EXHIBIT 10.3
SECURITY AND LOAN AGREEMENT
(ACCOUNTS RECEIVABLE)
This Agreement is entered into between THE ▇▇▇▇▇ COMPANIES, INC. AND ▇▇▇▇▇
ENGINEERING, INC.
doing business as California corporations
(herein called "Borrower") and IMPERIAL BANK (herein called "BANK").
1. Bank hereby commits, subject to all the terms and conditions of this
Agreement and prior to the termination of its commitment as hereinafter
provided, to make loans to Borrower from time to time in such amounts as may
be determined by Bank up to, but not exceeding in the aggregate unpaid
principal balance, the following Borrowing Base:
75.000% of Eligible Accounts
and in no event more than $ 5,000,000.00
2. The amount of each loan made by Bank to Borrower hereunder shall be debited
to the loan ledger account of Borrower maintained by Bank (herein called
"Loan Account") and Bank shall credit the Loan Account with all loan
repayments made by Borrower. Borrower promises to pay Bank (a) the unpaid
balance of Borrower's Loan Account on demand and (b) on or before the tenth
day of each month, interest on the average daily unpaid balance of the Loan
Account during the immediately preceding month at the rate of one and one
half percent (1.500%) per annum in excess of the rate of interest which Bank
has announced as its prime lending rate ("Prime Rate") which shall vary
concurrently with any change in such Prime Rate. Interest shall be computed
at the above rate on the basis of the actual number of days during which the
principal balance of the loan account is outstanding divided by 360, which
shall for interest computation purposes be considered one year. Bank at its
option may demand payment of any or all of the amount due under the Loan
Account including accrued but unpaid interest at any time. Such notice may
be given verbally or in writing and should be effective upon receipt by
Borrower. The amount of interest payable each month by Borrower shall not be
less than a minimum monthly charge of $ 250.00. Bank is hereby authorized to
charge Borrower's deposit account(s) with Bank for all sums due Bank under
this Agreement.
3. Requests for loans hereunder shall be in writing duly executed by Borrower in
a form satisfactory to bank and shall contain a certification setting forth
the matters referred to in Section 1, which shall disclose that Borrower is
entitled to the amount of loan being requested.
4. As used in this Agreement, the following terms shall have the following
meanings:
A. "Accounts" means any right to payment for goods sold or leased, or to be
sold or to be leased, or for services rendered or to be rendered no matter
how evidenced, including accounts receivable, contract rights, chattel
paper, instruments, purchase orders, notes, drafts, acceptances, general
intangibles and other forms of obligations and receivables.
B. "Collateral" means any and all personal property of Borrower which is
assigned or hereafter is assigned to Bank as security or in which Bank now
has or hereafter acquires a security interest.
C. "Eligible Accounts" means all of Borrower's Accounts excluding, however,
(1) all Accounts under which payment is not received within 90 days from
any invoice date, (2) all Accounts against which the account debtor or any
other person obligated to make payment thereon asserts any defense,
offset, counterclaim or other right to avoid or reduce the liability
represented by the Account and (3) any Accounts if the account debtor or
any other person liable in connection therewith is insolvent, subject to
bankruptcy or receivership proceedings or has made an assignment for the
benefit of creditors or whose credit standing is unacceptable to Bank and
Bank has so notified Borrower. Eligible Accounts shall only include such
accounts as Bank in its sole discretion shall determine are eligible from
time to time.
5. Borrower hereby assigns to Bank all Borrower's present and future Accounts,
including all proceeds due thereunder, all guaranties and security therefor,
and hereby grants to Bank a continuing security interest in all moneys in the
Collateral Account referred to in Section 6 hereof, as security for any and
all obligations of Borrower to Bank, whether now owing or hereafter incurred
and whether direct, indirect, absolute or contingent. So long as Borrower is
indebted to Bank or Bank is committed to extend credit to Borrower, Borrower
will execute and deliver to Bank such assignments, including Bank's standard
forms of Specific or General Assignment covering individual Accounts,
notices, financing statements, and other documents and papers as Bank may
require in order to affirm, effectuate or further assure the assignment to
Bank of the Collateral or to give any third party, including the account
debtors obligated on the Accounts, notice of Bank's interest in the
Collateral.
