LOAN AND SECURITY AGREEMENT Dated as of May 30, 2008 Between REED’S, INC. (Borrower) and FIRST CAPITAL WESTERN REGION, LLC (Lender)
Dated
as of May 30, 2008
Between
▇▇▇▇’▇,
INC.
(Borrower)
and
FIRST
CAPITAL WESTERN REGION, LLC
(Lender)
TABLE
OF CONTENTS
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Page
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1.
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Definitions
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1
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2.
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Borrowing
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8
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3.
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Interest
and Fees
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10
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4.
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Representations
and Warranties of Borrower
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12
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5.
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Collateral
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13
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6.
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Financial
Covenants
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14
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7.
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Collateral
Covenants
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14
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8.
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Negative
Covenants
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16
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9.
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Reporting
and Information
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18
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10.
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Inspection
Rights; Expenses; Etc
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19
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11.
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Rights
of Setoff, Application of Payments, Etc
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20
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12.
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Attorney-in-Fact
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20
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13.
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Defaults
and Remedies
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21
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14.
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Indemnification
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23
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15.
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General
Provisions
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24
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TABLE
OF CONTENTS
(continued)
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Page
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Attachments:
Schedule
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Exhibit
A - Form of Borrowing Base Certificate
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Exhibit
B - Form of Compliance Certificate
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Exhibit
C - Form of Deed of Trust
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Exhibit
D - Real Property Description
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This
LOAN
AND SECURITY AGREEMENT (this “Agreement”)
is
entered into as of this 30th day of May, 2008 between ▇▇▇▇’▇, INC., a Delaware
corporation (“Borrower”),
and
FIRST CAPITAL WESTERN REGION, LLC (“Lender”).
RECITALS:
WHEREAS,
Borrower has requested that Lender provide Borrower with a secured lending
facility; and
WHEREAS,
Lender is willing to provide a secured lending facility to Borrower on the
terms
set forth in this Agreement.
NOW,
THEREFORE, Borrower and Lender hereby agree as follows:
1. Definitions.
For
purposes of this Agreement:
“Accounts”
means
all presently existing or hereafter arising accounts (as that term is defined
in
the UCC) of Borrower, accounts receivable due to Borrower (including medical
and
health-care-insurance receivables), book debts, notes, drafts and acceptances
and other forms of obligations now or hereafter owing to Borrower, including,
without limitation, those arising from the sale or lease of goods or the
rendition of services by Borrower, all of Borrower’s rights in, to and under all
purchase orders now or hereafter received by Borrower for goods and services,
all proceeds from the sale of Inventory, all monies due or to become due to
Borrower under all contracts for the sale or lease of goods, the licensing
of
intellectual property or the rendition of services by Borrower (whether or
not
yet earned) (including the right to receive the proceeds of said purchase orders
and contracts), all collateral security, guarantees and supporting obligations
of any kind given by any obligor with respect to any of the foregoing, and
all
goods returned to or reclaimed by Borrower that correspond to any of the
foregoing.
“Affiliate”
means,
with respect to a Person, (a) any family member, officer, director, employee
or
managing agent of such Person, and (b) any other Person (i) that, directly
or
indirectly, through one or more intermediaries, controls, or is controlled
by,
or is under common control with, such given Person, (ii) that, directly or
indirectly beneficially owns or holds 10% or more of any class of voting stock
or partnership or other interest of such Person or any subsidiary of such
Person, or (iii) 10% or more of the voting stock, membership interests or
partnership or other interest of which is directly or indirectly beneficially
owned or held by such Person or a subsidiary of such Person. The term “control”
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through
ownership of voting securities or partnership or other interests, by contract
or
otherwise.
“Agreement
Date”
means
the date as of which this Agreement is dated.
“Borrowing
Base”
has
the
meaning set forth in Item
1 of the Schedule.
1
“Borrowing
Base Certificate”
means
the certificate, substantially in the form of Exhibit A,
with
appropriate insertions, to be submitted to Lender by Borrower pursuant to this
Agreement and certified as true and correct by the Chief Executive Officer
or
the Chief Financial Officer of Borrower.
“Business
Day”
means
any
day excluding Saturday, Sunday, and any day which is a legal holiday under
the
laws of the State of California or which is a day on which Lender is otherwise
closed for transacting business with the public.
“Collateral”
has
the
meaning set forth in Section
5(a).
“Customer”
means
any customer or accounts debtor who is obligated on an Account, chattel paper
or
a General Intangible.
“Deed
of Trust”
means
that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing, of even date herewith, substantially in the form of Exhibit
C,
executed by Borrower for the benefit of Lender.
“Default”
has
the
meaning set forth in Section
13(a).
“Dilution”
means,
at the time it is being calculated, a percentage, based upon the experience
of
the immediately prior 30 days, that is the result of dividing the dollar amount
of (a) bad debt write-downs, discounts, advertising allowances, credits, or
other non-cash reductions with respect to the outstanding Accounts, by (b)
the
Accounts created by Borrower during such period.
“Dilution
Reserve”
means,
as of any date of determination, an amount sufficient to reduce the advance
rate
against Eligible Accounts by two percentage points for each percentage point,
calculated by rounding off partial percentage points using conventional rounding
rules as determined by Lender, by which Dilution is in excess of
10.00%.
“Election
Notice”
has
the
meaning set forth in Item 1(a)(ii)(B)
of the Schedule.
“Eligible
Accounts”
means
those Accounts arising from the sale of Inventory or performance of services
in
the ordinary course of Borrower’s business; provided,
however,
that
Eligible Accounts shall
not
include
the following:
(a) any
Account which has remained unpaid for more than the number of days specified
in
Item 2(a)
of the Schedule;
(b) Accounts
with respect to which the Customer is an Affiliate of Borrower;
(c) Accounts
with respect to which services or goods are placed on consignment, guaranteed
sale, or other terms by reason of which the payment by the Customer may be
conditional;
2
(d) Accounts
with respect to which the Customer (i) does not maintain its chief executive
office in the United States, or (ii) is not organized under the laws of the
United States of America or any state thereof; or (iii) is the government of
any
foreign country or of any state, province, municipality, or other political
subdivision thereof; except to the extent that such Account is secured or
payable by a letter of credit satisfactory to Lender in its
discretion;
(e) any
and
all Accounts as to which the perfection, enforceability, or validity of Lender’s
Collateral or security interest in such Account, or Lender’s right or ability to
obtain direct payment to Lender of the proceeds of such Account, is governed
by
any federal or state statutory requirements other than those of the Uniform
Commercial Code, including any Account subject to the Federal Assignment of
Claims Act of 1940; provided, however, that an Account shall not be deemed
ineligible by reason of this clause (e) if Borrower has completed all of the
steps necessary, in the discretion of Lender, to comply with the Federal
Assignment of Claims Act of 1940 with respect to such Account;
(f) Accounts
with respect to which the Customer is any state of the United States or any
city, town, municipality, county or division thereof;
(g) Accounts
which may be subject to offset or recoupment by the Customer, whether as the
result of goods sold or services rendered by the Customer to Borrower, any
contractual arrangement between the Customer and Borrower (including any lease)
or otherwise;
(h) those
Accounts where Lender, in Lender’s discretion, has notified Borrower that the
Account or Customer is not acceptable to Lender;
(i) all
of
the Accounts owed by a Customer if the aggregate outstanding dollar amount
of
such Accounts not considered as Eligible Accounts under clause (a) above as
a
percentage of all outstanding accounts then owing by such Customer, is equal
to
or greater than the Cross Aging Percentage specified in Item 2(b)
of the Schedule;
(j) Accounts
for which services have not yet been rendered to the Customer or the goods
sold
have not yet been delivered to the Customer (commonly referred to as “pre-billed
accounts”);
(k) Accounts
owed by a Customer not previously approved in writing by Lender where the dollar
value for the aggregate amount of outstanding Accounts then owing by such
Customer as a percentage of the dollar value of all outstanding Accounts then
owing to Borrower is greater than the Concentration Limit specified in
Item 2(c)
of the Schedule,
but
only to the extent of such excess;
(l) any
Account with respect to all or part of which a check, promissory note, draft,
trade acceptance, or other instrument for the payment of money has been
received, presented for payment, and returned uncollected for any
reason;
(m) any
Account with respect to which Borrower has extended the time for payment without
the consent of Lender;
3
(n) any
Account with respect to which any one or more of the following events has
occurred to the Customer on such Account: death or judicial declaration of
incompetency of a Customer who is an individual; the filing by or against the
Customer of a request or petition for liquidation, reorganization, arrangement,
adjustment of debts, adjudication as a bankrupt, winding-up, or other relief
under the bankruptcy, insolvency, or similar laws of the United States, any
state or territory thereof, or any foreign jurisdiction, now or hereafter in
effect; the making of any general assignment by the Customer for the benefit
of
creditors; the appointment of a receiver or trustee for the Customer or for
any
of the assets of the Customer, including, without limitation, the appointment
of
or taking possession by a “custodian,” as defined in the Bankruptcy Code; the
institution by or against the Customer of any other type of insolvency
proceeding (under the bankruptcy laws of the United States or otherwise) or
of
any formal or informal proceeding for the dissolution or liquidation of,
settlement of claims against, or winding up of affairs of, the Customer; the
sale, assignment, or transfer of all or any material part of the assets of
the
Customer; the nonpayment generally by the Customer of its debts as they become
due; or the cessation of the business of the Customer as a going
concern;
(o) any
Account which arises out of finance or similar charges;
(p) any
Account in which Lender does not have a duly perfected, first-priority security
interest, subject to no other Lien;
(q) any
Account which arises under a contract or arrangement covered by a performance
or
surety bond on behalf of Borrower, unless the Person providing such performance
or surety bond has delivered an acceptable Lien waiver to Lender;
or
(r) any
Account which is evidenced by a note, draft, trade acceptance, or other
instrument for the payment of money where such instrument, document, chattel
paper, note, draft, trade acceptance or other instrument has not been endorsed
and delivered by Borrower to Lender.
“Eligible
Inventory”
means
and includes that Inventory (other than packaging materials, labels and
supplies) located in the continental United States which Lender, in its
discretion, deems to be Eligible Inventory. Without limiting the generality
of
the foregoing, no Inventory shall be Eligible Inventory unless:
(a) it
is raw
materials or finished goods;
(b) at
all
times it strictly complies with all of Borrower’s warranties, covenants and
representations to Lender;
(c) it
is in
good, new and salable condition;
(d) it
is not
slow moving, obsolete or unmerchantable, in Lender’s discretion;
(e) it
meets
all standards imposed by any governmental agency or authority;
4
(f) it
is at
all times subject to Lender’s duly perfected, first-priority security interest
and there exists no other Lien thereon;
(g) it
is in
Borrower’s possession and control situated at a location disclosed to Lender in
compliance with this Agreement, the Inventory is not in-transit, Borrower’s
books reflect the Inventory, the Inventory is insured to the full value thereof,
and the insurance policy lists Lender as lender loss payee;
(h) it
is not
in the hands of any third party, including a warehouseman, finisher, consignee,
▇▇▇▇▇▇, or processor, unless such arrangement is fully disclosed to Lender
in
writing and Borrower shall have provided to Lender such waivers, acknowledgments
and other items requested by Lender in its discretion;
(i) it
is not
subject to any license or other agreement that limits, conditions, or restricts
Borrower’s or Lender’s right to sell or otherwise dispose of such
Inventory;
(j) Borrower
owns such Inventory and such Inventory is not in Borrower’s possession based
upon any consignment, guaranteed sale, or similar basis; and
(k) it
is not
of a type that Lender, in its discretion, has determined is not Eligible
Inventory.
“Equipment”
means
all of Borrower’s presently owned and hereafter acquired machinery, apparatus,
equipment, motor vehicles, tractors, trailers, rolling stock, fittings, fixtures
and other tangible personal property of every kind and description, together
with all parts, accessories and special tools and all increases and accessions
thereto and substitutions and replacements therefor.
“GAAP”
means
generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute
of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board that are applicable to the circumstances as of the
date of determination and applied on a consistent basis.
“General
Intangibles”
means
all of Borrower’s present and future general intangibles and all other presently
owned or hereafter acquired intangible personal property of Borrower (including
payment intangibles and any and all choses or things in action, goodwill,
patents and patent applications, tradenames, servicemarks, trademarks and
trademark applications, copyrights, blueprints, drawings, purchase orders,
customer lists, monies due or recoverable from pension funds, route lists,
infringement claims, software, computer programs, computer discs, computer
tapes, literature, reports, catalogs, deposit accounts, tax refunds and tax
refund claims) other than Goods and Accounts, and all supporting obligations
relating to any of the foregoing, as well as Borrower’s books and records
relating to any of the foregoing.
