EXHIBIT 10.7
AMENDED AND RESTATED ACCOUNTS RECEIVABLE AND INVENTORY LOAN AGREEMENT
This Agreement ("Agreement") is entered into as of April 21, 1997, by and
between SIGNATURE EYEWEAR, INC., a California corporation ("Borrower"), and CITY
NATIONAL BANK, a national banking association ("CNB") and supersedes and
replaces in its entirety that certain Amended and Restated Accounts Receivable
and Inventory Loan Agreement dated as of April 22, 1996, as amended from time to
time, between Borrower and CNB.
1. DEFINITIONS. As used in this Agreement, these terms have the following
meanings:
1.1 "ACCOUNT" or "ACCOUNTS" means any right to payment for goods sold or
leased or for services rendered which is not evidenced by an instrument or
chattel paper from any Person, whether now existing or hereafter arising or
acquired, whether or not it has been earned by performance.
1.2 "ACCOUNT DEBTOR" means the Person obligated on an Account.
1.3 "AFFILIATE" means any Person directly or indirectly controlling,
controlled by, or under common control with Borrower, and includes any employee
stock ownership plan of Borrower or an Affiliate. "Control" (including with
correlative meaning, the terms "controlling," "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities, by
contract or otherwise.
1.4 "BANKER'S ACCEPTANCE COMMITMENT" is $1,500,000.00.
1.5 "BORROWER'S LOAN ACCOUNT" means the statement of daily balances on the
books of CNB in which will be recorded Revolving Credit Loans made by CNB to
Borrower, payments made on such loans, and other appropriate debits and credits
as provided by this Agreement. CNB will provide a statement of account for
Borrower's Loan Account at least once each month on a date established by CNB,
which statement will be accepted by and conclusively binding upon Borrower
unless it notifies CNB in writing to the contrary, within five (5) days of
receipt of such statement, or ten (10) days after sending of such statement if
Borrower does not notify CNB of its non-receipt of the statement. Statements
regarding other credit extended to Borrower will be provided separately.
1.6 "BORROWING BASE" will be in an amount, determined by CNB, equal to the
sum of.'
1.6.1 Seventy five percent (75%) of the Eligible Accounts ("Accounts
Advance Rate "); provided, however, the Accounts Advance Rate shall be reduced
by five percent (5.0%) for each increment of five percent (5.0%) that dilution
exceeds twelve percent (12%); and
1.6.2 Forty percent (40%) of the Eligible Inventory ("Inventory
Borrowing Base");
In no event will (a) the Inventory Borrowing Base exceed the lesser of (i)
$2,000,000.00 or (ii) the Accounts Borrowing Base or (b) the Borrowing Base
exceed the Revolving Credit Commitment.
1.7 "BORROWING BASE CERTIFICATE" means the certificate, in form and
satisfactory to CNB, executed by Borrower to evidence the Borrowing Base.
1.8 "BUSINESS DAY" means a day that CNB's Head Office is open and
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conducts a substantial portion of its business.
1.9 "CASH FLOW FROM OPERATIONS" will be determined on a consolidated basis
for Borrower and the Subsidiaries and means the sum of (a) net income after
taxes and before extraordinary items in accordance with GAAP, plus (b)
amortization of intangible assets, plus (c) interest expense, plus (d)
depreciation, each of such items computed on an annualized basis.
1.10 "CODE" means the Uniform Commercial Code of California except where
the Uniform Commercial Code of another state governs the perfection of a
security interest in Collateral located in that state.
1.11 "COLLATERAL" means all property securing the Obligations, as described
in Section 8.
1.12 "COMMERCIAL LETTERS OF CREDIT" means letters of credit issued
pursuant to this Agreement and in response to Borrower's submission of an
Irrevocable Letter of Credit Application and Security Agreement.
1.13 "COMMITMENT" means CNB's commitment to make the Loans, issue Letters
of Credit and create Banker's Acceptances in the aggregate principal amount
outstanding at any one time of up to Six Million Seven Hundred Sixty Thousand
Four Hundred Seventeen Dollars ($6,760,417.00).
1.14 "DEBT" means, at any date, the aggregate amount of, without
duplication, (a) all obligations of Borrower or any Subsidiary for borrowed
money, or reimbursement for open letters of credit and banker's acceptances, (b)
all obligations of Borrower or any Subsidiary evidenced by bonds, debentures,
notes or other similar instruments, (c) all obligations of Borrower or any
Subsidiary to pay the deferred purchase price of property or services, (d) all
capitalized lease obligations of Borrower or any Subsidiary, (e) all obligations
or liabilities of others secured by a lien on any asset of Borrower or any
Subsidiary, whether or not such obligation or liability is assumed, (f) all
obligations guaranteed by Borrower or any Subsidiary, (g) all obligations,
direct or indirect, for letters of credit, and (h) any other obligations or
liabilities which are required by GAAP to be shown as liabilities on the balance
sheet of Borrower or any Subsidiary.
1.15 "DEBT SERVICE" means (a) the aggregate amount of Current Maturity of
Long-Term Debt plus (b) all interest incurred on borrowed money, computed on an
annualized basis. "Current Maturity of Long-Term Debt" means that portion of
Borrower's consolidated long-term liabilities, determined in accordance with
GAAP, which will, by the terms thereof, become due and payable within one (1)
year following the date of the balance sheet upon which such calculations are
based.
1.16 "DILUTION" will be determined at the end of each month by CNB for the
preceding twelve-month period by dividing total reductions, excluding cash
collections of Accounts, by gross sales which gave rise to the Accounts for such
twelve-month period.
1.17 "ELIGIBLE ACCOUNT" means an Account of Borrower:
1.17.1 Upon which Borrower's right to receive payment is absolute and
not contingent upon the fulfillment of any condition;
1.17.2 Against which is asserted no defense, counterclaim, discount or
set-off, whether well-founded or otherwise;
1.17.3 That is a true and correct statement of a bona fide
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indebtedness incurred in the amount of the Account for goods sold or leased and
delivered to, or for services rendered to and accepted by, the Account Debtor;
1.17.4 That is owned by Borrower free and clear of all liens,
encumbrances, charges, interests and rights of others, except the security
interests granted to CNB;
1.17.5 That does not arise from a sale or lease to or for services
rendered to an employee, stockholder, director, Subsidiary or Affiliate of
Borrower or any entity in which any employee, stockholder, director, Subsidiary
or Affiliate of Borrower has any interest;
1.17.6 That is not the obligation of an Account Debtor that is the
federal government unless perfected under the Federal Assignment of Claims Act
of 1940, as amended;
1.17.7 That is not the obligation of an Account Debtor located in a
foreign country, except Canada, unless the obligation is insured by foreign
credit insurance satisfactory to CNB or through a letter of credit negotiated
through CNB with drawing documents in order;
1.17.8 That is due and payable not more than sixty (60) days from the
original invoice date unless otherwise agreed to in writing by CNB;
1.17.9 As to which not more than ninety (90)) days has elapsed since
the original invoice date;
1.17.10 As to which the Account Debtor has not:
(i) died, suspended business, made a general assignment for
the benefit of creditors, become the subject of a petition under the
Bankruptcy Code or consented to or applied for the appointment of a
receiver, trustee, custodian or liquidator for itself or any of its
property;
(ii) become more than sixty (60) days past due, under the
original terms of sale, with respect to 20% or more of the amounts owed by
such Account Debtor to Borrower;
(iii) had its check in payment of an Account returned unpaid;
or
(iv) become or appear to have become unable, in the opinion
of CNB, to pay the Account in accord with its terms;
1.17.11 That does not, when added to all other Accounts that are
obligations of the Account Debtor to Borrower, result in a total sum that
exceeds twenty percent (20%) of the total balance then due on all Accounts; and
1.17.12 That is not an obligation owed by the Account Debtor which
is evidenced by chattel paper or an instrument as those terms are defined in the
Code.
1.18 "ELIGIBLE INVENTORY" means Inventory, excluding work-in-process, raw
materials, packing materials and supplies, which (a) is owned by Borrower free
and clear of all liens, encumbrances and rights of others, except the security
interests granted to CNB; (b) is permanently located in the United States of
America and in the physical possession of Borrower; and (c) is not, in CNB's
opinion, obsolete, unsalable, damaged, unfit for further processing or otherwise
unacceptable to CNB. Eligible Inventory will be valued, in the case
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of finished goods, at the lower of cost or market in accordance with GAAP and,
in the case of raw materials, at the lower of Borrower's cost, market, or CNB's
independent determination of the resale value of raw materials in such
quantities and on such terms as CNB deems appropriate.
1.19 "EUROCURRENCY RESERVE REQUIREMENT" means the aggregate (without
duplication) of the rates (expressed as a decimal) of reserves (including,
without limitation, any basic, marginal, supplemental, or emergency reserves)
that are required to be maintained by banks during the Interest Period under any
regulations of the Board of Governors of the Federal Reserve System, or any
other governmental authority having jurisdiction with respect thereto,
applicable to funding based on so-called "Eurocurrency Liabilities", including
Regulation D (12 CFR 224).