6. Until Bank exercises its rights to collect the Accounts pursuant to paragraph
10, Borrower will collect with diligence all Borrower's Accounts, provided
that no legal action shall be maintained thereon or in connection therewith
without Bank's prior written consent. Any collection of Accounts by
Borrower, whether in the form of cash, checks, notes, or other instruments
for the payment of money (properly endorsed or assigned where required to
enable Bank to collect same), shall be in trust for Bank, and Borrower shall
keep all such collections separate and apart from all other funds and
property so as to be capable of identification as the property of Bank and
deliver said collections daily to Bank in the identical form received. The
proceeds of such collections when received by Bank may be applied by Bank
directly to the payment of Borrower's Loan Account or any other obligation
secured hereby. Any credit given by Bank upon receipt of said proceeds shall
be conditional credit subject to collection. Returned items at Bank's option
may be charged to Borrower's general account. All collections of the
Accounts shall be set forth on an itemized schedule, showing the name of the
account debtor, the amount of each payment and such other information as Bank
may request.
7. Until Bank exercises its rights to collect the Accounts pursuant to paragraph
10, Borrower may continue its present policies with respect to returned
merchandise and adjustments. However, Borrower shall immediately notify Bank
of all cases involving returns, repossessions, and loss or damage of or to
merchandise represented by the Accounts and of any credits, adjustments or
disputes arising in connection with the goods or services represented by the
Accounts and, in any of such events, Borrower will immediately pay to Bank
from its own funds (and not from the proceeds of Accounts or Inventory) for
application to Borrower's Loan Account or any other obligation secured hereby
the amount of any credit for such returned or repossessed merchandise and
adjustments made to any of the Accounts.
8. Borrower represents and warrants to Bank: (i) If Borrower is a corporation,
that Borrower is duly organized and existing in the State of its
incorporation and the execution, delivery and performance hereof are within
Borrower's corporate powers, have been duly authorized and are not in
conflict with law or the terms of any charter, by-law or other incorporation
papers, or of any indenture, agreement or undertaking to which Borrower is a
party by which Borrower is found or affected; (ii) Borrower is, or at the
time the collateral becomes subject to Bank's security interest will be, the
true and lawful owner of and has, or at the time the Collateral becomes
subject to Bank's security interest will have, good and clear title to the
Collateral, subject only to Bank's rights herein; (iii) Each Account is, or
at the time the Account comes into existence will be, a true and correct
statement of a bona fide indebtedness incurred by the debtor named therein in
the amount of the Account for either merchandise sold or delivered (or being
held subject to Borrower's delivery instructions) to, or services rendered,
performed and accepted by, the account debtor; (iv) That there are or will be
no defenses, counterclaims, or setoffs which may be asserted against the
Accounts; and (v) any and all financial information, including information
relating to the Collateral, submitted by Borrower to Bank, whether previously
or in the future, is or will be true and correct.
Page 1 of 2
9. Borrower will: (i) Furnish Bank from time to time such financial statements
and information as Bank may reasonably request and inform Bank immediately
upon the occurrence of a material adverse change therein; (ii) Furnish Bank
periodically, in such form and detail and such times as Bank may require,
statements showing aging and reconciliation of the Accounts and collections
thereon; (iii) Permit representatives of Bank to inspect the Borrower's
books and records relating to the Collateral and make extracts therefrom at
any reasonable time and to arrange for verification of the Accounts, under
reasonable procedures, acceptable to Bank, directly with the account debtors
or otherwise at Borrower's expense; (iv) Promptly notify Bank of any
attachment or other legal process levied against any of the Collateral and
any information received by Borrower relative to the Collateral, including
the Accounts, the account debtors or other persons obligated in connection
therewith, which may in any way affect the value of the Collateral or the
rights and remedies of Bank in respect thereto; (v) Reimburse Bank upon
demand for any and all legal costs, including reasonable attorneys' fees,
and other expense incurred in collecting any sums payable by Borrower under
Borrower's Loan Account or any other obligation secured hereby, enforcing
any term or provision of this Security Agreement or otherwise on the
checking, handling and collection of the Collateral and the preparation and
enforcement of any agreement relating thereto; (vi) Notify Bank of each
location and of each office of Borrower at which records of Borrower
relating to the Accounts are kept; (vii) Provide, maintain and deliver to
Bank policies insuring the Collateral against loss or damage by such risks
and in such amounts, forms and companies as Bank may require and with loss
payable solely to Bank, and, in the event Bank takes possession of the
Collateral, the insurance policy or policies and any unearned or returned
premium thereon shall at the option of Bank become the sole property of
Bank, such policies and the proceeds of any other insurance covering or in
any way relating to the Collateral, whether now in existence or hereafter
obtained, being hereby assigned to Bank; (viii) In the event the unpaid
balance of Borrower's Loan Account shall exceed the maximum amount of
outstanding loans to which Borrower is entitled under Section 1 hereof,
Borrower shall immediately pay to Bank, from its own funds and not from the
proceeds of Collateral, for credit to Borrower' Loan Account the amount of
such excess.
