Exhibit 10.37
LOAN AND SECURITY AGREEMENT
This Agreement is between the undersigned Borrowers and the undersigned
Lender concerning loans and other credit accommodations to be made by Lender to
Borrowers.
SECTION 1. PARTIES
1.1 The "Borrowers" are the corporations identified as the Borrower in
Section 10.6(c) and their respective successors and assigns. All references to
Borrowers shall mean each of them, jointly and severally, individually and
collectively, and the successors and assigns of each.
1.2 The "Lender" is The CIT Group/Credit Finance, Inc. and its
successors and assigns.
SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS
2.1 Revolving Loans. Lender shall, subject to the terms and conditions
contained herein, make revolving loans to each Borrower ("Revolving Loans") in
amounts requested by such Borrower from time to time, but not in excess of the
Net Availability, as defined in Section 2.1(c) below, for such Borrower existing
immediately prior to the making of the requested loan and provided the requested
loan would not cause the outstanding Obligations, as defined in Section 4.2
below, to exceed the Maximum Credit, as defined in Section 2.1(a) below.
(a) The "Maximum Credit" is set forth in Section 10.1(a)
hereof.
(b) The "Gross Availability" shall be calculated at any time
for each Borrower as (i) the product obtained by multiplying the
outstanding amount of Eligible Accounts, as defined in Section 2.1(d)
below, for such Borrower, net of all taxes, discounts, allowances and
credits given or claimed, by the Eligible Accounts Percentage set forth
in Section 10.1(b)(i),
plus: (ii) the product(s) obtained by multiplying the
applicable Eligible Inventory Percentage(s), if any, for such
Borrower set forth in Section 10.1(b)(ii) by the values (as
determined by Lender based on the lower of cost or market) of
Eligible Inventory for such Borrower, but the amount so added
shall not exceed in the aggregate (taking into account all
Borrowers) any sublimits set forth in Section 10.1(c),
(c) The "Net Availability" shall be calculated at any time as
an amount equal to the Gross Availability for all Borrowers in the
aggregate minus the aggregate amount of all then-outstanding
Obligations to Lender other than the then outstanding principal balance
of the Term Loans, as defined in Section 2.2(a) below, if any.
Exhibit 10.37 - 1
(d) "Eligible Accounts" are accounts created by each Borrower
in the ordinary course of its business which are and remain acceptable
to Lender for lending purposes. General criteria for Eligible Accounts
are set forth below but may be revised from time to time by Lender, in
its sole judgment, on fifteen (15) days' prior written notice to such
Borrower. Lender shall, in general, deem accounts to be Eligible
Accounts if: (1) such accounts arise from bona fide completed
transactions and have not remained unpaid for more than the number of
days after the invoice date set forth in Section 10.1(d); (2) the
amounts of the accounts reported to Lender are absolutely owing to a
Borrower and do not arise from sales on consignment, guaranteed sale or
other terms under which payment by the account debtors may be
conditional or contingent; (3) the account debtor's chief executive
office or principal place of business is located in the United States;
provided, however, that an account arising from an account debtor
outside of the United States may be an Eligible Account to the extent
that the sale is secured by either a letter of credit or foreign credit
insurance terms acceptable to Lender in its sole discretion; (4) such
accounts do not arise from progress ▇▇▇▇▇▇▇▇ retainages or ▇▇▇▇ and
hold sales; (5) there are no contra relationships, setoffs,
counterclaims or disputes existing with respect thereto and there are
no other facts existing or threatened which would impair or delay the
collectibility of all or any portion thereof; (6) the goods giving rise
thereto were not at the time of the sale subject to any liens except
those permitted in this Agreement; (7) such accounts are not accounts
with respect to which the account debtor or any officer or employee
thereof is an officer, employee or agent of or is affiliated with a
Borrower, directly or indirectly, whether by virtue of family
membership, ownership, control, management or otherwise; (8) such
accounts are not accounts with respect to which the account debtor is
the United States or any State or political subdivision thereof or any
department, agency or instrumentality of the United States, any State
or political subdivision, unless there has been compliance with the
Assignment of Claims Act or any similar State or local law, if
applicable; (9) the applicable Borrower has delivered to Lender or
Lender's representative such documents as Lender may have requested
pursuant to Section 5.8 hereof in connection with such accounts and
Lender shall have received a verification of such accounts,
satisfactory to it, if sent to the account debtor or any other obligor
or any bailee pursuant to Section 5.4 hereof; (10) there are no facts
existing or threatened which might result in any adverse change in the
account debtor's financial condition; (11) such accounts owed by a
single account debtor or its affiliates do not represent more than
twenty percent (20%) of all otherwise Eligible Accounts to a Borrower
(accounts excluded from Eligible Accounts solely by reason of this
subsection (11) shall nevertheless be considered Eligible Accounts to
the extent of the amount of such accounts which does not exceed twenty
percent (20%) of all otherwise Eligible Accounts of such Borrower);
(12) such accounts are not owed by an account debtor who is or whose
affiliates are past due upon other accounts owed to a Borrower
comprising more than fifty percent (50%) of the accounts of such
account debtor or its affiliates owed to such Borrower; (13) such
accounts are owed by account debtors whose total indebtedness to a
Borrower does not exceed the amount of any customer credit limits as
established, and changed, from time to time by Lender on notice to such
Borrower (accounts excluded from Eligible Accounts solely by reason of
this subsection (13) shall nevertheless be considered Eligible Accounts
of such Borrower to the extent the amount of such accounts does not
exceed such customer credit limit); (14) such accounts are
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owed by account debtors deemed creditworthy at all times by Lender; and
(15) in the event the account debtor is located in the State of New
Jersey or the State of Minnesota, the applicable Borrower has filed a
notice of business activities report with the appropriate officials in
such state for the then current year.
(e) "Eligible Inventory" is inventory owned by a Borrower
which is and remains acceptable to Lender for lending purposes and is
located at one of the addresses set forth in Section 10.6(e), and is
not work-in-progress. Eligible Inventory shall not include (i)
inventory in the possession of a bailee, consignee, warehouseman or
processor or located at a location leased by a Borrower, unless such
bailee, consignee, warehouseman, processor or landlord, as applicable,
delivers to Lender an agreement in form and substance satisfactory to
Lender, together with such Uniform Commercial Code financing statements
as Lender shall require, or (ii) inventory located at a location owned
by a Borrower which is subject to a mortgage in favor of any person or
entity other than Lender, unless such person or entity delivers to
Lender an agreement in form and substance satisfactory to Lender.
(f) Lender shall have a continuing right to deduct reserves in
determining the Gross Availability ("Reserves"), and to increase and
decrease such Reserves from time to time, if and to the extent that, in
Lender's sole judgment, such Reserves are necessary to protect Lender
against any state of facts which does, or would, with notice or passage
of time or both, constitute an Event of Default, as defined in Section
7.1, or have an adverse effect on any Collateral, as defined in Section
4.3. Lender may, at its option, implement Reserves by designating as
ineligible a sufficient amount of accounts or inventory which would
otherwise be Eligible Accounts or Eligible Inventory so as to reduce
Gross Availability by the amount of the intended Reserve.
(g) Subject to the terms and conditions hereof, including but
not limited to the existence of sufficient Gross and Net Availability,
Borrowers agree to borrow, in the aggregate, sufficient amounts from
time to time so that the outstanding Revolving Loans and Term Loans,
shall at all times equal or exceed the principal amount set forth in
Section 10.1(e) as the Minimum Borrowing; provided, that if Borrowers
fail to do so, interest shall nevertheless accrue on the Obligations as
if Borrowers had at all times borrowed such amounts as would have been
sufficient to maintain the outstanding Revolving Loans and Term Loans
at an amount equal to the Minimum Borrowing (and Lender shall have the
right to charge on a monthly basis each Borrower's loan account for
such additional interest, pro rata, based upon the proportionate
portion of the principal amount of the then current Obligations owed by
each such Borrower), and provided further that such accrual shall not
impose upon Lender any obligation to make loans to Borrowers to
increase the outstanding Revolving Loans and Term Loans to such Minimum
Borrowing.
(h) If a voluntary or involuntary petition under the
bankruptcy laws of the United States is filed against any Borrower,
then Lender need not make loans hereunder.
2.2 Term Loan.
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(a) Any term loan and the terms of such loan made by Lender to
any Borrower are set forth in Section 10.2(a) ("Initial Term Loan").
(b) The amount of any additional term loans available to any
Borrower after the date hereof is set forth in Section 10.2(b)
("Additional Term Loans" and together with the Initial Term Loan, the
"Term Loans") and repayable as set forth in Section 10.2.