1.20 "GAAP" means generally accepted accounting principles, consistently
applied.
1.21 "INVENTORY" means goods held for sale or lease in the ordinary course
of business, work in process and any and all raw materials used in connection
with the foregoing.
1.22 "INTEREST PERIOD" means the period commencing on the date the LIBOR
Loan is made (including the date a Prime Loan is converted to a LIBOR Loan, or a
LIBOR Loan is renewed as a LIBOR Loan, which, in the latter case, will be the
last day of the expiring Interest Period) and ending one (1), two (2), three
(3), or six (6) months thereafter, as selected by the Borrower; provided,
however, (a) any Interest Period that would end on a day not a Business Day,
will extend to the next Business Day; and (b) no Interest Period may extend
beyond the Termination Date.
1.23 "LETTERS OF CREDIT" means Commercial Letters of Credit up to the sum
of $1,500,000.00 and Standby Letters of Credit up to the sum of $100,000.00.
1.24 "LETTERS OF CREDIT COMMITMENT" is $1,600,000.00.
1.25 "LETTER OF GUARANTEE" means the issuance by CNB of its letter of
indemnity, xxxx of lading bond or release to carriers of merchandise shipped to
Borrower and consigned to CNB to induce release of the merchandise by the
carrier to Borrower in advance of receipt of documents required by the carrier
to release the merchandise.
1.26 "LIBOR LOAN COMMITMENT" is $4,000,000.00.
1.27 "LIBOR BASE RATE" means the British Banker's Association definition of
the London InterBank Offered Rates as made available by Telerate Monitor on
Telerate Screen 3750, or such other information service available to CNB, for
the applicable Interest Period for the LIBOR Loan selected by Borrower and as
quoted by CNB on the Business Day Borrower requests a LIBOR Loan.
1.28 "LIBOR INTEREST RATE" means the rate per year (rounded upward to the
next one-sixteenth (1/16th) of one percent (0.0625%), if necessary) determined
by CNB to be the quotient of (a) the LIBOR Base Rate divided by (b) one minus
the Eurocurrency Reserve Requirement for the Interest Period; which is expressed
by the following formula:
LIBOR Base Rate
-------------------------
1 - Eurocurrency Reserve Requirement
1.29 "LIBOR LOAN" means any Loan tied to the LIBOR Interest Rate.
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1.30 "LOAN" or "LOANS" means the loans extended by CNB to Borrower
pursuant to Section 2.
1.31 "LOAN DOCUMENTS" means, individually and collectively, this Agreement,
any note, guaranty, security or pledge agreement, financing statement and all
other contracts, instruments, addenda and documents executed in connection with
or related to extensions of credit under this Agreement.
1.32 "OBLIGATIONS" means all present and future liabilities and obligations
of Borrower to CNB hereunder and all other liabilities and obligations of
Borrower to CNB of every kind, now existing or hereafter owing matured or
unmatured, direct or indirect, absolute or contingent, joint or several,
including any extensions and renewals thereof and substitutions therefor.
1.33 "PERSON" means any individual or entity.
1.34 "POTENTIAL EVENT OF DEFAULT" means any condition that with the giving
of notice or passage of time or both would, unless cured or waived, become an
Event of Default.
1.35 "PRIME RATE" means the rate most recently announced by CNB at its
principal office in Beverly Hills California as its "Prime Rate." Any change in
the interest rate resulting from a change in the Prime Rate will become
effective on the day on which each change in the Prime Rate is announced by CNB.
1.36 "REVOLVING CREDIT COMMITMENT" means CNB's commitment to make the
Revolving Credit Loans in the aggregate principal amount at any one time of up
to Six Million Dollars ($6,000,000.00).
1.37 "STANDBY LETTERS OF CREDIT" means standby letters of credit issued
pursuant to this Agreement and in response to Borrower's submission of an
Irrevocable Standby Letter of Credit Application and Letter of Credit Agree
ment.
1.38 "SUBORDINATED DEBT" means Debt of Borrower or any Subsidiary, the
repayment of which is subordinated, on terms satisfactory to CNB, to the
Obligations.
1.39 "SUBSIDIARY" means any corporation, the majority of whose voting
shares are at any time owned, directly or indirectly, by Borrower and/or by one
or more Subsidiaries.
1.40 "TANGIBLE NET WORTH" means the total of all assets appearing on a
balance sheet prepared in accordance with GAAP for Borrower and the Subsidiaries
on a consolidated basis, minus (a) all intangible assets, including, without
limitation, unamortized debt discount, Affiliate, employee, officer and
stockholder receivables or advances, goodwill, research and development costs,
patents, trademarks, the excess of purchase price over underlying values of
acquired companies, any covenants not to compete, deferred charges, copyrights,
franchises and appraisal surplus; minus (b) the amount, if any, at which shares
of stock of a non-wholly owned Subsidiary appear on the asset side of Borrower's
consolidated balance sheet, as determined in accordance with GAAP; minus (c) all
obligations which are required by GAAP to be classified as a liability on the
consolidated balance sheet of Borrower and the Subsidiaries; minus (d) minority
interests; and minus (e) deferred income and reserves not otherwise classified
as a liability on the consolidated balance sheet of Borrower and the
Subsidiaries.
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1.41 "TERMINATION DATE" means May 31, 1998, unless the term of this
Agreement is renewed by CNB for an additional period under Section 3, or such
earlier termination date under Section 9.3 upon the occurrence of an Event of
Default. Upon any renewal, the Termination Date will be the renewed maturity
date determined by CNB.
1.42 "TOTAL SENIOR LIABILITIES" means, as of any date of determination, the
amount of all liabilities that should be reflected as a liability on a
consolidated balance sheet of Borrower and the Subsidiaries prepared in
accordance with GAAP, less Subordinated Debt.
2. THE CREDIT.
2.1 REVOLVING CREDIT LOAN. Subject to the terms of this Agreement, CNB
agrees to make loans ("Revolving Credit Loans") to Borrower, from the date of
this Agreement up to but not including the Termination Date, at such times as
Borrower may request, up to the amount of the Borrowing Base. The Revolving
Credit Loans may be repaid and reborrowed at any time up to the Termination
Date; provided, however, that the aggregate unpaid principal amount of
outstanding Revolving Credit Loans will at no time exceed the Borrowing Base.
2.1.1 INTEREST. The Revolving Credit Loans will bear interest
from disbursement until due (whether at stated maturity, by acceleration or
otherwise) at a rate equal to, at Borrower's option, either (a) for a LIBOR
Revolving Loan, the LIBOR Interest Rate plus two and one quarter of one percent
(2.25%) per year, or (b) for a Prime Revolving Loan, the fluctuating Prime Rate
plus one quarter of one percent (0.25%) per year. Interest on the Revolving
Credit Loans and other charges incurred under this Agreement will be payable (a)
if a Prime Revolving Loan, monthly in arrears, on the first day of each month
for the previous month, commencing on the first such date following
disbursement; (b) if a LIBOR Revolving Loan, (i) at the same time as interest
payments are due on Prime Revolving Loans, and (ii) upon any prepayment of any
LIBOR Revolving Loan (to the extent accrued on the amount prepaid); (c) on the
date a Prime Revolving Loan is converted to a LIBOR Revolving Loan; and (d) at
the Termination Date. A Revolving Credit Loan fled to the LIBOR Interest Rate
is called a "LIBOR Revolving Loan," and a Revolving Credit Loan tied to the
Prime Rate is called a "Prime Revolving Loan". A Revolving Loan will be a Prime
Revolving Loan any time it is not a LIBOR Revolving Loan.
2.1.2 PAYMENT FOR AMOUNTS EXCEEDING BORROWING BASE. Borrower
will, immediately upon demand, repay the amount by which the unpaid principal
amount of Borrower's Loan Account exceeds the amount CNB has agreed to lend
under Section 2.1. The portion of the Revolving Credit Loans exceeding the
Borrowing Base will bear additional interest of three percent (3.0%) per year
over the rate set forth in Section 2.1.1 for Prime Loans.
2.2 LETTER OF CREDIT AND BANKER'S ACCEPTANCE FACILITY. CNB will, at the
request of Borrower any time up to the Termination Date, issue Letters of Credit
and create Banker's Acceptances, in connection with drawings thereunder, for the
account of Borrower. The aggregate face amount of outstanding Letters of Credit
at any time will not exceed the lesser of (a) the Letter of Credit Commitment or
(b) the Borrowing Base less outstanding Revolving Credit Loans and Banker's
Acceptances. The aggregate face amount of outstanding Banker's Acceptances at
any time will not exceed the lesser of (a) the Banker's Acceptance Commitment or
(b) the Borrowing Base less Revolving Credit Loans and Letters of Credit
outstanding.
