THIRD AMENDMENT TO FINANCING AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO FINANCING AND SECURITY AGREEMENT (this
"Agreement") is made as of the 31st day of August, 2004, by and among Argan,
Inc. (formerly Puroflow Incorporated)("Argan"), a corporation organized and in
good standing under the laws of the State of Delaware, Southern Maryland Cable,
Inc. ("SMC"), a corporation organized and in good standing under the laws of the
State of Delaware, and AGAX/VLI Acquisition CORPORATION ("AGAX/VLI
Acquisition"), a corporation organized and in good standing under the laws of
the State of Delaware, jointly and severally (each a "Borrower"; and
collectively, the "Borrowers") and BANK OF AMERICA, N.A., a national banking
association, its successors and assigns (the "Lender").
RECITALS
A. Argan and SMC (the "Original Borrowers") and the Lender entered into a
Financing and Security Agreement dated as of August 19, 2003 (the same, as
amended, modified, substituted, extended, and renewed from time to time, the
"Financing Agreement").
B. The Financing Agreement provides for some of the agreements between the
Original Borrowers and the Lender with respect to the Loans (as defined in the
Financing Agreement), including a revolving credit facility in an amount not to
exceed $1,750,000 and a term loan facility in an amount not to exceed
$1,200,000.
C. Xxxxx Xxxxxx and Xxx Xxxxxx (the "Stockholders"), Argan, VITARICH
LABORATORIES, INC., a corporation organized under the laws of the State of
Florida ("VLI") and AGAX/VLI Acquisition have entered into an Agreement and Plan
of Merger, dated August 31, 2004 (the "Merger Agreement"), pursuant to which
Argan will acquire VLI by means of a merger of VLI with and into AGAX/VLI
Acquisition (the "Merger"). Argan has requested that the Lender finance a
portion of the Merger. The Lender has agreed to do so, on the condition, among
others, that this Agreement be executed.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, receipt of which is hereby acknowledged, the Borrowers
and the Lender agree as follows:
1. Recitals. The Borrowers and the Lender agree that the Recitals above
are a part of this Agreement. Unless otherwise expressly defined in this
Agreement, terms defined in the Financing Agreement shall have the same meaning
under this Agreement.
2. Representations and Warranties. The Borrowers represent and warrant to
the Lender as follows:
(a) Each Borrower is a corporation duly organized, validly existing and in
good standing under the laws of their respective state of incorporation set
forth above and is duly qualified to do business as a foreign corporation in
good standing in every other state wherein the conduct of its business or the
ownership of its property requires such qualification;
(b) Each Borrower has the power and authority to execute and deliver this
Agreement and perform its obligations hereunder and has taken all necessary and
appropriate action to authorize the execution, delivery and performance of this
Agreement;
(c) The Financing Agreement, as heretofore amended and as amended by this
Agreement, and each of the other Financing Documents remains in full force and
effect, and each constitutes the valid and legally binding obligation of each
Borrower, enforceable in accordance with its terms;
(d) All of Borrowers' representations and warranties contained in the
Financing Agreement and the other Financing Documents are true and correct on
and as of the date of Borrowers' execution of this Agreement; and
(e) No Event of Default and no event which, with notice, lapse of time or
both would constitute an Event of Default, has occurred and is continuing under
the Financing Agreement or the other Financing Documents which has not been
waived in writing by the Lender.
3. Certain Defined Terms. The following definitions are hereby added to
Section 1.1 of the Financing Agreement as follows:
"Borrowing Base" has the meaning described in Section 2.1.8
(Borrowing Base).
"Borrowing Base Deficiency" has the meaning described in Section
2.1.8 (Borrowing Base).
"Borrowing Base Report" has the meaning described in Section 2.1.9
(Borrowing Base Report).
