EXHIBIT 10.3
STANDARD LOAN AGREEMENT
By and Between
BANK OF AMERICA, N.A.
and
POINT.360
Dated as of March 29, 2006
LOAN AGREEMENT
This Agreement dated as of March 29, 2006, is between Bank of America,
N.A. (the "Bank") and Point.360 (the "Borrower").
1. DEFINITIONS
In addition to the terms which are defined elsewhere in this Agreement,
the following terms have the respective meanings indicated for the purposes of
this Agreement:
"Acceptable Receivable" means an account receivable which satisfies the
following requirements:
(a) The account has resulted from the sale of goods or the performance of
services by the Borrower in the ordinary course of the Borrower's
business and without any further obligation on the part of the Borrower
to service, repair, or maintain any such goods sold other than pursuant
to any applicable warranty.
(b) There are no conditions which must be satisfied before the Borrower is
entitled to receive payment of the account. Accounts arising from COD
sales, consignments or guaranteed sales are not acceptable.
(c) The debtor upon the account does not claim any defense to payment of the
account, whether well founded or otherwise.
(d) The account is not the obligation of an account debtor who has asserted
or may assert any counterclaims or offsets against the Borrower
(including offsets for any "contra accounts" owned by the Borrower to
the account debtor for goods purchased by the Borrower or for services
performed for the Borrower).
(e) The account represents a genuine obligation of the debtor for goods sold
to and accepted by the debtor, or for services performed for and
accepted by the debtor. To the extent any credit balances exist in favor
of the debtor, such credit balances shall be deducted from the account
balance.
(f) The account balance does not include the amount of any finance or
service charges payable by the account debtor. To the extent any finance
charges or service charges are included, such amounts shall be deducted
from the account balance.
(g) The Borrower has sent an invoice to the debtor in the amount of the
account.
(h) The Borrower is not prohibited by the laws of the state where the
account debtor is located from bringing an action in the courts of that
state to enforce the debtor's obligation to pay the account. The
Borrower has taken all appropriate actions to ensure access to the
courts of the state where the account debtor is located, including,
where necessary, the filing of a Notice of Business Activities Report or
other similar filing with the applicable state agency or the
qualification by the Borrower as a foreign corporation authorized to
transact business in such state.
(i) The account is owned by the Borrower free of any title defects or any
liens or interests of others except the security interest in favor of
the Bank.
(j) The debtor upon the account is not any of the following:
(i) An employee, affiliate, parent or subsidiary of the Borrower, or
an entity which has common officers or directors with the
Borrower.
(ii) The U.S. government or any agency of department of the U.S.
government unless the Bank agrees in writing to accept the
obligation, the Borrower complies with the procedures in the
Federal Assignment of Claims Act of 1940 (41 U.S.C. ss. 15) with
respect to the obligation, and the underlying contract expressly
provides that neither the U.S. government nor any agency or
department thereof shall have the right of set-off against the
Borrower.
(iii) Any state, county, city or town or municipality.
(iv) Any person or entity located in a foreign country.
(k) The account is not in default. An account will be considered in default
if any of the following occur:
(i) The account is not paid within 90 days from its invoice date or
60 days from its due date, whichever occurs first, provided that,
so long as NewsCorp maintains a credit rating of not lower than
BBB by Standard & Poors, accounts in an aggregate amount at any
time of up to Five Hundred Thousand Dollars ($500,000) owed to
the Borrower by 20th Century Fox may be outstanding for up to 120
days from their invoice date or 90 days from their due date,
whichever occurs first;
(ii) the debtor obligated upon the account suspends business, makes a
general assignment for the benefit of creditors, or fails to pay
its debts generally as they come due; or
(iii) any petition is filed by or against the debtor obligated upon the
account under any bankruptcy law or any other law or laws for the
relief of debtors.
(l) The account is not the obligation of a debtor who is in default (as
defined above) on 50% or more of the accounts upon which such debtor is
obligated.
(m) The account does not arise from the sale of goods which remain in the
Borrower's possession or under the Borrower's control.
(n) The account is not evidenced by a promissory note or chattel paper, nor
is the account debtor obligated to the Borrower under any other
obligation which is evidenced by a promissory note.
(o) The account is otherwise acceptable to the Bank.
In addition to the foregoing limitations, the dollar amount of accounts
included as Acceptable Receivables which are the obligations of a single debtor
shall not exceed the concentration limit established for that debtor. To the
extent the total of such accounts exceed a debtor's concentration limit, the
amount of any such excess shall be excluded. The concentration limit for each
debtor shall be equal to 20% of the total amount of the Borrower's Acceptable
Receivables at that time, provided that, so long as NewsCorp maintains a credit
rating of not lower than BBB by Standard & Poors, the concentration limit for
20th Century Fox shall be equal to 30% of the total amount of the Borrower's
Acceptable Receivables at any time.
"Borrowing Base" means 80% of the balance due on Acceptable Receivables.
After calculating the Borrowing Base as provided above, the Bank may
deduct such reserves as the Bank may establish from time to time in its
reasonable credit judgment, including, without limitation, reserves for rent at
leased locations subject to statutory or contractual landlord's liens, dilution,
and the amount of estimated maximum exposure, as determined by the Bank from
time to time, under any interest rate contracts which the Borrower enters into
with the Bank (including interest rate swaps, caps, floors, options thereon,
combinations thereof, or similar contracts).
"Borrowing Certificate" means a certificate setting forth a calculation
of the Acceptable Receivables and the Borrowing Base, substantially in the form
of Exhibit A attached hereto.
"Credit Limit" means the amount of Ten Million Dollars ($10,000,000).
"Guarantor " means International Video Conversions, Inc., a California
corporation and a wholly-owned subsidiary of Borrower.
2. THE FACILITY: LINE OF CREDIT AMOUNT AND TERMS
2.1 Line of Credit Amount.
(a) During the availability period described below, the Bank will provide a
line of credit (the "Facility") to the Borrower. The amount of the
Facility (the "Facility Commitment") is equal to the lesser of (i) the
Credit Limit or (ii) the Borrowing Base as determined by the Bank from
time to time in accordance with this Agreement.
(b) The Facility is a revolving line of credit. During the availability
period, the Borrower may repay principal amounts and reborrow them.
(c) The Borrower agrees not to permit the principal balance outstanding to
exceed the Facility Commitment. If the Borrower exceeds this limit, the
Borrower will immediately pay the excess to the Bank upon the Bank's
demand.
2.2 Availability Period.
The Facility is available between the date of this Agreement and March __, 2008,
or such earlier date as the availability may terminate as provided in this
Agreement (the "Facility Expiration Date").
The availability period for the Facility will be considered renewed if and only
if the Bank has sent to the Borrower a written notice of renewal effective as of
the Facility Expiration Date for the Facility (the "Renewal Notice"). If the
Facility is renewed, it will continue to be subject to all the terms and
conditions set forth in this Agreement except as modified by the Renewal Notice.
If the Facility is renewed, the term "Expiration Date" shall mean the date set
forth in the Renewal Notice as the Expiration Date and the same process for
renewal will apply to any subsequent renewal of the Facility. A renewal fee may
be charged at the Bank's option. The amount of the renewal fee will be specified
in the Renewal Notice.
2.3 Conditions to Availability of Credit.
In addition to the items required to be delivered to the Bank under the
paragraph entitled "Financial Information" in the "Covenants" section of this
Agreement, the Borrower will promptly deliver the following to the Bank at such
times as may be requested by the Bank:
(a) A borrowing certificate, in form and detail satisfactory to the Bank,
setting forth the Acceptable Receivables on which the requested
extension of credit is to be based.
(b) Copies of the invoices or the record of invoices from the Borrower's
sales journal for such Acceptable Receivables and a listing of the names
and addresses of the debtors obligated thereunder.
(c) Copies of the delivery receipts, purchase orders, shipping instructions,
bills of lading and other documentation pertaining to such Acceptable
Receivables.
(d) Copies of the cash receipts journal pertaining to the borrowing
certificate.
2.4 Repayment Terms.
(a) The Borrower will pay interest on May 1, 2006, and then on the first day
of each month thereafter until payment in full of any principal
outstanding under the Facility.
(b) The Borrower will repay in full any principal, interest or other charges
outstanding under the Facility no later than the Facility Expiration
Date.
(c) Any interest period for an optional interest rate (as described below)
shall expire no later than the Facility Expiration Date.
2.5 Interest Rate.
(a) The interest rate is a rate per year equal to the Bank's Prime Rate plus
the Applicable Margin as defined below.
