EXHIBIT 10.13
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CREDIT AND SECURITY AGREEMENT
BY AND BETWEEN
KITTY HAWK, INC.
AND
▇▇▇▇▇ FARGO BUSINESS CREDIT, INC.
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MARCH 22, 2004
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TABLE OF CONTENTS
PAGE
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ARTICLE I DEFINITIONS........................................................................................ 1
Section 1.1 Definitions........................................................................ 1
Section 1.2 Other Definitional Terms; Rules of Interpretation.................................. 11
ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY............................................................ 11
Section 2.1 Revolving Advances................................................................. 11
Section 2.2 Procedures for Requesting Advances................................................. 12
Section 2.3 Increased Costs; Capital Adequacy; Funding Exceptions.............................. 12
Section 2.4 Letters of Credit.................................................................. 13
Section 2.5 Special Account.................................................................... 14
Section 2.6 Payment of Amounts Drawn Under Letters of Credit; Obligation of Reimbursement...... 14
Section 2.7 Obligations Absolute............................................................... 15
Section 2.8 Interest; Additional Amounts; Default Interest; Participations; Clearance Days;
Usury.............................................................................. 16
Section 2.9 Fees............................................................................... 18
Section 2.10 Time for Interest Payments; Payment on Non-Banking Days; Computation of Interest
and Fees........................................................................... 20
Section 2.11 Lockbox; Collateral Account; Application of Payments............................... 21
Section 2.12 Voluntary Prepayment; Reduction of the Maximum Line; Termination of the Credit
Facility by the Borrower........................................................... 21
Section 2.13 Mandatory Prepayment............................................................... 21
Section 2.14 Revolving Advances to Pay Obligations.............................................. 21
Section 2.15 Use of Proceeds.................................................................... 22
Section 2.16 Liability Records.................................................................. 22
Section 2.17 Renewal............................................................................ 22
Section 2.18 Guarantor Collateral Accounts...................................................... 22
ARTICLE III SECURITY INTEREST; OCCUPANCY; SETOFF............................................................... 23
Section 3.1 Grant of Security Interest......................................................... 23
Section 3.2 Notification of Account Debtors and Other Obligors................................. 23
Section 3.3 Assignment of Insurance............................................................ 23
Section 3.4 Occupancy.......................................................................... 24
Section 3.5 License............................................................................ 24
Section 3.6 Financing Statement................................................................ 24
Section 3.7 Setoff............................................................................. 25
Section 3.8 Collateral......................................................................... 25
ARTICLE IV CONDITIONS OF LENDING.............................................................................. 26
Section 4.1 Conditions Precedent to the Initial Revolving Advance and Letter of Credit......... 26
Section 4.2 Conditions Precedent to All Advances and Letters of Credit......................... 28
TABLE OF CONTENTS
(CONTINUED)
PAGE
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ARTICLE V REPRESENTATIONS AND WARRANTIES.................................................................. 28
Section 5.1 Existence and Power; Name; Chief Executive Office; Inventory and Equipment
Locations; Federal Employer Identification Number............................... 28
Section 5.2 Capitalization.................................................................. 29
Section 5.3 Authorization of Borrowing; No Conflict as to Law or Agreements................. 29
Section 5.4 Legal Agreements................................................................ 29
Section 5.5 Subsidiaries.................................................................... 29
Section 5.6 Financial Condition; No Adverse Change.......................................... 29
Section 5.7 Litigation...................................................................... 29
Section 5.8 Regulation U.................................................................... 30
Section 5.9 Taxes........................................................................... 30
Section 5.10 Titles and Liens................................................................ 30
Section 5.11 Intellectual Property Rights.................................................... 30
Section 5.12 Plans........................................................................... 31
Section 5.13 Default......................................................................... 32
Section 5.14 Environmental Matters........................................................... 32
Section 5.15 Submissions to Lender........................................................... 32
Section 5.16 Financing Statements............................................................ 32
Section 5.17 Rights to Payment............................................................... 33
Section 5.18 Financial Solvency.............................................................. 33
ARTICLE VI COVENANTS....................................................................................... 33
Section 6.1 Reporting Requirements.......................................................... 33
Section 6.2 Financial Covenants............................................................. 37
Section 6.3 Permitted Liens; Financing Statements........................................... 39
Section 6.4 Indebtedness.................................................................... 39
Section 6.5 Guaranties...................................................................... 40
Section 6.6 Investments and Subsidiaries.................................................... 40
Section 6.7 Dividends and Distributions..................................................... 41
Section 6.8 Salaries........................................................................ 41
Section 6.9 Books and Records; Inspection and Examination................................... 41
Section 6.10 Account Verification............................................................ 41
Section 6.11 Compliance with Laws............................................................ 41
Section 6.12 Payment of Taxes and Other Claims............................................... 42
Section 6.13 Maintenance of Properties....................................................... 42
Section 6.14 Insurance....................................................................... 42
Section 6.15 Preservation of Existence....................................................... 43
Section 6.16 Delivery of Instruments, etc.................................................... 43
Section 6.17 Sale or Transfer of Assets; Suspension of Business Operations................... 43
Section 6.18 Consolidation and Merger; Asset Acquisitions.................................... 43
TABLE OF CONTENTS
(CONTINUED)
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Section 6.19 Sale and Leaseback.............................................................. 43
Section 6.20 Restrictions on Nature of Business.............................................. 43
Section 6.21 Accounting...................................................................... 44
Section 6.22 Discounts, etc.................................................................. 44
Section 6.23 Plans........................................................................... 44
Section 6.24 Place of Business; Name......................................................... 44
Section 6.25 Constituent Documents; S Corporation Status..................................... 44
Section 6.26 Performance by the Lender....................................................... 44
Section 6.27 [omitted intentionally]......................................................... 45
Section 6.28 Debt Payments................................................................... 45
Section 6.29 Transactions with Affiliates.................................................... 45
ARTICLE VII EVENTS OF DEFAULT, RIGHTS AND REMEDIES.......................................................... 45
Section 7.1 Events of Default............................................................... 45
Section 7.2 Rights and Remedies............................................................. 47
Section 7.3 Certain Notices................................................................. 48
ARTICLE VIII MISCELLANEOUS................................................................................... 49
Section 8.1 No Waiver; Cumulative Remedies; Compliance with Laws............................ 49
Section 8.2 Amendments, Etc................................................................. 49
Section 8.3 Addresses for Notices; Requests for Accounting.................................. 49
Section 8.4 Further Documents............................................................... 49
Section 8.5 Costs and Expenses.............................................................. 50
Section 8.6 Indemnity....................................................................... 50
Section 8.7 Participants.................................................................... 51
Section 8.8 Execution in Counterparts; Telefacsimile Execution.............................. 51
Section 8.9 Retention of Borrower's Records................................................. 51
Section 8.10 Binding Effect; Assignment; Complete Agreement; Exchanging Information.......... 51
Section 8.11 Severability of Provisions...................................................... 52
Section 8.12 Headings........................................................................ 52
Section 8.13 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial........................ 52
Section 8.14 Non-Application of Chapter 346 of the Texas Finance Code........................ 52
Section 8.15 Entire Agreement................................................................ 52
CREDIT AND SECURITY AGREEMENT
Dated as of March 22, 2004
KITTY HAWK, INC., a Delaware corporation (the "Borrower"), and ▇▇▇▇▇
FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), hereby
agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. For all purposes of this Agreement, except as
otherwise expressly provided, the following terms shall have the meanings
assigned to them in this Section or in the Section referenced after such term:
"Accounts" means all of a Person's accounts, as such term is
defined in the UCC, including each and every right of such Person to
the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale,
lease or other disposition of goods or other property, out of a
rendering of services, out of a loan, out of the overpayment of taxes
or other liabilities, or otherwise arises under any contract or
agreement, whether such right to payment is created, generated or
earned by such Person or by some other person who subsequently
transfers such person's interest to such Person, whether such right to
payment is or is not already earned by performance, and howsoever such
right to payment may be evidenced, together with all other rights and
interests (including all Liens) which such Person may at any time have
by law or agreement against any account debtor or other obligor
obligated to make any such payment or against any property of such
account debtor or other obligor; all including but not limited to all
present and future accounts, contract rights, loans and obligations
receivable, chattel papers, bonds, notes and other debt instruments,
tax refunds and rights to payment in the nature of general intangibles.
"Advance" means a Revolving Advance.
"Affiliate" or "Affiliates" means Kitty Hawk Aircargo, Kitty
Hawk Cargo, and any other Person (other than an individual) controlled
by, controlling or under common control with the Borrower, including
any Subsidiary of the Borrower. For purposes of this definition,
"control," when used with respect to any specified Person, means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by
contract or otherwise.
"Agreement" means this Credit and Security Agreement, as the
same may be amended, modified, supplemented or restated from time to
time.
"Aircraft" means aircraft, airframes, engines and related
parts that the Borrower and its Subsidiaries own or hold pursuant to
operating leases.
"Availability" means the difference of (i) the Borrowing Base
and (ii) the sum of (A) the outstanding principal balance of the
Revolving Note and (B) the L/C Amount.
"Banking Day" means a day on which the Federal Reserve Bank of
New York is open for business.
"Base Rate" means the rate of interest publicly announced from
time to time by ▇▇▇▇▇ Fargo at its principal office in San Francisco as
its "prime rate", with the understanding that the "prime rate" is one
of ▇▇▇▇▇ Fargo's base rates (not necessarily the lowest of such rates)
and serves as the basis upon which effective rates of interest are
calculated for loans making reference thereto.
"Book Net Worth" means the aggregate of the common and
preferred stockholders' equity in the Borrower, determined in
accordance with GAAP.
"Borrowing Base" means at any time the lesser of:
(a) the Maximum Line; or
(b) subject to reduction from time to time in the
Lender's sole discretion based on changes to Dilution, up to 85% of
Eligible Accounts (provided that Dilution is four percent (4%) or
less).
"Capital Expenditures" means for a period, any expenditure of
money during such period for the purchase or construction of assets, or
for improvements or additions thereto, which are capitalized on the
Borrower's balance sheet, or for the lease, purchase or other
acquisition of any capital asset, or for the lease of any other asset
whether payable currently or in the future; excluding, however,
Aircraft maintenance capital expenditures in the ordinary course of
business and operating leases of Aircraft.
"Change of Control" means the occurrence of any of the
following events:
(a) any Person or "group" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Securities Exchange Act of 1934, except that a Person will be
deemed to have "beneficial ownership" of all securities that such
Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly,
of more than 51% of the voting power of all classes of voting stock of
the Borrower.
(b) during any consecutive two-year period, individuals
who at the beginning of such period constituted the board of Directors
of the Borrower (together with any new Directors whose election to such
board of Directors, or whose nomination for election by the owners of
the Borrower, was approved by a vote of 66-2/3% of the Directors then
still in office who were either Directors at the beginning of such
period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the board of
Directors of the Borrower then in office.
"Collateral" means all of the Borrower's personal property and
assets, whether now owned or hereafter acquired, including Accounts,
chattel paper, deposit accounts, documents, Equipment (other than
Aircraft), fixtures, General Intangibles (excluding
CREDIT AND SECURITY AGREEMENT - PAGE 2
licenses and permits referred-to in the last sentence of this
definition), goods, instruments, Inventory, Investment Property (other
than the stock issued by Kitty Hawk Aircargo, Kitty Hawk Cargo and any
other wholly-owned Subsidiary of the Borrower), letter-of-credit
rights, letters of credit, and all sums on deposit in any Collateral
Account, and any items in any Lockbox; together with (i) all
substitutions and replacements for and products of any of the
foregoing; (ii) in the case of all goods, all accessions; (iii) all
accessories, attachments, parts, equipment and repairs now or hereafter
attached or affixed to or used in connection with any goods; (iv) all
warehouse receipts, bills of lading and other documents of title now or
hereafter covering such goods; (v) all collateral subject to the Lien
of any Security Document; (vi) any money, or other assets of the
Borrower that now or hereafter come into the possession, custody, or
control of the Lender; (vii) all sums on deposit in the Special
Account; and (viii) proceeds of any and all of the foregoing. (For
avoidance of doubt, any Department of Transportation, Federal Aviation
Administration and other governmental licenses and permits which by
their nature are not freely assignable or transferable are not included
as Collateral.)
"Collateral Account" means each "Lender Account" as defined in
any Lockbox and Collection Account Agreement.
"Commitment" means the Lender's commitment to make Advances
to, and to cause the Issuer to issue Letters of Credit for the account
of, the Borrower pursuant to Article II.
"Constituent Documents" means with respect to any Person, as
applicable, such Person's certificate of incorporation, articles of
incorporation, by-laws, certificate of formation, articles of
organization, limited liability company agreement, management
agreement, operating agreement, shareholder agreement, partnership
agreement or similar document or agreement governing such Person's
existence, organization or management or concerning disposition of
ownership interests of such Person or voting rights among such Person's
owners.
"Contribution and Indemnification Agreement" means the
Contribution and Indemnification Agreement executed by each Loan Party
and the Lender, dated as of even date herewith, as the same may be
amended, modified, supplemented or restated from time to time.
"Credit Facility" means the credit facility being made
available to the Borrower by the Lender under Article II.
"Debt" means of a Person as of a given date, all items of
indebtedness or liability which in accordance with GAAP would be
included in determining total liabilities as shown on the liabilities
side of a balance sheet for such Person and shall also include the
aggregate payments required to be made by such Person at any time under
any lease that is considered a capitalized lease under GAAP.
"Default" means an event that, with giving of notice or
passage of time or both, would constitute an Event of Default.
CREDIT AND SECURITY AGREEMENT - PAGE 3
"Default Period" means any period of time beginning on the day
an Event of Default occurs and ending on the date the Lender notifies
the Borrower in writing that such Event of Default has been cured or
waived.
"Default Rate" means an annual interest rate equal to three
percent (3%) over the Floating Rate, which interest rate shall change
when and as the Floating Rate changes.
"Dilution" means the gross amount of all returns, allowances,
discounts, credits, writeoffs, and similar items relating to Accounts
(but excluding any non-diluting items) computed as a percentage of
gross sales, calculated on a three month rolling average, as determined
by the Lender in its discretion during routine or special collateral
audits.
"Director" means a director if the Borrower is a corporation,
a manager if the Borrower is a limited liability company, or a general
partner if the Borrower is a partnership.
"Dollars" or "$" means lawful currency of the United States of
America.
"EBITDAR" means, at each date of determination, the sum of (i)
pretax earnings from continuing operations, (ii) Interest Expense and
(iii) depreciation, depletion, and amortization of tangible and
intangible assets, before (a) special extraordinary gains, (b) minority
interests, and (c) miscellaneous gains and losses, in each case for
such period, computed and calculated in accordance with GAAP, and (iv)
Rent for the trailing four fiscal quarters.
"ERISA" means the Employee Retirement Income Security Act of
1974 as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is a member of a group which includes the Borrower
and which is treated as a single employer under Section 414 of the IRC.
"Eligible Accounts" means all of the Borrower's and each
Guarantor's unpaid Accounts arising from the sale or lease of goods or
the performance of services by Borrower or such Guarantor, net of any
credits, but excluding any such Accounts having any of the following
characteristics:
(i) That portion of Accounts unpaid 90 days or
more after the invoice date;
(ii) That portion of Accounts that is disputed or
subject to a claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by
the final delivery of goods or rendition of services, as
applicable, by the Borrower to the customer, including
progress ▇▇▇▇▇▇▇▇, and that portion of Accounts for which an
invoice has not been sent to the applicable account debtor;
CREDIT AND SECURITY AGREEMENT - PAGE 4
(iv) Accounts constituting (A) proceeds of
copyrightable material unless such copyrightable material
shall have been registered with the United States Copyright
Office, or (B) proceeds of patentable inventions unless such
patentable inventions have been registered with the United
States Patent and Trademark Office;
(v) Accounts owed by any unit of government,
whether foreign or domestic (provided, however, that there
shall be included in Eligible Accounts that portion of
Accounts owed by such units of government for which the
Borrower or the applicable Guarantor has provided evidence
satisfactory to the Lender that (A) the Lender has a first
priority perfected security interest and (B) such Accounts may
be enforced by the Lender directly against such unit of
government under all applicable laws);
(vi) Accounts owed by an account debtor located
outside the United States which are not (A) backed by a bank
letter of credit naming the Lender as beneficiary or assigned
to the Lender, in the Lender's possession or control, and with
respect to which a control agreement concerning the
letter-of-credit rights is in effect, and acceptable to the
Lender in all respects, in its sole discretion, or (B) covered
by a foreign receivables insurance policy acceptable to the
Lender in its sole discretion;
(vii) Accounts owed by an account debtor that is
insolvent, the subject of bankruptcy proceedings or has gone
out of business;
(viii) Accounts owed by an Owner, Subsidiary,
Affiliate, Officer or employee of the Borrower or the
Guarantors;
(ix) Accounts not subject to a duly perfected
security interest in the Lender's favor or which are subject
to any Lien in favor of any Person other than the Lender;
(x) That portion of Accounts that has been
restructured, extended, amended or modified;
(xi) That portion of Accounts that constitutes
advertising, finance charges, or service charges;
(xii) Accounts owed by an account debtor,
regardless of whether otherwise eligible, to the extent that
the balance of such Accounts exceeds 20% of the aggregate
amount of all Eligible Accounts;
(xiii) Accounts owed by an account debtor,
regardless of whether otherwise eligible, if 25% or more of
the total amount due under Accounts from such debtor is
ineligible under clauses (i), (ii) or (x) above; and
(xiv) Accounts, or portions thereof, otherwise
deemed ineligible by the Lender in the exercise of its
business judgment.