"Eligible Inventory" means the collective reference to all Inventory
of each Borrower held for sale in the ordinary course of business, valued at the
lowest of the net purchase cost or realizable value with respect to raw
materials and the lowest of the net manufacturing cost or realizable value with
respect to finished goods inventory, excluding, however, any Inventory which
consists of:
(i) any Inventory located outside of the United States;
(ii) any Inventory in which the Lender has not properly and
unavoidably perfected the Liens of the Lender under this Agreement;
(iii) any Inventory not in the actual possession of a Borrower,
except to the extent provided in subsection (iv) below;
(iv) any Inventory in the possession of a bailee, warehouseman,
consignee or similar third party, except to the extent that such bailee,
warehouseman, consignee or similar third party has entered into an agreement
with the Lender in which such bailee, warehouseman, consignee or similar third
party consents and agrees to the Lender's Lien on such Inventory and to such
other terms and conditions as may be required by the Lender;
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(v) any Inventory located on premises leased or rented to a Borrower
or otherwise not owned by a Borrower, unless the Lender has received a waiver
and consent from the lessor, landlord and/or owner, in form and substance
satisfactory to the Lender and from any mortgagee of such lessor, landlord or
owner to the extent required by the Lender;
(vi) any Inventory the sale or other disposition of which has given
rise to a Receivable;
(vii) any Inventory which fails to meet all standards and
requirements imposed by any Governmental Authority over such Inventory or its
production, storage, use or sale;
(viii) work-in-process, supplies, displays, packaging and
promotional materials;
(ix) any Inventory as to which the Lender determines in the exercise
of its sole and absolute discretion at any time and in good faith is not in good
condition or is defective, unmerchantable, post-seasonal, slow moving or
obsolete; and
(x) any Inventory which the Lender in the good faith exercise of its
sole and absolute discretion has deemed to be ineligible because the Lender in
good faith, otherwise considers the collateral value to the Lender to be
impaired or its ability to realize such value to be insecure.
In the event of any dispute under the foregoing criteria, as to
whether Inventory is, or has ceased to be, Eligible Inventory, the decision of
the Lender in the good faith exercise of its sole and absolute discretion shall
control.
"Eligible Receivable" and "Eligible Receivables" mean, at any time
of determination thereof, the unpaid portion of each account (net of any
returns, discounts, claims, credits, charges, accrued rebates or other
allowances, offsets, deductions, counterclaims, disputes or other defenses and
reduced by the aggregate amount of all reserves, limits and deductions provided
for in this definition and elsewhere in this Agreement) receivable in United
States Dollars by a Borrower, provided each account conforms and continues to
conform to the following criteria to the satisfaction of the Lender:
(a) the account arose in the ordinary course of a Borrower's business from
a bona fide outright sale of Inventory by such Borrower or from services
performed by such Borrower;
(b) the account is a valid, legally enforceable obligation of the Account
Debtor and requires no further act on the part of any Person under any
circumstances to make the account payable by the Account Debtor;
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(c) the account is based upon an enforceable order or contract, written or
oral, for Inventory shipped or for services performed, and the same were shipped
or performed in accordance with such order or contract;
(d) if the account arises from the sale of Inventory, the Inventory the
sale of which gave rise to the account has been shipped or delivered to the
Account Debtor on an absolute sale basis and not on a xxxx and hold sale basis,
a consignment sale basis, a guaranteed sale basis, a sale or return basis, or on
the basis of any other similar understanding;
(e) if the account arises from the performance of services, such services
have been fully rendered and do not relate to any warranty claim or obligation;
(f) the account is evidenced by an invoice or other documentation in form
acceptable to the Lender, dated no later than the date of shipment or
performance and containing only terms normally offered by the respective
Borrower;
(g) the amount shown on the books of a Borrower and on any invoice,
certificate, schedule or statement delivered to the Lender is owing to such
Borrower and no partial payment has been received unless reflected with that
delivery;
(h) the account is not outstanding more than ninety (90) days from the
date of the invoice therefore;
(i) the account is not owing by any Account Debtor for which the Lender
has deemed fifty percent (50%) or more of such Account Debtor's other accounts
(or any portion thereof) due to a Borrower, individually, or all of the
Borrowers collectively, to be non-Eligible Receivables;
(j) to the extent such account is owing by an Account Debtor or a group of
affiliated Account Debtors then existing accounts to all of the Borrowers
collectively exceed in aggregate face amount twenty five percent (25%) of the
total Eligible Receivables of all Borrowers Receivables, the accounts in excess
of twenty five percent (25%) shall not be Eligible Receivables;
(k) the Account Debtor has not returned, rejected or refused to retain, or
otherwise notified a Borrower of any dispute concerning, or claimed
nonconformity of, any of the Inventory or services from the sale or furnishing
of which the account arose;