2.2.1 ISSUANCE OF LETTERS OF CREDIT. Commercial Letters of Credit
will be issued to finance the import of merchandise in accordance with an
Irrevocable Letter of Credit Application and Security Agreement submitted by
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Borrower and incorporated herein by this reference, subject to the terms of this
Agreement in the event of any conflict herewith. Standby Letters of Credit will
be issued in accordance with an Irrevocable Standby Letter of Credit Application
and Letter of Credit Agreement submitted by Borrower and incorporated herein by
this reference, subject to the terms of this Agreement in the event of any
conflict herewith. Letters of Credit will be issued on the normal documentation
used by CNB from time to time in accord with the Uniform Customs and Practices
for Documentary Credits (1993 Revision) International Chamber of Commerce
Publication No. 500. Commercial Letters of Credit will expire no more than 60
days after issuance. Unless CNB otherwise agrees in writing, no Standby Letter
of Credit may expire after the Termination Date. Standard CNB fees and charges
will apply to the issuance of Letters of Credit.
2.2.2 CREATION OF BANKER'S ACCEPTANCES. Banker's Acceptances will
be created in response to Borrower's request or the acceptance by CNB of a draft
drawn against a Letter of Credit not payable at sight, on the normal
documentation used by CNB, and will mature within 120 days. Creation of
Banker's Acceptances will be subject to standard CNB fees and charges plus, if
applicable, a payment equal to the CNB Banker's Acceptance Discount Rate plus
three and one eighths of one percent (3.125%). There will be no obligation to
accept drafts which would:
(A) not be eligible for discount by a Federal Reserve Bank;
(B) become a liability subject to reserve requirements
trader any regulation of the Board of Governors of the
Federal Reserve System; or
(C) cause CNB to violate any lending limit imposed upon CNB
by any law, regulation or administrative order.
2.2.3 REIMBURSEMENT FOR FUNDING LETTER OF CREDIT. Any sight
drawing under a Letter of Credit will be deemed to be an irrevocable request for
a Revolving Credit Loan under this "Agreement. Borrower's obligation to
reimburse CNB may also be satisfied by charging Borrower's demand deposit
account if requested by Borrower. drawings under Letters of Credit which axe
not payable at sight will be deemed to be requests for the creation of Banker's
Acceptances hereunder. CNB's obligation under this Subsection to make a
Revolving Credit Loan or create a Banker's Acceptance will exist irrespective of
the existence of any Potential Event of Default or Event of Default.
2.2.4 REIMBURSEMENT FOR PAYMENT OF BANKER'S ACCEPTANCES. The
creation of a Banker's Acceptance will be deemed to be an irrevocable request
for a Revolving Credit Loan made at the maturity date of the Banker's
Acceptance. Borrower's obligation to pay such accepted draft may, at Borrower's
request, be satisfied by charging Borrower's demand deposit account. CNB's
obligation under this Subsection to make a Revolving Credit Loan will exist
irrespective of the existence of any Potential Event of Default or Event of
Default.
2.3 EXISTING TERM LOANS. The following existing Term Loans will be
governed by this Agreement, including but not limited to the provisions of
Section 3.2:
DESCRIPTION DATE ORIGINAL PRINCIPAL AMOUNT
Note #24492 12/13/96 $500,000.00
Note #95503 06/19/95 $400,000.00
Note #95504 09/19/95 $125,000.00
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2.4 LETTERS OF GUARANTEE FACILITY. Subject to the terms of this
Agreement and upon the written application of Borrower, CNB will issue up to,
but not including the Termination Date, Letters of Guarantee in an aggregate
amount outstanding at any one time not to exceed One Million Five Hundred
Thousand Dollars ($1,500,000.00) for the account of Borrower.
2.4.1 ISSUANCE OF LETTERS OF GUARANTEE. Letters of Guarantee will
be issued in accordance with all Application for Letter of Guarantee submitted
by Borrower and incorporated herein by reference, subject to the terms of this
Agreement in the event of any conflict herewith. Letters of Guarantee will be
issued on normal documentation used by or acceptable to CNB from time to time.
Standard CNB charges will apply to the issuance of Letters of Guarantee.
2.4.2 REIMBURSEMENT FOR FUNDING LETTER OF GUARANTEE. Any payment
by CNB under a Letter of Guarantee will be deemed to be an irrevocable request
for a Revolving Credit Loan under this Agreement. Borrower's obligation to
reimburse CNB may also be satisfied by charging Borrower's demand deposit
account if requested by Borrower. CNB's obligation under this Subsection to
make a Revolving Credit Loan will exist irrespective of the existence of any
Potential Event of Default or Event of Default.
2.5 LIBOR LOAN TERMS AND CONDITIONS
2.5.1 PROCEDURE FOR LIBOR LOANS. Borrower may request that a
Revolving Credit Loan be a LIBOR Loan (including conversion of a Prime Revolving
Loan to a LIBOR Revolving Loan, or continuation of a LIBOR Revolving Loan as a
LIBOR Revolving Loan upon the expiration of the Interest Period). Borrower's
request will be irrevocable, will be made to CNB using the "Notice of Borrowing"
form attached hereto as Exhibit "A," no earlier than two (2) Business Days
before and no later than 1:00 p.m. Pacific Time on the day the LIBOR Loan is to
be made. If Borrower fails to select a LIBOR Loan in accordance herewith, the
Loan will be a Prime Loan, and any outstanding LIBOR Loan will be deemed a Prime
Loan upon expiration of the Interest Period.
2.5.2 AVAILABILITY OF LIBOR LOANS. Notwithstanding anything
herein to the contrary, each LIBOR Loan must be in the minimum amount of
$500,000.00 and increments of $100,000.00. Borrower may have Prime Loan and
LIBOR Loan outstanding simultaneously.
2.5.3 PREPAYMENT OF PRINCIPAL. Borrower may not make a
partial principal prepayment on a LIBOR Loan. Borrower may prepay the full
outstanding principal balance on a LIBOR Loan prior to the end of the Interest
Period, provided, however, that such prepayment is accompanied by a fee ("LIBOR
Prepayment Fee") equal to the amount, if any, by which (a) the additional
interest which would have been earned by CNB had the LIBOR Loan not been prepaid
exceeds (b) the interest which would have been recoverable by CNB by placing the
amount of the LIBOR Loan on deposit in the LIBOR market for a period starting on
the date on which it was prepaid and ending on the last day of the applicable
Interest Period. CNB's calculation of the LIBOR Prepayment Fee will be deemed
conclusive absent manifest error.
2.5.4 SUSPENSION OF LIBOR LOANS. If CNB, on any Business
Day, is unable to determine the LIBOR Base Rate applicable for a new, continued,
or converted LIBOR Loan for any reason, or any law, regulation, or governmental
order, rule or determination, makes it unlawful for CNB to make a LIBOR Loan,
Borrower's right to select LIBOR Loan will be suspended until CNB is again able
to determine the LIBOR Base Rate or make LIBOR Loans, as the case may be.
During such suspension, new Loans, outstanding Prime Loans, and LIBOR Loans
whose Interest Periods terminate may only be Prime Loans.
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2.6 OPTIONAL PREPAYMENTS. Subject to the provisions of Section 2.4.3,
Borrower will have the right to prepay any Term Loan provided that (a) each
partial payment will be in an amount equal to the amount of the normal monthly
payment or an integral multiple thereof (b) on each prepayment, Borrower will
pay the accrued interest on the prepaid principal, to the date of such
prepayment, and (c) all prepayments will be applied to principal installments in
the inverse order of their maturities.
2.7 DEFAULT INTEREST RATE. From and after written notice by CNB to
Borrower of the occurrence of an Event of Default (and without constituting a
waiver of such Event of Default), the Loans and any other amounts due CNB
hereunder (and interest to the extent permitted by law) will bear additional
interest at a fluctuating rate equal to five percent (5.0%) per year higher than
the interest rate as determined in Sections 2.1.1 and 2.1.3, until the Event of
Default has been cured; provided, however, for purposes of this Section, a LIBOR
Loan will be treated as a Prime Loan upon the termination of the Interest
Period. All interest provided for in this Section will be compounded monthly
and payable on demand.
2.8 PAYMENTS. All payments will be in United States Dollars and in
immediately available funds. Interest will accrue daily and will be computed on
the basis of a 360-day year, actual days elapsed. All payments of principal,
interest, fees and other charges incurred under this Agreement will be made by
charging, and Borrower hereby authorizes CNB to charge, Borrower's demand
deposit account or Borrower's Loan Account. Borrower also authorizes CNB to
charge to Borrower's demand deposit account or Borrower's Loan Account any
payment credited against the Obligations which is dishonored by the drawee or
maker thereof.
