITH THE ARBITRATION
PROVISIONS OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. THIS AGREEMENT TO
ARBITRATE SHALL BE SPECIFICALLY ENFORCEABLE. ANY AWARD RENDERED IN ANY SUCH
ARBITRATION PROCEEDINGS SHALL BE FINAL AND BINDING ON EACH OF THE PARTIES
HERETO, AND JUDGEMENT MAY BE ENTERED THEREON IN ANY COURT OF COMPETENT
JURISDICTION.
Executed as of MAY 2, 2005.
Borrower:
Michigan Acquisition Sub, LLC
By: Advanced Photonix, Inc., Member
By: /s/ XXXXXXX X. XXXXX
-----------------------------------------
Xxxxxxx X. Xxxxx,
Chief Executive Officer
Accepted: Pacific Capital Bank, N.A.
By: /s/ XXXXX XXXXXX
-----------------------------
Name: Xxxxx Xxxxxx
Title: Vice President
18
EXHIBIT A TO LOAN AND SECURITY AGREEMENT OF
MICHIGAN ACQUISITION SUB, LLC
1. Subsidiaries: None
2. Consolidations, Mergers and Acquisitions:
(a) The acquisition of Picotronix, Inc. by way of the merger of
Picotronix, Inc. with and into Michigan Acquisition Sub, LLC,
a wholly-owned subsidiary of Advanced Photonix, Inc.
EXHIBIT B LOAN AND SECURITY AGREEMENT OF
MICHIGAN ACQUISITION SUB, LLC
1. Liens:
(a) Smithfield Fiduciary, LLC, acting as collateral agent on
behalf of the other investors in connection with the private
placement which closed on October 12, 2004, has a first
priority security interest in all of the assets of Advanced
Photonix, Inc., except as set forth in that certain
Subordination and Intercreditor Agreement between Pacific
Capital Bank, N.A. and Smithfield Fiduciary, LLC.
(b) Xxxxx Xxxxxx and Xxxxxx Xxxxxxxxxx have a first priority
security interest in all of the intellectual property of
Michigan Acquisition Sub, LLC.
20
(THE NETWORK OF PREFERRED COMMUNITY BANKS(SM) LOGO)
Loan No. 37512-37654
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT (this "Agreement") entered into as of
MAY 2, 2005, between SILICON DETECTOR CORPORATION, A CALIFORNIA CORPORATION,
with its chief executive office located at 0000 XXXXXXX XXXXX, XXXXXXXXX,
XXXXXXXXXX 00000 (the "Borrower") and Pacific Capital Bank, N.A., a national
banking association, doing business as Santa Xxxxxxx Bank & Trust, with an
address of c/o Loan Services, XX Xxx 00000, Xxxxx Xxxxxxx, Xxxxxxxxxx 00000-0000
(the "Bank").
FOR VALUE RECEIVED, and in consideration of the granting by the Bank of
financial accommodations to or for the benefit of the Borrower, including
without limitation respecting the Obligations (as hereinafter defined), the
Borrower represents and agrees with the Bank, as of the date hereof and as of
the date of each loan, credit and/or other financial accommodation, as follows:
1. THE LOAN
1.1 Loan. Subject to the terms and conditions of this Agreement, the Bank hereby
agrees to make a loan to the Borrower, Advanced Photonix, Inc., Silicon Sensors,
Inc., Michigan Acquisition Sub, LLC, Texas Optoelectronics, Inc., and Photonic
Detectors, Inc. in the original principal amount of $2,700,000.00 (the "Loan").
The Loan shall be evidenced by that certain Term Note, of even date herewith
(the "Note") by the Borrower, Advanced Photonix, Inc., Silicon Sensors, Inc.,
Michigan Acquisition Sub, LLC, Texas Optoelectronics, Inc., and Photonic
Detectors, Inc. in favor of the Bank in the original principal amount of
$2,700,000.00. This Agreement, the Note, and any and all other documents,
amendments or renewals executed and delivered in connection with any of the
foregoing are collectively hereinafter referred to as the "Loan Documents".
2. GRANT OF SECURITY INTEREST
2.1 Grant of Security Interest. In consideration of the Bank's extending credit
and other financial accommodations to or for the benefit of the Borrower, the
Borrower hereby grants to the Bank a security interest in, a lien on and pledge
and assignment of the Collateral (as hereinafter defined). The security interest
granted by this Agreement is given to and shall be held by the Bank as security
for the payment and performance of all Obligations, including, without
limitation, all amounts outstanding pursuant to the Loan Documents.
2.2 Definitions. The following definitions shall apply:
(a) "Code" shall mean the Uniform Commercial Code of California as
amended from time to time.
(b) "Collateral" shall mean all Borrower's present and future
right, title and interest in and to any and all of the
personal property of Borrower whether such property is now
existing or hereafter created, acquired or arising and
wherever located from time to time, including without
limitation:
(i) accounts;
(ii) chattel paper;
(iii) goods;
(iv) inventory;
(v) equipment;
(vi) farm products;
(vii) instruments;
(viii) investment property;
(ix) documents;
(x) commercial tort claims;
(xi) deposit accounts;
(xii) letter-of-credit rights;
(xiii) general intangibles;
(xiv) supporting obligations; and
(xv) proceeds and products of the foregoing.
(c) "Debtors" shall mean the Borrower's customers who are indebted
to the Borrower.
(d) "Obligation(s)" shall mean, without limitation, all loans,
advances, indebtedness, notes, liabilities, rate swap
transactions, basis swaps, forward rate transactions,
commodity swaps, commodity options, equity or equity index
swaps, equity or equity index options, bond options, interest
rate options, foreign exchange transactions, cap transactions,
floor transactions, collar transactions, forward transactions,
currency swap transactions, cross-currency rate swap
transactions, currency options and amounts, liquidated or
unliquidated, owing by the Borrower to the Bank at any time,
of each and every kind, nature and description, whether
arising under this Agreement or otherwise, and whether secured
or unsecured, direct or indirect (that is, whether the same
are due directly by the Borrower to the Bank; or are due
indirectly by the Borrower to the Bank as endorser, guarantor
or other surety, or as borrower of obligations due third
persons which have been endorsed or assigned to the Bank, or
otherwise), absolute or contingent, due or to become due, now
existing or hereafter arising or contracted, including,
without limitation, payment when due of all amounts
outstanding respecting any of the Loan Documents. Said term
shall also include all interest and other charges chargeable
to the Borrower or due from the Borrower to the Bank from time
to time and all costs and expenses referred to in this
Agreement.
(e) "Person" or "party" shall mean individuals, partnerships,
corporations, limited liability companies and all other
entities.
All words and terms used in this Agreement other than those
specifically defined herein shall have the meanings accorded to them in the
Code.
2.3 Ordinary Course of Business. The Bank hereby authorizes and permits the
Borrower to hold, process, sell, use or consume in the manufacture or processing
of finished goods, or otherwise dispose of
2
inventory for fair consideration, all in the ordinary course of the Borrower's
business, excluding, without limitation, sales to creditors or in bulk or sales
or other dispositions occurring under circumstances which would or could create
any lien or interest adverse to the Bank's security interest or other right
hereunder in the proceeds resulting therefrom. The Bank also hereby authorizes
and permits the Borrower to receive from the Debtors all amounts due as proceeds
of the Collateral at the Borrower's own cost and expense, and also liability, if
any, subject to the direction and control of the Bank at all times; and the Bank
may at any time, without cause or notice, and whether or not a default has
occurred or demand has been made, terminate all or any part of the authority and
permission herein or elsewhere in this Agreement granted to the Borrower with
reference to the Collateral, and notify Debtors to make all payments due as
proceeds of the Collateral to the Bank. Until Bank shall otherwise notify
Borrower, all proceeds of and collections of Collateral shall be retained by
Borrower and used solely for the ordinary and usual operation of Borrower's
business. From and after notice by Bank to Borrower, all proceeds of and
collections of the Collateral shall be held in trust by Borrower for Bank and
shall not be commingled with Borrower's other funds or deposited in any bank
account of Borrower; and Borrower agrees to deliver to Bank on the dates of
receipt thereof by Borrower, duly endorsed to Bank or to bearer, or assigned to
Bank, as may be appropriate, all proceeds of the Collateral in the identical
form received by Borrower.
2.4 Allowances. The Borrower may grant such allowances or other adjustments to
Debtors (exclusive of extending the time for payment of any item which shall not
be done without first obtaining the Bank's written consent in each instance) as
the Borrower may reasonably deem to accord with sound business practice,
including, without limiting the generality of the foregoing, accepting the
return of all or any part of the inventory (subject to the provisions set forth
in this Agreement with reference to returned inventory).
2.5 Records. The Borrower shall hold its books and records relating to the
Collateral segregated from all the Borrower's other books and records in a
manner satisfactory to the Bank; and shall deliver to the Bank from time to time
promptly at its request all invoices, original documents of title, contracts,
chattel paper, instruments and any other writings relating thereto, and other
evidence of performance of contracts, or evidence of shipment or delivery of the
merchandise or of the rendering of services; and the Borrower will deliver to
the Bank promptly at the Bank's request from time to time additional copies of
any or all of such papers or writings, and such other information with respect
to any of the Collateral and such schedules of inventory, schedules of accounts
and such other writings as the Bank may in its reasonable sole discretion deem
to be necessary or effectual to evidence any loan hereunder or the Bank's
security interest in the Collateral.
2.6 Legends. The Borrower shall promptly make, stamp or record such entries or
legends on the Borrower's books and records or on any of the Collateral
(including, without limitation, chattel paper) as Bank shall request from time
to time, to indicate and disclose that Bank has a security interest in such
Collateral.
2.7 Inspection. The Bank, or its representatives, at any time and from time to
time, shall have the right at the sole cost and expense of Borrower, and the
Borrower will permit the Bank and/or its representatives: (a) to examine, check,
make copies of or extracts from any of the Borrower's books, records and files
(including, without limitation, orders and original correspondence); (b) to
perform field exams or otherwise inspect and examine the Collateral and to
check, test or appraise the same as to quality, quantity, value and condition;
and (c) to verify the Collateral or any portion or portions thereof or the
Borrower's compliance with the provisions of this Agreement.
2.8 Purchase Money Security Interests. To the extent Borrower uses proceeds of
any loans to purchase Collateral, the repayment of such loans shall be on a
"first-in-first-out" basis so that the portion of the loan used to purchase a
particular item of Collateral shall be repaid in the order in which Borrower
purchased such item of Collateral.
2.9 Search Reports. Bank shall receive prior to the date of this Agreement UCC
search results under all names used by the Borrower during the prior five (5)
years, from each jurisdiction where any
3
Collateral is located, from the State, if any, where Borrower is organized and
registered (as such terms are used in the Code), and the State where Borrower's
chief executive office is located. The search results shall confirm that the
security interest in the Collateral granted Bank hereunder is prior to all other
security interests in favor of any other Person.
3. REPRESENTATIONS AND WARRANTIES
3.1 Organization and Qualification. Borrower is a duly organized and validly
existing corporation under the laws of the State of its incorporation with the
exact legal name set forth in the first paragraph of this Agreement. Borrower is
in good standing under the laws of said State, has the power to own its property
and conduct its business as now conducted and as currently proposed to be
conducted, and is duly qualified to do business under the laws of each state
where the nature of the business done or property owned requires such
qualification.
3.2 Subsidiaries. Borrower has no subsidiaries other than as disclosed in
Schedule A attached hereto, if any, and the Borrower has never consolidated,
merged or acquired substantially all of the assets of any other entity or person
other than as disclosed in Schedule A attached hereto, if any.
3.3 Corporate Records. Borrower's corporate charter, articles of organization or
incorporation and all amendments thereto have been duly filed and are in proper
order. All outstanding capital stock issued by the Borrower was and is properly
issued and all books and records of the Borrower, including but not limited to
its minute books, bylaws and books of account, are accurate and up to date and
will be so maintained.
3.4 Title to Properties; Absence of Liens. Borrower has good and clear record
and marketable title to all of its properties and assets, and all of its
properties and assets including the Collateral are free and clear of all
mortgages, liens, pledges, charges, encumbrances and setoffs, other than the
security interest therein granted to the Bank hereby and those mortgages, deeds
of trust, leases of personal property and security interests disclosed in
Schedule B attached hereto.
3.5 Places of Business. Borrower's chief executive office is correctly stated in
the preamble to this Agreement, and Borrower shall, during the term of this
Agreement, keep the Bank currently and accurately informed in writing of each of
its other places of business, and shall not change the location of such chief
executive office or open or close, move or change any existing or new place of
business without giving the Bank at least thirty (30) days prior written notice
thereof.
3.6 Valid Obligations. The execution, delivery and performance of the Loan
Documents have been duly authorized by all necessary corporate action and each
represents a legal, valid and binding obligation of Borrower and is fully
enforceable according to its terms, except as limited by laws relating to the
enforcement of creditors' rights.
3.7 Conflicts. There is no provision in Borrower's organizational or charter
documents, if any, or in any indenture, contract or agreement to which Borrower
is a party which prohibits, limits or restricts the execution, delivery or
performance of the Loan Documents.
3.8 Governmental Approvals. The execution, delivery and performance of the Loan
Documents does not require any approval of or filing with any governmental
agency or authority.
3.9 Litigation. There are no actions, suits or proceedings pending or to the
knowledge of Borrower threatened against Borrower which might materially
adversely affect the ability of Borrower to conduct its business or to pay or
perform the Obligations.
3.10 Accounts and Contract Rights. All accounts arise out of legally enforceable
and existing contracts, and represent unconditional and undisputed bona fide
indebtedness by a Debtor, and are not and will not be subject to any discount
(except such cash or trade discount as may be shown on any
4
invoice, contract or other writing delivered to the Bank). No contract right,
account, general intangible or chattel paper is or will be represented by any
note or other instrument, and no contract right, account or general intangible
is, or will be represented by any conditional or installment sales obligation or
other chattel paper, except such instruments or chattel paper as have been or
immediately upon receipt by the Borrower will be delivered to the Bank (duly
endorsed or assigned), such delivery, in the case of chattel paper, to include
all executed copies except those in the possession of the installment buyer and
any security for or guaranty of any of the Collateral shall be delivered to the
Bank immediately upon receipt thereof by the Borrower, with such assignments and
endorsements thereof as the Bank may request.