(l) the account is not subject to any present or contingent (and no facts
exist which are the basis for any future) offset, claim, deduction or
counterclaim, dispute or defense in law or equity on the part of such Account
Debtor, or any claim for credits, allowances, or adjustments by the Account
Debtor because of returned, inferior, or damaged Inventory or unsatisfactory
services, or for any other reason including, without limitation, those arising
on account of a breach of any express or implied representation or warranty;
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(m) the Account Debtor is not a Subsidiary or Affiliate of any Borrower or
an employee, officer, director or shareholder (other than Xxxxx Xxxxxx), of any
Borrower or any Subsidiary or Affiliate of any Borrower;
(n) the Account Debtor is not incorporated or primarily conducting
business or otherwise located in any jurisdiction outside of the United States
of America, unless the Account Debtor's obligations with respect to such account
are secured by a letter of credit, guaranty or banker's acceptance having terms
and from such issuers and confirmation banks as are acceptable to the Lender in
its sole and absolute discretion (which letter of credit, guaranty or banker's
acceptance is subject to the perfected Lien of the Lender);
(o) as to which none of the following events has occurred with respect to
the Account Debtor on such Account: death or judicial declaration of
incompetency of an Account Debtor who is an individual; the filing by or against
the Account Debtor of a request or petition for liquidation, reorganization,
arrangement, adjustment of debts, adjudication as a bankrupt, winding-up, or
other relief under the bankruptcy, insolvency, or similar laws of the United
States, any state or territory thereof, or any foreign jurisdiction, now or
hereafter in effect; the making of any general assignment by the Account Debtor
for the benefit of creditors; the appointment of a receiver or trustee for the
Account Debtor or for any of the assets of the Account Debtor, including,
without limitation, the appointment of or taking possession by a "custodian," as
defined in the Federal Bankruptcy Code; the institution by or against the
Account Debtor of any other type of insolvency proceeding (under the bankruptcy
laws of the United States or otherwise) or of any formal or informal proceeding
for the dissolution or liquidation of, settlement of claims against, or winding
up of affairs of, the Account Debtor; the sale, assignment, or transfer of all
or any material part of the assets of the Account Debtor; the nonpayment
generally by the Account Debtor of its debts as they become due; or the
cessation of the business of the Account Debtor as a going concern;
(p) the Account Debtor is not a Governmental Authority, unless all rights
of each Borrower with respect to such account have been assigned to the Lender
on terms acceptable to the Lender pursuant to the Assignment of Claims Act of
1940, as amended or any comparable state statute;
(q) no Borrower is indebted in any manner to the Account Debtor (as
creditor, lessor, supplier or otherwise), with the exception of customary
credits, adjustments and/or discounts given to an Account Debtor by a Borrower
in the ordinary course of its business;
(r) the account does not arise from services under or related to any
warranty obligation of a Borrower or out of service charges, finance charges or
other fees for the time value of money;
(s) the account is not evidenced by chattel paper or an instrument of any
kind;
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(t) the title of the respective Borrower to the account is absolute and is
not subject to any prior assignment, claim, Lien, or security interest, except
Permitted Liens;
(u) no bond or other undertaking by a guarantor or surety has been or is
required to be obtained, supporting the performance of any Borrower or any other
obligor in respect of any of such Borrower's agreements with the Account Debtor
or supporting the account and any of the Account Debtor's obligations in respect
of the account;
(v) each Borrower has the full and unqualified right and power to assign
and grant a security interest in, and Lien on, the account to the Lender as
security and collateral for the payment of the Obligations;
(w) the account is subject to a Lien in favor of the Lender, which Lien is
perfected as to the account by the filing of financing statements and which Lien
upon such filing constitutes a first priority security interest and Lien;
(x) the Inventory giving rise to the account was not, at the time of the
sale thereof, subject to any Lien, except those in favor of the Lender;
(y) the part of the account which represents a retainage shall be excluded
from Eligible Accounts, and to the extent any part of an account represents a
progress billing the Lender reserves the right to among other things, exclude
such account or to lower the advance rate of Eligible Accounts, or limit the
amount of loans which can be made against progress xxxxxxxx, based on the
results of a field exam; and
(z) the Lender in the good faith exercise of its sole and absolute
discretion has not deemed the account ineligible because of uncertainty as to
the creditworthiness of the Account Debtor or because the Lender otherwise
considers the collateral value of such account to the Lender to be impaired or
its ability to realize such value to be insecure.
In the event of any dispute, under the foregoing criteria, as to whether
an account is, or has ceased to be, an Eligible Receivable, the decision of the
Lender in the good faith exercise of its sole and absolute discretion shall
control.
"Merger Agreement" means that certain agreement and plan of merger dated
August ___, 2004 by and among the Stockholders named therein, VLI, Argan and
AGAX/VLI Acquisition.