3. TERM AND TERMINATION.
3.1 ESTABLISHMENT OF TERMINATION DATE. The term of this Agreement will
begin as of the date hereof and continue until the Termination Date, unless the
term is renewed for an additional period by CNB giving Borrower prior written
notice, in which event the Termination Date will mean the renewed maturity date
set forth in such notice. Notwithstanding the foregoing, CNB may, at its
option, terminate this Agreement pursuant to Section 9.3; the date of any such
termination will become the Termination Date as that term is used in this
Agreement.
3.2 OBLIGATIONS UPON THE TERMINATION DATE. Borrower will, upon the
Termination Date:
3.2.1 Repay the amount of the balance due as set forth in
Borrower's Loan Account plus any accrued interest, fees and charges;
3.2.2 Pay CNB cash in the aggregate face amount of the Letters of
Credit outstanding to be held as cash collateral for Borrower's obligation to
reimburse CNB upon the funding of such Letters of Credit;
3.2.3 Pay CNB cash in the aggregate face amount of the Banker's
Acceptances outstanding to be held by CNB to make payment under the drafts which
have been accepted; and
3.2.4 Pay the amounts due on all other Obligations owing to CNB.
In this connection and notwithstanding anything to the contrary contained in the
instruments evidencing such Obligations, the Termination Date hereunder will
constitute the maturity date of such other Obligations.
3.3 SURVIVAL OF RIGHTS. Any termination of this Agreement will not
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affect the fights, liabilities and obligations of the parties with respect to
any Obligations outstanding on the date of such termination. Until all
Obligations have been fully repaid, CNB will retain its security interest in all
existing Collateral and Collateral arising thereafter, and Borrower will
continue to assign all Accounts to CNB and to immediately turn over to CNB, in
kind, all collections received on the Accounts.
4. CONDITIONS PRECEDENT.
4.1 EXTENSION OF CREDIT. The obligation of CNB to make any Loan or other
extension of credit hereunder is subject to CNB's receipt of each of the
following, in form and substance satisfactory to CNB, and duly executed as
required by CNB:
4.1.1 All Loan Documents required by CNB, including but not
limited to this Agreement and any guaranties required hereunder;
4.1.2 (a) a copy of Borrower's Articles of Incorporation; (b) a
Resolution of Borrower's Board of Directors approving and authorizing the
execution, delivery and performance of this Agreement and any other documents
required pursuant to this Agreement, certified by Borrower's corporate
secretary;, and, (c) a copy of the last certificate fried on behalf of Borrower
containing the information required by California Corporations Code Section
1502(a) or Section 2117(a), as applicable;
4.1.3 (a) executed copies (and acknowledgement copies to the
extent reasonably available) of financing statements (Form UCC-1) duly filed
under the Code in all such jurisdictions as may be necessary or, in CNB's
opinion, desirable to perfect CNB's security interests created under this
Agreement; and (b) evidence that all filings, recordings and other actions that
are necessary or advisable, in CNB's opinion, to establish, preserve and perfect
CNB's security interests and liens as legal, valid and enforceable first
security interests and liens in the Collateral have been effected;
4.1.4 Evidence that the insurance required by Section 6.5 hereof
is in effect; and
4.1.5 A complete list of claims made against Borrower together
with an opinion of Borrower's counsel with respect to such claims, that the
representations contained in Section 5 are true and correct as of the date of
this Agreement.
4.2 CONDITIONS TO EACH EXTENSION OF CREDIT. The obligation of CNB to make
any Loan or other extension of credit hereunder will be subject to the
fulfillment of each of the following conditions to CNB's satisfaction:
4.2.1 The representations and warranties of Borrower set forth in
Section 5 will be true and correct on the date of the making of each Loan or
other extension of credit with the same effect as though such representations
and warranties had been made on and as of such date;
4.2.2 No Guarantor will have revoked his, her or its guaranty and
no such guaranty will have become otherwise unenforceable with respect to future
advances;
4.2.3 No holder of Subordinated Debt will be in violation of his,
her or its Subordination Agreement executed in favor of CNB, and such
Subordination Agreement is enforceable with respect to future advances;
4.2.4 There will be in full force and effect in favor of CNB a
10
legal, valid and enforceable first security interest in, and a valid and binding
first lien on the Collateral; and CNB will have received evidence, in form and
substance acceptable to CNB, that all filings, recordings and other actions that
are necessary or advisable, in the opinion of CNB, in order to establish,
protect, preserve and perfect CNB's security interests and liens as legal, valid
and enforceable first security interests and liens in the Collateral have been
effected;
4.2.5 There will have occurred no Event of Default or Potential
Event of Default; and
4.2.6 All other documents and legal matters in connection with the
transactions described in this Agreement will be satisfactory in form and
substance to CNB.
5. REPRESENTATIONS AND WARRANTIES. Borrower makes the following
representations and warranties, which will survive the making and repayment of
the Loans and other extensions of credit:
5.1 CORPORATE EXISTENCE, POWER AND AUTHORIZATION. Borrower and each
Subsidiary is duly organized, validly existing and in good standing under the
laws of the state of its organization, and is duly qualified to conduct business
in each jurisdiction in which its business is conducted. The execution,
delivery and performance of all Loan Documents executed by Borrower are within
Borrower's powers and have been duly authorized by the Board of Directors of
Borrower and do not require any consent or approval of the stockholders of
Borrower.
5.2 BINDING AGREEMENT. The Loan Documents constitute the valid and
legally binding obligations of Borrower, enforceable against Borrower in
accordance with their terms.
5.3 ANCILLARY DOCUMENTS. To the extent that any security agreement,
subordination agreement or guaranty is required to be executed by a Subsidiary
or Affiliate, the representations and warranties set forth in Sections 5.1 and
5.2 are also true and correct with respect to such Subsidiary and Affiliate and
such document.
5.4 OTHER AGREEMENTS. The execution and performance of the Loan Documents
will not violate any provision of law or regulation (including, without
limitation, Regulations X and U of the Federal Reserve Board) or any order of
any governmental authority, court or arbitration board or the Articles of
Incorporation or Bylaws of Borrower, or result in the breach of or a default
under any provisions of any agreement to which Borrower is a party.
5.5 LITIGATION. There is no litigation, tax claim, investigation or
proceeding pending, threatened against or affecting Borrower, any Subsidiary or
Guarantor, or any of their respective properties which, if adversely determined,
would have a material adverse effect on the business, operation or condition,
financial or otherwise, of Borrower or any Subsidiary or Guarantor.
5.6 FINANCIAL CONDITION. The most recent financial statements of Borrower
and each Guarantor, if any, copies of which have been delivered to CNB, have
been prepared in accordance with GAAP and are true, complete and correct and
fairly present the financial condition of Borrower, its Subsidiaries and each
Guarantor, including operating results, as of the accounting period referenced
therein. There has been no material adverse change in the financial condition
or business of Borrower or any Subsidiary or Guarantor since the date of such
financial statements. Neither Borrower nor any Subsidiary or Guarantor has any
material Liabilities for taxes or long-term
11
leases or commitments, except as disclosed in the financial statements.
5.7 NO VIOLATIONS. Borrower is not, nor is any Subsidiary, in violation
of any law, ordinance, rule or regulation to which it or any of its properties
is subject.
5.8 COLLATERAL. Borrower owns and has possession of and has the right and
power to grant a security interest in the Collateral, and the Collateral is
genuine and free from liens, adverse Claims, set-offs, defaults, prepayments,
defenses and encumbrances except those in favor of CNB. No bills of lading,
warehouse receipts or other documents or instruments of rifle are outstanding
with respect to the Collateral or any portion of the Collateral, in favor of a
Person other than Borrower. The office where Borrower keeps its records
concerning all Accounts and where it keeps the bulk of its Inventory is 000
Xxxxx Xxx Xxxxxx, Xxxxxxxxx, Xxxxxxxxxx 00000.
5.9 ERISA. Borrower is in compliance in all material respects with all
applicable provisions of the Employee Retirement Income Security Act of 1974
("ERISA"). No "Reportable Event" (as defined in ERISA and the regulations
issued thereunder [other than a "Reportable Event" not subject to the provision
for thirty (30) day notice to the Pension Benefit Guaranty Corporation ("PBGC")
under such regulations]) has occurred with respect to any benefit plan of
Borrower nor are there any unfunded vested liabilities under any benefit plan of
Borrower. Borrower has met its minimum funding requirements under ERISA with
respect to each of its plans and has not incurred any material liability to the
PBGC in connection with any such plan.
5.10 CONSENTS. No consent, license, permit, or authorization of, exemption
by, notice or report to, or registration, filing or declaration with, any
governmental authority or agency is required in connection with the execution,
delivery and performance by Borrower of this Agreement or the transactions
contemplated hereby.
5.11 USE OF PROCEEDS. The proceeds of the Revolving Credit Loans will be
used by Borrower solely for working capital purposes in the normal course of
business.
