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EXHIBIT 10.19
SILICON VALLEY BANK
AMENDMENT TO LOAN AND SECURITY
AGREEMENT AND CONSENT AGREEMENT
BORROWER: SAFEGUARD HEALTH ENTERPRISES, INC
DATE: JUNE 22, 1998
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Bank") and the borrower named above (the "Borrower"). The Parties agree
to amend, effective as of the date hereof, the Loan and Security Agreement
between them, dated January 29, 1998, as amended by that Amendment to Loan and
Security Agreement dated March 23, 1998, and as otherwise amended or modified
from time to time (the "Loan Agreement"), as follows. (Capitalized terms used
but not defined in this Amendment, shall have the meanings set forth in the Loan
Agreement.) Reference is also to the Interest Rate Supplement to Agreement of
even date with the Loan Agreement between Bank and Borrower (the "Supplement").
1. REVISED DEFINITION. The definition of the term "Interest Rate" as set
forth in the Supplement and as referred to in the Loan Agreement, is hereby
amended, effective as of July 1, 1998, to read as follows:
"Interest Rate" shall mean (I) if the Borrower attains a Current Ratio
of less than 1.25 to 1 with respect to the period ending June 30, 1998,
then as to: (a) Prime Rate Advances, the Interest Rate shall be equal to
the Prime Rate plus .50%; and (b) LIBOR Rate Advances, the Interest Rate
shall be equal to a rate of 2.50% per annum in excess of the LIBOR Rate
(based on the LIBOR Rate applicable for the Interest Period selected by
the Borrower) and (II) otherwise if the Borrower attains a Current Ratio
of 1.25 to 1 or greater with respect to the period ending June 30, 1998,
as to: (a) Prime Rate Advances, the Interest Rate shall be equal to a
rate equal to the Prime Rate plus .25%; and (b) LIBOR Rate Advances, the
Interest Rate shall be equal to a rate of 2.25% per annum in excess of
the LIBOR Rate (based on the LIBOR Rate applicable for the Interest
Period selected by the Borrower)."
2. REVISED SECTION 6.8. Section 6.8 of the Loan Agreement is hereby
amended to read as follows:
"6.8 Current Ratio. Borrower shall, on a consolidated basis, maintain,
as of the last day of each fiscal quarter, a ratio of Current Assets to
Current Liabilities of at least 1.00 to 1.0 for the period ending June
30, 1998. Thereafter, Borrower shall maintain, as of the last day of
each calendar quarter, a ratio of Current Assets to Current Liabilities
of at least 1.25 to 1.0."
3. CONSENT. Borrower owns real property commonly known as ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and is entering into a sale thereof
(such Sale being the "Sale"). As such property is subject to a negative pledge
agreement, as more fully set forth in the Loan Agreement, the Borrower has
requested that the Bank consent to the Sale and waive any and all provisions in
the Loan Agreement that restrict the Sale (such provisions being the
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"Sale Restriction Provisions"). The Bank is agreeable to such request and hereby
consents to the Sale and waives the Sale Restriction Provisions, for the sole
and specific purpose of effectuating the Sale. Such waiver does not waive,
diminish or otherwise affect any other term or provision of the Loan Agreement,
all of which shall remain in full force and effect.
4. REPRESENTATIONS TRUE. Borrower represents and warrants to Bank that
all representations and warranties set forth in the Loan Agreement, as amended
hereby, are true and correct.
5. GENERAL PROVISIONS. This Amendment and Consent, the Loan Agreement,
any prior written amendments to the Loan Agreement signed by Bank and the
Borrower, and the other written documents and agreements between Bank and the
Borrower set forth in full all of the representations and agreements of the
parties with respect to the subject matter hereof and supersede all prior
discussions, representations, agreements and understandings between the parties
with respect to the subject hereof. Except as herein expressly amended, all of
the terms and provisions of the Loan Agreement, and all other documents and
agreements between Bank and the Borrower shall continue in full force and effect
and the same are hereby ratified and confirmed. This Agreement and Consent may
be executed in any number of counterparts, which when taken together shall
constitute one and the same agreement.
BORROWER: BANK:
SAFEGUARD HEALTH ENTERPRISES, INC. SILICON VALLEY BANK
BY /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, CPA BY
-------------------------------- ---------------------------------
TITLE: Vice President, TITLE
Chief Financial Officer ------------------------------
BY /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, DDS
--------------------------------
TITLE: Chairman and CEO
APPROVED AS TO FORM AND CONTENT
BY /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇
--------------------------------
TITLE: Senior Vice President
and Secretary
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--------------------------------------------------------------------------------
SILICON VALLEY BANK
AMENDMENT TO LOAN AND SECURITY
AGREEMENT AND CONSENT AGREEMENT
BORROWER: SAFEGUARD HEALTH ENTERPRISES, INC.