"Merger Agreement Documents" means collectively the Merger Agreement and
any and all other agreements, documents or instruments (together with any and
all amendments, modifications, and supplements thereto, restatements thereof,
and substitutes therefore) previously, now or hereafter executed and delivered
by any or all of the Borrowers, the Stockholders, or any other Person in
connection with the Merger Agreement Transaction.
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"Merger Agreement Transaction" means the stock purchase agreement
transaction contemplated by the provisions of the Merger Agreement.
4. Revised Terms. The following definitions in Section 1.1 of the
Financing Agreement are amended and restated in their entirety as follows:
"Responsible Officer" means for Argan, Xxxxxx Xxxxxxxxxx, President,
Xxxxxxx Xxxxxx, Executive Vice President, Art Xxxxxx, Senior Vice President and
CFO, for SMC, Xxxxxxx Xxxxxx, Vice President and Secretary and Art Xxxxxx, Vice
President and Treasurer and for AGAX/VLI Acquisition, Xxxxxx Xxxxxxxxxx,
Chairman of the Board, Art Xxxxxx, Vice President or Treasurer and Xxxxxxx
Xxxxxx as V.P. or Secretary.
"Revolving Credit Expiration Date" means May 31, 2005.
5. Revolving Credit Facility. Section 2.1.1 of the Financing Agreement is
hereby amended and restated in its entirety as follows:
2.1.1 Revolving Credit Facility.
Subject to and upon the provisions of this Agreement, the Lender
establishes a revolving credit facility in favor of the Borrowers. The aggregate
of all advances under the Revolving Credit Facility is sometimes referred to in
this Agreement as the "Revolving Loan".
The principal amount of Three Million Five Hundred Thousand Dollars
($3,500,000) is the "Revolving Credit Committed Amount".
During the Revolving Credit Commitment Period, any or all of the
Borrowers may request advances under the Revolving Credit Facility in accordance
with the provisions of this Agreement; provided that after giving effect to any
Borrower's request the aggregate outstanding principal balance of the Revolving
Loan would not exceed the lesser of (a) the Revolving Credit Committed Amount or
(b) the then most current Borrowing Base.
Unless sooner paid, the unpaid Revolving Loan, together with
interest accrued and unpaid thereon, and all other Obligations shall be due and
payable in full on the Revolving Credit Expiration Date.
6. Procedure for Making Advances Under the Revolving Loan; Lender
Protection Loans. Section 2.1.2 of the Financing Agreement is hereby amended and
restated in its entirety as follows:
2.1.2 Procedure for Making Advances Under the Revolving Loan; Lender
Protection Loans.
The Borrowers may borrow under the Revolving Credit Facility on any
Business Day. Advances under the Revolving Loan shall be deposited to a demand
deposit account of a Borrower with the Lender (or an Affiliate of the Lender) or
shall be otherwise applied as directed by the Borrowers, which direction the
Lender may require to be in writing. No later than 11:00 a.m. (Eastern Time) on
the date of the requested borrowing, the Borrowers shall give the Lender oral or
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written notice (a "Loan Notice") of the amount and (if requested by the Lender)
the purpose of the requested borrowing. Any oral Loan Notice shall be confirmed
in writing by the Borrowers within three (3) Business Days after the making of
the requested advance under the Revolving Loan. Each Loan Notice shall be
irrevocable.
In addition, each of the Borrowers hereby irrevocably authorizes the
Lender at any time and from time to time, without further request from or notice
to the Borrowers, to make advances under the Revolving Loan, and to establish,
without duplication reserves against the Borrowing Base, which the Lender, in
its sole and absolute discretion, deems necessary or appropriate to protect the
interests of the Lender, including, without limitation, advances and reserves
under the Revolving Loan made to cover debit balances in the Revolving Loan
Account, principal of, and/or interest on, any Loan, the Obligations, and/or
Enforcement Costs, prior to, on, or after the termination of other advances
under this Agreement, regardless of whether the outstanding principal amount of
the Revolving Loan that the Lender may advance or reserve hereunder exceeds the
Revolving Credit Committed Amount. Notwithstanding the foregoing, prior to the
occurrence of any Default, the Lender will provide notice of any advances made
under the Revolving Loan pursuant to this provision.
7. Borrowing Base. The following Sections are hereby added to the
Financing Agreement immediately after Section 2.1.7 as Sections 2.1.8 through
2.1.11:
2.1.8 Borrowing Base
As used in this Agreement, the term "Borrowing Base" means at any
time, an amount equal to the aggregate of (a) eighty percent (80%) of the amount
of Eligible Receivables, plus (b) fifty percent (50%) of the amount of Eligible
Inventory.