3.11 Title to Collateral. At the date hereof the Borrower is (and as to
Collateral that the Borrower may acquire after the date hereof, will be) the
lawful owner of the Collateral, and the Collateral and each item thereof is,
will be and shall continue to be free of all restrictions, liens, encumbrances
or other rights, title or interests (other than the security interest therein
granted to the Bank hereby), credits, defenses, recoupments, set-offs or
counterclaims whatsoever. The Borrower has and will have full power and
authority to grant to the Bank a security interest in the Collateral and the
Borrower has not transferred, assigned, sold, pledged, encumbered, subjected to
lien or granted any security interest in, and will not transfer, assign, sell
(except sales or other dispositions in the ordinary course of business in
respect to inventory as expressly permitted in this Agreement), pledge,
encumber, subject to lien or grant any security interest in any of the
Collateral (or any of the Borrower's right, title or interest therein), to any
person other than the Bank. The Collateral is and will be valid and genuine in
all respects. All accounts arise out of legally enforceable and existing
contracts in accordance with their tenor, and upon the Borrower's acquisition of
any interest in accounts, it shall in writing immediately notify the Bank
thereof, specifically identifying the same as accounts, and, except for such
accounts, no part of the Collateral (or the validity or enforceability by the
Bank thereof) is or shall be contingent upon the fulfillment of any agreement or
condition whatsoever and the Collateral, other than inventory and equipment,
shall represent unconditional and undisputed bona fide indebtedness by the
Debtor, and is not and will not be subject to any discount (except such cash or
trade discount as may be shown on any invoice, contract or other writing
delivered to the Bank). The Borrower will warrant and defend the Bank's right to
and interest in the Collateral against all claims and demands of all persons
whatsoever.
3.12 Location of Collateral. Except for sale, processing, use, consumption or
other disposition in the ordinary course of business, the Borrower will keep all
inventory and equipment only at locations specified in this Agreement or
specified to the Bank in writing. The Borrower shall, during the term of this
Agreement, keep the Bank currently and accurately informed in writing of each
location where the Borrower's records relating to its accounts and contract
rights, respectively, are kept, and shall not remove such records or any of them
to another state without giving the Bank at least thirty (30) days prior written
notice thereof.
3.13 Third Parties. The Bank shall not be deemed to have assumed any liability
or responsibility to the Borrower or any third person for the correctness,
validity or genuineness of any instruments or documents that may be released or
endorsed to the Borrower by the Bank (which shall automatically be deemed to be
without recourse to the Bank in any event) or for the existence, character,
quantity, quality, condition, value or delivery of any goods purporting to be
represented by any such documents; and the Bank, by accepting such security
interest in the Collateral, or by releasing any Collateral to the Borrower,
shall not be deemed to have assumed any obligation or liability to any supplier
or Debtor or to any other third party, and the Borrower agrees to indemnify and
defend the Bank and hold it harmless in respect to any claim or proceeding
arising out of any matter referred to in this paragraph.
3.14 Payment of Accounts. Each account or other item of Collateral, other than
inventory and equipment, will be paid in full on or before the date shown as its
due date in the schedule of Collateral, in the copy of the invoice(s) relating
to the account or other Collateral or in contracts relating thereto. Upon any
suspension of business, assignment or trust mortgage for the benefit of
creditors, dissolution, petition in receivership or under any chapter of the
Bankruptcy Code as amended from time to time by or against any Debtor, any
Debtor becoming insolvent or unable to pay its debts as they mature or any other
act of the same or different nature amounting to a business failure, the
Borrower will forthwith notify the Bank thereof.
5
3.15 Notification of Damage. The Borrower will immediately notify the Bank of
any loss or damage to, or material diminution in or any occurrence that would
adversely affect the value of inventory, equipment or other Collateral.
3.16 Taxes. Borrower has filed all Federal, state and other tax returns required
to be filed (except for such returns for which current and valid extensions have
been filed), and all taxes, assessments and other governmental charges due from
the Borrower have been fully paid. The Borrower has established on its books
reserves adequate for the payment of all Federal, state and other tax
liabilities (if any).
3.17 Use of Proceeds. No portion of any loan is to be used for (i) the purpose
of purchasing or carrying any "margin security" or "margin stock" as such terms
are used in Regulations U and X of the Board of Governors of the Federal Reserve
System, 12 C.F.R. 221 and 224 or (ii) primarily personal, family or household
purposes. The Collateral is not used or acquired primarily for personal, family
or household purposes.
3.18 Environmental. As of the date hereof neither the Borrower nor any of
Borrower's agents, employees or independent contractors (1) have caused or are
aware of a release or threat of release of Hazardous Materials (as defined
herein) on any of the premises or personal property owned or controlled by
Borrower, or any abutting property, which could give rise to liability under any
Environmental Law (as defined herein) or any other Federal, state or local law,
rule or regulation; (2) have arranged for the transport of or transported any
Hazardous Materials in a manner as to violate, or result in potential
liabilities under, any Environmental Law; (3) have received any notice, order or
demand from the Environmental Protection Agency or any other Federal, state or
local agency under any Environmental Law; (4) have incurred any liability under
any Environmental Law in connection with the mismanagement, improper disposal or
release of Hazardous Materials; or (5) are aware of any inspection or
investigation of any of the premises or personal property owned or controlled by
Borrower or abutting property by any Federal, state or local agency for possible
violations of any Environmental Law.
To the best of Borrower's knowledge, no prior owner or tenant of any
premises or property presently controlled or owned by Borrower committed or
omitted any act which caused the release of Hazardous Materials on such premises
or property which could give rise to a lien thereon by any Federal, state or
local government. No notice or statement of claim or lien affecting any property
or premises owned or controlled by Borrower has been recorded or filed in any
public records by any Federal, state or local government for costs, penalties,
fines or other charges as to such property.
Borrower agrees to indemnify and hold Bank harmless from all liability,
loss, cost, damage and expense, including attorney fees and costs of litigation,
arising from any and all of its violations of any Environmental Law (including
those arising from any lien by any Federal, state or local government arising
from the presence of Hazardous Materials) or from the presence of Hazardous
Materials located on or emanating from any of the premises owned or controlled
by the Borrower. Borrower further agrees to reimburse Bank upon demand for any
costs incurred by Bank in connection with the foregoing. Borrower agrees that
its obligations hereunder shall be continuous and shall survive the repayment of
all debts to Bank.
The term "Hazardous Materials" includes but is not limited to any and
all substances (whether solid, liquid or gas) defined, listed, or otherwise
classified as pollutants, hazardous wastes, hazardous substances, hazardous
materials, extremely hazardous wastes, or words of similar meaning or regulatory
effect under any present or future Environmental Law or that may have a negative
impact on human health or the environment, including but not limited to
petroleum and petroleum products, asbestos and asbestos-containing materials,
polychlorinated biphenyls, lead, radon, radioactive materials, flammables and
explosives.
The term "Environmental Law" means any present and future Federal,
state and local laws, statutes, ordinances, rules, regulations and the like, as
well as common law, relating to protection of human health or the environment,
relating to Hazardous Materials, relating to liability for or costs of
remediation or prevention
6
of releases of Hazardous Materials or relating to liability for or costs of
other actual or threatened danger to human health or the environment. The term
"Environmental Law" includes, but is not limited to, the following statutes, as
amended, any successor thereto, and any regulations promulgated pursuant
thereto, and any state or local statutes, ordinances, rules, regulations and the
like addressing similar issues: the Comprehensive Environmental Response,
Compensation and Liability Act; the Emergency Planning and Community
Right-to-Know Act; the Hazardous Materials Transportation Act; the Resource
Conservation and Recovery Act (including but not limited to Subtitle I relating
to underground storage tanks); the Solid Waste Disposal Act; the Clean Water
Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking
Water Act; the Occupational Safety and Health Act; the Federal Water Pollution
Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the
Endangered Species Act; the National Environmental Policy Act; and the River and
Harbors Appropriation Act.
4. AFFIRMATIVE COVENANTS
4.1 Payments and Performance. Borrower will duly and punctually pay all
Obligations becoming due to the Bank and will duly and punctually perform all
Obligations on its part to be done or performed under this Agreement.
4.2 Books and Records; Inspection. Borrower will at all times keep proper books
of account in which full, true and correct entries will be made of its
transactions in accordance with generally accepted accounting principles,
consistently applied and which are, in the opinion of a Certified Public
Accountant acceptable to Bank, adequate to determine fairly the financial
condition and the results of operations of Borrower. Borrower will at all
reasonable times make its books and records available in its offices for
inspection, examination and duplication by the Bank and the Bank's
representatives and will permit inspection of the Collateral and all of its
properties by the Bank and the Bank's representatives. Borrower will from time
to time furnish the Bank with such information and statements as the Bank may
request in its sole discretion with respect to the Obligations or the Bank's
security interest in the Collateral. Borrower shall, during the term of this
Agreement, keep the Bank currently and accurately informed in writing of each
location where the Borrower's records relating to its accounts and contract
rights are kept, and shall not remove such records to another state without
giving the Bank at least thirty (30) days prior written notice thereof.
4.3 Financial Statements. Advanced Photonix, Inc. will furnish to Bank:
(a) as soon as available to Advanced Photonix, Inc., but in any
event within 45 days after the close of each quarterly period,
a full and complete signed copy of financial statements, on a
consolidated basis with such other entities designated by the
Bank, which shall include a balance sheet of Advanced
Photonix, Inc., as at the end of such quarter, and statement
of profit and loss of Advanced Photonix, Inc. reflecting the
results of its operations during such quarter, prepared on a
reviewed basis in accordance with generally accepted
accounting principles, consistently applied, subject to
year-end adjustments;
(b) as soon as available to Advanced Photonix, Inc., but in any
event within 90 days after the close of each fiscal year, a
full and complete signed copy of financial statements, on a
consolidated basis with such other entities designated by the
Bank, which shall include a balance sheet of Advanced
Photonix, Inc., as at the end of such year and statement of
profit and loss of Advanced Photonix, Inc. reflecting the
results of its operations during such year, bearing the
opinion of such certified public accountants and prepared on
an audited basis in accordance with generally accepted
accounting principles, consistently applied together with any
so-called management letter;
(c) from time to time, such financial data and information about
Advanced Photonix, Inc. as Bank may reasonably request; and
7
4.4 Conduct of Business. The Borrower will maintain its existence in good
standing and comply with all laws and regulations of the United States and of
any state or states thereof and of any political subdivision thereof, and of any
governmental authority which may be applicable to it or to its business;
provided that this covenant shall not apply to any tax, assessment or charge
which is being contested in good faith and with respect to which reserves have
been established and are being maintained.
4.5 Notice to Account Debtors. The Borrower agrees, at the request of the Bank,
to notify all or any of the Debtors in writing of the Bank's security interest
in the Collateral in whatever manner the Bank requests and, hereby authorizes
the Bank to notify all or any of the Debtors of the Bank's security interest in
the Borrower's accounts at the Borrower's expense.
4.6 Operating and Deposit Accounts. The Borrower shall maintain with the Bank
its primary operating and deposit accounts. At the option of the Bank, all loan
payments and fees will automatically be debited from the Borrower's primary
operating account and all advances will automatically be credited to the
Borrower's primary operating account.
4.7 Taxes. Borrower will promptly pay all real and personal property taxes,
assessments and charges and all franchise, income, unemployment, old age
benefits, withholding, sales and other taxes assessed against it or payable by
it before delinquent; provided that this covenant shall not apply to any tax
assessment or charge which is being contested in good faith and with respect to
which reserves have been established and are being maintained. The Bank may, at
its option, from time to time, discharge any taxes, liens or encumbrances of any
of the Collateral, and the Borrower will pay to the Bank on demand or the Bank
in its sole discretion may charge to the Borrower all amounts so paid or
incurred by it.
4.8 Maintenance. Borrower will keep and maintain the Collateral and its other
properties, if any, in good repair, working order and condition. The Borrower
will immediately notify the Bank of any loss or damage to or any occurrence
which would adversely affect the value of any Collateral. The Bank may, at its
option, from time to time, take any other action that the Bank may deem proper
to repair, maintain or preserve any of the Collateral, and the Borrower will pay
to the Bank on demand or the Bank in its sole discretion may charge to the
Borrower all amounts so paid or incurred by it.
4.9 Insurance. Borrower will maintain in force property and casualty insurance
on all Collateral and any other property of the Borrower, if any, against risks
customarily insured against by companies engaged in businesses similar to that
of the Borrower containing such terms and written by such companies as may be
satisfactory to the Bank, such insurance to be payable to the Bank as its
interest may appear in the event of loss and to name the Bank as insured
pursuant to a standard loss payee clause; no loss shall be adjusted thereunder
without the Bank's approval; and all such policies shall provide that they may
not be canceled without first giving at least Thirty (30) days written notice of
cancellation to the Bank. In the event that the Borrower fails to provide
evidence of such insurance, the Bank may, at its option, secure such insurance
and charge the cost thereof to the Borrower. At the option of the Bank, all
insurance proceeds received from any loss or damage to any of the Collateral
shall be applied either to the replacement or repair thereof or as a payment on
account of the Obligations. From and after the occurrence of an Event of
Default, the Bank is authorized to cancel any insurance maintained hereunder and
apply any returned or unearned premiums, all of which are hereby assigned to the
Bank, as a payment on account of the Obligations.
4.10 Notification of Default. Upon becoming aware of the existence of any
condition or event which constitutes an Event of Default, or any condition or
event which would upon notice or lapse of time, or both, constitute an Event of
Default, Borrower shall promptly give Bank written notice thereof specifying the
nature and duration thereof and the action being or proposed to be taken with
respect thereto.
4.11 Notification of Material Litigation. Borrower will promptly notify the Bank
in writing of any litigation or of any investigative proceedings of a
governmental agency or authority commenced or
8
threatened against it which would or might be materially adverse to the
financial condition of Borrower or any guarantor of the Obligations.
4.12 Pension Plans. With respect to any pension or benefit plan maintained by
Borrower, or to which Borrower contributes ("Plan"), the benefits under which
are guarantied, in whole or in part, by the Pension Benefit Guaranty Corporation
created by the Employee Retirement Income Security Act of 1974, P.L. 93-406, as
amended ("ERISA") or any governmental authority succeeding to any or all of the
functions of the Pension Benefit Guaranty Corporation ("Pension Benefit Guaranty
Corporation"), Borrower will (a) fund each Plan as required by the provisions of
Section 412 of the Internal Revenue Code of 1986, as amended; (b) cause each
Plan to pay all benefits when due; (c) furnish Bank (i) promptly with a copy of
any notice of each Plan's termination sent to the Pension Benefit Guaranty
Corporation (ii) no later than the date of submission to the Department of Labor
or to the Internal Revenue Service, as the case may be, a copy of any request
for waiver from the funding standards or extension of the amortization periods
required by Section 412 of the Internal Revenue Code of 1986, as amended and
(iii) notice of any Reportable Event as such term is defined in ERISA; and (d)
subscribe to any contingent liability insurance provided by the Pension Benefit
Guaranty Corporation to protect against employer liability upon termination of a
guarantied pension plan, if available to Borrower.
5. NEGATIVE COVENANTS
5.1 Financial Covenants. The Borrower will not at any time or during any fiscal
period (as applicable) fail to be in compliance with any of the financial
covenants in this section.
(a) Definitions. The following definitions shall apply to this
Section:
(i) "Capital Expenditures" ("CAPEX") shall mean for any
period, all acquisitions of machinery, equipment, land,
leaseholds, buildings, improvements and all other expenditures
considered to be for fixed assets under GAAP, consistently
applied. Where an asset is acquired under a capital lease, the
amount required to be capitalized shall be considered a
capital expenditure during the first year of the lease.
(ii) "Combined Borrower(s)" shall mean Advanced Photonix, Inc.
and each of its subsidiaries.