10. Bank may at any time, without prior notice to Borrower, collect the Accounts
and may give notice of assignment to any and all account debtors, and
Borrower does hereby make, constitute and appoint Bank its irrevocable, true
and lawful attorney with power to receive, open and dispose of all mail
addressed to Borrower, to endorse the name of Borrower upon any checks or
other evidences of payment that may come into the possession of Bank upon
the Accounts to endorse the name of the undersigned upon any document or
instrument relating to the Collateral; in its name or otherwise, to demand,
▇▇▇ for, collect and give acquittances for any and all moneys due or to
become due upon the Accounts; to compromise, prosecute or defend any action,
claim or proceeding with respect thereto; and to do any and all things
necessary and proper to carry out the purpose herein contemplated.
11. Until Borrower's Loan Account and all other obligations secured hereby shall
have been repaid in full, Borrower shall not sell, dispose of or grant a
security interest in any of the Collateral other than to Bank, or execute
any financing statements covering the Collateral in favor of any secured
party or person other than Bank.
12. Should: (i) Default be made in the payment of any obligation, or breach be
made in any warranty, statement, promise, term or condition, contained
herein or hereby secured; (ii) Any statement or representation made for the
purpose of obtaining credit hereunder prove false; (iii) Bank deem the
Collateral inadequate or unsafe or in danger of misuse; (iv) Borrower become
insolvent or make an assignment for the benefit of creditors; or (v) Any
proceeding be commenced by or against Borrower under any bankruptcy,
reorganization, arrangement, readjustment of debt of moratorium law or
statute; then in any such event, Bank may, at its option and without demand
first made and without notice to Borrower, do any one or more of the
following: (a) Terminate its obligation to make loans to Borrower as
provided in Section 1 hereof; (b) Declare all sums secured hereby
immediately due and payable; (c) Immediately take possession of the
Collateral wherever it may be found, using all necessary force so to do, or
require Borrower to assemble the Collateral and make it available to Bank at
a place designated by Bank which is reasonably convenient to Borrower and
Bank, and Borrower waives all claims for damages due to or arising from or
connected with any such taking; (d) Proceed in the foreclosure of Bank's
security interest and sale of the Collateral in any manner permitted by law,
or provided for herein; (e) Sell, lease or otherwise dispose of the
Collateral at public or private sale, with or without having the Collateral
at the place of sale, and upon terms and in such manner as Bank may
determine, and Bank may purchase same at any such sale; (f) Retain the
Collateral in full satisfaction of the obligations secured thereby; (g)
Exercise any remedies of a secured party under the Uniform Commercial Code.
Prior to any such disposition, Bank may, at as [sic] option, cause any of
the Collateral to be repaired or reconditioned in such manner and to such
extent as Bank may deem advisable, and any sums expended therefor by Bank
shall be repaid by Borrower and secured hereby. Bank shall have the right
to enforce one or more remedies hereunder successively or concurrently, and
any such action shall not estop or prevent Bank from pursuing any further
remedy which it may have hereunder or by law. If a sufficient sum is not
realized from any such disposition of Collateral to pay all obligations
secured by this Security Agreement, Borrower hereby promises and agrees to
pay Bank any deficiency.