The Borrowing Base shall be computed based on the Borrowing Base
Report most recently delivered to and accepted by the Lender in its sole and
absolute discretion. In the event the Borrowers fail to furnish a Borrowing Base
Report required by Section 2.1.9 (Borrowing Base Report), or in the event the
Lender believes that a Borrowing Base Report is no longer accurate, the Lender
may, in its sole and absolute discretion exercised from time to time and without
limiting its other rights and remedies under this Agreement, suspend the making
of or limit advances under the Revolving Loan. The Borrowing Base shall be
subject to reduction by the amount of any Receivable or any Inventory which was
included in the Borrowing Base but which the Lender determines fails to meet the
respective criteria applicable from time to time for Eligible Receivables or
Eligible Inventory.
If at any time the total of the aggregate principal amount of the
Revolving Loan exceeds the Borrowing Base, a borrowing base deficiency
("Borrowing Base Deficiency") shall exist. Each time a Borrowing Base Deficiency
exists, the Borrowers at the sole and absolute discretion of the Lender
exercised from time to time shall pay the Borrowing Base Deficiency ON DEMAND to
the Lender.
Without implying any limitation on the Lender's discretion with
respect to the Borrowing Base, the criteria for Eligible Receivables and for
Eligible Inventory contained in the respective definitions of Eligible
Receivables and of Eligible Inventory are in part based upon the business
operations of the Borrowers existing on or about the Closing Date and upon
information and records furnished to the Lender by the Borrowers. If at any time
or from time to time
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hereafter, the business operations of the Borrowers change or such information
and records furnished to the Lender is incorrect or misleading, the Lender in
its discretion, may at any time and from time to time during the duration of
this Agreement change such criteria or add new criteria. The Lender may
communicate such changed or additional criteria to the Borrowers from time to
time either orally or in writing.
2.1.9 Borrowing Base Report
The Borrowers will furnish to the Lender no less frequently than
monthly and at such other times as may be requested by the Lender a report of
the Borrowing Base (each a "Borrowing Base Report"; collectively, the "Borrowing
Base Reports") in the form required from time to time by the Lender,
appropriately completed and duly signed. The Borrowing Base Report shall contain
the amount and payments on the Receivables, the value of Inventory, and the
calculations of the Borrowing Base, all in such detail, and accompanied by such
supporting and other information, as the Lender may from time to time request.
Upon the Lender's request and upon the creation of any Receivables, or at such
other intervals as the Lender may require, the Borrowers will provide the Lender
with (a) copies of Account Debtor invoices; (b) evidence of shipment or
delivery; and (c) such further schedules, documents and/or information regarding
the Receivables and the Inventory as the Lender may reasonably require. The
items to be provided under this subsection shall be in form satisfactory to the
Lender, and certified as true and correct by a Responsible Officer (or by any
other officers or employees of the Borrower whom a Responsible Officer from time
to time authorizes in writing to do so), and delivered to the Lender from time
to time solely for the Lender's convenience in maintaining records of the
Collateral. Any Borrower's failure to deliver any of such items to the Lender
shall not affect, terminate, modify, or otherwise limit the Liens of the Lender
on the Collateral.
2.1.10 Mandatory Prepayments of Revolving Loan.
The Borrowers shall make the mandatory prepayments (each a
"Revolving Loan Mandatory Prepayment" and collectively, the "Revolving Loan
Mandatory Prepayments") of the Revolving Loan at any time and from time to time
in such amounts requested by the Lender pursuant to Section 2.1.8 (Borrowing
Base) in order to cover any Borrowing Base Deficiency.
2.1.11 The Collateral Account.
If the Lender requests, the Borrowers will deposit, or cause to be
deposited, all Items of Payment to a bank account designated by the Lender and
from which the Lender alone has power of access and withdrawal (the "Collateral
Account"). When a Collateral Account is in existence, each deposit shall be made
not later than the next Business Day after the date of receipt of the Items of
Payment. The Items of Payment shall be deposited in precisely the form received,
except for the endorsements of the Borrowers where necessary to permit the
collection of any such Items of Payment, which endorsement the Borrowers hereby
agree to make. In the event the Borrowers fail to do so, the Borrowers hereby
authorize the Lender to make the endorsement in the name of any or all of the
Borrowers. During any period when a Collateral Account is in place, prior to
such a deposit, the Borrowers will not commingle any Items of Payment with any
of the Borrowers' other funds or property, but will hold them separate and apart
in trust and for the account of the Lender.
