Exhibit 10.17
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
This First Amendment to Loan and Security Agreement (this "Amendment") is
made and entered into effective as of July 9, 1999, by and among Century
Electronics Manufacturing (NE) Inc., a Massachusetts corporation ("CEM"), Y.M.C.
Manufacturing Company, a California Corporation ("YMC"), and Quality
Manufacturing Services, Inc., a California corporation ("QMS,") and together
with CEM and YMC, (the "Companies"), and Guaranty Business Credit Corporation
d/b/a/ Fidelity Funding, a Delaware corporation ("GBCC").
The Companies and USA Funding, Inc. ("USA Funding") have entered into that
certain Loan and Security Agreement (the "Related Loan Agreement"), dated as of
December 22, 1998, and the Companies and Fidelity Funding, Inc. ("Fidelity")
have entered into that certain Loan and Security Agreement (the "Original
Agreement"), dated as of December 22, 1998. USA Funding and Fidelity have
transferred, assigned and conveyed all of their right, title and interest in, to
and under the Related Loan Agreement and the Original Agreement to GBCC. The
Companies and GBCC desire to terminate the Related Loan Agreement and to amend
the Original Agreement and, in connection therewith, hereby agree as follows:
1. The Original Agreement as amended by this Amendment is referred to
herein as the "Agreement." Capitalized terms used but not defined in this
Amendment shall have the meanings given to them in the Original Agreement.
2. The definition of Borrowing Base in Section 1.1 of the Original
Agreement hereby is amended to read in the entirety as follows:
"Borrowing Base" means, with respect to any Company, an amount, determined
by Fidelity from time to time, equal to the sum of (a) 80% of the aggregate
outstanding face amount of the Eligible Accounts of such Company and (b) the
lesser of (i) 50% of the value of the Eligible Inventory of such Company, valued
at the lower of cost or market, or (ii) the Inventory Sublimit less 50% of the
value of the Eligible Inventory of each other Company then included in each such
other Company's Borrowing Base, valued at the lower of cost or market. Fidelity
may change the percentage of Eligible Accounts and/or Eligible Inventory
constituting the Borrowing Base of any Company from time to time based upon
dilution, net collectibility and other factors deemed appropriate by Fidelity.
As used herein, the term "Inventory Sublimit" means $5,000,000; provided,
however, that the "Inventory Sublimit" shall be reduced by $500,000 on October
1, 1999 and on the first day of each calendar month thereafter until the
"Inventory Sublimit" is reduced to $3,000,000.
3. The definition of Century Documents in Section 1.1 of the Original
Agreement hereby is amended to read in the entirety as follows:
"Century Documents" means the Century Guaranty (Fidelity) and all other
documents or agreements executed by Century in connection herewith or therewith.
4. The definition of Century Guaranty (USA Funding) in Section 1.1 of the
Original Agreement hereby is deleted.
5. The definition of Eligible Accounts in Section 1.1 of the Original
Agreement hereby is amended to read in the entirety as follows:
"Eligible Accounts" means, at the time of determination thereof, all
Accounts other than (i) any Account which is payable more than 30 days from
invoice date, (ii) any Account which has been outstanding for more than 90 days
from invoice date, (iii) any Account as to which Fidelity does not have a valid
and perfected, first priority security interest, (iv) to the extent that the
aggregate outstanding Accounts owed by any single Account Debtor exceeds the
Concentration Limit, any Account owed by such Account Debtor, (v) any Account
that is owed by an Account Debtor that is an Affiliate of any Company or an
officer or employee of any Company, (vi) any Account that arises out of a sale
made or services performed outside of the United States or that is owed by an
Account Debtor located outside the United States, (vii) any Account that is owed
by a creditor or supplier of any Company or with respect to which any defense,
counterclaim or right of set off has been asserted, (viii) any Account owed by
an Account Debtor if more than 50% (in dollar amount) of such Account Debtor's
Accounts, have been outstanding more than 90 days from invoice date, (ix) any
Account that is owed by the United States or any department, agency or
instrumentality thereof, unless the right to payment under such Account is
assigned to Fidelity as Collateral in full compliance with the Assignment of
Claims Act of 1940, as amended (31 U.S.C. 3727); and (x) any Account that has
not been approved by Fidelity for inclusion in the applicable Borrowing Base.
