EXHIBIT 10.6
February 29, 1996
EMCON
000 Xxxxx Xx Xxxxxx Xxxx
Xxxxx 0000
Xxx Xxxxx, XX 00000
Attn: R. Xxxxxxx Xxxxxxxxx, CFO
RE: FIXED RATE AMORTIZING OPTION AGREEMENT
Dear Xx. Xxxxxxxxx:
As of this date, EMCON has entered into a Credit Agreement with The
Bank of California, N. A. ("Bank") pursuant to which EMCON has a $10,000,000
term loan facility ("Term Loan"), the terms and conditions of which are governed
by the Credit Agreement, a Term Loan Note, and various other documents ("Loan
Documents"). In conjunction with your Term Loan, Bank is pleased to offer you a
chance to participate in a special commercial pricing program.
1. AVAILABILITY AND MATURITY
Bank usually extends financing based on a fluctuating rate that
changes with the rate the Bank announces to be in effect from time to time as
its prime rate ("Prime Rate"). The Prime Rate is a rate set by Bank based on
various factors, including general economic and market conditions, and is used
as a reference point in pricing certain loans. Bank may price its loans at,
above or below the Prime Rate.
In contrast, Bank's Amortizing Term Loan Fixed Rate ("ATLF Rate") is a
fixed rate (more fully defined below) the Bank offers from time to time which,
if you accept this proposal will apply to all or such portion of the principal
amount outstanding under the Term Loan ("Covered Amount") and for such time
periods as you and Bank shall mutually agree. Pricing tied to the ATLF Rate is
available for one period of 12 to 84 months duration (the "Period"); provided,
however, that the last day of the Period must coincide with the scheduled
maturity date of the Term Loan. This pricing may be applied to Covered Amounts
in a minimum of $1,000,000 and additional increments of $500,000 outstanding
under the Term Loan.
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Bank's ATLF Rate is a rate comprised of (a) the blended rate per annum
which Bank calculates in good faith, at which funds in the amount of the Covered
Amount with an amortization schedule comparable to that required by the terms of
the Term Loan would be available to Bank in the ordinary course of Bank's
business on the first day of the Period, adjusted for the then maximum reserve,
capital adequacy, deposit insurance, and similar requirements that under any
circumstance could be applicable to Bank pursuant to applicable law or
regulation, and other amounts associated with Bank's costs and desired return;
plus (b) a margin equal to one and one-half percent (1.50%).
The ATLF Rate is available and may be accepted only at the time quoted
by Bank. Due to changes in legal, regulatory, economic or market conditions,
Bank may at any time determine that the ATLF Rate is not available, and thus,
may be unable to offer such a rate.
2. QUOTE, THE ATLF RATE, AND PAYMENTS
For a quote of the ATLF Rate which would apply to the specified
Covered Amount and Period, you may call Bank's San Mateo Regional Office between
8:00 a.m. and 11:00 a.m. Pacific time on any day on which such office and Bank's
San Francisco Main Office are open for business to the public. If you accept the
ATLF Rate when offered, that rate will apply to such Covered Amount for the
entire Period.
During the Period, you agree to pay interest on the Covered Amount at
the ATLF Rate on the last day of each consecutive month, beginning the first
such date after the commencement of the Period, and continuing through and on
the maturity date for the Term Loan, whether scheduled or accelerated ("Maturity
Date"). Each regularly scheduled principal payment date under the Term Loan is a
"Principal Payment Date." During each Period, you must maintain under your Term
Loan a portion of the principal balance which is not a Covered Amount under any
of your rate option agreements with Bank sufficient to cover each scheduled
instalment of principal coming due under the Term Loan. Should you have any
obligation under any other Loan Document to repay any portion of the Term Loan
("Obligation") that would conflict with your obligation under the preceding
sentence ("Maintenance Obligation"), you shall nevertheless comply with the
Obligation and not with the Maintenance Obligation, and you shall not be deemed
in default hereunder. Nonetheless, payment of the Obligation shall be deemed to
be a "Prepayment", as defined below, to the extent it repays a portion of a
Covered Amount under this or any of your other rate option agreements you may
have with Bank.
Bank's records of the date, Covered Amount, ATLF Rate, Period, and all
payments of principal and interest, and all other payments and amounts due under
this letter agreement shall be conclusive and binding on you, absent obvious
error.
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3. PREPAYMENT LIMITATION
Do not sign this letter agreement before you read it. This letter
agreement provides for payment of liquidated damages if you wish to
repay the loan (Covered Amount) prior to the date provided for
repayment under the Term Loan.