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In addition, if so directed by the Lender, the Borrowers shall
direct the mailing of all Items of Payment from their Account Debtors to one or
more post-office boxes designated by the Lender, or to such other additional or
replacement post-office boxes pursuant to the request of the Lender from time to
time (collectively, the "Lockbox"). The Lender shall have unrestricted and
exclusive access to the Lockbox.
After a Collateral Account is established, tithe Borrowers hereby
authorize the Lender to inspect all Items of Payment, endorse all Items of
Payment in the name of any or all of the Borrowers, and deposit such Items of
Payment in the Collateral Account. The Lender reserves the right, exercised in
its sole and absolute discretion from time to time, to provide to the Collateral
Account credit prior to final collection of an Item of Payment and to disallow
credit for any Item of Payment which is unsatisfactory to the Lender. In the
event Items of Payment are returned to the Lender for any reason whatsoever, the
Lender may, in the exercise of its discretion from time to time, forward such
Items of Payment a second time. Any returned Items of Payment shall be charged
back to the Collateral Account, the Revolving Loan Account, or other account, as
appropriate.
The Lender will apply the whole or any part of the collected funds
credited to the Collateral Account against the Revolving Loan (or with respect
to Items of Payment that are not proceeds of Accounts or Inventory or after an
Event of Default, against any of the Obligations) or credit such collected funds
to a depository account of any or all of the Borrowers with the Lender (or an
Affiliate of the Lender), the order and method of such application to be in the
sole discretion of the Lender. On the first day of each month, the Borrowers
shall pay the Lender an amount equal to the additional interest which would have
accrued on the Revolving Loan during the preceding month if collections in the
Collateral Account during the month had been received two (2) Business Days
subsequent to their actual receipt; any resulting increase in the amount of
interest payable by the Borrowers shall be part of the Obligations.
8. Compliance with Eligibility Standards. The following Section is added
to the Financing Agreement immediately after Section 4.1.28 as Section 4.1.29:
4.1.29 Compliance with Eligibility Standards.
Each Account and all Inventory included in the calculation of the
Borrowing Base does and will at all times meet and comply with all of the
standards for Eligible Receivables and Eligible Inventory. With respect to those
Accounts which the Lender has deemed Eligible Receivables (a) there are no
facts, events or occurrences which in any way impair the validity,
collectibility or enforceability thereof or tend to reduce the amount payable
thereunder; and (b) there are no proceedings or actions known to any Borrower
that are threatened or pending against any Account Debtor which might result in
any material adverse change in the Borrowing Base.
9. Monthly Reports The following Section is added to the Financing
Agreement immediately after Section 6.1.1(d):
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6.1.1(e) Monthly Reports
The Borrowers shall furnish to the Lender within twenty (20) days
after the end of each fiscal month, a Borrowing Base Report and a report
containing the following information:
(i) a detailed aging schedule of all Receivables by Account
Debtor, in such detail, and accompanied by such supporting information, as the
Lender may from time to time reasonably request;
(ii) a detailed aging of all accounts payable by supplier, in
such detail, and accompanied by such supporting information, as the Lender may
from time to time reasonably request;
(iii) a listing of all Inventory by component, category and
location, in such detail, and accompanied by such supporting information as the
Lender may from time to time reasonably request; and
(iv) such other information as the Lender may reasonably
request.
10. Financial Covenants Section 6.1.14 of the Financing Agreement is
hereby amended and restated in its entirety as follows:
6.1.14 Financial Covenants.
(a) Funded Debt to EBITDA. The Borrowers, on a consolidated basis,
will not permit the ratio of Funded Debt to EBITDA tested as of the last day of
each of the Borrowers' fiscal quarters to be greater than 2.50 to 1.00 beginning
with the fiscal quarter ending January 31, 2005. For the fiscal quarter ending
January 31, 2005, this covenant shall be calculated by annualizing the EBITDA
component for the prior two (2) fiscal quarters. For the quarter ending April
30, 2005, this covenant shall be calculated by annualizing the EBITDA component
for the fiscal quarter then ending and the immediately preceding three (3)
fiscal quarters and commencing on July 31, 2005 and thereafter, this covenant
shall be calculated based on the four (4) quarter period then ending.