6. The definition of Facility Limit in Section 1.1 of the Original
Agreement hereby is amended to read in the entirety as follows:
"Facility Limit" means $15,000,000; provided, however, that the "Facility
Limit" shall be reduced by $500,000 on October 1, 1999 and on the first day of
each calendar month thereafter until the "Facility Limit" is reduced to
$12,000,000.
7. The definition of Intangible Assets in Section 1.1 of the Original
Agreement hereby is amended to read in its entirety as follows:
"Intangible Assets" means, with respect to any Company, such of such
Company's assets as are treated as intangible pursuant to GAAP, including,
without limitation: (a) obligations owing by officers, directors, shareholders,
employees, subsidiaries, Affiliates or any Person in which any such officer,
director, shareholder, employee, subsidiary, or Affiliate owns any interest and
(b) any asset which is intangible or lacks intrinsic or marketable value or
collectability, including, without limitation, goodwill, noncompetition
agreements, patents, copyrights, trademarks, franchises, organization or
research and development costs.
8. The definition of Net Profit Requirement in Section 1.1 of the Original
Agreement hereby is amended to read in its entirety as follows:
"Net Profit Requirement" means (a) with respect to YMC and QMS combined,
$100,000 per fiscal year beginning with the fiscal year beginning on July 1,
1999, and (b) with respect to CEM, $1,800,000 per fiscal year.
9. The definition of Related Loan Agreement in Section 1.1 of the Original
Agreement hereby is deleted.
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10. The definition of Tangible Networth Requirement in Section 1.1 of the
Original Agreement hereby is amended to read in its entirety as follows:
"Tangible Net Worth Requirement" means (a) with respect to YMC and QMS
combined, negative $300,000 until June 30, 1999 and for each calendar month
thereafter means the Tangible Net Worth Requirement of YMC and QMS combined as
of the last day of the preceding calendar month plus $8,333, and (b) with
respect to CEM, means $2,500,000 until December 30, 1998 and for each calendar
month thereafter means the Tangible Net Worth Requirement of CEM as of the last
day of the preceding calendar month plus $50,000 per month until June 30, 1999
and thereafter $150,000 per month.
11. The definition of USA Funding in Section 1.1 of the Original Agreement
hereby is deleted.
12. The definition of Working Capital Requirement in Section 1.1 of the
Original Agreement hereby is amended to read in its entirety as follows:
"Working Capital Requirement" means negative $1,500,000 until January 30,
1999 and for each calendar month thereafter means the Working Capital
Requirement as of the last day of the preceding calendar month plus $50,000 per
month until June 30, 1999 and thereafter $150,000 per month.
13. Section 2.1 of the Original Agreement hereby is amended to read in the
entirety as follows:
Subject to the terms of this Agreement, including, without limitation,
Section 3, Fidelity shall make advances to each Company (each an "Advance" and
collectively the "Advances") from time to time during the Term; provided,
however, that the aggregate principal amount of Advances outstanding at any time
to any Company shall not exceed such Company's Borrowing Base determined by
Fidelity from time to time; and provided, further, however, that the aggregate
principal amount of Advances outstanding at any time to all Companies shall not
exceed the Facility Limit. Each Advance must be in a minimum amount of $5,000
or, if less, the unadvanced portion of the applicable Borrowing Base. The
Companies hereby agree to repay to Fidelity all Advances made to the Companies
hereunder, together with interest thereon, in the manner provided herein. The
principal owing hereunder in respect of the Advances at any given time shall
equal the aggregate amount of Advances made hereunder minus all principal
payments thereon received by Fidelity hereunder. Subject to the terms and
conditions hereof, the Companies may borrow, repay and reborrow under this
Agreement. The term "Advances" specifically excludes "Term Advances."