DATE: NOVEMBER 19, 1998
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Bank") and the borrower named above (the "Borrower"). The Parties agree
to amend, effective as of the date hereof, the Loan and Security Agreement
between them, dated January 29, 1998, as amended by that Amendment to Loan and
Security Agreement dated March 23, 1998, that Amendment to Loan and Security
Agreement dated June 22, 1998, and as otherwise amended or modified from time to
time (the "Loan Agreement"), as follows. (Capitalized terms used but not defined
in this Amendment, shall have the meanings set forth in the Loan Agreement.)
Reference is also made to the Interest Rate Supplement to Agreement of even date
with the Loan Agreement between Bank and Borrower (the "Supplement").
1. REVISED DEFINITION. The definition of the term "Interest Rate" as set
forth in the Supplement and as referred to in the Loan Agreement, is hereby
amended to read as follows:
""Interest Rate" shall mean the Prime Rate plus 1.5%."
2. REVISED SECTION 6.3. Section 6.3 of the Loan Agreement is hereby
amended to read as follows:
"6.3 Financial Statements, Reports, Certificates. Borrower shall deliver to
Bank: (a) within five (5) days of filing, copies of all statements, reports
and notices sent or made available generally by Borrower to its security
holders or to any holders of Subordinated Debt and all reports on Form
10-K, 10-Q and 8-K filed with the Securities and Exchange Commission
(collectively, the "SEC Reports"); (b) on or before the last day of each
month, the consolidated balance sheet and income statement for the
immediately preceding month; (c) promptly upon receipt of notice thereof, a
report of any legal actions pending or threatened against Borrower or any
Subsidiary that could result in damages or costs to Borrower or any
Subsidiary of One Hundred Thousand Dollars ($100,000) or
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more; and (d) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time.
On or before the last day of each month, for the immediately preceding
month, Borrower shall deliver to Bank a Compliance Certificate signed by a
Responsible Officer in substantially the form of Exhibit D to the Loan
Agreement.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted
no more often than every six (6) months unless an Event of Default has
occurred and is continuing."
3. AMENDMENT FEE. In consideration of Bank's execution of this Amendment
and that certain Waiver of Default dated November 19, 1998, Borrower shall pay
to Bank an amendment fee in the amount of $20,000.00 on or before November 19,
1998.
4. INFORMATION REQUEST. Borrower shall provide to Bank the information
and documents set forth on Exhibit A hereto on or before November 23, 1998.
5. REPRESENTATIONS TRUE. Borrower represents and warrants to Bank that
all representations and warranties set forth in the Loan Agreement, as amended
hereby, are true and correct.
6. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Bank and the Borrower, and
the other written documents and agreements between Bank and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements
between Bank and the Borrower shall continue in full force and effect and the
same are hereby ratified and confirmed. This Agreement and Consent may be
executed in any number of counterparts, which when taken together shall
constitute one and the same agreement.
BORROWER: BANK:
SAFEGUARD HEALTH ENTERPRISES, INC. SILICON VALLEY BANK
BY /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, DDS BY /s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
------------------------------------ -----------------------------
TITLE: Chairman & Chief Executive Officer TITLE SVP
---------------------------------- ---------------------------
BY /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, CPA
------------------------------------
TITLE: Vice Pres, Chief Financial Officer
----------------------------------
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[LOGO] SILICON VALLEY BANK
LOAN AND SECURITY AGREEMENT
by and between
SILICON VALLEY BANK
as Lender
and
SAFEGUARD HEALTH ENTERPRISES, INC.
as Borrower
Dated: January 29, 1998
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TABLE OF CONTENTS
PAGE
----
1. DEFINITIONS AND CONSTRUCTION.................................................. 1
1.1 Definitions........................................................ 1
1.2 Accounting and Other Terms......................................... 6
2. LOAN AND TERMS OF PAYMENT..................................................... 6
2.1 Credit Extensions.................................................. 6
2.2 Overadvances....................................................... 7
2.3 Interest Rates, Payments, and Calculations......................... 7
2.4 Crediting Payments................................................. 8
2.5 Fees............................................................... 8
2.6 Additional Costs................................................... 8
2.7 Term............................................................... 9
3. CONDITIONS OF LOANS........................................................... 9
3.1 Conditions Precedent to Initial Credit Extension................... 9
3.2 Conditions Precedent to all Credit Extensions...................... 9
4. CREATION OF SECURITY INTEREST................................................. 10
4.1 Grant of Security Interest......................................... 10
4.2 Delivery of Additional Documentation Required...................... 10
4.3 Right to Inspect................................................... 10
5. REPRESENTATIONS AND WARRANTIES................................................ 10
5.1 Due Organization and Qualification................................. 10
5.2 Due Authorization.................................................. 10
5.3 No Prior Encumbrances.............................................. 11
5.4 [Reserved]......................................................... 11
5.5 Merchantable Inventory............................................. 11
5.6 [Reserved]......................................................... 11
5.7 Name............................................................... 11
5.8 Litigation......................................................... 11
5.9 No Material Adverse Change in Financial Statements................. 11
5.10 Solvency........................................................... 11
5.11 Regulatory Compliance.............................................. 11
5.12 Environmental Condition............................................ 11
5.13 Taxes.............................................................. 12
5.14 Subsidiaries....................................................... 12
5.15 Government Consents................................................ 12
5.16 Full Disclosure.................................................... 12
6. AFFIRMATIVE COVENANTS......................................................... 12