(b) The Prime Rate is the rate of interest publicly announced from time to
time by the Bank as its Prime Rate. The Prime Rate is set by the Bank
based on various factors, including the Bank's costs and desired return,
general economic conditions and other factors, and is used as a
reference point for pricing some loans. The Bank may price loans to its
customers at, above, or below the Prime Rate. Any change in the Prime
Rate shall take effect at the opening of business on the day specified
in the public announcement of a change in the Bank's Prime Rate.
2.6 Optional Interest Rates.
Instead of the interest rate based on the rate stated in the paragraph entitled
"Interest Rate" above, the Borrower may elect the optional interest rate listed
below for the Facility during interest periods agreed to by the Bank and the
Borrower. The optional interest rate shall be subject to the terms and
conditions described later in this Agreement. Any principal amount bearing
interest at the optional rate under this Agreement is referred to as a
"Portion." The following optional interest rate is available:
The LIBOR Rate plus the Applicable ▇▇▇▇▇ n as defined below.
2.7 Applicable Margin.
For the first six (6) months of the term of this Agreement (the "Initial Pricing
Period"), the Applicable Margin for advances bearing interest on the basis of
the Prime Rate shall be minus one-half (0.50) percentage point per annum and the
Applicable Margin for advances bearing interest on the basis of the LIBOR Rate
shall be plus one and eighty-five one hundredths (1.85) percentage points per
annum. Following the Initial Pricing Period, the Applicable Margin shall be the
following amounts per annum, based upon the Fixed Charge Coverage Ratio (as
defined in the "Covenants" section of this Agreement), as set forth in the most
recent compliance certificate (or, if no compliance certificate is required, the
Borrower's most recent financial statements) received by the Bank as required in
the Covenants section:
Applicable Margin
(in percentage points per annum)
Pricing Level Fixed Charge
Coverage Ratio Prime Rate + LIBOR RATE +
--------------- ------------------ --------------------- ---------------------
1 < 1.15x 0.00 2.50
-
2 < 1.25x (0.25) 2.25
-
3 < 1.35x (0.50) 2.00
-
4 < 1.50x (0.75) 1.75
-
5 > 1.50x (1.00) 1.50
Except during the Initial Pricing Period, the Applicable Margin shall be in
effect from the date the most recent compliance certificate or financial
statement is received by the Bank until the date the next compliance certificate
or financial statement is received; provided, however, that if the Borrower
fails to timely deliver the next compliance certificate or financial statement,
the Applicable Margin from the date such compliance certificate or financial
statement was due until the date such compliance certificate or financial
statement is received by the Bank shall be the highest pricing level set forth
above.
2.8 Standby Letters of Credit.
(a) During the availability period, at the request of the Borrower, the Bank
will issue standby letters of credit with a maximum maturity of 365 days
but not to extend beyond the Facility Expiration Date. The standby
letters of credit may include a provision providing that the maturity
date will be automatically extended each year for an additional year
unless the Bank gives written notice to the contrary; provided, however,
that each standby letter of credit must include a final maturity date of
not later than one hundred eighty (180) days after the Facility
Expiration Date and which will not be subject to automatic extension.
(b) The amount of the standby letters of credit outstanding at any one time
(including the drawn and unreimbursed amounts of the standby letters of
credit) may not exceed One Million Dollars ($1,000,000).
(c) In calculating the principal amount outstanding under the Facility
Commitment, the calculation shall include the amount of any standby
letters of credit outstanding, including amounts drawn on any standby
letters of credit and not yet reimbursed.
(d) The Borrower agrees:
(i) Any sum drawn under a standby letter of credit may, at the option
of the Bank, be added to the principal amount outstanding under
this Agreement. The amount will bear interest and be due as
described elsewhere in this Agreement.
(ii) If there is a default under this Agreement, to immediately prepay
and make the Bank whole for any outstanding standby letters of
credit.
(iii) The issuance of any standby letter of credit and any amendment to
a standby letter of credit is subject to the Bank's written
approval and must be in form and content satisfactory to the Bank
and in favor of a beneficiary acceptable to the Bank.
(iv) To sign the Bank's form Application and Agreement for Standby
Letter of Credit.
(v) To pay any issuance and/or other fees that the Bank notifies the
Borrower will be charged for issuing and processing standby
letters of credit for the Borrower.
(vi) To allow the Bank to automatically charge its checking account
for applicable fees, discounts, and other charges.
(vii) To pay the Bank a non-refundable fee equal to one and one-half
percent (1.5%) per annum of the outstanding undrawn amount of
each standby letter of credit, payable annually in advance,
calculated on the basis of the face amount outstanding on the day
the fee is calculated. If there is a default under this
Agreement, at the Bank's option, the amount of the fee shall be
increased to six percent (6%) per annum, effective starting on
the day the Bank provides notice of the increase to the Borrower.
3. OPTIONAL INTEREST RATE
3.1 Optional Rates.
The optional interest rate provided for in Paragraph 1.7 is a rate per year.
Interest will be paid on the first day of the first month following the
commencement of the applicable interest period, and then on the same day of each
month thereafter until payment in full of any principal outstanding under this
Agreement. No Portion will be converted to a different interest rate during the
applicable interest period. Upon the occurrence of an event of default under
this Agreement, the Bank may terminate the availability of the optional interest
rate for interest periods commencing after the default occurs. At the end of any
interest period, the interest rate will revert to the rate stated in the
paragraph(s) entitled "Interest Rate" above, unless the Borrower has designated
another optional interest rate for the Portion.
3.2 LIBOR Rate.
The election of the LIBOR Rate shall be subject to the following terms and
requirements:
(a) The interest period during which the LIBOR Rate will be in effect will
be 30, 60 or 90 days or one year. The first day of the interest period
must be a day other than a Saturday or a Sunday on which banks are open
for business in New York and London and dealing in offshore dollars (a
"LIBOR Banking Day"). The last day of the interest period and the actual
number of days during the interest period will be determined by the Bank
using the practices of the London inter-bank market.
(b) Each LIBOR Rate Portion will be for an amount not less than Five Hundred
Thousand Dollars ($500,000).
(c) The "LIBOR Rate" means the interest rate determined by the following
formula. (All amounts in the calculation will be determined by the Bank
as of the first day of the interest period.)
LIBOR Rate = London Inter-Bank Offered Rate
(1.00 - Reserve Percentage)
Where,
(i) "London Inter-Bank Offered Rate" means, for any applicable
interest period, the rate per annum equal to the British Bankers
Association LIBOR Rate ("BBA LIBOR"), as published by Reuters (or
other commercially available source providing quotations of BBA
LIBOR as selected by the Bank from time to time) at approximately
11:00 a.m. London time two (2) London Banking Days before the
commencement of the interest period, for U.S. Dollar deposits
(for delivery on the first day of such interest period) with a
term equivalent to such interest period. If such rate is not
available at such time for any reason, then the rate for that
interest period will be determined by such alternate method as
reasonably selected by the Bank. A "London Banking Day" is a day
on which banks in London are open for business and dealing in
offshore dollars.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by
member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in Federal Reserve Board Regulation D,
rounded upward to the nearest 1/100 of one percent. The
percentage will be expressed as a decimal, and will include, but
not be limited to, marginal, emergency, supplemental, special,
and other reserve percentages.
(d) The Borrower shall irrevocably request a LIBOR Rate Portion no later
than 12:00 noon Pacific time on the LIBOR Banking Day preceding the day
on which the London Inter-Bank Offered Rate will be set, as specified
above. For example, if there are no intervening holidays or weekend days
in any of the relevant locations, the request must be made at least
three days before the LIBOR Rate takes effect.
(e) The Bank will have no obligation to accept an election for a LIBOR Rate
Portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for periods equal to
the interest period, of a LIBOR Rate Portion are not available in
the London inter-bank market; or
(ii) the LIBOR Rate does not accurately reflect the cost of a LIBOR
Rate Portion.
(f) Each prepayment of a LIBOR Rate Portion, whether voluntary, by reason of
acceleration or otherwise, will be accompanied by the amount of accrued
interest on the amount prepaid and a prepayment fee as described below.
A "prepayment" is a payment of an amount on a date earlier than the
scheduled payment date for such amount as required by this Agreement.
(g) The prepayment fee shall be in an amount sufficient to compensate the
Bank for any loss, cost or expense incurred by it as a result of the
prepayment, including any loss of anticipated profits and any loss or
expense arising from the liquidation or reemployment of funds obtained
by it to maintain such Portion or from fees payable to terminate the
deposits from which such funds were obtained. The Borrower shall also
pay any customary administrative fees charged by the Bank in connection
with the foregoing. For purposes of this paragraph, the Bank shall be
deemed to have funded each Portion by a matching deposit or other
borrowing in the applicable interbank market, whether or not such
Portion was in fact so funded.