5.12 REGULATION U. Borrower is not engaged principally, or as one of its
principal activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulations U or X of
the Federal Reserve Board). No part of the proceeds of the Loans will be used
by Borrower to purchase or carry any such margin stock or to extend credit to
others for the purpose of purchasing or carrying such margin stock.
5.13 ENVIRONMENTAL MATTERS.
5.13.1 The operations of Borrower and each Subsidiary comply in all
material respects with all applicable federal, state and local environmental,
health and safety statutes, regulations and ordinances and fully comply with all
terms of all required permits and licenses.
5.13.2 Borrower and each Subsidiary have received no notices of
threatened or pending governmental or private civil, criminal or administrative
proceeding regarding any environmental or health and safety statute, regulation
or ordinance and have not been subject to any federal, state or local
investigations, inspections or orders regarding any environmental or health and
safety statute, regulation or ordinance.
5.13.3 Neither Borrower nor any Subsidiary knows of any facts or
conditions which may exist which may subject Borrower or any Subsidiary to
12
liability or contingent liability and neither Borrower nor any Subsidiary is
presently liable or contingently liable for any removal, remedial, response or
other costs or damages in connection with any release into the environment of
toxic or hazardous substances or waste included on any federal, state or local
hazardous chemical or substance lists under any federal, state or local statute,
regulation or ordinance.
5.13.4 Borrower will, at all times, indemnify and hold CNB (which
for purposes of this Section and Section 10.8 includes CNB's parent company and
subsidiaries and all of their respective shareholders, directors, officers,
employees, agents, representatives, successors, attorneys and assigns) harmless
from and against any liabilities, claims, demands, causes of action, losses,
damages, expenses (including without limitation reasonable attorneys' fees
[which attorneys may be employees of CNB, or may be outside counsel]), costs,
settlements, judgments or recoveries (collectively, "Claims") directly or
indirectly arising out of or attributable to the use, generation, manufacture,
production, storage, release, threatened release, discharge, disposal or
presence of a hazardous substance on, under, or about Borrower's property or
operations or property leased to or used by Borrower. For these purposes, the
term "hazardous substances" means any substance which is or becomes designated
as "hazardous" or "toxic" under any Federal, state, or local law. This indemnity
will survive the Termination Date and the repayment of all Obligations of
Borrower to CNB.
6. AFFIRMATIVE COVENANTS. Borrower agrees that until payment in full of all
Obligations, Borrower will comply with the following covenants:
6.1 COLLATERAL.
6.1.1 Borrower will, on demand of CNB, make available to CNB,
shipping and delivery receipts evidencing the shipment of the goods which gave
rise to an Account; completion certificates or other proof of the satisfactory
performance of services which gave rise to an Account; a copy of the invoice for
each Account; and Borrower's copy of any written contract or order from which an
Account arose. Unless previously requested by Borrower in writing to return
such documents, CNB will be authorized to destroy any such documentation six (6)
months after its receipt by CNB;
6.1.2 Borrower will advise CNB within ten (10) days whenever an
Account Debtor refuses to retain, or returns, any goods from the sale of which
an Account arose, and will comply with any instructions which CNB may give
regarding the sale or other disposition of such returns;
6.1.3 Borrower will give CNB, upon request, specific assignments
of Accounts after they come into existence, and schedules of Accounts, the form
and content of such assignments and schedules to be satisfactory to CNB; but,
despite this provision for express assignments to CNB, CNB will have a
continuing security interest in all Accounts irrespective of whether some
Accounts are omitted from such assignments or whether any assignments are ever
given; and Borrower will execute and deliver to CNB any instrument, document,
financing statement, assignment or other writing which CNB may deem necessary or
desirable to carry out on the terms of this Agreement, to perfect CNB's security
interest in the Accounts, and any other Collateral for the Obligations, or to
enable CNB to enforce its security interest in any of the foregoing;,
6.1.4 Borrower will maintain, in accord with sound accounting
practices, accurate records and books of account showing, among other things,
all Inventory and Accounts, the proceeds of the sale or other disposition
thereof and the collections therefrom. Borrower will not change the accounting
13
method used to determine Borrower's Inventory cost without CNB's prior written
approval. Borrower will permit representative(s) of CNB, at any reasonable
time, to inspect, audit, examine and make extracts or copies from all books,
records and other data relating to the Collateral, to inspect any of Borrower's
properties and to confirm balances due on Accounts by direct inquiry to Account
Debtors, and will give CNB, promptly upon request, all information regarding the
business or finances of Borrower;
6.1.5 Borrower will, if requested by CNB, xxxx its records
concerning its Inventory and Accounts in a manner satisfactory to CNB to show
CNB's security interest therein;
6.1.6 Borrower will, if requested by CNB, provide CNB with a
current physical count of its Inventory in the manner specified by CNB;
6.1.7 Borrower will endorse to the order of and deliver to CNB any
negotiable instrument accepted by Borrower in lieu of payment in accord with the
original terms of sale;
6.1.8 Borrower will pay CNB, upon demand, the cost, including, but
not limited to reasonable attorneys' fees and expenses (which counsel may be CNB
employees) expended or incurred by CNB (or allocable to CNB's in-house counsel)
in the collection or enforcement of any Accounts or other Collateral if CNB
itself undertakes such collection or enforcement, together with all taxes,
charges and expenses of every kind or description paid or incurred by CNB under
or with respect to loans hereunder or any Collateral therefor and Borrower
authorizes CNB to charge the same to any deposit account of Borrower or
Borrower's Loan Account maintained with CNB;
6.1.9 Borrower will promptly notify CNB of any occurrence or
discovery of any event which would cause or has caused a previously Eligible
Account to become ineligible; and
6.1.10 Borrower will maintain the tangible Collateral in good
condition and promptly notify CNB of any event causing loss or reduction of
value of Collateral and the amount of such loss or reduction.
6.2 FINANCIAL STATEMENTS. Borrower will furnish to CNB on a continuing
basis:
6.2.1 Within forty-five (45) days after the end of each quarterly
accounting period of each fiscal year, a financial statement internally
prepared, consisting of not less than a balance sheet and income statement,
prepared in accordance with GAAP and accompanied by the following:. (a)
supporting schedules of costs of goods sold, operating expenses and other income
and expense items, and (b) Borrower's certification as to whether any event has
occurred which constitutes an Event of Default or Potential Event of Default,
and if so, stating the facts with respect thereto.
6.2.2 Within one hundred twenty (120) days after the close of
Borrower's fiscal year, a copy of the annual audit report for Borrower and the
Subsidiaries, including therein a balance sheet, income statement,
reconciliation of net worth and statement of cash flows, with notes thereto, the
balance sheet, income statement and statement of cash flows to be audited by a
certified public accountant acceptable to CNB, certified by such accountant to
have been prepared in accordance with GAAP and accompanied by the following:.
(a) supporting schedules of costs of goods sold, operating expenses and other
income and expense items, and Co) Borrower's certification as to whether any
event has occurred which constitutes an Event of Default or Potential Event of
Default, and if so, stating the facts with respect thereto;
14
and
6.2.3 Within fifteen (15) days of filing, a copy of the Federal
Income Tax Return of Borrower and each Guarantor, if any.
6.3 COLLATERAL REPORTS. Borrower will supply the following collateral
reports, together with such additional information, reports and/or statements as
CNB may reasonably request, within fifteen (15) days after the end of each
month:
6.3.1 A listing and aging by invoice date of all accounts
receivable and accounts payable (together with a current list of the names,
addresses, sales and payment terms, and detail of outstanding balances due by
invoice date from all Account Debtors);
6.3.2 A reconciliation of such aging with the previous aging
delivered to CNB and CNB account records;
6.3.3 A listing of all Inventory, setting out types, locations and
dollar value, which dollar value is in conformity with GAAP, in form acceptable
to CNB; and
6.3.4 A Borrowing Base Certificate.
6.4 TAXES AND PREMIUMS. Borrower will, and will cause each Subsidiary to,
pay and discharge all taxes, assessments, governmental charges, and real and
personal taxes including, but not limited to, federal and state income taxes,
employee withholding taxes and payroll taxes, and all premiums for insurance
required hereunder, prior to the date upon which penalties are attached thereto.
CNB may pay, for the account of Borrower, any of the foregoing which Borrower
fails to pay; any such amounts will be debited to Borrower's Loan Account and
will be paid by Borrower to CNB, with interest thereon at the rate stated in
Section 2.1.1 (exclusive of LIBOR Loans), upon demand.