“Goods”
means
all of Borrower’s present and hereafter acquired goods, as defined in the UCC,
wherever located, including imbedded software to the extent included in “goods”
as defined in the UCC, manufactured homes, and standing timber that is cut
and
removed for sale.
5
“Guarantor”
means
individually, and “Guarantors” means collectively, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ and any
other Person that has guaranteed all or any part of the
Obligations.
“Inventory”
means
all present and future inventory (as defined in the UCC) of Borrower, including
goods held for sale or lease or to be furnished under a contract of service
and
all of Borrower’s present and future raw materials, work in process, finished
goods, shelving and racking upon which the inventory is stored and packing
and
shipping materials, wherever located, and any documents of title representing
any of the above.
“Lien”
means
any security interest, security title, mortgage, deed to secure debt, deed
of
trust, lien, pledge, charge, conditional sale or other title retention
agreement, or other encumbrance of any kind in respect of any property,
including the interest of each lessor under any capitalized lease and the
interest of any bondsman under any payment or performance bond, in, of or on
any
assets or properties of a Person, whether now owned or hereafter acquired and
whether arising by agreement or operation of law.
“Loan
Documents”
means,
collectively,
this Agreement, the Deed of Trust, and each other agreements, instruments,
certificates (including any Borrowing Base Certificate) or other documents
entered into in connection with this Agreement, including collateral documents,
letter of credit agreements, security agreements, pledges, guaranties,
mortgages, deeds of trust, assignments and subordination agreements, and any
other agreement executed by any Obligor or any Affiliate of any Obligor pursuant
hereto or in connection herewith.
“Maximum
Credit Limit”
means
$2,000,000.
“Negotiable
Collateral”
means
all of Borrower’s present and future letters of credit, advises of credit,
notes, drafts, instruments, and documents, including, without limitation, bills
of lading, leases, and chattel paper, and Borrower’s books and records relating
to any of the foregoing.
“Obligations”
means
all indebtedness, obligations and liabilities of Borrower to Lender and its
Affiliates of every kind and description, direct or indirect, secured or
unsecured, joint or several, absolute or contingent, due or to become due,
including any overdrafts, whether for payment or performance, now existing
or
hereafter arising, whether presently contemplated or not, regardless of how
the
same arise, or by what instrument, agreement or book account they may be
evidenced, or whether evidenced by any instrument, agreement or book account,
including, but not limited to, all loans (including any loan by modification,
renewal or extension), all indebtedness arising from any derivative
transactions, all undertakings to take or refrain from taking any action, all
indebtedness, liabilities or obligations owing from Borrower to others which
Lender may have obtained by purchase, negotiation, discount, assignment or
otherwise, and all interest, taxes, fees, charges, expenses and attorney’s fees
(whether or not such attorney is a regularly salaried employee of Lender or
any
of its Affiliates) chargeable to Borrower or incurred by Lender under this
Agreement or any other document or instrument delivered in connection
herewith.
6
“Obligor”
means
Borrower, Guarantor, any validity guarantor or any other Person primarily or
secondarily, directly or indirectly, liable on any of the
Obligations.
“Permitted
Liens”
means
(a) Liens or charges for current taxes, assessments or other governmental
charges which are not delinquent or remain payable without any penalty, or
the
validity of which is contested in good faith by appropriate proceedings upon
stay of execution of the enforcement thereof and for which appropriate reserves
have been established in accordance with GAAP; (b) deposits or pledges to secure
(i) statutory obligations, (ii) surety or appeal bonds, or (iii) bonds for
release of attachment, stay of execution or injunction; (c) statutory Liens
on
property arising in the ordinary course of business which, in the aggregate,
do
not materially impair the use of such property or materially detract from the
value of such property; (d) Liens existing on the Agreement Date and described
on Item 3
of the Schedule;
(e)
Liens on Equipment securing all or part of the purchase price of such Equipment;
provided,
however,
that
(i) such Lien is created contemporaneously with the acquisition of such
Equipment, (ii) such Lien attaches only to the specific items of Equipment
so
acquired, and (iii) such Lien secures only the indebtedness incurred to acquire
such Equipment; and (f) Liens in favor of Lender.
“Person”
means
an individual, corporation, partnership, limited liability company, association,
trust, unincorporated organization, government or any agency or political
subdivision thereof, or any other entity.
“Real
Property”
means
that certain real property commonly referred to as 12930 and ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and more specifically described in
Exhibit
D.
“Subordinated
Debt”
means
all of the indebtedness owed by Borrower to any other Person, the repayment
of
which is subordinated to the repayment of the Obligations pursuant to the terms
of a subordination agreement approved by Lender in its discretion.
“UCC”
means
the Uniform Commercial Code, as in effect from time to time, of the State of
California or of any other state the laws of which are required as a result
thereof to be applied in connection with the issue of perfection of security
interests; provided,
however,
that to
the extent that the UCC is used to define any term herein or in any other
documents and such term is defined differently in different Articles of the
UCC,
the definition of such term contained in Article 9 shall govern. As used
herein, references to an Article of the UCC shall be deemed to be references
to
Division of the UCC of the State of California.
Other
Definitional Provisions.
References to the “Schedule” or any “Section” or “Exhibit” refer to the Schedule
or a section or exhibit, respectively, of this Agreement unless otherwise
specifically provided. Any of the terms defined in Section 1
may,
unless the context otherwise requires, be used in the singular or the plural
depending on the reference. In this Agreement: words importing any gender
include the other genders; the words “including”, “includes” and “include” shall
be deemed to be followed by the words “without limitation”; references to
agreements and other contractual instruments shall be deemed to include
subsequent amendments, assignments, and other modifications thereto, but only
to
the extent such amendments, assignments and other modifications are not
prohibited by the terms of this Agreement; references to any Person includes
their respective permitted successors and assigns or people succeeding to the
relevant functions of such Persons; any and all terms which are defined in
the
UCC and are not defined herein shall be construed and defined in accordance
with
the definition of such terms under the UCC; all references to statutes and
related regulations shall include any amendments of same and any successor
statutes and regulations; and all references to time of day shall refer to
Los
Angeles, California time.
7
2. Borrowing.
(a) Amount
Available to Be Borrowed.
From
time to time Borrower may request, and Lender will, subject to the other terms
and conditions of this Agreement, lend to Borrower up to an amount equal to
the
Borrowing Base at any time. Borrowed amounts that are repaid may be reborrowed
upon the terms and conditions of this Agreement.
(b) Standards.
Lender
will determine eligibility and the loan value of Collateral, in its sole
discretion, consistent with Lender’s experience, prudent business judgment and
standards of commercial reasonableness applicable to asset-based credits and
in
good faith. Any loans requested by Borrower and made by Lender or at any time
outstanding in excess of the Borrowing Base or any other limitation set forth
in
this Agreement will, nevertheless, be subject to the terms of this Agreement,
will constitute Obligations for all purposes and be entitled to the benefits
of
the Collateral.
(c) Persons
Authorized to Request Loans.
Borrower
hereby authorizes and directs Lender to make loan advances to or for the benefit
of Borrower upon receipt of instructions from any of the persons listed on
Item 4
of the Schedule.
Lender
shall have no liability whatsoever to Borrower or any other Person for acting
upon any such instructions which Lender, in good faith, believes were given
by
any such person, and Lender shall have no duty to inquire as to the propriety
of
any disbursement. Lender is hereby authorized to make the loans provided for
herein based on instructions received by facsimile, electronic mail, telephone
or other method of communication from any of such persons. Although Lender
shall
make a reasonable effort to determine the person’s identity, Lender shall not be
responsible for determining the authenticity of any such instructions, and
Lender may act on the instructions of anyone it perceives to be one of the
persons authorized to request loans hereunder. Lender shall have the right
to
accept the instructions of any of the foregoing persons unless and until Lender
actually receives from Borrower (in accordance with the notice provisions of
this Agreement) written notice of termination of the authority of that person.
Borrower may change persons designated to give Lender borrowing instructions
only by delivering to Lender written notice of such change. Borrower will ensure
that each telephone instruction from any person designated in or pursuant to
this section shall be followed by written confirmation of the request for
disbursement in such form as Lender makes available to Borrower from time to
time for such purpose; provided,
however, that Borrower’s failure to provide written confirmation of any
telephonic instruction shall not invalidate such telephonic
instruction.
8
(d) Application
of Remittances.
Borrower will use only invoices in forms that Lender has approved, and
Borrower’s ▇▇▇▇▇▇▇▇ on such invoices will be conclusive evidence of assignment
and transfer hereunder to Lender of the Accounts represented thereby, whether
or
not Borrower executes any other instrument with regard to any specific Account.
Borrower will cause the proceeds of Accounts to be forwarded by all Customers
directly to a lockbox designated by Lender. Such lockbox shall be maintained
by
▇▇▇▇▇ Fargo Bank, N.A., and all payments received in such lockbox shall be
deposited in a bank account in Lender’s name and owned by Lender at ▇▇▇▇▇ Fargo
Bank, N.A, for application to the Obligations. All checks or other remittances
received by Borrower for application to Accounts will be received by Borrower
in
trust for Lender, and Borrower will turn over to Lender the identical
remittances as speedily as possible, appropriately endorsed, if necessary.
As
compensation to Lender for delays in the collection and clearance of such
checks, Borrower agrees to pay interest on each remittance, including wire
transfers, from the date of Lender’s receipt thereof plus the number of days set
forth on Item 5
of the Schedule at
the
rate applicable to loans outstanding hereunder, as set forth in Section 3
below.
Borrower will account fully and faithfully for and promptly pay or turn over
to
Lender proceeds in whatever form received of the sale or other disposition
of
any Collateral, and Borrower agrees that the inclusion of proceeds in
“Collateral” will not be deemed to mean that Lender consents to Borrower’s
disposition of Collateral other than in accordance with the terms of this
Agreement.
(e) Conditions
to Obligation to Make Loans.
Borrower acknowledges that Lender’s obligation to make loans to Borrower (or to
issue or create or cause the issuance or creation by Lender or its Affiliates
of
letters of credit or acceptances for Borrower’s account) is subject to the
following terms and conditions:
(i) Lender
has
no
obligation to make the initial loan to Borrower or to extend any other financial
accommodation to Borrower unless and until each condition precedent specified
on
Item 6
of the Schedule
has been
fulfilled to Lender’s satisfaction.
(ii) Lender’s
obligation to make any loans to Borrower and extend other financial
accommodations to Borrower (including the initial loans) is subject to the
conditions that, as of the date of any such loan or other accommodation, no
Default will have occurred and be continuing hereunder, there will have occurred
no material adverse change in Borrower’s financial condition or operations or in
Borrower’s business prospects as compared to the state of facts existing on the
Agreement Date, and Borrower’s representations and warranties set forth in this
Agreement (including any amendment, modification, supplement or extension
hereof) will be true and correct as if made on and as of the date of each
subsequent credit request. Each request for a borrowing or other financial
accommodation by Borrower will be deemed to be a reaffirmation of each of
Borrower’s warranties and representations hereunder.
(f) Repayment
of Loans.
In the
event of any breach by Borrower of any provision hereof or upon termination
of
this Agreement, Borrower will repay upon demand all of the Obligations. If
no
demand is earlier made, Borrower will repay all Obligations in full, without
demand or notice, on the last day of the term of this Agreement (as provided
in
clause (g) below). If at any time for any reason, the aggregate outstanding
principal amount of all loans exceeds the Borrowing Base or any other limitation
on the amount available to be borrowed hereunder, Borrower will immediately,
without notice or demand, repay the outstanding principal amount of the loans,
together with accrued and unpaid interest on the amount repaid, in an amount
equal to such excess. Borrower shall make each payment required hereunder or
under any other Loan Document without setoff, deduction or
counterclaim.
9
(g) Maturity.
This
Agreement will continue in full force and effect from the Agreement Date until
the termination date provided for in Item 7
of the Schedule.
(h) Voluntary
Termination.