(b) Fixed Charge Coverage Ratio. The Borrowers will maintain, on a
consolidated basis and tested as of the last day of each of the Borrowers'
fiscal quarters, a Fixed Charge Coverage Ratio of not less than 1.25 to 1.00
beginning with the fiscal quarter ending January 31, 2005. For the fiscal
quarter ending January 31, 2005, this covenant shall be calculated by
annualizing the EBITDA component of the Fixed Charge Coverage Ratio for the
prior two (2) fiscal quarters. For the quarter ending April 30, 2005, this
covenant shall be calculated by annualizing the EBITDA component of the Fixed
Charge Coverage Ratio for the prior three (3) fiscal quarters and commencing on
July 31, 2005 and thereafter, this covenant shall be calculated based on the
four (4) quarter period then ending.
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11. Minimum Liquidity and Positive Net Income Covenants. The Minimum
Liquidity and Positive Net Income covenants set forth in that certain Second
Amendment To Financing and Security Agreement made as of the 29th day of June,
2004 by and among Argan, SMC and the Lender are hereby deleted in their
entirety.
12. Field Audit, Financials. The Borrowers agree that as soon as
available, but in no event later than October 15, 2004:
(a) The Lender shall have completed, at Borrowers' expense, a field
audit of the Collateral and the books and records of AGAX/VLI Acquisition, the
results of which must be satisfactory to the Lender in all material respects;
and
(b) The Borrower's shall have provided to the Lender a current
balance sheet of AGAX/VLI Acquisition, all in form and detail satisfactory to
the Lender.
(c) Upon receipt and review of the results of the field examination
provided in (a) above, provided such results are satisfactory to the Lender and
further provided that any changes or adjustments which the Lender requires as a
result of such examination have been fully implemented by Borrower, the Lender
will release its lien on that certain $300,000 certificate of deposit previously
pledged by the Borrowers to the Lender as collateral security for the Borrower's
obligations under the Term Loan.
13. Representations with Respect to Merger Agreement Transaction.
The Lender has received true and correct photocopies of the Merger
Agreement and each of the other Merger Agreement Documents, executed, delivered
and/or furnished on or before the date of this Agreement in connection with the
Merger Agreement Transaction. Neither the Merger Agreement nor any of the other
Merger Agreement Documents have been modified, changed, supplemented, canceled,
amended or otherwise altered or affected, except as otherwise disclosed to the
Lender in writing on or before the date of this Agreement. The Merger Agreement
Transaction has been effected, closed and consummated pursuant to, and in
accordance with, the terms and conditions of the Merger Agreement and with all
applicable Laws.
14. Fee. In consideration of the Bank's modifications described above, the
Borrowers shall pay to the Lender upon the date of this Agreement, a
nonrefundable fee, in the amount of Twenty Thousand Dollars ($20,000). The fee
is considered earned when paid and is not refundable.
15. Conditions Precedent. The agreements of the Lender under this
Agreement are subject to the following conditions precedent:
(a) An Amended and Restated Revolving Credit Note (the "Replacement
Revolving Note") issued and delivered by the Borrowers in the form of EXHIBIT A_
attached hereto and incorporated herein by reference, payable to the order of
the Bank in the maximum principal amount of Three Million Five Hundred Thousand
Dollars ($3,500,000);
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(b) A First Amendment to Term Note (the "Term Note Modification")
issued and delivered by the Borrowers in the form of EXHIBIT B_, and dated as of
June 29, 2004 attached hereto and incorporated herein by reference;
(c) An Additional Borrower Joinder Supplement from AGAX/VLI
Acquisition (the "Joinder"), together with all documents, instruments and
deliveries required pursuant to such Additional Borrower Joinder Supplement;
(d) The Lender shall have received photocopies of all Merger
Agreement Documents executed, delivered and/or furnished in connection with the
Merger Agreement Transaction, together with a certificate signed by a
Responsible Officer of each of the Borrowers certifying that the Merger
Agreement and the other Merger Agreement Documents furnished to the Lender are
true, correct, in full force and effect and the provisions thereof have not been
in any way modified, amended or waived, the Merger Agreement Transaction has
been closed and completed in accordance with the Merger Agreement and the other
Merger Agreement Documents furnished to the Lender and in accordance with all
applicable Laws, including, any and all bulk transfer laws, the Borrowers have
given public notice of their obligation to pay the obligations and liabilities
assumed by the Borrowers under, and in connection with, the Merger Agreement in
accordance with the provisions of Article 6 of the Uniform Commercial Code, the
Borrowers have obtained all consents, licenses and approvals to permit it to