(c) All appraisals conducted in connection with the Term Loans
shall be conducted at Borrowers' expense by an independent appraiser
acceptable to Lender. In addition, with respect to the Additional Term
Loans, (i) Lender shall have received such appraisal at least fourteen
(14) days prior to the date of the requested advance for such
Additional Term Loan, (ii) Lender shall have received evidence
satisfactory to Lender that the machinery and equipment has been
purchased by a Borrower and delivered to such Borrower at one of its
locations set forth in Section 10.6(e) and that such machinery and
equipment is in place and operational, and (iii) Lender shall have
received invoices and such other documentation as requested by Lender.
2.3 Accommodations. Lender may, in its sole discretion, issue or cause
to be issued, from time to time at any Borrower's request and on terms and
conditions and for purposes satisfactory to Lender, credit accommodations
consisting of letters of credit, bankers' acceptances, merchandise purchase
guaranties or other guaranties or indemnities for such Borrower's account
("Accommodations"). Such Borrower shall execute and perform additional
agreements relating to the Accommodations in form and substance acceptable to
Lender and the issuer of any Accommodations, all of which shall supplement the
rights and remedies granted herein. Any payments made by Lender or any affiliate
of Lender in connection with the Accommodations shall constitute additional
Revolving Loans to such Borrower.
2.4 Certain Amounts Due On Demand. Lender may, in its sole discretion,
make or permit Revolving Loans, Accommodations or other Obligations in excess of
the Maximum Credit, Gross or Net Availability or applicable formulas or
sublimits. All or any portion of such excess(es) shall be immediately due and
payable upon Lender's demand.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Interest on the Revolving Loans and Term Loans shall be
payable by each Borrower on the first day of each month, calculated
upon the closing daily balances in the loan account of such Borrower
for each day during the immediately preceding month, at the per annum
rate set forth as the "Interest Rate" in Section 10.4(a). The Interest
Rate shall increase or decrease by an amount equal to each increase or
decrease, respectively, in the Prime Rate, as defined in Section 3.1(b)
below, effective as of the date of each such change. On and after any
Event of Default or termination or non-renewal hereof, interest on all
unpaid Obligations shall accrue at a rate equal to two percent (2%) per
annum in excess of the Interest Rate otherwise payable until such time
as all Obligations are indefeasibly paid in full (notwithstanding entry
of any judgment against any Borrower or the exercise of any other right
or remedy by Lender), and all such interest shall be
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payable on demand. Interest shall in no month be less than the Interest
Rate multiplied by the Minimum Loan. In no event shall charges
constituting interest exceed the rate permitted under any applicable
law or regulation, and if any provision of this Agreement is in
contravention of any such law or regulation, such provision shall be
deemed amended to conform thereto.
(b) The "Prime Rate" is the rate of interest publicly
announced by The Chase Manhattan Bank in New York, New York, or its
successors, and assigns from time to time as its prime rate (the Prime
Rate is not intended to be the lowest rate of interest charged by The
Chase Manhattan Bank to its borrowers).
3.2 Closing Fee. In consideration of Lender's establishment of the
credit facility described herein, Borrowers, jointly and severally, shall pay to
Lender a closing fee in the amount identified in Section 10.4(c), which fee
shall be fully earned and paid at Closing.
3.3 Facility Fee. For the initial and each renewal Term, as defined in
Section 9.1, if any, Borrowers shall pay Lender a Facility Fee equal to the
amount identified in Section 10.4(d), which Facility Fee Borrowers acknowledge
has been fully earned by Lender as of the commencement of the initial Term and
each such renewal Term.
3.4 Account Servicing/Collateral Handling Fee. Borrowers, jointly and
severally, shall pay Lender, on the date hereof and on the first day of each
calendar month period during the initial and each renewal Term, an Account
Servicing/Collateral Handling Fee in the amount set forth in Section 10.4(e).
3.5 Unused Line Fee. Borrowers shall pay Lender monthly, on the first
day of each month, in arrears, an Unused Line Fee for each month during the
initial and each renewal Term at the rate per annum set forth in Section
10.4(f), calculated as described in Section 10.4(f).
3.6 Charges to Loan Account. At Lender's option, all payments of
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement, or in any other agreement now or hereafter existing between
Lender and any Borrower, may be charged on the date when due, as principal to
any loan account of such Borrower maintained by Lender. Interest, fees for
Accommodations, the Unused Line Fee and any other amounts payable by any
Borrower to Lender based on a per annum rate shall be calculated on the basis of
actual days elapsed over a 360-day year.
3.7 Calculation of Credit Balances. For purposes of calculating any
interest, fees, balances or expenses hereunder, the outstanding daily principal
balance of the Revolving Loans shall be deemed to be zero in the event the
outstanding daily principal balance of the Revolving Loans is a credit balance
(i.e., less than zero).
SECTION 4. GRANT OF SECURITY INTEREST
4.1 Grant of Security Interest. To secure the payment and performance
in full of all Obligations, each Borrower hereby grants to Lender a continuing
security interest in and lien upon, and a right of setoff against, and each
Borrower hereby assigns and pledges to Lender, all
Exhibit 10.37 - 5
of such Borrower's Collateral, as defined in Section 4.3 below, including any
Collateral not deemed eligible for lending purposes.
4.2 "Obligations" shall mean any and all Revolving Loans, Term Loans,
Accommodations and all other indebtedness, liabilities and obligations of every
kind, nature and description owing by Borrowers to Lender and/or its affiliates,
including principal, interest, charges, fees and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise, whether arising
under this Agreement or otherwise, whether now existing or hereafter arising,
whether arising before, during or after the initial or any renewal Term or after
the commencement of any case with respect to any Borrower under the United
States Bankruptcy Code or any similar statute, whether direct or indirect,
absolute or contingent, joint or several, due or not due, primary or secondary,
liquidated or unliquidated, secured or unsecured, original, renewed or extended
and whether arising directly or howsoever acquired by Lender including from any
other entity outright, conditionally or as collateral security, by assignment,
merger with any other entity, participations or interests of Lender in the
obligations of any Borrower to others, assumption, operation of law, subrogation
or otherwise and shall also include all amounts chargeable to any Borrower under
this Agreement or in connection with any of the foregoing.
4.3 "Collateral" shall mean all of the following property of each
Borrower:
All now owned and hereafter acquired right, title and interest of such
Borrower in, to and in respect of all: accounts, interests in goods represented
by accounts, returned, reclaimed or repossessed goods with respect thereto and
rights as an unpaid vendor; contract rights; chattel paper; investment property;
general intangibles (including, but not limited to, tax and duty refunds,
registered and unregistered patents, trademarks, service marks, copyrights,
trade names, applications for the foregoing, trade secrets, goodwill, processes,
drawings, blueprints, customer lists, licenses, whether as licensor or licensee,
chooses in action and other claims, and existing and future leasehold interests
in equipment and fixtures); documents; instruments; letters of credit, bankers'
acceptances or guaranties; cash monies, deposits, securities, bank accounts,
deposit accounts, credits and other property now or hereafter held in any
capacity by Lender, its affiliates or any entity which, at any time,
participates in Lender's financing of such Borrower or at any other depository
or other institution; agreements or property securing or relating to any of the
items referred to above;
All now owned and hereafter acquired right, title and interest of such
Borrower in, to and in respect of goods, including, but not limited to:
All inventory, wherever located, whether now owned or hereafter
acquired, of whatever kind, nature or description, including all raw materials,
work-in-process, finished goods, and materials to be used or consumed in such
Borrower's business; and all names or marks affixed thereto or to be affixed
thereto for purposes of selling same by the seller, manufacturer, lessor or
licensor thereof;
All equipment and fixtures, wherever located, whether now owned or
hereafter acquired, including, without limitation, all machinery, equipment,
motor vehicles, furniture and fixtures, and any and all additions,
substitutions, replacements (including spare parts), and accessions thereof and
thereto (collectively, the "Equipment and Fixtures");
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All consumer goods, farm products, crops, timber, minerals or the like
(including oil and gas), wherever located, whether now owned or hereafter
acquired, of whatever kind, nature or description;
All now owned and hereafter acquired right, title and interests of such
Borrower in, to and in respect of any personal property in or upon which Lender
has or may hereafter have a security interest, lien or right of setoff;
All present and future books and records relating to any of the above
including, without limitation, all computer programs, printed output and
computer readable data in the possession or control of such Borrower, any
computer service bureau or other third party; and
All products and proceeds of the foregoing in whatever form and
wherever located, including, without limitation, all insurance proceeds and all
claims against third parties for loss or destruction of or damage to any of the
foregoing.
Notwithstanding the foregoing, the specific Equipment and Fixtures of
MBC subject to a lien in favor of Finova Capital Corporation ("Finova") as
evidenced by UCC financing statement filing number 9628160343, filed with the
Secretary of State of California on October 4, 1996, and UCC financing statement
filing number 00020157, filed with the County Recorder of Mendocino County,
California on December 12, 1996, shall not be subject to Lender's rights and
remedies with respect to Collateral hereunder until the earlier of such time as
MBC no longer owes any indebtedness to Finova, Finova terminates its lien on
such Equipment and Fixtures or Finova otherwise agrees in writing.