CREDIT AND SECURITY AGREEMENT - PAGE 5
"Environmental Law" means any federal, state, local or other
governmental statute, regulation, law or ordinance dealing with the
protection of human health and the environment.
"Equipment" means all of a Person's equipment, as such term is
defined in the UCC, whether now owned or hereafter acquired, including
but not limited to all present and future machinery, vehicles,
furniture, fixtures, manufacturing equipment, shop equipment, office
and recordkeeping equipment, parts, tools, supplies, and including
specifically the goods described in any equipment schedule or list
herewith or hereafter furnished to the Lender by such Person. For
avoidance of doubt, Aircraft are not included in the definition of
"Equipment".
"Event of Default" has the meaning specified in Section 7.1.
"Financial Covenants" means the covenants set forth in Section
6.2.
"Floating Rate" means a fluctuating annual interest rate which
shall from day to day be the lesser of (a) the Maximum Rate or (b) an
annual interest rate equal to the sum of the Base Rate plus one percent
(1.0%), which interest rate shall change when and as the Base Rate
changes.
"Funding Date" has the meaning given in Section 2.1.
"GAAP" means generally accepted accounting principles, applied
on a basis consistent with the accounting practices applied in the
financial statements described in Section 5.6.
"General Intangibles" means all of a Person's general
intangibles, as such term is defined in the UCC, whether now owned or
hereafter acquired, including all present and future Intellectual
Property Rights, customer or supplier lists and contracts, manuals,
operating instructions, permits, franchises, the right to use a
Person's name, and the goodwill of such Person's business. For
avoidance of doubt, the term "General Intangibles" shall not include
the excluded property referred-to in the definition of "Collateral".
"Guarantor" means each of Kitty Hawk Aircargo, Kitty Hawk
Cargo, and any Person now or hereafter guaranteeing the Obligations.
"Hazardous Substances" means pollutants, contaminants,
hazardous substances, hazardous wastes, petroleum and fractions
thereof, and all other chemicals, wastes, substances and materials
listed in, regulated by or identified in any Environmental Law.
"IRC" means the Internal Revenue Code of 1986, as amended from
time to time.
"Infringe," when used with respect to Intellectual Property
Rights, means any infringement or other violation of Intellectual
Property Rights.
CREDIT AND SECURITY AGREEMENT - PAGE 6
"Intellectual Property Rights" means all actual or prospective
rights arising in connection with any intellectual property or other
proprietary rights, including all rights arising in connection with
copyrights, patents, service marks, trade dress, trade secrets,
trademarks, trade names or mask works.
"Interest Expense" means, at each date of determination, the
Borrower's total consolidated gross interest expense (excluding
interest income), and shall in any event include (i) interest expensed
(whether or not paid) on all Debt, (ii) the amortization of debt
discounts, (iii) the amortization of all fees payable in connection
with the incurrence of Debt to the extent included in interest expense,
and (iv) the portion of any capitalized lease obligation allocable to
interest expense, for the trailing four fiscal quarters.
"Inventory" means all of a Person's inventory, as such term is
defined in the UCC (excluding Aircraft), whether now owned or hereafter
acquired, whether consisting of whole goods, spare parts or components,
supplies or materials, whether acquired, held or furnished for sale,
for lease or under service contracts or for manufacture or processing,
and wherever located.
"Investment Property" means all of a Person's investment
property, as such term is defined in the UCC, whether now owned or
hereafter acquired, including but not limited to all securities,
security entitlements, securities accounts, commodity contracts,
commodity accounts, stocks, bonds, mutual fund shares, money market
shares and U.S. Government securities.
"Issuer" means the issuer of any Letter of Credit.
"Kitty Hawk Aircargo" means Kitty Hawk Aircargo, Inc., a Texas
corporation.
"Kitty Hawk Cargo" means Kitty Hawk Cargo, Inc., a Delaware
corporation.
"L/C Amount" means the sum of (i) the aggregate face amount of
any issued and outstanding Letters of Credit and (ii) the unpaid amount
of the Obligation of Reimbursement.
"L/C Application" means an application and agreement for
letters of credit in a form acceptable to the Issuer and the Lender.
"Letter of Credit" has the meaning specified in Section 2.4.
"Licensed Intellectual Property" has the meaning given in
Section 5.11(c).
"Lien" means any security interest, mortgage, deed of trust,
pledge, lien, charge, encumbrance, title retention agreement or
analogous instrument or device, 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.
CREDIT AND SECURITY AGREEMENT - PAGE 7
"Liquid Assets" means Dollars and investment grade commercial
paper.
"Loan Documents" means this Agreement, the Note, the Security
Documents and any L/C Application.
"Loan Party" means the Borrower or a Guarantor, or both.
"Lockbox" has the meaning given in the Lockbox and Collection
Account Agreements.
"Lockbox and Collection Account Agreement" means a Lockbox and
Collection Account Agreement by and among the applicable Loan Party,
▇▇▇▇▇ Fargo, and the Lender, as the same may be amended, modified or
restated from time to time.
"Maturity Date" has the meaning given in Section 2.17.
"Maximum Line" means $10,000,000.00 unless said amount is
reduced pursuant to Section 2.12, in which event it means such lower
amount.
"Maximum Rate" means the maximum lawful rate of interest which
may be contracted for, charged, taken, received or reserved by Lender
in accordance with the applicable laws of the State of Texas (or
applicable United States federal law to the extent that such law
permits Lender to contract for, charge, take, receive or reserve a
greater amount of interest than under Texas law), taking into account
all charges made in connection with the transaction evidenced by the
Loan Documents. If such maximum rate of interest changes after the date
hereof, the Maximum Rate shall be automatically increased or decreased,
as the case may be, from time to time as of the effective date of each
change in such Maximum Rate. To the extent, if any, that Chapter 303 of
the Texas Finance Code, as amended, establishes the Maximum Rate, the
Maximum Rate shall be the "weekly ceiling" as defined therein.
"Monthly Period" means each month when (1) Availability plus
the Borrower's Liquid Assets held in accounts with ▇▇▇▇▇ Fargo or ▇▇▇▇▇
Fargo Investments in which the Lender has a Lien is greater than
$7,500,000, (2) no Default exists and (3) collateral audits are
satisfactory to the Lender.
"Multiemployer Plan" means a multiemployer plan (as defined in
Section 4001(a)(3) of ERISA) to which the Borrower or any ERISA
Affiliate contributes or is obligated to contribute.
"Net Income" means after-tax net income from continuing
operations as determined in accordance with GAAP, excluding, however,
the effect of non-cash items.
"Non-Excluded Taxes" means any Taxes other than income and
franchise Taxes imposed with respect to the Lender by the United States
of America and the State of Texas.
CREDIT AND SECURITY AGREEMENT - PAGE 8
"Note" means the Revolving Note, as the same may be amended,
modified, supplemented or restated from time to time.
"Obligation of Reimbursement" has the meaning given in Section
2.6(a).
"Obligations" means the Note, the Obligation of Reimbursement
and each and every other debt, liability and obligation of every type
and description which the Borrower may now or at any time hereafter owe
to the Lender, whether such debt, liability or obligation now exists or
is hereafter created or incurred, whether it arises in a transaction
involving the Lender alone or in a transaction involving other
creditors of the Borrower, and whether it is direct or indirect, due or
to become due, absolute or contingent, primary or secondary, liquidated
or unliquidated, or sole, joint, several or joint and several, and
including all indebtedness of the Borrower arising under any Credit
Document or guaranty between the Borrower and the Lender, whether now
in effect or hereafter entered into.
"Officer" means with respect to the Borrower, an officer if
the Borrower is a corporation, a manager if the Borrower is a limited
liability company, or a partner if the Borrower is a partnership.
"Original Maturity Date" means March 22, 2007.
"Other Taxes" means any and all stamp, documentary or similar
Taxes, or any other excise or property Taxes or similar levies that
arise on account of any payment made or required to be made under any
Loan Document or from the execution, delivery, registration, recording
or enforcement of any Loan Document.
"Owned Intellectual Property" has the meaning given in Section
5.11(a).
"Owner" means with respect to the Borrower, each Person having
legal or beneficial title to an ownership interest in the Borrower or a
right to acquire such an interest.
"Pension Plan" means a pension plan (as defined in Section
3(2) of ERISA) maintained for employees of the Borrower or any ERISA
Affiliate and covered by Title IV of ERISA.
"Permitted Lien" has the meaning given in Section 6.3(a).
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Plan" means an employee benefit plan (as defined in Section
3(3) of ERISA) maintained for employees of the Borrower or any ERISA
Affiliate.
CREDIT AND SECURITY AGREEMENT - PAGE 9
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession, including the premises
legally described in Exhibit C attached hereto.
"Rent" means, with respect to the Borrower and its
Subsidiaries, all payments for rent and additional rent under all
operating leases of Aircraft with a term of one year or more.
"Reportable Event" means a reportable event (as defined in
Section 4043 of ERISA), other than an event for which the 30-day notice
requirement under ERISA has been waived in regulations issued by the
Pension Benefit Guaranty Corporation.
"Revolving Advance" has the meaning given in Section 2.1.
"Revolving Note" means the Borrower's revolving promissory
note, payable to the order of the Lender in substantially the form of
Exhibit A hereto, as the same may be amended, modified, supplemented or
restated from time to time.
"Security Agreement" means a Security Agreement executed by
each Guarantor in favor of the Lender as of even date herewith as the
same may be amended, modified or restated from time to time.
"Security Documents" means this Agreement, the Lockbox and
Collection Account Agreements, the Trademark Security Agreements, any
guaranty, the Security Agreements, the Contribution and Indemnification
Agreement, any control agreements or other documents executed in
relation to the Borrower's or any Guarantor's deposit accounts or
Investment Property, and any other document delivered to the Lender
from time to time to secure the Obligations.
"Security Interest" has the meaning given in Section 3.1.
"Special Account" means a specified cash collateral account
maintained by a financial institution acceptable to the Lender in
connection with Letters of Credit, as contemplated by Section 2.5.
"Subordination Agreement" means any other subordination
agreement with respect to Debt of the Borrower accepted by Lender from
time to time.
"Subordinated Debt" means any Debt of the Borrower subject to
a Subordination Agreement.
"Subsidiary" means any corporation of which more than 50% of
the outstanding shares of capital stock having general voting power
under ordinary circumstances to elect a majority of the board of
Directors of such corporation, irrespective of whether or not at the
time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency, is at the
time directly or indirectly owned by the Borrower, by the Borrower and
one or more other Subsidiaries, or by one or more other Subsidiaries.
CREDIT AND SECURITY AGREEMENT - PAGE 10
"Taxes" means all income, stamp or other taxes, duties,
levies, imposts, charges, assessments, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or
assessed by any governmental authority, and all interest, penalties or
similar liabilities with respect thereto.
"Termination Date" means the earliest of (i) the Maturity
Date, (ii) the date the Borrower terminates the Credit Facility, or
(iii) the date the Lender demands payment of the Obligations while an
Event of Default continues.
"Trademark Security Agreement" means a separate Trademark
Security Agreement executed by each of the Borrower, Kitty Hawk
Aircargo, and Kitty Hawk Cargo, in favor of the Lender as the same may
be amended, modified, supplemented, or restated from time to time.
"UCC" means the Uniform Commercial Code as in effect in the
state designated in Section 8.13 as the state whose laws shall govern
this Agreement, or in any other state whose laws are held to govern
this Agreement or any portion hereof.
"▇▇▇▇▇ Fargo" means ▇▇▇▇▇ Fargo Bank, National Association.
Section 1.2 Other Definitional Terms; Rules of Interpretation. The
words "hereof", "herein" and "hereunder" and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. All accounting terms not otherwise
defined herein have the meanings assigned to them in accordance with GAAP. All
terms defined in the UCC and not otherwise defined herein have the meanings
assigned to them in the UCC. References to Articles, Sections, subsections,
Exhibits, Schedules and the like, are to Articles, Sections and subsections of,
or Exhibits or Schedules attached to, this Agreement unless otherwise expressly
provided. The words "include", "includes" and "including" shall be deemed to be
followed by the phrase "without limitation". Unless the context in which used
herein otherwise clearly requires, "or" has the inclusive meaning represented by
the phrase "and/or". Defined terms include in the singular number the plural and
in the plural number the singular. Reference to any agreement (including the
Loan Documents), document or instrument means such agreement, document or
instrument as amended or modified and in effect from time to time in accordance
with the terms thereof (and, if applicable, in accordance with the terms hereof
and the other Loan Documents), except where otherwise explicitly provided, and
reference to any promissory note includes any promissory note which is an
extension or renewal thereof or a substitute or replacement therefor. Reference
to any law, rule, regulation, order, decree, requirement, policy, guideline,
directive or interpretation means as amended, modified, codified, replaced or
reenacted, in whole or in part, and in effect on the determination date,
including rules and regulations promulgated thereunder.
ARTICLE II
AMOUNT AND TERMS OF THE CREDIT FACILITY
Section 2.1 Revolving Advances. The Lender agrees, on the terms and
subject to the conditions herein set forth, to make advances to the Borrower
from time to time from the date all
CREDIT AND SECURITY AGREEMENT - PAGE 11
of the conditions set forth in Section 4.1 are satisfied (the "Funding Date") to
the Termination Date (the "Revolving Advances"). The Lender shall have no
obligation to make a Revolving Advance to the extent the amount of the requested
Revolving Advance exceeds Availability. The Borrower's obligation to pay the
Revolving Advances shall be evidenced by the Revolving Note and shall be secured
by the Collateral. Within the limits set forth in this Section 2.1, the Borrower
may borrow, prepay pursuant to Section 2.12 and reborrow.
Section 2.2 Procedures for Requesting Advances. The Borrower shall
comply with the following procedures in requesting Revolving Advances:
(a) TIME FOR REQUESTS. The Borrower shall request each
Advance not later than 11:00 a.m., Dallas, Texas time on the Banking
Day which is the date the Advance is to be made. Each such request
shall be effective upon receipt by the Lender, shall be in writing or
by telephone or telecopy transmission, to be confirmed in writing by
the Borrower if so requested by the Lender shall be by the chief
executive officer, chief financial officer or chief accounting officer
of the Borrower, as reflected on the latest incumbency certification
received by the Lender. The Borrower shall repay all Advances even if
the Lender does not receive such confirmation and even if the person
requesting an Advance was not in fact authorized to do so. Any request
for an Advance, whether written or telephonic, shall be deemed to be a
representation by the Borrower that the conditions set forth in Section
4.2 have been satisfied as of the time of the request.
(b) DISBURSEMENT. Upon fulfillment of the applicable
conditions set forth in Article IV, the Lender shall disburse the
proceeds of the requested Advance by crediting the same to the
Borrower's demand deposit account maintained with ▇▇▇▇▇ Fargo unless
the Lender and the Borrower shall agree in writing to another manner of
disbursement.
Section 2.3 Increased Costs; Capital Adequacy; Funding Exceptions. If
the Lender determines at any time that its Return has been reduced as a result
of any Rule Change, the Lender may so notify the Borrower and may, on a
nondiscriminatory basis vis a vis other similarly situated borrowers, require
the Borrower, beginning fifteen (15) days after such notice, to pay it the
amount necessary to restore its Return to what it would have been had there been
no Rule Change. For purposes of this Section 2.3:
(i) "Capital Adequacy Rule" means any law, rule,
regulation, guideline, directive, requirement or request
regarding capital adequacy, or the interpretation or
administration thereof by any governmental or regulatory
authority, central bank or comparable agency, whether or not
having the force of law, that applies to any Related Lender,
including rules requiring financial institutions to maintain
total capital in amounts based upon percentages of outstanding
loans, binding loan commitments and letters of credit.