(iii) "Current Maturity of Long-Term Debt" ("CMLTD") shall
mean, for any period, the current scheduled principal or
capital lease payments required to be paid during the
applicable period.
(iv) "Current Assets" shall mean current assets as defined
under GAAP.
(v) "Current Liabilities" shall mean current liabilities as
defined under GAAP.
(vi) "Distributions" shall mean all cash dividends to
shareholders, and all cash distributions to shareholders of
Subchapter S corporations, to partners of partnerships, to
members of limited liability companies or to beneficiaries of
trusts.
(vii) "Earnings" shall mean earnings as defined under GAAP.
(viii) "EBIT" shall mean, for any period, Earnings from
continuing operations before payment of interest expense,
federal, state and local income taxes, in each case for such
period, computed and calculated in accordance with GAAP.
(ix) "EBITDA" shall mean, for any period, Earnings from
continuing operations before payment of federal, state and
local income taxes, plus Interest Expense, depreciation and
amortization, in each case for such period, computed and
calculated in accordance with GAAP.
9
(x) "GAAP" shall mean generally accepted accounting principles
in effect from time to time in the United States.
(xi) "Indebtedness" shall mean (x) all indebtedness for
borrowed money or for the deferred purchase price of property
or services, and all obligations under leases which are or
should be, under GAAP, recorded as capital leases, in respect
of which a person is directly or contingently liable as
borrower, guarantor, endorser or otherwise, or in respect of
which a person otherwise assures a creditor against loss, (y)
all obligations for borrowed money or for the deferred
purchase price of property or services secured by (or for
which the holder has an existing right, contingent or
otherwise, to be secured by) any lien upon property (including
without limitation accounts receivable and contract rights)
owned by a person, whether or not such person has assumed or
become liable for the payment thereof, and (z) all other
liabilities and obligations which would be classified in
accordance with GAAP as liabilities on a balance sheet or to
which reference should be made in footnotes thereto.
(xii) "Intangible Assets" shall mean, as of the date of
determination thereof, assets that in accordance with GAAP are
properly classifiable as intangible assets, including, but not
limited to, goodwill, franchises, licenses, patents,
trademarks, trade names and copyrights.
(xiii) "Interest Expense" shall mean, for any period,
ordinary, regular, recurring and continuing expenditures for
interest on all borrowed money.
(xiv) "Subordinated Indebtedness" shall mean, as of the date
of determination thereof, all Indebtedness which has been
subordinated in writing to the obligations owing to the Bank
on terms and conditions acceptable to the Bank.
(xv) "Effective Tangible Net Worth" shall mean, as of the date
of determination thereof, Tangible Net Worth plus Subordinated
Indebtedness.
(xvi) "Tangible Net Worth" shall mean, as of the date of
determination thereof, total assets, excluding all Intangible
Assets, less total liabilities.
(xvii) "Unfinanced CAPEX" shall mean, for any period, Capital
Expenditures less new long-term Indebtedness issued during
such period to fund the Capital Expenditures.
(b) Current Ratio. The Combined Borrower's shall not permit the
ratio of its Current Assets to Current Liabilities to be less
than 1.25 to 1.00, tested quarterly.
(c) Debt to Effective Tangible Net Worth. The Combined Borrower's
shall not permit the ratio of its Indebtedness minus
Subordinated Indebtedness to Effective Tangible Net Worth to
be greater than 2.00 to 1.00, tested quarterly.
(d) Free Cash Flow. The Combined Borrower's shall not permit the
ratio of its EBITDA, minus taxes paid in cash, Distributions
and Unfinanced CAPEX, to Interest Expense plus CMLTD, to be
less than 1.25 to 1.00, for any fiscal quarter. Ratio analysis
will commence 9/30/05. For the period ending 9/30/05, 12/31/05
and 3/31/06 the calculation will include adding back to
earnings $500,000.00 of non-recurring expenses related to the
acquisition of Picotronix, Inc., dba Picometrix, Inc.
(e) EBIT to Interest Expense. The Combined Borrower's shall not
permit the ratio of its EBIT to Interest Expense to be less
than 2.00 to 1.00, for any fiscal quarter. Ratio analysis will
commence 9/30/05. For the period ending 9/30/05, 12/31/05 and
3/31/06 the calculation will include adding back to earnings
$500,000.00 of non-recurring expenses related to the
acquisition of Picotronix, Inc., dba Picometrix, Inc.
10
(f) No additional revolving or term debt without Bank's
concurrence.
(g) Balance on initial Note to Smithfield Fiduciary, LLC, Iroquois
Capital, LP, Bluegrass Growth Fund, LP, and Bluegrass Growth
Fund, Ltd, to be no greater than $5,000,000.00 in the
aggregate principal amount.
(h) No consecutive quarter losses.
(i) Intercreditor Agreement executed by Advanced Photonix, Inc.,
Silicon Sensors, Inc., Michigan Acquisition Sub, LLC, Texas
Optoelectronics, Inc., Silicon Detector Corporation, Photonic
Detectors Inc., and Smithfield Fiduciary, LLC to subordinate
$6,000,000.00 in Smithfield Fiduciary, LLC debt to Santa
Xxxxxxx Bank & Trust.
(j) Subsequent to closing, possibly within 24 hours, Michigan
Acquisition Sub, LLC will replaced as Co-Borrower with
Picometrix, LLC.
(k) Prior to funding the loan, the merger of Picotronix, Inc., dba
Picometrix, Inc., into Michigan Acquisition Sub, LLC must be
completed.
5.2 Limitations on Indebtedness. Borrower shall not issue any evidence of
indebtedness or create, assume, guarantee, become contingently liable for, or
suffer to exist indebtedness in addition to indebtedness to the Bank, except
indebtedness or liabilities of Borrower, other than for money borrowed, incurred
or arising in the ordinary course of business.
5.3 Sale of Interest. There shall not be any sale or transfer of ownership of
any interest in the Borrower without the Bank's prior written consent unless
such transfer shall not result in change in control of Borrower.
5.4 Loans or Advances. Borrower shall not make any loans or advances to any
individual, firm or corporation, including without limitation its officers and
employees; provided, however, that Borrower may make advances to its employees,
including its officers, with respect to expenses incurred or to be incurred by
such employees in the ordinary course of business which expenses are
reimbursable by Borrower; and provided further, however, that Borrower may
extend credit in the ordinary course of business in accordance with customary
trade practices.
5.5 Dividends and Distributions. Borrower shall not, without prior written
consent of the Bank, pay any dividends on or make any distribution except to any
Combined Borrower on account of any class of Borrower's capital stock in cash or
in property (other than additional shares, of such stock), or redeem, purchase
or otherwise acquire, directly or indirectly, any of such stock, except, so long
as Borrower is not in default hereunder.
5.6 Investments. The Borrower shall not make investments in, or advances to, any
individual, partnership, corporation, limited liability company, trust or other
organization or person, except for any Combined Borrower. The Borrower will not
purchase or otherwise invest in or hold securities, nonoperating real estate or
other nonoperating assets or purchase all or substantially all the assets of any
entity
5.7 Merger. Borrower will not merge or consolidate or be merged or consolidated
with or into any other entity.
5.8 Capital Expenditures. The Borrower shall not, directly or indirectly, make
or commit to make capital expenditures by lease, purchase, or otherwise, except
in the ordinary and usual course of business for the purpose of replacing
machinery, equipment or other personal property which, as a
11
consequence of wear, duplication or obsolescence, is no longer used or necessary
in the Borrower's business.
5.9 Sale of Assets. Borrower shall not sell, lease or otherwise dispose of any
of its assets, except in the ordinary and usual course of business and except
for the purpose of replacing machinery, equipment or other personal property
which, as a consequence of wear, duplication or obsolescence, is no longer used
or necessary in the Borrower's business, provided that fair consideration is
received therefor; provided, however, in no event, except in the ordinary and
usual course of business, shall the Borrower sell, lease or otherwise dispose of
any equipment purchased with the proceeds of any loans made by the Bank.
5.10 Restriction on Liens. Borrower shall not grant any security interest in, or
mortgage of, any of its properties or assets including the Collateral. Borrower
shall not agree with any person other than the Bank to not grant any security
interest in, or mortgage of, any of its properties or assets including the
Collateral.
5.11 Other Business. Borrower shall not engage in any business other than the
business in which it is currently engaged or a business reasonably allied
thereto.
5.12 Change of Name. Borrower shall not change its legal name or the State of
its organization, without giving the Bank at least 30 days prior written notice
thereof.
6. DEFAULT
6.1 Default. "Event of Default" shall mean the occurrence of one or more of any
of the following events:
(a) default of any liability, obligation or undertaking of the
Borrower or any guarantor of the Obligations to the Bank,
hereunder or otherwise, including, without limitation, failure
to pay in full and when due any installment of principal or
interest or default of the Borrower or any guarantor of the
Obligations under any other Loan Document or any other
agreement with the Bank continuing for 10 days with respect to
the payment of money or continuing for 30 days with respect to
any other default;
(b) failure of the Borrower or any guarantor of the Obligations to
maintain aggregate collateral security value satisfactory to
the Bank continuing for 30 days;
(c) default of any material liability, obligation or undertaking
of the Borrower or any guarantor of the Obligations to any
other party continuing for 30 days;
(d) if any statement, representation or warranty heretofore, now
or hereafter made by the Borrower or any guarantor of the
Obligations in connection with this Agreement or in any
supporting financial statement of the Borrower or any
guarantor of the Obligations shall be determined by the Bank
to have been false in any material respect when made;
(e) if the Borrower or any guarantor of the Obligations is a
corporation, trust, partnership or limited liability company,
the liquidation, termination or dissolution of any such
organization, or the merger or consolidation of such
organization into another entity, or its ceasing to carry on
actively its present business or the appointment of a receiver
for its property;
(f) the institution by or against the Borrower or any guarantor of
the Obligations of any proceedings under the Bankruptcy Code
11 USC ss.101 et seq. or any other law in which the Borrower
or any guarantor of the Obligations is alleged to be insolvent
or unable to pay its debts as they mature, or the making by
the Borrower or any guarantor of the Obligations of an
12
assignment for the benefit of creditors or the granting by the
Borrower or any guarantor of the Obligations of a trust
mortgage for the benefit of creditors;
(g) the service upon the Bank of a writ in which the Bank is named
as trustee of the Borrower or any guarantor of the
Obligations;
(h) a judgement or judgements for the payment of money shall be
rendered against the Borrower or any guarantor of the
Obligations, and any such judgement shall remain unsatisfied
and in effect for any period of thirty (30) consecutive days
without a stay of execution;
(i) any xxxx, xxxx (including mechanics lien), seizure,
attachment, execution or similar process shall be issued or
levied on any of the property of the Borrower or any guarantor
of the Obligations;
(j) the termination or revocation of any guaranty of the
Obligations; or
(k) the occurrence of such a change in the condition or affairs
(financial or otherwise) of the Borrower or any guarantor of
the Obligations, or the occurrence of any other event or
circumstance, such that the Bank, in its reasonable sole
discretion, deems that it is insecure or that the prospects
for timely or full payment or performance of any obligation of
the Borrower or any guarantor of the Obligations to the Bank
has been or may be impaired.
6.2 Acceleration. If an Event of Default shall occur, at the election of the
Bank, all Obligations shall become immediately due and payable without notice or
demand, except with respect to Obligations payable on DEMAND, which shall be due
and payable on DEMAND, whether or not an Event of Default has occurred.
The Bank is hereby authorized, at its election, after an Event of
Default or after Demand, without any further demand or notice except to such
extent as notice may be required by applicable law, to take possession and/or
sell or otherwise dispose of all or any of the Collateral at public or private
sale; and the Bank may also exercise any and all other rights and remedies of a
secured party under the Code or which are otherwise accorded to it in equity or
at law, all as Bank may determine, and such exercise of rights in compliance
with the requirements of law will not be considered adversely to affect the
commercial reasonableness of any sale or other disposition of the Collateral. If
notice of a sale or other action by the Bank is required by applicable law,
unless the Collateral is perishable or threatens to decline speedily in value or
is of a type customarily sold on a recognized market, the Borrower agrees that
ten (10) days written notice to the Borrower, or the shortest period of written
notice permitted by such law, whichever is smaller, shall be sufficient notice;
and that to the extent permitted by law, the Bank, its officers, attorneys and
agents may bid and become purchasers at any such sale, if public, and may
purchase at any private sale any of the Collateral that is of a type customarily
sold on a recognized market or which is the subject of widely distributed
standard price quotations. Any sale (public or private) shall be without
warranty and free from any right of redemption, which the Borrower shall waive
and release after default upon the Bank's request therefor, and may be free of
any warranties as to the Collateral if Bank shall so decide. No purchaser at any
sale (public or private) shall be responsible for the application of the
purchase money. Any balance of the net proceeds of sale remaining after paying
all Obligations of the Borrower to the Bank shall be returned to such other
party as may be legally entitled thereto; and if there is a deficiency, the
Borrower shall be responsible for repayment of the same, with interest. Upon
demand by the Bank, the Borrower shall assemble the Collateral and make it
available to the Bank at a place designated by the Bank which is reasonably
convenient to the Bank and the Borrower. The Borrower hereby acknowledges that
the Bank has extended credit and other financial accommodations to the Borrower
upon reliance of the Borrower's granting the Bank the rights and remedies
contained in this Agreement including without limitation the right to take
immediate possession of the Collateral upon the occurrence of an Event of
Default or after DEMAND with respect to Obligations payable on DEMAND and the
Borrower hereby acknowledges that the Bank is entitled to equitable and
injunctive relief to enforce any of its rights and remedies hereunder or under
the Code and the Borrower hereby waives any defense
13
to such equitable or injunctive relief based upon any allegation of the absence
of irreparable harm to the Bank.
The Bank shall not be required to marshal any present or future
security for (including but not limited to this Agreement and the Collateral
subject to the security interest created hereby), or guarantees of, the
Obligations or any of them, or to resort to such security or guarantees in any
particular order; and all of its rights hereunder and in respect of such
securities and guaranties shall be cumulative and in addition to all other
rights, however existing or arising. To the extent that it lawfully may,
Borrower hereby agrees that it will not invoke any law relating to the
marshalling of collateral which might cause delay in or impede the enforcement
of the Bank's rights under this Agreement or under any other instrument
evidencing any of the Obligations or under which any of the Obligations is
outstanding or by which any of the Obligations is secured or guaranteed, and to
the extent that it lawfully may do so, Borrower hereby irrevocably waives the
benefits of all such laws. Except as required by applicable law, the Bank shall
have no duty as to the collection or protection of the Collateral or any income
thereon, nor as to the preservation of rights against prior parties, nor as to
the preservation of any rights pertaining thereto beyond the safe custody
thereof.