Bank establishes the ATLF Rate with the understanding it will apply to
the Covered Amount for the entire Period. If, for any reason, including without
limitation, acceleration, foreclosure or prepayment, Bank receives all or any
portion of a Covered Amount (each a "Prepayment") prior to the Maturity Date
(but excluding each payment of principal required under the Term Loan which is
paid on its applicable Principal Payment Date), then in consideration thereof,
you shall pay to Bank on demand:
a. The amount ("Prepayment Liquidated Damages"), if any, by which the
additional interest that would have been payable on the Prepayment
exceeds the interest the Bank would receive had it placed an amount
equal to the Prepayment in the types of United States Treasury
securities described in the calculation below. The date the Prepayment
is received by Bank in immediately available funds is the "Prepayment
Effective Date". The amount of Prepayment Liquidated Damages will be
calculated in accordance with the following formula, with all
Prepayments applied first to the remote instalment(s) of principal
then unpaid under the Term Loan:
Prepayment Liquidated Damages = P x (L-T) x N
Where
P = the total dollar amount of the Prepayment;
N = the weighted average number of years
remaining to maturity from the Prepayment
Effective Date for P, where each successive
year ("Year") used to calculate N is
measured at its midpoint (i.e, 0.5 years,
1.5 years, 2.5 years, etc.) and is weighted
by the cumulative dollar amount of
Prepayments applied during that Year,
rounded to the next highest half-year;
L = the ATLF Rate expressed in annualized decimal
form ("annualized" means not modified for
number of days);
T = the "annualized" fixed rate for a United
States Treasury security with a maturity
equal to N where the rate is quoted on a
bond equivalent basis (that is, the security
is deemed to require semi-annual interest
payments with interest calculated on an
actual 365/366-day basis) in decimal form. T
will be calculated by interpolating the
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rates for Treasury constant maturities
included in the H.15 statistical release
published by the Federal Reserve for the
latest weekly period prior to the Prepayment
Effective Date.
Bank may rely upon reports transmitted by the Dow Xxxxx Telerate
service, the Bloomberg Financial Markets, Commodities, and News
service, or any other news service it deems reputable to timely obtain
values for rates on Treasury constant maturities. If the prepayment
calculation requires the rate for a maturity that is not available in
the H.15 Treasury constant maturities or if the H.15 release is
unavailable, Bank at its discretion may substitute market yields on
United States Treasury securities that it deems to be a current issue
with the appropriate maturity required to obtain the interpolated rate
defined by T. In a case where market yields on current issue Treasury
securities are utilized, Bank will use yield values for the business
day prior to the Prepayment Effective Date and may depend upon such
values reported by a financial news service Bank deems reputable.
If T is greater than or equal to L at the time of calculation, no
payment of any kind is required.
b. Any other out of pocket costs to Bank associated with funding
or maintaining the Covered Amount.
Bank shall provide you a statement of the amount payable on account of
each Prepayment, which statement shall be a conclusive and binding determination
of the amount owed by you for such Prepayment, absent obvious error.
You acknowledge that any Prepayment may result in Bank incurring
additional costs, expenses or liabilities. Therefore, you agree to pay the
above-described liquidated damages and agree that said amount is a reasonable
estimate of the costs, expenses and liabilities of Bank associated with each
Prepayment.
4. RESERVES, DEPOSIT INSURANCE, CAPITAL ADEQUACY
You shall additionally compensate Bank upon demand for all costs
incurred, or losses suffered, including without limitation lost profits, by
reason of:
a. any and all increases in reserve, deposit insurance, capital
adequacy or similar requirements against (or against any class of or
change in or in the amount of) the assets or liabilities of Bank,
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deposits with or for the account of Bank, or loans by Bank, imposed by
any governmental or regulatory authority (whether or not having the
force of law) in connection with a Covered Amount bearing interest at
the ATLF Rate; or
b. compliance by Bank with any direction, requirement or request from
any governmental or regulatory authority (whether or not having the
force of law) in connection with a Covered Amount bearing interest at
the ATLF Rate to the extent any such costs have not been previously
blended or adjusted into the ATLF Rate.
Bank shall provide you a written statement of the amount and basis of
its request for compensation under this Section, which statement shall be a
conclusive and binding determination of the amount owed by you, absent obvious
error.
5. GENERAL PROVISIONS
a. To the extent interest rates, prepayment provisions and times for
payment of interest established under this letter agreement are
different than the terms of the note evidencing the Term Loan, the
terms of this letter agreement shall prevail. All other provisions of
the Loan Documents remain in full force and effect.
b. This letter agreement shall be governed by the laws of the State of
California.
c. This letter agreement, and all confirmations provided hereunder,
evidence the entire agreement of the parties on the matters covered
herein, and supersede all prior understandings and agreements.
If you would like to participate in the Bank's ATLF Rate Option
program, please execute the enclosed duplicate original of this letter and
return it to Bank, on or before February 29, 1996, at which time the option
granted in this letter will otherwise expire.
Bank is pleased to serve you.
Very truly yours,
THE BANK OF CALIFORNIA, N.A.
By: /S/
---------------------
Xxxxx X. Xxxxxxx, V.P.
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ACCEPTED AND AGREED:
EMCON
By: /s/
---------------------
Name: R. Xxxxxxx Xxxxxxxxx
Title: CFO & V.P. - Legal
Dated: February 29, l996
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