6.5 INSURANCE.
6.5.1 Borrower will, and will cause each Subsidiary to, (a) keep
its Inventory, equipment and any other tangible personal property which is
Collateral insured for the benefit of CNB under a standard mortgagee protection
clause (to whom any loss will be payable) in such amounts, by such companies and
against such risks as may be satisfactory to CNB; (b) pay the cost of all such
insurance; and (c) deliver certificates evidencing such insurance to CNB (and
copies of policies if requested); and Borrower hereby assigns to CNB all right
to receive proceeds of such insurance, and agrees to direct any insurer to pay
all proceeds directly to CNB, and authorizes CNB to endorse Borrower's name to
any draft or check for such proceeds;
6.5.2 In addition to the insurance required above, Borrower will,
and will cause each Subsidiary to, maintain insurance of the types and in
amounts customarily carried in its lines of business, including, but not limited
to, fire, public liability, property damage, business interruption and worker's
compensation, such insurance to be carried with companies and in amounts
satisfactory to CNB, and deliver to CNB, upon request, schedules setting forth
all insurance then in effect; and
6.5.3 If Borrower fails to provide and maintain the policies of
insurance required hereunder, CNB may, but is not obligated to, procure such
insurance, and Borrower will pay all premiums thereon promptly upon demand by
CNB, together with interest thereon at the rate set forth in Section 2.1.1
15
hereof (exclusive of LIBOR Loans) from the date of expenditure until
reimbursement by Borrower.
6.6 NOTICE. Borrower will promptly advise CNB in writing of (a) the
opening of any new, or the dosing of any existing, places of business, each
location at which Inventory or equipment is or will be kept, and any change of
Borrower's name, trade name or other name under which it does business or of any
such new or additional name; (b) the occurrence of any Event of Default or
Potential Event of Default; (c) any litigation pending or threatened where the
amount or amounts in controversy exceed $100,000.00; (d) any unpaid taxes which
are more than fifteen (15) days delinquent; and (e) any other matter which might
materially or adversely affect Borrower's or any Subsidiary's or Guarantor's
financial condition, property or business.
6.7 FAIR LABOR STANDARDS ACT. Borrower will, and will cause each
Subsidiary to, comply with the requirements of, and all regulations promulgated
under, the Fair Labor Standards Act.
6.8 CORPORATE EXISTENCE. Borrower will, and will cause each Subsidiary
to, maintain its corporate existence and all of its rights, privileges and
franchises necessary or desirable in the normal course of its business.
6.9 COMPLIANCE WITH LAW. Borrower will, and will cause each Subsidiary
to, comply with all requirements of all applicable laws, rules, regulations
(including, but not limited to, ERISA with respect to each of their benefit
plans, and all environmental and hazardous materials laws), orders of any
governmental agency and all material agreements to which they are a party.
6.10 FINANCIAL TESTS. Borrower will maintain at all times:
6.10.1 Tangible Net Worth plus Subordinated Debt of not less than
$2,400,000.00 as of April 30, 1997, and $2,750,000.00 thereafter;
6.10.2 A ratio of Total Senior Liabilities to Tangible Net Worth
plus Subordinated Debt of not more than (a) 3.55 to 1 as of April 30, 1997 and
(b) 3.0 to 1 thereafter;
6.10.3 A ratio of Cash Flow from Operations to Debt Service of not
less than 1.5 to 1; and
6.10.4 Net income after taxes of greater than zero per fiscal
quarter.
7. NEGATIVE COVENANTS. Borrower agrees that until payment in full of all the
Obligations, Borrower will not, nor will it permit any Subsidiary to, do any of
the following, without CNB's prior written consent:
7.1 BORROWING. Create, incur, assume or permit to exist any Debt except
(a) Debt to CNB, (b) Subordinated Debt, and (c) trade Debt in the ordinary
course of Borrower's business and (d) purchase money debt in an aggregate amount
not to exceed $200,000.00 per Borrower's fiscal year incurred in connection with
the acquisition of capital assets (including capitalized lease expenditures).
7.2 SALE OF ASSETS. Sell, lease or otherwise dispose of any of Borrower's
or any Subsidiary's assets, other than merchandise Inventory and equipment in
the ordinary course of business.
7.3 LOANS. Make loans or advances to any Person, except credit extended
to employees or to customers
16
in the ordinary course of business.
7.4 CONTINGENT LIABILITIES. Assume, guarantee, endorse, contingently
agree to purchase or otherwise become liable for the obligation of any Person,
including Borrower, a Subsidiary or Affiliate, except (a) by the endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business, and (b) contingent liabilities in favor of CNB.
7.5 INVESTMENTS. Purchase or acquire the obligations or stock of, or any
other interest in, any partnership, joint venture or corporation, except (a)
direct obligations of the United States of America; or Co) investments in
certificates of deposit issued by, and other deposits with, commercial banks
organized under the United States or a State thereof having capital of at least
One Hundred Million Dollars ($100,000,000.00).
7.6 MORTGAGES, LIENS, ETC. Mortgage, pledge, hypothecate, grant or
contract to grant any security interest of any kind in any property or assets,
to anyone except CNB.
7.7 INVOLUNTARY LIENS. Permit any involuntary liens to arise with respect
to any property or assets including but not limited to those arising from the
levy of a writ of attachment or execution, or the levy of any state or federal
tax lien which lien will not be removed within a period of thirty (30) days.
7.8 SALE AND LEASEBACK. Enter into any sale-leaseback transaction.
7.9 MERGERS AND ACQUISITIONS. Enter into any merger or consolidation, or
acquire all or substantially all the assets of any Person, except a Subsidiary
may be merged into or consolidated with another Subsidiary or with Borrower.
7.10 DIVIDENDS AND PURCHASE OF STOCK. Redeem or repurchase stock or
partnership interests, declare or pay any dividends or make any distribution,
whether of capital, income or otherwise, and whether in cash or other property,
except that any Subsidiary may declare distributions to Borrower; provided,
however, if Borrower for the 1997 fiscal year continues as a Sub-Chapter S
corporation under the federal or state income tax laws, distributions may be
made to Borrower's shareholders in an aggregate maximum amount equal to
Borrower's net income before tax during fiscal year 1997 and 1998. If Borrower,
in subsequent fiscal years, continues as a Sub-Chapter S corporation,
distribution may be made to Borrower's shareholders in an aggregate maximum
amount per year equal to fifty percent (50%) of Borrower's net income after tax
for that fiscal year.
7.11 EVENT OF DEFAULT. Permit a default to occur under any document or
instrument evidencing Debt incurred under any indenture, agreement or other
instrument under which such Debt may be issued, or any event to occur under any
of the foregoing which would permit any holder of the Debt outstanding
thereunder to declare the same due and payable before its stated maturity,
whether or not such acceleration occurs or such default be waived.
8. SECURITY AGREEMENT.
8.1 GRANT OF SECURITY INTEREST. To secure all Obligations hereunder as
well as all other Obligations to CNB, Borrower hereby grants and transfers to
CNB a continuing security interest in the following property whether now owned
or hereafter acquired:
8.1.1 All of Borrower's Inventory;,
17
8.1.2 All of Borrower's Accounts;
8.1.3 All of Borrower's general intangibles as that term is
defined in the Code;
8.1.4 All of Borrower's equipment, as that term is defined in the
Code;
8.1.5 All of Borrower's interest in any patents (now existing or
pending), copyrights, trade names, trademarks and service marks useful to the
operation of Borrower's business;
8.1.6 All notes, drafts, acceptances, instruments, documents of
title, policies and certificates of insurance, chattel paper, guaranties and
securities now or hereafter received by Borrower or in which Borrower has or
acquires an interest;
8.1.7 All cash and noncash proceeds of the foregoing property,
including, without limitation, proceeds of policies of fire, credit or other
insurance;
8.1.8 All of Borrower's books and records pertaining to any of the
Collateral described in this Section 8.1; and
8.1.9 Any other Collateral which CNB and Borrower may designate as
additional security from time to time by separate instruments.
8.2 NOTIFICATION OF ACCOUNT DEBTORS. CNB will have the fight to notify
any Account Debtor to make payments directly to CNB, take control of the cash
and noncash proceeds of any Account, and settle any Account, which fight CNB may
exercise at any time whether or not an Event of Default has occurred or whether
Borrower was theretofore making collections thereon. Until CNB elects to
exercise such right, Borrower is authorized on behalf of CNB to collect and
enforce the Accounts. Immediately upon CNB's request, Borrower will deliver to
CNB for application in accord with this Agreement, all checks, drafts, cash and
other remittances in payment or on account of payment of its Accounts on the
banking day following the receipt thereof, and in precisely the form received,
except for the endorsement of Borrower where necessary to permit collection of
the items, which endorsement Borrower hereby agrees to make. Pending such
delivery, Borrower will not commingle any such checks, cash, drafts and other
remittances with any of its other funds or property, but will hold them separate
and apart therefrom expressly in trust for CNB. All such remittances will be
accompanied by such statements and reports of collections and adjustments as CNB
may specify.