14. Section 2.12 of the Original Agreement hereby is amended to read in
the entirety as follows:
In the event that the income earned by Fidelity during any calendar month
pursuant to Section 2.10 (excluding any income earned on any Term Advance) is
less than $45,000, the Companies shall pay to Fidelity a minimum usage fee equal
to the difference between the amount so earned by Fidelity and $45,000,
regardless of Fidelity's prior compensation. The
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minimum usage fee for each calendar month shall be due and payable on the first
day of the next calendar month, and shall be prorated for any partial calendar
month during the Term.
15. Section 4.2 of the Original Agreement hereby is amended to read in the
entirety as follows:
Except as described on Schedule 4.2 attached hereto, none of the
Collateral is subject to any lien, encumbrance, security interest or other claim
of any kind or nature, no Company has transferred, sold, pledged or given a
security interest in any of its Accounts, Inventory, machinery or equipment to
anyone other than Fidelity, and there are no financing statements on file in any
public office governing any property of any Company of any kind, real or
personal, in which such Company is named in or has signed as the debtor.
16. Section 4.3 of the Original Agreement hereby is amended to read in the
entirety as follows:
Each Company is the sole owner and holder of, and has good and marketable
title to, all Collateral purported to be owned by it. This Agreement creates a
valid security interest in the Collateral in favor of Fidelity. Such security
interest is a perfected, first-priority security interest in the Collateral
other than any Collateral covered by the financing statements described in
Schedule 4.2 superior to the rights of any other Persons therein, and a
perfected, second-priority security interest in the Collateral consisting of any
Collateral covered by the financing statements described in Schedule 4.2
superior to the rights of any other Persons therein other than the Persons whose
benefit the financing statements described in Schedule 4.2 have been filed.
17. Section 5.10 of the Original Agreement hereby is amended to read in
the entirety as follows:
No Company shall grant, create or allow to exist any security interest,
lien or other encumbrance on any of the Collateral other than (a) the lien and
security interest granted to Fidelity herein, (b) the security interests, liens
or other encumbrances described on Schedule 4.2 attached hereto and any liens
and security interests granted to holders of Debt refinancing any Debt secured
by such security interests, liens or other encumbrances to the extent permitted
by Section 5.12(c), (c) purchase money liens or security interests granted at a
time when no Event of Default or event or circumstance that would, with the
giving of notice, the passage of time or both, constitute an Event of Default,
has occurred, and (d) liens and security interests securing Debt permitted under
Section 5.12(d), and no Company shall execute any financing statement in favor
of any Person other than Fidelity, the Persons described on Schedule 4.2
attached hereto and any Person to whom a purchase money lien or security
interest or other lien or security interest permitted above has been granted. No
Company shall change its mailing address, chief executive office, principal
place of business or place where such records are maintained, open any new place
of business, close any existing place of business or change the location of any
of the Collateral or transact business under any trade, fictitious or assumed
name other than those set forth under such Company's signature hereon without
providing at least 30 days' prior written notice thereof to Fidelity.
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18. Section 5.12 of the Original Agreement hereby is amended to read in
the entirety as follows:
No Company shall incur, directly, or indirectly, any Debt for borrowed
money or otherwise under any promissory note, bond, indenture or similar
instrument, or in connection with the obligations of any Person (whether by
guaranty, suretyship, purchase or repurchase agreement or agreement to make
investments or otherwise), other than (a) Debt incurred in favor of Fidelity,
(b) Debt secured by purchase money liens or security interests permitted by
Section 5.10, (c) Debt incurred to refinance any other Debt then existing and
permitted hereunder to the extent that such Debt does not exceed the amount of
Debt refinanced and such Debt is secured only by the properties and assets that
secured the Debt refinanced, (d) Debt subordinated to the Obligations pursuant
to a written subordination agreement satisfactory to Fidelity between Fidelity
and the Person to whom such Debt is owed, or (e) Debt incurred in the normal and
ordinary course of such Company's business.