Following the first six (6) months of the initial term of this Agreement,
Borrower may terminate this Agreement at any time upon at least 60 days’ prior
written notice to Lender. On the date specified in such notice, termination
will
be effective, so long as Borrower has paid to Lender, in same day funds, an
amount equal to the aggregate principal amount of all loans outstanding on
such
date, together with accrued interest thereon, the originals of all letters
of
credit and bankers acceptances, if any, issued, created or guaranteed by Lender
or any of its Affiliates for Borrower’s account have been returned for
cancellation or have been presented and paid by Borrower or other arrangements
satisfactory to Lender have been made, all other Obligations outstanding and
unpaid have been paid in full in cash, and Borrower has provided Lender an
indemnification agreement satisfactory to Lender with respect to returned and
dishonored items and such other matters as Lender shall require.
(i) Termination
on Default.
Notwithstanding the foregoing, should a Default occur and be continuing, Lender
will have the right to terminate this Agreement at any time without
notice.
(j) Survival.
Notwithstanding termination, all the terms, conditions, and provisions hereof
(including Lender’s security interest in the Collateral, but excluding any
obligations of Lender hereunder) will continue to be fully operative until
all
Obligations have been fully disposed of, concluded, paid, satisfied, and
liquidated.
(k) Payments
as Loans.
Borrower’s failure to pay any amount due from Borrower under this Agreement or
any other Loan Document, whether for principal, interest, fees, premiums, costs,
expenses or otherwise, shall be deemed to be a request by Borrower for a loan
hereunder, and Lender may charge Borrower’s loan account for any such amount.
Additionally, if Lender determines in its discretion that extensions of credit
are necessary to protect the Collateral, Lender is hereby authorized to make
such extensions of credit and charge them to Borrower’s loan
account.
3. Interest
and Fees.
(a) Interest
on Loans.
Borrower will pay Lender or, at Lender’s option, Lender may charge Borrower’s
loan account with, interest on the average daily net principal amount of loans
outstanding hereunder, calculated monthly and payable on the first day of each
calendar month, at a rate (computed on the basis of the actual number of days
elapsed over a year of 360 days) equal to the interest margin specified in
Item 8
of the Schedule,
plus
the greater of (i) 2.0%, per annum and
(ii)
the LIBOR Rate. The “LIBOR
Rate”
is,
at
any time, the rate of interest noted in The
Wall Street Journal,
Money
Rates section, as the “30 day LIBOR Rate”. In the event that The
Wall Street Journal
quotes
more than one rate, or a range of rates, as the LIBOR Rate, then the LIBOR
Rate
shall mean the average of the quoted rates. In the event that The
Wall Street Journal
ceases
to publish a LIBOR Rate, then the LIBOR Rate shall be the commercial lending
rate that most closely replaces the LIBOR Rate, as determined by Lender in
its
reasonable discretion. The “LIBOR Rate” may not be the lowest or best rate at
which Lender calculates interest or extends credit. Any change in the LIBOR
Rate
shall be effective for purposes of calculating interest hereunder as of the
date
of such change.
10
(b) Default
Interest.
To the
extent permitted by law and without limiting any other right or remedy of Lender
hereunder, whenever there is a Default under this Agreement, the rate of
interest on the unpaid principal balance of the Obligations shall, at the option
of Lender, be increased by adding the default margin identified on Item 9
of the Schedule
to the
interest rate otherwise in effect hereunder. Lender may charge such default
interest rate retroactively beginning on the date the applicable Default first
occurred or existed. Borrower acknowledges that: (i) such additional rate is
a
material inducement to Lender to make the loans described herein; (ii) Lender
would not have made the loans in the absence of the agreement of Borrower to
pay
such additional rate; (iii) such additional rate represents compensation for
increased risk to Lender that the loans will not be repaid; and (iv) such rate
is not a penalty and represents a reasonable estimate of (A) the cost to Lender
in allocating its resources (both personnel and financial) to the ongoing
review, monitoring, administration and collection of the loans, and (B)
compensation to Lender for losses that are difficult to ascertain. In the event
of termination of this Agreement by either party hereto, Lender’s entitlement to
this charge will continue until all Obligations are paid in full.
(c) Fees.
Borrower will pay to Lender the fees set forth in Item 10
of the Schedule.
(d) No
Usury.
Borrower acknowledges that Lender does not intend to reserve, charge or collect
interest on money borrowed under this Agreement at any rate in excess of the
rates permitted by applicable law and that, should any interest rate provided
for in this Agreement exceed the legally permissible rate(s), the rate will
automatically be reduced to the maximum rate permitted under applicable law.
If
Lender should collect any amount from Borrower which, if it were interest,
would
result in the interest rate charged hereunder exceeding the maximum rate
permitted by applicable law, such amount will be applied to reduce principal
of
the Obligations or, if no Obligations remain outstanding, will be refunded
to
Borrower.
(e) Monthly
Statements. Lender
will render a statement to Borrower each month for loans, payments, and other
transactions pursuant to this Agreement, and such statement rendered by Lender
will be binding upon Borrower unless Lender is notified in writing to the
contrary within 30 days after the date such statement is rendered.
11
4. Representations
and Warranties of Borrower.
(a) Authority,
Compliance with Laws, Litigation, No Material Adverse Change,
Etc.
Borrower
represents and warrants to Lender that: (i) Borrower’s exact legal name, type of
organization, state of organization and organizational identification number
are
fully and accurately set forth on Item 11
of the Schedule,
and
Borrower is duly organized and validly existing under the laws of such state
of
organization; (ii) the execution, delivery, and performance of this Agreement
and the other Loan Documents are within Borrower’s corporate or other
organizational powers, have been duly authorized, do not violate Borrower’s
constituent documents, any law or regulation, including without limitation,
any
law or regulation relating to occupational health and safety or protection
of
the environment, applicable to Borrower, or any indenture, agreement, or
undertaking to which Borrower is a party or by which Borrower or Borrower’s
property is bound; (iii) this Agreement and the other Loan Documents to which
Borrower is a party constitute valid, binding and enforceable obligations of
Borrower in accordance with the terms hereof and thereof, except as
enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance,
moratorium or other similar laws applicable to creditors’ rights generally or by
generally applicable equitable principles affecting the enforcement of
creditors’ rights; (iv) Borrower has no subsidiaries or other investments in
other Persons, except as set forth on Item 12
of the Schedule;
(v)
Borrower is in compliance in all material respects with all laws, rules and
regulations applicable to Borrower, including laws, rules or regulations
concerning the environment, occupational health and safety and pensions or
other
employee benefits; (vi) except as set forth on Item 13
of the Schedule,
there
is no litigation or investigation pending against Borrower (or, so far as
Borrower is aware, threatened) which, if it were decided adversely to Borrower,
could reasonably be expected to have a material adverse effect on Borrower,
Borrower’s financial or operational condition or Borrower’s prospects (taking
into account any insurance coverage that has been acknowledged by the insurer);
(vii) other than debt that is to be repaid from the proceeds of the first
advance hereunder, Borrower is not indebted to any other Person for money
borrowed nor has Borrower issued any guaranty of payment or performance by
any
other Person, except as set forth on Item 14
of the Schedule;
(viii)
since the date of the financial statements of Borrower most recently delivered
to Lender, there has been no material adverse change in Borrower’s business,
Borrower’s financial or operational condition or Borrower’s business prospects;
and (ix) Borrower is, and after giving effect to the initial loans under this
Agreement and the application of the proceeds of such loans Borrower will be,
solvent and has sufficient revenues to pay Borrower’s obligations as they come
due and adequate capital with which to conduct Borrower’s business.
(b) Title
to Assets, Other Collateral Matters.
Borrower represents and warrants to Lender that: (i) Borrower has good and
marketable title to the Collateral, free of all Liens except for Permitted
Liens, and no financing statement, mortgage, notice of Lien, deed of trust,
security agreement, or any other agreement or instrument creating or giving
notice of any Lien against any of the Collateral has been signed, authorized
or
delivered by Borrower, except in Lender’s favor or with respect to Permitted
Liens; (ii) with regard to each Account as it arises, except as set forth on
a
Borrowing Base Certificate including such Account: (A) Borrower will have made
delivery of the goods or will have rendered the services ordered; (B) the
Customer will have accepted the goods and/or services; and (C) no Customer
dispute will exist in any respect, including, without limitation, disputes
as to
price, terms, warranties, quantity or quality, and claims of set-off, release
from liability or defense based upon any act of God or a public enemy or war
or
because of the requirements of law or of rules, orders, or regulations having
the force of law; (iii) all Inventory is in good condition, meets all applicable
governmental standards and is currently usable or saleable in the ordinary
course of Borrower’s business for a price approximating at least Borrower’s cost
thereof; (iv) all Equipment is in good condition and state of repair, ordinary
wear and tear excepted; (v) all Collateral meets applicable government
standards; (vi) in the past five years, except as set forth on Item 15
of the Schedule
(A)
Borrower has not used any other legal, trade or fictitious names, and (B)
Borrower has not been a party to any merger or purchased assets from any other
Person other than in the ordinary course of business; and (vii) each of
Borrower’s chief executive office and principal place of business, all
Inventory, all Equipment and all other Collateral is located at the addresses
(including the county) set forth on Item 16
of the Schedule and
has
not been located at any other location during the five year period prior to
the
Agreement Date.
12
(c) Ownership
Structure. Borrower
represents and warrants that (i) Item 17
of the Schedule
accurately describes the ownership of Borrower’s capital stock, membership
interests or other equity interests, and (ii) the individual(s) listed on
Item 17
of the Schedule
have,
directly or indirectly, voting and managerial control of Borrower.
(d) Additional
Representations.
Borrower represents and warrants to Lender that: (i) Borrower is not engaged
as
one of Borrower’s principal activities in owning, carrying or financing the
purchase or ownership by others of “margin stock” (as defined in Regulation U of
the Board of Governors of the Federal Reserve System); (ii) Borrower owns no
real property and leases no real property other than as listed on Item 18
of the Schedule;
(iii) a
true, correct and complete list of any warehousemen, processors, consignees
or
other bailees with possession or control of any Inventory is set forth on
Item 18
of the Schedule;
and
(iv) a list and brief description of all bank accounts maintained by Borrower
with any bank or financial institution is set forth on Item 19
of the Schedule.
5. Collateral.
(a) Grant
of Security Interest.
To
induce Lender to accept this Agreement and to make loans to Borrower from time
to time pursuant to its terms, Borrower hereby grants to Lender, for itself
and
as agent for any Affiliate of Lender, a security interest in, and assigns,
mortgages and pledges to Lender, for itself and as agent for any Affiliate
of
Lender, all of Borrower’s right, title and interest in and to all of Borrower’s
property, whether real or personal, tangible or intangible, now owned or
existing or hereafter acquired or arising, including all of the following
(collectively, the “Collateral”):
(i) all
Accounts, Inventory,
Equipment, Goods, General Intangibles and Negotiable Collateral;
(ii) all
investment property, securities and securities accounts and financial assets,
as
well as all bank and depository accounts;
(iii) all
chattel paper (whether tangible or electronic) and contract rights;
(iv) all
guaranties, collateral, Liens on real or personal property, leases, letters
of
credit, letter-of-credit rights, supporting obligations, and all other rights,
agreements, and property securing or relating to payment of Accounts or any
other Collateral;
(v) all
documents, books and records relating to any Collateral or to Borrower’s
business;
13
(vi) all
other
property of Borrower’s now or hereafter in the possession or control of Lender
or any of Lender’s Affiliates (including cash, money, credits and balances of
Borrower held by or on deposit with Lender or any Affiliate of
Lender);
(vii) all
other
assets of any Obligor in which Lender receives a security interest to secure
all
or part of the Obligations or which hereafter come into the possession, custody
or control of Lender or any Affiliate of Lender;
(viii) all
of
Borrower’s commercial tort claims listed on (A) Item 20
of the Schedule
(which
Borrower represents and warrants is a true, accurate and complete list of all
of
Borrower’s commercial tort claims as of the Agreement Date) or (B) any other
writing provided to Lender pursuant to Section 7(g);
and
(ix) all
proceeds and products of all of the foregoing in any form, including amounts
payable under any policies of insurance insuring all or any of the foregoing
against loss or damage, all parts, accessories, attachments, special tools,
additions, replacements, substitutions and accessions to or for all or any
of
the foregoing, all condemnation or requisition payments with respect to all
or
any of the foregoing and all increases and profits received from all or any
of
the foregoing.
(b) Obligations.
Such
grant, assignment, mortgage and transfer is made for the purpose of securing
and
the Collateral secures and will continue to secure all of the
Obligations.
6. Financial
Covenants.
Borrower shall comply with each of the financial covenants set forth on
Item 21
of the Schedule.
7. Collateral
Covenants.
(a) Accounts.