6.1 Good Standing...................................................... 12
6.2 Government Compliance.............................................. 12
6.3 Financial Statements, Reports, Certificates........................ 12
6.4 Inventory.......................................................... 13
6.5 Taxes.............................................................. 13
6.6 Insurance.......................................................... 13
6.7 Principal Depository............................................... 13
6.8 Current Ratio...................................................... 14
6.9 Debt-Net Worth Ratio............................................... 14
6.10 Stated Net Worth................................................... 14
6.11 EBITA/Interest Expense Ratio....................................... 14
6.12 Clean Up Period.................................................... 14
6.13 Further Assurances................................................. 14
7. NEGATIVE COVENANTS............................................................ 14
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TABLE OF CONTENTS (CONTD)
PAGE
----
7.1 Dispositions....................................................... 14
7.2 Changes in Business, Ownership, or Management,
Business Locations................................................. 14
7.3 Mergers or Acquisitions............................................ 14
7.4 Indebtedness....................................................... 15
7.5 Encumbrances....................................................... 15
7.6 Distributions...................................................... 15
7.7 Investments........................................................ 15
7.8 Transactions with Affiliates....................................... 15
7.9 [Reserved]......................................................... 15
7.10 Subordinated Debt.................................................. 15
7.11 Inventory.......................................................... 15
7.12 Compliance......................................................... 15
8. EVENTS OF DEFAULT............................................................. 16
8.1 Payment Default ................................................... 16
8.2 Covenant Default................................................... 16
8.3 Material Adverse Change............................................ 16
8.4 Attachment ........................................................ 16
8.5 Insolvency......................................................... 16
8.6 Other Agreements................................................... 16
8.7 Subordinated Debt.................................................. 17
8.8 Judgments.......................................................... 17
8.9 Misrepresentations................................................. 17
8.10 Guaranty........................................................... 17
9. BANK'S RIGHTS AND REMEDIES.................................................... 17
9.1 Rights and Remedies................................................ 17
9.2 Power of Attorney.................................................. 18
9.3 Accounts Collection................................................ 18
9.4 Bank Expenses...................................................... 19
9.5 Bank's Liability for Collateral.................................... 19
9.6 Remedies Cumulative................................................ 19
9.7 Demand............................................................. 19
10. NOTICES ................................................................... 19
11. CHOICE OF LAW AND VENUE....................................................... 20
12. GENERAL PROVISIONS............................................................ 20
12.1 Successors and Assigns............................................. 20
12.2 Indemnification.................................................... 20
12.3 Time of Essence.................................................... 20
12.4 Severability of Provisions......................................... 20
12.5 Amendments in Writing, Integration................................. 20
12.6 Counterparts....................................................... 21
12.7 Survival........................................................... 21
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LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of January 29, 1998 by and
between SILICON VALLEY BANK ("Bank") and SAFEGUARD HEALTH ENTERPRISES, INC., a
Delaware corporation ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank desires
to extend credit to Borrower. This Agreement sets forth the terms on which Bank
will advance credit to Borrower, and Borrower will repay the amounts owing to
Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following terms shall
have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" means a loan advance under the Committed
Revolving Line.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Persons, managers and members.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents;
and Bank's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents, (including fees and expenses of
appeal or review, or those incurred in any Insolvency Proceeding) whether or not
suit is brought.
"Borrower's Books" means all of Borrower's books and records
including, without limitation: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and all
computer programs, or tape files, and the equipment, containing such
information.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close, provided that with respect to all transactions involving LIBOR Rate
Advances (as defined in the Supplement), "Business Day" shall have the meaning
set forth in the Supplement.
"Closing Date" means the date of this Agreement.
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"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
hereto.
"Committed Revolving Line" means a credit extension of up to
$8,000,000.
"Consolidated EBITA" means for any period the amount of which is
to be determined, Consolidated Net Income for such period plus (but only to the
extent such amounts were deducted in the computation of Consolidated Net Income)
(i) Consolidated Interest Expense, (ii) income tax expense (including deferred
income tax expense) and (iii) amortization expense of the Consolidated Group for
such period, determined on a consolidated basis in accordance with GAAP,
consistently applied.
"Consolidated Group" means the Borrower and each of its
Subsidiaries and if the context so requires, the Borrower and its Subsidiaries,
taken as a whole.
"Consolidated Interest Expense" means for any period the amount
of which is to be determined, the aggregate interest charges of the Consolidated
Group (including without limitation that portion of any obligation under
capitalized leases allocable to interest expense) on any Obligations for such
period (without regard to any limitation on the payment thereof) as determined
in accordance with GAAP, consistently applied.