6.3 Power of Attorney. The Borrower hereby irrevocably constitutes and appoints
the Bank as the Borrower's true and lawful attorney, with full power of
substitution, at the sole cost and expense of the Borrower but for the sole
benefit of the Bank, upon the occurrence of an Event of Default or after DEMAND
with respect to Obligations payable on DEMAND, to convert the Collateral into
cash, including, without limitation, completing the manufacture or processing of
work in process, and the sale (either public or private) of all or any portion
or portions of the inventory and other Collateral; to enforce collection of the
Collateral, either in its own name or in the name of the Borrower, including,
without limitation, executing releases or waivers, compromising or settling with
any Debtors and prosecuting, defending, compromising or releasing any action
relating to the Collateral; to receive, open and dispose of all mail addressed
to the Borrower and to take therefrom any remittances or proceeds of Collateral
in which the Bank has a security interest; to notify Post Office authorities to
change the address for delivery of mail addressed to the Borrower to such
address as the Bank shall designate; to endorse the name of the Borrower in
favor of the Bank upon any and all checks, drafts, money orders, notes,
acceptances or other instruments of the same or different nature; to sign and
endorse the name of the Borrower on and to receive as secured party any of the
Collateral, any invoices, freight or express receipts, or bills of lading,
storage receipts, warehouse receipts, or other documents of title of the same or
different nature relating to the Collateral; to sign the name of the Borrower on
any notice of the Debtors or on verification of the Collateral; and to sign, if
necessary, and file or record on behalf of the Borrower any financing or other
statement in order to perfect or protect the Bank's security interest. The Bank
shall not be obliged to do any of the acts or exercise any of the powers
hereinabove authorized, but if the Bank elects to do any such act or exercise
any such power, it shall not be accountable for more than it actually receives
as a result of such exercise of power, and it shall not be responsible to the
Borrower except for its own gross negligence or willful misconduct. All powers
conferred upon the Bank by this Agreement, being coupled with an interest, shall
be irrevocable so long as any Obligation of the Borrower or any guarantor or
surety to the Bank shall remain unpaid or the Bank is obligated under this
Agreement to extend any credit to the Borrower.
6.4 Nonexclusive Remedies. All of the Bank's rights and remedies not only under
the provisions of this Agreement but also under any other agreement or
transaction shall be cumulative and not alternative or exclusive, and may be
exercised by the Bank at such time or times and in such order of preference as
the Bank in its sole discretion may determine.
6.5 Reassignment to Borrower. Whenever the Bank deems it desirable that any
legal action be instituted with respect to any Collateral or that any other
action be taken in any attempt to effectuate collection of any Collateral, the
Bank may reassign the item in question to the Borrower (and if the Bank shall
execute any such reassignment, it shall automatically be deemed to be without
recourse to the Bank in any event) and require the Borrower to proceed with such
legal or other action at the Borrower's sole liability, cost and expense, in
which event all amounts collected by the Borrower on such item shall
nevertheless be subject to the Bank's security interest.
14
7. MISCELLANEOUS
7.1 Waivers. The Borrower waives notice of intent to accelerate, notice of
acceleration, notice of nonpayment, demand, presentment, protest or notice of
protest of the Obligations, and all other notices, consents to any renewals or
extensions of time of payment thereof, and generally waives any and all
suretyship defenses and defenses in the nature thereof.
7.2 Severability. If any provision of this Agreement or portion of such
provision or the application thereof to any person or circumstance shall to any
extent be held invalid or unenforceable, the remainder of this Agreement (or the
remainder of such provision) and the application thereof to other persons or
circumstances shall not be affected thereby.
7.3 Deposit Collateral. The Borrower hereby grants to the Bank a continuing lien
and security interest in any and all deposits or other sums at any time credited
by or due from the Bank (or any of its banking or lending affiliates, or any
bank acting as a participant under any loan arrangement between the Bank and the
Borrower, or any third party acting on the Bank's behalf (collectively, the
"Bank Affiliates")) to the Borrower and any cash, securities, instruments or
other property of the Borrower in the possession of the Bank or any Bank
Affiliate, whether for safekeeping or otherwise, or in transit to or from the
Bank or any Bank Affiliate (regardless of the reason the Bank or Bank Affiliate
had received the same or whether the Bank or Bank Affiliate has conditionally
released the same) as security for the full and punctual payment and performance
of all of the liabilities and obligations of the Borrower to the Bank or any
Bank Affiliate and such deposits and other sums may be applied against such
liabilities and obligations of the Borrower to the Bank or any Bank Affiliate at
any time, whether or not such are then due, whether or not demand has been made
and whether or not other collateral is then available to the Bank or any Bank
Affiliate.
7.4 Indemnification. The Borrower shall indemnify, defend and hold the Bank
harmless of and from any claim brought or threatened against the Bank by the
Borrower, any guarantor or endorser of the Obligations, or any other person (as
well as from reasonable attorneys' fees and expenses in connection therewith) on
account of the Bank's relationship with the Borrower, or any guarantor or
endorser of the Obligations (each of which may be defended, compromised, settled
or pursued by the Bank with counsel of the Bank's election, but at the expense
of the Borrower), except for any claim arising out of the gross negligence or
willful misconduct of the Bank. The within indemnification shall survive payment
of the Obligations, and/or any termination, release or discharge executed by the
Bank in favor of the Borrower.
7.5 Costs and Expenses. The Borrower shall pay to the Bank on demand any and all
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements, court costs, litigation and other expenses) incurred or paid
by the Bank in establishing, maintaining, protecting or enforcing any of the
Bank's rights or the Obligations, including, without limitation, any and all
such costs and expenses incurred or paid by the Bank in defending the Bank's
security interest in, title or right to the Collateral or in collecting or
attempting to collect or enforcing or attempting to enforce payment of the
Obligations.
7.6 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be an original, but all of which shall constitute but one
agreement.
7.7 Complete Agreement. This Agreement and the other Loan Documents constitute
the entire agreement and understanding between and among the parties hereto
relating to the subject matter hereof, and supersedes all prior proposals,
negotiations, agreements and understandings among the parties hereto with
respect to such subject matter.
7.8 Binding Effect of Agreement. This Agreement shall be binding upon and inure
to the benefit of the respective heirs, executors, administrators, legal
representatives, successors and assigns of the parties hereto, and shall remain
in full force and effect (and the Bank shall be entitled to rely thereon) until
terminated as to future transactions by written notice from either party to the
other party of the termination hereof; provided that any such termination shall
not release or affect any Collateral in which the Bank
15
already has a security interest or any Obligations incurred or rights accrued
hereunder prior to the effective date of such notice (as hereinafter defined) of
such termination. Notwithstanding any such termination, the Bank shall have a
security interest in all Collateral to secure the payment and performance of
Obligations arising after such termination as a result of commitments or
undertakings made or entered into by the Bank prior to such termination. The
Bank may transfer and assign this Agreement and deliver the Collateral to the
assignee, who shall thereupon have all of the rights of the Bank; and the Bank
shall then be relieved and discharged of any responsibility or liability with
respect to this Agreement and the Collateral. The Borrower may not assign or
transfer any of its rights or obligations under this Agreement. Except as
expressly provided herein or in the other Loan Documents, nothing, expressed or
implied, is intended to confer upon any party, other than the parties hereto,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement or the other Loan Documents.
7.9 Further Assurances. Borrower will from time to time execute and deliver to
Bank such documents, and take or cause to be taken, all such other or further
action, as Bank may request in order to effect and confirm or vest more securely
in Bank all rights contemplated by this Agreement and the other Loan Documents
(including, without limitation, to correct clerical errors) or to vest more
fully in or assure to the Bank the security interest in the Collateral granted
to the Bank by this Agreement or to comply with applicable statute or law and to
facilitate the collection of the Collateral (including, without limitation, the
execution of stock transfer orders and stock powers, endorsement of promissory
notes and instruments and notifications to obligors on the Collateral). To the
extent permitted by applicable law, Borrower authorizes Bank to file financing
statements, continuation statements or amendments without Borrower's signature
appearing thereon, and any such financing statements, continuation statements or
amendments may be signed by Bank on behalf of Borrower, if necessary, and may be
filed at any time in any jurisdiction. Bank may at any time and from time to
time file financing statements, continuation statements and amendments thereto
which contain any information required by the Code for the sufficiency or filing
office acceptance of any financing statement, continuation statement or
amendment, including whether Borrower is an organization, the type of
organization and any organization identification number issued to Borrower.
Borrower agrees to furnish any such information to Bank promptly upon request.
In addition, Borrower shall at any time and from time to time take such steps as
Bank may reasonably request for Bank (i) to obtain an acknowledgement, in form
and substance satisfactory to Bank, of any bailee having possession of any of
the Collateral that the bailee holds such Collateral for Bank, (ii) to obtain
"control" (as defined in the Code) of any Collateral comprised of deposit
accounts, electronic chattel paper, letter of credit rights or investment
property, with any agreements establishing control to be in form and substance
satisfactory to Bank, and (iii) otherwise to insure the continued perfection and
priority of Bank's security interest in any of the Collateral and the
preservation of its rights therein. Borrower hereby constitutes Bank its
attorney-in-fact to execute, if necessary, and file all filings required or so
requested for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed; and such power, being coupled with an interest, shall be
irrevocable until this Agreement terminates in accordance with its terms, all
Obligations are paid in full and the Collateral is released.
7.10 Amendments and Waivers. This Agreement may be amended and Borrower may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, if Borrower shall obtain the Bank's prior written consent to
each such amendment, action or omission to act. No course of dealing and no
delay or omission on the part of Bank in exercising any right hereunder shall
operate as a waiver of such right or any other right and waiver on any one or
more occasions shall not be construed as a bar to or waiver of any right or
remedy of Bank on any future occasion.
7.11 Terms of Agreement. This Agreement shall continue in full force and effect
so long as any Obligations or obligation of Borrower to Bank shall be
outstanding, or the Bank shall have any obligation to extend any financial
accommodation hereunder, and is supplementary to each and every other agreement
between Borrower and Bank and shall not be so construed as to limit or otherwise
derogate from any of the rights or remedies of Bank or any of the liabilities,
obligations or undertakings of Borrower under any such agreement, nor shall any
contemporaneous or subsequent agreement between Borrower and the Bank be
construed to limit or otherwise derogate from any of the rights or remedies of
Bank or
16
any of the liabilities, obligations or undertakings of Borrower hereunder,
unless such other agreement specifically refers to this Agreement and expressly
so provides.
7.12 Notices. Any notice under or pursuant to this Agreement shall be a signed
writing or other authenticated record (within the meaning of Article 9 of the
Code). Any such notice shall be deemed duly received and effective (i) if
delivered in hand to, or received by, any officer or agent of the Borrower or
the Bank, upon such delivery or receipt, or (ii) if mailed by registered or
certified mail, return receipt requested, postage prepaid, and properly
addressed to the Borrower or the Bank, two (2) business days after being so
mailed. A party's proper address is that set forth for such party in this
Agreement or such address as that party may from time to time hereafter
designate by notice to the other party.
7.13 Governing Law. This Agreement has been executed or completed and/or is to
be performed in California, and it and all transactions thereunder or pursuant
thereto shall be governed as to interpretation, validity, effect, rights, duties
and remedies of the parties thereunder and in all other respects by the laws of
California.
7.14 Reproductions. This Agreement and all documents which have been or may be
hereinafter furnished by Borrower to the Bank may be reproduced by the Bank by
any photographic, photostatic, microfilm, xerographic or similar process, and
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made in the regular course of
business).
7.15 Jurisdiction and Venue. Borrower irrevocably submits to the nonexclusive
jurisdiction of any Federal or state court sitting in California, over any suit,
action or proceeding arising out of or relating to this Agreement. Borrower
irrevocably waives, to the fullest extent it may effectively do so under
applicable law, any objection it may now or hereafter have to the laying of the
venue of any such suit, action or proceeding brought in any such court and any
claim that the same has been brought in an inconvenient forum. Borrower hereby
consents to any and all process which may be served in any such suit, action or
proceeding, (i) by mailing a copy thereof by registered and certified mail,
postage prepaid, return receipt requested, to the Borrower's address shown in
this Agreement or as notified to the Bank and (ii) by serving the same upon the
Borrower in any other manner otherwise permitted by law, and agrees that such
service shall in every respect be deemed effective service upon Borrower.
7.16 Civil Code Section 2822. In the event that at any time, a surety is liable
upon only a portion of Borrower's obligations under the Loan Documents and
Borrower provides partial satisfaction of any such obligation(s), Borrower
hereby waives any right it would otherwise have, under Section 2822 of the
California Civil Code, to designate the portion of the obligations to be
satisfied. The designation of the portion of the obligation to be satisfied
shall, to the extent not expressly made by the terms of the Loan Documents, be
made by the Bank rather than Borrower.
7.17 JURY WAIVER. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE
BORROWER AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY, AND
AFTER AN OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL, (A) WAIVE ANY AND ALL RIGHTS
TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING IN CONNECTION WITH THIS
AGREEMENT, THE OBLIGATIONS, ALL MATTERS CONTEMPLATED HEREBY AND DOCUMENTS
EXECUTED IN CONNECTION HEREWITH AND (B) AGREE NOT TO SEEK TO CONSOLIDATE ANY
SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE, OR HAS NOT
BEEN, WAIVED. THE BORROWER CERTIFIES THAT NEITHER THE BANK NOR ANY OF ITS
REPRESENTATIVES, AGENTS OR COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
THE BANK WOULD NOT IN THE EVENT OF ANY SUCH PROCEEDING SEEK TO ENFORCE THIS
WAIVER OF RIGHT TO TRIAL BY JURY.
7.18 Arbitration. ARBITRATION. IN THE EVENT THAT THE JURY WAIVER SET FORTH ABOVE
IS JUDICIALLY DETERMINED TO NOT BE PERMITTED BY LAW, THE PARTIES AGREE TO
ATTEMPT IN GOOD FAITH TO RESOLVE ANY DISPUTES WHICH MAY ARISE AMONG THEM IN
17
CONNECTION WITH THE INTERPRETATION OR ENFORCEMENT OF THE PROVISIONS OF THIS
AGREEMENT, OR THE APPLICATION OR VALIDITY THEREOF. IN THE EVENT THAT ANY DISPUTE
CANNOT BE SO RESOLVED, AND UNLESS THE RELIEF SOUGHT REQUIRES THE EXERCISE OF THE
EQUITY POWERS OF A COURT OF COMPETENT JURISDICTION, SUCH DISPUTE SHALL BE
SUBMITTED TO ARBITRATION. SUCH ARBITRATION PROCEEDINGS SHALL BE HELD IN THE
COUNTY OF SANTA BARBARA, CALIFORNIA, IN ACCORDANCE WITH THE ARBITRATION
PROVISIONS OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. THIS AGREEMENT TO
ARBITRATE SHALL BE SPECIFICALLY ENFORCEABLE. ANY AWARD RENDERED IN ANY SUCH
ARBITRATION PROCEEDINGS SHALL BE FINAL AND BINDING ON EACH OF THE PARTIES
HERETO, AND JUDGEMENT MAY BE ENTERED THEREON IN ANY COURT OF COMPETENT
JURISDICTION.
Executed as of MAY 2, 2005.
Borrower:
Silicon Detector Corporation
By: /s/ XXXXXXX X. XXXXX
---------------------------
Xxxxxxx X. Xxxxx,
Chief Executive Officer
Accepted: Pacific Capital Bank, N.A.