SECTION 5. COLLECTION AND ADMINISTRATION
5.1 Collections. Each Borrower shall, at such Borrower's expense and in
the manner requested by Lender from time to time, direct that remittances and
all other proceeds of accounts and other Collateral shall be sent to a lock box
designated by and/or maintained in the name of Lender, and deposited into a bank
account now or hereafter selected by Lender and maintained in the name of Lender
under arrangements with the depository bank under which all funds deposited to
such bank account are required to be transferred solely to Lender. Each Borrower
shall bear all risk of loss of any funds deposited into such account. In
connection therewith, each Borrower shall execute such lock box and bank account
agreements as Lender shall specify. Any collections or other proceeds received
by any Borrower shall be held in trust for Lender and immediately remitted to
Lender in kind.
5.2 Payments. All Obligations shall be payable at Lender's office set
forth below or at Lender's bank designated in Section 10.6(b) or at such other
bank or place as Lender may expressly designate from time to time for purposes
of this Section. Lender shall apply all proceeds of accounts or other Collateral
of any Borrower received by Lender and all other payments in respect of the
Obligations to the Revolving Loans owed by such Borrower, whether or not then
due or to any other Obligations of such Borrower then due, in whatever order or
manner Lender shall determine; provided, however, that any such proceeds of
accounts or other Collateral of Mendocino Brewing Company, Inc. ("MBC") may be
applied by Lender to Obligations owed by any Borrower. For purposes of
determining Gross and Net Availability and
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for the calculation of Minimum Borrowing, remittances and other payments with
respect to the Collateral and Obligations will be treated as credited to the
loan account of the applicable Borrower maintained by Lender and Collateral
balances to which they relate, upon the date of Lender's receipt of advice from
Lender's bank that such remittances or other payments have been credited to
Lender's account or in the case of remittances or other payments received
directly in kind by Lender, upon the date of Lender's deposit thereof at
Lender's bank, subject to final payment and collection. In computing interest
charges, the loan account of each Borrower maintained by Lender will be credited
with remittances and other payments the number of Business Days, as defined
below, set forth in Section 10.4(b) after the day Lender has received advice of
receipt of remittances in Lender's account at Lender's Bank. For purposes of
this Agreement, "Business Day" shall mean any day other than a Saturday, Sunday
or any other day on which banks located in states where Lender has its offices,
are authorized to close.
5.3 Loan Account Statements. Lender shall render to each Borrower
monthly a loan account statement. Each statement shall be considered correct and
binding upon such Borrower as an account stated, except to the extent that
Lender receives, within sixty (60) days after the mailing of such statement,
written notice from such Borrower of any specific exceptions by such Borrower to
that statement.
5.4 Direct Collections. Lender may, at any time, whether or not an
Event of Default has occurred, without notice to or assent of any Borrower, (a)
notify any account debtor that the accounts and other Collateral which includes
a monetary obligation have been assigned to Lender by such Borrower and that
payment thereof is to be made to the order of and directly to Lender, (b) send,
or cause to be sent by its designee, requests (which may identify the sender by
a pseudonym) for verification of accounts and other Collateral directly to any
account debtor or any other obligor or any bailee with respect thereto, and (c)
demand, collect or enforce payment of any accounts or such other Collateral, but
without any duty to do so, and Lender shall not be liable for any failure to
collect or enforce payment thereof. Notwithstanding the foregoing, Lender will
use its best efforts to give reasonably concurrent notice to Borrowers of any
action taken by Lender under this Section. At Lender's request, all invoices and
statements sent to any account debtor, other obligor or bailee, shall state that
the accounts and such other Collateral have been assigned to Lender and are
payable directly and only to Lender.
5.5 Attorney-in-Fact. Each Borrower hereby appoints Lender and any
designee of Lender as such Borrower's attorney-in-fact and authorizes Lender or
such designee, at such Borrower's sole expense, to exercise at any times in
Lender's or such designee's discretion all or any of the following powers, which
powers of attorney, being coupled with an interest, shall be irrevocable until
all Obligations have been paid in full: (a) receive, take, endorse, assign,
deliver, accept and deposit, in the name of Lender or such Borrower, any and all
cash, checks, commercial paper, drafts, remittances and other instruments and
documents relating to the Collateral or the proceeds thereof, (b) transmit to
account debtors, other obligors or any bailees notice of the interest of Lender
in the Collateral or request from account debtors or such other obligors or
bailees at any time, in the name of such Borrower or Lender or any designee of
Lender, information concerning the Collateral and any amounts owing with respect
thereto, (c) notify account debtors or other obligors to make payment directly
to Lender, or notify bailees as to the disposition of Collateral, (d) take or
bring, in the name of Lender or such Borrower, all steps, actions, suits or
proceedings deemed by Lender necessary or desirable to effect collection
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of or other realization upon the accounts and other Collateral, (e) after an
Event of Default, change the address for delivery of mail to such Borrower and
to receive and open mail addressed to such Borrower, (f) after an Event of
Default, extend the time of payment of, compromise or settle for cash, credit,
return of merchandise, and upon any terms or conditions, any and all accounts or
other Collateral which includes a monetary obligation and discharge or release
the account debtor or other obligor, without affecting any of the Obligations,
and (g) execute in the name of such Borrower and file against such Borrower in
favor of Lender financing statements or amendments with respect to the
Collateral.
5.6 Liability. Each Borrower hereby releases and exculpates Lender, its
officers, employees and designees, from any liability arising from any acts
under this Agreement or in furtherance thereof, whether as attorney-in-fact or
otherwise, whether of omission or commission, and whether based upon any error
of judgment or mistake of law or fact, except for willful misconduct or gross
negligence. In no event will Lender have any liability to any Borrower for lost
profits or other special or consequential damages.
5.7 Administration of Accounts. After written notice by Lender to any
Borrower and automatically, without notice, after an Event of Default, such
Borrower shall not, without the prior written consent of Lender in each
instance, (a) grant any extension of time of payment of any of the accounts or
any other Collateral which includes a monetary obligation, (b) compromise or
settle any of the accounts or any such other Collateral for less than the full
amount thereof, (c) release in whole or in part any account debtor or other
person liable for the payment of any of the accounts or any such other
Collateral, or (d) except in ordinary course of business consistent with past
practices, grant any credits, discounts, allowances, deductions, return
authorizations or the like with respect to any of the accounts or any such other
Collateral.
5.8 Documents. At such times as Lender may request and in the manner
specified by Lender, each Borrower shall deliver to Lender or Lender's
representative, as Lender shall designate, copies or original invoices,
agreements, proofs of rendition of services and delivery of goods and other
documents evidencing or relating to the transactions which gave rise to accounts
or other Collateral, together with customer statements, schedules describing the
accounts or other Collateral and/or statements of account and confirmatory
assignments to Lender of the accounts or other Collateral, in form and substance
satisfactory to Lender and duly executed by such Borrower. Without limiting the
provisions of Section 5.7 above, each Borrower's granting of credits, discounts,
allowances, deductions, return authorizations or the like will be promptly
reported to Lender in writing. In no event shall any such schedule or
confirmatory assignment (or the absence thereof or omission of any of the
accounts or other Collateral therefrom) limit or in any way be construed as a
waiver, limitation or modification of the security interests or rights of Lender
or the warranties, representations and covenants of any Borrower under this
Agreement. Any documents, schedules, invoices or other paper delivered to Lender
by any Borrower may be destroyed or otherwise disposed of by Lender six (6)
months after receipt by Lender, unless such Borrower requests their return in
writing in advance and makes prior arrangements for their return at such
Borrower's expense.
5.9 Access. From time to time as requested by Lender, at the sole
expense of Borrowers, Lender or its designee shall have access, prior to an
Event of Default during reasonable business hours and on or after an Event of
Default at any time, to all of the premises
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where Collateral is located for the purposes of inspecting the Collateral, and
all of each Borrower's books and records, and Borrowers shall permit Lender or
its designee to make such copies of such books and records or extracts therefrom
as Lender may request. Without expense to Lender, Lender may use such of each
Borrower's personnel, equipment, including computer equipment, programs, printed
output and computer readable media, supplies and premises for the collection of
accounts and realization on other Collateral as Lender, in its sole discretion,
deems appropriate. Each Borrower hereby irrevocably authorizes all accountants
and third parties to disclose and deliver to Lender at Borrowers' expense all
financial information, books and records, work papers, management reports and
other information in their possession regarding each Borrower. Notwithstanding
the foregoing, no counsel representing any Borrower shall be required to deliver
documentation to Lender which is reasonably deemed to be protected by the
attorney-client privilege or attorney work product doctrine; provided, however
that the foregoing exception shall not permit any counsel representing any
Borrower to withhold documentation from Lender concerning (i) attorney letters
to or from any Borrower's management and/or auditors with respect to litigation
in connection with an audit or year-end review involving such Borrower or (ii)
notices received by any Borrower or counsel representing any Borrower concerning
litigation involving any Borrower.