"Consolidated Net Income" means for any period the amount of
which is to be determined, the net income of the Consolidated Group determined
on a consolidated basis in accordance with GAAP, consistently applied.
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Credit Extension" means each Advance, Letter of Credit or any
other extension of credit by Bank for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Credit
Extensions made under this Agreement, including all Indebtedness that is
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payable upon demand or within one year from the date of determination thereof
unless such Indebtedness is renewable or extendable at the option of Borrower or
any Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in
effect in the United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Interest Rate" shall have the meaning set forth in the
Supplement.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Letter of Credit" means a letter of credit or similar
undertaking issued by Bank pursuant to Section 2.1.2.
"Letter of Credit Reserve" has the meaning set forth in Section
2.1.2.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other present or future agreement entered
into between Borrower and/or for
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the benefit of Bank in connection with this Agreement, all as amended, extended
or restated from time to time.
Material Adverse Effect" means a material adverse effect on (i)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means the Revolving Maturity Date.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Payment Date" means the first calendar day of each month
commencing on the first such date after the Closing Date and ending on the
Revolving Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising
under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and
disclosed in the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the
ordinary course of business; and
(e) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed
in the Schedule;
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency
or any State thereof maturing within one (1) year from the date of
acquisition thereof, (ii) commercial paper maturing no more than one (1)
year from the date of creation thereof and currently having the highest
rating obtainable from either Standard & Poor's Corporation or ▇▇▇▇▇'▇
Investors Service, Inc., and (iii) certificates of deposit maturing no
more than one (1) year from the date of investment therein issued by
Bank; and
(c) those Investments set forth on Exhibit C attached
hereto.
"Permitted Liens" means the following:
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(a) Any Liens existing on the Closing Date and disclosed
in the Schedule or arising under this Agreement or the other Loan
Documents;
(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested
in good faith by appropriate proceedings and as to which adequate
reserves are maintained on Borrower's Books in accordance with GAAP,
provided the same have no priority over any of Bank's security
interests;
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or indebtedness incurred solely for the purpose of financing
the acquisition of such Equipment, or existing on such equipment at the
time of its acquisition, provided that the Lien is confined solely to
the property so acquired and improvements thereon, and the proceeds of
such equipment; and
(d) Liens incurred in connection with the extension,
renewal or refinancing of the indebtedness secured by Liens of the type
described in clauses (a) through (c) above, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered
by the existing Lien and the principal amount of the indebtedness being
extended, renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank.
"Responsible Officer" means each of the Chief Executive Officer,
the President and the Chief Financial Officer.
"Revolving Maturity Date" means one day prior to the first
anniversary of the date of this Agreement.
"Schedule" means the schedule of exceptions attached hereto, if
any.
"SEC Reports" shall have the meaning set forth in Section 6.3(a)
hereof.
"Stated Net Worth" means as of any applicable date, the stated
net worth of the Borrower determined in accordance with GAAP, consistently
applied.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business entity of
which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by such Person or one
or more Affiliates of such Person.
"Supplement" shall mean the Interest Rate Supplement to Agreement
of even date herewith between Bank and Borrower attached hereto and forming a
part of this Agreement.
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"Total Liabilities" means as of any applicable date, any date as
of which the amount thereof shall be determined, all obligations that should, in
accordance with GAAP be classified as liabilities on the consolidated balance
sheet of Borrower, including in any event all Indebtedness, but specifically
excluding Subordinated Debt.
1.2 Accounting and Other Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. The terms "including"/ "includes" shall always be read as
meaning "including (or includes) without limitation", when used herein or in any
other Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 Credit Extensions. Borrower promises to pay to the order of Bank, in
lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower
shall also pay interest on the unpaid principal amount of all Credit Extensions
at rates in accordance with the terms hereof.
2.1.1 Advances.
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an aggregate
outstanding amount not to exceed (i) the Committed Revolving Line minus
(ii) the face amount of all outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit). Subject to the terms and
conditions of this Agreement, amounts borrowed pursuant to this Section
2.1 may be repaid and reborrowed at any time during the term of this
Agreement.
(b) Whenever Borrower desires an Advance, Borrower will
notify Bank by facsimile transmission or telephone no later than 3:00
p.m. Pacific time, on the Business Day that the Advance is to be made,
provided that a LIBOR Rate Advances (as defined in the Supplement) shall
be subject to the Advance request provisions set forth in the
Supplement. Each such notification shall be promptly confirmed by a
Payment/Advance Form in substantially the form of Exhibit B hereto. Bank
is authorized to make Advances under this Agreement, based upon
instructions received from a Responsible Officer, or without
instructions if in Bank's discretion such Advances are necessary to meet
Obligations which have become due and remain unpaid. Bank shall be
entitled to rely on any telephonic notice given by a person who Bank
reasonably believes to be a Responsible Officer or a designee thereof,
and Borrower shall indemnify and hold Bank harmless for any damages or
loss suffered by Bank as a result of such reliance. Bank will credit the
amount of Advances made under this Section 2.1 to Borrower's deposit
account.