8.3 ATTORNEY-IN-FACT. CNB or any of its officers is hereby irrevocably
made the true and lawful attorney for Borrower with full power of substitution
to do the following: (a) endorse the name of Borrower upon any and all checks,
drafts, money orders and other instruments for the payment of moneys which are
payable to Borrower and constitute collections on Accounts; (b) execute in the
name of Borrower any schedules, assignments, instruments, documents and
statements which Borrower is obligated to give CNB hereunder: (c) receive, open
and dispose of all mail addressed to Borrower; (d) notify the Post Office
authorities to change the address for delivery of mail addressed to Borrower to
such address as CNB will designate; and (e) do such other acts in the name of
Borrower which CNB may deem necessary or desirable to enforce any Account or
other Collateral. The powers granted CNB hereunder are solely to protect its
interests in the Collateral and will not impose any duty upon CNB to exercise
any such powers.
18
9. EVENTS OF DEFAULT AND PROCEEDINGS UPON DEFAULT.
9.1 EVENTS OF DEFAULT. After expiration of any applicable cure period set
forth in Section 9.2, the following will constitute Events of Default under this
Agreement:
9.1.1 Borrower fails to pay when due any installment of principal
or interest or any other amount payable under this Agreement, including but not
limited to amounts payable under Section 2.1.2;
9.1.2 Any Person, or any Subsidiary of any Person, which is a
party to any Loan Document fails to perform or observe any of the terms,
provisions, covenants, agreements or obligations;
9.1.3 Any financial statement, representation or warranty made or
furnished by Borrower or any Subsidiary or Guarantor in connection with the Loan
Documents proves to be in any material respect incorrect;
9.1.4 The entry of an order for relief or the filing of an
involuntary petition with respect to Borrower or any Subsidiary or Guarantor
under the UNITED STATES BANKRUPTCY CODE; the appointment of a receiver, trustee,
custodian or liquidator of or for any part of the assets or property of Borrower
or any Subsidiary or Guarantor; or Borrower or any Subsidiary or Guarantor makes
a general assignment for the benefit of creditors;
9.1.5 CNB's security interest in or lien on any portion of the
Collateral becomes impaired or otherwise unenforceable;
9.1.6 Any Person obtains an order or decree in any court of
competent jurisdiction enjoining or prohibiting Borrower or CNB from performing
this Agreement, and such proceedings are not dismissed or such decree is not
vacated within ten (10) days after the granting thereof;
9.1.7 Borrower or any Subsidiary neglects, fails or refuses to
keep in full force and effect any governmental permit, license or approval which
is necessary to the operation of its business;
9.1.8 All or substantially all of the property of Borrower or any
Guarantor or Subsidiary is condemned, seized or otherwise appropriated;
9.1.9 The occurrence of (a) a Reportable Event (as defined in
ERISA) which CNB determines in good faith constitutes grounds for the
institution of proceedings to terminate any pension plan by the PBGC, (b) an
appointment of a trustee to administer any pension plan of Borrower, or (c) any
other event or condition which might constitute grounds under ERISA for the
involuntary termination of any pension plan of Borrower, where such event set
forth in (a), (b) or (c) results in a significant monetary liability to
Borrower;
9.1.10 Xxxxxxx Xxxxx and Xxxxx Xxxxxxx together no longer control
at least fifty one percent (51%) of the stock of Borrower except under the
conditions of an initial public offering;
9.1.11 Any obligee of Subordinated Debt fails to comply with the
provisions of the documents evidencing such Subordinated Debt or any
Subordination Agreement;
9.1.12 Any Guarantor dies, becomes incapacitated, or revokes his or
its Guaranty, or such Guaranty becomes otherwise unenforceable with respect to
future advances; or
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9.1.13 The Termination Date is not extended.
9.2 NOTICE OF DEFAULT AND CURE OF POTENTIAL EVENTS OF DEFAULT. Except
with respect to the Events of Default specified in Sections 9.1.1, 9.1.4 or
9.1.5 above, and subject to the provisions of Section 9.4, CNB will give
Borrower at least ten (10) days' written notice of any event which constitutes,
or with the lapse of time would become, an Event of Default, during which time
Borrower will be entitled to cure same.
9.3 CNB'S REMEDIES. Upon the occurrence of an Event of Default, at the
sole and exclusive option of CNB, and upon written notice to Borrower, CNB may
(a) declare the principal of and accrued interest on the Loans immediately due
and payable in full, whereupon the same will immediately become due and payable;
(b) terminate this Agreement as to any future liability or obligation of CNB,
but without affecting CNB's rights and security interest in the Collat eral and
without affecting the Obligations owing by Borrower to CNB; and/or (c) exercise
its rights and remedies under the Loan Documents and all rights and remedies of
a secured party under the Code and other applicable laws with respect to the
Collateral.
9.4 ADDITIONAL REMEDIES. Notwithstanding any other provision of this
Agreement, upon the occurrence of any event, action or inaction by Borrower, or
if any action or inaction is threatened which CNB reasonably believes will
materially affect the value of the Collateral, CNB may take such legal actions
as it deems necessary to protect the Collateral, including, but not limited to,
seeking injunctive relief and the appointment of a receiver, whether an Event of
Default or Potential Event of Default has occurred under this Agreement.
10. MISCELLANEOUS.
10.1 REIMBURSEMENT OF COSTS AND EXPENSES. Borrower will reimburse CNB for
all costs and expenses relating to this Agreement including, but not limited to,
filing, recording or search fees, audit or verification fees, appraisals of the
Collateral and other out-of-pocket expenses, and reasonable attorneys' fees and
expenses expended or incurred by CNB (or allocable to CNB's in-house counsel) in
documenting or administering the Loan Documents or collecting any sum which
becomes due CNB under the Loan Documents, irrespective of whether suit is filed,
or in the protection, perfection, preservation or enforcement of any and all
rights of CNB in connection with the Loan Documents, including, without
limitation, the fees and costs incurred in any out-of-court work-out or a
bankruptcy or reorganization proceeding.
10.2 DISPUTE RESOLUTION.
10.2.1 MANDATORY ARBITRATION. At the request of CNB or Borrower,
any dispute, claim or controversy of any kind (whether in contract or tort,
statutory or common law, legal or equitable) now existing or hereafter arising
between CNB and Borrower and in any way arising out of, pertaining to or in
connection with: (1) this Agreement, and/or any renewals, extensions, or
amendments thereto; (2) any of the Loan Documents; (3) any violation of this
Agreement or the Loan Documents; (4) all past, present and future loans; (5) any
incidents, omissions, acts, practices or occurrences arising out of or related
to this Agreement or the Loan Documents causing injury to either party whereby
the other party or its agents, employees or representatives may be liable, in
whole or in part, or (6) any aspect of the present or future relationships of
the parties, will be resolved through final and binding arbitration conducted at
a location determined by the arbitrator in Los Angeles, California, and
administered by the .American Arbitration Association ("AAA") in accordance with
the California Arbitration Act (Title 9, CALIFORNIA CODE OF CIVIL PROCEDURE
Section 1280 ET. SEQ.) and the then existing Commercial
20
Rules of the AAA. Judgment upon any award rendered by the arbitrator(s) may be
entered in any state or federal courts having jurisdiction thereof.
10.2.2 REAL PROPERTY COLLATERAL. Notwithstanding the provisions of
Section 10.2.1, no controversy or claim will be submitted to arbitration without
the consent of all the parties if, at the time of the proposed submission, such
controversy or claim arises from or relates to an obligation owed to CNB which
is secured in whole or in part by real property collateral. If all parties do
not consent to submission of such a controversy or claim to arbitration, the
controversy or claim will be determined as provided in Section 10.2.3.
10.2.3 JUDICIAL REFERENCE. At the request of any party, a
controversy or claim which is not submitted to arbitration as provided and
limited in Sections 10.2.1 and 10.2.2 will be determined by a reference in
accordance with CALIFORNIA CODE OF CIVIL PROCEDURE Sections 638 ET. SEQ. If such
an election is made, the parties will designate to the court a referee or
referees selected under the auspices of the AAA in the same manner as
arbitrators are selected in AAA-sponsored proceedings. The presiding referee of
the panel, or the referee if there is a single referee, will be an active
attorney or retired judge. Judgment upon the award rendered by such referee or
referees will be entered in the court in which such proceeding was commenced in
accordance with CALIFORNIA CODE OF CIVIL PROCEDURE Sections 644 and 645.
10.2.4 PROVISIONAL REMEDIES, SELF HELP AND FORECLOSURE. No
provision of this Agreement will limit the right of any party to: (1) foreclose
against any real property collateral by the exercise of a power of sale under a
deed of trust, mortgage or other security agreement or instrument, or applicable
law, (2) exercise any rights or remedies as a secured party against any personal
property collateral pursuant to the terms of a security agreement or pledge
agreement, or applicable law, (3) exercise serf help remedies such as setoff, or
(4) obtain provisional or ancillary remedies such as injunctive relief or the
appointment of a receiver from a court having jurisdiction before, during or
after the pendency of any arbitration or referral. The institution and
maintenance of an action for judicial relief or pursuit of provisional or
ancillary remedies, or exercise of self help remedies will not constitute a
waiver of the right of any party, including the plaintiff, to submit any dispute
to arbitration or judicial reference.