5.10 Environmental Audits. Not more than once annually, as requested by
Lender, at the sole expense of Borrowers, each Borrower shall provide Lender, or
its designee, complete access to all of such Borrower's facilities for the
purpose of conducting an environmental audit of such facilities as Lender or its
designees may deem necessary. Each Borrower agrees to cooperate with Lender with
respect to any environmental audit conducted by Lender or its designee pursuant
to this Section 5.10.
SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Borrowers hereby represent, warrant and covenant to Lender the
following, the truth and accuracy of which, and compliance with which, shall be
continuing conditions of the making of loans or other credit accommodations by
Lender to Borrowers:
6.1 Financial and Other Reports. Each Borrower shall keep and maintain
its books and records in accordance with generally accepted accounting
principles, consistently applied. Each Borrower shall, at its expense, (a) on
each day on which such Borrower requests a Revolving Loan (and in no event less
frequently than weekly), deliver to Lender a borrowing base certificate in the
form attached hereto as Exhibit A, and (b) as soon as possible but in no event
later than the third (3rd) Business Day of each week, deliver to Lender weekly
inventory reports. In addition, each Borrower shall, at its expense, (a) on or
before the twenty-first (21st) day of each month, deliver to Lender: true and
complete monthly agings of its accounts receivable, accounts payable and notes
payable, together with an accounts receivable reconciliation and an inventory
reconciliation for the immediately preceding month; and (b) on or before the end
of each month, monthly internally prepared interim financial statements for the
immediately preceding month, all certified by the chief financial officer of
Borrower. Annually, MBC shall deliver audited, consolidated and consolidating
financial statements of MBC accompanied by the report and opinion thereon of
independent certified public accountants acceptable to Lender, as soon as
available, but in no event later than ninety (90) days after the
Exhibit 10.37 - 10
end of MBC's fiscal year. MBC shall, at its expense, on or before the end of
each fiscal year, deliver to Lender consolidated and consolidating projections
for Borrowers for the immediately following fiscal year of Borrowers accompanied
by a written statement identifying the assumptions used by Borrowers in
connection with the preparation of such projections. All of the foregoing shall
be in such form and together with such information with respect to the business
of Borrowers as Lender may in each case request.
6.2 Trade Names. Each Borrower may from time to time render invoices to
account debtors under its trade names set forth in Section 10.6(g) below after
Lender has received prior written notice from such Borrower of the use of such
trade names and as to which, each Borrower agrees that: (a) each trade name does
not refer to another corporation or other legal entity, (b) all accounts and
proceeds thereof (including any returned merchandise) invoiced under any such
trade names are owned exclusively by such Borrower and are subject to the
security interest of Lender and the other terms of this Agreement, and (c) all
schedules of accounts and confirmatory assignments including any sales made or
services rendered using the trade name shall show such Borrower's name as
assignor and Lender is authorized to receive, endorse and deposit to any loan
account of such Borrower maintained by Lender all checks or other remittances
made payable to any trade name of such Borrower representing payment with
respect to such sales or services.
6.3 Losses. Each Borrower shall promptly notify Lender in writing of
any loss, damage, investigation, action, suit, proceeding or claim relating to a
material portion of the Collateral or which may result in any material adverse
change in such Borrower's business, assets, liabilities or condition, financial
or otherwise.
6.4 Books and Records. Each Borrower's books and records concerning
accounts and its chief executive office are and shall be maintained only at the
address set forth in Section 10.6(d). Borrower's only other places of business
and the only other locations of Collateral, if any, are and shall be the
addresses set forth in Section 10.6(f) hereof, except such Borrower may change
such locations or open a new place of business in the United States of America
after thirty (30) days prior written notice to Lender. Prior to any change in
location or opening of any new place of business, each Borrower shall execute
and deliver or cause to be executed and delivered to Lender such financing
statements, financing documents and security and other agreements as Lender may
reasonably require, including, without limitation, those described in Section
6.14 below.
6.5 Title. Each Borrower has and at all times will continue to have
good and marketable title to all of the Collateral, free and clear of all liens,
security interests, claims or encumbrances of any kind except in favor of Lender
and except, if any, those set forth on Schedule A hereto.
6.6 Disposition of Assets. Without the prior written consent of Lender,
no Borrower shall, directly or indirectly: (a) sell, lease, transfer, assign,
abandon or otherwise dispose of any part of the Collateral or any material
portion of its other assets (other than sales of inventory to buyers in the
ordinary course of business); (b) consolidate with or merge with or into any
other entity, or permit any other entity to consolidate with or merge with or
into any Borrower; or
Exhibit 10.37 - 11
(c) form or acquire any interest, whether equity, assets or otherwise, in any
firm, corporation or other entity.
6.7 Insurance. Each Borrower shall at all times maintain, with
financially sound and reputable insurers, insurance (including, without
limitation, at the option of Lender, flood insurance and, to the extent
commercially reasonable, earthquake insurance) with respect to the Collateral
and other assets (the "Insurance Coverage"). All such insurance policies shall
be in such form, substance, amounts and coverage as may be satisfactory to
Lender and shall provide for thirty (30) days' prior written notice to Lender of
cancellation or reduction of coverage. Each Borrower hereby irrevocably appoints
Lender and any designee of Lender as attorney-in-fact for such Borrower to
obtain at such Borrower's expense, any such insurance should such Borrower fail
to do so and, after an Event of Default, to adjust or settle any claim or other
matter under or arising pursuant to such insurance or to amend or cancel such
insurance. Each Borrower shall deliver to Lender evidence of such insurance and
a lender's loss payable endorsement satisfactory to Lender as to all existing
and future insurance policies with respect to the Collateral. In the event any
Borrower, at any time, fails to provide Lender with evidence of the Insurance
Coverage as required by this Agreement, Lender, upon five (5) days prior written
notice to any Borrower, may purchase the Insurance Coverage at such Borrower's
expense to protect Lender's interests in the Collateral. Such insurance may, but
need not, protect such Borrower's interests, and Lender shall be under no
obligation to so protect Borrower's interests. The Insurance Coverage that
Lender purchases on behalf of any Borrower may not pay any claim that such
Borrower makes or any claim that is made against such Borrower in connection
with the Collateral. A Borrower may later cancel any Insurance Coverage
purchased by Lender, but only after providing Lender with evidence that
Insurance Coverage has been obtained as provided for in this Agreement. In the
event Lender purchases all or any portion of the Insurance Coverage for the
Collateral or as otherwise required hereunder, Borrowers will be responsible for
all costs and expenses of such Insurance Coverage, including, but not limited
to, interest and any other charges imposed by Lender in connection with the
purchase of the Insurance Coverage, until the effective date of the cancellation
or expiration of the Insurance Coverage. The costs and expenses of any Insurance
Coverage purchased by Lender shall be added to Borrowers' Obligations. Each
Borrower acknowledges that the cost of the Insurance Coverage purchased by
Lender pursuant hereto may be more than the cost of insurance such Borrower may
be able to obtain on its own. Each Borrower shall deliver to Lender, in kind,
all instruments representing proceeds of insurance received by such Borrower.
Lender may apply any insurance proceeds received at any time to the cost of
repairs to or replacement of any portion of the Collateral and/or, at Lender's
option, to payment of or as security for any of the Obligations, whether or not
due, in any order or manner as Lender determines.
6.8 Compliance With Laws. Each Borrower is and at all times will
continue to be in compliance with the requirements of all material laws, rules,
regulations and orders of any governmental authority relating to its business
(including laws, rules, regulations and orders relating to taxes, payment and
withholding of payroll taxes, employer and employee contributions and similar
items, securities, employee retirement and welfare benefits, employee health and
safety, or environmental matters) and all material agreements or other
instruments binding on such Borrower or its property. All of each Borrower's
inventory shall be produced in accordance with the requirements of the Federal
Fair Labor Standards Act of 1938, as amended
Exhibit 10.37 - 12
and all rules, regulations and orders related thereto. Each Borrower shall pay
and discharge all taxes, assessments and governmental charges against such
Borrower or any Collateral prior to the date on which penalties are imposed or
liens attach with respect thereto, unless the same are being contested in good
faith and, at Lender's option, Reserves are established for the amount contested
and penalties which may accrue thereon.