(ii) "L/C Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding letters
of credit, or the interpretation or administration thereof by
any governmental or regulatory authority, central bank or
comparable agency, whether or not having the force of law,
that applies to any Related Lender, including those that
impose taxes, duties or other similar charges,
CREDIT AND SECURITY AGREEMENT - PAGE 12
or mandate reserves, special deposits or similar requirements
against assets of, deposits with or for the account of, or
credit extended by any Related Lender, on letters of credit.
(iii) "Related Lender" includes (but is not
limited to) the Lender, any parent of the Lender, any assignee
of any interest of the Lender hereunder and any participant in
the Credit Facility.
(iv) "Return" for any period means the percentage
determined by dividing (i) the sum of interest and ongoing
fees earned by the Lender under this Agreement during such
period, by (ii) the average capital such Lender is required to
maintain during such period as a result of its being a party
to this Agreement, as determined by such Lender based upon its
total capital requirements and a reasonable attribution
formula that takes account of the Capital Adequacy Rules and
L/C Rules then in effect, costs of issuing or maintaining any
Advance or Letter of Credit and amounts received or receivable
under this Agreement or the Note with respect to any Advance
or Letter of Credit. Return may be calculated for each
calendar quarter and for the shorter period between the end of
a calendar quarter and the date of termination in whole of
this Agreement.
(v) "Rule Change" means any change in any
Capital Adequacy Rule or L/C Rule occurring after the date of
this Agreement, or any change in the interpretation or
administration thereof by any governmental or regulatory
authority, that affects not only the Lender but also similarly
situated institutions, but the term does not include any
changes that at the Funding Date are scheduled to take place
under the existing Capital Adequacy Rules or L/C Rules or any
increases in the capital that the Lender is required to
maintain to the extent that the increases are required due to
a regulatory authority's assessment of that Lender's financial
condition.
The initial notice sent by the Lender shall be sent as promptly as practicable
after such Lender learns that its Return has been reduced, shall include a
demand for payment of the amount necessary to restore such Lender's Return for
the quarter in which the notice is sent, and shall state in reasonable detail
the cause for the reduction in its Return and its calculation of the amount of
such reduction. Thereafter, such Lender may send a new notice during each
calendar quarter setting forth the calculation of the reduced Return for that
quarter and including a demand for payment of the amount necessary to restore
its Return for that quarter. The Lender's calculation in any such notice shall
be conclusive and binding absent demonstrable error.
Section 2.4 Letters of Credit.
(a) The Lender agrees, on the terms and subject to the
conditions herein set forth, to cause an Issuer to issue, from the
Funding Date to the Termination Date, one or more irrevocable standby
or documentary letters of credit (each, a "Letter of Credit") for the
Borrower's account by guaranteeing payment of the Borrower's
obligations or being a co-applicant. The Lender shall have no
obligation to cause an Issuer to issue any Letter of Credit if the face
amount of the Letter
CREDIT AND SECURITY AGREEMENT - PAGE 13
of Credit to be issued would exceed the lesser of:
(i) $5,000,000.00 less the L/C Amount, or
(ii) Availability.
Each Letter of Credit, if any, shall be issued pursuant to a separate
L/C Application entered into between the Borrower and the Lender for
the benefit of the Issuer, completed in a manner satisfactory to the
Lender and the Issuer. The terms and conditions set forth in each
such L/C Application shall supplement the terms and conditions
hereof, but if the terms of any such L/C Application and the terms of
this Agreement are inconsistent, the terms hereof shall control.
(b) No Letter of Credit shall be issued with an expiry
date later than the Termination Date in effect as of the date of
issuance.
(c) Any request to cause an Issuer to issue a Letter of
Credit shall be deemed to be a representation by the Borrower that the
conditions set forth in Section 4.2 have been satisfied as of the date
of the request.
Section 2.5. Special Account. If the Credit Facility is terminated for
any reason while any Letter of Credit is outstanding, the Borrower shall
thereupon pay the Lender in immediately available funds for deposit in the
Special Account an amount equal to the L/C Amount. The Special Account shall be
an interest bearing account maintained for the Lender by any financial
institution acceptable to the Lender. Any interest earned on amounts deposited
in the Special Account shall be credited to the Special Account. The Lender may
apply amounts on deposit in the Special Account at any time or from time to time
to the Obligations in the Lender's sole discretion. The Borrower may not
withdraw any amounts on deposit in the Special Account as long as the Lender
maintains a security interest therein. The Lender agrees to transfer any balance
in the Special Account to the Borrower when the Lender is required to release
its security interest in the Special Account under applicable law.
Section 2.6 Payment of Amounts Drawn Under Letters of Credit;
Obligation of Reimbursement. The Borrower acknowledges that the Lender, as
co-applicant, will be liable to the Issuer for reimbursement of any and all
draws under Letters of Credit and for all other amounts required to be paid
under the applicable L/C Application. Accordingly, the Borrower shall pay to the
Lender any and all amounts required to be paid under the applicable L/C
Application, when and as required to be paid thereby, and the amounts designated
below, when and as designated:
(a) The Borrower shall pay to the Lender on the day a
draft is honored under any Letter of Credit a sum equal to all amounts
drawn under such Letter of Credit plus any and all reasonable charges
and expenses that the Issuer or the Lender may pay or incur relative to
such draw and the applicable L/C Application, plus interest on all such
amounts, charges and expenses as set forth below (the Borrower's
obligation to pay all such amounts is herein referred to as the
"Obligation of Reimbursement").
CREDIT AND SECURITY AGREEMENT - PAGE 14
(b) Whenever a draft is submitted under a Letter of
Credit, the Borrower authorizes the Lender to make a Revolving Advance
in the amount of the Obligation of Reimbursement and to apply the
proceeds of such Revolving Advance thereto. Such Revolving Advance
shall be repayable in accordance with and be treated in all other
respects as a Revolving Advance hereunder.
(c) If a draft is submitted under a Letter of Credit when
the Borrower is unable, because a Default Period exists or for any
other reason, to obtain a Revolving Advance to pay the Obligation of
Reimbursement, the Borrower shall pay to the Lender on demand and in
immediately available funds, the amount of the Obligation of
Reimbursement together with interest, accrued from the date of the
draft until payment in full at the Default Rate. Notwithstanding the
Borrower's inability to obtain a Revolving Advance for any reason, the
Lender is irrevocably authorized, in its sole discretion, to make a
Revolving Advance in an amount sufficient to discharge the Obligation
of Reimbursement and all accrued but unpaid interest thereon.
(d) The Borrower's obligation to pay any Revolving
Advance made under this Section 2.6, shall be evidenced by the
Revolving Note and shall bear interest as provided in Section 2.8.
Section 2.7 Obligations Absolute. The Borrower's obligations arising
under Section 2.6 shall be absolute, unconditional and irrevocable, and shall be
paid strictly in accordance with the terms of Section 2.6, under all
circumstances whatsoever, including (without limitation) the following
circumstances:
(a) any lack of validity or enforceability of any Letter
of Credit or any other agreement or instrument relating to any Letter
of Credit (collectively the "Related Documents");
(b) any amendment or waiver of or any consent to
departure from all or any of the Related Documents;
(c) the existence of any claim, setoff, defense or other
right which the Borrower may have at any time, against any beneficiary
or any transferee of any Letter of Credit (or any persons or entities
for whom any such beneficiary or any such transferee may be acting), or
other person or entity, whether in connection with this Agreement, the
transactions contemplated herein or in the Related Documents or any
unrelated transactions;
(d) any statement or any other document presented under
any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever;
(e) payment by or on behalf of the Issuer under any
Letter of Credit against presentation of a draft or certificate which
does not strictly comply with the terms of such Letter of Credit; or
CREDIT AND SECURITY AGREEMENT - PAGE 15
(f) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing.
Section 2.8 Interest; Additional Amounts; Default Interest;
Participations; Clearance Days; Usury.
(a) NOTE. Except as set forth in Sections 2.8(c) and (f),
the outstanding principal balance of the Note shall bear interest at
the Floating Rate.
(b) ADDITIONAL AMOUNTS. In addition to the interest
otherwise provided for in this Agreement, but in all events subject to
Section 2.8(f), during the term of this Agreement, an additional
commitment fee shall accrue on a pro-rata basis each month and the
Borrower, except as otherwise provided herein, shall pay to the Lender
on the first day of each month of each year commencing April 1, 2004,
such additional commitment fee in an amount equal to the difference, if
any, between the lesser of (1) the Maximum Rate applied to the
outstanding principal of the Obligations and (2) the positive
difference between (x) $8,500.00 and (y) the amount of (i) fees under
Section 2.9(c) plus (ii) interest calculated under Sections 2.8(a),
2.8(c), 2.8(d), 2.8(e) and 2.8(f) for such calendar month, but only to
the extent that such additional commitment fee payments do not cause
interest on the Obligations to exceed the Maximum Rate. On the
Termination Date, such additional commitment fee shall be due and
payable and shall be calculated as a pro rata amount of $8,500.00 based
upon the number of days that have elapsed since the beginning of the
month less the amount of (1) fees under Section 2.9(c) plus (2)
interest calculated under Sections 2.8(a), 2.8(c), 2.8(d), 2.8(e) and
2.8(f), but only to the extent that such additional commitment fee
payments do not cause interest on the Obligations to exceed the Maximum
Rate.
(c) DEFAULT INTEREST RATE. Upon notice to the Borrower
from the Lender from time to time, but subject to Section 2.8(f)
hereof, the principal of the Advances outstanding from time to time
shall bear interest at the Default Rate, effective as of the first day
of the fiscal month during which any Default Period begins through the
last day of such Default Period. The Lender's election to charge the
Default Rate shall be in its sole discretion and shall not be a waiver
of any of its other rights and remedies. The Lender's election to
charge interest at the Default Rate for less than the entire period
during which the Default Rate may be charged shall not be a waiver of
its right to later charge the Default Rate for the entire such period.
(d) CLEARANCE DAYS. Notwithstanding Section 2.11(b)(ii),
interest at the interest rate applicable under this Section 2.8 shall
accrue on the amount of all payments (even if in the form of
immediately available federal funds) for two (2) Banking Days for
clearance.
(e) PARTICIPATIONS. If any Person shall acquire a
participation in the Advances or the Obligation of Reimbursement, the
Borrower shall be obligated to the Lender to pay the full amount of all
interest calculated under this Section 2.8, along with all other fees,
charges and other amounts due under this Agreement, regardless if such
Person elects to accept interest with respect to its participation at a
lower rate than that calculated under
CREDIT AND SECURITY AGREEMENT - PAGE 16
this Section 2.8, or otherwise elects to accept less than its pro rata
share of such fees, charges and other amounts due under this Agreement.
(f) USURY. In any event no rate change shall be put into
effect which would result in a rate greater than the highest rate
permitted by law. Notwithstanding anything to the contrary contained in
any Loan Document, all agreements which either now are or which shall
become agreements between the Borrower and the Lender are hereby
limited so that in no contingency or event whatsoever shall the total
liability for payments in the nature of interest, additional interest
and other charges exceed the applicable limits imposed by any
applicable usury laws. If any payments in the nature of interest,
additional interest and other charges made under any Loan Document are
held to be in excess of the limits imposed by any applicable usury
laws, it is agreed that any such amount held to be in excess shall be
considered payment of principal hereunder, and the indebtedness
evidenced hereby shall be reduced by such amount so that the total
liability for payments in the nature of interest, additional interest
and other charges shall not exceed the applicable limits imposed by any
applicable usury laws, in compliance with the desires of the Borrower
and the Lender. In determining whether or not the interest paid or
payable under any specific contingency exceeds interest calculated at
the Maximum Rate, Borrower and Lender shall, to the maximum extent
permitted under applicable law: (a) characterize any non-principal
payment as an expense, fee, or premium rather than as interest, (b)
exclude voluntary prepayments and the effects thereof, and (c)
amortize, pro rate, allocate, and spread, in equal parts, the total
amount of interest throughout the entire contemplated term of the
Obligations. This provision shall never be superseded or waived and
shall control every other provision of the Loan Documents and all
agreements between the Borrower and the Lender, or their successors and
assigns.
(g) TAXES. The Borrower covenants and agrees as follows
with respect to Taxes:
(i) Any and all payments under each Loan
Document shall be made without setoff, counterclaim or other
defense, and free and clear of, and without deduction or
withholding for or on account of, any Taxes, except to the
extent that any such deduction or withholding is required by
law. In the event that any Taxes are required by law to be
deducted or withheld from any payment required to be made by
the Borrower or any Guarantor to or on behalf of Lender under
any Loan Document, then:
A. if such Taxes are Non-Excluded
Taxes, the amount of such payment shall be increased
as may be necessary so that such payment is made,
after withholding or deduction for or on account of
such Taxes, in an amount that is not less than the
amount provided for in such Loan Document; and
B. as applicable, the Borrower or the
Guarantor shall withhold the full amount of such
Taxes from such payment (as increased pursuant
CREDIT AND SECURITY AGREEMENT - PAGE 17
to clause (a)(i)) and shall pay such amount to the
governmental authority imposing such Taxes in
accordance with applicable law.
(ii) In addition, the Borrower shall pay all
Other Taxes imposed to the relevant governmental authority
imposing such Other Taxes in accordance with applicable law.
(iii) Upon request of the Lender, the Borrower
shall furnish to the Lender a copy of an official receipt (or
a certified copy thereof) evidencing the payment of such Taxes
or Other Taxes.
(iv) As contemplated in Section 8.6 hereof, the
Borrower shall indemnify Lender for any Non-Excluded Taxes and
Other Taxes levied, imposed or assessed on (and whether or not
paid directly by) the Lender whether or not such Non-Excluded
Taxes or Other Taxes are correctly or legally asserted by the
relevant governmental authority. Promptly upon having
knowledge that any such Non-Excluded Taxes or Other Taxes have
been levied, imposed or assessed, and promptly upon notice
thereof by the Lender, the Borrower shall pay such
Non-Excluded Taxes or Other Taxes directly to the relevant
governmental authority (provided, however, that the Lender
shall not be under any obligation to provide any such notice
to the Borrower). In addition, the Borrower shall indemnify
the Lender for any incremental Taxes that may become payable
by the Lender as a result of any failure of the Borrower or
the Guarantor to pay any Taxes otherwise required to be paid
under clause (a) or (b) when due to the appropriate
governmental authority or to deliver to the Lender, pursuant
to clause (c), documentation evidencing the payment of
Non-Excluded Taxes or Other Taxes. With respect to
indemnification for Non-Excluded Taxes and Other Taxes
actually paid by the Lender or the indemnification provided in
the immediately preceding sentence, such indemnification shall
be made within 30 days after the date the Lender makes written
demand therefor. The Borrower acknowledges that any payment
made to the Lender or to any governmental authority in respect
of the indemnification obligations provided in this clause
shall constitute a payment in respect of which the provisions
of clause (a) and this clause shall apply.
(v) In the event the Borrower or the Guarantor
makes a payment under clause (a), (b) or (d) and the Lender
thereafter recovers, through refund, direct payment, tax
credit or otherwise, the amount in respect of which the
payment was made, then the Lender shall reimburse the Person
making such payment to the extent of the Lender's recovery,
but not to exceed the amount of the applicable payment.
Section 2.9 Fees.
(a) ORIGINATION FEE. The Borrower shall pay the Lender a
fully earned and non-refundable origination fee of $50,000, due and
payable upon the execution of this Agreement.
CREDIT AND SECURITY AGREEMENT - PAGE 18
(b) AUDIT FEES. The Borrower shall pay the Lender, on
demand, audit fees in connection with any audits or inspections
conducted by or on behalf of the Lender of any Collateral or the
Borrower's operations or business at the rates established from time to
time by the Lender as its audit fees (which fees are currently $800.00
per day per auditor), together with all actual out-of-pocket costs and
expenses incurred in conducting any such audit or inspection. Such
audits shall be limited to four times a year absent the existence of a
Default Period.
(c) LETTER OF CREDIT FEES. The Borrower shall pay to the
Lender a fee with respect to each Letter of Credit, if any, accruing on
a daily basis and computed at the annual rate of two percent (2.00%),
of the aggregate amount that may then be drawn under it assuming
compliance with all conditions for drawing (the "Aggregate Face
Amount"), from and including the date of issuance of such Letter of
Credit until such date as such Letter of Credit shall terminate by its
terms or be returned to the Lender, due and payable monthly in arrears
on the first day of each month and on the Termination Date; provided,
however that during Default Periods, in the Lender's sole discretion
and without waiving any of its other rights and remedies, such fee
shall increase to five percent (5.00%) of the Aggregate Face Amount.