19. Section 5.14 of the Original Agreement hereby is amended to read in
the entirety as follows:
No Company shall directly or indirectly become liable in connection with
the Debt of any Person, whether by guarantee, surety, endorsement (other than
endorsement of negotiable instruments for collection in the ordinary course of
business), agreement to purchase or repurchase, agreement to make investments,
agreement to provide funds or maintain working capital, or any agreement to
assure a creditor against loss, other than in favor of Fidelity.
20. Section 5.17 of the Original Agreement hereby is amended to read in
its entirety as follows:
No Company shall make any loans or advances to or for the benefit of any
officer, director, shareholder or Affiliate of such Company; provided, however,
that each Company may make advances for routine expense allowances to its
officers and directors in the ordinary course of business; and provided,
further, however, that any Company may pay or reimburse Century for costs or
expenses incurred by Century directly on behalf of Century and overhead costs or
expenses incurred by Century and allocable to such Company in accordance with
Century's past practices; and, provided, further, however, that so long as
immediately prior thereto and after giving effect thereto, (a) no Event of
Default or any event or circumstance that, with the giving of notice, the
passage of time or both, would constitute an Event of Default, has occurred, and
(b) such Company is solvent, any Company may make loans or advances to another
Company or Century. No Company shall make any payment on any obligation owing to
any officer, director, shareholder or Affiliate of such Company; provided,
however, that any Company may pay any obligations owed to another Company as
long as both prior, and after giving effect, to such payment, (a) no Event of
Default or event or circumstance that would, with the giving of notice, the
passage of time or both, constitute an Event of Default, has occurred and (b)
such Company is solvent; and, provided, further, however, that any Company may
pay or reimburse Century for costs or expenses incurred by Century directly on
behalf of such Company and overhead costs or expenses incurred by Century and
reasonably allocated to such Company in accordance with Century's past
practices.
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21. Section 7 of the Original Amendment hereby is amended to read in the
entirety as follows:
Each invoice representing an Account shall state on its face that amounts
payable thereunder are payable only at the Remittance Address. Fidelity shall
have the right at any time, either before or after the occurrence of an Event of
Default and without notice to any Company, to notify any or all Account Debtors
on the Collateral of the assignment of the Collateral to Fidelity and to direct
such Account Debtors to make payment of all amounts due or to become due to any
Company directly to Fidelity, and to the extent permitted by law, to enforce
collection of any Collateral and to adjust, settle or compromise the amount or
payment thereof. So long as no Event of Default or event that, with the passage
of time, the giving of notice or both, would become an Event of Default has
occurred and is continuing, all collections of Collateral of any Company
received by Fidelity shall be applied by Fidelity to the payment of the
outstanding Advances of such Company, whether or not then due, then to any
interest due on any Advances or Term Advance to such Company and any other fees
or charges due hereunder and allocable or attributable directly to such Company,
then to such Company's Proportionate Share of all other Obligations then due and
any remaining funds shall be delivered to such Company. Upon the occurrence of
an Event of Default or an event that, with the passage of time, the giving of
notice or both, would become an Event of Default, any such remaining funds may
be applied to any of the Obligations of the Companies, whether or not then due,
or held by Fidelity as cash collateral ("Cash Collateral") until all Obligations
have been paid in full and Fidelity has no further obligation to advance funds
to the Companies. All amounts and proceeds (including instruments and writings)
received by any Company in respect of the Collateral shall be received in trust
for the benefit of Fidelity hereunder, shall be segregated from other funds of
such Company and shall be immediately paid over to Fidelity in the same form as
received (with any necessary endorsement) to be applied in the same manner as
payments received directly by Fidelity.
22. Clause (n) of Section 9 of the Original Agreement hereby is amended to
read in the entirety as follows:
An "event of default" beyond any applicable cure period shall have
occurred under any Century Document.