13. If any writ of attachment, garnishment, execution or other legal process be
issued against any property of Borrower, or if any assessment for taxes
against Borrower, other than real property, is made by the Federal or State
government or any department thereof, the obligation of Bank to make loans
to Borrower as provided in Section 1 hereof shall immediately terminate and
the unpaid balance of the Loan Account, all other obligations secured hereby
and all other sums due hereunder shall immediately become due and payable
without demand, presentment or notice.
14. Borrower authorizes Bank to destroy all invoices, delivery receipts, reports
and other types of documents and records submitted to Bank in connection
with the transactions contemplated herein at any time subsequent to four
months from the time such items are delivered to Bank.
16. Additional Provisions: SUBJECT TO THE CONDITIONS, RESTRICTIONS AND
LIMITATIONS CONTAINED IN THE ADDENDUM TO THE SECURITY AND LOAN AGREEMENT,
EXHIBIT "A" DATED FEBRUARY 9, 1998 AND ALL AMENDMENTS THERETO AND
REPLACEMENTS THEREFOR. (Initialed by ▇▇▇▇ ▇. ▇▇▇▇▇)
Executed this 9th day of February, 1998
THE ▇▇▇▇▇ COMPANIES, INC.
--------------------------------------------
(Name of Borrower)
IMPERIAL BANK By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇, PRESIDENT
-----------------------------------------
(Authorized Signature and Title)
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇ By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇, PRESIDENT
----------------------------- -----------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇, Vice President (Authorized Signature and Title)
*if none, insert "None"
Page 2 of 2
"EXHIBIT A"
ADDENDUM TO SECURITY AND LOAN AGREEMENT BETWEEN THE ▇▇▇▇▇ COMPANIES, INC. AND
▇▇▇▇▇ ENGINEERING, INC. AS CO-BORROWERS AND
IMPERIAL BANK
DATED FEBRUARY 9, 1998
This Addendum is made and entered into as of February 9, 1998, between THE
▇▇▇▇▇ COMPANIES, INC. AND ▇▇▇▇▇ ENGINEERING, INC. ("Co-Borrowers") and IMPERIAL
BANK ("Bank"). This Addendum amends and supplements the Security and Loan
Agreement. In the event of any inconsistency between the terms herein and the
terms of the Security and Loan Agreement, the terms herein shall in all cases
govern and control. All capitalized terms herein, unless otherwise defined
herein, shall have the meaning set forth in the Security and Loan Agreement.
1. Any commitment of Bank, pursuant to the terms of the Security and Loan
Agreement, to make advances against Eligible Accounts shall expire on FEBRUARY
8, 1999, subject to Bank's right to renew said commitment in its sole
discretion. Any such renewal of the commitment shall not be binding upon Bank
unless it is in writing and signed by an officer of the Bank.
2. Borrowers represent and warrant that:
a. LITIGATION. There is no litigation or other proceeding pending or
threatened against or affecting Borrowers, and Borrowers are not in default
with respect to any order, writ, injunction, decree or demand of any court or
other governmental or regulatory authority.
b. FINANCIAL CONDITION. The consolidated balance sheet of Borrowers of
NOVEMBER 30, 1997, and the related profit and loss statement on that date, a
copy of which has heretofore been delivered to Bank by Borrowers, and all other
statements and data submitted in writing by Borrowers to Bank in connection
with this request for credit are true and correct, and said consolidated
balance sheet and profit and loss statement truly present the financial
condition of Borrowers as of the date thereof and the results of the operations
of Borrowers for the period covered thereby, and have been prepared in
accordance with generally accepted accounting principles on a basis
consistently maintained. Since such date, there have been no materially
adverse changes in the financial condition or business of Borrowers. Borrowers
have no knowledge of any liabilities, contingent or otherwise, at such date not
reflected in said consolidated balance sheet, and Borrowers have not entered
into any special commitments or substantial contracts which are not reflected
in said consolidated balance sheet, other than in the ordinary and normal
course of their businesses, which may have a materially adverse effect upon
their financial condition, operations or businesses as now conducted.
c. TRADEMARKS, PATENTS. Borrowers, as of the date hereof, possess all
necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct their business as now operated, without any known conflict
with valid trademarks, trade names, copyrights, patents and license rights of
others.