4. FEES AND EXPENSES
4.1 Fees.
(a) Closing Fee. The Borrower agrees to pay a loan fee in the amount of
Fifty Thousand Dollars ($50,000). This fee is due on the date of this
Agreement. The Bank acknowledges receipt of the Borrower's prior payment
of an arrangement fee of Twenty-Five Thousand Dollars ($25,000) in
connection with the Borrower's acceptance of the Bank's commitment
letter to the Borrower dated January 5, 2006 (the "Arrangement Fee") and
the Bank will credit the full amount of the Arrangement Fee toward the
closing fee payable under this Section 3.1(a).
(b) Unused Commitment Fee. The Borrower agrees to pay a fee on any
difference between the Facility Commitment and the amount of credit it
actually uses, determined by the average of the daily amount of credit
outstanding during the specified period. The fee will be calculated at
0.25% per year. The calculation of credit outstanding shall include the
undrawn amount of letters of credit. This fee is due in arrears on April
1, 2006, and on the same day of each following quarter in arrears until
the expiration of the availability period.
(c) Waiver Fee. If the Bank, at its discretion, agrees to waive or amend any
terms of this Agreement, the Borrower will, at the Bank's option, pay
the Bank a fee for each waiver or amendment in an amount advised by the
Bank at the time the Borrower requests the waiver or amendment. Nothing
in this paragraph shall imply that the Bank is obligated to agree to any
waiver or amendment requested by the Borrower. The Bank may impose
additional requirements as a condition to any waiver or amendment.
(d) Late Fee. To the extent permitted by law, the Borrower agrees to pay a
late fee in an amount not to exceed four percent (4%) of any payment
that is more than fifteen (15) days late. The imposition and payment of
a late fee shall not constitute a waiver of the Bank's rights with
respect to the default, including Bank's right to charge interest at the
default interest rate provided for in Section 6.6.
4.2 Expenses.
The Borrower agrees to immediately repay the Bank for expenses that
include, but are not limited to, filing, recording and search fees, appraisal
fees, title report fees, and documentation fees.
4.3 Reimbursement Costs.
(a) The Borrower agrees to reimburse the Bank for any expenses it incurs in
the preparation of this Agreement and any agreement or instrument
required by this Agreement. Expenses include, but are not limited to,
reasonable attorneys' fees, including any allocated costs of the Bank's
in-house counsel to the extent permitted by applicable law.
(b) The Borrower agrees to reimburse the Bank for the cost of periodic field
examinations of the Borrower's books, records and collateral, and
appraisals of the collateral, at such intervals as the Bank may
reasonably require. The actions described in this paragraph may be
performed by employees of the Bank or by independent appraisers.
5. COLLATERAL
The timely payment and performance of the Borrower's obligations to the Bank
under this Agreement are secured by a security interest in the Collateral
described in the Security Agreement, of even date herewith, by and between the
Borrower and the Bank.
6. DISBURSEMENTS, PAYMENTS AND COSTS
6.1 Disbursements and Payments.
(a) Each payment by the Borrower will be made in U.S. Dollars and
immediately available funds by direct debit to a deposit account as
specified below.
(b) Each disbursement by the Bank and each payment by the Borrower will be
evidenced by records kept by the Bank. In addition, the Bank may, at its
discretion, require the Borrower to sign one or more promissory notes.
6.2 Telephone and Telefax Authorization.
(a) The Bank may honor telephone or telefax instructions for advances or
repayments or for the designation of optional interest rates and telefax
requests for the issuance of letters of credit given, or purported to be
given, by any one of the individuals authorized to sign loan agreements
on behalf of the Borrower, or any other individual designated by any one
of such authorized signers.
(b) Advances will be deposited in and repayments will be withdrawn from the
Borrower's designated deposit account with the Bank (the "Designated
Bank Account").
(c) The Borrower will indemnify and hold the Bank harmless from all
liability, loss, and costs in connection with any act resulting from
telephone or telefax instructions the Bank reasonably believes are made
by any individual authorized by the Borrower to give such instructions.
This paragraph will survive this Agreement's termination, and will
benefit the Bank and its officers, employees, and agents.
6.3 Direct Debit.
(a) The Borrower agrees that interest and principal payments and any fees
will be deducted automatically on the due date from the Designated
Deposit Account.
(b) The Borrower will maintain sufficient funds in the account on the dates
the Bank enters debits authorized by this Agreement. If there are
insufficient funds in the account on the date the Bank enters any debit
authorized by this Agreement, the Bank may reverse the debit.
6.4 Banking Days.
Unless otherwise provided in this Agreement, a banking day is a day other than a
Saturday, Sunday or other day on which commercial banks are authorized to close,
or are in fact closed, in the state where the Bank's lending office is located,
and, if such day relates to amounts bearing interest at an offshore rate (if
any), means any such day on which dealings in dollar deposits are conducted
among banks in the offshore dollar interbank market. All payments and
disbursements which would be due on a day which is not a banking day will be due
on the next banking day. All payments received on a day which is not a banking
day will be applied to the credit on the next banking day.
6.5 Interest Calculation.
Except as otherwise stated in this Agreement, all interest and fees, if any,
will be computed on the basis of a 360-day year and the actual number of days
elapsed. This results in more interest or a higher fee than if a 365-day year is
used. Installments of principal which are not paid when due under this Agreement
shall continue to bear interest until paid.
6.6 Default Rate.
Upon the occurrence of any default or after maturity or after judgment has been
rendered on any obligation under this Agreement, all amounts outstanding under
this Agreement, including any interest, fees, or costs which are not paid when
due, will at the option of the Bank bear interest at a rate which is 2.0
percentage points higher than the rate of interest otherwise provided under this
Agreement. This may result in compounding of interest. This will not constitute
a waiver of any default.
6.7 Taxes.
If any payments to the Bank under this Agreement are made from outside the
United States, the Borrower will not deduct any foreign taxes from any payments
it makes to the Bank. If any such taxes are imposed on any payments made by the
Borrower (including payments under this paragraph), the Borrower will pay the
taxes and will also pay to the Bank, at the time interest is paid, any
additional amount which the Bank specifies as necessary to preserve the
after-tax yield the Bank would have received if such taxes had not been imposed.
The Borrower will confirm that it has paid the taxes by giving the Bank official
tax receipts (or notarized copies) within thirty (30) days after the due date.
6.8 Overdrafts.
At the Bank's sole option in each instance, the Bank may do one of the
following:
(a) The Bank may make advances under this Agreement to prevent or cover an
overdraft on any account of the Borrower with the Bank. Each such
advance will accrue interest from the date of the advance or the date on
which the account is overdrawn, whichever occurs first, at the interest
rate described in this Agreement. The Bank may make such advances even
if the advances may cause any credit limit under this Agreement to be
exceeded.
(b) The Bank may reduce the amount of credit otherwise available under this
Agreement by the amount of any overdraft on any account of the Borrower
with the Bank.
This paragraph shall not be deemed to authorize the Borrower to create
overdrafts on any of the Borrower's accounts with the Bank.
6.9 Payments in Kind.
If the Bank requires delivery in kind of the proceeds of collection of the
Borrower's accounts receivable, such proceeds shall be credited to interest,
principal, and other sums owed to the Bank under this Agreement in the order and
proportion determined by the Bank in its sole discretion. All such credits will
be conditioned upon collection and any returned items may, at the Bank's option,
be charged to the Borrower.
7. CONDITIONS
Before the Bank is required to extend any credit to the Borrower under this
Agreement, it must receive any documents and other items it may reasonably
require, in form and content acceptable to the Bank, including any items
specifically listed below.
7.1 Authorizations.
Evidence that the execution, delivery and performance by the Borrower and the
Guarantor of this Agreement and/or any instrument or agreement required under
this Agreement to which the Borrower or the Guarantor is a party have been duly
authorized by the Borrower or the Guarantor, as applicable.
7.2 Governing Documents.
A copy of the organizational documents of the Borrower and Guarantor.
7.3 Guaranty.
A continuing guaranty signed by the Guarantor.
7.4 Security Agreements.
Signed original security agreements from each of the Borrower and the Guarantor.
7.5 Stock Pledge.
A signed stock pledge agreement from the Borrower covering all of the capital
stock of the Guarantor.
7.6 Perfection and Evidence of Priority.
Evidence that the security interests and liens in favor of the Bank are valid,
enforceable, properly perfected in a manner acceptable to the Bank and prior to
all others' rights and interests, except those the Bank consents to in writing.