Borrower will notify Lender promptly of and settle all Customer disputes, but,
if Lender so elects, Lender will have the right at all times to settle,
compromise, adjust, or litigate all Customer disputes directly with the Customer
or other complainant upon such terms and conditions as Lender deems advisable
without incurring liability to Borrower for Lender’s performance of such acts.
All of Borrower’s books and records concerning Accounts and a copy of Borrower’s
general ledger will be maintained at the address of Borrower’s chief executive
office set forth on Item 16
of the Schedule.
All
Accounts included on any Borrowing Base Certificate will be, except as indicated
on such Borrowing Base Certificate or subsequently in writing to Lender, bona
fide and
existing obligations of Customers arising out of the sale of goods and/or the
rendering of services by Borrower in the ordinary course of Borrower’s business,
owned by and owing to Borrower without defense, setoff or counterclaim, and
will
be subject to a perfected, first-priority security interest in Lender’s favor
and will be free and clear of all other Liens.
(b) Inventory.
All
Inventory will at all times be located at one of the Inventory locations set
forth on Item 16
of the Schedule
as the
current location of Borrower’s chief executive office or a current location of
other Collateral, will be subject to a perfected, first-priority security
interest in Lender’s favor and will be free and clear of all other Liens. Sales
of Inventory will be made in compliance with all material requirements of
applicable law.
14
(c) Equipment.
Borrower will maintain all Equipment used or useful in Borrower’s business in
good and workable condition, ordinary wear and tear excepted, subject to a
perfected, first-priority security interest in Lender’s favor and free and clear
of all other Liens (other than Permitted Liens), at one of the locations set
forth on Item 16
of the Schedule
as the
current location of Borrower’s chief executive office or a current location of
other Collateral.
(d) Defense
of Title.
All
Collateral will at all times be owned by Borrower, and Borrower will defend
Borrower’s title to the Collateral against the claims of third parties. Borrower
will at all times keep accurate and complete records of the
Collateral.
(e) Perfection;
Further Assurances.
Borrower will give Lender at least 30 days’ prior written notice of any change
in Borrower’s name, state of organization or organizational identification
number, any change in the location of Borrower’s principal place of business or
chief executive office, any change in the locations of Borrower’s Inventory or
Equipment and any acquisition by Borrower of any interest in real property.
Borrower will, at Borrower’s expense, promptly execute and deliver from time to
time at Lender’s request and pay the costs of filing such additional financing
statements, mortgages, or other evidences of Liens as may be necessary or
desirable to perfect or continue perfection of Lender’s security interest in
Borrower’s property or, at Lender’s request, made in Lender’s sole and absolute
discretion, to create and perfect a Lien on newly acquired personal or real
property. Borrower will use all reasonable efforts to obtain from any landlord,
warehouseman, processor or other third party operator of premises on which
any
Collateral is located an acceptable Lien waiver or subordination agreement
in
Lender’s favor with respect to such Collateral. Lender shall have the right to
maintain rent reserves and other appropriate reserves against the availability
under the Borrowing Base unless and until Lender has received all waivers or
subordination agreements required by Lender and containing terms and conditions
satisfactory to Lender in its sole discretion from such landlords, warehousemen,
or other third party operators of premises where any Collateral is located.
All
Collateral is and will continue to be, except as expressly consented to by
Lender, personal property and will not, by reason of attachment or connection
to
any realty, either become or be deemed to be a fixture or appurtenance to such
realty and will at all times be readily removable without material damage to
any
realty. In the event that any Collateral, including proceeds, is evidenced
by or
consists of Negotiable Collateral, Borrower shall, immediately upon written
request therefor from Lender, endorse and assign such Negotiable Collateral
over
to Lender and deliver actual physical possession of the Negotiable Collateral
to
Lender. Borrower shall at any time and from time to time take such steps as
Lender may request for Lender (i) to obtain an acknowledgment, in form and
substance satisfactory to Lender, of any bailee having possession of any of
the
Collateral that such bailee holds such Collateral for Lender, (ii) to obtain
“control” of any investment property, deposit accounts, letter-of-credit rights
or chattel paper (including electronic chattel paper) in accordance with Article
9 of the UCC, with any agreements establishing control to be in form and
substance satisfactory to Lender, and (iii) otherwise to insure the continued
perfection and priority of Lender’s security interest in any of the Collateral
and of the preservation of its rights therein.
15
(f) Insurance.
Borrower will obtain and maintain in full force and effect insurance covering
the Collateral against all risks to which the Collateral is exposed, including
loss, damage, fire, theft, and all other such risks, in such amounts, with
such
companies, under such policies and in such form as will be satisfactory to
Lender, which policies will name Lender as an additional insured and provide
that loss thereunder will be payable to Lender as Lender’s interests may appear
upon a loss payee endorsement acceptable to Lender. All proceeds of any such
insurance will be paid over to Lender directly, and Lender may hold such
proceeds as cash collateral, apply such proceeds to payment of the Obligations,
whether or not due, in such order of application as Lender determines or, in
Lender’s sole discretion, apply such proceeds, in whole or in part, to the
replacement, restoration or rebuilding of the lost or damaged property. Borrower
will provide to Lender from time to time certificates showing such coverage
in
effect and, at Lender’s request, the underlying policies.
(g) Commercial
Tort Claims.
If
Borrower shall at any time commence, assert or otherwise acquire a commercial
tort claim, Borrower shall immediately notify Lender in a writing signed by
Borrower of the details thereof and grant to Lender in such writing a security
interest therein and in the proceeds thereof, all in accordance with and subject
to the terms of this Agreement, with such writing to be in form and substance
satisfactory to Lender.
(h) Financing
Statements.
Lender
may at any time and from time to time file financing statements, continuation
statements and amendments thereto that describe the Collateral as “all assets”
of Borrower or words of similar effect and which contain any other information
required by Part 5 of Article 9 of the UCC for the sufficiency or filing
office acceptance of any financing statement, continuation statement or
amendment, including whether Borrower is an organization, the type of
organization and any organization identification number issued to Borrower.
Borrower agrees to furnish any such information to Lender promptly upon request.
Any such financing statements, continuation statements or amendments may be
signed by Lender on behalf of Borrower or filed by Lender without the signature
of Borrower and may be filed at any time in any jurisdiction. Borrower
acknowledges that it is not authorized to file any financing statement or
amendment or termination statement with respect to any financing statement
naming Borrower as the debtor and Lender as the secured party without the prior
written consent of Lender, and Borrower agrees that it shall not do so without
the prior written consent of Lender.
8. Negative
Covenants.
(a) No
Merger.
Borrower will not merge or consolidate with any other Person or sell, transfer,
lease, abandon, or otherwise dispose of a substantial portion of Borrower’s
assets or any of the Collateral or any interest therein, except that, so long
as
no Default has occurred and is continuing, Borrower may sell Inventory in the
ordinary course of Borrower’s business.
(b) No
Debt or Liens; Taxes.
Borrower will not obtain or attempt to obtain from any Person other than Lender
any loans, advances, or other financial accommodations or indebtedness of any
kind, nor will Borrower enter into any direct or indirect guaranty of any
obligation of another Person, other than (i) Subordinated Debt, and (ii)
indebtedness in connection with purchase money security interests constituting
Permitted Liens (and capital leases) not to exceed, in aggregated principal
amount, the amount set forth on Item 22
of the Schedule
at any
one time outstanding. Borrower will not permit any of Borrower’s assets to be
subject to any Lien other than Permitted Liens. Borrower shall pay when due
(or
before the expiration of any extension period) any tax or other assessment
(including all required payments or deposits with respect to withholding taxes),
and Borrower will, upon request by Lender, promptly furnish Lender with proof
satisfactory to Lender that Borrower has made such payments and
deposits.
16
(c) No
Distributions.
Borrower will not retire, repurchase or redeem any of Borrower’s capital stock
or other ownership interest in Borrower, nor declare or pay any dividend in
cash
or other property (other than additional shares of capital stock or additional
ownership interests) to any owner or holder of Borrower’s shares or other
ownership interest.
(d) No
ERISA Liabilities.
Borrower will make timely payments of all contributions required to meet the
minimum funding standards for Borrower’s employee benefit plans subject to the
Employee Retirement Income Security Act of 1974 (as amended, “ERISA”)
and
will promptly report to Lender the occurrence of any reportable event (as
defined in ERISA) and any giving or receipt by Borrower of any governmental
notice (other than routine requests for information) in respect of any such
plan.
(e) Transactions
with Affiliates.
Borrower will not engage in any transaction with any of Borrower’s officers,
directors, employees, owners or other Affiliates, except for an “arms-length”
transaction on terms no less favorable to Borrower than would be granted to
Borrower in a transaction with a Person who is not an Affiliate, which
transaction shall be approved by Borrower’s disinterested directors and shall be
disclosed in a timely manner to Lender prior to the consummation of the
transaction.
(f) Loans/Investments.
Borrower will not make any loans or advances to or extend any credit to any
Person except (i) the extension of trade credit in the ordinary course of
business; and (ii) advances to employees not to exceed an aggregate outstanding
amount of $10,000 at any one time outstanding for all employees. Borrower shall
not purchase, acquire or otherwise invest in any Person except: (A) existing
investments in Borrower’s subsidiaries described on Item 12
of the Schedule;
(B)
direct obligations of the United States of America maturing within one year
from
the acquisition thereof; (C) certificates of deposit issued by, or investment
accounts in, banks or financial institutions having a net worth of not less
than
$50,000,000; and (D) commercial paper rated A-1 by Standard & Poor’s Ratings
Group or P-1 by ▇▇▇▇▇’▇ Investors Service, Inc. Upon the request of Lender,
Borrower agrees to execute any agreement, endorsement, assignment, notice,
or
other document which Lender requires in order to perfect Lender’s security
interest in the foregoing permitted investments. Without limiting the generality
of the foregoing, Borrower shall not create any new subsidiary.
(g) Capital
Expenditures.
Borrower shall not make or incur capital expenditures in excess of the amount
set forth on Item 23
of the Schedule
during
any fiscal year.
(h) Compensation.
Borrower shall not increase the total compensation paid to its officers or
directors (or any of their relatives), including salaries, withdrawals, fees,
bonuses, commissions, drawing accounts and other payments, whether directly
or
indirectly, in money or otherwise, during any fiscal year of Borrower during
the
term of this Agreement in an aggregate amount for all such officers and
directors in excess of limit specified in Item 24
of the Schedule.
17
(i) Amendments
of Documents.
Borrower shall not amend or modify any note, instrument or agreement in
connection with any Subordinated Debt without the prior written consent of
Lender.
(j) Restricted
Payments.
Borrower shall not prepay any indebtedness or make any payments on Subordinated
Debt; provided, however, that a Borrower may make payments that are specifically
permitted under the applicable subordination agreement; provided further,
however, that upon the occurrence of a Default and so long as it is continuing,
Borrower shall not make any payment on Subordinated Debt.
9. Reporting
and Information.
(a) Financial
Statements.
Borrower will submit to Lender as soon as available, and in any case not later
than 30 days after the end of each month, a balance sheet, a detailed statement
of profit and loss and a statement of cash flows, in each case prepared in
accordance with GAAP and certified by Borrower’s chief financial or accounting
officer as presenting fairly, in accordance with GAAP, Borrower’s financial
condition as of the last day of such month and Borrower’s results of operations
for such month and for the portion of Borrower’s fiscal year ending with such
month. Borrower will also submit to Lender annual financial statements within
90
days after the end of each fiscal year, including a balance sheet, the related
statement of profit and loss and stockholders’ equity and a statement of cash
flows, in each case prepared in accordance with the requirements set forth
on
Item 25
of the Schedule.
Borrower will also submit to Lender annually at least 60 days prior to
Borrower’s fiscal year end forecasted financial statements for the upcoming
fiscal year, containing a projected balance sheet and profit and loss statement.
Together with each monthly and annual financial statement, Borrower will deliver
to Lender the certification of Borrower’s chief financial or accounting officer
in the form of Exhibit
B
attached
hereto to the effect that Borrower is in compliance with the terms and
conditions of this Agreement, and setting forth in detail the calculation of
all
financial covenants, or, if Borrower is not in compliance, describing the nature
of any noncompliance and the steps Borrower is taking or proposes to take to
remedy the same.
(b) Collateral
Reports.