By: /s/ XXXXX XXXXXX
----------------------
Name: Xxxxx Xxxxxx
Title: Vice President
18
EXHIBIT A TO LOAN AND SECURITY AGREEMENT OF
SILICON DETECTOR CORPORATION
1. Subsidiaries: None
2. Consolidations, Mergers and Acquisitions: None
19
EXHIBIT B LOAN AND SECURITY AGREEMENT OF
SILICON DETECTOR CORPORATION
1. Liens:
(a) Smithfield Fiduciary, LLC, acting as collateral agent on
behalf of the other investors in connection with the private
placement which closed on October 12, 2004, has a first
priority security interest in all of the assets of Advanced
Photonix, Inc., except as set forth in that certain
Subordination and Intercreditor Agreement between Pacific
Capital Bank, N.A. and Smithfield Fiduciary, LLC.
(b) Xxxxx Xxxxxx and Xxxxxx Xxxxxxxxxx have a first priority
security interest in all of the intellectual property of
Michigan Acquisition Sub, LLC.
20
(THE NETWORK OF PREFERRED COMMUNITY BANKS(SM) LOGO)
Loan No. 37512-37654
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT (this "Agreement") entered into as of
MAY 2, 2005, between PHOTONIC DETECTORS, INC., A CALIFORNIA CORPORATION, with
its chief executive office located at 00-X X. XXXXXXX XXXXXXX, XXXX XXXXXX,
XXXXXXXXXX 00000 (the "Borrower") and Pacific Capital Bank, N.A., a national
banking association, doing business as Santa Xxxxxxx Bank & Trust, with an
address of c/o Loan Services, XX Xxx 00000, Xxxxx Xxxxxxx, Xxxxxxxxxx 00000-0000
(the "Bank").
FOR VALUE RECEIVED, and in consideration of the granting by the Bank of
financial accommodations to or for the benefit of the Borrower, including
without limitation respecting the Obligations (as hereinafter defined), the
Borrower represents and agrees with the Bank, as of the date hereof and as of
the date of each loan, credit and/or other financial accommodation, as follows:
1. THE LOAN
1.1 Loan. Subject to the terms and conditions of this Agreement, the Bank hereby
agrees to make a loan to the Borrower, Advanced Photonix, Inc., Silicon Sensors,
Inc., Michigan Acquisition Sub, LLC, Texas Optoelectronics, Inc., and Silicon
Detector Corporation in the original principal amount of $2,700,000.00 (the
"Loan"). The Loan shall be evidenced by that certain Term Note, of even date
herewith (the "Note") by the Borrower, Advanced Photonix, Inc., Silicon Sensors,
Inc., Michigan Acquisition Sub, LLC, Texas Optoelectronics, Inc., and Silicon
Detector Corporation in favor of the Bank in the original principal amount of
$2,700,000.00. This Agreement, the Note, and any and all other documents,
amendments or renewals executed and delivered in connection with any of the
foregoing are collectively hereinafter referred to as the "Loan Documents".
2. GRANT OF SECURITY INTEREST
2.1 Grant of Security Interest. In consideration of the Bank's extending credit
and other financial accommodations to or for the benefit of the Borrower, the
Borrower hereby grants to the Bank a security interest in, a lien on and pledge
and assignment of the Collateral (as hereinafter defined). The security interest
granted by this Agreement is given to and shall be held by the Bank as security
for the payment and performance of all Obligations, including, without
limitation, all amounts outstanding pursuant to the Loan Documents.
2.2 Definitions. The following definitions shall apply:
(a) "Code" shall mean the Uniform Commercial Code of California as
amended from time to time.
(b) "Collateral" shall mean all Borrower's present and future
right, title and interest in and to any and all of the
personal property of Borrower whether such property is now
existing or hereafter created, acquired or arising and
wherever located from time to time, including without
limitation:
(i) accounts;
(ii) chattel paper;
(iii) goods;
(iv) inventory;
(v) equipment;
(vi) farm products;
(vii) instruments;
(viii) investment property;
(ix) documents;
(x) commercial tort claims;
(xi) deposit accounts;
(xii) letter-of-credit rights;
(xiii) general intangibles;
(xiv) supporting obligations; and
(xv) proceeds and products of the foregoing.
(c) "Debtors" shall mean the Borrower's customers who are indebted
to the Borrower.
(d) "Obligation(s)" shall mean, without limitation, all loans,
advances, indebtedness, notes, liabilities, rate swap
transactions, basis swaps, forward rate transactions,
commodity swaps, commodity options, equity or equity index
swaps, equity or equity index options, bond options, interest
rate options, foreign exchange transactions, cap transactions,
floor transactions, collar transactions, forward transactions,
currency swap transactions, cross-currency rate swap
transactions, currency options and amounts, liquidated or
unliquidated, owing by the Borrower to the Bank at any time,
of each and every kind, nature and description, whether
arising under this Agreement or otherwise, and whether secured
or unsecured, direct or indirect (that is, whether the same
are due directly by the Borrower to the Bank; or are due
indirectly by the Borrower to the Bank as endorser, guarantor
or other surety, or as borrower of obligations due third
persons which have been endorsed or assigned to the Bank, or
otherwise), absolute or contingent, due or to become due, now
existing or hereafter arising or contracted, including,
without limitation, payment when due of all amounts
outstanding respecting any of the Loan Documents. Said term
shall also include all interest and other charges chargeable
to the Borrower or due from the Borrower to the Bank from time
to time and all costs and expenses referred to in this
Agreement.
(e) "Person" or "party" shall mean individuals, partnerships,
corporations, limited liability companies and all other
entities.
All words and terms used in this Agreement other than those
specifically defined herein shall have the meanings accorded to them in the
Code.
2.3 Ordinary Course of Business. The Bank hereby authorizes and permits the
Borrower to hold, process, sell, use or consume in the manufacture or processing
of finished goods, or otherwise dispose of
2
inventory for fair consideration, all in the ordinary course of the Borrower's
business, excluding, without limitation, sales to creditors or in bulk or sales
or other dispositions occurring under circumstances which would or could create
any lien or interest adverse to the Bank's security interest or other right
hereunder in the proceeds resulting therefrom. The Bank also hereby authorizes
and permits the Borrower to receive from the Debtors all amounts due as proceeds
of the Collateral at the Borrower's own cost and expense, and also liability, if
any, subject to the direction and control of the Bank at all times; and the Bank
may at any time, without cause or notice, and whether or not a default has
occurred or demand has been made, terminate all or any part of the authority and
permission herein or elsewhere in this Agreement granted to the Borrower with
reference to the Collateral, and notify Debtors to make all payments due as
proceeds of the Collateral to the Bank. Until Bank shall otherwise notify
Borrower, all proceeds of and collections of Collateral shall be retained by
Borrower and used solely for the ordinary and usual operation of Borrower's
business. From and after notice by Bank to Borrower, all proceeds of and
collections of the Collateral shall be held in trust by Borrower for Bank and
shall not be commingled with Borrower's other funds or deposited in any bank
account of Borrower; and Borrower agrees to deliver to Bank on the dates of
receipt thereof by Borrower, duly endorsed to Bank or to bearer, or assigned to
Bank, as may be appropriate, all proceeds of the Collateral in the identical
form received by Borrower.
2.4 Allowances. The Borrower may grant such allowances or other adjustments to
Debtors (exclusive of extending the time for payment of any item which shall not
be done without first obtaining the Bank's written consent in each instance) as
the Borrower may reasonably deem to accord with sound business practice,
including, without limiting the generality of the foregoing, accepting the
return of all or any part of the inventory (subject to the provisions set forth
in this Agreement with reference to returned inventory).
2.5 Records. The Borrower shall hold its books and records relating to the
Collateral segregated from all the Borrower's other books and records in a
manner satisfactory to the Bank; and shall deliver to the Bank from time to time
promptly at its request all invoices, original documents of title, contracts,
chattel paper, instruments and any other writings relating thereto, and other
evidence of performance of contracts, or evidence of shipment or delivery of the
merchandise or of the rendering of services; and the Borrower will deliver to
the Bank promptly at the Bank's request from time to time additional copies of
any or all of such papers or writings, and such other information with respect
to any of the Collateral and such schedules of inventory, schedules of accounts
and such other writings as the Bank may in its reasonable sole discretion deem
to be necessary or effectual to evidence any loan hereunder or the Bank's
security interest in the Collateral.
2.6 Legends. The Borrower shall promptly make, stamp or record such entries or
legends on the Borrower's books and records or on any of the Collateral
(including, without limitation, chattel paper) as Bank shall request from time
to time, to indicate and disclose that Bank has a security interest in such
Collateral.
2.7 Inspection. The Bank, or its representatives, at any time and from time to
time, shall have the right at the sole cost and expense of Borrower, and the
Borrower will permit the Bank and/or its representatives: (a) to examine, check,
make copies of or extracts from any of the Borrower's books, records and files
(including, without limitation, orders and original correspondence); (b) to
perform field exams or otherwise inspect and examine the Collateral and to
check, test or appraise the same as to quality, quantity, value and condition;
and (c) to verify the Collateral or any portion or portions thereof or the
Borrower's compliance with the provisions of this Agreement.
2.8 Purchase Money Security Interests. To the extent Borrower uses proceeds of
any loans to purchase Collateral, the repayment of such loans shall be on a
"first-in-first-out" basis so that the portion of the loan used to purchase a
particular item of Collateral shall be repaid in the order in which Borrower
purchased such item of Collateral.
2.9 Search Reports. Bank shall receive prior to the date of this Agreement UCC
search results under all names used by the Borrower during the prior five (5)
years, from each jurisdiction where any
3
Collateral is located, from the State, if any, where Borrower is organized and
registered (as such terms are used in the Code), and the State where Borrower's
chief executive office is located. The search results shall confirm that the
security interest in the Collateral granted Bank hereunder is prior to all other
security interests in favor of any other Person.
3. REPRESENTATIONS AND WARRANTIES
3.1 Organization and Qualification. Borrower is a duly organized and validly
existing corporation under the laws of the State of its incorporation with the
exact legal name set forth in the first paragraph of this Agreement. Borrower is
in good standing under the laws of said State, has the power to own its property
and conduct its business as now conducted and as currently proposed to be
conducted, and is duly qualified to do business under the laws of each state
where the nature of the business done or property owned requires such
qualification.
3.2 Subsidiaries. Borrower has no subsidiaries other than as disclosed in
Schedule A attached hereto, if any, and the Borrower has never consolidated,
merged or acquired substantially all of the assets of any other entity or person
other than as disclosed in Schedule A attached hereto, if any.
3.3 Corporate Records. Borrower's corporate charter, articles of organization or
incorporation and all amendments thereto have been duly filed and are in proper
order. All outstanding capital stock issued by the Borrower was and is properly
issued and all books and records of the Borrower, including but not limited to
its minute books, bylaws and books of account, are accurate and up to date and
will be so maintained.
3.4 Title to Properties; Absence of Liens. Borrower has good and clear record
and marketable title to all of its properties and assets, and all of its
properties and assets including the Collateral are free and clear of all
mortgages, liens, pledges, charges, encumbrances and setoffs, other than the
security interest therein granted to the Bank hereby and those mortgages, deeds
of trust, leases of personal property and security interests disclosed in
Schedule B attached hereto.
3.5 Places of Business. Borrower's chief executive office is correctly stated in
the preamble to this Agreement, and Borrower shall, during the term of this
Agreement, keep the Bank currently and accurately informed in writing of each of
its other places of business, and shall not change the location of such chief
executive office or open or close, move or change any existing or new place of
business without giving the Bank at least thirty (30) days prior written notice
thereof.
3.6 Valid Obligations. The execution, delivery and performance of the Loan
Documents have been duly authorized by all necessary corporate action and each
represents a legal, valid and binding obligation of Borrower and is fully
enforceable according to its terms, except as limited by laws relating to the
enforcement of creditors' rights.
3.7 Conflicts. There is no provision in Borrower's organizational or charter
documents, if any, or in any indenture, contract or agreement to which Borrower
is a party which prohibits, limits or restricts the execution, delivery or
performance of the Loan Documents.
3.8 Governmental Approvals. The execution, delivery and performance of the Loan
Documents does not require any approval of or filing with any governmental
agency or authority.
3.9 Litigation. There are no actions, suits or proceedings pending or to the
knowledge of Borrower threatened against Borrower which might materially
adversely affect the ability of Borrower to conduct its business or to pay or
perform the Obligations.
3.10 Accounts and Contract Rights. All accounts arise out of legally enforceable
and existing contracts, and represent unconditional and undisputed bona fide
indebtedness by a Debtor, and are not and will not be subject to any discount
(except such cash or trade discount as may be shown on any
4
invoice, contract or other writing delivered to the Bank). No contract right,
account, general intangible or chattel paper is or will be represented by any
note or other instrument, and no contract right, account or general intangible
is, or will be represented by any conditional or installment sales obligation or
other chattel paper, except such instruments or chattel paper as have been or
immediately upon receipt by the Borrower will be delivered to the Bank (duly
endorsed or assigned), such delivery, in the case of chattel paper, to include
all executed copies except those in the possession of the installment buyer and
any security for or guaranty of any of the Collateral shall be delivered to the
Bank immediately upon receipt thereof by the Borrower, with such assignments and
endorsements thereof as the Bank may request.
3.11 Title to Collateral. At the date hereof the Borrower is (and as to
Collateral that the Borrower may acquire after the date hereof, will be) the
lawful owner of the Collateral, and the Collateral and each item thereof is,
will be and shall continue to be free of all restrictions, liens, encumbrances
or other rights, title or interests (other than the security interest therein
granted to the Bank hereby), credits, defenses, recoupments, set-offs or
counterclaims whatsoever. The Borrower has and will have full power and
authority to grant to the Bank a security interest in the Collateral and the
Borrower has not transferred, assigned, sold, pledged, encumbered, subjected to
lien or granted any security interest in, and will not transfer, assign, sell
(except sales or other dispositions in the ordinary course of business in
respect to inventory as expressly permitted in this Agreement), pledge,
encumber, subject to lien or grant any security interest in any of the
Collateral (or any of the Borrower's right, title or interest therein), to any
person other than the Bank. The Collateral is and will be valid and genuine in
all respects. All accounts arise out of legally enforceable and existing
contracts in accordance with their tenor, and upon the Borrower's acquisition of
any interest in accounts, it shall in writing immediately notify the Bank
thereof, specifically identifying the same as accounts, and, except for such
accounts, no part of the Collateral (or the validity or enforceability by the
Bank thereof) is or shall be contingent upon the fulfillment of any agreement or
condition whatsoever and the Collateral, other than inventory and equipment,
shall represent unconditional and undisputed bona fide indebtedness by the
Debtor, and is not and will not be subject to any discount (except such cash or
trade discount as may be shown on any invoice, contract or other writing
delivered to the Bank). The Borrower will warrant and defend the Bank's right to
and interest in the Collateral against all claims and demands of all persons
whatsoever.