7.7 Payment of Fees.
Payment of all fees and other amounts due and owing to the Bank, including
without limitation payment of all accrued and unpaid expenses incurred by the
Bank as required by the paragraph entitled "Reimbursement Costs."
7.8 Repayment of Other Credit Agreement.
Evidence that the Borrower's existing revolving credit facility with Union Bank
of California, N.A. has been repaid or will be repaid and cancelled with the
proceeds of the first disbursement under this Agreement.
7.9 Good Standing.
Certificates of good standing for the Borrower and the Guarantor from the State
of California and from any other state in which the Borrower or Guarantor is
required to qualify to conduct its business.
7.10 Legal Opinion.
A written opinion from legal counsel to the Borrower and the Guarantor, covering
such matters as the Bank may require. The legal counsel and the terms of the
opinion must be acceptable to the Bank.
7.11 Intercreditor Agreement.
An intercreditor agreement in favor of the Bank signed by General Electric
Capital Corporation and acknowledged by the Borrower.
7.12 Landlord Agreements.
A landlord waiver signed by the lessor of each of the following leased
facilities of the Borrower or the Bank shall have established a reserve against
borrowing availability under the Facility in an amount equal to three (3) months
rent for each such facility for which the Bank has not received a signed
landlord waiver:
(a) ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇; and
(b) ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇.
7.13 Insurance.
Evidence of insurance coverage, as required in the "Covenants" section of this
Agreement.
7.14 Other Required Documentation.
(a) Secretary Certificates. Secretary certificates from the secretary of the
Borrower and the Guarantor, attaching the authorizations required by
Paragraph 7.1, the organizational documents required by Paragraph 7.2,
signatures and incumbency information regarding officers and such other
information as the Bank may reasonably request.
(b) Closing Date Borrowing Certificate. A completed borrowing certificate on
the Bank's standard form, demonstrating the Borrower's borrowing base on
the date of this Agreement.
(c) Closing Date Compliance Certificate. A completed compliance certificate
on the Bank's standard form, demonstrating that as of the date of this
Agreement, the Borrower is in compliance with all of the financial
covenants required under this Agreement.
(d) Payoff Letter. A payoff letter signed by Union Bank of California, N.A.
(e) Disbursement Instructions. A disbursement instruction letter signed by
the Borrower, authorizing the Bank to utilize the proceeds of the
initial advances to be made on the date of this Agreement to pay the
unpaid portion of the closing fee payable to the Bank on such date
pursuant to Section 3.1(a) above and to pay off all of the Borrower's
outstanding obligations to Union Bank of California, N.A.
(f) Closing of Sale/Leaseback Transaction; Application of Sales Proceeds.
The Bank shall have received evidence that the Borrower closed its
sale/leaseback transaction with ▇▇▇▇▇▇▇▇ ▇▇▇▇ Company with respect to
the Borrower's facility located at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ and that the Borrower utilized the proceeds of such
transaction to repay the entire outstanding principal balance of the
Borrower's real estate term loan from the Bank and to pay down at least
$4,000,000 of the principal amount of the Borrower's outstanding term
loan from General Electric Capital Corporation.
(g) Financial Statements. The Bank shall have received and been satisfied
with the results of (i) the consolidated financial statements of the
Borrower and its subsidiaries for the fiscal years ended December 31,
2004 and December 31, 2003, including balance sheets, income and cash
flow statements audited by independent public accountants of recognized
national standing and prepared in conformity with GAAP, (ii) the
unaudited consolidated financial statements of the Borrower and its
subsidiaries for the fiscal year ended December 31, 2005, including
balance sheets, income and cash flow statements, prepared in conformity
with GAAP, and (iii) such other financial information relating to the
Borrower and its subsidiaries as the Bank may reasonably require.
(h) CBS Television Distribution Agreement. The Bank shall have received and
been satisfied with its review of an executed copy of the Borrower's
existing distribution agreement with CBS Television.
(i) Additional Information. The Bank shall have received and been satisfied
with its review of such additional information relating to litigation,
tax, accounting, labor, insurance, material contracts, contingent
liabilities and management matters affecting the Borrower and the
Guarantor as the Bank may reasonably request.
7.15 Other Conditions.
(a) Satisfactory Updated Field Examination. The Bank shall have completed
and been satisfied with the results of an updated field examination of
the Borrower's assets and books and records.
(b) Satisfactory Due Diligence Review. The Bank shall have completed and
been satisfied with the results of its due diligence review, including a
satisfactory review of the terms and conditions of all of the Borrower's
related party debt, the Borrower's sources of funds.
(c) No Material Adverse Change. There shall not have occurred a material
adverse change in the business, assets, liabilities (actual or
contingent), operations, condition (financial or otherwise) or prospects
of the Borrower and its subsidiaries taken as a whole or in the facts
and information regarding such entities as indicated on the
internally-prepared financial statements for the Borrower's fiscal year
ended December 31, 2005.
(d) No Material Adverse Litigation. There shall not be as of the date of
this Agreement any action, suit, investigation or proceeding pending or
threatened in any court or before any arbitrator or governmental
authority that purports (i) to materially and adversely affect the
Borrower or its subsidiaries, or (ii) to affect any transaction
contemplated hereby or the ability of the Borrower or its subsidiaries
or any other guarantor to perform their respective obligations under
this Agreement or any of the other loan documents entered into in
connection with this Agreement.
(e) Minimum Opening Availability. The Borrower shall have borrowing
availability under the Facility Commitment of not less than $2,000,000
after giving effect to the payment of all of the Borrower's trade
payables to within 30 days of written terms and of any and all book
overdrafts.
8. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each request
for an extension of credit constitutes a renewal of these representations and
warranties as of the date of the request:
8.1 Formation.
The Borrower is a corporation organized under the laws of the State of
California.
8.2 Authorization.
This Agreement, and any instrument or agreement required hereunder, are within
the Borrower's powers, have been duly authorized, and do not conflict with any
of its organizational papers.
8.3 Enforceable Agreement.
This Agreement is a legal, valid and binding agreement of the Borrower,
enforceable against the Borrower in accordance with its terms, and any
instrument or agreement required hereunder, when executed and delivered, will be
similarly legal, valid, binding and enforceable.
8.4 Good Standing.
In each state in which the Borrower does business, it is properly licensed, in
good standing, and, where required, in compliance with fictitious name statutes.
8.5 No Conflicts.
This Agreement does not conflict with any law, agreement, or obligation by which
the Borrower is bound.
8.6 Financial Information.
All financial and other information that has been or will be supplied to the
Bank is sufficiently complete to give the Bank accurate knowledge of the
Borrower's (and the Guarantor's) financial condition, including all material
contingent liabilities. Since the date of the most recent financial statement
provided to the Bank, there has been no material adverse change in the business
condition (financial or otherwise), operations, properties or prospects of the
Borrower (or the Guarantor). If the Borrower is comprised of the trustees of a
trust, the foregoing representations shall also pertain to the trustor(s) of the
trust.
8.7 Lawsuits.
There is no lawsuit, tax claim or other dispute pending or threatened against
the Borrower which, if lost, would impair the Borrower's financial condition or
ability to repay the loan, except as have been disclosed in writing to the Bank.
8.8 Collateral.
All collateral required in this Agreement is owned by the grantor of the
security interest free of any title defects or any liens or interests of others,
except those which have been approved by the Bank in writing.
8.9 Permits, Franchises.
The Borrower possesses all permits, memberships, franchises, contracts and
licenses required and all trademark rights, trade name rights, patent rights,
copyrights, and fictitious name rights necessary to enable it to conduct the
business in which it is now engaged.
8.10 Other Obligations.
The Borrower is not in default on any obligation for borrowed money, any
purchase money obligation or any other material lease, commitment, contract,
instrument or obligation, except as have been disclosed in writing to the Bank.
8.11 Tax Matters.
The Borrower has no knowledge of any pending assessments or adjustments of its
income tax for any year and all taxes due have been paid, except as have been
disclosed in writing to the Bank.
8.12 No Event of Default.
There is no event which is, or with notice or lapse of time or both would be, a
default under this Agreement.
8.13 Insurance.
The Borrower has obtained, and maintained in effect, the insurance coverage
required in the "Covenants" section of this Agreement.