6.9 Accounts. With respect to each account deemed an Eligible Account,
except as reported in writing to Lender, no Borrower has knowledge that any of
the criteria for eligibility are not or are no longer satisfied. As to each
account, except as disclosed in writing to Lender at the time such account
arises (a) each is valid and legally enforceable and represents an undisputed
bona fide indebtedness incurred by the account debtor for the sum reported to
Lender, (b) each arises from an absolute and unconditional sale of goods,
without any right of return or consignment, or from a completed rendition of
services, (c) each is not, at the time such account arises, subject to any
defense, offset, dispute, contra relationship, counterclaim, or any given or
claimed credit, allowance or discount, and (d) all statements made and all
unpaid balances and other information appearing in the invoices, agreements,
proofs of rendition of services and delivery of goods and other documentation
relating to the accounts, and all confirmatory assignments, schedules,
statements of account and books and records with respect thereto, are true and
correct and in all respects what they purport to be.
6.10 Equipment. With respect to each Borrower's equipment, such
Borrower shall keep the equipment in good order and repair, and in running and
marketable condition, ordinary wear and tear excepted.
6.11 Financial Covenants. Each Borrower shall at all times maintain
working capital and net worth (each as determined in accordance with generally
accepted accounting principles, in effect on the date hereof, consistently
applied) in the amounts set forth in Sections 10.5(a) and (b) and no Borrower
shall directly or indirectly, expend or commit to expend, for fixed or capital
assets (including capital lease obligations) an amount in excess of the capital
expenditure limit set forth in Section 10.5(c) in any fiscal year of any
Borrower.
6.12 Affiliated Transactions. No Borrower will, directly or indirectly:
(a) lend or advance money or property to, guarantee or assume indebtedness of,
or invest (by capital contribution or otherwise) in any other Borrower, person,
firm, corporation or other entity; (b) declare, pay or make any dividend,
redemption or other distribution on account of any shares of any class of stock
of such Borrower now or hereafter outstanding; (c) make any payment of the
principal amount of or interest on any indebtedness owing to any officer,
director, shareholder, or affiliate of such Borrower (except as specifically
permitted by Section 6.17 below); (d) make any loans or advances to any officer,
director, employee, shareholder or affiliate of such Borrower; or (e) enter into
any sale, lease or other transaction with any officer, director, employee,
shareholder or affiliate of Borrower on terms that are less favorable to such
Borrower than those which might be obtained at the time from persons who are not
an officer, director, employee, shareholder or affiliate of such Borrower.
6.13 Fees and Expenses. Borrowers shall pay, on Lender's demand, all
costs, expenses, filing fees and taxes payable in connection with the
preparation, execution, delivery, recording, administration, collection,
liquidation, enforcement and defense of the Obligations,
Exhibit 10.37 - 13
Lender's rights in the Collateral, this Agreement and all other existing and
future agreements or documents contemplated herein or related hereto, including
any amendments, waivers, supplements or consents which may hereafter be made or
entered into in respect hereof, or in any way involving claims or defense
asserted by Lender or claims or defense against Lender asserted by any Borrower,
any guarantor or any third party directly or indirectly arising out of or
related to the relationship between any Borrower and Lender or any guarantor and
Lender, including, but not limited to the following, whether incurred before,
during or after the initial or any renewal Term or after the commencement of any
case with respect to any Borrower or any guarantor under the United States
Bankruptcy Code or any similar statute: (a) all costs and expenses of filing or
recording (including Uniform Commercial Code financing statement filing taxes
and fees, documentary taxes, intangibles taxes and mortgage recording taxes and
fees, if applicable); (b) all title insurance and other insurance premiums,
appraisal fees, fees incurred in connection with any environmental report, audit
or survey and search fees; (c) all fees as then in effect relating to the wire
transfer of loan proceeds and other funds and fees then in effect for returned
checks and credit reports; (d) all expenses and costs heretofore and from time
to time hereafter incurred by Lender during the course of periodic field
examinations of the Collateral and any Borrower's operations, plus a per diem
charge at the rate set forth in Section 10.4(g) for Lender's examiners in the
field and office; and (e) the reasonable costs, fees and disbursements of
in-house and outside counsel to Lender including, but not limited to, fees and
disbursements incurred as a result of litigation between the parties hereto, any
third party and in any appeals arising therefrom.
6.14 Further Assurances. At the request of Lender, at any time and from
time to time, at Borrowers' sole expense, each Borrower shall execute and
deliver or cause to be executed and delivered to Lender, such agreements,
documents and instruments, including waivers, consents and subordination
agreements from mortgagees or other holders of security interests or liens,
landlords or bailees, and do or cause to be done such further acts as Lender, in
its discretion, deems necessary or desirable to create, preserve, perfect or
validate any security interest of Lender or the priority thereof in the
Collateral and otherwise to effectuate the provisions and purposes of this
Agreement. Each Borrower hereby authorizes Lender to file financing statements
or amendments against such Borrower in favor of Lender with respect to the
Collateral, without such Borrower's signature and to file as financing
statements any carbon, photographic or other reproductions of this Agreement or
any financing statements signed by such Borrower.
6.15 Revolving Loan. The Revolving Loans available to each Borrower
will not at any time exceed the Gross Availability for such Borrower, unless
Lender has consented.
6.16 Environmental Condition. To each Borrower's knowledge, none of any
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. To each Borrower's knowledge, no lien arising
under any environmental protection statute has attached to any revenues or to
any real or personal property owned by any Borrower. No Borrower has received a
summons, citation, notice, or directive from the Environmental Protection Agency
or any other federal or state governmental agency regarding any action or
omission by any Borrower resulting in the releasing, or otherwise exposing of
hazardous waste or hazardous substances into the
Exhibit 10.37 - 14
environment. Each Borrower is in compliance (in all material respects) with all
statutes, regulations, ordinances and other legal requirements pertaining to the
production, storage, handling, treatment, release, transportation or disposal of
any hazardous waste or hazardous substance.
6.17 Certain Funded Indebtedness. As of the date of this Agreement, no
Borrower has indebtedness for borrowed money except as set forth on Schedule B
attached hereto and made a part hereof. Borrower may make payments of principal
and interest to each of the lenders set forth on Schedule B hereto if, and only
if, (i) no Event of Default exists and is continuing and (ii) no Event of
Default would be caused by making such payment of principal or interest.
6.18 Year 2000. Borrowers shall take all action necessary to assure
that their respective computer-based systems are able to effectively process
data including dates and date sensitive functions. Borrowers represent and
warrant that the "Year 2000 Problem" will not result in a material adverse
effect on any Borrower's business condition. Upon request, Borrowers shall
provide assurances acceptable to Lender that Borrowers' computer systems and
software are or will be Year 2000 compliant on a timely basis. Borrowers shall
immediately advise Lender in writing of any material changes in any Borrower's
Year 2000 plan, timetable or budget. The term "Year 2000 Problem" means the
inability of certain computer applications to recognize and correctly perform
date-sensitive functions involving certain dates prior to and after December 31,
1999.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default. All Obligations shall be immediately due and
payable, without notice or demand, and any provisions of this Agreement as to
future loans and credit accommodations by Lender shall terminate automatically,
upon the termination or non-renewal of this Agreement or, at Lender's option,
upon or at any time after the occurrence or existence of any one or more of the
following "Events of Default":
(a) Any Borrower fails to pay when due any of the Obligations
or fails to perform any of the terms of this Agreement or any other
existing or future financing, security or other agreement between
Borrowers and Lender or any affiliate of Lender; provided, however,
that Borrowers shall be entitled to a cure period of five (5) days
following written notice by Lender to any Borrower for any failure by
such Borrower to deliver any financial information required to be
delivered under Section 6.1 above;
(b) Any representation, warranty or statement of fact made by
any Borrower to Lender in this Agreement or any other agreement,
schedule, confirmatory assignment or otherwise, or to any affiliate of
Lender, shall prove inaccurate or misleading;
(c) Any guarantor of the Obligations revokes, terminates or
fails to perform any of the terms of any guaranty, endorsement or other
agreement of such party in favor of Lender or any affiliate of Lender;
(d) Any judgment or judgments aggregating in excess of $50,000
not covered by insurance (such insurance coverage being reasonably
satisfactory to Lender in its sole
Exhibit 10.37 - 15
discretion in all cases) or any injunction or attachment is obtained
against any Borrower or any guarantor which remains unstayed for a
period of ten (10) days or is enforced;
(e) Any Borrower or any guarantor or a general partner of a
guarantor or Borrower (which is a partnership), being a natural person,
dies, or Borrower or any guarantor which is a partnership or
corporation, is dissolved, or any Borrower or any guarantor which is a
corporation fails to maintain its corporate existence in good standing,
or the usual business of any Borrower or any guarantor ceases or is
suspended;
(f) Any change in the chief executive officer or controlling
ownership (or equivalent executive positions) of any Borrower;
(g) Any Borrower or any guarantor becomes insolvent, makes an
assignment for the benefit of creditors, makes or sends notice of a
bulk transfer or calls a general meeting of its creditors or principal
creditors;
(h) Any petition or application for any relief under the
bankruptcy laws of the United States now or hereafter in effect or
under any insolvency, reorganization, receivership, readjustment of
debt, dissolution or liquidation law or statute of any jurisdiction now
or hereafter in effect (whether at law or in equity) is filed by or
against Borrower or any guarantor; provided, however, if any of the
above actions are filed on an involuntary basis against a Borrower or
Guarantor, and such Borrower or Guarantor shall not acquiesce thereto,
such Borrower or Guarantor, as the case may be, shall have sixty (60)
days after the date of such filing to terminate or dismiss such action;
provided, however, that Lender shall have no obligation to lend any
funds to any Borrower during such sixty (60) day period;
(i) The indictment or threatened indictment of any Borrower or
any guarantor under any criminal statute, or commencement or threatened
commencement of criminal or civil proceedings against any Borrower or
any guarantor, pursuant to which statute or proceedings the penalties
or remedies sought or available include forfeiture of any of the
property of such Borrower or such guarantor;
(j) Any default or event of default occurs on the part of any
Borrower under any agreement, document or instrument to which such
Borrower is a party or by which such Borrower or any of its property is
bound, creating or relating to any indebtedness of such Borrower to any
person or entity other than Lender if the effect of such default is to
accelerate, or to permit the acceleration of, the maturity of all or
any part of such indebtedness, or all or any part of any such
indebtedness shall be declared to be due and payable or required to be
prepaid or any other reason, in either event prior to the stated
maturity thereof;
(k) Lender in good faith believes that either (i) the prospect
of payment or performance of the Obligations is impaired or (ii) the
Collateral is not sufficient to secure fully the Obligations; or
Exhibit 10.37 - 16
(l) Any material change occurs in the nature or conduct of any
Borrower's business.