3.12 Location of Collateral. Except for sale, processing, use, consumption or
other disposition in the ordinary course of business, the Borrower will keep all
inventory and equipment only at locations specified in this Agreement or
specified to the Bank in writing. The Borrower shall, during the term of this
Agreement, keep the Bank currently and accurately informed in writing of each
location where the Borrower's records relating to its accounts and contract
rights, respectively, are kept, and shall not remove such records or any of them
to another state without giving the Bank at least thirty (30) days prior written
notice thereof.
3.13 Third Parties. The Bank shall not be deemed to have assumed any liability
or responsibility to the Borrower or any third person for the correctness,
validity or genuineness of any instruments or documents that may be released or
endorsed to the Borrower by the Bank (which shall automatically be deemed to be
without recourse to the Bank in any event) or for the existence, character,
quantity, quality, condition, value or delivery of any goods purporting to be
represented by any such documents; and the Bank, by accepting such security
interest in the Collateral, or by releasing any Collateral to the Borrower,
shall not be deemed to have assumed any obligation or liability to any supplier
or Debtor or to any other third party, and the Borrower agrees to indemnify and
defend the Bank and hold it harmless in respect to any claim or proceeding
arising out of any matter referred to in this paragraph.
3.14 Payment of Accounts. Each account or other item of Collateral, other than
inventory and equipment, will be paid in full on or before the date shown as its
due date in the schedule of Collateral, in the copy of the invoice(s) relating
to the account or other Collateral or in contracts relating thereto. Upon any
suspension of business, assignment or trust mortgage for the benefit of
creditors, dissolution, petition in receivership or under any chapter of the
Bankruptcy Code as amended from time to time by or against any Debtor, any
Debtor becoming insolvent or unable to pay its debts as they mature or any other
act of the same or different nature amounting to a business failure, the
Borrower will forthwith notify the Bank thereof.
5
3.15 Notification of Damage. The Borrower will immediately notify the Bank of
any loss or damage to, or material diminution in or any occurrence that would
adversely affect the value of inventory, equipment or other Collateral.
3.16 Taxes. Borrower has filed all Federal, state and other tax returns required
to be filed (except for such returns for which current and valid extensions have
been filed), and all taxes, assessments and other governmental charges due from
the Borrower have been fully paid. The Borrower has established on its books
reserves adequate for the payment of all Federal, state and other tax
liabilities (if any).
3.17 Use of Proceeds. No portion of any loan is to be used for (i) the purpose
of purchasing or carrying any "margin security" or "margin stock" as such terms
are used in Regulations U and X of the Board of Governors of the Federal Reserve
System, 12 C.F.R. 221 and 224 or (ii) primarily personal, family or household
purposes. The Collateral is not used or acquired primarily for personal, family
or household purposes.
3.18 Environmental. As of the date hereof neither the Borrower nor any of
Borrower's agents, employees or independent contractors (1) have caused or are
aware of a release or threat of release of Hazardous Materials (as defined
herein) on any of the premises or personal property owned or controlled by
Borrower, or any abutting property, which could give rise to liability under any
Environmental Law (as defined herein) or any other Federal, state or local law,
rule or regulation; (2) have arranged for the transport of or transported any
Hazardous Materials in a manner as to violate, or result in potential
liabilities under, any Environmental Law; (3) have received any notice, order or
demand from the Environmental Protection Agency or any other Federal, state or
local agency under any Environmental Law; (4) have incurred any liability under
any Environmental Law in connection with the mismanagement, improper disposal or
release of Hazardous Materials; or (5) are aware of any inspection or
investigation of any of the premises or personal property owned or controlled by
Borrower or abutting property by any Federal, state or local agency for possible
violations of any Environmental Law.
To the best of Borrower's knowledge, no prior owner or tenant of any
premises or property presently controlled or owned by Borrower committed or
omitted any act which caused the release of Hazardous Materials on such premises
or property which could give rise to a lien thereon by any Federal, state or
local government. No notice or statement of claim or lien affecting any property
or premises owned or controlled by Borrower has been recorded or filed in any
public records by any Federal, state or local government for costs, penalties,
fines or other charges as to such property.
Borrower agrees to indemnify and hold Bank harmless from all liability,
loss, cost, damage and expense, including attorney fees and costs of litigation,
arising from any and all of its violations of any Environmental Law (including
those arising from any lien by any Federal, state or local government arising
from the presence of Hazardous Materials) or from the presence of Hazardous
Materials located on or emanating from any of the premises owned or controlled
by the Borrower. Borrower further agrees to reimburse Bank upon demand for any
costs incurred by Bank in connection with the foregoing. Borrower agrees that
its obligations hereunder shall be continuous and shall survive the repayment of
all debts to Bank.
The term "Hazardous Materials" includes but is not limited to any and
all substances (whether solid, liquid or gas) defined, listed, or otherwise
classified as pollutants, hazardous wastes, hazardous substances, hazardous
materials, extremely hazardous wastes, or words of similar meaning or regulatory
effect under any present or future Environmental Law or that may have a negative
impact on human health or the environment, including but not limited to
petroleum and petroleum products, asbestos and asbestos-containing materials,
polychlorinated biphenyls, lead, radon, radioactive materials, flammables and
explosives.
The term "Environmental Law" means any present and future Federal,
state and local laws, statutes, ordinances, rules, regulations and the like, as
well as common law, relating to protection of human health or the environment,
relating to Hazardous Materials, relating to liability for or costs of
remediation or prevention
6
of releases of Hazardous Materials or relating to liability for or costs of
other actual or threatened danger to human health or the environment. The term
"Environmental Law" includes, but is not limited to, the following statutes, as
amended, any successor thereto, and any regulations promulgated pursuant
thereto, and any state or local statutes, ordinances, rules, regulations and the
like addressing similar issues: the Comprehensive Environmental Response,
Compensation and Liability Act; the Emergency Planning and Community
Right-to-Know Act; the Hazardous Materials Transportation Act; the Resource
Conservation and Recovery Act (including but not limited to Subtitle I relating
to underground storage tanks); the Solid Waste Disposal Act; the Clean Water
Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking
Water Act; the Occupational Safety and Health Act; the Federal Water Pollution
Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the
Endangered Species Act; the National Environmental Policy Act; and the River and
Harbors Appropriation Act.
4. AFFIRMATIVE COVENANTS
4.1 Payments and Performance. Borrower will duly and punctually pay all
Obligations becoming due to the Bank and will duly and punctually perform all
Obligations on its part to be done or performed under this Agreement.
4.2 Books and Records; Inspection. Borrower will at all times keep proper books
of account in which full, true and correct entries will be made of its
transactions in accordance with generally accepted accounting principles,
consistently applied and which are, in the opinion of a Certified Public
Accountant acceptable to Bank, adequate to determine fairly the financial
condition and the results of operations of Borrower. Borrower will at all
reasonable times make its books and records available in its offices for
inspection, examination and duplication by the Bank and the Bank's
representatives and will permit inspection of the Collateral and all of its
properties by the Bank and the Bank's representatives. Borrower will from time
to time furnish the Bank with such information and statements as the Bank may
request in its sole discretion with respect to the Obligations or the Bank's
security interest in the Collateral. Borrower shall, during the term of this
Agreement, keep the Bank currently and accurately informed in writing of each
location where the Borrower's records relating to its accounts and contract
rights are kept, and shall not remove such records to another state without
giving the Bank at least thirty (30) days prior written notice thereof.
4.3 Financial Statements. Advanced Photonix, Inc. will furnish to Bank:
(a) as soon as available to Advanced Photonix, Inc., but in any
event within 45 days after the close of each quarterly period,
a full and complete signed copy of financial statements, on a
consolidated basis with such other entities designated by the
Bank, which shall include a balance sheet of Advanced
Photonix, Inc., as at the end of such quarter and statement of
profit and loss of Advanced Photonix, Inc. reflecting the
results of its operations during such quarter, prepared on a
reviewed basis in accordance with generally accepted
accounting principles, consistently applied, subject to
year-end adjustments;
(b) as soon as available to Advanced Photonix, Inc., but in any
event within 90 days after the close of each fiscal year, a
full and complete signed copy of financial statements, on a
consolidated basis with such other entities designated by the
Bank, which shall include a balance sheet of Advanced
Photonix, Inc., as at the end of such year and statement of
profit and loss of Advanced Photonix, Inc. reflecting the
results of its operations during such year, bearing the
opinion of such certified public accountants and prepared on
an audited basis in accordance with generally accepted
accounting principles, consistently applied together with any
so-called management letter;
(c) from time to time, such financial data and information about
Advanced Photonix, Inc. as Bank may reasonably request; and
7
4.4 Conduct of Business. The Borrower will maintain its existence in good
standing and comply with all laws and regulations of the United States and of
any state or states thereof and of any political subdivision thereof, and of any
governmental authority which may be applicable to it or to its business;
provided that this covenant shall not apply to any tax, assessment or charge
which is being contested in good faith and with respect to which reserves have
been established and are being maintained.
4.5 Notice to Account Debtors. The Borrower agrees, at the request of the Bank,
to notify all or any of the Debtors in writing of the Bank's security interest
in the Collateral in whatever manner the Bank requests and, hereby authorizes
the Bank to notify all or any of the Debtors of the Bank's security interest in
the Borrower's accounts at the Borrower's expense.
4.6 Operating and Deposit Accounts. The Borrower shall maintain with the Bank
its primary operating and deposit accounts. At the option of the Bank, all loan
payments and fees will automatically be debited from the Borrower's primary
operating account and all advances will automatically be credited to the
Borrower's primary operating account.
4.7 Taxes. Borrower will promptly pay all real and personal property taxes,
assessments and charges and all franchise, income, unemployment, old age
benefits, withholding, sales and other taxes assessed against it or payable by
it before delinquent; provided that this covenant shall not apply to any tax
assessment or charge which is being contested in good faith and with respect to
which reserves have been established and are being maintained. The Bank may, at
its option, from time to time, discharge any taxes, liens or encumbrances of any
of the Collateral, and the Borrower will pay to the Bank on demand or the Bank
in its sole discretion may charge to the Borrower all amounts so paid or
incurred by it.
4.8 Maintenance. Borrower will keep and maintain the Collateral and its other
properties, if any, in good repair, working order and condition. The Borrower
will immediately notify the Bank of any loss or damage to or any occurrence
which would adversely affect the value of any Collateral. The Bank may, at its
option, from time to time, take any other action that the Bank may deem proper
to repair, maintain or preserve any of the Collateral, and the Borrower will pay
to the Bank on demand or the Bank in its sole discretion may charge to the
Borrower all amounts so paid or incurred by it.
4.9 Insurance. Borrower will maintain in force property and casualty insurance
on all Collateral and any other property of the Borrower, if any, against risks
customarily insured against by companies engaged in businesses similar to that
of the Borrower containing such terms and written by such companies as may be
satisfactory to the Bank, such insurance to be payable to the Bank as its
interest may appear in the event of loss and to name the Bank as insured
pursuant to a standard loss payee clause; no loss shall be adjusted thereunder
without the Bank's approval; and all such policies shall provide that they may
not be canceled without first giving at least Thirty (30) days written notice of
cancellation to the Bank. In the event that the Borrower fails to provide
evidence of such insurance, the Bank may, at its option, secure such insurance
and charge the cost thereof to the Borrower. At the option of the Bank, all
insurance proceeds received from any loss or damage to any of the Collateral
shall be applied either to the replacement or repair thereof or as a payment on
account of the Obligations. From and after the occurrence of an Event of
Default, the Bank is authorized to cancel any insurance maintained hereunder and
apply any returned or unearned premiums, all of which are hereby assigned to the
Bank, as a payment on account of the Obligations.
4.10 Notification of Default. Upon becoming aware of the existence of any
condition or event which constitutes an Event of Default, or any condition or
event which would upon notice or lapse of time, or both, constitute an Event of
Default, Borrower shall promptly give Bank written notice thereof specifying the
nature and duration thereof and the action being or proposed to be taken with
respect thereto.
4.11 Notification of Material Litigation. Borrower will promptly notify the Bank
in writing of any litigation or of any investigative proceedings of a
governmental agency or authority commenced or
8
threatened against it which would or might be materially adverse to the
financial condition of Borrower or any guarantor of the Obligations.
4.12 Pension Plans. With respect to any pension or benefit plan maintained by
Borrower, or to which Borrower contributes ("Plan"), the benefits under which
are guarantied, in whole or in part, by the Pension Benefit Guaranty Corporation
created by the Employee Retirement Income Security Act of 1974, P.L. 93-406, as
amended ("ERISA") or any governmental authority succeeding to any or all of the
functions of the Pension Benefit Guaranty Corporation ("Pension Benefit Guaranty
Corporation"), Borrower will (a) fund each Plan as required by the provisions of
Section 412 of the Internal Revenue Code of 1986, as amended; (b) cause each
Plan to pay all benefits when due; (c) furnish Bank (i) promptly with a copy of
any notice of each Plan's termination sent to the Pension Benefit Guaranty
Corporation (ii) no later than the date of submission to the Department of Labor
or to the Internal Revenue Service, as the case may be, a copy of any request
for waiver from the funding standards or extension of the amortization periods
required by Section 412 of the Internal Revenue Code of 1986, as amended and
(iii) notice of any Reportable Event as such term is defined in ERISA; and (d)
subscribe to any contingent liability insurance provided by the Pension Benefit
Guaranty Corporation to protect against employer liability upon termination of a
guarantied pension plan, if available to Borrower.
5. NEGATIVE COVENANTS
5.1 Financial Covenants. The Borrower will not at any time or during any fiscal
period (as applicable) fail to be in compliance with any of the financial
covenants in this section.
(a) Definitions. The following definitions shall apply to this
Section:
(i) "Capital Expenditures" ("CAPEX") shall mean for any
period, all acquisitions of machinery, equipment, land,
leaseholds, buildings, improvements and all other expenditures
considered to be for fixed assets under GAAP, consistently
applied. Where an asset is acquired under a capital lease, the
amount required to be capitalized shall be considered a
capital expenditure during the first year of the lease.
(ii) "Combined Borrower(s)" shall mean Advanced Photonix, Inc.
and each of its subsidiaries.
(iii) "Current Maturity of Long-Term Debt" ("CMLTD") shall
mean, for any period, the current scheduled principal or
capital lease payments required to be paid during the
applicable period.
(iv) "Current Assets" shall mean current assets as defined
under GAAP.
(v) "Current Liabilities" shall mean current liabilities as
defined under GAAP.
(vi) "Distributions" shall mean all cash dividends to
shareholders, and all cash distributions to shareholders of
Subchapter S corporations, to partners of partnerships, to
members of limited liability companies or to beneficiaries of
trusts.
(vii) "Earnings" shall mean earnings as defined under GAAP.
(viii) "EBIT" shall mean, for any period, Earnings from
continuing operations before payment of interest expense,
federal, state and local income taxes, in each case for such
period, computed and calculated in accordance with GAAP.
(ix) "EBITDA" shall mean, for any period, Earnings from
continuing operations before payment of federal, state and
local income taxes, plus Interest Expense, depreciation and
amortization, in each case for such period, computed and
calculated in accordance with GAAP.
9
(x) "GAAP" shall mean generally accepted accounting principles
in effect from time to time in the United States.