8.14 Governmental Authorization.
No approval, consent, exemption, authorization, or other action by, or notice
to, or filing with, any governmental authority (including, without limitation,
any nation, state or other political subdivision thereof, any central bank, and
any entity exercising executive, legislative, judicial, regulatory or
administrative functions, and any corporation or other entity owned or
controlled by any of the foregoing) is necessary or required in connection with
the execution, delivery or performance by, or enforcement against, the Borrower
of this Agreement or any other instrument or agreement required hereunder.
9. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:
9.1 Use of Proceeds.
(a) To use the proceeds of the Facility only for working capital and general
corporate purposes, to refinance the Borrower's existing indebtedness to
Union Bank of California, N.A., and for the issuance of standby letters
of credit.
(b) The proceeds of the credit extended under this Loan Agreement may not be
used directly or indirectly to purchase or carry any "margin stock" as
that term is defined in Regulation U of the Board of Governors of the
Federal Reserve System, or extend credit to or invest in other parties
for the purpose of purchasing or carrying any such "margin stock," or to
reduce or retire any indebtedness incurred for such purpose.
9.2 Financial Information.
To provide the following financial information and statements in form and
content acceptable to the Bank, and such additional information as requested by
the Bank from time to time:
(a) A Borrowing Certificate as of the last day of each month within thirty
(30) days after month end and, upon the Bank's request, copies of the
invoices or the record of invoices from the Borrower's sales journal for
the Borrower's Acceptable Receivables and a listing of the names and
addresses of the debtors obligated thereunder, copies of the delivery
receipts, purchase orders, shipping instructions, bills of lading and
other documentation pertaining to such Acceptable Receivables, and
copies of the cash receipts journal pertaining to the Borrowing
Certificate.
(b) A detailed aging of the Borrower's receivables by invoice or a summary
aging by account debtor, as specified by the Bank, within thirty (30)
days after the end of each month.
(c) A summary aging by vendor of accounts payable within thirty (30) days
after the end of each month.
(d) If the Bank requires the Borrower to deliver the proceeds of accounts
receivable to the Bank upon collection by the Borrower, a schedule of
the amounts so collected and delivered to the Bank.
(e) Upon the Bank's request, a listing of the names and addresses of all
debtors obligated upon the Borrower's accounts receivable.
(f) Copies of all letters of credit issued in support of the Borrower's
accounts receivable.
(g) Promptly upon the Bank's request, such other books, records, statements,
lists of property and accounts, budgets, forecasts or reports as to the
Borrower and the Guarantor as the Bank may request.
(h) Within 90 days after the fiscal year end, the annual financial
statements of the Borrower. These financial statements must be audited
(with an opinion satisfactory to the Bank) by a Certified Public
Accountant acceptable to the Bank. The statements shall be prepared on a
consolidated basis.
(i) Within 45 days after the period's end in the case of the first three
fiscal quarters of each fiscal year of the Borrower and within 60 days
after the end of the fourth fiscal quarter of each such fiscal year,
quarterly financial statements of the Borrower, certified and dated by
an authorized financial officer. These financial statements may be
company-prepared. The statements shall be prepared on a consolidated
basis.
(j) Promptly, upon sending or receipt, copies of any management letters and
correspondence relating to management letters, sent or received by the
Borrower to or from the Borrower's auditor. If no management letter is
prepared, the Bank may, in its discretion, request a letter from such
auditor stating that no deficiencies were noted that would otherwise be
addressed in a management letter.
(k) Copies of the Form 10-K Annual Report, Form 10-Q Quarterly Report and
Form 8-K Current Report for the Borrower concurrent with the date of
filing with the Securities and Exchange Commission.
(l) Financial projections covering a time period acceptable to the Bank and
specifying the assumptions used in creating the projections. The
projections shall be provided to the Bank no less often than 45 days
after the end of each fiscal year.
(m) Within 45 days after the end of each fiscal quarter, a compliance
certificate of the Borrower, signed by an authorized financial officer
and setting forth (i) the information and computations (in sufficient
detail) to establish that the Borrower is in compliance with all
financial covenants at the end of the period covered by the financial
statements then being furnished and (ii) whether there existed as of the
date of such financial statements and whether there exists as of the
date of the certificate, any default under this Agreement and, if any
such default exists, specifying the nature thereof and the action the
Borrower is taking and proposes to take with respect thereto.
9.3 Quick Ratio.
To maintain on a consolidated basis a ratio of quick assets to current
liabilities of at least (i) 0.70:1.0 at all times prior to March 31, 2007 or
(ii) 0.80:1.0 at all times from and after March 31, 2007.
"Quick assets" means cash, short-term cash investments, net trade receivables
and marketable securities not classified as long-term investments.
9.4 Basic Fixed Charge Coverage Ratio.
To maintain on a consolidated basis a Basic Fixed Charge Coverage Ratio of at
least 1.1:1.0..
"Basic Fixed Charge Coverage Ratio" means the ratio of (a) the sum of EBITDA
plus lease expense and rent expense, minus income tax, minus dividends,
withdrawals, and other distributions, to (b) the sum of interest expense, lease
expense, rent expense, the current portion of long term debt and the current
portion of capitalized lease obligations and maintenance capital expenditures.
"EBITDA" means net income, less income or plus loss from discontinued operations
and extraordinary items, plus income taxes, plus interest expense, plus
depreciation, depletion, amortization and other non-cash charges.
This ratio will be calculated at the end of each reporting period for which the
Bank requires financial statements, using the results of the twelve-month period
ending with that reporting period. The current portion of long-term liabilities
will be measured as of the last day of the calculation period.
9.5 Dividends and Distributions.
Not to declare or pay any dividends (except dividends paid in capital stock),
redemptions of stock or membership interests, distributions and withdrawals (as
applicable) to its owners.
9.6 Bank as Principal Depository.
To maintain the Bank as its principal depository bank, including for the
maintenance of business, cash management, operating and administrative deposit
accounts.
9.7 Other Debts.
Not to have outstanding or incur any direct or contingent liabilities or lease
obligations (other than those to the Bank), or become liable for the liabilities
of others, without the Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
(c) The Borrower's term loan indebtedness to General Electric Capital
Corporation, the principal amount of which shall not exceed Six Million
Dollars ($6,000,000) on the date of this Agreement and shall be
permanently reduced with each principal payment made by the Borrower
thereunder (i.e., the principal amount of such term loan once repaid may
not be re-borrowed).
(d) Obtaining surety bonds in the usual course of business.
(e) Liabilities, lines of credit and leases in existence on the date of this
Agreement disclosed in writing to the Bank.
(f) Additional debts and lease obligations for the acquisition of fixed
assets, to the extent permitted elsewhere in this Agreement.
9.8 Other Liens.
Not to create, assume, or allow any security interest or lien (including
judicial liens) on property the Borrower now or later owns, except:
(a) Liens and security interests in favor of the Bank.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement disclosed in writing to
the Bank, including liens in favor of General Electric Capital
Corporation, which are subject to the terms of the intercreditor
agreement required by Paragraph 7.11 hereof.
(d) Additional purchase money security interests in assets acquired after
the date of this Agreement, if the total principal amount of debts
secured by such liens does not exceed Five Hundred Thousand Dollars
($500,000) at any one time.
9.9 Maintenance of Assets.
(a) Not to sell, assign, lease, transfer or otherwise dispose of any part of
the Borrower's business or the Borrower's assets except in the ordinary
course of the Borrower's business.
(b) Not to sell, assign, lease, transfer or otherwise dispose of any assets
for less than fair market value, or enter into any agreement to do so.
(c) Not to enter into any sale and leaseback agreement covering any of its
fixed assets.
(d) To maintain and preserve all rights, privileges, and franchises the
Borrower now has.
(e) To make any repairs, renewals, or replacements to keep the Borrower's
properties in good working condition.
9.10 Investments.
Not to have any existing, or make any new, investments in any individual or
entity, or make any capital contributions or other transfers of assets to any
individual or entity, except for:
(a) Existing investments disclosed to the Bank in writing.
(b) Investments in the Borrower's current subsidiaries.
(c) Investments in any of the following:
(i) certificates of deposit;
(ii) U.S. treasury bills and other obligations of the federal
government;
(iii) readily marketable securities (including commercial paper, but
excluding restricted stock and stock subject to the provisions of
Rule 144 of the Securities and Exchange Commission).
9.11 Loans.
Not to make any loans, advances or other extensions of credit to any individual
or entity, except for:
(a) Existing extensions of credit disclosed to the Bank in writing.
(b) Extensions of credit to the Borrower's current subsidiaries.
(c) Extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale or lease of goods or services in the
ordinary course of business to non-affiliated entities.
9.12 Change of Management.
Not to make any substantial change in the present executive or management
personnel of the Borrower.