Concurrent with the execution of this Agreement by Borrower and concurrent
with
each request for a loan pursuant to Section 2(a),
but no
less frequently than as required by Item 26
of the Schedule,
Borrower shall deliver to Lender a fully completed Borrowing Base Certificate
certified by the Chief Executive Officer or Chief Financial Officer of Borrower
as being true and correct. Concurrent with the delivery of each such Borrowing
Base Certificate, Borrower shall provide a written report to Lender of all
materially significant returns, disputes and claims, together with sales and
other reports relating to the Accounts and Inventory as required by Lender.
Borrower shall deliver to Lender within ten (10) days after the end of each
month a report, reflecting the status as of the end of each month and certified
by the Chief Executive Officer or Chief Financial Officer of Borrower as being
true and correct, containing (i) a current detailed aging, by total and by
Customer, of Borrower’s Accounts, (ii) a current detailed aging, by total and by
vendor, of Borrower’s accounts payable, and (iii) a detailed report of
Borrower’s Inventory, setting forth the quantity, type and cost thereof, all of
which shall be set forth in a form and shall contain such information as is
acceptable to Lender. Borrower will also conduct a physical inventory count
no
less frequently than annually, adjust Borrower’s records to reflect the results
of the count and deliver to Lender monthly a list of locations of Inventory
and
the types and values of Inventory at each such location, in such form as Lender
may require. At Lender’s request, Borrower shall conduct such physical inventory
counts and deliver such information more or less often than described above
and
such other information with respect to the Collateral, Borrower or Borrower’s
business or financial condition as Lender may reasonably request.
18
(c) Obligor
Financials.
Within
90 days after each fiscal year-end, Borrower will cause each Obligor (other
than
Borrower) to deliver to Lender a financial statement as of such year-end, in
such form as Lender may reasonably request.
(d) Other
Information.
Borrower will notify Lender as promptly as possible of any Default, any receipt
by Borrower of notice from any governmental authority that Borrower has or
may
have violated any law, rule or regulation applicable to Borrower or the terms
or
conditions of any permit or license Borrower holds or is required to hold in
connection with the conduct of Borrower’s business, any amendment to Borrower’s
constituent documents and any change in Borrower’s management or ownership, and
the commencement of any material litigation, claim or action against
Borrower.
10. Inspection
Rights; Expenses; Etc.
(a) Inspection.
Lender
may examine and make copies of Borrower’s records, the Collateral and all other
assets of Borrower or any portion thereof, wherever located, and may enter
upon
Borrower’s premises for such purposes, without notice, during business hours.
Borrower will assist Lender in whatever way necessary to make each such
examination. Lender may discuss Borrower’s financial condition with Borrower’s
independent accountants without liability to Lender or such
accountants.
(b) Performance
by Lender.
Lender
may, from time to time at Lender’s option, perform any agreement of Borrower’s
hereunder which Borrower fails to perform and take any other action which Lender
deems necessary for the maintenance or preservation of any of the Collateral
or
Lender’s interest therein, and Borrower agrees to reimburse Lender immediately
on demand for all of Lender’s expenses in connection with the foregoing
(including, without being limited to, reasonable fees and expenses of legal
counsel), together with interest thereon at the default rate of interest
provided for herein from the date any such expense is incurred until reimbursed
by Borrower.
(c) Field
Examinations; Inspections.
Lender
shall have the right without hindrance or delay to conduct field examinations
to
inspect the Collateral, Borrower’s books and records and all other aspects of
Borrower’s business. Borrower agrees to pay for such examinations as more fully
described on Item 27
of the Schedule.
Lender
shall have full access to all records available to Borrower from any credit
reporting service, bureau or similar service and shall have the right to examine
and make copies of any such records. Lender may exhibit a copy of this Agreement
to such service and such service shall be entitled to rely on the provisions
hereof in providing access to Lender as provided herein.
19
11. Rights
of Setoff, Application of Payments, Etc.
Lender
will be entitled to hold or set off all sums and all other property of Borrower
at any time to Borrower’s credit or in Lender’s possession (or the possession of
any of Lender’s Affiliates) by pledge or otherwise or upon or in which Lender
may have a Lien, as security for any and all of the Obligations. Lender will
have the right and is hereby irrevocably authorized and directed to charge
to
Borrower’s account the amounts of any and all such Obligations. Recourse to the
Collateral or other security for the Obligations will not at any time be
required and Borrower hereby waives any right of marshalling Borrower may have.
Borrower’s obligation to pay or repay the Obligations is unconditional. Borrower
agrees that Lender may take such action with regard to the custody and
collection of Accounts assigned to Lender as Lender may deem necessary. Borrower
agrees that failure to take any action with regard to any given Account will
not
be unreasonable until and unless Lender receives a written request for specific
action from Borrower with regard thereto and fails to respond thereto within
a
commercially reasonable time. Borrower irrevocably waives the right to direct
the application of any and all payments and collections at any time or times
hereafter received by Lender from or on behalf of Borrower, and Borrower hereby
irrevocably agrees that Lender shall have the continuing exclusive right to
apply and reapply any and all such payments and collections received at any
time
or times hereafter by Lender or its agent against the Obligations, in such
manner and in such order as Lender may deem advisable.
12. Attorney-in-Fact.
Borrower hereby appoints and constitutes Lender as Borrower’s attorney-in-fact:
(a) at any time, (i) to endorse Borrower’s name upon any notes, acceptances,
checks, drafts, money orders, and other evidences of payment that come into
Lender’s possession and to deposit or otherwise collect the same; (ii) to send
verifications of accounts to Customers; and (iii) to execute in Borrower’s name
any financing statements, affidavits and notices with regard to any and all
Lien
rights; and (b) while any Default exists, (i) to receive, open, and dispose
of
all mail addressed to Borrower; (ii) to notify the postal authorities to change
the address and delivery of mail addressed to Borrower to such address as Lender
may designate; (iii) to sign Borrower’s name on any invoice or ▇▇▇▇ of lading
relating to the Collateral, on drafts against Customers, and notices to
Customers; and (iv) to do all other acts and things necessary to carry out
this
Agreement. All acts of said attorney-in-fact are hereby authorized, ratified
and
approved, and said attorney-in-fact will not be liable for any errors or mistake
of fact or law unless caused solely by the gross negligence or willful
misconduct of Lender. This power, being coupled with an interest, is irrevocable
while any of the Obligations remain unpaid or Lender has any commitment to
Borrower under this Agreement or otherwise.
20
13. Defaults
and Remedies.
(a) Defaults.
For
purposes of this Agreement, “Default”
means
the occurrence of any of the following events: (i) non-payment when due of
any
amount payable on any of the Obligations or breach of any covenant or failure
to
perform any agreement or failure to meet any of Borrower’s or any other
Obligor’s obligations contained herein, in any other Loan Document or in any
other agreement out of which any of the Obligations arose; (ii) non-payment
when
due of the premium on any insurance policy required to be maintained hereunder;
(iii) any statement, representation, or warranty made in writing in this
Agreement or in any other writing or statement at any time furnished or made
by
Borrower or any other Obligor to Lender proves to have been untrue in any
material respect as of the date furnished or made; (iv) Borrower’s default under
any other agreement for borrowed money or any other agreement involving more
than the amount set forth on Item 28
of the Schedule;
(v)
suspension of the operation of Borrower’s present business; (vi) any Obligor
becomes insolvent or unable to pay its debts as they mature, or admits in
writing that it is insolvent or unable to pay its debts, makes an assignment
for
the benefit of creditors, makes a conveyance fraudulent as to creditors under
any state or federal law, or a proceeding is instituted by or against any
Obligor alleging that such Obligor is insolvent or unable to pay debts as they
mature, or a petition under any provision of Title 11 of the United States
Code,
as amended, is filed by or against any Obligor, and in the case of any such
involuntary proceeding, such proceeding continues undismissed or unstayed for
30
consecutive calendar days or any order granting the relief requested shall
be
entered; (vii) entry of any judgment in excess of the amount set forth on
Item 29
of the Schedule
against
any Obligor or creation, assertion, or filing of any judgment or tax Lien
against the property of any Obligor, in each case which remains undischarged
for
10 days after such entry or filing; (viii) death of any Obligor who was a
natural person, or death or withdrawal of any partner of any Obligor which
is a
partnership, or dissolution, merger, or consolidation of any Obligor which
is a
corporation, partnership or limited liability company; (ix) transfer of a
substantial part (determined by market value) of the property of any Obligor;
(x) sale, transfer or exchange, either directly or indirectly, of a controlling
stock or equity ownership interest of any Obligor (without limiting the
generality of the foregoing, a Default shall exist if ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇ shall
cease to own, directly or indirectly, less than 25% of the capital stock or
equity ownership interests of Borrower or cease to have direct or indirect
voting control of Borrower); (xi) termination, unenforceability or withdrawal
of
any guaranty for the Obligations, or failure of any Obligor to perform any
of
its obligations under such a guaranty or assertion by any Obligor that it has
no
liability or obligation under such a guaranty; (xii) appointment of a receiver
for the Collateral or for any other property in which Borrower has an interest;
(xiii) seizure of any Collateral by any Person other than Lender; (xiv) any
person identified on Item 30
of the Schedule
shall
for any reason cease to hold the office of Borrower set forth opposite such
person’s name on Item 30
of the Schedule
and a
replacement satisfactory to Lender shall not be appointed within 60 days; (xv)
the occurrence of any act, omission, event or circumstance which has or could
reasonably be expected to have a materially adverse effect on Borrower or any
other Obligor; (xvi) payment by Borrower on any Subordinated Debt in violation
of the applicable subordination agreement; or (xvii) the Pension Benefit
Guaranty Corporation or the Department of Labor commences proceedings under
ERISA to terminate any of Borrower’s employee pension benefit
plans.
(b) Remedies.
If a
Default occurs and is continuing:
(i) Lender
may, without demand or notice to Borrower, terminate Lender’s commitment, if
any, to make loans or to extend other financial accommodations to Borrower,
and
may declare the entire principal amount of all loans outstanding hereunder,
all
interest thereon, any unpaid fees (including prepayment fees due as a result
of
acceleration of the foregoing payment obligations) and all other Obligations
of
any kind or nature to be, and thereupon the same will immediately become, due
and payable in full; and, in the event of a Default described under clause
(vi)
of Section 13(a),
such
termination and acceleration shall automatically occur without any notice,
demand or presentment of any kind. Borrower agrees to deposit with Lender a
cash
sum equal to the amount of letters of credit and acceptances issued or
guaranteed by Lender or any Affiliate of Lender which have not been drawn upon
or matured, which funds will be used to reimburse Lender or such Affiliate
of
Lender upon drawing under any letter of credit or maturity of any
acceptances.
21
(ii) Lender
may decrease the advance rates set forth in the definition of “Borrowing Base”
in Lender’s discretion.
(iii) Lender
or
Lender’s designee may notify Customers that the Accounts have been assigned to
Lender and that Lender has a security interest therein, collect them directly,
and charge the collection costs and expenses to Borrower’s loan
account.
(iv) Lender
may (A) exercise any of its remedies under any other Loan Document, (B) apply
any cash collateral to the Obligations (without limiting the foregoing, Lender
may instruct any bank or other financial institution holding any cash,
certificate of deposit or other Collateral to pay over such Collateral to
Lender), and (C) draw on any letter of credit issued for the benefit of Lender
in connection with this Agreement or any other Loan Document and apply the
proceeds thereof to the Obligations, in each case without demand or notice
to
Borrower or any other Person.
(v) Without
notice to or demand upon Borrower or any other Person, Lender may make such
payments and do such acts as Lender considers necessary or reasonable to protect
its security interest in the Collateral. Borrower authorizes Lender to enter
each premises where any Collateral is located, take and maintain possession
of
the Collateral, or any part of it, and to pay, purchase, contest or compromise
any Lien which in Lender’s opinion appears to be prior or superior to its
security interest and to pay all expenses incurred in connection
therewith.
(vi) Lender
may ship, reclaim, recover, store, finish, maintain, repair, prepare for sale,
advertise for sale and sell the Collateral. Any such sale may be either a public
or private sale, or both, by way of one or more contracts or transactions,
for
cash or on terms. It is not necessary that the Collateral be present at any
such
sale.