23. Section 10.2 of the Original Agreement hereby is amended to read in
the entirety as follows:
If any Event of Default shall have occurred and be continuing, Fidelity
may in its discretion apply any Cash Collateral, and any cash proceeds received
by Fidelity in respect of any sale of, collection from, or other realization
upon all or any part of the Collateral, to any or all of the following in such
order as Fidelity may elect: (a) the repayment of all or any portion of the
Obligations; (b) the repayment of reasonable costs and expenses, including
reasonable attorneys' fees and legal expenses, incurred by Fidelity in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale or collection from, or other
realization upon, any Collateral, (iii) the exercise or enforcement of any of
the rights of Fidelity hereunder, or (iv) the failure of any Company to perform
or observe any of the provisions hereof; (c) the payment or other satisfaction
of any liens and other encumbrances upon any of the Collateral; (d) the
reimbursement of Fidelity for the amount of any obligations of
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any Company paid or discharged by Fidelity, and of any expenses of Fidelity
payable by any Company hereunder or under the other Transaction Documents; (e)
by holding the same as Collateral; (f) the payment of any other amounts required
by applicable law (including, without limitation, Part 5 of Article 9 of the UCC
or any successor or similar applicable statutory provision); and (g) by delivery
to such Company or to whomsoever shall be lawfully entitled to receive the same
or as a court of competent jurisdiction shall direct.
24. Section 11.4 of the Original Agreement hereby is amended to read in
the entirety as follows:
The term of this Agreement shall be for three years from the date hereof
(the original term and any extension thereof are herein called the "Term") and
from year to year thereafter unless either party hereto gives notice to the
other party hereto not more than 90 days or less than 60 days prior to the end
of the Term; provided, however, that Fidelity may terminate this Agreement at
any time effective immediately upon the occurrence of an Event of Default; and
provided, further, however, that the Companies may terminate this Agreement upon
the payment in full of the Obligations, including, without limitation, any early
termination fee required below. The Companies acknowledge that termination of
this Agreement at any time prior to the end of the Term would result in the loss
by Fidelity of the benefits of this Agreement and that the damages incurred by
Fidelity as a result of such termination would be difficult and impractical to
ascertain. Therefore, in the event this Agreement is terminated prior to the end
of the Term for any reason, the Companies shall pay to Fidelity an early
termination fee in an amount equal to (3) 3.00% of the sum of the Facility Limit
and the Term Limit if such termination occurs during the first year of the Term,
(ii) 2.00% of the sum of the Facility Limit and the Term Limit if such
termination occurs during the second year of the Term, or (iii) 1.00% of the sum
of the Facility Limit and the Term Limit if such termination occurs thereafter
during the Term, in each case to the maximum extent permitted by applicable law.
Any termination of this Agreement shall not affect Fidelity's security interest
in the Collateral, and this Agreement shall continue to be effective, until all
Obligations have been completed and satisfied in full. No Company shall be
entitled to terminate this Agreement as to itself only, unless all Companies
terminate this Agreement or Fidelity consents to such termination.
25. The Related Loan Agreement hereby is terminated and shall be of no
further force or effect. All indebtedness, liabilities and obligations of the
Companies under the Related Loan Agreement as of the date hereof shall be deemed
Obligations under the Agreement on and after the date hereof. Without limiting
the generality of the foregoing, all "Advances" outstanding under the Related
Loan Agreement and all accrued but unpaid interest thereon and other fees and
costs relating thereto shall be deemed to have been made and incurred under the
Agreement.
26. In order to induce GBCC to enter into this Amendment, the Companies
represent and warrant to GBCC that:
(a) The representations and warranties contained in Section 4 of the
Original Agreement are true and correct at and as of the time of the
effectiveness hereof.
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(b) Each Company is duly authorized to execute, deliver and perform
its obligations under this Amendment and is and will continue to be duly
authorized to perform its obligations under the Original Agreement as amended
hereby. Each Company has duly taken all corporate action necessary to authorize
the execution and delivery of this Amendment and to authorize the performance of
the obligations of such Company hereunder.