(c) The Committed Revolving Line shall terminate on the
Revolving Maturity Date, at which time all Advances under this Section
2.1 and other amounts due under this Agreement (except as otherwise
expressly specified herein) shall be immediately due and payable.
2.1.2 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement,
Bank agrees to issue or cause to be issued Letters of Credit for the
account of Borrower in an aggregate
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outstanding face amount not to exceed (i) the Committed Revolving Line
minus (ii) the then outstanding principal balance of the Advances;
provided that the face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit and any Letter of
Credit Reserve) shall not in any case exceed $1,000,000. Each Letter of
Credit shall have an expiry date no later than the Revolving Maturity
Date. All Letters of Credit shall be, in form and substance, acceptable
to Bank in its sole discretion and shall be subject to the terms and
conditions of Bank's form of standard Application and Letter of Credit
Agreement.
(b) The obligation of Borrower to immediately reimburse
Bank for drawings made under Letters of Credit shall be absolute,
unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement and such Letters of Credit,
under all circumstances whatsoever. Borrower shall indemnify, defend,
protect, and hold Bank harmless from any loss, cost, expense or
liability, including,. without limitation, reasonable attorneys' fees,
arising out of or in connection with any Letters of Credit.
(c) Borrower may request that Bank issue a Letter of
Credit payable in a currency other than United States Dollars. If a
demand for payment is made under any such Letter of Credit, Bank shall
treat such demand as an Advance to Borrower of the equivalent of the
amount thereof (plus cable charges) in United States currency at the
then prevailing rate of exchange in San Francisco, California, for
sales of that other currency for cable transfer to the country of which
it is the currency.
(d) Upon the issuance of any letter of credit payable in
a currency other than United States Dollars, Bank shall create a
reserve under the Committed Revolving Line for letters of credit
against fluctuations in currency exchange rates, in an amount equal to
ten percent (10%) of the face amount of such letter of credit. The
amount of such reserve may be amended by Bank from time to time to
account for fluctuations in the exchange rate. The availability of
funds under the Committed Revolving Line shall be reduced by the amount
of such reserve for so long as such letter of credit remains
outstanding.
2.2 Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1.1 or 2.1.2 of this
Agreement is greater than the Committed Revolving Line, Borrower shall
immediately pay to Bank, in cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in Section 2.3(b), any
Advances shall bear interest, on the average daily balance thereof, at a per
annum rate equal to the applicable Interest Rate.
(b) Default Rate. All Obligations shall bear interest, from and
after the occurrence of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default, provided that LIBOR Rate Advances (as
defined in the Supplement) shall first be subject to conversion to Prime Rate
Advances (as defined in the Supplement) as more fully set forth in the
Supplement.
(c) Payments. Interest hereunder shall be due and payable on each
Payment Date. Borrower hereby authorizes Bank to debit any accounts with Bank,
including, without limitation, Account Number ____________________ for payments
of principal and interest due on the Obligations and any other amounts owing by
Borrower to Bank. Bank will notify
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15
Borrower of all debits which Bank has made against Borrower's accounts within
the next customary bank statement reporting period. Any such debits against
Borrower's accounts in no way shall be deemed a set-off. Any interest not paid
when due shall be compounded by becoming a part of the Obligations, and such
interest shall thereafter accrue interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from time
to time hereafter, the applicable rate of interest with respect to Prime Rate
Advances (as defined in the Supplement) shall be increased or decreased
effective as of 12:01 a.m. on the day the Prime Rate is changed, by an amount
equal to such change in the Prime Rate. All interest chargeable under the Loan
Documents shall be computed on the basis of a three hundred sixty (360) day year
for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment, whether directed to Borrower's deposit account
with Bank or to the Obligations or otherwise, shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon Pacific
time shall be deemed to have been received by Bank as of the opening of business
on the immediately following Business Day. Whenever any payment to Bank under
the Loan Documents would otherwise be due (except by reason of acceleration) on
a date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to $40,000, which fee
shall be due on the Closing Date and shall be fully earned and non-refundable;
(b) Financial Examination and Appraisal Fees. Bank's customary
fees and reasonable out-of-pocket expenses for Bank's audits and appraisals of
Collateral and financial analysis and examination of Borrower performed from
time to time by Bank or its agents; and
(c) Bank Expenses. Upon demand from Bank, including, without
limitation, upon the date hereof, all reasonable Bank Expenses incurred through
the date hereof, including reasonable attorneys' fees and expenses, and, after
the date hereof, all reasonable Bank Expenses, including reasonable attorneys'
fees and expenses, as and when they become due.