engage in the business previously operated and conducted by the Seller, and the
Seller has duly and properly assigned to the Borrowers all of its right, title
and interest in, and to, any and all Trademarks, Copyrights and Patents,
together with the goodwill of the Seller associated with, and/or symbolized by,
any of the foregoing, and such assignment has been duly and properly filed,
registered and recorded with the United States Patent and Trademark Office, the
United States Copyright Office and with such other state or Federal Governmental
Authorities as may be necessary to effect and consummate an assignment of such
Trademarks, Copyrights and Patents, together with the goodwill associated with,
or symbolized by any of the foregoing from the Seller to the Borrowers;
(e) True and complete copies of the resolutions of AGAX/VLI
Acquisition and Argan's Board of Directors authorizing (A) the execution,
delivery and performance of this Agreement and the Merger Agreement Documents to
which it is a party, (B) the borrowings hereunder, and (C) the granting of the
Liens contemplated by this Agreement and the Joinder to which it is a party and
(E) the Merger Agreement Transaction;
(f) The Lender shall have received copies of all consents, licenses
and approvals, required in connection with the execution, delivery, performance,
validity and enforceability of this Agreement, the Joinder, the Merger Agreement
Documents, and such consents, licenses and approvals shall be in full force and
effect;
(g) All documents and instruments (including, without limitation,
UCC-1 financing statements and UCC-3 termination statements) required to be
filed, registered or recorded in order to create, in favor of the Lender, a
perfected first Lien in the Collateral (subject only to the Permitted Liens), in
form and in sufficient number for filing, registration, and recording in each
office in each jurisdiction in which such filings, registrations and
recordations are required, along with such evidence as the Lender may deem
satisfactory that all necessary filing fees and all recording and other similar
fees, and all taxes and other expenses related to such filings, registrations
and recordings will be or have been paid in full;
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(h) Payment of the fees described in Paragraph 11 of this Agreement,
together with the Lender's legal fees and expenses; and
(i) Such other information, instruments, opinions, documents,
certificates and reports as the Lender may deem necessary.
16. Replacement Revolving Credit Note. The Borrowers shall execute and
deliver to the Lender on the date hereof the Replacement Revolving Note in
substitution for and not satisfaction of, the issued and outstanding Revolving
Credit Note, and the Replacement Revolving Note shall be the "Revolving Credit
Note" for all purposes of the Financing Documents. The Note being substituted
pursuant to this Agreement shall be marked "Replaced" and returned to the
Original Borrowers after the execution.
17. Ratification; Novation. Each Borrower hereby issues, ratifies and
confirms the representations, warranties and covenants contained in the
Financing Agreement, as amended hereby. Each Borrower agrees that this Agreement
is not intended to and shall not cause a novation with respect to any or all of
the Obligations.
18. Fees and Expenses. The Borrowers shall pay at the time this Agreement
is executed and delivered all fees, commissions, costs, charges, taxes and other
expenses incurred by the Lender and its counsel in connection with this
Agreement, including, but not limited to reasonable fees and expenses of the
Lender's counsel and all recording fees, taxes and charges.
19. Good Faith. Each Borrower acknowledges and warrants that the Lender
has acted in good faith and has conducted in a commercially reasonable manner
its relationships with the Borrowers in connection with this Agreement and
generally in connection with the Financing Agreement and the Obligations, the
Borrowers hereby waiving and releasing any claims to the contrary.
20. Counterparts. This Agreement may be executed in any number of
duplicate originals or counterparts, each of such duplicate originals or
counterparts shall be deemed to be an original and all taken together shall
constitute but one and the same instrument. Each Borrower agrees that the Lender
may rely on a telecopy of any signature of a Borrower. The Lender agrees that
the Borrowers may rely on a telecopy of this Agreement executed by the Lender.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
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IN WITNESS WHEREOF, the Borrowers and the Lender have executed this
Agreement under seal as of the date and year first written above.
WITNESS OR ATTEST: ARGAN, INC.
_________________________ By:______________________(SEAL)
Name:
Title:
WITNESS OR ATTEST: SOUTHERN MARYLAND CABLE, INC.
_________________________ By:______________________(SEAL)
Name:
Title:
WITNESS OR ATTEST: AGAX/VLI ACQUISITION CORPORATION
_________________________ By:______________________(SEAL)
Name:
Title:
WITNESS: BANK OF AMERICA, N.A.
_________________________ By:______________________(SEAL)
Name:
Title:
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