EXHIBIT A
PAGE 2
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d. TAX STATUS. Borrowers have no liability for any delinquent state,
local or federal taxes, and, if Borrowers have contracted with any government
agency, Borrowers have no liability for renegotiation of profits.
3. Borrowers agree that so long as they are indebted to Bank, they WILL NOT,
without Bank's WRITTEN CONSENT
a. TYPE OF BUSINESS. MANAGEMENT Make any substantial change in the
character of their businesses; or make any change in their executive
management.
b. OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys other than loans from Bank except obligations
now existing as shown in consolidated financial statement dated NOVEMBER 30,
1997, including those being refinanced by Bank; or sell or transfer, either
with or without recourse, any accounts or notes receivable or any moneys due to
become due.
c. LIENS AND ENCUMBRANCES. Create, incur, assume any mortgage, pledge,
encumbrance, lien or charge of any kind (including the charge upon property at
any time purchased or acquired under conditional sale or other title retention
agreement) upon any asset now owned or hereafter acquired by them, other than
liens for taxes not delinquent, and liens in Bank's favor, and other than liens
permitted under Section 3. h .
d. LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances
to any person or other entity other than in the ordinary and normal course of
their businesses as now conducted or make any investment in the securities of
any person or other entity other than the United States Government; or
guarantee or otherwise become liable upon the obligation of any person or other
entity, except by endorsement of negotiable instruments for deposit or
collection in the ordinary and normal course of their businesses.
e. ACQUISITION OR SALE OF BUSINESS; Merger or Consolidation. Purchase or
otherwise acquire the assets or business of any person or other entity; or
liquidate, dissolve, merge or consolidate, or commence any proceedings
therefore; or sell any assets except in the ordinary and normal course of their
businesses as now conducted; or sell, lease, assign, or transfer any
substantial part of their businesses or fixed assets, or any property or other
assets necessary for the continuance of their businesses as now conducted,
including without limitation the selling of any property or other asset
accompanied by the leasing back of the same.
f. DIVIDENDS, STOCK PAYMENTS. Declare or pay any dividend (other than
dividends payable in common stocks of Borrowers) or make any other distribution
on any of their capital stock now outstanding or hereafter issued, or purchase,
redeem or retire any of such stock.
g. CAPITAL EXPENDITURES. Make or incur obligations for capital
expenditures in excess of $1,500,000 in any one fiscal year.
EXHIBIT A
PAGE 3
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h. LEASE LIABILITY. Make or incur liability for payments of rent under
existing operating and capital leases of real property in excess of $1,660,000
in any one fiscal year or incur obligations for payment under new operating and
capital lease obligations in excess of $750,000 in any one fiscal year.
4. Should there be a default under the Security and Loan Agreement, the
General Security Agreement, or under the Note, all obligations, loans and
liabilities of Borrowers to Bank, due or to become due, whether now existing or
hereafter arising, shall, at the option of Bank, (i) in the case of any
financial covenant default, payment default or voluntary or involuntary
bankruptcy of the Borrowers become immediately due and payable without notice or
demand, and (ii) in the case of any other breach after 10 days and notice from
the Bank will become due and payable, and Bank shall thereupon have the right to
exercise all of its default rights and remedies. The default rate of interest
shall be five percent per year in excess of the rate otherwise charged.
5. As a condition precedent to Bank's obligation to make any advances to
Borrowers, Borrower shall, among other things: cause a guarantee to be executed
by ▇▇▇▇ ▇. ▇▇▇▇▇ in the amount of $5,000,000 in form and substance satisfactory
to Bank.
6. In addition to the provisions in the Security and Loan Agreement, Eligible
Accounts shall only include such accounts as Bank in its sole discretion shall
determine are eligible from time to time. "Eligible Accounts" shall also NOT
include any of the following:
a. Accounts with respect to which the account debtor is an officer,
director, shareholder, employee, subsidiary or affiliate of Borrowers.
b. Accounts with respect to which 25% or more of the account debtor's
total accounts or obligations outstanding to Borrowers are more than 90 days
from invoice date.
c. Salesmen's accounts for promotional purposes.
d. For accounts representing more than 20% of total accounts receivable,
the balance in excess of the 20%. However, the Bank may deem, at its sole
discretion, the entire amount, or any portion thereof, eligible. With respect
to ▇▇▇ COMMUNICATIONS, INC. the balance in excess of 25% of the total accounts
receivable will be ineligible, unless the Bank deems the entire amount eligible
in its sole discretion.