The foregoing fee shall be in addition to any and all fees, commissions
and charges of the Issuer (other than the annual fee for issuing the
Letter of Credit) with respect to or in connection with such Letter of
Credit.
(d) LETTER OF CREDIT ADMINISTRATIVE FEES. The Borrower
shall pay to the Lender, on written demand, the administrative fees
charged by the Issuer in connection with the honoring of drafts under
any Letter of Credit, amendments thereto, transfers thereof and all
other activity with respect to the Letters of Credit at the
then-current rates published by the Issuer for such services rendered
on behalf of customers of the Issuer generally.
(e) TERMINATION AND LINE REDUCTION FEES. If the Credit
Facility is terminated (i) by the Lender during a Default Period that
begins before a Maturity Date, (ii) by the Borrower (A) as of a date
other than a Maturity Date or (B) as of a Maturity Date but without the
Lender having received written notice of such termination at least 90
days before such Maturity Date, or if the Borrower reduces the Maximum
Line, the Borrower shall pay to the Lender a fee in an amount equal to
a percentage of the Maximum Line (or the reduction of the Maximum Line,
as the case may be) as follows: (A) two percent (2%) if the termination
or reduction occurs on or before the first anniversary of the Funding
Date; (B) one percent (1%) if the termination or reduction occurs after
the first anniversary of the Funding Date but on or before the second
anniversary of the Funding Date; and (C) one-half of one percent (0.5%)
if the termination or reduction occurs after the second anniversary of
the Funding Date.
(f) WAIVER OF TERMINATION FEES. The Borrower will not be
required to pay the termination fees otherwise due under subsection (e)
if such termination is made because of refinancing by an affiliate of
▇▇▇▇▇ Fargo.
(g) UNUSED LINE FEE. For purposes of this Section 2.9,
"Unused Amount" means the Maximum Line reduced by any outstanding
Advances and the aggregate
CREDIT AND SECURITY AGREEMENT - PAGE 19
undrawn amount of all outstanding Letters of Credit. The Borrower
agrees to pay to the Lender an unused line fee at the rate of
three-eighths of one percent (0.375%) per annum on the daily Unused
Amount from the date of this Agreement to and including the Termination
Date, due and payable monthly in arrears on the first day of the month
and on the Termination Date.
(h) OTHER FEES. The Lender may from time to time, upon
five (5) days prior notice to the Borrower during a Default Period,
charge additional reasonable fees for Revolving Advances made and
Letters of Credit issued in excess of Availability, for late delivery
of reports, in lieu of imposing interest at the Default Rate, and for
other reasons. The Borrower's request for an Advance or the issuance of
a Letter of Credit at any time after such notice is given and such five
(5) day period has elapsed shall constitute the Borrower's agreement to
pay the reasonable fees described in such notice.
Section 2.10 Time for Interest Payments; Payment on Non-Banking Days;
Computation of Interest and Fees.
(a) TIME FOR INTEREST PAYMENTS. Interest accruing on
Floating Rate Advances shall be due and payable in arrears on the last
day of each month and on the Termination Date.
(b) PAYMENT ON NON-BANKING DAYS. Whenever any payment to
be made hereunder shall be stated to be due on a day which is not a
Banking Day, such payment may be made on the next succeeding Banking
Day, and such extension of time shall in such case be included in the
computation of interest on the Advances or the fees hereunder, as the
case may be.
(c) COMPUTATION OF INTEREST AND FEES. Interest accruing
on the outstanding principal balance of the Advances and fees hereunder
outstanding from time to time shall be computed on the basis of actual
number of days elapsed in a year of 360 days.
Section 2.11 Lockbox; Collateral Account; Application of Payments.
(a) LOCKBOX AND COLLATERAL ACCOUNT.
(i) The Borrower shall instruct all account
debtors to pay all Accounts directly to the Lockbox. If,
notwithstanding such instructions, the Borrower receives any
payments on Accounts, the Borrower shall deposit such payments
into the Collateral Account. The Borrower shall also deposit
all other cash proceeds of Collateral directly to the
Collateral Account. Until so deposited, the Borrower shall
hold all such payments and cash proceeds in trust for and as
the property of the Lender and shall not commingle such
property with any of its other funds or property. All deposits
in the Collateral Account shall constitute proceeds of
Collateral and shall not constitute payment of the
Obligations.
(ii) All items deposited in the Collateral
Account shall be subject to final payment. If any such item is
returned uncollected, the Borrower will immediately pay the
Lender, or, for items deposited in the Collateral Account, the
CREDIT AND SECURITY AGREEMENT - PAGE 20
bank maintaining such account, the amount of that item, or
such bank at its discretion may charge any uncollected item to
the Borrower's commercial account or other account. The
Borrower shall be liable as an endorser on all items deposited
in the Collateral Account, whether or not in fact endorsed by
the Borrower.
(b) APPLICATION OF PAYMENTS.
(i) The Borrower may, from time to time, in
accordance with the Lockbox and Collection Account Agreement,
cause funds in the Collateral Account to be transferred to the
Lender's general account for payment of the Obligations.
Except as provided in the preceding sentence, amounts
deposited in the Collateral Account shall not be subject to
withdrawal by the Borrower, except after full payment and
discharge of all Obligations.
(ii) All payments to the Lender shall be made in
immediately available funds and shall be applied to the
Obligations upon receipt by the Lender. Funds received from
the Collateral Account shall be deemed to be immediately
available. The Lender may hold all payments not constituting
immediately available funds for one (1) additional Banking Day
before applying them to the Obligations.
Section 2.12 Voluntary Prepayment; Reduction of the Maximum Line;
Termination of the Credit Facility by the Borrower. Except as otherwise provided
herein, the Borrower may prepay the Advances in whole at any time or from time
to time in part without penalty. The Borrower may terminate the Credit Facility
or reduce the Maximum Line at any time if it (i) gives the Lender at least 30
days' prior written notice and (ii) pays the Lender termination or Maximum Line
reduction fees in accordance with Section 2.9(e). Any reduction in the Maximum
Line must be in an amount of not less than $500,000.00 or an integral multiple
thereof. If the Borrower reduces the Maximum Line to zero, all Obligations shall
be immediately due and payable. Subject to termination of the Credit Facility
and payment and performance of all Obligations, the Lender shall, at the
Borrower's expense, release or terminate the Security Interest and the Security
Documents to which the Borrower is entitled by law.
Section 2.13 Mandatory Prepayment. Without notice or demand, if the sum
of the outstanding principal balance of the Revolving Advances plus the L/C
Amount shall at any time exceed the Borrowing Base, the Borrower shall (i)
first, immediately prepay the Revolving Advances to the extent necessary to
eliminate such excess; and (ii) if prepayment in full of the Revolving Advances
is insufficient to eliminate such excess, pay to the Lender in immediately
available funds for deposit in the Special Account an amount equal to the
remaining excess. Any payment received by the Lender under this Section 2.13 or
under Section 2.12 may be applied to the Obligations, in such order and in such
amounts as the Lender, in its discretion, may from time to time determine.
Section 2.14 Revolving Advances to Pay Obligations. Notwithstanding
anything in Section 2.1, the Lender may, in its discretion at any time or from
time to time, without the Borrower's request and even if the conditions set
forth in Section 4.2 would not be satisfied,
CREDIT AND SECURITY AGREEMENT - PAGE 21
make a Revolving Advance in an amount equal to the portion of the Obligations
from time to time due and payable.
Section 2.15 Use of Proceeds. The Borrower shall use the proceeds of
Advances and each Letter of Credit for ordinary working capital purposes and for
repayment of outstanding indebtedness to KBK Financial, Inc. and 1st Source
Bank.
Section 2.16 Liability Records. The Lender may maintain from time to
time, at its discretion, records as to the Obligations. All entries made on any
such record shall be presumed correct until the Borrower establishes the
contrary. Upon the Lender's demand, the Borrower will admit and certify in
writing the exact principal balance of the Obligations that the Borrower then
asserts to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Borrower unless the Borrower
gives the Lender specific written notice of exception within 30 days after
receipt. Section 2.17.........Renewal. Unless terminated (a) by the Lender (i)
by giving written notice to the Borrower no less than ninety (90) days prior to
the Maturity Date or (ii) in accordance with Section 7.2, or (b) by the Borrower
(i) by giving written notice to the Lender no less than ninety (90) days prior
to the Maturity Date or (ii) in accordance with Section 2.12, the Credit
Facility shall remain in effect until the Original Maturity Date, and,
thereafter, shall automatically renew for successive one-year periods. "Maturity
Date" shall initially mean the Original Maturity Date; provided, however, that
if at any time the Credit Facility has been automatically renewed, "Maturity
Date" shall mean the one-year anniversary of the date that was formerly the
Maturity Date.
Section 2.18 Guarantor Collateral Accounts.
(a) GUARANTOR COLLATERAL ACCOUNT.
(i) The Borrower shall cause each Guarantor to
instruct all account debtors to pay all Accounts directly to
the Lockbox. If, notwithstanding such instructions, the
Guarantor receives any payments on Accounts, the Borrower
shall cause the Guarantor to deposit such payments into the
Collateral Account. Until so deposited, the Borrower shall
cause the Guarantor to agree to hold all such payments and
cash proceeds in trust for and as the property of the Lender
and not commingle such property with any of the Guarantor's
other funds or property. All deposits in the Collateral
Account shall constitute Collateral and proceeds of Collateral
and shall not constitute payment of the Obligations.
(ii) All items deposited in the Collateral
Account shall be subject to final payment. If any such item is
returned uncollected, the Borrower shall cause the Guarantor
to immediately pay the Lender, or, for items deposited in the
Collateral Account, the bank maintaining such account, the
amount of that item, or such bank at its discretion may charge
any uncollected item to the Guarantor's commercial account or
other account. The Guarantor shall be liable as an endorser on
all items deposited in the Collateral Account, whether or not
in fact endorsed by the Guarantor.
CREDIT AND SECURITY AGREEMENT - PAGE 22
(b) APPLICATION OF PAYMENTS. (i) The Guarantor may, from
time to time, cause funds in the Collateral Account to be transferred
to the Lender's general account for payment of the Obligations. Except
as provided in the preceding sentence, amounts deposited in the
Collateral Account shall not be subject to withdrawal by the Guarantor,
except after full payment and discharge of all Obligations.
(i) All payments to the Lender shall be made in
immediately available funds and shall be applied to the
Obligations upon receipt by the Lender. Funds received from
the Collateral Account will be applied when available.
ARTICLE III
SECURITY INTEREST; OCCUPANCY; SETOFF
Section 3.1 Grant of Security Interest. The Borrower hereby pledges,
assigns and grants to the Lender a lien and security interest (collectively
referred to as the "Security Interest") in the Collateral, as security for the
payment and performance of the Obligations. Upon request by the Lender, the
Borrower will grant the Lender a security interest in all commercial tort claims
it may have against any Person.
Section 3.2 Notification of Account Debtors and Other Obligors. The
Lender may at any time during the existence of a Default Period notify any
account debtor or other person obligated to pay the amount due that such right
to payment has been assigned or transferred to the Lender for security and shall
be paid directly to the Lender. The Borrower will join in giving such notice if
the Lender so requests. At any time after the Borrower or the Lender gives such
notice to an account debtor or other obligor, the Lender may, but need not, in
the Lender's name or in the Borrower's name, (a) demand, ▇▇▇ for, collect or
receive any money or property at any time payable or receivable on account of,
or securing, any such right to payment, or grant any extension to, make any
compromise or settlement with or otherwise agree to waive, modify, amend or
change the obligations (including collateral obligations) of any such account
debtor or other obligor; and (b) as the Borrower's agent and attorney-in-fact,
notify the United States Postal Service to change the address for delivery of
the Borrower's mail to any address designated by the Lender, otherwise intercept
the Borrower's mail, and receive, open and dispose of the Borrower's mail,
applying all Collateral as permitted under this Agreement and holding all other
mail for the Borrower's account or forwarding such mail to the Borrower's last
known address.
Section 3.3 Assignment of Insurance. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including proceeds of insurance and refunds of
unearned premiums) due or to become due under, and all other rights of the
Borrower with respect to, any and all policies of insurance now or at any time
hereafter covering the Collateral (which, for avoidance of doubt, excludes
Aircraft and cargo transported for third Persons) or any evidence thereof or any
business records or valuable papers pertaining thereto, and the Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. With respect to Collateral, at any time, whether or not a Default Period
exists, the Lender may (but need not), in the Lender's name or in the Borrower's
name, execute and deliver proof of claim, receive all such monies, endorse
checks
CREDIT AND SECURITY AGREEMENT - PAGE 23
and other instruments representing payment of such monies, and adjust,
litigate, compromise or release any claim against the issuer of any such policy.
Section 3.4 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender
the right to take nonexclusive possession of the Premises at any time
during a Default Period. Such right of possession shall be sufficient
for the Lender to access the Collateral and all records pertaining
thereto and to enforce its rights with respect to such Collateral
without interference from the Borrower or any other Person.
(b) The Lender may use the Premises only to hold,
process, manufacture, sell, use, store, liquidate, realize upon or
otherwise dispose of goods that are Collateral and for other purposes
that the Lender may in good ▇▇▇▇▇ ▇▇▇▇ to be related or incidental
purposes.
(c) The Lender's right to hold the Premises shall cease
and terminate upon the earlier of (i) payment in full and discharge of
all Obligations and termination of the Credit Facility, and (ii) final
sale or disposition of all goods constituting Collateral and delivery
of all such goods to purchasers.
(d) The Lender shall not be obligated to pay or account
for any rent or other compensation for the possession, occupancy or use
of any of the Premises; provided, however, that if the Lender does pay
or account for any rent or other compensation for the possession,
occupancy or use of any of the Premises, the Borrower shall reimburse
the Lender promptly for the full amount thereof. In addition, the
Borrower will pay, or reimburse the Lender for, all taxes, fees,
duties, imposts, charges and expenses at any time incurred by or
imposed upon the Lender by reason of the execution, delivery,
existence, recordation, performance or enforcement of this Agreement or
the provisions of this Section 3.4.
Section 3.5 License. Without limiting the generality of any other
Security Document, the Borrower hereby grants to the Lender a non-exclusive,
worldwide and royalty-free license to use or otherwise exploit all Intellectual
Property Rights of the Borrower for the purpose of: (a) completing the
manufacture of any in-process materials during any Default Period so that such
materials become saleable Inventory, all in accordance with the same quality
standards previously adopted by the Borrower for its own manufacturing and
subject to the Borrower's reasonable exercise of quality control; and (b)
selling, leasing or otherwise disposing of any or all Collateral during any
Default Period.
Section 3.6 Financing Statement. The Borrower authorizes the Lender to
file from time to time where permitted by law, such financing statements against
Collateral described as "all personal property (excluding Aircraft and stock
issued by Kitty Hawk Aircargo, Inc., a Texas corporation, and Kitty Hawk Cargo,
Inc., a Delaware corporation)" or describing specific items of Collateral
including commercial tort claims as the Lender deems necessary or useful to
perfect the Security Interest. A carbon, photographic or other reproduction of
this Agreement or of any financing statements signed by the Borrower is
sufficient as a financing statement and
CREDIT AND SECURITY AGREEMENT - PAGE 24
may be filed as a financing statement in any state to perfect the security
interests granted hereby. For this purpose, the following information is set
forth:
Name and address of Debtor:
Kitty Hawk, Inc.
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
P. O. Box 612787
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Federal Employer Identification No. ▇▇-▇▇▇▇▇▇▇
Organizational Identification No. (DE) 2445463
Name and address of Secured Party:
▇▇▇▇▇ Fargo Business Credit, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Federal Employer Identification No. ▇▇-▇▇▇▇▇▇▇
Section 3.7 Setoff. The Lender may at any time or from time to time
during a Default Period, at its sole discretion and without demand and without
notice to anyone, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any Obligation, whether or not due. In addition,
each other Person holding a participating interest in any Obligations shall have
the right to appropriate or setoff any deposit or other liability then owed by
such Person to the Borrower, whether or not due, and apply the same to the
payment of said participating interest, as fully as if such Person had lent
directly to the Borrower the amount of such participating interest.
Section 3.8 Collateral. (a) This Agreement does not contemplate a sale
of accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application. The Lender has no obligation to clean-up or otherwise prepare the
Collateral for sale. The Borrower waives any right it may have to require the
Lender to pursue any third person for any of the Obligations.
(b) Within 45 days of obtaining verification of registration of
any trademarks with the United States Patent and Trademark Office, the Borrower
will, and will cause each Guarantor to, execute and deliver to the Lender
Trademark Security Agreements. Within 60 days of the date of this Agreement, the
Borrower will, and will cause each Guarantor to, deliver landlord's disclaimers
and consents (or other subordination agreements) satisfactory to the Lender in
its
CREDIT AND SECURITY AGREEMENT - PAGE 25
sole discretion covering the Premises leased at the Dallas-Fort Worth
International Airport and the Fort ▇▇▇▇▇ Indiana Airport.