7.2 Remedies. Upon the occurrence of an Event of Default and at any
time thereafter, Lender shall have all rights and remedies provided in this
Agreement, any other agreements between any Borrower and Lender, the Uniform
Commercial Code or other applicable law, all of which rights and remedies may be
exercised without notice to Borrowers, all such notices being hereby waived,
except such notice as is expressly provided for hereunder or is not waivable
under applicable law. All rights and remedies of Lender are cumulative and not
exclusive and are enforceable, in Lender's discretion, alternatively,
successively, or concurrently on any one or more occasions and in any order
Lender may determine. Without limiting the foregoing, Lender may (a) accelerate
the payment of all Obligations and demand immediate payment thereof to Lender,
(b) with or without judicial process or the aid or assistance of others, enter
upon any premises on or in which any of the Collateral may be located and take
possession of the Collateral or complete processing, manufacturing and repair of
all or any portion of the Collateral, (c) require any Borrower, at Borrowers'
expense, to assemble and make available to Lender any part or all of the
Collateral at any place and time designated by Lender, (d) collect, foreclose,
receive, appropriate, setoff and realize upon any and all Collateral, (e) extend
the time of payment of, compromise or settle for cash, credit, return of
merchandise, and upon any terms or conditions, any and all accounts or other
Collateral which includes a monetary obligation and discharge or release the
account debtor or other obligor, without affecting any of the Obligations, (f)
sell, lease, transfer, assign, deliver or otherwise dispose of any and all
Collateral (including, without limitation, entering into contracts with respect
thereto, by public or private sales at any exchange, broker's board, any office
of Lender or elsewhere) at such prices or terms as Lender may deem reasonable,
for cash, upon credit or for future delivery, with the Lender having the right
to purchase the whole or any part of the Collateral at any such public sale, all
of the foregoing being free from any right or equity of redemption of any
Borrower, which right or equity of redemption is hereby expressly waived and
released by Borrowers. If any of the Collateral is sold or leased by Lender upon
credit terms or for future delivery, the Obligations shall not be reduced as a
result thereof until payment therefor is finally collected by Lender. If notice
of disposition of Collateral is required by law, seven (7) days prior notice by
Lender to Borrowers designating the time and place of any public sale or the
time after which any private sale or other intended disposition of Collateral is
to be made, shall be deemed to be reasonable notice thereof and each Borrower
waives any other notice. In the event Lender institutes an action to recover any
Collateral or seeks recovery of any Collateral by way of prejudgment remedy,
each Borrower waives the posting of any bond which might otherwise be required.
7.3 Application of Proceeds. Lender may apply the cash proceeds of
Collateral actually received by Lender from any sale, lease, foreclosure or
other disposition of the Collateral to payment of any of the Obligations, in
whole or in part (including reasonable attorneys' fees and legal expenses
incurred by Lender with respect thereto or otherwise chargeable to Borrowers)
and in such order as Lender may elect, whether or not then due. Borrowers shall
remain liable to Lender for the payment of any deficiency together with interest
at the highest rate provided for herein and all costs and expenses of collection
or enforcement, including reasonable attorneys' fees and legal expenses.
Exhibit 10.37 - 17
7.4 Lender's Cure of Third Party Agreement Default. Lender may, at its
option, cure any default by any Borrower under any agreement with a third party
or pay or bond on appeal any judgment entered against any Borrower, discharge
taxes, liens, security interests or other encumbrances at any time levied on or
existing with respect to the Collateral and pay any amount, incur any expense or
perform any act which, in Lender's sole judgment, is necessary or appropriate to
preserve, protect, insure, maintain, or realize upon the Collateral. Lender may
charge any Borrower's loan account for any amounts so expended, such amounts to
be repayable by Borrower on demand. Lender shall be under no obligation to
effect such cure, payment, bonding or discharge, and shall not, by doing so, be
deemed to have assumed any obligation or liability of any Borrower.
SECTION 8. JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND CONSENTS
8.1 JURY TRIAL WAIVER. BORROWERS AND LENDER EACH WAIVE ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY ANY OF THEM AGAINST ANY
OTHER WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE OBLIGATIONS,
THE COLLATERAL, ANY ALLEGED TORTUOUS CONDUCT BY ANY BORROWER OR LENDER, OR, IN
ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP
BETWEEN ANY BORROWER AND LENDER. IN NO EVENT WILL LENDER BE LIABLE FOR LOST
PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.
8.2 Counterclaims. Each Borrower waives all rights to interpose any
claims, deductions, setoffs or counterclaims of any kind, nature or description
in any action or proceeding instituted by Lender with respect to this Agreement,
the Obligations, the Collateral or any matter arising therefrom or relating
thereto, except compulsory counterclaims.
8.3 Jurisdiction. Each Borrower hereby irrevocably submits and consents
to the nonexclusive jurisdiction of the State and Federal Courts located in the
State in which the office of Lender designated in Section 10.6(a) is located and
any other State where any Collateral is located with respect to any action or
proceeding arising out of this Agreement, the Obligations, the Collateral or any
matter arising therefrom or relating thereto. In any such action or proceeding,
each Borrower waives personal service of the summons and complaint or other
process and papers therein and agrees that the service thereof may be made by
mail directed to such Borrower at its chief executive office set forth herein or
other address thereof of which Lender has received notice as provided herein,
service to be deemed complete five (5) days after mailing, or as permitted under
the rules of either of said Courts. Any such action or proceeding commenced by
any Borrower against Lender will be litigated only in a Federal Court located in
the district, or a State Court in the State and County, in which the office of
Lender designated in Section 10.6(a) is located and each Borrower waives any
objection based on forum non conveniens and any objection to venue in connection
therewith.
8.4 No Waiver by Lender. Lender shall not, by any act, delay, omission
or otherwise be deemed to have expressly or impliedly waived any of its rights
or remedies unless such waiver shall be in writing and signed by an authorized
officer of Lender. A waiver by Lender of any right or remedy on any one occasion
shall not be construed as a bar to or waiver of any such right
Exhibit 10.37 - 18
or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS
9.1 Term. This Agreement shall only become effective upon execution and
delivery by Borrowers and Lender and shall continue in full force and effect for
a term set forth in Section 10.7 from the date hereof and shall be deemed
automatically renewed for successive terms of equal duration thereafter (each a
"Term") unless terminated as of the end of the initial or any renewal term by
either party giving the other written notice at least sixty (60) days' prior to
the end of the then-current Term.
9.2 Early Termination. At any time prior to the end of the then current
Term, Borrowers may terminate this Agreement by giving Lender at least thirty
(30) days but no more than seventy-five (75) days prior written notice and
payment in full of all of the Obligations as provided herein, including, but not
limited to, the Early Termination Fee, described hereinbelow, the unpaid
Facility Fee, described hereinbelow, and any other fees. Lender shall also have
the right to terminate this Agreement at any time upon or after the occurrence
of an Event of Default. If Lender terminates this Agreement upon or after the
occurrence of an Event of Default, Borrowers shall pay Lender forthwith, in
full, payment of all Obligations, including, but not limited to, the Early
Termination Fee, the Facility Fee and any other fees. In view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits, the "Early Termination Fee" shall be equal to:
(a) if such termination occurs prior to the first anniversary
of the date hereof, an amount equal to three percent (3%) of the
Maximum Credit; or
(b) if such termination occurs on or after the first
anniversary of the date hereof, an amount equal to one percent (1%) of
the Maximum Credit,
plus, if Borrowers so terminate this Agreement and repay the Obligations without
having provided Lender with at least thirty (30) days' prior written notice
thereof, an additional amount equal to thirty (30) days of interest at the
applicable Interest Rate based on the average outstanding amount of the
Obligations for the six (6) month period immediately preceding the date of
termination. Notwithstanding anything contained in this Section 9.2 to the
contrary, no Early Termination Fee shall be charged to Borrowers if either party
terminates this Agreement pursuant to the terms of Section 9.1 hereof.