EXHIBIT A
PAGE 4
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e. Accounts with respect to international transactions unless insured by
an insurance company acceptable to the Bank or covered by letters of credit
issued or confirmed by a bank acceptable to the Bank.
f. Credit balances greater than 90 days from invoice date.
g. U.S. Government receivables, unless formally assigned to the Bank.
h. Accounts over 90 days from invoice date.
i. Accounts where the account debtor is a seller to Borrowers, whereby a
potential offset exists.
j. Consignment or guaranteed sales.
k. Contract receivables; ▇▇▇▇ and hold accounts.
l. Equipment and rental offsets; collection accounts (aged up to 90 days
from invoice date).
7. All financial covenants and financial information referenced herein shall
be interpreted and prepared in accordance with generally accepted accounting
principles applied on a basis consistent with previous years. Compliance with
financial covenants shall be calculated and monitored on a quarterly basis,
commencing December 31, 1997.
8. Borrowers affirmatively covenant that so long as any loans, obligations or
liabilities remain outstanding or unpaid to Bank, they WILL:
a. Have and maintain a Minimum Tangible Net Worth (meaning the excess of
all assets, excluding any value for goodwill, trademarks, patents, copyrights,
organization expense and other similar intangible items, over its liabilities,
less subordinated debt) of not less than $1,500,000 from 12/31/97 increasing to
$1,750,000 from 03/31/98; increasing to $2,250,000 from 06/30/98; increasing to
$2,500,000 from 09/30/98 and increasing to $2,750,000 at FYE 12/31/98;
increasing by $250,000 on a quarterly basis thereafter.
b. Have and maintain a ratio of total liabilities to Tangible Net Worth
of not greater than 6.25 to 1.0 from 12/31/97; decreasing to 5.50 to 1.0 from
03/31/98; decreasing to 4.50 to 1.0 from 06/30/98; decreasing to 4.0 to 1.0 from
09/30/98; decreasing to 3.25 to 1.0 from FYE 12/31/98 and decreasing to 3.0 to
1.0 thereafter.
c. Have and maintain a Current Ratio of not less than .90 to 1.0 from
12/31/97; increasing to 1.10 to 1.0 from 03/31/98; increasing to 1.15 to 1.0
from 06/30/98;
EXHIBIT A
Page 5
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increasing to 1.20 to 1.0 from 09/30/98; increasing to 1.25 to 1.0 from FYE
12/31/98 and thereafter. Current Ratio shall mean Current Assets divided by
Current Liabilities.
d. Have and maintain a minimum Coverage Ratio [EBITDA less non-financed
CAPEX less cash taxes paid, divided by interest expense, plus CPLTD plus Current
Portion of Notes Payable plus Capital Leases] of not less than 1.25 to 1.0.
EBITDA is defined as earnings before interest expense, taxes, depreciation and
amortization for the prior 12 month period. CAPEX is defined as amounts paid,
or indebtedness incurred by the Borrowers, in connection with the purchase or
lease by the Borrowers of fixed assets with useful lives of greater than one
year. As used in the Coverage Ratio, CAPEX will exclude those purchases or
leases financed by outside creditors as permitted under this agreement. CPLTD
is defined as those current maturities of long term debt and capital leases
which are due within the succeeding 12 month period.
e. Maintain profitable operations both quarterly and at fiscal year end.
f. Maintain all significant bank deposit accounts and banking relationship
with Bank.
g. Within 10 days from each month-end, deliver to Bank accounts receivable
agings reconciled to the general ledgers of Borrowers, detailed accounts
payable agings reconciled to the Borrowers' general ledgers and setting forth
the amount of any book overdrafts or the amount of checks issued but not sent.