ARTICLE IV
CONDITIONS OF LENDING
Section 4.1 Conditions Precedent to the Initial Revolving Advance and
Letter of Credit. The Lender's obligation to make the initial Advance hereunder
or to cause any Letters of Credit to be issued shall be subject to the condition
precedent that the Lender shall have received all of the following, each in form
and substance satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Note, properly executed by the Borrower.
(c) A true and correct copy of any and all leases
pursuant to which a Loan Party is leasing the Premises.
(d) A true and correct copy of any and all mortgages
pursuant to which a Loan Party has mortgaged the Premises, together
with a mortgagee's disclaimer and consent with respect to each such
mortgage.
(e) A true and correct copy of any and all agreements
pursuant to which Collateral is in the possession of any Person other
than such Loan Party, together with, in the case of any goods held by
such Person for resale, (i) a consignee's acknowledgment and waiver of
Liens, (ii) UCC financing statements sufficient to protect such Loan
Party's and the Lender's interests in such goods, and (iii) UCC
searches showing that no other secured party has filed a financing
statement against such Person and covering property similar to such
Loan Party's other than such Loan Party, or if there exists any such
secured party, evidence that each such secured party has received
notice from such Loan Party and the Lender sufficient to protect the
Borrower's and the Lender's interests in such Collateral from any claim
by such secured party.
(f) An acknowledgment and waiver of Liens from each
warehouse in which a Loan Party is storing Inventory.
(g) A true and correct copy of any and all agreements
pursuant to which Collateral is in the possession of any Person other
than such Loan Party, together with, (i) an acknowledgment and waiver
of Liens from each subcontractor who has possession of such Loan
Party's goods from time to time, (ii) UCC financing statements
sufficient to protect such Loan Party's and the Lender's interests in
such goods, and (iii) UCC searches showing that no other secured party
has filed a financing statement covering such Person's property other
than such Loan Party, or if there exists any such secured party,
evidence that each such secured party has received notice from such
Loan Party and the Lender sufficient to protect such Loan Party's and
the Lender's interests in such Collateral from any claim by such
secured party.
CREDIT AND SECURITY AGREEMENT - PAGE 26
(h) The Lockbox and Collection Account Agreements,
properly executed by ▇▇▇▇▇ Fargo Bank and each Loan Party party to such
Lockbox and Collection Account Agreement.
(i) Control agreements, properly executed by each Loan
Party and each bank at which such Loan Party maintains deposit or
investment accounts.
(j) Current searches of appropriate filing offices
showing that (i) no Liens have been filed and remain in effect against
any Loan Party except Permitted Liens or Liens held by Persons who have
agreed in writing that upon receipt of proceeds of the initial
Advances, they will satisfy, release or terminate such Liens in a
manner satisfactory to the Lender, and (ii) the Lender has duly filed
all financing statements necessary to perfect the Security Interest, to
the extent the Security Interest is capable of being perfected by
filing.
(k) A certificate of the Secretary or Assistant Secretary
of each Loan Party certifying that attached to such certificate are (i)
the resolutions of such Loan Party's Directors and, if required,
Owners, authorizing the execution, delivery and performance of the Loan
Documents, (ii) true, correct and complete copies of such Loan Party's
Constituent Documents, and (iii) examples of the signatures of such
Loan Party's Officers or agents authorized to execute and deliver the
Loan Documents and other instruments, agreements and certificates,
including with respect to the Borrower, Advance requests on the
Borrower's behalf.
(l) A current certificate issued by the Secretary of
State of the jurisdiction of organization of each Loan Party,
certifying that such Loan Party is in compliance with all applicable
organizational requirements of such state.
(m) Evidence that each Loan Party is duly licensed or
qualified to transact business in Indiana and Texas.
(n) A certificate of an Officer of the Borrower
confirming, in his corporate capacity, the representations and
warranties set forth in Article V.
(o) An opinion of counsel to the Loan Parties addressed
to the Lender.
(p) Certificates of the insurance required hereunder,
with all hazard insurance containing a lender's loss payable
endorsement in the Lender's favor and with all liability insurance
naming the Lender as an additional insured.
(q) Payment of the fees and commissions due under Section
2.9 through the date of the initial Advance or Letter of Credit and
expenses incurred by the Lender through such date and required to be
paid by the Borrower under Section 8.5, including all legal expenses
incurred through the date of this Agreement.
(r) Evidence that after making the initial Revolving
Advance, satisfying all obligations owed to prior lenders, satisfying
all trade payables older than 60 days from invoice date, book
overdrafts and closing costs, Availability, plus the Borrower's Liquid
CREDIT AND SECURITY AGREEMENT - PAGE 27
Assets held in accounts with ▇▇▇▇▇ Fargo or ▇▇▇▇▇ Fargo Investments in
which the Lender has a perfected, first priority Lien, shall be not
less than $12,500,000.
(s) A guaranty, properly executed by each Guarantor a
party thereto pursuant to which the Guarantor unconditionally
guarantees the Obligations.
(t) The Security Agreements, properly executed by each
Guarantor party thereto.
(u) The Contribution and Indemnification Agreement
properly executed by the Loan Parties and the Lender.
(v) Such other documents as the Lender in its sole
discretion may require.
Section 4.2 Conditions Precedent to All Advances and Letters of Credit.
The Lender's obligation to make each Advance and to cause each Letter of Credit
to be issued shall be subject to the further conditions precedent that:
(a) the representations and warranties contained in
Article V are correct on and as of the date of such Advance or issuance
of a Letter of Credit as though made on and as of such date, except to
the extent that such representations and warranties relate solely to an
earlier date; and
(b) no event has occurred and is continuing, or would
result from such Advance or issuance of a Letter of Credit which
constitutes a Default or an Event of Default.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
Section 5.1 Existence and Power; Name; Chief Executive Office;
Inventory and Equipment Locations; Federal Employer Identification Number. The
Borrower is a corporation, duly organized, validly existing and in good standing
under the laws of the State of Delaware and is duly licensed or qualified to
transact business in all jurisdictions where the character of the property owned
or leased or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower has all requisite power and authority to
conduct its business, to own its properties and to execute and deliver, and to
perform all of its obligations under, the Loan Documents. During its existence,
the Borrower has done business solely under the names set forth in Schedule 5.1.
The Borrower's chief executive office and principal place of business is located
at the address set forth in Schedule 5.1 and all of the Borrower's records
relating to its business or the Collateral are kept at that location. All
Inventory and Equipment is located at that location or at one of the other
locations listed in Schedule 5.1. The Borrower's federal employer identification
number is correctly set forth in Section 3.6.
CREDIT AND SECURITY AGREEMENT - PAGE 28
Section 5.2 Capitalization. Schedule 5.2 constitutes a correct and
complete list of all ownership interests of the Borrower and rights to acquire
ownership interests including the beneficial owner, number of interests and
percentage interests on a fully diluted basis (to the extent such information is
readily available from public information filed with the Securities and Exchange
Commission), and an organizational chart showing the ownership structure of all
Subsidiaries of the Borrower.
Section 5.3 Authorization of Borrowing; No Conflict as to Law or
Agreements. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's Owners; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof; (iii) violate
any provision of any law, rule or regulation (including Regulation X of the
Board of Governors of the Federal Reserve System) or of any order, writ,
injunction or decree presently in effect having applicability to the Borrower or
of the Borrower's Constituent Documents; (iv) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other material agreement, lease or instrument to which the Borrower is a party
or by which it or its properties may be bound or affected; or (v) result in, or
require, the creation or imposition of any Lien (other than the Security
Interest) upon or with respect to any of the properties now owned or hereafter
acquired by the Borrower.
Section 5.4 Legal Agreements. This Agreement constitutes and, upon due
execution by the Borrower, the other Loan Documents will constitute the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms.
Section 5.5 Subsidiaries. Except for the Guarantors, the Borrower has
no Subsidiaries.
Section 5.6 Financial Condition; No Adverse Change. The Borrower has
furnished to the Lender its audited consolidated and consolidating financial
statements for its fiscal year ended December 31, 2002, and unaudited
consolidated and consolidating financial statements for the fiscal-year-to-date
period ended November 30, 2003, and those statements fairly present the
Borrower's and its Subsidiaries' financial condition on the dates thereof and
the results of its operations and cash flows for the periods then ended and were
prepared in accordance with GAAP. Since the date of the most recent financial
statements, there has been no material adverse change in the Borrower's or its
Subsidiaries' business, properties or condition (financial or otherwise).
Section 5.7 Litigation. Except as set forth on Schedule 5.7, there are
no actions, suits or proceedings pending or, to the Borrower's knowledge,
threatened against or affecting the Borrower or any of its Affiliates or the
properties of the Borrower or any of its Affiliates before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which, if determined adversely to the Borrower or any of
its Affiliates,
CREDIT AND SECURITY AGREEMENT - PAGE 29
would have a material adverse effect on the financial condition, properties or
operations of the Borrower or any of its Affiliates.
Section 5.8 Regulation U. The Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Advance will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock.
Section 5.9 Taxes. The Borrower and its Affiliates have paid or caused
to be paid to the proper authorities when due all federal, state and local taxes
required to be withheld by each of them, except certain taxes relating to
periods prior to the Borrower's emergence from bankruptcy that have been fully
reserved-for in accordance with GAAP. The Borrower and its Affiliates have filed
all federal, state and local tax returns which to the knowledge of the Officers
of the Borrower or any Affiliate, as the case may be, are required to be filed,
and the Borrower and its Affiliates have paid or caused to be paid to the
respective taxing authorities all taxes as shown on said returns or on any
assessment received by any of them to the extent such taxes have become due,
except certain taxes relating to periods prior to the Borrower's emergence from
bankruptcy that have been fully reserved-for in accordance with GAAP.
Section 5.10 Titles and Liens. The Borrower has good title to all
Collateral free and clear of all Liens other than Permitted Liens. No financing
statement naming the Borrower as debtor is on file in any office except to
perfect only Permitted Liens.
Section 5.11 Intellectual Property Rights.
(a) OWNED INTELLECTUAL PROPERTY. Schedule 5.11 is a
complete list of all patents, applications for patents, trademarks,
applications for trademarks, service marks, applications for service
marks, mask works, trade dress and copyrights for which the Borrower is
the registered owner (the "Owned Intellectual Property"). Except as
disclosed on Schedule 5.11, (i) the Borrower owns the Owned
Intellectual Property free and clear of all restrictions (including
covenants not to ▇▇▇ a third party), court orders, injunctions,
decrees, writs or Liens, whether by written agreement or otherwise,
(ii) no Person other than the Borrower owns or has been granted any
right in the Owned Intellectual Property, (iii) all Owned Intellectual
Property is valid, subsisting and enforceable and (iv) the Borrower has
taken all commercially reasonable action necessary to maintain and
protect the Owned Intellectual Property.
(b) AGREEMENTS WITH EMPLOYEES AND CONTRACTORS. The
Borrower has entered into a legally enforceable agreement with each of
its employees and subcontractors obligating each such Person to assign
to the Borrower, without any additional compensation, any Intellectual
Property Rights created, discovered or invented by such Person in the
course of such Person's employment or engagement with the Borrower
(except to the extent prohibited by law), and further requiring such
Person to cooperate with the Borrower, without any additional
compensation, in connection with securing and enforcing any
Intellectual Property Rights therein; PROVIDED, HOWEVER, that the
foregoing
CREDIT AND SECURITY AGREEMENT - PAGE 30
shall not apply with respect to employees and subcontractors whose job
descriptions are of the type such that no such assignments are
reasonably foreseeable.
(c) INTELLECTUAL PROPERTY RIGHTS LICENSED FROM OTHERS.
Schedule 5.11 is a complete list of all agreements under which the
Borrower has licensed Intellectual Property Rights from another Person
("Licensed Intellectual Property") other than readily available,
non-negotiated licenses of computer software and other intellectual
property used solely for performing accounting, word processing and
similar administrative tasks ("Off-the-shelf Software") and a summary
of any ongoing payments the Borrower is obligated to make with respect
thereto. Except as disclosed on Schedule 5.11 and in written agreements
copies of which have been given to the Lender, the Borrower's licenses
to use the Licensed Intellectual Property are free and clear of all
restrictions, Liens, court orders, injunctions, decrees, or writs,
whether by written agreement or otherwise. Except as disclosed on
Schedule 5.11, the Borrower is not obligated or under any liability
whatsoever to make any payments of a material nature by way of
royalties, fees or otherwise to any owner of, licensor of, or other
claimant to, any Intellectual Property Rights.
(d) OTHER INTELLECTUAL PROPERTY NEEDED FOR BUSINESS.
Except for Off-the-shelf Software and as disclosed on Schedule 5.11,
the Owned Intellectual Property and the Licensed Intellectual Property
constitute all Intellectual Property Rights used or necessary to
conduct the Borrower's business as it is presently conducted or as the
Borrower reasonably foresees conducting it.
(e) INFRINGEMENT. Except as disclosed on Schedule 5.11,
the Borrower has no knowledge of, and has not received any written
claim or notice alleging, any Infringement of another Person's
Intellectual Property Rights (including any written claim that the
Borrower must license or refrain from using the Intellectual Property
Rights of any third party) nor, to the Borrower's knowledge, is there
any threatened claim or any reasonable basis for any such claim.
Section 5.12 Plans. Except as disclosed to the Lender in writing prior
to the date hereof, neither the Borrower nor any ERISA Affiliate (i) maintains
or has maintained any Pension Plan, (ii) contributes or has contributed to any
Multiemployer Plan or (iii) provides or has provided post-retirement medical or
insurance benefits with respect to employees or former employees (other than
benefits required under Section 601 of ERISA, Section 4980B of the IRC or
applicable state law). Neither the Borrower nor any ERISA Affiliate has received
any notice or has any knowledge to the effect that it is not in full compliance
with any of the requirements of ERISA, the IRC or applicable state law with
respect to any Plan. No Reportable Event exists in connection with any Pension
Plan. Each Plan which is intended to qualify under the IRC is so qualified, and
no fact or circumstance exists which may have an adverse effect on the Plan's
tax-qualified status. Neither the Borrower nor any ERISA Affiliate has (i) any
accumulated funding deficiency (as defined in Section 302 of ERISA and Section
412 of the IRC) under any Plan, whether or not waived, (ii) any liability under
Section 4201 or 4243 of ERISA for any withdrawal, partial withdrawal,
reorganization or other event under any Multiemployer Plan or (iii) any
liability or knowledge of any facts or circumstances which could result in any
liability to the Pension Benefit Guaranty Corporation, the Internal Revenue
Service, the Department of
CREDIT AND SECURITY AGREEMENT - PAGE 31
Labor or any participant in connection with any Plan (other than routine claims
for benefits under the Plan).
Section 5.13 Default. The Borrower is in compliance with all provisions
of all agreements, instruments, decrees and orders to which it is a party or by
which it or its property is bound or affected, the breach or default of which
could have a material adverse effect on the Borrower's financial condition,
properties, or operations.
Section 5.14 Environmental Matters.
(a) To the Borrower's best knowledge, the Borrower has
not handled or disposed of Hazardous Substances in such a manner as to
create any material liability under any Environmental Law.
(b) There are not and (to the Borrower's knowledge) there
never have been any requests, claims, notices, investigations, demands,
administrative proceedings, hearings or litigation, relating in any way
to the Premises or the Borrower, alleging material liability under,
violation of, or noncompliance with any Environmental Law or any
license, permit or other authorization issued pursuant thereto. To the
Borrower's best knowledge, no such matter is threatened or impending.
(c) To the Borrower's best knowledge, the Borrower's
businesses are and have in the past always been conducted in accordance
with all Environmental Laws and all licenses, permits and other
authorizations required pursuant to any Environmental Law and necessary
for the lawful and efficient operation of such businesses are in the
Borrower's possession and are in full force and effect. No permit
required under any Environmental Law is scheduled to expire within 12
months and there is no threat that any such permit will be withdrawn,
terminated, limited or materially changed.
(d) To the Borrower's best knowledge, the Premises are
not and never have been listed on the National Priorities List, the
Comprehensive Environmental Response, Compensation and Liability
Information System or any similar federal, state or local list,
schedule, log, inventory or database.