(xi) "Indebtedness" shall mean (x) all indebtedness for
borrowed money or for the deferred purchase price of property
or services, and all obligations under leases which are or
should be, under GAAP, recorded as capital leases, in respect
of which a person is directly or contingently liable as
borrower, guarantor, endorser or otherwise, or in respect of
which a person otherwise assures a creditor against loss, (y)
all obligations for borrowed money or for the deferred
purchase price of property or services secured by (or for
which the holder has an existing right, contingent or
otherwise, to be secured by) any lien upon property (including
without limitation accounts receivable and contract rights)
owned by a person, whether or not such person has assumed or
become liable for the payment thereof, and (z) all other
liabilities and obligations which would be classified in
accordance with GAAP as liabilities on a balance sheet or to
which reference should be made in footnotes thereto.
(xii) "Intangible Assets" shall mean, as of the date of
determination thereof, assets that in accordance with GAAP are
properly classifiable as intangible assets, including, but not
limited to, goodwill, franchises, licenses, patents,
trademarks, trade names and copyrights.
(xiii) "Interest Expense" shall mean, for any period,
ordinary, regular, recurring and continuing expenditures for
interest on all borrowed money.
(xiv) "Subordinated Indebtedness" shall mean, as of the date
of determination thereof, all Indebtedness which has been
subordinated in writing to the obligations owing to the Bank
on terms and conditions acceptable to the Bank.
(xv) "Effective Tangible Net Worth" shall mean, as of the date
of determination thereof, Tangible Net Worth plus Subordinated
Indebtedness.
(xvi) "Tangible Net Worth" shall mean, as of the date of
determination thereof, total assets, excluding all Intangible
Assets, less total liabilities.
(xvii) "Unfinanced CAPEX" shall mean, for any period, Capital
Expenditures less new long-term Indebtedness issued during
such period to fund the Capital Expenditures.
(b) Current Ratio. The Combined Borrower's shall not permit the
ratio of its Current Assets to Current Liabilities to be less
than 1.25 to 1.00, tested quarterly.
(c) Debt to Effective Tangible Net Worth. The Combined Borrower's
shall not permit the ratio of its Indebtedness minus
Subordinated Indebtedness to Effective Tangible Net Worth to
be greater than 2.00 to 1.00, tested quarterly.
(d) Free Cash Flow. The Combined Borrower's shall not permit the
ratio of its EBITDA, minus taxes paid in cash, Distributions
and Unfinanced CAPEX, to Interest Expense plus CMLTD, to be
less than 1.25 to 1.00, for any fiscal quarter. Ratio analysis
will commence 9/30/05. For the period ending 9/30/05, 12/31/05
and 3/31/06 the calculation will include adding back to
earnings $500,000.00 of non-recurring expenses related to the
acquisition of Picotronix, Inc., dba Picometrix, Inc.
(e) EBIT to Interest Expense. The Combined Borrower's shall not
permit the ratio of its EBIT to Interest Expense to be less
than 2.00 to 1.00, for any fiscal quarter. Ratio analysis will
commence 9/30/05. For the period ending 9/30/05, 12/31/05 and
3/31/06 the calculation will include adding back to earnings
$500,000.00 of non-recurring expenses related to the
acquisition of Picotronix, Inc., dba Picometrix, Inc.
10
(f) No additional revolving or term debt without Bank's
concurrence.
(g) Balance on initial Note to Smithfield Fiduciary, LLC, Iroquois
Capital, LP, Bluegrass Growth Fund, LP, and Bluegrass Growth
Fund, Ltd, to be no greater than $5,000,000.00 in the
aggregate principal amount.
(h) No consecutive quarter losses.
(i) Intercreditor Agreement executed by Advanced Photonix, Inc.,
Silicon Sensors, Inc., Michigan Acquisition Sub, LLC, Texas
Optoelectronics, Inc., Silicon Detector Corporation, Photonic
Detectors Inc., and Smithfield Fiduciary, LLC to subordinate
$6,000,000.00 in Smithfield Fiduciary, LLC debt to Santa
Xxxxxxx Bank & Trust.
(j) Subsequent to closing, possibly within 24 hours, Michigan
Acquisition Sub, LLC will be replaced as Co-Borrower with
Picometrix, LLC.
(k) Prior to funding the loan, the merger of Picotronix, Inc., dba
Picometrix, Inc., into Michigan Acquisition Sub, LLC must be
completed.
5.2 Limitations on Indebtedness. Borrower shall not issue any evidence of
indebtedness or create, assume, guarantee, become contingently liable for, or
suffer to exist indebtedness in addition to indebtedness to the Bank, except
indebtedness or liabilities of Borrower, other than for money borrowed, incurred
or arising in the ordinary course of business.
5.3 Sale of Interest. There shall not be any sale or transfer of ownership of
any interest in the Borrower without the Bank's prior written consent unless
such transfer shall not result in change in control of Borrower.
5.4 Loans or Advances. Borrower shall not make any loans or advances to any
individual, firm or corporation, including without limitation its officers and
employees; provided, however, that Borrower may make advances to its employees,
including its officers, with respect to expenses incurred or to be incurred by
such employees in the ordinary course of business which expenses are
reimbursable by Borrower; and provided further, however, that Borrower may
extend credit in the ordinary course of business in accordance with customary
trade practices.
5.5 Dividends and Distributions. Borrower shall not, without prior written
consent of the Bank, pay any dividends on or make any distribution except to any
Combined Borrower on account of any class of Borrower's capital stock in cash or
in property (other than additional shares, of such stock), or redeem, purchase
or otherwise acquire, directly or indirectly, any of such stock, except, so long
as Borrower is not in default hereunder.
5.6 Investments. The Borrower shall not make investments in, or advances to, any
individual, partnership, corporation, limited liability company, trust or other
organization or person, except for any Combined Borrower. The Borrower will not
purchase or otherwise invest in or hold securities, nonoperating real estate or
other nonoperating assets or purchase all or substantially all the assets of any
entity.
5.7 Merger. Borrower will not merge or consolidate or be merged or consolidated
with or into any other entity.
5.8 Capital Expenditures. The Borrower shall not, directly or indirectly, make
or commit to make capital expenditures by lease, purchase, or otherwise, except
in the ordinary and usual course of business for the purpose of replacing
machinery, equipment or other personal property which, as a
11
consequence of wear, duplication or obsolescence, is no longer used or necessary
in the Borrower's business.
5.9 Sale of Assets. Borrower shall not sell, lease or otherwise dispose of any
of its assets, except in the ordinary and usual course of business and except
for the purpose of replacing machinery, equipment or other personal property
which, as a consequence of wear, duplication or obsolescence, is no longer used
or necessary in the Borrower's business, provided that fair consideration is
received therefor; provided, however, in no event, except in the ordinary and
usual course of business, shall the Borrower sell, lease or otherwise dispose of
any equipment purchased with the proceeds of any loans made by the Bank.
5.10 Restriction on Liens. Borrower shall not grant any security interest in, or
mortgage of, any of its properties or assets including the Collateral. Borrower
shall not agree with any person other than the Bank to not grant any security
interest in, or mortgage of, any of its properties or assets including the
Collateral.
5.11 Other Business. Borrower shall not engage in any business other than the
business in which it is currently engaged or a business reasonably allied
thereto.
5.12 Change of Name. Borrower shall not change its legal name or the State of
its organization, without giving the Bank at least 30 days prior written notice
thereof.
6. DEFAULT
6.1 Default. "Event of Default" shall mean the occurrence of one or more of any
of the following events:
(a) default of any liability, obligation or undertaking of the
Borrower or any guarantor of the Obligations to the Bank,
hereunder or otherwise, including, without limitation, failure
to pay in full and when due any installment of principal or
interest or default of the Borrower or any guarantor of the
Obligations under any other Loan Document or any other
agreement with the Bank continuing for 10 days with respect to
the payment of money or continuing for 30 days with respect to
any other default;
(b) failure of the Borrower or any guarantor of the Obligations to
maintain aggregate collateral security value satisfactory to
the Bank continuing for 30 days;
(c) default of any material liability, obligation or undertaking
of the Borrower or any guarantor of the Obligations to any
other party continuing for 30 days;
(d) if any statement, representation or warranty heretofore, now
or hereafter made by the Borrower or any guarantor of the
Obligations in connection with this Agreement or in any
supporting financial statement of the Borrower or any
guarantor of the Obligations shall be determined by the Bank
to have been false in any material respect when made;
(e) if the Borrower or any guarantor of the Obligations is a
corporation, trust, partnership or limited liability company,
the liquidation, termination or dissolution of any such
organization, or the merger or consolidation of such
organization into another entity, or its ceasing to carry on
actively its present business or the appointment of a receiver
for its property;
(f) the institution by or against the Borrower or any guarantor of
the Obligations of any proceedings under the Bankruptcy Code
11 USC ss.101 et seq. or any other law in which the Borrower
or any guarantor of the Obligations is alleged to be insolvent
or unable to pay its debts as they mature, or the making by
the Borrower or any guarantor of the Obligations of an
12
assignment for the benefit of creditors or the granting by the
Borrower or any guarantor of the Obligations of a trust
mortgage for the benefit of creditors;
(g) the service upon the Bank of a writ in which the Bank is named
as trustee of the Borrower or any guarantor of the
Obligations;
(h) a judgement or judgements for the payment of money shall be
rendered against the Borrower or any guarantor of the
Obligations, and any such judgement shall remain unsatisfied
and in effect for any period of thirty (30) consecutive days
without a stay of execution;
(i) any xxxx, xxxx (including mechanics lien), seizure,
attachment, execution or similar process shall be issued or
levied on any of the property of the Borrower or any guarantor
of the Obligations;
(j) the termination or revocation of any guaranty of the
Obligations; or
(k) the occurrence of such a change in the condition or affairs
(financial or otherwise) of the Borrower or any guarantor of
the Obligations, or the occurrence of any other event or
circumstance, such that the Bank, in its reasonable sole
discretion, deems that it is insecure or that the prospects
for timely or full payment or performance of any obligation of
the Borrower or any guarantor of the Obligations to the Bank
has been or may be impaired.
6.2 Acceleration. If an Event of Default shall occur, at the election of the
Bank, all Obligations shall become immediately due and payable without notice or
demand, except with respect to Obligations payable on DEMAND, which shall be due
and payable on DEMAND, whether or not an Event of Default has occurred.
The Bank is hereby authorized, at its election, after an Event of
Default or after Demand, without any further demand or notice except to such
extent as notice may be required by applicable law, to take possession and/or
sell or otherwise dispose of all or any of the Collateral at public or private
sale; and the Bank may also exercise any and all other rights and remedies of a
secured party under the Code or which are otherwise accorded to it in equity or
at law, all as Bank may determine, and such exercise of rights in compliance
with the requirements of law will not be considered adversely to affect the
commercial reasonableness of any sale or other disposition of the Collateral. If
notice of a sale or other action by the Bank is required by applicable law,
unless the Collateral is perishable or threatens to decline speedily in value or
is of a type customarily sold on a recognized market, the Borrower agrees that
ten (10) days written notice to the Borrower, or the shortest period of written
notice permitted by such law, whichever is smaller, shall be sufficient notice;
and that to the extent permitted by law, the Bank, its officers, attorneys and
agents may bid and become purchasers at any such sale, if public, and may
purchase at any private sale any of the Collateral that is of a type customarily
sold on a recognized market or which is the subject of widely distributed
standard price quotations. Any sale (public or private) shall be without
warranty and free from any right of redemption, which the Borrower shall waive
and release after default upon the Bank's request therefor, and may be free of
any warranties as to the Collateral if Bank shall so decide. No purchaser at any
sale (public or private) shall be responsible for the application of the
purchase money. Any balance of the net proceeds of sale remaining after paying
all Obligations of the Borrower to the Bank shall be returned to such other
party as may be legally entitled thereto; and if there is a deficiency, the
Borrower shall be responsible for repayment of the same, with interest. Upon
demand by the Bank, the Borrower shall assemble the Collateral and make it
available to the Bank at a place designated by the Bank which is reasonably
convenient to the Bank and the Borrower. The Borrower hereby acknowledges that
the Bank has extended credit and other financial accommodations to the Borrower
upon reliance of the Borrower's granting the Bank the rights and remedies
contained in this Agreement including without limitation the right to take
immediate possession of the Collateral upon the occurrence of an Event of
Default or after DEMAND with respect to Obligations payable on DEMAND and the
Borrower hereby acknowledges that the Bank is entitled to equitable and
injunctive relief to enforce any of its rights and remedies hereunder or under
the Code and the Borrower hereby waives any defense
13
to such equitable or injunctive relief based upon any allegation of the absence
of irreparable harm to the Bank.
The Bank shall not be required to marshal any present or future
security for (including but not limited to this Agreement and the Collateral
subject to the security interest created hereby), or guarantees of, the
Obligations or any of them, or to resort to such security or guarantees in any
particular order; and all of its rights hereunder and in respect of such
securities and guaranties shall be cumulative and in addition to all other
rights, however existing or arising. To the extent that it lawfully may,
Borrower hereby agrees that it will not invoke any law relating to the
marshalling of collateral which might cause delay in or impede the enforcement
of the Bank's rights under this Agreement or under any other instrument
evidencing any of the Obligations or under which any of the Obligations is
outstanding or by which any of the Obligations is secured or guaranteed, and to
the extent that it lawfully may do so, Borrower hereby irrevocably waives the
benefits of all such laws. Except as required by applicable law, the Bank shall
have no duty as to the collection or protection of the Collateral or any income
thereon, nor as to the preservation of rights against prior parties, nor as to
the preservation of any rights pertaining thereto beyond the safe custody
thereof.
6.3 Power of Attorney. The Borrower hereby irrevocably constitutes and appoints
the Bank as the Borrower's true and lawful attorney, with full power of
substitution, at the sole cost and expense of the Borrower but for the sole
benefit of the Bank, upon the occurrence of an Event of Default or after DEMAND
with respect to Obligations payable on DEMAND, to convert the Collateral into
cash, including, without limitation, completing the manufacture or processing of
work in process, and the sale (either public or private) of all or any portion
or portions of the inventory and other Collateral; to enforce collection of the
Collateral, either in its own name or in the name of the Borrower, including,
without limitation, executing releases or waivers, compromising or settling with
any Debtors and prosecuting, defending, compromising or releasing any action
relating to the Collateral; to receive, open and dispose of all mail addressed
to the Borrower and to take therefrom any remittances or proceeds of Collateral
in which the Bank has a security interest; to notify Post Office authorities to
change the address for delivery of mail addressed to the Borrower to such
address as the Bank shall designate; to endorse the name of the Borrower in
favor of the Bank upon any and all checks, drafts, money orders, notes,
acceptances or other instruments of the same or different nature; to sign and
endorse the name of the Borrower on and to receive as secured party any of the
Collateral, any invoices, freight or express receipts, or bills of lading,
storage receipts, warehouse receipts, or other documents of title of the same or
different nature relating to the Collateral; to sign the name of the Borrower on
any notice of the Debtors or on verification of the Collateral; and to sign, if
necessary, and file or record on behalf of the Borrower any financing or other
statement in order to perfect or protect the Bank's security interest. The Bank
shall not be obliged to do any of the acts or exercise any of the powers
hereinabove authorized, but if the Bank elects to do any such act or exercise
any such power, it shall not be accountable for more than it actually receives
as a result of such exercise of power, and it shall not be responsible to the
Borrower except for its own gross negligence or willful misconduct. All powers
conferred upon the Bank by this Agreement, being coupled with an interest, shall
be irrevocable so long as any Obligation of the Borrower or any guarantor or
surety to the Bank shall remain unpaid or the Bank is obligated under this
Agreement to extend any credit to the Borrower.