(vii) Lender
may, without regard to any waste, adequacy of the security or solvency of
Borrower, apply for the appointment of a receiver of the Collateral, to which
appointment Borrower hereby consents, whether or not foreclosure proceedings
have been commenced hereunder or under any other Loan Document and whether
or
not a foreclosure sale has occurred;
(viii) Lender
may, without notice to Borrower except as expressly provided herein, at Lender’s
option, exercise any of the remedies available to Lender as a secured party
under the Uniform Commercial Code as in effect in any applicable jurisdiction,
or otherwise available to Lender under applicable law. Borrower agrees, upon
Default, to cease the sale or other disposition of the Collateral, except with
Lender’s prior written consent, and to assemble at Borrower’s expense all the
Collateral at a convenient place acceptable to Lender. Lender may charge to
Borrower’s loan account and Borrower will pay Lender upon demand all costs and
expenses, including reasonable attorneys’ fees (including fees of attorneys that
are regular salaried employees of Lender or any of its Affiliates), in
connection with: (A) the liquidation of any Collateral; (B) obtaining or
enforcing payment of the Obligations; (C) the settlement, adjustment,
compromise, or litigation of Customer disputes; or (D) the prosecution or
defense of any action or proceeding either against Lender or against Borrower
concerning any matter growing out of or in connection with this Agreement and/or
any Collateral and/or any Obligations. If at any time Lender pays any state,
city, local, federal, or other tax or levy attributable to the Collateral,
Borrower will repay to Lender the amount of tax so paid by Lender. Borrower
agrees that Lender may apply any proceeds from disposition of the Collateral
first to satisfy obligations secured by Liens prior to Lender’s security
interest. Borrower will remain liable and will pay on demand any deficiencies
arising upon the liquidation of any Collateral held by Lender.
22
(c) Notices.
If any
notice of intended disposition of the Collateral or of any other act by Lender
is required by law and a specific time period is not stated therein, such
notice, if given five days before such disposition or act, in accordance with
the provisions of Section 15(a),
will be
deemed reasonably and properly given.
(d) License.
Borrower hereby grants to Lender a license or other right to use, without
charge, Borrower’s labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks and advertising matter, or any property of
a
similar nature, as it pertains to the Collateral, in completing production
of,
advertising for sale and selling any Collateral and Borrower’s rights under all
licenses, and all franchise agreements shall inure to Lender’s
benefit.
(e) Remedies
Cumulative.
Lender’s rights and remedies under this Agreement and all other Loan Documents
shall be cumulative. Lender shall have all other rights and remedies not
inconsistent herewith as provided under the UCC, by law, or in equity. No
exercise by Lender of one right or remedy shall be deemed an election, and
no
waiver by Lender of any default on Borrower’s part shall be deemed a continuing
waiver. No delay by Lender shall constitute a waiver, election or acquiescence
by it.
14. Indemnification.
Borrower agrees to defend, indemnify, and hold harmless Lender and Lender’s
directors, officers, employees, Affiliates, representatives, attorneys and
agents (each an “Indemnified
Person”)
from
and against any and all penalties, fines, liabilities, damages, costs, or
expenses of whatever kind or nature asserted against any such Indemnified
Person, arising out of, or in any way related to this Agreement or any other
Loan Document, or the transactions contemplated hereby or thereby, including
by
reason of the violation of any law or regulation relating to the protection
of
the environment or the presence, generation, disposal, release, or threatened
release of any hazardous materials in connection with Borrower’s business on, at
or from any property at any time owned or operated by Borrower, including,
without limitation, reasonable attorneys’ and consultants’ fees, investigation
and laboratory fees, court costs, and litigation expenses actually incurred;
provided,
however,
that
the foregoing indemnity shall not apply to any penalties, fines, liabilities,
damages, costs, or expenses that are caused solely by the gross negligence
or
willful misconduct of Lender. Without limiting the foregoing, Borrower
represents and warrants that there has been no loan broker or investment banker
involved in connection with the transactions contemplated hereby, and Borrower
agrees to indemnify and hold Lender harmless from any claim of compensation
payable to any loan broker or investment banker in connection with the
transactions contemplated hereby.
23
15. General
Provisions.
(a) Notices.
Except
as specifically provided in this Agreement or in any of the other Loan
Documents, all notices and communications hereunder and thereunder will be
in
writing or by telephone subsequently confirmed in writing. Notices in writing
will be delivered personally or sent by overnight courier service, by certified
or registered mail, postage pre-paid, or by facsimile transmission and will
be
deemed received, in the case of personal delivery, when delivered; in the case
of overnight courier service, on the next Business Day after delivery to such
service; in the case of mailing, on the fourth Business Day after mailing;
and,
in the case of facsimile transmission, upon transmittal if confirmed by the
sender’s facsimile device; provided
that in
the case of notices to Lender, Lender will be charged with knowledge of the
contents thereof only when such notice is actually received by Lender. A
telephonic notice to Lender as understood by Lender will be deemed to be the
controlling and proper notice in the event of a discrepancy with or failure
to
receive a confirming written notice. Notices to Lender or Borrower will be
sent
to the addresses set forth on Item 31
of the Schedule,
or any
other address for either of Borrower or Lender of which the other is notified
by
like notice.
(b) Governing
Law.
This
Agreement will be governed by and construed and enforced according to the laws
of the State of California.
(c) No
Waiver.
No
waiver hereunder will be valid unless in writing signed by Lender and then
only
to the extent therein stated. No delay or failure on Lender’s part in the
exercise of any right or remedy hereunder will operate as a waiver thereof
or of
Lender’s right to exercise any other right or remedy.
(d) Time
of Essence.
Time is
of the essence of this Agreement.
(e) Severability.
Wherever possible, each provision of this Agreement will be interpreted in
such
manner as to be effective and valid under applicable law, but if any provision
of this Agreement will be prohibited by or invalid under applicable law, such
provision will be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Agreement.
(f) Successors
and Assigns.
Borrower’s and Lender’s rights and obligations hereunder will inure to the
benefit of Borrower’s and Lender’s respective successors and assigns,
provided
that
Borrower acknowledges and agrees that without Lender’s prior written consent,
which may be withheld for any reason or no reason, Borrower may not assign
Borrower’s rights or obligations or any part thereof hereunder to any other
Person. Notwithstanding anything herein to the contrary, Lender may, without
the
consent of Borrower, grant a security interest in, sell or assign, grant or
sell
participations or otherwise transfer all or any portion of its rights and
obligations hereunder to one or more Persons.
24
(g) Submission
to Jurisdiction, Service, Etc.
(i) Borrower
agrees that any suit, action or proceeding directly or indirectly arising out
of
or relating to this Agreement, any other Loan Documents, the Obligations, the
relationship between Borrower and Lender created hereby, or arising out of
any
judgment against Borrower entered by any court or other tribunal of competent
jurisdiction with respect to the enforcement of this Agreement, may be
instituted in any state or federal court located in the County of Los Angeles,
State of California or in any other court having subject matter jurisdiction,
as
Lender may select in Lender’s sole discretion. Borrower hereby expressly and
irrevocably submits and consents to the non-exclusive jurisdiction of any such
court in any such suit, action or proceeding, hereby waiving personal service
of
the summons and complaint, or other process or papers issued therein. Borrower
hereby waives, to the fullest extent permitted by law, any objection Borrower
may have to the venue of any such suit, action or proceeding. Further, Borrower
hereby irrevocably waives, to the fullest extent Borrower may effectively do
so,
the defense of an inconvenient forum to the maintenance of such suit, action
or
proceeding. Borrower further agrees that a final judgment in any such suit,
action or proceeding brought in any such court or tribunal will be conclusive
and may be enforced in other jurisdictions by suit on the judgment or in any
other manner provided by law.
(ii) Borrower
hereby agrees that service of process mailed or delivered to Borrower at
Borrower’s address for notices provided herein will be deemed in every respect
effective service of process upon Borrower in any such suit, action or
proceeding in any such court or tribunal and will be taken and held to be valid,
personal service on Borrower, irrespective of whether Borrower will then be
doing, or at any time will have done, business within the State of
California.
(iii) Nothing
in this Section
15(g)
will
affect Lender’s right to serve legal process in any other manner permitted by
law or affect Lender’s right to bring any action or proceeding against Borrower
or Borrower’s property in the courts of any other jurisdiction.
(h) Waiver
of Jury Trial.
TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND LENDER HEREBY
IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, THE
OBLIGATIONS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR EITHER
PARTY’S ACTIONS IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT HEREOF OR
THEREOF. EACH OF BORROWER AND LENDER ACKNOWLEDGES THAT SUCH WAIVER IS MADE
WITH
FULL KNOWLEDGE AND UNDERSTANDING OF THE NATURE OF THE RIGHTS AND BENEFITS WAIVED
HEREBY, AND WITH THE BENEFIT OF ADVICE OF COUNSEL OF ITS CHOOSING.
(i) Judicial
Reference.
(i) The
parties prefer that any dispute between them be resolved in litigation subject
to a Jury Trial Waiver as set forth in Section
15(h)
herein,
but the California Supreme Court has held that such pre-dispute jury trial
waivers are unenforceable. This Section will be applicable until: (i) the
California Supreme Court holds that a pre-dispute jury trial waiver provision
similar to that contained in Section
15(h)
herein
is valid or enforceable; or (ii) the California Legislature passes legislation
and the governor of the State of California signs into law a statute authorizing
pre-dispute jury trial waivers and as a result such waivers become
enforceable.
25
(ii) Other
than the exercise of provisional remedies (any of which may be initiated
pursuant to applicable law), any controversy, dispute or claim (each, a “Claim”)
between the parties arising out of or relating to this Agreement will be
resolved by a reference proceeding in California in accordance with the
provisions of Section 638 et seq. of the California Code of Civil Procedure
(“CCP”), or their successor sections, which shall constitute the exclusive
remedy for the resolution of any Claim, including whether the Claim is subject
to the reference proceeding. Venue for the reference proceeding will be in
the
Superior Court or Federal District Court in Los Angeles County, California
(the
“Court”).
(iii) The
referee shall be a retired Judge or Justice selected by mutual written agreement
of the parties. If the parties do not agree, the referee shall be selected
by
the Presiding Judge of the Court (or his or her representative). A request
for
appointment of a referee may be heard on an ex
parte
or
expedited basis, and the parties agree that irreparable harm would result if
ex
parte
relief
is not granted. The referee shall be appointed to sit with all the powers
provided by law. Pending appointment of the referee, the Court has power to
issue temporary or provisional remedies.
(iv) The
parties agree that time is of the essence in conducting the reference
proceedings. Accordingly, the referee shall be requested, subject to change
in
the time periods specified herein for good cause shown, to (a) set the matter
for a status and trial-setting conference within forty-five (45) days after
the
date of selection of the referee, (b) if practicable, try all issues of law
or
fact within one hundred twenty (120) days after the date of the conference
and
(c) report a statement of decision within twenty (20) days after the matter
has
been submitted for decision.
(v) The
referee will have power to expand or limit the amount and duration of discovery.
The referee may set or extend discovery deadlines or cutoffs for good cause,
including a party’s failure to provide requested discovery for any reason
whatsoever. Unless otherwise ordered based upon good cause shown, no party
shall
be entitled to “priority” in conducting discovery, depositions may be taken by
either party upon ten (10) days written notice, and all other discovery shall
be
responded to within twenty (20) days after service. All disputes relating to
discovery which cannot be resolved by the parties shall be submitted to the
referee whose decision shall be final and binding.
(vi) Except
as
expressly set forth in this Agreement, the referee shall determine the manner
in
which the reference proceeding is conducted including the time and place of
hearings, the order of presentation of evidence, and all other questions that
arise with respect to the course of the reference proceeding. All proceedings
and hearings conducted before the referee, except for trial, shall be conducted
without a court reporter, except that when any party so requests, a court
reporter will be used at any hearing conducted before the referee, and the
referee will be provided a courtesy copy of the transcript. The party making
such a request shall have the obligation to arrange for and pay the court
reporter. Subject to the referee’s power to award costs to the prevailing party,
the parties will equally share the cost of the referee and the court reporter
at
trial.
26
(vii) The
referee shall be required to determine all issues in accordance with existing
case law and the statutory laws of the State of California. The rules of
evidence applicable to proceedings at law in the State of California will be
applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, provide all temporary or provisional
remedies, enter equitable orders that will be binding on the parties and rule
on
any motion which would be authorized in a trial, including without limitation
motions for summary judgment or summary adjudication. The referee shall issue
a
decision pursuant to CCP Section 644 the referee’s decision shall be entered by
the Court as a judgment or an order in the same manner as if the action had
been
tried by the Court. The final judgment or order or from any appealable decision
or order entered by the referee shall be fully appealable as provided by law.
The parties reserve the right to findings of fact, conclusions of laws, a
written statement of decision, and the right to move for a new trial or a
different judgment, which new trial, if granted, is also to be a reference
proceeding under this provision.