2.6 Additional Costs. In case any law, regulation, treaty or official
directive or the interpretation or application thereof by any court or any
governmental authority charged with the administration thereof or the compliance
with any guideline or request of any central bank or other governmental
authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
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16
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 Term. Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension. The obligation of
Bank to make the initial Credit Extension is subject to the condition precedent
that Bank shall have received, in form and substance satisfactory to Bank, the
following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
its certificate of incorporation, bylaws, incumbency and resolutions authorizing
the execution and delivery of this Agreement;
(c) financing statements (Forms UCC-1);
(d) insurance certificate;
(e) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof;
(f) Certificate of Foreign Qualification (if applicable);
(g) review and approval by the Bank of the Note Purchase
Agreement dated as of September 30, 1997 regarding the issuance of certain
senior notes by the Borrower and all exhibits and all other documents relating
thereto; and
(h) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation of
Bank to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:
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17
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Credit Extension. The
making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Credit Extension as to the accuracy of
the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt payment of any and all Obligations
and in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. Except as set forth in the Schedule, such
security interest constitutes a valid, first priority security interest in the
presently existing Collateral, and will constitute a valid, first priority
security interest in Collateral acquired after the date hereof. Borrower
acknowledges that Bank may place a "hold" on any Deposit Account pledged as
Collateral to secure the Obligations. Notwithstanding termination of this
Agreement, Bank's Lien on the Collateral shall remain in effect for so long as
any Obligations are outstanding.
4.2 Delivery of Additional Documentation Required. Borrower shall from
time to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary is a
corporation duly existing and in good standing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified.
5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles/Certificate of Incorporation or
Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which Borrower is bound. Borrower
is not in default under any agreement to which it is a party or by which it is
bound, which default could have a Material Adverse Effect.
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5.3 No Prior Encumbrances. Borrower has good and indefeasible title to
the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 [Reserved]
5.5 Merchantable Inventory. All Inventory is in all material respects of
good and marketable quality, free from all material defects.
5.6 [Reserved]
5.7 Name; Location of Chief Executive Office. Except as disclosed in the
Schedule, Borrower has not done business and will not without at least thirty
(30) days prior written notice to Bank do business under any name other than
that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
5.8 Litigation. Except as set forth in the Schedule, there are no
actions or proceedings pending, or, to Borrower's knowledge, threatened by or
against Borrower or any Subsidiary before any court or administrative agency in
which an adverse decision could have a Material Adverse Effect or a material
adverse effect on Borrower's interest or Bank's security interest in the
Collateral.
5.9 No Material Adverse Change in Financial Statements. All consolidated
financial statements related to Borrower and any Subsidiary that have been
delivered by Borrower to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not been
a material adverse change in the consolidated financial condition of Borrower
since the date of the most recent of such financial statements submitted to Bank
on or about the Closing Date.
5.10 Solvency. The fair saleable value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities; the
Borrower is not left with unreasonably small capital after the transactions
contemplated by this Agreement; and Borrower is able to pay its debts (including
trade debts) as they mature.
5.11 Regulatory Compliance. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.12 Environmental Condition. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by
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Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has received
a summons, citation, notice, or directive from the Environmental Protection
Agency or any other federal, state or other governmental agency concerning any
action or omission by Borrower or any Subsidiary resulting in the release, or
other disposition of hazardous waste or hazardous substances into the
environment.
5.13 Taxes. Borrower and each Subsidiary has filed or caused to be filed
all tax returns required to be filed on a timely basis, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein.
5.14 Subsidiaries. Borrower does not own any stock, partnership interest
or other equity securities of any Person, except for Permitted Investments.
5.15 Government Consents. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.16 Full Disclosure. No representation, warranty or other statement made
by Borrower in any certificate or written statement furnished to Bank contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall deliver to
Bank: (a) within five (5) days of filing, copies of all statements, reports and
notices sent or made available generally by Borrower to its security holders or
to any holders of Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K
filed with the Securities and Exchange Commission (collectively, the "SEC
Reports"); (b) promptly upon receipt of notice thereof, a report of any legal
actions pending or threatened against Borrower or any Subsidiary that could
result in damages or costs to Borrower or any Subsidiary of One Hundred Thousand
Dollars ($100,000) or more; and (c) such budgets, sales projections, operating
plans or other financial information as Bank may reasonably request from time to
time.
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Within FIVE (5) days after the filing of the SEC Reports, Borrower shall
deliver to Bank with a Compliance Certificate signed by a Responsible Officer
substantially the form of Exhibit D hereto for the period then ended.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than every six (6) months unless an Event of Default has occurred and
is continuing.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to make,
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate certificates attesting to the payment or
deposit thereof; and Borrower will make, and will cause each Subsidiary to make,
timely payment or deposit of all material tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Bank with proof satisfactory to
Bank indicating that Borrower or a Subsidiary has made such payments or
deposits; provided that Borrower or a Subsidiary need not make any payment if
the amount or validity of such payment is (i) contested in good faith by
appropriate proceedings, (ii) is reserved against (to the extent required by
GAAP) by Borrower and (iii) no lien other than a Permitted Lien results.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies rated A-1, and in such amounts as are reasonably satisfactory to
Bank, and that the current insurance amount of $5,000,000 regarding personal
property is acceptable as of the date hereof, with the understanding that future
events affecting the Borrower may cause the Bank to reevaluate such amount from
time to time. All such policies of property insurance shall contain a lender's
loss payable endorsement, in a form satisfactory to Bank, showing Bank as an
additional loss payee thereof and all liability insurance policies shall show
the Bank as an additional insured, and shall specify that the insurer must give
at least twenty (20) days notice to Bank before canceling its policy for any
reason. At Bank's request, Borrower shall deliver to Bank certified copies of
such policies of insurance and evidence of the payments of all premiums
therefor. All proceeds payable under any such policy shall, at the option of
Bank, be payable to Bank to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its principal
depository and operating accounts with Bank, no later than June 1, 1998.