10.2.5 POWERS AND QUALIFICATIONS OF ARBITRATORS. The arbitrator(s)
will give effect to statutes of limitation, waiver and estoppel and other
affirmative defenses in determining any claim. Any controversy concerning
whether an issue is arbitratable will be determined by the arbitrator(s). The
laws of the State of California will govern. The arbitration award may include
equitable and declaratory relief. All arbitrator(s) selected will be required
to be a practicing attorney or retired judge licensed to practice law in the
State of California and will be required to be experienced and knowledgeable in
the substantive laws applicable to the subject matter of the controversy or
claim at issue.
10.2.6 DISCOVERY. The provisions of CALIFORNIA CODE OF CIVIL
PROCEDURE Section 1283.05 or its successor section(s) are incorporated herein
and made a part of this Agreement. Depositions may be taken and discovery may
be obtained in any arbitration under this Agreement in accordance with said
section(s).
10.2.7 MISCELLANEOUS. The arbitrator(s) will determine which is
the prevailing party and will include in the award that party's reasonable
attorneys' fees and costs (including allocated costs of in-house legal counsel).
Each party agrees to keep all controversies and claims and the
21
arbitration proceedings strictly confidential, except for disclosures of
information required in the ordinary course of business of the parties or by
applicable law or regulation.
10.3 CUMULATIVE RIGHTS AND NO WAIVER. All rights and remedies granted to
CNB under the Loan Documents are cumulative and no one such right or remedy is
exclusive of any other. No failure or delay on the part of CNB in exercising any
right or remedy will operate as a waiver thereof, and no single or partial
exercise or waiver by CNB of any such right or remedy will preclude any further
exercise thereof or the exercise of any other right or remedy.
10.4 APPLICABLE LAW. This Agreement will be governed by California law.
10.5 LIEN AND RIGHT OF SET-OFF. Borrower grants to CNB a continuing lien
for all Obligations of Borrower to CNB upon any and all moneys, securities and
other property of Borrower and the proceeds thereof, now or hereafter held or
received by or in transit to CNB from or for Borrower, whether for safekeeping,
custody, pledge, transmission, collection or otherwise, and also upon any and
all deposits (general or special) and credits of Borrower with, and any and all
claims of Borrower against, CNB at any time existing. Upon the occurrence of
any Event of Default, CNB is hereby authorized at any time and from time to
time, without notice to Borrower or any other Person to setoff, appropriate and
apply any or all items hereinabove referred to against all Obligations of
Borrower whether under this Agreement or otherwise, and whether now existing or
hereafter arising.
10.6 NOTICES. Any notice required or permitted under any Loan Document
will be given in writing and will be deemed to have been given when personally
delivered or when sent by the U.S. mail, postage prepaid, certified, return
receipt requested, properly addressed. For the purposes hereof, the addresses
of the parties will, until further notice given as herein provided, be as
follows:
CNB: City National Bank
00000 Xxxxxxxxxx Xxxxxxx Xxxxx
Xxxx xx Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Account Manager
with copy to: City National Bank, Legal Department
400 North Roxbury Drive, Fifth Floor
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000-0000
Attention: Managing Counsel, Credit Unit
Borrower: Signature Eyewear, Inc.
000 Xxxxx Xxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxx, President
10.7 ASSIGNMENTS. The provisions of this Agreement are hereby made
applicable to and will inure to the benefit of CNB's successors and assigns and
Borrower's successors and assigns; provided, however, that Borrower may not
assign or transfer its rights or obligations under this Agreement without the
prior written consent of CNB.
10.8 INDEMNIFICATION. Borrower will, at all times, defend and indemnify
and hold CNB harmless from and against any and all Claims (as that term is
defined in Section 5.13.4) arising out of or resulting from (a) any breach of
the representations, warranties, agreements or covenants made by Borrower
herein; (b) any suit or proceeding of any kind or nature whatsoever against CNB
arising from or connected with the transactions contemplated by this Agreement,
22
the Loan Documents or any of the rights and properties assigned to CNB
hereunder; and/or (c) any suit or proceeding that CNB may deem necessary or
advisable to institute, in the name of CNB, Borrower or both, against any other
Person, for any reason whatsoever to protect the rights of CNB hereunder or
under any of the documents, instruments or agreements executed or to be executed
pursuant hereto, including attorneys' fees and court costs and all other costs
and expenses incurred by CNB (or allocable to CNB's in-house counsel), all of
which will be charged to and paid by Borrower and will be secured by the
Collateral. Any obligation or liability of Borrower to CNB under this Section
will survive the Termination Date and the repayment of all Loans and other
extensions of credit and the payment or performance of all other Obligations of
Borrower to CNB.
10.9 COMPLETE AGREEMENT. This Agreement, together with other Loan
Documents, constitutes the entire agreement of the parties and supersedes any
prior or contemporaneous oral or written agreements or understandings, if any,
which are merged into this Agreement. This Agreement may be amended only in a
writing signed by Borrower and CNB.
10.10 HEADINGS. Section headings in this Agreement are included for
convenience of reference only and do not constitute a part of the Agreement for
any purpose.
10.11 ACCOUNTING TERMS. Except as otherwise stated in this Agreement,
all accounting terms and financial covenants and information will be construed
in conformity with, and all financial data required to be submitted will be
prepared in conformity with, GAAP as in effect on the date hereof.
10.12 SEVERABILITY. Any provision of the Loan Documents which is
prohibited or unenforceable in any jurisdiction, will be, only as to such
jurisdiction, ineffective to the extent of such prohibition or unenforceability,
but all the remaining provisions of the Loan Documents will remain valid.
10.13 COUNTERPARTS. This Agreement may be signed in any number of
counterparts which, when taken together, will constitute but one agreement.
10.14 JOINT AND SEVERAL. Should more than one Person sign this
Agreement, the obligations of each signer will be joint and several.
IN WITNESS WHEREOF, CNB and Borrower have caused this Agreement to be
executed as of the date first specified at the beginning of this Agreement.
Signature Eyewear, Inc., a
California corporation
By: /s/ Xxxxx Xxxxxxx
----------------------------------
Xxxxx Xxxxxxx, President
City National Bank, a national
banking association
By: /s/ Xxxxxxx X. Xxxxxx
----------------------------------
Xxxxxxx X. Xxxxxx, Vice President
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EXHIBIT A
NOTICE OF BORROWING
This Notice of Borrowing ("Notice") is executed and delivered by SIGNATURE
EYEWEAR, INC., a California. corporation ("Borrower"), to CITY NATIONAL BANK, a
national banking association ("CNB"), pursuant to Accounts Receivable and
Inventory Loan Agreement "(Agreement") entered into by Borrower and CNB as of
April 21, 1997 (Agreement). Terms not defined herein will have the meanings
defined in the Agreement.
1. REQUEST FOR A REVOLVING CREDIT LOAN. Borrower requests a Revolving Credit
Loan as follows:
1.1 Interest Selection- State "LIBOR" or "Prime": ____________________
1.2 Principal Amount of Loan: $______________________ [IF LIBOR LOAN,
MINIMUM OF $500,000]
1.3 LIBOR Loan- Effective Date of Interest Period:_____________________,
19___
1.4 LIBOR Loan - Interest Period: __________ one (1), two (2), three (3),
or six (6) month(s) [up to 180 days only]
2. CONVERSION TO LIBOR LOAN. Borrower requests conversion of the outstanding
Prime Loan to a LIBOR Loan.
2.1 Effective Date of Conversion:_____________________, 19__
2.2 Principal Amount of Conversion: $________________ [MINIMUM OF
$500,000]
2.3 Interest Period:________ one (1), two (2), three (3), or six (6)
month(s) [up to 180 days only]
3. RENEWAL OF LIBOR LOAN. Borrower requests renewing an outstanding LIBOR
Loan as follows:
3.1 Principal Amount of Renewal of LIBOR Loan: $_______________ [MINIMUM
OF $500,000] (Amount of LIBOR Loan not renewed as a LIBOR Loan will be
a Prime Loan)
3.2 Date of Renewal:___________________,19___ [LAST DATE OF CURRENT
INTEREST PERIOD]
3.3 Interest Period:______________ 1 (one), two (2), three (3), or six (6)
month(s) [up to 180 days only]
4. CONVERSION TO PRIME LOAN. A LIBOR Loan will automatically convert to a
Prime Loan at the end of an Interest Period if CNB fails to timely receive a
Notice for an outstanding LIBOR Loan.
5. WARRANTY. In connection with the action requested herein, Borrower hereby
represents and warrants to CNB that, as of the date of such request, no Event of
Default has occurred and is continuing.
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This Notice is executed on ______________,19___ by an authorized officer of
Borrower, on behalf of Borrower.
"Borrower" Signature Eyewear, Inc., a
California corporation
By:
---------------------------------
Its:
--------------------------------
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