9.13 Change of Control.
Not to cause or permit:
(a) ▇▇▇▇ ▇. Bagerdjian to cease to be the chief executive officer of the
Borrower unless within sixty (60) days after Mr. Bagerdjian ceases to
hold such office the Borrower secures a replacement chief executive
officer satisfactory to the Bank.
(b) ▇▇▇▇ ▇. Bagerdjian to cease to own directly or indirectly, beneficially
or of record, at least fifteen (15%) of all shares of voting securities
of the Borrower (provided that such percentage may be less than fifteen
percent (15%), but not less than seven and one-half percent (7.5%), if
such reduction is due to the issuance of shares of voting securities of
the Borrower as consideration for an acquisition permitted under
Paragraph 9.14(b) below).
(c) Individuals who constituted the Borrower's board of directors as of the
date of this Agreement (collectively, the "Existing Directors") to cease
to constitute a majority of the directors then in office (provided that
the Existing Directors may constitute less than a majority if such
reduction is due to the appointment of additional directors in
connection with an acquisition permitted under Paragraph 9.14(b) below).
9.14 Additional Negative Covenants.
Not to, without the Bank's written consent:
(a) Except as permitted under Paragraph 9.14(b) below, enter into any
consolidation, merger, or other combination, or become a partner in a
partnership, a member of a joint venture, or a member of a limited
liability company.
(b) Acquire or purchase a business or its assets for total purchase
consideration of more than Two Million Dollars ($2,000,000) in any
fiscal year or acquire or purchase a business or its assets irrespective
of the amount of total annual purchase consideration if Borrower cannot
demonstrate to Bank's reasonable satisfaction that Borrower would be in
pro forma compliance with the financial and other covenants set forth in
this Agreement after giving effect to such acquisition or purchase.
(c) Engage in any business activities substantially different from the
Borrower's present business.
(d) Liquidate or dissolve the Borrower's business.
(e) Voluntarily suspend its business for more than seven (7) days in any
thirty (30) day period.
9.15 Notices to Bank.
To promptly notify the Bank in writing of:
(a) Any lawsuit over One Million Dollars ($1,000,000) against the Borrower
or the Guarantor.
(b) Any substantial dispute between any governmental authority and the
Borrower or the Guarantor.
(c) Any event of default under this Agreement, or any event which, with
notice or lapse of time or both, would constitute an event of default.
(d) Any material adverse change in the Borrower's (or the Guarantor's)
business condition (financial or otherwise), operations, properties or
prospects, or ability to repay the credit.
(e) Any change in the Borrower's name, legal structure, place of business,
or chief executive office if the Borrower has more than one place of
business.
(f) Any actual contingent liabilities of the Borrower (or the Guarantor),
and any such contingent liabilities which are reasonably foreseeable,
where such liabilities are in excess of One Million Dollars ($1,000,000)
in the aggregate.
9.16 Insurance.
(a) General Business Insurance. To maintain insurance satisfactory to the
Bank as to amount, nature and carrier covering property damage
(including loss of use and occupancy) to any of the Borrower's
properties, business interruption insurance, public liability insurance
including coverage for contractual liability, product liability and
workers' compensation, and any other insurance which is usual for the
Borrower's business. Each policy shall provide for at least thirty (30)
days prior notice to the Bank of any cancellation thereof.
(b) Insurance Covering Collateral. If required by the Bank, to maintain all
risk property damage insurance policies covering the tangible property
comprising the collateral. Each such insurance policy required by the
Bank must be for the full replacement cost of the collateral and include
a replacement cost endorsement. Such insurance (if required by the Bank)
must be issued by an insurance company acceptable to the Bank and must
include a lender's loss payable endorsement in favor of the Bank in a
form acceptable to the Bank.
(c) Evidence of Insurance. Upon the request of the Bank, to deliver to the
Bank a copy of each insurance policy, or, if permitted by the Bank, a
certificate of insurance listing all insurance in force.
9.17 Compliance with Laws.
To comply with the laws (including any fictitious or trade name statute),
regulations, and orders of any government body with authority over the
Borrower's business. The Bank shall have no obligation to make any advance to
the Borrower except in compliance with all applicable laws and regulations and
the Borrower shall fully cooperate with the Bank in complying with all such
applicable laws and regulations.
9.18 ERISA Plans.
Promptly during each year, to pay and cause any subsidiaries to pay
contributions adequate to meet at least the minimum funding standards under
ERISA with respect to each and every Plan; file each annual report required to
be filed pursuant to ERISA in connection with each Plan for each year; and
notify the Bank within ten (10) days of the occurrence of any Reportable Event
that might constitute grounds for termination of any capital Plan by the Pension
Benefit Guaranty Corporation or for the appointment by the appropriate United
States District Court of a trustee to administer any Plan. "ERISA" means the
Employee Retirement Income Security Act of 1974, as amended from time to time.
Capitalized terms in this paragraph shall have the meanings defined within
ERISA.
9.19 Books and Records.
To maintain adequate books and records.
9.20 Audits.
To allow the Bank and its agents to inspect the Borrower's properties and
examine, audit, and make copies of books and records at any reasonable time. If
any of the Borrower's properties, books or records are in the possession of a
third party, the Borrower authorizes that third party to permit the Bank or its
agents to have access to perform inspections or audits and to respond to the
Bank's requests for information concerning such properties, books and records.
9.21 Perfection of Liens.
To help the Bank perfect and protect its security interests and liens, and
reimburse it for related costs it incurs to protect its security interests and
liens.
9.22 Landlord Waivers.
To use its best efforts to cause the lessor of each leased facility of the
Borrower other than those identified in Paragraph 7.12 to execute and deliver to
the Bank a landlord waiver or subordination in favor of, and in form and
substance reasonably satisfactory to, the Bank within ninety (90) days after the
date of this Agreement.
9.23 Cooperation.
To take any action reasonably requested by the Bank to carry out the intent of
this Agreement.
10. DEFAULT AND REMEDIES
If any of the following events of default occurs, the Bank may do one or more of
the following: declare the Borrower in default, stop making any additional
credit available to the Borrower, and require the Borrower to repay its entire
debt immediately and without prior notice. If an event which, with notice or the
passage of time, will constitute an event of default has occurred and is
continuing, the Bank has no obligation to make advances or extend additional
credit under this Agreement. In addition, if any event of default occurs, the
Bank shall have all rights, powers and remedies available under any instruments
and agreements required by or executed in connection with this Agreement, as
well as all rights and remedies available at law or in equity. If an event of
default occurs under the paragraph entitled "Bankruptcy," below, with respect to
the Borrower, then the entire debt outstanding under this Agreement will
automatically be due immediately.
10.1 Failure to Pay.
The Borrower fails to make a payment under this Agreement when due.
10.2 Other Bank Agreements.
Any default occurs under any other agreement the Borrower (or any Obligor) or
any of the Borrower's related entities or affiliates has with the Bank or any
affiliate of the Bank. For purposes of this Agreement, "Obligor" shall mean the
Guarantor or any party pledging collateral to the Bank.
10.3 Cross-default.
Any default occurs under any agreement in connection with any credit in excess
of Five Hundred Thousand Dollars ($500,000) the Borrower (or any Obligor) or any
of the Borrower's related entities or affiliates has obtained from anyone else
or which the Borrower (or any Obligor) or any of the Borrower's related entities
or affiliates has guaranteed.
10.4 False Information.
The Borrower or any Obligor has given the Bank materially false or misleading
information or representations.
10.5 Bankruptcy.
The Borrower, any Obligor, or any general partner of the Borrower or of any
Obligor files a bankruptcy petition, a bankruptcy petition is filed against any
of the foregoing parties, or the Borrower, any Obligor, or any general partner
of the Borrower or of any Obligor makes a general assignment for the benefit of
creditors. The default will be deemed cured if any bankruptcy petition filed
against the Borrower, any Obligor, or any general partner of the Borrower or of
any Obligor is dismissed within a period of forty-five (45) days after the
filing; provided, however, that such cure opportunity will be terminated upon
the entry of an order for relief in any bankruptcy case arising from such a
petition.
10.6 Receivers.
A receiver or similar official is appointed for a substantial portion of the
Borrower's or any Obligor's business, or the business is terminated, or, if any
Obligor is anything other than a natural person, such Obligor is liquidated or
dissolved.
10.7 Lien Priority.
The Bank fails to have an enforceable first lien (except for any prior liens to
which the Bank has consented in writing) on or security interest in any property
given as security for this Agreement (or any guaranty).