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6.8 Current Ratio. Borrower shall, on a consolidated basis, maintain, as
of the last day of each fiscal quarter, a ratio of Current Assets to Current
Liabilities of at least 1.25 to 1.0 for the period ending December 31, 1997.
Thereafter, Borrower shall maintain, as of the last day of each calendar
quarter, a ratio of Current Assets to Current Liabilities of at least 1.50 to
1.0.
6.9 Debt-Net Worth Ratio. Borrower shall, on a consolidated basis,
maintain, as of the last day of each fiscal quarter, a ratio of Total
Liabilities less Subordinated Debt to Stated Net Worth plus Subordinated Debt of
not more than 1.75 to 1.0.
6.10 Stated Net Worth. Borrower shall, on a consolidated basis,
maintain, as of the last day of each fiscal quarter, a Stated Net Worth of not
less than $30,000,000 plus 50% of the Borrower's positive, quarterly
consolidated net income starting with the period ending December 31, 1996.
6.11 EBITA/Interest Expense Ratio. Borrower shall, on a consolidated
basis, maintain, as of the last day of each fiscal quarter, a ratio of
Consolidated EBITA to Consolidated Interest Expense, with respect to the most
recent four fiscal quarter period, of not less than 2.00 to 1.0.
6.12 Clean Up Period. During each fiscal year of the Borrower, Borrower
shall maintain a period of no less than 30 consecutive calendar days during
which no Advances shall be outstanding.
6.13 Further Assurances. At any time and from time to time Borrower and
Bank shall execute and deliver such further instruments and take such further
action as may reasonably be requested by Bank and the Borrower, respectively, to
effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following, without the written consent of the
Bank (and in connection therewith the Bank agrees to use reasonable efforts to
respond to any such consent request by the Borrower within a reasonable time
period with the understanding that such agreement does not mean or imply that
such consent will be granted).
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than Transfers: (i) of inventory
in the ordinary course of business, (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; (iii) that constitute payment of normal and usual
operating expenses in the ordinary course of business; or (iii) of worn-out or
obsolete Equipment.
7.2 Changes in Business, Ownership, or Management, Business Locations.
Engage in any business, or permit any of its Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and any
business substantially similar or related thereto (or incidental thereto), or
suffer a change in Borrower's ownership of greater than 40% or the Chairman of
the Board and the President and Chief Executive Officer of the Borrower change
after the date hereof. Borrower will not, without at least thirty (30) days
prior written notification to Bank, relocate its chief executive office or add
any new offices or business locations.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person, except
that the Borrower or any of its Subsidiaries may merge or consolidate with
another
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corporation if the Borrower or the Borrower's Subsidiary is the surviving
corporation in the merger and the aggregate value of the assets acquired in the
merger does not exceed 25% of Borrower's tangible net worth or the Subsidiary's
tangible net worth, as applicable, as of the end of the month prior to the
effective date of the merger, and the assets of the corporation acquired in the
merger are not subject to any liens or encumbrances, except Permitted Liens.
Tangible net worth shall be determined in accordance with GAAP, consistently
applied.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with
respect to any of its property, including, without limitation, (A) the real
property of the Borrower commonly known as at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ or (B) any stock or other equity interest of any of the
Subsidiaries of the Borrower; or assign or otherwise convey any right to receive
income, including the sale of any Accounts, or permit any of its Subsidiaries to
do so, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock.
7.7 Investments; Loans; Guarantees. Directly or indirectly acquire or own,
or make any Investment in or to any Person, or permit any of its Subsidiaries so
to do, other than Permitted Investments, or make any loans of any money or any
other assets to any Person, or guarantee or otherwise become liable with respect
to the obligations of any other Person.
7.8 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a non affiliated Person.
7.9 [Reserved]
7.10 Subordinated Debt. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
7.11 Inventory. Store the Inventory with a bailee, warehouseman, or
similar party unless Bank has received a pledge of any warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.12 Compliance. Become an "investment company" or a company controlled
by an "investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose; fail
to meet the minimum funding requirements of ERISA; permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral; or permit any
of its Subsidiaries to do any of the foregoing.
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8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any of the
Obligations.