6.4 Nonexclusive Remedies. All of the Bank's rights and remedies not only under
the provisions of this Agreement but also under any other agreement or
transaction shall be cumulative and not alternative or exclusive, and may be
exercised by the Bank at such time or times and in such order of preference as
the Bank in its sole discretion may determine.
6.5 Reassignment to Borrower. Whenever the Bank deems it desirable that any
legal action be instituted with respect to any Collateral or that any other
action be taken in any attempt to effectuate collection of any Collateral, the
Bank may reassign the item in question to the Borrower (and if the Bank shall
execute any such reassignment, it shall automatically be deemed to be without
recourse to the Bank in any event) and require the Borrower to proceed with such
legal or other action at the Borrower's sole liability, cost and expense, in
which event all amounts collected by the Borrower on such item shall
nevertheless be subject to the Bank's security interest.
14
7. MISCELLANEOUS
7.1 Waivers. The Borrower waives notice of intent to accelerate, notice of
acceleration, notice of nonpayment, demand, presentment, protest or notice of
protest of the Obligations, and all other notices, consents to any renewals or
extensions of time of payment thereof, and generally waives any and all
suretyship defenses and defenses in the nature thereof.
7.2 Severability. If any provision of this Agreement or portion of such
provision or the application thereof to any person or circumstance shall to any
extent be held invalid or unenforceable, the remainder of this Agreement (or the
remainder of such provision) and the application thereof to other persons
circumstances shall not be affected thereby.
7.3 Deposit Collateral. The Borrower hereby grants to the Bank a continuing lien
and security interest in any and all deposits or other sums at any time credited
by or due from the Bank (or any of its banking or lending affiliates, or any
bank acting as a participant under any loan arrangement between the Bank and the
Borrower, or any third party acting on the Bank's behalf (collectively, the
"Bank Affiliates")) to the Borrower and any cash, securities, instruments or
other property of the Borrower in the possession of the Bank or any Bank
Affiliate, whether for safekeeping or otherwise, or in transit to or from the
Bank or any Bank Affiliate (regardless of the reason the Bank or Bank Affiliate
had received the same or whether the Bank or Bank Affiliate has conditionally
released the same) as security for the full and punctual payment performance of
all of the liabilities and obligations of the Borrower to the Bank or any Bank
Affiliate and such deposits and other sums may be applied against such
liabilities and obligations of the Borrower to the Bank or any Bank Affiliate at
any time, whether or not such are then due, whether or not demand has been made
and whether or not other collateral is then available to the Bank or any Bank
Affiliate.
7.4 Indemnification. The Borrower shall indemnify, defend and hold the Bank
harmless of and from any claim brought or threatened against the Bank by the
Borrower, any guarantor or endorser of the Obligations, or any other person (as
well as from reasonable attorneys' fees and expenses in connection therewith) on
account of the Bank's relationship with the Borrower, or any guarantor or
endorser of the Obligations (each of which may be defended, compromised, settled
or pursued by the Bank with counsel of the Bank's election, but at the expense
of the Borrower), except for any claim arising out of the gross negligence or
willful misconduct of the Bank. The within indemnification shall survive payment
of the Obligations, and/or any termination, release or discharge executed by the
Bank in favor of the Borrower.
7.5 Costs and Expenses. The Borrower shall pay to the Bank on demand any and all
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements, court costs, litigation and other expenses) incurred or paid
by the Bank in establishing, maintaining, protecting or enforcing any of the
Bank's rights or the Obligations, including, without limitation, any and all
such costs and expenses incurred or paid by the Bank in defending the Bank's
security interest in, title or right to the Collateral or in collecting or
attempting to collect or enforcing or attempting to enforce payment of the
Obligations.
7.6 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be an original, but all of which shall constitute but one
agreement.
7.7 Complete Agreement. This Agreement and the other Loan Documents constitute
the entire agreement and understanding between and among the parties hereto
relating to the subject matter hereof, and supersedes all prior proposals,
negotiations, agreements and understandings among the parties hereto with
respect to such subject matter.
7.8 Binding Effect of Agreement. This Agreement shall be binding upon and inure
to the benifit of the respective heirs, executors, administrators, legal
representatives, successors and assigns of the parties hereto, and shall remain
in full force and effect (and the Bank shall be entitled to rely thereon) until
terminated as to future transactions by written notice from either party to the
other party of the termination hereof; provided that any such termination shall
not release or affect any Collateral in which the Bank
15
already has a security interest or any Obligations incurred or rights accrued
hereunder prior to the effective date of such notice (as hereinafter defined) of
such termination. Notwithstanding any such termination, the Bank shall have a
security interest in all Collateral to secure the payment and performance of
Obligations arising after such termination as a result of commitments or
undertakings made or entered into by the Bank prior to such termination. The
Bank may transfer and assign this Agreement and deliver the Collateral to the
assignee, who shall thereupon have all of the rights of the Bank; and the Bank
shall then be relieved and discharged of any responsibility or liability with
respect to this Agreement and the Collateral. The Borrower may not assign or
transfer any of its rights or obligations under this Agreement. Except as
expressly provided herein or in the other Loan Documents, nothing, expressed or
implied, is intended to confer upon any party, other than the parties hereto,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement or the other Loan Documents.
7.9 Further Assurances. Borrower will from time to time execute and deliver to
Bank such documents, and take or cause to be taken, all such other or further
action, as Bank may request in order to effect and confirm or vest more securely
in Bank all rights contemplated by this Agreement and the other Loan Documents
(including, without limitation, to correct clerical errors) or to vest more
fully in or assure to the Bank the security interest in the Collateral granted
to the Bank by this Agreement or to comply with applicable statute or law and to
facilitate the collection of the Collateral (including, without limitation, the
execution of stock transfer orders and stock powers, endorsement of promissory
notes and instruments and notifications to obligors on the Collateral). To the
extent permitted by applicable law, Borrower authorizes Bank to file financing
statements, continuation statements or amendments without Borrower's signature
appearing thereon, and any such financing statements, continuation statements or
amendments may be signed by Bank on behalf of Borrower, if necessary, and may be
filed at any time in any jurisdiction. Bank may at any time and from time to
time file financing statements, continuation statements and amendments thereto
which contain any information required by the Code for the sufficiency or filing
office acceptance of any financing statement, continuation statement or
amendment, including whether Borrower is an organization, the type of
organization and any organization identification number issued to Borrower.
Borrower agrees to furnish any such information to Bank promptly upon request.
In addition, Borrower shall at any time and from time to time take such steps as
Bank may reasonably request for Bank (i) to obtain an acknowledgement, in form
and substance satisfactory to Bank, of any bailee having possession of any of
the Collateral that the bailee holds such Collateral for Bank, (ii) to obtain
"control" (as defined in the Code) of any Collateral comprised of deposit
accounts, electronic chattel paper, letter of credit rights or investment
property, with any agreements establishing control to be in form and substance
satisfactory to Bank, and (iii) otherwise to insure the continued perfection and
priority of Bank's security interest in any of the Collateral and the
preservation of its rights therein. Borrower hereby constitutes Bank its
attorney-in-fact to execute, if necessary, and file all filings required or so
requested for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed; and such power, being coupled with an interest, shall be
irrevocable until this Agreement terminates in accordance with its terms, all
Obligations are paid in full and the Collateral is released.
7.10 Amendments and Waivers. This Agreement may be amended and Borrower may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, if Borrower shall obtain the Bank's prior written consent to
each such amendment, action or omission to act. No course of dealing and no
delay or omission on the part of Bank in exercising any right hereunder shall
operate as a waiver of such right or any other right and waiver on any one or
more occasions shall not be construed as a bar to or waiver of any right or
remedy of Bank on any future occasion.
7.11 Terms of Agreement. This Agreement shall continue in full force and effect
so long as any Obligations or obligation of Borrower to Bank shall be
outstanding, or the Bank shall have any obligation to extend any financial
accommodation hereunder, and is supplementary to each and every other agreement
between Borrower and Bank and shall not be so construed as to limit or otherwise
derogate from any of the rights or remedies of Bank or any of the liabilities,
obligations or undertakings of Borrower under any such agreement, nor shall any
contemporaneous or subsequent agreement between Borrower and the Bank be
construed to limit or otherwise derogate from any of the rights or remedies of
Bank or
16
any of the liabilities, obligations or undertakings of Borrower hereunder,
unless such other agreement specifically refers to this Agreement and expressly
so provides.
7.12 Notices. Any notice under or pursuant to this Agreement shall be a signed
writing or other authenticated record (within the meaning of Article 9 of the
Code). Any such notice shall be deemed duly received and effective (i) if
delivered in hand to, or received by, any officer or agent of the Borrower or
the Bank, upon such delivery or receipt, or (ii) if mailed by registered or
certified mail, return receipt requested, postage prepaid, and properly
addressed to the Borrower or the Bank, two (2) business days after being so
mailed. A party's proper address is that set forth for such party in this
Agreement or such address as that party may from time to time hereafter
designate by notice to the other party.
7.13 Governing Law. This Agreement has been executed or completed and/or is to
be performed in California, and it and all transactions thereunder or pursuant
thereto shall be governed as to interpretation, validity, effect, rights, duties
and remedies of the parties thereunder and in all other respects by the laws of
California.
7.14 Reproductions. This Agreement and all documents which have been or may be
hereinafter furnished by Borrower to the Bank may be reproduced by the Bank by
any photographic, photostatic, microfilm, xerographic or similar process, and
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made in the regular course of
business).
7.15 Jurisdiction and Venue. Borrower irrevocably submits to the nonexclusive
jurisdiction of any Federal or state court sitting in California, over any suit,
action or proceeding arising out of or relating to this Agreement. Borrower
irrevocably waives, to the fullest extent it may effectively do so under
applicable law, any objection it may now or hereafter have to the laying of the
venue of any such suit, action or proceeding brought in any such court and any
claim that the same has been brought in an inconvenient forum. Borrower hereby
consents to any and all process which may be served in any such suit, action or
proceeding, (i) by mailing a copy thereof by registered and certified mail,
postage prepaid, return receipt requested, to the Borrower's address shown in
this Agreement or as notified to the Bank and (ii) by serving the same upon the
Borrower in any other manner otherwise permitted by law, and agrees that such
service shall in every respect be deemed effective service upon Borrower.
7.16 Civil Code Section 2822. In the event that at any time, a surety is liable
upon only a portion of Borrower's obligations under the Loan Documents and
Borrower provides partial satisfaction of any such obligation(s), Borrower
hereby waives any right it would otherwise have, under Section 2822 of the
California Civil Code, to designate the portion of the obligations to be
satisfied. The designation of the portion of the obligation to be satisfied
shall, to the extent not expressly made by the terms of the Loan Documents, be
made by the Bank rather than Borrower.
7.17 JURY WAIVER. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE
BORROWER AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY, AND
AFTER AN OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL, (A) WAIVE ANY AND ALL RIGHTS
TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING IN CONNECTION WITH THIS
AGREEMENT, THE OBLIGATIONS, ALL MATTERS CONTEMPLATED HEREBY AND DOCUMENTS
EXECUTED IN CONNECTION HEREWITH AND (B) AGREE NOT TO SEEK TO CONSOLIDATE ANY
SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE, OR HAS NOT
BEEN, WAIVED. THE BORROWER CERTIFIES THAT NEITHER THE BANK NOR ANY OF ITS
REPRESENTATIVES, AGENTS OR COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
THE BANK WOULD NOT IN THE EVENT OF ANY SUCH PROCEEDING SEEK TO ENFORCE THIS
WAIVER OF RIGHT TO TRIAL BY JURY.
7.18 ARBITRATION. ARBITRATION. IN THE EVENT THAT THE JURY WAIVER SET FORTH ABOVE
IS JUDICIALLY DETERMINED TO NOT BE PERMITTED BY LAW, THE PARTIES AGREE TO
ATTEMPT IN GOOD FAITH TO RESOLVE ANY DISPUTES WHICH MAY ARISE AMONG THEM IN
17
CONNECTION WITH THE INTERPRETATION OR ENFORCEMENT OF THE PROVISIONS OF THIS
AGREEMENT, OR THE APPLICATION OR VALIDITY THEREOF. IN THE EVENT THAT ANY DISPUTE
CANNOT BE SO RESOLVED, AND UNLESS THE RELIEF SOUGHT REQUIRES THE EXERCISE OF THE
EQUITY POWERS OF A COURT OF COMPETENT JURISDICTION, SUCH DISPUTE SHALL BE
SUBMITTED TO ARBITRATION. SUCH ARBITRATION PROCEEDINGS SHALL BE HELD IN THE
COUNTY OF SANTA BARBARA, CALIFORNIA, IN ACCORDANCE WITH THE ARBITRATION
PROVISIONS OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. THIS AGREEMENT TO
ARBITRATE SHALL BE SPECIFICALLY ENFORCEABLE. ANY AWARD RENDERED IN ANY SUCH
ARBITRATION PROCEEDINGS SHALL BE FINAL AND BINDING ON EACH OF THE PARTIES
HERETO, AND JUDGEMENT MAY BE ENTERED THEREON IN ANY COURT OF COMPETENT
JURISDICTION.
Executed as of MAY 2, 2005.
Borrower:
Photonic Detectors, Inc.
By: /s/ XXXXXXX X. XXXXX
----------------------------
Xxxxxxx X. Xxxxx,
Chief Executive Officer
Accepted: Pacific Capital Bank, N.A.
By: /s/ XXXXX XXXXXX
-------------------------------------
Name: Xxxxx Xxxxxx
Title: Vice President
18
EXHIBIT A TO LOAN AND SECURITY AGREEMENT OF
PHOTONIC DETECTORS, INC.
1. Subsidiaries: None
2. Consolidations, Mergers and Acquisitions: None
19
EXHIBIT B LOAN AND SECURITY AGREEMENT OF
PHOTONIC DETECTORS, INC.
1. Liens:
(a) Smithfield Fiduciary, LLC, acting as collateral agent on
behalf of the other investors in connection with the private
placement which closed on October 12, 2004, has a first
priority security interest in all of the assets of Advanced
Photonix, Inc., except as set forth in that certain
Subordination and Intercreditor Agreement between Pacific
Capital Bank, N.A. and Smithfield Fiduciary, LLC.
(b) Xxxxx Xxxxxx and Xxxxxx Xxxxxxxxxx have a first priority
security interest in all of the intellectual property of
Michigan Acquisition Sub, LLC.
20