9.3 Additional Costs Collateral. Upon termination of this Agreement by
Borrowers, as permitted herein, in addition to payment of all Obligations which
are not contingent, Borrowers shall deposit such amount of cash collateral as
Lender determines is necessary to secure Lender from loss, cost, damage or
expense, including reasonable attorneys' fees, in connection with any open
Accommodations or remittance items or other payments provisionally credited to
the Obligations and/or to which Lender has not yet received final and
indefeasible payment.
Exhibit 10.37 - 19
9.4 Notices. Except as otherwise provided, all notices, requests and
demands hereunder shall be (a) made to Lender at its address set forth in
Section 10.6(a) and to each Borrower at its chief executive office set forth in
Section 10.6(d), or to such other address as a party may designate by written
notice to the others in accordance with this provision, and (b) deemed to have
been given or made: if by hand, immediately upon delivery; if by telex, telegram
or telecopy (fax), immediately upon receipt on a Business Day; if by overnight
delivery service, on the Business Day after dispatch; and if by first class or
certified mail, three (3) days after mailing.
9.5 Severability. If any provision of this Agreement is held to be
invalid or unenforceable, such provision shall not affect this Agreement as a
whole, but this Agreement shall be construed as though it did not contain the
particular provision held to be invalid or unenforceable.
9.6 Entire Agreement; Amendments; Assignments. This Agreement contains
the entire agreement of the parties as to the subject matter hereof, all prior
commitments, proposals and negotiations concerning the subject matter hereof
being merged herein. Neither this Agreement nor any provision hereof shall be
amended, modified or discharged orally or by course of conduct, but only by a
written agreement signed by an authorized officer of Lender. This Agreement
shall be binding upon and inure to the benefit of each of the parties hereto and
their respective successors and assigns, except that any obligation of Lender
under this Agreement shall not be assignable nor inure to the respective
successors and assigns of Borrowers.
9.7 Discharge of Borrowers. No termination of this Agreement shall
relieve or discharge Borrowers of their Obligations, grants of Collateral,
duties and covenants hereunder or otherwise until such time as all Obligations
to Lender have been indefeasibly paid and satisfied in full, including, without
limitation, the continuation and survival in full force and effect of all
security interests and liens of Lender in and upon all then existing and
thereafter-arising or acquired Collateral and all warranties and waivers of
Borrowers.
9.8 Usage. All terms used herein which are defined in the Uniform
Commercial Code shall have the meanings given therein unless otherwise defined
in this Agreement and all references to the singular or plural herein shall also
mean the plural or singular, respectively.
9.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State in which the office of Lender set forth in
Section 10.6(a) below is located.
9.10 Reimbursement Among Each Borrower. To the extent that any Borrower
shall be required to pay a portion of the Obligations which shall exceed the
amount of loans, advances or other extensions of credit received by any such
Borrower and all interest, costs, fees and expenses attributable to such loans,
advances or other extensions of credit, then such Borrower shall be reimbursed
by each other Borrower for the amount of such excess pro rata, based on their
respective receipt of such loans, advances and extensions of credit. This
Section 9.10 is intended only to define the relative rights of each Borrower
among Borrowers and nothing set forth in this Section 9.10 is intended to or
shall impair the obligations of Borrowers, jointly and
Exhibit 10.37 - 20
severally, to pay the Obligations to Lender as and when the same shall become
due and payable in accordance with the terms hereof.
9.11 Joint and Several Liability. The liability of Borrowers under this
Agreement and the other agreements, documents or instruments delivered in
connection herewith in general shall be joint and several, and each reference
herein to Borrowers shall be deemed to refer to each such Borrower. In
furtherance and not in limitation of Lender's rights and remedies hereunder or
at law, Lender may proceed under this Agreement and the other agreements,
documents or instruments delivered in connection herewith against any one or
more Borrowers in its absolute and sole discretion for any of the Obligations.
SECTION 10. ADDITIONAL DEFINITIONS AND TERMS
10.1 Financing Terms.
(a) Maximum Credit: $3,000,000
(b) Gross Availability Formulas:
(i) Eligible Accounts
Percentage: 80%; provided such percentage may be
reduced by Lender in its sole discretion
if the rolling average of the accounts
dilution percentage measured over any six
(6) month period applicable to the
Eligible Accounts is greater than six
percent (6%).
(ii) Eligible Inventory
Percentage: 60% of acceptable and eligible raw
material and finished goods inventory.
(c) Sublimits(s): N/A
(d) Maximum days after Invoice
Date for Eligible Accounts: 90 days
(e) Minimum Borrowing: $1,000,000
10.2 Term Loan:
(a) Initial Term Loan: An Initial Term Loan shall be made to
Borrowers on the date hereof in the aggregate amount of One Million
Four Hundred Eighty-Three Thousand Nine Hundred Sixty-Eight and xx/100
Dollars ($1,483,968). The Initial Term Loan shall be repayable in
immediately available funds, in sixty (60) consecutive monthly
installments (or earlier, as hereinafter provided) by RBC, each in the
amount
Exhibit 10.37 - 21
of Twenty Four Thousand Seven Hundred Thirty-Three and xx/100 Dollars
($24,733), commencing March 24, 1999 and on the first day of each month
thereafter; provided, that notwithstanding the foregoing, the then
unpaid balance thereof shall be due and payable in full on the date of
the expiration the Term.
(b) Additional Term Loans: N/A
10.3 Reserved.
10.4 Interest, Fees & Charges:
(a) Interest Rate: Prime Rate plus 2.25% per
annum.
(b) Clearance: Three (3) Business Days
(c) Closing Fee: N/A
(d) Facility Fee: 0.25% of the Maximum Credit
at closing of this
Agreement and 0.50% of the
Maximum Credit at each
anniversary of closing of
this Agreement
(e) Account Servicing/
Collateral Handling Fee: N/A
(f) Unused Line Fee: N/A
(g) Field Examination per diem
charge per examiner per day: $650
10.5 Financial Covenants:
(a) Working Capital: N/A
(b) Net Worth: N/A
(c) Capital Expenditures: N/A
10.6 (a) Lender's Office: ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(b) Lender's Bank: Bank of America, Illinois
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(c) Borrowers:
(i) Mendocino Brewing Company, Inc.,
Exhibit 10.37 - 22
a California corporation ("MBC")
(ii) Releta Brewing Company LLC, a Delaware
limited liability company ("RBC")
(d) (i) Borrowers' Chief Executive MBC: ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇: ▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
RBC: ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(ii) Borrowers' Principal Place of MBC: ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
RBC: See (d)(i) above
(e) Locations of Eligible Inventory ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇: ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(f) Borrowers' Other Offices and N/A
Locations of Collateral:
(g) Borrower's Trade Names for MBC: Mendocino Brewing
Invoicing: Company
Mendocino Brewing
Company Tavern
Mendocino Brewing Shop
Carmel Brewing Company
RBC: Ten Springs Brewing
Company
10.7 Term: Two (2) Years
Exhibit 10.37 - 23
IN WITNESS WHEREOF, Borrowers and Lender have duly executed this Loan
and Security Agreement as of this 24th day of September, 1998.
BORROWERS:
MENDOCINO BREWING COMPANY,
INC.
By: /s/ P.A. Murali
--------------------------
Title: Secretary
-----------------------
RELETA BREWING COMPANY LLC
By: /s/ P.A. Murali
--------------------------
Title: Secretary
-----------------------
LENDER:
THE CIT GROUP/CREDIT FINANCE,
INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------
Title: Senior Vice President
-----------------------
Exhibit 10.37 - 24
EXHIBIT A
BORROWING BASE CERTIFICATE
COLLATERAL REPORT
THE CIT GROUP/CREDIT FINANCE, INC.