Section 5.15 Submissions to Lender. All financial and other information
provided to the Lender by or on behalf of the Borrower in connection with the
Borrower's request for the credit facilities contemplated hereby is, in the case
of information delivered prior to the Funding Date, and will be on the date of
submission, in the case of subsequent information, (i) true and correct in all
material respects, (ii) does not omit any material fact necessary to make such
information not misleading and, (iii) as to projections, valuations or proforma
financial statements, present a good faith opinion as to such projections,
valuations and proforma condition and results.
Section 5.16 Financing Statements. The Borrower has authorized the
filing of financing statements sufficient when filed to perfect the Security
Interest and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral which
is capable of being perfected by filing financing statements. None of the
Collateral is or
CREDIT AND SECURITY AGREEMENT - PAGE 32
will become a fixture on real estate, unless a sufficient fixture filing is in
effect with respect thereto.
Section 5.17 Rights to Payment. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral is (or, in the case of all future Collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
Section 5.18 Financial Solvency. Both before and immediately after
giving effect to all of the transactions contemplated in the Loan Documents,
none of the Borrower or its Affiliates:
(a) was or will be insolvent, as that term is used and
defined in Section 101(32) of the United States Bankruptcy Code and
Section 2 of the Uniform Fraudulent Transfer Act;
(b) has unreasonably small capital (as such phrase is
used in the solvency and bankruptcy contexts only) or is engaged or
about to engage in a business or a transaction for which any remaining
assets of the Borrower or such Affiliate are unreasonably small;
(c) by executing, delivering or performing its
obligations under the Loan Documents to which it is a party or by
taking any action with respect thereto, intends to, nor believes that
it will, incur debts beyond its ability to pay them as they mature;
(d) by executing, delivering or performing its
obligations under the Loan Documents to which it is a party or by
taking any action with respect thereto, intends to hinder, delay or
defraud either its present or future creditors; and
(e) at this time contemplates filing a petition in
bankruptcy or for an arrangement or reorganization or similar
proceeding under any law any jurisdiction, nor, to the best knowledge
of the Borrower, is the subject of any actual, pending or threatened
bankruptcy, insolvency or similar proceedings under any law of any
jurisdiction.
ARTICLE VI
COVENANTS
So long as the Obligations shall remain unpaid, or (if there are no
outstanding Obligations) the Credit Facility shall remain in effect, the
Borrower will comply with the following requirements, unless the Lender shall
otherwise consent in writing:
Section 6.1 Reporting Requirements. The Borrower will deliver, or cause
to be delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:
(a) ANNUAL FINANCIAL STATEMENTS. To the extent the
Borrower is not a public reporting company or has not timely filed its
Form 10-K with the Securities Exchange
CREDIT AND SECURITY AGREEMENT - PAGE 33
Commission, as soon as available, and in any event within 120 days
after the end of each fiscal year of the Borrower, the Borrower will
deliver, or cause to be delivered, to the Lender, the Borrower's
audited financial statements with the unqualified opinion of
independent certified public accountants selected by the Borrower and
acceptable to the Lender, which annual financial statements shall
include the Borrower's balance sheet as at the end of such fiscal year
and the related statements of the Borrower's income, retained earnings
and cash flows for the fiscal year then ended, prepared on a
consolidating and consolidated basis to include any Affiliates, all in
reasonable detail and prepared in accordance with GAAP, together with
(i) copies of all management letters prepared by such accountants; (ii)
a report signed by such accountants stating that in making the
investigations necessary for said opinion they obtained no knowledge,
except as specifically stated, of any Default or Event of Default and
all relevant facts in reasonable detail to evidence, and the
computations as to, whether or not the Borrower is in compliance with
the Financial Covenants; and (iii) a certificate of the Borrower's
chief financial officer stating that such financial statements have
been prepared in accordance with GAAP, fairly represent the Borrower's
financial position and the results of its operations, and whether or
not such officer has knowledge of the occurrence of any Default or
Event of Default and, if so, stating in reasonable detail the facts
with respect thereto.
(b) MONTHLY FINANCIAL STATEMENTS. As soon as available
and in any event within 25 days after the end of each month, the
Borrower will deliver to the Lender an unaudited/internal balance sheet
and statements of income and retained earnings of the Borrower as at
the end of and for such month and for the year to date period then
ended, prepared, if the Lender so requests, on a consolidating and
consolidated basis to include any Affiliates, in reasonable detail and
stating in comparative form the figures for the corresponding date and
periods in the previous year, all prepared in accordance with GAAP,
subject to year-end audit adjustments; and accompanied by a certificate
of the Borrower's chief financial Officer, substantially in the form of
Exhibit B hereto stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit adjustments
and fairly represent the Borrower's financial position and the results
of its operations, (ii) whether or not such officer has knowledge of
the occurrence of any Default or Event of Default not theretofore
reported and remedied and, if so, stating in reasonable detail the
facts with respect thereto, and (iii) all relevant facts in reasonable
detail to evidence, and the computations as to, whether or not the
Borrower is in compliance with the Financial Covenants.
(c) COLLATERAL REPORTS. Within three (3) Banking Days
after the end of each week if a Monthly Period is not in effect and
within 15 days after the end of each month if a Monthly Period is in
effect, the Borrower will deliver to the Lender agings of the
Borrower's accounts receivable and its accounts payable, an inventory
certification report, and a calculation of the Borrower's Accounts and
Eligible Accounts, and Inventory as at the end of such month or week as
applicable. Daily reporting may be required while a Default exists.
(d) PROJECTIONS. At least 30 days before the beginning of
each fiscal year of the Borrower, the Borrower will deliver to the
Lender the projected balance sheets and
CREDIT AND SECURITY AGREEMENT - PAGE 34
income statements for each month of such year, each in reasonable
detail, representing the Borrower's good faith projections and
certified by the Borrower's chief financial officer as being the most
accurate projections available and identical to the projections used by
the Borrower for internal financial planning purposes (provided that
such projections may be more conservative than the projections used to
plan management performance goals or objectives), together with a
statement of underlying assumptions and such supporting schedules and
information as the Lender may reasonably require.
(e) LITIGATION. Immediately after the commencement
thereof, the Borrower will deliver to the Lender notice in writing of
all litigation and of all proceedings before any governmental or
regulatory agency affecting the Borrower (i) of the type described in
Section 5.14(c) or (ii) which seek a monetary recovery against the
Borrower in excess of $150,000.00.
(f) DEFAULTS. As promptly as practicable (but in any
event not later than five Banking Days) after an Officer of the
Borrower obtains knowledge of the occurrence of any Default or Event of
Default, the Borrower will deliver to the Lender notice of such
occurrence, together with a detailed statement by a responsible Officer
of the Borrower of the steps being taken by the Borrower to cure the
effect thereof.
(g) PLANS. As soon as possible, and in any event within
30 days after the Borrower knows or has reason to know that any
Reportable Event with respect to any Pension Plan has occurred, the
Borrower will deliver to the Lender a statement of the Borrower's chief
financial Officer setting forth details as to such Reportable Event and
the action which the Borrower proposes to take with respect thereto,
together with a copy of the notice of such Reportable Event to the
Pension Benefit Guaranty Corporation. As soon as possible, and in any
event within 10 days after the Borrower fails to make any quarterly
contribution required with respect to any Pension Plan under Section
412(m) of the IRC, the Borrower will deliver to the Lender a statement
of the Borrower's chief financial Officer setting forth details as to
such failure and the action which the Borrower proposes to take with
respect thereto, together with a copy of any notice of such failure
required to be provided to the Pension Benefit Guaranty Corporation. As
soon as possible, and in any event with 10 days after the Borrower
knows or has reason to know that it has or is reasonably expected to
have any liability under Section 4201 or 4243 of ERISA for any
withdrawal, partial withdrawal, reorganization or other event under any
Multiemployer Plan, the Borrower will deliver to the Lender a statement
of the Borrower's chief financial Officer setting forth details as to
such liability and the action which Borrower proposes to take with
respect thereto.
(h) DISPUTES. Within five (5) Banking Days of knowledge
thereof, the Borrower will deliver to the Lender notice of (i) any
material disputes or claims by the Borrower's customers in excess of
$150,000.00; (ii) credit memos; (iii) any goods returned to or
recovered by the Borrower.
(i) OFFICERS AND DIRECTORS. Promptly upon knowledge
thereof, the Borrower will deliver to the Lender notice of any change
in the persons constituting (i) the Borrower's Officers with the
position of Vice President or above or irrespective of title,
CREDIT AND SECURITY AGREEMENT - PAGE 35
who have significant management, operational or executive
responsibilities, and (ii) Directors.
(j) COLLATERAL. Promptly upon knowledge thereof, the
Borrower will deliver to the Lender notice of any material loss of or
material damage to any Collateral or of any substantial adverse change
in any Collateral or the prospect of payment thereof.
(k) COMMERCIAL TORT CLAIMS. Promptly upon knowledge
thereof, the Borrower will deliver to the Lender notice of any
commercial tort claims in excess of $150,000.00 it may bring against
any person, including the name and address of each defendant, a summary
of the facts, an estimate of the Borrower's damages, copies of any
complaint or demand letter submitted by the Borrower, and such other
information as the Lender may request.
(l) INTELLECTUAL PROPERTY.
(i) The Borrower will give the Lender 30 days
prior written notice of its intent to acquire material
Intellectual Property Rights; except for transfers permitted
under Section 6.17, the Borrower will give the Lender 30 days
prior written notice of its intent to dispose of material
Intellectual Property Rights; and upon request, shall provide
the Lender with copies of all applicable documents and
agreements.
(ii) Promptly upon knowledge thereof, the
Borrower will deliver to the Lender notice of (A) any
Infringement of its Intellectual Property Rights by others,
(B) claims that the Borrower is Infringing another Person's
Intellectual Property Rights and (C) any threatened
cancellation, termination or material limitation of its
Intellectual Property Rights.
(iii) Promptly upon receipt, the Borrower will
give the Lender copies of all registrations and filings with
respect to its Intellectual Property Rights.
(m) REPORTS TO OWNERS. Promptly upon their distribution,
the Borrower will deliver to the Lender copies of all financial
statements, reports and proxy statements which the Borrower shall have
sent to its Owners.
(n) SEC FILINGS. Promptly after the sending or filing
thereof, the Borrower will notify the Lender of all special, and
irregular reports, which the Borrower shall file with the Securities
and Exchange Commission ("SEC") or any national securities exchange, if
any, and to the extent not available on the internet shall provide
copies of all reports filed with the SEC to the Lender.
(o) TAX RETURNS. As soon as available and in any event by
not later 5 days after they are filed, copies of the federal tax
returns and all schedules thereto of the Borrower and the Guarantors.
Upon the request of the Lender made during a Default Period, copies of
the Borrower's state tax returns and schedules.
CREDIT AND SECURITY AGREEMENT - PAGE 36
(p) VIOLATIONS OF LAW. Promptly upon knowledge thereof,
the Borrower will deliver to the Lender notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which
could materially and adversely affect the Borrower's business or its
financial condition.
(q) OWNERSHIP OF PREMISES. Promptly upon knowledge
thereof, the Borrower will deliver to the Lender notice of a change in
ownership of the Premises or any parcel thereof.
(r) OPERATING LEASES. Promptly upon execution thereof,
the Borrower will deliver to the Lender true and correct copies of each
Aircraft operating lease and commitment therefor.
(s) OTHER REPORTS. From time to time, with reasonable
promptness, the Borrower will deliver to the Lender any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents
and delivery receipts for goods sold, and such other material, reports,
records or information as the Lender may request.
Section 6.2 Financial Covenants.
(a) MINIMUM YEAR-TO-DATE NET INCOME. The Borrower will
achieve as at the end of each period described below, Net Income of not
less than the amount set forth below:
(i) From January 1, through the fiscal quarter
ending March 31 of each year during the term hereof, Net
Income of not less than a loss $1,800,000 (i.e., the Borrower
may not lose more than $1,800,000 as at the end of such
period);
(ii) From January 1, through the fiscal quarter
ending June 30 of each year during the term hereof, Net Income
of not less than a loss $1,300,000 (i.e., the Borrower may not
lose more than $1,300,000 as at the end of such period);
(iii) From January 1, through the fiscal quarter
ending September 30 of each year during the term hereof, Net
Income of not less than a loss $350,000 (i.e., the Borrower
may not lose more than $350,000 as at the end of such period);
and
(iv) From January 1, through the fiscal quarter
ending December 31 of each year during the term hereof, Net
Income of not less than $600,000 (i.e., the Borrower must have
a minimum Net Income of $600,000 as at the end of such
period).
(b) MINIMUM BOOK NET WORTH. The Borrower will maintain,
during each period described below, its Book Net Worth, determined as
at the end of such period, at an amount not less than the amount set
forth below:
CREDIT AND SECURITY AGREEMENT - PAGE 37
(i) From January 1, through the fiscal quarter
ending March 31 of each year during the term hereof, Book Net
Worth of not less than $1,800,000 less than its Book Net Worth
as of the end of the prior fiscal year adjusted for non-cash
items;
(ii) From January 1, through the fiscal quarter
ending June 30 of each year during the term hereof, Book Net
Worth of not less than $1,300,000 less than its Book Net Worth
as of the end of the prior fiscal year adjusted for non-cash
items;
(iii) From January 1, through the fiscal quarter
ending September 30 of each year during the term hereof, Book
Net Worth of not less than $350,000 less than its Book Net
Worth as of the end of the prior fiscal year adjusted for
non-cash items; and
(iv) From January 1, through the fiscal quarter
ending December 31 of each year during the term hereof, Book
Net Worth of not less than $600,000 more than its Book Net
Worth as of the end of the prior fiscal year adjusted for
non-cash items.
(c) MONTHLY LOSS LIMIT. The Borrower will achieve for
each month as at the end of such month Net Income of not less than the
amount set forth below:
(i) For each month end during the fiscal quarter
ending March 31 of each year during the term hereof, Net
Income of not less than a loss of $1,100,000 (i.e., the
Borrower may not lose more than $1,100,000 per month during
such period);
(ii) For each month end during the fiscal quarter
ending June 30 of each year during the term hereof, Net Income
of not less than a loss of $500,000 (i.e., the Borrower may
not lose more than $500,000 per month during such period);
(iii) For each month end during the fiscal quarter
ending September 30 of each year during the term hereof, Net
Income of not less than a loss of $300,000 (i.e., the Borrower
may not lose more than $300,000 per month during such period);
and
(iv) For each month end during the fiscal quarter
ending December 31 of each year during the term hereof, Net
Income of not less than a loss $100,000 (i.e., the Borrower
may not lose more than $100,000 per month during such period).
(d) CAPITAL EXPENDITURES. Neither the Borrower nor any
Guarantor will incur or contract to incur Capital Expenditures of more
than (i) $4,000,000 in the aggregate during the fiscal year ending
December 31, 2004, with no more than $3,000,000 being unfinanced, and
(ii) $2,000,000 in the aggregate during each fiscal year thereafter,
with no more than $1,000,000 being unfinanced. Notwithstanding the
foregoing, if the
CREDIT AND SECURITY AGREEMENT - PAGE 38
Borrower and Guarantors incur or contract to incur Capital Expenditures
in an aggregate amount not exceeding the amounts set forth in clause
(i), any unused portion may be carried forward for use in the
subsequent fiscal year ending December 31, 2005, provided further that
in no event shall Capital Expenditures combined for the two fiscal
years ending December 31, 2004 and December 31, 2005 exceed $6,000,000
in the aggregate with no more than $4,000,000 being unfinanced.
(e) AIRCRAFT OPERATING LEASES. Without the consent of the
Lender, neither the Borrower nor any of its Subsidiaries will enter
into any Aircraft operating lease or commitment therefor if, at the
time of execution, the ratio of EBITDAR plus unrestricted Liquid Assets
to Capital Expenditures plus Rent (in each case measured for the same
periods as EBITDAR) is not at least 1.0 to 1.0.
Section 6.3 Permitted Liens; Financing Statements.
(a) The Borrower will not create, incur or suffer to
exist any Lien upon or of any of its assets, now owned or hereafter
acquired, to secure any indebtedness; excluding, however, from the
operation of the foregoing, the following (collectively, "Permitted
Liens"):
(i) in the case of any of the Borrower's
property which is not Collateral, covenants, restrictions,
rights, easements and minor irregularities in title which do
not materially interfere with the Borrower's business or
operations as presently conducted;
(ii) Liens in existence on the date hereof and
listed in Schedule 6.3 hereto, securing indebtedness for
borrowed money permitted under Section 6.4;
(iii) the Security Interest and Liens created by
the Security Documents; and
(iv) purchase money Liens relating to the
acquisition of machinery and equipment of the Borrower not
exceeding the lesser of cost or fair market value thereof and
so long as no Default Period is then in existence and none
would exist immediately after such acquisition.