All the foregoing will be in a form and with such detail as Bank may request
from time to time.
h. Within 30 days after the end of each month, deliver to Bank a profit
and loss statement and a balance sheet in form satisfactory to Bank all
certified by an officer of Borrowers, and 30 days after the end of each quarter
a letter certifying compliance with all loan covenants signed by the Chief
Financial Officers of Borrowers.
i. Within 120 days after the end of Borrowers' fiscal year, deliver to
Bank the same financial statements as otherwise provided monthly together with
Changes in Financial Position Statement, prepared on an audited basis by an
independent certified public accountant selected by Borrowers, but acceptable to
Bank.
j. On a quarterly basis, provide Bank with an alphabetized list of
customers including addresses.
k. By April 30, 1998, deliver to Bank the CPA audited FYE 1995 and FYE
1996 financial statements, prepared by a nationally recognized independent
certified public accountant selected by Borrowers but acceptable to Bank.
l. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises
and other authority adequate for the conduct of their businesses; maintain their
properties, equipment and facilities in good order and repair; conduct their
businesses in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve their existence.
EXHIBIT A
Page 6
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m. INSURANCE. Maintain public liability, property damage and workers
compensation insurance and insurance on all their insurable property against
fire and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses. Borrowers shall provide evidence of property
insurance in amounts and types acceptable to the Bank and Bank shall be named as
Loss Payee in a Lender's Loss Payable Endorsement form 438BFU or equivalent.
n. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments and
governmental charges upon or against them or any of their properties, and any of
their other liabilities at any time existing, except to the extent and so long
as:
(a) The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse
effect upon their financial condition or the loss of any right of
redemption from any sale thereunder; and
(b) They shall have set aside on their books reserves (segregated to the
extent required by generally accepted accounting practice) deemed by
them adequate with respect thereto.
o. RECORDS AND REPORTS. Maintain a standard and modern system of
accounting in accordance with generally accepted accounting principles on a
basis consistently maintained; permit Bank's representatives to have access to,
and to examine their properties, books and records at all reasonable times.
P. SUBORDINATION. Cause the following dollar amounts due to the named
note holder(s) to be subordinated to Bank's line of credit by subordination
agreement(s) acceptable to Bank:
▇▇▇▇▇ ▇▇▇▇▇ Educational Trust $ 129,205
▇▇▇▇ ▇▇▇▇▇ Educational Trust $ 11,066
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Educational Trust $ 32,956
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ Housing Trust $ 47,676
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ Housing Trust $ 84,576
▇▇▇▇ ▇▇▇ ▇▇▇▇ Housing Trust $ 51,843
----------
$ 357,322
▇▇▇▇ ▇. ▇▇▇▇▇ $ 910,177
▇▇▇▇▇ ▇. ▇▇▇▇ $ 129,815
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ III $ 700,000
----------
$1,737,992
TOTAL $2,095,314
EXHIBIT A
Page 7
-
9. The extensions of credit under the Security and Loan Agreement shall be
available as follows: Up to $5,000,000 in direct advances.
10. FEES AND INTEREST:
The rate of interest applicable to the Line of Credit Loan Account shall be
1.50% in excess of the rate of interest which Bank has announced as its prime
lending rate ("Prime Rate") which shall vary concurrently with any change in
such Prime Rate. A documentation fee of $250 shall be due upon execution of
documents as will a commitment fee of $50,000 also be due.
Interest shall be computed at the above rate on the basis of the actual number
of days during which the principal balance of the loan account is outstanding
divided by 360, which shall for interest computation purposes be considered one
year. The default rate shall be five percent per year in excess of the rate
otherwise applicable.
If any installment payment, interest payment, principal payment or principal
balance payment due hereunder is delinquent twenty or more days, Borrower
agrees to pay Bank a late charge in the amount of 5% of the payment so due and
unpaid, in addition to the payment; but nothing in this paragraph is to be
construed as any obligation on the part of Bank to accept payment of any
payment past due or less than the total unpaid principal balance after
maturity. All payments shall be applied first to any late charges owing, then
to interest and the remainder, if any, to principal.
11. MISCELLANEOUS PROVISIONS. Failure or Indulgence Not Waiver. No failure or
delay on the part of your Bank or any holder or Notes Issued hereunder, in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof or of any other
right, power or privilege. All rights and remedies existing under this
agreement or any not issued in connection with a loan that your Bank may make
hereunder, are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
12. NOTICE OF DEFAULT. Borrower shall promptly notify Bank in writing of the
occurrence of any event of default hereunder or any event which upon notice and
lapse of time would be an event of default.