(viii) If
the
enabling legislation which provides for appointment of a referee is repealed
(and no successor statute is enacted), any dispute between the parties that
would otherwise be determined by reference procedure will be resolved and
determined by arbitration. The arbitration will be conducted by a retired judge
or Justice, in accordance with the California Arbitration Act Section 1280
through Section 1294.2 of the CCP as amended from time to time. The limitations
with respect to discovery set forth above shall apply to any such arbitration
proceeding.
(ix) THE
PARTIES RECOGNIZE AND AGREE THAT ALL DISPUTES RESOLVED UNDER THIS REFERENCE
PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY. AFTER CONSULTING
(OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR OWN CHOICE, EACH
PARTY KNOWINGLY AND VOLUNTARILY AND FOR THEIR MUTUAL BENEFIT AGREES THAT THIS
REFERENCE PROVISION WILL APPLY TO ANY DISPUTE BETWEEN THEM WHICH ARISES OUT
OF
OR IS RELATED TO THIS AGREEMENT.
(j) Waiver
of Hearing.
BORROWER HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVES ALL RIGHTS
WHICH
BORROWER HAS UNDER PROVISIONS OF APPLICABLE LAW TO NOTICE AND TO A JUDICIAL
HEARING PRIOR TO THE ISSUANCE OF A WRIT OF POSSESSION ENTITLING LENDER, ITS
SUCCESSORS AND ASSIGNS TO POSSESSION OF THE COLLATERAL UPON A DEFAULT. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING AND WITHOUT LIMITING ANY OTHER RIGHT
WHICH LENDER MAY HAVE, BORROWER CONSENTS THAT, IF LENDER FILES A PETITION FOR
AN
IMMEDIATE WRIT OF POSSESSION IN COMPLIANCE WITH APPLICABLE LAW AND THIS WAIVER
OR A COPY HEREOF IS ALLEGED IN SUCH PETITION AND ATTACHED THERETO, THE COURT
BEFORE WHICH SUCH PETITION IS FILED MAY DISPENSE WITH ALL RIGHTS AND PROCEDURES
HEREIN WAIVED AND MAY ISSUE FORTHWITH AN IMMEDIATE WRIT OF POSSESSION IN
ACCORDANCE WITH APPLICABLE LAW, WITHOUT THE NECESSITY OF AN ACCOMPANYING BOND
AS
MAY BE REQUIRED IN ACCORDANCE WITH ANY APPLICABLE LAW.
27
(k) Expenses.
Borrower shall pay on demand all of Lender’s costs, fees (including the
reasonable fees and out-of-pocket expenses of Lender’s counsel) and expenses in
connection with this Agreement, the other Loan Documents, and the transaction
contemplated by this Agreement and the other Loan Documents (in each case
whether incurred on, prior or subsequent to the Agreement Date), including,
but
not limited to, costs, fees and expenses in connection with (i) underwriting
and
performing due diligence with respect to the transactions contemplated hereby,
(ii) the preparation, reproduction, execution, delivery, administration and
enforcement of this Agreement, any amendments, modifications or restatements
of
this Agreement or any of the other Loan Documents, (iii) auditing, inspecting
and evaluating the Collateral and the Borrower’s business, and (iv) agreements
between Lender and other Person which are related to the transactions
contemplated by this Agreement. In addition, Borrowers shall pay any and all
stamp and other taxes and recording and filing fees payable in connection with
the execution and delivery of all other instruments and documents to be
delivered hereunder. Such amounts may be charged by Lender to Borrower’s account
as one or more loans hereunder. All provisions in this Agreement providing
for
the payment or reimbursement of Lender’s attorneys’ fees and expenses include,
without limitation, such fees and expenses incurred pursuant to or in connection
with proceedings brought under 11 U.S.C., the Federal Bankruptcy
Code.
(l) Execution
in Counterparts; Execution by Fax; Waiver of Acceptance.
This
Agreement may be executed in separate counterparts, all of which shall
constitute one and the same agreement. Delivery of an executed counterpart
of
this Agreement or any other Loan Document by facsimile shall be equally as
effective as delivery of an original executed counterpart of this Agreement
or
such other Loan Document. Any party delivering an executed counterpart of this
Agreement or any other Loan Document by facsimile also shall deliver an original
executed counterpart of this Agreement or such other Loan Document, but the
failure to deliver an original executed counterpart shall not affect the
validity, enforceability, and binding effect of this Agreement or such other
Loan Document. To the fullest extent permitted by applicable law, Borrower
waives notice of Lender’s acceptance of this Agreement and the other Loan
Documents.
(m) Entire
Agreement.
This
Agreement and the other Loan Documents embody the entire agreement and
understanding between Lender and Borrower and supersede all prior agreements
and
understandings relating to the subject matter hereof.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
28
IN
WITNESS WHEREOF, Borrower and Lender have executed this Agreement as of the
day
and year first above written.
|
▇▇▇▇’▇,
INC.,
a
Delaware corporation
/s/
▇▇▇▇▇ ▇▇▇▇, CEO
FCC,
LLC, a Florida limited liability company doing business as FIRST
CAPITAL
WESTERN REGION, LLC
/s/
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇. Vice President
|
NOTARY
JURAT FOR EXECUTION OF
WRITTEN
OBLIGATIONS TO PAY MONEY
On
this
the ____ day of May, 2008, before me, the undersigned, a Notary Public in and
for the State of _____________, County of _________________,
___________________________ personally appeared, who is personally known to
me
or proved to me on the basis of satisfactory evidence to be the
_______________________________ of ▇▇▇▇’▇, INC., a Delaware corporation, who,
being by me first duly sworn, stated that:
|
1.
|
He
executed the foregoing Loan and Security Agreement on behalf of such
corporation pursuant to its by-laws or a resolution of its board
of
directors, said execution taking place in the State of California,
County
of Los Angeles; and
|
|
2.
|
He
has this day delivered the foregoing Loan and Security Agreement
to FIRST
CAPITAL WESTERN REGION, LLC, at Los Angeles County, California
[via
personal delivery] [via overnight
courier].
|
| Signature of Borrower’s Officer: | ||||
| By: | ||||
| Name: | ||||
State
of
California
County
of
Los Angeles
Subscribed
and sworn to (or affirmed) before me on this ______________ day of May, 2008,
by
_____________________, personally known to me or proven to me on the basis
on
satisfactory evidence to be the person(s) who appeared before me.
__________________________________
Notary
Signature
My
Commission Expires:
_________________________________
[Affix
Notarial Seal]
AFFIDAVIT
REGARDING DELIVERY
I,
_____________, have received delivery of the foregoing Loan and Security
Agreement on behalf of FIRST CAPITAL WESTERN REGION, LLC.
Date:
May
__, 2008
|
Signature
of Officer of FIRST CAPITAL
WESTERN
REGION, LLC
|
||||
State
of
California
County
of
Los Angeles
Subscribed
and sworn to (or affirmed) before me on this _____ day of May, 2008, by
__________, personally known to me or proven to me on the basis on satisfactory
evidence to be the person(s) who appeared before me.
__________________________________
Notary
Signature
My
Commission Expires:
_________________________________
[Affix
Notarial Seal]
SCHEDULE
This
Schedule is a part of the foregoing Loan and Security Agreement dated as of
May
30, 2008, between ▇▇▇▇’▇, INC., as borrower (“Borrower”), and FIRST CAPITAL
WESTERN REGION, LLC, as lender (“Lender”).
1. Borrowing
Base
“Borrowing
Base” means, at any time, an amount equal to:
|
(a)
|
the
lesser of:
|
|
(i)
|
Maximum
Credit Limit, and
|
|
(ii)
|
the
sum of:
|
(A) 80%
of
the dollar amount of Eligible Accounts; plus
(B) As
of the
Closing Date, Eligible Inventory shall not be included in the Borrowing Base
and
the amount under this clause (B) shall be zero dollars ($0). Following the
Closing Date Lender may, in its sole and absolute discretion, elect to include
Eligible Inventory in the Borrowing Base. If Lender makes such an election,
then
effective upon the issuance by Lender of a written notice to Borrower of such
election (an “Election
Notice”)
and if
the conditions subsequent in Item
6.2(b) and (c)
of this
Schedule
have
been satisfied, the amount under this clause (B) shall be determined by Lender,
which amount may be calculated based on a formula. If Lender issues to Borrower
an Election Notice and such notice does not specify an amount or formula to
determine the amount of the Borrowing Base to attribute to the Eligible
Inventory, then the amount attributed to the Eligible Inventory shall be equal
to the
lesser of:
|
(1)
|
$1,000,000,
and
|
|
(2)
|
50%
of the dollar value (determined at the lower of cost or market value)
of
Eligible Inventory,
|
minus
|
(b)
|
the
sum of:
|
|
(i)
|
the
Dilution Reserve and such other reserves as Lender may establish
from time
to time in its discretion, including, but not limited to, reserves
for
excessive and slow-moving Inventory and reserves for inaccuracies
in
Borrower’s perpetual Inventory records,
plus
|
|
(ii)
|
the
amount available to be drawn under, plus the amount of any unreimbursed
draws with respect to, any letters of credit or acceptances which
have
been issued, created or guaranteed by Lender or any Affiliate of
Lender
for Borrower’s account.
|
2.
Accounts
Eligibility
(a) Accounts
Age:
Any
Account with respect to which more than 90 days have elapsed since the date
of
the original invoice therefor or which is more than 60 days past due shall
not
constitute an Eligible Account.
(b) Cross-Aging
Percentage:
25%
(c) Concentration
Limit:
15% for
all Customers other than (i) United Natural Foods, Inc., for which the
Concentration Limit is 40%, and (ii) Trader Joe’s, for which the Concentration
Limit is 20%.
3.
Permitted
Liens
Existing
Liens and financing statements: none
|
Financing
Statement Number,
Jurisdiction
and Filing Date
|
Secured
Party
|
Collateral
|
4.
Persons
Authorized to Request Loans
|
Name:
|
Title:
|
|
▇▇▇▇▇▇▇▇▇▇▇
▇. ▇▇▇▇
|
President
|
|
▇▇▇▇▇
▇▇▇▇▇▇▇
|
Accounts
Receivable
|
5.
Collection
Days: 2
Business Days
6.
Conditions
To Initial Loans
6.1
Conditions
Precedent.
Items
listed below are required to be delivered, in form and substance satisfactory
to
Lender in its sole discretion, as a condition to Lender’s obligation to fund the
initial loan or extend the first financial accommodation to Borrower under
this
Agreement.
|
(a)
|
Certified
copy of Borrower’s articles of incorporation
|
|
(b)
|
Certificate
of Secretary of Borrower as to constituent documents, bylaws, authorizing
action (e.g., corporate resolutions) and incumbency of officers/status
and
specimen signatures of authorized
signers
|
|
(c)
|
Good
Standing Certificate (States of Delaware and California and all other
states in which Borrower is qualified to do
business)
|
|
(d)
|
The
Deed of Trust properly executed and
notarized
|
|
(e)
|
A
commitment from a title insurance company acceptable to Lender to
issue an
ALTA title insurance policy, with endorsements required by Lender,
insuring the lien of the Deed of Trust in an amount not less than
$2,000,000 and subject to only those exceptions that have been approved
in
writing by Lender
|
|
(f)
|
Lien
search results confirming filing of UCC-1 in favor of Lender and
priority
of Lender’s security interest in the
Collateral
|
|
(g)
|
Lien
termination documents from Business Alliance Capital Company, Overnite
Capital, LLC, and any other creditor whose filings are to be terminated,
etc.
|
|
(h)
|
Landlord,
warehouseman or other bailee
waivers
|
|
(i)
|
Unlimited
Continuing Guaranty in favor of Lender by ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇ and
a
validity guaranty in favor of Lender by the Chief Financial Officer
of
Borrower
|
|
(j)
|
[Intentionally
omitted]
|
|
(k)
|
Lockbox,
blocked account or agency account
agreement(s)
|
|
(l)
|
Financial
statements for Borrower including a pro forma statement certified
by the
Chief Financial Officer of Borrower demonstrating to the satisfaction
of
Lender that following the initial funding under this Agreement and
the
payment of all accounts payable past due beyond 90 days past the
applicable due date, Borrower shall have unused borrowing availability,
net of reserves, of not less than
$500,000
|
|
(m)
|
Appraisal
reports including an appraisal of the Real Property reflecting an
equity
value, net of Liens senior to the Lien of the Deed of Trust, of no
less
than $1,500,000
|
|
(n)
|
Borrowing
Base Certificate, together with schedules of Accounts and Inventory
and
other supporting documentation, in each case as of a date acceptable
to
Lender
|
|
(o)
|
Evidence
of the filing of Financing statements, including fixture filings
regarding
the Collateral
|
|
(p)
|
Officer’s
certificate as to representations, warranties and no defaults issued
by
the Manager of Borrower
|
|
(q)
|
Solvency
certificate with respect to
Borrower
|
|
(r)
|
Opinion
letter of Borrower’s legal counsel
|
|
(s)
|
All
other items described on the Schedule of Closing Documents previously
delivered by Lender or Lender’s counsel to Borrower or Borrower’s
counsel
|
6.2 Conditions
Subsequent.