(b) The Borrower will not amend any financing statements
in favor of the Lender except as permitted by law. Any authorization by
the Lender to any Person to amend financing statements in favor of the
Lender shall be in writing.
Section 6.4 Indebtedness. The Borrower will not incur, create, assume
or permit to exist any indebtedness or liability on account of deposits or
advances or any indebtedness for borrowed money or letters of credit issued on
the Borrower's behalf, or any other indebtedness or liability evidenced by
notes, bonds, debentures or similar obligations, except:
(a) Indebtedness and letters of credit arising hereunder;
CREDIT AND SECURITY AGREEMENT - PAGE 39
(b) indebtedness of the Borrower in existence on the date
hereof and listed in Schedule 6.4 hereto;
(c) indebtedness relating to Permitted Liens;
(d) indebtedness for unsecured trade accounts payable in
the ordinary course of business; and
(e) customer advances and deposits obtained in the
ordinary course of business and deposited in the Collateral Accounts.
For avoidance of doubt, Aircraft operating leases are not prohibited by this
Section 6.4.
Section 6.5 Guaranties. The Borrower will not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the
Borrower for deposit or collection or similar transactions in the
ordinary course of business;
(b) guaranties, endorsements and other direct or
contingent liabilities in connection with the obligations of other
Persons in respect of indebtedness permitted under Section 6.4 or
otherwise, in existence on the date hereof and listed in Schedule 6.4
hereto; and
(c) guaranties of obligations of Subsidiaries of the
Borrower so long as such guaranty is not a guaranty of indebtedness
prohibited by Section 6.4.
Section 6.6 Investments and Subsidiaries. The Borrower will not
purchase or hold beneficially any stock or other securities or evidences of
indebtedness of, make or permit to exist any loans or advances to, or make any
investment or acquire any interest whatsoever in, any other Person, including
any partnership or joint venture, except:
(a) investments in direct obligations of the United
States of America or any agency or instrumentality thereof whose
obligations constitute full faith and credit obligations of the United
States of America having a maturity of one year or less, commercial
paper issued by U.S. corporations rated "A-1" or "A-2" by Standard &
Poors Corporation or "P-1" or "P-2" by ▇▇▇▇▇'▇ Investors Service or
certificates of deposit or bankers' acceptances having a maturity of
one year or less issued by members of the Federal Reserve System having
deposits in excess of $100,000,000 (which certificates of deposit or
bankers' acceptances are fully insured by the Federal Deposit Insurance
Corporation);
(b) travel advances or loans to the Borrower's Officers
and employees not exceeding at any one time an aggregate of $10,000;
(c) advances in the form of progress payments, prepaid
rent not exceeding three (3) months or security deposits;
CREDIT AND SECURITY AGREEMENT - PAGE 40
(d) current investments in the Subsidiaries in existence
on the date hereof and listed in Schedule 5.5 hereto;
(e) deposit accounts in insured financial institutions
satisfactory to the Lender and with respect to which there are control
agreements in favor of the Lender; and
(f) promissory notes of Account debtors taken to avoid a
loss on, or help ensure collection of, past due, doubtful, restructured
or extended Accounts.
Section 6.7 Dividends and Distributions. The Borrower will not declare
or pay any dividends (other than dividends payable solely in stock of the
Borrower) on any class of its stock or make any payment on account of the
purchase, redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly.
Section 6.8 Salaries. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or increase the aggregate salary, bonus, commissions, consultant
fees or other compensation of any Director, Owner Officer or any member of their
families by more than 15% in any one year for any individual unless approved by
the Borrower's Board of Directors.
Section 6.9 Books and Records; Inspection and Examination. The Borrower
will keep accurate books of record and account for itself pertaining to the
Collateral and pertaining to the business and financial condition and such other
matters as the Lender may from time to time request in which true and complete
entries will be made in accordance with GAAP and, upon the Lender's request,
will permit any officer, employee, attorney or accountant for the Lender to
audit, review, make extracts from or copy any and all company and financial
books and records of the Borrower at all times during ordinary business hours,
to send and discuss with account debtors and other obligors requests for
verification of amounts owed to the Borrower, and to discuss the Borrower's
affairs with any of its Directors, Officers, employees or agents. The Borrower
hereby irrevocably authorizes all accountants and third parties to disclose and
deliver to Lender, at the Borrower's expense, all financial information, books
and records, work papers, management reports and other information in their
possession regarding the Borrower. The Borrower will permit the Lender, or its
employees, accountants, attorneys or agents, to examine and inspect any
Collateral or any other property of the Borrower at any time during ordinary
business hours. Absent a Default, the Lender will give 24 hours notice of each
such inspection.
Section 6.10 Account Verification. The Lender may at any time and from
time to time send or require the Borrower to send requests for verification of
accounts or notices of assignment to account debtors and other obligors. The
Lender may also at any time and from time to time telephone account debtors and
other obligors to verify accounts, but in no event shall such verification
disclose that request is other than from an account verification service and it
shall not indicate that the request is from a lender to or creditor of the
Borrower.
Section 6.11 Compliance with Laws.
(a) The Borrower will (i) comply with the requirements of
applicable laws and regulations, the non-compliance with which would
materially and adversely affect its business or its financial condition
and (ii) use and keep the Collateral, and require that
CREDIT AND SECURITY AGREEMENT - PAGE 41
others use and keep the Collateral, only for lawful purposes, without
violation of any federal, state or local law, statute or ordinance.
(b) Without limiting the foregoing undertakings, the
Borrower specifically agrees that it will comply with all applicable
Environmental Laws and obtain and comply with all permits, licenses and
similar approvals required by any Environmental Laws, and will not
knowingly generate, use, transport, treat, store or dispose of any
Hazardous Substances in such a manner as to create any material
liability or obligation under the common law of any jurisdiction or any
Environmental Law.
Section 6.12 Payment of Taxes and Other Claims. The Borrower will pay
or discharge, or cause to be paid and discharged, when due, (a) all taxes,
assessments and governmental charges levied or imposed upon it or upon its
income or profits, upon any properties belonging to it (including the
Collateral) or upon or against the creation, perfection or continuance of the
Security Interest, prior to the date on which penalties attach thereto, (b) all
federal, state and local taxes required to be withheld by it, and (c) all lawful
claims for labor, materials and supplies which, if unpaid, might by law become a
Lien upon any properties of the Borrower; PROVIDED, that the Borrower shall not
be required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which proper reserves have been made.
Section 6.13 Maintenance of Properties.
(a) The Borrower will keep and maintain the Collateral
and all of its other properties necessary or useful in its business in
good condition, repair and working order (normal wear and tear
excepted) and will from time to time replace or repair any worn,
defective or broken parts; provided, however, that nothing in this
Section 6.13 shall prevent the Borrower from discontinuing the
operation and maintenance of any of its properties if such
discontinuance is, in the Borrower's judgment, desirable in the conduct
of the Borrower's business and not disadvantageous in any material
respect to the Lender. The Borrower will take all commercially
reasonable steps necessary to protect and maintain its Intellectual
Property Rights.
(b) The Borrower will defend the Collateral against all
Liens, claims or demands of all Persons (other than the Lender)
claiming the Collateral or any interest therein. The Borrower will keep
all Collateral free and clear of all Liens except Permitted Liens. The
Borrower will take all commercially reasonable steps necessary to
prosecute any Person Infringing its Intellectual Property Rights and to
defend itself against any Person accusing it of Infringing any Person's
Intellectual Property Rights.
Section 6.14 Insurance. The Borrower will obtain and at all times
maintain insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates.
Without limiting the generality of the foregoing, the Borrower will at all times
maintain business interruption insurance including coverage for force majeure
and keep all tangible Collateral
CREDIT AND SECURITY AGREEMENT - PAGE 42
insured against risks of fire (including so-called extended coverage), theft,
collision (for Collateral consisting of motor vehicles) and such other risks and
in such amounts as the Lender may reasonably request, with any loss payable with
respect to the Collateral to the Lender to the extent of its interest, and all
policies of such insurance shall contain a lender's loss payable endorsement for
the Lender's benefit. All policies of liability insurance required hereunder
shall name the Lender as an additional insured.
Section 6.15 Preservation of Existence. The Borrower will preserve and
maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall conduct
its business in an orderly, efficient and regular manner.
Section 6.16 Delivery of Instruments, etc. Upon request by the Lender,
the Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel paper constituting Collateral, duly endorsed or assigned
by the Borrower.
Section 6.17 Sale or Transfer of Assets; Suspension of Business
Operations. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not transfer any part
of its ownership interest in any Intellectual Property Rights and will not
permit any agreement under which it has licensed Licensed Intellectual Property
to lapse, except that the Borrower may transfer such rights or permit such
agreements to lapse if it shall have reasonably determined that the applicable
Intellectual Property Rights are no longer useful in its business. If the
Borrower transfers any Intellectual Property Rights for value, the Borrower will
pay over the proceeds to the Lender for application to the Obligations. The
Borrower will not license any other Person to use any of the Borrower's
Intellectual Property Rights, except that the Borrower may grant licenses in the
ordinary course of its business in connection with sales of Inventory or
provision of services to its customers.
Section 6.18 Consolidation and Merger; Asset Acquisitions. The Borrower
will not consolidate with or merge into any Person, or permit any other Person
to merge into it, or acquire (in a transaction analogous in purpose or effect to
a consolidation or merger) all or substantially all the assets of any other
Person without the prior written consent of the Lender, which consent shall not
be unreasonably withheld.
Section 6.19 Sale and Leaseback. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred, other than sale and leaseback transactions of Aircraft.
Section 6.20 Restrictions on Nature of Business. The Borrower will not
engage in any line of business materially different from that presently engaged
in by the Borrower and will not
CREDIT AND SECURITY AGREEMENT - PAGE 43
purchase, lease or otherwise acquire assets not related to its business without
the prior written consent of the Lender, which consent shall not be unreasonably
withheld.
Section 6.21 Accounting. The Borrower will not adopt any material
change in accounting principles other than as required by GAAP. The Borrower
will not adopt, permit or consent to any change in its fiscal year without the
prior written consent of the Lender, which consent shall not be unreasonably
withheld.
Section 6.22 Discounts, etc. After notice from the Lender during any
Default Period, the Borrower will not, except in the ordinary course of business
consistent with past practices before the commencement of a Default Period,
grant any discount, credit or allowance to any customer of the Borrower or
accept any return of goods sold, and the Borrower will not, except in the
ordinary course of business consistent with past practices before the
commencement of a Default Period, at any time modify, amend, subordinate, cancel
or terminate the obligation of any account debtor or other obligor of the
Borrower.
Section 6.23 Plans. Unless disclosed to the Lender pursuant to Section
5.12, neither the Borrower nor any ERISA Affiliate will (i) adopt, create,
assume or become a party to any Pension Plan, (ii) incur any obligation to
contribute to any Multiemployer Plan, (iii) incur any obligation to provide
post-retirement medical or insurance benefits with respect to employees or
former employees (other than benefits required by law) or (iv) amend any Plan in
a manner that would materially increase its funding obligations.
Section 6.24 Place of Business; Name. The Borrower will not transfer
its chief executive office or principal place of business, or move, relocate,
close or sell any business location without giving the Lender thirty (30) days
prior written notice. The Borrower will not permit any tangible Collateral or
any records pertaining to the Collateral to be located in any state or area in
which, in the event of such location, a financing statement covering such
Collateral would be required to be, but has not in fact been, filed in order to
perfect the Security Interest. The Borrower will not change its name or
jurisdiction of organization without the prior written consent of the Lender,
which consent shall not be unreasonably withheld.
Section 6.25 Constituent Documents; S Corporation Status. The Borrower
will not amend its Constituent Documents. The Borrower will not become an S
Corporation.
Section 6.26 Performance by the Lender. If the Borrower at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a period
of ten calendar days after the Lender gives the Borrower written notice thereof
(or in the case of the agreements contained in Sections 6.12 and 6.14,
immediately upon the occurrence of such failure, without notice or lapse of
time), the Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of the Borrower (or, at the Lender's option, in
the Lender's name) and may, but need not, take any and all other actions which
the Lender may reasonably deem necessary to cure or correct such failure
(including the payment of taxes, the satisfaction of Liens, the performance of
obligations owed to account debtors or other obligors, the procurement and
maintenance of insurance, the execution of assignments, security agreements and
financing statements, and the endorsement of instruments); and the Borrower
shall thereupon pay to the Lender on demand the
CREDIT AND SECURITY AGREEMENT - PAGE 44
amount of all monies expended and all costs and expenses (including reasonable
attorneys' fees and legal expenses) incurred by the Lender in connection with or
as a result of the performance or observance of such agreements or the taking of
such action by the Lender, together with interest thereon from the date expended
or incurred at the Default Rate. To facilitate the Lender's performance or
observance of such covenants of the Borrower, the Borrower hereby irrevocably
appoints the Lender, or the Lender's delegate, acting alone, as the Borrower's
attorney in fact (which appointment is coupled with an interest) with the right
(but not the duty) from time to time to create, prepare, complete, execute,
deliver, endorse or file in the name and on behalf of the Borrower any and all
instruments, documents, assignments, security agreements, financing statements,
applications for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by the Borrower under this Section
6.26.
Section 6.27 [omitted intentionally]
Section 6.28 Debt Payments. The Borrower shall not pay any principal,
interest or fees on any Debt owed to an Affiliate (other than to the Kitty Hawk
Collateral Liquidating Trust and Pegasus Aviation) or any subordinated lender
except as may be otherwise permitted by this Agreement or any Subordination
Agreement.
Section 6.29 Transactions with Affiliates. The Borrower shall not, and
shall not permit any of its Subsidiaries to, at any time engage in any
transaction with an Affiliate or employee, nor make an assignment or other
transfer of any of its assets or properties to any Affiliate or employee, unless
such transaction is (i) otherwise permitted under this Agreement, (ii) in the
ordinary course of business of the Borrower and the relevant Subsidiary of the
Borrower, as the case may be, and (iii) upon fair and reasonable terms no less
favorable to the Borrower or such Subsidiary, as the case may be, than it would
obtain in a comparable arm's length transaction with a Person which is not an
Affiliate or employee.
Section 6.30 Delivery of Certain Certificates. Within 60 days from the
date of this Agreement, the Borrower shall deliver to the Lender evidence that
each Loan Party is duly licensed or qualified to transact business in all
jurisdictions where the character of the property owned or leased or the nature
of the business transacted by it makes such licensing or qualification
necessary.
ARTICLE VII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 7.1 Events of Default. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of any Obligations when they
become due and payable;
(b) Default in the performance, or breach, of any
covenant or agreement of the Borrower contained in this Agreement and,
in the case of Section 6.1(d), (e), (k), (l) and (q) such default shall
continue for a period of seven (7) Banking Days;
CREDIT AND SECURITY AGREEMENT - PAGE 45
(c) Any Change of Control shall occur;
(d) Any Financial Covenant shall become inapplicable due
to the lapse of time and the failure to amend any such covenant to
cover future periods;
(e) The Borrower shall be or become insolvent; or the
Borrower or the Guarantor shall admit in writing its or his inability
to pay its or his debts as they mature, or make an assignment for the
benefit of creditors; or the Borrower or any Guarantor shall apply for
or consent to the appointment of any receiver, trustee, or similar
officer for it or him or for all or any substantial part of its or his
property; or such receiver, trustee or similar officer shall be
appointed without the application or consent of the Borrower or such
Guarantor, as the case may be; or the Borrower or any Guarantor shall
institute (by petition, application, answer, consent or otherwise) any
bankruptcy, insolvency, reorganization, arrangement, readjustment of
debt, dissolution, liquidation or similar proceeding relating to it or
him under the laws of any jurisdiction; or any such proceeding shall be
instituted (by petition, application or otherwise) against the Borrower
or any such Guarantor; or any judgment, writ, warrant of attachment or
execution or similar process shall be issued or levied against a
substantial part of the property of the Borrower or any Guarantor;
(f) A petition shall be filed by or against the Borrower
or any Guarantor under the United States Bankruptcy Code naming the
Borrower or such Guarantor as debtor;
(g) Any representation or warranty made by the Borrower
in this Agreement, by any Guarantor in any guaranty delivered to the
Lender, or by the Borrower (or any of its Officers) or any Guarantor in
any agreement, certificate, instrument or financial statement or other
statement contemplated by or made or delivered pursuant to or in
connection with this Agreement or any such guaranty shall prove to have
been incorrect in any material respect when deemed to be effective;
(h) The rendering against the Borrower of an arbitration
award, final judgment, decree or order for the payment of money in
excess of $150,000.00 and the continuance of such arbitration award,
judgment, decree or order unsatisfied and in effect for any period of
30 consecutive days without a stay of execution or the posting of a
bond pending appeal, the effect of which is to stay execution during
such appeal;
(i) A default under any bond, debenture, note or other
evidence of material indebtedness of the Borrower owed to any Person
other than the Lender, or under any indenture or other instrument under
which any such evidence of indebtedness has been issued or by which it
is governed, or under any material lease or other contract, and the
expiration of the applicable period of grace, if any, specified in such
evidence of indebtedness, indenture, other instrument, lease or
contract;
(j) Any Reportable Event, which the Lender determines in
good faith might constitute grounds for the termination of any Pension
Plan or for the appointment by the appropriate United States District
Court of a trustee to administer any Pension Plan, shall
CREDIT AND SECURITY AGREEMENT - PAGE 46
have occurred and be continuing 30 days after written notice to such
effect shall have been given to the Borrower by the Lender; or a
trustee shall have been appointed by an appropriate United States
District Court to administer any Pension Plan; or the Pension Benefit
Guaranty Corporation shall have instituted proceedings to terminate any
Pension Plan or to appoint a trustee to administer any Pension Plan; or
the Borrower or any ERISA Affiliate shall have filed for a distress
termination of any Pension Plan under Title IV of ERISA; or the
Borrower or any ERISA Affiliate shall have failed to make any quarterly
contribution required with respect to any Pension Plan under Section
412(m) of the IRC, which the Lender determines in good faith may by
itself, or in combination with any such failures that the Lender may
determine are likely to occur in the future, result in the imposition
of a Lien on the Borrower's assets in favor of the Pension Plan; or any
withdrawal, partial withdrawal, reorganization or other event occurs
with respect to a Multiemployer Plan which results or could reasonably
be expected to result in a material liability of the Borrower to the
Multiemployer Plan under Title IV of ERISA.