10.8 Judgments.
Any judgments or arbitration awards are entered against the Borrower or any
Obligor, or the Borrower or any Obligor enters into any settlement agreements
with respect to any litigation or arbitration, in an aggregate amount of Two
Hundred Fifty Thousand Dollars ($250,000) or more in excess of any insurance
coverage or in an aggregate amount of Five Hundred Thousand Dollars ($500,000)
or more, irrespective of the amount of insurance coverage.
10.9 Material Adverse Change.
A material adverse change occurs, or is reasonably likely to occur, in the
Borrower's (or any Obligor's) business condition (financial or otherwise),
operations, properties or prospects, or ability to repay the credit.
10.10 Government Action.
Any government authority takes action that the Bank believes materially
adversely affects the Borrower's or any Obligor's financial condition or ability
to repay.
10.11 Default under Related Documents.
Any default occurs under any guaranty, subordination agreement, security
agreement, deed of trust, mortgage, or other document required by or delivered
in connection with this Agreement or any such document is no longer in effect,
or any guarantor purports to revoke or disavow the guaranty.
10.12 Other Breach Under Agreement.
A default occurs under any other term or condition of this Agreement not
specifically referred to in this Article. This includes any failure or
anticipated failure by the Borrower (or any other party named in the Covenants
section) to comply with any financial covenants set forth in this Agreement,
whether such failure is evidenced by financial statements delivered to the Bank
or is otherwise known to the Borrower or the Bank. If, in the Bank's opinion,
the breach is capable of being remedied, the breach will not be considered an
event of default under this Agreement for a period of thirty (30) days after the
date on which the Bank gives written notice of the breach to the Borrower.
11. ENFORCING THIS AGREEMENT; MISCELLANEOUS
11.1 Disposition of Schedules and Reports.
The Bank will not be obligated to return any schedules, invoices, statements,
budgets, forecasts, reports or other papers delivered by the Borrower. The Bank
will destroy or otherwise dispose of such materials at such time as the Bank, in
its discretion, deems appropriate.
11.2 Returned Merchandise.
Until the Bank exercises its rights to collect the accounts receivable as
provided under any security agreement required under this Agreement, the
Borrower may continue its present policies for returned merchandise and
adjustments. Credit adjustments with respect to returned merchandise shall be
made immediately upon receipt of the merchandise by the Borrower or upon such
other disposition of the merchandise by the debtor in accordance with the
Borrower's instructions. If a client adjustment is made with respect to any
Acceptable Receivable, the amount of such adjustment shall no longer be included
in the amount of such Acceptable Receivable in computing the Borrowing Base.
11.3 Verification of Receivables.
The Bank may at any time, either orally or in writing, request confirmation from
any debtor of the current amount and status of the accounts receivable upon
which such debtor is obligated.
11.4 Waiver of Confidentiality.
The Borrower authorizes the Bank to discuss the Borrower's financial affairs and
business operations with any accountants, auditors, business consultants, or
other professional advisors employed by the Borrower, and authorizes such
parties to disclose to the Bank such financial and business information or
reports (including management letters) concerning the Borrower as the Bank may
request.
11.5 GAAP.
Except as otherwise stated in this Agreement, all financial information provided
to the Bank and all financial covenants will be made under generally accepted
accounting principles, consistently applied.
11.6 California Law.
This Agreement is governed by California law.
11.7 Successors and Assigns.
This Agreement is binding on the Borrower's and the Bank's successors and
assignees. The Borrower agrees that it may not assign this Agreement without the
Bank's prior consent. The Bank may sell participations in or assign this loan,
and may exchange information about the Borrower (including, without limitation,
any information regarding any hazardous substances) with actual or potential
participants or assignees. If a participation is sold or the loan is assigned,
the purchaser will have the right of set-off against the Borrower.
11.8 Arbitration and Waiver of Jury Trial.
(a) This paragraph concerns the resolution of any controversies or claims
between the parties, whether arising in contract, tort or by statute,
including but not limited to controversies or claims that arise out of
or relate to: (i) this agreement (including any renewals, extensions or
modifications); or (ii) any document related to this agreement
(collectively a "Claim"). For the purposes of this arbitration provision
only, the term "parties" shall include any parent corporation,
subsidiary or affiliate of the Bank involved in the servicing,
management or administration of any obligation described or evidenced by
this agreement.
(b) At the request of any party to this agreement, any Claim shall be
resolved by binding arbitration in accordance with the Federal
Arbitration Act (Title 9, U.S. Code) (the "Act"). The Act will apply
even though this agreement provides that it is governed by the law of a
specified state. The arbitration will take place on an individual basis
without resort to any form of class action.
(c) Arbitration proceedings will be determined in accordance with the Act,
the then-current rules and procedures for the arbitration of financial
services disputes of the American Arbitration Association or any
successor thereof ("AAA"), and the terms of this paragraph. In the event
of any inconsistency, the terms of this paragraph shall control. If AAA
is unwilling or unable to (i) serve as the provider of arbitration or
(ii) enforce any provision of this arbitration clause, the Bank may
designate another arbitration organization with similar procedures to
serve as the provider of arbitration.
(d) The arbitration shall be administered by AAA and conducted, unless
otherwise required by law, in any U.S. state where real or tangible
personal property collateral for this credit is located or if there is
no such collateral, in the state specified in the governing law section
of this agreement. All Claims shall be determined by one arbitrator;
however, if Claims exceed Five Million Dollars ($5,000,000), upon the
request of any party, the Claims shall be decided by three arbitrators.
All arbitration hearings shall commence within ninety (90) days of the
demand for arbitration and close within ninety (90) days of commencement
and the award of the arbitrator(s) shall be issued within thirty (30)
days of the close of the hearing. However, the arbitrator(s), upon a
showing of good cause, may extend the commencement of the hearing for up
to an additional sixty (60) days. The arbitrator(s) shall provide a
concise written statement of reasons for the award. The arbitration
award may be submitted to any court having jurisdiction to be confirmed,
judgment entered and enforced.
(e) The arbitrator(s) will give effect to statutes of limitation in
determining any Claim and may dismiss the arbitration on the basis that
the Claim is barred. For purposes of the application of the statute of
limitations, the service on AAA under applicable AAA rules of a notice
of Claim is the equivalent of the filing of a lawsuit. Any dispute
concerning this arbitration provision or whether a Claim is arbitrable
shall be determined by the arbitrator(s). The arbitrator(s) shall have
the power to award legal fees pursuant to the terms of this agreement.
(f) This paragraph does not limit the right of any party to: (i) exercise
self-help remedies, such as but not limited to, setoff; (ii) initiate
judicial or non-judicial foreclosure against any real or personal
property collateral; (iii) exercise any judicial or power of sale
rights, or (iv) act in a court of law to obtain an interim remedy, such
as but not limited to, injunctive relief, writ of possession or
appointment of a receiver, or additional or supplementary remedies.
(g) The procedure described above will not apply if the Claim, at the time
of the proposed submission to arbitration, arises from or relates to an
obligation to the Bank secured by real property. In this case, all of
the parties to this agreement must consent to submission of the Claim to
arbitration. If both parties do not consent to arbitration, the Claim
will be resolved as follows: The parties will designate a referee (or a
panel of referees) selected under the auspices of AAA in the same manner
as arbitrators are selected in AAA administered proceedings. The
designated referee(s) will be appointed by a court as provided in
California Code of Civil Procedure Section 638 and the following related
sections. The referee (or presiding referee of the panel) will be an
active attorney or a retired judge. The award that results from the
decision of the referee(s) will be entered as a judgment in the court
that appointed the referee, in accordance with the provisions of
California Code of Civil Procedure Sections 644 and 645.
(h) The filing of a court action is not intended to constitute a waiver of
the right of any party, including the suing party, thereafter to require
submittal of the Claim to arbitration.
(i) By agreeing to binding arbitration, the parties irrevocably and
voluntarily waive any right they may have to a trial by jury in respect
of any Claim. Furthermore, without intending in any way to limit this
agreement to arbitrate, to the extent any Claim is not arbitrated, the
parties irrevocably and voluntarily waive any right they may have to a
trial by jury in respect of such Claim to the maximum extent they may
legally do so under applicable California law. This provision is a
material inducement for the parties entering into this agreement.
11.9 Severability; Waivers.
If any part of this Agreement is not enforceable, the rest of the Agreement may
be enforced. The Bank retains all rights, even if it makes a loan after default.
If the Bank waives a default, it may enforce a later default. Any consent or
waiver under this Agreement must be in writing.