13. REFERENCE PROVISION. The terms of the attached Reference Provisions are
incorporated herein.
This addendum is executed by and on behalf of the parties as of the date
first above written.
(signatures on the following page)
EXHIBIT A
Page 8
-
THE ▇▇▇▇▇ COMPANIES, INC. AND ▇▇▇▇▇ ENGINEERING, INC.
"CO-BORROWERS"
BY: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇ BY: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------- -----------------------------
▇▇▇▇▇ COMPANIES, INC. ▇▇▇▇▇ ENGINEERING, INC.
President President
--------- ---------
Title Title
IMPERIAL BANK, "BANK"
BY: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------
Vice President
--------------
Title
REFERENCE PROVISION
-------------------
1. Other than (i) non-judicial foreclosure and all matters in connection
therewith regarding security interests in real or personal property; or (ii)
the appointment of a receiver, or the exercise of other provisional remedies
(any and all of which may be initiated pursuant to applicable law), each
controversy, dispute or claim between the parties arising out of or relating to
this Note ("Agreement"), which controversy, dispute or claim is not settled in
writing within thirty (30) days after the "Claim Date" (defined as the date on
which a party subject to the Agreement gives written notice to all other
parties that a controversy, dispute or claim exists), will be settled 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, section which shall constitute the exclusive remedy for the
settlement of any controversy, dispute or claim concerning this Agreement,
including whether such controversy, dispute or claim is subject to the
reference proceeding and except as set forth above, the parties waive their
rights to initiate any legal proceedings against each other in any court or
jurisdiction other than the Superior Court in the County where the Real
Property, if any, is located or Los Angeles County if none (the "Court"). The
referee shall be a retired Judge of the Court selected by mutual agreement of
the parties, and if they cannot so agree within forty-five (45) days after the
Claim Date, the referee shall be promptly selected by the Presiding Judge of
the Court (or his representative). The referee shall be appointed to sit as a
temporary judge, with all of the powers of a temporary judge, as authorized by
law, and upon selection should take and subscribe to the oath of office as
provided for in Rule 244 of the California Rules of Court (or any subsequently
enacted Rule). Each party shall have one peremptory challenge pursuant to CCP
(S)170.6. The referee shall (a) be requested to set the matter for hearing
within sixty (60) days after the Claim Date and (b) try any and all issues of
law or fact and report a statement of decision upon them, if possible, within
ninety (90) days of the Claim Date. Any decision rendered by the referee will
be final, binding and conclusive and judgment shall be entered pursuant to CCP
(S)644 in any court in the State of California having jurisdiction. Any party
may apply for a reference proceeding at any time after thirty (30) days
following the notice to any other party of the nature of the controversy,
dispute or claim, by filing a petition for a hearing and/or trial. All
discovery permitted by this Agreement shall be completed no later than fifteen
(15) days before the first hearing date established by the referee. The
referee may extend such period in the event of a party's refusal to provide
requested discovery for any reason whatsoever, including, without limitation,
legal objections raised to such discovery or unavailability of a witness due to
absence or illness. No party shall be entitled to "priority" in conducting
discovery. Depositions may be taken by either party upon seven (7) days
written notice, and request for production or inspection of documents shall be
responded to within ten (10) 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 upon the parties. Pending
appointment of the referee as provided herein, the Court is empowered to issue
temporary and/or provisional remedies, as appropriate.
2. 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 all 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. The party making such a request shall have the obligation
to arrange for and pay for the court reporter. The costs of the court reporter
at the trial shall be borne equally by the parties.
3. 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, to provide all temporary and/or
provisional remedies and to enter equitable orders that will be binding upon
the parties. The referee shall issue a single judgment at the close of the
reference proceeding which shall dispose of all of the claims of the parties
that are the subject of the reference. The parties hereto expressly reserve
the right to contest or appeal from the final judgment or any appealable order
or appealable judgment entered by the referee. The parties hereto expressly
reserve the right to findings of fact, conclusions of law, 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.
4. In the event that 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 the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, (S)1280 through (S)1294.2 of the CCP as
amended from time to time. The limitations with respect to discovery as set
forth hereinabove shall apply to any such arbitration proceeding.