(k) An event of default shall occur under any Security
Document;
(l) The Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its
business in the ordinary course, or sell or attempt to sell all or
substantially all of its assets, without the Lender's prior written
consent;
(m) Default in the payment of any amount owed by the
Borrower to the Lender other than any indebtedness arising hereunder;
(n) Any Guarantor or person signing a support agreement
in favor of the Lender shall repudiate, purport to revoke or fail to
perform his or its obligations under his or its guaranty or support
agreement in favor of the Lender, any individual Guarantor shall die or
any other Guarantor shall cease to exist;
(o) The Borrower shall take or participate in any action
which would be prohibited under the provisions of any Subordination
Agreement or make any payment on the Subordinated Debt that any Person
was not entitled to receive under the provisions of the Subordination
Agreement;
(p) Any event or circumstance with respect to the
Borrower shall occur such that the Lender shall believe in good faith
that the prospect of payment of the Obligations or the material
performance by the Borrower under the Loan Documents is impaired or any
material adverse change in the business or financial condition of the
Borrower shall occur; or
(q) Any breach, default or event of default by or
attributable to any Affiliate under any agreement between such
Affiliate and the Lender shall occur.
Section 7.2 Rights and Remedies. During any Default Period, the Lender
may exercise any or all of the following rights and remedies:
CREDIT AND SECURITY AGREEMENT - PAGE 47
(a) the Lender may, by notice to the Borrower, declare
the Commitment to be terminated, whereupon the same shall forthwith
terminate;
(b) the Lender may, by notice to the Borrower, declare
the Obligations to be forthwith due and payable, whereupon all
Obligations shall become and be forthwith due and payable, without
presentment, acceleration, notice of dishonor, protest notice of intent
to accelerate, notice of acceleration, or further notice of any kind,
all of which the Borrower hereby expressly waives;
(c) the Lender may, without notice to the Borrower and
without further action, apply any and all money owing by the Lender to
the Borrower to the payment of the Obligations;
(d) the Lender may exercise and enforce any and all
rights and remedies available upon default to a secured party under the
UCC, including the right to take possession of Collateral, or any
evidence thereof, proceeding without judicial process or by judicial
process (without a prior hearing or notice thereof, which the Borrower
hereby expressly waives) and the right to sell, lease or otherwise
dispose of any or all of the Collateral (with or without giving any
warranties as to the Collateral, title to the Collateral or similar
warranties), and, in connection therewith, the Borrower will on demand
assemble the Collateral and make it available to the Lender at a place
to be designated by the Lender which is reasonably convenient to both
parties;
(e) the Lender may make demand upon the Borrower and,
forthwith upon such demand, the Borrower will pay to the Lender in
immediately available funds for deposit in the Special Account pursuant
to Section 2.13 an amount equal to the aggregate maximum amount
available to be drawn under all Letters of Credit then outstanding,
assuming compliance with all conditions for drawing thereunder;
(f) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(g) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (e) or (f) of Section 7.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind. If the Lender sells any of the Collateral on credit, the
Obligations will be reduced only to the extent of payments actually received. If
the purchaser fails to pay for the Collateral, the Lender may resell the
Collateral and shall apply any proceeds actually received to the Obligations.
Section 7.3 Certain Notices. If notice to the Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 8.3) at least ten calendar days before
the date of intended disposition or other action.
CREDIT AND SECURITY AGREEMENT - PAGE 48
ARTICLE VIII
MISCELLANEOUS
Section 8.1 No Waiver; Cumulative Remedies; Compliance with Laws. No
failure or delay by the Lender in exercising any right, power or remedy under
the Loan Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
under the Loan Documents. The remedies provided in the Loan Documents are
cumulative and not exclusive of any remedies provided by law. The Lender may
comply with any applicable state or federal law requirements in connection with
a disposition of the Collateral and such compliance will not be considered
adversely to affect the commercial reasonableness of any sale of the Collateral.
Section 8.2 Amendments, Etc. No amendment, modification, termination or
waiver of any provision of any Loan Document or consent to any departure by the
Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
Section 8.3 Addresses for Notices; Requests for Accounting. Except as
otherwise expressly provided herein, all notices, requests, demands and other
communications provided for under the Loan Documents shall be in writing and
shall be (a) personally delivered, (b) sent by first class United States mail,
(c) sent by overnight courier of national reputation, or (d) transmitted by
telecopy, in each case addressed or telecopied to the party to whom notice is
being given at its address or telecopier number as set forth below next to its
signature or, as to each party, at such other address or telecopier number as
may hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II shall not be
effective until received by the Lender. All requests under Section 9-210 of the
UCC (i) shall be made in a writing signed by a person authorized under Section
2.2(b), (ii) shall be personally delivered, sent by registered or certified
mail, return receipt requested, or by overnight courier of national reputation
(iii) shall be deemed to be sent when received by the Lender and (iv) shall
otherwise comply with the requirements of Section 9-210. The Borrower requests
that the Lender respond to all such requests which on their face appear to come
from an authorized individual and releases the Lender from any liability for so
responding. The Borrower shall pay Lender the maximum amount allowed by law for
responding to such requests.
Section 8.4 Further Documents. The Borrower will from time to time
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements, control agreements and
other agreements and writings that the
CREDIT AND SECURITY AGREEMENT - PAGE 49
Lender may reasonably request in order to secure, protect, perfect or enforce
the Security Interest or the Lender's rights under the Loan Documents (but any
failure to request or assure that the Borrower executes, delivers or endorses
any such item shall not affect or impair the validity, sufficiency or
enforceability of the Loan Documents and the Security Interest, regardless of
whether any such item was or was not executed, delivered or endorsed in a
similar context or on a prior occasion).
Section 8.5 Costs and Expenses. The Borrower shall pay on demand all
costs and expenses, including reasonable attorneys' fees, incurred by the Lender
in connection with the Obligations, this Agreement, the Loan Documents, any
Letter of Credit and any other document or agreement related hereto or thereto,
and the transactions contemplated hereby, including all such costs, expenses and
fees incurred in connection with the negotiation, preparation, execution,
amendment, administration, performance, collection and enforcement of the
Obligations and all such documents and agreements and the creation, perfection,
protection, satisfaction, foreclosure or enforcement of the Security Interest.
Section 8.6 Indemnity. IN ADDITION TO THE PAYMENT OF EXPENSES PURSUANT
TO SECTION 8.5, THE BORROWER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS THE
LENDER, AND ANY OF ITS PARTICIPANTS, PARENT CORPORATIONS, SUBSIDIARY
CORPORATIONS, AFFILIATED CORPORATIONS, SUCCESSOR CORPORATIONS, AND ALL PRESENT
AND FUTURE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND AGENTS OF THE FOREGOING
(THE "INDEMNITEES") FROM AND AGAINST ANY OF THE FOLLOWING (COLLECTIVELY,
"INDEMNIFIED LIABILITIES"):
(i) ANY AND ALL TRANSFER TAXES, DOCUMENTARY
TAXES, ASSESSMENTS OR CHARGES MADE BY ANY GOVERNMENTAL
AUTHORITY BY REASON OF THE EXECUTION AND DELIVERY OF THE LOAN
DOCUMENTS OR THE MAKING OF THE ADVANCES;
(ii) ANY CLAIMS, LOSS OR DAMAGE TO WHICH ANY
INDEMNITEE MAY BE SUBJECTED IF ANY REPRESENTATION OR WARRANTY
CONTAINED IN SECTION 5.14 PROVES TO BE INCORRECT IN ANY
RESPECT OR AS A RESULT OF ANY VIOLATION OF THE COVENANT
CONTAINED IN SECTION 6.11(B); AND
(iii) ANY AND ALL OTHER LIABILITIES, LOSSES,
DAMAGES, PENALTIES, JUDGMENTS, SUITS, CLAIMS, COSTS AND
EXPENSES OF ANY KIND OR NATURE WHATSOEVER (INCLUDING THE
REASONABLE FEES AND DISBURSEMENTS OF COUNSEL) IN CONNECTION
WITH THE FOREGOING AND ANY OTHER INVESTIGATIVE, ADMINISTRATIVE
OR JUDICIAL PROCEEDINGS, WHETHER OR NOT SUCH INDEMNITEE SHALL
BE DESIGNATED A PARTY THERETO, WHICH MAY BE IMPOSED ON,
INCURRED BY OR ASSERTED AGAINST ANY SUCH INDEMNITEE, IN ANY
MANNER RELATED TO OR ARISING OUT OF OR IN CONNECTION WITH THE
CREDIT AND SECURITY AGREEMENT - PAGE 50
MAKING OF THE ADVANCES AND THE LOAN DOCUMENTS OR THE USE OR
INTENDED USE OF THE PROCEEDS OF THE ADVANCES,
EXCLUDING, HOWEVER, ANY INDEMNIFIED LIABILITIES ARISING AS A RESULT OF THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY SUCH INDEMNITEES.
IF ANY INVESTIGATIVE, JUDICIAL OR ADMINISTRATIVE PROCEEDING ARISING FROM ANY OF
THE FOREGOING IS BROUGHT AGAINST ANY INDEMNITEE, UPON SUCH INDEMNITEE'S REQUEST,
THE BORROWER, OR COUNSEL DESIGNATED BY THE BORROWER AND SATISFACTORY TO THE
INDEMNITEE, WILL RESIST AND DEFEND SUCH ACTION, SUIT OR PROCEEDING TO THE EXTENT
AND IN THE MANNER DIRECTED BY THE INDEMNITEE, AT THE BORROWER'S SOLE COSTS AND
EXPENSE. EACH INDEMNITEE WILL USE ITS BEST EFFORTS TO COOPERATE IN THE DEFENSE
OF ANY SUCH ACTION, SUIT OR PROCEEDING. IF THE FOREGOING UNDERTAKING TO
INDEMNIFY, DEFEND AND HOLD HARMLESS MAY BE HELD TO BE UNENFORCEABLE BECAUSE IT
VIOLATES ANY LAW OR PUBLIC POLICY, THE BORROWER SHALL NEVERTHELESS MAKE THE
MAXIMUM CONTRIBUTION TO THE PAYMENT AND SATISFACTION OF EACH OF THE INDEMNIFIED
LIABILITIES WHICH IS PERMISSIBLE UNDER APPLICABLE LAW. THE BORROWER'S OBLIGATION
UNDER THIS SECTION 8.6 SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT AND THE
DISCHARGE OF THE BORROWER'S OTHER OBLIGATIONS HEREUNDER.
Section 8.7 Participants. The Lender and its participants, if any, are
not partners or joint venturers, and the Lender shall not have any liability or
responsibility for any obligation, act or omission of any of its participants.
All rights and powers specifically conferred upon the Lender may be transferred
or delegated to any of the Lender's participants, successors or assigns.
Section 8.8 Execution in Counterparts; Telefacsimile Execution. This
Agreement and other Loan Documents may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which counterparts, taken together, shall constitute but
one and the same instrument. Delivery of an executed counterpart of this
Agreement by telefacsimile shall be equally as effective as delivery of an
original executed counterpart of this Agreement. Any party delivering an
executed counterpart of this Agreement by telefacsimile also shall deliver an
original executed counterpart of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement.
Section 8.9 Retention of Borrower's Records. The Lender shall have no
obligation to maintain any electronic records or any documents, schedules,
invoices, agings, or other papers delivered to the Lender by the Borrower or in
connection with the Loan Documents for more than four months after receipt by
the Lender.
Section 8.10 Binding Effect; Assignment; Complete Agreement; Exchanging
Information. The Loan Documents shall be binding upon and inure to the benefit
of the Borrower and the Lender and their respective successors and assigns,
except that the Borrower
CREDIT AND SECURITY AGREEMENT - PAGE 51
shall not have the right to assign its rights thereunder or any interest therein
without the Lender's prior written consent. To the extent permitted by law, the
Borrower waives and will not assert against any assignee any claims, defenses or
set-offs which the Borrower could assert against the Lender in connection with
this Agreement, any Loan Document, or any other agreement the Lender and the
Borrower. This Agreement shall also bind all Persons who become a party to this
Agreement as a borrower. This Agreement, together with the Loan Documents,
comprises the complete and integrated agreement of the parties on the subject
matter hereof and supersedes all prior agreements, written or oral, on the
subject matter hereof. Without limiting the Lender's right to share information
regarding the Borrower and its Affiliates with the Lender's participants,
accountants, lawyers and other advisors, the Lender, ▇▇▇▇▇ Fargo & Company, and
all direct and indirect subsidiaries of ▇▇▇▇▇ Fargo & Company, may exchange any
and all information they may have in their possession regarding the Borrower and
its Affiliates, and the Borrower waives any right of confidentiality it may have
with respect to such exchange of such information.
Section 8.11 Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 8.12 Headings. Article, Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
Section 8.13 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.
The Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Texas. The parties
hereto hereby (i) consent to the personal jurisdiction of the state and federal
courts located in the State of Texas in connection with any controversy related
to this Agreement; (ii) waive any argument that venue in any such forum is not
convenient, (iii) agree that any litigation initiated by the Lender or the
Borrower in connection with this Agreement or the other Loan Documents may be
venued in either the State or Federal courts located in Dallas County, Texas;
and (iv) agree that a final judgment in any such suit, action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
Section 8.14 Non-Application of Chapter 346 of the Texas Finance Code.
The provisions of Chapter 346 of the Texas Finance Code (Vernon's Texas Finance
Code ▇▇▇.) are specifically declared by the parties hereto not to be applicable
to this Agreement or any of the other Loan Documents or to the transactions
contemplated hereby.
Section 8.15 Entire Agreement. THIS AGREEMENT, TOGETHER WITH THE OTHER
LOAN DOCUMENTS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES REGARDING THE
SUBJECT MATTER HEREIN AND THEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[Remainder of Page Intentionally Left Blank. Signature Page Follows.]
CREDIT AND SECURITY AGREEMENT - PAGE 52
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED
ON OR PERTAINING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
Kitty Hawk, Inc. KITTY HAWK, INC.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
P. O. Box 612787 ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇ ---------------------------
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
e-mail: ▇▇▇▇▇▇▇@▇▇▇.▇▇▇ Vice President and
Chief Financial Officer
▇▇▇▇▇ Fargo Business Credit, Inc ▇▇▇▇▇ FARGO BUSINESS CREDIT, INC.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ---------------------------
e-mail: ▇▇▇▇▇▇.▇.▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇.▇▇▇ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Vice President
CREDIT AND SECURITY AGREEMENT - PAGE 53
TABLE OF EXHIBITS AND SCHEDULES
Exhibit A Form of Revolving Note
Exhibit B Compliance Certificate
Exhibit C Premises
Schedule 5.1 Trade Names, Chief Executive Office, Principal Place
of Business, and Locations of Collateral
Schedule 5.2 Capitalization and Organizational Chart
Schedule 5.5 Subsidiaries
Schedule 5.7 Litigation
Schedule 5.11 Intellectual Property Disclosures
Schedule 6.3 Permitted Liens
Schedule 6.4 Permitted Indebtedness and Guaranties