11.10 Attorneys' Fees.
The Borrower shall reimburse the Bank for any reasonable costs and attorneys'
fees incurred by the Bank in connection with the enforcement or preservation of
any rights or remedies under this Agreement and any other documents executed in
connection with this Agreement, and in connection with any amendment, waiver,
"workout" or restructuring under this Agreement. In the event of a lawsuit or
arbitration proceeding, the prevailing party is entitled to recover costs and
reasonable attorneys' fees incurred in connection with the lawsuit or
arbitration proceeding, as determined by the court or arbitrator. In the event
that any case is commenced by or against the Borrower under the Bankruptcy Code
(Title 11, United States Code) or any similar or successor statute, the Bank is
entitled to recover costs and reasonable attorneys' fees incurred by the Bank
related to the preservation, protection, or enforcement of any rights of the
Bank in such a case. As used in this paragraph, "attorneys' fees" includes the
allocated costs of the Bank's in-house counsel.
11.11 One Agreement.
This Agreement and any related security or other agreements required by this
Agreement, collectively:
(a) represent the sum of the understandings and agreements between the Bank
and the Borrower concerning this credit;
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail. Any reference in any
related document to a "promissory note" or a "note" executed by the Borrower and
dated as of the date of this Agreement shall be deemed to refer to this
Agreement, as now in effect or as hereafter amended, renewed, or restated.
11.12 Indemnification.
The Borrower will indemnify and hold the Bank harmless from any loss, liability,
damages, judgments, and reasonable costs of any kind relating to or arising
directly or indirectly out of (a) this Agreement or any document required
hereunder, (b) any credit extended or committed by the Bank to the Borrower
hereunder, and (c) any litigation or proceeding related to or arising out of
this Agreement, any such document, or any such credit. This indemnity includes
but is not limited to reasonable attorneys' fees (including the reasonable
allocated cost of in-house counsel). This indemnity extends to the Bank, its
parent, subsidiaries and all of their directors, officers, employees, agents,
successors, attorneys, and assigns. This indemnity will survive repayment of the
Borrower's obligations to the Bank. All sums due to the Bank hereunder shall be
obligations of the Borrower, due and payable immediately without demand.
11.13 Notices.
Unless otherwise provided in this Agreement or in another agreement between the
Bank and the Borrower, all notices required under this Agreement shall be
personally delivered or sent by first class mail, postage prepaid, or by
overnight courier, to the addresses on the signature page of this Agreement, or
sent by facsimile to the fax numbers listed on the signature page, or to such
other addresses as the Bank and the Borrower may specify from time to time in
writing. Notices and other communications shall be effective (i) if mailed, upon
the earlier of receipt or five (5) days after deposit in the U.S. mail, first
class, postage prepaid, (ii) if telecopied, when transmitted, (iii) if sent by
electronic mail, when transmitted, or (iv) if hand-delivered, by courier or
otherwise (including telegram, lettergram or mailgram), when delivered.
11.14 Headings.
Article and paragraph headings are for reference only and shall not affect the
interpretation or meaning of any provisions of this Agreement.
11.15 Counterparts.
This Agreement may be executed in as many counterparts as necessary or
convenient, and by the different parties on separate counterparts each of which,
when so executed, shall be deemed an original but all such counterparts shall
constitute but one and the same agreement.
[Rest of page intentionally left blank; signature page follows]
This Agreement is executed as of the date stated at the top of the first page.
Bank of America Point.360
By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ By: /s/▇▇▇▇ ▇. Steel
-------------------- -------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇ ▇. Steel
Vice President Executive Vice President,
Finance and Administration
and Chief Financial Officer
Address where notices to Address where notices to
the Bank are to be sent: the Borrower are to be sent::
Bank of America, N.A. Point.360
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ Floor ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Attn: Chief Financial Officer
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇ Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇ Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail: E-mail: ▇▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇▇▇▇.▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
TABLE OF CONTENTS
Section Page
1. DEFINITIONS.........................................................1
2. THE FACILITY: LINE OF CREDIT AMOUNT AND TERMS......................2
2.1 Line of Credit Amount......................................2
2.2 Availability Period........................................2
2.3 Conditions to Availability of Credit.......................2
2.4 Repayment Terms............................................2
2.5 Interest Rate..............................................2
2.6 Optional Interest Rates....................................2
2.7 Applicable Margin..........................................2
2.8 Standby Letters of Credit..................................2
3. OPTIONAL INTEREST RATE..............................................2
3.1 Optional Rates.............................................2
3.2 LIBOR Rate.................................................2
4. FEES AND EXPENSES...................................................2
4.1 Fees.......................................................2
4.2 Expenses...................................................2
4.3 Reimbursement Costs........................................2
5. COLLATERAL..........................................................2
6. DISBURSEMENTS, PAYMENTS AND COSTS...................................2
6.1 Disbursements and Payments.................................2
6.2 Telephone and Telefax Authorization........................2
6.3 Direct Debit...............................................2
6.4 Banking Days...............................................2
6.5 Interest Calculation.......................................2
6.6 Default Rate...............................................2
6.7 Taxes......................................................2
6.8 Overdrafts.................................................2
6.9 Payments in Kind...........................................2
7. CONDITIONS..........................................................2
7.1 Authorizations.............................................2
7.2 Governing Documents........................................2
7.3 Guaranty...................................................2
7.4 Security Agreements........................................2
7.5 Stock Pledge...............................................2
A signed stock pledge agreement from the Borrower covering
all of the capital stock of the Guarantor..................2
7.6 Perfection and Evidence of Priority........................2
7.7 Payment of Fees............................................2
7.8 Repayment of Other Credit Agreement........................2
7.9 Good Standing..............................................2
7.10 Legal Opinion..............................................2
7.11 Intercreditor Agreements...................................2
7.12 Landlord Agreement.........................................2
7.13 Insurance..................................................2
7.14 Other Required Documentation...............................2
7.15 Other Conditions...........................................2
8. REPRESENTATIONS AND WARRANTIES......................................2
8.1 Formation..................................................2
8.2 Authorization..............................................2
8.3 Enforceable Agreement......................................2
8.4 Good Standing..............................................2
8.5 No Conflicts...............................................2
8.6 Financial Information......................................2
8.7 Lawsuits...................................................2
8.8 Collateral.................................................2
8.9 Permits, Franchises........................................2
8.10 Other Obligations..........................................2
8.11 Tax Matters................................................2
8.12 No Event of Default........................................2
8.13 Insurance..................................................2
8.14 Governmental Authorization.................................2
9. COVENANTS...........................................................2
9.1 Use of Proceeds............................................2
9.2 Financial Information......................................2
9.3 Quick Ratio................................................2
9.4 Basic Fixed Charge Coverage Ratio..........................2
9.5 Dividends and Distributions................................2
9.6 Bank as Principal Depository...............................2
9.7 Other Debts................................................2
9.8 Other Liens................................................2
9.9 Maintenance of Assets......................................2
9.10 Investments................................................2
9.11 Loans......................................................2
9.12 Change of Management.......................................2
9.13 Change of Control..........................................2
9.14 Additional Negative Covenants..............................2
9.15 Notices to Bank............................................2
9.16 Insurance..................................................2
9.17 Compliance with Laws.......................................2
9.18 ERISA Plans................................................2
9.19 Books and Records..........................................2
9.20 Audits.....................................................2
9.21 Perfection of Liens........................................2
9.22 Landlord Waivers...........................................2
9.23 Cooperation................................................2
10. DEFAULT AND REMEDIES................................................2
10.1 Failure to Pay.............................................2
10.2 Other Bank Agreements......................................2
10.3 Cross-default..............................................2
10.4 False Information..........................................2
10.5 Bankruptcy.................................................2
10.6 Receivers..................................................2
10.7 Lien Priority..............................................2
10.8 Judgments..................................................2
10.9 Material Adverse Change....................................2
10.10 Government Action..........................................2
10.11 Default under Related Documents............................2
10.12 Other Breach Under Agreement...............................2
11. ENFORCING THIS AGREEMENT; MISCELLANEOUS.............................2
11.1 Disposition of Schedules and Reports.......................2
11.2 Returned Merchandise.......................................2
11.3 Verification of Receivables................................2
11.4 Waiver of Confidentiality..................................2
11.5 GAAP.......................................................2
11.6 California Law.............................................2
11.7 Successors and Assigns.....................................2
11.8 Arbitration and Waiver of Jury Trial.......................2
11.9 Severability; Waivers......................................2
11.10 Attorneys' Fees............................................2
11.11 One Agreement..............................................2
11.12 Indemnification............................................2
11.13 Notices....................................................2
11.14 Headings...................................................2
11.15 Counterparts...............................................2