(c) The execution and delivery by each Company of this Amendment,
the performance by such Company of its obligations hereunder and the
consummation of the transactions contemplated hereby do not and will not
conflict with any provision of law, statute, rule or regulation or of the
articles of incorporation and bylaws of such Company, or of any material
agreement, judgment, license, order or permit applicable to or binding upon such
Company, or result in the creation of any lien, charge or encumbrance upon any
assets or properties of such Company. Except for those which have been duly
obtained, no consent, approval, authorization or order of any court or
governmental authority or third party is required in connection with the
execution and delivery by any Company of this Amendment or to consummate the
transactions contemplated hereby.
(d) The Agreement (including this Amendment) has been duly executed
and delivered by each Company and is a legal and binding instrument and
agreement of each Company, enforceable against each Company in accordance with
its terms, except as limited by bankruptcy, insolvency and similar laws and by
general principles of equity.
(e) No Event of Default or any event that, with the giving of
notice, the passage of time or both, would constitute an Event of Default has
occurred or is continuing.
27. (a) The Agreement is hereby ratified and confirmed in all respects.
The execution, delivery and effectiveness of this Amendment shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of
GBCC under the Agreement nor constitute a waiver of any provision thereof.
(f) All representations, warranties, covenants and agreements of the
Companies herein shall survive the execution and delivery of this Amendment and
the performance hereof and shall further survive until the Agreement is
terminated.
(g) This Amendment may be separately executed in counterparts and by
the different parties hereto in separate counterparts, each of which when so
executed shall be deemed to constitute one and same Amendment.
(h) Simultaneously, with the execution and delivery, electronics
hereof, the Companies shall cause Century to issue and deliver to GBCC a warrant
(the "Warrant") in form and substance acceptable to GBCC to purchase 60,000
shares of the common stock of Century at an exercise price of $6.00 per share
and (ii) deliver to GBCC an opinion of counsel in form and substance acceptable
to GBCC regarding this Amendment and the Warrant, and the receipt by GBCC of the
Warrant and such opinion shall be conditions precedent to the effectiveness of
this Amendment.
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(i) Simultaneously with the execution and delivery hereof, the
Companies shall pay to GBCC a document preparation fee of [$5,500] to cover the
fees of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇, LLP, counsel to GBCC, in connection with
the preparation, execution and delivery of this Amendment and the Warrant, and
shall reimburse GBCC for the out-of-pocket expenses of ▇▇▇▇▇▇▇, Phleger &
▇▇▇▇▇▇▇▇, LLP in connection herewith and therewith.
[SIGNATURES FOLLOW ON NEXT PAGE]
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IN WITNESS WHEREOF, the Companies and GBCC have executed this Amendment as
of the date first written above.
GBCC: THE COMPANIES:
GUARANTY BUSINESS CREDIT CENTURY ELECTRONICS
CORPORATION D/B/A MANUFACTURING (NE) INC.,
FIDELITY FUNDING, a Massachusetts corporation
a Delaware corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------- ---------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chief Executive Officer and President Vice President - Finance &
Administration, Treasurer/
Chief Financial Officer
Y.M.C. MANUFACTURING COMPANY,
a California corporation
By:
---------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
President
QUALITY MANUFACTURING SERVICES, INC.
a California corporation
By:
---------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
President
IN WITNESS WHEREOF, the Companies and GBCC have executed this Amendment as
of the date first written above.
GBCC: THE COMPANIES:
GUARANTY BUSINESS CREDIT CENTURY ELECTRONICS
CORPORATION D/B/A MANUFACTURING (NE) INC.,
FIDELITY FUNDING, a Massachusetts corporation
a Delaware corporation
By: By:
------------------------------------- ---------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chief Executive Officer and President Vice President - Finance &
Administration, Treasurer/
Chief Financial Officer
Y.M.C. MANUFACTURING COMPANY,
a California corporation
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
President
QUALITY MANUFACTURING SERVICES, INC.
a California corporation
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
President