Items
listed below are required to be delivered, in form and substance satisfactory
to
Lender in its sole discretion, as a condition subsequent to Lender’s obligation
to fund the initial loan or extend the first financial accommodation to Borrower
under this Agreement. If the items listed below are not delivered to Lender
within the applicable time period, then a Default shall be deemed to have
occurred under this Agreement.
(a) Within
30
calendar days following the Agreement Date, a deposit account control agreement
executed by City National Bank and Borrower
(b) Within
45
calendar days following the Agreement Date, a mortgagee waiver and consent
agreement executed by ▇▇▇▇▇▇ Brothers
(c) Within
45
calendar days following the Agreement Date, an ALTA title insurance policy,
with
endorsements required by Lender, insuring the lien of the Deed of Trust in
an
amount not less than $2,000,000 and subject to only those exceptions that have
been approved in writing by Lender
7. Termination
Date
This
Agreement will terminate on the second anniversary of the Agreement
Date;
provided,
however, that this Agreement will be renewed for succeeding one-year periods
thereafter unless written notice of termination is provided by either party
to
the other at least 60 days prior to the then-effective termination
date.
8. Interest
Margin: 5.75%
9. Default
Margin: 5%
10. Fees
(a) Upon
execution of this Agreement, in consideration of Lender’s structuring, approving
and committing to this Agreement, but without affecting Borrower’s obligation to
reimburse Lender for costs associated with this Agreement and the transactions
contemplated hereby as provided elsewhere in this Agreement, Borrower agrees
to
pay Lender a fee in the amount of $15,000, which will be fully earned on the
Agreement Date and non-refundable when paid.
(b) On
each
anniversary of the Agreement Date, as an annual fee for providing of financial
accommodations pursuant to the terms of this Agreement, but without affecting
Borrower’s obligation to reimburse Lender for costs associated with this
Agreement and the transactions contemplated hereby as provided elsewhere in
this
Agreement, Borrower shall pay to Lender a fee in the amount one-half percent
(0.50%) of the then prevailing Maximum Credit Limit, which will be fully earned
on each such anniversary date and non-refundable when paid.
(c) Lender
shall be entitled to charge a monthly minimum interest charge for each calendar
month during the term of this Agreement that the average outstanding principal
balance of the advances made pursuant to Section 2(a) during such month was
less
than $1,000,000 (the “Minimum
Average Monthly Loan Balance”);
provided, however, that (i) if Lender has not issued an Election Notice and
committed to provide a sublimit for advances against Eligible Inventory of
not
less than $300,000 within 60 calendar days following the Agreement Date, then
effective on the 61st calendar day following the Agreement Date the Minimum
Average Monthly Loan Balance shall be reduced to $700,000, and (ii) if the
Minimum Average Monthly Loan Balance has been reduced to $700,000 pursuant
to
clause (i) and thereafter Lender issues an Election Notice and commits to
provide a sublimit for advances against Eligible Inventory of not less than
$300,000, then effective on the date Lender issues such Election Notice the
Minimum Average Monthly Loan Balance shall be increased to $1,000,000. The
monthly minimum interest charge shall be equal to the amount, if any, by which
the interest charged for such month on the outstanding advances under Section
2(a) was less than the amount of interest that would have been charged had
the
average outstanding principal balance for such month equaled the Minimum Average
Monthly Loan Balance. The monthly minimum interest charge shall represent an
unconditional payment to Lender in consideration of Lender’s agreement to extend
financial accommodations to Borrower pursuant to this Agreement.
(d) On
the
first day of each month during the term of this Agreement following the issuance
of an Election Notice pursuant to this Agreement, an unused line fee in an
amount equal to 0.50%, per annum, times the result of (i) the Maximum Credit
Limit, less (ii) the average
daily net principal amount of loans outstanding hereunder
during
the immediately preceding month.
(e) In
the
event that Borrower terminates this Agreement (which termination shall be on
not
less than sixty (60) days prior written notice) for any reason after the date
that is six months following the Agreement Date and termination is effective
other than on a day which is the last day of the then current term of this
Agreement, Borrower will pay to Lender on or prior to the effective date of
such
termination an early termination fee equal to: (i) if the date of termination
is
prior to the first anniversary of the Agreement Date, three
percent (3%)
of the
amount set forth in Item
1(a)(i)
of this
Schedule, and (ii) if the date of termination is after the first anniversary
of
the Agreement Date, two
percent (2%)
of the
amount set forth in Item
1(a)(i)
of this
Schedule, provided,
however,
that if
(i) within 60 calendar days following the Agreement Date Lender has not issued
an Election Notice and committed to provide a sublimit for advances against
Eligible Inventory of not less than $300,000, or (ii) if Lender notifies
Borrower in writing that Lender will not include Eligible Inventory in the
Borrowing Base, then in either case so long as no Default has occurred and
is
continuing at the time Borrower terminates this Agreement, Borrower shall be
obligated to pay Lender an early termination fee in connection with such
termination equal to one-half
percent (0.50%)
of the
amount set forth in Item
1(a)(i)
of this
Schedule.
All
of
the foregoing fees constitute compensation to Lender for services rendered
and
are not interest or a charge for the use of money. Each installment of such
fees
shall be fully earned when due and payable and shall not be subject to refund
or
rebate.
11.
Organizational
Information
|
Exact
Legal Name of Borrower:
|
▇▇▇▇’▇,
Inc.
|
|
State
of Organization:
|
Delaware
|
|
Type
of Organization:
|
Corporation
|
|
Organizational
Identification Number:
|
3433903
|
12.
Subsidiaries
and Investments in Other Persons:
13.
Pending
Litigation:
none
14.
Existing
Debt and Guarantees:
loan on building ▇▇▇▇▇▇ brothers 1.7 million on real estate.
15.
Prior
Legal Names:
Original Beverage Corporation
Prior
or Current Trade or Fictitious Names:
Mergers
and Acquisitions:
acquire Virgil’s Root Beer and China cola in two separate transactions in
2000.
16.
Locations
of Offices and Collateral
|
Current
Chief Executive Office:
|
▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
|
Other
Locations of Chief Executive Office in past five years:
none
Other
Current Collateral Locations:
none
17.
Ownership
Structure:
corporation common stock public shareholders symbol ▇▇▇▇ 8.9 million shares
outstanding NASDAQ.
18.
Owned
Real Property:
12930 and ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇.
Leased
Real Property (including legal name of landlord and monthly
rent):
none
Warehousemen,
processors, consignees or other bailees in possession or control of any
Inventory (include name, address where Inventory is stored and description
of
the arrangement):
|
Warehouse
|
ext
|
||||||
|
Valley
Distribution
|
▇
▇▇▇▇▇▇ ▇▇.
|
▇▇▇▇▇▇-▇▇▇▇▇
|
▇▇
|
▇▇▇▇▇
|
570-654-2403
|
217
|
▇▇▇▇▇▇
▇▇▇▇▇
|
|
Advanced
Packing
|
▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇.
|
▇▇▇▇▇▇▇
|
▇▇
|
▇▇▇▇▇
|
209-825-7939
|
7792
|
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
|
▇▇▇▇▇▇
|
▇▇▇▇
▇. ▇▇▇▇ ▇▇.
|
▇▇▇
▇▇▇▇▇▇▇
|
▇▇
|
▇▇▇▇▇
|
847-298-9185
|
227
|
▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
|
|
United
Warehouse
|
▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇.
|
▇▇▇▇▇▇▇
|
▇▇
|
▇▇▇▇▇
|
206-682-4535
|
210
|
▇▇▇▇▇
|
|
Ronnybrook
Farms
|
▇
▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇.
|
▇▇▇▇▇▇▇▇▇▇
|
▇▇
|
▇▇▇▇▇
|
518-398-8000
|
|
▇▇▇▇
|
|
United
States Cold Storage
|
▇▇▇▇▇
▇▇▇▇ ▇▇▇.
|
▇▇▇▇▇
▇▇▇▇
|
▇▇
|
▇▇▇▇▇
|
510-489-8300
|
|
▇▇▇▇▇
|
|
▇▇
▇▇▇▇▇▇▇▇
|
▇▇▇▇▇▇▇▇▇▇▇
▇ ▇▇▇▇ ▇▇
|
▇▇▇▇▇▇▇▇▇
|
NL
|
|
|
|
▇▇▇▇
|
19.
Bank
Accounts: [Intentionally
omitted]
20.
Commercial
Tort Claims:
none
21.
Financial
Covenants:
(a) Commencing
July 31, 2008, Borrower shall maintain, as of the last day of each month for
three-month period then ended (but for the month ended July 31, 2008, for the
one-month period then ended and for the month ended August 31, 2008, for the
two-month period then ended), a ratio of Borrower’s (i) net income (excluding
extraordinary gains) before provision for interest expense, taxes, depreciation
and amortization, less cash taxes paid and unfinanced capital expenditures
during such period, to (ii) interest expense, plus payments of principal
actually made or scheduled to be made with respect to indebtedness (other than
scheduled but unpaid payments on Subordinated Debt and principal payments on
revolving loans under this Agreement), plus payments with respect to capitalized
leases, plus dividends and distributions during such period, of at least 1.0
to
1.0.
(b) As
of
June 30, 2008, Borrower shall have a Tangible Net Worth of at least $4,306,570.
Thereafter, as of the last day of each month, Borrower’s required minimum
Tangible Net Worth shall be increased by 50% of the Borrower’s net income for
the calendar month then ended (without reduction for any losses during any
such
calendar month). As used herein, “Tangible
Net Worth”
means,
as of any date, the total assets of Borrower minus the total liabilities of
Borrower calculated in conformity with GAAP, less all amounts due from
Borrower’s Affiliates and the amount of all intangible items reflected
therein.
(c) The
net
loss from Borrower’s operations, as determined in accordance with GAAP, for the
three month period ended June 30, 2008, shall not exceed $400,000.
22.
Permitted
Purchase Money Debt: $450,000
23.
Permitted
Capital Expenditures: $450,000
during any fiscal year
24.
Maximum
Annual Increase in Officers’ Compensation:
Borrower
represents and warrants to Lender that the aggregate compensation paid and
to be
paid to Borrower’s officers and directors for Borrower’s current fiscal year
shall not be more than 110% of the aggregate amount paid during the fiscal
year
that ended December 31, 2007. Such compensation shall not increase by more
than
10% per fiscal year hereafter.
25.
Annual
Financial Statements:
To
be
audited by an independent practicing certified public accountant acceptable
to
Lender.
26.
Borrowing
Base Certificates:
Borrower
shall deliver to Lender a Borrowing Base Certificate no less frequently than
weekly by 10:30 a.m. on the first Business Day of each week and determined
as of the close of business on the last Business Day of the immediately
preceding week.
27. Field
Examinations:
In
connection with the first four (4) field examinations during each consecutive
twelve (12) month period during the term of this Agreement, as well as in
connection with any field examinations conducted during a period that a Default
exists and is continuing hereunder,
Borrower agrees to pay to Lender Lender’s customary fees and disbursements,
based upon prevailing market rates, relating to field examinations of the
Collateral, of Borrower’s business and Borrower’s books and records, which, as
of the Agreement Date, are $900 per examiner per day plus all of the
out-of-pocket examination costs and travel and other expenses incurred by such
examiners.
28. Cross
Default Amount: $100,000
29. Judgment
Cross Default Amount: $100,000
30. Change
of Management Default:
|
Name
|
Office
|
|
▇▇▇▇▇▇▇▇▇▇▇
▇. ▇▇▇▇
|
President
|
|
▇▇▇▇▇▇▇▇▇▇▇
▇. ▇▇▇▇
|
Chief
Financial Officer
|
31. Notice
Addresses:
| If to Borrower: |
[Intentionally
Omitted]
|
|
If
to Lender:
|
[Intentional
Omitted]
|
|
With
a copy to:
|
[Intentional
Omitted]
|