Date: ___________________ Report # ____________________ Period Covered _______________ to _______________
ACCOUNTS RECEIVABLE
1. Balance brought forward: $____________
(Previous Report #__________ Date __________)
ADDITIONS
2. New Sales (gross) $____________(+)
3. Miscellaneous debits ____________(+) $____________(+)
DEDUCTIONS
4. Collections (net cash) $____________(-)
5. Discounts allowed ____________(-)
6. Credit memos ____________(-)
7. Miscellaneous credits ____________(-) $____________(-)
8. Gross balance this report $____________
INELIGIBLES
9. Over _____ days past invoice date $____________(-)
10. Cross-age (_____%) ____________(-)
11. Contras ____________(-)
12. Others (per attached schedule) ____________(-) ____________(-)
13. TOTAL ELIGIBLE RECEIVABLES $____________
14. BORROWING BASE VALUE (_____% of $____________
line 13)
INVENTORY
(Note: Multiple advance rates use Attachment I)
15. Balance brought forward: $____________
(Previous Report #_________
Exhibit 10.37 - A1
Date __________)
16. Additions $____________(+)
17. Deductions ____________(-)
18. Gross Balance this Report $____________
INELIGIBLES
19. Slow-moving/obsolete items ____________(-)
20. Consignments ____________(-)
21. In-transit ____________(-)
22. Others (per attached schedule) ____________(-) $____________(-)
23. TOTAL ELIGIBLE INVENTORY $____________
24. BORROWING BASE VALUE (_____% of line 23 or see Attachment I) $____________
25. Inventory Sublimit ____________
26. Maximum Inventory Advance (Lesser of lines 24 and 25) $____________
OTHERS
27. BORROWING BASE VALUE (see $____________
Attachment I)
28. TOTAL BORROWING BASE (14 + 26 + 27) Not Exceeding Facility Limit $__________(A) $____________(B)
BORROWING BASE RESERVED
29. Letter-of-Credit $_____________
30. Other _____________
31. Other _____________
32. TOTAL BORROWING BASE RESERVED THIS REPORT $____________
33. EXCESS BORROWING BASE (Lesser of 28A and 28B minus 32) $____________
LOANS OUTSTANDING
34. Loan Balance (Previous Report #__________ Date __________) $____________
35. Less: Collections- A/R__________
36. - non A/R __________ ____________(-)
Exhibit 10.37 - A2
37. Add: New Advances ____________(+)
38. Ending Loan Balance this report (34 minus 36 plus 37) $____________
39. Excess/(Short) Borrowing Base $____________
(Lesser of 28A and 28B minus 32 and 38)
TERM LOANS
40. Balance this Report $____________
TOTAL LOANS OUTSTANDING THIS REPORT
41. (Lines 38 and 40) $____________
Pursuant to, and in accordance with, the terms and provisions of that certain
Loan and Security Agreement ("Agreement"), between The CIT Group/Credit Finance,
Inc. ("Secured Party") and ___________________________ ("Borrower"), Borrower is
executing and delivering to Secured Party this Collateral Report accompanied by
supporting data (collectively referred to as "Report"). Borrower warrants and
represents to Secured Party that this Report is true, correct, and based on
information contained in Borrower's own financial accounting records. Borrower,
by the executing of this Report, hereby ratifies, confirms and affirms as of the
terms, conditions and provisions of the Agreement, and further certifies on this
_____ day of _____________, 19___, that the Borrower is in compliance with said
Agreement.
Borrower: ___________________________________________
By: ___________________________________________
Title: ___________________________________________
Exhibit 10.37 - A3
ATTACHMENT I
THE CIT GROUP/CREDIT FINANCE, INC.
Date:___________________ Report #____________________
INVENTORY
(Applicable if more than one rate of advance)
Category of Inventory ___________ __________ __________ __________
Rate of Advance ___________ __________ __________ __________ TOTAL
----------
42. Balance brought forward: ___________ __________ __________ __________ __________
43. Previous Report #:__________
44. Date:_______________
45. Additions ___________ __________ __________ __________ __________
46. Deductions ___________ __________ __________ __________ __________
47. Gross Balance this Report ___________ __________ __________ __________ __________
INELIGIBLES
48. Slow-moving/obsolete items ___________ __________ __________ __________ __________
49. Consignments ___________ __________ __________ __________ __________
50. In-transit ___________ __________ __________ __________ __________
51. Others (per attached schedule) ___________ __________ __________ __________ __________
52. TOTAL ELIGIBLE INVENTORY ___________ __________ __________ __________ __________
53. BORROWING BASE VALUE ___________ __________ __________ __________ __________
(carried over to Line 24 of main
Collateral Report)
OTHERS
(Applicable if other collateral used for Revolving Loan)
Collateral Advance Borrowing
Value Rate Base Value
----- ---- ----------
54. Notes Receivable ___________ __________ __________
55. Machinery & Equipment ___________ __________ __________
56. Real Estate ___________ __________ __________
57. Letter-of-Credit ___________ __________ __________
58. Others _________________________________ ___________ __________ __________
Exhibit 10.37 - A4
59. Sub-total ___________ __________ __________
UNAPPLIED CASH
60. Collections not applied to loan and collateral
$
61. Borrowing Base Value=Unapplied Cash X (100% - Advance Rate %) __________
62. TOTAL (59 + 61) $__________
(carried over to Line 27 of main Collateral Report)
Exhibit 10.37 - A5
ACCOUNTS RECEIVABLE RECONCILIATION
COMPANY _________________________
MONTH ENDING _________________
Daily Collateral
Report Aged Trial General Ledger
------ Balance Balance
(#________________ ) ---------- --------------
Accounts Receivable Balance $ __________ $ __________ $ __________
Reconciling Items:
1. _______________________________________________ __________ __________ __________
2. _______________________________________________ __________ __________ __________
3. _______________________________________________ __________ __________ __________
4. _______________________________________________ __________ __________ __________
5. _______________________________________________ __________ __________ __________
6. _______________________________________________ __________ __________ __________
$ __________ $ __________ $ __________
Aged Trial General Ledger Financial
Balance Total Balance Statement
(Note 1) (Note 2) Balance
(Note 3)
Date: _______________________________________________ By: __________
Title: _________
Reconciliation Notes: 1. Daily Collateral Report to the Accounts Receivable Aging.
2. Accounts Receivable Aging to the General Ledger Balance.
3. General Ledger Balance to the Financial Statements.
Exhibit 10.37 - A6
INVENTORY RECONCILIATION
COMPANY _________________________
MONTH ENDING _________________
Daily Collateral
Report Detail or
(#____________) Summary Report General Ledger
Balance Balance Balance
------- ------- -------
Inventory Balance $ __________ $ __________ $ __________
Reconciling Items:
1. _______________________________________________ __________ __________ __________
2. _______________________________________________ __________ __________ __________
3. _______________________________________________ __________ __________ __________
4. _______________________________________________ __________ __________ __________
5. _______________________________________________ __________ __________ __________
6. _______________________________________________ __________ __________ __________
$ __________ $ __________ $ __________
Detail or General Ledger Financial
Summary Report Balance Statement
Balance Balance
(Note 1) (Note 2) (Note 3)
Date: _______________________________________________ By: __________
Title: _________
Reconciliation Notes: 1. Daily Collateral Report to the Detail or Summary Report Balance.
2. Detail or Summary Report Balance to the General Ledger Balance.
3. General Ledger Balance to the Financial Statements.
Exhibit 10.37 - A7
SCHEDULE A
Permitted Liens
I. Mendocino Brewing Company Inc.
Secured Party File Number Date Filed Collateral
------------- ----------- ---------- ----------
A. Finova Capital Corporation 9628160343 10/04/96 Equipment
B. Finova Capital Corporation 00020157 12/12/96 Equipment
C. Savings Bank of Mendocino 9630260566 10/23/96 Blanket lien
D. Savings Bank of Mendocino ▇▇▇▇▇▇▇▇ 11/07/96 Fixture Filing
E. Safeco Credit Co., Inc. 9705660610 02/18/97 Forklift
F. Trinity Capital Corporation 9815460979 06/01/98 Computers
G. The Manifest Group Will be filed ~09/98 Depalitizer
H. The Manifest Group Will be filed ~09/98 Digital
Gehaltemeter
and accessories
II. Releta Brewing Company LLC
Secured Party File Number Date Filed Collateral
------------- ----------- ---------- ----------
A. Associates Leasing, Inc. 98-1200 04/23/98 Forklifts (2)
B. Associates Leasing, Inc. 079747 04/14/98 Forklifts (2)
Exhibit 10.37 - A8
SCHEDULE B
Funded Indebtedness
I. Mendocino Brewing Company Inc.
Approx. Amount
Lender Outstanding (09/01/98)
------ ----------------------
A. Finova Capital Corporation $1,669,846.70
B. Savings Bank of Mendocino $2,733,110.62
C. United Breweries of America Inc. $ 975,487.88
D. Safeco Credit Co., Inc. $ 13,566.39
E. Trinity Capital Corporation $ 17,572.64
F. The Manifest Group $ 13,793.50
G. Colonial Pacific Leasing $ 118,608.43
II. Releta Brewing Company LLC
A. Associates Leasing, Inc. $ 43,710.15
Exhibit 10.37 - A9