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under Sections
6.3, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11, 6.12 or 6.13 or violates any of the
covenants contained in Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep, or observe
any other material term, provision, condition, covenant, or agreement contained
in this Agreement, in any of the Loan Documents, or in any other present or
future agreement between Borrower and Bank and as to any default under such
other term, provision, condition, covenant or agreement that can be cured, has
failed to cure such default within ten (10) days after the occurrence thereof;
provided, however, that if the default cannot by its nature be cured within the
ten (10) day period or cannot after diligent attempts by Borrower be cured
within such ten (10) day period, and such default is likely to be cured within a
reasonable time, then Borrower shall have an additional reasonable period (which
shall not in any case exceed thirty (30) days) to attempt to cure such default,
and within such reasonable time period the failure to have cured such default
shall not be deemed an Event of Default (provided that no Advances will be
required to be made during such cure period);
8.3 Material Adverse Change. If there (i) occurs a material adverse
change in the business, operations, or condition (financial or otherwise) of the
Borrower, or (ii) is a material impairment of the prospect of repayment of any
portion of the Obligations or (iii) is a material impairment of the value or
priority of Bank's security interests in the Collateral;
8.4 Attachment. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 30 days (provided that no
Advances will be made prior to the dismissal of such Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of Five Hundred Thousand Dollars
($500,000) or that could have a Material Adverse Effect;
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8.7 Subordinated Debt, If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least Two Hundred Fifty Thousand
Dollars ($250,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no Credit
Extensions will be made prior to the satisfaction or stay of such judgment);
8.9 Misrepresentations. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate or writing delivered to Bank by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document; or
8.10 Guaranty. Any guaranty of all or a portion of the Obligations
ceases for any reason to be in full force and effect, or any Guarantor fails to
perform any obligation under any guaranty of all or a portion of the
Obligations, or any material misrepresentation or material misstatement exists
now or hereafter in any warranty or representation set forth in any guaranty of
all or a portion of the Obligations or in any certificate delivered to Bank in
connection with such guaranty, or any of the circumstances described in Sections
8.4, 8.5 or 8.8 occur with respect to any Guarantor.
9. BANKS RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the continuance
of an Event of Default, Bank may, at its election, without notice of its
election and without demand, do any one or more of the following, all of which
are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in Section
8.5 all Obligations shall become immediately due and payable without any action
by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Demand that Borrower (i) deposit cash with Bank in an amount
equal to the amount of any Letters of Credit remaining undrawn, as collateral
security for the repayment of any future drawings under such Letters of Credit,
and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in
advance all Letters of Credit fees scheduled to be paid or payable over the
remaining term of the Letters of Credit;
(d) [Reserved];
(e) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(f) Without notice to or demand upon Borrower, make such payments
and do such acts as Bank considers necessary or reasonable to protect its
security interest in the Collateral. Borrower agrees to assemble the Collateral
if Bank so requires, and to make the Collateral available to Bank as Bank may
designate. Borrower authorizes Bank to enter the premises where the Collateral
is located, to take and maintain possession of the Collateral, or any part of
it, and to pay, purchase, contest, or compromise any encumbrance, charge, or
lien which in Bank's determination
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appears to be prior or superior to its security interest and to pay all expenses
incurred in connection therewith. With respect to any of Borrower's premises,
Borrower hereby grants Bank a license to enter such premises and to occupy the
same, without charge in order to exercise any of Bank's rights or remedies
provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(h) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a non-exclusive, royalty-free
license or other right, solely pursuant to the provisions of this Section 9.1,
to use, without charge, Borrower's labels, patents, copyrights, mask works,
rights of use of any name, trade secrets, trade names, trademarks, service
marks, and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in completing production of, advertising for sale,
and selling any Collateral and, in connection with Bank's exercise of its rights
under this Section 9.1, Borrower's rights under all licenses and all franchise
agreements shall inure to Bank's benefit;
(i) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply the proceeds thereof to the
Obligations in whatever manner or order it deems appropriate;
(j) Bank may credit bid and purchase at any public sale, or at
any private sale as permitted by law; and
(k) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or ▇▇▇▇ of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; provided Bank may
exercise such power of attorney to sign the name of Borrower on any of the
documents described in Section 4.2 regardless of whether an Event of Default has
occurred. The appointment of Bank as Borrower's attorney in fact, and each and
every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. Upon the occurrence and during the continuance of
an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
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9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not expressly set forth herein as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower SafeGuard Health Enterprises, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
FAX: ▇▇▇-▇▇▇-▇▇▇▇
If to Bank Silicon Valley Bank
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Manager
FAX: ▇▇▇-▇▇▇-▇▇▇▇
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The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE; JURY WAIVER
The Loan Documents shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to principles
of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Orange,
State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY
OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall, indemnify, defend, protect and
hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement shall
be severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be
amended or terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
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12.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.
SAFEGUARD HEALTH ENTERPRISES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, CPA
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Title: Vice President and CFO
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By: /s/ ▇▇▇▇ ▇. ▇▇▇
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Title: President and COO
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SILICON VALLEY BANK
By: /s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
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Title: Vice President
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